**SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 ___________________
 **FORM
        10-K**
 (Mark
        One)
 x
              **ANNUAL
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 
 For
        the
        Fiscal Year Ended December 31, 2006
 
 o
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 
 For
        the
        transition period from ________ to ________
 **Commission
        File No. 000-1170902**
  
  **F** **lorida** **C** **ommunity** **B** **anks,** **I** **nc.** ****
 (Exact
        name of registrant as specified in its charter)
 
 **Florida**
              
              **35-2164765**(State
                  or other jurisdiction of Incorporation or organization)
              
              (I.R.S.Employer
                  Identification No.)**1400
                  North 15****th****Street, Immokalee, Florida**
              
              **34142-2202**(Address
                  of principal executive offices)
              
              (Including
                  zip code)
 
 **(239)
                  657-3171**(Issuer's
                  Telephone Number, Including Area Code)
 
 **SECURITIES
        REGISTERED UNDER SECTION 12(b) OF THE ACT** :
 
 **Name
                  of each exchange****Title
                  of each class**
              
              **on
                  which registered**None
              
              None
 
 **SECURITIES
        REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:**
 
 Common
        Stock, $0.01 Par Value
 (Title
        of
        Class)
   Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act.  Yes o  No x
  Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act.  Yes o  No x
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be filed by Section 13 or 15(d) of the Securities Exchange Act of
        1934 during the preceding 12 months (or for such shorter period that the
        registrant was required to file such reports), and (2) has been subject to
        such filing requirements for the past 90 days. Yes x  No o
  Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
        be contained, to the best of registrant’s knowledge, in definitive proxy or
        information statements incorporated by reference in Part III of this Form
        10-K
        or any amendment to this Form 10-K. o
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of "accelerated
        filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
        One):
  Large
                  accelerated filero
              Accelerated
                  filerx
              Non-accelerated
                  filero
  Indicate by check
        mark whether the registrant is a shell company (as defined in Rule 12b-2 of
        the Act).  Yes o  No x
  The aggregate market
        value of the voting and non-voting common stock held by non-affiliates of
        the
        registrant, computed by reference to the closing price of
        such stock on June 30, 2006, was approximately $132,894,960.
  The number of
        shares of the Registrant’s common stock, $0.01 par value, outstanding on
        March 10, 2007, was 6,591,387.
 
 **Document
        Incorporated by Reference**
 
 This
        statement has not been reviewed or confirmed for accuracy or relevance by
        the
        Federal Deposit Insurance Corporation.
 Certain
        information required for Part III of this report is incorporated herein by
        reference to the Proxy Statement for the 2007 Annual Meeting of the Company’s
        stockholders
  1
  **FLORIDA
        COMMUNITY BANKS, INC.**
 
 **2006
        Form 10-K Annual Report**
 
 
 **TABLE
        OF CONTENTS**
 
 
 **Item
                  Number**
                **in
                  Form 10-K**
              
              **Description**
              
              **Page
                  or**
                **Location****PART
                  I**Item
                  1.
              
              Business
              
              3Item
                  1A.
              
              Risk
                  Factors
              
              9Item
                  1B.
              
              Unresolved
                  Staff Comments
              
              10Item
                  2.
              
              Properties
              
              11Item
                  3.
              
              Legal
                  Proceedings
              
              11Item
                  4.
              
              Submission
                  of Matters to a Vote of Security
                  Holders
              
              11**PART
                  II**Item
                  5.
              
              Market
                  for the Registrant's Common Equity and Related
                  Shareholder Matters
              
              11Item
                  6.
              
              Selected
                  Financial Data
              
              14Item
                  7.
              
              Management's
                  Discussion and Analysis of FinancialCondition
                  and Results of Operations
              
              15Item
                  7A.
              
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              
              15Item
                  8.
              
              Financial
                  Statements and Supplementary Data
              
              38Item
                  9.
              
              Changes
                  in and Disagreements with Accountants on Accounting and
                  Financial Disclosure
              
              87Item
                  9A.
              
              Controls
                  and Procedures
              
              87Item
                  9B.
              
              Other
                  Information
              
              88**PART
                  III**Item
                  10.
              
              Directors,
                  Executive Officers and Corporate
                  Governance
              
              88Item
                  11.
              
              Executive
                  Compensation
              
              88Item
                  12.
              
              Security
                  Ownership of Certain Beneficial Owners and Management
                  and Related Shareholder Matters
              
              88Item
                  13.
              
              Certain
                  Relationships and Related Transactions and Director
                  Independence
              
              88Item
                  14.
              
              Principal
                  Accountant Fees and Service
              
              88**PART
                  IV**Item
                  15.
              
              Exhibits
                  and Financial Statements Schedules
              
              89**Signatures****Certification
                  of Periodic Financial Reports**
  2
 *Table
            of Contents*
  **PART
        I**
 
 **ITEM1.**
              **BUSINESS**
 
 **General**
 
 Florida
        Community Banks, Inc. ("FCBI" or the "Company") is a bank holding company,
        which
        owns all of the common stock of Florida Community Bank ("Bank" or "FCB"),
        two
        special purpose business trust’s organized to issue Trust Preferred Securities
        and 50% of a partnership organized to build and lease an office building.
        The
        special purpose business trusts are not consolidated in the financial statements
        that are included elsewhere herein. FCBI is a Florida corporation registered
        with the Board of Governors of the Federal Reserve System as a bank holding
        company under the Bank Holding Company Act of 1956, as amended. Through its
        subsidiary bank, FCBI is engaged in the commercial banking business in
        southwestern Florida with offices in Collier, Lee, Hendry and Charlotte
        counties. At December 31, 2006, FCBI had total assets of approximately $1,017
        billion, total deposits of approximately $835 million and stockholders' equity
        of approximately $91 million.
 
 Florida
        Community Bank is a Florida-chartered commercial bank, which commenced
        operations in Everglades City, Florida on May 19, 1923, under the name "Bank
        of
        the Everglades." The Bank changed its place of business from Everglades City,
        Florida to Immokalee, Florida in September 1962. FCB changed its name from
        Bank
        of the Everglades to "First Bank of Immokalee" in July 1967 and then to "Florida
        Community Bank" in July 1996 as part of its merger with Tri-County Bank of
        Lehigh Acres. The Bank is subject to regulation by the Florida Department
        of
        Financial Services ("Department") and the Federal Deposit Insurance Corporation
        ("FDIC"). The Bank's main office is located at 1400 North 15th Street,
        Immokalee, Florida and its telephone number is (239) 657-3171. In addition
        to
        the main banking office in Immokalee, the Bank currently operates full-service
        branches in the southwest Florida cities of Lehigh Acres, LaBelle, Naples
        (Golden Gate area), Port Charlotte, Punta Gorda, Cape Coral and Ft. Myers.
 
 The
        Company employs approximately 170 persons and it believes that its relationship
        with these employees is good.
 
 The
        Bank
        is engaged primarily in soliciting deposits from the general public and
        investing such deposits, together with other funds, in commercial loans,
        consumer loans, agricultural loans, and real estate loans. To a lesser extent,
        the Bank invests its funds in securities issued or guaranteed by agencies
        of the
        United States Government and municipalities.
 
 The
        Bank
        operates as a locally operated institution aimed at providing prompt, efficient
        and personalized service to individuals, small and medium-sized businesses,
        professionals and other local organizations. The Bank's primary service area
        encompasses Charlotte, Lee, Collier, Glades and Hendry Counties (the "PSA").
        The
        Bank's principal markets within the PSA are:
 
 (i)
              commercial
                  and small business lending and deposit
                  services;
 (ii)
              residential
                  real estate mortgage and retail lending and deposit services;
                  and
 (iii)
              commercial
                  and residential real estate development
                  lending.
 
 The
        principal sources of funds for the Bank's loans and other investments are
        demand, time, savings and other deposits, amortization and prepayment of
        loans,
        sales to other lenders or institutions of loans or participations in loans,
        principal payments or maturities of investment securities, and borrowings.
        The
        principal sources of income for the Bank are interest and fees collected
        on
        loans, including fees received for servicing loans sold to other lenders
        or
        institutions, and to a lesser extent, interest and dividends collected on
        other
        investments. The principal expenses of the Bank are interest paid on savings
        and
        other deposits, interest paid on other borrowings by the Bank, employee
        compensation, office expenses and other overhead and operational
        expenses.
 
 The
        Bank
        offers several deposit accounts, including demand deposit accounts, negotiable
        order of withdrawal accounts ("NOW" accounts), money market accounts, savings
        accounts, certificates of deposit and various retirement accounts. In addition,
        the Bank belongs to an electronic banking network so that its customers may
        use
        the automated teller machines (the "ATMs") of other financial institutions
        and
        operates drive-in teller services and 24-hour depository
        vaults.
  3
 *Table
            of Contents*
  The
        Bank
        offers the following loan services:
 
 (a)
              consumer
                  loans, automobile loans, real estate equity lines of credit, education
                  loans and real estate loans secured by single-family
                  residences;
  (b)
              commercial
                  and business loans for small to medium-sized companies, including
                  Small
                  Business Administration and other government-guaranteed
                  financing;
  (c)
              individual
                  and builder short-term residential construction
                  financing;
  (d)
              home
                  improvement loans; and
  (e)
              commercial
                  and residential real estate development
                  loans.
 
 The
        Bank
        provides a full range of competitive banking services and emphasizes the
        manner
        in which the services are delivered. Management focuses its efforts on filling
        the void created by the decreasing number of locally-owned community banks
        due
        to acquisitions by large regional holding companies, which it believes has
        negatively impacted the personal nature of the delivery, quality and
        availability of banking services available in the PSA and surrounding
        areas.
 
 **Primary
        Service Area**
 
 The
        PSA
        enjoys an abundant work force, attractive business climate and a good
        relationship between the private and public sectors.
 
 In
        general, commercial real estate in the PSA consists of small shopping centers
        and office buildings. The type of residential real estate within the PSA
        varies,
        with a number of condominiums, townhouses, apartments and single-family housing
        developments dispersed throughout the PSA.
 
 **Competition**
 
 The
        business of banking is highly competitive. The Bank competes with other banks,
        savings and loan associations and credit unions within the PSA. The Bank
        believes that its operation as a locally owned and controlled bank with a
        broad
        base of ownership in the PSA enhances its ability to compete with those
        non-local financial institutions now operating in its market, but no assurances
        can be given in this regard.
 
 The
        Bank's competitive strategy with respect to the financial institutions described
        above consists of:
 
 ·
              reviewing
                  and acting upon loan requests quickly with a locally-based loan
                  committee,
  ·
              maintaining
                  flexible but prudent lending policies,
  ·
              personalizing
                  service by establishing long-term banking relationships with its
                  customers; and
  ·
              maintaining
                  an appropriate ratio of employees to customers to enhance the level
                  of
                  service.
 
 **Facilities**
 
 The
        Bank's main office in Immokalee, Florida was purchased in 1962. At December
        31,
        2006, the Bank operated ten branch offices, with a new Valencia office scheduled
        to open in late 2007 or early 2008, replacing the branch that is currently
        in a
        convenience store (in the same area). The Bank hopes to open at least three
        new
        branches in 2007. The Lehigh Acres branch was acquired in 1996 as a result
        of
        the acquisition of Tri-County Bank of Lehigh Acres. The Golden Gate branch
        operates in a facility leased in 1997, on a month-to-month basis, with
        adjustments made annually to the lease cost based on the Consumer Price Index.
        The LaBelle branch was acquired as a result of the acquisition of Hendry
        County
        Bank by merger in 1998. The land for the Port Charlotte branch was purchased
        in
        1998 and the branch opened in 1999 after construction was completed. The
        facility for the Ft. Myers branch is leased for 15 years (with renewal options
        after that period) and opened in 2000. The Bank owns the Punta Gorda branch
        and
        the underlying land is subject to a 99-year lease, which commenced in 2000.
        Land
        for a second Cape Coral branch was purchased in 2003 and the branch opened
        operations in January 2005. All of the branch facilities are in good
        condition.
  4
 *Table
            of Contents*
  **Regulation**
 
 The
        Bank
        is subject to comprehensive regulation, examination and supervision by the
        Department and the FDIC, and is subject to other laws and regulations applicable
        to banks. Such regulations include limitations on loans to a single borrower
        and
        to the Bank's directors, officers and employees; restrictions on the opening
        and
        closing of branch offices; the maintenance of required capital and liquidity
        ratios; the granting of credit under equal and fair conditions; disclosure
        of
        the costs and terms of such credit; and restrictions as to permissible
        investments. The Bank is examined periodically by both the Department and
        the
        FDIC and submits periodic reports regarding its financial condition and other
        matters to each of them. Both the Department and the FDIC have a broad range
        of
        powers to enforce regulations under their respective jurisdictions, and to
        take
        discretionary actions determined to be for the protection of the safety and
        soundness of the Bank, including the institution of cease and desist orders
        and
        the removal of directors and officers.
 
 *FDIC
        Regulations.* The
        Bank's deposit accounts are insured by the Bank Insurance Fund of the FDIC
        up to
        a maximum of $100,000 per insured depositor. The FDIC issues regulations,
        conducts periodic examinations, requires the filing of reports and generally
        supervises the operations of its insured banks. The approval of the FDIC
        is
        required prior to a merger or consolidation or the establishment or relocation
        of an office facility. This supervision and regulation is intended primarily
        for
        the protection of depositors and not of stockholders.
 
 The
        Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
        substantially revised the depository institution regulatory and funding
        provisions of the Federal Deposit Insurance Act. Among other things, FDICIA
        requires the federal banking regulators to take prompt corrective action
        in
        respect to depository institutions that do not meet minimum requirements.
        FDICIA
        established five capital tiers: "well capitalized," "adequately capitalized,"
        "undercapitalized," "significantly undercapitalized," and "critically
        undercapitalized." A depository institution is well capitalized if it
        significantly exceeds the minimum level required by regulation for each relevant
        capital measure, adequately capitalized if it meets each such measure,
        undercapitalized if it fails to meet any such measure, significantly
        undercapitalized if it is significantly below any such measure and critically
        undercapitalized if it fails to meet any critical capital level set forth
        in the
        regulations. The critically undercapitalized level occurs where tangible
        equity
        is less than 2% of total tangible assets or less than 65% of the minimum
        leverage ratio prescribed by regulation (except to the extent that 2% would
        be
        higher than such 65% level). A depository institution may be deemed to be
        in a
        capitalization category that is lower than is indicated by its actual capital
        position if it receives an unsatisfactory examination rating.
 
 FDICIA
        generally prohibits a depository institution from making any capital
        distribution (including payment of a dividend) if the depository institution
        would thereafter be undercapitalized. In addition, undercapitalized depository
        institutions are subject to growth limitations and are required to submit
        capital restoration plans to the FDIC. The federal banking agencies may not
        accept a capital plan without determining, among other things, that the plan
        is
        based on realistic assumptions and is likely to succeed in restoring the
        depository institution's capital. If a depository fails to submit an acceptable
        plan, it is treated as if it is significantly undercapitalized.
 
 Significantly
        undercapitalized depository institutions may be subject to a number of
        requirements and restrictions, including orders to sell sufficient voting
        stock
        to become adequately capitalized, requirements to reduce total assets and
        cessation of the receipt of deposits from correspondent banks. Critically
        undercapitalized depository institutions are subject to the appointment of
        a
        receiver or conservator.
 
 FDICIA
        provides authority for special assessments against insured deposits and for
        the
        development of a general risk-based insurance assessment system. The risk-based
        insurance assessment system would be used to calculate a depository
        institution's semi-annual deposit insurance assessment based on the probability
        (as defined in the FDICIA) that the BIF will incur a loss with respect to
        the
        institution. In accordance with FDICIA, the FDIC implemented a transitional
        risk-based insurance premium system and increased deposit insurance premiums
        for
        commercial banks to an average of 25.4 basis points.
 
 FDICIA
        also contains various provisions related to an institution's interest rate
        risk.
        Under certain circumstances, an institution may be required to provide
        additional capital or maintain higher capital levels to address interest
        rate
        risks.
  5
 *Table
            of Contents*
  In
        addition, the FDIC has adopted a minimum leverage ratio of 4%. The minimum
        leverage ratio is the ratio of common equity, retained earnings and certain
        amounts of perpetual preferred stock (after subtracting goodwill and after
        making certain other adjustments) to the total assets of the institution.
        Generally, banking organizations are expected to operate well above the minimum
        required capital level of 4% unless they meet certain specified criteria,
        including that they have the highest regulatory ratings. Most banking
        organizations are required to maintain a leverage ratio of 4% plus an additional
        cushion of 1% to 2%. The guidelines also provide that banking organizations
        experiencing internal growth or making acquisitions are expected to maintain
        strong capital positions substantially above the minimum supervisory levels
        without significant reliance upon intangible assets.
 
 *Dividend
        Restrictions.* In
        addition to dividend restrictions placed on the Bank by the FDIC based on
        the
        Bank's minimum capital requirements, the Florida Financial Institutions Code
        prohibits the declaration of dividends in certain circumstances. Section
        658.37 *(Florida
        Statutes)* ,
        prohibits the declaration of any dividend until a bank has charged off bad
        debts, depreciation and other worthless assets, and has made provision for
        reasonably-anticipated future losses on loans and other assets. Such dividends
        are limited to the aggregate of the net profits of the dividend period, combined
        with a bank's retained net profits for the preceding two years. A bank may
        declare a dividend from retained net profits that accrued prior to the preceding
        two years with the approval of the Department. However, a bank will be required,
        prior to the declaration of a dividend on its common stock, to carry 20%
        of its
        net profits for such preceding period to its surplus fund, until the surplus
        fund equals at least the amount of the bank's common and preferred stock
        then
        issued and outstanding. In no event may a bank declare a dividend at any
        time in
        which its net income from the current year, combined with its retained net
        income from the preceding two years is a loss or which would cause the capital
        accounts of the bank to fall below the minimum amount required by law,
        regulation, order or any written agreement with the Department or other state
        or
        federal regulatory agency.
 
 *Riegle-Neal
        Interstate Banking and Branching Efficiency Act.* The
        Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 provides
        that as of June 1, 1997, adequately capitalized and managed banks will be
        able
        to engage in interstate branching by merging banks in different states,
        including Florida, which did not opt out of the application of this provision.
        If a state did not opt out, banks will be required to comply with the host
        state's regulations with respect to branching across state lines.
 
 *Gramm-Leach-Bliley
        Act.* On
        November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
        Act
        which reforms and modernizes certain areas of financial services regulation.
        The
        law permits the creation of new financial services holding companies that
        can
        offer a full range of financial products under a regulatory structure based
        on
        the principle of functional regulation. The legislation eliminates the legal
        barriers to affiliations among banks and securities firms, insurance companies,
        and other financial services companies. The law also provides financial
        organizations with the opportunity to structure these new financial affiliations
        through a holding company structure or a financial subsidiary. The new law
        reserves the role of the Federal Reserve Board as the supervisor for bank
        holding companies. At the same time, the law provides a system of functional
        regulation, which is designed to utilize the various existing federal and
        state
        regulatory bodies.
 
 The
        law
        also includes a minimum federal standard of financial privacy. Financial
        institutions are required to have written privacy policies that must be
        disclosed to customers. The disclosure of a financial institution's privacy
        policy must take place at the time a customer relationship is established
        and
        not less than annually during the continuation of the relationship. The act
        also
        provides for the functional regulation of bank securities activities. The
        law
        repeals the exemption that banks were afforded from the definition of "broker,"
        and replaces it with a set of limited exemptions that allow the continuation
        of
        some historical broker activities performed by banks. In addition, the act
        amends the securities laws to include banks within the general definition
        of
        dealer. Regarding new bank products, the law provides a procedure for handling
        products sold by banks that have securities elements.
 
 In
        the
        area of CRA activities, the law generally requires that financial institutions
        address the credit needs of low-to-moderate income individuals and neighborhoods
        in the communities in which they operate. Bank regulators are required to
        take
        the CRA ratings of a bank or of the bank subsidiaries of a holding company
        into
        account when acting upon certain branch and bank merger and acquisition
        applications filed by the institution. Under the law, financial holding
        companies and banks that desire to engage in new financial activities are
        required to have satisfactory or better CRA ratings when they commence the
        new
        activity.
  6
 *Table
            of Contents*
  Most
        of
        the provisions of the law took effect on March 11, 2000, with other provisions
        being phased in over a one to two year period thereafter. It is anticipated
        that
        the effects of the law, while providing additional flexibility to bank holding
        companies and banks, may result in additional affiliations of different
        financial services providers, as well as increased competition, resulting
        in
        lower prices, more convenience, and greater financial products and services
        available to consumers.
 
 *USA
        Patriot Act.* On
        October 26, 2001, President Bush signed into law the Uniting and
        Strengthening America by Providing Appropriate Tools Required to Intercept
        and
        Obstruct Terrorism Act of 2001 (the "USA Patriot Act"), which is designed
        to
        deny terrorists and others the ability to obtain access to the United States
        financial system. Title III of the USA Patriot Act is the International Money
        Laundering Abatement and Anti-Terrorist Financing Act of 2001. Among its
        provisions, the USA Patriot Act mandates or will require financial institutions
        to implement additional policies and procedures with respect to, or additional
        measures, including additional due diligence and recordkeeping, designed
        to
        address, any or all of the following matters, among others: money laundering;
        suspicious activities and currency transaction reporting; and currency crimes.
        The U.S. Department of the Treasury in consultation with the Federal Reserve
        Board and other federal financial institution regulators has promulgated
        rules
        and regulations implementing the USA Patriot Act which (i) prohibits U.S.
        correspondent accounts with foreign banks that have no physical presence
        in any
        jurisdiction; (ii) require financial institutions to maintain certain
        records for correspondent accounts of foreign banks; (iii) require
        financial institutions to produce certain records relating to anti-money
        laundering compliance upon request of the appropriate federal banking agency;
        (iv) require due diligence with respect to private banking and
        correspondent banking accounts; (v) facilitate information sharing between
        the government and financial institutions; and (vi) require financial
        institutions to have in place a money laundering program. In addition, an
        implementing regulation under the USA Patriot Act regarding verification
        of
        customer identification by financial institutions has been proposed, although
        such regulation has not yet been finalized. The Company has implemented,
        and
        will continue to implement, the provisions of the USA Patriot Act as such
        provisions become effective. The Company currently maintains and will continue
        to maintain policies and procedures to comply with the USA Patriot Act
        requirements. At this time, the Company does not expect that the USA Patriot
        Act
        will have a significant impact on the financial position of the
        Company.
 
 *Federal
        Reserve System.* FCBI
        is a
        bank holding company subject to the supervision and regulations of the Board
        of
        Governors of the Federal Reserve System ("Federal Reserve"). As such, the
        Company is required to file periodic reports and such other information as
        the
        Federal Reserve may deem necessary. The Federal Reserve also conducts
        examinations of the Company. The Federal Reserve maintains the position that
        the
        Company should serve as a source of financial and managerial strength for
        the
        Bank and may not conduct its operations in an unsound manner.
 
 *Corporate
        Governance.* The
        Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"), which became law on July
        30,
        2002, and added new legal requirements for public companies affecting corporate
        governance, accounting and corporate reporting.
 
 The
        Sarbanes-Oxley Act provides for, among other things:
 
 §
              a
                  prohibition on personal loans made or arranged by the issuer to
                  its
                  directors and executive officers (except for loans made by a bank
                  subject
                  to Regulation O);
 
 §
              independence
                  requirements for audit committee
                  members;
 
 §
              independence
                  requirements for company auditors;
 
 §
              certification
                  of financial statements on Forms 10-K and 10-Q, reports by the
                  chief
                  executive officer and chief financial
                  officer;
 
 §
              the
                  forfeiture by the chief executive officer and the chief financial
                  officer
                  of bonuses or other incentive-based compensation and profits from
                  the sale
                  of an issuer's securities by such officers in the twelve month
                  period
                  following the initial publication of any financial statements that
                  later
                  require restatement due to corporate
                  misconduct;
 
 §
              disclosure
                  of off-balance sheet
                  transactions;
  7
 *Table
            of Contents*
  §
              two-business
                  day filing requirements for insiders filing Form
                  4s;
 
 §
              disclosure
                  of a code of ethic for financial officers and filing a Form 8-K
                  for a
                  change in or waiver of such code;
 
 §
              the
                  reporting of securities violations "up the ladder" by both in-house
                  and
                  outside attorneys;
 
 §
              restrictions
                  on the use of non-GAAP financial measures in the press release
                  and SEC
                  filings;
 
 §
              the
                  formation of a public accounting oversight board;
                  and
 
 §
              various
                  increase criminal penalties for violations of securities
                  laws.
 
 The
        Sarbanes-Oxley Act contains provisions, which became effective upon enactment
        on
        July 30, 2002 and provisions that became effective over varying periods.
        The SEC
        has been delegated the task of enacting rules to implement various provisions.
        In addition, each of the national stock exchanges has adopted new corporate
        governance rules, including rules strengthening director independence
        requirements for boards, the adoption of corporate governance codes and charters
        for the nominating, corporate governance and audit committees.
 
 **Recent
        Regulatory Developments**
 
 Changes
        in the federal deposit insurance program were recommended during 2003 by
        the
        FDIC and in the federal budget. A deposit insurance reform bill that would,
        among other things, merge the BIF and the SAIF, increase the index deposit
        insurance coverage, give the FDIC flexibility in setting premium assessments,
        and replace a fixed deposit reserve ratio with a reserve range, was passed
        by
        the House of Representatives in April 2003, but no action on the subject
        was
        taken by the Senate during the remainder of the year. It is not possible
        to
        predict if deposit insurance reform legislation will be enacted, or if enacted,
        what its effect will be on our banking subsidiary.
 
 Federal
        banking regulators continued their preparations for the expected issuance
        by the
        Basel Committee on Banking Supervision of final "Basel II" regulatory capital
        guidelines, would mandate changes for large banks in the way in which their
        risk-based capital requirements are calculated. The guidelines are widely
        believed likely to permit significant reductions in the levels of required
        capital for such banks. It is uncertain at the present time if our banking
        subsidiary or the Holding Company will be either required to or permitted
        to
        make changes in the regulatory capital structure in accordance with Basel
        II
        guidelines.
 
 The
        foregoing is necessarily a general description of certain provisions of federal
        and state law and does not purport to be complete. Proposals to change the
        laws
        and regulations governing the banking industry are frequently introduced
        in
        Congress, in the state legislatures and before the various bank regulatory
        agencies. The likelihood and timing of any such changes and the impact such
        changes might have on the Company cannot be determined at this
        time.
 
 **Available
        Information**
 
 The
        Company presently maintains an internet website located at
        www.floridacommunitybank.net on which, among other things, the Company makes
        available, free of charge, select reports that it files with the Securities
        and
        Exchange Commission.
 
 Also,
        paper copies of the Annual Report on Form 10-K, quarterly reports on Form
        10-Q,
        current reports on Form 8-K, and a copy of the Company Code of Ethics as
        adopted
        and filed with the Securities and Exchange Commission are available at no
        charge
        because all reports are currently not on the Company's website. Those who
        would
        like a paper copy should contact Guy W. Harris, Chief Financial Officer,
        Florida
        Community Banks, Inc., 1400 North 15 th Street,
        Immokalee, Florida 34142. Currently periodic reports are filed with the
        Securities and Exchange Commission (including Form 10-Ks, Form 10-Qs, Proxy
        Statements, etc.). These periodic reports are filed electronically via EDGAR
        and
        they can be reviewed at the Securities and Exchange Commission's website: www.sec.gov .
  8
 *Table
            of Contents*
  **ITEM
                  1A.**
              **RISK
                  FACTORS**
 
 **Industry
        Factors**
 
 The
        commercial banking business can be affected by general business and economic
        conditions. Our business and earnings are affected by conditions that include
        short-term and long-term interest rates, inflation, money supply, fluctuations
        in both debt and equity capital markets and the strength of the U.S. and
        local
        economy. The local economy can be affected by weather conditions that include
        but are not limited to tropical storms, hurricanes and below freezing
        temperatures. For example, an economic downturn that suddenly decreased property
        values, caused an increase in unemployment, or other events that negatively
        impact household and/or corporate customers could decrease ability to pay
        interest or principal on loans or cause a decrease in the demand for the
        Company's products and services.
 
 The
        fiscal and monetary policy of the Board of Governors of the Federal Reserve
        System can significantly affect the earnings of the Company. The Federal
        Reserve
        generally sets the cost of funds for lending and investing and the return
        we
        earn on loans and investments, which in turn has an impact on our net interest
        margin. The rate policy can also affect the value of financial instruments
        we
        hold such as debt securities. The Federal Reserve policy is hard to predict
        and
        beyond the control of the Company.
 
 The
        Company is subject to extensive governmental regulation. The regulations
        are
        designed for the protection of the depositors, federal deposit insurance
        funds,
        federal crimes prevention and the banking system as a whole. Federal and
        state
        law limits the Company's ability to declare and pay dividends. Also, failure
        to
        comply with laws, regulations or policies could result in sanctions by the
        regulatory agencies and damage to our reputation. Changes to regulations,
        including changes in interpretation or implementation of statures, regulations
        or policies can have a substantial and unpredictable effect on the Company,
        refer to the discussions in Item 1 - Business and Note 11 - Regulatory
        Capital.
 
 **Company
        Factor**
 
 There
        is
        no established trading market for the Company's stock, and there can be no
        assurance that a trading market will develop during the near future. See
        Item 5
        - Market For The Registrants Common Equity And Related Shareholder
        Matters.
 
 The
        Company continuously is adapting to changes to mitigate risks that challenge
        the
        success of the business. If the Company were unable to fully adjust to any
        specific risk, or make changes imposed by the risk environment, it could
        have an
        effect on financial performance. The Company competes, and will continue
        to
        compete, with well established banks, credit unions, insurance companies
        and
        other financial institutions, some of which have greater resources and lending
        limits than the Company. Some of these competitors may also provide certain
        services that the Company does not provide.
 
 If
        a
        significant number of loans are not repaid, it would have an adverse effect
        on
        our earnings and overall financial condition. Like all financial institutions,
        we maintain an allowance for loan losses to provide for losses inherent in
        the
        loan portfolio. The allowance for loan losses reflects our management’s best
        estimate of probable losses in the loan portfolio at the relevant balance
        sheet
        date. This evaluation is primarily based upon a review of our and the banking
        industry’s historical loan loss experience, known risks contained in the loan
        portfolio, composition and growth of the loan portfolio, and economic factors.
        However, the determination of an appropriate level of loan loss allowance
        is an
        inherently difficult process and is based on numerous assumptions. As a result,
        our allowance for loan losses may not be adequate to cover actual losses,
        and
        future provisions for loan losses may adversely affect our earnings.
 
 A
        significant portion of our loan portfolio consists of mortgages secured by
        real
        estate located in the Charlotte/Hendry/Glades/Collier/Lee County markets.
        Real
        estate values and real estate markets are generally affected by, among other
        things, changes in national, regional or local economic conditions; fluctuations
        in interest rates and the availability of loans to potential purchasers;
        changes
        in the tax laws and other governmental statutes, regulations and policies;
        and
        acts of nature. If real estate prices decline in any of these markets, the
        value
        of the real estate collateral securing our loans could be reduced. Such a
        reduction in the value of our collateral could increase the number of
        non-performing loans and adversely affect our financial performance.
  9
 *Table
            of Contents*
  Our
        success is largely dependent on the personal contacts of our officers and
        employees in our market areas. If we lose key employees, temporarily or
        permanently, our business could be hurt. We could be particularly hurt if
        our
        key employees went to work for our competitors. Our future success depends
        on
        the continued contributions of our existing senior management personnel,
        including our President and Chief Executive Officer Stephen L. Price and
        our
        market area Presidents.
 
 Our
        directors, if acting together, will be able to significantly influence all
        matters requiring approval by our shareholders, including elections of directors
        and the approval of mergers or other business combination transactions. Our
        executive officers and directors own approximately 1,253,000 shares,
        representing approximately 21% of the total number of shares outstanding.
        The
        interest of these shareholders may differ from the interests of our other
        shareholders, and these shareholders, acting together, will be able to influence
        all matters requiring approval by shareholders. As a result, these shareholders
        could approve or cause us to take actions of which you may disapprove or
        that
        may be contrary to your interests and those of other investors.
 
 Our
        primary market areas are Charlotte/Hendry/Glades/Collier/Lee Counties, Florida.
        The banking business in these areas is extremely competitive, and the level
        of
        competition facing us following our expansion plans may increase further,
        which
        may limit our asset growth and profitability. Our subsidiary bank experiences
        competition in both lending and attracting funds from other banks, savings
        institutions, and non-bank financial institutions located within its market
        area, many of which are significantly larger institutions. Non-bank competitors
        competing for deposits and deposit type accounts include mortgage bankers
        and
        brokers, finance companies, credit unions, securities firms, money market
        funds,
        life insurance companies and the mutual funds industry. For loans, we encounter
        competition from other banks, savings associations, finance companies, mortgage
        bankers and brokers, insurance companies, small loan and credit card companies,
        credit unions, pension trusts and securities firms.
 
 We
        have
        the power to issue common stock without shareholder approval, up to the number
        of authorized shares set forth in our Articles of Incorporation. Our Board
        of
        Directors may determine from time to time a need to obtain additional capital
        through the issuance of additional shares of common stock or other securities,
        subject to limitations imposed by the Federal Reserve Board. There can be
        no
        assurance that such shares can be issued at prices or on terms better than
        or
        equal to the terms obtained by our current shareholders. The issuance of
        any
        additional shares of common stock by us in the future may result in a reduction
        of the book value or market price, if any, of the then-outstanding common
        stock.
        Issuance of additional shares of common stock will reduce the proportionate
        ownership and voting power of our existing shareholders.
 
 Pursuant
        to our Articles of Incorporation, we have the authority to issue additional
        series of preferred stock and to determine the designations, preferences,
        rights
        and qualifications or restrictions of those shares without any further vote
        or
        action of the shareholders. The rights of the holders of our common stock
        will
        be subject to, and may be materially adversely affected by, the rights of
        the
        holders of any preferred stock that may be issued by us in the
        future.
 
 Our
        shares of common stock are not deposits, savings accounts or other obligations
        of us, our subsidiaries or any other depository institution, are not guaranteed
        by us or any other entity, and are not insured by the Federal Deposit Insurance
        Corporation or any other governmental agency.
 
 We
        may
        need to incur additional debt or equity financing in the near future to fund
        future growth and meet our capital needs. We cannot assure you that such
        financing will be available to us on acceptable terms or at all. If we are
        unable to obtain future financing, we may not have the resources available
        to
        fund our planned growth.
 
 Additional
        risk factors could have a negative impact on the Company and its performance.
        Many of these factors are general economic and financial market conditions,
        competition, consolidation of the financial services industry, litigation,
        regulatory actions and operating conditions.
 
 **ITEM
                  1B.**
              **UNRESOLVED
                  STAFF COMMENTS**
 
 None.
  10
 *Table
            of Contents*
  **ITEM
                  2.**
              **PROPERTIES**
 
 For
        the
        description of the property of the Company, see "ITEM I - BUSINESS -
        Facilities."
 
 **ITEM
                  3.**
              **LEGAL
                  PROCEEDINGS******
 
 Following
        an examination by the Florida Office of Financial Regulation (“OFR”), Florida
        Community Bank was notified by the OFR that it wanted Florida Community Bank
        to
        voluntarily consent to the entry of a Cease and Desist Order due to issues
        raised in the examination primarily regarding credit administration, internal
        controls and compliance with the Bank Secrecy Act and other anti-money
        laundering laws and regulations (collectively, “BSA”). The Board and management
        believe that Florida Community Bank has adequate credit administration and
        the
        proper internal controls and that Florida Community Bank was and is compliant
        with the BSA. The Board and management believe that a number of the OFR’s
        findings were incorrect and does not believe the criticisms raised in the
        examination warrant a Cease and Desist Order. The Board’s and management’s
        position is that the OFR’s concerns could be best handled through an informal
        resolution. On October 18, 2006, the OFR filed an Administrative Complaint
        /
        Notice of Rights regarding its intent to issue an Order to Cease and Desist
        (Administrative Proceeding No. 0342-B-9/06). On November 7, 2006, Florida
        Community Bank, through its counsel, filed a Petition for Formal Administrative
        Hearing pursuant to Section 120.57, Florida
        Statutes .
        The
        matter is now pending before the Division of Administrative Hearings. Discovery
        has begun and the hearing is scheduled for the end of the second quarter,
        2007.
 
 **ITEM
                  4.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS**
 
 No
        matters were submitted to a vote of security holders during the fourth quarter
        of 2006.
 
 
 **PART
        II**
 
 **ITEM
                  5.**
              **MARKET
                  FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
                  MATTERS******
 
 There
        is
        no established trading market for the Company's Common Stock, $.01 par value
        (the "Common Stock"), which has been traded inactively in private transactions.
        Therefore, no reliable information is available as to trades of the Common
        Stock
        or as to the prices at which Common Stock has traded.
 
 In
        October 2006, the Company issued 1.2 shares for 1.0 share stock split, thereby
        increasing the number of shares outstanding from 5,493,141 to 6,591,387.
 
 Management
        has reviewed the limited information available as to the ranges at which
        the
        Common Stock has been sold and is aware of trades that occurred during 2005
        and
        2006. To the best of management's knowledge, the last trade in December was
        executed at a price of $33.25 per share. The per share price data regarding
        the
        Common Stock is provided for information purposes only and should not be
        viewed
        as indicative of the actual or market value of the Common Stock. The dividends
        paid on Common Stock (split-adjusted) during 2006 and 2005 are
        disclosed.
 
 Estimated
                  Price
                Range
                  Per Share
              
              Dividends
                Declared
                  on
                Common
                  StockHigh
              
              Low
              
              (Per
                  Share)**2006
                  (Split Adjusted):****First
                  Quarter**
              
              **$**
              **27.50**
              
              **$**
              **22.92**
              
              
              **0.000****Second
                  Quarter**
              
              
              **29.17**
              
              
              **25.00**
              
              
              **0.210****Third
                  Quarter**
              
              
              **32.08**
              
              
              **27.50**
              
              
              **0.000****Fourth
                  Quarter**
              
              
              **33.25**
              
              
              **32.50**
              
              
              **0.210**
  11
 *Table
            of Contents*
  
 Estimated
                  Price
                Range
                  Per Share
              
              Dividends
                Declared
                  on
                Common
                  StockHigh
              
              Low
              
              (Per
                  Share)2005
                  (Split Adjusted):First
                  Quarter
              
              $
              18.75
              
              $
              18.23
              
              
              0.000Second
                  Quarter
              
              
              20.48
              
              
              15.92
              
              
              0.175Third
                  Quarter
              
              
              22.23
              
              
              21.01
              
              
              0.000Fourth
                  Quarter
              
              
              23.75
              
              
              21.67
              
              
              0.175
 
 As
        of
        March 10, 2007, there were 6,591,387 shares of Common Stock outstanding held
        by
        approximately 1,050 shareholders of record.
 
 The
        payment of future dividends will be at the sole discretion of the Company's
        Board of Directors and will depend on, among other things, future earnings,
        capital requirements, the general financial condition of the Company, and
        general business conditions.
 
 The
        following graphy compares the Company's cumulative stockholder return on
        our
        common stock with: (i) SNL Financial LC's index for southeastern banks and
        bank
        holding companies listed on the Over-the-Counter Bulletin Board and Pink
        Sheets;
        and (ii) the NASDAQ Composite index for the period from December 31, 2001
        to
        December 31, 2006, inclusive. The graph assumes an initial investment of
        $100 on December 31, 2001.
 
 
  **Period
                  Ending December 31,****Index**
              
              **2001**
              
              **2002**
              
              **2003**
              
              **2004**
              
              **2005**
              
              **2006**Florida
                  Community Banks, Inc.
              
              
              100.00
              
              
              119.95
              
              
              150.30
              
              
              191.61
              
              
              259.50
              
              
              595.9603NASDAQ
                  Composite
              
              
              100.00
              
              
              68.76
              
              
              103.67
              
              
              113.16
              
              
              115.57
              
              
              127.58SNL
                  South OTC-BB and Pink Banks
              
              
              100.00
              
              
              124.58
              
              
              166.79
              
              
              194.62
              
              
              222.91
              
              
              259.92
 
  12
 *Table
            of Contents*
  **Equity
        compensation plan**
 
 At
        their
        Annual Meeting, the Bank's shareholders adopted the 2002 Key Employee Stock
        Compensation Program ("Employee Program"), which was assumed by FCBI upon
        its
        acquisition of the Bank. Stock options granted under the Employee Program
        are
        generally granted with an exercise price equal to the fair market value of
        the
        Company's stock at the date of grant. Stock options generally vest over four
        years of continuous service and have a ten year contractual term. Certain
        options provide for accelerated vesting if there is a change of control (as
        defined in the plan), The following table reflects the number of shares to
        be
        issued upon the exercise of options granted under the Employee Program, the
        weighted-average exercise price of all such options, and the total number
        of
        shares of common stock reserved for the issuance upon the exercise of
        authorized, but not-yet-granted options, as of December 31, 2006.
 
 Plan
                  Category
              
              Number
                  of Securities to be
                Issued
                  Upon the Exercise
                of
                  Outstanding Options
              
              Weighted-average
                Exercise
                  Price of
                Outstanding
                  Options
              
              Number
                  of Equity Securities
                Remaining
                  Available for
                Future
                  Issuance Under
                Equity
                  Compensation PlanEquity
                  Compensation PlansApproved
                  by Shareholders
              
              
              193,769
              
              $
              12.23
              
              
              73,738Equity
                  Compensation PlansNot
                  Approved by Shareholders
              
              
              —
              
              
              0.00
              
              
              —Total
              
              
              193,769
              
              $
              12.23
              
              
              73,738
 
 [The
        remainder of this page intentionally left blank]
  13
 *Table
            of Contents*
  **ITEM
                  6.**
              **SELECTED
                  FINANCIAL DATA**
 
 The
        following table presents on a historical basis selected financial data and
        ratios for the Company. All averages are daily averages.
 
 Years
                  Ended December 31,**2006**
              
              2005
              
              2004
              
              2003
              
              2002(Dollars
                  in thousands except per share data)**Earnings
                  Summary:**Interest
                  income
              
              **$**
              **85,575**
              
              $
              57,788
              
              $
              39,550
              
              $
              33,520
              
              $
              31,266Interest
                  expense
              
              
              **34,365**
              
              
              17,385
              
              
              9,200
              
              
              10,081
              
              
              11,787Net
                  interest income
              
              
              **51,210**
              
              
              40,403
              
              
              30,350
              
              
              23,439
              
              
              19,479Provision
                  for loan losses
              
              
              **2,296**
              
              
              1,762
              
              
              1,971
              
              
              1,700
              
              
              2,510Net
                  interest income after provision for loan losses
              
              
              **48,914**
              
              
              38,641
              
              
              28,379
              
              
              21,739
              
              
              16,969Noninterest
                  income
              
              
              **3,916**
              
              
              3,914
              
              
              3,808
              
              
              2,729
              
              
              2,320Noninterest
                  expense
              
              
              **15,069**
              
              
              12,933
              
              
              12,251
              
              
              10,980
              
              
              9,020Income
                  before income taxes
              
              
              **37,761**
              
              
              29,622
              
              
              19,936
              
              
              13,488
              
              
              10,269Income
                  taxes expense
              
              
              **14,615**
              
              
              11,404
              
              
              7,694
              
              
              5,091
              
              
              3,851Net
                  income
              
              
              **23,146**
              
              
              18,218
              
              
              12,242
              
              
              8,397
              
              
              6,418**Per
                  Common Share Data:**(Retroactively
                  adjusted for effects ofstockdividends andstocksplits)Net
                  income - basic
              
              **$**
              **3.52**
              
              $
              2.77
              
              $
              1.88
              
              $
              1.30
              
              $
              0.99Net
                  income - diluted
              
              
              **3.48**
              
              
              2.75
              
              
              1.86
              
              
              1.28
              
              
              0.99Cash
                  dividends declared per common share
              
              
              **0.42**
              
              
              0.35
              
              
              0.29
              
              
              0.13
              
              
              0.17**Selected
                  Average Balances:**Total
                  assets
              
              **$**
              **1,003,937**
              
              $
              791,418
              
              $
              588,771
              
              $
              513,583
              
              $
              446,318Total
                  loans
              
              
              **876,604**
              
              
              670,885
              
              
              490,521
              
              
              425,278
              
              
              370,062Securities
              
              
              **75,513**
              
              
              70,213
              
              
              43,567
              
              
              32,618
              
              
              41,106Earning
                  assets
              
              
              **968,125**
              
              
              750,433
              
              
              552,930
              
              
              486,643
              
              
              426,374Deposits
              
              
              **831,112**
              
              
              640,504
              
              
              483,135
              
              
              411,084
              
              
              366,632Long-term
                  borrowings
              
              
              **80,369**
              
              
              70,912
              
              
              50,762
              
              
              55,660
              
              
              41,701Shareholders'
                  equity
              
              
              **80,113**
              
              
              62,280
              
              
              48,365
              
              
              38,867
              
              
              32,025Shares
                  outstanding (split adjusted, in thousands)
              
              
              **6,575**
              
              
              6,571
              
              
              6,503
              
              
              6,503
              
              
              6,503**Selected
                  Period-End Balances:**Total
                  assets
              
              **$**
              **1,016,677**
              
              $
              907,082
              
              $
              660,864
              
              $
              525,508
              
              $
              521,758Total
                  loans
              
              
              **869,608**
              
              
              791,609
              
              
              552,509
              
              
              437,593
              
              
              416,414Securities
              
              
              **106,704**
              
              
              66,242
              
              
              74,265
              
              
              38,938
              
              
              36,524Earning
                  assets
              
              
              **977,911**
              
              
              863,042
              
              
              627,722
              
              
              491,153
              
              
              498,509Deposits
              
              
              **835,462**
              
              
              737,256
              
              
              520,585
              
              
              423,284
              
              
              423,935Long-term
                  borrowings
              
              
              **85,929**
              
              
              70,334
              
              
              70,310
              
              
              50,332
              
              
              60,349Shareholders'
                  equity
              
              
              **90,567**
              
              
              70,076
              
              
              52,928
              
              
              42,086
              
              
              34,464Shares
                  outstanding (split adjusted, in thousands)
              
              
              **6,591**
              
              
              6,591
              
              
              6,503
              
              
              6,503
              
              
              6,503**Selected
                  Ratios:**Return
                  on average equity
              
              
              **28.89**
              **%**
              
              29.25
              %
              
              25.31
              %
              
              21.60
              %
              
              20.04Return
                  on average assets
              
              
              **2.31**
              
              
              2.30
              
              
              2.08
              
              
              1.63
              
              
              1.44Net
                  interest margin
              
              
              **5.29**
              
              
              5.39
              
              
              5.50
              
              
              4.82
              
              
              4.57Allowance
                  for loan losses to loans
              
              
              **1.56**
              
              
              1.46
              
              
              1.77
              
              
              1.84
              
              
              1.52Net
                  charge-offs to average loans
              
              
              **0.03**
              
              
              0.00
              
              
              0.05
              
              
              (0.01
              )
              
              0.00Average
                  equity to average assets
              
              
              **7.98**
              
              
              7.87
              
              
              8.21
              
              
              7.57
              
              
              7.18**Cash
                  Dividends Declared**
              
              **$**
              **2,747**
              
              $
              2,289
              
              $
              1,883
              
              $
              781
              
              $
              1,093
 
  14
 *Table
            of Contents*
  **ITEM7.**
              **MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS**
 
 The
        purpose of this discussion is to focus on significant changes in the financial
        condition and results of operations of the Company and its subsidiaries during
        the past three years. The discussion and analysis is intended to supplement
        and
        highlight information contained in the accompanying consolidated financial
        statements and the selected financial data presented elsewhere in this
        report.
 
 **ITEM
                  7A****.**
              **QUANTITIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK**
 
 **Forward-Looking
        Statements**
 
 This
        report, including Management's Discussion and Analysis of Financial Condition
        and Results of Operations, and documents incorporated herein by reference,
        may
        contain certain statements relating to the future results of the Company
        based
        upon information currently available. These "forward-looking statements"
        (as
        defined in Section 21E of The Securities and Exchange Act of 1934) are
        typically identified by words such as "believes", "expects", "anticipates",
        "intends", "estimates", "projects", and similar expressions. These
        forward-looking statements are based upon assumptions the Company believes
        are
        reasonable and may relate to, among other things, the allowance for loan
        loss
        adequacy, simulation of changes in interest rates and litigation results.
        Such
        forward-looking statements are subject to risks and uncertainties some of
        which
        are discussed in more detail in Item 1A. Risk Factors, which could cause
        the
        Company's actual results to differ materially from those included in these
        statements. These risks and uncertainties include, but are not limited to,
        the
        following: (1) changes in political and economic conditions;
        (2) interest rate fluctuations; (3) competitive product and pricing
        pressures within the Company's markets; (4) equity and fixed income market
        fluctuations; (5) personal and corporate customers' bankruptcies;
        (6) inflation; (7) acquisitions and integration of acquired
        businesses; (8) technological changes; (9) changes in law;
        (10) changes in fiscal, monetary, regulatory and tax policies;
        (11) monetary fluctuations; (12) success in gaining regulatory
        approvals when required; and (13) other risks and uncertainties listed from
        time to time in the Company's SEC reports and announcements.
 
 **General**
 
 The
        Company, through its subsidiary bank, conducts a commercial banking business,
        which consists of attracting deposits from the general public and applying
        those
        funds to the origination of commercial, consumer and real estate loans
        (including commercial loans collateralized by real estate). The Company's
        profitability depends primarily on net interest income, which is the difference
        between interest income generated from interest-earning assets (i.e., loans
        and
        investments) less the interest expense incurred on interest-bearing liabilities
        (i.e., customer deposits and borrowed funds). Net interest income is affected
        by
        the relative amounts of interest-earning assets and interest-bearing
        liabilities, and the interest rate paid and earned on these balances. Net
        interest income is dependent upon the Company's interest rate spread, which
        is
        the difference between the average yield earned on its interest-earning assets
        and the average rate paid on its interest-bearing liabilities. When
        interest-earning assets approximates or exceeds interest-bearing liabilities,
        any positive interest rate spread will generate interest income. The interest
        rate spread is impacted by interest rates, deposit flows and loan demand.
        Additionally, and to a lesser extent, the Company's profitability is affected
        by
        such factors as the level of non-interest income and expenses, the provision
        for
        loan losses and the effective tax rate. Non-interest income consists primarily
        of deposit account service charges and other customer service fees.
        Non-interest **** expenses
        consist of compensation and benefits, occupancy-related expenses, and other
        expenses.
 
 **Summary**
 
 Net
        income for 2006 was $23,146,069, a 27% increase from 2005 net income of
        $18,218,031. Net income for 2005 was $18,218,031, a 48.8% increase from 2004
        net
        income of $12,241,932. Net income for 2004 was $12,241,932, a 45.8% increase
        over 2003 net income. Net income for 2003 was $8,396,549, a 30.8% increase
        over
        2002 net income. Diluted net income per common share for 2006 was $3.48 compared
        to $2.75 in 2005 and $1.86 in 2004.
 
 The
        increase in net income from 2002 to 2003 and from 2003 to 2004 was primarily
        attributable to an increase in the net interest margin as the cost of funds
        decreased more than loan yields decreased. The increase from 2004 to 2005
        and
        2005 to 2006 was primarily attributable to the increase in loan volume combined
        with an increase in rates, which offset the rising cost of funds.
  15
 *Table
            of Contents*
  **Earning
        Assets**
 
 During
        2006, earning assets averaged $968 million, an increase of
        $218
        million (29.0%) over 2005. During 2005, earning assets averaged $750 million,
        an increase of
        $197
        million (35.7%) over 2004. During 2004, earning assets averaged $553 million,
        an
        increase of $66 million (13.6%) over 2003.
 
 The
        management of the Company considers many criteria in managing earning assets,
        including creditworthiness, diversification, maturity, and interest rate
        sensitivity. The following table sets forth the Company's interest-earning
        assets by category at December 31, in each of the last three years.
 
 December
                  31,**2006**
              
              2005
              
              2004(In
                  thousands)Interest-bearing
                  deposits with banks
              
              **$**
              **1,499**
              
              $
              5,003
              
              $
              948Securities
              
              
              **106,704**
              
              
              66,242
              
              
              74,265Federal
                  funds sold
              
              
              **100**
              
              
              188
              
              
              —Loans:Real
                  estate(1)
              
              
              **822,540**
              
              
              748,384
              
              
              492,966Commercial
                  and other
              
              
              **47,068**
              
              
              43,225
              
              
              59,543Total
                  loans
              
              
              **869,608**
              
              
              791,609
              
              
              552,509Interest-earning
                  assets
              
              **$**
              **977,911**
              
              $
              863,042
              
              $
              627,722
 
 (1)
        Real
        Estate loans included loans held-for-sale.
 
 **Loan
        Portfolio**
 
 Loan
        and
        deposit growth is emphasized in each market the Company operates. The Company
        has been successful in competing for loans against other larger institutions
        due
        primarily to a lending strategy that includes direct involvement by local
        management. Different customers require different solutions to their financial
        needs and appreciate local banking officers that understand the local
        environment and can provide for their business requirements.
 
 Average
        loans increased $206 million (31%) in 2006 compared to 2005. The increase
        in
        loans was a result of the tremendous loan growth in 2005 that carried over
        into
        the first six months of 2006. During the latter half of 2006, loan growth
        slowed
        with the general slow down in the local real estate economy. Loans were fund
        by
        the issuance of broker certificate of deposits, as well as local certificate
        of
        deposits and money market deposits.
 
 Average
        loans increased $180 million (36.8%) in 2005 compared to 2004. The increase
        in
        loans was a result of the growth of the bank and the ability to make larger
        loans as well as the tremendous growth in the real estate construction loan
        market. Loan growth was again funded primarily by the issuance of broker
        certificate of deposits, as well as by the growth in the bank’s core deposits,
        namely demand deposits, money market and savings.
 
 Average
        loans increased $65 million (15.3%) in 2004 compared to 2003. The increase
        in
        loans was a result of successful marketing efforts to originate real estate
        construction loans and other real estate loans. Loan growth for 2004 was
        funded
        primarily by issuance of brokered certificate of deposits, as well as by
        the
        growth in the bank's core deposits (demand deposits, money market and savings
        accounts).
 
 Average
        loans increased $55 million (14.9%) in 2003 compared to 2002. The increase
        in
        loans was a result of successful marketing efforts to originate real estate
        construction loans and other real estate loans. Loan growth for 2003 was
        funded
        primarily by issuance of broker certificate of deposits.
  16
 *Table
            of Contents*
  The
        following table sets forth the balances in certain categories of loans at
        December 31 for each of the five years ending December 31, 2006.
 
 **Loan
        Portfolio**
  December
                  31,**2006**
              
              2005
              
              2004
              
              2003
              
              2002**Amount**
              
              **Percent**
                **of
                  Total**
              
              Amount
              
              Percent
                of
                  Total
              
              Amount
              
              Percent
                of
                  Total
              
              Amount
              
              Percent
                of
                  Total
              
              Amount
              
              Percent
                of
                  Total(Dollars
                  in Thousands)Commercial,
                  financial and agricultural
              
              **$**
              **41,575**
              
              
              4.77
              %
              $
              37,309
              
              
              4.69
              %
              $
              51,378
              
              
              9.26
              %
              $
              45,274
              
              
              10.31
              %
              $
              42,876
              
              
              10.27
              %Real
                  estate - construction
              
              
              **478,085**
              
              
              **54.80**
              
              
              467,854
              
              
              58.81
              
              
              270,016
              
              
              48.69
              
              
              172,890
              
              
              39.37
              
              
              140,723
              
              
              33.70Real
                  estate - mortgage
              
              
              **344,309**
              
              
              **39.47**
              
              
              280,230
              
              
              35.22
              
              
              222,374
              
              
              40.10
              
              
              208,819
              
              
              47.55
              
              
              220,697
              
              
              52.84Consumer
              
              
              **6,275**
              
              
              **0.72**
              
              
              7,502
              
              
              0.94
              
              
              8,086
              
              
              1.46
              
              
              10,665
              
              
              2.43
              
              
              12,089
              
              
              2.89Loans
                  held-for-sale
              
              
              **146**
              
              
              **0.02**
              
              
              300
              
              
              0.04
              
              
              576
              
              
              0.10
              
              
              —
              
              
              0.00
              
              
              —
              
              
              0.00Other
              
              
              **2,008**
              
              
              **0.22**
              
              
              2,356
              
              
              0.30
              
              
              2,181
              
              
              0.39
              
              
              1,487
              
              
              0.34
              
              
              1,226
              
              
              0.30**872,398**
              
              
              **100.00**
              %
              
              795,551
              
              
              100.00
              %
              
              554,611
              
              
              100.00
              %
              
              439,135
              
              
              100.00
              %
              
              417,611
              
              
              100.00
              %Unearned
                  income
              
              
              (2,790
              )
              
              
              
              
              (3,942
              )
              
              
              
              
              (2,102
              )
              
              
              
              
              (1,542
              )
              
              
              
              
              (1,197
              )Allowance
                  for loan losses
              
              
              **(13,590**
              )
              
              
              
              
              (11,523
              )
              
              
              
              
              (9,791
              )
              
              
              
              
              (8,067
              )
              
              
              
              
              (6,319
              )Net
                  loans
              
              **$**
              **856,018**
              
              
              
              
              $
              780,086
              
              
              
              
              $
              542,718
              
              
              
              
              $
              429,526
              
              
              
              
              $
              410,095
 
 
 The
        following table shows the maturity distribution of selected loan classifications
        at December 31, 2006, and an analysis of those loans maturing in over one
        year:
 
 **Selected
        Loan Maturity and Interest Rate Sensitivity**
 
 Maturity
              
              Rate
                  Structure for Loans
                Maturing
                  Over One YearOne
                Year
                  or
                Less
              
              Over
                  One
                Year
                Through
                Five
                  Years
              
              Over
                  Five
                Years
              
              Total
              
              Predetermined
                Interest
                Rate
              
              Floating
                  or
                Adjustable
                Rate(Amounts
                  in thousands)Commercial,
                  financial and agricultural
              
              $
              36,882
              
              $
              4,693
              
              $
              —
              
              $
              41,575
              
              $
              4,693
              
              $
              —Real
                  estate - construction
              
              
              446,737
              
              
              31,048
              
              
              300
              
              
              478,085
              
              
              30,984
              
              
              364Total
              
              $
              483,619
              
              $
              35,741
              
              $
              300
              
              $
              519,660
              
              $
              35,677
              
              $
              364
 
 For
        the
        purposes of this schedule, loans that have reached the fixed contractual
        floor
        rate are treated as having a pre-determined interest rate.
 
 **Securities
        Portfolio**
 
 The
        securities portfolio increased by $41 million or 62.3% from 2005 to 2006.
        The
        securities portfolio decreased by $8 million or 10.8% from 2004 to 2005.
        The
        securities portfolio increased by $35 million or 90.7% from 2003 to 2004.
        The
        increase in securities in 2006 was done to make the portfolio less sensitive
        to
        falling interest rates, as well as to increase the bank’s liquidity position.
        The decrease in the securities portfolio from 2004 to 2005 was as a result
        of
        the normal pay downs during the year and the fact that no securities were
        purchased in 2005. The increase in the securities portfolio from 2003 to
        2004
        was largely a result of a $30 million leverage transaction that was put together
        to better utilize the banks excess capital.
  17
 *Table
            of Contents*
  The
        Company maintains an investment strategy of seeking portfolio yields within
        acceptable risk levels, as well as providing liquidity through borrowings
        secured by that portfolio. On a daily basis, funds available for short-term
        investment are determined. Funds available for long-term investment are
        projected based upon anticipated loan and deposit growth, liquidity needs,
        pledging requirements, maturities of securities, and other factors. The Company
        holds two classifications of securities: "Held-to-Maturity" and "Other
        Investment Securities." Other Investment Securities are carried at cost at
        year-end 2006, 2005 and 2004. Held-to-Maturity securities are carried at
        amortized cost and represent the largest portion of the total securities
        portfolio. At December 31, 2006, 2005 and 2004 there were no material unrealized
        gains (losses) in the Other Investment Securities. At December 31, 2006,
        2005
        and 2004, net unrealized gains (losses) in the Held-to-Maturity portfolio
        amounted to $(1,133,080), ($1,742,917), and ($338,296),
        respectively.
 
 The
        following table presents the carrying amounts of the securities portfolio
        at
        December 31, in each of the last three years.
 
 **Securities
        Portfolio**
  December
                  31,**2006**
              
              2005
              
              2004(In
                  thousands)Held-to-Maturity:FHLB
                  and FHLMC agency notes
              
              **$**
              **12,531**
              
              $
              1,997
              
              $
              1,997State
                  and Municipal securities
              
              
              **16,765**
              
              
              —
              
              
              —Mortgage-backed
                  securities
              
              
              **71,813**
              
              
              59,036
              
              
              67,333Total
                  Held-to-Maturity
              
              
              **101,109**
              
              
              61,033
              
              
              69,330Other
                  Investment Securities
              
              
              **5,595**
              
              
              4,709
              
              
              4,435Total
                  Securities
              
              **$**
              **106,704**
              
              $
              65,742
              
              $
              73,765
 
 The
        following table indicates the respective contractual maturities and weighted
        average yields of securities (dollars in thousands). Taxable equivalent
        adjustments, using a 30 percent tax rate, have been made in calculating yields
        on the tax-exempt obligations.
 
 **Security
        Portfolio Maturity Schedule**
 
 MaturingWithin
                One
                  Year
              
              After
                  One But
                Within
                  Five Years
              
              After
                  Five But
                Within
                  Ten Years
              
              After
                Ten
                  YearsAmount
              
              Yield
              
              Amount
              
              Yield
              
              Amount
              
              Yield
              
              Amount
              
              Yield(Amounts
                  in thousands, except percentages)**Securities
                  Held-to-Maturity**FHLB
                  and FHLMC agency notes
              
              $
              —
              
              
              0.00
              %
              $
              1,998
              
              
              3.55
              %
              $
              6,509
              
              
              5.50
              %
              $
              4,024
              
              
              5.85
              %State
                  and Municipal securities
              
              
              —
              
              
              0.00
              
              
              —
              
              
              0.00
              
              
              —
              
              
              0.00
              
              
              16,765
              
              
              5.74Mortgage-backed
                  securities
              
              
              —
              
              
              0.00
              
              
              37
              
              
              5.56
              
              
              2,812
              
              
              4.27
              
              
              68,964
              
              
              4.65**Other
                  Investment Securities**Other
                  investment securities
              
              
              —
              
              
              0.00
              
              
              —
              
              
              0.00
              
              
              —
              
              
              0.00
              
              
              5,595
              
              
              5.69**Total
                  Securities**
              
              $
              —
              
              
              0.00
              
              $
              2,035
              
              
              3.59
              
              $
              9,321
              
              
              5.13
              
              $
              95,348
              
              
              4.95
 
 There
        were no securities held by the Company of which the aggregate value at December
        31, 2006, 2005 and 2004 exceeded ten percent of shareholders' equity at that
        date. (Securities, which are payable from, and secured by the same source
        of
        revenue or taxing authority, are considered to be securities of a single
        issuer.
        Securities of the U.S. Government and U.S. Government agencies and corporations
        are not included.)
  18
 *Table
            of Contents*
  **Deposits
        and Borrowed Funds**
 
 Average
        deposits increased $191 million (29.8%) in 2006 compared to 2005. Average
        deposits increased $157.4 million (32.6%) in 2005 compared to 2004. Average
        deposits increased $72 million (17.5%) in 2004 compared to 2003. In 2006,
        the
        largest growth area was in super money markets, which increased $72 million
        or
        79.7% in total; broker certificate of deposits increased $45.1 million or
        14.1%
        and local area certificate of deposits increased $18.4 million or 22.2%;
        non-interest and interest bearing demand deposits and savings and regular
        money
        markets decreased $37.5 million in total. In 2005, the largest growth area
        was
        in broker certificate of deposits, which increased $156.0 million or 103.2%
        in
        total; money market, non-interest and interest bearing demand deposits and
        savings increased $62.8 million in total. In 2004, the largest growth area
        was
        again in non-interest bearing demand deposits, money market and savings
        deposits, which increased $45.7 million in total.
 
 The
        following table sets forth the Company's deposit structure at December 31
        in
        each of the last three years.
 
 December
                  31,**2006**
              
              2005
              
              2004(In
                  thousands)Noninterest-bearing
                  deposits:Individuals
                  partnerships and corporations
              
              **$**
              **96,885**
              
              $
              122,897
              
              $
              106,569U.S.
                  Government and states and political subdivisions
              
              
              **8,127**
              
              
              2,537
              
              
              2,290Certified
                  and official checks
              
              
              **4,469**
              
              
              4,126
              
              
              4,358Total
                  noninterest bearing deposits
              
              
              **109,481**
              
              
              129,560
              
              
              113,217Interest-bearing
                  deposits:Interest
                  - bearing demand accounts
              
              
              **40,624**
              
              
              46,520
              
              
              38,158Savings
                  accounts
              
              
              **219,013**
              
              
              158,294
              
              
              120,171Certificates
                  of deposit, less than $100,000
              
              
              **63,246**
              
              
              61,065
              
              
              64,417Certificates
                  of deposit, more than $100,000
              
              
              **403,098**
              
              
              341,817
              
              
              184,622Total
                  interest bearing deposits
              
              
              **725,981**
              
              
              607,696
              
              
              407,368Total
                  deposits
              
              **$**
              **835,462**
              
              $
              737,256
              
              $
              520,585
 
 The
        following table presents a breakdown by category of the average amount of
        deposits and the weighted average rate paid on deposits for the periods
        indicated:
 
 Years
                  Ended December 31,**2006**
              
              2005
              
              2004**Amount**
              
              **Rate**
              
              Amount
              
              Rate
              
              Amount
              
              Rate(Dollars
                  in thousands)Noninterest
                  bearing deposits
              
              **$**
              **122,354**
              
              
              **0.00**
              **%**
              $
              129,326
              
              
              0.00
              %
              $
              94,085
              
              
              0.00
              %Interest-bearing
                  demand deposits
              
              
              **42,533**
              
              
              **0.88**
              
              
              42,745
              
              
              0.47
              
              
              33,216
              
              
              0.30Savings
                  deposits
              
              
              **201,919**
              
              
              **4.23**
              
              
              154,183
              
              
              2.33
              
              
              121,024
              
              
              1.00Time
                  deposits
              
              
              **464,306**
              
              
              **4.48**
              
              
              314,250
              
              
              3.20
              
              
              234,810
              
              
              2.47Total
                  deposits
              
              **$**
              **831,112**
              
              
              **3.58**
              
              $
              640,504
              
              
              2.16
              
              $
              483,135
              
              
              1.47
 
  19
 *Table
            of Contents*
  At
        December 31, 2006, time deposits of $100,000 or greater aggregated approximately
        $403.1 million. The following table indicates, as of December 31, 2006, the
        dollar amount of $100,000 or more time deposits by the time remaining until
        maturity (in thousands):
 
 **Maturities
        of Large Time Deposits**
 **(In
        thousands)**
 
 Three
                  months or less
              
              $
              63,243Over
                  three through six months
              
              
              72,055Over
                  six through twelve months
              
              
              159,926Over
                  twelve months
              
              
              107,874Total
              
              $
              403,098
 
 At
        December 31, 2006, borrowed funds consisted of $694 thousand in short-term
        (overnight) borrowing and $85.9 million in long-term debt. The Bank had
        $55,000,000 in unsecured lines to purchase federal funds, of which $54,306,000
        was available at December 31, 2006. The Bank had a separate line with the
        Federal Reserve Bank of Atlanta, secured by loans, which $10,000,000 was
        available, and the Company had a $5,000,000 line of credit with another
        financial institution that was available for borrowing purposes. At December
        31,
        2005, borrowed funds consisted of $25 million in short-term (overnight)
        borrowing and $70.3 million in long-term debt. At December 31, 2004 and 2003,
        respectively, borrowed funds consisted primarily of long-term debt. The Bank
        had
        $50,150,000 in available lines to purchase federal funds and the Company
        had
        $5,000,000 in an available line from which to borrow funds, from another
        financial institution. At December 31, 2004, the Bank had $3,851,000 advanced
        against those lines.
 
 At
        December 31, 2006, the Bank had credit available of approximately $151 million
        with the Federal Home Loan Bank of Atlanta, of which $96 million was available
        and unused. The ability to utilize the remaining line is dependent on the
        amount
        of eligible collateral that is available to pledge to the Federal Home Loan
        Bank, which at December 31, 2006, was approximately $33 million. The line
        is
        secured by residential and commercial real estate loans and investment
        securities at December 31, 2006. At December 31, 2005, the Bank had credit
        available of approximately $136 million with the Federal Home Loan Bank of
        Atlanta, of which $76 million was available and unused. The ability to utilize
        the remaining line is dependent on the amount of eligible collateral that
        is
        available to pledge to the Federal Home Loan Bank, which at December 31,
        2005,
        was $40 million. At December 31, 2004, the amount of credit available with
        the
        Federal Home Loan Bank of Atlanta was approximately $99 million, of which
        approximately $39 million was available and unused.
 
 The
        following table sets forth the expected debt service for the next five years
        based on interest rates and repayment provisions as of December 31,
        2006.
 
 **Maturities
        of Long-term Debt**
 **(In
        thousands)**
 
 2007
              
              2008
              
              2009
              
              2010
              
              2011Interest
                  on indebtedness
              
              $
              4,601
              
              $
              4,288
              
              $
              4,208
              
              $
              3,964
              
              $
              3,882Repayment
                  of principal
              
              
              10,000
              
              
              5,000
              
              
              —
              
              
              5,000
              
              
              5,000$
              14,601
              
              $
              9,288
              
              $
              4,208
              
              $
              8,964
              
              $
              8,882
 
 **Capital
        Resources**
 
 Shareholders'
        equity increased $20.5 million to $90.6 million as of December 31, 2006,
        increased $17.2 million to $70.1 million as of December 31, 2005 and increased
        $10.8 million to $52.9 million as of December 31, 2004. The increase in
        shareholders' equity for 2006, 2005 and 2004 was attributable to net income,
        less dividends declared.
  20
 *Table
            of Contents*
  On
        June
        21, 2002, FCBI Capital Trust I ("Trust I"), a Delaware statutory trust
        established by the Company, received $10,000,000 in proceeds in exchange
        for
        $10,000,000 principal amount of Trust I's floating rate cumulative trust
        preferred securities (the "preferred securities") in a trust preferred private
        placement. On May 12, 2006, FCBI Capital Trust II (“Trust II”), a Delaware
        statutory trust was established by the Company, received $20,000,000 in proceeds
        in exchange for $20,000,000 principal amount of Trust II’s floating rate
        cumulative trust preferred securities. The proceeds of both the transactions
        were then used by the Trust’s to purchase an equal amount of floating-rate
        subordinated debentures (the "subordinated debentures") of the Company. The
        Company has fully and unconditionally guaranteed all obligations of the Trust’s
        on a subordinated basis with respect to the preferred securities. The Company
        does not consolidate the FCBI Trust preferred securities and accounts for
        the
        debenture’s issues to the Trust’s as debt. Subject to certain limitations, the
        preferred securities qualify as Tier 1 capital. The sole assets of the Trust’s
        are the subordinated debentures issued by the Company. Both the preferred
        securities of the Trust’s and the subordinated debentures of the Company each
        have approximately 30-year lives. However, both the Company and the Trust’s have
        a call option after five years, subject to regulatory capital
        requirements.
 
 A
        strong
        capital position, which is vital to the continued profitability of the Company,
        also promotes depositor and investor confidence and provides a solid foundation
        for the future growth of the organization. The objective of management is
        to
        maintain a level of capitalization that is sufficient to take advantage of
        profitable growth opportunities while meeting regulatory requirements. This
        is
        achieved by improving profitability through effectively allocating resources
        to
        more profitable businesses, improving asset quality, strengthening service
        quality, and streamlining costs. The primary measures used by management
        to
        monitor the results of these efforts are the ratios of return on average
        assets,
        return on average common equity and average equity to average assets.
 
 The
        table
        below summarizes these and other key ratios for the Company for each of the
        last
        three years.
 
 **Return
        on Equity and Assets**
 
 **2006**
              
              2005
              
              2004Return
                  on average assets
              
              
              **2.31**
              **%**
              
              2.30
              %
              
              2.08
              %Return
                  on average common equity
              
              
              **28.89**
              
              
              29.25
              
              
              25.31Dividend
                  payout ratio
              
              
              **11.87**
              
              
              12.56
              
              
              15.38Average
                  common shareholders' equity to average assets ratio
              
              
              **7.98**
              
              
              7.87
              
              
              8.21
 
 In
        addition, bank holding companies are required to maintain capital to support,
        on
        a risk-adjusted basis, certain off-balance sheet activities such as loan
        commitments. The Federal Reserve has adopted capital guidelines governing
        the
        activities of bank holding companies. These guidelines require the maintenance
        of an amount of capital based on risk-adjusted assets so that categories
        of
        assets with potentially higher credit risk will require more capital backing
        than assets with lower risk.
 
 The
        capital guidelines classify capital into two tiers, referred to as Tier I
        and Tier II. Under risk-based capital requirements, Total Capital consists
        of Tier I Capital, which is generally common shareholders' equity less
        goodwill, and Tier II Capital, which is primarily a portion of the allowance
        for
        loan losses and certain qualifying debt instruments. In determining risk-based
        capital requirements, assets are assigned risk-weights of 0% to 100%, depending
        primarily on the regulatory assigned levels of credit risk associated with
        such
        assets. Off-balance sheet items are considered in the calculation of
        risk-adjusted assets through conversion factors established by the regulators.
        The framework for calculating risk-based capital requires banks and bank
        holding
        companies to meet the regulatory minimums of 4% Tier I and 8% total risk-based
        capital. In 1990 regulators added a leverage computation to the capital
        requirements, comparing Tier I Capital to total average assets less
        goodwill. Banks have similar capital requirements.
  21
 *Table
            of Contents*
  The
        table
        below illustrates the Company's regulatory capital ratios under federal
        guidelines at December 31, 2006, 2005 and 2004:
 
 
 **Capital
        Adequacy Ratios**
 
 Statutory
              
              Years
                  ended December 31,Minimum
              
              **2006**
              
              2005
              
              2004(Am**ou**nts
                  in thousands)Tier
                  I Capital
              
              
              
              
              **$**
              **120,567**
              
              $
              80,076
              
              $
              62,928Tier
                  II Capital
              
              
              
              
              
              **12,267**
              
              
              10,959
              
              
              7,608Total
                  Qualifying Capital
              
              
              
              
              **$**
              **132,834**
              
              $
              91,035
              
              $
              70,536Risk
                  Adjusted Total Assets (including off-balance sheet
                  exposures)
              
              
              
              
              **$**
              **980,017**
              
              $
              876,172
              
              $
              606,473Adjusted
                  quarterly average assets
              
              
              
              
              **$**
              **1,023,119**
              
              $
              893,741
              
              $
              620,487Tier
                  I Capital Ratio
              
              
              4.00
              %
              
              **12.30**
              **%**
              
              9.14
              %
              
              10.38
              %Total
                  Capital Ratio
              
              
              8.00
              
              
              **13.55**
              
              
              10.39
              
              
              11.63Leverage
                  Ratio
              
              
              4.00
              
              
              **11.78**
              
              
              8.96
              
              
              10.14
  Information
        on the Bank capital ratios appears in Note 12 to the consolidated financial
        statements contained elsewhere herein.
 
 On
        December 31, 2006, the Company and the Bank exceeded the regulatory minimums
        and
        qualified as well capitalized institutions under the regulations.
 
 **Liquidity
        Management**
 
 Liquidity
        is the ability of a company to convert assets into cash without significant
        loss
        and to raise funds by increasing liabilities. Liquidity management involves
        having the ability to meet the day-to-day cash flow requirements of its
        customers, whether they are depositors wishing to withdraw funds or borrowers
        requiring funds to meet their credit needs. Additionally the Parent Company
        requires cash for various operating needs including dividends to shareholders,
        the servicing of debt, and the payment of general corporate expenses. The
        primary source of liquidity for the Parent Company is dividends from the
        subsidiary bank. At December 31, 2006, the subsidiary bank could have paid
        additional dividends to the Parent Company of approximately $39 million while
        continuing to meet their regulatory requirements. The Company does not
        anticipate any liquidity requirements in the near future that it will not
        be
        able to meet.
 
 The
        primary function of asset/liability management is not only to assure adequate
        liquidity in order for the Bank to meet the needs of its customer base, but
        to
        maintain an appropriate balance between interest-sensitive assets and
        interest-sensitive liabilities so that the Bank can remain profitable in
        varying
        interest rate environments. Both assets and liabilities are considered sources
        of liquidity funding and both are, therefore, monitored on a daily
        basis.
 
 The
        asset
        portion of the balance sheet provides liquidity primarily through loan
        repayments and maturities of or pledge of securities. Additional sources
        of
        liquidity are investments in federal funds sold and prepayments from the
        mortgage-backed securities in the securities portfolio.
 
 The
        liability portion of the balance sheet provides liquidity through various
        interest bearing and non-interest-bearing deposit accounts. The Bank had
        $54,306,000 and $30,000,000 of federal funds available at December 31, 2006
        and
        2005, respectively. and the Company had $5,000,000 of credit line available
        at
        December 31, 2006 and 2005. The Bank also had available as a source of
        financing, a line of credit with the Federal Home Loan Bank of Atlanta of
        which
        $96,000,000 and $76,000,000 was available and unused at December 31, 2006
        and
        2005, respectively, subject to the availability of assets to pledge to secure
        such borrowings.
  22
 *Table
            of Contents*
  **Contractual
        Obligations**
 
 The
        Company and the Bank have various contractual obligations that they must
        fund as
        part of their normal operations. The following table shows aggregate information
        about their contractual obligations, including interest, and the periods
        in
        which payments are due. The amounts and time periods are measured from December
        31, 2006.
 
 Payments
                  due by period (in thousands)Total
              
              Less
                  than
                1
                  year
              
              1-3
                  years
              
              3-5
                  years
              
              More
                  than
                5
                  yearsLong-Term
                  Debt
              
              $
              116,591
              
              $
              14,601
              
              $
              13,496
              
              $
              17,846
              
              $
              70,648Capital
                  Lease Obligations
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Operating
                  Lease Obligations
              
              
              11,296
              
              
              353
              
              
              1,636
              
              
              1,649
              
              
              7,658Time
                  Deposits
              
              
              484,483
              
              
              356,370
              
              
              122,666
              
              
              5,447
              
              
              —Total
              
              $
              612,370
              
              $
              371,324
              
              $
              137,798
              
              $
              24,942
              
              $
              78,306
 
 **Interest
        Rate Sensitivity Management**
 
 Interest
        rate sensitivity is a function of the re-pricing characteristics of the
        Company's portfolio of assets and liabilities. These re-pricing characteristics
        are the time frames within which the interest-bearing assets and liabilities
        are
        subject to change in interest rates either at replacement or maturity during
        the
        life of the instruments. Sensitivity is measured as the difference between
        the
        volume of assets and liabilities in the Company's current portfolio that
        is
        subject to re-pricing in future time periods. The differences are known as
        interest sensitivity gaps and are usually calculated separately for segments
        of
        time ranging from zero to thirty days, thirty-one to ninety days, ninety-one
        days to one year, one to five years, over five years and on a cumulative
        basis.
 
 The
        following table shows interest sensitivity gaps for different intervals as
        of
        December 31, 2006.
 
 **Interest
        Rate Sensitivity Analysis**
 **(In
        thousands)**
 
 0-30
              
              31-90
              
              91-365
              
              1-5
              
              Over
                  5Days
              
              Days
              
              Days
              
              Years
              
              Years
              
              TotalInterest-earning
                  assets (1)Loans
              
              $
              638,474
              
              $
              18,577
              
              $
              62,829
              
              $
              109,126
              
              $
              3,157
              
              $
              832,163Securities
                  and federal funds sold
              
              
              3,903
              
              
              35
              
              
              1,146
              
              
              58,146
              
              
              43,574
              
              
              106,804Interest-bearing
                  deposits in banks
              
              
              1,499
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,499643,876
              
              
              18,612
              
              
              63,975
              
              
              167,272
              
              
              46,731
              
              
              940,466Interest-bearing
                  liabilities (2)Demand
                  deposits (3)
              
              
              13,541
              
              
              13,541
              
              
              13,542
              
              
              —
              
              
              —
              
              
              40,624Savings
                  deposits (3)
              
              
              73,004
              
              
              73,004
              
              
              73,005
              
              
              —
              
              
              —
              
              
              219,013Time
                  deposits
              
              
              31,870
              
              
              42,606
              
              
              267,692
              
              
              124,176
              
              
              —
              
              
              466,344Short-term
                  borrowings
              
              
              694
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              694Long-term
                  borrowings
              
              
              —
              
              
              10,000
              
              
              10,000
              
              
              15,000
              
              
              50,929
              
              
              85,929119,109
              
              
              139,151
              
              
              364,239
              
              
              139,176
              
              
              50,929
              
              
              812,604Interest
                  sensitivity gap
              
              $
              524,767
              
              $
              (120,539
              )
              $
              (300,264
              )
              $
              28,096
              
              $
              (4,198
              )
              $
              127,862Cumulative
                  interest sensitivity gap
              
              $
              524,767
              
              $
              404,228
              
              $
              103,964
              
              $
              132,060
              
              $
              127,862Ratio
                  of interest-earning assets to Interest-bearing liabilities
              
              
              5.41
              
              
              0.13
              
              
              0.18
              
              
              1.20
              
              
              0.92Cumulative
                  ratio
              
              
              5.41
              
              
              2.57
              
              
              1.17
              
              
              1.17
              
              
              1.16Ratio
                  of cumulative gap to total interest-earning assets
              
              
              0.56
              
              
              0.43
              
              
              0.11
              
              
              0.14
              
              
              0.14
 _________________________
 (1)
              Excludes
                  nonaccrual loans. Securities maturities are based on projected
                  re-payments
                  at current interest rate levels.
 (2)
              Excludes
                  matured certificates, which have not been redeemed by the customer
                  and on
                  which no interest is accruing.
 (3)
              Interests
                  bearing demand and savings deposits are assumed to be subject to
                  movement
                  into other deposit instruments in equal amounts during the 0-30
                  day
                  period, the 31-90 day period, and the 91-365 day
                  period.
  23
 *Table
            of Contents*
  The
        above
        table indicates that in a rising interest rate environment, the Company's
        earnings may be positively affected in the short-term, (0-365 days) due to
        earning assets re-pricing faster than interest-bearing liabilities. As seen
        in
        the preceding table, for the first 30 days of re-pricing opportunity there
        is an
        excess of earning assets over interest-bearing liabilities of approximately
        $525
        million. For the first 365 days, interest-earning assets exceed interest-bearing
        liabilities by approximately $114 million. Changes in the mix of earning
        assets
        or supporting liabilities can either increase or decrease the net interest
        margin without affecting interest rate sensitivity. In addition, the interest
        rate spread and the level of interest-bearing assets and liabilities may
        change,
        thus impacting net interest income. It should be noted that a matched
        interest-sensitive position by itself does not ensure maximum net interest
        income.
 
 Management
        continually evaluates the condition of the economy, the pattern of market
        interest rates, and other economic data to determine the types of investments
        that should be made and at what maturities. Using this analysis, management
        from
        time to time assumes calculated interest sensitivity gap positions to maximize
        net interest income based upon anticipated movements in the general level
        of
        interest rates.
  **Results
        of Operations**
 
 **Net
        Interest Income**
 
 Net
        interest income is the principal component of a financial institution's income
        stream and represents the spread between interest and fee income generated
        from
        earning assets and the interest expense paid on deposits and borrowings.
        The
        following discussion is on a fully taxable equivalent basis.
 
 Net
        interest income increased approximately $10.8 million (26.7%) to $51.2 million
        in 2006 compared to 2005. Net interest income increased approximately $10.1
        million (33.1%) to $40.4 million in 2005 compared to 2004. Net interest income
        increased approximately $6.9 million (29.5%) to $30.4 million in 2004 compared
        to 2003. The increase each year in the net interest income is primarily due
        to
        increased volume in average loans outstanding during the periods.
 
 Interest
        income was $85.6 million in 2006, which represented an increase of $27.8
        million
        (48.1%) over 2005. Interest income was $57.8 million in 2005, which represented
        an increase of $18.2 million (46.2%) over 2004. Interest income was $39.6
        million in 2004, which represented an increase of $6.1 million (18.1%) over
        2003. The reason for the significant increase in interest income in 2006
        was the
        tremendous loan growth that carried over from 2005 into the beginning of
        2006;
        the average loan volume increased approximately $206 million compared to
        $180
        million in 2005; also rates were significantly higher in 2006 than 2005.
        The
        reason for the significant increase in interest income in 2005 was the
        tremendous growth in the loan volume during the year (average loans increased
        $180.4 million compared to $65.2 million in 2004); this combined with an
        increase in the loan rates (prime), and the loans coming off of their floors,
        resulted in the higher income. During 2004 and to a lesser extent 2003, the
        higher interest income from loans was the effect of contractual limits on
        the
        lowest level to which variable rate loans could decline ("floors"). While
        floors
        on interest rates in loan contracts were beneficial in the low-rate environment,
        when rates started to rise in 2004 and continued to rise in 2005 the loan
        rates
        did not immediately increase with each rate increase until the loan rates
        got
        above their floors. There was no impact to the net interest margin due to
        rate
        floors in 2006 and currently all loans are above their floor rate and will
        adjust up or down if rates change.
 
 Interest
        income on securities increased $574 thousand (20.4%) from 2005 to 2006. The
        increase was due to the approximately $46 million in new securities purchased
        at
        higher yields. Interest income on securities increased $1.3 million (77.7%)
        from
        2004 to 2005. The increase was as a result of the approximately $30 million
        in
        securities that were purchased at the end of 2004. Interest income on securities
        increased $291 thousand (21.9%) from 2003 to 2004. The increase in income
        was
        due to an increase in the securities purchased, which was partially offset
        by
        lower yields.
  24
 *Table
            of Contents*
  Interest
        income, other than loans and securities, increased by $464 thousand in 2006,
        increased by $67 thousand in 2005 and decreased by $95 thousand in 2004.
        In
        2006, the average amount invested in fed funds sold increased by approximately
        $7.7 million. In 2005, the average amount invested in fed funds sold declined
        by
        approximately $10 million, however, the average rates increased significantly
        during the year offsetting the effects of the volume decline. In 2004, the
        average amount invested in fed funds sold declined, which caused the decline
        in
        interest income.
 
 Total
        interest expense increased by $17 million (97.7%) in 2006, increased by $8.2
        million (88.9%) in 2005 and decreased by $881 thousand (8.7%) in 2004. The
        increase in interest expense in 2006 was caused by higher rates and a $199.5
        million increase in average interest bearing liabilities. There was also
        significant change in the deposit mix with lower cost deposits (non-interest
        checking, now, savings and regular money market accounts) decreasing and
        the
        higher cost deposits (super money market and certificate of deposits)
        increasing. The increase in interest expense in 2005 was caused by the increase
        in rates during the year and the significant increase in volume (average
        interest bearing liabilities increased $152.2 million in 2005 compared to
        $38.2
        million in 2004). The decrease in interest expense in 2004 was caused by
        lower
        deposit rates in general; a carryover from 2003's low rates. (See the
        "Rate/Volume Analysis" following this section.)
 
 The
        trend
        in net interest income is commonly evaluated by measuring the average yield
        on
        earning assets, the average cost of funds, and the net interest margin. The
        Company's average yield on earning assets (total interest income divided
        by
        average interest earning assets) increased in 2006 to 8.85% compared to 7.71%
        in
        2005 and 7.16% in 2004. Higher rates (the prime rate increase17 times from
        June
        2004 thru June 2006) and the increases in the loan and security volumes resulted
        in these year over year increases. In line with the national interest rate
        markets, the Company's average cost of funds (total interest expense divided
        by
        average interest bearing liabilities) increased to 4.32% in 2006, from 2.92%
        in
        2005 and from a low of 2.08% in 2004. The increase in 2006 was due to higher
        rates and volume and the change in deposit mix mentioned above.
 
 The
        Bank's net interest margin (net interest income divided by average interest
        earning assets) decreased in 2006 to 5.30% compared to 5.39% in 2005 and
        5.50%
        in 2004. The decrease in 2006 was caused by the increase in the cost of funds
        and the negative impact that the increase in non-performing loans had on
        interest income (See the Non-Performing section). The decrease in 2005 was
        caused by the increase in the cost of funds and the negative impact that
        the
        loan floor rates had on the yield during the first half of the year. The
        opposite was true during the years 2003 thru 2004 when the floor rates helped
        to
        stabilize the drop in loan yields caused by the drop in the prime rate, which
        resulted in lower deposit rates (cost of funds) during that time period.
 
 [The
        remainder of this page intentionally left blank]
  25
 *Table
            of Contents*
  The
        tables that follow show, for the periods indicated the daily average balances
        outstanding for the major categories of interest-bearing assets and
        interest-bearing liabilities, and the average interest rate earned or paid
        thereon. Such yields are calculated by dividing income or expense by the
        average
        balance of the corresponding assets or liabilities. Also shown are the changes
        in income attributable to changes in volume and changes in rate.
 
 **Average
        Balances, Interest Income/Expense and Yields/Rates**
 Taxable
        Equivalent Basis
 
 Years
                  Ended December 31,**2006**
              
              2005
              
              2004**Average**
                **Balance**
              
              **Interest**
                **Income/**
                **Expense**
              
              **Average**
                **Yields/**
                **Rates**
              
              Average
                Balance
              
              Interest
                Income/
                Expense
              
              Average
                Yields/
                Rates
              
              Average
                Balance
              
              Interest
                Income/
                Expense
              
              Average
                Yields/
                Rates(Dollars
                  in thousands)Assets:Earning
                  assets:Loans,
                  net of unearned income (1)(2)
              
              **$**
              **876,604**
              
              **$**
              **81,474**
              
              
              **9.29**
              **%**
              $
              670,885
              
              $
              54,709
              
              
              8.15
              %
              $
              490,521
              
              $
              37,743
              
              
              7.69
              %Securities:Taxable
              
              
              **71,353**
              
              
              **3,221**
              
              
              **4.51**
              
              
              70,213
              
              
              2,883
              
              
              4.11
              
              
              43,567
              
              
              1,622
              
              
              3.72Tax-exempt
                  (2)
              
              
              **4,160**
              
              
              **237**
              
              
              **5.70**
              
              
              —
              
              
              —
              
              
              0.00
              
              
              —
              
              
              —
              
              
              0.00Total
                  securities
              
              
              **75,513**
              
              
              **3,458**
              
              
              **4.58**
              
              
              70,213
              
              
              2,883
              
              
              4.11
              
              
              43,567
              
              
              1,622
              
              
              3.72Interest-bearing
                  deposits in other banks
              
              
              **1,266**
              
              
              **66**
              
              
              **5.21**
              
              
              2,288
              
              
              78
              
              
              3.41
              
              
              1,758
              
              
              25
              
              
              1.42Federal
                  funds sold
              
              
              **14,742**
              
              
              **686**
              
              
              **4.65**
              
              
              7,047
              
              
              210
              
              
              2.98
              
              
              17,084
              
              
              197
              
              
              1.15Total
                  interest-earning assets (2)
              
              
              **968,125**
              
              
              **85,684**
              
              
              **8.85**
              
              
              750,433
              
              
              57,880
              
              
              7.71
              
              
              552,930
              
              
              39,587
              
              
              7.16Non-interest
                  earning assets:Cash
                  and due from banks
              
              
              **19,433**
              
              
              
              
              
              
              
              
              24,710
              
              
              
              
              
              
              
              
              18,795Accrued
                  interest and other assets
              
              
              **30,502**
              
              
              
              
              
              
              
              
              26,252
              
              
              
              
              
              
              
              
              25,785Allowance
                  for loan losses
              
              
              **(14,123**
              **)**
              
              
              
              
              
              
              
              (9,977
              )
              
              
              
              
              
              
              
              (8,739
              )Total
                  Assets
              
              **$**
              **1,003,937**
              
              
              
              
              
              
              
              $
              791,418
              
              
              
              
              
              
              
              $
              588,771Liabilities
                  and Shareholders' Equity:Interest-bearing
                  liabilities:Demand
                  deposits
              
              **$**
              **42,533**
              
              
              **376**
              
              
              **0.88**
              **%**
              $
              42,745
              
              
              203
              
              
              0.47
              %
              $
              33,216
              
              
              101
              
              
              0.30
              %Savings
                  deposits
              
              
              **201,919**
              
              
              **8,548**
              
              
              **4.23**
              
              
              154,183
              
              
              3,600
              
              
              2.33
              
              
              121,024
              
              
              1,213
              
              
              1.00Time
                  deposits
              
              
              **464,306**
              
              
              **20,817**
              
              
              **4.48**
              
              
              314,250
              
              
              10,061
              
              
              3.20
              
              
              234,810
              
              
              5,796
              
              
              2.47Total
                  deposits
              
              
              **708,758**
              
              
              **29,741**
              
              
              **4.20**
              
              
              511,178
              
              
              13,864
              
              
              2.71
              
              
              389,050
              
              
              7,110
              
              
              1.83Long-term
                  borrowings
              
              
              **80,369**
              
              
              **4,347**
              
              
              **5.41**
              
              
              70,912
              
              
              3,021
              
              
              4.26
              
              
              50,762
              
              
              2,034
              
              
              4.01Short-term
                  borrowings
              
              
              **5,518**
              
              
              **277**
              
              
              **5.02**
              
              
              13,019
              
              
              500
              
              
              3.84
              
              
              3,083
              
              
              56
              
              
              1.82Total
                  interest-bearing liabilities
              
              
              **794,645**
              
              
              **34,365**
              
              
              **4.32**
              
              
              595,109
              
              
              17,385
              
              
              2.92
              
              
              442,895
              
              
              9,200
              
              
              2.08Non
                  interest-bearing liabilities:Demand
                  deposits
              
              
              **122,354**
              
              
              
              
              
              
              
              
              129,326
              
              
              
              
              
              
              
              
              94,085Accrued
                  interest and other liabilities
              
              
              **6,825**
              
              
              
              
              
              
              
              
              4,703
              
              
              
              
              
              
              
              
              3,426Shareholders'
                  equity
              
              
              **80,113**
              
              
              
              
              
              
              
              
              62,280
              
              
              
              
              
              
              
              
              48,365Total
                  Liabilities and Shareholders' Equity
              
              **$**
              **1,003,937**
              
              
              
              
              
              
              
              $
              791,418
              
              
              
              
              
              
              
              $
              588,771Net
                  Interest Income/Net Interest Spread
              
              
              
              
              
              **51,319**
              
              
              **4.53**
              **%**
              
              
              
              
              40,495
              
              
              4.79
              %
              
              
              
              
              30,387
              
              
              5.08
              %Net
                  yield on earning assets
              
              
              
              
              
              
              
              
              **5.30**
              **%**
              
              
              
              
              
              
              
              5.39
              %
              
              
              
              
              
              
              
              5.50
              %Taxable
                  Equivalent adjustments (2):Securities
              
              
              
              
              
              **71**
              
              
              
              
              
              
              
              
              —
              
              
              
              
              
              
              
              
              —Loans
              
              
              
              
              
              **38**
              
              
              
              
              
              
              
              
              22
              
              
              
              
              
              
              
              
              3Total
                  taxable equivalent adjustment
              
              
              
              
              
              **109**
              
              
              
              
              
              
              
              
              22
              
              
              
              
              
              
              
              
              3Net
                  interest income
              
              
              
              
              **$**
              **51,210**
              
              
              
              
              
              
              
              $
              40,473
              
              
              
              
              
              
              
              $
              30,384
  
 (1)
              Average
                  loans include nonaccrual loans. All loans and deposits are
                  domestic.
 (2)
              Tax
                  equivalent adjustments on securities and loans exempt from income
                  taxes
                  have been based on an assumed tax rate of 30 percent, and give
                  effect to
                  the disallowance for federal income tax purpose of interest expense
                  related to certain tax-exempt earning
                  assets.
  26
 *Table
            of Contents*
  The
        following tables set forth, for the years ended December 31, 2006, 2005 and
        2004, a summary of the changes in interest income and interest expense resulting
        from changes in interest rates and in changes in the volume of earning assets
        and interest-bearing liabilities, segregated by category. The change due
        to
        volume is calculated by multiplying the change in volume by the prior year’s
        rate. The change due to rate is calculated by multiplying the change in rate
        by
        the prior year’s volume. The change attributable to both volume and rate is
        calculated by multiplying the change in volume by the change in rate. Figures
        are presented on a taxable equivalent basis.
 
 **Rate/Volume
        Variance Analysis**
 Taxable
        Equivalent Basis
  Average
                  Volume
              
              Change
                  in Volume
              
              Average
                  Rate**2006**
              
              2005
              
              2004
              
              **2006-2005**
              
              2005-2004
              
              **2006**
              
              2005
              
              2004(Dollars
                  in thousands)Earning
                  assets:Loans,
                  net of unearned income (1)(2)
              
              **$**
              **876,604**
              
              $
              670,885
              
              $
              490,521
              
              **$**
              **205,719**
              
              $
              180,364
              
              
              **9.29**
              **%**
              
              8.15
              %
              
              7.69
              %SecuritiesTaxable
              
              
              **71,353**
              
              
              70,213
              
              
              43,567
              
              
              **1,140**
              
              
              26,646
              
              
              **4.51**
              
              
              4.11
              
              
              3.72Tax
                  exempt (2)
              
              
              **4,160**
              
              
              —
              
              
              —
              
              
              **4,160**
              
              
              —
              
              
              **5.70**
              
              
              0.00
              
              
              0.00Total
                  Securities
              
              
              **75,513**
              
              
              70,213
              
              
              43,567
              
              
              **5,300**
              
              
              26,646
              
              
              **4.58**
              
              
              4.11
              
              
              3.72Interest-bearing
                  deposits with other banks
              
              
              **1,266**
              
              
              2,288
              
              
              1,758
              
              
              **(1,022**
              **)**
              
              530
              
              
              **5.21**
              
              
              3.41
              
              
              1.42Federal
                  funds sold
              
              
              **14,742**
              
              
              7,047
              
              
              17,084
              
              
              **7,695**
              
              
              (10,037
              )
              
              **4.65**
              
              
              2.98
              
              
              1.15Total
                  Earning Assets (2)
              
              **$**
              **968,125**
              
              $
              750,433
              
              $
              552,930
              
              **$**
              **217,692**
              
              $
              197,503
              
              
              **8.85**
              
              
              7.71
              
              
              7.16Interest-Bearing
                  LiabilitiesDeposits:Demand
                  deposits
              
              **$**
              **42,533**
              
              $
              42,745
              
              $
              33,216
              
              **$**
              **(212**
              **)**
              $
              9,529
              
              
              **0.88**
              
              
              0.47
              
              
              0.30Savings
              
              
              **201,919**
              
              
              154,183
              
              
              121,024
              
              
              **47,736**
              
              
              33,159
              
              
              **4.23**
              
              
              2.33
              
              
              1.00Time
                  certificates
              
              
              **464,306**
              
              
              314,250
              
              
              234,810
              
              
              **150,056**
              
              
              79,440
              
              
              **4.48**
              
              
              3.20
              
              
              2.47Total
                  Deposits
              
              
              **708,758**
              
              
              511,178
              
              
              389,050
              
              
              **197,580**
              
              
              122,128
              
              
              **4.20**
              
              
              2.71
              
              
              1.83Long-term
                  borrowings
              
              
              **80,369**
              
              
              70,912
              
              
              50,762
              
              
              **9,457**
              
              
              20,150
              
              
              **5.41**
              
              
              4.26
              
              
              4.01Other
                  borrowings
              
              
              **5,518**
              
              
              13,019
              
              
              3,083
              
              
              **(7,501**
              **)**
              
              9,936
              
              
              **5.02**
              
              
              3.84
              
              
              1.82Total
                  Interest-Bearing Liabilities
              
              **$**
              **794,645**
              
              $
              595,109
              
              $
              442,895
              
              **$**
              **199,536**
              
              $
              152,214
              
              
              **4.32**
              
              
              2.92
              
              
              2.08Net
                  interest income/net interest spread
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              **4.53**
              
              
              4.79
              
              
              5.08Net
                  yield on earning assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              **5.30**
              
              
              5.39
              
              
              5.50Net
                  cost of funds
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              **3.55**
              
              
              2.32
              
              
              1.66
 
 
 Variance
                  Attributed toInterest
                Income/Expense
              
              Variance
              
              **2006**
              
              2005**2006**
              
              2005
              
              2004
              
              **2006-2005**
              
              2005-2004
              
              **Volume**
              
              **Rate**
              
              **Mix**
              
              Volume
              
              Rate
              
              Mix(Dollars
                  in thousands)Earning
                  assets:Loans,
                  net of unearned income
              
              **$**
              **81,474**
              
              
              54,709
              
              $
              37,743
              
              **$**
              **26,765**
              
              $
              16,966
              
              **$**
              **16,776**
              
              **$**
              **7,645**
              
              **$**
              **2,344**
              
              $
              13,877
              
              $
              2,259
              
              $
              830Securities:Taxable
              
              
              **3,221**
              
              
              2,883
              
              
              1,622
              
              
              **338**
              
              
              1,261
              
              
              **47**
              
              
              **287**
              
              
              **4**
              
              
              992
              
              
              167
              
              
              102Tax
                  exempt
              
              
              **237**
              
              
              —
              
              
              —
              
              
              **237**
              
              
              —
              
              
              **—**
              
              
              **—**
              
              
              **237**
              
              
              —
              
              
              —
              
              
              —Total
                  securities
              
              
              **3,458**
              
              
              2,883
              
              
              1,622
              
              
              **575**
              
              
              1,261
              
              
              **47**
              
              
              **287**
              
              
              **241**
              
              
              992
              
              
              167
              
              
              102Interest-bearing
                  deposits with other banks
              
              
              **66**
              
              
              78
              
              
              25
              
              
              **(12**
              **)**
              
              53
              
              
              **(35**
              **)**
              
              **41**
              
              
              **(18**
              **)**
              
              8
              
              
              35
              
              
              10Federal
                  funds sold
              
              
              **686**
              
              
              210
              
              
              197
              
              
              **476**
              
              
              13
              
              
              **229**
              
              
              **118**
              
              
              **129**
              
              
              (116
              )
              
              312
              
              
              (183
              )Total
                  earning assets
              
              
              **85,684**
              
              
              57,880
              
              
              39,587
              
              
              **27,804**
              
              
              18,293
              
              
              **17,017**
              
              
              **8,091**
              
              
              **2,696**
              
              
              14,761
              
              
              2,773
              
              
              759Interest-bearing
                  liabilities:Deposits:Demand
              
              
              **376**
              
              
              203
              
              
              101
              
              
              **173**
              
              
              102
              
              
              **(1**
              **)**
              
              **175**
              
              
              **(1**
              **)**
              
              29
              
              
              57
              
              
              16Savings
              
              
              **8,548**
              
              
              3,600
              
              
              1,213
              
              
              **4,948**
              
              
              2,387
              
              
              **1,115**
              
              
              **2,927**
              
              
              **906**
              
              
              332
              
              
              1,613
              
              
              442Time
                  certificates
              
              
              **20,817**
              
              
              10,061
              
              
              5,796
              
              
              **10,756**
              
              
              4,265
              
              
              **4,804**
              
              
              **4,028**
              
              
              **1,924**
              
              
              1,961
              
              
              1,722
              
              
              582Total
                  deposits
              
              
              **29,741**
              
              
              13,864
              
              
              7,110
              
              
              **15,877**
              
              
              6,754
              
              
              **5,918**
              
              
              **7,130**
              
              
              **2,829**
              
              
              2,322
              
              
              3,392
              
              
              1,040Long-term
                  borrowings
              
              
              **4,347**
              
              
              3,021
              
              
              2,034
              
              
              **1,326**
              
              
              987
              
              
              **403**
              
              
              **814**
              
              
              **109**
              
              
              807
              
              
              129
              
              
              51Short-term
                  borrowings
              
              
              **277**
              
              
              500
              
              
              56
              
              
              **(223**
              **)**
              
              444
              
              
              **(288**
              **)**
              
              **154**
              
              
              **(89**
              **)**
              
              180
              
              
              62
              
              
              202Total
                  interest- bearing liabilities
              
              
              **34,365**
              
              
              17,385
              
              
              9,200
              
              
              **16,980**
              
              
              8,185
              
              
              **6,033**
              
              
              **8,098**
              
              
              **2,849**
              
              
              3,309
              
              
              3,583
              
              
              1,293Net
                  interest income/net interest spread
              
              **$**
              **51,319**
              
              $
              40,495
              
              $
              30,387
              
              **$**
              **10,824**
              
              $
              10,108
              
              **$**
              **10,984**
              
              **$**
              **(7**
              **)**
              **$**
              **(153**
              **)**
              $
              11,452
              
              $
              (810
              )
              $
              (534
              )
  (1)
                Average
                    loans include nonaccrual loans. All loans and deposits are
                    domestic.
 (2)
              Tax
                  equivalent adjustments on securities and loans exempt from income
                  taxes
                  have been based on an assumed tax rate of 30 percent, and give
                  effect to
                  the disallowance for federal income tax purpose of interest expense
                  related to certain tax-exempt earning
                  assets.
  27
 *Table
            of Contents*
  Allowance
        for Loan Losses
 
 Each
        of
        the Bank's loans is assigned to a lending officer responsible for the ongoing
        review and administration of that loan. Lending officers make the initial
        identification of loans, which present some difficulty in collection or where
        there is an indication that the probability of loss exists. Lending officers
        are
        responsible for the collection effort on a delinquent loan. Senior management
        is
        informed of the status of delinquent and problem loans on a monthly basis.
        In
        addition to the lending officers, there is an independent loan review officer
        responsible for reviewing the credit ratings on loans and administering the
        loans.
 
 Senior
        management makes recommendations monthly to the Board of Directors as to
        charge-offs. Senior management reviews the allowance for loan losses on a
        monthly basis. The Bank's policy is to discontinue interest accrual when
        payment
        of principal and interest is 90 days or more in arrears unless the value
        of the
        collateral exceeds the principal plus accrued interest.
 
 The
        allowance for loan losses represents management's assessment of the risks
        associated with extending credit and its evaluation of the quality of the
        loan
        portfolio. Management analyzes the loan portfolio to determine the adequacy
        of
        the allowance for possible loan losses and the appropriate provisions required
        to maintain a level considered adequate to absorb anticipated loan losses.
        In
        assessing the adequacy of the allowance, management reviews the size, quality
        and risk of loans in the portfolio. Management also considers such factors
        as
        loan loss experience, the amount of past due and nonperforming loans, specific
        known risk, the status and amount of nonperforming assets, underlying collateral
        values securing loans, current and anticipated economic conditions and other
        factors which affect the allowance for potential credit losses. Although
        recent
        historical loan losses have been minimal, a slowing real estate economy and
        a
        significant increase in non-performing loans during the latter half of the
        year
        resulted in management increasing the reserve in 2006. The increase in 2005
        was
        as a result of the loan volume and the trend in loans that had been down
        graded
        during the latter half of the year. During 2004 management increased the
        allowance due to the significant increase in nonperforming loans at the end
        of
        2003.
 
 While
        it
        is the Bank's policy to charge-off in the current period the loans in which
        a
        loss is considered probable, there are additional risks of future losses,
        which
        cannot be quantified precisely or attributed to particular loans or classes
        of
        loans. Because these risks include the future state of the economy, management's
        judgment as to the adequacy of the allowance is necessarily approximate and
        imprecise.
 
 Management
        believes that $13,590,000 on December 31, 2006, that $11,522,910 on December
        31,
        2005 and $9,791,269 on December 31, 2004, in the allowance for loan losses
        were
        adequate to absorb known risks in the portfolio. No assurance can be given,
        however, that adverse economic circumstances will not result in increased
        losses
        in the loan portfolio, and require greater provisions for possible loan losses
        in the future.
 
 
 [The
        remainder of this page intentionally left blank]
  28
 *Table
            of Contents*
  The
        following table sets forth certain information with respect to the Bank's
        loans,
        net of unearned income, and the allowance for loan losses for the five years
        ended December 31, 2006.
 
 **Summary
        of Loan Loss Experience**
 
 **2006**
              
              2005
              
              2004
              
              2003
              
              2002(Dollars
                  in thousands)Allowance
                  for loan losses at beginning of year
              
              **$**
              **11,523**
              
              $
              9,791
              
              $
              8,067
              
              $
              6,319
              
              $
              3,803Loans
                  charged off:Commercial,
                  financial and agricultural
              
              
              **35**
              
              
              131
              
              
              209
              
              
              139
              
              
              161Real
                  estate - mortgage
              
              
              **118**
              
              
              —
              
              
              85
              
              
              10
              
              
              —Consumer
              
              
              **111**
              
              
              50
              
              
              161
              
              
              74
              
              
              46Total
                  loans charged off
              
              
              **264**
              
              
              181
              
              
              455
              
              
              223
              
              
              207Recoveries
                  on loans previously charged off:Commercial,
                  financial and agricultural
              
              
              **6**
              
              
              24
              
              
              143
              
              
              246
              
              
              193Real
                  estate - mortgage
              
              
              **-**
              
              
              2
              
              
              30
              
              
              2
              
              
              3Consumer
              
              
              **29**
              
              
              125
              
              
              35
              
              
              23
              
              
              17Total
                  recoveries
              
              
              **35**
              
              
              151
              
              
              208
              
              
              271
              
              
              213Net
                  loans charged off (recovered)
              
              
              **229**
              
              
              30
              
              
              247
              
              
              (48
              )
              
              (6
              )Provision
                  for loan losses
              
              
              **2,296**
              
              
              1,762
              
              
              1,971
              
              
              1,700
              
              
              2,510Allowance
                  for loan losses at end of period
              
              **$**
              **13,590**
              
              $
              11,523
              
              $
              9,791
              
              $
              8,067
              
              $
              6,319Loans,
                  net of unearned income, at end of period
              
              **$**
              **869,608**
              
              $
              791,609
              
              $
              552,509
              
              $
              437,593
              
              $
              416,414Average
                  loans, net of unearned income, outstanding for the period
              
              
              **876,604**
              
              
              670,885
              
              
              490,521
              
              
              425,278
              
              
              370,062Ratio
                  of net charge-offs to net average loans
              
              
              **0.03**
              **%**
              
              0.00
              %
              
              0.05
              %
              
              (0.01
              )%
              
              (0.00
              )%
 
 In
        evaluating the allowance, management also considers the historical loan loss
        experience of the Bank, the amount of past due and nonperforming loans, current
        and anticipated economic conditions, lender requirements and other appropriate
        information. From 2001 through 2002, management allocated the allowance for
        loan
        losses to specific loan categories based on an average of historical losses
        and
        the volume of each loan category. In 2003, as presented below, management
        began
        to allocate the allowance for loan losses based on the level of nonperforming
        loans in each category. The change in method was due to the minimal historical
        loan losses on which to base the allocation.
 In
        2006,
        management identified $37.5 million in loans as being impaired as a result
        of
        the provisions of Statement of Financial Accounting Standards No. 114,
        Accounting by Creditors for Impairment of a loan. While management believes
        these loans have sufficient collateral, that no principal write downs were
        necessary, $1,488,000 was specifically reserved for probable losses that
        were
        inherent in these loans.
 
 
 [The
        remainder of this page intentionally left blank]
  29
 *Table
            of Contents*
  Management
        allocated the allowance for loan losses to specific loan categories as
        follows:
 
 **Allocation
        of Allowance for Loan Losses**
 
 December
                  31,_**2006**
              
              2005
              
              2004
              
              2003
              
              2002**Amount**
              
              **Percent**
                **of
                  Loans**
                **in
                  Each**
                **Category**
                **to
                  Total**
                **Loans**
              
              Amount
              
              Percent
                of
                  Loans
                in
                  Each
                Category
                to
                  Total
                Loans
              
              Amount
              
              Percent
                of
                  Loans
                in
                  Each
                Category
                to
                  Total
                Loans
              
              Amount
              
              Percent
                of
                  Loans
                in
                  Each
                Category
                to
                  Total
                Loans
              
              Amount
              
              Percent
                of
                  Loans
                in
                  Each
                Category
                to
                  Total
                Loans(Dollars
                  in Thousands)Domestic
                  loans:Commercial,
                  financial and agricultural
              
              **$**
              **649**
              
              
              **4.78**
              **%**
              $
              724
              
              
              6.28
              %
              $
              271
              
              
              9.26
              %
              $
              22
              
              
              10.31
              %
              $
              2,494
              
              
              10.27
              %Real
                  estate - mortgage and construction
              
              
              **12,842**
              
              
              **94.50**
              
              
              10,757
              
              
              93.36
              
              
              9,512
              
              
              88.89
              
              
              8,039
              
              
              86.92
              
              
              3,357
              
              
              86.54Consumer
              
              
              **99**
              
              
              **0.72**
              
              
              42
              
              
              0.36
              
              
              8
              
              
              1.85
              
              
              6
              
              
              2.77
              
              
              468
              
              
              3.19**$**
              **13,590**
              
              
              **100.00**
              **%**
              $
              11,523
              
              
              100.00
              %
              $
              9,791
              
              
              100.00
              %
              $
              8,067
              
              
              100.00
              %
              $
              6,319
              
              
              100.00
              %
 
 **Nonperforming
        Assets**
 
 Nonperforming
        assets include nonperforming loans and foreclosed real estate held-for-sale.
        Nonperforming loans include loans classified as nonaccrual or renegotiated.
        The
        Bank's policy is to place a loan on nonaccrual status when it is contractually
        past due 90 days or more as to payment of principal or interest unless the
        collateral value is greater than both the principal due and the accrued
        interest. At the time a loan is placed on nonaccrual status, interest previously
        accrued but not collected is reversed and charged against current earnings.
        Recognition of any interest while on nonaccrual is accounted for on the cash
        basis when actually received.
 
 The
        Bank
        had nonperforming assets at December 31, 2006, 2005, 2004, 2003, and 2002
        of
        approximately $54,582,000, $3,137,000, $10,012,000, $22,269,000, and $7,698,000,
        respectively .
 
 The
        following table presents information concerning outstanding balances of
        nonperforming assets at December 31, 2006, 2005, 2004, 2003, and
        2002.
 
 **Nonperforming
        Assets**
 
 December
                  31,**2006**
              
              2005
              
              2004
              
              2003
              
              2002(Amounts
                  in thousands, except ratios)Nonaccruing
                  loans
              
              **$**
              **37,445**
              
              $
              194
              
              $
              247
              
              $
              9,727
              
              $
              5,036Accruing
                  loans 90 days or more past due
              
              
              **13,142**
              
              
              106
              
              
              —
              
              
              6,420
              
              
              2,662Restructured
                  loans
              
              
              **1,592**
              
              
              634
              
              
              7,562
              
              
              —
              
              
              —Total
                  nonperforming loans
              
              
              **52,179**
              
              
              934
              
              
              7,809
              
              
              16,147
              
              
              7,698Nonaccruing
                  securities
              
              
              **—**
              
              
              —
              
              
              —
              
              
              —
              
              
              —Other
                  real estate
              
              
              **2,403**
              
              
              2,203
              
              
              2,203
              
              
              6,122
              
              
              —Total
              
              **$**
              **54,582**
              
              $
              3,137
              
              $
              10,012
              
              $
              22,269
              
              $
              7,698**Ratios:**Loan
                  loss allowance to total nonperforming assets
              
              
              **0.249**
              
              
              3.673
              
              
              0.978
              
              
              0.362
              
              
              0.821Total
                  nonperforming loans to total loans (net of unearned
                  interest)
              
              
              **0.060**
              
              
              0.001
              
              
              0.014
              
              
              0.036
              
              
              0.018Total
                  nonperforming assets to total assets
              
              
              **0.054**
              
              
              0.003
              
              
              0.015
              
              
              0.042
              
              
              0.015
  30
 *Table
            of Contents*
  Except
        for 2006, there as been no significant impact on the Company's consolidated
        financial statements, as a result of the provisions of Statement of Financial
        Accounting Standards No. 114, *Accounting
        by Creditors for Impairment of a Loan* ,
        or
        Statement of Financial Accounting Standards No. 118, *Accounting
        by Creditors for Impairment of a Loan-Income Recognition and
        Disclosures* .
 
 **Noninterest
        Income**
 
 Noninterest
        income consists of revenues generated from a broad range of financial services
        and activities including fee-based services and profits and commissions earned
        through credit life insurance sales and other activities. In addition, gains
        or
        losses realized from the sale of fixed assets or other real estate owned
        are
        included in noninterest income. Total noninterest income increased by $2
        thousand (0.05%) for the year ended December 31, 2006, compared to 2005.
        While
        service charges on deposits increased $212 thousand (14.5%), fees from secondary
        market loan sales decreased $221 thousand (22.7%) due to the slow real estate
        market in 2006. Fees related to the money service businesses increased $83
        thousand (10.7%), but management closed all of the “high risk” accounts at the
        end of the year due to regulatory constraints and that income (approximately
        $860 thousand) will not occur in 2007. Total noninterest income increased
        by
        $106 thousand (2.78%) for the year ended December 31, 2005 compared to 2004.
        This increase is misleading due to approximately $1 million in gains that
        were
        recognized in 2004. Take away the gains and noninterest income actually
        increased $1.07 million or 38%. Total noninterest income increased by $1.05
        million (39.6%) for the year ended December 31, 2004, compared to 2003 due
        primarily to the gain on the sale of other real estate owned of $589 thousand
        and a gain from the sale of the old drive-thru building in LaBelle of $415
        thousand.
 
 The
        table
        below sets forth the Company's noninterest income for the periods
        indicated.
 
 2005/2006
              
              2004/2005Years
                  Ended December 31,
              
              Percent
              
              Percent**2006**
              
              2005
              
              2004
              
              Change
              
              Change(Dollars
                  in thousands)Service
                  charges on deposits
              
              **$**
              **1,678**
              
              $
              1,466
              
              $
              1,350
              
              
              14.5
              %
              
              8.6
              %Secondary
                  market fees
              
              
              **751**
              
              
              972
              
              
              534
              
              
              (22.7
              )
              
              82.0Exchange
                  fees
              
              
              **861**
              
              
              778
              
              
              554
              
              
              10.7
              
              
              40.4Bookkeeping
                  fees
              
              
              **151**
              
              
              167
              
              
              117
              
              
              (9.6
              )
              
              42.7Income/gains
                  on other real estate
              
              
              **—**
              
              
              —
              
              
              589
              
              
              0.0
              
              
              (100.0
              )Gain
                  on sale of fixed assets
              
              
              **—**
              
              
              21
              
              
              415
              
              
              0.0
              
              
              (94.9
              )Safe
                  deposit box rental
              
              
              **66**
              
              
              68
              
              
              66
              
              
              (2.9
              )
              
              3.0Other
              
              
              **409**
              
              
              442
              
              
              183
              
              
              (7.5
              )
              
              141.5**$**
              **3,916**
              
              $
              3,914
              
              $
              3,808
              
              
              0.1
              
              
              2.8
 
 **Noninterest
        Expenses**
 
 From
        2005
        to 2006, noninterest expense increased $2.1 million (16.5%). Salaries and
        employee benefits in 2006 increased $1.8 million (22.4%) from 2005 to a total
        of
        $9.6 million. The increase was due a combination of factors, from the normal
        increases from year to year for salaries and benefits (approximately $934
        thousand or 11%), the addition of several new officer positions and their
        related hiring costs (approximately $100 thousand), $356 thousand less in
        deferred loan origination costs and one time accrual of sick time of $309
        thousand.
 
 From
        2004
        to 2005, noninterest expense increased $682 thousand (5.6%). Salaries and
        employee benefits in 2005 increased $122 thousand (1.6%) from 2004 to a total
        of
        $7.9 million. The increase was due to the normal increases from year to year
        for
        salaries, benefits, and insurance costs; however, the increase was offset
        by an
        increase ($217 thousand) in the deferred loan origination costs (due to the
        increase in loan volume) that reduces the overall expense in this
        category.
  31
 *Table
            of Contents*
  From
        2003
        to 2004, noninterest expense increased $1.3 million (11.6%). Salaries and
        employee benefits in 2004 increased $721 thousand (10.3%) from 2003 to a
        total
        of $7.7 million. The increase was due to the normal increases from year to
        year
        for salaries, benefits and insurance costs.
 
 Occupancy
        and equipment expense increased $88 thousand (4.0%) from 2005 to 2006, increased
        $476 thousand (27.5%) from 2004 to 2005 and increased $198 thousand (12.9%)
        from
        2003 to 2004. During 2006 occupancy expense increased primarily due to higher
        equipment maintenance fees, higher depreciation and real estate taxes. During
        2005 occupancy expense increased primarily due to increased insurance expense,
        building repairs due to hurricane damage in 2005, increases in depreciation
        and
        maintenance expense (due to additional equipment added) and increases to
        electricity and real estate taxes. During 2004 occupancy expense increased
        primarily due to the expense of additional equipment added during 2003 and
        2004
        (increased depreciation and maintenance), increased building repairs due
        to the
        hurricanes in 2004 and higher property taxes in general.
 
 Expenses
        related to other real estate owned were minimal ($0) in 2006 compared to
        the
        $126 thousand in 2005 and $479 thousand in 2004. There was a piece of property
        ($200,000) added to other real estate owned at the end of 2006.
 
 Other
        expenses were not significantly higher in 2006 compared to 2005 and 2004.
        However, the increase was due to the overall growth of the bank (i.e.
        advertising, postage, correspondent bank fees, legal, regulatory
        etc.).
 
 The
        table
        below sets forth the Company's noninterest expenses for the periods
        indicated.
 
 **2005/2006**
              
              2004/2005Years
                  Ended December 31,
              
              **Percent**
              
              Percent**2006**
              
              2005
              
              2004
              
              **Change**
              
              Change(Dollars
                  in thousands)Salaries
                  and employee benefits
              
              **$**
              **9,608**
              
              $
              7,851
              
              $
              7,729
              
              
              **22.4**
              **%**
              
              1.6
              %Occupancy
                  and equipment expense
              
              
              **2,294**
              
              
              2,206
              
              
              1,730
              
              
              **4.0**
              
              
              27.5Professional
                  fees
              
              
              **461**
              
              
              405
              
              
              249
              
              
              **13.8**
              
              
              62.7Advertising
              
              
              **381**
              
              
              288
              
              
              265
              
              
              **32.3**
              
              
              8.7Telephone
              
              
              **251**
              
              
              264
              
              
              188
              
              
              **(4.9**
              **)**
              
              40.4Supplies
              
              
              **181**
              
              
              224
              
              
              171
              
              
              **(19.2**
              **)**
              
              31.0Regulatory
                  fees and assessments
              
              
              **252**
              
              
              202
              
              
              176
              
              
              **24.8**
              
              
              14.8ATM
                  expense
              
              
              **178**
              
              
              188
              
              
              147
              
              
              **(5.3**
              **)**
              
              27.9Courier
                  fees
              
              
              **180**
              
              
              176
              
              
              127
              
              
              **2.3**
              
              
              38.6Software
                  maintenance
              
              
              **149**
              
              
              141
              
              
              138
              
              
              **5.7**
              
              
              2.2Postage
              
              
              **132**
              
              
              117
              
              
              123
              
              
              **12.8**
              
              
              (4.9
              )Correspondent
                  bank fees
              
              
              **142**
              
              
              117
              
              
              91
              
              
              **21.4**
              
              
              28.6Director
                  and committee fees
              
              
              **70**
              
              
              70
              
              
              67
              
              
              **0.0**
              
              
              4.5Employee
                  education
              
              
              **75**
              
              
              66
              
              
              70
              
              
              **13.6**
              
              
              (5.7
              )Dues
                  and subscriptions
              
              
              **83**
              
              
              57
              
              
              48
              
              
              **45.6**
              
              
              18.8Taxes
                  and licenses
              
              
              **21**
              
              
              21
              
              
              85
              
              
              **0.0**
              
              
              (75.3
              )Other
              
              
              **611**
              
              
              540
              
              
              847
              
              
              **13.1**
              
              
              (36.3
              )Total
              
              **$**
              **15,069**
              
              $
              12,933
              
              $
              12,251
              
              
              **16.5**
              **%**
              
              5.6
              %
 
 **Income
        Taxes**
 
 Income
        tax expense increased
        $3.2 million (28.2%) to $14.6 million for the year ended December 31, 2006, increased
        $3.7 million (48.2%) to $11.4 million for the year ended December 31, 2005
        and
        increased $2.6 million (51.1%) to $7.7 million for the year ended December
        31,
        2004. The effective tax rate as a percentage of pretax income was 38.7% in
        2006,
        38.5% in 2005 and 38.6% in 2004. The statutory federal rate was 34 percent
        during 2006, 2005 and 2004. There is no current or pending tax legislation
        of
        which management is aware that if passed would have any material effect on
        the
        financial statements. For further information concerning the provision for
        income taxes, refer to Note 15, Income Taxes, of the "Notes to Consolidated
        Financial Statements."
  32
 *Table
            of Contents*
  **Impact
        of Inflation and Changing Prices**
 
 A
        bank's
        asset and liability structure is substantially different from that of an
        industrial company in that virtually all assets and liabilities of a bank
        are
        monetary in nature. Management believes the impact of inflation on its financial
        results depends upon the Company's ability to react to changes in interest
        rates
        and by such reaction to reduce the inflationary impact on performance. Interest
        rates do not necessarily move in the same direction, or at the same magnitude,
        as the prices of other goods and services. As discussed previously, management
        seeks to manage the relationship between interest-sensitive assets and
        liabilities in order to protect against wide or sustained interest rate
        fluctuations, including those resulting from inflation.
 
 **Market
        Risk**
 
 Market
        risk is the risk arising from adverse changes in the fair value of financial
        instruments due to a change in interest rates, exchange rates and equity
        prices.
        The Company's primary risk is interest rate risk.
 
 The
        primary objective of Asset/Liability Management of the Company is to manage
        interest rate risk and achieve reasonable stability in net interest income
        throughout interest rate cycles. This is achieved by maintaining the proper
        balance of rate sensitive earning assets and rate sensitive liabilities.
        The
        relationship of rate sensitive earning assets to rate sensitive liabilities,
        is
        the principal factor in projecting the effect that fluctuating interest rates
        will have on future net interest income. Rate sensitive earning assets and
        interest-bearing liabilities are those that can be re-priced to current market
        rates within a relatively short time period. Management monitors the rate
        sensitivity of earning assets and interest-bearing liabilities over the entire
        life of these instruments, but places particular emphasis on the first year
        and
        through three years.
 
 The
        Company uses additional tools to monitor and manage interest rate sensitivity.
        One of the primary tools is simulation analysis. Simulation analysis is the
        primary method of estimating earnings at risk and capital at risk under varying
        interest rate conditions. Simulation analysis is used to test the sensitivity
        of
        the Company's net interest income and shareholders' equity to both the level
        of
        interest rates and the slope of the yield curve. Simulation analysis accounts
        for the expected timing and magnitude of assets and liability cash flows,
        as
        well as the expected timing and magnitude of deposits that do not re-price
        on a
        contractual basis. In addition, simulation analysis includes adjustments
        for the
        lag between movements in market interest rates on loans and interest-bearing
        deposits. These adjustments are made to reflect more accurately possible
        future
        cash flows, re-pricing behavior, and ultimately net interest income. The
        estimated impact on the Company's net interest income before provision for
        loan
        loss sensitivity over a one-year time horizon is shown below. Such analysis
        assumes a sustained parallel shift in interest rates and the Company's estimate
        of how interest-bearing transaction accounts will re-price in each scenario.
        Actual results will differ from simulated results due to timing, magnitude
        and
        frequency of interest rate changes and changes in market conditions and
        management's strategies, among other factors.
 
 The
        Company has not experienced a high level of volatility in net interest income
        primarily because of the relatively short duration of its balance sheet.
        Management is very much aware of its asset sensitivity and the potential
        interest rate risk in a declining rate environment; however, they believe
        that
        there are mitigating factors, such as the loan rate floors that will help
        to
        mitigate this risk. By keeping both sides of the balance sheet short, management
        is reducing its interest rate risk and increasing its capability to react
        to
        changes in interest rates quicker and more effectively than if they were
        longer.
  33
 *Table
            of Contents*
   Percentage
                  Increase
                (Decrease)
                  in Interest
                Income/Expense
                  Given
                Interest
                  Rate ShiftsDown
                  200
                Basis
                  Points
              
              Up
                  200
                Basis
                  PointsFor
                  the Twelve Months after December 31, 2006Projected
                  change in:Interest
                  income
              
              
              (15.76
              )%
              
              15.95
              %Interest
                  expense
              
              
              (19.74
              )
              
              17.26Net
                  interest income
              
              
              (12.90
              )
              
              15.00
 
 **Recent
        Accounting Standards**
 
 In
        March
        2004, the Emerging Issues Task Force ("EITF") reached a consensus on the
        remaining portions of EITF 03-01, *The
        Meaning of Other-Than-Temporary Impairment and It's Application to Certain
        Investments* ,
        effective for the first fiscal year or interim period beginning after June
        15,
        2004. EITF 03-01 provides guidance for determining when an investment is
        considered impaired, whether impairment is other-than-temporary, and measurement
        of an impairment loss. An investment is considered impaired if the fair value
        of
        the investment is less than its cost. Generally, an impairment is considered
        other-than-temporary unless: (1) the investor has the ability and intent
        to hold
        an investment for a reasonable period of time sufficient for an anticipated
        recovery of fair value up to (or beyond) the cost of the investment, and
        (2)
        evidence indicating that the cost of the investment is recoverable within
        a
        reasonable period of time outweighs evidence to the contrary. If impairment
        is
        determined to be other-than-temporary, then an impairment loss should be
        recognized equal to the difference between the investment's cost and its
        fair
        value. Certain disclosure requirements of EITF 03-01 were adopted in 2003
        and
        the Company began presenting the new disclosure requirements in its consolidated
        financial statements for the year ended December 31, 2003. The recognition
        and
        measurement provisions were initially effective for other-than-temporary
        impairment evaluations in reporting periods beginning after June 15, 2004.
        In
        June 2005, the Financial Accounting Standards Board (“FASB”) decided not to
        provide additional guidance on the meaning of other-than-temporary impairment,
        but directed the staff to issue proposed FASB Staff Position ("FSP") EITF
        03-1-a, *Implementation
        Guidance for the Application of Paragraph 16 of EITF Issue No.
        03-1* as
        final. However, in November 2005 the FASB issued FASB Staff Position (retitled
        FSP 115-1/124-1), *The
        Meaning of Other-Than-Temporary Impairment and its Application to Certain
        Investments* .
        This
        FSP provides additional guidance on when an investment in a debt or equity
        security should be considered impaired and when that impairment should be
        considered other-than-temporary and recognized as a loss in earnings.
        Specifically, the guidance clarifies that an investor should recognize an
        impairment loss no later than when the impairment is deemed
        other-than-temporary, even if a decision to sell has not been made. The FSP
        also
        requires certain disclosures about unrealized losses that have not been
        recognized as other-than-temporary impairments. The Company applied the guidance
        in this FSP in 2005 and there was no material affect to the results of
        operations or the statements of financial condition.
 
 In
        March
        2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
        Bulletin ("SAB") No. 105, *Application
        of Accounting Principles to Loan Commitments* .
        SAB No.
        105 requires that the fair value measurement of mortgage loan commitments,
        which
        are derivatives, exclude any expected future cash flows related to the customer
        relationship or servicing rights. The guidance in SAB No. 105 must be applied
        to
        mortgage loan commitments entered into after March 31, 2004. The impact on
        the
        Company is not material given the declines in mortgage banking volume, but
        could
        be in the future. The impact is primarily the timing of when gains should
        be
        recognized in the financial statements.
 
 In
        December 2004, the FASB issued SFAS No. 123 (revised 2004), entitled *Share-Based
        Payment* ("SFAS
        No. 123(R)") that requires compensation costs related to share-based payment
        transactions to be recognized in the financial statements. This statement
        eliminates the alternative to use APB Opinion No. 25's intrinsic value method
        of
        accounting that was provided in SFAS No. 123 as originally issued. Under
        Opinion
        No. 25, issuing stock options to employees generally resulted in recognition
        of
        no compensation cost. This statement requires entities to recognize the cost
        of
        employee services received in exchange for awards of equity instruments based
        on
        the grant-date fair value of those awards (with limited exceptions). Recognition
        of that compensation cost helps users of financial statements to better
        understand the economic transactions affecting an entity and to make better
        resource allocation decisions. The Company adopted SFAS No. 123(R) on January
        1,
        2006, the effective date of this statement. The adoption of this statement
        did
        not have a material impact on the consolidated financial
        statements.
  34
 *Table
            of Contents*
  On December
        16, 2004, the FASB issued SFAS No. 153, *Exchanges
        of Nonmonetary Assets* ,
        an
        amendment of APB Opinion No. 29. SFAS No. 153 amends the principle that
        exchanges of nonmonetary assets should be measured based on the fair value
        of
        the assets exchanged and more broadly provides exceptions regarding exchanges
        of
        nonmonetary assets that do not have commercial substance. A nonmonetary exchange
        has commercial substance when the future cash flows of the entity are expected
        to change significantly as a result of the exchange. The provisions of SFAS
        No.
        153 are effective for nonmonetary asset exchanges occurring in periods beginning
        after June 15, 2005. The adoption of this standard did not have a material
        impact on the financial condition or the operating results of the
        Company.
 
 In
        May
        2005, the FASB issued SFAS No. 154, *Accounting
        Changes and Error* *Corrections* ,
        which
        replaces APB Opinion No. 20, *Accounting
        Changes* ,
        and
        SFAS No. 3,  *Reporting
        Accounting Changes in Interim Financial Statements--An Amendment
        of* *APB
        Opinion No. 28* .
        SFAS
        No. 154 changes the requirements for the accounting and reporting of a change
        in
        accounting principle. It applies to all voluntary changes
        in accounting principle as well as to changes required by an
        accounting pronouncement that does not include specific transition provisions. SFAS
        No. 154
        eliminates the requirement in APB Opinion No. 20 to include the cumulative effect
        of
        changes in accounting principle in the income statement in the
        period of
        change. Instead, to enhance the comparability of prior period financial
        statements, SFAS No. 154 requires that changes in accounting principle be
        retrospectively applied. Under retrospective application, the new accounting
        principle is applied as of the beginning of the first period presented as
        if
        that principle had always been used. The cumulative effect of the change
        is
        reflected in the carrying value of assets and liabilities as of the first
        period
        presented and the offsetting adjustments are recorded to opening retained
        earnings. Each period presented is adjusted to reflect the period-specific
        effects of applying the change. SFAS No. 154 also redefines "restatement"
        as the
        revising of previously issued financial statements to reflect the correction
        of
        an error. Only direct effects of the change will be included in the
        retrospective application;
        all indirect effects will be recognized in the period of change. If it is
        impracticable to determine the cumulative effect for all prior periods,
        the new accounting principle should be applied as if it were adopted prospectively from the earliest date practicable. SFAS No. 154 is effective
        for
        accounting changes and corrections of errors made in fiscal years beginning
        after December 15, 2005. The
        adoption of this standard did not have a material impact on the financial
        condition or the operating results of the Company.
 
 In
        February 2006, the FASB issued SFAS No. 155 entitled *Accounting
        for Certain Hybrid Financial Instruments.* SFAS
        No.
        155 amends SFAS No. 133, entitled *Accounting
        for Derivative Instruments and Hedging Activities* ,
        and
        SFAS No. 140, entitled *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* .
        This
        statement permits fair value remeasurement of certain hybrid financial
        instruments containing embedded derivatives and requires evaluation of
        securitized financial assets for purposes of identifying items of a derivative
        nature. The statement includes further clarification as to the derivative
        classification of selected financial instruments. The provisions of SFAS
        No. 155
        are effective for all financial instruments acquired or issued after the
        beginning of the first fiscal year that begins after September 15, 2006.
        The
        fair value "election" within the literature may be utilized upon adoption
        of the
        guidance related to hybrid financial instruments. Earlier adoption is permitted
        as of the beginning of a fiscal year, provided that reporting entities have
        not
        yet issued financial statements. The provisions within SFAS No. 155 may be
        applied to instruments "held" at the date of adoption on an
        instrument-by-instrument basis. At adoption, any difference between the total
        carrying amount of the individual components of the existing hybrid financial
        instrument and the fair value of the combined hybrid financial instrument
        should
        be recognized as a cumulative-effect adjustment to beginning retained earnings.
        Reporting entities should separately disclose the gross gains and losses
        that
        make up the cumulative-effect adjustment, determined on an
        instrument-by-instrument basis. Prior periods should not be restated. The
        Company does not expect the adoption of this statement to have a material
        effect
        on the consolidated financial statements.
  35
 *Table
            of Contents*
  In
        March
        2006, the FASB issued SFAS No. 156, *Accounting
        for Servicing of Financial Assets,* which
        amends SFAS No. 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities.* This
        statement addresses the recognition and measurement of separately recognized
        servicing assets and liabilities, such as those common with mortgage
        securitization activities, and provides an approach to simplify efforts to
        obtain hedge-like accounting. It also clarifies when an obligation to service
        financial assets should be separately recognized as a servicing asset or
        servicing liability and requires that those separately recognized assets
        or
        liabilities be initially measured at fair value, if practicable. SFAS No.
        156
        permits an entity to choose either the amortization method or the fair value
        method for subsequent measurement and also permits a servicer that uses
        derivative financial instruments to offset risks on servicing to report both
        the
        derivative financial instrument and related servicing asset or liability
        by
        using a consistent measurement attribute, fair value. This statement shall
        be
        effective for all separately recognized servicing assets and liabilities
        acquired or issued after the beginning of an entity ' s
        first
        fiscal year beginning after September 15, 2006, with early adoption permitted.
        Management believes this statement will not have a material effect on the
        consolidated financial statements.
 
 In
        June
        2006, the FASB issued FIN 48, *Accounting
        For Uncertainty in Income Taxes.* FIN 48
        clarifies the accounting for uncertainty in income taxes recognized in an
        enterprise's financial statements in accordance with SFAS No. 109, *Accounting
        for Income Taxes* .
        This
        interpretation prescribes a recognition threshold and measurement attribute
        for
        the financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return. This interpretation is effective for
        fiscal years beginning after December 15, 2006. Management believes this
        interpretation will not have a material effect on the consolidated financial
        statements.
 
 In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements* .
        SFAS
        No. 157 defines fair value, establishes a framework for measuring fair value
        in
        generally accepted accounting principles and expands disclosures about fair
        value measurements. SFAS No. 157 is effective for the Company on January 1,
        2008. Management does not expect the adoption of this statement to have a
        material effect on the consolidated financial statements.
 
 In
        September 2006, the FASB issued SFAS No. 158, *Employers'
        Accounting for Defined Benefit Pension and Other Postretirement
        Plans* ,
        which
        amends SFAS No. 87 and SFAS No. 106 to require recognition of the overfunded
        or
        underfunded status of pension and other postretirement benefit plans on the
        balance sheet. Under SFAS No. 158, gains and losses, prior service costs
        and
        credits, and any remaining transition amounts under SFAS No. 87 and SFAS
        No. 106
        that have not yet been recognized through net periodic benefit cost will
        be
        recognized in accumulated other comprehensive income, net of tax effects,
        until
        they are amortized as a component of net periodic cost. The measurement date,
        the date at which the benefit obligation and plan assets are measured, is
        required to be the company's fiscal year end. SFAS No. 158 is effective for
        the
        Company for fiscal years ending after December 15, 2006, except for the
        measurement date provisions, which are effective for fiscal years ending
        after
        December 15, 2008. The adoption of this statement did not have a material
        effect
        on the consolidated financial statements.
 
 In
        September 2006, the FASB ratified the consensuses reached by the FASB's EITF
        relating to EITF 06-4, *Accounting
        for the Deferred Compensation and Postretirement Benefit Aspects of Endorsement
        Split-Dollar Life Insurance Arrangements* .
        EITF
        06-4 addresses employer accounting for endorsement split-dollar life insurance
        arrangements that provide a benefit to an employee that extends to
        postretirement periods. EITF 06-4 provides that an employer should recognize
        a
        liability for future benefits in accordance with SFAS No. 106, *Employers'
        Accounting for Postretirement Benefits Other Than Pensions* ,
        or APB
        Opinion No. 12, *Omnibus
        Opinion-1967* .
        EITF
        06-4 is effective for fiscal years beginning after December 15, 2006. Entities
        should recognize the effects of applying this issue through either (a) a
        change
        in accounting principle through a cumulative-effect adjustment to retained
        earnings or to other components of equity or net assets in the statement
        of
        financial condition as of the beginning of the year of adoption or (b) a
        change
        in accounting principle through retrospective application to all prior periods.
        Management does not believe the adoption of EITF 06-4 will have a material
        impact on the consolidated financial statements.
 
 On
        September 13, 2006, the SEC issued SAB No. 108. SAB No. 108 provides
        interpretive guidance on how the effects of the carryover or reversal of
        prior
        year misstatements should be considered in quantifying a potential current
        year
        misstatement. Prior to SAB No. 108, Companies might evaluate the materiality
        of
        financial statement misstatements using either the income statement or balance
        sheet approach, with the income statement approach focusing on new misstatements
        added in the current year, and the balance sheet approach focusing on the
        cumulative amount of misstatement present in a company's balance sheet.
        Misstatements that would be material under one approach could be viewed as
        immaterial under another approach, and not be corrected. SAB No. 108 now
        requires that companies view financial statement misstatements as material
        if
        they are material according to either the income statement or balance sheet
        approach. The Company has analyzed SAB No. 108 and determined that upon adoption
        it will have no impact on the reported results of operations or financial
        condition.
  36
 *Table
            of Contents*
  In
        February 2007, the FASB issued SFAS No. 159, *The
        Fair Value Option for Financial Assets and Financial Liabilities - Including
        an
        Amendment of FASB Statement No. 115.* This
        standard permits an entity to choose to measure any financial instruments
        and
        certain other items at fair value at specified election dates. A business
        entity
        will report unrealized gains and losses on items for which the fair value
        option
        has been elected in earnings at each subsequent reporting date. The fair
        value
        option: (a) may be applied instrument by instrument, with a few exceptions,
        such
        as investments otherwise accounted for by the equity method; (b) is irrevocable
        (unless a new election date occurs); and (c) is applied only to entire
        instruments and not to portions of instruments. SFAS No. 159 is effective
        as of
        the beginning of an entity's first fiscal year that begins after November
        15,
        2007. Management is currently evaluating the impact that the options available
        from this statement could have on the consolidated financial
        statements.
 
 [The
        remainder of this page intentionally left blank]
  37
 *Table
            of Contents*
  **ITEM8.**
              **FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY
                  DATA**
 
 The
        financial statements and supplementary data required by Regulation S-X and
        by
        Item 302 of Regulation S-K are set forth in the pages listed below.
 
 
 **FLORIDA
        COMMUNITY BANKS, INC. AND SUBSIDIARY**
 **CONSOLIDATED
        FINANCIAL STATEMENTS**
 
 **INDEX**
 
 PageManagement's
                  Report on Internal Control Over Financial Reporting
              39Report
                  of Independent Registered Public Accounting Firm
              40Consolidated
                  Statements of Financial Condition as of December 31, 2006 and
                  2005
              42Consolidated
                  Statements of Income for the Years Ended December 31, 2006, 2005
                  and
                  2004
              43Consolidated
                  Statements of Shareholders' Equity for the Years Ended December
                  31, 2006,
                  2005 and 2004
              44Consolidated
                  Statements of Cash Flows for the Years Ended December 31, 2006,
                  2005 and
                  2004
              45Notes
                  to Consolidated Financial Statements
              47Quarterly
                  Results (Unaudited)
              86
 
  38
 *Table
            of Contents*
  **MANAGEMENT'S
        REPORT ON INTERNAL CONTROL**
 **OVER
        FINANCIAL REPORTING**
 
  The
        management of the Company is responsible for establishing and maintaining
        adequate internal control over financial reporting. Internal control over
        financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated
        under the Securities Exchange Act of 1934 as a process designed by, or under
        the
        supervision of, the Company’s principal executive and principal financial
        officers and effected by the Company’s board of directors, management and other
        personnel, to provide reasonable assurance regarding the reliability of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with generally accepted accounting principles and
        includes those policies and procedures that:
  s
              Pertain
                  to the maintenance of records that in reasonable detail, accurately
                  and
                  fairly reflect the transactions and dispositions of the assets
                  of the
                  Company;
  s
              Provide
                  reasonable assurance that transactions are recorded as necessary
                  to permit
                  preparation of financial statements in accordance with generally
                  accepted
                  accounting principles, and that receipts and expenditures of the
                  Company
                  are being made only in accordance with authorizations of management
                  and
                  directors of the Company; and
  s
              Provide
                  reasonable assurance regarding prevention or timely detection of
                  unauthorized acquisition, use or disposition of the Company’s assets that
                  could have a material effect on the financial
                  statements.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. All internal control systems, no matter
        how
        well designed, have inherent limitations, including the possibility of human
        error and the circumvention of overriding controls. Accordingly, even effective
        internal control over financial reporting can provide only reasonable assurance
        with respect to financial statement preparation. Also, projections of any
        evaluation of effectiveness to future periods are subject to the risk that
        controls may become inadequate because of changes in conditions, or that
        the
        degree of compliance with the policies or procedures may
        deteriorate.
  The
        Company’s management assessed the effectiveness of the Company’s internal
        control over financial reporting as of December 31, 2006. In making this
        assessment, the Company’s management used the criteria set forth by the
        Committee of Sponsoring Organizations of the Treadway Commission ("COSO")
        in
        Internal Control-Integrated Framework.
  Based
        on
        our assessment, management believes that, as of December 31, 2006, the Company’s
        internal control over financial reporting is effective based on those criteria.
        Management's assessment of the effectiveness of the Company's internal control
        over financial reporting as of December 31, 2006, has been audited by Schauer
        Taylor, P.C., an independent registered public accounting firm, as stated
        in
        their report which is contained herein.
  
  /s/
                  Stephen L. Price
              
              /s/
                  Guy W. HarrisStephen
                  L. Price
              
              Guy
                  W. HarrisChairman,
                  President and
              
              Chief
                  Financial OfficerChief
                  Executive Officer
              
              March
                  15, 2007March
                  15, 2007
 
  39
 *Table
            of Contents*
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 The
        Board
        of Directors and Stockholders
 Florida
        Community Banks, Inc. and subsidiary:
 
 We
        have
        audited the accompanying consolidated statements of financial condition of
        Florida Community Banks, Inc. and subsidiary (the "Company") as of December
        31,
        2006 and 2005, and the related consolidated statements of income, shareholders'
        equity, and cash flows for each of the years in the three-year period ended
        December 31, 2006. We have also audited management's assessment, included
        in the
        accompanying "Management Report on Internal Control Over Financial Reporting,"
        that the Company maintained effective internal control over financial reporting
        as of December 31, 2006, based on criteria established in *Internal
        Control - Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission
        ("COSO"). The Company's management is responsible for these consolidated
        financial statements, for maintaining effective internal control over financial
        reporting, and for its assessment of the effectiveness of internal control
        over
        financial reporting. Our responsibility is to express an opinion on these
        consolidated financial statements, an opinion on management's assessment,
        and an
        opinion on the effectiveness of the Company's internal control over financial
        reporting based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free of material misstatement and whether effective
        internal control over financial reporting was maintained in all material
        respects. Our audit of the consolidated financial statements included examining,
        on a test basis, evidence supporting the amounts and disclosures in the
        financial statements, assessing the accounting principles used and significant
        estimates made by management, and evaluating the overall financial statement
        presentation. Our audit of internal control over financial reporting included
        obtaining an understanding of internal control over financial reporting,
        evaluating management's assessment, testing and evaluating the design and
        operating effectiveness of internal control, and performing such other
        procedures as we considered necessary in the circumstances. We believe that
        our
        audits provide a reasonable basis for our opinions.
 
 A
        company's internal control over financial reporting is a process designed
        to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles. A company's internal control
        over
        financial reporting includes those policies and procedures that (1) pertain
        to
        the maintenance of records that, in reasonable detail, accurately and fairly
        reflect the transactions and dispositions of the assets of the company; (2)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company's
        assets that could have a material effect on the financial
        statements.
 
 Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
  40
 *Table
            of Contents*
  In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Florida
        Community Banks, Inc. and subsidiary as of December 31, 2006 and 2005, and
        the
        consolidated results of their operations and their cash flows for each of
        the
        years in the three-year period ended December 31, 2006 in conformity with
        U.S. generally
        accepted accounting
        principles. Also, in our opinion, management's assessment that Florida Community
        Banks, Inc. and subsidiary maintained effective internal control over financial
        reporting as of December 31, 2006, is fairly stated, in all material
        respects, based on criteria established in *Internal
        Control - Integrated Framework* issued
        by COSO. Furthermore, in our opinion, Florida Community Banks, Inc. and
        subsidiary maintained, in all material respects, effective internal control
        over
        financial reporting as of December 31, 2006, based on criteria established
        in *Internal
        Control - Integrated Framework* issued
        by COSO.
 
 
 Birmingham,
                  Alabama****
              /s/
                  Schauer Taylor, P.C.March
                  14, 2007**Schauer
                  Taylor, PC**
 
  41
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **CONSOLIDATED
        STATEMENTS OF FINANCIAL CONDITION**
 
 **DECEMBER
        31, 2006** **and
        2005**
 
 **2006**
              
              2005**Assets**Cash
                  and due from banks
              
              **$**
              **19,013,130**
              
              $
              27,177,610Interest-bearing
                  demand deposits with banks
              
              
              **1,499,212**
              
              
              5,002,739Federal
                  funds sold
              
              
              **100,000**
              
              
              188,000**Cash
                  and Cash Equivalents**
              
              
              **20,612,342**
              
              
              32,368,349Securities
                  held-to-maturity, fair value of $99,976,028 in2006
                  and $59,290,254 in 2005
              
              
              **101,109,108**
              
              
              61,033,171Other
                  investments-securities
              
              
              **5,595,465**
              
              
              4,709,265Other
                  investments-partnerships
              
              
              **1,263,875**
              
              
              500,000Loans
                  held-for-sale
              
              
              **145,600**
              
              
              300,000Loans,
                  net of unearned income
              
              
              **869,462,473**
              
              
              791,308,855Allowance
                  for loan losses
              
              
              **(13,590,000**
              **)**
              
              (11,522,910
              )**Net
                  Loans**
              
              
              **855,872,473**
              
              
              779,785,945Premises
                  and equipment, net
              
              
              **14,455,093**
              
              
              13,776,233Accrued
                  interest
              
              
              **6,640,337**
              
              
              4,941,241Foreclosed
                  real estate
              
              
              **2,403,435**
              
              
              2,203,435Deferred
                  taxes, net
              
              
              **6,425,467**
              
              
              5,830,225Other
                  assets
              
              
              **2,154,231**
              
              
              1,633,670**Total
                  Assets**
              
              **$**
              **1,016,677,426**
              
              $
              907,081,534**Liabilities
                  and Shareholders’ Equity****Liabilities****Deposits**Noninterest-bearing
              
              **$**
              **109,481,282**
              
              $
              129,559,895Interest-bearing
              
              
              **725,980,218**
              
              
              607,695,861**Total
                  Deposits**
              
              
              **835,461,500**
              
              
              737,255,756Short-term
                  borrowings
              
              
              **694,000**
              
              
              25,088,000Accrued
                  interest
              
              
              **2,767,839**
              
              
              2,399,280Deferred
                  compensation
              
              
              **246,635**
              
              
              281,629Note
                  payable
              
              
              **—**
              
              
              23,939FHLB
                  advances
              
              
              **55,000,000**
              
              
              60,000,000Subordinated
                  debentures
              
              
              **30,929,000**
              
              
              10,310,000Other
                  liabilities
              
              
              **1,011,138**
              
              
              1,647,148**Total
                  Liabilities**
              
              
              **926,110,112**
              
              
              837,005,752**Shareholders’
                  Equity**Common
                  stock - par value $0.01 per share, 10,000,000 shares authorized,
                  6,591,387
                  shares issued and outstanding at December 31, 2006 and
                  2005
              
              
              **65,914**
              
              
              65,914Paid-in
                  capital
              
              
              **18,445,864**
              
              
              18,353,829Retained
                  earnings
              
              
              **72,055,536**
              
              
              51,656,039**Total
                  Shareholders’ Equity**
              
              
              **90,567,314**
              
              
              70,075,782**Total
                  Liabilities and Shareholders’ Equity**
              
              **$**
              **1,016,677,426**
              
              $
              907,081,534
 
 See
        notes
        to consolidated financial statements
  42
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **CONSOLIDATED
        STATEMENTS OF INCOME**
 
 **Years
        Ended December 31, 2006, 2005 and 2004**
 
 **2006**
              
              2005
              
              2004**Interest
                  Income**Interest
                  and fees on loans
              
              **$**
              **81,434,704**
              
              $
              54,686,904
              
              $
              37,739,970Interest
                  anddividends
                  on taxable securities
              
              
              **3,221,155**
              
              
              2,813,360
              
              
              1,587,963Interest
                  on tax-exempt securities
              
              
              **166,262**
              
              
              —
              
              
              —Interest
                  on federal funds sold
              
              
              **686,231**
              
              
              210,213
              
              
              197,144Interest
                  on deposits in banks
              
              
              **66,177**
              
              
              78,047
              
              
              24,378**Total
                  Interest Income**
              
              
              **85,574,529**
              
              
              57,788,524
              
              
              39,549,455**Interest
                  Expense**Interest
                  on deposits
              
              
              **29,741,087**
              
              
              13,863,702
              
              
              7,109,471Interest
                  on short-term borrowings
              
              
              **277,152**
              
              
              500,749
              
              
              56,072Interest
                  on FHLB advances
              
              
              **2,492,831**
              
              
              2,308,069
              
              
              1,503,145Interest
                  on subordinated debentures
              
              
              **1,853,679**
              
              
              712,617
              
              
              530,931**Total
                  Interest Expense**
              
              
              **34,364,749**
              
              
              17,385,137
              
              
              9,199,619**Net
                  Interest Income**
              
              
              **51,209,780**
              
              
              40,403,387
              
              
              30,349,836Provision
                  for loan losses
              
              
              **2,296,270**
              
              
              1,762,000
              
              
              1,970,768**Net
                  Interest Income After Provision For Loan Losses**
              
              
              **48,913,510**
              
              
              38,641,387
              
              
              28,379,068**Noninterest
                  Income**Customer
                  service fees
              
              
              **1,678,478**
              
              
              1,465,639
              
              
              1,350,302Income
                  and gain on sale from other real estate owned
              
              
              **—**
              
              
              **—**
              
              
              588,982Secondary
                  market loan fees
              
              
              **750,686**
              
              
              972,349
              
              
              533,847Other
                  operating income
              
              
              **1,487,078**
              
              
              1,475,698
              
              
              1,334,963**Total
                  Noninterest Income**
              
              
              **3,916,242**
              
              
              3,913,686
              
              
              3,808,094**Noninterest
                  Expenses**Salaries
                  and employee benefits
              
              
              **9,608,072**
              
              
              7,851,022
              
              
              7,728,811Occupancy
                  and equipment expense
              
              
              **2,293,985**
              
              
              2,205,868
              
              
              1,730,033Expenses,
                  write-downs, and losses on sale from other real estate
                  owned
              
              
              **—**
              
              
              126,082
              
              
              479,159Other
                  operating expenses
              
              
              **3,167,277**
              
              
              2,750,343
              
              
              2,313,330**Total
                  Noninterest Expenses**
              
              
              **15,069,334**
              
              
              12,933,315
              
              
              12,251,333Income
                  before income taxes
              
              
              **37,760,418**
              
              
              29,621,758
              
              
              19,935,829Income
                  tax expense
              
              
              **14,614,349**
              
              
              11,403,727
              
              
              7,693,897**Net
                  Income**
              
              **$**
              **23,146,069**
              
              $
              18,218,031
              
              $
              12,241,932**Earnings
                  Per Common Share**Basic
              
              **$**
              **3.52**
              
              $
              2.77
              
              $
              1.88Diluted
              
              
              **3.48**
              
              
              2.75
              
              
              1.86**Cash
                  Dividends Declared Per Common Share**
              
              
              **0.42**
              
              
              0.35
              
              
              0.29**Weighted
                  Average Shares Outstanding**Basic
              
              
              **6,575,356**
              
              
              6,571,446
              
              
              6,503,465Diluted
              
              
              **6,655,945**
              
              
              6,635,012
              
              
              6,573,772
 
 See
        notes
        to consolidated financial statements
  43
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS' EQUITY**
 
 **Years
        Ended December 31, 2006, 2005 and 2004**
 
 Common
                Stock
              
              Paid-in
                Capital
              
              Retained
                Earnings
              
              TotalBalance
                  at December 31, 2003
              
              $
              64,755
              
              $
              16,652,782
              
              $
              25,368,232
              
              $
              42,085,769Net
                  income - 2004
              
              
              —
              
              
              —
              
              
              12,241,932
              
              
              12,241,932Comprehensive
                  income
              
              
              —
              
              
              —
              
              
              —
              
              
              12,241,932Sale
                  of common stock
              
              
              319
              
              
              464,883
              
              
              —
              
              
              465,202Stock-based
                  compensation expense
              
              
              —
              
              
              17,988
              
              
              —
              
              
              17,988Cash
                  dividends - Common $0.29 per share
              
              
              —
              
              
              —
              
              
              (1,883,192
              )
              
              (1,883,192
              )Balance
                  at December 31, 2004
              
              
              65,074
              
              
              17,135,653
              
              
              35,726,972
              
              
              52,927,699Net
                  income - 2005
              
              
              —
              
              
              —
              
              
              18,218,031
              
              
              18,218,031Comprehensive
                  income
              
              
              —
              
              
              —
              
              
              —
              
              
              18,218,031Sale
                  of common stock
              
              
              840
              
              
              1,161,393
              
              
              —
              
              
              1,162,233Stock-based
                  compensation expense
              
              
              —
              
              
              56,783
              
              
              —
              
              
              56,783Cash
                  dividends - Common $0.35 per share
              
              
              —
              
              
              —
              
              
              (2,288,964
              )
              
              (2,288,964
              )**Balance
                  at December 31, 2005**
              
              
              **65,914**
              
              
              **18,353,829**
              
              
              **51,656,039**
              
              
              **70,075,782****Net
                  income - 2006**
              
              
              **—**
              
              
              **—**
              
              
              **23,146,069**
              
              
              **23,146,069****Comprehensive
                  income**
              
              
              **—**
              
              
              **—**
              
              
              **—**
              
              
              **23,146,069****Stock-based
                  compensation expense**
              
              
              **—**
              
              
              **92,035**
              
              
              **—**
              
              
              **92,035****Cash
                  dividends - Common $0.42 per share**
              
              
              **—**
              
              
              **—**
              
              
              **(2,746,572**
              **)**
              
              **(2,746,572**
              **)****Balance
                  at December 31, 2006**
              
              **$**
              **65,914**
              
              **$**
              **18,445,864**
              
              **$**
              **72,055,536**
              
              **$**
              **90,567,314**
 
 See
        notes
        to consolidated financial statements
  44
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 
 **Years
        Ended December 31, 2006, 2005 and 2004**
 
 **2006**
              
              2005
              
              2004**Operating
                  Activities**Net
                  income
              
              **$**
              **23,146,069**
              
              $
              18,218,031
              
              $
              12,241,932Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Provision
                  for loan losses
              
              
              **2,296,270**
              
              
              1,762,000
              
              
              1,970,768Depreciation,
                  amortization, and accretion, net
              
              
              **1,093,979**
              
              
              1,181,656
              
              
              943,682Deferred
                  tax benefit
              
              
              **(595,242**
              **)**
              
              (1,512,872
              )
              
              (1,150,602
              )(Gain)
                  on disposition of other real estate
              
              
              **—**
              
              
              —
              
              
              (579,244
              )(Gain)
                  loss on disposition of premises and equipment
              
              
              **33,911**
              
              
              (21,216
              )
              
              (414,508
              )Increase
                  in accrued interest receivable
              
              
              **(1,699,096**
              **)**
              
              (1,651,563
              )
              
              (580,576
              )Increase
                  in accrued interest payable
              
              
              **368,559**
              
              
              991,717
              
              
              548,780Other,
                  net
              
              
              **(1,230,584**
              **)**
              
              (157,099
              )
              
              829,720**Net
                  Cash Provided By Operating Activities**
              
              
              **23,413,866**
              
              
              18,810,654
              
              
              13,809,952**Investing
                  Activities**Purchases
                  of investment securities held-to-maturity
              
              
              **(46,020,950**
              **)**
              
              —
              
              
              (40,246,598
              )Proceeds
                  from sales, maturities, calls and pay-downs of investment securities
                  held-to-maturity
              
              
              **5,770,415**
              
              
              7,950,335
              
              
              6,437,208Purchases
                  of other investments - net
              
              
              **(1,750,075**
              **)**
              
              (274,188
              )
              
              (1,750,100
              )Net
                  increase in loans to customers
              
              
              **(78,282,798**
              **)**
              
              (239,099,700
              )
              
              (111,333,522
              )Purchase
                  of premises and equipment
              
              
              **(1,738,733**
              **)**
              
              (1,329,146
              )
              
              (1,593,109
              )Proceeds
                  from disposition of premises and equipment
              
              
              **—**
              
              
              41,000
              
              
              718,505Proceeds
                  from disposition of foreclosed real estate
              
              
              **—**
              
              
              —
              
              
              715,564**Net
                  Cash Used In Investing Activities**
              
              
              **(122,022,141**
              **)**
              
              (232,711,699
              )
              
              (147,052,052
              )
 
 (Continued
        on following page)
 
 See
        notes
        to consolidated financial statements
  45
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS - CONTINUED**
 
 **Years
        Ended December 31, 2006, 2005 and 2004**
 
 **2006**
              
              2005
              
              2004**Financing
                  Activities**Net
                  increase in demand deposits, NOW accounts and savings
                  accounts
              
              **$**
              **34,697,815**
              
              $
              16,342,434
              
              $
              60,294,535Net
                  increase in certificates of deposit
              
              
              **63,507,929**
              
              
              200,327,891
              
              
              37,006,494Net
                  increase (decrease) in short-term borrowings
              
              
              **(24,294,000**
              **)**
              
              11,031,000
              
              
              6,457,000Issuance
                  of FHLB advances
              
              
              **5,000,000**
              
              
              —
              
              
              25,000,000Repayments
                  of FHLB advances
              
              
              **(10,000,000**
              **)**
              
              —
              
              
              (5,021,698
              )Increase
                  (decrease) in other debt, net
              
              
              **(23,939**
              **)**
              
              23,939
              
              
              —Issuance
                  of subordinated debentures
              
              
              **20,619,000**
              
              
              —
              
              
              —Sale
                  of common stock
              
              
              **—**
              
              
              1,162,233
              
              
              465,202Compensation
                  associated with the issuance of options
              
              
              **92,035**
              
              
              56,783
              
              
              17,988Cash
                  dividends
              
              
              **(2,746,572**
              **)**
              
              (2,288,964
              )
              
              (1,883,192
              )**Net
                  Cash Provided By Financing Activities**
              
              
              **86,852,268**
              
              
              226,655,316
              
              
              122,336,329**Net
                  (Decrease) Increase in Cash and Cash Equivalents**
              
              
              **(11,756,007**
              **)**
              
              12,754,271
              
              
              (10,905,771
              )Cash
                  and Cash Equivalents at Beginning of Year
              
              
              **32,368,349**
              
              
              19,614,078
              
              
              30,519,849**Cash
                  and Cash Equivalents at End of Year**
              
              **$**
              **20,612,342**
              
              $
              32,368,349
              
              $
              19,614,078
 
 See
        notes
        to consolidated financial statements
  46
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies**
 
 Florida
        Community Banks, Inc. ("FCBI") (a Florida corporation) and its wholly owned
        subsidiary, Florida Community Bank (the "Bank") (a Florida corporation)
        collectively referred to herein as the "Company," is headquartered in Immokalee,
        Florida. The Bank's main office is in Immokalee, Florida with nine additional
        branch offices in Southwest Florida. The Company plans to open four new branches
        in 2007; a branch in Riverdale on State Road 80, scheduled to open in June;
        a
        branch in Estero, across from the new Coconut Mall and one in North Port
        in
        front of the new Home Depot, both are scheduled to open late in the year.
        The
        Bank is opening a branch in the new town of Ave Maria and plans on moving
        its
        executive offices there as well; this is scheduled for late summer. The Bank
        provides a full range of banking services to individual and corporate customers
        in Charlotte, Collier, Glades, Hendry and Lee counties and the surrounding
        areas.
 
 The
        accounting and reporting policies of the Company conform to accounting
        principles generally accepted in the United States and to general practice
        within the banking industry. The following summarizes the most significant
        of
        these policies.
 
 Basis
        of Consolidation
 
 The
        consolidated financial statements include the accounts of Florida Community
        Banks, Inc., and the Bank. All significant inter-company balances and
        transactions have been eliminated. Variable interest entities ("VIEs") are
        consolidated if the Company is exposed to the majority of the VIE's expected
        losses and/or residual returns (i.e., the Company is considered to be the
        primary beneficiary). Unconsolidated investments in VIEs in which the Company
        has significant influence over operating and financing decisions (usually
        defined as a voting or economic interest of 20% to 50%) are accounted for
        using
        the equity method. Unconsolidated investments in VIEs in which the Company
        has a
        voting or economic interest of less than 20% are generally carried at
        cost.
 
 Use
        of
        Estimates
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.
 
 The
        determination of the adequacy of the allowance for loan losses is based on
        estimates that are particularly susceptible to significant changes in the
        economic environment and market conditions. In connection with the determination
        of the estimated losses on loans, management obtains independent appraisals
        for
        significant collateral. While management uses available information to recognize
        losses on loans, further reductions in the carrying amounts of loans may
        be
        necessary based on changes in local economic conditions. In addition, regulatory
        agencies, as an integral part of their examination process, periodically
        review
        the estimated losses on loans. Such agencies may require the Bank to
        recognize
  47
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 additional
        losses based on their judgments about information available to them at the
        time
        of their examination. Because of these factors, it is reasonably possible
        that
        the estimated losses on loans may change materially in the near term. However,
        the amount of the change that is reasonably possible cannot be
        estimated.
 
 Securities
 
 Securities
        are classified as either held-to-maturity, available-for-sale or
        trading.
 
 Securities
        held-to-maturity are those securities for which management has the ability
        and
        intent to hold on a long-term basis or until maturity. These securities are
        carried at amortized cost, adjusted for amortization of premiums and accretion
        of discount, to the earlier of the maturity or call date.
 
 Securities
        available-for-sale represent those securities intended to be held for an
        indefinite period of time, including securities that management intends to
        use
        as part of its asset/liability strategy, or that may be sold in response
        to
        changes in interest rates, changes in prepayment risk, the need to increase
        regulatory capital, or other similar factors. Securities available-for-sale
        are
        recorded at market value with unrealized gains and losses net of any tax
        effect,
        added or deducted directly from shareholders' equity.
 
 Securities
        carried in trading accounts are carried at market value with unrealized gains
        and losses reflected in income.
 
 Realized
        and unrealized gains and losses are based on the specific identification
        method.
 
 Purchase
        premiums and discounts are recognized in interest income using a method which
        approximates the interest method over the terms of the securities. Declines
        in
        the fair value of individual held-to-maturity and available-for-sale securities
        below their cost that are other-than- temporary result in write-downs of
        the
        individual securities to their fair value. The related write-downs are included
        in earnings as realized losses. In estimating other-than-temporary impairment
        losses, management considers (1) the length of time and the extent to which
        the
        fair value has been less than cost, (2) the financial condition and near-term
        prospects of the issuer, and (3) the intent and ability of the Company to
        retain
        its investment in the issuer for a period of time sufficient to allow for
        any
        anticipated recovery of fair value.
 
 The
        Company has no available-for-sale or trading securities.
 
 Other
        Investments
 
 The
        Company has invested in selected equity instruments issued in the form of
        restricted stocks, common stock of special purpose trusts formed to issue
        trust
        preferred securities and non-controlling partnership interests. The restricted
        stocks and trust stocks are categorized as Other Investments - Securities
        and
        are accounted for under the cost method. These investments represent less
        than a
        20% economic interest and have no readily ascertainable market value, however,
        management is not aware of any conditions that
  48
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 would
        require adjustments to the reflected carrying values. The investments
        categorized as Other Investments - Partnerships represent ownership interests
        by
        the Company in limited liability partnerships. The Company accounts for
        partnership interests using the cost method or equity method depending upon
        the
        Company's economic interest and ability to significantly influence operating
        and
        financing decisions. Management has determined that none of its partnership
        interests required consolidation as of December 31, 2006 and
        2005.
 
 Loans
        Held-for-Sale
 
 Loans
        held-for-sale are carried at the lower of aggregate cost or market. The cost
        of
        loans held-for-sale is the note amount plus certain net origination costs
        less
        discounts collected. Gains and losses resulting from changes in the market
        value
        of the inventory are netted. Any net gain that results is deferred; any net
        loss
        that results is recognized when incurred. The aggregate cost of loans
        held-for-sale at December 31, 2006 and 2005, approximates their aggregate
        net
        realizable value. Gains or losses on the sale of loans held-for-sale are
        included in other income.
 
 Loans
 
 Loans
        are
        stated at unpaid principal balances, less the allowance for loan losses,
        unearned discounts and net deferred loan fees.
 
 Unearned
        discounts on installment loans are recognized as income over the term of
        the
        loans using a method that approximates the interest method.
 
 Loan
        origination and commitment fees, as well as certain direct origination costs,
        are deferred and amortized as a yield adjustment over the lives of the related
        loans using the interest method or the straight-line method.
 
 Allowance
        for Loan Losses
 
 The
        allowance for loan losses is established through charges to earnings in the
        form
        of a provision for loan losses. Increases and decreases in the allowance
        due to
        changes in the measurement of the impaired loans are considered in the provision
        for loan losses. Loans continue to be classified as impaired unless they
        are
        brought fully current and the collection of scheduled interest and principal
        is
        considered probable. When a loan or portion of a loan is determined to be
        uncollectible, the portion deemed uncollectible is charged against the allowance
        and subsequent recoveries, if any, are credited to the allowance.
 
 The
        allowance consists of specific and general components. The specific component
        relates to loans that are classified as doubtful, substandard or special
        mention. For such loans that are also classified as impaired, an allowance
        is
        established when the discounted cash flows (or collateral value) of the impaired
        loan is lower than the carrying value of that loan. The general component
        covers
        non-classified loans and is based on historical loss experience adjusted
        for
        qualitative factors.
  49
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 A
        loan is
        considered impaired, based on current information and events, if it is probable
        that the Bank will be unable to collect the scheduled payments of principal
        or
        interest when due according to the contractual terms of the loan agreement.
        Uncollateralized loans are measured for impairment based on the present value
        of
        expected future cash flows discounted at the historical effective interest
        rate,
        while all collateral-dependent loans are measured for impairment based on
        the
        fair value of the collateral. All other loans are categorized in homogeneous
        groups and are evaluated collectively; reserves are established based on
        their
        historical loss experience, which are adjusted for qualitative environmental
        factors.
 
 Management's
        periodic evaluation of the adequacy of the allowance is based on the Bank's
        past
        loan loss experience, known and inherent risks in the portfolio, adverse
        situations that may affect the borrowers' ability to repay, estimated value
        of
        any underlying collateral and an analysis of current economic conditions. This
        evaluation is inherently subjective, as it requires estimates that are
        susceptible to significant revision as more information becomes available. While
        management believes that it has established the allowance in accordance with
        generally accepted accounting principles and has taken into account the views
        of
        banking regulators and the current economic environment, there can be no
        assurance that in the future the Bank's regulators or its economic environment
        will not require further increases in the allowance.
 
 Income
        Recognition on Impaired and Nonaccrual Loans
 
 Loans,
        including impaired loans, are generally classified as nonaccrual if they
        are
        past due as to maturity or payment of principal or interest for a period
        of more
        than 90 days, unless such loans are well collateralized and in the process
        of
        collection. If a loan or a portion of a loan is classified as doubtful or
        is
        partially charged off, the loan is generally classified as nonaccrual. Loans
        that are on a current payment status or past due less than 90 days may also
        be
        classified as nonaccrual if repayment in full of principal and/or interest
        is in
        doubt.
 
 Loans
        may
        be returned to accrual status when all principal and interest amounts
        contractually due are reasonably assured of repayment within an acceptable
        period of time, and there is a sustained period of repayment performance
        by the
        borrower, in accordance with the contractual terms of interest and
        principal.
 
 While
        a
        loan is classified as nonaccrual and the future collectability of the recorded
        loan balance is doubtful, collections of interest and principal are generally
        applied as a reduction to principal outstanding, except in the case of loans
        with scheduled amortizations where the payment is generally applied to the
        oldest payment due. When the future collectability of the recorded loan balance
        is expected, interest income may be recognized on a cash basis. In the case
        where a nonaccrual loan has been partially charged off, recognition of interest
        on a cash basis is limited to that which would have been recognized on the
        recorded loan balance at the contractual interest rate. Receipts in excess
        of
        that amount are recorded as recoveries to the allowance for loan losses until
        prior charge-offs have been fully recovered. Interest income recognized on
        a
        cash basis was immaterial for the years ended December 31, 2006, 2005 and
        2004.
  50
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 Premises
        and Equipment
 
 Land
        is
        carried at cost. Other premises and equipment are stated at cost less
        accumulated depreciation. Expenditures for additions and major improvements
        that
        significantly extend the useful lives of the assets are capitalized.
        Expenditures for repairs and maintenance are charged to expense as incurred.
        The
        carrying values of assets traded in are used to adjust the carrying values
        of
        the new assets acquired by trade. Assets that are disposed of are removed
        from
        the accounts and the resulting gains or losses are recorded in
        operations.
 
 Depreciation
        is provided generally by accelerated and straight-line methods based on the
        estimated useful lives of the respective assets.
 
 Foreclosed
        Real Estate
 
 Foreclosed
        real estate includes both formally foreclosed property and in-substance
        foreclosed property. In-substance foreclosed properties are those properties
        for
        which the institution has taken physical possession, regardless of whether
        formal foreclosure proceedings have taken place.
 
 At
        the
        time of foreclosure, foreclosed real estate is recorded at the lower of the
        carrying amount or fair value less cost to sell, which becomes the property's
        new basis. Any write-downs based on the asset's fair value at date of
        acquisition are charged to the allowance for loan losses. After foreclosure,
        these assets are carried at the lower of their new cost basis or fair value
        less
        cost to sell. Costs incurred in maintaining foreclosed real estate and
        subsequent adjustments to the carrying amount of the property are included
        in
        income (loss) on foreclosed real estate. Cost incurred to complete,
        repair/renovate or make the property whole is to be capitalized.
 
 Retirement
        Plan
 
 The
        Company has a Profit-Sharing Plan covering all eligible employees, allowing
        employee elective contributions under Internal Revenue Code section 401K.
        The
        Company also adopted an Employee Stock Ownership Plan ("ESOP"), which also
        allows elective employee contributions. Employer contributions to the plans
        are
        included in salaries and employee benefits expense. Profit-Sharing and ESOP
        contributions are determined by the board of directors. The Company also
        has
        deferred compensation plans with certain executive officers and directors.
 
 On
        December 31, 2006, the Company adopted the recognition provision of Statement
        of
        Financial Accounting Standards (“SFAS”) No. 158, *Employers'
        Accounting for Defined Benefit Pension and Other Postretirement Plans* —
an
        amendment of SFAS Nos. 87, 88, 106 and 132(R) *.* SFAS No.
        158 requires an employer to recognize the funded status of a defined benefit
        postretirement plan as an asset or liability in its statement of financial
        condition and to recognize changes in that funded status in the year in which
        the changes occur in accumulated other comprehensive income. At December
        31,
        2006, the Company had a defined benefit postretirement plan, which is discussed
        further in Note 16 that met the recognition criteria of SFAS No. 158.
        Accordingly, at December 31, 2006, the Company determined the plans are
        non-qualified and unfunded and have been recorded as a liability of the Company
        at the present value of the future benefit obligation.
  51
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 Advertising
        Costs
 
 The
        Company's policy is to expense advertising costs as incurred. Advertising
        expense for the years ended December 31, 2006, 2005 and 2004 amounted to
        approximately $381,000, $288,000 and $265,000, respectively.
 
 Income
        Taxes
 
 Income
        taxes are provided for the tax effects of the transactions reported in the
        financial statements and consist of taxes currently due plus deferred taxes
        related primarily to differences between the basis of the allowance for loan
        losses, accumulated depreciation and accrued employee benefits for financial
        and
        income tax reporting. The deferred tax assets and liabilities represent the
        future tax return consequences of those differences, which will either be
        taxable or deductible when the assets and liabilities are recovered or settled.
        Deferred tax assets and liabilities are reflected at income tax rates applicable
        to the period in which the deferred tax assets or liabilities are expected
        to be
        realized or settled. As changes in tax laws or rates are enacted, deferred
        tax
        assets and liabilities are adjusted through the provision for income
        taxes.
 
 In
        June
        2006, the Financial Accounting Standards Board (“FASB”) issued Financial
        Interpretation No. ("FIN") 48, *Accounting
        For Uncertainty in Income Taxes* .
        This
        interpretation clarifies the accounting for uncertainty in income taxes
        recognized in an entity's financial statements in accordance with SFAS
        No. 109, *Accounting
        for Income Taxes.* FIN
        48
        prescribes a recognition threshold and measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return. FIN 48 also provides guidance on derecognition,
        classification, interest and penalties, accounting in interim periods,
        disclosure and transition. The provisions of FIN 48 are effective for fiscal
        years beginning after December 15, 2006, with early adoption allowed.
        Accordingly, on January 1, 2007, the Company adopted the provisions of this
        interpretation. The adoption of this interpretation is not expected to have
        a
        material effect on the consolidated financial statements.
 
 Stock-Based
        Compensation
 
 On
        January 1, 2003, the Company adopted SFAS No. 123, *Accounting
        for Stock-Based Compensation* ,
        as
        provided by SFAS No. 148, *Accounting
        for Stock-Based Compensation - Transition and Disclosure.* SFAS No.
        148 allowed for a prospective method of adoption of SFAS No. 123, whereby,
        the
        Company prospectively accounted for the current expensing of options granted
        during 2003 and thereafter. Options granted prior to 2003 have been accounted
        for under the recognition and measurement provisions of Accounting Principles
        Board (“APB”) Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        and the
        related interpretations. The compensation cost recognized for stock options
        granted in 2004, 2005 and 2006 was calculated based on the fair value at
        the
        date of grant. In accordance with the transition provisions of SFAS No. 148,
        this compensation expense has been included in net income for all periods
        presented. The unrecognized compensation expense for options granted prior
        to
        2003 was immaterial for the years ended December 31, 2004, 2005 and 2006.
        Accordingly, the pro forma basic and diluted earnings per share of the Company
        that would result from this unrecognized compensation are approximately the
        same
        as that reported. On January 1 st of 2006,
        the Company adopted SFAS No. 123(R), *Share-Based
        Payment* which
        requires all stock-based payments to employees to be recognized in the income
        statement based on their fair values, the same method employed by the Company
        since January 1, 2003. The Company adopted SFAS No. 123(R) using the modified
        prospective transition method. The modified prospective transition method
        does
        not require the restatement of prior periods to reflect the fair value method
        of
        expensing stock-based compensation. SFAS No. 123(R) does require a cumulative
        effect adjustment of previously recognized compensation expense in order
        to
        estimate forfeitures for awards outstanding on the adoption date. The cumulative
        effect adjustment was immaterial.
  52
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 The
        Company uses the Black-Scholes option pricing model for all grant date
        estimations of fair value as the Company believes that its stock options
        have
        characteristics for which the Black-Scholes model provides an acceptable
        measure
        of fair value. The expected term of an option represents the period of time
        that
        the Company expects the options granted to be outstanding. The Company bases
        this estimate on a number of factors including vesting period, historical
        data,
        expected volatility and blackout periods. The expected volatility used in
        the
        option pricing calculation is estimated considering historical volatility.
        The
        Company believes that historical volatility is a good predictor of the expected
        volatility. The expected dividend yield represents the expected dividend
        rate
        that will be paid out on the underlying shares during the expected term of
        the
        option, taking into account any expected dividend increases. The Company's
        options do not permit option holders to receive dividends and therefore the
        expected dividend yield was factored into the calculation. The risk-free
        rate is
        assumed to be a short-term treasury rate on the date of grant, such as a
        U.S.
        Treasury zero-coupon issue with a term equal to the expected term of the
        option.
 
 Stock
        option expense was computed with the following weighted average assumptions
        as
        of the grant dates:
 
 Years
                  Ended December 31,**2006**
              
              2005
              
              2004Assumptions:Average
                  risk free interest rate
              
              
              **—**
              
              
              4.47
              %
              
              3.97
              %Average
                  expected volatility
              
              
              **—**
              
              
              13.00
              
              
              11.10Expected
                  dividend yield
              
              
              **—**
              
              
              1.50
              
              
              3.75Expected
                  life
              
              
              **—**
              
              
              8.0
                  Years
              
              
              8.0
                  Years
  53
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 The
        Company estimates forfeitures at the date of grant based upon historical
        forfeitures and management's estimate of future forfeitures. Prior to the
        adoption of SFAS No. 123(R), forfeitures were recognized as they occurred.
 
 Earnings
        Per Common Share
 
 Basic
        earnings per common share are computed by dividing earnings available to
        stockholders by the weighted average number of common shares outstanding
        during
        the period. Diluted earnings per share reflect per share amounts that would
        have
        resulted if dilutive potential common stock had been converted to common
        stock,
        as prescribed by SFAS No. 128, *Earnings
        per Share* .
        The
        following reconciles the weighted average number of shares
        outstanding:
 
 **2006**
              
              2005
              
              2004Weighted
                  average of common shares outstanding
              
              
              **6,575,356**
              
              
              6,571,446
              
              
              6,503,465Effect
                  of dilutive options
              
              
              **80,589**
              
              
              63,566
              
              
              70,307Weighted
                  average of common shares outstanding effected for dilution
              
              
              **6,655,945**
              
              
              6,635,012
              
              
              6,573,772
 
 In
        October 2006, October 2005 and December 2004, the Company issued 1.2-for-1.0
        stock splits. All per share amounts included in these consolidated financial
        statements have been retroactively adjusted to reflect the effects of the
        1.2-for-1.0 stock splits which occurred during 2006, 2005 and 2004.
 
 Comprehensive
        Income
 
 Comprehensive
        income is generally defined as the change in equity of a business enterprise
        during a period from transactions and other events and circumstances from
        non-owner sources. It includes all changes in equity during a period except
        those resulting from investments by owners and distributions to owners.
        Comprehensive income is the total of net income and all other non-owner changes
        in equity. Items that are to be recognized under accounting standards as
        components of comprehensive income are displayed in statements of shareholders'
        equity.
 
 In
        the
        calculation of comprehensive income, certain reclassification adjustments
        are
        made to avoid double counting items that are displayed as part of net income
        for
        a period that also had been displayed as part of other comprehensive income
        in
        that period or earlier periods. The Company has no such items to be reclassified
        at December 31, 2006, 2005 and 2004.
  54
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 Statements
        of Cash Flows
 
 The
        Company includes cash, due from banks and certain cash equivalents in preparing
        the consolidated statements of cash flows. The following is supplemental
        disclosure to the consolidated statements of cash flows for the three years
        ended December 31, 2006.
 
 Years
                  Ended December 31,**2006**
              
              2005
              
              2004Cash
                  paid during the year for interest
              
              **$**
              **33,996,190**
              
              $
              16,393,420
              
              $
              8,650,839Cash
                  paid during the year for income taxes, net
              
              
              **16,244,978**
              
              
              12,644,132
              
              
              8,159,604Non-cash
                  Disclosures:Loans
                  transferred to foreclosed real estate during the year
              
              
              **200,000**
              
              
              —
              
              
              62,346Proceeds
                  from sale of foreclosed real estate financed through loans
              
              
              **—**
              
              
              —
              
              
              3,891,469
 
 Off-Balance
        Sheet Financial Instruments
 
 In
        the
        ordinary course of business the Company has entered into off-balance sheet
        financial instruments consisting of commitments to extend credit, commercial
        letters of credit and standby letters of credit. Such financial instruments
        are
        recorded in the financial statements when funded.
 
 The
        Bank
        has available as a source of financing a line of credit with the Federal
        Home
        Loan Bank of Atlanta ("FHLB") that is limited to 15% of assets (approximately
        $151,000,000 at December 31, 2006), of which approximately $96,000,000 was
        available and unused. The ability to utilize the remaining line is dependent
        on
        the amount of eligible collateral that is available to pledge to the FHLB.
        In
        addition, as a part of the borrowing agreement, the Bank is required to purchase
        FHLB stock (see Note 4).
 
 The
        Bank
        also has available as a source of short-term financing the purchase of federal
        funds from other commercial banks and commercial lines of credit. At December
        31, 2006, the total amount available for short-term financing was
        $54,306,000.
 
 The
        Bank
        also has available as a source of short-term financing, a line with the Federal
        Reserve Bank of Atlanta, which is secured by commercial loans. At December
        31,
        2006, the total amount available for short-term financing was
        $10,000,000.
  55
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 The
        Company has available a $5,000,000 line of credit with the Bankers Bank.
        This
        line is secured by 51% of the Bank's common stock and is due on demand by
        the
        lender. At December 31, 2006, $5,000,000 was available for additional funding.
 
 Segment
        Information
 
 All
        of
        the Company's offices offer similar products and services, are located in
        the
        same geographic region and serve the same customer segments of the market.
        As a
        result, management considers all units as one operating segment and therefore
        feels that the basic consolidated financial statements and related footnotes
        provide details related to segment reporting.
 
 Reclassifications
 
 Certain
        amounts in 2005 and 2004 have been reclassified to conform with the 2006
        presentation.
 
 Recently
        Issued Accounting Standards
 
 In
        March
        2004, the Emerging Issues Task Force ("EITF") reached a consensus on the
        remaining portions of EITF 03-01, *The
        Meaning of Other-Than-Temporary Impairment and It's Application to Certain
        Investments* ,
        effective for the first fiscal year or interim period beginning after June
        15,
        2004. EITF 03-01 provides guidance for determining when an investment is
        considered impaired, whether impairment is other-than-temporary, and measurement
        of an impairment loss. An investment is considered impaired if the fair value
        of
        the investment is less than its cost. Generally, an impairment is considered
        other-than-temporary unless: (1) the investor has the ability and intent
        to hold
        an investment for a reasonable period of time sufficient for an anticipated
        recovery of fair value up to (or beyond) the cost of the investment, and
        (2)
        evidence indicating that the cost of the investment is recoverable within
        a
        reasonable period of time outweighs evidence to the contrary. If impairment
        is
        determined to be other-than-temporary, then an impairment loss should be
        recognized equal to the difference between the investment's cost and its
        fair
        value. Certain disclosure requirements of EITF 03-01 were adopted in 2003
        and
        the Company began presenting the new disclosure requirements in its consolidated
        financial statements for the year ended December 31, 2003. The recognition
        and
        measurement provisions were initially effective for other-than-temporary
        impairment evaluations in reporting periods beginning after June 15, 2004.
        In
        June 2005, the Financial Accounting Standards Board (“FASB”) decided not to
        provide additional guidance on the meaning of other-than-temporary impairment,
        but directed the staff to issue proposed FASB Staff Position ("FSP") EITF
        03-1-a, *Implementation
        Guidance for the Application of Paragraph 16 of EITF Issue No.
        03-1* as
        final. However, in November 2005 the FASB issued FSP 115-1/124-1, *The
        Meaning of Other-Than-Temporary Impairment and its Application to Certain
        Investments* .
        This
        FSP provides additional guidance on when an investment in a debt or equity
        security should be considered impaired and when that impairment should be
        considered other-than-temporary and recognized as a loss in earnings.
        Specifically, the guidance clarifies that an investor should recognize an
        impairment loss no later than when the impairment is deemed
        other-than-temporary, even if a decision to sell has not been made. The FSP
        also
        requires certain disclosures about unrealized losses that have not been
        recognized as other-than-temporary impairments. The Company applied the guidance
        in this FSP in 2005 and there was no material affect to the results of
        operations or the statements of financial condition.
  56
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 In
        March
        2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
        Bulletin ("SAB") No. 105, *Application
        of Accounting Principles to Loan Commitments* .
        SAB No.
        105 requires that the fair value measurement of mortgage loan commitments,
        which
        are derivatives, exclude any expected future cash flows related to the customer
        relationship or servicing rights. The guidance in SAB No. 105 must be applied
        to
        mortgage loan commitments entered into after March 31, 2004. The impact on
        the
        Company is not material given the declines in mortgage banking volume, but
        could
        be in the future. The impact is primarily the timing of when gains should
        be
        recognized in the financial statements.
 
 In
        December 2004, the FASB issued SFAS No. 123 (revised 2004), entitled *Share-Based
        Payment* ("SFAS
        No. 123(R)") that requires compensation costs related to share-based payment
        transactions to be recognized in the financial statements. This statement
        eliminates the alternative to use APB Opinion No. 25's intrinsic value method
        of
        accounting that was provided in SFAS No. 123 as originally issued. Under
        Opinion
        No. 25, issuing stock options to employees generally resulted in recognition
        of
        no compensation cost. This statement requires entities to recognize the cost
        of
        employee services received in exchange for awards of equity instruments based
        on
        the grant-date fair value of those awards (with limited exceptions). Recognition
        of that compensation cost helps users of financial statements to better
        understand the economic transactions affecting an entity and to make better
        resource allocation decisions. The Company adopted SFAS No. 123(R) on January
        1,
        2006, the effective date of this statement. The adoption of this statement
        did
        not have a material impact on the consolidated financial
        statements.
 
 On
        December 16, 2004, the FASB issued SFAS No. 153, *Exchanges
        of Nonmonetary Assets* ,
        an
        amendment of APB Opinion No. 29. SFAS No. 153 amends the principle that
        exchanges of nonmonetary assets should be measured based on the fair value
        of
        the assets exchanged and more broadly provides exceptions regarding exchanges
        of
        nonmonetary assets that do not have commercial substance. A nonmonetary exchange
        has commercial substance when the future cash flows of the entity are expected
        to change significantly as a result of the exchange. The provisions of SFAS
        No.
        153 are effective for nonmonetary asset exchanges occurring in periods beginning
        after June 15, 2005. The adoption of this standard did not have a material
        impact on the financial condition or the operating results of the
        Company.
 
 In
        May
        2005, the FASB issued SFAS No. 154, *Accounting
        Changes and Error* *Corrections* ,
        which
        replaces APB Opinion No. 20, *Accounting
        Changes* ,
        and
        SFAS No. 3,  *Reporting
        Accounting Changes in Interim Financial Statements--An Amendment
        of* *APB
        Opinion No. 28* .
        SFAS
        No. 154 changes the requirements for the accounting and reporting of a change
        in
        accounting principle. It applies to all voluntary changes
        in accounting principle as well as to changes required by an
        accounting pronouncement that does not include specific transition provisions. SFAS
        No. 154
        eliminates the requirement in APB Opinion No. 20 to include the cumulative effect
        of
        changes in accounting principle in the income statement in the
        period of
        change. Instead, to enhance the comparability of prior period financial
        statements, SFAS No. 154 requires that changes in accounting principle be
        retrospectively applied. Under retrospective application, the new accounting
        principle is applied as of the beginning of the first period presented as
        if
        that principle had always been used. The cumulative effect of the change
        is
        reflected in the carrying value of assets and liabilities as of the first
        period
        presented and the offsetting adjustments are recorded to opening retained
        earnings. Each period presented is adjusted to reflect the period-specific
        effects of applying the change. SFAS No. 154 also redefines "restatement"
        as the
        revising of previously issued financial statements to reflect the correction
        of
        an error. Only direct effects of the change will be included in the
        retrospective application;
        all indirect effects will be recognized in the period of change. If it is
        impracticable to determine the cumulative effect for all prior periods,
        the new accounting principle should be applied as if it were adopted prospectively from the earliest date practicable. SFAS No. 154 is effective
        for
        accounting changes and corrections of errors made in fiscal years beginning
        after December 15, 2005. The
        adoption of this standard did not have a material impact on the financial
        condition or the operating results of the Company.
  57
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 In
        February 2006, the FASB issued SFAS No. 155 entitled *Accounting
        for Certain Hybrid Financial Instruments.* SFAS
        No.
        155 amends SFAS No. 133, entitled *Accounting
        for Derivative Instruments and Hedging Activities* ,
        and
        SFAS No. 140, entitled *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* .
        This
        statement permits fair value remeasurement of certain hybrid financial
        instruments containing embedded derivatives and requires evaluation of
        securitized financial assets for purposes of identifying items of a derivative
        nature. The statement includes further clarification as to the derivative
        classification of selected financial instruments. The provisions of SFAS
        No. 155
        are effective for all financial instruments acquired or issued after the
        beginning of the first fiscal year that begins after September 15, 2006.
        The
        fair value "election" within the literature may be utilized upon adoption
        of the
        guidance related to hybrid financial instruments. Earlier adoption is permitted
        as of the beginning of a fiscal year, provided that reporting entities have
        not
        yet issued financial statements. The provisions within SFAS No. 155 may be
        applied to instruments "held" at the date of adoption on an
        instrument-by-instrument basis. At adoption, any difference between the total
        carrying amount of the individual components of the existing hybrid financial
        instrument and the fair value of the combined hybrid financial instrument
        should
        be recognized as a cumulative-effect adjustment to beginning retained earnings.
        Reporting entities should separately disclose the gross gains and losses
        that
        make up the cumulative-effect adjustment, determined on an
        instrument-by-instrument basis. Prior periods should not be restated. The
        Company does not expect the adoption of this statement to have a material
        effect
        on the consolidated financial statements.
 
 In
        March
        2006, the FASB issued SFAS No. 156, *Accounting
        for Servicing of Financial Assets,* which
        amends SFAS No. 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities.* This
        statement addresses the recognition and measurement of separately recognized
        servicing assets and liabilities, such as those common with mortgage
        securitization activities, and provides an approach to simplify efforts to
        obtain hedge-like accounting. It also clarifies when an obligation to service
        financial assets should be separately recognized as a servicing asset or
        servicing liability and requires that those separately recognized assets
        or
        liabilities be initially measured at fair value, if practicable. SFAS No.
        156
        permits an entity to choose either the amortization method or the fair value
        method for subsequent measurement and also permits a servicer that uses
        derivative financial instruments to offset risks on servicing to report both
        the
        derivative financial instrument and related servicing asset or liability
        by
        using a consistent measurement attribute, fair value. This statement shall
        be
        effective for all separately recognized servicing assets and liabilities
        acquired or issued after the beginning of an entity ' s
        first
        fiscal year beginning after September 15, 2006, with early adoption permitted.
        Management believes this statement will not have a material effect on the
        consolidated financial statements.
  58
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 In
        June
        2006, the FASB issued FIN 48, *Accounting
        For Uncertainty in Income Taxes.* FIN 48
        clarifies the accounting for uncertainty in income taxes recognized in an
        enterprise's financial statements in accordance with SFAS No. 109, *Accounting
        for Income Taxes* .
        This
        interpretation prescribes a recognition threshold and measurement attribute
        for
        the financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return. This interpretation is effective for
        fiscal years beginning after December 15, 2006. Management believes this
        interpretation will not have a material effect on the consolidated financial
        statements.
 
 In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements* .
        SFAS
        No. 157 defines fair value, establishes a framework for measuring fair value
        in
        generally accepted accounting principles and expands disclosures about fair
        value measurements. SFAS No. 157 is effective for the Company on January 1,
        2008. Management does not expect the adoption of this statement to have a
        material effect on the consolidated financial statements.
 
 In
        September 2006, the FASB issued SFAS No. 158, *Employers'
        Accounting for Defined Benefit Pension and Other Postretirement
        Plans* ,
        which
        amends SFAS No. 87 and SFAS No. 106 to require recognition of the overfunded
        or
        underfunded status of pension and other postretirement benefit plans on the
        balance sheet. Under SFAS No. 158, gains and losses, prior service costs
        and
        credits, and any remaining transition amounts under SFAS No. 87 and SFAS
        No. 106
        that have not yet been recognized through net periodic benefit cost will
        be
        recognized in accumulated other comprehensive income, net of tax effects,
        until
        they are amortized as a component of net periodic cost. The measurement date,
        the date at which the benefit obligation and plan assets are measured, is
        required to be the company's fiscal year end. SFAS No. 158 is effective for
        the
        Company for fiscal years ending after December 15, 2006, except for the
        measurement date provisions, which are effective for fiscal years ending
        after
        December 15, 2008. The adoption of this statement did not have a material
        effect
        on the consolidated financial statements.
 
 In
        September 2006, the FASB ratified the consensuses reached by the FASB's EITF
        relating to EITF 06-4, *Accounting
        for the Deferred Compensation and Postretirement Benefit Aspects of Endorsement
        Split-Dollar Life Insurance Arrangements* .
        EITF
        06-4 addresses employer accounting for endorsement split-dollar life insurance
        arrangements that provide a benefit to an employee that extends to
        postretirement periods. EITF 06-4 provides that an employer should recognize
        a
        liability for future benefits in accordance with SFAS No. 106, *Employers'
        Accounting for Postretirement Benefits Other Than Pensions* ,
        or APB
        Opinion No. 12, *Omnibus
        Opinion-1967* .
        EITF
        06-4 is effective for fiscal years beginning after December 15, 2006. Entities
        should recognize the effects of applying this issue through either (a) a
        change
        in accounting principle through a cumulative-effect adjustment to retained
        earnings or to other
  59
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        1 - Summary of Significant Accounting Policies - Continued**
 
 components
        of equity or net assets in the statement of financial condition as of the
        beginning of the year of adoption or (b) a change in accounting principle
        through retrospective application to all prior periods. Management does not
        believe the adoption of EITF 06-4 will have a material impact on the
        consolidated financial statements.
 
 On
        September 13, 2006, the SEC issued SAB No. 108. SAB No. 108 provides
        interpretive guidance on how the effects of the carryover or reversal of
        prior
        year misstatements should be considered in quantifying a potential current
        year
        misstatement. Prior to SAB No. 108, Companies might evaluate the materiality
        of
        financial statement misstatements using either the income statement or balance
        sheet approach, with the income statement approach focusing on new misstatements
        added in the current year, and the balance sheet approach focusing on the
        cumulative amount of misstatement present in a company's balance sheet.
        Misstatements that would be material under one approach could be viewed as
        immaterial under another approach, and not be corrected. SAB No. 108 now
        requires that companies view financial statement misstatements as material
        if
        they are material according to either the income statement or balance sheet
        approach. The Company has analyzed SAB No. 108 and determined that upon adoption
        it will have no impact on the reported results of operations or financial
        condition.
 
 In
        February 2007, the FASB issued SFAS No. 159, *The
        Fair Value Option for Financial Assets and Financial Liabilities - Including
        an
        Amendment of FASB Statement No. 115.* This
        standard permits an entity to choose to measure any financial instruments
        and
        certain other items at fair value at specified election dates. A business
        entity
        will report unrealized gains and losses on items for which the fair value
        option
        has been elected in earnings at each subsequent reporting date. The fair
        value
        option: (a) may be applied instrument by instrument, with a few exceptions,
        such
        as investments otherwise accounted for by the equity method; (b) is irrevocable
        (unless a new election date occurs); and (c) is applied only to entire
        instruments and not to portions of instruments. SFAS No. 159 is effective
        as of
        the beginning of an entity's first fiscal year that begins after November
        15,
        2007. Management is currently evaluating the impact that the options available
        from this statement could have on the consolidated financial
        statements.
 
 
 **Note
        2 - Restrictions on Cash and Due from Bank Accounts**
 
 The
        Bank
        is required by regulatory authorities to maintain average reserve balances
        either in vault cash or on deposit with the Federal Reserve Bank. The average
        amount of those reserves required at December 31, 2006 and 2005, were
        approximately $407,000 and $12,364,000, respectively.
 
 
 [The
        remainder of this page intentionally left blank]
  60
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        3 - Securities**
 
 The
        carrying amounts of securities held-to-maturity as shown in the consolidated
        statements of financial condition and their approximate fair values at December
        31, 2006 and 2005 were as follows:
 
 Gross
                Amortized
                Cost
              
              Gross
                Unrealized
                Gains
              
              Estimated
                Unrealized
                Losses
              
              Fair
                ValueSecurities
                  Held-to-Maturity**December
                  31, 2006:****FHLB
                  and FHLMC****agency
                  notes**
              
              **$**
              **12,530,776**
              
              **$**
              **28,181**
              
              **$**
              **43,207**
              
              **$**
              **12,515,750****Municipal
                  securities**
              
              
              **16,765,363**
              
              
              **136,498**
              
              
              **19,021**
              
              
              **16,882,840****Mortgage-backed
                  securities**
              
              
              **71,812,969**
              
              
              **53,473**
              
              
              **1,289,004**
              
              
              **70,577,438****$**
              **101,109,108**
              
              **$**
              **218,152**
              
              **$**
              **1,351,232**
              
              **$**
              **99,976,028**December
                  31, 2005:FHLB
                  agency****notes
              
              $
              1,997,481
              
              $
              —
              
              $
              58,681
              
              $
              1,938,800Mortgage-backed
                  securities
              
              
              59,035,690
              
              
              18,534
              
              
              1,702,770
              
              
              57,351,454$
              61,033,171
              
              $
              18,534
              
              $
              1,761,451
              
              $
              59,290,254
 
 The
        following table shows our investments' gross unrealized losses and fair value,
        aggregated by investment category and length of time that individual securities
        have been in a continuous unrealized loss position at December 31, 2006 and
        2005.
 
 Less
                  Than 12 Months
              
              12
                  Months or More
              
              TotalDescription
                  of Securities
              
              Fair
                Value
              
              Unrealized
                Losses
              
              Fair
                Value
              
              Unrealized
                Losses
              
              Fair
                Value
              
              Unrealized
                Losses**December
                  31, 2006:****FHLB
                  and FHLMC agency****notes**
              
              **$**
              **—**
              
              **$**
              **—**
              
              **$**
              **1,955,200**
              
              **$**
              **43,207**
              
              **$**
              **1,955,200**
              
              **$**
              **43,207****Municipal
                  securities**
              
              
              **3,422,888**
              
              
              **19,021**
              
              
              **—**
              
              
              **—**
              
              
              **3,422,888**
              
              
              **19,021****Mortgage-backed
                  securities**
              
              
              **6,757,074**
              
              
              **21,428**
              
              
              **50,736,789**
              
              
              **1,267,576**
              
              
              **57,493,863**
              
              
              **1,289,004****Total**
              
              **$**
              **10,179,962**
              
              **$**
              **40,449**
              
              **$**
              **52,691,989**
              
              **$**
              **1,310,783**
              
              **$**
              **62,871,951**
              
              **$**
              **1,351,232**December
                  31, 2005:FHLB
                  agency notes
              
              $
              —
              
              $
              —
              
              $
              1,938,800
              
              $
              58,681
              
              $
              1,938,800
              
              $
              58,681Mortgage-backed
                  securities
              
              
              9,453,814
              
              
              253,172
              
              
              46,543,445
              
              
              1,449,598
              
              
              55,997,259
              
              
              1,702,770Total
              
              $
              9,453,814
              
              $
              253,172
              
              $
              48,482,245
              
              $
              1,508,279
              
              $
              57,936,059
              
              $
              1,761,451
  61
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        3 - Securities - Continued**
 
 FHLB
        and FHLMC Agency Notes - The
        unrealized losses on the Company's investments in FHLB and FHLMC agency notes
        were caused by interest rate increases, The contractual terms of those
        investments do not permit the issuer to settle the securities at a price
        less
        than the amortized cost of the investment. Because the Company has the ability
        and intent to hold these investments until maturity, the Company does not
        consider these investments to be other-than-temporarily impaired at December
        31,
        2006 and 2005.
 
 Municipal
        Securities -
        The
        unrealized losses on the Company's investment in municipal securities were
        caused by interest rate increases. The contractual cash flows of these
        investments are guaranteed by various state and local government agencies.
        Accordingly, it is expected that the securities would not be settled at a
        price
        less than the amortized cost of the Company's investment. Because the decline
        in
        market value is attributable to changes in interest rates and not credit
        quality, and because the Company has the ability and intent to hold these
        investments until maturity, the Company does not consider these investments
        to
        be other-than-temporarily impaired at December 31, 2006 and 2005.
 
  Mortgage-Backed
        Securities - The
        unrealized losses on the Company's investment in mortgage-backed securities
        were
        caused by interest rate increases. The contractual cash flows of those
        investments are guaranteed by an agency of the U.S. government. Accordingly,
        it
        is expected that the securities would not be settled at a price less than
        the
        amortized cost of the Company's investment. Because the decline in market
        value
        is attributable to ** changes
        in interest rates and not credit quality, and because the Company has the
        ability and intent, to hold these investments until maturity, the Company
        does
        not consider these investments to be other-than-temporarily impaired at December
        31, 2006 and 2005. **
 
 The
        contractual maturities of securities held-to-maturity at December 31, 2006,
        are
        shown below. Actual maturities may differ from contractual maturities because
        borrowers may have the right to call or prepay obligations with or without
        call
        or prepayment penalties.
 
 Amortized
              
              FairCost
              
              ValueDue
                  in one year or less
              
              $
              —
              
              $
              —Due
                  after one year through five years
              
              
              2,035,295
              
              
              1,992,158Due
                  after five years through ten years
              
              
              9,320,559
              
              
              9,290,916Due
                  after ten years
              
              
              89,753,254
              
              
              88,692,954$
              101,109,108
              
              $
              99,976,028
 
 Mortgage-backed
        securities have been included in the maturity table based upon the guaranteed
        payoff date of each security.
 
 There
        were no gross realized gains and losses from the sale of securities for the
        years ended December 31 2006, 2005 and 2004.
  62
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        3 - Securities - Continued**
 
 Dispositions
        through calls, maturities and pay-downs resulted in no net gain or loss during
        2006, 2005 and 2004.
 
 Investment
        securities pledged to secure public funds on deposit, FHLB advances and for
        other purposes as required by law amounted to approximately $43,053,000 and
        $59,812,000 at December 31, 2006 and 2005, respectively.
 
 
 **Note
        4 - Other Investments**
 
 The
        carrying amounts of other investments as shown in the consolidated statements
        of
        financial condition at December 31, 2006 and 2005 were as follows:
 
 Other
                  Investments - Securities**2006**
              
              2005Federal
                  Home Loan Bank stock
              
              **$**
              **4,287,300**
              
              $
              4,020,100Independent
                  Bankers Bank of Florida stock
              
              
              **308,058**
              
              
              308,058Investment
                  in FCBI Capital Trust I
              
              
              **310,000**
              
              
              310,000Investment
                  in FCBI Capital Trust II
              
              
              **619,000**
              
              
              —Community
                  Financial Services, Inc. stock
              
              
              **71,107**
              
              
              71,107**$**
              **5,595,465**
              
              $
              4,709,265
 
 Other
                  Investments - Partnerships**2006**
              
              2005Investment
                  in Capital Security Investors, LLC
              
              **$**
              **400,000**
              
              $
              500,000Investment
                  in AMD-FCB, LLP
              
              
              **863,875**
              
              
              —**$**
              **1,263,875**
              
              $
              500,000
  
 Other
        Investments - Securities - The
        aggregate carrying value of the Company's cost-method investments totaled
        $5,595,465 at December 31, 2006 and $4,709,265 at December 31, 2005. These
        investments were not evaluated for impairment because (a) the Company did
        not
        estimate the fair value of those investments in accordance with paragraphs
        14
        and 15 of SFAS No. 107 and (b) the Company did not identify any events or
        changes in circumstances that may have had a significant adverse effect on
        the
        fair value of those investments. The Company estimated that the fair value
        exceeded the cost of investments (that is, the investments were not impaired).
        Included in this amount are restricted investments in the Federal Home Loan
        Bank
        of Atlanta, Community Financial Services, Inc., and the Independent Bankers
        Bank
        of Florida. The investments in FCBI Capital Trust I and Capital Trust II
        represent the Company's capitalization of newly-formed special purpose trusts
        created to issue preferred securities. These investments represent 100 percent
        of the common stock issued by the trusts, however, in accordance with the
        provisions of FIN 46(R), these subsidiaries have not been consolidated into
        these consolidated financial statements since the Company is not considered
        the
        primary beneficiary (see Note 10).
  63
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        4 - Other Investments - Continued**
  
  Other
        Investments - Partnerships - The
        investment in Capital Security Investments, LLC, represents a 20% investment
        in
        a limited liability company with four other financial institutions for the
        purpose of buying trust preferred securities. The equity method is used to
        account for this partnership interest. The $863,875 investment in AMD-FCB,
        LLP,
        represents capital contributions made to-date, for a 50% partnership interest
        with Ave Maria Development, LLP to purchase land and construct an office
        building in the town of Ave Maria. The Bank has committed to lease a total
        of
        16,809 square feet, or approximately one-half of the building that will include
        a branch, executive and administrative offices (see Note 20). The Company
        is
        planning on moving their corporate headquarters to the Ave Maria building.
        Although the Company owns a 50% interest in the partnership, management has
        determined that the Company is not the primary beneficiary under the rules
        of
        FIN 46(R) and therefore the equity method will be applied to this investment,
        with the original investment recorded at cost and adjusted periodically to
        recognize the Company’s share of earnings or losses. Intercompany profits and
        losses will be eliminated by reducing the investment balance and income from
        the
        Company’s share of the unrealized intercompany profits and losses. The Company
        has also guaranteed 50% of the construction loan to fund completion of the
        project (see Note 17).
 
 **Note
        5 - Loans**
 
 The
        Company grants loans to customers primarily in Charlotte, Collier, Glades,
        Hendry and Lee Counties of Southwest Florida.
 
 The
        major
        classifications of loans as of December 31, 2006 and 2005 are as
        follows:
 
 **2006**
              
              2005Commercial,
                  financial, and agricultural
              
              **$**
              **41,574,878**
              
              $
              37,308,721Real
                  estate - construction
              
              
              **478,084,665**
              
              
              467,853,910Real
                  estate - mortgage
              
              
              **344,310,383**
              
              
              280,229,840Consumer
              
              
              **6,275,352**
              
              
              7,501,870Other
              
              
              **2,007,518**
              
              
              2,356,236Total
              
              
              **872,252,796**
              
              
              795,250,577Unearned
                  income
              
              
              **(2,790,323**
              **)**
              
              (3,941,722
              )Allowance
                  for loan losses
              
              
              **(13,590,000**
              **)**
              
              (11,522,910
              )Net
                  loans
              
              **$**
              **855,872,473**
              
              $
              779,785,945
  64
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        5 - Loans - Continued**
 
 In
        addition to the major categories listed above, at December 31, 2006, the
        Company
        had a significant concentration in unimproved commercial land loans totaling
        approximately $255 million, of which $17.6 million is currently on
        nonaccrual.
 
 Deposit
        overdrafts reclassified as loans and included in the other loan category
        amounted to $672,028 and $745,439, at December 31, 2006 and 2005,
        respectively.
 
 Information
        about impaired loans as of and for the years ended December 31 is as follows:
 
 **2006**
              
              2005Impaired
                  loans with a specific valuation allowance
              
              **$**
              **4,453,562**
              
              $
              —Impaired
                  loans without a specific valuation allowance
              
              
              **32,991,205**
              
              
              827,553Total
                  impaired loans
              
              **$**
              **37,444,767**
              
              $
              827,553Average
                  monthly balance of impaired loans (based on month-end
                  balances)
              
              **$**
              **7,597,033**
              
              $
              1,061,913Related
                  allowance for credit losses
              
              
              **1,488,000**
              
              
              130,628Interest
                  income recognized on impaired loans
              
              
              **14,693**
              
              
              3,412
 
 At
        December 31, 2006 and 2005, the Company had loans past due 90 days or more
        and
        still accruing interest of approximately $13,142,000 and $106,000, respectively.
 
 Total
        nonaccrual loans at December 31, 2006 and 2005 consisted of approximately
        $37,445,000 and $194,000, respectively. For the years ended December 31,
        2006
        and 2005, the difference between gross interest income that would have been
        recorded in such period if the nonaccruing loans had been current in accordance
        with their original terms and the amount of interest income on those loans
        that
        was included in such period's net income was approximately $2,491,750 and
        $14,000, respectively.
 
 The
        Company has no commitments to lend additional funds to the borrowers of
        nonaccrual loans.
 
 Net
        unamortized deferred loan fees and origination costs included in unearned
        income
        amounted to $2,790,323 and $3,941,722 as of December 31, 2006 and
        2005.
 
 Commercial
        and residential real estate loans pledged to secure FHLB advances and letters
        of
        credit amounted to approximately $33,300,000 and $40,340,000 at December
        31,
        2006 and 2005, respectively (see Note 10). Commercial real estate loans pledged
        to secure the Federal Reserve Bank line of credit amounted to approximately
        $13,780,000 and $4,170,000 at December 31, 2006 and 2005,
        respectively .
  65
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        6 - Allowance for Loan Losses**
 
 Changes
        in the allowance for loan losses for the years ended December 31, 2006, 2005
        and
        2004 were as follows:
 
 **2006**
              
              2005
              
              2004Balance
                  at beginning of year
              
              **$**
              **11,522,910**
              
              $
              9,791,269
              
              $
              8,066,817Charge-offs
              
              
              **(264,326**
              **)**
              
              (180,471
              )
              
              (455,318
              )Recoveries
              
              
              **35,146**
              
              
              150,112
              
              
              209,002Net
                  (charge-offs) recoveries
              
              
              **(229,180**
              **)**
              
              (30,359
              )
              
              (246,316
              )Provision
                  for loan losses
              
              
              **2,296,270**
              
              
              1,762,000
              
              
              1,970,768Balance
                  at end of year
              
              **$**
              **13,590,000**
              
              $
              11,522,910
              
              $
              9,791,269
 
 
 **Note
        7 - Premises and Equipment**
 
 Premises
        and equipment as of December 31, 2006 and 2005 is as follows:
 
 **2006**
              
              2005Land
              
              **$**
              **3,128,438**
              
              $
              3,128,438Land
                  improvements
              
              
              **625,618**
              
              
              567,594Building
              
              
              **10,842,765**
              
              
              10,788,536Furniture
                  and equipment
              
              
              **4,864,211**
              
              
              4,642,568Automobiles
              
              
              **425,929**
              
              
              368,519Construction
                  in progress
              
              
              **1,468,560**
              
              
              573,115**21,355,521**
              
              
              20,068,770Accumulated
                  depreciation
              
              
              **(6,900,428**
              **)**
              
              (6,292,537
              )Premises
                  and equipment, net
              
              **$**
              **14,455,093**
              
              $
              13,776,233
 
 The
        provision for depreciation charged to occupancy and equipment expense for
        the
        years ended December 31, 2006, 2005 and 2004 was $919,381, $835,001 and
        $711,547, respectively.
 
 
 **Note
        8 - Deposits**
 
 The
        aggregate amounts of time deposits of $100,000 or more, including certificates
        of deposit of $100,000 or more at December 31, 2006 and 2005 were $403,097,572
        and $341,816,538, respectively. Time deposits of less than $100,000 totaled
        $63,246,291 and $61,065,664 at December 31, 2006 and 2005, respectively.
  66
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        8 - Deposits - Continued**
 
 The
        maturities of time certificates of deposit and other time deposits issued
        by the
        Bank at December 31, 2006, are as follows:
 
 Year
                  Ending December 31,2007
              
              $
              342,167,9412008
              
              
              112,771,8192009
              
              
              6,192,2642010
              
              
              3,038,1942011
              
              
              2,173,645$
              466,343,863
 
 
 **Note
        9 - Short-term Borrowings**
 
 Short-term
        borrowings at December 31, 2006 and 2005 consist of the following:
 
 **2006**
              
              2005Federal
                  funds purchased
              
              **$**
              **694,000**
              
              $
              24,988,000Balance
                  due on investment in limited liability investment company
              
              
              **—**
              
              
              100,000**$**
              **694,000**
              
              $
              25,088,000
 
 Securities
        sold under agreements to repurchase are reflected at the amount of cash received
        in connection with the transaction. Information concerning securities sold
        under
        agreements to repurchase is summarized as follows:
 
 **2006**
              
              2005Average
                  balance during the year
              
              **$**
              **—**
              
              $
              2,794,421Average
                  interest rate during the year
              
              
              **—**
              
              
              2.54
              %Maximum
                  month-end balance during the year
              
              **$**
              **—**
              
              $
              10,106,000U.S.
                  Agency, municipal and mortgage-backed securities underlying the
                  agreements
                  at year end:Carrying
                  value
              
              **$**
              **—**
              
              $
              —Estimated
                  fair value
              
              
              **—**
              
              
              —
  67
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        10 - Long-term Debt**
 
 At
        December 31, 2006 and 2005, the Company had long-term debt totaling $85,929,000
        and $70,333,939, respectively.
 
 Long-term
        debt consists of the following at December 31:
 
 **2006**
              
              2005Long-term
                  FHLB advances, with varying maturities from May 2007 through December
                  2014, the interest rates have a variable base or are at a fixed
                  rate
                  between 3.77% to 6.18%, secured by real estate mortgage loans and
                  pledged
                  securities
              
              **$**
              **55,000,000**
              
              $
              60,000,000Long-term
                  subordinated debentures; interest rate prime plus 0.5%, the debenture
                  has
                  a 30-year life with a call option of 5 years, subject to regulatory
                  approval
              
              
              **10,310,000**
              
              
              10,310,000Long-term
                  subordinated debentures; interest rate three month LIBOR plus 1.55%,
                  the
                  debenture has a 30-year life with a call option of 5 years, subject
                  to
                  regulatory approval
              
              
              **20,619,000**
              
              
              —Notes
                  payable to Ford Motor Credit, with an interest rate of 0.90%, interest
                  and
                  principal paid monthly over a 3-year period, secured by a
                  vehicle
              
              
              **—**
              
              
              23,939**$**
              **85,929,000**
              
              $
              70,333,939
 
 In
        June
        2002, the Company formed a wholly-owned Delaware statutory business trust,
        FCBI
        Capital Trust I, which issued $10,000,000 of guaranteed preferred securities
        representing undivided beneficial interests in the assets of the trust ("Trust
        Preferred Securities"). In May 2006, the Company formed another wholly-owned
        Delaware statutory business trust, FCBI Capital Trust II, which issued
        $20,000,000 of guaranteed preferred securities. The common securities of
        the
        both trusts are owned by the Company. The proceeds from the issuance of the
        Trust Preferred Securities ($30,000,000) and common securities ($929,000)
        were
        used by the trust to purchase $30,929,000 of junior subordinated deferrable
        interest debentures of the Company. The debentures, which bear interest at
        Prime
        rate plus 0.5% and three month LIBOR plus 1.55% respectively, represent the
        sole
        asset of the trusts. The Company has fully and unconditionally guaranteed
        all
        obligations of the Trusts on a subordinated basis with respect to the Trust
        Preferred Securities. In accordance with the provisions of FIN 46(R), the
        Company accounts for the Trust Preferred Securities as a long-term debt
        liability to the Trust in the amount of $30,929,000. Subject to certain
        limitations, the Trust Preferred Securities qualify as Tier 1 capital.
  68
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        10 - Long-term Debt - Continued**
 
 The
        Company has entered into an agreement, which fully and unconditionally
        guarantees payment of accrued and unpaid distributions required to be paid
        on
        the Trust Preferred Securities, with respect to any Trust Preferred Securities
        called for redemption.
 
 The
        Trust
        Preferred Securities mature in September 2032 and July 2036, and may be called
        by the Company at any time after June 2007 and July 2011
        respectively.
 
 Maturities
        of long-term debt following December 31, 2006, are as follows:
 
 Year
                  Ending December 31,2007
              
              $
              10,000,0002008
              
              
              5,000,0002009
              
              
              —2010
              
              
              5,000,0002011
              
              
              5,000,000Thereafter
              
              
              60,929,000$
              85,929,000
 
 
 **Note
        11 - Shareholders' Equity**
 
 At
        December 31, 2006 and 2005, shareholders' equity of the Company consisted
        of the
        following:
 
 Common
        stock :
        10,000,000 shares authorized with a par value of $0.01 per share. Voting
        rights
        equal to one vote per share.
 
 Paid-in
        capital :
        Represents the funds received in excess of par value upon the issuance of
        stock,
        net of issuance costs, the effect of issuance of stock options and the related
        effects of the stock dividends and stock splits.
 
 Retained
        earnings :
        Represents the accumulated net earnings of the Company as reduced by dividends
        paid to shareholders and the effect of stock dividends issued in previous
        periods.
 
 Stock
        splits :
        In
        December 2004, the Company issued a 1.2 for 1.0 common stock split resulting
        in
        an increase in the number of outstanding shares by 749,528. In October 2005,
        the
        Company issued a 1.2 for 1.0 common stock split resulting in an increase
        in the
        number of outstanding shares by 903,864. In October 2006, the Company issued
        a
        1.2 for 1.0 common stock split resulting in an increase in the number of
        outstanding shares by 1,098,246. All per share amounts included in these
        consolidated financial statements have been adjusted to give retroactive
        effect
        to the stock splits.
  69
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        12 - Regulatory Capital Matters**
 
 The
        Company and the Bank are subject to various regulatory capital requirements
        administered by the state and federal banking agencies. Failure to meet minimum
        capital requirements can initiate certain mandatory and possible additional
        discretionary actions by regulators, which if undertaken, could have a direct
        material effect on the Company's consolidated financial statements. Under
        regulatory capital adequacy guidelines and the regulatory framework for prompt
        corrective action, the Company and its subsidiary bank must meet specific
        capital guidelines involving quantitative measures of the Company's and its
        subsidiary bank's assets, liabilities and certain off-balance sheet items
        as
        calculated under regulatory accounting practices. The Bank's capital amounts
        and
        classification under the prompt corrective guidelines are also subject to
        qualitative judgments by the regulators about components, risk weightings
        and
        other factors.
 
 Quantitative
        measures established by regulation to ensure capital adequacy require the
        Company and the Bank to maintain minimum amounts and ratios of Total capital
        and
        Tier 1 capital to risk-weighted assets (as defined in the regulations), and
        Tier
        1 capital to adjusted total assets (Tier 1 "leverage")(as defined). Management
        believes, as of December 31, 2006, that the Company and the Bank meet all
        capital adequacy requirements to which they are subject.
 
 As
        of
        December 31, 2006, the most recent notification from the applicable regulatory
        agencies categorized the Bank as well capitalized under the regulatory framework
        for prompt corrective action. To remain categorized as well capitalized,
        the
        Bank will have to maintain minimum Total capital, Tier 1 capital, and Tier
        1
        leverage ratios as disclosed in the following table. There are no changes
        in
        conditions or events since the most recent notification that management believes
        have changed the Bank's prompt corrective action category.
 
 The
        State
        of Florida Office of Financial Regulation issued a proposed Cease and Desist
        order during 2006 based on their regulatory exam that commenced on April
        17,
        2006. The Bank does not agree with this proposed action and is vehemently
        contesting the proposed action.
 
 
 [The
        remainder of this page intentionally left blank]
  70
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        12 - Regulatory Capital Matters - Continued**
 
 The
        Company's and the Bank's actual capital amounts and ratios are also presented
        in
        the table.
 
 Actual
              
              For
                  Capital
                Adequacy
                  Purposes
              
              To
                  Be Well
                Capitalized
                  Under
                Prompt
                  Corrective
                Action
                  ProvisionsAmount
              
              Ratio
              
              Amount
              
              Ratio
              
              Amount
              
              Ratio(Dollars
                  in thousands)**As
                  of December 31, 2006:****Total
                  Capital Consolidated**
              
              **$**
              **132,834**
              
              
              **13.55**
              **%**
              **$**
              **78,401**
              
              
              **8.00**
              **%**
              
              **N/A**
              
              
              **N/A****Florida
                  CommunityBank**
              
              
              **122,278**
              
              
              **12.57**
              
              
              **77,825**
              
              
              **8.00**
              
              **$**
              **97,282**
              
              
              **10.00**
              **%****Tier
                  1 Capital Consolidated**
              
              
              **120,567**
              
              
              **12.30**
              
              
              **39,201**
              
              
              **4.00**
              
              
              **N/A**
              
              
              **N/A****Florida
                  Community Bank**
              
              
              **110,290**
              
              
              **11.34**
              
              
              **38,913**
              
              
              **4.00**
              
              
              **58,369**
              
              
              **6.00****Tier
                  1 Leverage Consolidated**
              
              
              **120,567**
              
              
              **11.78**
              
              
              **40,925**
              
              
              **4.00**
              
              
              **N/A**
              
              
              **N/A****Florida
                  Community Bank**
              
              
              **110,290**
              
              
              **10.90**
              
              
              **40,456**
              
              
              **4.00**
              
              
              **50,570**
              
              
              **5.00**As
                  of December 31, 2005:Total
                  Capital Consolidated
              
              $
              91,035
              
              
              10.39
              %
              $
              70,094
              
              
              8.00
              %
              
              N/A
              
              
              N/AFlorida
                  Community Bank
              
              
              90,415
              
              
              10.33
              
              
              70,028
              
              
              8.00
              
              $
              87,535
              
              
              10.00
              %Tier
                  1 Capital Consolidated
              
              
              80,076
              
              
              9.14
              
              
              35,047
              
              
              4.00
              
              
              N/A
              
              
              N/AFlorida
                  Community Bank
              
              
              79,466
              
              
              9.08
              
              
              35,014
              
              
              4.00
              
              
              52,521
              
              
              6.00Tier
                  1 Leverage Consolidated
              
              
              80,076
              
              
              8.96
              
              
              35,750
              
              
              4.00
              
              
              N/A
              
              
              N/AFlorida
                  Community Bank
              
              
              79,466
              
              
              8.90
              
              
              35,700
              
              
              4.00
              
              
              44,625
              
              
              5.00
  71
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        13 - Stock Option Plans**
 
 The
        Company has adopted the 2002 Key Employee Stock Compensation Program ("Employee
        Program"). The Employee Program provides for the granting of stock options
        generally with an exercise price equal to the fair market value of the Company's
        stock at the date of grant. The stock options generally vest over four years
        of
        continuous service and have a ten year contractual term. Certain options
        provide
        for accelerated vesting if there is a change of control (as defined in the
        plan). The following table reflects the number of shares to be issued upon
        the
        exercise of options granted under the Employee Program, the weighted-average
        exercise price of all such options, and the total number of shares of common
        stock reserved for the issuance upon the exercise of authorized, but
        not-yet-granted options, as of December 31, 2006.
 
 Plan
                  Category
              
              Number
                  of Shares to be
                Issued
                  Upon the Exercise
                of
                  Outstanding Options
              
              Weighted-average
                Exercise
                  Price of
                Outstanding
                  Options
              
              Number
                  of Shares
                Remaining
                  Available for
                Future
                  Issuance Under
                Equity
                  Compensation PlanEquity
                  Compensation Plans Approved by Shareholders
              
              
              193,769
              
              $
              12.23
              
              
              73,738Equity
                  Compensation Plans Not Approved by Shareholders
              
              
              —
              
              
              0.00
              
              
              —Total
              
              
              193,769
              
              $
              12.23
              
              
              73,738
 
 Options
        to purchase Florida Community Banks, Inc. stock have been granted to directors,
        officers and employees under the Employee Program. Under the Employee Program,
        options may be granted to purchase up to a maximum of 323,825 common shares,
        as
        adjusted for all subsequent stock dividends and splits.
 
 The
        stock
        options expire 10 years after the date of grant and are issued at an option
        price no less than the market price of the Company's stock on the date of
        grant.
        Options granted are generally exercisable at 40% after one year and in annual
        20% increments thereafter.
 
 The
        following table summarizes the Company's stock option activity since December
        31, 2005:
 
 Options
              
              Weighted
                Average
                Exercise
                PriceOutstanding
                  as of December 31, 2005
              
              
              193,769
              
              $
              12.23Granted
              
              
              —
              
              
              0.00Exercised
              
              
              —
              
              
              0.00Cancelled
              
              
              —
              
              
              0.00Outstanding
                  as of December 31, 2006
              
              
              193,769
              
              
              12.23Fully
                  vested and exercisable as of December 31, 2006
              
              
              151,542
              
              
              10.77
  72
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        13 - Stock Option Plans - Continued**
 
 The
        following tables provide additional information about the Company's stock
        options:
 
 **2006**
              
              2005
              
              2004Weighted
                  average grant date fair value of options granted
              
              **$**
              **—**
              
              $
              5.93
              
              $
              2.58Total
                  intrinsic value of options exercised
              
              
              **—**
              
              
              468,789
              
              
              —Total
                  fair value of options vested
              
              
              **844,484**
              
              
              1,810,676
              
              
              671,332
 
 
 As
                  of December 31, 2006Total
                Options
                Outstanding
              
              Options
                  Fully
                Vested
                  and
                Expected
                  to Vest
              
              Options
                  Fully
                Vested
                  and
                ExercisableNumber
              
              
              193,769
              
              
              193,769
              
              
              151,542Weighted
                  average exercise price
              
              $
              12.23
              
              $
              12.23
              
              $
              10.77Aggregate
                  intrinsic value (in thousands)
              
              
              4,073
              
              
              4,073
              
              
              3,407Weighted
                  average remaining contractual life (in years)
              
              
              6.42
              
              
              6.42
              
              
              4.76
 
 Total
        compensation cost for stock based compensation recognized under the fair
        value
        method for the years ended December 31, 2006, 2005 and 2004 was $92,035,
        $56,738
        and $19,577, respectively, with related tax benefits of $18,609, $10,717
        and
        $3,893, respectively.
 
 As
        of
        December 31, 2006, there was $58,830 of total unrecognized compensation cost
        related to nonvested share-based compensation arrangements granted under
        the
        plans. This cost is expected to be recognized over a weighted-average period
        of
        approximately 2.0 years. Intrinsic value represents the difference between
        the
        closing stock price of the Company's common stock and the exercise price
        of the
        underlying stock options. Aggregate intrinsic value in a previous table
        represents the value that would have been received by option holders if they
        had
        exercised all stock options at December 31, 2006. The total intrinsic value
        of
        options exercised during the year ended December 31, 2006, was
        $-0-.
 
 
 [The
        remainder of this page intentionally left blank]
  73
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        14 - Other Operating Expenses**
 
 The
        major
        components of other operating expenses included in noninterest expenses at
        December 31, 2006, 2005 and 2004 are as follows (in thousands):
 
 **2006**
              
              2005
              
              2004Professional
                  fees
              
              **$**
              **461**
              
              $
              405
              
              $
              249Promotions
                  and public relations
              
              
              **381**
              
              
              288
              
              
              265Examination
                  and assessment
              
              
              **252**
              
              
              202
              
              
              176Telephone
              
              
              **251**
              
              
              264
              
              
              188Supplies
              
              
              **181**
              
              
              224
              
              
              171Courier
              
              
              **180**
              
              
              176
              
              
              127ATM
                  expense
              
              
              **178**
              
              
              188
              
              
              147Software
                  maintenance
              
              
              **149**
              
              
              141
              
              
              138Bank
                  charges
              
              
              **142**
              
              
              117
              
              
              91Postage
              
              
              **132**
              
              
              117
              
              
              123Dues
                  and subscriptions
              
              
              **83**
              
              
              57
              
              
              48Employee
                  educational expenses
              
              
              **75**
              
              
              66
              
              
              70Director's
                  board and committee fees
              
              
              **70**
              
              
              70
              
              
              67Other
              
              
              **632**
              
              
              435
              
              
              453**$**
              **3,167**
              
              $
              2,750
              
              $
              2,313
 
 
 **Note
        15 - Income Taxes**
 
 Federal
        and state income taxes receivable (payable) as of December 31, 2006 and 2005
        included in other assets and liabilities, respectively, were as
        follows:
 
 **2006**
              
              2005CurrentFederal
              
              **$**
              **338,120**
              
              $
              (549,841
              )State
              
              
              **71,136**
              
              
              (76,289
              )
 
 The
        components of the deferred income tax asset included in other assets as of
        December 31, 2006 and 2005 are as follows:
 
 **2006**
              
              2005Deferred
                  tax asset:Federal
              
              **$**
              **5,801,460**
              
              $
              5,266,822State
              
              
              **967,081**
              
              
              877,804Total
                  deferred income tax asset
              
              
              **6,768,541**
              
              
              6,144,626Deferred
                  tax liability:Federal
              
              
              **(294,063**
              **)**
              
              (269,487
              )State
              
              
              **(49,011**
              **)**
              
              (44,914
              )Total
                  deferred income tax liability
              
              
              **(343,074**
              **)**
              
              (314,401
              )Net
                  deferred tax asset
              
              **$**
              **6,425,467**
              
              $
              5,830,225
  74
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        15 - Income Taxes - Continued**
 
 The
        tax
        effects of each type of income and expense item that gave rise to deferred
        taxes
        are:
 
 **2006**
              
              2005Allowance
                  for loan losses
              
              **$**
              **5,197,500**
              
              $
              4,300,107Deferred
                  loan fees
              
              
              **1,074,275**
              
              
              1,517,455Write-down
                  of other real estate owned
              
              
              **249,741**
              
              
              204,050Accrued
                  sick time
              
              
              **118,875**
              
              
              —Directors
                  benefit plan
              
              
              **94,955**
              
              
              108,428Issuance
                  of stock options
              
              
              **33,195**
              
              
              14,586Depreciation
              
              
              **(343,074**
              **)**
              
              (314,401
              )Net
                  deferred tax asset
              
              **$**
              **6,425,467**
              
              $
              5,830,225
 
 The
        Company did not establish a valuation allowance related to the net deferred
        tax
        asset due to taxes paid within the carryback period being sufficient to offset
        future deductions resulting from the reversal of these temporary
        differences.
 
 The
        components of income tax expense for the years ended December 31, 2006, 2005
        and
        2004 were as follows:
 
 **2006**
              
              2005
              
              2004CurrentFederal
              
              **$**
              **13,044,737**
              
              $
              11,071,080
              
              $
              7,615,497State
              
              
              **2,164,855**
              
              
              1,845,519
              
              
              1,232,895DeferredFederal
              
              
              **(510,062**
              **)**
              
              (1,296,782
              )
              
              (989,535
              )State
              
              
              **(85,181**
              **)**
              
              (216,090
              )
              
              (164,960
              )**$**
              **14,614,349**
              
              $
              11,403,727
              
              $
              7,693,897
 
 There
        were no material tax effects of securities transactions for the years ended
        December 31, 2006, 2005 and 2004.
 
 The
        principal reasons for the difference in the effective tax rate and the federal
        statutory rate are as follows for the years ended December 31, 2006, 2005
        and
        2004.
 
 **2006**
              
              2005
              
              2004Federal
                  income tax at statutory rates
              
              **$**
              **13,216,146**
              
              
              **35.0**
              **%**
              $
              10,367,615
              
              
              35.0
              %
              $
              6,977,540
              
              
              35.0
              %Add
                  (deduct)State
                  income tax, net of federal tax benefit
              
              
              **1,351,788**
              
              
              **3.6**
              
              
              1,059,129
              
              
              3.6
              
              
              694,158
              
              
              3.5Other
              
              
              **46,415**
              
              
              **0.1**
              
              
              (23,017
              )
              
              (0.1
              )
              
              22,199
              
              
              0.1Totals
              
              **$**
              **14,614,349**
              
              
              **38.7**
              **%**
              $
              11,403,727
              
              
              38.5
              %
              $
              7,693,897
              
              
              38.6
              %
  75
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        16 - Benefit Plans**
 
 During
        the years ended December 31, 2006, 2005 and 2004, the Company had two qualified
        employee benefit plans: 1) a Profit Sharing Plan and 2) an ESOP. The plans
        cover
        substantially all employees, subject to similar eligibility requirements.
        The
        Company’s annual contribution to the Profit Sharing Plan is discretionary as
        determined by the board of directors. For the years ended December 31, 2006,
        2005 and 2004, the Company’s contributions charged to operations for the Profit
        Sharing Plan amounted to $526,813, $511,518, and $506,733, respectively.
        The
        Company’s annual contribution to the ESOP is discretionary as determined by the
        board of directors. The Company’s contribution to the ESOP for 2006, 2005 and
        2004 was $533,895, $442,101 and $575,626, respectively.
 
 The
        Company also has a Director's Benefit Plan (the "Benefit Plan") covering
        certain
        directors and a Salary Continuation Plan (the "Salary Plan") for a former
        officer. These plans were obtained resulting from a business combination
        that
        occurred in 1998.
 
 The
        Benefit Plan provides for the payment of scheduled benefits to the participants
        or their beneficiaries at age 65 or their normal retirement date, whichever
        occurs later. If the participant dies prior to receiving 180 monthly payments,
        the participant's beneficiary shall receive any remaining monthly payments.
        Payment of benefits under the Benefit Plan requires that the participant
        fulfill
        certain conditions related to age and length of service. The Company is accruing
        the present value of the future benefits to be paid under the Benefit Plan
        over
        the term of each participant's service period.
 
 The
        Salary Plan provides for the payment of a retirement benefit of $30,000 per
        year
        for a period of ten years. Payment of these benefits commenced on January
        1,
        1995, and continued through December 31, 2004, according to the terms of
        the
        Plan.
 
 The
        Company has determined that the following disclosures are relevant to the
        Benefit Plan and the Salary Plan, however, the plans are non-qualified and
        unfunded and have been recorded as a liability of the Company at the present
        value of the future benefit obligation. Payments to retired directors and
        officers are funded through operations.
 
 Net
        pension cost for the Director's Benefit Plan and the Salary Continuation
        Plan
        for 2006, 2005 and 2004 included the following components:
 
 **2006**
              
              2005
              
              2004Service
                  cost (benefit)
              
              **$**
              **(315**
              **)**
              $
              (315
              )
              $
              29,369Interest
                  cost
              
              
              **23,488**
              
              
              26,489
              
              
              29,233Net
                  periodic pension cost
              
              **$**
              **23,173**
              
              $
              26,174
              
              $
              58,602
  76
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        16 - Benefit Plans - Continued**
 
 The
        following table sets forth the accumulated benefit obligation of the Director's
        Benefit Plan and the Salary Continuation Plan recognized in the Company's
        statements of financial condition at December 31, 2006 and 2005.
 
 **2006**
              
              2005Present
                  value of benefit obligation:Vested
              
              **$**
              **246,635**
              
              $
              281,629Non-vested
              
              
              **—**
              
              
              —Accumulated
                  benefit obligation/pension liability
              
              **$**
              **246,635**
              
              $
              281,629
 
 The
        weighted average discount rate used in determining present value of the
        projected benefit obligation for the Director's Benefit Plan and Salary
        Continuation Plan was nine percent.
 
 The
        aggregate benefit cost expected-to-be accrued for the year ending December
        31,
        2007, is $-0-.
 
 The
        measurement date for the plans is December 31 of each year. There are no
        plan
        assets on which to compute long-term rates of return.
 
 Expected
        benefit payments for the Benefit Plan and the Salary Plan following December
        31,
        2006, are as follows:
 
 Year
                  Ending December 31,2007
              
              $
              58,4822008
              
              
              58,4822009
              
              
              58,4822010
              
              
              39,3512011
              
              
              21,7502012
                  - 2016
              
              
              90,625Total
                  expected benefit payments
              
              $
              327,172
 
 
 **Note
        17 - Commitments and Contingencies**
 
 In
        the
        normal course of business, the Company offers a variety of financial products
        to
        its customers to aid them in meeting their requirements for liquidity, credit
        enhancement and interest rate protection. Generally accepted accounting
        principles recognize these transactions as contingent liabilities and,
        accordingly, they are not reflected in the accompanying consolidated financial
        statements.
  77
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        17 - Commitments and Contingencies - Continued**
 
 Loan
        commitments are made to accommodate the financial needs of the Company's
        customers. Standby letters of credit commit the Company to make payments
        on
        behalf of customers when certain specified future events occur. Historically,
        most loan commitments and standby letters of credit expire unused. The Company's
        exposure to credit loss in the event of nonperformance by the counter-party
        to
        the financial instrument for loan commitments and standby letters of credit
        is
        represented by the contractual amount of those instruments. The Company uses
        the
        same underwriting standards in making commitments and conditional obligations
        as
        it does for on-balance sheet instruments. The amount of collateral obtained
        is
        based on management's credit evaluation of the customer. Collateral held
        varies,
        but may include accounts receivable, inventory, property, plant, and equipment,
        and income-producing commercial properties. The estimated value of the
        collateral held to secure standby letters of credit at December 31, 2006,
        was
        approximately $20,606,000. The Company records a liability for the estimated
        fair value of standby letters of credit based on the fees charged for these
        arrangements. At December 31, 2006 and 2005 these recorded liabilities amounted
        to $25,822 and $41,933, respectively.
 
 The
        approximate total amounts of loan commitments and standby letters of credit
        are
        summarized as follows at December 31:
 
 Contract
                  or
                Notional
                  Amount**2006**
              
              2005Loan
                  commitments
              
              **$**
              **203,088,000**
              
              $
              208,082,000Standby
                  letters of credit
              
              
              **2,427,000**
              
              
              2,771,000Total
                  unfunded commitments
              
              **$**
              **205,515,000**
              
              $
              210,853,000
 
 The
        Company, as part of its retail mortgage loan production activities, routinely
        enters into short-term commitments to originate fixed rate loans. Most of
        the
        loans will be sold to third party correspondent banks upon closing. For those
        loans, the Company enters into individual forward sales commitments at the
        same
        time the commitment to originate is finalized. While the forward sales
        commitments function as an economic hedge and effectively eliminate the
        Company's financial risk of rate changes during the rate lock period, both
        the
        commitment to originate mortgage loans that will be sold and the commitment
        to
        sell the mortgage loans are derivatives, the fair values of which are
        essentially equal and offsetting. The fair values are calculated based on
        changes in market interest rates after the commitment date. The notional
        amounts
        of these mortgage loan origination commitments and the related forward sales
        commitments were immaterial at December 31, 2006 and 2005. The unrealized
        gains/losses of the origination and sales commitments were not material at
        December 31, 2006 and 2005.
 
 The
        Company invested in a Partnership, AMD-FCB, LLP, formed to build and lease
        an
        office building in which the Bank will lease space starting in 2007. In early
        2007, the Partnership entered into a construction agreement with a third
        party
        bank. The Company and the other 50% partner have each guaranteed 50% of a
        construction loan totaling approximately $6,600,000. In addition, the Bank
        has
        entered into a 15 year lease agreement with AMD-FCB, LLP to lease 16,809
        square
        feet of the building, approximately one-half. The annual lease payments are
        projected to be approximately $445,000, with annual increases based on the
        Consumer Price Index (“CPI”) (see Note 20).
  78
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        17 - Commitments and Contingencies - Continued**
 
 The
        Company also entered into a lease agreement with North Port Gateway, LLC
        to
        lease office space for a branch in North Port, Florida, to be opened in late
        2007. Annual lease payments are projected to be approximately $190,000, with
        annual increases based on the CPI.
 
 
 **Note
        18 - Concentrations of Credit**
 
 Most
        of
        the Company's loans, commitments, and commercial and standby letters of credit
        have been granted to customers in the Company's market area. Many such customers
        are depositors of the Company. The concentrations of credit by type of loan
        are
        set forth in Note 5. The distribution of commitments to extend credit related
        primarily to unused real estate draw lines. Commercial and standby letters
        of
        credit were granted primarily to commercial borrowers.
 
 The
        Company maintains its cash accounts at various commercial banks in the United
        States. The balances in commercial banks are insured by the FDIC up to $100,000.
        Total uninsured balances held at commercial banks amounted to $2,201,923
        and
        $10,887,886 at December 31, 2006 and 2005, respectively.
 
 
 **Note
        19 - Restrictions on Subsidiary Dividends, Advances and
        Loans**
 
 The
        Bank
        is subject to the dividend restrictions set forth by the State Banking
        Department (Florida). Under such restrictions, the Bank may not, without
        the
        prior approval of the State Banking Department, declare dividends in excess
        of
        the sum of the current year's earnings plus the retained earnings from the
        prior
        two years. For the year ending December 31, 2007, the Bank can declare
        dividends, without prior regulatory approval, of approximately $39,455,000
        plus
        an additional amount equal to its net profits for 2007.
 
 
 **Note
        20 - Leases**
 
 The
        Company leased facilities under non-cancelable operating leases during 2006,
        2005 and 2004. The leases provide for renewal options and generally require
        the
        Company to pay maintenance, insurance and property taxes. For the years ended
        December 31, 2006, 2005 and 2004, rental expense for such leases was $187,181,
        $184,045 and $177,520, respectively. The Company leases land and premises
        for
        one of its locations from a director of the Company (see Note 22).
 
 The
        Bank
        has also entered into two long-term operating leases for branch and office
        space
        in Ave Maria and North Port. The future minimum lease payments under these
        leases are projected to be approximately $445,000 annually or $6,675,000
        over
        the course of the fifteen year lease term for Ava Maria and $190,000 annually
        or
        $1,951,500 over the course of the ten year lease term for North Port; both
        leases are subject to annual rate increases based on the CPI. Both leases
        may be
        extended by two five year extension periods. Commencement of the Ava Maria
        lease
        is projected to be in the late summer of 2007 and for North Port towards
        the end
        of 2007. These leases have been included in the future minimum lease payments
        below.
  79
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        20 - Leases - Continued**
 
 Future
        minimum lease payments under non-cancelable operating leases at December
        31,
        2006, including the Ave Maria and North Port leases, are as
        follows:
 
 Year
                  Ending December 31,2007
              
              $
              352,9252008
              
              
              817,3792009
              
              
              818,0892010
              
              
              822,4132011
              
              
              826,845Thereafter
              
              
              7,658,247Total
                  minimum lease payments
              
              $
              11,295,898
 
 
 **Note
        21 - Litigation**
 
 While
        the
        Company is party to various legal proceedings arising from the ordinary course
        of business, management believes after consultation with legal counsel that
        there are no proceedings threatened or pending against the Company that will,
        individually or in the aggregate, have a material adverse effect on the business
        or financial condition of the Company.
 
 
 **Note
        22 - Related Party Transactions**
 
 *Loans* :
        Certain
        directors, executive officers and principal shareholders, including their
        immediate families and associates were loan customers of the Company during
        2006
        and 2005. Such loans are made in the ordinary course of business at normal
        credit terms, including interest rates and collateral, and do not represent
        more
        than a normal risk of collection. A summary of activity and amounts outstanding
        are as follows:
 
 **2006**
              
              2005Balance
                  at Beginning of Year
              
              **$**
              **3,567,133**
              
              $
              8,102,867New
                  loans
              
              
              **2,595,888**
              
              
              1,913,252Repayments
              
              
              **(1,304,667**
              **)**
              
              (6,448,986
              )Change
                  in related parties
              
              
              **(555,716**
              **)**
              
              —Balance
                  at End of Year
              
              **$**
              **4,302,638**
              
              $
              3,567,133
 
 *Deposits* :
        Deposits held from related parties were $10,029,740 and $15,200,405 at December
        31, 2006 and 2005, respectively.
 
 *Other* :
        The
        Company leases the land and premises of the Cypress Lake branch from a director.
        The lease was initiated in 2001 for a term of 15 years at an arms length
        fair
        rental. Noncancelable lease payments for the years ending December 31, 2007
        through 2011 are $164,624, $168,740, $172,958, $177,282 and $181,714,
        respectively. The agreement provides for annual increases of 2.5
        percent.
  80
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        22 - Related Party Transactions - Continued**
 
 The
        Company, through the normal course of business, sells loan participations
        to
        certain directors and parties related to directors. The transactions are
        at arms
        length and do not have terms that are significantly different from other
        participations sold by the Company. The balance of participations sold to
        these
        parties at December 31, 2006 and 2005 was $6,177,314 and
        $4,701,415.
 
 The
        Company invested as a 50% partner in a partnership, AMD-FCB, LLP, that will
        be
        constructing and leasing branch and office space to the Bank in 2007, for
        a term
        of 15 years at an arms length fair rental. The lease payments are projected
        to
        be $445,000 per year, subject to annual increases based on the CPI (see Notes
        4
        and 17).
 
 
 **Note
        23 - Fair Value of Financial Instruments**
 
 The
        following methods and assumptions were used to estimate the fair value of
        each
        class of financial instruments for which it is practicable to estimate that
        value:
 
 *Cash
        and Short-Term Investments* : ** For
        those
        short-term instruments, the carrying amount is a reasonable estimate of fair
        value.
 
 *Securities* : ** For
        securities held-to-maturity, fair values are based on quoted market prices
        or
        dealer quotes.
 
 *Other
        Investments* :
        For
        other investments, fair value is estimated to be approximately the carrying
        amount.
 
 *Loans
        Held-for-Sale* :
        For
        these short-term instruments, the carrying amount is a reasonable estimate
        of
        fair value.
 
 *Loans* :
        For
        certain homogeneous categories of loans, such as some residential mortgage,
        credit card receivables and other consumer loans, fair value is estimated
        using
        the quoted market prices for securities backed by similar loans, adjusted
        for
        differences in loan characteristics. The fair value of other types of loans
        is
        estimated by discounting the future cash flows using the current rates at
        which
        similar loans would be made to borrowers with similar credit ratings and
        for the
        same remaining maturities.
 
 *Accrued
        Interest Receivable* : ** The
        carrying amount of accrued interest receivable approximates its fair
        value.
 
 *Deposits* :
        The
        fair value of demand deposits, savings accounts and certain money market
        deposits is the amount payable on demand at the reporting date. The fair
        value
        of fixed-maturity certificates of deposit is estimated using the rates currently
        offered for deposits of similar remaining maturities.
 
 *Short-Term
        Borrowings* :
        The
        carrying amounts of short-term borrowings approximate their fair
        values.
 
 *Accrued
        Interest Payable* : ** The
        carrying amount of accrued interest payable approximates its fair
        value.
  81
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        23 - Fair Value of Financial Instruments - Continued**
 
 *Long-Term
        Debt* :
        Rates
        currently available to the Company for debt with similar terms and remaining
        maturities are used to estimate fair value of existing debt.
 
 *Commitments
        to Extend Credit, Standby Letters of Credit, and Financial Guarantees
        Written* :
        The
        fair value of commitments, letters of credit, and financial guarantees is
        estimated to be approximately the fees charged for these
        arrangements.
 
 The
        estimated fair values of the Company's financial instruments as of December
        31,
        2006 and 2005 are as follows:
 
 **2006**
              
              2005**Carrying**
                **Amount**
              
              **Fair**
                **Value**
              
              Carrying
                Amount
              
              Fair
                Value**(in
                  thousands)**
              
              (in
                  thousands)**Financial
                  Assets**Cash
                  and short-term investments
              
              **$**
              **20,612**
              
              **$**
              **20,612**
              
              $
              32,368
              
              $
              32,368Securities
              
              
              **101,109**
              
              
              **99,976**
              
              
              61,033
              
              
              59,290Other
                  investments - securities
              
              
              **5,595**
              
              
              **5,595**
              
              
              4,709
              
              
              4,709Other
                  investments - partnerships
              
              
              **1,264**
              
              
              **1,264**
              
              
              500
              
              
              500Loans
                  held-for-sale
              
              
              **146**
              
              
              **146**
              
              
              300
              
              
              300Loans
              
              
              **869,462**
              
              
              **878,157**
              
              
              791,309
              
              
              794,798Accrued
                  interest receivable
              
              
              **6,640**
              
              
              **6,640**
              
              
              4,941
              
              
              4,941**Financial
                  Liabilities**Deposits
              
              **$**
              **835,462**
              
              **$**
              **803,327**
              
              $
              737,256
              
              $
              737,840Short-term
                  borrowings
              
              
              **694**
              
              
              **694**
              
              
              25,088
              
              
              25,088Accrued
                  interest payable
              
              
              **2,768**
              
              
              **2,768**
              
              
              2,399
              
              
              2,399Long-term
                  debt
              
              
              **85,929**
              
              
              **85,929**
              
              
              70,334
              
              
              70,334**Financial
                  Instruments**Commitments
                  to extend credit
              
              **$**
              **203,088**
              
              **$**
              **2,031**
              
              $
              208,082
              
              $
              2,081Standby
                  letters of credit
              
              
              **2,427**
              
              
              **26**
              
              
              2,771
              
              
              42
 
 
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        remainder of this page intentionally left blank.]
  82
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        24 - Condensed Parent Company Information**
 
 
 **Statements
        of Financial Condition**
 
 **2006**
              
              2005**Assets**Cash
                  and due from banks
              
              **$**
              **3,591,579**
              
              $
              375,320Other
                  investments - securities
              
              
              **929,000**
              
              
              310,000Other
                  investments - partnerships
              
              
              **1,263,875**
              
              
              500,000Loans
              
              
              **6,000,000**
              
              
              —Allowance
                  for loan losses
              
              
              **(90,000**
              **)**
              
              —**Net
                  Loans**
              
              
              **5,910,000**
              
              
              —Investment
                  in subsidiaries (equity method) - eliminated upon
                  consolidation
              
              
              **110,289,571**
              
              
              79,466,176Other
                  assets
              
              
              **104,577**
              
              
              107,420**Total
                  Assets**
              
              **$**
              **122,088,602**
              
              $
              80,758,916**Liabilities
                  and Shareholders' Equity****Liabilities**Subordinated
                  debentures
              
              **$**
              **30,929,000**
              
              $
              10,310,000Other
                  liabilities
              
              
              **592,288**
              
              
              373,134**Total
                  Liabilities**
              
              
              **31,521,288**
              
              
              10,683,134**Total
                  Shareholders' Equity**
              
              
              **90,567,314**
              
              
              70,075,782**Total
                  Liabilities and Shareholders' Equity**
              
              **$**
              **122,088,602**
              
              $
              80,758,916
 
 
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        remainder of this page intentionally left blank.]
  83
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        24 - Condensed Parent Company Information - Continued**
 
 **Statements
        of Income**
 
 **2006**
              
              2005**Income**Dividends
                  from subsidiaries - eliminated upon consolidation
              
              **$**
              **1,796,156**
              
              $
              1,535,743Interest
                  on loans
              
              
              **646,815**
              
              
              —Investment
                  interest and other operating income
              
              
              **127,022**
              
              
              69,886**Total
                  Income**
              
              
              **2,569,993**
              
              
              1,605,629**Expenses**Interest
              
              
              **1,791,936**
              
              
              712,618Salaries
                  and employee benefits
              
              
              **62,105**
              
              
              91,954Provision
                  for loan losses
              
              
              **90,000**
              
              
              —Other
                  operating expenses
              
              
              **264,794**
              
              
              156,192**Total
                  Expenses**
              
              
              **2,208,835**
              
              
              960,764Income
                  before income taxes and equity in undistributed earnings of
                  subsidiary
              
              
              **361,158**
              
              
              644,865Income
                  tax benefit
              
              
              **553,551**
              
              
              349,319Income
                  before equity in undistributed earnings of subsidiary
              
              
              **914,709**
              
              
              994,184Equity
                  in undistributed earnings of subsidiary
              
              
              **22,231,360**
              
              
              17,223,847**Net
                  Income**
              
              **$**
              **23,146,069**
              
              $
              18,218,031
 
 
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        remainder of this page intentionally left blank.]
  84
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        24 - Condensed Parent Company Information - Continued**
 
 **Statements
        of Cash Flows**
 
 **2006**
              
              2005**Operating
                  Activities**Net
                  income
              
              **$**
              **23,146,069**
              
              $
              18,218,031Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Provision
                  for loan losses
              
              
              **90,000**
              
              
              —Increase
                  in accrued interest receivable
              
              
              **(1,510**
              **)**
              
              —Increase
                  in accrued interest payable
              
              
              **329,143**
              
              
              —Equity
                  in undistributed income of subsidiary
              
              
              **(22,231,360**
              **)**
              
              (17,223,847
              )Other
              
              
              **(5,636**
              **)**
              
              50,591**Net
                  Cash Provided By Operating Activities**
              
              
              **1,326,706**
              
              
              1,044,775**Investing
                  Activities**Investment
                  in subsidiary bank
              
              
              **(8,500,000**
              **)**
              
              —Investment
                  in FCBI Capital Trust II
              
              
              **(619,000**
              **)**
              
              —Net
                  increase in loans
              
              
              **(6,000,000**
              **)**
              
              —Investment
                  in partnership
              
              
              **(863,875**
              **)**
              
              —**Net
                  Cash Used In Investing Activities**
              
              
              **(15,982,875**
              )
              
              —**Financing
                  Activities**Issuance
                  of subordinated debentures
              
              
              **20,619,000**
              
              
              —Sale
                  of common stock
              
              
              **—**
              
              
              1,162,233Costs
                  associated with the issuance of options
              
              
              **—**
              
              
              56,783Cash
                  dividends
              
              
              **(2,746,572**
              **)**
              
              (2,288,964
              )**Net
                  Cash Provided By (Used In) Financing Activities**
              
              
              **17,872,428**
              
              
              (1,069,948
              )**Net
                  (Decrease) Increase In Cash and Cash Equivalents**
              
              
              **3,216,259**
              
              
              (25,173
              )Cash
                  and Cash Equivalents at Beginning of Year
              
              
              **375,320**
              
              
              400,493**Cash
                  and Cash Equivalents at End of Year**
              
              **$**
              **3,591,579**
              
              $
              375,320**Cash
                  Paid During the Year For:**Interest
              
              **$**
              **1,462,793**
              
              $
              712,618Taxes
              
              
              **16,244,978**
              
              
              12,644,132
  85
 *Table
            of Contents*
  **FLORIDA
        COMMUNITY BANKS, INC.**
 **AND
        SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2006, 2005 and 2004**
 
 
 **Note
        25 - Quarterly Results of Operations (Unaudited)**
 
 Selected
        quarterly results of operations for the four quarters ended December 31 are
        as
        follows:
 
 First
                Quarter
              
              Second
                Quarter
              
              Third
                Quarter
              
              Fourth
                Quarter
              
              Total(In
                  Thousands)**2006:****Total
                  interest income**
              
              **$**
              **18,899**
              
              **$**
              **21,919**
              
              **$**
              **22,882**
              
              **$**
              **21,874**
              
              **$**
              **85,574****Total
                  interest expense**
              
              
              **6,973**
              
              
              **8,516**
              
              
              **9,224**
              
              
              **9,652**
              
              
              **34,365****Provision
                  for loan losses**
              
              
              **980**
              
              
              **2,410**
              
              
              **1,225**
              
              
              **(2,319**
              **)**
              
              **2,296****Net
                  interest income after****provision
                  for loan losses**
              
              
              **10,946**
              
              
              **10,993**
              
              
              **12,433**
              
              
              **14,541**
              
              
              **48,913****Other
                  noninterest income**
              
              
              **959**
              
              
              **1,139**
              
              
              **962**
              
              
              **856**
              
              
              **3,916****Other
                  noninterest expense**
              
              
              **3,462**
              
              
              **3,741**
              
              
              **3,762**
              
              
              **4,104**
              
              
              **15,069****Income
                  tax expense**
              
              
              **3,249**
              
              
              **3,231**
              
              
              **3,699**
              
              
              **4,435**
              
              
              **14,614****Net
                  income**
              
              
              **5,194**
              
              
              **5,160**
              
              
              **5,934**
              
              
              **6,858**
              
              
              **23,146****Per
                  common share****Basic
                  earnings**
              
              
              **0.79**
              
              
              **0.78**
              
              
              **0.90**
              
              
              **1.05**
              
              
              **3.52****Diluted
                  earnings**
              
              
              **0.78**
              
              
              **0.77**
              
              
              **0.89**
              
              
              **1.04**
              
              
              **3.48**2005:Total
                  interest income
              
              $
              11,734
              
              $
              13,667
              
              $
              15,113
              
              $
              17,344
              
              $
              57,858Total
                  interest expense
              
              
              3,172
              
              
              3,821
              
              
              4,577
              
              
              5,815
              
              
              17,385Provision
                  for loan losses
              
              
              —
              
              
              —
              
              
              32
              
              
              1,730
              
              
              1,762Net
                  interest income after provision for loan losses
              
              
              8,562
              
              
              9,846
              
              
              10,504
              
              
              9,799
              
              
              38,711Other
                  noninterest income
              
              
              901
              
              
              1,023
              
              
              847
              
              
              1,073
              
              
              3,844Other
                  noninterest expense
              
              
              2,885
              
              
              3,162
              
              
              3,354
              
              
              3,532
              
              
              12,933Income
                  tax expense
              
              
              2,535
              
              
              2,970
              
              
              3,080
              
              
              2,819
              
              
              11,404Net
                  income
              
              
              4,043
              
              
              4,737
              
              
              4,917
              
              
              4,521
              
              
              18,218Per
                  common shareBasic
                  earnings
              
              
              0.61
              
              
              0.72
              
              
              0.75
              
              
              0.69
              
              
              2.77Diluted
                  earnings
              
              
              0.61
              
              
              0.72
              
              
              0.73
              
              
              0.69
              
              
              2.752004:Total
                  interest income
              
              $
              9,058
              
              $
              9,596
              
              $
              10,141
              
              $
              10,789
              
              $
              39,584Total
                  interest expense
              
              
              2,172
              
              
              2,245
              
              
              2,283
              
              
              2,500
              
              
              9,200Provision
                  for loan losses
              
              
              300
              
              
              200
              
              
              750
              
              
              721
              
              
              1,971Net
                  interest income after provision for loan losses
              
              
              6,586
              
              
              7,151
              
              
              7,108
              
              
              7,568
              
              
              28,413Other
                  noninterest income
              
              
              727
              
              
              1,118
              
              
              659
              
              
              1,270
              
              
              3,774Other
                  noninterest expense
              
              
              2,848
              
              
              3,028
              
              
              2,962
              
              
              3,413
              
              
              12,251Income
                  tax expense
              
              
              1,680
              
              
              1,975
              
              
              1,805
              
              
              2,234
              
              
              7,694Net
                  income
              
              
              2,785
              
              
              3,266
              
              
              3,000
              
              
              3,191
              
              
              12,242Per
                  common shareBasic
                  earnings
              
              
              0.43
              
              
              0.51
              
              
              0.46
              
              
              0.48
              
              
              1.88Diluted
                  earnings
              
              
              0.42
              
              
              0.50
              
              
              0.46
              
              
              0.48
              
              
              1.86
  86
 *Table
            of Contents*
  **ITEM9.**
              **CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE.******
 
 None.
 
 **ITEM
                  9A.**
              **CONTROLS
                  AND PROCEDURES**
 
 Disclosure
        Controls and Procedures
  Management
        of the Company, with the participation and under the supervision of the Chief
        Executive Officer and Chief Financial Officer, has evaluated the effectiveness
        of the Company’s disclosure controls and procedures (as defined in Exchange Act
        Rule 13a-15(e)) as of the end of the period covered by this annual report.
        Based on this evaluation the Chief Executive Officer and Chief Financial
        Officer
        have concluded that the Company’s disclosure controls and procedures are
        effective as of the end of the period covered by this annual report to provide
        reasonable assurance that material information required to be disclosed by
        the
        Company in the reports that it files or submits under the Exchange Act is
        recorded, processed, summarized and reported within the time periods specified
        by the Securities and Exchange Commission’s rules and forms. A controls
        system, no matter how well designed and operated, cannot provide absolute
        assurance that the objectives of the controls are met, and no evaluation
        of
        controls can provide absolute assurance that all controls and instances of
        fraud, if any, within a company have been detected.
  **Management
        Report On Internal Control Over Financial Reporting**
  The
        management of the Company is responsible for establishing and maintaining
        adequate internal control over financial reporting. Internal control over
        financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated
        under the Securities Exchange Act of 1934 as a process designed by, or under
        the
        supervision of, the Company’s principal executive and principal financial
        officers and effected by the Company’s board of directors, management and other
        personnel, to provide reasonable assurance regarding the reliability of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with generally accepted accounting principles and
        includes those policies and procedures that:
  s
              Pertain
                  to the maintenance of records that in reasonable detail accurately
                  and
                  fairly reflect the transactions and dispositions of the assets
                  of the
                  Company;
  s
              Provide
                  reasonable assurance that transactions are recorded as necessary
                  to permit
                  preparation of financial statements in accordance with generally
                  accepted
                  accounting principles, and that receipts and expenditures of the
                  Company
                  are being made only in accordance with authorizations of management
                  and
                  directors of the Company; and
  s
              Provide
                  reasonable assurance regarding prevention or timely detection of
                  unauthorized acquisition, use or disposition of the Company’s assets that
                  could have a material effect on the financial
                  statements.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. All internal control systems, no matter
        how
        well designed, have inherent limitations, including the possibility of human
        error and the circumvention of overriding controls. Accordingly, even effective
        internal control over financial reporting can provide only reasonable assurance
        with respect to financial statement preparation. Also, projections of any
        evaluation of effectiveness to future periods are subject to the risk that
        controls may become inadequate because of changes in conditions, or that
        the
        degree of compliance with the policies or procedures may
        deteriorate.
  The
        Company’s management assessed the effectiveness of the Company’s internal
        control over financial reporting as of December 31, 2006. In making this
        assessment, the Company’s management used the criteria set forth by the
        Committee of Sponsoring Organizations of the Treadway Commission ("COSO")
        in
        Internal Control-Integrated Framework.
  87
 *Table
            of Contents*
  Based
        on
        our assessment, management believes that, as of December 31, 2006, the Company’s
        internal control over financial reporting is effective based on those criteria.
        Management's assessment of the effectiveness of the Company's internal control
        over financial reporting as of December 31, 2006, has been audited by Schauer
        Taylor, P.C., an independent registered public accounting firm, as stated
        in
        their report which is incorporated herein by reference.
  **Changes
        In Internal Control Over Financial Reporting**
  There
        was
        no change in the Company’s internal control over financial reporting that
        occurred during the Company’s most recently completed fiscal quarter that
        materially affected, or is reasonably likely to materially affect, the Company’s
        internal control over financial reporting.
  **ITEM
                  9B.**
              **OTHER
                  INFORMATION**
 
 The
        Company did not fail to file any Form 8-K to disclose any information required
        to be disclosed therein during the fourth quarter of 2006.
  
 **PART
        III**
  **ITEM
                  10.**
              **DIRECTORS,
                  EXECUTIVE OFFICERS AND****CORPORATE
                  GOVERNANCE**
 
 The
        information appearing under the headings "ELECTION OF DIRECTORS," "BOARD
        OF
        DIRECTORS" and "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE
        ACT OF
        1934" on pages 3 to 8 and 16 in the Proxy Statement (the "2007 Proxy Statement")
        relating to the annual meeting of shareholders of the Company, scheduled
        to be
        held on April 19, 2007, is incorporated herein by reference. On March 3,
        2003,
        the Company adopted a Code of Ethic applicable to its Chief Financial Officer
        and its Chief Executive Officer.
 
 **ITEM11.**
              **EXECUTIVE
                  COMPENSATION**
 
 The
        information appearing under the headings "EXECUTIVE COMPENSATION" and "EMPLOYEE
        BENEFITS" on pages 8 to 14 of the 2007 Proxy Statement is incorporated herein
        by
        reference.
 **ITEM12.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT****AND RELATED SHAREHOLDER
                  MATTERS**
 
 The
        information appearing under the heading "ELECTION OF DIRECTORS" on pages
        3 to 5
        of the 2007 Proxy Statement and from Item 5 above is incorporated herein
        by
        reference.
 **ITEM
                  13.**
              **CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS****AND DIRECTOR INDEPENDENCE**
 
 The
        information appearing under the heading "TRANSACTIONS WITH RELATED PERSONS,
        PROMOTORS AND CERTAIN CONTROL PERSONS" on pages 14 to 15 of the 2007 Proxy
        Statement is incorporated herein by reference.
 
 **ITEM
                  14.**
              **PRINCIPAL
                  ACCOUNTANT FEES AND
                  SERVICES**
 
 *Audit
        Fees* The
        aggregate fees billed for professional services by Schauer Taylor in connection
        with the audit of the annual financial statements and the reviews of the
        financial statements included in the Company's quarterly filings with the
        Securities and Exchange Commission for the fiscal years ended December 31,
        2006
        and 2005, were $143,870 and $166,005, respectively.
  *Audit-Related
        Fees:* In 2006
        and 2005, Schauer Taylor also billed the Company $96,705 and $95,730,
        respectively, for fees reasonably related to the performance of its audit
        and
        reviews of financial statements. Such fees included travel and miscellaneous
        related fees.
  *Tax
        Fees:* In 2006
        and 2005, Schauer Taylor also billed the Company $21,980 and $17,430,
        respectively, for tax compliance and advice, including the preparation of
        the
        Company's corporate tax returns.
  *Profit
        Sharing and Employee Stock Ownership Plans:* In 2006
        and 2005, Schauer Taylor also billed the Company $40,000 and $40,000,
        respectively, for audit and tax work related to these plans.
  88
 *Table
            of Contents*
  In
        all
        instances, Schauer Taylor's performance of those services was pre-approved
        by
        the Company's Audit Committee.
 
 **PART
        IV**
 
 **ITEM
                  15.**
              **EXHIBITS
                  AND FINANCIAL STATEMENTS
                  SCHEDULES**
 
 (a)
              1.
              Financial
                  Statements.
 
 The
        following consolidated financial statements are located in Item 8 of this
        Report:
 
 Report
        of
        Independent Registered Public Accounting Firm
 Consolidated
        Statements of Financial Condition as of December 31, 2006 and 2005
 Consolidated
        Statements of Income for the Years Ended December 31, 2006, 2005 and
        2004
 Consolidated
        Statements of Shareholders’ Equity for the Years Ended December 31, 2006, 2005
        and 2004
 Consolidated
        Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and
        2004
 Notes
        to
        Consolidated Financial Statements
 Quarterly
        Results (Unaudited)
 
 2.
              Financial
                  Statement Schedules.
 
 Schedules
        to the consolidated financial statements are omitted, as the required
        information is not applicable.
 
 3.
              Exhibits.
 
 The
        following exhibits are filed or incorporated by reference as part of this
        Report:
 
 **Exhibit
                  No****.**
              
              **Exhibit**
              
              **Page**3.1
              
              Articles
                  of Incorporation of FCBI (included as Exhibit 3.1 to FCBI's Registration
                  Statement on Form 8-A filed with the SEC on April 15, 2002 and
                  incorporated herein by reference).3.2
              
              By-laws
                  of FCBI (included as Exhibit 3.2 to FCBI's Registration Statement
                  on Form
                  8-A filed with the SEC on April 15, 2002 and incorporated herein
                  by
                  reference).4.1
              
              Subordinated
                  Promissory Note, dated December 24, 2001, between Florida Community
                  Bank
                  and Independent Bankers Bank of Florida (included as Exhibit 4.1
                  to the
                  Bank's Form 10-KSB for the year ended December 31, 2001, and incorporated
                  herein by reference).4.2
              
              Specimen
                  Common Stock Certificate of FCBI (included as Exhibit 4.1 to FCBI's
                  Registration Statement on Form 8-A filed with the SEC on April
                  15, 2002
                  and incorporated herein by reference).10.1
              
              2002
                  Key Employee Stock Compensation Program of FCBI (included as Appendix
                  D to
                  the Bank's Definitive Schedule 14-A filed with the FDIC on March
                  22, 2002
                  and incorporated herein by reference ). *10.2
              
              Amended
                  and Restated Trust Agreement among Florida Community Banks, Inc.
                  as
                  depositor, Wilmington Trust Company as property trustee, Wilmington
                  Trust
                  Company, as Delaware trustee, and Stephen L. Price, and Thomas
                  V. Ogletree
                  as administrators, dated as of June 21, 2002 (included as Exhibit
                  10.3 to
                  the Company's Form 10-Q for the quarter ended June 30, 2002, and
                  incorporated herein by reference).
  89
 *Table
            of Contents*
  
 **Exhibit
                  No****.**
              
              **Exhibit**
              
              **Page**10.3
              
              Guarantee
                  Agreement between Florida Community Banks, Inc. as guarantor, and
                  Wilmington Trust Company as guarantee trustee, dated as of June
                  21, 2002
                  (included as Exhibit 10.4 to the Company's Form 10-Q for the quarter
                  ended
                  June 30, 2002, and incorporated herein by reference).10.4
              
              Junior
                  Subordinated Indenture between Florida Community Banks, Inc. (as
                  Company)
                  and Wilmington Trust Company (as trustee), dated as of June 21,
                  2002(included
                  as Exhibit 10.5 to the Company's Form 10-Q for the quarter ended
                  June 30,
                  2002, and incorporated herein by reference).10.5
              
              Employee
                  Stock Ownership Plan (included as Exhibit 10.5 to the Company's
                  Form S-8
                  filed May 6, 2004, and incorporated herein by reference).10.6
              
              Amended
                  and Restated Declaration of Trust, dated as of May 12, 2006, by
                  and among
                  the Company, as Depositor, Wells Fargo Bank, National Association,
                  as
                  Institutional Trustee and Delaware Trustee, and the Administrators
                  named
                  therein (included as Exhibit 10.3 to the Company's Form 8-K filed
                  with the
                  SEC on May 12, 2006, and incorporated herein by
                  reference).10.7
              
              Guarantee
                  Agreement, dated as of May 12, 2006, by and between the Company,
                  as
                  Guarantor, and Wells Fargo Bank, National Association, as Guarantee
                  Trustee (included as Exhibit 10.2 to the Company's Form 8-K filed
                  with the
                  SEC on May 12, 2006, and incorporated herein by
                  reference).10.8
              
              Indenture,
                  dated as of May 12, 2006, by and between the Company and Wells
                  Fargo Bank,
                  National Association, as Trustee (included as Exhibit 10.1 to the
                  Company's Form 8-K filed with the SEC on May 12, 2006, and incorporated
                  herein by reference).11
              
              Statement
                  re: computation of per share earnings
              
              9312
              
              Statement
                  re: computation of ratios
              
              9314
              
              Code
                  of Ethics (included as Exhibit 99.1 to the Company's Form 8-K filed
                  on
                  March 3, 2003, and incorporated herein by reference.)21
              
              Subsidiaries
                  of the Registrant
              
              9424
              
              Power
                  of Attorney
              
              9831.1
              
              Chief
                  Executive Officer - Certification of principal executive officer
                  pursuant
                  to the Exchange Act Rule 13(a) - 14(a) or 15(d) - 14(a).
              
              9531.2
              
              Chief
                  Financial Officer - Certification of principal financial officer
                  pursuant
                  to the Exchange Act Rule 13(a) - 14(a) or 15(d) - 14(a).
              
              9632.1
              
              Chief
                  Executive Officer - Certification pursuant to 18 U.S.C.****Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002
              
              9732.2
              
              Chief
                  Financial Officer - Certification pursuant to 18 U.S.C.****Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002
              
              97
 
 *
        The
        referenced exhibit is a compensatory contract, plan or
        arrangement.
  90
 *Table
            of Contents*
  **SIGNATURES**
 
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized.
 
 
 **FLORIDA
                  COMMUNITY BANKS, INC.**Date:
              March
                  15, 2007
              
              By:
              /s/
                  Stephen L. PriceStephen
                  L. PriceChairman
                  and Chief Executive OfficerDate:
              March
                  15, 2007
              
              By:
              /s/
                  Guy W. HarrisGuy
                  W. HarrisChief
                  Financial Officer
  91
 *Table
            of Contents*
  **EXHIBIT
        INDEX**
 
 The
        following exhibits are filed as part of this report (in addition to those
        exhibits listed in Item 15 which are filed as a part of this report and
        incorporated by reference):
 
 
 **Exhibit
                  Number**
              
              **Description
                  of Exhibit**11
              
              Statement
                  re: Computation of Per Share Earnings12
              
              Statement
                  re: Computation of Ratios21
              
              Subsidiaries
                  of the Registrant24
              
              Power
                  of Attorney31.1
              
              Certification
                  of President and Chief Executive Officer Pursuant to Section 302
                  of
                  Sarbanes-Oxley Act of 2002.31.2
              
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley
                  Act
                  of 2002.32.1
              
              Certification
                  of President and Chief Executive Officer Pursuant to Section 906
                  of
                  Sarbanes-Oxley Act of 2002.32.2
              
              Certification
                  of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley
                  Act
                  of 2002.
   92