##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934.
 For the quarterly period ended: September 30, 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 Number: 000-51957
 FGBC BANCSHARES, INC.
  Georgia
    
    20  02743161(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 101 Main Street, Franklin, Georgia 30217
   (Issuers telephone number)
  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o o þ
 o þ




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##### Table of Contents



INDEX
 PagePART I. FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Consolidated Financial Statements
    
    
    1Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    14Item 4.
    
    Controls and Procedures
    
    
    15PART II. OTHER INFORMATION
    
    
    16Item 1.
    
    Legal Proceedings
    
    
    16Item 1A.
    
    Risk Factors
    
    
    16Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 3.
    
    Defaults Upon Senior Securities
    
    
    16Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16Item 5.
    
    Other Information
    
    
    16Item 6.
    
    Exhibits
    
    
    16SIGNATURES
    
    
    16EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEO




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements
 FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2006 AND DECEMBER 31, 2005
 2006
    
    
    2005(Unaudited)AssetsCash and due from banks
    
    $
    7,541,365
    
    
    $
    3,464,489Interest bearing deposits in banks
    
    
    27,065
    
    
    
    63,907Federal funds sold
    
    
    42,918,000
    
    
    
    6,116,000Securities available for sale, at fair value
    
    
    57,791,555
    
    
    
    39,815,484Restricted equity securities, at cost
    
    
    1,342,700
    
    
    
    813,900Loans
    
    
    389,679,812
    
    
    
    264,064,167Less allowance for loan losses
    
    
    4,871,928
    
    
    
    3,193,806Loans, net
    
    
    384,807,884
    
    
    
    260,870,361Premises and equipment
    
    
    23,659,063
    
    
    
    13,181,114Other assets
    
    
    4,007,820
    
    
    
    2,365,191Total assets
    
    $
    522,095,452
    
    
    $
    326,690,446Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    23,278,397
    
    
    $
    12,910,879Interest-bearing
    
    
    419,096,642
    
    
    
    245,880,698Total deposits
    
    
    442,375,039
    
    
    
    258,791,577Other borrowings
    
    
    15,000,000
    
    
    
    10,000,000Other liabilities
    
    
    1,845,682
    
    
    
    957,201Total liabilities
    
    
    459,220,721
    
    
    
    269,748,778Commitments and contingenciesStockholders equityCommon stock, par value $0; 100,000,000 shares
authorized;
9,031,681 and 8,422,387 shares issued and
outstanding, respectively
    
    
    66,494,678
    
    
    
    60,783,189Accumulated deficit
    
    
    (2,889,733
    )
    
    
    (2,938,628
    )Accumulated other comprehensive loss
    
    
    (730,214
    )
    
    
    (902,893
    )Total stockholders equity
    
    
    62,874,731
    
    
    
    56,941,668Total liabilities and stockholders equity
    
    $
    522,095,452
    
    
    $
    326,690,446
 See Notes to Consolidated Financial Statements.
 1




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FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest incomeLoans
    
    $
    8,111,390
    
    
    $
    3,346,659
    
    
    $
    20,870,210
    
    
    $
    8,567,974Taxable securities
    
    
    543,670
    
    
    
    319,020
    
    
    
    1,359,866
    
    
    
    934,074Federal funds sold
    
    
    335,407
    
    
    
    51,876
    
    
    
    524,026
    
    
    
    159,668Total interest
income
    
    
    8,990,467
    
    
    
    3,717,555
    
    
    
    22,754,102
    
    
    
    9,661,716Interest expenseDeposits
    
    
    4,172,972
    
    
    
    1,672,682
    
    
    
    9,928,897
    
    
    
    4,230,929Other borrowings
    
    
    209,013
    
    
    
    772
    
    
    
    510,436
    
    
    
    1,598Total interest
expense
    
    
    4,381,985
    
    
    
    1,673,454
    
    
    
    10,439,333
    
    
    
    4,232,527Net interest
income
    
    
    4,608,482
    
    
    
    2,044,101
    
    
    
    12,314,769
    
    
    
    5,429,189Provision for loan
losses
    
    
    725,094
    
    
    
    580,003
    
    
    
    1,961,382
    
    
    
    949,383Net interest
income after
provision for
loan losses
    
    
    3,883,388
    
    
    
    1,464,098
    
    
    
    10,353,387
    
    
    
    4,479,806Other incomeService charges on
deposit accounts
    
    
    351,876
    
    
    
    301,283
    
    
    
    974,479
    
    
    
    765,651Mortgage
origination fees
    
    
    296,159
    
    
    
    127,741
    
    
    
    742,989
    
    
    
    361,978Other operating
income
    
    
    31,789
    
    
    
    17,381
    
    
    
    78,713
    
    
    
    52,059Total other
income
    
    
    679,824
    
    
    
    446,405
    
    
    
    1,796,181
    
    
    
    1,179,688Other expensesSalaries and
employee benefits
    
    
    2,775,447
    
    
    
    1,542,518
    
    
    
    7,791,153
    
    
    
    3,108,863Occupancy and
equipment expenses
    
    
    549,616
    
    
    
    241,879
    
    
    
    1,454,280
    
    
    
    566,696Other operating
expenses
    
    
    1,113,640
    
    
    
    604,221
    
    
    
    2,900,604
    
    
    
    1,371,864Total other
expenses
    
    
    4,438,703
    
    
    
    2,388,618
    
    
    
    12,146,037
    
    
    
    5,047,423Net income
(loss) before
income taxes
    
    
    124,509
    
    
    
    (478,115
    )
    
    
    3,531
    
    
    
    612,071Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    124,509
    
    
    
    (478,115
    )
    
    
    3,531
    
    
    
    612,071
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Other comprehensive
income (loss) :Unrealized gains
(losses) on
securities
available-for-sale
arising during
period
    
    
    384,587
    
    
    
    551,554
    
    
    
    172,679
    
    
    
    (296,199
    )Comprehensive
income (loss)
    
    $
    509,096
    
    
    $
    73,439
    
    
    $
    176,210
    
    
    $
    315,872Basic earnings
(losses) per share
    
    $
    0.01
    
    
    $
    (0.10
    )
    
    $
    
    
    
    $
    0.13Diluted earnings per
(losses) share
    
    $
    0.01
    
    
    $
    (0.10
    )
    
    $
    
    
    
    $
    0.13Cash dividends per
share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 See Notes to Consolidated Financial Statements.
 3




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##### Table of Contents



FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(Unaudited)
 2006
    
    
    2005OPERATING ACTIVITIESNet income
    
    $
    3,531
    
    
    $
    612,071Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    598,008
    
    
    
    326,396Provision for loan losses
    
    
    1,961,382
    
    
    
    949,383Amortization and accretion of securities
    
    
    73,148
    
    
    
    119,055Stock compensation expense
    
    
    45,364
    
    
    
    Loss on sale of premise and equipment
    
    
    27,038
    
    
    
    Loss on sale of repossessions
    
    
    82,525
    
    
    
    Increase in interest receivable
    
    
    (1,273,539
    )
    
    
    (569,963
    )Increase in interest payable
    
    
    553,627
    
    
    
    100,706Net other operating activities
    
    
    345,087
    
    
    
    1,199,607Net cash provided by operating activities
    
    
    2,416,171
    
    
    
    2,737,255INVESTING ACTIVITIES(Increase) decrease in interest bearing deposits
in banks
    
    
    36,842
    
    
    
    (3,000
    )Purchases of securities available for sale
    
    
    (27,901,940
    )
    
    
    (7,965,461
    )Proceeds from maturities of securities available
for sale
    
    
    10,025,400
    
    
    
    3,753,539Purchases of restricted equity securities
    
    
    (528,800
    )
    
    
    (366,502
    )Net increase in federal funds sold
    
    
    (36,802,000
    )
    
    
    (6,158,000
    )Net increase in loans
    
    
    (126,494,649
    )
    
    
    (69,017,552
    )Purchase of premises and equipment
    
    
    (11,115,595
    )
    
    
    (4,493,151
    )Proceeds from sale of repossessions
    
    
    238,710
    
    
    
    Proceeds from sale of premises and equipment
    
    
    12,600
    
    
    
    Net cash used in investing activities
    
    
    (192,529,432
    )
    
    
    (84,250,127
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    183,583,462
    
    
    
    59,347,696Proceeds (repayments) from other borrowings
    
    
    5,000,000
    
    
    
    (26,500
    )Net decrease in federal funds purchased
    
    
    
    
    
    
    (297,000
    )Proceeds from sale of common stock
    
    
    5,606,675
    
    
    
    23,285,963Cash paid for fractional shares
    
    
    
    
    
    
    (3,148
    )Net cash provided by financing activities
    
    
    194,190,137
    
    
    
    82,307,011Net increase in cash and due from banks
    
    
    4,076,876
    
    
    
    794,139Cash and due from banks, beginning of period
    
    
    3,464,489
    
    
    
    3,309,061Cash and due from banks, end of period
    
    $
    7,541,365
    
    
    $
    4,103,200
 4




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2006
    
    
    2005SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid during period for:Interest
    
    $
    9,885,706
    
    
    $
    4,131,821Income taxes
    
    $
    24,903
    
    
    $
    
 See Notes to Consolidated Financial Statements.
 5




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FGBC BANCSHARES, INC.
AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 NOTE 1. BASIS OF PRESENTATION
   NOTE 2. STOCK-BASED COMPENSATION
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Share-Based Payment
    6




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NOTE 2. STOCK-BASED COMPENSATION (Continued)
 Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005Net income (loss), as reported
    
    $
    (478,115
    )
    
    $
    612,071Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards
    
    
    (74,390
    )
    
    
    (223,170
    )Pro forma net income (loss)
    
    $
    (552,505
    )
    
    $
    388,901Earnings (losses) per share:Basic  as reported
    
    $
    (0.10
    )
    
    $
    0.13Basic  pro forma
    
    $
    (0.10
    )
    
    $
    0.08Diluted  as reported
    
    $
    (0.12
    )
    
    $
    0.13Diluted  pro forma
    
    $
    (0.12
    )
    
    $
    0.08
  Nine Months EndedSeptember 30,2006
    
    2005Risk-free interest rate
    
    
    4.60
    %
    
    
    4.49
    %Expected life of the options
    
    7 years
    
    10 yearsExpected dividends (as a percentage
of the fair value of the stock)
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    20
    %
    
    
    N/AWeighted-average grant date fair value
    
    $
    3.96
    
    
    $
    3.51
  7




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NOTE 2. STOCK-BASED COMPENSATION (Continued)
  Nine Months Ended
    
    
    Three Months EndedSeptember 30, 2006
    
    
    September 30, 2006Weighted-
    
    
    
    
    
    
    Weighted-average
    
    
    
    
    
    
    averageExercise
    
    
    
    
    
    
    ExerciseNumber
    
    
    Price
    
    
    Number
    
    
    PriceUnder option, beginning of period
    
    
    1,049,758
    
    
    $
    6.91
    
    
    
    1,090,420
    
    
    $
    7.03Granted
    
    
    64,750
    
    
    
    11.62
    
    
    
    16,250
    
    
    
    14.40Exercised
    
    
    (82,923
    )
    
    
    5.02
    
    
    
    (82,923
    )
    
    
    5.02Forfeited
    
    
    (9,972
    )
    
    
    9.74
    
    
    
    (2,134
    )
    
    
    10.97Under option, end of period
    
    
    1,021,613
    
    
    
    7.34
    
    
    
    1,021,613
    
    
    
    7.34Exercisable at end of period
    
    
    514,389
    
    
    
    5.65
    
    
    
    514,389
    
    
    
    5.65
  NOTE 3. EARNINGS (LOSSES) PER COMMON SHARE
  Three Months Ended September 30,2006
    
    
    2005Basic earnings (losses) per share:Weighted average common shares outstanding
    
    
    8,984,367
    
    
    
    4,754,354Net income (loss)
    
    $
    124,509
    
    
    $
    (478,115
    )Basic earnings (losses) per share
    
    $
    0.01
    
    
    $
    (0.10
    )Diluted earnings (losses) per share:Weighted average common shares outstanding
    
    
    8,984,367
    
    
    
    4,754,354Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the year
    
    
    392,973
    
    
    
    Total weighted average common shares and
common stock equivalents outstanding
    
    
    9,377,340
    
    
    
    4,754,354Net income (loss)
    
    $
    124,509
    
    
    $
    (478,115
    )Diluted earnings (losses) per share
    
    $
    0.01
    
    
    $
    (0.10
    )
 8




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Nine Months Ended September 30,2006
    
    
    2005Basic earnings per share:Weighted average common shares outstanding
    
    
    8,804,500
    
    
    
    4,632,162Net income
    
    $
    3,531
    
    
    $
    612,071Basic earnings per share
    
    $
    0.00
    
    
    $
    0.13Diluted earnings per share:Weighted average common shares outstanding
    
    
    8,804,500
    
    
    
    4,632,162Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the year
    
    
    363,430
    
    
    
    279,466Total weighted average common shares and
common stock equivalents outstanding
    
    
    9,167,930
    
    
    
    4,911,628Net income
    
    $
    3,531
    
    
    $
    612,071Diluted earnings per share
    
    $
    0.00
    
    
    $
    0.13
 NOTE 4. COMMON STOCK SPLIT
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Critical Accounting Policies
    Liquidity and Capital Resources
  9




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ActualRegulatoryMinimumConsolidated
    
    Bank
    
    RequirementLeverage capital ratio
    
    
    13.31
    %
    
    
    12.94
    %
    
    
    4.00
    %Risk-based capital ratios:Tier I capital
    
    
    15.95
    
    
    
    15.51
    
    
    
    4.00Total capital
    
    
    17.17
    
    
    
    16.73
    
    
    
    8.00
 Off-Balance Sheet Risk
   September 30,2006(Dollars in Thousands)Commitments to extend credit
    
    $
    61,052Letters of credit
    
    
    751$
    61,803
   Financial Condition
  10




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##### Table of Contents



September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in Thousands)Cash and due from banks
    
    $
    7,541
    
    
    $
    3,464Interest-bearing deposits in banks
    
    
    27
    
    
    
    64Federal funds sold
    
    
    42,918
    
    
    
    6,116Securities
    
    
    57,792
    
    
    
    39,815Loans, net
    
    
    384,808
    
    
    
    260,870Premises and equipment
    
    
    23,659
    
    
    
    13,181Other assets
    
    
    5,350
    
    
    
    3,180$
    522,095
    
    
    $
    326,690Deposits
    
    $
    442,375
    
    
    $
    258,791Other borrowings
    
    
    15,000
    
    
    
    10,000Other liabilities
    
    
    1,845
    
    
    
    957Stockholders equity
    
    
    62,875
    
    
    
    56,942$
    522,095
    
    
    $
    326,690
  Results of Operations for the Three and Nine Months Ended September 30, 2006 and 2005
  Three Months EndedSeptember 30,2006
    
    
    2005(Dollars in Thousands)Interest income
    
    $
    8,990
    
    
    $
    3,717Interest expense
    
    
    4,382
    
    
    
    1,673Net interest income
    
    
    4,608
    
    
    
    2,044Provision for loan losses
    
    
    725
    
    
    
    580Other income
    
    
    680
    
    
    
    446Other expense
    
    
    4,438
    
    
    
    2,388Pretax income
    
    
    125
    
    
    
    -478Income taxes
    
    
    0
    
    
    
    0Net income (loss)
    
    $
    125
    
    
    $
    -478
 11




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##### Table of Contents



Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in Thousands)Interest income
    
    $
    22,754
    
    
    $
    9,662Interest expense
    
    
    10,439
    
    
    
    4,233Net interest income
    
    
    12,315
    
    
    
    5,429Provision for loan losses
    
    
    1,961
    
    
    
    949Other income
    
    
    1,796
    
    
    
    1,179Other expense
    
    
    12,146
    
    
    
    5,047Pretax income
    
    
    4
    
    
    
    612Income taxes
    
    
    0
    
    
    
    0Net income
    
    $
    4
    
    
    $
    612
  Provision and Allowance for Loan Losses
   September 30,2006
    
    
    2005(Dollars in Thousands)Nonaccrual loans
    
    $
    795
    
    
    $
    29Loans contractually past due ninety days or more as to interest
or principal payments and still accruing
    
    
    0
    
    
    
    0Restructured loans
    
    
    0
    
    
    
    0Potential problem loans
    
    
    0
    
    
    
    0Interest income that would have been recorded on non-accrual
and restructured loans under original terms
    
    
    92
    
    
    
    2Interest income that was recorded on non-accrual and restructured loans
    
    
    74
    
    
    
    1
  12




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##### Table of Contents



Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in Thousands)Average amount of loans outstanding
    
    $
    331,318
    
    
    $
    159,365Balance of allowance for loan losses at beginning of period
    
    $
    3,194
    
    
    $
    1,705Loans charged offCommercial and financial
    
    
    (72
    )
    
    
    (59
    )Real estate mortgage
    
    
    (36
    )
    
    
    (50
    )Installment
    
    
    (213
    )
    
    
    (105
    )(321
    )
    
    
    (214
    )Loans recoveredCommercial and financial
    
    
    2
    
    
    
    0Real estate mortgage
    
    
    0
    
    
    
    0Installment
    
    
    36
    
    
    
    2138
    
    
    
    21Net charge-offs
    
    
    (283
    )
    
    
    (193
    )Additions to allowance charged to operating expense during period
    
    
    1,961
    
    
    
    949Balance of allowance for loan losses at end of period
    
    $
    4,872
    
    
    $
    2,461Ratio of net loans charged off during the period to
average loans outstanding
    
    
    .09
    %
    
    
    .12
    %
 13




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##### Table of Contents



Other Income and Expenses
    General
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    14




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##### Table of Contents



Analysis of Interest Sensitivity
As of September 30, 2006
(Dollars in Thousands)
 0  3
    
    
    3  12
    
    
    Over 1Months
    
    
    Months
    
    
    Year
    
    
    TotalInterest-earning assets:Interest-bearing deposits in banks
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    27Securities
    
    
    6,220
    
    
    
    9,189
    
    
    
    42,383
    
    
    
    57,792FHLB Stock
    
    
    1,343
    
    
    
    
    
    
    
    
    
    
    
    1,343Fed funds sold
    
    
    42,918
    
    
    
    
    
    
    
    
    
    
    
    42,918Loans
    
    
    236,820
    
    
    
    59,374
    
    
    
    93,486
    
    
    
    389,680Total interest-earning assets
    
    
    287,328
    
    
    
    68,563
    
    
    
    135,869
    
    
    
    491,760Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    65,866
    
    
    
    
    
    
    
    
    
    
    
    65,866Savings and money markets
    
    
    63,554
    
    
    
    
    
    
    
    
    
    
    
    63,554Time deposits
    
    
    49,138
    
    
    
    179,513
    
    
    
    61,026
    
    
    
    289,677Federal Home Loan Bank borrowings
    
    
    
    
    
    
    5,000
    
    
    
    10,000
    
    
    
    15,000Total interest-bearing
liabilities
    
    
    178,558
    
    
    
    184,513
    
    
    
    71,026
    
    
    
    434,097Interest rate sensitivity gap
    
    
    108,770
    
    
    
    (115,950
    )
    
    
    64,843
    
    
    
    57,663Cumulative interest rate sensitivity gap
    
    
    108,770
    
    
    
    (7,180
    )
    
    
    57,663Interest rate sensitivity gap ratio
    
    
    1.61
    
    
    
    0.37
    
    
    
    1.91Cumulative interest rate sensitivity gap
ratio
    
    
    1.61
    
    
    
    0.98
    
    
    
    1.13
  
 Item 4. Controls and Procedures
  15




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  
 
 SIGNATURES
  FGBC BANCSHARES, INC.Date:      November 13, 2006
    /s/ Jackie L. ReedJackie L. ReedPresident and CEODate:      November 13, 2006
    /s/ Teresa L. MartinTeresa L. MartinChief Financial Officer 16