##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 
 FORM 10-Q
 x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934.
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934.
   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
 (678) 839-4510
 N/A
  x o
  o o x
  o x




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##### 



INDEX
 PagePART I.          FINANCIAL INFORMATION
    
    
    3Item 1.          Financial Statements
    
    
    3Item 2.          Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    10Item 3.          Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4.          Controls and Procedures
    
    
    16PART 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
    
    
    17Item 4.          Submission of Matters to a Vote of Security Holders
    
    
    17Item 5.          Other Information
    
    
    17Item 6.          Exhibits
    
    
    17EX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32 SECTION 906, CERTIFICATION OF THE CEO AND CFO




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##### Table of Contents



PART I.     FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)
    
    
    (audited)AssetsCash and due from banks
    
    $
    7,465,695
    
    
    $
    7,343,589Interest bearing deposits in banks
    
    
    49,611
    
    
    
    11,228,052Federal funds sold
    
    
    18,700,000
    
    
    
    53,368,000Securities available for sale, at fair value
    
    
    78,618,055
    
    
    
    70,114,808Restricted equity securities, at cost
    
    
    1,041,800
    
    
    
    1,342,700Loans
    
    
    521,170,927
    
    
    
    408,642,096Less allowance for loan losses
    
    
    6,052,275
    
    
    
    5,244,200Loans, net
    
    
    515,118,652
    
    
    
    403,397,896Premises and equipment
    
    
    32,678,643
    
    
    
    27,071,594Other assets
    
    
    8,838,355
    
    
    
    5,543,664Total assets
    
    $
    662,510,811
    
    
    $
    579,410,303Liabilities and Stockholders EquityDeposits:Noninterest-bearing
    
    $
    34,152,689
    
    
    $
    24,101,011Interest-bearing
    
    
    559,286,022
    
    
    
    472,591,491Total deposits
    
    
    593,438,711
    
    
    
    496,692,502Federal funds purchased
    
    
    1,000
    
    
    
    Other borrowings
    
    
    
    
    
    
    15,000,000Securities sold under repurchase agreement
    
    
    
    
    
    
    1,027,230Other liabilities
    
    
    2,852,126
    
    
    
    3,131,284Total liabilities
    
    
    596,291,837
    
    
    
    515,851,016Commitments and contingenciesStockholders equityCommon stock, par value $0; 100,000,000 shares
authorized; 9,132,685 and 9,046,748 shares issued
and outstanding, respectively
    
    
    67,359,880
    
    
    
    66,658,460Accumulated deficit
    
    
    (758,106
    )
    
    
    (2,672,497
    )Accumulated other comprehensive loss
    
    
    (382,800
    )
    
    
    (426,676
    )Total stockholders equity
    
    
    66,218,974
    
    
    
    63,559,287Total liabilities and stockholders equity
    
    $
    662,510,811
    
    
    $
    579,410,303
 See Notes to Consolidated Financial Statements.
 3




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FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest income:Loans, including fees
    
    $
    11,178,022
    
    
    $
    8,111,390
    
    
    $
    30,894,102
    
    
    $
    20,870,210Taxable securities
    
    
    793,968
    
    
    
    507,381
    
    
    
    2,445,604
    
    
    
    1,303,024Nontaxable securities
    
    
    144,329
    
    
    
    
    
    
    
    262,888
    
    
    
    Federal funds sold
    
    
    256,987
    
    
    
    335,407
    
    
    
    948,649
    
    
    
    524,026Other interest income
    
    
    19,369
    
    
    
    36,289
    
    
    
    172,378
    
    
    
    56,842Total interest income
    
    
    12,392,675
    
    
    
    8,990,467
    
    
    
    34,723,621
    
    
    
    22,754,102Interest expense:Deposits
    
    
    6,645,034
    
    
    
    4,172,972
    
    
    
    18,457,268
    
    
    
    9,928,897Other borrowings
    
    
    
    
    
    
    209,013
    
    
    
    54,506
    
    
    
    510,436Total interest expense
    
    
    6,645,034
    
    
    
    4,381,985
    
    
    
    18,511,774
    
    
    
    10,439,333Net interest income
    
    
    5,747,641
    
    
    
    4,608,482
    
    
    
    16,211,847
    
    
    
    12,314,769Provision for loan losses
    
    
    841,072
    
    
    
    725,094
    
    
    
    1,633,791
    
    
    
    1,961,382Net interest income after
provision for loan losses
    
    
    4,906,569
    
    
    
    3,883,388
    
    
    
    14,578,056
    
    
    
    10,353,387Other income:Service charges on deposit accounts
    
    
    475,631
    
    
    
    351,876
    
    
    
    1,348,339
    
    
    
    974,479Mortgage origination fees
    
    
    382,585
    
    
    
    296,159
    
    
    
    1,078,500
    
    
    
    742,989Gain on sale of securities available for sale
    
    
    1,243
    
    
    
    
    
    
    
    33,851
    
    
    
    Other operating income
    
    
    30,106
    
    
    
    31,789
    
    
    
    83,974
    
    
    
    78,713Total other income
    
    
    889,565
    
    
    
    679,824
    
    
    
    2,544,664
    
    
    
    1,796,181Other expenses:Salaries and employee benefits
    
    
    3,340,007
    
    
    
    2,775,447
    
    
    
    9,608,582
    
    
    
    7,791,153Occupancy and equipment expenses
    
    
    742,663
    
    
    
    549,616
    
    
    
    2,203,124
    
    
    
    1,454,280Other operating expenses
    
    
    1,541,655
    
    
    
    1,113,640
    
    
    
    4,000,071
    
    
    
    2,900,604Total other expenses
    
    
    5,624,325
    
    
    
    4,438,703
    
    
    
    15,811,777
    
    
    
    12,146,037Net income before income taxes
    
    
    171,809
    
    
    
    124,509
    
    
    
    1,310,943
    
    
    
    3,531Income tax expense (benefit)
    
    
    32,875
    
    
    
    
    
    
    
    (603,448
    )
    
    
    Net income
    
    
    138,934
    
    
    
    124,509
    
    
    
    1,914,391
    
    
    
    3,531Basic earnings per share
    
    $
    0.02
    
    
    $
    0.01
    
    
    $
    0.21
    
    
    $
    Diluted earnings per share
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.20
    
    
    $
    Cash dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 See Notes to Consolidated Financial Statements.
 4




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FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    138,934
    
    
    $
    124,509
    
    
    $
    1,914,391
    
    
    $
    3,531Other comprehensive income:Reclassification adjustment for gains on sales of
securities included in net income, net of tax
    
    
    (771
    )
    
    
    
    
    
    
    (20,988
    )
    
    
    Net unrealized holding gains on securities
available for sale arising during period, net of tax
    
    
    940,050
    
    
    
    384,587
    
    
    
    64,864
    
    
    
    172,679Other comprehensive income
    
    
    939,279
    
    
    
    384,587
    
    
    
    43,876
    
    
    
    172,679Comprehensive income
    
    $
    1,078,213
    
    
    $
    509,096
    
    
    $
    1,958,267
    
    
    $
    176,210
 See Notes to Consolidated Financial Statements.
 5




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##### Table of Contents



FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Unaudited)
 2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    1,914,391
    
    
    $
    3,531Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    1,144,159
    
    
    
    598,008Amortization and accretion of securities
    
    
    9,528
    
    
    
    73,148Provision for loan losses
    
    
    1,633,791
    
    
    
    1,961,382Stock compensation expense
    
    
    76,957
    
    
    
    45,364Deferred taxes
    
    
    (1,391,688
    )
    
    
    Gain on sale of securities available for sale
    
    
    (33,851
    )
    
    
    Loss on sale of foreclosed assets
    
    
    100,934
    
    
    
    82,525Loss on sale of premises and equipment
    
    
    4,382
    
    
    
    27,038Decrease in income taxes payable
    
    
    (777,617
    )
    
    
    Increase in interest receivable
    
    
    (929,597
    )
    
    
    (1,273,539
    )Increase (decrease) in interest payable
    
    
    (36,807
    )
    
    
    553,627Net other operating activities
    
    
    567,207
    
    
    
    345,087Net cash provided by operating activities
    
    
    2,281,789
    
    
    
    2,416,171INVESTING ACTIVITIESDecrease in interest bearing deposits in banks
    
    
    11,178,441
    
    
    
    36,842Purchases of securities available for sale
    
    
    (32,996,068
    )
    
    
    (27,901,940
    )Proceeds from maturities of securities available for sale
    
    
    19,164,751
    
    
    
    10,025,400Proceeds from sales of securities available for sale
    
    
    5,162,699
    
    
    
    (Purchases) redemptions of restricted equity securities
    
    
    300,900
    
    
    
    (528,800
    )Net (increase) decrease in federal funds sold
    
    
    34,668,000
    
    
    
    (36,802,000
    )Net increase in loans
    
    
    (114,979,739
    )
    
    
    (126,494,649
    )Purchase of premises and equipment
    
    
    (6,766,423
    )
    
    
    (11,115,595
    )Proceeds from sale of foreclosed assets
    
    
    755,606
    
    
    
    238,710Proceeds from sale of premises and equipment
    
    
    10,833
    
    
    
    12,600Additions to other real estate owned
    
    
    (3,125
    )
    
    
    Net cash used in investing activities
    
    
    (83,504,125
    )
    
    
    (192,529,432
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    96,746,209
    
    
    
    183,583,462Proceeds from (repayments of) other borrowings
    
    
    (15,000,000
    )
    
    
    5,000,000Net decrease in federal funds purchased and repurchase agreements
    
    
    (1,026,230
    )
    
    
    Tax benefit from stock options exercised
    
    
    80,104
    
    
    
    Proceeds from exercise of stock options
    
    
    544,359
    
    
    
    Proceeds from sale of common stock
    
    
    
    
    
    
    5,606,675Net cash provided by financing activities
    
    
    81,344,442
    
    
    
    194,190,137Net increase in cash and due from banks
    
    
    122,106
    
    
    
    4,076,876Cash and due from banks, beginning of period
    
    
    7,343,589
    
    
    
    3,464,489Cash and due from banks, end of period
    
    $
    7,465,695
    
    
    $
    7,541,365
 6




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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid during period for:Interest
    
    $
    18,701,997
    
    
    $
    9,885,706Income taxes
    
    $
    1,565,857
    
    
    $
    24,903NONCASH TRANSACTIONSFinanced sales of foreclosed assets
    
    $
    1,632,292
    
    
    $
    615,744Loans transferred to foreclosed assets
    
    $
    7,100
    
    
    $
    20,000
 See Notes to Consolidated Financial Statements.
 7




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(Unaudited)
      Three Months Ended September 30,2007
    
    
    2006Basic earnings per share:Weighted average common shares outstanding
    
    
    9,110,437
    
    
    
    8,984,367Net income
    
    $
    138,934
    
    
    $
    124,509Basic earnings per share
    
    $
    0.02
    
    
    $
    0.01Diluted earnings per share:Weighted average common shares outstanding
    
    
    9,110,437
    
    
    
    8,984,367Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the year
    
    
    562,092
    
    
    
    392,973Total weighted average common shares and
common stock equivalents outstanding
    
    
    9,672,529
    
    
    
    9,377,340Net income
    
    $
    138,934
    
    
    $
    124,509Diluted earnings per share
    
    $
    0.01
    
    
    $
    0.01
 8




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##### Table of Contents



Nine Months Ended September 30,2007
    
    
    2006Basic earnings per share:Weighted average common shares outstanding
    
    
    9,079,055
    
    
    
    8,804,500Net income
    
    $
    1,914,391
    
    
    $
    3,531Basic earnings per share
    
    $
    0.21
    
    
    $
    0.00Diluted earnings per share:Weighted average common shares outstanding
    
    
    9,079,055
    
    
    
    8,804,500Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the year
    
    
    580,029
    
    
    
    363,430Total weighted average common shares and
common stock equivalents outstanding
    
    
    9,659,084
    
    
    
    9,167,930Net income
    
    $
    1,914,391
    
    
    $
    3,531Diluted earnings per share
    
    $
    0.20
    
    
    $
    0.00
  Accounting for Uncertainty in Income Taxes -
An Interpretation of FASB Statement No. 109 Accounting for Income Taxes.
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities
 9




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Critical Accounting Policies
    Liquidity and Capital Resources
   ActualRegulatoryMinimumConsolidated
    
    
    Bank
    
    
    RequirementLeverage capital ratio
    
    
    10.27
    %
    
    
    9.92
    %
    
    
    4.00
    %Risk-based capital ratios:Tier I capital
    
    
    12.52
    
    
    
    12.09
    
    
    
    4.00Total capital
    
    
    13.66
    
    
    
    13.23
    
    
    
    8.00
 10




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##### Table of Contents



Off-Balance Sheet Risk
   September 30,2007(Dollars in Thousands)Commitments to extend credit
    
    $
    69,052Letters of credit
    
    
    1,204$
    70,256
   Financial Condition
  September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in Thousands)Cash and due from banks
    
    $
    7,466
    
    
    $
    7,344Interest-bearing deposits in banks
    
    
    50
    
    
    
    11,228Federal funds sold
    
    
    18,700
    
    
    
    53,368Securities
    
    
    78,618
    
    
    
    70,115Loans, net
    
    
    515,119
    
    
    
    403,398Premises and equipment
    
    
    32,679
    
    
    
    27,072Other assets
    
    
    9,879
    
    
    
    6,885$
    662,511
    
    
    $
    579,410Deposits
    
    $
    593,439
    
    
    $
    496,693Federal funds purchased
    
    
    1
    
    
    
    Other borrowings
    
    
    
    
    
    
    15,000Securities sold under repurchase agreement
    
    
    
    
    
    
    1,027Other liabilities
    
    
    2,852
    
    
    
    3,131Stockholders equity
    
    
    66,219
    
    
    
    63,559$
    662,511
    
    
    $
    579,410
 11




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##### Table of Contents



Results of Operations for the Three and Nine Months Ended September 30, 2007 and 2006
  Three Months EndedSeptember 30,2007
    
    
    2006(Dollars in Thousands)Interest income
    
    $
    12,393
    
    
    $
    8,990Interest expense
    
    
    (6,645
    )
    
    
    (4,382
    )Net interest income
    
    
    5,748
    
    
    
    4,608Provision for loan losses
    
    
    (841
    )
    
    
    (725
    )Other income
    
    
    889
    
    
    
    680Other expense
    
    
    (5,624
    )
    
    
    (4,438
    )Pretax income
    
    
    172
    
    
    
    125Income tax (expense) benefit
    
    
    (33
    )
    
    
    0Net income
    
    $
    139
    
    
    $
    125
 Nine Months EndedSeptember 30,2007
    
    
    2006(Dollars in Thousands)Interest income
    
    $
    34,724
    
    
    $
    22,754Interest expense
    
    
    (18,512
    )
    
    
    (10,439
    )Net interest income
    
    
    16,212
    
    
    
    12,315Provision for loan losses
    
    
    (1,634
    )
    
    
    (1,961
    )Other income
    
    
    2,545
    
    
    
    1,796Other expense
    
    
    (15,812
    )
    
    
    (12,146
    )Pretax income
    
    
    1,311
    
    
    
    4Income tax benefit
    
    
    603
    
    
    
    0Net income
    
    $
    1,914
    
    
    $
    4
  12




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Provision and Allowance for Loan Losses
   September 30,2007
    
    
    2006(Dollars in Thousands)Nonaccrual loans
    
    $
    1,696
    
    
    $
    795Loans 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
    
    
    272
    
    
    
    92Interest income that was recorded on non-accrual and restructured loans
    
    
    189
    
    
    
    74
      13




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Nine Months EndedSeptember 30,2007
    
    
    2006(Dollars in Thousands)Average amount of loans outstanding
    
    $
    470,439
    
    
    $
    331,318Balance of allowance for loan losses at beginning of period
    
    $
    5,244
    
    
    $
    3,194Loans charged offCommercial and financial
    
    
    (116
    )
    
    
    (72
    )Real estate mortgage
    
    
    (367
    )
    
    
    (36
    )Installment
    
    
    (388
    )
    
    
    (213
    )(871
    )
    
    
    (321
    )Loans recoveredCommercial and financial
    
    
    1
    
    
    
    2Real estate mortgage
    
    
    0
    
    
    
    0Installment
    
    
    44
    
    
    
    3645
    
    
    
    38Net charge-offs
    
    
    (826
    )
    
    
    (283
    )Additions to allowance charged to operating expense during
period
    
    
    1,634
    
    
    
    1,961Balance of allowance for loan losses at end of period
    
    $
    6,052
    
    
    $
    4,872Ratio of net loans charged off during the period to
average loans outstanding
    
    
    .18
    %
    
    
    .09
    %
 Other Income and Expenses
   Accounting for Income Taxes
 14




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General
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
     15




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##### Table of Contents



Analysis of Interest Sensitivity
As of September 30, 2007
(Dollars in Thousands)
 0 3
    
    
    3 - 12
    
    
    Over 1Months
    
    
    Months
    
    
    Year
    
    
    TotalInterest-earning assets:Interest-bearing deposits in banks
    
    
    50
    
    
    
    0
    
    
    
    0
    
    
    
    50Securities
    
    
    5,996
    
    
    
    3,730
    
    
    
    68,892
    
    
    
    78,618FHLB stock
    
    
    1,042
    
    
    
    0
    
    
    
    0
    
    
    
    1,042Federal funds sold
    
    
    18,700
    
    
    
    0
    
    
    
    0
    
    
    
    18,700Loans
    
    
    238,250
    
    
    
    123,893
    
    
    
    159,028
    
    
    
    521,171Total interest-earning assets
    
    
    264,038
    
    
    
    127,623
    
    
    
    227,920
    
    
    
    619,581Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    79,034
    
    
    
    0
    
    
    
    0
    
    
    
    79,034Savings and money markets
    
    
    74,354
    
    
    
    0
    
    
    
    0
    
    
    
    74,354Time deposits
    
    
    117,876
    
    
    
    246,153
    
    
    
    41,693
    
    
    
    405,722Federal funds borrowed
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    1Total interest-bearing liabilities
    
    
    271,265
    
    
    
    246,153
    
    
    
    41,693
    
    
    
    559,111Interest rate sensitivity gap
    
    
    (7,227
    )
    
    
    (118,530
    )
    
    
    186,227
    
    
    
    60,470Cumulative interest rate sensitivity gap
    
    
    (7,227
    )
    
    
    (125,757
    )
    
    
    60,470Interest rate sensitivity gap ratio
    
    
    .97
    
    
    
    .52
    
    
    
    5.47Cumulative interest rate sensitivity gap ratio
    
    
    .97
    
    
    
    .76
    
    
    
    1.11
  
 Item 4. Controls and Procedures
  
 PART II.     OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  16




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  31.1
    
    Certificate of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certificate of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certificate of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 17




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##### Table of Contents



SIGNATURES
  FGBC BANCSHARES, INC.Date: November 13, 2007
    
    /s/ Jackie L. ReedJackie L. Reed
President and CEODate: November 13, 2007
    
    /s/ Teresa L. MartinTeresa L. Martin
Chief Financial Officer
 18