##### 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, 2009
 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 
 
 
  þ o
  o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ  o þ




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##### 



INDEX
 PagePart I. FINANCIAL INFORMATION
    
    
    4Item 1.
    
    Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    22Part II. OTHER INFORMATION
    
    
    22Item 1.
    
    Legal Proceedings
    
    
    22Item 1A.
    
    Risk Factors
    
    
    23Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3.
    
    Defaults Upon Senior Securities
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23Item 5.
    
    Other Information
    
    
    23Item 6.
    
    Exhibits
    
    
    23EX-31.1EX-31.2EX-32




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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
   3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
 September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)
    
    
    (audited)AssetsCash and due from banks
    
    $
    12,772,301
    
    
    $
    8,858,796Interest-bearing deposits in banks
    
    
    31,686,020
    
    
    
    11,042,345Federal funds sold
    
    
    
    
    
    
    722,000Securities available-for-sale, at fair value
    
    
    48,955,117
    
    
    
    71,764,629Restricted equity securities, at cost
    
    
    2,694,000
    
    
    
    2,053,400Loans
    
    
    634,853,596
    
    
    
    683,177,685Less allowance for loan losses
    
    
    15,230,085
    
    
    
    11,013,996Loans, net
    
    
    619,623,511
    
    
    
    672,163,689Premises and equipment
    
    
    37,517,639
    
    
    
    37,898,122Foreclosed assets
    
    
    14,714,558
    
    
    
    6,041,163Deferred tax asset, net
    
    
    8,157,055
    
    
    
    4,441,757Accrued interest receivable
    
    
    3,391,107
    
    
    
    3,880,284Other assets
    
    
    1,720,243
    
    
    
    2,519,436Total assets
    
    $
    781,231,551
    
    
    $
    821,385,621Liabilities and Stockholders EquityLiabilitiesDeposits:Noninterest-bearing
    
    $
    43,396,896
    
    
    $
    34,959,706Interest-bearing
    
    
    674,224,830
    
    
    
    702,131,988Total deposits
    
    
    717,621,726
    
    
    
    737,091,694Other borrowings
    
    
    4,000,000
    
    
    
    16,750,000Accrued interest payable
    
    
    588,285
    
    
    
    953,088Other liabilities
    
    
    1,682,548
    
    
    
    777,044Total liabilities
    
    
    723,892,559
    
    
    
    755,571,826Stockholders equityPreferred stock, par value $0; 10,000,000 shares authorized;
0 shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0; 100,000,000 shares authorized;
13,974,090 and 12,492,206 shares issued and outstanding,
respectively
    
    
    77,338,707
    
    
    
    71,907,920Accumulated deficit
    
    
    (20,348,720
    )
    
    
    (5,692,364
    )Accumulated other comprehensive income (loss)
    
    
    349,005
    
    
    
    (401,761
    )Total stockholders equity
    
    
    57,338,992
    
    
    
    65,813,795Total liabilities and stockholders equity
    
    $
    781,231,551
    
    
    $
    821,385,621
 See Notes to Consolidated Financial Statements.
 4




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FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Loans, including fees
    
    $
    9,205,976
    
    
    $
    10,586,518
    
    
    $
    28,022,612
    
    
    $
    31,134,079Taxable securities
    
    
    415,401
    
    
    
    752,249
    
    
    
    1,491,470
    
    
    
    2,394,566Nontaxable securities
    
    
    139,889
    
    
    
    151,873
    
    
    
    428,591
    
    
    
    466,499Federal funds sold
    
    
    5,990
    
    
    
    26,288
    
    
    
    19,821
    
    
    
    104,910Other interest income
    
    
    58,539
    
    
    
    14,645
    
    
    
    153,255
    
    
    
    60,917Total interest income
    
    
    9,825,795
    
    
    
    11,531,573
    
    
    
    30,115,749
    
    
    
    34,160,971Interest expense:Deposits
    
    
    3,936,107
    
    
    
    5,878,593
    
    
    
    14,078,986
    
    
    
    17,704,580Other borrowings
    
    
    11,015
    
    
    
    161,836
    
    
    
    448,779
    
    
    
    324,102Total interest expense
    
    
    3,947,122
    
    
    
    6,040,429
    
    
    
    14,527,765
    
    
    
    18,028,682Net interest income
    
    
    5,878,673
    
    
    
    5,491,144
    
    
    
    15,587,984
    
    
    
    16,132,289Provision for loan losses
    
    
    11,796,831
    
    
    
    2,151,138
    
    
    
    18,048,008
    
    
    
    4,576,217Net interest income (expense) after
provision for loan losses
    
    
    (5,918,158
    )
    
    
    3,340,006
    
    
    
    (2,460,024
    )
    
    
    11,556,072Other income:Service charges on deposit accounts
    
    
    538,105
    
    
    
    582,466
    
    
    
    1,530,876
    
    
    
    1,669,434Mortgage origination fees
    
    
    212,108
    
    
    
    281,633
    
    
    
    848,691
    
    
    
    1,000,737Net gain on sale of securities available
for sale
    
    
    1,896
    
    
    
    
    
    
    
    723,227
    
    
    
    629,987Net gain on sale of premises and equipment
    
    
    
    
    
    
    12,167
    
    
    
    
    
    
    
    182,305Other operating income
    
    
    62,206
    
    
    
    45,392
    
    
    
    207,008
    
    
    
    180,648Total other income
    
    
    814,315
    
    
    
    921,658
    
    
    
    3,309,802
    
    
    
    3,663,111Other expenses:Salaries and employee benefits
    
    
    2,785,035
    
    
    
    3,201,367
    
    
    
    8,812,187
    
    
    
    10,159,410Equipment and occupancy expenses
    
    
    846,834
    
    
    
    888,266
    
    
    
    2,533,235
    
    
    
    2,529,068Net loss on sale of foreclosed assets
    
    
    474,261
    
    
    
    145,217
    
    
    
    813,873
    
    
    
    320,958Write down of foreclosed assets
    
    
    549,613
    
    
    
    
    
    
    
    1,106,859
    
    
    
    Foreclosed asset expenses
    
    
    822,634
    
    
    
    42,006
    
    
    
    1,410,107
    
    
    
    120,366FDIC insurance premiums
    
    
    445,409
    
    
    
    128,520
    
    
    
    1,613,626
    
    
    
    351,159Other operating expenses
    
    
    1,365,445
    
    
    
    1,374,975
    
    
    
    3,941,814
    
    
    
    4,106,321Total other expenses
    
    
    7,289,231
    
    
    
    5,780,351
    
    
    
    20,231,701
    
    
    
    17,587,282Loss before income taxes
    
    
    (12,393,074
    )
    
    
    (1,518,687
    )
    
    
    (19,381,923
    )
    
    
    (2,368,099
    )Income tax benefit
    
    
    (2,068,347
    )
    
    
    (591,070
    )
    
    
    (4,725,565
    )
    
    
    (966,671
    )Net loss
    
    
    (10,324,727
    )
    
    
    (927,617
    )
    
    
    (14,656,358
    )
    
    
    (1,401,428
    )Basic losses per share
    
    $
    (0.76
    )
    
    $
    (0.08
    )
    
    $
    (1.14
    )
    
    $
    (0.11
    )Diluted losses per share
    
    $
    (0.76
    )
    
    $
    (0.08
    )
    
    $
    (1.14
    )
    
    $
    (0.11
    )Cash dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 See Notes to Consolidated Financial Statements.
 5




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FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (10,324,727
    )
    
    $
    (927,617
    )
    
    $
    (14,656,358
    )
    
    $
    (1,401,428
    )Other comprehensive loss:Reclassification adjustment for net losses on sales of securities
included in net income, net of tax of $720 and $0 for
(three months) and $274,826 and $239,394 for (nine months)
    
    
    (1,175
    )
    
    
    
    
    
    
    (448,401
    )
    
    
    (390,593
    )Net unrealized holding gains (losses) on securities available for sale
arising during period, net of tax benefit of $890,196 and
$536,529
for (three months) and $734,974 and $36,673 for (nine months)
    
    
    1,452,424
    
    
    
    875,388
    
    
    
    1,199,167
    
    
    
    59,836Other comprehensive gain (loss)
    
    
    1,451,249
    
    
    
    875,388
    
    
    
    750,766
    
    
    
    (330,757
    )Comprehensive loss
    
    $
    (8,873,478
    )
    
    $
    (52,229
    )
    
    $
    (13,905,592
    )
    
    $
    (1,732,185
    )
 See Notes to Consolidated Financial Statements.
 6




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##### Table of Contents



FGBC BANCSHARES, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
 2009
    
    
    2008OPERATING ACTIVITIESNet loss
    
    $
    (14,656,358
    )
    
    $
    (1,401,428
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation
    
    
    1,463,020
    
    
    
    1,461,562Amortization and accretion of securities
    
    
    142,593
    
    
    
    18,571Provision for loan losses
    
    
    18,048,008
    
    
    
    4,576,217Writedown of foreclosed assets
    
    
    1,106,859
    
    
    
    Stock compensation expense
    
    
    232,107
    
    
    
    269,095Deferred taxes
    
    
    (3,715,298
    )
    
    
    (1,410,066
    )Net gain on sale of securities available for sale
    
    
    (723,227
    )
    
    
    (629,987
    )Net loss on sale of foreclosed assets
    
    
    813,873
    
    
    
    320,958Net gain on sale of premises and equipment
    
    
    
    
    
    
    (182,305
    )Increase (decrease) in income taxes payable
    
    
    857,613
    
    
    
    (117,397
    )Decrease in interest receivable
    
    
    489,177
    
    
    
    532,067Decrease in interest payable
    
    
    (364,803
    )
    
    
    (68,212
    )Net other operating activities
    
    
    387,022
    
    
    
    (568,194
    )Net cash provided by operating activities
    
    
    4,080,586
    
    
    
    2,800,881INVESTING ACTIVITIESIncrease in interest bearing deposits in banks
    
    
    (20,643,675
    )
    
    
    (6,151
    )Purchases of securities available for sale
    
    
    (28,253,010
    )
    
    
    (42,954,149
    )Proceeds from maturities of securities available for sale
    
    
    14,567,298
    
    
    
    9,224,781Proceeds from sales of securities available for sale
    
    
    38,286,770
    
    
    
    42,197,663Purchases of restricted equity securities
    
    
    (640,600
    )
    
    
    (944,100
    )Decrease in federal funds sold
    
    
    722,000
    
    
    
    2,582,000Net (increase) decrease in loans
    
    
    17,198,676
    
    
    
    (156,925,283
    )Purchase of premises and equipment
    
    
    (1,082,537
    )
    
    
    (5,632,963
    )Proceeds from sale of foreclosed assets
    
    
    6,870,083
    
    
    
    1,262,293Proceeds from sale of premises and equipment
    
    
    
    
    
    
    1,018,997Additions to other real estate owned
    
    
    (170,798
    )
    
    
    (270,549
    )Net cash provided by (used in) investing activities
    
    
    26,854,207
    
    
    
    (150,447,461
    )FINANCING ACTIVITIESNet increase (decrease) in deposits
    
    
    (19,469,968
    )
    
    
    128,978,973Net increase in (repayments of) other borrowings
    
    
    (12,750,000
    )
    
    
    16,750,000Proceeds from sale of common stock
    
    
    5,056,667
    
    
    
    3,601,650Proceeds from exercise of stock options
    
    
    142,013
    
    
    
    182,953Purchase of fractional shares of common stock
    
    
    
    
    
    
    (7,944
    )Net cash provided by (used in) financing activities
    
    
    (27,021,288
    )
    
    
    149,505,632Net increase in cash and due from banks
    
    
    3,913,505
    
    
    
    1,859,052Cash and due from banks, beginning of period
    
    
    8,858,796
    
    
    
    6,112,287Cash and due from banks, end of period
    
    $
    12,772,301
    
    
    $
    7,971,339SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid during period for:Interest
    
    $
    14,545,691
    
    
    $
    18,167,101Income taxes
    
    $
    
    
    
    $
    336,000NONCASH TRANSACTIONSFinanced sales of foreclosed assets
    
    $
    4,331,163
    
    
    $
    Loans transferred to foreclosed assets
    
    $
    21,624,657
    
    
    $
    4,413,848
 See Notes to Consolidated Financial Statements.
 7




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FGBC BANCSHARES, INC.
AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
 NOTE 1. BASIS OF PRESENTATION
   NOTE 2. LOSSES PER COMMON SHARE
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Basic earnings (losses) per share:Weighted average common shares outstanding
    
    
    13,575,392
    
    
    
    12,326,820
    
    
    
    12,876,424
    
    
    
    12,238,873Net income (loss)
    
    $
    (10,324,727
    )
    
    $
    (927,617
    )
    
    $
    (14,656,358
    )
    
    $
    (1,401,428
    )Basic earnings (losses) per share
    
    $
    (0.76
    )
    
    $
    (0.08
    )
    
    $
    (1.14
    )
    
    $
    (0.11
    )Diluted earnings (losses) per share:Weighted average common shares outstanding
    
    
    13,575,392
    
    
    
    12,326,820
    
    
    
    12,876,424
    
    
    
    12,238,873Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total weighted average common shares and
common stock equivalents outstanding
    
    
    13,575,392
    
    
    
    12,326,820
    
    
    
    12,876,424
    
    
    
    12,238,873Net income (loss)
    
    $
    (10,324,727
    )
    
    $
    (927,617
    )
    
    $
    (14,656,358
    )
    
    $
    (1,401,428
    )Diluted earnings (losses) per share
    
    $
    (0.76
    )
    
    $
    (0.08
    )
    
    $
    (1.14
    )
    
    $
    (0.11
    )
  8




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NOTE 3. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
     TM
 NOTE 4. FAIR VALUE MEASUREMENT
  Level 1:
    
    Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or
liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.Level 2:
    
    Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.Level 3:
    
    Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives
the lowest priority to Level 3 inputs.
  Securities
 9




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Impaired Loans
 Foreclosed Assets
  (In Thousands)Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAssets measured on a recurring basis:Available for sale securities
    
    $
    
    
    
    $
    48,955
    
    
    $
    
    
    
    $
    48,955Total assets at fair value
    
    $
    
    
    
    $
    48,955
    
    
    $
    
    
    
    $
    48,955Assets measured on a nonrecurring
basis:Impaired loans
    
    $
    
    
    
    $
    15,107
    
    
    $
    10,904
    
    
    $
    26,011Foreclosed assets
    
    
    
    
    
    
    6,651
    
    
    
    8,063
    
    
    
    14,714Total assets at fair value
    
    $
    
    
    
    $
    21,758
    
    
    $
    18,967
    
    
    $
    40,725
   10




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##### Table of Contents



September 30, 2009
    
    December 31, 2008Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair Value(In Thousands)
    
    (In Thousands)Financial Assets:Cash and cash equivalents
    
    $
    44,458
    
    
    $
    44,458
    
    
    $
    20,623
    
    
    $
    20,623Securities available-for-sale
    
    
    48,955
    
    
    
    48,955
    
    
    
    71,764
    
    
    
    71,764Restricted equity securities
    
    
    2,694
    
    
    
    2,694
    
    
    
    2,053
    
    
    
    2,053Loans, net
    
    
    619,624
    
    
    
    615,957
    
    
    
    672,164
    
    
    
    667,130Accrued interest receivable
    
    
    3,391
    
    
    
    3,391
    
    
    
    3,880
    
    
    
    3,880Financial Liabilities:Deposits
    
    $
    717,622
    
    
    $
    722,553
    
    
    $
    737,092
    
    
    $
    741,079Other borrowings
    
    
    4,000
    
    
    
    4,000
    
    
    
    16,750
    
    
    
    17,010Accrued interest payable
    
    
    588
    
    
    
    588
    
    
    
    953
    
    
    
    953
  Cash and cash equivalents:
 Securities available-for-sale:
 Restricted Equity Securities:
 Loans:
 Deposits:
 Other Borrowings:
 Accrued Interest:
 NOTE 5. SECURITIES AVAILABLE-FOR-SALE
  11




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Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSeptember 30, 2009:U.S. Government sponsored
agency securities
    
    $
    11,342,824
    
    
    $
    75,372
    
    
    $
    (15,031
    )
    
    $
    11,403,165Mortgage-backed securities
    
    
    21,658,449
    
    
    
    426,387
    
    
    
    (32,285
    )
    
    
    22,052,551State, county and municipals
    
    
    12,847,708
    
    
    
    398,272
    
    
    
    (122,666
    )
    
    
    13,123,314Corporate securities
    
    
    2,543,224
    
    
    
    
    
    
    
    (167,137
    )
    
    
    2,376,087$
    48,392,205
    
    
    $
    900,031
    
    
    $
    (337,119
    )
    
    $
    48,955,117December 31, 2008:U.S. Government sponsored
agency securities
    
    $
    20,478,647
    
    
    $
    647,993
    
    
    $
    
    
    
    $
    21,126,640Mortgage-backed securities
    
    
    34,199,020
    
    
    
    696,568
    
    
    
    (76,228
    )
    
    
    34,819,360State, county and municipals
    
    
    15,187,226
    
    
    
    2,170
    
    
    
    (1,648,137
    )
    
    
    13,541,259Corporate securities
    
    
    2,547,738
    
    
    
    7,500
    
    
    
    (277,868
    )
    
    
    2,277,370$
    72,412,631
    
    
    $
    1,354,231
    
    
    $
    (2,002,233
    )
    
    $
    71,764,629
   Less Than Twelve Months
    
    
    Twelve Months or MoreGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses(In Thousands)September 30, 2009:U.S. Government sponsored agencies
    
    $
    11,403,165
    
    
    $
    (15,031
    )
    
    $
    
    
    
    $
    Mortgage-backed securities
    
    
    22,052,551
    
    
    
    (32,285
    )
    
    
    
    
    
    
    State, county and municipal securities
    
    
    11,608,606
    
    
    
    (104,075
    )
    
    
    1,514,708
    
    
    
    (18,591
    )Corporate securities
    
    
    930,000
    
    
    
    (70,000
    )
    
    
    1,446,087
    
    
    
    (97,137
    )$
    45,994,322
    
    
    $
    (221,391
    )
    
    $
    2,690,795
    
    
    $
    (115,728
    )December 31, 2008:U.S. Government sponsored agencies
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Mortgage-backed securities
    
    
    6,336,827
    
    
    
    (73,011
    )
    
    
    971,055
    
    
    
    (3,217
    )State, county and municipal securities
    
    
    12,365,148
    
    
    
    (1,492,817
    )
    
    
    888,316
    
    
    
    (155,320
    )Corporate securities
    
    
    1,269,870
    
    
    
    (277,868
    )
    
    
    
    
    
    
    $
    19,981,845
    
    
    $
    (1,843,696
    )
    
    $
    1,859,371
    
    
    $
    (158,537
    )
   12




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##### Table of Contents



Amortized
    
    
    FairCost
    
    
    ValueDue from one to five years
    
    $
    285,534
    
    
    $
    305,115Due from five to ten years
    
    
    4,622,742
    
    
    
    4,682,210After ten years
    
    
    21,825,480
    
    
    
    21,915,241Mortgage-backed securities
    
    
    21,658,449
    
    
    
    22,052,551$
    48,392,205
    
    
    $
    48,955,117
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Gross gains realized
    
    $
    1,896
    
    
    $
    
    
    
    $
    723,227
    
    
    $
    655,643Gross losses realized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,656
    )Net realized gains
    
    $
    1,896
    
    
    $
    
    
    
    $
    723,227
    
    
    $
    629,987
 NOTE 6. SUBSEQUENT EVENTS
  
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
   13




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Critical Accounting Policies
  Liquidity and Capital Resources
  14




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##### Table of Contents



.
    
    
    Future reversals of existing taxable temporary differences;
    
    Future taxable income exclusive of reversing temporary differences and carry-forwards;
    
    Taxable income in prior carry-back years; and
    
    Tax planning strategies.
  RegulatoryMinimumRegulatory
    
    Requirement forActual
    
    Minimum
    
    Well CapitalizedConsolidated
    
    Bank
    
    Requirement
    
    StatusLeverage capital ratio
    
    
    6.58
    %
    
    
    6.50
    %
    
    
    4.00
    %
    
    
    5.00
    %Risk-based capital ratios:Tier I capital
    
    
    8.31
    %
    
    
    8.21
    %
    
    
    4.00
    %
    
    
    6.00
    %Total capital
    
    
    9.57
    %
    
    
    9.48
    %
    
    
    8.00
    %
    
    
    10.00
    %
  15




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##### Table of Contents



Off-Balance Sheet Risk
   September 30, 2009(Dollars in Thousands)Commitments to extend credit
    
    $
    43,928Letters of credit
    
    
    822$
    44,750
   Financial Condition
  September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in Thousands)Cash and due from banks
    
    $
    12,772
    
    
    $
    8,859Interest-bearing deposits in banks
    
    
    31,686
    
    
    
    11,042Federal funds sold
    
    
    
    
    
    
    722Securities
    
    
    51,649
    
    
    
    73,818Loans, net
    
    
    619,624
    
    
    
    672,164Premises and equipment
    
    
    37,518
    
    
    
    37,898Foreclosed assets
    
    
    14,715
    
    
    
    6,041Deferred tax asset, net
    
    
    8,157
    
    
    
    4,020Accrued interest receivable
    
    
    3,391
    
    
    
    3,880Other assets
    
    
    1,720
    
    
    
    2,942$
    781,232
    
    
    $
    821,386Deposits
    
    $
    717,622
    
    
    $
    737,092Other borrowings
    
    
    4,000
    
    
    
    16,750Accrued interest payable
    
    
    588
    
    
    
    953Other liabilities
    
    
    1,683
    
    
    
    777Stockholders equity
    
    
    57,339
    
    
    
    65,814$
    781,232
    
    
    $
    821,386
  16




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##### Table of Contents



Results of Operations for the Three and Nine Months Ended September 30, 2009 and 2008
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in Thousands)Interest income
    
    $
    9,826
    
    
    $
    11,531
    
    
    $
    30,116
    
    
    $
    34,161Interest expense
    
    
    (3,947
    )
    
    
    (6,040
    )
    
    
    (14,528
    )
    
    
    (18,029
    )Net interest income
    
    
    5,879
    
    
    
    5,491
    
    
    
    15,588
    
    
    
    16,132Provision for loan losses
    
    
    (11,797
    )
    
    
    (2,151
    )
    
    
    (18,048
    )
    
    
    (4,576
    )Other income
    
    
    814
    
    
    
    921
    
    
    
    3,310
    
    
    
    3,663Other expense
    
    
    (7,289
    )
    
    
    (5,780
    )
    
    
    (20,232
    )
    
    
    (17,587
    )Pretax income (loss)
    
    
    (12,393
    )
    
    
    (1,519
    )
    
    
    (19,382
    )
    
    
    (2,368
    )Income tax expense
(benefit)
    
    
    (2,068
    )
    
    
    (591
    )
    
    
    (4,726
    )
    
    
    (967
    )Net income (loss)
    
    $
    (10,325
    )
    
    $
    (928
    )
    
    $
    (14,656
    )
    
    $
    (1,401
    )
  Net interestPeriod
    
    marginSeptember, 2009
    
    
    2.83
    %June, 2009
    
    
    2.61
    %March, 2009
    
    
    2.32
    %December, 2008
    
    
    2.88
    %September, 2008
    
    
    3.08
    %June, 2008
    
    
    3.17
    %March, 2008
    
    
    3.32
    %December, 2007
    
    
    3.69
    %
  Provision and Allowance for Loan Losses
   17




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##### Table of Contents



September 30, 2009
    
    
    December 31, 2008Percentage
    
    
    
    
    
    
    Percentageof loans in
    
    
    
    
    
    
    of loans ineach
    
    
    
    
    
    
    eachAmount
    
    
    category
    
    
    Amount
    
    
    category(Dollars in Thousands)Commercial and industrial
    
    $
    871
    
    
    
    6.78
    %
    
    $
    632
    
    
    
    7.26
    %Real estate  construction
    
    
    5,583
    
    
    
    23.90
    %
    
    
    5,452
    
    
    
    29.64
    %Real estate  mortgage
    
    
    8,056
    
    
    
    65.54
    %
    
    
    4,578
    
    
    
    58.95
    %Installment loans to individuals
    
    
    720
    
    
    
    3.78
    %
    
    
    351
    
    
    
    4.15
    %$
    15,230
    
    
    
    100
    %
    
    $
    11,013
    
    
    
    100
    %
  18




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##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in Thousands)Non-accrual loans:Commercial and industrial
    
    $
    506
    
    
    $
    1,048Real estate  construction
    
    
    10,302
    
    
    
    23,858Real estate  mortgage
    
    
    11,390
    
    
    
    11,632Installment loans to individuals
    
    
    180
    
    
    
    323Total non-accrual loans
    
    $
    22,378
    
    
    $
    36,861Loans contractually past due ninety days or more as to interest
or principal payments and still accruing
    
    $
    
    
    
    $
    Restructured loans in compliance with terms:Commercial and industrial
    
    $
    3,756
    
    
    $
    Real estate  construction
    
    
    4,082
    
    
    
    4,640Real estate  mortgage
    
    
    1,409
    
    
    
    215Installment loans to individuals
    
    
    
    
    
    
    Total restructured loans in compliance with terms
    
    $
    9,247
    
    
    $
    4,855Potential problem loans:Commercial and industrial
    
    $
    324
    
    
    $
    Real estate  construction
    
    
    745
    
    
    
    Real estate  mortgage
    
    
    1,952
    
    
    
    Installment loans to individuals
    
    
    800
    
    
    
    Total potential problem loans
    
    $
    3,821
    
    
    $
    Interest income that would have been recorded on non-accrual
loans under original terms
    
    $
    2,626Interest income that was recorded on non-accrual loans
    
    
    (2,098
    )Reduction in interest income
    
    $
    528
     19




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##### Table of Contents



Nine Months EndedSeptember 30,2009
    
    
    2008(Dollars in Thousands)Average amount of loans outstanding
    
    $
    657,497
    
    
    $
    613,487Balance of allowance for loan losses at beginning of period
    
    $
    11,013
    
    
    $
    6,267Loans charged offCommercial and industrial
    
    
    (952
    )
    
    
    (475
    )Real estate  construction
    
    
    (6,464
    )
    
    
    (253
    )Real estate  mortgage
    
    
    (5,872
    )
    
    
    (287
    )Installment loans to individuals
    
    
    (604
    )
    
    
    (281
    )(13,892
    )
    
    
    (1,296
    )Loans recoveredCommercial and industrial
    
    
    5
    
    
    
    13Real estate  construction
    
    
    5
    
    
    
    Real estate  mortgage
    
    
    33
    
    
    
    4Installment loans to individuals
    
    
    18
    
    
    
    4261
    
    
    
    59Net charge-offs
    
    
    (13,831
    )
    
    
    (1,237
    )Additions to allowance charged to operating expense during period
    
    
    18,048
    
    
    
    4,567Balance of allowance for loan losses at end of period
    
    $
    15,230
    
    
    $
    9,606Ratio of net loans charged off during the period to
average loans outstanding
    
    
    2.10
    %
    
    
    .20
    %
  Other Income and Expenses
   20




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
     21




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##### Table of Contents



Analysis of Interest Sensitivity
As of September 30, 2009
(Dollars in Thousands)
 0-3
    
    3-12
    
    Over 1Months
    
    Months
    
    Year
    
    TotalInterest-earning assets:Interest-bearing deposits in banks
    
    
    31,686
    
    
    
    
    
    
    
    
    
    
    
    31,686Securities
    
    
    
    
    
    
    
    
    
    
    48,955
    
    
    
    48,955Restricted equity securities (1)
    
    
    2,694
    
    
    
    
    
    
    
    
    
    
    
    2,694Federal funds sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loans (2)
    
    
    189,521
    
    
    
    141,971
    
    
    
    281,128
    
    
    
    612,620Total interest-earning assets
    
    
    223,901
    
    
    
    141,971
    
    
    
    330,083
    
    
    
    695,955Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    85,436
    
    
    
    
    
    
    
    
    
    
    
    85,436Savings and money markets
    
    
    189,325
    
    
    
    
    
    
    
    
    
    
    
    189,325Time deposits
    
    
    94,570
    
    
    
    248,136
    
    
    
    56,758
    
    
    
    399,464Federal Home loan Bank borrowings
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    4,000Total interest-bearing liabilities
    
    
    373,331
    
    
    
    248,136
    
    
    
    56,758
    
    
    
    678,225Interest rate sensitivity gap
    
    
    (149,430
    )
    
    
    (106,165
    )
    
    
    273,325
    
    
    
    17,730Cumulative interest rate sensitivity gap
    
    
    (149,430
    )
    
    
    (255,595
    )
    
    
    17,730Interest rate sensitivity gap ratio
    
    
    .60
    
    
    
    0.57
    
    
    
    5.82Cumulative interest rate sensitivity gap ratio
    
    
    .60
    
    
    
    0.59
    
    
    
    1.03
 
 (1)
    
    Restricted equity securities did not pay dividends during the first two
quarters of 2009.(2)
    
    Excludes non-accrual loans totaling approximately $22,378,000 and deferred fees
of approximately $145,000.  
 Item 4. Controls and Procedures
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  22




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Item 1A. Risk Factors
  We may face liquidity constraints and experience higher costs of funding if we are unable to regain
and thereafter maintain a well-capitalized regulatory status.
  Current and future restrictions on the conduct of our business could adversely impact our ability
to attract deposits.
  
 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
  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
 23




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SIGNATURES
  FGBC BANCSHARES, INC.Date:  November 23, 2009
    /s/ Jackie L. ReedJackie L. ReedPresident and CEODate:  November 23, 2009
    /s/ Teresa L. MartinTeresa L. MartinChief Financial Officer 24