##### 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: March 31, 2007
 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)
  (Address of principal executive office)
  (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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##### 



INDEX
  
 PagePART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations for the Three Months ended March 31, 2007 and
March 31, 2006
    
    
    4Consolidated Statements of Comprehensive Income (Loss) for the Three Months ended
March 31, 2007 and March 31, 2006
    
    
    5Consolidated Statements of Cash Flow for the Three Months ended March 31, 2007 and
March 31, 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 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
    
    
    16EX-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 SHEETS
 MARCH 31, 2007 AND DECEMBER 31, 2006
 March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)
    
    
    (audited)AssetsCash and due from banks
    
    $
    8,152,355
    
    
    $
    7,343,589Interest-bearing deposits in banks
    
    
    5,316,882
    
    
    
    11,228,052Federal funds sold
    
    
    29,835,000
    
    
    
    53,368,000Securities available-for-sale, at fair value
    
    
    75,732,640
    
    
    
    70,114,808Restricted equity securities, at cost
    
    
    1,041,800
    
    
    
    1,342,700Loans
    
    
    452,196,734
    
    
    
    408,642,096Less allowance for loan losses
    
    
    5,432,081
    
    
    
    5,244,200Loans, net
    
    
    446,764,653
    
    
    
    403,397,896Premises and equipment
    
    
    29,704,603
    
    
    
    27,071,594Other assets
    
    
    6,397,304
    
    
    
    5,543,664Total assets
    
    $
    602,945,237
    
    
    $
    579,410,303Liabilities and Stockholders EquityDeposits:Noninterest-bearing
    
    $
    32,544,192
    
    
    $
    24,101,011Interest-bearing
    
    
    503,960,713
    
    
    
    472,591,491Total deposits
    
    
    536,504,905
    
    
    
    496,692,502Other borrowings
    
    
    
    
    
    
    15,000,000Securities sold under repurchase agreement
    
    
    
    
    
    
    1,027,230Other liabilities
    
    
    1,964,152
    
    
    
    3,131,284Total liabilities
    
    
    538,469,057
    
    
    
    515,851,016Commitments and contingenciesStockholders equity:Common stock, no par value; 100,000,000 shares authorized;
9,066,289 and 9,046,748 shares issued and outstanding, respectively
    
    
    66,934,533
    
    
    
    66,658,460Accumulated deficit
    
    
    (2,084,388
    )
    
    
    (2,672,497
    )Accumulated other comprehensive loss
    
    
    (373,965
    )
    
    
    (426,676
    )Total stockholders equity
    
    
    64,476,180
    
    
    
    63,559,287Total liabilities and stockholders equity
    
    $
    602,945,237
    
    
    $
    579,410,303
 See Notes to Consolidated Financial Statements.
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FGBC BANCSHARES, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2007 AND 2006
 (Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Interest income:Loans, including fees
    
    $
    9,461,391
    
    
    $
    5,756,018Taxable securities
    
    
    837,760
    
    
    
    372,084Nontaxable securities
    
    
    18,649
    
    
    
    Federal funds sold
    
    
    308,658
    
    
    
    66,678Other interest income
    
    
    125,779
    
    
    
    5,924Total interest income
    
    
    10,752,237
    
    
    
    6,200,704Interest expense:Deposits
    
    
    5,601,730
    
    
    
    2,513,414Other borrowings
    
    
    54,506
    
    
    
    126,292Total interest expense
    
    
    5,656,236
    
    
    
    2,639,706Net interest income
    
    
    5,096,001
    
    
    
    3,560,998Provision for loan losses
    
    
    291,809
    
    
    
    605,268Net interest income after provision for
loan losses
    
    
    4,804,192
    
    
    
    2,955,730Other income:Service charges on deposit accounts
    
    
    412,110
    
    
    
    284,109Mortgage origination fees
    
    
    330,992
    
    
    
    189,264Other operating income
    
    
    77,772
    
    
    
    14,045Total other income
    
    
    820,874
    
    
    
    487,418Other expenses:Salaries and employee benefits
    
    
    3,133,700
    
    
    
    2,435,793Equipment and occupancy expenses
    
    
    678,684
    
    
    
    416,656Other operating expenses
    
    
    1,224,572
    
    
    
    769,807Total other expenses
    
    
    5,036,956
    
    
    
    3,622,256Income (loss) before income taxes
    
    
    588,109
    
    
    
    (179,108
    )Income tax expense
    
    
    
    
    
    
    Net income (loss)
    
    
    588,109
    
    
    
    (179,108
    )Basic earnings (losses) per share
    
    $
    0.06
    
    
    $
    (0.02
    )Diluted earnings per (losses) share
    
    $
    0.06
    
    
    $
    (0.02
    )
 See Notes to Consolidated Financial Statements.
 4




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FGBC BANCSHARES, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 THREE MONTHS ENDED MARCH 31, 2007 AND 2006
 (Unaudited)
 2007
    
    
    2006Net income (loss)
    
    $
    588,109
    
    
    $
    (179,108
    )Other comprehensive income (loss):Net unrealized holding gains (losses) on securities available
for sale arising during period
    
    
    52,711
    
    
    
    (45,662
    )Comprehensive income (loss)
    
    $
    640,820
    
    
    $
    (224,770
    )
 See Notes to Consolidated Financial Statements.
 5




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FGBC BANCSHARES, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 THREE MONTHS ENDED MARCH 31, 2007 AND 2006
 (Unaudited)
 2007
    
    
    2006OPERATING ACTIVITIESNet income (loss)
    
    $
    588,109
    
    
    $
    (179,108
    )Adjustments to reconcile net income (loss) to net cash
used in operating activities:Depreciation, amortization and accretion
    
    
    324,820
    
    
    
    181,346Provision for loan losses
    
    
    291,809
    
    
    
    605,268Stock compensation expense
    
    
    5,490
    
    
    
    2,031Loss on sale of foreclosed assets
    
    
    21,072
    
    
    
    Decrease in income taxes payable
    
    
    (674,857
    )
    
    
    Increase in interest receivable
    
    
    (348,167
    )
    
    
    (497,015
    )Increase in interest payable
    
    
    16,836
    
    
    
    102,767Net other operating activities
    
    
    (806,499
    )
    
    
    (257,058
    )Net cash used in operating activities
    
    
    (581,387
    )
    
    
    (41,769
    )INVESTING ACTIVITIESNet decrease in interest bearing deposits in banks
    
    
    5,911,170
    
    
    
    3,016Purchases of securities available for sale
    
    
    (22,976,644
    )
    
    
    (8,501,514
    )Proceeds from maturities of securities available for sale
    
    
    17,408,469
    
    
    
    1,677,679(Purchases) redemptions of restricted equity securities
    
    
    300,900
    
    
    
    (303,800
    )Net (increase) decrease in federal funds sold
    
    
    23,533,000
    
    
    
    (6,121,000
    )Net increase in loans
    
    
    (44,076,130
    )
    
    
    (44,517,419
    )Purchase of premises and equipment
    
    
    (2,954,775
    )
    
    
    (2,747,946
    )Proceeds from sale of foreclosed assets
    
    
    194,566
    
    
    
    Additions to other real estate owned
    
    

    (6,159
    )
    
    
    Net cash used in investing activities
    
    
    (22,665,603
    )
    
    
    (60,510,984
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    39,812,403
    
    
    
    57,596,815Net decrease in other borrowings
    
    
    (15,000,000
    )
    
    
    Net decrease in federal funds purchased and repurchase agreements
    
    
    (1,027,230
    )
    
    
    Tax benefit from stock options exercised
    
    
    80,104
    
    
    
    Proceeds from exercise of stock options
    
    
    190,479
    
    
    
    Proceeds from sale of common stock
    
    
    
    
    
    
    4,290,450Net cash provided by financing activities
    
    
    24,055,756
    
    
    
    61,887,265Net increase in cash and due from banks
    
    
    808,766
    
    
    
    1,334,512
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2007
    
    
    2006Cash and due from banks, beginning of period
    
    
    7,343,589
    
    
    
    3,464,489Cash and due from banks, end of period
    
    $
    8,152,355
    
    
    $
    4,799,001SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid during period for:Interest
    
    $
    5,731,512
    
    
    $
    2,554,342Income taxes
    
    $
    594,753
    
    
    $
    14,103NONCASH TRANSACTIONSLoans transferred to foreclosed assets
    
    $
    424,664
    
    
    $
    Financed sales of foreclosed assets
    
    $
    7,100
    
    
    $
    
 See Notes to Consolidated Financial Statements.
 7




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FGBC BANCSHARES, INC.
AND SUBSIDIARY
 
         Three Months Ended March 31,2007
    
    
    2006Basic earnings (losses) per share:Weighted average common shares outstanding
    
    
    9,056,405
    
    
    
    8,551,334Net income (loss)
    
    $
    588,109
    
    
    $
    (179,108
    )Basic earnings (losses) per share
    
    $
    .06
    
    
    $
    (0.02
    )Diluted earnings (losses) per share:Weighted average common shares outstanding
    
    
    9,056,405
    
    
    
    8,551,334Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the year
    
    
    564,151
    
    
    
    Total weighted average common shares and
common stock equivalents outstanding
    
    
    9,620,556
    
    
    
    8,551,334Net income (loss)
    
    $
    588,109
    
    
    $
    (179,108
    )Diluted earnings (losses) per share
    
    $
    .06
    
    
    $
    (0.02
    )
 8




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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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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
    
    
    11.23
    %
    
    
    10.88
    %
    
    
    4.00
    %Risk-based capital ratios:Tier I capital
    
    
    13.88
    
    
    
    13.45
    
    
    
    4.00Total capital
    
    
    15.04
    
    
    
    14.61
    
    
    
    8.00
 Off-Balance Sheet Risk
   10




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March 31,2007(Dollars in Thousands)Commitments to extend credit
    
    $
    76,085Letters of credit
    
    
    789$
    76,874
   Financial Condition
  March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in Thousands)Cash and due from banks
    
    $
    8,152
    
    
    $
    7,344Interest-bearing deposits in banks
    
    
    5,317
    
    
    
    11,228Federal funds sold
    
    
    29,835
    
    
    
    53,368Securities
    
    
    75,733
    
    
    
    70,115Loans, net
    
    
    446,765
    
    
    
    403,398Premises and equipment
    
    
    29,705
    
    
    
    27,072Other assets
    
    
    7,438
    
    
    
    6,885$
    602,945
    
    
    $
    579,410Deposits
    
    $
    536,505
    
    
    $
    496,693Other borrowings
    
    
    
    
    
    
    15,000Securities sold under repurchase agreement
    
    
    
    
    
    
    1,027Other liabilities
    
    
    1,964
    
    
    
    3,131Stockholders equity
    
    
    64,476
    
    
    
    63,559$
    602,945
    
    
    $
    579,410
  11




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Results of Operations for the Three Months Ended March 31, 2007 and 2006
  Three Months EndedMarch 31,2007
    
    
    2006(Dollars in Thousands)Interest income
    
    $
    10,752
    
    
    $
    6,201Interest expense
    
    
    (5,656
    )
    
    
    (2,640
    )Net interest income
    
    
    5,096
    
    
    
    3,561Provision for loan losses
    
    
    (292
    )
    
    
    (605
    )Other income
    
    
    821
    
    
    
    487Other expense
    
    
    (5,037
    )
    
    
    (3,622
    )Pretax income
    
    
    588
    
    
    
    (179
    )Income taxes
    
    
    
    
    
    
    Net income (loss)
    
    $
    588
    
    
    $
    (179
    )
  Provision and Allowance for Loan Losses
   March 312007
    
    2006(Dollars in Thousands)Nonaccrual loans
    
    $
    235
    
    
    $
    392Loans contractually past due ninety days or more as to interest
or principal payments and still accruing
    
    
    
    
    
    
    Restructured loans
    
    
    
    
    
    
    Potential problem loans
    
    
    
    
    
    
    Interest income that would have been recorded on non-accrual
and restructured loans under original terms
    
    
    22
    
    
    
    19Interest income that was recorded on non-accrual and restructured loans
    
    
    7
    
    
    
    8
  12




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Three Months EndedMarch 31,2007
    
    
    2006(Dollars in Thousands)Average amount of loans outstanding
    
    $
    434,502
    
    
    $
    285,096Balance of allowance for loan losses at beginning of period
    
    $
    5,244
    
    
    $
    3,194Loans charged offCommercial and financial
    
    
    (16
    )
    
    
    (25
    )Real estate mortgage
    
    
    (14
    )
    
    
    Installment
    
    
    (89
    )
    
    
    (26
    )(119
    )
    
    
    (51
    )Loans recoveredCommercial and financial
    
    
    
    
    
    
    Real estate mortgage
    
    
    
    
    
    
    Installment
    
    
    15
    
    
    
    515
    
    
    
    5Net charge-offs
    
    
    (104
    )
    
    
    (46
    )Additions to allowance charged to operating expense during period
    
    
    292
    
    
    
    605Balance of allowance for loan losses at end of period
    
    $
    5,432
    
    
    $
    3,753Ratio of net loans charged off during the period to
average loans outstanding
    
    
    .02
    %
    
    
    .02
    %
 13




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




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Analysis of Interest SensitivityAs of March 31, 2007(Dollars in Thousands)0  3
    
    
    3-12
    
    
    Over 1Months
    
    
    Months
    
    
    Year
    
    
    TotalInterest-earning assets:Interest-bearing deposits in banks
    
    
    5,317
    
    
    
    
    
    
    
    
    
    
    
    5,317Securities
    
    
    1,997
    
    
    
    7,461
    
    
    
    66,275
    
    
    
    75,733FHLB Stock
    
    
    1,042
    
    
    
    
    
    
    
    
    
    
    
    1,042Fed funds sold
    
    
    29,835
    
    
    
    
    
    
    
    
    
    
    
    29,835Loans
    
    
    229,561
    
    
    
    102,389
    
    
    
    120,247
    
    
    
    452,197Total interest-earning assets
    
    
    267,752
    
    
    
    109,850
    
    
    
    186,522
    
    
    
    564,124Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    79,450
    
    
    
    
    
    
    
    
    
    
    
    79,450Savings and money markets
    
    
    65,049
    
    
    
    
    
    
    
    
    
    
    
    65,049Time deposits
    
    
    80,555
    
    
    
    234,529
    
    
    
    44,378
    
    
    
    359,462Federal Home Loan Bank borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest-bearing liabilities
    
    
    225,054
    
    
    
    234,529
    
    
    
    44,378
    
    
    
    503,961Interest rate sensitivity gap
    
    
    42,698
    
    
    
    (124,679
    )
    
    
    142,144
    
    
    
    60,163Cumulative interest rate sensitivity gap
    
    
    42,698
    
    
    
    (81,981
    )
    
    
    60,163Interest rate sensitivity gap ratio
    
    
    1.19
    
    
    
    0.47
    
    
    
    4.20Cumulative interest rate sensitivity gap ratio
    
    
    1.19
    
    
    
    0.82
    
    
    
    1.12
  
 Item 4. Controls and Procedures
  15




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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
  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
 SIGNATURES
  FGBC BANCSHARES, INC.Date:      May 11, 2007
    /s/ Jackie L. ReedJackie L. ReedPresident and CEO Date:      May 11, 2007
    /s/ Teresa L. MartinTeresa L. MartinChief Financial Officer 16