EXHIBIT 13

FGBC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2009

TABLE OF CONTENTS

		Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			F-1
FINANCIAL STATEMENTS
Consolidated balance sheets			F-3
Consolidated statements of operations			F-4
Consolidated statements of comprehensive income (loss)			F-5
Consolidated statements of stockholders’ equity			F-6
Consolidated statements of cash flows			F-7
Notes to consolidated financial statements			F-9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
FGBC Bancshares, Inc.
Franklin, Georgia

We have audited the accompanying consolidated balance sheets of FGBC Bancshares, Inc. and Subsidiary as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the three years ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FGBC Bancshares, Inc. and subsidiary as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered significant losses from operations due to the economic downturn, which has resulted in declining levels of capital. This raises substantial doubt about the Company’s ability to continue as a going concern. Management plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FGBC Bancshares Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated April 14, 2010, expressed an unqualified opinion.

/s/ MAULDIN & JENKINS, LLC

Atlanta, Georgia
April 14, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
FGBC Bancshares, Inc.
Franklin, Georgia

We have audited FGBC Bancshares, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). FGBC Bancshares, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, FGBC Bancshares, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of FGBC Bancshares, Inc. as of December 31, 2009 and 2008 and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated April 14, 2010 expressed an unqualified opinion with explanatory paragraph related to going concern considerations on those consolidated financial statements.

/s/ MAULDIN & JENKINS, LLC

Atlanta, Georgia
April 14, 2010

FGBC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008

		2009				2008
Assets
Cash and due from banks		$	15,752,900			$	8,858,796
Interest-bearing deposits in banks			68,547,359				11,042,345
Federal funds sold			—				722,000
Securities available-for-sale, at fair value			44,955,347				71,764,629
Restricted equity securities, at cost			2,694,000				2,053,400
Loans			612,213,063				683,177,685
Less allowance for loan losses			12,879,081				11,013,996
Loans, net			599,333,982				672,163,689
Premises and equipment			37,045,578				37,898,122
Foreclosed assets			13,740,602				6,041,163
Accrued interest receivable			2,929,608				3,880,284
Other assets			7,201,231				6,961,193
Total assets		$	792,200,607			$	821,385,621
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing		$	37,663,983			$	34,959,706
Interest-bearing			697,125,137				702,131,988
Total deposits			734,789,120				737,091,694
Other borrowings			22,000,000				16,750,000
Accrued interest payable			531,655				953,088
Other liabilities			502,237				777,044
Total liabilities			757,823,012				755,571,826
Stockholders’ equity
Preferred stock, par value $0; 10,000,000 shares authorized; 0 shares issued and outstanding			—				—
Common stock, par value $0; 100,000,000 shares authorized; 13,993,233 and 12,492,206 shares issued and outstanding, respectively			77,440,952				71,907,920
Accumulated deficit			(42,741,631	)			(5,692,364	)
Accumulated other comprehensive loss			(321,726	)			(401,761	)
Total stockholders’ equity			34,377,595				65,813,795
Total liabilities and stockholders’ equity		$	792,200,607			$	821,385,621

See notes to consolidated financial statements.

FGBC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

		2009				2008				2007
Interest income:
Loans, including fees		$	36,530,624			$	40,729,021			$	41,969,780
Taxable securities			1,901,410				3,136,147				3,219,131
Nontaxable securities			528,717				618,372				416,903
Federal funds sold			15,767				126,649				1,203,009
Other interest income			223,146				124,759				188,864
Total interest income			39,199,664				44,734,948				46,997,687
Interest expense:
Deposits			17,571,722				23,529,667				25,135,423
Other borrowings			518,907				478,208				57,963
Total interest expense			18,090,629				24,007,875				25,193,386
Net interest income			21,109,035				20,727,073				21,804,301
Provision for loan losses			32,170,357				8,914,368				2,353,244
Net interest income (loss) after provision for loan losses			(11,061,322	)			11,812,705				19,451,057
Other income:
Service charges on deposit accounts			2,099,632				2,212,795				1,869,988
Mortgage origination fees			1,053,285				1,272,446				1,343,204
Net gain on sale of securities available for sale			782,441				726,419				33,851
Net gain on sale of premises and equipment			—				182,305				—
Other operating income			269,677				231,626				190,563
Total other income			4,205,035				4,625,591				3,437,606
Other expenses:
Salaries and employee benefits			11,419,261				13,382,578				12,830,241
Equipment and occupancy expenses			3,259,375				3,335,624				2,861,536
Net loss on sale of foreclosed assets			798,840				216,840				215,218
Write down on foreclosed assets			2,029,695				1,185,528				148,275
Foreclosed asset expenses			1,626,000				244,078				55,478
FDIC insurance premiums			2,229,052				501,160				300,012
Other operating expenses			5,185,360				5,607,187				5,002,341
Total other expenses			26,547,583				24,472,995				21,413,101
Net income (loss) before income taxes			(33,403,870	)			(8,034,699	)			1,475,562
Income tax expense (benefit)			3,645,397				(2,959,764	)			(579,506	)
Net income (loss)			(37,049,267	)			(5,074,935	)			2,055,068
Basic earnings (losses) per share		$	(2.82	)		$	(0.41	)		$	0.17
Diluted earnings (losses) per share		$	(2.82	)		$	(0.41	)		$	0.16
Cash dividends per share		$	—			$	—			$	—

See notes to consolidated financial statements.

FGBC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

		2009				2008				2007
Net income (loss)		$	(37,049,267	)		$	(5,074,935	)		$	2,055,068
Other comprehensive income (loss):
Reclassification adjustment for net gains on sales of securities included in net income, net of tax of $297,328, $276,039 and $12,863 respectively			(485,113	)			(450,380	)			(20,988	)
Net unrealized holding gains on securities available for sale arising during period, net of tax of $346,382, $73,242, and $30,580 respectively			565,148				119,502				376,781
Other comprehensive income (loss)			80,035				(330,878	)			355,793
Comprehensive income (loss)		$	(36,969,232	)		$	(5,405,813	)		$	2,410,861

See notes to consolidated financial statements.

FGBC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

														Accumulated
		Common Stock												Other				Total
						At Amount				Accumulated				Comprehensive				Stockholders’
		Shares				Paid In				Deficit				Loss				Equity
Balance, December 31, 2006			9,046,748			$	66,658,460			$	(2,672,497	)		$	(426,676	)		$	63,559,287
Net income			—				—				2,055,068				—				2,055,068
Stock compensation expense			—				153,420				—				—				153,420
Exercise of stock options			92,110				586,270				—				—				586,270
4 for 3 stock split			3,046,286				—				—				—				—
Excess tax benefit from stock options exercised			—				80,104				—				—				80,104
Other comprehensive income			—				—				—				355,793				355,793
Balance, December 31, 2007			12,185,144				67,478,254				(617,429	)			(70,883	)			66,789,942
Net loss			—				—				(5,074,935	)			—				(5,074,935	)
Stock compensation expense			—				357,980				—				—				357,980
Exercise of stock options			52,184				279,690				—				—				279,690
4 for 3 stock split			2,078				—				—				—				—
Issuance of common stock			253,332				3,799,981				—				—				3,799,981
Purchase of fractional shares			(532	)			(7,985	)			—				—				(7,985	)
Other comprehensive loss			—				—				—				(330,878	)			(330,878	)
Balance, December 31, 2008			12,492,206				71,907,920				(5,692,364	)			(401,761	)			65,813,795
Net loss			—				—				(37,049,267	)			—				(37,049,267	)
Stock compensation expense			—				267,351				—				—				267,351
Exercise of stock options			37,122				130,093				—				—				130,093
Issuance of common stock			1,463,905				5,123,668				—				—				5,123,668
Excess tax benefit from stock options exercised			—				11,920				—				—				11,920
Other comprehensive income			—				—				—				80,035				80,035
Balance, December 31, 2009			13,993,233			$	77,440,952			$	(42,741,631	)		$	(321,726	)		$	34,377,595

See notes to consolidated financial statements.

FGBC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

		2009				2008				2007
OPERATING ACTIVITIES
Net income (loss)		$	(37,049,267	)		$	(5,074,935	)		$	2,055,068
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation			1,934,328				1,970,154				1,589,113
Amortization and accretion of securities			201,649				19,348				19,149
Provision for loan losses			32,170,357				8,914,368				2,353,244
Writedowns of foreclosed assets			2,029,696				1,185,528				148,275
Stock compensation expense			267,351				357,980				153,420
Deferred taxes			4,197,872				(2,086,277	)			(1,405,879	)
Net gain on sale of securities available-for-sale			(782,441	)			(726,419	)			(33,851	)
Net gain loss on sale of foreclosed assets			798,840				216,840				216,473
Net gain on sale of premises and equipment			—				(182,305	)			(43,147	)
Decrease in income taxes payable			857,613				(1,199,487	)			(824,380	)
(Increase) decrease in interest receivable			950,676				844,529				(845,541	)
Decrease in interest payable			(421,433	)			(191,607	)			(118,075	)
Increase in FDIC prepaid assessment			(5,476,743	)			(4,289	)			(3,613	)
Excess tax benefit from stock options exercised			(11,920	)			—				(80,104	)
Net other operating activities			(130,720	)			(1,257,352	)			561,956
Net cash (used in) provided by operating activities			(464,142	)			2,786,076				3,742,108
INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in banks			(57,505,014	)			(10,976,328	)			11,162,035
Purchases of securities available for sale			(51,187,310	)			(48,099,626	)			(44,124,181	)
Proceeds from maturities of securities available for sale			20,141,730				10,090,611				28,671,358
Proceeds from sales of securities available for sale			58,564,741				47,149,764				5,162,699
(Purchases) redemptions of restricted equity securities			(640,600	)			(1,011,600	)			300,900
Decrease in federal funds sold			722,000				19,283,000				33,363,000
Net (increase) decrease in loans			21,589,788				(154,422,127	)			(135,390,668	)
Purchase of premises and equipment			(1,081,784	)			(6,417,974	)			(8,978,454	)
Proceeds from sale of foreclosed assets			8,843,171				972,519				1,462,937
Proceeds from sale of premises and equipment			—				1,018,997				217,088
Additions to other real estate owned			(301,583	)			(303,824	)			(3,125	)
Net cash used in investing activities			(854,861	)			(142,716,588	)			(108,156,411	)
FINANCING ACTIVITIES
Net increase (decrease) in deposits			(2,302,574	)			121,855,335				118,543,857
Net increase in (repayments of) other borrowings			5,250,000				16,750,000				(15,000,000	)
Net decrease in federal funds purchased and repurchase agreements			—				—				(1,027,230	)
Proceeds from sale of common stock			5,123,668				3,799,981				—
Proceeds from exercise of stock options			130,093				279,690				586,270
Purchase of fractional shares of common stock			—				(7,985	)			—
Excess tax benefit from stock options exercised			11,920				—				80,104
Net cash provided by financing activities			8,213,107				142,677,021				103,183,001
Net increase (decrease) in cash and due from banks			6,894,104				2,746,509				(1,231,302	)
Cash and due from banks, beginning of period			8,858,796				6,112,287				7,343,589
Cash and due from banks, end of period		$	15,752,900			$	8,858,796			$	6,112,287

		2009				2008				2007
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period for:
Interest		$	18,108,555			$	24,282,364			$	25,505,142
Income taxes		$	—			$	336,000			$	1,650,753
NONCASH TRANSACTIONS
Financed sales of foreclosed assets		$	4,520,663			$	1,354,337			$	61,711
Loans transferred to foreclosed assets		$	23,590,226			$	8,140,367			$	3,055,071

See notes to consolidated financial statements.

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

FGBC Bancshares, Inc. (the “Company”) is a bank holding company formed in 2004 whose principal activity is the ownership and management of its wholly-owned subsidiary, First Georgia Banking Company (the “Bank”). The Bank is a commercial bank with locations in Homer (Banks County), Carrollton and Villa Rica (Carroll County), Lake Oconee (Greene County), Cornelia (Habersham County), Bremen (Haralson County), Franklin (Heard County), Commerce and Jefferson (Jackson County), Columbus (Muscogee County), Athens (Oconee County) and Dalton (Whitfield County), Georgia. The Company provides a full range of banking services in its primary market areas and the adjacent areas or parts thereof.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Significant intercompany transactions and balances have been eliminated in consolidation.

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed assets and deferred taxes. The determination of the adequacy of the allowance for loan losses is based on estimates that are susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans and the valuation of foreclosed assets, management obtains independent appraisals for significant collateral.

Cash, Due from Banks and Cash Flows

For purposes of reporting cash flows, cash and due from banks includes cash on hand, cash items in process of collection and amounts due from banks. Cash flows from interest-bearing deposits in banks, loans, federal funds sold/purchased, deposits and other borrowings are reported net.

The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank. The Bank was required to maintain a reserve of $140,000 at December 31, 2009. There was no reserve balance required at December 31, 2008.

Securities

Securities are classified as available-for-sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income. The Company amortizes premiums and accretes discounts on securities using the straight-line method over the expected life of the security. The difference in recorded interest by using this method has not resulted in a material difference as compared to the interest method. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the settlement date. Declines in the fair value of securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Equity Securities

The Company is required to maintain an investment in capital stock of the Federal home Loan Bank (the “FHLB”). Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost. At their discretion, the FHLB may declare dividends on the stock. Management reviews for impairment based on the ultimate recoverability of the cost basis in this stock.

Loans

Loans are reported at their outstanding principal balances less deferred fees and costs and the allowance for loan losses. Interest income is accrued on the outstanding principal balance based on the payment terms required by the loan contract. Loan origination fees, net of certain direct loan origination costs, are deferred and recognized in income over the life of the loans using a method which approximates a level yield.

The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, or at the time the loan is 90 days past due, unless the loan is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest income, unless management believes that the accrued interest is recoverable through the liquidation of collateral. Interest income on non-accrual loans is recognized on the cash-basis method, until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. When a loan or portion of a loan is determined to be uncollectible, the amount deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on a periodic evaluation. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are any significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses, and may require us to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

Management determines the allowance for loan loss by first dividing the loan portfolio into two major categories: (1) satisfactory and past due loans and (2) impaired loans. For purposes of evaluation, satisfactory and past due loans are further segmented into the following categories: commercial and government guaranteed loans, commercial 1-4 family construction and acquisition and development projects, consumer residential real estate and other consumer loans. Management uses an annualized eight-quarter moving average net loan charge-off/recovery experience rate (net charge-off percentage of total loans.) Loan loss reserves are calculated primarily based upon this historical loss experience by segment and adjusted for qualitative factors including changes in the nature and volume of the loan portfolio, overall portfolio quality, changes in levels of non-performing loans, significant shifts in real estate values, changes in levels of collateralization, trends in staff lending experience and turnover, loan concentrations and current economic conditions that may affect the borrower’s ability to pay.

For example, because of the recent increase in the level of the Company’s non-performing loans and general decline in real estate values management has increased the qualitative economic and environmental factors in the satisfactory and past due loan calculation.

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A loan is generally classified as impaired, based on current information and events, if it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impaired loans are measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. A large portion of our impaired loans are collateral dependent, which has caused larger amounts to be included in our allowance for loan losses due to recent declines in real estate values. Impaired loans with balances in excess of $200,000 are evaluated individually, while impaired loans with balances of $200,000 or less are evaluated as a group. No additional funds are committed to be advanced in connection with impaired loans.

The allocation of the allowance to the respective loan categories is an approximation and not necessarily indicative of future losses. The entire allowance is available to absorb losses occurring in the loan portfolio. Management regularly monitors trends with respect to non-accrual, restructured and potential problems loans. Subsequent negative changes in these loans have led management to increase its environmental adjustment in the allowance for loan loss to accommodate these trends.

Premises and Equipment

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation computed on the straight-line method over the following estimated useful lives of the assets:

Land improvements		10-15 years
Buildings		30-40 years
Equipment		3-10 years

Foreclosed Assets

Assets acquired through loan foreclosure or repossession (primarily real estate and vehicles) are initially recorded at fair value less estimated cost to sell at the date of foreclosure. We determine fair value based upon the lowest of the following three methods: (1) independently observed market prices, (2) appraised values or (3) management’s estimation of the value of the property. Any write-downs based on the asset’s fair value on the date of acquisition is charged to the allowance for loan losses. In the event that foreclosed real estate is incomplete at the time of foreclosure, it is held for sale and initially recorded at fair value as obtained from a current appraisal less estimated costs to complete and sell. We will obtain an “as-completed” appraisal and capitalize costs associated with completion up to this value, less selling costs, in accordance with generally accepted accounting procedures. For the years ended December 31, 2009 and 2008, we charged down $293,223 and $497,436 at the time of foreclosure, respectively.

After foreclosure, valuations are periodically performed and the assets are carried at the lower of the carrying or fair value, less estimated cost to sell. Costs incurred in maintaining foreclosed assets and subsequent write-downs based on updated valuations of the property are included in other operating expenses. Management believes that the carrying value of foreclosed assets at December 31, 2009 is reasonable.

Income Taxes

The Company accounts for income taxes in accordance with income tax accounting guidance. On January 1, 2009, the Company adopted the recent accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.

The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets may be reduced by deferred tax liabilities and a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. Additionally, due to recent significant losses, the Company is unable to conclude that it will generate sufficient net income in the near term to realize the full value of its deferred tax assets. Therefore, the Company established a $16.3 million deferred tax asset valuation allowance in 2009 bringing the net deferred tax asset to approximately $197,000, which is the deferred tax related to the net unrealized losses on the securities portfolio. As a result, any further losses will not have an associated tax benefit until the Company can show that it is more likely than not that it will realize those tax benefits.

Earnings (Losses) Per Share

Basic earnings (losses) per share represents income (losses) available to common stockholders divided by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings (losses) per share reflect additional potential common             shares that would have been outstanding if dilutive potential common share had been issued, as well as any adjustments to income that would result from the assumed issuance. Potential common shares consist of stock options and warrants and are determined using the treasury stock method. For the years ended December 31, 2009 and 2008, potential common shares were anti-dilutive and not included in the computation of diluted earnings per share.

Stock-Based Compensation

At December 31, 2009, the Company has a stock-based employee compensation plan which is more fully described in Note 10 of the consolidated financial statements. Under this plan, the Company recognized expense of $267,351, $357,980 and $153,420 for the years ended December 31, 2009, 2008 and 2007, respectively

Generally accepted accounting principles require the cash flows resulting from the tax benefits from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The Company had $80,104 of cash flows resulting from excess tax benefits in 2007, no excess tax benefits in 2008 and $11,920 in 2009.

Comprehensive Income (Loss)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income (loss), are components of comprehensive income (loss).

Recent Accounting Pronouncements

Effective July 1, 2009, the Company adopted new accounting guidance related to U.S. Generally Accepted Accounting Principles (US GAAP). This guidance establishes Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) as the source of authoritative U.S. GAAP recognized by

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Accounting Standards Board (FASB) to be applied by nongovernmental entities. Rules and interpretive releases of the United States Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. FASB ASC supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in FASB ASC has become non-authoritative. FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (ASUs), which will serve to update FASB ASC, provide background information about the guidance, and provide the basis for conclusions on the changes to FASB ASC. FASB ASC is not intended to change U.S. GAAP or any requirements of the SEC. This guidance is effective for the Company as of December 31, 2009.

Effective April 1, 2009, the Company adopted new accounting guidance related to recognition and presentation of other-than-temporary impairment (OTTI). This recent accounting guidance amends the recognition guidance for other-than-temporary impairments of debt securities and expands the financial statement disclosures for other-than-temporary impairment losses on debt and equity securities. The recent guidance replaced the “intent and ability” indication in current guidance by specifying that (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not, the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

The Company adopted accounting guidance related to fair value measurements and disclosures. This guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The effect of adoption was not material.

FASB issued guidance which describes the valuation techniques companies should use to measure the fair value of liabilities for which there is limited observable market data. If a quoted price in an active market is not available for an identical liability, an entity should use one of the following approaches: (1) the quoted price of the identical liability when traded as an asset, (2) quoted prices for similar liabilities or similar liabilities when traded as an asset, or (3) another valuation technique that is consistent with the accounting guidance in FASB ASC for fair value measurements and disclosures. When measuring the fair value of liabilities, this guidance reiterates that companies should apply valuation techniques that maximize the use of relevant observable inputs, which is consistent with existing accounting provisions for fair value measurements. In addition, this guidance clarifies when an entity should adjust quoted prices of identical or similar assets that are used to estimate the fair value of liabilities. This guidance is effective for the Company as of June 30, 2009 with adoption applied prospectively.

In addition, the following accounting pronouncements were issued by FASB, but are not yet effective:

FASB issued accounting guidance which modifies certain guidance regarding transfers and servicing financial assets. This standard eliminates the concept of qualifying special purpose entities, provides guidance as to when a portion of a transferred financial asset can be evaluated for sale accounting, provides additional guidance with regard to accounting for transfers of financial assets, and requires additional disclosures. This guidance is effective for the Company as of January 1, 2010, with adoption applied prospectively for transfers that occur on or after the effective date.

Reclassification

Certain items on the balance sheet for the period ended December 31, 2008 have been reclassified to be consistent with the classifications adopted for the period ended December 31, 2009. These reclassifications have not changed total assets as previously reported.

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. REGULATORY OVERSIGHT, CAPITAL ADEQUACY, OPERATING LOSSES AND MANAGEMENT’S PLANS

The Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. However, due to the Company’s 2009 financial results, the substantial uncertainty throughout the U.S. banking industry and other matters discussed below, a substantial doubt exists regarding the Company’s ability to continue as a going concern. Management’s plans in addressing the issues that raise substantial doubt regarding the Company’s ability to continue as a going concern are as follows:

Regulatory Oversight & Capital Adequacy

As described in Note 15, Regulatory Matters, the Bank is currently operating under heightened regulatory scrutiny and is subject to certain requirements and restrictions including but not limited to:

	•		Achieving and maintaining a minimum Tier 1 Leverage Ratio of 8%; and
	•		Planning for the scheduled reduction of certain “classified assets”; and
	•		No cash dividends may be paid without prior regulatory approval.

As of December 31, 2009 and during the subsequent period prior to the issuance of this report, we were not in compliance with regulatory capital requirements defined for our Bank. Our failure to comply with this requirement could result in further action by our banking regulators such as the issuance of a formal written agreement (i.e. Consent Order). Management and the Board of Directors are working on plans to improve our capital ratios and to further reduce the level of classified assets, and are also considering various strategic alternatives.

As of December 31, 2009, the Company was considered “undercapitalized,” not “well-capitalized” under regulatory guidelines. In light of the requirement to improve the capital ratios of the Bank, management is pursuing a number of strategic alternatives. Current market conditions for banking institutions, the overall uncertainty in financial markets and the Company’s high level of non-performing assets are potential barriers to the success of these strategies. Failure to adequately address the regulatory concerns may result in actions by the banking regulators including, but not limited to, entry into a formal written agreement. Ongoing failure to adequately address regulatory concerns could ultimately result in the eventual appointment of a receiver or conservator of the Bank’s assets. If current adverse market factors continue for a prolonged period of time, new adverse market factors emerge, and/or the Company is unable to successfully execute its plans or adequately address regulatory concerns in a sufficiently timely manner; it could have a material adverse effect on the Company’s business, results of operations and financial position.

Operating Losses

The Company incurred a net loss of $37.0 million for the year ended December 31, 2009. This loss was largely the result of dramatic increases in non-performing assets, which caused us to charge-off confirmed losses and replenish our allowance for loan losses. Additionally, due to these recent significant losses, the Company was unable to conclude that it would generate sufficient net income in the near term to realize the full value of its deferred tax assets. Therefore, the Company established a $16.3 million deferred tax asset valuation allowance in 2009 bringing the net deferred tax asset to approximately $197,000, which is the deferred tax related to the net unrealized losses on the securities portfolio. As a result, any further losses will not have an associated tax benefit until the Company can show that it is more likely than not that it will realize those tax benefits.

While our net interest margin remains at approximately 2.9% as of December 31, 2009, margin compression has also contributed to our net loss for 2009. We made efforts to reduce non-interest expense, by way of a reduction in force, salary reductions and other general cost-cutting measures. During the first quarter of 2010, we have continued to examine noninterest expense and have made further reductions in cost where possible.

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest reversals on non-performing loans and increases to nonearning, foreclosed assets could continue in 2010, and hinder our ability to improve our net interest income. Also, increases in the allowance for loan losses are likely to continue in 2010, which will negatively impact our ability to generate net income during the year.

Liquidity

Our primary sources of liquidity are our deposits, the scheduled repayments on our loans, and interest and maturities of our investments. All securities have been classified as available for sale, which means they are carried at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of other comprehensive income (loss). If necessary, we have the ability to sell a portion of our unpledged investment securities to manage interest sensitivity gap or liquidity. Our pledged securities totaled $7.8 million at December 31, 2009, and our efforts were successful to reduce this amount from the December 31, 2008 balance of $20.7 million. Cash and due from banks and federal funds sold may also be utilized to meet liquidity needs. Due to our undercapitalized status, we are unable to accept, rollover, or renew any brokered deposits. The Company has $27.2 million of brokered deposits maturing in 2010 and as these brokered deposits mature it could create a strain on liquidity.

Based on current and expected liquidity needs and sources, management expects to be able to meet obligations at least through December 31, 2010.

NOTE 3. SECURITIES AVAILABLE FOR SALE

The amortized cost and fair value of securities available with gross unrealized gains and losses for sale are summarized as follows and on the following page:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
December 31, 2009:
Debt securities:
U.S. Government-sponsored enterprises (GSEs)		$	1,500,000			$	—			$	(16,406	)		$	1,483,594
Mortgage-backed securities GSE residential			35,043,311				215,528				(294,669	)			34,964,170
State, county and municipals			6,389,224				18,909				(309,052	)			6,099,081
Corporate securities			2,541,724				—				(133,222	)			2,408,502
Total debt securities		$	45,474,259			$	234,437			$	(753,349	)		$	44,955,347
December 31, 2008:
Debt securities:
U.S. Government sponsored Enterprises (GSEs)		$	20,478,647			$	647,993			$	—			$	21,126,640
Mortgage-backed securities GSE residential			34,199,020				696,568				(76,228	)			34,819,360
State, county and municipals			15,187,226				2,170				(1,648,137	)			13,541,259
Corporate securities			2,547,738				7,500				(277,868	)			2,277,370
Total debt securities		$	72,412,631			$	1,354,231			$	(2,002,233	)		$	71,764,629

The amortized cost and fair value of debt securities as of December 31, 2009 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities because the mortgages underlying the securities may be called or repaid without penalty. Therefore, these securities are not included in the maturity categories in the following summary.

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		Amortized				Fair
		Cost				Value
After ten years		$	10,430,948			$	9,991,177
Mortgage-backed securities			35,043,311				34,964,170
		$	45,474,259			$	44,955,347

Securities with a carrying value of $7,760,242 and $20,744,709 at December 31, 2009 and 2008, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Gains and losses on sales of securities available for sale consist of the following:

		Years Ended December 31,
		2009				2008				2007
Gross gains		$	969,620			$	752,075			$	33,851
Gross loss			(187,179	)			(25,656	)			—
Net realized gains		$	782,441			$	726,419			$	33,851

Temporarily Impaired Securities

The following table shows the gross unrealized losses and fair value of the entity’s available-for-sale investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

		December 31, 2009
		Less Than 12 Months								12 Months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Description of Securities		Value				Losses				Value				Losses				Value				Losses
U.S. Government-sponsored enterprises (GSEs)		$	1,483,594			$	(16,406	)		$	—			$	—			$	1,483,594			$	(16,406	)
Mortgage-backed securities GSE residential			24,022,030				(294,669	)			—				—				24,022,030				(294,669	)
State, county and municipals			1,236,523				(22,342	)			2,445,005				(286,710	)			3,681,528				(309,052	)
Corporate securities			930,000				(70,000	)			1,478,502				(63,222	)			2,408,502				(133,222	)
Total temporarily impaired securities		$	27,672,147			$	(403,417	)		$	3,923,507			$	(349,932	)		$	31,595,654			$	(753,349	)

										December 31, 2008
		Less Than 12 Months								12 Months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Description of Securities		Value				Losses				Value				Losses				Value				Losses
U.S. Government-sponsored enterprises (GSEs)		$	—			$	—			$	—			$	—			$	—			$	—
Mortgage-backed securities GSE residential			6,336,827				(73,011	)			971,055				(3,217	)			7,307,882				(76,228	)
State, county and municipals			12,365,148				(1,492,817	)			888,316				(155,320	)			13,253,464				(1,648,137	)
Corporate securities			1,269,870				(277,868	)			—				—				1,269,870				(277,868	)
Total temporarily impaired securities		$	19,971,845			$	(1,843,696	)		$	1,859,371			$	(158,537	)		$	21,831,216			$	(2,002,233	)

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Government-sponsored enterprises (GSEs) — The unrealized loss on the one investment in U.S. Government-sponsored enterprises (GSEs) was caused by interest rate increases. The contractual terms of this investment does not permit the issuer to settle the security at a price less than the amortized cost basis of the investment. Because the Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investment before recovery of its amortized cost basis, which may be maturity, the Company does not consider this investment to be other-than-temporarily impaired at December 31, 2009.

Mortgage-backed securities: GSE residential — The unrealized losses on the Company’s investment in eleven GSE mortgage-backed securities were caused by interest rate increases. The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2009.

State, county and municipals — The unrealized losses on the seven investments were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2009.

Corporate securities — The Company’s unrealized losses on investments in two corporate securities relates to investments in companies within the financial services sector. The unrealized losses are primarily caused by recent decreases in profitability and profit forecasts by industry analysts resulting from the sub-prime mortgage market and a recent sector downgrade by several industry analysts. The contractual terms of those investments do not permit the Company to settle the security at a price less than the par value of the investments. The Company currently does not believe it is probable that it will be unable to collect all amounts due according to the contractual terms of the investments. Because the Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investments before recovery of its par value, which may be maturity, it does not consider these investments to be other-than-temporarily impaired at December 31, 2009.

NOTE 4. LOANS

The composition of loans is summarized as follows:

		December 31,
		2009				2008
Commercial and industrial		$	43,997,976			$	49,640,782
Real estate — construction			147,741,641				202,523,075
Real estate — mortgage:
Secured by farmland			17,054,608				12,699,336
Secured by 1-4 family residential properties			180,401,840				182,965,713
Secured by multi-family properties			40,175,914				46,136,304
Secured by owner-occupied non-farm non-residential properties			83,656,713				61,397,143
Secured by other non-farm non-residential properties			76,777,596				97,647,787
Loans for agricultural/farmers			619,169				1,997,204
Installment loans to individuals			21,890,645				28,367,914
			612,316,102				683,375,258

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		December 31,
		2009				2008
Deferred loan fees and costs			(103,039	)			(197,573	)
Allowance for loan losses			(12,879,081	)			(11,013,996	)
Loans, net		$	599,333,982			$	672,163,689

Changes in the allowance for loan losses are as follows:

		Years Ended December 31,
		2009				2008				2007
Balance, beginning of year		$	11,013,996			$	6,267,211			$	5,244,200
Provision for loan losses			32,170,357				8,914,368				2,353,244
Loans charged off			(30,393,140	)			(4,245,515	)			(1,388,685	)
Recoveries of loans previously charged off			87,868				77,932				58,452
Balance, end of year		$	12,879,081			$	11,013,996			$	6,267,211

A loan is considered impaired, in accordance with the impairment accounting guidance, when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual term of the loan. Impaired loans include loans modified in troubled debt restructuring where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

Included in certain loan categories are troubled debt restructurings that were classified as impaired At December 31, 2009, the Company had $2,816,818 of commercial and industrial, $3,307,421 of real estate — construction, $706,823 of real estate — mortgage loans that were modified in troubled debt restructuring and impaired. In addition to these amounts, the Company had troubled debt restructurings that were performing in accordance with their modified terms of $88,642 of commercial and industrial and $464,141 of real estate — mortgage loans at December 31, 2009.

The following is a summary of information pertaining to impaired loans, non-accrual loans, and loans past due ninety days or more.

		As of and for the Years Ended December 31,
		2009				2008				2007
Impaired loans with a valuation allowance		$	8,893,845			$	15,713,361			$	2,174,606
Impaired loans without a valuation allowance			40,953,118				21,147,998				425,060
Total impaired loans		$	49,846,963			$	36,861,359			$	2,599,666
Valuation allowance related to impaired loans		$	1,033,903			$	2,386,612			$	406,184
Total non-accrual loans			48,720,377				36,861,359				2,284,269
Total loans past due ninety days or more and still accruing			—				—				—
Average investment in impaired loans			33,705,870				10,878,804				1,153,702

On December 31, 2009, the Company had $49.8 million of impaired loans. This amount is net of the $19 million in charge downs taken during 2009 on these credits as they were evaluated for potential or confirmed losses.

No additional funds are committed to be advanced in connection with impaired loans. No accrued interest on non-accrual loans had been recognized for the years ended December 31, 2009, 2008, and 2007. There were no loans past due ninety days or more and still accruing interest at December 31, 2009 or 2008.

In the ordinary course of business, the Company has granted loans to certain related parties, including directors, executive officers and their affiliates. The interest rates on these loans were substantially the

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans for the year ended December 31, 2009 are as follows:

Balance, beginning of year		$	16,120,716
Advances			6,017,592
Repayments			(5,373,887	)
Changes in related parties			(534,713	)
Balance, end of year		$	16,229,708

NOTE 5. FORECLOSED ASSETS

A summary of foreclosed assets are presented as follows:

		Years Ended December 31,
		2009				2008
Balance, beginning of year		$	6,041,163			$	1,326,196
Additions			23,590,226				8,140,367
Disposals			(8,843,171	)			(972,519	)
Internally financed sales			(4,520,663	)			(1,354,337	)
Capitalized costs			301,583				303,824
Writedowns and losses			(2,828,536	)			(1,402,368	)
Balance, end of year		$	13,704,602			$	6,041,163

Expenses related to foreclosed assets include the following:

		Years Ended December 31,
		2009				2008				2007
Net loss (gain) on sales		$	798,840			$	216,840			$	215,218
Writedowns			2,029,696				1,185,528				148,275
Other expenses, net of rental income			1,626,000				244,078				—
Total expenses related to foreclosed assets		$	4,454,536				1,646,446				363,493

NOTE 6. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

		December 31,
		2009				2008
Land and land improvements		$	8,954,260			$	8,915,260
Buildings			27,195,916				24,574,243
Construction and equipment installation in progress			73,764				2,172,629
Equipment			7,444,670				6,951,300
			43,668,610				42,613,432
Accumulated depreciation			(6,623,032	)			(4,715,310	)
		$	37,045,578			$	37,898,122

Construction and equipment installation in progress at December 31, 2009 represents the amount paid towards construction of a permanent facility and purchase of related equipment for our Lake Oconee (Green County) location. The Company is not contractually obligated to build a permanent facility.

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest costs capitalized as part of the cost of premises and equipment totaled $17,926, $82,882, and $193,681for the years ended December 31, 2009, 2008, and 2007, respectively.

Leases

The Company has entered into various operating lease agreements for temporary and branch office facilities. The Company is generally responsible for insurance and maintenance of the properties. Total rental and temporary office expenses amounted to $134,536, $198,562, and $325,313 for the years ended December 31, 2009, 2008, and 2007, respectively.

Future minimum rental commitments under these leases at December 31, 2009 are as follows

2010		$	30,000
2011			12,500
		$	42,500

NOTE 7. DEPOSITS

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2009 and 2008 was $237,503,823 and $236,317,569, respectively. Total brokered time deposits at December 31, 2009 and 2008 were $73,288,882 and $88,107,806, respectively. Due to the Company’s undercapitalized status it is unable to accept, rollover or renew any brokered deposits. Because of this the Company is no longer allowed to participate in the Certificate of Deposit Account Registry Service (CDARS) program. At December 31, 2009 the Company had reciprocal balances of $5,153,575 and $34,578,804 for the same period in 2008. The scheduled maturities of time deposits at December 31, 2009 are as follows:

2010		$	319,986,737
2011			80,733,016
2012			19,673,113
2013			4,530,140
2014			6,060,241
		$	430,983,247

Overdraft demand deposits reclassified to loans totaled $107,580 and $126,043 at December 31, 2009 and 2008, respectively.

NOTE 8. OTHER BORROWINGS

Other borrowings consist of the following advances from the Federal Home Loan Bank:

		December 31,
		2009				2008
Fixed rate credit at 2.95% due March 23, 2011 repaid March 2009		$	—			$	5,000,000
Fixed rate credit at 4.055% due July 31, 2012 repaid March 2009			—				1,750,000
Fixed rate credit at 3.47% due March 23, 2013 repaid March 2009			—				5,000,000
Fixed rate credit at 3.83% due March 23, 2015 repaid March 2009			—				5,000,000
Fixed rate credit at 1.43% due November 4, 2011			10,000,000				—
Fixed rate credit at 2.34% due November 18, 2013			7,000,000				—
Fixed rate credit at 3.04% due November 4, 2014			5,000,000				—
		$	22,000,000				16,750,000

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advances from the Federal Home Loan Bank are collateralized by securities with a carrying value of $4,211,826, Federal Home Loan Bank stock of $2,694,000 and certain qualifying loans of $43,089,745. Available overnight federal funds lines totaled $10,000,000 as of the date of this report.

NOTE 9. COMMON STOCK

Private Placement Offering

On June 25, 2009, the Company commenced a private placement of up to 1,428,573 shares of common stock at an offering price of $3.50 per share with purchasers receiving a warrant to purchase one additional share of common stock for $3.50 for every four shares purchased. The shares were sold on the Company’s behalf on a “best efforts” basis by its directors and executive officers to selected accredited investors. No commissions were paid. The shares offered had not been registered under the Securities Act and weren’t offered or sold in the United States absent registration or an applicable exemption from the registration requirements. The offering was conducted in a manner designed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(2) of the Act and Rule 506 promulgated thereunder. The initial total dollar amount of the offering was $5 million. During the third quarter of 2009 the Board voted to increase the offering to $7.5 million. Through December 31, 2009 the Company sold 1,463,905 shares and issued warrants to purchase an additional 365,950 shares for $3.50 per share pursuant to this offering through December 31, 2009.

A summary of stock warrant activity for the year ended December 31, 2009 is presented below:

						Weighted-
						Average
						Exercise
		Number				Price
Warrants outstanding, beginning of year			—			$	—
Granted			365,950				3.50
Exercised			—				—
Forfeited			—				—
Warrants outstanding, end of year			365,950			$	3.50
Exercisable, end of year			365,950			$	3.50

NOTE 10. EMPLOYEE BENEFIT PLANS

401(k) Retirement Plan

The Company has a 401(k) retirement plan covering substantially all employees. As part of a continued cost elimination program, which began in the fourth quarter of 2008, the Company did not incur 401(k) contribution expense in 2009. Amounts charged to expense for the years ended December 31, 2008, and 2007 amounted to $320,978 and $334,177, respectively.

Incentive Stock Option Plan

The Company has a stock incentive plan (the “Plan”), which permits the grant of incentive stock options to its key employees of the Company for up to 1,529,866 additional shares of common stock. Option awards are granted with an exercise price equal to the estimated fair market value of the Company’s stock at the date of grant; those option awards generally vest based on three years of continuous service and have a ten-year contractual term. Dividends are not paid on unexercised options and dividends are not subject to vesting. The Plan provides for accelerated vesting if there is a change in control (as defined in the Plan).

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of each stock option award is estimated on the date of grant using a Black-Scholes-Merton valuation model that uses the weighted-average assumptions noted in the following table. Expected volatilities are based on expected volatility of similar entities. The expected term of options granted is based on the short-cut method and represents the period of time that options granted are expected to be outstanding. Historical data is used to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The table below does not include information for the year ended December 31, 2009 since there were no options granted during that period.

		Years ended December 31,
		2009				2008				2007
Dividend yield			—				0	%			0	%
Expected life			—			6.5 years				6.5 years
Risk-free interest rate			—				2.9	%			4.31 to 4.96	%
Expected volatility/weighted average expected volatility			—				24	%			24	%

Other pertinent information related to the options is as follows:

		Years Ended December 31,
		2009								2008								2007
						Weighted-								Weighted-								Weighted-
						Average								Average								Average
						Exercise								Exercise								Exercise
		Number				Price				Number				Price				Number				Price
Options outstanding, beginning of year			1,295,739			$	6.90				1,293,275			$	6.45				1,304,320			$	5.46
Granted			—				—				55,167				15.00				137,067				14.60
Exercised			(22,366	)			3.58				(69,018	)			4.78				(122,813	)			4.77
Forfeited			(54,952	)			10.75				(19,685	)			7.44				(25,299	)			7.90
Options outstanding, end of year			1,182,420			$	6.78				1,259,739			$	6.90				1,293,275			$	6.45
Exercisable, end of year			1,071,047			$	6.26				999,277			$	5.86				829,562			$	5.07

At December 31, 2009 there was $288,820 of unrecognized compensation cost related to stock-based payments, which is expected to be recognized over a weighted-average period of 1.58 years. There were no options granted in 2009 but the weighted average fair value of options granted in 2008 and 2007 was $4.73and $5.26 respectively.

Shares available for future stock option grants to employees under the existing plan were 347,446 at December 31, 2009. The aggregate intrinsic value of options outstanding at December 31, 2009, 2008 and 2007 was $0, $10,206,531and $11,060,883, respectively and the aggregate intrinsic value of options exercisable was $0, $8,235,124 and $4,585,230 for these same periods.

Total intrinsic value of options exercised was $255,431, $723,639 and $1,269,905 for the years ended December 31, 2009, 2008 and 2007, respectively. At December 31, 2009 and 2008, the weighted average contractual life in years of outstanding stock options was 5.05 and 6.09 years, respectively.

Additionally, on March 19, 2010, the President and Chief Executive Officer of both the Company and Bank resigned. At that time, he also resigned from his position as a director of the Company. At the time of his resignation, he had 117,083 exercisable stock options which expire on June 17, 2010.

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. INCOME TAXES

The allocation of income tax expense (benefit) between current and deferred income taxes is as follows:

		Years Ended December 31,
		2009				2008				2007
Current		$	(552,474	)		$	(873,487	)		$	826,373
Deferred			(12,092,546	)			(2,086,277	)			(381,692	)
Change in valuation allowance			16,290,417				—				(1,024,187	)
Income tax expense (benefit)		$	3,645,397			$	(2,959,764	)		$	(579,506	)

The Company’s income tax expense (benefit) differs from the amounts computed by applying the federal income tax statutory rates to income (loss) before income taxes (benefits). A reconciliation of the differences is as follows:

		Years Ended December 31,
		2009				2008				2007
Tax provision at federal statutory rate		$	(11,357,314	)		$	(2,731,797	)		$	501,691
State income taxes (benefit)			(1,229,680	)			(220,198	)			(35,154	)
Change in valuation allowance			16,290,417				—				(1,024,188	)
Nondeductible expenses			9,758				46,578				40,566
Stock compensation			90,899				121,713				52,163
Tax free interest			(158,683	)			(176,060	)			(112,229	)
Other			—				—				(2,355	)
Income tax expense (benefit)		$	3,645,397			$	(2,959,764	)		$	(579,506	)

The components of net deferred tax assets are as follows:

		December 31,
		2009				2008
Deferred tax assets:
Loan loss reserves		$	4,740,055			$	3,987,288
Net operating loss			11,378,424				—
Pre-opening expenses			6,710				7,370
Deferred loan fees			38,883				74,555
Securities available for sale			197,187				246,241
Contributions			6,914				3,598
Non-accrual loan interest			—				45,086
Reserve for repossessed assets			472,022				431,141
			16,840,195				4,795,279
Deferred tax liabilities:
Depreciation			352,591				353,522
Valuation allowance			(16,290,417	)			—
Net deferred taxes		$	197,187			$	4,441,757

FGBC BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2009, the Company has net operating loss carryforwards of approximately $13,763,943 for federal income tax purposes and $2,524,119 for state income tax purposes. If unused the carryforwards will expire in the year 2029.

NOTE 12. EARNINGS (LOSSES) PER SHARE

Presented below is a summary of the components used to calculate basic and diluted earnings (losses) per common share:

		Years Ended December 31,
		2009				2008				2007
Basic earnings (losses) per share:
Weighted average common shares outstanding			13,154,350				12,297,893				12,124,152
Net income (loss)		$	(37,049,267	)		$	(5,074,935	)		$	2,055,068
Basic earnings (losses) per share		$	(2.82	)		$	(.41	)		$	.17
Diluted earnings (losses) per share:
Weighted average common shares outstanding			13,154,350				12,297,893				12,124,152
Net effect of the assumed exercise of stock options based on the treasury stock method using average market prices for the year			—				—				765,001
Total weighted average common shares and common stock equivalents outstanding			13,154,350				12,297,893				12,889,153
Net income (loss)		$	(37,049,267	)		$	(5,074,935	)		$	2,055,068
Diluted earnings (losses) per share		$	(2.82	)		$	(.41	)		$	.16