UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

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: 000-1170902

FLORIDA COMMUNITY BANKS, INC.

(Exact name of registrant as specified in its charter)

Florida	35-2164765
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)
1400 North 15th Street, Immokalee, Florida	34142-2202
(Address of principal executive offices)	(Including zip code)

(239)  657-3171

(Issuer's Telephone Number, Including Area Code)

No Change

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No        o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filero Accelerated filer x Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b of the Exchange Act).

Yes o No        x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par Outstanding at October 31, 2007: 7,909,664

Form 10-Q

FLORIDA COMMUNITY BANKS, INC.

September 30, 2007

	Page No.
Part I - Financial Information
Item 1 -     Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of September 30, 2007 and December 31, 2006		3
Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2007 and 2006		4
Consolidated Statement of Shareholders' Equity for the Nine Months Ended September 30, 2007		5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006		6
Notes to Consolidated Financial Statements		7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3 - Quantitative and Qualitative Disclosures about Market Risk		17
Item 4 - Controls and Procedures		18
Part II - Other Information
Item 1 - Legal Proceedings		19
Item 1A - Risk Factors		19
Item 5 – Other Information		19
Item 6 – Exhibits		20
Signatures		21

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

FLORIDA COMMUNITY BANKS, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

September 30, 2007 (Unaudited) and December 31, 2006

	September 30,      2007       (Unaudited)			December 31,2006
Assets
Cash and due from banks	$	11,295,417		$	19,013,130
Interest-bearing demand deposits with banks		1,717,979			1,499,212
Federal funds sold		105,000			100,000
Cash and Cash Equivalents		13,118,396			20,612,342
Securities held-to-maturity, fair value of $137,212,400 in 2007 and $99,976,028 in 2006		138,034,509			101,109,108
Other investments-securities		5,149,965			5,595,465
Other investments-partnerships		1,215,875			1,263,875
Loans held-for-sale		160,000			145,600
Loans, net of unearned income		774,659,262			869,462,473
Allowance for loan losses		(13,963,948	)		(13,590,000	)
Net Loans		760,695,314			855,872,473
Premises and equipment, net		18,627,247			14,455,093
Accrued interest		5,138,779			6,640,337
Foreclosed real estate		1,142,099			2,403,435
Deferred taxes, net		10,063,446			6,425,467
Other assets		1,664,460			2,154,231
Total Assets	$	955,010,090		$	1,016,677,426
Liabilities and Shareholders’ Equity
Liabilities
Deposits
Noninterest-bearing	$	74,980,753		$	109,481,282
Interest-bearing		682,298,318			725,980,218
Total Deposits		757,279,071			835,461,500
Short-term borrowings		13,168,000			694,000
Accrued interest		3,872,765			2,767,839
Deferred compensation		217,928			246,635
FHLB advances		45,000,000			55,000,000
Subordinated debentures		30,929,000			30,929,000
Other liabilities		3,101,496			1,011,138
Total Liabilities		853,568,260			926,110,112
Shareholders’ Equity
Common stock - par value $0.01 per share, 10,000,000 shares authorized, 7,909,664 shares issued and outstanding at September 30, 2007 and December 31, 2006		79,096			79,096
Paid-in capital		18,461,737			18,432,682
Retained earnings		82,900,997			72,055,536
Total Shareholders’ Equity		101,441,830			90,567,314
Total Liabilities and Shareholders’ Equity	$	955,010,090		$	1,016,677,426

3

FLORIDA COMMUNITY BANKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

Three Months and Nine Months Ended September 30, 2007 and 2006

(Unaudited)

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2007		2006		2007		2006
Interest Income
Interest and fees on loans	$	17,815,768	$	21,768,673	$	55,840,058	$	60,827,003
Interest and dividends on taxable securities		1,385,261		742,694		3,580,787		2,118,388
Interest on tax-exempt securities		206,823		29,482		605,014		29,482
Interest on federal funds sold and other interest income		205,033		341,143		588,688		724,646
Total Interest Income		19,612,885		22,881,992		60,614,547		63,699,519
Interest Expense
Interest on deposits		8,714,215		7,880,959		25,482,911		21,406,336
Interest on borrowed funds		1,151,589		1,343,372		3,627,834		3,307,624
Total Interest Expense		9,865,804		9,224,331		29,110,745		24,713,960
Net Interest Income		9,747,081		13,657,661		31,503,802		38,985,559
Provision for loan losses		550,000		1,225,000		849,100		4,615,000
Net Interest Income After Provision for Loan Losses		9,197,081		12,432,661		30,654,702		34,370,559
Noninterest Income
Customer service fees		365,962		410,939		1,066,127		1,255,705
Secondary market loan fees		85,304		207,830		334,148		570,906
Gain on sale of other real estate		—		—		404,921		—
Other operating income		128,178		343,279		411,667		1,233,705
Total Noninterest Income		579,444		962,048		2,216,863		3,060,316
Noninterest Expenses
Salaries and employee benefits		2,680,307		2,336,964		8,089,199		6,935,967
Occupancy and equipment expense		641,986		649,177		1,855,593		1,701,155
Other operating expenses		1,174,226		776,067		2,890,973		2,327,748
Total Noninterest Expenses		4,496,519		3,762,208		12,835,765		10,964,870
Income before income taxes		5,280,006		9,632,501		20,035,800		26,466,005
Income tax expense		1,983,063		3,699,239		7,542,492		10,178,866
Net Income	$	3,296,943	$	5,933,262	$	12,493,308	$	16,287,139
Basic earnings per common share	$	0.42	$	0.75	$	1.58	$	2.06
Diluted earnings per common share		0.41		0.74		1.55		2.04
Cash dividends declared per common share		0.00		0.00		0.21		0.17
Weighted average common shares outstanding - basic		7,909,664		7,884,228		7,909,664		7,891,663
Weighted average common shares outstanding - diluted		8,045,938		8,006,168		8,041,134		7,996,978

      

        See notes to consolidated financial statements      

           

4

FLORIDA COMMUNITY BANKS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

Nine months Ended September 30, 2007

(Unaudited)

	Common       Stock		Paid-in       Capital		Retained         Earnings			Total
Balance at December 31, 2006	$	79,096	$	18,432,682	$	72,055,536		$	90,567,314
Cash dividends - Common $0.21 per share		—		—		(1,647,847	)		(1,647,847	)
Stock-based compensation expense		—		29,055		—			29,055
Net income - nine months ended September 30, 2007		—		—		12,493,308			12,493,308
Balance at September 30, 2007	$	79,096	$	18,461,737	$	82,900,997		$	101,441,830

      

        See notes to consolidated financial statements      

           

5

FLORIDA COMMUNITY BANKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months Ended September 30, 2007 and 2006

(Unaudited)

	Nine Months
	Ended September 30,
	2007			2006
Operating Activities
Net Income	$	12,493,308		$	16,287,139
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		849,100			4,615,000
Compensation associated with the issuance of options, net of tax		29,055			72,731
Gain on sale of other real estate owned property		(404,921	)		—
Gain on disposal of premises and equipment…………….		(2,780	)		—
Loss on disposal of premises and equipment		—			33,911
Depreciation, amortization, and accretion, net		772,053			832,490
Decrease (increase) in accrued interest receivable		1,501,558			(1,091,071	)
Increase in accrued interest payable		1,104,926			545,109
(Increase) decrease in deferred tax asset, net		(3,637,978	)		(1,469,053	)
Other, net		2,487,170			1,362,723
Net Cash Provided By Operating Activities		15,191,491			21,188,979
Investing Activities
Purchase of investment securities held-to-maturity		(42,803,676	)		(20,990,219	)
Proceeds from pay-downs of investment securities held-to-maturity		5,813,206			4,069,380
Net (purchase)/sale of other investment securities		445,500			(267,200	)
Net decrease (increase) in loans to customers		93,846,712			(99,479,668	)
Proceeds from other investments		48,000			—
Proceeds from the sale of premises and equipment		12,536			—
Purchase of premises and equipment		(4,894,873	)		(916,252	)
Proceeds from the sale of other real estate owned		2,203,435			—
Net Cash Provided By (Used In) Investing Activities		54,670,840			(117,583,959	)
Financing Activities
Net increase (decrease) in demand deposits, NOW accounts and savings accounts		(33,395,056	)		34,175,519
Net increase (decrease) in certificates of deposits		(44,787,374	)		75,376,067
Issuance/(repayment) of short-term borrowings		12,474,000			(24,988,000	)
Repayments of other debt		—			67,279
Issuance of subordinated debentures		—			20,010,000
Net decrease in FHLB advances		(10,000,000	)		(5,000,000	)
Dividends paid		(1,647,847	)		(1,373,286	)
Net Cash (Used In) Provided By Financing Activities		(77,356,277	)		98,267,579
Net (Decrease) Increase in Cash and Cash Equivalents		(7,493,946	)		1,872,599
Cash and Cash Equivalents at Beginning of Period		20,612,342			32,368,349
Cash and Cash Equivalents at End of Period	$	13,118,396		$	34,240,948

      

        See notes to consolidated financial statements      

           

6

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        September 30, 2007      

      

        (Unaudited)      

           

Note A - Basis of Presentation

Florida Community Banks, Inc. (“FCBI” or the “Company”) is a bank holding company, which owns all of the common stock of Florida Community Bank (“Bank” or “FCB”) and special purpose business trusts organized to issue Trust Preferred Securities. The special purpose business trusts are not consolidated in the financial statements that are included elsewhere herein. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2007, are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

The consolidated statement of financial condition at December 31, 2006, has been derived from the audited financial statements at that date, but does not include all of the information and related disclosures required by accounting principles generally accepted in the United States for complete financial statements.

The interim unaudited consolidated financial statements contained herein should be read in conjunction with the audited financial statements and disclosures included in Florida Community Banks, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2006.

Some items in the September 30, 2006, financial information have been reclassified to conform to the September 30, 2007, presentation.

FCBI evaluates variable interests in entities for which voting interests are not an effective means of identifying controlling financial interests. Variable interests are those in which the value of the interest changes with the fair value of the net assets of the entity exclusive of variable interests. If the results of the evaluation indicate the existence of a primary beneficiary and the entity does not effectively disperse risks among the parties involved, that primary beneficiary is required to consolidate the entity. Likewise, if the evaluation indicates that the requirements for consolidation are not met and the entity has previously been consolidated, then the entity would be deconsolidated.

FCBI has investments in certain entities for which the Company does not have controlling interest. For these investments, the Company records its interest using the equity method with its portion of income or loss being recorded in other noninterest income in the Consolidated Statements of Income. The Company periodically evaluates these investments for impairment.

Note B - Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of

Note B – Critical Accounting Policies-Continued

the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may

change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

Note C - Income Taxes

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board's ("FASB") Financial Interpretation No. (“FIN”) 48, Accounting for Uncertainties in Income Taxes, an Interpretation of FASB Statement No. 109. FIN 48 requires the Company to record a liability, referred to as an unrecognized tax benefit ("UTB"), for the entire benefit when it believes a position taken in a past or future tax return has a less than 50% chance of being accepted by the taxing or adjudicating authority.  If the Company determines the likelihood of a position being accepted is greater than 50%, but less than 100%, the Company should record a UTB for the amount that it believes will not be accepted by the taxing authority. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Management has determined that there are no significant uncertain tax positions requiring recognition in the financial statements at the adoption date of January 1, 2007, nor did any arise for the period ending September 30, 2007.

The Company may from time to time be assessed interest or penalties by taxing authorities. Historically such assessments have been minimal and immaterial to the financial statements taken as a whole. It is the policy of the Company that these types of assessments be classified as income tax expense in the financial statements.

The effective tax rate of approximately 37.65% and 38.46% for the nine months ended September 30, 2007 and 2006, respectively, is more than the federal statutory tax rate for corporations; this is principally because of the effect of state income taxes, net of federal tax benefit.

7

Note D - Securities

The Company applies the accounting and reporting requirements of Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities as amended. This pronouncement requires that all investments in debt securities be classified as either "held-to-maturity" securities, which are reported at amortized cost; trading securities, which are reported at fair value, with unrealized gains and losses included in earnings; or "available-for-sale" securities, which are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity (net of deferred tax effect).

The carrying amounts of securities as shown in the consolidated statements of financial condition and their approximate fair values at September 30, 2007 and December 31, 2006 were as follows:

	Gross      Amortized Cost		Gross       Unrealized       Gains		Gross       Unrealized     Losses		Estimated Fair       Value
Securities Held-to-Maturity
September 30, 2007:
FHLB and FHLMC
agency notes	$	18,492,511	$	189,494	$	19,905	$	18,662,100
Municipal securities		20,603,551		44,288		112,484		20,535,355
Mortgage-backed securities		98,938,447		212,296		1,135,798		98,014,945
	$	138,034,509	$	446,078	$	1,268,187	$	137,212,400
December 31, 2006:
FHLB and FHLMC
agency notes	$	12,530,776	$	28,181	$	43,207	$	12,515,750
Municipal securities		16,765,363		136,498		19,021		16,882,840
Mortgage-backed securities		71,812,969		53,473		1,289,004		70,577,438
	$	101,109,108	$	218,152	$	1,351,232	$	99,976,028

The following tables show our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2007.

	Less Than 12 Months				12 Months or More				Total
Description of Securities	Fair       Value		Unrealized         Losses		Fair       Value		Unrealized        Losses		Fair       Value		Unrealized          Losses
FHLB and FHLMC agency notes	$	—	$	—	$	1,979,200	$	19,905	$	1,979,200	$	19,905
Municipal securities		12,263,751		74,328		3,399,593		38,156		15,663,344		112,484
Mortgage-backed securities		34,137,157		253,539		47,833,081		882,259		81,970,238		1,135,798
Total	$	46,400,908	$	327,867	$	53,211,874	$	940,320	$	99,612,782	$	1,268,187

8

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        September 30, 2007      

      

        (Unaudited)      

                  

Note D - Securities - Continued

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (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.

The Company believes all individual securities at September 30, 2007, that were in an unrealized loss position or impaired for the timeframes indicated above are deemed not to be other-than-temporary impairments. Substantially all of these positions are backed by 1-4 family mortgages and the unrealized loss of these securities is based solely on interest rate changes and not due to credit ratings. Management intends to hold these securities until maturity.

Note E - Subordinated Debentures

On May 12, 2006, FCBI Capital Trust II (“Trust II”), a Delaware statutory trust, received $20,000,000 in proceeds.  The proceeds of the Trust II transaction and the $10,000,000 in proceeds from the prior statutory trust established June 21, 2002, FCBI Capital Trust I ("Trust I") transaction were then used by the trusts to purchase an equal amount of floating-rate subordinated debentures (the "subordinated debentures") of the Company. The Company has fully and unconditionally guaranteed all obligations of the trusts on a subordinated basis with respect to the preferred securities. Subject to certain limitations, the preferred securities qualify as Tier 1 capital and are presented in the consolidated statements of financial condition as subordinated debentures. The sole assets of the trusts are the subordinated debentures issued by the Company. Both the preferred securities of the trusts and the subordinated debentures of the Company each have approximately 30-year lives. However, both the Company and the trusts have call options of five years, subject to regulatory capital requirements.

Note F - Segment Information

All of the Company’s offices offer similar products and services, are located in the same geographic region, and serve the same customer segments of the market. As a result, management considers all units as one operating segment and therefore feels that the basic financial statements and related footnotes provide details related to segment reporting.

Note G - Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which requires all stock-based payments to employees to be recognized in the income statement based on their fair

9

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        September 30, 2007      

      

        (Unaudited)      

                  

Note G - Stock-Based Compensation - Continued

values. The Company adopted SFAS No. 123(R) using the modified prospective transition method. The modified prospective transition method does not require the restatement of prior periods to reflect the fair value method of expensing stock-based compensation. SFAS No. 123(R) does require a cumulative effect adjustment of previously recognized compensation expense in order to estimate forfeitures for awards outstanding on the adoption date. The cumulative effect adjustment was immaterial.

The Company uses the Black-Scholes option pricing model for all grant date estimations of fair value as the Company believes that its stock options have characteristics for which the Black-Scholes model provides an acceptable measure of fair value. The expected term of an option represents the period of time that the Company expects the options granted to be outstanding. The Company bases this estimate on a number of factors including vesting period, historical data, expected volatility and blackout periods. The expected volatility used in the option pricing calculation is estimated considering historical volatility. The Company believes that historical volatility is a good predictor of the expected volatility. The expected dividend yield represents the expected dividend rate that will be paid out on the underlying shares during the expected term of the option, taking into account any expected dividend increases. The Company's options do not permit option holders to receive dividends and therefore the expected dividend yield was factored into the calculation. The risk-free rate is assumed to be a short-term treasury rate on the date of grant, such as a U.S. Treasury zero-coupon issue with a term equal to the expected term of the option.

The additional disclosure requirements of SFAS No. 123(R) have been omitted due to immateriality.

Note H - Commitments and Contingencies

In the normal course of business the Company enters into commitments to extend credit, which are agreements to lend to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and generally require a payment of fees. Since commitments may expire without being drawn upon, the amounts reported do not necessarily represent expected future cash flows.

Standby letters of credit are commitments issued by the Company to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions, and expire in decreasing amounts with terms ranging from one to four years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

10

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        September 30, 2007      

      

        (Unaudited)      

                  

Note H - Commitments and Contingencies - Continued

The following represents the Company’s commitments to extend credit and standby letters of credit as of September 30, 2007 and December 31, 2006:

	September 30,      2007		December 31,2006
Commitments to extend credit	$	109,055,000	$	203,088,000
Standby and commercial letters of credit		1,871,000		2,427,000
Total commitments and contingencies	$	110,926,000	$	205,515,000

Florida Community Bank, as part of its retail mortgage loan production activities, routinely enters into short-term commitments to originate fixed rate loans. Most of the loans will be sold to third party correspondent banks upon closing. For those loans, the Company enters into individual forward sales commitments at the same time the commitment to originate are finalized. While the forward sales commitments function as an economic hedge and effectively eliminate the Company's financial risk of rate changes during the rate lock period, both the commitment to originate mortgage loans that will be sold and the commitment to sell the mortgage loans are derivatives, the fair values of which are essentially equal and offsetting, whereas the Company primarily acts as intermediary between the borrower and the ultimate lender.

The Company invested in a Partnership, AMD-FCB, LLP, formed to build and lease an office building in which the Bank will lease space upon completion. In early 2007, the Partnership entered into a construction agreement with a third party bank. The Company and the other 50% partner have each guaranteed 50% of a construction loan totaling approximately $6,600,000. In addition, the Bank has entered into a 15 year lease agreement with AMD-FCB, LLP to lease 16,809 square feet of the building, approximately one-half. The annual lease payments are projected to be approximately $445,000, with annual increases based on the Consumer Price Index.

Note I – Subsequent Events

On October 24, 2007, the Board of Directors declared a dividend payable on November 16, 2007, of $0.25 per share, to all shareholders of record as of November 2, 2007.  The Company also declared a stock split of 6 shares for each of the Company’s outstanding 5 shares of common stock on October 24, 2007, to stockholders of record on December 3, 2007.  the effect of this stock split has been retroactively reflected in the financial statements.  All references to weighted average shares outstanding and per share amounts included in the accompanying financial statements and notes reflect the stock split and its retroactive effects.

11

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        September 30, 2007      

      

        (Unaudited)      

                  

Note J - Recent Accounting Pronouncements

Effective January 1, 2007, the Company adopted the provisions of SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140." SFAS No. 155 permits, but does not require, fair value accounting for hybrid financial instruments that contain an embedded derivative that would otherwise require bifurcation in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Concurrently, the Company adopted the provisions of SFAS No. 133, Implementation Issue No. B40, "Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets." In Implementation Issue No. B40, the FASB concluded that a securitized interest in prepayable financial assets would not be subject to the bifurcation requirements of SFAS No. 155, provided that the securitized interest met certain criteria. The adoption of SFAS No. 155 and SFAS No. 133, Implementation Issue No. B40 did not have a material impact on the Company's financial statements.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, [an amendment of FASB Statement No. 140]. This Statement provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized; 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; 3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur; 4) upon initial adoption, permits a onetime reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity^'s exposure to changes in the fair value of servicing assets or liabilities that a service elects to subsequently measure at fair value; and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures. This Standard is effective as of the beginning of an entity^'s first fiscal year that begins after September 15, 2006 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings. The adoption of this statement had no material effect on the Company^'s financial statements.

In June 2006, the FASB issued FIN 48, Accounting for Uncertainly in Income Taxes, [an interpretation of FASB Statement No. 109], which prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company has determined that the adoption of FIN 48 had no material effect on the financial statements.

In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plan, [an amendment of FASB Statements No. 87, 88, 106 and 132(R)]. This Statement requires a postretirement plan (other than a multiemployer plan) as an asset or liability in its balance sheet, beginning with year end 2006, and to recognize changes in the funded status in the year in which the changes occur through comprehensive income beginning in 2007. Additionally, defined benefit plan assets and obligations are to be measured as of the date of the employer^'s fiscal year-end, starting in 2008. The adoption of this statement had no material effect on the Company^'s financial statements.

Effect of newly issued but not yet effective accounting standards:

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement 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 Statement is effective for fiscal years beginning after November 15, 2007. The Company has not completed its evaluation of the impact of the adoption of this Statement.

In September 2006, the FASB Emerging Issues Task Force ("EITF") finalized Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. This Issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants^' employment or retirement. The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. This Issue is effective for fiscal years beginning after December 15, 2007. Under the current agreements, adoption of this Issue will have no impact on the Company's financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board's long-term measurement objectives for accounting for financial instruments.  SFAS No. 159 is effective as of the beginning of a company's first fiscal year that begins after November 15, 2007, and should not be applied retrospectively to prior fiscal years, except as permitted in the standard's early adoption provisions. A company may adopt SFAS No. 159 and elect the fair value option for existing eligible items as of the beginning of a fiscal year that begins on or before November 15, 2007, subject to the conditions set forth in the standard, one of which is requirement to adopt all of the requirements of SFAS No. 157 at the early adoption date of SFAS No. 159 or earlier. Under the early adoption provisions of SFAS No. 159 a company with a calendar fiscal year may adopt this standard as of January 1, 2007, provided it adopts SFAS No. 157 as of that date or earlier. The Company did not elect the early adoption provisions of SFAS No. 159.

12

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        September 30, 2007      

                         

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion is intended to assist an understanding of the Company’s financial condition and results of operations. This analysis should be read in conjunction with the consolidated financial statements and related notes appearing in Item 1 of the September 30, 2007, Form 10-Q, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Forward-Looking Information

Certain statements contained in this Quarterly Report on Form 10-Q, which are not historical facts, are forward-looking in nature and relate to trends and events that may affect the Company’s future financial position and operating results. In addition, the Company, through its senior management, from time to time makes forward-looking public statements concerning its expected future operations and performance and other developments. All forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The terms “expect,” “anticipates,” “intend” and “project” and similar words or expression are intended to identify forward-looking statements. In addition to risks and uncertainties that may affect operations, performance, growth projections and the results of the Company’s business, which include, but are not limited to, fluctuations in the economy, the relative strength and weakness in the commercial and consumer sector and in the real estate market, the actions taken by the Federal Reserve Board for the purpose of managing the economy, interest rate movements, the impact of competitive products, services and pricing, timely development by the Company of technology enhancements for its products and operating systems, legislation and similar matters, the Company’s future operations, performance, growth projections and results will depend on its ability to respond to the challenges associated with a weakening economy, particularly in real estate development, which is prominent in the Company’s primary market. Although management of the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Prospective investors are cautioned that any such forward-looking statements are not guaranties of future performance, involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. The Company makes no commitment to update any forward-looking statement or to disclose any facts, events or circumstances that may affect the accuracy of any forward-looking statement.

FINANCIAL CONDITION

September 30, 2007 compared to December 31, 2006

The Bank continued its operations concentrating in the origination of loans in southwestern Florida. As discussed more fully below, loans decreased 10.90% during the first nine months of 2007, while equity capital grew 12.01 %. No significant changes in operating goals or policies occurred during 2007.

Loans

Loans comprised the largest single category of the Company's earning assets on September 30, 2007. Loans, net of unearned income, totaled 81.12% of total assets at September 30, 2007 compared to 85.52% of total assets at December 31, 2006. During the first nine months of 2007, loans decreased approximately $94.8 million, a big change compared to the approximately $99.8 million increase during the same time period last year. This dramatic change is attributed to the slow down in the real estate development market in Southwest Florida, which in turn has been impacted by the slow down in other areas of the country. Management believes that it may take another twelve to eighteen months for the real estate economy to revitalize and it is quite likely that loans will continue to decline further during this time period.

Investment Securities and Other Earning Assets

The investment securities portfolio is used to provide a source of liquidity, to serve as collateral for borrowings and to secure certain government deposits. Federal funds sold, at September 30, 2007 were about the same as they were at December 31, 2006 (approximately $100,000); at both times the bank was purchasing federal funds.Federal funds sold are the most liquid earning assets and are used to manage the daily cash position of the Company. Investment securities and other investment securities increased $36.5 million from December 31, 2006, and totaled $143.18 million at September 30, 2007.

Asset Quality

From December 31, 2006 to September 30, 2007, the Bank’s asset quality deteriorated from the stand point of more loans moving to a non-accrual status ($37.7 million increase for a total of $75.2 million) however, loans that are accruing but are 90 plus days past due declined ($11.1 million decrease for a total of $2.1 million). Other real estate owned property also declined during this time period, from $2.4 million down to $1.1 million. The ratio of loan loss allowance to total nonperforming assets (defined as non-accrual loans, loans past due 90 days or greater, restructured loans, non-accruing securities, and other real estate) deteriorated, decreasing from 24.90% to 17.76%. The percentage of nonperforming assets to total assets went up from 5.37% to 8.23%, and the percentage of nonperforming loans to total loans increased from 6.00% to 10.00%.

Management attributes the increase in nonperforming loans to the slow down in the real estate economy; these loans are generally well secured and no significant losses are anticipated. The allowance for loan losses as a percent of loans increased from 1.56% at December 31, 2006, to 1.80% at September 30, 2007. Management believes the allowance for loan losses to be adequate.

During the first nine months of 2007, net charge-offs totaled $475 thousand.

Deposits

Total deposits of $757.3 million at September 30, 2007, represented a decrease of $78.2 million or 9.36% from total deposits of $835.5 million at year-end 2006.  The decrease can also be attributed to the slow down in the real estate economy; with loan volume down the Bank is not actively seeking deposits or using brokered certificate of deposits to fund loan growth. At September 30, 2007, brokered and internet certificates of deposit totaled approximately $284.5 million; down from $393.9 million a year ago.

13

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        September 30, 2007      

                         

Shareholders’ Equity

Shareholders’ equity increased $10.9 million from December 31, 2006 to September 30, 2007, due to the retention of earnings; the Company paid a $0.25 per share cash dividend on June 1, 2007 which totaled $1.6 million. On September 30, 2007, the Company and the Bank exceeded the regulatory minimums and qualified as well-capitalized under the regulations of the Federal Reserve System, the State of Florida, and the FDIC.

Liquidity Management

Liquidity is defined as the ability of a company to convert assets (by liquidating or pledging for borrowings) into cash or cash equivalents without significant loss. Liquidity management involves maintaining the ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the production and growth needs of the communities it serves.

The primary function of asset and liability management is not only to ensure adequate liquidity in order to meet the needs of its customer base, but also to maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities so that the Company can also meet the investment requirements of its shareholders. Daily monitoring of the sources and uses of funds is necessary to maintain an acceptable position that meets both requirements. To the Company, both assets and liabilities are considered sources of liquidity funding and both are, therefore, monitored on a daily basis.

The asset portion of the balance sheet provides liquidity primarily through maturities and the repayment of loan and investment principal. Loans that mature in one year or less equaled approximately $475.3 million at September 30, 2007, and approximately $15.6 million of investment repayments are expected within one year.

The liability portion of the balance sheet provides liquidity through deposits to various customers’ interest-bearing and non-interest-bearing deposit accounts, brokered and internet certificated of deposits. At September 30, 2007, the Bank had funds available through the purchase of federal funds from correspondent commercial banks up to an aggregate of $51.8 million and another $9 million available from the Federal Reserve Bank of Atlanta; the Company had $5 million available through a separate line with a commercial bank. The Bank also has available a credit line with the Federal Home Loan Bank of Atlanta of up to 15% of assets (approximately $141 million) of which $96 million was available and unused.  At September 30, 2007, the bank had unused collateral totaling approximately $54 million, thus limiting the advances potentially available to that amount.

Capital Resources

A strong capital position is vital to the continued profitability of the Company and the Bank because it promotes depositor and investor confidence and provides a solid foundation for future growth of the organization. The Company has provided a significant portion of its capital requirements through the retention of earnings.

On June 21, 2002, FCBI Capital Trust I (“Trust I”), a Delaware statutory trust established by the Company, received $10,000,000 in proceeds in exchange for $10,000,000 principal amount of Trust I floating rate cumulative trust preferred securities (the “preferred securities”) in a trust preferred private placement. On May 12, 2006, FCBI Capital Trust II (“Trust II”) was established also as a Delaware statutory trust. Trust II received $20,000,000 in similar proceeds. The proceeds of both transactions were then used by the trusts to purchase an equal amount of floating rate subordinated debentures (the “subordinated debentures”) of the Company. The Company has fully and unconditionally guaranteed all obligations of the trusts on a subordinated basis with respect to the preferred securities. Subject to certain limitations, the preferred securities qualify as Tier 1 capital and are presented in the Consolidated Statements of Financial Condition as subordinated debentures. The sole assets of the trusts are the subordinated debentures issued by the Company. Both the preferred securities of the trusts and the subordinated debentures of the Company have approximately 30-year lives. However, both the Company and the trusts have call options of five years, subject to regulatory capital requirements.

FCBI Capital Trust II was established for two reasons; to increase the capital of the Bank ($8.5 million was injected into the Bank) and to potentially payoff the original $10,000,000 (Trust I) when it became callable (starting in July 2007); the interest rate on Trust II was much more favorable than that on Trust I. The Company has invested the excess funds; currently $8,500,000, in loans to help offset the cost of carrying the trust preferred securities. Management has decided to not pay off the original $10 million trust preferred security until the bank’s asset quality improves.

Regulatory authorities are placing increased emphasis on the maintenance of adequate capital.  In 1990, new risk-based capital requirements became effective. The guidelines take into consideration risk factors, as defined by regulators, associated with various categories of assets, both on and off the balance sheet.  Under the guidelines, capital strength is measured in two tiers, which are used in conjunction with risk-adjusted assets to determine the risk-based capital ratios.  The Company’s Tier I capital, which consists of common equity less goodwill plus qualifying Trust Preferred securities issued, amounted to $131.4 million at September 30, 2007. Tier II capital components include supplemental capital components such as qualifying allowance for loan losses and Trust Preferred securities not qualifying as Tier I capital. Tier I capital plus the Tier II capital components are referred to as Total Risk-Based capital and was $142.04 million at September 30, 2007.

Management will continue to monitor the Company's asset mix and the loan loss allowance, which are the areas most affected by the capital requirements.

14

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        September 30, 2007      

                         

RESULTS OF OPERATIONS

Three months ended September 30, 2007 and 2006

Summary

Net earnings of the Company for the three months ended September 30, 2007, totaled $3,296,943 compared to $5,933,262 for the same period in 2006, representing a 44.43% decrease. The decrease was due primarily to the increase in nonperforming loans (interest that was reversed and not accrued) over the same period a year ago; higher cost of funds; lower service charge income and higher salaries and other expenses.

Net Interest Income

Net interest income, the difference between interest earned on assets and the cost of interest-bearing liabilities, is the largest component of the Company’s income.  Net interest income during the three months ended September 30, 2007, decreased $3.9 million or 28.63% from the same period in 2006. This decrease was due to the increase in nonperforming loans, a decrease in total loans outstanding and an increase in the bank’s cost of funds. Loan interest income decreased due to the increase in nonperforming loans and an overall decrease in loans in general. Interest expense increased due a change in the deposit mix from lower yielding checking and savings to higher yielding money market and certificate of deposits. Earning assets averaged $942.6 million during the third quarter of 2007 compared to $987.4 million in the third quarter of 2006, a decrease of $44.8 million; (average loans decreased $98.2 million). Average interest-bearing liabilities decreased $25.3 million, from $814.9 million during the third quarter of 2006 to $789.6 million during the same period in 2007, primarily due to the decrease in broker certificates of deposit.

The Company’s net interest margin for the three months ended September 30, 2007 was 4.10%, dropping 139 basis points from the third quarter last year (5.49%), due to the increase in nonperforming loans and the higher cost of funds.

Provision for Loan Losses

The provision for loan losses represents the charge against current earnings necessary to maintain the reserve for loan losses at a level which management considers appropriate. Management evaluates this level based on various factors including, but not limited to, the Bank's historical loss experience, delinquency and non-accrual trends, portfolio growth, underlying collateral values and current economic conditions. This evaluation is partially subjective and requires material estimates that may change over time.

The provision for loan losses was $550 thousand and $1.225 million for the three months ended September 30, 2007 and 2006, respectively. The decrease in provision was not only a result of revisions in the methodology used to calculate the allowance for loan losses, but also was due to the significant decrease in loans outstanding ($774.7 million at September 30, 2007 compared to $891.1 million last year). The components of the allowance for loan losses represent estimates based upon SFAS No. 5, Accounting for Contingencies, and SFAS No. 114, Accounting for Impairment of a Loan. SFAS No. 114 is applied to loans that are considered impaired. Under SFAS No. 114 a loan is impaired when, based on current information, it is probable that the loan will not be repaid according to its contractual terms, including both principal and interest. Management performs individual assessments of impaired loans to determine the existence and the extent of any loss exposure based upon the present value of expected future cash flows or based upon the estimated realizable collateral value where the loan is collateral dependent.

Loans charged off exceeded recoveries by approximately $111 thousand for the three months ended September 30, 2007, compared to $21 thousand for the three-month period ended September 30, 2006. The reserve for loan losses as a percent of outstanding loans, net of unearned income, was 1.80% at September 30, 2007 and September 30, 2006.

Noninterest Income

Noninterest income for the three months ended September 30, 2007, was $579,444 compared to $962,048 for the same period of 2006, a decrease of $382.6 thousand or 39.77%. The decrease was primarily due to a reduction in service charges and fees from the Money Service Businesses that were closed out at the end of 2006 and the beginning of 2007; management made a business decision to close these accounts due the transaction and regulatory “risk” inherent in these accounts and estimates that it will loose approximately $1.2 million in revenue from this source in 2007. Income from the sale of mortgage loans in the secondary market was also down ($122.5 thousand) compared to last year.

Noninterest Expenses

Noninterest expenses for the three months ended September 30, 2007, were $4,496,519 reflecting a $734 thousand or 19.52% increase from the same period of 2006. The primary component of non-interest expense is salaries and benefits, which increased $343 thousand or 14.69%; the bank has added new staff as it positions itself to grow in the future; all the other expenses combined increased $391 thousand; of that total, the FDIC insurance assessment increased $213 thousand.

Income Taxes

The provision for income taxes of $1,983,063 for the three months ended September 30, 2007, decreased $1,716,176 compared to the same period of 2006, due to a decrease in pre-tax income. The effective tax rate for both periods is more than the statutory federal rate principally because of state income taxes, net of the federal tax benefit.

15

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        September 30, 2007      

                         

Nine Months Ended September 30, 2007 and 2006

Summary

Net earnings of the Company for the nine months ended September 30, 2007, totaled $12,493,308 compared to $16,287,139 for the same period in 2006, representing a 23.29% decrease. The decrease was due primarily to a decrease in loans outstanding, the higher level of nonperforming loans, the higher cost of funds, lower service charge income and higher salary and benefit expenses.

Net Interest Income

Net interest income, the difference between interest earned on assets and the cost of interest-bearing liabilities, is the largest component of the Company’s net income.  Net interest income during the nine months ended September 30, 2007, decreased $7.5 million or 19.19% from the same period in 2006. Interest income on loans was down $4.99 million from a year ago due to lower outstanding balances and higher nonperforming loans; investment income was up $2.04 million due to an increase in securities purchased during this time period. Interest expense on deposits increased $4.08 million or 19.04% due to a change in the deposit mix and higher rates; interest expense on borrowed funds increased $320 thousand due to the increase in Trust Preferred securities. Earning assets averaged $959.1 million during the first nine months of 2007 compared to $960.7 million in 2006, a decrease of $1.6 million; average investments increased $52.2 million, while average loans decreased $47.8 million. Average interest-bearing liabilities increased from $787.3 million at the end of the third quarter of 2006 to $797.6 million at the end of the third quarter of 2007.  Money market accounts averaged $34.8 million higher in 2007 compared to 2006, reflecting an increase of 21.01%, while NOW and savings accounts averaged $15.5 million or 22.05% lower; average certificates of deposit decreased $8.1 million or 1.76%; average trust preferred securities increased $2.5 million or 3.20%.

The Company is in a less asset sensitive position than it was a year ago, with $204 million less in interest-earning assets subject to re-pricing than interest-bearing liabilities over a 12 month period. This change was brought about by management to lessen the negative impact to earnings that would result if rates were to fall. At September 30, 2007, the net interest margin was 4.39% compared to 5.43% last September. The decrease in the margin was due to the increase in nonperforming loans and the reversal of approximately $1.4 million in interest income on the non-accrual loans; plus the higher cost of funds. To protect the net interest margin in a declining rate environment, the Bank has floor rates on most of the variable rate loans, which will help to keep the margin from dropping too low or too fast. Management is also keeping the maturities on its brokered certificate of deposits short, which will enable the Bank to recover (lower its cost of funds) quicker than if the maturities were longer (more than 2 years).

Provision for Loan Losses

The provision for loan losses represents the charge against current earnings necessary to maintain the reserve for loan losses at a level which management considers adequate. This level is determined based upon the Bank’s historical charge-offs, management’s assessment of current economic conditions, the composition of the loan portfolio and the levels of non-accruing and past-due loans. The provision for loan losses was $849,100 for the nine months ended September 30, 2007 and $4,615,000 for the comparable period in 2006.  This decrease is due to revisions in the methodology used to calculate the reserve and to significantly lower loan balances.  Charge-offs exceeded recoveries by approximately $475 thousand during the first nine months of 2007 compared to $84 thousand during the same time period in 2006. The level of non-performing loans increased significantly (from $10.3 million to $77.5 million) during the period from September 30, 2006 to September 30, 2007; management does not anticipate any significant losses from these loans.

Noninterest Income

Noninterest income for the nine months ended September 30, 2007, was $2,216,863 compared to $3,060,316 for the same period of 2006, a decreaseof 27.56%. The primary reason for the decreasecame from a reduction in service charges and fees from the Money Service Businesses that were closed out at the end of 2006 and the beginning of 2007; management made a business decision to close these accounts due the transaction and regulatory “risk” inherent in these accounts and estimates that it will loose approximately $1.2 million in revenue from this source in 2007. Income from the sale of mortgage loans in the secondary market was also down ($237 thousand) compared to last year. Included in noninterest income for 2007 was a $405 thousand gain from the sale of OREO (other real estate owned) property.

Noninterest Expenses

Noninterest expenses for the nine months ended September 30, 2007, totaled $12,835,765 reflecting a 17.06% increasefrom the same period of 2006. The primary components of noninterest expenses are salaries and employee benefits, which increased $1.15 million for the nine months ended September 30, 2007, compared to the same period in 2006. This increasewas due to new staff positions that were added as the Bank positions itself for further growth in the future. Occupancy expenses (depreciation, maintenance, taxes, insurance, electricity, etc) increased $154 thousand. Other expenses (FDIC insurance, accounting fees, legal fees, advertising etc.) increased $563 thousand; FDIC insurance assessments that all banks are now being assessed (which will increase as deposits grow) increased $224 thousand and legal fees (which are expected to be lower in the future) increased $149 thousand.

Income Taxes

The provision for income taxes of $7,542,492 for the nine months ended September 30, 2007, decreased $2.6 million compared to the same period of 2006, due to lower pre-tax net income. The effective tax rate for both periods is more than the statutory federal rate principally because of state income taxes, net of the federal tax benefit.

Other Accounting Issues

Note J to the Financial Statements outlines the recently issued accounting pronouncements. The discussion is incorporated by reference herein.

16

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        September 30, 2007      

                         

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk arising from adverse changes in the fair value of financial instruments due to a change in interest rates, exchange rates and equity prices. The Company’s primary market risk arises from the possibility that interest rates may change significantly and affect the fair value of the Company’s financial instruments (also known as interest rate risk).

The primary objective of Asset/Liability Management at the Company is to manage interest rate risk and achieve reasonable stability in net interest income throughout interest rate cycles. This is achieved by maintaining a reasonable balance between rate sensitive earning assets and rate sensitive interest-bearing liabilities. The amount invested in rate sensitive earning assets compared to the amount of rate sensitive liabilities issued are the principal factors in projecting the effect that fluctuating interest rates will have on future net interest income and the fair value of financial instruments. Rate sensitive earning assets and interest-bearing liabilities are those that can be re-priced to current market rates within a given time period. Management monitors the rate sensitivity of all interest earning assets and interest bearing liabilities, but places particular emphasis on the upcoming year. The Company’s Asset/Liability Management policy requires risk assessment relative to interest pricing and related terms and places limits on the risk to be assumed by the Company.

The Company uses several tools to monitor and manage interest rate sensitivity. One of the primary tools is simulation analysis. Simulation analysis is a method of estimating the fair value of financial instruments, the earnings at risk, and capital at risk under varying interest rate conditions. Simulation analysis is used to estimate the sensitivity of the Company’s net interest income and stockholders’ equity to changes in interest rates. Simulation analysis accounts for the expected timing and magnitude of assets and liability cash flows as interest rates change, as well as the expected timing and magnitude of deposit flows and rate changes whether or not these deposits re-price on a contractual basis. In addition, simulation analysis includes adjustments for the lag between movements in market interest rates on loans and interest-bearing deposits. These adjustments are made to reflect more accurately possible future cash flows, re-pricing behavior and ultimately net interest income.

As of September 30, 2007, the Bank’s simulation analysis indicated that the Bank is at greatest risk in a sudden decreasing interest rate environment. This analysis assumes that rates will change suddenly on a specific date. The Company believes that in the near term short-term interest rates will more than likely move down, which will compress the bank’s net interest margin further. Management has taken steps to lessen the impact that falling rates would have by shortening the maturities of its certificate of deposits and extending the duration of its investment portfolio. The Bank is now in a less asset sensitive position that it was a year ago, with $204 million less in earning assets subject to re-pricing than interest bearing liabilities over a 12 month period. The Company's interim period simulation analysis is performed only at the Bank level as the risk exposure to the Company is primarily concentrated within the Bank's asset/liability mix.

The table following depicts the results of the simulation assuming a one and two percent decrease and increase in market interest rates.

	Estimated Fair Value of Financial Instruments
	Down  1 Percent			Up   1 Percent		Down  2 Percent			Up   2 Percent
	Dollars in Thousands
Interest-earning Assets
Federal funds sold and cash equivalents	$	1,823		$	1,823	$	1,823		$	1,823
Securities		147,303			134,521		153,252			127,831
Loans		768,123			765,756		771,433			763,723
Total Interest-earning Assets		917,249			902,100		926,508			893,377
Interest-bearing Liabilities
Deposits - Savings and demand		244,534			239,288		247,891			236,961
Deposits - Time		424,209			420,675		426,221			417,646
Other borrowings		58,427			57,386		59,292			56,995
Total Interest-bearing Liabilities		727,170			717,349		733,404			711,602
Net Difference in Fair Value	$	190,079		$	184,751	$	193,104		$	181,775
Change in Net Interest Income	$	(2,086	)	$	2,428	$	(3,879	)	$	4,048

17

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        September 30, 2007      

                  

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company has evaluated the effectiveness of its disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s chief executive officer and chief financial officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Controls

During the quarter under report, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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18

      

        FLORIDA COMMUNITY BANKS, INC.      

      

        September 30, 2007      

                  

PART II - Other Information

Item 1 - Legal Proceedings

In the ordinary course of business, the Company is subject to legal proceedings, which involve claims for substantial monetary relief. However, based upon the advice of legal counsel, management is of the opinion that any legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial condition or results of operations.

The Company’s subsidiary, Florida Community Bank (“Bank”), is subject to examinations by the Federal Deposit Insurance Corporation (“FDIC”) and the Florida Office of Financial Regulation (“OFR”). Following the 2006 OFR examination, the OFR requested the Bank to enter into a voluntary Cease and Desist Order due to issues raised in the examination primarily regarding compliance with the Bank Secrecy Act and other anti-money laundering laws and regulations (collectively, “BSA”), internal controls and credit administration. The Board and management believed that the Bank was compliant with BSA, had proper internal controls and adequate credit administration. The Board and management also believed that the criticisms raised in the examination did not warrant a voluntary Cease and Desist Order. The Board's and management's position was that the OFR's concerns could be best addressed through an informal agreement or corrective action plan. On October 18, 2006, the OFR filed an Administrative Complaint/Notice of Rights regarding its intent to issue an Order to Cease and Desist (Administrative Proceeding No. 0342-B-9/06). On November 7, 2006, the Bank, through its counsel, filed a Petition for Formal Administrative Hearing pursuant to Section 120.57, FloridaStatutes. Subsequent to a later examination by the FDIC no further administrative action was requested by the Bank. To resolve the pending litigation, the Bank and OFR entered into a Stipulation and Consent Agreement dated May 25, 2007 (the “Stipulation Agreement”). A copy of the Stipulation Agreement was included in the June 30, 2007 Form 10-Q as Exhibit 10.9. Management believes that it is addressing, or has addressed, all of the substantive items in, and is compliant with the Stipulation Agreement.

Item 1A - Risk Factors

Investing in our common stock involves risk. In addition to the other information set forth elsewhere in this Form 10-Q and the Risk Factors contained in our Form 10-K for the year ended December 31, 2006, the following factor relating to us and our common stock should be carefully considered in deciding whether to invest in our common stock:

The slowing real estate market may adversely affect our business.

    A significant portion of our loan portfolio consists of mortgages secured by real estate located in various markets including Collier and Lee Counties, Florida. Real estate values have come under pressure and real estate markets have recently slowed and have always been or may be further affected by, among other things, changes in national, regional or local economic conditions; fluctuations in interest rates and the availability of loans to potential purchasers; changes in the tax laws and other governmental statutes, regulations and policies; and acts of nature. If real estate prices continue to decline in any of these markets, the value of the real estate collateral securing our loans could be further reduced. Such a reduction in the value of our collateral could increase the number of non-performing loans and adversely affect our financial performance. Likewise, should real estate prices stabilize or improve the value of the real estate collateral securing our loans could stabilize or improve decreasing the number of non-performing loans and positively affecting our financial performance.

Item 5 - Other Information

In October 2007, the Company declared a stock split and issued 6 shares for each 5 shares outstanding of the Company's common stock. The effect of this stock split has been retroactively reflected in the Company's consolidated financial statements. All references to weighted average shares outstanding and per share amounts included in the consolidated financial statements and accompanying notes reflect the stock split and its retroactive effect.  Additionally, the Company declared a cash dividend payable on November 16, 2007 for stockholders of record on November 2, 2007 of $0.25 per share.

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        FLORIDA COMMUNITY BANKS, INC.      

      

        September 30, 2007      

                  

 Item 6 - Exhibits

The following Exhibits are filed with this report:

Exhibit No.		Exhibit	Page
	3.1	Articles of Incorporation of FCBI (included as Exhibit 3.1 to FCBI's Registration Statement on Form 8-A filed with the SEC on April 15, 2002, and incorporated herein by reference).
	3.2	By-laws of FCBI (included as Exhibit 3.2 to FCBI's Registration Statement on Form 8-A filed with the SEC on April 15, 2002, and incorporated herein by reference).
	4.1	Subordinated Promissory Note dated December 24, 2001, between Florida Community Bank and Independent Bankers Bank of Florida (included as Exhibit 4.1 to the Bank's Form 10-KSB for the year ended December 31, 2001, and incorporated herein by reference).
	4.2	Specimen Common Stock Certificate of FCBI (included as Exhibit 4.1 to FCBI's Registration Statement on Form 8-A filed with the SEC on April 15, 2002, and incorporated herein by reference).
	10.1	2002 Key Employee Stock Compensation Program of FCBI (included as Appendix D to the Bank's Definitive Schedule 14-A filed with the FDIC on March 22, 2002, and incorporated herein by reference).
	10.2	Amended and Restated Trust Agreement among Florida Community Banks, Inc. as depositor, Wilmington Trust Company as property trustee, Wilmington Trust Company, as Delaware trustee, and Stephen L. Price, and Thomas V. Ogletree as administrators, dated as of June 21, 2002 (included as Exhibit 10.3 to the Company's Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by reference).
	10.3	Guarantee Agreement between Florida Community Banks, Inc. as guarantor, and Wilmington Trust Company as guarantee trustee, dated as of June 21, 2002 (included as Exhibit 10.4 to the Company's Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by reference).
	10.4	Junior Subordinated Indenture between Florida Community Banks, Inc. (as Company) and Wilmington Trust Company (as trustee), dated as of June 21, 2002 (included as Exhibit 10.5 to the Company's Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by reference).
	10.5	Employee Stock Ownership Plan (included as Exhibit 10.5 to the Company's Form S-8 filed May 6, 2004, and incorporated herein by reference).
	10.6	Amended and Restated Declaration of Trust, dated as of May 12, 2006, by and among the Company, as Depositor, Wells Fargo Bank, National Association, as Institutional Trustee and Delaware Trustee, and the Administrators named therein (included as Exhibit 10.3 to the Company's Form 8-K filed with the SEC on May 12, 2006, and incorporated herein by reference).

Exhibit No.		Exhibit	Page
	10.7	Guarantee Agreement, dated as of May 12, 2006, by and between the Company, as Guarantor, and Wells Fargo Bank, National Association, as Guarantee Trustee (included as Exhibit 10.2 to the Company's Form 8-K filed with the SEC on May 12, 2006, and incorporated herein by reference).
	10.8	Indenture, dated as of May 12, 2006, by and between the Company and Wells Fargo Bank, National Association, as Trustee (included as Exhibit 10.1 to the Company's Form 8-K filed with the SEC on May 12, 2006, and incorporated herein by reference).
	10.9	Stipulation and Consent Agreement dated May 25, 2007 (included as Exhibit 10.9 to the Company’s Form 10-Q filed with the SEC on August 9, 2007, and incorporated herein by reference).
	11	Statement re: computation of earnings per common share		29
	14	Code of Ethics (included as Exhibit 99.1 to the Company's Form 8-K filed on March 3, 2003, and incorporated herein by reference.)
	31.1	Chief Executive Officer - Certification of principal executive officer pursuant to the Exchange Act Rule 13(a)-14(a) or 15(d)-14(a).		30
	31.2	Chief Financial Officer - Certification of principal financial officer pursuant to the Exchange Act Rule 13(a)-14(a) or 15(d)-14(a).		31
	32.1	Chief Executive Officer - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		32
	32.2	Chief Financial Officer - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		33

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        FLORIDA COMMUNITY BANKS, INC.      

      

        September 30, 2007      

                  

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FLORIDA COMMUNITY BANKS, INC.

By:  /s/ Stephen L. Price	November 9, 2007
Stephen L. Price	Date
President, Chief Executive Officer
And Chairman of the Board of Directors
/s/ Guy W. Harris	November 9, 2007
Guy W. Harris	Date
Chief Financial Officer

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