SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________

FORM 10-K

(Mark One)

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

For the Fiscal Year Ended December 31, 2008

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 No. 000-49734

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)

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:

		Name of each exchange
Title of each class		on which registered
None		None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, $0.01 Par Value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


	Large accelerated filero	Accelerated filero
	Non-accelerated filero (Do not check if a smaller reporting company)	Smaller reporting companyx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock on June 30, 2008, was approximately $45,840,697.

The number of shares of the Registrant’s common stock, $0.01 par value, outstanding on April 10, 2009, was 7,918,217

Document Incorporated by Reference

This statement has not been reviewed or confirmed for accuracy or relevance by the Federal Deposit Insurance Corporation.

Certain information required for Part III of this report is incorporated herein by reference to the Proxy Statement for the 2009 Annual Meeting of the Company’s stockholders

FLORIDA COMMUNITY BANKS, INC.

2008 Form 10-K Annual Report

TABLE OF CONTENTS

Item Number in Form 10-K	Description	Page or Location

PART I
Item 1.	Business		3
Item 1A.	Risk Factors		9
Item 1B.	Unresolved Staff Comments		9
Item 2.	Properties		10
Item 3.	Legal Proceedings		10
Item 4.	Submission of Matters to a Vote of Security Holders		10
PART II
Item 5.	Market for the Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities		10
Item 6.	Selected Financial Data		11
Item 7.	Management's Discussion and Analysis of Financial
	Condition and Results of Operations		12
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		27
Item 8.	Financial Statements and Supplementary Data		29
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		80
Item 9A.	Controls and Procedures		80
Item 9B.	Other Information		81
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		81
Item 11.	Executive Compensation		81
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		81
Item 13.	Certain Relationships and Related Transactions and Director Independence		81
Item 14.	Principal Accountant Fees and Services		81
PART IV
Item 15.	Exhibits and Financial Statements Schedules		81
Signatures
Certification of Periodic Financial Reports

PART I

ITEM 1.

BUSINESS

General

Florida Community Banks, Inc. ("FCBI") is a bank holding company, which owns all of the common stock of Florida Community Bank ("Bank" or "FCB") (in this report we refer to FCBI and the Bank collectively, as the "Company"), two special purpose business trust’s organized to issue Trust Preferred Securities and 50% of a partnership organized to build and lease an office building. The special purpose business trusts are not consolidated in the financial statements that are included elsewhere herein. FCBI is a Florida corporation registered with the Board of Governors of the Federal Reserve System as a bank holding company under the Bank Holding Company Act of 1956, as amended. Through its subsidiary bank, FCBI is engaged in the commercial banking business in southwestern Florida with offices in Collier, Lee, Hendry and Charlotte counties. At December 31, 2008, FCBI had total assets of approximately $979 million, total deposits of approximately $845 million and stockholders' equity of approximately $45 million.

Florida Community Bank is a Florida-chartered commercial bank, which commenced operations in Everglades City, Florida on May 19, 1923, under the name "Bank of the Everglades." The Bank changed its place of business from Everglades City, Florida to Immokalee, Florida in September 1962. FCB changed its name from Bank of the Everglades to "First Bank of Immokalee" in July 1967 and then to "Florida Community Bank" in July 1996 as part of its merger with Tri-County Bank of Lehigh Acres. The Bank is subject to regulation by the Florida Department of Financial Services ("Department") and the Federal Deposit Insurance Corporation ("FDIC"). The Bank's main office is located at 1400 North 15th Street, Immokalee, Florida and its telephone number is (239) 657-3171. In addition to the main banking office in Immokalee, the Bank currently operates full-service branches in the southwest Florida cities of Lehigh Acres, LaBelle, Naples (Golden Gate area), Port Charlotte, Punta Gorda, Cape Coral and Ft. Myers.

The Company employs approximately 180 persons and it believes that its relationship with these employees is good.

The Bank is engaged primarily in soliciting deposits from the general public and investing such deposits, together with other funds, in commercial loans, consumer loans, agricultural loans, and real estate loans. To a lesser extent, the Bank invests its funds in securities issued or guaranteed by agencies of the United States Government and municipalities.

The Bank operates as a locally operated institution aimed at providing prompt, efficient and personalized service to individuals, small and medium-sized businesses, professionals and other local organizations. The Bank's primary service area encompasses Charlotte, Lee, Collier, Glades and Hendry Counties (the "PSA"). The Bank's principal markets within the PSA are:

(i)

commercial and small business lending and deposit services;

(ii)

residential real estate mortgage and retail lending and deposit services; and

(iii)

commercial and residential real estate development lending.

The principal sources of funds for the Bank's loans and other investments are demand, time, savings and other deposits, amortization and prepayment of loans, sales to other lenders or institutions of loans or participations in loans, principal payments or maturities of investment securities, and borrowings. The principal sources of income for the Bank are interest and fees collected on loans, including fees received for servicing loans sold to other lenders or institutions, and to a lesser extent, interest and dividends collected on other investments. The principal expenses of the Bank are interest paid on savings and other deposits, interest paid on other borrowings by the Bank, employee compensation, office expenses and other overhead and operational expenses.

The Bank offers several deposit accounts, including demand deposit accounts, negotiable order of withdrawal accounts ("NOW" accounts), money market accounts, savings accounts, certificates of deposit and various retirement accounts. In addition, the Bank belongs to an electronic banking network so that its customers may use the automated teller machines (the "ATMs") of other financial institutions and operates drive-in teller services and 24-hour depository vaults.

The Bank offers the following loan services:

(a)

consumer loans, automobile loans, real estate equity lines of credit, education loans and real estate loans secured by single-family residences;

(b)

commercial and business loans for small to medium-sized companies, including Small Business Administration and other government-guaranteed financing;

(c)

individual and builder short-term residential construction financing;

(d)

home improvement loans; and

(e)

commercial and residential real estate development loans.

The Bank provides a full range of competitive banking services and emphasizes the manner in which the services are delivered. Management focuses its efforts on filling the void created by the decreasing number of locally-owned community banks due to acquisitions by large regional holding companies, which it believes has negatively impacted the personal nature of the delivery, quality and availability of banking services available in the PSA and surrounding areas.

Primary Service Area

The PSA enjoys an abundant work force, attractive business climate and a good relationship between the private and public sectors.

In general, commercial real estate in the PSA consists of small shopping centers and office buildings. The type of residential real estate within the PSA varies, with a number of condominiums, townhouses, apartments and single-family housing developments dispersed throughout the PSA.

Competition

The business of banking is highly competitive. The Bank competes with other banks, savings and loan associations and credit unions within the PSA. The Bank believes that its operation as a locally owned and controlled bank with a broad base of ownership in the PSA enhances its ability to compete with those non-local financial institutions now operating in its market, but no assurances can be given in this regard.

The Bank's competitive strategy with respect to the financial institutions described above consists of:

reviewing and acting upon loan requests quickly with a locally-based loan committee,

maintaining flexible but prudent lending policies,

personalizing service by establishing long-term banking relationships with its customers; and

maintaining an appropriate ratio of employees to customers to enhance the level of service.

Facilities

The Bank's main office in Immokalee, Florida was purchased in 1962. At December 31, 2008, the Bank operated eleven branch offices; the new Caloosa branch opened on State Road 80 (east Fort Myers) in November 2007. The Bank had intended to open three new branches in 2008; Ave Maria, Bonita Springs and North Port, but due to the down turn in the economy these plans were put on hold. The Lehigh Acres branch was acquired in 1996 as a result of the acquisition of Tri-County Bank of Lehigh Acres. The Golden Gate branch operates in a facility leased in 1997, on a month-to-month basis, with adjustments made annually to the lease cost based on the Consumer Price Index. The LaBelle branch was acquired as a result of the acquisition of Hendry County Bank by merger in 1998. The land for the Port Charlotte branch was purchased in 1998 and the branch opened in 1999 after construction was completed. The facility for the Ft. Myers branch is leased for 15 years (with renewal options after that period) and opened in 2000. The Bank owns the Punta Gorda branch and the underlying land is subject to a 99-year lease, which commenced in 2000. Land for a second Cape Coral branch was purchased in 2003 and the branch opened operations in January 2005. All of the branch facilities are in good condition.

Regulatory Environment

The following is a brief summary of the regulatory environment in which FCBI and the Bank operate and is not designed to be a complete discussion of all statutes and regulations affecting such operations, including those statutes and regulations specifically mentioned herein. Changes in the laws and regulations applicable to FCBI and the Bank can affect the operating environment in substantial and unpredictable ways. FCBI cannot accurately predict whether legislation will ultimately be enacted, and if enacted, what the ultimate effect that legislation would have on FCBI or its subsidiaries’ financial condition or results of operations. While banking regulations are material to the operations of FCBI and the Bank, it should be noted that supervision, regulation and examination of FCBI and the Bank are intended primarily for the protection of depositors, not security holders.

FCBI is a registered bank holding company and a financial holding company subject to supervision and regulation by the Board of Governors of the Federal Reserve System (Federal Reserve). As such, it is subject to the Bank Holding Company Act (BHCA) and many of the Federal Reserve’s regulations promulgated thereunder. The Federal Reserve has broad enforcement powers over bank holding companies, including the power to impose substantial fines and civil money penalties.

The Bank is subject to comprehensive regulation, examination and supervision by the Florida Office of Financial Regulation (“OFR”) and the FDIC, and is subject to other laws and regulations applicable to banks. Such regulations include limitations on loans to a single borrower and to the Bank's directors, officers and employees; restrictions on the opening and closing of branch offices; the maintenance of required capital and liquidity ratios; the granting of credit under equal and fair conditions; disclosure of the costs and terms of such credit; and restrictions as to permissible investments. The Bank is examined periodically by both the OFR and the FDIC and submits periodic reports regarding its financial condition and other matters to each of them. Both the OFR and the FDIC have a broad range of powers to enforce regulations under their respective jurisdictions, and to take discretionary actions determined to be for the protection of the safety and soundness of the Bank, including the institution of cease and desist orders and the removal of directors and officers.

The Federal Reserve has adopted regulations which provide for minimum risk-based and leverage capital guidelines for bank holding companies. The minimum required ratio of total capital to risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%, of which 4% must consist of Tier I capital. The minimum required leverage capital ratio is 3% for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. A minimum leverage ratio of 4% is required for bank holding companies not meeting these criteria. Generally, bank holding companies are expected to operate well above the minimum capital ratios. Higher capital ratios may be required for any bank holding company if warranted by its particular circumstances or risk profile. Failure to meet capital guidelines can subject a bank holding company to a variety of formal and informal enforcement remedies, including restrictions on its operations and activities.

Regarding depository institutions, the prompt corrective action provisions of the federal banking statutes establish five capital categories (“well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized”), and impose significant restrictions on the operations of an institution that is not at least adequately capitalized. To be considered “well capitalized,” an institution must maintain a ratio of total capital to risk weighted assets of at least 10% of which 6% must consist of Tier I capital as well as a Tier I leverage ratio of at least 5%. To be considered adequately capitalized, the institution must maintain those same capital ratios at levels equal to or exceeding 8%, 4% and 4%, respectively. Under certain circumstances, an institution may be downgraded to a category lower than that warranted by its capital levels and subjected to the supervisory restrictions applicable to institutions in the lower capital category. As of December 31, 2008, the Bank met the minimum capital levels to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. See specific discussion of the Bank’s and FCBI’s capital adequacy as discussed under Current Regulatory Matters.

An undercapitalized depository institution is subject to restrictions in a number of areas, including capital distributions, payments of management fees and expansion. In addition, an undercapitalized depository institution is required to submit a capital restoration plan. A depository institution’s holding company must guarantee the capital plan up to an amount equal to the lesser of 5% of the depository institution’s assets at the time it becomes undercapitalized or the amount needed to restore the capital of the institution to the levels required for the institution to be classified as adequately capitalized at the time the institution fails to comply with the plan. A depository institution is treated as if it is significantly undercapitalized if it fails in any material respect to implement a capital restoration plan.

Significantly undercapitalized depository institutions may be subject to a number of additional significant requirements and restrictions, including requirements to sell sufficient voting stock to become adequately capitalized, to improve management, to restrict asset growth, to prohibit acceptance of correspondent bank deposits, to restrict senior executive compensation and to limit transactions with affiliates. Critically undercapitalized depository institutions are further subject to restrictions on paying principal or interest on subordinated debt, making investments, expanding, acquiring or selling assets, extending credit for highly-leveraged transactions, paying excessive compensation, amending their charters or bylaws and making any material changes in accounting methods. In general, a receiver or conservator must be appointed for a depository institution within 90 days after the institution is deemed to be critically undercapitalized.

Support of Subsidiary Bank

Under Federal Reserve policy, FCBI is expected to act as a source of financial strength to, and to commit resources to support, the Bank. This support may be required at times when, absent such Federal Reserve policy, FCBI might not otherwise be inclined to provide it. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

Current Regulatory Matters

Due to their current condition and results of operations, FCBI and the Bank are operating under heightened regulatory scrutiny and have been and will be taking steps which are expected to improve their asset quality. The Bank entered into a Cease and Desist Order Agreement (Order) with the OFR on October, 17, 2008 and FCBI entered into a written agreement (Agreement) with the Federal Reserve Bank of Atlanta on February 13, 2009.

The Order requires the Bank to: (i) recruit three new directors; (ii) review its management to determine if staffing changes or additions are required; (iii) modify its management succession plan; (iv) increase Board oversight and minute keeping; (v) obtain regulatory clearance for the appointment of executive officers; (vi) adopt and adhere to a capital plan for maintaining a Tier 1 Leverage Capital ratio of at least 8%, a Tier 1 Risk Based Capital ratio of at least 10% and a Total Risk Based Capital ratio of at least 12%; (vii) obtain regulator approval for the payment of dividends; (viii) charge off or collect all assets classified as “loss” by the OFR; (ix) establish a special assets committee to adopt a plan to reduce the Bank’s risk exposure to adversely classified assets; (x) refrain, except under certain circumstances, from making loans to borrowers who has had a loan charged off or adversely classified by the Bank; (xi) evaluate and reorganize the Bank’s special assets department and policies; (xii) address and cure deficiencies in loan administration, underwriting, loan policy and loan review; (xiii) review, monitor and reduce the Bank’s credit concentration risk; (xiv) review and modify its allowance for loan and lease losses methodology; (xv) develop a plan to increase earnings; (xvi) amend its 2008 business plan budget and develop a business plan and budget for 2009 and 2010 to reflect the Bank’s current condition and prospects; (xvii) not increase its amount of brokered deposits and develop a plan to reduce their level of use; (xviii) not borrow money other than deposits, Federal Funds purchased or Federal Home Loan Bank advances without regulatory approval; (xix) evaluate its interest rate risk modeling system: and (xx) establish a compliance committee of the Board and file periodic reports with the OFR and FDIC as to compliance with the Order.

The Agreement requires FCBI to: (i) not pay any dividends without the consent of the FRB; (ii) not accept any dividends or distributions from the Bank which would serve to reduce the Bank’s capital without the approval of the FRB; (iii) not make any payments on its subordinated debentures or trust preferred securities without the FRB’s consent; (iv) not incur or guarantee any debt without the FRB’s consent; (v) not purchase or redeem any Company stock; (vi) prepare and submit to the FRB a plan to provide sufficient capital to the Company and the Bank; (vii) ensure ongoing compliance by the Bank with FRB regulations related to transactions between the Bank and its affiliates; (viii) prepare and submit to the FRB procedures to ensure compliance with the FRB’s reporting requirements; (ix) obtain the FRB’s non-objection to the appointment of any new directors or senior executive officers; (x) limit indemnification and severance payments in accordance with applicable law; and (xi) submit monthly progress reports to the FRB.

Capital Adequacy

As of December 31, 2008, the Bank’s and FCBI’s Capital ratio’s were below the minimum ratios set in the OFR’s Order. The Bank’s Tier 1 Leverage Capital Ratio was 7.17%, the Tier 1 Risk Based Capital Ratio was 9.38% and the Total Risk Based Capital Ratio was 10.67%. FCBI’s Tier 1 Leverage Capital Ratio was 5.87%, the Tier 1 Risk Based Capital Ratio was 7.69% and the Total Risk Based Capital Ratio was 10.90%. Under normal circumstances the Bank and FCBI would be considered “well capitalized” with these ratios, but these are not normal times. The Bank and FCBI face a serious risk of their capital ratios falling further, to the point where they may be considered “under capitalized.”

In order to return the Bank’s capital ratio’s at the level prescribed by the Order, the Bank is looking at all of its options, with shrinking the Bank being the most realistic option. Issuing more stock to raise capital is an option that is being explored, however, under the current market conditions and the uncertainty in the financial markets today, the Company recognizes that this would be difficult. It must also be noted that failure to adequately address the regulatory concerns may result in further actions by the banking regulators, which could include appointment of a receiver or conservator of the Bank’s assets.

FDIC Insurance Assessments

The FDIC is an independent federal agency established originally to insure the deposits, up to prescribed statutory limits, of federally insured banks and to preserve the safety and soundness of the banking industry. The FDIC has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities.

The Bank’s deposit accounts are insured by the FDIC to the maximum extent permitted by law. The Bank pays deposit insurance premiums to the FDIC based on a risk-based assessment system established by the FDIC for all insured institutions. Institutions considered well-capitalized and financially sound pay the lowest premiums, while those institutions that are less than adequately capitalized and of substantial supervisory concern pay the highest premiums. During 2008, assessment rates for insured institutions ranged from 5 cents per $100 of assessable deposits for well-capitalized institutions with minor supervisory concerns to 43 cents per $100 of assessable deposits for undercapitalized institutions with substantial supervisory concerns. In 2009, assessment rates are expected to range between 12 and 50 cents per $100 of assessable deposits for the first quarter and 8 and 77.5 cents per $100 of assessable deposits for the remainder of the year. The large premium increase is due to the Emergency Economic Stabilization Act of 2008 and the Temporary Liquidity Guarantee Program, both of which increased the deposit insurance coverage available to Colonial’s depositors.

Emergency Economic Stabilization Act of 2008. In October 2008, the Emergency Economic Stabilization Act of 2008 (EESA) was signed into law. The EESA temporarily revises the federal deposit insurance laws by increasing the basic deposit insurance coverage from $100,000 to $250,000 per depositor. This revision is currently effective through December 31, 2009.

Temporary Liquidity Guarantee Program. In order to promote financial stability in the economy, the FDIC adopted the Temporary Liquidity Guarantee Program (TLGP) on October 13, 2008. Participation in the program is voluntary. However, once participation is elected, it can not be revoked. The Bank has chosen to participate in the Transaction Account Guarantee Program component of the TLGP. Under the Transaction Account Guarantee Program, the FDIC will fully insure funds held in noninterest-bearing transaction accounts. Noninterest-bearing transaction accounts are ones that do not accrue or pay interest and for which the institution does not require an advance notice of withdrawal. Also covered are interest on lawyers’ trust accounts (IOLTA) and negotiable order of withdrawal (NOW) accounts with interest rates lower than 50 basis points. These revisions are only effective through December 31, 2009.

Federal Deposit Insurance Reform Act of 2005 . In February 2006, the Federal Deposit Insurance Reform Act of 2005 and the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (collectively, the Reform Act) were signed into law. The Reform Act revised the laws concerning federal deposit insurance by making the following changes: (i) merging the Bank Insurance Fund and the Savings Association Insurance Fund into a new fund, the Deposit Insurance Fund (DIF), effective March 31, 2006; (ii) increasing the deposit insurance coverage for certain retirement accounts to $250,000 effective April 1, 2006; (iii) beginning in 2010, deposit insurance coverage on individual accounts may be indexed for inflation; (iv) the FDIC will have more discretion in managing deposit insurance assessments; and (v) eligible institutions will receive a one-time initial assessment credit.

The Reform Act authorized the FDIC to revise the risk-based assessment system. Accordingly, insurance premiums are based on a number of factors, including the risk of loss that insured institutions pose to the DIF. The Reform Act replaced the minimum reserve ratio of 1.25% with a range of between 1.15% and 1.50% for the DIF, depending on projected losses, economic changes and assessment rates at the end of each calendar year. In addition, the FDIC is no longer prohibited from charging banks in the lowest risk category when the reserve ratio premium is greater than 1.25%.

In November 2006, the FDIC adopted changes to its risk-based assessment system. Under the new system, the FDIC will evaluate an institution’s risk based on supervisory ratings for all insured institutions, financial ratios for most institutions and long-term debt issuer ratings for certain large institutions.

In addition to deposit insurance assessments, the FDIC is authorized to collect assessments against insured deposits to be paid to the Finance Corporation (FICO) to service FICO debt incurred during the 1980’s. The FICO assessment rate is adjusted quarterly. The average annual assessment rate in 2008 was 1.12 cents per $100 for insured deposits. For the first quarter of 2009, the FICO assessment rate for such deposits will be 1.14 cents per $100 of assessable deposits.

FDIC Regulations

Dividend Restrictions. In addition to dividend restrictions placed on the Bank by the FDIC based on the Bank's minimum capital requirements, the Florida Financial Institutions Code prohibits the declaration of dividends in certain circumstances. Section 658.37 (Florida Statutes), prohibits the declaration of any dividend until a bank has charged off bad debts, depreciation and other worthless assets, and has made provision for reasonably-anticipated future losses on loans and other assets. Such dividends are limited to the aggregate of the net profits of the dividend period, combined with a bank's retained net profits for the preceding two years. A bank may declare a dividend from retained net profits that accrued prior to the preceding two years with the approval of the OFR. However, a bank will be required, prior to the declaration of a dividend on its common stock, to carry 20% of its net profits for such preceding period to its surplus fund, until the surplus fund equals at least the amount of the bank's common and preferred stock then issued and outstanding. In no event may a bank declare a dividend at any time in which its net income from the current year, combined with its retained net income from the preceding two years is a loss or which would cause the capital accounts of the bank to fall below the minimum amount required by law, regulation, order or any written agreement with the OFR or other state or federal regulatory agency.

Riegle-Neal Interstate Banking and Branching Efficiency Act. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 provides that as of June 1, 1997, adequately capitalized and managed banks will be able to engage in interstate branching by merging banks in different states, including Florida, which did not opt out of the application of this provision. If a state did not opt out, banks will be required to comply with the host state's regulations with respect to branching across state lines.

Gramm-Leach-Bliley Act. On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act which reforms and modernizes certain areas of financial services regulation. The law permits the creation of new financial services holding companies that can offer a full range of financial products under a regulatory structure based on the principle of functional regulation. The legislation eliminates the legal barriers to affiliations among banks and securities firms, insurance companies, and other financial services companies. The law also provides financial organizations with the opportunity to structure these new financial affiliations through a holding company structure or a financial subsidiary. The new law reserves the role of the Federal Reserve Board as the supervisor for bank holding companies. At the same time, the law provides a system of functional regulation, which is designed to utilize the various existing federal and state regulatory bodies.

The law also includes a minimum federal standard of financial privacy. Financial institutions are required to have written privacy policies that must be disclosed to customers. The disclosure of a financial institution's privacy policy must take place at the time a customer relationship is established and not less than annually during the continuation of the relationship. The act also provides for the functional regulation of bank securities activities. The law repeals the exemption that banks were afforded from the definition of "broker," and replaces it with a set of limited exemptions that allow the continuation of some historical broker activities performed by banks. In addition, the act amends the securities laws to include banks within the general definition of dealer. Regarding new bank products, the law provides a procedure for handling products sold by banks that have securities elements.

In the area of CRA activities, the law generally requires that financial institutions address the credit needs of low-to-moderate income individuals and neighborhoods in the communities in which they operate. Bank regulators are required to take the CRA ratings of a bank or of the bank subsidiaries of a holding company into account when acting upon certain branch and bank merger and acquisition applications filed by the institution. Under the law, financial holding companies and banks that desire to engage in new financial activities are required to have satisfactory or better CRA ratings when they commence the new activity. Most of the provisions of the law took effect on March 11, 2000, with other provisions being phased in over a one to two year period thereafter. It is anticipated that the effects of the law, while providing additional flexibility to bank holding companies and banks, may result in additional affiliations of different financial services providers, as well as increased competition, resulting in lower prices, more convenience, and greater financial products and services available to consumers.

USA Patriot Act. On October 26, 2001, President Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act"), which is designed to deny terrorists and others the ability to obtain access to the United States financial system. Title III of the USA Patriot Act is the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. Among its provisions, the USA Patriot Act mandates or will require financial institutions to implement additional policies and procedures with respect to, or additional measures, including additional due diligence and recordkeeping, designed to address, any or all of the following matters, among others: money laundering; suspicious activities and currency transaction reporting; and currency crimes. The U.S. Department of the Treasury in consultation with the Federal Reserve Board and other federal financial institution regulators has promulgated rules and regulations implementing the USA Patriot Act which (i) prohibits U.S. correspondent accounts with foreign banks that have no physical presence in any jurisdiction; (ii) require financial institutions to maintain certain records for correspondent accounts of foreign banks; (iii) require financial institutions to produce certain records relating to anti-money laundering compliance upon request of the appropriate federal banking agency; (iv) require due diligence with respect to private banking and correspondent banking accounts; (v) facilitate information sharing between the government and financial institutions; and (vi) require financial institutions to have in place a money laundering program. In addition, an implementing regulation under the USA Patriot Act regarding verification of customer identification by financial institutions has been proposed, although such regulation has not yet been finalized. The Company has implemented, and will continue to implement, the provisions of the USA Patriot Act as such provisions become effective. The Company currently maintains and will continue to maintain policies and procedures to comply with the USA Patriot Act requirements. At this time, the Company does not expect that the USA Patriot Act will have a significant impact on the financial position of the Company.

Federal Reserve System. FCBI is a bank holding company subject to the supervision and regulations of the Board of Governors of the Federal Reserve System ("Federal Reserve"). As such, the Company is required to file periodic reports and such other information as the Federal Reserve may deem necessary. The Federal Reserve also conducts examinations of the Company. The Federal Reserve maintains the position that the Company should serve as a source of financial and managerial strength for the Bank and may not conduct its operations in an unsound manner.

Corporate Governance. The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"), which became law on July 30, 2002, and added new legal requirements for public companies affecting corporate governance, accounting and corporate reporting.

The Sarbanes-Oxley Act provides for, among other things:

a prohibition on personal loans made or arranged by the issuer to its directors and executive officers (except for loans made by a bank subject to Regulation O);

independence requirements for audit committee members;

independence requirements for company auditors;

certification of financial statements on Forms 10-K and 10-Q, reports by the chief executive officer and chief financial officer;

the forfeiture by the chief executive officer and the chief financial officer of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by such officers in the twelve month period following the initial publication of any financial statements that later require restatement due to corporate misconduct;

disclosure of off-balance sheet transactions;

two-business day filing requirements for insiders filing Form 4s;

disclosure of a code of ethic for financial officers and filing a Form 8-K for a change in or waiver of such code;

the reporting of securities violations "up the ladder" by both in-house and outside attorneys;

restrictions on the use of non-GAAP financial measures in the press release and SEC filings;

the formation of a public accounting oversight board; and

various increase criminal penalties for violations of securities laws.

Recent Regulatory Developments

Changes in the federal deposit insurance program were recommended during 2003 by the FDIC and in the federal budget. A deposit insurance reform bill that would, among other things, merge the BIF and the SAIF, increase the index deposit insurance coverage, give the FDIC flexibility in setting premium assessments, and replace a fixed deposit reserve ratio with a reserve range, was passed by the House of Representatives in April 2003, but no action on the subject was taken by the Senate during the remainder of the year. It is not possible to predict if deposit insurance reform legislation will be enacted, or if enacted, what its effect will be on our banking subsidiary.

Federal banking regulators continued their preparations for the expected issuance by the Basel Committee on Banking Supervision of final "Basel II" regulatory capital guidelines, would mandate changes for large banks in the way in which their risk-based capital requirements are calculated. The guidelines are widely believed likely to permit significant reductions in the levels of required capital for such banks. It is uncertain at the present time if our banking subsidiary or the Holding Company will be either required to or permitted to make changes in the regulatory capital structure in accordance with Basel II guidelines.

The foregoing is necessarily a general description of certain provisions of federal and state law and does not purport to be complete. Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any such changes and the impact such changes might have on the Company cannot be determined at this time.

Available Information

The Company presently maintains an internet website located at www.floridacommunitybank.net on which, among other things, the Company makes available, free of charge, select reports that it files with the Securities and Exchange Commission.

Also, paper copies of the Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and a copy of the Company Code of Ethics as adopted and filed with the Securities and Exchange Commission are available at no charge because all reports are currently not on the Company's website. Those who would like a paper copy should contact Guy W. Harris, Chief Financial Officer, Florida Community Banks, Inc., 1400 North 15th Street, Immokalee, Florida 34142. Currently periodic reports are filed with the Securities and Exchange Commission (including Form 10-Ks, Form 10-Qs, Proxy Statements, etc.). These periodic reports are filed electronically via EDGAR and they can be reviewed at the Securities and Exchange Commission's website: www.sec.gov.

ITEM 1A.

RISK FACTORS

Industry Factors

The commercial banking business can be affected by general business, economic and market conditions. Our business and earnings are affected by conditions that include short-term and long-term interest rates, inflation, deflation, money supply, fluctuations in both debt and equity capital markets and the strength of the U.S. and local economy. The local economy can be affected by weather conditions that include but are not limited to tropical storms, hurricanes and below freezing temperatures. For example, an economic downturn that suddenly decreased property values, caused an increase in unemployment, or other events that negatively impact household and/or corporate customers could decrease ability to pay interest or principal on loans or cause a decrease in the demand for the Company's products and services.

The fiscal and monetary policy of the Board of Governors of the Federal Reserve System can significantly affect the earnings of the Company. The Federal Reserve generally sets the cost of funds for lending and investing and the return we earn on loans and investments, which in turn has an impact on our net interest margin. The rate policy can also affect the value of financial instruments we hold such as debt securities. The Federal Reserve policy is hard to predict and beyond the control of the Company.

The Company is subject to extensive governmental regulation. The regulations are designed for the protection of the depositors, federal deposit insurance funds, federal crimes prevention and the banking system as a whole. Federal and state law limits the Company's ability to declare and pay dividends. Also, failure to comply with laws, regulations or policies could result in sanctions by the regulatory agencies and damage to our reputation. Changes to regulations, including changes in interpretation or implementation of statures, regulations or policies can have a substantial and unpredictable effect on the Company; refer to the discussions in Item 1 - Business and Note 12 - Regulatory Capital Matters.

Company Factor

There is no established trading market for the Company's stock, and there can be no assurance that a trading market will develop during the near future. See Item 5 - Market for the Registrants Common Equity And Related Shareholder Matters.

The Company continuously is adapting to changes to mitigate risks that challenge the success of the business. If the Company were unable to fully adjust to any specific risk, or make changes imposed by the risk environment, it could have an effect on financial performance. The Company competes, and will continue to compete, with well established banks, credit unions, insurance companies and other financial institutions, some of which have greater resources and lending limits than the Company. Some of these competitors may also provide certain services that the Company does not provide.

If a significant number of loans are not repaid, it would have an adverse effect on our earnings and overall financial condition. Like all financial institutions, we maintain an allowance for loan losses to provide for losses inherent in the loan portfolio. The allowance for loan losses reflects our management’s best estimate of probable losses in the loan portfolio at the relevant balance sheet date. This evaluation is primarily based upon a review of our and the banking industry’s historical loan loss experience, known risks contained in the loan portfolio, composition and growth of the loan portfolio, and economic factors. However, the determination of an appropriate level of loan loss allowance is an inherently difficult process and is based on numerous assumptions. As a result, our allowance for loan losses may not be adequate to cover actual losses, and future provisions for loan losses may adversely affect our earnings.

A significant portion of our loan portfolio consists of mortgages secured by real estate located in the Charlotte/Hendry/Glades/Collier/Lee County markets. Real estate values and real estate markets are generally 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 reduced. Such a reduction in the value of our collateral could increase the number of non-performing loans and adversely affect our financial performance.

Our success is largely dependent on the personal contacts of our officers and employees in our market areas. If we lose key employees, temporarily or permanently, our business could be hurt. We could be particularly hurt if our key employees went to work for our competitors. Our future success depends on the continued contributions of our existing senior management personnel, including our President and Chief Executive Officer Stephen L. Price and our market area Presidents.

Our directors, if acting together, will be able to significantly influence all matters requiring approval by our shareholders, including elections of directors and the approval of mergers or other business combination transactions. Our executive officers and directors own approximately 1,169000 shares, representing approximately 15% of the total number of shares outstanding. The interest of these shareholders may differ from the interests of our other shareholders, and these shareholders, acting together, will be able to influence all matters requiring approval by shareholders. As a result, these shareholders could approve or cause us to take actions of which you may disapprove or that may be contrary to your interests and those of other investors.

Our primary market areas are Charlotte/Hendry/Glades/Collier/Lee Counties, Florida. The banking business in these areas is extremely competitive, and the level of competition facing us following our expansion plans may increase further, which may limit our asset growth and profitability. Our subsidiary bank experiences competition in both lending and attracting funds from other banks, savings institutions, and non-bank financial institutions located within its market area, many of which are significantly larger institutions. Non-bank competitors competing for deposits and deposit type accounts include mortgage bankers and brokers, finance companies, credit unions, securities firms, money market funds, life insurance companies and the mutual funds industry. For loans, we encounter competition from other banks, savings associations, finance companies, mortgage bankers and brokers, insurance companies, small loan and credit card companies, credit unions, pension trusts and securities firms.

We have the power to issue common stock without shareholder approval, up to the number of authorized shares set forth in our Articles of Incorporation. Our board of directors may determine from time to time a need to obtain additional capital through the issuance of additional shares of common stock or other securities, subject to limitations imposed by the Federal Reserve Board. There can be no assurance that such shares can be issued at prices or on terms better than or equal to the terms obtained by our current shareholders. The issuance of any additional shares of common stock by us in the future may result in a reduction of the book value or market price, if any, of the then-outstanding common stock. Issuance of additional shares of common stock will reduce the proportionate ownership and voting power of our existing shareholders.

Pursuant to our Articles of Incorporation, we have the authority to issue additional series of preferred stock and to determine the designations, preferences, rights and qualifications or restrictions of those shares without any further vote or action of the shareholders. The rights of the holders of our common stock will be subject to, and may be materially adversely affected by, the rights of the holders of any preferred stock that may be issued by us in the future.

Our shares of common stock are not deposits, savings accounts or other obligations of the Company, our subsidiaries or any other depository institution, are not guaranteed by the Company or any other entity, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

We may need to incur additional debt or equity financing in the near future to fund future growth and meet our capital needs. We cannot assure you that such financing will be available to us on acceptable terms or at all. If we are unable to obtain future financing, we may not have the resources available to fund our planned growth.

Additional risk factors could have a negative impact on the Company and its performance. Many of these factors are general economic and financial market conditions, competition, consolidation of the financial services industry, litigation, regulatory actions and operating conditions.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

For the description of the property of the Company, see "ITEM I - BUSINESS - Facilities."

ITEM 3.

LEGAL PROCEEDINGS

On October 17, 2008, Florida Community Banks, Inc.’s wholly-owned subsidiary, Florida Community Bank (“Bank”), the Florida Office of Financial Regulation (“OFR”) and the Federal Deposit Insurance Corporation (“FDIC”) entered into a Stipulation and Consent of Entry of Order to Cease and Desist, which incorporated by reference an Order to Cease and Desist for the Bank (“Order”). A description of the Order is contained under ITEM 1. – Business – Regulatory Environment.

A copy of this Order was included in the September 30, 2008 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 Cease & Desist Order Agreement, however as of this filing the Bank was not in compliance with all of the items. The Bank has recruited three new directors, but only one to date has been approved by the OFR; approval of the other two are still pending. The Bank’s capital ratios have fallen below the minimums required by the Order; as of December 31, 2008 the Tier 1 Leverage Capital Ratio was 7.17%, the Tier 1 Risk Based Capital ratios was 9.38% and the Total Risk Based Capital Ratio was 10.67%. As of March 31, 2009, the Capital ratios are projected to decrease further. Management is reviewing and weighing all of its opinions for increasing capital and is actively trying to reduce the size of the Bank by selling non-performing assets, which will improve the capital ratios. On February 13, 2009, FCBI entered into a written agreement with the Federal Reserve Bank of Atlanta (“Agreement”). A description of the Agreement is contained under ITEM 1. – Business – Regulatory Environment and a copy of the Agreement is included as Exhibit 10.10 to this Form 10-K.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of 2008.

PART II

ITEM 5.

MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

There has been no established trading market for the Company's Common Stock, $0.01 par value (the "Common Stock"), which has been traded inactively in private transactions or Over the Counter (OTC) through brokers.

Management has reviewed the limited information available as to the ranges at which the Common Stock has been sold and is aware of trades that occurred during 2007 and 2008. To the best of management's knowledge, the last private trade in December was executed at a price of $5.00 per share; the closing price at December 31, 2008 as listed on E*TRADE was $4.25 per share. The per share price data regarding the Common Stock is provided for information purposes only and should not be viewed as indicative of the actual or market value of the Common Stock. The dividends paid on Common Stock (split-adjusted) during 2007 are disclosed.

	Estimated Price Range Per Share				Dividends Declared on Common Stock
	High		Low		(Per Share)

2008 :
First Quarter	$	24.00	$	18.00	$	0.000
Second Quarter		23.00		4.00		0.000
Third Quarter		7.00		4.85		0.000
Fourth Quarter		12.00		4.00		0.000

	Estimated Price Range Per Share				Dividends Declared on Common Stock
	High		Low		(Per Share)

2007 (Split Adjusted):
First Quarter	$	29.58	$	27.71	$	0.000
Second Quarter		29.79		29.38		0.210
Third Quarter		30.00		29.79		0.000
Fourth Quarter		30.00		19.72		0.210

As of March 10, 2009, there were 7,918,217 shares of Common Stock outstanding held by approximately 1,200 shareholders of record.

The payment of future dividends will be at the sole discretion of the Company's board of directors and will depend on, among other things, future earnings, capital requirements, the general financial condition of the Company, and general business conditions.

Equity compensation plan

At their Annual Meeting, the Bank's shareholders adopted the 2002 Key Employee Stock Compensation Program ("Employee Program"), which was assumed by FCBI upon its acquisition of the Bank. Stock options granted under the Employee Program are generally granted with an exercise price equal to the fair market value of the Company's stock at the date of grant. Stock options generally vest over four years of continuous service and have a ten year contractual term. Certain options provide for accelerated vesting if there is a change of control (as defined in the plan), The following table reflects the number of shares to be issued upon the exercise of options granted under the Employee Program, the weighted-average exercise price of all such options, and the total number of shares of common stock reserved for the issuance upon the exercise of authorized, but not-yet-granted options, as of December 31, 2008.

Plan Category	Number of Securities to be Issued Upon the Exercise of Outstanding Options		Weighted-average Exercise Price of Outstanding Options		Number of Equity Securities Remaining Available for Future Issuance Under Equity Compensation Plan

Equity Compensation Plans
Approved by Shareholders		248,564	$	9.82		63,485
Equity Compensation Plans
Not Approved by Shareholders		—		0.00		—

Total		248,564	$	9.82		63,485

ITEM 6.

SELECTED FINANCIAL DATA

The following table presents on a historical basis selected financial data and ratios for the Company. All averages are daily averages.

	Years Ended December 31,
	2008			2007			2006			2005			2004
	(Dollars in thousands except per share data)

Earnings Summary:
Interest income	$	47,235		$	77,417		$	85,575		$	57,788		$	39,550
Interest expense		33,171			38,390			34,365			17,385			9,200
Net interest income		14,064			39,027			51,210			40,403			30,350
Provision for loan losses		69,130			6,868			2,296			1,762			1,971
Net interest income (expense) after provision for loan losses		(55,066	)		32,159			48,914			38,641			28,379
Noninterest income		2,287			2,828			3,916			3,914			3,808
Noninterest expense		34,408			17,664			15,069			12,933			12,251
Income (loss) before income taxes		(87,187	)		17,323			37,761			29,622			19,936
Income tax expense (benefit)		(33,892	)		6,414			14,615			11,404			7,694
Net income (loss)		(53,295	)		10,909			23,146			18,218			12,242

Per Common Share Data:
(Retroactively adjusted for effects of stock dividends and stock splits)
Net income (loss) - basic	$	(6.73	)	$	1.38		$	2.93		$	2.31		$	1.57
Net income (loss) - diluted		(6.70	)		1.36			2.90			2.29			1.55
Cash dividends declared per common share		0.00			0.42			0.35			0.29			0.24

Selected Average Balances:
Total assets	$	974,376		$	982,935		$	1,003,937		$	791,418		$	588,771
Total loans		701,334			812,603			876,604			670,885			490,521
Securities		180,574			124,816			75,513			70,213			43,567
Earning assets		905,872			950,125			968,125			750,433			552,930
Deposits		793,750			790,483			831,112			640,504			483,135
Long-term borrowings		82,828			81,491			80,369			70,912			50,762
Shareholders' equity		89,437			98,387			80,113			62,280			48,365
Shares outstanding (split adjusted, in thousands)		7,918			7,909			7,890			7,885			7,804

Selected Period-End Balances:
Total assets	$	979,369		$	942,674		$	1,016,677		$	907,082		$	660,864
Total loans		624,635			761,431			869,608			791,609			552,509
Securities		206,730			141,410			106,704			66,242			74,265
Earning assets		866,060			907,043			977,911			863,042			627,722
Deposits		845,429			753,658			835,462			737,256			520,585
Long-term borrowings		80,929			85,929			85,929			70,334			70,310
Shareholders' equity		44,629			98,205			90,567			70,076			52,928
Shares outstanding (split adjusted, in thousands)		7,918			7,909			7,909			7,885			7,804

Selected Ratios:
Return on average equity		(59.59	)%		11.09	%		28.89	%		29.25	%		25.31	%
Return on average assets		(5.47	)		1.11			2.31			2.30			2.08
Net interest margin		1.59			4.15			5.30			5.39			5.50
Allowance for loan losses to loans		5.83			2.40			1.56			1.46			1.77
Net charge-offs to average loans		7.28			0.26			0.03			0.00			0.05
Average equity to average assets		9.18			10.01			7.98			7.87			8.21

Cash Dividends Declared	$	0		$	3,296		$	2,747		$	2,289		$	1,883

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this discussion is to focus on significant changes in the financial condition and results of operations of the Company during the past three years. The discussion and analysis is intended to supplement and highlight information contained in the accompanying consolidated financial statements and the selected financial data presented elsewhere in this report.

ITEM 7A.

QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Forward-Looking Statements

This report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, and documents incorporated herein by reference, may contain certain statements relating to the future results of the Company based upon information currently available. These "forward-looking statements" (as defined in Section 21E of The Securities and Exchange Act of 1934) are typically identified by words such as "believes", "expects", "anticipates", "intends", "estimates", "projects", and similar expressions. These forward-looking statements are based upon assumptions the Company believes are reasonable and may relate to, among other things, the allowance for loan loss adequacy, simulation of changes in interest rates and litigation results. Such forward-looking statements are subject to risks and uncertainties some of which are discussed in more detail in Item 1A. Risk Factors, which could cause the Company's actual results to differ materially from those included in these statements. These risks and uncertainties include, but are not limited to, the following: (1) changes in political and economic conditions; (2) interest rate fluctuations; (3) competitive product and pricing pressures within the Company's markets; (4) equity and fixed income market fluctuations; (5) personal and corporate customers' bankruptcies; (6) inflation; (7) acquisitions and integration of acquired businesses; (8) technological changes; (9) changes in law; (10) changes in fiscal, monetary, regulatory and tax policies; (11) monetary fluctuations; (12) success in gaining regulatory approvals when required; and (13) other risks and uncertainties listed from time to time in the Company's SEC reports and announcements.

General

The Company, through its subsidiary bank, conducts a commercial banking business, which consists of attracting deposits from the general public and applying those funds to the origination of commercial, consumer and real estate loans (including commercial loans collateralized by real estate). The Company's profitability depends primarily on net interest income, which is the difference between interest income generated from interest-earning assets (i.e., loans and investments) less the interest expense incurred on interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rate paid and earned on these balances. Net interest income is dependent upon the Company's interest rate spread, which is the difference between the average yield earned on its interest-earning assets and the average rate paid on its interest-bearing liabilities. When interest earning assets approximates or exceeds interest-bearing liabilities, any positive interest rate spread will generate interest income. The interest rate spread is impacted by interest rates, deposit flows and loan demand. Additionally, and to a lesser extent, the Company's profitability is affected by such factors as the level of non-interest income and expenses, the provision for loan losses and the effective tax rate. Non-interest income consists primarily of deposit account service charges and other customer service fees. Non-interest expenses consist of compensation and benefits, occupancy-related expenses, and other expenses.

Summary

Net loss for 2008 was $53,297,676, a 586% decrease from 2007 net income of $10,909,219. Net income for 2007 was $10,909,219, a 53% decrease from 2006 net income of $23,146,069. Net income for 2006 was $23,146,069, a 27% increase over 2005 net income. Diluted net income (loss) per common share for 2008 was $(6.70) compared to $1.36 in 2007 and $2.90 in 2006.

The decrease in net income from 2006 through 2008 was primarily attributable to the depressed real estate economy in Southwest Florida; non-performing assets increased 78.7% to $212.6 million resulting in $51.1 million in net loan charge-offs and $9.5 million OREO writedowns. The decrease in net income from 2006 to 2007 was primarily due to the worsening real estate economy in 2007, which resulted in non-performing assets increasing 118% to $119 million; net loan charge-offs and OREO writedowns in 2007 were $2.1 million and $90 thousand, respectively. The increase in net income from 2005 to 2006 was driven primarily by loan growth, with average loans increasing 30.7%.

Earning Assets

During 2008, earning assets averaged $906 million, a decrease of $44 million (4.6%) from 2007. During 2007, earning assets averaged $950 million, a decrease of $18 million (1.9%) over 2006. During 2006, earning assets averaged $968 million, an increase of $218 million (29.0%) over 2005.

The management of the Company considers many criteria in managing earning assets, including creditworthiness, diversification, maturity, and interest rate sensitivity. The following table sets forth the Company's interest-earning assets by category at December 31, in each of the last three years.

	December 31,
	2008		2007		2006
	(In thousands)

Interest-bearing deposits with banks	$	6,246	$	1,868	$	1,499
Securities		206,730		141,410		106,704
Federal funds sold		28,450		2,334		100
Loans:
Real estate (1)		572,706		710,951		822,540
Commercial and other		51,928		50,480		47,068
Total loans		624,634		761,431		869,608

Interest-earning assets	$	866,060	$	907,043	$	977,911

(1) Real Estate loans included loans held-for-sale.

Loan Portfolio

Loan and deposit growth is emphasized in each market the Company operates. The Company has been successful in competing for loans against other larger institutions due primarily to a lending strategy that includes direct involvement by local management. Different customers require different solutions to their financial needs and appreciate local banking officers that understand the local environment and can provide for their business requirements.

Average loans decreased $111 million (13.7%) in 2008 compared to 2007. A significant portion of that decrease was due to foreclosures. New loan volume was down as a result of the depressed real estate economy that started slowing down during the latter half of 2006 , recognizing the impending slow down management tightened its lending standards, which resulted in fewer loans being made.

Average loans decreased $64 million (7.3%) in 2007 compared to 2006. The decrease in loans was a result of the depressed real estate economy that started slowing down during the latter half of 2006. Recognizing the impending slow down management tightened its lending standards, which resulted in fewer loans being made.

Average loans increased $206 million (31%) in 2006 compared to 2005. The increase in loans was a result of the growth of the bank and the ability to make larger loans as well as the tremendous growth in the real estate construction loan market. Loan growth was again funded primarily by the issuance of broker certificate of deposits, as well as by the growth in the bank’s core deposits, namely demand deposits, money market and savings.

The following table sets forth the balances in certain categories of loans at December 31 for each of the five years ending December 31, 2008.

Loan Portfolio

	December 31,
	2008						2007						2006						2005						2004
	Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total
	(Dollars in Thousands)

Commercial, financial and agricultural	$	44,290			7.08	%	$	42,718			5.60	%	$	41,575			4.77	%	$	37,309			4.69	%	$	51,378			9.26	%
Real estate - construction		328,673			52.55			414,738			54.37			478,085			54.80			467,854			58.81			270,016			48.69
Real estate - mortgage		243,877			38.99			296,213			38.83			344,309			39.47			280,230			35.22			222,374			40.10
Consumer		6,534			1.04			6,112			0.80			6,275			0.72			7,502			0.94			8,086			1.46
Loans held-for-sale		156			0.02			—			0.00			146			0.02			300			0.04			576			0.10
Other		1,986			0.32			3,006			0.40			2,008			0.22			2,356			0.30			2,181			0.39
		625,516			100.00	%		762,787			100.00	%		872,398			100.00	%		795,551			100.00	%		554,611			100.00	%

Unearned income		(881	)					(1,356	)					(2,790	)					(3,942	)					(2,102	)
Allowance for loan losses		(36,390	)					(18,309	)					(13,590	)					(11,523	)					(9,791	)

Net loans	$	588,245					$	743,122					$	856,018					$	780,086					$	542,718

The following table shows the maturity distribution of selected loan classifications at December 31, 2008, and an analysis of those loans maturing in over one year:

Selected Loan Maturity and Interest Rate Sensitivity

	Maturity								Rate Structure for Loans Maturing Over One Year
	One Year or Less		Over One Year Through Five Years		Over Five Years		Total		Predetermined Interest Rate		Floating or Adjustable Rate
	(Amounts in thousands)

Commercial, financial and agricultural	$	30,856	$	13,434	$	—	$	44,290	$	8,422	$	5,012
Real estate – construction		219,699		85,338		3,651		328,673		85,403		23,571

Total	$	250,555	$	118,757	$	3,651	$	372,963	$	93,825	$	28,583

For the purposes of this schedule, loans that have reached the fixed contractual floor rate are treated as having a pre-determined interest rate.

Securities Portfolio

The securities portfolio increased by $65.3 million or 46.0% from 2007 to 2008. The securities portfolio increased by $34.7 million or 32.5% from 2006 to 2007. The securities portfolio increased by $41 million or 62.3% from 2005 to 2006. The increase in securities in 2008 was done to increase the bank’s liquidity position; increases in 2007 and 2006 were done to make the portfolio less sensitive to falling interest rates, as well as to increase the bank’s liquidity position.

The Company maintains an investment strategy of seeking portfolio yields within acceptable risk levels, as well as providing liquidity through borrowings secured by that portfolio. On a daily basis, funds available for short-term investment are determined. Funds available for long-term investment are projected based upon anticipated loan and deposit growth, liquidity needs, pledging requirements, maturities of securities, and other factors. The Company holds two classifications of securities: "Held-to-Maturity" and "Other Investment Securities." Other Investment Securities are carried at cost at year-end 2008, 2007 and 2006. Held-to-Maturity securities are carried at amortized cost and represent the largest portion of the total securities portfolio. At December 31, 2008, 2007 and 2006 there were no material unrealized gains (losses) in the Other Investment Securities. At December 31, 2008, net unrealized gains in the Held-to-Maturity portfolio amounted to $3,685,360. At December 31, 2007 and 2006, net unrealized gains (losses) in the Held-to-Maturity portfolio amounted to $689,941 and ($1,133,080), respectively.

The following table presents the carrying amounts of the securities portfolio at December 31, in each of the last three years.

Securities Portfolio

	December 31,
	2008		2007		2006
	(In thousands)

Held-to-Maturity:
FHLB and FHLMC agency notes	$	19,486	$	18,491	$	12,531
State and Municipal securities		20,798		20,787		16,765
Mortgage-backed securities		159,341		96,532		71,813
Total Held-to-Maturity		199,625		135,810		101,109

Other Investment Securities		7,105		5,600		5,595

Total Securities	$	206,730	$	141,410	$	106,704

The following table indicates the respective contractual maturities and weighted average y4ields of securities (dollars in thousands). Taxable equivalent adjustments, using a 30 percent tax rate, have been made in calculating yields on the tax-exempt obligations.

Security Portfolio Maturity Schedule

	Maturing
	Within One Year					After One But Within Five Years					After Five But Within Ten Years					After Ten Years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Amounts in thousands, except percentages)
Securities Held-to-Maturity
FHLB and FHLMC agency notes	$	—		0.00	%	$	9,502		4.73	%	$	5,970		6.08	%	$	4,014		5.85	%
State and municipal securities		—		0.00			—		0.00			904		5.43			19,894		5.76
Mortgage-backed securities		—		0.00			—		0.00			30,784		4.99			128,557		5.16

Other Investment Securities
Other investment securities		—		0.00			—		0.00			—		0.00			7,105		3.18

Total Securities	$	—		0.00		$	9,502		4.73		$	37,658		5.17		$	159,570		5.16

There were no securities held by the Company of which the aggregate value at December 31, 2008, 2007 and 2006 exceeded ten percent of shareholders' equity at that date. (Securities, which are payable from, and secured by the same source of revenue or taxing authority, are considered to be securities of a single issuer. Securities of the U.S. Government and U.S. Government agencies and corporations are not included.)

Deposits and Borrowed Funds

Average deposits increased $3.3 million (0.41%) in 2008 compared to 2007. Average deposits decreased $40.6 million (4.9%) in 2007 compared to 2006. Average deposits increased $191 million (29.8%) in 2006 compared to 2005. In 2008, the largest growth area was in retail certificate of deposits, which increased $162.2 million or 115.8.% in total; brokered certificate of deposits increased $44.1 million or 14.3% in total; money market, non-interest and interest bearing demand deposits and savings decreased $113.5 million or 37.2% in total; this decline was primarily due to depositors seeking higher yields as rates fell during 2008. In 2007, the largest growth area was in money markets, which grew on average $27.7 million or 16.1%, however deposits on a whole declined due to the slowing economy; brokered certificate of deposits were reduced by approximately $56 million in 2007. In 2006, the largest growth area was in super money markets, which increased $72 million or 79.7% in total; broker certificate of deposits increased $45.1 million or 14.1% and local area certificate of deposits increased $18.4 million or 22.2%; non-interest and interest bearing demand deposits and savings and regular money markets decreased $37.5 million in total.

The following table sets forth the Company's deposit structure at December 31 in each of the last three years.

	December 31,
	2008	2007		2006
	(In thousands)

Noninterest-bearing deposits:
Individuals partnerships and corporations	$ 51,334		$ 59,415	$ 96,885
U.S. Government and states and political subdivisions	7,473		7,213	8,127
Certified and official checks	1,667		6,007	4,469
Total noninterest bearing deposits	60,474		72,635	109,481

Interest-bearing deposits:
Interest - bearing demand accounts	22,386		25,749	40,624
Savings accounts	107,279		206,290	219,013
Certificates of deposit, less than $100,000	284,837		93,705	63,246
Certificates of deposit, more than $100,000	370,453		355,279	403,098
Total interest bearing deposits	784,955		681,023	725,981

Total deposits	$845,429		$753,658	$ 835,462

The following table presents a breakdown by category of the average amount of deposits and the weighted average rate paid on deposits for the periods indicated:

	Years Ended December 31,
	2008					2007					2006
	Amount		Rate			Amount		Rate			Amount		Rate
	(Dollars in thousands)

Noninterest bearing deposits	$	64,233		0.00	%	$	86,371		0.00	%	$	122,354		0.00	%
Interest-bearing demand deposits		23,381		0.84			31,934		0.87			42,533		0.88
Savings deposits		165,772		2.64			223,356		4.52			201,919		4.23
Time deposits		540,364		4.55			448,822		5.12			464,306		4.48

Total deposits	$	793,750		3.67		$	790,483		4.22		$	831,112		3.58

At December 31, 2008, time deposits of $100,000 or greater aggregated approximately $370.5 million. The following table indicates, as of December 31, 2008, the dollar amount of $100,000 or more time deposits by the time remaining until maturity (in thousands):

Maturities of Large Time Deposits

(In thousands)

Three months or less	$	68,720
Over three through six months		39,479
Over six through twelve months		64,220
Over twelve months		198,034

Total	$	370,453

At December 31, 2008, borrowed funds consisted of $80.9 million in long-term debt. The Bank had $50,000,000 in secured lines to purchase federal funds, of which $50,000,000 was available at December 31, 2008. The Bank had a separate line with the Federal Reserve Bank of Atlanta, secured by loans, which $20,000,000 was available on an overnight basis. At December 31, 2007, borrowed funds consisted of $85.9 million in long-term debt. The Bank had $15,000,000 in unsecured lines to purchase federal funds and $50,000,000 in secured lines, of which $65,000,000 was available at December 31, 2007. The Bank had a separate line with the Federal Reserve Bank of Atlanta, secured by loans, which $9,000,000 was available, and the Company had a $5,000,000 line of credit with another financial institution that was available for borrowing purposes. At December 31, 2006, borrowed funds consisted of $694 thousand in short-term (overnight) borrowing and $85.9 million in long-term debt.

At December 31, 2008, the Bank had credit available of approximately $98 million with the Federal Home Loan Bank of Atlanta, of which $48 million was available and unused. The ability to utilize the remaining line is dependent on the amount of eligible collateral that is available to pledge to the Federal Home Loan Bank, which at December 31, 2008, was approximately $25 million. The line is secured by investment securities and residential real estate loans. At December 31, 2007, the Bank had credit available of approximately $140 million with the Federal Home Loan Bank of Atlanta, of which $85 million was available and unused. The ability to utilize the remaining line is dependent on the amount of eligible collateral that is available to pledge to the Federal Home Loan Bank, which at December 31, 2007, was approximately $25 million. The line is secured by investment securities and residential real estate loans at December 31, 2007. At December 31, 2006, the Bank had credit available of approximately $151 million with the Federal Home Loan Bank of Atlanta, of which $96 million was available and unused. The ability to utilize the remaining line is dependent on the amount of eligible collateral that is available to pledge to the Federal Home Loan Bank, which at December 31, 2006, was approximately $33 million. The line is secured by residential and commercial real estate loans and investment securities at December 31, 2006.

The following table sets forth the expected debt service for the next five years based on interest rates and repayment provisions as of December 31, 2008.

Maturities of Long-term Debt

(In thousands)

	Years Ended December 31,
	2009		2010		2011		2012		2013

Interest on indebtedness	$	2,792	$	2,548	$	2,466	$	2,139	$	1,676
Repayment of principal		—		5,000		5,000		20,000		—

	$	2,792	$	7,548	$	7,466	$	22,139	$	1,676

Capital Resources

Shareholders' equity decreased $53.6 million to $44.6 million as of December 31, 2008, increased $7.6 million to $98.2 million as of December 31, 2007, and increased $20.5 million to $90.6 million as of December 31, 2006. The decrease in shareholders' equity for 2008 was attributable to a net loss for the year; no dividends were declared. The increase in shareholders’ equity for 2007 and 2006 was attributable to net income, less dividends declared.

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's 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"), a Delaware statutory trust was established by the Company, received $20,000,000 in proceeds in exchange for $20,000,000 principal amount of Trust II’s floating rate cumulative trust preferred securities. The proceeds of both the transactions were then used by the Trust’s 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 Trust’s on a subordinated basis with respect to the preferred securities. The Company does not consolidate the FCBI Trust preferred securities and accounts for the debenture’s issues to the Trust’s as debt. Subject to certain limitations, the preferred securities qualify as Tier 1 capital. The sole assets of the Trust’s are the subordinated debentures issued by the Company. Both the preferred securities of the Trust’s and the subordinated debentures of the Company each have approximately 30-year lives. However, both the Company and the Trust’s have a call option after five years, subject to regulatory capital requirements.

In December 2008, the Company elected to defer the interest payments on both trust preferred securities as allowed under the trust agreements. The deferral of interest is intended to conserve cash at the Parent Company until such time that the Bank becomes profitable again. Interest payments may be deferred up to 20 quarters; however, interest will still be accrued during the deferral period. It is estimated that this deferral will save approximately $2.7 million in payments over the next three years.

A strong capital position, which is vital to the continued profitability of the Company, also promotes depositor and investor confidence and provides a solid foundation for the future growth of the organization. The objective of management is to maintain a level of capitalization that is sufficient to take advantage of profitable growth opportunities while meeting regulatory requirements. This is achieved by improving profitability through effectively allocating resources to more profitable businesses, improving asset quality, strengthening service quality, and streamlining costs. The primary measures used by management to monitor the results of these efforts are the ratios of return on average assets, return on average common equity and average equity to average assets.

The table below summarizes these and other key ratios for the Company for each of the last three years.

Return on Equity and Assets

	December 31,
	2008	2007		2006

Return on average assets	(5.47)%		1.11%	2.31%
Return on average common equity	(59.59)		11.09	28.89
Dividend payout ratio	0 .00		30.21	11.87
Average common shareholders' equity to average assets ratio	9.18		10.01	7.98

In addition, bank holding companies are required to maintain capital to support, on a risk-adjusted basis, certain off-balance sheet activities such as loan commitments. The Federal Reserve has adopted capital guidelines governing the activities of bank holding companies. These guidelines require the maintenance of an amount of capital based on risk-adjusted assets so that categories of assets with potentially higher credit risk will require more capital backing than assets with lower risk.

The capital guidelines classify capital into two tiers, referred to as Tier I and Tier II. Under risk-based capital requirements, Total Capital consists of Tier I Capital, which is generally common shareholders' equity less goodwill, and Tier II Capital, which is primarily a portion of the allowance for loan losses and certain qualifying debt instruments. In determining risk-based capital requirements, assets are assigned risk-weights of 0% to 100%, depending primarily on the regulatory assigned levels of credit risk associated with such assets. Off-balance sheet items are considered in the calculation of risk-adjusted assets through conversion factors established by the regulators. The framework for calculating risk-based capital requires banks and bank holding companies to meet the regulatory minimums of 4% Tier I and 8% total risk-based capital. In 1990 regulators added a leverage computation to the capital requirements, comparing Tier I Capital to total average assets less goodwill. Banks have similar capital requirements.

The table below illustrates the Company's regulatory capital ratios under federal guidelines at December 31, 2008, 2007 and 2006:

Capital Adequacy Ratios

	Statutory			Years ended December 31,
	Minimum			2008			2007			2006
				(Amounts in thousands)

Tier I Capital				$	59,977		$	128,205		$	120,567
Tier II Capital					25,089			10,487			12,267
Total Qualifying Capital				$	85,066		$	138,692		$	132,834
Risk Adjusted Total Assets (including off-balance sheet exposures)				$	780,312		$	831,138		$	980,017
Adjusted quarterly average assets				$	1,021,230		$	958,338		$	1,023,119
Tier I Capital Ratio		4.00	%		7.69	%		15.43	%		12.30	%
Total Capital Ratio		8.00			10.90			16.69			13.55
Leverage Ratio		4.00			5.87			13.38			11.78

Information on the Bank capital ratios appears in Note 12 to the consolidated financial statements contained elsewhere herein.

On December 31, 2008, the Company and the Bank exceeded the regulatory minimums and qualified as well capitalized institutions under the regulations.

Liquidity Management

Liquidity is the ability of a company to convert assets into cash without significant loss and to raise funds by increasing liabilities. Liquidity management involves having 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. Additionally the Parent Company requires cash for various operating needs including dividends to shareholders, the servicing of debt, and the payment of general corporate expenses. The primary source of liquidity for FCBI is dividends from the subsidiary bank. At December 31, 2008, the subsidiary bank was not capable of paying dividends to FCBI, per the agreement with the “OFR”, as it would further reduce the Bank’s capital levels. The Parent Company however has sufficient cash on hand to meet its obligations and operating needs for at least three years.

The primary function of asset/liability management is not only to assure adequate liquidity in order for the Bank to meet the needs of its customer base, but to maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities so that the Bank can remain profitable in varying interest rate environments. 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 loan repayments and maturities of or pledge of securities. Additional sources of liquidity are investments in federal funds sold and prepayments from the mortgage-backed securities in the securities portfolio.

The liability portion of the balance sheet provides liquidity through various interest bearing and non-interest-bearing deposit accounts. The Bank had $50,000,000 and $65,000,000 of federal funds available at December 31, 2008 and 2007, respectively and the Company had $5,000,000 of credit line available at December 31, 2007. The Bank also had available as a source of financing, a line of credit with the Federal Home Loan Bank of Atlanta of which $47,475,000 and $85,000,000 was available and unused at December 31, 2008 and 2007, respectively, subject to the availability of assets to pledge to secure such borrowings (approximately $25,000,000 for both years). The Bank also as available a line of credit with the Federal Reserve Bank of Atlanta totaling $20,000,000 and $9,000,000 for December 31, 2008 and 2007 respectively, subject to the availability of assets (loans) to pledge to secure such borrowings.

Contractual Obligations

The Company has various contractual obligations that they must fund as part of their normal operations. The following table shows aggregate information about their contractual obligations, including interest, and the periods in which payments are due. The amounts and time periods are measured from December 31, 2008.

	Payments due by period (in thousands)
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Long-Term Debt	$	111,498	$	2,792	$	15,014	$	23,815	$	69,877
Operating Lease Obligations		14,181		1,096		2,222		2,263		8,600
Time Deposits		693,993		308,338		327,111		58,542		2

Total	$	819,672	$	312,226	$	344,347	$	84,620	$	78,479

Interest Rate Sensitivity Management

Interest rate sensitivity is a function of the re-pricing characteristics of the Company's portfolio of assets and liabilities. These re-pricing characteristics are the time frames within which the interest-bearing assets and liabilities are subject to change in interest rates either at replacement or maturity during the life of the instruments. Sensitivity is measured as the difference between the volume of assets and liabilities in the Company's current portfolio that is subject to re-pricing in future time periods. The differences are known as interest sensitivity gaps and are usually calculated separately for segments of time ranging from zero to thirty days, thirty-one to ninety days, ninety-one days to one year, one to five years, over five years and on a cumulative basis.

The following table shows interest sensitivity gaps for different intervals as of December 31, 2008.

Interest Rate Sensitivity Analysis

(In thousands)

		0-30		31-90			91-365			1-5		Over 5
	Days		Days			Days			Years			Years			Total

Interest-earning assets (1)
Loans	$	92,510	$	28,221		$	135,315		$	195,330		$	18,619		$	469,995
Securities and federal funds sold		35,902		—			—			21,450			177,828			235,180
Interest-bearing deposits in banks		6,246		—			—			—			—			6,246
		134,658		28,221			135,315			216,780			196,447			711,421
Interest-bearing liabilities (2)
Demand deposits (3)		7,462		7,462			7,462			—			—			22,386
Savings deposits (3)		35,760		35,760			35,759			—			—			107,279
Time deposits		39,034		52,700			210,314			353,240			2			655,290
Long-term borrowings		—		10,000			—			20,000			50,929			80,929
		82,256		105,922			253,535			373,240			50,931			865,884

Interest sensitivity gap	$	52,402	$	(77,701	)	$	(118,221	)	$	(156,460	)	$	145,516		$	(154,463	)

Cumulative interest sensitivity gap	$	52,402	$	(25,298	)	$	(143,519	)	$	(299,979	)	$	(154,463	)

Ratio of interest-earning assets to Interest-bearing liabilities		1.64		0.27			0.53			0.58			3.86

Cumulative ratio		1.64		0.87			0.68			0.63			0.82

Ratio of cumulative gap to total interest-earning assets		0.074		(0.036	)		(0.202	)		(0.422	)		(0.217	)

_________________________

(1)	Excludes nonaccrual loans. Securities maturities are based on projected re-payments at current interest rate levels.

(2)	Excludes matured certificates, which have not been redeemed by the customer and on which no interest is accruing.

(3)	Interests bearing demand and savings deposits are assumed to be subject to movement into other deposit instruments in equal amounts during the 0-30 day period, the 31-90 day period, and the 91-365 day period.

The above table indicates that in a increasing interest rate environment, the Company's earnings may be positively affected in the short-term (0-30 days) by the higher amount of interest earning assets compared to interest bearing-liabilities that will re-price higher, but negatively affected in the slightly longer-term, (31-365 days) due to interest-bearing liabilities re-pricing faster than earning assets. As seen in the preceding table, for the first 30 days of re-pricing opportunity there is an excess of earning assets over interest-bearing liabilities of approximately $52 million, but by the 365th day the excess in interest-bearing liabilities over assets has increased to approximately $144 million. However, if interest rates remain at or near the current levels during this time frame these liabilities will re-price lower and that will benefit or have a positive effect on the Bank’s net interest margin. Changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread and the level of interest-bearing assets and liabilities may change, thus impacting net interest income. It should be noted that a matched interest-sensitive position by itself does not ensure maximum net interest income.

Management continually evaluates the condition of the economy, the pattern of market interest rates, and other economic data to determine the types of investments that should be made and at what maturities. Using this analysis, management from time to time assumes calculated interest sensitivity gap positions to maximize net interest income based upon anticipated movements in the general level of interest rates.

Results of Operations

Net Interest Income

Net interest income is the principal component of a financial institution's income stream and represents the spread between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowings. The following discussion is on a fully taxable equivalent basis.

Net interest income decreased approximately $24.9 million (63.9%) to $14.1 million in 2008 compared to 2007. Net interest income decreased approximately $12.2 million (23.8%) to $39 million in 2007 compared to 2006. The decrease in 2008 and 2007 was primarily due to a decrease in average loans outstanding and an increase in non-performing loans; the increase’s in the preceding years (2006) was primarily due to increased volume in average loans outstanding during the periods.

Interest income was $47.2 million in 2008, which represented a decrease of $30.2 million (38.9%) over 2007. Interest income was $77.4 million in 2007, which represented a decrease of $8.2 million (9.5%) over 2006. Interest income was $85.6 million in 2006, which represented an increase of $27.8 million (48.0%) over 2005. The primary reason for the decrease in interest income in 2008 was the decrease in loans and rates during the year, combined with an increase in non-performing loans; average loans outstanding decreased approximately $111 million; a significant portion of the decrease was due to foreclosures; the prime rate decreased 400 basis points during the year (from 7.25% down to 3.25%) and non-performing loans averaged $113.5 million for the year, an increase of $61.3 million over 2007; approximately $5.9 million in interest income on non-performing loans was reversed in 2008. The decrease in interest income in 2007 was the beginning of what was realized in 2008, the increase in non-performing loans. The increase in interest income in 2006 was due to the tremendous loan growth that carried over from 2005 into the beginning of 2006; the average loan volume increased approximately $206 million compared to $180 million in 2005; also rates were significantly higher in 2006 than 2005.

Interest income on securities increased $2.8 million (47.4%) from 2007 to 2008. The increase was due to the purchase of approximately $85 million in securities throughout the year. Interest income on securities increased $2.6 million (77.4%) from 2006 to 2007. This increase was also due to the purchase of approximately $90 million in securities ($44 million in 2007) over the course of 2007 and 2006. The increases to the security portfolio provided the Bank with additional liquidity in the form of pledging to secure our borrowing lines and with interest rate protection when rates declined as they did in 2008.

Interest income, other than loans and securities, decreased by $326 thousand in 2008, decreased by $108 thousand in 2007, and increased by $464 thousand in 2006. In 2008, the average amount invested in fed funds sold was approximately $21.5 million, an increased of approximately $10 million over 2007, but the fed funds rate declined by 400 basis point during the year, significantly reducing the interest earned. In 2007, the average amount invested in fed funds sold was approximately $11.4 million, a decrease of approximate $3.3 million over 2006. In 2006, the average amount invested in fed funds sold was approximately $14.7 million, an increase of approximately $7.7 million over 2005.

Total interest expense in 2008 decreased by $5.2 million or 13.6%. The decrease was primarily due to lower rates, although lower volumes and a change in the deposit mix had an affect. Money market, now and savings balances averaged $66.1 million lower than in 2007, with yields that were approximately 190 basis points lower; certificate of deposits averaged $91.5 million higher than in 2007, with yields that were approximately 57 basis points lower. Total interest expense increased by $4 million (11.7%) in 2007 and by $17 million (97.7%) in 2006. The increase in interest expense in 2007 was primarily due to the changes in rates compared to 2006. The increase in interest expense in 2006 was caused by higher rates and a $199.5 million increase in average interest bearing liabilities. There was also significant change in the deposit mix with lower cost deposits (non-interest checking, now, savings and regular money market accounts) decreasing and the higher cost deposits (super money market and certificate of deposits) increasing.

The trend in net interest income is commonly evaluated by measuring the average yield on earning assets, the average cost of funds, and the net interest margin. The Company's average yield on earning assets (total interest income divided by average interest earning assets) decreased 35.9% in 2008 to 5.25% compared to 8.19% in 2007 and 8.85% in 2006. The impact of the non-performing loans, combined with the decrease in prime rate during 2008 had a negative affect on the yield. Higher rates in 2006 (the prime rate increase 17 times from June 2004 through June 2006) and the increases in the loan and security volumes resulted in the year over year increase for 2006. In line with the national interest rate markets, the Company's average cost of funds (total interest expense divided by average interest bearing liabilities) decreased to 4.06% in 2008, from 4.85% in 2007 and from 4.32% in 2006. The decrease in 2008 was due to lower rates and the change in deposit mix referred to above.

The Bank's net interest margin (net interest income divided by average interest earning assets) decreased in 2008 to 1.59% compared to 4.15% in 2007 and 5.30% in 2006. The decrease in 2008 was due to the significant increase in non-performing loans that occurred; the fact that the cost of funds decreased as well helped to minimized the decrease in the net interest margin. The decrease in 2007 was due to the increase in non-performing loans and the increase in the cost of funds. The decrease in 2006, compared to 2005, was caused primarily by the increase in the cost of funds.

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The tables that follow show, for the periods indicated the daily average balances outstanding for the major categories of interest-bearing assets and interest-bearing liabilities, and the average interest rate earned or paid thereon. Such yields are calculated by dividing income or expense by the average balance of the corresponding assets or liabilities. Also shown are the changes in income attributable to changes in volume and changes in rate.

Average Balances, Interest Income/Expense and Yields/Rates

Taxable Equivalent Basis

	Years Ended December 31,
	2008								2007								2006
	Average Balance			Interest Income/ Expense		Average Yields/ Rates			Average Balance			Interest Income/ Expense		Average Yields/ Rates			Average Balance			Interest Income/ Expense		Average Yields/ Rates
	(Dollars in thousands)
Assets:
Earning assets:
Loans, net of unearned income (1)(2)	$	701,334		$	38,087		5.43	%	$	812,603		$	70,812		8.71	%	$	876,604		$	81,474		9.29	%
Securities:
Taxable		159,782			8,021		5.02			104,565			5,194		4.97			71,353			3,221		4.51
Tax-exempt (2)		20,792			1,129		5.43			20,251			1,164		5.75			4,160			237		5.70
Total securities		180,574			9,150		5.07			124,816			6.358		5.09			75,513			3,458		4.58
Interest-bearing deposits in other banks		2,486			49		1.97			1,311			71		5.42			1,266			66		5.21
Federal funds sold		21,478			269		1.25			11,395			573		5.03			14,742			686		4.65
Total interest-earning assets (2)		905,872			47,555		5.25			950,125			77,814		8.19			968,125			85,684		8.85

Non-interest earning assets:
Cash and due from banks		10,586								11,765								19,433
Accrued interest and other assets		81,169								34,783								30,502
Allowance for loan losses		(23,445	)							(13.738	)							(14,123	)

Total Assets	$	974,376							$	982,935							$	1,003,937

Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Demand deposits	$	23,381			196		0.84	%	$	31,934			278		0.87	%	$	42,533			376		0.88	%
Savings deposits		165,772			4,374		2.64			223,356			10,104		4.52			201,919			8,548		4.23
Time deposits		540,364			24,599		4.55			448,822			22,999		5.12			464,306			20,817		4.48
Total deposits		729,517			29,169		4.00			704,112			33,381		4.74			708,758			29,741		4.20

Long-term borrowings		82,828			3,867		4.67			81,491			4,672		5.73			80,369			4,347		5.41
Short-term borrowings		4,123			135		3.27			6,201			336		5.42			5,518			277		5.02
Total interest-bearing Liabilities		816,468			33,171		4.06			791,804			38,389		4.85			794,645			34,365		4.32

Non interest-bearing liabilities:
Demand deposits		64,233								86,371								122,354
Accrued interest and other liabilities		4,238								6,373								6,825
Shareholders' equity		89,437								98,387								80,113
Total Liabilities and Shareholders' Equity	$	974,376							$	982,935							$	1,003,937

Net Interest Income/Net Interest Spread					14,384		1.19	%					39,425		3.34	%					51,319		4.53	%

Net yield on earning assets							1.59	%							4.15	%							5.30	%

Taxable Equivalent adjustments (2):
Securities					293								350								71
Loans					27								48								38
Total taxable equivalent Adjustment					320								398								109

Net interest income				$	14,064							$	39,027							$	51,210

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(1)	Average loans include nonaccrual loans. All loans and deposits are domestic.

(2)	Tax equivalent adjustments on securities and loans exempt from income taxes have been based on an assumed tax rate of 30 percent, and give effect to the disallowance for federal income tax purpose of interest expense related to certain tax-exempt earning assets.

The following tables set forth, for the years ended December 31, 2008, 2007 and 2006, a summary of the changes in interest income and interest expense resulting from changes in interest rates and in changes in the volume of earning assets and interest-bearing liabilities, segregated by category. The change due to volume is calculated by multiplying the change in volume by the prior year’s rate. The change due to rate is calculated by multiplying the change in rate by the prior year’s volume. The change attributable to both volume and rate is calculated by multiplying the change in volume by the change in rate. Figures are presented on a taxable equivalent basis.

Rate/Volume Variance Analysis

Taxable Equivalent Basis

	Average Volume						Change in Volume						Average Rate
	2008		2007		2006			2008-2007			2007-2006		2008			2007			2006
	(Dollars in thousands)
Earning assets:

Loans, net of unearned income (1)(2)	$	701,334	$	812,603	$	876,604	$	(111,269	)	$	(64,001	)		5.43	%		8.71	%		9.29	%

Securities
Taxable		159,782		104,565		71,353		55,217			33,212			5.02			4.97			4.51
Tax exempt (2)		20,792		20,251		4,160		541			16,091			5.43			5.75			5.70
Total Securities		180,574		124,816		75,513		55,758			49,303			5.07			5.09			4.58

Interest-bearing deposits with other banks		2,486		1,311		1,266		1,175			45			1.97			5.42			5.21
Federal funds sold		21,478		11,395		14,742		10,083			(3,347	)		1.25			5.03			4.65
Total Earning Assets (2)	$	905,872	$	950,125	$	968,125	$	(44,253	)	$	(18,000	)		5.31			8.19			8.85

Interest-Bearing Liabilities
Deposits:
Demand deposits	$	23,381	$	31,934	$	42,533	$	(8,553	)	$	(10,599	)		0.84			0.87			0.88
Savings		165,772		223,356		201,919		(57,584	)		21,437			2.64			4.52			4.23
Time certificates		540,364		448,822		464,306		91,542			(15,484	)		4.55			5.12			4.48
Total Deposits		729,517		704,112		708,758		25,405			(4,646	)		4.00			4.74			4.20

Long-term borrowings		82,828		81,491		80,369		1,337			1,122			4.67			5.73			5.41
Other borrowings		4,123		6,201		5,518		(2,078	)		683			3.27			5.42			5.02

Total Interest-Bearing Liabilities	$	816,468	$	791,804	$	794,645	$	24,664		$	(2,841	)		4.06			4.85			4.32

Net interest income/net interest spread														1.19			3.34			4.53

Net yield on earning assets														1.59			4.15			5.30

Net cost of funds														3.66			4.04			3.55

						Variance Attributed to
Interest Income/Expense			Variance			2008			2007
2008	2007	2006		2008-2007	2007-2006	Volume	Rate	Mix

FLORIDA COMMUNITY BANKS INC 10-K