UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended June 30, 2012

Commission File Number 000-52748

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Louisiana	26-0513559
(State or other jurisdiction incorporation or organization)	(I.R.S. Employer Identification Number)
400 East Thomas Street
Hammond, Louisiana	70401
(Address of principal executive office)	(Zip Code)
(985) 345-7685
(Telephone number, including area code)

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

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

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

Large accelerated filer o Accelerated filer o   Non-accelerated filer o   Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of August 10, 2012 the registrant had 6,293,067 shares of $1 par value common stock outstanding.

Table of Contents
		Page
Part I.	Financial Information
Item1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	3
	Consolidated Statements of Income for the three and six months ended June 30, 2012 and 2011	4
	Consolidated Statements of Shareholders' Equity for the six months ended June 30, 2012 and 2011	5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	35
Part II.	Other Information	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Exhibits	35
Signatures		36

2

PART I.   FINANCIAL INFORMATION

Item 1.   Consolidated Financial

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share data)	June 30, 2012			December 31, 2011
Assets
Cash and cash equivalents:
Cash and due from banks	$	42,802		$	43,810
Interest-earning demand deposits with banks		21			2
Federal funds sold		1,925			68,630
Cash and cash equivalents		44,748			112,442
Interest-earning time deposits with banks		747			-
Investment securities:
Available for sale, at fair value		627,366			520,497
Held to maturity, at cost (estimated fair value of $33,333 and $113,197, respectively)		32,983			112,666
Investment securities		660,349			633,163
Federal Home Loan Bank stock, at cost		1,087			643
Loans held for sale		441			-
Loans, net of unearned income		596,570			573,100
Less: allowance for loan losses		9,141			8,879
Net loans		587,429			564,221
Premises and equipment, net		19,694			19,921
Goodwill		1,999			1,999
Intangible assets, net		2,608			2,811
Other real estate, net		6,851			5,709
Accrued interest receivable		7,724			8,128
Other assets		30,451			4,829
Total Assets	$	1,364,128		$	1,353,866
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand	$	170,665		$	167,925
Interest-bearing demand		300,527			289,408
Savings		59,157			57,452
Time		675,397			692,517
Total deposits		1,205,746			1,207,302
Short-term borrowings		19,405			12,223
Accrued interest payable		3,409			3,509
Long-term borrowing		1,400			3,200
Other liabilities		2,749			1,030
Total Liabilities		1,232,709			1,227,264
Stockholders' Equity
Preferred stock:
Series C - $1,000 par value - authorized 39,435 shares; issued and outstanding 39,435		39,435			39,435
Common stock: ¹
$1 par value - authorized 100,600,000 shares; issued 6,294,227		6,294			6,294
Surplus		39,387			39,387
Treasury Stock, at cost, 1,160 and 0 shares, respectively		(21	)		-
Retained earnings		40,026			37,019
Accumulated other comprehensive income		6,298			4,467
Total Stockholders' Equity		131,419			126,602
Total Liabilities and Stockholders' Equity	$	1,364,128		$	1,353,866
See Notes to the Consolidated Financial Statements.
¹2011 share amounts have been restated to reflect the ten percent stock dividend paid February 24, 2012 to stockholders of record as of February 17, 2012.

3

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
	Six Months Ended June 30,						Three Months Ended June 30,
(in thousands, except share data)	2012			2011			2012			2011
Interest Income:
Loans (including fees)	$	17,634		$	16,701		$	8,862		$	8,240
Loans held for sale		1			5			-			4
Deposits with other banks		36			23			21			13
Securities (including FHLB stock)		10,938			9,797			5,308			5,035
Federal funds sold		7			9			4			4
Total Interest Income		28,616			26,535			14,195			13,296
Interest Expense:
Demand deposits		700			405			357			179
Savings deposits		27			22			13			11
Time deposits		6,123			7,030			2,950			3,524
Borrowings		73			14			34			7
Total Interest Expense		6,923			7,471			3,354			3,721
Net Interest Income		21,693			19,064			10,841			9,575
Less: Provision for loan losses		2,104			3,351			904			2,887
Net Interest Income after Provision for Loan Losses		19,589			15,713			9,937			6,688
Noninterest Income:
Service charges, commissions and fees		2,385			2,117			1,196			1,107
Net gains on securities		1,483			2,217			755			2,176
Loss on securities impairment		-			(97	)		-			-
Net gain (loss) on sale of loans		(27	)		95			1			48
Other		810			638			437			350
Total Noninterest Income		4,651			4,970			2,389			3,681
Noninterest Expense:
Salaries and employee benefits		6,731			5,983			3,361			2,948
Occupancy and equipment expense		1,855			1,610			935			797
Other		6,541			5,730			3,581			2,943
Total Noninterest Expense		15,127			13,323			7,877			6,688
Income Before Income Taxes		9,113			7,360			4,449			3,681
Less: Provision for income taxes		3,098			2,571			1,486			1,287
Net Income		6,015			4,789			2,963			2,394
Preferred Stock Dividends		(986	)		(666	)		(502	)		(333	)
Income Available to Common Shareholders	$	5,029		$	4,123		$	2,461		$	2,061
Per Common Share:1
Earnings	$	0.80		$	0.67		$	0.39		$	0.34
Cash dividends paid	$	0.32		$	0.29		$	0.16		$	0.15
Average Common Shares Outstanding1		6,294,004			6,115,608			6,293,436			6,115,608
See Notes to Consolidated Financial Statements
12011 share amounts have been restated to reflect the ten percent stock dividend paid February 24, 2012 to stockholders of record as of February 17, 2012.

4

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
	Series A		Series B			Series C												Accumulated
	Preferred		Preferred			Preferred		Common										Other
	Stock		Stock			Stock		Stock				Treasury			Retained			Comprehensive
(in thousands, except per share data)	$1,000 Par		$1,000 Par			$1,000 Par		$1 Par		Surplus		Stock			Earnings			Income/(Loss)			Total
Balance December 31, 2010	$	19,859	$	1,116		$	-	$	6,116	$	36,240	$	-		$	34,866		$	(259	)	$	97,938
Net income		-		-			-		-		-		-			4,789			-			4,789
Change in unrealized loss on AFS securities, net of reclassification adjustments and taxes		-		-			-		-		-		-			-			744			744
Comprehensive Income																						5,533
Cash dividends on common stock ($0.29 per share)		-		-			-		-		-		-			(1,779	)		-			(1,779	)
Preferred stock dividend, amortization and accretion		113		(11	)		-		-		-		-			(666	)		-			(564	)
Balance June 30, 2011 (unaudited)	$	19,972	$	1,105		$	-	$	6,116	$	36,240	$	-		$	37,210		$	485		$	101,128
Balance December 31, 2011	$	-	$	-		$	39,435	$	6,294	$	39,387	$	-		$	37,019		$	4,467		$	126,602
Net Income		-		-			-		-		-		-			6,015			-			6,015
Change in unrealized loss on AFS securities, net of reclassification adjustments and taxes		-		-			-		-		-		-			-			1,831			1,831
Comprehensive Income																						7,846
Cash dividends on common stock ($0.32 per share)		-		-			-		-		-		-			(2,022	)		-			(2,022	)
Treasury shares purchased, at cost, 1,160 shares		-		-			-		-		-		(21	)		-			-			(21	)
Preferred stock dividend		-		-			-		-		-		-			(986	)		-			(986	)
Balance June 30, 2012 (unaudited)	$	-	$	-		$	39,435	$	6,294	$	39,387	$	(21	)	$	40,026		$	6,298		$	131,419
See Notes to Consolidated Financial Statements

5

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
	Six months ended June 30,
(in thousands)	2012			2011
Cash Flows From Operating Activities
Net income	$	6,015		$	4,789
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,104			3,351
Depreciation and amortization		1,035			738
Amortization/Accretion of investments		864			390
Gain on calls and sales of securities		(1,483	)		(2,217	)
Loss on sale of assets		59			-
Other than temporary impairment charge on securities		-			97
ORE write-downs and losses on disposition, net of gains		549			112
FHLB stock dividends		(1	)		(2	)
Net increase in loans held for sale		(441	)		(343	)
Change in other assets and liabilities, net		403			(7,101	)
Net Cash Provided By Operating Activities		9,104			(186	)
Cash Flows From Investing Activities
Net increase in called bonds receivable		(25,000	)		-
Funds invested in certificates of deposit		(747	)		-
Proceeds from maturities and calls of HTM securities		120,640			19,945
Proceeds from maturities, calls and sales of AFS securities		311,243			58,180
Funds invested in HTM securities		(40,901	)		(95,913	)
Funds Invested in AFS securities		(414,776	)		(41,515	)
Proceeds from sale/redemption of Federal Home Loan Bank stock		1,244			1,028
Funds invested in Federal Home Loan Bank stock		(1,687	)		(1,081	)
Net (increase) decrease in loans		(28,640	)		22,355
Purchase of premises and equipment		(831	)		(1,202	)
Proceeds from sales of premises and equipment		223			-
Proceeds from sales of other real estate owned		1,637			183
Net Cash Used In Investing Activities		(77,595	)		(38,020	)
Cash Flows From Financing Activities
Net increase (decrease) in deposits		(1,556	)		38,017
Net increase (decrease) in federal funds purchased and short-term borrowings		7,182			(7,127	)
Proceeds from long-term borrowings		-			3,500
Repayment of long-term borrowings		(1,800	)		-
Purchase of treasury stock		(21	)		-
Dividends paid		(3,008	)		(2,343	)
Net Cash Provided By Financing Activities		797			32,047
Net Decrease In Cash and Cash Equivalents		(67,694	)		(6,159	)
Cash and Cash Equivalents at the Beginning of the Period		112,442			44,837
Cash and Cash Equivalents at the End of the Period	$	44,748		$	38,678
Noncash Activities:
Loans transferred to foreclosed assets	$	3,328		$	3,250
Cash Paid During The Period:
Interest on deposits and borrowed funds	$	7,023		$	7,206
Income taxes	$	3,400		$	1,550
See Notes to the Consolidated Financial Statements.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. (the “Company”) thereto should be read in conjunction with the audited financial statements and note disclosures for the Company previously filed with the Securities and Exchange Commission in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2011.

The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc. and its wholly owned subsidiary First Guaranty Bank.  All significant intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations for the three and six month periods ended June 30, 2012 and 2011 are not necessarily indicative of the results expected for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are susceptible to significant change in the near term are the allowance for loan losses, valuation of goodwill, intangible assets and other purchase accounting adjustments.

Note 2.  Recent Accounting Pronouncements

There are no recent accounting pronouncements to disclose for the first six months of 2012.

7

Note 3. Securities

A summary comparison of securities by type at June 30, 2012 and December 31, 2011 is shown below.

	June 30, 2012									December 31, 2011
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale:
U.S Government Treasuries	$	19,500	$	-	$	-		$	19,500	$	-	$	-	$	-		$	-
U.S. Government Agencies		402,979		1,095		(167	)		403,907		319,113		1,422		(328	)		320,207
Corporate debt securities		174,194		8,180		(511	)		181,863		171,927		6,250		(1,222	)		176,955
Mutual funds or other equity securities		2,564		43		-			2,607		2,773		38		-			2,811
Municipal bonds		18,586		903		-			19,489		19,916		609		(1	)		20,524
Total available for sale securities	$	617,823	$	10,221	$	(678	)	$	627,366	$	513,729	$	8,319	$	(1,551	)	$	520,497
Held to maturity:
U.S. Government Agencies	$	32,983	$	350	$	(-	)	$	33,333	$	112,666	$	535	$	(4	)	$	113,197
Total held to maturity securities	$	32,983	$	350	$	(-	)	$	33,333	$	112,666	$	535	$	(4	)	$	113,197

The scheduled maturities of securities at June 30, 2012, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	June 30, 2012
(in thousands)	Amortized Cost		Fair Value
Available For Sale:
Due in one year or less	$	39,101	$	39,507
Due after one year through five years		131,625		133,601
Due after five years through 10 years		245,175		250,737
Over 10 years		201,922		203,521
Total available for sale securities	$	617,823	$	627,366
Held to Maturity:
Due in one year or less	$	-	$	-
Due after one year through five years		4,016		4,034
Due after five years through 10 years		21,971		22,271
Over 10 years		6,996		7,028
Total held to maturity securities	$	32,983	$	33,333

At June 30, 2012 approximately $443.2 million in securities were pledged to secure public fund deposits, and for other purposes required or permitted by law.

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at June 30, 2012.

	Less Than 12 Months					12 Months or More					Total
(in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Government Treasuries	$	19,500	$	-		$	-	$	-		$	19,500	$	-
U.S. Government agencies		169,616		(167	)		-		-			169,616		(167	)
Corporate debt securities		12,862		(176	)		2,325		(335	)		15,187		(511	)
Mutual funds or other equity securities		-		-			-		-			-		-
Municipals		-		-			-		-			-		-
Total available for sale securities	$	201,978	$	(343	)	$	2,325	$	(335	)	$	204,303	$	(678	)
Held to maturity:
U.S. Government agencies	$	-	$	(-	)	$	-	$	-		$	-	$	(-	)
Total held to maturity securities	$	-	$	(-	)	$	-	$	-		$	-	$	(-	)

8

At June 30, 2012, 88 debt securities have gross unrealized losses of $0.7 million or 0.33% of amortized cost. All securities with unrealized losses were classified as available for sale at June 30, 2012. The Company believes that it will collect all amounts contractually due and has the intent and the ability to hold these securities until the fair value is at least equal to the carrying value. The Company had 1 U.S. Treasury security, 18 U.S. Government agency securities and 62 corporate debt securities that had gross unrealized losses for less than 12 months. The Company had 7 corporate debt securities which have been in a continuous unrealized loss position for 12 months or longer. Securities with unrealized losses greater than 12 months had a total amortized cost of $2.7 million. Securities with unrealized losses less than 12 months had a total amortized cost of $202.6 million.

If an equity security has an impairment that is other than temporary, then an impairment loss shall be recognized in earnings equal to the entire difference between the investment's cost and its fair value at the balance sheet date of the reporting period for which the assessment is made. The fair value of the investment would then become the new amortized cost basis of the investment and is not adjusted for subsequent recoveries in fair value. For debt securities, other than temporary impairment loss is recognized in earnings if the Company is required to sell or is more likely than not to sell the security before recovery of its amortized cost. If the Company is not required to sell the security or does intend to sell the security, the other-than-temporary impairment is separated into the amount representing credit loss and the amount related to all other factors. The amount related to credit loss is recognized in earnings and the amount related to all other factors is recognized in other comprehensive income. The previous amortized cost basis less the other-than-temporary impairment recognized in earnings shall become the new amortized cost basis of the investment. Management evaluates securities for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, Management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and industry reports.

The number of investment securities issued by U.S. government and government agencies with unrealized losses and the amount of unrealized losses on those investment securities are primarily the result of market interest rates. At June 30, 2012 the Company had the ability and intent to hold these securities in its current portfolio until recovery, which may be until maturity.

The corporate debt securities consist primarily of corporate bonds issued by the following types of organizations: financial, insurance, utilities, manufacturing, industrial, consumer products and oil and gas. Also included in corporate debt securities are trust preferred capital securities, many issued by national and global financial services firms. The Company believes that the each of the issuers will be able to fulfill the obligations of these securities. At June 30, 2012 the Company had the ability and intent to hold these securities until they recover, which could be at their maturity dates.

The held to maturity portfolio is comprised of government sponsored enterprise securities such as FHLB, FNMA, FHLMC, and FFCB.  The securities have maturities of 15 years or less and the securities are used to collateralize public funds.  As of June 30, 2012 public funds deposits totaled $452.5 million. The Company has maintained public funds in excess of $175.0 million since December 2007.   Management believes that public funds will continue to be a significant part of the Company's deposit base and will need to be collateralized by securities in the investment portfolio. 

Securities with unrealized losses are currently performing according to their contractual terms. Management has the intent and ability to hold these securities for the foreseeable future. The fair value is expected to recover as the securities approach their maturity or repricing date or if market yields for such investments decline. As a result of uncertainties in the market affecting companies in the financial services industry, it is at least reasonably possible that a change in the estimate will occur in the near term.

The Company did not record an impairment write-down on its securities for the first six months of 2012. During the first quarter of 2011, the Company recorded an impairment write-down on securities from one issuer of $0.1 million. This write-down was partially offset by a subsequent gain on sale of the securities of $45,000 in the third quarter of 2011.

At June 30, 2012, the Company's exposure to investment securities issuers that exceeded 10% of stockholders’ equity was as follows:

	At June 30, 2012
(in thousands)	Amortized Cost		Fair Value
Federal Home Loan Bank (FHLB)	$	103,921	$	104,192
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC)		103,609		104,308
Federal National Mortgage Association (Fannie Mae-FNMA)		164,802		164,930
Federal Farm Credit Bank (FFCB)		63,630		63,810
U.S. Government Treasuries		19,500		19,500
Total	$	455,462	$	456,740

9

Note 4. Loans

The following table summarizes the components of the Company's loan portfolio as of June 30, 2012 and December 31, 2011:

	June 30, 2012					December 31, 2011
(in thousands)	Balance			As % of Category		Balance			As % of Category
Real Estate:
Construction & land development	$	58,209		9.7	%	$	78,614		13.7	%
Farmland		10,594		1.8	%		11,577		2.0	%
1- 4 Family		89,377		15.0	%		89,202		15.6	%
Multifamily		16,617		2.8	%		16,914		2.9	%
Non-farm non-residential		292,812		49.0	%		268,618		46.8	%
Total Real Estate		467,609		78.3	%		464,925		81.0	%
Non-real Estate:
Agricultural		25,372		4.2	%		17,338		3.0	%
Commercial and industrial		80,571		13.5	%		68,025		11.9	%
Consumer and other		23,999		4.0	%		23,455		4.1	%
Total Non-real Estate		129,942		21.7	%		108,818		19.0	%
Total loans before unearned income		597,551		100.0	%		573,743		100.0	%
Less: Unearned income		(981	)				(643	)
Total loans net of unearned income	$	596,570				$	573,100

The following table summarizes fixed and floating rate loans by maturity and repricing frequencies as of June 30, 2012 and December 31, 2011:

	June 30, 2012							December 31, 2011
(in thousands)	Fixed		Floating		Total			Fixed		Floating		Total
One year or less	$	119,019	$	114,685	$	233,704		$	108,276	$	124,052	$	232,328
One to five years		171,015		101,255		272,270			160,191		98,972		259,163
Five to 15 years		21,832		34,816		56,648			8,393		36,891		45,284
Over 15 years		8,599		6,671		15,270			8,464		6,054		14,518
Total (excluding nonaccrual loans)	$	320,465	$	257,427		577,892		$	285,324	$	265,969		551,293
Nonaccrual loans						19,659							22,450
Total loans before unearned income						597,551							573,743
Less: Unearned income						(981	)						(643	)
Total loans net of unearned income					$	596,570						$	573,100

The majority of floating rate loans have interest rate floors. As of June 30, 2012, $255.6 million of these loans were at the floor rate. Nonaccrual loans have been excluded from the calculation.

The following tables present the age analysis of past due loans at June 30, 2012 and December 31, 2011:

	As of June 30, 2012
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment  90 Days Accruing
Real Estate:
Construction & land development	$	1,252	$	1,519	$	2,771	$	55,438	$	58,209		$	-
Farmland		48		786		834		9,760		10,594			-
1 - 4 family		3,880		6,184		10,064		79,313		89,377			756
Multifamily		-		592		592		16,025		16,617			-
Non-farm non-residential		5,873		9,450		15,323		277,489		292,812			-
Total Real Estate		11,053		18,531		29,584		438,025		467,609			756
Non-Real Estate:
Agricultural		173		739		912		24,460		25,372			-
Commercial and industrial		2,968		1,068		4,036		76,535		80,571			-
Consumer and other		171		77		248		23,751		23,999			-
Total Non-Real Estate		3,312		1,884		5,196		124,746		129,942			-
Total loans before unearned income	$	14,365	$	20,415	$	34,780	$	562,771		597,551		$	756
Less: unearned income										(981	)
Total loans net of unearned income									$	596,570

10

	As of December 31, 2011
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment  90 Days Accruing
Real estate:
Construction & land development	$	240	$	1,520	$,	1,760	$	76,854	$	78,614		$	-
Farmland		45		562		607		10,970		11,577			-
1 - 4 family		2,812		5,957		8,769		80,433		89,202			309
Multifamily		617		-		617		16,297		16,914			-
Non-farm non-residential		878		12,818		13,696		254,922		268,618			419
Total Real Estate		4,592		20,857		25,449		439,476		464,925			728
Non-Real Estate:
Agricultural		90		315		405		16,933		17,338			-
Commercial and industrial		147		1,986		2,133		65,892		68,025			-
Consumer and other		389		28		417		23,038		23,455			8
Total Non-Real Estate		626		2,329		2,955		105,863		108,818			8
Total loans before unearned income	$	5,218	$	23,186	$	28,404	$	545,339		573,743		$	736
Less: unearned income										(643	)
Total loans net of unearned income									$	573,100

The Company's management monitors the credit quality of its loans on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.

For all loan classes, past due loans are reviewed on a monthly basis to identify loans for nonaccrual status. Generally, when collection in full of the principal and interest is jeopardized, the loan is placed on nonaccrual. The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 to 120 days past due as to principal or interest.  When interest accruals are discontinued, unpaid interest recognized in income is reversed.  The Company's method of income recognition for loans that are classified as nonaccrual is to recognize interest income on a cash basis or apply the cash receipt to principal when the ultimate collectability of principal is in doubt.  Nonaccrual loans will not normally be returned to accrual status unless all past due principal and interest has been paid.

The following is a summary of nonaccrual loans by class:

(in thousands)	As of June 30, 2012		As of December 31, 2011
Real Estate:
Construction & land development	$	1,519	$	1,520
Farmland		786		562
1 - 4 family		5,428		5,647
Multifamily		592		-
Non-farm non-residential		9,450		12,400
Total Real Estate		17,775		20,129
Non-real Estate:
Agricultural		739		315
Commercial and industrial		1,068		1,986
Consumer and other		77		20
Total Non-Real Estate		1,884		2,321
Total Nonaccrual Loans	$	19,659	$	22,450

11

The Company assigns credit quality indicators of pass, special mention, substandard, and doubtful to its loans. For the Company's loans with a commercial and consumer credit exposure, the Company internally assigns a grade based on the creditworthiness of the borrower. For loans with a consumer credit exposure, the Bank internally assigns a grade based upon an individual loan’s delinquency status. Loans included in the Pass category are performing loans with satisfactory debt coverage ratios, collateral, payment history, and documentation.

Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Company's credit position at some future date. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices.

A substandard loan with a commercial and consumer credit exposure is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These loans require more intensive supervision by management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigates. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and thus, placed on nonaccrual. For loans with a consumer credit exposure, loans that are 90 days or more past due or that have been placed on nonaccrual are considered substandard.

Doubtful loans have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values.

The Company periodically reassesses its credit quality indicators and has revised its methodology in 2012 contributing to the increase in special mention credits over the previous periods.

The following table identifies the Commercial and Consumer  Credit Exposure of the Loan Portfolio by specific credit ratings:

	As of June 30, 2012											As of December 31, 2011
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total			Pass		Special Mention		Substandard		Doubtful		Total
Real Estate:
Construction & land development	$	40,600	$	7,104	$	10,505	$	-	$	58,209		$	67,602	$	82	$	10,930	$	-	$	78,614
Farmland		10,047		386		161		-		10,594			11,485		-		92		-		11,577
1 - 4 family		77,487		5,105		6,785		-		89,377			80,053		1,770		7,379		-		89,202
Multifamily		8,200		490		7,927		-		16,617			9,545		-		7,369		-		16,914
Non-farm non-residential		247,876		15,001		29,935		-		292,812			235,448		372		32,798		-		268,618
Total real estate		384,210		28,086		55,313		-		467,609			404,133		2,224		58,568		-		464,925
Non-Real Estate:
Agricultural		24,933		-		439		-		25,372			17,304		-		34		-		17,338
Commercial and industrial		72,691		6,512		1,368		-		80,571			65,553		93		2,379		-		68,025
Consumer and other		23,863		61		75		-		23,999			23,345		43		67		-		23,455
Total Non-Real Estate		121,487		6,573		1,882		-		129,942			106,202		136		2,480		-		108,818
Total loans before unearned income	$	505,697	$	34,659	$	57,195	$	-		597,551		$	510,335	$	2,360	$	61,048	$	-		573,743
Less: unearned income										(981	)										(643	)
Total loans net of unearned income									$	596,570										$	573,100

12

ASC 310-30 Loans

The Company has loans that were acquired through the acquisition of  Greensburg Bancshares, for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that all contractually required payments would not be collected. These loans are subject to ASC Topic 310-30. The carrying amount of those loans is included in the balance sheet amounts of loans receivable at June 30, 2012. The amounts of loans subject to ASC Topic 310-30 at June 30, 2012 and December 31, 2011 are as follows:

	June 30, 2012				December 31, 2011
(in thousands)	Contractual Amount		Carrying Value		Contractual Amount		Carrying Value
Real Estate:
Construction & land development	$	536	$	300	$	536	$	301
Farmland		-		-		-		-
1 - 4 family		511		443		704		573
Multifamily		-				-		-
Non-farm non-residential		139		139		352		352
Total real estate		1,186	$	882		1,592		1,226
Non-real Estate:
Agricultural		-		-		-		-
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
Total Non-Real Estate		-		-		-		-
Total	$	1,186	$	882	$	1,592	$	1,226

There have been no additional provisions made to the allowance for loan losses subsequent to acquisition of these loans. The loans acquired in the acquisition of  Greensburg Bancshares, that are within the scope of Topic ASC 310-30, are not accounted for using the income recognition model of the Topic because the Company cannot reasonably estimate cash flows expected to be collected.

13

Note 5. Allowance for Loan Losses

The allowance for loan losses is reviewed by the Company's management on a monthly basis and additions thereto are recorded pursuant to the results of such reviews. In assessing the allowance, several internal and external factors that might impact the performance of individual loans are considered. These factors include, but are not limited to, economic conditions and their impact upon borrowers' ability to repay loans, respective industry trends, borrower estimates and independent appraisals. Periodic changes in these factors impact the assessment of each loan and its overall impact on the allowance for loan losses.

The monitoring of credit risk also extends to unfunded credit commitments, such as unused commercial credit lines and letters of credit. A reserve is established as needed for estimates of probable losses on such commitments.

A summary of changes in the allowance for loan losses, by portfolio type, for the six months ended June 30, 2012 and 2011 are as follows:

	As of June 30, 2012
	Real Estate Loans:														Non-Real Estate Loans:
(in thousands)	Construction and Land Development			Farmland			1-4 Family			Multi-family		Non-farm non-residential			Agricultural			Commercial and Industrial			Consumer and other			Unallocated			Total
Allowance for Credit Losses:
Beginning balance (12/31/11)	$	1,002		$	65		$	1,917		$	780	$	2,980		$	125		$	1,407		$	314		$	289		$	8,879
Charge-offs		(53	)		-			(951	)		-		(459	)		(25	)		(424	)		(266	)		-			(2,178	)
Recoveries		7			1			21			-		106			1			59			141			-			336
Provision		294			(17	)		833			79		504			(41	)		534			122			(204	)		2,104
Ending Balance (6/30/12)	$	1,250		$	49		$	1,820		$	859	$	3,131		$	60		$	1,576		$	311		$	85		$	9,141

	As of June 30, 2011
	Real Estate Loans:															Non-Real Estate Loans:
(in thousands)	Construction and Land Development			Farmland			1-4 Family			Multi-family			Non-farm non-residential			Agricultural			Commercial and Industrial			Consumer and other			Unallocated			Total
Allowance for Credit Losses:
Beginning balance (12/31/10)	$	977		$	46		$	1,891		$	487		$	3,423		$	80		$	510		$	390		$	513		$	8,317
Charge-offs		(417	)		-			(333	)		-			(1,764	)		(20	)		(1,482	)		(170	)		-			(4,186	)
Recoveries		-			-			87			-			10			3			105			98			-			303
Provision		173			(5	)		139			(325	)		1,376			165			2,306			(59	)		(419	)		3,351
Ending Balance (6/30/11)	$	733		$	41		$	1,784		$	162		$	3,045		$	228		$	1,439		$	259		$	94		$	7,785

14

	As of June 30, 2012
	Real Estate Loans:										Non-Real Estate Loans:
(in thousands)	Construction and Land Development		Farmland		1-4 Family		Multi-family		Non-farm non-residential		Agricultural		Commercial and Industrial		Consumer and other		Unallocated		Total
Allowance individually evaluated for impairment	$	489	$	-	$	215	$	661	$	1,166	$	-	$	20	$	-	$	-	$	2,551
Allowance collectively evaluated for impairment		761		49		1,605		198		1,965		60		1,556		311		85		6,590
Allowance at June 30, 2012	$	1,250	$	49	$	1,820	$	859	$	3,131	$	60	$	1,576	$	311	$	85	$	9,141
Loans individually evaluated for impairment	$	7,409	$	-	$	2,095	$	7,336	$	27,932	$	-	$	503	$	-	$	-	$	45,275
Loans collectively evaluated for impairment		50,800		10,594		87,282		9,281		264,880		25,372		80,068		23,999		-		552,276
Loans at June 30, 2012 (before unearned income)	$	58,209	$	10,594	$	89,377	$	16,617	$	292,812	$	25,372	$	80,571	$	23,999	$	-	$	597,551
Unearned income																				(981	)
Total loans net of unearned income																			$	596,570

	As of December 31, 2011
	Real Estate Loans:										Non-Real Estate Loans:
(in thousands)	Construction and Land Development		Farmland		1-4 Family		Multi-family		Non-farm non-residential		Agricultural		Commercial and Industrial		Consumer and other		Unallocated		Total
Allowance individually evaluated for impairment	$	139	$	-	$	392	$	701	$	1,224	$	-	$	-	$	-	$	-	$	2,456
Allowance collectively evaluated for impairment		863		65		1,525		79		1,756		125		1,407		314		289		6,423
Allowance at December 31, 2011	$	1,002	$	65	$	1,917	$	780	$	2,980	$	125	$	1,407	$	314	$	289	$	8,879
Loans individually evaluated for impairment	$	7,998	$	-	$	3,591	$	7,369	$	31,397	$	-	$	738	$	-	$	-	$	51,093
Loans collectively evaluated for impairment		70,616		11,577		85,611		9,545		237,221		17,338		67,287		23,455		-		522,650
Loans at December 31, 2011 (before unearned income)	$	78,614	$	11,577	$	89,202	$	16,914	$	268,618	$	17,338	$	68,025	$	23,455	$	-	$	573,743
Unearned income																				(643	)
Total loans net of unearned income																			$	573,100

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by Management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. As an administrative matter, this process is only applied to impaired loans or relationships in excess of $250,000.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures, unless such loans are the subject of a restructuring agreement.

15

The following is a summary of impaired loans by class:

	As of June 30, 2012
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real estate:
Construction & land development	$	900	$	949	$	-	$	926	$	34	$	26
Farmland		-		-		-		-		-		-
1 - 4 family		1,074		1,734		-		2,326		105		48
Multifamily		-		-		-		-		-		-
Non-farm non-residential		7,810		10,591		-		7,918		347		212
Total Real Estate		9,784		13,274		-		11,170		486		286
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		8		8		-		136		30		1
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		8		8		-		136		30		1
Total Impaired Loans with no related allowance	$	9,792	$	13,282	$	-	$	11,306	$	516	$	287
Impaired Loans with an allowance recorded:
Real estate:
Construction & land development	$	6,509	$	6,509	$	489	$	6,652	$	515	$	516
Farmland		-		-		-		-		-		-
1 - 4 family		1,021		851		215		1,188		63		60
Multifamily		7,336		7,336		661		7,388		571		544
Non-farm non-residential		20,122		20,215		1,166		21,359		2,338		2,231
Total real estate		34,988		35,911		2,531		36,587		3,487		3,351
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		495		495		20		867		11		-
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		495		495		20		867		11		-
Total Impaired Loans with an allowance recorded	$	35,483	$	35,406	$	2,551	$	37,454	$	3,498	$	3,351
Total Impaired Loans	$	45,275	$	48,688	$	2,551	$	48,760	$	4,014	$	3,638

16

The following is a summary of impaired loans by class:

	As of December 31, 2011
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real estate:
Construction & land development	$	937	$	960	$	-	$	634	$	91	$	64
Farmland		-		-		-		-		-		-
1 - 4 family		858		1,192		-		2,388		218		32
Multifamily		-		-		-		-		-		-
Non-farm non-residential		8,710		10,708		-		11,549		824		409
Total Real Estate		10,505		12,860		-		14,571		1,133		505
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		738		1,737		-		2,986		238		102
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		738		1,737		-		2,986		238		102
Total Impaired Loans with no related allowance	$	11,243	$	14,597	$	-	$	17,557	$	1,371	$	607
Impaired Loans with an allowance recorded:
Real estate:
Construction & land development	$	7,061	$	7,061	$	139	$	7,243	$	477	$	376
Farmland		-		-		-		-		-		-
1 - 4 family		2,733		2,870		392		1,127		57		56
Multifamily		7,369		7,369		701		6,347		288		333
Non-farm non-residential		22,687		23,637		1,224		21,180		1,261		815
Total real estate		39,850		40,937		2,456		35,897		2,083		1,580
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		-		-		-		-		-		-
Total Impaired Loans with an allowance recorded	$	39,850	$	40,937	$	2,456	$	35,897	$	2,083	$	1,580
Total Impaired Loans	$	51,093	$	55,534	$	2,456	$	53,454	$	3,454	$	2,187

17

A Troubled Debt Restructuring ("TDR") is considered such if the creditor for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The modifications to the Company's TDRs were concessions on the interest rate charged.  The effect of the modifications to the Company was a reduction in interest income.  These loans still have an allocated reserve in the Company's reserve for loan losses. For the first six months of 2012, there were no loans restructured in a troubled debt restructuring.

The following table identifies the Troubled Debt Restructurings as of June 30, 2012 and June 30, 2011:

Troubled Debt Restructurings	June 30, 2012
	Accruing Loans
(in thousands)	Current		30-89 Days Past Due		Nonaccrual		Total TDRs
Real Estate:
Construction & land development	$	2,601	$	-	$	-	$	2,601
Farmland		-		-		-		-
1-4 Family		2		238		1,074		1,314
Multifamily		5,984		-		-		5,984
Non-farm non residential		6,127		678		-		6,805
Total Real Estate		14,714		916		1,074		16,704
Non-Real Estate:
Agricultural		-		-		-		-
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
Total Non-Real Estate		-		-		-		-
Total	$	14,714	$	916	$	1,074	$	16,704

Troubled Debt Restructurings	June 30, 2011
	Accruing Loans
(in thousands)	Current		30-89 Days Past Due		Nonaccrual		Total TDRs
Real Estate:
Construction & land development	$	2,834	$	-	$	-	$	2,834
Farmland		-		-		-		-
1-4 Family		-		-		-		-
Multifamily		5,782		-		-		5,782
Non-farm non residential		6,780		-		-		6,780
Total Real Estate		15,396		-		-		15,396
Non-Real Estate:
Agricultural		-		-		-		-
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
Total Non-Real Estate		-		-		-		-
Total	$	15,396	$	-	$	-	$	15,396

The following is a summary of  the loans that subsequently defaulted after the debt was restructured:

Troubled Debt Restructurings that subsequently defaulted	June 30, 2012			June 30, 2011
(in thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Real Estate:
Construction & land development	-	$	-	-	$	-
Farmland	-		-	-		-
1-4 Family	1		1,074	-		-
Multifamily	-		-	-		-
Non-farm non residential	-		-	-		-
Total real estate	1		1,074	-		-
Non-Real Estate:
Agricultural	-		-	-		-
Commercial and industrial	-		-	-		-
Consumer and other	-		-	-		-
Total Non-Real Estate	-		-	-		-
Total	1	$	1,074	-	$	-

The 1-4 family TDR that subsequently defaulted was restructured in September 2011. This TDR had a pre-modification recorded investment of $1.7 million and a post-modification recorded investment of $1.7 million. The concession granted was an interest rate reduction. Upon default an appraisal of the collateral indicated an impairment of $0.6 million and that amount was charged-off in the second quarter of 2012.

18

Note 6. Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests. Other intangible assets continue to be amortized over their useful lives. Goodwill at June 30, 2012 was $2.0 million and resulted from the Homestead Bancorp acquisition in 2007.  No impairment charges have been recognized since the acquisition.Mortgage servicing rights were relatively unchanged since December 31, 2011, totaling $0.2 million at June 30, 2012. Other intangible assets recorded include core deposit intangibles, which are subject to amortization. The core deposits reflect the value of deposit relationships, including the beneficial rates, which arose from the purchase of other financial institutions and the purchase of various banking center locations from other financial institutions.

Note 7. Borrowings

The Company's senior long-term debt totaled $1.4 million at June 30, 2012. Long-term debt at December 31, 2011 totaled $3.2 million. The Company pays $50,000 principal plus interest on a monthly basis. In addition to its monthly principal payments, the Company has made additional principal payments totaling $1.5 million. This long-term debt is priced at Wall Street Journal Prime plus 75 basis points (currently 4.00%) and has a contractual maturity of April 2017. It is secured by a pledge of 13.2% (735,745 shares) of First Guaranty Bancshares interest in First Guaranty Bank (a wholly owned subsidiary) under a Commercial Pledge Agreement dated June 22, 2011. 

Note 8. Commitments and Contingencies

Off-balance sheet commitments

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments.

The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. The same credit policies are used in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk.

Set forth below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at June 30, 2012 and December 31, 2011:

Contract Amount
(in thousands)	June 30, 2012		December 31, 2011
Commitments to Extend Credit	$	24,223	$	13,264
Unfunded Commitments under lines of credit	$	72,193	$	69,522
Commercial and Standby letters of credit	$	6,450	$	6,745

Litigation

The nature of the Company’s business ordinarily results in a certain amount of claims, litigation and legal and administrative cases, all of which are considered incidental to the normal conduct of business. When the Company’s management and counsel determine it has defenses to the claims asserted, it defends itself. The Company will consider settlement of cases when, in Management’s and counsel’s judgment, it is in the best interests of both the Company and its shareholders.

While the final outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel, and available insurance coverage, Management believes that any incremental liability arising from the Company’s legal proceedings will not have a material adverse effect on the Company’s financial position.

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Note 9. Fair Value

The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. The Company uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs – Unadjusted quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds or credit risks) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification of such instruments within the valuation hierarchy.

Securities available for sale. Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets.  If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified Level 3 in the Company's portfolio as of June 30, 2012 includes municipal bonds and one preferred equity security.

Impaired loans. Loans are measured for impairment using the methods permitted by ASC Topic 310. Fair value of impaired loans is measured by either the loans obtainable market price, if available (Level 1), the fair value of the collateral if the loan is collateral dependent (Level 2), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation.

Other real estate owned. Properties are recorded at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less, at the date acquired. Fair values of other real estate owned ("OREO") at June 30, 2012 are determined by sales agreement or appraisal, and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Inputs include appraisal values on the properties or recent sales activity for similar assets in the property’s market, and thus OREO measured at fair value would be classified within Level 2 of the hierarchy.

Certain non-financial assets and non-financial liabilities are measured at fair value on a non-recurring basis including assets and liabilities related to reporting units measured at fair value in the testing of goodwill impairment, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.

The following table summarizes financial assets measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)	June 30, 2012		December 31, 2011
Securities available for sale measured at fair value	$	627,366	$	520,497
Fair Value Measurements Using:
Quoted Prices in Active Markets For Identical Assets (Level 1)	$	21,065	$	3,203
Significant Other Observable Inputs (Level 2)	$	599,658	$	509,778
Significant Unoberservable Inputs (Level 3)	$	6,643	$	7,516

The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  While management believes the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value.  The change in level 3 securities available for sale was due to $0.9 million in municipal bond principal repayments.

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Gains and losses on securities (realized and unrealized) included in earnings (or changes in net assets) for the first six months of 2012 on a recurring basis are reported in noninterest income or other comprehensive income as follows:

(in thousands)	Noninterest Income		Other Comprehensive Income
Total gains included in earnings (or changes in net assets)	$	1,483	$	-
Impairment loss	$	-	$	-
Changes in unrealized gains (losses) relating to assets still held at June 30, 2012	$	-	$	1,831

The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of June 30, 2012 and December 31, 2011, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)	At June 30, 2012		At December 31, 2011
Impaired loans measured at fair value	$	35,483	$	39,850
Fair Value Measurements Using:
Quoted Prices in Active Markets For Identical Assets (Level 1)	$	-	$	-
Significant Other Observable Inputs (Level 2)	$	3,931	$	8,113
Significant Unoberservable Inputs (Level 3)	$	31,552	$	31,737
Other real estate owned measured at fair value	$	6,851	$	5,709
Fair Value Measurements Using:
Quoted Prices in Active Markets For Identical Assets (Level 1)	$	-	$	-
Significant Other Observable Inputs (Level 2)	$	6,851	$	5,709
Significant Unoberservable Inputs (Level 3)	$	-	$	-

ASC 825-10 provides the Company with an option to report selected financial assets and liabilities at fair value. The fair value option established by this statement permits the Company to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting date subsequent to implementation.

The Company has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States, and as such has not included any gains or losses in earnings for the six months ended June 30, 2012 or 2011.

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

The following management discussion and analysis is intended to highlight the significant factors affecting the Company's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at June 30, 2012 and for the six and three months that ended June 30, 2012 and 2011 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly the Company's financial position and results of operations for such periods.

First Guaranty Bancshares, Inc. is a bank holding company headquartered in Hammond, LA with one wholly owned subsidiary, First Guaranty Bank.  First Guaranty Bank is a Louisiana state chartered commercial bank with 21 banking facilities including one drive-up only facility, located throughout southeast, southwest and north Louisiana.  The Company emphasizes personal relationships and localized decision making to ensure that products and services are matched to customer needs.  The Company competes for business principally on the basis of personal service to customers, customer access to officers and directors and competitive interest rates and fees. 

Special Note Regarding Forward-Looking Statements

Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a Company's anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from Management expectations. This discussion and analysis contains forward-looking statements and reflects Management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The words “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties, including, changes in general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities, if any; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; and changes in the financial condition or future prospects of issuers of securities that we own, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements. 

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Second Quarter and Six Months Financial Overview 2012

Financial highlights for the second quarter and six months of 2012 and 2011 are as follows:

● First Guaranty Bancshares issued a ten percent stock dividend on February 24, 2012 to stockholders of record as of February 17, 2012.

● Net income for the second quarter of 2012 and 2011 was $3.0 million and $2.4 million respectively.  Net income for the six months ended June 30, 2012 was $6.0 million compared to $4.8 million for the six months ended June 30, 2011. 

● Net income available to common shareholders after preferred stock dividends was $2.5 million and $2.1 million for the second quarter of 2012 and 2011, respectively. Net income available to common shareholders after preferred stock dividends was $5.0 million and $4.1 million for the six months ended 2012 and 2011, respectively. The increase in net income for 2012 was primarily the result of higher interest income coupled with a decrease in interest expense and a lower provision for loan losses that were partially offset by higher noninterest expenses.

● Earnings per common share were $0.39 and $0.34 for the second quarter of 2012 and 2011 and $0.80 and $0.67 for the six months ended June 30, 2012 and 2011, respectively.

● Net interest income for the second quarter of 2012 was $10.8 million compared to $9.6 million for the same period in 2011.  Net interest income for the six months ended June 30, 2012 was $21.7 million compared to $19.1 million for the same period in 2011.  

● Total assets at June 30, 2012 were relatively unchanged from December 31, 2011 at $1.4 billion. Total assets increased $10.3 million or 0.8% when compared to $1.4 billion at December 31, 2011. This increase in assets was from an increase in Federal Funds Purchased (short-term borrowings) and earnings retained in the Company.  These funds were invested in securities and loans.

● Investment securities totaled $660.3 million at June 30, 2012, an increase of $27.2 million when compared to $633.2 million at December 31, 2011. At June 30, 2012, available for sale securities, at fair value, totaled $627.4 million, an increase of $106.9 million when compared to $520.5 million at December 31, 2011. At June 30, 2012, held to maturity securities, at amortized cost, totaled $33.0 million, a decrease of $79.7 million when compared to $112.7 million at December 31, 2011.

● The net loan portfolio at June 30, 2012 totaled $587.4 million, a net increase of $23.2 million from the December 31, 2011 net loan portfolio of $564.2 million. Net loans are reduced by the allowance for loan losses which totaled $9.1 million at June 30, 2012 and $8.9 million at December 31, 2011.  Total loans net of unearned income were $596.6 million at June 30, 2012 compared to $573.1 million at December 31, 2011.

● Return on average assets for the three months ended June 30, 2012 and June 30, 2011 was 0.88% and 0.81%, respectively.  Return on average assets for the six months ended June 30, 2012 and June 30, 2011 was 0.89% and 0.82%, respectively.  Return on average common equity for the three months ended June 30, 2012 and June 30, 2011 was 13.17% and 11.90%, respectively.  Return on average common shareholders’ equity for the six months ended June 30, 2012 and June 30, 2011 was 13.46% and 12.12%, respectively.  Return on average assets is calculated by dividing annualized net income before preferred dividends by average assets.  Return on average common shareholders’ equity is calculated by dividing net income by average common shareholders’ equity.

● Book value per common share was $14.62 as of June 30, 2012 compared to $13.09 as of June 30, 2011.  Book value per share was $13.85 for December 31, 2011.

● The Company's Board of Directors declared cash dividends of $0.16 per common share in the second quarter of 2012 and $0.15 per common share for the second quarter of 2011. Cash dividends declared for the six months ended June 30, 2012 and 2011 were $0.32 and $0.29 per common share, respectively.

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Financial Condition

Changes in Financial Condition from December 31, 2011 to June 30, 2012

General.

Total assets at June 30, 2012 were relatively unchanged from December 31, 2011 at $1.4 billion. Total assets increased $10.3 million or 0.8% when compared to $1.4 billion at December 31, 2011. This increase in assets was from an increase in Federal Funds Purchased (short-term borrowings) and earnings retained in the Company.  These funds were invested in securities and loans.

Investment Securities.  

Investment securities at June 30, 2012 totaled $660.3 million, an increase of $27.2 million compared to $633.2 million at December 31, 2011.  The investment portfolio consisted of available for sale securities at their fair market value total of $627.4 million and held to maturity securities at amortized cost total of $33.0 million.  At December 31, 2011 held to maturity securities, at their amortized cost, total $112.7 million. The decrease from December 31, 2011 to June 30, 2012 in the Company’s held to maturity portfolio was mainly attributable to decreases in market interest rates that prompted bond issuers to redeem the bonds prior to maturity. The Company also had bonds that were classified as held to maturity that matured in the first six months of 2012.

The securities portfolio consisted principally of U.S. Government agency securities, corporate debt securities and municipal bonds. The securities portfolio provides the Company with a relatively stable source of income and provides a balance to credit risk when compared to other categories of assets. Management monitors the securities portfolio for both credit and interest rate risk.  The Company generally limits the purchase of corporate securities to individual issuers to manage concentration and credit risk. Corporate securities generally have a maturity of 10 years or less.  Government agency securities generally have maturities of 15 years or less. Corporate securities held at fair value totaled $181.9 million at June 30, 2012.  U.S. Government Agency securities that were held at fair value totaled $403.9 million at June 30, 2012. Agency securities that were held for maturity and carried at amortized cost totaled $33.0 million at June 30, 2012. The fair value of held to maturity agency securities was $33.3 million at June 30, 2012.

At June 30, 2012, $39.5 million or 6.0% of the securities portfolio was scheduled to mature in less than one year. Securities with contractual maturity dates over 10 years totaled $210.5 million or 31.9% of the total portfolio. The weighted average contractual maturity of the securities portfolio was 8.7 years.  The average maturity of the securities portfolio is affected by issuer call options which are influenced by market interest rates.

As of June 30, 2012, certain investment securities totaling $2.3 million had continuous unrealized loss positions for more than 12 months with unrealized losses totaling $0.3 million. These securities in an unrealized loss position for a period longer than 12 months were corporate debt securities. At June 30, 2012, 15 securities from 11 issuers were graded below investment grade with a total book value of $3.6 million.  Non-investment grade securities represent approximately 0.5% of the Company's total investment portfolio.  All of the Company’s non-investment grade securities referenced above were initially investment grade and have been downgraded since purchase. The non-investment grade securities are monitored by management.

Year to date 2012 and 2011 average securities as a percentage of average interest-earning assets were 50.9% and 46.4%, respectively. At June 30, 2012, the U.S. Government agency securities and municipal bonds qualified as securities pledge-able to collateralize repurchase agreements and public funds. Securities pledged totaled $443.2 million at June 30, 2012  and $428.6 million at December 31, 2011.  See Note 3 of the Notes to Consolidated Financial Statements for more information on investment securities.

Loans.

Net loans accounted for 43.1% of total assets at June 30, 2012, compared to 41.7% at December 31, 2011. There are no significant concentrations of credit to any individual borrower. As of June 30, 2012, 78.3% of our loan portfolio was secured primarily or secondarily by real estate. The largest portion of our loan portfolio, at 49.0%, is non-farm non-residential loans secured by real estate.

The net loan portfolio at June 30, 2012 totaled $587.4 million, a net increase of $23.2 million from the December 31, 2011 net loan portfolio of $564.2 million.  Net loans are reduced by the allowance for loan losses which totaled $9.1 million for June 30, 2012 and $8.9 million for December 31, 2011. Total loans include $17.0 million in syndicated loans. Syndicated loans meet the same underwriting criteria used when making in-house loans.  Loan charge-offs totaled $2.2 million during the first six months of 2012, compared to $4.2 million during the same period of 2011.  Recoveries totaled $0.3 million during the first six months of 2012 and $0.3 million for the same period in 2011.  See Note 4 of the Notes to Consolidated Financial Statements for more information on loans and Note 5 for information on the allowance for loan losses.

The Company revised and enhanced its credit risk rating system during the first six months of 2012.  The changes included increased weighting to cash flow analysis and less weighting to collateral valuation.  The methodology changes along with the identification of potential weaknesses in several credits resulted in an overall increase in special mention credits from 12/31/2011 to 6/30/2012.  The Company believes this enhanced methodology will contribute to earlier detection of problem credits and better monitoring of the loan portfolio.

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Nonperforming Assets.

Nonperforming assets consist of loans on which interest is no longer accrued and real estate acquired through foreclosure (other real estate). The accrual of interest is discontinued on loans when management believes there is reasonable uncertainty about the full collection of principal and interest or when the loan is contractually past due 90 days or more and not fully secured. If the principal amount of the loan is adequately secured, then interest income on such loans is recognized only in periods in which actual payments are received.

The table below sets forth the amounts and categories of our non-performing assets and restructured loans where the interest rate or other terms have been renegotiated at the dates indicated.

(in thousands)	June 30, 2012		December 31, 2011
Nonaccrual loans:
Real Estate:
Construction and land development	$	1,519	$	1,520
Farmland		786		562
1 - 4 family residential		5,428		5,647
Multifamily		592		-
Non-farm non-residential		9,450		12,400
Total Real Estate		17,775		20,129
Non-Real Estate:
Agricultural		739		315
Commercial and industrial		1,068		1,986
Consumer and other		77		20
Total Non-Real Estate		1,884		2,321
Total nonaccrual loans		19,659		22,450
Loans 90 days and greater delinquent & accruing:
Real Estate:
Construction and land development		-		-
Farmland		-		-
1 - 4 family residential		756		309
Multifamily		-		-
Non-farm non-residential		-		419
Total Real Estate		756		728
Non-Real Estate:
Agricultural		-		-
Commercial and industrial		-		-
Consumer and other		-		8
Total Non-Real Estate		-		8
Total loans 90 days and greater delinquent & accruing		756		736
Total non-performing loans		20,415		23,186
Real Estate Owned:
Real Estate Loans:
Construction and land development		1,021		1,161
Farmland		-		-
1 - 4 family residential		994		1,342
Multifamily		-		-
Non-farm non-residential		4,836		3,206
Total Real Estate		6,851		5,709
Non-Real Estate Loans:
Agricultural		-		-
Commercial and industrial		-		-
Consumer and other		-		-
Total Non-Real Estate		-		-
Total Real Estate Owned		6,851		5,709
Total non-performing assets	$	27,266	$	28,895
Restructured Loans:
In compliance with modified terms	$	14,714	$	17,547
Past due 30 through 89 days and still accruing		916		-
Subsequently defaulted		1,074		-
Total restructured loans	$	16,704	$	17,547

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Nonperforming assets totaled $27.3 million or 2.0% of total assets at June 30, 2012, a decrease of $1.6 million from December 31, 2011. Management has not identified additional information on any loans not already included in impaired loans or the nonperforming asset total that indicates possible credit problems that could cause doubt as to the ability of borrowers to comply with the loan repayment terms in the future.

Nonaccrual loans totaled $19.7 million as of June 30, 2012.  The nonaccrual loans are concentrated in six credit relationships that total approximately $10.5 million or 53.5% of the nonaccrual balance.  The nonaccrual loan total includes approximately $3.7 million in a participation loan secured by a hotel, $3.7 million secured by two motels, $1.1 million secured by a personal residence, $0.7 million secured by real estate and equipment, $0.7 million secured by equipment and accounts receivable, and $0.6 million secured by real estate and farm land.

Nonaccrual loans decreased in aggregate $2.8 million from December 31, 2011 to June 30, 2012. The decrease represents $7.8 million in loans, at December 31, 2011, that were charged-off, foreclosed upon and collateral was transferred to other real estate, or was returned to performing status which was partially offset by $5.0 million of loans in which interest is no longer accrued at June 30, 2012.

Construction and land development nonaccrual loans remained relatively unchanged at $1.5 million as of June 30, 2012 and 2011.

Nonaccrual loans secured by farmland increased $0.2 million from $0.6 million at December 31, 2011 to $0.8 million at June 30, 2012.

One-to-four family residential nonaccrual loans decreased $0.2 million to $5.4 million at June 30, 2012 from $5.6 million at December 31, 2012. 

Multifamily nonaccrual loans increased by $0.6 million in the first six months of 2012 and at December 31, 2011 there were no nonaccrual loans in the multifamily category. The increase is due to one loan in this category delinquent more than 90 days in which interest is no longer accrued.

Non-farm non-residential nonaccrual loans decreased $3.0 million from December 31, 2011 to June 30, 2012. This category constitutes $9.5 million or 48.1% of total nonaccrual loans. This category includes loans secured by owner and non-owner occupied commercial real estate. The decrease from December 31, 2011 is due to one loan secured by an entertainment complex totaling $2.7 million that the Company foreclosed upon and repossessed the collateral.

Commercial and industrial nonaccrual loans decreased by $0.9 million to $1.1 million at June 30, 2012 from $2.0 million at December 31, 2011. This can be mainly attributed to one loan secured by equipment and accounts receivable totaling $0.8 million in which the collateral was liquidated and applied to the principal balance.

Other Real Estate Owned (OREO) totaled $6.9 million as of June 30, 2012 compared to $5.7 million at December 31, 2011. OREO is composed of several one to four family residential properties totaling $1.0 million, construction and land development lots of approximately $1.0 million, and commercial properties totaling $4.8 million. The increase in OREO from December 31, 2011 is due to the addition of one property totaling $2.2 million. This was the entertainment complex from the foreclosed loan in the non-farm non-residential loan category discussed in the nonaccrual section. There were also several small properties added to OREO totaling $1.1 million. The increases were partially offset by write-downs of properties in OREO totaling $0.8 million and sales of OREO of $1.4 million through the first six months of 2012. Additionally, the Company had recoveries of prior write-downs of OREO of $0.2 million in the first six months of 2012. 

Restructured loans totaled $16.7 million as of June 30, 2012. These restructured loans were comprised of ten contracts which were from five credit relationships. Of those five credit relationships, two of the relationships totaled $14.7 million.  The largest credit relationship for $8.7 million is secured by commercial real estate and land development properties.  The second largest credit relationship for $6.0 million is secured by an apartment complex. The modifications were concessions on the interest rate charged for these loans.  The effect of the modifications to the Company was a reduction in interest income. One loan, with a principal balance totaling $1.1 million, secured by a personal residence, defaulted after the debt was restructured. The concession on the restructured loan that defaulted was a lower interest rate. These loans still have an allocated reserve in the Company's reserve for loan losses. During the second quarter of 2012, there were no loans that were restructured in a troubled debt restructuring.

Impaired loans totaled $45.3 million as of June 30, 2012.  Impaired loans with a valuation allowance totaled $35.5 million and impaired loans without a valuation allowance totaled $9.8 million.  Included in the impaired loan total were $16.7 million in troubled debt restructurings, $14.7 million of which that are performing under their new terms.  For more information, see Note 5 to Consolidated Financial Statements.

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Allowance for Loan Losses. 

The allowance for loan losses is maintained at a level considered sufficient to absorb potential losses embedded in the loan portfolio. The allowance is increased by the provision for anticipated loan losses as well as recoveries of previously charged-off loans and is decreased by loan charge-offs. The provision is the necessary charge to current expense to provide for current loan losses and to maintain the allowance at a level commensurate with Management’s evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when determining the amount of the provision and the adequacy of the allowance. These factors include but are not limited to:

● past due and nonperforming assets;

● specific internal analysis of loans requiring special attention;

● the current level of regulatory classified and criticized assets and the associated risk factors with each;

● changes in underwriting standards or lending procedures and policies;

● charge-off and recovery practices;

● national and local economic and business conditions;

● nature and volume of loans;

● overall portfolio quality;

● adequacy of loan collateral;

● quality of loan review system and degree of oversight by its Board of Directors;

● competition and legal and regulatory requirements on borrowers;

● examinations of the loan portfolio by federal and state regulatory agencies and examinations; and

● review by our internal loan review department and independent accountants.

The data collected from all sources in determining the allowance for loan losses is evaluated on a regular basis by Management with regard to current national and local economic trends, prior loss history, underlying collateral values, credit concentrations and industry risks. An estimate of potential loss on specific loans is developed in conjunction with an overall risk evaluation of the total loan portfolio. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.  An unallocated component is maintained to cover uncertainties that could affect Management's estimate of probable losses.

Provisions made pursuant to these processes totaled $2.1 million in the first six months of 2012 compared to $3.4 million for the same period in 2011. Total charge-offs were $2.2 million for first six months of 2012 as compared to $4.2 million for the same period in 2011.  Recoveries totaled $0.3 million during the first six months of 2012 and $0.3 million during the first six months of 2011.

The loans that the Company charged-off in the first six months of 2012 consisted of two large partially charged-off loans and one fully charged-off loan. Together these three charged-off loans totaled $1.4 million and consisted of $0.5 million on a loan secured by an entertainment complex that was foreclosed upon, $0.7 million on a loan secured by a personal residence, and $0.3 million on a loan secured by equipment. These charges were taken after appraisals on the properties and equipment indicated an impairment of the Company’s collateral position.

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All accrued but uncollected interest related to a loan is deducted from income in the period the loan is assigned a nonaccrual status. During the period a loan is in nonaccrual status, any cash receipts are first applied to the principal balance. Once the principal balance has been fully recovered, any residual amounts are applied to expenses resulting from the collection of the payment and to the recovery of any reversed interest income and interest income that would have been due had the loan not been placed on nonaccrual status. As of June 30, 2012 and December 31, 2011 the Company had loans totaling $19.7 million and $22.5 million, respectively, on which the accrual of interest had been discontinued. The allowance for loan losses at June 30, 2012 was $9.1 million or 44.6% of nonperforming loans.  At June 30, 2012 loans classified as TDRs totaled $16.7 million. The portion of the allowance for loan losses associated with TDRs was $0.8 million or 8.6% of total reserve. See Note 4 and 5 of the Notes to Consolidated Financial Statements for more information on loans and the allowance for loan losses.

Other information relating to loans, the allowance for loan losses and other pertinent statistics follows.

(in thousands)	June 30, 2012			June 30, 2011
Loans:
Average outstanding balance (net of unearned income, including loans held for sale)	$	577,254		$	554,425
Balance at end of period (net of unearned income, including loans held for sale)	$	597,011		$	546,152
Allowance for Loan Losses:
Balance at beginning of year	$	8,879		$	8,317
Charge-offs		(2,178	)		(4,186	)
Recoveries		336			303
Provision		2,104			3,351
Balance at end of period	$	9,141		$	7,785

Other assets.

Other assets at June 30, 2012 were $30.5 million compared to $4.9 million at December 31, 2011. The increase in other assets is due to an increase in accounts receivable totaling $25.0 million from bonds that were called on June 30, 2012 that the Company did not receive funds for until July 2, 2012.

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Deposits.

Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. In this regard, management regularly assesses our funding needs, deposit pricing and interest rate outlooks. From December 31, 2011 to June 30, 2012, total deposits decreased by $1.6 million to $1.2 billion at June 30, 2012.  Noninterest-bearing demand deposits increased $2.7 million from December 31, 2011 to June 30, 2012. Interest-bearing demand deposits increased by $11.1 million when comparing June 30, 2012 to December 31, 2011. Time deposits decreased $17.1 million, or 2.5% to $675.4 million at June 30, 2012, compared to $692.5 million at December 31, 2011.

At June 30, 2012, public fund deposits totaled $452.5 million.  During the first six months of 2012, public fund deposits increased $20.6 million. The Company has developed a program for the development and management of public fund deposits.  Since 2007, the Company has maintained public fund deposits in excess of $175.0 million.  These deposits are with local government entities such as school districts, hospital districts, sheriff departments and other municipalities.  Several of these accounts are under contracts with terms up to three years.  Public funds deposit accounts are collateralized by FHLB letters of credit, U.S. Government securities, and by eligible U.S. Government agency securities such as those issued by the FHLB, FFCB, FNMA, and FHLMC.  Management believes that public funds provide a low cost and stable source of funding for the Company.

As of June 30, 2012, the aggregate amount of outstanding time deposits in amounts greater than or equal to $100,000 was approximately $446.3 million.  At June 30, 2012, $276.8 million or 41.0% of the Company's time deposits had a remaining term greater than one year.

As we seek to maintain a strong net interest margin and improve our earnings, attracting core noninterest-bearing deposits will remain a key element of the Company’s strategy. Management will continue to evaluate and update our product mix in its efforts to attract additional core customers. We currently offer a number of noninterest-bearing deposit products that are competitively priced and designed to attract and retain customers with emphasis on core deposits.

The following table sets forth the distribution of our total deposit accounts, by account type, for the periods indicated.

					Increase / (Decrease)
(in thousands except for %)	June 30, 2012		December 31, 2011		Amount			Percent
Noninterest-bearing demand	$	170,665	$	167,925	$	2,740		1.6	%
Interest-bearing demand		300,527		289,408		11,119		3.8	%
Savings		59,157		57,452		1,705		3.0	%
Time		675,397		692,517		(17,120	)	-2.5	%
Total deposits	$	1,205,746	$	1,207,302	$	(1,556	)	-0.1	%

The following table sets forth the distribution of our time deposit accounts.

(in thousands)	June 30, 2012
Time deposits of less than $100,000	$	229,112
Time deposits of $100,000 through $250,000		159,478
Time deposits of more than $250,000		286,807
Total Time Deposits	$	675,397

The following table sets forth public funds as a percent of total deposits.

(in thousands except for %)	June 30, 2012			December 31, 2011			December 31, 2010			December 31, 2009			December 31, 2008
Total Public Funds	$	452,470		$	431,905		$	356,153		$	268,474		$	225,766
Total Deposits	$	1,205,746		$	1,207,302		$	1,007,383		$	799,746		$	780,382
Total Public Funds as a percent of Total Deposits		37.5	%		35.8	%		35.4	%		33.6	%		28.9	%

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Borrowings.

The Company maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short and long-term basis to meet liquidity needs. At June 30, 2012, short-term borrowings totaled $19.4 million compared to $12.2 million at December 31, 2011, and consisted of repurchase agreements and federal funds purchased. Overnight repurchase agreement balances are monitored daily for sufficient collateralization. The Company had long-term borrowings totaling $1.4 million as of June 30, 2012 and $3.2 million at December 31, 2011. The Company pays $50,000 principal per month on its long-term debt that is priced at WSJ prime plus 75 basis points (currently 4.0%). In addition to the $300,000 in monthly principal payments for the first six months of 2012, the Company also made pay downs totaling $1.5 million. The accelerated repayment of the Company’s long-term debt is a strategy by Management to reduce interest costs while yields on securities remain low.  

The average amount of total short-term borrowings for the first six months of 2012 totaled $13.0 million, compared to $15.1 million for the same period in 2011. At June 30, 2012, the Company had $60.0 million in Federal Home Loan Bank letters of credit outstanding obtained solely for collateralizing public deposits.

The Company also maintains a $2.5 million revolving line of credit.  There was no balance on this credit facility at June 30, 2012 or December 31, 2011.  This credit facility and the $1.4 million in long-term debt are secured by a portion of the Company's ownership in its subsidiary First Guaranty Bank.

Equity.  

Stockholders’ equity provides a source of permanent funding, allows for future growth and the ability to absorb unforeseen adverse developments. Total equity increased to $131.4 million as of June 30, 2012 from $126.6 million at December 31, 2011. The increase in stockholders' equity was the result of the increase in retained earnings totaling $3.0 million and an increase in accumulated other comprehensive income totaling $1.8 million. The increase in retained earnings was attributable to year to date earnings of $6.0 million which was partially offset by dividends paid to common shareholders totaling $2.0 million and dividends paid on preferred stock totaling $1.0 million. The increase in accumulated other comprehensive income was solely from increases in unrealized gains on available for sale securities. Stockholders’ equity was slightly decreased by the purchase of 1,160 shares of the Company’s common stock totaling $22,000.  

Results of Operations for the three and six months ended June 30, 2012 and 2011

Net Income.

Net income for the second quarter ending June 30, 2012 was $3.0 million, an increase of $0.6 million from $2.4 million for the quarter ending June 30, 2011.  Net income for the six months ended June 30, 2012 was $6.0 million, an increase of $1.2 million or 25.6% from $4.8 million for the six months ended June 30, 2011. For the quarter ending June 30, 2012, the Company had net income available to common shareholders of $2.5 million, an increase of $0.4 million from the same quarter in 2011 net income available to common shareholders of $2.1 million. Net income available to common shareholders for the six months ended June 30, 2012 was $5.0 million which is an increase of $0.9 million from $4.1 million for the same period in 2011. The increase in income can be attributed to an increase in interest income from a higher volume of interest earning assets coupled with lower interest expense when compared year over year.  Net gains on securities for the second quarter of 2012 and 2011 were $0.8 million and $2.2 million, respectively. Net gains on securities for the first six months of 2012 and 2011 were $1.5 million and $2.2 million.  Earnings per common share for the second quarter ended June 30, 2012 was $0.39 per common share, an increase of 14.7% or $0.05 per common share from $0.34 per common share for the second quarter ended June 30, 2011. Earnings per common share for the six months ended June 30, 2012 was $0.80 per common share, an increase of 19.4% or $0.13 per common share from $0.67 per common share for the six months ended June 30, 2011.

Net Interest Income.

Net interest income is the largest component of our earnings, and is calculated by subtracting the cost of interest-bearing liabilities from the income earned on interest-earning assets. This represents the earnings from our primary business of taking in deposits and then using those funds to invest in loans and investment securities. Our long-term objective is to manage net interest income to provide maximum income, while balancing interest rate risk, credit risk, and liquidity risks.

A financial institution’s asset and liability structure is substantially different from that of a non-financial company, in that virtually all assets and liabilities are monetary in nature. Accordingly, changes in interest rates, which are generally impacted by inflation rates, may have a significant impact on a financial institutions performance. The impact of interest rate changes depends on the sensitivity to the change of our interest-earning assets and interest-bearing liabilities. The effects of the varying interest rate environment in recent years and the Company’s interest sensitivity position will be discussed below.

Net interest income in the second quarter of 2012 was $10.8 million compared to $9.6 million for the second quarter of 2011. Net interest income for the first six months of 2012 and 2011 was $21.7 million and $19.1 million, respectively.  Interest from loans represent the largest portion of  interest income from the Company's interest-earning assets, and 43.1% of our total loans are floating rate loans which are primarily tied to the prime lending rate. Of the $257.4 million of loans that have floating rates, $255.6 million are currently at their floor rate. The loan floors were the first step to improving net interest income after the prime rate dropped 400 basis points in 2008. This strategy has continued through 2012. The lower cost of our interest-bearing liabilities reflects a lower cost of funds from the company repricing deposits down and a decrease in  interest-bearing liabilities. As of June 30, 2012, time deposits represented 56.0% of total deposits, which is a decrease from 57.4% of total deposits at December 31, 2011.

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The average yield on interest-earning assets decreased from 4.73% at June 30, 2011 to 4.36% at June 30, 2012. The interest-bearing liabilities average yield decreased to 1.32% at June 30, 2012, compared to 1.64% at June 30, 2011. The net yield on interest-earning assets was 3.04% for the six months ended June 30, 2012, compared to 3.10% for the same period in 2011.

The net interest income yield shown below in the average balance sheet is calculated by dividing net interest income by average interest-earning assets and is a measure of the efficiency of the earnings from balance sheet activities. It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities.

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	June 30, 2012						June 30, 2011
(in thousands except for %)	Average Balance		Interest		Yield/Rate		Average Balance		Interest		Yield/Rate
Assets
Interest-earning assets:
Interest-earning deposits with banks (1)	$	38,899	$	36	0.19	%	$	25,665	$	23	0.18	%
Securities (including FHLB stock)		670,723		10,938	3.27	%		524,332		9,797	3.77	%
Federal funds sold		30,380		7	0.05	%		15,894		9	0.11	%
Loans, net of unearned income		577,254		17,635	6.13	%		564,882		16,706	5.96	%
Total interest-earning assets		1,317,256		28,616	4.36	%		1,130,773		26,535	4.73	%
Noninterest-earning assets:
Cash and due from banks		10,128						10,370
Premises and equipment, net		19,844						16,565
Other assets		13,484						10,574
Total Assets	$	1,360,712					$	1,168,282
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Demand deposits	$	309,945	$	700	0.45	%	$	197,308	$	405	0.41	%
Savings deposits		58,587		27	0.09	%		48,924		22	0.09	%
Time deposits		670,468		6,123	1.83	%		660,824		7,030	2.15	%
Borrowings		15,779		73	0.92	%		13,881		14	0.20	%
Total interest-bearing liabilities		1,054,779		6,923	1.32	%		920,937		7,471	1.64	%
Noninterest-bearing liabilities:
Demand deposits		170,811						140,509
Other		5,826						6,784
Total Liabilities		176,637						1,068,230
Stockholders' equity		129,296						100,052
Total Liabilities and Stockholders' Equity	$	1,360,712					$	1,168,282
Net interest income			$	21,693					$	19,064
Net interest rate spread (2)					3.04	%					3.10	%
Net interest-earning assets (3)	$	262,477					$	209,836
Net interest margin (4)					3.30	%					3.40	%
Average interest-earning assets to interest-bearing liabilities					124.88	%					122.79	%

(1)	Interest-earning deposits with banks include reserves kept with the Federal Reserve Bank that are classified on the balance sheet as "cash and due from banks". The reserves are not classified as interest-earning demand deposits on the balance sheet because interest is only paid on amounts in excess of minimum reserve requirements.
(2)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(3)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(4)	Net interest margin represents net interest income divided by average total interest-earning assets.

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Provision for Loan Losses.

The provision for loan losses was $0.9 million and $2.9 million for the second quarter of 2012 and 2011, respectively. For the six months ending June 30, 2012, the provision for loan loss was $2.1 million, a decrease from $3.4 million for the first six months of 2011. Of the loan charge-offs for the second quarter of 2012, approximately $1.5 million were loans secured by real estate and $0.7 million were loans not secured by real estate.   The allowance for loan losses at June 30, 2012 was $9.1 million, compared to $8.9 million at December 31, 2011, and was 1.53% and 1.55% of total loans, respectively. Management believes that the allowance is adequate to cover losses in the loan portfolio given the current economic conditions, expected net charge-offs and nonperforming asset levels.

Noninterest Income.

For the quarters ending June 30, 2012 and 2011, noninterest income totaled $2.4 million and $3.7 million, respectively. Service charges, commissions and fees totaled $1.2 million for the second quarter ended June 30, 2012 and $1.1 million for the same period of 2011. Net securities gains were $0.8 million for the second quarter of 2012 compared to $2.2 million in 2011. Other noninterest income remained relatively unchanged at $0.4 million for the second quarter ended June 30, 2012 and 2011. Noninterest income totaled $4.7 million for the six months ended June 30, 2012; a decrease of $0.3 million when compared to $5.0 million for the six months ended June 30, 2011. Service charges, commissions and fees totaled $2.4 million for the six months ended June 30, 2012 and $2.1 million for the same period of 2011. Net securities gains were $1.5 million for the first six months of 2012 compared to $2.2 million in 2011. Other noninterest income increased by $0.2 million to $0.8 million in the first six months of 2012 compared to $0.6 million for the same period in 2011.

Noninterest Expense.

Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses.  Noninterest expense totaled $7.9 million in the second quarter of 2012 and $6.7 million in 2011. Noninterest expense increased from $13.3 million for the first six months of 2011 to $15.1 million for the first six months of 2012. Salaries and benefits totaled $3.4 million for the second quarter of 2012 compared to $2.9 million for the second quarter of 2011. For the first six months of 2012 and 2011, salaries and benefits totaled $6.7 million and $6.0 million, respectively. Occupancy and equipment expense totaled $0.9 million for the second quarter of 2012 and $0.8 million for the second quarter of 2011. Occupancy and equipment expense totaled $1.9 million for the first six months of 2012 and $1.6 million for the same period in 2011. Other noninterest expense totaled $3.6 million in the second quarter of 2012, compared to $2.9 million the second quarter of 2011.  Other noninterest expense increased by $0.8 million to $6.5 million for the six months ended June 30, 2012 from $5.7 million for the six months ended June 30, 2011. The increases in other noninterest expense were mainly the result of an increase in other real estate and repossession expense of $0.7 million when comparing the six months that ended June 30, 2012 to the same period in 2011. The other real estate and repossession cost through June 30, 2012 consisted of write downs of the Company’s other real estate owned totaling $0.8 million and $0.4 million of cost incurred maintaining the properties and protecting the Company’s interest. These expenses were partially offset by recoveries of the Company’s prior write-downs of OREO totaling $0.2 million.

The following is a summary of the significant components of other noninterest expense:

	Six Months Ended June 30,				Three Months Ended June 30,
(in thousands)	2012		2011		2012		2011
Other noninterest expense:
Legal and professional fees	$	1,089	$	961	$	601	$	591
Data processing		1,365		1,119		703		555
Marketing and public relations		420		529		246		204
Taxes - sales, capital, and franchise		359		363		181		188
Operating supplies		275		265		131		132
Travel and lodging		285		194		155		94
Net costs from other real estate and repossessions		901		196		582		135
Regulatory assessment		497		948		293		475
Other		1,350		1,155		689		569
Total other expense	$	6,541	$	5,730	$	3,581	$	2,943

Income Taxes.

The provision for income taxes was $1.5 million and $1.3 million for the quarters ended June 30, 2012 and 2011.  The provision for the six months ended June 30, 2012 and 2011 was $3.1 million and $2.6 million, respectively. The increase in the provision for income taxes is a result of higher income through the first six months of 2012 when compared to same period in 2011. The Company's statutory tax rate was 34.0% which was unchanged from the second quarter of 2011.

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability Management and Market Risk

Asset/Liability Management.

Our asset/liability management (ALM) process consists of quantifying, analyzing and controlling interest rate risk (IRR) to maintain reasonably stable net interest income levels under various interest rate environments. The principal objective of ALM is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintain adequate levels of liquidity.

The majority of our assets and liabilities are monetary in nature. Consequently, one of our most significant forms of market risk is interest rate risk. Our assets, consisting primarily of loans secured by real estate, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has established an Asset/Liability Committee which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. Senior Management monitors the level of interest rate risk on a regular basis and the Asset/Liability Committee, which consists of executive Management and other bank personnel operating under a policy adopted by the Board of Directors, meets as needed to review our asset/liability policies and interest rate risk position.

The interest spread and liability funding discussed below are directly related to changes in asset and liability mixes, volumes, maturities and repricing opportunities for interest-earning assets and interest-bearing liabilities. Interest-sensitive assets and liabilities are those which are subject to being repriced in the near term, including both floating or adjustable rate instruments and instruments approaching maturity. The interest sensitivity gap is the difference between total interest-sensitive assets and total interest-sensitive liabilities. The gap report uses the contractual maturity of both assets and deposits.  The actual maturity may differ due to prepayment options associated with either assets or liabilities.  For example, most of the government securities owned by the Company are callable bonds and these may be repaid sooner than their contractual maturity. Interest rates on our various asset and liability categories do not respond uniformly to changing market conditions. Interest rate risk is the degree to which interest rate fluctuations in the marketplace can affect net interest income.

To maximize our margin, we attempt to be somewhat more asset sensitive during periods of rising rates and more liability sensitive during periods of falling rates. The need for interest sensitivity gap management is most critical in times of rapid changes in overall interest rates. We generally seek to limit our exposure to interest rate fluctuations by maintaining a relatively balanced mix of rate sensitive assets and liabilities on a one-year time horizon. The mix is relatively difficult to manage because of the significant impact on net interest margin from mismatches in repricing opportunities; the asset-liability mix is monitored periodically depending upon management’s assessment of current business conditions and the interest rate outlook. Exposure to interest rate fluctuations is maintained within prudent levels by the use of varying investment strategies.

We monitor interest rate risk using an interest sensitivity analysis set forth on the following table. This analysis, which we prepare monthly, reflects the maturity and repricing characteristics of assets and liabilities over various time periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The interest sensitivity analysis at June 30, 2012 shown below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis.

	June 30, 2012
	Interest Sensitivity Within
(in thousands except for %)	3 Months Or Less			Over 3 Months thru 12 Months			Total One Year			Over One Year		Total
Earning Assets:
Loans (including loans held for sale)	$	82,409		$	168,144		$	250,553		$	346,458	$	597,011
Securities (including FHLB stock)		22,163			17,344			39,507			621,929		661,436
Federal Funds Sold		1,925			-			1,925			-		1,925
Other earning assets		32,112			-			32,112			-		32,112
Total earning assets	$	138,609		$	185,488		$	324,097		$	968,387	$	1,292,484
Source of Funds:
Interest-bearing accounts:
Demand deposits	$	150,264		$	-		$	150,264		$	150,263	$	300,527
Savings deposits		14,789			-			14,789			44,368		59,157
Time deposits		201,445			197,122			398,567			276,830		675,397
Short-term borrowings		19,405			-			19,405			-		19,405
Long-term borrowings		-			-			-			1,400		1,400
Noninterest-bearing, net		-			-			-			236,598		236,598
Total source of funds	$	385,903		$	197,122		$	583,025		$	709,459	$	1,292,484
Period gap	$	(247,294	)	$	(11,634	)	$	(258,928	)	$	258,928
Cumulative gap	$	(247,294	)	$	(258,928	)	$	(258,928	)	$	-
Cumulative gap as a percent of earning assets		-19.13	%		-20.03	%		-20.03	%

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Liquidity and Capital Resources

Liquidity.

Liquidity refers to the ability or flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows the Company to have sufficient funds available to meet customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. Liquid assets include cash and due from banks, interest-earning demand deposits with banks, federal funds sold and available for sale investment securities, including securities pledged to collateralize public fund deposits. These assets represent 26.8% and 27.9% of the total liquidity base at June 30, 2012 and December 31, 2011, respectively.

Loans maturing or repricing within one year or less at June 30, 2012 totaled $233.7 million.  At June 30, 2012, time deposits maturing within one year or less totaled $398.9 million.

The Company maintained a net borrowing capacity at the Federal Home Loan Bank totaling $106.0 million and $134.9 million at June 30, 2012 and December 31, 2011, respectively. The decrease in availability at Federal Home Loan Bank during 2012 primarily resulted from the decrease of our blanket lien availability. We also maintain federal funds lines of credit at three correspondent banks with borrowing capacity of $45.0 million and a revolving line of credit for $2.5 million as of June 30, 2012. The Company did not have an outstanding balance on these lines of credit as of June 30, 2012. Management believes there is sufficient liquidity to satisfy current operating needs.

Capital Resources.

The Company's capital position is reflected in stockholders’ equity, subject to certain adjustments for regulatory purposes. Further, our capital base allows us to take advantage of business opportunities while maintaining the level of resources we deem appropriate to address business risks inherent in daily operations.

Total equity increased to $131.4 million as of June 30, 2012 from $126.6 million at December 31, 2011. The increase in stockholders' equity was the result of the increase in retained earnings totaling $3.0 million and an increase in accumulated other comprehensive income totaling $1.8 million. The increase in retained earnings was attributable to year to date earnings of $6.0 million which was partially offset by dividends paid to common shareholders totaling $2.0 million and dividends paid on preferred stock totaling $1.0 million. The increase in accumulated other comprehensive income was solely from increases in unrealized gains on available for sale securities. Stockholders’ equity was slightly decreased by the purchase of 1,160 shares of the Company’s common stock totaling $22,000.

Regulatory Capital.

Risk-based capital regulations adopted by the FDIC require banks to achieve and maintain specified ratios of capital to risk-weighted assets. Similar capital regulations apply to bank holding companies. The risk-based capital rules are designed to measure “Tier 1” capital (consisting of common equity, retained earnings and a limited amount of qualifying perpetual preferred stock and trust preferred securities, net of goodwill and other intangible assets and accumulated other comprehensive income) and total capital in relation to the credit risk of both on- and off- balance sheet items. Under the guidelines, one of its risk weights is applied to the different on balance sheet items. Off-balance sheet items, such as loan commitments, are also subject to risk weighting. All bank holding companies and banks must maintain a minimum total capital to total risk weighted assets ratio of 8.00%, at least half of which must be in the form of core or Tier 1 capital. These guidelines also specify that bank holding companies that are experiencing internal growth or making acquisitions will be expected to maintain capital positions substantially above the minimum supervisory levels.

	As of June 30, 2012
	"Well Capitalized Minimums"		Actual
Tier 1 Leverage Ratio
Consolidated	5.00	%	8.93	%
Bank	5.00	%	8.93	%
Tier 1 Risk-based Capital Ratio
Consolidated	6.00	%	13.61	%
Bank	6.00	%	13.61	%
Total Risk-based Capital Ratio
Consolidated	10.00	%	14.64	%
Bank	10.00	%	14.65	%

At June 30, 2012, we satisfied the minimum regulatory capital requirements and were well capitalized within the meaning of federal regulatory requirements.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As defined by the Securities and Exchange Commission in Exchange Act Rules 13a-15(e) and 15d-15(e), a Company's “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within time periods specified in the Commission’s rules and forms. The Company maintains such controls designed to ensure this material information is communicated to Management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decision regarding required disclosure.

Management, with the participation of the CEO and CFO, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, the CEO and CFO have concluded that the disclosure controls and procedures as of the end of the period covered by this quarterly report are effective. There were no changes in the Company's internal control over financial reporting during the last fiscal quarter in the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

The Company is subject to various other legal proceedings in the normal course of business and otherwise. It is management's belief that the ultimate resolution of such other claims will not have a material adverse effect on the Company's financial position or results of operations.

PART II.  OTHER INFORMATION

Item 1.      Legal Proceedings

The Company is subject to various other legal proceedings in the normal course of business and otherwise. It is management's belief that the ultimate resolution of such other claims will not have a material adverse effect on the Company's financial position or results of operations.

Item 1A.  Risk Factors

There have been no material changes in the risk factors disclosed by the Company in its Annual Report on Form 10-K with the Securities and Exchange Commission.

Exhibit
Number	Exhibit
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

FIRST GUARANTY BANCSHARES, INC.
Date:   August 13, 2012	By: /s/ Alton B. Lewis
	Alton B. Lewis
	Principal Executive Officer
Date:   August 13, 2012	By: /s/ Eric J. Dosch
	Eric J. Dosch
	Principal Financial Officer
	Secretary and Treasurer

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