DOCUMENTS INCORPORATED BY REFERENCE:

(1) Proxy Statement for the 2010 Annual Meeting of Stockholders of the Registrant (Part III).

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TABLE OF CONTENTS

		Page
Part I.I.
Item 1	Business	4
Item 1A	Risk Factors	13 15
Item 1B	Unresolved Staff Comments	19 21
Item 2	Properties	20 22
Item 3	Legal Proceedings	21 23
Item 4	Reserved	21 23

Part II.
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
	Purchases of Equity Securities	21 23
Item 6	Selected Financial Data	23 25
Item 7	Management's Discussion and Analysis of Financial Condition and Results
	of Operations	25 27
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	49 50
Item 8	Financial Statements and Supplementary Data	51 52
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial
	Disclosures	78 85
Item 9a(T)	Controls and Procedures	78 85
Item 9b	Other Information	78 85

Part III.
Item 10	Directors, Executive Officers and Corporate Governance	79 86
Item 11	Executive Compensation	79 86
Item 12	Security Ownership of Certain Beneficial Owners, Management and Related Stockholder	79 86
	Matters
Item 13	Certain Relationships and Related Transactions and Director Independence	79 86
Item 14	Principal Accountant Fees and Services	79 86

Part IV.
Item 15	Exhibits and Financial Statement Schedules	80 87

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~~Table of Contents~~

PART 1

~~PART 1~~

Item 1 – Business

Background

First Guaranty Bancshares, Inc. (the “Company”) is a bank holding company headquartered in Hammond, Louisiana with one wholly owned subsidiary, First Guaranty Bank (the “Bank”). At December 31, ~~2009,~~2010, the Company had consolidated assets of ~~$930.8 million~~$1.133 billion with ~~$94.9~~$97.9 million in consolidated stockholders’ equity. The Company’s executive office is located at 400 East Thomas Street, Hammond, Louisiana 70401. The telephone number is (985) 345-7685. The Company is subject to extensive regulation by the Board of Governors of the Federal Reserve System (“FRB”).

First Guaranty Bank is a Louisiana state chartered commercial bank with 16 full-service banking facilities and one drive-up only facility located in southeast, southwest and north Louisiana. The Bank was organized under Louisiana law in 1934 and changed its name to First Guaranty Bank in 1971. Deposits are insured up to the maximum legal limits by the FDIC. The Bank is not a member of the Federal Reserve System. As of December 31, ~~2009,~~2010, the Bank was the ~~ninth~~sixth largest Louisiana-based bank and the ~~fifth~~fourth largest Louisiana bank not headquartered in New Orleans, as measured by total assets. On October 22, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Greensburg Bancshares, Inc. (“Greensburg Bancshares”) and its wholly-owned subsidiary, Bank of Greensburg (“Greensburg”). For further information see "Entry into Material Definitive Agreement."

Business Objective

The Company’s business objective is to ~~be focused on providing~~provide value to customers by delivering products and services matched to customer needs. We emphasize personal relationships and localized decision making. The Board of Directors and senior Management have extensive experience and contacts in our marketplace and are an important source of new business opportunities.

The Company’s business plan emphasizes both growth and profitability. From December 31, ~~2004~~2006 to December 31, ~~2009,~~2010, assets have grown from ~~$607.2~~$715.2 million to ~~$930.8 million.~~$1.133 billion.

Market Areas

Our focus is on the bedroom communities of metropolitan markets, small cities and rural areas in southeast, southwest and north Louisiana. In southeast Louisiana, seven branches are located in Tangipahoa Parish in the towns of Amite, Hammond (2), Independence, Kentwood and Ponchatoula (2). Two branches are located in Livingston Parish, one branch in Denham Springs and the other in Walker. In southwest Louisiana, we have branches in Abbeville and Jennings which are located in Vermillion Parish and Jefferson Davis Parish, respectively. The remaining six branches are located in north Louisiana, in Haynesville and Homer, which are both in Claiborne Parish; in Oil City and Vivian, both in Caddo Parish; in Dubach in Lincoln Parish and Benton, in Bossier Parish. Our core market remains in the home parish of Tangipahoa where approximately ~~60.7%~~33.0% of ~~d eposits~~deposits and ~~74.7%~~39.8% of net loans were based in ~~2009.~~2010.

Our southeast Louisiana market is strategically located near the intersection of Interstates 12 and 55, which places it at a crossroads of commercial activity for the southeastern United States. In addition, this market area is largely populated by the work force of several nearby petrochemical refineries and other industrial plants and is a bedroom community for the urban centers of New Orleans and Baton Rouge, which are approximately 45 miles and 60 miles, respectively, from Hammond, where the main office is located. Hammond is home to one of the largest medical centers in the state of Louisiana and the third largest state university in Louisiana.

Our southwest Louisiana market benefits from a profitable casino gaming industry and substantial tourism revenue derived from the Louisiana Acadian culture. It also has a concentration of oilfield and oilfield services activity and is a thriving agricultural center for rice, sugarcane and crawfish.

Timber cultivation and its related industries, including milling and logging, are key commercial activities in the north Louisiana market. It is also an agrarian center in which corn, cotton and soybeans are the primary crops. The poultry industry, including independent poultry grower farms that contract with national poultry processing companies, are also very important to the local economy.

Banking Products and Services

The Company offers personalized commercial banking services to businesses, professionals and individuals. We offer a variety of deposit products including personal and business checking and savings accounts, time deposits, money market accounts and NOW accounts. Other services provided include personal and commercial credit cards, remote deposit capture, safe deposit boxes, official checks, ~~travelers’~~traveler's checks, internet banking, online bill pay, mobile banking and lockbox services. Also offered is 24-hour banking through internet banking, voice response and 2526 automated teller machines. Although full trust powers have been granted, we do not actively operate or have any present ~~intentions~~intention to activate a trust department.

Loans

The Bank is engaged in a diversity of lending activities to serve the credit needs of its customer base including commercial loans, commercial real estate loans, real estate construction loans, residential mortgage loans, agricultural loans, home equity lines of credit, equipment loans, inventory financing and student loans. In addition, the Bank provides consumer loans for a variety of reasons such as the purchase of automobiles, recreational vehicles or boats, investments or other consumer needs. The Bank issues MasterCard and Visa credit cards and provides merchant processing services to commercial customers. The loan portfolio is divided, for regulatory purposes, into four broad classifications: (i) real estate loans, which include all loans secured in whole or part by real estate; (ii) agricultural loans, comprised of all farm loans; (iii) commercial and industrial loans, which include all commercial and industrial loans that are not secured by real estate; and (iv) consumer loans.

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Competition

~~Competition~~

The banking business in Louisiana is extremely competitive. We compete for deposits and loans with existing Louisiana and out-of-state financial institutions that have longer operating histories, larger capital reserves and more established customer bases. The competition includes large financial services companies and other entities in addition to traditional banking institutions such as savings and loan associations, savings banks, commercial banks and credit unions.

Many of our larger competitors have a greater ability to finance wide-ranging advertising campaigns through their greater capital resources. Marketing efforts depend heavily upon referrals from officers, directors and shareholders, selective advertising in local media and direct mail solicitations. We compete for business principally on the basis of personal service to customers, customer access to officers and directors and competitive interest rates and fees.

In the financial services industry, intense market demands, technological and regulatory changes and economic pressures have eroded industry classifications in recent years that were once clearly defined. Financial institutions have been forced to diversify their services, increase rates paid on deposits and become more cost effective, as a result of competition with one another and with new types of financial services companies, including non-banking competitors. Some of the results of these market dynamics in the financial services industry have been a number of new bank and non-bank competitors, increased merger activity, and increased customer awareness of product and service differences among competitors. These factors could affect business prospects.

Employees

~~At December 31, 2009, we had 212 full-time and 36 part-time employees. None of our employees are represented by a collective bargaining group. The Company has a good relationship with its employees.~~

At December 31, 2010, the Company employeed 246 full-time equivalent employees. None of our employees are represented by a collective bargaining group. The Company has a good relationship with its employees.

Data Processing

Since November 2001, customer information has been housed on equipment owned by Financial ~~Information~~Institution Service Corporation (FISC). FISC is a cooperative jointly owned by a number of Louisiana and Mississippi state banks that are currently serviced by FISC. The ~~2009~~2010 annual cost of this service was ~~$596,000.~~$0.8 million. The current arrangements are adequate and are expected to be able to accommodate our needs for the foreseeable future.

Information Technology Infrastructure

Our wide area network links more than 25 remote ~~sites using a fully meshed multiple protocol layered switch~~sites. All of the Company's network ~~with managed virtual private networking throughout. Authentication is based on a Novell-Citrix hybrid network ecosystem. We have over 400~~devices communicate via secure ~~networked devices on the First Guaranty Bank~~ network. ~~The employees are not limited to their branch location, but instead can access the network and authenticate securely from any branch.~~ We have a redundant back-up site located ~~at the far northwestern corner of the state~~ in Homer, Louisiana.

Subsidiaries

The Company is a one-bank holding company with First Guaranty Bank as its subsidiary.

Bank Regulatory Compliance

First Guaranty Bank is a Federal Deposit Insurance Corporation (“FDIC”) insured, non-member Louisiana state bank. Regulation of financial institutions is intended primarily to protect depositors, the deposit insurance funds of the FDIC and the banking system as a whole, and generally is not intended to protect stockholders or other investors.

The Bank is subject to regulation and supervision by both the Louisiana Office of Financial Institutions and the FDIC. In addition, the Bank is subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that are made and the interest that is charged on those loans, and limitations on the types of investments that are made and the types of services that are offered. Various consumer laws and regulations also affect operations. See “Bank Regulation and Supervision.”

Bank Regulation and Supervision

Banking is a complex, highly regulated industry. Consequently, the growth and earnings performance of First Guaranty Bancshares, Inc. and its subsidiary bank can be affected not only by Management decisions and general and local economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities. These authorities include, but are not limited to, the FRB, the FDIC, the Louisiana Office of Financial Institutions (“OFI”), the U.S. Internal Revenue Service and state taxing authorities. The effect of these statutes, regulations and policies and any changes to any of them can be significant and cannot be predicted.

The primary goals of the regulatory scheme are to maintain a safe and sound banking system and to facilitate the conduct of sound monetary policy. In furtherance of these goals, Congress has created several largely autonomous regulatory agencies and enacted numerous laws that govern banks, bank holding companies and the banking industry. The system of supervision and regulation applicable to First Guaranty Bancshares, Inc. establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC’s deposit insurance funds, depositors and the public, rather than the shareholders and creditors. The following is an attempt to summarize some of the relevant laws, rules and regulations governing banks and bank holding companies, but does not purport to be a complete summary of all such applicable laws, rules and regulations. The descriptions are qualified in their entirety by reference to the specific statutes and regulations discussed.

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The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”).

The Dodd-Frank Act made extensive changes in the regulation of depository institutions. For example, the Dodd-Frank Act creates a new Consumer Financial Protection Bureau as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau will assume responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function currently assigned to prudential regulators, and will have authority to impose new requirements. Institutions of less than $10 billion in assets, such as First Guaranty Bank, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the primary enforcement authority of, their federal prudential regulator rather than the Consumer Financial Protection Bureau.

In addition to creating the Consumer Financial Protection Bureau, the Dodd-Frank Act, among other things, directs changes in the way that institutions are assessed for deposit insurance, requires more stringent consolidated capital requirements for bank holding companies, requires originators of securitized loans to retain a percentage of the risk for the transferred loans, establishes regulatory rate-setting for certain debit card interchange fees, repeals restrictions on the payment of interest on commercial demand deposits, contains a number of reforms related to mortgage originations and requires public companies to give stockholders a non-binding vote on executive compensation and golden parachutes. Many of the provisions of the Dodd-Frank Act are subject to delayed effective dates and/or require the issuance of implementing regulations. Their impact on operations can not yet be fully assessed. However, there is significant possibility that the Dodd-Frank Act will, at a minimum, result in increased regulatory burden, compliance costs and interest expense for First Guaranty Bank.

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First Guaranty Bancshares, Inc.

~~General~~General.. First Guaranty Bancshares, Inc. is a bank holding company registered with, and subject to regulation by, the FRB under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). The Bank Holding Company Act and other federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

In accordance with FRB policy, a bank holding company, such as First Guaranty Bancshares, Inc., is expected to act as a source of financial strength to its subsidiary banks and commit resources to support its banks. This support may be required under circumstances when we might not be inclined to do so absent this FRB policy.

Dividends. The Federal Reserve Bank has stated that generally, a bank holding company, should not maintain a rate of distributions to shareholders unless its available net income has been sufficient to fully fund the distributions, and the prospective rate of earnings retention appears consistent with the bank holding company’s capital needs, asset quality and overall financial condition. As a Louisiana corporation, the Company is restricted under the Louisiana corporate law from paying dividends under certain conditions. The Company is currently required to obtain prior written approval from the FRB before declaring or paying any corporate dividend.

The Company is also restricted under the terms of the agreement related to the issuance of the Treasury Capital Purchase Program preferred stock from raising its dividend level or engaging in other capital transactions. See "Troubled Assets Relief Program."

First Guaranty Bank may not pay dividends or distribute capital assets if it is in default on any assessment due to the FDIC. First Guaranty Bank is also subject to regulations that impose minimum regulatory capital and minimum state law earnings requirements that affect the amount of cash available for distribution. In addition, under the ~~following:~~Louisiana Banking Law, dividends may not be paid if it would reduce the unimpaired surplus below 50% of outstanding capital stock in any year.

·	~~Incurring any indebtedness;~~

The Bank is restricted under applicable laws in the payment of dividends to an amount equal to current year earnings plus undistributed earnings for the immediately preceding year, unless prior permission is received from the Commissioner of Financial Institutions for the State of Louisiana.

·	~~Declaring or paying any corporate dividend; and~~

·	~~Redeeming any corporate stock.~~

Certain ~~Acquisitions~~Acquisitions. . Federal law requires every bank holding company to obtain the prior approval of the FRB before (i) acquiring more than five percent of the voting stock of any bank or other bank holding company, (ii) acquiring all or substantially all of the assets of any bank or bank holding company or (iii) merging or consolidating with any other bank holding company.

Additionally, federal law provides that the FRB may not approve any of these transactions if it would result in or tend to create a monopoly or substantially lessen competition or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The FRB is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Further, the FRB is required to consider the record of a bank holding company and its subsidiary bank(s) in combating money laundering activities in its evaluation of bank holding company merger or acquisition transactions.

Under the Bank Holding Company Act, if adequately capitalized and adequately managed, any bank holding company located in Louisiana may purchase a bank located outside of Louisiana. However, as discussed below, restrictions currently exist on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits.

Change in Bank ~~Control~~Control.. The Bank Holding Company Act and the Change in Bank Control Act of 1978, as amended, generally require FRB approval prior to any person or company acquiring control of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities.

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Permitted ~~Activities~~Activities.. Generally, bank holding companies are prohibited by federal law from engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in any activity other than (i) banking or managing or controlling banks or (ii) an activity that the FRB determines to be so closely related to banking as to be a proper incident to the business of banking.

Activities that the FRB has found to be so closely related to banking as to be a proper incident to the business of banking ~~include:~~include, but are not limited to:

factoring accounts receivable;

making, acquiring, brokering or servicing loans and usual related activities;

leasing personal or real property;

operating a non-bank depository institution, such as a savings association;

trust company functions;

financial and investment advisory activities;

conducting discount securities brokerage activities;

underwriting and dealing in government obligations and money market instruments;

providing specified Management consulting and counseling activities;

performing selected data processing services and support services;

acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and

performing selected insurance underwriting activities.

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Despite prior approval, the FRB has the authority to require a bank holding company to terminate an activity or terminate control of or liquidate or divest certain subsidiaries or affiliates when the FRB believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. A bank holding company that qualifies and elects to become a financial holding company is permitted to engage in additional activities that are financial in nature or incidental or complementary to financial activity. The Bank Holding Company Act expressly lists the following activities as financial in nature:

lending, exchanging, transferring, investing for others, or safeguarding money or securities;

insuring, guaranteeing or indemnifying against loss or harm, or providing and issuing annuities, and acting as principal, agent or broker for these purposes, in any state;

providing financial, investment or advisory services;

issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly;

underwriting, dealing in or making a market in securities;

other activities that the FRB may determine to be so closely related to banking or managing or controlling banks as to be a proper incident to managing or controlling banks;

foreign activities permitted outside of the United States if the FRB has determined them to be usual in connection with banking operations abroad;

merchant banking through securities or insurance affiliates; and

insurance company portfolio investments.

To qualify to become a financial holding company, First Guaranty Bancshares, Inc. and its subsidiary bank must be well-capitalized and well managed and must have a Community Reinvestment Act rating of at least satisfactory. Additionally, First Guaranty Bancshares, Inc. would be required to file an election with the FRB to become a financial holding company and to provide the FRB with 30 days’ written notice prior to engaging in a permitted financial activity. A bank holding company that falls out of compliance with these requirements may be required to cease engaging in some of its activities. First Guaranty Bancshares, Inc. currently has no plans to make a financial holding company election.

Anti-tying ~~Restrictions~~Restrictions.. Bank holding companies and affiliates are prohibited from tying the provision of services, such as extensions of credit, to other services offered by a holding company or its affiliates.

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Insurance of Deposit ~~Accounts.~~Accounts.

First Guaranty Bank is a member of the Deposit Insurance Fund, which is administered by the ~~Federal Deposit Insurance Corporation.~~FDIC. Deposit accounts atin First Guaranty Bank are insured by the ~~Federal Deposit Insurance Corporation, generally~~FDIC, previously up to a maximum of $100,000 for each separately insured depositor and ~~up to a maximum of~~ $250,000 for self-directed retirement accounts. However, ~~on October 14, 2008,~~in view of the ~~Federal Deposit Insurance Corporation~~recent economic crisis, the FDIC temporarily increased the deposit insurance available on all deposit accounts to ~~$250,000, effective until December 31, 2013.~~$250,000. The Dodd-Frank Act made that level of coverage permanent. In addition, the Dodd-Frank Act requires that certain ~~noninterest-bearing~~non-interest-bearing transaction accounts maintained with ~~financial~~depository institutions ~~participating in the F ederal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program are~~be fully insured, regardless of the dollar amount, until June 30, 2010. First Guaranty Bank has opted to participate in the Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program. See “—Temporary Liquidity Guarantee Program.”December 31, 2012.

The ~~Federal Deposit Insurance Corporation~~FDIC imposes an assessment ~~against institutions~~ for deposit ~~insurance. This~~insurance against all depository institutions. That assessment is based on the risk category of ~~the~~each institution, which is derived from examination and prior to 2009, ranged from 5 to 43 basis points of the institution’s deposits. On December 22, 2008, the Federal Deposit Insurance Corporation published a final rule that raised the current deposit insurance assessment rates uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis points) effective for the first quarter of 2009. On February 27, 2009, the Federal Deposit Insurance Corporation issued a final rule that altered the way the Federal Deposit Insurance Corporation calculates federal deposit insurance assessment rates beginning in the second quarter of 2009 and thereafter.

~~Under the rule, the Federal Deposit Insurance Corporation~~supervisory information. The FDIC first establishes an ~~institution’s~~institution's initial base assessment ~~rate. This~~rate based upon the risk category, with less risky institution paying lower rates. That initial base assessment rate ranges, from 12 to 45 basis points, depending onupon the risk category of the ~~institution, from 12 to 45 basis points.~~institution. The ~~Federal Deposit Insurance Corporation then adjusts the~~ initial base assessment is then adjusted (higher or lower) to obtain the total base assessment rate. The adjustments to the initial base assessment rate are generally based upon an ~~institution’s~~institution's levels of unsecured debt, secured liabilities and brokered deposits. The total base assessment rate, as adjusted, ranges from 7 to 77.5 basis points of the ~~institution’s~~institution's assessable deposits. ~~Additionally, on~~The FDIC may adjust the scale uniformly, except when no adjustment may deviate more than three basis points from the base scale without notice and comment.

On May 22, 2009, the ~~Federal Deposit Insurance Corporation~~FDIC issued a final rule that imposed a special 5five basis ~~points~~point assessment on each FDIC-insured depository institution's assets minus its Tier 1 capital, on June 30, 2009, which was collected on September 30, 2009. The special assessment iswas capped at 10 basis points of an institution's domestic deposits. ~~Future special assessments could also be assessed. First Guaranty Bank’s Federal Deposit Insurance Corporation premium assessment for 2009 increased by approximately $1.2 million, including~~

Subsequently the ~~special assessment.~~

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~~The Federal Deposit Insurance Corporation has~~FDIC adopted a ~~final~~ rule pursuant to which all insured depository institutions were required to prepay their estimated assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. ~~Under the rule, this~~That pre-payment, which was due on December 30, ~~2009. The assessment rate~~2009, amounted to approximately $4.5 million for the ~~fourth quarter~~Bank. The amount of ~~2009 and for 2010~~prepayment was determined based on each institution’s total base assessment rate for the third quarter of 2009, modified to assume that the assessment rate in effect on September 30, 2009 had been in effect for the entire third quarter, and the assessment rate for 2011 and 2012 was equal to the modified third quarter assessment rate pluscertain assumptions, including an ~~additional 3 basis points. In addition, each institution’s base assessment rate for each period was calculated using its third quarter assessment base, adjusted quarterly for an estimated~~annual 5% ~~annual~~ growth rate in the assessment base through the end of 2012. ~~Based~~The pre-payment was been recorded as a prepaid expense asset at December 31. 2009 and will be amortized to expense over three years.

Most recently, the Dodd-Frank Act required the FDIC to revise its risk-based assessment schedule and procedures to base the assessment on ~~our deposits~~each institution’s average total assets less tangible capital, rather than deposits. The FDIC has issued a final rule that will implement that directive effective April 1, 2011.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of First Guaranty Bank. Management cannot predict what insurance assessment ~~rate at September 30, 2009, our prepayment amount was approximately $4.5 million.~~rates will be in the future.

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Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance.

In addition to the Federal Deposit Insurance Corporation assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the Federal Deposit Insurance Corporation, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended December 31, ~~2009,~~2010, the annualized FICO assessment was ~~.000106~~1.04 basis points ~~for each $100 in domestic~~of assessable deposits maintained at an institution.

Other ~~Regulations~~Regulations.. Interest and other charges collected or contracted is subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to federal laws applicable to credit transactions, such as:

·	~~the federal “Truth-In-Lending Act,” governing disclosures of credit terms to consumer borrowers;~~

the federal "Truth -In-Lending Act," governing disclosures of credit terms to consumer borrowers;
the "Home Mortgage Disclosure Act of 1975," requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obigation to help meet the housing needs of the community it serves;
the "Equal Credit Opportunity Act," prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;
the "Fair Credit Reporting Act of 1978," governing the use and provision of information to credit reporting agencies;
the "Real Estate Settlement Procedures Act";
the "Fair Debt Collection Act," governing the manner in which consumer debts may be collected by collection agencies; and
The rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

·	the “Home Mortgage Disclosure Act of 1975,” requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help ~~meet the housing needs of the community it serves;~~

·	~~the “Equal Credit Opportunity Act,” prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;~~

·	~~the “Fair Credit Reporting Act of 1978,” governing the use and provision of information to credit reporting agencies;~~

·	~~the “Real Estate Settlement Procedures Act”;~~

·	~~the “Fair Debt Collection Act,” governing the manner in which consumer debts may be collected by collection agencies; and~~

·	~~the rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.~~

The deposit operations are subject to:

·	the “Right to Financial Privacy Act,” which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

the "Right to Financial Privacy Act," which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;
the "Electronic Funds Transfer Act," and Regulation E issued by the FRB to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services;
the "Truth in Savings Act"; and
the "Expedited Funds Availability Act".

·	the “Electronic Funds Transfer Act” and Regulation E issued by the FRB to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from ~~the use of automated teller machines and other electronic banking services;~~

·	~~the “Truth-In Savings Act”; and~~

·	~~the “Expedited Funds Availability Act”.~~

~~Dividends~~Dividends.. The Company is a legal entity separate and distinct from its subsidiary, First Guaranty Bank. The majority of the Company’s revenue is from dividends paid to the Company by the Bank. First Guaranty Bank may not pay dividends or distribute capital assets if it is in default on any assessment due to the FDIC. The FRB has indicated generally that it may be an unsafe or unsound practice for a bank holding company to pay dividends unless the bank holding company’s net income over the preceding year is sufficient to fund the dividends and the expected rate of earnings retention is consistent with the organization’s capital needs, asset quality and overall financial condition.

First Guaranty Bank is also subject to regulations that impose minimum regulatory capital and minimum state law earnings requirements that affect the amount of cash available for distribution. In addition, under the Louisiana Banking Law, dividends may not be paid if it would reduce the unimpaired surplus below 50% of outstanding capital stock in any year. If the Company does not comply with these laws, regulations or policies it may materially affect the ability of the Bank to pay dividends.

Capital ~~Adequacy~~Adequacy.. The FRB monitors the capital adequacy of bank holding companies, such as First Guaranty Bancshares, Inc., and the OFI and FDIC monitor the capital adequacy of First Guaranty Bank. The federal bank regulators use a combination of risk-based guidelines and leverage ratios to evaluate capital adequacy and consider these capital levels when taking action on various types of applications and when conducting supervisory activities related to safety and soundness. The risk-based guidelines apply on a consolidated basis to bank holding companies with consolidated assets of $500 million or more and, generally, on a bank-only basis for bank holding companies with less than $500 million in consolidated assets. Each insured ~~depositor y~~depository subsidiary of a bank holding company with less than $500 million in consolidated assets is expected to be “well-capitalized.”

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The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and their holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with appropriate risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier 2 Capital. Tier 1 Capital generally consists of common stock, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and other specified intangible assets. Tier 1 Capital must equal at least 4% of risk-weighted assets. Tier 2 Capital generally consists of subordinated debt, preferred stock (other than that which is included in Tier I Capital), and a limited amount of loan loss reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1 Capital.

In addition, the FRB has established minimum leverage ratio guidelines for bank holding companies with assets of $500 million or more. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and other specified intangible assets, of 3% for bank holding companies that meet specified criteria, including having the highest regulatory rating and implementing the FRB’s risk-based capital measure for market risk. All other bank holding companies with assets of $500 million or more generally are required to maintain a leverage ratio of at least 4%. The guidelines also provide that bank holding companies of such size experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels ~~witho ut~~without reliance on intangible assets. The FRB considers the leverage ratio and other indicators of capital strength in evaluating proposals for expansion or new activities. The FRB and the FDIC ~~recently~~have adopted amendments to their risk-based capital regulations to provide for the consideration of interest rate risk in the agencies’ determination of a banking institution’s capital adequacy.

The Dodd-Frank Act requires the Federal Reserve Board to issue consolidated regulatory capital requirements for bank holding companies that are at least as stringent as those applicable to insured depository institutions. Such regulations, when issued, will eliminate the use of certain instruments, such as cumulative preferred stock and trust preferred securities, from Tier 1 holding company capital. Instruments issued by May 19, 2010 by bank holding companies with consolidated assets of less than $15 billion (as of December 31, 2009) are grandfathered.

Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of federal deposit insurance, a prohibition on accepting brokered deposits and other restrictions on its business.

Concentrated Commercial Real Estate Lending ~~Regulations~~Regulations.. The FRB and FDIC have recently promulgated guidance governing financial institutions with concentrations in commercial real estate lending. The guidance provides that a company has a concentration in commercial real estate lending if (i) total reported loans for construction, land development, and other land represent 100% or more of total capital or (ii) total reported loans secured by multifamily and non-farm residential properties and loans for construction, land development, and other land represent 300% or more of total capital and the outstanding balance of such loans has increased 50% or more during the prior 36 months. If a concentration is present, Management must employ ~~hei ghtened~~heightened risk Management practices including board and Management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and increasing capital requirements. The Company is subject to these regulations.

Prompt Corrective Action ~~Regulations~~Regulations.. Under the prompt corrective action regulations, bank regulators are required and authorized to take supervisory actions against undercapitalized banks. For this purpose, a bank is placed in one of the following five categories based on its capital:

well-capitalized (at least 5% leverage capital, 6% Tier 1 risk-based capital and 10% total risk-based capital);

adequately capitalized (at least 4% leverage capital, 4% Tier 1 risk-based capital and 8% total risk-based capital);

undercapitalized (less than 8% total risk-based capital, 4% Tier 1 risk-based capital or 3% leverage capital);

significantly undercapitalized (less than 6% total risk-based capital, 3% Tier 1 risk-based capital or 3% leverage capital); and

critically undercapitalized (less than 2% tangible capital).

Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, banking regulators must appoint a receiver or conservator for an institution that is “critically undercapitalized.” The federal banking agencies have specified by regulation the relevant capital level for each category. An institution that is categorized as “undercapitalized”, “significantly undercapitalized” or “critically undercapitalized” is required to submit an acceptable capital restoration plan to its appropriate ~~fe deral~~federal banking agency. A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of 5% of an “undercapitalized” subsidiary’s assets at the time it became “undercapitalized” or the amount required to meet regulatory capital requirements. An “undercapitalized” institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with regulatory approval. The regulations also establish procedures for downgrading an institution to a lower capital category based on supervisory factors other than capital.

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Restrictions on Transactions with Affiliates and Loans to ~~Insiders~~Insiders.. First Guaranty Bank is subject to the provisions of Section 23A of the FRB Act and its implementing regulations. These provisions place limits on the amount of:

First Guaranty Bank’s loans or extensions of credit to affiliates;

First Guaranty Bank’s investment in affiliates;

assets that First Guaranty Bank may purchase from affiliates, except for real and personal property exempted by the FRB;

the amount of loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates; and

First Guaranty Bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate.

The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of First Guaranty Bank’s capital and surplus and, as to all affiliates combined, to 20% of its capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements.

First Guaranty Bank is also subject to the provisions of Section 23B of the FRB Act and its implementing regulations, which, among other things, prohibit First Guaranty Bank from engaging in any transaction with an affiliate, such as First Guaranty Bancshares, Inc., unless the transaction is on terms substantially the same, or at least as favorable to First Guaranty Bank as those prevailing at the time for comparable transactions with nonaffiliated companies.

First Guaranty Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and their related interests. These types of extensions of credit must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and must not involve more than the normal risk of repayment or present other unfavorable features.

Anti-terrorism ~~Legislation~~Legislation.. Financial institutions are required to establish anti-money laundering programs. In 2001, the USA PATRIOT Act was enacted. The USA PATRIOT Act significantly enhanced the powers of the federal government and law enforcement organizations to combat terrorism, organized crime and money laundering. While the USA PATRIOT Act imposed additional anti-money laundering requirements, these additional requirements are not material to our operations.

Aside from the above, the USA PATRIOT Act also requires the federal banking regulators to assess the effectiveness of an institution’s anti-money laundering program in connection with merger and acquisition transactions. Failure to maintain an effective anti-money laundering program is grounds for the denial of merger or acquisition transactions.

Federal Securities Laws

First Guaranty Bancshares, Inc. common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. First Guaranty Bancshares, Inc. will continue to be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

~~Non-Banking Activities~~

The Gramm-Leach-Bliley Act of 1999 eliminated most of the barriers to affiliations among banks and securities firms, insurance companies and other financial companies previously imposed under federal banking laws if certain criteria are satisfied. The financial subsidiaries of “well capitalized” banks are generally permitted to engage in activities that are financial in nature including securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance brokerage and underwriting activities; merchant banking activities; and other activities that the Federal Reserve Board has determined to be closely related to banking.

Brokered Deposits and Pass-Through Insurance

An FDIC-insured depository institution cannot accept, rollover or renew brokered deposits unless it is well capitalized or adequately capitalized and receives a waiver from the FDIC. A depository institution that cannot receive brokered deposits also cannot offer “pass-through” insurance on certain employee benefit accounts. Whether or not it has obtained such a waiver, an adequately capitalized depository institution may not pay an interest rate on any deposits in excess of ~~75 basis points~~0.75% over certain prevailing market rates specified by regulation. As of December 31, ~~2009,~~2010, the Bank had ~~$10.1~~$12.9 million in brokered deposits through the Certificate of Deposit Account Registry Service (CDARS).

Interstate Branching

Effective June 1, 1997, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits state and national banks with different home states to operate branches across state lines with approval of the appropriate federal banking agency, unless the home state of a participating bank passed legislation “opting out” of interstate banking. ~~This~~The Dodd-Frank Act amended federal law ~~allows branching through acquisition only, which means a bank must acquire another bank and merge the two institutions in order~~ to ~~operate across state lines. If a state opted out of interstate branching within a specified time period, no bank in any other state may establish a~~allow banks to branch ~~in the state which has opted out, whether through an acquisition or~~ de novo~~. Louisiana did not opt out of this law. The Company~~ into another state if that state allows banks chartered by it to establish branches within its borders. First Guaranty Bank currently has no branches ~~located~~ outside of Louisiana.

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Community Reinvestment Act

Under the Community Reinvestment Act, or CRA, a financial institution has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The FDIC assigns banks a CRA rating of “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance,” and the bank must publicly disclose its rating. The FDIC rated the Bank as “satisfactory” in meeting community credit needs under the CRA at its most recent CRA performance examination.

Privacy Provisions

Under the Gramm-Leach-Bliley Act, federal banking regulators have adopted new rules requiring disclosure of privacy policies and information sharing practices to consumers. These rules prohibit depository institutions from sharing customer information with nonaffiliated parties without the customer’s consent, except in limited situations, and require disclosure of privacy policies to consumers and, in some circumstances, enable consumers to prevent disclosure of personal information to nonaffiliated third parties. In addition, the Fair and Accurate Credit Transactions Act of 2003 requires banks to notify their customers if they report negative information about them to a credit bureau or if they grant credit to them on terms less favorable than those generally available.

The Company has instituted risk Management systems to comply with all required privacy provisions and believes that the new disclosure requirements and implementation of the privacy laws will not materially increase operating expenses.

Check 21

The Check 21 Act facilitates check truncation and electronic check exchange by authorizing a new negotiable instrument called a “substitute check”. The Act provides that a properly prepared substitute check is the legal equivalent of the original check for all purposes. This law supercedes contradictory state laws (i.e., state laws that allow customers to demand the return of original checks).

Although the Check 21 Act does not require any bank to create substitute checks or to accept checks electronically, it does require banks to accept a legally equivalent substitute check in place of an original check after the Check 21 Act’s effective date of October 28, 2004.

Sarbanes-Oxley Act

The Company is also subject to the Sarbanes-Oxley Act of 2002, which has imposed corporate governance and accounting oversight restrictions and responsibilities on the board of directors, executive officers and independent auditors. The law has increased the time spent discharging responsibilities and costs for audit services. Beginning in 2007, Management was required to report on the effectiveness of internal controls and procedures. ~~Beginning with the year ending December 31, 2010, the~~The Company ~~will be~~is a smaller reporting company and is not required to ~~obtain~~get an attestation report from our external auditor on the effectiveness of our internal controls over financial ~~reporting.~~reporting until our public float exceeds $75 million.

Effect of Governmental Policies

The difference between the interest rate paid on deposits and other borrowings and the interest rate received on loans and securities comprise most of a bank’s earnings. In order to mitigate the interest rate risk inherent in the industry, the banking business is becoming increasingly dependent on the generation of fee and service charge revenue.

The earnings and growth of a bank will be affected by both general economic conditions and the monetary and fiscal policy of the United States Government and its agencies, particularly the Federal Reserve. The Federal Reserve sets national monetary policy such as seeking to curb inflation and combat recession. This is accomplished by its open-market operations in ~~Unites~~United States government securities, adjustments to the discount rates on borrowings and target rates for federal funds transactions. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits and also affect interest rates on loans and deposits. The nature and timing of any future changes in monetary policies and their potential impact on the Company cannot be predicted.

Our noninterest income and expenses can be affected by increasing rates of inflation; however, unlike most industrial companies, the assets and liabilities of financial institutions such as the Banks are primarily monetary in nature. Interest rates, therefore, have a more significant impact on the Bank’s performance than the effect of general levels of inflation on the price of goods and services.

~~Recent Developments~~

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Entry into Material Definitive Agreement

On October 22, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Greensburg Bancshares, Inc. (“Greensburg Bancshares”) and its wholly-owned subsidiary, Bank of Greensburg (“Greensburg”).

The Merger Agreement provides for the acquisition of Greensburg Bancshares in a merger (the “Merger”). At the effective time of the Merger, each share of common stock of Greensburg Bancshares (other than shares owned by Greensburg Bancshares and First Guaranty Bancshares), at the election of the holder thereof, will be converted into the right to receive either 13.26 shares of common stock of First Guaranty Bancshares, $247 in cash, or a combination of cash and common stock of First Guaranty Bancshares (the “Merger Consideration”). The final structure of the Merger will depend upon the election by Greensburg Bancshares of the form of the Merger Consideration. The total consideration is valued at approximately $5.3 million.

At December 31, 2010, Greensburg Bancshares had total assets of approximately $89.3 million, including loans of $67.5 million. Total deposits were $79.8 million.

The Merger is subject to the approval by the stockholders of Greensburg Bancshares by such vote as is required under its articles of incorporation and Louisiana Business Corporation Law, and other customary closing conditions. The Merger Agreement contains customary representations, warranties and covenants of First Guaranty Bancshares, First Guaranty Bank, Merger Subsidiary, Greensburg Bancshares and Greensburg.

It is expected that the Merger will be completed during the second quarter of 2011 following receipt of all regulatory and shareholder approvals.

Troubled Assets Relief ~~Program~~Program.. Under the TARP, the United States Department of the Treasury authorized a voluntary capital purchase program (the “CPP”) to purchase up to $250 billion of senior preferred shares of qualifying financial institutions that elected to participate. Participating companies must adopt certain standards for executive compensation, including (a) prohibiting “golden parachute” payments as defined in the EESA to senior Executive Officers; (b) requiring recovery of any compensation paid to senior Executive Officers based on criteria that is later proven to be materially inaccurate; and (c) prohibiting incentive compensation that encourages ~~unnecessa ry~~unnecessary and excessive risks that threaten the value of the financial institution. The terms of the CPP also limit certain uses of capital by the issuer, including repurchases of company stock and increases in dividends.

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On August 28, 2009, the Company entered into a Letter Agreement, which includes a Securities Purchase Agreement and a Side Letter Agreement (together, the “Purchase Agreement”), with the United States Department of the Treasury (“Treasury Department”) pursuant to which the Company has issued and sold to the Treasury Department 2,069.9 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $1,000 per share for a total purchase price of $20.7 million. In addition to the issuance of the Series A Stock, as a part of the transaction, the Company issued to the Treasury Department a warrant to purchase 114.44444 shares of the Company’s Fixed Rate Cumulative Preferred Stock, Series B, and immediately following the issuance of the Series A stock, the Treasury Department ~~exer cised~~exercised its rights and acquired 103 of the Series B shares through a cashless exercise. The newly issued Series A Stock, generally non-voting stock, pays cumulative dividends of 5% for five years, and a rate of 9% dividends, per annum, thereafter. The newly issued Series B Stock, generally non-voting, pays cumulative dividends at a rate of 9% per annum. Both the Series A Stock and the Series B Stock were issued in a private placement.

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FDIC Temporary Liquidity Guarantee ~~Program~~Program.. First Guaranty Bancshares, Inc. and First Guaranty Bank have chosen to participate in the FDIC’s Temporary Liquidity Guarantee Program (the “TLGP”), which applies to, among other, all U.S. depository institutions insured by the FDIC and all United States bank holding companies, unless they have opted out. Under the TLPG, the FDIC guarantees certain senior unsecured debt of the holding company and bank, as well as non-interest bearing transaction account deposits at First Guaranty Bank. Under the debt guarantee component of the TLGP, the FDIC will pay the unpaid principal and interest on an FDIC-guaranteed debt instrument upon the uncured failure of the participating entity to make a timely payment of ~~pr incipal~~principal or interest. Neither First Guaranty Bancshares, Inc. nor First Guaranty Bank issued an debt under the TLGP.

Under the transaction account guarantee component of the TLGP, all non-interest bearing transaction accounts maintained at First Guaranty Bank are insured in full by the FDIC until June 30, 2010, later extended to December 31, 2010, regardless of the standard maximum deposit insurance amounts. An annualized 10 basis point assessment on balances in noninterest-bearing transaction accounts that exceed the existing deposit insurance limit of $250,000 ~~will be~~was assessed on a quarterly basis to insured depository institutions participating in this component of the TLGP. The Company ~~has chosen~~chose to participate in this component of the TLGP. The ~~additional expense related to this~~Dodd-Frank Act extended unlimited coverage ~~is not expected to~~for certain non-interest bearing transaction accounts through December 31, 2012. The cost associated with that coverage will be ~~significant for the Bank. See the~~ ~~Deposit Insurance Assessments~~ ~~section above for more inform ation.~~

~~Financial Stability Plan.~~ ~~On February 10, 2009, the Financial Stability Plan (the “FSP”) was announced by the U.S. Department~~part of the Treasury. The FSP is a comprehensive set of measures intended to shore up the financial system. The core elements of the FSP include making bank capital injections, creating a public-private investment fund to buy troubled assets, establishing guidelines for loan modification programs and expanding the Federal Reserve lending program. The Treasury Department has indicated more details regarding the FSP are to be announced. We continue to monitor these developments and assess their potential impact on our business.usual FDIC assessment.

American Recovery and Reinvestment Act of ~~2009~~.2009. On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the “ARRA”) was enacted. The ARRA is intended to provide a stimulus to the U.S. economy in the wake of the economic downturn brought about by the subprime mortgage crisis and the resulting credit crunch. The bill includes federal tax cuts, expansion of unemployment benefits and other social welfare provisions, and domestic spending in education, healthcare, and infrastructure, including the energy structure. The new law also includes numerous non-economic recovery related items, including a limitation on executive compensation in federally aided banks.

Under the ARRA, an institution will be subject to the following restrictions and standards through out the period in which any obligation arising from financial assistance provided under the TARP remains outstanding:

·	~~Limits on compensation incentives for risk taking by senior executive officers.~~

Limits on compensation incentives for risk taking for senior executive officers.
Requirement of recovery of any compensation paid based on inaccurate financial information.
Prohibition on "Golden Parachute Payments".
Prohibition on compensation plans that would encourage manipulation of reported earnings to enhance the compensation of employees.
Publicly registered TARP recipients must establish a board compensation committee comprised entirely of independent directors, for the purpose of reviewing employee compensation plans.
Prohibition on bonus, retention award, or incentive compensation, except for payments of long term restricted stock.
Limitation on luxury expenditures.
TARP recipients are required to permit a separate shareholder vote to approve the compensation of executives, as disclosed pursuant to the SEC's compensation disclosure rules.

·	~~Requirement of recovery of any compensation paid based on inaccurate financial information.~~

·	~~Prohibition on “Golden Parachute Payments”.~~

·	~~Prohibition on compensation plans that would encourage manipulation of reported earnings to enhance the compensation of employees.~~

·	~~Publicly registered TARP recipients must establish a board compensation committee comprised entirely of independent directors, for the purpose of reviewing employee compensation plans.~~

·	~~Prohibition on bonus, retention award, or incentive compensation, except for payments of long term restricted stock.~~

·	~~Limitation on luxury expenditures.~~

·	~~TARP recipients are required to permit a separate shareholder vote to approve the compensation of executives, as disclosed pursuant to the SEC’s compensation disclosure rules.~~

The foregoing is a summary of requirements to be included in standards to be established by the Secretary of the Treasury.

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The chief executive officer and chief financial officer of each TARP recipient will be required to provide a written certification of compliance with these standards to the SEC. The foregoing is a summary of requirements to be included in standards to be established by the Secretary of the Treasury.

~~Homeowner Affordability and Stability Plan~~. On February 18, 2009, the Homeowner Affordability and Stability Plan (the “HASP”) was announced by the President of the United States. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. ~~HASP is intended to support a recovery in the housing market and ensure that workers can continue to pay off their mortgages through the following elements:~~

·	~~Provide access to low-cost refinancing for responsible homeowners suffering from falling home prices.~~

·	~~A $75 billion homeowner stability initiative to prevent foreclosure and help responsible families stay in their homes.~~

·	~~Support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.~~

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~~On March 4, 2009, the following programs were disclosed:~~

~~The~~ ~~Home Affordable Refinance~~ program probably is available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%. Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.

GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home Affordable Refinance program ends in June 2010.

~~The~~ ~~Home Affordable Modification~~ program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded and improved Hope for Homeowners program.

Item 1A. – Risk Factors

The oil leak in the Gulf of Mexico and legislative and regulatory responses thereto could have a negative impact on the Company’s customers and, indirectly, result in a negative impact on our earnings.

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~~Table~~In late April 2010, the explosion and collapse of ~~Contents~~a drilling rig in the Gulf of Mexico off the Louisiana coast caused a major oil spill that has now been contained. In response to the oil spill, the U.S. Government imposed a moratorium on deepwater drilling operations and issued new regulations intended to improve the safety of these operations. A moratorium on new wells was ultimately rescinded in October 2010, and the industry is in the process of working to comply with these new requirements. The U.S. Congress currently is considering legislation that could impact offshore drillers’ operations. The Company has identified and communicated with customers that may be affected by the oil spill and its effects. The Company currently believes that its exposure to this event remains extremely limited. As of December 31, 2010, no credit relationship had been adversely classified as a result of the oil spill. However, new legislation or regulations that affect offshore exploration and production activities or substantially increase the cost of these activities could negatively impact customers in this industry and the general economy in our market area.

If the allowance for loan losses is not sufficient to cover actual loan losses, earnings could decrease.

Loan customers may not repay their loans according to the terms of their loans, and the collateral securing the payment of their loans may be insufficient to assure repayment. We may experience significant credit losses, which could have a material adverse effect on our operating results. Various assumptions and judgments about the collectability of the loan portfolio are made, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of many loans. In determining the amount of the allowance for loan losses, Management reviews the loans and the loss and delinquency experience and evaluates economic conditions. If assumptions prove to be incorrect, the allowance for loan losses may not cover inherent losses in the loan portfolio at the date of the financial ~~stateme nts.~~statements. Material additions to the allowance would materially decrease net income. At December 31, ~~2009,~~2010, our allowance for loan losses totaled ~~$7.9~~$8.3 million, representing ~~1.34%~~1.44% of loans, net of unearned income.

Management believes it has underwriting standards to manage normal lending risks, and at December 31, ~~2009,~~2010, nonperforming loans consisted of ~~$15.0~~$30.4 million, or ~~2.54%~~5.28% of loans, net of unearned income. We can give no assurance that the nonperforming loans will not increase or that nonperforming or delinquent loans will not adversely affect future performance.

In addition, federal and state regulators periodically review the allowance for loan losses and may require an increase in the allowance for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on the results of operations and financial condition.

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Adverse events in Louisiana, where our business is concentrated, could adversely affect our results and future growth.

Our business, the location of our branches and the real estate used as collateral on our real estate loans are primarily concentrated in Louisiana. As a result, we are exposed to geographic risks. The occurrence of an economic downturn in Louisiana, or adverse changes in laws or regulations in Louisiana could impact the credit quality of our assets, the business of our customers and our ability to expand our business.

Our success significantly depends upon the growth in population, income levels, deposits and housing in our market area. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally are unfavorable, our business may be negatively affected. In addition, the economies of the communities in which we operate are substantially dependent on the growth of the economy in the state of Louisiana. To the extent that economic conditions in Louisiana are unfavorable or do not continue to grow as projected, the economy in our market area would be adversely affected. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our market area if they do occur.

In addition, the market value of the real estate securing loans as collateral could be adversely affected by unfavorable changes in market and economic conditions. As of December 31, ~~2009,~~2010, approximately ~~80.9%~~79.8% of our total loans were secured by real estate. Adverse developments affecting commerce or real estate values in the local economies in our primary market areas could increase the credit risk associated with our loan portfolio. In addition, substantially all of our loans are to individuals and businesses in Louisiana. Our business customers may not have customer bases that are as diverse as businesses serving regional or national markets. Consequently, any decline in the economy of our market area could have an adverse impact on our revenues and financial condition. In particular, we may experience ~~in creased~~increased loan delinquencies, which could result in a higher provision for loan losses and increased charge-offs. Any sustained period of increased non-payment, delinquencies, foreclosures or losses caused by adverse market or economic conditions in our market area could adversely affect the value of our assets, revenues, results of operations and financial condition.

Our continued pace of growth may require us to raise additional capital in the future, but that capital may not be available when it is needed and could result in dilution of shareholders’ ownership.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We anticipate that our existing capital resources will satisfy our capital requirements for the foreseeable future. We may, at some point, need to raise additional capital to support continued growth, both internally and for potential acquisitions. Such issuance of our securities will dilute the ownership interest of our shareholders.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside of our control. Accordingly, we cannot assure you of our ability to raise additional capital if needed or that the terms acceptable to us will be available. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and potential acquisitions could be materially impaired.

We rely on our Management team for the successful implementation of our business strategy.

Our success of First Guaranty Bancshares, Inc. and First Guaranty Bank has been largely due to the efforts of our Executive Management team consisting of Alton B. Lewis, Chief Executive Officer, Michael R. Sharp, President, Larry A. Stark, Executive Vice President and ~~Michele E. LoBianco,~~Eric J. Dosch, Chief Financial Officer. In addition, we substantially rely upon Marshall T. Reynolds, our Chairman of the Board of Directors. The loss of services of one or more of these individuals may have a material adverse effect on our ability to implement our business plan.

There is no assurance that we will be able to successfully compete with others for business.

The area in which we operate is considered attractive from an economic and demographic viewpoint, and is a highly competitive banking market. We compete for loans and deposits with numerous regional and national banks and other community banking institutions, as well as other kinds of financial institutions and enterprises, such as securities firms, insurance companies, savings associations, credit unions, mortgage brokers and private lenders. Many competitors have substantially greater resources than we do and operate under less stringent regulatory environments. The differences in resources and regulations may make it harder for us to compete profitably, reduce the rates that we can earn on loans and investments, increase the rates we must offer on deposits and other funds, and adversely affect our overall financial condition and ~~earnin gs.~~earnings.

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We depend primarily on net interest income for our earnings rather than noninterest income.

Net interest income is the most significant component of our operating income. We do not rely on nontraditional sources of fee income utilized by some community banks, such as fees from sales of insurance, securities or investment advisory products or services. For the years ended December 31, 2010, 2009, and 2008 our net interest income was $38.2 million, $32.3 million, and $31.8 million respectively. The amount of our net interest income is influenced by the overall interest rate environment, competition, and the amount of interest-earning assets relative to the amount of interest-bearing liabilities. In the event that one or more of these factors were to result in a decrease in our net interest income, we do not have significant sources of fee income to make up for decreases in net interest income.

Fluctuations in interest rates could reduce our profitability.

We realize income primarily from the difference between the interest we earn on loans and investments and the interest we pay on deposits and borrowings. Unexpected movement in interest rates markedly changing the slope of the current yield curve could cause our net interest margins to decrease, subsequently decreasing net interest income. In addition, such changes could adversely affect the valuation of our assets and liabilities. The interest rates on our assets and liabilities respond differently to changes in market interest rates, which means our interest-bearing liabilities may be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates change, this “gap” between the amount of interest-earning assets and ~~interest-be aring~~interest-bearing liabilities that reprice in response to these interest rate changes may work against us, and our earnings may be negatively affected.

We are unable to predict fluctuations in market interest rates, which are affected by, among other factors, changes in the following:

·inflation rates;
·business activity levels;
·money supply; and
·domestic and foreign financial markets.

The value of our investment portfolio and the composition of our deposit base are influenced by prevailing market conditions and interest rates. Our asset-liability Management strategy, which is designed to mitigate the risk to us from changes in market interest rates, may not prevent changes in interest rates or securities market downturns from reducing deposit outflow or from having a material adverse effect on our results of operations, our financial condition or the value of our investments.

We expect to incur additional expenses in connection with our compliance with Sarbanes-Oxley.

Under Section 404 of the Sarbanes-Oxley Act of 2002, we were required to conduct a comprehensive review and assessment of the adequacy of our existing financial systems and controls beginning with the year ended December 31, 2007. Future reviews of our financial systems and controls may uncover deficiencies in existing systems and controls. If that is the case, we would have to take the necessary steps to correct any deficiencies, which may be costly and may strain our Management resources and negatively impact earnings. We also would be required to disclose any such deficiencies, which could adversely affect the market price of our common stock. ~~At December 31, 2010, we will be required to obtain an attestation report from a registered public accounting firm on the effectiveness of our internal controls over financi al reporting.~~

~~The Company’s expenses may increase as a result of increases in FDIC insurance premiums.~~

Market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. As a result, we may be required to pay significantly higher premiums or additional special assessments that could adversely affect our earnings. In the second quarter of 2009, the FDIC implemented a special assessment that resulted in approximately $444,000 million of additional expense during the quarter. It is possible that the FDIC may impose additional special assessments in the future as part of its restoration plan. In addition, on November 12, 2009, the FDIC adopted a rule requiring banks to prepay, on December 30, 2009, three years’ worth of premiums to replenish the depleted insurance fund. Based on our deposits and assessment rate at September 30, 2009, our prepayment amount was ap proximately $4.5 million. The FDIC is also considering other criteria to create a more risk-based assessment model that could increase respective assessment expenses of some depository institutions. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures, we may be required to pay even higher FDIC premiums than the recently increased levels. These announced increases and any future increases or required prepayments in FDIC insurance premiums may materially adversely affect our results of operations.

Our regulatory capital ratios decreased during the second quarter 2009 below “well capitalized” status based on regulatory standards. At June 30, 2009, we satisfied the minimum regulatory capital requirements and were “adequately capitalized” within the meaning of federal regulatory requirements. During the third quarter of 2009, our regulatory capital ratios increased back to “well capitalized” status and remained at that status for fourth quarter 2009. Changes in regulatory capital status will impact our FDIC assessments. For more information on FDIC assessments, see “Regulation and Supervision—FDIC Insurance on Deposits”.- 19 -

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Future legislative or regulatory actions responding to perceived financial and market problems could impair the Company’s rights against borrowers.

There have been proposals made by members of Congress and others that would reduce the amount distressed borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on mortgage collateral. Were proposals such as these, or other proposals limiting the Company’s rights as a creditor, to be implemented, the Company could experience increased credit losses or increased expense in pursuing its remedies as a creditor.

Continued or further declines in the value of certain investment securities could require write-downs, which would reduce the Company’s earnings.

~~During 2009, the Company recorded losses from other-than-temporary impairment on investment securities totaling $0.8 million, net of the related tax benefits of $0.5 million.~~ At December 31, ~~2009,~~2010, gross unrealized losses in the Company’s investment portfolio equaled approximately ~~$2.8~~$10.0 million relating to securities with an aggregate fair value of ~~$85.3~~$310.1 million. The gross unrealized losses were partially offset by gross unrealized gains of $5.1 million on other securities. There can be no assurance that future factors or combinations of factors will not cause the Company to conclude in one or more future reporting periods that an unrealized loss that exists with respect to any of its securities constitutes an impairment that is other than temporary.

We operate in a highly regulated environment and may be adversely affected by changes in federal, state and local laws and regulations.

We are subject to extensive regulation, supervision and examination by federal and state banking authorities. Any change in applicable regulations or federal, state or local legislation could have a substantial impact on us and our operations. Additional legislation and regulations that could significantly affect our powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on our financial condition and results of operations. Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank holding companies in the performance of their supervisory and enforcement duties. The exercise of regulatory authority may have a negative impact on our results of operations and financial condition.

Like other bank holding companies and financial institutions, we must comply with significant anti-money laundering and anti-terrorism laws. Under these laws, we are required, among other things, to enforce a customer identification program and file currency transaction and suspicious activity reports with the federal government. Government agencies have substantial discretion to impose significant monetary penalties on institutions which fail to comply with these laws or make required reports.

We hold certain intangible assets that could be classified as impaired in the future. If these assets are considered to be either partially or fully impaired in the future, our earnings and the book values of these assets would decrease.

~~Pursuant to FASB ASC 350,~~ ~~Intangibles – Goodwill and Other~~ ~~(SFAS No. 142)~~, ~~we are~~The Company is required to test ~~our~~ goodwill and core deposit intangible assets for impairment on a periodic basis. The impairment testing process considers a variety of factors, including the current market price of our common shares, the estimated net present value of our assets and liabilities and information concerning the terminal valuation of similarly situated insured depository institutions. The ~~market price for our common shares was above our tangible book value at~~Company conducted its goodwill impairment testing as of October 1, ~~2009, the date of our impairment testing, and at December 31, 2009. If there is a decline in the market value of our common shares and a decline in the market pri ces~~2010. The results of the ~~common shares of similarly situated insured depository institutions during future reporting periods it is possible~~testing indicated that ~~future~~no goodwill impairment ~~testing could result in a partial or full impairment of the value of our goodwill or core deposit intangible assets, or both.~~ existing. If an impairment determination is made in a future reporting period, our earnings and the book value of these intangible assets will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common shares or our regulatory capital levels.

If we were unable to borrow funds through access to capital markets, we may not be able to meet the cash flow requirements of our depositors and borrowers or the operating cash needs to fund corporate expansion and other corporate activities.

Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The liquidity of our Company is used to make loans and leases to repay deposit liabilities as they become due or are demanded by customers. Liquidity policies and limits are established by the board of directors. Management and the Investment Committee regularly monitor the overall liquidity position of the Company to ensure that various alternative strategies exist to cover unanticipated events that could affect liquidity. Management and the Investment Committee also establish policies and monitor guidelines to diversify the ~~banks’~~bank's funding sources. Funding sources include Federal funds purchased, securities sold under repurchase agreements, non-core deposits, and ~~shor t-~~short- and long-term debt. We are also members of the Federal Home Loan Bank (“FHLB”) System, which provides funding through advances to members that are collateralized with certain loans.

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~~Table of Contents~~

We maintain a portfolio of securities that can be used as a secondary source of liquidity. There are other sources of liquidity available to us should they be needed. These sources include sales of loans, additional collateralized borrowings such as FHLB advances, unsecured borrowing lines with other financial institutions, the issuance and sale of debt securities, and the issuance and sale of preferred or common securities. We can also borrow from the Federal Reserve’s discount window.

Amounts available under our existing credit facilities as of December 31, ~~2009,~~2010, consist of ~~$92.9~~$52.2 million available at the Federal Home Loan Bank and ~~$63.2~~$48.4 million in the form of federal funds and/or other lines of credit.

If we were unable to access any of these funding sources when needed, we might be unable to meet customers’ needs, which could adversely impact our financial condition, results of operations, cash flows, and level of regulatory-qualifying capital.

Risk Associated with an Investment in our Common Stock

The market price of our common stock is established between a buyer and seller.

First Guaranty Bank acts as the transfer agent for First Guaranty Bancshares, Inc. All shares traded are agreed upon by mutual buyers and sellers. First Guaranty Bancshares, Inc. is not traded on an exchange, therefore liquidation and/or purchases of stock may not be readily available.

Our Management controls a substantial percentage of our common stock and therefore has the ability to exercise substantial control over our affairs.

As of ~~December 31, 2009,~~ March 14, 2011, our directors and executive officers (and their affiliates) beneficially owned ~~2,348,110~~2,948,152 shares or approximately ~~42.2%~~53.0% of our common stock. Because of the large percentage of common stock held by our directors and executive officers, such persons could significantly influence the outcome of any matter submitted to a vote of our shareholders even if other shareholders were in favor of a different result.

Our participation in the U.S. Treasury’s Capital Purchase Program imposes restrictions on us that limit our ability to perform certain equity transactions, including the payment of dividends and common stock purchases.

On August 28, 2009, we issued and sold $20.7 million in Fixed Rate Cumulative Perpetual Preferred Stock, Series A and a warrant to purchase shares of the Company’s Fixed Rate Cumulative Preferred Stock, Series B to the Treasury Department as part of the Capital Purchase Program. The Series A preferred shares will pay a cumulative dividend rate of five percent ~~(5%~~(5.0%) per annum for the first five years and will reset to a rate of nine percent ~~(9%~~(9.0%) per annum after year five. Immediately following the issuance of the Series A Preferred Stock and the Warrant, the Treasury Department exercised its rights under the Warrant to acquire shares of the Series B Preferred Stock through a cashless exercise. The Series B Preferred Stock pays cumulative dividends at a rate of nine percent ~~(9%~~(9.0%) per annum. The Series B Preferred Stock ~~genera lly~~generally has the same rights and privileges as the Series A Preferred Stock. The dividends and potential increase in dividends if we do not redeem the preferred stock may significantly impact our operating results, liquidity, and capital position.

Pursuant to the Purchase Agreement, prior to August 28, 2012, unless the Company has redeemed the Series A Preferred Stock and the Series B Preferred Stock or the Treasury Department has transferred the Series A Preferred Stock and the Series B Preferred Stock to a third party, the ability of the Company to declare or pay any dividend or make any distribution on its capital stock or other equity securities of any kind of the Company will be subject to restriction, including a restriction against (1) increasing the quarterly cash dividend per share to an amount larger than the last quarterly cash dividend paid on the common stock prior to November 17, 2008, $0.16 per share, or (2) redeeming, purchasing or acquiring any shares of its common stock or other equity or capital securities, other than in connection with benefit plans consistent ~~w ith~~with past practice and certain circumstances specified in the Purchase Agreement. In addition, prior to August 28, 2012, the Company may not redeem any of the Series A Preferred Stock or Series B Preferred Stock except with the proceeds of a qualified equity offering.

Following August 28, 2012 and until August 28, 2019 (unless the Series A Preferred Stock and Series B Preferred Stock has been redeemed or transferred to a third party), the Company may not, without the consent of the Treasury Department, pay any dividends on its capital stock that are in the aggregate greater than 103% of any dividends in the prior fiscal quarter. In addition, prior to August 28, 2019 (unless the Series A Preferred Stock and Series B Preferred Stock has been redeemed or transferred to a third party) the Company may not repurchase or acquire any equity security of the Company without the consent of the Treasury Department other than in certain circumstances specified in the Purchase Agreement. Following August 28, 2019, the Company may not pay any dividend or repurchase any equity securities without the consent of the Treasury Department unless the Series A Preferred Stock and the Series B Preferred Stock have been redeemed or the United States Treasury has transferred the securities. In addition, no shares of the Series B Preferred Stock may be redeemed unless all the shares of Series A Preferred Stock have been redeemed.

In addition, under the Articles of Amendment for the Series A Preferred Stock and the Series B Preferred Stock, the Company’s ability to declare or pay dividends or repurchase its common stock or other equity or capital securities will be subject to restrictions in the event that it fails to declare and pay or set aside for payment full dividends on the Series A Preferred Stock and the Series B Preferred Stock, respectively.

Item 1B – Unresolved Staff Comments

None.

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~~Table of Contents~~

Item 2 - Properties

The Company does not directly own any real estate, but it does own real estate indirectly through its subsidiary. The Bank operates 17 retail-banking ~~centers.~~centers and one drive-up facility. The following table sets forth certain information relating to each office. The net book value of our properties at December 31, ~~2009~~2010 was $9.0 million.

Location	Use of Facilities	Year Facility Opened or Acquired	Owned/ Leased
First Guaranty Square 400 East Thomas Street Hammond, LA 70401	Bank’s Main Office	1975	Owned
2111 West Thomas Street Hammond, LA 70401	Guaranty West Banking Center	1974	Owned
100 East Oak Street Amite, LA 70422	Amite Banking Center	1970	Owned
455 Railroad Avenue Independence, LA 70443	Independence Banking Center	1979	Owned
301 Avenue F Kentwood, LA 70444	Kentwood Banking Center	1975	Owned
170 West Hickory Ponchatoula, LA 70454	Ponchatoula Banking Center1	1960	Owned
~~196~~189 Burt Blvd Benton, LA 71006	Benton Banking Center2	~~1999~~2010	Owned
126 South Hwy. 1 Oil City, LA 71061	Oil City Banking Center	1999	Owned
401 North 2nd Street Homer, LA 71040	Homer Main Banking Center	1999	Owned
10065 Hwy 79 Haynesville, LA 71038	Haynesville Banking Center	1999	Owned
117 East Hico Street Dubach, LA 71235	Dubach Banking Center	1999	Owned
102 East Louisiana Avenue Vivian, LA 71082	Vivian Banking Center	1999	Owned
500 North Cary Jennings, LA 70546	Jennings Banking Center	1999	Owned
799 West Summers Drive Abbeville, LA 70510	Abbeville Banking Center	1999	Owned
105 Berryland Ponchatoula, LA 70454	Berryland Banking Center	2004	Leased
2231 S. Range Avenue Denham Springs, LA 70726	Denham Springs Banking Center	2005	Owned
North 6th Street Ponchatoula, LA 70454	Ponchatoula Banking Center 1	2007	Owned
29815 Walker Rd S Walker, LA 70785	Walker Banking Center	2007	Owned

1 This banking facility was closed on March 14, 2008 and consolidated with the Ponchatoula Banking Center.

2 ~~This banking facility was sold on January 27, 2010 and a new facility was opened at 189 Burt Boulevard, Benton, LA.~~

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~~Table of Contents~~

The Bank also owns four additional properties which are currently not being used as banking facilities. One of the properties is a banking center location previously owned and operated by Homestead Bank in Amite, Louisiana but was closed at the time of the merger. This facility is currently being used for storage. The Bank also acquired, in the Homestead Bank merger, a banking facility located in Ponchatoula, Louisiana. This facility was closed in March 2008 and currently is ~~vacant.~~leased. Management’s intentions are to sell these two properties. In addition, the Bank owns two parcels of raw land, located in Amite and Bossier City Louisiana, on which it intends to build de nevo banking center locations. During 2009, the Bank opened a stand-alone ATM on the Amite parcel of land.

On December 30, 2008, the Company purchased raw land located at 182 Burt Boulevard, Benton, Louisiana and began construction of a new banking facility. This purchase was to facilitate the sale of the existing Benton banking center, located at 196 Burt Boulevard, Benton, Louisiana, to the Law Enforcement District of Bossier. As of December 31, 2009, the Bank had a binding contract to sell the property located at 196 Burt Boulevard, Benton, Louisiana. The sale was consummated on January 27, 2010 and the new Benton banking center, located at 182 Burt Boulevard, Benton, Louisiana, was opened. The cost of the new Benton banking center, including land, building, furniture and equipment totaled approximately $1.5 million. See Note 24 to the Consolidated Financial Statements.

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Item 3 - Legal Proceedings

The Company is subject to various legal proceedings in the normal course of its business. It is Management’s belief that the ultimate resolution of such claims will not have a material adverse effect on the financial position or results of operations. At December 31, ~~2009,~~2010, we were not involved in any material legal proceedings.

Item 4 - ~~Submission of Matters to a Vote of Security Holders~~

~~[Reserved]~~Removed and Reserved

PART II

Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There is no liquid or active market for our common stock. The Company’s shares of common stock are not traded on a stock exchange or in any established over-the-counter market. Trades occur primarily between individuals at a price mutually agreed upon by the buyer and seller. Trading in the Company’s common stock has been infrequent and such trades cannot be characterized as constituting an active trading market.

The following table sets forth the high and low bid quotations for First Guaranty Bancshares, Inc.’s common stock for the periods indicated. These quotations represent trades of which we are aware and do not include retail markups, markdowns, or commissions and do not necessarily reflect actual transactions. As of December 31, ~~2009,~~2010, there were 5,559,644 shares of First Guaranty Bancshares, Inc. common stock issued and ~~outstanding. At December 31, 2009, First Guaranty Bancshares, Inc. had 1,356~~outstanding with a total of 1,361 shareholders of record.

	2010						2009
Quarter Ended:	High		Low		Dividend		High		Low		Dividend
March	$	17.00	$	17.00	$	0.16	$	25.00	$	17.00	$	0.16
June		18.62		17.00		0.16		17.00		17.00		0.16
September		18.62		17.50		0.16		17.00		15.00		0.16
December		18.62		18.62		0.16		17.00		12.00		0.16

2009 2008
Quarter Ended: High Low Dividend High Low Dividend
March $ 25.00 $ 17.00 $ 0.16 $ 25.00 $ 24.30 $ 0.16
June 17.00 17.00 0.16 25.00 25.00 0.16
September 17.00 15.00 0.16 25.00 25.00 0.16
December 17.00 12.00 0.16 25.00 25.00 0.16

Our stockholders are entitled to receive dividends when, and if declared by the Board of Directors, out of funds legally available for dividends. We have paid consecutive quarterly cash dividends on our common stock for each of the last ten years and the Board of Directors intends to continue to pay regular quarterly cash dividends. The ability to pay dividends in the future will depend on earnings and financial condition, liquidity and capital requirements, regulatory restrictions, the general economic and regulatory climate and ability to service any equity or debt obligations senior to common stock.

There are legal restrictions on the ability of First Guaranty Bank to pay cash dividends to First Guaranty Bancshares, Inc. Under federal and state law, we are required to maintain certain surplus and capital levels and may not distribute dividends in cash or in kind, if after such distribution we would fall below such levels. Specifically, an insured depository institution is prohibited from making any capital distribution to its shareholders, including by way of dividend, if after making such distribution, the depository institution fails to meet the required minimum level for any relevant capital measure including the risk-based capital adequacy and leverage standards.

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~~Table of Contents~~

Additionally, under the Louisiana Business Corporation Act, First Guaranty Bancshares, Inc. is prohibited from paying any cash dividends to shareholders if, after the payment of such dividend, if its total assets would be less than its total liabilities or where net assets are less than the liquidation value of shares that have a preferential right to participate in First Guaranty Bancshares, Inc.’s assets in the event First Guaranty Bancshares, Inc. were to be liquidated.

First Guaranty Bancshares, Inc. must seek prior approval from the Federal Reserve Bank before paying dividends to its shareholders.

We have not repurchased any shares of our outstanding common stock during the past year.

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~~Table of Contents~~

Stock Performance Graph

The line graph below compares the cumulative total return for the Company’s common stock with the cumulative total return of both the NASDAQ Stock Market Index for U.S. companies and the NASDAQ Index for bank stocks for the period December 31, ~~2004~~2006 through December 31, ~~2009.~~2010. The total return assumes the reinvestment of all dividends and is based on a $100 investment on December 31, ~~2004.~~1998. It also reflects the stock price on December 31st of each year shown, although this price reflects only a small number of transactions involving a small number of directors of the Company or affiliates or associates and cannot be taken as an accurate indicator of the market value of the Company’s common stock.

~~Performance Graph~~

~~Cumulative Total Return of First Guaranty Bancshares, Inc. Compared to NASDAQ Bank Index~~

~~and NASDAQ Composite Index~~

Total Returns for the Year
2005 2006 2007 2008 2009
First Guaranty Bancshares, Inc. $139 $168 $179 $189 $133
NASDAQ Index $168 $186 $145 $110 $ 90
NASDAQ Composite $101 $110 $121 $ 72 $103

We have no equity based benefit plans.

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Item 6 - Selected Financial Data

The following selected financial data should be read in conjunction with the financial statements, including the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this Form 10-K. Except for the data under “Performance Ratios,” “Capital Ratios” and “Asset Quality Ratios,” the income statement data and share and per share data for the years ended December 31, 2010, 2009 ~~2008~~ and ~~2007~~2008 and the balance sheet data as of December 31, ~~2009~~2010 and ~~2008~~2009 are derived from the audited financial statements and related notes which are included elsewhere in this Form 10-K, and the income statement data and share and per share data for the years ended December 31, ~~2006~~2007 and ~~2005~~2006 and the balance sheet data as of December 31, ~~2 007,~~2008, 2007and 2006 ~~and 2005~~ are derived from the audited financial statements and related notes that are not included in this Form 10-K.

	At or For the Years Ended December 31,
	2010			2009			2008			2007			2006


Year End Balance Sheet Data:
(in thousands)
Securities	$	481,961		$	261,829		$	139,162		$	142,068		$	158,352
Federal funds sold		9,129			13,279			838			35,869			6,793
Loans, net of unearned income		575,640			589,902			606,369			575,256			507,195
Allowance for loan losses		8,317			7,919			6,482			6,193			6,675
Total assets(1)		1,132,792			930,847			871,233			807,994			715,216
Total deposits		1,007,383			799,746			780,372			723,094			626,293
Borrowings		12,589			31,929			18,122			13,494			24,568
Stockholders' equity(1)		97,938			94,935			65,487			66,355			59,471
Common Stockholders' equity(1)		76,963			74,165			65,487			66,355			59,471

Average Balance Sheet Data:
(dollars in thousands)
Securities	$	342,589		$	245,952		$	127,586		$	152,990		$	178,419
Federal funds sold		11,007			24,662			17,247			8,083			3,115
Loans, net of unearned income		593,429			599,609			600,854			543,946			505,623
Total earning assets		964,039			906,158			752,093			712,212			690,057
Total assets		1,015,681			948,556			797,024			751,237			726,593
Total deposits		883,440			842,274			707,114			658,456			622,869
Borrowings		27,324			22,907			16,287			23,450			42,435
Stockholders' equity		99,575			77,135			67,769			63,564			56,640
Stockholders' common equity		79,245			70,055			67,769			63,564			56,640

Performance Ratios:
Return on average assets		0.99	%		0.80	%		0.69	%		1.30	%		1.16	%
Return on average common equity		12.65	%		10.84	%		8.13	%		15.37	%		14.88	%
Return on average tangible assets(2)		0.99	%		0.80	%		0.69	%		1.30	%		1.16	%
Return on average tangible common equity(3)		12.95	%		11.14	%		8.77	%		16.47	%		15.73	%
Net interest margin		3.96	%		3.57	%		4.25	%		4.79	%		4.60	%
Average loans to average deposits		67.17	%		71.19	%		84.97	%		82.61	%		81.18	%
Efficiency ratio (1)		56.20	%		60.80	%		70.73	%		55.80	%		51.80	%
Efficiency ratio (excluding amortization of
intangibles and securities transactions) (1)		59.25	%		61.99	%		61.20	%		54.59	%		49.90	%
Full time equivalent employees (year end)		246			230			225			222			196

(1) For the years ended 2006, 2007 and 2008 amounts were restated in 2009 to reflect prior period adjustments.

(2) Average tangible assets represent average assets less average core deposit intangibles.

(3) Average tangible equity represents average equity less average core deposit intangibles.

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At or For the Years Ended December 31,
2009 2008 2007 2006 2005

Year End Balance Sheet Data:
(dollars in thousands)
Securities $ 261,829 $ 139,162 $ 142,068 $ 158,352 $ 175,200
Federal funds sold 13,279 838 35,869 6,793 1,786
Loans, net of unearned income 589,902 606,369 575,256 507,195 491,582
Allowance for loan losses 7,919 6,482 6,193 6,675 7,597
Total assets(1)
930,847 871,233 807,994 715,216 713,544
Total deposits 799,746 780,372 723,094 626,293 632,908
Borrowings 31,929 18,122 13,494 24,568 22,132
Stockholders' equity(1)
94,935 65,487 66,355 59,471 53,923
Common Stockholders' equity(1)
74,165 65,487 66,355 59,471 53,923

Average Balance Sheet Data:
(dollars in thousands)
Securities $ 245,952 $ 127,586 $ 152,990 $ 178,419 $ 109,236
Federal funds sold 24,662 17,247 8,083 3,115 6,028
Loans, net of unearned income 599,609 600,854 543,946 505,623 476,144
Total earning assets 906,158 752,093 712,212 690,057 595,141
Total assets 948,556 797,024 751,237 726,593 631,554
Total deposits 842,274 707,114 658,456 622,869 526,995
Borrowings 22,907 16,287 23,450 42,435 45,732
Stockholders' equity 77,135 67,769 63,564 56,640 54,901
Stockholders' common equity 70,055 67,769 63,564 56,640 54,901

Performance Ratios:
Return on average assets 0.80 % 0.69 % 1.30 % 1.16 % 0.95 %
Return on average common equity 10.84 % 8.13 % 15.37 % 14.88 % 10.89 %
Return on average tangible assets(2)
0.80 % 0.69 % 1.30 % 1.16 % 0.96 %
Return on average tangible common equity(3)
11.14 % 8.77 % 16.47 % 15.73 % 11.24 %
Net interest margin 3.57 % 4.25 % 4.79 % 4.60 % 4.71 %
Average loans to average deposits 71.19 % 84.97 % 82.61 % 81.18 % �� 90.35 %
Efficiency ratio (1)
60.80 % 70.73 % 55.80 % 51.80 % 55.44 %
Efficiency ratio (excluding amortization of
intangibles and securities transactions) (1)
61.99 % 61.20 % 54.59 % 49.90 % 53.66 %
Full time equivalent employees (year end) 230 225 222 196 189

~~(1)~~ ~~For the years ended 2006, 2007 and 2008 amounts have been restated to reflect prior period adjustments. See Note 2 to the Consolidated Financial Statements for additional information.~~

~~(2)~~ ~~Average tangible assets represent average assets less average core deposit intangibles.~~

	At or For the Years Ended December 31,
	2010			2009			2008				2007			2006


Capital Ratios:
Average stockholders' equity to average assets		9.80	%		8.13	%		8.50	%			8.46	%		7.80	%
Average tangible equity to average tangible assets(1),(2)		9.64	%		7.95	%		8.25	%			8.31	%		7.71	%
Common stockholders' equity to total assets(3)		6.79	%		7.97	%		7.52	%			8.21	%		8.32	%
Tier 1 leverage capital(3)		8.69	%		9.58	%		7.88	%			7.38	%		8.11	%
Tier 1 capital(3)		11.98	%		11.90	%		9.19	%			10.13	%		9.85	%
Total risk-based capital(3)		13.03	%		12.97	%		10.11	%			11.09	%		10.96	%

Income Data:
(dollars in thousands)
Interest income	$	51,390		$	47,191		$	47,661			$	55,480		$	50,937
Interest expense(3)		13,223			14,844			15,881		��		21,934			19,769
Net interest income(3)		38,167			32,347			31,780				33,546			31,168
Provision for loan losses		5,654			4,155			1,634				1,918			4,419
Noninterest income (excluding securities transactions)		6,741			5,909			5,689				5,176			4,601
Securities (losses) gains		2,824			2,056			(1	)			(478	)		(234	)
Loss on securities impairment		-			(829	)		(4,611	)			-			-
Noninterest expense(3)		26,827			24,007			23,241				21,341			18,373
Earnings before income taxes(3)		15,251			11,321			7,982				14,985			12,744
Net income(3)		10,025			7,595			5,512				9,772			8,431
Net income available to common shareholders(3)		8,692			7,001			5,512				9,772			8,431

Per Common Share Data:
Net earnings(3)	$	1.56		$	1.26		$	0.99			$	1.76		$	1.52
Cash dividends paid		0.64			0.64			0.64				0.63			0.60
Book value(3)		13.84			13.34			11.78				11.94			10.70
Dividend payout ratio(3)		40.94	%		50.82	%		64.53	%			35.85	%		39.56	%
Weighted average number of shares outstanding		5,559,644			5,559,644			5,559,644				5,559,644			5,559,644
Number of shares outstanding (year end)		5,559,644			5,559,644			5,559,644				5,559,644			5,559,644
Market data:
High	$	18.62		$	25.00		$	25.00			$	24.30		$	23.42
Low	$	17.00		$	12.00		$	24.30			$	23.42		$	18.57
Trading Volume		181,353			165,386			368,454				924,692			535,264
Stockholders of record		1,361			1,356			1,343				1,293			1,181

Asset Quality Ratios:
Nonperforming assets to total assets		2.73	%		1.68	%		1.14	%			1.39	%		1.85	%
Nonperforming assets to loans		5.38	%		2.65	%		1.63	%			1.95	%		2.61	%
Loan loss reserve to nonperforming assets		26.9	%		50.68	%		65.46	%			55.26	%		50.43	%
Net charge-offs to average loans		0.89	%		0.45	%		0.22	%			0.50	%		1.06	%
Provision for loan loss to average loans		0.95	%		0.69	%		0.27	%			0.35	%		0.87	%
Allowance for loan loss to total loans		1.44	%		1.34	%		1.07	%			1.08	%		1.32	%

~~(3)~~ ~~Average tangible equity represents average equity less average core deposit intangibles.~~

(1) Average tangible assets represents average assets less average core deposit intangibles.

(2) Average tangible equity represents average equity less average core deposit intangibles.

(3) For the years ended 2006, 2007 and 2008 amounts were restated in 2009 to reflect prior period adjustments.

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~~- 24 -~~

~~Table of Contents~~

At or For the Years Ended December 31,
2009 2008 2007 2006 2005

Capital Ratios:
Average stockholders' equity to average assets 8.13 % 8.50 % 8.46 % 7.80 % 8.69 %
Average tangible equity to average tangible assets(1),(2)
7.95 % 8.25 % 8.31 % 7.71 % 8.51 %
Stockholders' equity to total assets(3)
7.97 % 7.52 % 8.21 % 8.32 % 7.56 %
Tier 1 leverage capital(3)
9.58 % 7.88 % 7.38 % 8.11 % 7.67 %
Tier 1 capital(3)
11.90 % 9.19 % 10.13 % 9.85 % 8.80 %
Total risk-based capital(3)
12.97 % 10.11 % 11.09 % 10.96 % 10.05 %

Income Data:
(dollars in thousands)
Interest income $ 47,191 $ 47,661 $ 55,480 $ 50,937 $ 40,329
Interest expense(3)
14,844 15,881 21,934 19,769 12,435
Net interest income(3)
32,347 31,780 33,546 31,100 27,962
Provision for loan losses 4,155 1,634 1,918 4,419 5,621
Noninterest income (excluding securities transactions) 5,909 5,689 5,176 4,601 5,221
Securities (losses) gains 2,056 (1 ) (478 ) (234 ) 7
Loss on securities impairment (829 ) (4,611 ) - - -
Noninterest expense(3)
24,007 23,241 21,341 18,373 18,399
Earnings before income taxes(3)
11,321 7,982 14,985 12,676 9,170
Net income(3)
7,595 5,512 9,772 8,431 5,979
Net income available to common shareholders(3)
7,001 5,512 9,772 8,431 5,979

Per Common Share Data:(4)

Net earnings(3)
$ 1.26 $ 0.99 $ 1.76 $ 1.52 $ 1.08
Cash dividends paid 0.64 0.64 0.63 0.60 0.57
Book value(3)
13.34 11.78 11.94 10.70 9.70
Dividend payout ratio(3)
50.82 % 64.53 % 35.85 % 39.56 % 53.07 %
Weighted average number of shares outstanding 5,559,644 5,559,644 5,559,644 5,559,644 5,559,644
Number of shares outstanding (year end) 5,559,644 5,559,644 5,559,644 5,559,644 5,559,644
Market data:
   High $ 25.00 $ 25.00 $ 24.30 $ 23.42 $ 20.00
   Low $ 12.00 $ 24.30 $ 23.42 $ 18.57 $ 15.27
   Trading Volume 165,386 368,454 924,692 535,264 279,503
   Stockholders of record 1,356 1,343 1,293 1,181 1,141

Asset Quality Ratios:
Nonperforming assets to total assets 1.68 % 1.14 % 1.39 % 1.86 % 3.08 %
Nonperforming assets to loans 2.65 % 1.63 % 1.95 % 2.62 % 4.48 %
Loan loss reserve to nonperforming assets 50.68 % 65.46 % 55.26 % 51.53 % 34.92 %
Net charge-offs to average loans 0.45 % 0.22 % 0.50 % 1.06 % 0.83 %
Provision for loan loss to average loans 0.69 % 0.27 % 0.35 % 0.87 % 1.18 %
Allowance for loan loss to total loans 1.34 % 1.07 % 1.08 % 1.32 % 1.55 %

~~(1)~~ ~~Average tangible assets represents average assets less average core deposit intangibles.~~

~~(2)~~ ~~Average tangible equity represents average equity less average core deposit intangibles.~~

~~(3)~~ ~~For the years ended 2006, 2007 and 2008 amounts have been restated to reflect prior period adjustments. See Note 2 to the Consolidated Financial Statements for additional information.~~

~~(4)~~ For the year ended 2005 amounts have been restated to reflect a stock dividend of one-third of a share of $1 par value common stock for each share of $1 and $5 par value common stock outstanding, accounted for as a four-

~~for-three stock split, effective and payable to stockholders of record as of October 20, 2005.~~

Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

First Guaranty Bancshares, Inc. became the holding company for First Guaranty Bank on July 27, 2007 in a corporate reorganization. Prior to becoming the holding company of First Guaranty Bank, First Guaranty Bancshares, Inc. had no assets, liabilities or operations.

This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. Reference should be made to those financial statements of this Form 10-K and the selected financial data (above) presented in this report in order to obtain a better understanding of the commentary which follows.

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~~Table of Contents~~

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’s 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, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements.

Application of Critical Accounting Policies

The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America and to predominant accounting practices within the banking industry. Certain critical accounting policies require judgment and estimates which are used in the preparation of the financial statements.

Other-Than-Temporary Impairment of Investment Securities. Securities are evaluated periodically to determine whether a decline in their value is other-than-temporary. The term “other-than-temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Management reviews criteria such as the magnitude and duration of the decline, the reasons for the decline, and the performance and valuation of the underlying collateral, when applicable, to predict whether the loss in value is other-than-temporary. Once a decline in value is determined to be other-than-temporary, the carrying value of the security is reduced to its fair value and a corresponding charge to earnings is recognized.

Allowance for Loan Losses. The Company’s most critical accounting policy relates to its allowance for loan losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when Management believes that the collectability of the principal is unlikely. The allowance, which is based on the evaluation of the collectability of loans and prior loan loss experience, is an amount Management believes will be adequate to reflect the risks inherent in the existing loan portfolio and that exist at the reporting date. The evaluations take into consideration a number of subjective factors including changes in the ~~natu re~~nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect a borrower’s ability to pay, adequacy of loan collateral and other relevant factors.

Changes in such estimates may have a significant impact on the financial statements. For further discussion of the allowance for loan losses, see the “Allowance for Loan Losses” section of this analysis and Note 1 and Note 5 to the Consolidated Financial Statements.

Valuation of Goodwill, Intangible Assets and Other Purchase Accounting Adjustments. The ~~Company accounts for goodwill and intangible assets in accordance with FASB ASC 350,~~ ~~Intangibles – Goodwill and Other~~ ~~(SFAS No. 142). Under FASB ASC 350,~~Company's goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment ~~tests in accordance with the provision of FASB ASC 350.~~tests. The Company’s goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment. A goodwill impairment test includes two steps. Step one, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Step two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit’s goodwill, an impairment loss is recognized in an amount equal to that excess. Based on Management’s goodwill impairment tests, there was no impairment of goodwill at December 31, ~~2009.~~2010. For additional information on goodwill and intangible assets, see Note 7 to the Consolidated Financial Statements.

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2010 Financial Overview

Financial highlights for 2010 and 2009 are as follows:

Net income for 2010 and 2009 was $10.0 million and $7.6 million respectively. Net income to common shareholders after preferred stock dividends was $8.7 million and $7.0 million for 2010 and 2009, with earnings per common share of $1.56 and $1.26 respectively. The increase in net income was primarily the result of an increase in net interest income due to a larger investment portfolio and higher loan pricing. The Company also recognized gains from sales of securities of $2.8 million compared to $2.1 million for 2009.

·	Net interest income for 2010 and 2009 was $38.2 million and $32.3 million, respectively. The net interest margin for the Company was 4.0% at December 31, 2010 and 3.6% at December 31, 2009.

·	The provision for loan losses for 2010 was $5.7 million compared to $4.2 million for 2009.

·	Total assets at December 31, 2010 were $1.133 billion, an increase of $201.9 million or 21.7% when compared to $930.8 million at December 31, 2009. The increase in assets primarily resulted from excess cash received from deposit growth which was primarily invested in the securities portfolio.

Investment securities totaled $482.0 million at December 31, 2010, an increase of $220.1 million when compared to $261.8 million at December 31, 2009. At December 31, 2010, available for sale securities, at fair value, totaled $322.1 million, an increase of $72.6 million when compared to December 31, 2009. The Company had $159.8 million in the held to maturity category as of December 31, 2010. Our securities in the held to maturity category totaled $12.3 million at December 31, 2009.

·	The net loan portfolio at December 31, 2010 totaled $567.3 million, a decrease of $14.7 million from the December 31, 2009 level of $582.0 million. Net loans are reduced by the allowance for loan losses which totaled $8.3 million for December 31, 2010 and $7.9 million for December 31, 2009.

·	Non-performing assets at December 31, 2010 were $31.0 million, an increase of $15.3 million compared to December 31, 2009.

·	Total deposits increased $207.6 million or 26.0% in 2010 compared to the year ended December 31, 2009.

Return on average assets for the twelve months ending December 31, 2010 and December 31, 2009 was 1.0% and 0.8% respectively. Return on average common shareholders’ equity for 2010 and 2009 were 12.7% and 10.8% respectively. Return on average assets is calculated by dividing net income before preferred dividends by average assets. Return on common shareholders’ equity is calculated by dividing net earnings applicable to common shareholders by average common shareholders’ equity.

·	The Company’s Board of Directors declared cash dividends of $0.64 per common share in 2010 and 2009.

Financial Condition

Assets. Total assets at December 31, ~~2009~~2010 were ~~$930.8 million,~~$1.133 billion, an increase of ~~$59.6~~$201.9 million, or ~~6.8%~~21.7%, from ~~$871.2~~$930.8 million at December 31, ~~2008.~~2009. Federal funds sold ~~increased $12.4~~decreased $4.2 million from December 31, ~~2008~~2009 to December 31, ~~2009~~2010 and total loans for the same period decreased ~~$16.5~~$14.3 million. Cash and due from banks ~~decreased $43.7~~increased $2.3 million from ~~2008~~2009 to ~~2009.~~2010. Additionally, total investment securities increased ~~$122.7~~$220.1 million to ~~$261.8~~$482.0 million from December 31, ~~2008~~2009 to December 31, ~~2009.~~2010. Total deposits increased by ~~$19.4~~$207.6 million or ~~2.5%~~26.0% from ~~2008~~2009 to ~~2009.~~2010. At December 31, ~~2009,~~2010, the Company had no long-term borrowings ~~were~~compared to long-term borrowings of $20.0 ~~million, an increase of $11.6 million or 139.4%, from $8.4~~ million at December 31, ~~2008.~~2009.

~~Cash and Cash Equivalents.~~ Cash and cash equivalents at December 31, 2009 totaled $46.7 million, a decrease of $31.3 million compared to $78.0 million at December 31, 2008. Cash and due from banks decreased $43.7 million, and federal funds sold increased $12.4 million. The decrease in cash and cash equivalents reflects Management’s decision to increase its investment in higher yielding investment securities.

~~- 26 -~~

~~Table of Contents~~

Investment Securities. The securities portfolio consisted principally of U.S. Government agency ~~securities, mortgage-backed obligations, asset-backed~~ securities, corporate debt securities and mutual funds or other equity securities. The securities portfolio provides us with a relatively stable source of income and provides a balance to interest rate and credit risks as compared to other categories of assets.

The securities portfolio totaled ~~$261.8~~$482.0 million at December 31, ~~2009,~~2010, representing an increase of ~~$122.7~~$220.1 million from December 31, ~~2008.~~2009. The primary changes in the portfolio consisted of ~~$1.4~~$1.0 billion in purchases, sales totaling ~~$21.8~~$44.3 million, and calls and maturities of ~~$1.3 billion. An other-than-temporary impairment charge totaling $0.8 million was taken on six securities during 2009. See Note 4 to the Consolidated Financial Statements for additional information.~~$768.1 million.

At December 31, ~~2009~~2010, approximately ~~3.5%~~2.4% of the securities portfolio (excluding Federal Home Loan Bank stock) matures in less than one year while securities with maturity dates over 10 years totaled ~~25.2%~~26.9% of the portfolio. At December 31, ~~2009,~~2010, the average maturity of the securities portfolio was ~~6.3~~6.5 years, compared to the average maturity at December 31, ~~2008~~2009 of ~~3.7~~6.3 years.

During the fourth quarter of 2009, three agency securities with a par value of $10.0 million were transferred from available for sale to held to maturity. These three securities had a fair market value totaling $9.8 million and an average maturity of aproximately 14 years. The unrealized loss of $0.2 million was recorded as a component of other comprehensive loss and will be amortized over the life of the securities or until the security is called.

At December 31, ~~2009,~~2010, securities totaling ~~$249.5~~$322.1 million were classified as available for sale and ~~$12.3~~$159.8 million were classified as held to maturity as compared to ~~$114.4~~$249.5 million and ~~$24.8~~$12.3 million, respectively at December 31, ~~2008.~~2009.

Securities classified as available for sale are measured at fair market value. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, market yield curves, prepayment speeds, credit information and the instrument’s contractual terms and conditions, among other things. Securities classified as held to maturity are measured at book value. See Note ~~4 and Note 20~~3 to the Consolidated Financial Statements for additional information.

The book yields on securities available for sale ranged from 0.8% to ~~19.9%~~10.9% at December 31, ~~2009,~~2010, exclusive of the effect of changes in fair value reflected as a component of stockholders’ equity. The book yields on held to maturity securities ranged from ~~3.6%~~2.1% to ~~5.3%~~4.0%.

- 28 -

Securities classified as available for sale had gross unrealized losses totaling ~~$2.8~~$5.5 million at December 31, ~~2009.~~2010. These losses include ~~$1.6~~$4.0 million in unrealized losses on U.S. Government agency securities, which have been in a loss position for less than 12 months. 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. At December 31, ~~2008,~~2009, securities classified as available for sale had gross unrealized losses totaling ~~$5.7~~$2.8 million. See Note 43 to the Consolidated Financial Statements for additional information.

Average securities as a percentage of average interest-earning assets were ~~27.1%~~35.5% and ~~17.0%~~27.1% at December 31, ~~2009~~2010 and ~~2008,~~2009, respectively. This increase reflected, in part, Management’s decision to ~~display~~deploy a certain amount of funds into investment securities, rather than loans, to manage ~~out~~our interest rate risk, in a low interest rate environment in ~~2009.~~2010. At December 31, 2010 and 2009, $163.6 million of the total securities portfolio did not qualify as pledgeable securities to collateralize repurchase agreements and public funds compared to $54.1 million in securities held at December 31, 2008. At December 31, 2009 and 2008, $154.5$271.5 million and ~~$85.4~~$154.5 million in securities were pledged, respectively.

In the second quarter of 2010, the Company sold the $12.1 million that remained in the held to maturity category. This represented approximately 4.0% of the total investment portfolio and 1.0% of assets. Several of the securities sold included mortgage backed securities and agency bullet securities which were no longer part of Management's investment portfolio strategy. During the third quarter of 2010, the Company experienced significant deposit growth but decreased loan demand. Deposits grew approximately $123.0 million or 14.0% from June 30, 2010 to December 31, 2010. Net loans declined $38.0 million or 6.0% during the same period. Investment securities increased $142.0 million or 42% from June 30, 2010 to December 31, 2010. Market conditions continued to be historically volatile and interest rates declined to levels not seen in decades.

~~Mortgage Loans Held for Sale~~. Given the changes in the Company’s balance sheet observed during the third quarter and following the completion of a five year strategic plan, securities purchased pursuant to this plan were classified as held to maturity. The Company ~~did not hold any mortgage loans for sale at~~determined the unprecedented market conditions and volatility coupled with a revised five year strategic plan that a waiting period of one quarter was appropriate based on the materiality conditions and the type of securities in the held to maturity portfolio sold during the second quarter of 2010.

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. The Company has maintained public funds in excess of $175.0 million since December ~~31, 2009 or December 31, 2008.~~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.

Loans. The origination of loans is the primary use of our financial resources and represents the largest component of earning assets. At December 31, ~~2009,~~2010, the loan portfolio (loans, net of unearned income) totaled ~~$589.9~~$575.6 million, a decrease of approximately ~~$16.5~~$14.3 million, or ~~2.7%~~2.4%, from the December 31, ~~2008~~2009 level of ~~$606.4~~$589.9 million. The decrease in net loans primarily includes a reduction of ~~$13.3~~$13.1 million in real estate construction and land development loans, ~~and~~ a reduction of ~~$23.2~~$5.8 million in commercial and industrial loans, ~~partially offset with an increase~~a reduction of ~~$38.9~~$7.9 million in non-farm non-residential loans secured by real ~~estate.~~estate, partially offset by an increase of $5.6 million in multifamily loans.

Loans to related parties are included in total loans. Related parties include the Company’s executive officers, directors and certain business organizations and individuals with which such persons are associated. Atrepresented 57.1% of deposits at December 31, ~~2009 and 2008, loans~~2010, compared to ~~related parties totaled $23.3 million and $22.5 million, respectively. See Note 14 to the Consolidated Financial Statements for additional information.~~

~~Loans represented~~ 73.8% of deposits at December 31, ~~2009, compared to 77.7% of deposits at December 31, 2008.~~2009. Loans secured by real estate ~~increased $11.9~~decreased $17.7 million to ~~$477.1~~$459.4 million at December 31, ~~2009.~~2010. Commercial and industrial loans decreased ~~$23.2~~$5.8 million to ~~$82.3~~$76.6 million at December 31, ~~2009.~~2010. Real estate and related loans comprised ~~80.9%~~79.8% of the portfolio in ~~2009~~2010 as compared to ~~76.7%~~80.9% in ~~2008.~~2009. Commercial and industrial loans comprised ~~14.0%~~13.3% of the portfolio in ~~2009~~2010 as compared to ~~17.4%~~14.0% in ~~2008.~~2009.

Loan charge-offs taken during ~~2009~~2010 totaled ~~$2.9~~$5.6 million, compared to charge-offs of ~~$1.6~~$2.9 million in ~~2008.~~2009. Of the loan charge-offs in ~~2009,~~2010, approximately ~~$1.6~~$1.8 million were loans secured by real estate, ~~$0.7~~$3.4 million were commercial and industrial loans and ~~$0.6~~$0.4 million were consumer and other loans. In ~~2009,~~2010, recoveries of ~~$0.2~~$0.4 million were recognized on loans previously charged off as compared to ~~$0.3~~$0.2 million in ~~2008.~~2009.

Nonperforming Assets. Nonperforming assets were $31.0 million, or 2.7% of total assets at December 31, 2010, compared to $15.6 million, or 1.7% of total assets at December 31, ~~2009, compared to $9.9 million, or 1.1% of total assets at December 31, 2008.~~2009. The increase resulted from a ~~$5.1~~$14.5 million ~~or 55.4%,~~ increase in ~~nonaccrual~~non-accrual loans, and an increase of ~~$0.6~~$0.9 million in 90 days past due ~~loans and an increase of $0.1 million in other real estate.~~loans. The increase in nonaccrual loans was primarily in construction and land development, ~~one-to-four family residential,~~multifamily, and non-farm non-residential ~~and commercial and industrial~~ loans. The increase in ~~other real estate~~nonperforming assets was ~~primarily the result of an increase~~concentrated in ~~non-farm nonresidential properties.~~less than ten customer relationships

~~- 27 -~~

Deposits. Total deposits increased by ~~$19.4~~$207.6 million or ~~2.5%~~26.0%, to $1.01 billion at December 31, 2010 from $799.7 million at December 31, ~~2009 from $780.4 million at December 31, 2008.~~2009. In ~~2009,~~2010, noninterest-bearing demand deposits ~~increased $13.6~~decreased $0.9 million, interest-bearing demand deposits increased ~~$8.0~~$3.9 million and savings deposits ~~decreased $1.1~~increased $6.4 million. Time deposits ~~decreased $1.1~~increased $198.3 million, or ~~0.3% which includes brokered deposits totaling $10.1 million in reciprocal time deposits acquired from the Certificate of Deposit Account Registry Service (CDARS)~~45.1%. The increase in deposits was principally due to ~~a $23.3~~an increase of $88.7 million ~~decrease in individual and business deposits offset with a $42.7 million increase~~ in public ~~fund deposits.~~funds deposits and a deposit promotion program that increased deposits by over $100.0 million. The increase in public fund deposits was the primary result of three ~~municipalities’ elevated~~municipalities maintaining higher deposit ~~balan ces.~~balances.

Public fund deposits totaled ~~$268.5~~$356.2 million or ~~33.6%~~35.4% of total deposits at December 31, ~~2009.~~2010. Six public entities comprised $277.6 million or 77.9% of the total public funds as of December 31, 2010. At December 31, ~~2008,~~2009, public fund deposits represented ~~28.9%~~33.6% of total deposits with a balance of ~~$225.8~~$268.5 million.

Borrowings. Short-term borrowings increased ~~$2.2~~$0.7 million in ~~2009~~2010 to $12.6 million at December 31, 2010 from $11.9 million at December 31, ~~2009 from $9.8 million at December 31, 2008.~~2009. Short-term borrowings are used to manage liquidity on a daily or otherwise short-term basis. The short-term borrowings at December 31, ~~2009~~2010 and ~~2008,~~2009, respectively was solely comprised of repurchase agreements. Overnight repurchase agreement balances are monitored daily for sufficient collateralization.

~~Long-term~~ There were no long-term borrowings ~~increased $11.6 million~~at December 31, 2010, compared to $20.0 million at December 31, 2009, compared to $8.4 million at December 31, 2008. At December 31, 2009, two long-term advances were outstanding at FHLB, one totaling $10.0 million with a rate of 0.9% and a maturity date of December 1, 2010 and the other totaling $10.0 million with a rate of 0.5% and a maturity date of December 20, 2010. At December 31, 2008, there was one long-term advance outstanding at FHLB totaling $8.4 million.2009.

Stockholders’ Equity. Total stockholders’ equity increased ~~$29.4~~$3.0 million or ~~45.0%~~3.2% to $97.9 million at December 31, 2010 from $94.9 million at December 31, ~~2009 from $65.5 million at December 31, 2008.~~2009. The increase in stockholders’ equity ~~includes $19.6~~is attributable to the $10.0 million ~~and~~in consolidated earnings for 2010 which was partially offset by $3.6 million in dividends on common stock, $1.1 million in dividends on preferred stock, and a $2.3 million decrease in the unrealized gain on available for sale securities. Included in stockholders' equity are two classes of preferred stock Series A at $19.9 million and Series B ~~respectively,~~at $1.1 million. Series A and Series B were issued in August 2009 to the Treasury Department. See Note 11 to the Consolidated Financial Statements for additional information. In addition, stockholders’ equity reflected consolidated net income of $7.6 million during 2009 and changes in unrealized losses on available for sale securities totaling $5.2 million, offset by common stock dividends paid totaling $3.6 million and preferred stock dividends paid totaling $0.6. See N ote 4 to the Consolidated Financial Statements for additional information.

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~~- 28 -~~

~~Table of Contents~~

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, excluding loans held for sale, by type of loan at the dates indicated.

	December 31,																		December 31,
	2009						2008						2007						2010						2009						2008
				As % of						As % of						As % of						As % of						As % of						As % of
	Balance			Category			Balance			Category			Balance			Category			Balance			Category			Balance			Category			Balance			Category
	(dollars in thousands)																		(in thousands)
Real estate
Construction & land development	$	78,686			13.3	%	$	92,029			15.2	%	$	98,127			17.0	%	$	65,570			11.4	%	$	78,686			13.3	%	$	92,029			15.2	%
Farmland		11,352			1.9	%		16,403			2.7	%		23,065			4.0	%		13,337			2.3	%		11,352			1.9	%		16,403			2.7	%
1-4 Family		77,470			13.1	%		79,285			13.1	%		84,640			14.7	%		73,158			12.7	%		77,470			13.1	%		79,285			13.1	%
Multifamily		8,927			1.5	%		15,707			2.6	%		13,061			2.3	%		14,544			2.5	%		8,927			1.5	%		15,707			2.6	%
Non-farm non-residential		300,673			51.0	%		261,744			43.0	%		236,474			41.1	%		292,809			50.8	%		300,673			51.0	%		261,744			43.0	%
Total real estate		477,108			80.8	%		465,168			76.6	%		455,367			79.1	%		459,418			79.7	%		477,108			80.8	%		465,168			76.6	%

Agricultural		14,017			2.4	%		18,536			3.0	%		16,816			2.9	%		17,361			3.0	%		14,017			2.4	%		18,536			3.0	%
Commercial and industrial		82,348			13.9	%		105,555			17.4	%		81,073			14.1	%		76,590			13.3	%		82,348			13.9	%		105,555			17.4	%
Consumer and other		17,226			2.9	%		17,926			3.0	%		22,517			3.9	%		22,970			4.0	%		17,226			2.9	%		17,926			3.0	%
Total loans before unearned income		590,699			100.0	%		607,185			100.0	%		575,773			100.0	%		576,339			100.0	%		590,699			100.0	%		607,185			100.0	%
Less: unearned income		(797	)					(816	)					(517	)					(699	)					(797	)					(816	)
Total loans net of unearned income	$	589,902					$	606,369					$	575,256					$	575,640					$	589,902					$	606,369


	December 31,																		December 31,
	2006						2005												2007						2006
				As % of						As % of												As % of						As % of
	Balance			Category			Balance			Category									Balance			Category			Balance			Category
	(dollars in thousands)																		(in thousands)
Real estate
Construction & land development	$	49,837			9.9	%	$	67,099			13.6	%							$	98,127			17.0	%	$	49,837			9.9	%
Farmland		25,582			5.0	%		24,903			5.1	%								23,065			4.0	%		25,582			5.0	%
1-4 Family		67,022			13.2	%		78,789			16.0	%								84,640			14.7	%		67,022			13.2	%
Multifamily		14,702			2.9	%		11,125			2.3	%								13,061			2.3	%		14,702			2.9	%
Non-farm non-residential		256,176			50.5	%		223,622			45.5	%								236,474			41.1	%		256,176			50.5	%
Total real estate		413,319			81.5	%		405,538			82.5	%								455,367			79.1	%		413,319			81.5	%

Agricultural		16,359			3.2	%		11,490			2.3	%								16,816			2.9	%		16,359			3.2	%
Commercial and industrial		59,072			11.6	%		54,740			11.1	%								81,073			14.1	%		59,072			11.6	%
Consumer and other		18,880			3.7	%		20,078			4.1	%								22,517			3.9	%		18,880			3.7	%
Total loans before unearned income		507,630			100.0	%		491,846			100.0	%								575,773			100.0	%		507,630			100.0	%
Less: unearned income		(435	)					(264	)											(517	)					(435	)
Total loans net of unearned income	$	507,195					$	491,582											$	575,256					$	507,195

- 30 -

The four most significant categories of our loan portfolio are construction and land development real estate loans, 1-4 family residential loans, non-farm non-residential real estate loans and commercial and industrial loans.

The Company’s credit policy dictates specific loan-to-value and debt service coverage requirements. The Company generally requires a maximum loan-to-value of ~~85%~~85.0% and a debt service coverage ratio of 1.25x to 1.0x for non-farm non-residential real estate loans. In addition, personal guarantees of borrowers are required as well as applicable hazard, title and flood insurance. Loans may have a maximum maturity of five years and a maximum amortization of 25 years. The Company may require additional real estate or non-real estate collateral when deemed appropriate to secure the loan.

The Company generally requires all one- to four- family residential loans to be underwritten based on the Fannie Mae guidelines provided through Desktop Underwriter. These guidelines include the evaluation of risk and eligibility, verification and approval of conditions, credit and liabilities, employment and income, assets, property and appraisal information. It is required that all borrowers have proper hazard, flood and title insurance prior to a loan closing. Appraisals and Desktop Underwriter approvals are good for six months. The Company has an in-house underwriter review the final package for compliance to these guidelines.

The Company generally requires a maximum loan-to value of ~~75%~~75.0% and a debt service coverage ratio of 1.25x to 1.0x for construction land development loans. In addition, detailed construction cost breakdowns, personal guarantees of borrowers and applicable hazard, title and flood insurance are required. Loans may have a maximum maturity of 12 months for the construction phase and a maximum maturity of 24 months for the sell-out phase. The Company may require additional real estate or non-real estate collateral when deemed appropriate to secure the loan.

~~- 29 -~~

~~Table of Contents~~

The Company has specific guidelines for the underwriting of commercial and industrial loans that is specific for the collateral type and the business type. Commercial and industrial loans are secured by non-real estate collateral such as equipment, inventory or accounts receivable. Each of these collateral types has maximum loan to value ratios. Commercial and industrial loans have the same debt service coverage ratio requirements as other loans, which is 1.25x to 1.0x.

The Company will allow exceptions to each of the above policies with appropriate mitigating circumstances and approvals. The Company has a defined credit underwriting process for all loan requests. The Company actively monitors loan concentrations by industry type and will make adjustments to underwriting standards as deemed necessary. The Company has a loan review department that monitors the performance and credit quality of loans. The Company has a special assets department that manages loans that have become delinquent or have serious credit issues associated with them.

For new loan originations, appraisals and evaluations on all properties shall be valid for a period not to exceed two calendar years from the effective appraisal date for non-residential properties and one calendar year from the effective appraisal date for residential properties. However, an appraisal may be valid longer if there has been no material decline in the property condition or market condition that would negatively affect the bank’s collateral position. This must be supported with a “Validity Check Memorandum”.

For renewals with or without new money, any commercial appraisal greater than two years or greater than one year for residential appraisals must be updated with a Validity Check Memorandum. Any renewal loan request, in which new money will be disbursed, whether commercial or residential, and the appraisal is older than five years a new appraisal must be obtained.

The Company does not require new appraisals between renewals unless the loan becomes impaired and is considered collateral dependent. At this time, an appraisal may be ordered in accordance with the Company’s Allowance for Loan Losses policy.

The Company does not mitigate risk using products such as credit default agreements and/or credit derivatives. These, accordingly, have no impact on our financial statements.

The Company does not offer loan products with established loan-funded interest reserves.

Loan Maturities by Type. The following table summarizes the scheduled repayments of our loan portfolio including non-accruals at December 31, ~~2009.~~2010. Loans having no stated repayment schedule or maturity and overdraft loans are reported as being due in one year or less. Maturities are based on the final contractual payment date and do not reflect the effect of prepayments and scheduled principal amortization.

												December 31, 2010
		One Year		One Through		After						One Year		One Through		After
		or Less		Five Years		Five Years		Total				or Less		Five Years		Five Years		Total
		(in thousands)										(in thousands)
Real estate:
Construction and land development		$	48,386	$	30,233	$	67	$	78,686			$	50,377	$	11,979	$	3,214	$	65,570
Farmland			8,038		1,370		1,944		11,352				6,647		3,863		2,827		13,337
1-4 Family			26,479		23,465		27,526		77,470				19,745		24,098		29,315		73,158
Multifamily			1,991		5,611		1,325		8,927				7,815		5,426		1,303		14,544
Non-farm non-residential			167,092		126,397		7,184		300,673				114,034		172,283		6,492		292,809
Total real estate			251,986		187,076		38,046		477,108				198,618		217,649		43,151		459,418

Agricultural			7,369		3,422		3,226		14,017				7,080		3,414		6,867		17,361
Commercial and industrial			48,169		34,144		35		82,348				46,185		23,869		6,536		76,590
Consumer and other			10,070		7,042		114		17,226				7,767		15,054		149		22,970
Total loans before unearned income		$	317,594	$	231,684	$	41,421	$	590,699			$	259,650	$	259,986	$	56,703	$	576,339
Less: unearned income									(797	)									(699	)
Total loans net of unearned income	Total loans net of unearned income							$	589,902		Total loans net of unearned income							$	575,640

- 31 -

~~- 30 -~~

~~Table of Contents~~

The following table sets forth the scheduled contractual maturities at December 31, ~~2009~~2010 of fixed- and floating-rate loans excluding non-accrual loans.

	December 31, 2009						December 31, 2010
	Fixed		Floating		Total		Fixed		Floating		Total
	(in thousands)						(in thousands)

One year or less	$	224,963	$	77,651	$	302,614	$	67,944	$	167,399	$	235,343
One to five years		229,276		2,408		231,684		127,401		132,345		259,746
Five to 15 years		25,122		-		25,122		2,456		30,953		33,409
Over 15 years		16,299		-		16,299		9,735		9,388		19,123
Subtotal		495,660		80,059		575,719		207,536		340,085		547,621
Nonaccrual loans						14,183						28,718
Total loans net of unearned income	$	495,660	$	80,059	$	589,902

Total loans											$	576,339
Unearned Income												(699	)

Total loans net of unearned income

575,640

At December 31, ~~2009, total loans include $273.1 million in loans maturing after December 31, 2010. At December 31, 2009,~~2010, fixed rate loans totaled ~~$495.7~~$207.5 million or ~~84.0%~~37.9% of total loans ~~an increase from 51.0%~~excluding non-accrual loans and variable rate loans totaled $340.1 or 62.1% of total loans ~~for the same period in 2008.~~excluding non-accrual loans. Throughout ~~2009,~~2010, Management added floors to floating rate loans, primarily tied to the prime rate. IfAs of December 31, 2010, the portfolio consisted of $340.1 million in variable rate loans with $292.0 million or 85.8% at the floor ~~is higher than the current indexed loan rate, then the loan is classified as a fixed rate loan until such time as the floor equals the indexed loan~~ rate.

- 32 -

~~- 31 -~~

~~Table of Contents~~

Non-Performing ~~Assets~~.Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.

		At December 31,																At December 31,
		2009			2008			2007			2006			2005				2010			2009			2008			2007			2006
		(dollars in thousands)																(in thousands)
Non-accrual loans:
Real estate loans:
Construction and land development		$	2,841		$	1,644		$	1,841		$	2,676		$	16,376			$	3,383		$	2,841		$	1,644		$	1,841		$	2,676
Farmland			54			182			419			33			-				-			54			182			419			33
1 - 4 family residential			2,814			1,445			1,819			3,202			3,548				1,480			2,814			1,445			1,819			3,202
Multifamily			-			-			2			-			-				1,357			-			-			2			-
Non-farm non-residential			7,439			5,263			4,950			3,882			153				21,944			7,439			5,263			4,950			3,882
Non-real estate loans:
Agricultural			-			-			-			-			-				446			-			-			-			-
Commercial and industrial			830			275			978			267			358				76			830			275			978			267
Consumer and other			205			320			279			302			655				32			205			320			279			302
Total non-accrual loans			14,183			9,129			10,288			10,362			21,090				28,718			14,183			9,129			10,288			10,362

Loans 90 days and greater delinquent	Loans 90 days and greater delinquent																Loans 90 days and greater delinquent
and still accruing:
Real estate loans:
Construction and land development			-			-			-			-			-				-			-			-			-			-
Farmland			-			-			-			-			-				-			-			-			-			-
1 - 4 family residential			757			185			544			334			248				1,663			757			185			544			334
Multifamily			-			-			-			-			-				-			-			-			-			-
Non-farm non-residential			-			-			-			-			-				-			-			-			-			-
Non-real estate loans:
Agricultural			-			-			-			-			-				-			-			-			-			-
Commercial and industrial			-			17			-			-			-				-			-			17			-			-
Consumer and other			28			3			3			-			-				10			28			3			3			-
Total loans 90 days greater
delinquent and still accruing			785			205			547			334			248				1,673			785			205			547			334
																										��
Restructured loans			-			-			-			51			121

Total non-performing loans			14,968			9,334			10,835			10,747			21,459				30,391			14,968			9,334			10,835			10,696

Real estate owned:
Construction and land development			-			89			84			2,217			-				231			-			89			84			2,217
Farmland			-			-			-			-			144				-			-			-			-			-
1 - 4 family residential			292			223			170			78			81				232			292			223			170			78
Multifamily			-			-			-			-			-				-			-			-			-			-
Non-farm non-residential			366			256			119			245			321				114			366			256			119			245
Non-real estate loans:
Agricultural			-			-			-			-			-				-			-			-			-			-
Commercial and industrial			-			-			-			-			-				-			-			-			-			-
Consumer and other			-			-			-			-			-				-			-			-			-			-
Total real estate owned			658			568			373			2,540			546				577			658			568			373			2,540

Total non-performing assets		$	15,626		$	9,902		$	11,208		$	13,287		$	22,005			$	30,968		$	15,626		$	9,902		$	11,208		$	13,236

Restructured Loans																			9,535												51

Ratios:
Non-performing assets to total loans			2.65	%		1.63	%		1.95	%		2.62	%		4.48	%			5.38	%		2.65	%		1.63	%		1.95	%		2.61	%
Non-performing assets to total assets			1.68	%		1.14	%		1.39	%		1.86	%		3.08	%			2.73	%		1.68	%		1.14	%		1.39	%		1.85	%

- 3233 -

~~Table of Contents~~

For the years ended December 31, ~~2009~~2010 and ~~2008,~~2009, gross interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was ~~$0.4~~$1.7 million and ~~$0.5~~$0.4 million, respectively. Interest income recognized on such loans for ~~2009~~2010 was ~~$1.1 million.~~$3.7 million.

Nonperforming assets totaled ~~$15.6~~$31.0 million or ~~1.7%~~2.73% of total assets at December 31, ~~2009,~~2010, an increase of ~~$5.7~~$15.3 million from December 31, ~~2008.~~2009. 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 increased ~~$5.1~~$14.5 million from December 31, ~~2008~~2009 to December 31, ~~2009.~~2010. There were increases in construction and land development nonaccrual loans, ~~one- to four- family nonaccrual loans,~~ nonfarm nonresidential nonaccrual loans and ~~commercial and industrial nonaccrual~~multi-family non-accrual loans.

During ~~2009,~~2010, there was a ~~$1.2~~$0.5 million increase in construction and land development nonaccrual loans. ~~The~~This increase in nonaccrual construction and land development was due mainly to three loans. Two of these loans ~~is partially related~~were made to ~~one loan for $522,000 secured by a subdivision development consisting of 17 remaining lots and 6.32 acres of excess land. The loan to value is 58% and~~ the property was appraised for $896,000 in February 2005. The Company is currently in foreclosure and Management does not anticipate any loss. In addition, there is a townhome development in which the Company has four of the units financed totaling approximately $600,000. This loan had a loan to value of 83%. In the fourth quarter of 2007, the properties securing this loan were appraised at $180,000 each. The Company asked thesame borrower to pay the loans in full but the borrower was unable to do so. The Company has filed suit to repossess the property and is currently awaiting the foreclosure sale. Also included in nonaccrual construction andpurchase land for future development ~~loans are two loans which account~~ for a ~~significant portion~~total outstanding balance of ~~the total. One is~~$0.6 million. The third loan was a vacant land purchase for future development in the amount of ~~$1.7 million which we are the participant~~$1.3 million. There was also a total of ~~approximately $800,000. The collateral is a subdivision development in a neighboring parish and the lead bank has filed suit to foreclose on the property. Since the beginning of 2009, approximately~~ $1.4 million in ~~construction and land development~~ nonaccrual loans ~~have been removed through foreclosures~~were moved to OREO property and ~~payoffs.~~subsequently sold.

~~There was a $1.4 million increase in one- to four- family residential~~ Non-farm non-residential nonaccrual loans ~~during 2009. The~~increased $14.5 million from December 31, 2009 to December 31, 2010. This increase ~~in nonaccrual one-~~is reflective of five loans, two of which were for the construction of a climate controlled storage facility. These two loans totaled $8.0 million to ~~four- family residential loans resulted from a~~the same borrower. A third loan, in the amount of ~~$578,000 secured by several rental houses~~$3.8 million, is to a hotel which has seen a drop in revenue due to the ~~Baton Rouge area.~~recession's impact on the hotel industry. The ~~borrower has filed Chapter 11 bankruptcy and the Company is waiting for~~remaining loans consist of a plan of repayment to be filed with the bankruptcy court. The Company has not been able to determine the level of exposure, if any, it will experience as a result of the bankruptcy of the borrower. The Company is now receiving adequate protection payments from the bankruptcy court. Also, we have added achurch loan in the amount of ~~$800,000 which~~$2.6 million and $1.1 million loan to a non-owner occupied real estate loan. The $1.1 million loan is secured by ~~two townhomes~~a warehouse and ~~five lots in a golf course community. One~~has been added to nonaccrual due to lack of occupancy of the townhomes was sold in October 2009. The borrower is continuing to attempt to liquidate the remaining collateral to pay down the loan. Also included in this category are two loans in the amounts of $194,000 and $120,000 that are properties which were flooded during Hurricane Katrina. The borrowers have received commitments from the state to assist in funding the rebuilding of the properties.building.

~~Non-farm non-residential nonaccrual~~ Multi-family non-accrual loans increased $2.2 million from December 31, 2008 to December 31, 2009. The increase is primarily from a $4.4 million loan secured by a hotel in Hattiesburg, Mississippi. We are currently negotiating with the borrower on a possible workout scenario. The primary cause of this loan moving into nonacccrual relates to the borrower’s health, which has resulted in poor management, as well as a decline in the hotel industry. The increase was primarily offset by a $2.6 million loan secured by a church and various other real estate properties, which began performing to its terms, therefore was removed from non-accrual loans.

~~Non-real estate commercial and industrial nonaccrual loans increased $0.6~~$1.4 million during ~~2009. The largest~~2010. This was due to one loan in this category totals $454,000 and is unsecured. The borrower is in Chapter 11 bankruptcy and has reflected a net worth in excess of $20 million on the bankruptcy schedules. A plan is being developed to allocate cash from one of the borrower’s partnerships to pay the unsecured creditors. Although this loan is unsecured, the Company currently anticipates receiving 100% payment. Another loan in this category totals $178,000 and is secured by dental equipment. We are in the process of obtaining a judgment on this credit. There are also some smaller loans included in this nonaccrual category. One is in the amount of ~~$86,000~~$1.3 million secured by an apartment complex. This project has experienced slow sales of units, due to the recession, and has implemented a change in management to help correct the ~~Company is in~~problem. The borrower has since decided to lease the ~~process of taking a mortgage on the guarantor’s home to pay down a portion of the debt and renew the balance.~~remaining units.

At December 31, 2010, there were decreases of $54,000 in farmland, $1.3 million in 1-4 family residential, $0.8 million in commercial and industrial and $0.2 million in consumer and other non-accrual loans. See preceding table for further information.

~~- 33 -~~

~~Table of Contents~~

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 an adequate 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 and review by our internal loan review department and independent accountants; and~~
·examinations of the loan portfolio by federal and state regulatory ~~agencies.~~agencies and examinations;
and review by our internal loan review department and independent accountants.

- 34 -

The data collected from all sources in determining the adequacy of the allowance 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 the estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Allocation of Allowance for Loan Losses. In prior years, the Company used an internal method to calculate the allowance for loan losses which categorized loans by risk rather than by type. We do not have the ability to accurately and efficiently provide the allocation of the allowance for loan losses by loan type for a five-year historical period.

Beginning in 2008, the Company modified the allowance calculation to segregate loans by category and allocate the allowance for loan losses accordingly.

The allowance for loan losses calculation considers both qualitative and quantitative risk factors. The quantitative risk factors include, but are not limited to, past due and nonperforming assets, adequacy of collateral, changes in underwriting standings or lending procedures and policies, specific internal analysis of loans requiring special attention and the nature and volume of loans. Qualitative risk factors include, but are not limited to, local and regional business conditions and other economic factors.

~~- 34 -~~

~~Table of Contents~~

The following table shows the allocation of the allowance for loan losses by loan type as of December 31, 2010, 2009, and ~~2008.~~2008.

	At December 31,
	2010								2009								2008
			Percent of			Percent of					Percent of			Percent of					Percent of			Percent of
	Allowance		Allowance to			loans in each			Allowance		Allowance to			Loans in Each			Allowance		Allowance to			Loans in Each
	for Loan		Total Allowance			category to			for Loan		Total Allowance			Category to			for Loan		Total Allowance			Category to
	Losses		for Loan Losses			Total loans			Losses		for Loan Losses			Total Loans			Losses		for Loan Losses			Total Loans
	(in thousands)
Real estate loans:
Construction and land development	$	977		11.7	%		11.4	%	$	1,176		14.9	%		13.3	%	$	315		4.9	%	15.2	%
Farmland		46		0.5	%		2.3	%		56		0.7	%		1.9	%		39		0.6	%	2.7	%
1 - 4 family residential		1,891		22.7	%		12.7	%		2,466		31.2	%		13.1	%		1,712		26.4	%	13.1	%
Multifamily		487		5.9	%		2.5	%		128		1.6	%		1.5	%		227		3.5	%	2.6	%
Non-farm non-residential		3,423		41.2	%		50.8	%		2,727		34.4	%		51.0	%		2,572		39.6	%	43.0	%
Non-real estate loans:
Agricultural		80		1.0	%		3.0	%		82		1.0	%		2.4	%		92		1.4	%	3.0	%
Commercial and industrial		510		6.1	%		13.3	%		1,031		13.0	%		13.9	%		1,119		17.3	%	17.4	%
Consumer and other		390		4.7	%		4.0	%		246		3.1	%		2.9	%		355		5.5	%	3.0	%
Unallocated		513		6.2	%		N/A	%		7		0.1	%		N/A			51		0.8	%	N/A
Total	$	8,317		100.0	%		100.0	%	$	7,919		100.0	%		100.0	%	$	6,482		100.0	%	100	%

At December 31,
2009 2008
Percent of Percent of
Allowance loans in each Allowance Loans in Each
for Loan category to for Loan Category to
Losses total loans Losses Total Loans
(dollars in thousands)
Real estate loans:
Construction and land development $ 1,176 13.3 % $ 315 15.2 %
Farmland 56 1.9 % 39 2.7 %
1 - 4 family residential 2,466 13.1 % 1,712 13.1 %
Multifamily 128 1.5 % 227 2.6 %
Non-farm non-residential 2,727 51.0 % 2,572 43.0 %
Non-real estate loans:
Agricultural 82 2.4 % 92 3.0 %
Commercial and industrial 1,031 13.9 % 1,119 17.4 %
Consumer and other 246 2.9 % 355 3.0 %
Unallocated 7 N/A 51 N/A
Total $ 7,919 100.0 % $ 6,482 100.0 %

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~~Table of Contents~~

The following table sets forth activity in our allowance for loan losses for the periods indicated.

		At or For the Years Ended December 31,
		2010		2009			2008			2007			2006
		(in thousands)

Balance at beginning of period	$	7,919		$	6,482		$	6,193		$	6,675		$	7,597

Charge-offs:
Real estate loans:
Construction and land development		(5	)		(448	)		(166	)		(386	)		(5,008	)
Farmland		-			-			(10	)		(123	)		-
1 - 4 family residential		(1,534	)		(564	)		(260	)		(639	)		(59	)
Multifamily		-			-			-			-			-
Non-farm non-residential		(235	)		(586	)		(256	)		(1,901	)		(208	)
Commercial and industrial loans		(3,395	)		(678	)		(561	)		(273	)		(301	)
Consumer and other		(444	)		(603	)		(360	)		(563	)		(312	)
Total charge-offs		(5,613	)		(2,879	)		(1,613	)		(3,885	)		(5,888	)

Recoveries:
Real estate loans:
Construction and land development		1			1			2			779			39
Farmland		-			1			-			14			-
1 - 4 family residential		11			15			10			14			25
Multifamily		-			-			-			-			-
Non-farm non-residential		30			-			57			4			40
Commercial and industrial loans		164			28			10			148			304
Consumer and other		151			116			189			201			139
Total recoveries		357			161			268			1,160			547

Net charge-offs		(5,256	)		(2,718	)		(1,345	)		(2,725	)		(5,341	)
Provision for loan losses		5,654			4,155			1,634			1,918			4,419
Additional provision from acquisition		-			-			-			325			-

Balance at end of period	$	8,317		$	7,919		$	6,482		$	6,193		$	6,675

Ratios:
Net loan charge-offs to average loans		0.89	%		0.45	%		0.22	%		0.50	%		1.06	%
Net loan charge-offs to loans at end of period		0.91	%		0.46	%		0.22	%		0.47	%		1.05	%
Allowance for loan losses to loans at end of period		1.44	%		1.34	%		1.07	%		1.08	%		1.32	%
Net loan charge-offs to allowance for loan losses		63.20	%		34.32	%		20.75	%		44.00	%		80.01	%
Net loan charge-offs to provision charged to expense		92.96	%		65.42	%		82.32	%		142.04	%		120.86	%

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At or For the Years Ended December 31,
2009 2008 2007 2006 2005
(dollars in thousands)

Balance at beginning of period $ 6,482 $ 6,193 $ 6,675 $ 7,597 $ 5,910

Charge-offs:
Real estate loans:
Construction and land development (448 ) (166 ) (386 ) (5,008 ) -
Farmland - (10 ) (123 ) - -
1 - 4 family residential (564 ) (260 ) (639 ) (59 ) (2,001 )
Multifamily - - - - -
Non-farm non-residential (586 ) (256 ) (1,901 ) (208 ) -
Commercial and industrial loans (678 ) (561 ) (273 ) (301 ) (1,649 )
Consumer and other (603 ) (360 ) (563 ) (312 ) (512 )
Total charge-offs (2,879 ) (1,613 ) (3,885 ) (5,888 ) (4,162 )

Recoveries:
Real estate loans:
Construction and land development 1 2 779 39 -
Farmland 1 - 14 - -
1 - 4 family residential 15 10 14 25 5
Multifamily - - - - -
Non-farm non-residential - 57 4 40 -
Commercial and industrial loans 28 10 148 304 86
Consumer and other 116 189 201 139 137
Total recoveries 161 268 1,160 547 228

Net charge-offs (2,718 ) (1,345 ) (2,725 ) (5,341 ) (3,934 )
Provision for loan losses 4,155 1,634 1,918 4,419 5,621
Additional provision from acquisition - - 325 - -

Balance at end of period $ 7,919 $ 6,482 $ 6,193 $ 6,675 $ 7,597

Ratios:
Net loan charge-offs to average loans 0.45 % 0.22 % 0.50 % 1.06 % 0.83 %
Net loan charge-offs to loans at end of period 0.46 % 0.22 % 0.47 % 1.05 % 0.80 %
Allowance for loan losses to loans at end of period 1.34 % 1.07 % 1.08 % 1.32 % 1.55 %
Net loan charge-offs to allowance for loan losses 34.32 % 20.75 % 44.00 % 80.01 % 51.78 %
Net loan charge-offs to provision charged to expense 65.42 % 82.32 % 142.04 % 120.86 % 69.99 %

Investment Securities Portfolio. The securities portfolio totaled ~~$261.8~~$482.0 million at December 31, ~~2009~~2010 and consisted principally of U.S. Government agency ~~securities, mortgage-backed obligations, asset-backed~~ securities, corporate debt securities, mutual funds or other equity securities and municipal bonds. The portfolio provides us with a relatively stable source of income and provides a balance to interest rate and credit risks as compared to other categories of the balance sheet.

U.S. Government Agency, also known as Government Sponsored Enterprises (GSEs), are privately owned but federally chartered companies. While they enjoy certain competitive advantages as a result of their government charters, their debt obligations are unsecured and are not direct obligations of the U.S. Government. However, debt securities issued by GSEs are considered to be of high credit quality and the senior debt of GSEs is AAA rated. GSEs raise funds through a variety of debt issuance programs, including:

·Federal Home Loan Mortgage Corporation (Freddie Mac)
·Federal National Mortgage Association (Fannie Mae)
·Federal Home Loan Bank (FHLB)
·Federal Farm Credit Bank System (FFCB)

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~~Table of Contents~~

Net ~~Income~~Income.. Net income for the year ended December 31, 2009 was $7.6 million, an increase of $2.1 million or 37.8%, from $5.5 million for the year ended December 31, 2008. Net income available to common shareholders for the year ended December 31, 2009 was $7.0 million, an increase of $1.5 million from the $5.5 million for the year ended December 31, 2008. The largest increase in net income resulted from an increase in securities interest income due to an increase in volume of securities owned. The second largest increase resulted from a $3.8 million decline in the amount of other-than-temporary impairment charges recorded on the securities portfolio. The 2009 other-than-temporary impairment charge was $0.8 million compared to a $4.6 million other-than-temporary ~~i mpairment~~impairment charge in ~~2008 (see Notes 4 and 19 to the Consolidated Financial Statements).~~2008. In addition, net gains on sales of securities totaled $2.1 million for the period ended December 31, 2009 compared to net losses of $1,000 realized during the same period in 2008. Net interest income increased by $0.6 million and the provision for loan losses increased $2.5 million. Noninterest expense increased $0.8 million primarily from increased regulatory assessments but was offset by reduced legal and marketing expenses.

Earnings per common share for the year ended December 31, 2009 was $1.26 per common share, an increase of 27.0% or $0.27 per common share from $0.99 per common share for the year ended December 31, 2008.

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Net Interest Income. Net interest income is the largest component of our earnings. It is calculated by subtracting the cost of interest-bearing liabilities from the income earned on interest-earning assets and represents the earnings from our primary business of gathering deposits and making loans and investments. Our long-term objective is to manage this income to provide the largest possible amount of income while balancing interest rate, credit and liquidity risks.

A financial institution’s asset and liability structure is substantially different from that of an industrial 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 institution’s performance. The impact of interest rate changes depends on the sensitivity to change of our interest-earning assets and interest-bearing liabilities. The effects of the changing interest rate environment in recent years and our interest sensitivity position are discussed below.

Net interest income in 2009 was $32.3 million, an increase of $0.6 million or 1.8%, when compared to $31.8 million in 2008. Although the net interest margin declined from 2008 to 2009, increased volumes in interest-earning assets offset the decline in margins therefore increasing net interest income. Loans are our largest interest-earning asset, and 53.7% of our total loans are floating rate loans which are primarily tied to the prime lending rate. After the prime rate dropped 400 basis points in 2008, Management began adding floors to floating rate loans. Loans which have floors greater than the rate due under the variable rate provision are considered fixed rate loans until such time that the floors equals the rate due under the variable rate provision. The loan floors were the first step to managing the net interest income. Although the yield on securities also declined from 2008 to 2009, interest income was enhanced by increased volumes of securities. Management’s next focus was on the cost of funds. The cost of our interest-bearing liabilities was positively impacted by the reduction all cost of funds paid on interest-bearing liabilities. As of December 31, 2009, time deposits represented 54.9% of our total deposits, which is a decrease from 56.5% of total deposits at December 31, 2008.

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~~Table of Contents~~

Comparing 2009 to 2008, the average yield on interest-earning assets decreased by 110 basis points and the average rate paid on interest-bearing liabilities decreased by 60 basis points. The net yield on interest-earning assets was 3.6% for the year ended December 31, 2009, compared to 4.2% for 2008.

During the first quarter of 2009, the Company borrowed $6.0 million on its available line of credit at a variable interest rate of prime less 100 basis points. This debt was paid in its entirety during 2009.

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 (leverage). The leverage for the year ending December 31, 2009 and 2008 was 82.5% and 80.3%, respectively.

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.

Years Ended December 31,
2009 2008 2007
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(dollars in thousands)
Assets
Interest-earning assets:
  Interest-bearing deposits with banks    $      35,800 $       388 1.1%    $       5,725 $       224 3.9%    $        1,977 $          87 4.4%
  Securities (including FHLB stock) 245,952 11,085 4.5% 127,586 6,594 5.2% 152,990 8,381 5.5%
  Federal funds sold            24,662 34 0.1%             17,247 392 2.3%           8,083         400 4.9%
  Loans held for sale                 135 7 5.1%                  681 45 6.6%           5,216         142 2.7%
  Loans, net of unearned income 599,609 35,677 6.0% 600,854 40,406 6.7% 543,946 46,470 8.5%
    Total interest-earning assets 906,158 47,191 5.2% 752,093 47,661 6.3% 712,212 55,480 7.8%

Noninterest-earning assets:
  Cash and due from banks 17,775 22,468 19,569
  Premises and equipment, net 16,175 15,960 14,812
  Other assets 8,448 6,503 4,644
    Total $     948,556 $    47,191 $     797,024 $    47,661 $     751,237 $    55,480

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
  Demand deposits $     203,467 $      1,179 0.6% $     197,822 $      2,798 1.4% $     196,805 $     6,688 3.4%
  Savings deposits 41,747 98 0.2% 43,631 193 0.4% 42,564 228 0.5%
  Time deposits 479,255 13,310 2.8% 346,282 12,432 3.6% 297,193 13,673 4.6%
  Borrowings 22,907 257 1.1% 16,287 458 2.8% 23,450 1,345 5.7%
    Total interest-bearing liabilities 747,376 14,844 2.0% 604,022 15,881 2.6% 560,012 21,934 3.9%

Noninterest-bearing liabilities:
  Demand deposits 117,805 119,379 121,894
  Other 6,240 5,854 5,767
    Total liabilities 871,421 14,844 729,255 15,881 687,673 21,934
  Stockholders' equity 77,135 67,769 63,564
    Total $     948,556 14,844 $     797,024 15,881 $     751,237 21,934
Net interest income $     32,347 $     31,780 $    33,546
Net interest rate spread (1)
3.2% 3.7% 3.9%
Net interest-earning assets (2)
$     158,782 $     148,071 $     152,200
Net interest margin (3)
3.6% 4.2% 4.7%

Average interest-earning assets to
     interest-bearing liabilities 121.2% 124.5% 127.2%

~~(1)~~ ~~Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.~~

~~(2)Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.~~

~~(3)Net interest margin represents net interest income divided by average total interest-earning assets.~~

~~Rate/Volume Analysis~~. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods indicated. The table distinguishes between (i) changes attributable to rate (change in rate multiplied by the prior period’s volume), (ii) changes attributable to volume (changes in volume multiplied by the prior period’s rate), (iii) mixed changes (changes that are not attributable to either rate of volume) and (iv) total increase (decrease) (the sum of the previous columns).

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~~Table of Contents~~

Years Ended December 31,
2009 Compared to 2008 2008 Compared to 2007
Increase (Decrease) Due To Increase (Decrease) Due To
Rate/ Increase/ Rate/ Increase/
Volume Rate Volume Decrease Volume Rate Volume Decrease
(in thousands)
Interest earned on:
Interest-bearing deposits with banks $    1,177 $     (162) $      (851) $        164 $       165 $       (10) $       (18) $       137
Securities (including FHLB stock)        6,118         (844)          (783)         4,491      (1,392)         (474)             79      (1,787)
Federal funds sold           169         (368)          (159)           (358)           453         (216)         (245)             (8)
Loans held for sale           (36)           (10)               8             (38)         (123)           204         (178)           (97)
Loans, net of unearned income           (84)      (4,655)             10        (4,729)        4,862      (9,892)      (1,034)      (6,064)
   Total interest income        7,344      (6,039)       (1,775)           (470)        3,965    (10,388)      (1,396)      (7,819)

Interest paid on:
Demand deposits             80      (1,652)            (47)        (1,619)             32      (3,904)           (18)      (3,890)
Savings deposits             (8)           (91)               4             (95)               6           (40)             (1)           (35)
Time deposits        4,774      (2,816)       (1,080)            878        2,258      (3,003)         (496)      (1,241)
Borrowings           186         (275)          (112)           (201)         (411)         (685)           209         (887)
   Total interest expense        5,032      (4,834)       (1,235)        (1,037)        1,885      (7,632)         (306)      (6,053)
     Change in net interest income $    2,312 $  (1,205) $      (540) $        567 $    2,080 $  (2,756) $  (1,090) $  (1,766)

Provision for Loan Losses. The provision for loan losses was $4.2 million and $1.6 million in 2009 and 2008, respectively. The increased 2009 provisions were attributable to $2.7 million in net loan charge-offs during 2009 compared to $1.3 million in net loan charge-offs during 2008. Of the loan charge-offs in 2009, approximately $1.6 million were loans secured by real estate of which $0.4 million were construction and land development, $0.6 million were commercial real estate and approximately $0.6 million were residential properties. In 2009, recoveries of $0.2 million were recognized on loans previously charged off as compared to $0.3 million in 2008. Of the loan charge-offs during 2008, approximately $0.7 million were loans secured by real estate of which $0.3 million were commercial real estate and approximately $0.4 million were residential properties. The allowance for loan losses at December 31, 2009 was $7.9 million, compared to $6.5 million at December 31, 2008, and was 1.34% and 1.07% of total loans, respectively. Management believes that the current level of the allowance is adequate to cover losses in the loan portfolio given the current economic conditions, expected net charge-offs and nonperforming asset ~~levels.~~levels

Noninterest ~~Income~~Income.. Noninterest income totaled $7.1 million in 2009, an increase of $6.1 million when compared to $1.1 million in 2008. Service charges, commissions and fees totaled $4.1 million and $4.0 million for the years ended December 31, 2009 and 2008, respectively. Net securities gain were $2.1 million in 2009 compared to $1,000 in net securities losses in 2008. Other-than-temporary impairment charges totaling $0.8 million were taken on securities in 2009 compared to a charge of $4.6 million in ~~2008 (see Notes 4 and 19 to the Consolidated Financial Statements).~~2008. Net gains on sale of loans were $422,000 in 2009 and $210,000 in 2008. Other noninterest income decreased $148,000 to $1.3 million in 2009 ~~fr om~~from $1.5 million in 2008.

- 46 -

Noninterest ~~Expense~~Expense.. Noninterest expense totaled $24.0 million in 2009 and $23.2 million in 2008. Salaries and benefits remained relatively flat at $10.8 million in 2009 compared to $10.7 million in 2008. At December 31, 2009, ~~248~~253 employees represented 230 full-time equivalent staff members as compared to ~~224.5~~225 full-time equivalent staff members in 2008. Occupancy and equipment expense totaled $2.9 million in 2009 and 2008, respectively. Regulatory assessment expense totaled $2.0 million in 2009 compared to $0.8 million in 2008. During the second quarter of 2009, a special assessment was imposed on all financial institutions. The 2009 special assessment for the Company totaled $444,000. The net cost of other real estate and repossessions increased $150,000 in 2009 to $399,000, when compared to $249,000 in 2008. Other noninterest expense totaled $7.9 million in 2009, a decrease of $0.7 million or 8.1% when compared to $8.6 million in 2008.

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~~Table of Contents~~

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

Years Ended December 31,
2009 2008 2007
(in thousands)

Other noninterest expense:
Legal and professional fees $ 1,254 $ 1,496 $ 1,610
Operating supplies 537 572 615
Marketing and public relations 809 1,131 842
Data processing 1,067 1,063 955
Travel and lodging 398 416 439
Taxes - sales and capital 529 571 628
Telephone 192 185 211
Amortization of core deposit intangibles 291 311 203
Other 2,839 2,864 2,826
Total other expense $ 7,916 $ 8,609 $ 8,329

Total noninterest expense includes expenses paid to related parties. Related parties include the Company’s executive officers, directors and certain business organizations and individuals with which such persons are associated. During the years ended 2008 and 2009, the Company paid approximately $2.1 million and $2.2 million, respectively, for goods and services from related parties. See Note 14 to the Consolidated Financial Statements for additional information.

Income Taxes. The provision for income taxes for the years ended December 31, 2009 and 2008 was $3.7 million and $2.5 million, respectively. The increased provision for income taxes in 2009 resulted from higher income recognized during 2009 when compared to ~~2008, which resulted from various tax credit taken.~~2008. The Company’s effective tax rate amounted to 32.9% and 30.9% during 2009 and 2008, respectively. The difference between the effective tax rate and the statutory tax rate primarily relates to variances in items that are non-taxable or non-deductible and various tax credits.

~~Results of Operations for the Years Ended December 31, 2008 and 2007~~

~~Net Income~~. Net income for the year ended December 31, 2008 was $5.5 million, a decrease of $4.3 million or 43.6%, from $9.8 million for the year ended December 31, 2007. The largest decrease in net income resulted from a $4.6 million other-than-temporary impairment charge recorded on the securities portfolio in the third quarter of 2008, resulting in a $3.0 million net of tax decrease in net income (see Notes 4 and 19 to the Consolidated Financial Statements). Net interest income decreased by $1.8 million due to market pressure placed on our net interest margin with the decline in market interest rates. In addition, noninterest expense increased due to additional costs related to enhancement of the internal audit and control process, costs associated with educati on and training of existing and new personnel, and the addition of staff.

~~Earnings per share for the year ended December 31, 2008 was $.99 per share, a decrease of 43.6% or $0.77 per share from $1.76 per share for the year ended December 31, 2007.~~

~~Net Interest Income.~~ Net interest income is the largest component of our earnings. It is calculated by subtracting the cost of interest-bearing liabilities from the income earned on interest-earning assets and represents the earnings from our primary business of gathering deposits and making loans and investments. Our long-term objective is to manage this income to provide the largest possible amount of income while balancing interest rate, credit and liquidity risks.

Net interest income in 2008 was $31.8 million, a decrease of $1.8 million or 5.3%, when compared to $33.6 million in 2007. The decrease in net interest income reflected a decrease in net interest spread and net interest margin as the yield on our interest-earning assets decreased more than the cost of our interest-bearing liabilities. Loans are our largest interest-earning asset, and 47.4% of our total loans are floating rate loans which are primarily tied to the prime lending rate. During 2008, the prime lending rate decreased 400 basis points which adversely impacted the yield on our interest-earning assets. The cost of our interest-bearing liabilities was adversely impacted by the $106.4 million increase in time deposits, which is currently our most costly interest-bearing liability. As of December 31, 2008, time deposits re presented 56.5% of our total deposits, which is an increase from 46.2% of total deposits at December 31, 2007.

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~~Table of Contents~~

Comparing 2008 to 2007, the average yield on interest-earning assets decreased by 150 basis points and the average rate paid on interest-bearing liabilities decreased by 130 basis points. The net yield on interest-earning assets was 4.2% for the year ended December 31, 2008, compared to 4.7% for 2007.

~~Provision for Loan Losses.~~ The provision for loan losses was $1.6 million and $1.9 million in 2008 and 2007, respectively. The decreased 2008 provisions were attributable to $1.3 million in net loan charge-offs during 2008 compared to $2.7 million in net loan charge-offs during 2007. Of the loan charge-offs in 2008, approximately $0.7 million were loans secured by real estate of which $0.3 million were commercial real estate and approximately $0.4 million were residential properties. In 2008, recoveries of $0.3 million were recognized on loans previously charged off as compared to $1.2 million in 2007. Of the loan charge-offs during 2007, approximately $3.0 million were loans secured by real estate of which $2.2 million were commercial real estate and approximatel y $0.8 million were residential properties. The allowance for loan losses at December 31, 2008 was $6.5 million, compared to $6.2 million at December 31, 2007, and was 1.07% and 1.08% of total loans, respectively. Management believes that the current level of 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~~. Noninterest income totaled $1.1 million in 2008, a decrease of $3.6 million when compared to $4.7 million in 2007. Service charges, commissions and fees totaled $4.0 million and $3.8 million for the years ended December 31, 2008 and 2007, respectively. Net securities losses were $1,000 in 2008, compared to $478,000 in 2007. Other-than-temporary impairment charges totaling $4.6 million were taken on securities in 2008 (see Notes 4 and 19 to the Consolidated Financial Statements). Net gains on sale of loans were $210,000 in 2008 and $272,000 in 2007. Other noninterest income increased $407,000 to $1.5 million in 2008 from $1.1 million in 2007.

~~Noninterest Expense~~. Noninterest expense totaled $23.2 million in 2008 and $21.3 million in 2007. Salaries and benefits increased $1.0 million in 2008 to $10.7 million from $9.7 million in 2007. The increase in salaries resulted from the additional key management personnel including an Internal Audit manager and a chief credit officer. At December 31, 2008, 241 employees represented 224.5 full-time equivalent staff members as compared to 222 full-time equivalent staff members in 2007. Occupancy and equipment expense totaled $2.9 million in 2008 and $2.6 million in 2007. Regulatory assessment expense in 2008 totaled $0.8 million compared to $381,000 in 2007. The net cost of other real estate and repossessions decreased $147,000 in 2008 to $249,000, when compared to $396,000 in 2007. Other noninterest expense totaled $8.6 million in 2008, an increase of $281,000 or 3.4% when compared to $8.3 million in 2007.

Total noninterest expense includes expenses paid to related parties. Related parties include the Company’s executive officers, directors and certain business organizations and individuals with which such persons are associated. During the years ended 2006, 2007 and 2008, the Company paid approximately $2.0 million, $2.2 million and $2.1 million, respectively, for goods and services from related parties. See Note 14 to the Consolidated Financial Statements for additional information.

~~Income Taxes.~~ The provision for income taxes for the years ended December 31, 2008 and 2007 was $2.5 million and $5.2 million, respectively. The decreased provision for income taxes in 2008 resulted from lower income recognized during 2008 when compared to 2007, which resulted from decreases in net interest income, decreases in noninterest income and increases in noninterest expense. The Company’s effective tax rate amounted to 30.9% and 34.8% during 2008 and 2007, respectively. The difference between the effective tax rate and the statutory tax rate primarily relates to variances in items that are non-taxable or non-deductible and various tax credits.

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Asset/Liability Management and Market Risk

Asset/LiabilityManagement. 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 ~~t he~~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. 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 December 31, ~~2009~~2010 shown below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis.

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~~Table of Contents~~

	Interest Sensitivity Within													Interest Sensitivity Within
	3 Months			Over 3 Months			Total			Over				3 Months			Over 3 Months			Total			Over
	Or Less			thru 12 Months			One Year			One Year		Total		Or Less			thru 12 Months			One Year			One Year		Total
	(dollars in thousands)													(in thousands)
Earning Assets:
Loans (including loans held for sale)	$	198,160		$	118,637		$	316,797		$	273,105	$	589,902	$	122,909		$	136,741		$	259,650		$	315,990	$	575,640
Securities (including FHLB stock)		3,927			7,703			11,630			252,746		264,376		5,446			6,210			11,656			471,920		483,576
Federal Funds Sold		13,279			-			13,279			-		13,279		9,129			-			9,129			-		9,129
Other earning assets		14			-			14			-		14		13			-			13			-		13
Total earning assets		215,380			126,340			341,720			525,851	$	867,571		137,497			142,951			280,448			787,910	$	1,068,358

Source of Funds:
Interest-bearing accounts:
Demand deposits		138,774			-			138,774			49,478		188,252		146,142			-			146,142			45,997		192,139
Savings deposits		10,067			-			10,067			30,205		40,272		11,664			-			11,664			34,999		46,663
Time deposits		159,239			190,480			349,719			89,685		439,404		112,652			177,125			289,777			347,907		637,684
Short-term borrowings		11,929			-			11,929			-		11,929		12,589			-			12,589			-		12,589
Long-term borrowings		-			20,000			20,000			-		20,000		-			-			-			-		-
Noninterest-bearing, net		-						-			167,714		167,714		-			-			-			179,283		179,283
Total source of funds		320,009			210,480			530,489			337,082	$	867,571		283,048			177,125			460,173			608,185	$	1,068,358
Period gap		(104,629	)		(84,140	)		(188,769	)		188,769				(145,551	)		(34,174	)		(179,725	)		179,725
Cumulative gap	$	(104,629	)	$	(188,769	)	$	(188,769	)	$	-			$	(145,551	)	$	(179,725	)	$	(179,725	)	$	-

Cumulative gap as a
percent of earning assets		-12.06	%		-21.76	%		-21.76	%						-13.62	%		-16.82	%		-16.82	%

Net Interest Income at Risk. Net interest income (NII) at risk measures the risk of a decline in earnings due to changes in interest rates. The table below presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and sustained parallel shift in the yield curve at December 31, ~~2009.~~2010. Shifts are measured in 100 basis point increments (+ 200 through - 200 basis points,) from base case. Base case encompasses key assumptions for asset/liability mix, loan and deposit growth, pricing, prepayment speeds, deposit decay rates, securities portfolio cash flows and reinvestment strategy and the market value of ~~ce rtain~~certain assets under the various interest rate scenarios. The base case scenario assumes that the current interest rate environment is held constant throughout the forecast period; the instantaneous shocks are performed against that yield curve.

Change in Interest Rates	Estimated Increase (Decrease) in NII December 31, 2009		Estimated Increase (Decrease) in NII December 31, 2010
(basis points)

-200		-17.18%		-1.72%
-100		-7.47%		-1.83%
Stable		0.0%		0.0%
+100		3.41%		-0.48%
+200		6.19%		2.86%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Business and Summary of Significant Accounting Policies

Business

First Guaranty Bancshares, Inc. (the “Company”) is a Louisiana corporation. On July 27, 2007 the Company became the parent of First Guaranty Bank. The Company owns all of the outstanding shares of common stock of First Guaranty Bank. First Guaranty Bank (the “Bank”) is a Louisiana state-chartered commercial bank that provides a diversified range of financial services to consumers and businesses in the communities in which it operates. These services include consumer and commercial lending, mortgage loan origination, the issuance of credit cards and retail banking services. The Bank has 1716 banking offices, one drive-up banking facility, and 2526 automated teller machines (ATMs) in northern and southern of Louisiana.

Summary of significant accounting policies

The accounting and reporting policies of the Company conform to generally accepted accounting principles and to predominant accounting practices within the banking industry. The more significant accounting and reporting policies are as follows:

Consolidation

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

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near-term economic environment and market conditions relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and real estate owned, the Company obtains independent appraisals for significant properties.

Available for sale investment securities are stated at estimated fair value, with the unrealized gains and losses determined on a specific identification basis. Such unrealized gains and losses, net of tax, are reported as a separate component of stockholders’ equity and included in other comprehensive income (loss). The Company utilizes an independent third party as its principal pricing source for determining fair value. For investment securities traded in an active market, fair values are measured on a recurring basis obtained from an independent pricing service and based on quoted market prices if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities, broker quotes or comprehensive interest rate tables and pricing matrices. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs or value drivers and is generally determined using expected cash flows and appropriate risk-adjusted discount rates. Expected cash flows are based primarily on the contractual cash flows of the instrument.

Any security that has experienced a decline in value, which Management believes is deemed other than temporary, is reduced to its estimated fair value by a charge to operations. In estimating other-than-temporary impairment losses, Management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Realized gains and losses on security transactions are computed using the specific identification method. Amortization of premiums and discounts is included in interest and dividend income. Discounts and premiums related to debt securities are amortized using the effective interest rate method. The Company did not have any derivative financial instruments as of December 31, ~~2009~~2010 or ~~2008.~~2009.

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents are defined as cash, due from banks, interest-bearing demand deposits with banks and federal funds sold with maturities of three months or less.

Securities

The Company reviews its financial position, liquidity and future plans in evaluating the criteria for classifying investment securities. At December 31, ~~2009,~~2010, the securities portfolio contained two classifications of securities - held to maturity and available for sale. At December 31, ~~2009, $249.5~~2010, $322.1 million were classified as available for sale and ~~$12.3~~$159.8 million were classified as held to maturity.

Debt securities that Management has the ability and intent to hold to maturity are classified as held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts using methods approximating the interest method. Securities available for sale are stated at fair value. The unrealized difference, if any, between amortized cost and fair value of these securities is excluded from income and is reported, net of deferred taxes, as a component of stockholders' equity. Realized gains and losses on securities are computed based on the specific identification method and are reported as a separate component of other income.

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~~Table of Contents~~

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 (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer (3) the recovery of contractual principal and interest and (4) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

The Company has a required investment in Federal Home Loan Bank stock that is carried at cost that approximates fair value. This stock must be maintained by the Company.

Loans held for sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Loans held for sale have primarily been fixed rate single-family residential mortgage loans under contract to be sold in the secondary market. In most cases, loans in this category are sold within thirty days. Buyers generally have recourse to return a purchased loan under limited circumstances. Recourse conditions may include early payment default, breach of representations or warranties and documentation deficiencies.

Mortgage loans held for sale are generally sold with the mortgage servicing rights released. Gains or losses on sales of mortgage loans are recognized based on the differences between the selling price and the carrying value of the related mortgage loans sold.

Loans

Loans are stated at the principal amounts outstanding, net of unearned income and deferred loan fees. In addition to loans issued in the normal course of business, overdrafts on customer deposit accounts are considered to be loans and reclassified as such. At December 31, 2010 and 2009, $0.2 million and ~~2008, $116,000 and $161,000,~~$0.1 million, respectively, in overdrafts have been reclassified to loans. Interest income on all classifications of loans is calculated using the simple interest method on daily balances of the principal amount outstanding.

Accrual of interest is discontinued on a loan when Management believes, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that reasonable doubt exists as to the full and timely collection of principal and interest. This evaluation is made for all loans that are 90 days or more contractually past due. When a loan is placed in non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of interest and principal is probable. Loans are returned to accrual status when, in the judgment of Management, all principal and interest amounts contractually due are reasonably assured of repayment within a ~~rea sonable~~reasonable time frame and when the borrower has demonstrated payment performance of cash or cash equivalents for a minimum of six months.

All loans, except mortgage loans, are considered past due if ~~it is~~they are past due 30 days. Mortgage loans are considered past due when two consecutive payments have been missed. Loans that are past due 90-120 days and deemed uncollectible are charged off. The loan charge off is a reduction of the allowance for loan losses.

Loan fees and costs

Nonrefundable loan origination and commitment fees and direct costs associated with originating loans are deferred and recognized over the lives of the related loans as an adjustment to the loans' yield using the level yield method.

Allowance for loan losses

The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when Management believes that the collectability of the principal is unlikely. The allowance, which is based on evaluation of the collectability of loans and prior loan loss experience, is an amount that Management believes will be adequate to reflect the risks inherent in the existing loan portfolio and exist at the reporting date. The evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect a borrower’s ability to pay, adequacy of loan collateral and other relevant factors. In addition, regulatory ~~a gencies,~~agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require additional recognition of losses based on their judgments about information available to them at the time of their examination.

Although Management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Company may ultimately incur losses that vary from Management's current estimates. Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or can be reasonably estimated. All loan losses are charged to the allowance for loan losses when the loss actually occurs or when Management believes that the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery.

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~~Table of Contents~~

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. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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.

Goodwill and Intangible assets

Intangible assets are comprised of goodwill and core deposit intangibles. Goodwill ~~is accounted for in accordance with FASB ASC 350,~~ ~~Intangibles – Goodwill and Other~~ ~~(SFAS No. 142). Under FASB ASC 350, goodwill~~ and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment ~~tests in accordance with the provision of FASB ASC 350.~~tests. The Company’s goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment. Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill. If the implied fair value is less than the carrying amount, a loss would be recognized in other non-interest expense to reduce the carrying amount to implied fair value of goodwill. A goodwill impairment test includes two steps. Step one, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Step two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit’s goodwill, an impairment loss is recognized in an amount equal to that excess. The Company did not record goodwill impairment charges in 2010, 2009, or ~~200 8.~~2008.

Identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own on in combination with related contract, asset or liability. The Company’s intangible assets primarily relate to core deposits. These core deposit intangibles are amortized on a straight-line basis over terms ranging from seven to 15 years. Management periodically evaluates whether events or circumstances have occurred that would result in impairment of value.

Premises and equipment

Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the respective assets as follows:

Buildings and improvements 10-40 years

Equipment, fixtures and automobiles 3-10 years

Expenditures for renewals and betterments are capitalized and depreciated over their estimated useful lives. Repairs, maintenance and minor improvements are charged to operating expense as incurred. Gains or losses on disposition, if any, are recorded in the Statements of Income.

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~~Table of Contents~~

Other real estate

Given the changes in the Company’s balance sheet observed during the third quarter and following the completion of a five year strategic plan, certain securities purchased pursuant to this plan were classified as held to maturity. The Company determined the unprecedented market conditions and volatility coupled with a revised five year strategic plan that a waiting period of one quarter was appropriate based on the materiality conditions and the type of securities in the held to maturity portfolio sold during the second quarter of 2010.

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. 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.

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~~Table of Contents~~

Other than the corporate debt securities, the Company attributes the unrealized losses mainly to increases in market interest rates over the yield available at the time the underlying securities were purchased and does not expect to incur a loss unless the securities are sold prior to maturity.

Overall market declines, particularly in the banking and financial institutions, as well as the real estate market, are a result of significant stress throughout the regional and national economy. Securities with unrealized losses, in which the Company has not already taken an OTTI charge, 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 place 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.

Securities that are other-than-temporarily impaired are evaluated at least quarterly. The evaluation includes performance indications of the underlying assets in the security, loan to collateral value, third-party guarantees, current levels of subordination, geographic concentrations, industry analysts reports, sector credit ratings, volatility of the securities fair value, liquidity, leverage and capital ratios, the company’s ability to continue as a going concern. If the company is in bankruptcy, the status and potential out come is also considered.

The Company believes that the securities with unrealized losses reflect impairment that is temporary and that there are currently no securities with other-than-temporary impairment.

During 2010, the Company did not record an impairment write-down on its securities.

During 2009, the Company recorded an impairment writedown totaling ~~$829,000.~~$0.8 million. The impairment writedown consisted of one corporate debt security totaling ~~$243,000~~$0.2 million issued by Colonial Bank which had an unrealized loss of ~~$233,000,~~$0.2 million, three asset backed securities totaling ~~$381,000~~$0.4 million issued by ALESCO which had unrealized losses of ~~$377,000~~$0.4 million and two asset backed securities totaling ~~$205,000~~$0.2 million issued by TRAPEZA which had unrealized losses of ~~$200,000.~~$0.2 million.

During 2008, the Company recorded an impairment writedown totaling ~~$4,611,000.~~$4.6 million. The impairment writedown consisted of three preferred stocks of Fannie Mae and Freddie Mac totaling ~~$3,046,000,~~$3.0 million, on a cost basis, which had unrealized losses of ~~$1,991,000~~$2.0 million and ~~$1,010,000,~~$1.0 million, respectively, debt securities totaling ~~$727,000~~$0.7 million and ~~$240,000~~$0.2 million issued by Lehman Brothers and Washington Mutual which had unrealized losses of ~~$634,000~~$0.6 million and ~~$239,000,~~$0.2 million, respectively. The Company also recorded an impairment ~~writedown~~writwdown on ~~$510,000~~$0.5 million and ~~$739,000~~$0.7 million in asset backed securities issued by TRAPEZA and ALESCO (CDOs) which had unrealized losses of ~~$344,000~~$0.3 million and ~~$409,000,~~$0.4 million, respectively.

At December 31, ~~2009,~~2010, the Company’s exposure to four investment security issuers exceeded 10% of stockholders’ equity as follows:

	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(in thousands)				(in thousands)

Federal Home Loan Bank (FHLB)	$	52,513	$	52,021	$	158,881	$	154,621
Federal Home Loan Mortgage Corporation (Freddie Mac)		35,017		34,981		30,991		30,472
Federal National Mortgage Association (Fannie Mae)		48,849		48,359		24,999		24,428
Federal Farm Credit Bank (FFCB)		18,230		18,050		115,921		113,024
Total	$	154,609	$	153,411	$	330,792	$	322,545

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Note 5.4. Loans ~~and Allowance for Loan Losses~~

The following table summarizes the components of the Company's loan portfolio as of December 31, ~~2009~~2010 and ~~2008:~~2009:

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~~Table of Contents~~

	December 31,												December 31,
	2009						2008						2010						2009
				As % of						As % of						As % of						As % of
	Balance			Category			Balance			Category			Balance			Category			Balance			Category
	(dollars in thousands)												(in thousands)
Real estate
Construction & land development	$	78,686			13.3	%	$	92,029			15.2	%	$	65,570			11.4	%	$	78,686			13.3	%
Farmland		11,352			1.9	%		16,403			2.7	%		13,337			2.3	%		11,352			1.9	%
1-4 Family		77,470			13.1	%		79,285			13.1	%		73,158			12.7	%		77,470			13.1	%
Multifamily		8,927			1.5	%		15,707			2.6	%		14,544			2.5	%		8,927			1.5	%
Non-farm non-residential		300,673			51.0	%		261,744			43.0	%		292,809			50.8	%		300,673			51.0	%
Total real estate		477,108			80.8	%		465,168			76.6	%		459,418			79.7	%		477,108			80.8	%

Agricultural		14,017			2.4	%		18,536			3.0	%		17,361			3.0	%		14,017			2.4	%
Commercial and industrial		82,348			13.9	%		105,555			17.4	%		76,590			13.3	%		82,348			13.9	%
Consumer and other		17,226			2.9	%		17,926			3.0	%		22,970			4.0	%		17,226			2.9	%
Total loans before unearned income		590,699			100.0	%		607,185			100.0	%		576,339			100.0	%		590,699			100.0	%
Less: unearned income		(797	)					(816	)					(699	)					(797	)
Total loans net of unearned income	$	589,902					$	606,369					$	575,640					$	589,902

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The following table summarizes fixed and floating rate loans by maturity and repricing frequencies as of December 31, ~~2009:~~

December 31, 2009
Fixed Floating Total
(in thousands)

One year or less $ 224,963 $ 77,651 $ 302,614
One to five years 229,276 2,408 231,684
Five to 15 years 25,122 - 25,122
Over 15 years 16,299 - 16,299
Subtotal 495,660 80,059 575,719
Nonaccrual loans 14,183
Total loans net of unearned income $ 495,660 $ 80,059 $ 589,902

2010:

	December 31, 2010
	Fixed		Floating		Total
	(in thousands)

One year or less	$	67,944	$	167,399	$	235,343
One to five years		127,401		132,345		259,746
Five to 15 years		2,456		30,953		33,409
Over 15 years		9,735		9,388		19,123
Subtotal		207,536		340,085		547,621
Nonaccrual loans						28,718
Total loans before unearned income					$	576,339
Unearned income						(699	)

Total loans net of unearned income

575,640

- 64 -

The following table presents the age analysis of past due loans at December 31, 2010:

	As of December 31, 2010
	(in thousands)
												Recorded Investment >
	30-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans			90 Days Accruing

Real estate
Construction & land development	$	1,574	$	3,383	$	4,957	$	60,613	$	65,570		$	-
Farmland		41		-		41		13,296		13,337			-
1 - 4 family		4,742		3,189		7,931		65,227		73,158			1,663
Multifamily		5,781		1,357		7,138		7,406		14,544			-
Non-farm non-residential		7,960		21,944		29,904		262,905		292,809			-
Total real estate		20,098		29,873		49,971		409,447		459,418			1,663

Agricultural		333		446		779		16,582		17,361			-
Commercial and industrial		1,203		76		1,279		75,311		76,590			-
Consumer and other		287		42		329		22,641		22,970			10

Total loans before unearned income	$	21,921	$	30,437	$	52,358		523,981	$	576,339		$	1,673
Less: unearned income										(699	)
Total loans net of unearned income									$	575,640

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 collectibility 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 Non-accrual loans by class:

	As of December 31, 2010
	(in thousands)

Real estate:
Construction & land development	$	3,383
Farmland		-
1 - 4 family		1,480
Multifamily		1,357
Non-farm non-real estate		21,944
Total real estate		28,164

Agricultural		446
Commercial and industrial		76
Consumer and other		32
Total	$	28,718

- 65 -

The Company assigns credit quality indicators of pass, special mention, and substandard to its loans. For the Company’s loans with a corporate 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 corporate 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. They 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 mitigants. 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.

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

	As of December 31, 2010
	(in thousands)

Corporate Credit Exposure -- by Credit Rating	Pass		Special Mention		Substandard		Total

Real Estate
Construction & land development	$	55,228	$	249	$	10,093	$	65,570
Farmland		13,296		-		41		13,337
1 - 4 family		60,870		4,172		8,116		73,158
Multifamily		8,763		-		5,781		14,544
Non-farm non-residential		258,740		141		33,928		292,809
Total real estate		396,897		4,562		57,959		459,418

Agricultural		17,361		-		-		17,361
Consumer and industrial		73,686		13		2,891		76,590
Consumer and other		22,845		32		93		22,970

Total loans before unearned income	$	510,789	$	4,607	$	60,943	$	576,339
Less: unearned income								(699	)
Total loans net of unearned income							$	575,640

- 66 -

Note 5. Allowance for Loan Losses

A summary of changes in the allowance for loan losses, by portolio type, for the year ended December 31, 2010 is as follows:

	As of December 31, 2010
	(in thousands)

	Real Estate Loans:															Non-Real Estate Loans:
		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	$	1,176			56			2,466		$	128	$	2,727		$	82		$	1,031		$	246			7	$	7,919
Charge-offs		(5	)		-			(1,534	)		-		(235	)		-			(3,395	)		(444	)		-		(5,613	)
Recoveries		1			-			11			-		30			-			164			151			-		357
Provision		(195	)		(10	)		948			359		901			(2	)		2,710			437			506		5,654
Ending Balance	$	977		$	46		$	1,891		$	487	$	3,423		$	80		$	510		$	390		$	513	$	8,317

Allowance at the end of year:
Individually evaluated for impairment	$	323		$	-		$	726		$	179	$	1,901		$	-		$	408		$	-			-	$	3,537
Collectively evaluated for impairment		654			46			1,165			308		1,522			80			102			390			513		4,780

Loans at end of year (before unearned income)	$	65,570		$	13,337		$	73,158		$	14,544	$	292,809		$	17,361		$	76,590		$	22,970			-	$	576,339
Loans individually evaluated for impairment		6,222			-			4,450			7,138		35,931			-			2,735			-			-		56,476
Loans collectively evaluated for impairment		59,348			13,337			68,708			7,406		256,878			17,361			73,855			22,970			-		519,863

Negative provisions are caused by changes in the composition and credit quality of the loan portfolio. The result is a re-allocation of the loan loss reserve from one category to another.

- 67 -

Changes in the allowance for loan losses are as follows:

	Years Ended December 31,
	2010			2009			2008
	(in thousands)

Balance, beginning of year	$	7,919		$	6,482		$	6,193
Provision charged to expense		5,654			4,155			1,634
Loans charged off		(5,613	)		(2,879	)		(1,613	)
Recoveries		357			161			268
Balance, end of year	$	8,317		$	7,919		$	6,482

Years Ended December 31,
2009 2008 2007
(in thousands)

Balance, beginning of year $ 6,482 $ 6,193 $ 6,675
Additional provision from acquisition - - 325
Provision charged to expense 4,155 1,634 1,918
Loans charged off (2,879 ) (1,613 ) (3,885 )
Recoveries 161 268 1,160
Balance, end of year $ 7,919 $ 6,482 $ 6,193

The allowance for loan losses is reviewed by Management on a monthly basis and additions thereto are recorded in order to maintain the allowance at an adequate level. In assessing the adequacy of the allowance, Management considers a variety of internal and external factors that might impact the performance of individual loans. 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 Management's assessment of each loan and its overall impact on the adequacy of 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, and management establishes reserves as needed for its estimate of probable losses on such commitments.

As of December 31, 2010, 2009 ~~2008~~ and ~~2007,~~2008, the Company had loans totaling $28.7 million, $14.2 million ~~$9.1 million~~ and ~~$10.3~~$9.1 million, respectively, on which the accrual of interest had been discontinued. As of December 31, 2010, 2009 ~~2008~~ and ~~2007,~~2008, the Company had loans past due 90 days or more and still accruing interest totaling $1.7 million, $0.8 million, ~~$205,000~~ and ~~$547,000,~~$0.2 million, respectively.

The average amount of non-accrual loans in ~~2009~~2010 was ~~$10.6~~$21.45 million compared to ~~$9.9~~$10.6 million in ~~2008.~~2009. Had these loans performed in accordance with their original terms, the Company's interest income would have been increased by approximately ~~$0.4~~$1.65 million and ~~$0.5~~$0.4 million for the years ended December 31, ~~2009~~2010 and ~~2008,~~2009, respectively. Impaired loans at December 31, ~~2009~~2010 and ~~2008,~~2009, including non-accrual loans, amounted to ~~$33.4~~$56.5 million and ~~$11.4~~$33.9 million, respectively. The portion of the allowance for loan losses allocated to all impaired loans amounted to ~~$2.7~~$3.5 million and ~~$1.4~~$2.7 million at December 31, ~~2009~~2010 and ~~2008,~~2009, respectively. As of December 31, ~~2009,~~2010, the Company has no outstanding commitments to advance additional funds in connection with impaired loans.

- 68 -

~~- 65 -~~

~~Table of Contents~~

The following is a summary of information pertaining to impaired loans as of December 31:

	2009		2008				2010		2009
	(in thousands)						(in thousands)

Impaired loans without a valuation allowance	$	5,853	$	6,084			$	8,713	$	5,853
Impaired loans with a valuation allowance		28,080		5,267				47,763		28,080
Total impaired loans	$	33,933	$	11,351			$	56,476	$	33,933

Valuation allowance related to impaired loans	$	2,967	$	1,353			$	3,537	$	2,967
Total nonaccrual loans	$	14,183	$	9,129			$	28,718	$	14,183
Total loans past due ninety days and still accruing	$	785	$	205			$	1,673	$	785

		2009		2008		2007		2010		2009		2008
	(in thousands)

Average investment in impaired loans	$	8,979	$	9,027	$	7,571	$	37,094	$	8,979	$	9,027
Interest income recognized on impaired loans	$	184	$	1,049	$	764	$	2,402	$	184	$	1,049
Interest income recognized on a cash basis on impaired loans	$	565	$	283	$	182	$	1,304	$	565	$	283

The following is a summary of impaired loans by class:

	As of December 31, 2010
	(in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Real estate
Construction & land development	$	4,105	$	5,380	$	-	$	5,532	$	389
Farmland		-		-		-		-		-
1 - 4 family		53		684		-		2,576		204
Multifamily		-		-		-		-		-
Non-farm non-residential		4,555		4,555		-		3,331		203
Total real estate		8,713		10,619		-		11,439		796

Agricultural		-		-		-		-		-
Commercial and industrial		-		-		-		425		37
Consumer and other		-		-		-		-		-

With an allowance recorded:
Real estate
Construction & land development		2,117		2,117		323		2,557		182
Farmland		-		-		-		-		-
1 - 4 familty		4,397		4,397		726		1,490		103
Multifamily		7,138		7,138		179		5,896		318
Non-farm non-residential		31,376		31,376		1,901		13,655		852
Total real estate		45,028		45,028		3,129		23,598		1,455

Agricultural		-		-		-		-		-
Commercial and industrial		2,735		2,735		408		1,632		114
Consumer and other		-		-		-		-		-

Total	$	56,476	$	58,382	$	3,537	$	37,094	$	2,402

- 69 -

Note 6. Premises and Equipment

The major categories comprising premises and equipment at December 31, ~~2009~~2010 and ~~2008~~2009 are as follows:

	December 31,				December 31,
	2009		2008		2010		2009
	(in thousands)				(in thousands)

Land	$	4,514	$	4,693	$	4,539	$	4,514
Bank premises		16,608		15,333		15,804		16,608
Furniture and equipment		14,264		13,763		15,074		14,264
Construction in progress						52		-
Acquired value		35,386		33,789		35,469		35,386
Less: accumulated depreciation		18,682		17,648		19,446		18,682
Net book value	$	16,704	$	16,141	$	16,023	$	16,704

Depreciation expense amounted to approximately ~~$1.0~~$1.2 million, $1.0 million, and ~~$0.9~~$1.0 million for 2010, 2009, and 2008 ~~and 2007,~~, respectively.

Note 7. Goodwill and Other Intangible Assets

~~The Company accounts for goodwill and intangible assets in accordance with FASB ASC 350,~~ G~~Intangibles – Goodwill and Other~~ ~~(SFAS No. 142). Under FASB ASC 350, goodwill~~oodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment ~~tests in accordance with the provision of FASB ASC 350.~~tests. Other intangible assets continue to be amortized over their useful lives. Goodwill for the year ended December 31, ~~2009~~2010 was $2.0 million and was acquired in the Homestead Bank acquisition in 2007. No impairment charges ~~were~~have been recognized ~~during 2009.~~

since the acquisition. Mortgage servicing rights totaled ~~$136,000~~$0.2 million at December 31, ~~2009~~2010 and ~~$29,000~~$0.1 million at December 31, ~~2008.~~

2009. 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 one single financial institution.

The following table summarizes the Company’s purchased accounting intangible assets subject to amortization.

	December 31,
	2010						2009
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
	(in thousands)

Core deposit intangibles	$	7,997	$	6,457	$	1,540	$	7,997	$	6,240	$	1,757
Mortgage Servicing Rights		235		46		189		157		21		136
Total	$	8,232	$	6,503	$	1,729	$	8,154	$	6,261	$	1,893

December 31,
2009 2008
Gross Carrying Accumulated Net Carrying Gross Carrying Accumulated Net Carrying
Amount Amortization Amount Amount Amortization Amount
(in thousands)

Core deposit intangibles $ 7,997 $ 6,240 $ 1,757 $ 7,997 $ 5,948 $ 2,049
Mortgage Servicing Rights 157 21 136 32 3 29
Total $ 8,154 $ 6,261 $ 1,893 $ 8,029 $ 5,951 $ 2,078

- 70 -

~~- 66 -~~

~~Table of Contents~~

Amortization expense relating to purchase accounting intangibles totaled ~~$291,000, $311,000,~~$0.2 million, $0.3 million, and ~~$203,000~~$0.3 million for the year ended December 31, 2010, 2009, and 2008, ~~and 2007,~~ respectively. ~~The weighted average amortization period of these assets is 9.3 years.~~ Estimated future amortization expense is as follows:

For the Years Ended December 31,	Estimated Amortization Expense
For the Years Ended			Estimated
December 31,			Amortization Expense
(in thousands)
2010	$	218
2011		218	$	218
2012		216		216
2013		185		185
2014		185		185
2015				185

These estimates do not assume the addition of any new intangible assets that may be acquired in the future nor any writedowns resulting from impairment.

Note 8. Other Real Estate

As of December 31, ~~2009~~2010 and ~~2008~~2009 other real estate, net, (ORE) totaled ~~$0.7~~$0.6 million and ~~$0.6~~$0.7 million. ORE consisted of ~~$292,000~~$0.2 million of 1-4 family residential properties, ~~and $366,000 non-farm non-residential properties at December 31, 2009. At December 31, 2008, ORE consisted of $89,000~~$0.3 million of construction, land development and other loans, ~~$223,000~~and $0.1 million non-farm non-residential properties at December 31, 2010. At December 31, 2009, ORE consisted of $0.3 million of 1-4 family residential properties and ~~$256,000~~$0.4 million of ~~non-farm nonresidential~~nan-farm non-residential properties.

Note 9. Deposits

The aggregate amount of jumbo time deposits, each with a minimum denomination of $100,000, was approximately ~~$271.2~~$420.1 million and ~~$247.8~~$271.2 million at December 31, 2010 and 2009, ~~and 2008,~~ respectively.

At December 31, ~~2009,~~2010, the scheduled maturities of time deposits are as follows:

	December 31, 2009		December 31, 2010
	(in thousands)		(in thousands)

Due in one year or less	$	349,719	$	289,777
Due after one year through three years		50,529		303,772
Due after three years		39,156		44,135
Total	$	439,404	$	637,684

Louisiana	26-0513559
(State or other jurisdiction	~~(I.R.S. Employer~~
incorporation or organization)	(I.R.S. Employer Identification Number)


400 East Thomas Street
Hammond, Louisiana	70401
(Address of principal executive offices)	(Zip Code)

(985) 345-7685
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $1 par value per share	None


	•	We ~~may~~ expect to face increased regulation of our industry, including as a result of ~~the Emergency Economic Stabilization Act of 2008 (EESA). Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.~~

	•	Market developments and the resulting economic pressure on consumers may affect consumer confidence levels and may cause increases in delinquencies and default rates, which, among other effects, could affect our charge-offs and provision for loan losses.

	•	~~Competition in the industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions.~~

	•	The current market disruptions make valuation even more difficult and subjective, and our ability to measure the fair value of our assets could be adversely affected. If we determine that a significant portion of our assets have values that are significantly below their recorded carrying value, we could recognize a material charge to earnings in the quarter during which such determination was made, our capital ratios would be adversely affected and a rating agency might downgrade our credit rating or put us on credit watch.

	December 31, 2010									December 31, 2009
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(in thousands)
Available for sale:
U.S. Government Agencies	$	172,958	$	242	$	(3,982	)	$	169,218	$	140,843	$	382	$	(1,562)		$	139,663
Mortgage-backed obligations		-		-		-			-		1,472		104		-			1,576
Asset-backed securities		-		-		-			-		-		8		-			8
Corporate debt securities		138,925		4,804		(1,331	)		142,398		92,414		5,648		(1,086	)		96,976
Mutual funds or other equity securities		1,250		20		(132	)		1,138		1,380		62		(185	)		1,257
Municipal bonds		9,388		-		(14	)		9,374		10,000		-		-			10,000
Total available for sale securities	$	322,521	$	5,066	$	(5,459	)	$	322,128	$	246,109	$	6,204	$	(2,833	)	$	249,480


Held to maturity:
U.S. Government Agencies	$	159,833	$	-	$	(4,507	)	$	155,326	$	10,721	$	52	$	-		$	10,773
Mortgage-backed obligations		-		-		-			-		1,628		61		-			1,689
Total held to maturity securities	$	159,833	$	-	$	(4,507	)	$	155,326	$	12,349	$	113	$	-		$	12,462

	December 31, 2009									December 31, 2008									December 31, 2007
			Gross		Gross							Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(in thousands)
Available for sale:
U.S. Government Agencies	$	140,843	$	382	$	(1,562	)	$	139,663	$	58,389	$	132	$	-		$	58,521	$	92,962	$	26	$	(25	)	$	92,963
Mortgage-backed obligations		1,472		104		-			1,576		1,701		82		(5	)		1,778		2,016		43		(23	)		2,036
Asset-backed securities		-		8		-			8		532		-		(439	)		93		1,340		-		(95	)		1,245
Corporate debt securities		87,238		5,627		(776	)		92,089		57,773		644		(5,077	)		53,340		5,954		50		(214	)		5,790
Mutual funds or other equity securities		6,556		83		(495	)		6,144		795		26		(147	)		674		3,805		22		(291	)		3,536
Municipal bonds		10,000		-		-			10,000		-		-		-			-		-		-		-			-
Total available for sale securities	$	246,109	$	6,204	$	(2,833	)	$	249,480	$	119,190	$	884	$	(5,668	)	$	114,406	$	106,077	$	141	$	(648	)	$	105,570


Held to maturity:
U.S. Government Agencies	$	10,721	$	52	$	-		$	10,773	$	22,680	$	160	$	-		$	22,840	$	33,984	$	24	$	(281	)	$	33,727
Mortgage-backed obligations		1,628		61		-			1,689		2,076		21		(1	)		2,096		2,514		-		(35	)		2,479
Total held to maturity securities	$	12,349	$	113	$	-		$	12,462	$	24,756	$	181	$	(1	)	$	24,936	$	36,498	$	24	$	(316	)	$	36,206

						More than One Year					More than Five Years
	One Year or Less					through Five Years					through Ten Years					More than Ten Years
			Weighted					Weighted					Weighted					Weighted
	Amortized		Average			Amortized		Average			Amortized		Average			Amortized		Average
	Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield
	(in thousands)
Available for sale:
U.S. Government agencies	$	-		-		$	13,999		2.19	%	$	78,975		3.29	%	$	79,984		3.79	%
Corporate debt securities		10,562		6.72	%		48,385		6.17	%		75,578		4.71	%		4,400		7.78	%
Mutual funds or other equity securities		-		-			-		-			-		-			1,250		2.82	%
Municipal bonds		872		0.78	%		3,496		0.79	%		3,628		0.86	%		1,392		5.77	%
Total available for sale securities	$	11,434		6.21	%	$	65,880		5.00	%	$	158,181		3.89	%	$	87,026		4.01	%

Held to maturity:
U.S. Government agencies	$	-		-		$	7,968		2.37	%	$	106,876		2.75	%	$	44,989		3.54	%
Total held to maturity securities	$	-		-		$	7,968		2.37	%	$	106,876		2.75	%	$	44,989		3.54	%

	Total Returns for the Year
	2005	2006	2007	2008	2009
First Guaranty Bancshares, Inc.	$139	$168	$179	$189	$133
NASDAQ Index	$168	$186	$145	$110	$ 90
NASDAQ Composite	$101	$110	$121	$ 72	$103


	Total Securities
					Weighted
	Amortized				Average
	Cost		Fair Value		Yield
	(in thousands)
Available for sale:
U.S. Government agencies	$	172,958	$	169,218		3.43	%
Corporate debt securities		138,925		142,398		5.47	%
Mutual funds or other equity securities		1,250		1,138		2.82	%
Municipal bonds		9,388		9,374		1.55	%
Total available for sale securities	$	322,521	$	322,128		4.23	%

Held to maturity:
U.S. Government agencies	$	159,833	$	155,326		2.95	%
Total held to maturity securities	$	159,833	$	155,326		2.95	%

	Years Ended December 31,
	2010 Compared to 2009								2009 Compared to 2008
	Increase (Decrease) Due To								Increase (Decrease) Due To
					Rate/		Increase/						Rate/		Increase/
	Volume		Rate		Volume		Decrease		Volume		Rate		Volume		Decrease
							(in thousands)
Interest earned on:
Interest-earning deposits with banks	$ (204	)	$ (301	)	$ 158		$ (347	)	$ 1,177		$ (162	)	$ (851	)	$ 164
Securities (including FHLB stock)	4,355		(285	)	(112	)	3,958		6,118		(844	)	(783	)	4,491
Federal funds sold	(19	)	(5	)	3		(21	)	169		(368	)	(159	)	(358	)
Loans held for sale	(2	)	-		-		(2	)	(36	)	(10	)	8		(38	)
Loans, net of unearned income	(368	)	989		(10	)	611		(84	)	(4,655	)	10		(4,729	)
Total interest income	3,762		398		39		4,199		7,344		(6,039	)	(1,775	)	(470	)

Interest paid on:
Demand deposits	(106	)	(249	)	22		(333	)	80		(1,652	)	(47	)	(1,619	)
Savings deposits	4		(58	)	(2	)	(56	)	(8	)	(91	)	4		(95	)
Time deposits	1,387		(2,245	)	(234	)	(1,092	)	4,774		(2,816	)	(1,080	)	878
Borrowings	50		(159	)	(31	)	(140	)	186		(275	)	(112	)	(201	)
Total interest expense	1,335		(2,711	)	(245	)	(1,621	)	5,032		(4,834	)	(1,235	)	(1,037	)
Change in net interest income	$ 2,427		$ 3,109		$ 284		$ 5,820		$ 2,312		$ (1,205	)	$ (540	)	$ 567

	Years Ended December 31,
	2009 Compared to 2008				2008 Compared to 2007
	Increase (Decrease) Due To				Increase (Decrease) Due To
			Rate/	Increase/			Rate/	Increase/
	Volume	Rate	Volume	Decrease	Volume	Rate	Volume	Decrease
				(in thousands)
Interest earned on:
Interest-bearing deposits with banks	$ 1,177	$ (162)	$ (851)	$ 164	$ 165	$ (10)	$ (18)	$ 137
Securities (including FHLB stock)	6,118	(844)	(783)	4,491	(1,392)	(474)	79	(1,787)
Federal funds sold	169	(368)	(159)	(358)	453	(216)	(245)	(8)
Loans held for sale	(36)	(10)	8	(38)	(123)	204	(178)	(97)
Loans, net of unearned income	(84)	(4,655)	10	(4,729)	4,862	(9,892)	(1,034)	(6,064)
Total interest income	7,344	(6,039)	(1,775)	(470)	3,965	(10,388)	(1,396)	(7,819)

Interest paid on:
Demand deposits	80	(1,652)	(47)	(1,619)	32	(3,904)	(18)	(3,890)
Savings deposits	(8)	(91)	4	(95)	6	(40)	(1)	(35)
Time deposits	4,774	(2,816)	(1,080)	878	2,258	(3,003)	(496)	(1,241)
Borrowings	186	(275)	(112)	(201)	(411)	(685)	209	(887)
Total interest expense	5,032	(4,834)	(1,235)	(1,037)	1,885	(7,632)	(306)	(6,053)
Change in net interest income	$ 2,312	$ (1,205)	$ (540)	$ 567	$ 2,080	$ (2,756)	$ (1,090)	$ (1,766)

	Payments Due by Period								Payments Due by Period
	One Year		One Through		Over Three				One Year		One Through		Over Three
	or Less		Three Years		Years		Total		or Less		Three Years		Years		Total
	(in thousands)								(in thousands)

Operating leases	$	11	$	21	$	74	$	106	$	28	$	31	$	5	$	64
Software contracts										1,037		678		112		1,827
Time deposits		349,719		50,529		39,156		439,404		289,777		303,772		44,135		637,684
Short-term borrowings		11,929		-		-		11,929		12,589		-		-		12,589
Long-term borrowings		20,000		-		-		20,000		-		-		-		-
Total	$	381,659	$	50,550	$	39,230	$	471,439	$	302,394	$	303,803	$	44,140	$	650,337

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)


	December 31,
	2009		2008
Assets
Cash and cash equivalents:
Cash and due from banks	$	33,425	$	77,159
Interest-earning demand deposits with banks		14		20
Federal funds sold		13,279		838
Cash and cash equivalents		46,718		78,017

Interest-earning time deposits with banks		-		21,481

Investment securities:
Available for sale, at fair value		249,480		114,406
Held to maturity, at cost (estimated fair value of
$12,462 and $24,936, respectively)		12,349		24,756
Investment securities		261,829		139,162

Federal Home Loan Bank stock, at cost		2,547		944
Loans held for sale		-		-

Loans, net of unearned income		589,902		606,369
Less: allowance for loan losses		7,919		6,482
Net loans		581,983		599,887

Premises and equipment, net		16,704		16,141
Goodwill		1,999		1,980
Intangible assets, net		1,893		2,078
Other real estate, net		658		568
Accrued interest receivable		5,807		4,611
Other assets		10,709		6,364
Total Assets	$	930,847	$	871,233

Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand	$	131,818	$	118,255
Interest-bearing demand		188,252		180,230
Savings		40,272		41,357
Time		439,404		440,530
Total deposits		799,746		780,372

Short-term borrowings		11,929		9,767
Accrued interest payable		2,519		3,033
Long-term borrowings		20,000		8,355
Other liabilities		1,718		4,219
Total Liabilities		835,912		805,746

Stockholders' Equity
Preferred stock:
Series A - $1,000 par value - authorized 5,000 shares; issued
and outstanding 2,069.9 shares		19,630		-
Series B - $1,000 par value - authorized 5,000 shares; issued
and outstanding 103 shares		1,140		-
Common stock:
$1 par value - authorized 100,600,000 shares; issued and
outstanding 5,559,644 shares		5,560		5,560
Surplus		26,459		26,459
Retained earnings		40,069		36,626
Accumulated other comprehensive income (loss)		2,077		(3,158	)
Total Stockholders' Equity		94,935		65,487
Total Liabilities and Stockholders' Equity	$	930,847	$	871,233

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except share data)

	Years Ended December 31,
	2009			2008			2007
Interest Income:
Loans (including fees)	$	35,677		$	40,406		$	46,470
Loans held for sale		7			45			142
Deposits with other banks		388			224			87
Securities (including FHLB stock)		11,085			6,594			8,381
Federal funds sold		34			392			400
Total Interest Income		47,191			47,661			55,480

Interest Expense:
Demand deposits		1,179			2,798			6,688
Savings deposits		98			193			228
Time deposits		13,310			12,432			13,673
Borrowings		257			458			1,345
Total Interest Expense		14,844			15,881			21,934

Net Interest Income		32,347			31,780			33,546
Provision for loan losses		4,155			1,634			1,918
Net Interest Income after Provision for Loan Losses		28,192			30,146			31,628

Noninterest Income:
Service charges, commissions and fees		4,146			3,990			3,822
Net gains (losses) on sale of securities		2,056			(1	)		(478	)
Loss on securities impairment		(829	)		(4,611	)		-
Net gains on sale of loans		422			210			272
Other		1,341			1,489			1,082
Total Noninterest Income		7,136			1,077			4,698

Noninterest Expense:
Salaries and employee benefits		10,752			10,653			9,662
Occupancy and equipment expense		2,891			2,903			2,573
Regulatory assessment expense		2,049			827			381
Net cost of other real estate and repossessions		399			249			396
Other		7,916			8,609			8,329
Total Noninterest Expense		24,007			23,241			21,341

Income Before Income Taxes		11,321			7,982			14,985
Provision for income taxes		3,726			2,470			5,213
Net Income		7,595			5,512			9,772
Preferred Stock Dividends		(594	)		-			-
Income Available to Common Shareholders	$	7,001		$	5,512		$	9,772

Per Common Share:
Earnings	$	1.26		$	0.99		$	1.76
Cash dividends paid	$	0.64		$	0.64		$	0.63

Average Common Shares Outstanding		5,559,644			5,559,644			5,559,644

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)

	Series A		Series B										Accumulated
	Preferred		Preferred			Common							Other
	Stock		Stock			Stock				Retained			Comprehensive
	$1,000 Par		$1,000 Par			$1 Par		Surplus		Earnings			Income/(Loss)			Total

Balance December 31, 2006 as previously reported	$	-	$	-		$	5,560	$	26,459	$	28,818		$	(905	)	$	59,932
Correction of an error		-		-			-		-		(416	)		-			(416	)
Balance December 31, 2006 as restated		-		-			5,560		26,459		28,402			(905	)		59,516
Net income		-		-			-		-		9,772			-			9,772
Change in unrealized loss on
available for sale securities,
net of reclassification adjustments, and taxes		-		-			-		-		-			570			570
Comprehensive income																	10,342
Cash dividends on common stock ($0.63 per share)											(3,503	)					(3,503	)
Balance December 31, 2007		-		-			5,560		26,459		34,671			(335	)		66,355
Net income		-		-			-		-		5,512			-			5,512
Change in unrealized loss on
available for sale securities,
net of reclassification adjustments, and taxes		-		-			-		-		-			(2,823	)		(2,823	)
Comprehensive income																	2,689
Cash dividends on common stock ($0.64 per share)		-		-			-		-		(3,557	)		-			(3,557	)
Balance December 31, 2008		-		-			5,560		26,459		36,626			(3,158	)		65,487
Preferred stock issued		19,551		1,148													20,699
Net income		-		-			-		-		7,595			-			7,595
Change in unrealized loss on
available for sale securities,
net of reclassification adjustments, and taxes		-		-			-		-		-			5,235			5,235
Comprehensive income																	12,830
Cash dividends on common stock ($0.64 per share)		-		-			-		-		(3,558	)		-			(3,558	)
Preferred stock dividend, amortization and accretion		79		(8	)		-		-		(594	)		-			(523	)
Balance December 31, 2009	$	19,630	$	1,140		$	5,560	$	26,459	$	40,069		$	2,077		$	94,935

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
	December 31,
	2010			2009
Assets
Cash and cash equivalents:
Cash and due from banks	$	35,695		$	33,425
Interest-earning demand deposits with banks		13			14
Federal funds sold		9,129			13,279
Cash and cash equivalents		44,837			46,718

Investment securities:
Available for sale, at fair value		322,128			249,480
Held to maturity, at cost (estimated fair value of
$155,326 and $12,462, respectively)		159,833			12,349
Investment securities		481,961			261,829

Federal Home Loan Bank stock, at cost		1,615			2,547

Loans, net of unearned income		575,640			589,902
Less: allowance for loan losses		8,317			7,919
Net loans		567,323			581,983

Premises and equipment, net		16,023			16,704
Goodwill		1,999			1,999
Intangible assets, net		1,729			1,893
Other real estate, net		577			658
Accrued interest receivable		7,664			5,807
Other assets		9,064			10,709
Total Assets	$	1,132,792		$	930,847
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand	$	130,897		$	131,818
Interest-bearing demand		192,139			188,252
Savings		46,663			40,272
Time		637,684			439,404
Total deposits		1,007,383			799,746

Short-term borrowings		12,589			11,929
Accrued interest payable		3,539			2,519
Long-term borrowings		-			20,000
Other liabilities		11,343			1,718
Total Liabilities		1,034,854			835,912
Stockholders' Equity
Preferred stock:
Series A - $1,000 par value - authorized 5,000 shares; issued
and outstanding 2,069.9 shares		19,859			19,630
Series B - $1,000 par value - authorized 5,000 shares; issued
and outstanding 103 shares		1,116			1,140
Common stock:
$1 par value - authorized 100,600,000 shares; issued and
outstanding 5,559,644 shares		5,560			5,560
Surplus		26,459			26,459
Retained earnings		45,203			40,069
Accumulated other comprehensive income (loss)		(259	)		2,077
Total Stockholders' Equity		97,938			94,935
Total Liabilities and Stockholders' Equity	$	1,132,792		$	930,847

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	Years Ended December 31,
	2009			2008			2007
Cash Flows From Operating Activities
Net income	$	7,595		$	5,512		$	9,772
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses		4,155			1,634			1,918
Depreciation and amortization		1,413			1,451			1,238
Amortization of premium/discount on investments		(768	)		(807	)		(1,011	)
(Gain) Loss on call / sale of securities		(2,066	)		1			478
Gain on sale of assets		(385	)		(211	)		(272	)
Other than temporary impairment charge on securities		829			4,611			-
ORE writedowns and loss on disposition		270			113			180
FHLB stock dividends		(3	)		(32	)		(134	)
Net decrease in loans held for sale		-			3,959			31,090
Change in other assets and liabilities, net		(8,514	)		3,326			(779	)
Net Cash Provided By Operating Activities		2,526			19,557			42,480

Cash Flows From Investing Activities
Proceeds from maturities and calls of HTM securities		22,187			11,740			10,493
Proceeds from maturities, calls and sales of AFS securities		1,281,594			756,642			627,001
Funds invested in AFS securities		(1,419,358	)		(773,772	)		(575,534	)
Proceeds from sale of Federal Home Loan Bank stock		-			1,900			4,175
Funds invested in Federal Home Loan Bank stock		(1,599	)		(1,857	)		(639	)
Proceeds from maturities of time deposits with banks		35,094			2,923			-
Funds invested in time deposits with banks		(13,613	)		(22,216	)		-
Net decrease (increase) in loans		12,620			(33,196	)		(31,222	)
Proceeds from sale of mortgage servicing rights		-			-			583
Purchase of premises and equipment		(1,631	)		(1,017	)		(801	)
Proceeds from sales of premises and equipment		24			-			-
Proceeds from sales of other real estate owned		768			443			3,103
Cash paid in excess of cash received in acquisition		-			(72	)		(10,646	)
Net Cash (Used In) Provided By Investing Activities		(83,914	)		(58,482	)		26,513

Cash Flows From Financing Activities
Net increase in deposits		19,382			57,194			29,355
Net increase (decrease) in federal funds purchased and short-term borrowings		2,162			(634	)		3,817
Proceeds from long-term borrowings		20,000			10,000			-
Repayment of long-term borrowings		(8,355	)		(4,738	)		(64,802	)
Proceeds from issuance of preferred stock		20,699			-			-
Dividends paid		(3,799	)		(3,557	)		(3,503	)
Net Cash Provided By (Used In) Financing Activities		50,089			58,265			(35,133	)

Net (Decrease) Increase In Cash and Cash Equivalents		(31,299	)		19,340			33,860
Cash and Cash Equivalents at the Beginning of the Period		78,017			58,677			24,817
Cash and Cash Equivalents at the End of the Period	$	46,718		$	78,017		$	58,677

Noncash Activities:
Loans transferred to foreclosed assets	$	1,129		$	751		$	1,118
Cash Paid During The Period:
Interest on deposits and borrowed funds	$	15,357		$	15,804		$	22,048
Income taxes	$	4,300		$	1,200		$	6,015

	Restated				Previously Reported				Changes
	For the Years Ended				For the Years Ended				For the Years Ended
	2008		2007		2008		2007		2008			2007
	(in thousands except per share data)

Other assets	$	6,364	$	5,051	$	6,563	$	5,117	$	(199	)	$	(66	)
Total assets		871,233		807,994		871,432		808,060		(199	)		(66	)
Other liabilities		4,219		2,096		3,275		1,254		944			842
Total liabilities		805,746		741,640		804,802		740,798		944			842
Retained earnings		36,626		34,671		37,769		35,578		(1,143	)		(907	)
Total stockholders' equity		65,487		66,355		66,630		67,262		(1,143	)		(907	)

Interest expense	$	15,881	$	21,934	$	15,733	$	21,398	$	148		$	536
Noninterest expense		23,241		21,341		23,032		21,133		209			208
Provision for income taxes		2,470		5,213		2,591		5,466		(121	)		(253	)
Net income		5,512		9,772		5,748		10,263		(236	)		(491	)

Earnings per common share	$	0.99	$	1.76	$	1.03	$	1.85	$	(0.04	)	$	(0.09	)

	Less Than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(in thousands)
Available for sale:
U.S. Treasury and U.S.
Government agencies	$	133,974	$	3,982	$	-	$	-	$	133,974	$	3,982
Corporate debt securities		41,544		1,019		2,862		312		44,406		1,331
Municipal securities		985		14		-		-		985		14
Mutual funds or other equity securites		-		-		369		132		369		132
Total available for sale securities	$	176,503	$	5,015	$	3,231	$	444	$	179,734	$	5,459


Held to maturity:
U.S. Treasury and U.S.
Government agencies	$	130,373	$	4,507	$	-	$	-	$	130,373	$	4,507
Total held to maturity securities	$	130,373	$	4,507	$	-	$	-	$	130,373	$	4,507

					Minimum
					To Be Well
					Capitalized Under
			Minimum Capital		Prompt Corrective
	Actual		Requirements		Action Provisions
	Amount	Ratio	Amount	Ratio	Amount	Ratio
	(in thousands)
December 31, 2010
Total risk-based capital:
First Guaranty Bancshares, Inc.	$102,828	13.03%	$63,117	8.00%	N/A	N/A
First Guaranty Bank	95,644	12.13%	63,096	8.00%	78,870	10.00%
Tier 1 capital:
First Guaranty Bancshares, Inc.	94,511	11.98%	31,588	4.00%	N/A	N/A
First Guaranty Bank	87,347	11.07%	31,548	4.00%	47,322	6.00%
Tier 1 leverage capital:
First Guaranty Bancshares, Inc.	94,511	8.69%	43,528	4.00%	N/A	N/A
First Guaranty Bank	87,347	8.06%	43,356	4.00%	54,195	5.00%

December 31, 2009
Total risk-based capital:
First Guaranty Bancshares, Inc.	$96,514	12.97%	$59,536	8.00%	N/A	N/A
First Guaranty Bank	91,388	12.22%	59,834	8.00%	74,793	10.00%
Tier 1 capital:
First Guaranty Bancshares, Inc.	88,595	11.90%	29,768	4.00%	N/A	N/A
First Guaranty Bank	83,469	11.16%	29,917	4.00%	44,876	6.00%
Tier 1 leverage capital:
First Guaranty Bancshares, Inc.	88,595	9.58%	36,979	4.00%	N/A	N/A
First Guaranty Bank	83,469	9.03%	36,985	4.00%	46,231	5.00%

		Fair Value Measurements at
		December 31, 2009, Using
		Quoted
		Prices In
		Active
		Markets	Significant
	Assets/Liabilities	For	Other	Significant
	Measured at Fair	Identical	Observable	Unobservable
	Value	Assets	Inputs	Inputs
(in thousands)	December 31, 2009	(Level 1)	(Level 2)	(Level 3)

Securities available for sale	$ 249,480	$ 16,943	$ 223,537	$ 9,000

		Noninterest Income		Other Comprehensive Income

Total gains included in earnings	$	3,162
(or changes in net assets)

Changes in unrealized gains (losses) relating to assets			$	(2,336	)
still held at December 31, 2010

First Guaranty Bancshares, Inc.
Condensed Balance Sheets
(in thousands)

	December 31,
Assets	2010		2009
Cash	$	7,523	$	5,547
Investment in bank subsidiary		90,701		89,363
Other assets		257		409
Total Assets	$	98,481	$	95,319

Liabilities and Stockholders' Equity
Other liabilities	$	543	$	384
Stockholders' Equity		97,938		94,935
Total Liabilities and Stockholders' Equity	$	98,481	$	95,319

First Guaranty Bancshares, Inc.
Condensed Statements of Income
(in thousands)

	Years ended December 31,
Operating Income	2010			2009			2008
Dividends received from bank subsidiary	$	6,893		$	5,109		$	7,200
Other income		4			4			143
Total operating income		6,897			5,113			7,343

Operating Expenses
Interest expense		-			114			152
Salaries & Benefits		88			78			106
Other expenses		766			423			597
Total operating expenses		854			615			855

Income before income tax benefit and increase in equity in undistributed
earnings of subsidiary		6,043			4,498			6,488
Income tax benefit		296			214			289
Income before increase in equity in undistributed earnings of subdisiary		6,339			4,712			6,777
Increase (Decrease) in equity in undistributed earnings of subsidiary		3,686			2,883			(1,265	)
Net Income		10,025			7,595			5,512
Less preferred stock dividends		(1,333	)		(594	)		-
Net income available to common shareholders	$	8,692		$	7,001		$	5,512

First Guaranty Bancshares, Inc.
Condensed Balance Sheet
(in thousands)

	December 31,
Assets	2009		2008
Cash	$	5,547	$	93
Investment in bank subsidiary		89,363		64,917
Other assets		409		662
Total Assets	$	95,319	$	65,672

Liabilities and Stockholders' Equity
Junior subordinated debentures		-		-
Other liabilities		384		185
Stockholders' Equity		94,935		65,487
Total Liabilities and Stockholders' Equity	$	95,319	$	65,672


First Guaranty Bancshares, Inc.
Condensed Statements of Cash Flow
(in thousands)
	Years ended December 31,
	2010			2009			2008
	(in thousands)

Cash Flows From Operating Activities
Net income	$	10,025		$	7,595		$	5,512
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for deferred income taxes		-			-			(16	)
(Increase) Decrease in equity in undistributed earnings of subsidiary		(3,686	)		(2,883	)		1,265
Net change in other liabilities		159			(83	)		65
Net change in other assets		164			275			(132	)
Net Cash Provided By Operating Activities		6,662			4,904			6,694

Cash Flows From Investing Activities
Payments for investments in and advances to subsidiary		-			(16,350	)		-
Net Cash Used in Investing Activities		-			(16,350	)		-

Cash Flows From Financing Activities
Repayment of long-term debt		-			-			(3,093	)
Proceeds from issuance of preferred stock		-			20,699			-
Dividends paid		(4,686	)		(3,799	)		(3,557	)
Net Cash Provided by (Used In) Financing Activities		(4,686	)		16,900			(6,650	)

Net Increase In Cash and Cash Equivalents		1,976			5,454			44
Cash and Cash Equivalents at the Beginning of the Period		5,547			93			49
Cash and Cash Equivalents at the End of the Period	$	7,523		$	5,547		$	93

First Guaranty Bancshares, Inc.
Condensed Statement of Income
(in thousands)


	Years ended December 31,
Operating Income	2009			2008			2007
Dividends received from bank subsidiary	$	5,109		$	7,200		$	19,630
Other income		4			143			4
Total operating income		5,113			7,343			19,634

Operating Expenses
Interest expense		114			152			233
Other expenses		501			703			448
Total operating expenses		615			855			681

Income before income tax expense and increase in equity in undistributed
earnings of subsidiary		4,498			6,488			18,953
Income tax benefit		214			289			220
Income before increase in equity in undistributed earnings of subdisiary		4,712			6,777			19,173
Decrease in equity in undistributed earnings of subsidiary		2,883			(1,265	)		(15,713	)
Net Income	$	7,595		$	5,512		$	3,460
Less preferred stock dividends		(594	)		-			-
Net income available to common shareholders	$	7,001		$	5,512		$	3,460


First Guaranty Bancshares, Inc.
Condensed Statement of Cash Flow

	Years ended December 31,
	2009			2008			2007
	(in thousands)

Cash Flows From Operating Activities
Net income	$	7,595		$	5,512		$	3,460
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for deferred income taxes		-			(16	)		-
(Increase) Decrease in equity in undistributed earnings of subsidiary		(2,883	)		1,265			15,713
Net change in other liabilities		(83	)		65			(17	)
Net change in other assets		275			(132	)		(49	)
Net Cash Provided By Operating Activities		4,904			6,694			19,107

Cash Flows From Investing Activities
Payments for investments in and advances to subsidiary		(16,350	)		-			(5,489	)
Cash paid in excess of cash received in acquisition		-			-			(11,790	)
Net Cash Used in Investing Activities		(16,350	)		-			(17,279	)

Cash Flows From Financing Activities
Proceeds from purchased funds and other short-term borrowings		-			-			17,640
Repayments of purchased funds and other short-term borrowings		-			-			(17,640	)
Repayment of long-term debt		-			(3,093	)		-
Proceeds from issuance of preferred stock		20,699			-			-
Dividends paid		(3,799	)		(3,557	)		(1,779	)
Net Cash Provided by (Used In) Financing Activities		16,900			(6,650	)		(1,779	)

Net Increase In Cash and Cash Equivalents		5,454			44			49
Cash and Cash Equivalents at the Beginning of the Period		93			49			-
Cash and Cash Equivalents at the End of the Period	$	5,547		$	93		$	49

(a)	1	Consolidated Financial Statements

		Item	Page
		First Guaranty Bancshares, Inc. and Subsidiary
		Report of Independent Registered Accounting Firm	5051
		Consolidated Balance Sheets - December 31, ~~2009~~2010 and ~~2008~~2009	5152
		Consolidated Statements of Income – Years Ended December 31, 2010, 2009 ~~2008~~ and ~~2007~~2008	5253
		Consolidated Statements of Changes in Stockholders’ Equity - December 31, 2010, 2009 ~~2008~~ and ~~2007~~2008	5354
		Consolidated Statements of Cash Flows - Years Ended December 31, 2010, 2009 ~~2008~~ and ~~2007~~2008	5455
		Notes to Consolidated Financial Statements	5556

	2	Consolidated Financial Statement Schedules
		All schedules to the consolidated financial statements of First Guaranty Bancshares, Inc. and its subsidiary have been omitted because they are not required under the related instructions or are inapplicable, or because the required information has been provided in the consolidated financial statements or the notes thereto.

	3	Exhibits

		The exhibits required by Regulation S-K are set forth in the following list and are filed either by incorporation by reference from previous filings with the Securities and Exchange Commission or by attachment to this Annual Report on Form 10-K as indicated below.
Exhibit Number		Exhibit
3.1		Restatement of Articles of Incorporation of First Guaranty Banchshares, Inc. dated July 27, 2007 (filed as Exhibit 3.1 on Form 8-K12G3 dated August 2, 2007 and incorporated herein by reference).
3.2		Bylaws of First Guaranty Bancshares, Inc. dated January 4, 2007 (filed as Exhibit 3.2 on Form 8-K12G3 dated August 2, 2007 and incorporated herein by reference).
3.3		Amendment to Bylaws of First Guaranty Bancshares, Inc., dated May 17, 2007 (filed as exhibit 3.3 on Form 8-K12G3 dated August 2, 2007 and incorporated herein by reference).
11		Statement Regarding Computation of Earnings Per Share
12		Statement Regarding Computation of Ratios
14.1		First Guaranty Bancshares, Inc. and Subsidiary Code of Conduct and Ethics for Employees, Officers and Directors adopted March ~~20, 2009~~18, 2010 (filed at Exhibit 14.3 on the Company’s Form 10-K dated March 31, ~~2009~~2010 and incorporated herein by reference)
14.2		First Guaranty Bancshares, Inc. Code of Ethics for Senior Financial Officers adopted March ~~20, 2009~~18, 2010 (filed at Exhibit 14.4 on the Company’s Form 10-K dated March 31, ~~2009~~2010 and incorporated herein by reference).
14.3		First Guaranty Bancshares, Inc. and Subsidiary Code of Conduct and Ethics for Employees, Officers and Directors adopted March ~~18, 2010.~~17, 2011.
14.4		First Guaranty Bancshares, Inc. Code of Ethics for Senior Financial Officers adopted March ~~18, 2010.~~17, 2011.
21		Subsidiaries of the First Guaranty Bancshares, Inc. (filed as Exhibit 21 on the Company’s Form 8-K dated November 8, 2007 and incorporated herein by reference).
24		Power of attorney
31.1		Certification of principal executive officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of principal financial officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		Chief Executive Officer TARP Certification
99.2		Chief Financial Officer TARP Certification

/s/ Alton B. Lewis Alton B. Lewis	Chief Executive Officer and Director	March 31, ~~2010~~2011


/s/ ~~Michele E. LoBianco~~Eric J. Dosch ~~Michele E. LoBianco~~Eric J. Dosch	Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer)	March 31, ~~2010~~2011


*___________________________ Marshall T. Reynolds	Chairman of the Board	March 31, ~~2010~~2011


*___________________________ William K. Hood	Director	March 31, ~~2010~~2011


*___________________________ Sandra C. Ramsey	Director	March 31, 2011