First Guaranty Bancshares, Inc. - Quarter Report: 2008 September (Form 10-Q)

form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2008

Commission File Number 000-52748

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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

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

(985) 345-7685

(Telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

Large accelerated filer * Accelerated filer * Non-accelerated filer * Smaller reporting company T

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

Yes [ ] No [X]

As of October 31, 2008, the registrant had 5,559,644 shares of $1 par value common stock which were issued and outstanding.

- 1 -

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

	September 30,			December 31,
	2008			2007
Assets	(unaudited)
Cash and cash equivalents:
Cash and due from banks	$	19,726		$	22,778
Interest-earning demand deposits with banks		48,441			30
Federal funds sold		584			35,869
Cash and cash equivalents		68,751			58,677

Interest-earning time deposits with banks		99			2,188

Investment securities:
Available for sale, at fair value		101,028			105,570
Held to maturity, at cost (estimated fair value of
$33,157 and $36,206, respectively)		34,317			36,498
Investment securities		135,345			142,068

Federal Home Loan Bank stock, at cost		2,333			955
Loans held for sale		380			3,959

Loans, net of unearned income		605,399			575,256
Less: allowance for loan losses		6,478			6,193
Net loans		598,921			569,063

Premises and equipment, net		15,799			16,240
Goodwill		2,146			1,911
Intangible assets, net		2,150			2,383
Other real estate, net		664			373
Accrued interest receivable		5,180			5,126
Other assets		4,547			4,388
Total Assets	$	836,315		$	807,331

Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand	$	116,641		$	120,740
Interest-bearing demand		204,247			223,142
Savings		41,633			45,044
Time		352,943			334,168
Total deposits		715,464			723,094

Short-term borrowings		41,321			10,401
Accrued interest payable		2,953			2,956
Long-term borrowings		10,000			3,093
Other liabilities		2,270			1,254
Total Liabilities		772,008			740,798

Stockholders' Equity
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		35,802			34,849
Accumulated other comprehensive loss		(3,514	)		(335	)
Total Stockholders' Equity		64,307			66,533
Total Liabilities and Stockholders' Equity	$	836,315		$	807,331

See Notes to Consolidated Financial Statements.

- 2 -

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

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2008			2007			2008			2007
Interest Income:
Loans (including fees)	$	10,105		$	12,459		$	31,104		$	34,115
Loans held for sale		2			196			37			267
Deposits with other banks		8			16			22			62
Securities (including FHLB stock)		1,695			2,092			4,635			6,565
Federal funds sold		20			25			378			273
Total Interest Income		11,830			14,788			36,176			41,282

Interest Expense:
Demand deposits		664			1,580			2,305			4,865
Savings deposits		48			66			150			171
Time deposits		2,782			3,538			9,249			9,758
Borrowings		134			495			345			970
Total Interest Expense		3,628			5,679			12,049			15,764

Net Interest Income		8,202			9,109			24,127			25,518
Provision for loan losses		407			71			1,099			679
Net Interest Income after Provision for Loan Losses		7,795			9,038			23,028			24,839

Noninterest Income:
Service charges, commissions and fees		1,034			962			3,009			2,797
Net (losses) gains on sale of securities		-			(180	)		3			(408	)
Loss on securities impairment		(4,611	)		-			(4,611	)		-
Net gains on sale of loans		7			32			182			108
Other		392			256			1,219			808
Total Noninterest Income		(3,178	)		1,070			(198	)		3,305

Noninterest Expense:
Salaries and employee benefits		2,700			2,483			7,878			7,073
Occupancy and equipment expense		743			672			2,173			1,907
Net cost from other real estate & repossessions		116			175			200			599
Other		2,351			2,369			7,022			6,201
Total Noninterest Expense		5,909			5,699			17,273			15,780

(Loss) Income Before Income Taxes		(1,292	)		4,408			5,557			12,364
(Benefit) Provision for income taxes		(457	)		1,589			1,935			4,329
Net (Loss) Income	$	(835	)	$	2,819		$	3,622		$	8,035


Per Common Share:
Earnings	$	(0.15	)	$	0.51		$	0.65		$	1.45
Cash dividends paid	$	0.16		$	0.16		$	0.48		$	0.47

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


See Notes to Consolidated Financial Statements

- 3 -

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)

								Accumulated
	Common							Other
	Stock				Retained			Comprehensive
	$1 Par		Surplus		Earnings			Loss			Total

Balance December 31, 2006	$	5,560	$	26,459	$	28,089		$	(905	)	$	59,203
Net income		-		-		8,035			-			8,035
Change in unrealized loss
on available for sale securities,
net of reclassification adjustments and taxes		-		-		-			396			396
Comprehensive income												8,431
Cash dividends on common stock ($0.47 per share)		-		-		(2,612	)		-			(2,612	)
Balance September 30, 2007 (unaudited)	$	5,560	$	26,459	$	33,512		$	(509	)	$	65,022

Balance December 31, 2007	$	5,560	$	26,459	$	34,849		$	(335	)	$	66,533
Net income		-		-		3,622			-			3,622
Change in unrealized loss
on available for sale securities,
net of reclassification adjustments and taxes		-		-		-			(3,179	)		(3,179	)
Comprehensive income												443
Cash dividends on common stock ($0.48 per share)		-		-		(2,669	)		-			(2,669	)
Balance September 30, 2008 (unaudited)	$	5,560	$	26,459	$	35,802		$	(3,514	)	$	64,307


See Notes to Consolidated Financial Statements

- 4 -

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

	Nine Months Ended September 30,
	2008			2007
Cash Flows From Operating Activities
Net income	$	3,622		$	8,035
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses		1,099			679
Depreciation and amortization		1,109			150
Amortization of discount on investments		(642	)		-
(Gain) Loss on call / sale of securities		(3	)		408
Gain on sale of assets		(182	)		(108	)
Other than temporary impairment charge on securities		4,611			-
ORE writedowns and loss on disposition		35			410
FHLB stock dividends		(26	)		(98	)
Net decrease (increase) in loans held for sale		3,579			(599	)
Change in other assets and liabilities, net		2,534			(1,086	)
Net Cash Provided By Operating Activities		15,736			7,791

Cash Flows From Investing Activities
Proceeds from maturities and calls of HTM securities		2,180			395
Proceeds from maturities, calls and sales of AFS securities		625,460			444,307
Funds invested in AFS securities		(629,698	)		(388,855	)
Proceeds from sale of Federal Home Loan Bank stock		505			1,755
Funds invested in Federal Home Loan Bank stock		(1,857	)		-
Proceeds from maturities of time deposits with banks		2,089			-
Net increase in loans		(31,514	)		(41,264	)
Purchase of premises and equipment		(446	)		(592	)
Proceeds from sales of other real estate owned		232			2,887
Cash paid in excess of cash received in acquisition		(84	)		(10,646	)
Net Cash (Used In) Provided By Investing Activities		(33,133	)		7,987

Cash Flows From Financing Activities
Net (decrease) increase in deposits		(7,687	)		10,166
Net increase in federal funds purchased and short-term borrowings		30,920			39,181
Proceeds from long-term borrowings		10,000			-
Repayment of long-term borrowings		(3,093	)		(64,791	)
Dividends paid		(2,669	)		(2,612	)
Net Cash Provided By (Used In) Financing Activities		27,471			(18,056	)

Net Decrease In Cash and Cash Equivalents		10,074			(2,278	)
Cash and Cash Equivalents at the Beginning of the Period		58,677			24,817
Cash and Cash Equivalents at the End of the Period	$	68,751		$	22,539

Noncash Activities:
Loans transferred to foreclosed assets	$	557		$	978

Cash Paid During The Period:
Interest on deposits and borrowed funds	$	12,052		$	15,802
Income taxes	$	1,200		$	4,400


See Notes to Consolidated Financial Statements

- 5 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. (the “Company”) thereto should be read in conjunction with the audited financial statements and note disclosures for the Company previously filed with the Securities and Exchange Commission in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2007.

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

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations for the nine-month periods ended September 30, 2007 and 2008 are not necessarily indicative of the results expected for the full year.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are susceptible to significant change in the near term are the allowance for loan losses, valuation of goodwill, intangible assets and other purchase accounting adjustments.

Note 2. Fair Value

Effective January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” for financial assets and liabilities. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. SFAS 157 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

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

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

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

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2008, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

		Fair Value Measurements at
		September 30, 2008, Using
		Quoted
		Prices In
		Active
		Markets	Significant
	Assets/Liabilities	For	Other	Significant
	Measured at Fair	Identical	Observable	Unobservable
	Value	Assets	Inputs	Inputs
(Dollars in millions)	September 30, 2008	(Level 1)	(Level 2)	(Level 3)

Securities available for sale	$ 101.0	$ 17.4	$ 83.1	$ 0.5

Securities Available for Sale. Securities classified as available for sale are reported at fair value utilizing Level 1, Level 2 and Level 3 inputs. 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. Level 3 inputs were used for the September 30, 2008 market valuation on ALESCO and TRAPEZA asset backed securities. Cash flow valuations were done on these securities to facilitate in the calculation of the other than temporary impairment charge taken on securities in the third quarter 2008 (see Note 3).

Impaired Loans. Certain financial assets such as impaired loans are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The fair value of impaired loans was $11.5 million at September 30, 2008. The fair value of impaired loans is measured by either the obtainable market price (Level 1), the fair value of the collateral as determined by appraisals or independent valuation (Level 2), or the present value of expected future cash flows discounted at the effective interest rate of the loan (Level 3).

Certain non-financial assets and non-financial liabilities are measured at fair value on a non-recurring basis including assets and liabilities related to reporting units measured at fair value in the testing of goodwill impairment, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. The Company will defer application of SFAS 157 for nonfinancial assets and nonfinancial liabilities until January 1, 2009.

Note 3. Securities Impairment

On September 7, 2008 the U.S. Treasury and the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac were being placed under conservatorship and giving management control to their regulator, the FHFA. Key provisions of the U.S. Government’s Plan announced to date are as follows:

·	Dividends on Fannie Mae and Freddie Mac common and preferred stock were eliminated.

·	Fannie Mae and Freddie Mac will be required to reduce their mortgage portfolios over time.

·	The U.S. Government agreed to provide equity capital to cover mortgage defaults in return for $1 billion of senior preferred stock in Fannie Mae and Freddie Mac and warrants for the purchase of 79.9% of the common stock of Fannie Mae and Freddie Mac.

·	The U.S. Government also announced that the U.S. Treasury would provide secured loans to Fannie Mae and Freddie Mac as needed until the end of 2009 and that the U.S. Treasury plans to purchase mortgage backed securities from Fannie Mae and Freddie Mac in the open market.

At September 30, 2008, First Guaranty Bank had three securities totaling $3,046,000, on a cost basis, of preferred stock of Fannie Mae and Freddie Mac which had unrealized losses of $1,991,000 and $1,010,000, respectively, debt securities totaling $727,000 and $240,000 issued by Lehman Brothers and Washington Mutual which had unrealized losses of $634,000 and $239,000, respectively. The Bank also owns $510,000 and $739,000 in asset backed securities issued by TRAPEZA and ALESCO (CDOs) which had unrealized losses of $344,000 and $409,000, respectively. The impact of the above actions and concerns in the market place about the future value of the preferred stock of Fannie Mae and Freddie Mac, as well as the bankruptcy of Lehman Brothers, the acquisition of Washington Mutual by J.P. Morgan and the material decrease in values in asset-backed securities due to the lack of trading has made it unclear when and if the value of these investments will improve in the future. Given the above developments, the Bank’s management and Chairman of the Board of Directors met on October 14, 2008 to review the most recent developments and concluded that the Bank’s investment in the preferred stock, debt securities and asset-backed securities were other than temporarily impaired. Following a full board review of the foregoing, on October 16, 2008, the Bank recorded a non-cash other-than-temporary impairment (“OTTI”) on these investments for the quarter ending September 30, 2008.

The OTTI charges recorded for the quarter ending September 30, 2008 totaled $4.6 million before tax, $3.0 million after tax, and consisted of the following:

	Number							Unrealized Loss					Ending
Security Name	Owned		Security Type	Book Value		Market Value		at 09/30/08			OTTI Charge		Book Value

TRAPEZA		2	Asset-backed	$	510,065	$	165,727	$	(344,339	)	$	337,933	$	172,132
ALESCO		3	Asset-backed		738,729		329,882		(408,848	)		399,445		339,284
FNMA		2	Preferred Stock		2,019,840		29,000		(1,990,840	)		1,990,840		29,000
FHLMC		1	Preferred Stock		1,026,313		16,500		(1,009,813	)		1,009,813		16,500
Lehman Brothers		3	Corporate		727,371		93,750		(633,621	)		633,621		93,750
Washington Mutual		1	Corporate		239,514		300		(239,214	)		239,214		300
TOTAL		12		$	5,261,832	$	635,158	$	(4,626,674	)	$	4,610,866	$	650,966

Note 4. Loans and Allowance for Loan Losses

Loans, net of unearned income, totaled $605.4 million at September 30, 2008 and $575.3 million at December 31, 2007. The Company also held $0.4 million and $4.0 million in loans held for sale at September 30, 2008 and December 31, 2007, respectively. The loan portfolio is the largest component of assets with total loans accounting for 72.4% and 71.3% of total assets as of September 30, 2008 and December 31, 2007, respectively. The loan portfolio consists solely of domestic loans.

- 6 -

Total loans at September 30, 2008 (unaudited) and December 31, 2007 were as follows:

	September 30,						December 31,
	2008						2007
				As % of						As % of
	Balance			Category			Balance			Category
	(dollars in thousands)
Real estate
Construction & land development	$	85,155			14.1	%	$	98,127			17.0	%
Farmland		13,783			2.3	%		23,065			4.0	%
1-4 Family		84,526			13.9	%		84,640			14.7	%
Multifamily		15,831			2.6	%		13,061			2.3	%
Non-farm non-residential		267,542			44.1	%		236,474			41.1	%
Total real estate		466,837			77.0	%		455,367			79.1	%

Agricultural		23,859			3.9	%		16,816			2.9	%
Commercial and industrial		95,940			15.8	%		81,073			14.1	%
Consumer and other		19,430			3.2	%		22,517			3.9	%
Total loans before unearned income		606,066			100.0	%		575,773			100.0	%
Less: unearned income		(667	)					(517	)
Total loans after unearned income	$	605,399					$	575,256

The following table sets forth the maturity distribution of the loan portfolio and the allocation of fixed and floating rate loans at September 30, 2008:

	September 30, 2008
	Fixed		Floating		Total
	(in thousands)

One year or less	$	103,039	$	301,974	$	405,013
One to five years		107,943		32,947		140,890
Five to 15 years		33,894		658		34,552
Over 15 years		14,158		328		14,486
Subtotal		259,034		335,907		594,941
Nonaccrual loans						10,458
Total loans after unearned income	$	259,034	$	335,907	$	605,399

In the third quarter of 2008, the Company began using new risk categories in the calculation of the allowance for loan losses. Management evaluated the loan loss risk methodology and revised the allowance calculation to include additional risk codes to further divide the loan portfolio into more specific risk pools. During the third quarter 2008, the revisions to the allowance for loan losses calculation did not have a material impact on the allowance. The calculation has continued to include historical trends and current economic factors. The allowance for loan losses totaled $6.5 million or 1.07% of total loans at September 30, 2008 and $6.2 million or 1.08% of total loans at December 31, 2007.

Changes in the allowance for loan losses for the nine months ended September 30, 2008 (unaudited) and the year ended December 31, 2007 are as follows:

	September 30,			December 31,
	2008			2007
	(in thousands)

Balance beginning of period	$	6,193		$	6,675
Additional provision from acquisition		-			325
Provision charged to expense		1,099			1,918
Loans charged off		(991	)		(3,885	)
Recoveries		177			1,160
Allowance for loan losses	$	6,478		$	6,193

- 7 -

The following table sets forth, for the periods indicated, the allowance for loan losses, amounts charged-off and recoveries of loans previously charged-off:

	Nine Months Ended
	September 30,			September 30,
	2008			2007
	(in thousands)

Balance at beginning of period	$	6,193		$	6,675

Charge-offs:
Real estate loans:
Construction and land development		(166	)		(387	)
Farmland		(10	)		-
One- to four- family residential		(151	)		(123	)
Non-farm non-residential		(26	)		(750	)
Commercial and industrial loans		(357	)		(228	)
Consumer and other		(281	)		(405	)
Total charge-offs		(991	)		(1,893	)

Recoveries:
Real estate loans:
Construction and land development		1			786
Farmland		-			14
One- to four- family residential		4			13
Non-farm non-residential		-			5
Commercial and industrial loans		16			124
Consumer and other		156			150
Total recoveries		177			1,092

Net charge-offs		(814	)		(801	)
Provision for loan losses		1,099			679
Additional provision from acquisition		-			325

Balance at end of period	$	6,478		$	6,878

In July 2007, the Company signed a Final Release and Settlement Agreement with BankInsurance, Inc., the Company’s insurance company, for a claim made by the Company under the Financial Institution Bond. Under this Release and Agreement, the Company received $1.1 million as a settlement for mortgage loan irregularities discovered in 2005. After attorney fees and expenses, the Company recorded a loan recovery totaling $731,000 in July 2007. This transaction also resulted in a reversal of the provision totaling $300,000 also recorded in July 2007.

Note 5. Goodwill and Other Intangible Assets

The Company accounts for goodwill and intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, 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 SFAS No. 142. Other intangible assets continue to be amortized over their useful lives. Goodwill for the quarter ended September 30, 2008 was $2.1 million compared to $1.9 million at December 31, 2007.

Mortgage servicing rights totaled $24,000 at September 30, 2008. 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.

- 8 -

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

	As of September 30, 2008						As of December 31, 2007
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
	(in thousands, unaudited)

Core deposit intangibles	$	7,997	$	5,871	$	2,126	$	7,997	$	5,638	$	2,359
Mortgage servicing rights		24		-		24		24		-		24
Total	$	8,021	$	5,871	$	2,150	$	8,021	$	5,638	$	2,383

Note 6. Subordinated Debentures

In July 2008, the Company requested regulatory approval for the redemption of the junior subordinated debentures. As a condition of the approval of the redemption, the Federal Reserve Bank of Atlanta requested, until further notice, that the Company obtain prior written approval before incurring any indebtedness, declaring or paying any corporate dividends or redeeming any corporate stock. Also, the Louisiana Office of Financial Institutions requested that the Bank obtain prior approval before paying any dividends until compliant with LSA-R.S. 6:263(C).

On August 8, 2008, $3.1 million in junior subordinated debentures were redeemed. These debentures were issued in August 2003 for a 30 year period, callable after 5 years, at a rate of LIBOR plus 300 basis points. In 2007, the Company assumed the $3.1 million in subordinated debentures in the Homestead Bancorp, Inc. acquisition. The Company repaid the debt with $1.0 million in cash and borrowed the remaining amount by drawing on its line of credit at a rate of prime less 100 basis points. The balance of the debt on September 30, 2008 was $1.5 million and the Company anticipates repaying the debt by December 31, 2008.

Note 7. Income Taxes

On January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attribute for the consolidated financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not believe it has any unrecognized tax benefits included in its consolidated financial statements. The Company has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in noninterest expense. During the quarters ended September 30, 2008 and 2007, the Company has not recognized any interest or penalties in its consolidated financial statements, nor has it recorded an accrued liability for interest or penalty payments.

At this time, no tax years are under examination. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations for years before 2004.

Note 8. Merger and Acquisition Activity

On July 16, 2008, First Community Holding Company (“First Community”) advised First Guaranty Bancshares, Inc. (the “Company”) that it was terminating the Agreement and Plan of Reorganization (the “Agreement”) by and between the Company and First Community pursuant to section 6.1(c) of the Agreement which requires that the merger be completed by July 16, 2008. As of July 16, 2008, the Company had not received regulatory approval to complete the merger. No termination penalties or fees were incurred. All of the associated costs with the merger were expensed in the third quarter 2008 and totaled $114,000.

Note 9. Recent Accounting Pronouncements

In October 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (FSP) 157-3, Determining the Fair Value of a Financial Asset in a Market That is Not Active, which clarifies the application of Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements, in an inactive market. Application issues clarified include: how management’s internal assumptions should be considered when measuring fair value when relevant observable data do not exist; how observable market information in a market that is not active should be considered when measuring fair value; and how the use of market quotes should be considered when assessing the relevance of observable and unobservable data available to measure fair value. FSP 157-3 is effective immediately and resulted in a material impact on the Company’s financial condition or results of operations for the third quarter 2008 (see Note 3).

In June 2008, the FASB ratified EITF Issue No. 08-3, Accounting for Lessees for Maintenance Deposits Under Lease Arrangements, (EITF 08-3). EITF 08-3 provides guidance for accounting of nonrefundable maintenance deposits. EITF 08-3 is effective for fiscal years beginning after December 15, 2008. We anticipate the adoption of EITF 08-3 will not have a significant impact to the Company’s financial condition or results of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. This Statement is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We anticipate the adoption of SFAS 162 will not have a significant impact to the Company’s financial condition or results of operations.

- 9 -

In May 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-a, Accounting for Convertible Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). The FSP requires that proceeds from the issuance of convertible debt instruments be allocated between debt (at a discount) and an equity component. The debt discount will be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. This FSP is effective for fiscal years beginning after December 15, 2008, and will be applied retrospectively to prior periods. We anticipate the adoption of APB 14-a will not have a significant impact to the Company’s financial condition or results of operations.

In April 2008, the FASB issued FASB Staff Position (FSP) 142-3, Determination of the Useful Life of Intangible Assets, (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. We anticipate the adoption of FSP 142-3 will not have a significant impact to the Company’s financial condition or results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. This Statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We anticipate the adoption of SFAS No. 161 will not have a significant impact to the Company’s financial condition or results of operations.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS 160, Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB 51. SFAS 160 establishes new accounting and reporting standards for non-controlling interests in a subsidiary. SFAS 160 will require entities to classify non-controlling interests as a component of stockholders’ equity and will require subsequent changes in ownership interests in a subsidiary to be accounted for as an equity transaction. SFAS 160 will also require entities to recognize a gain or loss upon the loss of control of a subsidiary and to re-measure any ownership interest retained at fair value on that date. This statement also requires expanded disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 is effective on a prospective basis for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which are required to be applied retrospectively. We anticipate the adoption of SFAS No. 160 will not have a significant impact to the Company’s financial condition or results of operations

In December 2007, FASB issued SFAS No. 141R, Business Combinations (“SFAS No. 141R”) which applies to all business combinations. The statement requires most identifiable assets, liabilities, non-controlling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” All business combinations will be accounted for by applying the acquisition method (previously referred to as the purchase method). Companies will have to identify the acquirer; determine the acquisition date and purchase price; recognize at their acquisition-date fair values the identifiable assets acquired, liabilities assumed, and any non-controlling interests in the acquiree, and recognize goodwill or, in the case of a bargain purchase, a gain. SFAS No. 141R is effective for periods beginning on or after December 15, 2008, and early adoption is prohibited. It will be applied to business combinations occurring after the effective date. We anticipate the adoption of SFAS No. 141R will not have a significant impact to the Company’s financial condition or results of operations.

In November 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings (“SAB No. 109”). SAB No. 109 rescinds SAB No. 105’s prohibition on inclusion of expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. SAB No. 109 applies to any loan commitments for which fair value accounting is elected under SFAS No. 159. SAB No. 109 is effective prospectively for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. We anticipate the adoption of SAB No. 109 will not have a significant impact to the Company’s financial condition or results of operations.

Note 10. Subsequent Events

The Company will conduct its annual impairment test of goodwill as of October 1, 2008. Impairment charges, if any, will be recorded on or before December 31, 2008.

- 10 -

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

The following management discussion and analysis is intended to highlight the significant factors affecting the Company's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data for the three and nine months ended September 30, 2008 and 2007 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly the Company's financial position and results of operations for such periods.

Special Note Regarding Forward-Looking Statements

Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from Management expectations. This discussion and analysis contains forward-looking statements and reflects Management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The words “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements.

Third Quarter Overview

Financial highlights for the third quarter of 2008 are as follows:

For the third quarter of 2008, the Company had a net loss totaling $0.8 million with year-to-date income totaling $3.6 million. The loss recorded for the third quarter 2008 was a result of a $4.6 million, $3.0 million net of tax, other than temporary impairment (“OTTI”) charge recorded on the securities portfolio. Net income for the third quarter 2008 excluding the OTTI charge would have been $2.2 million. The Company had net income of $2.8 million for the third quarter 2007 with year–to-date net income in 2007 totaling $8.0 million.

·	Net interest income for the third quarter of 2008 and 2007 was $8.2 million and $9.1 million, respectively. The net interest margin was 4.3% for the third quarter 2008 and 4.8% for the third quarter 2007.

·	The provision for loan losses for the third quarter of 2008 was $0.4 million compared to $0.1 million for the third quarter of 2007.

·	Noninterest income for the third quarter of 2008 reflects a loss of $3.2 million compared with $1.0 million in noninterest income for the same period in 2007. This loss reflected a $4.6 million other than temporary impairment charge taken on securities in the third quarter 2008.

Noninterest expense for the third quarter of 2008 was $5.9 million, an increase of $0.2 million when compared to the third quarter of 2007. The largest increases in noninterest expense were in salaries and employee benefits and occupancy and equipment expense when comparing third quarter 2008 to third quarter 2007. The increase in salaries resulted from the additional key management personnel including an Internal Audit Manager and a Chief Credit Officer. The increase in employee benefits resulted from a $50,000 contribution to the employee stock ownership plan. The increase in occupancy expense resulted from an increase in the cost of utilities and an increase in depreciation.

Total assets as of September 30, 2008 were $836.3 million, an increase of $29.0 million or 3.6% when compared to $807.3 million at December 31, 2007 with the largest increases in cash and cash equivalents and loans, partially offset with decreases in interest-earning time deposits with banks and investment securities.

Cash and cash equivalents totaled $68.8 million at September 30, 2008, an increase of $10.1 million when compared to $58.7 million at December 31, 2007. Interest-earning demand deposits with banks increased $48.4 million due primarily to a quarter end test on our line of credit at Federal Home Loan Bank of $35.0 million, which we deposited in our interest-earning checking account at the Federal Home Loan Bank. Cash and due from banks decreased $3.0 million and federal funds sold decreased $35.3 million.

Investment securities totaled $135.3 million at September 30, 2008, a decrease of $6.7 million when compared to $142.1 million at December 31, 2007. At September 30, 2008, available for sale securities, at fair value totaled $101.0 million, a decrease of $4.5 million when compared to December 31, 2007. Held to maturity securities, at cost totaled $34.3 million, a decrease of $2.2 million when compared to $36.5 million at December 31, 2007.

The net loan portfolio at September 30, 2008 totaled $598.9 million, an increase of $29.9 million or 5.2% from the December 31, 2007 level of $569.1 million. Net loans reflect a reduction for the allowance for loan losses which totaled $6.5 million for September 30, 2008 and $6.2 million for December 31, 2007.

·	Non-performing assets ended at $11.2 million at September 30, 2008, a decrease of $34,000 when compared to December 31, 2007.

·	Total deposits decreased $7.6 million or 1.1% in 2008 when compared to December 31, 2007. Individual and business deposits decreased by $9.5 million and deposits from public fund deposits increased by $1.9 million.

- 11 -

At September 30, 2008, short-term borrowings were $41.3 million and consisted of $35.0 million in federal funds purchased, $4.8 million in repurchase agreements and $1.5 million in other short-term borrowings. Long-term borrowings were $10.0 million at September 30, 2008 reflecting an increase of $6.9 million from December 31, 2007. The change in long-term borrowings in 2008 resulted from a new $10.0 million FHLB advance partially offset by redeeming $3.1 million in trust preferred debt.

Stockholders’ equity ended at $64.3 million at September 30, 2008, a decrease of $2.2 million when compared to December 31, 2007. The decrease in equity resulted from the change in accumulated other comprehensive income of $3.2 million and dividends paid on common stock totaling $2.7 million, partially offset by net income of $3.6 million.

As of September 30, 2008, the year-to-date return on average assets (“ROAA”) and return on average equity (“ROAE”) were 0.61% and 7.04% respectively, or 1.12% and 12.88% excluding the OTTI charge on securities taken in third quarter 2008. The year-to-date ROAA and ROAE were 1.45% and 17.01% for the same period in 2007. The ROAA and ROAE for the third quarter 2008 were -0.42% and -4.82% respectively, or 1.09% and 12.52% excluding the OTTI charge, compared to 1.45% and 17.00% for the third quarter 2007.

·	The Company’s Board of Directors declared cash dividends of $0.16 per common share in each of the first three quarters in 2008, a 2.2% increase compared to the same period in 2007.

Financial Condition

Changes in Financial Condition from December 31, 2007 to September 30, 2008

General. Total assets as of September 30, 2008 were $836.3 million, an increase of $29.0 million or 3.6% when compared to $807.3 million at December 31, 2007. The increase in assets resulted from increases in cash and cash equivalents and loans, with decreases in interest-earning time deposits with banks and investment securities. Other assets also slightly increased in 2008.

Cash and Cash Equivalents. Cash and cash equivalents at September 30, 2008 totaled $68.8 million, an increase of $10.1 million when compared to $58.7 million at December 31, 2007. Cash and due from banks decreased $3.1 million, interest-earning demand deposits with banks increased $48.4 million and federal funds sold decreased $35.3 million. At September 30, 2008, the Company tested its line of credit with Federal Home Loan Bank for $35.0 million and deposited the funds into an interest-earning demand deposit. The increase in interest-earning demand deposits and the decrease in federal funds sold both resulted from a higher interest rate earned on interest-earning demand deposits than the interest earned on federal funds sold at September 30, 2008.

Investment Securities. Investment securities at September 30, 2008 totaled $135.3 million, a decrease of $6.7 million when compared to $142.1 million at December 31, 2007. The net change in securities was primarily a result of the Company redeploying investment maturities into loans which currently provide higher yields than 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.

At September 30, 2008, $35.4 million or 25.7% of securities (including Federal Home Loan Bank of Dallas stock) and mutual funds and other equity securities were scheduled to mature in less than one year. This includes $18.0 million in discount notes that are being used solely for pledging purposes. When excluding these securities, only 1.3% of securities mature in less than one year. Securities with maturity dates over 15 years totaled 7.24% of the total portfolio. The average maturity of the securities portfolio was 8.3 years.

At September 30, 2008, securities totaling $101.0 million were classified as available for sale and $34.3 million were classified as held to maturity, compared to $105.6 million classified as available for sale and $36.5 million classified as held to maturity at December 31, 2007. Management periodically assesses the quality of our investment holdings using procedures similar to those used in assessing the credit risks inherent in the loan portfolio. At September 30, 2008, management concluded that a $4.6 million before tax other than temporary impairment charge was needed for securities that had an amortized cost greater than their recoverable value (see Note 3).

Average securities as a percentage of average interest-earning assets were 16.7% for the nine-month period ended September 30, 2008 and 23.0% for the same period in 2007. Most securities held at September 30, 2008 qualified as securities pledgeable to collateralize repurchase agreements and public funds. Securities pledged at September 30, 2008 totaled $73.9 million.

Mortgage Loans Held for Sale. Loans held for sale decreased $3.6 million to $0.4 million at September 30, 2008 compared to $4.0 million at December 31, 2007.

Loans. The origination of loans is our primary use of our financial resources and represents the largest component of earning assets. Total loans accounted for 72.4% of total assets at September 30, 2008, compared to 71.3% of total assets at December 31, 2007. There are no significant concentrations of credit to any borrower or industry. As of September 30, 2008, 67.9% of our loan portfolio was secured primarily or secondarily by real estate. The largest portion of our loan portfolio is non-farm non-residential loans secured by real estate, which accounts for 44.2% of our total portfolio.

- 12 -

Our net loan portfolio at September 30, 2008 totaled $598.9 million, an increase of approximately $29.8 million from the December 31, 2007 level of $569.1 million. The increase in net loans includes $28.4 million in assignments purchased on non-real estate commercial and industrial loans and $1.7 million in loans made in-house, net of paydowns. The loan assignments purchased meet the same underwriting criteria used when making in-house loans. Net loans include the reduction for the allowance for loan losses which totaled $6.5 million at September 30, 2008 and $6.2 at December 31, 2007. Fixed rate loans increased from $223.0 million or 38.8% of the total loan portfolio at December 31, 2007 to $259.0 million, or 42.8% of the total loan portfolio at September 30, 2008. Loan charge-offs totaled $1.0 million during the first nine months of 2008, compared to $1.9 during the same period of 2007. Recoveries totaled $0.2 million and $1.1 million during the first nine months of 2008 and 2007, respectively.

Nonperforming Assets. Nonperforming assets consist of loans on which interest is no longer accrued, certain restructured loans where the interest rate or other terms have been renegotiated and real estate acquired through foreclosure (other real estate).

The accrual of interest is discontinued on loans when management believes there is reasonable uncertainty about the full collection of principal and interest or when the loan is contractually past due ninety days or more and not fully secured. If the principal amount of the loan is adequately secured, then interest income on such loans is subsequently recognized only in periods in which actual payments are received.

Nonperforming assets totaled $11.2 million or 1.3% of total assets at September 30, 2008, a decrease of $34,000 from December 31, 2007. Management has not identified additional information on any loans not already included in 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.

- 13 -

The table below sets forth the amounts and categories of our non-performing assets at September 30, 2008 (unaudited) and December 31, 2007.

	September 30,		December 31,
	2008		2007
	(in thousands)
Non-accrual loans:
Real estate loans:
Construction and land development	$	2,253	$	1,841
Farmland		182		419
One- to four- family residential		1,621		1,819
Multifamily		-		2
Non-farm non-residential		5,669		4,950
Non-real estate loans:
Commercial and industrial		453		978
Consumer and other		280		279
Total non-accrual loans		10,458		10,288

Loans 90 days and greater delinquent
and still accruing:
Real estate loans:
One- to four- family residential		49		544
Non-real estate loans:
Consumer and other		3		3
Total loans 90 days greater
delinquent and still accruing		52		547

Restructured loans		-		-

Total non-performing loans		10,510		10,835

Real estate owned:
Real estate loans:
Construction and land development		188		84
One- to four- family residential		105		170
Non-farm non-residential		371		119
Total real estate owned		664		373

Total non-performing assets	$	11,174	$	11,208

Allowance for Loan Losses. The Company maintains its allowance for loan losses at a level it considers 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 the Company determines 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 the Company's internal loan review department, independent accountants and third-party independent loan review personnel; and

§	Examinations of the loan portfolio by federal and state regulatory agencies.

- 14 -

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. In the third quarter of 2008, the Company began using new risk categories in the calculation of the allowance for loan losses. The calculation has continued to include historical trends and current economic factors.

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.

Provisions made pursuant to these processes totaled $1.1 million in the first nine months of 2008 as compared to $0.7 million for the same period in 2007. Provisions are necessary to maintain the allowance at an adequate level based on loan risk factors and the levels of net loan charge-offs. The provisions made in the first nine months of 2008 were taken 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. Total charge-offs were $1.0 million for first nine months of 2008 as compared to total charge-offs of $1.9 million for the same period in 2007. Recoveries were $0.2 million for the first nine months of 2008 as compared to recoveries of $1.1 million for the same period in 2007.

The allowance at September 30, 2008 was $6.5 million or 1.1% of total loans and 58.0% of nonperforming assets. 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.

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

	September 30,
	2008			2007
	(in thousands, unaudited)
Loans:
Average outstanding balance	$	600,256		$	535,181
Balance at end of period	$	605,399			587,478

Allowance for Loan Losses:
Balance at beginning of year	$	6,193		$	6,675
Provision charged to expense		1,099			679
Provision from acquisition		-			325
Loans charged off		(991	)		(1,893	)
Recoveries		177			1,092
Balance at end of period	$	6,478		$	6,878

Deposits. Managing the mix and pricing the maturities of deposit liabilities is an important factor that affects our ability to maximize the net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. In this regard, management regularly assesses our funding needs, deposit pricing and interest rate outlooks. From December 31, 2007 to September 30, 2008, total deposits decreased $7.6 million, or 1.1%, to $715.5 million at September 30, 2008 from $723.1 million at December 31, 2007. Noninterest-bearing demand deposits decreased by $4.1 million and interest-bearing deposits decreased by $3.5 million. The decrease in interest-bearing deposits are from a decrease of $2.3 million in business deposits, $3.5 million in consumer deposits and an increase of $2.2 million in public fund deposits. As of September 30, 2008, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $187.3 million.

Average noninterest-bearing deposits decreased to $119.4 million for the nine-month period ended September 30, 2008 from $122.3 million for the nine-month period ended September 30, 2007. Average noninterest-bearing deposits represented 17.1% and 18.7% of average total deposits for the nine-month periods ended September 30, 2008 and 2007, respectively.

As we seek to maintain a strong net interest margin and improve our earnings, attracting core noninterest-bearing deposits will remain a primary emphasis. Management will continue to evaluate and update our product mix in its efforts to attract additional core customers. We currently offer a number of noninterest-bearing deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on core deposits. We have also offered several different time deposit promotions in an effort to increase our core deposits and to increase liquidity. At September 30, 2008, our core deposits totaled $505.7 million or 70.7% of total deposits.

- 15 -

The following table sets forth the composition of the Company’s deposits at September 30, 2008 (unaudited) and December 31, 2007.

	September 30,		December 31,		Increase/(Decrease)
	2008		2007		Amount			Percent
	(dollars in thousands)
Deposits:
Noninterest-bearing demand	$	116,641	$	120,740	$	(4,099	)		-3.4	%
Interest-bearing demand		204,247		223,142		(18,895	)		-8.5	%
Savings		41,633		45,044		(3,411	)		-7.6	%
Time		352,943		334,168		18,775			5.6	%
Total deposits	$	715,464	$	723,094	$	(7,630	)		-1.1	%

Borrowings. The Company maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short- and long-term basis to meet liquidity needs. At September 30, 2008, short term borrowings totaled $41.3 million compared to $10.4 million at December 31, 2007. Long term borrowings increased in 2008 to $10.0 million from $3.1 million at December 31, 2007. The change in long-term borrowings in 2008 resulted from a new $10.0 million FHLB advance offset by the redemption of $3.1 million in trust preferred debt.

The average amount of total borrowings for the nine months ended September 30, 2008 was $12.8 million, compared to $28.8 million for the nine months ended September 30, 2007. At September 30, 2008, the Company had $135.0 million in Federal Home Loan Bank letters of credit outstanding obtained solely for collateralizing public deposits.

Equity. Total equity decreased to $64.3 million as of September 30, 2008 from $66.5 million as of December 31, 2007. The change in equity primarily resulted from net income of $3.6 million for the nine months ended September 30, 2008 less $3.2 million for the decrease in unrealized loss on available for sale securities and $2.7 million in quarterly dividend payments on common stock. Cash dividends paid were $0.48 and $0.47 per share for the nine-month periods ending September 30, 2008 and 2007, respectively.

Results of Operations for the Nine Months and Three Months Ended September 30, 2008 and September 30, 2007

Net income. For the quarter ending September 30, 2008, First Guaranty Bancshares, Inc. had a consolidated net loss of $0.8 million, a $3.7 million decrease from the $2.8 million of net income reported for the third quarter of 2007. Net income for the nine months ended September 30, 2008 was $3.6 million, a decrease of $4.4 million from $8.0 million for the nine months ended September 30, 2007. The largest decrease in net income resulted from a $4.6 million, $3.0 million net of tax, other than temporary impairment charge recorded on the securities portfolio. Net interest income also decreased 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 strengthening and enhancing the internal audit and control process, costs associated with education and training of existing and new personnel, and the addition of staff to position ourselves to take advantage of opportunities in our respective markets.

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 our net interest 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.

Net interest income for the quarter ended September 30, 2008 was $8.2 million, a decrease of $0.9 million when compared to $9.1 million for the third quarter in 2007. Net interest income for the nine month period ended September 30, 2008 totaled $24.1 million reflecting a decrease of $1.4 million when compared to the nine month period ended September 30, 2007. The decrease in net interest income for both the three month and nine month periods 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.

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). Leverage for the nine months ending September 30, 2008 was 79.5%, compared to 79.6% for the same period in 2007.

- 16 -

The following table sets forth average balance sheets, average yields and costs, and certain other information for the nine months ended September 30, 2008 and 2007, respectively. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields earned and rates paid set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	Nine Months Ended September 30,
	2008							2007
	Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate
	(dollars in thousands)
Assets
Interest-earning assets:
Interest-earning deposits with banks	$	1,547	$	22		1.9	%	$	1,763	$	62		4.7	%
Securities (including FHLB stock)		124,538		4,635		5.0	%		163,807		6,565		5.4	%
Federal funds sold		17,249		378		2.9	%		6,953		273		5.2	%
Loans held for sale		784		37		6.3	%		5,544		267		6.4	%
Loans, net of unearned income		600,256		31,104		6.9	%		535,181		34,115		8.5	%
Total interest-earning assets		744,374		36,176		6.5	%		713,248		41,282		7.7	%

Noninterest-earning assets:
Cash and due from banks		21,696							19,317
Premises and equipment, net		16,147							14,551
Other assets		5,923							3,877
Total	$	788,140						$	750,993

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Demand deposits	$	202,871		2,305		1.5	%	$	198,330		4,865		3.3	%
Savings deposits		44,260		150		0.5	%		42,418		171		0.5	%
Time deposits		331,837		9,249		3.7	%		291,699		9,758		4.5	%
Borrowings		12,794		345		3.6	%		28,828		970		4.5	%
Total interest-bearing liabilities		591,762		12,049		2.7	%		561,275		15,764		3.8	%

Noninterest-bearing liabilities:
Demand deposits		119,371							122,307
Other		8,270							5,475
Total liabilities		719,403							689,057
Stockholders' equity		68,737							61,936
Total	$	788,140						$	750,993
Net interest income			$	24,127						$	25,518
Net interest rate spread (1)						3.8	%						3.9	%
Net interest-earning assets (2)	$	152,612						$	151,973
Net interest margin (3)						4.3	%						4.8	%

Average interest-earning assets to
interest-bearing liabilities						125.8	%						127.1	%

(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.

Provision for Loan Losses. Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as deemed appropriate in order to maintain an adequate allowance for loan losses. Increases to the allowance are made to the provision as loan losses and charged against income.

Provisions made pursuant to these processes totaled $407,000 for the quarter ended September 30, 2008, an increase of $336,000 when compared to the same quarter in 2007. Year-to-date provisions made totaled $1.1 million for the first nine months of 2008 as compared to $679,000 for the same period in 2007. Provisions are necessary to maintain the allowance at an adequate level based on loan risk factors and the levels of net loan charge-offs. The provisions made in the first nine months of 2008 and 2007 were taken 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. Total charge-offs were $1.0 million for the first nine months of 2008 as compared to $1.9 million for the same period in 2007. Recoveries were $0.2 million for the first nine months of 2008 as compared to $1.1 million for the same period in 2007.

- 17 -

Noninterest Income. Noninterest income includes deposit service charges, return check charges, bankcard fees, other commissions and fees, gains and/or losses on sales of securities and loans, and various other types of income.

Noninterest income for the third quarter 2008 reflected a loss of $3.2 million, down $4.2 million when compared to the same period in 2007. This decrease in noninterest income resulted primarily from a $4.6 million other than temporary impairment charge taken on securities in the third quarter 2008 (see Note 3). Noninterest income excluding the impairment charge would have ended at $1.4 million, an increase of $0.4 million when compared to the same quarter in 2007.

Year-to-date noninterest income for 2008 ended with a loss of $0.2 million, down $3.5 million when compared to the same period in 2007. Excluding the impairment charge on securities, year-to-date noninterest income would have ended at $4.4 million as of September 30, 2008 reflecting an increase of $1.1 million from the same period in 2007. Service charge, commission and fee income increased $0.2 million, net gains on sale of securities increased $0.4 million, net gains on sale of loans increased $0.1 million and other noninterest income increased $0.4 million when comparing year-to-date noninterest income 2008 to year-to-date noninterest income 2007.

Noninterest Expense. Noninterest expense includes salaries and employee benefits, occupancy and equipment expense, net cost from other real estate and repossessions and other types of expenses. Noninterest expense for the third quarter in 2008 totaled $5.9 million, an increase of $0.2 million from the same period in 2007. The largest increases in noninterest expense were reflected in salaries and employee benefits and in occupancy and equipment expense. The increase in salaries and employee benefits resulted from an increase in the employee stock ownership plan when comparing third quarter 2008 to 2007. The increase in occupancy expense resulted from an increase in the cost of utilities and an increase in depreciation.

Noninterest expense totaled $17.3 million for the nine months ended September 30, 2008, compared to $15.8 million for the same period in 2007, an increase of $1.5 million. Salaries and benefits increased $0.8 million. At September 30, 2008, our full time equivalent employees were 225, compared to 234 full time equivalent employees during the same period of 2007. Occupancy and equipment expense totaled $2.2 million for the first nine months of 2008, an increase of $0.3 million when compared to the same period in 2007. Net cost of other real estate and repossessions decreased $0.4 million when comparing the nine month periods ending 2008 and 2007. Other noninterest expense reflects an increase of $0.8 million when comparing the nine month periods ended 2008 and 2007. During 2009, our noninterest expense is expected to significantly increase as a result of higher FDIC deposit insurance.

The table below presents the components of other noninterest expense as of the three months and nine months ended September 30, 2008 and 2007.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
	(in thousands)				(in thousands)
Other noninterest expense:
Legal and professional fees	$	412	$	530	$	1,242	$	1,087
Operating supplies		154		167		425		457
Regulatory assessment		161		47		412		123
Insurance		55		53		166		133
Marketing and public relations		326		197		883		674
Data processing		449		453		1,355		1,290
Travel and lodging		95		113		307		341
Taxes - sales and capital		213		147		559		473
Postage		58		55		181		183
Software		72		83		215		220
Telephone		39		56		138		155
Amortization of core deposit intangibles		78		92		233		155
Other		239		376		906		910
Total other expense	$	2,351	$	2,369	$	7,022	$	6,201

Other noninterest expense during the third quarter 2008 includes approximately $114,000 in expenses from our terminated transaction to acquire First Community Holding Company.

Income Taxes. The provision for income taxes totaled -$0.5 million and $1.6 million for the quarters ended September 30, 2008 and 2007, respectively. The provision for income taxes for the nine months ended September 30, 2008 decreased $2.4 million when compared to the same period in 2007. The decrease in the provision for income taxes reflected lower income during both the three month and nine month periods in 2008. In each of the nine months ended September 30, 2008 and 2007, the income tax provision approximated the normal statutory rate. The effective rates were 34.8% and 35.0%, respectively.

- 18 -

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

The interest spread and liability funding discussed below are directly related to changes in asset and liability mixes, volumes, maturities and re-pricing opportunities for interest-earning assets and interest-bearing liabilities. Interest-sensitive assets and liabilities are those which are subject to being re-priced 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 re-pricing 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 re-pricing characteristics of assets and liabilities over various time periods. The gap indicates whether more assets or liabilities are subject to re-pricing over a given time period. The interest sensitivity analysis at September 30, 2008 reflects an asset-sensitive position with a positive cumulative gap on a one-year basis.

	Interest Sensitivity Within
	3 Months			Over 3 Months			Total			Over
	Or Less			thru 12 Months			One Year			One Year			Total
	(dollars in thousands)
Earning Assets:
Loans (including loans held for sale)	$	369,619		$	77,352		$	446,971		$	158,808		$	605,779
Securities (including FHLB stock)		32,574			2,803			35,377			102,302			137,679
Federal funds sold		584			-			584			-			584
Other earning assets		48,441			99			48,540			-			48,540
Total earning assets		451,218			80,254			531,472			261,110		$	792,582

Source of Funds:
Interest-bearing accounts:
Demand deposits		147,324			-			147,324			56,923			204,247
Savings		10,408			-			10,408			31,225			41,633
Time deposits		141,220			107,509			248,729			104,214			352,943
Short-term borrowings		39,821			1,500			41,321			-			41,321
Long-term borrowings		-			10,000			10,000			-			10,000
Noninterest-bearing, net		-			-			-			142,438			142,438
Total source of funds		338,773			119,009			457,782			334,800		$	792,582
Period gap		112,445			(38,755	)		73,690			(73,690	)
Cumulative gap	$	112,445		$	73,690		$	73,690		$	-

Cumulative gap as a
percent of earning assets		14.19	%		9.30	%		9.30	%

- 19 -

Liquidity and Capital Resources

Liquidity. Liquidity refers to the ability or flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows the Company to have sufficient funds available to meet customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. Liquid assets include cash and due from banks, interest-earning demand deposits with banks, federal funds sold and available for sale investment securities. Including securities pledged to collateralize public fund deposits, these assets represent 20.3% and 20.6% of the total liquidity base at September 30, 2008 and December 31, 2007, respectively. In addition, the Company maintained borrowing availability with the Federal Home Loan Bank totaling $253.8 million and $159.7 million at September 30, 2008 and December 31, 2007, respectively. As of September 30, 2008, the net availability at the Federal Home Loan Bank was $108.8 million, compared to $54.7 million at December 31, 2007 with the increase primarily due to an additional $94.1 million in availability offset by an additional $30.0 million in letters of credit used solely to pledge to public fund deposits and $35.0 million in overnight borrowings. The increase in the availability with Federal Home Loan Bank resulted from the Housing and Economic Recovery Act of 2008 which redefined Community Financial Institutions. Under this new act, Community Financial Institutions are defined as institutions with average assets over the three-year period preceding measurement of less than $1 billion (up from the previous statutory amount of $500 million). Also, loans for community development activities were added to loans for small business, small farm, and small agricultural business as permissible purposes for long-term advances to Community Financial Institutions. We also maintain federal funds lines of credit at three other correspondent banks with borrowing capacity of $78.2 million at September 30, 2008 and $74.7 million at December 31, 2007. As of September 30, 2008, the Company had $1.5 million outstanding on these lines of credit. At December 31, 2007, the Company did not have an outstanding balance on these lines of credit. Management believes there is sufficient liquidity to satisfy current operating needs.

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

Stockholders’ equity ended at $64.3 million at September 30, 2008, a decrease of $2.2 million when compared to December 31, 2007. The decrease in equity resulted from 2008 net income of $3.6 million, which was offset by the change in accumulated other comprehensive income of $3.2 million and dividends paid on common stock totaling $2.7 million.

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

At September 30, 2008, we satisfied the minimum regulatory capital requirements and were “well capitalized” within the meaning of federal regulatory requirements.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As defined by the Securities and Exchange Commission in Exchange Act Rules 13a-14(c) and 15d-14(c), a company’s “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within time periods specified in the Commission’s rules and forms. The Company maintains such controls designed to ensure this material information is communicated to Management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decision regarding required disclosure.

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

- 20 -

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Our Noninterest Expense Will Increase As A Result Of Increases In FDIC Insurance Premiums.

The Federal Deposit Insurance Corporation (“FDIC”) imposes an assessment against institutions for deposit insurance. This assessment is based on the risk category of the institution and currently ranges from 5 to 43 basis points of the institution’s deposits. Federal law requires that the designated reserve ratio for the deposit insurance fund be established by the FDIC at 1.15% to 1.50% of estimated insured deposits. If this reserve ratio drops below 1.15% or the FDIC expects that it to do so within six months, the FDIC must, within 90 days, establish and implement a plan to restore the designated reserve ratio to 1.15% of estimated insured deposits within five years (absent extraordinary circumstances).

Recent bank failures coupled with deteriorating economic conditions have significantly reduced the deposit insurance fund’s reserve ratio. As of June 30, 2008, the designated reserve ratio was 1.01% of estimated insured deposits at March 31, 2008. As a result of this reduced reserve ratio, on October 16, 2008, the FDIC published a proposed rule that would restore the reserve ratios to its required level. The proposed rule would raise the current deposit insurance assessment rates uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis points) for the first quarter of 2009. The proposed rule would also alter the way the FDIC calculates federal deposit insurance assessment rates beginning in the second quarter of 2009 and thereafter.

Under the proposed rule, the FDIC would first establish an institution’s initial base assessment rate. This initial base assessment rate would range, depending on the risk category of the institution, from 10 to 45 basis points. The FDIC would then adjust the initial base assessment (higher or lower) to obtain the total base assessment rate. The adjustments to the initial base assessment rate would be based upon an institution’s levels of unsecured debt, secured liabilities, and brokered deposits. The total base assessment rate would range from 8 to 77.5 basis points of the institution’s deposits. There can be no assurance that the proposed rule will be implemented by the FDIC or implemented in its proposed form.

In addition, the Emergency Economic Stabilization Act of 2008 (EESA) temporarily increased the limit on FDIC insurance coverage for deposits to $250,000 through December 31, 2009, and the FDIC took action to provide coverage for newly-issued senior unsecured debt and non-interest bearing transaction accounts in excess of the $250,000 limit, for which institutions will be assessed additional premiums.

These actions will significantly increase our non-interest expense in 2009 and in future years as long as the increased premiums are in place.

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 2 is non-applicable and is therefore not included.

Item 3. Defaults Upon Senior Securities

Item 3 is non-applicable and is therefore not included.

Item 4. Submission of Matters to a Vote of Security Holders

Item 4 is non-applicable and is therefore not included.

Item 5. Other Information

Item 5 is non-applicable and is therefore not included.

- 21 -

Item 6. Exhibits

1. Consolidated financial statements

The information required by this item is included as Part I herein.

2. Consolidated financial statements schedules

The information required by this item is not applicable and therefore is not included.

3. Exhibits

Exhibit

Number Exhibit

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

- 22 -

SIGNATURES

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

FIRST GUARANTY BANCSHARES, INC.

Date: November 14, 2008 By: /s/Michael R. Sharp

Michael R. Sharp

President and

Chief Executive Officer

Date: November 14, 2008 By: /s/Michele E. LoBianco

Michele E. LoBianco

Chief Financial Officer

Secretary and Treasurer

- 23 -