First Guaranty Bancshares, Inc. - Quarter Report: 2013 March (Form 10-Q)

form10q33113.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 March 31, 2013

Commission File Number 000-52748

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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

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

(985) 345-7685
(Telephone number, including area code)

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

Yes x No o

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

Yes x No o

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

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

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

Yes o No x

As of May 13, 2013 the registrant had 6,291,332 shares of $1 par value common stock outstanding.

Table of Contents

		Page
Part I.	Financial Information

Item 1.	Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012	3

	Consolidated Statements of Income for the three months ended March 31, 2013 and 2012	4

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012	5

	Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2013 and 2012	6

	Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	35

Part II.	Other Information	35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Exhibits	35

Signatures		36

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share data)	March 31, 2013			December 31, 2012
Assets
Cash and cash equivalents:
Cash and due from banks	$	75,599		$	83,330
Interest-earning demand deposits with banks		11			12
Federal funds sold		2,773			2,891
Cash and cash equivalents		78,383			86,233

Interest-earning time deposits with banks		747			747

Investment securities:
Available for sale, at fair value		571,634			602,300
Held to maturity, at cost (estimated fair value of $47,830 and $58,939, respectively)		47,972			58,943
Investment securities		619,606			661,243

Federal Home Loan Bank stock, at cost		555			1,275
Loans held for sale		-			557

Loans, net of unearned income		653,285			629,500
Less: allowance for loan losses		9,407			10,342
Net loans		643,878			619,158

Premises and equipment, net		19,512			19,564
Goodwill		1,999			1,999
Intangible assets, net		2,329			2,413
Other real estate, net		4,409			2,394
Accrued interest receivable		6,317			6,711
Other assets		6,010			5,009
Total Assets	$	1,383,745		$	1,407,303

Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand	$	190,642		$	192,232
Interest-bearing demand		322,124			348,870
Savings		64,510			63,062
Time		650,514			648,448
Total deposits		1,227,790			1,252,612

Short-term borrowings		14,674			14,746
Accrued interest payable		3,179			2,840
Long-term borrowings		950			1,100
Other liabilities		3,048			1,824
Total Liabilities		1,249,641			1,273,122

Stockholders' Equity
Preferred stock:
Series C - $1,000 par value - authorized 39,435 shares; issued and outstanding 39,435		39,435			39,435
Common stock:
$1 par value - authorized 100,600,000 shares; issued 6,294,227 shares		6,294			6,294
Surplus		39,387			39,387
Treasury stock, at cost, 2,895 shares		(54	)		(54	)
Retained earnings		43,871			43,071
Accumulated other comprehensive income		5,171			6,048
Total Stockholders' Equity		134,104			134,181
Total Liabilities and Stockholders' Equity	$	1,383,745		$	1,407,303

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three Months Ended March 31,
(in thousands, except share data)	2013			2012
Interest Income:
Loans (including fees)	$	9,096		$	8,772
Loans held for sale		-			1
Deposits with other banks		40			15
Securities (including FHLB stock)		3,368			5,630
Federal funds sold		-			4
Total Interest Income		12,504			14,422

Interest Expense:
Demand deposits		362			343
Savings deposits		14			13
Time deposits		2,506			3,173
Borrowings		38			39
Total Interest Expense		2,920			3,568

Net Interest Income		9,584			10,854
Less: Provision for loan losses		904			1,200
Net Interest Income after Provision for Loan Losses		8,680			9,654

Noninterest Income:
Service charges, commissions and fees		1,151			1,188
Net gains on securities		777			728
Net gains on sale of loans		(25	)		(30	)
Other		327			373
Total Noninterest Income		2,230			2,259

Noninterest Expense:
Salaries and employee benefits		3,526			3,371
Occupancy and equipment expense		981			920
Other		3,197			2,959
Total Noninterest Expense		7,704			7,250

Income Before Income Taxes		3,206			4,663
Less: Provision for income taxes		1,117			1,612
Net Income		2,089			3,051
Preferred Stock Dividends		(283	)		(484	)
Income Available to Common Shareholders	$	1,806		$	2,567

Per Common Share:
Cash dividends paid	$	0.16		$	0.16
Earnings	$	0.29		$	0.41

Weighted Average Common Shares Outstanding		6,291,332			6,294,194
See Notes to Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three Months Ended March 31,
(in thousands)	2013			2012
Net Income	$	2,089		$	3,051
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding losses arising during the period		(100	)		(2,607	)
Reclassification adjustments for net gains included in net income		(777	)		(728	)
Other comprehensive income, net of tax		(877	)		(3,335	)
Comprehensive Income (Loss)	$	1,212		$	(284	)

See Notes to Consolidated Financial Statements

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

	Series C												Accumulated
	Preferred		Common										Other
	Stock		Stock				Treasury			Retained			Comprehensive
	$1,000 Par		$1 Par		Surplus		Stock			Earnings			Income/(Loss)			Total
(in thousands, except per share data)
Balance December 31, 2011	$	39,435	$	6,294	$	39,387	$	-		$	37,019		$	4,467		$	126,602
Net income		-		-		-		-			3,051			-			3,051
Other comprehensive income		-		-		-		-			-			(3,335	)		(3,335	)
Cash dividends on common stock ($0.16 per share)		-		-		-		-			(1,015	)		-			(1,015	)
Treasury shares purchased, at cost, 600 shares		-		-		-		(11	)		-			-			(11	)
Preferred stock dividend		-		-		-		-			(484	)		-			(484	)
Balance March 31, 2012 (unaudited)	$	39,435	$	6,294	$	39,387	$	(11	)	$	38,571		$	1,132		$	124,808

Balance December 31, 2012	$	39,435	$	6,294	$	39,387	$	(54	)	$	43,071		$	6,048		$	134,181
Net Income		-		-		-		-			2,089			-			2,089
Other comprehensive income		-		-		-		-			-			(877	)		(877	)
Cash dividends on common stock ($0.16 per share)		-		-		-		-			(1,006	)		-			(1,006	)
Preferred stock dividend		-		-		-		-			(283	)		-			(283	)
Balance March 31, 2013 (unaudited)	$	39,435	$	6,294	$	39,387	$	(54	)	$	43,871		$	5,171		$	134,104
See Notes to Consolidated Financial Statements

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

	Three Months Ended March 31,
(in thousands)	2013			2012
Cash Flows From Operating Activities
Net income	$	2,089		$	3,051
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		904			1,200
Depreciation and amortization		527			524
Amortization/Accretion of investments		511			433
Gain on calls and sales of securities		(777	)		(728	)
Gain on sale of assets		25			47
ORE write downs and loss on disposition		24			381
Net decrease (increase) in loans held for sale		557			(55	)
Change in other assets and liabilities, net		1,365			2,022
Net Cash Provided By Operating Activities		5,225			6,875

Cash Flows From Investing Activities
Proceeds from maturities and calls of HTM securities		11,000			61,118
Proceeds from maturities, calls and sales of AFS securities		283,452			131,003
Funds invested in HTM securities		-			(40,901	)
Funds Invested in AFS securities		(253,879	)		(214,262	)
Proceeds from sale/redemption of Federal Home Loan Bank stock		720			-
Funds invested in Federal Home Loan Bank stock		-			(1,155	)
Net increase in loans		(27,894	)		(4,526	)
Purchase of premises and equipment		(372	)		(344	)
Proceeds from sales of other real estate owned		231			589
Net Cash Provided By (Used In) Investing Activities		13,258			(68,478	)

Cash Flows From Financing Activities
Net (decrease) increase in deposits		(24,822	)	$	5,258
Net (decrease) increase in federal funds purchased and short-term borrowings		(72	)		159
Repayment of long-term borrowings		(150	)		(150	)
Purchase of treasury stock		-			(11	)
Dividends paid		(1,289	)		(1,499	)
Net Cash (Used In) Provided By Financing Activities		(26,333	)		3,757

Net Decrease In Cash and Cash Equivalents		(7,850	)		(57,846	)
Cash and Cash Equivalents at the Beginning of the Period		86,233			112,442
Cash and Cash Equivalents at the End of the Period	$	78,383		$	54,596

Noncash Activities:
Loans transferred to foreclosed assets	$	2,270		$	266

Cash Paid During The Period:
Interest on deposits and borrowed funds	$	2,581		$	3,398
Income taxes	$	-		$	-
See Notes to the Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2012.

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

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations for the three month periods ended March 31, 2013 and 2012 are not necessarily indicative of the results expected for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are susceptible to significant change in the near term are the allowance for loan losses, valuation of goodwill, intangible assets and other purchase accounting adjustments.

Note 2. Recent Accounting Pronouncements

There are no recent accounting pronouncements to disclose for the first quarter of 2013.

Note 3. Securities

A summary comparison of securities by type at March 31, 2013 and December 31, 2012 is shown below.

	March 31, 2013									December 31, 2012
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale:
U.S Treasuries	$	26,000	$	-	$	-		$	26,000	$	20,000	$	-	$	-		$	20,000
U.S. Government Agencies		369,768		311		(658	)		369,421		392,616		751		(278	)		393,089
Corporate debt securities		148,614		7,577		(237	)		155,954		159,488		8,024		(401	)		167,111
Mutual funds or other equity securities		2,064		19		-			2,083		2,564		23		-			2,587
Municipal bonds		17,367		809		-			18,176		18,481		1,032		-			19,513
Total available for sale securities	$	563,813	$	8,716	$	(895	)	$	571,634	$	593,149	$	9,830	$	(679	)	$	602,300

Held to maturity:
U.S. Government Agencies	$	47,972	$	72	$	(214	)	$	47,830	$	58,943	$	175	$	(179	)	$	58,939
Total held to maturity securities	$	47,972	$	72	$	(214	)	$	47,830	$	58,943	$	175	$	(179	)	$	58,939

The scheduled maturities of securities at March 31, 2013, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to call or prepayments of securities.

	March 31, 2013
(in thousands)	Amortized Cost		Fair Value
Available For Sale:
Due in one year or less	$	51,744	$	51,828
Due after one year through five years		164,671		167,478
Due after five years through 10 years		302,547		306,871
Over 10 years		44,851		45,457
Total available for sale securities	$	563,813	$	571,634

Held to Maturity:
Due in one year or less	$	-	$	-
Due after one year through five years		-		-
Due after five years through 10 years		47,972		47,830
Over 10 years		-		-
Total held to maturity securities	$	47,972	$	47,830

At March 31, 2013 $460.9 million of the Company's securities were pledged to secure public fund deposits.

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at March 31, 2013.

	Less Than 12 Months					12 Months or More					Total
(in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Available for sale:
U.S Treasuries	$	16,000	$	-		$	-	$	-		$	16,000	$	-
U.S. Government agencies		198,272		(658	)		-		-			198,272		(658	)
Corporate debt securities		11,276		(186	)		1,167		(51	)		12,443		(237	)
Mutual funds or other equity securities		-		-			-		-			-		-
Municipals		-		-			-		-			-		-
Total available for sale securities	$	225,548	$	(844	)	$	1,167	$	(51	)	$	226,715	$	(895	)

Held to maturity:
U.S. Government agencies	$	35,763	$	(214	)	$	-	$	-		$	35,763	$	(214	)
Total held to maturity securities	$	35,763	$	(214	)	$	-	$	-		$	35,763	$	(214	)

At March 31, 2013, 111 debt securities have gross unrealized losses of $1.1 million or 0.4% of amortized cost. The Company believes that it will collect all amounts contractually due and has the intent and the ability to hold these securities until the fair value is at least equal to the carrying value. The Company had 1 U.S. Treasury security, 56 U.S. Government agency securities and 49 corporate debt securities that had gross unrealized losses for less than 12 months. The Company had 5 debt securities which have been in a continuous unrealized loss position for 12 months or longer. All securities with unrealized losses greater than 12 months were classified as available for sale totaling $1.2 million. Securities with unrealized losses less than 12 months included $209.5 million classified as available for sale and $35.8 million in held to maturity agency securities.

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

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

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

The held to maturity portfolio is comprised of government sponsored enterprise securities such as FHLB, FNMA, FHLMC and FFCB. The securities have maturities of 15 years or less and the securities are used to collateralize public funds. As of March 31, 2013 public funds deposits totaled $445.6 million. The Company has maintained public funds in excess of $175.0 million since December 2007. Management believes that public funds will continue to be a significant part of the Company's deposit base and will need to be collateralized by securities in the investment portfolio.

Overall market declines, particularly in the banking and financial industries, 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, and the Company’s ability to continue as a going concern. If the Company is in bankruptcy, the status and potential outcome is also considered.

The Company believes that the securities with unrealized losses reflect impairment that is temporary and there are currently no securities with other-than-temporary impairment. There were no impairments recognized on securities during the three month periods ending March 31, 2013 or 2012.

At March 31, 2013, the Company's exposure to investment securities issuers that exceeded 10% of stockholders’ equity is as follows:

	At March 31, 2013
(in thousands)	Amortized Cost		Fair Value
U.S Treasury	$	26,000	$	26,000
Federal Home Loan Bank (FHLB)		133,081		132,918
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC)		23,977		23,844
Federal National Mortgage Association (Fannie Mae-FNMA)		137,047		136,907
Federal Farm Credit Bank (FFCB)		123,635		123,582
Total	$	443,740	$	443,251

Note 4. Loans

The following table summarizes the components of the Company's loan portfolio as of March 31, 2013 and December 31, 2012:

	March 31, 2013					December 31, 2012
(in thousands except for %)	Balance			As % of Category		Balance			As % of Category
Real Estate:
Construction & land development	$	49,378		7.5	%	$	44,856		7.1	%
Farmland		11,152		1.7	%		11,182		1.8	%
1- 4 Family		90,932		13.9	%		87,473		13.8	%
Multifamily		14,020		2.1	%		14,855		2.4	%
Non-farm non-residential		322,398		49.3	%		312,716		49.6	%
Total Real Estate		487,880		74.5	%		471,082		74.7	%
Non-Real Estate:
Agricultural		17,030		2.6	%		18,476		2.9	%
Commercial and industrial		126,925		19.4	%		117,425		18.6	%
Consumer and other		22,721		3.5	%		23,758		3.8	%
Total Non-Real Estate		166,676		25.5	%		159,659		25.3	%
Total loans before unearned income		654,556		100.0	%		630,741		100.0	%
Unearned income		(1,271	)				(1,241	)
Total loans net of unearned income	$	653,285				$	629,500

The following table summarizes fixed and floating rate loans by contractual maturity as of March 31, 2013 and December 31, 2012 unadjusted for scheduled principal payments, prepayments, or repricing opportunities. The average life of the loan portfolio may be substantially less than the contractual terms when these adjustments are considered.

	March 31, 2013							December 31, 2012
(in thousands)	Fixed		Floating		Total			Fixed		Floating		Total
One year or less	$	84,113	$	126,471	$	210,584		$	89,117	$	107,176	$	196,293
One to five years		161,671		157,548		319,219			147,896		175,743		323,639
Five to 15 years		54,882		33,922		88,804			33,770		42,595		76,365
Over 15 years		8,427		10,521		18,948			7,829		5,927		13,756
Subtotal	$	309,093	$	328,462		637,555		$	278,612	$	331,441		610,053
Nonaccrual loans						17,001							20,688
Total loans before unearned income						654,556							630,741
Unearned income						(1,271	)						(1,241	)
Total loans net of unearned income					$	653,285						$	629,500

The majority of floating rate loans have interest rate floors. As of March 31, 2013, $220.4 million of the floating rate loans were at the floor rate. Nonaccrual loans have been excluded from the calculation.

The following tables present the age analysis of past due loans at March 31, 2013 and December 31, 2012:

	As of March 31, 2013
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment 90 Days Accruing
Real Estate:
Construction & land development	$	53	$	254	$	307	$	49,071	$	49,378		$	-
Farmland		408		293		701		10,451		11,152			-
1 - 4 family		4,023		4,417		8,440		82,492		90,932			823
Multifamily		805		-		805		13,215		14,020			-
Non-farm non-residential		2,148		10,235		12,383		310,015		322,398			-
Total Real Estate		7,437		15,199		22,636		465,244		487,880			823
Non-Real Estate:
Agricultural		85		511		596		16,434		17,030			-
Commercial and industrial		108		2,114		2,222		124,703		126,925			-
Consumer and other		81		-		81		22,640		22,721			-
Total Non-Real Estate		274		2,625		2,899		163,777		166,676			-
Total loans before unearned income	$	7,711	$	17,824	$	25,535	$	629,021	$	654,556		$	823
Unearned income										(1,271	)
Total loans net of unearned income									$	653,285

	As of December 31, 2012
(in thousands)	30-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans			Recorded Investment 90 Days Accruing
Real estate:
Construction & land development	$	228	$	854	$	1,082	$	43,774	$	44,856		$	-
Farmland		96		312		408		10,774		11,182			-
1 - 4 family		4,895		5,058		9,953		77,520		87,473			455
Multifamily		156		-		156		14,699		14,855			-
Non-farm non-residential		1,137		11,571		12,708		300,008		312,716			-
Total Real Estate		6,512		17,795		24,307		446,775		471,082			455
Non-Real Estate:
Agricultural		-		512		512		17,964		18,476			-
Commercial and industrial		60		2,831		2,891		114,534		117,425			-
Consumer and other		115		5		120		23,638		23,758			-
Total Non-Real Estate		175		3,348		3,523		156,136		159,659			-
Total loans before unearned income	$	6,687	$	21,143	$	27,830	$	602,911	$	630,741		$	455
Unearned income										(1,241	)
Total loans net of unearned income									$	629,500

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

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

The following is a summary of nonaccrual loans by class as of the dates indicated:

in thousands)	As of March 31, 2013		As of December 31, 2012
Real Estate:
Construction & land development	$	254	$	854
Farmland		293		312
1 - 4 family		3,594		4,603
Multifamily		-		-
Non-farm non-residential		10,235		11,571
Total Real Estate		14,376		17,340
Non-Real Estate:
Agricultural		511		512
Commercial and industrial		2,114		2,831
Consumer and other		-		5
Total Non-Real Estate		2,625		3,348
Total Nonaccrual Loans	$	17,001	$	20,688

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

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. 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 is inadequately protected by the paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These loans require more intensive supervision by Management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigates. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and interest is no longer accrued. For loans with a consumer credit exposure, loans that are 90 days or more past due or that are nonaccrual are considered substandard.

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

The following table identifies the credit exposure of the loan portfolio by specific credit ratings as of the dates indicated:

	As of March 31, 2013											As of December 31, 2012
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total			Pass		Special Mention		Substandard		Doubtful		Total
Real Estate:
Construction & land development	$	37,723	$	4,938	$	6,717	$	-	$	49,378		$	29,654	$	5,595	$	9,607	$	-	$	44,856
Farmland		11,096		27		29		-		11,152			11,059		-		123		-		11,182
1 - 4 family		75,714		6,088		9,130		-		90,932			71,240		7,117		9,116		-		87,473
Multifamily		5,913		155		7,952		-		14,020			6,746		806		7,303		-		14,855
Non-farm non-residential		285,838		14,003		22,557		-		322,398			274,970		10,605		27,141		-		312,716
Total real estate		416,284		25,211		46,385		-		487,880			393,669		24,123		53,290		-		471,082
Non-Real Estate:
Agricultural		16,525		75		430		-		17,030			17,969		75		432		-		18,476
Commercial and industrial		119,666		3,037		4,222		-		126,925			108,590		3,834		5,001		-		117,425
Consumer and other		22,522		130		69		-		22,721			23,560		140		58		-		23,758
Total Non-Real Estate		158,713		3,242		4,721		-		166,676			150,119		4,049		5,491		-		159,659
Total loans before unearned income	$	574,997	$	28,453	$	51,106	$	-	$	654,556		$	543,788	$	28,172	$	58,781	$	-	$	630,741
Unearned income										(1,271	)										(1,241	)
Total loans net of unearned income									$	653,285										$	629,500

Note 5. Allowance for Loan Losses

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

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

A summary of changes in the allowance for loan losses, by portfolio type, for the three months ended March 31, 2013 and 2012 are as follows:

	As of March 31, 2013
	Real Estate Loans:														Non-Real Estate Loans:
(in thousands)	Construction and Land Development			Farmland			1-4 Family			Multi-family		Non-farm non-residential			Agricultural			Commercial and Industrial			Consumer and other			Unallocated		Total
Allowance for Credit Losses:
Beginning balance (12/31/12)	$	1,098		$	50		$	2,239		$	284	$	3,666		$	64		$	2,488		$	233		$	220	$	10,342
Charge offs		(219	)		-			(68	)		-		(898	)		-			(679	)		(65	)		-		(1,929	)
Recoveries		1			-			22			-		1			1			4			61			-		90
Provision		338			(13	)		(1	)		-		246			(2	)		182			(18	)		172		904
Ending Balance	$	1,218		$	37		$	2,192		$	284	$	3,015		$	63		$	1,995		$	211		$	392	$	9,407

	As of March 31, 2012
	Real Estate Loans:												Non-Real Estate Loans:
(in thousands)	Construction and Land Development			Farmland		1-4 Family			Multi-family		Non-farm non-residential		Agricultural			Commercial and Industrial			Consumer and other			Unallocated		Total
Allowance for Credit Losses:
Beginning balance (12/31/11)	$	1,002		$	65	$	1,917		$	780	$	2,980	$	125		$	1,407		$	314		$	289	$	8,879
Charge offs		(53	)		-		(71	)		-		-		(7	)		(100	)		(155	)		-		(386	)
Recoveries		5			-		11			-		106		-			40			97			-		259
Provision		304			32		212			63		191		(13	)		290			57			64		1,200
Ending Balance	$	1,258		$	97	$	2,069		$	843	$	3,277	$	105		$	1,637		$	313		$	353	$	9,952

	As of March 31, 2013
	Real Estate Loans:										Non-Real Estate Loans:
(in thousands)	Construction and Land Development		Farmland		1-4 Family		Multi-family		Non-farm non-residential		Agricultural		Commercial and Industrial		Consumer and other		Unallocated		Total
Allowance individually evaluated for impairment	$	905	$	-	$	33	$	256	$	751	$	-	$	-	$	-	$	-	$	1,945
Allowance collectively evaluated for impairment		313		37		2,159		28		2,264		63		1,995		211		392		7,462
Allowance at March 31, 2013	$	1,218	$	37	$	2,192	$	284	$	3,015	$	63	$	1,995	$	211	$	392	$	9,407


Loans individually evaluated for impairment	$	6,254	$	-	$	1,142	$	7,953	$	21,270	$	-	$	3,647	$	-			$	40,266
Loans collectively evaluated for impairment		43,124		11,152		89,790		6,067		301,128		17,030		123,278		22,721				614,290
Loans at March 31, 2013 (before unearned income)	$	49,378	$	11,152	$	90,932	$	14,020	$	322,398	$	17,030	$	126,925	$	22,721			$	654,556
Unearned income																				(1,271	)
Total loans net of unearned income																			$	653,285

	As of December 31, 2012
	Real Estate Loans:										Non-Real Estate Loans:
(in thousands)	Construction and Land Development		Farmland		1-4 Family		Multi-family		Non-farm non-residential		Agricultural		Commercial and Industrial		Consumer and other		Unallocated		Total
Allowance individually evaluated for impairment	$	713	$	-	$	91	$	244	$	1,535	$	-	$	507	$	-	$	-	$	3,090
Allowance collectively evaluated for impairment		385		50		2,148		40		2,131		64		1,981		233		220		7,252
Allowance at December 31, 2012	$	1,098	$	50	$	2,239	$	284	$	3,666	$	64	$	2,488	$	233	$	220	$	10,342


Loans individually evaluated for impairment	$	8,865	$	-	$	2,126	$	7,302	$	25,904	$	-	$	4,390	$	-			$	48,587
Loans collectively evaluated for impairment		35,991		11,182		85,347		7,553		286,812		18,476		113,035		23,758				582,154
Loans at December 31, 2012 (before unearned income)	$	44,856	$	11,182	$	87,473	$	14,855	$	312,716	$	18,476	$	117,425	$	23,758			$	630,741
Unearned income																				(1,241	)
Total loans net of unearned income																			$	629,500

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. 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.

The following is a summary of impaired loans by class as of the date indicated:

	As of March 31, 2013
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real Estate:
Construction & land development	$	3,168	$	3,173	$	-	$	5,601	$	892	$	879
Farmland		-		-		-		-		-		-
1 - 4 family		440		440		-		568		41		50
Multifamily		650		650		-		166		11		-
Non-farm non-residential		3,594		4,005		-		10,655		1,145		1,147
Total Real Estate		7,852		8,268		-		16,990		2,089		2,076
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		3,647		3,651		-		3,900		82		161
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		3,647		3,651		-		3,900		82		161
Total Impaired Loans with no related allowance		11,499		11,919		-		20,890		2,171		2,237

Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development		3,086		3,086		905		3,086		118		105
Farmland		-		-		-		-		-		-
1 - 4 family		702		874		33		420		66		66
Multifamily		7,303		7,303		256		7,302		969		961
Non-farm non-residential		17,676		20,634		751		14,990		1,068		1,015
Total real estate		28,767		31,897		1,945		25,798		2,221		2,147
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		-		-		-		-		-		-
Total Impaired Loans with an allowance recorded		28,767		31,897		1,945		25,798		2,221		2,147

Total Impaired Loans	$	40,266	$	43,816	$	1,945	$	46,688	$	4,392	$	4,384

The following is a summary of impaired loans by class as of the date indicated:

	As of December 31, 2012
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real Estate:
Construction & land development	$	3,177	$	3,177	$	-	$	4,012	$	414	$	404
Farmland		-		-		-		-		-		-
1 - 4 family		1,516		2,176		-		2,102		162		73
Multifamily		1,351		1,351		-		1,355		103		110
Non-farm non-residential		2,936		2,982		-		5,963		427		287
Total Real Estate		8,980		9,686		-		13,432		1,106		874
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		3,734		3,734		-		1,098		117		87
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		3,734		3,734		-		1,098		117		87
Total Impaired Loans with no related allowance		12,714		13,420		-		14,530		1,223		961

Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development		5,688		5,688		713		3,677		406		418
Farmland		-		-		-		-		-		-
1 - 4 family		610		776		91		732		70		67
Multifamily		5,951		5,951		244		5,998		597		593
Non-farm non-residential		22,968		25,720		1,535		24,669		2,616		2,711
Total real estate		35,217		38,135		2,583		35,076		3,689		3,789
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		656		656		507		786		94		-
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		656		656		507		786		94		-
Total Impaired Loans with an allowance recorded		35,873		38,791		3,090		35,862		3,783		3,789

Total Impaired Loans	$	48,587	$	52,211	$	3,090	$	50,392	$	5,006	$	4,750

Troubled Debt Restructurings

A Troubled Debt Restructuring ("TDR") is considered such if the creditor for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The modifications to the Company's TDRs were concessions on the interest rate charged. The effect of the modifications to the Company was a reduction in interest income. These loans have an allocated reserve in the Company's reserve for loan losses. The Company has not restructured any loans that are considered troubled debt restructurings in the prior twelve months.

The following table identifies the Troubled Debt Restructurings as of March 31, 2013 and December 31, 2012:

Troubled Debt Restructurings	March 31, 2013								December 31, 2012
	Accruing Loans								Accruing Loans
(in thousands)	Current		30-89 Days Past Due		Nonaccrual		Total TDRs		Current		30-89 Days Past Due		Nonaccrual		Total TDRs
Real Estate:
Construction & land development	$	-	$	-	$	-	$	-	$	2,602	$	-	$	-	$	2,602
Farmland		-		-		-		-		-		-		-		-
1-4 Family		-		-		-		-		-		-		1,296		1,296
Multifamily		5,951		-		-		5,951		5,951		-		-		5,951
Non-farm non residential		3,007		-		324		3,331		6,103		-		678		6,781
Total Real Estate		8,958		-		-		9,282		14,656		-		1,974		16,630
Non-Real Estate:
Agricultural		-		-		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-		-		-
Total Non-Real Estate		-		-		-		-		-		-		-		-
Total	$	8,958	$	-	$	324	$	9,282	$	14,656	$	-	$	1,974	$	16,630

The following table discloses TDR activity for the three months ended March 31, 2013.

	Real Estate Loans:													Non-Real Estate Loans:
(in thousands)	Construction and Land Development			Farmland		1-4 family			Multi-family		Non-farm non-residential			Agricultural		Commercial and Industrial		Consumer and other		Total
Beginning balance of TDRs (12/31/2012)	$	2,602		$	-	$	1,296		$	5,951	$	6,781		$	-	$	-	$	-	$	16,630
New TDRs		-			-		-			-		-			-		-		-		-
Charge-offs post-modification		-			-		-			-		(355	)		-		-		-		(355	)
Transferred to ORE							(1,075	)													(1,075	)
Paydowns		-			-		-			-		-			-		-		-		-
Construction to permanent financing		-			-		-			-		-			-		-		-		-
Restructured to market terms		(2,602	)		-		(221	)		-		(3,095	)		-		-		-		(5.918	)
Ending balance of TDRs (3/31/2013)	$	-		$	-	$	-		$	5,951	$	3,331		$	-	$	-	$	-	$	9,282

Note 6. Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing. Other intangible assets continue to be amortized over their useful lives. The Company's goodwill is the difference in purchase price over the fair value of net assets acquired from the Homestead Bancorp in 2007. Goodwill totaled $2.0 million at March 31, 2013 and December 31, 2012. No impairment charges have been recognized on the Company's intangible assets. Mortgage servicing rights were relatively unchanged totaling $0.2 million at March 31, 2013 and December 31, 2012. Other intangible assets recorded include core deposit intangibles, which are subject to amortization. The weighted-average amortization period remaining for the Company's core deposit intangibles is 7.0 years. The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions.

Note 7. Other Real Estate (ORE)

Other real estate owned consists of the following at the dates indicated:

(in thousands)	March 31, 2013		December 31, 2012
Real Estate Owned Acquired by Foreclosure:
Residential	$	2,067	$	1,186
Construction & land development		1,103		1,083
Non-farm non-residential		1,239		125
Total Other Real Estate Owned and Foreclosed Property	$	4,409	$	2,394

The increase in other real estate owned is due to the additions of a $1.1 million residential property, a $0.3 million residential property, and a $0.8 million commercial property.

Note 8. Commitments and Contingencies

Off-balance sheet commitments

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

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

Below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at March 31, 2013 and December 31, 2012:

Contract Amount
(in thousands)	March 31, 2013		December 31, 2012
Commitments to Extend Credit	$	25,388	$	26,775
Unfunded Commitments under lines of credit	$	79,923	$	71,423
Commercial and Standby letters of credit	$	5,525	$	5,470

Litigation

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

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

Note 9. Fair Value

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

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

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

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

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

Securities available for sale. Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified Level 3 in the Company's portfolio as of March 31, 2013 includes municipal bonds and one preferred equity security.

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

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

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

The following table summarizes financial assets measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)	March 31, 2013		December 31, 2012
Securities available for sale measured at fair value	$	571,634	$	602,300
Fair Value Measurements Using:
Quoted Prices in Active Markets For Identical Assets (Level 1)	$	53,518	$	20,522
Significant Other Observable Inputs (Level 2)	$	509,916	$	573,071
Significant Unobservable Inputs (Level 3)	$	8,200	$	8,707

The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value.

There were no transfers out of or into Level 1 during the first quarter of 2013.

The change in Level 3 securities available for sale from December 31, 2012 was due to the sale of a Level 3 security totaling $0.5 million.

The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of March 31, 2013 and December 31, 2012, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)	At March 31, 2013		At December 31, 2012
Impaired loans measured at fair value	$	28,767	$	35,873
Fair Value Measurements Using:
Quoted Prices in Active Markets For Identical Assets (Level 1)	$	-	$	-
Significant Other Observable Inputs (Level 2)	$	8,534	$	8,563
Significant Unobservable Inputs (Level 3)	$	20,233	$	27,310

Other real estate owned measured at fair value	$	4,409	$	2,394
Fair Value Measurements Using:
Quoted Prices in Active Markets For Identical Assets (Level 1)	$	-	$	-
Significant Other Observable Inputs (Level 2)	$	4,409	$	2,394
Significant Unobservable Inputs (Level 3)	$	-	$	-

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

The Company has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States, and as such has not included any gains or losses in earnings for the three months ended March 31, 2013.

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

The following management discussion and analysis is intended to highlight the significant factors affecting the Company's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at March 31, 2013 and for the three months ended March 31, 2013 and 2012 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly the Company's financial position and results of operations for such periods.

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

Special Note Regarding Forward-Looking Statements

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

First Quarter 2013 Financial Overview

Financial highlights for the three month periods of 2013 and 2012 are as follows:

●	Net income for the first quarter of 2013 and 2012 was $2.1 million and $3.1 million, respectively. Net income to common shareholders after preferred stock dividends was $1.8 million and $2.6 million for the first quarter of 2013 and 2012, with earnings per common share of $0.29 and $0.41, respectively. The decrease in net income for the first quarter of 2013 when compared to the first quarter of 2012 was primarily the result of a decrease in interest income from securities investments. The decrease in interest income on securities is the result of lower volume and lower yield due to investments in shorter term securities.

●	Net interest income for the first quarter of 2013 and 2012 was $9.6 million and $10.9 million, respectively. The net interest margin was 2.85% for the first quarter 2013 and 3.31% for the same period in 2012.

●	The provision for loan losses for the first quarter of 2013 was $0.9 million compared to $1.2 million for the first quarter of 2012.

●	Total assets at March 31, 2013 were $1.4 billion; a decrease of $23.6 million or 1.7% from December 31, 2012. The decrease in assets was primarily from a decrease in deposits.

●	Investment securities totaled $619.6 million at March 31, 2013, a decrease of $41.6 million when compared to $661.2 million at December 31, 2012. At March 31, 2013, available for sale securities, at fair value, totaled $571.6 million; a decrease of $30.7 million when compared to $602.3 million at December 31, 2012. At March 31, 2013, held to maturity securities, at amortized cost, totaled $48.0 million; a decrease of $11.0 million when compared to $58.9 million at December 31, 2012.

●	The net loan portfolio at March 31, 2013 totaled $643.9 million, a net increase of $24.7 million from the December 31, 2012 net loan portfolio of $619.2 million. Loans are reduced by the allowance for loan losses which totaled $9.4 million for March 31, 2013 and $10.3 million for December 31, 2012.

●	Total impaired loans decreased $8.3 million at March 31, 2013 to $40.3 million compared to $48.6 million at December 31, 2012.

●	Loans classified as Troubled Debt Restructurings ("TDRs") decreased $7.3 million to $9.3 million from $16.6 million at December 31, 2012.

●	Total deposits decreased $24.8 million or 2.0% at March 31, 2013 compared to December 31, 2012. This decrease is from seasonal fluctuation of public fund deposits.

●	Return on average assets for the three months ended March 31, 2013 and March 31, 2012 was 0.60% and 0.90%, respectively. Return on average common shareholders’ equity, adjusted for preferred stock dividends, for the three months ended March 31, 2013 and March 31, 2012 was 7.69% and 11.57%, respectively. Return on average assets is calculated by dividing annualized 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 a cash dividend of $0.16 per common share in the first quarter of 2013 and 2012.

●	Other real estate increased $2.0 million to $4.4 million at March 31, 2013 from $2.4 million at December 31, 2012. The increase in other real estate owned is due to the additions of a $1.1 million residential property, a $0.3 million residential property, and a $0.8 million commercial property.

●	Book value per common share was $15.05 as of March 31, 2013 compared to $15.06 as of December 31, 2012. The decrease in book value per share is a result of the decrease in the unrealized gain on available for sale securities.

●	Preferred stock dividends from participation in the U.S. Treasury's Small Business Lending Fund ("SBLF") decreased $0.2 million to $0.3 million for the first quarter of 2013 compared to $0.5 million for the same period in 2012. The reduction was due to the increase in qualified small business loans.

Financial Condition

Changes in Financial Condition from December 31, 2012 to March 31, 2013

General.

Total assets as of March 31, 2013 were $1.4 billion; a decrease $23.6 million or 1.7% from December 31, 2012. The decrease in assets represent a decrease in deposits.

Investment Securities.

Investment securities at March 31, 2013 totaled $619.6 million, a decrease of $41.6 million compared to $661.2 million at December 31, 2012. The decrease is attributed to the call of agency bonds and the sale of corporate securities. These funds were used for our seasonal public funds decrease and the residual was invested in loans. The investment portfolio consisted of available for sale securities at their fair market value total of $571.6 million and held to maturity securities at amortized cost total of $48.0 million.

The securities portfolio consisted principally of U.S. Government agency securities, corporate debt securities and municipal bonds. The securities portfolio provides the Company with a relatively stable source of income and provides a balance to credit risk when compared to other categories of assets. Management monitors the securities portfolio for both credit and interest rate risk. The Company generally limits the purchase of corporate securities to individual issuers to manage concentration and credit risk. Corporate securities generally have a maturity of 10 years or less. Government agency securities generally have maturities of 15 years or less. Corporate securities held at fair value totaled $156.0 million at March 31, 2013. U.S. Government Agency securities that were held at fair value totaled $369.4 million at March 31, 2013. Agency securities that were held for maturity and carried at amortized cost totaled $48.0 million at March 31, 2013. The fair value of held to maturity agency securities was $47.8 million at March 31, 2013.

At March 31, 2013, $51.8 million or 8.4% of the securities portfolio was scheduled to mature in less than one year. Securities with contractual maturity dates over 10 years totaled $45.5 million or 7.3% of the total portfolio. The weighted average contractual maturity of the securities portfolio was 6.0 years at March 31, 2013 compared to 7.0 years at December 31, 2012. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates.

Average securities as a percentage of average interest-earning assets were 47.9% for the three month period ended March 31, 2013 and 51.2% for the same period in 2012. At March 31, 2013, the U.S Government agency securities and municipal bonds qualified as securities pledgeable to collateralize repurchase agreements and public funds. Securities pledged totaled $460.9 million at March 31, 2013 and $476.5 million at December 31, 2012. See Note 3 of the Notes to Consolidated Financial Statements for more information on investment securities.

Loans.

Average loans as a percentage of average interest-earning assets were 46.2% for the three month period ended March 31, 2013 and 43.5% for the same period in 2012. Loans increased $24.7 million or 4.0% from $619.2 million at December 31, 2012. As we have increased our loans to qualified small businesses, as a part of the SBLF program, our preferred dividend on our SBLF capital has decreased to $0.3 million for the first quarter of 2013 from $0.5 million for each quarter in 2012. We expect loans to increase and, consequently, our preferred dividend to continue to decrease throughout 2013. The dividend is expected to be $0.2 million for the second quarter of 2013. There are no significant concentrations of credit to any individual borrower. As of March 31, 2013, 74.5% of our loan portfolio was secured primarily or secondarily by real estate. The largest portion of our loan portfolio, at 49.3%, is non-farm non-residential loans secured by real estate.

Net loans are reduced by the allowance for loan losses which totaled $9.4 million for March 31, 2013 and $10.3 million for December 31, 2012. Loan charge offs totaled $1.9 million during the first three months of 2013, compared to $0.4 million during the same period of 2012. Recoveries totaled $0.1 million during the first three months of 2013 and $0.3 million during the first three months of 2012. See Note 4 of the Notes to Consolidated Financial Statements for more information on loans and Note 5 for information on the allowance for loan losses.

Nonperforming Assets.

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

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

(in thousands)	March 31, 2013			December 31, 2012
Nonaccrual loans:
Real Estate:
Construction and land development	$	254		$	854
Farmland		293			312
1 - 4 family residential		3,594			4,603
Multifamily		-			-
Non-farm non-residential		10,235			11,571
Total Real Estate		14,376			17,340
Non-Real Estate:
Agricultural		511			512
Commercial and industrial		2,114			2,831
Consumer and other		-			5
Total Non-Real Estate		2,625			3,348
Total nonaccrual loans		17,001			20,688

Loans 90 days and greater delinquent & accruing:
Real Estate:
Construction and land development		-			-
Farmland		-			-
1 - 4 family residential		823			455
Multifamily		-			-
Non-farm non-residential		-			-
Total Real Estate		823			455
Non-Real Estate:
Agricultural		-			-
Commercial and industrial		-			-
Consumer and other		-			-
Total Non-Real Estate		-			-
Total loans 90 days and greater delinquent & accruing		823			455

Total non-performing loans	$	17,824		$	21,143

Real Estate Owned:
Real Estate Loans:
Construction and land development		1,103			1,083
Farmland		-			-
1 - 4 family residential		2,067			1,186
Multifamily		-			-
Non-farm non-residential		1,239			125
Total Real Estate		4,409			2,394
Non-Real Estate Loans:
Agricultural		-			-
Commercial and industrial		-			-
Consumer and other		-			-
Total Non-Real Estate		-			-
Total Real Estate Owned		4,409			2,394

Total non-performing assets	$	22,233		$	23,537

Non-performing assets to total loans		3.40	%		3.74	%
Non-performing assets to total assets		1.61	%		1.67	%

(in thousands)	March 31, 2013		December 31, 2012
Restructured Loans:
In Compliance with Modified Terms	$	8,958	$	14,656
Past Due 30 through 89 days and still accruing		-		-
Past Due 90 days and greater and still accruing		-		-
Nonaccrual		324		221
Restructured Loans that subsequently defaulted		-		1,753
Total Restructured Loans	$	9,282	$	16,630

At March 31, 2013, nonperforming assets totaled $22.2 million compared to $23.5 million at December 31, 2012; a decrease of 5.5% or $1.3 million. Management has not identified additional information on any loans not already included in impaired loans or the nonperforming assets 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. Nonperforming assets consist of loans 90 days or greater delinquent and still accruing, nonaccrual loans, and other real estate.

At March 31, 2013 loans 90 days or greater delinquent and still accruing totaled $0.8 million; an increase of $0.4 million or 80.9% compared to the $0.5 million total at December 31, 2012. This increase is due to the addition of $0.4 million of loans in the 1-4 family residential category that were 90 days or greater delinquent and still accruing at March 31, 2013.

At March 31, 2013 nonaccrual loans totaled $17.0 million; a decrease of $3.7 million or 17.8% compared to December 31, 2012 nonaccrual loans of $20.7 million. Nonaccrual loans were concentrated in 4 credit relationships for a total of $9.2 million or 54.2% of nonaccrual loans at March 31, 2013. This is compared to a concentration of 6 credit relationships in 2012 of $12.6 million or 60.8% of total nonaccrual loans.

Other real estate owned at March 31, 2013 totaled $4.4 million; an increase of $2.0 million from $2.4 million at December 31, 2012. The increase in other real estate owned is due to the addition of a $1.1 million residential property, a $0.3 million residential property, and a $0.8 million commercial property.

Allowance for Loan Losses.

The allowance for loan losses is maintained 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 commensurate with Management’s evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when determining the amount of the provision and the adequacy of the allowance. These factors include but are not limited to:

●	past due and nonperforming assets;
●	specific internal analysis of loans requiring special attention;
●	the current level of regulatory classified and criticized assets and the associated risk factors with each;
●	changes in underwriting standards or lending procedures and policies;
●	charge off and recovery practices;
●	national and local economic and business conditions;
●	nature and volume of loans;
●	overall portfolio quality;
●	adequacy of loan collateral;
●	quality of loan review system and degree of oversight by its Board of Directors;
●	competition and legal and regulatory requirements on borrowers;
●	examinations of the loan portfolio by federal and state regulatory agencies and examinations;
●	and review by our internal loan review department and independent accountants.

The data collected from all sources in determining the 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, and impaired. 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. Also, a specific reserve is allocated for our syndicated loans. The general component covers non-classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect Management's estimate of probable losses.

Provisions made pursuant to these processes totaled $0.9 million in the first three months of 2013 as compared to $1.2 million for the same period in 2012. The provisions made in the first three months of 2013 were taken to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. Total charge-offs were $1.9 million for first three months of 2013 as compared to $0.4 million for the same period in 2012. Recoveries totaled $0.1 million during the first three months of 2013 and $0.3 million during the first three months of 2012. For more information, see Note 5 to Consolidated Financial Statements.

Comparing March 31, 2013 to March 31, 2012, the decline in allowance provision is attributed to improvement in the credit quality of the loan portfolio and to the fact that the impaired loan portfolio did not suffer additional declines in estimated fair value. The credit quality improvements were across most loan portfolio types with the largest improvement in non-farm non-residential loans, commercial and industrial loans, and construction and land development.

The Company charged off $1.9 million in loan balances for the first quarter of 2013. The charged off loan balances were concentrated in 3 loan relationships which totaled $1.4 million or 70.2% of the total charged off amount. The details of the charged off loans in excess of $0.3 million are as follows:

1.	A $0.7 million charge-off was recorded for a commercial loan secured by accounts receivable and equipment. The loan had a balance of $0.7 million with a specific reserve of $0.5 million at December 31, 2012. Analysis of the credit indicated that additional charges were needed in the first quarter.
2.	A $0.4 million charge-off was recorded for a loan secured by real estate and accounts receivable. This loan had a recorded balance of $0.7 million at December 31, 2012 and a remaining recorded balance of $0.3 million as of March 31, 2013.
3.	A $0.3 million charge-off was recorded for a loan secured by owner occupied real estate that was foreclosed upon in the first quarter of 2013 and moved to other real estate owned. This loan had a recorded balance of $1.3 at December 31, 2012. The balance in other real estate owned was $0.8 million as of March 31, 2013.

The remaining $0.6 million of charge-offs for the first quarter of 2013 were comprised of smaller loans and overdrawn deposit accounts.

As of March 31, 2013, the Company had classified $40.3 million in loans as impaired compared to $48.6 million as of December 31, 2012. The $8.3 million reduction in impaired loans was principally due to a $5.7 million credit relationship that was no longer considered impaired in the first quarter of 2013. $1.4 million of the reduction in impaired loans was due to charge-offs. $0.8 million was due to loans being transferred to other real estate owned.

All accrued but uncollected interest related to a loan is deducted from income in the period the loan is placed on nonaccrual. During the period a loan is in nonaccrual status, any cash receipts are first applied to the principal balance. Once the principal balance has been fully recovered, any residual amounts are applied to expenses resulting from the collection of the payment and to the recovery of any reversed interest income and interest income that would have been due had the loan not been nonaccrual. As of March 31, 2013 and December 31, 2012 the Company had nonaccrual loans totaling $17.0 million and $20.7 million, respectively. The allowance for loan losses at March 31, 2013 was $9.4 million or 1.44% of total loans and 52.8% of nonperforming loans. See Note 4 and 5 of the Notes to Consolidated Financial Statements for more information on loans and the allowance for loan losses.

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

(in thousands)	March 31, 2013			March 31, 2012
Loans:
Average outstanding balance	$	629,753		$	572,683
Balance at end of period	$	653,285		$	577,233

Allowance for Loan Losses:
Balance at beginning of year	$	10,342		$	8,879
Charge offs		(1,929	)		(386	)
Recoveries		90			259
Provision		904			1,200
Balance at end of period	$	9,407		$	9,952

Deposits.

Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. In this regard, management regularly assesses our funding needs, deposit pricing and interest rate outlooks. From December 31, 2012 to March 31, 2013, total deposits decreased $24.8 million, or 2.0%, to $1.2 billion at March 31, 2013. Noninterest-bearing demand deposits decreased $1.6 million from December 31, 2012 to March 31, 2013. Interest-bearing demand deposits decreased by $26.7 million when comparing March 31, 2013 to December 31, 2012. Time deposits increased $2.1 million, or 0.3% to $650.5 million at March 31, 2013, compared to $648.4 million at December 31, 2012.

At March 31, 2013, public fund deposits totaled $445.6 million. During the first three months of 2013, public fund deposits decreased $24.8 million. This decrease is due to the seasonal fluctuation of public funds. The Company has developed a program for the development and management of public fund deposits. Since 2007, the Company has maintained public fund deposits in excess of $175.0 million. These deposits are from local government entities such as school districts, hospital districts, sheriff departments and other municipalities. Several of these accounts are under contracts with terms up to three years. Public funds deposit accounts are collateralized by FHLB letters of credit and by eligible government agency securities such as those issued by the FHLB, FFCB, FNMA, and FHLMC. Management believes that public funds provide a low cost and stable source of funding for the Company.

As of March 31, 2013, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $427.7 million. At March 31, 2013, approximately $250.9 million of the Company's certificates of deposit had a remaining term greater than one year.

As we seek to maintain a strong net interest margin and improve our earnings, attracting core noninterest-bearing deposits will remain a 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.

					Increase/(Decrease)
(in thousands except for %)	March 31, 2013		December 31, 2012		Amount			Percent
Noninterest-bearing demand	$	190,642	$	192,232	$	(1,590	)	-0.8	%
Interest-bearing demand		322,124		348,870		(26,746	)	-7.7	%
Savings		64,510		63,062		1,448		2.3	%
Time		650,514		648,448		2,066		0.3	%
Total deposits	$	1,227,790	$	1,252,612	$	(24,822	)	-2.0	%

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

(in thousands)	March 31, 2013
Time deposits of less than $100,000	$	222,676
Time deposits of $100,000 through $250,000	$	167,228
Time deposits of more than $250,000	$	260,610
Total Time Deposits	$	650,514

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

(in thousands except for %)	March 31, 2013			December 31, 2012			December 31, 2011			December 31, 2010			December 31, 2009
Total Public Funds	$	445,654		$	470,498		$	431,905		$	356,153		$	268,474
Total Deposits	$	1,227,790		$	1,252,612		$	1,207,302		$	1,007,383		$	799,746
Total Public Funds as a percent of Total Deposits		36.3	%		37.6	%		35.8	%		35.4	%		33.6	%

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 March 31, 2013, short-term borrowings totaled $14.7 million which is unchanged from December 31, 2012, and consisted of repurchase agreements of $12.9 million and a line of credit totaling $1.8 million. Overnight repurchase agreement balances are monitored daily for sufficient collateralization. The Company had long-term borrowings totaling $1.0 million as of March 31, 2013 and $1.1 million at December 31, 2012.

The average amount of total short-term borrowings for the three months ended March 31, 2013 totaled $14.8 million, compared to $13.0 million for the three months ended March 31, 2012. At March 31, 2013, the Company had $60.0 million in Federal Home Loan Bank letters of credit outstanding obtained solely for collateralizing public deposits.

Equity.

Stockholders’ equity provides a source of permanent funding, allows for future growth and the ability to absorb unforeseen adverse developments. Total equity decreased to $134.1 million as of March 31, 2013 from $134.2 million at December 31, 2012. The decrease in stockholders' equity was the result of the decrease in other comprehensive income totaling $0.9 million. This decrease was partially offset by earnings for the first quarter of $2.1 million. The earnings for the quarter are reduced by common dividends of $1.0 million and preferred dividends of $0.3 million for a total addition to the Company's retained earnings of $0.8 million.

Results of Operations for the Three Months Ended March 31, 2013 and 2012

Net Income.

Net Income for the three months ended March 31, 2013 was $2.1 million, a decrease of $1.0 million or 31.5% from $3.1 million for the three months ended March 31, 2012. Net income available to common shareholders for the three months ended March 31, 2013 was $1.8 million which is a decrease of $0.8 million from $2.6 million for the same period in 2012. The decrease in income can mainly be attributed to a $2.3 million decrease in securities interest income for the first quarter of 2013 compared to 2012. The decrease in securities interest income is due to the shortening of the contractual maturity of our securities portfolio. Interest and fee income on loans was $9.1 million for the three month period ended March 31, 2013; an increase of $0.3 million from $8.8 million for the same period in 2012. The increase in loan interest income can be mainly attributed to an increase in the volume of loans when compared to March 31, 2012. Interest expense for the first three months of 2013 totaled $2.9 million, a decrease of $0.6 million from $3.6 million for the first three months of 2012. The changes in interest earnings and expenses resulted in a net interest income decrease of $1.3 million to $9.6 million for the first quarter of 2013 when compared to $10.9 million for the same period in 2012. The provision for loan losses decreased $0.3 million from $1.2 million for the first quarter of 2012 to $0.9 million in the first quarter of 2013. Net gains on securities for the first quarter of 2013 and 2012 were $0.8 million and $0.7 million, respectively. Noninterest expense increased $0.5 million primarily from increased salaries expense as well as increases in various noninterest other expenses. The provision for income tax expense decreased by $0.5 million to $1.1 million for the first quarter of 2013 compared to $1.6 million for the same period in 2012. The decrease in tax expense is a result of the decrease in income for the quarter. Earnings per common share for the three months ended March 31, 2013 were $0.29, a decrease of $0.12, or 29.3% per common share from $0.41 per common share for the three months ended March 31, 2012.

Net Interest Income.

Net interest income is the largest component of our earnings, and is calculated by subtracting the cost of interest-bearing liabilities from the income earned on interest-earning assets. This represents the earnings from our primary business of gathering deposits, and making loans and investments. Our long-term objective is to manage this income to generate optimal income that balances interest rate risk, credit risk, and liquidity risks.

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

Net interest income in the first quarter of 2013 was $9.6 million, a decrease of $1.3 million or 11.7%, when compared to $10.9 million in 2012. For the first quarter of 2013, loans and securities made up 46.2% and 47.9% of the average interest-earning assets, respectively; 50.3% of our loans are floating rate loans which are primarily tied to the prime lending rate or the London Inter-Bank Offered Rate (LIBOR). For the same period in 2012 loans and securities represented 43.5% and 51.2% of interest-earning assets, respectively. The cost of our interest-bearing liabilities reflects a lower cost of funds paid on interest-bearing deposits. As of March 31, 2013, time deposits represented 53.0% of total deposits, which is a decrease from 55.1% of total deposits at March 31, 2012.

The average yield on interest-earning assets decreased from 4.4% at March 31, 2012 to 3.7% at March 31, 2013. This is largely attributable to the 1.3% decrease in the average yield on securities from 3.4% at March 31, 2012 to 2.1% at March 31, 2013. The average yield on securities decreased due to calls of securities in which the funds were re-deployed into shorter term securities that carry lower yields. The interest-bearing liabilities average cost decreased to 1.1% at March 31, 2013, compared to 1.4% at March 31, 2012. The average borrowing costs increased slightly from 0.97% at March 31, 2012 to 0.98% at March 31, 2013. This is due to the Company drawing $1.8 million on its revolving line of credit. The net yield on interest-earning assets was 2.61% for the three months ended March 31, 2013, compared to 3.05% for the same period in 2012.

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

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. 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 set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	March 31, 2013						March 31, 2012
(in thousands except for %)	Average Balance		Interest		Yield/Rate		Average Balance		Interest		Yield/Rate
Assets
Interest-earning assets:
Interest-earning deposits with banks	$	78,610	$	40	0.21	%	$	38,799	$	15	0.16	%
Securities (including FHLB stock)		653,150		3,368	2.09	%		673,414		5,630	3.35	%
Federal funds sold		2,930		-	-	%		30,936		4	0.05	%
Loans, net of unearned income		629,753		9,096	5.86	%		572,683		8,773	6.14	%
Total interest-earning assets	$	1,364,443	$	12,504	3.72	%	$	1,315,832	$	14,422	4.40	%

Noninterest-earning assets:
Cash and due from banks	$	9,869					$	10,134
Premises and equipment, net		19,539						19,906
Other assets		7,099						13,990
Total Assets	$	1,400,950					$	1,359,862

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Demand deposits	$	341,175	$	362	0.43	%	$	309,948	$	343	0.44	%
Savings deposits		63,897		14	0.09	%		58,115		13	0.09	%
Time deposits		650,558		2,506	1.56	%		676,731		3,173	1.88	%
Borrowings		15,787		38	0.98	%		16,163		39	0.97	%
Total interest-bearing liabilities	$	1,071,417	$	2,920	1.11	%	$	1,060,957	$	3,568	1.35	%

Noninterest-bearing liabilities:
Demand deposits	$	189,832					$	164,808
Other		5,096						5,459
Total Liabilities	$	1,266,345					$	1,231,224

Stockholders' equity	$	134,605					$	128,638
Total Liabilities and Stockholders'	$	1,400,950					$	1,359,862
Net interest income			$	9,584					$	10,854

Net interest rate spread (1)					2.61	%					3.05	%
Net interest-earning assets (2)	$	293,026					$	254,875
Net interest margin (3)					2.85	%					3.31	%

Average interest-earning assets to interest-bearing liabilities					127.3	%					124.02	%

(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.

The provision for loan losses was $0.9 million and $1.2 million for the first quarter of 2013 and 2012, respectively. The lower 2013 provision was based on an assessment of the loan portfolio as well as other qualitative and quantitative factors considered by the Company's management team. The allowance for loan losses at March 31, 2013 was $9.4 million, compared to $10.3 million at December 31, 2012, and was 1.44% and 1.64% of total loans, respectively. The allowance for loan losses decreased due to the charge-off of loans that had specific allowances reserved. 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 $2.2 million for the three months ended March 31, 2013; a slight decrease of $29,000 when compared to $2.3 million for the three months ended March 31, 2012. Service charges, commissions and fees totaled $1.2 million for the three months ended March 31, 2013 and 2012. Net securities gains were $0.8 million for the first quarter of 2013 compared to $0.7 million for the first quarter of 2012.

Noninterest Expense.

Noninterest expense includes salaries and employee benefits, occupancy and equipment expense, net cost from other real estate and repossessions, regulatory assessments and other types of expenses. Noninterest expense totaled $7.7 million in the first quarter of 2013 and $7.3 million for the same period in 2012. Salaries and benefits increased $0.2 million in the first quarter of 2013 to $3.5 million compared to $3.4 million in the first quarter of 2012. This can be attributed to the total number of employees increasing from 277 full-time equivalent employees at March 31, 2012 to 284 at March 31, 2013. Occupancy and equipment expense totaled $1.0 million for the first quarter of 2013 and $0.9 million in first quarter of 2012. Other noninterest expense totaled $3.2 million in the first quarter of 2013, compared to $3.0 million the first quarter of 2012

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

(in thousands)	As of March 31, 2013		As of March 31, 2012
Other noninterest expense:
Legal and professional fees	$	522	$	487
Data processing		498		305
Marketing and public relations		244		175
Taxes - sales, capital, and franchise		147		181
Operating supplies		159		145
Travel and lodging		145		130
Net costs from other real estate and repossessions		267		419
Regulatory assessment		476		203
Other		739		914
Total other expense	$	3,197	$	2,959

Income Taxes.

The provision for income taxes for the three months ended March 31, 2013 and 2012 was $1.1 million and $1.6 million, respectively. The decrease in the provision for income taxes is a result of lower income for the first quarter of 2013 when compared to the first quarter of 2012. The Company's statutory tax rate for the three month period ended March 31, 2013 was 34.5%; this is relatively unchanged from 34.6% for the first quarter of 2012.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability Management and Market Risk

Asset/Liability Management.

Our asset/liability management (ALM) process consists of quantifying, analyzing and controlling interest rate risk (IRR) to maintain reasonably stable net interest income levels under various interest rate environments. The principal objective of ALM is to maximize net interest income while operating within acceptable limits established for interest rate risk and to 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 and fixed rate securities in our investment portfolio, 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. Our Board of Directors has established two committees, the Management Asset Liability Committee and the Board Investment Committee, to oversee 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. The Management Asset Liability Committee is comprised of senior members of Management and meets as needed to review our asset liability policies and interest rate risk position. The Board Investment Committee is comprised of board members and meets monthly. Senior Management makes a monthly report to the Board Investment Committee.

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 repricing 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.

The following interest sensitivity analysis is one measurement of interest rate risk and is set forth on the following table. This analysis, which we prepare monthly, reflects the contractual maturity characteristics of assets and liabilities over various time periods. This analysis does not factor in prepayments which may significantly change the report. This table includes nonaccrual loans in their respective maturity periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The interest sensitivity analysis at March 31, 2013 shown below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis.

	March 31, 2013
	Interest Sensitivity Within
(in thousands except for %)	3 Months Or Less			Over 3 Months thru 12 Months			Total One Year			Over One Year		Total
Earning Assets:
Loans (including loans held for sale)	$	177,798		$	99,268		$	277,066		$	376,219	$	653,285
Securities (including FHLB stock)		47,129			4,699			51,828			568,333		620,161
Federal Funds Sold		2,773			-			2,773			-		2,773
Other earning assets		67,513			-			67,513			-		67,513
Total earning assets	$	295,213		$	103,967		$	399,180		$	944,552	$	1,343,732

Source of Funds:
Interest-bearing accounts:
Demand deposits	$	322,124		$	-		$	322,124		$	-	$	322,124
Savings deposits		64,510			-			64,510			-		64,510
Time deposits		169,368			230,243			399,611			250,903		650,514
Short-term borrowings		14,674			-			14,674			-		14,674
Long-term borrowings		150			450			600			350		950
Noninterest-bearing, net		-			-			-			290,960		290,960
Total source of funds	$	570,826		$	230,693		$	801,519		$	542,213	$	1,343,732

Period gap	$	(275,613	)	$	(126,726	)	$	(402,339	)	$	402,339
Cumulative gap	$	(275,613	)	$	(402,339	)	$	(402,339	)	$	-

Cumulative gap as a percent of earning assets		-20.5	%		-29.9	%		-29.9	%

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.

Loans maturing within one year or less at March 31, 2013 totaled $210.6 million. At March 31, 2013, time deposits maturing within one year or less totaled $399.6 million.

The Company maintained a net borrowing capacity at the Federal Home Loan Bank totaling $87.2 million and $99.0 million at March 31, 2013 and December 31, 2012, respectively. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $71.2 million and a revolving line of credit for $2.5 million with an availability of $0.7 million as of March 31, 2013; this excludes the availability with the Federal Reserve Bank. The Company had a $1.8 million outstanding balance on these lines of credit as of March 31, 2013. 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.

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 March 31, 2013, we satisfied the minimum regulatory capital requirements and were well capitalized within the meaning of federal regulatory requirements.

	"Well Capitalized Minimums"		As of March 31, 2013		As of December 31, 2012
Tier 1 Leverage Ratio
Consolidated	5.00	%	8.98	%	9.24	%
Bank	5.00	%	9.01	%	9.34	%

Tier 1 Risk-based Capital Ratio
Consolidated	6.00	%	14.03	%	14.13	%
Bank	6.00	%	14.07	%	14.29	%

Total Risk-based Capital Ratio
Consolidated	10.00	%	15.09	%	15.31	%
Bank	10.00	%	15.14	%	15.47	%

At March 31, 2013, we satisfied the minimum regulatory capital requirements and were well capitalized within the meaning of federal regulatory requirements.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

Exhibit
Number	Exhibit

14.0	Code of Ethics

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.

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: May 13, 2013		By: /s/ Alton B. Lewis
		Alton B. Lewis
		Principal Executive Officer


Date: May 13, 2013		By: /s/ Eric J. Dosch
		Eric J. Dosch
		Principal Financial Officer
		Secretary and Treasurer