UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 8-K12G3

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  July 27, 2007

FIRST GUARANTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 Louisiana
                                                                                                              
 26-0513559
 (State or other
 (Commission File Number)
 (IRS Employer
 jurisdiction of Incorporation)
 
 Identification No.)
 
 
 
   
 400 East Thomas Street, Hammond, Louisiana
 
 70401
 (Address of principal executive offices)
 
 (zip code)
 

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

N/A
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

  o Written communications pursuant to Rule 425 under Securities Act (17 CFR 230.425)

  o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

  o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17CFR 240.14d-2(b))

  o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Item 8.01 Other Events

Holding Company Formation; Share Exchange

On July 27, 2007, (the “Effective Date”), First Guaranty Bancshares, Inc., a Louisiana corporation (the “Company”) became the holding company for First Guaranty Bank (the “Reorganization”), a Louisiana chartered bank (the “Bank”), pursuant to an Agreement and Plan of Exchange dated as of July 27, 2007 (the “Agreement”).  Pursuant to the Agreement, on the Effective Date, each issued and outstanding share of the Bank’s common stock, par value $1.00 per share, automatically was converted into and exchanged for one share of the Company’s common stock, par value $1.00 per share.  No stockholders exercised dissenters’ rights of appraisal.  On the Effective Date, the Bank became a wholly owned subsidiary of the Company and the stockholders of the Bank became stockholders of the Company.  No additional shares were offered or sold in connection with the Reorganization.
 
Prior to the Effective Date, the Bank’s common stock was registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The Bank has filed reports with the Federal Deposit Insurance Corporation (“FDIC”) under Section 12(i) of the Exchange Act for more than the past ten years.   This report on Form 8-K is being filed in connection with the registration of the Company’s common stock under Section 12(g) of the Exchange Act pursuant to Rule 12g-3(a) thereunder. As of the Effective Date, the Company is the successor issuer to the Bank and its common stock was held of record by three hundred or more persons.
 
Description of Registrant’s Common Stock
 
Stockholder Rights
 
The rights of stockholders of the Company are governed by the Louisiana Business Corporation Law and the Articles of Incorporation and Bylaws of the Company. The following discussion is not intended to be a complete statement of the rights of stockholders.
 
General
 
The Articles of Incorporation of the Company authorize the issuance of 100,600,000 shares of common stock, $1.00 par value per share, and 100,000 shares of preferred stock, $1,000.00 par value per share.   On the Effective Date, there were 5,559,644 shares of the Company’s common stock issued and outstanding and no shares of the Company’s preferred stock outstanding.  There are no options or other rights outstanding to acquire the Company’s shares.  All of the Company’s issued and outstanding shares are fully paid and non-assessable.
 
Common Stock
 
Voting Rights. All voting rights are vested in the holders of the Company’s common stock, subject to the issuance of preferred stock with voting rights. Any issuance by the Company of preferred stock with voting rights may affect the voting rights of the holders of common stock. Except as discussed below in “ Restrictions on Acquisition of First Guaranty Bancshares, Inc. ,” each holder of common stock will be entitled to one vote per share.
 
Dividends. Holders of Company common stock will be entitled to receive and share equally in such dividends as the Board of Directors of the Company may declare out of funds legally available for such payments. If the Company issues preferred stock, holders of such stock may have a priority over holders of common stock with respect to the payment of dividends. Louisiana law prohibits distributions to stockholders if, after giving effect to the distribution, the corporation would not be able to pay its debts as they become due in the usual course of business or the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution.

Liquidation or Dissolution. In the event of a liquidation or dissolution of the Company, holders of Company common stock will be entitled to receive, after payment or provision for payment of all debts and liabilities of the Company, all assets of the Company available for distribution. If the Company issues preferred stock, holders of such stock may have a senior interest over holders of common stock in such a distribution.

No Preemptive or Redemption Rights. Holders of the Company’s common stock will not have preemptive rights with respect to any shares of the capital stock of the Company that may be issued. The common stock cannot be redeemed.
 
Preferred Stock
 
Under the Articles of Incorporation of the Company, the Board of Directors of the Company is authorized to issue preferred stock in series and to fix the powers, designations, preferences, or other rights of the shares of each such series and the qualifications, limitations, and restrictions thereof, without action by the stockholders. Preferred stock issued by the Company may rank prior to the Company common stock as to dividend rights, liquidation preferences, or both, may have full or limited voting rights (including multiple voting rights and voting rights as a class), and may be convertible into shares of Company common stock.
 
Restrictions on Acquisition of First Guaranty Bancshares, Inc.
 
The following is a general summary of the material provisions of the Company’s Articles of Incorporation and Bylaws and the Louisiana Business Corporation Law that may have an “anti-takeover effect.” Such provisions might discourage future takeover attempts by impeding efforts to acquire the Company or stock purchases in furtherance of such an acquisition.
 
Authorized Shares of Capital Stock. The Articles of Incorporation of the Company authorize the issuance of up to 100,600,000 shares of common stock and up to 100,000 shares of preferred stock. Shares of the Company’s preferred stock with voting rights could be issued and would then represent an additional class of stock required to approve any proposed acquisition. This preferred stock, together with authorized but unissued shares of the Company’s common stock, could represent additional capital required to be purchased by an acquiror. Issuance of such additional shares may also dilute the voting interest of the Company’s stockholders.
 
Directors .  The Board of Directors has the power to fill Board vacancies, whether occurring by reason of an increase in the number of directors or by resignation, death, removal or otherwise, although the stockholders may fill vacancies at a special meeting called for that purpose before the Board takes action.  The Bylaws of the Company provide that, in general, any stockholder desiring to make a nomination for the election of directors must submit written notice not less than 45 days or more than 90 days in advance of the meeting.  The stockholders, by the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote at an annual or special meeting of stockholders or by written consent of holders of a majority of shares outstanding, have the power remove any and all directors at any time, with or without cause.
 
Actions by Stockholders.   The Bylaws of the Company provide that special meetings of the stockholders may be called only by the Board of Directors, the President, Chairman, Chief Executive Officer or holders of at least one-fifth of all shares entitled to vote.  The Bylaws provide that notice of stockholder proposals for new business to be considered at an annual meeting must be submitted¸ in general, not less than 30 or more than 90 days before the meeting.
 
Under the Louisiana Business Corporation law, any amendment of the Company’s Articles of Incorporation and any merger or other business combination that requires shareholder approval or statutory share exchange to which the Company is a party requires the approval of  two-thirds of the shares present at a meeting of stockholders.  In addition, the Louisiana Business Corporation Law also provides that if a proposed amendment to the Company’s Articles of Incorporation would adversely affect, within the meaning of the Louisiana Business Corporation Law, the shares of any class or series of the Company’s stock, then the amendment must also be approved by the holders of two-thirds of the shares of the class or series present at the meeting.  In these cases, holders of more than one-third of the shares can defeat any such proposed action.
 
State Anti-Takeover Laws .   Sections 132 through 134 of the Louisiana Business Corporation Law (the "Fair Price Law") prohibits the Company, unless certain conditions are met, from engaging in a business combination with an interested shareholder (a beneficial owner of 10% or more of the Company’s voting stock) or an affiliate of an interested shareholder if the rights of the Company’s outstanding shares would be altered or any of  the Company’s outstanding shares would be converted or exchanged in the transaction.  The Company could engage in such a business combination only if it is approved (either specifically or generically) by the Company’s Board of Directors before the interested shareholder became an interested shareholder or if approved thereafter either by holders of at least two-thirds of the Company’s voting stock not beneficially owned by the interested shareholder or by 80 percent of the Company’s total outstanding shares.  In addition, the Company could proceed with the transaction with such enhanced shareholder approval if the transaction satisfies certain fair price requirements designed to assure that its shareholders receive consideration in the transaction not less than the highest price and the highest premium over market value paid for any shares by the interested shareholder in the two years preceding the announcement of the transaction or in the transaction in which it became an interested shareholder.
 
 
The   Company’s Bylaws provide that a control share acquisition of the Company will not be subject to the Louisiana Control Share Statute, L.S.A. R.S. 12:135 through 140.2.
 
Transfer Agent and Registrar.   The Company acts as the transfer agent and registrar for its common stock.
 


Financial Statements and Exhibits
 
 
(d)
Exhibits
 
     
Number
 
Description
   
Exhibit 2
 
Agreement and Plan of Exchange
   
Exhibit 3.1
 
Restatement of Articles of Incorporation of First Guaranty Bancshares, Inc.
   
Exhibit 3.2
 
Bylaws of First Guaranty Bancshares, Inc.
     
Exhibit 3.3
 
Amendment to Bylaws of First Guaranty Bancshares, Inc. dated May 17, 2007
   
Exhibit 4
 
Specimen Stock Certificate for common stock of First Guaranty Bancshares, Inc.
   
Exhibit 10.1
 
First Guaranty Bank Employee Stock Ownership Plan (effective January 1, 2003)
   
Exhibit 10.2
 
Amendment Number One to the First Guaranty Bank Employee Stock Ownership Plan (effective March 28, 2005)
     
Exhibit 10.3
 
Amendment Number Two to the First Guaranty Bank Employee Stock Ownership Plan (effective April 1, 2007)
     
Exhibit 10.4
 
Amendment Number Three to the First Guaranty Bank Employee Stock Ownership Plan (dated May 17, 2007)
     
Exhibit 21
 
Subsidiaries of the Registrant as of the date of this report
   
Exhibit 99.1
 
First Guaranty Bank Form 10-K for the year ended December 31, 2006, as filed with the FDIC
   
Exhibit 99.2
 
Form 10-Q of First Guaranty Bank for the quarter ended March 31, 2007, as filed with the FDIC
     
Exhibit 99.3
 
Form 10-Q of First Guaranty Bank for the quarter ended June 30, 2007, as filed with the FDIC
   
Exhibit 99.4
 
Proxy Statement for the First Guaranty Bank 2007 Annual Meeting of Stockholders, as filed with the FDIC
   
Exhibit 99.5
 
Current Report on Form 8-K, as filed by First Guaranty Bank with the FDIC on January 31, 2007
     
Exhibit 99.6
 
Current Report on Form 8-K, as filed by First Guaranty Bank with the FDIC on February 20, 2007




SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
             
 
 
 
 
FIRST GUARANTY BANCSHARES, INC.
 
 
 
 
(Registrant)
       
Date:  July 27    , 2007
 
 
 
By:
    /s/Michael R. Sharp
 
 
 
 
 
 
Michael R. Sharp
 
 
 
 
 
 
President and Chief Executive Officer



INDEX TO EXHIBITS


     
Number
 
Description
   
Exhibit 2
 
Agreement and Plan of Exchange
   
Exhibit 3.1
 
Restatement of Articles of Incorporation of First Guaranty Bancshares, Inc.
   
Exhibit 3.2
 
Bylaws of First Guaranty Bancshares, Inc.
     
Exhibit 3.3
 
Amendment to Bylaws of First Guaranty Bancshares, Inc. dated May 17, 2007
   
Exhibit 4
 
Specimen Stock Certificate for common stock of First Guaranty Bancshares, Inc.
   
Exhibit 10.1
 
First Guaranty Bank Employee Stock Ownership Plan (effective January 1, 2003)
   
Exhibit 10.2
 
Amendment Number One to the First Guaranty Bank Employee Stock Ownership Plan (effective March 28, 2005)
     
Exhibit 10.3
 
Amendment Number Two to the First Guaranty Bank Employee Stock Ownership Plan (effective April 1, 2007)
     
Exhibit 10.4
 
Amendment Number Three to the First Guaranty Bank Employee Stock Ownership Plan (dated May 17, 2007)
     
Exhibit 21
 
Subsidiaries of the Registrant as of the date of this report
   
Exhibit 99.1
 
First Guaranty Bank Form 10-K for the year ended December 31, 2006, as filed with the FDIC
   
Exhibit 99.2
 
Form 10-Q of First Guaranty Bank for the quarter ended March 31, 2007, as filed with the FDIC
     
Exhibit 99.3
 
Form 10-Q of First Guaranty Bank for the quarter ended June 30, 2007, as filed with the FDIC
   
Exhibit 99.4
 
Proxy Statement for the First Guaranty Bank 2007 Annual Meeting of Stockholders, as filed with the FDIC
   
Exhibit 99.5
 
Current Report on Form 8-K, as filed by First Guaranty Bank with the FDIC on January 31, 2007
     
Exhibit 99.6
 
Current Report on Form 8-K, as filed by First Guaranty Bank with the FDIC on February 20, 2007



                                                                                                                 EXHIBIT 2

 
AMENDED
AGREEMENT AND PLAN OF EXCHANGE
AND
ARTICLES OF SHARE EXCHANGE



THIS AGREEMENT AND PLAN OF EXCHANGE (this “ Agreement ”), dated as of July  27, 2007 is between First Guaranty Bancshares, Inc. (the “ Company ”) and First Guaranty Bank (the “ Bank ”) and amends and supersedes the Agreement and Plan of Exchange and Articles of Share Exchange between the Bank and the Company dated January 4, 2007.  The Company and the Bank are sometimes referred to, collectively, as the “ Constituent Companies ”.
 
WHEREAS, the authorized capital stock of the Bank consists of (i) 100,600,000 shares of common stock, $1.00 par value per share (“ Bank Common Stock ”), of which 5,559,644 shares are outstanding, and (ii) 100,000 shares of preferred stock, $1,000.00 par value per share, of which no shares are issued or outstanding; and the authorized capital stock of the Company consists of (a) 100,600,000 shares of common stock, $1.00 par value per share (“ Company Common Stock ”), of which one share is issued and outstanding, and (b) 1,000,000 shares of preferred stock, $1,000.00 par value per share, of which no shares are issued or outstanding;
 
WHEREAS, the Boards of Directors of the respective Constituent Companies deem it desirable and in the best interests of the Constituent Companies and their shareholders that the Company acquire each share of issued and outstanding Bank Common Stock and that each such share of Bank Common Stock be exchanged for a share of Company Common Stock, with the result that the Company becomes the owner of all outstanding Bank Common Stock and each holder of shares of Bank Common Stock becomes the owner of an equal number of shares of Company Common Stock, all on the terms and conditions of this Agreement;
 
NOW, THEREFORE, in consideration of the agreements, covenants and conditions in this Agreement, the parties agree with respect to the acquisition and exchange provided for in this Agreement (the “ Share Exchange ”) that at the Effective Time (as defined below) each share of Bank Common Stock outstanding immediately before the Effective Time will be exchanged for one share of Company Common Stock, and that the terms and conditions of the Share Exchange and the method of carrying the same into effect are as follows:
 
ARTICLE I
 
ARTICLES OF EXCHANGE
 
Subject to the satisfaction of the conditions and obligations of the parties, the Share Exchange will be effective upon the filing with the Louisiana Secretary of State and the Office of Office of Financial Institutions in accordance with Section 352.1 of the Louisiana Banking Law, La. Rev. Stat. §6:352.1 and Section 116 of the Louisiana Business Corporation Law, La. Rev. Stat. §12:116 of this Agreement, duly executed and acknowledged and thereby constituted articles of share exchange (“ Articles of Exchange ”) with respect to the Share Exchange or at such later time as may be agreed upon by the parties (the time at which the Share Exchange becomes effective being referred to in this Agreement as the “ Effective Time ”).
 
ARTICLE II
 
EFFECTS OF EXCHANGE
 
At the Effective Time:
 
(1)  
Each share of Bank Common Stock issued and outstanding immediately before the Effective Time shall be acquired by the Company and shall be exchanged for one share of Company Common Stock, which shall thereupon be fully paid and non-assessable;
 
(2)  
The Company shall become the owner and holder of each issued and outstanding share of Bank Common Stock so exchanged;
 
(3)  
Each share of Company Common Stock issued and outstanding immediately before the Effective Time shall be canceled and shall thereupon constitute an authorized and unissued share of Company Common Stock; and
 
(4)  
The former owners of Bank Common Stock shall be entitled only to receive shares of Company Common Stock as provided in this Agreement, other than those shareholders who validly perfect dissenters’ rights.
 
ARTICLE III
 
CONDITIONS PRECEDENT
 
The consummation of the Share Exchange is subject to the following conditions precedent:
 
(1)  
The receipt of the requisite approval of shareholders of the Bank;
 
(2)  
The satisfaction of the respective obligations of the parties in accordance with the terms and conditions contained in this Agreement;
 
(3)  
The execution and filing of Articles of Exchange pursuant to law; and
 
(4)  
The receipt of such orders, authorizations, approvals or waivers from all regulatory bodies, board or agencies as are required in connection with the Share Exchange and related transactions.
 
ARTICLE IV
 
MODIFICATION OR ABANDONMENT OF PLAN
 
This Agreement may be amended, modified or supplemented, or compliance with any provision or condition hereof may be waived, at any time, by the mutual consent of the Boards of Directors of the Bank and the Company; provided, however, that no such amendment, modification, supplement or waiver would, in the judgment of the Board of Directors of the Bank, materially and adversely affect the shareholders of the Bank.
 
This Agreement may be terminated and the Share Exchange and related transactions abandoned at any time before the time the Articles of Exchange are filed, if the Board of Directors of the Bank determines, in its sole discretion, that consummation of the Share Exchange would be inadvisable or not in the best interests of the Bank or its shareholders.
 
ARTICLE V
 
STOCK CERTIFICATES
 
Following the Effective Time, each holder of an outstanding certificate or certificates theretofore representing shares of Bank Common Stock may, but shall not be required to, surrender the same to the Company for cancellation and reissuance of a new certificate or certificates in such holder’s name or for cancellation and transfer to a named transferee, and each such holder or transferee will be entitled to receive a certificate or certificates representing the same number of shares of Company Common Stock as the shares of Bank Common Stock previously represented by the certificate or certificates surrendered.  Until so surrendered or presented for transfer, each outstanding certificate which, immediately before the Effective Time, represented Bank Common Stock shall be deemed and treated for all corporate purposes to represent the ownership of the same number of shares of Company Common Stock as though such surrender or transfer had taken place.  The holder of Bank Common Stock at the Effective Time shall have no right to have his or her shares of Bank Common Stock transferred on the stock transfer books of Bank, and such stock transfer books shall be deemed to be closed for this purpose at the Effective Time.
 
ARTICLE VI
 
CERTIFICATION OF SHAREHOLDER APPROVAL
 
The Share Exchange pursuant to this Agreement was submitted to the shareholders of the Bank for approval as provided by law at a meeting duly called and held on May 18, 2006.  By a vote of 3,893,706 shares for, no shares against, and 6,602 abstaining, the Share Exchange was approved.  Of the 5,559,644 shares of common stock of the Bank outstanding and entitled to vote on the Share Exchange, there were 3,900,309 shares, or 70.15% of the shares outstanding present at the meeting, of which 99.83% voted in favor of the Share Exchange.  This being more than two-thirds of the voting power present at the meeting, the vote was sufficient for approval.
 


IN WITNESS WHEREOF, the Company and the Bank, pursuant to authorization and approval given by their respective Boards of Directors, have caused this Agreement to be executed and acknowledged by their respective Presidents and attested and acknowledged by their respective Secretaries.
 
FIRST GUARANTY BANCSHARES, INC.


By:   /s/ Michael R. Sharp
Michael R. Sharp, President

ATTEST:

/s/ Michele E. LoBianco                                                       
Secretary
 

FIRST GUARANTY BANK


By:   /s/ Michael R. Sharp
Michael R. Sharp, President

ATTEST:


/s/ Collins Bonicard                                                       
Secretary


ACKNOWLEDGMENT
 

 
STATE OF LOUISIANA

PARISH OF TANGIPAHOA
 
BEFORE ME, the undersigned authority, personally came and appeared Michael R. Sharp and Collins E. Bonicard, to me known to be the President and Secretary, respectively, of First Guaranty Bank and persons who executed the foregoing instrument, and who, being duly sworn, acknowledged in my presence and in the presence of the undersigned witnesses that each of them executed the foregoing instrument as his free act and deed.
 
IN WITNESS WHEREOF, the appearer and witnesses and I have hereunto affixed our signatures on this 19th day of July, 2007.
 
WITNESSES:
 

/s/ Michele E. LoBianco                                                       /s/ Michael R. Sharp
Michael R. Sharp
 

/s/ Regina Notariano                                                             /s/ Collins Bonicard
Collins Bonicard



             /s/ Vanessa R. Drew       [SEAL]                                 
NOTARY PUBLIC

 



ACKNOWLEDGMENT
 

 
STATE OF LOUISIANA

PARISH OF TANGIPAHOA
 
BEFORE ME, the undersigned authority, personally came and appeared Michael R. Sharp and Michele E. LoBianco, to me known to be the President and Secretary, respectively, of First Guaranty Bancshares, Inc. and the persons who executed the foregoing instrument, and who, being duly sworn, acknowledged in my presence and in the presence of the undersigned witnesses that each of them executed the foregoing instrument as his free act and deed.
 
IN WITNESS WHEREOF, the appearer and witnesses and I have hereunto affixed our signatures on this 19th day of July, 2007.
 
WITNESSES:
 

/s/ Bernadette Kemp                                              /s/ Michael R. Sharp
Michael R. Sharp
 

/s/ Regina Notariano                                             /s/ Michele E. LoBianco
Michele E. LoBianco



              /s/ Vanessa R. Drew      [SEAL]                                 
NOTARY PUBLIC

 


                                                                                                           EXHIBIT 3.1

 
RESTATEMENT
 
OF
 
THE ARTICLES OF INCORPORATION
 
OF
 
FIRST GUARANTY BANSCHARES, INC.
 
First Guaranty Bancshares, Inc, a Louisiana corporation (“the corporation” or “this corporation”), through its undersigned President and by authority of its Board of Directors, hereby certifies that:
 
FIRST:  These Restated Articles of Incorporation of the corporation set forth in the FOURTH paragraph below accurately copies the articles of incorporation of the corporation and all amendments thereto in effect at the date of this Restatement of the Articles of Incorporation of First Guaranty Bancshares, Inc. (“this Restatement”), without substantive change.
 
SECOND:  The corporation was organized by Articles of Incorporation duly executed and acknowledged, on November 5, 2003, and the date of this Restatement is July 27, 2007.
 
THIRD:  This Restatement has been executed, acknowledged and filed in the manner provided for restated articles in La. Rev. Stat. 12:34, and shall be effective when filed with the Secretary of State of Louisiana as of the date and, if endorsed hereon, the hour of filing.
 
FOURTH:  The Restated Articles of Incorporation of the corporation shall read in their entirety as follows:
 
RESTATED ARTICLES OF INCORPORATION
OF
FIRST GUARANTY BANCSHARES, INC.

 
ARTICLE I
 
The name of the corporation is First Guaranty Bancshares, Inc.
 
ARTICLE II
 
The corporation is organized to engage in any lawful activity for which corporations may be formed under the Louisiana Business Corporation Law.
 
ARTICLE III
 
Section 1.                                  Authorized Shares .  The authorized capital stock of the corporation shall consist of (a) 100,600,000 shares of $1.00 par value common stock, and (b) 100,000 shares of $1,000.00 par value preferred stock.
 
Section 2.                                  Common Shares .  All authorized common shares shall have equal privileges, restrictions, and rights, including voting rights.
 
Section 3.                                  Preferred Shares .  The Board of Directors has the authority to amend the Articles of Incorporation to fix the preferences, limitations, and relative rights of the preferred shares, and to establish, and fix variations and relative rights and preferences as between, series of preferred shares.  The aforesaid authority of the Board of Directors shall include specifically, but not by way of limitation, the authority to amend the Articles of Incorporation to specify the following as to any one or more series of preferred shares:
 
(a)    the number of shares that shall constitute any such series and whether the aforesaid number of shares may be increased or decreased by action of the
     Board of Directors;
 
(b)    whether the shares of any such series shall be convertible into shares of any other class or classes, or into shares of any other series of the same class;
 
(c)    the price or prices, or the rate or rates, of conversion if the Board determines that the shares of any such series shall be convertible;
 
(d)    any limitations or restrictions to be effective while any shares of any such series are outstanding upon the payment of dividends or the making of other
     distributions or upon the acquisition in any manner by the corporation or any of its subsidiaries; of any of the corporation’s common, preferred or other shares;
 
(e)    any conditions or any restrictions upon the creation of indebtedness of the corporation or any of its subsidiaries or upon the issuance of any additional shares
     of any kind while the shares of the series are outstanding;
 
(f)    the annual rate of dividends, if any, payable on the shares of any such series and the conditions upon which such dividends shall be payable;
 
(g)    whether dividends, if authorized in accordance with subsection (f), shall be cumulative and, if so, the date from which such dividends shall be cumulative;
 
(h)    voting rights, if any, including but not limited to, any right of the holders of any series to elect, as a class or otherwise, one or more directors of the corporation;
 
(i)    when and at what price or prices (whether in cash or in debentures of the corporation) the shares of any such series shall be redeemable or, at the option of the
     corporation, exchangeable or both;
 
(j)    whether the shares of any such series shall be subject to the operation of any purchase, retirement or sinking fund or funds and, if so, the terms and provisions
     relative to the operation of any such fund or funds;
 
(k)    the amount payable on the shares of any such series in the event of voluntary liquidation, dissolution, or concluding of the affairs of the corporation; and
 
(l)    any other preferences, limitations, and rights not inconsistent with these Articles of Incorporation or contrary to law.
 
Section 4.  No Preemptive Rights .   Shareholders of the corporation shall not have preemptive rights to subscribe for shares of capital stock of the corporation.
 
ARTICLE IV
 
All of the corporate powers of this corporation shall be vested in, and the business affairs of this corporation managed by, a Board of Directors, the exact number of which shall be the number fixed from time to time in the bylaws.
 
ARTICLE V
 
The shareholders of the corporation hereby relinquish in favor of the corporation any and all right to, or title or interest in, and hereby transfer to the corporation, all cash, property or share dividends, shares issuable to shareholders in connection with a reclassification of stock, and the redemption price of redeemed shares, which are not claimed by the shareholders entitled thereto within a reasonable time (not less than one year) after the dividend or redemption price became payable or the shares became issuable, despite reasonable efforts by the corporation to pay the dividend or redemption price or to deliver the certificates for the shares to such shareholders within such time, and the same shall, at the expiration of such time, be deemed transferred to and vested in full ownership in the corporation, and the corporation’s obligation to pay such dividend or redemption price or issue such shares, as the case may be, to any shareholder shall thereupon cease; provided that the board of directors may, at any time, for any reason satisfactory to it, but need not, authorize (a) payment of the amount of any cash or property dividend or redemption price or (b) issuance of any shares, ownership of which has been become vested in the corporation pursuant hereto, to the person or entity who or which would be entitled thereto had such transfer not occurred.
 
ARTICLE VI
 
Whenever the affirmative vote of the shareholders is required to authorize or constitute corporate action, the consent in writing to such corporate action, signed by the shareholders having that proportion of the total voting power that would be required to authorize or constitute such action at a meeting of shareholders at which all shareholders were present and voting, shall be sufficient for the purpose without the necessity of a meeting of the shareholders.
 
ARTICLE VII
 
The provisions of Sections 132, 133 and 134 and Sections 135 through 140.2 of the Louisiana Business Corporation Law, La. Rev. Stat. 12:132-140.2, as amended or recodified, shall not be applicable to this corporation.
 
ARTICLE VIII
 
No director or officer of this corporation shall be personally liable to this corporation or its shareholders for monetary damages for breach of fiduciary duty as a director or officer, except for liability (a) for breach of director’s or officer’s duty of loyalty to this corporation or its shareholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 92(D) of the Louisiana Business Corporation Law, or (d) for any transaction from which the director or officer derived an improper personal benefit.  If the Louisiana Business Corporation law is hereafter amended to authorize corporate action further limiting or eliminating the personal liability of directors and officers, then the liability of each director and officer of this corporation shall be limited or eliminated to the full extent permitted by the Louisiana Business Corporation Law as so amended from time to time.  Neither the amendment nor repeal of this Article, nor the adoption of any provision of this corporation’s Articles of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article, in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
 
ARTICLE IX
 
Section 1.    Indemnification and Advancement of Expenses.
 
(a)    Except as provided in Subsection (d) hereof, this corporation shall indemnify an individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding if:
 
(1)  
he conducted himself in good faith; and
 
(2)  
he reasonably believed:
 
(A)  
in the case of conduct in his official capacity with the corporation that his conduct was in its best interests;
 
(B)  
in all other cases, that his conduct was at least not opposed to its best interests; and
 
(3)  
in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful.
 
(b)    A director’s conduct with respect to an employee benefit plan for a purpose he reasonably believed to be in the interests of the participants in and the beneficiaries of the plan is conduct that satisfies the requirement of subsection (a)(2)(B) hereof.
 
(c)    The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not of itself determinative that the director did not meet the standard of conduct described in this Section.
 
(d)    This corporation may not indemnify a director under this Section:
 
(1)  
in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or
 
(2)  
in connection with any proceeding charging improper personal benefit to him whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him.
 
(e)    Indemnification permitted under this Section in connection with a proceeding by or in the right of this corporation is limited to reasonable expenses incurred in connection with the proceeding.
 
Section 2.    This corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he is or was a director of the corporation against reasonable expenses incurred by him in connection with the proceeding.
 
Section 3.   
 
(a)    This corporation shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if:
 
(1)  
the director furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct described in Section 1(a);
 
(2)  
the director furnishes the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct; and
 
(3)  
a determination is made that the facts then known to those making the determination would not preclude indemnification under this Article.
 
(b)    The undertaking required by Subsection (a)(2) must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment.
 
Section 4.    A director of this corporation who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers necessary, may order indemnification if it determines that:
 
(a)    The director is entitled to mandatory indemnification under Section 2, in which case the court shall also order the corporation to pay the director’s reasonable expenses incurred to obtain court-ordered indemnification; or
 
(b)    The director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not be met the standard of conduct set forth in Section 1 or was adjudged liable as described in Subsection 1(d), but if he was adjudged so liable, his indemnification is limited to reasonable expenses incurred.
 
Section 5.   
 
(a)    This corporation may not indemnify a director under Section 1 hereof unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because he met the standard of conduct as set forth in Section 1.
 
(b)    The determination shall be made:
 
(1)  
By the Board of Directors by a majority vote of a quorum consisting of directors not at the time parties to the proceeding;
 
(2)  
If a quorum cannot be obtained under subsection (1) above, by majority vote of a committee duly designated by the Board (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding;
 
(3)  
By special legal counsel selected by the Board of Directors or its committee in the manner prescribed in subsections (1) or (2) above, or, if a quorum of the Board cannot be obtained under subsection (1) and a committee cannot be designated under subsection (2), selected by majority vote of the Board, in which selection directors who are parties may participate; or
 
(4)  
By the stockholders, but shares held by directors who are at the time parties to the proceeding may not be voted on the determination.
 
(c)    Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection (b)(3) above, to select counsel.
 
Section 6.   
 
(a)    This corporation shall indemnify and advance expenses under this Article IX to an executive  officer of the corporation to the same extent as to a director; and
 
(b)    This corporation may also indemnify and advance expenses to any other officer, employee or agent who is not a director to the extent, consistent with law, that may be provided by this corporation’s bylaws, general or specific action of the Board of Directors, or by contract.
 
Section 7.    This corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee or agent of the corporation or who, while a director, officer, employee or agent of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise against liability asserted against or incurred by him in that capacity or arising from his status as a director, officer, employee or agent, whether or not the corporation would have power to indemnify him against the same liability under Sections 1 or 2.
 
Section 8.    This Article IX does not limit this corporation’s power to pay or reimburse expenses incurred by a director in connection with his appearance as a witness in a proceeding at a time when he has not been made a named defendant or respondent to the proceeding.
 
Section 9.    Neither the amendment nor repeal of this Article IX either in whole or in part, nor the adoption of any provision of the corporation’s bylaws inconsistent with this Article IX, shall eliminate or reduce the effect of this Article IX in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article IX, would accrue or arise, prior to such amendment or repeal or the adoption of an inconsistent provision.
 
Section 10.    The Board of Directors, in its sole discretion, is hereby authorized to adopt bylaws or resolutions, or cause this corporation to enter into contracts, providing for indemnification of directors, officers, employees or agents of this corporation, notwithstanding that some or all of the members of the Board of Directors acting with respect to the foregoing may be parties to such contracts, or beneficiaries of such bylaws or resolutions.
 
Section 11.    The provisions of this Article IX shall be valid only to the extent that they are consistent with, and are limited by, applicable laws and regulations, including, but not limited to 12 U.S.C. 1828(k) and regulations promulgated thereunder from time to time by applicable federal banking agencies.  The invalidity of any provision of this Article IX will not affect the validity of the remaining provisions of Article IX.
 
IN WITNESS WHEREOF, the undersigned President has executed this Restatement in the presence of the undersigned witnesses on July 27, 2007 at Hammond, Louisiana.
 
FIRST GUARANTY BANCSHARES, INC.
 
By:           /s/ Michael R. Sharp
Michael R. Sharp, President





ACKNOWLEDGMENT

STATE OF LOUISIANA
 
PARISH OF TANGIPAHOA
 
BEFORE ME, the undersigned Notary Public, duly commissioned and qualified in and for said Parish and State, personally came and appeared:
 
MICHAEL R. SHARP
 
to me known, who declared and acknowledged to me, Notary, and the undersigned competent witnesses that he is the President of First Guaranty Bancshares, Inc, that as such duly authorized officer, by and with the authority of the shareholders and Board of Directors of said corporation, he signed and executed the foregoing instrument, as the free and voluntary act and deed of said corporation, for and on behalf of said corporation and for the objects and purposes therein set forth.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal and the said appearer and the said witnesses have hereunto affixed their signatures this 27 day of July, 2007.
 
WITNESSES:
 
/s/ Michele E. LoBianco                                                       s/ Michael R. Sharp
Michael R. Sharp

/s/ Regina Notariano                                                                 


              /s/ Vanessa R. Drew     [SEAL]                                 
NOTARY PUBLIC


                                                                                                           EXHIBIT 3.2

 
FIRST GUARANTY BANCSHARES, INC.

BYLAWS
 

 
ARTICLE I - OFFICES
 
Section 1.    Registered Office .  The registered office of the corporation shall be located at 400 East Thomas Street, Hammond, Louisiana 70401, or such other place as the Board shall from time to time designate, and as shall be filed with the Louisiana Secretary of State.
 
Section 2.    Other Offices .  The corporation may also have offices at such other places, both within or without the State of Louisiana, as the Board of Directors may from time to time determine or as the business of the corporation may require.
 
 
ARTICLE II - SHAREHOLDERS
 
Section 1.    Place of Meetings .  Meetings of the shareholders shall be held at the registered office of the corporation or at such other place as may be fixed from time to time by the Board of Directors, either within or without the State of Louisiana.
 
Section 2.    Annual Meeting .  An annual meeting of the shareholders shall be held on the third Thursday of May each year, or on such other date, and at such time and place, as may be designated by the Board of Directors.  At the annual meeting, the shareholders shall elect a Board of Directors and transact such other business as may properly come before the meeting.  If no annual shareholders’ meeting is held for a period of 18 months, any shareholder may call a meeting to be held at the main office of the Corporation.
 
Section 3.    Shareholder Proposals .  The only business that may be conducted at an annual meeting of the shareholders is business properly brought before the meeting.  In order to be properly brought before an annual meeting, business must be:
 
 
(a)
Identified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors.

 
(b)
Otherwise properly brought before the meeting by or at the direction of the board of directors.

 
(c)
Otherwise properly brought before an annual meeting by a shareholder after timely and proper notice thereof in writing to the Secretary of the bank.

In order to be timely, a shareholder’s notice must be delivered to or mailed and received at the main office of the bank not fewer than 30 days nor more than 90 days before the meeting, unless fewer than 40 days’ notice or prior public disclosure of the date of the meeting is given or made to the shareholders, in which case notice by the shareholder to be timely must be received not later than the close of business on the 10th day following the day on which notice of the date of the annual meeting was mailed or public disclosure was made.  In order to be proper notice as to a matter, a shareholder’s notice to the secretary must set forth:

 
(a)
A complete and accurate description of the matter, the reasons for conducting such business at the meeting, and any material interest in the matter of the shareholder and the beneficial owner, if any, on whose behalf the proposal is made.

 
(b)
The name, age, business and residential address, and class and number of shares held by the shareholder of record who intends to bring up the matter, and any beneficial owner or other person acting in concert with such shareholder.

Notwithstanding compliance with all of the procedures set forth above in this Section, no proposal shall be deemed to be properly brought before a meeting of shareholders if, in the judgment of the board of directors, it is not a proper subject for action by shareholders under Louisiana law.  At the meeting of shareholders, the chair shall declare out of order and disregard any matter not presented in accordance with the foregoing procedures or which is otherwise contrary to the foregoing terms and conditions.
 
Section 4.    Special Meetings . Special meetings of the shareholders may be called by the Chairman, the Chief Executive Officer, the President or a majority of the Board of Directors and shall be called by the President or the Secretary of the corporation at the written request of the holders of not less than one-fifth (1/5) of all shares entitled to vote at the meeting.  Special meetings of shareholders shall be held at the registered office of the corporation at such time as the Secretary may fix, or at such other place and at such time as shall be determined by the Board of Directors, not less than ten (10) days (fifteen (15) days in the case of a special meeting called upon the request of the holders of not less than one-fifth (1/5) of all shares entitled to vote at the meeting) nor more than sixty (60) days after the receipt of a request for a special meeting.  If the President or Secretary fails or refuses to fix the date or give the notice for the meeting, the shareholders who have requested the meeting may do so.  Business transacted at any special meeting shall be confined to the purposes stated in the notice thereof.
 
Section 5.    Notice of Shareholders’ Meeting .  Written or printed notice of a meeting of shareholders stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten (10) days (fifteen (15) days in the case of a special meeting called at the request of shareholders) nor more than sixty (60) days before the day of the meeting, by or at the direction of the Chief Executive Officer, the President, the Secretary, or a designee of the Chief Executive Officer, the President or Secretary, to each shareholder of record entitled to vote at such meeting.  See also ARTICLE VII .
 
Section 6.    Adjournments .  Any meeting of shareholders may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjournment meeting if the time, date and place thereof are announced at the meeting at which the adjournment is taken; provided that any meeting at which directors are to be elected shall be adjourned only from day to day until such directors shall have been elected.  At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting.  If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.
 
Section 7.    Nominations for Directors .  Subject to the rights granted to a particular class or series of stock, nominations for the election of directors may be made (i) by or at the direction of the Board of Directors or (ii) by any shareholder entitled to vote for the election of directors who complies with the procedures set forth in Section 3 above.
 
Section 8.    Quorum .  The holders of a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of shareholders, except as otherwise provided by statute.  If a quorum shall not be present or represented at any meeting of the shareholders, the chairman of the meeting or the holders of a majority of the shares entitled to vote who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. Once a quorum is attained, the shareholders present or represented at a duly organized meeting may continue to transact business notwithstanding the withdrawal of enough shareholders to leave less than a quorum.  A shareholder that is physically present at a meeting of shareholders shall be deemed to be present for purposes of determining whether a quorum exists, except where such person is physically present at the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
 
Section 9.    Order of Business .  At each meeting of the shareholders and except as otherwise set forth by resolution of the Board of Directors, one of the following persons, in the order in which they are listed (and in the absence of the first, the next, and so on), shall serve as chairman of the meeting: the Chairman of the Board, the Chief Executive Officer, the President, the Secretary and the Treasurer.  The order of business at each such meeting shall be as determined by the chairman of the meeting, who shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls.
 
Section 10.    Proxies and Voting .  On each matter submitted to a vote of the shareholders, each shareholder shall have one vote for every share of stock entitled to vote and registered in his or her name on the record date for the meeting, except to the extent that the voting rights of the shares of any class are limited or denied by the articles of incorporation or the Louisiana Business Corporation Law (“LBCL”).
 
Except as otherwise required by law, all voting may be by a voice vote or by show of hands; provided, however, that upon demand in writing to the corporation at least five business days prior to a meeting of shareholders, any shareholder entitled to vote or his or her proxy may require that a vote by ballot be taken.  In such event, written ballots shall be used and shall be counted by an inspector or inspectors appointed by the chairman of the meeting.
 
Except as otherwise required by the articles of incorporation or by law, a majority of votes actually cast shall decide any matter properly brought before the shareholders at a meeting at which a quorum is present, except that directors shall be elected by plurality of the votes actually cast.
 
At any meeting of the shareholders at which a quorum is present, every shareholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed with the Secretary of the corporation prior to or at the meeting.  No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy.  Each proxy shall be revocable unless expressly provided therein to be irrevocable, and unless otherwise made irrevocable by law.  No proxy may be valid longer than three (3) years from the date of its execution.
 
A shareholder may execute a proxy himself or by his authorized officer, director, employee or agent by signing the proxy or having his signature affixed to the proxy by any reasonable means including facsimile signature.  A shareholder may authorize another person to act for him as a proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy, or to a proxy solicitation firm, proxy support service organization, or like agent, duly authorized by the agent who will be the holder of the proxy to receive the transmission but only if any the telegram, cablegram or other means of electronic transmission is submitted to the secretary with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the shareholder.
 
Section 11.    Voting List .  At any meeting of shareholders, a list of shareholders entitled to vote, arranged alphabetically and certified by the Secretary or by the agent of the corporation having charge of transfers of shares, showing the number and class of shares held by each shareholder on the record date for the meeting shall be produced on the request of any shareholder.  This list shall be prima facie evidence of the ownership of shares in the corporation and of the right of the shareholders listed therein to vote.
 
Section 12.    Inspectors .
 
(a)    The corporation may, in advance of any meeting of shareholders, appoint one or more inspectors to act at the meeting and make a written certification thereof.  Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.
 
(b)    The inspectors shall ascertain the number of shares outstanding and the voting power of each; determine the shares represented at a meeting and the validity of proxies and ballots; count all votes and ballots; determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors; and certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
 
(c)    No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless a court of competent jurisdiction, upon application by a shareholder, shall determine otherwise.
 
(d)    In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, ballots, the regular books and records of the corporation, and any other credible evidence provided by the shareholder, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons that represent more votes than the holder of a proxy is authorized by the record owner to cast, or more votes than the shareholder holds of record.
 
Section 13.    Consent of Shareholders in Lieu of Meeting .  Any action required by the LBCL to be taken at any annual or special meeting of shareholders, or any action which may be taken at any annual or special meeting of shareholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holder or holders of shares representing not less than the minimum number of votes that would have been necessary to take such action at a meeting at which the holders of all shares entitled to vote on the action were present and voted.
 
The consent, together with a certificate by the Secretary of the corporation to the effect that the subscribers to the consent constitute all or the required proportion of the shareholders entitled to vote on the particular question, shall be filed with the records of the proceedings of the shareholders.  If the consent is signed by fewer than all of the shareholders having voting power on the question, prompt notice shall be given to all of the shareholders having voting power on the question, other than those who signed the consent, of the action taken pursuant to the consent.
 
 
ARTICLE III - DIRECTORS
 
Section 1.    General Powers . The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or the articles of incorporation or these bylaws directed or required to be exercised and done by the shareholders.
 
Section 2.    Number of Directors .  The number of directors of the corporation shall be such number as the Board of Directors shall designate from time to time.  Whenever the authorized number of directors is increased between annual meetings of the shareholders, a majority of the directors then in office shall have the power to elect such new directors for the balance of a term and until their successors are chosen and qualified.  Any decrease in the authorized number of directors shall not become effective until the expiration of the term of the directors then in office unless, at the time of such decrease, there shall be vacancies on the Board which are being eliminated by the decrease.
 
Section 3.    Nomination of Directors .  Only persons nominated in accordance with this subsection are eligible for election as directors.  Nominations of persons for election to the board of directors of the bank may be made at a meeting of shareholders either:
 
(1)           by or at the discretion of the board of directors, or

 
(2)
at an annual or special meeting of shareholders called for the election of directors, by a shareholder entitled to vote in the election of directors who has given timely and proper notice in writing to the secretary of the bank in compliance with this subsection.
 
To be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the bank not fewer than 45 days nor more than 90 days before the meeting unless fewer than 70 days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, in which case notice by the shareholder to be timely must be so received at the principal executive offices of the bank no later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed.  To be proper, the shareholder’s notice must include:
 
 
(a)
The name, age, business address and residence address of each person whom the shareholder proposes to nominate for election or re-election as a director.

 
(b)
All other information relating to the person whom the shareholder proposes to nominate that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director.

 
(c)
The name and address of the shareholder giving the notice and the class and number of shares of stock of the bank of which the shareholder is the record owner.

To be eligible for election as a director, any person proposed by a shareholder for election as a director must furnish to the secretary of the bank within five days of the request any additional information reasonably requested by the board of directors, including information responsive to the disclosures required by Items 401, 404 and 405 of Regulation S-K of the Securities Exchange Commission, even though the bank is not then subject to the Federal proxy rules.  If a shareholder seeks to nominate one or more directors, the secretary shall appoint two commissioners to determine whether a shareholder has complied with this subsection.  If the commissioners determine that a shareholder has not complied with this subsection, the commissioners shall direct the chair of the meeting to declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this by-law; and the officers presiding over the meeting shall so declare to the meeting and the defective nomination shall be disregarded.
 
Section 4.    Term of Office of Directors .  Except with respect to a vacancy on the Board of Directors, directors shall be elected at the annual meeting of shareholders and each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal.  Directors need not be a shareholder of the corporation.
 
Section 5.    First Meeting .  The first meeting of each newly elected Board of Directors shall be held at the location of and immediately following the annual meeting of shareholders, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present; or the Board may meet at such place and time as shall be fixed by the consent in writing of all of the directors.  All meetings of the Board of Directors may be held at such place, either within or without the State of Louisiana, as from time to time shall be determined by the Board of Directors.
 
Section 6.    Regular Meetings .  Regular meetings of the Board of Directors may be held without notice at such place, within or without the State of Louisiana, on such date and at such time as shall from time to time be determined by the Board of Directors.
 
Section 7.    Special Meetings .  Special meetings of the Board of Directors may be called by the Chairman, the Chief Executive Officer, the President or a majority of directors then in office.  Notice of a special meeting shall be given in accordance with these bylaws by the person or persons calling the special meeting.
 
Section 8.    Quorum .  At all meetings of the Board of Directors, a majority of the directors at the time in office shall be necessary and sufficient to constitute a quorum for the transaction of business; and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, the articles of incorporation or these bylaws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. If a quorum is present when the meeting is convened, the directors present may continue to conduct business, taking action by vote of a majority of a quorum as fixed above, until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum as fixed above.
 
Section 9.    Participation in Meetings by Conference Telephone .  Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in and hold meetings of the Board, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting, except where a director participates for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
 
Section 10.    Notice of Meetings .  Notice of regular meetings of the Board of Directors or of any adjourned meeting thereof need not be given.  Notice of the place, date and time of each special meeting of the Board shall be given to each director by telephone, hand delivery, facsimile, U.S. mail or nationally recognized overnight courier service, not less than two days before the meeting.  The notice of a special meeting of the Board shall describe the purpose of the special meeting.
 
Section 11.    Rules and Regulations . The Board of Directors may adopt such rules and regulations not inconsistent with the articles of incorporation or bylaws of the corporation or any other provision of law for the conduct of its meetings and management of the affairs of the corporation as the Board may deem proper.
 
Section 12.    Consent of Directors in Lieu of Meeting .  Any action which may be taken at a meeting of the Board of Directors or any committee thereof, may be taken by a consent in writing signed by all of the directors or by all members of the committee, as the case may be, and filed with the records of proceedings of the Board or committee.
 
Section 13.    Compensation of Directors .  The Board of Directors shall have authority to determine, from time to time, the amount of compensation, if any, which shall be paid to its members for their services as directors and as members of committees. The Board shall also have power in its discretion to provide for and to pay to directors rendering services to the corporation not ordinarily rendered by directors as such, special compensation appropriate to the value of such services as determined by the Board from time to time. In addition, the directors may be paid their expenses.  Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
 
Section 14.    Committees of the Board of Directors .  The Board of Directors may from time to time designate one or more committees of the Board, each committee to consist of two or more directors of the corporation.  One or more directors may be named as an alternate member to replace any absent or disqualified members.  To the extent provided by resolution of the Board, each committee shall have and may exercise the lawfully delegable powers of the Board of Directors in the management of the business and affairs of the corporation, and may have the power to authorize the seal of the corporation to be affixed to documents.
 
The number of members on each committee may be increased or decreased from time to time by resolution of the Board of Directors.  Any member of any committee may be removed from such committee at any time by resolution of the Board of Directors.  Any vacancy occurring on a committee shall be filled by the Board of Directors, but the Chief Executive Officer or the President may designate another director to serve on the committee pending action of the Board. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or such directors by law.
 
Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law.  Adequate provision shall be made for notice to members of all meetings; a majority of the members shall constitute a quorum; and, at any committee meeting at which a quorum is present, all matters shall be determined by a majority vote of the members present.  Committees of the Board of Directors shall keep written minutes of its proceedings, a copy of which is to be filed with the Secretary of the corporation, and shall report on such proceedings to the Board.
 
Section 15.    Removal of Directors .  Any director or the entire Board of Directors may be removed at any time, with or without cause, at any special or annual meeting of the shareholders, by the affirmative vote of a majority of the total voting power of the corporation.
 
Section 16.    Resignations .  A director of the corporation may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or the Secretary of the corporation.  Such resignation shall take effect on the date of such notice or at any later date specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
 
Section 17.    Vacancies .  Any vacancy occurring on the Board of Directors by reason of death, resignation, removal or otherwise, or newly created directorships resulting from an increase in the number of directors may be filled by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors; provided however that the shareholders shall have the right, at any special meeting called for the purpose prior to such action by the Board, to fill the vacancy.
 
 
ARTICLE IV - OFFICERS
 
Section 1.    Generally .  The officers of the corporation shall consist of a President, a Secretary, a Treasurer and such other officers as may from time to time be appointed by the Board of Directors.  Officers shall be elected by the Board of Directors, and each officer shall hold office until his successor is elected and qualified or until his earlier resignation or removal.  Any number of offices may be held by the same person, provided that regarding the President, the Secretary and the Treasurer, only two of such offices may be held by the same person.  No person holding more than one office may sign, in more than one capacity, a certificate or instrument required by law to be signed by two officers.  The Board of Directors may also choose a Chairman of the Board.  The Board may also designate one of the officers to serve as the Chief Executive Officer.  Any vacancy occurring in any office may be filled by the Board of Directors or otherwise as provided by the Board of Directors.
 
Section 2.    Execution of Instruments .  The Chairman of the Board, the Chief Executive Officer and the President (and such other officers as are authorized thereunto by resolution of the Board of Directors) may execute, in the name of the corporation, bonds, notes, debentures and other evidences of indebtedness, stock certificates, deeds, mortgages, deeds of trust, indentures, contracts, leases, agreements and other instruments, requiring a seal under the seal of the corporation, and may execute such documents where not requiring a seal, except where such documents are required by law to be otherwise signed and executed, and except where the signing and execution thereof shall be exclusively delegated to some other officer or agent of the corporation.
 
Section 3.    Duties of Officers .  The duties and powers of the officers of the corporation shall be as provided in these bylaws, or as provided for pursuant to these bylaws, or (except to the extent inconsistent with these bylaws or with any provision made pursuant hereto) shall be those customarily exercised by corporate officers holding such offices.
 
Section 4.    Chairman of the Board .  The Chairman of the Board shall preside at meetings of the Board of Directors.  The Chairman of the Board shall counsel with and advise the other officers of the corporation and shall exercise such powers and perform such other duties as the Board may from time to time determine.  Except as otherwise provided by resolution of the Board, the Chairman of the Board shall be an ex-officio a member of all committees of the Board.  The Chief Executive Officer shall, in the absence or disability of the Chairman, perform the duties and exercise the powers of the Chairman and shall perform such other duties and have such other powers as the Board of Directors shall prescribe.
 
Section 5.    Chief Executive Officer .  The Chief Executive Officer, if any, shall be the chief executive officer of the corporation.  Subject to the provisions of these bylaws and the direction of the Board of Directors, the Chief Executive Officer shall be ex-officio a member of all standing committees, have general powers of oversight, supervision and management of the business and affairs of the corporation, and see that all orders and resolutions of the Board of Directors are carried into effect.  In the absence of the Chairman of the Board, or in the event the Board of Directors shall not have designated a Chairman, the Chief Executive Officer shall preside at meetings of the Board of Directors.
 
Section 6.    President .  In the absence of a named Chief Executive Officer, the President shall be the chief executive officer of the corporation and shall be an ex-officio a member of all standing committees, have general powers of oversight, supervision and management of the business and affairs of the corporation, and see that all orders and resolutions of the Board of Directors are carried into effect.  If some other officer is serving as Chief Executive Officer, the President shall act pursuant to direction of the Board of Directors and/or the Chief Executive Officer.  The President shall be authorized to execute documents and instruments on behalf of the corporation, and shall have such duties as the Board shall from time to time determine or as shall be directed by the Chief Executive Officer.  In the absence of the Chairman of the Board or the Chief Executive Officer, the President shall preside at meetings of the Board of Directors.
 
Section 7.    Vice Presidents . The Vice Presidents, if any, in the order determined by the Board of Directors, shall, in the absence or disability of the Chief Executive Officer or the President, perform the duties and exercise the powers of the Chief Executive Officer or the President and shall perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer or the President shall prescribe.
 
Section 8.    Secretary .  The Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the shareholders and the Board of Directors and committees thereof.  The Secretary shall have charge of the corporate books and shall perform such other duties as the Board of Directors, the Chief Executive Officer or the President may from time to time prescribe.  The Secretary shall keep in safe custody the seal of the corporation, if any, and, when authorized by the Board of Directors, the Chief Executive Officer or the President, affix the same to any instrument requiring it and, when so affixed, it shall be attested by signature of the Secretary, an Assistant Secretary or the Treasurer.  The Secretary shall be authorized to attest to and certify instruments and documents of the corporation.  The Assistant Secretary(ies), if any, in the order determined by the Board of Directors, the Chief Executive Officer or the President shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer or the President may from time to time prescribe.
 
Section 9.    Treasurer . The Treasurer shall have the responsibility for maintaining the financial records of the corporation and shall have custody of all monies and securities of the corporation.  He shall make such disbursements of the funds of the corporation as are authorized and shall render from time to time an account of all such transactions and of the financial condition of the corporation.  The Treasurer shall also perform such other duties as the Board of Directors, the Chief Executive Officer or the President may from time to time prescribe.  The Treasurer may also serve as the Chief Financial Officer of the corporation at the direction of the Board of Directors unless the Board has appointed some other officer to serve as the Chief Financial Officer.  The Assistant Treasurer(s), if any, in the order determined by the Board of Directors, the Chief Executive Officer or the President shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
 
Section 10.    Delegation of Authority .  The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers and agents, notwithstanding any provision hereof.
 
Section 11.    Compensation of Officers and Agents .  The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors, except as otherwise directed by the Board of Directors.
 
Section 12.    Resignation .  Subject at all times to the right of removal as provided in Section 13 below, any officer may resign at any time by giving notice to the Board of Directors, the Chief Executive Officer or the President of the corporation.  Any such resignation shall take effect at the date of such notice or at any later date specified therein.  The acceptance of such resignation shall not be necessary to make it effective.
 
Section 13.    Removal .  Any officer or agent of the corporation may be removed at any time, with or without cause, by the Board of Directors, the Chief Executive Officer or the President.
 
Section 14.    Action with Respect to Securities of Other Corporations .  Unless otherwise directed by the Board of Directors, the Chief Executive Officer or the President or any officer of the corporation authorized by the Chief Executive Officer or the President shall have the power to vote and otherwise act on behalf of the corporation, in person or by proxy, at any meeting of shareholders of or with respect to any action of the shareholders of any other corporation in which this corporation may hold securities and otherwise to exercise any and all rights and powers which this corporation may possess by reason of its ownership of securities in such other corporation.
 
 
ARTICLE V – INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
Section 1.    Indemnification of Directors and Officers.   To the fullest extent permitted by law and the articles of incorporation, the corporation shall indemnify and hold harmless each person who was or is a director or officer of the corporation and may indemnify any other person, including any person who was or is serving as a director, officer, fiduciary or other representative of another entity at the request of the corporation, and each such person’s heirs and legal representatives, in connection with any actual or threatened action, suit, proceeding, claim, investigation or inquiry, whether civil, criminal, administrative or other, whether brought by or in the name of the corporation or otherwise from and against any and all expenses (including attorneys’ fees and expenses), judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit, proceeding, investigation or inquiry.
 
Section 2.    Rules.   The board of directors of the corporation may establish rules and procedures, not inconsistent with the provisions of this ARTICLE V , to implement the provisions of this ARTICLE V .  If required by law, the indemnification hereunder (unless ordered by the court) shall be made by the corporation only as authorized in a specific case upon a determination that the applicable standard of conduct of the party seeking indemnification has been met.  Such standard shall be as mandated by the articles of incorporation, these bylaws or the LBCL.
 
Section 3.    Insurance.   The corporation may procure insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another business, nonprofit or foreign corporation, partnership, company, joint venture or other enterprise against any liability asserted against or incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the articles of incorporation, these bylaws or the LBCL.
 
 
ARTICLE VI - CERTIFICATES OF STOCK
 
Section 1.    Certificates of Stock .  Every holder of stock in the corporation shall be entitled to a certificate or certificates representing such shares, which certificates shall be in such form as shall be determined by the Board of Directors.  Such certificates shall be executed on behalf of the corporation by the Chief Executive Officer, the President or a Vice President, and the Secretary or an Assistant Secretary, of the corporation and, if the corporation has a seal, shall be sealed with the seal of the corporation or a facsimile thereof.  The signature of any officer may be facsimile.  Certificates bearing the signatures of individuals who were, at the time when such signature shall have been affixed, authorized to sign on behalf of the corporation, shall be validly executed notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such certificates or did not hold such offices at the date of delivery of such certificates.
 
No certificate shall be issued until the consideration therefor has been fully paid.  Each certificate representing shares of the corporation shall state upon the face thereof the name of the corporation, that the corporation is organized under the laws of the State of Louisiana, the name of the registered holder of the shares represented thereby, the number and class and the designation of the series, if any, which such certificate represents, and the par value of each share represented by such certificate or a statement that the shares are without par value.
 
Section 2.    Designation of Classes of Stock .  If the corporation is authorized to issue shares of more than one class, each certificate representing shares issued by the corporation shall conspicuously set forth on the certificate, or shall state that the corporation will furnish to any shareholder upon request and without charge, a summary of the designations, preferences, limitations, and relative rights of the shares of each class and of each series of each preferred or special class, so far as the same have been fixed, and the authority of the Board to establish other series and to fix the relative rights, preferences and limitations of the shares of any class or series by amendment of the articles.
 
Section 3.    Lost, Stolen or Destroyed Certificates .  The Board of Directors, Chief Executive Officer, or President may direct that a new certificate for shares shall be issued in place of any certificate theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to have been lost, stolen or destroyed.  When authorizing such issuance of a new certificate, the Board of Directors, Chief Executive Officer, or President may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
 
Section 4.    Registrar and Transfer Agent . The corporation shall keep, or cause to be kept, at its registered office or at such other location designated by the Board of Directors, a register or registers in which, subject to such reasonable regulations as the Board of Directors may prescribe, the registrar and transfer agent shall register the stock of the corporation and the transfers thereof.  Except as otherwise provided by resolution of the Board of Directors, the registrar and transfer agent shall be the corporation’s subsidiary bank.
 
Section 5.    Registration of Transfer and Exchange . Upon surrender for registration of transfer of any stock certificate with the registrar and transfer agent, the corporation shall execute, in the manner set forth in Section 1 of this Article, one or more new certificates of the same class and of a like aggregate monetary amount, and the registrar and transfer agent shall deliver the same in the name of and to the designated transferee or transferees.
 
At the option of the shareholder, certificates may be exchanged for other certificates of the same class and of a like aggregate monetary amount in any authorized denominations upon surrender of the certificates to be exchanged with the registrar and transfer agent.  Upon such surrender, the corporation shall execute, in the manner set forth in Section 1 of this Article, and the registrar and transfer agent shall deliver the new certificate or certificates to the holder thereof.
 
Every certificate presented or surrendered for registration of transfer or exchange shall be accompanied (if so required by the Board of Directors or the registrar and transfer agent) by a written instrument or instruments of transfer, in form satisfactory to the Board of Directors or the registrar and transfer agent, duly executed by the registered shareholder or by such shareholder’s duly authorized attorney in writing.
 
No service charge shall be made for any exchange or registration of transfer of certificates, but the corporation may, with respect to transactions not involving a transfer, require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto.
 
Upon the order of the Board of Directors, certificates presented or surrendered for registration of transfer or exchange shall be canceled and subsequently disposed of in accordance with standard procedures.
 
Section 6.    Restriction on Transfer of Securities .  During any time which the corporation issues any securities that are not registered under the Securities Act of 1933, as amended, the transfer of any such unregistered securities shall be restricted such that they may not be reoffered, sold, pledged, assigned, encumbered, transferred or otherwise disposed of, and the registrar and transfer agent shall not register any such sale or transfer thereof unless the corporation has received an opinion of counsel or other evidence satisfactory to the Board of Directors to the effect that the securities have been validly registered with all appropriate authorities or that the securities are, or the transaction is, exempt from registration thereunder.  To the fullest extent permitted by law, any transfer or purported transfer of any unregistered security not made in accordance with these bylaws shall be null and void.  The certificates shall bear appropriate legends evidencing the restrictions on transfer.
 
Section 7.    Record Date .  For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or to receive payment of any dividend or other distribution, or to receive or exercise subscription or other rights, or to participate in a reclassification of stock, or in order to make a determination of shareholders for any other proper purposes, the Board of Directors may fix in advance a record date for determination of shareholders for such purpose, which record date shall be not more than 60 days and, if fixed for the purpose of determining shareholders entitled to notice and to vote at a meeting, not less than 10 days (or 15 days in the case of a special meeting of shareholders), prior to the date on which the action requiring the determination of shareholders is to be taken.
 
Except as the Board of Directors may otherwise provide, if no record date is fixed for the purpose of determining shareholders (i) entitled to notice of and to vote at a meeting, the close of business on the day before the notice of the meeting is mailed, or if notice is waived, the close of business on the day before the meeting, shall be the record date for such purpose, or (ii) for any other purpose, the close of business on the day which the Board of Directors adopts the resolution relating thereto shall be the record date for such purposes.
 
Section 8.    Stock Transfer Books .  The Board of Directors may, from time to time and in its discretion, order that the stock transfer books shall be closed.
 
Section 9.    Registered Shareholders .  The corporation shall be entitled to recognize and treat a person registered on its records as the owner of shares, as the exclusive owner in fact thereof for all purposes, and as the person entitled to have and to exercise all rights and privileges incident to the ownership of such shares, including the right to vote and to receive dividends or payments of interest and principal thereon.  The corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Louisiana; and the rights under this section shall not be affected by any actual or constructive notice which the corporation, or any or its directors, officers or agents, may have to the contrary.
 
 
ARTICLE VII   - NOTICES
 
Section 1.    Notices .  Except as otherwise specifically provided herein or required by law, whenever any notice is required to be given to any shareholder, director or committee member under the provisions of any statute, the articles of incorporation or these bylaws, such notice shall be delivered personally or shall be given in writing by mail or overnight delivery addressed to such shareholder, director or committee member at such address as it appears on the books of the corporation, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail with postage thereon prepaid or when placed in any reliable form of overnight delivery, prepaid.  Notice to directors and committee members may also be given through the use of any oral or electronic means of communication, including telephone, telegraph, facsimile, email or other means of communication, which notice shall be deemed to be given at the time it is sent or communicated.
 
Section 2.    Waivers .  Whenever notice is required to be given pursuant to statute or the articles of incorporation or bylaws of this corporation, a written waiver of such notice, signed by the shareholder, director, officer, employee or agent entitled to receive such notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such shareholder, director, officer, employee or agent.  Neither the business nor the purpose of the meeting need be specified in such a waiver.
 
 
ARTICLE VIII - MISCELLANEOUS
 
Section 1.    Facsimile Signatures .  In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these bylaws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.
 
Section 2.    Dividends .  The Board of Directors may declare and the corporation may make distributions on its outstanding shares in cash, property or shares of the corporation in accordance with law and subject to the articles of incorporation.
 
Section 3.    Corporate Seal .  The Board of Directors may provide a suitable seal, containing the name of the corporation, which seal shall be in the charge of the Secretary.  If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer, an Assistant Secretary or an Assistant Treasurer.
 
Section 4.    Reliance Upon Books, Reports and Records .  Each director, each member of any committee designated by the Board of Directors, shall be fully protected in relying in good faith upon the books of account or other records of the corporation, including reports made to the corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care.
 
Section 5.    Checks .  All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
 
Section 6.    Time Periods .  In computing any period of time under these bylaws, calendar days shall be used, the day that marks the commencement of the period shall not be counted, and the period shall end upon the expiration of the last day of the period; provided, however, that if the day on which the period is to expire is a legal holiday under the laws of the State of Louisiana, then the period shall end upon the expiration of the next day that is not a legal holiday.
 
Section 7.    Fiscal Year .  The fiscal year of the corporation shall be, in the absence of a contrary resolution of the Board of Directors, the calendar year.
 
 
ARTICLE IX - AMENDMENT OF BYLAWS
 
These bylaws may be altered, amended or repealed or new bylaws may be adopted by the Board of Directors at any meeting of the Board.
 


CERTIFICATE OF ADOPTION OF BYLAWS

The undersigned Secretary of First Guaranty Bancshares, Inc. hereby certifies that the foregoing are the Bylaws of the corporation, duly adopted by the Board of Directors pursuant to unanimous written consent dated January 4, 2007, and such Bylaws remain in full force and effect, without amendment thereto, as of the date set forth below.
 
Executed this  4th   day of January, 2007.
 



/s/Michele E. LoBianco
Michele E. LoBianco, Secretary

 


 
EXHIBIT 3.3
 
AMENDMENT TO BYLAWS
OF
FIRST GUARANTY BANCSHARES, INC.
Hammond, Louisiana
 
The following Amendment to the Bylaws of First Guaranty Bancshares, Inc., Hammond, Louisiana (the “Corporation”) was approved by the unanimous written consent of the board of directors of the Corporation dated May 17, 2007 and incorporated into the Bylaws as follows:
 
ARTICLE V
 
Section 1.                       Indemnification of Directors and Officers .  To the fullest extent permitted by law and the articles of incorporation, the corporation shall indemnify and hold harmless each person who was or is a director or officer of the corporation and may indemnify any other person, including any person who was or is serving as a director, officer, fiduciary or other representative of another entity at the request of the corporation, and each such person’s heirs and legal representatives, in connection with any actual or threatened action, suit, proceeding, claim, investigation or inquiry, whether civil, criminal, administrative or other, whether brought by or in the name of the corporation or otherwise from and against any and all expenses (including attorneys’ fees and expenses), judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit, proceeding, investigation or inquiry; provided, however, that the provisions of this Article V shall be valid only to the extent that they are consistent with, and are limited by, applicable laws and regulations, including, but not limited to 12 U.S.C. 1828(k) and regulations promulgated thereunder from time to time by applicable federal banking agencies.  The invalidity of any provision of this Article V will not affect the validity of the remaining provisions of Article V.
 
[Please attach to the Corporation’s Bylaws and keep in the minute book.]
 

 
Date: May 17, 2007                                                                                     FIRST GUARANTY BANCSHARES, INC.
 

 
By:  /s/ Michael R. Sharp
       Michael R. Sharp, President
 



                                                                                                          EXHIBIT 4
 
 
 
   
 
ORGANIZED UNDER THE LAWS OF THE STATE OF LOUISIANA
   
         



 
FIRST GUARANTY BANCSHARES, INC.
 

COMMON STOCK
Par Value $1




This is to Certify that                                                                                              is the owner of
                                       fully paid and non-assessable shares of common stock, par value $1 per share, of First Guaranty Bancshares, Inc. (the “Company”) transferable only on the books
 of the Company by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed.

In Witness Whereof , the Company has caused this Certificate to be signed by its duly authorized officers hereunder affixed on this ____ day of _______, 200___.

 
                                                                                                                                       
     Authorized Officer                                                                                                                                         Authorized Officer

 
 

FIRST GUARANTY BANCSHARES, INC. WILL FURNISH THE SHAREHOLDER INFORMATION WITHOUT CHARGE, UPON REQUEST IN WRITING, REGARDING THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS APPLICABLE TO EACH DIFFERENT CLASS OF SHARES OR DIFFERENT SERIES WITHIN A CLASS, AND THE VARIATION IN RIGHTS, PREFERENCES, AND LIMITATIONS DETERMINED FOR EACH SERIES, AND THE AUTHORITY OF ITS BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES.
 
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:

TEN COM                      - as tenants in common                                                              UNIF TRANSFERS MIN ACT-………….Custodian …………...
                                                                           (Cust)                      (Minor)
TEN ENT                      - as tenants by the entireties                                                      under Uniform Transfers to Minors
                                                               Act …………………………………
JT TEN                      - as joint tenants with right of                                                                                 (State)
           survivorship and not as tenants
           in common
 
Additional abbreviations may also be used though not in the above list

For value received _______________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OR ASSIGNEE

 
 

                                                                                                                                              
( PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
 
                                                                                                                                                                                             
 
                                                                                                                                                                                             
 
                                                                                                                                                                                                 Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint                                                                             Attorney to transfer the said Shares
on the books of the within named Company with full power of substitution in the premises.

Dated                                                                   ,                       

In presence of                                                                                                 
                               witness
 
                                                                                                                 
                                        Assignor
 

NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERNATION.


                                                                                                                EXHIBIT 10.1
 
 
 
 

 

FIRST GUARANTY BANK

EMPLOYEE STOCK OWNERSHIP PLAN



(adopted effective January 1, 2003)
 
 
 
 
 
 
 
 
 
 


FIRST GUARANTY BANK
EMPLOYEE STOCK OWNERSHIP PLAN


This First Guaranty Bank Employee Stock Ownership Plan (the “Plan”), is executed on the 22nd day of December, 2003, by First Guaranty Bank (the “Bank”).


W I T N E S S E T H  T H A T

WHEREAS, the board of directors of the Bank has resolved to adopt an employee stock ownership plan for eligible employees of the Bank, in accordance with the terms and conditions presented set forth herein;

NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth the terms and conditions pertaining to contributions by the Bank and the payment of benefits to Participants and Beneficiaries.

IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this instrument to be executed by its duly authorized officers as of the above date.



ATTEST:
 
 

 

/s/Collins Bonicard  
 By:   
  /s/Stanley M. Dameron
 Secretary
                                                                                               
President 
                                                                         
 
                                                                                


2
C O N T E N T S
 
       Page No.
Section 1.    
   Plan Identity........................................................................................................................................................................................................................................................
 1
1.1  
       Name.................................................................................................................................................................................................................................................................
 1
 1.2  
 
    Purpose.............................................................................................................................................................................................................................................................
 1
 1.3  
      Effective Date..................................................................................................................................................................................................................................................
 1
 1.4  
      Fiscal Period.....................................................................................................................................................................................................................................................
 1
 1.5  
      Single Plan for All Employers........................................................................................................................................................................................................................
 1
 1.6  
      Interpretation of Provisions..........................................................................................................................................................................................................................
 1
 Section 2.    
   Definitions...........................................................................................................................................................................................................................................................
 1
Section 3.    
    Eligibility for Paticipation.................................................................................................................................................................................................................................
 6
                          3.1  
    Initial Eligibility................................................................................................................................................................................................................................................
                 6
                          3.2       Definition of Eligibility Year..........................................................................................................................................................................................................................                  6
                          3.3       Terminated Employees...................................................................................................................................................................................................................................                  6
                          3.4       Certain Employees Ineligible.........................................................................................................................................................................................................................                  7
                          3.5       Participation and Reparticipation.................................................................................................................................................................................................................                  7
                          3.6       Omission of Eligible Employee......................................................................................................................................................................................................................                  7
            Section 4.     Contributions and Credits...............................................................................................................................................................................................................................                  7
                          4.1        Discretionary Contributions.........................................................................................................................................................................................................................                  7
                          4.2        Conditions as to Contributions...................................................................................................................................................................................................................                  7
                          4.3        Rollover Contributions..................................................................................................................................................................................................................................                  8
            Section 5.    Limitations on Contributions and Allocations..............................................................................................................................................................................................                  8
                          5.1        Limitation on Annual Additions..................................................................................................................................................................................................................                  8
                          5.2        Effect of Limitations.......................................................................................................................................................................................................................................                  9
                          5.3        Limitations as to Certain Participants.........................................................................................................................................................................................................                  9
            Section 6.    Trust Fund and Its Investment........................................................................................................................................................................................................................                10
                          6.1        Creation of Trust Fund..................................................................................................................................................................................................................................                10
                          6.2        Stock Fund and Investment Fund...............................................................................................................................................................................................................                10
                          6.3        Acquisition of Stock......................................................................................................................................................................................................................................                10
                          6.4        Participants' Option to Diversity.................................................................................................................................................................................................................                10
            Section 7.    Voting Rights and Dividends on Stock..........................................................................................................................................................................................................                11
                          7.1        Voting and Tendering Stock........................................................................................................................................................................................................................                11
                          7.2        Dividends on Stock.......................................................................................................................................................................................................................................                11
            Section 8.   Adjustments to Accounts ................................................................................................................................................................................................................................                12
                          8.1        Adjustments for Transactions.....................................................................................................................................................................................................................                12
                          8.2        Valuation of Investment Fund.....................................................................................................................................................................................................................                12
                          8.3        Adjustments for Investment Experience....................................................................................................................................................................................................                12
            Section 9.    Vesting of Participants' Interests.....................................................................................................................................................................................................................                12
                          9.1        Deferred Vesting Years.................................................................................................................................................................................................................................                12
                          9.2        Computation of Vesting Years.....................................................................................................................................................................................................................                12
                          9.3        Full Vesting Upon Certain Events...............................................................................................................................................................................................................                13
                          9.4        Full Vesting Upon Plan Termination...........................................................................................................................................................................................................                13
                          9.5        Forfeiture, Repayment and Restoral............................................................................................................................................................................................................                13
                          9.6        Accounting for Forfeitures...........................................................................................................................................................................................................................                14
                          9.7        Vesting and Nonforfeitability.......................................................................................................................................................................................................................                14
           Section 10.    Payment of Benefits...........................................................................................................................................................................................................................................                14
                          10.1         Benefits for Participants...............................................................................................................................................................................................................................                14
                          10.2        Time for Distribution.....................................................................................................................................................................................................................................                15
                          10.3        Marital Status.................................................................................................................................................................................................................................................                16
                          10.4        Delay in Benefit Determination....................................................................................................................................................................................................................                16
3
C O N T E N T S
       Page No.
                     10.5   
      Accounting for Benefit Payments.............................................................................................................................................................................................................
 16
                       10.6   
       Options to Receive and Sell tock.............................................................................................................................................................................................................
 16
                    10.7   
 
    Restricktions on Disposition of Stock......................................................................................................................................................................................................
 17
        10.8   
     Creations of Protections and Rights..........................................................................................................................................................................................................
 17
                         10.9   
      Direct Rollover of Eligible Distribution.....................................................................................................................................................................................................
 17
                         10.10  
      Waiver of 30-Day Period After Notice of istribution.............................................................................................................................................................................
 18
  Section 11.      
  Rules Governing Benefit Claims and Review of Appeals..........................................................................................................................................................................
 18
11.1     
       Claim for Benefits........................................................................................................................................................................................................................................
 18
                         11.2    
       Notification by Committee.........................................................................................................................................................................................................................
 18
                          11.3      
    Claims Review Procedure............................................................................................................................................................................................................................
                 19
             Section 12.         The Committee and its Functions................................................................................................................................................................................................................                  19
                          12.1       Authority of Committee..............................................................................................................................................................................................................................                  19
                          12.2       Identy of Committee....................................................................................................................................................................................................................................                  19
                          12.3       Duties of Committee....................................................................................................................................................................................................................................                  19
                          12.4       Vaulation of Stock........................................................................................................................................................................................................................................                  20
                          12.5       Compliance with FRISA..............................................................................................................................................................................................................................                  20
                          12.6       Action by Committee...................................................................................................................................................................................................................................                  20
                          12.7       Execution of Documents.............................................................................................................................................................................................................................                  20
                          12.8       Adoption of Rules.......................................................................................................................................................................................................................................                  20
                          12.9        Responsibilities to Participants................................................................................................................................................................................................................                  20
                          12.10        Alternative Payees in Event of Incapacity..............................................................................................................................................................................................                  21
                          12.11        Indemnification by Employers..................................................................................................................................................................................................................                  21
                          12.12        Nonparticipation by Interested Member.................................................................................................................................................................................................                  21
            Section 13.    Adoption Amendment, or Termination of the Plan...................................................................................................................................................................................                  21
                          13.1        Adoption of Plan by Other Employers....................................................................................................................................................................................................                  21
                          13.2        Plan Adoption Subject to Qualifiacations...............................................................................................................................................................................................                  21
                          13.3        Right to Amend or Terminate....................................................................................................................................................................................................................                  21
            Section 14.    Miscellaneous Provisions.............................................................................................................................................................................................................................                  22
                          14.1        Plan Creates No Employment Rights.......................................................................................................................................................................................................                  22
                          14.2        Nonassignability of Benefits.....................................................................................................................................................................................................................                  22
                          14.3       Limit of Employer Liability..........................................................................................................................................................................................................................                  22
                          14.4        Treatment of Expenses...............................................................................................................................................................................................................................                  22
                          14.5        Number and Gender....................................................................................................................................................................................................................................                  22
                          14.6        Nondiversion of Assets............................................................................................................................................................................................................................                  22
                          14.7        Seperability of Provisions.........................................................................................................................................................................................................................                  22
                          14.8        Service of Process.......................................................................................................................................................................................................................................                  23
                          14.9        Governing State Law..................................................................................................................................................................................................................................                  23
                          14.10        Employer Contributions Conditioned on Deductivility........................................................................................................................................................................                  23
                          14.11        Unclaimed Accounts..................................................................................................................................................................................................................................                  23
                          14.12        Qualified Domestic Relations Order.........................................................................................................................................................................................................                  23
           Section 15.       Top-Heavy Provisions...................................................................................................................................................................................................................................                  24
                          15.1        Top-Heavy Plan..........................................................................................................................................................................................................................................                  24
                          15.2        Super Top-Heavy Plans.............................................................................................................................................................................................................................                  24
                          15.3         Definitions...................................................................................................................................................................................................................................................                  24
                          15.4        Top-Heavy Rules of Applicaiton.............................................................................................................................................................................................................                  25
                          15.5        Minimum Contributions.............................................................................................................................................................................................................................                  26
                          15.6        Top-Heavy Provisions Control in Top-Heavy Plan..............................................................................................................................................................................                  27

4

FIRST GUARANTY BANK
EMPLOYEE STOCK OWNERSHIP PLAN

Section 1.   Plan Identity .

1.1            Name .  The name of this Plan is “First Guaranty Bank Employee Stock Ownership Plan.”

1.2            Purpose .  The purpose of this Plan is to describe the terms and conditions under which contributions made pursuant to the Plan will be credited and paid to the Participants and their Beneficiaries.

1.3            Effective Date .  The Effective Date of this Plan is January 1, 2003.

1.4            Fiscal Period .  This Plan shall be operated on the basis of a January 1 to December 31 fiscal year for the purpose of keeping the Plan’s books and records and distributing or filing any reports or returns required by law.

1.5            Single Plan for All Employers .  This Plan shall be treated as a single plan with respect to all participating Employers for the purpose of crediting contributions and forfeitures and distributing benefits, determining whether there has been any termination of Service, and applying the limitations set forth in Section 5.

1.6            Interpretation of Provisions .  The Employers intend this Plan and the Trust to be a qualified stock bonus plan under Section 401(a) of the Code and an employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA and Section 4975(e)(7) of the Code.  The Plan is intended to have its assets invested primarily in qualifying employer securities of one or more Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy any requirement under ERISA or the Code applicable to such a plan.

Accordingly, the Plan and Trust Agreement shall be interpreted and applied in a manner consistent with this intent and shall be administered at all times and in all respects in a nondiscriminatory manner.

Section 2.   Definitions .

The following capitalized words and phrases shall have the meanings specified when used in this Plan and in the Trust Agreement, unless the context clearly indicates otherwise:

“Account” means a Participant’s interest in the assets accumulated under this Plan as expressed in terms of a separate account balance which is periodically adjusted to reflect his Employer’s contributions, the Plan’s investment experience, and distributions and forfeitures.

“Active Participant” means a Participant who has satisfied the eligibility requirements under Section 3 and who has at least 1,000 Hours of Service during the current Plan Year.  However, a Participant shall not qualify as an Active Participant unless (i) he is in active Service with an Employer as of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of that date, or (iii) his Service terminated during the Plan Year by reason of Disability, death, Early or Normal Retirement.
 
“Bank” means First Guaranty Bank and any entity which succeeds to the business of First Guaranty Bank and adopts this Plan as its own pursuant to Section 13.1 of the Plan.
 
5
“Beneficiary” means the person or persons who are designated by a Participant to receive benefits payable under the Plan on the Participant’s death.  In the absence of any designation or if all the designated Beneficiaries shall die before the Participant dies or shall die before all benefits have been paid, the Participant’s Beneficiary shall be his surviving Spouse, if any, or his estate if he is not survived by a Spouse.  The Committee may rely upon the advice of the Participant’s executor or administrator as to the identity of the Participant’s Spouse.

“Break in Service” means any Plan Year, or, for the initial eligibility computation period under Section 3.2, the 12-consecutive month period beginning on the first day of which an Employee has an Hour of Service, in which an Employee has 500 or fewer Hours of Service.  Solely for this purpose, an Employee shall be considered employed for his normal hours of paid employment during a Recognized Absence (said Employee shall not be credited with more than 501 Hours of Service to avoid a Break in Service), unless he does not resume his Service at the end of the Recognized Absence.  Further, if an Employee is absent for any period (i) by reason of the Employee’s pregnancy, (ii) by reason of the birth of the Employee’s child, (iii) by reason of the placement of a child with the Employee in connection with the Employee’s adoption of the child, or (iv) for purposes of caring for such child for a period beginning immediately after such birth or placement, the Employee shall be credited with the Hours of Service which would normally have been credited but for such absence, up to a maximum of 501 Hours of Service.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the committee responsible for the administration of this Plan in accordance with Section 12.

“Disability” means only a disability which renders the Participant totally unable, as a result of bodily or mental disease or injury, to perform any duties for an Employer for which he is reasonably fitted, which disability is expected to be permanent or of long and indefinite duration.  However, this term shall not include any disability directly or indirectly resulting from or related to habitual drunkenness or addiction to narcotics, a criminal act or attempt, service in the armed forces of any country, an act of war, declared or undeclared, any injury or disease occurring while compensation to the Participant is suspended, or any injury which is intentionally self-inflicted.  Further, this term shall apply only if (i) the Participant is sufficiently disabled to qualify for the payment of disability benefits under the federal Social Security Act or Veterans Disability Act, or (ii) the Participant’s disability is certified by a physician selected by the Committee.  Unless the Participant is sufficiently disabled to qualify for disability benefits under the federal Social Security Act or Veterans Disability Act, the Committee may require the Participant to be appropriately examined from time to time by one or more physicians chosen by the Committee, and no Participant who refuses to be examined shall be treated as having a Disability.  In any event, the Committee’s good faith decision as to whether a Participant’s Service has been terminated by Disability shall be final and conclusive.

“Early Retirement” means retirement on or after a Participant’s attainment of age 62 and the completion of ten (10) years of credited Service with an Employer.  If the Participant terminates employment before satisfying the age requirement, but has satisfied the employment requirement, the Participant will be entitled to elect early retirement upon satisfaction of the age requirement.

“Effective Date” means January 1, 2003.

“Employee” means any individual who is or has been employed or self-employed by an Employer.  “Employee” also means an individual employed by a leasing organization who, pursuant to an agreement between an Employer and the leasing organization, has performed services for the Employer and any related persons (within the meaning of Section 414 (n)(6) of the Code) on a substantially full-time basis for more than one year, if such services are performed under the primary direction or control of the Employer.  However, such a “leased employee” shall not be considered an Employee if (i) he participates in a money purchase pension plan sponsored by the leasing organization which provides for immediate participation, immediate full vesting, and an annual contribution of at least 10 percent of the Employee’s 415 Compensation, and (ii) leased employees do not constitute more than 20 percent of the Employer’s total work force (including leased employees, but excluding Highly Paid Employees and any other Employees who have not performed services for the Employer on a substantially full-time basis for at least one year).
6

“Employer” means the Bank or any affiliate within the purview of section 414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership, or proprietorship which adopts this Plan with the Bank’s consent pursuant to Section 13.1, and any entity which succeeds to the business of any Employer and adopts the Plan pursuant to Section 13.2.

“Entry Date” means the Effective Date of the Plan and each January 1 and July 1 of each Plan Year after the Effective Date.

“ERISA” means the Employee Retirement Income Security Act of 1974 (P.L. 93-406, as amended).

“415 Compensation”

(a)    shall mean wages, as defined in Code Section 3401(a) for purposes of income tax withholding at the source.
 
         (b)         Any elective deferral as defined in Code Section 402(g)(3) (any Employer contributions made on behalf of a Participant to the extne not includible in gross ineome and any Employer contributions to purchase an annuity contract under Code Section 403(b) under a salary reduction agreement) and any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in gross income of the Participant by reason of Code Section 125 (Cafeteria Plan), Code Section 457 or 132(f)(4) shall also be included in the definition of 415 Compensation.
 
         (c)         415 Compensation in excess of $200,000 (as indexed) shall be disregarded for all Participants.  For purposes of this sub-section, the $200,000 limit    shall be referred to as the “applicable limit” for the Plan Year in question.  The $200,000 limit shall be adjusted for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code, effective for the Plan Year which begins within the applicable calendar year.  For purposes of the applicable limit, 415 Compensation shall be prorated over short Plan Years.

“Highly Paid Employee” for any Plan Year means an Employee who, during either that or the immediately preceding Plan Year was at any time a five percent owner of the Employer (as defined in Code Section 416(i)(1)) or, during the immediately preceding Plan Year, had 415 Compensation exceeding $90,000 and was among the most highly compensated one-fifth of all Employees (the $90,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d), provided, however, the base period is the calendar quarter ending September 30, 1996).  For these purposes, “the most highly compensated one-fifth of all Employees” shall be determined by taking into account all individuals working for all related Employer entities described in the definition of “Service,” but excluding any individual who has not completed six months of Service, who normally works fewer than 17½  hours per week or in fewer than six months per year, who has not reached age 21, whose employment is covered by a collective bargaining agreement, or who is a nonresident alien who receives no earned income from United States sources.  The applicable year for which a determination is being made is called a “determination year” and the preceding 12-month period is called a look-back year.

7
“Hours of Service” means hours to be credited to an Employee under the following rules:

(a)          Each hour for which an Employee is paid or is entitled to be paid for services to an Employer is an Hour of Service.

(b)          Each hour for which an Employee is directly or indirectly paid or is entitled to be paid for a period of vacation, holidays, illness, disability, lay-off, jury duty, temporary military duty, or leave of absence is an Hour of Service.  However, except as otherwise specifically provided, no more than 501 Hours of Service shall be credited for any single continuous period which an Employee performs no duties.  No more than 501 Hours of Service will be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period).  Further, no Hours of Service shall be credited on account of payments made solely under a plan maintained to comply with worker’s compensation, unemployment compensation, or disability insurance laws, or to reimburse an Employee for medical expenses.

(c)          Each hour for which back pay (ignoring any mitigation of damages) is either awarded or agreed to by an Employer is an Hour of Service.  However, no more than 501 Hours of Service shall be credited for any single continuous period during which an Employee would not have performed any duties.  The same Hours of Service will not be credited both under paragraph (a) or (b) as the case may be, and under this paragraph (c).  These hours will be credited to the employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award agreement or payment is made.

(d)          Hours of Service shall be credited in any one period only under one of the foregoing paragraphs (a), (b) and (c); an Employee may not get double credit for the same period.

(e)          If an Employer finds it impractical to count the actual Hours of Service for any class or group of non-hourly Employees, each Employee in that class or group shall be credited with 45 Hours of Service for each weekly pay period in which he has at least one Hour of Service.  However, an Employee shall be credited only for his normal working hours during a paid absence.

(f)          Hours of Service to be credited on account of a payment to an Employee (including back pay) shall be recorded in the period of Service for which the payment was made.  If the period overlaps two or more Plan Years, the Hours of Service credit shall be allocated in proportion to the respective portions of the period included in the several Plan Years.  However, in the case of periods of 31 days or less, the Administrator may apply a uniform policy of crediting the Hours of Service to either the first Plan Year or the second.

(g)          In all respects an Employee’s Hours of Service shall be counted as required by Section 2530.200b-2(b) and (c) of the Department of Labor’s regulations under Title I of ERISA.

“Independent Appraiser” means any appraiser appointed by the Trustee, who is independent of the Bank, and who meets requirements of the regulations prescribed under Section 170(a)(1)(A) of the Code.

8
“Investment Fund” means that portion of the Trust Fund consisting of assets other than Stock.  Notwithstanding the above, assets from the Investment Fund may be used to purchase Stock in the open market or otherwise, and shares so purchased will be allocated to a Participant’s Stock Fund.

“Normal Retirement” means retirement on or after the Participant’s Normal Retirement Date.

“Normal Retirement Date” means the later of (i) the date on which a Participant attains age 65 and (ii) the 5 th anniversary of the time a Participant commenced employment with the Employer.

“Participant” means any Employee who is an Active Participant participating in the Plan, or Employee or former Employee who was previously an Active Participant and still has a balance credited to his Account.

“Plan Year” means the twelve-month period commencing January 1 and ending December 31, 2003 and each period of 12 consecutive months beginning on January 1 of each succeeding year.

“Recognized Absence” means a period for which --

(a)          an Employer grants an Employee a leave of absence for a limited period, but only if an Employer grants such leave on a nondiscriminatory basis; or

(b)          an Employee is temporarily laid off by an Employer because of a change in business conditions; or

(c)          an Employee is on active military duty, but only to the extent that his employment rights are protected by the Military Selective Service Act of 1967 (38 U.S.C.
               Sec. 2021).
“Service” means an Employee’s period(s) of employment or self-employment with an Employer, excluding for initial eligibility purposes any period in which the individual was a nonresident alien and did not receive from an Employer any earned income which constituted income from sources within the United States.  An Employee’s Service shall include any Service which constitutes Service with a predecessor Employer within the meaning of Section 414(a) of the Code, provided, however, that Service with an acquired entity shall not be considered Service under the Plan unless required by applicable law or agreed to by the parties to such transaction.  An Employee’s Service shall also include any Service with an entity which is not an Employer, but only either (i) for a period after 1975 in which the other entity is a member of a controlled group of corporations or is under common control with other trades and businesses within the meaning of Section 414(b) or 414(c) of the Code, and a member of the controlled group or one of the trades and businesses is an Employer, (ii) for a period after 1979 in which the other entity is a member of an affiliated service group within the meaning of Section 414(m) of the Code, and a member of the affiliated service group is an Employer, or (iii) all Employers aggregated with the Employer under Section 414(o) of the Code (but not until the Proposed Regulations under Section 414(o) become effective).  Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

“Spouse” means the individual, if any, to whom a Participant is lawfully married on the date benefit payments to the Participant are to begin, or on the date of the Participant’s death, if earlier.  A former Spouse shall be treated as the Spouse or surviving Spouse to the extent provided under a qualified domestic relations order as described in section 414(p) of the Code.

9
“Stock” means shares of voting common stock or preferred stock meeting the requirements of Section 409(e)(3) of the Code issued by the Bank or an Employer which is a member of the same controlled group of corporations within the meaning of Code Section 414(b).

“Stock Fund” means that portion of the Trust Fund consisting of Stock.

“Trust” or “Trust Fund” means the trust fund created under this Plan.

“Trust Agreement” means the agreement between the Bank and the Trustee concerning the Trust Fund.  If any assets of the Trust Fund are held in a co-mingled trust fund with assets of other qualified retirement plans, “Trust Agreement” shall be deemed to include the trust agreement governing that co-mingled trust fund.  With respect to the allocation of investment responsibility for the assets of the Trust Fund, the provisions of Article II of the Trust Agreement are incorporated herein by reference.

“Trustee” means one or more corporate persons or individuals selected from time to time by the Bank to serve as trustee or co-trustees of the Trust Fund.

“Valuation Date” means the last day of the Plan Year and each other date as of which the Committee shall determine the investment experience of the Investment Fund and adjust the Participants’ Accounts accordingly.

“Valuation Period” means the period following a Valuation Date and ending with the next Valuation Date.

“Vesting Year” means a unit of Service credited to a Participant pursuant to Section 9.2 for purposes of determining his vested interest in his Account.

Section 3.    Eligibility for Participation .

3.1            Initial Eligibility .  An Employee shall enter the Plan as of the Entry Date coincident with or next following the later of the following dates:

(a)          the last day of the Employee’s first Eligibility Year, and

(b)          the Employee’s 21st birthday.  However, if an Employee is not in active Service with an Employer on the date he would otherwise first enter the Plan, his entry shall be deferred until the next day he is in Service.

3.2            Definition of Eligibility Year .  An “Eligibility Year” means an applicable eligibility period (as defined below) in which the Employee has completed 1,000 Hours of Service for the Employer.  For this purpose:

(a)          an Employee’s first “eligibility period” is the 12-consecutive month period beginning on the first day on which he has an Hour of Service, and

(b)          his subsequent eligibility periods will be 12-consecutive month periods beginning on each January 1 after that first day of Service.

 3.3           Terminated Employees .  No Employee shall have any interest or rights under this Plan if he is never in active Service with an Employer on or after the Effective Date.

10
3.4            Certain Employees Ineligible .

 
(a)
No Employee shall participate in the Plan while his Service is covered by a
collective bargaining agreement between an Employer and the Employee’s collective bargaining representative if (i) retirement benefits have been the subject of good faith bargaining between the Employer and the representative and (ii) the collective bargaining agreement does not provide for the Employee’s participation in the Plan.

 
(b)
Leased Employees are not eligible to participate in the Plan.

 
(c)
An eligible Employee may elect not to participate in the Plan, provided, however,
such election is made solely to meet the requirements of Code Section 409(n).  For an election to be effective for a particular Plan Year, the Employee or Participant must file the election in writing with the Plan administrator no later than the last day of the Plan Year for which the election is to be effective.  The Employer may not make a contribution under the Plan for the Employee or for the Participant for the Plan Year for which the election is effective, nor for any succeeding Plan Year, unless the Employee or Participant re-elects to participate in the Plan.  The Employee or Participant may elect again not to participate, but not earlier than the first Plan Year following the Plan Year in which the re-election was first effective.

3.5            Participation and Reparticipation .  Subject to the satisfaction of the foregoing requirements, an Employee shall participate in the Plan during each period of his Service from the date on which he first becomes eligible until his termination.  For this purpose, an Employee who returns before five (5) consecutive Breaks in Service who previously satisfied the initial eligibility requirements or who returns after five (5) consecutive one year Breaks in Service with a vested Account balance in the Plan shall re-enter the Plan as of the date of his return to Service with an Employer.

3.6            Omission of Eligible Employee .  If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the said Employer would have contributed regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code.

Section 4.    Contributions and Credits .

4.1      Discretionary Contributions .  The Employer shall from time to time contribute, with respect to a Plan Year, such amounts as it may determine from time to time.  The Employer contribution may be made in Stock or in cash, or in a combination of both.  The Employer shall have no obligation to contribute any amount under this Plan except as so determined in its sole discretion.  The Employer’s contributions and available forfeitures for a Plan Year shall be credited as of the last day of the year to the Accounts of the Active Participants in proportion to their amounts of 415 Compensation earned during that portion of the Plan Year that such persons are Participants in the Plan.

4.2       Conditions as to Contributions .  Employers’ contributions shall in all events be subject to the limitations set forth in Section 5. Contributions may be made in the form of cash, or securities and other property to the extent permissible under ERISA, including Stock, and shall be held by the Trustee in accordance with the Trust Agreement.  In addition to the provisions of Section 13.3 for the return of an Employer’s contributions in connection with a failure of the Plan to qualify initially under the Code, any amount contributed by an Employer due to a good faith mistake of fact, or based upon a good faith but erroneous determination of its deductibility under Section 404 of the Code, shall be returned to the Employer within one year after the date on which the contribution was originally made, or within one year after its nondeductibility has been finally determined.  However, the amount to be returned shall be reduced to take account of any adverse investment experience within the Trust Fund in order that the balance credited to each Participant’s Account is not less that it would have been if the contribution had never been made.

11
4.3      Rollover Contributions .  This Plan shall not accept a direct rollover or rollover contribution of an “eligible rollover distribution” as such term is defined in Section 10.9-1 of the Plan.

Section 5.    Limitations on Contributions and Allocations .

5.1        Limitation on Annual Additions .  Notwithstanding anything herein to the contrary, allocation of Employer contributions for any Plan Year shall be subject to the following:

5.1-1   The annual additions during any Plan Year to any Participant’s Account under this and any other defined contribution plans maintained by the Employer or an affiliate (within the purview of Section 414(b), (c) and (m) and Section 415(h) of the Code, which affiliate shall be deemed the Employer for this purpose) shall not exceed the lesser of $40,000 (or such other dollar amount which results from cost-of-living adjustments under Section 415(d) of the Code) (the “dollar limitation”) or 100 percent of the Participant’s 415 Compensation for such limitation year (the “percentage limitation”).  The percentage limitation shall not apply to any contribution for medical benefits after separation from service (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an annual addition.  In the event that annual additions exceed the aforesaid limitations, they shall be reduced in the following priority:

 
(i)
Any excess amount at the end of the Plan Year that cannot be allocated to the
Participant’s Account shall be reallocated to the remaining Participants who are eligible for an allocation of Employer contributions for the Plan Year.  The reallocation shall be made in accordance with Section 4.1 of the Plan as if the Participant whose Account otherwise would receive the excess amount is not eligible for an allocation of Employer contributions.

(ii)          If the allocation or reallocation of the excess amounts causes the limitations of Code section 415 to be exceeded with respect to each Participant for the limitation year, then the excess amount will be held unallocated in a suspense account.  The suspense account will be applied to reduce future Employer contributions for all remaining Participants in the next limitation year and each succeeding limitation year if necessary.

(iii)          If a suspense account is in existence at any time during a limitation year, it will not participate in any allocation of investment gains and losses.  All amounts held in suspense accounts must be allocated to Participants’ Accounts before any contributions may be made to the Plan for the limitation year.

(iv)          If a suspense account exists at the time of Plan termination, amounts held in the suspense account that cannot be allocated shall revert to the Employer.

5.1-2   For purposes of this Section 5.1, the “annual addition” to a Participant’s Accounts means the sum of (i) Employer contributions, (ii) Employee contributions, if any, and (iii) forfeitures.  Annual additions to a defined contribution plan also include amounts allocated, after March 31, 1984, to an individual medical account, as defined in Section 415(l)(2) of the Internal Revenue Code, which is part of a pension or annuity plan maintained by the Employer, amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a Key Employee under a welfare benefit fund, as defined in Section 419A(d) of the Internal Revenue Code, maintained by the Employer.

12
5.1-3   If the Employer contributes amounts, on behalf of Employees covered by this Plan, to other “defined contribution plans” as defined in Section 3(34) of ERISA, the limitation on annual additions provided in this Section shall be applied to annual additions in the aggregate to this Plan and to such other plans.  Reduction of annual additions, where required, shall be accomplished first by reductions under such other plan pursuant to the directions of the named fiduciary for administration of such other plans or under priorities, if any, established under the terms of such other plans and then by allocating any remaining excess for this Plan in the manner and priority set out above with respect to this Plan.

5.1-6   A limitation year shall mean each 12 consecutive month period beginning each January 1.

5.2         Effect of Limitations .  The Committee shall take whatever action may be necessary from time to time to assure compliance with the limitations set forth in Section 5.1.  Specifically, the Committee shall see that each Employer restrict its contributions for any Plan Year to an amount which, taking into account the amount of available forfeitures, may be completely allocated to the Participants consistent with those limitations.  Where the limitations would otherwise be exceeded by any Participant, further allocations to the Participant shall be curtailed to the extent necessary to satisfy the limitations.  Where an excessive amount is contributed on account of a mistake as to one or more Participants’ compensation, or there is an amount of forfeitures which may not be credited in the Plan Year in which it becomes available, the amount shall be corrected in accordance with Section 5.1-2 of the Plan.  If it is determined at any time that the Committee and/or Trustee has erred in accepting and allocating any contributions or forfeitures under this Plan, or in allocating net gain or loss pursuant to Sections 8.2 and 8.3, then the Committee, in a uniform and nondiscriminatory manner, shall determine the manner in which such error shall be corrected and shall promptly advise the Trustee in writing of such error and of the method for correcting such error.  The Accounts of any or all Participants may be revised, if necessary, in order to correct such error.

5.3           Limitations as to Certain Participants .  Aside from the limitations set forth in Section 5.1, if the Plan acquires any Stock in a transaction as to which a selling shareholder or the estate of a deceased shareholder is claiming the benefit of Section 1042 of the Code, the Committee shall see that none of such Stock, and no other assets in lieu of such Stock, are allocated to the Accounts of certain Participants in order to comply with Section 409(n) of the Code.

This restriction shall apply at all times to a Participant who owns (taking into account the attribution rules under Section 318(a) of the Code, without regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation which issued the Stock acquired by the Plan, or another corporation within the same controlled group, as defined in Section 409(l)(4) of the Code (any such class of stock hereafter called a “Related Class”).  For this purpose, a Participant who owns more than 25 percent of any Related Class at any time within the one year preceding the Plan’s purchase of the Stock shall be subject to the restriction as to all allocations of the Stock, but any other Participant shall be subject to the restriction only as to allocations which occur at a time when he owns more than 25 percent of any Related Class.

Further, this restriction shall apply to the selling shareholder claiming the benefit of Section 1042 and any other Participant who is related to such a shareholder within the meaning of Section 267(b) of the Code, during the period beginning on the date of sale and ending on the later of (1) the date that is ten years after the date of sale, or (2) the date of the Plan allocation attributable to the final payment of acquisition indebtedness incurred in connection with the sale.

13
This restriction shall not apply to any Participant who is a lineal descendant of a selling shareholder if the aggregate amounts allocated under the Plan for the benefit of all such descendants do not exceed five percent of the Stock acquired from the shareholder.

5.4          Erroneous Allocations .  No Participant shall be entitled to any annual additions or other allocations to his Account in excess of those permitted under Section 5.  If it is determined at any time that the administrator and/or Trustee have erred in accepting and allocating any contributions or forfeitures under this Plan, or in allocating investment adjustments, or in excluding or including any person as a Participant, then the administrator, in a uniform and nondiscriminatory manner, shall determine the manner in which such error shall be corrected and shall promptly advise the Trustee in writing of such error and of the method for correcting such error.  The Accounts of any or all Participants may be revised, if necessary, in order to correct such error.
 
Section 6.     Trust Fund and Its Investment .

6.1      Creation of Trust Fund .  All amounts received under the Plan from Employers and investments shall be held as the Trust Fund pursuant to the terms of this Plan and of the Trust Agreement between the Bank and the Trustee.  The benefits described in this Plan shall be payable only from the assets of the Trust Fund, and none of the Bank, any other Employer, its board of directors or trustees, its stockholders, its officers, its employees, the Committee, and the Trustee shall be liable for payment of any benefit under this Plan except from the Trust Fund.

6.2       Stock Fund and Investment Fund .  The Trust Fund held by the Trustee shall be divided into the Stock Fund, consisting entirely of Stock, and the Investment Fund, consisting of all assets of the Trust other than Stock.  The Trustee shall have no investment responsibility for the Stock Fund, but shall accept any Employer contributions made in the form of Stock, and shall acquire, sell, exchange, distribute, and otherwise deal with and dispose of Stock in accordance with the instructions of the Committee.  The Trustee shall have full responsibility for the investment of the Investment Fund, except to the extent such responsibility may be delegated from time to time to one or more investment managers pursuant to Section 2.3 of the Trust Agreement, or to the extent the Committee directs the Trustee to purchase Stock with the assets in the Investment Fund.

6.3      Acquisition of Stock .  From time to time the Committee may, in its sole discretion, direct the Trustee to acquire Stock from the issuing Employer or from shareholders, including shareholders who are or have been Employees, Participants, or fiduciaries with respect to the Plan.  The Trustee shall pay for such Stock no more than its fair market value, which shall be determined conclusively by the Committee pursuant to Section 12.4.

6.4      Participants’ Option to Diversify .  The Committee shall provide for a procedure under which each Participant may, during the qualified election period, elect to “diversify” a portion of the Employer Stock allocated to his Account, as provided in Section 401(a)(28)(B) of the Code.  An election to diversify must be made on the prescribed form and filed with the Committee within the period specified herein.  For each of the first five (5) Plan years in the qualified election period, the Participant may elect to diversify an amount which does not exceed 25% of the number of shares allocated to his Account since the inception of the Plan, less all shares with respect to which an election under this Section has already been made.  For the last year of the qualified election period, the Participant may elect to have up to 50 percent of the value of his Account committed to other investments, less all shares with respect to which an election under this Section has already been made.  The term “qualified election period” shall mean the six (6) Plan Year period beginning with the first Plan Year in which a Participant has both attained age 55 and completed 10 years of participation in the Plan.  A Participant’s election to diversify his Account may be made within each year of the qualified election period and shall continue for the 90-day period immediately following the last day of each year in the qualified election period.  Once a Participant makes such election, the Plan must complete diversification in accordance with such election within 90 days after the end of the period during which the election could be made for the Plan Year.  In the discretion of the Committee, the Plan may satisfy the diversification requirement by any of the following methods:

14
6.4-1   The Plan may distribute all or part of the amount subject to the diversification election.
 
6.4-2   T he Plan may transfer the portion of the Participant’s Account subject to the diversification election to another qualified defined contribution plan                       of the Employer that  offers at least three investment options satisfying the requirements of the regulations promulgated under Section 404(c) of ERISA.

Section 7.    Voting Rights and Dividends on Stock .

7.1       Voting and Tendering of Stock .  The Trustee generally shall vote all shares of Stock held under the Plan in accordance with the written instructions of the Committee.  However, if any Employer has registration-type class of securities within the meaning of Section 409(e)(4) of the Code, or if a matter submitted to the holders of the Stock involves a merger, consolidation, recapitalization, reclassification, liquidation, dissolution, or sale of substantially all assets of an entity, then (i) the shares of Stock which have been allocated to Participants’ Accounts shall be voted by the Trustee in accordance with the Participants’ written instructions.

Notwithstanding any provision hereunder to the contrary, all allocated but unvoted shares of Stock must be voted by the Trustee in a manner determined by the Trustee to be for the exclusive benefit of the Participants and Beneficiaries.  Whenever such voting rights are to be exercised, the Employers shall provide the Trustee, in a timely manner, with the same notices and other materials as are provided to other holders of the Stock, which the Trustee shall distribute to the Participants.  The Participants shall be provided with adequate opportunity to deliver their instructions to the Trustee regarding the voting of Stock allocated to their Accounts.  The instructions of the Participants’ with respect to the voting of allocated shares hereunder shall be confidential.

7.1-1  In the event of a tender offer, Stock shall be tendered by the Trustee in the same manner as set forth above with respect to the voting of Stock.  Notwithstanding any provision hereunder to the contrary, Stock must be tendered by the Trustee in a manner determined by the Trustee to be for the exclusive benefit of the Participants and Beneficiaries.

7.2         Dividends on Stock .  Dividends on Stock which are received by the Trustee in the form of additional Stock shall be retained in the Stock Fund, and shall be allocated among the Participant’s Accounts and the Unallocated Stock Fund in accordance with their holdings of the Stock on which the dividends have been paid.  Dividends on Stock credited to Participants’ Accounts which are received by the Trustee in the form of cash shall, at the direction of the Employer paying the dividends, either (i) be credited to the Accounts in accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be distributed immediately to the Participants in proportion with the Participants’ Stock Fund Account balance, or (iii) be distributed to the Participants within 90 days of the close of the Plan Year in which paid in proportion with the Participants’ Stock Fund Account balance.  In the sole discretion of the Committee, Participants or their Beneficiaries may be given the opportunity to elect to have dividends on Stock paid as provided in clause (ii) or (iii) in the preceding paragraph, or elect to have such dividends paid to the Plan and reinvested in qualifying employer securities.  Such dividends shall be considered “applicable dividends” for purposes of Code Section 404(k)(2)(A).  In the event the Committee gives Participants and Beneficiaries the opportunity to elect to have dividends distributed or reinvested in the Plan, all dividends for which Participants may make an election shall be deemed to be fully vested, regardless of whether the Participant is vested in the underlying Stock.

15
Section 8.    Adjustments to Accounts .

8.1       Adjustments for Transactions .  An Employer contribution pursuant to Section 4.1 shall be credited to the Participants’ Accounts as of the last day of the Plan Year for which it is contributed, in accordance with Section 4.1.  Any benefit which is paid to a Participant or Beneficiary pursuant to Section 10 shall be charged to the Participant’s Account as of the first day of the Valuation Period in which it is paid.  Any forfeiture or restoral shall be charged or credited to the Participant’s Account as of the first day of the Valuation Period in which the forfeiture or restoral occurs pursuant to Section 9.6.
 
8.2       Valuation of Investment Fund .  As of each Valuation Date, the Trustee shall prepare a balance sheet of the Investment Fund, recording each asset (including any contribution receivable from an Employer) and liability at its fair market value.  Any liability with respect to short positions or options and any item of accrued income or expense and unrealized appreciation or depreciation shall be included; provided, however, that such an item may be estimated or excluded if it is not readily ascertainable unless estimating or excluding it would result in a material distortion.  The Committee shall then determine the net gain or loss of the Investment Fund since the preceding Valuation Date, which shall mean the entire income of the Investment Fund, including realized and unrealized capital gains and losses, net of any expenses to be charged to the general Investment Fund and excluding any contributions by the Employer.  The determination of gain or loss shall be consistent with the balance sheets of the Investment Fund for the current and preceding Valuation Dates.

8.3        Adjustments for Investment Experience .  Any net gain or loss of the Investment Fund during a Valuation Period, as determined pursuant to Section 8.2, shall be allocated as of the last day of the Valuation Period among the Participants’ Accounts in proportion to the opening balance in each Account, as adjusted for benefit payments and forfeitures during the Valuation Period, without regard to whatever Stock may be credited to an Account. Any cash dividends received on Stock credited to Participant’s Accounts shall be allocated as of the last day of the Valuation Period among the Participants’ Accounts based on the opening balance in each Participant’s Stock Fund Account.

Section 9.    Vesting of Participants’ Interests .

9.1        Deferred Vesting in Accounts .  A Participant’s vested interest in his Account shall be based on his Vesting Years in accordance with the following table, subject to the balance of this Section 9:
 
Vesting Years
Percentage of Interest Vested
Fewer than 3
  0%
3 or more
100%

9.2        Computation of Vesting Years .  For purposes of this Plan, a “Vesting Year” means generally a Plan Year in which an Employee has at least 1,000 Hours of Service, beginning with the first Plan Year in which the Employee has completed an Hour of Service with the Employer, and including Service with other Employers as provided in the definition of “Service.”  However, a Participant’s Vesting Years shall be computed subject to the following conditions and qualifications:

16
9.2-1 A Participant’s Vesting Years shall not include any Service prior to the date on which an Employee attains age 18.

9.2-2  A Participant’s vested interest in his Account accumulated before five (5) consecutive Breaks in Service shall be determined without regard to any Service after such five consecutive Breaks in Service.  Further, if a Participant has five (5) consecutive Breaks in Service before his interest in his Account has become vested to some extent, pre-Break years of Service shall not be required to be taken into account for purposes of determining his post-Break vested percentage.

9.2-3  In the case of a Participant who has 5 or more consecutive 1-year Breaks in Service, the Participant’s pre-Break Service will count in vesting of the Employer-derived post-break accrued benefit only if either:

(i)           such Participant has any nonforfeitable interest in the accrued benefit attributable to Employer contributions at the time of separation from Service, or

(ii)           upon returning to Service the number of consecutive 1-year Breaks in Service is less than the number of years of Service.

9.2-4  Notwithstanding any provision of the Plan to the contrary, effective January 1, 1998, calculation of service for determining Vesting Years with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

9.2-5  If any amendment changes the vesting schedule, including an automatic change to or from a top-heavy vesting schedule, any Participant with three (3) or more Vesting Years may, by filing a written request with the Employer, elect to have his vested percentage computed under the vesting schedule in effect prior to the amendment.  The election period must begin not later than the later of sixty (60) days after the amendment is adopted, the amendment becomes effective, or the Participant is issued written notice of the amendment by the Employer or the Committee.

9.3          Full Vesting Upon Certain Events . Notwithstanding Section 9.1, a Participant’s interest in his Account shall fully vest on the Participant’s Normal Retirement Date.  The Participant’s interest shall also fully vest in the event that his Service is terminated by Early Retirement, Disability or by death.

9.4          Full Vesting Upon Plan Termination . Notwithstanding Section 9.1, a Participant’s interest in his Account shall fully vest upon termination of this Plan or upon the permanent and complete discontinuance of contributions by his Employer.  In the event of a partial termination, the interest of each affected Participant shall fully vest with respect to that part of the Plan which is terminated.

9.5          Forfeiture, Repayment, and Restoral .  If a Participant’s Service terminates before his interest in his Account is fully vested, that portion which has not vested shall be forfeited if he either (i) receives a distribution of his entire vested interest pursuant to Section 10.1, or (ii) incurs a one-year Break in Service.  If a Participant’s Service terminates prior to having any portion of his Account become vested, such Participant shall be deemed to have received a distribution of his vested interest as of the Valuation Date next following his termination of Service.

17
If a Participant who has suffered a forfeiture of the nonvested portion of his Account returns to Service before he has five (5) consecutive Breaks in Service, the nonvested portion shall be restored, provided that, if the Participant had received a distribution of his vested Account balance, the amount distributed shall be repaid prior to such restoral.  The Participant may repay such amount at any time within five years after he has returned to Service.  The amount repaid shall be credited to his Account at the time it is repaid; an additional amount equal to that portion of his Account which was previously forfeited shall be restored to his Account at the same time from other Employees’ forfeitures and, if such forfeitures are insufficient, from a special contribution by his Employer for that year.  If the Participant did not receive a distribution of his vested Account balance, any forfeiture restored shall include earnings that would have been credited to the Account but for the forfeiture.  A Participant who was deemed to have received a distribution of his vested interest in the Plan shall have his Account restored as of the first day on which he performs an Hour of Service after his return.

9.6          Accounting for Forfeitures .  If a portion of a Participant’s Account is forfeited, Stock allocated to said Participant’s Account shall be forfeited only after other assets are forfeited.  If interests in more than one class of Stock have been allocated to a Participant’s Account, the Participant must be treated as forfeiting the same proportion of each class of Stock.  A forfeiture shall be charged to the Participant’s Account as of the first day of the first Valuation Period in which the forfeiture becomes certain pursuant to Section 9.5.  Except as otherwise provided in that Section, a forfeiture shall be added to the contributions of the terminated Participant’s Employer which are to be credited to other Participants pursuant to Section 4.1 as of the last day of the Plan Year in which the forfeiture becomes certain.

9.7         Vesting and Nonforfeitability .  A Participant’s interest in his Account which has become vested shall be nonforfeitable for any reason.

Section 10.   Payment of Benefits .

10.1       Benefits for Participants .  For a Participant whose Service ends for any reason, distribution will be made to or for the benefit of the Participant or, in the case of the Participant’s death, his Beneficiary, by payment in a lump sum, in accordance with Section 10.2, either, or a combination of the following methods:

10.1-1    By payment in a lump sum, in accordance with Section 10.2; or

10.1-2    By payment in a series of substantially equal annual installments over a period not to exceed five (5) years, provided the maximum period over which the distribution of a Participant’s Account may be made shall be extended by 1 year, up to five (5) additional years, for each $160,000 (or fraction thereof) by which such Participant’s Account balance exceeds $800,000 (the aforementioned figures are subject to cost-of-living adjustments prescribed by the Secretary of the Treasury pursuant to Section 409(o)(2) of the Code).

The Participant shall elect the manner in which his vested Account balance will be distributed to him.  If a Participant so desires, he may direct how his benefits are to be paid to his Beneficiary.  If a deceased Participant did not file a direction with the Committee, the Participant’s benefits shall be distributed to his Beneficiary in a lump sum.  Notwithstanding any provision to the contrary, if the value of a Participant’s vested Account balance at the time of any distribution, does not equal or exceed $5,000, then such Participant’s vested Account shall be distributed in a lump sum within 60 days after the end of the Plan Year in which employment terminates.  If the value of a Participant’s vested Account balance is, or has ever been, in excess of $5,000, then his benefits shall not be paid prior to the later of the time he has attained Normal Retirement or age 62 unless he elects an early payment date in a written election filed with the Committee.  A Participant may modify such an election at any time, provided any new benefit payment date is at least 30 days after a modified election is delivered to the Committee.  Failure of a Participant to consent to a distribution prior to the later of Normal Retirement or age 62 shall be deemed to be an election to defer commencement of payment of any benefit under this section.

18
10.2         Time for Distribution .

10.2-1    If the Participant and, if applicable, with the consent of the Participant’s spouse, elects the distribution of the Participant’s Account balance in the Plan, distribution shall commence as soon as practicable following his termination of Service, but no later than one year after the close of the Plan Year:

(i)           in which the Participant separates from service by reason of attainment of Normal Retirement Age under the Plan, Disability, or death; or

(ii)           which is the fifth Plan Year following the year in which the Participant resigns or is dismissed, unless he is reemployed before such date.

10.2-2    Unless the Participant elects otherwise, the distribution of the balance of a Participant’s Account shall commence not later than the 60th day after the latest of the close of the Plan Year in which -

(i)            the Participant attains the age of 65;

(ii)          occurs the tenth anniversary of the year in which the Participant commenced participation in the Plan; or

(iii)           the Participant terminates his Service with the Employer.

10.2-3      Notwithstanding anything to the contrary, (1) with respect to a 5-percent owner (as defined in Code Section 416), distribution of a Participant’s Account shall commence (whether or not he remains in the employ of the Employer) not later than the April 1 of the calendar year next following the calendar year in which the Participant attains age 70 1/2, and (2) with respect to all other Participants, payment of a Participant’s benefit will commence not later than April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2, or, if later, the year in which the Participant retires.  A Participant’s benefit from that portion of his Account committed to the Investment Fund shall be calculated on the basis of the most recent Valuation Date before the date of payment.

10.2-4     Distribution of a Participant’s Account balance after his death shall comply with the following requirements:

(i)           If a Participant dies before his distributions have commenced, distribution of his Account to his Beneficiary shall commence not later than one year after the end of the Plan Year in which the Participant died; however, if the Participant’s Beneficiary is his surviving Spouse, distributions may commence on the date on which the Participant would have attained age 70 1/2.  In either case, distributions shall be completed within five years after they commence.

(ii)          If the Participant dies after distribution has commenced pursuant to Section 10.1.2 but before his entire interest in the Plan has been distributed to him, then the remaining portion of that interest shall, in accordance with Section 401(a)(9) of the Code, be distributed at least as rapidly as under the method of distribution being used under Section 10.1.2 at the date of his death.

19
(iii)          If a married Participant dies before his benefit payments begin, then unless he has specifically elected otherwise the Committee shall cause the balance in his Account to be paid to his Spouse.  No election by a married Participant of a different Beneficiary shall be valid unless the election is accompanied by the Spouse’s written consent, which (i) must acknowledge the effect of the election, (ii) must explicitly provide either that the designated Beneficiary may not subsequently be changed by the Participant without the Spouse’s further consent, or that it may be changed without such consent, and (iii) must be witnessed by the Committee, its representative, or a notary public. (This requirement shall not apply if the Participant establishes to the Committee’s satisfaction that the Spouse may not be located.)

10.3        Marital Status .  The Committee, the Plan, the Trustee, and the Employers shall be fully protected and discharged from any liability to the extent of any benefit payments made as a result of the Committee’s good faith and reasonable reliance upon information obtained from a Participant and his Employer as to his marital status.

10.4        Delay in Benefit Determination .  If the Committee is unable to determine the benefits payable to a Participant or Beneficiary on or before the latest date prescribed for payment pursuant to Section 10.1 or 10.2, the benefits shall in any event be paid within 60 days after they can first be determined, with whatever makeup payments may be appropriate in view of the delay.

10.5        Accounting for Benefit Payments .  Any benefit payment shall be charged to the Participant’s Account as of the first day of the Valuation Period in which the payment is made.

10.6        Options to Receive Stock or Cash .   Unless ownership of virtually all Stock is restricted to active Employees and qualified retirement plans for the benefit of Employees pursuant to the certificates of incorporation or by-laws of the Employers issuing Stock, a terminated Participant or the Beneficiary of a deceased Participant may instruct the Committee to distribute the Participant’s entire vested interest in his Account in the form of cash or Stock or a combination thereof.  In the event the Participant elects to receive all Stock, the Committee shall apply the Participant’s vested interest in the Investment Fund to purchase sufficient Stock from the Stock Fund or from any owner of Stock to make the required distribution.

Any Participant who receives Stock pursuant to Section 10.1, and any person who has received Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetency, by reason of divorce or separation from the Participant, or by reason of a rollover contribution described in Section 402(a)(5) of the Code, shall have the right to require the Employer which issued the Stock to purchase the Stock for its current fair market value (hereinafter referred to as the “put right”).  The put right shall be exercisable by written notice to the Committee during the first 60 days after the Stock is distributed by the Plan, and, if not exercised in that period, during the first 60 days in the following Plan Year after the Committee has communicated to the Participant its determination as to the Stock’s current fair market value.  However, the put right shall not apply to the extent that the Stock, at the time the put right would otherwise be exercisable, may be sold on an established market in accordance with federal and state securities laws and regulations.  Similarly, the put option shall not apply with respect to the portion of a Participant’s Account which the Employee elected to have reinvested under Code Section 401(a)(28)(B).  If the put right is exercised, the Trustee may, if so directed by the Committee in its sole discretion, assume the Employer’s rights and obligations with respect to purchasing the Stock.  Notwithstanding anything herein to the contrary, in the case of a plan established by a bank (as defined in Code Section 581), the put option shall not apply if prohibited by a federal or state law and Participants are entitled to elect their benefits be distributed in cash.

20
If a Participant elects to receive his distribution in the form of a lump sum pursuant to Section 10.1.1 of the Plan, the Employer or the Trustee, as the case may be, may elect to pay for the Stock in equal periodic installments, not less frequently than annually, over a period not longer than five years from the day after the put right is exercised, with adequate security and interest at a reasonable rate on the unpaid balance, all such terms to be set forth in a promissory note delivered to the seller with normal terms as to acceleration upon any uncured default.

If a Participant elects to receive his distribution in the form of an installment payment pursuant to Section 10.1.2 of the Plan, the Employer or the Trustee, as the case may be, shall pay for the Stock distributed in the installment distribution over a period which shall not exceed 30 days after the exercise of the put right.

Nothing contained herein shall be deemed to obligate any Employer to register any Stock under any federal or state securities law or to create or maintain a public market to facilitate the transfer or disposition of any Stock.  The put right described herein may only be exercised by a person described in the second preceding paragraph, and may not be transferred with any Stock to any other person.

10.7        Restrictions on Disposition of Stock .  Except in the case of Stock which is traded on an established market, a Participant who receives Stock pursuant to Section 10.1, and any person who has received Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetency, by reason of divorce or separation from the Participant, or by reason of a rollover contribution described in Section 402(a)(5) of the Code, shall, prior to any sale or other transfer of the Stock to any other person, first offer the Stock to the issuing Employer and to the Plan at the greater of (i) its current fair market value, as determined pursuant to section 12.4 herein, or (ii) the purchase price offered in good faith by an independent third party purchaser.  This restriction shall apply to any transfer, whether voluntary, involuntary, or by operation of law, and whether for consideration or gratuitous.  Either the Employer or the Trustee may accept the offer within 14 days after it is delivered.  Any Stock distributed by the Plan shall bear a conspicuous legend describing the right of first refusal under this Section 10.7, as well as any other restrictions upon the transfer of the Stock imposed by federal and state securities laws and regulations.

10.8        Creations of Protections and Rights .   Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no shares of Employer Stock held or distributed by the Trustee may be subject to a put, call or other option, or buy-sell arrangement.  The provisions of this Section shall continue to be applicable to such Stock even if the Plan ceases to be an employee stock ownership plan under Section 4975(e)(7) of the Code.

10.9        Direct Rollover of Eligible Distribution .  A Participant or distributee may elect, at the time and in the manner prescribed by the Trustee or the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the Participant or distributee in a direct rollover.

10.9-1    An “eligible rollover” is any distribution that does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the Participant and the Participant’s Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code; and the portion of any distribution that is not included in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).  A portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income.  However, such portion may be transferred only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

21
10.9-2      An “eligible retirement plan” is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee’s eligible rollover distribution.  In the case of distributions after December 31, 2001, an eligible retirement plan shall also include an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this plan.  In the case of an eligible rollover distribution to a surviving Spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity.

10.9-3                      A “direct rollover” is a payment by the Plan to the eligible retirement plan specified by the distributee.

10.9-4                      The term “distributee” shall refer to a deceased Participant’s Spouse or a Participant’s former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p).

10.10        Waiver of 30-Day Period After Notice of Distribution .   If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not  apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that:

(i)          the Trustee or Committee, as applicable, clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular option), and

(ii)          the Participant, after receiving the notice, affirmatively elects a  distribution.

Section 11.   Rules Governing Benefit Claims and Review of Appeals .

11.1         Claim for Benefits .  Any Participant or Beneficiary who qualifies for the payment of benefits shall file a claim for his benefits with the Committee on a form provided by the Committee.  The claim, including any election of an alternative benefit form, shall be filed at least 30 days before the date on which the benefits are to begin.  If a Participant or Beneficiary fails to file a claim by the day before the date on which benefits become payable, he shall be presumed to have filed a claim for payment for the Participant’s benefits in the standard form prescribed by Sections 10.1 or 10.2.

11.2         Notification by Committee .  Within 90 days after receiving a claim for benefits (or within 180 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary within 90 days after receiving the claim for benefits), the Committee shall notify the Participant or Beneficiary whether the claim has been approved or denied.  If the Committee denies a claim in any respect, the Committee shall set forth in a written notice to the Participant or Beneficiary:

22
(i)           each specific reason for the denial;

(ii)          specific references to the pertinent Plan provisions on which the denial is based;

 
 (iii)         a description of any additional material or information which could be submitted by the Participant or Beneficiary to support his claim, with an explanation of the relevance of such information; and

(iv)          an explanation of the claims review procedures set forth in Section 11.3.

11.3         Claims Review Procedure .  Within 60 days after a Participant or Beneficiary receives notice from the Committee that his claim for benefits has been denied in any respect, he may file with the Committee a written notice of appeal setting forth his reasons for disputing the Committee’s determination.  In connection with his appeal the Participant or Beneficiary or his representative may inspect or purchase copies of pertinent documents and records to the extent not inconsistent with other Participants’ and Beneficiaries’ rights of privacy.  Within 60 days after receiving a notice of appeal from a prior determination (or within 120 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary and his representative within 60 days after receiving the notice of appeal), the Committee shall furnish to the Participant or Beneficiary and his representative, if any, a written statement of the Committee’s final decision with respect to his claim, including the reasons for such decision and the particular Plan provisions upon which it is based.

Section 12.    The Committee and its Functions .

12.1         Authority of Committee .  The Committee shall be the “plan administrator” within the meaning of ERISA and shall have exclusive responsibility and authority to control and manage the operation and administration of the Plan, including the interpretation and application of its provisions, except to the extent such responsibility and authority are otherwise specifically (i) allocated to the Bank, the Employers, or the Trustee under the Plan and Trust Agreement, (ii) delegated in writing to other persons by the Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other parties by operation of law.  The Committee shall have exclusive responsibility regarding decisions concerning the payment of benefits under the Plan.  The Committee shall have no investment responsibility with respect to the Investment Fund except to the extent, if any, specifically provided in the Trust Agreement.  In the discharge of its duties, the Committee may employ accountants, actuaries, legal counsel, and other agents (who also may be employed by an Employer or the Trustee in the same or some other capacity) and may pay their reasonable expenses and compensation.

12.2         Identity of Committee .  The Committee shall consists of three or more individuals selected by the Chairman of the Board of the Bank.  Any individual, including a director, trustee, shareholder, officer, or Employee of an Employer, shall be eligible to serve as a member of the Committee. The Bank shall have the power to remove any individual serving on the Committee at any time without cause upon 10 days written notice, and any individual may resign from the Committee at any time upon 10 days written notice to the Bank.  The Bank shall notify the Trustee of any change in membership of the Committee.

12.3         Duties of Committee .  The Committee shall keep whatever records may be necessary to implement the Plan and shall furnish whatever reports may be required from time to time by the Bank.  The Committee shall furnish to the Trustee whatever information may be necessary to properly administer the Trust.  The Committee shall see to the filing with the appropriate government agencies of all reports and returns required of the Plan under ERISA and other laws.

23
Further, the Committee shall have exclusive responsibility and authority with respect to the Plan’s holdings of Stock and shall direct the Trustee in all respects regarding the purchase, retention, sale, exchange, and pledge of Stock.  The Committee shall at all times act consistently with the Bank’s long-term intention that the Plan, as an employee stock ownership plan, be invested primarily in Stock.  No provision of the Plan relating to the allocation or vesting of any interests in the Stock Fund or the Investment Fund shall restrict the Committee from changing any holdings of the Trust, whether the changes involve an increase or a decrease in the Stock or other assets credited to Participants’ Accounts.  In determining the proper extent of the Trust’s investment in Stock, the Committee shall be authorized to employ investment counsel, legal counsel, appraisers, and other agents and to pay their reasonable expenses and compensation.

12.4         Valuation of Stock .  If the valuation of any Stock is not established by reported trading on a generally recognized public market, the Committee shall have the exclusive authority and responsibility to determine its value for all purposes under the Plan, subject to the requirements of Code Section 401(a)(28)(C).  Such value shall be determined as of each Valuation Date, and on any other date as of which the Plan purchases or sells such Stock.  The Committee shall use generally accepted methods of valuing stock of similar corporations for purposes of arm’s length business and investment transactions, and in this connection the Committee shall obtain, and shall be protected in relying upon, the valuation of such Stock as determined by an Independent Appraiser experienced in preparing valuations of similar businesses.

12.5         Compliance with ERISA .  The Committee shall perform all acts necessary to comply with ERISA.  Each individual member or employee of the Committee shall discharge his duties in good faith and in accordance with the applicable requirements of ERISA.

12.6         Action by Committee .  All actions of the Committee shall be governed by the affirmative vote of a number of members which is a majority of the total number of members currently appointed, including vacancies.

12.7         Execution of Documents .  Any instrument executed by the Committee shall be signed by any member or employee of the Committee.

12.8        Adoption of Rules .  The Committee shall adopt such rules and regulations of uniform applicability as it deems necessary or appropriate for the proper administration and interpretation of the Plan.

12.9        Responsibilities   to Participants .  The Committee shall determine which Employees qualify to enter the Plan.  The Committee shall furnish to each eligible Employee whatever summary plan descriptions, summary annual reports, and other notices and information may be required under ERISA.  The Committee also shall determine when a Participant or his Beneficiary qualifies for the payment of benefits under the Plan.  The Committee shall furnish to each such Participant or Beneficiary whatever information is required under ERISA (or is otherwise appropriate) to enable the Participant or Beneficiary to make whatever elections may be available pursuant to Sections 6 and 10, and the Committee shall provide for the payment of benefits in the proper form and amount from the assets of the Trust Fund.  The Committee may decide in its sole discretion to permit modifications of elections and to defer or accelerate benefits to the extent consistent with applicable law and the best interests of the individuals concerned.

24
12.10       Alternative Payees in Event of Incapacity .  If the Committee finds at any time that an individual qualifying for benefits under this Plan is a minor or is incompetent, the Committee may direct the benefits to be paid, in the case of a minor, to his parents, his legal guardian, or a custodian for him under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his spouse, or his legal guardian, the payments to be used for the individual’s benefit.  The Committee and the Trustee shall not be obligated to inquire as to the actual use of the funds by the person receiving them under this Section 12.10, and any such payment shall completely discharge the obligations of the Plan, the Trustee, the Committee, and the Employers to the extent of the payment.

12.11       Indemnification by Employers .  Except as separately agreed in writing, the Committee, and any member or employee of the Committee, shall be indemnified and held harmless by the Employer, jointly and severally, to the fullest extent permitted by ERISA, and subject to and conditioned upon compliance with 12 C.F.R. Section 545.121, to the extent applicable, against any and all costs, damages, expenses, and liabilities reasonably incurred by or imposed upon it or him in connection with any claim made against it or him or in which it or he may be involved by reason of its or his being, or having been, the Committee, or a member or employee of the Committee, to the extent such amounts are not paid by insurance.

12.12       Nonparticipation by Interested Member .  Any member of the Committee who also is a Participant in the Plan shall take no part in any determination specifically relating to his own participation or benefits, unless his abstention would leave the Committee incapable of acting on the matter.

Section 13.    Adoption, Amendment, or Termination of the Plan .

13.1         Adoption of Plan by Other Employers .  With the consent of the Bank, any entity may become a participating Employer under the Plan by (i) taking such action as shall be necessary to adopt the Plan, (ii) becoming a party to the Trust Agreement establishing the Trust Fund, and (iii) executing and delivering such instruments and taking such other action as may be necessary or desirable to put the Plan into effect with respect to the entity’s Employees.

13.2         Plan Adoption Subject to Qualification .  Notwithstanding any other provision of the Plan, the adoption of the Plan and the execution of the Trust Agreement are conditioned upon their being determined initially by the Internal Revenue Service to meet the qualification requirements of Section 401(a) of the Code, so that the Employers may deduct currently for federal income tax purposes their contributions to the Trust and so that the Participants may exclude the contributions from their gross income and recognize income only when they receive benefits.  In the event that this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a), the Plan may be amended retroactively to the earliest date permitted by U.S. Treasury Regulations in order to secure qualification under Section 401(a).  If this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) either as originally adopted or as amended, each Employer’s contributions to the Trust under this Plan (including any earnings thereon) shall be returned to it and this Plan shall be terminated.  In the event that this Plan is amended after its initial qualification and the Plan as amended is held by the Internal Revenue Service not to qualify under Section 401(a), the amendment may be modified retroactively to the earliest date permitted by U.S. Treasury Regulations in order to secure approval of the amendment under Section 401(a).

13.3         Right to Amend or Terminate .  The Bank intends to continue this Plan as a permanent program.  However, each participating Employer separately reserves the right to suspend, supersede, or terminate the Plan at any time and for any reason, as it applies to that Employer’s Employees, and the Bank reserves the right to amend, suspend, supersede, merge, consolidate, or terminate the Plan at any time and for any reason, as it applies to the Employees of the Bank.  No amendment, suspension, supersession, merger, consolidation, or termination of the Plan shall (i) reduce any Participant’s or Beneficiary’s proportionate interest in the Trust Fund, (ii) reduce or restrict, either directly or indirectly, the benefit provided any Participant prior to the amendment, or (iii) divert any portion of the Trust Fund to purposes other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan.  Moreover, there shall not be any transfer of assets to a successor plan or merger or consolidation with another plan unless, in the event of the termination of the successor plan or the surviving plan immediately following such transfer, merger, or consolidation, each participant or beneficiary would be entitled to a benefit equal to or greater than the benefit he would have been entitled to if the plan in which he was previously a participant or beneficiary had terminated immediately prior to such transfer, merger, or consolidation.  Following a termination of this Plan by the Bank, the Trustee shall continue to administer the Trust and pay benefits in accordance with the Plan as amended from time to time and the Committee’s instructions.

25
Section 14.    Miscellaneous Provisions .

14.1         Plan Creates No Employment Rights .  Nothing in this Plan shall be interpreted as giving any Employee the right to be retained as an Employee by an Employer, or as limiting or affecting the rights of an Employer to control its Employees or to terminate the Service of any Employee at any time and for any reason, subject to any applicable employment or collective bargaining agreements.

14.2         Nonassignability of Benefits .  No assignment, pledge, or other anticipation of benefits from the Plan will be permitted or recognized by the Employer, the Committee, or the Trustee.  Moreover, benefits from the Plan shall not be subject to attachment, garnishment, or other legal process for debts or liabilities of any Participant or Beneficiary, to the extent permitted by law.  This prohibition on assignment or alienation shall apply to any judgment, decree, or order (including approval of a property settlement agreement) which relates to the provision of child support, alimony, or property rights to a present or former spouse, child or other dependent of a Participant pursuant to a state domestic relations or community property law, unless the judgment, decree, or order is determined by the Committee to be a qualified domestic relations order within the meaning of Section 414(p) of the Code, as more fully set forth in Section 14.12 hereof.

14.3        Limit of Employer Liability .  The liability of the Employer with respect to Participants under this Plan shall be limited to making contributions to the Trust from time to time, in accordance with Section 4.

14.4        Treatment of Expenses .  All expenses incurred by the Committee and the Trustee in connection with administering this Plan and Trust Fund shall be paid by the Trustee from the Trust Fund to the extent the expenses have not been paid or assumed by the Employer or by the Trustee.

14.5        Number and Gender .  Any use of the singular shall be interpreted to include the plural, and the plural the singular.  Any use of the masculine, feminine, or neuter shall be interpreted to include the masculine, feminine, or neuter, as the context shall require.

14.6        Nondiversion of Assets .  Except as provided in Sections 5.2 and 14.12, under no circumstances shall any portion of the Trust Fund be diverted to or used for any purpose other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan.

14.7        Separability of Provisions .  If any provision of this Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

26
14.8       Service of Process .  The agent for the service of process upon the Plan shall be the president of the Bank, or such other person as may be designated from time to time by the Bank.

14.9       Governing State Law .  This Plan shall be interpreted in accordance with the laws of the State of Louisiana to the extent those laws are applicable under the provisions of ERISA.

14.10      Employer Contributions Conditioned on Deductibility . Employer Contributions to the Plan are conditioned on deductibility under Code Section 404.  In the event that the Internal Revenue Service shall determine that all or any portion of an Employer Contribution is not deductible under that Section, the nondeductible portion shall be returned to the Employer within one year of the disallowance of the deduction.

14.11      Unclaimed Accounts .   Neither the Employer nor the Trustees shall be under any obligation to search for, or ascertain the whereabouts of, any Participant or Beneficiary.  The Employer or the Trustees, by certified or registered mail addressed to his last known address of record with the Employer, shall notify any Participant or Beneficiary that he is entitled to a distribution under this Plan, and the notice shall quote the provisions of this Section.  If the Participant or Beneficiary fails to claim his benefits or make his whereabouts known in writing to the Employer or the Trustees within seven (7) calendar years after the date of notification, the benefits of the Participant or Beneficiary under the Plan will be disposed of as follows:

(a)          If the whereabouts of the Participant is unknown but the whereabouts of the Participant’s Beneficiary is known to the Trustees, distribution will be made to the Beneficiary.

(b)           If the whereabouts of the Participant and his Beneficiary are unknown to the Trustees, the Plan will forfeit the benefit, provided that the benefit is subject to a claim for reinstatement if the Participant or Beneficiary make a claim for the forfeited benefit.

Any payment made pursuant to the power herein conferred upon the Trustees shall operate as a complete discharge of all obligations of the Trustees, to the extent of the distributions so made.

14.12     Qualified Domestic Relations Order .   Section 14.2 shall not apply to a “qualified domestic relations order” defined in Code Section 414(p), and such other domestic relations orders permitted to be so treated under the provisions of the Retirement Equity Act of 1984.  Further, to the extent provided under a “qualified domestic relations order,” a former Spouse of a Participant shall be treated as the Spouse or surviving Spouse for all purposes under the Plan.

In the case of any domestic relations order received by the Plan:

(a)          The Employer or the Committee shall promptly notify the Participant and any other alternate payee of the receipt of such order and the Plan’s procedures for determining the qualified status of domestic relations orders, and

(b)          Within a reasonable period after receipt of such order, the Employer or the Committee shall determine whether such order is a qualified domestic relations order and notify the Participant and each alternate payee of such determination.  The Employer or the Committee shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders.

During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined (by the Employer or Committee, by a court of competent jurisdiction, or otherwise), the Employer or the Committee shall segregate in a separate account in the Plan or in an escrow account the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order.  If within eighteen (18) months the order (or modification thereof) is determined to be a qualified domestic relations order, the Employer or the Committee shall pay the segregated amounts (plus any interest thereon) to the person or persons entitled thereto.  If within eighteen (18) months it is determined that the order is not a qualified domestic relations order, or the issue as to whether such order is a qualified domestic relations order is not resolved, then the Employer or the Committee shall pay the segregated amounts (plus any interest thereon) to the person or persons who would have been entitled to such amounts if there had been no order.  Any determination that an order is a qualified domestic relations order which is made after the close of the eighteen (18) month period shall be applied prospectively only.  The term “alternate payee” means any Spouse, former Spouse, child or other dependent of a Participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefit payable under a Plan with respect to such Participant.

Section 15.    Top-Heavy Provisions .

15.1         Top-Heavy Plan .  This Plan is top-heavy if any of the following conditions exist:

(a)           If the top-heavy ratio for this Plan exceeds sixty percent (60%) and this Plan is not part of any required aggregation group or permissive aggregation group;

(b)           If this Plan is a part of a required aggregation group (but is not part of a permissive aggregation group) and the aggregate top-heavy ratio for the group of Plans exceeds sixty percent (60%); or

(c)          If this Plan is a part of a required aggregation group and part of a permissive aggregation group and the aggregate top-heavy ratio for the permissive aggregation group exceeds sixty percent (60%).

15.2         Super Top-Heavy Plan . This Plan will be a super top-heavy Plan if any of the following conditions exist:

(a)          If the top-heavy ratio for this Plan exceeds ninety percent (90%) and this Plan is not part of any required aggregation group or permissive aggregation group.

(b)          If this Plan is a part of a required aggregation group (but is not part of a permissive aggregation group) and the aggregate top-heavy ratio for the group of Plans exceeds ninety percent (90%), or

(c)          If this Plan is a part of a required aggregation group and part of a permissive aggregation group and the aggregate top-heavy ratio for the permissive aggregation group exceeds ninety percent (90%).

15.3    Definitions .

In making this determination, the Committee shall use the following definitions and principles:

27
15.3-1    The “Determination Date,” with respect to the first Plan Year of any plan, means the last day of that Plan Year, and with respect to each subsequent Plan Year, means the last day of the preceding Plan Year.  If any other plan has a Determination Date which differs from this Plan’s Determination Date, the top-heaviness of this Plan shall be determined on the basis of the other plan’s Determination Date falling within the same calendar years as this Plan’s Determination Date.

15.3-2    A “Key Employee” means any employee or former employee (including any deceased employee) who at any time during the plan year that includes the determination date was an officer of the employer having annual compensation greater than $130,000 (as adjusted under section 416(i)(1) of the Code for plan years beginning after December 31, 2002, a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $150,000.  For this purpose, annual compensation means compensation within the meaning of section 415(c)(3) of the Code.  The determination of who is a key employee will be made in accordance with section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

15.3-3    A “Non-key Employee” means an Employee who at any time during the five years ending on the top-heavy Determination Date for the Plan Year has received compensation from an Employer and who has never been a Key Employee, and the Beneficiary of any such Employee.

15.3-4    A “required aggregation group” includes (a) each qualified Plan of the Employer in which at least one Key Employee participates in the Plan Year containing the Determination Date and (b) any other qualified Plan of the Employer which enables a Plan described in (a) to meet the requirements of Code Sections 401(a)(4) and 410.  For purposes of the preceding sentence, a qualified Plan of the Employer includes a terminated Plan maintained by the Employer within the period ending on the Determination Date.  In the case of a required aggregation group, each Plan in the group will be considered a top-heavy Plan if the required aggregation group is a top-heavy group.  No Plan in the required aggregation group will be considered a top-heavy Plan if the required aggregation group is not a top-heavy group.  All Employers aggregated under Code Sections 414(b), (c) or (m) or (o) (but only after the Code Section 414(o) regulations become effective) are considered a single Employer.

15.3-5   A “permissive aggregation group” includes the required aggregation group of Plans plus any other qualified Plan(s) of the Employer that are not required to be aggregated but which, when considered as a group with the required aggregation group, satisfy the requirements of Code Sections 401(a)(4) and 410 and are comparable to the Plans in the required aggregation group.  No Plan in the permissive aggregation group will be considered a top-heavy Plan if the permissive aggregation group is not a top-heavy group.  Only a Plan that is part of the required aggregation group will be considered a top-heavy Plan if the permissive aggregation group is top-heavy.
 
15.4   Top-Heavy Rules of Application .

For purposes of determining the value of Account balances and the present value of accrued benefits the following provisions shall apply:

15.4-1  The value of Account balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the twelve (12) month period ending on the Determination Date.
 
28
15.4-2    For purposes of testing whether this Plan is top-heavy, the present value of an individual’s accrued benefits and an individual’s Account balances is counted only once each year.

15.4-3    The Account balances and accrued benefits of a Participant who is not presently a Key Employee but who was a Key Employee in a Plan Year beginning on or after January 1, 1984 will be disregarded.

15.4-4     Employer contributions attributable to a salary reduction or similar arrangement will be taken into account.  Employer matching contributions also shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the Plan.

15.4-5    When aggregating Plans, the value of Account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year.

15.4-6    The present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the plan and any plan aggregated with the plan under Section 416(g)(2) of the Code during the 1-year period ending on the determination date.  The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the plan under Section 416(g)(2)(A)(i) of the Code.  In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting “five (5) year period” for “one (1) year period.”

15.4-7    Accrued benefits and Account balances of an individual shall not be taken into account for purposes of determining the top-heavy ratios if the individual has performed no services for the Employer during the one (1) year period ending on the applicable Determination Date.  Compensation for purposes of this subparagraph shall not include any payments made to an individual by the Employer pursuant to a qualified or non-qualified deferred compensation plan.

15.4-8   The present value of the accrued benefits or the amount of the Account balances of any Employee participating in this Plan shall not include any rollover contributions or other transfers voluntarily initiated by the Employee except as described below.  If this Plan transfers or rolls over funds to another Plan in a transaction voluntarily initiated by the Employee, then this Plan shall count the distribution for purposes of determining Account balances or the present value of accrued benefits.  A transfer incident to a merger or consolidation of two or more Plans of the Employer (including Plans of related Employers treated as a single Employer under Code Section 414), or a transfer or rollover between Plans of the Employer, shall not be considered as voluntarily initiated by the Employee.

15.5         Minimum Contributions .  For any Top-Heavy Year, each Employer shall make a special contribution on behalf of each Participant to the extent that the total allocations to his Account pursuant to Section 4 is less than the lesser of:

(i)           three percent of his 415 Compensation for that year, or

(ii)           the highest ratio of such allocation to 415 Compensation received by any Key Employee for that year.  For purposes of the special contribution of this Section 15.2, a Key Employee’s 415 Compensation shall include amounts the Key Employee elected to defer under a qualified 401(k) arrangement.  Such a special contribution shall be made on behalf of each Participant who is employed by an Employer on the last day of the Plan Year, regardless of the number of his Hours of Service, and shall be allocated to his Account.

29
If the Employer maintains a qualified plan in addition to this Plan and more than one such plan is determined to be Top-Heavy, a minimum contribution or a minimum benefit shall be provided in one of such other plans, including a plan that consists solely of a cash or deferred arrangement which meets the requirements of Section 401(k)(12) of the Code and matching contributions with respect to which the requirements of Section 401(m)(11) of the Code are met.  If the Employer has both a Top-Heavy defined benefit plan and a Top-Heavy defined contribution plan and a minimum contribution is to be provided only in the defined contribution plan, then the sum of the Employer contributions and forfeitures allocated to the Account of each Non-key Employee shall be equal to at least five percent (5%) of such Non-key Employee’s 415 Compensation for that year.

15.6        Top-Heavy Provisions Control in Top-Heavy Plan .  In the event this Plan becomes top-heavy and a conflict arises between the top-heavy provisions herein set forth and the remaining provisions set forth in this Plan, the top-heavy provisions shall control.



 


30

FIRST GUARANTY BANK
EMPLOYEE STOCK OWNERSHIP PLAN

APPENDIX A
 
MINIMUM DISTRIBUTION REQUIREMENTS .
 
Section 1. General Rules
 
1.1. Adoption and Effective Date. For purposes of determining required minimum distributions, First Guaranty Bank adopts the following amendment to the First Guaranty Bank Employee Stock Ownership Plan for plan years beginning on or after January 1, 2003.

1.2. Coordination with Minimum Distribution Requirements Previously in Effect . [Inapplicable.]

1.3. Precedence . The requirements of this Appendix will take precedence over any inconsistent provisions of the Plan.

1.4. Requirements of Treasury Regulations Incorporated . All distributions required under this Appendix will be determined and made in accordance with the Treasury Regulation under section 401(a)(9) of the Internal Revenue Code.

1.5. TEFRA Section 242(b)(2) Elections . Notwithstanding the other provisions of this Appendix, distributions may be made under a designation made before January 1, 1984, in accordance with section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to section 242(b)(2) of TEFRA.

Section 2. Time and Manner of Distribution.
 
2.1. Required Beginning Date . The participant’s entire interest will be distributed, or begin to be distributed, to the participant no later than the participant’s required beginning date.
 
2.2. Death of Participant Before Distributions Begin . If the participant dies before distributions begin, the participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:
      
(a) If the participant’s surviving spouse is the participant’s sole designated beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the participant died, or by December 31 of the calendar year in which the participant would have attained age 70 1/2, if later.
(b) If the participant’s surviving spouse is not the participant’s sole designated beneficiary, then distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the participant died.

 
(c) If there is no designated beneficiary as of September 30 of the year following the year of the participant’s death, the participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the participant’s death.
 
(d) If the participant’s surviving spouse is the participant’s sole designated beneficiary and the surviving spouse dies after the participant but before distributions to the surviving spouse begin, this Section 2.2, other than Section 2.2(a), will apply as if the surviving spouse were the participant.

For purposes of this Section 2.2 and Section 4, unless Section 2.2(d) applies, distributions are considered to begin on the participant’s required beginning date. If Section 2.2(d) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 2.2(a).

Section 3. Required Minimum Distributions During Participant’s Lifetime.
 
3.1. Amount of Required Minimum Distribution For Each Distribution Calendar Year . During the participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(a) the quotient obtained by dividing the participant’s account balance by the distribution period in the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury Regulations, using the participant’s age as of the participant’s birthday in the distribution calendar year; or

(b) if the participant’s sole designated beneficiary for the distribution calendar year is the participant’s spouse, the quotient obtained by dividing the participant’s account balance by the number in the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury Regulations, using the participant’s and spouse’s attained ages as of the participant’s and spouse’s birthdays in the distribution calendar year.

3.2. Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death . Required minimum distributions will be determined under this Section 3 beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the participant’s date of death.
 
Section 4. Required Minimum Distributions After Participant’s Death.
 
4.1. Death On or After Date Distributions Begin.
 
(a) Participant Survived by Designated Beneficiary. If the participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the participant’s death is the quotient obtained by dividing the participant’s account balance by the longer of the remaining life expectancy of the participant or the remaining life expectancy of the participant’s designated beneficiary, determined as follows:

(1) The participant’s remaining life expectancy is calculated using the age of the participant in the year of death, reduced by one for each subsequent year.
 
(2) If the participant’s surviving spouse is the participant’s sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(3) If the participant’s surviving spouse is not the participant’s sole designated beneficiary, the designated beneficiary’s remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the participant’s death, reduced by one for each subsequent year.

(b) No Designated Beneficiary. If the participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the participant’s death is the quotient obtained by dividing the participant’s account balance by the participant’s remaining life expectancy calculated using the age of the participant in the year of death, reduced by one for each subsequent year.
 
4.2. Death Before Date Distributions Begin.
 
(a) Participant Survived by Designated Beneficiary. If the participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the participant’s death is the quotient obtained by dividing the participant’s account balance by the remaining life expectancy of the participant’s designated beneficiary, determined as provided in Section 4.1.

(b) No Designated Beneficiary. If the participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the participant’s death, distribution of the participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the participant’s death.
 
(c) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the participant dies before the date distributions begin, the participant’s surviving spouse is the participant’s sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 2.2(a), this Section 4.2 will apply as if the surviving spouse were the participant.
 
Section 5. Definitions.
 
5.1. Designated beneficiary . The individual who is designated as the beneficiary under the Plan and is the designated beneficiary under section 401(a)(9) of the Internal Revenue Code and section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations.
 
5.2. Distribution calendar year . A calendar year for which a minimum distribution is required. For distributions beginning before the participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the participant’s required beginning date. For distributions beginning after the participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section 2.2. The required minimum distribution for the participant’s first distribution calendar year will be made on or before the participant’s required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the participant’s required beginning date occurs, will be made on or before December 31 of that distribution calendar year.

5.3. Life expectancy . Life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury Regulations.

5.4. Participant’s account balance . The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

5.5. Required beginning date . The date specified in Section 10.2-5 of the Plan.
                                                                                                               EXHIBIT 10.2


FIRST GUARANTY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
________________________

Amendment Number One
________________________

 
In connection with the receipt of a favorable determination letter on the tax-qualified status of the First Guaranty Bank Employee Stock Ownership Plan (the “Plan”) on February 28, 2005, the Plan is hereby amended in accordance with the following:
 
1.           Section 10.1 shall be amended, effective as of March 28, 2005, by adding the following paragraph at the end thereof:

“Effective as of March 28, 2005, notwithstanding anything in the preceding paragraph to the contrary, if a Participant’s vested Account balance does not exceed $1,000 and the Participant fails to return his distribution election form, the Plan Administrator shall distribute the vested portion of his Account balance, in cash or in kind, in the sole discretion of the Plan Administrator, to the Participant in a lump sum as soon as practicable but in no event later than 60 days after the end of the Plan Year in which employment terminates.  If the terminated Participant’s vested Account balance exceeds $1,000 but is not greater than $5,000, and the Participant fails to consent to the distribution, then the Plan Administrator shall liquidate the Participant’s Stock Fund Account and pay the Participant’s vested Account balance, in cash, in a direct rollover to an individual retirement plan designated by the Plan Administrator in accordance with Code Section 401(a)(31)(B) and the regulations promulgated thereunder.”
 
2.           Section 10.2 of the Plan shall be amended, effective as if initially contained in the Plan on the date of its adoption, by adding subsection 10.2-5 at the end thereof to provide as follows:
 
“10.2-5
Notwithstanding any provision of the Plan to the contrary, effective for Plan Years commencing on or after January 1, 2003, the provisions of Appendix A regarding the Code Section 401(a)(9) minimum distribution requirements shall apply.”

IN WITNESS WHEREOF , this Amendment has been executed by the duly authorized officers of First Guaranty Bank and is effective as set forth herein.

 
 
ATTEST:
                            FIRST GUARANTY BANK
 

 
/s/Vanessa R. Drew                                                                            By: /s/Michael R. Sharp            
                                   President
 


                                                                                                          EXHIBIT 10.3

 
SECOND AMENDMENT TO THE
FIRST GUARANTY BANK
EMPLOYEE STOCK OWNERSHIP PLAN


THIS SECOND AMENDMENT to the First Guaranty Bank Employee Stock Ownership Plan (the “Plan”) is made by First Guaranty Bank (the “Bank”).

WHEREAS, the Bank adopted the Plan effective January 1, 2003; and

WHEREAS , the Bank wishes to amend the Plan to provide that, effective April 1, 2007, certain in-service distributions may be made to Participants after satisfying certain
          timing rules; and

WHEREAS , the Bank reserved the right, under Section 13.3 of the Plan, to amend the Plan by an instrument in writing executed by the Bank;

NOW, THEREFORE , effective April 1, 2007, the following amendment to the Plan is hereby adopted:

1.           Section 10 shall be amended by adding new Section 10.11 to read as follows:
10.11      In-Service Regular Distributions .  Effective April 1, 2007, a Participant may request during the Plan Year a distribution of all or any portion of his or her vested Account, provided that no distributions shall be made under this Section 10.11 unless: (i) the amounts to be distributed have been held in the Participant’s Account for at least two years; or (ii) the Participant has five (5) or more years of participation in the Plan.  All in-service regular distributions under this Section 10.11 shall be made according to such nondiscriminatory procedures as may be required by the Committee.  Notwithstanding anything herein to the contrary, the Committee may limit the number of times that a Participant may make such request during a Plan Year or may designate the time during the Plan Year that such request or such distribution may be made, provided, however, that such request may be made at least one time during each Plan Year.  A Participant may elect to receive the in-service distribution in Stock or cash, and if the distribution is to be made in cash, the Trustee shall re-allocate to the extent possible the Stock in the Participant’s Account to other Participants and shall re-allocate cash from such other Participant’s Accounts to the Participant.  Should Stock in a Participant’s Account be reallocated to other Participant’s in order to re-allocate cash to the Account of the Participant entitled to such distribution, the determination of the value of such Stock shall be based on the value of such Stock on the immediately preceding Valuation Date.  If the distribution shall be made in Stock, the Participant shall be given the right to put such shares to the Employer in accordance with Section 10.6 hereof.



IN WITNESS WHEREOF , the Bank has caused this Amendment to be executed as the _ 15th __ day of ____ March _____, 2007.

 
FIRST GUARANTY BANK


__ 03/15/2007 __________                                                                                                By: /s/Collins Bonicard
Date                                                                        Collins Bonicard
                                                                           Secretary
                                                                  



 


 
                                                                                                                 EXHIBIT 10.4

FIRST GUARANTY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
__________________________

Amendment Number Three
__________________________

The First Guaranty Bank Employee Stock Ownership Plan (the “Plan”) is hereby amended, effective on the effective date of the merger of Homestead Bank with and into First Guaranty Bank, in accordance with the following:

1.  
The definition of “Hours of Service” is amended at sub-paragraph “(a)” to include the following sentence:

“For purposes of determining “Hours of Service” for the 2007 Plan Year for former employees of Homestead Bank who become employees of First Guaranty Bank and who first become eligible to participate in the Plan on the effective date of the merger of Homestead Bank with and into First Guaranty Bank, “Hours of Service” shall include each hour for which an employee is paid or entitled to be paid for services by Homestead Bank during 2007 prior to the merger effective date.”

2.  
Section 3.1 of the Plan shall be amended by adding the following at the end thereof:

“Notwithstanding the foregoing, an employee of Homestead Bank who becomes an employee of the Bank on the effective date of the merger of Homestead Bank with the Bank shall receive credit for eligibility purposes for all periods of service while employed at Homestead Bank.  An employee referenced in the above sentence shall enter the Plan as of the effective date of the merger if such employee satisfies the eligibility requirements of this Section 3.1 at such time, or, if later, on the Entry Date coincident with or next following the completion of the eligibility requirements set forth herein.”

 
           3.
Section 9.2 of the Plan shall be amended by adding the following after its first sentence:

 
“Notwithstanding the above, an employee of Homestead Bank who becomes an employee of the Bank on the effective date of the merger of Homestead Bank with the Bank shall receive credit for purposes of determining Vesting Years under the Plan for each calendar year in which such person completed 1,000 Hours of Service with Homestead Bank prior to the effective date of said merger, up to a maximum of three Vesting Years.  Also, for these purposes, Hours of Service credited for employment at Homestead Bank in calendar year 2007 prior to the effective date of the merger with the Bank shall be deemed to be Hours of Service for the Bank for purposes of determining Vesting Years under this Section 9.2.”



IN WITNESS WHEREOF , this Amendment Number Three has been executed by the duly authorized officers of First Guaranty Bank as the 21st day of May 2007.

 
FIRST GUARANTY BANK




 07/21/2007                                                                                                                      By:  /s/Collins Bonicard
Date                                                                      Collins Bonicard
                                                                           Secretary to the Board of Directors
 

 


                                                                                   Exhibit 21

SUBSIDIARIES OF THE REGISTRANT
(as of July 27, 2007)
 
 
 

  Name of Subsidiary
  State of Incorporation
 First Guaranty Bank
 Louisiana state bank
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

                                                                                                           EXHIBIT 99.1
                                                                 
 
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
 
 
 
 
 
 
 
 
Form 10-K
 
 
 
 
 
 
 
[x]      ANNUAL REPORT PURSUANT T0 SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
        [  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the year ended December 31, 2006
 
Certificate Number: 14028
 
 
 
 
LOGO
FIRST GUARANTY BANK
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
 
 
 
 
Louisiana
(State or other jurisdiction of incorporation or organization)
 
72-0201420
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
400 East Thomas Street
Hammond, Louisiana
(Address of principal executive offices)
 
70401
(Zip code)
 
 
 
 
 
 
 
 
 
 
 
 
(Telephone number, including area code)
(985) 345-7685
_____________________________
Securities registered pursuant to Section 12(b) of the Act:
None
_____________________________
Securities registered pursuant to Section 12(g) of the Act:
 

 
Title of each class
 
Name of each exchange on which registered
Common Stock, $5 par value per share
Common Stock, $1 par value per share
None
None
 
_____________________________

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

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Bank’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

    Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes [  ]   No [X]
 
    The aggregate market value of the voting stock held by non-affiliates of the Bank, for purposes of the Form 10-K, is indeterminable. The Bank’s shares of common stock are not traded on a stock exchange and trades occur primarily between individuals at a mutually agreed upon price. The most recent trades of the Bank’s common stock known to the Bank occurred on December 20, 2006. At such time a total of 1,450 shares of the $1.00 par value common stock were sold at a price of $23.42 per share. As of December 31, 2006, 5,559,644 shares of $1 par value common stock were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
    Selected sections of the 2007 definitive Proxy Statement for the Annual Meeting of Shareholders to be filed within 120 days of Registrant’s fiscal year end are incorporated into Part III, Item 10 and 14 of this Form 10-K.
 
 
TABLE OF CONTENTS



Part I.
Item 1  –   Business
Item 1A – Risk Factors
Item 1B – Unresolved Staff Comments
Item 2  –   Properties
Item 3  –   Legal Proceedings                                                                                                           
Item 4  –   Submissions of Matters to a Vote of Security Holders
 
Part II
Item 5  –   Market for Bank’s Common Equity, Related Stockholder Matters and Issuer Purchases of
            Equity Securities                                                                                                
Item 6  –   Selected Financial Data
Item 7  –   Management’s Discussion and Analysis of Financial Condition and
            Results of Operations
Item 7A – Quantitative and Qualitative Disclosures about Market Risk
Item 8  –   Financial Statements and Supplementary Data
Item 9  –   Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A – Controls and Procedures
 
Part III
Item 10  – Directors and Executive Officers of the Bank
            Audit Committee Financial Expert
            Code of Ethics
Item 11 –  Executive Compensation
Item 12 –  Security Ownership of Certain Beneficial Owners and Management
Item 13 –  Certain Relationships and Related Transactions
Item 14 –  Principal Accountant Fees and Services
 
Part IV
Item 15 –  Exhibits, Financial Statement Schedules and Reports on Form 8-K
 
 Page
3
8
9
10
11
11
 
 
11
11
 
15
24
26
45
45
 
 
46
48
48
49
51
53
53
 
 
54
 
 


 
2
 
 
PART 1

Item 1 – Business
Background
    First Guaranty Bank (the “Bank”) is a state chartered commercial bank with 16 full service banking facilities located in southeast, southwest and north Louisiana. The Bank was organized under Louisiana law under the name Guaranty Bank and Trust Company in 1934 and changed names to First Guaranty Bank in 1971. The Bank is licensed by the Louisiana Office of Financial Institutions as a state bank. Deposits are insured up to the maximum legal limits by the FDIC. The Bank is not a member of the Federal Reserve System. As of December 31, 2006, the Bank was the sixth largest Louisiana-based bank, the fourth largest Louisiana bank not headquartered in New Orleans as measured by total assets.

Market Areas
    The Bank’s focus is on the bedroom communities of metropolitan markets, small cities and rural areas in southeast, southwest and north Louisiana. In southeast Louisiana, seven branches are located in Tangipahoa Parish in the towns of Amite, Hammond, Independence, Kentwood and Ponchatoula and one branch is located in Denham Springs, in the adjacent Livingston Parish. In southwest Louisiana, the Bank has branches in Abbeville in Vermillion Parish and in Jennings in Jefferson Davis Parish. The remaining six branches are located in north Louisiana, in Haynesville and Homer, which are both in Claiborne Parish; Oil City and Vivian, both in Caddo Parish; in Dubach in Lincoln Parish and Benton, in Bossier Parish. The Bank’s core market remains in the home parish of Tangipahoa where approximately 50.6% of deposits and 53.4% of net loans were based in 2006.
    The Bank’s southeast Louisiana market is strategically located near the intersection of Interstates 12 and 55, which places it at a crossroads of commercial activity for the southeastern United States. In addition, this market area is largely populated by the work force of several nearby petrochemical refineries and other industrial plants and is a bedroom community for the urban centers of New Orleans and Baton Rouge, which are approximately 45 miles and 60 miles, respectively, from Hammond, where the main office is located. Hammond is home to one of the largest medical centers in the state of Louisiana and the second largest state university in Louisiana.
    The Bank’s southwest Louisiana market benefits from a profitable casino gaming industry and substantial tourism revenue derived from the Louisiana Acadian culture. It also has a concentration of oilfield and oilfield services activity and is a thriving agricultural center for rice, sugarcane and crawfish.
    Timber cultivation and its related industries, including milling and logging, are key commercial activities in the north Louisiana market. It is also an agrarian center in which corn, cotton and soybeans are the primary crops. The poultry industry, including independent poultry grower farms that contract with national poultry processing companies, are also very important to the local economy.

Banking Products and Services
    The Bank is an independent community bank that offers personalized commercial banking services to businesses, professionals and individuals. The Bank is engaged in substantially all of the business operations customarily conducted by independent commercial banks in Louisiana. The Bank offers a variety of deposit products including personal and business checking and savings accounts, time deposits, money market accounts and NOW accounts. Other services provided include personal and commercial credit cards, remote deposit capture, safe deposit boxes, money orders, travelers’ checks and lockbox services. Also offered is 24-hour banking through internet banking, voice response and 24 automated teller machines. Although full trust powers have been granted, the Bank does not actively operate or have any present intentions to activate a trust department.

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

Competition
    The banking business in Louisiana is highly competitive with respect to both loans and deposits. The Bank competes for deposits and loans principally with other commercial banks, as well as non-bank financial institutions, including savings and loan associations, thrift and loan associations credit unions, and non-financial institutions. Statewide and nationwide commercial banks have the ability to finance extensive advertising campaigns and to allocate investment assets to regions of highest yield and demand.

 
3
 
    In order to compete with the statewide and nationwide commercial banks and the other financial institutions in primary service areas, the Bank relies principally upon local promotional activities, support to local communities and personal contact by officers, directors and employees. Promotional activities emphasize the advantages of dealing with a local community bank attuned to the particular needs of the community. For customers whose loan demands exceed lending limits, the Bank arranges for loans on a participated basis with other financial institutions. The Bank also assists customers in obtaining, from correspondent banks, services the Bank does not offer.

Employees
    As of December 31, 2006, the Bank had 214 employees, 178 of whom were full-time employees and 36 were part-time employees (the full-time equivalent of 196 staff members).

Data Processing
    Since November 2001, customer information has been housed on equipment owned by Financial Information Service Corporation or FISC. FISC is a cooperative jointly owned by a number of Louisiana and Mississippi state banks that are currently serviced by FISC. Each bank owns one share of FISC’s stock and holds a seat on the board of directors of FISC. The 2006 annual cost of this service was $686,000 and may escalate as additional services are provided or customer volume increases. The current arrangements are adequate and the agreement with FISC to add additional services, as needed, will accommodate the Bank’s needs for the foreseeable future.

Information Technology Infrastructure
    The Bank has a network which links more than 25 remote sites using a virtual private network to authenticate to a Novell-Citrix hybrid server architecture. The Bank has over 300 embedded devices that can be remotely administered from any location. The Bank’s employees are not limited to their branch location and instead can access the network and authenticate securely from any branch. The Bank has a full redundant back-up site located at the far northwestern corner of the state in Homer, Louisiana.

Regulatory Compliance
    First Guaranty Bank is an FDIC-insured, non-member Louisiana state bank. Regulation of financial institutions is intended primarily to protect depositors, the deposit insurance funds of the FDIC and the banking system as a whole, and generally is not intended to protect stockholders or other investors.
    The Bank is subject to regulation and supervision by both the Louisiana Office of Financial Institutions and the FDIC. In addition, the Bank is subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that are made and the interest that is charged on those loans, and limitations on the types of investments that are made and the types of services that are offered. Various consumer laws and regulations also affect operations. See “Regulation and Supervision.”

REGULATION AND SUPERVISION

General
    First Guaranty is an FDIC-insured Louisiana state bank and not a member of the Federal Reserve System. Regulation of financial institutions is intended primarily to protect depositors, the deposit insurance funds of the FDIC and the banking system as a whole, and generally is not intended to protect stockholders or other investors.
    The Bank is subject to regulation and supervision by both the FDIC and the Louisiana Office of Financial Institutions. In addition, various consumer laws and regulations affect operations. Commercial banks are affected significantly by the actions of the Federal Reserve Board in influencing the overall national economy by controlling the money supply and the availability of credit.
    From time to time, members of Congress introduce legislative proposals to overhaul the bank regulatory system and limit the investments that a depository institution may make with insured funds. The Bank cannot predict changes in the banking laws and in their application by regulatory agencies, but any changes may have a material effect on business and financial results.

Capital Adequacy Requirements

Capital Guidelines
    The Bank is subject to risk-based capital guidelines adopted by the FDIC that are designed to reduce risk of loss. Under these guidelines, specific categories of assets are assigned different risk weights, based generally on the perceived credit risk of the asset. These risk weights are multiplied by corresponding asset balances to determine a “risk-weighted” asset base. Risk-based capital ratios are obtained by dividing Tier 1 capital and total qualifying capital (Tier 1 capital and a limited amount of Tier 2 capital) by total risk-adjusted assets and off-balance-sheet items. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock and minority interests in certain subsidiaries, less most intangible assets. Tier 2 capital generally includes a limited amount of the allowance for loan and lease losses and certain other instruments that have some characteristics of equity. The FDIC currently requires a minimum ratio of Tier 1 capital to risk-adjusted assets and off-balance-sheet items of 4.0% and a minimum ratio of qualifying total capital to risk-adjusted assets and off-balance-sheet items of 8.0%. At least one-half of total capital must be in the form of Tier 1 capital. 
4
 
   
    In addition to the risk-based capital guidelines, the FDIC uses a leverage ratio as an additional tool to evaluate the capital adequacy of banks. The leverage ratio is a bank’s Tier 1 capital divided by its average total consolidated assets. Certain highly-rated banks may maintain a minimum leverage ratio of 3.0%, but other banks are required to maintain a leverage ratio of at least 4.0%.
    The guidelines also provide that banks experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Bank regulators have the authority generally to raise capital requirements applicable to individual banking organizations beyond current levels. However, the Bank is unable to predict whether or when higher capital requirements could be imposed, and, if so, at what levels or on what schedule.    
    The Bank complied with the applicable minimum capital requirements as of December 31, 2006. At that date, the leverage, Tier 1 capital and total risk-based capital ratios were 8.16%, 9.92% and 11.03%, respectively.
 
Prompt Corrective Action and Other Enforcement Mechanisms
    Bank regulators are required to take “prompt corrective action” to resolve problems associated with insured depository institutions whose regulatory capital falls below certain levels. There are five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” An insured, state non-member bank is “well capitalized” if it maintains a total risk-based capital ratio of at least 10%, a risk-adjusted Tier 1 capital ratio of at least 6% and a leverage ratio of at least 5%, and is not subject to any order or written directive to maintain any specific capital level. A state non-member bank is “adequately capitalized” if it maintains a leverage ratio of at least 4%, a risk-adjusted Tier 1 capital ratio of at least 4%, and a total risk-based capital ratio of at least 8%. A state non-member bank will be considered “undercapitalized” if it fails to meet any minimum required measure, “significantly undercapitalized” if it is significantly below such measure and “critically undercapitalized” if it fails to maintain a level of tangible equity equal to not less than 2% of total assets. A state non-member bank may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it is operating in an unsafe or unsound manner or receives an unsatisfactory examination rating. At December 31, 2006 and December 31, 2005, the Bank had capital ratios at sufficient levels to qualify as “well capitalized.”

Effects of Undercapitalization
    Generally, an FDIC-insured depository institution is prohibited from making any capital distribution, including the payment of dividends, if it would thereafter be undercapitalized. In addition, an undercapitalized bank is prohibited from increasing its assets, engaging in a new line of business, acquiring any interest in any company or insured depository institution, or opening or acquiring a new branch, except under certain circumstances, including the acceptance by the federal banking regulators of a capital restoration plan for the bank. Federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. If an insured depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.   
    Significantly undercapitalized insured depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cease receiving deposits from correspondent banks, and assessment of shares to provide required capital under penalty of seizure and sale for non-payment. Critically undercapitalized insured depository institutions are subject to appointment of a receiver or conservator.   
    The capital classification of a bank also affects the frequency of examinations of the bank and the deposit insurance premiums paid by the bank. The federal banking regulators generally are required to conduct a full-scope, on-site examination of every bank at least once every 12 months.

Activities and Investments of Insured State Banks

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

Transactions with Affiliates
    Sections 23A and 23B of the Federal Reserve Act restrict the ability to make loans to affiliates, invest in securities issued by affiliates and use affiliates’ securities as collateral for loans to any borrower. These laws may limit the ability to obtain funds from affiliates for cash needs, including funds for payment of dividends, interest and operational expenses.
All extensions of credit made to executive officers, directors or principal stockholders and their affiliates or to any related interests of such persons (i.e., insiders) must be made on substantially the same terms and pursuant to the same credit underwriting procedures as are applicable to comparable transactions with persons who are neither insiders nor employees, and must not involve more than the normal risk of repayment or present other unfavorable features. Insider loans also are subject to certain lending limits, restrictions on overdrafts to insiders   and requirements for prior approval by the board of directors.
5
 

Dividends
    Because the Bank’s deposits are insured by the FDIC, dividends may not be paid or capital assets distributed if the Bank is in default on any assessment due to the FDIC. The Bank is also subject to regulations that impose minimum regulatory capital and minimum state law earnings requirements that affect the amount of cash available for distribution. In addition, under the Louisiana Banking Law, dividends may not be paid if it would reduce the unimpaired surplus below 50% of outstanding capital stock in any year nor can dividends in excess of net profits (as defined by the Louisiana Banking Law) for the current year and the immediately preceding year be paid without the prior approval of the Louisiana Commissioner of Financial Institutions.

Brokered Deposits and Pass-Through Insurance
    An FDIC-insured depository institution cannot accept, roll over or renew brokered deposits unless it is well capitalized or adequately capitalized and receives a waiver from the FDIC. A depository institution that cannot receive brokered deposits also cannot offer “pass-through” insurance on certain employee benefit accounts. Whether or not it has obtained such a waiver, an adequately capitalized depository institution may not pay an interest rate on any deposits in excess of 75 basis points over certain prevailing market rates specified by regulation. As of December 31, 2006, the Bank did not have brokered deposits.

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

FDIC Deposit Insurance Assessments
    The Bank is subject to FDIC deposit insurance assessments for deposit insurance under the Deposit Insurance Fund. The FDIC’s current risk-based system places a bank in one of nine risk assessment categories, principally on the basis of its capital level and an evaluation of the bank’s risk to the fund, and bases premiums on the probability of loss to the FDIC with respect to each individual bank. At December 31, 2006 and December 31, 2005, the FDIC had assigned the Bank to the 1A risk assessment category. The total FDIC assessment was $167,900 for 2006.
     The FDIC may terminate the deposit insurance of any insured depository institution if it determines that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, continue to be insured for a period of six months to two years, as determined by the FDIC. The Bank is not aware of any existing circumstances which would result in the termination of deposit insurance.

Safety and Soundness Standards    
    The federal banking regulators have also adopted guidelines establishing safety and soundness standards for all insured depository institutions. The safety and soundness guidelines relate to internal controls, information systems, internal audit systems, loan underwriting and documentation, compensation and interest rate exposure.

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

Privacy Provisions
    Under the Gramm-Leach-Bliley Act, federal banking regulators have adopted new rules requiring disclosure of privacy policies and information sharing practices to consumers. These rules prohibit depository institutions from sharing customer information with nonaffiliated parties without the customer’s consent, except in limited situations, and require disclosure of privacy policies to consumers and, in some circumstances, enable consumers to prevent disclosure of personal information to nonaffiliated third parties.  In addition, the Fair and
 
6
 
Accurate Credit Transactions Act of 2003 requires banks to notify their customers if they report negative information about them to a credit bureau or if they grant credit to them on terms less favorable than those generally available.
    The Bank has instituted risk management systems to comply with all required privacy provisions and believes that the new disclosure requirements and implementation of the privacy laws will not materially increase operating expenses.

Check 21
    The Check 21 Act facilitates check truncation and electronic check exchange by authorizing a new negotiable instrument called a “substitute check”. The Act provides that a properly prepared substitute check is the legal equivalent of the original check for all purposes. This law supercedes contradictory state laws (i.e., state laws that allow customers to demand the return of original checks).    
    Although the Check 21 Act does not require any bank to create substitute checks or to accept checks electronically, it does require banks to accept a legally equivalent substitute check in place of an original check after the Check 21 Act’s effective date of October 28, 2004.

Anti-Money Laundering and Anti-Terrorism Legislation
    To prevent financial institutions from being used to hide money derived from criminal activity and tax evasion, the Bank Secrecy Act of 1970, or BSA, requires banks to keep records to assist government enforcement agencies in tracing financial transactions and the flow of funds. Banks must also file Suspicious Activity Reports and Currency Transaction Reports to assist government enforcement agencies in detecting patterns of criminal activity. The BSA also contains enforcement provisions authorizing criminal and civil penalties for illegal activities and violations of the BSA and its implementing regulations and a safe harbor that protects financial institutions from civil liability for their cooperative efforts.
    The USA PATRIOT Act requires all financial institutions, including us, to institute and maintain a risk-based anti-money laundering compliance program that includes a customer identification program, provides for information sharing with law enforcement and between certain financial institutions by means of an exemption from the privacy provisions of the Gramm-Leach-Bliley Act, prohibits U.S. banks and broker-dealers from maintaining accounts with foreign “shell” banks, establishes due diligence and enhanced due diligence requirements for certain foreign correspondent banking and foreign private banking accounts and imposes additional record keeping requirements for certain correspondent banking arrangements. The Bank has adopted policies, procedures and controls to comply with the BSA and the USA PATRIOT Act, although the Bank engages in very few transactions of any kind with foreign financial institutions or foreign persons.

Consumer Laws and Regulations
    The Bank is subject to laws and regulations that are designed to protect consumers in transactions with banks. While the following list is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act and the Federal Trade Commission Act. These laws and regulations mandate disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of ongoing customer relations.

Sarbanes-Oxley Act
    First Guaranty Bank is also subject to the Sarbanes-Oxley Act of 2002, which has imposed corporate governance and accounting oversight restrictions and responsibilities on the board of directors, executive officers and independent auditors. The law has increased the time spent discharging responsibilities and costs for audit services.

Recent Developments
     Merger with Homestead Bancorp, Inc.  First Guaranty Bank and Homestead Bancorp, Inc. (OTC: HSTD.PK), parent company for Homestead Bank, entered into a definitive agreement on January 4, 2007 pursuant to which Homestead Bancorp will be acquired for approximately $13 million in cash. At December 31, 2006, total assets of Homestead Bancorp, Inc. were $131.5 million, including $71.0 million in total loans and $51.3 million in investment securities. Total deposits at such date were $70.2 million and stockholders’ equity totaled $10.5 million.
    Prior to completion of the acquisition, it is anticipated that First Guaranty Bancshares, Inc., currently a wholly-owned subsidiary of First Guaranty Bank, will become the registered bank holding company of First Guaranty Bank pursuant to a share exchange transaction that has previously been approved by the shareholders of First Guaranty Bank. Following the holding company formation, First Guaranty Bancshares will accomplish the acquisition of Homestead Bancorp by virtue of the merger of a wholly-owned subsidiary of First Guaranty
7
 
Bancshares with and into Homestead Bancorp.
    Under the terms of the agreement, First Guaranty Bancshares will acquire all of the issued and outstanding shares of common stock of Homestead Bancorp for the cash purchase price of $17.60 per share. In addition, each outstanding and unexercised option to acquire a share of common stock of Homestead Bancorp will be converted into the right to receive cash in an amount equal to $17.60 less the exercise price of such option. The transaction has been approved by the board of directors of First Guaranty Bank, First Guaranty Bancshares and Homestead Bancorp. The acquisition is subject to customary conditions, including the approval of the shareholders of Homestead Bancorp as well as certain bank regulatory authorities in the United States. The merger is expected to close in the second quarter of 2007.
     Federal Home Loan Bank (FHLB) Status . In 2006, due to a high level of nonperforming assets (see Nonperforming Assets in Management’s Discussion and Analysis), FHLB advances were based on “custody” status rather than “blanket lien” status. FHLB advances in 2006 were collateralized primarily by commercial real estate loans in the FHLB’s custody. On February 27, 2007, the Bank was approved to regain access FHLB credit products and services utilizing the “blanket lien” status.

Item 1A. – Risk Factors
    Various factors, such as general economic conditions in the U.S. and Louisiana, regulatory and legislative initiatives and increasing competition could impact the Bank’s business. There are also several other risks, many beyond the Bank’s control, which could adversely affect the Bank’s business, results of operations and/or financial condition.
    The most important risk factors affecting the success of the Bank are believed to be the management of the loan credit risk and interest rate risk.
     Loan Credit Risk – The Bank’s earnings are significantly affected by the ability to originate, underwrite and service loans properly. The Bank could sustain losses if it incorrectly assesses the creditworthiness of borrowers or fails to detect or respond to deterioration in asset quality in a timely manner.  Problems with asset quality could cause interest income and net interest margin to decrease and provisions for loan losses to increase, which could adversely affect the results of operations and financial condition.
    The risk of loan losses varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral. The Bank maintains an allowance for loan losses based upon, among other things, historical experience, a generalized reserve for losses as a percentage of loan volume, the Bank’s evaluation of economic conditions, independent third-party reviews, regulatory examinations and regular reviews of delinquencies and loan portfolio quality. Although the Bank believes that the allowance for loan losses is maintained at a level adequate to absorb any losses in the loan portfolio, these estimates of loan losses are subjective and their accuracy depends on the outcome of future events that are largely beyond the Bank’s control.
    In addition, bank regulators, as an integral part of their supervisory functions, periodically review the allowance for loan losses. These regulatory agencies may require the Bank to increase the allowance for loan losses or to recognize further loan chargeoffs based upon their judgments, which may be different from Management.  Any increase in the allowance for loan losses required by these regulatory agencies could materially adversely affect the financial condition and results of operations.
     Interest Rate Risk - Changes in interest rates may affect interest income and interest expense, as well as the ability to make loans and obtain deposits and related costs. Interest rates are sensitive to many factors beyond the Bank’s control, including general economic conditions and the policies of various governmental and regulatory authorities. In a period of rising interest rates, interest expense could increase in different amounts and at different rates than the interest earned on assets, thereby decreasing net interest income. Furthermore, an increase in long-term interest rates may affect negatively the market value of the investment portfolio. Fixed-rate securities are generally more negatively affected by these increases. A reduction in the market value of the portfolio would increase the unrealized loss position of the available-for-sale investments. Any of these events could materially adversely affect the results of operations or financial condition.
    Other key risks include, but are not limited to, operating risk, regulatory risk, economic risk, employee misconduct risk, fraud or negligent acts and environmental risks.
     Operating Risk - Existing and future offices may fail to maintain or achieve deposit levels, loan balances or other operating objectives necessary to avoid losses or produce profits. Should any new location be unprofitable or marginally profitable or should any existing location experience a decline in profitability or incur losses, the adverse effect on results of operations and financial condition could be more significant than would be the case for a larger bank.
     Regulatory Risk - Growth and expansion plans may be adversely affected by a number of regulatory developments. Failure to obtain required regulatory approvals, changes in laws and regulations or other regulatory developments may prevent or adversely affect growth and expansion. Such factors may alter growth and expansion plans, which may prevent the Bank from entering certain markets or allow competitors to gain or retain market share in existing or expected markets.
    Failure to address these issues successfully could have a material adverse effect on business, future prospects, financial condition or results of operations and could adversely affect the ability to implement business strategies successfully. Also, if the Bank’s historical growth rate decreases, operating results could be materially adversely affected.
 
8
 
     Economic Risk - Success significantly depends on the growth in population, income levels, job markets, deposits and housing in the Bank’s market areas. If the communities in which the Bank operates do not grow, or if local economic conditions are unfavorable, business may not succeed. Adverse economic conditions in the Bank’s specific market areas could reduce growth rate, affect the ability of customers to repay their loans and generally affect the financial condition and results of operations. Unlike some of the large competitors, the Bank is unable to spread the risks of unfavorable local economic conditions across a number of diversified economies.
     Employee Misconduct Risk - Employee misconduct could subject the Bank to financial losses or regulatory sanctions and seriously harm the Bank’s reputation.  It is not always possible to prevent employee misconduct, and the precautions taken to detect and prevent this activity may not be effective in all cases. Misconduct by employees could include theft, embezzlement, unauthorized transactions, hiding unauthorized activities, improper or unauthorized activities on behalf of customers or improper use of confidential information.
     Fraud or Negligent Act Risk – The Bank relies heavily on information that customers and third parties give, including the information in loan applications, property appraisals, title information and employment and income documentation in deciding which loans to make and the terms of those loans. If any of the information is misrepresented, either fraudulently or inadvertently, and is not detected before the loan is funded, the value of the loan may be significantly lower than expected or the Bank may fund a loan that it would not have funded or on terms that it would not have extended.  Whether the loan applicant, a mortgage broker or another third party makes a misrepresentation, the Bank generally bears the risk of loss associated with the misrepresentation. It is often difficult to locate the sources of the misrepresentation and recover monetary losses suffered. Although the Bank maintains a system of internal controls to mitigate against such occurrences and maintain insurance coverage for such risks that are insurable, no assurance can be given that the controls have detected or will detect all misrepresented information in the lending operations.
     Environmental Risks - There is a risk that hazardous or toxic waste could be found on the properties that secure loans and that the Bank may foreclose on. If that happens, the Bank could be held responsible for the cost of cleaning up or removing the waste, and that cost could significantly exceed the value of the underlying properties and adversely affect profitability. Although the Bank requires an environmental review before foreclosure on real property, it cannot be assured that this will be sufficient to detect all potential environmental hazards.
 
Item 1B – Unresolved Staff Comments
    None.


9
 

Item 2 - Properties
    The Bank operates 16 retail-banking centers. The following table sets forth certain information relating to each office. The net book value of premises and equipment at all branch locations at December 31, 2006 totaled $13.6 million.
 
Location
 
Use of Facilities
 
Approximate Square Feet of Office Space
 
Year Facility Opened or Acquired
 
 
 
Owned/
Leased
First Guaranty Square
400 East Thomas Street
Hammond, LA 70401
 
Bank’s Main Office
 
63,400
 
1975
 
Owned
 
2111 West Thomas Street
Hammond, LA 70401
 
Guaranty West Banking Center
 
6,190
 
1974
 
Owned
 
100 East Oak Street
Amite, LA 70422
 
Amite Banking Center
 
6,900
 
1970
 
Owned
 
455 Railroad Avenue
Independence, LA 70443
 
Independence Banking Center
 
3,900
 
1979
 
Owned
 
301 Avenue F
Kentwood, LA 70444
 
Kentwood Banking Center
 
10,400
 
1975
 
Owned
 
170 West Hickory
Ponchatoula, LA 70454
 
Ponchatoula Banking Center
 
6,900
 
1960
 
Owned
 
196 Burt Blvd
Benton, LA 71006
 
Benton Banking Center
 
11,900
 
1999
 
Owned
 
126 South Hwy. 1
Oil City, LA 71061
 
Oil City Banking Center
 
4,300
 
1999
 
Owned
 
401 North 2 nd Street
Homer, LA  71040
 
Homer Main Banking Center
 
7,600
 
1999
 
Owned
 
10065 Hwy 79
Haynesville, LA 71038
 
Haynesville Banking Center
 
3,000
 
1999
 
Owned
 
117 East Hico Street
Dubach, LA 71235
 
Dubach Banking Center
 
5,000
 
1999
 
Owned
 
102 East Louisiana Avenue
Vivian, LA 71082
 
Vivian Banking Center
 
3,300
 
1999
 
Owned
 
500 North Cary
Jennings, LA 70546
 
Jennings Banking Center
 
9,700
 
1999
 
Owned
 
799 West Summers Drive
Abbeville, LA 70510
 
Abbeville Banking Center
 
5,300
 
1999
 
Owned
 
105 Berryland
Ponchatoula, LA 70454
 
Berryland Banking Center
 
2,400
 
2004
 
Leased
 
2231 S. Range Avenue
Denham Springs, LA 70726
 
Denham Springs Banking Center
 
12,612
 
2005
 
Owned


10
 

Item 3 - Legal Proceedings
    The Bank is subject to various legal proceedings in the normal course of its business. It is Management’s belief that the ultimate resolution of such claims will not have a material adverse effect on the financial position or results of operations.


Item 4 - Submission of Matters to a Vote of Security Holders
    There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of fiscal 2006.

PART II

Item 5 - Market for Bank’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    First Guaranty Bank’s   shares of common stock are not traded on a stock exchange or in any established over-the-counter market. Trades occur primarily between individuals at a price mutually agreed upon by the buyer and seller. Trading in the Bank’s common stock has been infrequent and such trades cannot be characterized as constituting an active trading market. Based on information recorded in the Bank’s Stock Transfer Agent records, Management believes that approximately 535,264 shares of the Bank’s common stock were traded during 2006 of which 65,168 shares were traded in the fourth quarter of 2006. The purchasers in these transactions were, in most cases, either affiliates of the Bank or their associates. No assurance can be given that an active trading market for the common stock will develop.
    The following table presents information regarding the trading range of the Bank’s shares of common stock and dividends paid for the previous three years, as reflected in the Stock Transfer Agent records maintained by the Bank.
 
 
2006
 
2005
 
2004
Quarter Ended:
High
Low
Dividend
 
High
Low
Dividend
 
High
Low
Dividend
March
 $    23.42
 $    18.57
 $      0.15
 
 $    18.57
 $    15.27
 $      0.14
 
 $    15.27
 $    15.27
 $      0.11
June
       23.42
       23.42
         0.15
 
       18.57
       18.57
         0.14
 
       15.27
       15.27
         0.12
September
       23.42
       23.42
         0.15
 
       18.57
       18.29
         0.14
 
       15.27
       15.12
         0.13
December
       23.42
       23.42
         0.15
 
       20.00
       18.57
         0.15
 
       15.27
       15.27
         0.14
 
Holders
    As of December 31, 2006, the Bank had issued and outstanding 5,559,644 shares of the Bank’s common stock, par value $1 per share, held by 1,181 shareholders of record.
 
Dividends
    The Bank’s stockholders are entitled to receive dividends when, and if declared by the board of directors, out of funds legally available for dividends. The Bank has paid consecutive quarterly cash dividends on common stock for each of the last nine years and the board of directors intends to continue to pay regular quarterly cash dividends. The ability to pay dividends in the future will depend on earnings and financial condition, liquidity and capital requirements, regulatory restrictions, the general economic and regulatory climate and ability to service any equity or debt obligations senior to common stock. The Bank intends to continue paying dividends, but the amount of any dividends, if paid at all, will be at the discretion of the board of directors and will depend upon a number of factors, including compliance with regulatory requirements. The Bank cannot give you any assurance that it will continue to pay dividends or of the amount of any future dividends.
     A number of federal and state banking policies and regulations restrict the ability to pay dividends. In particular, because deposits are insured by the FDIC, the Bank may not pay dividends or distribute capital if it is in default on any assessment due to the FDIC. Also, the Bank is subject to regulations that impose minimum regulatory capital and minimum state law earnings requirements that affect the amount of cash available for distribution to us. Under the Louisiana Banking Law, the Bank may not pay dividends in any year that would reduce unimpaired surplus below 50% of outstanding capital stock. In addition, the Bank may not pay a dividend in excess of net profits (as defined by the Louisiana Banking Law) for the year and the immediately preceding year without the prior approval of the Louisiana Commissioner of Financial Institutions. These policies and regulations may have the effect of reducing or eliminating the amount of dividends that the Bank can declare and pay to stockholders in the future.
 
Item 6 - Selected Financial Data
    The following selected financial data should be read in conjunction with the financial statements, including the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this Form 10-K. Except for the data under “Performance Ratios,” “Capital Ratios” and “Asset Quality Ratios,” the income statement data and share and per share data for the years ended December 31, 2006, 2005 and 2004 and the balance sheet data as of December 31, 2006 and 2005 are derived from the audited financial statements and related notes which are included elsewhere in this Form 10-K, and the income statement data and share and per share data for the years ended December 31, 2003 and 2002 and the balance sheet data as of December 31, 2004, 2003 and 2002 are derived from the audited financial statements and related notes that are not included in this Form 10-K.
 
11
 
 
 
At or For the Years Ended December 31,
 
 
 
2006
 
 
2005
 
 
2004
 
 
2003
 
 
2002
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year End Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(amounts in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Securities
 
 
$158,352
 
 
 
$175,200
 
 
 
$106,526
 
 
 
$59,454
 
 
 
$34,819
 
 Federal funds sold
 
 
6,793
 
 
 
1,786
 
 
 
552
 
 
 
356
 
 
 
-
 
 Loans, net of unearned income
 
 
507,195
 
 
 
491,582
 
 
 
456,104
 
 
 
381,342
 
 
 
351,446
 
 Allowance for loan losses
 
 
6,675
 
 
 
7,597
 
 
 
5,910
 
 
 
4,942
 
 
 
4,378
 
 Total assets
 
 
714,487
 
 
 
713,544
 
 
 
607,154
 
 
 
484,715
 
 
 
435,023
 
 Total deposits
 
 
626,293
 
 
 
632,908
 
 
 
481,358
 
 
 
376,002
 
 
 
361,418
 
 Borrowings
 
 
24,568
 
 
 
22,132
 
 
 
71,771
 
 
 
60,396
 
 
 
28,548
 
 Stockholders' equity
 
 
59,203
 
 
 
53,923
 
 
 
51,706
 
 
 
45,798
 
 
 
40,836
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(amounts in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Securities
 
 
$178,419
 
 
 
$109,236
 
 
 
$87,232
 
 
 
$58,092
 
 
 
$59,532
 
 Federal funds sold
 
 
3,115
 
 
 
6,028
 
 
 
618
 
 
 
128
 
 
 
-
 
 Loans, net of unearned income
 
 
505,623
 
 
 
476,144
 
 
 
415,606
 
 
 
366,034
 
 
 
343,792
 
 Total earning assets
 
 
690,057
 
 
 
595,141
 
 
 
509,261
 
 
 
431,432
 
 
 
409,044
 
 Total assets
 
 
726,593
 
 
 
631,554
 
 
 
542,460
 
 
 
464,633
 
 
 
439,075
 
 Total deposits
 
 
622,869
 
 
 
526,995
 
 
 
438,214
 
 
 
368,463
 
 
 
366,399
 
 Borrowings
 
 
42,435
 
 
 
45,732
 
 
 
51,558
 
 
 
48,398
 
 
 
28,860
 
 Stockholders' equity
 
 
56,640
 
 
 
54,901
 
 
 
49,257
 
 
 
43,744
 
 
 
40,234
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Return on average assets
 
 
1.21
%
 
 
0.95
%
 
 
1.58
%
 
 
1.51
%
 
 
0.81
%
 Return on average equity
 
 
15.54
%
 
 
10.97
%
 
 
17.37
%
 
 
16.04
%
 
 
8.80
%
 Return on average tangible assets (1)
 
 
1.21
%
 
 
0.96
%
 
 
1.58
%
 
 
1.52
%
 
 
0.81
%
 Return on average tangible equity (2)
 
 
15.73
%
 
 
11.24
%
 
 
18.08
%
 
 
17.03
%
 
 
9.55
%
 Net interest margin
 
 
4.60
%
 
 
4.71
%
 
 
5.09
%
 
 
5.08
%
 
 
4.96
%
 Average loans to average deposits
 
 
81.18
%
 
 
90.35
%
 
 
94.84
%
 
 
99.34
%
 
 
93.83
%
 Efficiency
 
 
50.90
%
 
 
55.44
%
 
 
52.47
%
 
 
55.84
%
 
 
71.38
%
 Efficiency (excluding amortization of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   intangibles and securities transactions)
 
 
49.12
%
 
 
53.55
%
 
 
50.33
%
 
 
53.45
%
 
 
69.35
%
 Full time equivalent employees (year end)
 
 
196
 
 
 
189
 
 
 
181
 
 
 
169
 
 
 
173
 
____________________________________
(1)   
Average tangible assets represent average assets less average core deposit intangibles.
(2)   
Average tangible equity represents average equity less average core deposit intangibles.
12
 
 
 
At or For the Years Ended December 31,
 
2006
2005
2004
2003
2002
 
 
 
 
 
 
Capital Ratios:
 
 
 
 
 
 Average stockholders' equity to average assets
7.80%
8.69%
9.08%
9.41%
9.16%
 Average tangible equity to average tangible assets (1),(2)
7.71%
8.51%
8.76%
8.91%
8.50%
 Stockholders' equity to total assets
8.29%
7.56%
8.52%
9.45%
9.39%
 Tier 1 leverage capital
8.16%
7.67%
8.53%
9.00%
8.74%
 Tier 1 capital
9.92%
8.80%
9.50%
10.92%
10.00%
 Total risk-based capital
11.03%
10.05%
10.62%
12.16%
11.14%
 
 
 
 
 
 
Income Data:
 
 
 
 
 
(amounts in thousands)
 
 
 
 
 
Interest income
$50,937
$40,329
$33,835
$28,716
$29,939
Interest expense
            19,206
             12,367
              8,057
              6,781
             9,630
Net interest income
            31,731
             27,962
            25,778
            21,935
           20,309
Provision for loan losses
              4,419
               5,621
              1,670
              1,258
             1,560
Noninterest income (excluding securities transactions)
              4,601
               5,221
              5,082
              5,006
             3,689
Securities (losses) gains
               (234)
                      7
                 (56)
                 (23)
                200
Noninterest expense
            18,373
             18,399
            16,162
            15,030
           17,272
Earnings before income taxes
            13,306
               9,170
            12,972
            10,630
             5,366
Net income
              8,802
               6,024
              8,556
              7,016
             3,539
 
 
 
 
 
 
Per Common Share Data: (3)
 
 
 
 
 
 Net earnings
$1.58
$1.08
$1.54
$1.26
$0.64
 Cash dividends paid
0.60
0.57
0.50
0.38
0.32
 Book value
10.65
9.70
9.30
8.24
7.35
 Dividend payout ratio
37.89%
52.67%
32.16%
29.73%
49.48%
 Weighted average number of shares outstanding
       5,559,644
        5,559,644
       5,559,644
       5,559,644
      5,559,644
 Number of share outstanding (year end)
       5,559,644
        5,559,644
       5,559,644
       5,559,644
      5,559,644
 Market data:
 
 
 
 
 
   High
$23.42
$20.00
$15.27
$15.27
$15.27
   Low
$18.57
$15.27
$15.12
$15.27
$15.27
   Trading Volume
          535,264
           279,503
          104,835
          110,836
             3,981
   Stockholders of record
              1,181
               1,141
              1,148
              1,247
             1,394
 
 
 
 
 
 
Asset Quality Ratios:
 
 
 
 
 
 Nonperforming assets to total assets
1.81%
3.05%
1.18%
1.46%
1.68%
 Nonperforming assets to loans
2.55%
4.43%
1.57%
1.85%
2.08%
 Loan loss reserve to nonperforming assets
51.53%
34.92%
82.59%
70.00%
60.03%
 Net charge-offs to average loans
1.06%
0.83%
0.17%
0.19%
0.27%
 Provision for loan loss to average loans
0.87%
1.18%
0.40%
0.34%
0.45%
 Allowance for loan loss to total loans
1.32%
1.55%
1.30%
1.30%
1.25%
______________________________
(1)    Average tangible assets represents average assets less core deposit intangibles.
(2)    Average tangible equity represents average equity less core deposit intangibles.
(3)    For the years ended 2002, 2003, 2004 and 2005 amounts have been restated to reflect a stock dividend of one-third of a share of $1 par value common stock for each share of $1 and
       $5 par value common stock outstanding, accounted for as a four-for-three stock split, effective and payable to stockholders of record as of
       October 20, 2005. See Notes to Financial Statements for additional information.

13
 

SELECTED QUARTERLY FINANCIAL DATA
    The following table sets forth selected quarterly financial data from the financial statements and should be read in conjunction with the financial statements, including the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this offering circular.
 
2006
 
Fourth
Third
Second
First
 
Quarter
Quarter
Quarter
Quarter
 
(in thousands, except shares and per share data)
Earnings:
 
 
 
 
  Net interest income after provision for loan losses
$7,248
$7,269
$6,015
$6,780
  Noninterest income
1,121
985
1,126
1,135
  Noninterest expense
4,533
5,207
4,078
4,555
  Net income, after taxes
2,574
2,004
2,015
2,209
 
 
 
 
 
Financial Position:
 
 
 
 
  Total assets
$714,487
$740,465
$736,732
$714,320
  Loans, net of unearned income
507,195
     511,015
     507,651
     492,438
  Allowance for loan losses
6,675
         6,533
         8,463
         8,360
  Securities
158,352
     179,414
     182,917
     178,098
  Deposits
626,293
     639,635
     619,295
     614,785
  Borrowings
24,568
       38,453
       58,379
       39,582
  Stockholders' equity
59,203
       57,566
       54,861
       54,576
 
 
 
 
 
Share Data:
 
 
 
 
  Net income per common share
$0.46
$0.36
$0.36
$0.40
  Cash dividends on common stock
0.15
0.15
0.15
0.15
  Book value per common share (quarter-end)
10.65
10.35
9.87
9.82
  Average common shares outstanding
  5,559,644
  5,559,644
  5,559,644
  5,559,644
 
 
 
 
 
 
 
 
 
 
 
2005
 
Fourth
Third
Second
First
 
Quarter
Quarter
Quarter
Quarter
 
(in thousands, except shares and per share data)
Earnings:
 
 
 
 
  Net interest income after provision for loan losses
$3,473
$5,813
$6,521
$6,534
  Noninterest income
1,068
1,236
1,145
1,779
  Noninterest expense
5,204
4,187
4,087
4,921
  Net (loss) income, after taxes
(442)
1,885
2,351
2,230
 
 
 
 
 
Financial Position:
 
 
 
 
  Total assets
$713,544
$671,134
$604,758
$611,156
  Loans, net of unearned income
     491,582
     479,728
     477,196
     477,805
  Allowance for loan losses
         7,597
         6,451
         5,972
         5,654
  Securities
     175,200
     128,956
       84,600
       88,058
  Deposits
     632,908
     571,871
     493,052
     493,190
  Borrowings
       22,132
       39,154
       53,807
       60,752
  Stockholders' equity
       53,923
       55,487
       54,718
       52,811
 
 
 
 
 
Share Data:
 
 
 
 
  Net (loss) income per common share
($0.08)
$0.34
$0.42
$0.40
  Cash dividends on common stock
0.15
0.14
0.14
0.14
  Book value per common share (quarter-end)
9.70
9.98
9.84
9.50
  Average common shares outstanding (1)
  5,559,644
  5,559,644
  5,559,644
  5,559,644
____________________________________
(1)
Amounts have been restated to reflect a stock dividend of one-third of a share of $1 par value common stock for each share of $1 and $5 par value common stock outstanding, accounted for as a four-for-three stock split, effective and payable to stockholders of record as of October 20, 2005. See Notes to Financial Statements.


14
 
Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
    The following discussion and analysis is intended to highlight the significant factors affecting the financial condition and results of operations of First Guaranty Bank (“Bank”) presented in the financial statements included in this Form 10-K. This discussion is designed to provide readers with a more comprehensive understanding of the operating results, financial position, share data and performance of the Bank than would be obtained from merely reading the financial statements. Reference should be made to those financial statements of this Form 10-K and the selected financial data (above) presented in this report in order to obtain a better understanding of the commentary which follows. 
    For the years ended 2005, 2004, 2003 and 2002, all per share data in this discussion has been adjusted to reflect the stock dividend of one-third of a share of the $1 par value common stock for each share of the $1 and $5 par value common stock outstanding, accounted for as a four-for-three stock split, effective and payable to stockholders of record as of October 20, 2005. Fractional shares were settled for cash.

Special Note Regarding Forward-Looking Statements
    Certain statements contained in this report, including without limitation statements including the words “believes,” “anticipates,” “intends,” “expects” or words of similar import, constitute “forward-looking statements” within the meaning of federal securities law. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Bank to be materially different from any future results, performance or achievements of the Bank expressed or implied by such forward-looking statements. Such factors include, among others, general economic and business conditions, changes in business strategy or development plans and other factors referenced in the report. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Bank disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Application of Critical Accounting Policies
    The accounting and reporting policies of the Bank conform to generally accepted accounting principles in the United States of America and to predominant accounting practices within the banking industry. Certain critical accounting policies require judgment and estimates which are used in the preparation of the financial statements.
    The Bank’s most critical accounting policy relates to its allowance for loan losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when Management believes that the collectibility of the principal is unlikely. The allowance, which is based on evaluation of the collectibility of loans and prior loan loss experience, is an amount Management believes will be adequate to reflect the risks inherent in the existing loan portfolio and that exist at the reporting date. The evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect a borrower’s ability to pay, adequacy of loan collateral and other relevant factors.
    Changes in such estimates may have a significant impact on the financial statements. For further discussion of the allowance for loan losses, see the “Allowance for Loan Losses” section of this analysis and Note 1 of the Notes to the Financial Statements.

Financial Condition
     Assets . Total assets at December 31, 2006 were $714.5 million, up 0.1% or $0.9 million from $713.5 million at December 31, 2005. An increase of $16.5 million in additional net loans was offset by a $16.8 million decrease in securities. Total deposits decreased by $6.6 million or 1.0% from 2005 to 2006. The decrease in deposits is due to a $29.8 million decrease in public funds deposits while individual and business deposits increased $23.2 million.
    Total assets at December 31, 2005 were $713.5 million, up 17.5% or $106.4 million from $607.2 million at December 31, 2004. This increase consisted of $33.8 million in additional net loans and $68.7 million of additional securities, both funded by a $151.6 million, or 31.5%, growth in deposits from December 31, 2004 to December 31, 2005. Of the total deposit growth in 2005, the growth of public funds deposits was the most prominent with an increase of $73.1 million for the year, while individual and business deposits also reflected strong growth with increases of $50.1 million and $31.8 million respectively. Deposits from commercial banks decreased $3.5 million in 2005 partially offsetting the strong deposit growth from the above mentioned sources. Of the $151.6 million increase in deposits for 2005, $139.9 million occurred in the second half of the year.
     Investments . The securities portfolio consisted principally of U.S. government agencies, mortgage-backed obligations, collateralized mortgage obligations, corporate debt securities, mutual funds or other equity securities and other debt securities. The securities portfolio totaled $158.4 million at December 31, 2006, representing a decrease of $16.8 million from December 31, 2005. These transactions primarily funded the increase in the loan portfolio. The primary changes in the portfolio consisted of $31.1 million in purchases, sales of $7.0, calls totaling $15.9 million and maturities of $23.5 million. The securities portfolio totaled $175.2 million at December 31, 2005, representing an increase of $68.7 million from December 31, 2004. The portfolio provides a relatively stable source of income and a balance to interest rate and credit risks as compared to other categories of the balance sheet.
    At December 31, 2006 approximately 17.8% of the securities portfolio (excluding FHLB stock) matured in less than one year while securities with maturity dates over 10 years totaled 45.8% of the portfolio. At December 31, 2006, the average maturity of the securities portfolio was 7.3 years compared to the average maturity at December 31, 2005 of 8.1 years.
    At December 31, 2006, securities totaling $111.4 million were classified as available for sale and $47.0 million were classified as held to maturity as compared to $107.6 million and $67.6 million, respectively at December 31, 2005.
15
 
    The book yields on securities available for sale range from 4.2% to 8.4% at December 31, 2006, exclusive of the effect of changes in fair value reflected as a component of stockholders’ equity. The book yields on held to maturity securities range from 3.7% to 6.1%.
    Average securities as a percentage of average interest-earning assets were 25.9%, 18.4% and 17.1% at December 31, 2006, 2005 and 2004, respectively. Most securities held at December 31, 2006, 2005 and 2004 qualified as pledgeable securities to collateralize repurchase agreements and public funds. At December 31, 2006, 2005 and 2004 $147.3, $154.3 million and $96.5 million in securities were pledged, respectively.
     Loans. At December 31, 2006, the loan portfolio totaled $507.2 million (loans, net of unearned income), an increase of approximately 3.2% or $15.6 million from the December 31, 2005 level of $491.6 million. In the year ended December 31, 2005, the loan portfolio had an increase of approximately 7.8% or $35.5 million from the 2004 level of $456.1 million. Loans represented 81.0% of deposits at December 31, 2006 compared to 77.7% of deposits at December 31, 2005. The majority of the loan increases continued to be in the real estate loan segments of the portfolio. Real estate and related loans comprised 81.5% of the portfolio in 2006 as compared to 82.5% in 2005. Loan chargeoffs taken during 2006 totaled $5.9 million compared to chargeoffs of approximately $4.2 million in 2005 and $926,000 in 2004. Of the loan chargeoffs in 2006, $4.6 million related to home mortgages (see the “Mortgage Loan” section of this analysis for further discussion). In 2006, recoveries of $547,000 were recognized on these loan chargeoffs and other loans previously charged off as compared to $228,000 in 2005 and $224,000 in 2004. Loan chargeoffs taken during 2005 totaled $4.2 million compared to chargeoffs of approximately $926,000 in 2004. Of the 2005 loan chargeoffs, $1.6 million related to seven distinct commercial credits. In addition, $145,000 related to home mortgages (see the “Mortgage Loan” section of this analysis for further discussion) and $1.3 million in chargeoffs were Hurricane Katrina related credits. In 2005, recoveries of $228,000 were recognized on these loan chargeoffs and other loans previously charged off as compared to $224,000 in 2004.
    In 2006, loan growth was geographically dispersed between north and south Louisiana. Increased loan volume from larger commercial real estate customers outpaced loan demand from consumer clients in this period. The following table sets forth the composition of the loan portfolio as of the dates indicated.
 
 
December 31,
 
2006
 
2005
 
 
As % of
 
 
As % of
 
Balance
Category
 
Balance
Category
 
(in thousands, except for percentages)
Real estate
 
 
 
 
 
   Construction & land development
 $   49,837
9.9%
 
 $   67,099
13.6%
   Farmland
      25,582
5.0%
 
      24,903
5.1%
   1-4 Family
      67,022
13.2%
 
      78,789
16.0%
   Multifamily
      14,702
2.9%
 
      11,125
2.3%
   Non-farm non-residential
    256,176
50.5%
 
    223,622
45.5%
      Total real estate
413,319
81.5%
 
405,538
82.5%
 
 
 
 
 
 
Agricultural
16,359
3.2%
 
11,490
2.3%
Commercial and industrial
59,072
11.6%
 
54,740
11.1%
Consumer and other
18,880
3.7%
 
20,078
4.1%
        Total loans before unearned income
507,630
100.0%
 
491,846
100.0%
Less: unearned income
(435)
 
 
(264)
 
        Total loans after unearned income
 $ 507,195
 
 
 $ 491,582
 
 
     Mortgage Loans.  In 2005, the Bank discovered mortgage loans and commitments originated in one branch which involved irregularities that suggest that many of these mortgage loans had been made against overvalued collateral on the basis of misleading loan applications. As of December 31, 2006 the aggregate principal balance on these loans was approximately $2.5 million. The allowance for loan losses to provide for any potential future losses relating to these 11 remaining home mortgage loans totaled $206,000. For the year ended December 31, 2006, the Bank charged off approximately $4.6 million as a result of these mortgage loans. As of December 31, 2005 the aggregate principal balance on these loans was approximately $24.7 million and unfunded commitments outstanding totaled $1.8 million. At December 31, 2005, the Bank allocated $763,000 of the $7.6 million allowance for loan losses in order to provide for potential losses relating to 156 home mortgage loans and commitments.
     Allowance for Loan Losses. The Bank maintains its allowance for loan losses at a level it considers sufficient to absorb potential losses embedded in the loan portfolio. The allowance is increased by the provision for anticipated loan losses as the well as recoveries of previously charged-off loans and is decreased by loan chargeoffs. The provision is the necessary charge to current expense to provide for current loan losses and to maintain the allowance at an adequate level commensurate with Management's evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when the Bank determines the amount of the provision and the adequacy of the allowance. These factors include but are not limited to:
§    Past due and nonperforming assets;
§    Specific internal analysis of loans requiring special attention;
 
16
 
§    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;
§    Chargeoff and recovery practices;
§    National and local economic and business conditions;
§    Nature and volume of loans;
§    Overall portfolio quality;
§    Adequacy of loan collateral;
§    Quality of loan review system and degree of oversight by its Board of Directors;
§    Competition and legal and regulatory requirements on borrowers;
§    Examinations and review by the Bank's internal loan review department, independent accountants and third-
        party independent loan review personnel; and
§    Examinations of the loan portfolio by federal and state regulatory agencies.

    The data collected from all sources in determining the adequacy of the allowance is evaluated on a regular basis by Management with regard to current national and local economic trends, prior loss history, underlying collateral values, credit concentrations and industry risks. An estimate of potential loss on specific loans is developed in conjunction with an overall risk evaluation of the total loan portfolio. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.
    The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect Management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
    The allowance for loan losses at December 31, 2006 was $6.7 million compared to $7.6 million at December 31, 2005, and comprised 1.32% and 1.55% of total loans, respectively. The allowance at December 31, 2004 was $5.9 million or 1.30% of total loans.
    The following table summarizes the loan loss experience for each of the last five years ended December 31, 2006.

 
December 31,
 
2006
 
2005
 
2004
 
2003
 
2002
 
(in thousands, except for percentages)
Loans:
 
 
 
 
 
 
 
 
 
  Average outstanding balance
$505,623
 
$476,144
 
$415,606
 
$366,034
 
$343,792
  Balance, end of year
$507,195
 
$491,582
 
$456,104
 
$381,342
 
$351,446
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
  Balance, beginning of year
$7,597
 
$5,910
 
$4,942
 
$4,378
 
$3,748
  Provision charged to expense
4,419
 
5,621
 
1,670
 
1,258
 
1,560
  Loans charged off
(5,888)
 
(4,162)
 
        (926)
 
(861)
 
(1,006)
  Recoveries
547
 
228
 
          224
 
167
 
76
  Balance, end of year
$6,675
 
$7,597
 
$5,910
 
$4,942
 
$4,378
 
 
 
 
 
 
 
 
 
 
Ratios:
 
 
 
 
 
 
 
 
 
  Net loan charge-offs to average loans
1.06%
 
0.83%
 
0.17%
 
0.19%
 
0.27%
  Net loan charge-offs to loans at end of year
1.05%
 
0.80%
 
0.15%
 
0.18%
 
0.26%
  Allowance for loan losses to loans at end of year
1.32%
 
1.55%
 
1.30%
 
1.30%
 
1.25%
  Net loan charge-offs to allowance for loan losses
80.02%
 
51.78%
 
11.88%
 
14.04%
 
21.24%
  Net loan charge-offs to provision charged to expense
120.88%
 
69.99%
 
42.04%
 
55.17%
 
59.62%
 
     Nonperforming Assets . Nonperforming assets consists of loans on which interest is no longer accrued, certain restructured loans where the interest rate or other terms have been renegotiated and real estate acquired through foreclosure (Other Real Estate).
    The accrual of interest on loans is discontinued 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 subsequently recognized only in periods in which actual payments are received.
    Nonperforming assets were $13.0 million or 1.8% of total assets at December 31, 2006, compared to $21.8 million or 3.05% of total assets at December 31, 2005. The decrease in nonaccrual loans is primarily the result of the reduction in home mortgage loans and commitments that involve irregularities (see the “Mortgage Loan” section of this analysis). Due to the high activity in other real estate, as a result of liquidation of the home mortgage nonaccrual loans, the balance fluctuated throughout the year with an ending balance of $2.5 million at December 31, 2006. Nonperforming assets were $7.2 million or 1.2% of total assets at December 31, 2004.
 
17
 
    The following table sets forth the nonperforming assets for each of the last two years ending December 31, 2006.
 
 
December 31,
 
2006
 
2005
 
(in thousands, except for percentages)
 
 
 
 
           Nonaccrual loans
$10,362
 
$21,090
           Restructured loans
51
 
121
           Other real estate, net
2,540
 
546
              Total nonperforming assets
$12,953
 
$21,757
 
 
 
 
 
 
 
 
           Nonperforming assets/total loans
2.55%
 
4.43%
           Nonperforming assets/total assets
1.81%
 
3.05%
 
     Deposits . The following table sets forth the composition of deposits as of the dates indicated.

 
December 31,     
 
2006
 
2005
 
(in thousands, except for percentages)
 
 
 
 
 
 
 
 
 
Balance
 
As % of Total
 
Balance
 
As % of Total
     Noninterest-bearing demand
$122,540
 
19.5%
 
$129,827
 
20.5%
     Interest-bearing demand
185,308
 
29.6%
 
161,958
 
25.6%
     Savings
41,161
 
6.6%
 
42,633
 
6.7%
     Time
277,284
 
44.3%
 
298,490
 
47.2%
        Total deposits
$626,293
 
100.0%
 
$632,908
 
100.0%
 
    From December 31, 2005 to December 31, 2006, total deposits decreased by $6.6 million or 1.0%. From December 31, 2004 to December 31, 2005, total deposits increased $151.6 million or 31.5%. In 2006, noninterest-bearing demand deposits decreased $7.3 million or 5.6 %. Interest-bearing demand deposits increased $23.4 million, savings decreased $1.5 million and time deposits decreased $21.2 million. The decrease in deposits is due to a $29.8 million decrease in public funds deposits while individual and business deposits increased $23.2 million. The increase in core deposits is a result from a series of marketing campaigns launched in 2006 and a continued effort to obtain deposit relationships with new and existing loan customers.
    The following table sets forth time deposits greater than $100,000 by remaining maturities as of the dates indicated.
 
 
December 31,
 
2006
 
2005
 
2004
 
 
Weighted
 
 
Weighted
 
 
Weighted
 
 
Average
 
 
Average
 
 
Average
 
Balance
Rate
 
Balance
Rate
 
Balance
Rate
 
(in thousands, except for percentages)
 
 
 
 
 
 
 
 
 
     Due in one year or less
$114,793
4.88%
 
$141,964
3.77%
 
$70,573
2.64%
     Due after one year through three years
          15,228
4.27%
 
            25,938
4.19%
 
      47,699
3.34%
     Due after three years
          12,526
5.07%
 
            12,656
4.82%
 
        4,782
4.01%
                Total
$142,547
4.83%
 
$180,558
3.90%
 
$123,054
2.96%
 
 
 
 
 
 
 
 
 
 
     Borrowings. Short-term borrowings decreased $2.4 million in 2006 to $6.6 million at December 31, 2006 from $9.0 million at December 31, 2005. In 2005, short-term borrowings decreased $22.4 million to $9.0 million from $31.4 million at December 31, 2004. Short-term borrowings are used to manage liquidity on a daily or otherwise short-term basis. Long-term borrowings increased $4.8 million, or 36.8%, to $18.0 million at December 31, 2006, compared to $13.2 million at December 31, 2005. Long-term borrowings decreased $27.2 million, or 67.4%, to $13.2 million at December 31, 2005, compared to $40.4 million at December 31, 2004. The increase from 2005 to 2006 is the primary result of a reduction in deposits. The decreases in borrowings from 2004 to 2005 primarily result from the repayment of such borrowings from funds generated from increases in deposits.
 
18
 
            The following table sets forth certain data with respect to short-term borrowings for each of the years ended December 31, 2006 and 2005.
 
December 31,
 
 
2006
 
2005
 
 
(in thousands, except for percentages)
 
 
 
 
 
 
                 Outstanding at year end
$  6,584
 
$  8,981
 
                 Maximum month-end outstanding
37,353
 
32,348
 
                 Average daily outstanding
23,731
 
17,381
 
                 Weighted average rate during the year
5.19%
 
3.14%
 
                 Average rate at year end
4.41%
 
3.56%
 
 
Results of Operations
     Net Income . Net income for the year ended December 31, 2006 was $8.8 million, up 46.1% or $2.8 million from $6.0 million for the year ended December 31, 2005. The increase in income for this period was due primarily to an increase in net interest income, a decrease in the provision for loan losses and a decrease in the net cost of other real estate and repossessions. Net interest income increased $3.8 million in 2006 due to an increase in average balances and yields of both securities and loans. To primarily provide for current year chargeoffs, $4.4 million was charged to the loan loss provision for the year ended December 31, 2006, a decrease of $1.2 million as compared to $5.6 million for the year ended December 31, 2005. The net cost of other real estate and repossessions decreased by $1.2 million due to a reduction in costs incurred in connection with owning, maintaining and the sale and disposition of other real estate owned.
    Net income for the year ended December 31, 2005 was $6.0 million, down 29.6% or $2.6 million from $8.6 million for the year ended December 31, 2004. The decrease in earnings for 2005 was the result of increased loan loss provision, increased salary expense and increased net costs of other real estate and repossession expense.
    Earnings per share for the year ended December 31, 2006 was $1.58 per share, up 46.1% or $0.50 per share from $1.08 per share for the year ended December 31, 2005. Earnings per share for the year ended December 31, 2005 was down 29.9% or $0.46 per share from $1.54 per share for the year ended December 31, 2004.
     Net Interest Income. Net interest income is the largest component of the Bank's earnings. It is calculated by subtracting the cost of interest-bearing liabilities from the income earned on the interest-earning assets and represents the earnings from the Bank's primary business of gathering deposits and making loans and investments. The Bank's long-term objective is to manage this income to provide the largest possible amount of income while balancing interest rate, credit and liquidity risks.
    Net interest income in 2006 was $31.7 million, up $3.8 million or 13.5%, as compared to $28.0 million in 2005. Comparing 2005 to 2004, net interest income totaled $28.0 million and $25.8 million, respectively, representing an increase of $2.2 million or 8.5%. The increases in interest income from 2005 to 2006 and from 2004 to 2005 were due principally to increases in the average balances of investment securities and loans. Also during those same periods, yields on investment securities and loans enhanced interest income. Interest income was partially offset by the increases in interest expense from 2005 to 2006 and 2004 to 2005 was attributable to the increased volume of interest-bearing liabilities and increased cost of funds.
    The net yield on interest-earning assets is calculated by dividing net interest income by the Bank's average interest-earning assets and is a measure of the efficiency of the earnings from balance sheet activities. It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities (leverage).
    Comparing 2006 to 2005, the yield on interest-earning assets increased by 0.6% and the rate paid on interest-bearing liabilities increased by 1.0%. Comparing 2005 to 2004, the yield on interest-earning assets increased by 0.2% and the rate paid on interest-bearing liabilities increased by 0.6%. The net yield on interest-earning assets was 4.6% for the year ended December 31, 2006 compared to 4.7% and 5.1% for 2005 and 2004 respectively. Leverage was 77.5%, 79.0% and 80.0% for 2006, 2005 and 2004, respectively. These changes are detailed in the two tables which follow.
     Average Balances, Yields and Rates. The following table presents the average balance sheet, interest earned, the yield/rate on interest-earning assets and interest-bearing liabilities and the net yield on interest-earning assets for the years ended December 31, 2006, 2005 and 2004, respectively.
 
19
 
 
Years Ended December 31,
 
2006
 
2005
 
2004
 
Average
 
Yield/
 
Average
 
Yield/
 
Average
 
Yield/
 
Balance
Interest
Rate
 
Balance
Interest
Rate
 
Balance
Interest
Rate
 
 
 
 
(in thousands, except for percentages)
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
  Interest-bearing deposits with banks
   $     2,323
 $       95
4.1%
 
   $     2,509
 $       96
3.8%
 
   $     3,926
 $     102
2.6%
  Securities (including FHLB stock)
178,419
9,654
5.4%
 
109,236
5,637
5.2%
 
        87,232
4,319
5.0%
  Federal funds sold
          3,115
159
5.1%
 
              6,028
          229
3.8%
 
             618
            9
1.5%
  Loans held for sale
             577
27
4.7%
 
              1,224
            87
7.1%
 
          1,879
        164
8.7%
  Loans, net of unearned income
505,623
41,029
8.1%
 
476,144
34,367
7.2%
 
      415,606
29,405
7.1%
    Total interest-earning assets
690,057
50,964
7.4%
 
595,141
40,416
6.8%
 
509,261
33,999
6.7%
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
  Cash and due from banks
20,415
 
 
 
22,047
 
 
 
17,549
 
 
  Premises and equipment, net
12,442
 
 
 
11,413
 
 
 
9,089
 
 
  Other assets
3,679
 
 
 
2,953
 
 
 
6,561
 
 
    Total
$726,593
$50,964
 
 
$631,554
$40,416
 
 
$542,460
$33,999
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
  Demand deposits
 $  180,384
 $  5,657
3.1%
 
 $  124,757
 $  2,289
1.8%
 
 $  97,368
 $  692
0.7%
  Savings deposits
42,727
174
0.4%
 
35,969
117
0.3%
 
31,466
78
0.2%
  Time deposits
269,016
11,224
4.2%
 
263,720
8,468
3.2%
 
226,975
6,086
2.7%
  Borrowings
42,435
2,151
5.1%
 
45,732
1,493
3.3%
 
51,558
1,201
2.3%
    Total interest-bearing liabilities
534,562
19,206
3.6%
 
470,178
12,367
2.6%
 
407,367
8,057
2.0%
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
  Demand deposits
130,742
 
 
 
102,549
 
 
 
82,405
 
 
  Other
4,649
 
 
 
3,926
 
 
 
3,431
 
 
    Total liabilities
669,953
19,206
 
 
576,653
12,367
 
 
493,203
8,057
 
  Stockholders' equity
56,640
 
 
 
54,901
 
 
 
49,257
 
 
    Total
$726,593
19,206
 
 
$631,554
12,367
 
 
$542,460
8,057
 
Net interest income
 
$31,758
 
 
 
$28,049
 
 
 
$25,942
 
Net yield on interest-earning assets
 
 
4.6%
 
 
 
4.7%
 
 
 
5.1%
 
     Changes in Assets and Liabilities and Fluctuations in Interest Rates. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods indicated. The table distinguishes between (i) changes attributable to rate (change in rate multiplied by the prior period’s volume), (ii) changes attributable to volume (changes in volume multiplied by the prior period’s rate), (iii) mixed changes (changes in rate multiplied by changes in volume) and (iv) total increase (decrease) (the sum of the previous columns).
 
 
Years Ended December 31,
 
2006 Compared to 2005
 
2005 Compared to 2004
 
Increase (Decrease) Due To
 
Increase (Decrease) Due To
 
 
 
Rate/
Increase/
 
 
 
Rate/
Increase/
 
Volume
Rate
Volume
Decrease
 
Volume
Rate
Volume
Decrease
 
 
 
 
(in thousands)
 
 
 
Interest earned on:
 
 
 
 
 
 
 
 
 
 Interest-bearing deposits with banks
 $        (7)
 $          6
 $             -
 $         (1)
 
 $       (37)
 $         48
 $       (17)
 $         (6)
 Securities
       3,570
          273
          174
       4,017
 
       1,089
          183
            46
       1,318
 Federal funds sold
        (111)
            79
           (38)
           (70)
 
            79
            14
          127
          220
 Loans (including loans held for sale)
       2,128
       4,270
          264
       6,662
 
       4,283
          593
            86
       4,962
   Total interest income
       5,580
       4,628
          400
     10,608
 
       5,414
          838
          242
       6,494
 
 
 
 
 
 
 
 
 
 
Interest paid on:
 
 
 
 
 
 
 
 
 
 Demand deposits
       1,021
       1,623
          724
       3,368
 
          195
       1,094
          308
       1,597
 Savings deposits
            22
            29
              6
            57
 
            11
            24
              4
            39
 Time Deposits
          170
       2,535
            51
       2,756
 
          985
       1,202
          195
       2,382
 Federal funds purchased & other borrowings
        (108)
          825
           (59)
          658
 
        (136)
          482
          (54)
          292
   Total interest expense
       1,105
       5,012
          722
       6,839
 
       1,055
       2,802
          453
       4,310
     Change in net interest income
 $    4,475
 $     (384)
 $      (322)
 $    3,769
 
 $    4,359
 $  (1,964)
 $     (211)
 $    2,184
20  
 
    Noninterest Income. Noninterest income totaled $4.4 million in 2006, a decrease of $0.9 million compared to $5.2 million in 2005. Service charges, commissions and fees totaled $3.6 million and $3.5 million for the years ended December 31, 2006 and 2005, respectively. Net securities losses were $234,000 in 2006 compared to gains of $7,000 in 2005. As a result of staff and mortgage loan volume reductions, gains on sale of loans were $71,000 in 2006, down $252,000 when compared to $323,000 gains in 2005. Other noninterest income decreased $466,000 to $926,000 in 2006 from $1.4 million in 2005 primarily from the sale of Pulse stock (ATM software vendor) in 2005 resulting from the merger with Discover.
    Noninterest income totaled $5.2 million in 2005, an increase of $0.2 million compared to $5.0 million in 2004. Service charges, commissions and fees totaled $3.5 million and $3.8 million for the years ended December 31, 2005 and 2004, respectively. Net securities gains were $7,000 in 2005 compared to losses of $56,000 in 2004. Gains on sale of loans were $323,000 in 2005, up $114,000 when compared to $209,000 gains in 2004. Other noninterest income increased $0.3 million to $1.4 million in 2005 from $1.1 million in 2004 primarily from the sale of Pulse stock (ATM software vendor) in 2005 resulting from the merger with Discover.
     Provision for Loan Losses . The provision for loan losses was $4.4 million, $5.6 million and $1.7 million in 2006, 2005 and 2004 respectively. The increased 2005 and 2006 provisions were attributable to $3.9 million in net loan chargeoffs during 2005 and $5.3 million in net loan chargeoffs during 2006 as compared to $0.7 million during 2004.Of the loan chargeoffs during 2006, and the consequent increase in the provision, $4.8 million related specifically to home mortgages (see the “Mortgage Loan” section of this analysis). Of the loans charged-off during 2005, $1.6 million related to seven distinct commercial credits. In addition, $145,000 related to home mortgages (see the “Mortgage Loan” section of this analysis) and $1.3 million were storm-related credits in 2005.
     Noninterest Expense . Noninterest expense totaled $18.4 million in 2006 and remained relatively flat compared to 2005. Salaries and benefits increased $0.7 million in 2006 to $7.9 million from $7.2 million in 2005. The increase in salaries is primarily related to staffing several operational departments, including loan review, credit and audit, to accommodate increased activities. At December 31, 2006, 214 employees represented 196 full-time equivalent staff members as compared to 189 full-time equivalent staff members in 2005. Occupancy and equipment expense totaled $2.3 million in 2006 and $2.2 million in 2005. The net cost of other real estate and repossessions decreased $1.2 million in 2006 to $0.3 million from $1.5 million in 2005 due to a reduction in costs incurred in connection with owning, maintaining and the sale and disposition of other real estate owned. Other noninterest expense totaled $7.8 million in 2006 compared to $7.4 million in 2005, an increase of $0.4 million or 5.2%. The increase in other noninterest expense was primarily attributable to legal and professional fees, data processing expenses and marketing and public relations expenses.
    Noninterest expense totaled $18.4 million in 2005 compared to $16.2 million in 2004, an increase of $2.2 million or 13.8%. Salaries and benefits increased $0.9 million in 2005 to $7.2 million from $6.3 million in 2004. The increase in salaries is primarily related to staffing the new full-service banking center which opened in Denham Springs, staffing several operational departments to accommodate increased activities, the establishment of an internal loan review department and the employment of an in-house training coordinator. At December 31, 2005, 208 employees represented 189 full-time equivalent staff members as compared to 181 full-time equivalent staff members in 2004. Occupancy and equipment expense totaled $2.2 million in 2005 and $2.1 million in 2004. The net cost of other real estate and repossessions increased $0.8 million in 2005 to $1.5 million from $0.7 million in 2004 primarily as a result of increased expenses incurred in connection with owning, maintaining and the sale and disposition of other real estate owned. Other noninterest expense totaled $7.4 million in 2005 compared to $7.1 million in 2004, an increase of $0.3 million or 4.8%, mostly due to a $0.2 million increase in other consulting and professional fees resulting from the undertaking of various capital enhancement efforts.
 
Interest Rate Risk Management
    The interest spread and liability funding discussed below are directly related to changes in asset and liability mixes, volumes, maturities and repricing opportunities for interest-earning assets and interest-bearing liabilities. Interest-sensitive assets and liabilities are those which are subject to being repriced in the near term, including both floating or adjustable rate instruments and instruments approaching maturity. The interest sensitivity gap is the difference between total interest-sensitive assets and total interest-sensitive liabilities. Interest rates on the Bank’s 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 its margin, the Bank attempts 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. The Bank generally seeks to limit its 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 Bank monitors interest rate risk using an interest sensitivity analysis set forth on the following table. This analysis, which the Bank prepares monthly, reflects the maturity and repricing characteristics of assets and liabilities over various time periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The interest sensitivity analysis at December 31, 2006 reflects an asset-sensitive position with a positive cumulative gap on a one-year basis.
 
21
 
 
INTEREST SENSITIVITY AT DECEMBER 31, 2006
 
 
Interest Sensitivity Within
 
3 Months
Or Less
Over 3 Months
thru 12 Months
Total 
One Year
Over 
One Year
 
Total
 
 
(in thousands, except for percentages)
Earning Assets:
 
 
 
 
 
  Loans (including loans held for sale)
$271,825
$81,383
$353,208
$155,036
$508,244
  Securities (including FHLB stock)
14,147
             16,225
30,372
130,244
160,616
  Federal Funds Sold
6,793
                       -
6,793
                        -
6,793
  Other earning assets
131
                       -
131
                2,188
2,319
    Total earning assets
292,896
97,608
390,504
287,468
$677,972
 
 
 
 
 
 
Source of Funds:
 
 
 
 
 
Interest-bearing accounts:
 
 
 
 
 
    Demand deposits
128,383
                       -
128,383
56,925
185,308
    Savings deposits
10,290
                       -
10,290
30,871
41,161
    Time deposits
76,231
125,180
201,411
75,873
277,284
    Short-term borrowings
               6,584
                       -
           6,584
                        -
           6,584
    Long-term borrowings
                      -
             17,698
         17,698
286
17,984
Noninterest-bearing, net
                      -
 
                   -
149,651
149,651
    Total source of funds
221,488
142,878
364,366
313,606
$677,972
Period gap
71,408
(45,270)
26,138
(26,138)
 
Cumulative gap
 $  71,408
$26,138
 $  26,138
 $          -
 
 
 
 
 
 
 
Cumulative gap as a
 
 
 
 
 
  percent of earning assets
10.53%
3.86%
3.86%
 
 
 
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 us 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-bearing demand deposits with banks, federal funds sold and available for sale investment securities. Including securities pledged to collateralize public fund deposits, these assets represent 19.1% of the total liquidity base at December 31, 2006 and 2005. In addition, the Bank maintains borrowing availability with the Federal Home Loan Bank, or FHLB, approximating $6.9 million at December 31, 2006. The Bank also maintains federal funds lines of credit totaling $54.0 million at three other correspondent banks, of which $54.0 million was available at December 31, 2006. Management believes there is sufficient liquidity to satisfy current operating needs.
     Capital Resources . The Bank’s capital position is reflected in stockholders’ equity, subject to certain adjustments for regulatory purposes. Stockholders’ equity, or capital, is a measure of net worth, soundness and viability. The Bank continues to exhibit a strong capital position while consistently paying dividends to stockholders. Further, the Bank’s capital base allows us to take advantage of business opportunities while maintaining the level of resources deemed appropriate by Management to address business risks inherent in daily operations.
    Stockholders’ equity on December 31, 2006 was $59.2 million, an increase of $5.3 million, or 9.8%, from $53.9 million on December 31, 2005. The increase in stockholders’ equity primarily reflected net income for the year ended December 31, 2006 of $8.8 million offset by quarterly dividend payments during 2006 totaling $3.3 million.
Stockholders’ equity on December 31, 2005 was $53.9 million, an increase of $2.2 million, or 4.3%, from $51.7 million on December 31, 2004. The increase in stockholders’ equity primarily reflected net income for the year ended December 31, 2005 of $6.0 million. This increase was offset by quarterly dividend payments during 2005 totaling $3.2 million.
Regulatory Capital. Risk based capital regulations adopted by the FDIC require banks to achieve and maintain specified ratios of capital to risk weighted assets. 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 December 31, 2006, the Bank satisfied the minimum regulatory capital requirements and was “well capitalized” within the meaning of federal regulatory requirements.
 
22
Off-Balance Sheet Arrangements
    The Bank had $45.0 million, $80.0 million and $50.0 million in letters of credit issued by the Federal Home Loan Bank at December 31, 2006, 2005 and 2004, respectively, which was used as collateral for public fund deposits. See Note 17 of the Notes to the Financial Statements for additional off-balance sheet activities. The changes in the arrangements parallel the changes in public fund deposits over these periods.

Contractual Obligations
    As of December 31, 2006, the Bank’s contractual obligations were as follows:

 
 
One Year Or
Less
One Through
 Three Years
Over Three
 Years
 
Tota l
 
 
(in thousands)
 
 
 
 
 
Time deposits
$201,412
$45,699
$30,173
$277,284
Short-term borrowings
6,584
                   -
               -
6,584
Long-term borrowings
     17,698
              219
            67
    17,984
    Total
$225,694
$45,918
$30,240
$301,852

Impact of Recently Issued Accounting Standards
    In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of SFAS No. 133 and 140 . SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Bank anticipates that the adoption of SFAS No. 155 will not have a material impact on the Bank’s financial position or results of operations.
    In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of SFAS No. 140. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in selected situations; requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; permits an entity to choose either the amortization or fair value measurement method for each class of separately recognized servicing assets and servicing liabilities; at its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under SFAS No. 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value; and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This Statement is effective as of the beginning of an entity’s first year that begins after September 15, 2006. The Bank anticipates that the adoption of SFAS No. 156 will not have a material impact on the Bank’s financial position or results of operations.
    In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, Accounting for Income Taxes .  The Interpretation also prescribes a recognition threshold and measurement attribute for recognition in financial statements of the recognition and measurement of a tax position taken in a tax return.  FIN 48 prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken.  Tax positions that meet the more-likely-than-not threshold should be measured in order to determine the tax benefit to be recognized in the financial statements.  This Statement is effective as of the beginning of the first fiscal year that begins after December 15, 2006.  The Bank anticipates that the adoption of FIN 48 will not have a material impact on the Bank’s financial position or results of operations.
    In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . This Statement defines fair value, established a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurement.  The Statement is effective for the financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Bank anticipates that the adoption of SFAS No. 157 will not have a material impact on the Bank’s financial position or results of operations.
    In September 2006, the FASB issues SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R) . This Statement improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization.  This Statement also improves financial reporting by an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. This Statement is effective, for an employer without publicly traded equity securities, as of the end of the fiscal year ending after June 15, 2007.  However, an employer, without publicly traded equity securities, is required to disclose certain information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements.  The Bank anticipates that the adoption of SFAS No. 158 will not have a material impact on the Bank’s financial position or results of operations.
  
 23 
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . SFAS No. 159 provides the Bank with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements to facilitate reporting between companies.  The fair value option established by this Statement permits the Bank to choose to measure eligible items at fair value at specified election dates.  The Bank shall then 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 Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  The Bank is currently evaluating the effect the standard will have on its results of operations and financial condition.

Item 7A – Quantitative and Qualitative Disclosures about Market Risk
For discussion on this matter, see the “Interest Rate Risk Management” section of this analysis.
 
24
 
Report of Castaing, Hussey & Lolan, LLC
Independent Registered Accounting Firm


To the Stockholders and Board of Directors
First Guaranty Bank

 
    We have audited the accompanying statements of condition of First Guaranty Bank as of December 31, 2006 and 2005, and the related statements of income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2006. These financial statements are the responsibility of the Bank's Management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
    We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Guaranty Bank as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.





Castaing, Hussey & Lolan, LLC
New Iberia, Louisiana
February 9, 2007

25
Item 8 - Financial Statements and Supplementary Data
 
STATEMENTS OF CONDITION
           
(in thousands, except for shares)
           
   
December 31,
 
Assets
 
2006
   
2005
 
Cash and cash equivalents:
           
  Cash and due from banks
   
  $ 17,893
     
$ 26,557
 
  Interest-bearing demand deposits with banks
   
131
     
108
 
  Federal funds sold
   
6,793
     
1,786
 
    Cash and cash equivalents
   
24,817
     
28,451
 
                 
Interest-bearing time deposits with banks
   
2,188
     
2,188
 
                 
Investment securities:
               
 Available for sale, at fair value
   
111,353
     
107,585
 
 Held to maturity, at cost (estimated fair value of $45,614
               
   and $66,493, respectively)
   
46,999
     
67,615
 
  Investment securities
   
158,352
     
175,200
 
                 
Federal Home Loan Bank stock, at cost
   
2,264
     
1,581
 
Loans held for sale
   
1,049
     
-
 
                 
Loans, net of unearned income
   
507,195
     
491,582
 
Less: allowance for loan losses
   
6,675
     
7,597
 
  Net loans
   
500,520
     
483,985
 
                 
Intangible assets, net
   
456
     
981
 
Premises and equipment, net
   
13,593
     
11,950
 
Other real estate, net
   
2,540
     
546
 
Accrued interest receivable
   
5,378
     
5,220
 
Other assets
   
3,330
     
3,442
 
  Total Assets
   
$714,487
     
$713,544
 
                 
Liabilities and Stockholders' Equity
               
Deposits:
               
  Noninterest-bearing demand
   
$122,540
     
$129,827
 
  Interest-bearing demand
   
185,308
     
161,958
 
  Savings
   
41,161
     
42,633
 
  Time
   
277,284
     
298,490
 
    Total deposits
   
626,293
     
632,908
 
                 
Short-term borrowings
   
6,584
     
8,981
 
Accrued interest payable
   
3,070
     
2,105
 
Long-term borrowings
   
17,984
     
13,151
 
Other liabilities
   
1,353
     
2,476
 
  Total Liabilities
   
655,284
     
659,621
 
                 
Stockholders' Equity
               
Common stock:
               
  $1 par value - authorized 100,000,000 shares; issued and
   
5,560
     
5,076
 
    outstanding 5,559,644 shares and 5,076,354, respectively
               
  $5 par value - authorized 600,000 shares; issued and
   
-
     
2,416
 
    outstanding no shares and 483,290 shares, respectively
               
Surplus
   
26,459
     
24,527
 
Retained earnings
   
28,089
     
22,622
 
Accumulated other comprehensive loss
    (905 )     (718 )
  Total Stockholders' Equity
   
59,203
     
53,923
 
    Total Liabilities and Stockholders' Equity
   
$714,487
     
$713,544
 
See Notes to Financial Statements.
               
26
 
STATEMENTS OF INCOME
                 
(in thousands, except shares and per share data)
                 
                   
   
Years Ended December 31,
 
   
2006
   
2005
   
2004
 
Interest Income:
                 
  Loans (including fees)
   
$41,029
     
$34,367
     
$29,405
 
  Deposits with other banks
   
95
     
96
     
102
 
  Securities (including FHLB stock)
   
9,654
     
5,637
     
4,319
 
  Federal funds sold
   
159
     
229
     
9
 
    Total Interest Income
   
50,937
     
40,329
     
33,835
 
                         
Interest Expense:
                       
  Demand deposits
   
5,657
     
2,289
     
692
 
  Savings deposits
   
174
     
117
     
78
 
  Time deposits
   
11,224
     
8,468
     
6,086
 
  Borrowings
   
2,151
     
1,493
     
1,201
 
    Total Interest Expense
   
19,206
     
12,367
     
8,057
 
                         
Net Interest Income
   
31,731
     
27,962
     
25,778
 
Provision for loan losses
   
4,419
     
5,621
     
1,670
 
Net Interest Income after Provision for Loan Losses
   
27,312
     
22,341
     
24,108
 
                         
Noninterest Income:
                       
  Service charges, commissions and fees
   
3,604
     
3,506
     
3,754
 
  Net (losses) gains on sale of securities
    (234 )    
7
      (56 )
  Net gains on sale of loans
   
71
     
323
     
209
 
  Other
   
926
     
1,392
     
1,119
 
    Total Noninterest Income
   
4,367
     
5,228
     
5,026
 
                         
Noninterest Expense:
                       
  Salaries and employee benefits
   
7,926
     
7,227
     
6,265
 
  Occupancy and equipment expense
   
2,342
     
2,219
     
2,109
 
  Net cost of other real estate and repossessions
   
277
     
1,513
     
692
 
  Other
   
7,828
     
7,440
     
7,096
 
    Total Noninterest Expense
   
18,373
     
18,399
     
16,162
 
                         
Income Before Income Taxes
   
13,306
     
9,170
     
12,972
 
Provision for income taxes
   
4,504
     
3,146
     
4,416
 
Net Income
   
$  8,802
     
$  6,024
     
$  8,556
 
                         
Per Common Share:
                       
  Earnings
   
$1.58
     
$1.08
     
$1.54
 
  Cash dividends paid
   
$0.60
     
$0.57
     
$0.50
 
                         
Average Common Shares Outstanding
   
5,559,644
     
5,559,644
     
5,559,644
 
                         
See Notes to Financial Statements.
                       

27
 
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
 
 
 
(in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common
 Stock
 $1 Par
Common
Stock
$5 Par
 
 
Surplus
Retained
 Earnings
Accumulated
 Other
Comprehensive
 Loss
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2003
$5,076
$2,416
$24,527
$13,967
($188)
$45,798
Net income
              -
               -
               -
8,556
                              -
8,556
Change in unrealized loss on
 
 
 
 
 
 
  available for sale securities,
 
 
 
 
 
 
  net of reclassification adjustments, and taxes
              -
               -
               -
               -
                         104
          104
Comprehensive income
 
 
 
 
 
8,660
Cash dividends on common stock ($0.50 per share)
              -
               -
               -
(2,752)
                              -
(2,752)
Balance December 31, 2004
5,076
2,416
24,527
19,771
(84)
51,706
Net income
              -
               -
               -
6,024
                              -
6,024
Change in unrealized loss on
 
 
 
 
 
 
  available for sale securities,
 
 
 
 
 
 
  net of reclassification adjustments, and taxes
              -
               -
               -
               -
                      (634)
        (634)
Comprehensive income
 
 
 
 
 
5,390
Cash dividends on common stock ($0.57 per share)
              -
               -
               -
(3,173)
                              -
(3,173)
Balance December 31, 2005
5,076
       2,416
24,527
22,622
(718)
53,923
Net income
              -
               -
               -
8,802
                              -
8,802
Reclassification of $5 par value into $1 par value
        484
    (2,416)
       1,932
 
 
               -
Change in unrealized loss on
 
 
 
 
 
 
  available for sale securities,
 
 
 
 
 
 
  net of reclassification adjustments, and taxes
              -
               -
               -
               -
                      (187)
         (187)
Comprehensive income
 
 
 
 
 
8,615
Cash dividends on common stock ($0.60 per share)
              -
               -
               -
(3,335)
                              -
(3,335)
Balance December 31, 2006
$5,560
    $       -
$26,459
$28,089
($905)
$59,203
 
 
See Notes to Financial Statements

28
 
STATEMENTS OF CASH FLOWS
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
2006
 
2005
 
2004
 
Cash Flows From Operating Activities
 
 
 
 
 
 
Net income
$8,802
 
$6,024
 
$8,556
 
Adjustments to reconcile net income to net cash
 
 
 
 
 
 
  provided by operating activities:
 
 
 
 
 
 
    Provision for loan losses
  4,419
 
       5,621
 
     1,670
 
    Depreciation and amortization
       1,504
 
       1,337
 
     1,458
 
    Loss (Gain) on sale of securities
          234
 
           (7)
 
          55
 
    Gain on sale of assets
         (81)
 
       (315)
 
      (207)
 
    ORE writedowns and (gain)/loss on disposition
       (365)
 
       1,101
 
        185
 
    FHLB stock dividends
      (134)
 
       (121)
 
        (63)
 
    Net (increase) decrease in loans held for sale
    (1,049)
 
       2,638
 
    (1,622)
 
    Change in other assets and liabilities, net
       (106)
 
          794
 
    (2,025)
 
Net Cash Provided By Operating Activities
13,224
 
     17,072
 
      8,007
 
 
 
 
 
 
 
 
Cash Flows From Investing Activities
 
 
 
 
 
 
Proceeds from maturities and calls of HTM securities
20,604
 
       1,215
 
   20,695
 
Proceeds from maturities, calls and sales of AFS securities
     26,770
 
   225,215
 
   52,586
 
Funds invested in HTM securities
              -
 
  (30,000)
 
  (30,845)
 
Funds invested in AFS securities
(31,108)
 
(265,984)
 
  (89,526)
 
Proceeds from sale of Federal Home Loan Bank stock
1,797
 
       3,029
 
      1,567
 
Purchases of Federal Home Loan Bank stock
(2,346)
 
       (238)
 
   (2,199)
 
Net increase in loans
(29,492)
 
  (40,226)
 
 (77,660)
 
Purchase of premises and equipment
 (2,478)
 
    (2,465)
 
    (2,541)
 
Proceeds from sales of premises and equipment
               -
 
-
 
         110
 
Proceeds from sales of other real estate owned
       6,909
 
       2,731
 
      3,025
 
Net Cash Used In Investing Activities
    (9,344)
 
(106,723)
 
(124,788)
 
 
 
 
 
 
 
 
Cash Flows From Financing Activities
 
 
 
 
 
 
Net (decrease) increase in deposits
 (6,615)
 
151,550
 
105,356
 
Net (decrease) increase in federal funds purchased and short-term borrowings
 (2,397)
 
 (22,437)
 
994
 
Proceeds from long-term borrowings
30,000
 
75
 
35,000
 
Repayment of long-term borrowings
 (25,167)
 
 (27,277)
 
 (24,619)
 
Dividends paid
 (3,335)
 
 (3,173)
 
 (2,752)
 
Net Cash (Used In) Provided By Financing Activities
 (7,514)
 
98,738
 
113,979
 
 
 
 
 
 
 
 
Net (Decrease) Increase In Cash and Cash Equivalents
 (3,634)
 
9,087
 
 (2,802)
 
Cash and Cash Equivalents at the Beginning of the Period
 28,451
 
19,364
 
22,166
 
Cash and Cash Equivalents at the End of the Period
$24,817
 
$28,451
 
$19,364
 
 
 
 
 
 
 
 
 Noncash Activities:
 
 
 
 
 
 
  Loans transferred to foreclosed assets
$8,538
 
$814
 
$2,196
 
  1,389,761 shares of $1 par value issued as stock dividend
   $  -
 
$1,390
 
$  -
 
Cash paid during the year:
 
 
 
 
 
 
  Interest on deposits and borrowed funds
$18,241
 
$11,715
 
$7,800
 
  Income taxes
$5,590
 
$1,925
 
$4,570
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Financial Statements
 
 
 
 
 
 

29
 
 
NOTES TO FINANCIAL STATEMENTS

1.  
Business and Summary of Significant Accounting Policies

Business
    First Guaranty Bank (the Bank) is a Louisiana state-chartered commercial bank that provides a diversified range of financial services to consumers and businesses in the communities in which it operates. These services include consumer and commercial lending, mortgage loan origination, the issuance of credit cards, and retail banking services. The Bank is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The Bank has 16 banking offices and 24 automated teller machines (ATMs) in northern and southern areas of Louisiana.

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

Use of estimates
    The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.
    Material estimates that are particularly susceptible to significant change in the near-term economic environment and market conditions relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and real estate owned, the Bank obtains independent appraisals for significant properties.

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

Securities
    The Bank reviews its financial position, liquidity and future plans in evaluating the criteria for classifying investment securities. At December 31, 2006 the securities portfolio contained two classifications of securities - held to maturity and available for sale. At December 31, 2006, $111.4 million were classified as available for sale and $47.0 million were classified as held to maturity.
    Debt securities that Management has the ability and intent to hold to maturity are classified as held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts using methods approximating the interest method. Securities available for sale are stated at fair value. The unrealized difference, if any, between amortized cost and fair value of these securities is excluded from income and is reported, net of deferred taxes, as a component of stockholders' equity. Realized gains and losses on securities are computed based on the specific identification method and are reported as a separate component of other income.
    Management evaluates securities for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
    The Bank has a required investment in Federal Home Loan Bank stock that is carried at cost that approximates fair value. This stock must be maintained by the Bank.

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

Loans
    Loans are stated at the principal amounts outstanding, net of unearned income and deferred loan fees. In addition to loans issued in the normal course of business, the Bank considers overdrafts on customer deposit accounts to be loans and reclassifies these overdrafts as loans. At December 31, 2006 and 2005, $226,000 and $354,000, respectively, have been reclassified to loans. Interest income on all classifications of loans is calculated using the simple interest method on daily balances of the principal amount outstanding.
 
30
 
    Accrual of interest is discontinued on a loan when Management believes, after considering economic and business conditions and collection efforts that the borrower’s financial condition is such that reasonable doubt exists as to the full and timely collection of principal and interest. This evaluation is made for all loans that are 90 days or more contractually past due. When a loan is placed in nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of interest and principal is probable. Loans are returned to accrual status when, in the judgment of Management, all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable time frame and when the borrower has demonstrated payment performance of cash or cash equivalents for a minimum of six months.
    The Bank classifies loans as impaired if, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is based on the present value of the expected future cash flows discounted at the loan's effective interest rate or the loan's observable market price or based on the fair value of the collateral if the loan is collateral-dependent. Loans below $25,000 are evaluated in the aggregate for impairment purposes and therefore are not separately identified for impairment disclosure. Interest on impaired loans continues to be accrued until such time as the loan is classified as nonaccrual.

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

Allowance for loan losses
    The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when Management believes that the collectibility of the principal is unlikely. The allowance, which is based on evaluation of the collectibility of loans and prior loan loss experience, is an amount that Management believes will be adequate to reflect the risks inherent in the existing loan portfolio and that exist at the reporting date. The evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect a borrower’s ability to pay, adequacy of loan collateral and other relevant factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination.
    Although Management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
    The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Bank may ultimately incur losses that vary from Management's current estimates. Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or are reasonably estimable. All loan losses are charged to the allowance for loan losses when the loss actually occurs or when Management believes that the collectibility of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery.
    The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect Management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
    A loan is considered impaired when, based on current information and events, it is probable that the Bank 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.
    Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.
 

31
 
Intangible assets
    Intangible assets are principally comprised of core deposit intangibles and are amortized on a straight-line basis over terms ranging from seven to 15 years. Management periodically evaluates whether events or circumstances have occurred that would result in impairment of value.

Premises and equipment
    Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the respective assets as follows:
 
                                            Buildings and improvements
10-40 
 years 
                                            Equipment, fixtures and automobiles        
  3-10 
 years
 
     Expenditures for renewals and betterments are capitalized and depreciated over their estimated useful lives. Repairs maintainences and minor improvements are charged to operating expense and incurred. Gains or losses on disposition, if any, are recorded in the Statements of Income.

Other real estate
    Other real estate includes properties acquired through foreclosure or acceptance of deeds in lieu of foreclosure. These properties are recorded at the lower of the recorded investment in the property or its fair value less the estimated cost of disposition. Any valuation adjustments required prior to foreclosure are charged to the allowance for loan losses. Subsequent to foreclosure, losses on the periodic revaluation of the property are charged to current period earnings as other real estate expenses. Costs of operating and maintaining the properties are charged to other real estate expense as incurred. Any subsequent gains or losses on dispositions are credited or charged to income in the period of disposition.

Income taxes
    Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the deferred tax assets or liabilities are expected to be settled or realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be utilized.

Comprehensive income
    Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items along with net income, are components of comprehensive income. The components of other comprehensive income and related tax effects are presented in the Statements of Changes in Stockholders’ Equity and Note 16 of the Notes to the Financial Statements.

Earnings per common share
    The Bank computes and presents earnings per share in accordance with SFAS No. 128 “Earnings Per Share”. The Bank has no outstanding convertible shares or other agreements to issue common stock. The Bank's common stock, both $1 par and $5 par, had the same privileges, restrictions and rights, including voting and dividend rights. In 2006, all $5 par value stock was converted into $1 par value.

Transfers of Financial Assets
    Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Recent Accounting Pronouncements
    In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of SFAS No. 133 and 140 . SFAS No. 155 permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Bank anticipates that the adoption of SFAS No. 155 will not have a material impact on the Bank’s financial position or results of operations.
32
 
    In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of SFAS No. 140. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in selected situations; requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; permits an entity to choose either the amortization or fair value measurement method for each class of separately recognized servicing assets and servicing liabilities; at its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under SFAS No. 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value; and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This Statement is effective as of the beginning of an entity’s first year that begins after September 15, 2006. The Bank anticipates that the adoption of SFAS No. 156 will not have a material impact on the Bank’s financial position or results of operations.
    In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, Accounting for Income Taxes .  The Interpretation also prescribes a recognition threshold and measurement attribute for recognition in financial statements of the recognition and measurement of a tax position taken in a tax return.  FIN 48 prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken.  Tax positions that meet the more-likely-than-not threshold should be measured in order to determine the tax benefit to be recognized in the financial statements.  This Statement is effective as of the beginning of the first fiscal year that begins after December 15, 2006.  The Bank anticipates that the adoption of FIN 48 will not have a material impact on the Bank’s financial position or results of operations.
    In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . This Statement defines fair value, established a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurement.  The Statement is effective for the financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Bank anticipates that the adoption of SFAS No. 157 will not have a material impact on the Bank’s financial position or results of operations.
    In September 2006, the FASB issues SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R) . This Statement improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization.  This Statement also improves financial reporting by an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. This Statement is effective, for an employer without publicly traded equity securities, as of the end of the fiscal year ending after June 15, 2007.  However, an employer, without publicly traded equity securities, is required to disclose certain information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements.  The Bank anticipates that the adoption of SFAS No. 158 will not have a material impact on the Bank’s financial position or results of operations.
    In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . SFAS No. 159 provides the Bank with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements to facilitate reporting between companies.  The fair value option established by this Statement permits the Bank to choose to measure eligible items at fair value at specified election dates.  The Bank shall then 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 Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  The Bank is currently evaluating the effect the standard will have on its results of operations and financial condition.

Reclassifications
    Certain classifications have been made to prior year financial statments in order to conform to the classification adopted for reporting in 2006.
    All share and per share data have been restated to reflect a stock dividend of one-third of a share of $1 par value common stock for each $1 and $5 par value common stock outstanding, accounted for as a four-for-three stock split, effective and payable to stockholders of record as of October 20, 2005 for each of the periods presented.
 
2. Cash and Due From Banks
    The Bank is required to maintain certain reserves at the Federal Reserve Bank. The requirement as of December 31, 2006 and 2005 totaled $750,000. The Bank has accounts at various correspondent banks, excluding the Federal Reserve Bank, which exceed the FDIC insured limit of $100,000 by $9.2 million at December 31, 2006.

33
 
 
3. Securities
A summary comparison of securities by type at December 31, 2006 and 2005 is shown below.
 
 
December 31, 2006
 
December 31, 2005
 
Amortized
 Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
 
Amortized
 Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair
 Value
 
 
 
 
 
(in thousands)
  Available for sale:
 
 
 
 
 
 
 
 
 
  U.S. Government Agencies
$98,369
                 -
($1,226)
$97,143
 
$95,880
$20
($805)
$95,095
  Mortgage-backed obligations
         4,077
              39
            (103)
       4,013
 
         2,712
                3
          (101)
 2,614
  Asset-backed securities
         1,385
1
              (1)
1,385
 
            426
                 -
              (2)
424
  Corporate debt securities
         7,394
31
 (61)
7,364
 
         8,157
36
 (111)
8,082
  Mutual funds or other equity securities
         1,500
 -
 (52)
1,448
 
         1,500
 -
 (130)
 1,370
    Total securities
$112,725
$71
($1,443)
$111,353
 
$108,675
$59
($1,149)
$107,585
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Held to maturity:
 
 
 
 
 
 
 
 
 
  U.S. Government Agencies
$43,976
-
($1,280)
$42,696
 
$63,968
-
($1,000)
$62,968
  Mortgage-backed obligations
         3,023
-
 (105)
2,918
 
         3,647
-
 (122)
3,525
      Total securities
$46,999
 $-
($1,385)
$45,614
 
$67,615
 $-
($1,122)
$66,493
 
    The scheduled maturities of securities at December 31, 2006, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
   
 
December 31, 2006
 
Amortized
 Cost
 
Fair
 Value
 
Weighted
 Avg Yield
 
 
 
 
(in thousands)
 Available For Sale:
 
 
 
 
 
 Due in one year or less
$18,118
 
$18,108
 
5.48%
 Due after one year through five years
         22,967
 
          22,765
 
5.08%
 Due after five years through 10 years
         24,443
 
          24,009
 
5.44%
 Over 10 years
         47,197
 
          46,471
 
5.90%
    Total
$112,725
 
$111,353
 
 
 
 
 
 
 
 
  Held to Maturity:
 
 
 
 
 
  Due in one year or less
$10,000
 
$9,974
 
5.00%
 Due after one year through five years
                   -
 
                   -
 
                   -
  Due after five years through 10 years
         10,944
 
          10,399
 
4.51%
  Over 10 years
         26,055
 
          25,241
 
5.42%
      Total
$46,999
 
$45,614
 
 
 
   At December 31, 2006 and 2005, approximately $147.3 million and $154.3 million, respectively in securities were pledged to secure public fund deposits, and for other purposes required or permitted by law. Gross realized gains were $0, $7,000 and $17,000 for the years ended December 31, 2006, 2005 and 2004, respectively. Gross realized losses were $234,000, $0 and $73,000 for the years ended December 31, 2006, 2005 and 2004. The tax (benefit) provision applicable to these realized net (losses)/gains amounted to $(80,000), $2,000, and $(19,000), respectively. Proceeds from sales of securities classified as available for sale amounted to $6.8 million, $0 and $2.1 million for the years ended December 31, 2006, 2005 and 2004, respectively.
    The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2006.
 
34
 
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
Gross Unrealized Losses
 
Fair
Value
Gross Unrealized Losses
 
Fair
 Value
Gross Unrealized Losses
 
 
 
 
 
 
 
(in thousands)
Available for sale:
 
 
 
 
 
 
 
 
U.S. Treasury and U.S.
 
 
 
 
 
 
 
 
 Government Agencies
$24,866
$24
 
$70,280
$1,202
 
$95,146
$1,226
Mortgage-backed obligations
             -
               -
 
       2,127
            103
 
      2,127
            103
Asset-backed securities
         134
                1
 
  -
  -
 
 134
    1
Corporate debt securities
514
                3
 
4,014
58
 
4,528
  61
Mutual funds or other equity securites
-
                 -
 
1,448
52
 
1,448
52
 Total securities
$25,514
$28
 
$77,869
$1,415
 
$103,383
$1,443
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
 
U.S. Treasury and U.S.
 
 
 
 
 
 
 
 
 Government Agencies
 $        -
 $  -
 
$42,696
$1,280
 
$42,696
$1,280
Mortgage-backed obligations
  -
                 -
 
 2,918
 105
 
2,918
105
  Total securities
 $        -
 $  -
 
$45,614
$1,385
 
$45,614
$1,385
 
    The Bank considers the impairment on securities that have been in a gross unrealized loss position for less than 12 months to be temporary. The gross unrealized losses in the portfolio resulted from increases in market interest rates and not from deterioration in the creditworthiness of the issuer. The Bank 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. As of December 31, 2006, the Bank had 14 debt securities that had gross unrealized losses for less than 12 months.
    At December 31, 2006, 44 U.S. Government Agency securities, 16 of which are classified as held to maturity and 28 classified as available for sale, have been in a continuous unrealized loss position for 12 months or longer. Seven mortgage-backed fixed rate securities, five classified as held to maturity and two classified as available for sale, have also been in a continuous unrealized loss position for 12 months or longer. Also, 23 corporate debt securities all classified as available for sale have been in a continuous unrealized loss position for 12 months or longer. These securities with unrealized losses resulted from increases in interest rates and not from deterioration in the creditworthiness of the issuer. There were no impaired securities at December 31, 2006. There were no adverse changes to the portfolio subsequent to December 31, 2006.
    Management evaluates securities for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to 1) the length of time and the extent to which the fair value has been less than cost, 2) the financial condition and near-term prospects of the issuer and 3) the intent and ability of the Bank 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. As of December 31, 2006, Management’s assessment concluded that no declines are deemed to be other-than-temporary.
    At December 31, 2006, the Bank’s exposure to three investment security issuers exceeded 10% of stockholders’ equity as follows:
 
 
Amortized
 Cost
 
Fair
 Value
 
 
 
(in thousands)
 
 
 
 
                                 Federal Home Loan Bank (FHLB)
$72,083
 
$70,983
                                 Federal Home Loan Mortgage Corporation ( Freddie Mac)
24,482
 
23,984
                                 Federal National Mortgage Association (Fannie Mae)
50,731
 
49,685
                                   Total
$147,296
 
$144,652

35

4. Loans and Allowance for Loan Losses
    The following table summarizes the components of the Bank's loan portfolio as of December 31, 2006 and 2005:
 
 
December 31,
 
2006
 
2005
 
Balance
As % of Category
 
Balance
As % of Category
 
 
 
(in thousands, except for percentages)
           Real estate
 
 
 
 
 
               Construction & land development
 $   49,837
9.9%
 
 $   67,099
13.6%
               Farmland
      25,582
5.0%
 
      24,903
5.1%
               1-4 Family
      67,022
13.2%
 
      78,789
16.0%
               Multifamily
      14,702
2.9%
 
      11,125
2.3%
               Non-farm non-residential
    256,176
50.5%
 
    223,622
45.5%
                  Total real estate
413,319
81.5%
 
405,538
82.5%
 
 
 
 
 
 
           Agricultural
16,359
3.2%
 
11,490
2.3%
           Commercial and industrial
59,072
11.6%
 
54,740
11.1%
           Consumer and other
18,880
3.7%
 
20,078
4.1%
                    Total loans before unearned income
507,630
100.0%
 
491,846
100.0%
                 Less: unearned income
(435)
 
 
(264)
 
                        Total loans after unearned income
 $ 507,195
 
 
 $ 491,582
 
 
    The following table summarizes fixed and floating rate loans by maturity and repricing frequencies as of December 31, 2006:
 
 
December 31, 2006
 
Fixed
Floating
Total
 
(in thousands) 
 
 
 
 
                 One year or less
$99,157
$241,717
$340,874
                 One to five years
135,998
6,196
142,194
                 Five to 15 years
10,730
                 435
11,165
                 Over 15 years
1,319
              1,281
2,600
                    Subtotal
247,204
249,629
496,833
                 Nonaccrual loans
 
 
10,362
                    Total loans after unearned income
$247,204
$249,629
$507,195
 
    Changes in the allowance for loan losses are as follows:
 
 
Years Ended December 31,
 
2006
 
2005
 
2004
 
(in thousands)
 
 
 
 
 
 
Balance, beginning of year
$7,597
 
$5,910
 
$4,942
Provision charged to expense
4,419
 
5,621
 
1,670
Loans charged off
(5,888)
 
(4,162)
 
(926)
Recoveries
547
 
228
 
224
  Balance, end of year
$6,675
 
$7,597
 
$5,910
 
    The allowance for loan losses is reviewed by Management on a monthly basis and additions thereto are recorded in order to maintain the allowance at an adequate level. In assessing the adequacy of the allowance, Management considers a variety of internal and external factors that might impact the performance of individual loans. These factors include, but are not limited to, economic conditions and their impact upon borrowers' ability to repay loans, respective industry trends, borrower estimates and independent appraisals. Periodic changes in these factors impact Management's assessment of each loan and its overall impact on the adequacy of the allowance for loan losses.
 
36
    
    As of December 31, 2006, 2005 and 2004, the Bank had loans totaling $10.4 million, $21.1 million and $3.5 million, respectively, on which the accrual of interest had been discontinued. The decrease in nonaccrual loans is primarily the result of foreclosing on several of the 156 home mortgage loans that involve irregularities found in 2005 that suggest that many of these mortgage loans had been made against overvalued collateral on the basis of misleading loan information. As of December 31, 2006, 2005, and 2004, the Bank had loans past due 90 days or more and still accruing interest totaling $334,000, $248,000 and $409,000, respectively.
    The average amount of nonaccrual loans in 2006 was $17.1 million compared to $9.0 million in 2005. Had these loans performed in accordance with their original terms, the Bank's interest income would have been increased by approximately $1.4 million and $657,000 for the years ended December 31, 2006 and 2005, respectively. Impaired loans at December 31, 2006 and 2005, including nonaccrual loans, amounted to $13.3 million and $37.0 million, respectively. The portion of the allowance for loan losses allocated to all impaired loans amounted to $2.4 million and $3.6 million at December 31, 2006 and 2005, respectively. It is not practical to determine the amount of interest income recognized on impaired loans or interest income recognized using a cash-basis method during 2004. As of December 31, 2006, the Bank has no outstanding commitments to advance additional funds in connection with impaired loans.
    The following is a summary of information pertaining to impaired loans as of December 31:
 
 
2006
 
2005
 
(in thousands)
 
 
 
 
           Impaired loans without a valuation allowance
$          -
 
$         -
           Impaired loans with a valuation allowance
               13,264
 
              36,959
            Total impaired loans
$13,264
 
$36,959
 
 
 
 
           Valuation allowance related to impaired loans
$2,420
 
$3,645
 
 
 
 
 
 
 
 
 
 
 
 
 
2006
 
2005
 
(in thousands)
 
 
 
 
           Average investment in impaired loans
$17,128
 
$14,680
           Interest income recognized on impaired loans
                 1,946
 
                   475
           Interest income recognized on a cash basis on  impaired loans
                 1,636
 
                   526
 
5. Premises and Equipment
    The major categories comprising premises and equipment at December 31, 2006 and 2005 are as follows:
 
December 31,
 
2006
 
2005
 
(in thousands)
 
 
 
 
           Land
$3,137
 
$1,690
           Bank premises
        13,662
 
     13,011
           Furniture and equipment
        12,486
 
     12,161
            Acquired value
        29,285
 
     26,862
           Less: accumulated depreciation
        15,692
 
     14,912
             Net book value
$13,593
 
$11,950
 
    Depreciation expense amounted to approximately $0.8 million, $0.7 million and $0.6 million for 2006, 2005 and 2004, respectively.

6. Goodwill and Intangible Assets
    The Bank accounts for goodwill and intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests in accordance with the provision of SFAS No. 142. Other intangible assets continue to be amortized over their useful lives. The Bank had no goodwill for the years ended December 31, 2006, 2005 or 2004.
    The Bank recorded purchase accounting intangible assets that consist of core deposit intangibles only, which are subject to amortization. The core deposits reflect the value of deposit relationships, including the beneficial rates, which arose from the purchase of other financial institutions and the purchase of various banking center locations from one single financial institution. The following table summarizes the Bank’s purchased accounting intangible assets subject to amortization.

37
 
 
December 31,
 
2006
 
2005
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
Core deposit intangibles
$5,891
 
$5,435
 
$5,891
 
$4,910
  Total
$5,891
 
$5,435
 
$5,891
 
$4,910
 
    Amortization expense relating to purchase accounting intangibles totaled $525,000 for the year ended December 31, 2006 and $630,000 for the years ended December 31, 2005 and 2004. The weighted average amortization period of these assets is 7.9 years. Estimated future amortization expense is as follows:
 
 
 
For the Years Ended December 31,
 
Estimated
Amortization Expense
 
 
  (in thousands)
 
 
  2007
 
 $126
 
 
  2008
 
   126
 
 
  2009
 
   107
 
 
  2010
 
    33
 
 
  2011
 
     33
 
 
  2012
 
     31
 
 
    These estimates do not assume the addition of any new intangible assets that may be acquired in the future nor any write-downs resulting from impairment.

7. Deposits
    The aggregate amount of jumbo time deposits, each with a minimum denomination of $100,000, was approximately $142.5 million and $180.6 million at December 31, 2006 and 2005, respectively.
    At December 31, 2006, the scheduled maturities of time deposits are as follows:
 
December 31, 2006
 
(in thousands)
 
 
Due in one year or less
$201,412
Due after one year through three years
45,699
Due after three years
30,173
     Total
$277,284
 
8. Borrowings:                                    
     Short-term borrowings are summarized as follows:
 
December 31,
 
2006
 
2005
 
 (in thousands)
Federal Home Loan Bank advances
 
$       -
 
 
$       -
Securities sold under agreements to repurchase
 
6,584
 
 
8,981
    Total short-term borrowings
 
$6,584
 
 
$8,981
 
    Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature daily. Interest rates on repurchase agreements are set by Management and are generally based on the 91-day Treasury bill rate.
The Bank’s available lines of credit with correspondent banks, including the Federal Home Loan Bank, totaled $60.9 million at December 31, 2006 and $173.2 million at December 31, 2005. In 2006, due to a high level of nonperforming assets, FHLB advances were based on “custody” status rather than “blanket lien” status. FHLB advances in 2006 were collateralized primarily by commercial real estate loans in the FHLB’s custody. FHLB advances in 2005 were collateralized by a blanket pledge of primarily mortgage loans. With the exception of the FHLB, no other lines were outstanding with any other correspondent bank at December 31, 2006 or December 31, 2005.
 
38
    The following schedule provides certain information about the Bank’s short term borrowings during 2006 and 2005 (dollars in thousands):
 
December 31,
 
2006
 
2005
 
(in thousands, except for percentages)
 
 
 
 
           Outstanding at year end
$ 6,584
 
$ 8,981
           Maximum month-end outstanding
37,353
 
32,348
           Average daily outstanding
23,731
 
17,381
           Weighted average rate during the year
5.19%
 
3.14%
           Average rate at year end
4.41%
 
3.56%
 
    At December 31, 2006, long-term debt at the FHLB consisted of $18.0 million in fixed rate advances due from 2007 to 2014 and bearing interest at rates ranging from 3.86% to 6.85%. The Bank had no floating rate advances outstanding with the FHLB at December 31, 2006. Prepayment penalties apply if the debt is paid prior to maturity. At December 31, 2005, long-term debt at the FHLB consisted of $13.2 million fixed rate advances due from 2006 to 2014 and bearing interest at rates ranging from 3.31% to 6.85%.
    Maturities of long-term FHLB advances are as follows: $17.7 million in 2007, $41,000 in 2008, $179,000 in 2009 and $67,000 in 2014.
    At December 31, 2006, the Bank had $45.0 million in Letters of Credit issued by the FHLB which will expire in 2007 that is carried as an off-balance sheet item. At December 31, 2005, the Bank had $80.0 million in Letters of Credit issued by the FHLB which expired in 2006 and was carried as an off-balance sheet item. The Letters of Credit are only used for pledging towards public fund deposits. See Note 17 to Notes to the Financial Statements for additional information.

9. Preferred Stock
    The number of authorized shares of preferred stock is 100,000 shares of which 5,000 shares are designated Series B Preferred Stock and 15,000 shares are designated as Series C Preferred Stock. The remaining 80,000 shares are undesignated. There is no preferred stock outstanding.

10. Minimum Capital Requirements
    The Bank is subject to regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate actions by regulators that, if undertaken, could have an adverse effect on the Bank's financial statements. Under the framework for prompt corrective action, the Bank must meet capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.
    Quantitative measures established by regulation to ensure capital adequacy guidelines require minimum ratios of 8.00% for Total Risk-Based Capital, 4.00% for Tier 1 Risk-Based Capital and 4.00% for Tier 1 Leverage Capital. To be considered "well capitalized" the ratios are 10.00%, 6.00% and 5.00%, respectively.
    As of December 31, 2006, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that time that Management believes have changed the Bank's category. Management believes, as of December 31, 2006, the Bank meets all capital adequacy requirements to which it is subject.
    The Bank's actual capital amounts and ratios are presented below:
 


39

 
 
 
 
 
Actual
 
 
 
 
Minimum Capital
Requirements
 
Minimum
 To Be Well
Capitalized Under
 Prompts Corrective
 Action Provisions
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
(in thousands, except for percentages)
December 31, 2006
 
 
 
 
 
 
 
 
Total risk-based capital
$66,292
11.03%
 
$48,073
8.00%
 
$60,091
10.00%
Tier 1 capital
    59,617
9.92%
 
      24,037
4.00%
 
    36,055
6.00%
Tier 1 leverage capital
59,617
8.16%
 
      29,207
4.00%
 
36,509
5.00%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2005
 
 
 
 
 
 
 
 
Total risk-based capital
$61,236
10.05%
 
$48,750
8.00%
 
$60,937
10.00%
Tier 1 capital
53,639
8.80%
 
      24,375
4.00%
 
36,562
6.00%
Tier 1 leverage capital
53,639
7.67%
 
      27,988
4.00%
 
34,985
5.00%
 
11. Dividend Restrictions
    The Bank is restricted under applicable laws in the payment of dividends to an amount equal to current year earnings plus undistributed earnings for the immediately preceding year, unless prior permission is received from the Commissioner of Financial Institutions for the State of Louisiana. Dividends payable without permission by the Bank in 2006 will be limited to 2007 earnings plus an additional $5.5 million.

12. Related Party Transactions
    In the normal course of business, the Bank has loans, deposits and other transactions with its executive officers, directors and certain business organizations and individuals with which such persons are associated. An analysis of the activity of loans made to such borrowers during the year ended December 31, 2006 follows:
 
 
December 31, 2006
 
 
(in thousands)
 
 
 
 
     Balance, beginning of year
$18,742
 
     New loans
                     15,807
 
     Repayments
                   (14,403)
 
        Balance, end of year
$20,146
 
 
    Additionally, included in the Bank’s loan portfolio are participations in loans totaling $2.8 million at December 31, 2006, which were purchased from affiliated financial institutions.
    During the year ended 2006, the Bank paid approximately $633,000 for printing services and supplies and office furniture and equipment to Champion Graphic Communications (or subsidiary companies of Champion Industries, Inc.), of which Mr. Marshall T. Reynolds, the Chairman of the Bank’s Board of Directors, is President, Chief Executive Officer, Chairman of the Board of Directors, and holder of 41.5% of the capital stock; approximately $896,000 to participate in the Champion Industries, Inc. employee medical benefit plan; and approximately $134,000 to Sabre Transportation, Inc. for travel expenses of the Chairman and other directors. These expenses include, but are not limited to the utilization of an aircraft, fuel, air crew, ramp fees and other expenses attendant to the Bank’s use. The Harrah and Reynolds Corporation, of which Mr. Reynolds is President and Chief Executive Officer and sole shareholder, has a 99% ownership interest in Sabre Transportation, Inc.
    During the year ended 2006, the Bank engaged the services of Cashe, Lewis, Coudrain and Sandage, attorneys-at-law, of which Mr. Alton Lewis, a director of the Bank, is a partner, to represent the Bank with certain legal matters. The fees paid by the Bank for these legal services totaled $291,000.

13. Employee Benefit Plans
    The Bank has an employee savings plan to which employees, who meet certain service requirements, may defer one to 20 percent of their base salaries, six percent of which may be matched up to 100% by the Bank, at its sole discretion. Bank contributions to the savings plan were $101,000, $93,000 and $139,000 in 2006, 2005 and 2004, respectively.
    In 2004, the Bank established an Employee Stock Ownership Plan (“ESOP”) for the benefit of all eligible employees of the Bank. Full-time employees of the Bank who have been credited with at least 1,000 hours of service during a 12 consecutive month period and who have attained age 21 are eligible to participate in the ESOP. The plan document has been approved by the Internal Revenue Service. Contributions to the ESOP are at the sole discretion of the Bank.
 
40
    
    The Bank made voluntary contributions of $100,000 to the ESOP in 2006, 2005 and 2004 for the purchase of Bank shares from third parties at market value. At December 31, 2006 the ESOP had acquired 3,820 shares of $1 par value common stock for a cost of $89,464 bringing the total shares allocated to 14,510 shares.
    At December 31, 2005 the ESOP had acquired 4,738 shares of $1 par value common stock for a cost of $87,997. At December 31, 2004, the ESOP had acquired 5,952 shares of $1 par value common stock for a cost of $89,994. An analysis of ESOP shares allocated is presented below:
 
2006
2005
2004
 
 
 
 
Shares allocated, beginning of year
10,690
5,952
  -
Shares allocated, during the year
3,820
4,738
5,952
Allocated shares held by ESOP, end of year
14,510
10,690
5,952
 
 
 
 
 
14. Other Expense                                    
    The following is a summary of the significant components of other expense:
 
 
Years Ended December 31,
 
2006
 
2005
 
2004
 
(in thousands)
Other expense:
 
 
 
 
 
Legal and professional fees
$1,390
 
$1,201
 
$1,048
Operating supplies
            545
 
          514
 
          522
Marketing and public relations
            823
 
          564
 
          622
Data processing
            904
 
          736
 
          754
Taxes - sales and capital
            582
 
          684
 
          607
Telephone
            244
 
          421
 
          455
Amortization of core deposit intangibles
            525
 
          630
 
          630
Other
         2,815
 
       2,690
 
       2,458
  Total other expense
$7,828
 
$7,440
 
$7,096
 
15. Income Taxes                                    
    The following is a summary of the provision for income taxes included in the Statements of Income:
 
 
Years Ended December 31,
 
2006
 
2005
 
2004
 
(in thousands)
 
 
 
 
 
 
Current
$4,046
 
$3,822
 
$4,921
Deferred
617
 
(618)
 
(481)
Tax credits
        (135)
 
          (34)
 
-
Benefit of operating loss carryforward
(24)
 
(24)
 
(24)
  Total
$4,504
 
$3,146
 
$4,416
 
 
 
 
 
 
 
    The difference between income taxes computed by applying the statutory federal income tax rate and the provision for income taxes in the financial statements is reconciled as follows:

 
Years Ended December 31,
 
2006
 
2005
 
2004
 
(in thousands, except for percentages)
 
 
 
 
 
 
Statutory tax rate
34.2%
 
34.1%
 
34.2%
Federal income taxes at statutory rate
$4,551
 
$3,127
 
$4,436
Tax credits
 (135)
 
 (34)
 
              -
Other
            88
 
              53
 
 (20)
  Total
$4,504
 
$3,146
 
$4,416
 
41
    Deferred taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities, and available tax credit carry forwards. Temporary differences between the financial statement and tax values of assets and liabilities give rise to deferred tax assets (liabilities). The significant components of the Bank's deferred tax assets and liabilities at December 31, 2006 and 2005 are as follows:

 
Years Ended December 31,
 
2006
 
2005
 
(in thousands)
Deferred tax assets:
 
 
 
Allowance for loan losses
$2,270
 
$2,582
Net operating loss carryforwards
            24
 
            47
Allowance for other real estate losses
          128
 
          178
Depreciation and amortization
          302
 
          292
Unrealized loss on available for sale securities
          466
 
          371
  Gross deferred tax assets
$3,190
 
$3,470
 
 
 
 
Deferred tax liabilities:
 
 
 
Other
     (1,188)
 
        (946)
  Gross deferred tax liabilities
     (1,188)
 
        (946)
    Net deferred tax assets
$2,002
 
$2,524
 
    As of December 31, 2006, the Bank has net operating loss carryforward of $69,000, for income tax purposes, which is available to offset future taxable income. This carry forward expires in 2007.

16. Comprehensive Income
    The following is a summary of the components of other comprehensive income as presented in the Statements of Changes in Stockholders’ Equity:

 
December 31,
 
2006
 
2005
 
2004
 
(in thousands)
 
 
 
 
 
 
Unrealized (loss) gain on available for sale securities, net
($517)
 
($954)
 
$107
Reclassification adjustments for net (gains) losses, realized net income
          234
 
 (7)
 
            51
  Other comprehensive (loss) income
 (283)
 
 (961)
 
          158
Income tax benefit (provision) related to other comprehensive income
            96
 
          327
 
 (54)
  Other comprehensive (loss) income, net of income taxes
($187)
 
($634)
 
$104
 
17. Financial Instruments
    The Bank 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 Statements of Condition. The contract or notional amounts of those instruments reflect the extent of the Bank's involvement in particular classes of financial instruments.
    The Bank's 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 Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
    Unless otherwise noted, the Bank does not require collateral or other security to support financial instruments with credit risk.
    Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on Management's credit evaluation of the counterpart. Collateral requirements vary but may include accounts receivable, inventory, property, plant, and equipment, residential real estate and commercial properties.
    Standby and commercial letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The majority of these guarantees are short-term, one-year or less; however, some guarantees extend for up to three years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral requirements are the same as on-balance-sheet instruments and commitments to extend credit.
 
42
 
    The Bank incurred a $7,000 loss on one commitment during 2006 and a $5,000 loss on one commitment in 2005.
    Fair value estimates are generally subjective in nature and are dependent upon a number of significant assumptions associated with each instrument or group of similar instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows and relevant available market information. Fair value information is intended to represent an estimate of an amount at which a financial instrument could be exchanged in a current transaction between a willing buyer and seller engaging in an exchange transaction. However, since there are no established trading markets for a significant portion of the Bank's financial instruments, the Bank may not be able to immediately settle its financial instruments; as such, the fair values are not necessarily indicative of the amounts that could be realized through immediate settlement. In addition, the majority of the Bank's financial instruments, such as loans and deposits, are held to maturity and are realized or paid according to the contractual agreement with the customer.
    Quoted market prices are used to estimate fair values when available. However, due to the nature of the Bank's financial instruments, in many instances quoted market prices are not available. Accordingly, the Bank has estimated fair values based on other valuation techniques, such as discounting estimated future cash flows using a rate commensurate with the risks involved or other acceptable methods. Fair values are estimated without regard to any premium or discount that may result from concentrations of ownership of financial instruments, possible income tax ramifications or estimated transaction costs. The fair value estimates are subjective in nature and involve matters of significant judgment and, therefore, cannot be determined with precision. Fair values are also estimated at a specific point in time and are based on interest rates and other assumptions at that date. As events change the assumptions underlying these estimates, the fair values of financial instruments will change.
    Disclosure of fair values is not required for certain items such as lease financing, investments accounted for under the equity method of accounting, obligations of pension and other postretirement benefits, premises and equipment, other real estate, prepaid expenses, the value of long-term relationships with depositors (core deposit intangibles) and other customer relationships, other intangible assets and income tax assets and liabilities. Fair value estimates are presented for existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses have not been considered in the estimates. Accordingly, the aggregate fair value amounts presented do not purport to represent and should not be considered representative of the underlying "market" or franchise value of the Bank.
    Because the standard permits many alternative calculation techniques and because numerous assumptions have been used to estimate the Bank's fair values, reasonable comparison of the Bank's fair value information with other financial institutions' fair value information cannot necessarily be made.
    The methods and assumptions used to estimate the fair values of each class of financial instruments are as follows:
 
 
  Cash and due from banks, interest-bearing deposits with banks, federal funds sold and federal funds purchased. These items are generally short-term in nature and, accordingly, the carrying amounts reported in the Statements of Condition are reasonable approximations of their fair values.
 
  Interest-bearing time deposits with banks. Time deposits are purchased from other financial institutions for investment purposes. Time deposits with banks do not have a balance greater than $100,000. Interest earned is paid monthly and not reinvested as principal. Fair values for fixed-rate time deposits are estimated by discounting future cash flows using interest rates currently offered on time deposits with similar remaining maturities.
 
  Securities. Fair values are principally based on quoted market prices. If quoted market prices are not available, fair values are based on quoted market prices of
comparable instruments.
 
  Loans Held for Sale. Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices.
 
  Loans, net. The fair value of loans is estimated for segments of the loan portfolio with similar financial characteristics. For variable rate loans that re-price frequently with no significant change in credit risk, the carrying amounts reported in the statements of condition are reasonable approximations of their fair values. The fair values of other types of loans are estimated by discounting the future cash flows using interest rates that consider the credit and interest rate risks inherent in the loans, and current economic and lending conditions.
The fair value of nonaccrual loans is either estimated by discounting Management's estimate of future cash flows using a rate commensurate with the    risks  involved  
or based upon recent internal or external appraisals.
 
  Accrued interest receivable. The carrying amount of accrued interest receivable approximates its fair value.
 
  Deposits. The fair values of deposits subject to immediate withdrawal such as interest and noninterest bearing demand deposits and savings deposits are equal to their carrying amounts. The carrying amounts for variable-rate time deposits and other time deposits approximate their fair values at the reporting date. Fair values for fixed-rate time deposits are estimated by discounting future cash flows using interest rates currently offered on time deposits with similar remaining maturities.
 
  Accrued interest payable. The carrying amount of accrued interest payable approximates its fair value.
 
  Borrowings . The carrying amount of Federal Funds purchased and other short term borrowings approximate their fair values. The fair value of the Bank’s long term borrowings are estimated using discounted cash flow analysis based on the Bank’s current incremental borrowing rates for similar types of borrowing arrangements.
 
  Other unrecognized financial instruments. The fair value of commitments to extend credit is estimated using the fees charged to enter into similar legally binding agreements, taking into account the remaining terms of the agreements and customers' credit ratings. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit are based on fees charged for similar agreements or on estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At December 31, 2006 and 2005 the fair value of guarantees under commercial and standby letters of credit was immaterial.
 
43
 
    The estimated fair values and carrying values of the Bank's financial instruments at December 31, 2006 and 2005 are presented in the following table:
 
December 31,
 
2006
 
2005
 
Carrying Value
Estimated Fair Value
 
Carrying Value
Estimated Fair Value
 
 
 
 
 
(in thousands)
Assets
 
 
 
 
 
Cash and cash equivalents
$ 24,817
$ 24,817
 
$ 28,451
$ 28,451
Interest-bearing time deposits with banks
2,188
2,168
 
2,188
2,201
Securities, available for sale
111,353
111,353
 
107,585
107,585
Securities, held to maturity
46,999
45,614
 
 67,615
66,493
Federal Home Loan Bank stock
2,264
2,264
 
1,581
1,581
Loans held for sale
1,049
1,049
 
  -
                 -
Loans, net
500,520
478,719
 
483,985
479,316
Accrued interest receivable
5,378
5,378
 
5,220
5,220
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Deposits
$626,293
$626,139
 
$632,908
$634,036
Borrowings
24,568
24,587
 
22,132
22,080
Accrued interest payable
3,070
3,070
 
2,105
2,105
 
    A summary of the notional amounts of the Bank's financial instruments with off-balance sheet risk at December 31, 2006 and 2005 follows:
 
 
December 31,
 
2006
 
2005
 
(in thousands)
Financial instruments whose contract
 
 
 
 amounts represent credit risk:
 
 
 
    Commitments to extend credit
$87,355
 
$70,630
    Commitments to grant loans
47,110
 
49,669
    Standby letters of credit
2,515
 
2,821
 
    There is no material difference between the contract amount and the estimated fair value of off-balance sheet items that are primarily comprised of short-term unfunded loan commitments that are generally priced at market.

18. Concentrations of Credit and Other Risks
    The Bank grants personal, commercial and residential loans to customers, most of who reside in northern and southern areas of Louisiana. Although the Bank has a diversified loan portfolio, significant portions of the loans are collateralized by real estate located in Tangipahoa Parish and surrounding parishes in southeast Louisiana. Declines in the Louisiana economy could result in lower real estate values which could, under certain circumstances, result in losses to the Bank.
    The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers. The Bank, generally, does not extend credit in excess of $6.0 million to any single borrower or group of related borrowers.
    A significant portion of the Bank’s deposits (approximately 27.8%) is derived from local governmental agencies. These governmental depositing authorities are generally long-term customers of the Bank. A number of the depositing authorities are under contractual obligation to maintain their operating funds exclusively with the Bank. In most cases, the Bank is required to pledge securities or Letters of Credit issued by the Federal Home Loan Bank to the depositing authorities to collateralize their deposits. Under certain circumstances, the withdrawal of all of, or a significant portion of, the deposits of one or more of the depositing authorities may result in a temporary reduction in the Bank's liquidity, depending primarily on the maturities and/or classifications of the securities pledged against such deposits and the Bank's ability to replace such deposits with either new deposits or other borrowings.

44
 
19. Litigation
    The Bank is subject to various legal proceedings in the normal course of its business. It is Management’s belief that the ultimate resolution of such claims will not have a material adverse effect on the Bank’s financial position or results of operations.

20. Commitments and Contingencies
    In the ordinary course of business, the Bank has various outstanding commitments and contingent liabilities that are not reflected in the accompanying financial statements. Included among these contingent liabilities are certain provisions in agreements, entered into with outside third parties to sell loans that are originated by the Bank that may require the Bank to repurchase a loan if it becomes delinquent within a specified period of time.

21. Bank Mergers
    First Guaranty Bank and Homestead Bancorp, Inc. (OTC: HSTD.PK), parent company for Homestead Bank, entered into a definitive agreement on January 4, 2007 pursuant to which Homestead Bancorp will be acquired for approximately $13 million in cash. At December 31, 2006, total assets of Homestead Bancorp were $131.5 million, including $71.0 million in total loans and $51.3 million in investment securities. Total deposits at such date were $70.2 million and stockholders’ equity totaled $10.5 million.
    Prior to completion of the acquisition, it is anticipated that First Guaranty Bancshares, Inc., currently a wholly-owned subsidiary of First Guaranty Bank, will become the registered bank holding company of First Guaranty Bank pursuant to a share exchange transaction that has previously been approved by the shareholders of First Guaranty Bank. Following the holding company formation, First Guaranty Bancshares will accomplish the acquisition of Homestead Bancorp by virtue of the merger of a wholly-owned subsidiary of First Guaranty Bancshares with and into Homestead Bancorp.
    Under the terms of the agreement, First Guaranty Bancshares will acquire all of the issued and outstanding shares of common stock of Homestead Bancorp for the cash purchase price of $17.60 per share. In addition, each outstanding and unexercised option to acquire a share of common stock of Homestead Bancorp will be converted into the right to receive cash in an amount equal to $17.60 less the exercise price of such option. The transaction has been approved by the board of directors of First Guaranty Bank, First Guaranty Bancshares and Homestead Bancorp. The acquisition is subject to customary conditions, including the approval of the shareholders of Homestead Bancorp as well as certain bank regulatory authorities in the United States. The merger is expected to close in the second quarter of 2007.

Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    There were no changes in or disagreements with accountants on accounting and financial disclosures for the year ended December 31, 2006.

 Item 9a - Controls and Procedures
    The Bank maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Such controls include those 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.
    The Bank’s Management, with the participation of the CEO and CFO, have evaluated the effectiveness of the Bank’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. 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 annual report are effective. There were no changes in the Bank’s internal control over financial reporting during the last fiscal quarter in the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.


45

Part III

Item 10 - Directors and Executive Officers of the Bank

Directors of the Bank
 
Name
 
Age
Director Since
 
Title
 
Mary A. Allen
66
2003
Founder and co-owner of M. A. Allen Real Estate, Inc. since 1993.
 
F. Fanancy Anzalone, M.D.
71
1976
Engaged in the private practice of medicine since June 1960.
 
Anthony J. Berner, Jr.
54
1997
President of Pon Food Corp., a wholesale food distribution company, since 1984.
 
Collins Bonicard
77
1982
Secretary to the Bank’s board of directors since July 1993.  Independent contractor and building inspector since July 1984.
 
Charles Brister
55
1996
President and owner of Brister’s Rental and Consulting from March 2006 to present. President of Brister’s Design and Manufacturing from 2002 to 2006 and chief executive officer and chairman of Brister Consultant and Investments since 1996. President and chief executive officer of Karts International, Inc. since January 1999, and a director of that company since March 1996.
 
Andrew Gasaway, Jr.
69
1978
President of Gossen, Gasaway, and Holloway, Ltd. architects since May 1973.
 
Daniel P. Harrington
51
1999
President of HTV Industries, Inc., a holding company with manufacturing operations and investments in various industries, since 1991.  Director of Churchill Downs Incorporated since 1998; director of Biopure Corporation since 1999; director of Portec Rail Products, Inc. since 1997; and director of First State Financial Corp. in Sarasota, Florida since March 2000.
 
William K. Hood
56
1977
President of Hood Automotive Group since 1977 and a director of Entergy Louisiana, Inc. since 1987.
 
Edwin L. Hoover, Jr.
62
1994
President of Encore Development Corporation, a real estate investment company, since January 1987.
 
Alton B. Lewis
58
2001
Partner of the law firm of Cashe, Lewis, Coudrain & Sandage and its predecessor firm since January 1989.
 
Morgan S. Nalty
41
2001
Investment banking executive and partner of Johnson Rice & Co., LLC since 1994.
Daniel F. Packer
59
2005
Chairman of the board of Entergy New Orleans since January 2007. President of Entergy New Orleans from 1996 to 2007 and its chief executive officer from 1998 to 2007.  Chairman of the New Orleans Aviation Board for the Louis Armstrong International Airport.  Member of the board of the Louisiana Community and Technical College System and a member of the board of trustees of Loyola University of New Orleans.
 
Marshall T. Reynolds
70
1993
Chairman of the Bank’s board of directors since May 1996 and a director since 1993.  Chairman of the board, president and chief executive officer since 1992 of Champion Industries, Inc., a holding company for commercial printing and office products companies.  Chairman of the board of Premier Financial Bancorp in Huntington, West Virginia since 1996.  Chairman of the board of Portec Rail Products, Inc. in Pittsburgh, Pennsylvania since December 1997, director of Summit State Bank in Santa Rosa, California since December 1998 and director of First State Financial Corp. in Sarasota, Florida since 1999.  From 1964 to present, president and manager of the Harrah and Reynolds Corporation (predecessor of Champion Industries, Inc.).>From 1983 to 1993, chairman of the board of Banc One, The West Virginia Corporation (formerly Key Centurion Bancshares, Inc.).  Mr. Reynolds has served as chairman of The United Way of the River Cities, Inc. and Boys and Girls Club of Huntington.
 
Nicholas A. Saladino
82
1987
Mayor of Town of Kentwood, Louisiana from 1974 to 1986.  Currently retired.
 
Sam P. Scelfo, Jr.
57
1994
President of Gambino’s Bakeries and Caterers, Inc. since 1978.
 
Edgar R. Smith, III
43
2007
President and Chairman of the board of Smitty’s Supply, Inc. since 2001.
 
Michael R. Sharp.
59
2005
The Bank’s president and chief executive officer and director since January 2005 and the Bank’s senior vice president and senior commercial lender from December 1999 to January 2005.  President and chief executive officer of First Southwest Bank in Jennings, Louisiana from November 1997 to December 1999.
 
F. Jay Taylor
83
2001
Labor-Management arbitrator since 1973 and a director of Pizza Inn, Inc. since 1993.  President of Louisiana Tech University from 1962 to 1987.
 
Loy F.Weaver
64
2001
The Bank’s north Louisiana area president and director since January 2001.  President of Woodlands Bancorp, Inc. and First Woodlands Bank from February 1999 to January 2001.  City president of Bank One in Homer, Louisiana from 1996 to 1998.

47

Executive Officers of the Bank
    Set forth below are the names, ages, positions and the year of employment for each of the current executive officers of the Bank. There are no family relationships among these officers nor any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. No persons other than those listed below are Executive Officers of the Bank.

 Name, age, and position        
Served as employee continuously since     
 
 
 Michael R. Sharp, 59
1999 
 President and Chief Executive Officer        
 
 
 
 Loy F. Weaver, 64
2001 
 Area President, North Louisiana
 
 
 
 Michele E.  LoBianco, 39
 1985
 Senior Vice President
 
 Chief Financial Officer
 
 
 
 Barton J. Leader, 40
 2005
 Senior Vice President and
 
 Commercial Lending Division Manager
 
 
 
 
Other Matters
    Section 16(a) of the Exchange Act requires the Bank’s directors, certain officers, and persons who beneficially own more than 10 percent of a registered class of the Bank’s equity securities, to file reports of ownership and changes in ownership with the FDIC. Persons filing such reports are required by regulation to furnish the Bank with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms F-8A (Annual Statement of Changes in Beneficial Ownership) were required, the Bank believes that with respect to the fiscal year ended December 31, 2006, all filing requirements applicable to its officers, directors, and persons who beneficially own more than 10 percent of the Bank’s registered securities were complied with on Form F-8 (Statement of Changes in Beneficial Ownership).

Audit Committee Financial Expert
    The members of the Audit and Examination Committee are William K. Hood, Chairman, Anthony J. Berner, Jr., Collins Bonicard, Edwin L. Hoover, Jr. and Nicholas A. Saladino. The functions of the Bank's Audit and Examination Committee include recommending employment of the Bank's external auditor, serving as a channel of communication between the auditor and regulatory examiners and the Board of Directors, reviewing examinations of the Bank, reviewing the results of each external audit of the Bank, reviewing the Bank's annual financial statements, considering the adequacy of the Bank's internal financial controls, and attending to other matters relating to the appropriate auditing and accounting principles and practices to be used in the operation of the Bank in the preparation of its financial statements. This Committee also supervises the activities of the Internal Auditor and approves the annual program of work. The Audit and Examination Committee does not currently have an “audit committee financial expert” within the meaning of Item 401(h)(2) of SEC Regulation S-K and the Board has not identified any new director candidate who also meets the definition of a financial expert. Although none of the members of the committee qualifies for that designation under the rule, it is the judgment of the Board that the members of the committee are qualified directors to serve on the Audit and Examination Committee. All members of the Audit and Examination Committee are independent directors within the meaning of Rule 4200 of The NASDAQ Stock Market, Inc.

Code of Ethics
    The Bank has adopted a Code of Ethics that applies to all Bank employees as well as all members of the Bank’s Board of Directors. The Bank also has adopted a Code of Ethics related to financial reporting that applies to certain executive officers, the internal auditors and the Chairman of the Board of Directors. Both Codes of Ethics are available on the Bank’s website at www.fgb.net .


48

Item 11 -   Executive Compensation

Compensation of Directors
    Refer to the Bank’s 2006 Proxy Statement.

Compensation of Executive Officers
    The following table sets forth, on an accrual basis, the aggregate cash and non-cash compensation paid by the Bank during the last three fiscal years to the Bank’s Chief Executive Officer and the other Executive Officers who received compensation in excess of $100,000 during the fiscal year ended December 31, 2006.

 
  Summary Compensation Table           
 
 
 
 
 
 
         
  Name and Principal Position
Year
Salary
Bonus 1
All Other Compensation 2
Total  
         
 
 
 
 
 
 
         
 Michael R. Sharp
 2006
 135,000
 12,592
 11,481
 159,074
         
 President and
 2005
 128,050
 12,592
 8,676
 149,318
         
 Chief Executive Officer
 2004
 83,034
 11,693
 5,196
 99,923
         
 
 
 
 
 
 
         
 Loy F. Weaver
 2006
 125,000
 12,400
 35,178
 172,579
         
 Area President, North Louisiana
 2005
 119,583
 12,400
 33,831
 165,814
         
 
 2004
 115,000
 12,208
 34,629
 161,837
         
 
 
 
 
 
 
         
 Michele E. LoBianco
 2006
 109,459
 12,170
 9,420
 131,048
         
 Senior Vice President and
 2005
 108,000
 12,074
 8,910
 128,984
         
 Chief Financial Officer
 2004
 104,334
 12,074
 9,358
 125,766
         
 
 
 
 
 
 
         
 Barton J. Leader, Jr.
 2006
 100,833
 12,112
 2,319
 115,264
         
 Senior Vice President and
 2005
 30,000
 11,728
 351
 42,079
         
 Commercial Lending Division Officer
 2004
 -
 -
 -
 -
         
 
 
 
 
 
 
         
 Michael F. Lofaso 3
 2006
 101,840
 12,016
 8,283
 122,140
         
 Senior Vice President and
 2005
 91,736
 11,885
 7,671
 111,292
         
 Chief Credit Officer
 2004
 83,243
 11,693
 7,787
 102,723
         
 
 
 
 
 
 
         
 
 
 (1) Includes distributions under the company-wide annual bonus which equaled one week’s base salary.
 
 
 (2)   Includes excess group life insurance coverage, employer matching contributions to 401(k) savings plan, and ESOP contributions. Also includes split-dollar life insurance coverage, country club dues and car allowance for Mr. Weaver. Includes employer matching contributions to 401(k) savings plans in the amounts of $4,428, $2,290, and $1,680 for Mr. Sharp, $4,122, $3,900, and $5,724 for Mr. Weaver, $3,649, $3,602, and $5,238 for Mrs. LoBianco, $1,188, $0, and $0 for Mr. Leader, and  $3,023, $3,109, and $4,274 for Mr. Lofaso for the years ended 2006, 2005 and 2004, respectively. Also included are employer ESOP contributions in the amounts of $5,090, 4,331, and $2,179 for Mr. Sharp, $5,242, $4,491, and $3,108 for Mr. Weaver, $4,193, $3,693, and $2,564 for Mrs. LoBianco, $0, $0, and $0 for Mr. Leader and $3,921, $3,187, and $2,183 for Mr. Lofaso for the years ended 2006, 2005 and 2004, respectively.  The amounts shown for Mr. Weaver include a car allowance totaling $8,524, $8,400, and $8,400 each of the years ended 2006, 2005 and 2004. Also includes amounts for Mr. Weaver’s country club dues totaling $2,138, $1,747, and $2,184 during each of the years ended 2006, 2005 and 2004. Also included are premiums paid for excess group life insurance coverage for Mr. Sharp in the amounts of $1,963, $2,055 and $1,340, Mr. Weaver in the amounts of $2,773, $2,913 and $2,833, Mrs. LoBianco in the amounts of $1,578, $1,615, and $1,556 Mr. Lofaso in the amounts of $1,339, $1,376 and $1,330 and Mr. Leader in the amounts of $1,130, $351 and $0 for the years ended 2006, 2005 and 2004, respectively.  Also included for Mr. Weaver are premiums paid for split-dollar life insurance coverage in the amount of $12,380 for the years ended 2006, 2005 and 2004.
 
 
(3)   In February 2007, Mr. Lofaso resigned as senior vice president and chief credit officer.

2006 Stock Option Grants
    No stock options were granted by the Bank in 2006. There are no outstanding options, warrants, or stock appreciation rights.

Employment Contracts, Termination of Employment and Change in Control Arrangements
    The Bank has no employment contracts, termination of employment or change in control arrangements as of December 31, 2006.


49

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Compensation Policies Regarding Executive Officers
    The Executive Committee fulfills the functions of the Compensation Committee and in that capacity reviews annually the salaries and bonuses of the executive officers of the Bank and makes recommendations to the full Board of Directors with respect to salary and bonus amounts to be paid to the executive officers. In making salary and bonus recommendations, the Executive Committee bases its recommendation on past and current performance of those executive officers, the Bank’s performance and current market conditions.
    The Executive Committee, fulfilling the functions of the Compensation Committee, has reviewed and discussed the Compensation Discussion and Analysis with Management and, based on such review, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report filed on Form 10-K. The members of the Executive Committee are listed below:

 Marshall T. Reynolds, Chairman
 Collins Bonicard
 Andrew Gassaway, Jr.
 William K. Hood
 Alton B. Lewis
 Sam P. Scelfo, Jr.
 
Stock Performance Graph
    The line graph below compares the cumulative total return for the Bank’s common stock with the cumulative total return of both the NASDAQ Stock Market Index for U.S. companies and the NASDAQ Index for bank stocks for the period December 31, 2001 through December 31, 2006. The total return assumes the reinvestment of all dividends and is based on a $100 investment on December 31, 2001. It also reflects the stock price on December 31st of each year shown, although this price reflects only a small number of transactions involving a small number of directors of the Bank or their affiliates or associates and cannot be taken as an accurate indicator of the market value of the Bank’s common stock.

Performance Graph
Comparison of Five-Year Cumulative Total Return Among
First Guaranty Bank, NASDAQ Banks, and NASDAQ Stocks

      
 
 
Total Returns for the Year
 
2002
2003
2004
2005
2006  
First Guaranty Bank
$108
$110
$114
$139
$168  
NASDAQ Banks
$121
$158
$175
$168
$186  
NASDAQ Stocks
$  61
$  91
$  99
$101
$110  








50

Item 12 -   Security Ownership of Certain Beneficial Owners, Management and Related Stockholder Matters

Principal Stockholders
The following table sets forth certain information regarding the only persons who, on March 12, 2007 were known by the Bank to own beneficially more than 5% of any class of the outstanding stock of the Bank. Each beneficial owner exercises sole voting and investment power over the shares listed below except as disclosed in the accompanying footnotes. Pursuant to Rule 13d-4 under the Securities Exchange Act of 1934 (the “Exchange Act”), each principal stockholders disclaims beneficial ownership of all shares owned by his spouse, a trust or business entity with which he is affiliated, or of which he acts as custodian.

 
 Name of Beneficial Owner
$1 Par Value 
% of Class $1 Par 
 
 
 
 Daniel P. Harrington
 346,883 1
6.239% 
 30195 Chagrin Blvd, Ste 310-N
 
 
 Pepper Pike, OH 44124
 
 
 
 
 
 Douglas V. Reynolds 2
 325,157
 5.849%
 P.O. Box 4040
 
 
 Huntington, WV 25729
 
 
 
 
 
 Marshall T. Reynolds 3
 1,674,134
30.112% 
 P.O. Box 4040
 
 
 Huntington, WV 25729
 
 
 
1  Includes 337,732 shares owned by TVI Corp. of which Mr. Daniel P. Harrington is President and Director. The Board of Directors of TVI has voting and investment power over such 
   shares. Also includes 5,552 shares owned by Brothers Capital Corp. over which Mr. Harrington has sole voting and investment power and 3,333 shares of which Mr. Harrington is a
   joint owner who has shared voting and investment power over such shares.
2 Mr. Douglas V. Reynolds is the son of Marshall T. Reynolds.
3 Mr. Marshall T, Reynolds is Chairman of the Board.  Includes 31,925 shares owned by R-P Investments, Inc. and 4,000 shares owned by Purple Cap, LLC both of which Mr. Reynolds has shared voting and investment power over such shares. Also includes, 4,133 sharea owned by Champion Leasing Corp., 5,333 shares owned by the Harrah & Reynolds Corporation and 5,000 shares owned by M. T. Reynolds Irrevocable Trust all of which Mr. Reynolds has sole voting and investment power over such shares. Also includes 8,333 shares owned by Mr. Reynolds' wife who exercises sole voting and investment powers over such shares. Also includes 112,000 shares owned by one of Mr. Reynolds' sons (Jack Reynolds) who exercises sole voting and investment powers over such share
 
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES, AND EXECUTIVE OFFICERS
 
    The following table sets forth certain information concerning the beneficial ownership of each class of the Bank's outstanding capital stock by each director, nominee for director and named executive officer of the Bank and by all directors and named executive officers of the Bank as a group as of March 12, 2007. Each director, nominee for director and named executive officer exercises sole voting and investment power over the shares listed below except as disclosed in the accompanying footnotes. Pursuant to Rule 13d-4 under the Exchange Act, each person listed below disclaims beneficial ownership of all shares owned by his or her spouse, a trust or a business entity with which he or she is affiliated, or of which he or she acts as custodian.

51


 
 
 
Name
 
 
 
Title
Number
of Bank
Shares
Owned
 
 
Percent
of
Class
Marshall T. Reynolds 1, 14
Chairman of the Board of Directors
1,674,134
30.112%
 
Michael R. Sharp 2, 14
President and Chief Executive Officer and Director
25,053
0.451%
 
Loy F. Weaver 3, 14
North Louisiana Area President and Director
72,599
1.306%
 
Michele E. LoBianco 4, 14
Senior Vice President and Chief Financial Officer
2,489
0.045%
 
Barton J. Leader, Jr. 14
Senior Vice President and
Commercial Lending Division Officer
 
5,347
0.096%
 
Michael F. Lofaso 15
Senior Vice President and
Chief Credit Officer
 
2,900
0.052%
Mary A. Allen
Director
1,309
0.024%
 
F. Fanancy Anzalone, M.D.
Director
444
0.008%
 
Anthony J. Berner, Jr. 5
Director
5,547
0.100%
 
Collins Bonicard 6
Director
40,000
0.719%
 
Charles Brister 7
Director
10,452
0.188%
 
Andrew Gasaway, Jr.   8
Director
11,301
0.203%
 
Daniel P. Harrington 9
Director
346,883
6.239%
 
William K. Hood 10
Director
112,996
2.032%
 
Edwin L. Hoover, Jr.
Director
20,806
0.374%
 
Alton B. Lewis 11
Director
17,906
0.322%
 
Morgan S. Nalty
Director
20,699
0.372%
 
Daniel F. Packer 12
Director
266
0.005%
 
Nicholas A. Saladino 13
Director
13,333
0.240%
 
Sam P. Scelfo, Jr.
Director
7,066
0.127%
 
Edgar R. Smith, III
 
Director
5,000
0.090%
F. Jay Taylor
Director
12,000
0.216%
 
All directors, nominee for director, and executive officers as a group (21 as a group)
 
2,405,630
43.269%
 


 
  1   Includes 31,925 shares owned by R-P Investments, Inc. and 4,000 shares owned by Purple Cap, LLC, over all of which Mr. Reynolds has       shared voting and investment power. Also includes 4,133 shares owned by Champion Leasing Corp., 5,333 shares owned by the Harrah & Reynolds Corporation and 5,000 shares owned by M. T. Reynolds Irrevocable Trust, over all of which Mr. Reynolds has sole voting and investment power. Also includes 8,333 shares owned by Mr. Reynolds’s wife who exercises sole voting and investment powers over such shares. Also includes 112,000 shares owned by one of Mr. Reynolds’s sons (Jack Reynolds) who exercises sole voting and investment powers over such shares.
 
  2   Includes 53 shares owned by Lakestar Land Company, owned by Mr. Sharp, as to which Mr. Sharp exercises sole voting and investment  power.
 
     
52
 
   3    Includes 3,733 shares owned by Mr. Weaver’s wife who exercises sole voting and investment power over such shares and 6,000 shares owned by DOSL as to which Mr. Weaver exercises sole voting and investment power over such shares.
 
   4.  Includes 488 shares of which Mrs. LoBianco is a joint owner who has shared voting and investment power over such shares.
 
   5   Includes 1,333 shares owned by Mr. Berner’s wife who exercises sole voting and investment power over such shares.
 
   6.   Includes 40,000 shares of which Mr. Bonicard is a joint owner who has shared voting and investment power over such shares.
 
   7  Includes 2,000 shares owned by Mr. Brister’s wife who exercises sole voting and investment power over such shares. Also includes 5,119 shares of which Mr. Brister is a joint owner who has shared voting and investment power over such shares.
 
   8  Includes 1,383 shares owned by Mr. Gasaway’s wife who exercises sole voting and investment power over such shares.
 
   9   Included are 337,732 shares owned by TVI Corp. of which Mr. Daniel P. Harrington is President and Director. The Board of Directors of TVI has voting and investment power over such shares. Also included are 5,552 shares owned by Brothers Capital Corp. over which Mr. Harrington has sole voting and investment power and 3,333 shares of which Mr. Harrington is a joint owner who has shared voting and investment power over such shares.
 
  10   Includes 484 shares of which Mr. Hood is a joint owner who has shared voting and investment power over such shares, 16,539 shares owned by Hood Investments, LLC and 13,834 shares owned by WKH Management, Inc. as to which Mr. Hood exercises sole voting and investment power.
 
  11   Includes 200 shares of which Mr. Lewis is a joint owner who has shared voting and investment power over such shares.
 
  12   Includes 266 shares of which Mr. Packer is a joint owner who has shared voting and investment power over such shares.
 
  13   Includes 13,333 shares of which Mr. Saladino is a joint owner who has shared voting and investment power over such shares.
 
  14  A named executive officer of the Bank.
 
  15  In February 2007, Mr. Lofaso resigned as senior vice president and chief credit officer.

Item 13 - Certain Relationships and Related Transactions

Transactions with Related Parties
    The Bank has had, and expects to have in the future, banking transactions in the ordinary course of business with directors, officers, principal stockholders, and their associates, on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with others and that do not involve more than the normal risk of collectibility or present other unfavorable features.
    At February 28, 2006, the aggregate amount of extensions of credit to directors, executive officers, principal stockholders, and their associates, as a group was $17.0 million (excluding $2.8 million, or 23.4% of total equity capital, in loan participations purchased from affiliated institutions), or approximately 28.0% of total equity capital.
    During the year ended 2006, the Bank paid approximately $633,000 for printing services and supplies and office furniture and equipment to Champion Graphic Communications (or subsidiary companies of Champion Industries, Inc.), of which Mr. Marshall T. Reynolds, a director of the Bank, is President, Chief Executive Officer, Chairman of the Board of Directors, and holder of 41.5% of the capital stock; approximately $896,000 to participate in the Champion Industries, Inc. employee medical benefit plan; and approximately $134,000 to Sabre Transportation, Inc. for travel expenses of the Chairman and other directors. These expenses include, but are not limited to the utilization of an aircraft, fuel, air crew, ramp fees and other expenses attendant to the Bank’s use. The Harrah and Reynolds Corporation, of which Mr. Reynolds is President and Chief Executive Officer and sole shareholder, has a 99% ownership interest in Sabre Transportation, Inc.
    During the year ended 2006, the Bank engaged the services of Cashe, Lewis, Coudrain and Sandage attorneys-at-law, of which Mr. Alton Lewis is a partner, to represent the Bank with certain legal matters. The fees paid by the Bank for these legal services totaled $291,000. Mr. Lewis is a member of the Board of Directors of the Bank.

Item 14 -   Principal Accountant Fees and Services
Refer to the Bank’s 2006 Proxy Statement.


53

Part IV

Item 15 -   Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)
1.
Financial Statements
 
 
 
 
 
 
 
Item
Page
 
 
First Guaranty Bank
 
 
 
Report of Independent Registered Accounting Firm
  25
 
 
Statements of Condition, December 31, 2006 and 2005
  26
 
 
Statements of Income, three years ended December 31, 2006
  27
 
 
Statements of Changes in Stockholders’ Equity, three years ended December 31, 2006
  28
 
 
Statements of Cash Flows, three years ended December 31, 2006
  29
 
 
Notes to Financial Statements
  30
 
 
 
 
 
2.
Financial Statement Schedules
 
 
 
 
 
 
 
Item
 
 
 
First Guaranty Bank
 
 
 
Schedule I – Securities*
 
 
 
Schedule III – Loans*
 
 
 
Schedule IV – Bank Premises and Equipment*
 
 
 
Schedule VI – Allowance for Possible Loan Losses*
 
 
 
*The information required by this item is shown in the Notes to Financial Statements and/or Management’s Discussion and Analysis of Financial Condition and Results of Operation and therefore is not presented in a separate schedule.
 
 
 
 
 
 
3.
Exhibits
 
 
 
 
 
Exhibit Number
 
 
Exhibit
 
 
 
 
 
1
 
Statement regarding computation of earnings per common share
  57
2
 
Statement regarding computation of ratios
  58
3
 
Section 906 Certification of the Sarbanes-Oxley Act
  59
4
 
Section 302 Certification of the Sarbanes-Oxley Act
  61
 
 
 
 
(b)
Reports on Form 8-K
 
 
 
·     All Form 8-K’s required were filed during the year ended December 31, 2006.
 
 
 
 
 
 
 
 
(c)
There are no other financial statements and financial statement schedules which were excluded from Item 8, which are required to be included herein.
 

54

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
FIRST GUARANTY BANK
Dated: March 29, 2006


Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Bank and in the capacities and on the dates indicated.


/s/ Michael R. Sharp
Michael R. Sharp
President and
Chief Executive Officer
March 29, 2007
 
 
 
 
 
 
/s/ Michele E. LoBianco
Michele E. LoBianco
Senior Vice President and
Chief Financial Officer
March 29, 2007
 
 
 
 
 
 
*_________________________________________
Mary Ann Allen
Director
March 29, 2007
 
 
 
 
 
 
*_________________________________________
F. Fanancy Anzalone
Director
March 29, 2007
 
 
 
 
 
 
*_________________________________________
Anthony J. Berner
Director
March 29, 2007
 
 
 
 
 
 
*_________________________________________
Collins Bonicard
Director
March 29, 2007
 
 
 
 
 
 
*_________________________________________
Charles Brister
Director
March 29, 2007
 
 
 
 
 
 
*_________________________________________
Andrew Gasaway, Jr.
Director
March 29, 2007
 
 
 
 
 
 
*_________________________________________
Daniel P. Harrington
Director
March 29, 2007
 
 
 
 
 
 
*_________________________________________
William K. Hood
Director
March 29, 2007
 
 
 
 
 
 
*_________________________________________
Edwin L. Hoover, Jr.
Director
March 29, 2007
 
 
 
 
 
 
 
 
*_______________________________________
Alton B. Lewis
Director
March 29, 2007
 
 
 
 
 
 
 
 
 
*_______________________________________
Morgan S. Nalty
Director
March 29, 2007
 
 
 
 
 
 
 
 
 
*_______________________________________
Daniel F. Packer
Director
March 29, 2007
 
 
 
 
 
 
 
 
 
*_______________________________________
Marshall T. Reynolds
Director
March 29, 2007
 
 
 
 
 
 
 
 
 
*_________________________________________
Nicholas A. Saladino
Director
March 29, 2007
 
 
 
 
 
 
 
 
 
*_________________________________________
Sam P. Scelfo, Jr.
Director
March 29, 2007
 
 
 
 
 
 
 
 
 
*_________________________________________
F. Jay Taylor
Director
March 29, 2007
 
 
 
 
 
 
 
 
 
*_________________________________________
Loy F. Weaver
Director
March 29, 2007
 


 
 
 *By:
 /s/ Michael R. Sharp
 
 
 Michael R. Sharp
 
 
 Under Power of Attorney

56

EXHIBIT 1
 
STATEMENT REGARDING COMPUTATION OF EARNING

LOGO  
FIRST GUARANTY BANK

 
Net income per share has been computed by dividing net income reduced by the weighted average number of shares outstanding for each year presented. Shares of the Bank’s common stock, both $1 par and $5 par have the same privileges, restrictions, and rights, including voting and dividend rights.


57

EXHIBIT 2

STATEMENT REGARDING COMPUTATION OF RATIOS

LOGO  
FIRST GUARANTY BANK

Return on average assets has been computed by dividing net income for each period presented by average total assets for the respective period.

Return on average equity has been computed by dividing net income for each period presented by average Stockholders’ equity for the respective period.

Dividend payout has been computed by dividing the cash dividends paid per share of common stock by net income per share for the respective period.

Leverage ratio is a ratio of equity to assets, defined as period end Tier I capital as a percent of average assets for the recent quarter adjusted for core deposit intangible and unrealized gain and losses on securities available for sale.

Book Value per common share is common shareholders equity divided by common shares outstanding.

Efficiency ratio is computed by dividing noninterest expense by taxable equivalent net interest income plus noninterest income, excluding securities gains (losses); this ratio measures the cost to generate revenue.

58

EXHIBIT 3


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002






In connection with the Annual Report of First Guaranty Bank (the “Bank”) on Form 10-K as of and for the year ended December 31, 2006 as filed with the Federal Deposit Insurance Corporation on the date hereof (the “Report”), I, Michael R. Sharp, President and Chief Executive Officer of the Bank, certify, pursuant to 18 U.S.C. SS 1350, as adopted pursuant to SS 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Bank.








/s/ Michael R. Sharp
Michael R. Sharp
President and Chief Executive Officer
March 29, 2007




59

EXHIBIT 3


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002






In connection with the Annual Report of First Guaranty Bank (the “Bank”) on Form 10-K as of and for the year ended December 31, 2006 as filed with the Federal Deposit Insurance Corporation on the date hereof (the “Report”), I, Michele E. LoBianco, Chief Financial Officer of the Bank, certify, pursuant to 18 U.S.C. SS 1350, as adopted pursuant to SS 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Bank.










/s/ Michele E. LoBianco
Michele E. LoBianco
Senior Vice President and
Chief Financial Officer
March 29, 2007

















60




EXHIBIT 4


CERTIFICATION OF DISCLOSURE
FOR THE CHIEF EXECUTIVE OFFICER



I, Michael R. Sharp, President and Chief Executive Officer of First Guaranty Bank hereby certify that:


1.  
I have reviewed this annual report being filed on Form 10-K of First Guaranty Bank;

2.  
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;

3.  
Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Bank as of, and for, the periods presented in the report;

4.  
I and the other certifying officers are responsible for establishing and maintaining disclosure controls and procedures for the Bank and have:

a.  
Designed such disclosure controls and procedures to ensure that material information relating to the Bank is made known to us, particularly during the period in which this annual report is being prepared;
b.  
Evaluated the effectiveness of the Bank’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the evaluation date); and

c.  
Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of the evaluation date;

5.  
I and the other certifying officers have disclosed, based on our most recent evaluation, to the Bank’s auditors and the audit committee of the Board of Directors:

a.  
All significant deficiencies in the design or operation of internal controls which could adversely affect the Bank’s ability to record, process, summarize and report financial data and have identified for the Bank’s auditors any material weaknesses in internal controls; and
b.  
Any fraud, whether or not material, that involves Management or other employees who have a significant role in the Bank’s internal controls; and

6.  
I and the other certifying officers have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



/s/ Michael R. Sharp
Michael R. Sharp
President and Chief Executive Officer
March 29, 2007



61



EXHIBIT 4


CERTIFICATION OF DISCLOSURE
FOR THE CHIEF FINANCIAL OFFICER

I, Michele E. LoBianco, Senior Vice President and Chief Financial Officer of First Guaranty Bank hereby certify that:


1.  
I have reviewed this annual report being filed on Form 10-K of First Guaranty Bank;

2.  
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;

3.  
Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Bank as of, and for, the periods presented in the report;

4.  
I and the other certifying officers are responsible for establishing and maintaining disclosure controls and procedures for the Bank and have:

a.  
Designed such disclosure controls and procedures to ensure that material information relating to the Bank is made known to us, particularly during the period in which this annual report is being prepared;
b.  
Evaluated the effectiveness of the Bank’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the evaluation date); and

c.  
Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of the evaluation date;

5.  
I and the other certifying officers have disclosed, based on our most recent evaluation, to the Bank’s auditors and the audit committee of the Board of Directors:

a.  
All significant deficiencies in the design or operation of internal controls which could adversely affect the Bank’s ability to record, process, summarize and report financial data and have identified for the Bank’s auditors any material weaknesses in internal controls; and
b.  
Any fraud, whether or not material, that involves Management or other employees who have a significant role in the Bank’s internal controls; and

6.  
I and the other certifying officers have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


/s/ Michele E. LoBianco
Michele E. LoBianco
Senior Vice President and
Chief Financial Officer
March 29, 2007





62

 

 

 


                                                                                                           EXHIBIT 99.2
 

FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
    _____________________________________________
 
 
 
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
For the Quarter Ended March 31, 2007
 
Certificate Number 14028
 
 
 
LOGO
FIRST GUARANTY BANK
(Exact name of registrant as specified in its charter)
 
 
 
 


 
 
 
Louisiana
 
72-0201420
(State or other jurisdiction of incorporation or
organization )
 
(I.R.S. EmployerIdentification Number)
 
 
 
 
400 East Thomas Street
Hammond, Louisiana
 
70401
(Address of principal executive office)
 
(Zip Code)
 
 
 
 
( 985) 345-7685
(Telephone number, including area code)
_____________________________________________
 
 
Securities registered pursuant to Section 12(B) of the Act:
None
 _____________________________________________
                
Securities registered pursuant to Section 12(G) of the Act:
 
 
Title of each class
 
Name of each exchange
on which registered
Common Stock, $1 par value per share
 
None
 
_____________________________________________
 
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [ ]      
    Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). 
Yes [ ]  No [X]
    As of March 31, 2007, 5,559,644 shares of $1 par value common stock were issued and outstanding.
 
 

ADDITIONAL INFORMATION

FIRST GUARANTY BANK (the "Bank") is subject to the informational requirements of the Securities Exchange Act of 1934 and in accordance therewith files periodic reports, proxy statements and other information with the Federal Deposit Insurance Corporation (the "FDIC"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the FDIC at 550 Seventeenth Street, N.W., Washington, DC 20429. Copies of such material can be obtained by mail from the Public Reference Branch of the FDIC at 550 Seventeenth Street, N.W., Washington, DC 20429 at prescribed rates.
 
2
PART I.      FINANCIAL INFORMATION
Item 1.
Financial Statements
 
STATEMENTS OF CONDITION
 
 
 
 
 
 
(in thousands, except share data)
 
 
 
 
 
 
 
 
March 31,
 
December 31,
 
 
2007
 
2006
Assets
 
(unaudited)
 
 
Cash and cash equivalents:
 
 
 
 
 
 
  Cash and due from banks
 
 
$  20,889
 
 
 
$  17,893
 
  Interest-bearing demand deposits with banks
 
 
67
 
 
 
131
 
  Federal funds sold
 
 
11,938
 
 
 
6,793
 
    Cash and cash equivalents
 
 
32,894
 
 
 
24,817
 
 
 
 
 
 
 
 
 
 
Interest-bearing time deposits with banks
 
 
2,188
 
 
 
2,188
 
 
 
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
 
 Available for sale, at fair value
 
 
122,761
 
 
 
111,353
 
 Held to maturity, at cost (estimated fair value of
 
 
 
 
 
 
 
 
   $45,858 and $45,614, respectively)
 
 
46,856
 
 
 
46,999
 
  Investment securities
 
 
169,617
 
 
 
158,352
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank stock, at cost
 
 
1,360
 
 
 
2,264
 
Loans held for sale
 
 
1,487
 
 
 
1,049
 
 
 
 
 
 
 
 
 
 
Loans, net of unearned income
 
 
503,729
 
 
 
507,195
 
Less: allowance for loan losses
 
 
6,736
 
 
 
6,675
 
  Net loans
 
 
496,993
 
 
 
500,520
 
 
 
 
 
 
 
 
 
 
Intangible assets, net
 
 
425
 
 
 
456
 
Premises and equipment, net
 
 
13,672
 
 
 
13,593
 
Other real estate, net
 
 
1,142
 
 
 
2,540
 
Accrued interest receivable
 
 
6,012
 
 
 
5,378
 
Other assets
 
 
2,800
 
 
 
3,330
 
  Total Assets
 
 
$728,590
 
 
 
$714,487
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
  Noninterest-bearing demand
 
 
$124,235
 
 
 
$122,540
 
  Interest-bearing demand
 
 
203,146
 
 
 
185,308
 
  Savings
 
 
39,868
 
 
 
41,161
 
  Time
 
 
277,047
 
 
 
277,284
 
    Total deposits
 
 
644,296
 
 
 
626,293
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
 
 
6,846
 
 
 
6,584
 
Accrued interest payable
 
 
3,404
 
 
 
3,070
 
Long-term borrowings
 
 
10,453
 
 
 
17,984
 
Other liabilities
 
 
2,300
 
 
 
1,353
 
  Total Liabilities
 
 
667,299
 
 
 
655,284
 
 
 
 
 
 
 
 
 
 
Stockholders' Equity
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
  $1 par value - authorized 100,000,000 shares; issued and
 
 
 
 
 
 
 
 
    outstanding 5,559,644 shares
 
 
5,560
 
 
 
5,560
 
  $5 par value - authorized 600,000 shares; no shares issued
 
 
 
 
 
 
 
 
    and outstanding
 
 
-
 
 
 
-
 
Surplus
 
 
26,459
 
 
 
26,459
 
Retained earnings
 
 
29,746
 
 
 
28,089
 
Accumulated other comprehensive loss
 
 
(474
)
 
 
(905
)
  Total Stockholders' Equity
 
 
61,291
 
 
 
59,203
 
    Total Liabilities and Stockholders' Equity
 
 
$728,590
 
 
 
$714,487
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 
3
 
STATEMENTS OF INCOME
 
 
 
 
 
 
(unaudited, in thousands, except shares and per share data)
 
 
 
 
 
 
 
 
Three Months
 
 
Ended March 31,
 
 
2007
 
2006
Interest Income:
 
 
 
 
 
 
  Loans (including fees)
 
 
$10,501
 
 
 
$9,363
 
  Loans held for sale
 
 
16
 
 
 
7
 
  Deposits with other banks
 
 
23
 
 
 
23
 
  Securities (including FHLB stock)
 
 
2,302
 
 
 
2,373
 
  Federal funds sold
 
 
119
 
 
 
20
 
    Total Interest Income
 
 
12,961
 
 
 
11,786
 
 
 
 
 
 
 
 
 
 
Interest Expense:
 
 
 
 
 
 
 
 
  Demand deposits
 
 
1,659
 
 
 
1,216
 
  Savings deposits
 
 
50
 
 
 
35
 
  Time deposits
 
 
3,107
 
 
 
2,593
 
  Borrowings
 
 
274
 
 
 
332
 
    Total Interest Expense
 
 
5,090
 
 
 
4,176
 
 
 
 
 
 
 
 
 
 
Net Interest Income
 
 
7,871
 
 
 
7,610
 
Provision for loan losses
 
 
187
 
 
 
830
 
Net Interest Income after Provision for Loan Losses
 
 
7,684
 
 
 
6,780
 
 
 
 
 
 
 
 
 
 
Noninterest Income:
 
 
 
 
 
 
 
 
  Service charges, commissions and fees
 
 
882
 
 
 
822
 
  Net losses on sale of securities
 
 
(66
)
 
 
-
 
  Net gains on sale of loans
 
 
38
 
 
 
20
 
  Other
 
 
289
 
 
 
293
 
    Total Noninterest Income
 
 
1,143
 
 
 
1,135
 
 
 
 
 
 
 
 
 
 
Noninterest Expense:
 
 
 
 
 
 
 
 
  Salaries and employee benefits
 
 
2,280
 
 
 
1,921
 
  Occupancy and equipment expense
 
 
620
 
 
 
611
 
  Net cost from other real estate & repossessions
 
 
266
 
 
 
60
 
  Other
 
 
1,864
 
 
 
1,963
 
    Total Noninterest Expense
 
 
5,030
 
 
 
4,555
 
 
 
 
 
 
 
 
 
 
Income Before Income Taxes
 
 
3,797
 
 
 
3,359
 
Provision for income taxes
 
 
1,308
 
 
 
1,150
 
Net Income
 
 
$ 2,489
 
 
 
$2,209
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Common Share:
 
 
 
 
 
 
 
 
  Earnings
 
 
$0.45
 
 
 
$0.40
 
  Cash dividends paid
 
 
$0.15
 
 
 
$0.15
 
 
 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
5,559,644
 
 
 
5,559,644
 
 
 
 
 
 
 
 
 
 
See Notes to Financial Statements
 
 
 
 
 
 
 
 
 
4
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
Common
 
 
Common
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
Stock
 
 
Stock
 
 
 
 
 
Retained
 
 
Comprehensive
 
 
 
 
 
 
$1 Par
 
 
$5 Par
 
 
Surplus
 
 
Earnings
 
 
Loss
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2005
 
 
$5,076
 
 
 
$2,416
 
 
 
$24,527
 
 
 
$22,622
 
 
 
($   718
)
 
 
$53,923
 
Net income
 
 
-
 
 
 
-
 
 
 
-
 
 
 
2,209
 
 
 
-
 
 
 
2,209
 
Change in unrealized loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  on available for sale securities,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  net of reclassification adjustments and    taxes
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(723
)
 
 
(723
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,486
 
Cash dividends on common stock ($0.15 per share)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(833
)
 
 
-
 
 
 
(833
)
Balance March 31, 2006 (unaudited)
 
 
$5,076
 
 
 
$2,416
 
 
 
$24,527
 
 
 
$23,998
 
 
 
($1,441
)
 
 
$54,576
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2006
 
 
$5,560
 
 
 
$    -
 
 
 
$26,459
 
 
 
$28,089
 
 
 
($   905
)
 
 
$59,203
 
Net income
 
 
-
 
 
 
-
 
 
 
-
 
 
 
2,489
 
 
 
-
 
 
 
2,489
 
Change in unrealized loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  on available for sale securities,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  net of reclassification adjustments and taxes
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
431
 
 
 
431
 
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,920
 
Cash dividends on common stock ($0.15 per share)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(832
)
 
 
-
 
 
 
(832
)
Balance March 31, 2007 (unaudited)
 
 
$5,560
 
 
 
$    -
 
 
 
$26,459
 
 
 
$29,746
 
 
 
($   474
)
 
 
$61,291
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
 
 
 
 
 
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
 
2007
 
2006
Cash Flows From Operating Activities
 
 
 
 
 
 
Net income
 
 
$  2,489
 
 
 
$  2,209
 
Adjustments to reconcile net income to net cash
 
 
 
 
 
 
 
 
  provided by operating activities:
 
 
 
 
 
 
 
 
    Provision for loan losses
 
 
187
 
 
 
830
 
    Depreciation and amortization
 
 
6
 
 
 
406
 
    Loss (gain) on sale of securities
 
 
66
 
 
 
-
 
    Gain on sale of assets
 
 
(38
)
 
 
(16
)
    ORE writedowns and (gain) loss on disposition
 
 
202
 
 
 
19
 
    FHLB stock dividends
 
 
(34
)
 
 
(20
)
    Net (increase) decrease in loans held for sale
 
 
(438
)
 
 
(121
)
    Change in other assets and liabilities, net
 
 
972
 
 
 
(532
)
Net Cash Provided By Operating Activities
 
 
  3,412
 
 
 
  2,775
 
 
 
 
 
 
 
 
 
 
Cash Flows From Investing Activities
 
 
 
 
 
 
 
 
Proceeds from maturities and calls of HTM securities
 
 
140
 
 
 
157
 
Proceeds from maturities, calls and sales of AFS securities
 
 
131,983
 
 
 
80
 
Funds invested in AFS securities
 
 
(142,541
)
 
 
(4,250
)
Proceeds from sale of Federal Home Loan Bank stock
 
 
938
 
 
 
-
 
Funds invested in Federal Home Loan Bank stock
 
 
-
 
 
 
(607
)
Net decrease (increase) in loans
 
 
3,027
 
 
 
(2,911
)
Purchase of premises and equipment
 
 
(292
)
 
 
(194
)
Proceeds from sales of other real estate owned
 
 
1,508
 
 
 
386
 
Net Cash Used In Investing Activities
 
 
(5,237
)
 
 
(7,339
)
 
 
 
 
 
 
 
 
 
Cash Flows From Financing Activities
 
 
 
 
 
 
 
 
Net increase (decrease) in deposits
 
 
18,003
 
 
 
(18,123
)
Net increase in federal funds purchased and short-term borrowings
 
 
262
 
 
 
18,506
 
Repayment of long-term borrowings
 
 
(7,531
)
 
 
(1,056
)
Dividends paid
 
 
(832
)
 
 
(833
)
Net Cash Provided By (Used In) Financing Activities
 
 
9,902
 
 
 
(1,506
)
 
 
 
 
 
 
 
 
 
Net Increase (Decrease) In Cash and Cash Equivalents
 
 
8,077
 
 
 
(6,070
)
Cash and Cash Equivalents at the Beginning of the Period
 
 
24,817
 
 
 
28,451
 
Cash and Cash Equivalents at the End of the Period
 
 
$ 32,894
 
 
 
$ 22,381
 
 
 
 
 
 
 
 
 
 
Noncash Activities:
 
 
 
 
 
 
 
 
  Loans transferred to foreclosed assets
 
 
$      313
 
 
 
$  1,988
 
 
 
 
 
 
 
 
 
 
Cash Paid During The Period:
 
 
 
 
 
 
 
 
  Interest on deposits and borrowed funds
 
 
$   4,756
 
 
 
$  3,752
 
  Income taxes
 
 
$      200
 
 
 
$  1,800
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Financial Statements
 
 
 
 
 
 
 
 
 
6

NOTES TO FINANCIAL STATEMENTS

1. Basis of Presentation
The accompanying unaudited 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. These financial statements and the footnotes thereto should be read in conjunction with the annual financial statements for the year ended December 31, 2006.
In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary for a fair presentation of the financial statements. Those adjustments are of a normal recurring nature. The results of operations for the three-month period ended March 31, 2007 are not necessarily indicative of the results expected for the full year.

2. Loans and Allowance for Loan Losses
                Loans at March 31, 2007 (unaudited) and December 31, 2006 were as follows:

 
 
March 31,
 
December 31,
 
 
2007
 
2006
 
 
(in thousands)
 
 
 
 
 
 
 
Real estate
 
 
$397,384
 
 
 
$413,319
 
Agricultural
 
 
17,778
 
 
 
16,359
 
Commerical and industrial
 
 
70,391
 
 
 
59,072
 
Consumer and other
 
 
18,560
 
 
 
18,880
 
  Total loans before unearned income
 
 
504,113
 
 
 
507,630
 
Less: unearned income
 
 
(384
)
 
 
(435
)
  Total loans after unearned income
 
 
$503,729
 
 
 
$507,195
 
 
 
 
 
 
 
 
 
 
 
Changes in the allowance for loan losses for the three months ended March 31, 2007 (unaudited) and the year ended December 31, 2006 are as follows:

 
 
March 31,
 
December 31,
 
 
2007
 
2006
 
 
(in thousands)
 
 
 
 
 
 
 
 
Balance beginning of period
 
 
$6,675
 
 
 
$7,597
 
Provision charged to expense
 
 
187
 
 
 
4,419
 
Loans charged off
 
 
(239
)
 
 
(5,888
)
Recoveries
 
 
113
 
 
 
547
 
  Allowance for loan losses
 
 
$6,736
 
 
 
$6,675
 
 
 
 
 
 
 
 
 
 
The allowance for loan losses increased $61,000 in the first quarter of 2007, ending at $6.7 million. In the first three months of 2007, an $187,000 provision was charged to expense to provide for current loan losses and to maintain the allowance at an adequate level commensurate with Management’s evaluation of the risks inherent in the loan portfolio. Loans charged off during 2007 totaled $239,000 with recoveries of $113,000.

3. Mortgage Loans
In 2005, the Bank discovered mortgage loans and commitments originated in one branch which involved irregularities that suggest that many of these mortgage loans had been made against overvalued collateral on the basis of misleading loan applications. As of December 31, 2006 the aggregate principal balance on these loans was approximately $2.5 million. The allowance for loan losses to provide for any potential future losses relating to these 11 remaining home mortgage loans totaled $206,000. For the year ended December 31, 2006, the Bank charged off approximately $4.6 million as a result of these mortgage loans. As of March 31, 2007 the aggregate principal balance on these loans was approximately $1.8 million. At March 31, 2007, the Bank allocated $206,000 of the $6.7 million allowance for loan losses in order to provide for potential losses relating to the four remaining home mortgage loans.
 
7
 
4. Income Taxes
On January 1, 2007, the Bank adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN48”).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting for Income Taxes , and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Bank does not believe it has any unrecognized tax benefits included in its financial statements. The Bank has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations.
The Bank recognizes interest and penalties accrued related to unrecognized tax benefits in noninterest expense. During the quarters ended March 31, 2007 and 2006, the Bank has not recognized any interest or penalties in its financial statements, nor has it recorded an accrued liability for interest or penalty payments.
At this time, no tax years are under examination. With few exceptions, the bank is no longer subject to U.S. federal, state or local income tax examinations for years before 2003.
 
5. Recent Accounting Pronouncements
                In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . This Statement defines fair value, established a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurement.  The Statement is effective for the financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Bank anticipates that the adoption of SFAS No. 157 will not have a material impact on the Bank’s financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . SFAS No. 159 provides the Bank with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements to facilitate reporting between companies.  The fair value option established by this Statement permits the Bank to choose to measure eligible items at fair value at specified election dates.  The Bank shall then 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 Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  The Bank is currently evaluating the effect the standard will have on its results of operations and financial condition.
 
6. Bank Mergers
First Guaranty Bank and Homestead Bancorp, Inc. (OTC: HSTD.PK), parent company for Homestead Bank, entered into a definitive agreement on January 4, 2007 pursuant to which Homestead Bancorp will be acquired for approximately $13 million in cash. At December 31, 2006, total assets of Homestead Bancorp, Inc. were $131.5 million, including $71.0 million in total loans and $51.3 million in investment securities. Total deposits at such date were $70.2 million and stockholders’ equity totaled $10.5 million.
Prior to completion of the acquisition, it is anticipated that First Guaranty Bancshares, Inc., currently a wholly-owned subsidiary of First Guaranty Bank, will become the registered bank holding company of First Guaranty Bank pursuant to a share exchange transaction that has previously been approved by the shareholders of First Guaranty Bank. Following the holding company formation, First Guaranty Bancshares will accomplish the acquisition of Homestead Bancorp by virtue of the merger of a wholly-owned subsidiary of First Guaranty Bancshares with and into Homestead Bancorp.
Under the terms of the agreement, First Guaranty Bancshares will acquire all of the issued and outstanding shares of common stock of Homestead Bancorp for the cash purchase price of $17.60 per share. In addition, each outstanding and unexercised option to acquire a share of common stock of Homestead Bancorp will be converted into the right to receive cash in an amount equal to $17.60 less the exercise price of such option. The transaction has been approved by the board of directors of First Guaranty Bank, First Guaranty Bancshares and Homestead Bancorp. The acquisition is subject to customary conditions, including the approval of the shareholders of Homestead Bancorp as well as certain bank regulatory authorities in the United States. The merger is expected to close in the second quarter of 2007.
 
7. Holding Company
On March 16, 2007, First Guaranty Bank submitted an Application to the Board of Governors of the Federal Reserve System filed on Form FR Y-3. This Application requests permission to form a bank holding company with respect to First Guaranty Bank, Hammond, Louisiana. The holding company seeks to acquire 100% of the shares of First Guaranty Bank, thereby becoming a one bank holding company. All shareholders of First Guaranty Bank will become shareholders of the holding company. The acquisition will be accomplished by means of a share exchange under the Louisiana Banking Law and the Louisiana Business Corporation Law, pursuant to which, having received the requisite vote of the shareholders of the Bank, the outstanding shares of the Bank will be exchanges for shares of the holding company on a share for share basis.
 
8
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 Bank's financial condition and results of operations presented in the 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 financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data for the three months ended March 31, 2007 and 2006 have been derived from unaudited financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly the Bank's financial position and results of operations for such periods.

First Quarter of 2007 Overview

First Guaranty Bank is a commercial bank headquartered in Hammond, Louisiana with 16 branch offices located in southeast, southwest and north Louisiana. The Bank offers a range of lending services, including commercial business, real estate and consumer loans to businesses, individuals and other organizations located throughout our markets. We complement our lending operations with an array of retail deposit products and fee-based services to support our clients. While offering our customers the breadth of products typically found at larger institutions, we employ a community banking strategy that emphasizes local decision-making authority and superior customer service. We believe our focus on customer relationships allows us to compete effectively within our markets and provides us a competitive advantage as we expand both within our existing markets and into new markets.
Financial highlights for the first quarter of 2007 are as follows:
 
w
Net income for the first quarter of 2007 and 2006 was $2.5 million and $2.2 million with earnings per common share of $0.45 and $0.40, respectively.
w
Net interest income for the first quarter of 2007 and 2006 was $7.9 million and $7.6 million, respectively. The net yield on interest-earning assets increased to 4.7% for the three month period ended March 31, 2007 compared to 4.6% for the same period ended March 31, 2006.
 
The provision for loan losses was $187,000.00 for the first quarter of 2007 and $830,000.00 fro the first quarter of 2006.  The decrease in the provision from 2006 to 2007 is primarily attributable to additional reserves in 2006 for home mortgage loans that appear to involve some irregularities.  See Footnote 3 for additional information.
w
Noninterest income for the first quarter of 2007 was $1.1 million, relatively flat when compared to the first quarter of 2006 which was also $1.1 million.
w
Noninterest expense for the first quarter of 2007 was $5.0 million, up $475,000 when compared to the first quarter of 2006. The increase is the result of increases in salaries and employee benefits and in net costs from other real estate.
w
Total assets at March 31, 2007 were $728.6 million, up $14.1 million from $714.5 million at December 31, 2006.
w
Loans, net of unearned income at March 31, 2007 were $503.7 million, down $3.5 million from $507.2 million at December 31, 2006.
w
Other real estate decreased to $1.1 million at March 31, 2007, down $1.4 million from December 31, 2006 as a result of liquidation of the home mortgage loans discussed in Note 3.
w
Total deposits were $644.3 million at March 31, 2007, up 2.9% or $18.0 million from December 31, 2006.
w
Return on average assets for the three month periods ended March 31, 2007 and 2006 were 1.33% and 1.26%, respectively and return on average equity for the same periods were 16.58% and 16.26%.
w
The Bank is still considered “well capitalized” with a leverage ratio of 8.47% at March 31, 2007 compared to 8.16% at December 31, 2006.

Material Changes in Financial Condition

Securities
The securities portfolio totaled $169.6 million at March 31, 2007 compared to $158.4 million as of December 31, 2006. The portfolio consisted principally of U.S. Government Agencies, mortgage-backed obligations, collateralized mortgage obligations, corporate debt securities, mutual funds or other equity securities and other debt securities. The portfolio provides the Bank with a relatively stable source of income and provides a balance to interest rate and credit risks as compared to other categories of the balance sheet.
9
    At March 31, 2007, 24.4% of the Bank’s securities (excluding FHLB stock) mature in less than one year, securities with maturity dates over 15 years totaled 6.6% of the portfolio and the average maturity of the securities portfolio was 5.96 years.
As of March 31, 2007, securities totaling $122.8 million were classified as available for sale and $46.9 million were classified as held to maturity compared to $111.4 million and $47.0 million, respectively as of December 31, 2006.
Management periodically assesses the quality of the Bank’s investment holdings using procedures similar to those used in assessing the credit risks inherent in the loan portfolio. At March 31, 2007, it is management’s opinion that the Bank held no investment securities which bear greater than the normal amount of credit risk as compared to similar investments and that no securities were recorded at greater than their recoverable value.
Average securities as a percentage of average interest-earning assets were 24.6% as of March 31, 2007 and 26.2% for the same period ended March 31, 2006. All securities held by the Bank at March 31, 2007 qualified as pledgeable securities, except $8.5 million of debt securities and $1.5 million of equity securities. Securities pledged to public fund deposits at March 31, 2007 totaled $159.3 million. Public fund deposits ended at $187.8 million as of March 31, 2007.

 Loans
Loans are the Bank’s primary use of the Bank’s financial resources and represent the largest component of earning assets. There are no significant concentrations of credit to any borrower or industry. A significant portion of the portfolio is secured primarily by real estate and the portfolio remains highly diversified.
The Bank’s loan portfolio at March 31, 2007 totaled $503.7 million, a decrease of approximately $3.5 million from the December 31, 2006 level of $507.2 million. Loans represented 78.2% of deposits at March 31, 2007 compared to 81.0% of deposits at December 31, 2006. Fixed rate loans decreased from $247.2 million or 48.74% of the total loan portfolio at the end of 2006 to $237.9 million or 47.23% of the total loan portfolio as of March 31, 2007. Loan charge-offs totaling $239,000 were taken during the first three months of 2007 compared to $346,000 during the same period of 2006. The Bank had recoveries of $113,000 and $279,000 during the first three month period of 2007 and 2006, respectively. The decreases in charge offs are primarily related to the liquidation of the home mortgage loans discussed in Note 3.

Deposits
Managing the mix and repricing the maturities of deposit liabilities is an important factor affecting the Bank’s ability to maximize its 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 of the Bank regularly assesses its funding needs, deposit pricing and interest rate outlooks.
From December 31, 2006 to March 31, 2007, the Bank’s total deposits increased $18.0 million. Interest-bearing deposits increased by $16.3 million and noninterest-bearing deposits increased $1.7 million. Of this deposit increase, $13.9 million was from an increase in public fund deposits primarily in NOW public fund accounts. Personal and business deposits increased $4.1 million.
Average noninterest-bearing deposits decreased to $118.3 million as of March 31, 2007 from $128.2 million as of March 30, 2006. Average noninterest-bearing deposits represented 18.6% and 20.6% of average total deposits as of March 31, 2007 and 2006, respectively.
As the Bank endeavors to maintain a strong net interest margin and improve earnings, attracting core noninterest-bearing deposits will remain a primary emphasis. Management will continue to evaluate and update the Bank’s product mix in its efforts to attract additional core customers. The Bank currently offers a number of noninterest-bearing deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on core deposits.

Borrowings
The Bank maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank (“FHLB”) on a short- and long-term basis to meet its liquidity needs. The average amount of borrowings as of March 31, 2007 was $20.6 million compared to $31.7 million as of March 30, 2006. As of March 31, 2007, the Bank also had $45.0 million in FHLB letters of credit outstanding obtained solely for collateralizing public deposits.

Equity
Total equity increased to $61.3 million as of March 31, 2007 from $59.2 million as of December 31, 2006. The increase in stockholders’ equity primarily results from 2007 year to date net income of $2.5 million plus $0.4 million for the change in unrealized loss on available for sale securities, less $0.8 million in quarterly dividend payments. Cash dividends paid were $0.15 for the three month periods ending March 31, 2007 and 2006, respectively.
10
 
Credit Risk Management
Credit risk is inherent in each financial institution's loan and investment portfolio. In an effort to minimize credit risk, the Bank utilizes an extensive credit administration network, including specific lending authorities for each loan officer, a system of loan committees to review and approve loans, an appraisal ordering and review function and an internal loan review and credit quality rating system. This network assists in the evaluation of the quality of new loans and in the early identification of problem or potential problem credits and provides information to aid management in determining the adequacy of the allowance for loan losses.

    Provision and Allowance for Loan Losses
     The Bank maintains its allowance for loan losses at a level it considers sufficient to absorb potential losses embedded in the loan portfolio. The allowance is increased by the provision for anticipated loan losses as the well as recoveries of previously charged-off loans and is decreased by loan chargeoffs. The provision is the necessary charge to current expense to provide for current loan losses and to maintain the allowance at an adequate level commensurate with Management's evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when the Bank determines the amount of the provision and the adequacy of the allowance. These factors include but are not limited to:
*   Past due and nonperforming assets;
*   Specific internal analysis of loans requiring special attention;
*   The current level of regulatory classified and criticized assets and the associated risk factors with
  each;
*   Changes in underwriting standards or lending procedures and policies;
*   Chargeoff and recovery practices;
*   National and local economic and business conditions;
*   Nature and volume of loans;
*   Overall portfolio quality;
*   Adequacy of loan collateral;
*   Quality of loan review system and degree of oversight by its Board of Directors;
*   Competition and legal and regulatory requirements on borrowers;
*   Examinations and review by the Bank's internal loan review department, independent accountants
        and third-party independent loan review personnel; and
 *   Examinations of the loan portfolio by federal and state regulatory agencies.

    The data collected from all sources in determining the adequacy of the allowance is evaluated on a regular basis by Management with regard to current national and local economic trends, prior loss history, underlying collateral values, credit concentrations and industry risks. An estimate of potential loss on specific loans is developed in conjunction with an overall risk evaluation of the total loan portfolio. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.
    The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect Management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
    Provisions made pursuant to these processes totaled $187,000 in the first quarter of 2007 as compared to $830,000 for the same period in 2006. Provisions are necessary to maintain the allowance at an adequate level based on loan risk factors and the levels of net loan charge-offs. The provisions made in the first quarter of 2007 were taken to provide for current loan losses and to maintain the allowance at an adequate level commensurate with Management’s evaluation of the risks inherent in the loan portfolio. The provisions made in the first quarter of 2006 were taken to strengthen the loan loss reserve and to cover mortgage loan irregularities. Total charge-offs were $239,000 for first three months of 2007 as compared to total charge-offs of $346,000 for the same period in 2006. Recoveries were $113,000 for the first quarter of 2007 as compared to recoveries of $279,000 for the same period in 2006.
    The allowance at March 31, 2007 was $6.7 million or 1.34% of total loans. Management believes that the current level of the allowance is adequate to cover losses in the loan portfolio given the current economic conditions, expected net charge-offs and nonperforming asset levels.
    Other information relating to loans, the allowance for loan losses and other pertinent statistics is included on Table 1, which follows.
11
 
TABLE 1 – SUMMARY OF LOAN LOSS EXPERIENCE
(unaudited, in thousands)
 
 
 
    March 31,
 
 
    2007
 
    2006
 
 
 
 
Loans:
 
 
 
 
 
 
  Average outstanding balance
 
 
$502,845
 
 
 
$494,473
 
  Balance at end of period
 
 
$503,729
 
 
 
$492,438
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
  Balance at beginning of year
 
 
$6,675
 
 
 
$7,597
 
  Provision charged to expense
 
 
187
 
 
 
830
 
  Loans charged off
 
 
(239
)
 
 
(346
)
  Recoveries
 
 
113
 
 
 
279
 
  Balance at end of period
 
 
$6,736
 
 
 
$8,360
 
 
Nonperforming Assets
Nonperforming assets consist of loans on which interest is no longer accrued, certain restructured loans where the interest rate or other terms have been renegotiated and real estate acquired through foreclosure (Other Real Estate).
The accrual of interest is discontinued on loans when management believes there is reasonable uncertainty about the full collection of principal and interest or when the loan is contractually past due ninety days or more and not fully secured. If the principal amount of the loan is adequately secured, then interest income on such loans is subsequently recognized only in periods in which actual payments are received.
Nonperforming assets totaled $13.2 million or 1.81% of total assets at March 31, 2007, compared to $13.0 million at December 31, 2006. Nonperforming loans increased primarily due to two large commercial loans. The Bank monitors the level of nonperforming assets and assesses exposures on a continuing basis.
Table 2 below summarizes the level of nonperforming assets for the first three months of 2007 (unaudited) and the year ended December 31, 2006.

TABLE 2 – NONPERFORMING ASSETS
(in thousands)

 
 
March 31,
 
December 31,
 
 
2007
 
2006
 
 
 
 
 
 
 
Nonaccrual loans
 
 
$12,035
 
 
 
$10,362
 
Restructured loans
 
 
23
 
 
 
51
 
Other real estate
 
 
1,142
 
 
 
2,540
 
  Total nonperforming assets
 
 
$13,200
 
 
 
$12,953
 
 
 
 
 
 
 
 
 
 
 
Other real estate totaled $1.1 million as of March 31, 2007 compared to $2.5 million as of December 31, 2006. The decrease in other real estate reflected in 2007 is a result from the liquidation of the home mortgage loans that appear to involve irregularities. Of the 13 total properties held in other real estate, seven are from foreclosures related to the home mortgage loans discussed in Note 3 with a principal balance of $964,000.

Material Changes in Results of Operations

Net interest income
Net interest income is the largest component of the Bank's earnings. It is calculated by subtracting the cost of interest-bearing liabilities from the income earned on interest-earning assets and represents the earnings from the Bank's primary business of gathering deposits and making loans and investments. The Bank's long-term objective is to manage this income to provide the largest possible amount of income while balancing interest rate, credit and liquidity risks.
A financial institution's asset and liability structure is substantially different from that of an industrial company, in that virtually all assets and liabilities are monetary in nature. Accordingly, changes in interest rates, which are generally impacted by inflation rates, may have a significant impact on a financial institution's performance. The impact of interest rate changes depends on the sensitivity to change of the Bank's interest-earning assets and interest-bearing liabilities. The effects of the changing interest rate environment in recent years and the Bank's interest sensitivity position are discussed below.
12
    Net interest income for the three-month period ended March 31, 2007 totaled $7.9 million. This reflects an increase of $261,000 when compared to the same three-month period ended March 31, 2006.
The net yield on interest-earning assets increased to 4.7% for the three month period ended March 31, 2007 compared to 4.6% for the same period ended March 31, 2006.
The net interest income yield shown in Table 3 is calculated by dividing net interest income by the Bank's average interest-earning assets and is a measure of the efficiency of the earnings from balance sheet activities. It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities (leverage). Leverage for the period ending March 31, 2007 was 79% compared to 80% for the same period in 2006.
Table 3 shows the average balance sheet, interest earned and paid, the yield/rate on interest-earning assets and interest-bearing liabilities and the net yield on interest-earning assets for the three months ended March 31, 2007 and 2006, respectively.

TABLE 3 – COMPARATIVE AVERAGE BALANCES – YIELDS AND RATES
(unaudited, in thousands, except yields/rates)
 
 
Three Months Ended March 31,  
   
 
     
2007
         
 
     
2006
       
   
Average
         
Yield/
   
Average
         
Yield/
 
   
Balance
   
Interest
   
Rate
   
Balance
   
Interest
   
Rate
 
Assets
                                   
Interest-earning assets:
                                   
  Interest-bearing deposits with banks
   
$    2,300
     
$       23
      4.0 %    
$    2,323
     
$       23
      4.0 %
  Securities
   
168,614
     
2,302
      5.5 %    
177,479
     
2,373
      5.4 %
  Federal funds sold
   
9,191
     
119
      5.3 %    
1,873
     
20
      4.2 %
  Loans held for sale
   
1,464
     
16
      4.5 %    
358
     
7
      7.9 %
  Loans, net of unearned income
   
502,845
     
10,501
      8.5 %    
494,473
     
9,363
      7.7 %
    Total interest-earning assets
   
684,414
     
12,961
      7.7 %    
676,506
     
11,786
      7.1 %
                                                 
Noninterest-earning assets:
                                               
  Cash and due from banks
   
20,097
                     
23,337
                 
  Premises and equipment, net
   
13,840
                     
12,107
                 
  Other assets
   
3,747
                     
2,175
                 
    Total
   
$722,098
                     
$714,125
                 
                                                 
Liabilities and Stockholders' Equity
                                         
Interest-bearing liabilities:
                                               
  Demand deposits
   
$198,785
     
1,659
      3.4 %    
$176,645
     
1,216
      2.8 %
  Savings deposits
   
40,882
     
50
      0.5 %    
43,645
     
35
      0.3 %
  Time deposits
   
277,515
     
3,107
      4.5 %    
274,175
     
2,593
      3.8 %
  Borrowings
   
20,563
     
274
      5.4 %    
31,722
     
332
      4.2 %
    Total interest-bearing liabilities
   
537,745
     
5,090
      3.8 %    
526,187
     
4,176
      3.2 %
                                                 
Noninterest-bearing liabilities:
                                               
  Demand deposits
   
118,268
                     
128,244
                 
  Other
   
5,229
                     
4,598
                 
    Total liabilities
   
661,242
                     
659,029
                 
  Stockholders' equity
   
60,856
                     
55,096
                 
    Total
   
$722,098
                     
$714,125
                 
Net interest income
           
$ 7,871
                     
$ 7,610
         
Net yield on interest-earning assets
              4.7 %                     4.6 %
                                                 
13
 
Noninterest Income
Noninterest income is another major component of the Bank's total income. The Bank continues to develop and enhance existing products and create new products in order to augment fee income as trends in the financial services industry and the economic environment continue to put pressure on the Bank's ability to increase its net interest income. Noninterest income includes deposit service charges, return check charges, bankcard fees, other commissions and fees, gains and/or losses on and sales of securities and loans, and various other types of income.
Noninterest income totaled $1.1 million for the first three months of 2007 and 2006. Service charges, commissions and fees increased by $60,000. Net losses from the sale of investments for the three month period ended March 31, 2007 increased $66,000 compared to the same period ended 2006. Net gains on sales of loans increased to $38,000 for the three month period ended 2007 from $20,000 for the same period 2006. Other noninterest income totaled $289,000 for the first quarter 2007, a decrease of $4,000 when compared to the same period in 2006.

Noninterest Expense
Noninterest expense totaled $5.0 million for the first three month period in 2007 compared to $4.6 million for the same three month period ended 2006, an increase of $475,000.
Salaries and benefits increased $359,000 primarily due to an increase in support staff. At March 31, 2007, 218 employees represented full time equivalents of 202.5 staff members, compared to the full-time equivalents of 192 staff members during the same period of 2006. Net cost of other real estate and repossessions increased $206,000 to $266,000 from $60,000 when comparing the three month periods ending 2007 and 2006. The increase in 2007 is primarily from expenses related to the home mortgages discussed in Note 3. Other noninterest expense reflects a decrease of $99,000 when comparing the three month periods ending 2007 and 2006. The decrease in 2007 is primarily from a decrease in collection related legal fees primarily related to the home mortgages discussed in Note 3.

Income Taxes
In three month period ended 2007, the income tax provision approximated the normal statutory rate and the effective rate was 34.4%.  For the same three month period in 2006, the income tax provision approximated the normal statutory rate and the effective rate was 34.2%.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk Management
The interest spread and liability funding previously discussed are directly related to changes in asset and liability mixes, volumes, maturities and repricing opportunities for interest-earning assets and interest-bearing liabilities. Interest sensitive assets and liabilities are those which are subject to being repriced in the near term, including both floating or adjustable rate instruments and instruments approaching maturity. The interest sensitivity gap is the difference between total interest-sensitive assets and total interest-sensitive liabilities. Interest rates on the Bank’s 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 its margin, the Bank attempts 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. The Bank generally seeks to limit its 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.
One tool that is used to monitor interest rate risk is the interest sensitivity analysis as shown in Table 4. This analysis, which is prepared monthly, reflects the maturity and repricing characteristics of assets and liabilities over various time periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The Bank’s interest sensitivity analysis at March 31, 2007 reflects an asset-sensitive position with a positive cumulative gap on a one-year basis.
14
 
TABLE 4 – INTEREST SENSITIVITY AT MARCH 31, 2007
(unaudited, in thousands, except for percentages)

 
 
Interest Sensitivity Within
 
 
3 Months
 
Over 3 Months
 
Total
 
Over
 
 
 
 
Or Less
 
thru 12 Months
 
One Year
 
One Year
 
Total
Earning Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Loans (including loans held for sale)
 
 
$285,907
 
 
 
$  74,764
 
 
 
$360,671
 
 
 
$137,809
 
 
 
$498,480
 
  Securities (including FHLB stock)
 
 
27,206
 
 
 
15,498
 
 
 
42,704
 
 
 
128,273
 
 
 
170,977
 
  Federal Funds Sold
 
 
11,938
 
 
 
-
 
 
 
11,938
 
 
 
-
 
 
 
11,938
 
  Other earning assets
 
 
67
 
 
 
-
 
 
 
67
 
 
 
2,188
 
 
 
2,255
 
    Total earning assets
 
 
$325,118
 
 
 
$  90,262
 
 
 
$415,380
 
 
 
$268,270
 
 
 
$683,650
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Source of Funds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-Bearing Accounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Demand deposits
 
 
143,991
 
 
 
-
 
 
 
143,991
 
 
 
59,155
 
 
 
203,146
 
    Savings
 
 
9,967
 
 
 
-
 
 
 
9,967
 
 
 
29,901
 
 
 
39,868
 
    Time deposits
 
 
99,558
 
 
 
107,141
 
 
 
206,699
 
 
 
70,348
 
 
 
277,047
 
    Short-term borrowings
 
 
6,846
 
 
 
-
 
 
 
6,846
 
 
 
-
 
 
 
6,846
 
    Long-term borrowings
 
 
-
 
 
 
10,182
 
 
 
10,182
 
 
 
271
 
 
 
10,453
 
Noninterest-bearing, net
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
146,290
 
    Total source of funds
 
 
$260,362
 
 
 
$117,323
 
 
 
$377,685
 
 
 
$159,675
 
 
 
$683,650
 
Period gap
 
 
  64,756
 
 
 
(27,061
)
 
 
37,695
 
 
 
108,595
 
 
 
 
 
Cumulative gap
 
 
$  64,756
 
 
 
$  37,695
 
 
 
$  37,695
 
 
 
$146,290
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative gap as a
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 percent of earning assets
 
 
9.47
%
 
 
5.51
%
 
 
5.51
%
 
 
 
 
 
 
 
 


Item 4.  Controls and Procedures

The Bank maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports it files under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Such controls include those designed to ensure the material information is communicated to management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.
The Bank’s management, with the participation of the CEO and CFO, have evaluated the effectiveness of the Bank’s 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 Bank’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 like to materially affect, the Bank’s internal control over financial reporting.
15
 
 
PART II.  OTHER INFORMATION
 
Item 1.
Legal Proceedings
        The Bank 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 Bank's financial position or results of operations.

Item 2.
Changes in Securities and Use of Proceeds

Item 2 is nonapplicable and is therefore not included.

Item 3.
Defaults Upon Senior Securities

Item 3 is nonapplicable and is therefore not included.

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

            Item 4 is nonapplicable and is therefore not included.
           
Item 5.
Other Information

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

Item 6.
Exhibits and Reports on Form 8-K

 
(a)
  1. Financial Statements

         The information required by this item is included as Part I herein.
 
 
 
  2. Financial Statement Schedules
 
          The information required by this item is not applicable and therefore is not included.
 
 
 
  3. Exhibits
 
 
 
Exhibit
   
 
 
Number
 
Exhibit
 
11
 
Statement regarding computation of earnings per common share
     
The information required by this item is incorporated by reference to the Bank's Form 10-K for the period ended December 31, 2006.
 
12
 
Statement regarding computation of ratios
     
The information required by this item is incorporated by reference to the Bank's Form 10-K for the period ended December 31, 2006.
 
A.
 
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
B.
 
Certifications in Support of Principal Executive Officers/CFO Certification
 
 
      (b)
 
No form 8-K was filed during the interim period covered by this report.

      (c)
 
See (a) (3) above for all exhibits filed herewith or incorporated by reference.

      (d)
 
There are no other financial statements and financial statement schedules, which were excluded from Part I which are required to be included herein.
 

 
16
SIGNATURES




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


                                                                                               FIRST GUARANTY BANK


 

    Date:     May 15, 2007                                                                                                      /s/ Michael R. Sharp
                                                                                                                             Michael R. Sharp
                                                                                               President and
                                                                                                                                 Chief Executive Officer

   Date:       May 15, 2007
                                                                                                                                                                 /s/ Michele E. LoBianco       
                                                                                                                                                                 Michele E. LoBianco
                                                                                                                                                 Senior Vice President and
                                                                                                                                 Chief Financial Officer

 
 
17
EXHIBIT A


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002






In connection with the Quarterly Report of First Guaranty Bank (the “Bank”) on Form 10-Q as of and for the three months ended March 31, 2007 as filed with the Federal Deposit Insurance Corporation on the date hereof (the “Report”), I, Michael R. Sharp, President and Chief Executive Officer of the Bank, certify, pursuant to 18 U.S.C. SS 1350, as adopted pursuant to SS 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Bank.







/s/ Michael R. Sharp
Michael R. Sharp
President and Chief Executive Officer
May 15, 2007



 
 
18

EXHIBIT A


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002






In connection with the Quarterly Report of First Guaranty Bank (the “Bank”) on Form 10-Q as of and for the three months ended March 31, 2007 as filed with the Federal Deposit Insurance Corporation on the date hereof (the “Report”), I, Michele E. LoBianco, Chief Financial Officer of the Bank, certify, pursuant to 18 U.S.C. SS 1350, as adopted pursuant to SS 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Bank.






/s/ Michele E. LoBianco
Michele E. LoBianco
Senior Vice President and
Chief Financial Officer
May 15, 2007



















 
19



EXHIBIT B


CERTIFICATION OF DISCLOSURE
FOR THE CHIEF EXECUTIVE OFFICER


I, Michael R. Sharp, President and Chief Executive Officer of First Guaranty Bank hereby certify that:

1.  
I have reviewed this quarterly report being filed on Form 10-Q of First Guaranty Bank;

2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;

3.  
Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Bank as of, and for, the periods presented in the report;

4.  
The Bank’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Bank and have:

a.  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Bank, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.  
Evaluated the effectiveness of the Bank’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.  
Disclosed in this report any change in the Bank’s internal control over financial reporting that occurred during the Bank’s most recent fiscal quarter (the Bank’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Bank’s internal control over financial reporting; and

5.  
The Bank’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Bank’s auditors and the audit committee of the Bank’s Board of Directors (or persons performing the equivalent functions):

a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Bank’s internal control over financial reporting.






/s/ Michael R. Sharp
Michael R. Sharp
President and Chief Executive Officer
May 15, 2007


 
20


EXHIBIT B


CERTIFICATION OF DISCLOSURE
FOR THE CHIEF FINANCIAL OFFICER


I, Michele E. LoBianco, Senior Vice President and Chief Financial Officer of First Guaranty Bank hereby certify that:

1.  
I have reviewed this quarterly report being filed on Form 10-Q of First Guaranty Bank;

2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;

3.  
Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Bank as of, and for, the periods presented in the report;

4.  
The Bank’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Bank and have:

a.  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Bank, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.  
Evaluated the effectiveness of the Bank’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.  
Disclosed in this report any change in the Bank’s internal control over financial reporting that occurred during the Bank’s most recent fiscal quarter (the Bank’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Bank’s internal control over financial reporting; and

5.  
The Bank’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Bank’s auditors and the audit committee of the Bank’s Board of Directors (or persons performing the equivalent functions):

a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Bank’s internal control over financial reporting.





/s/ Michele E. LoBianco
Michele E. LoBianco
Senior Vice President and
Chief Financial Officer
May 15, 2007


 

 


21

                                                                                                                 EXHIBIT 99.3
 

FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
    _____________________________________________
 
 
 
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
For the Quarter Ended June 30, 2007
 
Certificate Number 14028
 
 
 
LOGO
FIRST GUARANTY BANK
(Exact name of registrant as specified in its charter)
 
 
 
 


 
 
 
Louisiana
 
72-0201420
(State or other jurisdiction of incorporation or
organization )
 
(I.R.S. EmployerIdentification Number)
 
 
 
 
400 East Thomas Street
Hammond, Louisiana
 
70401
(Address of principal executive office)
 
(Zip Code)
 
 
 
 
( 985) 345-7685
(Telephone number, including area code)
_____________________________________________
 
 
Securities registered pursuant to Section 12(B) of the Act:
None
  _____________________________________________
               
Securities registered pursuant to Section 12(G) of the Act:
 
 
Title of each class
 
Name of each exchange
on which registered
Common Stock, $1 par value per share
 
None
 
                                                                                                            
      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [ ]      
    Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). 
Yes [ ]  No [X]
    As of June 30, 2007, 5,559,644 shares of $1 par value common stock were issued and outstanding.
 

ADDITIONAL INFORMATION

FIRST GUARANTY BANK (the "Bank") is subject to the informational requirements of the Securities Exchange Act of 1934 and in accordance therewith files periodic reports, proxy statements and other information with the Federal Deposit Insurance Corporation (the "FDIC"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the FDIC at 550 Seventeenth Street, N.W., Washington, DC 20429. Copies of such material can be obtained by mail from the Public Reference Branch of the FDIC at 550 Seventeenth Street, N.W., Washington, DC 20429 at prescribed rates.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
PART I.      FINANCIAL INFORMATION
Item 1.
Financial Statements
STATEMENTS OF CONDITION
 
 
 
 
 
 
(in thousands, except share data)
 
 
 
 
 
 
 
 
June 30,
 
December 31,
 
 
2007
 
2006
Assets
 
(unaudited)
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
  Cash and due from banks
 
 
$  21,233
 
 
 
$  17,893
 
  Interest-bearing demand deposits with banks
 
 
47
 
 
 
131
 
  Federal funds sold
 
 
1,204
 
 
 
6,793
 
    Cash and cash equivalents
 
 
22,484
 
 
 
24,817
 
 
 
 
 
 
 
 
 
 
Interest-bearing time deposits with banks
 
 
2,188
 
 
 
2,188
 
 
 
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
 
 Available for sale, at fair value
 
 
116,152
 
 
 
111,353
 
 Held to maturity, at cost (estimated fair value of
 
 
 
 
 
 
 
 
   $45,084 and $45,614, respectively)
 
 
46,718
 
 
 
46,999
 
  Investment securities
 
 
162,870
 
 
 
158,352
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank stock, at cost
 
 
993
 
 
 
2,264
 
Loans held for sale
 
 
2,449
 
 
 
1,049
 
 
 
 
 
 
 
 
 
 
Loans, net of unearned income
 
 
525,520
 
 
 
507,195
 
Less: allowance for loan losses
 
 
6,974
 
 
 
6,675
 
  Net loans
 
 
518,546
 
 
 
500,520
 
 
 
 
 
 
 
 
 
 
Intangible assets, net
 
 
393
 
 
 
456
 
Premises and equipment, net
 
 
13,808
 
 
 
13,593
 
Other real estate, net
 
 
357
 
 
 
2,540
 
Accrued interest receivable
 
 
5,206
 
 
 
5,378
 
Other assets
 
 
3,618
 
 
 
3,330
 
  Total Assets
 
 
$732,912
 
 
 
$714,487
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
  Noninterest-bearing demand
 
 
$127,789
 
 
 
$122,540
 
  Interest-bearing demand
 
 
201,700
 
 
 
185,308
 
  Savings
 
 
39,631
 
 
 
41,161
 
  Time
 
 
273,163
 
 
 
277,284
 
    Total deposits
 
 
642,283
 
 
 
626,293
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
 
 
19,588
 
 
 
6,584
 
Accrued interest payable
 
 
3,370
 
 
 
3,070
 
Long-term borrowings
 
 
2,816
 
 
 
17,984
 
Other liabilities
 
 
2,266
 
 
 
1,353
 
  Total Liabilities
 
 
670,323
 
 
 
655,284
 
 
 
 
 
 
 
 
 
 
Stockholders' Equity
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
  $1 par value - authorized 100,000,000 shares; issued and
 
 
 
 
 
 
 
 
    outstanding 5,559,644 shares
 
 
5,560
 
 
 
5,560
 
  $5 par value - authorized 600,000 shares; no shares issued
 
 
 
 
 
 
 
 
    and outstanding
 
 
-
 
 
 
-
 
Surplus
 
 
26,459
 
 
 
26,459
 
Retained earnings
 
 
31,580
 
 
 
28,089
 
Accumulated other comprehensive loss
 
 
(1,010
)
 
 
(905
)
  Total Stockholders' Equity
 
 
62,589
 
 
 
59,203
 
    Total Liabilities and Stockholders' Equity
 
 
$732,912
 
 
 
$714,487
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 
 
3
STATEMENTS OF INCOME
             
(unaudited, in thousands, except share and per share data)
 
   
Three Months  
 
Six Months  
   
Ended June 30,  
 
Ended June 30,  
   
2007  
 
2006  
 
2007  
 
2006  
Interest Income:
                       
  Loans (including fees)
   
$11,155
     
$9,860
     
$21,656
     
$19,223
 
  Loans held for sale
   
55
     
3
     
71
     
10
 
  Deposits with other banks
   
22
     
23
     
45
     
46
 
  Securities (including FHLB stock)
   
2,172
     
2,472
     
4,474
     
4,845
 
  Federal funds sold
   
129
     
13
     
248
     
33
 
    Total Interest Income
   
13,533
     
12,371
     
26,494
     
24,157
 
                                 
Interest Expense:
                               
  Demand deposits
   
1,626
     
1,287
     
3,285
     
2,503
 
  Savings deposits
   
55
     
38
     
105
     
73
 
  Time deposits
   
3,113
     
2,647
     
6,220
     
5,240
 
  Borrowings
   
201
     
626
     
475
     
958
 
    Total Interest Expense
   
4,995
     
4,598
     
10,085
     
8,774
 
                                 
Net Interest Income
   
8,538
     
7,773
     
16,409
     
15,383
 
Provision for loan losses
   
421
     
1,758
     
608
     
2,588
 
Net Interest Income after Provision for Loan Losses
   
8,117
     
6,015
     
15,801
     
12,795
 
                                 
Noninterest Income:
                               
  Service charges, commissions and fees
   
953
     
912
     
1,835
     
1,734
 
  Net losses on sale of securities
    (162 )    
-
      (228 )    
-
 
  Net gains on sale of loans
   
38
     
2
     
76
     
22
 
  Other
   
263
     
212
     
552
     
505
 
    Total Noninterest Income
   
1,092
     
1,126
     
2,235
     
2,261
 
                                 
Noninterest Expense:
                         
  Salaries and employee benefits
   
2,311
     
1,941
     
4,591
     
3,862
 
  Occupancy and equipment expense
   
616
     
572
     
1,235
     
1,183
 
  Net cost (income) from other real estate & repossessions
   
158
      (436 )    
424
      (376 )
  Other
   
1,967
     
2,001
     
3,831
     
3,964
 
    Total Noninterest Expense
   
5,052
     
4,078
     
10,081
     
8,633
 
                                 
Income Before Income Taxes
   
4,157
     
3,063
     
7,955
     
6,423
 
Provision for income taxes
   
1,432
     
1,048
     
2,740
     
2,198
 
Net Income
   
$2,725
     
$2,015
     
$5,215
     
$4,225
 
                                 
                                 
Per Common Share:
                               
  Earnings
   
$0.49
     
$0.36
     
$0.94
     
$0.76
 
  Cash dividends paid
   
$0.16
     
$0.15
     
$0.31
     
$0.30
 
                                 
Weighted Average Common Shares Outstanding
   
5,559,644
     
5,559,644
     
5,559,644
     
5,559,644
 
                                 
                                 
See Notes to Financial Statements
                 

4

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                               
(in thousands, except per share data)
                                   
                                     
                           
Accumulated
       
   
Common
   
Common
               
Other
       
   
Stock
   
Stock
         
Retained
   
Comprehensive
       
   
$1 Par
   
$5 Par
   
Surplus
   
Earnings
   
Loss
   
Total
 
                                     
Balance December 31, 2005
   
$5,076
     
$2,416
     
$24,527
     
$22,622
      ($718 )    
$53,923
 
Net income
   
-
     
-
     
-
     
4,225
     
-
     
4,225
 
Reclassification of $5 par value into $1 par value (1)
   
484
      (2,416 )    
1,932
     
-
     
-
     
-
 
Change in unrealized loss
                                               
  on available for sale securities,
                                               
  net of reclassification adjustments and taxes
   
-
     
-
     
-
     
-
      (1,620 )     (1,620 )
Comprehensive income
                                           
2,605
 
Cash dividends on common stock ($0.30 per share)
   
-
     
-
     
-
      (1,667 )    
-
      (1,667 )
Balance June 30, 2006 (unaudited)
   
$5,560
     
$  -
     
$26,459
     
$25,180
      ($2,338 )    
$54,861
 
                                                 
Balance December 31, 2006
   
$5,560
     
$  -
     
$26,459
     
$28,089
      ($905 )    
$59,203
 
Net income
   
-
     
-
     
-
     
5,215
     
-
     
5,215
 
Change in unrealized loss
                                               
  on available for sale securities,
                                               
  net of reclassification adjustments and taxes
   
-
     
-
     
-
     
-
      (105 )     (105 )
Comprehensive income
                                           
5,110
 
Cash dividends on common stock ($0.31 per share)
   
-
     
-
     
-
      (1,724 )    
-
      (1,724 )
Balance June 30, 2007 (unaudited)
   
$5,560
     
$  -
     
$26,459
     
$31,580
      ($1,010 )    
$62,589
 
                                                 
                                                 
(1) To effect a reclassification combining the $5 par value common stock with the $1 par value common stock, approved by the Bank's shareholders on
 
   May 18, 2006.
                                               
                                                 
See Notes to Financial Statements
                                               
5
 


STATEMENTS OF CASH FLOWS
           
(unaudited, in thousands)
           
             
   
Six Months Ended June 30,
 
   
2007
   
2006
 
Cash Flows From Operating Activities
           
Net income
   
$5,215
     
$4,225
 
Adjustments to reconcile net income to net cash
               
  provided by operating activities:
               
    Provision for loan losses
   
608
     
2,588
 
    Depreciation and amortization
   
58
     
811
 
    Loss on sale of securities
   
228
     
-
 
    Gain on sale of assets
    (76 )     (10 )
    ORE writedowns and loss (gain) on disposition
   
294
      (512 )
    FHLB stock dividends
    (55 )     (55 )
    Net increase in loans held for sale
    (1,400 )     (512 )
    Change in other assets and liabilities, net
   
1,183
      (1,463 )
Net Cash Provided By Operating Activities
   
6,055
     
5,072
 
                 
Cash Flows From Investing Activities
               
Proceeds from maturities and calls of HTM securities
   
275
     
319
 
Proceeds from maturities, calls and sales of AFS securities
   
254,609
     
449
 
Funds invested in AFS securities
    (259,309 )     (10,980 )
Proceeds from sale of Federal Home Loan Bank stock
   
1,326
     
-
 
Funds invested in Federal Home Loan Bank stock
   
-
      (1,829 )
Net increase in loans
    (19,258 )     (21,644 )
Purchases of premises and equipment
    (644 )     (371 )
Proceeds from sales of other real estate owned
   
2,512
     
1,624
 
Net Cash Used In Investing Activities
    (20,489 )     (32,432 )
                 
Cash Flows From Financing Activities
               
Net increase (decrease) in deposits
   
15,990
      (13,613 )
Net increase in federal funds purchased and short-term borrowings
   
13,003
     
28,372
 
Proceeds from long-term borrowings
   
-
     
20,000
 
Repayment of long-term borrowings
    (15,168 )     (12,125 )
Dividends paid
    (1,724 )     (1,667 )
Net Cash Provided By Financing Activities
   
12,101
     
20,967
 
                 
Net Decrease In Cash and Cash Equivalents
    (2,333 )     (6,393 )
Cash and Cash Equivalents at the Beginning of the Period
   
24,817
     
28,451
 
Cash and Cash Equivalents at the End of the Period
   
$22,484
     
$22,058
 
                 
Noncash Activities:
               
  Loans transferred to foreclosed assets
   
$623
     
$3,853
 
                 
Cash Paid During The Period:
               
  Interest
   
$9,785
     
$8,048
 
  Income taxes
   
$3,000
     
$4,390
 
                 
                 
See Notes to Financial Statements
               
6
 
NOTES TO FINANCIAL STATEMENTS
 
1.  
  Basis of Presentation
The accompanying unaudited 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. These financial statements and the footnotes thereto should be read in conjunction with the annual financial statements for the year ended December 31, 2006.
In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary for a fair presentation of the financial statements. Those adjustments are of a normal recurring nature. The results of operations for the three-month period ended June 30, 2007 are not necessarily indicative of the results expected for the full year.
 
2.  
   Loans and Allowance for Loan Losses
       Loans at June 30, 2007 (unaudited) and December 31, 2006 were as follows:

 
 
June 30,
 
 
December 31,
 
 
 
2007
 
 
2006
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
Real estate
 
 
$410,142
 
 
 
$413,319
 
Agricultural
 
 
21,323
 
 
 
16,359
 
Commerical and industrial
 
 
74,547
 
 
 
59,072
 
Consumer and other
 
 
19,875
 
 
 
18,880
 
  Total loans before unearned income
 
 
525,887
 
 
 
507,630
 
Less: unearned income
 
 
(367
)
 
 
(435
)
  Total loans after unearned income
 
 
$525,520
 
 
 
$507,195
 
 
 
 
 
 
 
 
 
 
    Changes in the allowance for loan losses for the three months ended June 30, 2007 (unaudited) and the year ended December 31, 2006 are as follows:

 
 
June 30,
 
 
December 31,
 
 
 
2007
 
 
2006
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
Balance beginning of period
 
 
$6,675
 
 
 
$7,597
 
Provision charged to expense
 
 
608
 
 
 
4,419
 
Loans charged off
 
 
(612
)
 
 
(5,888
)
Recoveries
 
 
303
 
 
 
547
 
  Allowance for loan losses
 
 
$6,974
 
 
 
$6,675
 
 
 
 
 
 
 
 
 
 
     In the first six months of 2007, the provision charged to expense totaled $608,000. The decrease in the provision was due to an elevated provision in 2006 primarily for home mortgage loans that involved irregularities. See Note 3 for additional information. The loans charged off during 2007, totaling $612,000, also reflected a decrease due to elevated numbers in 2006 primarily associated with the home mortgage loans.
 
3. 
  Mortgage Loans
In 2005, the Bank discovered mortgage loans and commitments originated in one branch which involved irregularities that suggest that many of these mortgage loans had been made against overvalued collateral on the basis of misleading loan applications. As of December 31, 2006 the aggregate principal balance on these loans was approximately $2.5 million. The allowance for loan losses to provide for any potential future losses relating to these 11 remaining home mortgage loans totaled $206,000. For the year ended December 31, 2006, the Bank charged off approximately $4.6 million as a result of these mortgage loans. As of June 30, 2007 the aggregate principal balance on these loans was approximately $1.4 million. At June 30, 2007, the Bank allocated $351,000 of the $7.0 million allowance for loan losses in order to provide for potential losses relating to the four remaining home mortgage loans.

4.  
  Income Taxes
On January 1, 2007, the Bank adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN48”).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting for Income Taxes , and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Bank does not believe it has any unrecognized tax benefits included in its financial statements. The Bank has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations.
The Bank recognizes interest and penalties accrued related to unrecognized tax benefits in noninterest expense. During the quarters ended June 30, 2007 and 2006, the Bank has not recognized any interest or penalties in its financial statements, nor has it recorded an accrued liability for interest or penalty payments.
At this time, no tax years are under examination. With few exceptions, the bank is no longer subject to U.S. federal, state or local income tax examinations for years before 2003.
7
 
5.  
 Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . This Statement defines fair value, established a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurement.  The Statement is effective for the financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Bank anticipates that the adoption of SFAS No. 157 will not have a material impact on the Bank’s financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . SFAS No. 159 provides the Bank with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements to facilitate reporting between companies.  The fair value option established by this Statement permits the Bank to choose to measure eligible items at fair value at specified election dates.  The Bank shall then 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 Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  The Bank is currently evaluating the effect the standard will have on its results of operations and financial condition.

6.  
Bank Mergers
First Guaranty Bank and Homestead Bancorp, Inc. (OTC: HSTD.PK), parent company for Homestead Bank, entered into a definitive agreement on January 4, 2007 pursuant to which Homestead Bancorp will be acquired for approximately $13 million in cash. At December 31, 2006, total assets of Homestead Bancorp, Inc. were $131.5 million, including $71.0 million in total loans and $51.3 million in investment securities. Total deposits at such date were $70.2 million and stockholders’ equity totaled $10.5 million.
Prior to completion of the acquisition, it is anticipated that First Guaranty Bancshares, Inc., currently a wholly-owned subsidiary of First Guaranty Bank, will become the registered bank holding company of First Guaranty Bank pursuant to a share exchange transaction that has previously been approved by the shareholders of First Guaranty Bank. Following the holding company formation, First Guaranty Bancshares will accomplish the acquisition of Homestead Bancorp by virtue of the merger of a wholly-owned subsidiary of First Guaranty Bancshares with and into Homestead Bancorp.
Under the terms of the agreement, First Guaranty Bancshares will acquire all of the issued and outstanding shares of common stock of Homestead Bancorp for the cash purchase price of $17.60 per share. In addition, each outstanding and unexercised option to acquire a share of common stock of Homestead Bancorp will be converted into the right to receive cash in an amount equal to $17.60 less the exercise price of such option. The transaction has been approved by the board of directors of First Guaranty Bank, First Guaranty Bancshares and Homestead Bancorp as well as certain bank regulatory authorities in the United States and the merger is expected to close on July 30, 2007.

7.  
 Holding Company
On March 16, 2007, First Guaranty Bank submitted an Application to the Board of Governors of the Federal Reserve System filed on Form FR Y-3. This Application requests permission to form a bank holding company with respect to First Guaranty Bank, Hammond, Louisiana. The holding company seeks to acquire 100% of the shares of First Guaranty Bank, thereby becoming a one bank holding company. All shareholders of First Guaranty Bank will become shareholders of the holding company. The acquisition will be accomplished by means of a share exchange under the Louisiana Banking Law and the Louisiana Business Corporation Law, pursuant to which, having received the requisite vote of the shareholders of the Bank, the outstanding shares of the Bank will be exchanged for shares of the holding company on a share for share basis. The Federal Reserve Bank approved the application of First Guaranty Bancshares, Inc. to become a bank holding company by acquiring First Guaranty Bank. The consummation is expected to occur on July 27, 2007.

 
8.  
 Subsequent Events
In July 2007, First Guaranty Bank obtained two $10 million letters of credit from the Federal Home Loan Bank of Dallas. These advances were obtained to collateralize public funds, therefore releasing securities currently pledged and increasing the bank’s liquidity position.
Also in July 2007, the Bank signed a Final Release and Settlement Agreement with BankInsurance, Inc., the Bank’s insurance company, for a claim made by the Bank under the Financial Institution Bond for the suspected fraudulent mortgage loans (see Note 3). Under this Release and Agreement, the Bank will receive $1.1 million. After attorney fees and expenses, the Bank will record a loan recovery totaling $742,000 in July 2007.
 
8
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 Bank's financial condition and results of operations presented in the 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 financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data for the six months ended June 30, 2007 and 2006 have been derived from unaudited financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly the Bank's financial position and results of operations for such periods.

Second Quarter of 2007 Overview
First Guaranty Bank is a commercial bank headquartered in Hammond, Louisiana with 16 branch offices located in southeast, southwest and north Louisiana. The Bank offers a range of lending services, including commercial business, real estate and consumer loans to businesses, individuals and other organizations located throughout our markets. We complement our lending operations with an array of retail deposit products and fee-based services to support our clients. While offering our customers the breadth of products typically found at larger institutions, we employ a community banking strategy that emphasizes local decision-making authority and superior customer service. We believe our focus on customer relationships allows us to compete effectively within our markets and provides us a competitive advantage as we expand both within our existing markets and into new markets.
 
     Financial highlights for the second quarter of 2007 are as follows:
*  
Net income for the second quarter of 2007 and 2006 was $2.7 million and $2.0 million with earnings per common share of $0.49 and $0.36, respectively. Net income was $5.2 million and $4.2 million for the six month periods ending June 30, 2007 and 2006, respectively. Earnings per common share was $0.94 and $0.76 for the six month periods ending June 30, 2007 and 2006, respectively.
*  
Net interest income for the second quarter of 2007 and 2006 was $8.5 million and $7.8 million while year-to-date net interest income was $16.4 million and $15.4 million, respectively. The net yield on interest-earning assets increased to 4.8% for the six month period ended June 30, 2007 compared to 4.5% for the same period ended June 30, 2006 .
*  
The provision for loan losses for the second quarter of 2007 was $421,000 compared to $1.8 million for the second quarter of 2006. The provision for loan losses was $608,000 for the six month period ending June 30, 2007 compared to $2.6 million for the same period in 2006. The decrease in the provision is primarily attributable to additional reserves in 2006 for home mortgage loans that involved some irregularities. See Footnote 3 for additional information.
*  
Noninterest income for the second quarter of 2007 was $1.1 million, down $34,000 when compared to the second quarter of 2006. Noninterest income was $2.2 million and $2.3 million for the six month periods ending June 30, 2007 and 2006, respectively.
*  
Noninterest expense for the second quarter of 2007 was $5.1 million, up $974,000 when compared to the second quarter of 2006. For the first six months of 2007, noninterest expense totaled $10.1 million, up $1.4 million from the same six month period ended in 2006. Included is an increase of $729,000 in salaries and employee benefits and an increase of $800,000 in the net cost of other real estate and repossessions.
*  
Total assets at June 30, 2007 were $732.9 million, up $18.4 million from $714.5 million at December 31, 2006.
*  
Loans, net of unearned income at June 30, 2007 were $525.5 million, up 3.6% or $18.3 million from $507.2 million at December 31, 2006.
*  
Other real estate decreased $2.2 million from December 31, 2006 to June 30, 2007 primarily due to the foreclosure and sale of properties relating to the home mortgage loans discussed in Note 3.
*  
Total deposits were $642.3 million at June 30, 2007, up 2.6% or $16.0 million from December 31, 2006 .
*  
Return on average assets for the six month periods ended June 30, 2007 and 2006 were 1.46% and 1.19%, respectively and return on average equity for the same periods were 17.01% and 15.44%.
*  
The Bank is still considered “well capitalized” with a leverage ratio of 8.56% at June 30, 2007 compared to 8.16% at December 31, 2006.

9
Material Changes in Financial Condition

Securities
The securities portfolio totaled $162.9 million at June 30, 2007 and consisted principally of U.S. Government Agencies, mortgage-backed obligations, collateralized mortgage obligations, corporate debt securities, mutual funds or other equity securities and other debt securities. The portfolio provides the Bank with a relatively stable source of income and provides a balance to interest rate and credit risks as compared to other categories of the balance sheet.
At June 30, 2007, 28.13% of the Bank’s securities (excluding FHLB stock) mature in less than one year.  This includes $30.2 million in discount notes that are being used solely for pledging purposes. When excluding these securities, only 11.76% of the Bank’s securities mature in less than one year. Securities with maturity dates over 15 years totaled 6.34% of the total portfolio or 7.79% of the portfolio after backing out the discount notes for pledging. The average maturity of the securities portfolio was 6.98 years.
As of June 30, 2007, securities totaling $116.2 million were classified as available for sale and $46.7 million were classified as held to maturity. Management periodically assesses the quality of the Bank’s investment holdings using procedures similar to those used in assessing the credit risks inherent in the loan portfolio. At June 30, 2007, it is management’s opinion that the Bank held no investment securities which bear greater than the normal amount of credit risk as compared to similar investments and that no securities were recorded at greater than their recoverable value.
Average securities as a percentage of average interest-earning assets were 23.29% for the six-month period ended June 30, 2007 and 26.36 % for the same period of 2006. All securities held by the Bank at June 30, 2007 qualified as pledgeable securities, except $7.4 million of debt securities and $1.5 million of equity securities. Securities pledged at June 30, 2007 totaled $153.7 million.

 Loans
Loans are the Bank’s primary use of the Bank’s financial resources and represent the largest component of earning assets. There are no significant concentrations of credit to any borrower or industry. A significant portion of the portfolio is secured primarily or secondarily by real estate and the portfolio remains highly diversified.
The Bank’s net loan portfolio at June 30, 2007 totaled $518.5 million, an increase of approximately $18.0 million from the December 31, 2006 level of $500.5 million. Net loans represented 81.1% of deposits at June 30, 2007 compared to 80.1% of deposits at December 31, 2006. Fixed rate loans decreased from $247.2 million or 48.74% of the total loan portfolio at the end of 2006 to $226.3 million or 43.1% of the total loan portfolio as of June 30, 2007. Loan charge-offs totaling $612,000 were taken during the first six months of 2007 compared to $2.1 million during the same period of 2006. The Bank had recoveries of $303,000 and $409,000 during the first six month period of 2007 and 2006, respectively. The decreases in charge-offs in 2007 are primarily related to elevated activity in 2006 due to the home mortgage loans discussed in Note 3.

Deposits
Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting the Bank’s ability to maximize its 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 of the Bank regularly assesses its funding needs, deposit pricing and interest rate outlooks.
From December 31, 2006 to June 30, 2007, the Bank’s total deposits increased $16.0 million. Interest-bearing deposits increased by $10.7 million and noninterest-bearing deposits increased $5.3 million. Of this deposit increase, $16.4 million was from an increase in public fund deposits primarily in NOW public fund accounts. Personal and business interest-bearing deposits decreased $6.5 million, while personal and business noninterest-bearing deposits increased $6.1 million.
Average noninterest-bearing deposits decreased to $125.3 million for the six-month period ended June 30, 2007 from $131.2 million for the six-month period ended June 30, 2006. Average noninterest-bearing deposits represented 19.6% and 21.3% of average total deposits for the six-month periods ended June 30, 2007 and 2006, respectively.
As the Bank endeavors to maintain a strong net interest margin and improve earnings, attracting core noninterest-bearing deposits will remain a primary emphasis. Management will continue to evaluate and update the Bank’s product mix in its efforts to attract additional core customers. The Bank currently offers a number of noninterest-bearing deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on core deposits.
 
Borrowings
The Bank maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank (“FHLB”) on a short- and long-term basis to meet its liquidity needs. The average amount of borrowings as of June 30, 2007 was $14.1 million compared to $42.7 million as of June 30, 2006. The Bank also had $65.0 million in FHLB letters of credit outstanding obtained solely for collateralizing public deposits.
 
Equity
Total equity increased to $62.6 million as of June 30, 2007 from $59.2 million as of December 31, 2006. The increase in stockholders’ equity primarily results from 2007 year-to-date net income of $5.2 million less $1.7 million in quarterly dividend payments and $105,000 for the change in unrealized loss on available for sale securities. Cash dividends paid were $0.31 and $0.30 per share for the six month periods ending June 30, 2007 and 2006, respectively.
 
Credit Risk Management
Credit risk is inherent in each financial institution's loan and investment portfolio. In an effort to minimize credit risk, the Bank utilizes an extensive credit administration network, including specific lending authorities for each loan officer, a system of loan committees to review and approve loans, and an internal loan review and credit quality rating system. This network assists in the evaluation of the quality of new loans and in the early identification of problem or potential problem credits and provides information to aid management in determining the adequacy of the allowance for loan losses.
 
10
       Provision and Allowance for Loan Losses
The Bank maintains its allowance for loan losses at a level it considers sufficient to absorb potential losses embedded in the loan portfolio. The allowance is increased by the provision for anticipated loan losses as the well as recoveries of previously charged-off loans and is decreased by loan charge-offs. The provision is the necessary charge to current expense to provide for current loan losses and to maintain the allowance at an adequate level commensurate with Management's evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when the Bank determines the amount of the provision and the adequacy of the allowance. These factors include but are not limited to:
        *  Past due and nonperforming assets;
         *   Specific internal analysis of loans requiring special attention;
*  The current level of regulatory classified and criticized assets and the associated risk factors with each;
*  Changes in underwriting standards or lending procedures and policies;
*  Chargeoff and recovery practices;
*  National and local economic and business conditions;
*  Nature and volume of loans;
*  Overall portfolio quality;
*  Adequacy of loan collateral;
*  Quality of loan review system and degree of oversight by its Board of Directors;
*  Competition and legal and regulatory requirements on borrowers;
*  Examinations and review by the Bank's internal loan review department, independent accountants and third-
        party independent loan review personnel; and
*  Examinations of the loan portfolio by federal and state regulatory agencies.
 
     The data collected from all sources in determining the adequacy of the allowance is evaluated on a regular basis by Management with regard to current national and local economic trends, prior loss history, underlying collateral values, credit concentrations and industry risks. An estimate of potential loss on specific loans is developed in conjunction with an overall risk evaluation of the total loan portfolio. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect Management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
Provisions made pursuant to these processes totaled $608,000 in the first six months of 2007 as compared to $2.6 million for the same period in 2006. Provisions are necessary to maintain the allowance at an adequate level based on loan risk factors and the levels of net loan charge-offs. The provisions made in the first six months of 2007 were taken to provide for current loan losses and to maintain the allowance at an adequate level commensurate with Management’s evaluation of the risks inherent in the loan portfolio. The provisions made in the first six months of 2006 were taken to strengthen the loan loss reserve and to cover mortgage loan irregularities. Total charge-offs were $612,000 for first six months of 2007 as compared to total charge-offs of $2.1 million for the same period in 2006. Recoveries were $303,000 for the first six months of 2007 as compared to recoveries of $409,000 for the same period in 2006.
The allowance at June 30, 2007 was $7.0 million or 1.33% of total loans. Management believes that the current level of the allowance is adequate to cover losses in the loan portfolio given the current economic conditions, expected net charge-offs and nonperforming asset levels.

Other information relating to loans, the allowance for loan losses and other pertinent statistics is included on Table 1, which follows.
 
TABLE 1 – SUMMARY OF LOAN LOSS EXPERIENCE
(unaudited, in thousands)
 
 
 
    June 30,
 
 
    2007
 
    2006
 
 
 
 
Loans:
 
 
 
 
 
 
  Average outstanding balance
 
 
$511,777
 
 
 
$498,774
 
  Balance at end of period
 
 
$525,520
 
 
 
$507,651
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
  Balance at beginning of year
 
 
$6,675
 
 
 
$7,597
 
  Provision charged to expense
 
 
608
 
 
 
2,588
 
  Loans charged off
 
 
(612
)
 
 
(2,131
)
  Recoveries
 
 
303
 
 
 
409
 
  Balance at end of period
 
 
$6,974
 
 
 
$8,463
 
 
Nonperforming Assets
    Nonperforming assets consist of loans on which interest is no longer accrued, certain restructured loans where the interest rate or other terms have been renegotiated and real estate acquired through foreclosure (Other Real Estate).
    The accrual of interest is discontinued on loans when management believes there is reasonable uncertainty about the full collection of principal and interest or when the loan is contractually past due ninety days or more and not fully secured. If the principal amount of the loan is adequately secured, then interest income on such loans is subsequently recognized only in periods in which actual payments are received.
    Nonperforming assets totaled $9.7 million or 1.33% of total assets at June 30, 2007, compared to $13.0 million at December 31, 2006. Nonperforming loans decreased in the first six months of 2007 due primarily to one large commercial customer moving back into accrual status. The Bank monitors the level of nonperforming assets and assesses exposures on a continuing basis.    
11
    Table 2 below summarizes the level of nonperforming assets at June 30, 2007 (unaudited) and December 31, 2006.
 
TABLE 2 – NONPERFORMING ASSETS
(in thousands)

 
 
June 30,
 
 
December 31,
 
 
 
2007
 
 
2006
 
 
 
 
 
 
 
 
Nonaccrual loans
 
 
$9,343
 
 
 
$10,362
 
Restructured loans
 
 
23
 
 
 
51
 
Other real estate
 
 
357
 
 
 
2,540
 
  Total nonperforming assets
 
 
$9,723
 
 
 
$12,953
 
 
 
 
 
 
 
 
 
 
 

    Other real estate totaled $357,000 as of June 30, 2007, a decrease of $2.2 million from December 31, 2006. The decrease in other real estate reflected in 2007 is a result from the liquidation of the home mortgage loans that appear to involve irregularities. Of the seven total properties held in other real estate, only one is from foreclosures related to the home mortgage loans discussed in Note 3 with a principal balance of $197,000.
 

Material Changes in Results of Operations
 
Net interest income
Net interest income is the largest component of the Bank's earnings. It is calculated by subtracting the cost of interest-bearing liabilities from the income earned on interest-earning assets and represents the earnings from the Bank's primary business of gathering deposits and making loans and investments. The Bank's long-term objective is to manage this income to provide the largest possible amount of income while balancing interest rate, credit and liquidity risks.
A financial institution's asset and liability structure is substantially different from that of an industrial company, in that virtually all assets and liabilities are monetary in nature. Accordingly, changes in interest rates, which are generally impacted by inflation rates, may have a significant impact on a financial institution's performance. The impact of interest rate changes depends on the sensitivity to change of the Bank's interest-earning assets and interest-bearing liabilities. The effects of the changing interest rate environment in recent years and the Bank's interest sensitivity position are discussed below.
Net interest income for the six-month period ended June 30, 2007 totaled $16.4 million. This reflects an increase of $1.0 million when compared to the same six-month period ended June 30, 2006. Net interest income for the three-month period ended June 30, 2007 totaled $8.5 million compared to the same three-month period ended 2006 of $7.8 million.
The net interest income yield shown in Table 3 is calculated by dividing net interest income by the Bank's average interest-earning assets and is a measure of the efficiency of the earnings from balance sheet activities. It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities (leverage). The leverage for the period ending June 30, 2007 was 76.8% compared to 77.3% for the same period in 2006.
Table 3 shows the average balance sheet, interest earned and paid, the yield/rate on interest-earning assets and interest-bearing liabilities and the net yield on interest-earning assets for the six months ended June 30, 2007 and 2006, respectively.
12
 
TABLE 3 – COMPARATIVE AVERAGE BALANCES – YIELDS AND RATES
(unaudited, in thousands, except yields/rates)
 
   
Six Months Ended June 30,  
   
 
     
2007
         
 
     
2006
       
   
Average
         
Yield/
   
Average
         
Yield/
 
   
Balance
   
Interest
   
Rate
   
Balance
   
Interest
   
Rate
 
Assets
                                   
Interest-earning assets:
                                   
  Interest-bearing deposits with banks
   
$    2,259
     
$       45
      4.0 %    
$    2,301
     
$       46
      4.0 %
  Securities
   
159,733
     
4,474
      5.6 %    
179,995
     
4,845
      5.4 %
  Federal funds sold
   
9,830
     
248
      5.1 %    
1,495
     
33
      4.4 %
  Loans held for sale
   
2,147
     
71
      6.7 %    
392
     
10
      5.1 %
  Loans, net of unearned income
   
511,777
     
21,656
      8.5 %    
498,774
     
19,223
      7.8 %
    Total interest-earning assets
   
685,746
     
26,494
      7.8 %    
682,957
     
24,157
      7.1 %
                                                 
Noninterest-earning assets:
                                               
  Cash and due from banks
   
18,095
                     
21,601
                 
  Premises and equipment, net
   
13,934
                     
12,114
                 
  Other assets
   
2,440
                     
2,164
                 
    Total
   
$720,215
                     
$718,836
                 
                                                 
Liabilities and Stockholders' Equity
                                         
Interest-bearing liabilities:
                                               
  Demand deposits
   
$197,440
     
3,285
      3.4 %    
$173,870
     
2,503
      2.9 %
  Savings deposits
   
40,197
     
105
      0.5 %    
44,238
     
73
      0.3 %
  Time deposits
   
274,690
     
6,220
      4.6 %    
267,238
     
5,240
      4.0 %
  Borrowings
   
14,109
     
475
      6.8 %    
42,734
     
958
      4.5 %
    Total interest-bearing liabilities
   
526,436
     
10,085
      3.9 %    
528,080
     
8,774
      3.4 %
                                                 
Noninterest-bearing liabilities:
                                               
  Demand deposits
   
125,285
                     
131,211
                 
  Other
   
5,736
                     
4,367
                 
    Total liabilities
   
657,457
                     
663,658
                 
  Stockholders' equity
   
62,758
                     
55,178
                 
    Total
   
$720,215
                     
$718,836
                 
Net interest income
           
$ 16,409
                     
$ 15,383
         
Net yield on interest-earning assets
              4.8 %                     4.5 %
                                                 
Noninterest Income
Noninterest income is another major component of the Bank's total income. The Bank continues to develop and enhance existing products and create new products in order to augment fee income as trends in the financial services industry and the economic environment continue to put pressure on the Bank's ability to increase its net interest income. Noninterest income includes deposit service charges, return check charges, bankcard fees, other commissions and fees, gains and/or losses on sales of securities and loans, and various other types of income.
Noninterest income for the first six months of 2007 totaled $2.2 million, down $26,000 when compared to the same period in 2006. This decrease is due to net losses of $228,000 recognized on the sale of securities in 2007. Service charges, commissions and fees increased by $101,000, net gains on sales of loans increased by $54,000 and other noninterest income increased $47,000.
Noninterest income for the three month period ended June 30, 2007 totaled $1.1 million, down $35,000 when compared to the same period in 2006. Service charges, commissions and fees totaled $953,000 for the second quarter 2007, up $41,000 when compared to the second quarter 2006. In the second quarter of 2007, net losses on sale of securities increased $162,000 when compared to the same period in 2006, resulting in a decrease in noninterest income. Net gains on sale of loans increased $36,000 and other noninterest income increased $51,000 for the second quarter 2007 when compared to the second quarter of 2006.

Noninterest Expense
Noninterest expense totaled $10.1 million for the first six month period 2007 compared to $8.6 million for the same six month period ended 2006, an increase of $1.4 million.
Salaries and benefits increased $729,000 primarily due to an increase in support staff. At June 30, 2007, 223 employees represented full time equivalents of 207 staff members, compared to the full-time equivalents of 182 staff members during the same period of 2006. Occupancy and equipment expense totaled $1.2 million for the first six months of 2007, an increase of $52,000 when compared to the same period in 2006. Net cost of other real estate and repossessions increased $800,000 when comparing the six month periods ending 2007 and 2006. There was a net gain in 2006 compared to a net loss in 2007. The net gain in 2006 was from a reversal of the other real estate provision and also from gains on sales of other real estate. The net loss in 2007 is due primarily to expenses related to the home mortgages discussed in Note 3. Other noninterest expense reflects a decrease of $133,000 when comparing the six month periods ending 2007 and 2006. The decrease in 2007 is due to decreases in both professional fees and general and administrative expenses. These decreases were partially offset by increases in data processing expenses and advertising and business development expenses.
Noninterest expense totaled $5.1 million and $4.1 million for the three month periods ended June 30, 2007 and 2006, respectively, an increase of $1.0 million in 2007. This increase is due primarily to an increase in salaries and employee benefits and an increase in net expense from other real estate and repossessions.

13
Income Taxes
In both six month periods ended 2007 and 2006, the income tax provision approximated the normal statutory rate and the effective rates were 34.4% and 34.2%, respectively.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk Management
The interest spread and liability funding previously discussed are directly related to changes in asset and liability mixes, volumes, maturities and repricing opportunities for interest-earning assets and interest-bearing liabilities. Interest sensitive assets and liabilities are those which are subject to being repriced in the near term, including both floating or adjustable rate instruments and instruments approaching maturity. The interest sensitivity gap is the difference between total interest-sensitive assets and total interest-sensitive liabilities. Interest rates on the Bank’s 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 its margin, the Bank attempts 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. The Bank generally seeks to limit its 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.
One tool that is used to monitor interest rate risk is the interest sensitivity analysis as shown in Table 4. This analysis, which is prepared monthly, reflects the maturity and repricing characteristics of assets and liabilities over various time periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The Bank’s interest sensitivity analysis at June 30, 2007 reflects an asset-sensitive position with a positive cumulative gap on a one-year basis.
 
TABLE 4 – INTEREST SENSITIVITY AT JUNE 30, 2007
(unaudited, in thousands, except for percentages)
     
   
Interest Sensitivity Within  
   
3 Months  
 
Over 3 Months  
 
Total  
 
Over  
     
   
Or Less  
 
thru 12 Months  
 
One Year  
 
One Year  
 
Total  
Earning Assets:
                             
  Loans (including loans held for sale)
   
$307,898
     
$79,521
     
$387,419
     
$133,576
     
$520,995
 
  Securities (including FHLB stock)
   
31,708
     
15,350
     
47,058
     
116,805
     
163,863
 
  Federal Funds Sold
   
1,204
     
-
     
1,204
     
-
     
1,204
 
  Other earning assets
   
47
     
2,188
     
2,235
     
-
     
2,235
 
    Total earning assets
   
340,857
     
97,059
     
437,916
     
250,381
     
688,297
 
                                         
Source of Funds:
                                       
Interest Bearing Accounts:
                                       
    Demand deposits
   
146,045
     
-
     
146,045
     
55,655
     
201,700
 
    Savings
   
9,908
     
-
     
9,908
     
29,723
     
39,631
 
    Time deposits
   
110,172
     
95,969
     
206,141
     
67,022
     
273,163
 
    Short-term borrowings
   
19,588
     
-
     
19,588
     
-
     
19,588
 
    Long-term borrowings
   
2,561
     
-
     
2,561
     
255
     
2,816
 
Noninterest-bearing, net
   
-
     
-
     
-
     
151,399
     
151,399
 
    Total source of funds
   
288,274
     
95,969
     
384,243
     
304,054
     
688,297
 
Period gap
   
52,583
     
1,090
     
53,673
      (53,673 )        
Cumulative gap
   
$ 52,583
     
$ 53,673
     
$ 53,673
     
$    -
         
                                         
Cumulative gap as a
                                       
 percent of earning assets
    7.64 %     7.80 %     7.80 %                
                                         

14
Item 4.  Controls and Procedures
 
    The Bank maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports it files under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Such controls include those designed to ensure the material information is communicated to management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.
    The Bank’s management, with the participation of the CEO and CFO, have evaluated the effectiveness of the Bank’s 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 Bank’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 like to materially affect, the Bank’s internal control over financial reporting.
 
15
 
PART II.  OTHER INFORMATION
 

Item 1.
Legal Proceedings
                          
     The Bank 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 Bank's financial position or results of operations.

Item 2.
Changes in Securities and Use of Proceeds

Item 2 is nonapplicable and is therefore not included.

Item 3.
Defaults Upon Senior Securities

Item 3 is nonapplicable and is therefore not included.

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

        The Bank’s Annual Meeting of Stockholders was held on May 17, 2007.
        1.  With respect to the election of 19 directors to serve one year and until their successors are elected and qualified, the following are the numbers of shares voted for each nominee:
 
Nominees
 
For
Against
Mary Ann Allen
 
    4,003,141
       1,224
F. Fanancy Anzalone
 
    4,003,033
       1,332
Anthony J. Berner, Jr.
 
    4,003,365
       1,000
Collins Bonicard
 
    4,003,033
       1,332
Charles Brister
 
    4,003,365
       1,000
Andrew Gasaway
 
    4,003,365
       1,000
Daniel P. Harrington
 
    4,003,365
       1,000
William K. Hood
 
    4,003,365
       1,000
Edwin L. Hoover, Jr.
 
    4,002,553
       1,812
Alton B. Lewis
 
    4,002,553
       1,812
Morgan S. Nalty
 
    4,002,665
       1,700
Daniel F. Packer, Jr.
 
    4,002,896
       1,469
Marshall T. Reynolds
 
    4,003,365
       1,000
Nicholas A. Saladino
 
    4,003,033
       1,332
Sam P. Schelfo, Jr.
 
    4,003,365
       1,000
Michael R. Sharp
 
    3,998,445
       5,920
Edgar R. Smith, III
 
    4,003,365
       1,000
F. Jay Taylor
 
    4,003,033
       1,332
Loy F. Weaver
 
    4,003,365
       1,000

There were no abstentions or broker non-votes.
 
16
Item 5.
Other Information

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

Item 6.
Exhibits and Reports on Form 8-K

 
(a)
  1. Financial Statements

         The information required by this item is included as Part I herein.
 
 
 
  2. Financial Statement Schedules
 
          The information required by this item is not applicable and therefore is not included.
 
 
 
  3. Exhibits
 
 
 
Exhibit
   
 
 
Number
 
Exhibit
 
11
 
Statement regarding computation of earnings per common share
     
The information required by this item is incorporated by reference to the Bank's Form 10-K for the period ended December 31, 2006.
 
12
 
Statement regarding computation of ratios
     
The information required by this item is incorporated by reference to the Bank's Form 10-K for the period ended December 31, 2006.
 
A.
 
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
B.
 
Certifications in Support of Principal Executive Officers/CFO Certification
 
 
      (b)
 
An 8-K was filed on July 27, 2007 with the FDIC describing the holding company transaction and alerting the public that the Bank will no longer be filing with the FDIC, but rather with the SEC.

      (c)
 
See (a) (3) above for all exhibits filed herewith or incorporated by reference.

      (d)
 
There are no other financial statements and financial statement schedules, which were excluded from Part I which are required to be included herein.

 
 
17
SIGNATURES




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


                                                                                                    FIRST GUARANTY BANK


 

    Date:     July 27, 2007                                                                                                                                                                    /s/ Michael R. Sharp
                                                                                                                                                                                                            Michael R. Sharp
                                                                                                                                                                            President and
                                                                                                                                                                            Chief Executive Officer

   Date:       July 27, 2007
                                                                                                                                                                                                            /s/ Michele E. LoBianco       
                                                                                                                                                                                                          Michele E. LoBianco
                                                                                                                                                                                          Senior Vice President and
                                                                                                                                                                          Chief Financial Officer

 
 
18
EXHIBIT A


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002






In connection with the Quarterly Report of First Guaranty Bank (the “Bank”) on Form 10-Q as of and for the six months ended June 30, 2007 as filed with the Federal Deposit Insurance Corporation on the date hereof (the “Report”), I, Michael R. Sharp, President and Chief Executive Officer of the Bank, certify, pursuant to 18 U.S.C. SS 1350, as adopted pursuant to SS 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Bank.







/s/ Michael R. Sharp
Michael R. Sharp
President and Chief Executive Officer
July 27, 2007



 
 
19

EXHIBIT A


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002






In connection with the Quarterly Report of First Guaranty Bank (the “Bank”) on Form 10-Q as of and for the six months ended June 30, 2007 as filed with the Federal Deposit Insurance Corporation on the date hereof (the “Report”), I, Michele E. LoBianco, Chief Financial Officer of the Bank, certify, pursuant to 18 U.S.C. SS 1350, as adopted pursuant to SS 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Bank.






/s/ Michele E. LoBianco
Michele E. LoBianco
Senior Vice President and
Chief Financial Officer
July 27, 2007



















 
20



EXHIBIT B


CERTIFICATION OF DISCLOSURE
FOR THE CHIEF EXECUTIVE OFFICER


I, Michael R. Sharp, President and Chief Executive Officer of First Guaranty Bank hereby certify that:

1.  
I have reviewed this quarterly report being filed on Form 10-Q of First Guaranty Bank;

2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;

3.  
Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Bank as of, and for, the periods presented in the report;

4.  
The Bank’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Bank and have:

a.  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Bank, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.  
Evaluated the effectiveness of the Bank’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.  
Disclosed in this report any change in the Bank’s internal control over financial reporting that occurred during the Bank’s most recent fiscal quarter (the Bank’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Bank’s internal control over financial reporting; and

5.  
The Bank’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Bank’s auditors and the audit committee of the Bank’s Board of Directors (or persons performing the equivalent functions):

a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Bank’s internal control over financial reporting.






/s/ Michael R. Sharp
Michael R. Sharp
President and Chief Executive Officer
July 27, 2007


 
21


EXHIBIT B


CERTIFICATION OF DISCLOSURE
FOR THE CHIEF FINANCIAL OFFICER


I, Michele E. LoBianco, Senior Vice President and Chief Financial Officer of First Guaranty Bank hereby certify that:

1.  
I have reviewed this quarterly report being filed on Form 10-Q of First Guaranty Bank;

2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;

3.  
Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Bank as of, and for, the periods presented in the report;

4.  
The Bank’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Bank and have:

a.  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Bank, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.  
Evaluated the effectiveness of the Bank’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.  
Disclosed in this report any change in the Bank’s internal control over financial reporting that occurred during the Bank’s most recent fiscal quarter (the Bank’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Bank’s internal control over financial reporting; and

5.  
The Bank’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Bank’s auditors and the audit committee of the Bank’s Board of Directors (or persons performing the equivalent functions):

a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Bank’s internal control over financial reporting.





/s/ Michele E. LoBianco
Michele E. LoBianco
Senior Vice President and
Chief Financial Officer
July 27, 2007


 

 


22

                                                                                                                 EXHIBIT 99.4

 
LOGO
FIRST GUARANTY BANK

Post Office Box 2009
Hammond, Louisiana  70404-2009

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 17, 2007

 


To the Stockholders of First Guaranty Bank:

You are cordially invited to attend the 2007 Annual Stockholders Meeting (the Meeting) of First Guaranty Bank (the Bank) which will be held in the Auditorium, First Guaranty Square, 400 East Thomas Street, Hammond, Louisiana, on Thursday, May 17, 2007, at 2:00 p.m., local time, for the purpose of considering and voting upon the following matters:

 
 
1.
To elect the Board of Directors to serve until the next Annual Meeting of the stockholders and until their successors are duly elected and qualified.
 
 
2.
To transact such other business as may properly come before the Meeting or any adjournment or postponement thereof.
 
The Board of Directors has fixed April 6, 2007, as the record date for determining stockholders entitled to receive notice of and to vote at the Meeting or any adjournment or postponement thereof. Only stockholders of record at the close of business on April 6, 2007, are entitled to notice and to vote at the Meeting.
Your vote is important regardless of the number of shares you own. All stockholders are invited to attend the Meeting in person, but even if you do not plan to attend this Meeting, please mark, date, and sign the enclosed proxy and return it promptly in the enclosed stamped envelope . This proxy is solicited on behalf of the Board of Directors and may be revoked by written notice to the Secretary of the Bank at any time prior to exercise thereof.
We hope that you will be able to attend the Meeting, and if you do, you may vote your shares in person if you wish.

BY ORDER OF THE BOARD OF DIRECTORS



                                         Collins Bonicard
                                         Secretary
Hammond, Louisiana
April 20, 2007
 
 
 
FIRST GUARANTY BANK
Post Office Box 2009
Hammond, Louisiana  70404-2009



PROXY STATEMENT


ANNUAL MEETING OF STOCKHOLDERS
To Be Held on Thursday, May 17, 2007



The following information is furnished in connection with the Meeting of Stockholders (the Meeting) of First Guaranty Bank (the Bank) to be held on Thursday, May 17, 2007, at 2:00 p.m., local time, in the Auditorium, second floor, First Guaranty Square, 400 East Thomas Street, Hammond, Louisiana, and any adjournment or postponement thereof. This proxy statement and the form of proxy will be first given or mailed to stockholders on approximately April 20, 2007.


SOLICITATION OF PROXIES

The enclosed proxy is being solicited by the Board of Directors of the Bank. The cost of soliciting the proxies in the form enclosed will be borne by the Bank. The directors, officers and employees of the Bank may, but without compensation other than their regular compensation, solicit proxies by telephone or personal interview. In addition, it is anticipated that banks, brokerage houses, and other institutions, nominees, and fiduciaries will be requested to forward the proxy materials to their principals and to obtain authorizations for the execution of proxies. The Bank shall, upon request, reimburse banks, brokerage houses and other institutions, nominees and fiduciaries for their expenses in forwarding proxy materials to their principals. The anticipated cost of such expenses is expected to be minimal.


VOTING OF PROXIES

The Board of Directors of the Bank has fixed the close of business on April 6, 2007 as the record date for determining the stockholders entitled to notice of and to vote.  Accordingly, only holders of record as of that time and date are entitled to notice of and to vote.  At that time and date, the Bank had issued and outstanding 5,559,644 shares of $1 par value common stock, which comprise all of the Bank's outstanding voting securities. Each share of common stock is entitled to one vote.

All proxies in the form enclosed that are properly executed and returned to the Bank will be voted at the Meeting, and any adjournment thereof, as specified by the stockholders in the proxies. The proxy may be revoked at any time before it is exercised by giving written notice of revocation or if a proxy dated a later date is filed with the Secretary of the Bank at or before the Meeting. If a stockholder (other than a broker holding shares in street name) executes and returns the enclosed proxy but does not indicate the manner in which he desires one or more of his shares to be voted, the shares will be voted FOR the election of the nominees named under “Election of Directors” and FOR the other proposals described in this proxy statement.

The Board of Directors of the Bank is not aware of any business to be acted upon at the Meeting other than the matters described in this proxy statement. If, however, other proper matters are brought before the Meeting, or any adjournment or postponement thereof, the persons appointed as proxy holders will have discretion to vote or abstain from voting thereon according to their best judgment.

Should any nominee for director be unable or unwilling to serve, the proxy holders will have discretionary authority to vote for a substitute. The Board of Directors has no reason to believe that any nominee will be unable or unwilling to serve.  
Directors will be elected by a plurality of votes cast. On any other matter that may properly come before the Meeting, the affirmative vote of the holders of a majority of the shares voted at the Meeting, in person or by proxy, will be required for the approval of any proposal submitted and considered at the Meeting.  Brokers holding shares for clients in street name are permitted, without receiving instructions from the client, to vote clients' shares on routine, non-controversial matters, but are not permitted to vote on non-routine matters. A vote that is not cast for this reason is a "broker non-vote". Express abstentions and broker non-votes made at the Meeting, in person or by proxy, will be counted toward a quorum but will have no effect with respect to the vote on matters considered at the meeting.


ELECTION OF DIRECTORS

The Board of Directors of the Bank has fixed the number of directors of the Bank at 19. The persons named on the Proxy will vote only for the 19 named nominees, except to the extent that authority to so vote is withheld as to one or more nominees. The persons elected as directors are to serve until the next Annual Stockholders Meeting or until their successors are duly elected and qualified.
The persons hereinafter named have been nominated by the Board of Directors for election as directors of the Bank. Each nominee's name, age, present positions with the Bank, if any, principal occupation, directorships in other public companies, and the year each first became a director of the Bank are set forth below.

The Board of Directors recommends a vote “FOR” all of the nominees listed below for election as directors.


 
Name
 
Age
Director Since
 
Title
 
Mary A. Allen
66
2003
Founder and co-owner of M. A. Allen Real Estate, Inc. since 1993.
 
F. Fanancy Anzalone, M.D.
71
1976
Engaged in the private practice of medicine since June 1960.
 
Anthony J. Berner, Jr.
54
1997
President of Pon Food Corp., a wholesale food distribution company, since 1984.
 
Collins Bonicard
77
1982
Secretary to the Bank’s board of directors since July 1993.  Independent contractor and building inspector since July 1984.
 
Charles Brister
55
1996
President and owner of Brister’s Rental and Consulting from March 2006 to present.  President of Brister’s Design and
Manufacturing from 2002 to 2006 and chief executive officer and chairman of Brister Consultant and Investments since 1996. President and chief executive officer of Karts International, Inc. since January 1999, and a director of that company since March 1996.
 
Andrew Gasaway, Jr.
69
1978
President of Gasaway-Gasaway-Bankston, APAC (architects) since May 1973.
 
Daniel P. Harrington
51
1999
President of HTV Industries, Inc., a holding company with manufacturing operations and investments in various industries, since 1991.  Director of Churchill Downs Incorporated since 1998; director of Biopure Corporation since 1999; director of Portec Rail Products, Inc. since 1997; and director of First State Financial Corp. in Sarasota, Florida since March 2000.
 

 
Name
 
Age
Director Since
 
Title
 
William K. Hood
56
1977
President of Hood Automotive Group since 1977 and a director of Entergy Louisiana, Inc. since 1987.
 
Edwin L. Hoover, Jr.
62
1994
President of Encore Development Corporation, a real estate investment company, since January 1987.
 
Alton B. Lewis, Jr.
58
2001
Partner of the law firm of Cashe, Lewis, Coudrain & Sandage and its predecessor firm since January 1989.
 
Morgan S. Nalty
41
2001
Investment banking executive and partner of Johnson Rice & Co., LLC since 1994.
 
Daniel F. Packer, Jr.
59
2005
Chairman of the board of Entergy New Orleans since January 2007. President of Entergy New Orleans from 1996 to 2007 and its chief executive officer from 1998 to 2007.  Chairman of the New Orleans Aviation Board for the Louis Armstrong International Airport.  Member of the board of the Louisiana Community and Technical College System and a member of the board of trustees of Loyola University of New Orleans.
 
Marshall T. Reynolds
70
1993
Chairman of the Bank’s board of directors since May 1996 and a director since 1993.  Chairman of the board, president and chief executive officer since 1992 of Champion Industries, Inc., a holding company for commercial printing and office products companies.  Chairman of the board of Premier Financial Bancorp in Huntington, West Virginia since 1996.  Chairman of the board of Portec Rail Products, Inc. in Pittsburgh, Pennsylvania since December 1997, director of Summit State Bank in Santa Rosa, California since December 1998 and director of First State Financial Corp. in Sarasota, Florida since 1999.  From 1964 to present, president and manager of the Harrah and Reynolds Corporation (predecessor to Champion Industries, Inc.).  From 1983 to 1993, chairman of the board of Banc One, The West Virginia Corporation (formerly Key Centurion Bancshares, Inc.).  Mr. Reynolds has served as chairman of The United Way of the River Cities, Inc. and Boys and Girls Club of Huntington.
 
Nicholas A. Saladino
82
1987
Mayor of Town of Kentwood, Louisiana from 1974 to 1986.  Currently retired.
 
Sam P. Scelfo, Jr.
57
1994
President of Gambino’s Bakeries and Caterers, Inc. since 1978.
 
Michael R. Sharp
59
2005
The Bank’s president and chief executive officer and director since January 2005 and the Bank’s senior vice president and senior commercial lender from December 1999 to January 2005.  President and chief executive officer of First Southwest Bank in Jennings, Louisiana from November 1997 to December 1999.
 



 
Name
 
Age
Director Since
 
Title
 
Edgar R. Smith, III
43
2007
President and Chairman of the board of Smitty’s Supply, Inc.   (lubricants manufacturing and packaging) since 2001.
 
F. Jay Taylor
83
2001
Labor-management arbitrator since 1973 and a director of Pizza Inn, Inc. since 1993.  President of Louisiana Tech University from 1962 to 1987.
 
Loy F. Weaver
64
2001
The Bank’s north Louisiana area president and director since January 2001. President of Woodlands Bancorp, Inc. and First Woodlands Bank from February 1999 to January 2001. City president of Bank One in Homer, Louisiana from 1996 to 1998.
 
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Principal Stockholders

The following table sets forth certain information regarding the only persons who, on March 12, 2007 were known by the Bank to own beneficially more than 5% of any class of the outstanding stock of the Bank. Each beneficial owner exercises sole voting and investment power over the shares listed below except as disclosed in the accompanying footnotes. Pursuant to Rule 13d-4 under the Securities Exchange Act of 1934 (the “Exchange Act”), each principal stockholder disclaims beneficial ownership of all shares owned by his spouse, a trust or business entity with which he is affiliated, or of which he acts as custodian.
 
 
 Name of Beneficial
Owner
 $ Par
Par Value
 % of Class
$1 Par
 
         
   Daniel P. Harrington          346,883 1         6.239%  
   30195 Chagrin Blvd, Ste 310-N      
   Pepper Pike, OH  44124      
         
         
   Douglas V. Reynolds 2         325,157         5.849%  
   P.O. Box 4040      
   Huntington, WV  25729      
         
 
 Marshall T. Reynolds 3
                1,674,134                30.112%  
   P.O. Box 4040      
   Huntington, WV  25729      
         
_____________________________________________________________________________________________________________________________________________

 
1 Includes 337,732 shares owned by TVI Corp. of which Mr. Daniel P. Harrington is President and Director. The Board of Directors of TVI has voting and investment power over such shares. Also includes 5,552 shares owned by Brothers Capital Corp. over which Mr. Harrington has sole voting and investment power and 3,333 shares of which Mr. Harrington is a joint owner who has shared voting and investment power over such shares.
  2 Mr. Douglas V. Reynolds is the son of Marshall T. Reynolds.
 
3 Mr. Marshall T. Reynolds is Chairman of the Board.   Includes 31,925 shares owned by R-P Investments, Inc. and 4,000 shares owned by Purple Cap, LLC, over all of which Mr. Reynolds has shared voting and investment power. Also includes 4,133 shares owned by Champion Leasing Corp., 5,333 shares owned by the Harrah & Reynolds Corporation and 5,000 shares owned by M. T. Reynolds Irrevocable Trust, over all of which Mr. Reynolds has sole voting and investment power. Also includes 8,333 shares owned by Mr. Reynolds’s wife who exercises sole voting and investments powers over such shares. Also, includes 112,000 shares owned by one of Mr. Reynolds’s sons (Jack Reynolds) who exercises sole voting and investment power over such shares.

Security Ownership of Directors, Nominees, and Executive Officers

The following table sets forth certain information concerning the beneficial ownership of each class of the Bank's outstanding capital stock by each director, nominee for director and named executive officer of the Bank and by all directors and named executive officers of the Bank as a group as of March 12, 2007. Each director, nominee for director and named executive officer exercises sole voting and investment power over the shares listed below except as disclosed in the accompanying footnotes. Pursuant to Rule 13d-4 under the Exchange Act, each person listed below disclaims beneficial ownership of all shares owned by his or her spouse, a trust or a business entity with which he or she is affiliated, or of which he or she acts as custodian.
 
 
Name
 
 
Title
Number
of Bank
Shares
Owned
 
Percent
of
Class
Marshall T. Reynolds 1, 14
Chairman of the Board of Directors
1,674,134
30.112%
 
Michael R. Sharp 2, 14
President and Chief Executive Officer and Director
25,053
0.451%
 
Loy F. Weaver 3, 14
North Louisiana Area President and Director
72,599
1.306%
 
Michele E. LoBianco 4, 14
Senior Vice President and Chief Financial Officer
2,489
0.045%
 
Barton J. Leader, Jr. 14
Senior Vice President and
Commercial Lending Division Head
 
5,347
0.096%
 
Michael F. Lofaso 15
Senior Vice President and
Chief Credit Officer
 
2,900
0.052%
Mary Ann Allen
Director
1,309
0.024%
 
F. Fanancy Anzalone, M.D.
Director
444
0.008%
 
Anthony J. Berner, Jr. 5
Director
5,547
0.100%
 
Collins Bonicard 6
Director
40,000
0.719%
 
Charles Brister 7
Director
10,452
0.188%
 
Andrew Gasaway, Jr.   8
Director
11,301
0.203%
 
Daniel P. Harrington 9
Director
346,883
6.239%
 
William K. Hood 10
Director
112,996
2.032%
 
Edwin L. Hoover, Jr.
Director
20,806
0.374%
 
Alton B. Lewis, Jr. 11
Director
17,906
0.322%
 
Morgan S. Nalty
Director
20,699
0.372%
 
Daniel F. Packer, Jr. 12
Director
266
0.005%
 
Nicholas A. Saladino 13
Director
13,333
0.240%
 
Sam P. Scelfo, Jr.
Director
7,066
0.127%
 
Edgar R. Smith, III
 
Director
5,000
0.090%
F. Jay Taylor
Director
12,000
0.216%
 
All directors, nominee for director, and executive officers as a group (21 as a group)
 
2,405,630
43.269%
 
1    Includes 31,925 shares owned by R-P Investments, Inc. and 4,000 shares owned by Purple Cap, LLC, over all of which Mr. Reynolds has shared voting and investment power.  Also  includes 4,133 shares owned by Champion Leasing Corp., 5,333 shares owned by the Harrah & Reynolds Corporation and 5,000 shares owned by M. T. Reynolds Irrevocable Trust, over all of which Mr. Reynolds has sole voting and investment power. Also includes 8,333 shares owned by Mr. Reynolds’s wife who exercises sole voting and investment powers over such shares. Also includes 112,000 shares owned by one of Mr. Reynolds’s sons (Jack Reynolds) who exercises sole voting and investment powers over such shares.
 2   Includes 53 shares owned by Lakestar Land Company, owned by Mr. Sharp, as to which Mr. Sharp exercises sole voting and investment power
 3    Includes 3,733 shares owned by Mr. Weaver’s wife who exercises sole voting and investment power over such shares and 6,000 shares owned by DOSL as to which Mr. Weaver exercises sole voting and investment power over such shares.
 4. Includes 488 shares of which Mrs. LoBianco is a joint owner who has shared voting and investment power over such shares
 5   Includes 1,333 shares owned by Mr. Berner’s wife who exercises sole voting and investment power over such shares.
 6. Includes 40,000 shares of which Mr. Bonicard is a joint owner who has shared voting and investment power over such shares.
 7 Includes 2,000 shares owned by Mr. Brister’s wife who exercises sole voting and investment power over such shares. Also includes 5,119 shares of which Mr. Brister is a joint owner who has shared voting and investment power over such shares.
 8 Includes 1,383 shares owned by Mr. Gasaway’s wife who exercises sole voting and investment power over such shares.
 9   Included are 337,732 shares owned by TVI Corp. of which Mr. Daniel P. Harrington is President and Director. The Board of Directors of TVI has voting and investment power over such shares. Also included are 5,552 shares owned by Brothers Capital Corp. over which Mr. Harrington has sole voting and investment power and 3,333 shares of which Mr. Harrington is a joint owner who has shared voting and investment power over such shares.
10  Includes 484 shares of which Mr. Hood is a joint owner who has shared voting and investment power over such shares, 16,539 shares owned by Hood Investments, LLC and 13,834 shares owned by WKH Management, Inc. as to which Mr. Hood exercises sole voting and investment power.
11 Includes 200 shares of which Mr. Lewis is a joint owner who has shared voting and investment power over such shares.
12 Includes 266 shares of which Mr. Packer is a joint owner who has shared voting and investment power over such shares.
13 Includes 13,333 shares of which Mr. Saladino is a joint owner who has shared voting and investment power over such shares.
14 A named executive officer of the Bank.
15 In February 2007, Mr. Lofaso resigned as senior vice president and chief credit officer.
 
Change in Control Arrangements

 There are no arrangements known to the Bank (including any pledge of securities of the Bank by any person who owns beneficially more than 5% of any class of the outstanding stock of the Bank), the operation of which may at a subsequent date result in a change of control of the Bank.

Section 16(a) Beneficial Ownership Reporting Compliance

 The Bank is not aware of any instance during 2006 in which directors or officers of the Bank failed to make timely filings required by Section 16(a) of the Exchange Act. The Bank has relied on written representations of its directors and executive officers and copies of the reports that have been filed in making required disclosures concerning beneficial ownership reporting.
 
BOARD COMMITTEES AND MEETINGS

During 2006, the Bank’s Board of Directors had 12 standing committees: an Executive Committee, an Audit and Examination Committee, a Directors’ Loan Committee, a North Louisiana Loan Committee, a Dividend Committee, a Compensation Committee, an Investment Committee, a Trust Committee, a Nominating Committee, a Compliance Review Committee, an Incentive Stock Option Committee, and a Marketing Committee.

The members of the Executive Committee are Marshall T. Reynolds, Chairman, Collins Bonicard, Andrew Gasaway, Jr., William K. Hood, Alton B. Lewis and Sam P. Scelfo, Jr. Mr. Reynolds and Mr. Lewis are not independent directors within the meaning of Rule 4200 of The NASDAQ Stock Market, LLC. The functions of the Executive Committee include making recommendations to the Board of Directors concerning special projects or policies and exercising the powers of the full Board of Directors, subject to certain limitations, when it is determined that the nature of a particular situation makes it impractical or impossible to convene the full Board of Directors. Additionally, the Executive Committee fulfills the functions of the Bank’s Compensation Committee and in that capacity recommends to the full Board of Directors the compensation arrangements for senior management and directors and the adoption of compensation plans in which officers and directors are eligible to participate and the oversight of any such plans that are adopted by the Board of Directors.  The Executive Committee does not have a written charter.
The members of the Audit and Examination Committee are William K. Hood, Chairman, Anthony J. Berner, Jr., Collins Bonicard, Edwin L. Hoover, Jr. and Nicholas A. Saladino. The functions of the Bank's Audit and Examination Committee include selecting and hiring of the Bank's external auditor, serving as a channel of communication between the auditor and regulatory examiners and the Board of Directors, reviewing examinations of the Bank, reviewing the results of each external audit of the Bank, reviewing the Bank's annual financial statements, considering the adequacy of the Bank's internal financial controls, and attending to other matters relating to the appropriate auditing and accounting principles and practices to be used in the operation of the Bank in the preparation of its financial statements. This Committee also supervises the activities of the Internal Auditor and approves the annual program of work. The Audit and Examination Committee does not currently have an “audit committee financial expert” within the meaning of Item 401(h)(2) of SEC Regulation S-K and the Board has not identified any new director candidate who also meets the definition of a financial expert. Although none of the members of the committee qualifies for that designation under the rule, it is the judgment of the Board that the members of the committee are qualified directors to serve on the Audit and Examination Committee. All members of the Audit and Examination Committee are independent directors within the meaning of Rule 4200 of The NASDAQ Stock Market, LLC. The Audit and Examination Committee Charter is published on the Bank’s website at www.fgb.net .
 
The members of the Loan Committee are William K. Hood, Chairman, Anthony J. Berner, Jr., Collins Bonicard, Charles Brister, Andrew Gasaway, Jr., Edwin L. Hoover, Jr., Alton B. Lewis and Nicholas A. Saladino. The Loan Committee is charged with responsibilities that include reviewing all loan policies of the Bank, reviewing all credits, existing and proposed, in excess of $500,000, reviewing all problem and past due credits, and reviewing any exceptions made by Management to the Bank's loan policies.

The members of the North Louisiana Loan Committee are Loy F. Weaver, Chairman, Collins Bonicard, Andrew Gasaway, Jr., Sam P. Scelfo, Jr., F. Jay Taylor and the Advisory Board members. The members of the Advisory Board consist of Thomas D. Crump, Sr., Thomas D. Crump, Jr., Carrell G. Dowies, III, Phillip E. Fincher, John D. Gladney and
Britt L. Synco.  The North Louisiana Loan Committee helps to develop lending and marketing philosophies and provides insight into developments in the fields of agriculture, oil and gas production and other business activities.

The members of the Dividend Committee are Marshall T. Reynolds, Chairman, William K. Hood and Sam P. Scelfo, Jr. This Committee reviews financial performance and the condition of the Bank and determines whether to recommend to the Board of Directors that it declare dividends with respect to shares of the Bank's stock.

The members of the Investment Committee are Marshall T. Reynolds, Chairman, Collins Bonicard, Daniel P. Harrington, William K. Hood, Alton B. Lewis and Sam P. Scelfo, Jr. The function of this Committee includes setting and updating investment policies, monitoring the securities portfolio, and reviewing the current portfolio and market rates.

As of December 2006, there is only one member of the Trust Committee, Sam P. Scelfo, Jr.  The chairman position is vacant. The Trust Committee is responsible for reviewing and recommending to the Board the adoption of policies designed to assure adherence to the regulations of the State of Louisiana Office of Financial Institutions and to sound fiduciary principles, to review and report to the Board of Directors any deviations from accepted administrative policies, and monitor the continuing effectiveness of the administrative policies and performance of the limited trust functions.

The members of the Compliance Review Committee are William K. Hood, Chairman, Anthony J. Berner, Jr., Collins Bonicard, Edwin L. Hoover, Jr. and Nicholas A. Saladino. The function of this Committee includes monitoring compliance with the rules of all state, federal and local regulatory agencies.

The members of the Incentive Stock Option Committee are Marshall T. Reynolds, Chairman and William K. Hood. The Incentive Stock Option Committee is charged with the responsibility of administering any incentive stock option plan adopted by the Bank, including granting options to officers or employees and setting the expiration date of any options granted.  The Bank currently has no such plans in effect.

The members of the Marketing Committee are Sam P. Scelfo, Jr., Chairman, Charles Brister and Anthony J. Berner. This Committee is responsible for the planning and oversight of the Bank’s marketing strategies.

The members of the Nominating Committee are Marshall T. Reynolds, Chairman, William K. Hood and Alton B. Lewis. Mr. Reynolds and Mr. Lewis are not independent directors within the meaning of Rule 4200 of The NASDAQ Stock Market. Article 3, Section 3.6 of the Bank’s By-Laws functions as the Nominating Committee’s charter and provides that the Committee is responsible for recommending to the Board of Directors:
 
Ø  
The slate of nominees of directors to be elected by the stockholders and any directors to be elected by the Board;
Ø  
Appropriate action with respect to candidates for directorship proposed by the chief executive officer, stockholders or others;
Ø  
The directors to be selected for membership on the various Board committees;
Ø  
Individual directors to be designated as chairs of the various committees of the Board.
 
The Nominating Committee Charter is published on the Bank’s website at www.fgb.net . The Nominating Committee has adopted and published a policy on stockholder recommendations for director nominees. This policy is published on the Bank’s website at www.fgb.net . It is expected that the Nominating Committee will use the same process to evaluate potential candidates recommended by stockholders as it uses to evaluate any other potential candidate.  Stockholders wishing to propose a nominee to the committee should send written notice to Mr. Marshall T. Reynolds at the following address:  P. O. Box 2009, Hammond, LA 70404. The notice should include:

Ø  
The stockholder’s name and address;
Ø  
A representation that the stockholder is a holder of record or a beneficial owner (in which case evidence of such beneficial ownership must be submitted if requested by the Nominating Committee) of shares of the Bank as of the date of the notice, and the number of shares owned;
Ø  
The name, age, business and residence addresses, and principal occupation and experience of each proposed nominee;
Ø  
Such other information regarding each proposed nominee that the stockholder wishes the Nominating Committee to consider, and all information about the proposed nominee that is required to be included in a proxy statement under Regulation 14A under the 1934 Act;
Ø  
The consent of each proposed nominee to be named in the proxy statement if nominated and to serve as director of the Company if elected; and
Ø  
A representation signed by each proposed nominee that states that such proposed nominee meets all of the qualifications set forth in Article 2 of the Company’s bylaws, which requires that directors must own shares of the Bank with a value of the lesser of $5,000 of aggregate book value or $1,000 of aggregate par value (unless this requirement is waived by the Commissioner of Financial Institutions).

In evaluating director nominees, the Nominating Committee considers the following factors:

Ø  
The appropriate size of the Bank’s Board of Directors;
Ø  
The needs of the Bank with respect to the particular talents and experience of its directors;
Ø  
The knowledge, skills and experience of nominees, including experience in technology, business, finance, administration or public service;
Ø  
Experience with accounting rules and practices;
Ø  
Appreciation of the relationship of the Bank’s business to the changing needs of society; and
Ø  
The desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members.

The Nominating Committee’s goal is to assemble a Board of Directors that brings to the Bank a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Nominating Committee also considers candidates with appropriate non-business backgrounds.

Other than the aforementioned, there are no stated minimum criteria for director nominees, although the Nominating Committee may also consider such other factors as it may deem are in the best interest of the Bank and its stockholders. The Committee also believes it appropriate for certain key members of the Bank’s management to participate as members of the Board of Directors.

The Nominating Committee identifies nominees by first evaluating the current members of the Board of Directors willing to serve an additional term. Current members of the Board who are willing to continue to serve as a member are considered for re-nomination. If any member of the Board does not wish to continue to serve on the Board or if the Nominating Committee or the Board decides not to re-nominate a member for re-election, the Nominating Committee may identify a new nominee or may elect to change the Bank’s By-Laws to change the fixed number of directors. Current Board members are polled for suggestions as to individuals meeting the criteria of the Nominating Committee. Research may also be performed to identify qualified individuals. Although the Bank reserves the right, the Bank has not engaged third parties to identify, evaluate, or assist in identifying potential nominees.

The Bank’s By-Laws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the Board of Directors at the Bank’s Annual Meeting of Stockholders. Those provisions are discussed in more detail in this proxy statement below under the heading “2007 Annual Meeting”.

The Bank has established a formal process by which stockholders may communicate with the Board of Directors. This process is published on the Bank’s website at www.fgb.net . Every effort has been made to ensure that the views of stockholders are heard by the Board or individual directors and that appropriate responses are provided to stockholders in a timely manner.

During 2006, there were   17 meetings of the Bank's Board of Directors , 11 meetings of the Executive Committee , nine   meetings of the Audit and Examination Committee , 53   meetings of the Loan Committee, 7 meetings of the North Louisiana Loan Committee and 12 meetings of the Investment Committee. The Dividend, Compensation, Trust, Nominating, Compliance Review, Incentive Stock Option and Marketing Committees did not meet during 2006. All of the Bank's directors attended at least 75% of the aggregate number of meetings of the Board of Directors and committees thereof on which they sit held during their term as Directors of the Bank except for the following: Mr. Harrington, Mr. Nalty and Mr. Packer who attended less than 75% of the Board of Directors meetings. Mr. Weaver, Mr. Bonicard, Mr. Gasaway, Mr. Scelfo and Mr. Taylor all attended less than 75% of the North Louisiana Loan Committee meetings. Mr. Harrington, Mr. Hood and Mr. Scelfo attended less than 75% of the Investment Committee meetings, and Mr. Scelfo attended less than 75% of the Executive Committee meetings. The Bank strongly encourages all members of the Board of Directors to attend the Annual Meeting of Shareholders each year. At the 2006 Annual Meeting, 16 of 18 Board members were present.

BOARD OF DIRECTORS INDEPENDENCE

The Board has determined that all members of the Board are “independent directors” within the meaning of Rule 4200 of The NASDAQ Stock Market except for Alton B. Lewis, Marshall T. Reynolds, Michael R. Sharp and Loy F. Weaver. The definition of an independent director can be found on the Bank’s website at www.fgb.net .


REPORT OF THE AUDIT AND EXAMINATION COMMITTEE

In fulfillment of the SEC’s requirement for disclosure in proxy materials relating to the functioning of Audit and Examination Committees, the Bank’s Audit and Examination Committee has prepared the following report for inclusion in this Proxy Statement.

The Audit and Examination Committee’s general role is to assist the Board of Directors in fulfilling its responsibility of overseeing the Bank’s financial reporting and audit process. The Audit and Examination Committee is governed by a written charter and by the Bank’s by-laws, which specify, among other things, the scope of the Committee’s responsibilities and how those responsibilities are performed.

Each member of the Audit and Examination Committee is independent under the definition of “Independent Director” set forth in Rule 4200(a)(15) of The NASDQ Stock Market.

The Audit and Examination Committee engaged the firm of Castaing, Hussey & Lolan, LLC, New Iberia, Louisiana as the Bank’s independent outside auditors for the year 2006.

In performance of its obligations, the Audit and Examination Committee has reviewed and discussed the Bank’s audited financial statements with management and its independent auditors, Castaing, Hussey & Lolan, LLC, and has discussed with its independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, “Communications with Audit and Examination Committees.” In addition, the Audit and Examination Committee received from the auditors written disclosures and the letter regarding the auditors’ independence required by Independence Standards Board, Standard No. 1, “Independence Discussion with Audit and Examination Committees,” and discussed with the auditors their independence.

Based on the above-mentioned review and discussions, the Audit and Examination recommended to the Bank’s Board of Directors that the Bank’s audited financial statements be included in the Bank’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, for filing with the FDIC.

William K. Hood, Chairman of Audit and Examination Committee
Anthony J. Berner, Jr., Committee Member
Collins Bonicard, Committee Member
Edwin L. Hoover, Jr., Committee Member
Nicholas A. Saladino, Committee Member
Audit Fees and Other Matters

Castaing, Hussey & Lolan, LLC provided audit services to the Bank consisting of the annual audit of the Bank’s 2006 and 2005 consolidated financial statements contained in the Bank’s Annual Reports on Form 10-K and review of the financial statements contained in the Bank’s Quarterly Reports on Form 10-Q for 2006. Castaing, Hussey & Lolan, LLC did not provide any services related to the financial information systems design/implementation or internal audit outsourcing to the Bank during 2006 or 2005.

 
 
Fee Category                                    
 Fiscal Year
2006
 
Percentage
of Total
 
 Fiscal Year
2005
 
 Percentage
of Total
 
 Audit Fees
 90,900
                   70%  
 92,900
                  69%   
 Audit-Related Fees
  24,987
                   19%  
 27,387
                  20%  
 Tax Fees
 14,800
                   11%  
 15,100
                 11%  
   Total Fees
 130.687
                 100%  
 135,387
               100%  
                 

Audit Fees. These are fees related to professional services rendered in connection with the audit of the Bank’s annual financial statements, reviews of the financial statements included in each of the Bank’s Quarterly Reports on Form 10-Q and accounting consultations that relate to the audited financial statements which are necessary to comply with generally accepted auditing standards.

Audit-Related Fees. These fees consisted primarily of audits of employee benefit plans, specific internal control process reviews and consultations regarding accounting and financial reporting.

Tax Fees . These are fees billed for professional services related to tax compliance, tax advice and tax planning, including the preparation and filing of tax returns.

Internal Auditor

The Bank employs three Internal Auditors to fulfill all internal audit functions. The Audit and Examination Committee adopted an Internal Audit Charter in 2005 and approved the annual work program of the Internal Auditor.  The Audit and Examination Committee meets with the Internal Auditors on a quarterly basis, at a minimum. During 2006, the Audit and Examination Committee met with the Internal Auditors nine times.

Policy on Audit and Examination Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditor

The Audit and Examination Committee’s policy is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit and Examination Committee has delegated pre-approval authority to its Chairperson when expedition of services is necessary. The independent auditors and management are required to periodically report to the full Audit and Examination Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. All audit, audit related and tax fees were pre-approved by the Chairman of the Audit and Examination Committee before services were rendered.
 
DIRECTORS’ COMPENSATION
Annual Compensation

Directors of the Bank who are not also full-time employees of the Bank (all directors except Mr. Sharp and Mr. Weaver) received $400 for each regular or special Board of Directors meeting attended. Directors of the Bank who are not full-time employees of the Bank and are members of a Directors' Committee also receive $125 for each committee meeting attended. For 2007, the amount paid for each regular or special board meeting attended was increased to $500.  No other payments are made to the Bank’s directors for benefits, perquisites or compensation of any other kind. The Board of Directors sets director fees upon the recommendation of the Executive Committee.
 
 
    Directors Compensation
 
 
 
 
Director Name
 
 
Fees Earned or
Paid in Cash
 
       
   Mary Ann Allen
   5,756
 
   F. Fanancy Anzalone, M.D.
   5,600
 
   Anthony J. Berner, Jr.
 13,950
 
   Collins Bonicard
 16,725
 
   Charles Brister
 12,843
 
   Andrew Gasaway, Jr.
 13,075
 
   Daniel P. Harrington
   5,025
 
   William K. Hood
 15,725
 
   Edwin L. Hoover, Jr.
 12,850
 
   Alton B. Lewis, Jr.
 15,725
 
   Morgan S. Nalty
   5,200
 
   Daniel F. Packer, Jr.
   3,200
 
   Marshall T. Reynolds
   8,450
 
   Nicholas A. Saladino
 12,481
 
   Sam P. Scelfo, Jr.
   7,325
 
   Michael R. Sharp 1
         -
 
   Edgar R. Smith, III 2
         -
 
   F. Jay Taylor
   5,200
 
   Loy F. Weaver 1
         -
 
       
___________________________________________________________________________________________

1 This Director is also an employee of the Bank; therefore no director compensation is paid.
2 This Director did not become a board member until February 2007.


EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

This Compensation Disclosure and Analysis (“CD&A”) gives an overview and analysis of the Bank’s compensation program and policies, the material compensation decisions made under those programs and policies, and the material factors that were considered in making those decisions. In this proxy statement, under the heading “Executive Compensation Tables”, is specific information about the compensation earned or paid in 2006 to Michael R. Sharp, the President and Chief Executive Officer, Loy F. Weaver, the North Louisiana Area President, Michele E. LoBianco, Senior Vice President and Chief Financial Officer, Michael F. Lofaso, Senior Vice President and Chief Credit Officer, and Barton J. Leader, Jr., Senior Vice President and Commercial Lending Division Officer, referred to as our “named executive officers.”
 
Compensation Committee Process

The Executive Committee fulfills the functions of the Compensation Committee and in that capacity reviews and sets annually the salaries and bonuses of the executive officers of the Bank. In making salary and bonus decisions, the Executive Committee considers past and current performance of those executive officers, the Bank’s performance and current market conditions.

The Compensation Committee has the authority to delegate to any person or persons it chooses, including the committee chairman or executive officers of the Bank, the authority to review and set the compensation of the President, other executive officers, or other employees.  The Chairman of the Compensation Committee, alone, at his option, is also granted the authority to delegate to any person this same authority. In 2006, the Compensation Committee reviewed and set the compensation for all executive officers. The Bank did not hire an outside consulting firm to determine or recommend the amount or forms of any compensation in 2006.

Objectives of Executive Compensation Program

The objectives of the executive compensation program covering the named executive officers are as follows:

Ø  
Motivate and retain executives demonstrating superior performance and exceptional talent, which in turn creates long term value for our stockholders;
Ø  
Reward executives for financial performance; and
Ø  
Provide a competitive package relative to peer group banks.

Components of Executive Officer Compensation

Named executive officers receive a combination of base salary and annual cash bonus, in addition to other various benefits.  Base salaries are paid in order to provide executive officers with sufficient, regularly-paid income and to attract, recruit and retain executives with the knowledge, skills and abilities necessary to successfully execute their job duties and responsibilities.  The performance of the Bank’s executive officers in managing the Bank, when considered in light of general economic and specific company, industry and competitive conditions, is the basis for determining their overall compensation.

The Executive Committee, fulfilling the duties of the Compensation Committee, determined all compensation for each named executive officer for 2006.  Compensation is paid based on the named executive officers’ individual and departmental performance, as well as the overall performance of the Bank.  In assessing the performance of the Bank for the purpose of compensation decisions, numerous factors were considered, including earnings during the past year relative to budget plans, asset growth, business plans for the future direction of the Bank, and safety and soundness of the Bank.  Salaries paid by other financial institutions in the Bank’s geographic market area, with similar asset size, are also considered. An assessment of each individual executive’s performance is based on the executive’s responsibilities and a determination of the executive’s contribution to the performance of the Bank and the accomplishment of the Bank’s strategic goals.

Base Salary.   Base salary is generally established by an individual’s performance, potential, responsibilities, promotions, other compensation and peer group compensation levels. In assessing performance for purposes of establishing base salaries, a mechanical formula is not used, but instead the factors described above are weighted as deemed appropriate in the circumstances.

The base salary for the Chief Executive Officer for 2006 was based on the factors above, including the current financial performance of the Bank as measured by earnings, asset growth, and overall financial soundness.  Additional considerations were the CEO’s leadership in setting high standards for financial performance, motivating management, continued involvement in community affairs, and the satisfaction with the management of the Bank.

Bonuses.   Bonuses are discretionary and are generally granted to named executive officers based on the extent to which the Bank achieves annual performance objectives as established by the Compensation Committee. Bonuses are determined by the Committee after an end of year assessment of the Bank’s performance. The performance criteria used by the Committee to determine the bonuses are not established until the end of the year and are not necessarily communicated to the officers. Bank performance objectives may include net income, return on average assets (“ROAA”) and return on average equity (“ROAE”) goals. ROAA measures management’s overall effectiveness at managing and investing the Bank’s assets. ROAA is calculated by dividing net income by average total assets.  ROAE measures the net after-tax return provided to the Bank’s shareholders. ROAE is calculated by dividing net income by average total equity.

Section 401(k) Profit Sharing Plan (“401(k) plan”). The Bank’s executive officers and most other employees are eligible to participate in the 401(k) plan. The 401(k) rewards and motivates all employees, including the named executive officers, and the Bank’s annual matching contributions to the plan create an incentive for continued employment.

The 401(k) plan covers employees meeting certain eligibility requirements as to minimum age and years of service.  Employees may make voluntary contributions to the 401(k) plan through payroll deductions on a pre-tax basis. The Bank’s contributions are subject to a vesting schedule requiring the completion of five years of service with the Bank, before these benefits are fully vested. The vested portion of a participant’s account under the 401(k) plan, together with investment earnings thereon, is normally distributable, following retirement, death, disability or other termination of employment, in a single lump-sum payment.  


All eligible employees, including executive officers, may contribute up to 20% of their gross salary to the plan each year subject to federal limits. The Bank matches dollars up to the first six percent of the employee’s annual contribution. The maximum employee contribution for 2006 was $15,000 plus an additional $5,000 contribution for participants over 50 years of age.  These maximums are subject to additional limitations as stated in the Internal Revenue Code. The Bank’s match is tiered based on the Bank’s return on average assets. The Bank’s stock is not offered as an investment option in the 401(k) plan.

Employee Stock Ownership Plan (“ESOP”) . The ESOP aligns the interests of management with those of the Bank’s stockholders and in turn contributes to long-term stockholder value by putting more stock into the hands of the employees. The ESOP is effective in motivating employees and provides important retirement benefits with attractive tax advantages upon retirement.  The ESOP covers employees meeting certain eligibility requirements as to minimum age and years of service. An employee must be a participant for three years from enrollment before he or she is 100% vested. Based on its earnings, the Bank may make discretionary contributions to the ESOP. The vested portion of a participant’s account under the ESOP plan, together with investment earnings thereon, is normally distributable, following retirement, death, disability or other termination of employment, in a single lump-sum payment.
 
Perquisites and Other Benefits.   The Executive Committee, fulfilling the duties of the Compensation Committee, believes that offering certain perquisites helps in the operation of the business as well as assists the Bank to recruit and retain key executives. The Bank offers health, life and disability insurance, and in some cases, car allowance and country club memberships to our executive management. The latter payments foster the executive’s involvement in the community and contribute to the Bank’s business development efforts. The Bank also pays vacation and holidays.

Other. The Bank did not offer, grant or have outstanding any of the following in 2006: stock awards, option awards, non-equity incentive plan compensation, pension plans and nonqualified deferred compensation.

Compensation Committee Report On Executive Compensation

The Executive Committee, fulfilling the functions of the Compensation Committee, has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review, recommended to the Bank’s Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the FDIC. The members of the Executive Committee are listed below:

Marshall T. Reynolds, Chairman                                                     Collins Bonicard
Andrew Gasaway, Jr.                                                                         William K. Hood
Alton B. Lewis                                                                                     Sam P. Scelfo, Jr.

Compensation of Executive Officers

The following table sets forth, on an accrual basis, the aggregate cash and non-cash compensation paid by the Bank during the last three fiscal years to the Bank’s Chief Executive Officer and the other Executive Officers who received compensation in excess of $100,000 during the fiscal years ended December 31, 2006, 2005, and 2004.

Summary Compensation Table  
 
Name and Principal Position
 
Year  
 
Salary  
 
Bonus 1  
All Other
Compensation 2  
 
Total  
           
 Michael R. Sharp  2006  135,000
 12,592
 11,481
 159,074
 President and  2005  128,050  12,592    8,676  149,318
 Chief Executive Office  2004    83,034  11,693    5,196    99,923
           
 Loy F. Weaver  2006  125,000  12,400  35,178  172,579
 Area President, North Louisiana  2005  119,583  12,400  33,831  165,814
   2004  115,000  12,208  34,629  161,837
           
 Michele E. LoBianco  2006  109,459  12,170    9,420  131,048
 Senior Vice President and  2005  108,000  12,074    8,910  128,984
 Chief Financial Officer  2004  104,334  12,074    9,358  125,766
           
 Barton J. Leader, Jr.  2006  100,833  12,112    2,319  115,264
 Senior Vice President and  2005    30,000  11,728       351    42,079
 Commercial Lending Division Officer  2004        -        -        -           -
           
 Michael F. Lofaso 3  2006  101,840  12,016    8,283  122,140
 Senior Vice President and  2005    91,736  11,885    7,671  111,292
 Chief Credit Officer  2004    83,243  11,693    7,787  102,723
           
 
1) Includes distributions under the company-wide annual bonus which equaled one week’s base salary.
(2 ) Includes excess group life insurance coverage, employer matching contributions to 401(k) savings plan, and ESOP contributions. Also includes split-dollar life insurance coverage, country club dues and car allowance for Mr. Weaver. Includes employer matching contributions to 401(k) savings plans in the amounts of $4,428, $2,290, and $1,680 for Mr. Sharp, $4,122, $3,900, and $5,724 for Mr. Weaver, $3,649, $3,602, and $5,238 for Mrs. LoBianco, $1,188, $0, and $0 for Mr. Leader, and  $3,023, $3,109, and $4,274 for Mr. Lofaso for the years ended 2006, 2005 and 2004, respectively. Also included are employer ESOP contributions in the amounts of $5,090, 4,331, and $2,179 for Mr. Sharp, $5,242, $4,491, and $3,108 for Mr. Weaver, $4,193, $3,693, and $2,564 for Mrs. LoBianco, $0, $0, and $0 for Mr. Leader and $3,921, $3,187, and $2,183 for Mr. Lofaso for the years ended 2006, 2005 and 2004, respectively.  The amounts shown for Mr. Weaver include a car allowance totaling $8,524, $8,400, and $8,400 each of the years ended 2006, 2005 and 2004. Also includes amounts for Mr. Weaver’s country club dues totaling $2,138, $1,747, and $2,184 during each of the years ended 2006, 2005 and 2004. Also included are premiums paid for excess group life insurance coverage for Mr. Sharp in the amounts of $1,963, $2,055 and $1,340, Mr. Weaver in the amounts of $2,773, $2,913 and $2,833, Mrs. LoBianco in the amounts of $1,578, $1,615, and $1,556 Mr. Lofaso in the amounts of $1,339, $1,376 and $1,330 and Mr. Leader in the amounts of $1,130, $351 and $0 for the years ended 2006, 2005 and 2004, respectively.  Also included for Mr. Weaver are premiums paid for split-dollar life insurance coverage in the amount of $12,380 for the years ended 2006, 2005 and 2004.
(3)  In February 2007, Mr. Lofaso resigned as senior vice president and chief credit officer.
 
2007 Compensation Modifications

In 2007, the Compensation Committee approved a base salary of $145,000 for the President and Chief Executive Officer. There were no other compensation changes for any other executive officer.

Tax and Accounting Considerations

The Bank evaluates the tax and accounting treatment of each of our compensation programs at the time of adoption and annually to ensure that we understand the financial impact of each program on the Bank. Our analysis includes a review of recently adopted and pending changes in tax and accounting requirements.
 
Stock Ownership Requirements

The Bank encourages directors and executive officers to purchase stock. The Bank has not adopted formal stock ownership requirements for our executive officers, but all non-employee directors are required to own, in their own right, unpledged shares of the Bank (or of a bank holding company, of which the Bank is a subsidiary) an aggregate book value of at least $5,000 or an aggregate par value of $1,000, whichever is less (unless this requirement is waived by the Commissioner of Financial Institutions). See the “Security Ownership of Directors, Nominees and Executive Officers” section in this proxy statement.
 
 
Employment Contracts, Termination of Employment and Change in Control Arrangements

The Bank had no employment contracts, termination of employment or change in control arrangements as of December 31, 2006.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Executive Committee, which fulfills the functions of the Bank’s Compensation Committee, are Marshall T. Reynolds, Chairman, Collins Bonicard, William K. Hood, Andrew Gasaway, Jr., Alton Lewis, and Sam P. Scelfo, Jr. No member is or was an officer or employee of the Bank.

During the year ended 2006, the Bank paid approximately $633,000 for printing services and supplies and office furniture and equipment to Champion Graphic Communications (or subsidiary companies of Champion Industries, Inc.), of which Mr. Marshall T. Reynolds, the Chairman of the Bank’s Board of Directors, is President, Chief Executive Officer, Chairman of the Board of Directors, and holder of 41.5% of the capital stock; approximately $896,000 to participate in the Champion Industries, Inc. employee medical benefit plan; and approximately $134,000 to Sabre Transportation, Inc. for travel expenses of the Chairman and other directors. These expenses include, but are not limited to the utilization of an aircraft, fuel, air crew, ramp fees and other expenses attendant to the Bank’s use. The Harrah and Reynolds Corporation, of which Mr. Reynolds is President and Chief Executive Officer and sole shareholder, has a 99% ownership interest in Sabre Transportation, Inc.

During the year ended 2006, the Bank engaged the services of Cashe, Lewis, Coudrain and Sandage, attorneys-at-law, of which Mr. Alton Lewis is a partner, to represent the Bank with certain legal matters. Mr. Lewis has a 25% ownership interest in the law firm. The fees paid by the Bank for these legal services totaled $291,000. Mr. Lewis is a member of the Board of Directors of the Bank.

TRANSACTIONS WITH RELATED PARTIES

The Bank is engaged, and expects to engage in the future, in banking transactions in the ordinary course of business with directors, officers, principal stockholders, and their associates and/or immediate family members, on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with persons not related to the Bank and that do not involve more than the normal risk of collectibility or present other unfavorable features. The Bank has no formal policy for the review and approval of related party transactions.

At February 22, 2007, the aggregate amount of extensions of credit to directors, executive officers, principal stockholders, and their associates, as a group was $17.0 million (excluding $2.8 million, or 23.4% of total equity capital, in loan participations purchased from affiliated institutions), or approximately 28.0% of total equity capital.

During the year ended 2006, the Bank paid approximately $633,000 for printing services and supplies and office furniture and equipment to Champion Graphic Communications (or subsidiary companies of Champion Industries, Inc.), of which Mr. Marshall T. Reynolds, the Chairman of the Bank’s Board of Directors, is President, Chief Executive Officer, Chairman of the Board of Directors, and holder of 41.5% of the capital stock; approximately $896,000 to participate in the Champion Industries, Inc. employee medical benefit plan; and approximately $134,000 to Sabre Transportation, Inc. for travel expenses of the Chairman and other directors. These expenses include, but are not limited to the utilization of an aircraft, fuel, air crew, ramp fees and other expenses attendant to the Bank’s use. The Harrah and Reynolds Corporation, of which Mr. Reynolds is President and Chief Executive Officer and sole shareholder, has a 99% ownership interest in Sabre Transportation, Inc.

During the year ended 2006, the Bank engaged the services of Cashe, Lewis, Coudrain and Sandage attorneys-at-law, of which Mr. Alton Lewis is a partner, to represent the Bank with certain legal matters. Mr. Lewis has a 25% ownership interest in the law firm.  The fees paid by the Bank for these legal services totaled $291,000. Mr. Lewis is a member of the Board of Directors of the Bank.

RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS

The firm of Castaing, Hussey & Lolan, LLC serves as the Bank’s independent accountant. The Bank's financial statements for the years ended December 31, 2004, 2005, and 2006 were audited by the firm of Castaing, Hussey & Lolan, LLC. Representatives of Castaing, Hussey & Lolan, LLC are expected to be present at the Meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
The Audit Committee anticipates that the accounting firm of Castaing, Hussey & Lolan, LLC will be appointed as independent auditors for the Bank's financial statements for the year ending December 31, 2007.


STOCKHOLDER PROPOSALS

2007 Annual Meeting

The deadline for submission of stockholder proposals to be presented at the Meeting but not included in the proxy materials for that Meeting is April 17, 2007. Under the Bank’s By-Laws, a stockholder seeking to submit such a proposal must have furnished on or before that date (but no earlier than February 16, 2007) certain specified information in writing about the matters proposed to be brought before the Meeting and about the stockholder submitting the proposal to the Secretary of the Bank at 400 East Thomas Street, Hammond, Louisiana, 70401.

Stockholders may nominate persons for election to the Board of Directors at an annual or special meeting of stockholders in accordance with the procedures set forth in the Bank’s By-Laws. Under those procedures, stockholders must give notice of the nomination in writing to the Secretary of the Bank not fewer than 45 days nor more than 90 days before the meeting, unless fewer than 70 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, in which case notice by the stockholder must be received at the principal executive offices of the Bank no later than the close of business on the 10th day following the day on which notice of the date of the meeting was mailed. The stockholder’s notice must include certain information about the nominee and about the stockholder making the nomination as specified in the Bank’s By-Laws.

2008 Annual Meeting

The deadline for submission of stockholder proposals to be considered for inclusion in the proxy materials relating to the 2008 Annual Meeting is December 21, 2007.

Stockholder proposals to be presented at the 2008 Meeting, but not included in the proxy materials for that Meeting, must be submitted not less than 30 or more than 90 days before the date of the Meeting (or within 10 days of the date of notice or prior public disclosure of the date of the Meeting, if such notice or disclosure is given or made less than 40 days before the date of the Meeting). Under the Bank’s By-Laws, a stockholder must furnish certain specified information in writing about the matters proposed to be brought before the Meeting and about the stockholder submitting the proposal and must be addressed to the Secretary of the Bank at 400 East Thomas Street, Hammond, Louisiana, 70401.




OTHER MATTERS

As of the date of this Proxy Statement, the Board of Directors does not know of any matters to be presented at the Meeting other than those mentioned above. However, if any other matters are properly brought before the Meeting, or any adjournment of postponement thereof, it is the intention of the persons named in the enclosed proxy to vote the shares represented by them in accordance with their best judgment pursuant to discretionary authority granted in the proxy.

Code of Ethics

The Bank has adopted a Code of Ethics that applies to all Bank employees as well as all members of the Bank’s Board of Directors. The Bank also has adopted a Code of Ethics related to financial reporting that applies to certain executive officers, the internal auditor and the Chairman of the Board of Directors. Both Codes of Ethics are available on the Bank’s website at www.fgb.net .

Form 10-K

Upon written request by any stockholder who makes a good faith representation that he or she is a stockholder of the Bank as of April 6, 2007 and entitled to vote at the Meeting, the Bank will provide a copy of the Bank's 2006 Annual Report on Form 10-K filed with the FDIC, including statements, schedules, and exhibits thereto. Such requests should be addressed to Michele E. LoBianco, Senior Vice President and Chief Financial Officer, First Guaranty Bank, Post Office Box 2009, Hammond, Louisiana 70404-2009.


By Order of the Board of Directors
                                                                               
                                          /s/Collins Bonicard
                                         Collins Bonicard
                                         Secretary
                                                                                         Hammond, Louisiana
                                                                                         April 20, 2007


                                                                                                      EXHIBIT 99.5
 
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 26, 2007

FIRST GUARANTY BANK

(Exact name of registrant as specified in its charter)

 
  Louisiana                               14028                                72-0201420
--------------------                  --------------------                   -------------------
(State or other jurisdiction   (Certificate Number)          (I.R.S. Employer
          of incorporation)                                                         Identification No.)
 
 
 
                                 400 East Thomas Street
                                 Hammond, Louisiana                                                   70401
-------------------------------------------------------------------------------
(Address of principal executive offices)                  (Zip Code)
 
 
 
 
(985) 345-7685
-------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
 
 

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

Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



Section 5 – Corporate Governance and Management

Item 5.02  Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

On January 26, 2007, Michael F. Lofaso announced his resignation from First Guaranty Bank. Mr. Lofaso, an executive officer of the bank, served in the capacity of Chief Credit Officer. Mr. Lofaso has elected to pursue a career opportunity with Statewide Bank, headquartered in Covington, Louisiana as an Area President.



SIGNATURES

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

FIRST GUARANTY BANK
(Registrant)



Date:  January 31, 2007                                                                         By:    /s/ Michele E. LoBianco
Michele E. LoBianco
Senior Vice President and
Chief Financial Officer




                                                                                                      EXHIBIT 99.6
 
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 15, 2007

FIRST GUARANTY BANK

(Exact name of registrant as specified in its charter)

 
  Louisiana                               14028                                72-0201420
--------------------                  --------------------                   -------------------
(State or other jurisdiction   (Certificate Number)          (I.R.S. Employer
          of incorporation)                                                         Identification No.)
 
 
 
                                  400 East Thomas Street
                                  Hammond, Louisiana                                                   70401
-------------------------------------------------------------------------------
(Address of principal executive offices)                  (Zip Code)
 
 
 
 
(985) 345-7685
-------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
 
 

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

Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
  [  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
  [  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



Section 5 – Corporate Governance and Management

Item 5.02  Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangement of Certain Officers.

 
(d)(1)On February 15, 2007, Mr. Edgar R. Smith, III was appointed as a director of First Guaranty Bank.
 
(2) Not applicable
 
(3) Not applicable
 
(4) Not applicable
 
(5) Not applicable

Item 5.03  Amendments to Articles of Incorporation of Bylaws; Change in Fiscal Year.

On February 15, 2007, the Bank’s Bylaws were changed, effective immediately, to increase the number of directors from 18 to 19.

Section 9 – Financial Statements and Exhibits

Item 9.01  Financial Statements and Exhibits.

(c) The following exhibit is filed with this Current Report:

 
Exhibit No.                    Description
--------------                    --------------
       3                              An excerpt of the Bylaws of the Registrant, as amended on February 15, 2007.



SIGNATURES

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

FIRST GUARANTY BANK
(Registrant)



Date:  February 20, 2007                                                                       By:    /s/ Michele E. LoBianco
Michele E. LoBianco
Senior Vice President and
Chief Financial Officer




EXCERPT
MINUTES
OF A REGULAR MEETING OF THE
BOARD OF DIRECTORS
FIRST GUARANTY BANK
FEBRUARY 15, 2007


The following is an excerpt from the minutes of a regular meeting of the Board of Directors of First Guaranty Bank held Thursday, February 15, 2007 in which a quorum was present and voting.

********************************************************************************************************************************************
Chairman Reynolds announced that Mr. Edgar R. Smith, III would be joining First Guaranty Bank’s Board of Directors this morning.  Upon a motion by Mr. Lewis, seconded by Mr. Hood, unanimous approval was granted to revise the Bank’s By-Laws to increase the number of members serving on the Board of Directors from 18 to 19 members.  Upon a motion by Mr. Brister, seconded by Mr. Scelfo, unanimous approval was granted to elect Mr. Edgar R. Smith, III to the Board of Directors of First Guaranty Bank.

Mr. Smith was asked to stand and raise his right hand as Mr. Lewis administered the Director’s Oath of Office.  Mr. Smith acknowledged and signed the Oath.

*********************************************************************************************************************************************
CERTIFICATE

I hereby certify that the foregoing is a true and correct copy of an excerpt from the minutes of a regular meeting of the Board of Directors of First Guaranty Bank on the date specified above and that the foregoing statement correctly conveys the intent of the Board of Directors of First Guaranty Bank.

Hammond, Louisiana, February 15, 2007



SEAL                                                                 /s/Vanessa R. Drew
Vanessa R. Drew
Recording Secretary to the Board of Directors