First Guaranty Bancshares, Inc.
Annual Report 2015

Plain-text annual report

2015 ANNUAL REPORT Strength & Earnings Power F I R S T G U A R A N T Y B A N C S H A R E S , I N C . 2 0 1 5 A N N U A L R E P O R T www.fgb.net Our Mission The mission of First Guaranty Bank and First Guaranty Bancshares, Inc. is to increase shareholder value while providing financial services for and contributing to the growth and welfare of the communities we serve. First Guaranty Bank Banking Centers 11 2 3 4 5 6 Our Values & Goals Customers. We believe that every customer is our most important customer. We endeavor to provide levels of service that exceed their expectations. Employees. We believe that our employees are our greatest asset as demonstrated in their professionalism and dedication. We encourage open communication and strive to cultivate an entrepreneurial environment in which our employees feel highly responsible for the performance of the Company. We believe in an environment where they will contribute new ideas and innovations that will help both us and them excel. Shareholders. We seek to enhance shareholder value by continually improving the quality of assets, growth in earnings, return on equity and dividend payout. Community. We strive to be a socially responsible corporate citizen by supporting community activities and encouraging employees to be actively involved in our communities. We are committed to the success of the communities that we serve, the same communities our employees call home. Our goals is to participate in making our communities better places in which to live, work and play. 14 15 16 17 18 19 9 10 11 12 13 20 21 7 8 1. Vivian 2. Oil City 3. Benton 4. Haynesville 5. Homer 6. Dubach 7. Jennings 8. Abbeville 9. Greensburg 10. Montpelier 11. Watson 12. Denham Springs 13. Walker 14. Kentwood West 15. Kentwood 16. Amite 17. Independence 18. Main Office 19. Guaranty West 20. Ponchatoula 21. Berryland Service 24 ATM Locations SOUTH LOUISIANA Abbeville, LA 799 West Summers Drive Amite, LA 100 East Oak Street 1014 West Oak Street Denham Springs, LA 2231 South Range Avenue Greensburg 6151 Hwy. 10 Hammond, LA 1201 West University Avenue 2111 West Thomas Street 400 East Thomas North Oaks Medical Center – 4 Medical Center Drive North Oaks Rehabilitation Center – 1900 South Morrison Boulevard 105 Berryland Shopping Center Independence, LA 455 Railroad Avenue Jennings, LA 500 North Cary Kentwood, LA 723 Avenue G Livingston, LA (LPMC) Livingston Parish Medical Center 17199 Spring Ranch Rd. Loranger, LA 19518 Highway 40 Montpelier 35651 Hwy. 16 Ponchatoula, LA* 500 W. Pine St. Robert, LA Robert’s Supermarket - 22628 Highway 190 Walker, LA 29815 Walker Road South Watson 33818 Hwy. 16 NORTH LOUISIANA Benton, LA 189 Burt Boulevard Dubach, LA 117 East Hico Street Haynesville, LA 10065 Highway 79 Homer, LA Homer Memorial Hospital 401 North 2nd Street Oil City, LA 126 South Highway 1 Vivian, LA 102 East Louisiana Avenue *The Ponchatoula branch at 195 N. 6th St. closed on March 7, 2016 and is relocated at 500 West Pine Street, Ponchatoula, LA 70454. 1049205512 Table of Contents Our Mission and Our Goals ........................................................................................................ Inside Front Cover Financial Snapshot ......................................................................................................................................................2 Strength & Earnings Power ........................................................................................................................................3 Letter from the Chairman, Marshall T. Reynolds ....................................................................................................5 Letter from the Chief Executive Officer & President, Alton B. Lewis ...................................................................6 Report from the Chief Financial Officer, Eric J. Dosch ...........................................................................................7 Report from Senior Vice President, Glenn A. Duhon, Sr. ......................................................................................8 First Guaranty Board of Directors .............................................................................................................................9 First Guaranty Advisory Board ................................................................................................................................10 First Guaranty Bank Officers ....................................................................................................................................11 Performance Graphs ..................................................................................................................................................12 First Guaranty Bank Banking Centers Total Deposits ..........................................................................................15 Ponchatoula Banking Center Grand Opening .......................................................................................................16 First Guaranty Bank Banking Centers .....................................................................................................................18 Community Commitment ........................................................................................................................................36 Strength & Earnings Power .......................................................................................................................................45 Banks Headquartered in Louisiana ..........................................................................................................................46 Financial Table of Contents........................................................................................................................................47 Market for Registrant's Common Equity ..............................................................................................................113 Corporate Information ............................................................................................................................................114 First Guaranty Bank Banking Centers Map and Service 24 ATM Locations ........................... Inside Back Cover Visit www.fgb.net for additional information. Follow us on Facebook, Twitter and LinkedIn. www.facebook.com/FirstGuarantyBank twitter.com/FGBank www.linkedin.com/in/firstguarantybank/en 1 2015 ANNUAL REPORT Financial Snapshot Book Value Growth Per One 1993 Share[1] (per common share) Cash Dividends on Common Stock (In thousands) 40 35 30 25 20 15 10 5 0 5000 4000 3000 2000 1000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Book Value per one 1993 share has increased from $4.49 to $37.61 since 1993. First Guaranty has paid $56.8 million in Cash Dividends to common shareholders since 1993. Dividends Per One 1993 Common Share [2] First Guaranty Bancshares, Inc. As of December 31, 2015, total assets were $1.5 billion, net income was $14.5 million, earnings per common share were $2.01 and tangible book value per share was $15.10. Return on average assets was 0.97% and return average common equity was 12.98% for 2015. In November 2015, the Company completed a public offering of 626,560 shares of its common stock, par value $1.00 per share, at a public offering price of $18.50 per share for net proceeds of $9.3 million. Concurrent with the completion of the offering, the Company's shares began to trade on the Nasdaq Global Market. Following the completion of the offering, the Company declared a 10% stock dividend. First Guaranty Bancshares, Inc. also paid a quarterly dividend for 90 consecutive quarters at December 31, 2015. Our commitment to customer service, combined with the hard work of our employees, is the foundation of our strength and earnings power. The Company emphasizes value to best serve the interests of our shareholders, customers, communities we serve and employees. 2 2.0 1.5 1.0 0.5 0.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2007 2008 2009 2010 2011 2012 2013 2014 2015 [1] Book value has been adjusted for cumulative stock splits and dividend of 2.42 times since 1993. [2] Cash dividends from the perspective of one original share of common stock from 1993 to present, this considers the impact of stock splits and stock dividends Profile First Guaranty Bancshares, Inc. is the holding company of First Guaranty Bank, which it wholly owns. The Bank is a full-service financial institution with a major presence throughout Louisiana and serves customers from its 21 banking center locations. Headquartered in Hammond, Louisiana, the Company had 277 employees as of December 31, 2015. Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. STRENGTH & EARNINGS POWER ❝The real source of strength in any type of enterprise is the people. First Guaranty Bank is blessed with a Board of Directors that are committed, knowledgeable, and diverse. The staff of First Guaranty Bank are good people who are loyal, competent, and committed to working together for success. The shareholders, customers, and citizens of First Guaranty Bank communities are solid, hardworking people trying to improve their lives and the lives of those around them. All of these people, together, are the source of the strength which will make First Guaranty Bank continue to be profitable and successful.❞ – President and CEO, Alton B. Lewis FIRST GUARANTY BANCSHARES, INC. gained strength and earnings power in 2015. We increased our capital, grew the loan portfolio to a record level, improved our products and services, and expanded our infrastructure. We continued our focus on controlling expenses and efficiently delivering quality customer service. This increased strength translated into 2015 earnings that were 30% higher than 2014. The effort to increase the bank’s strength and earnings power can be found in many areas of the bank. Each day our employees work hard to strengthen relationships with customers and co- workers, to strengthen their knowledge, and to strengthen the brand of the bank. By streamlining processes and being more efficient with time, employees continue to contribute to the overall success of First Guaranty. The board room is another area where strength can be found. Covered with banners, the First Guaranty board room walls tell the tale of our bank’s performance. At every meeting, members of the board and management are reminded of where First Guaranty stands in relation to key metrics such as book value per share, deposit market data, asset quality, net interest margin, efficiency and profitability. Maximizing these ratios is key to achieving our goal of strengthening the bank and increasing our earnings power. 2015 Accomplishments and Highlights 1. Total 2015 Earnings to Common Shareholders of $14.1 million.  Increase of 30% from $10.8 million in 2014. 2. Completed our capital raise. First Guaranty is now traded on the NASDAQ exchange under the symbol FGBI. 3. Redeemed $39.4 million in preferred stock issued to the U.S. Treasury under the SBLF program. 4. Declared a 10% common stock dividend. 5.  Paid our 90th consecutive quarterly cash dividend.  $56.8 million in dividends to common shareholders have been paid since 1993. 6. First Guaranty contributed $429,000 to our local communities in 2015. 7. Created the Access Account which allows more customers the financial freedom of a checking account. 8. Rolled out our first live Interactive Banker Machine in our Main Office branch. 9. Set a record in our lending portfolio of $842 million in loans outstanding at year end. 3 2015 ANNUAL REPORT We Are Strength & Earnings Power FGBI For First Guaranty Bancshares, Inc., our capital raise and public listing on NASDAQ represents an opportunity for investment, new investors, expanded name recognition and increased liquidity in our stock. A public listing on NASDAQ in November was a milestone for First Guaranty. Lending didn't slow up in 2015 – we expanded our portfolio and hit record highs. Progress with technology was evident in 2015 as we rolled out our first ever Live Interactive Banker, MiBY. Met MiBY? The Access Account was introduced in 2015. This account has been a success as it allows more customers the opportunity to have a checking account. In 2015, First Guaranty continued to give back to the community with our new initiative FGB Gives Back. 4 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Marshall T. Reynolds Chairman of the Board Letter from the Chairman FIRST GUARANTY BANCSHARES, INC. Dear Fellow Shareholder: If you have read our President’s letter, you are aware of a multiplicity of good things that inured to our benefit during 2015. I would like to expand on two of those items. FGBI made $14.1 million during the year. We paid $4.2 million in dividends and increased retained earnings by $9.9 million. This $9.9 million represents approximately a 10% addition to core capital. If we earn 10% return on equity, that should push next year’s earnings up about 10% or an additional million dollars. I believe you can see the spiraling effect of these types of results. First and foremost, I want to address the human (people) side of the bank. President Lewis has been in this position for about seven years. During this time we have made tremendous progress addressing our legacy problems. He has built a strong management organization with several excellent young managers and loan officers. Inside ownership and individual involvement have increased tremendously during the last two years. Longtime directors Hood and Smith have stepped up and bought significant numbers of shares. I mean three and four times what they previously owned and they were substantial then. These are two very astute business men in my opinion. Could you go wrong following their lead? Probably not! In addition, I want all of my fellow shareholders to know that I have never sold one share of stock. Like Misters Hood and Smith, I believe this bank has a great future with this management team. Other board members have also stepped up and bought additional stock. Sincerely, Marshall T. Reynolds Chairman of the Board FIRST GUARANTY BANCSHARES, INC. Chairman of the Board FIRST GUARANTY BANK 5 2015 ANNUAL REPORT Letter from the Chief Executive Office & President In 2015, we successfully transitioned out of the US Treasury Small Business Loan Fund while maintaining our capital levels at First Guaranty Bank. In 2015, we significantly enhanced our management structure with the addition of a highly qualified Chief Information Officer. In 2015, we constructed our new Ponchatoula branch incorporating leading edge technology in the form of Interactive Teller machines with conventional customer service and teller service so that we satisfy the needs of our entire spectrum of customers. The best part of 2015 is how it positioned us for the future. We have increased our strength so that we will be able to continue to move forward and grow and expand. Our lending corp has grown stronger and better trained and has outstanding leadership so that we can continue to grow our loan portfolio. Our Board and Management team are stronger. We can continue our growth and expansion while increasing profitability. We have come a long way; however, we have not achieved our ultimate goals. We will continue to strive to maximize our shareholder value. Thank you for your investment in First Guaranty Bancshares, Inc. and for your continued support. If you have any questions about our financial position or any of the information presented in this report, please contact me directly at (985) 375-0350. Sincerely, Alton B. Lewis Vice Chairman of the Board and Chief Executive Officer/President FIRST GUARANTY BANCSHARES, INC. Vice Chairman of the Board and Chief Executive Officer/President FIRST GUARANTY BANK Alton B. Lewis Chief Executive Officer & President Dear Shareholders, Earnings translate into capital. Capital is strength. In 2015, First Guaranty Bancshares, Inc. accomplished many significant objectives. Perhaps the most significant was the 30.4% increase in income available to common shareholders to $14,121,000 for the year ending December 31, 2015 compared to $10,830,000 for the year ending December 31, 2014. Of the $14,121,000 in income available to common shareholders, $4,247,000 was paid to our shareholders as dividends and $9,874,000 remained in First Guaranty Bancshares, Inc. as capital. Our shareholders benefited both through direct income to them as shareholders and increased value in their investment in First Guaranty Bancshares, Inc. as Book value as of December 31, 2015 rose to $15.54 from $14.47 as of December 31, 2014 and tangible bank value was $15.10 as of December 31, 2015 compared to $13.95 on December 31, 2014. This increase in earnings and capital was a result of increase in interest income due to a $51 million increase in our loan portfolio plus a decrease in interest expense, plus an increase in non-interest income due primarily to significant gains on securities, and a decrease in non-interest expense. Very simply, we increased our income and reduced our expenses. In 2015, we successfully completed our initial public offering and became listed on the NASDAQ exchange. The public offering increased our capital by a net of approximately $10 million. 6 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Report from the Chief Financial Officer Total common shareholder’s equity increased $18.1 million from $100.1 million in 2014 to $118.2 million in 2015. The increase in common shareholder’s equity was driven by an increase in retained earnings and an increase in capital from the common stock offering. First Guaranty raised $9.3 million in net capital from the common stock offering and issued 626,560 new shares. Retained earnings increased $8.5 million from $41.4 million in 2014 to $49.9 million in 2015. Our tangible common equity ratio improved from 6.37% at December 31, 2014 to 7.89% at December 31, 2015. The loan loss reserve increased from $9.1 million at 2014 to $9.4 million at 2015. Earnings per common share increased 28% from $1.57 in 2014 to $2.01 for 2015. Tangible book value per share increased 8.2% from $13.95 at December 31, 2014 to $15.10 at December 31, 2015. Return on average assets was 0.97% for 2015 compared to 0.77% for 2014. The efficiency ratio improved from 62.9% in 2014 to 55.1% in 2015. Return on average common equity was 12.98% in 2015 compared to 11.40% for 2014. First Guaranty Bancshares paid a total of $4,247,000 in cash dividends to common shareholders in 2015. The Company has paid 90 consecutive quarters of dividends as of 12/31/2015. First Guaranty continues to build strength for the future. Our common stock is now listed on a national exchange. We have increased our common capital. First Guaranty continues to maintain a leading deposit market share in the communities that we serve. Our continuing investment in the education of our employees and our planning and reporting systems has increased productivity. We believe that the combination of these efforts will lead to a strong and profitable future for First Guaranty Bancshares, Inc. Sincerely, Eric J. Dosch Chief Financial Officer FIRST GUARANTY BANCSHARES, INC. Chief Financial Officer FIRST GUARANTY BANK 7 Eric J. Dosch Chief Financial Officer First Guaranty Bancshares, Inc. continued to gain strength in 2015. We continued our momentum from 2014 as we expanded our loan portfolio, lowered deposit costs, reduced non-interest expense and increased earnings. First Guaranty completed a capital raise and listed our common shares on NASDAQ. We paid a 10% common stock dividend in December 2015. First Guaranty also redeemed the $39.4 million of preferred stock issued to the U.S. Treasury Department for the Small Business Lending Fund (SBLF) program. We used proceeds from an attractively priced senior loan and subordinated debt offering to refinance SBLF. The SBLF preferred stock was scheduled to increase to a pre-tax rate of over 13.0% in 2016 that was much higher than the rates we will pay on the senior loan and subordinated debt. Loans grew by 6.5% or $51.3 million from $790.3 million in 2014 to $841.6 million in 2015. First Guaranty increased loan interest income $2.7 million while lowering interest expense by $0.6 million in 2015. We have continued to execute our plan of growing loans as a percentage of our balance sheet which has increased earnings and improved our net interest margin. Our loan portfolio finished December 31, 2015 at 58% of total assets, an increase from 52% of total assets at December 31, 2014. Our average loan yield has remained consistently above 5.0% during the last two years. The average loan yield was 5.21% for 2015 compared to 5.47% for 2014. The net interest margin increased from 3.11% in 2014 to 3.26% in 2015. 2015 ANNUAL REPORT Report from the Senior Vice President Southwest Louisiana Banking Centers gained “Strength and Earnings Power” in 2015. Both locations increased in loan volume, while keeping delinquency at an acceptable level. Our Jennings office concluded the year with $41.2 million in deposits compared to $40 million in deposits in 2014. That location also doubled loan volume, ending 2015 with $16.8 million as compared to $8 million in 2014. Deposits decreased at our Abbeville office to $127.7 million as compared to $145.9 million in 2014, however, loan volume increased by $22.1 million, ending 2015 with $77.6 million in total loan volume. Combined, both locations completed 2015 with $168.9 million in deposits and $94.4 million in loan volume. The continued success of this region is the result of a combination of customer loyalty, efficient management, board of director support and the dedication and tireless work ethic of our employees. Sincerely, Glenn A. Duhon, Sr. Senior Vice President and Southwest Louisiana Division Manager FIRST GUARANTY BANK Glenn A. Duhon, Sr. Senior Vice President Southwest Louisiana Division Manager 8 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. First Guaranty Bank BOARD OF DIRECTORS Back Row, Left to Right: Dr. Phillip E. Fincher, Robert H. Gabriel, Nancy C. Ribas, Gloria M. Dykes, Marshall T. Reynolds, Edgar R. Smith III, William K. Hood, Ann A. Smith Front Row, Left to Right: Anthony J. Berner, Jr., Andrew Gasaway, Jr., Richard W. “Dickie” Sitman, Alton B. Lewis, Edwin L. Hoover, Jr., Charles Brister Left to Right: Dr. Glenda B. Glover; Daniel F. Packer, Jr. and Morgan S. Nalty ANTHONY J. BERNER, JR.  President, Pon Food Corporation EDWIN L. HOOVER, JR. President, Encore Development Corporation CHARLES BRISTER President, Brister’s Consulting and Rentals GLORIA M. DYKES Owner, Dykes Beef Farm and Part Owner, Dykes Feed & Fertilizer, Inc. DR. PHILLIP E. FINCHER Retired Economics/Finance Professor North Louisiana Advisory Board ROBERT H. GABRIEL  President, Gabriel Building Supply Company ANDREW GASAWAY, JR.  Secretary to the Board President, Gasaway-Gasaway-Bankston Architects DR. GLENDA B. GLOVER, PH.D., JD, CPA Chairman, Audit Committee of First Guaranty Bancshares, Inc. President, Tennessee State University WILLIAM K. HOOD   Chairman, Directors Loan Committee and Audit Committee of First Guaranty Bank President, Hood Automotive Group ALTON B. LEWIS Vice Chairman of the Board and Chief Executive Officer/President, First Guaranty Bancshares, Inc. Vice Chairman of the Board and Chief Executive Officer/President, First Guaranty Bank MORGAN S. NALTY Investment Banking Executive & Partner, Johnson, Rice & Company, LLC DANIEL F. PACKER, JR. President and Chief Executive Officer, American Ethane, LLC and President and Chief Executive Officer, Urban Dimensions, LLC MARSHALL T. REYNOLDS Chairman of the Board, First Guaranty Bancshares, Inc. Chairman of the Board, First Guaranty Bank Chairman of the Board and Chief Executive Officer, Champion Industries NANCY C. RIBAS Owner/Manager, World Trend Properties And University Motors RICHARD W. “DICKIE” SITMAN Board President Dixie Electric Membership Corp., (Baton Rouge, Louisiana) Board Member CoBank ACB, (Denver Colorado) ANN A. SMITH Tangipahoa Parish School Board Member (Former President and Finance Chair) Board of Supervisors of Southern University System EDGAR R. SMITH, III  Chairman and Chief Executive Officer, Smitty’s Supply, Inc.   Directors Emeritus: ROBERT H. BEYMER ROBERT L. SHELL, JR. 9 2015 ANNUAL REPORT First Guaranty Bank ADVISORY BOARD Above photo: Thomas “Tommy” D. Crump, Jr., Gil Dowies, III, Dr. Phillip E. Fincher, John D. Gladney, M.D., Inset photo: Britt L. Synco The members of the First Guaranty Bank Advisory Board include: Thomas D. “Tommy” Crump, Jr., Carrell G. “Gil” Dowies, III, Dr. Phillip E. Fincher, John D. Gladney, M.D. and Britt L. Synco. These adept gentlemen assist the bank in moving forward by sharing their breadth of experience and providing critical insight into essential business interests including oil and gas production, agriculture and forestry. The Advisory Board works with the Board of Directors and management to develop lending and marketing philosophies to best affect First Guaranty Bank. With wholesale and retail expertise throughout north Louisiana, this group examines financial and civic activities. 10 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. First Guaranty BANK OFFICERS FIRST GUARANTY BANK OFFICERS EXECUTIVE ALTON B. LEWIS* President and CEO Guaranty Square ERIC J. DOSCH * Chief Financial Officer Guaranty Square Senior Vice Presidents GLENN A. DUHON, SR. Regional Manager, Abbeville MICHAEL F. LOFASO Regional Manager, Ponchatoula J. RICHARD STARK Operations CHRISTY L. WELLS Regional Manager Hammond Controller ERIC M. FULLER *Officers of both First Guaranty Bank and First Guaranty Bancshares, Inc. Vice Presidents Assistant Vice Presidents EDWARD P. BERTONIERE JAMES M. BAXTER THOMAS F. BROTHERS CHERYL Q. BRUMFIELD LANCE S. DAVIS TERI L. DUNCAN KIMBERLY D. CAMAILLE HARRISON R. GILL ROBERT E. DOUCETTE, CIO JOYCE N. GLASS COLLEEN B. EBARB LUDRICK P. HIDALGO RONALD W. EDMONDS SHIRLEY P. JONES DENISE D. FLETCHER MICHAEL D. KNIGHTEN RONALD R. FOSHEE ADAM J. JOHNSTON MIKKI M. KELLEY BERNADETTE Z. KEMP RONALD C. PITTMAN SCOTT B. SCHILLING DESIREE B. SIMMONS EVAN M. SINGER, BSA Officer RANDY S. VICKNAIR, Chief Credit Officer CHRISTOPHER W. MCGHEE ROBERT M. MIZELL MICHAEL A. MOSBEY D. LYNN TALLEY KRISTINA E. TERRY Officers REBECCA G. BROWN LAURYN H. COBURN VANESSA R. DREW JEANNETTE N. ERNST DIANE PATTERSON CRAIG E. SCELFO KRISTIN M. WILLIAMS 11 2015 ANNUAL REPORT Tangible Common Equity [3] (in thousands) Tangible Common Equity (in thousands) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $ 9,005 $10,071 $11,477 $13,485 $15,414 $17,376 $21,564 $26,786 $35,709 $37,964 $43,557 $50,095 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $53,671 $59,060 $62,061 $61,429 $70,273 $73,424 $82,560 $90,490 $80,033 $96,531 $114,927 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Tangible Common Equity has increased $105.9 million since 1993. Total Assets (in thousands) Total Assets (in millions) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $159 $168 $184 $198 $224 $245 $522 $475 $431 $435 $485 $607 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $714 $715 $808 $871 $931 $1,133 $1,354 $1,407 $1,436 $1,519 $1,460 First Guaranty Assets have increased 818% since 1993. 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 120000 100000 80000 60000 40000 20000 0 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 12 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Net Income (in millions) Net Income (in millions) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $2.1 $1.7 $2.1 $3.3 $3.4 $3.7 $2.9 $4.4 $6.0 $3.5 $7.0 $8.6 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $6.0 $8.4 $9.8 $5.5 $7.6 $10.0 $8.0 $12.1 $9.1 $11.2 $14.5 15 12 9 6 3 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Deposits (in millions) Total Deposits (in millions) 1500 1200 900 600 300 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $149 $154 $168 $179 $223 $257 $461 $410 $358 $361 $376 $481 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $633 $626 $723 $780 $800 $1,007 $1,207 $1,252 $1,303 $1,372 $1,296 13 2015 ANNUAL REPORT Loans, Net of Unearned Income [4] (in millions) Loans, net of unearned income (in millions) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $105 $114 $118 $126 $155 $177 $263 $309 $340 $354 $381 $456 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $492 $507 $575 $606 $590 $576 $573 $630 $703 $790 $842 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Investments [5] (in millions) Investments (in millions) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $30 $32 $35 $50 $67 $73 $212 $117 $57 $35 $59 $107 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $175 $158 $142 $139 $262 $482 $633 $659 $635 $642 $546 1000 800 600 400 200 0 800 700 600 500 400 300 200 100 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 [3]Tangible common equity as total shareholders’ equity less preferred stock, goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization. [4] Includes loans held for sale [5] Available for sale securities at fair value, held to maturity at amortized cost 14 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. 11 2 3 4 5 6 7 8 *Kentwood West is included in the Kentwood data and Berryland is included with Ponchatoula data. Total Deposits In millions 1. Vivian 2. Oil City 3. Benton 4. Haynesville 5. Homer 6. Dubach 7. Jennings 8. Abbeville 9. Greensburg 10. Montpelier 11. Watson 2015 2014 $ 43 $42 19 25 102 101 17 19 52 62 30 30 41 40 128 146 45 43 7 6 6 6 12. Denham Springs 117 126 13. Walker 14. Kentwood* 15. Amite 86 88 33 37 122 125 16. Independence 25 27 17. Main Office 324 331 18. Guaranty West 34 34 19. Ponchatoula* 82 84 TOTAL $1,313 $1,372 14 15 16 17 18 9 10 11 12 13 19 15 2015 ANNUAL REPORT 1049205512 Ponchatoula Banking Center GROUND BREAKING Alton B. Lewis and Mayor Robert “Bob” Zabbia of Ponchatoula breaking ground on First Guaranty Bank’s newest Banking Center. Director Ed Hoover shares his enthusiasm during the groundbreaking. First Guaranty Directors at Ponchatoula Banking Center Groundbreaking Left to right: William K. Hood, Andrew Gasaway, Jr., Nancy C. Ribas, Edwin L. Hoover, Jr., Alton B. Lewis, Richard W. “Dickie” Sitman, Anthony J. Berner, Jr., Robert H. Gabriel Mike Lofaso and Denise Fletcher participate in the groundbreaking. 16 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Ponchatoula Banking Center G RAND OPENING CELEBRATIO N Back Row, Left to Right: Chris Bankston, Kim Zabbia, Michelle Juneau, Chuck Brister, Ed Hoover, Alton B. Lewis, Joseph Cross, Eric Dosch, Kathleen Elstrott, Chief of Police Bry Laryrisson Front Row, Left to Right: Bob Gabriel, Andew Gasaway, Jeanette Gasaway, Mayor Bob Zabbia, Mike Lofaso, Denise Fletcher, Judge Grace Gasaway, Lauren Fannaly, Tony Sparacello 17 2015 ANNUAL REPORT Abbeville Banking Center (337) 893-1777 799 West Summers Drive Abbeville, LA 70510 Back Row, Left to Right: Gretchen Meaux, Diane Frederick, Glenn Duhon Middle Row, Left to Right: April Frederick, Tanya Menard, Lisa Kritzer Front Row, Left to Right: Amy Broussard, Charisse Stevens Amite Banking Center (985) 748-5111 100 East Oak Street Amite, LA 70422 Back Row, Left to Right: Shakayla Moore, Suzette Brooks, Susie Smith, Mindy Fitch, Jenny Sue Weedman, Betty Jo Whiddon, Stephanie Campo Middle Row, Left to Right: Tamara Neil, Scott Schilling, Lacey Venable Front Row, Left to Right: Brittani Ragusa, Marsha Spring 18 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Benton Banking Center (318) 965-2221 189 Burt Boulevard Benton, LA 71006 Back Row: Adam Johnston Middle Row, Left to Right: Rhonda Beavers, Joedi Snipes Front Row, Left to Right: Marcus Rounds, Colette Morehead, Donna Cummings Not Pictured: Ellen Buskey, Monique Pruitt, Davena McMillian, Anthony Hughes Denham Springs Banking Center (225) 791-7964 2231 South Range Avenue Denham Springs, LA 70726 Back Row, Left to Right: Ronnie Foshee, Lisa Thompson, Kevin Foster, Sharon Moore, Ludrick Hidalgo Front Row, Left to Right: Kendra Fairburn, Michelle Gehling, Danna Jo Erwin, Meghan Alonzo, Kathie Alimia 19 2015 ANNUAL REPORT Dubach Banking Center (318) 777-3461 117 East Hico Street Dubach, LA 71235 Greensburg Banking Center (225) 222-6101 6151 Highway 10 Greensburg, LA 70441 Left to Right: Mic Baxter, Laurie Traylor, Lynnell Kimble, Sue Yates, Josie Tubbs, Heather Croxton Not Pictured: Amber Urrey, Diane Shoemaker, Kristy Puckett Back Row, Left to Right: Evan Singer, Phylicia Vernon, April Morrison, Paula McNabb, Michelle Brasseaux Front Row, Left to Right: Terbo Posey, Kaycee Bridges, Harrison Gill, Rhonda Miller Not Pictured: Melissa Smith 20 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Guaranty Square (985) 375-0300 / (985) 345-7685 (888) 375-3093 400 East Thomas Street Hammond, LA 70401 APPRAISAL REVIEW Back Row: Kristina Terry Front Row, Left to Right: Shannon Smith, Steven Wood HUMAN RESOURCES Back Row, Left to Right: Shelley Taylor, Chantelle Starkey, Mandi Bankston Front Row, Left to Right: Landa Domangue, Mikki Kelley 21 2015 ANNUAL REPORT COLLATERAL CUSTOMER SUPPORT CENTER Back Row, Left to Right: Cate Sirghi, TJ Songy, Lauryn Coburn Front Row, Left to Right: LaQuita Johnson, Jeannette Ernst, Sharon Compton Back Row, Left to Right: Moises Rodriguez, Melanie Dalmado, Danyelle Green, Olivia Pevey Front Row, Left to Right: Sharon Rogers, Davon Mitchell, Sharmaine Robertson Not Pictured: Christina Foster, Pamela Stafford CASH MANAGEMENT Vikki Dupaquier Miranda Derveloy Hannah Winget DEPOSIT OPERATIONS Back Row, Left to Right: Amy Neal, Kimberley Fletcher, Lori Lloyd, Shirley Jones Front Row, Left to Right: Divetta Stallworth, Sandra Edwards, Tammy Graves 22 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. FINANCE Back Row, Left to Right: Eric Fuller, Eric Dosch, Anna Cusick, Tarez Cowsar, Michael Moye Front Row, Left to Right: Karen Gregory, Diane Patterson, Diane Lanier, Donna Scamardo, Philip Qualls, Katherine Campbell CREDIT Back Row, Left to Right: Brandon Daniels, Randy Vicknair, Louis Cusimano, Abiola Oke, Monica Crane, Colton McDaniel Front Row, Left to Right: Dev Patel, Jessica Hrenyk, Silvia Rodriguez, Emily Creech, Suraj Pathak, Ellen Wang, Melanie Gottschalck 23 2015 ANNUAL REPORT INFORMATION TECHNOLOGY Back Row, Left to Right: Dameon Bickham, Keith Mills, Gary Bouffard, Tom Hibbs, Kyle Herndon Middle Row, Left to Right: David Couvillon, John Farrell, Hector Garcia Front Row, Left to Right: Craig Rachel, Bob Doucette, Star Lala COMMUNITY RELATIONS Bernadette Kemp 24 LENDING Back Row, Left to Right: Craig Scelfo, Jane Wear, Christy Wells, Michael Knighten Front Row, Left to Right: Tracy Nelson, Catherine Egnew, Vickie Jenkins Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. LOAN OPERATIONS Back Row, Left to Right: Laura Ard, Bonnie Garcia, Amanda Rodriguez, Lynn Talley, Amy Fabre, Stacy Penalber Front Row, Left to Right: Audrey Carter, Star Spriggs, Steven Hathorn, Donna Hodges, Kellie Weisler PURCHASING & DOCUMENT SECURITY Back Row, Left to Right: Robert Mizell, Joseph Ernest Front Row: Teresa Wempren MORTGAGE Back Row, Left to Right: Kimberly Duckworth Camaille, Tonya Messa, Tanja Wadsworth, Ryan Starns Front Row, Left to Right: Amy Hopson, Mandy Lee, Michele Graham, Lisa Holmes 25 2015 ANNUAL REPORT MAIN OFFICE BANKING CENTER STAFF Back Row, Left to Right: BreAnna Sadowsky, Chandra McKinney, Shelbi Rayborn, Shawnta Henderson Front Row, Left to Right: Glenda Saucier, Linda Miller, Ashleigh Duroncelet Not Pictured: Giselle Leonard, Nydoria Jones, Latoya Williams, Molly Ducote, Lashabria Reed-Dantzler OPERATIONS Back Row, Left to Right: Brittany Harness, Christe Feimster, Elisa Costanza, Desiree Theall, Tracey Robertson MARKETING Back Row, Left to Right: April Alford, Desiree Simmons Front Row, Left to Right: Richard Stark, Carla McManus, Teri Duncan Front Row: Kelly Field Not Pictured: Lucille Conner, Deborah Dubuisson 26 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. COMPLIANCE Back Row: Colleen Ebarb Front Row, Left to Right: Debbie Penton, Becky Brown BSA/FRAUD Back Row: Evan Singer Front Row, Left to Right: JoEllen Juhasz, Casey Turner TRAINING Back Row, Left to Right: Shanon Dunn, Danielle Willie Front Row, Left to Right: Danyelle Horton, Vikki Dupaquier AUDIT Back Row, Left to Right: Michael Mosbey, Thomas Brothers, Jason McKenzie Front Row, Left to Right: Jordan Cormier, Nancy Rodriguez, Michelle Dionne, Lana Quinn 27 2015 ANNUAL REPORT LOAN REVIEW Left to Right: Bill Worthy, Chris McGhee SPECIAL ASSETS Back Row, Left to Right: Luke Hammonds, Ronnie Pittman Front Row, Left to Right: Kriss Patterson, LeeAnn Silbey EXECUTIVE Back Row: Alton B. Lewis Front Row, Left to Right: Casie Navarre, Kristin Williams, Vanessa Drew 28 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Hammond – Guaranty West Banking Center (985) 375-0371 2111 West Thomas Street Hammond, LA 70401 Back Row, Left to Right: Tyjia Ard, Arielle Adkins, Tae Anderson, Nicole Conger, Jerika Williams Front Row, Left to Right: Lindsey Wright, Shari Wheeler, Stacy Williams, Connie Miller, Briana Johnson Haynesville Banking Center (318) 624-1171 10065 Highway 79 Haynesville, LA 70138 Left to Right: Aleshia Lee, Elaine Atencio, Carla Goode Not Pictured: Tammy Burley 29 2015 ANNUAL REPORT Homer Banking Center (318) 927-3000 401 North 2nd Street Homer, LA 71040 Independence Banking Center (985) 878-6777 455 West Railroad Avenue Independence, LA 70443 Back Row, Left to Right: Candie White, Ron Edmonds, Tracy Perry Front Row, Left to Right: Dot Frazier, Hannah Winget, Jamie Williams, Tina Dickerson, Sara Pennington, Kitsha Ridley Not Pictured: Chelsea Kleinman Back Row, Left to Right: Carmella Coslan, Megan Mackles, Ashley Addison, Karen Paille, Pamela Brazil Front Row, Left to Right: Andrea James, Richard Hamilton, Cheryl Brumfield 30 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Jennings Banking Center (337) 824-1712 500 North Cary Jennings, LA 70546 Kentwood Banking Center (985) 229-3361 301 Avenue F Kentwood, LA 70444 Left to Right: Gwendolyn Pete, Mona Fontenot, Darrell Bruchhaus, Amber Dupre, Trisha Patterson Back Row, Left to Right: Lindsey George, Angie Lott, Kelly Wall, Lisa Rushing, Connie Butler, Lance Davis Front Row, Left to Right: M’Kayla Saizan, Patsy Meyer, Alma Thomas, Tammy Carraway 31 2015 ANNUAL REPORT Kentwood West (985) 229-6101 723 Avenue G Kentwood, LA 70444 Montpelier Banking Center (225) 777-4304 35651 Highway 16 Montpelier, LA 70422 Left to Right: Megan Roberts, Brittany Graham, Ruby Carter Left to Right: Trella Page, Betsy Ehret, Elizabeth Zito 32 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Oil City Banking Center (318) 995-6682 126 South Highway 1 Oil City, LA 71061 Ponchatoula Banking Center (985) 386-2000 500 West Pine Street Ponchatoula, LA 70454 Back Row, Left to Right: Adam Johnston, Terri Brown Front Row, Left to Right: Serita Wright, Andie Bruno, Latoya McFarland, Mary Casey Not Pictured: Toni Harris Back Row, Left to Right: Kristy Petit, Amiee Gervais, Brandon Wear Middle Row, Left to Right: Mike Lofaso, Renee Rhody, Kay Crocken Front Row, Left to Right: Katherine Aylor, Denise Fletcher Not Pictured: Holly Mulkey 33 2015 ANNUAL REPORT Ponchatoula-Berryland Banking Center (985) 386-5430 105 Berryland Shopping Center Ponchatoula, LA 70454 Vivian Banking Center (318) 375-3202 102 East Louisiana Avenue Vivian, LA 71082 Left to Right: Ashley Hart, Cassandra Brumfield Not Pictured: Tyvon Adams Back Row, Left to Right: Frances Thompson, Amber Smith, Teresa Hasha, Bobbie Clark Front Row, Left to Right: Tina Gay, Stacy Thompson Not Pictured: Brandy Moon, Joyce Glass 34 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Walker Banking Center (225) 664-5549 29815 South Walker Drive Walker, LA 70785 Watson Banking Center (225) 665-0400 33818 Highway 16 Denham Springs, LA 70706 Left to Right: Brandi Steffek, Sheila Lofton, Clint Trant, Robin Bonfanti, Sylvia Moore Not Pictured: Kendra Fairburn Back Row: Ludrick Hidalgo Front Row, Left to Right: Carrie Jarreau, Megan Braden Not pictured: Judy Hughes, Edward Bertoniere 35 2015 ANNUAL REPORT Community Commitment Community contributions are a priority budget item for First Guaranty Bank. Listed are the institutions, organizations and associations that we have assisted with contributions and sponsorships during 2015. At First Guaranty Bank, our goal is to help improve the communities we serve. In addition to monetary contributions, our employees dedicated time, energy and effort to many of these worthy causes. Adam Johnston presented a contribution to Mary M. Cobb, Director of Events and Donor Relations of the LSU Health Shreveport Foundation. The contribution supports the Foundation’s 2015 Evening for Healers event. Adam Johnston presented a contribution to Piggly Wiggly Steak Cook-off. Pictured from left to right are Renee Jones, Karen Taylor, Adam Johnston, Crystal Lewis, Randy Smith, Piggly Wiggly Springhill, Store Manager and Bobby Vidrine. Melissa Smith presented a contribution to Ann Huff, CFO at the Greensburg Sheriff ’s office. Adam Johnston presented a contribution to Lion John Zielinski with the Bossier City Lions Club. Diane Shoemaker and Josie Tubbs presented a contribution to Judy Mabry, the principal at Dubach School. First Guaranty Bank contributions for community support were $429,000 in 2015 which is 23.4% more than in 2014. Mr. Harrison presented a contribution to SHPE representative Mr. James Miller. 36 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Community Commitment Mr. Harrison presented a contribution to Charles Hutchinson with the LSU Extension Dairy Specialist and Daryl Robertson, a dairy farmer. Tracy Perry presented a contribution to Coach Elaine Gilbert of the Homer High School Track Team. Elaine Atencio (right) presented a contribution to the Coordinator, Babs Maddox (left) at the Wee Care Committee Golf Tournament. Niekitsha Jenkins and Hannah Winget presented a contribution to Sgt. Van McDaniel with the Homer Police Department for the Child Safety program. Cheryl Brumfield presented a contribution to Linda Wisinger, Principal of Mater Dolorosa Catholic School for their Annual Steak Dinner. Cheryl Brumfield presented a contribution to the Independence Middle Magnet School. In the photo from left to right are: Coach Tyronee Williams, Cheryl Brumfield and Ms. Alexa Hookfin, Principal. A Albany High School – Football Program Sponsor and Lady Hornet Fundraiser American Cancer Society – Relay for Life in Vermilion and Tangipahoa Parishes and Relay for Life Bronze Sponsor American Legion Auxiliary #47 – Boys State and Girls State American Legion Post #141 (Vivian) – Boys State Amite High School – Stadium Sign & Senior Breakfast Amite Oyster Festival – Sponsor Ancient Order of Hibernians – Help the Needy B Bossier City Lions Club Bossier Restoration Foundation Boy Scouts of America C Champ Cooper Junior High School – Athletic Program Christmas on Caddo Claiborne Academy Claiborne Chamber of Commerce Claiborne Charity Inc. – Golf Tournament Sponsor Claiborne Christmas Committee Claiborne 4-H Livestock Club 37 2015 ANNUAL REPORT Community Commitment Cheryl Brumfield presented a contribution to the Lallie Kemp Foundation. Included in the photo are Cheryl Brumfield and Sherre Pack-Hookfin, Chief Executive Officer of LSU Lallie Kemp Medical Center. Darrell Bruchhaus presented a contribution to Cynthia Hoffpauir, the CEO of the Jefferson Davis Chamber of Commerce. Cheryl Brumfield and Lance Davis presented a contribution to the Town of Kentwood and Southeast Community Health Systems to purchase school supplies for the 9th Annual School Supplies Giveaway. Shown from left are: Dr. Alecia Cyprian, Southeast Community Health Systems, First Guaranty Bank Manager (Independence Branch) Cheryl Brumfield, First Guaranty Bank Manager (Kentwood Branch) Lance Davis, Town of Kentwood Mayor Irma Gordon and Town of Kentwood Office Clerk Donnisha Alexander. Mona Fontenot presented a contribution to Jessica Kopnicky and Lakyn Kopnicky with the Melissa Doise Hope for the Miracle 5K committee. Claiborne Scholastic Banquet City of Hammond – Hope Summer Camp City of Ponchatoula – Wellness Plaza City of Walker – Challengers Field Communication Expo Inc. Council for a Better Louisiana Crimestoppers of Tangipahoa D Dubach School – Adopt-A-School Dubach Police Department Dubach Restoration and Beautification Organization – Chicken Festival Sponsor Cards E Elton High School – FFA Community Day Sponsor Elton Elementary School – Positive Behavior Program F First Baptist Church – Wee Care First Baptist Church Greensburg – Golf Tournament Florida Parishes Arena Rodeo Herbert S. Ford Memorial Museum 38 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Community Commitment Darrell Bruchhaus presented a contribution to Kevin Bruchhaus, Sports writer for Jennings Daily News. The Award was given to Morgan Woods from Lake Arthur High School. Brooks Hebert presented a contribution to Trudy Marceaux, the Coordinator of Leadership Excel. Brooks Hebert presented a contribution to Jasey Broussard, 2015-2016 Lake Arthur High School Cheerleaders. Darrell Bruchhaus became a Premier Member of the Southwest Louisiana Economic Development Alliance. In the photo are Mike Mitchell - Sales representative and Paula Ramsey - VP Chamber membership. Eric Dosch and Alton B. Lewis of First Guaranty Bank presented a contribution to Patricia Westmoreland and Donna Taylor for the Richard Murphy Hospice Gala. First Guaranty Bank presented a contribution to the Loranger High School Softball team. The Head Coach is Anna Bankston and Assistant Head Coach is Steven Culberston. Standing left to right: Brenliegh Bankston, Macy Harrison, Jayla Robertson, Kaylin Lee, Jamie Lynn Rogers, Ashley Sharp, Anna Cusick, FGB Employee, Head Coach Anna Bankston, Cassie Bennett, Assistant Head Coach Steven Colbertson and Racheal Wyllie. Kneeling left to right: Avery Taylor, Sierra Cusick and Kaley Uter. G Greater St. James Missionary Church – Spring Tea H Hammond Blues & BBQ Sponsor Hammond Chamber of Commerce Hammond Firefighters Association Hammond High Magnet School – Baseball and Slam Dunk Renewal, Wish List Hammond Police Union Local 345 Hammond Regional Arts Center Hathaway High School – Prom Lock, Football Championship and SAFE Haynesville Beautification Committee Haynesville High School Haynesville Lions Club Haynesville Quarterback Club Homer Golf Club – Tee Box Sign and Golf Tournament Sponsor Homer High School – Baseball, Softball and Track Sponsors Homer Pelican Quarterback Club I Independence High School – Senior Awards, Independence Middle School –Football Sponsor Independence Sicilian Heritage Festival 39 2015 ANNUAL REPORT Community Commitment Trevor Bergeron, Luke Hammonds and Melanie Gottschalck presented a contribution to Hammond Rotary representatives, Daryl Ferrara and Jenni O’Neil. Randy Vicknair presented a contribution to Lauren Williams, Coordinator of Chefs Evening. April Alford presented a contribution to Randy Stegall and Linda Stegall of Tangi Humane Society for their 2015 Pet Expo. Ronnie Pittman presented a contribution to Brian Shirey with Hammond Blues and BBQ. Melanie Gottschalck presented a contribution to Megan Roberts for 4H. Eric Dosch presented a contribution to John Poteet and Jaclyn Rice for Options. Danielle Willie presented a contribution on behalf of FGB Main Office Employees to Bonnie Garcia and Casie Navarre for the Cystic Fibrosis Foundation. The contribution will benefit the Hammond Great Strides Walk. Independence Summer Baseball Team Sponsor International Red Cross Italian Festival J Rogers C. Jackson Memorial – Golf Tournament Jeff Davis Chamber of Commerce Jennings Daily News – Malcolm Connolly Sponsor Jennings High School – Operation Graduation K Kentwood Baseball/Softball Association Kentwood Garden Club Kentwood High School – State Championship Tournament Kentwood Rotary Club Kiwanis Club of Denham Springs Kiwanis Club of Hammond Kiwanis Club of Ponchatoula Knights of Columbus L Lafayette Housing Authority Lake Arthur High School – T-Shirt Sponsor Lake Claiborne Inc. – 4th of July Fireworks Sponsor Lallie Kemp Foundation Land Trust for Southeast Louisiana – Conservation Cup Sponsor Charlie Landry Memorial Golf Tournament Leadership Excel Little Angels Foundation 40 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Community Commitment Danyelle Sanders Horton presented a contribution to Sheryl Baham-Francis of Greater St. James Missionary Baptist Church for their 9th Annual Ladies’ Spring Tea. Phillip Qualls presented a contribution to Jonathan Kemp of the Louisiana State Troopers Association for their 2nd Annual Sporting Clays Tournament. Desiree Simmons presented a contribution to Anette Kriylo, Executive Director of Louisiana Children’s Discovery Center for their Jazz Brunch. Danielle Willie presented a contribution for the Southeastern Foundation to Lynn Horgan, Director of Individual, Corporate and Foundation Relations. Jason McKenzie and Abit Tiwari presented a contribution to Chris Nuebel of the American Red Cross of Louisiana for the earthquake victims in Nepal. Anna Cusick presented a contribution to Loranger Volleyball Head Coach, Tyra Starkey. Livingston Board of Realtors - Gold Forecast Sponsor Livingston Parish School Board – Holiday Luncheon Loranger High School – Softball, Volleyball and Baseball Programs Sponsor Louisiana Bankers Association Louisiana Children’s Discovery Center – Jazz Brunch and Quiet Santa Event Louisiana 4-H Foundation – Annual Fund Louisiana State Troopers Association – Sporting Clays Tournament Sponsor LSU Ag Center – Educational Program Sponsor LSU Health Shreveport Foundation M Mater Dolorosa Catholic School – Baseball Sign and Steak Dinner Fundraiser Melissa Doise Hope for the Miracle Race Fundraiser (to benefit cancer patients) Monterey Country Club – Golf Tournament Sponsor Richard Murphy Hospice Foundation Casie Navarre presented a contribution to Charley Vance with the Tangipahoa Parish School of Performing Arts. N National Child Safety Council New Horizons Youth Service Bureau North Caddo Magnet High School – Basketball Program North Caddo Medical Center Foundation – Gold Buckle Sponsor North Tangi Support Group – Mardi Gras Parade Sponsor 41 2015 ANNUAL REPORT Community Commitment Ragan Rodriguez presented a contribution to C. Roy Blackwood, the Executive Director of the Columbia Theatre. Bernadette Kemp presented a contribution to Kathy Pittman, Director of Southeastern Louisiana University Alumni, for the Convocation picnic. Bernadette Kemp presented a contribution to Katherine Marquette, Executive Director of the Hammond Regional Arts Center, for the Brews Arts Festival. Desiree Simmons presented a contribution to Kayla Johnson, President of Livingston Board of Realtors. Donna Hodges presented a contribution to Captain Derwin Miley and Captain Terry Stewart with the Hammond Firefighters Association for the annual MDA fundraiser. Kristin Williams presented a contribution to Pascal Dean, treasurer for the South Tangipahoa Relay for Life. Anette Kirylo, Executive Director of the Louisiana Children’s Discovery Center presented Alton B. Lewis with a plaque for contributing to Louisiana Children’s Discovery Center for five years. O Oak Forest Academy – Fall Carnival Oak Grove Church of Christ – Food Festival Options, Inc. P Ponchatoula Area Recreation Ponchatoula Chamber of Commerce Ponchatoula Football Boosters Ponchatoula High School – Lady Wave Basketball, Project Graduation and Senior Breakfast 42 Ponchatoula High School Band Boosters Ponchatoula High School Grand Slam Boosters Ponchatoula Junior High – Volleyball Program Ponchatoula Lions Club Ponchatoula Youth Baseball – Team Sponsor Layton Ricks Campaign Fundraiser R Rotary Club of Amite Rotary Club of Hammond S St. Helena Advocacy for Parish Enrichment (Christmas in the Pines Celebration) St. Helena Forestry Association St. Helena Sheriff ’s Department St. Helena/Tangipahoa Dairy Days St. Joseph Catholic School – Spring Fair Sponsor St. Jude Fundraiser Senior Center – Bingo Shreveport Bossier African American Chamber of Commerce Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Community Commitment Kristin Williams presented Lacie Randall and Coach Stacy Darouse with a contribution to the Albany High School Ladies’ Basketball team. Lois Freeman presented a contribution to John “Bones” Kraft for Ponchatoula High School Baseball’s Grand Slam Booster Club. Vanessa Drew presented a contribution to Director Leon Philpot and Playologist, Sam, from the Louisiana Children’s Discovery for the Quiet Santa Event. Randy Vicknair presented Dr. Antoinette Phillips with a contribution for Southeastern Louisiana University’s Business Week. Mike Lofaso presented a contribution to Dr. Beth Moulds, Interim Principal Hammond High Magnet School. The funds will be used to purchase a variety of materials and equipment needed by students and faculty. Desiree Simmons presented a contribution to Austin Sanders with Southeastern Louisiana University for the event Last Roar. Society of St. Vincent de Paul Southeast Community Health System – Back to School Expos Southeastern Louisiana University Alumni Association – Felion Dinner, Salute the Lions, Fundraiser and Convocation Picnic Sponsors Southeastern Louisiana University Athletic Association – Corporate Sponsor, Lion Nation and Sports Package Southeastern Louisiana University Foundation –Chef ’s Evening Sponsor, SLU Channel Programming, Green Pig Sponsor, Community Music School Sponsorship, Partner, Columbia Theater for the Arts Sponsor, Last Roar Event and Business Perspectives Week Southern Band – Mardi Gras Trip Southwest Louisiana Veterans Home – Crawfish Boil Sponsor Special Olympics Louisiana – Trivia Night Sponsor Summerfield High School T Tangi Humane Society Tangi Professional Women’s Organization Tangipahoa Parish 4-H – Belt Buckle Award and Pet Parade Tangipahoa Parish School System – Talented Theatre Tangipahoa Parish Sheriff 's Office – Mounted Division Fundraiser Tangipahoa African American Heritage Museum & Veterans Archive – Black Tie Event Tangipahoa Voluntary Council on Aging – Purchased computers for Hammond Senior Center Town of Benton Festival Fund 43 2015 ANNUAL REPORT Community Commitment Alexis Drude and Denise Fletcher presented a contribution for the PHS Senior Breakfast to Mary Beth Crovetto, PHS Assistant Principal. Denise Fletcher presented a contribution to Addie Eggers for the Ponchatoula Junior High Volleyball team. Denise Fletcher presented a contribution to Latasha Banks, Administrator for Family Night at Westminster Place. Tracey McNemar presented a contribution to Mr. James Square, Band Director and Band Booster Members for the PHS Band Boosters. Alton B. Lewis presented a contribution for the Ponchatoula Wellness Plaza to Mayor Robert “Bob” Zabbia and Rhonda Sheridan, Executive Assistant. Katherine Aylor presented a contribution to the Tangipahoa Parish 4H Pet Parade which is co- sponsored by LSU Ag Center. Accepting the check from Katherine Aylor, (Universal Banker) are Ms. Rita Hoover (Tangipahoa 4 H) and Ms. JoAnna T Pesson (LSU Ag Center Extension Agent/Parish Chair for Tangipahoa). Town of Independence – Land Purchase/ Donation Town of Kentwood – Southeast Community Health Town of Vivian – Litter Campaign and Summer Youth Camp U United Way of Southeast Louisiana – Corporate Match Contribution University Montessori School V Vivian Athletic Association W Walker High School – Banzai Program Westminster Place Family Day Z Zachary Taylor Parkway Association 44 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. STRENGTH & EARNINGS POWER! Earnings Total Common Dividends Paid Cumulative Retained Earnings (Deficit)* Notable Events $2.1 million $ 200,000 $(4,984,000) ■■ Investors purchased $3.6 million of common stock $1.7 million $ 601,000 $(3,879,070) $2.1 million $ 815,000 $(2,796,000) ■■ Investors purchased $337,000 of common stock $3.3 million $1,020,000 $ (774,000) ■■ Three-for-two stock split $3.4 million $1,223,000 $3.4 million $1,223,000 $ 1,205,000 $ 3,482,000 $3.4 million $1,316,000 $ 4,473,000 ■■ Investors purchased $9.6 million of common stock ■■ Acquired 13 branches from Bank One of Louisiana ■■ Acquired First Southwest Bank 1993 1994 1995 1996 1997 1998 1999 2000 $5.0 million $1,530,000 $ 5,027,000 ■■ Gains from sale of acquired branches net of tax 2001 $6.0 million $1,668,000 $ 8,638,000 totaling $2.8 million ■■ Acquired Woodlands Bancorp ■■ Gains from sale of acquired branches net of tax totaling $1.3 million 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $3.5 million $1,751,000 $7.0 million $2,086,000 $8.6 million $2,752,000 $10,426,000 $13,967,000 $19,771,000 $6.0 million $3,173,000 $23,351,000 ■■ Four-for-three stock split $8.4 million $3,335,000 $28,402,000 $9.8 million $3,503,000 $34,671,000 ■■ Acquired Homestead Bancorp $5.5 million $3,558,000 $7.6 million $3,558,000 $10.0 million $3,558,000 $36,626,000 $40,069,000 $45,203,000 $8.0 million $3,610,000 $47,650,000 ■■ Acquired Greensburg Bancshares 2012 $12.1 million $4,035,000 $53,702,000 2013 $9.1 million $4,027,000 $58,102,000 2014 $11.2 million $4,027,000 $64,905,000 2015 $14.5 million $4,247,000 $73,445,000 ■■ 2,895 treasury shares purchased at $18.59 per share ■■ 10% common stock dividend ■■ Dividend rate per share remains $0.16 per quarter ■■ Total loans exceeded $700 million ■■ 82 consecutive quarterly dividends paid ■■ Retained earnings grew by $6.8 million ■■ Total loans reached $790 million ■■ 10% common stock dividend ■■ Dividend rate per share remains $0.16 per quarter ■■ 90th consecutive quarterly dividend ■■ Listed in NASDAQ ■■ Redeemed SBLF Preferred Stock $151.7 million $56,816,000 * Retained earnings has not been adjusted to consider stock splits or stock dividends. This better reflects earnings that have been retained as capital. Retained earnings is the product of Company earnings less common and preferred dividends. The accumulated deficits in 1993 through 1996 were due to losses incurred prior to 1993. 45 2015 ANNUAL REPORT Banks Headquartered in Louisiana Ranked by Asset Size as of December 31, 2015 1 Iberiabank 2 First NBC Bank 3 Origin Bank 4 MidSouth Bank, National Association 5 Home Bank 6 Red River Bank 7 First Guaranty Bank 8 Gulf Coast Bank and Trust Company 9 Business First Bank 10 Crescent Bank & Trust 11 Investar Bank 12 First American Bank and Trust 13 Citizens National Bank, N.A. 14 Sabine State Bank and Trust Company 15 First National Banker’s Bank 16 Fidelity Bank 17 JD Bank 18 First Federal Bank of Louisiana 19 First Bank and Trust 20 Ouachita Independent Bank 21 Liberty Bank and Trust Company 22 The Evangeline Bank and Trust Company 23 Resource Bank 24 St. Martin Bank and Trust Company 25 United Community Bank 26 Progressive Bank 27 Concordia Bank & Trust Company 28 Synergy Bank 29 South Louisiana Bank, Houma, Louisiana 30 Community Bank of Louisiana 31 Coastal Commerce Bank 32 Merchants & Farmers Bank & Trust Company 33 Fifth District Savings Bank 34 Gibsland Bank & Trust Company 35 Gulf Coast Bank 36 Rayne State Bank & Trust Company 37 Metairie Bank & Trust Company 38 Home Federal Bank 39 Bank of Commerce & Trust Co. 40 First National Bank of Louisiana 41 M C Bank & Trust Company 42 Cottonport Bank 43 Community First Bank 44 MBL Bank 45 Cross Keys Bank 46 City Savings Bank & Trust Company 47 Farmers-Merchant Bank & Trust Company 48 Richland State Bank 49 Southern Heritage Bank 50 St. Landry Bank and Trust Company 51 Iberville Bank 52 Patterson State Bank 53 Citizens Bank & Trust Company 54 City Bank & Trust Co. 55 The Union Bank 56 Delta Bank 57 Citizen’s Bank 58 First National Bank in Deridder 59 Florida Parishes Bank 60 The First National Bank of Jeanerette 61 Bank of Montgomery 62 First National Bank 63 St. Landry Homestead Federal Savings Bank 64 Peoples Bank and Trust Company of Pointe Coupee Parish 65 Bank of Ruston 66 The Bank Lafayette New Orleans Choudrant Lafayette Lafayette Alexandria Hammond New Orleans Baton Rouge New Orleans Baton Rouge Vacherie Bossier City Many Baton Rouge New Orleans Jennings Lake Charles New Orleans Monroe New Orleans Ville Platte Covington Saint Martinville Gonzales Monroe Vidalia Houma Houma Mansfield Houma Leesville New Orleans Gibsland Abbeville Rayne Metairie Shreveport Crowley Crowley Morgan City Cottonport New Iberia Minden Saint Joseph Deridder Breaux Bridge Rayville Jonesville Opelousas Plaquemine Patterson Plaquemine Natchitoches Marksville Vidalia Ville Platte Deridder Hammond Jeanerette Montgomery Arcadia Opelousas New Roads Ruston Jennings 46 Coushatta Eunice Bogalusa Zachary Delhi Jonesboro New Roads Opelousas Jonesville Abbeville Columbia Columbia Marion Larose Winnsboro Washington Lake Charles Newellton Plaquemine Winnfield Vivian Plaquemine Jackson Golden Meadow Winnsboro Kaplan Boutte Sunset 67 Bank of Coushatta 68 Tri-Parish Bank 69 Citizens Savings Bank 70 Bank of Zachary 71 Guaranty Bank & Trust Company of Delhi, Louisiana 72 Jonesboro State Bank 73 Guaranty Bank and Trust Company 74 American Bank & Trust Company 75 Catahoula - LaSalle Bank 76 Bank of Abbeville & Trust Company 77 Homeland Federal Savings Bank 78 Caldwell Bank & Trust Company 79 Marion State Bank 80 South Lafourche Bank & Trust Company 81 Franklin State Bank & Trust Company 82 Washington State Bank 83 Lakeside Bank 84 Tensas State Bank 85 Plaquemine Bank & Trust Company 86 Bank of Winnfield & Trust Company 87 Citizens Bank & Trust Company 88 Anthem Bank & Trust 89 The Highlands Bank 90 State Bank & Trust Company 91 Winnsboro State Bank & Trust Company 92 Vermilion Bank & Trust Company 93 First National Bank USA 94 Bank of Sunset and Trust Company 95 Exhange Bank and Trust Company, Natchitoches, Louisiana Natchitoches 96 Citizens Progressive Bank 97 Mississippi River Bank 98 Bank of St. Francisville 99 Citizens Bank & Trust Company 100 Hibernia Bank 101 American Bank & Trust Company 102 Feliciana Bank & Trust Company 103 Landmark Bank 104 Teche Bank & Trust Co. 105 Farmers State Bank & Trust Co. 106 Colfax Banking Company 107 Bank of Erath 108 Heritage Bank of St. Tammany 109 Eureka Homestead 110 Kaplan State Bank 111 Jackson Parish Bank 112 Bank of Gueydan 113 Commercial Capital Bank 114 Bank of Louisiana 115 Simmesport State Bank 116 Union Savings and Loan Association 117 The Bank of Commerce 118 Hodge Bank & Trust Company 119 Abbevile Building & Loan (A State-Chartered Savings Bank) Abbeville 120 Rayne Building and Loan Association 121 Beauregard FSB 122 Commerce Community Bank 123 First National Bank of Benton 124 Bank of Ringgold 125 Basile State Bank 126 Bank of Oak Ridge 127 Peoples Bank 128 Sicily Island State Bank 129 Mutual Savings and Loan Association 130 The Mer Rouge State Bank 131 Progressive National Bank of DeSoto Parish 132 Tri-State Bank and Trust Winnsboro Belle Chasse Saint Francisville Covington New Orleans Covington Clinton Clinton Saint Martinville Church Point Colfax Erath Covington Metairie Kaplan Jonesboro Gueydan Delhi New Orleans Simmesport New Orleans White Castle Hodge Rayne Deridder Oak Grove Benton Ringgold Basile Oak Ridge Chatham Sicily Island Metairie Mer Rouge Mansfield Haughton Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Financial Table of Contents Selected Financial Data ..............................................................................................48 Management’s Discussion and Analysis of Financial Condition and Results of Operation     ...............................................52 Report of Independent Registered Accounting Firm     .........................................80 Consolidated Balance Sheets   ..................................................................................81 Consolidated Statements of Income    .....................................................................82 Consolidated Statements of Comprehensive Income (Loss) ................................83 Consolidated Statements of Shareholders’ Equity  ..................................................83   Consolidated Statements of Cash Flows  ..................................................................84   Notes to Consolidated Financial Statements  ..........................................................85  47 2015 ANNUAL REPORT Selected Financial Data The following table presents consolidated selected financial data for First Guaranty. It does not purport to be complete and is qualified in its entirety by more detailed financial information and the audited Consolidated Financial Statements contained elsewhere in this Annual Report. Year End Balance Sheet Data: Investment securities Federal funds sold Loans, net of unearned income Allowance for loan losses Total assets Total deposits Borrowings Shareholders' equity Common shareholders' equity Performance Ratios and Other Data: Return on average assets Return on average common equity Return on average tangible assets Return on average tangible common equity Net interest margin Average loans to average deposits Efficiency ratio(1) Efficiency ratio (excluding amortization of intangibles and securities transactions)(1) Full time equivalent employees (year end) Capital Ratios: Average shareholders' equity to average assets Average tangible equity to average tangible assets Common shareholders' equity to total assets Tier 1 leverage capital consolidated Tier 1 capital consolidated Total risk-based capital consolidated Common equity tier one capital consolidated Tangible common equity to tangible assets(2) At or For the Years Ended December 31, 2015 2014 2013 2012 2011 (in thousands except for % and share data) $ 546,121 $ 641,603 $ 634,504 $ 659,243 $ 633,163 $ 582 $ 210 $ 665 $ 2,891 $ 68,630 $ 841,583 $ 790,321 $ 703,166 $ 629,500 $ 573,100 $ 9,415 $ 9,105 $ 10,355 $ 10,342 $ 8,879 $ 1,459,753 $ 1,518,876 $1,436,441 $ 1,407,303 $ 1,353,866 $ 1,295,870 $ 1,371,839 $1,303,099 $ 1,252,612 $ 1,207,302 $ 42,221 $ 3,255 $ 6,288 $ 15,846 $ 15,423 $ 118,224 $ 139,583 $ 123,405 $ 134,181 $ 126,602 $ 118,224 $ 100,148 $ 83,970 $ 94,746 $ 87,167 0.97% 12.98% 0.99% 13.60% 3.26% 61.31% 55.11% 57.74% 277 9.88% 9.67% 8.10% 8.17% 10.85% 13.13% 10.85% 7.89% 0.77% 11.40% 0.79% 12.10% 3.11% 55.72% 62.85% 62.58% 271 9.24% 9.00% 6.59% 9.33% 13.16% 14.05% N/A 6.37% 0.65% 9.31% 0.67% 9.99% 2.92% 53.58% 65.61% 0.89% 10.90% 0.91% 11.70% 3.20% 49.04% 58.56% 0.65% 7.37% 0.67% 7.97% 3.31% 52.79% 56.77% 67.17% 63.73% 60.29% 278 274 269 9.28% 9.02% 5.85% 9.14% 13.61% 14.71% N/A 5.59% 9.72% 9.43% 6.73% 9.24% 14.13% 15.31% N/A 6.45% 8.80% 8.52% 6.44% 9.03% 13.71% 14.75% N/A 6.12% 48 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Income Data: Interest income Interest expense Net interest income Provision for loan losses Noninterest income (excluding securities transactions) Securities gains Noninterest expense Earnings before income taxes Net income Net income available to common shareholders Per Common Share Data: (4) Net earnings Cash dividends paid Book value Tangible book value (3) Dividend payout ratio $ $ $ $ $ $ $ $ $ $ $ $ $ $ 56,079 8,608 47,471 3,864 5,656 3,300 31,095 21,468 14,505 14,121 2.01 0.60 15.54 15.10 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 53,297 9,202 44,095 1,962 5,882 295 31,594 16,716 11,224 10,830 1.57 0.58 14.47 13.95 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 50,886 11,134 39,752 2,520 5,907 1,571 30,987 13,723 9,146 8,433 1.22 0.58 12.13 11.57 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 55,195 13,120 42,075 4,134 6,272 4,868 31,161 17,920 12,059 10,087 1.46 0.58 13.69 13.08 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 54,609 15,118 39,491 10,187 7,742 3,531 28,821 11,756 8,033 6,057 0.89 0.52 12.59 11.93 30.07% 37.18% 47.75% 40.00% 59.60% Weighted average number of shares outstanding 7,013,869 6,920,022 6,920,022 6,921,696 6,825,779 Number of shares outstanding 7,609,194 6,920,022 6,920,022 6,920,022 6,923,205 Asset Quality Ratios: Non-performing assets to total assets Non-performing assets to total loans Non-performing loans to total loans Loan loss reserve to non-performing assets Net charge-offs to average loans Provision for loan loss to average loans Allowance for loan loss to total loans 1.51% 2.62% 2.43% 0.99% 1.90% 1.62% 1.27% 2.60% 2.12% 1.67% 3.74% 3.36% 2.13% 5.04% 4.05% 42.74% 60.74% 56.72% 43.94% 30.73% 0.44% 0.47% 1.12% 0.45% 0.27% 1.15% 0.38% 0.38% 1.47% 0.45% 0.70% 1.64% 1.65% 1.75% 1.55% (1) Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income. We calculate both a GAAP and a non-GAAP efficiency ratio. The GAAP-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption “Selected Financial Data—Non-GAAP Financial Measures.” (2) We calculate tangible common equity as total shareholders’ equity less preferred stock, goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization, and we calculate tangible assets as total assets less goodwill and core deposit intangibles. Tangible common equity to tangible assets is a non-GAAP financial measure, and, as we calculate tangible common equity to tangible assets, the most directly comparable GAAP financial measure is total shareholders’ equity to total assets. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption “Selected Historical Consolidated Financial and Other Data—Non-GAAP Financial Measures.” (3) We calculate tangible book value per common share as total shareholders’ equity less preferred stock, goodwill and acquisition intangibles, principally core deposit intangibles, net of accumulated amortization at the end of the relevant period, divided by the outstanding number of shares of our common stock at the end of the relevant period. Tangible book value per common share is a non-GAAP financial measure, and, as we calculate tangible book value per common share, the most directly comparable GAAP financial measure is book value per common share. See below for our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption “Selected Financial Data—Non-GAAP Financial Measures.” (4) Historical share and per share amounts have been adjusted to reflect the ten percent stock dividend paid December 17, 2015 to shareholders of record as of December 10, 2015. 49 2015 ANNUAL REPORT Non-GAAP Financial Measures Our accounting and reporting policies conform to accounting principles generally accepted in the United States, or GAAP, and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional metrics. Tangible book value per share and the ratio of tangible equity to tangible assets are not financial measures recognized under GAAP and, therefore, are considered non-GAAP financial measures. typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. Tangible equity, tangible assets, tangible book value per share or related measures should not be considered in isolation or as a substitute for total shareholders’ equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate tangible equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names. Our Management, banking regulators, many financial analysts and other investors use these non-GAAP financial measures to compare the capital adequacy of banking organizations with significant amounts of preferred equity and/or goodwill or other intangible assets, which The following table reconciles, as of the dates set forth below, shareholders’ equity (on a GAAP basis) to tangible equity and total assets (on a GAAP basis) to tangible assets and calculates our tangible book value per share. Tangible Common Equity Total shareholders' equity Adjustments: Preferred Goodwill Acquisition intangibles Tangible common equity Common shares outstanding Book value per common share Tangible book value per common share Tangible Assets Total Assets Adjustments: Goodwill Acquisition intangibles Tangible Assets At December 31, 2015 2014 2013 2012 2011 (in thousands except for share data and %) $ 118,224 $ 139,583 $ 123,405 $ 134,181 $ 126,602 - 1,999 1,298 39,435 1,999 1,618 39,435 1,999 1,938 39,435 1,999 2,257 39,435 1,999 2,608 $ 114,927 $ 96,531 $ 80,033 $ 90,490 $ 82,560 7,609,194 6,920,022 6,920,022 6,920,022 6,923,205 $ $ 15.54 15.10 $ $ 14.47 13.95 $ $ 12.13 11.57 $ $ 13.69 13.08 $ $ 12.59 11.93 $ 1,459,753 $ 1,518,876 $ 1,436,441 $ 1,407,303 $ 1,353,866 1,999 1,298 1,999 1,618 1,999 1,938 1,999 2,257 1,999 2,608 $ 1,456,456 $1,515,259 $1,432,504 $1,403,047 $1,349,259 Tangible common equity to tangible assets 7.89% 6.37% 5.59% 6.45% 6.12% 50 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. The efficiency ratio is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate the efficiency ratio by dividing noninterest expense by the sum of net interest income and noninterest income, excluding amortizations of intangibles and securities transactions. The GAAP-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income. The following table reconciles, as of the dates set forth below, our efficiency ratio to the GAAP-based efficiency ratio: GAAP-based efficiency ratio Noninterest expense Amortization of intangibles Noninterest expense, excluding amortization Net interest income Noninterest income Adjustments: Securities transactions Noninterest income, excluding securities transactions Efficiency ratio For the Year Ended December 31, 2015 2014 2013 2012 2011 (in thousands except for share data and %) 55.11% 62.85% 65.61% 58.56% 56.77% $31,095 $31,594 $30,987 $31,161 $28,821 320 320 320 350 286 30,775 47,471 8,956 31,274 44,095 6,177 30,667 39,752 7,478 30,811 42,075 11,140 28,535 39,491 11,273 3,125 295 1,571 4,868 3,434 $ 5,831 $ 5,882 $ 5,907 $ 6,272 $ 7,839 57.74% 62.58% 67.17% 63.73% 60.29% 51 2015 ANNUAL REPORT Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial Data” and our Consolidated Financial Statements. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Forward-Looking Statements,” and “Risk Factors,” may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements. Special Note Regarding Forward-Looking Statements Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a Company’s anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from Management expectations. This discussion and analysis contains forward-looking statements and reflects Management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The words “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties, including, changes in general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities, if any; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; and changes in the financial condition or future prospects of issuers of securities that we own, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements. Overview First Guaranty Bancshares is a Louisiana corporation and a bank holding company headquartered in Hammond, Louisiana. Our wholly-owned subsidiary, First Guaranty Bank, a Louisiana-chartered commercial bank, provides personalized commercial banking services primarily to Louisiana customers through 21 banking facilities primarily located in the MSAs of Hammond, Baton Rouge, Lafayette and Shreveport-Bossier City. We emphasize personal relationships and localized decision making to ensure that products and services are matched to customer needs. We compete for business principally on the basis of personal service to customers, customer access to officers and directors and competitive interest rates and fees. Total assets were $1.5 billion at December 31, 2015 and December 31, 2014. Total deposits were $1.3 billion at December 31, 2015 and 52 $1.4 billion  at December  31, 2014. Total loans were $841.6  million at December 31, 2015, an increase of $51.3 million, or 6.5%, compared with December  31, 2014. Common shareholders’ equity was $118.2  million and $100.1 million at December 31, 2015 and December 31, 2014, respectively. Net income was $14.5 million, $11.2  million and $9.1  million for the years ended December  31, 2015, 2014 and 2013, respectively. We generate most of our revenues from interest income on loans, interest income on securities, sales of securities and service charges, commissions and fees. We incur interest expense on deposits and other borrowed funds and noninterest expense such as salaries and employee benefits and occupancy and equipment expenses. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowings which are used to fund those assets. Net interest income is our largest source of revenue. To evaluate net interest income, we measure and monitor: (1) yields on our loans and other interest-earning assets; (2) the costs of our deposits and other funding sources; (3) our net interest spread; and (4) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources. Changes in market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Louisiana and our other out-of-state market areas. During the extended period of historically low interest rates, we continue to evaluate our investments in interest-earning assets in relation to the impact such investments have on our financial condition, results of operations and shareholders’ equity if interest rates were to suddenly increase as they did in the second and third quarters of 2013. Financial highlights for 2015 and 2014: • Total assets at December 31, 2015 decreased $59.1 million, or 3.9%, to $1.5 billion when compared to December 31, 2014. Total loans at December 31, 2015 were $841.6 million, an increase of $51.3 million, or 6.5%, compared with December 31, 2014. Common shareholders' equity was $118.2 million and $100.1 million at December 31, 2015 and 2014, respectively. • Net income for the years ended December 31, 2015 and 2014 was $14.5 million and $11.2 million, respectively.  The increase in net income for 2015 was the result of higher loan interest income and non-interest income and lower interest expense compared to 2014. In addition, First Guaranty liquidated an equity security during 2015 at a gain of $2.7 million.  • Net income available to common shareholders after preferred stock dividends was $14.1 million and $10.8 million for the years ended December 31, 2015 and 2014, respectively. Dividends on preferred stock were $0.4 million in 2015 and 2014. Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. • Earnings per common share were $2.01 and $1.57 for the years ended December 31, 2015 and 2014, respectively. • First Guaranty completed its common stock offering on November 12, 2015 that raised $9.3 million in capital.  First Guaranty's common stock is traded on NASDAQ under the symbol FGBI. • First Guaranty declared a 10% common stock dividend on November 19, 2015 that was paid on December 17, 2015 to shareholders of record as of December 10, 2015. • First Guaranty used proceeds from a $25.0 million senior secured loan and a $15.0 million subordinated debt offering to redeem all $39.4 million of its Series C preferred stock from the U.S. Treasury Department Small Business Lending Fund on December 22, 2015. • Net interest income for 2015 was $47.5 million compared to $44.1 million for 2014. • The provision for loan losses totaled $3.9 million for 2015 compared to $2.0 million in 2014.  The increase in provision was due to growth in the loan portfolio and due to charge-offs of $4.2 million associated primarily with five loan relationships. • The net interest margin for 2015 was 3.26%, which was an increase of fifteen basis points from the net interest margin of 3.11% for 2014. First Guaranty attributed the improvement in the net interest margin to the continued shift in interest earning asset balances from securities to loans and the continued reduction in interest expense over the last year. • Investment securities totaled $546.1 million at December 31, 2015, a decrease of $95.5 million when compared to $641.6 million at December 31, 2014. At December 31, 2015, available for sale securities, at fair value, totaled $376.4 million; a decrease of $123.4 million when compared to $499.8 million at December 31, 2014. At December 31, 2015, held to maturity securities, at amortized cost, totaled $169.8 million; an  increase of $28.0 million when compared to $141.8 million at December 31, 2014. Mortgage- backed securities, backed by U.S. Government agencies or enterprises, made up $92.4 million of the $169.8 million of the held to maturity securities at December 31, 2015. • Total loans net of unearned income were $841.6 million at December 31, 2015 compared to $790.3 million at December 31, 2014. The net loan portfolio at December 31, 2015 totaled $832.2 million, a net increase of $51.0 million from $781.2 million at December 31, 2014. Total loans net of unearned income are reduced by the allowance for loan losses which totaled $9.4 million at December 31, 2015 and $9.1 million at December 31, 2014. • Total impaired loans  decreased $3.7 million to $25.8 million at December 31, 2015 compared to $29.5 million at December 31, 2014. • Nonaccrual loans  increased $7.8 million to $20.0 million at December 31, 2015 compared to $12.2 million at December 31, 2014. • Common stock  increased 0.7 million shares  to 7.6 million shares at December 31, 2015 when compared to 6.9 million shares at December 31, 2014. This was due to the completion of the public offering in the fourth quarter of 2015. • Retained earnings increased $8.5 million to $49.9 million at December 31, 2015 when compared to $41.4 million at December 31, 2014. • Return on average assets for the year end December 31, 2015 and December 31, 2014 was 0.97% and 0.77%, respectively. Return on average common equity was 12.98% and 11.40% for 2015 and 2014, respectively. Return on average assets is calculated by dividing net income before preferred dividends by average assets. Return on average common equity is calculated by dividing net income to common shareholders by average common equity. • Book value per common share was $15.54 as of December 31, 2015 compared to $14.47 as of December 31, 2014. Tangible book value per common share was $15.10 as of December 31, 2015 compared to $13.95 as of December 31, 2014. • The increase in book value was principally due to an increase in common shareholders' equity of $18.1 million to $118.2 million at December 31, 2015. Surplus increased $9.9 million to $61.6 million at December 31, 2015. Retained earnings increased $8.5 million to $49.9 million at December 31, 2015. These increases were offset by a change in accumulated other comprehensive income (loss) from an unrealized gain of $0.2 million at December 31, 2014 to an unrealized loss of $0.9 million at December 31, 2015. • First Guaranty's Board of Directors declared and First Guaranty paid cash dividends of $0.60 and $0.58 per common share in 2015 and 2014. Application of Critical Accounting Policies Our accounting and reporting policies conform to generally accepted accounting principles in the United States 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. Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. The allowance, which is based on evaluation of the collectability of loans and prior loan loss experience, is an amount that, in the opinion of management, reflects the risks inherent in the existing loan portfolio and exists 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 additional recognition of losses based on their judgments about information available to them at the time of their examination. The following are general credit risk factors that affect our loan portfolio segments. These factors do not encompass all risks associated with each loan category. Construction and land development loans have risks associated with interim construction prior to permanent financing and repayment risks due to the future sale of developed property. Farmland and agricultural loans have risks such as weather, government agricultural policies, fuel and fertilizer costs, and market price volatility. One- to four-family residential, multi-family and consumer credits are strongly influenced by employment levels, consumer debt loads and the general economy. Non-farm non-residential loans include both owner-occupied real estate and non-owner occupied real estate. Common risks associated with these properties is the ability to maintain tenant leases and keep lease income at a level able to service required debt and operating expenses. Commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral. 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, 53 2015 ANNUAL REPORT the valuations determined from such estimates and appraisals may also change. Accordingly, we may ultimately incur losses that vary from Management’s current estimates. Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or can be reasonably estimated. All loan losses are charged to the allowance for loan losses when the loss actually occurs or when the collectability 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 and impaired. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Also, a specific reserve is allocated for our syndicated loans. The general component covers non- classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses. The allowance for loan losses is reviewed on a monthly basis.  The monitoring of credit risk also extends to unfunded credit commitments, such as unused commercial credit lines and letters of credit. A reserve is established as needed for estimates of probable losses on such commitments. Other-Than-Temporary Impairment of Investment Securities. Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses.  In estimating other-than-temporary losses, Management considers the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer.  Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.  For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings. Valuation of Goodwill, Intangible Assets and Other Purchase Accounting Adjustments. Intangible assets are comprised of goodwill, core deposit intangibles and mortgage servicing rights. Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests. Our goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate impairment may exist. Adverse changes in the economic environment, declining operations or other factors could result in a decline in the implied fair value of goodwill. If the implied fair value is less than the carrying amount, a loss would be recognized in other noninterest expense to reduce the carrying amount to implied fair value of goodwill. Our goodwill impairment test includes two steps that are preceded by a “step zero” qualitative test. The qualitative test allows management to assess whether qualitative factors indicate that it is more likely than not that impairment exists. If it is not more likely than not that impairment exists, then the two step quantitative test would not be necessary. These 54 qualitative indicators include factors such as earnings, share price, market conditions, etc. If the qualitative factors indicate that it is more likely than not that impairment exists, then the two step quantitative test would be necessary. Step one is used to identify potential impairment and compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Step two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit’s goodwill, an impairment loss is recognized in an amount equal to the excess. Identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own or in combination with related contract, asset or liability. Our intangible assets primarily relate to core deposits. Management periodically evaluates whether events or circumstances have occurred that would result in impairment of value. Financial Condition Assets. Our total assets were $1.5 billion at December 31, 2015, a decrease of $59.1 million, or 3.9%, from total assets at December  31, 2014, primarily due to the decrease of our investment securities portfolio of $95.5 million and cash and cash equivalents of $7.3 million, partially offset by growth of $51.0 million in our loan portfolio. Loans. Net loans increased $51.0 million, or 6.5%, to $832.2 million at December 31, 2015 from $781.2 million at December 31, 2014. Net loans increased during 2015 primarily due to a $27.9 million increase in commercial and industrial loans, a $11.4 million increase in one- to four-family residential loans, a $11.2 million increase in consumer and other loans, a $4.1 million increase in farmland loans and a $4.0 million increase in construction and land development loans. Commercial and industrial loans increased primarily due to an increase in  our small business lending as a result of our participation in the SBLF. Syndicated loans declined during 2015 from $129.0 million at December 31, 2014 to $105.9 million at December 31, 2015. One- to four-family residential loans increased due to an increase in our loan originations and the decision to retain one-to four-family residential loans in our portfolio rather than sell them in the secondary market.  Consumer and other loans increased due to the continued growth in our commercial lease originations and due to increased funding associated with an existing credit facility to a financial institution.  The increase in farmland loans was primarily the result of the increase in the disbursement of our farmland loan commitments due to the seasonality of farming operations during the year ended December 31, 2015. The increase in construction and land development loans was due to increased draws on lines of credit. There are no significant concentrations of credit to any individual borrower. As of December 31, 2015, 63.9% of our loan portfolio was secured primarily or secondarily by real estate. The largest portion of our loan portfolio, at 38.3% at December 31, 2015, was non-farm non- residential loans secured by real estate.  Approximately 39.8% of the loan portfolio is based on a floating rate tied to the prime rate or London InterBank Offered Rate, or LIBOR, at December 31, 2015. Approximately 82.6% of the loan portfolio is scheduled to mature within 5 years from December 31, 2015. Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Loan Portfolio Composition. The tables below sets forth the balance of loans, excluding loans held for sale, outstanding by loan type as of the dates presented, and the percent- age of each loan type to total loans. At December 31, 2015 2014 2013 2012 2011 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent (in thousands except for %) Real Estate: Construction & land development Farmland 1- 4-Family Multi-family Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Loans Before Unearned Income Less: Unearned income Total Loans Net Of Unearned Income $ 56,132 6.6% $ 52,094 6.6% $ 47,550 6.7% $ 44,856 7.1% $ 78,614 17,672 129,610 12,629 323,363 539,406 25,838 224,201 54,163 2.1% 13,539 1.7% 9,826 15.4% 118,181 14.9% 103,764 1.5% 14,323 1.8% 13,771 1.4% 14.7% 2.0% 11,182 87,473 14,855 1.8% 13.8% 2.4% 11,577 89,202 16,914 38.3% 328,400 41.5% 336,071 47.7% 312,716 49.6% 268,618 63.9% 526,537 66.5% 510,982 72.5% 471,082 74.7% 464,925 3.1% 26,278 3.3% 21,749 3.1% 18,476 26.6% 196,339 24.8% 151,087 21.4% 117,425 6.4% 42,991 5.4% 20,917 3.0% 23,758 2.9% 18.6% 3.8% 17,338 68,025 23,455 304,202 36.1% 265,608 33.5% 193,753 27.5% 159,659 25.3% 108,818 13.7% 2.0% 15.6% 2.9% 46.8% 81.0% 3.0% 11.9% 4.1% 19.0% 843,608 100.0% 792,145 100.0% 704,735 100.0% 630,741 100.0% 573,743 100.0% (2,025) (1,824) (1,569) (1,241) (643) $841,583 $790,321 $703,166 $629,500 $573,100 TOTAL ASSETS In Billions TOTAL LOANS In Millions 1.5 1.2 0.9 0.6 0.3 0.0 2011 2012 2013 2014 2015 1000 800 600 400 200 0 2011 2012 2013 2014 2015 55 2015 ANNUAL REPORT Loan Portfolio Maturities. The following tables summarize the scheduled repayments of our loan portfolio at December 31, 2015 and 2014. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Maturities are based on the final contractual payment date and do not reflect the effect of prepayments and scheduled principal amortization. December 31, 2015 More Than One Year Through Five Years One Year or Less After Five Years Total (in thousands) Real Estate: Construction & land development $ 6,450 $ 39,133 $ 10,549 $ 56,132 Farmland 1 – 4-family Multi-family Non-farm non-residential Total Real Estate Non-real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate 4,080 15,543 4,386 9,115 44,109 7,055 4,477 17,672 69,958 129,610 1,188 12,629 63,145 237,223 22,995 323,363 93,604 336,635 109,167 539,406 10,364 28,261 11,834 3,704 11,770 25,838 188,732 41,965 7,208 224,201 364 54,163 50,459 234,401 19,342 304,202 Total Loans Before Unearned Income $144,063 $571,036 $128,509 843,608 Less: unearned income Total Loans Net Of Unearned Income (2,025) $841,583 December 31, 2014 More Than One Year Through Five Years One Year or Less After Five Years Total (in thousands) Real Estate: Construction & land development $ 19,747 $ 30,376 $ 1,971 $ 52,094 Farmland 1 – 4-family Multi-family Non-farm non-residential Total Real Estate Non-real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate 1,084 20,869 5,437 9,135 32,048 7,686 3,320 13,539 65,264 118,181 1,200 14,323 69,575 222,648 36,177 328,400 116,712 301,893 107,932 526,537 12,190 32,140 6,642 3,214 147,005 30,660 10,874 17,194 5,689 26,278 196,339 42,991 50,972 180,879 33,757 265,608 Total Loans Before Unearned Income $167,684 $482,772 $141,689 Less: unearned income Total Loans Net Of Unearned Income 792,145 (1,824) $790,321 56 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. The following table sets forth the scheduled repayments of fixed and adjustable-rate loans at December 31, 2015 that are contractually due after December 31, 2016. One to five years Five to 15 years Over 15 years Subtotal Nonaccrual loans Total Due After December 31, 2015 (in thousands) Fixed Floating Total $315,685 $246,374 $562,059 49,197 36,438 31,456 9,333 80,653 45,771 $401,320 $287,163 $688,483 20,039 $668,444 As of December 31, 2015, $132.9 million of floating rate loans were at their interest rate floor. At December 31, 2014, $195.7 million of floating rate loans were at the floor rate. Nonaccrual loans have been excluded from these totals. Non-performing Assets. Non-performing assets consist of non-performing loans and other real- estate owned. Non-performing loans (including nonaccruing troubled debt restructurings described below) are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on which interest continues to accrue. Loans are ordinarily placed on nonaccrual status when principal and interest is delinquent for 90 days or more. However, management may elect to continue the accrual when the estimated net available value of collateral is sufficient to cover the principal balance and accrued interest. It is our policy to discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Nonaccrual loans are returned to accrual status when the financial position of the borrower indicates there is no longer any reasonable doubt as to the payment of principal or interest. Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure. 57 2015 ANNUAL REPORT The following table shows the principal amounts and categories of our non-performing assets at December 31, 2015, 2014, 2013, 2012 and 2011. Nonaccrual loans: Real Estate: Construction and land development Farmland 1 – 4-family residential Multi-family Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total nonaccrual loans Loans 90 days and greater delinquent & still accruing: Real Estate: Construction and land development Farmland 1 - 4-family residential Multi-family Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total loans 90 days and greater delinquent & still accruing Total non-performing loans Other real estate owned and foreclosed assets: Real Estate: Construction and land development Farmland 1 – 4-family residential Multi-family Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total other real estate owned and foreclosed assets Total non-performing assets Non-performing assets to total loans Non-performing assets to total assets Non-performing loans to total loans 58 2015 2014 December 31, 2013 (in thousands) 2012 2011 $ 558 117 4,538 9,045 2,934 17,192 2,628 48 171 2,847 20,039 $ 486 153 3,819 - 4,993 9,451 832 1,907 4 2,743 12,194 $ 73 130 4,248 - 7,539 11,990 526 1,946 23 2,495 14,485 - 19 391 - - 410 - - - - 410 20,449 25 - 880 - 672 1,577 - - 599 - - 599 - - - - 599 12,793 127 - 1,121 - 950 2,198 - - 414 - - 414 - - - - 414 14,899 754 - 1,803 - 800 3,357 - - - - 1,577 $22,026 - - - - 2,198 $14,991 - - - - 3,357 $18,256 $ 854 312 4,603 - 11,571 17,340 512 2,831 5 3,348 20,688 - - 455 - - 455 - - - - 455 21,143 1,083 - 1,186 - 125 2,394 - - - - 2,394 $23,537 $ 1,520 562 5,647 - 12,400 20,129 315 1,986 20 2,321 22,450 - - 309 - 419 728 - - 8 8 736 23,186 1,161 - 1,342 - 3,206 5,709 - - - - 5,709 $28,895 2.62% 1.51% 2.43% 1.90% 0.99% 1.62% 2.60% 1.27% 2.12% 3.74% 1.67% 3.36% 5.04% 2.13% 4.05% Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. For the years ended December  31, 2015 and 2014, gross interest income which would have been recorded had the non-performing loans been current in accordance with their original terms amounted to $1.1 million and $0.9 million, respectively. We recognized $0.1 million and $0.4 million of interest income on such loans during the years ended December 31, 2015 and 2014, respectively. For the years ended December 31, 2015 and 2014, gross interest income which would have been recorded had the troubled debt restructured loans been current in accordance with their original terms amounted to $0.3 million and $0.2 million, respectively. We recognized $0.2 million and $0.1 million of interest income on such loans during the years ended December 31, 2015 and 2014, respectively. Non-performing assets were $22.0 million, or 1.51%, of total assets at December 31, 2015, compared to $15.0 million, or 0.99%, of total assets at December 31, 2014, which represented an increase in non- performing assets of $7.0 million. The  increase in non-performing assets occurred primarily as a result of an increase  in non-accrual loans from $12.2 million at December  31, 2014 to $20.0 million at December 31, 2015.  The increase in non-performing assets was concentrated in multi-family real estate loans.  This increase was partially offset by a decrease in other real estate owned of $0.6 million to $1.6 million at December 31, 2015. Non-performing assets includes $2.1 million, or 9.5% in loans with a government guarantee. These are structured as net loss guarantees in which up to 90% of loss exposure is covered. At December 31, 2015, our largest non-performing assets were comprised of the following nonaccrual loans: (1)  a  multi-family real estate loan  with a balance of $5.3 million secured by commercial property; (2)  a multi-family real estate loan with a balance of $2.9 million secured by commercial property; (3) a non-farm non-residential loan with a balance of $1.8 million secured by commercial property; and (4) a lending relationship with three one- to four-family residential loans that in aggregate total $1.7 million. Troubled Debt Restructuring. Another category of assets which contribute to our credit risk is troubled debt restructurings (“TDRs”). A TDR is a loan for which a concession has been granted to the borrower due to a deterioration of the borrower’s financial condition. Such concessions may include reduction in interest rates, deferral of interest or principal payments, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. We strive to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before such loan reaches nonaccrual status. In evaluating whether to restructure a loan, Management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest. TDRs that are not performing in accordance with their restructured terms and are either contractually 90 days past due or placed on nonaccrual status are reported as non-performing loans. Our policy provides that nonaccrual TDRs are returned to accrual status after a period of satisfactory and reasonable future payment performance under the terms of the restructuring. Satisfactory payment performance is generally no less than six consecutive months of timely payments and demonstrated ability to continue to repay. The following is a summary of loans restructured as TDRs at December 31, 2015, 2014 and 2013: At December 31, 2015 2014 2013 (in thousands) TDRs: In Compliance with Modified Terms $3,431 $2,998 $3,006 Past Due 30 through 89 days and still accruing Past Due 90 days and greater and still accruing Nonaccrual Restructured Loans that subsequently defaulted Total TDR - - 368 2,204 - - - - - 1,908 230 230 $5,707 $5,432 $3,236 At December 31, 2015, the outstanding balance of our  troubled debt restructurings, was $5.7 million as compared to $5.4 million at December 31, 2014. At December 31, 2015, we had five outstanding TDRs: (1) a $2.9 million non-farm non-residential loan secured by commercial real estate, which is performing in accordance with  its modified terms;  (2) a $1.7 million relationship with three individual loans secured by  one-to four-family residential properties that subsequently defaulted and is on non-accrual; (3) a $0.4 million construction and land development loan secured by raw land that is on non-accrual; (4) a $0.4 million non-farm non-residential loan secured by commercial real estate, which is performing in accordance with its modified terms; and (5) a $0.2 million loan secured by commercial real estate that subsequently defaulted and is on non-accrual. Relationship number  three was a new troubled debt restructuring in 2015.  The other relationships were from prior years.  The restructuring of these loans were related to interest rate or amortization concessions. Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the FDIC to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific allowance for loan losses is not warranted. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management. When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover losses that were both probable and reasonable to estimate. General allowances represent allowances which have been established to cover accrued losses associated with lending activities that were both probable and reasonable to estimate, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured 59 2015 ANNUAL REPORT institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific allowances. In connection with the filing of our periodic regulatory reports and in accordance with our classification of assets policy, we continuously assess the quality of our loan portfolio and we regularly review the problem loans in our loan portfolio to determine whether any loans require classification in accordance with applicable regulations. Loans are listed on the “watch list” initially because of emerging financial weaknesses even though the loan is currently performing as agreed, or delinquency status, or if the loan possesses weaknesses although currently performing. Management reviews the status of our loan portfolio delinquencies, by product types, with the full board of directors on a monthly basis. Individual classified loan relationships are discussed as warranted. If a loan deteriorates in asset quality, the classification is changed to “special mention,” “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on nonaccrual status and classified “substandard.” We also employ a risk grading system for our loans to help assure that we are not taking unnecessary and/or unmanageable risk. The primary objective of the loan risk grading system is to establish a method of assessing credit risk to further enable Management to measure loan portfolio quality and the adequacy of the allowance for loan losses. Further, we contract with an external loan review firm to complete a credit risk assessment of the loan portfolio on a regular basis to help determine the current level and direction of our credit risk. The external loan review firm communicates the results of their findings to the Bank’s audit committee. Any material issues discovered in an external loan review are also communicated to us immediately. The following table sets forth our amounts of classified loans and loans designated as special mention at December 31, 2015, 2014 and 2013. Classified assets totaled $58.7 million at December 31, 2015, and included $20.4 million of non-performing loans. Classification of Loans: Substandard Doubtful Total Classified Assets Special Mention At December 31, 2015 2014 2013 (in thousands) $58,654 $44,752 $ 39,856 - - - $58,654 $44,752 $39,856 $10,752 $28,702 $21,327 The increase in classified assets at December 31, 2015 as compared to December 31, 2014 was due to a $13.9 million increase in substandard loans. The increase in classified assets came primarily from assets previously designated as special mention that were moved to substandard.  Substandard loans at December 31, 2015 consisted of $23.4 million in non-farm non-residential, $9.5 million in commercial and industrial, $9.0 million in multi-family, $7.3 million in one- to four- family residential, $5.0 million in agricultural and the remaining $4.4 million comprised of farmland, construction and land development and consumer and other loans.  Substandard loans included one syndicated loan with a principal balance of $7.9 million that provides services for the oil and gas industry. 60 Allowance for Loan Losses.  The allowance for loan losses is maintained to absorb potential losses in the loan portfolio. The allowance is increased by the provision for loan losses offset by recoveries of previously charged off loans and is decreased by loan charge-offs. The provision is a charge to current expense to provide for current loan losses and to maintain the allowance commensurate with Management’s evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when determining the amount of the provision and the adequacy of the allowance. These factors include but are not limited to: • past due and non-performing assets; • specific internal analysis of loans requiring special attention; • the current level of regulatory classified and criticized assets and the associated risk factors with each; • changes in underwriting standards or lending procedures and policies; • charge-off and recovery practices; • national and local economic and business conditions; • nature and volume of loans; • overall portfolio quality; • adequacy of loan collateral; • quality of loan review system and degree of oversight by our board of directors; • competition and legal and regulatory requirements on borrowers; • examinations of the loan portfolio by federal and state regulatory agencies and examinations; and • review by our internal loan review department and independent accountants. The data collected from all sources in determining the adequacy of the allowance is evaluated on a regular basis by Management with regard to current national and local economic trends, prior loss history, underlying collateral values, credit concentrations and industry risks. An estimate of potential loss on specific loans is developed in conjunction with an overall risk evaluation of the total loan portfolio. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available. The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as doubtful, substandard and impaired. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Also, a specific reserve is allocated for our syndicated loans, including shared national credits. The general component covers non-classified loans and special mention loans and is based on historical loss experience for the past three years adjusted for qualitative factors described above. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses. The allowance for losses was $9.4  million at December 31, 2015 compared to $9.1 million at December 31, 2014. The balance in the allowance for loan losses is principally influenced by the provision for loan losses and by net loan loss experience. Additions to the allowance are charged to the provision for loan losses. Losses are charged to the allowance as incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected. Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. The table below reflects the activity in the allowance for loan losses for the years indicated. Balance at beginning of year $9,105 $ 10,355 $ 10,342 $ 8,879 $ 8,317 At or For the Years Ended December 31, 2015 2014 2013 2012 2011 (dollars in thousands) Charge-offs: Real Estate: Construction and land development (559) (1,032) Farmland 1 – 4-family residentiall Multi-family Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial loans Consumer and other Total Non-Real Estate Total charge-offs Recoveries: Real Estate: Construction and land development Farmland 1 – 4-family residential Multi-family Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial loans Consumer and other Total Non-Real Estate Total recoveries Net (charge-offs) recoveries Provision for loan losses Balance at end of year Ratios: - (410) (947) (233) (31) (65) (1,093) - (144) - (589) (220) (1,409) (1,613) - - (1,137) (1,515) (1,148) (187) (459) - (5,193) (3,053) (3,136) (1,632) (2,120) (8,043) (491) (79) (550) (1,120) (4,173) (2) (266) (289) (557) (41) (1,098) (262) (49) (809) (473) (23) (1,638) (653) (1,401) (1,331) (2,314) (3,693) (3,033) (3,451) (10,357) 5 - 94 46 5 150 3 315 151 469 619 6 - 99 49 9 163 1 118 199 318 481 10 140 49 - 8 207 5 71 243 319 526 15 1 35 - 116 167 1 329 283 613 780 1 - 118 - 13 132 2 371 227 600 732 (3,554) (3,212) (2,507) (2,671) (9,625) 3,864 1,962 2,520 4,134 10,187 $9,415 $9,105 $10,355 $ 10,342 $ 8,879 Net loan charge-offs to average loans Net loan charge-offs to loans at end of year Allowance for loan losses to loans at end of year Net loan charge-offs to allowance for loan losses Net loan charge-offs to provision charged to expense 0.44% 0.42% 1.12% 0.45% 0.41% 1.15% 0.38% 0.36% 1.47% 0.45% 0.42% 1.64% 1.65% 1.68% 1.55% 37.75% 35.28% 24.21% 25.83% 108.40% 91.98% 163.71% 99.48% 64.61% 94.48% 61 2015 ANNUAL REPORT A provision for loan losses of $3.9 million was made during the year ended December 31, 2015 as compared to $2.0 million for 2014. The provisions made in 2015 were taken to provide for current loan losses as a result of increased charge-offs and to maintain the allowance proportionate to risks inherent in the loan portfolio. Total charge-offs were $4.2 million during the year ended December 31, 2015 as compared to $3.7 million for 2014. Recoveries totaled $0.6 million for the year ended December 31, 2015 and $0.5 million during 2014. Comparing the year ended December 31, 2015 to the year ended December 31, 2014, the  increase in the allowance was attributed to growth in the loan portfolio. The primary change to the credit quality of the loan portfolio was associated with the downgrades of loans. Special mention loans decreased principally due to the downgrade of loans from special mention to substandard. The charged-off loan balances for the year ended December 31, 2015 were concentrated in  five loan relationships which totaled $2.5 million, or 61.4%, of the total charged-off amount. The details of the $4.2 million in charged-off loans were as follows: • First Guaranty recorded a partial charge-off of $0.8 million on a non- farm non-residential loan. The loan had a balance of $1.8 million at December 31, 2015. • First Guaranty recorded a partial charge-off of $0.5 million on a multi- family loan. The loan had a balance of $0.9 million at December 31, 2015. • First Guaranty recorded a partial charge-off of $0.5 million on a multi- family loan. The loan had a balance of $5.3 million at December 31, 2015. • First Guaranty recorded a partial charge-off of $0.4 million on a construction and loan relationship. The  relationship had a balance of $0.4 million at December 31, 2015. land development • First Guaranty charged off a $0.3 million agriculture loan. • The remaining $1.7 million of charge-offs for 2015 were comprised of smaller loans and overdrawn deposit accounts. Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance for losses in other categories. At December 31, 2015 2014 Allowance for Loan Losses Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans Allowance for Loan Losses Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans Real Estate: Construction and land development $ Farmland 1 - 4-family residential Multi-family Non-farm non-residential Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated 962 54 1,771 557 3,298 16 2,527 230 10.2% 0.6% 18.8% 5.9% 35.0% 0.2% 26.9% 2.4% (dollars in thousands) 6.6% 2.1% 15.4% 1.5% 38.3% 3.1% 26.6% 6.4% $ 702 21 2,131 813 2,713 293 1,797 371 7.7% 0.2% 23.4% 8.9% 29.8% 3.2% 19.8% 4.1% 6.6% 1.7% 14.9% 1.8% 41.5% 3.3% 24.8% 5.4% - -% -% 264 2.9% -% Total Allowance $ 9,415 100.0% 100.0% $ 9,105 100.0% 100.0% 62 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. At December 31, 2013 2012 Allowance for Loan Losses Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans Allowance for Loan Losses Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans (dollars in thousands) Real Estate: Construction and land development $ 1,530 Farmland 1 - 4-family residential Multi-family Non-farm non-residential Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated 17 1,974 376 3,607 46 2,176 208 421 14.8% 0.2% 19.1% 3.6% 34.8% 0.4% 21.0% 2.0% 6.7% 1.4% 14.7% 2.0% 47.7% 3.1% 21.4% 3.0% 4.1% -% $ 1,098 50 2,239 284 3,666 64 2,488 233 220 10.6% 0.5% 21.7% 2.7% 35.4% 0.6% 24.1% 2.3% 7.1% 1.8% 13.8% 2.4% 49.6% 2.9% 18.6% 3.8% 2.1% -% Total Allowance $10,355 100.0% 100.0% $10,342 100.0% 100.0% Real Estate: Construction and land development Farmland 1 - 4-family residential Multi-family Non-farm non-residential Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated Total Allowance At December 31, 2011 Allowance for Loan Losses Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans (dollars in thousands) $ 1,002 65 1,917 780 2,980 125 1,407 314 289 11.3% 0.7% 21.6% 8.8% 33.6% 1.4% 15.8% 3.5% 3.3% 13.7% 2.0% 15.6% 2.9% 46.8% 3.0% 11.9% 4.1% -% $ 8,879 100.0% 100.0% 63 2015 ANNUAL REPORT Investment Securities. Investment securities at December 31, 2015 totaled $546.1 million, a decrease of $95.5 million, or 14.9%, compared to $641.6 million at December 31, 2014. The decrease was primarily attributed to the sale of short-term U.S. government agencies and corporate bonds. Our investment securities portfolio is comprised of both available-for- sale securities and securities that we intend to hold to maturity. We purchase securities for our investment portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and meet pledging requirements for public funds and borrowings. In particular, our held-to-maturity securities portfolio is used as collateral for our public funds deposits. The securities portfolio consisted principally of U.S. Government and Government agency securities, agency mortgage-backed securities, corporate debt securities and municipal bonds. U.S. government agencies consist of FHLB, Federal Farm Credit Bank (“FFCB”), Freddie Mac and Fannie Mae obligations. Mortgage backed securities that we purchase are issued by Freddie Mac and Fannie Mae. Management monitors the securities portfolio for both credit and interest rate risk. We generally limit the purchase of corporate securities to individual issuers to manage concentration and credit risk. Corporate securities generally have a maturity of 10 years or less. U.S. Government securities consist of U.S. Treasury bills that have maturities of less than 30 days. Government agency securities generally have maturities of 15 years or less. Agency mortgage backed securities have stated final maturities of 15 to 20 years. At December 31, 2015, the U.S Government and Government agency securities and municipal bonds qualified as securities available to collateralize public funds. Securities pledged totaled $427.4 million at December 31, 2015 and $516.5 million at December 31, 2014. Our public funds deposits have a seasonal increase due to tax collections at the end of the year and the first quarter. We typically collateralize the seasonal public fund increases with short-term instruments such as U.S. Treasuries or other agency backed securities. The following table sets forth the amortized cost and fair values of our securities portfolio at the dates indicated. 2015 At December 31, 2014 (in thousands) 2013 Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value $ 29,999 $ 29,999 $ 36,000 $ 36,000 $ 36,000 $ 36,000 165,364 163,811 295,620 291,495 302,816 286,699  105,680 105,136 126,654 130,063 142,580 144,481 580 47,339 28,891 582 48,233 28,608 570 574 564 556 40,599 41,676 16,091 16,475 - - - - $377,853 $376,369 $499,443 $499,808 $498,051 $484,211 $ 77,343 $ 76,622 $ 84,479 $ 82,529 $ 86,927 $ 80,956 92,409 91,526 57,316 57,159 63,366 60,686 $169,752 $168,148 $141,795 $139,688 $150,293 $141,642 Available-for-sale: U.S Treasuries U.S. Government Agencies Corporate debt securities Mutual funds or other equity securities Municipal bonds Mortgage-backed securities Total available-for-sale securities Held-to-maturity: U.S. Government Agencies Mortgage-backed securities Total held-to-maturity securities Our available-for-sale securities portfolio totaled $376.4 million at December 31, 2015, a decrease of $123.4 million, or 24.7%, compared to $499.8 million at December 31, 2014. The decrease was due to the transfer of securities classified as available-for-sale to held-to-maturity along with the sale and maturities of short-term US government agencies and corporate bonds. The securities transferred to held- to-maturity were  $51.8 million of government agency securities with unrealized losses of $128,000. These securities are primarily used for the collateralization of public funds deposits. These securities have a contractual maturity of five to ten years. First  Guaranty completed its liquidation of the common stock from a converted preferred security in the third quarter of 2015 that generated a gain on sale of $2.7 million.  During 2015, First Guaranty deemed two corporate debt securities to be other-than-temporarily impaired.  Credit related impairment in the amount of $0.2 million was charged to earnings.  Non-credit related other-than-temporary impairment of $0.4 million was recorded in other comprehensive income.  No other declines in fair value were deemed other-than-temporary.  During 2014 and 2013 there were no other-than- temporary charges recorded on First Guaranty's investment portfolio. Our held-to-maturity securities portfolio had an amortized cost of $169.8 million at December 31, 2015, an increase of $28.0 million, or 19.7%, compared to $141.8 million at December 31, 2014. The increase was due to the transfer of securities classified as available-for-sale to held-to- maturity of $51.8 million, and the purchase of $48.3 million of securities classified as held-to-maturity that was partially offset by early payoffs of $64.1 million of government agencies and the continued amortization of our mortgage-backed securities. 64 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. The following table sets forth the stated maturities and weighted average yields of our investment securities at December 31, 2015 and 2014. At December 31, 2015 One Year or Less Carrying Value Weighted Average Yield More than One Year through Five Years More than Five Years through Ten Years More than Ten Years Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield (in thousands except for %) Available-for-sale: U.S Treasuries U.S. Government Agencies Corporate and other debt securities Mutual funds or other equity securities Municipal bonds Mortgage-backed securities $ 29,999 0.1% $ - - -% 7,656 3.5% - -% 86,856 47,586 - -% 1.6% 4.1% -% $ - -% $ - -% 67,173 2.4% 47,895 3.8% - -% 9,782 3.0% 1,999 4.4% 582 -% 1,250 1.7% 4,482 2.1% 7,638 2.8% 34,863 2.7% - -% - -% - -% 28,608 2.6% Total available-for-sale securities $ 38,905 0.8% $ 138,924 2.5% $ 122,706 3.0% $ 75,834 2.8% Held-to-maturity: U.S. Government Agencies Mortgage-backed securities Corporate and other debt securities Total held-to-maturity securities $ $ - - - - -% -% -% -% $ 21,803 1.6% $ 55,540 2.2% $ - -% - - -% -% - - -% -% 92,409 2.4% - -% $ 21,803 1.6% $ 55,540 2.2% $92,409 2.4% December 31, 2014 One Year or Less Carrying Value Weighted Average Yield More than One Year through Five Years More than Five Years through Ten Years More than Ten Years Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield (in thousands except for %) Available-for-sale: U.S Treasuries U.S. Government Agencies Corporate debt securities Mutual funds or other equity securities Municipal bonds Mortgage-backed securities $ 36,000 15,029 18,834 - 0.0% 0.3% 1.7% -% $ - -% $ - -% $ - -% 160,611 1.0% 94,787 1.9% 21,068 3.0% 53,797 3.8% 53,748 3.9% 3,684 4.7% - -% - -% 574 0.0% 1,802 2.0% 5,377 1.9% 8,996 3.2% 25,501 3.0% - -% - -% - -% - -% Total available-for-sale securities $ 71,665 0.6% $ 219,785 1.7% $ 157,531 2.7% $ 50,827 3.1% Held-to-maturity: U.S. Government Agencies Mortgage-backed securities Corporate and other debt securities Total held-to-maturity securities $ $ - - - - -% -% -% -% $ 24,999 1.2% $ 59,480 1.9% $ - -% - - -% -% - - -% -% 57,316 2.2% - -% $ 24,999 1.2% $ 59,480 1.9% $57,316 2.2% 65 2015 ANNUAL REPORT At December 31, 2015, $38.9 million, or 7.1%, of the securities portfolio was scheduled to mature in less than one year. Securities, not including mortgage-backed securities, with contractual maturity dates over 10 years totaled $47.2 million, or 8.7%, of the total portfolio at December 31, 2015. We closely monitor the investment portfolio’s yield, duration and maturity to ensure a satisfactory return. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. Based on internal forecasts at December 31, 2015, we believe that the securities portfolio has a forecasted weighted average life of approximately 5.3 years based on the current interest rate environment. A parallel interest rate shock of 400 basis points is forecasted to increase the weighted average life of the portfolio to approximately 5.7 years. At December 31, 2015, the following table identifies the issuers, and the aggregate amortized cost and aggregate fair value of the securities of such issuers that exceeded 10% of our total shareholders’ equity: U.S. Treasuries FHLB Freddie Mac Fannie Mae Federal Farm Credit Bank Total At December 31, 2015 Amortized Cost Fair Value (in thousands) $ 29,999 $ 29,999 85,507 66,271 84,689 65,589 127,504 126,294 84,726 83,996 $394,007 $390,567 1500 1200 900 600 300 0 TOTAL DEPOSITS In Millions 2011 2012 2013 2014 2015 Deposits Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. We regularly assess our funding needs, deposit pricing and interest rate outlooks. From December  31, 2014 to December 31, 2015, total deposits decreased $76.0 million, or 5.5%, to $1.3 billion. Time deposits decreased $65.0 million, or 9.9%, to $592.0 million at December 31, 2015 compared to $657.0 million at December  31, 2014.  The majority of the  decrease in time deposits was associated with the maturity of higher priced individual and business time deposits that did not renew. Noninterest-bearing demand deposits increased $5.2 million from December 31, 2014 to December 31, 2015. Interest- bearing demand deposits decreased $23.1 million from December 31, 2014 to December 31, 2015.  First Guaranty  had $26.7 million in brokered deposits at December 31, 2015. As we seek to strengthen our net interest margin and improve our earnings, attracting core noninterest-bearing deposits will be a primary emphasis. Management will continue to evaluate and update our product mix in its efforts to attract additional core customers. We currently offer a number of noninterest-bearing deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on core deposits. 66 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. The following table sets forth the distribution of deposit accounts, by account type, for the dates indicated. Total Deposits 2015 2014 2013 For the Years Ended December 31, Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate (in thousands except for %) Noninterest-bearing Demand $ 211,584 15.9% 0.0% $ 200,127 15.3% 0.0% $ 196,589 15.8% Interest-bearing Demand Savings Time Total Deposits 401,617 30.2% 77,726 5.8% 640,134 48.1% 0.4% 0.0% 1.1% 386,363 29.6% 69,719 5.4% 649,165 49.7% 0.3% 0.0% 1.2% 334,573 26.8% 64,639 5.2% 650,540 52.2% $1,331,061 100.0% 0.6% $1,305,374 100.0% 0.8% $1,246,341 100.0% 0.0% 0.4% 0.1% 1.5% 0.9% Individual and Business Deposits 2015 2014 2013 For the Years Ended December 31, Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate (in thousands except for %) Noninterest-bearing Demand $ 207,334 0.0% $ 197,332 0.0% $ 193,773 27.6% 15.0% 8.7% 112,864 65,775 25.3% 13.5% 7.9% 105,569 61,288 0.2% 0.1% 1.4% 24.6% 10.9% 7.3% 85,384 57,819 0.0% 0.3% 0.1% 1.8% 0.2% 0.0% 1.4% 366,244 48.7% 414,975 53.3% 450,178 57.2% Interest-bearing Demand Savings Time Total Individual and Business Deposits $ 752,217 100.0% 0.7% $ 779,164 100.0% 0.8% $ 787,154 100.0% 1.1% Public Fund Deposits 2015 2014 2013 For the Years Ended December 31, Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate (in thousands except for %) Noninterest-bearing Demand $ 4,250 0.7% Interest-bearing Demand Savings Time 288,753 49.9% 11,951 2.1% 273,890  47.3% 0.0% 0.4% 0.0% 0.7% $ 2,795 0.5% 0.0% $ 2,816 0.6% 280,794 53.4% 0.4% 249,189 54.3% 8,431 1.6% 0.0% 6,820 1.5% 234,190 44.5% 0.7% 200,362 43.6% Total Public Funds $578,844 100.0% 0.5% $ 526,210 100.0% 0.5% $459,187 100.0% 0.0% 0.4% 0.1% 0.8% 0.6% At December 31, 2015, public funds deposits totaled $568.7 million compared to $601.5 million at December 31, 2014. We have developed a program for the retention and management of public funds deposits. Since the end of 2012, we have maintained public funds deposits in excess of $400.0 million. These deposits are from public entities such as school districts, hospital districts, sheriff departments and municipalities. $462.9 million of these accounts at December 31, 2015 are under contracts with terms of three years or less. Three of these relationships account for 42.5% of our contract public funds deposits, each of which is currently under contract with us. These deposits generally have stable balances as we maintain both operating accounts and time deposits for these entities.  There is a seasonal component to public deposit levels associated with annual tax collections.  Public funds deposits will increase at the end of the year and the first quarter.  Public funds deposit accounts are collateralized by FHLB letters of credit, by Louisiana municipal bonds and eligible government and government agency securities such as those issued by the FHLB, FFCB, Fannie Mae and Freddie Mac.  We invest the majority of these public deposits in our investment portfolio, but have increasingly invested more public funds into loans during the last three years. 67 2015 ANNUAL REPORT The following table sets forth our public funds as a percent of total deposits. Public Funds: Noninterest-bearing Demand Interest-bearing Demand Savings Time Total Public Funds Total Deposits At December 31, 2015 2014 2013 2012 (in thousands except for %) $ 4,906 $ 3,241 $ 3,016 $ 3,735 296,416 14,667 252,688 321,382 10,142 266,743 296,739 7,209 208,614 265,296 6,415 195,052 $ 568,677 $ 601,508 $ 515,578 $ 470,498 $1,295,870 $1,371,839 $1,303,099 $1,252,612 Total Public Funds as a percent of Total Deposits 43.9% 43.9% 39.6% 37.6% First Guaranty Bancshares had senior long-term  debt totaling $25.8 million at December 31, 2015, an increase of $24.4 million, as compared to $1.5 million at December 31, 2014. The increase in long- term senior debt was due to the new term loan with a balance of $25.0 million at December 31, 2015 which was used to assist in repaying SBLF in December 2015. First Guaranty also had junior subordinated debentures totaling $14.6 million at December 31, 2015 which were used to assist in repaying the preferred stock issued in connection with the SBLF program  in December 2015. Shareholders’ Equity Total shareholders’ equity  decreased to $118.2 million at December 31, 2015 from $139.6 million at December 31, 2014. The decrease in total shareholders’ equity was principally the result of the redemption of the Series C Preferred Stock for $39.4 million in December 2015 from the U.S. Treasury in order to exit the SBLF program. The decrease was partially offset by the net proceeds of $9.3 million from the issuance of common stock in a public offering which closed in the fourth quarter of 2015. Total shareholders' equity also increased due to net income of $14.5 million during the year ended December 31, 2015, partially offset by $4.2 million in cash dividends paid on our common stock and $0.4 million in dividends paid on our preferred stock. The change in the balance of the accumulated other comprehensive income from a $0.2 million gain at December 31, 2014 to a $0.9 million loss at December 31, 2015 also reduced shareholders' equity. The reduction was due to a $1.6 million reduction in the gross unrealized mark to market gains on available-for-sale securities (before taxes). At December 31, 2015, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $426.1 million. At December 31, 2015, approximately $114.2 million of our certificates of deposit greater than or equal to $100,000 had a remaining term greater than one year. The following table sets forth the maturity of the total certificates of deposit greater than or equal to $100,000 at December 31, 2015. Due in one year or less Due after one year through three years Due after three years Total certificates of deposit greater than or equal to $100,000 December 31, 2015 (in thousands) $ 311,868 88,315 25,885 $ 426,068 Borrowings. We maintain borrowing relationships with other financial institutions as well as the FHLB on a short and long-term basis to meet liquidity needs. Short-term borrowings totaled $1.8 million at December 31, 2015 and 2014.  The short-term borrowings at December  31, 2015 were comprised of a line of credit of $2.5 million, with an outstanding balance of $1.8 million. At December 31, 2015, we had $195.0 million in FHLB letters of credit outstanding obtained solely for collateralizing public deposits. The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates and for the years indicated. At or For the Years Ended December 31, 2015 2014 2013 (in thousands except for %) $ 1,800 $ 1,800 $ 5,788 $13,800 $ 4,217 $ 22,356 $ 6,960 $57,302 $21,387 2.12% 4.50% 1.08% 4.50% 0.98% 1.51% Balance at end of year Maximum month-end outstanding Average daily outstanding Total Weighted average rate during the year Average rate during year 68 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Results of Operations Performance Summary Year ended December 31, 2015 compared with year ended December 31, 2014. Net income for the year ended December 31, 2015 was $14.5  million, an increase of $3.3 million, or 29.2%, from $11.2 million for the year ended December 31, 2014. Net income available to common shareholders for the year ended December 31, 2015 was $14.1 million which was an increase of $3.3 million from $10.8 million for 2014. The increase in net income for the year ended December 31, 2015 was primarily the result of increased loan interest income, increased noninterest income and lower interest expense.  Net gains on securities for the years ended December 31, 2015 and 2014 were $3.3 million and $0.3 million, respectively. Earnings per common share for the year ended December 31, 2015 was $2.01 per common share, an  increase of 28.0% or $0.44 per common share from $1.57 per common share for the year ended December 31, 2014 (as adjusted for the 10% stock dividend in December 2015). Year ended December 31, 2014 compared with year ended December 31, 2013. Net income for the year ended December 31, 2014 was $11.2 million, an increase of $2.1 million, or 22.7%, from $9.1 million for the year ended December 31, 2013.  Net income available to common shareholders for the year ended December 31, 2014 was $10.8 million which was an increase of $2.4 million from $8.4 million for 2013. The increase in net income for the year ended December 31, 2014 was primarily the result of increased loan interest income, lower interest expense and a lower provision expense. Net gains on securities for the years ended December 31, 2014 and 2013 were $0.3 million and $1.6 million, respectively. Earnings per common share for the year ended December 31, 2014 was $1.57 per common share, an increase of 28.7% or $0.35 per common share from $1.22 per common share for the year ended December 31, 2013 (as adjusted for the 10% stock dividend in December 2015). Net Interest Income Our operating results depend primarily on our net interest income, which is the difference between interest income earned on interest-earning assets, including loans and securities, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest- bearing liabilities. It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds. A financial institution’s asset and liability structure is substantially different from that of a non-financial company, in that virtually all assets and liabilities are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a financial institution’s performance. The impact of interest rate changes depends on the sensitivity to the change of our interest-earning assets and interest- bearing liabilities. The effects of the low interest rate environment in recent years and our interest sensitivity position is discussed below. TOTAL NET INCOME In Millions TOTAL COMMON SHAREHOLDERS' EQUITY In Millions 15 12 9 6 3 0 2011 2012 2013 2014 2015 120 100 80 60 40 20 0 2011 2012 2013 2014 2015 69 2015 ANNUAL REPORT of which were one-to four-family residential loans, a purchased pool of performing commercial leases, the  origination of commercial leases and commercial and industrial loans. Partially offsetting the increase in interest income on loans was a decrease in the average yield on loans (excluding loans held for sale), which decreased by 26 basis points to 5.21% for the year ended December 31, 2015 compared to 5.47% for the year ended December 31, 2014 due to pay-offs of higher-yielding existing loans in the current low interest rate environment. Interest income on securities increased $76,000, or 0.6%, to $13.5 million for the year ended December 31, 2015 as a result of the  increase in the average yield on securities, which was partially offset by a decrease in the average balance of securities. The average yield on securities increased by 13 basis points to 2.21% for the year ended December 31, 2015  compared to  2.08% for the year ended December 31, 2014 due to  the sale  of  lower yielding securities, which were reinvested in shorter duration  higher yielding securities. The average balance of securities decreased $35.2 million to $609.3 million for the year ended December 31, 2015 from $644.6 million for the year ended December 31, 2014 due to the decrease in the average balance of our municipal and short-term agency securities.  Year ended December 31, 2014 compared with the year ended December 31, 2013. Interest income increased $2.4 million, or 4.7%, to $53.3 million for the year ended December 31, 2014 from $50.9 million for the year ended December 31, 2013 primarily as a result of a $2.5 million increase in interest income on loans. The increase in interest income resulted primarily from a $55.0 million increase in the average balance of our interest-earnings assets to $1.4 billion for the year ended December 31, 2014. The average yield on our interest-earning assets increased  by 3 basis points to 3.76% for the year ended December 31, 2014 compared to 3.73% for the year ended December 31, 2013. Interest income on loans increased $2.5 million, or 6.7%, to $39.8 million for the year ended December 31, 2014 as a result of an increase in the average balance of loans, partially offset by a decrease in the average yield on loans. The average balance of loans (excluding loans held for sale) increased by $59.6 million to $727.4 million for the year ended December 31, 2014 from $667.8 million for the year ended December 31, 2013 as a result of new loan originations, the majority of which were owner-occupied non-farm non-residential loans and commercial and industrial loans associated with syndicated loans, including shared national credits. Partially offsetting the increase in interest income on loans was a decrease in the average yield on loans (excluding loans held for sale), which decreased by 11 basis points to 5.47% for the year ended December 31, 2014 compared to 5.58% for the year ended December 31, 2013 due to pay-offs of higher-yielding existing loans in the current low interest rate environment. Interest income on securities decreased $44,000, or 0.3%, to $13.4 million for the year ended December 31, 2014 as a result of the decrease in the average yield on securities, which was partially offset by an increase in the average balance of securities.  The average balance of securities increased $14.0 million to $644.6 million for the year ended December 31, 2014 from $630.6 million for the year ended December 31, 2013 due to the increase in the average balance of our municipal and short-term agency securities. The average yield on securities decreased by 5 basis points to 2.08% for the year ended December 31, 2014 compared to 2.13% for the year ended December 31, 2013 due to payoffs of higher yielding securities, which were reinvested in shorter duration lower yielding securities. Year ended December 31, 2015 compared with the year ended December 31, 2014. Net interest income for the year ended December 31, 2015 and 2014 was $47.5 million and $44.1 million, respectively. The increase in net interest income for the year ended December 31, 2015 was primarily due to the increase in the average balance of our total interest- earning assets and a decrease in the average rate of our total interest- bearing liabilities. The average balance of total interest-earning assets increased by $37.5 million to $1.5 billion for the year ended December 31, 2015 as compared to the year ended December 31, 2014. The average yield on our total interest-earning assets increased nine basis points to  3.85% for the year ended December 31, 2015  compared to  3.76% for the year ended December 31, 2014.  The average rate of our total interest-bearing liabilities decreased by seven basis points to 0.76% for the year ended December 31, 2015 compared to 0.83% for the year ended December 31, 2014, which was partially offset by the increase in the average balance of total interest-bearing liabilities by $10.5 million to $1.1 billion for the year ended December 31, 2015 as compared to the year ended December 31, 2014.  As a result, our net interest rate spread increased 16 basis points to 3.09% for the year ended December 31, 2015 from 2.93% for the year ended December 31, 2014, and our net interest margin increased  15 basis points to 3.26% for the year ended December 31, 2015 from 3.11% for the year ended December 31, 2014. Year ended December 31, 2014 compared with the year ended December 31, 2013. Net interest income for the year ended December 31, 2014 and 2013 was $44.1 million and $39.8 million, respectively. The increase in net interest income for the year ended December 31, 2014 was primarily due to the increase in the average balance of our total interest- earning assets and a decrease in the average rate of our total interest- bearing liabilities. The average balance of total interest-earning assets increased by $55.0 million to $1.4 billion for the year ended December 31, 2014 as compared to the year ended December 31, 2013. The average yield on our total interest-earning assets increased 3 basis points to  3.76% for the year ended December 31, 2014  compared to  3.73% for the year ended December 31, 2013.  The average rate of our total interest-bearing liabilities decreased by 21 basis points to 0.83% for the year ended December 31, 2014 compared to 1.04% for the year ended December 31, 2013, which was partially offset by the increase in the average balance of total interest-bearing  liabilities by $46.3 million to $1.1 billion for the year ended December 31, 2014 as compared to the year ended December 31, 2013. As a result, our net interest rate spread increased 24 basis points to 2.93% for the year ended December 31, 2014 from 2.69% for the year ended December 31, 2013, and our net interest margin increased  19 basis points to 3.11% for the year ended December 31, 2014 from 2.92% for the year ended December 31, 2013. Interest Income Year ended December 31, 2015 compared with the year ended December 31, 2014. Interest income increased $2.8 million, or 5.2%, to $56.1 million for the year ended December 31, 2015 from $53.3 million for the year ended December 31, 2014 primarily as a result of a $2.7 million increase in interest income on loans. The increase in interest income resulted primarily from a $37.5 million increase in the average balance of our interest-earnings assets to $1.5 billion for the year ended December 31, 2015. The average yield on our interest-earning assets increased by nine basis points to 3.85% for the year ended December 31, 2015 compared to 3.76% for the year ended December 31, 2014. Interest income on loans increased $2.7 million, or 6.9%, to $42.5 million for the year ended December 31, 2015 as a result of an increase in the average balance of loans, partially offset by a decrease in the average yield on loans. The average balance of loans (excluding loans held for sale) increased by $88.6 million to $816.0 million for the year ended December 31, 2015 from $727.4 million for the year ended December 31, 2014 as a result of new loan originations, the majority 70 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Interest Expense Year ended December 31, 2015 compared with the year ended December 31, 2014. Interest expense decreased $0.6 million, or 6.5%, to $8.6 million for the year ended December 31, 2015 from $9.2 million for the year ended December 31, 2014 due primarily to a decrease in the average rate on time deposits. The average rate of time deposits decreased by 10 basis points during the year ended December 31, 2015 to 1.09%, reflecting downward repricing of our time deposits in the continued low interest rate environment. The average balance of interest-bearing deposits increased by $14.2 million during the year ended December 31, 2015 to $1.1 billion as a result of a $15.3 million increase in the average balance of  interest- bearing demand  deposits, which was partially offset by a $9.0 million decrease in the average balance of time deposits.  Year ended December 31, 2014 compared with the year ended December 31, 2013. Interest expense decreased $1.9 million, or 17.4%, to $9.2 million for the year ended December 31, 2014 from $11.1 million for the year ended December 31, 2013 due primarily to a decrease in the average rate on time deposits. The average rate of time deposits decreased by  30 basis points during the year ended December 31, 2014 to 1.19%, reflecting downward repricing of our time deposits in the continued low interest rate environment. The average balance of interest-bearing deposits increased by $55.5 million during the year ended December 31, 2014 to $1.1 billion as a result of a $51.8 million  increase in the average balance of  interest-bearing demand deposits, which was partially offset by a $1.4 million decrease in the average balance of time deposits. During the year ended December 31, 2014 and the year ended December 31, 2013, the lower cost of our deposits and the change in the mix of our deposits were primarily due to the repricing of our time deposits that were offered to customers through our local marketing campaign in 2010 to diversify our deposit base. These time deposits primarily matured in 2012, which allowed us to lower the costs of our time deposits by repricing our time deposits to lower interest rates which continued in 2014. Average Balances and Yields. The following table sets forth average balance sheet balances, average yields and costs, and certain other information for the years indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. Loans, net of unearned income, include loans held for sale. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. The net interest income yield presented below is calculated by dividing net interest income by average interest-earning assets and is a measure of the efficiency of the earnings from the 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. 71 2015 ANNUAL REPORT December 31, 2015 December 31, 2014 December 31, 2013 Average Outstanding Balance Interest Average Yield/ Rate Average Outstanding Balance Interest Average Yield/ Rate Average Outstanding Balance Interest Average Yield/ Rate (in thousands except for %) Assets Interest-earning assets: Interest-earning deposits with banks(1) Securities (including FHLB stock) Federal funds sold Loans held for sale Loans, net of unearned income Total interest-earning assets $ 30,485 $ 609,348 312 - 816,027 1,456,172 72 13,471 - - 42,536 56,079 0.24% 2.21% -% -% 5.21% 3.85% Noninterest-earning assets: Cash and due from banks Premises and equipment, net Other assets Total assets 7,191 20,300 5,870 $1,489,533 $ 46,455 $ 644,561 304 10 727,385 1,418,715 115 13,395 - - 39,787 53,297 0.25% 2.08% -% -% 5.47% 3.76% $ 63,417 $ 630,586 1,738 119 667,814 1,363,674 157 13,439 1 - 37,289 50,886 0.25% 2.13% 0.06% -% 5.58% 3.73% 9,219 19,681 8,216 $1,400,790 $401,617 77,726 640,134 6,320 1,125,797 1,419 38 6,985 166 8,608 0.35% 0.05% 1.09% 2.62% 0.76% Liabilities and Shareholders' Equity Interest-bearing liabilities: Demand deposits Savings deposits Time deposits Borrowings Total interest-bearing liabilities Noninterest-bearing liabilities: Demand deposits Other Total Liabilities Shareholders' equity Total liabilities and shareholders' equity Net interest income Net interest rate spread(2) Net interest-earning assets(3) Net interest margin(4)(5) Average interest-earning assets to interest-bearing liabilities 211,584 5,010  1,342,391 147,142 $1,489,533 $ 330,375 9,030 19,738 7,528 $1,455,011 $386,363 69,719 649,165 10,083 1,115,330 200,127 5,157 1,320,614 134,397 1,312 33 7,716 141 9,202 0.34% 0.05% 1.19% 1.40% 0.83% $334,573 64,639 650,540 19,286 1,069,038 1,262 41 9,682 149 11,134 0.38% 0.06% 1.49% 0.77% 1.04% 196,589 5,110 1,270,737 130,053 $47,471 $44,095 $39,752 $1,455,011 $1,400,790 3.09% 3.26% $ 303,385 2.93% 3.11% $ 294,636 2.69% 2.92% 129.35% 127.20% 127.56% (1) Includes Federal Reserve balances reported in cash and due from banks on the Consolidated Balance Sheets. (2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. (3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (4) Net interest margin represents net interest income divided by average total interest-earning assets. (5) The tax adjusted net interest margin was 3.29%, 3.13% and 2.93% for the years ended December 31, 2015, 2014 and 2013. A 35% tax rate was used to calculate the effect on securities income from tax exempt securities. 72 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Volume/Rate Analysis. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the years indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior year’s rate); (2) changes attributable to rate (change in rate multiplied by the prior year’s volume); and (3) total increase (decrease) (the sum of the previous columns). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories. For the Years Ended December 31, 2015 vs. 2014 For the Years Ended December 31, 2014 vs. 2013 Increase (Decrease) Due To Increase (Decrease) Due To Volume Rate Increase/ Decrease Volume Rate Increase/ Decrease (in thousands except for %) Interest earned on: Interest-earning deposits with banks $ (38) $ (5) $ (43) $ (42) $ - $ (42) Securities (including FHLB stock) (754) 830 76 294 (338) Federal funds sold Loans held for sale - - - - - - - - (1) - (44) (1) - Loans, net of unearned income Total interest income 4,684 (1,935) 3,892 (1,110) 2,749 2,782 3,271 3,523 (773) 2,498 (1,112) 2,411 Interest paid on: Demand deposits Savings deposits Time deposits Borrowings 53 4 54 1 107 5 (106) (625) (731) (66) 91 25 184 3 (20) (92) (134) (11) 50 (8) (1,946) (1,966) 84 (8) Total interest expense (115) (479) (594) 75 (2,007) (1,932) Change in net interest income $4,007 $ (631) $3,376 $3,448 $ 895 $4,343 Provision for Loan Losses current expected net charge-offs and non-performing asset levels.  A provision for loan losses is a charge to income in an amount that management believes is necessary to maintain an adequate allowance for loan losses. The provision is based on management’s regular evaluation of current economic conditions in our specific markets as well as regionally and nationally, changes in the character and size of the loan portfolio, underlying collateral values securing loans, and other factors which deserve recognition in estimating loan losses. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. We recorded a $3.9 million provision for loan losses for the year ended December 31, 2015 compared to $2.0 million for 2014. The allowance for loan losses at December 31, 2015 was $9.4 million or 1.12% of total loans, compared to $9.1 million or 1.15% of total loans at December 31, 2014. The increase in the provision was attributed to growth in the loan portfolio and a $0.3 million increase in net charge- offs.  The primary change to the credit quality of the loan portfolio was associated with the downgrades of loans.  Substandard loans increased $13.9 million to $58.7 million at December 31, 2015 from $44.8 million at December 31, 2014. The impaired loan portfolio did not suffer additional declines in estimated fair value requiring further provisions. We believe that the allowance is adequate to cover potential losses in the loan portfolio given the current economic conditions, and For the year ended December 31, 2014, the provision for loan losses was $2.0 million, a decrease of $0.6 million from $2.5  million  for 2013. The allowance for loan losses was $9.1 million and $10.4 million at December 31, 2014 and 2013, respectively. The decline in the provision was attributed to charge-offs related to impaired loans that had existing specific reserves, as well as improvement in the credit quality of the loan portfolio. The impaired loan portfolio did not suffer additional declines in estimated fair value requiring further provisions. The decline was also due to an improvement in our historical charge- off trends. Noninterest Income Our primary sources of recurring noninterest income are customer service fees, loan fees, gains on the sale of loans and available-for-sale securities and other service fees. Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method. Noninterest income totaled $9.0 million for the year ended December 31, 2015, an increase of $2.8 million when compared to $6.2 million for 2014.  The majority of the  increase was due to  higher gains on securities sales.  Net securities gains were $3.3 million for the year ended December 31, 2015 and $0.3 million for 2014. The gains on securities sales occurred as First Guaranty sold investment securities 73 2015 ANNUAL REPORT in order to fund loan growth and liquidated its shares in a preferred security that converted to common stock in 2015 for a gain of $2.7 million.  Service charges, commissions and fees totaled $2.7 million for the year ended December 31, 2015 and $2.8 million for 2014. ATM and debit card fees totaled $1.8 million for the year ended December 31, 2015 and $1.7 million for 2014. Other noninterest income decreased by $0.3 million to $1.1 million for the year ended December 31, 2015 compared to $1.5 million for 2014. The $0.3 million decrease in other noninterest income was partially caused by a $0.2 million other-than- temporary impairment charge on an investment security. Noninterest income totaled $6.2 million in 2014 which was a decrease of $1.3 million compared to $7.5 million in 2013. The decrease in noninterest income was primarily due to a decrease in gains from the sale of investment securities of $1.3 million. Service charges, commissions and fees totaled $2.8 million for 2014 and $3.0 million for 2013. Other noninterest income  increased $0.1 million to $1.5 million in 2014 from $1.3 million in 2013. Noninterest Expense includes salaries and employee benefits, Noninterest expense occupancy and equipment expense and other types of expenses. Noninterest expense decreased $0.5 million to $31.1 million for the year ended December 31, 2015 compared to 2014. Salaries and benefits expense totaled $15.5 million for 2015 and $15.8 million for 2014. Occupancy and equipment expense totaled $3.8 million for 2015 and $3.9 million for 2014. Other noninterest expense decreased by $0.1 million to $11.8 million for the year ended December 31, 2015. Noninterest expense totaled $31.6 million in 2014 and $31.0 million in 2013. Salaries and benefits expense increased $1.5 million to $15.8 million for 2014 compared to $14.4 million in  2013. The increase in salaries and benefits expense  was due primarily to increased costs associated with our employee health insurance plan.  First Guaranty terminated the plan in 2014 and enrolled in a fully insured plan from a third party national provider of health insurance. Occupancy and equipment expense totaled $3.9 million for 2014 and 2013. Other noninterest expense totaled $11.8 million in 2014, a decrease of $0.8 million, or 6.7%, when compared to $12.7 million in 2013. The following table presents, for the years indicated, the major categories of other noninterest expense: December 31, 2015 December 31, 2014 December 31, 2013 Other noninterest expense: Legal and professional fees Data processing Marketing and public relations Taxes - sales, capital and franchise Operating supplies Travel and lodging Telephone Amortization of core deposits Donations Net costs from other real estate and repossessions Regulatory assessment Other Total other expense $ 2,019 1,184 848 717 414 818 172 320 332 493 1,111 3,326 $11,754 (in thousands) $ 1,982 1,153 700 605 410 566 242 320 150 1,374 1,181 3,143 $11,826 $ 2,347 1,269 638 584 487 563 206 320 294 941 1,784 3,237 $12,670 74 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. We maintained a net borrowing capacity at the FHLB totaling $116.7 million and $156.4 million at December 31, 2015 and December 31, 2014, respectively with no borrowings outstanding at either date. At December 31, 2015, we have outstanding letters of credit from the FHLB in the amount of $195.0 million that were used to collateralize public funds deposits. We also have a discount window line with the Federal Reserve Bank of $18.2 million, with no outstanding balance at December 31, 2015. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $70.5 million at December 31, 2015. We have a revolving line of credit for $2.5 million, with an outstanding balance of $1.8 million at December 31, 2015 secured by a pledge of the Bank's common stock. Management believes there is sufficient liquidity to satisfy current operating needs. Capital Resources Our capital position is reflected in total shareholders’ equity, subject to certain adjustments for regulatory purposes. Further, our capital base allows us to take advantage of business opportunities while maintaining the level of resources we deem appropriate to address business risks inherent in daily operations. Total shareholders’ equity  decreased to $118.2 million at December 31, 2015 from $139.6 million at December 31, 2014. The decrease in total shareholders’ equity was principally the result of the redemption of the Series C Preferred Stock for $39.4 million in December 2015 from the U.S. Treasury in order to exit the SBLF program. The decrease was partially offset by the net proceeds of $9.3 million from the issuance of common stock in a public offering which closed in the fourth quarter of 2015. Total shareholders' equity also increased due to net income of $14.5 million during the year ended December 31, 2015, partially offset by $4.2 million in cash dividends paid on our common stock and $0.4 million in dividends paid on our preferred stock. The change in the balance of the accumulated other comprehensive income from a $0.2 million gain at December 31, 2014 to a $0.9 million loss at December 31, 2015 also reduced shareholders' equity. The reduction was due to a $1.6 million reduction in the gross unrealized mark to market gains on available-for-sale securities (before taxes). Capital Management We manage our capital to comply with our internal planning targets and regulatory capital standards administered by the Federal Reserve and the FDIC. We review capital levels on a monthly basis. We evaluate a number of capital ratios, including Tier 1 capital to total adjusted assets (the leverage ratio) and Tier 1 capital to risk-weighted assets. At December 31, 2015, First Guaranty Bancshares and First Guaranty Bank were classified as well-capitalized. Income Taxes. The amount of income expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other non-deductible expenses. The provision for income taxes for the years ended December 31, 2015, 2014 and 2013 was $7.0 million,  $5.5 million and $4.6 million, respectively. The provision for income taxes increased in 2015 as compared to 2014 due to the increase in income before taxes. Our  statutory tax rate was 35.0% for 2015, 2014 and 2013. Impact of Inflation Our Consolidated Financial Statements and related notes included elsewhere in this  Annual Report have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession. Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation. 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-earning demand deposits with banks, federal funds sold and available-for-sale investment securities. Loans maturing within one year or less at December 31, 2015 totaled $135.1 million. At December 31, 2015, time deposits maturing within one year or less totaled $401.5 million.  Our held- to-maturity  investment securities portfolio at December 31, 2015 was $169.8 million or 31.1% of the investment portfolio compared to $141.8 million or 22.1% at December 31, 2014. The securities in the held-to-maturity portfolio are used to collateralize public funds deposits and may also be used to secure borrowings with the FHLB or Federal Reserve Bank. The agency securities in the held-to-maturity portfolio have maturities of 10 years or less.  The mortgage backed securities have stated final maturities of 15 to 20 years at December 31, 2015.  The held-to-maturity  portfolio had a forecasted weighted average life of approximately 5.6 years based on current interest rates at December 31, 2015. Management regularly monitors the size and composition of the held-to-maturity  portfolio to evaluate its effect on our liquidity.  Our available-for-sale portfolio was $376.4 million, or 68.9% of the investment portfolio at December 31, 2015 compared to $499.8 million, or 77.9% at December  31, 2014.  The majority of the available-for-sale portfolio was comprised of U.S. Treasuries, U.S. Government Agencies, mortgage backed securities, municipal bonds and investment grade corporate bonds. We believe these securities are readily marketable and enhance our liquidity. 75 2015 ANNUAL REPORT The following table presents our capital ratios as of the indicated dates. "Well Capitalized Minimums" At December 31, 2015 "Well Capitalized Minimums" At December 31, 2014 (in thousands except for %) Tier 1 Leverage Ratio: Consolidated Bank Tier 1 Risk-based Capital Ratio: Consolidated Bank Total Risk-based Capital Ratio: Consolidated Bank Common Equity Tier One Capital: Consolidated Bank N/A 5.00% N/A 8.00% N/A 10.00% N/A 6.50% 8.17% 9.74% 10.85% 12.98% 13.13% 13.86% 10.85% 12.98% 5.00% 5.00% 6.00% 6.00% 10.00% 10.00% N/A N/A 9.33% 9.26% 13.16% 13.08% 14.05% 13.96% N/A N/A Off-balance sheet commitments We are 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 our Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. The same credit policies are used in making commitments and conditional obligations as it does for on-balance sheet instruments.  Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk. The notional amounts of the financial instruments with off-balance sheet risk at December 31, 2015, 2014 and 2013 are as follows: Contract Amount December 31, 2015 December 31, 2014 December 31, 2013 Commitments to Extend Credit Unfunded Commitments under lines of credit Commercial and Standby letters of credit $ 88,081 $107,581 $ 7,486 (in thousands) $ 59,675 $111,247 $ 7,743 $ 30,516 $115,311 $ 7,695 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. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on  our credit evaluation of the counterpart. Collateral requirements vary but may include accounts receivable, inventory, property, plant and equipment, residential real estate and commercial properties. Unfunded commitments under lines of credit are contractually obligated by us as long as the borrower is in compliance with the terms of the loan relationship. Unfunded lines of credit are typically operating lines of credit that adjust on a regular basis as a customer requires funding. There may be seasonal variations to the usage of these lines. At December 31, 2015, the largest concentration of unfunded commitments were lines of credit associated with commercial and industrial loans. Commercial and standby letters of credit are conditional commitments to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing 76 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. 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.  There were no losses incurred on any commitments during the years ended December 31, 2015, 2014 and 2013. Contractual Obligations The following table summarizes our fixed and determinable contractual obligations and other funding needs by payment date at December 31, 2015. The payment amounts represent those amounts due to the recipient and do not include any unamortized premiums or discounts or other similar carrying amount adjustments. and meets as needed to review our asset liability policies and interest rate risk position. The board ALCO investment committee is comprised of certain members of the board of directors of the Bank and meets monthly. The management asset liability committee provides a monthly report to the board ALCO investment committee. The need for interest sensitivity gap management is most critical in times of rapid changes in overall interest rates. We generally seek to limit our exposure to interest rate fluctuations by maintaining a relatively balanced mix of rate sensitive assets and liabilities on a one-year time horizon and greater than one-year time horizon. Because of the significant impact on net interest margin from mismatches in repricing opportunities, we monitor the asset-liability mix periodically depending upon the management asset liability committee’s assessment of current business conditions and the interest rate outlook. We maintain exposure to interest rate fluctuations within prudent levels using varying investment strategies. These strategies include, but are not limited to, frequent internal modeling of asset and liability values and behavior due to changes in interest rates. We monitor cash flow forecasts closely Payments Due by Period: December 31, 2015 Less Than One Year One to Three Years Over Three Years Total (in thousands) Operating leases Software contracts Time deposits Short-term borrowings Senior long-term debt Junior subordinated debentures Total contractual obligations $ 32 1,105 401,535 1,800 3,100 - $407,572 $ 61 1,696 137,037 - 7,755 - $146,549 $ 57 608 53,438 - 15,000 15,000 $84,103 $ 150 3,409 592,010 1,800 25,855 15,000 $638,224 Item 7A – Quantitative and Qualitative Disclosures about Market Risk Asset/Liability Management and Market Risk Asset/Liability Management. Our asset/liability management process consists of quantifying, analyzing and controlling interest rate risk to maintain reasonably stable net interest income levels under various interest rate environments. The principal objective of asset/liability management is to maximize net interest income while operating within acceptable limits established for interest rate risk and to maintain adequate levels of liquidity. The majority of our assets and liabilities are monetary in nature. Consequently, one of our most significant forms of market risk is interest rate risk, which is inherent in our lending and deposit-taking activities. Our assets, consisting primarily of loans secured by real estate and fixed rate securities in our investment portfolio, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. The board of directors of First Guaranty Bank has established two committees, the management asset liability committee and the board investment committee, to oversee the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives and for managing this risk consistent with the guidelines approved by the board of directors. The management asset liability committee is comprised of senior officers of the Bank and evaluate the impact of both prepayments and extension risk. The following interest sensitivity analysis is one measurement of interest rate risk. This analysis, which we prepare monthly, reflects the contractual maturity characteristics of assets and liabilities over various time periods. This analysis does not factor in prepayments or interest rate floors on loans which may significantly change the report. This table includes nonaccrual loans in their respective maturity periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The interest sensitivity analysis at December 31, 2015 illustrated below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis. 77 2015 ANNUAL REPORT December 31, 2015 Interest Sensitivity Within Over 3 Months thru 12 Months 3 Months Or Less Total One Year Over One Year Total (in thousands) $358,994 $ 58,193 $417,187 $ 424,396 $841,583 33,694 582 38,467 6,146 39,840 507,216 547,056 - - 582 38,467 - - 582 38,467 $431,737 $ 64,339 $496,076 $ 931,612 $1,427,688 $409,209 $ 81,448 - - $409,209 $ 81,448 - - 143,708 257,827 401,535 190,475 - 1,800 25,824 - - - - - 1,800 25,824 - - - - 14,597 302,800 $409,209 81,448 592,010 1,800 25,824 14,597 302,800 $660,189 $ 259,627 $919,816 $ 507,872 $1,427,688 $(228,452) $ (195,288) $(423,740) $ 423,740 $(228,452) $ (423,740) $(423,740) $ - Earning Assets: Loans (including loans held for sale) Securities (including FHLB stock) Federal Funds Sold Other earning assets Total earning assets Source of Funds: Interest-bearing accounts: Demand deposits Savings deposits Time deposits Short-term borrowings Senior long-term debt Junior subordinated debt Noninterest-bearing, net Total source of funds Period gap Cumulative gap Cumulative gap as a percent of earning assets -16.0% -29.7% -29.7% 78 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. These scenarios above are both instantaneous and gradual shocks that assume balance sheet management will mirror the base case. Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. Strategic management of our balance sheet would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Also, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring exposure to interest rate risk. We are pursuing a strategy that began in 2012 to reduce long-term interest rate risk. The contractual maturity of the investment portfolio was shortened and mortgage backed securities were purchased to enhance cash flow. We were able to grow our loan portfolio while reducing the size of the investment portfolio. New loans originated generally were either floating rate or were fixed rate with maturities that did not exceed five years. Securities as a percentage of average interest-earning assets decreased from 45.4% in 2014 to 37.5% in 2015. Deposit maturities were extended and generally priced lower. We believe that the addition of short-term securities and deploying our capital to grow our loan portfolio will help to lower interest rate risk. Net Interest Income at Risk. Net interest income at risk measures the risk of a decline in earnings due to changes in interest rates. The first table below presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and sustained parallel shift in the yield curve over a 12-month horizon at December 31, 2015. The second table below presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from a gradual shift in the yield curve over a 12-month period. Shifts are measured in 100 basis point increments (+400 through -100 basis points) from base case. We do not present shifts less than 100 basis points because of the current low interest rate environment. The base case scenario encompasses key assumptions for asset/liability mix, loan and deposit growth, pricing, prepayment speeds, deposit decay rates, securities portfolio cash flows and reinvestment strategy and the market value of certain assets under the various interest rate scenarios. The base case scenario assumes that the current interest rate environment is held constant throughout the forecast period for a static balance sheet and the instantaneous and gradual shocks are performed against that yield curve. December 31, 2015 Instantaneous Changes in Interest Rates (basis points) Percent Change in Net Interest Income +400 +300 +200 +100 Base -100 (18.38%) (10.29%) (5.69%) (2.29%) -% (2.83%) Gradual Changes in Interest Rates (basis points) Percent Change in Net Interest Income +400 +300 +200 +100 Base -100 (5.35%) (3.28%) (1.76%) (0.71%) -% (0.04%) 79 2015 ANNUAL REPORT   Samuel R. Lolan, CPA Lori D. Percle, CPA Debbie B. Taylor, CPA Katherine H. Armentor, CPA Robin G. Freyou, CPA Samuel R. Lolan, CPA Lori D. Percle, CPA Debbie B. Taylor, CPA Katherine H. Armentor, CPA Robin G. Freyou, CPA Shalee M. Landry, CPA Shalee M. Landry, CPA Charles E. Castaing, CPA, Retired Charles E. Castaing, CPA, Retired Roger E. Hussey, CPA, Retired Roger E. Hussey, CPA, Retired Report of Castaing, Hussey & Lolan, LLC Independent Registered Accounting Firm To the Shareholders and Board of Directors First Guaranty Bancshares, Inc. We have audited the accompanying consolidated balance sheets of First Guaranty Bancshares, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income,  changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2015. First Guaranty's management is responsible for these financial statements. 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 consolidated financial position of First Guaranty Bancshares, Inc. as of December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. We also audited, in accordance with the standards of the American Institute of Certified Public Accountants, First Guaranty Bancshares, Inc.'s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 28, 2016 expressed an unqualified opinion thereon. Castaing, Hussey & Lolan, LLC New Iberia, Louisiana March 28, 2016 80 5 2 5 W e e k s S t r e e t • P. O . B o x 1 4 2 4 0 • N e w I b e r i a , L o u i s i a n a 7 0 5 6 2 - 4 2 4 0 P h . : 3 3 7 - 3 6 4 - 7 2 2 1 • F a x : 3 3 7 - 3 6 4 - 7 2 3 5 • e m a i l : i n f o @ c h l c p a . c o m Members of American Institute of Certified Public Accountants • Society of Louisiana Certified Public Accountants Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS Assets Cash and cash equivalents: Cash and due from banks Federal funds sold Cash and cash equivalents Interest-earning time deposits with banks Investment securities: Available-for-sale, at fair value Held to maturity, at cost (estimated fair value of $168,148 and $139,688, respectively) Investment securities Federal Home Loan Bank stock, at cost Loans, net of unearned income Less: allowance for loan losses Net loans Premises and equipment, net Goodwill Intangible assets, net Other real estate, net Accrued interest receivable Other assets Total Assets Liabilities and Shareholders' Equity Deposits: Noninterest-bearing demand Interest-bearing demand Savings Time Total deposits Short-term borrowings Accrued interest payable Senior long-term debt Junior subordinated debentures Other liabilities Total Liabilities December 31, 2015 December 31, 2014 (in thousands, except share data) $ 36,690  582 37,272  997 $ 44,365 210 44,575 10,247 376,369 169,752 546,121 499,808 141,795 641,603 935 1,621 841,583 9,415 832,168 22,019 1,999 1,394  1,577 6,015 9,256 $1,459,753 $213,203 409,209 81,448 592,010  1,295,870 1,800  1,707 25,824  14,597 1,731 1,341,529 790,321 9,105 781,216 19,211 1,999 1,733 2,198 6,384 8,089 $1,518,876 $207,969 432,294 74,550 657,026 1,371,839 1,800 1,997 1,455 - 2,202 1,379,293 Shareholders' Equity Preferred stock: Series C - $1,000 par value - authorized 39,435 shares; issued and outstanding 0 and 39,435 Common stock1: $1 par value - authorized 100,600,000 shares; issued 7,609,194 and 6,923,206 shares Surplus Treasury stock, at cost, 0 and 3,184 shares Retained earnings Accumulated other comprehensive income (loss) Total Shareholders' Equity Total Liabilities and Shareholders' Equity See Notes to the Consolidated Financial Statements. - 39,435 7,609 61,584 - 49,932 (901) 118,224 $1,459,753 6,923 51,646 (54) 41,392 241 139,583 $1,518,876 1 2014 and 2015 share amounts reflect the ten percent stock dividend paid December 17, 2015 to shareholders of record as of December 10, 2015. 81 2015 ANNUAL REPORT FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2014 2015 2013 Interest Income: Loans (including fees) Deposits with other banks Securities (including FHLB stock) Federal funds sold Total Interest Income Interest Expense: Demand deposits Savings deposits Time deposits Borrowings Total Interest Expense Net Interest Income Less: Provision for loan losses Net Interest Income after Provision for Loan Losses Noninterest Income: Service charges, commissions and fees ATM and debit card fees Net gains on securities Net gain (loss) on sale of loans Other Total Noninterest Income Noninterest Expense: Salaries and employee benefits Occupancy and equipment expense Other Total Noninterest Expense Income Before Income Taxes Less: Provision for income taxes Net Income Preferred stock dividends Income Available to Common Shareholders Per Common Share1: Earnings Cash dividends paid Weighted Average Common Shares Outstanding See Notes to Consolidated Financial Statements (in thousands, except share data) $42,536 72 13,471 - 56,079 1,419 38 6,985 166 8,608 47,471 3,864 43,607 2,736 1,779 3,300 4 1,137 8,956 15,496  3,845 11,754 31,095 21,468 6,963 14,505 (384) $14,121 $39,787 115 13,395 - 53,297 1,312 33 7,716 141 9,202 44,095 1,962 42,133 2,767 1,671 295 (12) 1,456 6,177 15,840 3,928 11,826 31,594 16,716 5,492 11,224 (394) $10,830 $37,289 157 13,439 1 50,886 1,262 41 9,682 149 11,134 39,752 2,520 37,232 3,006 1,634 1,571 (70) 1,337 7,478 14,368 3,949 12,670 30,987 13,723 4,577 9,146 (713) $8,433 $ 2.01 $ 0.60 $ 1.57 $ 0.58 $ 1.22 $ 0.58 7,013,869 6,920,022 6,920,022 1 All share and per share amounts reflect the ten percent stock dividend paid December 17, 2015 to shareholders of record as of December 10, 2015. 82 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years Ended December 31, 2014 2013 2015 Net Income Other comprehensive income (loss): Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period Reclassification adjustments for net gains included in net income Reclassification of OTTI losses included in net income Change in unrealized gains (losses) on securities Tax impact Other comprehensive income (loss) Comprehensive Income (Loss) See Notes to Consolidated Financial Statements (in thousands) $14,505 $ 11,224 $ 9,146 1,394 (3,300) 175 (1,731) 589 (1,142) $13,363 14,499 (295) - 14,204 (4,829) 9,375 $ 20,599 (21,432) (1,571) - (23,003) 7,821 (15,182) $ (6,036) FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Series C Preferred Stock $1,000 Par Common Stock $1 Par Surplus Treasury Stock Retained Earnings Accumulated Other Comprehensive Income/(Loss) Total Balance December 31, 2012 Net income Other comprehensive income Cash dividends on common stock ($0.58 per share) Preferred stock dividends Balance December 31, 2013 Net income Other comprehensive income Cash dividends on common stock ($0.58 per share) Preferred stock dividends Balance December 31, 2014 Net income Reclassification of treasury stock under the LCBA (1) Other comprehensive income Preferred stock redeemed, Series C Common stock issued in initial public offering, 689,172 shares(2) Cash dividends on common stock ($0.60 per share) Preferred stock dividends Balance December 31, 2015 See Notes to Consolidated Financial Statements (in thousands, except share data) $39,435 - - $6,923 - - $51,646 - - $ (54) $30,183 9,146 - - - - - $39,435 - - - - $39,435 - - - $6,923 - - - - $6,923 - - - $51,646 - - - - $51,646 - - - (39,435 ) (3) - - - - - - 689 9,938 - - (4,027) (713) $ (54) $34,589 11,224 - - - - - (4,027) (394) $ (54) $41,392 14,505 - (51) - - 54 - - - - - - $6,048 - (15,182) $134,181 9,146 (15,182) - - $(9,134) - 9,375 - - $ 241 - (4,027) (713) $123,405 11,224 9,375 (4,027) (394) $139,583 14,505 -  (1,142) - -  (1,142) (39,435) - - $ - - - $7,609 - - $61,584 $ (1,283) - 9,344 (4,247) (384) $49,932 - - $ (901) (4,247) (384) $118,224 (1) Effective January 1, 2015, companies incorporated under Louisiana law became subject to the Louisiana Business Corporation Act (which replaces the Louisiana Business Corporation Law). Provisions of the Louisiana Business Corporation Act eliminate the concept of treasury stock and provide that shares reacquired by a company are to be treated as authorized but unissued shares. As a result of this change in law, shares previously classified as treasury stock were reclassified as a reduction to issued shares of common stock in the consolidated financial statements as of June 30, 2015, reducing the stated value of common stock and retained earnings. (2) All share and per share amounts reflect the ten percent stock dividend paid December 17, 2015 to shareholders of record as of December 10, 2015. 83 2015 ANNUAL REPORT FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS 2015 Years Ended December 31, 2014 (in thousands) 2013 Cash Flows From Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses Depreciation and amortization Amortization/Accretion of investments Gain on sale/call of securities Other than temporary impairment charge on securities Loss (gain) on sale of assets ORE and repossessed property writedowns and loss on disposition FHLB stock dividends Net decrease in loans held for sale Change in other assets and liabilities, net Net cash provided by operating activities Cash Flows From Investing Activities: Funds invested in certificates of deposit Proceeds from maturities and calls of certificates of deposit Proceeds from maturities and calls of HTM securities Proceeds from maturities, calls and sales of AFS securities Funds invested in HTM securities Funds Invested in AFS securities Proceeds from sale/redemption of Federal Home Loan Bank stock Funds invested in Federal Home Loan Bank stock Net increase in loans Purchases of premises and equipment Proceeds from sales of premises and equipment Proceeds from sales of other real estate owned Net cash provided by (used in) investing activities Cash Flows From Financing Activities: Net (decrease) increase in deposits Net decrease in federal funds purchased and short-term borrowings Proceeds from long-term borrowings, net of costs Repayment of long-term borrowings Proceeds from junior subordinated debentures, net of costs Issuance of common stock, net of costs Redemption of preferred stock Dividends paid Net cash (used in) provided by financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Noncash activities: Loans transferred to foreclosed assets Cash paid during the period: Interest on deposits and borrowed funds Income taxes See Notes to the Consolidated Financial Statements 84 $ 14,505 $11,224 $ 9,146 3,864 1,995 2,036 (3,300) 175 (6) 411 (4) - (2,461) 17,215 - 9,250 72,036 723,249 (48,318) (650,698) 3,554 (2,864) (56,000) (4,400) 4 1,394 47,207 (75,969) - 24,969 (600) 14,597 9,344 (39,435) (4,631) (71,725) 1,962 2,143 2,164 (295) - (17) 665 (4) 88 (1,140) 16,790 (10,000) 500 8,279 535,167 - (538,209) 4,169 (3,950) (92,697) (1,668) 375 3,049 (94,985) 68,740 (3,988) 1,555 (600) - - - (4,421) 61,286 2,520 2,111 2,141 (1,571) - 61 335 (4) 469 1,958 17,166 - - 16,184 626,433 (107,616) (533,320) 3,268 (3,825) (78,777) (1,757) - 1,306 (78,104) 50,487 (8,958) - (600) - - - (4,740) 36,189 (7,303) 44,575 $ 37,272 (16,909) 61,484 $44,575 (24,749) 86,233 $61,484 $ 1,184 $ 2,330 $ 2,604 $ 8,898 $ 8,400 $ 9,569 $ 4,500 $ 11,610 $ 2,850 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Business and Summary of Significant Accounting Policies Business First Guaranty Bancshares, Inc. ("First Guaranty" or the “Company”) is a Louisiana corporation headquartered in Hammond, LA.  First Guaranty  owns all of the outstanding shares of common stock of First Guaranty Bank. First Guaranty Bank (the “Bank”) is a Louisiana state-chartered commercial bank that provides a diversified range of financial services to consumers and businesses in the communities in which it operates. These services include consumer and commercial lending, mortgage loan origination, the issuance of credit cards and retail banking services. The Bank also maintains an investment portfolio comprised of government, government agency, corporate and municipal securities. The Bank has twenty-one banking offices, including one drive-up banking facility, and twenty-seven automated teller machines (ATMs) in Southeast, Southwest and North Louisiana. Summary of significant accounting policies The accounting and reporting policies of First Guaranty conform to generally accepted accounting principles and to predominant accounting practices within the banking industry. The more significant accounting and reporting policies are as follows: Consolidation The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc., and its wholly owned subsidiary, First Guaranty Bank. All significant intercompany balances and transactions have been eliminated in consolidation. Acquisition Accounting Acquisitions are accounted for under the purchase method of accounting. Purchased assets, including identifiable intangibles and assumed liabilities are recorded at their respective acquisition date fair values. If the fair value of net assets purchased exceeds the consideration given, a gain on acquisition is recognized. If the consideration given exceeds the fair value of the net assets received, goodwill is recognized. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses. See Acquired Loans section below for accounting policy regarding loans acquired in a business combination. 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 relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the valuation of investment securities. In connection with the determination of the allowance for loan losses and real estate owned, First Guaranty  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 First Guaranty reviews its financial position, liquidity and future plans in evaluating the criteria for classifying investment securities. 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 AFS securities is excluded from income and is reported, net of deferred taxes, in accumulated other comprehensive income as a part of shareholders’ equity. Details of other comprehensive income are reported in the consolidated statements of comprehensive icome. Realized gains and losses on securities are computed based on the specific identification method and are reported as a separate component of other income. Amortization of premiums and discounts is included in interest income. Discounts and premiums related to debt securities are amortized using the effective interest rate method. Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  In estimating other-than-temporary losses, management considers the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer.  Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.  For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.  Loans held for sale Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Loans held for sale have primarily been fixed rate single-family residential mortgage loans under contract to be sold in the secondary market. In most cases, loans in this category are sold within thirty days. Buyers generally have recourse to return a purchased loan under limited circumstances. Recourse conditions may include early payment default, breach of representations or warranties and documentation deficiencies. Mortgage loans held for sale are generally sold with the mortgage servicing rights released. Gains or losses on sales of mortgage loans are recognized based on the differences between the selling price and the carrying value of the related mortgage loans sold. Loans Loans are stated at the principal amounts outstanding, net of unearned income and deferred loan fees. In addition to loans issued in the 85 2015 ANNUAL REPORT normal course of business, overdrafts on customer deposit accounts are considered to be loans and reclassified as such. Interest income on all classifications of loans is calculated using the simple interest method on daily balances of the principal amount outstanding. Accrual of interest is discontinued on a loan when Management believes, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that reasonable doubt exists as to the full and timely collection of principal and interest. This evaluation is made for all loans that are 90 days or more contractually past due. When a loan is placed in 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 to be collected within a reasonable time frame and when the borrower has demonstrated payment performance of cash or cash equivalents; generally for a period of six months. All loans, except mortgage loans, are considered past due if they are past due 30 days. Mortgage loans are considered past due when two consecutive payments have been missed. Loans that are past due 90-120 days and deemed uncollectible are charged-off. The loan charge off is a reduction of the allowance for loan losses. Troubled Debt Restructurings (TDRs) TDRs are loans in which the borrower is experiencing financial difficulty at the time of restructuring, and the Bank has granted a concession to the borrower.  TDRs are undertaken in order to improve the likelihood of recovery on the loan and may take the form of modifications made with the stated interest rate lower than the current market rate for new debt with similar risk, other modifications to the structure of the loan that fall outside of normal underwriting policies and procedures, or in limited circumstances forgiveness of principal and / or interest.  TDRs can involve loans remaining on non-accrual, moving to non-accrual or continuing on accrual status, depending on the individual facts and circumstances of the borrower.  TDRs are subject to policies governing accrual and non-accrual evaluation consistent with all other loans as discussed in the “Loans” section above.  All loans with the TDR designation are considered to be impaired, even if they are accruing.  First Guaranty's policy is to evaluate TDRs that have subsequently been restructured and returned to market terms after 12 months of performance.  The evaluation includes a review of the loan file and analysis of the credit to assess the loan terms, including interest rate to insure such terms are consistent with market terms.  The loan terms are compared to a sampling of loans with similar terms and risk characteristics, including loans originated by First Guaranty and loans lost to a competitor.  The sample provides a guide to determine market terms pursuant to ASC 310-40-50-2.  The loan is also evaluated at that time for impairment  A loan determined to be restructured to market terms and not considered impaired will no longer be disclosed as a TDR in the years following the restructuring.  These loans will continue to be individually evaluated for impairment.  A loan determined to either be restructured to below market terms or to be impaired will remain a TDR.  Credit Quality First Guaranty's credit quality indicators are pass, special mention, substandard and doubtful. Loans included in the pass category are performing loans with satisfactory debt coverage ratios, collateral, payment history and documentation requirements. 86 Special mention loans have potential weaknesses that deserve close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons litigation, an ineffective loan agreement or other material structural weakness and any other significant deviation from prudent lending practices. include management problems, pending A substandard loan is inadequately protected by the paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness. They are characterized by the distinct possibility that First Guaranty will sustain some loss if the deficiencies are not corrected. These loans require more intensive supervision. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity or marginal capitalization. Repayment may depend on collateral or other credit risk mitigates. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and interest is no longer accrued. Consumer loans that are 90 days or more past due or that are nonaccrual are considered substandard. Doubtful loans have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values. A loan is considered impaired when, based on current information and events, it is probable that First Guaranty will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by Management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. This process is only applied to impaired loans or relationships in excess of $250,000. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures, unless such loans are the subject of a restructuring agreement. Loans that have been restructured in a troubled debt restructuring will continue to be evaluated individually for impairment, including those no longer requiring disclosure. Acquired Loans Loans are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses. Acquired loans are segregated between those with deteriorated credit quality at acquisition and those deemed as performing. To make this determination, Management considers such factors as past due status, nonaccrual status, credit risk ratings, interest rates and collateral position. The fair value of acquired loans deemed performing is determined by discounting cash flows, both principal and interest, for each pool at prevailing market interest rates as well as consideration of inherent potential losses. The difference between the fair value and principal Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. balances due at acquisition date, the fair value discount, is accreted into income over the estimated life of each loan pool. Loans acquired in a business combination are recorded at their estimated fair value on their purchase date with no carryover of the related allowance for loan losses. Performing acquired loans are subsequently evaluated for any required allowance at each reporting date. An allowance for loan losses is calculated using a similar methodology for originated loans. Loan fees and costs Nonrefundable loan origination and commitment fees and direct costs associated with originating loans are deferred and recognized over the lives of the related loans as an adjustment to the loans' yield using the level yield method. Allowance for loan losses The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when Management believes that the collectability of the principal is unlikely. The allowance, which is based on evaluation of the collectability of loans and prior loan loss experience, is an amount that, in the opinion of Management, reflects the risks inherent in the existing loan portfolio and exists 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, historical losses, 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 additional recognition of losses based on their judgments about information available to them at the time of their examination. The following are general credit risk factors that affect First Guaranty's loan portfolio segments.  These factors do not encompass all risks associated with each loan category.  Construction and land development loans have risks associated with interim construction prior to permanent financing and repayment risks due to the future sale of developed property.  Farmland and agricultural loans have risks such as weather, government agricultural policies, fuel and fertilizer costs and market price volatility.  1-4 family, multi-family, and consumer credits are strongly influenced by employment levels, consumer debt loads and the general economy.  Non-farm non-residential  loans include both owner occupied real estate and non-owner occupied real estate.  Common risks associated with these properties is the ability to maintain tenant leases and keep lease income at a level able to service required debt and operating expenses.  Commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral. 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, First Guaranty may ultimately incur losses that vary from Management's current estimates. Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or can be reasonably estimated. All loan losses are charged to the allowance for loan losses when the loss actually occurs or when the collectability 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, and impaired. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Also, a specific reserve is allocated for syndicated loans. The general component covers non-classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses. The allowance for loan losses is reviewed on a monthly basis. The monitoring of credit risk also extends to unfunded credit commitments, such as unused commercial credit lines and letters of credit. A reserve is established as needed for estimates of probable losses on such commitments. Goodwill and intangible assets Goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. First Guaranty's goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment. Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill. If the implied fair value is less than the carrying amount, a loss would be recognized in other non-interest expense to reduce the carrying amount to implied fair value of goodwill. The goodwill impairment test includes two steps that are preceded by a, “step zero”, qualitative test. The qualitative test allows Management to assess whether qualitative factors indicate that it is more likely than not that impairment exists. If it is not more likely than not that impairment exists, then no impairment exists and the two step quantitative test would not be necessary. These qualitative indicators include factors such as earnings, share price, market conditions, etc. If the qualitative factors indicate that it is more likely than not that impairment exists, then the two step quantitative test would be necessary. Step one is used to identify potential impairment and compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Step two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit’s goodwill, an impairment loss is recognized in an amount equal to that excess. Identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own or in combination with the related contract, asset or liability. First Guaranty's intangible assets primarily relate to core deposits. These core deposit intangibles are amortized on a straight-line basis over terms ranging from seven to fifteen years. Management periodically evaluates whether events or circumstances have occurred that impair this deposit intangible. 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 87 2015 ANNUAL REPORT Expenditures for renewals and betterments are capitalized and depreciated over their estimated useful lives. Repairs, maintenance and minor improvements are charged to operating expense as incurred. Gains or losses on disposition, if any, are recorded as a separate line item in noninterest income on 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 expense. 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. participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. See Note 21 for a detailed description of fair value measurements. 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 (i) the assets have been isolated from First Guaranty, (ii) 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 (iii) First Guaranty does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Earnings per common share Off-balance sheet financial instruments In the ordinary course of business, First Guaranty has entered into commitments to extend credit, including commitments under credit card arrangements, commitments to fund commercial real estate, construction and land development loans secured by real estate and performance standby letters of credit. Such financial instruments are recorded when they are funded. income available Earnings per share represents to common shareholders divided by the weighted average number of common shares outstanding during the period. In  December of 2015, First Guaranty issued a pro rata, 10% common stock dividend. The shares issued for the stock dividend have been retrospectively factored into the calculation of earnings per share as well as cash dividends paid on common stock and represented on the face of the financial statements. No convertible shares of First Guaranty's stock are outstanding. Income taxes Operating Segments First Guaranty and its subsidiary file a consolidated federal income tax return on a calendar year basis. In lieu of Louisiana state income tax, the Bank is subject to the Louisiana bank shares tax, which is included in noninterest expense in First Guaranty's consolidated financial statements. With few exceptions, First Guaranty is no longer subject to U.S. federal, state or local income tax examinations for years before 2012.  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 basis. 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 Comprehensive Income. Fair Value Measurements The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market 88 All of First Guaranty's operations are considered by management to be aggregated into one reportable operating segment. While the chief decision-makers monitor the revenue streams of the various products and services, the identifiable segments are not material. Operations are managed and financial performance is evaluated on a Company- wide basis. Reclassifications Certain reclassifications have been made to prior year end financial statements in order to conform to the classification adopted for reporting in 2015. Note 2. Recent Accounting Pronouncements In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." The amendments in this guidance require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. This guidance must be adopted retrospectively, wherein the balance sheet of each period presented should be adjusted to reflect the new guidance. First Guaranty has elected early adoption of this guidance in 2015. The adoption of this guidance did not have a material impact upon First Guaranty's financial statements.  No adjustments to prior year information was necessary upon the adoption of the guidance. In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments". The guidance eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. The Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. ASU is effective for annual and interim periods beginning after December 15, 2015. The adoption of this ASU is not expected to have a material effect on First Guaranty's Consolidated Financial Statements. In January  2016, the FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities". The ASU amendments include changes related to how certain equity investments are measured, recognize changes in the fair value of financial certain liabilities measured under the fair value option and disclose and present financial assets and liabilities on First Guaranty's consolidated financial statements. Additionally, the ASU will also require entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the statement of financial position or in the accompanying notes to the financial statements. Entities will also no longer have to disclose the methods and significant assumptions for financial instruments measured at amortized cost, but will be required to measure such instruments under the "exit price" notion for disclosure purposes. The ASU is effective for annual and interim periods beginning after December 15, 2017. The adoption of this ASU is not expected to have a material effect on First Guaranty's Consolidated Financial Statements. In February  2016, the FASB issued ASU 2016-02, "Conforming Amendments Related to Leases". This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. The ASU is effective for annual and interim periods beginning after December  15, 2018. The adoption of this ASU is not expected to have a material effect on First Guaranty's Consolidated Financial Statements. Note 3. Cash and Due from Banks Certain reserves are required to be maintained at the Federal Reserve Bank.  There was no reserve  requirement as of December 31, 2015 and 2014.  At December 31, 2015 First Guaranty had only one account at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000.  This account was over the insurable limit by $2,000. At December 31, 2014 First Guaranty had only one account at correspondent banks, excluding the Federal Reserve Bank, that exceeded the FDIC insurable limit of $250,000. This account was over the insurable limit by $1,000. Note 4. Securities A summary comparison of securities by type at December 31, 2015 and 2014 is shown below. December 31, 2015 December 31, 2014 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 Treasuries U.S. Government Agencies Corporate debt securities Mutual funds or other equity securities Municipal bonds Mortgage-backed securities $ 29,999 $ - $ - $ 29,999 $ 36,000 $ - $ - $ 36,000 165,364 105,680 580 47,339 28,891 - (1,553 ) 163,811 295,620 30 (4,155) 291,495 2,259 (2,803 ) 105,136 126,654 4,415 (1,006) 130,063 2 899 - - (5) 582 570 4 48,233 40,599 1,077 (283 ) 28,608 - - - - - 574 41,676 - Total available-for-sale securities $ 377,853 $3,160 $(4,644) $ 376,369 $ 499,443 $5,526 $(5,161) $ 499,808 Held to maturity: U.S. Government Agencies Mortgage-backed securities $ 77,343 $ - $ (721) $ 76,622 $ 84,479 $ - $(1,950) $ 82,529 92,409 9 (892) 91,526 57,316 57 (214) 57,159 Total held to maturity securities $169,752 $ 9 $(1,613) $168,148 $141,795 $ 57 $(2,164) $139,688 89 2015 ANNUAL REPORT The scheduled maturities of securities at December 31, 2015, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to call or prepayments. Mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages. For this reason they are presented separately in the maturity table below. Available-for-sale: Due in one year or less Due after one year through five years Due after five years through 10 years Over 10 years Subtotal Mortgage-backed Securities Total available-for-sale securities Held to maturity: Due in one year or less Due after one year through five years Due after five years through 10 years Over 10 years Subtotal Mortgage-backed Securities Total held to maturity securities December 31, 2015 Amortized Cost Fair Value (in thousands ) $ 38,847 $ 38,905 138,704 124,736 46,675 348,962 28,891 138,924 122,706 47,226 347,761 28,608 $377,853 $376,369 $ - 21,803 55,540 - 77,343 92,409 $ - $ 21,545 55,077 - 76,622 91,526 $169,752 $168,148 The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses as of the dates indicated: At December 31, 2015 Less Than 12 Months 12 Months or More Total Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (in thousands except for %) Available-for-sale: U.S. Treasuries U.S. Government agencies Corporate debt securities Mutual funds or other equity securities Municipal bonds Mortgage-backed securities Total available-for-sale securities 2 49 112 - 2 14 179 $ - $ - (632) (1,294) 139 $ 9,999 $ - 116,473 (921) 31,414 (1,509) - 679 - (5) 28,608 (283) - 11 27 - - - 47,338 5,344 - - - - - - $ 187,173 $ (2,718) 38 $52,682 $ (1,926) Held to maturity: U.S. Government agencies Mortgage-backed securities Total held to maturity securities 90 16 39 55 $ 51,865 $ (404)  82,863 (892) $134,728 $(1,296) 7 - 7 $23,852 $ (317) - - $23,852 $ (317) 2 60 - 2 14 217 23 39 62 $ 9,999 $ - 163,811 36,758 (1,553) (2,803) - 679 - (5) 28,608 (283) $ 239,855 $ (4,644) $ 75,717 $ (721) 82,863 (892) $ 158,580 $(1,613) Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. At December 31, 2014 Less Than 12 Months 12 Months or More Total Number of Securities Fair Value Gross Unrealized Losses Number of Securities Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Fair Value (in thousands) Available-for-sale: U.S. Treasuries U.S. Government Agencies Corporate debt securities Mutual funds or other equity securities Municipal bonds 4 4 37 - - $ 24,000 $ - 43,983 15,395 - - (17) (238) - - - 66 50 - - $ - $ - 232,482 (4,138) 15,397 (768) - - - - 4 70 87 - - $24,000 $ - 276,465 (4,155) 30,792 (1,006) - - - - Total available-for-sale securities 45 $ 83,378 $(255) 116 $247,879 $(4,906) 161 $331,257 $(5,161) Held to maturity: U.S. Government agencies Mortgage-backed securities Total held to maturity securities 1 7 8 $ 4,993 $ (7) 12,008 (13) $17,001 $ (20) 19 12 31 $ 77,536 $(1,943) 29,415 (201) $106,951 $(2,144) 20 19 39 $ 82,529 $ (1,950) 41,423 (214) $123,952 $(2,164) As of December 31, 2015, 279 of First Guaranty's debt securities had unrealized losses totaling 1.5% of the individual securities’ amortized cost basis and 1.1% of First Guaranty's total amortized cost basis of the investment securities portfolio. 45 of the 279 securities had been in a continuous loss position for over 12 months at such date.  The 45 securities had an aggregate amortized cost basis of $78.8 million and an unrealized loss of $2.2 million at December 31, 2015.  Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery. Securities are evaluated for other-than-temporary impairment ("OTTI") at least quarterly and more frequently when economic or market conditions warrant. Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of First Guaranty to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Investment securities issued by the U.S. Government and Government sponsored agencies with unrealized losses and the amount of unrealized losses on those investment securities are the result of changes in market interest rates. First Guaranty has the ability and intent to hold these securities until recovery, which may not be until maturity. Corporate debt securities in a loss position consist primarily of corporate bonds issued by businesses in the financial, insurance, utility, manufacturing, industrial, consumer products and oil and gas industries. Two issuers were determined during 2015 to have other- than-temporary impairment losses.  First Guaranty believes that the remaining issuers will be able to fulfill the obligations of these securities based on evaluations described above. First Guaranty has the ability and intent to hold these securities until they recover, which could be at their maturity dates. 91 2015 ANNUAL REPORT Non-credit related other-than-temporary impairment losses recognized in other comprehensive income totaled $0.4 million in 2015 and zero in 2014. The impairment losses were related to two available for sale corporate bond securities, described  above,  which had original amortized cost of $0.8 million.  At December 31, 2015 and 2014 the carrying value of pledged securities totaled $427.4 million and $516.5 million, respectively. First Guaranty completed its liquidation of the common stock from a converted preferred security in the third quarter of 2015. The total gains realized on the security were $2.7 million. Gross realized gains on sales of securities were $3.3 million (including the sale of the converted preferred security), $0.2 million and $1.4 million for the years ended December 31, 2015, 2014 and 2013, respectively. Gross realized losses were $0.4 million, $0.2 million  and $0 for the years ended December 31, 2015, 2014 and 2013. The tax applicable to these transactions amounted to $1.2 million, $0 million and $0.5 million for 2015, 2014 and 2013, respectively. Proceeds from sales of securities classified as available-for-sale amounted to $290.0 million, $109.8 million and $18.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. Net unrealized  losses on available-for-sale securities  included in accumulated other comprehensive income (loss)  ("AOCI"), net of applicable income taxes, totaled $0.9 million at December 31, 2015. At December 31, 2014  net unrealized gains included in AOCI, net of applicable income taxes,  totaled $0.2 million. During 2015 and 2014  gains, net of tax, reclassified out of AOCI into earnings  totaled $2.1 million and $0.2 million, respectively. During the years ended December 31, 2015, First Guaranty recorded OTTI losses on available-for-sale securities as follows: Total OTTI charge realized and unrealized OTTI recognized in other comprehensive income (non-credit component) Net impairment losses recognized in earnings (credit component) Year Ended December 31, 2015 (in thousands) $ 571 396 $ 175 There were no other-than-temporary impairment losses recognized on securities in 2014 or 2013. The following table presents a roll-forward of the amount of credit losses on debt securities held by First Guaranty for which a portion of OTTI was recognized in other comprehensive income for the year end year ended December 31, 2015: (in thousands) Beginning balance of credit losses at December 31, 2014 Other-than-temporary impairment credit losses on securities not previously OTTI Increases for additional credit losses on securities previously determined to be OTTI Reduction for increases in cash flows Reduction due to credit impaired securities sold or fully settled Ending balance of cumulative credit losses recognized in earnings at December 31, 2015 $ - 175 - - - $175 In 2015 there were no other-than-temporary impairment credit losses on securities for which we had previously recognized OTTI. The amount related to losses on securities with no previous losses amounted to $0.2 million at December 31, 2015.  For securities that have indications of credit related impairment, management analyzes future expected cash flows to determine if any credit related impairment is evident.   Estimated cash flows are determined using Management's best estimate of future cash flows based on specific assumptions.  The assumptions used to determine the cash flows were based on estimates of loss severity and credit default probabilities.  Management reviews reports from credit rating agencies and public filings of issuers.  The credit related impairment was related to one corporate debt security with a book balance of $0.5 million that experienced declines in its financial performance associated with the mining industry.  This corporate debt security had a non-credit related impairment of $0.3 million.  A second corporate debt security had a non-credit related impairment of $0.1 million due to the fact that the issuer went private and liquidity in its debt securities was reduced.  Management anticipates receipt of all scheduled cash flows for this security. 92 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. At December 31, 2015, First Guaranty's exposure to investment securities issuers that exceeded 10% of shareholders’ equity as follows: Note 5. Loans The following table summarizes the components of First Guaranty's loan portfolio as of the dates indicated: At December 31, 2015 Amortized Cost Fair Value (in thousands) $ 29,999 $ 29,999 U.S. Treasuries Federal Home Loan Bank (FHLB) 85,507 84,689 Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC) Federal National Mortgage Association (Fannie Mae-FNMA) Federal Farm Credit Bank (FFCB) Total 66,271 65,589 127,504 126,294 84,726 83,996 $394,007 $390,567 December 31, 2015 2014 Balance As % of Category Balance As % of Category (in thousands except for %) $ 56,132 17,672 6.6% 2.1% $ 52,094 13,539 6.6% 1.7% 129,610 15.4% 118,181 14.9% 12,629 1.5% 14,323 1.8% 323,363 38.3% 328,400 41.5% 539,406 63.9% 526,537 66.5% 25,838 3.1% 26,278 3.3% 224,201 26.6% 196,339 24.8% Real Estate: Construction & land development Farmland 1-4 Family Multifamily Non-farm non- residential Total Real Estate Non-real Estate: Agricultural Commercial and industrial Consumer and other 54,163 6.4% 42,991 5.4% Total Non-real Estate 304,202 36.1% 265,608 33.5% Total Loans Before Unearned Income Unearned income Total Loans Net of Unearned Income 843,608 100.0% 792,145 100.0% (2,025) (1,824) $841,583 $790,321 The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of December 31, 2015 and December 31, 2014 unadjusted for scheduled principal payments, prepayments, or repricing opportunities. The average life of the loan portfolio may be substantially less than the contractual terms when these adjustments are considered. One year or less One to five years Five to 15 years Over 15 years Subtotal Nonaccrual loans Total Loans Before Unearned Income Unearned income Total Loans Net of Unearned Income 2015 December 31, (in thousands) 2014 Fixed Floating Total Fixed Floating Total $ 86,975 $ 48,111 $ 135,086 $ 88,686 $ 72,250 $ 160,936 315,685 246,374 562,059 253,306 225,655 49,197 36,438 31,456 9,333 80,653 45,771 67,012 25,304 39,634 8,104 478,961 106,646 33,408 $488,295 $335,274 823,569 $434,308 $345,643 779,951 20,039 843,608 (2,025) $841,583 12,194 792,145 (1,824) $790,321 93 2015 ANNUAL REPORT As of December 31, 2015, $132.9 million of floating rate loans were at their interest rate floor. At December 31, 2014, $195.7 million of floating rate loans were at the floor rate. Nonaccrual loans have been excluded from these totals. The following tables present the age analysis of past due loans for the periods indicated: As of December 31, 2015 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current (in thousands) Total Loans Recorded Investment 90 Days Accruing Real Estate: Construction & land development $ 12 $ Farmland 1 - 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Loans Before Unearned Income Unearned income Total Loans Net of Unearned Income - 2,546 - 1,994 4,552 2,346 314 965 3,625 $8,177 558 136 4,929 9,045 2,934 $ 570 136 7,475 9,045 4,928 $ 55,562 $ 56,132 $ - 17,536 17,672 122,135 129,610 3,584 12,629 318,435 323,363 19 391 - - 17,602 22,154 517,252 539,406 410 2,628 48 171 2,847 4,974 362 1,136 6,472 20,864 25,838 223,839 224,201 53,027 54,163 297,730 304,202 - - - - $20,449 $28,626 $814,982 843,608 $410 As of December 31, 2014 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current (in thousands) (2,025) $841,583 Total Loans Recorded Investment 90 Days Accruing Real Estate: Construction & land development $ 338 $ 486 $ 824 $ 51,270 $ 52,094 $ Farmland 1 - 4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate 10 2,924 2,990 1,509 7,771 - 1,241 105 1,346 - - 153 163 13,376 13,539 4,418 7,342 110,839 118,181 599 - 2,990 11,333 14,323 4,993 6,502 321,898 328,400 - - 10,050 17,821 508,716 526,537 599 832 832 25,446 26,278 1,907 3,148 193,191 196,339 4 109 42,882 42,991 2,743 4,089 261,519 265,608 - - - - Total Loans Before Unearned Income $9,117 $12,793 $21,910 $770,235 792,145 $599 Unearned income Total Loans Net of Unearned Income (1,824) $790,321 The tables above include $20.0 million and $12.2 million of nonaccrual loans for December 31, 2015 and 2014, respectively. 94 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. See the tables below for more detail on nonaccrual loans. The following is a summary of nonaccrual loans by class for the periods indicated: As of December 31, 2015 2014 (in thousands) Real Estate: Construction & land development $ Farmland 1-4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Nonaccrual Loans 558 117 4,538 9,045 2,934 17,192 2,628 48 171 2,847 $ 486 153 3,819 - 4,993 9,451 832 1,907 4 2,743 $20,039 $12,194 The following table identifies the credit exposure of the loan portfolio by specific credit ratings for the periods indicated: As of December 31, 2015 As of December 31, 2014 Pass Special Mention Sub- standard Doubtful Total Pass Special Mention Sub- standard Doubtful Total (in thousands) Real Estate: Construction & land development $ 51,681 $ 386 $ 4,065 $ Farmland 1-4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other 17,554 115,878 3,584 - 6,425 - 118 7,307 9,045 296,682 3,288 23,393 485,379 10,099 43,928 20,860 214,184 53,779 4 471 178 653 4,974 9,546 206 14,726 $10,752 $58,654 $ Total Non-Real Estate 288,823 Total Loans Before Unearned Income $ 774,202 Unearned income Total Loans Net of Unearned Income - - - - - - - - - - - $56,132 $ 46,451 $ 559 $ 5,084 $ 17,672 13,299 129,610 103,582 12,629 3,581 323,363 300,319 87 6,113 6,414 6,788 153 8,486 4,328 21,293 539,406 467,232 19,961 39,344 25,838 22,789  224,201 185,839 54,163 42,831 7 8,611 123 3,482 1,889 37 304,202 251,459 8,741 5,408 843,608 $ 718,691 $28,702 $ 44,752 $ (2,025) $841,583 - - - - - - - - - - - $52,094 13,539 118,181 14,323 328,400 526,537 26,278 196,339 42,991 265,608 792,145 (1,824) $790,321 95 2015 ANNUAL REPORT Note 6. Allowance for Loan Losses A summary of changes in the allowance for loan losses, by loan type, for the years ended December 31, 2015, 2014 and 2013 are as follows: As of December 31, 2015 2014 Beginning Allowance (12/31/14) Charge- Offs Recoveries Provision Ending Allowance (12/31/15) Beginning Allowance (12/31/13) Charge- Offs Recoveries Provi- sion Ending Allowance (12/31/14) (in thousands) Real Estate: Construction & land development Farmland 1-4 family Multifamily Non-farm non- residential Total Real Estate Non-Real Estate: Agricultural $ 702 $(559) $ 5 $ 814 $ 962 $ 1,530 $(1,032) $ 6 $ 198 $ 702 21 2,131 813 - (410) (947) 2,713 (1,137) 6,380 (3,053) - 94 46 5 150 33 (44) 645 1,717 3,165 54 1,771 557 3,298 6,642 17 1,974 376 - (589) - 3,607 (1,515) - 99 49 9 4 647 388 612 7,504 (3,136) 163 1,849 21 2,131 813 2,713 6,380 293 (491) 3 211 16 46 (2) 1 248 293 Commercial and industrial Consumer and other Unallocated 1,797 371 264 (79) (550) - Total Non-Real Estate 2,725 (1,120) 315 151 - 469 494 258 (264) 699 Total $ 9,105 $(4,173) $619 $3,864 2,527 230 - 2,773 $9,415 2,176 208 421 (266) (289) - 2,851 (557) 118 199 - 318 (231 ) 253 (157 ) 113 $10,355 $(3,693) $481 $1,962 1,797 371 264 2,725 $9,105 As of December 31, 2013 Beginning Allowance (12/31/12) Charge- Offs Ending Allowance (12/31/13) Recoveries Provision (in thousands) Real Estate: Construction & land development $ 1,098 $ (233) $ 10 $ 655 $ 1,530 Farmland 1-4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated Total Non-Real Estate Total 50 2,239 284 (31) (220) - 3,666 (1,148) 7,337 (1,632) 64 (41) 2,488 (1,098) 233 220 (262) - 3,005 (1,401) $ 10,342 $(3,033) 140 49 - 8 207 5 71 243 - 319 $ 526 (142) (94) 92 1,081 1,592 18 715 (6) 201 928 17 1,974 376 3,607 7,504 46 2,176 208 421 2,851 $2,520 $10,355 96 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Negative provisions are caused by changes in the composition and credit quality of the loan portfolio. The result is an allocation of the loan loss reserve from one category to another. A summary of the allowance and loans individually and collectively evaluated for impairment are as follows: As of December 31, 2015 Allowance Individually Evaluated for Impairment Allowance Collectively Evaluated for Impairment Total Allowance for Credit Losses Loans Individually Evaluated for Impairment Loans Collectively Evaluated for Impairment Total Loans before Unearned Income (in thousands) Real Estate: Construction & land development $ - $ 962 $ 962 $ 368 $ 55,764 $ 56,132 Farmland 1-4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated Total Non-Real Estate Total Unearned Income Total Loans Net of Unearned Income - 611 454 1,298 2,363 - - - - - 54 1,160 103 2,000 4,279 16 2,527 230 - 54 1,771 557 3,298 6,642 16 2,527 230 - - 3,049 9,045 13,646 26,108 17,672  17,672  126,561 129,610 3,584 12,629 309,717 323,363 513,298 539,406 4,863 20,975 25,838 - 171 - 224,201 224,201 53,992 54,163 - - 2,773 2,773 5,034 299,168 304,202 $2,363 $7,052 $9,415 $31,142 $812,466 843,608 (2,025) $841,583 As of December 31, 2014 Allowance Individually Evaluated for Impairment Allowance Collectively Evaluated for Impairment Total Allowance for Credit Losses Loans Individually Evaluated for Impairment Loans Collectively Evaluated for Impairment Total Loans before Unearned Income (in thousands) Real Estate: Construction & land development $ 126 $ 576 $ 702 $ 4,150 $ 47,944 $ 52,094 Farmland 1-4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Unallocated Total Non-Real Estate Total Unearned Income Total Loans Net Of Unearned Income - 598 437 468 1,629 262 19 - - 281 $1,910 21 1,533 376 2,245 4,751 31 1,778 371 264 2,444 $7,195 21 2,131 813 2,713 6,380 293 1,797 371 264 2,725 $9,105 - 3,420 7,201 13,539 13,539 114,761 118,181 7,122 14,323 16,287 312,113 328,400 31,058 495,479 526,537 2,650 1,664 - - 23,628 26,278 194,675 196,339 42,991 42,991 - - 4,314 261,294 265,608 $35,372 $756,773 792,145 (1,824) $790,321 97 2015 ANNUAL REPORT As of December 31, 2015, 2014 and 2013, First Guaranty had loans totaling $20.0 million, $12.2 million and $14.5 million, respectively, not accruing interest. As of December 31, 2015, 2014 and 2013, First Guaranty had loans past due 90 days or more and still accruing interest totaling $0.4 million, $0.6 million and $0.4 million, respectively. The average outstanding balance of nonaccrual loans in 2015 was $14.9 million compared to $13.8 million in 2014 and $17.3 million in 2013. Included in the above table is a loan for $5.3 million and $5.9 million at  December 31, 2015 and 2014, respectively, that is no longer considered impaired but is still individually evaluated for impairment since it was formally a restructured credit that subsequently return to market terms. As of December 31, 2015, First Guaranty has no outstanding commitments to advance additional funds in connection with impaired loans. The following is a summary of impaired loans by class at December 31, 2015: As of December 31, 2015 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Interest Income Cash Basis (in thousands) Impaired Loans with no related allowance: Real Estate: Construction & land development $ 368 $ 823 $ - $ 825 $ 41 $ 44 Farmland 1-4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Impaired Loans with no related allowance Impaired Loans with an allowance recorded: Real estate: Construction & land development Farmland 1-4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate - 1,054 3,728 3,637 - 1,358 4,240 4,116 8,787 10,537 4,863 5,019 - 171 - 317 5,034 5,336 13,821 15,873 - - - - 1,995 2,144 - - 10,009 10,841 12,004 12,985 - - - - - - - - - - - - - - - - - - - - 611 - 1,298 1,909 - - - - - 1,354 4,305 4,124 10,608 5,036 - 335 5,371 15,979 - - 2,079 - 11,035 13,114 - - - - - 79 254 165 539 300 - 27 327 866 - - 103 - 566 669 - - - - - 84 72 147 347 300 - 20 320 667 - - 125 - 569 694 - - - - Total Impaired Loans with an allowance recorded 12,004 12,985 1,909 13,114 669 694 Total Impaired Loans $25,825 $28,858 $1,909 $29,093 $1,535 $1,361 98 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. The following is a summary of impaired loans by class at December 31, 2014: As of December 31, 2014 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Interest Income Cash Basis (in thousands) Impaired Loans with no related allowance: Real Estate: Construction & land development $ 3,308 $ 4,359 $ - $ 3,479 $ 217 $ 224 Farmland 1-4 family Multifamily Non-farm non-residential Total Non-Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate - - 1,368 1,656 - - 7,439 9,008 12,115 15,023 - - - - - - - - Total Impaired Loans with no related allowance 12,115 15,023 - - - - - - - - - - - 397 148 8,694 12,718 - - - - - 72 31 422 742 - - - - - 43 34 275 576 - - - - 12,718 742 576 Impaired Loans with an allowance recorded: Real Estate: Construction & land development Farmland 1-4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate 842 - 2,052 1,338 8,848 842 - 2,068 1,337 8,913 126 - 598 398 468 829 - 2,062 1,340 8,948 13,080 13,160 1,590 13,179 2,650 1,664 - 2,650 1,854 - 4,314 4,504 262 19 - 281 - - - - 48 - 97 60 317 522 - - - - 43 - 87 55 327 512 - - - - Total Impaired Loans with an allowance recorded 17,394 17,664 1,871 13,179 522 512 Total Impaired Loans $29,509 $32,687 $1,871 $25,897 $1,264 $1,088 99 2015 ANNUAL REPORT Troubled Debt Restructurings A Troubled Debt Restructuring ("TDR") is a debt restructuring in which the creditor for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The modifications to  First Guaranty's TDRs were concessions on the interest rate charged. The effect of the modifications to First Guaranty was a reduction in interest income. These loans were evaluated in First Guaranty's reserve for loan losses.  In 2015, there was one credit relationship in the amount of $0.4 million that was restructured in a troubled debt restructuring. The relationship was secured by raw land. The relationship was placed on interest only with a reduction in scheduled amortization payments and contractual interest rate. In 2014, there was one credit relationship in the amount of $2.2 million that was restructured in a troubled debt restructuring. The relationship was secured by 1- 4 family real estate and a non-farm non-residential real estate property. The relationship was placed on interest only with a reduction in scheduled amortization payments and contractual interest rate. The following table is an age analysis of TDRs as of December 31, 2015 and December 31, 2014: Troubled Debt Restructurings December 31, 2015 December 31, 2014 Accruing Loans 30-89 Days Past Due Current Nonaccrual Total TDRs Accruing Loans 30-89 Days Current Past Due Nonaccrual Total TDRs Real Estate: Construction & land development $ Farmland 1-4 Family Multifamily Non-farm non residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total (in thousands) $ 368 $ 368 $ - - 1,702 1,702 - 206 2,276 - - - - - 3,637 5,707 - - - - - - - - 2,998 2,998 $ - - 1,752 - 452 2,204 - - - - - - - - $2,276 $5,707 $2,998 $ 2,204 - - - - - - - - - - - - $ - $ - - - 230 230 - - - - $230 - - 1,752 - 3,680 5,432 - - - - $5,432 $ - - - - 3,431 3,431 - - - - $3,431 $ The following table discloses TDR activity for the twelve months ended December 31, 2015. Trouble Debt Restructured Loans Activity Twelve Months Ended December 31, 2015 Beginning balance (December 31, 2014) Charge-Offs post- modification New TDRs Transferred to ORE Paydowns (in thousands) Construction to permanent financing Restructured to market terms Ending balance (December 31, 2015) Real Estate: Construction & land development $ - $ 368 $ - $ - - 1,752 - 3,680 5,432 - - - - - - - - 368 - - - - - - - (29) (29) - - - - - - - - - - - - - $ - - (50) - (14) (64) - - - - $ - $ - $ 368 - - - - - - - - - - - - - - - - - - - 1,702 - 3,637 5,707 - - - - $5,432 $ 368 $(29) $ - $(64) $ - $ - $5,707 Farmland 1-4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other Total Non-Real Estate Total Impaired Loans with no related allowance 1 00 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. There were no commitments to lend additional funds to debtors whose terms have been modified in a troubled debt restructuring at December 31, 2015. Note 7. Premises and Equipment The components of premises and equipment at December 31, 2015 and 2014 are as follows: Land Bank premises Furniture and equipment Construction in progress Acquired value Less: accumulated depreciation December 31, 2015 2014 (in thousands) $ 7,227 $ 6,933 18,914 21,060 2,667 49,868 27,849 18,324 19,995 254 45,506 26,295 Net book value $22,019 $19,211 Depreciation expense amounted to $1.6 million, $1.7 million and $1.7 million for 2015, 2014 and 2013, respectively. Note 8. Goodwill and Other Intangible Assets Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing. Other intangible assets continue to be amortized over their useful lives. Goodwill represents the purchase price over the fair value of net assets acquired from the Homestead Bancorp in 2007. No impairment charges have been recognized since acquisition. Goodwill totaled $2.0 million at December 31, 2015 and 2014. The following table summarizes intangible assets subject to amortization. December 31, 2015 2014 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (in thousands) Core deposit intangibles Mortgage servicing rights Total $9,350 267 $9,617 $ 8,052 171 $ 8,223 $1,298 96 $1,394 $9,350 267 $9,617 $7,732 152 $7,884 $1,618 115 $1,733 The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions. The weighted-average amortization period remaining for the core deposit intangibles is 4.4 years. Amortization expense relating to purchase accounting intangibles totaled $0.3 million, $0.3 million and $0.3 million for the year ended December 31, 2015, 2014 and 2013, respectively. Amortization expense of the core deposit intangible assets  for the next five years is as follows: For the Years Ended Estimated Amortization Expense December 31, 2016 December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 (in thousands) $ 320 $ 320 $ 320 $135 $135 101 2015 ANNUAL REPORT Note 9. Other Real Estate Other real estate owned consists of the following: The following schedule provides certain information about First Guaranty's short-term borrowings for the periods indicated: Real Estate Owned Acquired by Foreclosure: Residential Construction & land development Non-farm non-residential Total Other Real Estate Owned and Foreclosed Property December 31, 2015 2014 (in thousands) $880 $1,121 25 127  672 950 $1,577 $2,198 Note 10. Deposits A schedule of maturities of all time deposits are as follows: December 31, 2015 (in thousands) $401,535 118,340 18,697 28,209 25,229 $592,010 2016 2017 2018 2019 2020 and thereafter Total The table above includes, for December 31, 2015, brokered deposits totaling $26.7 million. The aggregate amount of jumbo time deposits, each with a minimum denomination of $250,000 totaled $305.1 million and $323.7 million at December 31, 2015 and 2014, respectively. Note 11. Borrowings Short-term borrowings are summarized as follows: December 31, 2015 December 31, 2014 (in thousands) Securities sold under agreements to repurchase Line of credit Total short-term borrowings $ - 1,800 $1,800 $ - 1,800 $1,800 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. First Guaranty no longer offered repurchase agreements beginning in April 2014. Available lines of credit totaled $206.2 million at December 31, 2015 and $266.7 million at December 31, 2014. December 31, 2015 2014 2013 (in thousands except for %) Outstanding at year end $ 1,800 $ 1,800 $ 5,788 Maximum month-end outstanding Average daily outstanding Weighted average rate during the year Average rate at year end $13,800 $ 4,217 $22,356 $ 6,960 $57,302 $21,387 2.12% 4.50% 1.08% 4.50% 0.98% 1.51% Long-term debt is summarized as follows: Senior long-term debt with a commercial bank, priced at Wall Street Journal Prime plus 75 basis points (4.00%), totaled $0.9 million at December 31, 2015 and $1.5 million at December 31, 2014. First Guaranty pays $50,000 principal plus interest monthly. This loan has a contractual maturity date of  May 12, 2017. This long-term debt is secured by a pledge of 13.2% (735,745 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary). Senior long-term debt with a commercial bank,  priced at floating 3-month LIBOR plus 250 basis points, totaled $25.0 million at December 31, 2015. First Guaranty pays $625,000 principal plus interest quarterly. This loan was originated in December 2015 and has a contractual maturity date of December 22, 2020. This long-term debt is secured by a pledge of 85% (4,823,899 shares) of First Guaranty's interest in First Guaranty Bank (a wholly owned subsidiary). Junior subordinated debt, priced at Wall Street Journal Prime plus 75 basis points (4.00%), totaled $14.6 million at December 31, 2015. First Guaranty pays interest semi-annually for the Fixed Interest Rate Period and quarterly for the Floating Interest Rate Period. The Note is unsecured and ranks junior in right of payment to any senior indebtedness and obligations to general and secured creditors. The Note was originated in December 2015  is scheduled to mature on December 21, 2025. Subject to limited exceptions, First Guaranty cannot repay the Note until after December 21, 2020. The Note qualifies for treatment as Tier 2 capital for regulatory capital purposes. First Guaranty maintains a revolving line of credit for $2.5 million with an availability of $0.7 million at December 31, 2015. This line of credit is secured by the same collateral as the senior term loan and is priced at 4.50%. At December 31, 2015, letters of credit issued by the FHLB totaling $195.0 million were outstanding and carried as off-balance sheet items, all of which expire in 2016. At December 31, 2014, letters of credit issued by the FHLB totaling $150.0 million were outstanding and carried as off-balance sheet items, all of which expired in 2015. The letters of credit are solely used for pledging towards public fund deposits. The FHLB has a blanket lien on substantially all of the loans in First Guaranty's portfolio which is used to secure borrowing availability from the FHLB. First Guaranty has obtained a subordination agreement from the FHLB on First Guaranty's farmland, agricultural and commercial and industrial loans. These loans are available to be pledged for additional reserve liquidity. 1 02 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. As of December 31, 2015  obligations on senior  long-term debt and junior subordinated debentures totalled $40.4 million.  The scheduled maturities are as follows: Senior Long-term Debt Junior Subordinated Debentures (in thousands) $ 3,100 $ 2016 2017 2018 2019 2020 2021 and thereafter Subtotal Debt issuance costs Total 2,755 2,500 2,500 2,500 12,500 $25,855 (31) $25,824 - - - - - 15,000 $15,000 (403) $14,597 Note 12. Preferred Stock On September 22, 2011, On September 22, 2011, First Guaranty received $39.4 million in funds from the U.S. Treasury's Small Business Lending Fund program. $21.1 million of the funds were used to redeem First Guaranty's Series A and B Preferred Stock issued to the U.S. Treasury under the Capital Purchase Program. The Preferred Series C shares  received quarterly dividends and the initial dividend rate was 5.00%. The dividend rate was based on qualified loan growth two quarters in arrears. During 2014 First Guaranty achieved the growth in qualified loans required to achieve the 1.0% dividend rate. The 1.0% rate was locked in until December 31, 2015. During 2015 First Guaranty paid $0.4 million in preferred stock dividends compared to $0.4 million in 2014 and $0.7 million in 2013. On December 22, 2015, First Guaranty redeemed all of the 39,435 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series C, that had been issued to the United States Department of Treasury pursuant to the Small Business Lending Fund (the "SBLF"). The shares were redeemed at their liquidation value of $1,000 per share plus accrued and unpaid dividends to, but excluding December 22, 2015, for a total redemption price of $39.5 million. The redemption was approved by the Federal Reserve Bank of Atlanta and the United States Department of Treasury.  The redemption terminated First Guaranty's participation in the SBLF. Note 13.Capital Requirements First Guaranty and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions that, if undertaken, could have a direct material effect on First Guaranty's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, First Guaranty and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulation to ensure capital adequacy require First Guaranty and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Management believes, as of December 31, 2015 and 2014, that First Guaranty and the Bank met all capital adequacy requirements. As of December 31, 2015, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that Management believes have changed the Bank’s category. 103 2015 ANNUAL REPORT First Guaranty's and the Bank’s actual capital amounts and ratios as of December 31, 2015 and 2014 are presented in the following table. Minimum Capital Requirements Minimum to be Well Capitalized Under Action Provisions Actual Amount Ratio Amount Ratio Amount Ratio (in thousands except for %) $141,022 13.13% $ 85,952 8.00% N/A N/A $148,316 13.86% $ 85,632 8.00% $107,040 10.00% $116,607 10.85% $ 64,464 6.00% N/A N/A $138,901 12.98% $ 64,224 6.00% $ 85,632 8.00% $116,607 8.17% $ 57,121 4.00% N/A N/A $138,901 9.74% $ 57,062 4.00% $ 71,328 5.00% $116,607  10.85% $ 48,348  4.50% N/A N/A $138,901  12.98% $ 48,168  4.50% $  69,576  6.50% $144,834 14.05% $ 82,486 8.00% N/A N/A $143,426 13.96% $ 82,170 8.00% $102,712 10.00% $135,727 13.16% $ 41,243 4.00% N/A N/A $134,319 13.08% $ 41,085 4.00% $ 61,627 6.00% $135,737 9.33% $ 58,173 4.00% N/A N/A $134,319 9.26% $ 58,025 4.00% $ 72,532 5.00% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A December 31, 2015 Total Risk-Based Capital: Consolidated Bank Tier 1 Capital: Consolidated Bank Tier 1 Leverage Capital: Consolidated Bank Common Equity Tier One Capital: Consolidated Bank December 31, 2014 Total Risk-Based Capital: Consolidated Bank Tier 1 Capital: Consolidated Bank Tier 1 Leverage Capital: Consolidated Bank Common Equity Tier One Capital: Consolidated Bank Note 14. Dividend Restrictions The Federal Reserve Bank ("FRB") has stated that, generally, a bank holding company should not maintain a rate of distributions to shareholders unless its available net income has been sufficient to fully fund the distributions, and the prospective rate of earnings retention appears consistent with the bank holding company’s capital needs, asset quality and overall financial condition. As a Louisiana corporation, First Guaranty is restricted under the Louisiana corporate law from paying dividends under certain conditions. First Guaranty Bank may not pay dividends or distribute capital assets if it is in default on any assessment due to the FDIC. First Guaranty Bank is also subject to regulations that impose minimum regulatory capital and minimum state law earnings requirements that affect the amount of cash available for distribution. In addition, under the Louisiana Banking Law, dividends may not be paid if it would reduce the unimpaired surplus below 50% of outstanding capital stock in any year. 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 by the Bank in 2016 without permission 1 04 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. will be limited to 2016 earnings plus the undistributed earnings of $3.5 million from 2015. Note 17. Other Expenses Accordingly, at January 1, 2016, $137.0 million of First Guaranty's equity in the net assets of the Bank was restricted. In addition, dividends paid by the Bank to First Guaranty would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. Note 15. Related Party Transactions In the normal course of business, First Guaranty and its  subsidiary, First Guaranty Bank,  have loans, deposits and other transactions with its executive officers, directors and certain business organizations and individuals with which such persons are associated. These transactions are completed with terms no less favorable than current market rates. An analysis of the activity of loans made to such borrowers during the year ended December 31, 2015 and 2014 follows: December 31, 2015 2014 (in thousands) $53,808 $49,951 4,008 3,857 $57,816 $53,808 Balance, beginning of year Net Increase Balance, end of year Unfunded commitments to First Guaranty and Bank directors and executive officers totaled $31.6 million and $19.7 million at December 31, 2015 and 2014, respectively. At December 31, 2015 First Guaranty and the Bank had deposits from directors and executives totaling $22.7 million. There were no participations in loans purchased from affiliated financial institutions included in First Guaranty's loan portfolio in 2015 or 2014. During the years ended 2015, 2014 and 2013, First Guaranty paid approximately $0.2 million, $0.2 million and $0.5 million, respectively, for printing services and supplies and office furniture and equipment to Champion Industries, Inc., of which Mr. Marshall T. Reynolds, the Chairman of First Guaranty's Board of Directors, is President, Chief Executive Officer, Chairman of the Board of Directors and a major shareholder of Champion. First Guaranty paid insurance expenses of $0, $2.3 million and $2.4 million for 2015, 2014 and 2013, respectively for participation in an employee medical benefit plan in which several entities under common ownership of First Guaranty's Chairman participate. First Guaranty terminated the plan in 2014 and enrolled in a fully insured plan from a third party national provider of health insurance. First Guaranty paid travel expenses to Sabre Transportation, Inc. of $0, $0 and $49,000 for 2015, 2014 and 2013, respectively. These expenses include the utilization of an aircraft, fuel, air crew and ramp fees. The Harrah and Reynolds Corporation, of which Mr. Reynolds is President and Chief Executive Officer and sole shareholder, has controlling interest in Sabre Transportation, Inc. Note 16. Employee Benefit Plans First Guaranty has an employee savings plan to which employees, who meet certain service requirements, may defer 1% to 20% of their base salaries,  6% of which may be matched up to 100%, at its sole discretion. Contributions to the savings plan were $86,000, $87,000 and $81,000 in 2015, 2014 and 2013, respectively.  First Guaranty has an Employee Stock Ownership Plan (“ESOP”) which was frozen in 2010. No contributions were made to the ESOP for the years 2015, 2014 or 2013. As of December 31, 2015, the ESOP held 14,653 shares.  First Guaranty does not plan to make future contributions to this plan. The following is a summary of the significant components of other noninterest expense: Other noninterest expense: Legal and professional fees Data processing Marketing and public relations Taxes - sales, capital and franchise Operating supplies Travel and lodging Telephone Amortization of core deposits Donations Net costs from other real estate and repossessions Regulatory assessment Other December 31, 2015 2014 2013 (in thousands) $2,019 $ 1,982 $ 2,347 1,184 1,153 1,269 848 717 414 818 172 320 332 700 605 410 566 242 320 150 638 584 487 563 206 320 294 493 1,111 3,326 1,374 1,181 3,143 941 1,784 3,237 Total other noninterest expense $11,754 $11,826 $12,670 First Guaranty does not capitalize advertising costs. They are expensed as incurred and are included in other noninterest expense on the Consolidated Statements of Income. Advertising expense was $0.6 million, $0.4 million and $0.4 million for 2015, 2014 and 2013, respectively. Note 18. Income Taxes The following is a summary of the provision for income taxes included in the Consolidated Statements of Income: December 31, 2015 2014 2013 (in thousands) Current Deferred Total $7,347 $4,898 $4,748 (384) 594 (171) $6,963 $5,492 $4,577 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: December 31, 2015 2014 2013 (in thousands except for %) Statutory tax rate 35.0% 35.0% 35.0% Federal income taxes at statutory rate Tax exempt municipal income Other Total $7,514 $5,851 $4,803 (436) (115) (284) (75) (133) (93) $6,963 $5,492 $4,577 105 2015 ANNUAL REPORT Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities, and available tax credit carryforwards. Temporary differences between the financial statement and tax values of assets and liabilities give rise to deferred taxes. The significant components of deferred taxes classified in First Guaranty's Consolidated Balance Sheets at December 31, 2015 and 2014 are as follows: Deferred tax assets: Allowance for loan losses Other real estate owned Unrealized losses on available for sale securities Other Gross deferred tax assets December 31, 2015 2014 (in thousands) $3,201 $3,096 127 148 445 541 - 407 4,314 3,651 Deferred tax liabilities: Depreciation and amortization Core deposit intangibles Unrealized gains on available for sale securities Other Gross deferred tax liabilities (1,588) (1,779) (441) (550) - (373) (124) (359) (2,402) (2,812) Net deferred tax assets $ 1,912 $ 839 As of December 31, 2015 and 2014, there were no net operating loss carryforwards for income tax purposes. ASC 740-10, Income Taxes, clarifies the accounting for uncertainty in income taxes and prescribes a recognition threshold and measurement attribute for the consolidated financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. First Guaranty does not believe it has any unrecognized tax benefits included in its consolidated financial statements. First Guaranty 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.  First Guaranty recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in noninterest expense. During the years ended December 31, 2015, 2014 and 2013, First Guaranty did not recognize any interest or penalties in its consolidated financial statements, nor has it recorded an accrued liability for interest or penalty payments. Note 19.  Commitments and Contingencies Off-balance sheet commitments First Guaranty is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments. The exposure to credit loss in the event of nonperformance by the 1 06 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. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk. Set forth below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at December 31, 2015 and December 31, 2014. December 31, 2015 2014 (in thousands) Contract Amount Commitments to Extend Credit $ 88,081 $ 59,675 Unfunded Commitments under lines of credit $ 107,581 $ 111,247 Commercial and Standby letters of credit $ 7,486 $ 7,743 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. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary 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 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. Collateral requirements are the same as on-balance sheet instruments and commitments to extend credit. There were no losses incurred on off-balance sheet commitments in 2015, 2014 or 2013. Note 20. Fair Value Measurements The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1 Inputs – Unadjusted quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds or credit risks) or inputs that are derived principally from or corroborated by market data by correlation or other means. Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification of such instruments within the valuation hierarchy. Securities available for sale. Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified Level 3 as of December 31, 2015 include municipal bonds and an equity security. Impaired loans. Loans are measured for impairment using the methods permitted by ASC Topic 310. Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation. Other real estate owned. Properties are recorded at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less, at the date acquired. Fair values of other real estate owned ("OREO") at December 31, 2015 and 2014 are determined by sales agreement or appraisal, and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Inputs include appraisal values or recent sales activity for similar assets in the property’s market; thus OREO measured at fair value would be classified within either Level 2 or Level 3 of the hierarchy. Certain non-financial assets and non-financial liabilities are measured at fair value on a non-recurring basis including assets and liabilities related to reporting units measured at fair value in the testing of goodwill impairment, as well as intangible assets and other non-financial long- lived assets measured at fair value for impairment assessment. The following table summarizes financial assets measured at fair value on a recurring basis as of December 31, 2015 and 2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: December 31, 2015 2014 (in thousands) First Guaranty's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  While Management believes the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value. The change in Level  1 securities available for sale from December 31, 2014 was due to a reduction in Treasury bills of $6.0 million. The change in Level 2 securities available for sale from December 31, 2014 was due principally to the sale of short-term agency securities. The following table reconciles assets measured at fair value on a recurring basis using unobservable inputs (Level 3): Level 3 Changes December 31, 2015 2014 (in thousands) $8,780 $5,834 - - - - (1,079) 2,946 - - $7,701 $8,780 Balance, beginning of year Total gains or losses (realized/unrealized): Included in earnings Included in other comprehensive income Purchases, sales, issuances and settlements, net Transfers in and/or out of Level 3 Balance as of end of year There were no  gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held as of December 31, 2015. The following table measures financial assets and financial  liabilities measured at fair value on a non-recurring basis as of December 31, 2015, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value: Fair Value Measurements Using: Impaired Loans Level 1: Quoted Prices in Active Markets For Identical Assets Level 2: Significant Other Observable Inputs Level 3: Significant Unobservable Inputs December 31, 2015 2014 (in thousands) $ - $ - 293 16,401 5,244 15,618 Impaired loans measured at fair value $16,694 $20,862 Available for Sale Securities Fair Value Measurements Using: Level 1: Quoted Prices in Active Markets For Identical Assets Level 2: Significant Other Observable Inputs Fair Value Measurements Using: Other Real Estate Owned Level 1: Quoted Prices in Active Markets For Identical Assets $ 30,501 $ 36,504 Level 2: Significant Other Observable Inputs 338,167 454,524 Level 3: Significant Unobservable Inputs $ - $ - 1,104 473 1,847 351 Level 3: Significant Unobservable Inputs 7,701 8,780 Securities available for sale measured at fair value $376,369 $499,808 Other real estate owned measured at fair value $ 1,577 $ 2,198 107 2015 ANNUAL REPORT ASC 825-10 provides First Guaranty with an option to report selected financial assets and liabilities at fair value. The fair value option established by this statement permits First Guaranty to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting date subsequent to implementation. First Guaranty has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States. Note 21. Financial Instruments 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 First Guaranty's financial instruments, First Guaranty may not be able to immediately settle 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 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 financial instruments, in many instances quoted market prices are not available. Accordingly, estimated fair values have been estimated 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 First Guaranty. Because the standard permits many alternative calculation techniques and because numerous assumptions have been used to estimate the fair values, reasonable comparison of the fair value information with other financial institutions' fair value information cannot necessarily be 1 08 made. The methods and assumptions used to estimate the fair values 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 and the carrying amounts reported in the consolidated balance sheets are a reasonable estimation of the fair values. Investment 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 or the use of discounted cash flow analyses. Loans Held for Sale. Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices. These loans are classified within level 3 of the fair value hierarchy. Loans, net. Market values are computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. These loans are classified within level 3 of the fair value hierarchy. Impaired loans Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation. Accrued interest receivable. The carrying amount of accrued interest receivable approximates its fair value. Deposits. Market values are actually computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread.  Deposits are classified within level 3 of the fair value hierarchy. 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 First Guaranty's long-term borrowings is computed using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate  index, plus or minus an appropriate spread. Borrowings are classified within level 3 of the fair value hierarchy. Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. 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. Noninterest-bearing deposits are held at cost. 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, 2015 and 2014 the fair value of guarantees under commercial and standby letters of credit was not material. The estimated fair values and carrying values of the financial instruments at December 31, 2015 and 2014 are presented in the following table: December 31, 2015 2014 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value (in thousands) $ 37,272 $ 37,272 $ 44,575 $ 44,575 $ 376,369 $ 376,369 $ 499,808 $ 499,808 $ 169,752 $ 168,148 $ 141,795 $ 139,688 Assets Cash and cash equivalents Securities, available for sale Securities, held to maturity Federal Home Loan Bank stock $ 935 $ 935 $ 1,621 $ 1,621 Loans, net $ 832,168 $ 831,731 $ 781,216 $ 780,470 Accrued interest receivable $ 6,015 $ 6,015 $ 6,384 $ 6,384 Liabilities Deposits Borrowings Junior subordinated debentures Accrued interest payable $ 1,295,870 $ 1,296,468 $1,371,839 $1,373,537 $ $ $ 27,624 $ 27,624 $ 3,255 $ 3,255 14,597 $ 14,597 - - 1,707 $ 1,707 $ 1,997 $ 1,997 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 at market prices. Note 22.  Concentrations of Credit and Other Risks First Guaranty monitors loan portfolio concentrations by region, collateral type, loan type and industry on a monthly basis and has established maximum thresholds as a percentage of its capital to ensure that the desired mix and diversification of its loan portfolio is achieved. First Guaranty is compliant with the established thresholds as of December 31, 2015. Personal, commercial and residential loans are granted to customers, most of who reside in northern and southern areas of Louisiana. Although First Guaranty 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 First Guaranty. 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. Generally, credit is not extended in excess of $10.0 million to any single borrower or group of related borrowers. Approximately 43.9% of First Guaranty's deposits are derived from local governmental agencies at December 31, 2015. These governmental depositing authorities are generally long-term customers. A number of the depositing authorities are under contractual obligation to maintain their operating funds exclusively with First Guaranty. In most cases, First Guaranty 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 liquidity, depending primarily on the maturities and/or classifications of the securities pledged against such deposits and the ability to replace such deposits with either new deposits or other borrowings. Public fund deposits totaled $568.7 million at December 31, 2015. 109 2015 ANNUAL REPORT Note 23.  Litigation Note 24.  Condensed Parent Company Information First Guaranty 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 First Guaranty's financial position or results of operations. The following condensed financial information reflects the accounts and transactions of First Guaranty Bancshares, Inc. for the dates indicated: First Guaranty Bancshares, Inc. Condensed Balance Sheets Assets Cash Investment in bank subsidiary Investment Securities (available-for-sale, at fair value) Other assets Total Assets Liabilities and Shareholders' Equity Short-term debt Senior long-term debt Junior subordinated debentures Other liabilities Total Liabilities December 31, 2015 2014 (in thousands) $ 16,862 $ 723 140,518 138,176 80 3,233 70 5,129 $ 160,693 $144,098 $ 1,800 $ 1,800 25,824 14,597 248 2,439 - 276 42,469 4,515 Shareholders' Equity 118,224 Total Liabilities and Shareholders' Equity $160,693 139,583 $ 144,098 1 10 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. First Guaranty Bancshares, Inc. Condensed Statements of Income Operating Income Dividends received from bank subsidiary Net gains on securities Other income Total operating income Operating Expenses Interest expense Salaries & Benefits Other expenses Total operating expenses Income before income tax benefit and increase in equity in undistributed earnings of subsidiary Income tax benefit Income before increase in equity in undistributed earnings of subsidiary Increase in equity in undistributed earnings of subsidiary Net Income Less preferred stock dividends Net income available to common shareholders December 31, 2015 2014 2013 (in thousands) $ 9,843 $ 6,448 $4,669 2,652 261 - 162 - 90 12,756 6,610 4,759 192 172 766 1,130 11,626 (605) 11,021 3,484 130 140 464 734 5,876 229 6,105 5,119 14,505 11,224 115 88 449 652 4,107 212 4,319 4,827 9,146 (384) (394) (713) $14,121 $10,830 $8,433 111 2015 ANNUAL REPORT First Guaranty Bancshares, Inc. Condensed Statements of Cash Flow Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Increase in equity in undistributed earnings of subsidiary Gain on sale of securities Net change in other liabilities Net change in other assets Net cash provided by operating activities Cash flows from investing activities: Proceeds from maturities, calls and sales of AFS securities Funds Invested in AFS securities Net cash provided by (used in) investing activities Cash flows from financing activities: Proceeds from long-term debt, net of costs Repayment of long-term debt Proceeds from junior subordinated debentures, net of costs Issuance of common stock, net of costs Redemption of preferred stock Dividends paid Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period December 31, 2015 2014 2013 (in thousands) $14,505 $11,224 $9,146 (3,484) (2,652) (28) 396 (5,119) (4,827) - 55 - 2 (3,383) 161 8,737 2,777 4,482 4,152 (10) 4,142 24,969 (1,584) 14,597 9,344 (39,435) - (5) (5) 2,555 (616) - - - - - - - (600) - - - (4,631) (4,421) (4,740) 3,260 (2,482) (5,340) 16,139 723 290 433 (858) 1,291 $16,862 $ 723 $ 433 1 12 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. Item 5 - Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Shares of our common stock are traded on the NASDAQ Global Marketplace as of November 5, 2015, under the symbol "FGBI". Prior to November 5, 2015 our shares were quoted on the OTC Pink Marketplace. As of December 31, 2015, there were approximately 1,800 holders of record of our common stock. The following table sets forth the quarterly high and low reported sales prices for our common stock for the years ended December 31, 2015 and 2014. These reported sales prices represent trades that were either quoted on the NASDAQ, OTC Pink or reported to First Guaranty’s stock transfer agent, and prior to November 5, 2015, do not include retail markups, markdowns or commissions, and do not necessarily reflect actual transactions. 2015 2014 Quarter Ended:* High Low Dividend High Low Dividend March 31, $ 19.00 $16.70 $ 0.16 $ 19.60 $13.77 $ June 30, $ 21.00 $15.00 $ September 30, $ 20.74 $15.00 $ December 31, $ 21.73 $14.60 $ 0.16 $ 19.81 $13.50 $ 0.16 $ 19.81 $12.00 $ 0.16 $ 20.50 $15.39 $ 0.16 0.16 0.16 0.16 * Data above has not been adjusted to reflect the ten percent stock dividend paid December 17, 2015 to shareholders of record as of December 10, 2015. Our shareholders are entitled to receive dividends when, and if, declared by the Board of Directors, out of funds legally available for dividends. We have paid consecutive quarterly cash dividends on our common stock for each of the last 90 quarters dating back to the third quarter of 1993. The board of directors intends to continue to pay regular quarterly cash dividends. The ability to pay dividends in the future will depend on earnings and financial condition, liquidity and capital requirements, regulatory restrictions, the general economic and regulatory climate and ability to service any equity or debt obligations senior to common stock. There are legal restrictions on the ability of First Guaranty Bank to pay cash dividends to First Guaranty Bancshares, Inc. Under federal and state law, we are required to maintain certain surplus and capital levels and may not distribute dividends in cash or in kind, if after such distribution we would fall below such levels. Specifically, an insured depository institution is prohibited from making any capital distribution to its shareholders, including by way of dividend, if after making such distribution, the depository institution fails to meet the required minimum level for any relevant capital measure including the risk-based capital adequacy and leverage standards. Additionally, under the Louisiana Business Corporation Act, First Guaranty Bancshares, Inc. is prohibited from paying any cash dividends to shareholders if, after the payment of such dividend First Guaranty Bancshares would not be able to pay its debts as they became due in the usual course of business or its total assets would be less than its total liabilities or where net assets are less than the liquidation value of shares that have a preferential right to participate in First Guaranty Bancshares, Inc.’s assets in the event First Guaranty Bancshares, Inc. were to be liquidated. On November 19, 2015, First Guaranty sold an additional 26,560 shares of its common stock, $1.00 par value per share, pursuant to the partial exercise of the over-allotment option granted to the underwriter in connection with its public offering, at a public offering price of $18.50 per share.    The partial exercise of the underwriter's over- allotment option generated additional gross proceeds of $491,360. The total number of shares sold in the offering was 626,560, resulting in net proceeds of approximately $9.3 million.  The shares were issued pursuant to an effective Registration Statement on Form S-1 (File No. 333-199602) declared effective as of November 5, 2015 by the Securities and Exchange Commission. 113 2015 ANNUAL REPORT Corporate Information Annual Meeting The Annual Meeting of Shareholders will convene at 2:00 p.m. Central Daylight Saving Time (CDT) on Thursday, May 19, 2016 in the Auditorium, First Guaranty Square, 400 East Thomas Street, Hammond, Louisiana. Corporate Headquarters First Guaranty Square 400 East Thomas Street Hammond, Louisiana  70401-3320 Telephone:  (985) 345-7685 Shareholder Services First Guaranty Bank Post Office Box 2009 Hammond, Louisiana  70404-2009 Contact:      Vanessa R. Drew Telephone: (985) 375-0343 Email:       drewvan@fgb.net Certified Public Accountants Castaing, Hussey & Lolan, LLC New Iberia, Louisiana Financial and General Information Persons seeking financial or other information about the Company are invited to contact: Eric J. Dosch Chief Financial Officer, Treasurer and Secretary First Guaranty Bancshares, Inc. Post Office Box 2009 Hammond, Louisiana 70404-2009 Telephone (985) 375-0308 Notice to Shareholders A copy of the First Guaranty Bancshares, Inc. Annual Report filed on Form 10-K with the U.S. Securities and Exchange Commission can be accessed through the Company’s website at www.fgb.net or is available without charge by writing. 1 14 Strength & Earnings Power FIRST GUARANTY BANCSHARES, INC. www.fgb.net 115 2015 ANNUAL REPORT Our Mission The mission of First Guaranty Bank and First Guaranty Bancshares, Inc. is to increase shareholder value while providing financial services for and contributing to the growth and welfare of the communities we serve. First Guaranty Bank Banking Centers 11 2 3 4 5 6 Our Values & Goals Customers. We believe that every customer is our most important customer. We endeavor to provide levels of service that exceed their expectations. Employees. We believe that our employees are our greatest asset as demonstrated in their professionalism and dedication. We encourage open communication and strive to cultivate an entrepreneurial environment in which our employees feel highly responsible for the performance of the Company. We believe in an environment where they will contribute new ideas and innovations that will help both us and them excel. Shareholders. We seek to enhance shareholder value by continually improving the quality of assets, growth in earnings, return on equity and dividend payout. Community. We strive to be a socially responsible corporate citizen by supporting community activities and encouraging employees to be actively involved in our communities. We are committed to the success of the communities that we serve, the same communities our employees call home. Our goals is to participate in making our communities better places in which to live, work and play. 14 15 16 17 18 19 9 10 11 12 13 20 21 7 8 1. Vivian 2. Oil City 3. Benton 4. Haynesville 5. Homer 6. Dubach 7. Jennings 8. Abbeville 9. Greensburg 10. Montpelier 11. Watson 12. Denham Springs 13. Walker 14. Kentwood West 15. Kentwood 16. Amite 17. Independence 18. Main Office 19. Guaranty West 20. Ponchatoula 21. Berryland Service 24 ATM Locations SOUTH LOUISIANA Abbeville, LA 799 West Summers Drive Amite, LA 100 East Oak Street 1014 West Oak Street Denham Springs, LA 2231 South Range Avenue Greensburg 6151 Hwy. 10 Hammond, LA 1201 West University Avenue 2111 West Thomas Street 400 East Thomas North Oaks Medical Center – 4 Medical Center Drive North Oaks Rehabilitation Center – 1900 South Morrison Boulevard Independence, LA 455 Railroad Avenue Jennings, LA 500 North Cary Kentwood, LA 723 Avenue G Livingston, LA (LPMC) Livingston Parish Medical Center 17199 Spring Ranch Rd. Loranger, LA 19518 Highway 40 Montpelier 35651 Hwy. 16 Ponchatoula, LA* 500 W. Pine St. 105 Berryland Shopping Center Robert, LA Robert’s Supermarket - 22628 Highway 190 Walker, LA 29815 Walker Road South Watson 33818 Hwy. 16 NORTH LOUISIANA Benton, LA 189 Burt Boulevard Dubach, LA 117 East Hico Street Haynesville, LA 10065 Highway 79 Homer, LA Homer Memorial Hospital 401 North 2nd Street Oil City, LA 126 South Highway 1 Vivian, LA 102 East Louisiana Avenue *The Ponchatoula branch at 195 N. 6th St. closed on March 7, 2016 and is relocated at 500 West Pine Street, Ponchatoula, LA 70454. 1049205512 2015 ANNUAL REPORT Strength & Earnings Power F I R S T G U A R A N T Y B A N C S H A R E S , I N C . 2 0 1 5 A N N U A L R E P O R T www.fgb.net 

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