First Guaranty Bancshares, Inc.
Annual Report 2016

Plain-text annual report

Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2 0 1 6 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 . A N N U A L R E P O R T 1 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. www.fgb.net ANNUAL REPORT 2016 2016 ANNUAL REPORT 1 Defining FGBROA = 1.08%ROE* = 13.89% Financial Snapshot PERFORMANCE GRAPHS 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 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 Book Value per one 1993 share has increased from $3.70 to $39.54 since 1993. First Guaranty has paid $61.7 million in Cash Dividends to common shareholders since 1993. First Guaranty Bancshares, Inc. At December 31, 2016, total assets were $1.5 billion, net income was $14.1 million, earnings per common share was $1.85. Return on average assets was 0.97% and return on average common equity was 11.18%. The company’s shares trade on the Nasdaq Global Market. First Guaranty Bancshares, Inc. paid a quarterly dividend for 94 consecutive quarters at December 31, 2016. Our commitment to customer service, combined with the hard work of our employees are among the attributes that define FGB. 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 has 293 employees as of December 31, 2016. Dividends Per One 1993 Common Share [2] 2.0 1.5 1.0 0.5 0.0 1993 1998 2003 2008 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 [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 *Footnote from front cover ROE: This is the return on average equity adjusted for the effect of prior capital injections made by the holding company into the bank subsidiary. 1 2016 ANNUAL REPORT DEFINING FGB Table of Contents Financial Snapshot ................................................................................................................................. 1 Table of Contents .................................................................................................................................... 2 Defining FGB .......................................................................................................................................... 3 FGBI ......................................................................................................................................................... 6 Letter from the Chairman, Marshall T. Reynolds .............................................................................. 7 Letter from the Chief Executive Officer & President, Alton B. Lewis ............................................. 8 Report from the Chief Financial Officer, Eric J. Dosch ..................................................................... 9 Report from Senior Vice President, Glenn A. Duhon, Sr. .............................................................. 10 First Guaranty Bank Board of Directors ........................................................................................... 11 First Guaranty Bank Advisory Board ................................................................................................ 12 First Guaranty Bank Officers .............................................................................................................. 13 Performance Graphs ............................................................................................................................ 14 Remembering Josie Tubbs ................................................................................................................... 17 First Guaranty Bank Banking Centers Map and Service 24 ATM Locations ............................... 18 First Guaranty Bank Banking Centers Main Office, Guaranty Square (Headquarters), Hammond ................................................. 19 Amite & Abbeville ....................................................................................................................... 27 Denham Springs & Benton ....................................................................................................... 28 Ponchatoula & Berryland .......................................................................................................... 29 Homer & Walker ......................................................................................................................... 30 Greensburg & Vivian ................................................................................................................. 31 Kentwood & Kentwood West .................................................................................................... 32 Jennings & Guaranty West ........................................................................................................ 33 Dubach & Independence ........................................................................................................... 34 Oil City & Haynesville ............................................................................................................... 35 Watson & Montpelier .................................................................................................................. 36 Bossier City – New Office .......................................................................................................... 37 Community Impact .............................................................................................................................. 38 Defining FGB – Earnings & Dividends ............................................................................................. 50 Banks Headquartered in Louisiana .................................................................................................... 51 Our Mission and Our Values & Goals ............................................................................................... 52 Financial Table of Contents ................................................................................................................. 53 Market for Registrants Common Equity ..........................................................................................119 Corporate Information .......................................................................................................................120 Visit www.fgb.net for additional information. Stock Ticker Symbol: FGBI Follow us on Facebook, Twitter and LinkedIn. www.facebook.com/FirstGuarantyBank twitter.com/FGBank www.linkedin.com/in/firstguarantybank/en 2 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. FORTRESS BANKING DEFINING FGB Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 1 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. www.fgb.net 2 0 1 6 F I R S T G U A R A N T Y B A N C S H A R E S ANNUAL REPORT 2016 2016 ANNUAL REPORT A N N U A L R E P O R T I N C 1 . , FIRST GUARANTY BANCSHARES, INC., AND ITS WHOLLY- OWNED SUBSIDIARY FIRST GUARANTY BANK, continues to grow and thrive. Return on Assets at 2016 year end for First Guaranty Bank is 1.08% with Return on Adjusted Equity at 13.89%*. This outstanding performance is the result of many factors, all of which are key in defining FGB. The cornerstone of this well-run financial institution is leadership’s unrelenting focus on fortress banking. Fortress banking requires analysis and decision-making based on strengthening the core and protecting against obstacles. Whether in banking or daily life, we know problems will arise – it is the manner in which we address those challenges that defines us and illustrates our strength of character. To build a fortress balance sheet, the bank must maintain good credit ratings, monitor risk and create a strong balance sheet able to withstand shock. Employee benefits, capital spending and other cost control measures are imperative. When defining FGB, one will realize an emphasis on cash, as well as on earnings. *Footnote: This is the return on average equity adjusted for the effect of prior capital injections made by the holding company into the bank subsidiary. accomplish əˈkämpliSH/Submit verb achieve or complete successfully. synonyms: fulfill, achieve, succeed in, realize, attain, manage, bring about/off, carry out/through, execute, effect, perform, do, discharge, complete, finish, consummate, conclude To become a strong, rock solid bank and achieve such results as the 2016 ROA, ROE, book value and strong balance sheet, First Guaranty maintains essential vision, insight and determination. Fortress banking requires attention, effort strength. Fortress banking creates a fit company, capable of handling new, more stringent federal regulations with the flexibility to adapt. and Your team of First Guaranty Bancshares, Inc. Board of Directors and Advisory Board members are among the most dedicated. Add the Bank’s management and group of devoted employees throughout the state, and you will see strength, intelligence, concern and compassion. The business of successfully attracting customers and loans is competitive while often, it is the personal relationship that makes the difference. 3 Defining FGBROA = 1.08%ROE* = 13.89% 2016 ANNUAL REPORT DEFINING FGB FORTRESS BANKING DEFINING FGB Fortress banking includes recognizing opportunities for additional banking centers, mergers and acquisitions and other strategic moves to solidify market position and fulfilling our service mission with customers. With the new, forthcoming Bossier City Banking Center and acquisition of Synergy Bank in Texas, First Guaranty has once again strengthened its core and grown to serve additional markets. Defining FGB and its fortress banking philosophy compels us to strengthen our internal operations to set the stage for external business development. vi·sion /ˈviZHən/ noun The ability to think about or plan the future with imagination or wisdom insists we Defining FGB examine shareholder value and the bank’s strong capital base. Tangible common equity, book value, assets, earnings and common dividends also serve as criteria to measure achievement, value and success. Defining First Guaranty requires resiliency to propel us through difficult times, be it economic or natural disasters. From tornadoes and floods to hurricanes, Louisiana, First Guaranty, its employees and customers have shown their power of resiliency. The 2016 floods impacted many employees, customers and physical First 4 Guaranty locations, all of whom required rock solid commitment and determination to overcome obstacles. Working together in a compassionate manner each day and during crises helps define FGB. FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. FORTRESS BANKING DEFINING FGB Yet another aspect of defining FGB is strong core growth, facilitated by the diversity of industries and companies we are privileged to name as customers. We also enjoy the strength of diversity throughout our geographic locations, board members, employees and customers. Increased profitability, a keen eye on expense reduction and balance sheet growth are goals of any prosperous company, particularly First Guaranty. Fortress banking, Tangible Common Equity, Book Value, assets, common dividends, earnings, achievement, rock solid, strong, compassionate, insight, resilient, vision, diverse and focus are all words defining FGB. The Great Flood of 2016 resilient rəˈzilyənt/ adjective able to withstand or recover quickly from difficult conditions. synonyms: strong, tough, hardy approximately 48 During hours, 6.9 trillion gallons of rain fell on an area roughly 50 miles wide and 30 miles long. Some communities within this zone received 31 inches of rain in less than three days! – (equivalent to six months of rain within two days.) In the Great Flood of 2016, areas 20 to 30 feet above sea level flooded. Carefully designed rainwater drainage systems which performed flawlessly for 40 years began running backwards, causing areas to flood that have not been beneath water in recorded history. ¹ First responders rescued thousands of people with high-water vehicles, boats and helicopters. Thousands were also delivered to safety by all-volunteer members of the self-described Cajun Navy, hundreds of boat owners who searched for survivors and abandoned pets. Experts say more than 110,000 homes were damaged, with an estimated 70,000 totally destroyed.² First Guaranty and the members of the First Guaranty Bank team, stood together to overcome overwhelming adversity by: ●● assisting flood victims with clean-up and rebuilding; ●● helping with the distribution of free meals to flood victims; ●● granting 90 day extensions to loan customers in the flooded areas (with the 90 days added to the back of the loan); ●● offering low interest loans to employees; and ●● contributing to an employee relief fund. Many First Guaranty Bank customers along with a significant number of bank employees experienced flooding in their homes and businesses, as did two First Guaranty Banking Centers – the Watson and Denham Springs branches were devastated by flood waters. The flood of March 2016 ravaged both north and south Louisiana and the flood of August 2016 brought great destruction all across south Louisiana. These efforts achieved during extremely difficult times define First Guaranty and First Guaranty team members’ commitment to the welfare and success of our communities. ¹https://www.straighttalkla.com/the-great-flood-of-2016-history-is-reset/ By Michael Bertaut ²Jarrett S. Flood, M.D., President & CEO – Flood International Consulting Agency https://floodconsulting.com/news-posts/louisiana-great-flood-2016/ 5 2016 ANNUAL REPORT DEFINING FGB 2016 Accomplishments and Highlights Front row, from left, student Joseph Edwards, FGB Chief Credit Officer Randy Vicknair and Chief Financial Officer Eric Dosch; second row, from left, FGB Chief Executive Officer Alton Lewis, students Andrea Villarreal, Nick Byrd, Tarez Cowsar and Southeastern Faculty Advisor Danielle Lewis. Community Bank Project A team of Finance students from Southeastern Louisiana University won the national Community Bank Case Study competition. The team, led by Dr. Danielle Lewis, competed against 22 other teams/colleges from across the country. They prepared a 25 page report and 10 minute video regarding the bank's small business lending efforts. The competition required the students to address three areas: an assessment of the impact of the institution's small business lending efforts on the community, an analysis of how the bank's small business lending affects financial performance, and an evaluation of the institution's management of small business lending. A great example of our continued support of the communities we serve, we were honored to partner with Southeastern for the competition. 2016 Accomplishments and Highlights 1. Total 2016 Earnings to Common Shareholders of $14.1 million.  2. Paid our 94th consecutive quarterly cash dividend. $61.7 million in dividends to common shareholders have been paid since 1993. 3.  First Guaranty contributed $415,000 to our local communities in 2016. 4.  Set a record in our lending portfolio of $948.9 million in loans outstanding at year end. 6 FGBI – Nasdaq Trading Price by Quarter Stock Ticker Symbol: FGBI 25 20 15 $23.93 $18.75 $18.75 $16.00 $16.25 $15.50 11/5/15 12/31/15 3/31/16 6/30/16 9/30/16 12/31/16 First Guaranty Bancshares, Inc. is traded on NASDAQ exchange at ticker symbol FGBI with a record of strength. Past performance is not indicative of future performance. FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Marshall T. Reynolds Chairman of the Board Letter from the Chairman FIRST GUARANTY BANCSHARES, INC. Dear Fellow Shareholder: At First Guaranty Bancshares, Inc. we are all pleased and very proud of the results for 2016. This makes back to back fourteen million dollar net profit years. After a generous and continuous (ninety four quarters) of dividends, we added millions to the company’s retained earnings moving us further along the path to a fortress balance sheet while our recent Texas commitment has a real chance of catapulting the Bank significantly forward. These continuing results begs the question; Why? The answer seems to be two fold. One, President Lewis has recruited a young and ambitious staff that has now gained experience and savvy—the results show. Secondly, this is probably the most involved Board of Directors in America. A few examples are as follows: 1. The Directors Loan Committee meets every Thursday. There are nine of them and the meetings sometime last up to three hours. Bill Hood has been Chairman of this committee since I can remember. They are highly engaged, experienced, and committed to doing it right for the customer and the Bank. They have made a great contribution. 2. Two of our directors have added enormously to their stock holdings thus telling the outside world of public shareholders that we believe in ourselves and what we are creating. 3. Several directors have enhanced their holdings as well. 4. We are opening our branch in Bossier City in May. This is a beautiful building created by Director Andrew Gasaway. We are most fortunate to have his talent on the board. 5. Three of our directors (Messrs. Hood, Smith and Gabriel) went to Texas to personally see what the Bank was acquiring. All said, it gets down to people and talent. It appears that our cup is running over with Management and Directors who seem to have plenty of talent and they all care. Sincerely, in·sight /ˈinˌsīt/ noun An accurate and deep understanding Marshall T. Reynolds Chairman of the Board FIRST GUARANTY BANCSHARES, INC. Chairman of the Board FIRST GUARANTY BANK 7 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB Letter from the Chief Executive Officer & President Dear Shareholders, becomes each passing clearer year, With it and clearer that First Guaranty Bancshares, Inc. is a strong financial institution with great earnings power which will allow First Guaranty to become stronger as time passes. 2016 was a continuation of this strengthening toward a fortress balance sheet as First Guaranty totaled earnings for the year ending December 31, 2016 of $14,093,000 compared to $14,121,000 as of December 31, 2015. The strong income was in spite of flood related expenses which totaled $275,000 pre-tax, $178,750 after tax and in spite of the interest expense related to the debt originated for the redemption of Small Business Lending Fund Preferred Stock in December 2015. This interest expense totaled $1,404,000 for the 12 months ending on December 31, 2016. Chief Executive Officer & President Alton B. Lewis Earnings strengthened the balance sheet by adding $9.2 million to retained earnings for the year. As of December 31, 2016, retained earnings were $59,155,000 compared to $49,932,000 as of December 31, 2015. That increase in retained earnings was net of dividends paid shareholders of $4,870,000, or $0.64 per share. In 2016 we paid dividends of $0.16 per share for each quarter bringing our total consecutive quarters of dividends paid in by First Guaranty Bancshares, Inc. to 94. Strong earnings and the building of capital were driven by continued strong loan growth. Our loan portfolio grew by $107.3 million during 2016, totaling $949 million as of December 31, 2016. Loan interest for the year increased to $45.5 million compared to $42.5 million for the year ending December 31, 2015. Net interest margin for the year ended at 3.39% compared to 3.26% for the year 2015. In March 2016, we celebrated the opening of our new branch office in Ponchatoula. During 2016, we also began construction of our new branch located in Bossier City. Completion of that branch is anticipated in May 2017 and will bring our branches in Northwest Louisiana to a total number of 7 and our total branch network to a total of 22. To reach these achievements, we had to overcome the 8 flood of March 2016 which ravaged both North and South Louisiana and the flood of August 2016 which brought great destruction all across South Louisiana. First Guaranty and the members of the First Guaranty Bank team, stepped up to meet this adversity by assisting flood victims with clean up and rebuilding, by helping with the distribution of free meals to flood victims, by granting 90 day extensions to loan customers in the flooded areas (with the 90 days added to the back of the loan), by offering low interest loans to employees and by contributing to an employee relief fund. These efforts demonstrated the commitment of First Guaranty and First Guaranty team members to our communities and to the welfare of our communities. The First Guaranty system itself was damaged as the Watson and Denham Springs branches were devastated by the flood waters. Although the Watson branch returned to service at Thanksgiving, the Denham Springs branch rehabilitation continues and will not return to service until June 2017. First Guaranty rose to the challenge. 2016 was another year of building toward a solid fortress balance sheet and enhancing shareholder value. It is the intention of the Board of Directors, Management and the entire First Guaranty Bank team to work together to achieve our goals. The results achieved in 2016 were the result of everyone in the organization working together toward common goals. Looking forward, in January 2017, we entered into an agreement to purchase Premier Bancshares, Inc., and its wholly owned subsidiary Synergy Bank, headquartered in McKinney, Texas, with branches in Garland, Denton, Fort Worth and Waco. This acquisition will move First Guaranty beyond the borders of Louisiana and, hopefully, launch us on a new path to greatness and enhance shareholder value. for your investment Thank you 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 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Report from the Chief Financial Officer Total common shareholder’s equity increased $6.1 million from $118.2 million in 2015 to $124.3 million in 2016. Retained earnings increased $9.2 million from $49.9 million in 2015 to $59.1 million in 2016. Our tangible common equity ratio improved from 7.89% at December 31, 2015 to 8.10% at December 31, 2016. The loan loss reserve increased from $9.4 million at 2015 to $11.1 million at 2016. Earnings per common share were $1.85 in 2016. Tangible book value per share increased 5.6% from $15.10 at December 31, 2015 to $15.95 at December 31, 2016. Return on average assets was 0.97% for 2016. The efficiency ratio was 56.8% in 2016. Return on average common equity was 11.18% in 2016. First Guaranty Bancshares paid a total of $4,870,000 in cash dividends to common shareholders in 2016. The Company has paid 94 consecutive quarters of dividends as of 12/31/2016. First Guaranty continues to build strength for the future. 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 Eric J. Dosch Chief Financial Officer First Guaranty Bancshares, Inc. continued to gain strength in 2016. We continued our momentum from 2015 as we expanded our loan portfolio, grew our net interest margin, and decreased our securities portfolio. Loans grew by 12.8% or $107.3 million from $841.6 million in 2015 to $948.9 million in 2016. First Guaranty increased loan interest income $2.9 million in 2016. 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, 2016 at 63% of total assets, an increase from 58% of total assets at December 31, 2015. Our average loan yield has remained consistently above 5.0% during the last two years. The average loan yield was 5.16% for 2016 compared to 5.21% for 2015. The net interest margin increased from 3.26% in 2015 to 3.39% in 2016. 9 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB Report from the Senior Vice President Glenn A. Duhon, Sr. Senior Vice President Southwest Louisiana Division Manager The Southwest Louisiana Division of First Guaranty Bank continued to grow and flourish in 2016, notwithstanding an unprecedented climatic event, which caused extensive property damage and loss to our customers and employees. When faced with unrelenting rain, rising flood waters and extreme adversity, our customers turned to First Guaranty Bank for strength and resilience, and we delivered. As most of you are aware, the prolonged rainfall during August of 2016 resulted in catastrophic flooding, which submerged thousands of homes, farms and businesses. Due to this flood damage, our agricultural customers realized lower yields for their rice, soybean, sugarcane and other growing crops. In some instances, growing crops were completely destroyed which required replanting. Furthermore, increased labor, seed, fuel and other expenses necessitated upward adjustments in loan amounts and credit lines. Our commercial hospitality customers sustained damage to their establishments, which caused loss of income and significant cost increases for remedial demolition and construction. Our residential customers experienced damage to their homes, displacing many whose dwellings were rendered uninhabitable; this required the additional expense and inconvenience of alternate housing. Consequently, loan extensions, modifications and new construction loans immediately became necessary. 10 Through all of the hardship, our First Guaranty Bank team remained ready, able and willing to support our customers by tending to their financial needs, with compassion and understanding, in the midst of these most trying times. With an additional effort to support the public, First Guaranty Bank provided 1,800 meals to flood victims in our Abbeville Banking Center parking lot. Mother Nature’s siege of water was no match for our fortress. The Jennings Banking Center ended 2016 with $36.1 million in deposits and $18.9 million in loan volume – an increase of $2.1 million in loans from 2015. The Abbeville Banking Center closed out the year with $118.9 million in deposits and $99.9 million in loan volume – an increase of $22.3 million in loans from 2015. The endurance and continued success of our institution is borne from the dedication and professionalism of our employees, the guidance of our board of directors and the loyalty of our valued customers. This collective, and continuing, commitment to trust and success has resulted in another year for First Guaranty Bank that can only be defined as triumphant. Sincerely, Glenn A. Duhon, Sr. Senior Vice President and Southwest Louisiana Division Manager FIRST GUARANTY BANK di·verse /dəˈvərs,dīˈvərs/ adjective Made up of distinct characteristics, qualities, or elements. Relating to or containing people from different ethnicities and social backgrounds. Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. First Guaranty Bank BOARD OF DIRECTORS Front row, left to right: Gloria M. Dykes and Nancy C. Ribas Middle row, left to right: Edwin L. Hoover, Robert H. Gabriel, Marshall T. Reynolds, Anthony J. Berner, Jr., Dr. Phillip E. Fincher, Edgar R. Smith, III. Back row, left to right: Morgan S. Nalty, William K. Hood, Richard W. “Dickie” Sitman, Ann A. Smith, Alton B. Lewis, Andrew Gasaway, Jr. and Charles Brister. Dr. Glenda B. Glover ANTHONY J. BERNER, JR.  President, Pon Food 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 EDWIN L. HOOVER, JR. President, Encore Development Corporation 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 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, Chairwoman Louisiana Office of Student Financial Advising Board (LOSFA), Chairwoman, EDGAR R. SMITH, III  Chairman and Chief Executive Officer, Smitty’s Supply, Inc.   11 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB First Guaranty Bank ADVISORY BOARD Above photo: Thomas “Tommy” D. Crump, Jr., Gil Dowies, III, Dr. Phillip E. Fincher, John D. Gladney, M.D., 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. 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. 12 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. First Guaranty Bank OFFICERS Vice Presidents Assistant Vice Presidents THOMAS F. BROTHERS CHERYL Q. BRUMFIELD KIMBERLY D. CAMAILLE COLLEEN B. EBARB RONALD W. EDMONDS DENISE D. FLETCHER RONALD R. FOSHEE ADAM J. JOHNSTON MIKKI M. KELLEY BERNADETTE Z. KEMP MICHAEL A. MOSBEY RONALD C. PITTMAN SCOTT B. SCHILLING DESIREE B. SIMMONS EVAN M. SINGER BSA Officer RANDY S. VICKNAIR Chief Credit Officer JAMES M. BAXTER LANCE S. DAVIS TERI L. DUNCAN HARRISON R. GILL LUDRICK P. HIDALGO SHIRLEY P. JONES MICHAEL D. KNIGHTEN JENNIFER J. LAPEYROUSE 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 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. team·work ˈtēmˌwərk/Submit noun the combined action of a group of people, especially when effective and efficient. 13 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB PERFORMANCE GRAPHS Tangible Common Equity [3] (in thousands) Tangible Common Equity (in thousands) 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 $ 9,005 $17,376 $43,557 $61,429 $70,273 $73,424 $82,560 $90,490 $80,033 $96,531 $114,927 2016 $121,372 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 Tangible Common Equity has increased $121.4 million since 1993. Total Assets (in millions) 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Assets (in millions) 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 $159 $245 $485 $871 $931 $1,133 $1,354 $1,407 $1,436 $1,519 $1,460 $1,501 First Guaranty Assets have increased 843% since 1993. 150000 120000 90000 60000 30000 0 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 14 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. PERFORMANCE GRAPHS Net Income (in millions) 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Deposits (in millions) 15 12 9 6 3 0 1500 1200 900 600 300 0 Net Income (in millions) 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 $2.1 $3.7 $7.0 $5.5 $7.6 $10.0 $8.0 $12.1 $9.1 $11.2 $14.5 $14.1 Total Deposits (in millions) 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 $149 $257 $376 $780 $800 $1,007 $1,207 $1,253 $1,303 $1,372 $1,296 $1,326 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 15 2016 ANNUAL REPORT DEFINING FGB PERFORMANCE GRAPHS Loans, Net of Unearned Income [4] (in millions) Loans, net of unearned income (in millions) 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 $105 $177 $381 $606 $590 $576 $573 $630 $703 $790 $842 $949 Investments (in millions) 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 $30 $73 $59 $139 $262 $482 $633 $659 $635 $642 $546 $499 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 Investments [5] (in millions) 1000 800 600 400 200 0 800 700 600 500 400 300 200 100 0 1993 1998 2003 2008 2009 2010 2011 2012 2013 2014 2015 2016 [3]Total equity less preferred equity, 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 16 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Remembering Josie Tubbs First Guaranty, Banking in Louisiana, and all the members in the Communities in the Bernice/Dubach area suffered a great loss on November 13, 2016 with the sudden and unexpected passing of Josie Tubbs. Josie had a long and distinguished career in banking.  In 2015, Josie was honored by the Louisiana Bankers Association for 54 years of banking experience. Josie saw and adapted to incredible changes in banking over that 54 year period. Her ability to do so is a testament to Josie’s unique intelligence and unique ability to adjust to any situation. But Josie was more than just a banker. Josie was the epitome of First Guaranty’s vision of what a community banker should be. Josie was deeply involved in many activities in all of her communities. Josie selflessly gave of her time and energy to support and participate in activities throughout her communities. Josie motivated First Guaranty Bank to be involved in and support the activities of her communities.  What was very evident if you knew Josie was Josie wasn’t just a professional banker Josie sincerely and deeply cared about all of her communities and the members of her communities, her family and First Guaranty Bank. Some losses are worse than others. The loss of Josie Tubbs is an incredible loss to Banking, First Guaranty Bank, and to all of the communities of the Bernice/ Dubach area. Heaven is now a better place. a·chieve·ment /əˈCHēvmənt/ noun A thing done successfully with effort, skill, or courage 17 2016 ANNUAL REPORT DEFINING FGB 9 18 6 19 4 13 3 15 1 12 7 First Guaranty Bank BANKING CENTERS 110 16 17 8 5 20 Bossier City NEW LOCATION 14 11 2 FIRST GUARANTY BANK Banking Center order by Total Core Deposits for 2016 1. Main Office $400 119 2. Abbeville 120 3. Amite 105 4. Denham Springs 100 5. Benton 54 6. Walker 98 7. Ponchatoula 55 8. Homer 48 9. Greensburg 42 10. Vivian 36 11. Jennings 31 12. Guaranty West 34 13. Kentwood 29 14. Dubach 24 15. Independence 18 16. Oil City 14 17. Haynesville 7 18. Montpelier 8 19. Watson Total Deposits $1,342 (In millions) 20. Bossier City (New Location) 18 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 Bossier City, LA (New Location – Opening June, 2017) 4221 Airline Drive 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 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. 1049205512 First Guaranty Bank BANKING CENTERS Banking Center placement is based on 2016 Total Core Deposits, from highest to lowest. Ponchatoula and Kentwood data each include both Banking Center locations. Homer Banking Center is placed before Ponchatoula to allow both Ponchatoula locations to appear on the same page. GUARANTY SQUARE (985) 375-0300 / (985) 345-7685 (888) 375-3093 400 East Thomas Street Hammond, LA 70401 APPRAISAL REVIEW Left to right: Shannon Smith, Kristina Terry, Starr Bernier HUMAN RESOURCES Back row: Mikki Kelley COLLATERAL Middle row, left to right: Landa Domangue, Shelley Taylor Backrow, left to right: Cate Mathes, TJ Songy, Lauryn Coburn Front row: Chantelle Starkey Not pictured: Mandi Aguillard Front row, left to right: LaQuita Johnson, Kelli Jordan, Jeannette Ernst 19 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB CUSTOMER SUPPORT CENTER Back row, left to right: Alexander Gondolfi, Kyle Reeves, Chantal Jarrell, Davon Mitchell Front row, left to right: Jessica Spears, Sharon Rogers, Laquinta Jackson, Danyelle Green, Moises Rodriguez Not pictured: Pamela Stafford, Trinitrius Brown CASH MANAGEMENT Vikki Dupaquier Miranda Derveloy Hannah Winget DEPOSIT OPERATIONS Back row, left to right: Kim Fletcher, Sandra Edwards, Glenda Saucier, Shirley Jones, Tammy Graves Front row, left to right: Divetta Stallworth, Tae Anderson, Lori Lloyd 20 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. FINANCE Back row, left to right: Philip Qualls, Donna Scamardo, Katherine Campbell, Anna Cusick, Diane Patterson, Diane Lanier, Michael Moye Front row, left to right: Eric Dosch, Tarez Cowsar, Heather Lee, Eric Fuller Not pictured: Karen Gregory CREDIT Back row, left to right: Colton McDaniel, Silvia Rodriguez, Jakayla Brown, Emily Creech, Nick Byrd, Jessica Hrenyk, Melanie Gottschalck, Louis Cusimano Front row, left to right: Alex Becnel, Randy Vicknair, Monica Crane, Brandon Daniels 21 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB INFORMATION TECHNOLOGY Back row, left to right: John Farrell, Thomas Hibbs, Allen Daussin, Kyle Herndon, Keith Mills Front row, left to right: David Couvillon, Star Lala, Craig Rachel, Hector Garcia COMMUNITY RELATIONS Bernadette Kemp 22 LENDING Back row, left to right: Tracy Nelson, Craig Scelfo, Christy Wells, Mike Knighten Front row, left to right: Catherine Egnew, Vickie Jenkins Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. LOAN OPERATIONS Back row, left to right: Audrey Carter, Kellie Weisler, Bonnie Garcia, Donna Hodges, Lynn Talley, Ariele Davis, Amanda Rodriguez, Amy Fabre Front row, left to right: Steve Hathorn, Star Spriggs, Natasha Montgomery, Luke Lavergne PURCHASING & DOCUMENT SECURITY Back row, left to right: Joseph Ernest, David Wright Front row: Teresa Wempren MORTGAGE Back row, left to right: Amy Hopson, Kimberly Duckworth Camaille, Mandy Lee Front row, left to right: Susan Fitzgerald, Melissa Duchmann, Laci Farkas 23 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB FRONT LINE Back row, left to right: Shawnta Henderson, Latoya Williams Middle row, left to right: Ashleigh Duroncelet, Chandra McKinney Front row, left to right: Megan Braden, Linda Miller Not Pictured: Elizabeth Fenters, April Hodges, Timothy Thibodaux OPERATIONS Back row, left to right: Kendra Fairburn, Debbie Dubuisson, Carla Cook, Teri Duncan, Shane Hughes, Elisa Constanza, Kerri Gladney Front row, left to right: Desiree Theall, Brittany Harness, Tracey Robertson, Christe Feimster Not Pictured: Elaine Connor 24 MARKETING Richard Stark Back row, left to right: Mackenzie Russell, April Alford Front row, left to right: Jane Wear, Desiree Simmons Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. COMPLIANCE Left to right: Colleen Ebarb, Becky Brown BSA/FRAUD Back row, left to right: JoEllen Juhasz, Evan Singer Front row, left to right: Casey Turner, Sharmaine Robertson TRAINING Back row, left to right: Shanon Dunn, Danyelle Horton, Danielle Willie Front row: Vikki Dupaquier fo·cus /ˈfōkəs/ noun pay particular attention to. Concentrate. AUDIT Back row, left to right: Michael Mosbey, Thomas Brothers, Jason McKenzie Front row, left to right: Michelle Dionne, Nancy Rodriguez, Lana Quinn 25 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB SPECIAL ASSETS LOAN REVIEW Back row, left to right: Ronnie Pittman, Lucus Hammonds Left to Right: Jennifer Lapeyrouse, Bill Worthy Front row, left to right: Kriss Patterson, Lee Ann Sibley strong /strôNG/ adjective Able to perform a specified action well and powerfully 26 EXECUTIVE Back row: Alton Lewis Middle row, left to right: Kristin Williams, Casie Navarre Front row: Vanessa Drew Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Back row, left to right: Stephanie Campo, Marsha Spring, Scott Schilling, Suzette Brooks, Tamara Neil Front row, left to right: Brianna Scott, Miranda Ordoyne, Betty Jo Whiddon, Jenny Sue Weedman, Brittani Erdey Not pictured: Susie Smith Back row, left to right: Amy Broussard, Lisa Kritzer, Glenn Duhon, Tanya Menard , April Frederick Front row, left to right: Charisse Cormier, Diane Frederick Not pictured: Gretchen Meaux AMITE BANKING CENTER (985) 748-5111 100 East Oak Street Amite, LA 70422 ABBEVILLE BANKING CENTER (337) 893-1777 / (800) 306-3276 799 West Summers Drive Abbeville, LA 70510 27 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB DENHAM SPRINGS BANKING CENTER (225) 791-7964 2231 South Range Avenue Denham Springs, LA 70726 Back row, left to right: Ludrick Hildago, Lisa Thompson, Danna Jo Erwin, Sharon Moore, Kevin Foster Front row, left to right: Kathie Alimia, Courtney Ortego, Kandace Sparacino, Michelle Gehling Ronald Foshee BENTON BANKING CENTER (318) 965-2221 189 Burt Boulevard Benton, LA 71006 Back row, left to right: Marcus Rounds, Rhonda Beavers, Donna Cummings, Joedi Snipes, Terboris Posey Middle row, left to right: Jocelyn Cato, Colette Morehead Front row: Alisha Blakenship Adam Johnston 28 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Back row, left to right: Donna Turnage, Denise Fletcher, Mike Lofaso, Brandon Wear, Amanda Klumpp (Floater) Front row, left to right: Amiee Gervais, Renee Rhody, Tyvon Adams, Kristy Petit, Katie Aylor Left to right: Tammy Carraway, Kelly Wall (Floater), Victoria Welch PONCHATOULA BANKING CENTER (985) 386-2000 500 West Pine Street Ponchatoula, LA 70454 PONCHATOULA-BERRYLAND BANKING CENTER (985) 386-5430 105 Berryland Shopping Center Ponchatoula, LA 70454 29 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB HOMER BANKING CENTER (318) 927-3000 401 North 2nd Street Homer, LA 71040 WALKER BANKING CENTER (225) 664-5549 29815 South Walker Drive Walker, LA 70785 Back row, left to right: Elaine Atencio, Shirley White, Debbie Spigener Middle row, left to right: Kitsha Ridley, Caroline Arnold, Candie White, Hannah Winget, Caree Bailey, Courtney Williams Front row, left to right: Dot Frazier, Ron Edmonds, Tracy Perry, Jamie Williams Back row, left to right: Sylvia Moore, Betty Boney, Brandi Steffek (Floater) Front row, left to right: Sheila Lofton, Robin Bonfanti Clint Trant 30 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. GREENSBURG BANKING CENTER (225) 222-6101 / (800) 227-6101 6151 Highway 10 Greensburg, LA 70441 VIVIAN BANKING CENTER (318) 375-3202 102 East Louisiana Avenue Vivian, LA 71082 Back row, left to right: Evan Singer, Rhonda Miller, Kaycee Bridges, Paula McNabb, Harrison Gill Front row, left to right: Melissa Smith, Michelle Brasseaux Not pictured: April Slayter, Phylicia Vernon Back row, left to right: Bri Perkins, Amber Smith, Stacy Thompson, Frances Thompson, Tina Gay Front row, left to right: Brandy Moon, Bobbie Clark, Teresa Hasha 31 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB KENTWOOD BANKING CENTER (985) 229-3361 301 Avenue F Kentwood, LA 70444 KENTWOOD WEST (985) 229-6101 723 Avenue G Kentwood, LA 70444 rock sol·id adjective unlikely to change, fail, or collapse 32 Back row, left to right: Lindsey George, Angela Lott, Lisa Rushing, Ashlyne' Richard, Lance Davis Front row, left to right: Connie Butler, Patsy Meyer, Alma Sims Back row: Brittany Graham Front row, left to right: Ruby Carter, Mary Roberts Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. JENNINGS BANKING CENTER (337) 824-1712 500 North Cary Jennings, LA 70546 Back row, left to right: Rahul Patel, Gwendolyn Pete, Trisha Patterson, DD Bruchhaus Front row, left to right: Vanessa O'Quinn, Mona Fontenot, Amber Dupre HAMMOND – GUARANTY WEST BANKING CENTER (985) 375-0371 2111 West Thomas Street Hammond, LA 70401 Back row, left to right: Connie Miller, Arielle Adkins, Jerika Williams, Shari Wheeler, Lindsey Wright Front row, left to right: Tania Wren, Stacy Williams, Tyjia Ard 33 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB DUBACH BANKING CENTER (318) 777-3461 117 East Hico Street Dubach, LA 71235 INDEPENDENCE BANKING CENTER (985) 878-6777 455 West Railroad Avenue Independence, LA 70443 34 Back row, left to right: Kristy Puckett, Diane Shoemaker, Laurie Traylor Front row, left to right: Heather Croxton, Mic Baxter Not pictured: Sue Yates Back row, left to right: Devona Matthews, Carmella Coslan, Richard Hamilton, Cheryl Brumfield, Ashley James Front row, left to right: Karen Paille, Pam Brazil Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. OIL CITY BANKING CENTER (318) 995-6682 126 South Highway 1 Oil City, LA 71061 Back row, left to right: Shannon Jackson, Emma Rolling, Glenda Graham, Mary Casey, Andie Bruno Front row, left to right: Glynda Bounds, Toni Harris Adam Johnston HAYNESVILLE BANKING CENTER (318) 624-1171 10065 Highway 79 Haynesville, LA 70138 Back row: Ron Edmonds Front row, left to right: Jamie Williams, Tracy Perry, Carla Goode, Sara Pennington (Floater), Aleshia Lee Not pictured: Tammy Burley 35 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB WATSON BANKING CENTER (225) 665-0400 33818 Highway 16 Denham Springs, LA 70706 Back row, left to right: Ludrick Hildago, Carrie Jarreau, Dev Patel, Judy Hughes MONTPELIER BANKING CENTER (225) 777-4304 35651 Highway 16 Montpelier, LA 70422 Left to Right: Betsy Ehret, Trella Page, Elizabeth Zito 36 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common DividendsFORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. N ew Location ~ Coming Soon in June 2 0 1 7 Back row, left to right: Daniel Loe, Joedi Snipes, Erika Taylor, Adam Johnston Front row, left to right: Nikio Reese, Irvin Williams, Angelena Warren, Ellen Buskey, Hannah Winget, Terboris Posey BOSSIER CITY 4221 Airline Drive Bossier City, LA 71111 Our newest Bossier City Banking Center location is currently under construction and expected to open in June, 2017. This First Guaranty branch location on Airline Drive is centrally located in the Shreveport MSA, with easy access to I-20. Bossier City was selected as an ideal location for First Guaranty due to strong market demographics and solid loan growth opportunities. Part of the Shreveport, Louisiana MSA, Bossier City offers a diversified economy including government, education and wholesale/retail trade. Barksdale Air Force Base is the largest area employer with 10,284 employees. Projected income growth of 4.20% is predicted over the next five years. Bossier City has a population of 67,472; median household income of $47,103; a median age of 31.8 years; and is one of the fastest growing school districts in Louisiana. With a strong financial presence in Bossier City, First Guaranty will increase its deposit and loan market share. This beautiful new building (designed by the firm of Gasaway, Gasaway, Bankston Architects) will be a functional and efficient building, as well as beautiful. Completion of this new Banking Center will bring our branches in Northwest Louisiana to a total number of seven and our branch network to a total of 22. 37 Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2016 ANNUAL REPORT DEFINING FGB COMMUNITY IMPACT Community contributions are a priority budget item for First Guaranty Bank. Listed are the institutions, organizations and associations that have been assisted through contributions and sponsorship during 2016. 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. Scott Schilling presented a contribution to Carol Brooke, Chairman of the Amite Oyster Festival. Rhonda Beavers presented a contribution to the Mayor of Benton Mr. Wayne Cathcart and Ellen Cathcart for the Benton Farmer’s Market. Joedi Snipes presented a contribution to Chad Yates, President of Bossier Little League, for the Bossier Little League. Mona Fontenot presented a contribution to Chanyon Robinson, Treasurer for CADA for the Taste N Tell event. First Guaranty Bank presented a contribution to Courtney Christian School for the 2016 Fall Fest. Left to right: Stacy Hoover, Sue Courtney, April Alford, Mackenzie Russell and Amanda Lightfoot. First Guaranty Bank contributions for community support were $415,000 in 2016 . 38 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Community Impact Ronnie Foshee presented a contribution to Denham Springs Kiwanis President, Jan Fairchild, for the Platinum Sponsorship at the annual Kiwanis Golf Tournament. The proceeds help children in our community. Josie Tubbs and Diane Shoemaker presented a contribution to Gail Colvin, President of DRABO, for the Louisiana Chicken Festival. Josie Tubbs presented a contribution and snacks for the after school tutoring class at Dubach School. Left to right: Stanley Lewis, Assistant Principal at Dubach School, Josie Tubbs, First Guaranty Bank, Assistant Branch Manager, Pam Pruden, Principal, Dubach School and Diane Shoemaker, First Guaranty Bank, Operations Manager. Harrison Gill presented a contribution to Mr. Bobby Belser representing First Baptist Church of Greensburg. He is chairman of their fund raising committee. The benefit golf tournament is to raise money for their Youth Ministry. Lee Ann Sibley presented a contribution to Kelly Wells for the CRA finals held at the Florida Parishes Arena. Adam Johnston presented a contribution to Dr. Timothy J. Magner, the President of the Greater Shreveport Chamber of Commerce for the 40 under 40 Awards Gala. 39 2016 ANNUAL REPORT DEFINING FGB Community Impact Ronnie Pittman presented a contribution to Brian Shirey, Hammond Chamber of Commerce, for the Blues and BBQ event. Alton Lewis presented a contribution to Guy Recotta, City of Hammond, and Melissa Bordelon, Hammond Chamber, for the LHSAA Ladies’ Top 28 State Basketball Tournament. Mr. Lewis was also presented a framed Ladies Top 28 poster. Bernadette Kemp presented a contribution to Brian Shirey and Melissa Bordelon with the Hammond Chamber, for the Chillin’ with the Chamber event. Donna Hodges presented a contribution to Derwin K. Miley, President of the Hammond Fire Fighters Association Local 2361 for the Memorial Run sponsorship. Jeannette Ernst presented a contribution to Kris LaBruzzo, Principal, and Amy Dunn, Teacher and Renaissance Foundation Chairperson, both of Hammond High Magnet School for the Excellent Academic Awards. Randy Vicknair presented a contribution to Sgt. Charlie Deliberto with the Hammond Police Union Local 345 for the Policeman’s Ball. Desiree Simmons and Colleen Ebarb, presented a contribution to Chris Mouswaswa, Recreation Supervisor, Desiree Dotey, Recreation Director and Mayor Pete Panepinto for the City of Hammond’s rec park camp. 40 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Community Impact Joellen Juhasz presented a contribution to the City of Hammond Recreation Department. Left to right:  Desiree Dotey, Director, Demarquis Burise, Sports Coordinator, Joellen Juhasz, First Guaranty Bank and Silvia Hymel, Senior Activity Coordinator. Back to School Bash! Left to right: Alex Richardson of the TPSO, Amanda Kay Bennett with the Hammond Rotary, Hope Foster with the TPSO, Lance Kern representing TARC, Mayor Pete Panepinto, Lindsey Palmer with Stirling Properties-Hammond Square Mall, Bernadette Kemp with First Guaranty Bank, Donna Miller owner of PJ’s, Judy Couvillion of Hammond Kiwanis and Judge Grace Bennett Gasaway from the City Court of Hammond. Mona Fontenot presented a check to Darlene Guidry, After Prom committee chairman with Hathaway High.  Elaine Atencio presented a contribution to Timothy Crittendon, Vice Principal of the Haynesville JR High/High School. Elaine Atencio presented a contribution for the Haynesville High school Quarterback Club to Gayla Camp, Secretary of the Haynesville High school Quarterback Club. Elaine Atencio presented a contribution for the Haynesville Lions Club Golf Tournament to Hugh Miller, member of the Haynesville Lions Club. Cheryl Brumfield presented a contribution for the Independence Chamber of Commerce. Left to right: Mayor Michael Ragusa, Cheryl Brumfield and Heather Howell, Independence Chamber of Commerce President. Pam Brazil presented a contribution to Coach Latonia Phillips, the Independence High School Ladies Basketball & Track and Field Coach. 41 2016 ANNUAL REPORT DEFINING FGB Community Impact Cheryl Brumfield presented a contribution to Chasity Collier, Independence High School Principal for the Senior Awards Brunch. Cheryl Brumfield presented a contribution to Colby McDonald, Independence High School Baseball Coach. Ambre Dupre presented a contribution to Geraldine Segura with Jeff Davis Parish School family reading program. Mona Fontenot presented a contribution to Robin Touchet with The Jennings Festival Association. Vanessa O’Quinn presented a contribution for the Jennings High School Jazzers, to Layna Touchet, Co-Captain. Denise Fletcher presented a contribution to Anthony J Berner Sr., Kiwanis Club of Ponchatoula member, for the golf tournament. Cheryl Brumfield presented a contribution to Sherre Pack Hookfin, Hospital Administrator for the Lallie Kemp Foundation Board for the Annual Gala. Anna Cusick presented a contribution to Loranger High School Principal Joseph Torrence and Head Football Coach Sam Messina for a Loranger High School Football sponsorship. Jeannette Ernst presented a contribution for the Knights of Columbus to Sir Knight Charles H. Cochran. 42 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Community Impact Shelbi Rayborn, Alton Lewis and April Alford presented a contribution to the Louisiana Children’s Discovery Museum Jazz Brunch event to the Board of Directors from the Children’s Discovery Museum, Mrs. Alexis Ducorbier and Mrs. Kathy Montecino. Also in the photograph are Director Mr. Leon Philpot, Event Coordinator, Keely Schneider and Playologist/Pawologist, Sam. Vanessa Drew presented a contribution to Peggy Hoover, Board member, Leon Philpot, Director and Lauren Williams, Coordinator of Development of the Louisiana Children’s Discovery Museum. The Independence Branch recently served as a corporate partner of the Mater Dolorosa Catholic School Thanksgiving Food Drive in Independence. The branch also served as a collection site. Left to right: Cheryl Brumfield, Linda Wisinger, Mater Dolorosa Catholic School Principal, and Karen Paille. Cheryl Brumfield presented a contribution to Linda Wisinger, Principal of Mater Dolorosa Catholic School for the Mater Dolorosa Annual Steak Dinner. Trella Page presented a contribution to Morgan Chapel. Left to right: Geraldine Moore, Trella Page, Bruce Wheeler and Rev. Vons Henry, Sr. Alton Lewis presented a contribution to Guy Recotta and Patricia Westmoreland for the Richard Murphy Hospice Gala. 43 2016 ANNUAL REPORT DEFINING FGB Community Impact Cheryl Brumfield presented a check to the New Horizons Youth Service Bureau. Left to right: Cheryl Brumfield, Cindy Martens - Executive Director, Greta Hammel - Assistant Executive Director and Stacy Williams. Cheryl Brumfield presented a contribution to Independence Magnet School. Left to right: Tyronee Williams, Acting Interim Assistant Principal, Cheryl Brumfield, Donnis Casanave, Acting Principal. Adam Johnston presented a contribution to Scott Martinez, NLEP President, for the North Louisiana Economic Partnership. Jennifer O’Neil and Jaclyn Rice, both of Options, Inc. accepted the collected Christmas gifts for their community home participants from Emily Creech and Ashleigh Duroncelet, both of First Guaranty Bank. Katherine Aylor presented a contribution to Ms. Jeannie Cutrer for the PHS Project Graduation event. Denise Fletcher presented a contribution to Mr. James Square, Ponchatoula High School Band Director, for a free concert presenting the US Air Force Band, the Premier Jazz Ensemble. Denise Fletcher presented a contribution to Heather Miller, Ponchatoula Band Boosters - Secretary/Treasurer, for the Ponchatoula Band Boosters to assist with the purchase of new percussion instruments. Katie Aylor presented a contribution to Ms. Melissa Waddell with the PHS Lady Wave Basketball. 44 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Community Impact Denise Fletcher presented a contribution to Mr. Ronald Rocquin, Director of Ponchatoula Area Recreation Department for the Ponchatoula Area Recreation Department. Harrison Gill presents a contribution to Jim Rob at the St. Helena Council on Aging. com·mu·ni·ty kəˈmyo͞ onədē/ noun 1. a group of people living in the same place or having a particular characteristic in common. 2. a feeling of fellowship with others, as a result of sharing common attitudes, interests and goals. Adam Johnston presented a contribution for the Piggly Wiggly Steak Cook-off in Springhill, LA. Proceeds from the event benefit St. Jude’s Children’s Hospital in Memphis, TN. Left to right: Renee Jones - Marketing/Property Management, Kenyan Enterprises, Adam Johnston - VP, First Guaranty Bank, Mark Lowery - Director, Piggly Wiggly and David Scruggs - Controller, Kenyan Companies. Cheryl Brumfield presented a contribution to Anthony Catalano, Festival Chairman, and Evelyn Mitchell, Poster Committee Chairperson, for the Sicilian Heritage Festival. Cheryl Brumfield presented a contribution to Dr. Alecia Cyprian, Chief Executive Officer of Southeast Louisiana Community Health Systems. 45 2016 ANNUAL REPORT DEFINING FGB Community Impact Randy Vicknair presented a contribution to Lynn Horgan for the Southeastern Louisiana University Chef ’s Evening event. Alton Lewis presented a contribution to Lynn Horgan, Director of Individual, Corporate and Foundation Relations, and Lauryn Williams at Southeastern Louisiana University. Also pictured are a few employees from First Guaranty Bank that are alumnus of Southeastern, Desiree Simmons, Kristin Williams, Lucas Hammonds and Kristina Terry.  Danielle Willie and Jane Wear presented a contribution for the Community Music School sponsorship to Lynn Horgan, Director of Individual, Corporate and Foundation Relations and Jivka Duke, Director of Community Music School with Southeastern Louisiana University. Vanessa Drew presented a contribution to C. Roy Blackwood, the Executive Director of the Columbia Theatre and Lynn Horgan, Director of Individual, Corporate and Foundation Relations at Southeastern Louisiana University. im·pact verb imˈpakt/ have a strong effect on someone or something. synonyms: affect, influence, have an effect on, make an impression on; Alton Lewis presented a contribution to Jay Artigues, Athletic Director of Southeastern Louisiana University. Bernadette Kemp presented a contribution to Julie Perise with the Southeastern Alumni Association for the SLU Convocation Picnic. 46 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Community Impact April Alford presented a contribution to Linda Stegall, Randy Stegall and Debbie DePhillips with the Tangi Humane Society. Kristin Williams presented a contribution to Pascal Dean for South Tangi Relay for Life. Cheryl Brumfield, Vice President, Independence Branch Lending Manager and Stacy Williams, Branch Operations Manager, Guaranty West Branch presented a contribution to Delmas Dunn, President of the Tangipahoa African American Heritage Museum and Veterans Archives for the Black Tie Affair event. Lee Ann Sibley and Vickie Jenkins presented a contribution to Jill Hutcheson and James Sparacello with the Tangipahoa Parish Sheriff ’s Office for the Mounted Division Rodeo. Ronnie Pittman presented a contribution to Jodie Rohner for the Nite Out 5K sponsorship. Cheryl Brumfield presented a contribution to Toys for Tots. Left to right: Mira Sharpe, Heather Howell, Greg Gray, Cheryl Brumfield and Brent Pizzolato. 47 2016 ANNUAL REPORT DEFINING FGB Community Impact A American Cancer Society – Relay for Life Sponsors American Legion Auxiliary Post #47 – Boys State and Girls State Program Sponsors Amite Chamber of Commerce – Bon Appetit Food Fest Amite High School – Baseball Sign and Amite Job Fair Amite Oyster Festival – Pearl Sponsor Jason Ard Campaign B Banzai Inc. – Walker School Sponsor Benton (Town of) Farmers Market – Garden Sponsor Benton (Town of) Festival – Christmas on the Square Foundation Bossier Chamber of Commerce Bossier Little League – Baseball/ Softball Programs Sponsors Boy Scouts of America C CADA Child Advocacy Services Christmas on Caddo – Fireworks Sponsor City of Hammond – Back2School Bash City of Hammond Recreation Department – North Oak Playground, HOPE Summer Camp, Sports Programs Claiborne Academy – Football Sign Claiborne Chamber of Commerce – Diamond Sponsor Annual Banquet Claiborne Charity Inc. – Golf Tournament Sponsor Claiborne Christmas Committee – Christmas Lights Sponsor Claiborne Parish Sheriff – 12 Body Cameras Claiborne Scholastic Banquet Courtney Christian School – Fall Fest Sponsor Crimestoppers of Tangipahoa – Light the Night and Clay Shoot Fundraiser Sponsors D Delta Tau Delta – Feeding Community Flood Victims Drago’s Foundation – Feeding Community Flood Victims Dubach Restoration and Beautification Organization – Chicken Fest Sponsor Dubach School – Tutoring E Elton Elementary – Positive Behavior Program F First Baptist Church of Greensburg – Golf Tournament Sponsor, Fish Fry Fundraiser Florida Parishes Arena – Gold Sponsor Rodeo Herbert S. Ford Memorial Museum Full of Grace Inc. – Parking Lot St. Helena Catholic Church G Greater St. James Missionary – Ladies Tea Ministry Greater Shreveport Chamber of Commerce – YPI Forum Sponsor 48 Gujarati Samaj of Mississippi – Annual Banquet Gusher Days – Festival Sponsor H Hammond BBQ Inc. – Blues & BBQ Sponsor Hammond Chamber of Commerce – Installation Banquet Sponsor, Slam Dunk Sponsor, Chillin’ With the Chamber, Ladies Top 28 Hammond Firefighters Association – MDA Fundraiser 5K Sponsor Hammond High - Baseball Booster, Renaissance Foundation, Jr. High Football Equipment Hammond Police Union Local 345 – Policeman’s Ball Platinum Sponsor Hammond Regional Arts Center – Brews Arts Fest Sponsor Hathaway High School – Prom Lock-in Haynesville Beautification Committee – Pot Luck Fair Haynesville Jr. High School – Picnic Tables Haynesville Lions Club – Golf Tournament Sponsor Haynesville Quarterback Club Hearts and Paws United Homer Golf Club – T Box Sign and North Louisiana Golf Tournament Homer High School – Baseball and Football Signs HUB Urban Ministry I ICBA Independence High School – Grand Slam Tiger Baseball Sponsor, Basketball/Track Teams, Senior Awards Ceremony Independence Middle Magnet School – Football Program Independence Sicilian Heritage – Padrino Festival Sponsor Italian Festival Inc. J Jeff Davis Chamber of Commerce – Golf Tournament Sponsor and Fundraiser Jeff Davis Rice Growers Association – SWLA Rice/ Soybean Clinic Meal Jeff Davis Title Parent Center – Family Reading Time Jennings Festival Association Jennings High School Jazzers K Kentwood Alumni Association – Golf Tournament Kentwood Baseball/Softball Association – Sign and Golf Tournament Sponsor Kentwood Rotary Club Kentwood (Town of) – School Supply Giveaway Kiwanis Club of Denham Springs – Golf Tournament & Christmas Parade Kiwanis Club of Hammond Kiwanis Club of Ponchatoula – Golf Tournament Sponsors and Poinsettias Knights of Columbus – Le Jour De CaJun, Steak Dinner Fundraiser L Lake Claiborne Inc. – July 4th Fireworks Lallie Kemp Foundation – Christmas in July Gala Land Trust for Southeast Louisiana – Polo Match Sponsor Leadership Excel Lincoln Parish Sheriff – Senior Citizen Expo Sponsor Lions Charity Golf Livingston Parish School Board Livingston Parks & Recreation – Little League Baseball Sponsor Loranger High School – Softball, Football, Basketball and Volleyball Program Sponsors FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Louisiana Bankers Association Louisiana Bankers Education Foundation Louisiana Children’s Discovery Center – Jazz Brunch & Annual Sponsorship Louisiana Marathon LSU Ag Center (Homer) – 4-H Livestock Auction M Mater Dolorosa Catholic School – Steak Dinner Fundraiser, Door Prize Minden Athletics – Minden All Stars Team Mission International Church – Leadercast 2016 Monterey Country Club – Golf Tournament Morgan Chapel AME Church – Annual Picnic Richard Murphy Hospice Foundation – Gala Sponsorships N New Horizons Youth Service Bureau North Caddo Magnet High School – Basketball Team Playoffs North Caddo Medical Center Foundation – Denim Derby Fundraiser Northshore Area Board – Crawfish Boil Sponsor O Oak Forest Academy – Fall Festival Oak Grove Church of Christ – Food Fest and Gold Key Advocate Options, Inc. P PHS Band Boosters Inc. – Green Wave Band PHS Grand Slam Boosters – Baseball Sign PHS Lady Wave Basketball Ponchatoula High School – Project Graduation, Air Force Band Sponsor, Senior Breakfast, Lady Wave Volleyball Sponsor, FFA Chapter National Convention Ponchatoula Lions Club – Hot Rod Show, Raffle Ponchatoula Youth Baseball – Softball Team R Rosaryville Spirit Life Center – 5K Sponsor Rotary Club of Amite – Golf Tournament Sponsor Rotary Club of Hammond – Shamrock Run Sponsor S St. Helena Catholic Church St. Helena Forestry Association – Annual Meeting Sponsor St. Helena Nursing Home St. Helena Parish Hospital – Health Fair St. Helena Sheriff ’s Office – Santa’s Helper Fundraiser St. Helena/Tangipahoa Dairy Day Community Impact Summerfield High School – Championship Rings, Softball and Baseball Signs, T-Shirts T Tangi Academy – Golf Tournament Tangi Humane Society – Pet Expo Sponsor Tangi Professional Women’s Organization – Conference Sponsor Tangipahoa African American Heritage Museum & Veterans Archive – Black Tie Affair Sponsor Tangipahoa Parish School System – Talented Theatre Tangipahoa Parish Sheriff ’s Office – Mounted Division Rodeo Sponsor, Angels in the Dark Tiger Athletic Foundation – LSU Baseball Toys for Tots Foundation U United Way of Southeast Louisiana V Vermilion Parish School Board - Band Room Cabinetry W Walker High School – Gym Sign Westminster Homes Inc. Woodland Park Magnet School – PE Equipment St. Jude Fundraiser Shreveport Regional Arts Council – Tea Party Southeastern Louisiana University Alumni Association – Salute the Lions Evening, Annual Convocation Picnic, Felions Champagne Bingo Southeastern Louisiana University Athletic Association SLU Columbia Theatre for the Arts SLU Foundation – Chefs Evening, SLU Channel Sponsor, Partner, Community Music School Sponsor, College of Business Southeast Community Health System – Back2School Health Expos Special Olympics Louisiana – Trivia Night Sponsor 2016 FGB Volunteer Results Total Employee Community Service Hours Completed 2,183 O r g T a o t n a i z l a N t i u 1 o m n b 2 s e r R 4 e o a f c h e d mployee Volunteers Total Number of 5 4 2 E 49 2016 ANNUAL REPORT DEFINING FGB DEFINING FGB – EARNINGS & DIVIDENDS 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 ●■ 10% common stock dividend ●■ Dividend rate per share remains $0.16 per quarter 2013 $9.1 million $4,027,000 $58,102,000 ●■ Total loans exceeded $700 million 2014 $11.2 million $4,027,000 $64,905,000 2015 $14.5 million $4,247,000 $73,445,000 2016 $14.1 million $4,870,000 $82,668,000 $165.8 million $61,686,000 ●■ Retained earnings grew by $6.8 million ●■ Total loans reached $790 million ●■ 10% common stock dividend ●■ Listed in NASDAQ ●■ Redeemed SBLF Preferred Stock ●■ Loans totaled $949 million ●■ 94th consecutive quarterly dividend * 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. 50 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Banks Headquartered in Louisiana Ranked by Asset Size as of December 31, 2016 Iberiabank First NBC Bank Origin Bank MidSouth Bank, National Association Red River Bank Home Bank Gulf Coast Bank and Trust Company First Guaranty Bank Investar Bank Business First Bank Crescent Bank & Trust Citizens National Bank, N.A. First National Banker's Bank First American Bank and Trust Sabine State Bank and Trust Company JD Bank First Federal Bank of Louisiana First Bank and Trust Fidelity Bank Ouachita Independent Bank Liberty Bank and Trust Company Resource Bank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 The Evangeline Bank and Trust Company St. Martin Bank and Trust Company 24 United Community Bank 25 Progressive Bank 26 Concordia Bank & Trust Company 27 Synergy Bank 28 South Louisiana Bank, Houma, Louisiana 29 Community Bank of Louisiana 30 Coastal Commerce Bank 31 32 Fifth District Savings Bank 33 Home Federal Bank 34 Merchants & Farmers Bank & Trust Company 35 36 Metairie Bank & Trust Company Gibsland Bank & Trust Company 37 Rayne State Bank & Trust Company 38 First National Bank of Louisiana 39 Cross Keys Bank 40 41 Bank of Commerce & Trust Co. 42 M C Bank & Trust Company 43 44 45 46 MBL Bank 47 48 49 50 51 52 53 Delta Bank 54 55 The Union Bank 56 57 58 59 60 61 62 63 64 The Bank 65 Bank of Montgomery Richland State Bank St. Landry Bank and Trust Company Farmers-Merchant Bank & Trust Company Southern Heritage Bank Florida Parishes Bank Cottonport Bank Community First Bank City Savings Bank & Trust Company Citizens Bank & Trust Company Gulf Coast Bank Tri-Parish Bank Citizen's Bank First National Bank Jonesboro State Bank Bank of Zachary Bank of Ruston City Bank & Trust Co. St. Landry Homestead Federal Savings Bank Peoples Bank and Trust Company of Pointe Coupee Parish Lafayette New Orleans Choudrant Lafayette Alexandria Lafayette New Orleans Hammond Baton Rouge Baton Rouge New Orleans Bossier City Baton Rouge Vacherie Many Jennings Lake Charles New Orleans New Orleans Monroe New Orleans Covington Ville Platte Saint Martinville Gonzales Monroe Vidalia Houma Houma Mansfield Houma New Orleans Shreveport Leesville Abbeville Metairie Gibsland Rayne Crowley Saint Joseph Crowley Morgan City Cottonport New Iberia Deridder Minden Montgomery Rayville Opelousas Breaux Bridge Jonesville Hammond Vidalia Plaquemine Marksville Ville Platte Arcadia Jonesboro Zachary Ruston Natchitoches Opelousas New Roads Jennings Eunice Patterson State Bank Citizens Progressive Bank Bank of Sunset and Trust Company Citizens Bank & Trust Company Guaranty Bank & Trust Company of Delhi, Louisiana Citizens Savings Bank Lakeside Bank Franklin State Bank & Trust Company South Lafourche Bank & Trust Company Tensas State Bank Bank of Coushatta Guaranty Bank and Trust Company Caldwell Bank & Trust Company Catahoula - LaSalle Bank Bank of Abbeville & Trust Company American Bank & Trust Company Bank of Winnfield & Trust Company Plaquemine Bank & Trust Company Citizen's Bank & Trust Company of Vivian, Louisiana Anthem Bank & Trust First National Bank USA State Bank & Trust Company Exhange Bank and Trust Company, Natchitoches, Louisiana Patterson 66 Jeanerette 67 The First National Bank of Jeanerette Delhi 68 Bogalusa 69 Columbia 70 Homeland Federal Savings Bank Coushatta 71 New Roads 72 Columbia 73 Jonesville 74 Abbeville 75 Opelousas 76 Marion 77 Marion State Bank Winnsboro 78 Washington 79 Washington State Bank Lake Charles 80 Winnsboro 81 Larose 82 Newellton 83 Winnsboro 84 Winnsboro State Bank & Trust Company Jackson 85 The Highlands Bank Winnfield 86 Plaquemine 87 Vivian 88 Plaquemine 89 Boutte 90 Golden Meadow 91 Natchitoches 92 New Orleans 93 Hibernia Bank Sunset 94 Covington 95 Belle Chasse 96 Mississippi River Bank Covington American Bank & Trust Company 97 Clinton Landmark Bank 98 Clinton 99 Feliciana Bank & Trust Company Kaplan 100 Vermilion Bank & Trust Company Saint Francisville 101 Bank of St. Francisville Delhi 102 Commercial Capital Bank Church Point 103 Farmers State Bank & Trust Co. Colfax 104 Colfax Banking Company Saint Martinville 105 Teche Bank & Trust Co. Erath 106 Bank of Erath Covington 107 Heritage Bank of St. Tammany Metairie 108 Eureka Homestead Kaplan 109 Kaplan State Bank Gueydan 110 Bank of Gueydan New Orleans 111 Union Savings and Loan Association New Orleans 112 Bank of Louisiana Simmesport 113 Simmesport State Bank 114 Jackson Parish Bank Jonesboro 115 Abbevile Building & Loan (A State-Chartered Savings Bank) Abbeville 116 Hodge Bank & Trust Company 117 Peoples Bank 118 Rayne Building and Loan Association 119 Commerce Community Bank 120 Beauregard FSB 121 The Bank of Commerce 122 First National Bank of Benton 123 Sicily Island State Bank 124 Basile State Bank 125 Bank of Oak Ridge 126 Mutual Savings and Loan Association 127 Progressive National Bank of DeSoto Parish 128 The Mer Rouge State Bank 129 Progressive National Bank of DeSoto Parish Hodge Chatham Rayne Oak Grove Deridder White Castle Benton Sicily Island Basile Oak Ridge Metairie Mansfield Mer Rouge Mansfield 51 2016 ANNUAL REPORT DEFINING FGB Our Mission The mission of First Guaranty Bank and First Guaranty Bancshares is to increase shareholder value while providing financial services for and contributing to the growth and welfare of the communities we serve. 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. 52 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Financial Table of Contents Selected Financial Data ..............................................................................................54 Management’s Discussion and Analysis of Financial Condition and Results of Operation ...................................................58 Report of Independent Registered Accounting Firm .............................................86 Consolidated Balance Sheets .....................................................................................87 Consolidated Statements of Income .........................................................................88 Consolidated Statements of Comprehensive Income (Loss) .................................89 Consolidated Statements of Shareholders’ Equity ...................................................89   Consolidated Statements of Cash Flows...................................................................90   Notes to Consolidated Financial Statements ...........................................................91  53 2016 ANNUAL REPORT DEFINING FGB 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. At or For the Years Ended December 31, 2016 2015 2014 2013 2012 (in thousands except for % and share data) $ $ $ 499,336 271 $ 948,921 11,114 $ 1,500,946 $ 1,326,181 43,230 $ 124,349 $ 124,349 $ $ $ $ 546,121 582 $ 841,583 9,415 $ 1,459,753 $ 1,295,870 42,221 $ 118,224 $ $ 641,603 $ 634,504 $ 659,243 $ 210 $ 665 $ 2,891 $ 790,321 $ 703,166 $ 629,500 $ 9,105 $ 10,355 $ 10,342 $1,518,876 $ 1,436,441 $ 1,407,303 $1,371,839 $ 1,303,099 $ 1,252,612 $ 3,255 $ 6,288 $ 15,846 $ 139,583 $ 123,405 $ 134,181 $ 118,224 $ 100,148 $ 83,970 $ 94,746 0.97% 11.18% 0.98% 11.64% 3.39% 68.57% 56.85% 60.19% 293 8.63% 8.44% 8.28% 8.68% 10.59% 12.79% 10.59% 8.10% 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% 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% 62.58% 67.17% 63.73% 271 278 274 9.24% 9.00% 6.59% 9.33% 13.16% 14.05% N/A 6.37% 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% 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) 54 FORTRESS BANKING 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 Weighted average number of shares outstanding Number of shares outstanding 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 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 58,532 10,140 48,392 3,705 5,656 3,799 32,885 21,257 14,093 14,093 1.85 0.64 16.34 15.95 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 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 34.56% 30.07% 37.18% 47.75% 40.00% 7,609,194 7,609,194 7,013,869 6,920,022 6,920,022 6,921,696 7,609,194 6,920,022 6,920,022 6,920,022 1.48% 2.34% 2.30% 50.04% 0.23% 0.42% 1.17% 1.51% 2.62% 2.43% 0.99% 1.90% 1.62% 1.27% 2.60% 2.12% 1.67% 3.74% 3.36% 42.74% 60.74% 56.72% 43.94% 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) 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. 55 2016 ANNUAL REPORT DEFINING FGB 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, 2016 2015 2014 2013 2012 (in thousands except for share data and %) $ 124,349 $ 118,224 $ 139,583 $ 123,405 $ 134,181 - 1,999 978 - 1,999 1,298 39,435 1,999 1,618 39,435 1,999 1,938 39,435 1,999 2,257 $ 121,372 $ 114,927 $ 96,531 $ 80,033 $ 90,490 7,609,194 7,609,194 6,920,022 6,920,022 6,920,022 $ $ 16.34 15.95 $ $ 15.54 15.10 $ $ 14.47 13.95 $ $ 12.13 11.57 $ $ 13.69 13.08 $ 1,500,946 $ 1,459,753 $ 1,518,876 $ 1,436,441 $ 1,407,303 1,999 978 1,999 1,298 1,999 1,618 1,999 1,938 1,999 2,257 $ 1,497,969 $ 1,456,456 $1,515,259 $1,432,504 $1,403,047 Tangible common equity to tangible assets 8.10% 7.89% 6.37% 5.59% 6.45% 56 FORTRESS BANKING 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, 2016 2015 2014 2013 2012 (in thousands except for share data and %) 56.85% 55.11% 62.85% 65.61% 58.56% $32,885 $31,095 $31,594 $30,987 $31,161 320 320 320 320 350 32,565 48,392 9,455 30,775 47,471 8,956 31,274 44,095 6,177 30,667 39,752 7,478 30,811 42,075 11,140 3,739 3,125 295 1,571 4,868 $ 5,716 $ 5,831 $ 5,882 $ 5,907 $ 6,272 60.19% 57.74% 62.58% 67.17% 63.73% 57 2016 ANNUAL REPORT DEFINING FGB 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 Item 6, "Selected Financial Data" and our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. 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," "Risk Factors" and elsewhere in this Annual Report, 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. 58 Total assets were $1.5 billion at December 31, 2016 and December 31, 2015. Total deposits were $1.3 billion at December 31, 2016 and December 31, 2015. Total loans were $948.9 million at December 31, 2016, an increase of $107.3 million, or 12.8%, compared with December 31, 2015. Common shareholders' equity was $124.3 million and $118.2 million at December 31, 2016 and December 31, 2015, respectively. Net income was $14.1 million, $14.5 million and $11.2 million for the years ended December 31, 2016, 2015 and 2014, 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. Financial highlights for 2016 and 2015: • Total assets at December 31, 2016 increased $41.2 million, or 2.8%, to $1.5 billion when compared to December 31, 2015. Total loans at December 31, 2016 were $948.9 million, an increase of $107.3 million, or 12.8%, compared with December 31, 2015. Common shareholders' equity was $124.3 million and $118.2 million at December 31, 2016 and 2015, respectively. • Net income for the years ended December 31, 2016 and 2015 was $14.1 million and $14.5 million, respectively. • Net income available to common shareholders after preferred stock dividends was $14.1 million for the years ended December 31, 2016 and 2015. Due to the redemption on December 22, 2015 of First Guaranty's Series C preferred stock issued to the U.S. Treasury Department Small Business Lending Fund, preferred dividends were discontinued. • Earnings per common share were $1.85 and $2.01 for the years FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. ended December 31, 2016 and 2015, respectively. Total shares outstanding were 7,609,194 at December 31, 2016 compared to 7,013,869 at December 31, 2015. The increase in shares was due to the completion of First Guaranty's common stock offering and 10% common stock dividend in December 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. As of December 31, 2016 the senior secured loan had an outstanding principal balance of $22.1 million. • Net interest income for 2016 was $48.4 million compared to $47.5 million for 2015. • The provision for loan losses totaled $3.7 million for 2016 compared to $3.9 million in 2015.   • The net interest margin for 2016 was 3.39%, which was an increase of 13 basis points from the net interest margin of 3.26% for 2015. First Guaranty attributed the improvement in the net interest margin to the continued shift in interest-earning asset balances from lower yielding securities to higher yielding loans. • Investment securities totaled $499.3 million at December 31, 2016, a decrease of $46.8 million when compared to $546.1 million at December 31, 2015. At December 31, 2016, available for sale securities, at fair value, totaled $397.5 million, an increase of $21.1 million when compared to $376.4 million at December 31, 2015. At December 31, 2016, held to maturity securities, at amortized cost, totaled $101.9 million, a decrease of $67.9 million when compared to $169.8 million at December 31, 2015. The decrease in investment securities was primarily associated with early payoffs of government agency securities and the decision to sell corporate bonds and municipal securities to fund loan growth.  • Total loans net of unearned income were $948.9 million at December 31, 2016 compared to $841.6 million at December 31, 2015. The net loan portfolio at December 31, 2016 totaled $937.8 million, a net increase of $105.6 million from $832.2 million at December 31, 2015. Total loans net of unearned income are reduced by the allowance for loan losses which totaled $11.1 million at December 31, 2016 and $9.4 million at December 31, 2015. • Total impaired loans increased $3.0 million to $28.8 million at December 31, 2016 compared to $25.8 million at December 31, 2015. • Nonaccrual loans increased $1.6 million to $21.7 million at December 31, 2016 compared to $20.0 million at December 31, 2015. • Return on average assets for the years ended December 31, 2016 and December 31, 2015 was 0.97%. Return on average common equity was 11.18% and 12.98% for 2016 and 2015, 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 $16.34 as of December 31, 2016 compared to $15.54 as of December 31, 2015. Tangible book value per common share was $15.95 as of December 31, 2016 compared to $15.10 as of December 31, 2015. • The increase in book value was principally due to an increase in common shareholders' equity of $6.1 million to $124.3 million at December 31, 2016. Retained earnings increased $9.2 million to $59.2 million at December 31, 2016. These increases were offset by changes in accumulated other comprehensive income (loss) ("AOCI") of $3.1 million from an unrealized loss of $0.9 million at December 31, 2015 to an unrealized loss of $4.0 million at December 31, 2016. • First Guaranty's Board of Directors declared and First Guaranty paid cash dividends of $0.64 and $0.60 per common share in 2016 and 2015. First Guaranty has paid 94 consecutive quarterly dividends as of December 31, 2016. 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, 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. 59 2016 ANNUAL REPORT DEFINING FGB 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 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 60 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, 2016, an increase of $41.2 million, or 2.8%, from total assets at December 31, 2015, primarily due to the growth in our loan portfolio of $105.6 million, partially offset by a decrease of our investment securities portfolio of $46.8 million and cash and cash equivalents of $19.2 million. Loans. Net loans increased $105.6 million, or 12.7%, to $937.8 million at December 31, 2016 from $832.2 million at December 31, 2015. Net loans increased during 2016 primarily due to a $93.7 million increase in non-farm non-residential loans, a $28.1 million increase in construction and land development loans, an $8.8 million increase in consumer and other loans, a $5.6 million increase in one- to four-family residential loans and a $3.5 million increase in farmland loans, partially offset by a $30.2 million decrease in commercial and industrial loans and a $2.1 million decrease in agricultural loans. Non-farm non-residential loans increased due to an increase in local originations and the purchase of commercial real estate loans. Construction and land development loans increased principally due to the funding of unfunded commitments on various construction projects. Consumer and other loans increased due to the continued growth in our commercial lease originations. One- to four-family residential loans increased primarily due to the continued growth in local loan originations and the purchase of conforming one-to four-family residential loans. Farmland loans increased due to seasonal funding on agricultural loan commitments.  Commercial and industrial loans decreased primarily due to pay downs in our small business loans and syndicated loans. Agricultural loans decreased due to seasonal fluctuations. Syndicated loans declined during 2016 from $105.9 million at December 31, 2015 to $82.8 million at December 31, 2016. First Guaranty had approximately 2.8% of funded and 0.4% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. There are no significant concentrations of credit to any individual borrower. As of December 31, 2016, 70.5% of our loan portfolio was secured primarily or secondarily by real estate. The largest portion of our loan portfolio, at 43.9% at December 31, 2016, was non-farm non-residential loans secured by real estate. Approximately 32.7% 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, 2016. Approximately 74.6% of the loan portfolio is scheduled to mature within five years from December 31, 2016. FORTRESS BANKING 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, 2016 2015 2014 2013 2012 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 $ 84,239 8.9% $ 56,132 6.6% $ 52,094 6.6% $ 47,550 6.7% $ 44,856 21,138 135,211 12,450 417,014 670,052 23,783 193,969 63,011 2.2% 17,672 2.1% 13,539 1.7% 9,826 14.2% 129,610 15.4% 118,181 14.9% 103,764 1.3% 12,629 1.5% 14,323 1.8% 13,771 1.4% 14.7% 2.0% 11,182 87,473 14,855 43.9% 323,363 38.3% 328,400 41.5% 336,071 47.7% 312,716 70.5% 539,406 63.9% 526,537 66.5% 510,982 72.5% 471,082 2.5% 25,838 3.1% 26,278 3.3% 21,749 3.1% 18,476 20.4% 224,201 26.6% 196,339 24.8% 151,087 21.4% 117,425 6.6% 54,163 6.4% 42,991 5.4% 20,917 3.0% 23,758 280,763 29.5% 304,202 36.1% 265,608 33.5% 193,753 27.5% 159,659 7.1% 1.8% 13.8% 2.4% 49.6% 74.7% 2.9% 18.6% 3.8% 25.3% 950,815 100.0% 843,608 100.0% 792,145 100.0% 704,735 100.0% 630,741 100.0% (1,894) (2,025) (1,824) (1,569) (1,241) $948,921 $841,583 $790,321 $703,166 $629,500 TOTAL ASSETS In Billions TOTAL LOANS In Millions 1.5 1.2 0.9 0.6 0.3 0.0 2012 2013 2014 2015 2016 1000 800 600 400 200 0 2012 2013 2014 2015 2016 61 2016 ANNUAL REPORT DEFINING FGB Loan Portfolio Maturities. The following tables summarize the scheduled repayments of our loan portfolio at December 31, 2016 and 2015. 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, 2016 More Than One Year Through Five Years One Year or Less After Five Years Total (in thousands) Real Estate: Construction & land development $ 25,096 $ 49,820 $ 9,323 $ 84,239 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 8,833 4,584 13,476 42,778 642 8,629 7,721 78,957 3,179 21,138 135,211 12,450 53,408 258,300 105,306 417,014 101,455 364,111 204,486 670,052 9,964 22,667 19,446 4,340 163,802 43,202 9,479 7,500 363 23,783 193,969 63,011 52,077 211,344 17,342 280,763 Total Loans Before Unearned Income $153,532 $575,455 $221,828 Less: unearned income Total Loans Net Of Unearned Income 950,815 (1,894) $948,921 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 Less: unearned income Total Loans Net Of Unearned Income 843,608 (2,025) $841,583 62 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. The following table sets forth the scheduled repayments of fixed and adjustable-rate loans at December 31, 2016 that are contractually due after December 31, 2017. One to five years Five to 15 years Over 15 years Subtotal Nonaccrual loans Total Due After December 31, 2016 (in thousands) Fixed Floating Total $352,000 $206,676 $558,676 115,691 46,116 161,807 53,150 5,830 58,980 $520,841 $258,622 $779,463 21,674 $757,789 As of December 31, 2016, $127.7 million of floating rate loans were at their interest rate floor. At December 31, 2015, $132.9 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. 63 2016 ANNUAL REPORT DEFINING FGB The following table shows the principal amounts and categories of our non-performing assets at December 31, 2016, 2015, 2014, 2013 and 2012. 2016 2015 December 31, 2014 (in thousands) 2013 2012 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 64 $ 551 $ 558 $ 105 2,242 5,014 2,753 10,665 1,958 8,070 981 11,009 21,674 34 - 145 - - 179 - - - - 179 21,853 - - 71 - 288 359 117 4,538 9,045 2,934 17,192 2,628 48 171 2,847 20,039 - 19 391 - - 410 - - - - 410 20,449 25 - 880 - 672 1,577 486 153 3,819 - 4,993 9,451 832 1,907 4 2,743 12,194 - - 599 - - 599 - - - - 599 12,793 127 - 1,121 - 950 2,198 $ 73 130 $ 854 312 4,248 - 7,539 11,990 526 1,946 23 2,495 14,485 - - 414 - - 414 - - - - 414 14,899 4,603 - 11,571 17,340 512 2,831 5 3,348 20,688 - - 455 - - 455 - - - - 455 21,143 754 - 1,803 - 800 3,357 - - - - 3,357 $18,256 1,083 - 1,186 - 125 2,394 - - - - 2,394 $23,537 - - - - 359 $22,212 - - - - 1,577 $22,026 - - - - 2,198 $14,991 2.34% 1.48% 2.30% 2.62% 1.51% 2.43% 1.90% 0.99% 1.62% 2.60% 1.27% 2.12% 3.74% 1.67% 3.36% FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. For the years ended December 31, 2016 and 2015, gross interest income which would have been recorded had the non-performing loans been current in accordance with their original terms amounted to $1.5 million and $1.1 million, respectively. We recognized $0.1 million and $0.1 million of interest income on such loans during the years ended December 31, 2016 and 2015, respectively. For the years ended December 31, 2016 and 2015, gross interest income which would have been recorded had the troubled debt restructured loans been current in accordance with their original terms amounted to $0.1 million and $0.3 million, respectively. We recognized $0.3 million and $0.2 million of interest income on such loans during the years ended December 31, 2016 and 2015, respectively. Non-performing assets were $22.2 million, or 1.48%, of total assets at December 31, 2016, compared to $22.0 million, or 1.51%, of total assets at December 31, 2015, which represented an increase in non- performing assets of $0.2 million. The increase in non-performing assets occurred primarily as a result of an increase in non-accrual loans from $20.0 million at December 31, 2015 to $21.7 million at December 31, 2016. The increase in non-accrual loans was concentrated in commercial and industrial loans and consumer and other loans.  This increase was partially offset by a decrease in other real estate owned of $1.2 million to $0.4 million at December 31, 2016. Non-performing assets included $1.6 million, or 7.4% of non-performing assets are 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, 2016 nonaccrual loans totaled $21.7 million, an increase of $1.6 million, or 8.2%, compared to nonaccrual loans of $20.0 million at December 31, 2015. The increase in non-accrual loans  was primarily associated with the decision to transfer  a $7.9 million syndicate loan that provides services to the oil and gas industry to non-accrual status during the first quarter of 2016.  The loan was further downgraded to doubtful status as of third quarter of 2016. The current balance on this loan was $7.7 million at December 31, 2016 and it has a specific reserve of $2.3 million. Management continues to evaluate the potential for loss associated with this credit.  Additional future reserves or charge-offs may occur with this credit as new information is evaluated. In addition, approximately $1.0 million of commercial leases were transferred to non-accrual status in the second quarter of 2016. These increases to non-accrual loans were partially offset by the return to accrual status of a $2.8 million loan secured by a multi-family real estate property; a payoff of a $0.9 million non-accrual multi-family loan; and the sale of a $1.8 million non-accrual loan secured by a hotel property.  These reductions in non-accrual loans occurred during the first quarter of 2016. During the second quarter of 2016, the  primary reduction in non-accrual loans occurred due to principal reductions on government guaranteed agricultural loans due to the receipt of guarantee proceeds. During the third quarter of 2016, the primary reduction in non-accrual loans occurred due to a $1.6 million one- to four-family lending relationship that was returned to accrual status.  During the fourth quarter of 2016, a $1.2 million non-farm non-residential loan was transferred to non-accrual status. This increase to non-accrual loans was partially offset by the payoff of a $0.4 million agricultural loan. Nonaccrual loans were concentrated in  three  loan relationships  that totaled  $14.0 million or 64.6% of nonaccrual loans at December 31, 2016. At December 31, 2016 loans 90 days or greater delinquent and still accruing totaled $0.2 million, a decrease of $0.2 million, or 56.3%, compared to $0.4 million at December 31, 2015. Other real estate owned at December 31, 2016 totaled $0.4 million, a decrease of $1.2 million from $1.6 million at December 31, 2015. The  decrease in other real estate owned was due to write-downs of $0.3 million and sales of $1.1 million, primarily related to residential properties. At December 31, 2016, our largest non-performing assets were comprised of the following non-accrual loans:  (1) a commercial and industrial loan that totaled $7.7 million that is a shared national credit involved in oil and gas support and service activity; (2) a multi-family real estate loan with a balance of $5.0 million secured by an apartment complex; and (3) a  non-farm non-residential loan that totaled $1.2 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, 2016, 2015 and 2014: At December 31, 2016 2015 2014 (in thousands) TDRs: In Compliance with Modified Terms $2,987 $3,431 $2,998 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 - - - - 361 368 2,204 - - 100 1,908 230 $3,448 $5,707 $5,432 At December 31, 2016, the outstanding balance of our troubled debt restructurings, was $3.4 million as compared to $5.7 million at December 31, 2015. At December 31, 2016, we had three outstanding TDRs: (1) a $2.9 million non-farm non-residential loan secured by commercial real estate, which was performing in accordance with its modified terms; (2) a $0.4 million construction and land development loan secured by raw land that is on non-accrual; (3) a $0.1 million loan secured by commercial real estate that subsequently defaulted and is on non-accrual. The restructuring of these loans was related to interest rate or amortization concessions.  The decline in TDRs occurred due to two credit relationships in the aggregate amount of $2.1 million that had returned to market terms and been in compliance with their modified terms for 12 months. 65 2016 ANNUAL REPORT DEFINING FGB 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 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, 2016, 2015 and 2014. Classified assets totaled $49.7 million at December 31, 2016, and included $21.9 million of non-performing loans. At December 31, 2016 2015 2014 (in thousands) $41,992 $58,654 $44,752 7,730 - - $49,722 $58,654 $44,752 $17,705 $10,752 $28,702 Classification of Loans: Substandard Doubtful Total Classified Assets Special Mention 66 The decrease in classified assets at December 31, 2016 as compared to December 31, 2015 was due to a $16.7 million decrease in substandard loans, offset by an increase in doubtful loans of $7.7 million. The decrease in substandard loans was due primarily to payoffs and sales of loans along with the decision to transfer one loan to doubtful status. Substandard loans at December 31, 2016 consisted of $18.3 million in non-farm non- residential, $7.0 million in multifamily, $6.6 million in one- to four-family residential, $4.0 million in construction and land development, $3.0 million in commercial and industrial, $2.0 million in agricultural and the remaining $1.1 million comprised of farmland and consumer and other loans. Doubtful loans increased by $7.7 million due to the transfer of the previously mentioned $7.7 million commercial and industrial loan from substandard to doubtful status. Special mention loans increased by $7.0 million due primarily to the upgrade of loans from substandard status. 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 $11.1 million at December 31, 2016 compared to $9.4 million at December 31, 2015. FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. 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. The table below reflects the activity in the allowance for loan losses for the years indicated. Balance at beginning of year $ 9,415 $ 9,105 $ 10,355 $ 10,342 $ 8,879 At or For the Years Ended December 31, 2016 2015 2014 2013 2012 (dollars in thousands) Charge-offs: Real Estate: Construction and land development 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 - - (244) - (559) (1,032) - (410) (947) - (589) - (233) (31) (220) - (1,373) (1,137) (1,515) (1,148) (65) - (1,409) (187 (459) (1,617) (3,053) (3,136) (1,632) (2,120) (83) (579) (635) (1,297) (2,914) (491) (79) (550) (1,120) (4,173) (2) (266) (289) (557) (41) (1,098) (262) (1,401) (3,693) (3,033) (49) (809) (473) (1,331) (3,451) 4 - 45 401 16 466 113 146 183 442 908 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 (2,006) (3,554) (3,212) (2,507) (2,671) 3,705 3,864 1,962 2,520 4,134 Balance at end of year $11,114 $ 9,415 $ 9,105 $10,355 $10,342 Ratios: 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 0.23% 0.21% 1.17% 18.05% 54.14% 0.44% 0.42% 1.12% 0.45% 0.41% 1.15% 0.38% 0.36% 1.47% 37.75% 35.28% 24.21% 91.98% 163.71% 99.48% 0.45% 0.42% 1.64% 25.83% 64.61% 67 2016 ANNUAL REPORT DEFINING FGB A provision for loan losses of $3.7 million was made during the year ended December 31, 2016 as compared to $3.9 million for 2015. The provisions made in 2016 were taken to provide for current loan and deposit losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. Total charge-offs were $2.9 million during the year ended December 31, 2016 as compared to $4.2 million for 2015. Recoveries totaled $0.9 million for the year ended December 31, 2016 and $0.6 million during 2015. Comparing the year ended December 31, 2016 to the year ended December 31, 2015, the increase in the allowance was primarily attributed to growth in the loan portfolio. The primary change was an increase in the balance associated with commercial and industrial loans. The reason for this change was due to the $7.7 million commercial and industrial loan mentioned above that was determined to be impaired. The charged-off loan balances for the year ended December 31, 2016 were concentrated in five loan relationships which totaled $1.4 million, or 48.0%, of the total charged-off amount. The details of the $1.4 million in charged-off loans were as follows: • First Guaranty charged off $0.6 million on a non-farm non-residential real estate loan in the first quarter of 2016.  This loan which had a remaining balance of $1.2 million was subsequently sold in the first quarter of 2016. • First Guaranty charged off  $0.2 million on a  commercial and industrial loan  in the first quarter of 2016 and had no remaining principal balance at December 31, 2016. • First Guaranty  charged off $0.2 million on a commercial and industrial loan in the second quarter of 2016 and had no remaining principal balance at December 31, 2016. • First Guaranty charged off $0.2 million on a non-farm non-residential real estate loan in the second quarter of 2016 and had no remaining principal balance at December 31, 2016. • First Guaranty charged off $0.2 million on a non-farm non-residential real estate loan in the  third quarter of 2016 and had  a remaining principal balance of $0.1 million at December 31, 2016. • $1.5 million of charge-offs for 2016 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, 2016 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 (dollars in thousands) 2015 Percent of Allowance to Total Allowance for Loan Losses Percent of Loans in Each Category to Total Loans $ 1,232 19 1,204 591 3,451 74 3,543 972 28 11.1% 0.2% 10.8% 5.3% 31.0% 0.7% 31.9% 8.7% 0.3% 8.9% 2.2% 14.2% 1.3% 43.9% 2.5% 20.4% 6.6% $ 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% 6.6% 2.1% 15.4% 1.5% 38.3% 3.1% 26.6% 6.4% -% - -% -% 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 $11,114 100.0% 100.0% $ 9,415 100.0% 100.0% 68 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. At December 31, 2014 2013 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) $ 702 21 7.7% 0.2% 2,131 23.4% 813 8.9% 2,713 29.8% 293 3.2% 1,797 19.8% 371 4.1% 6.6% 1.7% 14.9% 1.8% 41.5% 3.3% 24.8% 5.4% 264 2.9% -% $ 1,530 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% -% 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 $ 9,105 100.0% 100.0% $10,355 100.0% 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, 2012 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) $ 1,098 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% 2.1% 7.1% 1.8% 13.8% 2.4% 49.6% 2.9% 18.6% 3.8% -% $10,342 100.0% 100.0% 69 2016 ANNUAL REPORT DEFINING FGB Investment Securities. Investment securities at December 31, 2016 totaled $499.3 million, a decrease of $46.8 million, or 8.6%, compared to $546.1 million at December 31, 2015. The decrease was primarily attributed to First Guaranty's continuing strategy to transition assets from securities to the loan portfolio. 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, 2016, the U.S Government and Government agency securities and municipal bonds qualified as securities available to collateralize public funds. Securities pledged totaled $368.2 million at December 31, 2016 and $427.4 million at December 31, 2015. 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. 2016 At December 31, 2015 (in thousands) 2014 Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value $ 29,994 $ 29,994 $ 29,999 $ 29,999 $ 36,000 $ 36,000 183,152 178,332 165,364 163,811 295,620 291,495 132,448 131,972  105,680 105,136 126,654 130,063 580 573 28,177 27,957 29,181 28,645 580 47,339 28,891 582 48,233 28,608 570 574 40,599 41,676 - - $403,532 $397,473 $377,853 $376,369 $499,443 $499,808 $ 18,167 $ 17,512 $ 77,343 $ 76,622 $ 84,479 $ 82,529 83,696 82,394 92,409 91,526 57,316 57,159 $101,863 $99,906 $169,752 $168,148 $141,795 $139,688 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 $397.5 million at December 31, 2016, an increase of $21.1 million, or 5.6%, compared to $376.4 million at December 31, 2015. The increase was primarily due to the purchase of U.S. Government agency securities used to collateralize public funds deposits and the purchase of corporate debt securities. Partially offsetting this increase was the sale of $15.1 million in municipal and corporate securities in the second and third quarters of 2016 for which the proceeds were used to fund loan growth. At December 31, 2016, First Guaranty had two corporate debt securities with other-than-temporary impairment. Credit related impairment in the amount of $0.1 million was charged to earnings. Non-credit related other-than-temporary impairment of $6,000 was recorded in other comprehensive income. No other declines in fair value were deemed other-than-temporary. There were $0.2 million other-than-temporary charges recognized in earnings on securities in 2015 and no other-than- temporary losses recognized on securities in 2014. Our held-to-maturity securities portfolio had an amortized cost of $101.9 million at December 31, 2016, a decrease of $67.9 million, or 40.0%, compared to $169.8 million at December 31, 2015. The decrease was due to the early payoffs of existing securities, the continued amortization of our mortgage-backed securities and the decision to keep a higher level of securities in our available-for-sale portfolio in order to manage liquidity and fund loan growth. 70 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. The following table sets forth the stated maturities and weighted average yields of our investment securities at December 31, 2016 and 2015. At December 31, 2016 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 $ 29,994 0.4% $ - U.S. Government Agencies Corporate and other debt securities Mutual funds or other equity securities - -% 6,454 3.8% - -% 44,401 41,909 - -% 1.0% 4.0% -% $ - -% $ - -% 116,602 2.3% 17,329 2.8% 82,472 3.6% 1,137 5.4% - -% 573 -% Municipal bonds Mortgage-backed securities 3,324 2.1% 6,301 2.7% 10,896 2.9% 7,436 2.9% - -% - -% - -% 28,645 2.0% Total available-for-sale securities $ 39,772 1.1% $ 92,611 2.5% $ 209,970 2.8% $ 55,120 2.5% Held-to-maturity: U.S. Government Agencies Mortgage-backed securities Total held-to-maturity securities $ $ - - - -% -% -% $ 4,998 1.5% $ 13,169 2.0% $ - -% - -% - -% 83,696 2.1% $ 4,998 1.5% $ 13,169 2.0% $83,696 2.1% 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 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% 71 2016 ANNUAL REPORT DEFINING FGB At December 31, 2016, $39.8 million, or 8.0%, 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 $26.5 million, or 5.3%, of the total portfolio at December 31, 2016. 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, 2016, we believe that the securities portfolio has a forecasted weighted average life of approximately 5.9 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 6.2 years. At December 31, 2016, 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, 2016 Amortized Cost Fair Value (in thousands) $ 29,994 $ 29,994 53,342 53,422 52,113 52,734 109,095 106,474 98,337 95,562 $344,190 $336,877 1500 1200 900 600 300 0 TOTAL DEPOSITS In Millions 2012 2013 2014 2015 2016 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 interestbearing 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, 2015 to December 31, 2016, total deposits increased $30.3 million, or 2.3%, to $1.3 billion. Noninterest- bearing demand deposits increased $17.9 million to $231.1 million at December 31, 2016. Interest-bearing demand deposits increased $70.6 million to $479.8 million at December 31, 2016. Time deposits decreased $74.0 million, or 12.5%, to $518.0 million at December 31, 2016 compared to $592.0 million at December 31, 2015. First Guaranty had $91.1 million in brokered deposits at December 31, 2016. 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. 72 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. The following table sets forth the distribution of deposit accounts, by account type, for the dates indicated. Total Deposits 2016 2015 2014 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 $ 221,634 17.2% -% $ 211,584 15.9% -% $ 200,127 15.3% Interest-bearing Demand Savings Time Total Deposits 415,410 32.3% 89,279 7.0% 558,982 43.5% 0.6% 0.1% 1.1% 401,617 30.2% 77,726 5.8% 640,134 48.1% 0.4% -% 1.1% 386,363 29.6% 69,719 5.4% 649,165 49.7% $1,285,305 100.0% 0.7% $1,331,061 100.0% 0.6% $1,305,374 100.0% -% 0.3% -% 1.2% 0.8% Individual and Business Deposits 2016 2015 2014 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 $ 217,245 30.1% -% $ 207,334 27.6% -% $ 197,332 25.3% Interest-bearing Demand Savings 117,221 16.2% 72,647 10.0% Time 43.7% Total Individual and Business Deposits $ 723,304 100.0% 316,191 0.3% 0.1% 1.3% 112,864 15.0% 65,775 8.7% 366,244 48.7% 0.2% 0.1% 1.4% 105,569 13.5% 61,288 7.9% 414,975 53.3% 0.6% $ 752,217 100.0% 0.7% $ 779,164 100.0% -% 0.2% -% 1.4% 0.8% Public Fund Deposits 2016 2015 2014 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 $ 4,389 0.8% -% $ 4,250 0.7% -% $ 2,795 0.5% Interest-bearing Demand Savings Time 298,189 53.0% 16,632 3.0% 242,791 43.2% 0.8% 0.3% 0.8% 288,753 49.9% 11,951 2.1% 273,890 47.3% 0.4% -% 0.7% 280,794 53.4% 8,431 1.6% 234,190 44.5% Total Public Fund Deposits $ 562,001 100.0% 0.8% $ 578,844 100.0% 0.5% $ 526,210 100.0% -% 0.4% -% 0.7% 0.5% At December 31, 2016, public funds deposits totaled $556.9 million compared to $568.7 million at December 31, 2015. 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. $453.6 million of these accounts at December 31, 2016 are under fiscal agency agreements with terms of three years or less. Deposits under fiscal agency agreements are generally stable but public entities may maintain the ability to negotiate term deposits on a specific basis including with other financial institutions. Three of these relationships account for 48.2% of public fund deposits that are under fiscal agency agreements. 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. 73 2016 ANNUAL REPORT DEFINING FGB 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, 2016 2015 2014 (in thousands except for %) $ 4,114 $ 4,906 $ 3,241 324,356 20,116 208,330 296,416 14,667 252,688 321,382 10,142 266,743 $ 556,916 $ 568,677 $ 601,508 $1,326,181 $1,295,870 $1,371,839 Total Public Funds as a percent of Total Deposits 42.0% 43.9% 43.9% At December 31, 2016, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $367.9 million. At December 31, 2016, approximately $82.1 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, 2016. December 31, 2016 (in thousands) $ 285,838 63,763 18,333 $ 367,934 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 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 $6.5 million at December 31, 2016 and $1.8 million at December 31, 2015. The short-term borrowings at December 31, 2016 were comprised of a line of credit of $2.5 million, with no outstanding balance and collateralized  short-term borrowings from the Federal Home Loan Bank totaling $6.5 million. At December 31, 2016, we had $226.1 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, 2016 2015 2014 (in thousands except for %) $ 6,500 $ 1,800 $ 1,800 $25,000 $ 8,775 $ 13,800 $ 4,217 $22,356 $ 6,960 0.85% 0.65% 2.12% 4.50% 1.08% 4.50% Balance at end of year Maximum month-end outstanding Average daily outstanding Total Weighted average rate during the year Average rate during year First Guaranty Bancshares had senior long-term debt totaling $22.1 million at December 31, 2016 and $25.8 million at December 31, 2015. First Guaranty also had junior subordinated debentures totaling $14.6 million at December 31, 2016 and December 31, 2015. Shareholders’ Equity Total shareholders' equity increased to $124.3 million at December 31, 2016 from $118.2 million at December 31, 2015. The increase in shareholders' equity was principally the result of a $9.2 million increase in retained earnings, offset by an increase of $3.1 million in accumulated other comprehensive loss. The increase in accumulated other comprehensive loss was primarily attributed to the increase in unrealized losses on available-for-sale securities during the year. The $9.2 million increase in retained earnings was due to net income of $14.1 million during the  year ended  December 31, 2016, partially offset by $4.9 million in cash dividends paid on our common stock. compassionate 74 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Results of Operations Performance Summary Year ended December 31, 2016 compared with year ended December 31, 2015. Net income for the year ended December 31, 2016 was $14.1 million, a decrease of $0.4 million, or 2.8%, from $14.5 million for the year ended December 31, 2015. Net income available to common shareholders for the year ended December 31, 2016 was $14.1 million which was a decrease of $28,000. The decrease in net income of $0.4 million for the year ended December 31, 2016 was primarily the result of increased interest expense and increased noninterest expense, partially offset by an increase in interest income and noninterest income. Net gains on securities sales for the years ended December 31, 2016 and 2015 were $3.8 million and $3.3 million, respectively. Earnings per common share for the year ended December 31, 2016 was $1.85 per common share, a decrease of 8.0% or $0.16 per common share from $2.01 per common share for the year ended December 31, 2015 (as adjusted for the 10% stock dividend in December 2015). 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 sales 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). 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 2012 2013 2014 2015 2016 150 120 90 60 30 0 2012 2013 2014 2015 2016 75 2016 ANNUAL REPORT DEFINING FGB Year ended December 31, 2016 compared with year ended December 31, 2015. Net interest income for the year ended December 31, 2016 and 2015 was $48.4 million and $47.5 million, respectively. The increase in net interest income for the year ended December 31, 2016 was primarily due to a decrease in the average balance of our total interest- bearing liabilities and an increase in the average yield of our total interest-earnings assets partially offset by the increase in the average rate of our total interest-bearing liabilities and a decrease in the average balance of our total interest-earning assets. The average balance of total interest-bearing liabilities decreased by $18.7 million to $1.1 billion for the year ended December 31, 2016 as compared to the year ended December 31, 2015. The average yield on our total interest- earning assets increased 25 basis points to 4.10% for the year ended December 31, 2016 compared to 3.85% for the year ended December 31, 2015. The average rate of our total interest-bearing liabilities increased by 16 basis points to 0.92% for the year ended December 31, 2016 compared to 0.76% for the year ended December 31, 2015. The average balance of total interest-earning assets decreased by $30.2 million to $1.4 billion for the year ended December 31, 2016 as compared to the year ended December 31, 2015. As a result, our net interest rate spread increased nine basis points to 3.18% for the year ended December 31, 2016 from 3.09% for the year ended December 31, 2015, and our net interest margin increased 13 basis points to 3.39% for the year ended December 31, 2016 from 3.26% for the year ended December 31, 2015. 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 sixteen 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 fifteen basis points to 3.26% for the year ended December 31, 2015 from 3.11% for the year ended December 31, 2014. Interest Income Year ended December 31, 2016 compared with year ended December 31, 2015. First Guaranty continues to transition assets from lower yielding securities to higher yielding loans in order to increase interest income. Interest income increased $2.5 million, or 4.4%, to $58.5 million for the year ended December 31, 2016 from $56.1 million for the year ended December 31, 2015 primarily as a result of a $3.0 million increase in interest income on loans. The increase in interest income resulted primarily  from an increase in the  average yield of interest-earning assets by 25 basis points to 4.10% for the year ended December 31, 2016 compared to 3.85% for the year ended December 31, 2015. This increase was partially offset by a $30.2 million  decrease  in the average balance of our interest-earnings assets to $1.4 billion for the year ended December 31, 2016 as compared to the prior year. Interest income on securities decreased $0.5 million, or 3.7%, to $13.0 million for the year ended December 31, 2016 as a result of the decrease in the average balance of securities, which was partially offset by an increase in the average yield on securities. The average balance of securities decreased $85.9 million to $523.4 million for the year ended December 31, 2016 from $609.3 million for the year ended December 31, 2015 as a result of First Guaranty's plan to transition assets from securities into loans. The average yield on securities increased by 27 basis points to 2.48% for the year ended December 31, 2016 compared to 2.21% for the year ended December 31, 2015. Interest income on loans increased $3.0 million, or 7.0%, to $45.5 million for the year ended December 31, 2016 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 increased by $65.4 million to $881.4 million for the year ended December 31, 2016 from $816.0 million for the year ended December 31, 2015 as a result of new loan originations, the majority of which were one- to four-family residential loans, the origination of commercial leases, commercial real estate loans and commercial and industrial loans.  Partially offsetting the increase in interest income on loans was a decrease in the average yield on loans, which decreased by five basis points to 5.16% for the year ended December 31, 2016 compared to 5.21% for the year ended December 31, 2015 as a result of the low interest rate environment in 2016. 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 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. 76 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Interest Expense Year ended December 31, 2016 compared with year ended December 31, 2015.  Interest expense increased $1.5 million, or 17.8%, to $10.1 million for the year ended December 31, 2016 from $8.6 million for the year ended December 31, 2015 due to an increase in the average rate on deposits partially offset by the decrease in the average balance of deposits. Interest expense also increased due to the origination of a senior secured loan and the issuance of junior subordinated debt used to  redeem the SBLF preferred stock at the end of 2015.  The approximate increase in interest expense due to these borrowings was $1.4 million for the year ended December 31, 2016. The average rate of time deposits decreased by two basis points during the year ended December 31, 2016 to 1.07%, reflecting downward repricing of our time deposits in the continued low interest rate environment. The decrease was offset by an increase in the average rate of interest-bearing demand deposits of 28 basis points during the year ended December 31, 2016 to 0.63%. The average balance of interest-bearing deposits decreased by $55.8 million during the year ended December 31, 2016 to $1.1 billion as a result of a $81.2 million decrease in the average balance of time deposits that was partially offset by a $25.3 million increase in the average balance of interest-bearing demand deposits and savings deposits. 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.  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. 77 2016 ANNUAL REPORT DEFINING FGB December 31, 2016 December 31, 2015 December 31, 2014 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 %) 69 12,968  -  - 45,495 58,532 $ 20,857 $ 523,438 256 - 881,387 1,425,938 7,915 22,306 3,800 $1,459,959 0.33% 2.48% -% -% 5.16% 4.10% $ 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% $ 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% 7,191 20,300 5,870 $1,489,533 9,030 19,738 7,528 $1,455,011 $ 415,410 89,279 558,982 43,474 1,107,145 2,633 80 5,954 1,473 10,140 0.63% 0.09% 1.07% 3.39% 0.92% $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% $386,363 69,719 649,165 10,083 1,115,330 1,312 33 7,716 141 9,202 0.34% 0.05% 1.19% 1.40% 0.83% 221,634 5,144 1,333,923 126,036 $1,459,959 $ 318,793 211,584 5,010  1,342,391 147,142 $1,489,533 200,127 5,157 1,320,614 134,397 $1,455,011 $48,392 $47,471 $44,095 3.18% 3.39% $ 330,375 3.09% 3.26% $ 303,385 2.93% 3.11% 128.79% 129.35% 127.20% 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 Noninterest-earning assets: Cash and due from banks Premises and equipment, net Other assets Total assets 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 (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 3.42%, 3.29% and 3.13% for the years ended December 31, 2016, 2015 and 2014. A 35% tax rate was used to calculate the effect on securities income from tax exempt securities. 78 FORTRESS BANKING 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, 2016 vs. 2015 For the Years Ended December 31, 2015 vs. 2014 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 $ (27) $ 24 $ (3) $ (38) $ (5) $ (43) Securities (including FHLB stock) (2,023) 1,520 (503) (754) 830 Federal funds sold Loans held for sale - - - - - - - - - - 76 - - Loans, net of unearned income Total interest income 3,377 (418) 1,327 1,126 2,959 2,453 4,684 (1,935) 3,892 (1,110) 2,749 2,782 Interest paid on: Demand deposits Savings deposits Time deposits Borrowings Total interest expense 50 1,164 1,214 7 35 42 53 4 54 1 107 5 (868) (163) (1,031) (106) (625) (731) 1,245 62 434 1,098 1,307 1,532 (66) 91 25 (115) (479) (594) Change in net interest income $ 893 $ 28 $ 921 $4,007 $ (631) $3,376 Provision for Loan Losses 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 $3.7 million provision for loan losses for the year ended December 31, 2016 compared to $3.9 million for 2015. The allowance for loan losses at December 31, 2016 was $11.1 million or 1.17% of total loans, compared to $9.4 million or 1.12% of total loans at December 31, 2015. The decrease in the provision was attributed to the improvement in credit quality of the loan portfolio. The primary change to the credit quality of the loan portfolio was associated with the upgrades of loans. Substandard loans decreased $16.7 million to $42.0 million at December 31, 2016 from $58.7 million at December 31, 2015, partially offset by an increase in doubtful loans of $7.7 million. We believe that the allowance is adequate to cover potential losses in the loan portfolio given the current economic conditions, and current expected net charge-offs and non-performing asset levels. For the year ended December 31, 2015, the provision for loan losses was $3.9 million, an increase of $1.9 million from $2.0 million for 2014. The allowance for loan losses was $9.4 million and $9.1 million at December 31, 2015 and 2014, respectively. The primary change to the credit quality of the loan portfolio was associated with the downgrades of loans. The impaired loan portfolio did not suffer additional declines in estimated fair value requiring further provisions 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 $9.5 million for the year ended December 31, 2016, an increase of $0.5 million when compared to $9.0 million for 2015. The increase was primarily due to higher gains on securities sales. Net securities gains were $3.8 million for the year ended December 31, 2016 and $3.3 million for 2015. The gains on securities sales occurred as First Guaranty sold investment securities in order to fund loan growth.  We also continued to have gains from bonds that were called and paid off before their contractual maturity. Service charges, commissions and fees totaled $2.4 million for the year ended December 31, 2016 and $2.7 million for 2015. ATM and debit card fees totaled $1.9 million for the year ended December 31, 79 2016 ANNUAL REPORT DEFINING FGB 2016 and $1.8 million for 2015. Other noninterest income increased by $0.3 million to $1.4 million for the year ended December 31, 2016 compared to $1.1 million for 2015. Other noninterest income included a $0.1 million other-than-temporary impairment charge on an investment security. 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 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 Expense Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense increased $1.8 million to $32.9 million for the year ended December 31, 2016 compared to $31.1 million in 2015. Salaries and employee benefits expense totaled $16.6 million for 2016 and $15.5 million for 2015. Occupancy and equipment expense totaled $4.2 million for 2016 and $3.8 million for 2015. Other noninterest expense increased by $0.3 million to $12.1 million for the year ended December 31, 2016 as compared to 2015. Included in noninterest expense were flood related expenses of approximately $0.3 million that occurred during the year ended December 31, 2016. Noninterest expense  decreased $0.5 million  to $31.1 million for the year ended December 31,    2015 compared to 2014. Salaries and employee 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. The following table presents, for the years indicated, the major categories of other noninterest expense: December 31, 2016 December 31, 2015 December 31, 2014 (in thousands) Other noninterest expense: Legal and professional fees Data processing ATM fees Marketing and public relations Taxes - sales, capital and franchise Operating supplies Software expense and amortization Travel and lodging Telephone Amortization of core deposits Donations Net costs from other real estate and repossessions Regulatory assessment Other Total other expense $ 2,185 1,259 1,044 878 787 471 835 710 177 320 298 498 1,005 1,599 $12,066 $ 2,019 1,184 1,022 848 717 414 612 818 172 320 332 493 1,111 1,692 $11,754 $ 1,982 1,153 1,122 700 605 410 499 566 242 320 150 1,374 1,181 1,522 $11,826 80 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. We maintained a net borrowing capacity at the FHLB totaling $45.8 million and $116.7 million at December 31, 2016 and December 31, 2015, respectively with $6.5 million in FHLB advances outstanding at December 31, 2016 and no borrowings outstanding at December 31, 2015. At December 31, 2016, we had outstanding letters of credit from the FHLB in the amount of $226.1 million that were used to collateralize public funds deposits. We also have a discount window line with the Federal Reserve Bank of $14.9 million, with no outstanding balance at December 31, 2016. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $70.5 million at December 31, 2016. We have a revolving line of credit for $2.5 million, with no outstanding balance at December 31, 2016 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 increased to $124.3 million at December 31, 2016 from $118.2 million at December 31, 2015. The increase in total shareholders' equity was principally the result of the increase in retained earnings of $9.2 million offset by a decrease in the balance of accumulated other comprehensive income of $3.1 million to a $4.0 million loss at December 31, 2016. The $9.2 million increase in retained earnings was due to net income of $14.1 million during the year ended December 31, 2016, partially offset by $4.9 million in cash dividends paid on our common stock. 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, 2016, First Guaranty Bancshares and First Guaranty Bank were classified as well-capitalized. First Guaranty Bancshares, Inc. capital conservation buffer was 4.59% at December 31, 2016. First Guaranty Bank's capital conservation buffer was 4.99% at December 31, 2016. 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, 2016, 2015 and 2014 was $7.2 million, $7.0 million and $5.5 million, respectively. The provision for income taxes decreased in 2016 as compared to 2015. Our statutory tax rate was 35.0% for 2016, 2015 and 2014. 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, 2016 totaled $149.7 million. At December 31, 2016, time deposits maturing within one year or less totaled $359.9 million. Our held-to-maturity investment securities portfolio at December 31, 2016 was $101.9 million or 20.4% of the investment portfolio compared to $169.8 million or 31.1% at December 31, 2015. 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, 2016. The held-to-maturity portfolio had a forecasted weighted average life of approximately 5.7 years based on current interest rates at December 31, 2016. 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 $397.5 million, or 79.6% of the investment portfolio at December 31, 2016 compared to $376.4 million, or 68.9% at December 31, 2015. 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. 81 2016 ANNUAL REPORT DEFINING FGB The following table presents our capital ratios as of the indicated dates. "Well Capitalized Minimums" At December 31, 2016 "Well Capitalized Minimums" At December 31, 2015 (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% 8.68% 9.88% 10.59% 12.05% 12.79% 12.99% 10.59% 12.05% N/A 5.00% N/A 8.00% N/A 10.00% N/A 0.065 8.17% 9.74% 10.85% 12.98% 13.13% 13.86% 10.85% 12.98% 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, 2016, 2015 and 2014 are as follows: Contract Amount December 31, 2016 December 31, 2015 December 31, 2014 Commitments to Extend Credit Unfunded Commitments under lines of credit Commercial and Standby letters of credit $ 56,910 $128,428 $ 6,602 (in thousands) $ 88,081 $107,581 $ 7,486 $ 59,675 $111,247 $ 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  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, 2016, 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 82 FORTRESS BANKING 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, 2016, 2015 and 2014. Contractual Obligations The following table summarizes our fixed and determinable contractual obligations and other funding needs by payment date at December 31, 2016. 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 and evaluate the impact of both prepayments and extension risk. Payments Due by Period: December 31, 2016 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 $ 33 1,114 359,943 6,500 2,125 - $369,715 $ 61 1,682 120,015 - 5,000 - $126,758 $ 37 - 38,039 - 15,000 15,000 $68,076 $ 131 2,796 517,997 6,500 22,125 15,000 $564,549 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, 2016 illustrated on the next page reflects a liability- sensitive position with a negative cumulative gap on a one-year basis. 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 83 2016 ANNUAL REPORT DEFINING FGB December 31, 2016 Interest Sensitivity Within Over 3 Months thru 12 Months 3 Months Or Less Total One Year Over One Year Total (in thousands) $ 365,395 $ 53,796 $419,191 $529,730 $ 948,921 35,351 271 9,427 6,237 - - 41,588 271 9,427 459,564 501,152 - - 271 9,427 $ 410,444 $ 60,033 $470,477 $989,294 $1,459,771 $479,810 $ 97,280 - - $479,810 $ 97,280 - - $479,810 97,280 154,773 205,170 359,943 158,054 517,997 6,500 21,850 - - - 250 - - 6,500 22,100 - - - - 14,630 6,500 22,100 14,630 321,454 321,454 $ 760,213 $205,420 $965,633 $494,138 $1,459,771 $(349,769) $(145,387) $(495,156) $495,156 $(349,769) $(495,156) $(495,156) $ - 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 -24.0% -33.9% -33.9% 84 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. 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, 2016. 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, 2016 Instantaneous Changes in Interest Rates (basis points) Percent Change in Net Interest Income +400 +300 +200 +100 Base -100 (14.10%) (10.44%) (6.76%) (3.21%) -% (1.59%) Gradual Changes in Interest Rates (basis points) Percent Change in Net Interest Income +400 +300 +200 +100 Base -100 (7.29%) (5.38%) (3.51%) (1.59%) -% 2.55% 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 37.5% in 2015 to 35.0% in 2016. 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. balance Sheet A statement of financial condition at a given date A balance sheet also known as the statement of financial position tells about the assets, liabilities and equity of a business at a specific point of time. It is a snapshot of a business. A balance sheet is an extended form of the accounting equation. An accounting equation is: Assets = Liabilities + Equity Assets are the resources controlled by a business, equity is the obligation of the company to its owners and liabilities are the obligations of parties other than owners. A balance sheet is named so because it lists all resources owned by the company and shows that it is equal to the sum of all liabilities and the equity balance. http://accountingexplained.com/financial/ statements/balance-sheet 85 2016 ANNUAL REPORT DEFINING FGB Samuel R. Lolan, CPA Lori D. Percle, CPA Debbie B. Taylor, CPA Katherine H. Armentor, CPA Robin G. Freyou, CPA Shalee M. Landry, CPA Trenton R. Hardy, CPA Brittany S. Guidry, CPA Charles E. Castaing, 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. and subsidiary as of December 31, 2016 and 2015, 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, 2016. 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. and subsidiary as of December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2016 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. and subsidiary's internal control over financial reporting as of December 31, 2016, 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 30, 2017 expressed an unqualified opinion thereon. Castaing, Hussey & Lolan, LLC New Iberia, Louisiana March 30, 2017 86 FORTRESS BANKING 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 $99,906 and $168,148, 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 Shareholders' Equity Common stock1: $1 par value - authorized 100,600,000 shares; issued 7,609,194 shares Surplus Retained earnings Accumulated other comprehensive (loss) income Total Shareholders' Equity Total Liabilities and Shareholders' Equity December 31, 2016 December 31, 2015 (in thousands, except share data) $ 17,840 271 18,111 $ 36,690  582 37,272 -  997 397,473 101,863 499,336 376,369 169,752 546,121 1,816 935 948,921 11,114 937,807 23,519 1,999 1,056 359 7,039 9,904 $1,500,946 $231,094 479,810 97,280 517,997 1,326,181 6,500 1,931 22,100 14,630 5,255 1,376,597 841,583 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 7,609 61,584 59,155 (3,999) 124,349 $1,500,946 7,609 61,584 49,932 (901) 118,224 $1,459,753 See Notes to the Consolidated Financial Statements. 1 All share amounts have been restated to reflect the ten percent stock dividend paid December 17, 2015 to shareholders of record as of December 10, 2015. 87 2016 ANNUAL REPORT DEFINING FGB FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2015 2016 2014 Interest Income: Loans (including fees) Deposits with other banks Securities (including FHLB stock) 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) $ 45,495 69 12,968 58,532 2,633 80 5,954 1,473 10,140 48,392 3,705 44,687 2,388 1,859 3,799 14 1,395 9,455 16,577  4,242 12,066 32,885 $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 $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 21,257 7,164 14,093 - $ 14,093 21,468 6,963 14,505 (384) $ 14,121 16,716 5,492 11,224 (394) $ 10,830 $ $ 1.85 0.64 $ $ 2.01 0.60 $ $ 1.57 0.58 7,609,194 7,013,869 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. 88 FORTRESS BANKING 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 See Notes to Consolidated Financial Statements (in thousands) $14,093 $14,505 $11,224 (955) (3,799) 60 (4,694) 1,596 (3,098) $10,995 1,394 (3,300) 175 (1,731) 589 (1,142) $13,363 14,499 (295) - 14,204 (4,829) 9,375 $20,599 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 (Loss) Income Total (in thousands, except share data) 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 Net income Other comprehensive income Cash dividends on common stock ($0.64 per share) Balance December 31, 2016 See Notes to Consolidated Financial Statements $39,435 - - - - $39,435 - $6,923 - - - - $6,923 - $51,646 - - - - $51,646 - - - (39,435 ) (3) - - - - - - 689 9,938 - - $ - - - - - $7,609 - - - - $61,584 - - - $ - - $7,609 - $61,584 $ (54) $34,589 11,224 - - - $(9,134) - 9,375 $123,405 11,224 9,375 - - (4,027) (394) $ (54) $41,392 14,505 - 54 - - - - - - - - - - $ $ (51) - - (1,283) (4,247) (384) $49,932 14,093 - (4,870) $59,155 - - $ 241 - (4,027) (394) $139,583 14,505 -  (1,142) - -  (1,142) (39,435) - 9,344 - - $ (901) -  (3,098) (4,247) (384) $118,224 14,093  (3,098) - $ (3,999) (4,870) $124,349 (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. 89 2016 ANNUAL REPORT DEFINING FGB FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS 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 Gain on sale of assets Repossessed asset 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 (used in) provided by investing activities Cash Flows From Financing Activities: Net increase (decrease) in deposits Net increase (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 provided by (used in) 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 90 Years Ended December 31, 2016 2015 2014 (in thousands) $ 14,093 $ 14,505 $11,224 3,705 2,190 2,239 (3,799) 60 (76) 243 (6) - 3,563 22,212 - 1,001 85,875 1,000,905 (18,563) (1,024,632) - (875) (109,467) (4,109) 983 1,098 (67,784) 30,311 4,700 - (3,730) - - - (4,870) 26,411 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 (19,161) 37,272 $ 18,111 (7,303) 44,575 $ 37,272 (16,909) 61,484 $44,575 $ 123 $ 1,184 $ 2,330 $ $ 9,916 3,000 $ 8,898 $ 8,400 $ 9,569 $ 4,500 FORTRESS BANKING 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 income. 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 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. 91 2016 ANNUAL REPORT DEFINING FGB 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. 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 92 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 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 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. 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. 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. 93 2016 ANNUAL REPORT DEFINING FGB Other real estate Transfers of Financial Assets 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. 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 taxes 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 2013. 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 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. 94 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 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. Operating Segments 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 2016. Note 2. Recent Accounting Pronouncements 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. In  June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments". This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The ASU amendments require the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires assets held at cost basis to reflect  the  Company's  current estimate of all expected credit losses. For available for sale debt securities, credit losses should be presented as an allowance rather than as a write-down. In addition, this ASU amends the accounting for purchased financial assets with credit deterioration. This ASU is effective for annual and interim periods beginning after December 15, 2019. We are currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements. In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment". This ASU amends the guidance on impairment testing. The ASU eliminates FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU is effective for annual and interim periods beginning after December 15, 2019. We are currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements. In January 2017, the FASB issued ASU 2017-01, "Business Combinations: Clarifying the Definition of a Business". This ASU clarifies the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This ASU is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This ASU is effective for annual and interim periods beginning December 15, 2017. The adoption of this ASU is not expected to have a material effect on the 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, 2016 and 2015. At December 31, 2016 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 $4,000. 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. Note 4. Securities A summary comparison of securities by type at December 31, 2016 and 2015 is shown below. December 31, 2016 December 31, 2015 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) $ 29,994 $ - $ - $ 29,994 $ 29,999 $ - $ - $ 29,999 183,152 - (4,820) 178,332 165,364 - (1,553) 163,811 132,448 1,624 (2,100) 131,972 105,680 2,259 (2,803) 105,136 Available-for-sale: U.S Treasuries U.S. Government Agencies Corporate debt securities Mutual funds or other equity securities Municipal bonds Mortgage-backed securities 580 28,177 29,181 - 100 - (7) (320) (536) 573 27,957 28,645 580 47,339 28,891 2 899 - - (5) 582 48,233 (283) 28,608 Total available-for-sale securities $ 403,532 $1,724 $(7,783) $397,473 $377,853 $3,160 $(4,644) $376,369 Held to maturity: U.S. Government Agencies Mortgage-backed securities $ 18,167 $ - $ (655) $ 17,512 $ 77,343 $ - $ (721) $ 76,622 83,696 - (1,302) 82,394 92,409 9 (892) 91,526 Total held to maturity securities $101,863 $ - $(1,957) $99,906 $169,752 $ 9 $(1,613) $168,148 95 2016 ANNUAL REPORT DEFINING FGB The scheduled maturities of securities at December 31, 2016, 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, 2016 Amortized Cost Fair Value (in thousands ) $ 39,711 $ 39,772 91,818 215,615 27,207 374,351 29,181 92,611 209,970 26,475 368,828 28,645 $403,532 $397,473 $ - $ - 4,998 13,169 - 18,167 83,696 4,953 12,559 - 17,512 82,394 $101,863 $ 99,906 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, 2016 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 %) 3 54 $ 10,997 $ - 178,331 (4,820) - - $ - - $ - - 3 54 $ 10,997 $ - 178,331 (4,820) 185 61,669 (1,613) 26 6,440 (487) 211 68,109 (2,100) 1 14 16 493 10,210 28,645 (7) (320) (536) - - - - - - - - - 1 14 16 493 10,210 28,645 (7) (320) (536) 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 273 $ 290,345 $(7,296) 26 $6,440 $ (487) 299 $ 296,785 $ (7,783) Held-to-maturity: U.S. Government agencies Mortgage-backed securities Total held-to-maturity securities 96 10 48 58 $ 17,512 $ (655)  82,394 (1,302) $ 99,906 $(1,957) - - - $ $ - - - $ $ - - - 10 48 58 $ 17,512 $ (655) 82,394 (1,302) $ 99,906 $(1,957) FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. 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 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) As of December 31, 2016, 357 of First Guaranty's debt securities had unrealized losses totaling 2.4% of the individual securities' amortized cost basis and 1.9% of First Guaranty's total amortized cost basis of the investment securities portfolio. 26 of the 357 securities had been in a continuous loss position for over 12 months at such date. The 26 securities had an aggregate amortized cost basis of $6.9 million and an unrealized loss of $0.5 million at December 31, 2016. 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 have other-than-temporary impairment losses at December 31, 2016. 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 date. 97 2016 ANNUAL REPORT DEFINING FGB During the years ended December 31, 2016 and 2015, First Guaranty recorded OTTI losses on available-for-sale securities as follows: Year Ended December 31, 2016 Year Ended December 31, 2015 (in thousands) (in thousands) Total OTTI charge realized and unrealized OTTI recognized in other comprehensive income (non-credit component) Net impairment losses recognized in earnings (credit component) $66 $571 6 $60 396 $175 There were $0.1 million, $0.2 million, and $0 other-than-temporary impairment losses recognized on securities in 2016, 2015 and 2014, respectively. 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 ended December 31, 2016 and 2015: (in thousands) (in thousands) Beginning balance of credit losses at beginning of year 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 end of year $175 $ - 60 175 - - (175) - - - $ 60 $175 In 2016 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 $0.1 million at December 31, 2016. 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 $0.1 million that experienced declines in its financial performance associated with the utilities industry. This corporate debt security had a non-credit related impairment of approximately $6,000. 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. 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. This security was sold in 2016. 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. Non-credit related other-than-temporary impairment losses recognized in other comprehensive income totaled $6,000 in 2016, $0.4 million in 2015, and zero in 2014. The impairment losses in 2016 were related to one available for sale corporate bond security, described above, which had original amortized cost of $0.1 million. The impairment losses in 2015 were related to two available for sale corporate bond securities, described above, which had original amortized cost of $0.8 million. At December 31, 2016 and 2015 the carrying value of pledged securities totaled $368.2 million and $427.4 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 $3.6 million, $3.3 million (including the sale of the converted preferred security) and $0.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. Gross realized losses were $53,000, $0.4 million and $0.2 million for the years ended December 31, 2016, 2015 and 2014. The tax applicable to these transactions amounted to $1.3 million, $1.2 million, and $0 million for 2016, 2015 and 2014, respectively. Proceeds from sales of securities classified as available-for-sale amounted to $191.0 million, $290.0 million and $109.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income (loss) ("AOCI"), net of applicable income taxes, totaled $4.0 million at December 31, 2016. At December 31, 2015 net unrealized losses included in AOCI, net of applicable income taxes, totaled $0.9 million. During 2016 and 2015 net gains, net of tax, reclassified out of AOCI into earnings totaled $2.5 million and $2.1 million, respectively. 98 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. At December 31, 2016, 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, 2016 Amortized Cost Fair Value (in thousands) $ 29,994 $ 29,994 U.S. Treasuries Federal Home Loan Bank (FHLB) 53,342 52,113 Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC) Federal National Mortgage Association (Fannie Mae-FNMA) Federal Farm Credit Bank (FFCB) Total 53,422 52,734 109,095 106,474 98,337 95,562 $344,190 $336,877 December 31, 2016 2015 Balance As % of Category Balance As % of Category (in thousands except for %) $ 84,239 21,138 8.9% 2.2% $ 56,132 17,672 6.6% 2.1% 135,211 14.2% 129,610 15.4% 12,450 1.3% 12,629 1.5% 417,014 43.9% 323,363 38.3% 670,052 70.5% 539,406 63.9% 23,783 2.5% 25,838 3.1% 193,969 20.4% 224,201 26.6% 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 63,011 6.6% 54,163 6.4% Total Non-real Estate 280,763 29.5% 304,202 36.1% Total Loans Before Unearned Income 950,815 100.0% 843,608 100.0% Unearned income (1,894) (2,025) Total Loans Net of Unearned Income $948,921 $841,583 The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of December 31, 2016 and December 31, 2015 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 2016 December 31, (in thousands) 2015 Fixed Floating Total Fixed Floating Total $ 97,713 $ 51,965 $149,678 $ 86,975 $ 48,111 $135,086 352,000 115,691 53,150 $618,554 206,676 558,676 46,116 161,807 315,685 49,197 246,374 31,456 562,059 80,653 5,830 $310,587 58,980 36,438 9,333 45,771 929,141 $488,295 $335,274 823,569 21,674 950,815 (1,894) $948,921 20,039 843,608 (2,025) $841,583 As of December 31, 2016, $127.7 million of floating rate loans were at their interest rate floor. At December 31, 2015, $132.9 million of floating rate loans were at the floor rate. Nonaccrual loans have been excluded from these totals. 99 2016 ANNUAL REPORT DEFINING FGB The following tables present the age analysis of past due loans for the periods indicated: As of December 31, 2016 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current (in thousands) Total Loans Recorded Investment 90 Days Accruing $ 173 234 1,108 - 1,618 3,133 64 552 182 798 $ 585 $ 758 $ 83,481 $ 84,239 $ 34 105 2,387 5,014 2,753 339 3,495 5,014 4,371 20,799 21,138 131,716 135,211 7,436 12,450 412,643 417,014 - 145 - - 10,844 13,977 656,075 670,052 179 1,958 8,070 981 2,022 8,622 1,163 21,761 23,783 185,347 193,969 61,848 63,011 11,009 11,807 268,956 280,763 - - - - 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 Loans Before Unearned Income $3,931 $21,853 $25,784 $925,031 950,815 $179 Unearned income Total Loans Net of Unearned Income As of December 31, 2015 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current (in thousands) (1,894) $948,921 Total Loans Recorded Investment 90 Days Accruing Real Estate: Construction & land development $ 12 $ 558 $ 570 $ 55,562 $ 56,132 $ - 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 $8,177 136 136 17,536 17,672 4,929 7,475 122,135 129,610 9,045 9,045 3,584 12,629 2,934 4,928 318,435 323,363 19 391 - - 17,602 22,154 517,252 539,406 410 2,628 4,974 20,864 25,838 48 171 362 223,839 224,201 1,136 53,027 54,163 2,847 6,472 297,730 304,202 - - - - $20,449 $28,626 $814,982 843,608 $410 (2,025) $841,583 The tables above include $21.7 million and $20.0 million of nonaccrual loans for December 31, 2016 and 2015, respectively. See the tables below for more detail on nonaccrual loans. 100 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. The following is a summary of nonaccrual loans by class for the periods indicated: As of December 31, 2016 2015 (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 551 105 2,242 5,014 2,753 $ 558 117 4,538 9,045 2,934 10,665 17,192 1,958 8,070 981 2,628 48 171 11,009 2,847 $21,674 $20,039 The following table identifies the credit exposure of the loan portfolio by specific credit ratings for the periods indicated: As of December 31, 2016 As of December 31, 2015 Pass Special Mention Sub- standard Doubtful Total Pass Special Mention Sub- standard Doubtful Total Real Estate: Construction & land development $ 79,069 $ 1,162 $ 4,008 $ 20,652 123,191 4,268 381 5,460 1,132 105 6,560 7,050 392,355 6,406 18,253 619,535 14,541 35,976 Farmland 1-4 family Multifamily Non-farm non-residential Total Real Estate Non-Real Estate: Agricultural Commercial and industrial Consumer and other (in thousands) $84,239 $ 51,681 $ 386 $ 4,065 $ 21,138 17,554 - 135,211 115,878 6,425 12,450 3,584 - 118 7,307 9,045 417,014 296,682 3,288 23,393 670,052 485,379 10,099 43,928 - - - - - - - Total Non-Real Estate 263,853 Total Loans Before Unearned Income $ 883,388 Unearned income Total Loans Net of Unearned Income 20,890 182,381 920 850 1,973 23,783 20,860 3,008 7,730 193,969 214,184 60,582 1,394 1,035 - 63,011 53,779 3,164 6,016 7,730 280,763 288,823 4 471 178 653 4,974 9,546 206 14,726 $ 17,705 $41,992 $7,730 950,815 $ 774,202 $10,752 $58,654 $ (1,894) $948,921 - - - - - - - - - - - $56,132 17,672 129,610 12,629 323,363 539,406 25,838  224,201 54,163 304,202 843,608 (2,025) $841,583 101 2016 ANNUAL REPORT DEFINING FGB 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, 2016, 2015 and 2014 are as follows: As of December 31, 2016 2015 Beginning Allowance (12/31/15) Charge- Offs Recoveries Provision Ending Al- lowance (12/31/16) Beginning Allowance (12/31/14) Charge- Offs Recoveries Provi- sion Ending Allowance (12/31/15) (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 Unallocated $ 4 $ 266 $ 1,232 $ 702 $(559) $ 5 $ 814 $ 962 $ 962 $ 54 - - 1,771 (244) 557 - - 45 401 (35) (368) (367) 3,298 (1,373) 16 1,510 6,642 (1,617) 466 1,006 19 1,204 591 3,451 6,497 21 2,131 813 - (410) (947) - 94 46 33 (44) 645 2,713 (1,137) 6,380 (3,053) 5 150 1,717 3,165 54 1,771 557 3,298 6,642 16 (83) 113 28 74 293 (491) 3 211 16 315 151 - 469 494 258 (264) 699 2,527 230 - 2,773 $9,415 2,527 (579) 230 (635) - - 146 183 - 1,449 1,194 28 3,543 972 28 1,797 371 264 (79) (550) - Total Non-Real Estate 2,773 (1,297) 442 2,699 4,617 2,725 (1,120) Total $ 9,415 $(2,914) $908 $3,705 $11,114 $ 9,105 $(4,173) $619 $3,864 As of December 31, 2014 Beginning Allowance (12/31/13) Charge- Offs Ending Allowance (12/31/14) Recoveries Provision (in thousands) Real Estate: Construction & land development $ 1,530 $(1,032) $ 6 $ 198 $ 702 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 17 - 1,974 (589) 376 - 3,607 (1,515) - 99 49 9 4 647 388 612 7,504 (3,136) 163 1,849 46 2,176 208 421 (2) (266) (289) - 2,851 (557) $10,355 $(3,693) 1 118 199 - 318 $481 248 (231) 253 (157) 113 $1,962 21 2,131 813 2,713 6,380 293 1,797 371 264 2,725 $9,105 102 FORTRESS BANKING 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, 2016 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 $ - $1,232 $1,232 $ 361 $ 83,878 $ 84,239 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 - 8 164 247 419 11 2,375 193 - 2,579 $2,998 19 1,196 427 3,204 6,078 19 1,204 591 3,451 6,497 63 74 1,168 3,543 779 28 972 28 - 21,138 21,138 1,130 5,014 10,803 17,308 1,614 8,965 924 - 134,081 135,211 7,436 12,450 406,211 417,014 652,744 670,052 22,169 23,783 185,004 193,969 62,087 63,011 - - 2,038 4,617 11,503 269,260 280,763 $8,116 $11,114 $28,811 $922,004 950,815 (1,894) $948,921 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 - - - - - $2,363 54 1,160 103 2,000 4,279 16 2,527 230 - 2,773 $7,052 54 1,771 557 3,298 6,642 16 2,527 230 - 2,773 $9,415 - 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 - - 5,034 299,168 304,202 $31,142 $812,466 843,608 (2,025) $841,583 103 2016 ANNUAL REPORT DEFINING FGB As of December 31, 2016, 2015 and 2014, First Guaranty had loans totaling $21.7 million, $20.0 million and $12.2 million, respectively, not accruing interest. As of December 31, 2016, 2015 and 2014, First Guaranty had loans past due 90 days or more and still accruing interest totaling $0.2 million, $0.4 million and $0.6 million, respectively. The average outstanding balance of nonaccrual loans in 2016 was $22.5 million compared to $14.9 million in 2015 and $13.8 million in 2014. Included in the above table is a loan for $5.3 million at December 31, 2015, that was not considered impaired but was still individually evaluated for impairment since it was formally a restructured credit that subsequently return to market terms. As of December 31, 2016, 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, 2016: As of December 31, 2016 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 $ 361 $ 823 $ - $ 363 $ 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 - - 863 1,196 - - 8,501 9,430 9,725 11,449 1,603 1,742 - 686 - 685 2,289 2,427 12,014 13,876 - - - - - - - - - - - 1,044 - 8,949 10,356 1,377 - 724 2,101 12,457 - - 267 5,014 2,302 - - 303 5,305 2,296 7,583 7,904 - - 8 164 247 419 - - 279 5,169 2,334 7,782 11 11 11 11 8,965 9,117 2,375 9,379 238 244 193 289 9,214 9,372 2,579 9,679 - - 49 - 196 245 30 - 18 48 293 - - - - 119 119 - 72 8 80 $ - - 48 - 175 223 - - 12 12 235 - - - - 113 113 - 72 7 79 Total Impaired Loans with an allowance recorded 16,797 17,276 2,998 17,461 199 192 Total Impaired Loans $28,811 $31,152 $2,998 $29,918 $ 492 $ 427 104 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. 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 Non-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 $1,361 105 2016 ANNUAL REPORT DEFINING FGB 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 2016, there were no credit relationships that were restructured in a troubled debt restructuring. 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. The following table is an age analysis of TDRs as of December 31, 2016 and December 31, 2015: Troubled Debt Restructurings December 31, 2016 December 31, 2015 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) $361 $ 361 $ - - - - - - $ - - - - 100 461 3,087 3,448 3,431 3,431 - - - - - - - - - - - - $461 $3,448 $3,431 $ - - - - - - - - - - - $ 368 $ 368 - - 1,702 1,702 - - 206 3,637 2,276 5,707 - - - - - - - - $2,276 $5,707 - - - - - - - - - - - $ - - - - 2,987 2,987 - - - - $2,987 $ The following table discloses TDR activity for the twelve months ended December 31, 2016. Trouble Debt Restructured Loans Activity Twelve Months Ended December 31, 2016 Beginning balance (December 31, 2015) Charge-Offs post- modification New TDRs Transferred to ORE Paydowns Construction to permanent financing Restructured to market terms Other adjustments Ending balance (December 31, 2016) (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 Impaired Loans with no related allowance 106 $ 368 $ - $ - $ - - 1,702 - 3,637 5,707 - - - - - - - - - - - - - - - - (111) (111) - - - - - - - - - - - - - $(6) - (32) - (3) (41) - - - - $ - $ - $(1) $ 361 - - - - - - - - - - (1,670) - (441) (2,111) - - - - - - - 5 4 - - - - - - - 3,087 3,448 - - - - $5,707 $ - $(111) $ - $(41) $ - $(2,111) $ 4 $3,448 FORTRESS BANKING 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, 2016. Note 7. Premises and Equipment The components of premises and equipment at December 31, 2016 and 2015 are as follows: December 31, 2016 2015 (in thousands) Land Bank premises Furniture and equipment Construction in progress Acquired value Less: accumulated depreciation $ 7,185 21,229 21,689 2,106 52,209 28,690 $ 7,227 18,914 21,060 2,667 49,868 27,849 Net book value $23,519 $22,019 Depreciation expense amounted to $1.7 million, $1.6 million and $1.7 million for 2016, 2015 and 2014, 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, 2016 and 2015. The following table summarizes intangible assets subject to amortization. December 31, 2016 2015 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 $ 8,372 189 $ 8,561 $978 78 $1,056 $9,350 267 $9,617 $ 8,052 171 $ 8,223 $1,298 96 $1,394 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 3.6 years. Amortization expense relating to purchase accounting intangibles totaled $0.3 million, $0.3 million, and $0.3 million for the years ended December 31, 2016, 2015, and 2014, 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, 2017 December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 (in thousands) $320 $320 $135 $135 $ 68 107 2016 ANNUAL REPORT DEFINING FGB 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, 2016 2015 (in thousands) $ 71 $880 - 25 288  672 $359 $1,577 Note 10. Deposits A schedule of maturities of all time deposits are as follows: December 31, 2016 (in thousands) $359,943 78,927 41,088 23,318 14,721 $517,997 2017 2018 2019 2020 2021 and thereafter Total The table above includes, for December 31, 2016, brokered deposits totaling $20.8 million. The aggregate amount of jumbo time deposits, each with a minimum denomination of $250,000 totaled $241.4 million and $305.1 million at December 31, 2016 and 2015, respectively. Note 11. Borrowings Short-term borrowings are summarized as follows: December 31, 2016 December 31, 2015 (in thousands) Federal Home Loan Bank advances Line of credit Total short-term borrowings $6,500 - $6,500 $ - 1,800 $1,800 First Guaranty maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short and long-term basis to meet liquidity needs. Short-term borrowings totaled $6.5 million at December 31, 2016 and $1.8 million at December 31, 2015. Short-term borrowing consisted of a line of credit of $2.5 million, with no outstanding balance at December 31, 2016 and collateralized short-term borrowings from the Federal Home Loan Bank totaling $6.5 million at December 31, 2016. Available lines of credit totaled $133.7 million at December 31, 2016 and $206.2 million at December 31, 2015. 108 December 31, 2016 2015 2014 (in thousands except for %) Outstanding at year end $ 6,500 $ 1,800 $ 1,800 Maximum month-end outstanding Average daily outstanding Weighted average rate during the year Average rate at year end $25,000 $ 8,775 $13,800 $ 4,217 $22,356 $ 6,960 0.85% 0.65% 2.12% 4.50% 1.08% 4.50% 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 (4.50%), totaled $0.3 million at December 31, 2016 and $0.9 million at December 31, 2015. 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 (3.37%), totaled $21.8 million at December 31, 2016 and $25.0 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, 2016 and $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 and 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 $2.5 million at December 31, 2016. This line of credit is secured by the same collateral as the senior term loan and is priced at 4.75%. At December 31, 2016, letters of credit issued by the FHLB totaling $226.1 million were outstanding and carried as off-balance sheet items, all of which expire in 2017. 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 expired in 2016. 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. FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. As of  December 31, 2016 obligations on senior long-term debt and junior subordinated debentures totaled $36.7 million. The scheduled maturities are as follows: Senior Long-term Debt Junior Subordinated Debentures (in thousands) $ 2,125 $ 2017 2018 2019 2020 2021 2022 and thereafter Subtotal Debt issuance costs Total 2,500 2,500 2,500 2,500 10,000 $22,125 (25) $22,100 - - - - - 15,000 $15,000 (370) $14,630 Note 12. Preferred Stock 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 2016 First Guaranty paid no preferred stock dividends compared to $0.4 million in 2015 and $0.4 million in 2014. On December 22, 2015, First Guaranty redeemed all of the 39,435 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series C, which 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, 2016 and 2015, that First Guaranty and the Bank met all capital adequacy requirements. the minimum to establishing In addition regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5% on January 1, 2019. For 2017, the capital conservation buffer will be 1.25% of risk-weighted assets. First Guaranty Bancshares, Inc. capital conservation buffer was 4.59% at December 31, 2016. First Guaranty Bank's capital conservation buffer was 4.99% at December 31, 2016. As of December 31, 2016, 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. First Guaranty's and the Bank's actual capital amounts and ratios as of December 31, 2016 and 2015 are presented in the following table. 109 2016 ANNUAL REPORT DEFINING FGB First Guaranty's and the Bank's actual capital amounts and ratios as of December 31, 2016 and 2015 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 %) $151,877 12.79% $ 94,982 8.00% N/A N/A $153,768 12.99% $ 94,717 8.00% $118,396 10.00% $125,763 10.59% $ 71,236 6.00% N/A N/A $142,654 12.05% $ 71,038 6.00% $ 94,717 8.00% $125,763 8.68% $ 57,930 4.00% N/A N/A $142,654 9.88% $ 57,771 4.00% $ 72,214 5.00% $125,763 10.59% $ 53,427 4.50% N/A N/A $142,654 12.05% $ 53,278 4.50% $ 76,958 6.50% $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% December 31, 2016 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, 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 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 110 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 2017 without permission will be limited to 2017 earnings plus the undistributed earnings of $3.8 million from 2016. FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC.         Accordingly, at January 1, 2017, $137.4 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, 2016 and 2015 follows: December 31, 2016 2015 (in thousands) Balance, beginning of year $57,816 $53,808 Net Increase Balance, end of year 463 4,008 $58,279 $57,816 Unfunded commitments to First Guaranty and Bank directors and executive officers totaled $24.9 million and $31.6 million at December 31, 2016 and 2015, respectively. At December 31, 2016 First Guaranty and the Bank had deposits from directors and executives totaling $28.7 million. There were no participations in loans purchased from affiliated financial institutions included in First Guaranty's loan portfolio in 2016 or 2015. During the years ended 2016, 2015 and 2014, First Guaranty paid approximately $0.3 million, $0.2 million and $0.2 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, $0 and $2.3 million for 2016, 2015 and 2014, 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. On December 21, 2015, First Guaranty issued a $15.0 million subordinated note (the "Note") to Edgar Ray Smith III, a director of First Guaranty. The Note is for a ten-year term (non-callable for first five years) and will bear interest at a fixed annual rate of 4.0% for the first five years of the term and then adjust to a floating rate based on the Prime Rate as reported by the Wall Street Journal plus 75 basis points for the period of time after the fifth year until redemption or maturity. First Guaranty paid interest of $0.6 million in 2016 for this note. During the years ended 2016, 2015 and 2014, First Guaranty paid approximately $0.3 million, $0.2 million and $25,000, respectively, for architectural services in relation to bank branches to Gasaway Gasaway Bankston Architects, of which bank subsidiary board member Andrew B. Gasaway is part owner. 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 $191,000, $86,000 and $87,000 in 2016, 2015 and 2014, 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 2016, 2015 or 2014. As of December 31, 2016, the ESOP held 15,159 shares. First Guaranty does not plan to make future contributions to this plan. Note 17. Other Expenses The following is a summary of the significant components of other noninterest expense: Other noninterest expense: Legal and professional fees Data processing ATM Fees Marketing and public relations Taxes - sales, capital and franchise Operating supplies Software expense and amortization Travel and lodging Telephone Amortization of core deposits Donations Net costs from other real estate and repossessions Regulatory assessment Other December 31, 2016 2015 2014 (in thousands) $ 2,185 $ 2,019 $ 1,982 1,259 1,044 1,184 1,022 1,153 1,122 878 787 471 835 710 177 320 298 848 717 414 612 818 172 320 332 700 605 410 499 566 242 320 150 498 1,005 1,599 493 1,111 1,692 1,374 1,181 1,522 Total other noninterest expense $12,066 $11,754 $11,826 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, $0.6 million and $0.4 million for 2016, 2015 and 2014, 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, 2016 2015 2014 (in thousands) Current Deferred Total $8,168 $7,347 $4,898 (1,004) (384) 594 $7,164 $6,963 $5,492 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, 2016 2015 2014 (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 $7,440 $7,514 $5,851 (283) 7 (436) (115) (284) (75) $7,164 $6,963 $5,492 111 2016 ANNUAL REPORT DEFINING FGB 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, 2016 2015 (in thousands) $3,890 $3,201 60 127 2,060 449 445 541 6,459 4,314 Deferred tax liabilities: Depreciation and amortization Core deposit intangibles Unrealized gains on available for sale securities Other Gross deferred tax liabilities (1,480) (1,588) (342) (441) - - (376) (373) (2,198) (2,402) Net deferred tax assets $ 4,261 $ 1,912 As of December 31, 2016 and 2015, 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, 2016, 2015 and 2014, 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. 112 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. 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, 2016 and December 31, 2015. December 31, 2016 2015 (in thousands) Contract Amount Commitments to Extend Credit $ 56,910 $ 88,081 Unfunded Commitments under lines of credit $ 128,428 $ 107,581 Commercial and Standby letters of credit $ 6,602 $ 7,486 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 2016, 2015 or 2014. 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. FORTRESS BANKING 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, 2016 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, 2016 and 2015 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, 2016 and 2015, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: 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 2 securities available for sale from December 31, 2015 was due principally to the purchase of corporate bond securities. The change in Level 3 securities available for sale from December 31, 2015 was due to the purchase of $8.5 million in municipal securities and $4.5 million of subordinated debt securities offset by the maturity of $1.3 million in municipal securities. The following table reconciles assets measured at fair value on a recurring basis using unobservable inputs (Level 3): Level 3 Changes December 31, 2016 2015 (in thousands) $ 7,701 $8,780 - - - - 11,699 (1,079) - - $19,400 $7,701 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, 2016. The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of December 31, 2016, 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 December 31, 2016 2015 (in thousands) $ - $ - 259 293 December 31, Level 3: Significant Unobservable Inputs 18,559 16,401 2016 2015 Impaired loans measured at fair value $18,818 $16,694 (in thousands) Available for Sale Securities Fair Value Measurements Using: Level 1: Quoted Prices in Active Markets Fair Value Measurements Using: Other Real Estate Owned Level 1: Quoted Prices in Active Markets For Identical Assets $ 30,487 $ 30,501 For Identical Assets $ - $ - Level 2: Significant Other Observable Inputs 347,586 338,167 Inputs Level 2: Significant Other Observable Level 3: Significant Unobservable Inputs 19,400 7,701 Level 3: Significant Unobservable Inputs 226 133 1,104 473 Securities available for sale measured at fair value $397,473 $376,369 Other real estate owned measured at fair value $ 359 $ 1,577 113 2016 ANNUAL REPORT DEFINING FGB 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 114 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. FORTRESS BANKING 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, 2016 and 2015 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, 2016 and 2015 are presented in the following table: December 31, 2016 2015 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value (in thousands) $ 18,111 $ 18,111 $ 37,272 $ 37,272 $ 397,473 $ 397,473 $ 376,369 $ 376,369 $ 101,863 $ 99,906 $ 169,752 $ 168,148 Assets Cash and cash equivalents Securities, available for sale Securities, held to maturity Federal Home Loan Bank stock $ 1,816 $ 1,816 $ 935 $ 935 Loans, net $ 937,807 $ 937,495 $ 832,168 $ 831,731 Accrued interest receivable $ 7,039 $ 7,039 $ 6,015 $ 6,015 Liabilities Deposits Borrowings Junior subordinated debentures Accrued interest payable $ 1,326,181 $ 1,325,972 $1,295,870 $1,296,468 $ $ $ 28,600 $ 28,625 $ 27,624 $ 27,624 14,630 $ 13,909 14,597 14,597 1,931 $ 1,931 $ 1,707 $ 1,707 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, 2016. 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 42.0% of First Guaranty's deposits are derived from local governmental agencies at December 31, 2016. 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 $556.9 million at December 31, 2016. 115 2016 ANNUAL REPORT DEFINING FGB Note 23.  Litigation Note 25.  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, 2016 2015 (in thousands) $ 16,088 $ 16,862 141,241 140,518 80 4,197 80 3,233 161,606 $ 160,693 - $ 1,800 22,100 14,630 527 25,824 14,597 248 37,257 42,469 Shareholders' Equity 124,349 Total Liabilities and Shareholders' Equity $161,606 118,224 $160,693 Note 24.  Subsequent Events On January 30, 2017, First Guaranty entered into an Agreement and Plan of Merger (the "Merger Agreement") with Premier Bancshares, Inc., a Texas corporation ("Premier"), pursuant to which Premier will merge with and into First Guaranty (the "Merger").  Following the consummation of the Merger, and following the consummation of a merger of Premier's wholly-owned subsidiary, Premier Delaware Bancshares, Inc. ("Premier Delaware"), with and into First Guaranty, Synergy Bank, S.S.B., a Texas-state chartered savings bank and wholly-owned subsidiary of Premier ("Synergy Bank"), will merge with and into First Guaranty Bank with First Guaranty Bank continuing as the surviving entity. The Merger Agreement was unanimously approved by the Board of Directors of each of First Guaranty and Premier. The aggregate purchase price of the transaction is approximately $21.0 million. Under the terms of the Merger Agreement, each outstanding share of Premier common stock will be converted into the right to receive (i) an amount in cash, equal to the Premier book value as of December 31, 2016 as reflected on the audited financial statements of Premier plus $1.5 million (the "Gross Consideration"), divided by the total number of shares of Premier common stock outstanding as of the business day immediately prior to the closing date, multiplied by 50%; and (ii) that number of shares of First Guaranty common stock equal to the Gross Consideration divided by the total number of shares of Premier common stock outstanding as of the business day immediately prior to the closing date, multiplied by 50%, divided by the Average Closing Price of First Guaranty common stock.  Average Closing Price means the average of the closing prices of First Guaranty common stock as reported on the NASDAQ Global Market for the 20 consecutive trading days ending on the fifth business day immediately prior to the closing date.  The Gross Consideration will be comprised of 50% First Guaranty common stock and 50% cash. At December 31, 2016, Premier Bancshares had total assets of approximately $154 million, including loans of $114 million. Total deposits were $129 million. The Merger Agreement includes customary representations and warranties made by First Guaranty and Premier, each with respect to its and its subsidiaries' businesses.  Each party has also agreed to customary covenants, including, among others, covenants relating to the conduct of its business during the interim period between the execution of the Merger Agreement and the consummation of the Merger. The Merger is subject to approval by Premier's stockholders as well as regulatory approval and other customary closing conditions.  The Merger Agreement provides certain termination rights for both First Guaranty and Premier and further provides that a termination fee of $500,000 will be payable by Premier to First Guaranty or by First Guaranty to Premier, as applicable, upon termination of the Merger Agreement under certain circumstances. The Merger is expected to close either late in the second quarter or early in the third quarter of 2017 following receipt of all regulatory and shareholder approvals. 116 FORTRESS BANKING 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 (expense) 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, 2016 2015 2014 (in thousands) $11,858 $ 9,843 $ 6,448 - 160 2,652 261 - 162 12,018 12,756 6,610 1,444 200 948 192 172 766 2,592 1,130 9,426 11,626 846 (605) 10,272 11,021 3,821 3,484 130 140 464 734 5,876 229 6,105 5,119 14,093 14,505 11,224 - (384) (394) $14,093 $14,121 $10,830 117 2016 ANNUAL REPORT DEFINING FGB First Guaranty Bancshares, Inc. Condensed Statements of Cash Flows 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 Depreciation and amortization 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: Net decrease in short-term borrowings 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 (used in) provided by financing activities Net (decrease) increase 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, 2016 2015 2014 (in thousands) $14,093 $14,505 $11,224 (3,821) (3,484) (5,119) 7 - 318 (971) - (2,652) (28) 396 9,626 8,737 - - 55 (3,383) 2,777 - - - 4,152 (10) 4,142 (1,800) - - 24,969 (3,730) (1,584) - - - 14,597 9,344 (39,435) - (5) (5) - 2,555 (616) - - - (4,870) (4,631) (10,400) 3,260 (4,421) (2,482) (774) 16,139 16,862 723 290 433 $16,088 $16,862 $ 723 118 FORTRESS BANKING 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 beginning on 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, 2016, 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, 2016 and 2015. 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. 2016 2015 Quarter Ended*: High Low Dividend High Low Dividend March 31, $ 16.83 $15.50 $ 0.16 $ 19.00 $16.70 $ 0.16 June 30, $ 16.15 $15.95 September 30, $ 16.41 $16.17 December 31, $ 23.93 $23.32 $ 0.16 $ 21.00 $15.00 $ 0.16 $ 0.16 $ 20.74 $15.00 $ 0.16 $ 0.16 $ 21.73 $14.60 $ 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 94 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. www.fgb.net 119 2016 ANNUAL REPORT DEFINING FGB Corporate Information Annual Meeting The Annual Meeting of Shareholders will convene at 2:00 p.m. Central Daylight Saving Time (CDT) on Thursday, May 18, 2017 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. 120 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earni Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends • Earnings • Fortress Banking • Tangible Common Equity • Book Value • Assets • Common Dividends 2 0 1 6 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 . A N N U A L R E P O R T ANNUAL REPORT 2016 2016 ANNUAL REPORT 1 FORTRESS BANKING FIRST GUARANTY BANCSHARES, INC. www.fgb.net 1 

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