First Guaranty Bancshares - 10-Q quarterly report FY2017 Q3

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2017

Commission File Number: 001-37621

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

Yes  No 

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

Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filers," "accelerated filers," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company)

Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

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

Yes No 

As of November 13, 2017 the registrant had 8,007,182 shares of $1 par value common stock outstanding.

Table of Contents


		Page
Part I.	Financial Information

Item 1.	Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	3

	Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016	5

	Consolidated Statements of Shareholders' Equity for the nine months ended September 30, 2017 and 2016	6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

Item 4.	Controls and Procedures	52

Part II.	Other Information	52

Item 1.	Legal Proceedings	52

Item 1A.	Risk Factors	52

Item 6.	Exhibits	53

Signatures		54

-2-

PART I. FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share data)	September 30, 2017			December 31, 2016
Assets
Cash and cash equivalents:
Cash and due from banks	$	22,609		$	17,840
Federal funds sold		1,252			271
Cash and cash equivalents		23,861			18,111

Investment securities:
Available for sale, at fair value		387,046			397,473
Held to maturity, at cost (estimated fair value of $106,821 and $99,906 respectively)		107,899			101,863
Investment securities		494,945			499,336

Federal Home Loan Bank stock, at cost		2,343			1,816
Loans held for sale		2,614			-

Loans, net of unearned income		1,111,791			948,921
Less: allowance for loan losses		10,313			11,114
Net loans		1,101,478			937,807

Premises and equipment, net		36,458			23,519
Goodwill		4,056			1,999
Intangible assets, net		4,564			1,056
Other real estate, net		1,296			359
Accrued interest receivable		7,508			7,039
Other assets		12,336			9,904
Total Assets	$	1,691,459		$	1,500,946

Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand	$	256,563		$	231,094
Interest-bearing demand		512,346			479,810
Savings		106,109			97,280
Time		622,062			517,997
Total deposits		1,497,080			1,326,181

Short-term borrowings		7,500			6,500
Accrued interest payable		2,363			1,931
Senior long-term debt		23,508			22,100
Junior subordinated debentures		14,655			14,630
Other liabilities		3,584			5,255
Total Liabilities		1,548,690			1,376,597

Shareholders' Equity
Common stock:
$1 par value - authorized 100,600,000 shares; issued 8,007,182 and 7,609,194 shares		8,007			7,609
Surplus		71,836			61,584
Retained earnings		64,620			59,155
Accumulated other comprehensive income (loss)		(1,694	)		(3,999	)
Total Shareholders' Equity		142,769			124,349
Total Liabilities and Shareholders' Equity	$	1,691,459		$	1,500,946

See Notes to Consolidated Financial Statements

-3-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except share data)	2017		2016		2017		2016
Interest Income:
Loans (including fees)	$	14,421	$	11,642	$	39,447	$	33,749
Deposits with other banks		82		11		142		55
Securities (including FHLB stock)		3,317		2,998		10,018		10,013
Federal funds sold		6		-		8		-
Total Interest Income		17,826		14,651		49,615		43,817

Interest Expense:
Demand deposits		1,460		662		3,902		1,902
Savings deposits		61		19		147		54
Time deposits		2,044		1,470		5,079		4,541
Borrowings		403		369		1,143		1,126
Total Interest Expense		3,968		2,520		10,271		7,623

Net Interest Income		13,858		12,131		39,344		36,194
Less: Provision for loan losses		1,051		1,242		3,064		2,978
Net Interest Income after Provision for Loan Losses		12,807		10,889		36,280		33,216

Noninterest Income:
Service charges, commissions and fees		718		573		1,851		1,839
ATM and debit card fees		497		451		1,464		1,366
Net gains on securities		62		1,171		996		3,756
Net gain on sale of loans		3		6		127		9
Other		723		350		1,518		1,056
Total Noninterest Income		2,003		2,551		5,956		8,026

Noninterest Expense:
Salaries and employee benefits		5,270		4,170		14,689		12,411
Occupancy and equipment expense		1,166		1,125		3,274		3,096
Other		3,709		3,003		10,197		9,207
Total Noninterest Expense		10,145		8,298		28,160		24,714

Income Before Income Taxes		4,665		5,142		14,076		16,528
Less: Provision for income taxes		1,603		1,763		4,831		5,597
Net Income	$	3,062	$	3,379	$	9,245	$	10,931

Per Common Share:
Earnings	$	0.38	$	0.44	$	1.19	$	1.44
Cash dividends paid	$	0.16	$	0.16	$	0.48	$	0.48

Weighted Average Common Shares Outstanding		8,007,182		7,609,194		7,765,182		7,609,194

See Notes to Consolidated Financial Statements

-4-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2017			2016			2017			2016
Net Income	$	3,062		$	3,379		$	9,245		$	10,931
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during the period		1,148			522			4,488			9,278
Reclassification adjustments for gains included in net income		(62	)		(1,171	)		(996	)		(3,756	)
Change in unrealized gains (losses) on securities		1,086			(649	)		3,492			5,522
Tax impact		(369	)		221			(1,187	)		(1,877	)
Other comprehensive income (loss)		717			(428	)		2,305			3,645
Comprehensive Income	$	3,779		$	2,951		$	11,550		$	14,576

See Notes to Consolidated Financial Statements

-5-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

	Common Stock $1 Par		Surplus		Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total
(in thousands, except per share data)
Balance December 31, 2015	$	7,609	$	61,584	$	49,932		$	(901	)	$	118,224
Net income		-		-		10,931			-			10,931
Other comprehensive income		-		-		-			3,645			3,645
Cash dividends on common stock ($0.48 per share)		-		-		(3,653	)		-			(3,653	)
Balance September 30, 2016 (unaudited)	$	7,609	$	61,584	$	57,210		$	2,744		$	129,147

Balance December 31, 2016	$	7,609	$	61,584	$	59,155		$	(3,999	)	$	124,349
Net income		-		-		9,245			-			9,245
Common stock issued in acquisition, 397,988 shares		398		10,252		-			-			10,650
Other comprehensive income		-		-		-			2,305			2,305
Cash dividends on common stock ($0.48 per share)		-		-		(3,780	)		-			(3,780	)
Balance September 30, 2017 (unaudited)	$	8,007	$	71,836	$	64,620		$	(1,694	)	$	142,769

See Notes to Consolidated Financial Statements

-6-

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Nine Months Ended September 30,
(in thousands)	2017			2016
Cash Flows From Operating Activities
Net income	$	9,245		$	10,931
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		3,064			2,978
Depreciation and amortization		1,757			1,625
Amortization/Accretion of investments		1,345			1,665
Gain on sale/call of securities		(996	)		(3,756	)
Gain on sale of assets		(198	)		(72	)
Repossessed asset write downs, gains and losses on dispositions		88			163
FHLB stock dividends		(15	)		(3	)
Net increase in loans held for sale		(959	)		-
Change in other assets and liabilities, net		(4,425	)		3,648
Net Cash Provided By Operating Activities		8,906			17,179

Cash Flows From Investing Activities
Proceeds from maturities, calls and sales of certificates of deposit		-			1,001
Proceeds from maturities and calls of HTM securities		8,890			76,946
Proceeds from maturities, calls and sales of AFS securities		503,585			892,005
Funds Invested in HTM securities		(15,345	)		-
Funds Invested in AFS securities		(483,705	)		(890,330	)
Funds invested in Federal Home Loan Bank stock		-			(671	)
Net increase in loans		(42,081	)		(71,385	)
Purchase of premises and equipment		(4,755	)		(2,724	)
Proceeds from sales of premises and equipment		72			983
Proceeds from sales of other real estate owned		493			714
Cash paid in excess of cash received in acquisition		(2,907	)		-
Net Cash (Used In) Provided By Investing Activities		(35,753	)		6,539

Cash Flows From Financing Activities
Net increase (decrease) in deposits		43,673			(38,899	)
Net (decrease) increase in federal funds purchased and short-term borrowings		(8,700	)		7,700
Proceeds from long-term borrowings		3,750			-
Repayment of long-term borrowings		(2,346	)		(2,325	)
Dividends paid		(3,780	)		(3,653	)
Net Cash Provided By (Used In) Financing Activities		32,597			(37,177	)

Net Increase (Decrease) In Cash and Cash Equivalents		5,750			(13,459	)
Cash and Cash Equivalents at the Beginning of the Period		18,111			37,272
Cash and Cash Equivalents at the End of the Period	$	23,861		$	23,813

Noncash Activities:
Loans transferred to foreclosed assets	$	1,259		$	81
Common stock issued in acquisition	$	10,650		$	-

Cash Paid During The Period:
Interest on deposits and borrowed funds	$	9,839		$	7,227
Income taxes	$	9,900		$	3,000

See Notes to the Consolidated Financial Statements.

-7-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. ("First Guaranty") thereto should be read in conjunction with the audited consolidated financial statements and note disclosures for First Guaranty previously filed with the Securities and Exchange Commission in First Guaranty's Annual Report on Form 10-K for the year ended December 31, 2016.

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

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations at September 30, 2017 and for the three and nine month periods ended September 30, 2017 and 2016 are not necessarily indicative of the results expected for the full year or any other interim period. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are 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.

-8-

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 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 March 2017, the FASB issued ASU 2017-08, "Receivables- Nonrefundable Fees and Other Costs, Premium Amortization on Purchased Callable Debt Securities". This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, this ASU requires the premium to be amortized to the earliest call date. This ASU does not require an accounting change for securities held at a discount, the discount continues to be amortized to maturity. This ASU is effective for annual and interim periods beginning after December 15, 2018. We are currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.

-9-

Note 3. Merger Transaction

Effective at the close of business on June 16, 2017, First Guaranty completed its acquisition of 100% of the outstanding shares of Premier Bancshares, Inc., a Texas corporation ("Premier"), a single bank holding company headquartered in McKinney, Texas and its wholly owned subsidiary, Synergy Bank. This acquisition allows First Guaranty to expand its presence into the North Central Texas market area. Under terms of an agreement and plan of merger dated January 30, 2017, First Guaranty issued 0.119 of a share of its common stock for each share of Premier for a total of 397,988 shares at a price of $25.86 and paid $10.3 million in cash for an acquisition value of approximately $21.0 million. Based on the initial preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price resulted in approximately $2.1 million in goodwill and $2.7 million in core deposit intangible, none of which is deductible for tax purposes.

The valuations of loans, premises and equipment and core deposit intangible and other assets acquired and liabilities assumed are still preliminary and subject to change. United States generally accepted accounting principles ("U.S. GAAP") provides up to twelve months following the date of acquisition in which management can finalize the fair values of acquired assets and assumed liabilities. Material events that occur during the measurement period will be analyzed to determine if the new information reflected facts and circumstances that existed on the acquisition date. The measurement period ends as soon as First Guaranty receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns more information is unobtainable. The measurement period is limited to one year from the acquisition date. Once management has finalized the fair values of acquired assets and assumed liabilities within this twelve month period, management considers such values to be the "Day One Fair Values." Based on management's preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Premier acquisition is allocated in the table below.

(in thousands)	Premier Bancshares, Inc.

Cash and due from banks	$	4,542
Federal funds sold		2,855
Securities available for sale		5,892
Loans		127,568
Premises and equipment		9,493
Goodwill		2,058
Intangible assets		3,809
Other real estate		221
Other assets		1,875
Total assets acquired	$	158,313

Deposits		127,228
FHLB borrowings		9,700
Other liabilities		431
Total liabilities assumed	$	137,359
Net assets acquired	$	20,954

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The non-impaired loans excluded from the purchase credit impairment guidance were recorded at an estimated fair value of $123.7 million and had gross contractual amounts receivable of $122.9 million on the date of acquisition. Contractual cash flows not expected to be collected are estimated at $0.5 million.

The following pro forma information for the nine months ended September 30, 2017 and September 30, 2016 reflects First Guaranty's estimated consolidated results of operations as if the acquisition of Premier occurred at January 1, 2016, unadjusted for potential cost savings.

(in thousands, except share data)	2017		2016

Net Interest Income	$	41,854	$	39,727
Noninterest Income		6,156		9,427
Noninterest Expense		32,073		29,202
Net Income		8,379		11,114

Earnings per common share	$	1.05	$	1.39

-10-

Note 4. Securities

A summary comparison of securities by type at September 30, 2017 and December 31, 2016 is shown below.

	September 30, 2017									December 31, 2016
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale:
U.S Treasuries	$	10,599	$	-	$	-		$	10,599	$	29,994	$	-	$	-		$	29,994
U.S. Government Agencies		200,048		7		(3,026	)		197,029		183,152		-		(4,820	)		178,332
Corporate debt securities		104,674		1,315		(741	)		105,248		132,448		1,624		(2,100	)		131,972
Mutual funds or other equity securities		500		-		(3	)		497		580		-		(7	)		573
Municipal bonds		37,382		174		(62	)		37,494		28,177		100		(320	)		27,957
Collateralized mortgage obligations		1,289		6		-			1,295		-		-		-			-
Mortgage-backed securities		35,121		21		(258	)		34,884		29,181		-		(536	)		28,645
Total available-for-sale securities	$	389,613	$	1,523	$	(4,090	)	$	387,046	$	403,532	$	1,724	$	(7,783	)	$	397,473

Held-to-maturity:
U.S. Government Agencies	$	28,168	$	-	$	(531	)	$	27,637	$	18,167	$	-	$	(655	)	$	17,512
Municipal bonds		5,340		-		(59	)		5,281		-		-		-			-
Mortgage-backed securities		74,391		21		(509	)		73,903		83,696		-		(1,302	)		82,394
Total held-to-maturity securities	$	107,899	$	21	$	(1,099	)	$	106,821	$	101,863	$	-	$	(1,957	)	$	99,906

The scheduled maturities of securities at September 30, 2017, 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.

	September 30, 2017
(in thousands)	Amortized Cost		Fair Value
Available For Sale:
Due in one year or less	$	19,214	$	19,280
Due after one year through five years		72,262		72,456
Due after five years through 10 years		236,077		233,700
Over 10 years		25,650		25,431
Subtotal		353,203		350,867
Collateralized mortgage obligations		1,289		1,295
Mortgage-backed Securities		35,121		34,884
Total available-for-sale securities	$	389,613	$	387,046

Held to Maturity:
Due in one year or less	$	-	$	-
Due after one year through five years		5,124		5,091
Due after five years through 10 years		18,485		17,994
Over 10 years		9,899		9,833
Subtotal		33,508		32,918
Mortgage-backed Securities		74,391		73,903
Total held to maturity securities	$	107,899	$	106,821

At September 30, 2017, $368.7 million of First Guaranty's securities were pledged to secure public fund deposits and borrowings. The pledged securities had a market value of $367.6 million as of September 30, 2017.

-11-

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at September 30, 2017.

								At September 30, 2017
	Less Than 12 Months							12 Months or More							Total
(in thousands)	Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasuries		-	$	-	$	-			-	$	-	$	-			-	$	-	$	-
U.S. Government agencies		40		102,165		(777	)		20		84,309		(2,249	)		60		186,474		(3,026	)
Corporate debt securities		54		16,538		(222	)		54		18,161		(519	)		108		34,699		(741	)
Mutual funds or other equity securities		1		497		(3	)		-		-		-			1		497		(3	)
Municipal bonds		8		6,422		(40	)		1		1,101		(22	)		9		7,523		(62	)
Collateralized mortgage obligations		-		-		-			-		-		-			-		-		-
Mortgage-backed securities		17		24,192		(218	)		1		2,371		(40	)		18		26,563		(258	)
Total available-for-sale		120	$	149,814	$	(1,260	)		76	$	105,942	$	(2,830	)		196	$	255,756	$	(4,090	)

Held to maturity:
U.S. Government agencies		5		14,934		(65	)		9		12,704		(466	)		14		27,638		(531	)
Municipal bonds		9		5,281		(59	)		-		-		-			9		5,281		(59	)
Mortgage-backed securities		40		64,002		(402	)		4		5,003		(107	)		44		69,005		(509	)
Total held to maturity		54	$	84,217	$	(526	)		13	$	17,707	$	(573	)		67	$	101,924	$	(1,099	)

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2016.

								At December 31, 2016
	Less Than 12 Months							12 Months or More							Total
(in thousands)	Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasuries		3	$	10,997	$	-			-	$	-	$	-			3	$	10,997	$	-
U.S. Government agencies		54		178,331		(4,820	)		-		-		-			54		178,331		(4,820	)
Corporate debt securities		185		61,669		(1,613	)		26		6,440		(487	)		211		68,109		(2,100	)
Mutual funds or other equity securities		1		493		(7	)		-		-		-			1		493		(7	)
Municipal bonds		14		10,210		(320	)		-		-		-			14		10,210		(320	)
Mortgage-backed securities		16		28,645		(536	)		-		-		-			16		28,645		(536	)
Total available for sale		273	$	290,345	$	(7,296	)		26	$	6,440	$	(487	)		299	$	296,785	$	(7,783	)

Held to maturity:		-		-		-			-		-		-			-		-		-
U.S. Government agencies		10	$	17,512	$	(655	)		-	$	-	$	-			10	$	17,512	$	(655	)
Mortgage-backed securities		48		82,394		(1,302	)		-		-		-			48		82,394		(1,302	)
Total held to maturity		58	$	99,906	$	(1,957	)		-	$	-	$	-			58	$	99,906	$	(1,957	)

As of September 30, 2017, 263 of First Guaranty's debt securities had unrealized losses totaling 1.4% of the individual securities' amortized cost basis and 1.0% of First Guaranty's total amortized cost basis of the investment securities portfolio. 89 of the 263 securities had been in a continuous loss position for over 12 months at such date. The 89 securities had an aggregate amortized cost basis of $127.1 million and an unrealized loss of $3.4 million at September 30, 2017. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery.

-12-

Securities are evaluated for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of 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 enterprises with unrealized losses and the amount of unrealized losses on those investment securities that are the result of changes in market interest rates will not be other-than-temporarily impaired. 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 securities with an other-than-temporary impairment loss were held at September 30, 2017. First Guaranty believes that the remaining issuers will be able to fulfill the obligations of these securities based on evaluations described above. First Guaranty has the ability and intent to hold these securities until they recover, which could be at their maturity dates.

There were no other-than-temporary impairment losses recognized on securities during the nine months ended September 30, 2017 and 2016.

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 nine months ended September 30, 2017 and 2016:

(in thousands)	Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
Beginning balance of credit losses at end of prior year	$	60	$	175
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		-		(175	)
Ending balance of cumulative credit losses recognized in earnings at end of period	$	60	$	-

In the first nine months of 2017 there were no other-than-temporary impairment credit losses on securities for which we had previously recognized OTTI. 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.

At September 30, 2017, First Guaranty's exposure to bond issuers that exceeded 10% of shareholders' equity is below:

	At September 30, 2017
(in thousands)	Amortized Cost		Fair Value
Federal Home Loan Bank (FHLB)	$	50,393	$	49,655
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC)		51,268		50,979
Federal National Mortgage Association (Fannie Mae-FNMA)		99,145		97,661
Federal Farm Credit Bank (FFCB)		136,922		135,158
Total	$	337,728	$	333,453

-13-

Note 5. Loans

The following table summarizes the components of First Guaranty's loan portfolio as of September 30, 2017 and December 31, 2016:

	September 30, 2017						December 31, 2016
(in thousands except for %)	Balance			As % of Category			Balance			As % of Category
Real Estate:
Construction & land development	$	108,610			9.8	%	$	84,239			8.9	%
Farmland		29,345			2.6	%		21,138			2.2	%
1- 4 Family		158,564			14.3	%		135,211			14.2	%
Multifamily		17,089			1.5	%		12,450			1.3	%
Non-farm non-residential		508,210			45.6	%		417,014			43.9	%
Total Real Estate		821,818			73.8	%		670,052			70.5	%
Non-Real Estate:
Agricultural		29,109			2.6	%		23,783			2.5	%
Commercial and industrial		209,386			18.8	%		193,969			20.4	%
Consumer and other		53,606			4.8	%		63,011			6.6	%
Total Non-Real Estate		292,101			26.2	%		280,763			29.5	%
Total loans before unearned income		1,113,919			100.0	%		950,815			100.0	%
Unearned income		(2,128	)					(1,894	)
Total loans net of unearned income	$	1,111,791					$	948,921

The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of September 30, 2017 and December 31, 2016 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.

	September 30, 2017							December 31, 2016
(in thousands)	Fixed		Floating		Total			Fixed		Floating		Total
One year or less	$	102,315	$	64,857	$	167,172		$	97,713	$	51,965	$	149,678
More Than One to five years		398,112		224,644		622,756			352,000		206,676		558,676
More Than Five to 15 years		131,206		43,175		174,381			115,691		46,116		161,807
Over 15 years		83,606		55,704		139,310			53,150		5,830		58,980
Subtotal	$	715,239	$	388,380		1,103,619		$	618,554	$	310,587		929,141
Nonaccrual loans						10,300							21,674
Total loans before unearned income						1,113,919							950,815
Unearned income						(2,128	)						(1,894	)
Total loans net of unearned income					$	1,111,791						$	948,921

As of September 30, 2017, $121.8 million of floating rate loans were at their interest rate floor. At December 31, 2016, $127.7 million of floating rate loans were at the floor rate. Nonaccrual loans have been excluded from these totals.

-14-

The following tables present the age analysis of past due loans, including loans acquired with deteriorated credit quality, at September 30, 2017 and December 31, 2016:

	As of September 30, 2017
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment 90 Days Accruing
Real Estate:
Construction & land development	$	160	$	376	$	536	$	108,074	$	108,610		$	-
Farmland		178		107		285		29,060		29,345			-
1 - 4 family		1,779		2,343		4,122		154,442		158,564			47
Multifamily		-		-		-		17,089		17,089			-
Non-farm non-residential		5,940		773		6,713		501,497		508,210			-
Total Real Estate		8,057		3,599		11,656		810,162		821,818			47
Non-Real Estate:
Agricultural		46		979		1,025		28,084		29,109			362
Commercial and industrial		1,289		6,081		7,370		202,016		209,386			-
Consumer and other		240		50		290		53,316		53,606			-
Total Non-Real Estate		1,575		7,110		8,685		283,416		292,101			362
Total loans before unearned income	$	9,632	$	10,709	$	20,341	$	1,093,578	$	1,113,919		$	409
Unearned income										(2,128	)
Total loans net of unearned income									$	1,111,791

	As of December 31, 2016
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment 90 Days Accruing
Real Estate:
Construction & land development	$	173	$	585	$	758	$	83,481	$	84,239		$	34
Farmland		234		105		339		20,799		21,138			-
1 - 4 family		1,108		2,387		3,495		131,716		135,211			145
Multifamily		-		5,014		5,014		7,436		12,450			-
Non-farm non-residential		1,618		2,753		4,371		412,643		417,014			-
Total Real Estate		3,133		10,844		13,977		656,075		670,052			179
Non-Real Estate:
Agricultural		64		1,958		2,022		21,761		23,783			-
Commercial and industrial		552		8,070		8,622		185,347		193,969			-
Consumer and other		182		981		1,163		61,848		63,011			-
Total Non-Real Estate		798		11,009		11,807		268,956		280,763			-
Total loans before unearned income	$	3,931	$	21,853	$	25,784	$	925,031	$	950,815		$	179
Unearned income										(1,894	)
Total loans net of unearned income									$	948,921

The tables above include $10.3 million and $21.7 million of nonaccrual loans at September 30, 2017 and December 31, 2016, respectively. See the tables below for more detail on nonaccrual loans.

-15-

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

(in thousands)	As of September 30, 2017		As of December 31, 2016
Real Estate:
Construction & land development	$	376	$	551
Farmland		107		105
1 - 4 family		2,296		2,242
Multifamily		-		5,014
Non-farm non-residential		773		2,753
Total Real Estate		3,552		10,665
Non-Real Estate:
Agricultural		617		1,958
Commercial and industrial		6,081		8,070
Consumer and other		50		981
Total Non-Real Estate		6,748		11,009
Total Nonaccrual Loans	$	10,300	$	21,674

The following table identifies the credit exposure of the loan portfolio, including loans acquired with deteriorated credit quality, by specific credit ratings as of the dates indicated:

	As of September 30, 2017											As of December 31, 2016
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total			Pass		Special Mention		Substandard		Doubtful		Total
Real Estate:
Construction & land development	$	103,954	$	114	$	4,542	$	-	$	108,610		$	79,069	$	1,162	$	4,008	$	-	$	84,239
Farmland		29,228		17		100		-		29,345			20,652		381		105		-		21,138
1 - 4 family		148,981		2,123		7,460		-		158,564			123,191		5,460		6,560		-		135,211
Multifamily		9,680		454		6,955		-		17,089			4,268		1,132		7,050		-		12,450
Non-farm non-residential		487,271		2,535		18,404		-		508,210			392,355		6,406		18,253		-		417,014
Total Real Estate		779,114		5,243		37,461		-		821,818			619,535		14,541		35,976		-		670,052
Non-Real Estate:
Agricultural		28,058		419		632		-		29,109			20,890		920		1,973		-		23,783
Commercial and industrial		188,214		9,977		5,627		5,568		209,386			182,381		850		3,008		7,730		193,969
Consumer and other		53,410		21		175		-		53,606			60,582		1,394		1,035		-		63,011
Total Non-Real Estate		269,682		10,417		6,434		5,568		292,101			263,853		3,164		6,016		7,730		280,763
Total loans before unearned income	$	1,048,796	$	15,660	$	43,895	$	5,568	$	1,113,919		$	883,388	$	17,705	$	41,992	$	7,730	$	950,815
Unearned income										(2,128	)										(1,894	)
Total loans net of unearned income									$	1,111,791										$	948,921

-16-

Purchased Impaired Loans

As part of the acquisition of Premier Bancshares, Inc. on June 16, 2017, First Guaranty purchased credit impaired loans for which there was, at acquisition, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at September 30, 2017.

(in thousands)	As of September 30, 2017
Real Estate:
Construction & land development	$	1,291
Farmland		10
1 - 4 family		295
Multifamily		-
Non-farm non-residential		1,689
Total Real Estate		3,285
Non-Real Estate:
Agricultural		-
Commercial and industrial		1,356
Consumer and other		-
Total Non-Real Estate		1,356
Total Carrying Amount	$	4,641
Contractual principal balance	$	6,153
Carrying amount, net of allowance	$	4,641

For those purchased loans disclosed above, First Guaranty did not increase the allowance for loan losses for the nine months ended September 30, 2017.

For those purchased loans disclosed above, where First Guaranty can reasonably estimate the cash flows expected to be collected on the loans, a portion of the purchase discount is allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion is being recognized as interest income over the remaining life of the loan.

Where First Guaranty cannot reasonably estimate the cash flows expected to be collected on the loans, it has decided to account for those loans using the cost recovery method of income recognition. As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method. If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero. Any loan accounted for under the cost recovery method is also still included as a non-accrual loan in the amounts presented in the table below.

The accretable yield, or income expected to be collected, on the purchased loans above is as follows at September 30, 2017.

(in thousands)	Nine Months Ended September 30, 2017
Balance, beginning of period	$	-
Acquisition accretable yield		1,330
Accretion		(109	)
Net transfers from nonaccretable difference to accretable yield		-
Balance, end of period	$	1,221

The contractually required payments of purchased impaired loans totaled $8.3 million, while the cash flow expected to be collected at acquisition totaled $6.0 million, and the fair value of the acquired loans totaled $4.6 million.

-17-

Note 6. Allowance for Loan Losses

A summary of changes in the allowance for loan losses, by portfolio type, for the nine months ended September 30, 2017 and 2016 are as follows:

	For the Nine Months Ended September 30,
	2017												2016
(in thousands)	Beginning Allowance (12/31/2016)		Charge-offs			Recoveries		Provision			Ending Allowance (9/30/2017)		Beginning Allowance (12/31/2015)		Charge-offs			Recoveries		Provision			Ending Allowance (9/30/2016)
Real Estate:
Construction & land development	$	1,232	$	-		$	43	$	(567	)	$	708	$	962	$	-		$	3	$	289		$	1,254
Farmland		19		-			-		(13	)		6		54		-			-		(35	)		19
1 - 4 family		1,204		(1	)		36		(151	)		1,088		1,771		(192	)		33		(182	)		1,430
Multifamily		591		-			30		781			1,402		557		-			391		(282	)		666
Non-farm non-residential		3,451		(856	)		10		956			3,561		3,298		(1,373	)		12		1,148			3,085
Total real estate		6,497		(857	)		119		1,006			6,765		6,642		(1,565	)		439		938			6,454
Non-Real Estate:
Agricultural		74		(103	)		131		(4	)		98		16		(83	)		10		162			105
Commercial and industrial		3,543		(2,254	)		21		1,506			2,816		2,527		(542	)		15		1,140			3,140
Consumer and other		972		(1,112	)		190		584			634		230		(547	)		131		738			552
Unallocated		28		-			-		(28	)		-		-		-			-		-			-
Total Non-Real Estate		4,617		(3,469	)		342		2,058			3,548		2,773		(1,172	)		156		2,040			3,797
Total	$	11,114	$	(4,326	)	$	461	$	3,064		$	10,313	$	9,415	$	(2,737	)	$	595	$	2,978		$	10,251

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.

-18-

A summary of the allowance and loans, including loans acquired with deteriorated credit quality, individually and collectively evaluated for impairment are as follows:

	As of September 30, 2017
(in thousands)	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
Real Estate:
Construction & land development	$	-	$	708	$	708	$	343	$	108,267	$	108,610
Farmland		-		6		6		-		29,345		29,345
1 - 4 family		-		1,088		1,088		712		157,852		158,564
Multifamily		-		1,402		1,402		-		17,089		17,089
Non-farm non-residential		437		3,124		3,561		9,360		498,850		508,210
Total Real Estate		437		6,328		6,765		10,415		811,403		821,818
Non-Real Estate:
Agricultural		19		79		98		580		28,529		29,109
Commercial and industrial		1,577		1,239		2,816		6,758		202,628		209,386
Consumer and other		-		634		634		-		53,606		53,606
Unallocated		-		-		-		-		-		-
Total Non-Real Estate		1,596		1,952		3,548		7,338		284,763		292,101
Total	$	2,033	$	8,280	$	10,313	$	17,753	$	1,096,166	$	1,113,919
Unearned Income												(2,128	)
Total loans net of unearned income											$	1,111,791

	As of December 31, 2016
(in thousands)	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
Real Estate:
Construction & land development	$	-	$	1,232	$	1,232	$	361	$	83,878	$	84,239
Farmland		-		19		19		-		21,138		21,138
1 - 4 family		8		1,196		1,204		1,130		134,081		135,211
Multifamily		164		427		591		5,014		7,436		12,450
Non-farm non-residential		247		3,204		3,451		10,803		406,211		417,014
Total Real Estate		419		6,078		6,497		17,308		652,744		670,052
Non-Real Estate:
Agricultural		11		63		74		1,614		22,169		23,783
Commercial and industrial		2,375		1,168		3,543		8,965		185,004		193,969
Consumer and other		193		779		972		924		62,087		63,011
Unallocated		-		28		28		-		-		-
Total Non-Real Estate		2,579		2,038		4,617		11,503		269,260		280,763
Total	$	2,998	$	8,116	$	11,114	$	28,811	$	922,004	$	950,815
Unearned Income												(1,894	)
Total loans net of unearned income											$	948,921

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. Payment status, collateral value and the probability of collecting scheduled principal and interest payments when due are considered in evaluating loan impairment. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

-19-

The following is a summary of impaired loans, excluding loans acquired with deteriorated credit quality, by class as of the date indicated:

	As of September 30, 2017
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real Estate:
Construction & land development	$	343	$	823	$	-	$	354	$	-	$	-
Farmland		-		-		-		-		-		-
1 - 4 family		712		754		-		713		19		18
Multifamily		-		-		-		-		-		-
Non-farm non-residential		5,789		5,789		-		5,986		186		216
Total Real Estate		6,844		7,366		-		7,053		205		234
Non-Real Estate:
Agricultural		287		350		-		292		-		-
Commercial and industrial		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		287		350		-		292		-		-
Total Impaired Loans with no related allowance		7,131		7,716		-		7,345		205		234

Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development		-		-		-		-		-		-
Farmland		-		-		-		-		-		-
1 - 4 family		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-
Non-farm non-residential		3,571		3,571		437		3,590		137		123
Total Real Estate		3,571		3,571		437		3,590		137		123
Non-Real Estate:
Agricultural		293		392		19		280		-		-
Commercial and industrial		6,758		9,082		1,577		8,690		51		45
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		7,051		9,474		1,596		8,970		51		45
Total Impaired Loans with an allowance recorded		10,622		13,045		2,033		12,560		188		168

Total Impaired Loans	$	17,753	$	20,761	$	2,033	$	19,905	$	393	$	402

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

	As of December 31, 2016
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real Estate:
Construction & land development	$	361	$	823	$	-	$	363	$	-	$	-
Farmland		-		-		-		-		-		-
1 - 4 family		863		1,196		-		1,044		49		48
Multifamily		-		-		-		-		-		-
Non-farm non-residential		8,501		9,430		-		8,949		196		175
Total Real Estate		9,725		11,449		-		10,356		245		223
Non-Real Estate:
Agricultural		1,603		1,742		-		1,377		30		-
Commercial and industrial		-		-		-		-		-		-
Consumer and other		686		685		-		724		18		12
Total Non-Real Estate		2,289		2,427		-		2,101		48		12
Total Impaired Loans with no related allowance		12,014		13,876		-		12,457		293		235

Impaired Loans with an allowance recorded:
Real Estate:
Construction & land development		-		-		-		-		-		-
Farmland		-		-		-		-		-		-
1 - 4 family		267		303		8		279		-		-
Multifamily		5,014		5,305		164		5,169		-		-
Non-farm non-residential		2,302		2,296		247		2,334		119		113
Total Real Estate		7,583		7,904		419		7,782		119		113
Non-Real Estate:
Agricultural		11		11		11		11		-		-
Commercial and industrial		8,965		9,117		2,375		9,379		72		72
Consumer and other		238		244		193		289		8		7
Total Non-Real Estate		9,214		9,372		2,579		9,679		80		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

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Troubled Debt Restructurings

A troubled debt restructuring ("TDR") is considered such if the lender 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 either the interest rate charged or the amortization. The effect of the modifications to First Guaranty was a reduction in interest income. These loans have an allocated reserve in First Guaranty's allowance for loan losses. First Guaranty has not restructured any loans that are considered TDRs in the nine months ended September 30, 2017.

The following table identifies the TDRs as of September 30, 2017 and December 31, 2016:

	September 30, 2017								December 31, 2016
	Accruing Loans								Accruing Loans
(in thousands)	Current		30-89 Days Past Due		Nonaccrual		Total TDRs		Current		30-89 Days Past Due		Nonaccrual		Total TDRs
Real Estate:
Construction & land development	$	-	$	-	$	343	$	343	$	-	$	-	$	361	$	361
Farmland		-		-		-		-		-		-		-		-
1-4 Family		-		-		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-		-		-
Non-farm non residential		2,138		-		-		2,138		2,987		-		100		3,087
Total Real Estate		2,138		-		343		2,481		2,987		-		461		3,448
Non-Real Estate:
Agricultural		-		-		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-		-		-
Total Non-Real Estate		-		-		-		-		-		-		-		-
Total	$	2,138	$	-	$	343	$	2,481	$	2,987	$	-	$	461	$	3,448

The following table discloses TDR activity for the nine months ended September 30, 2017.

	Troubled Debt Restructured Loans Activity Nine Months Ended September 30, 2017
(in thousands)	Beginning balance December 31, 2016		New TDRs		Charge-offs post-modification			Transferred to ORE		Paydowns			Construction to permanent financing		Restructured to market terms		Other adjustments		Ending balance September 30, 2017
Real Estate:
Construction & land development	$	361	$	-	$	-		$	-	$	(18	)	$	-	$	-	$	-	$	343
Farmland		-		-		-			-		-			-		-		-		-
1 - 4 family		-		-		-			-		-			-		-		-		-
Multifamily		-		-		-			-		-			-		-		-		-
Non-farm non-residential		3,087		-		(102	)		-		(849	)		-		-		2		2,138
Total Real Estate		3,448		-		(102	)		-		(867	)		-		-		2		2,481
Non-Real Estate:
Agricultural		-		-		-			-		-			-		-		-		-
Commercial and industrial		-		-		-			-		-			-		-		-		-
Consumer and other		-		-		-			-		-			-		-		-		-
Total Non-Real Estate		-		-		-			-		-			-		-		-		-
Total	$	3,448	$	-	$	(102	)	$	-	$	(867	)	$	-	$	-		2	$	2,481

There were no commitments to lend additional funds to debtors whose terms have been modified in a TDR at September 30, 2017.

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Note 7. 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. First Guaranty's goodwill is the difference in purchase price over the fair value of net assets acquired from its acquisition of Homestead Bancorp in 2007 and Premier Bancshares, Inc. in 2017. Goodwill totaled $4.1 million at September 30, 2017 and $2.0 million at December 31, 2016. No impairment charges have been recognized on First Guaranty's intangible assets. Loan servicing assets increased $1.1 million to $1.2 million at September 30, 2017 compared to December 31, 2016. Other intangible assets recorded include core deposit intangibles, which are subject to amortization. The weighted-average amortization period remaining for First Guaranty's core deposit intangibles is 9.8 years at September 30, 2017. The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions. The goodwill and other intangibles arising from the Premier acquisition are estimates and are subject to change.

Note 8. Other Real Estate (ORE)

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

(in thousands)	September 30, 2017		December 31, 2016
Real Estate Owned Acquired by Foreclosure:
Residential	$	23	$	71
Construction & land development		319		-
Non-farm non-residential		954		288
Total Other Real Estate Owned and Foreclosed Property	$	1,296	$	359

Loans secured by one-to-four family residential properties in the process of foreclosure totaled $0.2 million as of September 30, 2017.

Note 9. Commitments and Contingencies

Off-balance sheet commitments

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

The exposure to credit loss in the event of nonperformance by the 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 balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk.

Below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at September 30, 2017 and December 31, 2016:

Contract Amount

(in thousands)	September 30, 2017		December 31, 2016
Commitments to Extend Credit	$	59,485	$	56,910
Unfunded Commitments under lines of credit	$	106,571	$	128,428
Commercial and Standby letters of credit	$	8,613	$	6,602

Litigation

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

While the final outcome of legal proceedings is inherently uncertain, based on information currently available as of September 30, 2017, any incremental liability arising from First Guaranty's legal proceedings will not have a material adverse effect on First Guaranty's financial position or results of operations.

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Note 10. 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.

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 within Level 3 in First Guaranty's portfolio as of September 30, 2017 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") 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 September 30, 2017 and December 31, 2016, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)	September 30, 2017		December 31, 2016
Available for Sale Securities Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	11,096	$	30,487
Level 2: Significant Other Observable Inputs		348,079		347,586
Level 3: Significant Unobservable Inputs		27,871		19,400
Securities available for sale measured at fair value	$	387,046	$	397,473

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 the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value.

The change in Level 1 securities available for sale from December 31, 2016 to September 30, 2017 was due principally to a net decrease in Treasury bills of $19.4 million. The change in Level 2 securities available for sale from December 31, 2016 to September 30, 2017 was due principally to the purchase of government agency securities partially offset by the sale of corporate bond securities. The change in Level 3 securities available for sale from December 31, 2016 to September 30, 2017 was due principally to the purchase of $11.8 million in municipal securities partially offset by the paydown of $3.2 million in municipal securities.

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The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of September 30, 2017 and December 31, 2016, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)	At September 30, 2017		At December 31, 2016
Impaired Loans - Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	-	$	-
Level 2: Significant Other Observable Inputs		-		259
Level 3: Significant Unobservable Inputs		12,293		18,559
Impaired loans measured at fair value	$	12,293	$	18,818

Other Real Estate Owned - Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	-	$	-
Level 2: Significant Other Observable Inputs		1,296		226
Level 3: Significant Unobservable Inputs		-		133
Other real estate owned measured at fair value	$	1,296	$	359

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.

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Note 11. 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 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.

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Accrued interest receivable.

The carrying amount of accrued interest receivable approximates its fair value.

Deposits.

The fair value of demand deposits, savings and interest-bearing demand deposits is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. 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.

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 September 30, 2017 and December 31, 2016 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 September 30, 2017 and December 31, 2016 are presented in the following table:

	September 30, 2017				December 31, 2016
(in thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets
Cash and cash equivalents	$	23,861	$	23,861	$	18,111	$	18,111
Securities, available for sale		387,046		387,046		397,473		397,473
Securities, held to maturity		107,899		106,821		101,863		99,906
Federal Home Loan Bank stock		2,343		2,343		1,816		1,816
Loans, net		1,104,092		1,097,777		937,807		937,495
Accrued interest receivable		7,508		7,508		7,039		7,039

Liabilities
Deposits	$	1,497,080	$	1,498,807	$	1,326,181	$	1,325,972
Borrowings		31,008		31,029		28,600		28,625
Junior subordinated debentures		14,655		14,243		14,630		13,909
Accrued interest payable		2,363		2,363		1,931		1,931

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.

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

The following discussion of First Guaranty's financial condition and results of operations is intended to highlight the significant factors affecting First Guaranty's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at September 30, 2017 and for the three and nine months ended September 30, 2017 and 2016 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly First Guaranty's financial position and results of operations for such periods.

Special Note Regarding Forward-Looking Statements

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

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Third Quarter and Nine Months Ended September 30, 2017 Financial Overview

First Guaranty Bancshares, Inc. is a Louisiana corporation and a bank holding company headquartered in Hammond, Louisiana. First Guaranty Bank, the wholly-owned subsidiary of First Guaranty Bancshares, Inc., is a Louisiana chartered commercial bank that provides personalized commercial banking services primarily to Louisiana and Texas customers through 27 banking facilities primary located throughout Southeast, Southwest and North Louisiana and in North Central Texas. We emphasize personal relationships and localized decision making to ensure that products and services are matched to customer needs. First Guaranty competes for business principally on the basis of personal service to customers, customer access to officers and directors and competitive interest rates and fees.

Financial highlights for the third quarter and nine months ended September 30, 2017 and 2016 are as follows:

●	During the fourth quarter of 2017, First Guaranty elected to become a financial holding company as part of its strategy to engage in activities that are financial in nature or incidental to financial activity in the future. The Federal Reserve Bank of Atlanta did not object to such election.

●

First Guaranty completed its merger with Premier and its wholly owned subsidiary, Synergy Bank, on June 16, 2017. First Guaranty acquired an estimated total of $158.3 million in assets and assumed an estimated $137.4 million in liabilities. First Guaranty issued 397,988 shares of its common stock at a price of $25.86 and paid $10.3 million in cash to Premier shareholders. Total consideration was $21.0 million. First Guaranty acquired an estimated total of $127.6 million in loans, securities of $5.9 million, cash and due from banks of $4.5 million, Fed funds sold of $2.9 million, premises of $9.5 million, other real estate owned of $0.2 million and other assets that totaled $1.9 million. Intangibles recorded from the transaction were an estimated total of $4.8 million, including estimated goodwill of $2.1 million. Total assumed liabilities included estimated deposits of $127.2 million, an estimated FHLB advance of $9.7 million and other liabilities of $0.4 million.

●

Total assets were $1.7 billion at September 30, 2017 and $1.5 billion at December 31, 2016. Total loans were $1.1 billion at September 30, 2017, an increase of $162.9 million, or 17.2%, compared with December 31, 2016, with most of the total loan growth attributed to the Premier acquisition. Total deposits were $1.5 billion at September 30, 2017, an increase of $170.9 million compared to $1.3 billion at December 31, 2016. Shareholders' equity was $142.8 million and $124.3 million at September 30, 2017 and December 31, 2016, respectively.

●

Net income for the third quarter of 2017 and 2016 was $3.1 million and $3.4 million, respectively. Net income for the nine months ended September 30, 2017 was $9.2 million compared to $10.9 million for the nine months ended September 30, 2016. A decrease in gains on securities sales of $1.1 million and $2.8 million for the three and nine months ended September 30, 2017 from the prior year periods was a major factor in the decreases.

●

Earnings per common share were $0.38 and $0.44 for the third quarter of 2017 and 2016, respectively, and $1.19 and $1.44 for the nine months ended September 30, 2017 and 2016, respectively. Total shares outstanding were 8,007,182 at September 30, 2017 compared to 7,609,194 at September 30, 2016. The change in shares was due to First Guaranty's acquisition of Premier in June 2017.

●	Net interest income for the third quarter of 2017 was $13.9 million compared to $12.1 million for the same period in 2016. Net interest income for the nine months ended September 30, 2017 was $39.3 million compared to $36.2 million for the same period in 2016.

●	The provision for loan losses for the third quarter of 2017 was $1.1 million compared to $1.2 million for the same period in 2016. The provision for loan losses for the nine months ended September 30, 2017 was $3.1 million compared to $3.0 million for the same period in 2016.

●

Noninterest expense for the third quarter of 2017 and 2016 was $10.1 million and $8.3 million, respectively. Noninterest expense for the nine months ended September 30, 2017 was $28.2 million compared to $24.7 million for the same period in 2016. The increase in the third quarter of 2017 as compared to the prior year period included non-recurring expenses consisting of $329,000 in pre-tax expenses related to the acquisition/merger with Premier. Expenses related to the aforementioned merger for the nine months ended September 30, 2017 totaled $877,000 pre-tax.

●

The net interest margin for the three months ended September 30, 2017 was 3.37% which was a decrease of four basis points from the net interest margin of 3.41% for the same period in 2016. The net interest margin for the first nine months of 2017 was 3.35% which was a decrease of three basis points from the net interest margin of 3.38% for the first nine months of 2016. First Guaranty attributed the decrease in the net interest margin to a rise in interest expense associated with deposits. Loans as a percentage of average interest earning assets increased to 65.4% at September 30, 2017 compared to 60.8% at September 30, 2016.

●

Investment securities totaled $494.9 million at September 30, 2017, a decrease of $4.4 million when compared to $499.3 million at December 31, 2016. At September 30, 2017, available for sale securities, at fair value, totaled $387.0 million, a decrease of $10.4 million when compared to $397.5 million at December 31, 2016. At September 30, 2017, held to maturity securities, at amortized cost, totaled $107.9 million, an increase of $6.0 million when compared to $101.9 million at December 31, 2016.

-29-

●

Total loans net of unearned income were $1.1 billion at September 30, 2017 compared to $948.9 million at December 31, 2016. The net loan portfolio at September 30, 2017 totaled $1.1 billion, a net increase of $163.7 million from the December 31, 2016 net loan portfolio balance of $937.8 million. Total loans net of unearned income are reduced by the allowance for loan losses which totaled $10.3 million at September 30, 2017 and $11.1 million at December 31, 2016.

●	Total impaired loans decreased $11.0 million to $17.8 million at September 30, 2017 compared to $28.8 million at December 31, 2016. Impaired loans decreased $8.9 million during the third quarter of 2017 from $26.6 million at June 30, 2017.

●	Nonaccrual loans decreased $11.4 million to $10.3 million at September 30, 2017 compared to $21.7 million at December 31, 2016. Nonaccrual loans decreased $8.8 million during the third quarter of 2017 from $19.1 million at June 30, 2017.

●

Return on average assets for the three months ended September 30, 2017 and 2016 was 0.72% and 0.93%, respectively. Return on average assets for the nine months ended September 30, 2017 and 2016 was 0.76% and 1.00%, respectively. Return on average common equity for the three months ended September 30, 2017 and 2016 was 8.51% and 10.39%, respectively. Return on average common equity for the nine months ended September 30, 2017 and 2016 was 9.27% and 11.66%, respectively. Return on average assets is calculated by dividing annualized net income before preferred dividends by average assets. Return on average common equity is calculated by dividing annualized net income available to common shareholders by average common equity.

●

Book value per common share was $17.83 as of September 30, 2017 compared to $16.97 as of September 30, 2016. The increase in book value was due primarily to the issuance of 397,988 shares related to the acquisition of Premier, the changes in accumulated other comprehensive income/loss ("AOCI") and an increase in retained earnings. AOCI is comprised of unrealized gains and losses on available for sale securities.

●	First Guaranty's Board of Directors declared cash dividends of $0.16 per common share in the third quarter of 2017 and 2016, respectively. First Guaranty has paid 97 consecutive quarterly dividends as of September 30, 2017.

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Financial Condition

Changes in Financial Condition from December 31, 2016 to September 30, 2017

First Guaranty completed the acquisition of Premier Bancshares, Inc. and its wholly owned subsidiary Synergy Bank, S.S.B. on June 16, 2017. This acquisition added five branches, an estimated $127.2 million in deposits, and an estimated $127.6 million in loans to First Guaranty's balance sheet. The results of operations since the date of acquisition reflect the impact of the transaction.

General

Total assets at September 30, 2017 were $1.7 billion, an increase of $190.5 million, or 12.7%, from December 31, 2016. Assets increased primarily due to increases in net loans of $163.7 million, net premises and equipment of $12.9 million and cash and cash equivalents of $5.8 million during the nine months ended September 30, 2017, a substantial portion of which was due to the Premier acquisition.

Loans

Net loans increased $163.7 million, or 17.5%, to $1.1 billion at September 30, 2017 from $937.8 million at December 31, 2016. The acquisition of Premier contributed $114.6 million in new loans while First Guaranty's legacy portfolio grew by $49.1 million. Acquired loans from Premier included $61.5 million in non-farm non-residential loans, $17.3 million in one-to four-family residential loans, $17.2 million in construction and land development loans, $13.1 million in commercial and industrial loans, $3.5 million in multifamily loans, $1.0 million in farmland loans and $0.9 million in consumer and other loans at September 30, 2017.

Total net loans increased during the first nine months of 2017 primarily due to a $91.2 million increase in non-farm non-residential loans, a $24.4 million increase in construction and land development loans, a $23.4 million increase in one-to-four family residential loans, a $15.4 million increase in commercial and industrial loans, a $8.2 million increase in farmland loans, a $5.3 million increase in agricultural loans and a $4.6 million increase in multifamily loans, partially offset by a decrease of $9.4 million in consumer and other loans. Non-farm non-residential loan balances increased primarily due to local originations and the acquisition of loans from Premier. Construction and land development loans increased principally due to the funding of unfunded commitments on various construction projects. One-to four-family residential loans increased primarily due to the continued growth in local loan originations and acquired loans. Commercial and industrial loans increased primarily due to acquired loans from Premier and due to growth in First Guaranty's legacy portfolio and syndicated loan portfolio. Farmland loans increased due to seasonal fundings on agricultural loan commitments. Agricultural loans increased primarily due to seasonal activity. Multifamily loans increased primarily due to acquired loans from Premier. Consumer and other loans decreased due to the sale of the government guaranteed student loans acquired from Premier and paydowns on commercial leases. First Guaranty had approximately 2.4% of funded and 0.5% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. The balances in this portfolio were not materially changed by the Premier acquisition. Syndicated loans at September 30, 2017 were $84.3 million, all of which were shared national credits. Syndicated loans increased $1.5 million from $82.8 million at December 31, 2016.

As of September 30, 2017, 73.8% of our loan portfolio was secured by real estate. There are no significant concentrations of credit to any individual borrower. The largest portion of our loan portfolio, at 45.6% as of September 30, 2017, was non-farm non-residential loans secured by real estate. Approximately 35.2% of the loan portfolio was based on a floating rate tied to the prime rate or LIBOR as of September 30, 2017. 71.6% of the loan portfolio is scheduled to mature within five years from September 30, 2017.

First Guaranty acquired in the Premier acquisition a portfolio of loans comprised of loans guaranteed principally by the U.S. Small Business Administration ("SBA") or by the U.S. Department of Agriculture ("USDA") and the unguaranteed portion of SBA and USDA loans for which the guaranteed portion had been sold into the secondary market. At September 30, 2017, First Guaranty's balance of SBA and USDA loans was $36.0 million of which $10.7 million retained the government guarantee and $25.3 million was the unguaranteed residual balance. At September 30, 2017, First Guaranty also serviced 59 SBA and USDA loans that totaled $51.7 million. First Guaranty receives servicing fee income on this portfolio.

Net loans are reduced by the allowance for loan losses which totaled $10.3 million at September 30, 2017 and $11.1 million at December 31, 2016. Loan charge-offs were $4.3 million during the first nine months of 2017 and $2.7 million during the same period in 2016. Recoveries totaled $0.5 million during the first nine months of 2017 and $0.6 million during the same period in 2016. See Note 5 of the Notes to Consolidated Financial Statements for more information on loans and Note 6 for information on the allowance for loan losses.

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Investment Securities

Investment securities at September 30, 2017 totaled $494.9 million, a decrease of $4.4 million compared to $499.3 million at December 31, 2016. The decrease was primarily attributed to First Guaranty's strategy to transition assets from securities to the loan portfolio. The investment portfolio consisted of available-for-sale securities at fair market value for a total of $387.0 million at September 30, 2017 and held-to-maturity securities at amortized cost of $107.9 million at September 30, 2017.

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 to meet pledging requirements for public funds and borrowings.

The securities portfolio consists 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, FFCB, Freddie Mac, and Fannie Mae obligations. The mortgage-backed securities that we purchased were issued by Freddie Mac and Fannie Mae. The securities portfolio provides First Guaranty with a balance to credit risk when compared to other categories of assets. Management monitors the securities portfolio for both credit and interest rate risk. First Guaranty generally limits the purchase of corporate securities to individual issuers to manage concentration and credit risk. Corporate securities generally have a maturity of 10 years or less. U.S. Government securities consist of U.S. Treasury bills that have maturities of less than 30 days. Municipal securities usually have maturities of 15 years or less. Government agency securities generally have maturities of 15 years or less. Agency mortgage backed securities have stated final maturities of 15 to 20 years.

Our available-for-sale securities portfolio totaled $387.0 million at September 30, 2017, a decrease of $10.4 million, or 2.6%, compared to $397.5 million at December 31, 2016. The decrease was primarily due to the sale of $112.5 million in U.S. Government agency and U.S. Treasury securities and $26.2 million in corporate securities in the first nine months of 2017 for which the proceeds were used to fund loan growth. Partially offsetting this decrease was the purchase of U.S. government agency securities used to collateralize public funds deposits. Acquired securities from Premier totaled $5.9 million and included $4.5 million in mortgage-backed securities and $1.4 million in collateralized mortgage obligations.

Our held-to-maturity securities portfolio had an amortized cost of $107.9 million at September 30, 2017, an increase of $6.0 million, or 5.9%, compared to $101.9 million at December 31, 2016. The increase was primarily due to the purchase of $10.0 million in U.S. Government agency securities and $5.3 million in municipal securities used to collateralize public funds deposits. Partially offsetting this increase were early payoffs of existing securities and the continued amortization of our mortgage-backed securities.

At September 30, 2017, $19.3 million, or 3.9%, of the securities portfolio was scheduled to mature in less than one year. $77.6 million, or 15.7%, of the securities portfolio was scheduled to mature between one and five years. Securities, not including collateralized mortgage obligations and mortgage-backed securities, with contractual maturity dates over 10 years totaled $35.3 million, or 7.1%, of the total securities portfolio at September 30, 2017. 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 as of September 30, 2017, management believes that the securities portfolio has a forecasted weighted average life of approximately 6.2 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 6.6 years. The portfolio had an estimated effective duration of 4.0 years at September 30, 2017.

There was no credit related other-than-temporary impairment of securities losses recognized during the nine months ended September 30, 2017 or September 30, 2016.

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Nonperforming 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 asset is well secured and in the process of collection. 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 and a reasonable payment performance period is observed (generally considered six months or longer). Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure.

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The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.

(in thousands)	September 30, 2017			December 31, 2016
Nonaccrual loans:
Real Estate:
Construction and land development	$	376		$	551
Farmland		107			105
1 - 4 family residential		2,296			2,242
Multifamily		-			5,014
Non-farm non-residential		773			2,753
Total Real Estate		3,552			10,665
Non-Real Estate:
Agricultural		617			1,958
Commercial and industrial		6,081			8,070
Consumer and other		50			981
Total Non-Real Estate		6,748			11,009
Total nonaccrual loans		10,300			21,674

Loans 90 days and greater delinquent & accruing:
Real Estate:
Construction and land development		-			34
Farmland		-			-
1 - 4 family residential		47			145
Multifamily		-			-
Non-farm non-residential		-			-
Total Real Estate		47			179
Non-Real Estate:
Agricultural		362			-
Commercial and industrial		-			-
Consumer and other		-			-
Total Non-Real Estate		362			-
Total loans 90 days and greater delinquent & accruing		409			179

Total non-performing loans		10,709			21,853

Real Estate Owned:
Real Estate Loans:
Construction and land development		319			-
Farmland		-			-
1 - 4 family residential		23			71
Multifamily		-			-
Non-farm non-residential		954			288
Total Real Estate		1,296			359
Non-Real Estate Loans:
Agricultural		-			-
Commercial and industrial		-			-
Consumer and other		-			-
Total Non-Real Estate		-			-
Total Real Estate Owned		1,296			359

Total non-performing assets	$	12,005		$	22,212

Non-performing assets to total loans		1.08	%		2.34	%
Non-performing assets to total assets		0.71	%		1.48	%
Non-performing loans to total loans		0.96	%		2.30	%

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At September 30, 2017, nonperforming assets totaled $12.0 million, or 0.71% of total assets, compared to $22.2 million, or 1.48%, of total assets at December 31, 2016, which represented a decrease of $10.2 million, or 46.0%. The decrease in non-performing assets occurred primarily as a result of a decrease in non-accrual loans from $21.7 million at December 31, 2016 to $10.3 million at September 30, 2017. The decrease in non-accrual loans was concentrated primarily in multifamily loans, commercial and industrial loans, non-farm non-residential loans, agricultural loans and consumer and other loans. The decrease in multifamily loans included a $4.9 million loan that was returned to accrual status after observing reasonable payment performance over the last 24 months and a $2.2 million partial charge off of a non-performing commercial and industrial loan. The decrease in non-accrual loans was partially offset by an increase in loans 90 days and greater still accruing of $0.2 million. First Guaranty acquired $0.1 million in non-accrual loans from Premier and $1.0 million in government guaranteed student loans that were 90 day plus and still accruing. These loans were sold during the third quarter of 2017. First Guaranty acquired $0.2 million in other real estate owned from Premier.

At September 30, 2017, nonaccrual loans totaled $10.3 million, a decrease of $11.4 million, or 52.5%, compared to nonaccrual loans of $21.7 million at December 31, 2016. The primary reduction in non-accrual loans occurred due to charge offs on existing loans, a $4.9 million multifamily loan that was returned to accrual status and principal reductions on government guaranteed agricultural loans. Nonaccrual loans were concentrated in three loan relationships that totaled $6.2 million, or 60.2%, of nonaccrual loans at September 30, 2017.

At September 30, 2017, loans 90 days or greater delinquent and still accruing totaled $0.4 million, an increase of $0.2 million compared to $0.2 million at December 31, 2016. These loans were comprised of a $0.4 million agricultural loan and a $47,000 one-to four-family loan at September 30, 2017.

Other real estate owned at September 30, 2017 totaled $1.3 million, an increase of $0.9 million from $0.4 million at December 31, 2016. The increase in other real estate owned was primarily due to the addition of a $0.8 million non-farm non-residential property.

At September 30, 2017, our largest non-performing assets were comprised of the following non-accrual loans and other real estate owned: (1) a commercial and industrial loan that totaled $5.6 million that is a shared national credit involved in oil and gas support and service activity with a specific reserve of $1.5 million; (2) a construction and land development loan that totaled $0.3 million; (3) an agricultural loan that totaled $0.3 million; and (4) a $0.8 million non-farm non-residential property. The commercial and industrial and agricultural loans have been charged down to their estimated fair value.

Troubled Debt Restructurings

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 September 30, 2017 and December 31, 2016:

(in thousands)	September 30, 2017		December 31, 2016
Restructured Loans:
In Compliance with Modified Terms	$	2,138	$	2,987
Past Due 30 through 89 days and still accruing		-		-
Past Due 90 days and greater and still accruing		-		-
Nonaccrual		343		361
Restructured Loans that subsequently defaulted		-		100
Total Restructured Loans	$	2,481	$	3,448

At September 30, 2017, we had two outstanding TDRs: (1) a $2.1 million non-farm non-residential loan secured by commercial real estate, which is performing in accordance with its modified terms; and (2) a $0.3 million construction and land development loan secured by raw land that is on non-accrual. The restructuring of these loans was related to interest rate or amortization concessions. The decline in TDRs over the first nine months of 2017 occurred primarily due to paydowns on the $2.1 million TDR that is in compliance with its modified terms and the charge off of a $0.1 million TDR that subsequently defaulted and was placed on non-accrual.

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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 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 allowance for loan losses was $10.3 million or 0.93% of total loans and 96.3% of nonperforming loans at September 30, 2017. The allowance for loan losses as a percentage of total loans was 1.03% prior to the inclusion of the acquired loans from Premier.

Comparing September 30, 2017 to December 31, 2016, the decrease in the allowance was primarily attributed to the decrease in the specific reserve associated with a nonperforming commercial and industrial loan. The decrease in the specific reserve was due to a $2.2 million partial charge off related to the credit. There were changes within the specific components of the allowance balance. The primary change was a decrease in the balance associated with commercial and industrial, construction and land development and consumer and other loans. This decrease was partially offset by an increase in multifamily loans and non-farm non-residential loans. Special mention loans decreased by $2.0 million during the first nine months of 2017. Substandard loans increased by $1.9 million during the first nine months of 2017, due primarily to the addition of loans acquired in the Premier acquisition with deteriorated credit quality. Doubtful loans decreased $2.2 million during the first nine months of 2017, due to the partial charge off on a nonperforming commercial and industrial loan.

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First Guaranty charged off $4.3 million in loan balances during the first nine months of 2017. The charged-off loan balances were concentrated in seven loan relationships which totaled $3.8 million or 87.7% of the total charged off amount. The details of the $4.3 million in charged off loans were as follows:

1.	First Guaranty charged off $0.1 million on a non-real estate commercial lease in the first quarter of 2017. This loan had no remaining principal balance at September 30, 2017.

2.	First Guaranty charged off $0.7 million on a non-real estate commercial lease in the second quarter of 2017. This loan had no remaining principal balance at September 30, 2017.

3.	First Guaranty charged off $0.5 million on a non-farm non-residential real estate loan in the second quarter of 2017. This loan had no remaining principal balance at September 30, 2017.

4.	First Guaranty charged off $0.1 million on a non-farm non-residential real estate loan in the second quarter of 2017. This loan had a $37,000 remaining principal balance at September 30, 2017.

5.	First Guaranty charged off $2.2 million on a commercial and industrial loan relationship in the third quarter of 2017. This relationship had a remaining principal balance of $5.6 million at September 30, 2017.

6.	First Guaranty charged off $0.1 million on a non-farm non-residential loan in the third quarter of 2017. This loan had no remaining principal balance at September 30, 2017.

7.	First Guaranty charged off $0.1 million on a non-farm non-residential loan in the third quarter of 2017. This loan had no remaining principal balance at September 30, 2017.

8.	Smaller loans and overdrawn deposit accounts comprised the remaining $0.5 million of charge-offs for the first nine months of 2017.

The provision for loan losses increased to $3.1 million in the first nine months of 2017 from $3.0 million for the same period in 2016. The provision in the first nine months of 2017 was 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 $4.3 million for the first nine months of 2017 and $2.7 million for the same period in 2016. Recoveries totaled $0.5 million during the first nine months of 2017 and $0.6 million during the first nine months of 2016. For more information, see Note 6 to Consolidated Financial Statements.

Other information related to the allowance for loan losses is as follows:

(in thousands)	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
Loans:
Average outstanding balance	$	1,027,382		$	869,325
Balance at end of period	$	1,111,791		$	910,745

Allowance for Loan Losses:
Balance at beginning of year	$	11,114		$	9,415
Charge-offs		(4,326	)		(2,737	)
Recoveries		461			595
Provision		3,064			2,978
Balance at end of period	$	10,313		$	10,251

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Deposits

Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. We regularly assess our funding needs, deposit pricing and interest rate outlooks. From December 31, 2016 to September 30, 2017, total deposits increased $170.9 million, or 12.9%, to $1.5 billion. Acquired deposits from the Premier acquisition totaled $127.1 million which included $27.6 million in noninterest-bearing demand deposits, $31.3 million in interest bearing demand deposits, $4.8 million in savings deposits, and $63.3 million in time deposits at September 30, 2017. Noninterest-bearing demand deposits increased $25.5 million during the first nine months of 2017 to $256.6 million at September 30, 2017. Interest-bearing demand deposits increased $32.5 million, or 6.8%, during the first nine months of 2017 to $512.3 million at September 30, 2017. Time deposits increased $104.1 million, or 20.1% to $622.1 million at September 30, 2017 compared to $518.0 million at December 31, 2016. At September 30, 2017, we had $90.5 million in brokered deposits. As we seek to strengthen our net interest margin and improve our earnings, attracting noninterest-bearing deposits will be a primary emphasis. Management will continue to evaluate and update our product mix in its efforts to attract additional customers. We currently offer a number of deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on noninterest-bearing deposits.

As of September 30, 2017, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $444.7 million. At September 30, 2017, approximately $241.7 million of First Guaranty's certificates of deposit had a remaining term greater than one year.

The following table compares deposit categories for the periods indicated.

Total Deposits	For the Nine Months Ended September 30,									For the Years Ended December 31,
	2017									2016									2015
(in thousands except for %)	Average Balance			Percent			Weighted Average Rate			Average Balance			Percent			Weighted Average Rate			Average Balance			Percent			Weighted Average Rate
Noninterest-bearing Demand		$	240,923		16.7	%		0.0	%		$	221,634		17.2	%		0.0	%		$	211,584		15.9	%		0.0	%
Interest-bearing Demand			534,898		37.1	%		1.0	%			415,410		32.3	%		0.6	%			401,617		30.2	%		0.4	%
Savings			101,581		7.1	%		0.2	%			89,279		7.0	%		0.1	%			77,726		5.8	%		0.0	%
Time			563,076		39.1	%		1.2	%			558,982		43.5	%		1.1	%			640,134		48.1	%		1.1	%
Total Deposits		$	1,440,478		100.0	%		0.8	%		$	1,285,305		100.0	%		0.7	%		$	1,331,061		100.0	%		0.6	%

Individual and Business Deposits	For the Nine Months Ended September 30,									For the Years Ended December 31,
	2017									2016									2015
(in thousands except for %)	Average Balance			Percent			Weighted Average Rate			Average Balance			Percent			Weighted Average Rate			Average Balance			Percent			Weighted Average Rate
Noninterest-bearing Demand		$	236,484		28.4	%		0.0	%		$	217,245		30.1	%		0.0	%		$	207,334		27.6	%		0.0	%
Interest-bearing Demand			175,694		21.1	%		0.6	%			117,221		16.2	%		0.3	%			112,864		15.0	%		0.2	%
Savings			81,341		9.8	%		0.1	%			72,647		10.0	%		0.1	%			65,775		8.7	%		0.1	%
Time			339,029		40.7	%		1.3	%			316,191		43.7	%		1.3	%			366,244		48.7	%		1.4	%
Total Individual and Business Deposits		$	832,548		100.0	%		0.7	%		$	723,304		100.0	%		0.6	%		$	752,217		100.0	%		0.7	%

Public Fund Deposits	For the Nine Months Ended September 30,									For the Years Ended December 31,
	2017									2016									2015
(in thousands except for %)	Average Balance			Percent			Weighted Average Rate			Average Balance			Percent			Weighted Average Rate			Average Balance			Percent			Weighted Average Rate
Noninterest-bearing Demand		$	4,439		0.7	%		0.0	%		$	4,389		0.8	%		0.0	%		$	4,250		0.7	%		0.0	%
Interest-bearing Demand			359,204		59.1	%		1.2	%			298,189		53.0	%		0.8	%			288,753		49.9	%		0.4	%
Savings			20,240		3.3	%		0.8	%			16,632		3.0	%		0.3	%			11,951		2.1	%		0.0	%
Time			224,047		36.9	%		1.0	%			242,791		43.2	%		0.8	%			273,890		47.3	%		0.7	%
Total Public Fund Deposits		$	607,930		100.0	%		1.1	%		$	562,001		100.0	%		0.8	%		$	578,844		100.0	%		0.5	%

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

(in thousands)	September 30, 2017
Time deposits of less than $100,000	$	177,409
Time deposits of $100,000 through $250,000		151,349
Time deposits of more than $250,000		293,304
Total Time Deposits	$	622,062

At September 30, 2017, public funds deposits totaled $593.5 million compared to $556.9 million at December 31, 2016. Public fund time deposits totaled $253.7 million at September 30, 2017 compared to $208.3 million at December 31, 2016. We have developed a program for the retention and management of public funds deposits. Since 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. $541.9 million, or 91%, of these accounts at September 30, 2017, 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 approximately 40% 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 will increase at the end of the year and during the first quarter. Public funds deposit accounts are collateralized by FHLB letters of credit, by Louisiana municipal bonds and by 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.

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

(in thousands except for %)	September 30, 2017			December 31, 2016			December 31, 2015			December 31, 2014			December 31, 2013
Public Funds:
Noninterest-bearing Demand	$	4,764		$	4,114		$	4,906		$	3,241		$	3,016
Interest-bearing Demand		314,468			324,356			296,416			321,382			296,739
Savings		20,581			20,116			14,667			10,142			7,209
Time		253,730			208,330			252,688			266,743			208,614
Total Public Funds	$	593,543		$	556,916		$	568,677		$	601,508		$	515,578
Total Deposits	$	1,497,080		$	1,326,181		$	1,295,870		$	1,371,839		$	1,303,099
Total Public Funds as a percent of Total Deposits		39.6	%		42.0	%		43.9	%		43.9	%		39.6	%

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Borrowings

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. First Guaranty had $7.5 million in short-term borrowings outstanding at September 30, 2017 compared to $6.5 million at December 31, 2016. First Guaranty has an available line of credit of $2.5 million, with no outstanding balance at September 30, 2017. First Guaranty had senior long-term debt totaling $23.5 million as of September 30, 2017 and $22.1 million at December 31, 2016. First Guaranty modified its existing senior long-term debt in the second quarter of 2017. The modification increased the principal balance to $25.0 million with new net proceeds of $3.8 million. The existing amortization terms and rates remained the same. The $3.8 million in additional proceeds were contributed to First Guaranty Bank for future growth.

First Guaranty also had junior subordinated debentures totaling $14.7 million at September 30, 2017 and $14.6 million at December 31, 2016.

First Guaranty had $280.9 million in Federal Home Loan Bank letters of credit as of September 30, 2017. Federal Home Loan Bank letters of credit totaled $226.1 million and $195.0 million as of December 31, 2016 and December 31, 2015, respectively. Federal Home Loan Bank letters of credit outstanding are obtained primarily for collateralizing public deposits. The increase in Federal Home Loan Bank letters of credit reflects First Guaranty's ability to transition public funds deposits into loans.

Total Shareholders' Equity

Total shareholders' equity increased to $142.8 million at September 30, 2017 from $124.3 million at December 31, 2016. The increase in shareholders' equity was principally the result of a $10.3 million increase in surplus, a $5.5 million increase in retained earnings and a decrease of $2.3 million in accumulated other comprehensive loss. The decrease in accumulated other comprehensive loss was primarily attributed to the decrease in unrealized losses on available-for-sale securities during the period. The $10.3 million increase in surplus was due to the issuance of 397,988 shares of common stock resulting from the Premier acquisition. The $5.5 million increase in retained earnings was due to net income of $9.2 million during the nine month period ended September 30, 2017, partially offset by $3.8 million in cash dividends paid on our common stock.

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Results of Operations for the Third Quarter and Nine Months Ended September 30, 2017 and 2016

Performance Summary

Three months ended September 30, 2017 compared to the three months ended September 30, 2016. Net income for the three months ended September 30, 2017 was $3.1 million, a decrease of $0.3 million, or 9.4%, from $3.4 million for the three months ended September 30, 2016. The decrease in net income for the three months ended September 30, 2017 as compared to the prior year period was primarily the result of decreased noninterest income associated with gains on securities sales during the three months ended September 30, 2016 and an increase in noninterest expense, partially offset by increased net interest income. Earnings per common share for the three months ended September 30, 2017 was $0.38 per common share, a decrease of 13.6% or $0.06 per common share from $0.44 per common share for the three months ended September 30, 2016. The decrease in earnings per share was caused by lower earnings and by the increased number of shares outstanding following First Guaranty's acquisition of Premier in June 2017.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Net income for the nine months ended September 30, 2017 was $9.2 million, a decrease of $1.7 million, or 15.4%, from $10.9 million for the nine months ended September 30, 2016. The decrease in net income for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily the result of increased noninterest expense and decreased noninterest income associated with gains on securities sales during the nine months ended September 30, 2016, partially offset by increased net interest income. Earnings per common share for the nine months ended September 30, 2017 was $1.19 per common share, a decrease of 17.4% or $0.25 per common share from $1.44 per common share for the nine months ended September 30, 2016. The decrease in earnings per share was caused by lower earnings and by the increased number of shares outstanding following First Guaranty's acquisition of Premier in June 2017.

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.

Three months ended September 30, 2017 compared to the three months ended September 30, 2016. Net interest income for the three months ended September 30, 2017 and 2016 was $13.9 million and $12.1 million, respectively. The increase in net interest income for the three months ended September 30, 2017 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset by the increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities. For the three months ended September 30, 2017, the average balance of our total interest-earning assets increased by $219.3 million to $1.6 billion, and the average yield of interest-earning assets increased by 21 basis points to 4.33% from 4.12% for the three months ended September 30, 2016. For the three months ended September 30, 2017, the average balance of our total interest-bearing liabilities increased by $198.4 million to $1.3 billion, and the average rate of our total interest-bearing liabilities increased by 30 basis points to 1.22% from 0.92% for the three months ended September 30, 2016. Our net interest rate spread decreased nine basis points to 3.11% for the three months ended September 30, 2017 from 3.20% for the three months ended September 30, 2016. Our net interest margin also decreased four basis points to 3.37% for the three months ended September 30, 2017 from 3.41% for the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Net interest income for the nine months ended September 30, 2017 and 2016 was $39.3 million and $36.2 million, respectively. The increase in net interest income for the nine months ended September 30, 2017 as compared to the prior year period was primarily due to an increase in the average balance of our total interest-earning assets and an increase in the average yield of our total interest-earning assets, partially offset by the increase in the average balance of our total interest-bearing liabilities and an increase in the average rate of our total interest-bearing liabilities. For the nine months ended September 30, 2017, the average balance of our total interest-earning assets increased by $142.7 million to $1.6 billion, and the average yield of interest-earning assets increased by 12 basis points to 4.22% from 4.10% for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, the average balance of our total interest-bearing liabilities increased by $123.6 million to $1.2 billion, and the average rate of our total interest-bearing liabilities increased by 20 basis points to 1.11% from 0.91% for the nine months ended September 30, 2016. As a result, our net interest rate spread decreased eight basis points to 3.11% for the nine months ended September 30, 2017 from 3.19% for the nine months ended September 30, 2016. Our net interest margin also decreased three basis points to 3.35% for the nine months ended September 30, 2017 from 3.38% for the nine months ended September 30, 2016.

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Interest Income

Three months ended September 30, 2017 compared to the three months ended September 30, 2016. Interest income increased $3.2 million, or 21.7%, to $17.8 million for the three months ended September 30, 2017 as compared to the prior year period. First Guaranty continues to transition assets from lower yielding securities to higher yielding loans in order to increase interest income. The increase in interest income resulted primarily from an increase in the average balance of our total interest-earning assets along with an increase in the average yield of interest-earning assets. The average balance of interest-earning assets increased $219.3 million to $1.6 billion for the three months ended September 30, 2017 as compared to the prior year period. The average yield of interest-earning assets increased by 21 basis points to 4.33% for the three months ended September 30, 2017 compared to 4.12% for the three months ended September 30, 2016.

Interest income on securities increased $0.3 million, or 10.6%, to $3.3 million for the three months ended September 30, 2017 primarily as a result of an increase in the average balance of securities. The average balance of securities increased $14.7 million to $503.5 million for the three months ended September 30, 2017 from $488.8 million for the three months ended September 30, 2016 due to an increase in the average balance of our agency and municipal securities. The average yield on securities increased by 17 basis points to 2.61% for the three months ended September 30, 2017 from 2.44% for the three months ended September 30, 2016.

Interest income on loans increased $2.8 million, or 23.9%, to $14.4 million for the three months ended September 30, 2017 as a result of an increase in the average balance of loans. The average balance of loans (excluding loans held for sale) increased by $185.2 million to $1.1 billion for the three months ended September 30, 2017 from $910.3 million for the three months ended September 30, 2016 as a result of new loan originations, acquired loans and loans assumed from the Premier acquisition, 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. The average yield on loans (excluding loans held for sale) increased by 12 basis points to 5.21% for the three months ended September 30, 2017 from 5.09% for the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Interest income increased $5.8 million, or 13.2%, to $49.6 million for the nine months ended September 30, 2017 as compared to the prior year period. First Guaranty continues to transition assets from lower yielding securities to higher yielding loans in order to increase interest income. The increase in interest income resulted primarily from an increase in the average balance of our total interest-earning assets along with an increase in the average yield of interest-earning assets. The average balance of interest-earning assets increased $142.7 million to $1.6 billion for the nine months ended September 30, 2017 as compared to the prior year period. The average yield of interest-earning assets increased by 12 basis points to 4.22% for the nine months ended September 30, 2017 compared to 4.10% for the nine months ended September 30, 2016.

Interest income on securities increased $5,000 to $10.0 million for the nine months ended September 30, 2017 primarily as a result of an increase in the average yield on securities. The average yield on securities increased by 11 basis points to 2.59% for the nine months ended September 30, 2017 from 2.48% for the nine months ended September 30, 2016. The average balance of securities decreased $20.8 million to $517.9 million for the nine months ended September 30, 2017 from $538.7 million for the nine months ended September 30, 2016 due to a decrease in the average balance of our agency securities.

Interest income on loans increased $5.7 million, or 16.9%, to $39.4 million for the nine months ended September 30, 2017 as a result of an increase in the average balance of loans. The average balance of loans (excluding loans held for sale) increased by $158.1 million to $1.0 billion for the nine months ended September 30, 2017 from $869.3 million for the nine months ended September 30, 2016 as a result of new loan originations, acquired loans and loans assumed from the Premier acquisition, the majority of which were one-to-four family residential loans, commercial leases, commercial real estate loans and commercial and industrial loans. The average yield on loans (excluding loans held for sale) decreased by six basis points to 5.13% for the nine months ended September 30, 2017 from 5.19% for the nine months ended September 30, 2016.

Interest Expense

Three months ended September 30, 2017 compared to the three months ended September 30, 2016. Interest expense increased $1.4 million, or 57.5%, to $4.0 million for the three months ended September 30, 2017 from $2.5 million for the three months ended September 30, 2016 due primarily to an increase in the average balance of interest-bearing deposits along with an increase in the average rate paid on interest-bearing deposits. The average balance of interest-bearing deposits increased by $205.9 million during the three months ended September 30, 2017 to $1.3 billion as a result of a $129.2 million increase in the average balance of interest-bearing demand deposits, a $61.7 million increase in time deposits and a $15.1 million increase in savings deposits. The average rate of interest-bearing demand deposits increased by 43 basis points during the three months ended September 30, 2017 to 1.08%. The increase in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds NOW accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S. Federal Funds rate or short term U.S. Treasury rates. These index rates increased during the second quarter of 2017.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Interest expense increased $2.6 million, or 34.7%, to $10.3 million for the nine months ended September 30, 2017 from $7.6 million for the nine months ended September 30, 2016 due primarily to an increase in the average balance of interest-bearing deposits along with an increase in the average rate paid on interest-bearing deposits. The average balance of interest-bearing deposits increased by $127.0 million during the nine months ended September 30, 2017 to $1.2 billion as a result of a $134.5 million increase in the average balance of interest-bearing demand and savings deposits. The increase was partially offset by a $7.5 million decrease in the average balance of time deposits during the same time period. The average rate of interest-bearing demand deposits increased by 37 basis points during the nine months ended September 30, 2017 to 0.98%. The increase in the average rate on interest-bearing demand deposits was due to those deposits, primarily public funds NOW accounts and brokered money market deposits, whose rates are contractually tied to national index rates such as the U.S. Federal Funds rate or short term U.S. Treasury rates. These rates increased during the second quarter of 2017.

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The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual 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 shown below in the average balance sheet is calculated by dividing net interest income by average interest-earning assets and is a measure of the efficiency of the earnings from balance sheet activities. It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities.

	Three Months Ended September 30, 2017							Three Months Ended September 30, 2016
(in thousands except for %)	Average Balance		Interest		Yield/Rate (5)			Average Balance		Interest		Yield/Rate (5)
Assets
Interest-earning assets:
Interest-earning deposits with banks	$	30,295	$	82		1.07	%	$	14,365	$	11		0.30	%
Securities (including FHLB stock)		503,511		3,317		2.61	%		488,769		2,998		2.44	%
Federal funds sold		1,736		6		1.37	%		279		-		0.00	%
Loans held for sale		1,976		27		5.42	%		-		-		0.00	%
Loans, net of unearned income		1,095,541		14,394		5.21	%		910,341		11,642		5.09	%
Total interest-earning assets		1,633,059	$	17,826		4.33	%		1,413,754	$	14,651		4.12	%

Noninterest-earning assets:
Cash and due from banks		13,122							8,230
Premises and equipment, net		36,262							22,257
Other assets		13,806							3,298
Total Assets	$	1,696,249						$	1,447,539

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	534,400	$	1,460		1.08	%	$	405,196	$	662		0.65	%
Savings deposits		105,211		61		0.23	%		90,160		19		0.08	%
Time deposits		612,406		2,044		1.32	%		550,736		1,470		1.06	%
Borrowings		40,965		403		3.90	%		48,478		369		3.03	%
Total interest-bearing liabilities		1,292,982	$	3,968		1.22	%		1,094,570	$	2,520		0.92	%

Noninterest-bearing liabilities:
Demand deposits		254,825							218,187
Other		5,613							5,384
Total Liabilities		1,553,420							1,318,141

Shareholders' equity		142,829							129,398
Total Liabilities and Shareholders' Equity	$	1,696,249						$	1,447,539
Net interest income			$	13,858						$	12,131

Net interest rate spread (1)						3.11	%						3.20	%
Net interest-earning assets (2)	$	340,077						$	319,184
Net interest margin (3), (4)						3.37	%						3.41	%

Average interest-earning assets to interest-bearing liabilities						126.30	%						129.16	%

(1)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(3)

Net interest margin represents net interest income divided by average total interest-earning assets.

(4)

The tax adjusted net interest margin was 3.39% and 3.43% for the above periods ended September 30, 2017 and 2016 respectively. A 35% tax rate was used to calculate the effect on securities income from tax exempt securities.

(5)

Annualized.

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	Nine Months Ended September 30, 2017							Nine Months Ended September 30, 2016
(in thousands except for %)	Average Balance		Interest		Yield/Rate (5)			Average Balance		Interest		Yield/Rate (5)
Assets
Interest-earning assets:
Interest-earning deposits with banks	$	24,808	$	142		0.76	%	$	20,926	$	55		0.35	%
Securities (including FHLB stock)		517,929		10,018		2.59	%		538,748		10,013		2.48	%
Federal funds sold		958		8		1.10	%		257		-		0.00	%
Loans held for sale		855		31		4.86	%		-		-		0.00	%
Loans, net of unearned income		1,027,382		39,416		5.13	%		869,325		33,749		5.19	%
Total interest-earning assets		1,571,932	$	49,615		4.22	%		1,429,256	$	43,817		4.10	%

Noninterest-earning assets:
Cash and due from banks		9,675							7,988
Premises and equipment, net		29,343							22,099
Other assets		7,924							3,855
Total Assets	$	1,618,874						$	1,463,198

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	534,898	$	3,902		0.98	%	$	414,633	$	1,902		0.61	%
Savings deposits		101,581		147		0.19	%		87,344		54		0.08	%
Time deposits		563,076		5,079		1.21	%		570,615		4,541		1.06	%
Borrowings		40,074		1,143		3.81	%		43,485		1,126		3.46	%
Total interest-bearing liabilities		1,239,629	$	10,271		1.11	%		1,116,077	$	7,623		0.91	%

Noninterest-bearing liabilities:
Demand deposits		240,923							217,474
Other		4,926							4,384
Total Liabilities		1,485,478							1,337,935

Shareholders' equity		133,396							125,263
Total Liabilities and Shareholders' Equity	$	1,618,874						$	1,463,198
Net interest income			$	39,344						$	36,194

Net interest rate spread (1)						3.11	%						3.19	%
Net interest-earning assets (2)	$	332,303						$	313,179
Net interest margin (3), (4)						3.35	%						3.38	%

Average interest-earning assets to interest-bearing liabilities						126.81	%						128.06	%

(1)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(3)

Net interest margin represents net interest income divided by average total interest-earning assets.

(4)

The tax adjusted net interest margin was 3.37% and 3.41% for the above periods ended September 30, 2017 and 2016 respectively. A 35% tax rate was used to calculate the effect on securities income from tax exempt securities.

(5)

Annualized.

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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.

For the three months ended September 30, 2017, the provision for loan losses was $1.1 million compared to $1.2 million for the same period in 2016. The allowance for loan losses at September 30, 2017 was $10.3 million and was 0.93% of total loans. The decrease in the provision was attributed to the decrease in provisions on loans evaluated individually for impairment. The allowance for loan losses as a percentage of total loans was 1.03% prior to the inclusion of the acquired loans from Premier.

We recorded a $3.1 million provision for loan losses for the nine months ended September 30, 2017 compared to $3.0 million for the same period in 2016. The increase in the provision was attributed to the additional provisions on loans evaluated individually for impairment. Total charge-offs were $4.3 million for the first nine months of 2017 and $2.7 million for the same period in 2016. The increase in charge-offs was primarily due to a $2.2 million charge-off on a commercial and industrial loan relationship.

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.

Noninterest Income

Our primary sources of recurring noninterest income are customer service fees, ATM and debit card fees, loan fees, gains on the sales 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 $2.0 million for the three months ended September 30, 2017, a decrease of $0.5 million from $2.6 million for the three months ended September 30, 2016. The decrease was primarily due to lower gains on securities sales. Net securities gains were $0.1 million for the three months ended September 30, 2017 as compared to $1.2 million for the same period in 2016. 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 $0.7 million for the three months ended September 30, 2017 and $0.6 million for the same period in 2016. ATM and debit card fees totaled $0.5 million for the three months ended September 30, 2017 and 2016. Net loan gains were $3,000 for the three months ended September 30, 2017 and $6,000 for the same period in 2016. Other noninterest income totaled $0.7 million and $0.4 million for the three months ended September 30, 2017 and 2016, respectively.

Noninterest income totaled $6.0 million for the nine months ended September 30, 2017, a decrease of $2.1 million from $8.0 million for the nine months ended September 30, 2016. The decrease was primarily due to lower gains on securities sales. Net securities gains were $1.0 million for the nine months ended September 30, 2017 as compared to $3.8 million for the same period in 2016. 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 $1.9 million for the nine months ended September 30, 2017 as compared to $1.8 million for the same period in 2016. ATM and debit card fees totaled $1.5 million for the nine months ended September 30, 2017 and $1.4 million for the same period in 2016. Net loan gains were $0.1 million for the nine months ended September 30, 2017 and $9,000 for the same period in 2016. The increase in net loan gains during the nine months ended September 30, 2017 were related to $0.1 million in net gains on the sale of the guaranteed portion of SBA loans. Other noninterest income totaled $1.5 million and $1.1 million for the nine months ended September 30, 2017 and 2016, respectively.

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Noninterest Expense

Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense totaled $10.1 million for the three months ended September 30, 2017 and $8.3 million for the three months ended September 30, 2016. Salaries and benefits expense totaled $5.3 million for the three months ended September 30, 2017 and $4.2 million for the three months ended September 30, 2016, primarily due to the increase in personnel from the Premier acquisition. Occupancy and equipment expense totaled $1.2 million for the three months ended September 30, 2017 and $1.1 million for the same period of 2016. Other noninterest expense totaled $3.7 million for the three months ended September 30, 2017 and $3.0 million for the three months ended September 30, 2016. The largest increase in other noninterest expense occurred due to increased legal and professional fees associated with the Premier acquisition. Included in other non-interest expense were non-recurring expenses related to the acquisition of Premier of approximately $0.3 million.

Noninterest expense totaled $28.2 million for the nine months ended September 30, 2017 and $24.7 million for the nine months ended September 30, 2016. Salaries and benefits expense totaled $14.7 million for the nine months ended September 30, 2017 and $12.4 million for the nine months ended September 30, 2016, primarily due to the increase in personnel from the Premier acquisition. Occupancy and equipment expense totaled $3.3 million for the nine months ended September 30, 2017 and $3.1 million for the nine months ended September 30, 2016. Other noninterest expense totaled $10.2 million for the nine months ended September 30, 2017 and $9.2 million for the same period in 2016. The largest increase in other noninterest expense occurred due to increased legal and professional fees associated with the Premier acquisition. Included in other non-interest expense were non-recurring expenses related to the acquisition of Premier of approximately $0.9 million.

The following table presents, for the periods indicated, the major categories of other noninterest expense:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2017		2016		2017		2016
Other noninterest expense:
Legal and professional fees	$	808	$	530	$	2,290	$	1,605
Data processing		519		311		1,150		959
ATM fees		279		240		855		763
Marketing and public relations		295		223		868		705
Taxes - sales, capital, and franchise		144		176		534		610
Operating supplies		167		113		378		347
Software expense and amortization		255		204		671		627
Travel and lodging		217		162		676		518
Telephone		48		43		124		139
Amortization of core deposits		136		80		296		240
Donations		90		88		271		283
Net costs from other real estate and repossessions		51		132		200		331
Regulatory assessment		162		300		563		857
Other		538		401		1,321		1,223
Total other noninterest expense	$	3,709	$	3,003	$	10,197	$	9,207

Income Taxes

The amount of income tax 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 three months ended September 30, 2017 and 2016 was $1.6 million and $1.8 million, respectively. The provision for income taxes decreased due to the decrease in income before taxes. First Guaranty's statutory tax rate was 35.0% for the three months ended September 30, 2017, which was unchanged from the third quarter of 2016.

The provision for income taxes for the nine months ended September 30, 2017 and 2016 was $4.8 million and $5.6 million, respectively. The provision for income taxes decreased due to the decrease in income before taxes. Our statutory tax rate was 35.0% for the nine months ended September 30, 2017 and September 30, 2016.

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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 September 30, 2017 totaled $167.2 million. At September 30, 2017, time deposits maturing within one year or less totaled $380.3 million. First Guaranty's held-to-maturity ("HTM") portfolio at September 30, 2017 was $107.9 million or 21.8% of the investment portfolio compared to $101.9 million or 20.4% at December 31, 2016. The securities in the HTM portfolio are used to collateralize public funds deposits and may also be used to secure borrowings with the Federal Home Loan Bank or Federal Reserve Bank. The agency securities in the HTM portfolio have maturities of 10 years or less. The mortgage-backed securities have stated final maturities of 15 to 20 years at September 30, 2017. The municipal securities in the HTM portfolio have maturities of 20 years or less. The HTM portfolio had a forecasted weighted average life of approximately 5.77 years based on current interest rates. Management regularly monitors the size and composition of the HTM portfolio to evaluate its effect on First Guaranty's liquidity. First Guaranty's available-for-sale ("AFS") portfolio was $387.0 million or 78.2% of the investment portfolio as of September 30, 2017. The majority of the AFS portfolio was comprised of U.S. Government Agencies, municipal bonds and investment grade corporate bonds. Management believes these securities are readily marketable and enhance First Guaranty's liquidity.

First Guaranty maintained a net borrowing capacity at the Federal Home Loan Bank totaling $47.8 million and $45.8 million at September 30, 2017 and December 31, 2016, respectively. The change in borrowing capacity with the Federal Home Loan Bank was due to changes in the value that First Guaranty receives on pledged collateral and due to First Guaranty's usage of the line. First Guaranty also has a discount window line with the Federal Reserve Bank. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $95.5 million and a revolving line of credit for $2.5 million with an availability of $2.5 million as of September 30, 2017. Management believes there is sufficient liquidity to satisfy current operating needs.

Capital Resources

First Guaranty's capital position is reflected in 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 $142.8 million at September 30, 2017 from $124.3 million at December 31, 2016. The increase in shareholders' equity was principally the result of a $10.3 million increase in surplus, a $5.5 million increase in retained earnings and a decrease of $2.3 million in accumulated other comprehensive loss. The decrease in accumulated other comprehensive loss was primarily attributed to the decrease in unrealized losses on available-for-sale securities during the nine months ended September 30, 2017. The $10.3 million increase in surplus was due to the issuance of 397,988 shares of common stock resulting from the Premier acquisition. The $5.5 million increase in retained earnings was due to net income of $9.2 million during the nine month period ended September 30, 2017, partially offset by $3.8 million in cash dividends paid on our common stock.

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Regulatory Capital

Risk-based capital regulations adopted by the FDIC require banks to achieve and maintain specified ratios of capital to risk-weighted assets. Similar capital regulations apply to bank holding companies over $1.0 billion in assets. The risk-based capital rules are designed to measure "Tier 1" capital (consisting of common equity, retained earnings and a limited amount of qualifying perpetual preferred stock and trust preferred securities, net of goodwill and other intangible assets and accumulated other comprehensive income) and total capital in relation to the credit risk of both on- and off- balance sheet items. Under the guidelines, one of its risk weights is applied to the different on balance sheet items. Off-balance sheet items, such as loan commitments, are also subject to risk weighting. Applicable bank holding companies and all banks must maintain a minimum total capital to total risk weighted assets ratio of 8.00%, at least half of which must be in the form of core or Tier 1 capital. These guidelines also specify that bank holding companies that are experiencing internal growth or making acquisitions will be expected to maintain capital positions substantially above the minimum supervisory levels.

In order to avoid limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers, an institution must hold a capital conservation buffer above its minimum risk-based capital requirements. As of September 30, 2017, the Bank's capital conservation buffer was 5.26% exceeding the minimum of 1.25% for 2017. As of September 30, 2017, First Guaranty's capital conservation buffer was 4.25% exceeding the minimum of 1.25% for 2017.

At September 30, 2017, we satisfied the minimum regulatory capital requirements and were well capitalized within the meaning of federal regulatory requirements.

	"Well Capitalized Minimums"		As of September 30, 2017		As of December 31, 2016
Tier 1 Leverage Ratio
Consolidated		5.00%		8.05%		8.68%
Bank		5.00%		9.71%		9.88%

Tier 1 Risk-based Capital Ratio
Consolidated		8.00%		10.33%		10.59%
Bank		8.00%		12.47%		12.05%

Total Risk-based Capital Ratio
Consolidated		10.00%		12.25%		12.79%
Bank		10.00%		13.26%		12.99%

Common Equity Tier One Capital Ratio
Consolidated		6.50%		10.33%		10.59%
Bank		6.50%		12.47%		12.05%

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability Management and Market Risk

Our asset/liability management (ALM) process consists of quantifying, analyzing and controlling interest rate risk (IRR) to maintain reasonably stable net interest income levels under various interest rate environments. The principal objective of ALM is to maximize net interest income while operating within acceptable limits established for interest rate risk and to maintain adequate levels of liquidity.

The majority of our assets and liabilities are monetary in nature. Consequently, one of our most significant forms of market risk is interest rate risk, which is inherent in our lending and deposit-taking activities. Our assets, consisting primarily of loans secured by real estate and fixed rate securities in our investment portfolio, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. The board of directors of First Guaranty Bank has established two committees, the management asset liability committee and the board investment committee, to oversee the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The management asset liability committee is comprised of senior officers of the Bank and 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.

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The following interest sensitivity analysis is one measurement of interest rate risk. This analysis 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 September 30, 2017 illustrated below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis.

The interest spread and liability funding discussed below are directly related to changes in asset and liability mixes, volumes, maturities and repricing opportunities for interest-earning assets and interest-bearing liabilities. Interest-sensitive assets and liabilities are those which are subject to repricing in the near term, including both floating or adjustable rate instruments and instruments approaching maturity. The interest sensitivity gap is the difference between total interest-sensitive assets and total interest-sensitive liabilities. Interest rates on our various asset and liability categories do not respond uniformly to changing market conditions. Interest rate risk is the degree to which interest rate fluctuations in the marketplace can affect net interest income.

	September 30, 2017
	Interest Sensitivity Within
(in thousands except for %)	3 Months Or Less			Over 3 Months thru 12 Months			Total One Year			Over One Year		Total
Earning Assets:
Loans (including loans held for sale)	$	456,787		$	42,730		$	499,517		$	614,888	$	1,114,405
Securities (including FHLB stock)		13,500			8,123			21,623			475,665		497,288
Federal Funds Sold		1,252			-			1,252			-		1,252
Other earning assets		9,002			-			9,002			-		9,002
Total earning assets	$	480,541		$	50,853		$	531,394		$	1,090,553	$	1,621,947

Source of Funds:
Interest-bearing accounts:
Demand deposits	$	512,346		$	-		$	512,346		$	-	$	512,346
Savings deposits		106,109			-			106,109			-		106,109
Time deposits		186,440			193,904			380,344			241,718		622,062
Short-term borrowings		7,500			-			7,500			-		7,500
Senior long-term debt		23,508			-			23,508			-		23,508
Junior subordinated debt		-			-			-			14,655		14,655
Noninterest-bearing, net		-			-			-			335,767		335,767
Total source of funds	$	835,903		$	193,904		$	1,029,807		$	592,140	$	1,621,947

Period gap	$	(355,362	)	$	(143,051	)	$	(498,413	)	$	498,413
Cumulative gap	$	(355,362	)	$	(498,413	)	$	(498,413	)	$	-

Cumulative gap as a percent of earning assets		-21.9	%		-30.7	%		-30.7	%

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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 September 30, 2017. 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 shocks are performed against that yield curve. The second table 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 horizon.

Instantaneous Changes in Interest Rates (In Basis Points)	Percent Change In Net Interest Income
+400	(11.32)%
+300	(8.27)%
+200	(5.20)%
+100	(2.19)%
Base	-%
-100	2.03%

Gradual Change in Interest Rates (In Basis Points)	Percent Change In Net Interest Income
+400	(6.08)%
+300	(4.48)%
+200	(3.01)%
+100	(1.42)%
Base	-%
-100	1.94%

These scenarios above are both instantaneous shocks and gradual interest rate ramps 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.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

At September 30, 2017, First Guaranty is subject to various legal proceedings in the normal course of business and otherwise. It is our 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.

Item 1A.

Risk Factors

There have been no material changes to our risk factors as disclosed in First Guaranty's Annual Report on Form 10-K.

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Item 6.

Exhibits

The following exhibits are either filed as part of this report or are incorporated herein by reference.

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SIGNATURES

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

FIRST GUARANTY BANCSHARES, INC.

Date: November 14, 2017		By: /s/ Alton B. Lewis
		Alton B. Lewis
		Principal Executive Officer

Date: November 14, 2017		By: /s/ Eric J. Dosch
		Eric J. Dosch
		Principal Financial Officer
		Secretary and Treasurer

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First Guaranty Bancshares - 10-Q quarterly report FY2017 Q3

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