NEWBRIDGE BANCORP - FORM 10-Q

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EX-31.1 - EXHIBIT 31.1 - NEWBRIDGE BANCORP	v422766_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - NEWBRIDGE BANCORP	v422766_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - NEWBRIDGE BANCORP	v422766_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended:

September 30, 2015

Commission File Number: 000-11448

NewBridge Bancorp

(Exact name of Registrant as specified in its Charter)

North Carolina	56-1348147
(State of Incorporation)	(I.R.S. Employer Identification No.)

1501 Highwoods Boulevard, Suite 400
Greensboro, North Carolina	27410
(Address of principal executive offices)	(Zip Code)

(336) 369-0900

(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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No ¨

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

Large accelerated filer ¨

Accelerated filer x

Non-accelerated filer ¨

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

At November 5, 2015, the registrant had 37,353,883 shares of Class A Common Stock outstanding and 1,723,000 shares of Class B Common Stock outstanding.

NEWBRIDGE BANCORP

FORM 10-Q

TABLE OF CONTENTS

		Page

	PART I
	Financial Information

Item 1	Financial Statements	3
	Consolidated Balance Sheets September 30, 2015 and December 31, 2014	3
	Consolidated Statements of Income Three Months and Nine Months Ended September 30, 2015 and 2014	4
	Consolidated Statements of Comprehensive Income Three Months and Nine Months Ended September 30, 2015 and 2014	5
	Consolidated Statements of Changes in Shareholders’ Equity Nine Months Ended September 30, 2015 and 2014	6
	Consolidated Statements of Cash Flows Nine Months Ended September 30, 2015 and 2014	7
	Notes to Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4	Controls and Procedures	62

	PART II
	Other Information

Item 1A	Risk Factors	63
Item 6	Exhibits	64

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

NewBridge Bancorp and Subsidiary

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

	September 30,			December 31,
	2015			2014
	(Unaudited)
Assets
Cash and due from banks	$	38,412		$	32,870
Interest-bearing bank balances		3,458			1,499
Investment certificates of deposit		11,729			15,632
Loans held for sale		10,562			6,181
Available for sale investment securities		374,685			366,097
Held to maturity investment securities (market value of $140,648 and $131,915 at September 30, 2015 and December 31, 2014, respectively)		138,421			130,701
Loans		2,025,155			1,804,406
Less allowance for credit losses		(21,323	)		(22,112	)
Net loans		2,003,832			1,782,294
Premises and equipment		44,241			44,822
Goodwill		24,716			22,063
Core deposit intangible		4,215			4,616
Real estate acquired in settlement of loans		1,788			3,057
Bank-owned life insurance		61,660			52,891
Deferred tax assets		26,612			33,133
Other assets		28,113			24,376
Total assets	$	2,772,444		$	2,520,232

Liabilities
Noninterest-bearing deposits	$	377,175		$	319,327
NOW deposits		569,570			509,450
Savings and money market deposits		547,614			454,372
Time deposits		507,058			549,415
Total deposits		2,001,417			1,832,564
Federal Home Loan Bank borrowings		398,500			346,700
Other borrowings		92,774			91,774
Accrued expenses and other liabilities		18,347			17,839
Total liabilities		2,511,038			2,288,877

Shareholders’ Equity
Preferred stock – Authorized 30,000,000 shares; issued and outstanding – none at 9/30/2015 and 12/31/2014		-			-
Common stock		291,593			275,615
Class A, no par value – Authorized 90,000,000 shares; issued and outstanding – 37,353,883 at 9/30/2015 and 34,008,795 at 12/31/2014
Class B, no par value – Authorized 10,000,000 shares; issued and outstanding – 1,723,000 at 9/30/2015 and 3,186,748 at 12/31/2014
Directors’ deferred compensation plan		(324	)		(324	)
Accumulated deficit		(29,655	)		(43,241	)
Accumulated other comprehensive loss		(208	)		(695	)
Total shareholders’ equity		261,406			231,355
Total liabilities and shareholders’ equity	$	2,772,444		$	2,520,232

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Income

(Unaudited; dollars in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2015		2014		2015		2014
Interest Income
Interest and fees on loans	$	20,940	$	18,456	$	60,956	$	52,073
Interest on investment securities
Taxable		4,067		3,603		12,215		9,696
Tax exempt		258		281		850		717
Interest-bearing bank balances and investment certificates of deposit		33		39		111		80
Total interest income		25,298		22,379		74,132		62,566

Interest Expense
Deposits		1,379		1,033		3,843		2,940
Federal Home Loan Bank borrowings		315		205		853		571
Other borrowings		671		665		1,986		1,688
Total interest expense		2,365		1,903		6,682		5,199
Net interest income		22,933		20,476		67,450		57,367
Provision for credit losses		-		89		120		833
Net interest income after provision for credit losses		22,933		20,387		67,330		56,534

Noninterest Income
Retail banking		2,304		2,657		6,703		7,909
Mortgage banking services		460		283		1,327		653
Wealth management services		749		719		2,250		2,148
Gain on sales of investment securities		-		-		-		-
Bank-owned life insurance		543		292		1,772		1,069
Other		233		153		1,459		857
Total noninterest income		4,289		4,104		13,511		12,636

Noninterest Expense
Personnel		10,640		8,685		30,434		26,671
Occupancy		1,444		1,265		4,183		3,692
Furniture and equipment		1,008		948		2,989		2,803
Technology and data processing		1,334		1,209		3,845		3,499
Legal and professional		681		715		2,695		2,178
FDIC insurance		377		407		1,241		1,220
Real estate acquired in settlement of loans		102		158		498		494
Acquisition-related		106		10		2,534		4,910
Other		3,096		3,191		8,906		8,631
Total noninterest expense		18,788		16,588		57,325		54,098
Income before income taxes		8,434		7,903		23,516		15,072
Income tax expense		2,862		2,804		8,173		5,361
Net Income		5,572		5,099		15,343		9,711
Dividends on preferred stock		-		-		-		(337	)
Net Income available to common shareholders	$	5,572	$	5,099	$	15,343	$	9,374

Earnings per share
Basic	$	0.14	$	0.14	$	0.40	$	0.27
Diluted	$	0.14	$	0.14	$	0.39	$	0.27

Cash dividends declared per share	$	0.015	$	-	$	0.045	$	-

Weighted average shares outstanding
Basic		39,076,883		37,166,736		38,660,400		34,186,201
Diluted		39,537,027		37,576,669		39,128,134		34,721,577

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited; dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2015			2014			2015			2014
Net Income	$	5,572		$	5,099		$	15,343		$	9,711
Other Comprehensive Income (Loss), Net of Tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period, net of tax of $111, $(908), $(168), and $1,425, respectively		180			(1,426	)		(270	)		2,238
Unrealized gains (losses) on cash flow hedges:
Unrealized holding gains (losses) arising during period, net of tax of $219, $(77), $564, and $(77), respectively		354			(124	)		911			(124	)
Reclassification adjustment for (gains) losses included in net income, net of tax of $(74), $(22), $(224), and $(22), respectively		(120	)		(36	)		(361	)		(36	)
Defined benefit pension plans:
Amortization of net loss, net of tax of $65, $(6), $129 and $(18), respectively		103			(10	)		207			(29	)
Total other comprehensive income (loss)		517			(1,596	)		487			2,049
Comprehensive Income	$	6,089		$	3,503		$	15,830		$	11,760

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Changes in Shareholders’ Equity

Nine months ended September 30, 2015 and 2014

(Unaudited; dollars in thousands)

												Directors’						Accumulated
	Preferred			Common Stock								Deferred						Other			Total
	Stock			Class A		Class B						Compensation			Accumulated			Comprehensive			Shareholders’
	Series A			Shares		Shares			Amount			Plan			Deficit			Income (Loss)			Equity
Balances at December 31, 2013	$	15,000			25,291,568		3,186,748		$	210,297		$	(468	)	$	(56,880	)	$	(1,157	)	$	166,792
Net Income		-			-		-			-			-			9,711			-			9,711
Other comprehensive income		-			-		-			-			-			-			2,049			2,049
Redemption of preferred stock		(15,000	)		-		-			-			-			-			-			(15,000	)
Dividends on preferred stock		-			-		-			-			-			(337	)		-			(337	)
Acquisition of CapStone Bank		-			8,075,228		-			62,264			-			-			-			62,264
Expense of stock issuance		-			-		-			(383	)		-			-			-			(383	)
Exercise of stock options		-			628,045		-			2,598			-			-			-			2,598
Stock issuance pursuant to restricted stock units		-			12,252		-			(49	)		-			-			-			(49	)
Excess tax benefits from stock-based awards		-			-		-			81			-			-			-			81
Stock-based compensation		-			-		-			561			-			-			-			561
Distributions		-			-		-			-			144			-			-			144
Balances at September 30, 2014	$	-			34,007,093		3,186,748		$	275,369		$	(324	)	$	(47,506	)	$	892		$	228,431

Balances at December 31, 2014	$	-			34,008,795		3,186,748		$	275,615		$	(324	)	$	(43,241	)	$	(695	)	$	231,355
Net Income		-			-		-			-			-			15,343			-			15,343
Other comprehensive income		-			-		-			-			-			-			487			487
Acquisition of Premier Commercial Bank		-			1,735,465		-			15,037			-			-			-			15,037
Expense of stock issuance		-			-		-			(103	)		-			-			-			(103	)
Conversion of Class B shares to Class A shares		-			1,463,748		(1,463,748	)		-			-			-			-			-
Dividends on common stock		-			-		-			-			-			(1,757	)		-			(1,757	)
Exercise of stock options		-			95,000		-			428			-			-			-			428
Stock issuance pursuant to restricted stock units		-			50,875		-			(240	)		-			-			-			(240	)
Excess tax benefits from stock-based awards		-			-		-			176			-			-			-			176
Stock-based compensation		-			-		-			680			-			-			-			680
Balances at September 30, 2015	$	-			37,353,883		1,723,000		$	291,593		$	(324	)	$	(29,655	)	$	(208	)	$	261,406

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited; dollars in thousands)

	Nine Months Ended
	September 30
	2015			2014
Cash Flow from operating activities
Net Income	$	15,343		$	9,711
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		2,845			4,143
Securities premium amortization and discount accretion, net		349			493
Earnings on bank-owned life insurance		(1,772	)		(1,069	)
Mortgage banking services		(1,327	)		(653	)
Originations of loans held for sale		(120,007	)		(66,025	)
Proceeds from sales of loans held for sale		119,272			66,906
Accretion on acquired loans		(4,893	)		(4,134	)
Excess tax benefits from stock-based awards		(176	)		(81	)
Deferred income tax expense (benefit)		7,837			5,361
Writedowns and (gains) losses on sales of real estate acquired in settlement of loans, net		233			115
Provision for credit losses		120			833
Stock-based compensation		680			561
(Increase) decrease in income taxes receivable		(311	)		316
(Increase) decrease in interest earned but not received		36			(84	)
Increase (decrease) in interest accrued but not paid		260 (84)
Net (increase) decrease in other assets		(1,014	)		(1,418	)
Net increase (decrease) in other liabilities		(278	)		(1,706	)
Net cash provided by (used in) operating activities		17,197			13,185

Cash Flow from investing activities
Net cash received from acquisition		3,215			6,198
Proceeds from maturities of investment certificates of deposit		8,257			1,489
Purchases of securities available for sale		(20,816	)		(35,857	)
Purchases of securities held to maturity		(22,195	)		(69,846	)
Proceeds from sales of securities available for sale		25,891			9,045
Proceeds from maturities, prepayments and calls of securities available for sale		32,542			16,919
Proceeds from maturities, prepayments and calls of securities held to maturity		14,569			4,138
Net (increase) decrease in loans		(120,864	)		(18,432	)
Proceeds from sales of loans		-			5,974
Purchase of bank-owned life insurance		(8,299	)		-
Maturity of bank-owned life insurance		805			-
Purchases of premises and equipment		(1,976	)		(1,895	)
Proceeds from sales of premises and equipment		7			1,322
Proceeds from sales of real estate acquired in settlement of loans		1,884			5,684
Net cash provided by (used in) investing activities		(86,980	)		(75,261	)

Cash Flow from financing activities
Net increase (decrease) in demand deposits and NOW accounts		94,862			46,576
Net increase (decrease) in savings and money market accounts		22,160			(28,436	)
Net increase (decrease) in time deposits		(71,859	)		(19,930	)
Net increase (decrease) in Federal Home Loan Bank borrowings		32,031			43,000
Net increase (decrease) in other borrowings		1,000			40,200
Dividends paid		(1,171	)		(337	)
Redemption of preferred stock		-			(15,000	)
Exercise of stock options		428			2,598
Cash paid in lieu of issuing shares pursuant to restricted stock units		(240	)		(49	)
Excess tax benefits from stock-based awards		176			81
Expense of stock issuance		(103	)		(383	)
Net cash provided by (used in) financing activities		77,284			68,320
Increase (decrease) in cash and cash equivalents		7,501			6,244
Cash and cash equivalents at the beginning of the period		34,369			33,513
Cash and cash equivalents at the end of the period	$	41,870		$	39,757

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Consolidated Statements of Cash Flows (continued)

(Unaudited; dollars in thousands)

	Nine Months Ended
	September 30
	2015			2014

Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest	$	6,407		$	4,867
Income taxes		760			35

Supplemental disclosures of noncash transactions
Transfer of loans to real estate acquired in settlement of loans	$	848		$	1,600
Dividends declared but not paid		586			-
Unrealized gains (losses) on securities available for sale:
Change in securities available for sale		(438	)		3,663
Change in deferred income taxes		168			(1,425	)
Change in shareholders’ equity		(270	)		2,238
Unrealized gains (losses) on cash flow hedges:
Change in fair value of cash flow hedges		890			(259	)
Change in deferred income taxes		(340	)		99
Change in shareholders’ equity		550			(160	)
Acquisition:
Fair value of assets acquired		161,687			381,594
Fair value of liabilities assumed		144,490			336,730

See notes to consolidated financial statements

NewBridge Bancorp and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 — Basis of Presentation

The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and provisions for credit losses considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

NewBridge Bancorp (the “Company”) is a bank holding company incorporated under the laws of North Carolina (“NC”) and registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). The Company’s principal asset is stock of its banking subsidiary, NewBridge Bank (the “Bank”). Accordingly, throughout this Quarterly Report on Form 10-Q, there are frequent references to the Bank.

Through its branch network, the Bank provides a wide range of banking products to individuals, small to medium-sized businesses and other organizations in its market areas, including interest-bearing and noninterest-bearing checking accounts, certificates of deposit, individual retirement accounts, overdraft protection, personal and corporate trust services, safe deposit boxes, online banking, corporate cash management, brokerage, financial planning and asset management, mortgage loans and secured and unsecured loans.

The organization and business of the Company, accounting policies followed by the Company and other relevant information are contained in the notes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2015 (SEC File No. 000-11448) (the “Annual Report”). This Quarterly Report should be read in conjunction with the Annual Report.

Recent accounting pronouncements

In January 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-04, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force).” This Update provides guidance on when an in-substance repossession or foreclosure is deemed to occur, which requires the mortgage loan to be derecognized and the related real estate be recognized. The Update clarifies that an in-substance repossession or foreclosure is deemed to occur upon either (i) a creditor obtaining legal title to the residential real estate or (ii) the borrower conveying all interest in the residential real estate through a deed in lieu of foreclosure (or a similar legal agreement). Creditors must disclose the amount of foreclosed residential real estate held as well as the amount of collateralized loans for which foreclosure is in process. The Update became effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Update could be adopted on either a modified retrospective or a prospective method, and early adoption was permitted. The Company adopted this Update prospectively January 1, 2015, which requires additional disclosure by the Company but does not otherwise materially affect our financial statements. (See Note 5 of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.)

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” This Update sets new guidance to clarify principles for recognizing revenue and develops a common revenue standard with the International Accounting Standards Board. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” The amendments in this Update delay the effective date of ASU 2014-09 for public companies until the first fiscal year beginning after December 15, 2017. Early adoption will be allowed, but no earlier than the original effective date of ASU 2014-09. The Company is currently evaluating the effect of adopting ASU 2014-09 on its consolidated financial statements.

In June 2014, the FASB issued ASU 2014-11, “Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (Topic 860).” The amendments in this Update require two accounting changes. First, the amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. Second, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. Also, the amendments in this Update require disclosure for certain transactions accounted for as a sale and for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings. The accounting changes and the disclosure for certain transactions accounted for as a sale in this Update are effective for public business entities for the first interim or annual period beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014 and for interim periods beginning after March 15, 2015. Early adoption for a public business entity was prohibited. This Update requires additional disclosure by the Company but does not otherwise materially affect our financial statements. (See Note 7 of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.)

In August 2014, the FASB issued ASU 2014-14, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force).” The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (i) the loan has a government guarantee that is not separable from the loan before foreclosure; (ii) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and (iii) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity should adopt the amendments in this Update using either a prospective transition method or a modified retrospective transition method. Early adoption, including adoption in an interim period, was permitted if the entity already had adopted ASU 2014-04. The adoption of ASU 2014-14 did not have a material effect on the Company’s consolidated financial statements as the Company does not have a material amount of government-guaranteed mortgage loans.

In February 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This Update eliminates from GAAP the concept of extraordinary items, which are items that are unusual in nature and infrequent. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The effective date is the same for both public business entities and all other entities. The adoption of ASU 2015-01 is not expected to have a material effect on the Company’s consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Subtopic 810): Amendments to the Consolidation Analysis.” This Update provides an additional requirement for a limited partnership or similar entity to qualify as a voting interest entity and also amends the criteria for consolidating such an entity. In addition, the Update amends the criteria for evaluating fees paid to a decision maker or service provider as a variable interest and amends the criteria for evaluating the effect of fee arrangements and related parties on a variable interest entity primary beneficiary determination. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company anticipates that the adoption of ASU 2015-02 will not have a material effect on its consolidated financial statements as the Company does not have any material investments in limited partnerships.

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This Update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted for financial statements that have not been previously issued. An entity should apply the new guidance on a retrospective basis. The adoption of ASU 2015-03 is not expected to have a material effect on the Company’s consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.” This Update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The Update requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The Update also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not been issued. The adoption of ASU 2015-16 is not expected to have a material effect on the Company’s consolidated financial statements.

Reclassification

Certain items for 2014 have been reclassified to conform to the 2015 presentation. Such reclassifications had no effect on net income, total assets or shareholders’ equity as previously reported.

Note 2 — Business Combinations and Acquisitions

Acquisition of Premier Commercial Bank

On February 27, 2015, the acquisition of Premier Commercial Bank (“Premier”) was completed. Premier, a commercial bank headquartered in Greensboro, NC, operated one full-service banking office centrally located in Greensboro and residential mortgage origination offices in Greensboro, Charlotte, Raleigh, High Point, Kernersville and Burlington, NC. Per the terms of the Agreement and Plan of Combination and Reorganization, 75% of the 1,925,247 shares of Premier common stock outstanding at acquisition were exchanged for 1,735,465 shares of the Company’s Class A common stock at an exchange ratio of 1.2019, and the remaining 25% were exchanged for cash of $4.8 million. The shares were issued at a price of $8.30 per share, the closing stock price of the Class A common stock on February 27, 2015. The total purchase price was $19.8 million, including the conversion of 294,400 Premier stock options having a fair value of $632,000. The acquisition was a tax-free transaction.

The transaction was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the assets and liabilities of Premier, as of February 27, 2015, were recorded at their respective fair values, and the excess of the acquisition consideration over the fair value of Premier’s net assets was allocated to goodwill. For the acquisition of Premier, estimated fair values of assets acquired and liabilities assumed are based on the information available, and the Company believes this information provides a reasonable basis for determining fair values. Management continues to evaluate these fair values, which are subject to revision as more detailed analyses are completed and additional information becomes available. Any changes resulting from the evaluation of these or other estimates as of the acquisition date may change the amount of the fair values recorded.

The following table summarizes the allocation of the purchase price to the assets acquired and the liabilities assumed based on their estimated fair values (dollars in thousands, except per share data):

Fair value of assets acquired
Cash and cash equivalents	$	8,028
Investment certificates of deposit		4,478
Loans held for sale		2,319
Available for sale investment securities		47,085
Loans		95,984
Premises and equipment		114
Core deposit intangible		970
Deferred tax assets		1,355
Other assets		1,354
Total assets acquired		161,687
Fair value of liabilities assumed
Deposits		124,182
Federal Home Loan Bank borrowings		19,810
Accrued expenses and other liabilities		498
Total liabilities assumed		144,490
Net assets acquired	$	17,197
Purchase price
Shares of Class A common stock issued		1,735,465
Purchase price per share of Class A common stock	$	8.30
Class A common stock issued and cash exchanged for fractional shares		14,405
Fair value of converted stock options		632
Cash paid		4,813
Total purchase price	$	19,850
Goodwill	$	2,653

During the second quarter of 2015, immaterial adjustments were made to other assets and to accrued expenses and other liabilities.

Purchased Credit Impaired (“PCI”) loans acquired totaled $16.1 million at estimated fair value, and acquired performing loans totaled $79.9 million at estimated fair value. The gross contractual amount receivable for PCI loans and acquired performing loans was $20.0 million and $100.1 million, respectively, as of the acquisition date. For the acquired performing loans, the best estimate at acquisition date of contractual cash flows not expected to be collected was $1.4 million.

Goodwill recorded for Premier represents future revenues to be derived, including efficiencies that will result from combining operations, and other non-identifiable intangible assets. None of the goodwill is expected to be deductible for tax purposes.

Pro forma

The following tables reflect the pro forma total net interest income, noninterest income and net income for the three months and nine months ended September 30, 2015 and 2014 as though the acquisition of Premier had taken place on January 1, 2014. The pro forma results are not adjusted for acquisition-related expense, and are not necessarily indicative of the results of operations that would have occurred had the acquisition actually taken place on January 1, 2014, nor of future results of operations.

	Three Months Ended September 30
(Dollars in thousands)	2015		2014

Net interest income	$	22,751	$	21,658
Noninterest income		4,289		5,191
Net income		5,399		5,273

	Nine Months Ended September 30
	2015		2014

Net interest income	$	67,753	$	61,206
Noninterest income		13,817		15,003
Net income		14,681		10,208

It is not practicable to present the revenue and earnings of Premier since acquisition because Premier has not been maintained as a separate accounting entity.

Acquisition of CapStone Bank

On April 1, 2014, the Company completed its acquisition of CapStone Bank (“CapStone”), headquartered in Raleigh, NC, with branches in Cary, Clinton, Fuquay-Varina and Raleigh, pursuant to which CapStone’s shareholders received 2.25 shares of the Company’s Class A common stock for each share of CapStone common stock. The Company issued 8,075,228 shares of Class A common stock (in exchange for 3,589,028 shares of CapStone common stock issued and outstanding as of the closing date) at a price of $7.14 per share, the closing stock price of the Class A common stock on March 31, 2014. The implied value of the consideration received by CapStone shareholders was $16.065 per share of CapStone common stock. The total purchase price was $62.3 million, including the conversion of 617,270 CapStone stock options having a fair value of $4.6 million. No cash was issued in the transaction other than an immaterial amount of cash paid in lieu of fractional shares. The acquisition was a tax-free transaction.

The transaction was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the assets and liabilities of CapStone, as of April 1, 2014, were recorded at their respective estimated fair values, and the excess of the acquisition consideration over the fair value of CapStone’s net assets was allocated to goodwill. The estimated fair values of assets acquired and liabilities assumed were based on the information available, and the Company believes this information provided a reasonable basis for determining fair values. Management evaluated these fair values, and adjustments were made as more detailed analyses were completed and additional information became available. Changes resulting from the evaluation of these or other estimates as of the acquisition date impacted the amount of the preliminary fair values recorded.

Fair value of assets acquired
Cash and cash equivalents	$	6,198
Investment certificates of deposit		18,250
Federal funds sold		1,000
Available for sale investment securities		49,357
Loans		292,848
Premises and equipment		3,185
Core deposit intangible		2,490
Real estate acquired in settlement of loans		169
Deferred tax assets		3,740
Other assets		4,357
Total assets acquired		381,594
Fair value of liabilities assumed
Deposits		273,665
Federal Home Loan Bank borrowings		61,268
Accrued expenses and other liabilities		1,797
Total liabilities assumed		336,730
Net assets acquired	$	44,864
Purchase price
Shares of Class A common stock issued		8,075,228
Purchase price per share of Class A common stock	$	7.14
Class A common stock issued and cash exchanged for fractional shares		57,658
Fair value of converted stock options		4,606
Total purchase price	$	62,264
Goodwill	$	17,400

During the third quarter of 2014, adjustments of $509,000 were made to deferred tax assets acquired and goodwill. During the fourth quarter of 2014, there was an adjustment of $5,000 made to real estate acquired in settlement of loans and goodwill.

PCI loans acquired totaled $65.8 million at estimated fair value, and acquired performing loans totaled $227.0 million at estimated fair value. The gross contractual amount receivable for PCI loans and acquired performing loans was $84.9 million and $274.8 million, respectively, as of the acquisition date. For the acquired performing loans, the best estimate at acquisition date of contractual cash flows not expected to be collected was $2.5 million.

Goodwill recorded for CapStone represents future revenues to be derived, including efficiencies that will result from combining operations, and other non-identifiable intangible assets. None of the goodwill is expected to be deductible for tax purposes.

Acquisition-related expense

Acquisition-related expense during the first nine months of 2015 totaled $2.5 million and was predominately related to the acquisition of Premier. Also included in acquisition-related expense for the first nine months of 2015 is $103,000 related to the pending acquisition of the Company by Yadkin Financial Corporation (“Yadkin”) as further discussed in Note 14 of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Acquisition-related expense during the first nine months of 2014 was $4.9 million and was predominately related to the acquisition of CapStone. These costs are recorded as noninterest expense as incurred. The components of acquisition-related expense for the first nine months of 2015 and 2014 are as follows (dollars in thousands):

	2015		2014

Personnel	$	1,358	$	1,584
Furniture and equipment		372		14
Technology and data processing		472		2,674
Legal and professional		294		489
Other		38		149
Total acquisition-related expense	$	2,534	$	4,910

Note 3 — Net Income Per Share

Basic and diluted net income per share are computed based on the weighted average number of shares outstanding during each period. Diluted net income per share reflects the potential dilution that could occur if stock options were exercised or restricted stock units and performance units vested, resulting in the issuance of common stock sharing in the net income of the Company. A summary of basic and diluted net income per share follows (dollars in thousands, except per share data):

	For the Three Months Ended				For the Nine Months Ended
	September 30				September 30
	2015		2014		2015		2014
Basic:
Net income available to common shareholders	$	5,572	$	5,099	$	15,343	$	9,374
Weighted average shares outstanding		39,076,883		37,166,736		38,660,400		34,186,201
Net income per share, basic	$	0.14	$	0.14	$	0.40	$	0.27

Diluted:
Net income available to common shareholders	$	5,572	$	5,099	$	15,343	$	9,374
Weighted average shares outstanding		39,076,883		37,166,736		38,660,400		34,186,201
Effect of dilutive securities:
Stock options		275,271		279,808		291,464		414,389
Restricted stock units and performance units		184,873		130,125		176,270		120,987
Weighted average shares outstanding and dilutive potential shares outstanding		39,537,027		37,576,669		39,128,134		34,721,577
Net income per share, diluted	$	0.14	$	0.14	$	0.39	$	0.27

Note 4 — Investment Securities

Investment securities consist of the following (dollars in thousands):

			Available for Sale – September 30, 2015
	Amortized		Unrealized		Unrealized			Market		Average			Average
	Cost		Gains		Losses			Value		Yield			Duration⁽¹⁾
U.S. government-sponsored agency securities	$	49,099	$	2	$	(275	)	$	48,826		2.07	%		5.67
SBA securities		7,215		92		-			7,307		2.52			5.32
Agency mortgage backed securities		26,489		1,058		(2	)		27,545		2.88			3.32
Collateralized mortgage obligations		7,789		204		-			7,993		3.67			3.09
Commercial mortgage backed securities		31,953		1,066		-			33,019		3.38			2.04
Corporate bonds		134,243		3,050		(497	)		136,796		3.72			2.67
Covered bonds		45,003		1,285		(13	)		46,275		3.52			1.42
State and municipal obligations		30,682		1,074		-			31,756		5.24	⁽²⁾		3.86
Total debt securities		332,473		7,831		(787	)		339,517		3.46	⁽²⁾		3.11
Federal Home Loan Bank stock		19,397		-		-			19,397
Federal Reserve Bank stock		6,325		-		-			6,325
Other equity securities		9,336		199		(89	)		9,446
Total	$	367,531	$	8,030	$	(876	)	$	374,685

			Available for Sale – December 31, 2014
	Amortized		Unrealized		Unrealized			Market		Average			Average
	Cost		Gains		Losses			Value		Yield			Duration⁽¹⁾
U.S. government-sponsored agency securities	$	49,599	$	-	$	(1,485	)	$	48,114		2.05	%		6.80
Agency mortgage backed securities		19,314		1,255		-			20,569		3.78			3.46
Collateralized mortgage obligations		10,492		217		-			10,709		3.81			3.72
Commercial mortgage backed securities		33,646		1,179		-			34,825		3.40			2.62
Corporate bonds		128,798		3,612		(535	)		131,875		3.78			3.50
Covered bonds		49,976		2,017		(73	)		51,920		3.49			1.98
State and municipal obligations		33,930		1,204		(4	)		35,130		5.17	⁽²⁾		3.75
Total debt securities		325,755		9,484		(2,097	)		333,142		3.58	⁽²⁾		3.71
Federal Home Loan Bank stock		17,712		-		-			17,712
Federal Reserve Bank stock		5,702		-		-			5,702
Other equity securities		9,336		361		(156	)		9,541
Total	$	358,505	$	9,845	$	(2,253	)	$	366,097

			Held to Maturity – September 30, 2015
	Amortized		Unrealized		Unrealized			Market		Average			Average
	Cost		Gains		Losses			Value		Yield			Duration⁽¹⁾
U.S. government-sponsored agency securities	$	24,835	$	194	$	(6	)	$	25,023		2.12	%		4.11
Agency mortgage backed securities		47,787		1,478		-			49,265		2.52			4.20
Corporate bonds		32,660		160		(76	)		32,744		2.98			3.67
Covered bonds		4,987		74		-			5,061		2.08			3.24
Subordinated debt issues		27,000		363		-			27,363		5.88			8.97
State and municipal obligations		1,152		40		-			1,192		4.23	⁽²⁾		9.29
Total	$	138,421	$	2,309	$	(82	)	$	140,648		3.21	⁽²⁾		5.00

			Held to Maturity – December 31, 2014
	Amortized		Unrealized		Unrealized			Market		Average			Average
	Cost		Gains		Losses			Value		Yield			Duration⁽¹⁾
U.S. government-sponsored agency securities	$	32,772	$	95	$	(416	)	$	32,451		2.16	%		4.75
Agency mortgage backed securities		54,339		1,352		-			55,691		2.58			4.43
Corporate bonds		23,455		123		(64	)		23,514		2.72			4.19
Covered bonds		4,984		25		-			5,009		2.08			3.92
Subordinated debt issues		14,000		50		(17	)		14,033		6.26			9.35
State and municipal obligations		1,151		66		-			1,217		4.28	⁽²⁾		7.60
Total	$	130,701	$	1,711	$	(497	)	$	131,915		2.89	⁽²⁾		5.00

⁽¹⁾Average remaining duration to maturity, in years

⁽²⁾ Fully taxable-equivalent basis

The following table shows the Company’s investments with gross unrealized losses and their fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, as of September 30, 2015 (dollars in thousands):

	Less Than 1 Year					1 Year or More					Total
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Loss			Value		Loss			Value		Loss
U.S. government-sponsored agency securities	$	7,952	$	(42	)	$	40,867	$	(239	)	$	48,819	$	(281	)
Agency mortgage backed securities		1,338		(2	)		-		-			1,338		(2	)
Corporate bonds		25,219		(240	)		8,772		(333	)		33,991		(573	)
Covered bonds		4,971		(13	)		-		-			4,971		(13	)
Equity securities		1,014		(14	)		1,822		(75	)		2,836		(89	)
Total securities	$	40,494	$	(311	)	$	51,461	$	(647	)	$	91,955	$	(958	)

Declines in the fair value of available for sale debt securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. Declines in the fair value of held to maturity securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (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, and (iii) the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost. The other-than-temporary impairment review for available for sale equity securities includes an analysis of the facts and circumstances of each individual investment and focuses on the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the financial condition and near-term prospects of the issuer, and management’s intent and ability to hold the security to recovery. Declines in the value of available for sale equity securities that are considered to be other-than-temporary are reflected in earnings as realized losses.

There were 21 available for sale debt securities and eight held to maturity securities in an unrealized loss position at September 30, 2015. Management does not intend to sell any of these securities that have unrealized losses and believes that it is not likely that sales of these securities will be necessary before a recovery of cost. The unrealized losses in all of these securities are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased and are not the result of deteriorated credit quality. The fair value is expected to recover as the bonds approach their maturity dates or repricing dates or if market yields for such investments decline. Management does not believe such securities are other-than-temporarily impaired due to reasons of credit quality.

There were three available for sale equity securities in an unrealized loss position at September 30, 2015. Although two of those three securities have been in a loss position one year or more, they remain investment grade by all rating agencies and show no indication that dividend payments or credit of the issuer are at risk. Management does not intend to sell these securities, believes that it is not likely that sales of these securities will be necessary before a recovery of cost and does not consider these securities other-than-temporarily impaired.

Investment securities with an amortized cost of $166.3 million and $170.0 million, as of September 30, 2015 and December 31, 2014, respectively, were pledged to secure public deposits and for other purposes. The Company has $35.0 million in letters of credit issued by the Federal Home Loan Bank of Atlanta, which are used in lieu of securities to pledge against public deposits.

Investment securities of Premier having a book value of $25.9 million were sold immediately following the acquisition to reposition the portfolio at no recorded gain or loss. No other investment securities were sold during the nine months ended September 30, 2015. In 2014, CapStone investment securities having a book value of $9.2 million were sold immediately following the acquisition to reposition the portfolio at no recorded gain or loss. No other investment securities were sold during the nine months ended September 30, 2014.

Note 5 — Loans and Allowance for Credit Losses

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered PCI loans; which include $80.7 million at September 30, 2015 resulting from the acquisition of Security Savings on October 1, 2013, the acquisition of CapStone on April 1, 2014, and the acquisition of Premier on February 27, 2015, and $81.1 million at December 31, 2014 resulting from the acquisitions of Security Savings and Capstone. Loans held for investment are summarized in the following table (dollars in thousands):

	September 30, 2015						December 31, 2014
	Loans –						Loans –
	Excluding		PCI		Total		Excluding		PCI		Total
	PCI		Loans		Loans		PCI		Loans		Loans
Secured by owner-occupied nonfarm nonresidential properties	$	323,971	$	17,745	$	341,716	$	292,013	$	17,969	$	309,982
Secured by other nonfarm nonresidential properties		438,789		17,483		456,272		411,107		15,768		426,875
Other commercial and industrial		238,619		3,897		242,516		189,085		2,819		191,904
Total Commercial		1,001,379		39,125		1,040,504		892,205		36,556		928,761

Construction loans – 1 to 4 family residential		49,306		749		50,055		42,969		712		43,681
Other construction and land development		173,857		3,104		176,961		120,612		3,816		124,428
Total Real estate – construction		223,163		3,853		227,016		163,581		4,528		168,109

Closed-end loans secured by 1 to 4 family residential properties		380,654		23,364		404,018		379,646		26,626		406,272
Lines of credit secured by 1 to 4 family residential properties		244,611		6,145		250,756		222,329		6,375		228,704
Loans secured by 5 or more family residential properties		63,466		6,452		69,918		32,611		4,987		37,598
Total Real estate – mortgage		688,731		35,961		724,692		634,586		37,988		672,574

Credit cards		7,330		-		7,330		7,656		-		7,656
Other revolving credit plans		9,343		21		9,364		9,085		27		9,112
Other consumer loans		6,101		1,761		7,862		7,414		1,982		9,396
Total Consumer		22,774		1,782		24,556		24,155		2,009		26,164

All other loans		8,387		-		8,387		8,798		-		8,798
Total Other		8,387		-		8,387		8,798		-		8,798

Total loans held for investment	$	1,944,434	$	80,721	$	2,025,155	$	1,723,325	$	81,081	$	1,804,406

Unamortized deferred loan origination fees and costs were a net cost of $3.0 million at September 30, 2015 and $1.3 million at December 31, 2014.

Loans totaling $10.6 million and $6.2 million, as of September 30, 2015 and December 31, 2014, respectively, were held for sale, and stated at the lower of cost or market value as determined by outstanding commitments from investors or current investor yield requirements, calculated on the aggregate loan basis.

As of September 30, 2015 and December 31, 2014, qualifying loans totaling approximately $704.2 million and $768.9 million, respectively, were pledged under a blanket lien to secure the lines of credit with the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank of Richmond.

Nonperforming assets are summarized as follows (dollars in thousands):

	September 30,			December 31,
	2015			2014
Commercial nonaccrual loans, not restructured	$	799		$	1,620
Commercial nonaccrual loans, restructured		642			-
Non-commercial nonaccrual loans, not restructured		4,072			3,471
Non-commercial nonaccrual loans, restructured		59			5
Total nonaccrual loans		5,572			5,096
Troubled debt restructured, accruing		1,873			2,116
Total nonperforming loans		7,445			7,212
Real estate acquired in settlement of loans		1,788			3,057
Total nonperforming assets	$	9,233		$	10,269

Restructured loans, performing⁽¹⁾	$	921		$	1,151
Loans past due 90 days or more and still accruing⁽²⁾	$	1,416		$	1,534

Nonperforming loans to loans held for investment		0.37	%		0.40	%
Nonperforming assets to total assets at end of period		0.33	%		0.41	%
Allowance for credit losses to nonperforming loans		286.41	%		306.60	%

⁽¹⁾

Loans restructured in a prior year without an interest rate concession or forgiveness of debt that are performing in accordance with their restructured terms.

⁽²⁾

Loans past due 90 days or more and still accruing includes $1,301 and $1,463 of PCI loans as of September 30, 2015 and December 31, 2014, respectively.

Nonperforming assets include nonaccrual loans, troubled debt restructurings (“TDRs”), and real estate acquired in settlement of loans. Loans are placed on nonaccrual status when (i) management has concerns relating to the ability to collect the loan principal and interest, and (ii) generally when such loans are 90 days or more past due. No assurance can be given, however, that economic conditions will not adversely affect borrowers and result in increased credit losses.

Commitments to lend additional funds to borrowers whose loans have been restructured were not material at September 30, 2015.

Included in real estate acquired in settlement of loans at September 30, 2015 is $936,000 of one to four family residential properties. The amount of loans secured by one to four family residential properties in process of foreclosure at September 30, 2015, was $1.3 million. As of September 30, 2015, there had been no foreclosures on mortgage loans with a government guarantee.

The aging of loans is summarized in the following tables (dollars in thousands):

Loans – Excluding PCI
	30-89 Days		90+ Days		Nonaccrual		Total Past Due				Total Loans
September 30, 2015	Past Due		Past Due		Loans		+ Nonaccrual		Current		Receivable
Secured by owner-occupied nonfarm nonresidential properties	$	557	$	-	$	1,136	$	1,693	$	322,278	$	323,971
Secured by other nonfarm nonresidential properties		11		-		-		11		438,778		438,789
Other commercial and industrial		16		-		305		321		238,298		238,619
Total Commercial		584		-		1,441		2,025		999,354		1,001,379

Construction loans – 1 to 4 family residential		-		-		-		-		49,306		49,306
Other construction and land development		144		-		88		232		173,625		173,857
Total Real estate – construction		144		-		88		232		222,931		223,163

Closed-end loans secured by 1 to 4 family residential properties		1,403		107		2,665		4,175		376,479		380,654
Lines of credit secured by 1 to 4 family residential properties		2,577		-		1,370		3,947		240,664		244,611
Loans secured by 5 or more family residential properties		-		-		-		-		63,466		63,466
Total Real estate – mortgage		3,980		107		4,035		8,122		680,609		688,731

Credit cards		67		8		-		75		7,255		7,330
Other revolving credit plans		11		-		1		12		9,331		9,343
Other consumer loans		7		-		7		14		6,087		6,101
Total Consumer		85		8		8		101		22,673		22,774

All other loans		-		-		-		-		8,387		8,387
Total Other		-		-		-		-		8,387		8,387

Total loans	$	4,793	$	115	$	5,572	$	10,480	$	1,933,954	$	1,944,434

PCI Loans
	30-89 Days		90+ Days		Nonaccrual		Total Past Due				Total Loans
September 30, 2015	Past Due		Past Due		Loans		+ Nonaccrual		Current		Receivable
Secured by owner-occupied nonfarm nonresidential properties	$	469	$	-	$	-	$	469	$	17,276	$	17,745
Secured by other nonfarm nonresidential properties		499		26		-		525		16,958		17,483
Other commercial and industrial		-		-		-		-		3,897		3,897
Total Commercial		968		26		-		994		38,131		39,125

Construction loans – 1 to 4 family residential		397		-		-		397		352		749
Other construction and land development		-		-		-		-		3,104		3,104
Total Real estate – construction		397		-		-		397		3,456		3,853

Closed-end loans secured by 1 to 4 family residential properties		511		1,157		-		1,668		21,696		23,364
Lines of credit secured by 1 to 4 family residential properties		312		101		-		413		5,732		6,145
Loans secured by 5 or more family residential properties		-		-		-		-		6,452		6,452
Total Real estate – mortgage		823		1,258		-		2,081		33,880		35,961

Credit cards		-		-		-		-		-		-
Other revolving credit plans		-		-		-		-		21		21
Other consumer loans		20		17		-		37		1,724		1,761
Total Consumer		20		17		-		37		1,745		1,782

All other loans		-		-		-		-		-		-
Total Other		-		-		-		-		-		-

Total loans	$	2,208	$	1,301	$	-	$	3,509	$	77,212	$	80,721

Total Loans
	30-89 Days		90+ Days		Nonaccrual		Total Past Due				Total Loans
September 30, 2015	Past Due		Past Due		Loans		+ Nonaccrual		Current		Receivable
Secured by owner-occupied nonfarm nonresidential properties	$	1,026	$	-	$	1,136	$	2,162	$	339,554	$	341,716
Secured by other nonfarm nonresidential properties		510		26		-		536		455,736		456,272
Other commercial and industrial		16		-		305		321		242,195		242,516
Total Commercial		1,552		26		1,441		3,019		1,037,485		1,040,504

Construction loans – 1 to 4 family residential		397		-		-		397		49,658		50,055
Other construction and land development		144		-		88		232		176,729		176,961
Total Real estate – construction		541		-		88		629		226,387		227,016

Closed-end loans secured by 1 to 4 family residential properties		1,914		1,264		2,665		5,843		398,175		404,018
Lines of credit secured by 1 to 4 family residential properties		2,889		101		1,370		4,360		246,396		250,756
Loans secured by 5 or more family residential properties		-		-		-		-		69,918		69,918
Total Real estate – mortgage		4,803		1,365		4,035		10,203		714,489		724,692

Credit cards		67		8		-		75		7,255		7,330
Other revolving credit plans		11		-		1		12		9,352		9,364
Other consumer loans		27		17		7		51		7,811		7,862
Total Consumer		105		25		8		138		24,418		24,556

All other loans		-		-		-		-		8,387		8,387
Total Other		-		-		-		-		8,387		8,387

Total loans	$	7,001	$	1,416	$	5,572	$	13,989	$	2,011,166	$	2,025,155

Loans – Excluding PCI
	30-89 Days		90+ Days		Nonaccrual		Total Past Due				Total Loans
December 31, 2014	Past Due		Past Due		Loans		+ Nonaccrual		Current		Receivable
Secured by owner-occupied nonfarm nonresidential properties	$	1,366	$	-	$	1,353	$	2,719	$	289,294	$	292,013
Secured by other nonfarm nonresidential properties		-		-		237		237		410,870		411,107
Other commercial and industrial		1,451		-		30		1,481		187,604		189,085
Total Commercial		2,817		-		1,620		4,437		887,768		892,205

Construction loans – 1 to 4 family residential		-		-		-		-		42,969		42,969
Other construction and land development		66		-		159		225		120,387		120,612
Total Real estate – construction		66		-		159		225		163,356		163,581

Closed-end loans secured by 1 to 4 family residential properties		3,529		35		1,871		5,435		374,211		379,646
Lines of credit secured by 1 to 4 family residential properties		2,578		-		1,301		3,879		218,450		222,329
Loans secured by 5 or more family residential properties		-		-		-		-		32,611		32,611
Total Real estate – mortgage		6,107		35		3,172		9,314		625,272		634,586

Credit cards		93		35		-		128		7,528		7,656
Other revolving credit plans		121		1		102		224		8,861		9,085
Other consumer loans		131		-		43		174		7,240		7,414
Total Consumer		345		36		145		526		23,629		24,155

All other loans		-		-		-		-		8,798		8,798
Total Other		-		-		-		-		8,798		8,798

Total loans	$	9,335	$	71	$	5,096	$	14,502	$	1,708,823	$	1,723,325

PCI Loans
	30-89 Days		90+ Days		Nonaccrual		Total Past Due				Total Loans
December 31, 2014	Past Due		Past Due		Loans		+ Nonaccrual		Current		Receivable
Secured by owner-occupied nonfarm nonresidential properties	$	285	$	-	$	-	$	285	$	17,684	$	17,969
Secured by other nonfarm nonresidential properties		-		-		-		-		15,768		15,768
Other commercial and industrial		-		13		-		13		2,806		2,819
Total Commercial		285		13		-		298		36,258		36,556

Construction loans – 1 to 4 family residential		-		-		-		-		712		712
Other construction and land development		-		-		-		-		3,816		3,816
Total Real estate – construction		-		-		-		-		4,528		4,528

Closed-end loans secured by 1 to 4 family residential properties		2,394		1,396		-		3,790		22,836		26,626
Lines of credit secured by 1 to 4 family residential properties		380		33		-		413		5,962		6,375
Loans secured by 5 or more family residential properties		-		-		-		-		4,987		4,987
Total Real estate – mortgage		2,774		1,429		-		4,203		33,785		37,988

Credit cards		-		-		-		-		-		-
Other revolving credit plans		-		-		-		-		27		27
Other consumer loans		46		21		-		67		1,915		1,982
Total Consumer		46		21		-		67		1,942		2,009

All other loans		-		-		-		-		-		-
Total Other		-		-		-		-		-		-

Total loans	$	3,105	$	1,463	$	-	$	4,568	$	76,513	$	81,081

Total Loans
	30-89 Days		90+ Days		Nonaccrual		Total Past Due				Total Loans
December 31, 2014	Past Due		Past Due		Loans		+ Nonaccrual		Current		Receivable
Secured by owner-occupied nonfarm nonresidential properties	$	1,651	$	-	$	1,353	$	3,004	$	306,978	$	309,982
Secured by other nonfarm nonresidential properties		-		-		237		237		426,638		426,875
Other commercial and industrial		1,451		13		30		1,494		190,410		191,904
Total Commercial		3,102		13		1,620		4,735		924,026		928,761

Construction loans – 1 to 4 family residential		-		-		-		-		43,681		43,681
Other construction and land development		66		-		159		225		124,203		124,428
Total Real estate – construction		66		-		159		225		167,884		168,109

Closed-end loans secured by 1 to 4 family residential properties		5,923		1,431		1,871		9,225		397,047		406,272
Lines of credit secured by 1 to 4 family residential properties		2,958		33		1,301		4,292		224,412		228,704
Loans secured by 5 or more family residential properties		-		-		-		-		37,598		37,598
Total Real estate – mortgage		8,881		1,464		3,172		13,517		659,057		672,574

Credit cards		93		35		-		128		7,528		7,656
Other revolving credit plans		121		1		102		224		8,888		9,112
Other consumer loans		177		21		43		241		9,155		9,396
Total Consumer		391		57		145		593		25,571		26,164

All other loans		-		-		-		-		8,798		8,798
Total Other		-		-		-		-		8,798		8,798

Total loans	$	12,440	$	1,534	$	5,096	$	19,070	$	1,785,336	$	1,804,406

At September 30, 2015 and December 31, 2014 there were $3.5 million and $3.3 million, respectively, of loans classified as TDRs. A restructured loan is classified as a TDR if the creditor grants a concession to the borrower for economic or legal reasons related to the borrower’s financial difficulties that it would not otherwise consider. The Company monitors the performance of restructured loans on an ongoing basis. For loans classified as TDRs, the Company further evaluates the loans as performing or nonperforming. Loans retain their accrual status at the time of their restructuring. As a result, if a loan is on nonaccrual at the time it is restructured, it stays as nonaccrual; and if a loan is on accrual at the time of the restructuring, it generally stays on accrual. A restructured loan will be reclassified to nonaccrual if the loan becomes 90 days delinquent or other weaknesses are observed which make collection of principal and interest unlikely. Nonperforming TDRs originally classified as nonaccrual may be reclassified as accruing if, subsequent to restructuring, they experience six consecutive months of payment performance according to the restructured terms. Further, a TDR may be considered performing and subsequently removed from nonperforming status in years subsequent to the restructuring if it meets the following criteria:

At the time of restructuring, the loan was made at a market rate of interest for comparable risk;

The loan has shown at least six consecutive months of payment performance in accordance with the restructured terms; and

The loan has been included in the TDR disclosures for at least one Annual Report on Form 10-K

Restructurings of loans and their classification as TDRs are based on individual facts and circumstances. Loan restructurings that are classified as TDRs may involve an increase or reduction of the interest rate, extension of the term of the loan, or deferral or forgiveness of principal or interest payments, which the Company considers are concessions. All loans classified as TDRs were restructured due to financial difficulties experienced by the borrower. The Company had $921,000 and $1.2 million of performing TDRs at September 30, 2015 and December 31, 2014, respectively, which were restructured in a prior year without an interest rate concession and were performing in accordance with their restructured terms.

The following tables provide information about TDRs restructured during the current and prior year periods (dollars in thousands):

	Restructurings During the Three Months Ended September 30, 2015						Restructurings During the Three Months Ended September 30, 2014
	Number of Contracts		Pre-Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Number of Contracts		Pre-Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment
TDRs:
Commercial		-	$	-	$	-		1	$	124	$	124
Real estate – mortgage		-		-		-		-		-		-
Consumer		-		-		-		2		19		19
Total		-	$	-	$	-		3	$	143	$	143

	Restructurings During the Nine Months Ended September 30, 2015						Restructurings During the Nine Months Ended September 30, 2014
	Number of Contracts		Pre-Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment		Number of Contracts		Pre-Restructuring Outstanding Recorded Investment		Post- Restructuring Outstanding Recorded Investment
TDRs:
Commercial		2	$	657	$	663		1	$	124	$	124
Real estate – mortgage		-		-		-		3		183		176
Consumer		-		-		-		2		19		19
Total		2	$	657	$	663		6	$	326	$	319

Two loans were restructured and classified as TDR loans during the first nine months of 2015. One of the commercial loans restructured in 2015 involved an extension of the term of the loan, and the other involved a deferral of principal. Six loans were restructured and classified as TDR loans during the first nine months of 2014. The commercial loan and the consumer loans restructured in 2014 each had an extension of the term of the loan, and the two consumer loans also had an interest rate reduction. Of the real estate – mortgage loans restructured in 2014, one involved forgiveness of principal, and the other two involved deferral of interest payments.

A TDR is considered to be in default if it is 90 days or more past due at the end of any month during the reporting period.

No TDRs were restructured in the prior 12 months that subsequently defaulted during the three months or nine months ended September 30, 2015, or the three months or nine months ended September 30, 2014.

Interest is not typically accrued on nonperforming loans, as they are normally in nonaccrual status. However, interest may be accrued in certain circumstances on nonperforming TDRs, such as those that have an interest rate concession but are otherwise performing. Interest income on performing or nonperforming accruing TDRs is recognized consistent with any other accruing loan. Interest on loans is accrued and credited to income based on the principal amount outstanding. The accrual of interest on a loan is discontinued when, in management’s opinion, the borrower is not likely to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Loans are placed on nonaccrual status when (i) management has concerns relating to the ability to collect the loan principal and interest, and (ii) generally when loans are 90 days or more past due. Interest income is subsequently recognized on a cash basis only to the extent payments are received and only if the loan is well secured. Commercial loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time and there is a sustained period of repayment performance (generally a minimum of six months) of interest and principal by the borrower in accordance with the contractual terms. Residential mortgage and consumer loans are typically returned to accrual status once they are no longer past due. There were $1.9 million in TDRs at September 30, 2015 and $1.8 million in TDRs at September 30, 2014 that were considered nonperforming and were accruing interest. The following table shows interest income recognized and received on these TDRs for the three months and nine months ended September 30, 2015 and 2014 (dollars in thousands):

	Three Months Ended September 30, 2015				Three Months Ended September 30, 2014
	Recognized		Received		Recognized		Received
Interest Income:
Commercial	$	-	$	-	$	-	$	-
Real estate – construction		-		-		-		-
Real estate – mortgage		19		19		15		12
Consumer		-		-		-		1
Total	$	19	$	19	$	15	$	13

	Nine Months Ended September 30, 2015				Nine Months Ended September 30, 2014
	Recognized		Received		Recognized		Received
Interest Income:
Commercial	$	-	$	-	$	6	$	6
Real estate – construction		-		-		4		4
Real estate – mortgage		58		60		48		45
Consumer		-		-		-		1
Total	$	58	$	60	$	58	$	56

The Company’s policy for impaired loan accounting subjects all loans to impairment recognition; however, loan relationships with total credit exposure of less than $500,000 are generally not evaluated on an individual basis for levels of impairment. The Company generally considers loans 90 days or more past due, all nonaccrual loans and all TDRs to be impaired. All TDRs are evaluated on an individual basis for levels of impairment.

Loans specifically identified and evaluated for levels of impairment totaled $5.2 million and $4.2 million at September 30, 2015 and December 31, 2014, respectively, as detailed in the following tables (dollars in thousands).

	Impaired Loans
			Unpaid				Average		Interest
	Recorded		Principal		Specific		Recorded		Income
	Balance		Balance		Allowance		Investment		Recognized
At September 30, 2015
Loans without a specific valuation allowance
Commercial	$	830	$	830	$	-	$	857	$	22
Real estate – construction		325		325		-		342		17
Real estate – mortgage		315		335		-		403		20
Consumer		-		-		-		-		-
Total		1,470		1,490		-		1,602		59

Loans with a specific valuation allowance
Commercial		97		204		2		98		9
Real estate – construction		248		248		43		297		15
Real estate – mortgage		3,388		3,388		988		3,442		79
Consumer		13		13		1		15		1
Total		3,746		3,853		1,034		3,852		104

Total impaired loans
Commercial		927		1,034		2		955		31
Real estate – construction		573		573		43		639		32
Real estate – mortgage		3,703		3,723		988		3,845		99
Consumer		13		13		1		15		1
Total	$	5,216	$	5,343	$	1,034	$	5,454	$	163

	Impaired Loans
			Unpaid				Average		Interest
	Recorded		Principal		Specific		Recorded		Income
	Balance		Balance		Allowance		Investment		Recognized
At December 31, 2014
Loans without a specific valuation allowance
Commercial	$	283	$	283	$	-	$	342	$	22
Real estate – construction		453		453		-		480		32
Real estate – mortgage		361		381		-		454		36
Consumer		17		17		-		18		1
Total		1,114		1,134		-		1,294		91

Loans with a specific valuation allowance
Commercial		1,087		1,194		588		1,409		78
Real estate – construction		148		148		53		186		11
Real estate – mortgage		1,878		1,878		264		1,913		71
Consumer		-		-		-		-		-
Total		3,113		3,220		905		3,508		160

Total impaired loans
Commercial		1,370		1,477		588		1,751		100
Real estate – construction		601		601		53		666		43
Real estate – mortgage		2,239		2,259		264		2,367		107
Consumer		17		17		-		18		1
Total	$	4,227	$	4,354	$	905	$	4,802	$	251

The balance in the allowance for credit losses and the recorded investment in loans by portfolio segment and based on the reserving method for the nine months ended September 30, 2015, the year ended December 31, 2014 and the nine months ended September 30, 2014 were as follows:

				Real Estate -			Real Estate -									Total
Allowance for credit losses:	Commercial			Construction			Mortgage			Consumer			Other			Allowance
September 30, 2015
Individually evaluated for impairment	$	2		$	43		$	988		$	1		$	-		$	1,034
Collectively evaluated for impairment		10,174			2,112			7,517			337			72			20,212
PCI		-			-			77			-			-			77
Total ending allowance	$	10,176		$	2,155		$	8,582		$	338		$	72		$	21,323
Allowance for credit losses as a percentage of recorded investment		0.98	%		0.95	%		1.18	%		1.38	%		0.86	%		1.05	%
December 31, 2014
Individually evaluated for impairment	$	588		$	53		$	264		$	-		$	-		$	905
Collectively evaluated for impairment		10,567			1,931			8,195			421			93			21,207
PCI		-			-			-			-			-			-
Total ending allowance	$	11,155		$	1,984		$	8,459		$	421		$	93		$	22,112
Allowance for credit losses as a percentage of recorded investment		1.20	%		1.18	%		1.26	%		1.61	%		1.06	%		1.23	%
September 30, 2014
Individually evaluated for impairment	$	11		$	8		$	383		$	-		$	-		$	402
Collectively evaluated for impairment		10,564			1,860			9,132			451			92			22,099
PCI		-			-			-			-			-			-
Total ending allowance	$	10,575		$	1,868		$	9,515		$	451		$	92		$	22,501
Allowance for credit losses as a percentage of recorded investment		1.26	%		1.18	%		1.38	%		1.68	%		1.26	%		1.31	%

			Real Estate -		Real Estate -						Total
Recorded investment in loans:	Commercial		Construction		Mortgage		Consumer		Other		Loans
September 30, 2015
Individually evaluated for impairment	$	927	$	573	$	3,703	$	13	$	-	$	5,216
Collectively evaluated for impairment		1,000,452		222,590		685,028		22,761		8,387		1,939,218
PCI		39,125		3,853		35,961		1,782		-		80,721
Total recorded investment in loans	$	1,040,504	$	227,016	$	724,692	$	24,556	$	8,387	$	2,025,155
December 31, 2014
Individually evaluated for impairment	$	1,370	$	601	$	2,239	$	17	$	-	$	4,227
Collectively evaluated for impairment		890,835		162,980		632,347		24,138		8,798		1,719,098
PCI		36,556		4,528		37,988		2,009		-		81,081
Total recorded investment in loans	$	928,761	$	168,109	$	672,574	$	26,164	$	8,798	$	1,804,406
September 30, 2014
Individually evaluated for impairment	$	740	$	745	$	2,445	$	17	$	-	$	3,947
Collectively evaluated for impairment		789,994		151,477		646,600		24,679		7,277		1,620,027
PCI		48,962		5,619		40,311		2,098		-		96,990
Total recorded investment in loans	$	839,696	$	157,841	$	689,356	$	26,794	$	7,277	$	1,720,964

The allowance for credit losses as a percentage of the recorded investment in loans shown in the table above reflects the improvement in asset quality in the past year. There is a greater proportion of low risk, high quality loans in the loan portfolio at September 30, 2015 compared to September 30, 2014. As a result, the allowance for credit losses as a percentage of the total recorded investment in loans at September 30, 2015 is significantly lower than at September 30, 2014. Also impacting the allowance for credit losses as a percentage of the total recorded investment in loans is the acquired non-PCI portfolio of $230.8 million at September 30, 2015, which was recorded at fair value on the acquisition date and had an allowance for credit losses of $640,000 as of September 30, 2015.

The following table summarizes, by internally assigned risk grade, the risk grade for loans for which the Company has assigned a risk grade (dollars in thousands).

	September 30, 2015										December 31, 2014
Loans –			Special		Sub-								Special		Sub-
excluding PCI	Pass		Mention		standard		Doubtful		Total		Pass		Mention		standard		Doubtful		Total
Commercial	$	963,478	$	19,184	$	17,553	$	87	$	1,000,302	$	858,218	$	18,578	$	12,717	$	969	$	890,482
Real estate – construction		196,637		496		793		56		197,982		148,226		1,144		88		60		149,518
Real estate – mortgage		132,549		3,638		909		-		137,096		99,200		4,794		1,987		-		105,981
Consumer		1,257		-		-		-		1,257		928		-		-		-		928
Other		7,352		-		249		-		7,601		7,646		1,152		-		-		8,798
Total	$	1,301,273	$	23,318	$	19,504	$	143	$	1,344,238	$	1,114,218	$	25,668	$	14,792	$	1,029	$	1,155,707

	September 30, 2015										December 31, 2014
			Special		Sub-								Special		Sub-
PCI loans	Pass⁽¹⁾		Mention		standard		Doubtful		Total		Pass⁽¹⁾		Mention		standard		Doubtful		Total
Commercial	$	28,483	$	6,096	$	4,392	$	-	$	38,971	$	27,766	$	5,345	$	3,205	$	-	$	36,316
Real estate – construction		2,487		784		507		-		3,778		2,838		1,248		339		-		4,425
Real estate – mortgage		12,624		3,071		1,699		-		17,394		11,246		3,811		1,627		-		16,684
Consumer		-		-		-		-		-		-		-		-		-		-
Other		-		-		-		-		-		-		-		-		-		-
Total	$	43,594	$	9,951	$	6,598	$	-	$	60,143	$	41,850	$	10,404	$	5,171	$	-	$	57,425

	September 30, 2015										December 31, 2014
			Special		Sub-								Special		Sub-
Total loans	Pass		Mention		standard		Doubtful		Total		Pass		Mention		standard		Doubtful		Total
Commercial	$	991,961	$	25,280	$	21,945	$	87	$	1,039,273	$	885,984	$	23,923	$	15,922	$	969	$	926,798
Real estate – construction		199,124		1,280		1,300		56		201,760		151,064		2,392		427		60		153,943
Real estate – mortgage		145,173		6,709		2,608		-		154,490		110,446		8,605		3,614		-		122,665
Consumer		1,257		-		-		-		1,257		928		-		-		-		928
Other		7,352		-		249		-		7,601		7,646		1,152		-		-		8,798
Total	$	1,344,867	$	33,269	$	26,102	$	143	$	1,404,381	$	1,156,068	$	36,072	$	19,963	$	1,029	$	1,213,132

⁽¹⁾ PCI loans in the Pass category are in the pre-watch risk grade, which is the lowest risk grade in the Pass category.

An analysis of the changes in the allowance for credit losses for the three months and nine months ended September 30, 2015 and 2014 follows (dollars in thousands):

	Beginning									Ending
	Balance		Chargeoffs		Recoveries		Provision			Balance
Three Months Ended September 30, 2015
Loans – excluding PCI
Commercial	$	10,622	$	55	$	196	$	(587	)	$	10,176
Real estate – construction		1,986		92		57		204			2,155
Real estate – mortgage		8,157		223		231		340			8,505
Consumer		357		170		58		93			338
Other		159		-		20		(107	)		72
Total	$	21,281	$	540	$	562	$	(57	)	$	21,246

PCI loans
Commercial	$	-	$	-	$	-	$	-		$	-
Real estate – construction		-		-		-		-			-
Real estate – mortgage		30		13		-		60			77
Consumer		3		-		-		(3	)		-
Other		-		-		-		-			-
Total	$	33	$	13	$	-	$	57		$	77

Total loans
Commercial	$	10,622	$	55	$	196	$	(587	)	$	10,176
Real estate – construction		1,986		92		57		204			2,155
Real estate – mortgage		8,187		236		231		400			8,582
Consumer		360		170		58		90			338
Other		159		-		20		(107	)		72
Total	$	21,314	$	553	$	562	$	-		$	21,323

Three Months Ended September 30, 2014
Loans – excluding PCI
Commercial	$	10,264	$	399	$	775	$	(65	)	$	10,575
Real estate – construction		1,771		60		49		108			1,868
Real estate – mortgage		10,354		1,423		648		(64	)		9,515
Consumer		469		201		77		106			451
Other		86		-		2		4			92
Total	$	22,944	$	2,083	$	1,551	$	89		$	22,501

PCI loans
Commercial	$	-	$	-	$	-	$	-		$	-
Real estate – construction		-		-		-		-			-
Real estate – mortgage		-		-		-		-			-
Consumer		-		-		-		-			-
Other		-		-		-		-			-
Total	$	-	$	-	$	-	$	-		$	-

Total loans
Commercial	$	10,264	$	399	$	775	$	(65	)	$	10,575
Real estate – construction		1,771		60		49		108			1,868
Real estate – mortgage		10,354		1,423		648		(64	)		9,515
Consumer		469		201		77		106			451
Other		86		-		2		4			92
Total	$	22,944	$	2,083	$	1,551	$	89		$	22,501

	Beginning									Ending
	Balance		Chargeoffs		Recoveries		Provision			Balance
Nine Months Ended September 30, 2015
Loans – excluding PCI
Commercial	$	11,155	$	1,087	$	575	$	(467	)	$	10,176
Real estate – construction		1,984		99		396		(126	)		2,155
Real estate – mortgage		8,459		1,059		499		606			8,505
Consumer		421		412		257		72			338
Other		93		-		37		(58	)		72
Total	$	22,112	$	2,657	$	1,764	$	27		$	21,246

PCI loans
Commercial	$	-	$	-	$	-	$	-		$	-
Real estate – construction		-		-		-		-			-
Real estate – mortgage		-		15		-		92			77
Consumer		-		1		-		1			-
Other		-		-		-		-			-
Total	$	-	$	16	$	-	$	93		$	77

Total loans
Commercial	$	11,155	$	1,087	$	575	$	(467	)	$	10,176
Real estate – construction		1,984		99		396		(126	)		2,155
Real estate – mortgage		8,459		1,074		499		698			8,582
Consumer		421		413		257		73			338
Other		93		-		37		(58	)		72
Total	$	22,112	$	2,673	$	1,764	$	120		$	21,323

Nine Months Ended September 30, 2014
Loans – excluding PCI
Commercial	$	11,480	$	836	$	1,300	$	(1,369	)	$	10,575
Real estate – construction		2,027		464		563		(258	)		1,868
Real estate – mortgage		10,479		4,106		1,098		2,044			9,515
Consumer		469		563		213		332			451
Other		95		-		8		(11	)		92
Total	$	24,550	$	5,969	$	3,182	$	738		$	22,501

PCI loans
Commercial	$	-	$	62	$	-	$	62		$	-
Real estate – construction		-		-		-		-			-
Real estate – mortgage		-		33		-		33			-
Consumer		-		-		-		-			-
Other		-		-		-		-			-
Total	$	-	$	95	$	-	$	95		$	-

Total loans
Commercial	$	11,480	$	898	$	1,300	$	(1,307	)	$	10,575
Real estate – construction		2,027		464		563		(258	)		1,868
Real estate – mortgage		10,479		4,139		1,098		2,077			9,515
Consumer		469		563		213		332			451
Other		95		-		8		(11	)		92
Total	$	24,550	$	6,064	$	3,182	$	833		$	22,501

Determining the fair value of PCI loans at acquisition required the Company to estimate cash flows expected to result from those loans and to discount those cash flows at appropriate rates of interest. For such loans, the excess of cash flows expected to be collected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans and is called the accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and is called the nonaccretable difference. In accordance with GAAP, there was no carry-over of previously established allowance for credit losses from the acquired companies.

In conjunction with the acquisition of Premier on February 27, 2015, the PCI loan portfolio was accounted for at fair value as follows (dollars in thousands):

	February 27, 2015

Contractual principal and interest at acquisition	$	19,999
Nonaccretable difference		(821	)
Expected cash flows at acquisition		19,178
Accretable yield		(3,040	)
Basis in PCI loans at acquisition – estimated fair value	$	16,138

A summary of changes in the recorded investment of PCI loans for the three months and nine months ended September 30, 2015 and 2014 follows (dollars in thousands):

	Three Months Ended September 30
	2015			2014

Recorded investment, beginning of period	$	86,804		$	108,334
Accretion		1,241			1,330
Reductions for payments, sales and foreclosures		(7,324	)		(12,674	)
Recorded investment, end of period	$	80,721		$	96,990
Outstanding principal balance, end of period	$	88,735		$	104,666

	Nine Months Ended September 30
	2015			2014

Recorded investment, beginning of period	$	81,081		$	56,015
Fair value of loans acquired during the period		16,138			65,816
Accretion		3,741			3,315
Reductions for payments, sales and foreclosures		(20,239	)		(28,156	)
Recorded investment, end of period	$	80,721		$	96,990
Outstanding principal balance, end of period	$	88,735		$	104,666

A summary of changes in the accretable yield for PCI loans for the three months and nine months ended September 30, 2015 and 2014 follows (dollars in thousands):

	Three Months Ended September 30
	2015			2014

Accretable yield, beginning of period	$	23,042		$	25,602
Accretion		(1,241	)		(1,330	)
Reclassification from nonaccretable difference		710			957
Other changes, net		(811	)		(1,177	)
Accretable yield, end of period	$	21,700		$	24,052

	Nine Months Ended September 30
	2015			2014

Accretable yield, beginning of period	$	22,447		$	14,462
Addition from acquisition		3,040			13,969
Accretion		(3,741	)		(3,315	)
Reclassification from nonaccretable difference		1,992			1,459
Other changes, net		(2,038	)		(2,523	)
Accretable yield, end of period	$	21,700		$	24,052

Note 6 — Deferred Tax Assets

Accounting Standards Codification Topic 740 requires that in considering the realizability of its deferred tax assets and evaluating the need for a valuation allowance, a company consider all positive and negative evidence to form a conclusion as to whether the realization of the deferred tax asset is more likely than not. A company must also assign weights to the various forms of evidence, based upon its ability to verify the evidence. Management evaluates the realizability of the Company’s recorded deferred tax assets on a regular basis. This evaluation includes a review of all available evidence, including recent historical financial performance and expected near-term levels of net interest margin, nonperforming assets, operating expenses, earnings and other factors. It also considers the items that have given rise to the deferred tax assets, as well as tax planning strategies.

Management has concluded that only a portion of the deferred tax assets associated with certain state net economic loss carryforwards should be impaired. Management has also concluded that the utilization of the remaining deferred tax assets is more likely than not.

The significant components of the Company’s deferred tax assets at September 30, 2015 and December 31, 2014 were as follows (dollars in thousands):

	2015			2014
Deferred tax assets:
Allowance for credit losses	$	8,156		$	8,458
Net operating losses		15,340			21,554
Other		12,816			13,420
Valuation allowance		(328	)		(328	)
Total		35,984			43,104

Deferred tax liabilities:
Net unrealized gain on available for sale securities		2,736			2,904
Other		6,636			7,067
Total		9,372			9,971
Net deferred tax assets	$	26,612		$	33,133

Note 7 — Repurchase Agreements

In previous periods, the Company occasionally secured long-term funding utilizing securities sold under repurchase agreements. Repurchase agreements are transactions whereby the Company sells to a counterparty securities at an agreed upon purchase price, and which obligates the Company to repurchase the securities on an agreed upon date at an agreed upon repurchase price with interest at an agreed upon rate payable at a predetermined frequency. Securities sold under agreements to repurchase are recorded at the amount of cash received in connection with the transaction and are included in other borrowings in the consolidated balance sheets.

The Company monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable securities and the counterparty’s interest in those securities and segregates the securities from general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the securities collateralizing the transactions, as the Company may be required to provide additional collateral based on fair value changes of the underlying securities.

At September 30, 2015, the Company had one repurchase agreement, which it entered into on December 8, 2006 for $21.0 million with a repurchase date of December 8, 2016. The transaction is subject to quarterly calls with quarterly interest payments at a fixed rate of 4.03%. Securities pledged as collateral under the repurchase agreement are maintained with the counterparty. Securities acceptable as collateral are U.S. Treasury securities, U.S. government agency securities, U.S. government-sponsored agency securities, and agency mortgage backed securities. The Company may substitute collateral among the acceptable categories. The remaining contractual maturity of repurchase agreements by class of collateral pledged included in other borrowings in the consolidated balance sheets as of September 30, 2015 and December 31, 2014 is presented in the following tables (dollars in thousands).

	September 30, 2015
	Remaining Contractual Maturity of the Agreements
	Less than 1 Year		1 – 3 Years		3 – 5 Years		Greater Than 5 Years		Total		Market Value of Collateral
Repurchase agreements
U.S. government-sponsored agency securities	$	-	$	17,593	$	-	$	-	$	17,593	$	20,673
Agency mortgage backed securities		-		3,407		-		-		3,407		4,330
Total borrowings	$	-	$	21,000	$	-	$	-	$	21,000	$	25,003
Gross amount of recognized liabilities for repurchase agreements									$	21,000

	December 31, 2014
	Remaining Contractual Maturity of the Agreements
	Less than 1 Year		1 – 3 Years		3 – 5 Years		Greater Than 5 Years		Total		Market Value of Collateral
Repurchase agreements
U.S. government-sponsored agency securities	$	-	$	16,699	$	-	$	-	$	16,699	$	19,396
Agency mortgage backed securities		-		4,301		-		-		4,301		5,573
Total borrowings	$	-	$	21,000	$	-	$	-	$	21,000	$	24,969
Gross amount of recognized liabilities for repurchase agreements									$	21,000

Note 8 — Stock-Based Compensation Plans

The Company recorded $680,000 and $561,000 of stock-based compensation expense for the nine-month periods ended September 30, 2015 and 2014, respectively. The stock-based compensation expense is calculated on a ratable basis over the vesting periods of the related stock options or grants of restricted stock units or performance units and is reported within personnel expense. This expense had no impact on the Company’s reported cash flows. As of September 30, 2015, there was $2.5 million of unrecognized stock-based compensation expense. This expense will be fully recognized by December 31, 2018.

To determine the amounts recorded in the financial statements, the fair value of each stock option is estimated on the date of the grant using the Black-Scholes-Merton option-pricing model, and for restricted stock units and performance units, the fair value of the Company’s stock on date of grant is used. During the first nine months of 2015, no stock options were granted.

As of September 30, 2015, there were 562,209 restricted stock units and performance units outstanding. The fair value of each restricted stock unit or performance unit is the closing price of the Company’s Class A common stock on the grant date. The date of grant and the fair value of these are as follows:

September 30, 2015
			Grant		Fair Value
Type	Units		Date		Per Unit
Restricted stock units		10		02/09/11	$	5.15
Restricted stock units		41,198		01/11/12		3.89
Restricted stock units		3,790		07/25/12		4.10
Restricted stock units		88,010		01/16/13		5.00
Restricted stock units		2,390		03/06/13		5.91
Restricted stock units		1,460		04/24/13		5.99
Restricted stock units		22,204		07/24/13		8.80
Restricted stock units		1,701		10/09/13		6.61
Restricted stock units		82,196		01/15/14		7.19
Performance units		36,301		07/29/14		7.64
Performance units		22,835		10/29/14		8.41
Performance units		130,904		01/28/15		8.10
Performance units		4,210		05/20/15		8.12
Restricted stock units		125,000		09/23/15		8.57
		562,209

On February 27, 2015, there were 294,400 Premier stock options that converted to 353,831 Company stock options. The estimated fair value of the converted options was $632,000 using the Black-Scholes-Merton option-pricing model. At September 30, 2015, there were 217,418 of these converted options outstanding and exercisable with a weighted average remaining contractual life of 4.43 years and no intrinsic value as the exercise price exceeds the current market price. The following is a summary of stock option activity and related information for the first nine months of 2015.

	Options			Weighted Average Exercise Price

Outstanding – beginning of period		985,071		$	7.51
Converted		353,831			9.16
Exercised		(95,000	)		4.51
Forfeited		(224,491	)		12.21
Outstanding – end of period		1,019,411		$	7.32

Exercisable – end of period		1,019,411		$	7.32

The Company recorded excess tax benefits related to stock-based compensation as a credit to shareholders’ equity of $176,000 during the first nine months of 2015 and $81,000 during the first nine months of 2014.

Note 9 — Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value for each class of the Company’s financial instruments.

Cash and cash equivalents. The carrying amounts for cash and due from banks approximate fair value because of the short maturities of those instruments and are categorized as Level 1 (quoted prices in active markets for identical assets).

Investment certificates of deposit. Investment certificates of deposit are certificates of deposit of $250,000 or less placed in multiple financial institutions. The fair value is estimated using the difference between the coupon rate on each certificate of deposit and the current required rate and is categorized as Level 2 (“significant other observable inputs”).

Investment securities. The fair value of investment securities is based on quoted prices in active markets for identical assets (Level 1), if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities, corresponding to the “significant other observable inputs” definition of GAAP (Level 2). If a quoted market price for a similar security is not available, fair value is estimated using “significant unobservable inputs” as defined by GAAP (Level 3). The fair value of equity investments in the restricted stock of the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank or Richmond equals the carrying value based on the redemption provisions and is categorized as Level 3.

Loans. The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of variable rate loans with frequent repricing and negligible credit risk approximates book value. The fair value of loans is categorized as Level 3.

Impaired loans. The fair value of each impaired loan is based on discounted cash flows using the loan’s initial effective interest rate or the fair value of the collateral, less selling and other handling costs, for certain collateral dependent loans less specific reserves. The fair value of impaired loans is categorized as Level 3.

Loans held for sale. Substantially all residential mortgage loans held for sale are pre-sold; therefore, their carrying value approximates fair value and is categorized as Level 2.

Investments held in trust and non-qualified defined contribution plan liability. Investments held in trust consist primarily of cash and cash equivalents, equity securities, and mutual fund investments, and are recorded at fair value and included in other assets. The purpose of these investments is to fund certain director and executive officer non-qualified deferred compensation. The benefit payable is the non-qualified defined contribution plan liability, which is recorded at fair value and included in other liabilities. For cash and cash equivalents, which have maturities of 90 days or less, their carrying amounts reported in the consolidated balance sheets approximate fair value and are categorized as Level 1. The fair value of other equity securities and mutual funds are valued based on quoted prices from the market and are categorized as Level 1.

Interest rate swaps. Under the terms of cash flow hedges, which the Bank entered into in August and November, 2014, for the duration of the hedges the Bank and the counterparty pay one another the difference between the variable amount payable by the Bank based on the 30-day LIBOR rate and the fixed payment payable by the counterparty. In addition, the Bank has several other interest rate swap contracts that were classified as non-designated hedges that allow the customers to pay a fixed rate of interest to the Bank. These interest rate swaps were simultaneously hedged by executing offsetting interest rate swaps with a derivatives dealer to mitigate the net risk exposure to the Bank resulting from the transactions and allow the Bank to receive a variable rate of interest. The fair values of the interest rate swaps designated as cash flow hedges and the non-designated interest rate swaps are based on projected LIBOR rates for the duration of the hedges, values that, while observable in the market, are subject to adjustment due to pricing considerations for the specific instrument. The fair values of the interest rate swaps are categorized as Level 2.

Deposits. The fair value of noninterest-bearing demand deposits and Negotiable Order of Withdrawal (“NOW”), savings, and money market deposits are the amounts payable on demand at the reporting date. The fair value of time deposits is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value of deposits is categorized as Level 2.

Federal funds purchased and retail repurchase agreements. The carrying values of federal funds purchased and retail repurchase agreements are considered to be a reasonable estimate of fair value and are categorized as Level 1.

Wholesale repurchase agreements, subordinated debt, junior subordinated notes and Federal Home Loan Bank of Atlanta borrowings. The fair values of these liabilities are estimated using the discounted values of the contractual cash flows and are categorized as Level 2. The discount rate is estimated using the rates currently in effect for similar borrowings.

During the first quarter of 2015, the Company revised its methodology for estimating the fair value of the junior subordinated notes to discounting the projected future cash flows using the LIBOR interest rate swap curve. Previously, the Company projected cash flows assuming the current payment rate remained unchanged for the remaining term. Prior period amounts have not been revised.

The following tables present the estimated fair values of financial instruments as of September 30, 2015 and December 31, 2014 (dollars in thousands):

September 30, 2015	Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	41,870	$	41,870
Investment certificates of deposit		11,729		11,754
Investment securities		513,106		515,333
Loans		2,003,832		2,000,188
Loans held for sale		10,562		10,562
Investments held in trust		7,559		7,559
Interest rate swaps		1,011		1,011
Financial liabilities:
Deposits		2,001,417		2,002,730
Federal funds purchased		30,500		30,500
Wholesale repurchase agreements		21,000		22,038
Subordinated debt		15,500		16,059
Junior subordinated notes		25,774		18,548
Federal Home Loan Bank borrowings		398,500		398,540
Non-qualified defined contribution plan liability		7,559		7,559
Interest rate swaps		391		391

December 31, 2014	Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	34,369	$	34,369
Investment certificates of deposit		15,632		15,705
Investment securities		496,798		498,012
Loans		1,782,294		1,784,477
Loans held for sale		6,181		6,181
Investments held in trust		7,342		7,342
Interest rate swaps		224		224
Financial liabilities:
Deposits		1,832,564		1,834,333
Federal funds purchased		29,500		29,500
Wholesale repurchase agreements		21,000		22,252
Subordinated debt		15,500		15,978
Junior subordinated notes		25,774		12,515
Federal Home Loan Bank borrowings		346,700		346,712
Non-qualified defined contribution plan liability		7,342		7,342
Interest rate swaps		492		492

The fair value estimates are made at a specific point in time based on relevant market and other information about the financial instruments. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The table below presents the assets measured at fair value on a recurring basis categorized by the level of inputs used in the valuation of each asset (dollars in thousands):

	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets measured at fair value
Available for sale securities:
at September 30, 2015	$	4,342	$	344,621	$	25,722
at December 31, 2014		4,465		338,218		23,414
Investments held in trust:
at September 30, 2015		7,559		-		-
at December 31, 2014		7,342		-		-
Interest rate swaps:
at September 30, 2015		-		1,011		-
at December 31, 2014		-		224		-
Liabilities measured at fair value
Non-qualified defined contribution plan liability:
at September 30, 2015		7,559		-		-
at December 31, 2014		7,342		-		-
Interest rate swaps:
at September 30, 2015		-		391		-
at December 31, 2014		-		492		-

The table below presents the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2015 and the year ended December 31, 2014 (dollars in thousands):

	Nine Months			Twelve Months
	Ended			Ended
	September 30,			December 31,
	2015			2014

Available for sale securities
Beginning balance	$	23,414		$	9,988
Purchases		4,867			16,947
Acquisitions		1,147			3,089
Redemptions		(3,706	)		(6,610	)
Ending balance	$	25,722		$	23,414

The table below presents the assets measured at fair value on a non-recurring basis categorized by the level of inputs used in the valuation of each asset (dollars in thousands):

	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Loans held for sale:
at September 30, 2015	$	-	$	10,562	$	-
at December 31, 2014		-		6,181		-
Real estate acquired in settlement of loans:
at September 30, 2015		-		-		1,599
at December 31, 2014		-		-		2,485
Impaired loans, net of allowance:
at September 30, 2015		-		-		4,182
at December 31, 2014		-		-		3,322

The fair value of collateral dependent loans is determined by appraisals or by alternative evaluations, such as tax evaluations. The fair value of loans may also be determined by sales contracts in hand or settlement agreements.

The following table presents the valuation and unobservable inputs for Level 3 assets measured at fair value at September 30, 2015 (dollars in thousands):

Description

Fair
Value

Valuation
Methodology

Unobservable Inputs

Range of
Inputs

Federal Home Loan Bank stock and Federal Reserve Bank stock

25,722

Cost

Redemption provisions

N/A

Real estate acquired in settlement of loans

1,599

Appraised value

Discount to reflect current market conditions

0.00% - 46.00%

Impaired loans, net of allowance

4,182

Appraised value

Discount to reflect current market conditions

0.00% - 46.00%

Discounted cash flows

Discount rates

3.13% - 8.20%

Note 10 — Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), net of tax, at September 30, 2015 and December 31, 2014 are as follows (dollars in thousands):

	2015			2014

Unrealized gains on available for sale securities	$	4,418		$	4,688
Funded status of pension plans		(5,013	)		(5,220	)
Unrecognized gains (losses) on cash flow hedges		387			(163	)
Total accumulated other comprehensive income (loss)	$	(208	)	$	(695	)

Reclassifications from accumulated other comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2015 and 2014 are as follows (dollars in thousands):

Details about accumulated other	Amount reclassified from accumulated other			Affected line item in the Consolidated
comprehensive income (loss)	comprehensive income (loss)			Statements of Income

Three months ended September 30, 2015
Unrealized gains (losses) on cash flow hedges	$	194		Interest and fees on loans
		(74	)	Income tax expense (benefit)
	$	120		Net of tax

Amortization of net actuarial loss	$	(168	)	Personnel expense
		65		Income tax expense (benefit)
	$	(103	)	Net of tax

Total reclassifications for the period	$	17

Three months ended September 30, 2014
Unrealized gains (losses) on cash flow hedges	$	58		Interest and fees on loans
		(22	)	Income tax expense (benefit)
	$	36		Net of tax

Amortization of net actuarial loss	$	16		Personnel expense
		(6	)	Income tax expense (benefit)
	$	10		Net of tax

Total reclassifications for the period	$	46

Nine months ended September 30, 2015
Unrealized gains (losses) on cash flow hedges	$	585		Interest and fees on loans
		(224	)	Income tax expense (benefit)
	$	361		Net of tax

Amortization of net actuarial loss	$	(336	)	Personnel expense
		129		Income tax expense (benefit)
	$	(207	)	Net of tax

Total reclassifications for the period	$	154

Nine months ended September 30, 2014
Unrealized gains (losses) on cash flow hedges	$	58		Interest and fees on loans
		(22	)	Income tax expense (benefit)
	$	36		Net of tax

Amortization of net actuarial loss	$	47		Personnel expense
		(18	)	Income tax expense (benefit)
	$	29		Net of tax

Total reclassifications for the period	$	65

Note 11 — Capital Transactions

On March 14, 2014, the Company entered into a Subordinated Note Purchase Agreement with 14 accredited investors under which the Company issued an aggregate of $15.5 million of subordinated notes (the “Notes”) to the accredited investors, including members of the Company’s Board of Directors. The Notes have a maturity date of March 14, 2024. The Notes bear interest, payable on the 1st of January and July of each year, commencing July 1, 2014, at a fixed interest rate of 7.25% per year. The Notes are intended to qualify as Tier 2 capital for regulatory purposes.

On March 31, 2014, the Company redeemed all of its remaining 15,000 outstanding shares of Series A preferred stock at the liquidation price of $1,000 per share for a total of $15.0 million plus $172,500 of accrued and unpaid dividends.

On April 1, 2014, the Company completed its acquisition of CapStone. (See Note 2 of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q for details of the transaction.)

Quarterly cash dividends resumed in the first quarter of 2015. On February 18, 2015, the Board of Directors declared a $0.015 per share quarterly cash dividend on its common stock, payable April 15, 2015 to shareholders of record as of the close of business on March 16, 2015. On May 20, 2015, the Board of Directors declared a $0.015 per share quarterly cash dividend on its common stock, payable July 15, 2015 to shareholders of record as of the close of business on June 16, 2015. On August 19, 2015, the Board of Directors declared a $0.015 per share quarterly cash dividend on its common stock, payable October 15, 2015 to shareholders of record as of the close of business on September 16, 2015.

On February 27, 2015, the Company completed its acquisition of Premier. (See Note 2 of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q for details of the transaction.)

On August 7, 2015, 1,463,748 shares of Class B (non-voting) common stock were transferred by the original investor and, as a result, were converted into 1,463,748 shares of Class A (voting) common stock.

Note 12 — Derivatives

Interest rate risk management is a part of the Company’s overall asset/liability management process. The primary oversight of asset/liability management rests with the Asset and Liability Committee, which is comprised of the Company’s Chief Executive Officer, Chief Financial Officer, and other senior executives. Over the past several years, the Company’s balance sheet has been consistently slightly “asset sensitive,” i.e. should interest rates decline, the Company’s assets will reprice faster than its liabilities, resulting in a declining net interest margin and less net interest income.

In order to mitigate its exposure in the event the interest rate curve flattens, on August 8, 2014 and on November 13, 2014, the Bank entered into three-year interest rate swaps with a notional amount of $50.0 million each that qualify as cash flow hedges under GAAP. The risk management objective of entering into these swaps is to reduce the Bank’s interest rate risk exposure to the variability of the cash flows upon changes to its forecasted interest receipts as the 30-day LIBOR, the benchmark interest rate used by the Bank, changes. These swaps are designated as cash flow hedges of the interest rate risk associated with the benchmark rate of the 30-day LIBOR attributable to the forecasted interest payments received from the 30-day LIBOR loan portfolio and investment securities (the hedged forecasted transaction). For the interest rate swap entered into on August 8, 2014, the Bank will receive interest at a fixed rate of 0.925% and pay interest at a rate based on the 30-day LIBOR. This interest rate swap hedges interest receipts through August 8, 2017. For the interest rate swap entered into on November 13, 2014, the Bank will receive interest at a fixed rate of 0.98% and pay interest at a rate based on the 30-day LIBOR. This interest rate swap hedges interest receipts through November 13, 2017. Settlement of the swaps occurs monthly. As of September 30, 2015, collateral of $450,000 was pledged and on deposit with the counterparty to secure the existing obligations under these interest rate swaps. The fair value of the swaps is included in other assets or other liabilities in the consolidated balance sheets, depending on whether the fair value of the swaps is positive or negative, and the net change in fair value is included in other comprehensive income and in the consolidated statements of cash flows under the caption net (increase) decrease in other assets and/or net increase (decrease) in other liabilities. At September 30, 2015, the estimated fair value of the swaps is an asset of $626,000.

For cash flow hedges, the effective portion of the gain or loss due to changes in the fair value of the derivative hedging instrument is included in other comprehensive income, while the ineffective portion, representing the excess of the cumulative change in the fair value of the derivative over the cumulative change in expected future discounted cash flows on the hedged transaction, is recorded in the consolidated statements of income. The Bank’s interest rate swaps have been effective since inception. Changes in the fair value of the interest rate swaps, therefore, have had no impact on net income. For the first nine months of 2015, the Bank recognized interest income of $585,000 resulting from incremental interest received from the counterparty, none of which related to ineffectiveness. The Bank regularly monitors the credit risk of the interest rate swaps counterparty.

In addition, the Bank has three other interest rate swap contracts that were classified as non-designated hedges. These derivatives are interest rate swaps executed with commercial borrowers to allow the customers to pay a fixed rate of interest to the Bank. These interest rate swaps were simultaneously hedged by executing offsetting interest rate swaps with derivatives dealers to mitigate the net risk exposure to the Bank resulting from the transactions and allow the Bank to receive a variable rate of interest.

The interest rate swap contracts with the commercial borrowers require the borrowers to pay to or receive from the Bank an amount equal to and offsetting the value of the interest rate swaps. If the commercial borrower fails to perform and the market value for the interest rate swap with the derivatives dealer is negative (i.e. in a net liability position), the Bank would have to continue to pay the settlement amount for the financial derivative to the dealer or pay a termination fee. If the market value for the interest rate swap with the derivatives dealer is positive (i.e. in a net asset position), the Bank would continue to receive a payment for the settlement amount for the financial derivative with the dealer. The settlement amount is impacted by the fluctuation of interest rates.

The fair values of interest rate swap derivatives that are classified as non-designated hedges are recorded in other assets and other liabilities on the balance sheet. As these interest rate swaps do not meet hedge accounting requirements, changes in the fair value of these interest rate swaps are recognized directly in earnings. These changes are recorded in other noninterest expense. As of September 30, 2015, the customer interest rate swaps and the offsetting swaps each had an aggregate notional amount of approximately $11.7 million, and the fair value of these three interest rate swap derivatives are recorded in other assets for $385,000 and in other liabilities for $391,000 on the balance sheet. The net effect of recording the derivatives at fair value through earnings was immaterial to the Company’s financial condition and results of operations during the first nine months of 2015.

As of September 30, 2015, the Bank provided $350,000 of collateral for two of these interest rate swaps, which is included in cash on the balance sheet as interest-bearing deposits with banks. The third interest rate swap is secured with an agency mortgage backed security having a collateral value of $513,000 at September 30, 2015. If the three swap contracts were terminated at September 30, 2015, the Bank’s net settlement exposure would have been $417,000.

Note 13 — Commitments and Contingent Liabilities

There have been no material changes in the Company’s operating lease commitments and commitments to extend credit and standby letters of credit from those previously disclosed in the Company’s Form 10-K for the year ended December 31, 2014.

The Company and its subsidiary are regularly subject to pending and threatened litigation. Accounting guidance for contingencies requires an accrual of estimated loss from a contingency, including pending and threatened litigation, when it is probable (i.e., the future event or events are likely to occur) that a loss has been incurred and the amount of the loss can be reasonably estimated. This guidance also requires disclosure of a loss contingency matter when, in management’s judgment, a material loss is reasonably possible or probable. In March of 2015, the court-appointed receiver of a former customer of the Bank requested that the Bank enter a tolling agreement, failing which, it would consider filing an action against the Bank. The Bank executed the tolling agreement and has subsequently engaged in discussions with the receiver about relevant facts and actions that the Bank believes support conclusions that it acted reasonably and in good faith with respect to the former customer. In October of 2015, the receiver inquired whether the Bank desired to enter into settlement discussions or resolve the matter through litigation. At this time, the Company does not consider a loss to be probable and is unable to estimate the possible loss or range of loss. Accordingly, the Company has not recorded a liability for this contingency; however, the Company's view may change in the future as events unfold. The Company is involved in other litigation matters not listed above but does not consider the matters to be material either individually or in the aggregate at this time.

Note 14 — Subsequent Events

On October 12, 2015, the Company and Yadkin entered into an Agreement and Plan of Merger, pursuant to which Yadkin will acquire the Company. Yadkin will acquire 100% of the outstanding shares of the Company in exchange for shares of Yadkin’s common stock. The exchange ratio has been fixed at 0.50 shares of Yadkin’s common stock for each share of the Company’s common stock. Based on Yadkin’s closing price of $22.79 as of October 12, 2015, the estimated aggregate purchase price is $456 million, or $11.40 per share. The transaction is expected to close early in the second quarter of 2016, subject to shareholder and regulatory approval and other customary closing conditions.

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

The discussion presented herein is intended to provide an overview of the changes in financial condition and results of operations during the time periods required by Item 303 of Regulation S-K for NewBridge Bancorp (the “Company”) and its wholly-owned subsidiary NewBridge Bank (the “Bank”).

The consolidated financial statements also include the accounts and results of operations of the Bank’s wholly-owned subsidiary. This discussion and analysis is intended to complement the unaudited financial statements, notes and supplemental financial data in this Quarterly Report on Form 10-Q and should be read in conjunction therewith.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent expectations and beliefs of the Company including but not limited to the Company’s operations, performance, financial condition, growth or strategies. These forward-looking statements are identified by words such as “expects,” “anticipates,” “should,” “estimates,” “believes” and variations of these words and other similar statements. For this purpose, any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. These forward-looking statements involve estimates, assumptions, risks and uncertainties that could cause actual results to differ materially from current projections depending on a variety of important factors, including without limitation: the ability to obtain regulatory approvals and meet other closing conditions to the proposed merger with Yadkin Financial Corporation (“Yadkin”), including approval by Yadkin and the Company’s shareholders, on the expected terms and schedule; delay in closing the merger; difficulties and delays in integrating the companies’ businesses or fully realizing cost savings and other benefits; business disruption following the proposed merger; changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; client borrowing, repayment, investment and deposit practices; client disintermediation; the introduction, withdrawal, success and timing of business initiatives; competitive conditions; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures; economic conditions; the reaction to the transaction of the companies’ clients, employees and counterparties; and the impact, extent and timing of technological changes, capital management activities, and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms. These forward looking statements express management's current expectations, plans or forecasts of future events, results and condition, including financial and other estimates and expectations regarding recently completed or proposed acquisitions and the general business strategy of engaging in bank acquisitions.

The Company cautions that the foregoing list of important factors is not exhaustive. See also those risk factors identified in the section headed “Risk Factors,” beginning on page 15 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 12, 2015 (the “Annual Report”). The Company undertakes no obligation to update any forward-looking statement, whether written or oral, which may be made from time to time by or on behalf of the Company.

Introduction

The Company is a bank holding company incorporated under the laws of North Carolina and registered under the Bank Holding Company Act of 1956, as amended. The Company’s principal asset is the stock of its banking subsidiary, the Bank.

The Company’s results of operations are dependent primarily on the results of operations of the Bank and thus are dependent to a significant extent on net interest income, which is the difference between the income earned on the Bank’s loan and investment portfolios and cost of funds, consisting of interest paid on deposits and borrowings. Results of operations are also affected by the Company’s provision for credit losses, mortgage loan sales activities, service charges and other fee income, and noninterest expense. The Company’s noninterest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing, professional fees, and advertising and business promotion expenses. The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities.

Commercial banking in the Carolinas is extremely competitive, due in large part to intrastate and interstate branching laws. Many of the Company’s competitors are significantly larger and have greater resources. The Company continues to encounter significant competition from a number of sources, including bank holding companies, financial holding companies, commercial banks, thrift institutions, credit unions and other financial institutions and financial intermediaries. The Company competes in its market areas with some of the largest banking organizations in the Southeast and nationally, almost all of which have numerous branches in the Carolinas. The Company’s competition is not limited to financial institutions based in the Carolinas. The enactment of federal legislation authorizing nationwide interstate banking has greatly increased the size and financial resources of some of the Company’s competitors. Many of its competitors have substantially higher lending limits due to their greater total capitalization, and many perform functions for their customers that the Company generally does not offer. The Company primarily relies on providing quality products and services at a competitive price within its market areas. As a result of interstate banking legislation, the Company’s market is open to future penetration by banks located in other states.

The following discussion and analysis is presented on a consolidated basis and focuses on the major components of the Company’s operations and significant changes in its results of operations for the periods presented. For further information, refer to the Consolidated Financial Statements and notes thereto included in the Annual Report.

Application of Critical Accounting Policies

The accounting and reporting policies of the Company and its subsidiary comply with accounting principles generally accepted in the United States and conform to standards within the banking industry. The preparation of the financial information contained in this Quarterly Report on Form 10-Q requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company’s management evaluates these estimates on an ongoing basis. A summary of the allowance for credit losses, the most complex and subjective accounting policy of the Company, is discussed under the heading “Asset Quality and Allowance for Credit Losses” as well as in Note 5 of the Notes to Consolidated Financial Statements. Income taxes and the valuation allowance against deferred tax assets are discussed in Note 6 of the Notes to Consolidated Financial Statements. Business combination and the acquisition method of accounting are discussed in Note 2 of the Notes to Consolidated Financial Statements.

Agreement and Plan of Merger among the Company, Yadkin Financial Corporation and Navy Merger Sub Corp.

On October 12, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Yadkin Financial Corporation, a North Carolina corporation (“Yadkin”), and Navy Merger Sub Corp., a North Carolina corporation and a wholly-owned subsidiary of Yadkin (“Merger Sub”). The Merger Agreement provides that (i) Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation in the Merger and as a wholly-owned subsidiary of Yadkin and (ii) immediately thereafter, the Company will merge with and into Yadkin (together with the Merger, the “Integrated Mergers”), with Yadkin continuing as the surviving corporation. Immediately following the consummation of the Integrated Mergers, the Company’s wholly-owned subsidiary, NewBridge Bank, will merge with and into Yadkin’s wholly-owned subsidiary, Yadkin Bank (the “Bank Merger”), with Yadkin Bank continuing as the surviving entity in the Bank Merger. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, the Company’s shareholders will have the right to receive 0.50 shares of voting common stock, par value $1.00 per share, of Yadkin for each share of the Company’s common stock.

Based on Yadkin’s closing price of $22.79 as of October 12, 2015, the estimated aggregate purchase price is $456 million. The transaction is expected to close early in the second quarter of 2016, subject to shareholder and regulatory approval and other customary closing conditions.

Executive Summary

The following is a summary of the Company’s financial highlights and significant events in the third quarter of 2015:

•

Net income totaled $5.6 million, or $0.14 per diluted share;

•

Core deposits increased $44 million, or 12% annualized;

•

Core deposits were 75% of total deposits at September 30, 2015;

•

Total loans increased $21.0 million, or 4% annualized;

•

Core efficiency was 68.63%; and

•

A quarterly cash dividend of $0.015 was paid on July 15, 2015.

Additionally, year-to-date financial highlights and significant events include:

•

Net income totaled $15.3 million, or $0.39 per diluted share;

•

Organic core deposit growth was $121 million, or 13% annualized, for the year to date period;

•

Organic loan growth was $144 million, or 11% annualized, for the year to date period; and

•

Total shareholders’ common equity rose 13% to $261.4 million from $231.4 million at December 31, 2014.

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

Net Interest Income

Net interest income for the third quarter of 2015, on a taxable equivalent basis, was $23.1 million, an increase of $2.4 million, or 11.8%, from $20.6 million for the third quarter of 2014. Average earning assets in the third quarter of 2015 increased $339.7 million, or 15.2%, to $2.57 billion, compared to $2.23 billion in the third quarter of 2014. Average interest-bearing liabilities in the third quarter of 2015 increased $247.8 million, or 13.2%, to $2.13 billion, compared to $1.88 billion in the third quarter of 2014. The increases in average earning assets and average interest-bearing liabilities and the resulting increase in net interest income are due to organic loan growth and the acquisition of Premier Commercial Bank (“Premier”), which contributed approximately $96.0 million of loans, $35.0 million of investments and other interest-earning assets after repositioning the acquired balance sheet, and $105.0 million of interest-bearing deposits at the February 27, 2015 acquisition date.

The taxable-equivalent net interest margin decreased to 3.55% for the third quarter of 2015, compared to 3.66% for the third quarter of 2014, a decrease of 11 basis points. The interest rate spread decreased to 3.48% in the third quarter of 2015, compared to 3.60% in the third quarter of 2014, a decrease of 12 basis points. The decrease in net interest margin and interest rate spread was driven primarily by a lower yield on the loan portfolio, with current year loan growth consisting principally of floating rate loans which carry a lower current rate than fixed rate loans, and a higher cost of funds rate. For the three months ended September 30, 2015, the annualized average yield on loans decreased to 4.09% from 4.24% for the three months ended September 30, 2014. The average yield on earning assets during the third quarter of 2015 decreased eight basis points to 3.92% from 4.00% during the comparable period in 2014, while the average rate on interest-bearing liabilities increased four basis points to 0.44% from 0.40%. The following table provides an analysis of average volumes, yields and rates and net interest income on a tax-equivalent basis for the three months ended September 30, 2015 and 2014.

(Fully taxable-equivalent basis⁽¹⁾, dollars in thousands)

	Three Months Ended								Three Months Ended
	September 30, 2015								September 30, 2014
				Interest		Annualized						Interest		Annualized
	Average			Income/		Average			Average			Income/		Average
	Balance			Expense		Yield/Rate			Balance			Expense		Yield/Rate
Earning assets:
Loans receivable⁽²⁾	$	2,028,822		$	20,940		4.09	%	$	1,728,789		$	18,456		4.24	%
Taxable securities		469,049			3,771		3.22			436,756			3,470		3.18
Tax exempt securities⁽¹⁾		31,689			385		4.86			34,128			421		4.93
Federal Home Loan Bank stock		19,682			205		4.17			14,051			115		3.27
Federal Reserve Bank stock		6,191			91		5.88			1,207			19		6.30
Interest-bearing bank balances		18,183			33		0.72			18,970			39		0.82

Total earning assets		2,573,616			25,425		3.92			2,233,901			22,520		4.00

Non-earning assets:
Cash and due from banks		30,944								31,195
Premises and equipment		44,401								46,191
Other assets		146,981								141,888
Allowance for credit losses		(21,515	)							(23,052	)

Total assets	$	2,774,427		$	25,425				$	2,430,123		$	22,520

Interest-bearing liabilities:
Savings deposits	$	69,722		$	10		0.06	%	$	66,870		$	8		0.05	%
NOW deposits		554,324			419		0.30			482,772			235		0.19
Money market deposits		477,254			393		0.33			404,395			215		0.21
Time deposits		531,563			557		0.42			573,108			575		0.40
Other borrowings		89,572			671		2.97			88,104			665		2.99
Federal Home Loan Bank borrowings		405,747			315		0.31			265,098			205		0.31

Total interest-bearing liabilities		2,128,182			2,365		0.44			1,880,347			1,903		0.40

Other liabilities and shareholders’ equity:
Demand deposits		370,100								308,329
Other liabilities		18,596								15,331
Shareholders’ equity		257,549								226,116
Total liabilities and shareholders’ equity	$	2,774,427			2,365				$	2,430,123			1,903

Net interest income and net interest margin⁽³⁾				$	23,060		3.55	%				$	20,617		3.66	%

Interest rate spread⁽⁴⁾							3.48	%							3.60	%

⁽¹⁾

Income related to securities exempt from federal income taxes is stated on a fully taxable-equivalent basis, assuming a federal income tax rate of 35%, and is then reduced by the non-deductible portion of interest expense. The adjustments made to convert to a fully taxable-equivalent basis were $127 for 2015 and $141 for 2014.

⁽²⁾

The average loans receivable balances include nonaccruing loans. Amortization of loan fees, net of deferred costs, and other loan-related fees of $(560) and $(200) for the three months ended September 30, 2015 and 2014, respectively, are included in interest income. Also included is interest income from interest rate cash flow hedges of $194 and $58 for the three months ended September 30, 2015 and 2014, respectively.

⁽³⁾

Net interest margin is computed by dividing net interest income by average earning assets.

⁽⁴⁾

Earning assets yield minus interest-bearing liability rate.

Noninterest Income and Expense

In the third quarter of 2015, noninterest income increased 4.5% to $4.3 million, from $4.1 million during the same period in 2014. Retail banking income decreased 13.3% to $2.3 million in the third quarter of 2015 from $2.7 million in the third quarter of 2014, principally due to reduced insufficient funds fees. Mortgage banking revenue increased $177,000, or 62.5%, to $460,000 from $283,000 during the same period last year, driven by higher purchase and refinance demand as well as additional originators following the Premier acquisition. Wealth management revenue increased 4.2% to $749,000 in the third quarter of 2015 from $719,000 in the third quarter of 2014. Bank-owned life insurance income increased 86.0% to $543,000 in the third quarter of 2015 from $292,000 in the third quarter of 2014 with $227,000 of the increase due to an adjustment made to the cash surrender value by the insurance provider. No investment securities were sold during the three months ended September 30, 2015 or 2014.

In the third quarter of 2015, noninterest expense increased 13.3% to $18.8 million, from $16.6 million in the third quarter of 2014. Personnel expense increased 22.5% to $10.6 million, from $8.7 million in the prior year third quarter due primarily to the additional personnel resulting from the acquisition of Premier in February 2015, and the addition of middle market and treasury management personnel. Occupancy expense increased $179,000, or 14.2%, to $1.4 million, and furniture and equipment expense increased $60,000, or 6.3%, to $1.0 million in the third quarter of 2015 from $1.3 million and $948,000, respectively, during the same period in 2014 due primarily to the acquisition of Premier. Real estate acquired in settlement of loans expense decreased to $102,000 in the third quarter of 2015, from $158,000 in the same period last year. Other noninterest expense decreased $95,000, or 2.9%, to $3.1 million, compared to $3.2 million in the third quarter of 2014 as detailed in the follow table (dollars in thousands):

	Three Months Ended
	September 30				Percentage
	2015		2014		Variance

Other noninterest expense:
Advertising	$	464	$	463		0.2	%
Bankcard expense		135		135		0.0
Postage		236		282		(16.3	)
Telephone		129		131		(1.5	)
Amortization of core deposit intangible		462		449		2.9
Stationery, printing and supplies		161		181		(11.0	)
Other expense		1,509		1,550		(2.6	)
Total	$	3,096	$	3,191		(3.0	)

Income Taxes

The Company recorded income tax expense of $2.9 million for the third quarter of 2015, compared to $2.8 million for the third quarter of 2014. The Company’s effective tax rate was 33.9% for the three-month period ended September 30, 2015. For the three-month period ended September 30, 2014, the Company’s effective tax rate was 35.5%.

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

Net Interest Income

Net interest income for the first nine months of 2015, on a taxable equivalent basis, was $67.9 million, an increase of $10.1 million, or 17.6%, from $57.7 million for the first nine months of 2014. Average earning assets in the first nine months of 2015 increased $415.5 million, or 19.9%, to $2.50 billion, compared to $2.08 billion in the first nine months of 2014. Average interest-bearing liabilities in the first nine months of 2015 increased $311.1 million, or 17.6%, to $2.08 billion, compared to $1.77 billion in the first nine months of 2014. The increases in average earning assets and average interest-bearing liabilities and the resulting increase in net interest income are due to the acquisition of CapStone on April 1, 2014, the acquisition of Premier on February 27, 2015, and organic loan growth.

Taxable equivalent net interest margin decreased to 3.63% for the first nine months of 2015, compared to 3.70% for the first nine months of 2014, a decrease of seven basis points. The interest rate spread decreased to 3.56% in the first nine months of 2015, compared to 3.65% in the first nine months of 2014, a decrease of nine basis points. The decrease in net interest margin and interest rate spread was driven primarily by a lower yield on the loan portfolio, with current year loan growth consisting principally of floating rate loans which carry a lower current rate than fixed rate loans, and a higher cost of funds rate. For the nine months ended September 30, 2015, the annualized average yield on loans decreased to 4.17% from 4.27% for the nine months ended September 30, 2014. The average yield on earning assets during the first nine months of 2015 decreased five basis points to 3.99% from 4.04% during the comparable period in 2014, while the average rate on interest-bearing liabilities increased four basis points to 0.43% from 0.39%. The following table provides an analysis of average volumes, yields and rates and net interest income on a taxable equivalent basis for the nine months ended September 30, 2015 and 2014.

(Fully taxable-equivalent basis⁽¹⁾, dollars in thousands)

	Nine Months Ended								Nine Months Ended
	September 30, 2015								September 30, 2014
				Interest		Annualized						Interest		Annualized
	Average			Income/		Average			Average			Income/		Average
	Balance			Expense		Yield/Rate			Balance			Expense		Yield/Rate
Earning assets:
Loans receivable⁽²⁾	$	1,953,856		$	60,956		4.17	%	$	1,630,921		$	52,073		4.27	%
Taxable securities		469,021			11,349		3.23			400,813			9,364		3.12
Tax exempt securities⁽¹⁾		32,752			1,271		5.17			27,345			1,075		5.24
Federal Home Loan Bank stock		18,776			596		4.23			11,868			313		3.52
Federal Reserve Bank stock		6,042			270		5.96			407			19		6.22
Interest-bearing bank balances		19,947			111		0.74			13,527			80		0.79

Total earning assets		2,500,394			74,553		3.99			2,084,881			62,924		4.04

Non-earning assets:
Cash and due from banks		32,388								31,355
Premises and equipment		44,532								45,527
Other assets		146,883								138,823
Allowance for credit losses		(21,853	)							(24,066	)

Total assets	$	2,702,344		$	74,553				$	2,276,520		$	62,924

Interest-bearing liabilities:
Savings deposits	$	69,225		$	28		0.05	%	$	66,089		$	28		0.06	%
NOW deposits		541,072			1,102		0.27			469,587			607		0.17
Money market deposits		449,908			1,019		0.30			388,011			563		0.19
Time deposits		549,615			1,694		0.41			554,438			1,742		0.42
Other borrowings		88,107			1,986		3.01			73,604			1,688		3.07
Federal Home Loan Bank borrowings		380,281			853		0.30			215,350			571		0.35

Total interest-bearing liabilities		2,078,208			6,682		0.43			1,767,079			5,199		0.39

Other liabilities and shareholders’ equity:
Demand deposits		355,647								285,464
Other liabilities		19,479								15,436
Shareholders’ equity		249,010								208,541
Total liabilities and shareholders’ equity	$	2,702,344			6,682				$	2,276,520			5,199

Net interest income and net interest margin⁽³⁾				$	67,871		3.63	%				$	57,725		3.70	%

Interest rate spread⁽⁴⁾							3.56	%							3.65	%

⁽¹⁾

⁽²⁾

The average loans receivable balances include nonaccruing loans. Amortization of loan fees, net of deferred costs, and other loan-related fees of $(984) and $(263) for the nine months ended September 30, 2015 and 2014, respectively, are included in interest income. Also included is interest income from interest rate cash flow hedges of $585 and $58 for the nine months ended September 30, 2015 and 2014, respectively.

⁽³⁾

Net interest margin is computed by dividing net interest income by average earning assets.

⁽⁴⁾

Earning assets yield minus interest-bearing liability rate.

Noninterest Income and Expense

In the first nine months of 2015, noninterest income increased $875,000, or 6.9%, to $13.5 million, from $12.6 million during the same period in 2014. Retail banking income decreased 15.2% to $6.7 million in the first nine months of 2015, from $7.9 million in the first nine months of 2014, principally due to reduced insufficient funds fees. Mortgage banking revenue increased $674,000, or 103.2%, to $1.3 million from $653,000 during the same period last year, driven by higher purchase and refinance demand as well as additional originators following the Premier acquisition. Wealth management revenue increased 4.7% to $2.3 million in the first nine months of 2015, from $2.1 million in the same period last year. Bank-owned life insurance income increased 65.8% to $1.8 million in the first nine months of 2015 from $1.1 million in the first nine months of 2014 as the Company in 2015 recognized $433,000 in proceeds due to a policy maturing and $227,000 due to an adjustment made to the cash surrender value by the insurance provider. The Company also had a net gain of $570,000 from investments in small business investment companies, which is reflected within other noninterest income, during the first nine months of 2015, compared to $396,000 during the same period in 2014. Premier investment securities having a book value of $25.9 million were sold immediately following the acquisition to reposition the portfolio at no recorded gain or loss. No other investment securities were sold during the nine months ended September 30, 2015. In 2014, CapStone investment securities having a book value of $9.2 million were sold immediately following the acquisition to reposition the portfolio at no recorded gain or loss. No other investment securities were sold during the nine months ended September 30, 2014.

In the first nine months of 2015, noninterest expense increased 6.0% to $57.3 million from $54.1 million in the first nine months of 2014. Excluding acquisition-related expense, which declined to $2.5 million in the first nine months of 2015 from $4.9 million during the same period last year, noninterest expense increased $5.6 million, or 11.4%. Personnel expense increased 14.1% to $30.4 million, from $26.7 million in the first nine months of 2014 due primarily to the additional personnel resulting from the acquisitions of CapStone in April 2014, and Premier in February 2015, and the addition of middle market and treasury management personnel. In the first nine months of 2014, the Company recorded accruals of $533,000 for severance expenses, primarily due to a retail banking realignment, with no comparable expense in the current year period. Occupancy expense increased $491,000, or 13.3%, to $4.2 million, and furniture and equipment expense increased $186,000, or 6.6%, to $3.0 million in the first nine months of 2015 from $3.7 million and $2.8 million, respectively, during the same period in 2014 due primarily to the acquisitions of CapStone and Premier. In the first nine months of 2015, legal and professional expense increased 23.7% to $2.7 million, from $2.2 million in the prior year period due to various internal projects which are now completed. Other noninterest expense increased $275,000, or 3.2%, to $8.9 million for the first nine months of 2015, compared to $8.6 million for the first nine months of 2014 as detailed in the following table (dollars in thousands):

	Nine Months Ended
	September 30				Percentage
	2015		2014		Variance

Other noninterest expense:
Advertising	$	1,247	$	1,159		7.6	%
Bankcard expense		371		470		(21.1	)
Postage		685		704		(2.7	)
Telephone		411		360		14.2
Amortization of core deposit intangible		1,371		1,175		16.7
Stationery, printing and supplies		489		442		10.6
Other expense		4,332		4,321		0.3
Total	$	8,906	$	8,631		3.2

Income Taxes

The Company recorded income tax expense of $8.2 million for the first nine months of 2015, compared to $5.4 million for the first nine months of 2014. The Company’s effective tax rate was 34.8% for the nine-month period ended September 30, 2015. For the nine-month period ended September 30, 2014, the Company’s effective tax rate was 35.6%.

Asset Quality and Allowance for Credit Losses

The Company’s allowance for credit losses, which is utilized to absorb actual losses in its loan portfolio, is analyzed monthly by management. This analysis includes a methodology that segments the loan portfolio into risk graded loans and homogeneous loan classifications and considers the current status of the portfolio, historical chargeoff experience, current levels of delinquent, impaired and nonperforming loans and their underlying collateral values, as well as economic and other risk factors. It is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology employed and other analytical measures in comparison to a group of peer banks. Due to the concentration of our loan portfolio in real estate secured loans, the value of collateral is heavily dependent on real estate values in the Carolinas. No assurances can be given that future economic conditions will not adversely affect borrowers, and/or real estate values in the Carolinas, and result in increases in credit losses and nonperforming asset levels.

The allowance for credit losses is maintained at a level consistent with management’s best estimate of probable credit losses incurred as of the balance sheet date. Major loan portfolio subgroups include: risk graded commercial loans, mortgage loans, home equity loans, retail loans and retail credit lines. Management analyzes loans in the portfolio on an ongoing basis to evaluate current risk levels, and risk grades are adjusted accordingly. The process of determining the allowance for credit losses is driven by the risk grade system and the loss experience on non risk graded homogeneous types of loans. While management uses the best information available to make evaluations, future adjustments may be needed if economic or other conditions differ substantially from the assumptions used.

At September 30, 2015, the allowance for credit losses was $21.3 million, or 1.05% of loans held for investment, compared to $22.1 million, or 1.23% of loans held for investment at December 31, 2014, and $22.5 million, or 1.31% of loans held for investment at September 30, 2014. The allowance for credit losses was 286.41% of nonperforming loans at September 30, 2015, 306.60% at December 31, 2014 and 287.41% at September 30, 2014. There is a greater proportion of low risk, high quality loans in the loan portfolio at September 30, 2015 compared to September 30, 2014. As a result, the allowance for credit losses as a percentage of loans held for investment at September 30, 2015 is significantly lower than at September 30, 2014. Also impacting the allowance for credit losses as a percentage of loans held for investment is the acquired non-PCI portfolio of $230.8 million at September 30, 2015, which is recorded at fair value on the acquisition date and has an allowance for credit losses of $640,000 as of September 30, 2015. Excluding acquired loans and their associated allowance, the allowance for credit losses to loans held for investment was 1.20% at September 30, 2015, 1.43% at December 31, 2014 and 1.61% at September 30, 2014. Based on analysis of the current loan portfolio and levels of problem assets and potential problem loans, management believes the allowance for credit losses is adequate. Additional information regarding the allowance for credit losses is presented in the table headed “Asset Quality Analysis” on page 53.

Nonperforming loans totaled $7.4 million at September 30, 2015, compared to $7.2 million at December 31, 2014 and $7.8 million at September 30, 2014. Real estate acquired in settlement of loans was $1.8 million at September 30, 2015, $3.1 million at December 31, 2014, and $3.6 million at September 30, 2014. During the first nine months of 2015, approximately $848,000 was transferred from loans into real estate acquired in settlement of loans, and approximately $1.7 million of real estate acquired in settlement of loans was disposed of. A net loss of $233,000 has been recorded on the disposition and writedowns of real estate acquired in settlement of loans in the current year, through September 30, 2015, compared to a net loss of $115,000 in the first nine months of 2014. The Company recorded $265,000 of expenses on real estate acquired in settlement of loans during the first nine months of 2015, compared to $379,000 in the first nine months of 2014. Nonperforming assets (comprised of nonaccrual loans, restructured loans and real estate acquired in settlement of loans) totaled $9.2 million, or 0.33% of total assets, at September 30, 2015, compared to $10.3 million, or 0.41% of total assets, at December 31, 2014 and $11.4 million, or 0.47% of total assets, a year ago.

The Bank is within the regulatory commercial real estate high concentration guidelines in land acquisition, development and construction (“AD&C portfolio”) loans, as well as total commercial real estate loans. At September 30, 2015, the Bank’s concentration levels were 72.47% and 261.53%, respectively of total regulatory capital, which compares favorably to the interagency regulatory guidance maximum concentrations of 100% and 300%, respectively. The Bank’s AD&C portfolio totaled $227.0 million at September 30, 2015, including $43.3 million of speculative residential construction and residential acquisition and development.

The was no provision for credit losses charged to operations for the three months ended September 30, 2015, compared to a charge of $89,000 for the three months ended September 30, 2014. Net recoveries for the three months ended September 30, 2015 were $9,000, or 0.0% of average loans held for investment on an annualized basis, compared to net chargeoffs of $532,000, or 0.12% of average loans held for investment on an annualized basis, for the three months ended September 30, 2014. The provision for credit losses charged to operations for the nine months ended September 30, 2015 totaled $120,000, compared to $833,000 for the nine months ended September 30, 2014. Net chargeoffs for the nine months ended September 30, 2015 were $909,000, or 0.06% of average loans held for investment on an annualized basis, compared to net chargeoffs of $2.9 million, or 0.24% of average loans held for investment on an annualized basis, for the nine months ended September 30, 2014. The provision for credit losses charged to operations for the year ended December 31, 2014 totaled $883,000. Net chargeoffs for the year ended December 31, 2014 were $3.3 million, or 0.20% of average loans held for investment.

Asset Quality Analysis

(Dollars in thousands)

	Beginning		Charge							Ending
	Balance		Offs		Recoveries		Provision			Balance
At or for the Three Months Ended September 30, 2015
Loans – excluding PCI
Commercial	$	10,622	$	55	$	196	$	(587	)	$	10,176
Real estate – construction		1,986		92		57		204			2,155
Real estate – mortgage		8,157		223		231		340			8,505
Consumer		357		170		58		93			338
Other		159		-		20		(107	)		72
Total	$	21,281	$	540	$	562	$	(57	)	$	21,246

PCI loans
Commercial	$	-	$	-	$	-	$	-		$	-
Real estate – construction		-		-		-		-			-
Real estate – mortgage		30		13		-		60			77
Consumer		3		-		-		(3	)		-
Other		-		-		-		-			-
Total	$	33	$	13	$	-	$	57		$	77

Total loans
Commercial	$	10,622	$	55	$	196	$	(587	)	$	10,176
Real estate – construction		1,986		92		57		204			2,155
Real estate – mortgage		8,187		236		231		400			8,582
Consumer		360		170		58		90			338
Other		159		-		20		(107	)		72
Total	$	21,314	$	553	$	562	$	-		$	21,323

	Beginning		Charge							Ending
	Balance		Offs		Recoveries		Provision			Balance
At or for the Nine Months Ended September 30, 2015
Loans – excluding PCI
Commercial	$	11,155	$	1,087	$	575	$	(467	)	$	10,176
Real estate – construction		1,984		99		396		(126	)		2,155
Real estate – mortgage		8,459		1,059		499		606			8,505
Consumer		421		412		257		72			338
Other		93		-		37		(58	)		72
Total	$	22,112	$	2,657	$	1,764	$	27		$	21,246

PCI loans
Commercial	$	-	$	-	$	-	$	-		$	-
Real estate – construction		-		-		-		-			-
Real estate – mortgage		-		15		-		92			77
Consumer		-		1		-		1			-
Other		-		-		-		-			-
Total	$	-	$	16	$	-	$	93		$	77

Total loans
Commercial	$	11,155	$	1,087	$	575	$	(467	)	$	10,176
Real estate – construction		1,984		99		396		(126	)		2,155
Real estate – mortgage		8,459		1,074		499		698			8,582
Consumer		421		413		257		73			338
Other		93		-		37		(58	)		72
Total	$	22,112	$	2,673	$	1,764	$	120		$	21,323

	Beginning		Charge							Ending
	Balance		Offs		Recoveries		Provision			Balance
At or for the Year Ended December 31, 2014
Loans – excluding PCI
Commercial	$	11,480	$	1,411	$	1,368	$	(282	)	$	11,155
Real estate – construction		2,027		427		894		(510	)		1,984
Real estate – mortgage		10,479		4,607		1,433		1,154			8,459
Consumer		469		868		356		464			421
Other		95		-		36		(38	)		93
Total	$	24,550	$	7,313	$	4,087	$	788		$	22,112

PCI loans
Commercial	$	-	$	62	$	-	$	62		$	-
Real estate – construction		-		-		-		-			-
Real estate – mortgage		-		33		-		33			-
Consumer		-		-		-		-			-
Other		-		-		-		-			-
Total	$	-	$	95	$	-	$	95		$	-

Total loans
Commercial	$	11,480	$	1,473	$	1,368	$	(220	)	$	11,155
Real estate – construction		2,027		427		894		(510	)		1,984
Real estate – mortgage		10,479		4,640		1,433		1,187			8,459
Consumer		469		868		356		464			421
Other		95		-		36		(38	)		93
Total	$	24,550	$	7,408	$	4,087	$	883		$	22,112

	Beginning		Charge							Ending
	Balance		Offs		Recoveries		Provision			Balance
At or for the Three Months Ended September 30, 2014
Loans – excluding PCI
Commercial	$	10,264	$	399	$	775	$	(65	)	$	10,575
Real estate – construction		1,771		60		49		108			1,868
Real estate – mortgage		10,354		1,423		648		(64	)		9,515
Consumer		469		201		77		106			451
Other		86		-		2		4			92
Total	$	22,944	$	2,083	$	1,551	$	89		$	22,501

PCI loans
Commercial	$	-	$	-	$	-	$	-		$	-
Real estate – construction		-		-		-		-			-
Real estate – mortgage		-		-		-		-			-
Consumer		-		-		-		-			-
Other		-		-		-		-			-
Total	$	-	$	-	$	-	$	-		$	-

Total loans
Commercial	$	10,264	$	399	$	775	$	(65	)	$	10,575
Real estate – construction		1,771		60		49		108			1,868
Real estate – mortgage		10,354		1,423		648		(64	)		9,515
Consumer		469		201		77		106			451
Other		86		-		2		4			92
Total	$	22,944	$	2,083	$	1,551	$	89		$	22,501

	Beginning		Charge							Ending
	Balance		Offs		Recoveries		Provision			Balance
At or for the Nine Months Ended September 30, 2014
Loans – excluding PCI
Commercial	$	11,480	$	836	$	1,300	$	(1,369	)	$	10,575
Real estate – construction		2,027		464		563		(258	)		1,868
Real estate – mortgage		10,479		4,106		1,098		2,044			9,515
Consumer		469		563		213		332			451
Other		95		-		8		(11	)		92
Total	$	24,550	$	5,969	$	3,182	$	738		$	22,501

PCI loans
Commercial	$	-	$	62	$	-	$	62		$	-
Real estate – construction		-		-		-		-			-
Real estate – mortgage		-		33		-		33			-
Consumer		-		-		-		-			-
Other		-		-		-		-			-
Total	$	-	$	95	$	-	$	95		$	-

Total loans
Commercial	$	11,480	$	898	$	1,300	$	(1,307	)	$	10,575
Real estate – construction		2,027		464		563		(258	)		1,868
Real estate – mortgage		10,479		4,139		1,098		2,077			9,515
Consumer		469		563		213		332			451
Other		95		-		8		(11	)		92
Total	$	24,550	$	6,064	$	3,182	$	833		$	22,501

	As of September 30, 2015			As of December 31, 2014			As of September 30, 2014
Nonperforming Assets:
Commercial nonaccrual loans, not restructured	$	799		$	1,620		$	1,576
Commercial nonaccrual loans, restructured		642			-			106
Non-commercial nonaccrual loans, not restructured		4,072			3,471			3,914
Non-commercial nonaccrual loans, restructured		59			5			403
Total nonaccrual loans		5,572			5,096			5,999
Troubled debt restructured, accruing		1,873			2,116			1,830
Total nonperforming loans		7,445			7,212			7,829
Real estate acquired in settlement of loans		1,788			3,057			3,585
Total nonperforming assets	$	9,233		$	10,269		$	11,414

Asset Quality Percentages:
Nonperforming loans to loans held for investment at end of period		0.37	%		0.40	%		0.45	%
Nonperforming assets to total assets at end of period		0.33	%		0.41	%		0.47	%
Allowance for credit losses as a percentage of loans held for investment at end of period		1.05	%		1.23	%		1.31	%
Allowance for credit losses as a percentage of loans held for investment excluding acquired loans at end of period		1.20	%		1.43	%		1.61	%
Allowance for credit losses to nonperforming loans		286.41	%		306.60	%		287.41	%

Liquidity Management

Liquidity management refers to the policies and practices that ensure the Company has the ability to meet day-to-day cash flow requirements based primarily on activity in loan and deposit accounts. Deposit withdrawals, loan funding and general corporate activity create the primary needs for liquidity. Liquidity is derived from sources such as deposit growth; maturity, calls or sales of investment securities; principal and interest payments on loans; access to borrowed funds or lines of credit; and profits.

During the first nine months of 2015, the Company had net cash provided by operating activities of $17.2 million, compared to $13.2 million of net cash provided by operating activities in the first nine months of 2014. The increase was primarily the result of an increase in net income of $5.6 million. Depreciation and amortization were $2.8 million for the first nine months of 2015, compared to $4.1 million for the first nine months of 2014. Originations of loans held for sale in excess of proceeds from sales of loans held for sale were $735,000 million in the first nine months of 2015, while proceeds from sales of loans held for sale exceeded originations of loans held for sale by $881,000 in the first nine months of 2014. Accretion on acquired loans for the first nine months of 2015 was $4.9 million compared to $4.1 million during the same period last year. Provision for credit losses was $120,000 for the first nine months of 2015, compared to $833,000 in the first nine months of 2014. For the first nine months of 2015, there was a net loss of $233,000 related to real estate acquired in settlement of loans, compared to a net loss of $115,000 for the first nine months of 2014.

Net cash used in investing activities for the first nine months of 2015 was $87.0 million, compared to net cash used in investing activities for the first nine months of 2014 of $75.3 million. Cash outflows for the first nine months of 2015 included $43.0 million in purchases of securities, compared to $105.7 million in the first nine months of 2014. For the nine months ended September 30, 2015, cash inflows included $73.0 million in proceeds from sales, maturities, prepayments and calls of investment securities, compared to $30.1 million during the nine months ended September 30, 2014. During the first nine months of 2015, there was an increase in loans held for investment of $120.9 million, compared to an increase of $18.4 million during the same period last year. Cash inflows for the first nine months of 2014 also included $6.0 million in proceeds from sales of loans with no comparable cash inflows in the current year period. Cash inflows for the first nine months of 2015 included $1.9 million in proceeds from sales of real estate acquired in settlement of loans, compared to $5.7 million in the first nine months of 2014. For the first nine months of 2015, cash outflows included $8.3 million for the purchase of bank-owned life insurance, while cash inflows included $805,000 from a maturity of bank-owned life insurance. Proceeds from maturities of investment certificates of deposit were $8.3 million during the first nine months of 2015, compared to $1.5 million during the same period last year. In the 2015 nine-month period, net cash received from the acquisition of Premier totaled $3.2 million, while cash received from the CapStone acquisition totaled $6.2 million in the 2014 nine-month period.

During the nine months ended September 30, 2015, net cash provided by financing activities was $77.3 million, compared to net cash provided by financing activities of $68.3 million during the same period of 2014. Cash inflows for the first nine months of 2015 included a net increase of $45.2 million in deposits, compared to a net decrease in deposits of $1.8 million in the first nine months of 2014. During the first nine months of 2015, the Company had net cash inflows of $33.0 million related to increased borrowings, compared to an increase of $83.2 million in the first nine months of 2014. Dividends paid in the first nine months of 2015 were $1.2 million, compared to $337,000 in the first nine months of 2014. During the first nine months of 2015, cash inflows from stock option exercises were $428,000, compared to $2.6 million in the first nine months of 2014. In the first nine months of 2014, the Company had cash outflows of $15.0 million for redemption of its remaining 15,000 outstanding shares of Series A preferred stock.

Cash and cash equivalents totaled $41.9 million at September 30, 2015, compared to $34.4 million at December 31, 2014 and $39.8 million at September 30, 2014.

The Company had borrowing capacity of approximately $554.0 million with the Federal Home Loan Bank of Atlanta, of which approximately $119.5 million was available at September 30, 2015. Borrowings consist of $398.5 million in advances, $35.0 million in letters of credit used in lieu of securities to pledge against public deposits, and a $1.0 million financial standby letter of credit issued by the Federal Home Loan Bank of Atlanta on behalf of one of the Company’s clients. These borrowings are collateralized by Federal Home Loan Bank of Atlanta stock, investment securities, qualifying residential one to four family first mortgage loans, qualifying multifamily first mortgage loans, qualifying commercial real estate loans, and qualifying home equity lines of credit and second mortgage loans. The Company provides various reports to the Federal Home Loan Bank of Atlanta on a regular basis to maintain the availability of the credit line. Each borrowing request is initiated through an advance application that is subject to their approval before funds are advanced under the line of credit. The Company also had $4.3 million of borrowing capacity through the Federal Reserve Bank System, of which none was used as of September 30, 2015. The line with the Federal Reserve Bank of Richmond is collateralized by qualified consumer and commercial/agricultural loans. In addition, the Company has $89.8 million in unsecured, overnight federal funds lines with correspondent banks, of which $30.5 million was used as of September 30, 2015.

Interest Rate Risk Management

Interest rate risk management is a part of the Company’s overall asset/liability management process. The primary oversight of asset/liability management rests with the Asset and Liability Committee, which is comprised of the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and other senior executives. The Committee meets approximately monthly to review the asset/liability management activities and monitor compliance with established policies. Activities of the Asset and Liability Committee are reported to the Audit and Risk Management Committees of the Company’s and the Bank’s Board of Directors.

A primary objective of interest rate risk management is to ensure the stability and quality of the Company’s primary earnings component, net interest income. This process involves monitoring the Company’s balance sheet in order to determine the potential impact that changes in the interest rate environment may have on net interest income. Rate sensitive assets and liabilities have interest rates that are subject to change within a specific time period, due to either maturity or to contractual agreements which allow the instruments to reprice prior to maturity. Interest rate sensitivity management seeks to ensure that both assets and liabilities react to changes in interest rates within a similar time period, thereby minimizing the risk to net interest income.

The Company uses several interest rate risk measurement tools provided by a national asset/liability management consultant to help manage this risk. The Company’s Asset/Liability Policy provides guidance for acceptable levels of interest rate risk and potential remediations. Management provides the consultant with key assumptions, which are used as inputs into the measurement tools. There follows a summary of two different tools management uses on a quarterly basis to monitor and manage interest rate risk. The Company has not experienced any material changes in interest rate risk since the end of the fiscal year ended December 31, 2014.

Earnings simulation modeling. Net income is affected by changes in the level of interest rates, the shape of the yield curve and the general market pressures affecting current market interest rates at the time of simulation. Many interest rate indices do not move uniformly, creating certain disunities between them. For example, the spread between a 30-day prime-based asset and a 30-day Federal Home Loan Bank of Atlanta advance may not be uniform over time. The earnings simulation model projects changes in net interest income caused by the effect of changes in interest rates on interest-earning assets and interest-bearing liabilities. Simulation results are measured as a percentage change in net interest income compared to the static-rate or “base case” scenario. The model uses the Company’s current balance sheet, but considers decreases in asset and liability volumes based on prepayment assumptions as well as rate changes. Rate changes are modeled gradually over a 12 month period, referred to as a “rate ramp,” and instantaneously, referred to as a “rate shock.” The model projects only changes in interest income and expense and does not project changes in noninterest income, noninterest expense, provision for credit losses or the impact of changing tax rates.

The following tables summarize the results of the Company’s income simulation model as of June 30, 2015, the most currently available review date.

	“Rate Ramp”
	Change in Net Interest Income
	Year 1			Year 2
Change in Market Interest Rates:
200 basis point “ramped" increase		(0.10	)%		1.02	%
Base case – no change		-			(0.60	)%
100 basis point “ramped” decrease		(0.69	)%		(6.07	)%

	“Rate Shock”
	Change in Net Interest Income
	Year 1			Year 2
Change in Market Interest Rates:
200 basis point “shocked” increase		(0.92	)%		2.79	%
Base case – no change		-			(0.60	)%
100 basis point “shocked” decrease		(2.82	)%		(8.45	)%

The projected changes in net interest income are within the Board of Directors’ guidelines in a 200 basis point increasing or 100 basis point decreasing interest rate environment. However, management continually monitors signs of elevated risks and takes certain actions to limit these risks.

Net portfolio value analysis. Net portfolio value (“NPV”) represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 to 200 basis point increase or decrease in market interest rates with no effect given to any actions management might take to counter the effect of that interest rate movement.

The following is a summary of the results of the report compiled by the Company’s outside consultant using data and assumptions management provided as of June 30, 2015, the most currently available review date.

	Estimated Change in Net Portfolio Value
	Amount in 000s			Percent
Change in Market Interest Rates:
200 basis point increase	$	(14,800	)		(5.56	)%
Base case – no change		-			-
100 basis point decrease	$	(15,732	)		(5.91	)%

Over the past several years, the Company’s balance sheet consistently has been slightly “asset sensitive,” i.e. should interest rates decline, the Company’s assets will reprice faster than its liabilities, resulting in a declining net interest margin and less net interest income. In order to mitigate its exposure in the event the interest rate curve flattens, in August and November, 2014, the Bank entered into interest rate swaps totaling $100 million notional amount that qualify as cash flow hedges under GAAP. These are designated as cash flow hedges of the interest rate risk associated with the benchmark rate of the 30-day LIBOR attributable to the forecasted interest payments received from the 30-day LIBOR loan portfolio and investment securities (the hedged forecasted transaction). For cash flow hedges, the effective portion of the gain or loss due to changes in the fair value of the derivative hedging instrument is included in other comprehensive income, while the ineffective portion, representing the excess of the cumulative change in the fair value of the derivative over the cumulative change in expected future discounted cash flows on the hedged transaction, is recorded in the consolidated statements of income. The Bank’s interest rate swaps have been effective since inception. Changes in the fair value of the interest rate swaps, therefore, have had no impact on net income. In addition, the Bank has three other interest rate swap contracts that were classified as non-designated hedges executed with commercial borrowers to allow the customers to pay a fixed rate of interest to the Bank. These interest rate swaps were simultaneously hedged by executing offsetting interest rate swaps with derivatives dealers to mitigate the net risk exposure to the Bank resulting from the transactions and allow the Bank to receive a variable rate of interest. (See Note 12 of the Notes to Consolidated Financial Statements.)

Capital Resources and Shareholders’ Equity

On April 1, 2014, the Company completed its acquisition of CapStone. Under the terms of the Agreement and Plan of Combination and Reorganization, CapStone’s shareholders received 2.25 shares of the Company’s Class A common stock for each share of CapStone common stock. The Company issued 8,075,228 shares of Class A common stock (based on 3,589,028 shares of CapStone common stock issued and outstanding as of the closing date) at a price of $7.14 per common share, the closing stock price of the Class A common stock on March 31, 2014. The implied value of the consideration received by CapStone shareholders was $16.065 per share of CapStone common stock. The total purchase price was $62.3 million, including the conversion of 617,270 CapStone stock options having a fair value of $4.6 million. No cash was issued in the transaction other than an immaterial amount of cash paid in lieu of fractional shares.

On February 27, 2015, the acquisition of Premier was completed. Premier, a commercial bank headquartered in Greensboro, NC, operated one full-service banking office centrally located in Greensboro and residential mortgage origination offices in Greensboro, Charlotte, Raleigh, High Point, Kernersville and Burlington, NC. Per the terms of the Agreement and Plan of Combination and Reorganization, 75% of the 1,925,247 shares of Premier common stock outstanding at acquisition were exchanged for 1,735,465 shares of the Company’s Class A common stock at an exchange ratio of 1.2019, and the remaining 25% were exchanged for cash of $4.8 million. The shares were issued at a price of $8.30 per share, the closing stock price of the Class A common stock on February 27, 2015. The total purchase price was $19.8 million, including the conversion of 294,400 Premier stock options having a fair value of $632,000.

Banks and bank holding companies, as regulated institutions, must meet required levels of capital. The North Carolina Commissioner of Banks and the Board of Governors of the Federal Reserve System, which are the primary banking regulatory agencies for the Bank and the Company, have adopted minimum capital regulations or guidelines that categorize components and the level of risk associated with various types of assets. Financial institutions are required to maintain a level of capital commensurate with the risk profile assigned to their assets in accordance with the guidelines.

In July 2013, the Federal Reserve approved a final rule implementing the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act changes. The rule revised minimum capital requirements and adjusted prompt corrective action thresholds. The final rule revised the regulatory capital elements, added a new common equity Tier 1 capital ratio, and increased the minimum Tier 1 capital ratio requirement. The rule also permitted certain banking organizations to retain, through a one-time election, which the Company and the Bank made, the existing treatment for accumulated other comprehensive income and implemented a new capital conservation buffer. The final rule was effective for community banks on January 1, 2015, subject to a transition period for certain parts of the rule.

As shown in the accompanying table, the Company and the Bank have capital levels exceeding the minimum levels for “well capitalized” banks and bank holding companies as of September 30, 2015.

	Regulatory Capital
	Well Capitalized			Adequately Capitalized			Company			Bank

Total Capital		10.0	%		8.0	%		12.25	%		12.10	%
Tier 1 Capital		8.0			6.0			10.75			11.22
Common Equity Tier 1 Capital		6.5			4.5			9.99			11.22
Leverage Capital		5.0			4.0			9.06			9.45

The final rules implementing the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act are complex and subject to interpretation. While management can give no assurance that a regulatory entity will not interpret the rules differently, management does not believe that any differences in interpretation will result in a material impact on capital ratios.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the possible chance of loss from unfavorable changes in market prices and rates. These changes may result in a reduction of future period net interest income or other comprehensive income.

The Company considers interest rate risk to be its most significant market risk, which is discussed under the heading “Interest Rate Risk Management” on page 58.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

The Company’s management, including its CEO, CFO and Chief Accounting Officer (“CAO”) evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2015. Based upon that evaluation, the Company’s CEO, CFO and CAO each concluded that as of September 30, 2015, the end of the period covered by this Quarterly Report on Form 10-Q, the Company maintained effective disclosure controls and procedures.

Changes in internal control over financial reporting

There have been no changes to the Company’s internal controls over financial reporting that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes in the Company’s risk factors from those previously disclosed in the Company’s Form 10-K for the year ended December 31, 2014, other than the addition of the following:

The pendency of our merger with Yadkin could have a negative impact on our business.

On October 12, 2015, the Company entered into the Merger Agreement with Yadkin, pursuant to which Yadkin will acquire the Company. The announcement and pendency of the merger may have a negative impact on our business, financial results and operations or disrupt our business by:

•

legal claims from purported shareholders challenging the merger;

•

intensifying competition as our competitors may seek opportunities related to our pending merger;

•

affecting our relationships with our customers, vendors and employees;

•

limiting certain of our business operations prior to completion of the merger which may prevent us from pursuing certain opportunities without Yadkin’s approval;

•

causing us to forego certain opportunities we might otherwise pursue absent the pending merger;

•

impairing our ability to attract, recruit, retain, and motivate current and prospective employees who may be uncertain about their future roles and relationships with Yadkin following the completion of the merger; and

•

creating distractions from our strategy and day-to-day operations for our employees and management and a strain on resources.

The failure to complete the merger could negatively impact our business.

The transaction is expected to close early in the second quarter of 2016, subject to shareholder and regulatory approval and other customary closing conditions. However, there is no assurance that our merger with Yadkin will occur or that the conditions to the merger will be satisfied in a timely manner or at all. Further, there is no assurance that any event, change or other circumstances that could give rise to the termination of the Merger Agreement will not occur. If the proposed merger or a similar transaction is not completed, the price of our common stock may drop to the extent that the current market price of our common shares reflects an assumption that a transaction will be completed. Certain costs associated with the merger are already incurred or may be payable even if the merger is not completed. The Merger Agreement provides that a termination fee of $18 million will be payable by either Yadkin or the Company, as applicable, upon termination of the Merger Agreement under certain circumstances. In addition, under certain circumstances, documented out-of-pocket transaction expenses would be payable to the terminating party. Further, a failed transaction may result in negative publicity and a negative impression of us in the investment community. Finally, any disruptions to our business resulting from the announcement and pendency of the merger and from intensifying competition from our competitors, including any adverse changes in our relationships with our customers, vendors and employees or recruiting and retention efforts, could continue or accelerate in the event of a failed transaction. There can be no assurance that our business, these relationships or our financial condition will not be negatively impacted, as compared to the condition prior to the announcement of the merger, if the merger is not consummated.

Item 6. Exhibits

Exhibit No.		Description

2.1		Agreement and Plan of Combination and Reorganization dated as of October 8, 2014, by and among Premier Commercial Bank, NewBridge Bancorp and NewBridge Bank, incorporated herein by reference to Exhibit 2.1 of the Form 8-K filed with the SEC on October 8, 2014 (SEC File No. 000-11448).

2.2		Agreement and Plan of Merger, dated as of October 12, 2015, among Yadkin Financial Corporation, NewBridge Bancorp and Navy Merger Sub Corp, incorporated herein by reference to Exhibit 2.1 of the Form 8-K filed with the SEC on October 13, 2015 (SEC File No. 000-11448).

3.1		Articles of Incorporation, and amendments thereto, incorporated herein by reference to Exhibit 4.1 of the Registration Statement on Form S-8, filed with the SEC on May 16, 2001 (SEC File No. 333-61046).

3.2		Articles of Merger of FNB Financial Services Corporation with and into LSB Bancshares Inc., including amendments to the Articles of Incorporation, as amended, incorporated herein by reference to Exhibit 3.4 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, filed with the SEC on November 9, 2007 (SEC File No. 000-11448).

3.3		Amended and Restated Bylaws adopted by the Board of Directors on April 13, 2015, incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed with the SEC on April 15, 2015 (SEC File No. 000-11448).

3.4		Articles of Amendment, filed with the North Carolina Department of the Secretary of State on December 12, 2008, incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the SEC on December 12, 2008 (SEC File No. 000-11448).

3.5		Articles of Amendment to Designate the Terms of the Series B Mandatorily Convertible Adjustable Rate Cumulative Perpetual Preferred Stock and Series C Mandatorily Convertible Adjustable Rate Cumulative Perpetual Preferred Stock, incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the SEC on November 30, 2012 (SEC File No. 000-11448).

3.6		Articles of Amendment, incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the SEC on February 21, 2013 (SEC File No. 000-11448).

4.1		Amended and Restated Trust Agreement, regarding Trust Preferred Securities, dated August 23, 2005, incorporated herein by reference to Exhibit 4.02 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed with the SEC (SEC File No. 000-13086).

4.2		Guarantee Agreement, regarding Trust Preferred Securities, dated August 23, 2005, incorporated herein by reference to Exhibit 4.03 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed with the SEC (SEC File No. 000-13086).

4.3		Indenture, regarding Trust Preferred Securities, dated August 23, 2005, incorporated herein by reference to Exhibit 4.04 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed with the SEC (SEC File No. 000-13086).

4.4		Form of Certificate for the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated herein by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the SEC on December 12, 2008 (SEC File No. 000-11448).

4.5		Certificate of Designation for the Class B Common Stock, incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the SEC on February 21, 2013 (SEC File No. 000-11448).

4.6		Specimen Certificate of Class A Common Stock, no par value, incorporated herein by reference to Exhibit 4.6 of the Annual Report on Form 10-K filed with the SEC on March 12, 2014 (SEC File No. 000-11448).

4.7		Form of Subordinated Note, incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the SEC on March 14, 2014 (SEC File No. 000-11448).

10.1		Benefit Equivalency Plan of FNB Southeast, effective January 1, 1994, incorporated herein by reference to Exhibit 10 of the Quarterly Report on Form 10-QSB for the fiscal quarter ended June 30, 1995, filed with the SEC (SEC File No. 000-13086).*

10.2		1996 Omnibus Stock Incentive Plan, incorporated herein by reference to Exhibit 10.2 of the Annual Report on Form 10-K for the year ended December 31, 1995, filed with the SEC on March 28, 1996 (SEC File No. 000-11448).*

10.3		Omnibus Equity Compensation Plan, incorporated herein by reference to Exhibit 10(B) of the Annual Report on Form 10-KSB40 for the fiscal year ended December 31, 1996, filed with the SEC on March 31, 1997 (SEC File No. 000-13086).*

10.4		Amendment to Benefit Equivalency Plan of FNB Southeast, effective January 1, 1998, incorporated herein by reference to Exhibit 10.16 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed with the SEC on March 25, 1999 (SEC File No. 000-13086).*

10.5		Amendment Number 1 to 1996 Omnibus Stock Incentive Plan, incorporated herein by reference to Exhibit 4.5 of the Registration Statement on Form S-8, filed with the SEC on May 16, 2001 (SEC File No. 333-61046).*

10.6		Long Term Stock Incentive Plan for certain senior management employees of FNB Southeast, incorporated herein by reference to Exhibit 10.10 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed with the SEC on March 27, 2003 (SEC File No. 000-13086).*

10.7		Form of Stock Option Award Agreement for a Director adopted under LSB Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on December 23, 2004 (SEC File No. 000-11448).*

10.8		Form of Incentive Stock Option Award Agreement for an Employee adopted under LSB Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on December 23, 2004 (SEC File No. 000-11448).*

10.9		Form of Amendment to the applicable Grant Agreements under the 1996 Omnibus Stock Incentive Plan, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on April 15, 2005 (SEC File No. 000-11448).*

10.10		Form of Amendment to the Incentive Stock Option Award Agreement for an Employee adopted under LSB Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the SEC on April 15, 2005 (SEC File No. 000-11448).*

10.11		Restated Form of Director Fee Deferral Agreement adopted under LSB Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on December 23, 2005 (SEC File No. 000-11448).*

10.12		Form of Stock Appreciation Rights Award Agreement adopted under LSB Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 99.2 of the Current Report on Form 8-K filed with the SEC on December 23, 2005 (SEC File No. 000-11448).*

10.13		FNB Amended and Restated Directors Retirement Policy, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on August 3, 2007 (SEC File No. 000-11448).*

10.14		Amendment to the FNB Directors and Senior Management Deferred Compensation Plan Trust Agreement among Regions Bank d/b/a/ Regions Morgan Keegan Trust, FNB Southeast and FNB, dated July 31, 2007, incorporated herein by reference to Exhibit 99.2 of the Current Report on Form 8-K filed with the SEC on August 3, 2007 (SEC File No. 000-11448).*

10.15		Directors and Senior Management Deferred Compensation Plan Trust Agreement between FNB Southeast and Morgan Trust Company, incorporated herein by reference to Exhibit 99.7 of the Current Report on Form 8-K filed with the SEC on March 14, 2008 (SEC File No. 000-11448).*

10.16		Second Amendment to the Directors and Senior Management Deferred Compensation Plan and Directors Retirement Policy Trust Agreement among Regions Bank d/b/a/ Regions Morgan Keegan Trust, NewBridge Bancorp and NewBridge Bank, which is incorporated herein by reference to Exhibit 99.8 of the Current Report on Form 8-K filed with the SEC on March 14, 2008 (SEC File No. 000-11448).*

10.17		NewBridge Bancorp Non-Qualified Deferred Compensation Plan for Directors and Senior Management, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on March 14, 2008 (SEC File No. 000-11448).*

10.18		First Amendment to the NewBridge Bancorp Non-Qualified Deferred Compensation Plan for Directors and Senior Management, incorporated herein by reference to Exhibit 99.10 of the Current Report on Form 8-K filed with the SEC on March 14, 2008 (SEC File No. 000-11448).*
10.19		NewBridge Bancorp Amended and Restated Long Term Stock Incentive Plan, formerly the “FNB Long Term Stock Incentive Plan” (the “2006 Omnibus Plan”), incorporated herein by reference to Exhibit 10.27 of the Quarterly Report on Form 10-Q filed with the SEC on May 9, 2008 (SEC File No. 000-11448).*

10.20		Amended and Restated Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.44 of the Quarterly Report on Form 10-Q filed with the SEC on August 11, 2008 (SEC File No. 000-11448).*

10.21		Form of Restricted Stock Award Agreement adopted under the Amended and Restated Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.45 of the Quarterly Report on Form 10-Q filed with the SEC on August 11, 2008 (SEC File No. 000-11448).*
10.22		Second Amendment to the NewBridge Bancorp Non-Qualified Deferred Compensation Plan for Directors and Senior Management, effective January 11, 2012, incorporated herein by reference to Exhibit 10.33 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012 (SEC File No. 000-11448).*

10.23		Third Amendment to the Trust Agreement for the Directors and Senior Management Deferred Compensation Plan and Directors Retirement Policy, effective March 5, 2012, incorporated herein by reference to Exhibit 10.34 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012 (SEC File No. 000-11448).*

10.24		Appointment of Successor Trustee under the NewBridge Bancorp Non-Qualified Deferred Compensation Plan for Directors and Senior Management dated March 5, 2012, incorporated herein by reference to Exhibit 10.35 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012 (SEC File No. 000-11448).*

10.25		Second Form of Restricted Stock Award Agreement adopted under the Amended and Restated Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.36 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012 (SEC File No. 000-11448).*

10.26		Third Form of Restricted Stock Award Agreement adopted under the Amended and Restated Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.37 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012 (SEC File No. 000-11448).*

10.27		Fourth Form of Restricted Stock Award Agreement adopted under the Amended and Restated Comprehensive Equity Compensation Plan for Directors and Employees, incorporated herein by reference to Exhibit 10.38 of the Annual Report on Form 10-K filed with the SEC on March 22, 2012 (SEC File No. 000-11448).*

10.28		Form of Securities Purchase Agreement, dated November 1, 2012, between NewBridge Bancorp and certain investors, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on November 1, 2012 (SEC File No. 000-11448).

10.29		Form of Registration Rights Agreement, dated November 1, 2012, between NewBridge Bancorp and certain investors, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on November 1, 2012 (SEC File No. 000-11448).

10.30		Third Amendment to the NewBridge Bancorp Non-Qualified Deferred Compensation Plan for Directors and Senior Management, effective January 23, 2013, incorporated herein by reference to Exhibit 10.35 of the Annual Report on Form 10-K filed with the SEC on March 12, 2014 (SEC File No. 000-11448).*

10.31		Form of Subordinated Note Purchase Agreement, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on March 14, 2014 (SEC File No. 000-11448).

10.32		CapStone Bank 2006 Incentive Stock Option Plan, incorporated herein by reference to Exhibit 99.1 of the Registration Statement on Form S-8, filed with the SEC on April 24, 2014 (SEC File No. 333-195472).*

10.33		CapStone Bank 2006 Nonstatutory Stock Option Plan, incorporated herein by reference to Exhibit 99.2 of the Registration Statement on Form S-8, filed with the SEC on April 24, 2014 (SEC File No. 333-195472).*

10.34		Patriot State Bank 2007 Incentive Stock Option Plan, incorporated herein by reference to Exhibit 99.3 of the Registration Statement on Form S-8, filed with the SEC on April 24, 2014 (SEC File No. 333-195472).*

10.35		Patriot State Bank 2007 Nonstatutory Stock Option Plan, incorporated herein by reference to Exhibit 99.4 of the Registration Statement on Form S-8, filed with the SEC on April 24, 2014 (SEC File No. 333-195472).*

10.36		Form of Settlement and Release Agreement between NewBridge Bank and Michael S. Patterson, incorporated herein by reference to Exhibit 10.37 of the Registration Statement on Form S-4, filed with the SEC on December 23, 2013 (SEC File No. 333-193045).*

10.37		Form of Continuing Services Agreement between NewBridge Bank and Michael S. Patterson, incorporated herein by reference to Exhibit 10.36 of the Registration Statement on Form S-4, filed with the SEC on December 23, 2013 (SEC File No. 333-193045).*

10.38		NewBridge Bank Supplemental Executive Retirement Plan, executed November 6, 2014, and effective September 1, 2014, incorporated herein by reference to Exhibit 10.43 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, filed with the SEC on November 7, 2014 (SEC File No. 000-11448).*

10.39		NewBridge Bank Supplemental Executive Retirement Plan Participation Agreement by and between NewBridge Bank and Pressley A. Ridgill, executed November 6, 2014, and effective September 1, 2014, incorporated herein by reference to Exhibit 10.44 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, filed with the SEC on November 7, 2014 (SEC File No. 000-11448).*

10.40		Premier Commercial Bank 2008 Employee Stock Option Plan, incorporated herein by reference to Exhibit 10.44 of the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2015 (SEC File No. 000-11448).*

10.41		Premier Commercial Bank 2008 Director Stock Option Plan, incorporated herein by reference to Exhibit 10.45 of the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2015 (SEC File No. 000-11448).*

10.42		NewBridge Bancorp 2015 Long-Term Stock Incentive Plan, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on May 13, 2015 (SEC File No. 000-11448).*

10.43		Amended and Restated Employment and Change of Control Agreement among NewBridge Bancorp, NewBridge Bank and Pressley A. Ridgill, effective September 23, 2015, incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on October 2, 2015 (SEC File No. 000-11448).*

10.44		Amended and Restated Employment and Change of Control Agreement among NewBridge Bancorp, NewBridge Bank and Ramsey K. Hamadi, effective September 23, 2015, incorporated herein by reference to Exhibit 99.2 of the Current Report on Form 8-K filed with the SEC on October 2, 2015 (SEC File No. 000-11448).*

10.45		Amended and Restated Employment and Change of Control Agreement among NewBridge Bancorp, NewBridge Bank and Spence H. Broadhurst, effective September 23, 2015, incorporated herein by reference to Exhibit 99.3 of the Current Report on Form 8-K filed with the SEC on October 2, 2015 (SEC File No. 000-11448).*

10.46		Amended and Restated Employment and Change of Control Agreement among NewBridge Bancorp, NewBridge Bank and William W. Budd, effective September 23, 2015, incorporated herein by reference to Exhibit 99.4 of the Current Report on Form 8-K filed with the SEC on October 2, 2015 (SEC File No. 000-11448).*

10.47		Amended and Restated Employment and Change of Control Agreement among NewBridge Bancorp, NewBridge Bank and Robin S. Hager, effective September 23, 2015, incorporated herein by reference to Exhibit 99.5 of the Current Report on Form 8-K filed with the SEC on October 2, 2015 (SEC File No. 000-11448).*

10.48		Form of Voting Agreement, dated as of October 12, 2015, by and between NewBridge Bancorp and certain shareholders of Yadkin Financial Corporation, incorporated herein by reference to Exhibit 99.2 of the Form 8-K filed with the SEC on October 13, 2015 (SEC File No. 000-11448).

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		Financial Statements filed in XBRL format.

* Management contract and compensatory arrangements.

SIGNATURES

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

Date: November 6, 2015	NEWBRIDGE BANCORP
	(Registrant)

	By:	/s/ Ramsey K. Hamadi
	Name: Ramsey K. Hamadi
	Title: Senior Executive Vice President and Chief Financial Officer
	(Authorized Officer)

EXHIBIT INDEX

Exhibit No.		Description

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		Financial Statements submitted in XBRL format.

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