National Commerce Corp - FORM 10-Q

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EX-32.2 - EXHIBIT 32.2 - National Commerce Corp	ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - National Commerce Corp	ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - National Commerce Corp	ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - National Commerce Corp	ex31-1.htm

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FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 June 30, 2016

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 001-36878

NATIONAL COMMERCE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	20-8627710
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

813 Shades Creek Parkway, Suite 100 Birmingham, Alabama	35209
(Address of principal executive offices)	(Zip Code)

(205) 313-8100

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☒

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 ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


	Class of Common Stock		Outstanding at August 7, 2016
	Common stock, $0.01 par value		10,870,033 shares

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NATIONAL COMMERCE CORPORATION

FORM 10-Q

INDEX


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):	1

	Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	1

	Consolidated Statements of Earnings for the Three and Six Months Ended June 30, 2016 and 2015	2

	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015	3

	Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2016	4

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	5

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosure	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

	Signatures	48

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GENERAL

Unless the context otherwise indicates or requires, references in this Quarterly Report on Form 10-Q to “National Commerce Corporation,” “NCC,” the “Company,” “we,” “us” and “our” refer to National Commerce Corporation and its consolidated affiliates as of June 30, 2016.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that reflect our current views with respect to, among other things, future events and financial performance, which involve substantial risks and uncertainties. Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include any statement that, without limitation, may predict, forecast, indicate or imply future results, performance or achievements instead of historical or current facts and may contain words like “anticipates,” “approximately,” “believes,” “budget,” “can,” “could,” “continues,” “contemplates,” “estimates,” “expects,” “forecast,” “intends,” “may,” “might,” “objective,” “outlook,” “predicts,” “probably,” “plans,” “potential,” “project,” “seeks,” “shall,” “should,” “target,” “will,” or the negative of these terms and other words, phrases, or expressions with similar meaning.

Any forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements, and the Company cannot give assurances that such statements will prove to be correct. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information or otherwise. Given these uncertainties, the reader should not place undue reliance on forward-looking statements as a prediction of actual results. Factors that could cause actual results to differ materially from those projected or estimated by us include those that are discussed in this Quarterly Report on Form 10-Q under Part II, “Item 1A. Risk Factors” and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 under Part I, “Item 1A. Risk Factors.”

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

NATIONAL COMMERCE CORPORATION

Unaudited Consolidated Balance Sheets

(In thousands, except share and per share data)


	June 30, 2016		December 31, 2015
Assets
Cash and due from banks	$	27,283		27,173
Interest-bearing deposits with banks		58,880		185,284
Cash and cash equivalents		86,163		212,457

Investment securities held-to-maturity (fair value of $28,215 and $27,843 at June 30, 2016 and December 31, 2015, respectively)		26,993		27,458
Investment securities available-for-sale		62,502		53,405
Other investments		7,715		6,235
Mortgage loans held-for-sale		19,468		15,020
Loans, net of unearned income		1,406,576		1,319,414
Less: allowance for loan losses		11,642		9,842
Loans, net		1,394,934		1,309,572
Premises and equipment, net		32,496		31,432
Accrued interest receivable		3,690		3,510
Bank-owned life insurance		27,631		27,223
Other real estate		2,160		3,965
Deferred tax assets, net		13,853		14,190
Goodwill		50,748		50,686
Core deposit intangible, net		2,406		2,788
Other assets		5,023		5,428
Total assets	$	1,735,782		1,763,369

Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing demand	$	384,854		382,946
Interest-bearing demand		207,673		202,649
Savings and money market		584,347		611,887
Time		284,003		316,976
Total deposits		1,460,877		1,514,458
Federal Home Loan Bank advances		7,000		22,000
Subordinated debt		24,540		-
Accrued interest payable		671		627
Other liabilities		16,574		9,648
Total liabilities		1,509,662		1,546,733

Commitments and contingencies

Shareholders’ equity:
Preferred stock, 250,000 shares authorized, no shares issued or outstanding		-		-
Common stock, $0.01 par value, 30,000,000 shares authorized, 10,870,033 and 10,824,969 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively		109		108
Additional paid-in capital		203,370		202,456
Retained earnings		14,285		6,152
Accumulated other comprehensive income		994		548
Total shareholders' equity attributable to National Commerce Corporation		218,758		209,264
Noncontrolling interest		7,362		7,372
Total shareholders' equity		226,120		216,636
Total liabilities and shareholders' equity	$	1,735,782		1,763,369

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION

Unaudited Consolidated Statements of Earnings

(In thousands, except per share data)

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2016		2015			2016		2015
Interest and dividend income:
Interest and fees on loans	$	17,669		12,226		$	35,152		24,018
Interest and dividends on taxable investment securities		380		269			792		525
Interest on non-taxable investment securities		204		114			404		156
Interest on interest-bearing deposits and federal funds sold		129		105			347		208
Total interest income		18,382		12,714			36,695		24,907
Interest expense:
Interest on deposits		1,476		961			3,045		1,879
Interest on borrowings		71		110			152		219
Interest on subordinated debt		183		-			183		-
Total interest expense		1,730		1,071			3,380		2,098
Net interest income		16,652		11,643			33,315		22,809
Provision for loan losses		901		120			2,434		281
Net interest income after provision for loan losses		15,751		11,523			30,881		22,528
Other income:
Service charges and fees on deposit accounts		505		308			985		575
Mortgage origination and fee income		1,627		1,505			3,019		2,776
Merchant sponsorship revenue		491		191			1,013		191
Income from bank-owned life insurance		204		86			408		165
Wealth management fees		11		13			24		32
Gain (loss) on other real estate		119		(11	)		275		(24	)
Other		400		114			758		255
Total other income		3,357		2,206			6,482		3,970
Other expense:
Salaries and employee benefits		6,907		5,114			13,852		10,101
Commission-based compensation		1,036		1,056			1,911		1,852
Occupancy and equipment		1,131		829			2,266		1,665
Core deposit intangible amortization		192		111			383		222
Other		2,988		2,506			5,895		5,066
Total other expense		12,254		9,616			24,307		18,906
Earnings before income taxes		6,854		4,113			13,056		7,592
Income tax expense		2,072		1,264			4,155		2,356
Net earnings		4,782		2,849			8,901		5,236
Less: Net earnings attributable to noncontrolling interest		428		593			768		1,059
Net earnings attributable to National Commerce Corporation	$	4,354		2,256		$	8,133		4,177

Basic earnings per common share	$	0.40		0.24		$	0.75		0.49
Diluted earnings per common share	$	0.39		0.24		$	0.74		0.48

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2016		2015			2016		2015
Net earnings	$	4,354	$	2,256		$	8,133		4,177
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities available-for-sale:
Unrealized gains (losses) arising during the period, net of tax of $98, ($147), 240 and ($127), respectvely		180		(273	)		446		(235	)
Other comprehensive income (loss)		180		(273	)		446		(235	)
Comprehensive income	$	4,534	$	1,983		$	8,579		3,942

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION

Unaudited Consolidated Statements of Changes in Shareholders’ Equity

(In thousands)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest			Total
Balance, December 31, 2015	$	108		202,456		6,152		548		7,372			216,636

Share-based compensation expense		-		557		-		-		-			557
Net earnings attributable to National Commerce Corporation		-		-		8,133		-		-			8,133
Exercise of stock options and issuance of performance shares		1		300		-		-		-			301
Tax benefit resulting from exercise of stock options, net of adjustment		-		57		-		-		-			57
Net earnings attributable to noncontrolling interest		-		-		-		-		768			768
Distributions paid to noncontrolling interest		-		-		-		-		(778	)		(778	)
Change in unrealized gain/loss on securities available-for-sale, net of tax		-		-		-		446		-			446
Balance, June 30, 2016	$	109		203,370		14,285		994		7,362			226,120

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION

Unaudited Consolidated Statements of Cash Flows

(In thousands)

	For the Six Months Ended
	June 30,

	2016			2015
Cash flows from operating activities:
Net earnings	$	8,133			4,177
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for loan losses		2,434			281
Net earnings attributable to noncontrolling interest		768			1,059
Depreciation, amortization, and accretion		465			1,086
(Gain) loss on ineffective portion of fair value hedge derivative		(25	)		2
Change in mortgage loan derivative		(36	)		(118	)
Loss on trade or sale of premises and equipment		-			5
Share-based compensation expense		557			471
Income from bank-owned life insurance		(408	)		(165	)
(Gain) loss on other real estate		(275	)		24
Change in:
Mortgage loans held-for-sale		(4,448	)		(4,421	)
Other assets and accrued interest receivable		766			(1,186	)
Other liabilities and accrued interest payable		382			(739	)
Net cash provided by operating activities		8,313			476
Cash flows from investing activities:
Proceeds from calls, maturities, and paydowns of securities available-for-sale and held-to-maturity		29,561			7,081
Purchases of securities available-for-sale		(31,757	)		(2,500	)
Purchases of securities held-to-maturity		-			(12,611	)
Proceeds from sale of other investments		693			703
Purchases of other investments		(2,173	)		(1,126	)
Net change in loans		(86,396	)		(83,845	)
Proceeds from sale of other real estate		2,080			169
Investment in bank-owned life insurance		-			(1,042	)
Proceeds from the sale of premises and equipment		-			49
Purchases of premises and equipment		(2,187	)		(1,815	)
Net cash used by investing activities		(90,179	)		(94,937	)
Cash flows from financing activities:
Net change in deposits		(53,491	)		80,423
Repayment of Federal Home Loan Bank advances		(15,000	)		-
Issuance of subordinated debt		25,000			-
Debt offering expenses		(460	)		-
Cash distribution paid to noncontrolling interests		(777	)		(771	)
Proceeds from stock offering		-			34,495
Stock offering expenses		-			(728	)
Proceeds from exercise of options and warrants		300			-
Net cash (used) provided by financing activities		(44,428	)		113,419
Net change in cash and cash equivalents		(126,294	)		18,958
Cash and cash equivalents at beginning of the period		212,457			123,435
Cash and cash equivalents at end of the period	$	86,163			142,393

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION

Unaudited Consolidated Statements of Cash Flows, continued

(In thousands)

	For the Six Months Ended
	June 30,

Supplemental disclosure of cash flow information:	2016			2015
Cash paid during the period for:
Interest	$	3,336			2,076
Income taxes	$	2,641			2,538
Non-cash investing and financing activities:
Change in unrealized (losses) gains on securities available-for-sale, net of tax	$	(446	)		235
Transfer of loans to other real estate	$	-			694

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION

Notes to Unaudited Consolidated Financial Statements

(amounts in tables in thousands, except per share data)

Note 1 – Basis of Presentation

General

The unaudited consolidated financial statements include the accounts of National Commerce Corporation (“NCC,” and, including its subsidiaries, the “Company”) and its wholly owned subsidiaries, National Bank of Commerce (“NBC” or the “Bank”) and National Commerce Risk Management, Inc (“NCRM”). NCRM is a captive insurance company that was created to insure the Company and our subsidiaries against certain risks arising from our operations. The unaudited consolidated financial statements also include the accounts of NBC’s majority-owned subsidiary, CBI Holding Company, LLC (“CBI”), which owns Corporate Billing, LLC (“Corporate Billing”), a transaction-based finance company headquartered in Decatur, Alabama that provides factoring, invoicing, collection, and accounts receivable management services to transportation companies and automotive parts and service providers nationwide.

The Bank provides a full range of commercial and consumer banking services throughout Alabama and in central and northeast Florida. NBC is primarily regulated by the Office of the Comptroller of Currency (“OCC”) and is subject to periodic examinations by the OCC. The Company is regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and is subject to periodic examinations by the Federal Reserve.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company’s consolidated balance sheets, statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions have been eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.

These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted or abbreviated. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes as of December 31, 2015, which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

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Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s knowledge and best estimates of the impact of current events and actions that the Company may undertake in the future. Estimates are used in accounting for, among other items, the allowance for loan losses, useful lives for depreciation and amortization, fair value of financial instruments, deferred taxes and contingencies. Estimates that are particularly susceptible to significant change and therefore are critical accounting estimates for the Company include the determination of the allowance for loan losses and the assessment of deferred tax assets and liabilities. Management does not anticipate any material changes to its estimates in the near term. Factors that may affect such estimates include, but are not limited to, external market factors, such as market interest rates and employment rates; changes to operating policies and procedures; economic conditions in the Company’s markets; and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe that such differences would materially affect the consolidated financial statements in any individual reporting period presented.

Note 2 – Reclassifications

Certain prior period amounts have been reclassified to conform to the presentation used in 2016. These reclassifications had no material effect on the operations, financial condition or cash flows of the Company.

Note 3 – Net Earnings per Common Share

Basic earnings per common share are computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share are computed by dividing net income by the effect of the issuance of potential common shares that are dilutive and by the sum of the weighted-average number of shares of common stock outstanding. Anti-dilutive potential common shares (options) are excluded from the diluted earnings per share computation and totaled 102,297 for the three and six month periods ended June 30, 2016 and 2015.

The reconciliation of the components of the basic and diluted earnings per share is as follows.

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015

Net earnings available to common shareholders	$	4,354		2,256	$	8,133		4,177

Weighted average common shares outstanding		10,866,788		9,438,541		10,861,330		8,574,900
Dilutive effect of stock options		96,759		54,014		95,713		44,096
Dilutive effect of directors' deferred shares		15,905		5,353		15,903		5,305
Dilutive effect of performance share awards		88,520		71,787		86,960		63,685
Diluted common shares		11,067,972		9,569,695		11,059,906		8,687,986

Basic earnings per common share	$	0.40		0.24	$	0.75		0.49
Diluted earnings per common share	$	0.39		0.24	$	0.74		0.48

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Note 4 – Securities

The amortized cost and fair value of held-to-maturity and available-for-sale debt securities at June 30, 2016 and December 31, 2015 were as follows.

	Held-to-Maturity Securities

June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities	$	5,658		76		-		5,734
Municipal securities		21,335		1,146		-		22,481
Total held-to-maturity securities	$	26,993		1,222		-		28,215


December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities	$	6,097		-		16		6,081
Municipal securities		21,361		439		38		21,762
Total held-to-maturity securities	$	27,458		439		54		27,843

	Available-for-Sale Securities

June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. Government agency obligations	$	3,721		-		29		3,692
Mortgage-backed securities		43,860		1,241		-		45,101
Other asset-backed securities		8,984		-		-		8,984
Municipal securities		4,407		318		-		4,725
Total available-for-sale securities	$	60,972		1,559		29		62,502

December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities	$	48,155		758		187		48,726
Municipal securities		4,407		273		1		4,679
Total available-for-sale securities	$	52,562		1,031		188		53,405

Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

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Details concerning the Company’s debt securities with unrealized losses as of June 30, 2016 and December 31, 2015 are as follows.

	Held-to-Maturity Securities

	Less than 12 Months				12 Months or More				Total
June 30, 2016	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities	$	-		-		-		-		-		-
Municipal securities		-		-		-		-		-		-
Total held-to-maturity securities	$	-		-		-		-		-		-


	Less than 12 Months				12 Months or More				Total
December 31, 2015	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities	$	3,960		16		-		-		3,960		16
Municipal securities		1,996		38		-		-		1,996		38
Total held-to-maturity securities	$	5,956		54		-		-		5,956		54

	Available-for-Sale Securities

	Less than 12 Months				12 Months or More				Total
June 30, 2016	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agency obligations	$	3,692		29		-		-		3,692		29
Mortgage-backed securities		-		-		-		-		-		-
Other asset-backed securities		-		-		-		-		-		-
Municipal securities		-		-		-		-		-		-
Total available-for-sale securities	$	3,692		29		-		-		3,692		29



	Less than 12 Months				12 Months or More				Total
December 31, 2015	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities	$	28,606		128		3,654		59		32,260		187
Municipal securities		498		1		-		-		498		1
Total available-for-sale securities	$	29,104		129		3,654		59		32,758		188

As of June 30, 2016, the Company did not consider securities with unrealized losses to be other-than-temporarily impaired. The unrealized losses in each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase. The Company has the ability and intent to hold its securities for a period of time sufficient to allow for a recovery in fair value. There were no other-than-temporary impairments charged to earnings during the three-month and six-month periods ended June 30, 2016 and 2015.

During the three-month and six-month periods ended June 30, 2016 and 2015, the Company did not sell any debt securities.

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The amortized cost and estimated fair value of debt securities at June 30, 2016, by contractual maturity, are shown below. Expected maturities differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-Sale Securities				Held-to-Maturity Securities
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Municipal securities:
0 to 5 years	$	-		-	$	-		-
5 to 10 years		1,046		1,083		-		-
Over 10 years		3,361		3,642		21,335		22,481
Mortgage-backed securities, other asset- backed securities and U.S. government agency obligations		56,565		57,777		5,658		5,734
Total	$	60,972		62,502	$	26,993		28,215

Note 5 – Loans, Allowance for Loan Losses and Credit Quality

Major classifications of loans at June 30, 2016 and December 31, 2015 are summarized as follows.

	June 30, 2016			December 31, 2015
Commercial, financial, and agricultural	$	184,200			196,732
Factored commercial receivables		70,673			67,628
Real estate - mortgage		975,026			881,556
Real estate - construction		156,448			152,862
Consumer		20,688			21,116
		1,407,035			1,319,894
Less: Unearned fees		459			480
Total loans		1,406,576			1,319,414
Allowance for loan losses		(11,642	)		(9,842	)
Total net loans	$	1,394,934			1,309,572

The Company makes loans and extensions of credit to individuals and a variety of businesses located in its market areas. Through Corporate Billing, the Company also purchases receivables from transportation companies and automotive parts and service providers nationwide. Although the Company has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent upon prevailing conditions in the real estate market. Portfolio segments utilized by the Company are identified below. Relevant risk characteristics for these portfolio segments generally include (i) debt service coverage, loan-to-value ratios, and financial performance, for non-consumer loans, and (ii) credit scores, debt-to-income ratios, collateral type, and loan-to-value ratios, for consumer loans.

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The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the periods indicated. Acquired loans are not included in the allowance for loan losses calculation, as these loans are recorded at fair value, and there has been no further indication of credit deterioration that would require an additional provision.

Balance, June 30, 2016	Commercial, financial, and agricultural			Factored commercial receivables			Real estate - mortgage		Real estate - construction		Consumer			Unallocated			Total
Balance, beginning of year	$	1,345			500			5,525		1,412		236			824			9,842
Provisions charged to operating expense		278			605			1,842		346		187			(824	)		2,434
Loans charged off		(4	)		(1,319	)		-		-		(180	)		-			(1,503	)
Recoveries		33			714			107		7		8			-			869
Balance, June 30, 2016	$	1,652			500			7,474		1,765		251			-			11,642


Ending balance, individually evaluated for impairment	$	-			-			-		-		-			-			-
Ending balance, collectively evaluated for impairment	$	1,652			500			7,474		1,765		251			-			11,642
Loans:
Individually evaluated for impairment	$	-			-			262		156		23			-			441
Collectively evaluated for impairment	$	183,959			70,673			965,283		155,870		20,426			-			1,396,211

Acquired loans with deteriorated credit quality	$	241			-			9,481		422		239			-			10,383

Balance, June 30, 2015	Commercial, financial, and agricultural			Factored commercial receivables			Real estate - mortgage			Real estate - construction		Consumer			Unallocated			Total
Balance, beginning of year	$	1,523			955			5,047			647		562			1,068			9,802
Provisions charged to operating expense		25			(148	)		1,022			196		(226	)		(588	)		281
Loans charged off		(1	)		(1,095	)		(764	)		-		(87	)		-			(1,947	)
Recoveries		36			1,003			49			45		5			-			1,138
Balance, June 30, 2015	$	1,583			715			5,354			888		254			480			9,274


Ending balance, individually evaluated for impairment	$	-			540			-			-		-			-			540
Ending balance, collectively evaluated for impairment	$	1,583			175			5,354			888		254			480			8,734
Loans:
Individually evaluated for impairment	$	-			840			2,849			181		30			-			3,900
Collectively evaluated for impairment	$	141,720			74,160			628,820			100,413		16,521			-			961,634
Acquired loans with deteriorated credit quality	$	212			-			4,931			334		247			-			5,724

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The Company individually evaluates for impairment all loans that are on nonaccrual status. Additionally, all troubled debt restructurings are individually evaluated for impairment. A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due according to the contractual terms of the loan will not be collected. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price or at the fair value of the collateral if the loan is collateral-dependent. Management may also elect to apply an additional collective reserve to groups of impaired loans based on current economic or market factors. Interest payments received on impaired loans are generally applied as a reduction of the outstanding principal balance. During the six months ended June 30, 2016 and 2015, the Company did not modify any loans in a manner that would be considered a troubled debt restructuring.

The following tables present impaired loans by class of loans as of June 30, 2016 and December 31, 2015. The purchased credit-impaired loans are not included in these tables because they are carried at fair value and accordingly have no related associated allowance.

June 30, 2016	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans without related allowance:
Commercial, financial, and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		262		305		-		159
Real estate - construction		156		172		-		162
Consumer		23		73		-		26
Total	$	441		550		-		347

Impaired loans with related allowance:
Commercial, financial, and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		-		-		-		-
Real estate - construction		-		-		-		-
Consumer		-		-		-		-
Total	$	-		-		-		-

Total impaired loans:
Commercial, financial, and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		262		305		-		159
Real estate - construction		156		172		-		162
Consumer		23		73		-		26
Total	$	441		550		-		347

December 31, 2015	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans without related allowance:
Commercial, financial, and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		19		55		-		1,523
Real estate - construction		169		178		-		105
Consumer		-		-		-		39
Total	$	188		233		-		1,667

Impaired loans with related allowance:
Commercial, financial, and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		653
Real estate - mortgage		-		-		-		250
Real estate - construction		-		-		-		77
Consumer		-		-		-		-
Total	$	-		-		-		980

Total impaired loans:
Commercial, financial, and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		653
Real estate - mortgage		19		55		-		1,773
Real estate - construction		169		178		-		182
Consumer		-		-		-		39
Total	$	188		233		-		2,647

For the six months ended June 30, 2016 and 2015, the Company did not recognize a material amount of interest income on impaired loans.

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The following tables present the aging of the recorded investment in past due loans and non-accrual loan balances as of June 30, 2016 and December 31, 2015, by class of loans. All loans greater than 90 days past due are placed on non-accrual status, excluding factored receivables. For CBI’s factored receivables, which are commercial trade credits rather than promissory notes, our practice is to charge off unpaid recourse receivables when they become 90 days past due from the invoice due date and the non-recourse receivables when they become 120 days past due from the statement billing date. For the recourse receivables, the invoice is charged against the client reserve account established for such purposes, unless the client reserve is insufficient, in which case the invoice is charged against the allowance for loan losses.

June 30, 2016	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total		Non-accrual
Commercial, financial, and agricultural	$	-		-		-		-		184,200		184,200		-
Factored commercial receivables		4,655		1,999		406		7,060		63,613		70,673		-
Real estate - mortgage		264		190		1,355		1,809		973,217		975,026		2,986
Real estate - construction		-		373		-		373		156,075		156,448		265
Consumer		95		26		-		121		20,567		20,688		96
Total	$	5,014		2,588		1,761		9,363		1,397,672		1,407,035		3,347

December 31, 2015	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total		Non-accrual
Commercial, financial, and agricultural	$	21		-		-		21		196,711		196,732		-
Factored commercial receivables		5,762		1,595		252		7,609		60,019		67,628		-
Real estate - mortgage		1,707		760		911		3,378		878,178		881,556		3,300
Real estate - construction		59		88		-		147		152,715		152,862		283
Consumer		114		-		34		148		20,968		21,116		112
Total	$	7,663		2,443		1,197		11,303		1,308,591		1,319,894		3,695

The Company groups loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. Loans are analyzed individually and classified according to credit risk. This analysis is performed on a continuous basis. The Bank uses the following definitions for its risk ratings:

Other Assets Especially Mentioned (“OAEM”): Weakness exists that could cause future impairment, including the deterioration of financial ratios, past due status and questionable management capabilities. Collateral values generally afford adequate coverage but may not be immediately marketable.

Substandard: Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

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Doubtful: Specific weaknesses characterized as Substandard that are severe enough to make collection in full unlikely. There is no reliable secondary source of full repayment. Loans classified as Doubtful will be placed on non-accrual status, analyzed and fully or partially charged off based on a review of the related collateral and other relevant factors.

Loss: Specific weaknesses characterized as Doubtful that are severe enough to be considered uncollectible and of such minimal value that the continued characterization of the loan as an asset is not warranted.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be Pass rated loans. As of June 30, 2016 and December 31, 2015, and based on the most recent analysis performed, the risk category of loans by class of loans was as follows.

June 30, 2016	Pass		OAEM		Substandard		Doubtful		Total
Commercial, financial, and agricultural	$	181,710		976		1,514		-		184,200
Factored commercial receivables		70,673		-		-		-		70,673
Real estate - mortgage		964,095		3,057		4,907		2,967		975,026
Real estate - construction		155,687		-		496		265		156,448
Consumer		19,868		32		692		96		20,688
Total	$	1,392,033		4,065		7,609		3,328		1,407,035

December 31, 2015	Pass		OAEM		Substandard		Doubtful		Total
Commercial, financial, and agricultural	$	193,176		1,509		2,047		-		196,732
Factored commercial receivables		67,628		-		-		-		67,628
Real estate - mortgage		870,617		2,756		4,882		3,301		881,556
Real estate - construction		152,255		-		324		283		152,862
Consumer		20,260		33		712		111		21,116
Total	$	1,303,936		4,298		7,965		3,695		1,319,894

Note 6 – Fair Value Measurements and Disclosures

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and other real estate and repossessed assets. These nonrecurring fair value adjustments typically involve application of the lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 – Valuation is based on quoted prices for identical instruments traded in active markets.

Level 2 – Valuation is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

The following is a description of valuation methodologies used for assets and liabilities recorded or disclosed at fair value.

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Cash and Cash Equivalents

For disclosure purposes, the carrying amount for cash, due from banks, interest-bearing deposits and federal funds sold is a reasonable estimate of fair value.

Investment Securities

Securities available-for-sale and held-to-maturity securities are recorded at fair value on a recurring basis. Fair value measurements are based on quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques, such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions, and other factors, such as credit assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange or Nasdaq, and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds. Level 2 securities include mortgage-backed securities issued by government-sponsored enterprises and municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Other Investments

For disclosure purposes, the carrying amount of other investments approximates their fair value.

Loans and Mortgage Loans Held-for-Sale

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired, and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of three methods, including collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2016 and December 31, 2015, impaired loans were evaluated based on the fair value of the collateral. Impaired loans for which an allowance is established based on the fair value of collateral, or loans that are charged down according to the fair value of collateral, require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price, the Company records the impaired loan as nonrecurring Level 2. When the fair value is based on an appraised value, the Company records the impaired loan as nonrecurring Level 3.

For disclosure purposes, 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. For variable-rate loans, the carrying amount is a reasonable estimate of fair value. Mortgage loans held-for-sale are carried at cost, which is a reasonable estimate of fair value.

Bank-Owned Life Insurance

For disclosure purposes, the fair value of the cash surrender value of life insurance policies is equivalent to the carrying value.

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Other Real Estate

Other real estate properties are adjusted to fair value upon the transfer of the loans to other real estate. Subsequently, other real estate assets are carried at the lower of carrying value or fair value. Fair value is based on independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price, the Company records the other real estate as nonrecurring Level 2. When fair value is based on an appraised value or management’s estimate of value, the Company records the other real estate or repossessed asset as nonrecurring Level 3.

Deposits

For disclosure purposes, the fair value of demand deposits, NOW and money market accounts and savings accounts is the amount payable on demand at the reporting date. The fair value of fixed-rate maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank Advances

For disclosure purposes, the fair value of Federal Home Loan Bank (“FHLB”) advances is based on the quoted value for similar remaining maturities provided by the FHLB.

Subordinated Debt

For disclosure purposes, the fair value of our fixed rate subordinated debt is estimated using a discounted cash flow model using current market interest rates on borrowings with a similar maturity.

Derivative Financial Instruments

Derivative financial instruments are recorded at fair value on a recurring basis. The value of the Company’s derivative financial instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of the interest rate swaps are determined by using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves derived from observable market interest rate curves).

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company considers the impact of netting any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company or the counterparty. However, as of June 30, 2016 and December 31, 2015, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

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Commitments to Extend Credit and Standby Letters of Credit

Because commitments to extend credit and standby letters of credit are generally short-term and made using variable rates, the carrying value and estimated fair value associated with these instruments are immaterial.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015.

June 30, 2016	Level 1		Level 2		Level 3		Total
U.S. Government agency obligations	$	-		3,692		-		3,692
Mortgage-backed securities		-		45,101		-		45,101
Municipal securities		-		4,725		-		4,725
Other asset-backed securities		-		8,984		-		8,984
Total investment securities available-for-sale	$	-		62,502		-		62,502
Derivative assets	$	-		602		-		602
Derivative liabilities	$	-		1,210		-		1,210

December 31, 2015	Level 1		Level 2		Level 3		Total
Mortgage-backed securities	$	-		48,726		-		48,726
Municipal securities		-		4,679		-		4,679
Total investment securities available-for-sale		-		53,405		-		53,405
Derivative assets	$	-		258		-		258
Derivative liabilities	$	-		518		-		518

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

From time to time, the Company may be required to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of June 30, 2016 and December 31, 2015.

June 30, 2016	Level 1		Level 2		Level 3		Total
Other real estate and repossessed assets	$	-		-		2,160		2,160
Impaired loans		-		-		3,347		3,347

December 31, 2015	Level 1		Level 2		Level 3		Total
Other real estate and repossessed assets	$	-		-		3,965		3,965
Impaired loans		-		-		3,695		3,695

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The carrying amounts and estimated fair values of the Company’s financial instruments at June 30, 2016 and December 31, 2015 were as follows:

	Carrying				Estimated Fair Value
June 30, 2016	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	86,163		86,163		-		-
Investment securities held-to-maturity		26,993		-		28,215		-
Investment securities available-for-sale		62,502		-		62,502		-
Other investments		7,715		-		7,715		-
Loans, net		1,394,934		-		1,405,324		3,347
Mortgage loans held-for-sale		19,468		-		19,468		-
Bank-owned life insurance		27,631		-		27,631		-
Derivative assets		602		-		602		-
Liabilities:
Deposits		1,460,877		-		1,428,567		-
Federal Home Loan Bank advances		7,000		-		7,427		-
Subordinated debt		24,540		-		25,311		-
Derivative liabilities		1,210		-		1,210		-

	Carrying				Estimated Fair Value
December 31, 2015	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	212,457		212,457		-		-
Investment securities held-to-maturity		27,458		-		27,843		-
Investment securities available-for-sale		53,405		-		53,405		-
Other investments		6,235		-		6,235		-
Loans, net		1,309,572		-		1,309,547		3,695
Mortgage loans held-for-sale		15,020		-		15,020		-
Bank-owned life insurance		27,223		-		27,223		-
Derivative assets		258		-		258		-
Liabilities:
Deposits		1,514,458		-		1,479,746		-
Federal Home Loan Bank advances		22,000		-		22,405		-
Derivative liabilities		518		-		518		-

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value 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.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include mortgage banking operations, deferred income taxes, and premises and equipment. 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.

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Note 7 – Segment Reporting

The Company’s three reportable segments represent distinct product lines and are viewed separately for strategic planning purposes and internal reporting. The following table is a reconciliation of the reportable segment revenues, expenses and profit to the Company’s consolidated totals.

	Retail and Commercial Banking		Mortgage Division (1)		Receivables Factoring			Elimination Entries (2)			Total
For the Three Months Ended June 30, 2016
Interest income	$	15,732		150		2,970			(470	)		18,382
Interest expense		1,670		60		470			(470	)		1,730
Net interest income		14,062		90		2,500			-			16,652
Provision for loan and lease losses		784		-		117			-			901
Noninterest income		1,312		2,041		4			-			3,357
Noninterest expense		9,245		1,699		1,310			-			12,254
Net earnings before tax and noncontrolling interest		5,345		432		1,077			-			6,854
Income tax expense		1,661		164		247			-			2,072
Noncontrolling interest		-		-		(428	)		-			(428	)
Net earnings atributable to National Commerce Corporation	$	3,684		268		402			-			4,354

For the Six Months Ended June 30, 2016
Interest income	$	31,431		265		5,969			(970	)		36,695
Interest expense		3,276		104		970			(970	)		3,380
Net interest income		28,155		161		4,999			-			33,315
Provision for loan and lease losses		1,829		-		605			-			2,434
Noninterest income		2,944		3,494		44			-			6,482
Noninterest expense		18,657		3,048		2,602			-			24,307
Net earnings before tax and noncontrolling interest		10,613		607		1,836			-			13,056
Income tax expense		3,518		231		406			-			4,155
Noncontrolling interest		-		-		(768	)		-			(768	)
Net earnings attributable to National Commerce Corporation	$	7,095		376		662			-			8,133

Total assets as of June 30, 2016	$	1,686,402		19,468		93,429			(63,517	)		1,735,782

For the Three Months Ended June 30, 2015
Interest income	$	10,051		113		3,048			(498	)		12,714
Interest expense		1,034		37		498			(498	)		1,071
Net interest income		9,017		76		2,550			-			11,643
Provision for loan and lease losses		428		-		(308	)		-			120
Noninterest income		377		1,829		-			-			2,206
Noninterest expense		6,873		1,453		1,290			-			9,616
Net earnings before tax and noncontrolling interest		2,093		452		1,568			-			4,113
Income tax expense		721		172		371			-			1,264
Noncontrolling interest		-		-		(593	)		-			(593	)
Net earnings atributable to National Commerce Corporation	$	1,372		280		604			-			2,256

For the Six Months Ended June 30, 2015
Interest income	$	19,566		197		6,161			(1,017	)		24,907
Interest expense		2,032		66		1,017			(1,017	)		2,098
Net interest income		17,534		131		5,144			-			22,809
Provision for loan and lease losses		429		-		(148	)		-			281
Noninterest income		924		3,017		29			-			3,970
Noninterest expense		13,789		2,493		2,624			-			18,906
Net earnings before tax and noncontrolling interest		4,240		655		2,697			-			7,592
Income tax expense		1,485		249		622			-			2,356
Noncontrolling interest		-		-		(1,059	)		-			(1,059	)
Net earnings attributable to National Commerce Corporation	$	2,755		406		1,016			-			4,177

Total assets as of June 30, 2015	$	1,213,137		13,750		97,687			(67,960	)		1,256,614

(1)	Noninterest income for the mortgage division segment includes intercompany income allocation.

(2)	Entry to remove intercompany interest allocated to the receivables factoring segment. For segment reporting purposes, we allocate funding costs to the receivables factoring segment at the federal funds rate plus 2.50%.

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Note 8 – Goodwill and Intangibles

Changes to the carrying amount of goodwill for the six months ended June 30, 2016 are provided in the following table.

Balance, December 31, 2015	$	50,686
Adjustments to goodwill		62
Balance, June 30, 2016	$	50,748

The adjustments to goodwill made during the six months ended June 30, 2016 resulted from the recognition of liabilities that existed as of the date on which we acquired Reunion Bank of Florida but were not recorded. The adjustments were made following the Company’s review of additional information that existed at the time of acquisition that affected the recorded fair value of certain liabilities. Net of deferred taxes, the adjustment resulted in a $62,000 increase to the amount of goodwill initially recorded in our acquisition of Reunion Bank of Florida. The adjustment to goodwill had no impact on net income or shareholders’ equity of the Company for the first six months of 2016.

A summary of core deposit intangible assets as of June 30, 2016 and December 31, 2015 is as follows.

	June 30, 2016			December 31, 2015
Gross carrying amount	$	3,315		$	3,315
Less: accumulated amortization		(909	)		(527	)
Net carrying amount	$	2,406		$	2,788

Note 9 – Cash and Cash Equivalents

Cash equivalents include amounts due from banks, interest-bearing deposits with the Federal Reserve Bank of Atlanta (“FRB”), the FHLB and correspondent banks, and federal funds sold. Generally, federal funds are sold for one-day periods. The Company is required to maintain average reserve balances with the FRB or in cash. At June 30, 2016 and December 31, 2015, the Company’s reserve requirements were approximately $7,629,000 and $12,218,000, respectively.

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Note 10 – Subordinated Debt

On May 19, 2016, the Company completed the underwritten public offering of $25 million of its unsecured 6.0% Fixed-to-Floating Rate Subordinated Notes due June 1, 2026 (the “Notes”). The Notes will bear interest at a fixed rate of 6.0% per year, from, and including, May 19, 2016, to, but excluding, June 1, 2021. On June 1, 2021, the Notes convert to a floating rate equal to three-month LIBOR plus 479 basis points. The Notes may be redeemed by the Company after June 1, 2021. The Company incurred expenses associated with the offering totaling $460 thousand.

Note 11 – Recently Issued Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-1, Financial Instruments Overall (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in ASU 2016-1: (a) require equity investments (except for those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value, with changes in fair value recognized in net income; (b) simplify the impairment assessment of equity securities without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (d) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (e) require an entity to present separately, in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (f) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the notes to the financial statements; and (g) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will evaluate the provisions of this ASU to determine the potential impact that the new standard will have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this update supersedes the requirements in ASC Topic 840, Leases. The update will require business entities to recognize lease assets and liabilities on the balance sheet and to disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2018, and is to be applied on a modified retrospective basis. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements. Adoption of this guidance will increase the assets and liabilities of the Company.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.

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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. This ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.

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

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes thereto for the year ended December 31, 2015, which are contained in our Annual Report on Form 10-K for the year ended December 31, 2015. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those contained in forward-looking statements as a result of many factors, including those discussed in our 2015 Annual Report on Form 10-K under “Part I, Item 1A. – Risk Factors,” as well as other unknown risks and uncertainties.

All dollar amounts in the tables in this section are in thousands of dollars, except per share data, yields, percentages and rates, or when specifically identified. The words “we,” “us,” “our,” the “Company,” “NCC” and similar terms when used in this section refer to National Commerce Corporation and its consolidated affiliates, unless the context indicates otherwise.

Our Business

NCC is a financial holding company headquartered in Birmingham, Alabama. We engage in the business of banking through our wholly owned banking subsidiary, National Bank of Commerce, which we may refer to as the “Bank” or “NBC.”

Through the Bank, we provide a broad array of financial services to businesses, business owners and professionals through seven full-service banking offices in Alabama (in Birmingham, Huntsville, Auburn-Opelika, and Baldwin County) and ten full-service banking offices in central and northeast Florida (in Vero Beach through National Bank of Commerce; in Longwood, Winter Park, Orlando, and Oviedo through United Legacy Bank, a division of National Bank of Commerce; and in Tavares, Port Orange, St. Augustine, and Ormond Beach through Reunion Bank of Florida, a division of National Bank of Commerce), as well as a loan production office in Atlanta, Georgia. We also own a 70% equity interest in CBI Holding Company, LLC (”CBI”), which owns Corporate Billing, LLC (“Corporate Billing”), a transaction-based finance company headquartered in Decatur, Alabama that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and service providers throughout the United States and parts of Canada.

Overview of Second Quarter 2016 Results

Net income was $4.4 million in the second quarter ended June 30, 2016, compared with $2.3 million in the second quarter of 2015. Highlights from the 2016 second quarter include:

●

Net interest margin (tax-effected) of 4.23%, compared with 4.22% for the second quarter of 2015.

●

Return on average assets of 1.00%, compared with 0.75% for the second quarter of 2015.

●

Loan growth (excluding mortgage loans held for sale) of $23.0 million during the second quarter of 2016, representing a 6.7% annualized growth rate. Excluding factored receivables, loans grew by $26.6 million during the quarter, representing a 7.7% annualized growth rate.

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●

Deposits decreased $37.3 million during the second quarter of 2016.

●

$91.5 million in mortgage production, compared with $84.8 million for the second quarter of 2015.

●

$167.1 million in purchased volume in the factoring division, compared with $188.6 million for the second quarter of 2015.

●

Decrease in non-acquired non-performing assets to $2.7 million, from $3.4 million at March, 31, 2016 and $4.3 million at December 31, 2015.

●

Annualized net charge-offs of 0.05% of average loans, compared with 0.16% for the second quarter of 2015 and 0.13% for the first quarter of 2016.

●

Issued $25.0 million of fixed-to-floating rate subordinated debentures due June 1, 2026.

●

Ending book value per share of $20.80.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared based on the application of certain accounting policies, the most significant of which are described in the notes to NCC’s audited consolidated financial statements for the year ended December 31, 2015, which are contained in our Annual Report on Form 10-K. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect our reported results and financial position for the current period or future periods. The use of estimates, assumptions and judgments is necessary when financial assets and liabilities are required to be recorded at, or adjusted to reflect, fair value. Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are either based on quoted market prices or provided by other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations.

The following briefly describes the more complex policies involving a significant degree of judgment about valuation and the application of complex accounting standards and interpretations.

Allowance for Loan Losses

We record estimated probable inherent credit losses in the loan portfolio as an allowance for loan losses. The methodologies and assumptions for determining the adequacy of the overall allowance for loan losses involve significant judgments to be made by management. Some of the more critical judgments supporting our allowance for loan losses include judgments about the creditworthiness of borrowers and the estimated value of underlying collateral, assumptions about cash flow, determinations of loss factors for estimating credit losses, and judgments regarding the impact of current events, conditions and other factors affecting the level of inherent losses. Under different conditions or using different assumptions, the actual or estimated credit losses that we ultimately realize may be different from our estimates. In determining the allowance, we estimate losses on individual impaired loans, or groups of loans that are not impaired, where the probable loss can be identified and reasonably estimated. On a quarterly basis, we assess the risk inherent in our loan portfolio based on qualitative and quantitative trends in the portfolio, including the internal risk classification of loans, historical loss rates, changes in the nature and volume of the loan portfolio, industry or borrower concentrations, delinquency trends, detailed reviews of significant loans with identified weaknesses and the impacts of local, regional and national economic factors on the quality of the loan portfolio. Based on this analysis, we may record a provision for loan losses in order to maintain the allowance at appropriate levels. For a more complete discussion of the methodology employed to calculate the allowance for loan losses, see Note 1 to NCC’s consolidated financial statements for the year ended December 31, 2015, which are contained in our Annual Report on Form 10-K.

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Investment Securities Impairment

We assess on a quarterly basis whether there have been any events or economic circumstances to indicate that a security with respect to which there is an unrealized loss is impaired on an other-than-temporary basis. We consider many factors in this assessment, including the severity and duration of the impairment, our intent and ability to hold the security for a period of time sufficient for a recovery in value, recent events specific to the issuer or industry, and, for debt securities, external credit ratings and recent downgrades. Securities with respect to which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value. The credit portion of the impairment, if any, is recognized as a realized loss in current earnings.

Income Taxes

Deferred income tax assets and liabilities are computed using the asset and liability method, which recognizes an asset or liability representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events recognized in the financial statements. A valuation allowance may be established to the extent necessary to reduce the deferred tax asset to a level at which it is “more likely than not” that the tax asset or benefit will be realized. The ultimate realization of tax benefits depends on many factors, including the sufficiency of taxable income, the availability of tax loss carrybacks or credits, the reversal of taxable temporary differences and tax planning strategies within the reversal period and the state of applicable tax laws with respect to the realization of recorded tax benefits.

Business Combinations

Assets purchased and liabilities assumed in a business combination are recorded at their respective fair values. The fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of the purchased assets or assumed liabilities. On the date of acquisition, when the loans exhibit evidence of credit deterioration since origination and it is probable that we will not collect all contractually required principal and interest payments, the difference between contractually required payments at acquisition and the cash flows expected to be collected is referred to as non-accretable difference. We must estimate expected cash flows at each reporting date. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows will generally result in a reversal of the provision for loan losses to the extent of prior charges and adjusted accretable yield, which will have a positive impact on interest income. Purchased loans without evidence of credit deterioration are recorded in the same manner.

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Comparison of Results of Operations for the Three and Six Months Ended June 30, 2016 and June 30, 2015

The following is a narrative discussion and analysis of significant changes in our results of operations for the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015.

Net Income

During the three months ended June 30, 2016, our net income was $4.4 million, compared to $2.3 million for the three months ended June 30, 2015, an increase of 93.0%. During the six months ended June 30, 2016, our net income was $8.1 million, compared to $4.2 million for the six months ended June 30, 2015, an increase of 94.7%. Our results of operations for the three and six months ended June 30, 2016 included the results Reunion Bank of Florida (“RBF”), which now operates as a division of the Bank. We acquired RBF on October 31, 2015 through a merger of RBF with and into the Bank, and, therefore, its results are not included in our results of operations for three and six months ended June 30, 2015.

The primary reason for the increase in net income for the three and six months ended June 30, 2016 as compared to the same period of 2015 was an increase in net interest income. During the three months ended June 30, 2016, net interest income was $16.7 million, an increase of $5.0 million, or 43.0%, compared to the three months ended June 30, 2015. During the six months ended June 30, 2016, net interest income was $33.3 million, an increase of $10.5 million, or 46.1%, compared to the six months ended June 30, 2015. This increase was a result of higher levels of loan volume and other earning assets from organic growth and the acquisition of RBF. Total noninterest income during the three months ended June 30, 2016 was $3.4 million, an increase of $1.2 million compared to the three months ended June 30, 2015. Total noninterest income during the six months ended June 30, 2016 was $6.5 million, an increase of $2.5 million compared to the six months ended June 30, 2015. Each category of noninterest income except for wealth management fees increased during the three and six months ended June 30, 2016.

The increases in net interest income and noninterest income were partially offset by an increase in the provision for loan losses and other noninterest expense during the three and six months ended June 30, 2016. Total noninterest expense during the three months ended June 30, 2016 was $12.3 million, an increase of $2.6 million, or 27.4%, compared to the three months ended June 30, 2015. Total noninterest expense during the six months ended June 30, 2016 was $24.3 million, an increase of $5.4 million, or 28.6%, compared to the six months ended June 30, 2015. This increase during each period of 2016 was primarily a result of the addition of the operating expenses of RBF and costs associated with the overall growth of the Company. RBF was not included in our results of operations for the three and six months ended June 30, 2015. The provision for loan losses during the three months ended June 30, 2016 was $901 thousand, compared to $120 thousand during the three months ended June 30, 2015 and $2.4 million for the six months ended June 30, 2016, compared to $281 thousand during the six months ended June 30, 2015.

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A majority of the changes in our net interest income, noninterest income and noninterest expense for the three and six months ended June 30, 2016, as compared to the same periods of 2015, resulted from the additional revenues and expenses of RBF, which we acquired October 31, 2015. During the three months ended June 30, 2016, RBF’s net interest income, noninterest income and noninterest expense were approximately $3.6 million, $132 thousand and $1.6 million, respectively. During the six months ended June 30, 2016, RBF’s net interest income, noninterest income and noninterest expense were approximately $7.2 million, $383 thousand and $3.3 million, respectively.

Net Interest Income and Net Interest Margin Analysis

Comparison of net interest income for the three months ended June 30, 2016 and 2015

The largest component of our net income is net interest income – the difference between the income earned on interest-earning assets and the interest paid on deposits and borrowed funds used to support our assets. Net interest income divided by average earning assets represents our net interest margin. The major factors that affect net interest income and net interest margin are changes in volume, the yield on interest-earning assets and the cost of interest-bearing liabilities. Our net interest margin can also be affected by economic conditions, the competitive environment, loan demand and deposit flow. Our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin as our primary source of earnings.

The following table shows, for the periods indicated, the average balances of each principal category of our assets, liabilities and shareholders’ equity and the average yields on assets and average costs of liabilities. Such yields and costs are calculated by dividing annualized income or expense by the average daily balances of the associated assets or liabilities.

AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS

	For the Three Months Ended
(Dollars in thousands)	June 30, 2016							June 30, 2015
Assets	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate
Loans	$	1,391,789	$	17,523		5.06	%	$	944,373	$	12,116		5.15	%
Mortgage loans held for sale		17,288		151		3.51			11,180		112		4.02
Securities:
Taxable securities		78,907		380		1.94			32,402		269		3.33
Tax-exempt securities		26,036		324		5.01			14,297		181		5.08
Cash balances in other banks		80,140		129		0.65			112,081		105		0.38
Total interest-earning assets		1,594,160	$	18,507		4.67			1,114,333	$	12,783		4.60
Noninterest-earning assets		148,959							95,949
Total assets	$	1,743,119						$	1,210,282

Liabilities and shareholders' equity
Interest-bearing transactions accounts	$	210,776	$	124		0.24	%	$	157,261	$	97		0.25	%
Savings and money market deposits		603,173		698		0.47			408,117		417		0.41
Time deposits		288,350		654		0.91			208,388		447		0.86
Federal Home Loan Bank advances and other borrowed money		7,000		71		4.08			22,000		110		2.01
Subordinated debt		11,605		183		6.34			-		-		-
Total interest-bearing liabilities		1,120,904	$	1,730		0.62			795,766	$	1,071		0.54
Noninterest-bearing deposits		388,363							233,136
Total funding sources		1,509,267							1,028,902
Noninterest-bearing liabilities		10,495							8,026
Shareholders' equity		223,357							173,354
	$	1,743,119						$	1,210,282
Net interest rate spread						4.05	%						4.06	%
Net interest income/margin (taxable equivalent)				16,777		4.23	%				11,712		4.22	%
Tax equivalent adjustment				125							69
Net interest income/margin			$	16,652		4.20	%			$	11,643		4.19	%

Net interest income increased $5.0 million, or 43.0%, to $16.7 million for the three months ended June 30, 2016, compared to $11.6 million for the same period of 2015. The increase was due to an increase in interest income of $5.7 million, resulting from higher levels of loan volume from organic growth and the acquisition of RBF. This increase in interest income was partially offset by a $659 thousand increase in interest expense. The increase in interest income was primarily due to a 47.4% increase in average loans outstanding for the three months ended June 30, 2016, compared to the three months ended June 30, 2015. The resulting net interest margin for the three months ended June 30, 2016 rose slightly to 4.20%, from 4.19% during the three months ended June 30, 2015.

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Interest-earning assets averaged $1.6 billion for the three months ended June 30, 2016, compared to $1.1 billion for the three months ended June 30, 2015, an increase of $479.8 million, or 43.1%. Additional information on growth in our loan portfolio for these periods is presented below. The yield on average interest-earning assets increased seven basis points to 4.67% for the three months ended June 30, 2016, compared to 4.60% for the three months ended June 30, 2015. During the three months ended June 30, 2016, the loan yield was 5.06%, compared to 5.15% during the three months ended June 30, 2015. The decrease in loan yield was primarily attributable to the fact that rates on maturing loans have been generally higher than rates on new or renewed loans and that factored receivables, which earn a higher yield than traditional loans, represent a lower proportion of our total loans. RBF contributed average loan balances of $286.7 million during the three months ended June 30, 2016.

Interest-bearing liabilities averaged $1.1 billion for the three months ended June 30, 2016, compared to $795.8 million for the three months ended June 30, 2015, an increase of $325.1 million, or 40.9%. The rate on total interest-bearing liabilities was 62 basis points for the three months ended June 30, 2016, compared to 54 basis points for the three months ended June 30, 2015. A large part of this increase in interest-bearing liability costs was due to the subordinated debt issuance in May 2016. The increase in interest-bearing and noninterest-bearing average deposits was due to organic deposit production and the inclusion of RBF’s deposits in our results for the three months ended June 30, 2016.

Average noninterest-bearing deposits increased to $388.4 million during the three months ended June 30, 2016, as compared to $233.1 million during the three months ended June 30, 2015. This increase in average noninterest-bearing deposits, together with the increased volume of interest-earning assets and higher yields on interest-earning assets, led to the higher net interest margin for the three months ended June 30, 2016.

The following table reflects, for the periods indicated, the changes in our net interest income due to changes in the volume of interest-earning assets and interest-bearing liabilities and the associated rates paid or earned on these assets and liabilities.

ANALYSIS OF CHANGES IN NET INTEREST INCOME

	For the Three Months Ended
	June 30,
(Dollars in thousands)	2016 vs. 2015
	Variance due to
Interest-earning assets	Volume			Yield/Rate			Total
Loans	$	5,604		$	(197	)	$	5,407
Mortgage loans held for sale		54			(15	)		39
Securities:
Taxable securities		260			(149	)		111
Tax-exempt securities		146			(3	)		143
Cash balances in other banks		(36	)		60			24
Funds sold		-			-			-
Total interest-earning assets	$	6,028		$	(304	)	$	5,724

Interest-bearing liabilities
Interest-bearing transaction accounts	$	31		$	(4	)	$	27
Savings and money market deposits		219			62			281
Time deposits		179			28			207
Federal Home Loan Bank advances and other borrowed money		(105	)		66			(39	)
Subordinated debt		183			-			183
Total interest-bearing liabilities	$	507		$	152		$	659

Net interest income
Net interest income (taxable equivalent)		5,521			(456	)		5,065
Taxable equivalent adjustment		43			13			56
Net interest income	$	5,478		$	(469	)	$	5,009

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Comparison of net interest income for the six months ended June 30, 2016 and 2015

AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS

	For the Six Months Ended
(Dollars in thousands, except yields and rates)	June 30, 2016							June 30, 2015
Assets	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate
Loans	$	1,372,263	$	34,896		5.11	%	$	924,081	$	23,826		5.20	%
Mortgage loans held for sale		13,896		266		3.85			10,338		197		3.84
Securities:
Taxable securities		70,337		792		2.26			33,963		525		3.12
Tax-exempt securities		26,039		641		4.95			9,550		248		5.24
Cash balances in aother banks		115,729		347		0.60			113,323		208		0.37
Total interest-earning assets		1,598,264	$	36,942		4.65			1,091,255	$	25,004		4.62
Non-interest earning assets		152,432							94,920
Total assets	$	1,750,696						$	1,186,175

Liabilities and shareholders' equity
Interest-bearing transaction accounts	$	207,558	$	247		0.24	%	$	158,477	$	196		0.25	%
Savings and money market deposits		611,801		1,460		0.48			399,765		794		0.40
Time deposits		297,228		1,338		0.91			208,700		889		0.86
Federal Home Loan Bank advances and other borrowed money		8,980		152		3.40			22,000		219		2.01
Subordinated debt		5,803		183		6.34			-		-		-
Total interest-bearing liabilities		1,131,370	$	3,380		0.60			788,942	$	2,098		0.54
Noninterest-bearing deposits		387,519							232,818
Total funding sources		1,518,889							1,021,760
Noninterest-bearing liabilities		10,763							7,836
Shareholders' equity		221,044							156,579
	$	1,750,696						$	1,186,175
Net interest rate spread						4.05	%						4.08	%
Net interest income/margin (Taxable equivalent)				33,562		4.22	%				22,906		4.23	%
Tax equivalent adjustment				247							97
Net interest income/margin			$	33,315		4.19	%			$	22,809		4.21	%

Net interest income increased $10.5 million, or 46.1%, to $33.3 million for the six months ended June 30, 2016, compared to $22.8 million for the same period of 2015. The increase was due to an increase in interest income of $11.8 million, resulting from higher levels of loan volume from organic growth and the acquisition of RBF. This increase in interest income was partially offset by a $1.3 million increase in interest expense. The increase in interest income was primarily due to a 48.5% increase in average loans outstanding for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The resulting net interest margin for the six months ended June 30, 2016 decreased to 4.19%, from 4.21% during the six months ended June 30, 2015.

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Interest-earning assets averaged $1.6 billion for the six months ended June 30, 2016, compared to $1.1 billion for the six months ended June 30, 2015, an increase of $507.0 million, or 46.5%. Additional information on growth in our loan portfolio for these periods is presented below. The yield on average interest-earning assets increased by three basis points to 4.65% for the six months ended June 30, 2016, compared to 4.62% for the six months ended June 30, 2015. During the six months ended June 30, 2016, the loan yield was 5.11%, compared to 5.20% during the six months ended June 30, 2015. The decrease in loan yield was primarily attributable to the fact that rates on maturing loans have been generally higher than rates on new or renewed loans and that factored receivables, which earn a higher yield than traditional loans, represent a lower proportion of our total loans. RBF contributed average loan balances of $286.9 million during the six months ended June 30, 2016.

Interest-bearing liabilities averaged $1.1 billion for the six months ended June 30, 2016, compared to $788.9 million for the six months ended June 30, 2015, an increase of $342.4 million, or 43.4%. The average rate on total interest-bearing liabilities was 60 basis points for the six months ended June 30, 2016, compared to 54 basis points for the six months ended June 30, 2015. The increase in average deposits was due to organic deposit production and the inclusion of RBF’s deposits in our results for the six months ended June 30, 2016.

Average noninterest-bearing deposits increased to $387.5 million during the six months ended June 30, 2016, as compared to $232.8 million during the six months ended June 30, 2015. This increase in average noninterest-bearing deposits, together with the increased volume of interest-earning assets and slightly higher yields on interest-earning assets, led to the higher net interest margin for the six months ended June 30, 2016.

ANALYSIS OF CHANGES IN NET INTEREST INCOME

	For the Six Months Ended
	June 30,
(Dollars in thousands)	2016 vs. 2015
	Variance due to
Interest-earning assets	Volume			Yield/Rate			Total
Loans	$	11,467		$	(397	)	$	11,070
Mortgage loans held for sale		69			-			69
Securities:
Taxable securities		442			(175	)		267
Tax-exempt securities		408			(15	)		393
Cash balances in other banks		5			134			139
Funds sold		-			-			-
Total interest-earning assets	$	12,391		$	(453	)	$	11,938

Interest-bearing liabilities
Interest-bearing transaction accounts	$	59		$	(8	)	$	51
Savings and money market deposits		485			181			666
Time deposits		398			51			449
Federal Home Loan Bank advances and other borrowed money		(171	)		104			(67	)
Subordinated debt		183			-			183
Total interest-bearing liabilities	$	954		$	328		$	1,282

Net interest income
Net interest income (Taxable equivalent)		11,437			(781	)		10,656
Taxable equivalent adjustment		119			31			150
Net interest income	$	11,318		$	(812	)	$	10,506

Provision for Loan Losses

During the three and six months ended June 30, 2016, we recorded a provision for loan losses of $901 thousand and $2.4 million, respectively. During the three and six months ended June 30, 2015, we recorded a provision for loan losses of $120 thousand and $281 thousand, respectively. The additional provision for loan losses during the three and six months ended June 30, 2016 was due to net charge-offs of approximately $605 thousand at Corporate Billing, loan growth and uncertainty in the national and international economies and the impact on our local markets. Our policy is to maintain an allowance for loan losses at a level sufficient to absorb probable incurred losses inherent in the loan portfolio. The allowance is increased by a provision for loan losses, which is a charge to earnings, and is decreased by charge-offs and increased by loan recoveries. In determining the proper level of the allowance for loan losses, we consider our historical loan loss experience, the general economic environment, our overall portfolio composition, and specific impaired loans and other relevant information. As these factors change, the level of loan loss provision changes. When individual loans are evaluated for impairment and an impairment is deemed necessary, the impaired portion of the loan amount is charged off. As of June 30, 2016, none of our recorded allowance was related to impaired loans.

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Noninterest Income

In addition to net interest margin, we generate other types of recurring noninterest income from our operations. Our banking operations generate revenue from service charges and fees on deposit accounts. Our mortgage division generates revenue from originating and selling mortgages, and we have a revenue-sharing relationship with a registered broker-dealer. In addition to these types of recurring noninterest income, NBC owns life insurance on several key employees and records income on the increase in the cash surrender value of these policies.

Additionally, during the 2015 second quarter, we began earning revenue as a sponsor bank for a provider of electronic transaction processing services for retail merchants and the consumer finance industry. This sponsorship into the VISA and MasterCard networks allows the processor to accept debit and credit card transactions, and we earn a fee on each such transaction.

The following table sets forth the principal components of noninterest income for the periods indicated.

NONINTEREST INCOME

	For the Three Months Ended					For the Six Months Ended
	June 30,		June 30,			June 30,		June 30,
(Dollars in thousands)	2016		2015			2016		2015
Service charges and fees on deposit accounts	$	505	$	308		$	985	$	575
Mortgage origination and fee income		1,627		1,505			3,019		2,776
Merchant sponsorship revenue		491		191			1,013		191
Income from bank-owned life insurance		204		86			408		165
Wealth management fees		11		13			24		32
Gain (loss) on sale of other real estate		119		(11	)		275		(24	)
Other noninterest income		400		114			758		255
Total noninterest income	$	3,357	$	2,206		$	6,482	$	3,970

Noninterest income for the three months ended June 30, 2016 and 2015 was $3.4 million and $2.2 million, respectively. Noninterest income for the six months ended June 30, 2016 and 2015 was $6.5 million and $4.0 million, respectively. The inclusion of RBF in our results of operations accounted for approximately $132 thousand of the $1.2 million increase in noninterest income recorded during the three months ended June 30, 2016 and approximately $383 thousand of the $2.5 million increase recorded during the six months ended June 30, 2016.

All categories of noninterest income (except for wealth management fees) experienced an increase during the three and six months ended June 30, 2016. The most significant increase in noninterest income for both periods of 2016 was from merchant sponsorship revenue. Merchant sponsorship revenue increased $300 thousand during the three months ended June 30, 2016, and totaled $491 thousand for this period, as compared to $191 thousand during the three months ended June 30, 2015. Merchant sponsorship revenue increased $822 thousand during the six months ended June 30, 2016, and totaled $1.0 million for this period, as compared to $191 thousand during the six months ended June 30, 2015. We entered this business line during the second quarter of 2015, so the increases during the three and six month periods of 2016 represent a full three and six months of activity, respectively, as well as growth in volume in this business.

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Mortgage division income increased $122 thousand during the three months ended June 30, 2016, and totaled $1.6 million for this period, as compared to $1.5 million during the three months ended June 30, 2015. Mortgage division income increased $243 thousand during the six months ended June 30, 2016, and totaled $3.0 million for this period, as compared to $2.8 million during the six months ended June 30, 2015. Increased production, combined with slightly better pricing margins, led to higher mortgage division income during each of the 2016 periods. During the three months ended June 30, 2016, total production was $91.5 million, compared to $84.8 million during the three months ended June 30, 2015. Total production for the six months ended June 30, 2016 was $155.3 million, compared to $140.5 million during the six months ended June 30, 2015. During the three months ended June 30, 2016, refinance activity accounted for 17.2% of production volume, compared to 18.6% during the same period in 2015. The addition of RBF had a minimal impact on the higher mortgage division income during the three and six months ended June 30, 2016.

Service charges and fees on deposit accounts increased by $197 thousand to $505 thousand for the three months ended June 30, 2016, and increased $410 thousand to $985 thousand for the six months ended June 30, 2016, as compared to the same periods in 2015. The addition of RBF contributed $44 thousand and $153 thousand of the increases for the three- and six-month periods ended June 30, 2016, respectively. The remaining portion of this increase was a result of an increase in the number of deposit accounts as we continue to open new accounts and gain market share in our markets.

During the three and six months ended June 30, 2016, we recorded gains on sale of other real estate totaling $119 thousand and $275 thousand, respectively. During the three and six months ended June 30, 2015, we had small losses on such sales. The gains recorded in 2016 increased noninterest income during the three and six months ended June 30, 2016 by $130 thousand and $299 thousand, respectively.

Noninterest expense

The increase in our total noninterest expense during the three and six months ended June 30, 2016 reflects the continued growth of the Company (organic growth and growth through acquisition), as well as the expansion of our operational framework, employee base and facilities infrastructure as we build the foundation to support our growth strategies. We believe that some of our overhead costs will decrease as a percentage of our revenue as we grow and gain operating leverage by spreading these costs over a larger revenue base.

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The following table presents the primary components of noninterest expense for the periods indicated.

NONINTEREST EXPENSE

	For the Three Months Ended				For the Six Months Ended
	June 30,		June 30,		June 30,		June 30,
(Dollars in thousands)	2016		2015		2016		2015

Salaries and employee benefits	$	6,907	$	5,114	$	13,852	$	10,101
Commission-based compensation		1,036		1,056		1,911		1,852
Occupancy and equipment expense		1,131		829		2,266		1,665
Data processing expenses		618		487		1,285		912
Advertising and marketing expenses		191		125		351		298
Legal fees		179		135		301		302
FDIC insurance assessments		257		152		520		357
Property and casualty insurance premiums		166		146		389		282
Accounting and audit expenses		249		212		499		435
Consulting and other professional expenses		184		164		427		269
Telecommunications expenses		140		135		299		263
Other real estate owned, repossessed asset and other collection expenses		89		71		148		193
Core deposit intangible amortization		192		111		383		222
Other noninterest expense		915		879		1,676		1,755
Total noninterest expense	$	12,254	$	9,616	$	24,307	$	18,906

Noninterest expense for the three months ended June 30, 2016 and 2015 was $12.3 million and $9.6 million, respectively. Noninterest expense for the six months ended June 30, 2016 and 2015 was $24.3 million and $18.9 million, respectively. The inclusion of RBF in our results of operations accounted for approximately $1.6 million of the $2.6 million increase in noninterest expense recorded during the three months ended June 30, 2016. The inclusion of RBF accounted for approximately $3.3 million of the $5.4 million increase in noninterest expense recorded during the six months ended June 30, 2016.

The largest components of noninterest expense are related to employee costs shown in the table above as salaries and employee benefits expense and commission-based compensation expense. Salaries continue to increase as we expand our presence in our markets. In late March 2016, we opened a loan production office in Atlanta, Georgia, which contributed to the increase in salaries and employee benefits expense during the three and six months ended June 30, 2016. Higher incentive compensation accruals during the three and six months ended June 30, 2016 also contributed to the increase in salaries and employee benefits. Commission-based compensation expense is directly related to mortgage loan origination activity and certain production activity at Corporate Billing. During the six months ended June 30, 2016, higher levels of revenue for the mortgage division contributed to the increased commission-based compensation expense. Additionally, salaries and benefits expense and commission-based compensation expense for RBF’s employees contributed approximately $960 thousand of the $1.8 million increase in salaries and employee benefits expense and commission-based compensation expense recorded during the three months ended June 30, 2016 and contributed approximately $2.0 million of the $3.8 million increase in salaries and employee benefits and commission-based compensation expense recorded during the six months ended June 30, 2016 as compared with the same periods in 2015.

Most categories of noninterest expense increased during the three and six months ended June 30, 2016. This was largely a result of the additional expenses associated with the operations of RBF. Also, the six-month period ended June 30, 2016, comprises a full six months of costs associated with being a public company, compared to the six-month period ended June 30, 2015, during which we were a public company for less than four months. As we expand our franchise in our markets, we anticipate that other noninterest expenses will continue to grow.

Income Tax Provision

Income tax expense of $2.0 million was recognized during the three months ended June 30, 2016, compared to income tax expense of $1.3 million during the three months ended June 30, 2015. Income tax expense of $4.2 million was recognized during the six months ended June 30, 2016, compared to income tax expense of $2.4 million during the six months ended June 30, 2015. The increase in income tax expense during the each of the 2016 periods was due to an increase in pre-tax income. Our effective tax rate for the three months ended June 30, 2016 was 30.2% (32.2% including the minority interest in CBI), compared to 30.7% (35.9% including the minority interest in CBI) during the three months ended June 30, 2015. Our effective tax rate for the six months ended June 30, 2016 was 31.8% (33.8% including the minority interest in CBI), compared to 31.0% (36.1% including the minority interest in CBI) during the six months ended June 30, 2015. The effective tax rate is affected by items of income and expense that are not subject to federal and state taxation. The tax rate in the three and six months ended June 30, 2016 is lower as compared to same periods of 2015 due to an investment in a housing project that generated a state tax credit and a smaller contribution from CBI to our overall net income.

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Comparison of Balance Sheets at June 30, 2016 and December 31, 2015

Overview

Our total assets decreased $27.6 million, or 1.6%, from $1.8 billion at December 31, 2015 to $1.7 billion at June 30, 2016. Cash and cash equivalents decreased by $126.3 million during the first six months of 2016. Loans increased by $87.2 million, or 6.6%, during the first six months of 2016. Total assets and cash and cash equivalents decreased due to temporary year-end deposits that were withdrawn during the first of quarter of 2016 and the use of cash balances on deposit by our corporate customers for tax payments and asset investments during the second quarter of 2016. Additionally, we continue to invest excess cash in loans and have elected to invest of some of our excess cash in securities.

During the first six months of 2016, deposits decreased $53.6 million and totaled $1.5 billion at June 30, 2016. Our deposits were higher at year-end 2015 due to the existence of temporary deposits that were withdrawn during the first three months of 2016, use of cash by customers for tax payments, and the maturity of brokered certificates of deposit and internet certificates of deposit without the issuance of new brokered and internet deposits to replace them. Deposit production is one of our primary focuses, and a component of our account officers’ bonus calculations is tied to deposit production during 2016.

Investment Securities

We use our securities portfolio primarily to enhance our overall yield on interest-earning assets and as a source of liquidity, as a tool to manage our balance sheet sensitivity and regulatory capital ratios, and as a base from which to pledge assets for public deposits. When our liquidity position exceeds current needs and our expected loan demand, other investments are considered as a secondary earnings alternative. As investments mature, they are used to meet current cash needs, or they are reinvested to maintain our desired liquidity position. We have designated a majority of our securities as available-for-sale to provide flexibility in case an immediate need for liquidity arises, and we believe that the composition of the portfolio offers needed flexibility in managing our liquidity position and interest rate sensitivity without adversely impacting our regulatory capital levels. Securities available-for-sale are reported at fair value, with unrealized gains or losses reported as a separate component of other comprehensive income, net of related deferred taxes. Purchase premiums and discounts are recognized in income using the interest method over the terms of the securities. Securities classified as held-to-maturity are carried at amortized cost on our balance sheet.

During the six months ended June 30, 2016, we elected to use a portion of our balance sheet liquidity and invested $3.8 million in a United States government agency obligation and $9.0 million in other asset-backed securities. We intend to continue to invest excess liquidity in securities when the yield, liquidity and interest rate risk are appropriate.

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The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at June 30, 2016 and December 31, 2015.

INVESTMENT SECURITIES AVAILABLE-FOR-SALE

	As of
	June 30,				December 31,
(Dollars in thousands)	2016				2015
	Cost		Market		Cost		Market
U.S. Government agency obligations (excluding MBS)	$	3,721	$	3,692	$	-	$	-
Securities issued by states and political subdivisions		4,407		4,725		4,407		4,679
Residential mortgage pass-through securities		43,860		45,101		48,155		48,726
Other asset-backed securities		8,984		8,984		-		-
Total investment securities available-for-sale	$	60,972	$	62,502	$	52,562	$	53,405

INVESTMENT SECURITIES HELD-TO-MATURITY

	As of
	June 30,				December 31,
(Dollars in thousands)	2016				2015
	Cost		Market		Cost		Market
Securities issued by states and political subdivisions	$	21,335	$	22,481	$	21,361	$	21,762
Residential mortgage pass-through securities		5,658		5,734		6,097		6,081
Total investment securities held-to-maturity	$	26,993	$	28,215	$	27,458	$	27,843

We invest primarily in mortgage-backed securities, municipal securities and obligations of government-sponsored entities and agencies of the United States, though we may in some situations also invest in direct obligations of the United States or obligations guaranteed as to the principal and interest by the United States. All of our mortgage-backed securities are residential securities issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). During the three months ended June 30, 2016, we began investing in other asset-backed securities. These securities are collateralized by commercial loans, and we have invested in tranches rated AAA or AA by Standard & Poor’s and/or Moody’s. We anticipate growing this portfolio of other asset-backed securities to approximately $25.0 million, and maintaining it at that level, depending on our liquidity and market conditions.

Loans

Loans are our largest category of earning assets and typically provide higher yields than other types of earning assets. Associated with the higher loan yields are the inherent credit and liquidity risks that management attempts to control and counterbalance. Total loans averaged $1.4 billion during the six months ended June 30, 2016, or 85.9% of average earning assets, as compared to $924.1 million, or 84.7% of average earning assets, for the six months ended June 30, 2015. At June 30, 2016, total loans, net of unearned income, were $1.4 billion, compared to $1.3 billion at December 31, 2015, an increase of $87.2 million, or 6.6%.

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The organic, or non-acquired, growth in the Bank’s loan portfolio is attributable to the Bank’s ability to attract new customers from other financial institutions. We have also been successful in building banking relationships with new customers in all of the markets that we serve. We have hired several new bankers in our markets, and these employees have been successful in transitioning their former clients and new clients to the Bank. Our bankers are expected to be involved in their communities and to maintain business development efforts to develop relationships with clients, and our philosophy is to be responsive to customer needs by providing decisions in a timely manner. In addition to our business development efforts, many of the markets in which we operate have shown signs of economic recovery over the last few years, which has increased demand for the services that we provide. The table below provides a summary of the loan portfolio composition as of the dates indicated.

COMPOSITION OF LOAN PORTFOLIO

	As of
	June 30,						December 31,
(Dollars in thousands)	2016						2015
	Amount			Percent of Total			Amount			Percent of Total
Construction, land development, and other land loans	$	156,448			11.12	%	$	152,862			11.58	%
Secured by farmland		12,793			0.91			7,455			0.56
Secured by 1-4 family residential properties		356,011			25.30			333,761			25.29
Secured by multifamily (5 or more) residential properties		42,433			3.02			31,128			2.36
Secured by nonfarm nonresidential properties		563,789			40.07			509,212			38.58
Loans secured by real estate		1,131,474			80.42			1,034,418			78.37
Commercial and industrial loans		163,992			11.66			171,160			12.97
Factored commercial receivables		70,673			5.02			67,628			5.12
Consumer loans		20,688			1.47			21,116			1.60
Other loans		20,208			1.43			25,572			1.94
Total gross loans		1,407,035			100.00	%		1,319,894			100.00	%
Unearned income		(459	)					(480	)
Total loans, net of unearned income		1,406,576						1,319,414
Allowance for loan losses		(11,642	)					(9,842	)
Total net loans	$	1,394,934					$	1,309,572

In the context of this discussion, a "real estate mortgage loan" is defined as any loan secured by real estate, other than a loan for construction purposes, regardless of the purpose of the loan. It is common practice for financial institutions in our market areas, and for us in particular, to obtain a security interest in or lien on real estate whenever possible, in addition to any other available collateral. This collateral is taken to increase the likelihood of the ultimate repayment of the loan. This practice tends to increase the magnitude of the real estate loan portfolio. In many cases, we prefer real estate collateral to many other potential collateral sources, such as accounts receivable, inventory and equipment.

The principal component of our loan portfolio is loans secured by real estate. At June 30, 2016, this category totaled $1.1 billion and represented 80.4% of our total loan portfolio, compared to $1.0 billion, or 78.4% of the total loan portfolio, at December 31, 2015. Each category of real estate mortgage loans increased during the first six months of 2016.

Loans secured by nonfarm nonresidential properties (“commercial mortgage loans”) increased by $54.6 million, or 10.7%, to $563.8 million at June 30, 2016, compared to $509.2 million at December 31, 2015. Commercial mortgage loans comprise the single largest category of our loans, and at June 30, 2016, accounted for 40.1% of our entire loan portfolio. Our management team has a great deal of experience and expertise in commercial mortgages, and this loan type has traditionally comprised a large portion of our loan portfolio. Of the $563.8 million in total commercial mortgage loans at June 30, 2016, approximately $232.9 million were loans secured by owner-occupied properties.

Residential mortgage loans increased by $22.3 million, or 6.7%, to $356.0 million at June 30, 2016, compared to $333.8 million at December 31, 2015. At June 30, 2016, residential mortgages accounted for 25.3% of our entire loan portfolio.

Real estate construction loans totaled $156.4 million at June 30, 2016, an increase of 2.3% from $152.9 million at December 31, 2015. At June 30, 2016, this loan type accounted for 11.1% of our total loan portfolio.

Commercial and industrial loans totaled $164.0 million at June 30, 2016, a decrease of 4.2% from $171.2 million at December 31, 2015. At June 30, 2016, this loan type accounted for 11.7% of our total loan portfolio.

Factored commercial receivables at Corporate Billing totaled $70.7 million at June 30, 2016, compared to $67.6 million at December 31, 2015. This balance fluctuates based on several variables, such as when receivables are purchased and when and how quickly payments are received.

Allowance for Loan Losses, Provision for Loan Losses and Asset Quality

Allowance for Loan Losses and Provision for Loan Losses

The allowance for loan losses represents our estimate of probable inherent credit losses in our loan portfolio. We determine the allowance based on an ongoing evaluation of risk as it correlates to potential losses within the portfolio. Increases to the allowance are made by charges to the provision for loan losses. Loans deemed to be uncollectible are charged against the allowance. Recoveries of previously charged-off amounts are credited to the allowance for loan losses.

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In determining the amount of the allowance, we utilize our risk department’s independent analysis of the minimum required loan loss reserve for the Bank. In this analysis, problem loans are reviewed for impairment or for loss exposure based on their payment performance and probability of default and the value of any collateral securing the loan. These totals are specifically allocated to the reserve. The loan portfolio is then divided into various homogeneous risk pools utilizing a combination of collateral codes and/or loan purpose codes and internal risk ratings. Historical losses are used to estimate the probable loss in the current portfolio based on both an average loss methodology and a migration loss methodology. The methodologies and the time periods considered are subjective and vary for each risk pool based on systematic risk relative to our ability to estimate losses for that risk pool. Because every loan has a risk of loss, the calculation begins with a minimum loss allocation for each loan pool. The minimum loss is estimated based on long-term trends for the Bank, the banking industry and the economy. A minimum loss allocation is similarly applied to letters of credit and unused lines of credit. Loss allocations are adjusted for changes in the economy, problem loans, payment performance, loan policy, management, credit administration systems, credit concentrations, loan growth and other elements over the time periods utilized in the methodology. The adjusted loss allocations are then applied to the current balances in their respective loan pools. Loss allocations are totaled, yielding the required allowance for loan losses.

We incorporate the data from the allowance calculation with interim changes to that data in our ongoing determination of the allowance for loan losses. We then take into consideration other factors that may support an allowance in excess of required minimums. These factors include systems changes, historically high loan growth, concentrations in certain loan types, changes in the economy and company management and lending practices at the time at which the loans were made. We believe that the data that we use in determining the allowance for loan losses is sufficient to estimate the potential losses in the loan portfolio; however, actual results could differ from management’s estimates.

The following table presents a summary of changes in the allowance for loan losses for the periods indicated.

ALLOWANCE FOR LOAN LOSSES

	As of and for the Three Months Ended						As of and for the Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2016			2015			2016			2015
Total loans oustanding, net of unearned income	$	1,406,576		$	970,653		$	1,406,576		$	970,653
Average loans oustanding, net of unearned income	$	1,391,789		$	944,373		$	1,372,263		$	924,081
Allowance for loan losses at beginning of period	$	10,927		$	9,522		$	9,842		$	9,802
Charge-offs:
Loans secured by real estate		-			432			-			764
Commercial and industrial loans		-			-			-			-
Factored receivables		431			529			1,319			1,095
Consumer loans		153			87			180			87
All other loans		3			-			4			1
Total charge-offs		587			1,048			1,503			1,947
Recoveries:
Loans secured by real estate		64			63			114			95
Commercial and industrial loans		26			193			26			9
Factored receivables		308			406			714			1,003
Consumer loans		3			5			7			5
All other loans		-			13			8			26
Total recoveries		401			680			869			1,138
Net charge-offs		186			368			634			809
Provision for loan losses		901			120			2,434			281
Allowance for loan losses at period end	$	11,642		$	9,274		$	11,642		$	9,274
Allowance for loan losses to period end loans		0.83	%		0.96	%		0.83	%		0.96	%

Net charge-offs to average loans		0.05	%		0.16	%		0.09	%		0.18	%

The table above does not include the allowances of United Legacy Bank (”United”) or RBF that were established prior to the respective dates of acquisition of these banks. In accordance with ASC Topic 805, Business Combinations, United’s and RBF’s allowances for loan losses were not brought forward at acquisition; instead, the acquired loans were recorded at fair value, and any discount to fair value was recorded against the loans rather than as an allowance for loan losses. The portion of the discount deemed related to credit quality was recorded as a non-accretable difference, and the remaining discount was recorded as an accretable discount and accreted into interest income over the estimated average life of the loans using the level yield method. At June 30, 2016, United’s and RBF’s combined acquired loan portfolios totaled $357.1 million and had an aggregate related non-accretable difference of $5.5 million and accretable discount of $3.4 million.

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For the acquired loan portfolio, the allowance is determined for each loan pool and compared to the remaining discount for that pool. If the allowance amount calculated under the Company’s methodology is greater than the Company’s remaining discount, this amount is added to the reported allowance through a provision for loan losses. If the allowance amount calculated under the Company’s methodology is less than the Company’s recorded discount, no additional allowance or provision is recognized. Our analysis indicates that no additional allowance is necessary on our acquired loan portfolio.

Overall, asset quality indicators have remained steady or improved during the first six months of 2016. During the six months ended June 30, 2016, we recorded a provision expense of $2.4 million due to Corporate Billing’s net charge-offs of $605 thousand, continued strong loan growth, and uncertainty in the national and international economies and the resulting impact on our local markets.

Allocation of the Allowance for Loan Losses

While no portion of the allowance is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance for loan losses to specific loan categories as of the dates indicated.

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

	As of
	June 30,					December 31,
(Dollars in thousands)	2016					2015
	Amount		Percent of Loans in each Category to Total Loans			Amount		Percent of Loans in each Category to Total Loans
Commercial, financial and agricultural	$	1,652		13.09	%	$	1,345		14.91	%
Factored receivables		500		5.02			500		5.12
Real estate - mortgage		7,474		69.30			5,525		66.79
Real estate - construction		1,765		11.12			1,412		11.58
Consumer		251		1.47			236		1.60
Unallocated		-		-			824		-
	$	11,642		100.00	%	$	9,842		100.00	%

Our allowance for loan losses is composed of general reserves and specific reserves. General reserves are determined by applying loss percentages to each segment of our portfolio based on that segment’s historical loss experience and adjustment factors derived from internal and external environmental conditions. All loans considered to be impaired are evaluated on an individual basis to determine specific reserve allocations in accordance with U.S. GAAP. Loans for which specific reserves are provided are excluded from the calculation of general reserves.

Nonperforming Assets

The following table presents our nonperforming assets as of the dates indicated.

NONPERFORMING ASSETS

	As of
	June 30,						December 31,
(Dollars in thousands)	2016			2015			2015
Nonaccrual loans	$	3,347		$	5,483		$	3,695
Loans past due 90 days or more and still accruing		406			44			252
Total nonperforming loans		3,753			5,527			3,947
Other real estate and repossessed assets		2,160			1,636			3,965
Total nonperforming assets	$	5,913		$	7,163		$	7,912
Allowance for loan losses to period-end loans		0.83	%		0.96	%		0.75	%
Allowance for loan losses to period-end nonperforming loans		310.21			167.79			249.35
Net charge-offs to average loans		0.09			0.18			0.11
Nonperforming assets to period-end loans and foreclosed property and repossessed assets		0.42			0.74			0.60
Nonperforming loans to period-end loans		0.27			0.57			0.30

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Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that the collection of interest is doubtful. In addition to a consideration of these factors, we have a consistent and continuing policy of placing all loans on nonaccrual status if they become 90 days or more past due, excluding factored receivables. For Corporate Billing’s factored receivables, which are trade credits rather than promissory notes, our practice is to charge off unpaid recourse receivables when they become 90 days past due from the invoice due date and to charge off unpaid non-recourse receivables when they become 120 days past due from the statement billing date. For the recourse receivables, the amount of the invoice is charged against the client reserve account established for such purposes, unless the client reserve and the client’s financial resources are insufficient, in which case either the amount of the invoice is charged against loans or the balance is considered impaired and the client is responsible for repaying the unpaid obligation of the account debtor. When a loan is placed on nonaccrual status, all accrued interest on the loan is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until collection of both principal and interest becomes reasonably certain. Payments received while a loan is on nonaccrual status will be applied to the loan’s outstanding principal balance. When a problem loan is resolved, there may ultimately be an actual write-down or charge-off of the principal balance of the loan that would necessitate additional charges to the allowance for loan losses.

Total nonperforming assets decreased by $2.0 million to $5.9 million at June 30, 2016, from $7.9 million at December 31, 2015. Asset quality has been and will continue to be a primary focus of management.

Deposits

Deposits, which include noninterest-bearing demand deposits, interest-bearing demand deposits, money market accounts and savings and time deposits, are the primary funding source for the Bank. We offer a variety of products designed to attract and retain customers, with a primary focus on building and expanding client relationships. We continually focus on establishing a comprehensive relationship with consumer and business borrowers, seeking deposits as well as lending relationships.

The following table details the composition of our deposit portfolio as of the dates indicated.

COMPOSITION OF DEPOSITS

	As of
	June 30,					December 31,
(Dollars in thousands)	2016					2015
	Amount		Percent of Total			Amount		Percent of Total
Noninterest-bearing demand	$	384,854		26.34	%	$	382,946		25.29	%
Interest-bearing demand		207,673		14.22			202,649		13.38
Savings and money market		584,347		40.00			611,887		40.40
Time less than $100k		78,665		5.38			87,069		5.75
Time equal to or greater than $100k and less than $250k		71,050		4.86			85,151		5.62
Time equal to or greater than $250k		134,288		9.20			144,756		9.56
Total deposits	$	1,460,877		100.00	%	$	1,514,458		100.00	%

Total deposits were $1.5 billion at June 30, 2016, a decrease of $53.6 million from December 31, 2015. A portion of this decrease was due to an expected withdrawal of year-end temporary deposits during the first three months of 2016. Overall deposits continued to decline during the three months ended June 30, 2016. This decrease was primarily a result of tax payments by corporate and individual customers and investments in fixed assets by corporate customers, rather than balances leaving as a result of closed accounts. Therefore, we believe that this decrease is temporary and anticipate these balances to return. Deposit growth is a point of emphasis, and a component of our account officers’ bonus calculations is tied to deposit production during 2016.

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Other Funding Sources

We supplement our deposit funding with wholesale funding when needed for balance sheet planning or when the terms are attractive and will not disrupt our offering rates in our markets. One of our primary sources of wholesale funding is the Federal Home Loan Bank of Atlanta (“FHLB”). We had FHLB borrowings of $7.0 million and $22.0 million at June 30, 2016 and December 31, 2015, respectively. During the first six months of 2016, a $15.0 million advance matured. We have not initiated any additional borrowings from the FHLB since 2012. During 2014, we issued $48.9 million of brokered deposits to fund a portion of the CBI acquisition. Several of these brokered deposits have matured, and as of June 30, 2016, we had $34.4 million of brokered deposits outstanding compared to $38.9 million at December 31, 2015. Another funding source that we have used to supplement our local funding is internet certificates of deposit. We have used this source to book certificates of deposit that mature in three to five years at rates that are lower than we would offer in our local markets, typically below the rates indicated on the LIBOR swap curve for similar maturities. We had internet certificates of deposit balances of $5.4 million and $12.3 million at June 30, 2016 and December 31, 2015, respectively. The decrease during the first six months of 2016 was primarily due to maturities.

On May 19, 2016, the Company completed the underwritten public offering of $25 million of its unsecured 6.0% Fixed-to-Floating Rate Subordinated Notes due June 1, 2026 (“Notes”). The Notes will bear interest at a fixed rate of 6.0% per year, from, and including May 19, 2016, to, but excluding June 1, 2021. On June 1, 2021, the Notes convert to a floating rate equal to three-month LIBOR plus 479 basis points. The Notes may be redeemed by the Company after June 1, 2021. The Company incurred expenses associated with the offering totaling $460 thousand. We intend to use and have used a portion of the net proceeds for general corporate purposes, including financing organic growth, acquisitions and investments in current bank and non-bank subsidiaries.

Liquidity

Market and public confidence in our financial strength and in financial institutions in general will have a significant role in our access to appropriate levels of liquidity. This confidence is significantly dependent on our ability to maintain sound asset quality and appropriate levels of capital reserves.

Liquidity is defined as the ability to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. We measure our liquidity position by giving consideration to both on− and off−balance sheet sources of and demands for funds on a daily, weekly and monthly basis.

Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liabilities, as well as the risk of not being able to meet our cash needs as they arise. Liquidity planning and management are necessary to ensure the ability to fund operations in a cost-effective manner and to meet current and future potential obligations, such as loan commitments, lease obligations and deposit outflows. In this process, we focus on both assets and liabilities and on the manner in which they collectively contribute to provide adequate liquidity to meet our needs.

Funds are available from a number of basic banking activity sources, including the core deposit base, the repayment and maturity of loans and investment security cash flows. Other funding sources include federal funds purchased, brokered certificates of deposit and borrowings from the FHLB. We also have access to the public and private capital markets as markets conditions allow.

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Cash and cash equivalents at June 30, 2016 and December 31, 2015 were $86.1 million and $212.5 million, respectively. Based on the recorded cash and cash equivalents, we believe that our liquidity resources were sufficient at June 30, 2016 to fund loans and meet our other cash needs as necessary.

Contractual Obligations

While our liquidity monitoring and management considers both present and future demands for and sources of liquidity, the following table of contractual commitments focuses only on future obligations.

CONTRACTUAL OBLIGATIONS

As of June 30, 2016

(Dollars in thousands)	Due in 1 year or less		Due after 1 through 3 years		Due after 3 through 5 years		Due after 5 years		Total
Federal Home Loan Bank advances	$	-	$	5,000	$	2,000	$	-	$	7,000
Subordinated debt		-		-		24,540		-		24,540
Certificates of deposit of less than $100k		42,808		27,384		8,473		-		78,665
Certificates of deposit of $100k or more		128,916		45,985		30,437		-		205,338
Operating leases		1,097		1,518		968		2,740		6,323
Total contractual obligations	$	172,821	$	79,887	$	66,418	$	2,740	$	321,866

Off-Balance Sheet Arrangements

We are a party to credit-related financial instruments with off-balance sheet risks in the normal course of business in order to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recorded on our balance sheet. Our exposure to credit loss is represented by the contractual amounts of these commitments. We follow the same credit policies in making these types of commitments as we do for on-balance sheet instruments.

Our off-balance sheet arrangements are summarized in the following table as of the dates indicated.

CREDIT EXTENSION COMMITMENTS

	As of
	June 30,		December 31,
	2016		2015
(Dollars in thousands)	Amount		Amount
Unfunded lines	$	308,109	$	311,424
Letters of credit		9,699		10,206
Total credit extension commitments	$	317,808		321,630

Interest Sensitivity and Market Risk

Interest Sensitivity

We monitor and manage the pricing and maturity of our assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on our net interest income. The principal monitoring technique that we employ is simulation analysis, as augmented by a “gap” analysis.

In simulation analysis, we review each individual asset and liability category and its projected behavior in various interest rate environments. These projected behaviors are based on our past experiences and on current competitive environments, including the various environments in the different markets in which we compete. Using this projected behavior and differing rate scenarios as inputs, the simulation analysis generates projections of net interest income. We also periodically verify the validity of this approach by comparing actual results with those that were projected in previous models.

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Another technique used in interest rate management, but to a lesser degree than simulation analysis, is the measurement of the interest sensitivity "gap," which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets and liabilities, selling securities available for sale or trading securities, replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability.

We evaluate interest rate sensitivity risk and then formulate guidelines regarding asset generation and repricing and sources and prices of off-balance sheet commitments in order to decrease interest sensitivity risk. We use computer simulations to measure the net income effect of various interest rate scenarios. The modeling reflects interest rate changes and the related impact on net income over specified periods of time.

The following table illustrates our interest rate sensitivity at June 30, 2016, assuming that the relevant assets and liabilities are collected and paid, respectively, based upon historical experience rather than their stated maturities.

INTEREST SENSITIVITY ANALYSIS

As of June 30, 2016

(Dollars in thousands)
Interest-earning assets	0-1 Mos			1-3 Mos			3-12 Mos			1-3 Yrs		3-5 Yrs		> 5 Yrs			Total
Loans⁽¹⁾	$	694,839			33,798			120,167			256,532		247,102		73,606			1,426,044
Securities		11,915			4,606			5,255			15,044		12,065		40,610			89,495
Cash balances in other banks		58,880			-			-			-		-		-			58,880
Funds sold		-			-			-			-		-		-			-
Total interest-earning assets	$	765,634			38,404			125,422			271,576		259,167		114,216			1,574,419

Interest-bearing liabilities
Interest-bearing transactions accounts	$	85,773			5,366			24,147			42,930		21,472		27,985			207,673
Savings and money market deposits		346,281			7,552			33,987			83,942		2,699		109,886			584,347
Time deposits		8,601			38,493			124,629			73,370		38,910		-			284,003
Federal Home Loan Bank and other borrowed money		-			-			-			7,000		-		-			7,000
Subordinated debt		-			-			-			-		24,540		-			24,540
Total interest-bearing liabilities	$	440,655			51,411			182,763			207,242		87,621		137,871			1,107,563

Interest sensitivity gap
Period gap	$	324,979			(13,007	)		(57,341	)		64,334		171,546		(23,655	)		466,856
Cumulative gap		324,979			311,972			254,631			318,965		490,511		466,856
Cumulative gap - Rate-Sensitive Assets/Rate-Sensitive Liabilities		20.64	%		19.82			16.17			20.26		31.16		29.65

(1) Includes mortgage loans held-for-sale

We generally benefit from an increase in market rates of interest when we have an asset-sensitive gap (a positive number) and generally benefit from a decrease in market interest rates when we have a liability-sensitive gap (a negative number). As shown in the table above, we are asset-sensitive on a cumulative basis throughout all timeframes presented. The interest sensitivity analysis presents only a static view of the timing and repricing opportunities, without taking into consideration the fact that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short timeframe, but those are viewed by management as significantly less interest-sensitive than market-based rates, such as those paid on non-core deposits. For this and other reasons, we rely more on the simulation analysis (as described above) in managing interest rate risk. Net interest income may be impacted by other significant factors in a given interest rate environment, including changes in the volume and mix of earning assets and interest-bearing liabilities.

Market Risk

Our earnings are dependent, to a large degree, on our net interest income, which is the difference between interest income earned on all earning assets, primarily consisting of loans and securities, and interest paid on all interest-bearing liabilities, primarily consisting of deposits. Market risk is the risk of loss from adverse changes in market prices and interest rates. Our market risk arises primarily from inherent interest rate risk in our lending, investing and deposit-gathering activities. We seek to reduce our exposure to market risk through actively monitoring and managing interest rate risk. Management relies on static “gap” analysis to determine the degree of mismatch in the maturity and repricing distribution of interest-earning assets and interest-bearing liabilities, which quantifies, to a large extent, the degree of market risk inherent in our balance sheet. Gap analysis is further augmented by simulation analysis to evaluate the impact of varying levels of prevailing interest rates and the sensitivity of specific earning assets and interest-bearing liabilities to changes in those prevailing rates. Simulation analysis consists of evaluating the impact on net interest income given changes from 400 basis points below the current prevailing rates to 400 basis points above the current prevailing rates. We make certain assumptions regarding the effect that varying levels of interest rates have on certain earning assets and interest-bearing liabilities, based on both historical experience and consensus estimates of outside sources.

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The following table illustrates the results of our simulation analysis to determine the extent to which market risk would affect net interest margin for the next twelve months if prevailing interest rates increased or decreased by the specified amounts from current rates. As described above, this model uses estimates and assumptions regarding the manner in which asset and liability accounts will react to changes in prevailing interest rates. However, to isolate the market risk inherent in the balance sheet, the model assumes that no growth in the balance sheet occurs during the projection period. The model also assumes an immediate and parallel shift in interest rates, which would result in no change in the shape or slope of the interest rate yield curve. Because of the inherent use of these estimates and assumptions in the simulation model to derive this market risk information, the actual results of the future impact of market risk on our net interest margin may (and likely will) differ from those set forth in the table.

	MARKET RISK

	Impact on Net Interest Income
	As of June 30,			As of December 31,
Change in prevailing interest rates	2016			2015
+400 basis points		19.66	%		21.26	%
+300 basis points		14.75			15.89
+200 basis points		9.75			10.48
+100 basis points		4.70			5.08
0 basis points		-			-
-100 basis points		(5.61	)		(3.85	)
-200 basis points		(11.00	)		(8.95	)
-300 basis points		(15.59	)		(13.17	)
-400 basis points		(18.41	)		(16.96	)

Capital Resources

Total shareholders’ equity attributable to NCC at June 30, 2016 was $218.8 million, or 12.6% of total assets. At December 31, 2015, total shareholders’ equity attributable to NCC was $209.3 million, or 11.9% of total assets. The increase in shareholders’ equity during the first six months of 2016 was primarily attributable to net income of $8.1 million, share-based compensation and related payouts of $914 thousand and an increase in accumulated other comprehensive income of $446 thousand.

In July 2013, the Federal Reserve and the OCC issued final rules implementing the Basel III regulatory capital framework, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rules took effect for the Company and the Bank on January 1, 2015, subject to a transition period for certain parts of the rules. Among other things, the rules (i) revised the minimum capital requirements and adjusted the prompt corrective action thresholds applicable to financial institutions under the agencies’ jurisdiction, (ii) revised the regulatory capital elements, (iii) added a new common equity Tier 1 capital ratio, (iv) increased the minimum Tier 1 capital ratio requirements and (v) implemented a new capital conservation buffer. The rules also permit certain banking organizations to retain, through a one-time election, the existing treatment for accumulated other comprehensive income. The Company and Bank have made the election to retain the existing treatment for accumulated other comprehensive income.

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The rules are intended to provide an additional measure of a bank’s capital adequacy by assigning weighted levels of risk to asset categories. Banks are also required to systematically maintain capital against such “off-balance sheet” activities as loans sold with recourse, loan commitments, guarantees and standby letters of credit. These guidelines are intended to strengthen the quality of capital by increasing the emphasis on common equity and restricting the amount of loan loss reserves and other forms of equity, such as preferred stock, that may be included in capital. Certain items, such as goodwill and other intangible assets, are deducted from total capital in arriving at the various regulatory capital measures, such as common equity Tier 1 capital, Tier 1 capital and total risk-based capital. Our objective is to maintain our current status as a “well−capitalized” institution, as that term is defined by the Bank’s regulators. As of June 30, 2016, the Bank was “well-capitalized” under the regulatory framework for prompt corrective action.

Under the current regulatory guidelines, banks must meet minimum capital adequacy levels based on both total assets and risk-adjusted assets. All banks are required to maintain a minimum ratio of total capital to risk-weighted assets of 8%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6%, a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a minimum ratio of Tier 1 capital to average assets (“leverage ratio”) of 4%. Adherence to these guidelines has not had an adverse impact on us.

The table below calculates and presents regulatory capital based on the regulatory capital ratio requirements under Basel III. As of January 1, 2016, an additional capital conservation buffer has been added to the minimum requirements for capital adequacy purposes and is subject to a three-year phase-in period. The capital conservation buffer will be fully phased-in on January 1, 2019 at 2.5%. A banking organization with a conservation buffer of less than 2.5% (or the required phase-in amount in years prior to 2019) will be subject to limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. The ratios for the Company and Bank are currently sufficient to satisfy the fully phased-in conservation buffer.

The following table sets forth selected consolidated capital ratios at June 30, 2016 and December 31, 2015 for both NBC and NCC.

CAPITAL ADEQUACY ANALYSIS

(Dollars in thousands)	Actual					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
As of June 30, 2016	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital
(to Risk-Weighted Assets)
NCC	$	196,441		13.79	%	$	114,000		8.00	%		N/A		N/A
NBC	$	166,773		11.72	%		113,886		8.00	%	$	142,357		10.00	%
Tier 1 Capital
(to Risk-Weighted Assets)
NCC	$	160,259		11.25	%	$	85,500		6.00	%		N/A		N/A
NBC	$	155,131		10.90	%	$	85,414		6.00	%	$	113,886		8.00	%
Common Equity Tier 1 Capital
(to Risk-Weighted Assets)
NCC	$	160,259		11.25	%	$	64,125		4.50	%		N/A		N/A
NBC	$	155,131		10.90	%	$	64,061		4.50	%	$	92,532		6.50	%
Tier 1 Capital
(to Average Assets)
NCC	$	160,259		9.51	%	$	67,386		4.00	%		N/A		N/A
NBC	$	155,131		9.22	%	$	67,290		4.00	%	$	84,113		5.00	%

As of December 31, 2015	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital
(to Risk-Weighted Assets)
NCC	$	161,023		11.91	%	$	108,178		8.00	%		N/A		N/A
NBC	$	151,386		11.21	%		108,085		8.00	%	$	135,106		10.00	%
Tier 1 Capital
(to Risk-Weighted Assets)
NCC	$	151,181		11.18	%	$	81,134		6.00	%		N/A		N/A
NBC	$	141,544		10.48	%	$	81,064		6.00	%	$	108,085		8.00	%
Common Equity Tier 1 Capital
(to Risk-Weighted Assets)
NCC	$	151,181		11.18	%	$	60,850		4.50	%		N/A		N/A
NBC	$	141,544		10.48	%	$	60,798		4.50	%	$	87,819		6.50	%
Tier 1 Capital
(to Average Assets)
NCC	$	151,181		9.68	%	$	62,501		4.00	%		N/A		N/A
NBC	$	141,544		9.05	%	$	62,575		4.00	%	$	78,219		5.00	%

Banking regulations limit the amount of dividends that a bank can pay without the prior approval of its regulatory authorities. These restrictions are based on levels of regulatory classified assets, prior years’ net earnings and the ratio of equity capital to assets. The Bank is currently permitted to pay dividends to NCC, subject to safety and soundness requirements and other limitations imposed by law and federal regulatory authorities.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is contained in Part I, Item 2 herein under the heading “Interest Sensitivity and Market Risk.”

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company has carried out an evaluation under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2016, the Company’s disclosure controls and procedures are effective in ensuring that material information relating to the Company required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the Company’s quarter ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its subsidiaries may be involved from time to time in various routine legal proceedings incidental to our respective businesses. Neither the Company nor any of its subsidiaries is currently engaged in any legal proceedings that are expected to have a material adverse effect on our results of operations or financial position.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 that could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Number		Exhibit Description

3.1		Certificate of Incorporation of National Commerce Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (File No. 333-198219), filed with the Securities and Exchange Commission on August 18, 2014)

3.1A		Amendment to Certificate of Incorporation of National Commerce Corporation (incorporated by reference to Exhibit 3.1A to the Company’s Annual Report on Form 10-K (File No. 000-55336), filed with the Securities and Exchange Commission on February 20, 2015)

3.2		By-Laws of National Commerce Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-4 (File No. 333-198219), filed with the Securities and Exchange Commission on August 18, 2014)

4.1		Indenture dated May 19, 2016 between National Commerce Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-36878), filed with the Securities and Exchange Commission on May 19, 2016)

4.2		First Supplemental Indenture dated May 19, 2016 between National Commerce Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, Paying Agent and Registrar (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 001-36878), filed with the Securities and Exchange Commission on May 19, 2016)

4.3		Form of 6.0% Fixed-to-Floating Rate Subordinated Note due June 1, 2026 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 001-36878), filed with the Securities and Exchange Commission on May 19, 2016)

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		Interactive Data Files for the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2016

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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.

			NATIONAL COMMERCE CORPORATION (Registrant)

Date: August 8, 2016			/s/ John H. Holcomb, III
			John H. Holcomb, III Chief Executive Officer and Chairman of the Board

Date: August 8, 2016			/s/ William E. Matthews, V
			William E. Matthews, V Chief Financial Officer and Vice Chairman of the Board

Attached files

National Commerce Corp Reports

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