First NBC Bank Holding Co - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - First NBC Bank Holding Co	nbcb-2016630xexh322.htm
EX-32.1 - EXHIBIT 32.1 - First NBC Bank Holding Co	nbcb-2016630xexh321.htm
EX-31.2 - EXHIBIT 31.2 - First NBC Bank Holding Co	nbcb-2016630xexh312.htm
EX-31.1 - EXHIBIT 31.1 - First NBC Bank Holding Co	nbcb-2016630xexh311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

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

Commission file number:

001-35915




FIRST NBC BANK HOLDING COMPANY
	(Exact name of registrant as specified in its charter)



	Louisiana		14-1985604
	(State of incorporation or organization)		(I.R.S. Employer Identification Number)

	210 Baronne Street, New Orleans, Louisiana		70112
	(Address of principal executive offices)		(Zip code)

	Registrant’s telephone number, including area code: (504) 566-8000

Indicate by check mark whether the registrant: (i) 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 (ii) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

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

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



Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

As of October 14, 2016, the registrant had 19,230,911 shares of common stock, par value $1.00 per share, outstanding.

FIRST NBC BANK HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS



(In thousands)	(Unaudited) June 30, 2016			December 31, 2015
Assets
Cash and due from banks:
Noninterest-bearing	$	34,573		$	50,270
Interest-bearing	108,023			293,109
Federal funds sold	3,415			5,675
Cash and cash equivalents	146,011			349,054
Investment in short-term receivables	—			25,604
Investment securities available for sale, at fair value	301,279			285,826
Investment securities held to maturity (fair value of $85,442 and $82,800, respectively)	79,598			82,074
Mortgage loans held for sale	3,198			2,597
Loans, net of allowance for loan losses of $76,964 and $78,478, respectively	3,703,021			3,380,115
Bank premises and equipment, net	60,054			67,155
Accrued interest receivable	14,404			14,003
Goodwill and other intangible assets	18,032			18,251
Investment in real estate properties	77,976			80,666
Investment in tax credit entities, net	92,880			108,586
Cash surrender value of bank-owned life insurance	49,371			48,691
Other real estate	7,709			5,232
Deferred tax asset	252,691			205,287
Other assets	45,193			32,684
Total assets	$	4,851,417		$	4,705,825
Liabilities and equity
Deposits:
Noninterest-bearing	$	381,553		$	368,421
Interest-bearing	3,550,471			3,475,421
Total deposits	3,932,024			3,843,842
Short-term borrowings	7,022			8,000
Repurchase agreements	85,757			79,251
Subordinated debentures	60,000			60,000
Long-term borrowings	295,130			279,042
Accrued interest payable	9,036			8,728
Other liabilities	57,332			46,211
Total liabilities	4,446,301			4,325,074
Shareholders’ equity:
Preferred stock:
Preferred stock Series D – no par value; 37,935 shares authorized, issued and outstanding at June 30, 2016 and December 31, 2015	37,935			37,935
Common stock- par value $1 per share; 100,000,000 shares authorized; 19,231,427 shares issued and outstanding at June 30, 2016 and 19,077,572 shares issued and outstanding at December 31, 2015	19,231			19,078
Additional paid-in capital	244,899			242,979
Accumulated earnings	128,220			102,142
Accumulated other comprehensive loss, net	(25,171		)	(21,385		)
Total shareholders’ equity	405,114			380,749
Noncontrolling interest	2			2
Total equity	405,116			380,751
Total liabilities and equity	$	4,851,417		$	4,705,825

See accompanying notes.

FIRST NBC BANK HOLDING COMPANY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(In thousands)	2016			2015			2016			2015
				(Restated)						(Restated)
Interest income:
Loans, including fees	$	46,185		$	35,947		$	89,511		$	70,441
Investment securities	1,992			2,215			3,904			4,318
Investment in short-term receivables	—			1,514			41			3,204
Short-term investments	269			94			579			158
	48,446			39,770			94,035			78,121
Interest expense:
Deposits	12,727			10,662			25,281			20,906
Borrowings and securities sold under repurchase agreements	2,241			1,740			4,310			2,980
	14,968			12,402			29,591			23,886
Net interest income	33,478			27,368			64,444			54,235
(Recovery of) provision for loan losses	(6,365		)	5,600			8,383			8,600
Net interest income after provision for loan losses	39,843			21,768			56,061			45,635
Noninterest income:
Service charges on deposit accounts	477			585			1,074			1,144
Investment securities loss, net	—			—			—			(50		)
Gain (loss) on assets sold, net	468			(32		)	1,051			11
Gain on sale of loans, net	31			101			34			116
Cash surrender value income on bank-owned life insurance	338			353			680			705
Sale of state tax credits earned	—			668			—			1,187
Community Development Entity fees earned	149			133			184			256
ATM fee income	603			523			1,174			1,024
Rental property income	914			875			1,811			1,745
Other	638			412			2,333			832
	3,618			3,618			8,341			6,970
Noninterest expense:
Salaries and employee benefits	9,896			7,689			17,526			14,596
Occupancy and equipment expenses	3,844			2,996			7,333			5,910
Professional fees	3,914			1,701			7,431			3,842
Taxes, licenses and FDIC assessments	3,760			1,693			5,497			2,932
Impairment of investment in tax credit entities	14,716			11,661			29,431			25,008
Write-down of foreclosed assets	189			42			232			100
Data processing	1,848			1,581			3,710			3,003
Advertising and marketing	1,002			673			1,941			1,691
Rental property expenses	1,422			965			2,938			1,931
Other	2,963			2,276			5,535			4,215
	43,554			31,277			81,574			63,228
Income (loss) before income taxes	(93		)	(5,891		)	(17,172		)	(10,623		)
Income tax benefit	(4,050		)	(18,596		)	(43,920		)	(33,280		)
Net income attributable to Company	3,957			12,705			26,748			22,657
Less preferred stock dividends	(575		)	(95		)	(670		)	(190		)
Less earnings allocated to participating securities	—			(222		)	—			(413		)
Income available to common shareholders	$	3,382		$	12,388		$	26,078		$	22,054
Earnings per common share – basic	$	0.18		$	0.67		$	1.37		$	1.19
Earnings per common share – diluted	$	0.18		$	0.65		$	1.34		$	1.15

See accompanying notes.

FIRST NBC BANK HOLDING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(In thousands)	2016			2015			2016			2015
				(Restated)						(Restated)
Net income	$	3,957		$	12,705		$	26,748		$	22,657
Other comprehensive income (loss):
Fair value of derivative instruments designated as cash flow hedges:
Change in fair value of derivative instruments designated as cash flow hedges during the period, before tax	(5,480		)	6,463			(13,626		)	2,690
Less: reclassification adjustment for net losses included in net income from terminated cash flow hedges	193			273			394			539
Unrealized gains (losses) on cash flow hedges, before tax	(5,287		)	6,736			(13,232		)	3,229

Unrealized gains (losses) on investment securities:
Change in unrealized gains (losses) on investment securities arising during the period	1,781			(3,311		)	7,102			472
Reclassification adjustment for losses included in net income	—			—			—			—
Amortization of unrealized net gain on securities transferred from available for sale to held to maturity	180			160			303			288
Unrealized gains (losses) on investment securities, before tax	1,961			(3,151		)	7,405			760
Other comprehensive income (loss), before taxes	(3,326		)	3,585			(5,827		)	3,989
Income tax expense (benefit) related to items of other comprehensive income (loss)	(1,164		)	1,256			(2,041		)	1,397
Other comprehensive income (loss), net of tax	(2,162		)	2,329			(3,786		)	2,592
Total comprehensive income	$	1,795		$	15,034		$	22,962		$	25,249
Comprehensive income attributable to preferred shareholders	(575		)	(95		)	(670		)	(190		)
Comprehensive income attributable to participating securities	—			(222		)	—			(413		)
Comprehensive income available to common shareholders	$	1,220		$	14,717		$	22,292		$	24,646

See accompanying notes.

FIRST NBC BANK HOLDING COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)



(In thousands)	Preferred Stock Series C			Preferred Stock Series D		Common Stock			Additional Paid-In Capital			Accumulated Earnings			Accumulated Other Comprehensive Income			Total Shareholders’ Equity			Non-Controlling Interest		Total Equity
Balance, December 31, 2014, as restated(1)	$	4,471		$	37,935	$	18,576		$	239,528		$	127,758		$	(19,737	)	$	408,531		$	2	$	408,533
Net income	—			—		—			—			22,657			—			22,657			—		22,657
Other comprehensive income	—			—		—			—			—			2,592			2,592			—		2,592
Share-based compensation	—			—		—			298			—			—			298			—		298
Restricted stock awards compensation	—			—		—			(1,557		)	—			—			(1,557		)	—		(1,557		)
ESOP compensation expense	—			—		—			130			—			—			130			—		130
Issuance of common stock:
Stock option and director plans	—			—		26			388			—			—			414			—		414
Restricted stock awards, net	—			—		55			1,763			—			—			1,818			—		1,818
Net tax benefit related to stock option plans	—			—		—			121			—			—			121			—		121
Purchase of common shares by ESOP	—			—		—			(3,244		)	—			—			(3,244		)	—		(3,244		)
Allocation of ESOP shares, net	—			—		—			(96		)	—			—			(96		)	—		(96		)
Preferred stock conversion	(4,471		)	—		365			4,106			—			—			—			—		—
Preferred stock dividends	—			—		—			—			(190		)	—			(190		)	—		(190		)
Balance, June 30, 2015, as restated	$	—		$	37,935	$	19,022		$	241,437		$	150,225		$	(17,145	)	$	431,474		$	2	$	431,476

Balance, December 31, 2015(1)	$	—		$	37,935	$	19,078		$	242,979		$	102,142		$	(21,385	)	$	380,749		$	2	$	380,751
Net income	—			—		—			—			26,748			—			26,748			—		26,748
Other comprehensive income	—			—		—			—			—			(3,786		)	(3,786		)	—		(3,786		)
Share-based compensation	—			—		—			282			—			—			282			—		282
Restricted stock awards compensation	—			—		—			550			—			—			550			—		550
ESOP compensation expense	—			—		—			162			—			—			162			—		162
Issuance of common stock:
Stock option and director plans	—			—		63			93			—			—			156			—		156
Warrants	—			—		95			709			—			—			804			—		804
Restricted stock awards, net	—			—		(5		)	(184		)	—			—			(189		)	—		(189		)
Net tax benefit related to stock option plans	—			—		—			303			—			—			303			—		303
Allocation of ESOP shares	—			—		—			5			—			—			5			—		5
Preferred stock dividends	—			—		—			—			(670		)	—			(670		)	—		(670		)
Balance, June 30, 2016	$	—		$	37,935	$	19,231		$	244,899		$	128,220		$	(25,171	)	$	405,114		$	2	$	405,116


(1)	Balances as of December 31, 2014 and December 31, 2015 are audited.

See accompanying notes.

FIRST NBC BANK HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	For the Six Months Ended June 30,
(In thousands)	2016			2015
				(Restated)
Operating activities
Net income	$	26,748		$	22,657
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax benefit	(45,054		)	(35,191		)
Impairment of tax credit investments	29,431			25,008
Accretion (amortization) of fair value adjustments related to acquisition	69			(85		)
Net discount accretion	214			173
Loss on sale of investment securities	—			50
Gain on assets sold	(1,051		)	(11		)
Write-down of foreclosed assets	232			100
Proceeds from sale of mortgage loans held for sale	26,776			19,674
Mortgage loans originated and held for sale	(27,377		)	(22,997		)
Gain on sale of loans	(34		)	(116		)
Return on tax credit investment	(352		)	—
Derivative gains on terminated interest rate hedge, net	658			539
Provision for loan losses	8,383			8,600
Depreciation and amortization	3,273			2,189
Share-based and other compensation expense	999			690
Increase in cash surrender value of bank-owned life insurance	(680		)	(705		)
Changes in operating assets and liabilities:
Change in other assets	(13,460		)	(5,297		)
Change in accrued interest receivable	(401		)	(1,204		)
Change in accrued interest payable	308			1,448
Change in other liabilities	(1,114		)	(79		)
Net cash provided by operating activities	7,568			15,443



Investing activities
Purchases of available for sale investment securities	(92,286		)	—
Proceeds from maturities, prepayments, and calls of available for sale investment securities	83,600			11,770
Proceeds from maturities, prepayments, and calls of held to maturity securities	2,899			4,376
Net change in investments in short-term receivables	25,604			(13,440		)
Reimbursement of investment in tax credit entities	13,810			—
Purchases of investments in tax credit entities	(41,410		)	(27,200		)
Loans originated, net of repayments	(320,899		)	(186,720		)
Proceeds from sale of bank premises and equipment	13,537			—
Cash received in acquisition, net	—			31,517
Purchases of bank premises and equipment	(7,107		)	(2,727		)
Proceeds from disposition of real estate owned	652			1,579
Net change in investment in real estate properties	1,366			(1,803		)
Net cash used in investing activities	(320,234		)	(182,648		)
Financing activities
Net increase in deposits	87,905			204,215
Net change in repurchase agreements	6,506			(151		)
Proceeds from borrowings	19,116			60,000
Proceeds from ESOP loan	—			3,392
Repayment of borrowings	(4,005		)	—
Purchase of common stock by ESOP	—			(3,340		)
Proceeds from issuance of common stock	771			414
Dividends paid	(670		)	(190		)
Net cash provided by financing activities	109,623			264,340
Net (decrease) increase in cash and cash equivalents	(203,043		)	97,135
Cash and cash equivalents at beginning of period	349,054			50,888
Cash and cash equivalents at end of period	$	146,011		$	148,023
Supplemental Information for non-cash investing activities
Loans transferred to other real estate owned	$	3,531		$	642

See accompanying notes.

FIRST NBC BANK HOLDING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of First NBC Bank Holding Company (Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial statements have been included. The results of operations for the three-month and six-month periods ended June 30, 2016 are not necessarily indicative of the results that may be expected for the entire fiscal year. These statements should be read in conjunction with the Company’s audited financial statements, including the notes thereto, which were filed with the Securities and Exchange Commission as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Nature of Operations

The Company is a bank holding company that offers a broad range of financial services through First NBC Bank (Bank), a Louisiana state non-member bank, to businesses, institutions, and individuals in southeastern Louisiana and the Florida panhandle. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States and to prevailing practices within the banking industry.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and the Bank, and First NBC Bank’s wholly owned subsidiaries, which include First NBC Community Development, LLC (FNBC CDC), First NBC Community Development Fund, LLC (FNBC CDE) (collectively referred to as the Bank) and any variable interest entities of which the Company is the primary beneficiary. Substantially all of the variable interest entities (VIE) for which the Company is the primary beneficiary relate to tax credit investments. FNBC CDC is a Community Development Corporation formed to construct, purchase, and renovate affordable residential real estate properties in the New Orleans area. FNBC CDE is a Community Development Entity (CDE) formed to apply for and receive allocations of Federal New Markets Tax Credits (NMTC).

Investments in Tax Credit Entities

As part of its Community Reinvestment Act responsibilities and due to their favorable economics, the Company invests in tax credit-motivated projects. These projects produce tax credits issued under Federal Low-Income Housing, Federal Historic Rehabilitation, and Federal New Markets Tax Credits (Federal NMTC) programs. The Company generates its returns on tax credit motivated projects through the receipt of federal, and if applicable, state tax credits as well as equity returns. The federal tax credits are recorded as an offset to the income tax provision in the year that they are earned under federal income tax law – over 10 to 15 years, beginning in the year in which rental activity commences for Federal Low-Income Housing credits, in the year of the issuance of the certificate of occupancy and the property being placed into service for Federal Historic Rehabilitation credits, and over 7 years for Federal NMTC upon the investment of funds into the CDE. These credits, if not used in the tax return for the year of origination, can be carried forward for 20 years. The state credits are recorded in income when earned (usually when the project is placed in service) and sold to investors since the Company pays minimal state income taxes under Louisiana tax law.

The Company invests in projects generating Federal Low-Income Housing credits, by investing in a tax credit entity, usually a limited liability company, which owns the real estate. The Company receives a 99.99% nonvoting interest in the entity that must be retained during the compliance period for the credits (15 years). Control of the tax credit entity rests in the .01% interest general partner, who has the power and authority to make decisions that impact economic performance of the project and is required to oversee and manage the project. The Company accounts for its investment in Federal Low-Income Housing credits utilizing the equity method of accounting. The Company begins to evaluate its investment for impairment at the time the tax credits are earned through the end of the 15 year compliance period. The Company evaluates its investment at the end of each reporting period for impairment and any residual returns are expected to be minor.

For Federal Historic Rehabilitation credits, the Company invests in a tax credit entity, usually a limited liability company, which owns the real estate or a master tenant structure. In some cases, the Company receives a 99% nonvoting interest in the tax credit entity that must be retained during the compliance period for the credits (5 years). In some instances, the Company invests 99% in a pass through entity called a master tenant, which maintains an ownership interest in a limited liability company which owns the real estate. In most cases, the Company’s interest in the entity (in either structure) is generally reduced from a 99% interest to a 0% to 25% interest at the end of the compliance period. Control of the tax credit entity rests in the 1% interest general partner (in either structure), who has the power and authority to make decisions that impact economic performance of the project and is required to oversee and manage the project. The Company accounts for its investment in Federal Historic Rehabilitation credits utilizing the equity method of accounting. The Company begins to evaluate its investment for impairment at the time the credit is earned, which is typically in the year the project is placed in service, through the end of its compliance period. The Company evaluates its investment at the end of each reporting period for impairment and any expected residual returns reduce the amount of impairment recognized.

For Federal NMTC, a different structure is required by federal tax law. In order to distribute Federal NMTC, the federal government allocates such credits to CDEs. The Company invests in both CDEs formed by unaffiliated parties and in CDEs formed by the Company. Projects must be commercial or real estate operations and are qualified by their location in low- income areas or by their employment of, or service to, low-income citizens. A CDE, in most cases, creates a special-purpose subsidiary for each project through which the credits are allocated and through which the proceeds from the tax credit investor and a leverage lender, if applicable, flow through to the project, which in turn generate the credit. The credits are calculated at 39% of the total CDE allocation to the project at the rate of 5% for the first three years and 6% for the next four years. Federal tax law requires special terms benefiting the qualified project, which can include below-market interest rates. The Company evaluates its investment for impairment under the equity method of accounting at the end of each reporting period, beginning at the time the tax credits are earned on the project through the end of the seven-year compliance period, and any residual returns are expected to be minor. When the Company also has a loan to the project, it is reported as a loan in the consolidated balance sheet, as the Company has credit exposure to the project and the loan is repaid at the end of the compliance period. In general, the debt has no principal payments during the compliance period but the Company may require the project to fund a sinking fund over the compliance period to achieve the same risk reduction effect as if principal is being amortized.

When the Company is the tax credit investor in a CDE formed by an unaffiliated party, it has no control of the applicable CDE or the CDE’s special-purpose subsidiary. For projects which are funded through FNBC CDE, the Company consolidates its CDE and the specifically formed special-purpose entities since it maintains control over these entities; however, the Company does not have control over the entity which oversees the project. As part of the activities of FNBC CDE, the Company makes investments in the CDE for purposes of providing equity to the projects sponsored by the FNBC CDE.

When a project is funded through FNBC CDE, the CDE will receive a CDE management fee at the time of the project's closing of approximately 4% and an annual fee of 0.5% of the qualified equity investment in the project. The annual fee is received until the end of the Federal NMTC compliance period. The CDE management fee earned is recorded in the consolidated statement of income as a component of noninterest income. The Company may pay a fee to the CDE when the project is funded through a CDE other than FNBC CDE at the time of a project's closing and annually during the compliance period for the allocation of the credits. The fee is recorded as a component of noninterest expense in the Company's consolidated statement of income over the Federal NMTC compliance period.

The Company has the risk of credit recapture if the project fails during the compliance period for Federal Low-Income Housing and Federal Historic Rehabilitation transactions. For Federal NMTC transactions, the risk of credit recapture exists if investment requirements are not maintained during the compliance period. The risk of recapture for Federal NMTC transactions when the project is funded by FNBC CDE is described in Note 6. Such events, although rare, are accounted for when they occur and no such events have occurred to date involving FNBC CDE.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are susceptible to a significant change in the near term are the allowance for loan losses, income tax provision, fair value adjustments, impairment on tax credit investments, and share-based compensation.

Concentration of Credit Risk

The Company’s loan portfolio consists of the various types of loans described in Note 5. Real estate or other assets secure most loans. The majority of these loans have been made to individuals and businesses in the Company’s market area of southeastern

Louisiana and the Florida panhandle, which are dependent on the area economy for their livelihoods and servicing of their loan obligations. The Company does not have any significant concentrations to any one industry or customer.

The Company maintains deposits in other financial institutions that may, from time to time, exceed the federally insured deposit limits.

Reclassifications

Some amounts previously reported have been adjusted to reflect certain reclassification adjustments to conform to the current period presentation. These include reclassifications of amounts previously reported in occupancy and equipment expenses to rental property expenses. The Company has presented rental property expenses, previously presented as a component of other noninterest expense in its consolidated statements of income, and rental property income, previously presented as a component of other noninterest income in its consolidated statements of income, as separate components on its consolidated statements of income.

Restatement

The Company's consolidated financial statements for periods ended prior to December 31, 2015, including unaudited quarterly financial information were restated in the Annual Report on Form 10-K for the year ended December 31, 2015 (the "Restatement") filed with the Securities and Exchange Commission ("SEC") on August 25, 2016. The restated unaudited quarterly financial information was presented in Note 33 in the Annual Report on Form 10-K for the year ended December 31, 2015, which included the applicable restatement adjustments for each individual quarterly period from March 31, 2014 through September 30, 2015, the last date through which financial statements have previously been issued. The Restatement corrected the use of an inappropriate amortization method in accounting for the Company's various investments in tax credit partnerships, as opposed to proper application of the equity method of accounting, consolidation of certain investments in Federal Low-Income Housing Tax Credit entities because such entities were determined to be variable interest entities in which the Company was the primary beneficiary, various other adjustments and income tax effects related to the these adjustments. All applicable amounts relating to this Restatement have been reflected in the consolidated financial statements and disclosed in the notes to the consolidated financial statements in this Form 10-Q.

Recent Accounting Pronouncements

ASU No. 2014-09 and 2015-14

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 205): An Amendment of the FASB Accounting Standards Codification, which clarifies the principles for recognizing revenue from contracts with customers. The new accounting guidance, which does not apply to financial instruments, clarifies that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As part of that principle, the entity should identify the contract(s) with the customer, identify the performance obligation(s) of the contract, determine the transaction price, allocate that transaction price to the performance obligation(s) of the contract, and then recognize revenue when or as the entity satisfies the performance obligation(s).

In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date , which deferred the original effective date declared in ASU No. 2014-09 by one year. Accordingly, the amendments in ASU No. 2014-09 will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that annual reporting period. The amendments will be applied through the election of one of two retrospective methods. The Company is in the process of evaluating the new guidance and its impact on the Company's financial condition or results of operations.

ASU No. 2014-15

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which will require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards in connection with preparing financial statements for each annual and interim reporting period. The new accounting guidance is for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, with early application permitted. The Company does not expect the new guidance to have a material impact on the Company's financial condition or results of operations.

ASU No. 2016-01

In January 2016, the FASB issued ASU No. 2016-01, Financial Instrument-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which (1) requires equity investments to be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments with readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement to disclose the fair value instruments measured at amortized cost for entities that are not public business entities, (4) eliminates 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, (5) requires public business entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes, (6) requires 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, (7) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements, and (8) clarifies 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 new accounting guidance is for the annual period beginning after December 15, 2017, including interim periods. The Company does not expect the new guidance to have a material impact on the Company's financial condition or results of operations.

ASU No. 2016-02

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term for all leases (with the exception of short-term leases) at the commencement date. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The guidance is for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early application is permitted for all entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently evaluating the provisions of the ASU to determine the potential impact the new standard will have on the Company's financial condition or results of operations.

ASU No. 2016-05

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require de-designation of that hedging relationship. The amendments apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument. The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The amendments may be applied on either a prospective basis or a modified retrospective basis. The adoption of this guidance is not expected to have a material impact on the Company's financial condition or results of operations.

ASU No. 2016-06

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments, that requires embedded derivatives to be separated from the host contract and accounted for separately as derivatives if certain criteria are met. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments clarify what steps are required when assessing whether the economic characteristics and risks or call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event triggers the ability to exercise a call (put) option is related to interest rates or credit risks. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's financial condition or results of operations.

ASU No. 2016-07

In March 2016, the FASB issued ASU 2016-07, Investments- Equity Method and Joint Ventures (Topic 323), which simplifies the transition to the equity method of accounting. The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments require that an entity that has an available for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years beginning after December 15, 2016. The adoption of this guidance is not expected to have a material impact on the Company's financial condition or results of operations.

ASU No. 2016-08

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), that improves the operability and understandibility of the implementation guidance on principal versus agent considerations. The amendments relate to when another party, along with the entity, is involved in providing a good or service to a customer. It requires an entity to determine whether the nature of its promise is to provide that good or service to the customer (i.e., the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (i.e., the entity is an agent). Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on the Company's financial condition or results of operations.

ASU No. 2016-09

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to improve the accounting for employee share-based payments. Several aspects of the accounting for share-based payment award transactions are simplified, including income tax consequences; classification of awards as either equity or liabilities; and classification on the statement of cash flows. The amendments are effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company is currently assessing the pronouncement and the impact of adoption.

ASU No. 2016-10

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, that clarifies the identification of performance obligations and licensing from revenue from contracts with customers. The amendments help determine the whether promises to transfer goods or services to a customer are separately identifiable by emphasizing that an entity determines whether the nature of its promise in the contract is to transfer each of the goods or services or whether the promise is to transfer a combined item (or items) to which promised goods and/or services are inputs. In addition, the amendments clarify how to determine whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property or a right to access the entity's intellectual property. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently assessing this pronouncement and adoption of this guidance, but it is not expected to have a material impact on the Company's financial condition or results of operations.

ASU No. 2016-12

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which is intended to improve implementation guidance on certain narrow aspects of Topic 606. The amendments in this ASU:


•	Clarify how an entity assesses the collectability criterion in Step 1 of Topic 606;


•	Permit, as an accounting policy election, entities to exclude from the transaction price amounts collected from customers for all sales (and other similar) taxes;


•	Specify the measurement date of noncash consideration as the date of contract inception;


•	Clarify when a contract is considered completed for purposes of transition of Topic 606; and


•	Clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. However, an entity is still required to disclose the effect of the changes on any prior periods retrospectively adjusted.

Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently assessing this pronouncement and adoption of this guidance, but it is not expected to have a material impact on the Company's financial condition or results of operations.

ASU No. 2016-13

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU, more commonly referred to as Current Expected Credit Losses, or CECL, requires 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. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

Public entities should apply the amendments for annual reporting periods beginning after December 15, 2019, including interim reporting periods therein. Early application for public entities is permitted as of annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of the ASU on the Company’s financial condition or results of operations.

ASU No. 2016-15

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 320): Clarification of Certain Cash Receipts and Cash Payments, to address eight specific cash flow issues with the objective of reducing diversity in practice. The issues identified within the ASU include: debt prepayments or extinguishment costs; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.

Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted. The Company is currently evaluating the impact of the ASU on the Company’s financial condition or results of operations.

2. Acquisitions

Acquisition of Certain Assets and Liabilities of First National Bank of Crestview

On January 16, 2015, the Company acquired certain assets and assumed certain liabilities from the Federal Deposit Insurance Corporation (FDIC), as receiver for First National Bank of Crestview, a full-service commercial bank headquartered in Crestview, Florida, which was closed and placed into receivership. Under the terms of the agreement, the Company agreed to assume all of the deposit liabilities, and acquire approximately $62.3 million of assets, of the failed bank. The acquired assets included the failed bank's performing loans, substantially all of its investment securities portfolio, and its three banking facilities, with the FDIC retaining the remaining assets. The transaction did not include a loss-share agreement with the FDIC. The Company received a settlement amount from the FDIC of $10.0 million and recorded goodwill of $1.2 million, as shown in the table below. With this acquisition, the Company expanded into the Florida Panhandle market through the addition of the three banking locations and an experienced in-market team that enhances the Company's ability to compete in that market.



(In thousands)
Total consideration received	$	10,035
Fair value of assets acquired, including identifiable intangible assets	61,088
Fair value of liabilities assumed	72,314
Goodwill	$	1,191

Acquisition of State Investors Bancorp, Inc.

On November 30, 2015, the Company acquired State Investors Bancorp, Inc. (SIBC), the parent company for State-Investors Bank, which conducted business from four full service banking offices in the New Orleans metropolitan area. Under the terms of the agreement, each share of SIBC common stock was converted into cash in the amount of $21.51 per share and each issued and outstanding option to purchase a share of SIBC common stock, including any unvested option, which became fully vested in connection with the completion of the merger, was canceled and converted into cash in an amount equal to the difference between $21.51 and the exercise price of the stock option. The Company acquired all of the outstanding common stock of the former SIBC shareholders and all outstanding stock options for a total consideration of $48.7 million, which resulted in goodwill of $8.6 million, as shown in the table below. With this acquisition, the Company expanded its presence in the New Orleans metropolitan area which enhances its ability to compete in that market. The Company projects cost savings will be recognized in future periods through the elimination of redundant operations.



(In thousands)
Total consideration paid	$	48,744
Fair value of assets acquired, including identifiable intangible assets	254,080
Fair value of liabilities assumed	213,981
Goodwill	$	8,645

The Company incurred merger and acquisition costs of $1.2 million during 2015 for the two acquisitions discussed above. The amount of revenue and earnings for the acquired entities for any reporting period prior to the acquisition was not material and therefore not presented herein.

During the second quarter of 2016, the Company finalized the purchase price allocation related to the First National Bank of Crestview and State Investors Bancorp, Inc. acquisitions. There were no additional adjustments made to the purchase price allocations.

The acquired assets and liabilities, as well as the adjustments to record the assets and liabilities at their estimated fair values, are presented in the following tables:

First National Bank of Crestview



(In thousands)	As Acquired		Fair Value Adjustments				As recorded by First NBC Bank
Assets
Cash and due from banks	$	1,511	$	—			$	1,511
Short-term investments	19,971		—				19,971
Investment securities-available for sale	9,559		—				9,559
Loans	27,647		(1,203		)	⁽¹⁾	26,444
Bank premises	3,120		—				3,120
Core deposit intangible	—		188			⁽²⁾	188
Other assets	455		(160		)		295
Total Assets	$	62,263	$	(1,175	)		$	61,088

Liabilities
Deposits:
Non-interest bearing	$	22,680	$	—			$	22,680
Interest bearing	49,584		16			⁽³⁾	49,600
Total deposits	72,264		16				72,280
Other liabilities	34		—				34
Total Liabilities	$	72,298	$	16			$	72,314

(1) The amount represents the adjustment of the book value of First National Bank of Crestview's loans to their estimated fair value based on current interest rates and expected cash flows, which includes estimates of expected credit losses inherent in the portfolio.

(2) The amount represents the estimated fair value of the core deposit intangible asset created in the acquisition. The core deposit intangible asset is being amortized over the estimated useful life of 12 years.

(3) The adjustment is necessary because the weighted-average interest rate of First National Bank of Crestview's deposits exceeded the cost of similar funding at the time of acquisition. The fair value adjustment is being amortized to reduce future interest expense over the expected life of the deposits, which is estimated at 49 months.

State Investors Bancorp, Inc.



(In thousands)	As Acquired		Fair Value Adjustments				As recorded by First NBC Bank
Assets
Cash and due from banks	$	20,031	$	—			$	20,031
Short-term investments	12,338		—				12,338
Investment securities-available for sale	27,388		(193		)	⁽¹⁾	27,195
Loans	182,249		(2,830		)	⁽²⁾	179,419
Bank premises and equipment	7,708		592			⁽³⁾	8,300
Deferred tax asset	1,004		1,416			⁽⁴⁾	2,420
Core deposit intangible	—		468			⁽⁵⁾	468
Other assets	3,909		—				3,909
Total Assets	$	254,627	$	(547	)		$	254,080

Liabilities
Deposits:
Noninterest-bearing	$	11,416	$	—			$	11,416
Interest-bearing	141,235		1,245			⁽⁶⁾	142,480
Total deposits	152,651		1,245				153,896
Borrowings	55,913		868			⁽⁷⁾	56,781
Other liabilities	3,304		—				3,304
Total Liabilities	$	211,868	$	2,113			$	213,981

(1) The amount represents the adjustment of the book value of SIBC's investments to their estimated fair value based on fair values on the date of acquisition.

(2) The amount represents the adjustment of the book value of loans acquired to their estimated fair value based on current interest rates and expected cash flows, which includes estimates of expected credit losses inherent in the portfolio.

(3) The amount represents the adjustment of the book value of SIBC's bank premises and equipment to their estimated fair value at the acquisition date based on their appraised value on the date of acquisition.

(4) The amount represents the deferred tax asset recognized on the fair value adjustment of SIBC acquired assets and assumed liabilities.

(5) The amount represents the estimated fair value of the core deposit intangible asset created in the acquisition. The core deposit intangible asset is being amortized over the estimated useful life of 12 years.

(6) The adjustment is necessary because the weighted-average interest rate of SIBC's deposits exceeded the cost of similar funding at the time of acquisition. The fair value adjustment is being amortized to reduce future interest expense over the life of the deposits.

(7) The adjustment represents the adjustment of the book value of SIBC's borrowings to their estimated fair value based on current interest rates and the credit characteristics inherent in the liability.

3. Earnings Per Share

The following sets forth the computation of basic net income per common share and diluted net income per common share:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In thousands, except per share data)	2016		2015		2016		2015
			(Restated)				(Restated)
Basic: Income available to common shareholders	$	3,382	$	12,388	$	26,078	$	22,054
Weighted-average common shares outstanding	19,105		18,620		19,096		18,611
Basic earnings per share	$	0.18	$	0.67	$	1.37	$	1.19
Diluted: Income available to common shareholders	$	3,382	$	12,388	$	26,078	$	22,054
Weighted-average common shares outstanding	19,105		18,620		19,096		18,611
Effect of dilutive securities:
Stock options outstanding	154		418		233		401
Restricted shares outstanding	—		3		—		2
Warrants	74		124		78		121
Weighted-average common shares outstanding – assuming dilution	19,333		19,165		19,407		19,135
Diluted earnings per share	$	0.18	$	0.65	$	1.34	$	1.15

The effect from 51 thousand and 34 thousand shares of restricted stock grants were not included in the computation of diluted earnings per share for the three and six month periods ended June 30, 2016, respectively, because such amounts would have had an antidilutive effect on earnings per share.

4. Investment Securities

The amortized cost and market values of investment securities, with gross unrealized gains and losses, as of June 30, 2016 and December 31, 2015, were as follows:



	June 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses						Estimated Market Value
(In thousands)	Amortized Cost		Gross Unrealized Gains		Less Than One Year			Greater Than One Year			Estimated Market Value
Available for sale:
U.S. government agency securities	$	146,702	$	2,747	$	—		$	—		$	149,449
U.S. Treasury securities	13,014		114		—			—			13,128
Municipal securities	11,969		158		—			—			12,127
Mortgage-backed securities	117,475		1,347		(274		)	(41		)	118,507
Corporate bonds	8,021		27		—			—			8,048
Other equity securities	20		—		—			—			20
	$	297,201	$	4,393	$	(274	)	$	(41	)	$	301,279
Held to maturity:
Municipal securities	$	38,162	$	2,588	$	—		$	—		$	40,750
Mortgage-backed securities	41,436		3,274		—			(18		)	44,692
	$	79,598	$	5,862	$	—		$	(18	)	$	85,442



	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses						Estimated Market Value
(In thousands)	Amortized Cost		Gross Unrealized Gains		Less Than One Year			Greater Than One Year			Estimated Market Value
Available for sale:
U.S. government agency securities	$	151,369	$	552	$	(1,591	)	$	(655	)	$	149,675
U.S. Treasury securities	13,015		—		—			(312		)	12,703
Municipal securities	12,115		76		—			(91		)	12,100
Mortgage-backed securities	78,227		367		(934		)	(149		)	77,511
Corporate bonds	8,103		—		(280		)	—			7,823
Other equity securities	20		—		—			—			20
Other debt securities	25,994		1		(1		)	—			25,994
	$	288,843	$	996	$	(2,806	)	$	(1,207	)	$	285,826
Held to maturity:
Municipal securities	$	38,950	$	1,888	$	—		$	(18	)	$	40,820
Mortgage-backed securities	43,124		674		(196		)	(1,622		)	41,980
	$	82,074	$	2,562	$	(196	)	$	(1,640	)	$	82,800

During 2013, the Company transferred securities with a fair value of $95.4 million from available for sale to held to maturity. Management determined it had both the positive intent and ability to hold these securities until maturity. The reclassified securities consisted of municipal and mortgage-backed securities and were transferred due to movements in interest rates. The securities were reclassified at fair value at the time of transfer and represented a non-cash transaction. Accumulated other comprehensive income (loss) included pre-tax unrealized losses of $5.9 million on these securities at the date of transfer. As of June 30, 2016, $4.2 million of pre-tax unrealized losses on these securities were included in accumulated other comprehensive income. These unrealized losses and offsetting other comprehensive income components are being amortized into net interest income over the remaining life of the related securities as a yield adjustment, resulting in no impact on future net income.

As of June 30, 2016 and December 31, 2015, the Company had 51 and 205 securities, respectively, that were in a loss position. The unrealized losses for each of the 51 securities relate to market interest rate changes. The Company has considered the current market for the securities in a loss position, as well as the severity and duration of the impairments, and expects that the value will recover. As of June 30, 2016, management does not intend to sell these investments until the fair value exceeds amortized cost and it is more likely than not that the Company will not be required to sell debt securities before the anticipated recovery of the amortized cost basis of the security; thus, the impairment is determined not to be other-than-temporary.

The amortized cost and estimated market values by contractual maturity of investment securities as of June 30, 2016 and December 31, 2015 are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	June 30, 2016						December 31, 2015
(In thousands)	Weighted Average Yield		Amortized Cost		Estimated Market Value		Weighted Average Yield		Amortized Cost		Estimated Market Value
Available for sale:
Due in one year or less	1.91	%	$	84,431	$	85,284	1.19	%	$	36,599	$	36,558
Due after one year through five years	1.89		146,155		148,084		1.71		134,275		133,485
Due after five years through ten years	2.44		54,069		55,341		1.88		105,950		104,184
Due after ten years	2.44		12,546		12,570		2.29		12,019		11,599
Total securities	2.00	%	$	297,201	$	301,279	1.77	%	$	288,843	$	285,826
Held to maturity:
Due in one year or less	9.68	%	$	8,710	$	8,892	4.90	%	$	3,190	$	3,068
Due after one year through five years	3.86		40,584		43,409		3.68		36,673		38,371
Due after five years through ten years	3.18		10,423		11,162		3.25		14,416		14,968
Due after ten years	3.67		19,881		21,979		3.44		27,795		26,393
Total securities	3.74	%	$	79,598	$	85,442	3.57	%	$	82,074	$	82,800

Securities with estimated market values of $225.5 million and $233.2 million at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, and long-term borrowings.

5. Loans

Major classifications of loans at June 30, 2016 and December 31, 2015 were as follows:



(In thousands)	June 30, 2016			December 31, 2015
Commercial real estate loans:
Construction	$	548,563		$	522,269
Mortgage(1)	1,642,719			1,423,545
	2,191,282			1,945,814
Consumer real estate loans:
Construction	16			9
Mortgage	234,787			264,422
	234,803			264,431
Commercial and industrial loans	1,304,952			1,221,283
Loans to individuals, excluding real estate	28,139			21,688
Other loans	20,809			5,377
	3,779,985			3,458,593
Less allowance for loan losses	(76,964		)	(78,478		)
Loans, net	$	3,703,021		$	3,380,115


(1)	Included in commercial real estate loans, mortgage, are owner-occupied real estate loans of $502.1 million at June 30, 2016 and $449.1 million at December 31, 2015.

A summary of changes in the allowance for loan losses during the three and six months ended June 30, 2016 and June 30, 2015 is as follows:



	Three Months Ended June 30, 2016
(In thousands)	Construction			Commercial Real Estate			Consumer Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	6,706		$	21,115		$	5,293		$	50,746		$	329		$	84,189
Charge-offs	(25		)	(300		)	(45		)	(505		)	(5		)	(880		)
Recoveries	—			9			4			2			5			20
(Recovery) Provision	(609		)	6,260			(1,408		)	(10,627		)	19			(6,365		)
Balance, end of period	$	6,072		$	27,084		$	3,844		$	39,616		$	348		$	76,964



	Three Months Ended June 30, 2015
(In thousands)	Construction			Commercial Real Estate			Consumer Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	4,733		$	16,750		$	3,316		$	20,205		$	191		$	45,195
Charge-offs	(10		)	(501		)	(41		)	(122		)	(24		)	(698		)
Recoveries	—			243			2			5			4			254
Provision	628			327			257			4,388			—			5,600
Balance, end of period	$	5,351		$	16,819		$	3,534		$	24,476		$	171		$	50,351



	Six Months Ended June 30, 2016
(In thousands)	Construction			Commercial Real Estate			Consumer Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	5,027		$	18,016		$	3,500		$	51,736		$	199		$	78,478
Charge-offs	(25		)	(496		)	(45		)	(9,364		)	(7		)	(9,937		)
Recoveries	—			13			4			14			9			40
Provision (Recovery)	1,070			9,551			385			(2,770		)	147			8,383
Balance, end of period	$	6,072		$	27,084		$	3,844		$	39,616		$	348		$	76,964



	Six Months Ended June 30, 2015
(In thousands)	Construction			Commercial Real Estate			Consumer Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	4,030		$	14,965		$	3,316		$	19,814		$	211		$	42,336
Charge-offs	(12		)	(530		)	(41		)	(272		)	(50		)	(905		)
Recoveries	—			243			2			66			9			320
Provision	1,333			2,141			257			4,868			1			8,600
Balance, end of period	$	5,351		$	16,819		$	3,534		$	24,476		$	171		$	50,351

The allowance for loan losses and recorded investment in loans, including loans acquired with deteriorated credit quality, as of the dates indicated are as follows:



	June 30, 2016
(In thousands)	Construction		Commercial Real Estate		Consumer Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	516	$	4,722	$	384	$	20,433	$	25	$	26,080
Collectively evaluated for impairment	5,556		22,362		3,460		19,183		323		50,884
Total	$	6,072	$	27,084	$	3,844	$	39,616	$	348	$	76,964

Outstanding loan balances:
Individually evaluated for impairment	$	12,704	$	25,554	$	6,017	$	127,311	$	270	$	171,856
Collectively evaluated for impairment	535,875		1,617,165		228,770		1,198,450		27,869		3,608,129
Total	$	548,579	$	1,642,719	$	234,787	$	1,325,761	$	28,139	$	3,779,985



	December 31, 2015
(In thousands)	Construction		Commercial Real Estate		Consumer Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	508	$	5,674	$	322	$	40,176	$	13	$	46,693
Collectively evaluated for impairment	4,519		12,342		3,178		11,560		186		31,785
Total	$	5,027	$	18,016	$	3,500	$	51,736	$	199	$	78,478

Outstanding loan balances:
Individually evaluated for impairment	$	2,630	$	30,007	$	4,318	$	119,652	$	144	$	156,751
Collectively evaluated for impairment	519,648		1,393,538		260,104		1,107,008		21,544		3,301,842
Total	$	522,278	$	1,423,545	$	264,422	$	1,226,660	$	21,688	$	3,458,593

Credit quality indicators on the Company’s loan portfolio, including loans acquired with deteriorated credit quality, as of the dates indicated were as follows:



	June 30, 2016
(In thousands)	Pass and Pass/Watch		Special Mention		Substandard		Doubtful		Total
Construction	$	451,226	$	—	$	97,353	$	—	$	548,579
Commercial real estate	1,546,679		12,216		83,824		—		1,642,719
Consumer real estate	218,732		5,533		10,522		—		234,787
Commercial and industrial	1,126,209		9,754		170,474		19,324		1,325,761
Consumer	27,779		8		352		—		28,139
Total loans	$	3,370,625	$	27,511	$	362,525	$	19,324	$	3,779,985



	December 31, 2015
(In thousands)	Pass and Pass/Watch		Special Mention		Substandard		Doubtful		Total
Construction	$	444,713	$	—	$	77,565	$	—	$	522,278
Commercial real estate	1,325,513		15,230		82,802		—		1,423,545
Consumer real estate	252,707		175		11,540		—		264,422
Commercial and industrial	1,038,567		7,377		161,391		19,325		1,226,660
Consumer	21,364		13		311		—		21,688
Total loans	$	3,082,864	$	22,795	$	333,609	$	19,325	$	3,458,593

The table above as of June 30, 2016 included $3.4 million of substandard loans which are loans acquired with deteriorated credit quality and accounted for under ASC 310-30. As of December 31, 2015, included in the above table were $3.2 million of substandard loans which are loans acquired with deteriorated credit quality and accounted for under ASC 310-30.

The above classifications follow regulatory guidelines and can generally be described as follows:


•	Pass and pass/watch loans are of satisfactory quality.


•	Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities, and possible reduction in the collateral values.


•	Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts may be experiencing overdrafts. Immediate corrective action is necessary.


•	Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable.

An aged analysis of past due loans, including loans acquired with deteriorated credit quality, as of the dates indicated is as follows:



	June 30, 2016
(In thousands)	Greater Than 30 and Fewer Than 90 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current Loans		Total Loans
Real estate loans:
Construction	$	656	$	11,375	$	12,031	$	536,548	$	548,579
Commercial real estate	3,941		5,111		9,052		1,633,667		1,642,719
Consumer real estate	3,737		4,547		8,284		226,503		234,787
Total real estate loans	8,334		21,033		29,367		2,396,718		2,426,085
Other loans:
Commercial and industrial	4,648		11,411		16,059		1,309,702		1,325,761
Consumer	38		81		119		28,020		28,139
Total other loans	4,686		11,492		16,178		1,337,722		1,353,900
Total loans	$	13,020	$	32,525	$	45,545	$	3,734,440	$	3,779,985



	December 31, 2015
(In thousands)	Greater Than 30 and Fewer Than 90 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current Loans		Total Loans
Real estate loans:
Construction	$	430	$	981	$	1,411	$	520,867	$	522,278
Commercial real estate	979		5,943		6,922		1,416,623		1,423,545
Consumer real estate	5,628		2,517		8,145		256,277		264,422
Total real estate loans	7,037		9,441		16,478		2,193,767		2,210,245
Other loans:
Commercial and industrial	2,018		2,588		4,606		1,222,054		1,226,660
Consumer	385		190		575		21,113		21,688
Total other loans	2,403		2,778		5,181		1,243,167		1,248,348
Total loans	$	9,440	$	12,219	$	21,659	$	3,436,934	$	3,458,593

The following is a summary of information pertaining to impaired loans excluding loans acquired with deteriorated credit quality, as of the periods indicated:



	June 30, 2016
(In thousands)	Recorded Investment		Contractual Balance		Related Allowance
With no related allowance recorded:
Construction	$	10,596	$	10,609	$	—
Commercial real estate	5,364		6,830		—
Consumer real estate	3,814		3,898		—
Commercial and industrial	3,958		6,966		—
Consumer	167		167		—
Total	$	23,899	$	28,470	$	—
With an allowance recorded:
Construction	$	2,108	$	2,122	$	516
Commercial real estate	20,190		20,853		4,722
Consumer real estate	2,203		2,287		384
Commercial and industrial	123,353		131,221		20,433
Consumer	103		103		25
Total	$	147,957	$	156,586	$	26,080
Total impaired loans:
Construction	$	12,704	$	12,731	$	516
Commercial real estate	25,554		27,683		4,722
Consumer real estate	6,017		6,185		384
Commercial and industrial	127,311		138,187		20,433
Consumer	270		270		25
Total	$	171,856	$	185,056	$	26,080



	December 31, 2015
(In thousands)	Recorded Investment		Contractual Balance		Related Allowance
With no related allowance recorded:
Construction	$	902	$	915	$	—
Commercial real estate	12,090		12,424		—
Consumer real estate	2,802		2,938		—
Commercial and industrial	6,072		6,264		—
Consumer	130		130		—
Total	$	21,996	$	22,671	$	—
With an allowance recorded:
Construction	$	1,728	$	1,755	$	508
Commercial real estate	17,917		17,982		5,674
Consumer real estate	1,516		1,534		322
Commercial and industrial	113,580		113,862		40,176
Consumer	14		14		13
Total	$	134,755	$	135,147	$	46,693
Total impaired loans:
Construction	$	2,630	$	2,670	$	508
Commercial real estate	30,007		30,406		5,674
Consumer real estate	4,318		4,472		322
Commercial and industrial	119,652		120,126		40,176
Consumer	144		144		13
Total	$	156,751	$	157,818	$	46,693



	For the Three Months Ended
	June 30, 2016				June 30, 2015
(In thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Construction	$	10,352	$	—	$	883	$	18
Commercial real estate	5,683		—		3,402		14
Consumer real estate	3,466		6		2,364		—
Commercial and industrial	3,929		—		7,514		—
Consumer	94		—		99		—
Total	$	23,524	$	6	$	14,262	$	32
With an allowance recorded:
Construction	$	2,132	$	—	$	22	$	—
Commercial real estate	22,199		6		10,143		60
Consumer real estate	2,214		—		318		—
Commercial and industrial	118,710		297		16,322		—
Consumer	205		—		1		—
Total	$	145,460	$	303	$	26,806	$	60
Total impaired loans:
Construction	$	12,484	$	—	$	905	$	18
Commercial real estate	27,882		6		13,545		74
Consumer real estate	5,680		6		2,682		—
Commercial and industrial	122,639		297		23,836		—
Consumer	299		—		100		—
Total	$	168,984	$	309	$	41,068	$	92




	For the Six Months Ended
	June 30, 2016				June 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Construction	$	5,749	$	—	$	891	$	18
Commercial real estate	8,727		20		4,529		14
Consumer real estate	3,308		7		2,348		3
Commercial and industrial	5,015		—		371		—
Consumer	149		—		163		—
Total	$	22,948	$	27	$	8,302	$	35
With an allowance recorded:
Construction	$	1,912	$	17	$	21	$	—
Commercial real estate	19,060		75		8,711		60
Consumer real estate	1,860		7		292		—
Commercial and industrial	118,466		299		16,038		4
Consumer	59		—		2		—
Total	$	141,357	$	398	$	25,064	$	64
Total impaired loans:
Construction	$	7,661	$	17	$	912	$	18
Commercial real estate	27,787		95		13,240		74
Consumer real estate	5,168		14		2,640		3
Commercial and industrial	123,481		299		16,409		4
Consumer	208		—		165		—
Total	$	164,305	$	425	$	33,366	$	99

Also presented in the above table is the average recorded investment of the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired. When the ultimate collectability of the total

principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is in nonaccrual status, contractual interest is credited to interest income when received under the cash basis method. In the table above, all interest recognized represents cash collected. The average balances are calculated based on the month-end balances of the financing receivables of the period reported.

As of June 30, 2016, there were no cash secured tuition loans that were past due 90 days or more still accruing interest. There were $0.1 million in cash secured tuition loans that were past due 90 days or more still accruing interest as of December 31, 2015.

The following is a summary of information pertaining to nonaccrual loans as of the periods indicated:



(In thousands)	June 30, 2016		December 31, 2015
Nonaccrual loans:
Construction	$	12,691	$	2,633
Commercial real estate	21,634		27,937
Consumer real estate	5,948		4,538
Commercial and industrial	126,727		119,705
Consumer	310		125
Total	$	167,310	$	154,938

As of June 30, 2016 and December 31, 2015, the average recorded investment in nonaccrual loans was $163.1 million and $34.0 million, respectively. The amount of interest income that would have been recognized on nonaccrual loans based on contractual terms was $4.4 million and $1.8 million at June 30, 2016 and December 31, 2015, respectively.

Information about the Company’s TDRs at June 30, 2016 and December 31, 2015 is presented in the following tables:



(In thousands)	Current		Greater Than 30 Days Past Due		Nonaccrual TDRs		Total TDRs
As of June 30, 2016
Real estate loans:
Construction	$	—	$	—	$	1,249	$	1,249
Commercial real estate	1,842		—		—		1,842
Consumer real estate	561		—		127		688
Total real estate loans	2,403		—		1,376		3,779
Other loans:
Commercial and industrial	447		—		115,375		115,822
Total loans	$	2,850	$	—	$	116,751	$	119,601



(In thousands)	Current		Greater Than 30 Days Past Due		Nonaccrual TDRs		Total TDRs
As of December 31, 2015
Real estate loans:
Construction	$	1	$	—	$	366	$	367
Commercial real estate	2,215		—		1,393		3,608
Consumer real estate	585		—		771		1,356
Total real estate loans	2,801		—		2,530		5,331
Other loans:
Commercial and industrial	482		—		109,727		110,209
Total loans	$	3,283	$	—	$	112,257	$	115,540

There were no TDRs modified during the three months ended June 30, 2016 and June 30, 2015. The following table provides information on how the TDRs were modified during the six months ended June 30, 2016 and June 30, 2015.



(In thousands)	June 30, 2016		June 30, 2015
Maturity and interest rate adjustment	$	—	$	—
Movement to, or extension of, interest rate-only payments	6,324		—
Other concessions (1)	—		—
Total	$	6,324	$	—

A summary of information pertaining to modified terms of loans, as of the dates indicated, is as follows:



	As of June 30, 2016
(In thousands)	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled debt restructuring:
Construction	1	$	1,249	$	1,249
Commercial real estate	1	1,842		1,842
Consumer real estate	1	688		688
Commercial and industrial	18	115,822		115,822
	21	$	119,601	$	119,601



	As of December 31, 2015
(In thousands)	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled debt restructuring:
Construction	3	$	367	$	367
Commercial real estate	3	3,608		3,608
Consumer real estate	5	1,356		1,356
Commercial and industrial	30	110,209		110,209
	41	$	115,540	$	115,540

None of the performing TDRs defaulted subsequent to the restructuring through the date the financial statements were available to be issued.

As of June 30, 2016, the Company was committed to lend $0.1 million in additional funds to customers whose loans were classified as impaired or TDR. As of December 31, 2015, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired or as a TDR.

6. Investments in Tax Credit Entities

Federal NMTC

Investment in Bank Owned CDE

The Bank owns a CDE which competes each year for a Federal New Markets Tax Credits allocation. The Federal NMTC program is administered by the Community Development Financial Institutions Fund of the U.S. Treasury and is aimed at stimulating economic and community development and job creation in low-income communities. The program provides federal tax credits to investors who make qualified equity investments (QEIs) in a CDE. The CDE is required to invest the proceeds of each QEI in projects located in or benefiting low-income communities, which are generally defined as those census tracts with poverty rates greater than 20% and/or median family incomes that are less than or equal to 80% of the area median family income. FNBC CDE has received allocations of Federal NMTC totaling $118.0 million since 2011. These allocations generated $46.0 million in tax credits.

The credit provided to the investor totals 39% of each QEI in a CDE and is claimed over a seven-year credit allowance period. In each of the first three years, the investor receives a credit equal to 5% of the total QEI allocated to each project. For each of the remaining four years, the investor receives a credit equal to 6% of the total QEI allocated to each project. The Company has received up to $46.0 million in tax credits over the seven-year credit allowance period, beginning with the period in which the QEI was made, for its total QEI of $118.0 million. Through June 30, 2016, FNBC CDE had invested in allocations of $118.0 million, of which $40.0 million was invested by the Company and $78.0 million was invested by other investors and leverage lenders, which include the Company. Of the $78.0 million invested by other investors and leverage lenders, $17.5 million was invested by the Company as the leverage lender. The Company's investment in its subsidiary CDE is eliminated upon consolidation. While the leverage lender's portion of the investment in the CDE is classified as a loan, the remaining investment in the CDE is accounted for as an equity method investment included in investment in tax credit entities in the accompanying consolidated balance sheets and evaluated at each reporting date for impairment. The impairment is evaluated based on the remaining tax credits available along with any applicable equity income or loss allocations. Impairment, if any, is recorded in the consolidated statement of income as a component of noninterest expense as well as any applicable equity income or loss allocations. The Federal NMTC claimed by the Company, with respect to each QEI, remain subject to recapture over each QEI’s credit allowance period upon the occurrence of any of the following:


•	CDE does not invest substantially all (defined as a minimum of 85%) of the QEI proceeds in qualified low-income community investments;


•	CDE ceases to be a CDE; or


•	CDE redeems its QEI investment prior to the end of the current credit allowance period.

At June 30, 2016 and December 31, 2015, none of the above recapture events had occurred, nor, in the opinion of management, are such events anticipated to occur in the foreseeable future. As of June 30, 2016, FNBC CDE had total assets of $132.3 million, consisting of cash of $7.3 million, loans of $112.3 million and other assets of $12.7 million, with liabilities of $0.5 million and capital of $131.8 million. Based on the structure of these transactions, the Company expects to recover its investment solely through use of the tax credits that were generated by the investments and any equity returns received through the limited partnership.

Investments in Non-Bank Owned CDEs

The Company is also a limited partner in several tax-advantaged limited partnerships and a shareholder in several C corporations whose purpose is to invest in approved Federal NMTC projects through CDEs that are not associated with FNBC CDE. During 2014, several of these partnerships that the Company was a limited partner in converted to C corporations. The Company’s ownership in the CDEs did not change based on the conversion. These investments are accounted for using the equity method of accounting and are included in investment in tax credit entities in the accompanying consolidated balance sheets. The limited partnerships and C corporations are considered VIEs. The VIEs have not been consolidated because the Company is not considered the primary beneficiary. The Company's investment in Federal NMTC partnerships and C corporations, net of the loans to the investment fund, are evaluated for impairment at the end of each reporting period based on the remaining tax credits available along with any equity income or loss allocations. Impairment, if any, is recorded in the consolidated statement of income as a component of noninterest expense as well as any applicable equity income or loss allocations. All of the Company’s investments in Federal NMTC structures are privately held, and their market values are not readily determinable. Based on the structure of these transactions, the Company expects to recover its investment solely through use of the tax credits that were generated by the investments and any equity returns received through the limited partnership.

Federal Low-Income Housing Tax Credits

The Company is a limited partner in tax-advantaged limited partnerships whose purpose is to invest in approved Federal Low-Income Housing tax credit projects. The tax credits associated with these investments are typically received over a 10 to 15 year period subject to recapture. These investments are accounted for using the equity method of accounting and are included in investments in tax credit entities in the accompanying consolidated balance sheets. The limited partnerships are considered to be VIEs and are evaluated for consolidation based on the Company's determination if it is the primary beneficiary. The Company has determined that it is not the primary beneficiary with respect to the limited partnerships. Thus, the VIEs have not been consolidated except for three Federal Low-Income Housing investments which were consolidated (See Note 7 for further details.) The Company utilizes the effective yield method to evaluate impairment. Impairment, if any, is recorded in the consolidated statement of income as a component of noninterest expense as well as any applicable equity income or loss allocations. All of the Company’s investments in Federal Low-Income Housing partnerships are evaluated for impairment at the end of each reporting period. Based on the structure of these transactions, the Company expects to recover its remaining investments at June 30, 2016 through the use of the tax credits that were generated by the investments and any equity returns received through the limited partnerships.

Federal Historic Rehabilitation Tax Credits

The Company is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved Federal Historic Rehabilitation tax credit projects. The tax credits generated on these investments are received in the year that the project is placed in service and subject to recapture over a 5 year period. These investments are accounted for using the equity method of accounting and are included in investments in tax credit entities in the accompanying consolidated balance sheets. The limited partnerships are considered to be VIEs and are evaluated for consolidation based on the Company's determination if it is the primary beneficiary. The Company has determined that it is not the primary beneficiary with respect to any of the limited partnerships and, thus, the VIEs have not been consolidated. All of the Company’s investments in limited partnerships are evaluated for impairment at the end of each reporting period and the Company records impairment, if any, in its consolidated statement of income as a component of noninterest expense. Impairment is calculated based upon future cash flows to be received during the Company's ownership period and the residual amount expected to be received upon disposition of its ownership position. Based on the structure of these transactions, the Company expects to recover its remaining investments in Federal Historic Rehabilitation tax credits at June 30, 2016 through the future cash flows and equity ownership in the underlying projects.

State Historic Rehabilitation Tax Credits

In connection with its limited partner interest in several tax-advantaged limited partnerships whose purpose is to invest in approved Federal Historic Rehabilitation tax credit projects, the Company can receive Louisiana State Historic Rehabilitation tax credits. These credits are certified by the State of Louisiana and are earned by the Company once the project is placed in service and then sold to investors after the State Historic Rehabilitation tax credits are certified by the State of Louisiana and transferred from the project to the Company. The credits are typically sold within 12 months of the project being placed in service. The Company evaluates its investment for impairment at the end of each reporting period. Impairment, if any, is recorded in its consolidated statement of income as a component of noninterest expense.

State NMTC

Investments in Non-Bank Owned CDEs

The Company is a limited partner in several tax-advantaged limited partnerships that are CDEs, whose purpose is to invest in approved State NMTC projects that are not associated with FNBC CDE. Based on the structure of these transactions, the Company expects to recover its remaining investments in State NMTC at June 30, 2016 through the transfer of its ownership interest to third party investors. The Company evaluates its investment for impairment at the end of each reporting period. Impairment, if any, is recorded in its consolidated statement of income as a component of noninterest expense.

The tables below set forth the Company's investment in Federal and State NMTC, Federal Low-Income Housing, and Federal and State Historic Rehabilitation tax credits, along with the credits earned and expected to be generated through its participation in these programs as of June 30, 2016 and December 31, 2015:



	June 30, 2016
(In thousands)	Investment		Total Impairment(1)			Loans to Investment Funds(2)			Elimination(3)			Net Investment		Tax Benefits Recognized Through December 31, 2015		Tax Benefits Earned and Expected to be Recognized in 2016		Tax Benefits Earned and Expected to be Recognized in 2017, and Thereafter		Total Tax Benefits Earned and to be Recognized
NMTC:
Federal:
Bank Owned CDEs	$	154,720	$	(11,828	)	$	—		$	(118,000	)	$	24,892	$	23,070	$	7,080	$	15,870	$	46,020
Non-Bank Owned CDEs	191,303		(27,898		)	(141,200		)	—			22,205		46,349		9,792		18,084		74,225
Total NMTC	346,023		(39,726		)	(141,200		)	(118,000		)	47,097		69,419		16,872		33,954		120,245

Low-Income Housing	30,175		(7,177		)	—			—			22,998		17,153		5,051		33,921		56,125

Historic Rehabilitation:
Federal(4)	89,991		(76,280		)	—			—			13,711		75,305		51,381		—		126,686
State	13,437		(4,363		)	—			—			9,074		—		—		—		—
Total Historic Rehabilitation(5)	103,428		(80,643		)	—			—			22,785		75,305		51,381		—		126,686
Total	$	479,626	$	(127,546	)	$	(141,200	)	$	(118,000	)	$	92,880	$	161,877	$	73,304	$	67,875	$	303,056

(1) Amount represents impairment recorded from the date of original investment through the current period, as evaluated by the Company at the end of each reporting period.

(2) Interest-only leverage loans made to the investment fund during the compliance period for Federal NMTC. This amount is recorded as an offset to the Federal NMTC investment due to the interest-only leverage loan being repaid at the end of the compliance period.

(3) Through June 30, 2016, FNBC CDE received allocations of Federal NMTC from the CDFI Fund of the U.S. Treasury totaling $118.0 million over a three year period beginning in 2011. These investments are eliminated upon consolidation by the Company.

(4) As of June 30, 2016, the Company had $2.6 million invested and $23.0 million in outstanding commitments in Federal Historic Rehabilitation tax credit projects which the Company expects to generate Federal Historic Rehabilitation tax credits in 2017 and thereafter when the projects are completed, receive the certificates of occupancy, and the property is placed into service. The amount of tax credits to be received will be determined when the costs are certified.

(5) The total accumulated impairment includes $0.5 million in additional accrued impairment in 2016 which is owed to the project based on the investment payment terms.



	December 31, 2015
(In thousands)	Investment		Total Impairment(1)			Loans to Investment Funds(2)			Elimination(3)			Net Investment		Tax Benefits Recognized Through December 31, 2014		Tax Benefits Recognized in 2015		Tax Benefits Earned and to be Recognized in 2016, and Thereafter		Total Tax Benefits Earned and to be Recognized
NMTC:
Federal:
Bank Owned CDEs	$	154,720	$	(8,288	)	$	—		$	(118,000	)	$	28,432	$	16,490	$	6,580	$	22,950	$	46,020
Non-Bank Owned CDEs	171,303		(23,738		)	(127,520		)	—			20,045		36,580		9,769		20,076		66,425
State	13,810		—			—			—			13,810		—		—		—		—
Total NMTC	339,833		(32,026		)	(127,520		)	(118,000		)	62,287		53,070		16,349		43,026		112,445

Low-Income Housing	30,166		(5,979		)	—			—			24,187		13,188		3,965		38,972		56,125

Historic Rehabilitation:
Federal(4)	69,177		(55,220		)	—			—			13,957		34,335		40,970		—		75,305
State	12,518		(4,363		)	—			—			8,155		—		—		—		—
Total Historic Rehabilitation(5)	81,695		(59,583		)	—			—			22,112		34,335		40,970		—		75,305
Total	$	451,694	$	(97,588	)	$	(127,520	)	$	(118,000	)	$	108,586	$	100,593	$	61,284	$	81,998	$	243,875

(1) Amount represents impairment recorded from the date of original investment through the current period, as evaluated by the Company at the end of each reporting period.

(3) Through December 31, 2015, FNBC CDE received allocations of Federal NMTC from the CDFI Fund of the U.S. Treasury totaling $118.0 million over a three year period beginning in 2011. These investments are eliminated upon consolidation by the Company.

(4) As of December 31, 2015, the Company had $10.9 million invested and $39.1 million in outstanding commitments in Federal Historic Rehabilitation tax credit projects which the Company expects to generate Federal Historic Rehabilitation tax credits in 2016, 2017 and 2018 when the projects are completed, receive the certificates of occupancy, and the property is placed into service. The amount of tax credits to be received will be determined when the costs are certified.

(5) The total accumulated impairment includes $5.8 million in additional accrued impairment in 2015 which is owed to the project based on the investment payment terms.

The impairment of tax credit investments for the three and six month periods ended June 30, 2016 and 2015 were as follows:



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
(In thousands)	2016		2015			2016		2015
			(Restated)					(Restated)
Federal NMTC	$	3,850	$	3,703		$	7,700	$	7,406
Federal Low-Income Housing	599		(765		)	1,198		158
Federal and State Historic Rehabilitation	10,267		8,723			20,533		17,444
Total impairment	$	14,716	$	11,661		$	29,431	$	25,008

The Company also made loans and leverage loans in the normal course of business to the tax credit related projects. These loans are subject to the Company's underwriting criteria and all loans were performing according to their contractual terms at June 30, 2016. These loans were classified in the Company's loan portfolio at June 30, 2016 and December 31, 2015 as follows:



(In thousands)	June 30, 2016		December 31, 2015
Construction	$	59,110	$	43,962
Commercial real estate	78,351		67,579
Commercial and industrial	145,201		117,389
Total loans	$	282,662	$	228,930

7. Variable Interest Entities

During 2013, the Company entered into a loan workout arrangement with a borrower. The result of this workout arrangement is considered to be a VIE, whereby the Company is considered the primary beneficiary and must consolidate the VIE. The initial recognition of this VIE relationship was accounted for using acquisition accounting. Under acquisition accounting, the assets and liabilities acquired are accounted for at market value and intercompany balances are eliminated. The asset acquired from the debtor, which consisted of a net operating loss, is included in the accompanying consolidated balance sheets.

A subsidiary of the Bank, FNBC CDC, is the managing member of several tax-advantaged limited partnerships whose purpose are to invest in approved Federal Low-Income Housing tax credit projects. This limited partnership is considered to be a VIE, whereby the Company is considered the primary beneficiary and must consolidate the VIE. As such, no impairment charges have been recorded with respect to this investment. The initial recognition of this VIE relationship was accounted for using acquisition accounting. Under acquisition accounting, the assets and liabilities acquired are accounted for at fair value and intercompany balances are eliminated. As of June 30, 2016, the Company included in its consolidated financial statements the VIE's total assets of $70.2 million, consisting of real estate of $69.4 million and other assets of $0.8 million, with liabilities of $5.5 million and capital of ($25.4) million.

8. Borrowings

Short-term Borrowings

The following is a summary of short-term borrowings at June 30, 2016 and December 31, 2015:



(In thousands)	June 30, 2016		December 31, 2015
FHLB	$	7,022	$	8,000
Total short-term borrowings	$	7,022	$	8,000

The Company's short-term borrowings at June 30, 2016 and December 31, 2015 consisted of advances from the Federal Home Loan Bank of Dallas (FHLB). These advances mature between August 22, 2016 and June 1, 2017 and had a weighted average interest rate of 0.85% as of June 30, 2016. The Company paid off a $2.0 million short-term borrowing that matured on March 21, 2016.

Long-term Borrowings

During the first quarter of 2016, the Company entered into a $19.1 million loan with the State of Louisiana Office of Community Development, which bears interest at 1% and is due on September 1, 2045. The loan is related to a Federal Low-Income Housing tax credit investment.

9. Derivative - Interest Rate Swap Agreements

Interest Rate Swaps. In March 2016, the Company entered into two delayed interest rate swaps with Counterparty C to manage exposure against the variability in the expected future cash flows attributed to changes in the benchmark interest rate on a portion of its variable-rate debt. The Company entered into these interest rate swap agreements to convert a portion of its forecasted variable-rate debt to a fixed rate, which is a cash flow hedge of a forecasted transaction. The notional amounts of each of the two derivative contracts is $55.0 million for a total notional amount of $110.0 million. The Company will receive payments from the counterparty at three-month LIBOR and make payments to the counterparty at fixed rates of 0.94% and 1.06%, respectively, on the $55.0 million notional amounts of each derivative contract. The cash flow payments on the derivatives began April 2016 and terminate October 2017 for the 0.94% interest rate swap and began April 2016 and terminate October 2018 for the 1.06% interest rate swap.

During 2014, the Company entered into three delayed interest rate swaps with Counterparty C to manage exposure against the variability in the expected future cash flows attributed to changes in the benchmark interest rate on a portion of its variable-rate debt. The Company entered into these interest rate swap agreements to convert a portion of its forecasted variable-rate debt to a fixed rate, which is a cash flow hedge of a forecasted transaction. The total notional amount of the three derivative contracts is $165.0 million.

During 2014, the Company terminated its cash flow hedge with Counterparty A, which the Company had entered into in 2012, as internal forecasts for future interest rates changed since this transaction was initiated. The total notional amount of the derivative contract was $115.0 million. The termination of the cash flow hedge resulted in a loss of $8.0 million which had been reflected in the Company’s operating cash flows and will be reclassified from accumulated other comprehensive income (loss) to net income as interest expense as it is amortized over a multi-year period consistent with the original maturity dates of the hedge which began in January 2015 and terminates in January 2022.

The Company entered into a delayed interest rate swap with Counterparty B in 2013 to manage exposure against the variability in the expected future cash flows attributed to changes in the benchmark interest rate on a portion of its variable-rate debt. The Company entered into this interest rate swap agreement to convert a portion of its variable-rate debt to a fixed rate, which is a cash flow hedge of a forecasted transaction. The total notional amount of the derivative contract is $150.0 million.

A summary of the Company's interest rate swaps as of June 30, 2016 is as follows:



(In thousands)	Notional Amount		Fixed Payment Rate	Term
Interest rate swaps:
Counterparty B:
Three-month LIBOR swap	$	150,000	4.165%	December 2016 - September 2023
	150,000
Counterparty C:
Three-month LIBOR swap	55,000		2.652%	January 2018 - October 2023
Three-month LIBOR swap	55,000		2.753%	January 2019 - October 2024
Three-month LIBOR swap	55,000		2.793%	July 2019 - April 2025
Three-month LIBOR swap	55,000		0.940%	April 2016 - October 2017
Three-month LIBOR swap	55,000		1.060%	April 2016 - October 2018
	275,000

Total interest rate swaps	$	425,000

Interest Rate-Prime Swaps. In May 2016, the Company terminated one of its interest rate-prime swaps with Counterparty C, which the Company entered into in 2015, as internal forecasts for future interest rates changed since this transaction was initiated. The total notional amount of the derivative contract was $10.0 million. The termination of the cash flow hedge resulted in a gain of $0.3 million which had been reflected in the Company’s operating cash flows and will be reclassified from accumulated other comprehensive income (loss) to net income as interest income as it is accreted over a multi-year period consistent with the original maturity dates of the hedge which began in June 2015 and terminates in March 2021.

During 2015, the Company entered into six interest rate-prime swaps with Counterparty C to manage exposure against the variability in the expected future cash flows on the designated Prime, Prime plus 1%, Prime plus 1% floored at 5%, Prime plus 2%, Prime plus 2% actual/365, and Prime plus 2.25% pools of its floating rate loan portfolio. The Company entered into these interest rate-prime swap agreements to hedge the cash flows from these pools of its floating rate loan portfolio, which is expected to offset the variability in the expected future cash flows attributable to the fluctuations in the daily weighted average Wall Street Journal Prime index, which is a cash flow hedge of a forecasted transaction. The Company terminated the Prime plus 2.25% tranche during 2016 (see 2016 interest rate-prime swaps transaction with Counterparty C above). The total notional amount of the contracts is $135.0 million as of June 30, 2016. The cash flow payments on the derivatives began March 2015 and terminate September 2022.

During 2015, the Company terminated two of its interest rate-prime swaps with Counterparty B, which the Company entered into in 2013, as internal forecasts for future interest rates changed since these transactions were initiated. The total notional amount of the derivative contracts was $70.0 million. The termination of the cash flow hedges resulted in a gain of $1.3 million which had been reflected in the Company’s operating cash flows and will be reclassified from accumulated other

comprehensive income (loss) to net income as interest income as it is accreted over a multi-year period consistent with the original maturity dates of the hedges which began in September 2013 and terminate in September 2019.

During 2013, the Company entered into four interest rate swaps with Counterparty B to manage exposure against the variability in the expected future cash flows on the designated Prime, Prime plus 1%, Prime plus 1% floored at 5% and Prime plus 1% floored at 5.5% pools of its floating rate loan portfolio. The Company entered into the interest rate swap agreements to hedge the cash flows from these pools of its floating rate loan portfolio, which is expected to offset the variability in the expected future cash flows attributable to the fluctuations in the daily weighted average Wall Street Journal Prime index, which is a cash flow hedge of a forecasted transaction. The Company terminated the Prime and Prime plus 1% tranches during 2015 (see 2015 interest rate-prime swaps transaction with Counterparty B above). The total notional amount of the remaining prime hedges is $180.0 million as of June 30, 2016. The cash flow payments on the derivatives began September 2013 and terminate September 2019.

A summary of the Company's interest rate-prime swaps as of June 30, 2016 is as follows:



(In thousands)	Notional Amount		Fixed Rate	Term
Interest rate-prime swaps:
Counterparty B:
Prime plus 1% floored at 5%	$	100,000	6.010%	September 2013 - September 2019
Prime plus 1% floored at 5.5%	80,000		6.260%	September 2013 - September 2019
	180,000
Counterparty C:
Prime	30,000		4.500%	December 2015 - September 2022
Prime plus 1%	40,000		5.490%	December 2015 - September 2022
Prime plus 1% floored at 5%	40,000		5.810%	March 2015 - March 2021
Prime plus 2%	15,000		6.560%	March 2015 - March 2021
Prime plus 2% actual/365	10,000		6.560%	March 2015 - March 2021
	135,000

Total interest rate-prime swaps	$	315,000

Information pertaining to outstanding derivative instruments is as follows:



		Derivative Assets Fair Value					Derivative Liabilities Fair Value
(In thousands)	Balance Sheet Location	June 30, 2016		December 31, 2015		Balance Sheet Location	June 30, 2016		December 31, 2015
Derivatives designated as hedging instruments under ASC Topic 815:
Interest rate swaps - Counterparty B	Other Assets	$	—	$	—	Other Liabilities	$	31,046	$	20,613
Interest rate-prime swaps - Counterparty B	Other Assets	5,172		3,815		Other Liabilities	—		—
Interest rate swaps - Counterparty C	Other Assets	—		—		Other Liabilities	13,311		3,037
Interest rate-prime swaps - Counterparty C	Other Assets	5,596		541		Other Liabilities	—		406
		$	10,768	$	4,356		$	44,357	$	24,056

The Company entered into master netting arrangements with both Counterparty B and Counterparty C whereby the delayed interest rate swaps and hedges would be settled net. Net fair values of the Counterparty B and Counterparty C delayed interest rate swaps and hedges as of June 30, 2016 and December 31, 2015 were as follows:



	June 30, 2016
	Gross Amounts Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet
(In thousands)	Gross Amounts Presented in the Balance Sheet		Derivatives		Collateral		Net
Derivatives subject to master netting arrangements:
Derivative liabilities:
Counterparty B	$	25,874	$	—	$	—	$	25,874
Counterparty C	7,715		—		—		7,715
Net derivative liability	$	33,589	$	—	$	—	$	33,589



	December 31, 2015
	Gross Amounts Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet
(In thousands)	Gross Amounts Presented in the Balance Sheet		Derivatives		Collateral		Net
Derivatives subject to master netting arrangements:
Derivative liabilities:
Counterparty B	$	16,798	$	—	$	—	$	16,798
Counterparty C	2,902		—		—		2,902
Net derivative liability	$	19,700	$	—	$	—	$	19,700

Pursuant to the interest rate swap agreements described above with Counterparty B, the Company pledged collateral in the form of investment securities totaling $28.7 million (with a fair value at June 30, 2016 of $29.7 million), which has been presented gross in the Company’s balance sheet. Pursuant to the interest rate swap agreements described above with Counterparty C, the Company pledged collateral in the form of investment securities totaling $6.2 million (with a fair value at June 30, 2016 of $6.7 million), which has been presented gross in the Company’s balance sheet. There was no collateral posted from the counterparties to the Company as of June 30, 2016.

As a result of the discontinuance of the cash flow hedge with Counterparty A, the Company reclassified $0.3 million from accumulated other comprehensive income (loss) into interest expense for the three month periods ended June 30, 2016 and 2015. For the six month periods ended June 30, 2016 and 2015, the Company reclassified $0.6 million and $0.5 million, respectively, from accumulated other comprehensive income (loss) into interest expense.

As a result of the discontinuance of the cash flow hedge with Counterparty B, the Company reclassified $0.1 million from accumulated other comprehensive income (loss) into interest income for the three month period ended June 30, 2016. For the six month period ended June 30, 2016, the Company reclassified $0.2 million from accumulated other comprehensive income (loss) into interest income. No amounts were reclassified into earnings for the three and six month periods ended June 30, 2015.

There were no amounts reclassified for the three and six month periods ended June 30, 2016 and 2015 from accumulated other comprehensive income (loss) into interest income as a result of the discontinuance of the cash flow hedges with Counterparty C.

As of June 30, 2016 and 2015, no amounts of gains or losses have been reclassified from accumulated comprehensive income (loss), nor have any amounts of gains or losses been recognized due to ineffectiveness of a portion of the derivatives. At June 30, 2016, no amount of the derivatives will mature within the next 12 months. The Company does not expect to reclassify any amount from accumulated other comprehensive income (loss) into interest income over the next 12 months for derivatives that will be settled.

At June 30, 2016 and 2015, and for the six months then ended, information pertaining to the effect of the hedging instruments on the consolidated financial statements is as follows:



	Amount of Gain (Loss) Recognized in OCI, net of taxes (Effective Portion)
(In thousands)	As of June 30,
Derivatives in ASC Topic 815 Cash Flow Hedging Relationships:	2016			2015
Interest rate swap with Counterparty A	$	(4,124	)	$	(4,844	)
Interest rate swap and prime swaps with Counterparty B	(16,120		)	(7,592		)
Interest rate swap and prime swaps with Counterparty C	(4,848		)	944
Total	$	(25,092	)	$	(11,492	)

10. Income Taxes

The income tax benefit on the statement of income for the three and six months ended June 30, 2016 and 2015 was as follows:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(In thousands)	2016			2015			2016			2015
				(Restated)						(Restated)
Current tax expense	$	293		$	831		$	1,134		$	1,911
Deferred tax benefit	(4,343		)	(19,427		)	(45,054		)	(35,191		)
Total tax benefit	$	(4,050	)	$	(18,596	)	$	(43,920	)	$	(33,280	)

The amount of taxes in the accompanying consolidated statements of income is different from the expected amount using statutory federal income tax rates primarily due to the effect of various tax credits. As discussed in Note 6, the Company earns Federal NMTC, Federal Historic Rehabilitation, and Low-Income Housing tax credits, which reduce the Company’s federal income tax liability or create a carryforward as applicable. The Company uses the flow-through method to account for investment tax credits earned on eligible Federal tax credit investments. Under this method, the investment tax credits are recognized as a reduction of income tax expense. The Company is also required to reduce its tax basis of the investment in certain of the projects that generated the Federal NMTC or Federal Historic Rehabilitation tax credits by the amount of the credit generated in that year.

The Company recorded a valuation allowance of $1.6 million for the net deferred tax assets at June 30, 2016 and $1.5 million at December 31, 2015. In determining whether a valuation allowance related to deferred tax assets was necessary, the Company considered all available evidence including historical information supplemented by all currently available information about future years. The Company also considered events occurring subsequent to June 30, 2016 but before the financial statements were released that provided additional evidence (negative or positive) regarding the likelihood of realization of existing deferred tax assets.

The negative evidence cited included cumulative losses in recent years which included all "non-recurring" charges such as impairments or losses on certain assets that had not occurred previously. Certain of these items may not be indicative of future results, but they are part of total results, and therefore similar types of items may occur in future years.

Considerable judgment is required in assessing the need for a valuation allowance including all available evidence, both positive and negative, as the assessment includes determining the feasibility and willingness of the Company to employ various tax planning strategies and projections of future taxable income. Management employed various stress test techniques when evaluating the reasonableness of their estimates, including future taxable income, deferring to scenarios deemed to be mostly likely and supportable by the available data.

11. Commitments and Contingencies

Litigation Matters

plaintiff of the putative class. Briefing on the lead plaintiff motions was completed on July 19, 2016, and the parties currently await a decision on these motions from the Court. The Company believes that it has meritorious defenses and intends to defend this lawsuit vigorously. This lawsuit and any other related lawsuits are subject to inherent uncertainties, and the ultimate outcome of such litigation is necessarily unknown. The Company is unable to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome in such matters.

The SEC has commenced an investigation relating to the Company’s financial reporting. The Company is fully cooperating with the SEC. The Company cannot predict the duration or outcome of this investigation. Any action by the SEC or other government agency could result in civil or criminal sanctions against the Company and/or certain of its current or former officers, directors or employees.

The Company is party to various other litigation matters incidental to the conduct of its business. Based upon its evaluation of information currently available, the Company believes that the ultimate resolution of any such proceedings will not have a material adverse effect, either individually or in the aggregate, on its financial condition, results of operations or cash flows.

Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These transactions include commitments to extend credit in the ordinary course of business to approved customers. Generally, loan commitments have been granted on a temporary basis for working capital or commercial real estate financing requirements or may be reflective of loans in various stages of funding. These commitments are recorded on the Company’s financial statements as they are funded. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Loan commitments include unused commitments for open-end lines secured by one to four family residential properties and commercial properties, commitments to fund loans secured by commercial real estate, construction loans, business lines of credit, and other unused commitments. Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, the Company would be entitled to seek recovery from the customer. The Company minimizes its exposure to loss under loan commitments and standby letters of credit by subjecting them to credit approval and monitoring procedures. The effect on the Company’s revenues, expenses, cash flows, and liquidity of the unused portions of these commitments cannot be reasonably predicted because there is no guarantee that the lines of credit will be used. The reserve for losses on unfunded commitments totaled $0.3 million at June 30, 2016 and December 31, 2015.

The following is a summary of the total notional amount of loan commitments and standby letters of credit outstanding at June 30, 2016 and December 31, 2015:



(In thousands)	June 30, 2016		December 31, 2015
Standby letters of credit	$	140,668	$	106,232
Unused loan commitments	717,682		715,759
Total	$	858,350	$	821,991

12. Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income (loss) by component are presented in the following table:



(In thousands)	Cash Flow Hedges(1)			Terminated Cash Flow Hedges(2)			Transfers of Available for Sale Securities to Held to Maturity			Available for Sale Securities			Total
Balance at January 1, 2016	$	(12,806	)	$	(3,685	)	$	(2,926	)	$	(1,968	)	$	(21,385	)
Other comprehensive income (loss) before income taxes:
Net change in unrealized gain (loss)	(13,889		)	263			—			7,102			(6,524		)
Reclassification of net losses realized and included in earnings	—			394			—			—			394
Amortization of unrealized net gain	—			—			303			—			303
Income tax expense (benefit)	(4,769		)	138			106			2,484			(2,041		)
Balance at June 30, 2016	$	(21,926	)	$	(3,166	)	$	(2,729	)	$	2,650		$	(25,171	)



(In thousands)	Cash Flow Hedges(1)			Terminated Cash Flow Hedge(2)			Transfers of Available for Sale Securities to Held to Maturity			Available for Sale Securities			Total
Balance at January 1, 2015	$	(8,396	)	$	(5,194	)	$	(3,354	)	$	(2,793	)	$	(19,737	)
Other comprehensive income (loss) before income taxes:
Net change in unrealized gain	2,690			—			—			472			3,162
Reclassification of net losses realized and included in earnings	—			539			—			—			539
Amortization of unrealized net gain	—			—			288			—			288
Income tax expense (benefit)	942			189			101			165			1,397
Balance at June 30, 2015	$	(6,648	)	$	(4,844	)	$	(3,167	)	$	(2,486	)	$	(17,145	)

(1) Balances represent the net operating changes in all of the Company's cash flow hedge relationships as of the dates stated.

(2) Balances represent the net unrealized gains (loss) at termination of a certain cash flow hedge, interest rate swap cash flow hedge, and interest rate-prime swap cash flow hedge relationships. See Note 9 for further explanation on the terminated cash flow hedges.

13. Capital Requirements and Other Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements of the Company and the Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, Tier 1 capital to average assets, and common equity Tier 1 capital to risk-weighted assets. Management believes, as of June 30, 2016 and December 31, 2015, that the Company and the Bank met all minimum capital adequacy requirements to which they were subject.

As of June 30, 2016, the Bank was classified as “adequately capitalized” for purposes of the FDIC's prompt corrective action requirements. To be categorized as "well capitalized", an institution must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage, and common equity Tier 1 risk-based capital ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed that categorization. Section 29 of the Federal Deposit Insurance Act limits the use of brokered deposits by institutions that are less than “well-capitalized” and allows the FDIC to place restrictions on interest rates that institutions may pay.

The following tables present the actual capital amounts and regulatory capital ratios for the Company and the Bank as of June 30, 2016 and December 31, 2015:



			June 30, 2016
	"Well Capitalized" Minimums		Actual
(In thousands)	"Well Capitalized" Minimums		Ratio		Amount
First NBC Bank Holding Company
Tier 1 leverage capital			5.97	%	$	281,298
Tier 1 risk-based capital			6.41	%	281,298
Total risk-based capital			9.03	%	396,079
Common equity tier 1 risk-based capital			6.41	%	281,298
First NBC Bank
Tier 1 leverage capital	5.00	%	7.26	%	$	340,612
Tier 1 risk-based capital	8.00	%	7.78	%	340,612
Total risk-based capital	10.00	%	9.05	%	396,439
Common equity tier 1 risk-based capital	6.50	%	7.78	%	340,612



			December 31, 2015
	"Well Capitalized" Minimums		Actual
(In thousands)	"Well Capitalized" Minimums		Ratio		Amount
First NBC Bank Holding Company
Tier 1 leverage capital			6.03	%	$	265,191
Tier 1 risk-based capital			6.33	%	265,191
Total risk-based capital			9.04	%	378,815
Common equity tier 1 risk-based capital			6.33	%	265,191
First NBC Bank
Tier 1 leverage capital	5.00	%	7.44	%	$	321,346
Tier 1 risk-based capital	8.00	%	7.68	%	321,346
Total risk-based capital	10.00	%	8.96	%	374,976
Common equity tier 1 risk-based capital	6.50	%	7.68	%	321,346

On October 11, 2016, the holding company was informed in writing by the Federal Reserve Bank of Atlanta (“FRB”) and Louisiana Office of Financial Institutions (“OFI”) that it is deemed to be in “troubled condition” under Section 225.71 of Regulation Y. This regulatory designation results in two primary limitations upon the holding company. First, the Company will be required to seek the prior approval of the FRB before adding any new director or senior executive officer at the holding company level or changing the responsibilities of any current senior executive officer. Second, the Company may not make indemnification or severance payments to, or enter into agreements providing for such indemnification or severance payments with, institution-affiliated parties, which include key employees and directors of the Company, without complying with certain statutory restrictions including prior approval of the FRB and FDIC.

The FRB has also advised the Company that in light of its obligation to serve as a source of financial and managerial strength to the Bank, the Company should not incur indebtedness; distribute any interest, principal or other sums on subordinate debentures; declare or pay dividends on any of the Company’s equity securities; redeem any corporate stock; or make any other payment representing a reduction in capital, except for the payment of normal and routine operating expenses, without prior FRB and OFI approval.

14. Fair Value of Financial Instruments

ASC 820, Fair Value Measurements and Disclosures, clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:


•	Level 1 – Quoted prices in active markets for identical assets or liabilities.


•	Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.


•	Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification

of such instruments within the valuation hierarchy. Securities are classified within Level 1 when quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using pricing models or quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Examples include certain available for sale securities. The Company’s investment portfolio did not include Level 3 securities as of June 30, 2016 and December 31, 2015.

The Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy, based on the inputs used to determine the fair value at the measurement date in the tables below:



			June 30, 2016
			Fair Value Measurement Using
(In thousands)	Total		Quoted Prices in Active Markets for Identical Assets ( Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities:
U.S. government agency securities	$	149,449	$	—	$	149,449	$	—
U.S. Treasury securities	13,128		—		13,128		—
Municipal securities	12,127		—		12,127		—
Mortgage-backed securities	118,507		—		118,507		—
Corporate bonds	8,048		—		8,048		—
Other equity securities	20		20		—		—
Total	$	301,279	$	20	$	301,259	$	—
Liabilities
Derivative instruments	$	33,589	$	—	$	33,589	$	—



			December 31, 2015
			Fair Value Measurement Using
(In thousands)	Total		Quoted Prices in Active Markets for Identical Assets ( Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities:
U.S. government agency securities	$	149,675	$	—	$	149,675	$	—
U.S. Treasury securities	12,703		—		12,703		—
Municipal securities	12,100		—		12,100		—
Mortgage-backed securities	77,511		—		77,511		—
Corporate bonds	7,823		—		7,823		—
Other equity securities	20		20		—		—
Other debt securities	25,994		—		25,994		—
Total	$	285,826	$	20	$	285,806	$	—
Liabilities
Derivative instruments	$	19,700	$	—	$	19,700	$	—

The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the tables below:



			June 30, 2016
			Fair Value Measurement Using
(In thousands)	Total		Quoted Prices in Active Markets for Identical Assets ( Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Loans	$	147,957	$	—	$	—	$	147,957
OREO	2,460		—		—		2,460
Investment in tax credit entities	6,233		—		—		6,233
	$	156,650	$	—	$	—	$	156,650



			December 31, 2015
			Fair Value Measurement Using
(In thousands)	Total		Quoted Prices in Active Markets for Identical Assets ( Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Loans	$	134,755	$	—	$	—	$	134,755
OREO	3,701		—		—		3,701
Investment in tax credit entities	1,425		—		—		1,425
	$	139,881	$	—	$	—	$	139,881

In accordance with ASC Topic 310, the Company records loans and other real estate considered impaired at the lower of cost or fair value. Impaired loans, recorded at fair value, are Level 3 assets measured using appraisals from external parties of the collateral, less any prior liens primarily using the market or income approach. The residual value or fair value of the Company's investment in tax credit entities are Level 3 assets measured using appraisals or actual costs incurred on the underlying individual properties, applying an estimated inflation rate on the appraised values or actual costs and discounting the cash flows.

The Company did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis during the six months ended June 30, 2016 or the year ended December 31, 2015.

ASC 820 requires the disclosure of the fair value for each class of financial instruments for which it is practicable to estimate. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC 820 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value.

Cash and Cash Equivalents

The carrying amounts of these short-term instruments approximate their fair values and would be classified within Level 1 of the hierarchy.

Investment in Short-Term Receivables

The carrying amounts of these short-term receivables approximate their fair value and would be classified within Level 1 of the hierarchy.

Investment Securities

Securities are classified within Level 1 where quoted market prices are available in the active market. If quoted market prices are unavailable, fair value is estimated using pricing models or quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Inputs include securities that have quoted prices in active markets for identical assets.

Loans

For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed-rate commercial real estate, commercial loans, and consumer loans are estimated using discounted cash flow analyses using interest rates currently being offered for loans with similar terms and borrowers of similar credit quality. Fair value of mortgage loans held for sale is based on commitments on hand from investors or prevailing market rates. The fair value associated with the loans includes estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows, which would be classified as Level 3 of the hierarchy.

Deposits

The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts) and would be categorized within Level 2 of the fair value hierarchy. The carrying amounts of variable-rate, fixed-term money market accounts approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. The fair value of the Company’s interest-bearing deposits would, therefore, be categorized within Level 3 of the fair value hierarchy.

Short-Term Borrowings and Repurchase Agreements

The carrying amounts of these short-term instruments approximate their fair values and would be classified within Level 2 of

the hierarchy.

Long-Term Borrowings

The fair values of long-term borrowings are estimated using discounted cash flows analyses based on the Company’s current

incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company’s long-term debt

would, therefore, be categorized within Level 2 of the fair value hierarchy.

Derivative Instruments

Fair values for interest rate swap agreements are based upon the amounts required to settle the contracts. The derivative instruments are classified within Level 2 of the fair value hierarchy.

The estimated fair values of the Company’s financial instruments were as follows as of the dates indicated:



	Fair Value Measurements at June 30, 2016
(In thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	146,011	$	146,011	$	146,011	$	—	$	—
Investment securities available for sale	301,279		301,279		20		301,259		—
Investment securities held to maturity	79,598		85,442		—		85,442		—
Loans and loans held for sale	3,783,183		3,766,902		—		—		3,766,902
Financial Liabilities:
Deposits, noninterest-bearing	381,553		381,553		—		381,553		—
Deposits, interest-bearing	3,550,471		3,543,587		—		—		3,543,587
Repurchase agreements	85,757		85,757		—		85,757		—
Short-term borrowings	7,022		7,027		—		7,027		—
Long-term borrowings	355,130		360,921		—		360,921		—
Derivative instruments	33,589		33,589		—		33,589		—



	Fair Value Measurements at December 31, 2015
(In thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	349,054	$	349,054	$	349,054	$	—	$	—
Investment in short-term receivables	25,604		25,604		25,604		—		—
Investment securities available for sale	285,826		285,826		20		285,806		—
Investment securities held to maturity	82,074		82,799		—		82,799		—
Loans and loans held for sale	3,466,268		3,444,920		—		—		3,444,920
Financial Liabilities:
Deposits, noninterest-bearing	368,421		368,421		—		368,421		—
Deposits, interest-bearing	3,475,421		3,403,261		—		—		3,403,261
Repurchase agreements	79,251		79,251		—		79,251		—
Short-term borrowings	8,000		7,994		—		7,994		—
Long-term borrowings	339,042		341,033		—		341,033		—
Derivative instruments	19,700		19,700		—		19,700		—

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of First NBC Bank Holding Company (“Company”) and its wholly owned subsidiary, First NBC Bank, as of June 30, 2016 and December 31, 2015 and for the three and six month periods ended June 30, 2016 and June 30, 2015. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements, the accompanying footnotes and supplemental data included herein.

To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management’s current information, estimates and assumptions and the current economic environment, are generally identified by the use of words such as “plan,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions, or by future or conditional terms such as “will,” “would,” “should,” “could,” “may,” “likely,” “probably,” or “possibly”. The Company’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties.

Forward-looking statements are not historical facts and may be affected by numerous factors, many of which are uncertain and beyond the Company’s control. Factors that may cause actual results to differ materially from these forward-looking statements are discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and other filings with the Securities and Exchange Commission (“SEC”). The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

EXECUTIVE OVERVIEW

The Company is a bank holding company, which operates through one segment, community banking, and offers a broad range of financial services to businesses, institutions, and individuals in southeastern Louisiana and the Florida panhandle. The Company generates most of its revenue from interest on loans and investments, service charges, state tax credits earned and CDE fees earned. The Company’s primary source of funding for its loans is deposits. The largest expenses are interest on these deposits, salaries and related employee benefits, and impairment on investment in tax credit entities. The Company measures its performance through its net interest margin, return on average assets and return on average common equity, while maintaining appropriate regulatory leverage and risk-based capital ratios.

RESULTS OF OPERATIONS AND BALANCE SHEET POSITION

For the six months ended June 30, 2016, the Company’s income available to common shareholders totaled $26.1 million, an increase of $4.0 million, or 18.2%, compared to the six months ended June 30, 2015. Diluted earnings per share for the six months ended June 30, 2016 were $1.34, an increase of $0.19, or 16.5%, compared to the six months ended June 30, 2015. During the second quarter of 2016, the Company’s income available to common shareholders totaled $3.4 million, a decrease of $9.0 million, or 72.7%, compared to the second quarter of 2015. Diluted earnings per share for the second quarter of 2016 were $0.18, a decrease of $0.47, or 72.3%, compared to the second quarter of 2015.

Key components of the Company’s performance during the first six months of 2016 are summarized below.


•	Interest income increased $8.7 million, or 21.8%, in the second quarter of 2016 compared to the second quarter of 2015. For the six months ended June 30, 2016, interest income increased $15.9 million, or 20.4%, compared to the six months ended June 30, 2015.

•

Interest expense increased $2.6 million, or 20.7%, in the second quarter of 2016 compared to the second quarter of 2015. For the six months ended June 30, 2016, interest expense increased $5.7 million, or 23.9%, compared to the six months ended June 30, 2015. The increase year to date was primarily due to higher average balances of interest-bearing deposits and borrowings. The Company’s cost of funds decreased 5 basis points compared to the six months ended June 30, 2015.


•	The Company’s ratio of allowance for loan losses to total loans was 2.04% at June 30, 2016, compared to 2.27% at December 31, 2015 and 1.74% at June 30, 2015.


•	Net charge-offs for the second quarter of 2016 were $0.9 million, compared to net charge-offs of $0.4 million for the second quarter of 2015. Net charge-offs for the six months ended June 30, 2016 were $9.9 million compared to $0.6 million for the same period of 2015.


•	Noninterest income for the second quarter of 2016 was flat compared to the second quarter of 2015. For the six months ended June 30, 2016, noninterest income increased $1.4 million, or 19.7%, compared to the six months ended June 30, 2015,

primarily due to increases in gain on other assets sold of $1.0 million and other noninterest income of $1.5 million offset by a decrease in state tax credits earned of $1.2 million.

•

Noninterest expense for the second quarter of 2016 increased $12.3 million, or 39.3%, compared to the second quarter of 2015. The increase in noninterest expense in the second quarter of 2016 compared to the second quarter of 2015 resulted primarily from increases in all components of noninterest expense. For the six months ended June 30, 2016, noninterest expense increased $18.3 million, or 29.0%, compared to the six months ended June 30, 2015, primarily due to increases in all components of noninterest expense.


•	Total assets at June 30, 2016 were $4.9 billion, an increase of $145.6 million, or 3.1%, from December 31, 2015.


•	Total loans at June 30, 2016 were $3.8 billion, an increase of $321.4 million, or 9.3%, from December 31, 2015. The increase in loans was primarily due to increases of $219.2 million, or 15.4%, in commercial real estate loans and $78.3 million, or 6.4%, in commercial loans from December 31, 2015.


•	Total deposits increased $88.2 million, or 2.3%, from December 31, 2015. The increase was due primarily to increases in NOW deposits of $19.0 million, or 2.6%, money market deposits of $30.3 million, or 2.4%, certificates of deposit of $32.5 million, or 2.4%, and noninterest-bearing demand deposits of $13.1 million, or 3.6%, from December 31, 2015.


•	Shareholders’ equity increased $24.4 million, or 6.4%, to $405.1 million from December 31, 2015. The increase was primarily attributable to the Company’s retained earnings over the period.

NON-GAAP FINANCIAL MEASURES

This discussion and analysis contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles, or GAAP. The Company’s management uses these non-GAAP financial measures in its analysis of the Company’s performance.

As a material part of its business plan, the Company invests in entities that generate federal income tax credits, and management believes that understanding the impact of the Company’s investment in tax credit entities is critical to understanding its financial performance on a standalone basis and in relation to its peers. Like its investments in loans and investment securities, the Company’s investment in tax credit entities generates a return for the Company. However, unlike the income generated by its loans and investment securities, service charges or other noninterest income, which under GAAP are taken into account in the determination of income before income taxes, the return generated by the Company’s investment in tax credit entities is reflected only as a reduction of income tax expense.

Under current GAAP accounting, the returns generated from the Company’s investment in tax credit entities are a component of the Company’s income tax provision whereas all of the expenses, primarily impairment of investment in tax credit entities, are recorded in noninterest expense. Because of the level of the Company’s investment in tax credit entities, management believes that the effect of adjusting the relevant GAAP measures to account for returns generated by the Company’s investment in tax credit entities is meaningful to a more complete understanding of the Company’s financial performance.

In measuring the Company’s financial performance, in addition to financial measures that are prepared in accordance with GAAP, management utilizes non-GAAP performance measures that adjust noninterest income and expense to reflect the effect of the federal income taxes generated from the Company's investment in tax credit entities to derive an adjusted efficiency ratio. The non-GAAP measures of adjusted income before income taxes and adjusted income before income taxes and adjusted efficiency ratio are reconciled to the corresponding measures determined in accordance with GAAP in “Table 1- Reconciliations of Non-GAAP Financial Measures.” Management believes that the non-GAAP financial measures facilitate an investor’s understanding and analysis of the Company’s underlying financial performance and trends, in addition to the corresponding financial information prepared and reported in accordance with GAAP.

Tangible book value per common share and the ratio of tangible common equity to tangible assets are not financial measures recognized under GAAP and, therefore, are considered non-GAAP financial measures. The Company’s management, banking regulators, many financial analysts and other investors use these non-GAAP financial measures to compare the capital adequacy of banking organizations with significant amounts of preferred equity and/or goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. Tangible common equity, tangible assets, tangible book value per share or related measures should not be considered in isolation or as a substitute for total shareholders’ equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Company calculates tangible common equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names.

These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP. The following tables reconcile, as of the dates set forth below, income before income taxes (on a GAAP basis) to income before

income taxes adjusted for investments in federal tax credit programs, shareholders’ equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets and tangible book value per share, and calculate an adjusted efficiency ratio (non-GAAP).

TABLE 1-RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES



	For the Six Months Ended
(In thousands, except per share data)	June 30, 2016			June 30, 2015
				(Restated)
Income (loss) before income taxes:
Loss before income taxes (GAAP)	$	(17,172	)	$	(10,623	)
Income adjustment before income taxes related to the impact of tax credit related activities (Non-GAAP)
Tax equivalent income associated with investment in federal tax credit programs(1)	58,637			45,309
Adjusted income before income taxes (Non-GAAP)	41,465			34,686
Income tax expense-adjusted (Non-GAAP)(2)	(14,717		)	(12,029		)
Net income (GAAP)	$	26,748		$	22,657


Adjusted Efficiency Ratio:
Noninterest expense (GAAP)	$	81,574		$	63,228
Adjustments:
Impairment of investment in tax credit entities(3)	(29,431		)	(25,008		)
Other direct expenses(4)	(1,252		)	(1,316		)
Adjusted noninterest expense (Non-GAAP)	50,891			36,904
Net interest income (GAAP)	64,444			54,235
Noninterest income (GAAP)	8,341			6,970
Adjustments:
State tax credits earned	—			(1,187		)
Community Development Entity fees earned	(184		)	(256		)
Adjusted noninterest income (Non-GAAP)	8,157			5,527
Adjusted total revenue (Non-GAAP)	$	72,601		$	59,762
Adjusted efficiency ratio (Non-GAAP)	70.10		%	61.75		%


(1)	Tax equivalent income associated with investment in federal tax credit programs represents the gross amount of tax benefit from federal tax credits.


(2)	Income tax expense-adjusted represents the expense amount to reconcile adjusted income (loss) before income taxes to net income (loss) per GAAP.


(3)	Impairment of investment in tax credit entities represents impairment recorded during the current periods, as evaluated by the Company at the end of each reporting period.


(4)	Other direct expenses represent fees and expenses incurred as a result of the Company's investment in federal tax credit programs.



	As of
(In thousands, except per share data)	June 30, 2016			December 31, 2015
Tangible equity and asset calculations:
Total shareholders' equity (GAAP)	$	405,116		$	380,751
Adjustments:
Preferred equity	(37,935		)	(37,935		)
Goodwill	(14,645		)	(14,645		)
Other intangibles	(3,387		)	(3,606		)
Tangible common equity	$	349,149		$	324,565

Total assets (GAAP)	$	4,851,417		$	4,705,825
Adjustments:
Goodwill	(14,645		)	(14,645		)
Other intangibles	(3,387		)	(3,606		)
Tangible assets	$	4,833,385		$	4,687,574

Total common shares	19,231			19,078
Book value per common share	$	19.09		$	17.97
Effect of adjustment	0.93			0.96
Tangible book value per common share	$	18.16		$	17.01
Total equity to assets	8.35		%	8.09		%
Effect of adjustment	1.13		%	1.17		%
Tangible common equity to tangible assets	7.22		%	6.92		%

RESULTS OF OPERATIONS

Income available to common shareholders was $3.4 million and $12.4 million for the three months ended June 30, 2016 and 2015, respectively. Earnings per share on a diluted basis were $0.18 and $0.65 for the second quarters of 2016 and 2015, respectively. For the three months ended June 30, 2016, net interest income increased $6.1 million, or 22.3%, over the same period of 2015, as interest income increased $8.7 million, or 21.8%, and interest expense increased $2.6 million, or 20.7%. The increase in interest income of $8.7 million, compared to the same period of 2015, was due primarily to an increase in average interest-earning assets of $708.0 million, which increased interest income due to volume of $9.4 million. Net interest income was also impacted by an increase in interest expense of $2.6 million during the second quarter of 2016 compared to the second quarter of 2015. The increase was attributable to an increase in average interest-bearing liabilities of $818.1 million, which increased interest expense due to volume of $3.9 million.

Income available to common shareholders was $26.1 million and $22.1 million for the six months ended June 30, 2016 and 2015, respectively. Earnings per share on a diluted basis were $1.34 and $1.15 for the six months ended June 30, 2016 and 2015, respectively. For the six months ended June 30, 2016, net interest income increased $10.2 million, or 18.8%, over the same period of 2015, as interest income increased $15.9 million, or 20.4%, and interest expense increased $5.7 million, or 23.9%. The increase in interest income of $15.9 million, compared to the same period of 2015, was due primarily to an increase in average interest-earning assets of $748.7 million, which increased interest income due to volume of $17.9 million. Net interest income was also impacted by an increase in interest expense of $5.7 million during the six months ended June 30, 2016 compared to the same period of 2015. The increase was attributable to an increase in average interest-bearing liabilities of $866.4 million, which increased interest expense due to volume to $8.0 million.

Net Interest Income

Net interest income, the primary contributor to the Company’s earnings, represents the difference between the income that the Company earns on interest-earning assets and the cost of interest-bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as “rate changes.”

The Company’s net interest spread, which is the difference between the average yield earned on average earning assets and the average rates paid on average interest-bearing liabilities, was 3.06% and 2.92% during the three months ended June 30, 2016 and 2015, respectively, an increase of 14 basis points. The Company’s net interest margin was 3.15% for the second quarter of

2016, compared to 3.09% for the second quarter of 2015, an increase of 6 basis points. On a year-to-date basis, the Company’s net interest spread of 2.95% was 2 basis points lower than the 2.97% earned during the first six months of 2015. The Company’s year-to-date net interest margin of 3.04% was 9 basis points lower than the 3.13% earned during the first six months of 2015.

Net interest income increased $6.1 million to $33.5 million, or 22.3%, for the three months ended June 30, 2016, from $27.4 million for the same period in 2015. The primary driver of the increase in net interest income was an increase of $8.7 million, or 21.8%, in interest income over the same periods of 2015, which was offset by an increase of $2.6 million, or 20.7%, in interest expense during the second quarter of 2016. The increase in interest income was due primarily to the significant growth in average interest-earning assets during the second quarter of 2016 to $4.3 billion from $3.6 billion during the second quarter of 2015, coupled with an increase in the earning asset yield of 8 basis points to 4.56% from 4.48% over the same period in 2015.

The increase in the earning asset yield over the same three month period of 2015 was due primarily to the composition of the earning asset mix which in the current period was comprised of 87% loans compared to 80% loans for the second quarter of 2015. The average interest-bearing cash increased $64.0 million in the second quarter of 2016 and was invested in higher yield accounts which increased the yield 26 basis points compared to the second quarter of 2015. The increase in interest expense was due to an increase in average interest-bearing liabilities of $818.1 million compared to the same period of 2015. The cost of deposits was flat compared to the second quarter of 2015 while the average interest-bearing deposits balance increased $581.1 million. The cost of funds decreased 6 basis points compared to second quarter of 2015 due primarily to a decreases in the yields on other borrowings and repurchase agreements.

Net interest income increased to $64.4 million, or 18.8%, for the six months ended June 30, 2016, from $54.2 million for the same period in 2015. The primary driver of the increase in net interest income was a $15.9 million, or 20.4% an increase in interest income during the first six month period of 2016, as compared to the same period in 2015, which was partially offset by a $5.7 million, or 23.9%, increase in interest expense over the same periods. The increase in interest income was due primarily to the significant growth in average interest-earning assets for the six months ended June 30, 2016 to $4.2 billion from $3.5 billion during the same period of 2015, which was partially offset by a decrease in the earning asset yield of 7 basis points to 4.44% from 4.51% over the same period in 2015.

The decrease in the earning asset yield for the six months ended June 30, 2016 was due primarily to a decrease of 12 basis points in the loan yield compared to the same period of 2015 and a decrease in the yield on its investment securities of 34 basis points. The decrease in the loan yield was due primarily to the impact from the increase in nonperforming loans over the same period of 2015, which has negatively impacted interest income on loans and the loan portfolio mix of fixed and variable rate loans compared to the prior year which was more heavily weighted to fixed rate loans which had higher rates. The Company continues to utilize Prime Hedges as a way to mitigate the fixed and variable rate loan shift in its portfolio to a more evenly balanced portfolio of fixed rate loans. The Company has a total notional value on all its Prime cash flow hedges of $315.0 million. The Company entered into the Prime hedges to mitigate the fixed and variable rate loan shift in its portfolio to a more evenly balanced portfolio. In the second quarter of 2015, the Company started to experience a shift in its customer behavior to more fixed rate loans. The decrease in the yield on its investment securities was due to calls of securities during the six months ended June 30, 2016 which were higher yielding securities compared to the same period of 2015. The increase in interest expense was due primarily to an increase in average interest-bearing deposits for the six months ended June 30, 2016 to $3.5 billion, as compared to $2.9 billion for the same period in 2015, while the Company's cost of deposits decreased 2 basis points. The decrease in the cost of deposits was due to the Company's tiered pricing strategy on all of its deposit products (including certificates of deposit). The Company's cost of funds decreased 5 basis points compared to the same period in 2015. The decrease in the cost of funds was due primarily to decreases in the yield on its repurchase agreements and other borrowings.

The following tables present, for the periods indicated, the distribution of average assets, liabilities and equity, interest income and resulting yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities. Nonaccrual loans are included in the calculation of the average loan balances and interest on nonaccrual loans is included only to the extent recognized on a cash basis.

TABLE 2-AVERAGE BALANCES, NET INTEREST INCOME AND INTEREST YIELDS/RATE



	For the Three Months Ended June 30,
	2016							2015
(In thousands)	Average Balance			Interest		Average Yield/Rate		Average Balance			Interest		Average Yield/Rate
								(Restated)
Assets:
Interest-earning assets:
Interest-bearing cash	$	201,302		$	266	0.53	%	$	137,471		$	93	0.27	%
Federal funds sold	2,910			3		0.39	%	2,718			1		0.18	%
Total interest-bearing cash and cash equivalents	204,212			269		0.53	%	140,189			94		0.27	%
Investment in short-term receivables	—			—		—	%	229,804			1,514		2.64	%
Investment securities	366,152			1,992		2.18	%	339,041			2,215		2.62	%
Loans (including fee income)	3,694,247			46,185		5.01	%	2,847,588			35,947		5.06	%
Total interest-earning assets	4,264,611			48,446		4.56	%	3,556,622			39,770		4.48	%
Less: Allowance for loan losses	(85,044		)					(46,034		)
Noninterest-earning assets	661,879							550,550
Total assets	$	4,841,446						$	4,061,138
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Savings deposits	$	76,649		$	119	0.62	%	$	55,475		$	87	0.63	%
Money market accounts	1,303,794			3,984		1.23	%	1,114,547			3,334		1.20	%
NOW accounts	758,646			2,103		1.11	%	568,084			1,459		1.03	%
Certificates of deposit	1,177,256			5,266		1.79	%	1,002,521			4,542		1.82	%
CDARS®	227,282			1,255		2.21	%	221,870			1,240		2.24	%
Total interest-bearing deposits	3,543,627			12,727		1.44	%	2,962,497			10,662		1.44	%
Fed funds purchased and repurchase agreements	96,802			322		1.34	%	118,935			416		1.40	%
Borrowings	362,519			1,919		2.12	%	103,392			1,324		5.14	%
Total interest-bearing liabilities	4,002,948			14,968		1.50	%	3,184,824			12,402		1.56	%
Noninterest-bearing liabilities:
Non-interest-bearing deposits	372,841							408,314
Other liabilities	56,510							44,463
Total liabilities	4,432,299							3,637,601
Shareholders’ equity	409,147							423,537
Total liabilities and equity	$	4,841,446						$	4,061,138
Net interest income				$	33,478						$	27,368
Net interest spread(1)						3.06	%						2.92	%
Net interest margin(2)						3.15	%						3.09	%



	For the Six Months Ended June 30,
	2016							2015
(In thousands)	Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate		Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate
								(Restated)
Assets:
Interest-earning assets:
Interest-bearing cash	$	264,963		$	573	0.43	%	$	123,144		$	157	0.26	%
Federal funds sold	3,228			6		0.38	%	1,624			1		0.16	%
Total interest-bearing cash and cash equivalents	268,191			579		0.43	%	124,768			158		0.26	%
Investment in short-term receivables	2,379			41		3.42	%	231,736			3,204		2.79	%
Investment securities	354,536			3,904		2.21	%	342,068			4,318		2.55	%
Loans (including fee income)	3,620,494			89,511		4.96	%	2,798,358			70,441		5.08	%
Total interest-earning assets	4,245,600			94,035		4.44	%	3,496,930			78,121		4.51	%
Less: Allowance for loan losses	(82,785		)					(44,674		)
Noninterest-earning assets	651,744							540,619
Total assets	$	4,814,559						$	3,992,875
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Savings deposits	$	78,096		$	259	0.67	%	$	54,422		$	169	0.63	%
Money market deposits	1,306,280			7,943		1.22	%	1,103,806			6,622		1.21	%
NOW accounts	763,071			4,173		1.10	%	548,936			2,767		1.02	%
Certificates of deposit	1,172,868			10,435		1.78	%	989,470			8,894		1.81	%
CDARS®	224,846			2,471		2.20	%	220,718			2,454		2.24	%
Total interest-bearing deposits	3,545,161			25,281		1.43	%	2,917,352			20,906		1.45	%
Fed funds purchased and repurchase agreements	91,501			630		1.38	%	120,382			843		1.41	%
Borrowings	354,461			3,680		2.08	%	87,039			2,137		4.95	%
Total interest-bearing liabilities	3,991,123			29,591		1.49	%	3,124,773			23,886		1.54	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits	367,149							403,910
Other liabilities	54,429							44,827
Total liabilities	4,412,701							3,573,510
Shareholders’ equity	401,858							419,365
Total liabilities and equity	$	4,814,559						$	3,992,875
Net interest income				$	64,444						$	54,235
Net interest spread(1)						2.95	%						2.97	%
Net interest margin(2)						3.04	%						3.13	%


(1)	Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.


(2)	Net interest margin is net interest income divided by average interest-earning assets.

The following tables analyze the dollar amount of change in interest income and interest expense with respect to the primary components of interest-earning assets and interest-bearing liabilities. The tables show the amount of the change in interest income or interest expense caused by either changes in outstanding balances or changes in interest rates. The effect of a change in balances is measured by applying the average rate during the first period to the average balance (“volume”) change between the two periods. The effect of changes in rate is measured by applying the change in rate between the two periods to the average volume during the first period. Changes attributable to both rate and volume that cannot be segregated have been allocated proportionately to the absolute value of the change due to volume and the change due to rate.

TABLE 3-SUMMARY OF CHANGES IN NET INTEREST INCOME



	For the Three Months Ended June 30,
	2016/2015 Change Attributable To
(In thousands)	Volume			Rate			Days		Total
Interest-earning assets:
Loans (including fee income)	$	10,683		$	(445	)	$	—	$	10,238
Interest bearing cash	68			105			—		173
Federal funds sold	—			2			—		2
Investment in short-term receivables	(1,514		)	—			—		(1,514		)
Investment securities	155			(378		)	—		(223		)
Total increase (decrease) in interest income	$	9,392		$	(716	)	$	—	$	8,676
Interest-bearing liabilities:
Savings deposits	$	33		$	(1	)	$	—	$	32
Money market accounts	567			83			—		650
NOW accounts	498			146			—		644
Certificates of deposit	821			(82		)	—		739
Borrowed funds	1,947			(1,446		)	—		501
Total increase (decrease) in interest expense	3,866			(1,300		)	—		2,566
Increase in net interest income	$	5,526		$	584		$	—	$	6,110


	For the Six Months Ended June 30,
	2016/2015 Change Attributable To
(In thousands)	Volume			Rate			Days		Total
Interest-earning assets:
Loans (including fee income)	$	20,663		$	(2,093	)	$	500	$	19,070
Interest bearing cash	235			179			2		416
Federal funds sold	2			3			—		5
Investment in short-term receivables	(3,172		)	9			—		(3,163		)
Investment securities	142			(578		)	22		(414		)
Total increase (decrease) in interest income	$	17,870		$	(2,480	)	$	524	$	15,914
Interest-bearing liabilities:
Savings deposits	$	74		$	15		$	1	$	90
Money market deposits	1,216			62			43		1,321
NOW accounts	1,098			286			22		1,406
Certificates of deposit	1,693			(206		)	71		1,558
Borrowed funds	3,921			(2,625		)	34		1,330
Total increase in interest expense	8,002			(2,468		)	171		5,705
Increase (decrease) in net interest income	$	9,868		$	(12	)	$	353	$	10,209

Provision for Loan Losses

The provision for loan losses represents management’s determination of the amount necessary to be charged against the current period’s earnings to maintain the allowance for loan losses at a level that is considered adequate in relation to the estimated losses inherent in the loan portfolio. The Company assesses the allowance for loan losses monthly and makes provisions for loan losses as deemed appropriate.

For the three months ended June 30, 2016, the provision for loan losses was ($6.4) million, a decrease of $12.0 million from the same period in 2015 and $21.1 million from the first quarter of 2016. The negative provision for loan losses in the second quarter of 2016 resulted from a reduction of $12.9 million in the specific reserve related to the Company's loan to an oil and gas exploration and production company to reflect the increase in energy prices during the second quarter of 2016. This specific reserve reduction in the second quarter of 2016 was partially offset by an increase in the general reserve due to loan growth and certain negative trends during the quarter such as past due, non-accrual and classified loans. As of June 30, 2016, the ratio of allowance for loan losses to total loans was 2.04%, compared to 2.27% at December 31, 2015, and 1.74% at June 30, 2015.

Noninterest Income

For the three months ended June 30, 2016, noninterest income was flat compared to the same period in 2015. For the first six months of 2016, noninterest income increased $1.4 million, or 19.7%, for the same period in 2015. The increase in noninterest income compared to the first six months of 2015 was due primarily to increases in gain (loss) on assets sold, net of $1.0 million and other noninterest income of $1.5 million.

The following table presents the components of noninterest income for the respective periods:

TABLE 4-NONINTEREST INCOME



	For the Three Months Ended							For the Six Months Ended
	June 30,					Percent Increase (Decrease)		June 30,					Percent Increase (Decrease)
(In thousands)	2016		2015			Percent Increase (Decrease)		2016		2015			Percent Increase (Decrease)
			(Restated)							(Restated)
Service charges on deposit accounts	$	477	$	585		(18.5	)%	$	1,074	$	1,144		(6.1	)%
Investment securities loss, net	—		—			—		—		(50		)	(100.0	)
Gain (loss) on assets sold, net	468		(32		)	NM		1,051		11			NM
Gain on sale of loans, net	31		101			(69.3	)	34		116			(70.7	)
Cash surrender value income on bank-owned life insurance	338		353			(4.2	)	680		705			(3.5	)
Sale of state tax credits earned	—		668			(100.0	)	—		1,187			(100.0	)
Community Development Entity fees earned	149		133			12.0		184		256			(28.1	)
ATM fee income	603		523			15.3		1,174		1,024			14.6
Rental property income	914		875			4.5		1,811		1,745			3.8
Other	638		412			54.9		2,333		832			NM
Total noninterest income	$	3,618	$	3,618		—	%	$	8,341	$	6,970		19.7	%

Service charges on deposit accounts. The Company earns fees from its customers for deposit-related services and these fees comprise a significant and predictable component of the Company’s noninterest income. The decrease for the three and six month period of 2016 compared to 2015 was due primarily to an increase in NSF charges waived.

Gain (loss) on assets sold, net. The increase in gain on assets sold for the the three and six month periods of 2016 of $0.5 million and $1.0 million, respectively, over the same periods of 2015 was due to the gains recorded on the sale of two branches acquired from State Investors Bancorp in the fourth quarter of 2015.

Gain on sale of loans. The Company has historically been an active participant in Small Business Administration and USDA loan programs as a preferred lender and typically sells the guaranteed portion of the loans it originates. The Company believes these government guaranteed loan programs are an important part of its service to the businesses in its communities and expects to continue expanding its efforts and income related to these programs. The decrease in gain on sale of loans, net for the three and six month period of 2016 compared to same period of 2015 is due primarily to a decrease in volume of SBA/USDA loans in the current periods compared to the same periods of 2015.

Cash surrender value income on bank-owned life insurance. The income earned from bank-owned life insurance decreased for the three and six month periods of 2016 when compared to the same periods of 2015 due to decline in rates.

Sale of state tax credits earned. As part of the Company’s investment in projects that generate federal income tax credits, the Company may receive state tax credits along with federal credits. Although the Company cannot utilize most of the state tax

credits to offset its own tax liability, the Company earns income from the sale of state tax credits. The balance decreased $0.7 million for the second quarter of 2016, compared to the second quarter of 2015, and $1.2 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, as the Company did not sell any state tax credits earned during the first six months of 2016.

Community Development Entity fees earned. The Company earns management fees, through its subsidiary, First NBC Community Development Fund, LLC, related to the Fund’s Federal NMTC investments. The Company receives CDE fees on an annual basis for projects which are still within the compliance period. For the second quarter of 2016 and second quarter of 2015, the management fees recognized were $0.1 million. The decrease for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was due to the timing of when the Company received its annual fees.

ATM fee income. This category includes income generated by automated teller machines, or ATMs. The income earned from ATMs increased for the three and six month periods ended June 30, 2016, compared to the same periods in 2015, due primarily to increased transaction volume.

Rental property income. The income earned from rental properties increased slightly during the second quarter of 2016 compared to the second quarter of 2015 and increased $0.1 million for the six months ended June 30, 2016 compared to 2015. The rental property income is primarily due from the rental income recognized from the consolidation of several Low-Income Housing investment Variable Interest Entities that owned Low-Income Housing units.

Other. This category includes a variety of other income producing activities, including income generated from trust services, credit cards and wire transfers. The Company experienced an increase of $0.2 million for the second quarter of 2016 compared to the second quarter of 2015 due primarily due to distributions from its investments in SBIC partnerships of $0.3 million, offset by the impairment of $0.1 million from a certain SBIC partnership investment. The increase of $1.5 million for the six months ended June 30, 2016 compared to the six month period ended June 30, 2015 was due primarily to distributions of $1.3 million from its investment in SBIC partnerships, offset by the impairment of $0.1 million from a certain SBIC partnership investment.

Noninterest Expense

Noninterest expense consists primarily of salary and employee benefits, occupancy, impairment of tax credit entities, and other expenses related to the Company’s operation and expansion. Noninterest expense increased by $12.3 million, or 39.3%, in the second quarter of 2016, compared to the same period in 2015. Noninterest expense increased by $18.3 million , or 29.0%, for the six months ended June 30, 2016 compared to the six months ended June 30, 2015.

The following table presents the components of noninterest expense for the respective periods:

TABLE 5-NONINTEREST EXPENSE



	Three Months Ended						Six Months Ended
	June 30,				Percent Increase (Decrease)		June 30,				Percent Increase (Decrease)
(In thousands)	2016		2015		Percent Increase (Decrease)		2016		2015		Percent Increase (Decrease)
			(Restated)						(Restated)
Salaries and employee benefits	$	9,896	$	7,689	28.7	%	$	17,526	$	14,596	20.1	%
Occupancy and equipment expenses	3,844		2,996		28.3		7,333		5,910		24.1
Professional fees	3,914		1,701		NM		7,431		3,842		93.4
Taxes, licenses and FDIC assessments	3,760		1,693		NM		5,497		2,932		87.5
Impairment of investment in tax credit entities	14,716		11,661		26.2		29,431		25,008		17.7
Write-down of foreclosed assets	189		42		NM		232		100		NM
Data processing	1,848		1,581		16.9		3,710		3,003		23.5
Advertising and marketing	1,002		673		48.9		1,941		1,691		14.8
Rental property expenses	1,422		965		47.4		2,938		1,931		52.1
Other	2,963		2,276		30.2		5,535		4,215		31.3
Total noninterest expense	$	43,554	$	31,277	39.3	%	$	81,574	$	63,228	29.0	%

Salaries and employee benefits. These expenses increased $2.2 million, or 28.7%, during the second quarter of 2016 compared to the same period of 2015. The increase for the second quarter of 2016 compared to the same period of 2015 is primarily due to increases in salary expense of $2.2 million. The increase in salaries and employee benefits for the six months ended June 30,

2016 compared to the same period of 2015 was due primarily to increases in salary expense of $3.9 million offset by a decrease in the bonus accrual of $1.8 million. The increase in salary expense is due to the State Investors Bancorp acquisition in the fourth quarter of 2015 and the continued organic growth of the Company.

Occupancy and equipment expenses. Occupancy and equipment expenses, consisting primarily of rent and depreciation, increased $0.8 million, or 28.3%, between the second quarter of 2016 and 2015. For the six months ended June 30, 2016, occupancy and equipment expenses increased $1.4 million, or 24.1%, compared to the same period in 2015. The level of the Company’s occupancy expenses is related to the number of branch offices that it maintains, which increased during the first quarter of 2016 with the opening of two new branches in the Destin, Florida market.

Professional fees. Professional fees increased $2.2 million between the second quarter of 2016 and 2015. For the six months ended June 30, 2016, professional fees increased $3.6 million, or 93.4%, compared to $3.8 million for the same period of 2015. The increase for the three month period of 2016 compared to 2015 was due primarily to an increase in external audit fees of $0.8 million and legal fees of $0.8 million. The increase for the six month period ended June 30, 2016 compared to the six month period ended June 30, 2015 was due primarily to increases in external audit fees of $2.5 million and legal fees of $0.9 million.

Taxes, licenses and FDIC assessments. The expenses related to taxes, licenses and FDIC insurance premiums and assessments for the second quarter of 2016 increased $2.1 million from the same period of 2015. For the six months ended June 30, 2016, these expenses increased $2.6 million, or 87.5%, from the same period in 2015. The increase over the comparable three month and six month periods of 2016 was primarily attributable to increases in the FDIC assessment due to the strong growth in the Company’s deposits, in addition to an increase in the FDIC assessment rate due to the Bank being classified as "adequately capitalized" and an increase in the bank shares tax expense.

Impairment of investment in tax credit entities. Impairment of investment in tax credit entities represents impairment recorded during the current year for investments in entities that undertake projects that qualify for tax credits against federal and state income taxes as well as any applicable equity income or loss on its equity investment. At this time, investments are directed at tax credits issued under the Federal New Markets, Federal and State Historic Rehabilitation and Federal Low-Income Housing tax credit programs. All of the Company’s investments in tax credit entities are evaluated for impairment at the end of each reporting period and the Company records impairment, if any, in its consolidated statement of income as a component of noninterest expense.

The following table presents the impairment of investment in tax credit entities by type of credit for the respective periods:

TABLE 6-TAX CREDIT INVESTMENT IMPAIRMENT BY CREDIT TYPE



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
(In thousands)	2016		2015			2016		2015
			(Restated)					(Restated)
Federal Low-Income Housing	$	599	$	(765	)	$	1,198	$	158
Federal and State Historic Rehabilitation	10,267		8,723			20,533		17,444
Federal NMTC	3,850		3,703			7,700		7,406
Total impairment of investment in tax credit entities	$	14,716	$	11,661		$	29,431	$	25,008

The increase in the impairment balance for the three and six month periods of 2016 compared to the same periods of 2015 is due primarily to the increase in investment in Federal Historic Rehabilitation projects for which impairment has been recorded.

Write-down of foreclosed assets. Write-downs of foreclosed assets increased $0.1 million over the three month periods ended June 30, 2016 and 2015 and increased $0.1 million during the six month period of 2016 compared to 2015 due to increases in other real estate owned and other repossessed assets.

Data processing. Data processing expenses increased $0.3 million for the second quarter of 2016 compared to the same period of 2015. For the six months ended June 30, 2016, these expenses increased $0.7 million, or 23.5%, from the same period in 2015. The increase was a result of increased transaction volume due to the Company's organic growth and conversion cost related to the State Investors Bancorp transaction in the fourth quarter of 2015.

Advertising and marketing. Advertising and marketing expenses increased $0.3 million over the three month periods ended June 30, 2016 and 2015. The balance increased $0.3 million, or 14.8%, for the six months ended June 30, 2016 compared to 2015. The increase for the three month period of 2016 was due to increases in advertising of $0.1 million and contributions of

$0.1 million compared to the same period of 2015. The increase for the six months ended June 30, 2016 compared to the same period of 2015 was due primarily to increases in sponsorships of $0.1 million

Rental property expenses. Rental property expenses increased $0.5 million during the second quarter of 2016 compared to the second quarter of 2015. For the six months ended June 30, 2016, these expenses increased $1.0 million, or 52.1%. The increase was a result of operating expenses related to the consolidation of a Low-Income Housing investment recognized from several Low-Income Housing investment Variable Interest Entities that owned Low-Income Housing units.

Other. These expenses include costs related to insurance, customer service, communications, supplies and other operations. The Company experienced an increase for the three month period of 2016 compared to the three month period of 2015 due primarily to increases in director's fees of $0.2 million, other loan collection of $0.2 million, and insurance of $0.1 million. The increase for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was due primarily to increases in director's fees of $0.3 million, insurance of $0.2 million, and other loan collection of $0.2 million.

Provision for Income Taxes

The provision for income taxes varies due to the amount of income recognized under generally accepted accounting principles and for tax purposes and as a result of the tax benefits derived from the Company’s investments in tax-advantaged securities and tax credit projects. The Company engages in material investments in entities that are designed to generate tax credits, which it utilizes to reduce its current and future taxes. These credits are recognized when earned as a benefit in the provision for income taxes.

The Company recognized an income tax benefit for the quarterly period ended June 30, 2016 of $4.1 million, compared to $18.6 million for the same quarterly period in 2015. The Company's income tax benefit was offset by $0.4 million of Federal NMTC basis reduction for the quarterly periods ended June 30, 2016 and 2015, and $0.9 million and $0.1 million in Federal Historic Rehabilitation basis reduction for the quarterly period ended June 30, 2016 and 2015, respectively. The Company recognized an income tax benefit for the year-to-date period ended June 30, 2016 of $43.9 million compared to $33.3 million for the same period of 2015. The income tax benefit for the year-to-date periods ended June 30, 2016 and 2015 were offset by Federal NMTC basis reduction of $0.8 million and $0.7 million, respectively. The year-to-date income tax benefit for the six months ended June 30, 2016 and 2015 was also offset by Federal Historic Rehabilitation basis reduction of $1.7 million and $0.3 million, respectively. The increase in income tax benefit for the periods presented was due primarily to the increase in Federal Historic Rehabilitation tax credit investment activity in 2016 compared to 2015. The Company's investment in Federal tax credit entities increased $6.4 million to $37.0 million as of June 30, 2016 compared to the same period of 2015.

The Company expects to experience an effective tax rate below the statutory rate of 35% due primarily to the receipt of Federal New Markets, Low-Income Housing and Federal Historic Rehabilitation tax credits.

Although the Company’s ability to continue to access new tax credits in the future will depend, among other factors, on federal and state tax policies, as well as the level of competition for future tax credits, the following table represents the federal income tax credits the Company expects to receive in the years indicated. The Company has made investments in Federal Historic Rehabilitation tax credit projects which have not been placed in service and as such have not received the credits. The table below in future periods for Federal Historic Rehabilitation tax credits includes amounts the Company expects to receive from those investments. The gross Federal Historic Rehabilitation credits, depending on the tax structure, could be offset by basis reduction of 35%.

The amount of basis reduction recorded related to the Company's investment in tax credit entities for the three and six month periods ended June 30, 2016 and June 30, 2015 were as follows:

TABLE 7-TAX CREDIT BASIS REDUCTION



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In thousands)	2016		2015		2016		2015
Federal NMTC	$	395	$	368	$	789	$	736
Federal Historic Rehabilitation	859		139		1,718		277
Total basis reduction	$	1,254	$	507	$	2,507	$	1,013

TABLE 8-FUTURE TAX CREDITS



(In thousands)	Federal New Markets		Federal Low-Income Housing		Federal Historic Rehabilitation(1)
2017	$	14,852	$	5,525	$	27,828
2018	8,902		5,525		145
2019	5,100		5,525		—
2020	2,100		4,854		—
2021	1,800		4,028		—
202 and thereafter	1,200		8,464		—
Total	$	33,954	$	33,921	$	27,973

(1) The Federal Historic Rehabilitation balance in future periods includes $27.8 million in 2017 and $0.1 million in 2018 of tax credits the Company expects to generate from projects which an investment has been made as of June 30, 2016.

FINANCIAL CONDITION

Assets increased $145.6 million, or 3.1%, to $4.9 billion as of June 30, 2016 compared to $4.7 billion as of December 31, 2015 as the Company continued to experience growth in its market areas. Net loans increased $322.9 million, or 9.6%, to $3.7 billion as of June 30, 2016, compared to $3.4 billion as of December 31, 2015. The Company’s investment securities portfolio totaled $380.9 million compared to $367.9 million as of December 31, 2015, an increase of 3.5%. Deposits increased $88.2 million, or 2.3%, to $3.9 billion as of June 30, 2016, compared to $3.8 billion as of December 31, 2015. Total shareholders’ equity increased $24.4 million, or 6.4%, to $405.1 million as of June 30, 2016, compared to $380.7 million as of December 31, 2015.

Loan Portfolio

The Company’s primary source of income is interest on loans to small-and medium-sized businesses, real estate owners in its market area, and its private banking clients. The loan portfolio consists primarily of commercial loans and real estate loans secured by commercial real estate properties located in the Company’s primary market area. The Company’s loan portfolio represents the highest yielding component of its earning asset base.

The following table sets forth the amount of loans, by category, as of the respective periods.

TABLE 9-TOTAL LOANS BY LOAN TYPE



	June 30, 2016				December 31, 2015
(In thousands)	Amount		Percent		Amount		Percent
Construction	$	548,579	14.5	%	$	522,278	15.1	%
Commercial real estate	1,642,719		43.5	%	1,423,545		41.2	%
Consumer real estate	262,926		7.0	%	264,422		7.6	%
Commercial and industrial	1,304,952		34.5	%	1,226,660		35.6	%
Consumer	20,809		0.5	%	21,688		0.5	%
Total loans	$	3,779,985	100	%	$	3,458,593	100	%

The Company’s primary focus has been on commercial real estate and commercial and industrial lending, which represented approximately 78% and 77% of the loan portfolio as of June 30, 2016 and December 31, 2015, respectively. Although management expects continued growth with respect to the loan portfolio, it does not expect any significant changes over the foreseeable future in the composition of the loan portfolio or in the emphasis on commercial real estate and commercial and industrial lending.

A significant portion, $502.1 million, or 30.6%, as of June 30, 2016, compared to $449.1 million, or 31.5%, as of December 31, 2015, of the commercial real estate exposure represented loans to commercial businesses secured by owner occupied real estate which, in effect, are commercial and industrial loans with the borrowers’ real estate providing a secondary source of repayment.

Commercial and industrial loans, which represent 34.5% of total loans in the portfolio, increased $78.3 million, or 6.4%, compared to December 31, 2015. The Company attributes its commercial and industrial loan growth to increases in all segments of the portfolio. The Company does have exposure to the oil and gas industry in its commercial loan portfolio. At June 30, 2016, the Company's direct oil and gas commercial and industrial loan portfolio was approximately $182.6 million, or

4.8% of its total loan portfolio, with an additional $15.5 million in outstanding loan commitments. Of this amount, the Company's exposure to exploration and production in its oil and gas portfolio was approximately $109.1 million with outstanding commitments of $11.2 million. The Company also had indirect oil and gas loan exposure in its portfolio of $74.1 million with outstanding commitments of $10.4 million. The Company has reserved $17.1 million, or 22.2%, of its total allowance for loan loss for its one large exploration and production loan. Management reduced the specific reserve by $12.9 million as compared to March 31, 2016 and December 31, 2015 based on the most recent engineering reports which supported an increase in the collateral of the loan based on an increase in its proven undeveloped reserves and an increase in energy prices. The Company is actively monitoring both its direct and indirect oil and gas related credits.

Nonperforming Assets

Nonperforming assets consist of nonperforming loans, other real estate owned and other repossessed assets. Nonperforming loans consist of loans that are on nonaccrual status and restructured loans, which are loans on which the Company has granted a concession on the interest rate or original repayment terms due to financial difficulties of the borrower. Other real estate owned consists of real property acquired through foreclosure. The Company initially records other real estate owned at the lower of carrying value or fair value, less estimated costs to sell the assets. Estimated losses that result from the ongoing periodic valuations of these assets are charged to earnings as noninterest expense in the period in which they are identified. Once the Company owns the property, it is maintained, marketed, rented and sold in satisfaction of the original loan. Historically, foreclosure trends have been low due to the seasoning of the portfolio. The Company accounts for troubled debt restructurings in accordance with ASC 310, “Receivables.”

The Company generally will place loans on nonaccrual status when they become 90 days past due, unless they are well secured and in the process of collection. The Company also places loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When a loan is placed on nonaccrual status, any interest previously accrued, but not collected, is reversed from income.

Any loans that are modified or extended are reviewed for classification as a restructured loan in accordance with regulatory guidelines. The Company completes the process that outlines the modification, the reasons for the proposed modification and documents the current status of the borrower.

The following table sets forth information regarding nonperforming assets as of the dates indicated:

TABLE 10-NONPERFORMING ASSETS



(In thousands)	June 30, 2016			December 31, 2015
Nonaccrual loans:
Construction	$	12,691		$	2,633
Commercial real estate	21,634			27,937
Consumer real estate	5,948			4,538
Commercial and industrial	126,727			119,705
Consumer	310			125
Total nonaccrual loans	167,310			154,938
Restructured loans	2,849			3,283
Total nonperforming loans	170,159			158,221
Other assets owned(1)	5,557			290
Other real estate owned	7,709			5,232
Total nonperforming assets	$	183,425		$	163,743
Accruing loans past due 90+ days(2)	$	—		$	141
Nonperforming loans to total loans	4.50		%	4.57		%
Nonperforming loans to total assets	3.51		%	3.36		%
Nonperforming assets to total assets	3.78		%	3.48		%
Nonperforming assets to loans, other real estate owned and other assets owned	4.84		%	4.73		%


(1)	Represents repossessed property other than real estate.


(2)	The amount represents cash secured tuition loans.

Approximately $4.4 million and $1.8 million of gross interest income would have been accrued if all loans on nonaccrual status had been current in accordance with their original terms at June 30, 2016 and December 31, 2015.

Total nonperforming assets increased $19.7 million, or 12.0%, as compared to December 31, 2015, and total nonperforming assets as a percentage of loans and other real estate owned increased by 11 basis points over the period. The increase resulted primarily from an increase in nonaccrual loans of $12.4 million, other real estate owned of $2.5 million, and other repossessed assets of $5.3 million compared to December 31, 2015.

Potential problem loans are those loans that are not categorized as nonperforming loans, but where current information indicates that the borrower may not be able to comply with present loan repayment terms. These are generally referred to as its watch list loans. The Company monitors these loans closely and reviews their performance on a regular basis. At June 30, 2016, the Company had classified loans in its commercial and industrial loan portfolio of $19.3 million classified as doubtful, $170.5 million as substandard, and $9.8 million as special mention. At December 31, 2015 the Company had classified loans in its commercial and industrial loan portfolio of $19.3 million as doubtful, $161.4 million as substandard, and $7.4 million as special mention.

The Company monitors past due status as an indicator of credit deterioration and potential problem loans. A loan is considered past due when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. To the extent that loans become past due, management assesses the potential for loss on such loans as it would with other problem loans and considers the effect of any potential loss in determining its provision for probable loan losses. Management also assesses alternatives to maximize collection of any past due loans, including, without limitation, restructuring loan terms, requiring additional loan guarantee(s) or collateral or other planned action. Additional information regarding past due and potential problem loans as of June 30, 2016 is included in Note 5 to the Company’s financial statements included in this report.

Allowance for Loan Losses

The Company maintains an allowance for loan losses that represents management’s best estimate of the loan losses inherent in the loan portfolio. In determining the allowance for loan losses, management estimates losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors, and the estimated impact of current economic conditions on certain historical loan loss rates.

The allowance for loan losses is increased by provisions charged against earnings and reduced by net loan charge-offs. Loans are charged-off when it is determined that collection has become unlikely. Recoveries are recorded only when cash payments are received.

The allowance for loan losses was $77.0 million, or 2.04% of total loans, as of June 30, 2016, compared to $50.4 million, or 1.74% of total loans, as of June 30, 2015, an increase of 30 basis points over the prior year period. The allowance for loan losses decreased $1.5 million, or 1.9%, from December 31, 2015.

The following table provides an analysis of the allowance for loan losses and net charge-offs for the respective periods:

TABLE 11-SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES



	For the Six Months Ended June 30,
(In thousands)	2016			2015
Balance, beginning of period	$	78,478		$	42,336
Charge-offs:
Construction	25			12
Commercial real estate	496			530
Consumer real estate	45			41
Commercial and industrial	9,364			272
Consumer	7			50
Total charge-offs	9,937			905
Recoveries:
Construction	—			—
Commercial real estate	13			243
Consumer real estate	4			2
Commercial and industrial	14			66
Consumer	9			9
Total recoveries	40			320
Net charge-offs	9,897			585
Provision for loan loss	8,383			8,600
Balance, end of period	$	76,964		$	50,351
Net charge-offs to average loans	0.27		%	0.02		%
Allowance for loan losses to total loans	2.04		%	1.74		%

Although management believes that the allowance for loan losses has been established in accordance with accounting principles generally accepted in the United States and that the allowance for loan losses was appropriate to provide for incurred losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in the loan portfolio. If the economy declines or if asset quality deteriorates, material additional provisions could be required.

The allowance for loan losses is allocated to loan categories based on the relative risk characteristics, asset classifications, and actual loss experience of the loan portfolio. Note 5 to the consolidated financial statements provides further information on the Company’s allowance for loan losses.

Securities

The securities portfolio is used to provide a source of interest income, maintain a source of liquidity, and serve as collateral for certain types of deposits and borrowings. The Company manages its investment portfolio according to a written investment policy approved by the Board of Directors. Investment balances in the securities portfolio are subject to change over time based on the Company’s funding needs and interest rate risk management objectives. Liquidity levels take into account anticipated future cash flows and all available sources of credit and are maintained at levels management believes are appropriate to assure future flexibility in meeting anticipated funding needs.

The securities portfolio consists primarily of U.S. government agency obligations, mortgage-backed securities, and municipal securities, although the Company also holds corporate bonds. All of the securities have varying contractual maturities. However, these maturities do not necessarily represent the expected life of the securities as the securities may be called or paid down with or without penalty prior to their stated maturities, and the targeted duration for the investment portfolios is in the three to four year range. No investment in any of these securities exceeds any applicable limitation imposed by law or regulation. The Asset Liability Committee reviews the investment portfolio on an ongoing basis to ensure that the investments conform to the Company’s investment policy. All securities, except for the other equity securities, as of June 30, 2016 were classified as Level 2 assets, as their fair value was estimated using pricing models or quoted prices of securities with similar

characteristics. The other equity securities as of June 30, 2016 were classified as Level 1 assets, as their fair value was estimated using quotes prices in active markets for identical assets.

The investment portfolio consists of available for sale and held to maturity securities. The carrying values of the Company’s available for sale securities are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income. Any expected credit loss due to the inability to collect all amounts due according to the security’s contractual terms is recognized as a charge against earnings. Any remaining unrealized loss related to other factors would be recognized in other comprehensive income, net of taxes. The Company’s held to maturity securities are securities that the Company both positively intends and has the ability to hold to maturity and are carried at amortized cost.

The Company’s investment securities portfolio totaled $380.9 million at June 30, 2016, an increase of $13.0 million, or 3.5%, from December 31, 2015. The increase was due primarily to $92.3 million in securities purchased during the second quarter of 2016 to invest a portion of the Company's excess liquidity in higher yield investments offset by $85.5 million in calls and prepayments of securities. As of June 30, 2016, investment securities having a carrying value of $225.5 million were pledged to secure public deposits, securities sold under agreements to repurchase and borrowings.

The following table presents a summary of the amortized cost and estimated fair value of the investment portfolio:

TABLE 12-CARRYING VALUE OF SECURITIES



	June 30, 2016						December 31, 2015
(In thousands)	Amortized Cost		Unrealized Gain (Loss)		Estimated Fair Value		Amortized Cost		Unrealized Gain (Loss)			Estimated Fair Value
Available for sale:
U.S. government agency securities	$	146,702	$	2,747	$	149,449	$	151,369	$	(1,694	)	$	149,675
U.S. Treasury securities	13,014		114		13,128		13,015		(312		)	12,703
Municipal securities	11,969		158		12,127		12,115		(15		)	12,100
Mortgage-backed securities	117,475		1,032		118,507		78,227		(716		)	77,511
Corporate bonds	8,021		27		8,048		8,103		(280		)	7,823
Other equity securities	20		—		20		20		—			20
Other debt securities	—		—		—		25,994		—			25,994
Total available for sale	$	297,201	$	4,078	$	301,279	$	288,843	$	(3,017	)	$	285,826
Held to maturity:
Municipal securities	$	38,162	$	2,588	$	40,750	$	38,950	$	1,870		$	40,820
Mortgage-backed securities	41,436		3,256		44,692		43,124		(1,144		)	41,980
Total held to maturity	$	79,598	$	5,844	$	85,442	$	82,074	$	726		$	82,800

As of June 30, 2016, all of the Company’s mortgage-backed securities were agency securities, and the Company did not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, sub-prime, Alt-A, or second lien elements in the investment portfolio.

The funds generated as a result of sales and prepayments are used to fund loan growth and purchase other securities. The Company monitors market conditions to take advantage of market opportunities with the appropriate interest rate risk management objectives.

Note 4 to the consolidated financial statements included in this report provides further information on the Company’s investment securities.

Investments in Short-term Receivables

During the first quarter of 2016, the Company made a strategic decision to discontinue investing in short-term trade receivables. The Company had $25.6 million invested at December 31, 2015. The Company utilized these investments since they provided a higher yield short-term return for the Company. These receivables are traded on an exchange and are covered by a repurchase agreement of the seller of the receivables, if not paid within a specified period of time.

Interest-bearing Cash and Cash Equivalents

The Company's excess funds fluctuate daily depending on the funding needs of the Company and are currently invested overnight in interest-bearing deposit accounts at other financial institutions. The balance in interest-bearing deposits at other institutions and federal funds decreased $203.0 million to $146.0 million at June 30, 2016, from $349.1 million at December 31, 2015. The primary cause of the decrease at June 30, 2016 was to fund loan growth and purchase investment securities. The Company’s cash activity is further discussed in the “Liquidity and Capital Resources” section below.

Investment in Real Estate Properties

The balance in investment in real estate properties totaled $78.0 million as of June 30, 2016, a decrease of $2.7 million compared to December 31, 2015. The decrease was due primarily to the depreciation recorded on the real estate properties and amortization of the development costs.

Investment in Tax Credit Entities

The Company’s investment in tax credit entities totaled $92.9 million as of June 30, 2016, a decrease of $15.7 million, or 14.5%, compared to December 31, 2015. The decrease was due primarily to the Company's impairment expense of $29.4 million, return of State NMTC investments of $13.8 million, and leverage loans of $13.7 million offset by $41.4 million in increased investment. Of the $41.4 million in increased investment, $20.0 million was in Federal NMTC investments and the remaining $21.4 million was for Federal Historic Rehabilitation tax credit investments.

The Company has seen increasing demand in its markets for investment in tax credit projects. Currently, the investments are directed at tax credits issued under the Federal NMTC, Federal Historic Rehabilitation tax credit and Federal Low-Income Housing tax credit programs. The Company generates returns on tax credit-motivated projects through the receipt of federal and, if applicable, state tax credits. The Company expects to generate Federal Historic Rehabilitation tax credits of $27.8 million in 2017 from projects currently under construction. The Federal Low-Income Housing and Federal NMTC associated with the Company's investment in tax credit entities are recognized over the contract periods of the respective projects, which range from seven to 15 years.

The Company did not receive a Federal NMTC award allocation during the 2014 and 2015 award cycles. Notwithstanding, the lack of allocations during the last two award cycles this has not hindered the Company's ability to utilize Federal tax credit programs and make investments in tax credit projects as the Company invested in Federal NMTC projects and utilized Federal NMTC allocations of other CDEs as was common practices for the Company when it began its tax credit investment program. The Company has been able to increase its investment in Federal Historic Rehabilitation Tax Credit projects since 2014. Management believes that these investments present attractive after tax economic returns, furthers the Company’s Community Reinvestment Act responsibilities, and supports the communities in which the Company serves. The Company maintains a pipeline of tax credit eligible projects in which it may invest to generate federal tax credits and any applicable equity income or loss. The Company continues to evaluate its strategic initiatives with respect to its investment in tax credit entities and is considering syndication of federal tax credits generated from some of its investments in the future. As the federal tax credits are syndicated, the tax benefits earned from those investments in the future may be reduced but would generate syndication fee income for the Company. Table 8-Future Tax Credits provides information on tax credits the Company expects to generate in future years based on investments the Company has made as of June 30, 2016.

Deferred Tax Asset

The Company had a net deferred tax asset of $252.7 million as of June 30, 2016 due to its tax net operating losses, carryforwards related to unused tax credits, and the non-deductibility of the loan loss provision for tax purposes. The Company assesses the recoverability of its deferred tax asset quarterly, and the current and projected level of taxable income provides for the ultimate realization of the carrying value of these deferred tax assets. Net deferred tax assets as of June 30, 2016 increased $47.4 million, or 23.1%, from December 31, 2015, primarily as a result of $37.0 million in estimated tax credits generated during the first six months of 2016, $3.5 million from other deferred tax asset items and current income tax benefit of $9.5 million, offset by tax credit basis adjustment of $2.5 million.

Deposits

Deposits are the Company’s primary source of funds to support earning assets. Total deposits were $3.9 billion at June 30, 2016, compared to $3.8 billion at December 31, 2015, an increase of $88.2 million, or 2.3%, as total interest-bearing deposits were up $75.1 million, or 2.2%. The increase in deposits was due to organic deposit growth in the markets in which the Company operates. The growth in the Company's interest-bearing deposit products continues to be driven by the Company's tiered pricing strategy. The increase in noninterest-bearing demand deposits of $13.1 million, or 3.6%, was due to an increase in activity from the Company's commercial customers.

The following table sets forth the composition of the Company’s deposits as of June 30, 2016 and December 31, 2015:

TABLE 13-DEPOSIT COMPOSITION BY PRODUCT



									Increase/(Decrease)
(In thousands)	June 30, 2016				December 31, 2015				Amount			Percent
Noninterest-bearing demand	$	381,553	9.8	%	$	368,421	9.6	%	$	13,132		3.6	%
NOW accounts	760,420		19.3	%	741,469		19.3	%	18,951			2.6	%
Money market accounts	1,307,370		33.2	%	1,277,078		33.2	%	30,292			2.4	%
Savings deposits	73,066		1.9	%	79,779		2.1	%	(6,713		)	(8.4	)%
Certificates of deposit	1,409,615		35.8	%	1,377,095		35.8	%	32,520			2.4	%
Total deposits	$	3,932,024	100.0	%	$	3,843,842	100.0	%	$	88,182		2.3	%

Short-term Borrowings

Although deposits are the primary source of funds for lending, investment activities and general business purposes, as an alternative source of liquidity, the Company may obtain advances from the Federal Home Loan Bank of Dallas, sell investment securities subject to its obligation to repurchase them, purchase Federal funds, and engage in overnight borrowings from the Federal Home Loan Bank or its correspondent banks. The level of short-term borrowings can fluctuate on a daily basis depending on the funding needs and the source of funds to satisfy the needs. The Company had $7.0 million in short-term borrowings outstanding at June 30, 2016, a decrease of $1.0 million compared to December 31, 2015.

The Company also enters into repurchase agreements to facilitate customer transactions that are accounted for as secured borrowings. These transactions typically involve the receipt of deposits from customers that the Company collateralizes with its investment portfolio and had a weighted average rate of 1.32% for the six months ended June 30, 2016.

The following table details the average and ending balances of repurchase transactions as of and for the six months ended June 30, 2016 and 2015:

TABLE 14-REPURCHASE TRANSACTIONS



(In thousands)	2016		2015
Average balance	$	91,501	$	120,382
Ending balance	85,757		117,840

Long-term Borrowings

The Company's long-term borrowings at June 30, 2016 consisted of $233.0 million in FHLB advances, $60.0 million in subordinated debentures, a $3.1 million loan related to the Company's sponsored Employee Stock Ownership Trust, $19.1 million in borrowings related to one of its Federal Low-Income Housing tax credit investments which is considered a VIE, and a $40.0 million borrowing which is in the legal form of a long-term repurchase agreement. The Company entered into a $200.0 million FHLB advance to fund loan growth during the fourth quarter of 2015. The Company issued the subordinated debentures during the first quarter of 2015 due to the favorable rate environment and the opportunity to inject additional capital into the First NBC Bank to fund growth. The loan related to the Company's sponsored Employee Stock Ownership Trust was entered into during the first quarter of 2015 to purchase 100,000 shares of Company stock. The $19.1 million loan is from the State of Louisiana Office of Community Development related to the Federal Low-Income Housing tax credit investment and bears interest at 1%. The $40.0 million borrowing was entered into in connection with the Company’s asset liability management as a hedge against rising interest rates.

Shareholders’ Equity

Shareholders’ equity provides a source of permanent funding, allows for future growth, and provides the Company with a cushion to withstand unforeseen adverse developments. Shareholders’ equity increased $24.4 million, or 6.4%, from $380.7 million as of December 31, 2015, primarily as a result of the Company’s retained earnings over the period.

Regulatory Capital

As of June 30, 2016, the Company and First NBC Bank were in compliance with all minimum regulatory capital requirements under Basel III, and First NBC Bank was classified as “adequately capitalized” for purposes of the FDIC’s prompt corrective action regulations.

The following table presents the actual capital amounts and regulatory capital ratios for the Company and First NBC Bank as of the dates presented below.

TABLE 15-REGULATORY CAPITAL RATIOS



	“Well Capitalized” Minimums		June 30, 2016
(In thousands)	“Well Capitalized” Minimums		Actual		Amount
First NBC Bank Holding Company
Tier 1 leverage capital			5.97	%	$	281,298
Tier 1 risk-based capital			6.41	%	281,298
Total risk-based capital			9.03	%	396,079
Common equity tier 1 risk-based capital			6.41	%	281,298
First NBC Bank
Tier 1 leverage capital	5.00	%	7.26	%	340,612
Tier 1 risk-based capital	8.00	%	7.78	%	340,612
Total risk-based capital	10.00	%	9.05	%	396,439
Common equity tier 1 risk-based capital	6.50	%	7.78	%	340,612

Liquidity and Capital Resources

Liquidity refers to the Company’s ability to maintain cash flow that is adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. Management believes that the sources of available liquidity are adequate to meet all reasonably foreseeable short-term and intermediate-term demands.

The Company evaluates liquidity both at the parent company level and at the bank level. Because First NBC Bank represents the Company’s only material asset, other than cash, the primary sources of funds at the parent company level are cash on hand, dividends paid to the Company from First NBC Bank, the net proceeds of capital offerings, and net proceeds from the issuance of subordinated debentures. The primary sources of funds at First NBC Bank are deposits, short and long-term funding from the Federal Home Loan Bank (FHLB) or other financial institutions, and principal and interest payments on loans and securities. While maturities and scheduled payments on loans and securities provide an indication of the timing of the receipt of funds, other sources of funds such as loan prepayments and deposit inflows are less predictable as they depend on the effects of changes in interest rates, economic conditions and competition. The primary investing activities are the origination of loans and the purchase of investment securities. If necessary, First NBC Bank has the ability to raise liquidity through additional collateralized borrowings, FHLB advances or the sale of its available for sale investment portfolio.

Investing activities are funded primarily by net deposit inflows, principal repayments on loans and securities, and borrowed funds. Gross loans increased to $3.8 billion as of June 30, 2016, from $3.5 billion as of December 31, 2015. At June 30, 2016, First NBC Bank had total commitments to make loans of approximately $858.4 million which include un-advanced lines of credit and loans of approximately $717.7 million. The Company anticipates that First NBC Bank will have sufficient funds available to meet its current loan originations and other commitments.

At June 30, 2016, total deposits were approximately $3.9 billion, of which approximately $1.4 billion were in certificates of deposits. Certificates of deposits scheduled to mature in one year or less as of June 30, 2016 totaled approximately $621.5 million.

In general, the Company monitors and manages liquidity on a regular basis by maintaining appropriate levels of liquid assets so that funds are available when needed. Excess liquidity is invested in overnight federal funds sold and other short-term investments. As a member of the Federal Home Loan Bank of Dallas, First NBC Bank had access to approximately $202.8 million of available lines of credit secured by a blanket lien of its real estate loans as of June 30, 2016. In addition, First NBC Bank maintained $85.0 million in lines of credit with its correspondent banks to support its liquidity.

Asset/Liability Management

The Company’s asset/liability management policy provides guidelines for effective funds management and the Company has established a measurement system for monitoring its net interest rate sensitivity position. The Company seeks to maintain a sensitivity position within established guidelines.

As a financial institution, the primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of the assets and liabilities, other than those which have a short term to maturity. Because of the nature of its operations, the Company is not subject to foreign exchange or commodity price risk. The Company does not own any trading assets.

Interest rate risk is the potential of economic loss due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. The Company recognizes that certain risks are inherent and that the goal is to identify and understand the risks.

The Company actively manages exposure to adverse changes in interest rates through asset and liability management activities within guidelines established by the asset/liability management committee. The committee, which is composed primarily of senior officers and directors of First NBC Bank and First NBC Bank Holding Company, has the responsibility for ensuring compliance with asset/liability management policies. Interest rate risk is the exposure to adverse changes in net interest income as a result of market fluctuations in interest rates. On a regular basis, the committee monitors interest rate and liquidity risk in order to implement appropriate funding and balance sheet strategies.

The Company utilizes a net interest income simulation model to analyze net interest income sensitivity. Potential changes in market interest rates and their subsequent effects on net interest income are then evaluated. The model projects the effect of instantaneous movements in interest rates. Decreases in interest rates apply primarily to long-term rates, as short-term rates are not modeled to decrease below zero. Assumptions based on the historical behavior of the Company’s deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

The Company’s interest sensitivity profile was somewhat asset sensitive as of June 30, 2016, though its base net interest income would increase in the case of either an interest rate increase or decrease. Hedging instruments utilized by First NBC Bank, which consist primarily of interest rate swaps and options, protect the bank in a rising interest rate environment by providing long term funding costs at a fixed interest rate to allow the bank to continue to fund its projected loan growth. In addition, the bank utilizes interest rate floors in loan pricing to manage interest rate risk in a declining rate environment.

The following table sets forth the net interest income simulation analysis as of June 30, 2016:

TABLE 16-CHANGE IN NET INTEREST INCOME FROM INTEREST RATE CHANGES



Interest Rate Scenario	% Change in Net Interest Income
+300 basis points	5.6	%
+200 basis points	6.6	%
+100 basis points	3.0	%
Base	—

The Company also manages exposure to interest rates by structuring its balance sheet in the ordinary course of business. An important measure of interest rate risk is the relationship of the repricing period of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk it has. From time to time, the Company may use instruments such as leveraged derivatives, structured notes, interest rate swaps, caps, floors, financial options, financial futures

contracts or forward delivery contracts to reduce interest rate risk. As of June 30, 2016, the Company had hedging instruments in the notional amount of $425.0 million with a fair value liability of $44.4 million.

An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market interest rates. A measurement of interest rate risk is performed by analyzing the maturity and repricing relationships between interest-earning assets and interest-bearing liabilities at specific points in time (gap). Interest rate sensitivity reflects the potential effect on net interest income of a movement in interest rates. An institution is considered to be asset sensitive, or having a positive gap, when the amount of its interest-earning assets maturing or repricing within a given period exceeds the amount of its interest-bearing liabilities also maturing or repricing within that time period. Conversely, an institution is considered to be liability sensitive, or having a negative gap, when the amount of its interest-bearing liabilities maturing or repricing within a given period exceeds the amount of its interest-earning assets also maturing or repricing within that time period. During a period of rising interest rates, a negative gap would tend to affect net interest income adversely, while a positive gap would tend to increase net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely.

Although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates.

Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates, both on a short-term basis and over the life of the asset. More importantly, changes in interest rates, prepayments and early withdrawal levels may deviate significantly from those assumed in the calculations in the table. As a result of these shortcomings, management focuses more on a net interest income simulation model than on gap analysis. Although the gap analysis reflects a ratio of cumulative gap to total earning assets within acceptable limits, the net interest income simulation model is considered by management to be more informative in forecasting future income at risk.

The Company faces the risk that borrowers might repay their loans sooner than the contractual maturity. If interest rates fall, the borrower might repay their loan, forcing the bank to reinvest in a potentially lower yielding asset. This prepayment would have the effect of lowering the overall portfolio yield which may result in lower net interest income. The Company has assumed that these loans will prepay, if the borrower has sufficient incentive to do so, using prepayment tables provided by third party consultants. In addition, some assets, such as mortgage-backed securities or purchased loans, are held at a premium, and if these assets prepay, the Company would have to write down the premium, which would temporarily reduce the yield. Conversely, as interest rates rise, borrowers might prepay their loans more slowly, which would leave lower yielding assets as interest rates rise.

Impact of Inflation

The Company’s financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States, which require the measure of financial position and operating results in terms of historic dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Inflation generally increases the costs of funds and operating overhead, and to the extent loans and other assets bear variable rates, the yields on such assets. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant effect on the performance of a financial institution than the effects of general levels of inflation. In addition, inflation affects a financial institution’s cost of goods and services purchased, the cost of salaries and benefits, occupancy expense and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings and shareholders’ equity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Since December 31, 2015, there has been no material change in the quantitative or qualitative aspect of the Company’s market risk profile. Quantitative and qualitative disclosures about market risk are presented at December 31, 2015 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Additional information at June 30, 2016 is included herein under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation and filing of this Quarterly Report on Form 10-Q, an evaluation was conducted under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and

Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2016 because of the material weaknesses in the Company’s internal control over financial reporting described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. However, based on a number of factors, including the completion of the Audit Committee’s review of the underlying errors, efforts to remediate the material weaknesses in internal control over financial reporting described in the Company’s 2015 Annual Report, and the performance of additional procedures by management designed to ensure the reliability of the Company’s financial reporting, the Company believes that the consolidated financial statements in this Quarterly Report on Form 10-Q fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company as of the dates, and for the periods, presented, in conformity with U.S. generally accepted accounting principles (“GAAP”).

Additional Analyses and Procedures and Remediation Plan

The Company is taking specific steps to remediate the material weaknesses identified by management, as described in greater detail in its Annual Report on Form 10-K for the year ended December 31, 2015. The Company intends to complete the remediation process with respect to these material weaknesses as quickly as possible and is targeting the end of 2016 for complete implementation of the remedial measures. The Company will test the ongoing operating effectiveness of the new controls subsequent to their implementation and consider the material weaknesses remediated only after the applicable remedial controls have operated effectively for a sufficient period of time. Until these weaknesses are remediated, the Company plans to perform additional analyses and other procedures to ensure that its consolidated financial statements are prepared in accordance with GAAP.

Changes in Internal Control Over Financial Reporting

Other than the remediation efforts underway, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2016, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On May 5, 2016, a purported securities class action suit was commenced in the United States District Court for the Eastern District of Louisiana, naming as defendants the Company, its Chairman and Chief Executive Officer, and its Chief Financial Officer. The lawsuit alleges violations of the Securities Exchange Act of 1934 and Rule 10b-5 in connection with allegedly false and misleading statements made by the Company related to its tax credit accounting practices and exposure to the oil and gas industry. The plaintiff seeks, among other things, damages for purchasers of the Company's common stock between May 10, 2013 and April 8, 2016. A group of institutional investors and a pension fund have each moved for appointment as lead plaintiff of the putative class. Briefing on the lead plaintiff motions was completed on July 19, 2016, and the parties currently await a decision on these motions from the Court. The Company believes that it has meritorious defenses and intends to defend this lawsuit vigorously. This lawsuit and any other related lawsuits are subject to inherent uncertainties, and the ultimate outcome of such litigation is necessarily unknown. The Company is unable to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome in such matters.

Item 1A. Risk Factors

None.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibit No. 31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit No. 31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit No. 32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit No. 32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit No. 101.INS		XBRL Instance Document

Exhibit No. 101.SCH		XBRL Taxonomy Extension Schema Document

Exhibit No. 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit No. 101.LAB		XBRL Taxonomy Extension Label Linkbase Document

Exhibit No. 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit No. 101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document

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.




	First NBC Bank Holding Company

Date: October 20, 2016	By:	/s/ Ashton J. Ryan, Jr.
		Ashton J. Ryan, Jr.
		President and Chief Executive Officer

Date: October 20, 2016	By:	/s/ Albert J. Richard, III
		Albert J. Richard, III
		Senior Executive Vice President and Chief Financial Officer

First NBC Bank Holding Co - FORM 10-Q - October 20, 2016

Attached files

First NBC Bank Holding Co Reports