National Commerce Corp - FORM 10-Q

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EX-32.2 - EXHIBIT 32.2 - National Commerce Corp	ex_99088.htm
EX-32.1 - EXHIBIT 32.1 - National Commerce Corp	ex_99087.htm
EX-31.2 - EXHIBIT 31.2 - National Commerce Corp	ex_99086.htm
EX-31.1 - EXHIBIT 31.1 - National Commerce Corp	ex_99085.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2017

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

For the transition period from to .

Commission file number: 001-36878

NATIONAL COMMERCE CORPORATION

(Exact name of registrant as specified in its charter)

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

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

(205) 313-8100

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☒

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

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

Yes ☐ No ☒

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

Class of Common Stock	Outstanding at November 9, 2017
Common stock, $0.01 par value	14,784,165 shares

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NATIONAL COMMERCE CORPORATION

FORM 10-Q

INDEX

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):	1

	Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	1

	Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2017 and 2016	2

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016	3

	Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2017	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	5

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	50

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	50

Item 4.	Mine Safety Disclosure	50

Item 5.	Other Information	50

Item 6.	Exhibits	51

	Signatures	52

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GENERAL

Unless the context otherwise indicates or requires, references in this Quarterly Report on Form 10-Q to “National Commerce Corporation,” “NCC,” the “Company,” “we,” “us” and “our” refer to National Commerce Corporation and its consolidated affiliates as of September 30, 2017.

FORWARD-LOOKING STATEMENTS

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

Any forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements, and the Company cannot give assurances that such statements will prove to be correct. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information or otherwise. Given these uncertainties, the reader should not place undue reliance on forward-looking statements as a prediction of actual results. Factors that could cause actual results to differ materially from those projected or estimated by us include those that are discussed in this Quarterly Report on Form 10-Q under Part II, “Item 1A. Risk Factors” and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 under Part I, “Item 1A. Risk Factors.”

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

NATIONAL COMMERCE CORPORATION
Unaudited Consolidated Balance Sheets
(In thousands, except share and per share data)

	September 30, 2017		December 31, 2016
Assets
Cash and due from banks	$	44,111		35,897
Interest-bearing deposits with banks		90,438		181,396
Cash and cash equivalents		134,549		217,293
Investment securities held-to-maturity (fair value of $26,076 and $25,894 at September 30, 2017 and December 31, 2016, respectively)		25,820		26,329
Investment securities available-for-sale		85,338		73,380
Other investments		10,740		7,879
Mortgage loans held-for-sale		15,278		15,373
Loans, net of unearned income		2,056,406		1,485,484
Less: allowance for loan losses		14,264		12,113
Loans, net		2,042,142		1,473,371
Premises and equipment, net		52,581		31,884
Accrued interest receivable		5,781		4,129
Bank-owned life insurance		31,973		28,034
Other real estate		1,171		2,068
Deferred tax assets, net		17,739		13,486
Goodwill		114,840		50,771
Core deposit intangible, net		4,848		2,032
Other assets		6,334		4,755
Total assets	$	2,549,134		1,950,784

Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing demand	$	621,916		429,030
Interest-bearing demand		322,273		262,261
Savings and money market		863,421		703,289
Time		289,763		273,130
Total deposits		2,097,373		1,667,710
Federal Home Loan Bank advances and other borrowings		7,941		7,000
Subordinated debt		24,540		24,500
Accrued interest payable		1,136		829
Other liabilities		19,551		13,701
Total liabilities		2,150,541		1,713,740

Commitments and contingencies

Shareholders’ equity:
Preferred stock, 250,000 shares authorized, no shares issued or outstanding		-		-
Common stock, $0.01 par value, 30,000,000 shares authorized, 14,777,230 and 10,934,541 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		148		109
Additional paid-in capital		347,371		205,372
Retained earnings		43,070		24,005
Accumulated other comprehensive income		500		249
Total shareholders' equity attributable to National Commerce Corporation		391,089		229,735
Noncontrolling interest		7,504		7,309
Total shareholders' equity		398,593		237,044
Total liabilities and shareholders' equity	$	2,549,134		1,950,784

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION
Unaudited Consolidated Statements of Earnings
(In thousands, except per share data)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Interest and dividend income:
Interest and fees on loans	$	26,780		17,991	$	75,360		53,143
Interest and dividends on taxable investment securities		694		493		1,871		1,288
Interest on non-taxable investment securities		195		200		592		601
Interest on interest-bearing deposits and federal funds sold		533		152		1,744		499
Total interest income		28,202		18,836		79,567		55,531
Interest expense:
Interest on deposits		2,101		1,499		6,165		4,544
Interest on borrowings		72		71		213		223
Interest on subordinated debt		388		389		1,165		572
Total interest expense		2,561		1,959		7,543		5,339
Net interest income		25,641		16,877		72,024		50,192
Provision for loan losses		1,105		373		2,416		2,807
Net interest income after provision for loan losses		24,536		16,504		69,608		47,385
Noninterest income:
Service charges and fees on deposit accounts		671		511		1,978		1,496
Mortgage origination and fee income		2,780		2,245		9,079		5,264
Merchant sponsorship revenue		622		542		1,968		1,555
Income from bank-owned life insurance		210		206		645		614
Rental income		84		-		84		-
Wealth management fees		12		15		36		39
Gain on other real estate, net		6		-		110		275
Gain on sale of investment securities available-for-sale		-		-		28		-
Other		245		483		1,242		1,241
Total noninterest income		4,630		4,002		15,170		10,484
Other expense:
Salaries and employee benefits		9,804		6,948		29,540		20,800
Commission-based compensation		1,748		1,104		5,155		3,015
Occupancy and equipment		1,692		1,181		4,644		3,447
Core deposit intangible amortization		366		191		1,062		574
Other operating expense		4,461		3,208		13,868		9,103
Total other expense		18,071		12,632		54,269		36,939
Earnings before income taxes		11,095		7,874		30,509		20,930
Income tax expense		3,828		2,639		9,950		6,794
Net earnings		7,267		5,235		20,559		14,136
Less: Net earnings attributable to noncontrolling interest		570		422		1,494		1,190
Net earnings attributable to National Commerce Corporation	$	6,697		4,813	$	19,065		12,946

Basic earnings per common share	$	0.47		0.44	$	1.42		1.19
Diluted earnings per common share	$	0.46		0.43	$	1.38		1.17

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION
Unaudited Consolidated Statements of Comprehensive Income
(In thousands)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2017		2016		2017			2016
Net earnings	$	6,697	$	4,813	$	19,065			12,946
Other comprehensive income, net of tax:
Unrealized gains on investment securities available-for-sale:
Unrealized gains arising during the period, net of tax of $28, $34, $145 and $275, respectively		52		64		268			510
Reclassification adjustment for gains included in net earnings, net of tax of $11 during the nine months ended September 30, 2017		-		-		(17	)		-
Other comprehensive income		52		64		251			510
Comprehensive income	$	6,749	$	4,877	$	19,316			13,456

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION
Unaudited Consolidated Statements of Changes in Shareholders’ Equity
(In thousands)

							Accumulated
			Additional				Other
	Common		Paid-in		Retained		Comprehensive		Noncontrolling
	Stock		Capital		Earnings		Income		Interest			Total
Balance, December 31, 2016	$	109		205,372		24,005		249		7,309			237,044

Share-based compensation expense		-		1,268		-		-		-			1,268
Net earnings attributable to National Commerce Corporation		-		-		19,065		-		-			19,065
Exercise of stock options and issuance of performance shares		3		2,598		-		-		-			2,601
Net earnings attributable to noncontrolling interest		-		-		-		-		1,494			1,494
Distributions paid to noncontrolling interest		-		-		-		-		(1,299	)		(1,299	)
Sale of common stock, net of offering expenses of $75		11		38,720		-		-		-			38,731
Acquisition of Private Bancshares, Inc., net of offering expenses of $167		18		71,384		-		-		-			71,402
Acquisition of Patriot Bank, net of offering expenses of $55		7		28,029		-		-		-			28,036
Change in unrealized gain/loss on securities available-for-sale, net of tax		-		-		-		251		-			251

Balance, September 30, 2017	$	148		347,371		43,070		500		7,504			398,593

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION
Unaudited Consolidated Statements of Cash Flows
(In thousands)

	For the Nine Months Ended
	September 30,
	2017			2016
Cash flows from operating activities:
Net earnings	$	19,065			12,946
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for loan losses		2,416			2,807
Net earnings attributable to noncontrolling interest		1,494			1,190
Depreciation, amortization and accretion		(313	)		650
Gain on trade or sale of premises and equipment		(21	)		-
Gain on ineffective portion of fair value hedge derivative		(41	)		(2	)
Change in mortgage loan derivative		(201	)		(342	)
Excess tax benefit from share-based compensation		(527	)		-
Gain on sale of investment securities available-for-sale		(28	)		-
Share-based compensation expense		1,268			998
Income from bank-owned life insurance		(645	)		(614	)
Net gain on sale of other real estate		(110	)		(275	)
Other real estate non-cash write-downs		219			-
Change in (net of effect of business combinations):
Mortgage loans held-for-sale		24,723			7,210
Other assets and accrued interest receivable		538			1,203
Other liabilities and accrued interest payable		2,860			3,728
Net cash provided by operating activities		50,697			29,499
Cash flows from investing activities (net of effect of business combinations):
Proceeds from calls, maturities, and paydowns of securities available-for-sale		22,535			31,466
Proceeds from calls, maturities, and paydowns of securities held-to-maturity		670			698
Proceeds from sale of securities available-for-sale		15,055			1,494
Purchases of securities available-for-sale		(34,857	)		(53,978	)
Purchases of securities held-to-maturity		(250	)		-
Proceeds from sale of other investments		-			693
Purchases of other investments		(2,468	)		(2,173	)
Net cash received in acquisitions		12,710			-
Net change in loans		(186,571	)		(91,802	)
Proceeds from sale of other real estate		2,103			2,080
Proceeds from the sale of premises and equipment		2,184			-
Purchases of premises and equipment		(18,058	)		(2,372	)
Net cash used by investing activities		(186,947	)		(113,894	)
Cash flows from financing activities (net of effect of business combinations):
Net change in deposits		13,614			(14,444	)
Repayment of Federal Home Loan Bank advances		-			(15,000	)
Net change in other borrowings		81			-
Issuance of subordinated debt		-			25,000
Debt offering expenses		-			(533	)
Cash distribution paid to noncontrolling interests		(1,299	)		(1,205	)
Proceeds from stock offering		38,806			-
Stock offering expenses		(75	)		-
Stock offering expenses related to acquisition		(222	)		-
Proceeds from exercise of options and warrants		2,601			1,040
Net cash provided by (used by) financing activities		53,506			(5,142	)
Net change in cash and cash equivalents		(82,744	)		(89,537	)
Cash and cash equivalents at beginning of the period		217,293			212,457
Cash and cash equivalents at end of the period	$	134,549			122,920

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION
Unaudited Consolidated Statements of Cash Flows, continued
(In thousands)

	For the Nine Months Ended
	September 30,
Supplemental disclosure of cash flow information:	2017		2016
Cash paid during the period for:
Interest	$	7,291		4,883
Income taxes	$	9,257		4,508
Non-cash investing and financing activities:
Change in unrealized (losses) gains on securities available-for-sale, net of tax	$	251		510
Transfer of loans to other real estate	$	293		-
Assets acquired and liabilities assumed in acquisitions:
Assets acquired in acquisitions	$	507,635		-
Liabilities assumed in acquisitions	$	420,685		-

See accompanying notes to unaudited consolidated financial statements.

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NATIONAL COMMERCE CORPORATION

Notes to Unaudited Consolidated Financial Statements

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

Note 1 – Basis of Presentation

General

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

The Bank provides a full range of commercial and consumer banking services. The Bank currently operates seven full-service banking offices in Alabama, fourteen full-service banking offices in central and northeast Florida (including under the trade names United Legacy Bank, Reunion Bank of Florida and Patriot Bank) and two full-service banking offices in the Atlanta, Georgia metro area (including under the trade names Private Bank of Buckhead, Private Bank of Decatur and PrivatePlus Mortgage). NBC is primarily regulated by the Office of the Comptroller of the Currency (“OCC”) and is subject to periodic examinations by the OCC. The Company is regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and is subject to periodic examinations by the Federal Reserve.

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

These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted or abbreviated. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes as of December 31, 2016, which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

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

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Note 2 – Reclassifications

Certain prior-period amounts have been reclassified to conform to the presentation used in 2017. These reclassifications had no material effect on the operations, financial condition or cash flows of the Company.

Note 3 – Net Earnings per Common Share

Basic earnings per common share are computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share are computed by dividing net income by the sum of potential common shares that are dilutive plus the weighted-average number of shares of common stock outstanding. Anti-dilutive potential common shares (options) are excluded from the diluted earnings per share computation. For the three- and nine-month periods ended September 30, 2017, there were no anti-dilutive potential common shares, compared to 101,459 and 101,680 anti-dilutive potential common shares for the three- and nine-month periods ended September 30, 2016, respectively.

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

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016

Net earnings available to common shareholders	$	6,697		4,813	$	19,065		12,946

Weighted average common shares outstanding		14,300,974		10,890,860		13,469,327		10,871,245
Dilutive effect of stock options		193,344		108,925		202,021		100,334
Dilutive effect of directors' deferred shares		33,418		20,148		33,418		20,072
Dilutive effect of performance share awards		151,810		95,201		149,308		89,095
Diluted common shares		14,679,546		11,115,134		13,854,074		11,080,746

Basic earnings per common share	$	0.47		0.44	$	1.42		1.19
Diluted earnings per common share	$	0.46		0.43	$	1.38		1.17

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Note 4 – Securities

The amortized cost and fair value of held-to-maturity and available-for-sale debt securities at September 30, 2017 and December 31, 2016 were as follows.

	Held-to-Maturity Securities

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
September 30, 2017	Cost		Gains		Losses		Value
Residential mortgage-backed securities	$	4,302		10		-		4,312
Municipal securities		21,268		269		23		21,514
Other debt securities		250		-		-		250
Total held-to-maturity securities	$	25,820		279		23		26,076

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
December 31, 2016	Cost		Gains		Losses		Value
Residential mortgage-backed securities	$	5,021		2		29		4,994
Municipal securities		21,308		25		433		20,900
Total held-to-maturity securities	$	26,329		27		462		25,894

	Available-for-Sale Securities

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
September 30, 2017	Cost		Gains		Losses		Value
U.S. government agency obligations	$	3,337		2		-		3,339
Residential mortgage-backed securities		41,108		496		75		41,529
Other commercial mortgage-backed securities		4,020		-		55		3,965
Other asset-backed securities		32,245		248		-		32,493
Municipal securities		3,859		153		-		4,012
Total available-for-sale securities	$	84,569		899		130		85,338

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
December 31, 2016	Cost		Gains		Losses		Value
U.S. government agency obligations	$	3,653		-		36		3,617
Residential mortgage-backed securities		38,946		458		256		39,148
Other asset-backed securities		25,991		113		12		26,092
Municipal securities		4,406		148		31		4,523
Total available-for-sale securities	$	72,996		719		335		73,380

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

Details concerning the Company’s debt securities with unrealized losses as of September 30, 2017 and December 31, 2016 are as follows.

	Held-to-Maturity Securities

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2017	Value		Losses		Value		Losses		Value		Losses
Residential mortgage-backed securities	$	-		-		-		-		-		-
Municipal securities		3,356		22		246		1		3,602		23
Other debt securities		-		-		-		-		-		-
Total held-to-maturity securities	$	3,356		22		246		1		3,602	$	23

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2016	Value		Losses		Value		Losses		Value		Losses
Residential mortgage-backed securities	$	3,286		29		-		-		3,286		29
Municipal securities		17,542		433		-		-		17,542		433
Total held-to-maturity securities	$	20,828		462		-		-		20,828		462

	Available-for-Sale Securities

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2017	Value		Losses		Value		Losses		Value		Losses
U.S. government agency obligations	$	-		-		-		-		-		-
Residential mortgage-backed securities		11,769		29		3,841		46		15,610		75
Other commercial mortgage-backed securities		3,965		55		-		-		3,965		55
Other asset-backed securities		1,000		-		-		-		1,000		-
Municipal securities		-		-		-		-		-		-
Total available-for-sale securities	$	16,734		84		3,841		46		20,575		130

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2016	Value		Losses		Value		Losses		Value		Losses
U.S. government agency obligations	$	3,617		36		-		-		3,617		36
Residential mortgage-backed securities		18,606		256		-		-		18,606		256
Other asset-backed securities		2,488		12		-		-		2,488		12
Municipal securities		951		31		-		-		951		31
Total available-for-sale securities	$	25,662		335		-		-		25,662		335

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As of September 30, 2017, the Company did not consider securities with unrealized losses to be other-than-temporarily impaired. The unrealized losses in each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase. The Company has the ability and intent to hold its securities for a period of time sufficient to allow for a recovery in fair value. There were no other-than-temporary impairments charged to earnings during the three-month and nine-month periods ended September 30, 2017 and 2016.

During the nine-month period ended September 30, 2017, the Company sold twenty-four debt securities that it acquired in connection with the purchases of Private Bancshares, Inc. (“Private Bancshares”) and Patriot Bank, resulting in proceeds of $14,489,000, and did not realize a gain or loss on the sale. In addition to these sales during the nine-month period ended September 30, 2017, the Company also sold one debt security from its legacy portfolio for proceeds of $562,000 and realized a gross gain of $28,000. During the nine-month period ended September 30, 2016, the Company sold one debt security for proceeds of $1,494,000 and realized a gross gain of $365.

The amortized cost and estimated fair value of debt securities at September 30, 2017, by contractual maturity, are shown below. Expected maturities differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-Sale Securities				Held-to-Maturity Securities
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Municipal securities and U.S. government agencies:
0 to 5 years	$	3,337		3,339		-		-
5 to 10 years		1,045		1,050		750		758
Over 10 years		2,814		2,962		20,518		20,756
Residential and other mortgage-backed securities and other asset-backed securities		77,373		77,987		4,552		4,562
Total	$	84,569		85,338		25,820		26,076

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

Major classifications of loans at September 30, 2017 and December 31, 2016 are summarized as follows.

	September 30, 2017			December 31, 2016
Commercial, financial and agricultural	$	264,136			170,985
Factored commercial receivables		119,110			83,901
Real estate - mortgage		1,428,835			1,056,214
Real estate - construction		218,655			155,813
Consumer		26,299			19,060
		2,057,035			1,485,973
Less: Unearned fees		(629	)		(489	)
Total loans		2,056,406			1,485,484
Allowance for loan losses		(14,264	)		(12,113	)
Total net loans	$	2,042,142			1,473,371

At September 30, 2017, the carrying value and outstanding balance of purchased credit impaired (“PCI”) loans accounted for under Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, were $26.9 million and $36.8 million, respectively. At December 31, 2016, the carrying value and outstanding balance of PCI loans were $12.0 million and $17.3 million, respectively. The following table presents changes in the value of the accretable yield for PCI loans for the periods indicated.

	For the Nine Months Ended September 30,
	2017			2016
Balance at beginning of period	$	375			286
Acquisition of Private Bancshares, Inc.		462			-
Accretion		(1,180	)		(856	)
Reclassification from nonaccretable difference		893			969
Balance at period end	$	550			399

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

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

	Commercial,			Factored
	financial and			commercial			Real estate -			Real estate -
September 30, 2017	agricultural			receivables			mortgage			construction		Consumer			Unallocated		Total
Balance, beginning of year	$	1,588			500			8,465			1,369		191			-		12,113
Provisions charged to operating expense		59			512			1,346			544		(45	)		-		2,416
Loans charged off		(28	)		(1,936	)		(148	)		-		(30	)		-		(2,142	)
Recoveries		427			1,424			19			-		7			-		1,877
Balance, September 30, 2017	$	2,046			500			9,682			1,913		123			-		14,264

Ending balance, individually evaluated for impairment	$	-			-			-			-		-			-		-
Ending balance, collectively evaluated for impairment		2,046			500			9,682			1,913		123			-		14,264
Total allowance for loan losses	$	2,046			500			9,682			1,913		123			-		14,264
Loans:
Individually evaluated for impairment	$	-			-			35			-		35			-		70
Collectively evaluated for impairment		263,260			119,110			1,404,063			217,978		25,630			-		2,030,041
Acquired loans with deteriorated credit quality		876			-			24,737			677		634			-		26,924
Total loans	$	264,136			119,110			1,428,835			218,655		26,299			-		2,057,035

	Commercial,			Factored
	financial and			commercial			Real estate -			Real estate -
September 30, 2016	agricultural			receivables			mortgage			construction		Consumer			Unallocated			Total
Balance, beginning of year	$	1,345			500			5,525			1,412		236			824			9,842
Provisions charged to operating expense		3			689			2,501			320		118			(824	)		2,807
Loans charged off		(6	)		(1,769	)		(23	)		-		(180	)		-			(1,978	)
Recoveries		72			1,080			107			9		11			-			1,279
Balance, September 30, 2016	$	1,414			500			8,110			1,741		185			-			11,950

Ending balance, individually evaluated for impairment	$	-			-			-			-		-			-			-
Ending balance, collectively evaluated for impairment		1,414			500			8,110			1,741		185			-			11,950
Total allowance for loan losses	$	1,414			500			8,110			1,741		185			-			11,950
Loans:
Individually evaluated for impairment	$	-			-			184			-		19			-			203
Collectively evaluated for impairment		167,546			70,066			996,677			146,831		19,489			-			1,400,609
Acquired loans with deteriorated credit quality		643			-			10,826			280		246			-			11,995
Total loans	$	168,189			70,066			1,007,687			147,111		19,754			-			1,412,807

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The Company individually evaluates for impairment all loans that are on non-accrual status. Additionally, any troubled debt restructurings are individually evaluated for impairment. A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due according to the contractual terms of the loan will not be collected. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price or at the fair value of the collateral if the loan is collateral-dependent. Management may also elect to apply an additional collective reserve to groups of impaired loans based on current economic or market factors. Interest payments received on impaired loans are generally applied as a reduction of the outstanding principal balance. During the nine months ended September 30, 2017 and 2016, the Company did not modify any loans in a manner that would be considered a troubled debt restructuring.

The following tables present impaired loans by class of loans as of September 30, 2017 and December 31, 2016. The purchased credit-impaired loans are not included in these tables because they are recorded at fair value at acquisition and there has been no further indication of credit deterioration that would require an additional provision.

			Unpaid				Average
	Recorded		Principal		Related		Recorded
September 30, 2017	Investment		Balance		Allowance		Investment
Impaired loans without related allowance:
Commercial, financial and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		35		35		-		129
Real estate - construction		-		-		-		-
Consumer		35		35		-		35
Total	$	70		70		-		164

Impaired loans with related allowance:
Commercial, financial and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		-		-		-		11
Real estate - construction		-		-		-		-
Consumer		-		-		-		-
Total	$	-		-		-		11

Total impaired loans:
Commercial, financial and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		35		35		-		140
Real estate - construction		-		-		-		-
Consumer		35		35		-		35
Total	$	70		70		-		175

			Unpaid				Average
	Recorded		Principal		Related		Recorded
December 31, 2016	Investment		Balance		Allowance		Investment
Impaired loans without related allowance:
Commercial, financial and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		180		213		-		168
Real estate - construction		-		-		-		97
Consumer		7		42		-		31
Total	$	187		255		-		296

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

Total impaired loans:
Commercial, financial and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		180		213		-		168
Real estate - construction		-		-		-		97
Consumer		7		42		-		31
Total	$	187		255		-		296

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For the nine months ended September 30, 2017 and 2016, the Company did not recognize a material amount of interest income on impaired loans.

The following tables present the aging of the recorded investment in past due loans and non-accrual loan balances as of September 30, 2017 and December 31, 2016, by class of loans. All loans greater than 90 days past due are placed on non-accrual status, excluding factored receivables. For Corporate Billing’s factored receivables, which are commercial trade credits rather than promissory notes, our practice, in most cases, is to charge off unpaid recourse receivables when they become 90 days past due from the invoice due date and the non-recourse receivables when they become 120 days past due from the statement billing date. For the recourse receivables, the invoice is charged against the client reserve account established for such purposes, unless the client reserve is insufficient, in which case the invoice is charged against the allowance for loan losses. This table includes all loans, whether acquired or non-acquired.

	30-59 Days		60-89 Days		> 90 Days		Total
September 30, 2017	Past Due		Past Due		Past Due		Past Due		Current		Total		Non-accrual
Commercial, financial and agricultural	$	1,363		-		-		1,363		262,773		264,136		-
Factored commercial receivables		8,440		2,605		1,690		12,735		106,375		119,110		-
Real estate - mortgage		2,363		-		2,132		4,495		1,424,340		1,428,835		2,576
Real estate - construction		124		-		-		124		218,531		218,655		84
Consumer		102		-		-		102		26,197		26,299		35
Total	$	12,392		2,605		3,822		18,819		2,038,216		2,057,035		2,695

	30-59 Days		60-89 Days		> 90 Days		Total
December 31, 2016	Past Due		Past Due		Past Due		Past Due		Current		Total		Non-accrual
Commercial, financial and agricultural	$	13		-		-		13		170,972		170,985		-
Factored commercial receivables		5,947		1,383		581		7,911		75,990		83,901		-
Real estate - mortgage		440		392		2,075		2,907		1,053,307		1,056,214		2,718
Real estate - construction		-		-		-		-		155,813		155,813		98
Consumer		68		-		-		68		18,992		19,060		21
Total	$	6,468		1,775		2,656		10,899		1,475,074		1,485,973		2,837

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

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

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

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

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

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Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be Pass rated loans. As of September 30, 2017 and December 31, 2016, based on the most recent analysis performed, the risk category of loans by class of loans was as presented in the following table. This table includes all loans, whether acquired or non-acquired.

September 30, 2017	Pass		OAEM		Substandard		Doubtful		Total
Commercial, financial and agricultural	$	260,716		1,812		1,608		-		264,136
Factored commercial receivables		119,110		-		-		-		119,110
Real estate - mortgage		1,407,140		6,577		13,875		1,243		1,428,835
Real estate - construction		218,296		-		359		-		218,655
Consumer		25,718		24		557		-		26,299
Total	$	2,030,980		8,413		16,399		1,243		2,057,035

December 31, 2016	Pass		OAEM		Substandard		Doubtful		Total
Commercial, financial and agricultural	$	168,004		1,422		1,559		-		170,985
Factored commercial receivables		83,901		-		-		-		83,901
Real estate - mortgage		1,047,797		2,163		3,586		2,668		1,056,214
Real estate - construction		155,583		-		132		98		155,813
Consumer		18,499		26		514		21		19,060
Total	$	1,473,784		3,611		5,791		2,787		1,485,973

The September 30, 2017 totals above include the loans acquired in our acquisition of Private Bancshares and Patriot Bank using risk ratings assigned during the due diligence process. These initial risk ratings were revised as necessary as of September 30, 2017.

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Note 6 – Fair Value Measurements and Disclosures

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

Fair Value Hierarchy

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

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

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

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

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

Cash and Cash Equivalents

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

Investment Securities

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

The fair value of securities held-to-maturity is estimated using the same measurement techniques as securities available-for-sale.

Other Investments

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

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Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired, and a specific reserve in the allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of three methods, including collateral value, market value of similar debt and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2017 and December 31, 2016, impaired loans were evaluated based on the fair value of the collateral. Impaired loans for which an allowance is established based on the fair value of collateral, or loans that are charged down according to the fair value of collateral, require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price, the Company records the impaired loan as nonrecurring Level 2. When the fair value is based on an appraised value, the Company records the impaired loan as nonrecurring Level 3.

For disclosure purposes, the fair value of fixed-rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable-rate loans, the carrying amount is a reasonable estimate of fair value.

Mortgage Loans Held-for-Sale

Mortgage loans held-for-sale are carried at fair value. The fair value of committed mortgage loans held-for-sale is determined by outstanding commitments from investors, and the fair value of uncommitted loans is based on the current delivery prices in the secondary mortgage market.

Bank-Owned Life Insurance

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

Other Real Estate

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

Deposits

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

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Federal Home Loan Bank Advances

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

Subordinated Debt

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

Derivative Financial Instruments

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

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

Although the Company has determined that a majority of the inputs used to value its derivatives falls within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company or the counterparty. However, as of September 30, 2017 and December 31, 2016, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustment was not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

Commitments to Extend Credit and Standby Letters of Credit

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

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Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016.

September 30, 2017	Level 1		Level 2		Level 3		Total
U.S. government agency obligations	$	-		3,339		-		3,339
Residential mortgage-backed securities		-		41,529		-		41,529
Other commercial mortgage-backed securities		-		3,965		-		3,965
Municipal securities		-		4,012		-		4,012
Other asset-backed securities		-		32,493		-		32,493
Total investment securities available-for-sale	$	-		85,338		-		85,338
Mortgage loans held-for-sale	$	-		15,278		-		15,278
Derivative assets	$	-		1,099		-		1,099
Derivative liabilities	$	-		773		-		773

December 31, 2016	Level 1		Level 2		Level 3		Total
U.S. government agency obligations	$	-		3,617		-		3,617
Residential mortgage-backed securities		-		39,148		-		39,148
Municipal securities		-		4,523		-		4,523
Other asset-backed securities		-		26,092		-		26,092
Total investment securities available-for-sale		-		73,380		-		73,380
Mortgage loans held-for-sale	$	-		15,373		-		15,373
Derivative assets	$	-		427		-		427
Derivative liabilities	$	-		366		-		366

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of September 30, 2017 and December 31, 2016.

September 30, 2017	Level 1		Level 2		Level 3		Total
Other real estate	$	-		-		1,171		1,171
Non-accrual loans		-		-		2,695		2,695

December 31, 2016	Level 1		Level 2		Level 3		Total
Other real estate	$	-		-		2,068		2,068
Non-accrual loans		-		-		2,837		2,837

The following table shows the significant unobservable inputs used in the nonrecurring fair value measurement of Level 3 assets.

September 30, 2017	Fair Value		Valuation Technique	Unobservable Inputs	Range of Discounts			Weighted Average Discounts
Other real estate	$	1,171	Third party appraisals, sales contracts, broker price opinions	Collateral discounts and estimated costs to sell	0%	-	65%		51%
Non-accrual loans		2,695	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0%	-	100%		31%


December 31, 2016
Other real estate	$	2,068	Third party appraisals, sales contracts, broker price opinions	Collateral discounts and estimated costs to sell	11%	-	35%		11%
Non-accrual loans		2,837	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0%	-	100%		33%

The inputs used to determine the fair value of other real estate include market conditions, estimated holding period, underlying collateral characteristics and discount rates. The inputs used to determine the fair value of impaired loans include market conditions, loan term, estimated holding period, underlying collateral characteristics and discount rates.

For the three months ended September 30, 2017, there were no changes in the methods and significant inputs used to estimate fair value.

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The carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2017 and December 31, 2016 were as follows:

	Carrying		Estimated Fair Value
September 30, 2017	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	134,549		134,549		-		-
Investment securities held-to-maturity		25,820		-		26,076		-
Investment securities available-for-sale		85,338		-		85,338		-
Other investments		10,740		-		10,740		-
Loans, net		2,042,142		-		2,037,652		2,695
Mortgage loans held-for-sale		15,278		-		15,278		-
Bank-owned life insurance		31,973		-		31,973		-
Derivative assets		1,099		-		1,099		-

Liabilities:
Deposits		2,097,373		-		1,994,706		-
Federal Home Loan Bank advances and other borrowings		7,941		-		7,149		-
Subordinated debt		24,540		-		24,122		-
Derivative liabilities		773		-		773		-

	Carrying		Estimated Fair Value
December 31, 2016	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	217,293		217,293		-		-
Investment securities held-to-maturity		26,329		-		25,894		-
Investment securities available-for-sale		73,380		-		73,380		-
Other investments		7,879		-		7,879		-
Loans, net		1,473,371		-		1,470,491		2,837
Mortgage loans held-for-sale		15,373		-		15,373		-
Bank-owned life insurance		28,034		-		28,034		-
Derivative assets		427		-		427		-

Liabilities:
Deposits		1,667,710		-		1,616,266		-
Federal Home Loan Bank advances		7,000		-		7,247		-
Subordinated debt		24,500		-		22,794		-
Derivative liabilities		366		-		366		-

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include mortgage banking operations, deferred income taxes, and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

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Note 7 – Segment Reporting

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

	Retail and
	Commercial			Mortgage		Receivables			Elimination
	Banking			Division (1)		Factoring			Entries (2)			Total
For the Three Months Ended September 30, 2017
Interest income	$	25,021			151		3,969			(939	)		28,202
Interest expense		2,487			74		939			(939	)		2,561
Net interest income		22,534			77		3,030			-			25,641
Provision for loan and lease losses		980			-		125			-			1,105
Noninterest income		1,285			3,296		49			-			4,630
Noninterest expense		13,104			3,352		1,615			-			18,071
Net earnings before tax and noncontrolling interest		9,735			21		1,339			-			11,095
Income tax expense		3,528			8		292			-			3,828
Noncontrolling interest		-			-		(570	)		-			(570	)
Net earnings attributable to National Commerce Corporation	$	6,207			13		477			-			6,697

For the Nine Months Ended September 30, 2017
Interest income	$	70,528			543		10,945			(2,449	)		79,567
Interest expense		7,283			260		2,449			(2,449	)		7,543
Net interest income		63,245			283		8,496			-			72,024
Provision for loan and lease losses		1,904			-		512			-			2,416
Noninterest income		4,683			10,379		108			-			15,170
Noninterest expense		39,114			10,515		4,640			-			54,269
Net earnings before tax and noncontrolling interest		26,910			147		3,452			-			30,509
Income tax expense		9,150			56		744			-			9,950
Noncontrolling interest		(1	)		-		(1,493	)		-			(1,494	)
Net earnings attributable to National Commerce Corporation	$	17,759			91		1,215			-			19,065

Total assets as of September 30, 2017	$	2,498,085			15,278		140,285			(104,514	)		2,549,134

For the Three Months Ended September 30, 2016
Interest income	$	16,251			145		2,916			(476	)		18,836
Interest expense		1,898			61		476			(476	)		1,959
Net interest income		14,353			84		2,440			-			16,877
Provision for loan and lease losses		289			-		84			-			373
Noninterest income		1,791			2,179		32			-			4,002
Noninterest expense		9,590			1,709		1,333			-			12,632
Net earnings before tax and noncontrolling interest		6,265			554		1,055			-			7,874
Income tax expense		2,187			211		241			-			2,639
Noncontrolling interest		-			-		(422	)		-			(422	)
Net earnings attributable to National Commerce Corporation	$	4,078			343		392			-			4,813

For the Nine Months Ended September 30, 2016
Interest income	$	47,681			411		8,885			(1,446	)		55,531
Interest expense		5,174			165		1,446			(1,446	)		5,339
Net interest income		42,507			246		7,439			-			50,192
Provision for loan and lease losses		2,118			-		689			-			2,807
Noninterest income		4,734			5,673		77			-			10,484
Noninterest expense		28,246			4,758		3,935			-			36,939
Net earnings before tax and noncontrolling interest		16,877			1,161		2,892			-			20,930
Income tax expense		5,706			441		647			-			6,794
Noncontrolling interest		-			-		(1,190	)		-			(1,190	)
Net earnings attributable to National Commerce Corporation	$	11,171			720		1,055			-			12,946

Total assets as of September 30, 2016	$	1,741,047			7,810		92,822			(62,401	)		1,779,278

(1) Noninterest income for the mortgage division segment includes intercompany income allocation.
(2) Entry to remove intercompany interest allocated to the receivables factoring segment. For segment reporting purposes, we allocate funding costs to the receivables factoring segment at the federal funds rate plus 2.50%.

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Note 8 – Goodwill and Intangibles

Changes to the carrying amount of goodwill for the nine months ended September 30, 2017 are provided in the following table.

Balance, December 31, 2016	$	50,771
Acquisition of Private Bancshares, Inc.		48,169
Acquisition of Patriot Bank		15,900
Balance, September 30, 2017	$	114,840

The adjustments to goodwill made during the nine months ended September 30, 2017 resulted from the acquisitions of Private Bancshares on January 1, 2017 and Patriot Bank on August 31, 2017. For additional information on these acquisitions, see Note 10 to the unaudited consolidated financial statements below.

A summary of core deposit intangible assets as of September 30, 2017 and December 31, 2016 is as follows.

	September 30, 2017			December 31, 2016
Gross carrying amount	$	7,193			3,315
Less: accumulated amortization		(2,345	)		(1,283	)
Net carrying amount	$	4,848			2,032

Note 9 – Cash and Cash Equivalents

Cash equivalents include amounts due from banks, interest-bearing deposits with the Federal Reserve Bank of Atlanta (“FRB”), the FHLB and correspondent banks, and federal funds sold. Generally, federal funds are sold for one-day periods. The Company is required to maintain average reserve balances with the FRB or in cash. At September 30, 2017 and December 31, 2016, the Company’s reserve requirements were approximately $4,336,000 and $8,139,000, respectively.

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Note 10 – Acquisitions

Patriot Bank

Effective August 31, 2017, the Company completed its acquisition of Patriot Bank. Patriot Bank was headquartered in Trinity, Florida, and was merged with and into NBC. NBC continues to operate the former offices of Patriot Bank as a division of NBC under the trade name “Patriot Bank.”

At the effective time of the merger, each share of common stock of Patriot Bank issued and outstanding was converted into the right to receive 0.1711 shares of NCC common stock and cash in the amount of $0.725. The Company paid approximately $3,002,000 in cash and issued 706,702 shares of NCC common stock for the issued and outstanding shares of Patriot Bank common stock.

The acquisition of Patriot Bank was accounted for using the purchase method of accounting in accordance with ASC 805, Business Combinations. Assets acquired, liabilities assumed, and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding the methods and assumptions to be used. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

The following table presents the assets acquired and liabilities assumed of Patriot Bank as of August 31, 2017 at their initial fair value estimates:

	As Recorded By		Fair Value				As Recorded
	Patriot Bank		Adjustments				By the Company
Cash and cash equivalents	$	3,373		-				3,373
Interest bearing deposits in banks		2,895		(27	)	a		2,868
Investment securities		4,967		(56	)	a		4,911
Loans		124,714		(3,120	)	b		121,594
Allowance for loan losses		1,531		(1,531	)	c		-
Net loans		123,183		(1,589	)			121,594
Premises and equipment, net		6,457		(280	)	d		6,177
Core deposit intangible		-		899		e		899
Other real estate and repossessions		1,601		(580	)			1,021
Other assets		2,838		657		f		3,459
				(36	)	g
Total assets	$	145,314		(1,012	)			144,302

Noninterest-bearing deposits	$	27,247		-				27,247
Interest-bearing deposits		100,425		68		h		100,493
Total deposits		127,672		68				127,740

Repurchase liability		860		-				860
Other liabilities		517		(8	)	i		509
Total liabilities		129,049		60				129,109

Net identifiable assets acquired over liabilities assumed		16,265		(1,072	)			15,193

Goodwill		-		15,900				15,900

Net assets acquired over liabilities assumed	$	16,265		14,828				31,093


Consideration:

Shares of common stock issued				706,702
Estimated value per share of the Company's stock			$	39.75

Fair value of Company stock issued				28,091
Cash paid for shares and in lieu of fractional shares				3,002

Fair value of total consideration transferred			$	31,093

Explanation of fair value adjustments:

Adjustment reflects fair value adjustments of the interest bearing deposits in banks and available-for-sale portfolio at acquisition date.

Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

Adjustment reflects the elimination of Patriot Bank’s allowance for loan losses.

Adjustment reflects the write-off of certain fixed assets.

Adjustment reflects the recording of core deposit intangible asset.

Adjustment to record the deferred tax asset created by purchase adjustments.

Adjustment to write-off miscellaneous assets

Adjustment reflects the fair value adjustment to time deposit accounts.

Adjustment to reflect fair value of liabilities.

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The discounts on loans will be accreted to interest income over the estimated average life of the loans using a level yield method. The core deposit intangible asset is being amortized over a seven-year life on an accelerated basis.

Private Bancshares, Inc.

Effective January 1, 2017, the Company completed its merger with Private Bancshares. Private Bancshares was the parent company of Private Bank of Buckhead, headquartered in Atlanta, Georgia, and was merged with and into NCC. Immediately following the holding company merger, Private Bank of Buckhead merged with and into NBC, but NBC continues to operate the former offices of Private Bank of Buckhead as a division of NBC under the trade names “Private Bank of Buckhead,” “Private Bank of Decatur” and “PrivatePlus Mortgage.”

At the effective time of the merger, each share of common stock of Private Bancshares issued and outstanding was converted into the right to receive either 0.85417 shares of NCC common stock or cash in the amount of $20.50. The Company paid approximately $8,322,000 in cash and issued 1,809,189 shares of NCC common stock for the issued and outstanding shares of Private Bancshares common stock.

The acquisition of Private Bancshares was accounted for using the purchase method of accounting in accordance with ASC 805, Business Combinations. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding the methods and assumptions to be used. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

The following table presents the assets acquired and liabilities assumed of Private Bancshares as of January 1, 2017 at their initial fair value estimates:

	As Recorded By		Fair Value				As Recorded
	Private Bancshares		Adjustments				By the Company
Cash and cash equivalents	$	17,793		-				17,793
Investment securities		10,030		(312	)	a		9,718
Other investments		252		-				252
Mortgage loans held-for-sale		24,628		-				24,628
Loans		266,750		(6,716	)	b		260,034
Allowance for loan losses		3,306		(3,306	)	c		-
Net loans		263,444		(3,410	)			260,034
Premises and equipment, net		558		(95	)	d		463
Core deposit intangible		-		2,979		e		2,979
Bank-owned life insurance		3,294		-				3,294
Other assets		2,569		1,568		f		4,137
Total assets	$	322,568		730				323,298

Noninterest-bearing deposits	$	135,822		-				135,822
Interest-bearing deposits		150,260		131		g		150,391
Total deposits		286,082		131				286,213

Repurchase liability		2,201		-				2,201
Other liabilities		3,374		(212	)	h		3,162
Total liabilities		291,657		(81	)			291,576

Net identifiable assets acquired over liabilities assumed		30,911		811				31,722

Goodwill		-		48,169				48,169

Net assets acquired over liabilities assumed	$	30,911		48,980				79,891


Consideration:

Shares of common stock issued				1,809,189
Estimated value per share of the Company's stock			$	37.15

Fair value of Company stock issued				67,211
Cash paid for shares and in lieu of fractional shares				8,322
Value of assumed stock options and restricted stock units converted to common stock				4,358

Fair value of total consideration transferred			$	79,891

Explanation of fair value adjustments:

Adjustment reflects fair value adjustments of the available-for-sale portfolio at acquisition date.

Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

Adjustment reflects the elimination of Private Bancshares’ allowance for loan losses.

Adjustment reflects the write-off of certain fixed assets.

Adjustment reflects the recording of core deposit intangible asset.

Adjustment to record the deferred tax asset created by purchase adjustments.

Adjustment reflects the fair value adjustment to time deposit accounts.

Adjustment to reflect unrecorded liabilities.

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The following unaudited supplemental pro forma information is presented to show estimated results assuming Private Bancshares and Patriot Bank were acquired as of January 1, 2016. These unaudited pro forma results are not necessarily indicative of the operating results that the Company would have achieved had it completed the acquisition as of January 1, 2016 and should not be considered as representative of future operating results. Pro forma information for 2017 is presented assuming Patriot Bank was included since the beginning of 2017. An adjustment for Private Bancshares is not necessary because Private Bancshares is included in the Company’s results for the entire three-and nine-month periods ended September 30, 2017.

	For the Three Months Ended				For the Nine Months Ended
Performance Measures (pro forma, unaudited)	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Net interest income	$	26,725	$	22,350	$	76,292	$	65,865
Net earnings	$	7,086	$	5,938	$	20,255	$	16,042
Diluted earnings per common share	$	0.46	$	0.43	$	1.39	$	1.17

Note 11 – Derivative Financial Instruments and Hedging Transactions

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by derivative instruments is interest rate risk. Interest rate swaps are used to manage interest rate risk associated with certain of the Company’s fixed-rate loans. The Company has also entered into interest rate swap contracts with certain of its customers. To hedge the associated risk, the Company entered into reciprocal interest rate swap agreements with a third party. To mitigate the interest rate risk associated with the Company’s mortgage loans that are mandatory delivery, the Company enters into forward commitments to sell mortgage-backed securities.

ASC 815, Derivatives and Hedging, requires companies to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. As of September 30, 2017 and December 31, 2016, the approximate fair values and notional amounts of the Company’s derivative instruments, as well as their location on the consolidated balance sheet, were as follows.

	Balance Sheet				Notional
September 30, 2017	Location	Fair Value			Amount
Interest rate swaps designated as fair value hedges	Other Liabilities	$	(211	)		15,306
Interest rate swaps with customers	Other Assets	$	520			39,937
Reciprocal interest rate swaps	Other Liabilities	$	(520	)		39,937
Forward commitment to sell mortgage-backed securities	Other Liabilities	$	(42	)		23,500
Interest rate lock commitments on residential mortgages	Other Assets	$	579			31,957

	Balance Sheet				Notional
December 31, 2016	Location	Fair Value			Amount
Interest rate swaps designated as fair value hedges	Other Liabilities	$	(276	)		15,847
Interest rate swaps with customers	Other Assets	$	91			26,624
Reciprocal interest rate swaps	Other Liabilities	$	(91	)		26,624
Forward commitment to sell mortgage-backed securities	Other Assets	$	90			15,000
Interest rate lock commitments on residential mortgages	Other Assets	$	246			26,463

During the nine months ended September 30, 2017, the Company recognized a gain of approximately $41,000 related to the ineffective portion of derivatives designated as fair value hedges. The gains and losses are included in other income in the consolidated statements of earnings.

Note 12 – Common Stock Offering

On June 12, 2017, the Company completed an underwritten public offering of 1,104,000 shares of the Company’s common stock at a price to the public of $37.00 per share for gross proceeds of $40.8 million, which included 144,000 shares pursuant to the exercise of the underwriters’ over-allotment option. The net proceeds to the Company after deducting the underwriters’ discount and offering expenses totaled $38.7 million.

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Note 13 – Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue From Contracts With Customers (Topic 606). The amendments in this ASU affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606, Revenue from Contracts with Customers. The core principle of the guidance is 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. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The ASU allows for either full retrospective or modified retrospective adoption. In August 2015, the FASB issued ASU 2015-14, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date. This ASU deferred the effective date of ASU 2014-09, Revenue From Contracts With Customers (Topic 606), by one year. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The Company’s revenue has been more significantly weighted towards net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the new standard, and noninterest income has not been as significant. The Company is continuing to assess its revenue streams and reviewing its contracts with customers that are potentially affected by the new guidance, including fees on deposits, gains and losses on the sale of other real estate owned, credit and debit card interchange fees, and credit card revenue, to determine the potential impact the new guidance is expected to have on the Company’s consolidated financial statements. However, the Company’s revenue recognition pattern for these revenue streams is not expected to change materially from current practice. In addition, the Company continues to follow implementation issues specific to financial institutions, which are still under discussion by the FASB’s Transition Resource Group. The Company is currently planning to adopt the ASU on January 1, 2018 utilizing the modified retrospective approach.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments Overall (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in ASU 2016-01: (a) require equity investments (except for those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value, with changes in fair value recognized in net income; (b) simplify the impairment assessment of equity securities without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (d) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (e) require an entity to present separately in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (f) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the notes to the financial statements; and (g) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the provisions of this ASU to determine the potential impact the new standard will have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. The Company leases some of its banking offices under lease agreements that it classifies as operating leases. The Company is currently evaluating the impact that the new guidance will have on its consolidated financial statements. Management currently anticipates recognizing a right-of-use asset and a lease liability associated with its long-term operating leases. Additionally, the inclusion of these right-of-use lease assets in our balance sheet is expected to impact our total risk-weighted assets.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which applies to the use of the so-called CECL model, or current expected credit losses. Among other things, the amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For SEC reporting companies, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with later effective dates for non-SEC registrant public companies and other organizations. Early adoption will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of the amendments in this ASU on its consolidated financial statements and is collecting data that will be needed to produce historical inputs into any models created as a result of adopting this ASU.

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

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes thereto for the year ended December 31, 2016, which are contained in our Annual Report on Form 10-K for the year ended December 31, 2016. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those contained in forward-looking statements as a result of many factors, including those discussed in our 2016 Annual Report on Form 10-K under “Part I, Item 1A. – Risk Factors,” as well as other unknown risks and uncertainties.

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

Our Business

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

Through the Bank, we provide a broad array of financial services to businesses, business owners and professionals through seven full-service banking offices in Alabama, fourteen full-service banking offices in central and northeast Florida, and two full-service banking offices in the Atlanta, Georgia metro area. We also own a 70% equity interest in CBI Holding Company, LLC (”CBI”), which owns Corporate Billing, LLC (“Corporate Billing”), a transaction-based finance company headquartered in Decatur, Alabama that provides factoring, invoicing, collection and accounts receivable management services primarily to transportation companies and automotive parts and service providers throughout the United States and parts of Canada.

Overview of Third Quarter 2017 Results

Net income was $6.7 million in the third quarter ended September 30, 2017, compared to $4.8 million in the third quarter of 2016. Several important measures from the 2017 third quarter include:

●

Net interest margin (taxable equivalent) of 4.58%, compared to 4.18% for the third quarter of 2016.

●

Return on average assets of 1.08%, identical to the third quarter of 2016.

●

Loan growth (excluding mortgage loans held-for-sale and $121.6 million of loans acquired from Patriot Bank during the quarter) of $56.2 million. Excluding factored receivables in the Company’s factoring subsidiary, Corporate Billing, LLC, and the loans acquired from Patriot Bank, third quarter 2017 loan growth was approximately $51.5 million, representing an 11.6% annualized growth rate.

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●

Excluding acquired deposits from Patriot Bank totaling $127.7 million, deposits decreased $34.9 million.

●

$122.7 million in mortgage production, compared to $91.6 million for the third quarter of 2016.

●

$259.5 million in purchased volume in the factoring division, compared to $251.0 million for the second quarter of 2017 and $172.4 million for the third quarter of 2016.

●

An increase in non-acquired non-performing assets to $1.9 million at September 30, 2017, from $1.2 million at June 30, 2017.

●

Annualized net charge-offs of 0.05% of average loans for the third quarter of 2017, compared to 0.07% for the second quarter of 2017 and of 0.02% for the third quarter of 2016.

●

Successful completion of the Patriot Bank acquisition on August 31, 2017.

●

Ending book value per share of $26.97.

2017 Acquisitions

Patriot Bank

On August 31, 2017, the Company closed the previously announced acquisition of Patriot Bank, headquartered in Trinity, Florida. At the effective time of the acquisition, Patriot Bank was merged with and into NBC. The former offices of Patriot Bank continue to operate as a division of NBC under the trade name “Patriot Bank.”

In connection with the merger, each share of common stock of Patriot Bank issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive 0.1711 shares of NCC common stock and cash in the amount of $0.725. NCC paid approximately $3,002,000 in cash and issued 706,702 shares of common stock in exchange for all of the issued and outstanding shares of Patriot Bank common stock at the effective time of the merger. See Note 10 to the Unaudited Consolidated Financial Statements for more information on the acquisition.

Private Bancshares, Inc.

On January 1, 2017, the Company closed the previously announced merger of Private Bancshares, Inc. (“Private Bancshares”), the parent company of Private Bank of Buckhead (“PBB”), headquartered in Atlanta, Georgia, with and into NCC. Immediately following the holding company merger, PBB merged with and into NBC. The former offices of PBB continue to operate as a division of NBC under the trade names “Private Bank of Buckhead,” “Private Bank of Decatur” and “PrivatePlus Mortgage.”

In connection with the merger, each share of common stock of Private Bancshares issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive either 0.85417 shares of NCC common stock or cash in the amount of $20.50. NCC paid approximately $8,322,000 in cash and issued 1,809,189 shares of common stock in exchange for all of the issued and outstanding shares of Private Bancshares common stock at the effective time of the merger. See Note 10 to the Unaudited Consolidated Financial Statements for more information on the acquisition.

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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared based on the application of certain accounting policies, the most significant of which are described in the notes to NCC’s audited consolidated financial statements for the year ended December 31, 2016, which are contained in our Annual Report on Form 10-K. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect our reported results and financial position for the current period or future periods. The use of estimates, assumptions and judgments is necessary when financial assets and liabilities are required to be recorded at, or adjusted to reflect, fair value. Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are either based on quoted market prices or provided by other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations.

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

Allowance for Loan Losses

We record estimated probable inherent credit losses in the loan portfolio as an allowance for loan losses. The methodologies and assumptions for determining the adequacy of the overall allowance for loan losses involve significant judgments to be made by management. Some of the more critical judgments supporting our allowance for loan losses include judgments about the creditworthiness of borrowers and the estimated value of underlying collateral, assumptions about cash flow, determinations of loss factors for estimating credit losses and judgments regarding the impact of current events, conditions and other factors affecting the level of inherent losses. Under different conditions or using different assumptions, the actual or estimated credit losses that we ultimately realize may be different from our estimates. In determining the allowance, we estimate losses on individual impaired loans, or groups of loans that are not impaired, where the probable loss can be identified and reasonably estimated. On a quarterly basis, we assess the risk inherent in our loan portfolio based on qualitative and quantitative trends in the portfolio, including the internal risk classification of loans, historical loss rates, changes in the nature and volume of the loan portfolio, industry or borrower concentrations, delinquency trends, detailed reviews of significant loans with identified weaknesses and the impacts of local, regional, national and global economic factors on the quality of the loan portfolio. Based on this analysis, we may record a provision for loan losses in order to maintain the allowance at appropriate levels. For a more complete discussion of the methodology employed to calculate the allowance for loan losses, see Note 1 to NCC’s consolidated financial statements for the year ended December 31, 2016, which are contained in our Annual Report on Form 10-K.

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Investment Securities Impairment

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

Income Taxes

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

Business Combinations

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

Mortgage Loans Held-for-Sale

The Company records its mortgage loans held-for-sale at fair value. The fair value of committed residential loans held-for-sale is determined by outstanding commitments from investors, and the fair value of uncommitted loans is based on the current delivery prices in the secondary mortgage market. To mitigate the interest rate risk associated with mandatory delivery, the Company enters into forward commitments to sell mortgage-backed securities and records the change in fair value of these derivatives through income.

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Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2017 and September 30, 2016

The following is a narrative discussion and analysis of significant changes in our results of operations for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016.

Net Income

During the three months ended September 30, 2017, our net income was $6.7 million, compared to $4.8 million for the three months ended September 30, 2016, an increase of 39.1%. During the nine months ended September 30, 2017, our net income was $19.1 million, compared to $12.9 million for the nine months ended September 30, 2016, an increase of 47.3%. Our results of operations for the three and nine months ended September 30, 2017 included the results of Private Bancshares for the entire period, which we acquired on January 1, 2017, and one month of the results of Patriot Bank, which we acquired on August 31, 2017. Because both Private Bancshares and Patriot Bank were acquired during 2017, their results are not included in our results of operations for three and nine months ended September 30, 2016.

The primary reason for the increase in net income for the three and nine months ended September 30, 2017 compared to the same period of 2016 was an increase in net interest income. During the three months ended September 30, 2017, net interest income was $25.6 million, an increase of $8.8 million, or 51.9%, compared to the three months ended September 30, 2016. During the nine months ended September 30, 2017, net interest income was $72.0 million, an increase of $21.8 million, or 43.5%, compared to the nine months ended September 30, 2016. This increase was a result of higher levels of loan volume and other earning assets from organic growth and the acquisitions of Private Bancshares and Patriot Bank. Total noninterest income during the three months ended September 30, 2017 was $4.6 million, an increase of $628 thousand compared to the three months ended September 30, 2016. Total noninterest income during the nine months ended September 30, 2017 was $15.2 million, an increase of $4.7 million, or 44.7%, compared to the nine months ended September 30, 2016. Most categories of noninterest income increased during the three and nine months ended September 30, 2017 compared to the same periods of 2016. The largest increase in noninterest income during the three and nine months ended September 30, 2017 was in revenue from the mortgage division. During the three and nine months ended September 30, 2017, mortgage origination and fee income increased $535 thousand and $3.8 million, respectively, compared to the same periods of 2016.

The increases in net interest income and noninterest income were partially offset by an increase in other noninterest expense during the three and nine months ended September 30, 2017. Total noninterest expense during the three months ended September 30, 2017 was $18.1 million, an increase of $5.4 million, or 43.1%, compared to the three months ended September 30, 2016. Total noninterest expense during the nine months ended September 30, 2017 was $54.3 million, an increase of $17.3 million, or 46.9%, compared to the nine months ended September 30, 2016. This increase during each period of 2017 was primarily a result of the addition of the operating expenses of Private Bancshares, included since January 1, 2017, and Patriot Bank, included since August 31, 2017, and costs associated with the overall growth of the Company. Private Bancshares and Patriot Bank are not included in our results of operations for the three and nine months ended September 30, 2016.

A majority of the changes in our net interest income, noninterest income and noninterest expense for the three and nine months ended September 30, 2017, compared to the same periods of 2016, resulted from the additional revenues and expenses of Private Bancshares, which we acquired on January 1, 2017, and Patriot Bank, which we acquired on August 31, 2017. The following table details the contributions of Private Bancshares and Patriot Bank to selected consolidated totals for the three and nine months ended September 30, 2017.

	Private Bancshares				Patriot Bank
	For the Three Months Ended September 30, 2017		For the Nine Months Ended September 30, 2017		For the Three and Nine Months Ended September 30, 2017
Net interest income	$	4,676	$	13,242	$	475
Noninterest income		1,138		3,441		25
Noninterest expense		3,167		10,653		311

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Net Interest Income and Net Interest Margin Analysis

Comparison of net interest income for the three months ended September 30, 2017 and 2016

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

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

AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS

	For the Three Months Ended
(Dollars in thousands)	September 30, 2017							September 30, 2016
Assets	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate
Loans (1)	$	1,937,115	$	26,634		5.45	%	$	1,399,016	$	17,853		5.08	%
Mortgage loans held-for-sale		16,811		151		3.56			13,986		145		4.12
Securities:
Taxable securities		90,969		694		3.03			76,787		493		2.55
Tax-exempt securities (1)		25,286		310		4.86			26,029		317		4.85
Cash balances in other banks		159,973		533		1.32			101,422		152		0.60
Total interest-earning assets		2,230,154	$	28,322		5.04			1,617,240	$	18,960		4.66
Noninterest-earning assets		228,231							148,275
Total assets	$	2,458,385						$	1,765,515

Liabilities and shareholders' equity
Interest-bearing transaction accounts	$	314,925	$	207		0.26	%	$	214,439	$	125		0.23	%
Savings and money market deposits		827,526		1,233		0.59			612,618		713		0.46
Time deposits		273,630		661		0.96			283,022		661		0.93
Federal Home Loan Bank advances and other borrowed money		7,228		72		3.95			7,000		71		.04
Subordinated debt		24,533		388		6.27			24,498		389		6.32
Total interest-bearing liabilities		1,447,842	$	2,561		0.70			1,141,577	$	1,959		0.68
Noninterest-bearing deposits		615,130							381,205
Total funding sources		2,062,972							1,522,782
Noninterest-bearing liabilities		19,284							13,780
Shareholders' equity		376,129							228,953
Total liabilities and shareholders’ equity	$	2,458,385						$	1,765,515
Net interest rate spread						4.34	%						3.98	%
Net interest income/margin (taxable equivalent)				25,761		4.58	%				17,001		4.18	%
Tax equivalent adjustment				120							124
Net interest income/margin			$	25,641		4.56	%			$	16,877		4.15	%

(1) Yields on tax-exempt loans and securities have been computed on a tax-equivalent basis using an income tax rate of 37%.

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Net interest income increased $8.8 million, or 51.9%, to $25.6 million for the three months ended September 30, 2017, compared to $16.9 million for the same period of 2016. The increase was due to an increase in interest income of $9.4 million, resulting from higher levels of loan volume from organic growth and the acquisitions of Private Bancshares and Patriot Bank. This increase in interest income was partially offset by a $602 thousand increase in interest expense. The increase in interest income was primarily due to a 38.5% increase in average loans outstanding for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The resulting net interest margin for the three months ended September 30, 2017 rose to 4.56%, from 4.15% during the three months ended September 30, 2016.

Interest-earning assets averaged $2.2 billion for the three months ended September 30, 2017, compared to $1.6 billion for the three months ended September 30, 2016, an increase of $612.9 million, or 37.9%. Additional information on growth in our loan portfolio for these periods is presented below. The yield on average interest-earning assets increased 0.38% to 5.04% for the three months ended September 30, 2017, compared to 4.66% for the three months ended September 30, 2016. During the three months ended September 30, 2017, the loan yield was 5.45%, compared to 5.08% during the three months ended September 30, 2016. The increase in loan yield was attributable to increased accretion on our acquired loans due to early pay-offs and increased cash flow projections, higher rates on the acquired Private Bancshares loans than on the rest of our existing portfolio and increased rates on floating rate loans resulting from increases in short-term interest rate indices, such as the prime rate and 30-day LIBOR rates. Private Bancshares and Patriot Bank contributed average loan balances of $276.2 million and $40.0 million, respectively, during the three months ended September 30, 2017. Additionally, during the three months ended September 30, 2017, the yield on cash balances in other banks was 1.32%, or 0.72% higher than the yield for the 2016 third quarter.

Interest-bearing liabilities averaged $1.4 billion for the three months ended September 30, 2017, compared to $1.1 billion for the three months ended September 30, 2016, an increase of $306.3 million, or 26.8%. The rate on total interest-bearing liabilities was 0.70% for the three months ended September 30, 2017, compared to 0.68% for the three months ended September 30, 2016. The small increase in the rate paid on interest-bearing liabilities is primarily due to the effect of recent increases in short-term rate indices, such as the prime rate, and the fact that rates paid on Private Bancshares’ interest-bearing deposits were generally higher than the rates paid on our other deposits. The increase in interest-bearing and noninterest-bearing average deposits was due to organic deposit production and the inclusion of Private Bancshares’ and Patriot Bank’s deposits in our results for the three months ended September 30, 2017.

Average noninterest-bearing deposits increased to $615.1 million during the three months ended September 30, 2017, compared to $381.2 million during the three months ended September 30, 2016. This increase in average noninterest-bearing deposits, together with the increased volume of interest-earning assets and higher yields on interest-earning assets, led to the higher net interest margin for the three months ended September 30, 2017.

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

ANALYSIS OF CHANGES IN NET INTEREST INCOME

	For the Three Months Ended
	September 30,
(Dollars in thousands)	2017 vs. 2016
	Variance due to
Interest-earning assets	Volume			Yield/Rate			Total
Loans	$	7,356		$	1,425		$	8,781
Mortgage loans held-for-sale		27			(21	)		6
Securities:
Taxable securities		101			100			201
Tax-exempt securities		(8	)		1			(7	)
Cash balances in other banks		122			259			381
Total interest-earning assets	$	7,598		$	1,764		$	9,362

Interest-bearing liabilities
Interest-bearing transaction accounts	$	64		$	18		$	82
Savings and money market deposits		291			229			520
Time deposits		(22	)		22			-
Federal Home Loan Bank advances and other borrowed money		2			(1	)		1
Subordinated debt		1			(2	)		(1	)
Total interest-bearing liabilities	$	336		$	266		$	602

Net interest income
Net interest income (taxable equivalent)		7,262			1,498			8,760
Taxable equivalent adjustment		(2	)		(2	)		(4	)
Net interest income	$	7,264		$	1,500		$	8,764

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Comparison of net interest income for the nine months ended September 30, 2017 and 2016

AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS

	For the Nine Months Ended
(Dollars in thousands)	September 30, 2017							September 30, 2016
Assets	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate
Loans (1)	$	1,860,398	$	74,835		5.38	%	$	1,381,246	$	52,749		5.10	%
Mortgage loans held-for-sale		18,962		543		3.83			13,926		411		3.94
Securities:
Taxable securities		86,903		1,871		2.88			72,501		1,288		2.37
Tax-exempt securities (1)		25,559		940		4.92			26,035		954		4.89
Cash balances in other banks		222,307		1,744		1.05			110,925		499		0.60
Total interest-earning assets		2,214,129	$	79,933		4.83			1,604,633	$	55,901		4.65
Noninterest-earning assets		222,139							151,036
Total assets	$	2,436,268						$	1,755,669

Liabilities and shareholders' equity
Interest-bearing transaction accounts	$	329,444	$	667		0.27	%	$	209,868	$	372		0.24	%
Savings and money market deposits		817,815		3,467		0.57			612,075		2,173		0.47
Time deposits		289,924		2,031		0.94			292,458		1,999		0.91
Federal Home Loan Bank advances and other borrowed money		7,741		213		3.68			8,315		223		3.58
Subordinated debt		24,520		1,165		6.35			12,080		572		6.32
Total interest-bearing liabilities		1,469,444	$	7,543		0.69			1,134,796	$	5,339		0.63
Noninterest-bearing deposits		609,698							385,399
Total funding sources		2,079,142							1,520,195
Noninterest-bearing liabilities		17,566							11,775
Shareholders' equity		339,560							223,699
	$	2,436,268						$	1,755,669
Net interest rate spread						4.14	%						4.02	%
Net interest income/margin (taxable equivalent)				72,390		4.37	%				50,562		4.21	%
Tax equivalent adjustment				366							370
Net interest income/margin			$	72,024		4.35	%			$	50,192		4.18	%

(1) Yields on tax-exempt loans and securities have been computed on a tax-equivalent basis using an income tax rate of 37%.

Net interest income increased $21.8 million, or 43.5%, to $72.0 million for the nine months ended September 30, 2017, compared to $50.2 million for the same period of 2016. The increase was due to an increase in interest income of $24.0 million, resulting from higher levels of loan volume from organic growth and the acquisitions of Private Bancshares and Patriot Bank. This increase in interest income was partially offset by a $2.2 million increase in interest expense resulting primarily from the acquisition of interest-bearing deposits from Private Bancshares and Patriot Bank during 2017. The increase in interest income was primarily due to a 34.7% increase in average loans outstanding for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The resulting net interest margin for the nine months ended September 30, 2017 increased to 4.35%, from 4.18% during the nine months ended September 30, 2016.

Interest-earning assets averaged $2.2 billion for the nine months ended September 30, 2017, compared to $1.6 billion for the nine months ended September 30, 2016, an increase of $609.5 million, or 38.0%. Additional information on growth in our loan portfolio for these periods is presented below. The yield on average interest-earning assets increased by 0.18% to 4.83% for the nine months ended September 30, 2017, compared to 4.65% for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, the loan yield was 5.38%, compared to 5.10% during the nine months ended September 30, 2016. The recent increases in short-term interest rate indices, such as the prime rate and 30-day LIBOR, increased accretion on our acquired portfolios due to early pay-offs and increased cash flow projections, and higher rates on loans acquired from Private Bancshares led to higher yields on our loan portfolio during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Private Bancshares and Patriot Bank contributed average loan balances of $275.3 million and $13.4 million, respectively, during the nine months ended September 30, 2017. Additionally, during the nine months ended September 30, 2017, the yield on cash balances in other banks was 1.05%, or 0.45% higher than the yield for the nine months ended September 30, 2016.

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Interest-bearing liabilities averaged $1.5 billion for the nine months ended September 30, 2017, compared to $1.1 billion for the nine months ended September 30, 2016, an increase of $334.6 million, or 29.5%. The average rate on total interest-bearing liabilities was 0.69% for the nine months ended September 30, 2017, compared to 0.63% for the nine months ended September 30, 2016. The increase in average interest-bearing deposits was due to organic deposit production and the inclusion of Private Bancshares’ and Patriot Bank’s deposits in our results for the nine months ended September 30, 2017.

Average noninterest-bearing deposits increased to $609.7 million during the nine months ended September 30, 2017, compared to $385.4 million during the nine months ended September 30, 2016. This increase in average noninterest-bearing deposits, together with the increased volume of interest-earning assets and higher yields on interest-earning assets, led to the higher net interest margin for the nine months ended September 30, 2017.

ANALYSIS OF CHANGES IN NET INTEREST INCOME

	For the Nine Months Ended
	September 30,
(Dollars in thousands)	2017 vs. 2016
	Variance due to
Interest-earning assets	Volume			Yield/Rate			Total
Loans	$	19,097		$	2,989		$	22,086
Mortgage loans held-for-sale		144			(12	)		132
Securities:
Taxable securities		281			302			583
Tax-exempt securities		(18	)		4			(14	)
Cash balances in other banks		714			531			1,245
Total interest-earning assets	$	20,218		$	3,814		$	24,032

Interest-bearing liabilities
Interest-bearing transaction accounts	$	236			59			295
Savings and money market deposits		818			476			1,294
Time deposits		(18	)		50			32
Federal Home Loan Bank advances and other borrowed money		(16	)		6			(10	)
Subordinated debt		591			2			593
Total interest-bearing liabilities	$	1,611		$	593		$	2,204

Net interest income
Net interest income (taxable equivalent)		18,607			3,221			21,828
Taxable equivalent adjustment		(2	)		(2	)		(4	)
Net interest income	$	18,609		$	3,223		$	21,832

Provision for Loan Losses

During the three and nine months ended September 30, 2017, we recorded a provision for loan losses of $1.1 million and $2.4 million, respectively. During the three and nine months ended September 30, 2016, we recorded a provision for loan losses of $373 thousand and $2.8 million, respectively. The provision for loan losses during the three and nine months ended September 30, 2017 was a result of loan growth rather than declining asset quality metrics. Our policy is to maintain an allowance for loan losses at a level sufficient to absorb probable incurred losses inherent in the loan portfolio. The allowance is increased by a provision for loan losses, which is a charge to earnings, and is decreased by charge-offs and increased by loan recoveries. In determining the proper level of the allowance for loan losses, we consider our historical loan loss experience, the general economic environment, our overall portfolio composition and other relevant information. As these factors change, the level of loan loss provision changes. When individual loans are evaluated for impairment and an impairment is deemed necessary, the impaired portion of the loan amount is charged off. As of September 30, 2017, none of our recorded allowance was related to impaired loans.

Noninterest Income

In addition to net interest margin, we generate other types of recurring noninterest income from our operations. Our banking operations generate revenue from service charges and fees on deposit accounts. Our mortgage division generates revenue from originating and selling mortgages, and we have a revenue-sharing relationship with a registered broker-dealer. In addition to these types of recurring noninterest income, NBC owns life insurance on several key employees and records income on the increase in the cash surrender value of these policies. NBC also earns revenue as a sponsor bank for a provider of electronic transaction processing services for retail merchants and the consumer finance industry. This sponsorship into the VISA and MasterCard networks allows the processor to accept debit and credit card transactions, and we earn a fee on each such transaction.

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

NONINTEREST INCOME

	For the Three Months Ended				For the Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2017		2016		2017		2016
Service charges and fees on deposit accounts	$	671	$	511	$	1,978	$	1,496
Mortgage origination and fee income		2,780		2,245		9,079		5,264
Merchant sponsorship revenue		622		542		1,968		1,555
Income from bank-owned life insurance		210		206		645		614
Rental income		84		-		84		-
Wealth management fees		12		15		36		39
Gain on sale of other real estate, net		6		-		110		275
Gain on sale of investment securities available-for-sale		-		-		28		-
Other noninterest income		245		483		1,242		1,241
Total noninterest income	$	4,630	$	4,002	$	15,170	$	10,484

Noninterest income for the three months ended September 30, 2017 and 2016 was $4.6 million and $4.0 million, respectively. Noninterest income for the nine months ended September 30, 2017 and 2016 was $15.2 million and $10.5 million, respectively. The inclusion of Private Bancshares and Patriot Bank in our results of operations accounted for most of the $628 thousand increase in noninterest income recorded during the three months ended September 30, 2017 and approximately $3.5 million of the $4.7 million increase recorded during the nine months ended September 30, 2017.

During the three months ended September 30, 2017, all categories of noninterest income (except for wealth management fees and other noninterest income) experienced an increase. During the nine months ended September 30, 2017, all categories of noninterest income (except for wealth management fees and gain on sale of other real estate) experienced an increase. The most significant increase in noninterest income for both periods of 2017 was from the mortgage division. Mortgage origination and fee income increased $535 thousand to $2.8 million during the three months ended September 30, 2017, compared to $2.2 million during the three months ended September 30, 2016. Mortgage origination and fee income increased $3.8 million to $9.1 million during the nine months ended September 30, 2017, compared to $5.3 million during the nine months ended September 30, 2016. A large portion of this increase was due to the acquisition of Private Bancshares, which had a sizable mortgage operation that we acquired through the transaction. Increased production led to higher mortgage division income. During the three months ended September 30, 2017, total production was $122.7 million, compared to $91.6 million during the three months ended September 30, 2016. During the nine months ended September 30, 2017, total production was $386.6 million, compared to $246.9 million during the nine months ended September 30, 2016.

Service charges and fees on deposit accounts increased by $160 thousand to $671 thousand for the three months ended September 30, 2017, and increased $482 thousand to $2.0 million for the nine months ended September 30, 2017, compared to the same periods in 2016. The additions of Private Bancshares and Patriot Bank contributed $57 thousand and $202 thousand of the increases for the three- and nine-month periods ended September 30, 2017, respectively. The remaining portion of this increase was a result of an increase in the number of deposit accounts, as we continue to open new accounts and gain market share in our markets.

Merchant sponsorship revenue increased by $80 thousand to $622 thousand for the three months ended September 30, 2017, and increased $413 thousand to $2.0 million for the nine months ended September 30, 2017, compared to the same periods in 2016. The increase was due to growth in the volume of transactions that we processed.

During the three and nine months ended September 30, 2017, we recorded net gains on the sale of other real estate totaling $6 thousand and $110 thousand, respectively. During the three months ended September 30, 2016, we had no sales of other real estate, and during the nine months ended September 30, 2016, we recorded gains on the sale of other real estate totaling $275 thousand.

In August 2017, we purchased a building in Birmingham, Alabama near our current corporate headquarters. We intend to relocate to the new building during the third quarter of 2018 after renovations are completed. During the three months ended September 30, 2017, we collected $84 thousand in rental income from the current tenants in the building.

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Noninterest expense

The increase in our total noninterest expense during the three and nine months ended September 30, 2017 reflects the continued growth of the Company (organic growth and growth through acquisition), as well as the expansion of our operational framework, employee base and facilities infrastructure as we build the foundation to support our growth strategies.

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

NONINTEREST EXPENSE

	For the Three Months Ended				For the Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2017		2016		2017		2016
Salaries and employee benefits	$	9,804	$	6,948	$	29,540	$	20,800
Commission-based compensation		1,748		1,104		5,155		3,015
Occupancy and equipment expense		1,692		1,181		4,644		3,447
Data processing expenses		976		572		2,931		1,857
Advertising and marketing expenses		309		198		1,104		549
Legal fees		204		182		630		483
FDIC insurance assessments		351		246		1,017		766
Property and casualty insurance premiums		229		90		581		479
Accounting and audit expenses		288		252		900		751
Consulting and other professional expenses		510		330		1,524		757
Telecommunications expenses		203		146		558		445
Other real estate owned, repossessed asset and other collection expenses		26		142		347		290
Core deposit intangible amortization		366		191		1,062		574
Other noninterest expense		1,365		1,050		4,276		2,726
Total noninterest expense	$	18,071	$	12,632	$	54,269	$	36,939

Noninterest expense for the three months ended September 30, 2017 and 2016 was $18.1 million and $12.6 million, respectively. Noninterest expense for the nine months ended September 30, 2017 and 2016 was $54.3 million and $36.9 million, respectively. The inclusion of Private Bancshares and Patriot Bank in our results of operations accounted for approximately $3.5 million of the $5.4 million increase in noninterest expense recorded during the three months ended September 30, 2017. The inclusion of Private Bancshares and Patriot Bank accounted for approximately $11.0 million of the $17.3 million increase in noninterest expense recorded during the nine months ended September 30, 2017.

Two of the largest components of noninterest expense are related to employee costs shown in the table above as salaries and employee benefits and commission-based compensation. Salaries continue to increase as we grow and expand our presence in the markets that we serve. Higher incentive compensation accruals during the three and nine months ended September 30, 2017 and a larger workforce have contributed to the increase in salaries and employee benefits. Commission-based compensation expense is directly related to mortgage loan origination activity and certain production activity at Corporate Billing. The higher levels of revenue for the mortgage division, including revenue from the addition of Private Bancshares, contributed to the increased commission-based compensation during each period of 2017 compared to the same periods of 2016. Additionally, salaries and benefits expense and commission-based compensation expense for Private Bancshares’ employees contributed approximately $2.4 million of the $3.5 million increase in salaries and employee benefits expense and commission-based compensation expense recorded during the three months ended September 30, 2017 and contributed approximately $7.3 million of the $10.9 million increase in salaries and employee benefits and commission-based compensation expense recorded during the nine months ended September 30, 2017 compared to the same periods in 2016.

All categories of noninterest expense during the three and nine months ended September 30, 2017 increased (except for other real estate and collection expenses during the three months ended September 30, 2017). This was largely a result of the additional expenses associated with the operations of Private Bancshares. Our other noninterest expenses continue to increase as the size and complexity of our Company grows.

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Income Tax Provision

Income tax expense of $3.8 million was recognized during the three months ended September 30, 2017, compared to income tax expense of $2.6 million during the three months ended September 30, 2016. Income tax expense of $10.0 million was recognized during the nine months ended September 30, 2017, compared to income tax expense of $6.8 million during the nine months ended September 30, 2016. The increase in income tax expense during the each of the 2017 periods was due to an increase in pre-tax income. Our effective tax rate for the three months ended September 30, 2017 was 34.5% (36.4% including the minority interest in CBI), compared to 33.5% (35.4% including the minority interest in CBI) during the three months ended September 30, 2016. Our effective tax rate for the nine months ended September 30, 2017 was 32.6% (34.3% including the minority interest in CBI), compared to 32.5% (34.4% including the minority interest in CBI) during the nine months ended September 30, 2016. During the nine months ended September 30, 2017, the Company adopted ASU No. 2016-09 Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting. Upon adoption, the excess tax benefit from issuing share-based payments to employees is recorded as a reduction of tax expense. During the first nine months of 2017, we recorded a tax benefit of $527 thousand, lowering our effective tax rate for the period. The effective tax rate is also affected by items of income and expense that are not subject to federal and state taxation.

Comparison of Balance Sheets at September 30, 2017 and December 31, 2016

Overview

Our total assets increased $598.4 million, or 30.7%, from $2.0 billion at December 31, 2016 to $2.5 billion at September 30, 2017. Cash and cash equivalents decreased by $82.7 million during the first nine months of 2017. This reduction in cash and cash equivalents was due to slower deposit growth and an increase in loans and investment securities. Loans increased by $570.9 million, or 38.4%, during the first nine months of 2017. The Private Bancshares and Patriot Bank acquisitions added total assets and loans of $467.6 million and $381.6 million, respectively.

During the first nine months of 2017, deposits increased $429.7 million and totaled $2.1 billion at September 30, 2017. The Private Bancshares and Patriot Bank acquisitions added $414.0 million in deposits. The remaining increase was a result of organic deposit growth in our existing markets. As expected, a portion of our first quarter of 2017 growth that was seasonal in nature exited the bank during the second and third quarters of 2017. The seasonality of certain large deposit relationships at the Bank is commensurate with the nature of the business of the respective depositors, which include, among others, tax collection authorities and other governmental entities. We also experienced an outflow of certain higher-priced deposits from a few large depositors seeking higher rates who moved their deposits to other financial institutions offering a higher rate. During the first nine months of 2017, wholesale deposits totaling $14.5 million have matured and have not been replaced. Deposit production is one of our primary focuses, as deposits serve as a low-cost funding source.

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Investment Securities

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

During the nine months ended September 30, 2017, we elected to use a portion of our balance sheet liquidity to invest $7.0 million in a United States Treasury security for pledging purposes, $6.3 million (net) in other asset-backed securities, $4.0 million in a commercial mortgage-backed security and $8.1 million in residential mortgage-backed securities. We may invest excess liquidity in securities when management determines that the yield, liquidity and interest rate risk are appropriate.

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at September 30, 2017 and December 31, 2016.

INVESTMENT SECURITIES AVAILABLE-FOR-SALE

	As of
	September 30,				December 31,
(Dollars in thousands)	2017				2016
	Cost		Market		Cost		Market
U.S. government agency obligations	$	3,337		3,339		3,653		3,617
Municipal securities		3,859		4,012		4,406		4,523
Residential mortgage-backed securities		41,108		41,529		38,946		39,148
Other commercial mortgage-backed securities		4,020		3,965		-		-
Other asset-backed securities		32,245		32,493		25,991		26,092
Total investment securities available-for-sale	$	84,569		85,338		72,996		73,380

INVESTMENT SECURITIES HELD-TO-MATURITY

	As of
	September 30,				December 31,
(Dollars in thousands)	2017				2016
	Cost		Market		Cost		Market
Municipal securities	$	21,268		21,514		21,308		20,900
Residential mortgage-backed securities		4,302		4,312		5,021		4,994
Other debt securities		250		250		-		-
Total investment securities held-to-maturity	$	25,820		26,076		26,329		25,894

We invest primarily in mortgage-backed securities, municipal securities and obligations of government-sponsored entities and agencies of the United States, though we may in some situations also invest in direct obligations of the United States or obligations guaranteed as to the principal and interest by the United States. All of our residential mortgage-backed securities are issued by the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) or the Government National Mortgage Association (GNMA). During 2016, we began investing in other asset-backed securities. These securities are collateralized by commercial loans, and we have invested in tranches rated AAA, AA and A by Standard & Poor’s and/or Moody’s.

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Loans

Loans are our largest category of earning assets and typically provide higher yields than other types of earning assets. Associated with the higher loan yields are the inherent credit and liquidity risks that management attempts to control and counterbalance. Total loans averaged $1.9 billion during the nine months ended September 30, 2017, or 84.0% of average earning assets, compared to $1.4 billion, or 86.1% of average earning assets, for the nine months ended September 30, 2016. At September 30, 2017, total loans, net of unearned income, were $2.1 billion, compared to $1.5 billion at December 31, 2016, an increase of $570.9 million, or 38.4%. Excluding the loans acquired in the Private Bancshares and Patriot Bank transactions, loans increased by $189.3 million, or 12.7%, during the nine months ended September 30, 2017.

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

The table below provides a summary of the loan portfolio composition as of the dates indicated.

COMPOSITION OF LOAN PORTFOLIO

	As of
	September 30,						December 31,
(Dollars in thousands)	2017						2016
	Amount			Percent of Total			Amount			Percent of Total
Construction, land development and other land loans	$	218,655			10.63	%	$	155,813			10.49	%
Secured by farmland		16,808			0.82			15,036			1.01
Secured by 1-4 family residential properties		490,557			23.85			387,342			26.07
Secured by multifamily (5 or more) residential properties		59,779			2.91			47,060			3.17
Secured by nonfarm nonresidential properties		861,691			41.89			606,776			40.83
Loans secured by real estate		1,647,490			80.10			1,212,027			81.57
Commercial and industrial loans		241,068			11.72			150,268			10.11
Factored commercial receivables		119,110			5.79			83,901			5.65
Consumer loans		26,299			1.28			19,060			1.28
Other loans		23,068			1.11			20,717			1.39
Total gross loans		2,057,035			100.00	%		1,485,973			100.00	%
Unearned income		(629	)					(489	)
Total loans, net of unearned income		2,056,406						1,485,484
Allowance for loan losses		(14,264	)					(12,113	)
Total net loans	$	2,042,142					$	1,473,371

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

The principal component of our loan portfolio is loans secured by real estate. At September 30, 2017, this category totaled $1.6 billion and represented 80.1% of our total loan portfolio, compared to $1.2 billion, or 81.6% of the total loan portfolio, at December 31, 2016. Each category of real estate mortgage loans increased during the first nine months of 2017.

Loans secured by nonfarm nonresidential properties (“commercial mortgage loans”) increased by $254.9 million, or 42.0%, to $861.7 million at September 30, 2017, compared to $606.8 million at December 31, 2016. Excluding the acquired Private Bancshares and Patriot Bank loans, commercial mortgage loans increased by $50.7 million, or 13.1%, during the nine months ended September 30, 2017. Commercial mortgage loans comprise the single largest category of our loans, and at September 30, 2017, accounted for 41.9% of our entire loan portfolio. Our management team has a great deal of experience and expertise in commercial mortgages, and this loan type has traditionally comprised a large portion of our loan portfolio. Of the $861.2 million in total commercial mortgage loans at September 30, 2017, approximately $385.6 million were loans secured by owner-occupied properties.

Residential mortgage loans increased by $103.2 million, or 26.6%, to $490.6 million at September 30, 2017, compared to $387.3 million at December 31, 2016. Excluding the acquired Private Bancshares and Patriot Bank loans, residential mortgage loans increased by $50.6 million, or 13.1%, during the nine months ended September 30, 2017. At September 30, 2017, residential mortgages accounted for 23.9% of our entire loan portfolio.

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Real estate construction, land development and other land loans totaled $218.7 million at September 30, 2017, an increase of 40.3% from $155.8 million at December 31, 2016. Excluding the acquired Private Bancshares and Patriot Bank loans, real estate construction, land development and other land loans decreased by $9.9 million, or 6.3%, during the nine months ended September 30, 2017. At September 30, 2017, this loan type accounted for 10.6% of our total loan portfolio.

Commercial and industrial loans totaled $241.1 million at September 30, 2017, an increase of 60.4% from $150.3 million at December 31, 2016. Excluding the acquired Private Bancshares and Patriot Bank loans, commercial and industrial loans increased by $39.6 million, or 26.3%, during the nine months ended September 30, 2017. At September 30, 2017, this loan type accounted for 11.7% of our total loan portfolio.

Factored commercial receivables at Corporate Billing totaled $119.1 million at September 30, 2017, compared to $83.9 million at December 31, 2016. This balance fluctuates based on several variables, such as when receivables are purchased and when and how quickly payments are received.

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

Allowance for Loan Losses and Provision for Loan Losses

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

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

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

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

ALLOWANCE FOR LOAN LOSSES

	As of and for the Three Months Ended						As of and for the Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2017			2016			2017			2016
Total loans outstanding, net of unearned income	$	2,056,406		$	1,412,368		$	2,056,406			1,412,368
Average loans outstanding, net of unearned income	$	1,937,115		$	1,399,016		$	1,860,398			1,381,246
Allowance for loan losses at beginning of period	$	13,407		$	11,642		$	12,113			9,842
Charge-offs:
Loans secured by real estate		104			23			148			23
Commercial and industrial loans		-			-			-			-
Factored receivables		583			450			1,936			1,769
Consumer loans		-			-			30			180
All other loans		26			2			28			6
Total charge-offs		713			475			2,142			1,978
Recoveries:
Loans secured by real estate		-			2			19			116
Commercial and industrial loans		2			37			6			63
Factored receivables		459			366			1,424			1,080
Consumer loans		1			4			7			11
All other loans		3			1			421			9
Total recoveries		465			410			1,877			1,279
Net charge-offs		248			65			265			699
Provision for loan losses		1,105			373			2,416			2,807
Allowance for loan losses at period end	$	14,264		$	11,950		$	14,264			11,950
Allowance for loan losses to period end loans		0.69	%		0.85	%		0.69	%		0.85	%

Net charge-offs to average loans		0.05	%		0.02	%		0.02	%		0.07	%

The table above does not include the allowances of United Legacy Bank, Reunion Bank of Florida, Private Bancshares or Patriot Bank that were established prior to each bank’s respective date of acquisition. In accordance with ASC Topic 805, Business Combinations, these acquired entities’ respective allowances for loan losses were not brought forward at acquisition; instead, the acquired loans were recorded at fair value, and any discount to fair value was recorded against the loans rather than as an allowance for loan losses. The portion of the discount deemed related to credit quality was recorded as a non-accretable difference, and the remaining discount was recorded as an accretable discount and accreted into interest income over the estimated average life of the loans using the level yield method. At September 30, 2017, our total acquired loan portfolios totaled $588.0 million and had an aggregate related non-accretable difference of $9.3 million and accretable discount of $5.7 million.

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

Overall, asset quality indicators have remained steady or even improved, and, as a result, provision expense related directly to asset quality has been minimal. During the nine months ended September 30, 2017, we recorded a provision expense of $2.4 million due to growth in the loan portfolio. The Company continues to experience organic growth, as well as growth through the maturity and renewal of acquired loans, at which point these matured and renewed loans are no longer classified as acquired and have no remaining discount based on the fact that they have now been underwritten by the Company.

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Allocation of the Allowance for Loan Losses

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

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

	As of
	September 30,					December 31,
(Dollars in thousands)	2017					2016
	Amount		Percent of Loans in each Category to Total Loans			Amount		Percent of Loans in each Category to Total Loans
Commercial, financial and agricultural	$	2,046		12.83	%	$	1,588		11.51	%
Factored receivables		500		5.79			500		5.65
Real estate - mortgage		9,682		69.47			8,465		71.07
Real estate - construction		1,913		10.63			1,369		10.49
Consumer		123		1.28			191		1.28
	$	14,264		100.00	%	$	12,113		100.00	%

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

Nonperforming Assets

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

NONPERFORMING ASSETS

	As of
	September 30,						December 31,
(Dollars in thousands)	2017			2016			2016
Nonaccrual loans	$	2,695			3,001			2,837
Loans past due 90 days or more and still accruing		1,690			358			581
Total nonperforming loans		4,385			3,359			3,418
Other real estate		1,171			2,160			2,068
Total nonperforming assets	$	5,556			5,519			5,486
Allowance for loan losses to period-end loans		0.69	%		0.85	%		0.82	%
Allowance for loan losses to period-end nonperforming loans		325.29			355.76			354.39
Net charge-offs to average loans		0.02			0.07			0.07
Nonperforming assets to period-end loans and foreclosed property and repossessed assets		0.27			0.39			0.37
Nonperforming loans to period-end loans		0.21			0.24			0.23

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

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Total nonperforming assets totaled $5.6 million at September 30, 2017, an increase from $5.5 million at December 31, 2016. Many of the nonperforming assets as of September 30, 2017 were acquired as a result of our bank acquisitions. As of September 30, 2017, acquired nonaccrual loans and other real estate totaled $2.6 million and $1.0 million, respectively,. Acquired nonaccrual loans and other real estate totaled $2.6 million and $1.0 million, respectively, at September 30, 2017. Asset quality has been and will continue to be a primary focus of management.

Deposits

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

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

COMPOSITION OF DEPOSITS

	As of
	September 30,					December 31,
(Dollars in thousands)	2017					2016
	Amount		Percent of Total			Amount		Percent of Total
Noninterest-bearing demand	$	621,916		29.64	%	$	429,030		25.73	%
Interest-bearing demand		322,273		15.37			262,261		15.73
Savings and money market		863,421		41.17			703,289		42.17
Time less than $100k		68,246		3.25			64,073		3.84
Time equal to or greater than $100k and less than $250k		93,173		4.44			73,028		4.38
Time equal to or greater than $250k		128,344		6.12			136,029		8.15
Total deposits	$	2,097,373		100.00	%	$	1,667,710		100.00	%

Total deposits were $2.1 billion at September 30, 2017, an increase of $429.7 million from December 31, 2016. Excluding the acquired Private Bancshares and Patriot Bank deposits, deposits increased by $15.7 million, or 1.0%, during the nine months ended September 30, 2017. During the second and third quarters of 2017, deposits decreased due to expected seasonal withdrawals and the departure of certain depositors with large deposit accounts seeking higher rates at other financial institutions. During the first nine months of 2017, wholesale deposits totaling $14.5 million matured and were not replaced.

Other Funding Sources

We supplement our deposit funding with wholesale funding when needed for balance sheet planning or when the terms are attractive and will not disrupt our offering rates in our markets. One of our sources of wholesale funding is the Federal Home Loan Bank of Atlanta (“FHLB”). We had FHLB borrowings of $7.0 million at September 30, 2017 and December 31, 2016. We have not initiated any additional borrowings from the FHLB since 2012. During 2014, we issued $48.9 million of brokered deposits to fund a portion of the Bank’s acquisition of its controlling interest in Corporate Billing. Several of these brokered deposits have matured, and as of September 30, 2017, we had $12.9 million of brokered deposits outstanding. Another funding source that we have used to supplement our local funding is internet certificates of deposit. We have used this source to book certificates of deposit that mature in three to five years at rates that are lower than we would offer in our local markets, typically below the rates indicated on the LIBOR swap curve for similar maturities. We had internet certificates of deposit balances of $5.1 million and $6.7 million at September 30, 2017 and December 31, 2016, respectively. The decrease in internet certificates of deposit during the first nine months of 2017 was due to the contractual maturities of certain certificates of deposit that were not replaced.

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Liquidity

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

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

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

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

Cash and cash equivalents at September 30, 2017 and December 31, 2016 were $134.5 million and $217.3 million, respectively. Based on the balance of cash and cash equivalents, we believe that our liquidity resources were sufficient at September 30, 2017 to fund loans and meet our other cash needs as necessary.

Contractual Obligations

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

CONTRACTUAL OBLIGATIONS
As of September 30, 2017

(Dollars in thousands)	Due in 1 year or less		Due after 1 through 3 years		Due after 3 through 5 years		Due after 5 years		Total
Federal Home Loan Bank advances	$	5,000	$	2,000	$	-	$	-	$	7,000
Subordinated debt		-		-		-		24,540		24,540
Certificates of deposit of less than $100k		49,556		13,216		5,387		87		68,246
Certificates of deposit of $100k or more		137,054		49,405		35,058		-		221,517
Operating leases		1,631		2,648		2,313		3,761		10,353
Total contractual obligations	$	193,241	$	67,269	$	42,758	$	28,388	$	331,656

Off-Balance Sheet Arrangements

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

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

CREDIT EXTENSION COMMITMENTS

	As of
	September 30,		December 31,
(Dollars in thousands)	2017		2016
Unfunded lines	$	499,256	$	337,415
Letters of credit		11,121		11,766
Total credit extension commitments	$	510,377		349,181

Interest Sensitivity and Market Risk

Interest Sensitivity

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

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

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

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

The following table illustrates our interest rate sensitivity at September 30, 2017, assuming that the relevant assets and liabilities are collected and paid, respectively, based on historical experience rather than their stated maturities.

INTEREST SENSITIVITY ANALYSIS
As of September 30, 2017

(Dollars in thousands)
Interest-earning assets	0-1 Mos			1-3 Mos		3-12 Mos		1-3 Yrs		3-5 Yrs		> 5 Yrs			Total
Loans⁽¹⁾	$	904,672			60,702		201,911		371,033		382,291		151,075			2,071,684
Securities		32,374			9,574		6,503		12,499		11,944		38,264			111,158
Cash balances in other banks		90,438			-		-		-		-		-			90,438
Total interest-earning assets	$	1,027,484			70,276		208,414		383,532		394,235		189,339			2,273,280

Interest-bearing liabilities
Interest-bearing transaction accounts	$	130,888			4,088		18,399		49,068		43,756		76,074			322,273
Savings and money market deposits		512,001			8,732		39,294		86,688		68,594		148,112			863,421
Time deposits		16,665			33,312		136,284		62,659		40,536		307			289,763
Federal Home Loan Bank and other borrowed money		941			-		5,000		2,000		-		-			7,941
Subordinated debt		-			-		-		-		24,540		-			24,540
Total interest-bearing liabilities	$	660,495			46,132		198,977		200,415		177,426		224,493			1,507,938

Interest sensitivity gap
Period gap	$	366,989			24,144		9,437		183,117		216,809		(35,154	)		765,342
Cumulative gap		366,989			391,133		400,570		583,687		800,496		765,342
Cumulative gap - Rate-Sensitive Assets/Rate-Sensitive Liabilities		16.14	%		17.21		17.62		25.68		35.21		33.67

(1) Includes mortgage loans held-for-sale.

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

Market Risk

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

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

MARKET RISK

	Impact on Net Interest Income
	As of
	September 30,			December 31,
Change in prevailing interest rates	2017			2016
+400 basis points		15.24	%		22.37	%
+300 basis points		11.48			16.79
+200 basis points		7.72			11.20
+100 basis points		3.83			5.51
0 basis points		-			-
-100 basis points		(4.80	)		(5.31	)
-200 basis points		(11.32	)		(11.75	)
-300 basis points		(15.03	)		(16.32	)
-400 basis points		(18.02	)		(20.19	)

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Capital Resources

Total shareholders’ equity attributable to NCC at September 30, 2017 was $391.1 million, or 15.3% of total assets. At December 31, 2016, total shareholders’ equity attributable to NCC was $229.7 million, or 11.8% of total assets.

On June 12, 2017, the Company completed an underwritten public offering of 1,104,000 shares of the Company’s common stock at a price to the public of $37.00 per share, for gross proceeds of $40.8 million. This included 144,000 shares pursuant to the exercise of the underwriters’ over-allotment option. The net proceeds to the Company after deducting the underwriters’ discount and offering expenses totaled $38.7 million. Other factors increasing equity during the nine months ended September 30, 2017 included our acquisitions of Private Bancshares and Patriot Bank, the exercise of options and other rights to purchase our common stock and our net income.

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

The rules are intended to provide an additional measure of a bank’s capital adequacy by assigning weighted levels of risk to asset categories. Banks are also required to systematically maintain capital against such “off-balance sheet” activities as loans sold with recourse, loan commitments, guarantees and standby letters of credit. These guidelines are intended to strengthen the quality of capital by increasing the emphasis on common equity and restricting the amount of loan loss reserves and other forms of equity, such as preferred stock, that may be included in capital. Certain items, such as goodwill and other intangible assets, are deducted from total capital in arriving at the various regulatory capital measures, such as common equity Tier 1 capital, Tier 1 capital and total risk-based capital. Our objective is to maintain our current status as a “well-capitalized” institution under applicable federal regulations. As of September 30, 2017, the Bank was “well-capitalized” under the regulatory framework for prompt corrective action.

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

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

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The following table sets forth selected consolidated capital ratios at September 30, 2017 and December 31, 2016 for both NBC and NCC.

CAPITAL ADEQUACY ANALYSIS

(Dollars in thousands)	Actual					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-Weighted Assets)
NCC	$	305,198		14.64	%	$	166,801		8.00	%		N/A		N/A
NBC	$	260,043		12.48	%	$	166,738		8.00	%	$	208,423		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)
NCC	$	266,394		12.78	%	$	125,101		6.00	%		N/A		N/A
NBC	$	245,779		11.79	%	$	125,054		6.00	%	$	166,739		8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
NCC	$	266,394		12.78	%	$	93,826		4.50	%		N/A		N/A
NBC	$	245,779		11.79	%	$	93,790		4.50	%	$	135,475		6.50	%
Tier 1 Capital (to Average Assets)
NCC	$	266,394		11.42	%	$	93,324		4.00	%		N/A		N/A
NBC	$	245,779		10.55	%	$	93,192		4.00	%	$	116,490		5.00	%
As of December 31, 2016	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-Weighted Assets)
NCC	$	208,664		13.90	%	$	120,102		8.00	%		N/A		N/A
NBC	$	178,150		11.88	%	$	120,007		8.00	%	$	150,008		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)
NCC	$	172,051		11.46	%	$	90,076		6.00	%		N/A		N/A
NBC	$	166,037		11.07	%	$	90,005		6.00	%	$	120,007		8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
NCC	$	172,051		11.46	%	$	67,557		4.50	%		N/A		N/A
NBC	$	166,037		11.07	%	$	67,504		4.50	%	$	97,506		6.50	%
Tier 1 Capital (to Average Assets)
NCC	$	172,051		9.57	%	$	71,909		4.00	%		N/A		N/A
NBC	$	166,037		9.25	%	$	71,822		4.00	%	$	89,777		5.00	%

Banking regulations limit the amount of dividends that a bank can pay without the prior approval of its regulatory authorities. These restrictions are based on levels of regulatory classified assets, prior years’ net earnings and the ratio of equity capital to assets. The Bank is currently permitted to pay dividends to NCC, subject to safety and soundness requirements and other limitations imposed by law and federal regulatory authorities. However, NCC’s board of directors has not declared a dividend since its inception and has no current plans to do so. Future determinations regarding our dividend policy will be made at the discretion of NCC’s board of directors based on factors that it deems relevant at that time.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company has carried out an evaluation under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2017, the Company’s disclosure controls and procedures are effective in ensuring that material information relating to the Company required to be disclosed in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the requisite time periods and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the Company’s quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 that could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Number		Exhibit Description

2.1		Agreement and Plan of Merger, dated August 16, 2017, by and between National Commerce Corporation and FirstAtlantic Financial Holdings, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 001-36878), filed with the Securities and Exchange Commission on August 16, 2017)

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

3.1A		Amendment to Certificate of Incorporation of National Commerce Corporation (incorporated by reference to Exhibit 3.1A to the Company’s Annual Report on Form 10-K (File No. 000-55336), filed with the Securities and Exchange Commission on February 20, 2016)

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

10.1		Real Estate Sales Agreement, dated May 3, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36878) , filed with the Securities and Exchange Commission on August 11, 2017)

10.1A		First Amendment to Real Estate Sales Agreement, dated June 26, 2017 (incorporated by reference to Exhibit 10.1A to the Company’s Current Report on Form 8-K (File No. 001-36878) , filed with the Securities and Exchange Commission on August 11, 2017)

10.1B		Second Amendment to Real Estate Sales Agreement, dated July 3, 2017 (incorporated by reference to Exhibit 10.1B to the Company’s Current Report on Form 8-K (File No. 001-36878) , filed with the Securities and Exchange Commission on August 11, 2017)

10.1C		Third Amendment to Real Estate Sales Agreement, dated July 21, 2017 (incorporated by reference to Exhibit 10.1C to the Company’s Current Report on Form 8-K (File No. 001-36878) , filed with the Securities and Exchange Commission on August 11, 2017)

10.1D		Fourth Amendment to Real Estate Sales Agreement, dated July 28, 2017 (incorporated by reference to Exhibit 10.1D to the Company’s Current Report on Form 8-K (File No. 001-36878) , filed with the Securities and Exchange Commission on August 11, 2017)

10.2		Form of Voting Agreement, by and between National Commerce Corporation and each director and certain officers of FirstAtlantic Financial Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-4 (File No. 333-220855), filed with the Securities and Exchange Commission on October 6, 2017)

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

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

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

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

101		Interactive Data Files for the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2017

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SIGNATURES

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

	NATIONAL COMMERCE CORPORATION (Registrant)

Date: November 9, 2017	/s/ Richard Murray, IV
	Richard Murray, IV President and Chief Executive Officer

Date: November 9, 2017	/s/ William E. Matthews, V
	William E. Matthews, V Chief Financial Officer

National Commerce Corp - FORM 10-Q - November 9, 2017

Attached files

National Commerce Corp Reports