National Commerce 10-Q 2017 Q1 Quarterly report

Table of Contents

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 March 31, 2017

OR

☐ 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 May 9, 2017
Common stock, $0.01 par value	12,964,153 shares

NATIONALCOMMERCE CORPORATION

FORM 10-Q

INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):	1
	Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	1
	Consolidated Statements of Earnings for the Three Months Ended March 31, 2017 and 2016	2
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016	3
	Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2017	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	46
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosure	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
	Signatures	48

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GENERAL

Unless the context otherwise indicates or requires, references in this Quarterly Report on Form 10-Q to “National Commerce Corporation,” “NCC,” the “Company,” “we,” “us” and “our” refer to National Commerce Corporation and its consolidated affiliates as of March 31, 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

NATIONALCOMMERCE CORPORATION

Unaudited Consolidated Balance Sheets

(In thousands, except share and per share data)

	March 31, 2017		December 31, 2016
Assets
Cash and due from banks	$	40,237		35,897
Interest-bearing deposits with banks		278,493		181,396
Cash and cash equivalents		318,730		217,293
Investment securities held-to-maturity (fair value of $25,823 and $25,894 at March 31, 2017and December 31, 2016, respectively)		26,057		26,329
Investment securities available-for-sale		72,333		73,380
Other investments		8,338		7,879
Mortgage loans held-for-sale		19,517		15,373
Loans, net of unearned income		1,814,735		1,485,484
Less: allowance for loan losses		12,565		12,113
Loans, net		1,802,170		1,473,371
Premises and equipment, net		35,148		31,884
Accrued interest receivable		4,790		4,129
Bank-owned life insurance		31,544		28,034
Other real estate		1,849		2,068
Deferred tax assets, net		14,842		13,486
Goodwill		98,856		50,771
Core deposit intangible, net		4,663		2,032
Other assets		6,312		4,755
Total assets	$	2,445,149		1,950,784
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing demand	$	617,851		429,030
Interest-bearing demand		345,602		262,261
Savings and money market		820,206		703,289
Time		296,648		273,130
Total deposits		2,080,307		1,667,710
Federal Home Loan Bank advances		7,000		7,000
Subordinated debt		24,513		24,500
Accrued interest payable		860		829
Other liabilities		15,047		13,701
Total liabilities		2,127,727		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, 12,948,778 and 10,934,541shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively		129		109
Additional paid-in capital		279,618		205,372
Retained earnings		29,924		24,005
Accumulated other comprehensive income		324		249
Total shareholders' equity attributable to National Commerce Corporation		309,995		229,735
Noncontrolling interest		7,427		7,309
Total shareholders' equity		317,422		237,044
Total liabilities and shareholders' equity	$	2,445,149		1,950,784

See accompanying notes to unaudited consolidated financial statements.

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NATIONALCOMMERCE CORPORATION

Unaudited Consolidated Statements of Earnings

(In thousands, except per share data)

	For the Three Months Ended
	March 31,
	2017			2016
Interest and dividend income:
Interest and fees on loans	$	23,593			17,483
Interest and dividends on taxable investment securities		571			412
Interest on non-taxable investment securities		200			200
Interest on interest-bearing deposits and federal funds sold		535			218
Total interest income		24,899			18,313
Interest expense:
Interest on deposits		2,010			1,569
Interest on borrowings		71			81
Interest on subordinated debt		388			-
Total interest expense		2,469			1,650
Net interest income		22,430			16,663
Provision for loan losses		156			1,533
Net interest income after provision for loan losses		22,274			15,130
Other income:
Service charges and fees on deposit accounts		667			480
Mortgage origination and fee income		3,145			1,392
Merchant sponsorship revenue		744			522
Income from bank-owned life insurance		216			204
Wealth management fees		10			13
(Loss) gain on other real estate		(1	)		156
Other		659			358
Total other income		5,440			3,125
Other expense:
Salaries and employee benefits		10,073			6,945
Commission-based compensation		1,723			875
Occupancy and equipment		1,473			1,135
Core deposit intangible amortization		348			191
Other		4,844			2,907
Total other expense		18,461			12,053
Earnings before income taxes		9,253			6,202
Income tax expense		2,841			2,083
Net earnings		6,412			4,119
Less: Net earnings attributable to noncontrolling interest		493			340
Net earnings attributable to National Commerce Corporation	$	5,919			3,779
Basic earnings per common share	$	0.46			0.35
Diluted earnings per common share	$	0.45			0.34

See accompanying notes to unaudited consolidated financial statements.

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NATIONALCOMMERCE CORPORATION

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

	For the Three Months Ended
	March 31,
	2017		2016
Net earnings	$	5,919		3,779
Other comprehensive income, net of tax:
Unrealized gains on investment securities available-for-sale:Unrealized gains arising during the period, net of tax of$40 and $143, respectively		75		266
Other comprehensive income		75		266
Comprehensive income	$	5,994		4,045

See accompanying notes to unaudited consolidated financial statements.

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NATIONALCOMMERCE 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		-		414		-		-		-			414
Net earnings attributable to National Commerce Corporation		-		-		5,919		-		-			5,919
Exercise of stock options and issuance of performance shares		2		2,419		-		-		-			2,421
Net earnings attributable to noncontrolling interest		-		-		-		-		493			493
Distributions paid to noncontrolling interest		-		-		-		-		(375	)		(375	)
Acquisition of Private Bancshares, Inc., net of offering expenses of $138		18		71,413		-		-		-			71,431
Change in unrealized gain/loss on securities available-for-sale,net of tax		-		-		-		75		-			75
Balance, March 31, 2017	$	129		279,618		29,924		324		7,427			317,422

See accompanying notes to unaudited consolidated financial statements.

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NATIONALCOMMERCE CORPORATION

Unaudited Consolidated Statements of Cash Flows

(In thousands)

	For the Three Months Ended
	March 31,
	2017			2016
Cash flows from operating activities:
Net earnings	$	5,919			3,779
Adjustments to reconcile net earnings to net cash provided byoperating activities:
Provision for loan losses		156			1,533
Net earnings attributable to noncontrolling interest		493			340
Depreciation, amortization, and accretion		35			138
Gain on ineffective portion of fair value hedge derivative		(16	)		(28	)
Change in mortgage loan derivative		(398	)		(97	)
Excess tax benefit from share-based compensation		(286	)		-
Share-based compensation expense		414			263
Income from bank-owned life insurance		(216	)		(204	)
Loss (gain) on other real estate		1			(156	)
Other real estate non-cash write-downs		219			-
Change in (net of effect of business combinations):
Mortgage loans held-for-sale		20,484			2,491
Other assets and accrued interest receivable		682			784
Other liabilities and accrued interest payable		(1,188	)		(998	)
Net cash provided by operating activities		26,299			7,845
Cash flows from investing activities (net of effect of business combinations):
Proceeds from calls, maturities, and paydowns of securities available-for-sale		11,330			1,826
Proceeds from calls, maturities, and paydowns of securities held-to-maturity		238			147
Proceeds from sale of securities available-for-sale		9,718			-
Purchases of securities available-for-sale		(10,242	)		(3,766	)
Proceeds from sale of other investments		-			693
Purchases of other investments		(206	)		(564	)
Net cash received in acquisition		9,471			-
Net change in loans		(68,034	)		(63,698	)
Proceeds from sale of other real estate		19			1,237
Proceeds from the sale of premises and equipment		18			-
Purchases of premises and equipment		(3,300	)		(872	)
Net cash used by investing activities		(50,988	)		(64,997	)
Cash flows from financing activities (net of effect of business combinations):
Net change in deposits		124,218			(16,216	)
Repayment of Federal Home Loan Bank advances		-			(15,000	)
Cash distribution paid to noncontrolling interests		(375	)		(437	)
Stock offering expenses related to acquisition		(138	)		-
Proceeds from exercise of options and warrants		2,421			201
Net cash provided by financing activities		126,126			(31,452	)
Net change in cash and cash equivalents		101,437			(88,604	)
Cash and cash equivalents at beginning of the period		217,293			212,457
Cash and cash equivalents at end of the period	$	318,730			123,853

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 Three Months Ended
	March 31,
Supplemental disclosure of cash flow information:	2017		2016
Cash paid during the period for:
Interest	$	2,470		1,633
Income taxes	$	-		-
Non-cash investing and financing activities:
Change in unrealized (losses) gains on securities available-for-sale, net of tax	$	75		266
Transfer of loans to other real estate	$	20		-
Assets acquired and liabilities assumed in acquisitions:
Assets acquired in acquisitions	$	323,246		-
Liabilities assumed in acquisitions	$	291,440		-
Tax benefit resulting from exercise of stock options	$	-		-

See accompanying notes to unaudited consolidated financial statements.

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NATIONALCOMMERCE CORPORATION

Notes to Unaudited Consolidated Financial Statements

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

Note 1 – Basis of Presentation

General

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

The Bank provides a full range of commercial and consumer banking services. The Bank currently operates seven full-service banking offices in Alabama, ten full-service banking offices in central and northeast Florida (including under the trade names United Legacy Bank and Reunion Bank of Florida) 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 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, 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.

Note3 – 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 months ended March 31, 2017, there were no anti-dilutive potential common shares, compared to 102,297 anti-dilutive potential common shares for the three months ended March 31, 2016.

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

	2017		2016
Net earnings available to common shareholders	$	5,919		3,779
Weighted average common shares outstanding		12,901,040		10,855,871
Dilutive effect of stock options		221,650		94,614
Dilutive effect of directors' deferred shares		28,209		12,326
Dilutive effect of performance share awards		132,176		76,397
Diluted common shares		13,283,075		11,039,208
Basic earnings per common share	$	0.46		0.35
Diluted earnings per common share	$	0.45		0.34

Note4 –Securities

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

	Held-to-Maturity Securities
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
March 31, 2017	Cost		Gains		Losses		Value
Mortgage-backed securities	$	4,763		1		16		4,748
Municipal securities		21,294		43		262		21,075
Total held-to-maturity securities	$	26,057		44		278		25,823

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			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
December 31, 2016	Cost		Gains		Losses		Value
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
March 31, 2017	Cost		Gains		Losses		Value
U.S. government agency obligations	$	3,620		-		36		3,584
Mortgage-backed securities		37,062		455		193		37,324
Other asset-backed securities		26,746		134		3		26,877
Municipal securities		4,406		146		4		4,548
Total available-for-sale securities	$	71,834		735		236		72,333

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
December 31, 2016	Cost		Gains		Losses		Value
U.S. government agency obligations	$	3,653		-		36		3,617
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

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

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Details concerning the Company’s debt securities with unrealized losses as of March 31, 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
March 31, 2017	Value		Losses		Value		Losses		Value		Losses
Mortgage-backed securities	$	3,145		16		-		-		3,145		16
Municipal securities		14,396		262		-		-		14,396		262
Total held-to-maturity securities	$	17,541		278		-		-		17,541		278

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2016	Value		Losses		Value		Losses		Value		Losses
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
March 31, 2017	Value		Losses		Value		Losses		Value		Losses
U.S. government agency obligations	$	-		-		3,584		36		3,584		36
Mortgage-backed securities		14,340		193		-		-		14,340		193
Other asset-backed securities		3,997		3		-		-		3,997		3
Municipal securities		978		4		-		-		978		4
Total available-for-sale securities	$	19,315		200		3,584		36		22,899		236

	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
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

As of March 31, 2017, the Company did not consider any securities with unrealized losses to be other-than-temporarily impaired. The unrealized losses in each category 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 periods ended March 31, 2017 and 2016.

During the three-month periods ended March 31, 2017 and 2016, the Company did not sell any debt securities.

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The amortized cost and estimated fair value of debt securities at March 31, 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	$	-		-	$	-	$	-
5 to 10 years		1,046		1,060		750		752
Over 10 years		6,980		7,072		20,544		20,323
Mortgage-backed securities and other asset-backed securities		63,808		64,201		4,763		4,748
Total	$	71,834		72,333		26,057		25,823

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

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

	March 31, 2017			December 31, 2016
Commercial, financial, and agricultural	$	216,471			170,985
Factored commercial receivables		99,317			83,901
Real estate - mortgage		1,242,430			1,056,214
Real estate - construction		234,861			155,813
Consumer		22,313			19,060
		1,815,392			1,485,973
Less: Unearned fees		(657	)		(489	)
Total loans		1,814,735			1,485,484
Allowance for loan losses		(12,565	)		(12,113	)
Total net loans	$	1,802,170			1,473,371

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 type 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 -
March 31, 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		(455	)		82			77		439		13			-		156
Loans charged off		(1	)		(630	)		-		-		(30	)		-		(661	)
Recoveries		403			548			4		-		2			-		957
Balance, March 31, 2017	$	1,535			500			8,546		1,808		176			-		12,565
Ending balance, individually evaluatedfor impairment	$	-			-			44		-		-			-		44
Ending balance, collectively evaluatedfor impairment		1,535			500			8,502		1,808		176			-		12,521
Total allowance for loan losses	$	1,535			500			8,546		1,808		176			-		12,565
Loans:
Individually evaluated for impairment	$	-			-			179		-		26			-		205
Collectively evaluated for impairment		215,842			99,317			1,224,828		233,136		22,052			-		1,795,175
Acquired loans with deterioratedcredit quality		629			-			17,423		1,725		235			-		20,012
Total loans	$	216,471			99,317			1,242,430		234,861		22,313			-		1,815,392

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	Commercial,			Factored
	financial, and			commercial			Real estate -		Real estate -
March 31, 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		443			488			923		549		(46	)		(824	)		1,533
Loans charged off		(1	)		(888	)		-		-		(27	)		-			(916	)
Recoveries		14			400			47		3		4			-			468
Balance, March 31, 2016	$	1,801			500			6,495		1,964		167			-			10,927
Ending balance, individually evaluatedfor impairment	$	-			-			-		-		-			-			-
Ending balance, collectively evaluatedfor impairment		1,801			500			6,495		1,964		167			-			10,927
Total allowance for loan losses	$	1,801			500			6,495		1,964		167			-			10,927
Loans:
Individually evaluated for impairment	$	-			-			196		162		56			-			414
Collectively evaluated for impairment		192,096			74,248			921,609		166,120		19,364			-			1,373,437
Acquired loans with deterioratedcredit quality		311			-			9,216		432		246			-			10,205
Total loans	$	192,407			74,248			931,021		166,714		19,666			-			1,384,056

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 three months ended March 31, 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 March 31, 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
March 31, 2017	Investment		Balance		Allowance		Investment
Impaired loans without related allowance:
Commercial, financial, and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		135		138		-		158
Real estate - construction		-		-		-		-
Consumer		26		96		-		17
Total	$	161		234		-		175
Impaired loans with related allowance:
Commercial, financial, and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		44		44		44		22
Real estate - construction		-		-		-		-
Consumer		-		-		-		-
Total	$	44		44		44		22
Total impaired loans:
Commercial, financial, and agricultural	$	-		-		-		-
Factored commercial receivables		-		-		-		-
Real estate - mortgage		179		182		44		180
Real estate - construction		-		-		-		-
Consumer		26		96		-		17
Total	$	205		278		44		197

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			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

For the three months ended March 31, 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 March 31, 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 CBI’s factored receivables, which are commercial trade credits rather than promissory notes, our practice is to charge off unpaid recourse receivables when they become 90 days past due from the invoice due date and the non-recourse receivables when they become 120 days past due from the statement billing date. For the recourse receivables, the invoice is charged against the client reserve account established for such purposes, unless the client reserve is insufficient, in which case the invoice is charged against the allowance for loan losses. This table includes all loans, whether acquired or non-acquired.

	30-59 Days		60-89 Days		> 90 Days		Total
March 31, 2017	Past Due		Past Due		Past Due		Past Due		Current		Total		Non-accrual
Commercial, financial, and agricultural	$	-		-		-		-		216,471		216,471		-
Factored commercial receivables		5,329		1,752		538		7,619		91,698		99,317		-
Real estate - mortgage		853		52		2,288		3,193		1,239,237		1,242,430		2,884
Real estate - construction		-		-		-		-		234,861		234,861		94
Consumer		80		-		20		100		22,213		22,313		39
Total	$	6,262		1,804		2,846		10,912		1,804,480		1,815,392		3,017

	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

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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.

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 March 31, 2017 and December 31, 2016, and based on the most recent analysis performed, the risk category of loans by class of loans was as follows. This table includes all loans, whether acquired or non-acquired.

March 31, 2017	Pass		OAEM		Substandard		Doubtful		Total
Commercial, financial, and agricultural	$	213,036		1,809		1,626		-		216,471
Factored commercial receivables		99,317		-		-		-		99,317
Real estate - mortgage		1,225,276		2,895		11,600		2,659		1,242,430
Real estate - construction		233,062		-		1,705		94		234,861
Consumer		21,750		25		499		39		22,313
Total	$	1,792,441		4,729		15,430		2,792		1,815,392

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 March 31, 2017 totals above include the loans acquired in the Private Bancshares acquisition using risk ratings assigned during the due diligence process. These initial risk ratings were revised as necessary as of March 31, 2017.

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.

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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.

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 an allowance for loan losses is established.  Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.  Once a loan is identified as individually impaired, management measures impairment using one of three methods, including collateral value, market value of similar debt, and discounted cash flows.  Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.  At March 31, 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.

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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.

Federal Home Loan Bank Advances

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

Subordinated Debt

For disclosure purposes, the fair value of our fixed-rate subordinated debt is estimated using a discounted cash flow model 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.

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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 March 31, 2017 and December 31, 2016, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

Commitments to Extend Credit and Standby Letters of Credit

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

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

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

March 31, 2017	Level 1		Level 2		Level 3		Total
U.S. government agency obligations	$	-		3,584		-		3,584
Mortgage-backed securities		-		37,324		-		37,324
Municipal securities		-		4,548		-		4,548
Other asset-backed securities		-		26,877		-		26,877
Total investment securities available-for-sale	$	-		72,333		-		72,333
Mortgage loans held-for-sale	$	-		19,517		-		19,517
Derivative assets	$	-		1,072		-		1,072
Derivative liabilities	$	-		574		-		574

December 31, 2016	Level 1		Level 2		Level 3		Total
U.S. government agency obligations	$	-		3,617		-		3,617
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 March 31, 2017 and December 31, 2016.

March 31, 2017	Level 1		Level 2		Level 3		Total
Other real estate	$	-		-		1,849		1,849
Non-accrual loans		-		-		3,017		3,017

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

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

	Carrying		Estimated Fair Value
March 31, 2017	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	318,730		318,730		-		-
Investment securities held-to-maturity		26,057		-		25,823		-
Investment securities available-for-sale		72,333		-		72,333		-
Other investments		8,338		-		8,338		-
Loans, net		1,802,170		-		1,796,433		3,017
Mortgage loans held-for-sale		19,517		-		19,517		-
Bank-owned life insurance		31,544		-		31,544		-
Derivative assets		1,072		-		1,072		-
Liabilities:
Deposits		2,080,307		-		1,981,452		-
Federal Home Loan Bank advances		7,000		-		7,229		-
Subordinated debt		24,513		-		23,907		-
Derivative liabilities		574		-		574		-

	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		-

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 March 31, 2017, there were no changes in the methods and significant inputs used to estimate fair value.

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

March 31, 2017	Fair Value		Valuation Technique	Unobservable Inputs	Range of Discounts				Weighted Average Discounts
Other real estate	$	1,849	Third party appraisals, sales contracts, broker price opinions	Collateral discounts and estimated costs to sell		11%	-	35%	11	%
Non-accrual loans		3,017	Third party appraisals and discounted cash flows	Collateral discounts and discount rates		0%	-	100%	34	%
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	%

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.

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 earnings to the Company’s consolidated totals.

	Retail and
	Commercial		Mortgage			Receivables			Elimination
	Banking		Division (1)			Factoring			Entries (2)			Total
For the Three Months Ended March 31, 2017
Interest income	$	21,961		222			3,427			(711	)		24,899
Interest expense		2,374		95			711			(711	)		2,469
Net interest income		19,587		127			2,716			-			22,430
Provision for loan and lease losses		74		-			82			-			156
Noninterest income		1,926		3,476			38			-			5,440
Noninterest expense		13,336		3,628			1,497			-			18,461
Net earnings before tax and noncontrolling interest		8,103		(25	)		1,175			-			9,253
Income tax expense		2,592		(10	)		259			-			2,841
Noncontrolling interest		-		-			(493	)		-			(493	)
Net earnings attributable to National Commerce Corporation	$	5,511		(15	)		423			-			5,919
Total assets as of March 31, 2017	$	2,393,681		19,517			118,461			(86,510	)		2,445,149
For the Three Months Ended March 31, 2016
Interest income	$	15,699		115			2,999			(500	)		18,313
Interest expense		1,606		44			500			(500	)		1,650
Net interest income		14,093		71			2,499			-			16,663
Provision for loan and lease losses		1,045		-			488			-			1,533
Noninterest income		1,632		1,453			40			-			3,125
Noninterest expense		9,412		1,349			1,292			-			12,053
Net earnings before tax and noncontrolling interest		5,268		175			759			-			6,202
Income tax expense		1,857		67			159			-			2,083
Noncontrolling interest		-		-			(340	)		-			(340	)
Net earnings attributable to National Commerce Corporation	$	3,411		108			260			-			3,779
Total assets as of March 31, 2016	$	1,694,223		12,529			95,262			(66,074	)		1,735,940

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(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%.

Note 8 – Goodwill and Intangibles

Changes to the carrying amount of goodwill for the three months ended March 31, 2017 are provided in the following table.

Balance, December 31, 2016	$	50,771
Acquisition of Private Bancshares		48,085
Balance, March 31, 2017	$	98,856

The adjustments to goodwill made during the three months ended March 31, 2017 resulted from the acquisition of Private Bancshares, Inc. on January 1, 2017. For additional information on the acquisition, see Note 10 to the unaudited consolidated financial statements below.

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

	March 31, 2017			December 31, 2016
Gross carrying amount	$	6,294			3,315
Less: accumulated amortization		(1,631	)		(1,283	)
Net carrying amount	$	4,663			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 March 31, 2017 and December 31, 2016, the Company’s reserve requirements were approximately $14,209,000 and $8,139,000, respectively.

Note 10 – Acquisition

Effective January 1, 2017, the Company completed its merger with Private Bancshares, Inc. (“Private Bancshares”). Private Bancshares was the parent company of Private Bank of Buckhead, headquartered in Atlanta, Georgia, and was merged with and into NCC. Simultaneously with 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 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 Accounting Standards Codification (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.

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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		(7,225	) b		260,034
				509	b
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 real estate and repossessions		-		-			-
Other assets		2,569		1,516	f		4,085
Total assets	$	322,568		678			323,246
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		(348	) h		3,026
Total liabilities		291,657		(217	)		291,440
Net identifiable assets acquired over liabilities assumed		30,911		895			31,806
Goodwill		-		48,085			48,085
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

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

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

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

d. Adjustment reflects the write-off of certain fixed assets.

e. Adjustment reflects the recording of core deposit intangible asset.

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

g. Adjustment reflects the fair value adjustment to time deposit accounts.

h. Adjustment to reflect unrecorded 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.

The following unaudited supplemental pro forma information is presented to show estimated results assuming Private Bancshares was 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 not necessary because Private Bancshares is included in the Company’s results for the entire three months ended March 31, 2017.

	For the Three Months Ended
Performance Measures (pro forma, unaudited)	March 31, 2016
Net interest income	$	20,347
Net earnings	$	4,423
Diluted earnings per common share	$	0.34

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 March 31, 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
March 31, 2017	Location	Fair Value			Amount
Interest rate swaps designated as fair value hedges	Other Liabilities	$	(207	)		15,667
Interest rate swaps with customers	Other Assets	$	211			40,268
Reciprocal interest rate swaps	Other Liabilities	$	(211	)		40,268
Forward commitment to sell mortgage-backed securities	Other Liabilities	$	(155	)		18,000

	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

During the three months ended March 31, 2017, the Company recognized a gain of approximately $16,000 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 – Subsequent Event

On April 24, 2017, the Company announced the signing of a definitive agreement providing for the merger of Patriot Bank, headquartered in Trinity, Florida, with and into NBC. Under the terms of the definitive merger agreement, each share of Patriot Bank common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.1711 shares of NCC common stock and $0.725 in cash, without interest. Outstanding options to purchase Patriot Bank common stock will be canceled at the effective time of the merger, with holders of options that have an exercise price of $3.00 and are therefore “in the money” to receive a cash payment of $4.25 for each share of Patriot Bank common stock subject to such options as consideration of the cancellation. The transaction is subject to a number of customary closing conditions, including the receipt of all required regulatory approvals and the approval of the merger by Patriot Bank’s shareholders.

Note 13 – Recently Issued Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04,Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019, applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. The Company expects to adopt the guidance upon the next goodwill impairment test in 2017. ASU No. 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements. 

In March 2017, the FASB issued ASU 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20),Premium Amortization on Purchased Callable Debt Securities,which shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently reviewing its portfolio of debt securities to determine the impact that this ASU will have on its consolidated financial statements.

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Item2. 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 (in Birmingham, Huntsville, Auburn-Opelika, and Baldwin County) and ten full-service banking offices in central and northeast Florida (in Vero Beach through National Bank of Commerce; in Longwood, Winter Park, Orlando and Oviedo through United Legacy Bank, a division of National Bank of Commerce; and in Tavares, Port Orange, St. Augustine and Ormond Beach through Reunion Bank of Florida, a division of National Bank of Commerce), and two full-service banking offices in the Atlanta, Georgia metro area through Private Bank of Buckhead, a division of National Bank of Commerce. 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 First Quarter 2017 Results

Net income was $5.9 million in the first quarter ended March 31, 2017, compared to $3.8 million during the first quarter of 2016. Several important measures from the 2017 first quarter include:

● Net interest margin (taxable equivalent) of 4.18%, compared to 4.21% for the first quarter of 2016.

● Return on average assets of 1.00%, compared to 0.86% for the first quarter of 2016.

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● First quarter 2017 loan growth (excluding mortgage loans held-for-sale and loans acquired in our acquisition of Private Bancshares, Inc. in January 2017 totaling $259.5 million) of $69.7 million, representing a 19.0% annualized growth rate. Excluding factoring receivables, loans grew $54.3 million, representing a 15.7% annualized growth rate.

● Increase in deposits of $126.4 million (excluding deposits assumed in our acquisition of Private Bancshares, Inc. in January 2017 totaling $286.2 million).

● $130.9 million in mortgage production, compared to $63.8 million for the first quarter of 2016.

● $253.6 million in purchased volume in the factoring division, compared to $178.8 million for the first quarter of 2016.

● Reduction in nonacquired nonperforming assets to $2.5 million, from $2.7 million at December 31, 2016.

● Annualized net recoveries of 0.07%, compared to 0.13% in net charge-offs for the first quarter of 2016.

● Ending book value per share of $24.51.

● The successful completion of the Private Bancshares, Inc. acquisition on January 1, 2017 and system conversion in March 2017.

Acquisition

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. Simultaneously with the holding company merger, PBB merged with and into NBC, but continues to operate 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.

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.

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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.

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.

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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.

Comparison of Results of Operations for the Three Months Ended March 31, 2017 and 2016

The following is a narrative discussion and analysis of significant changes in our results of operations for the three months ended March 31, 2017 compared to the three months ended March 31, 2016.

Net Income

During the three months ended March 31, 2017, our net income was $5.9 million, compared to $3.8 million for the three months ended March 31, 2016, an increase of 56.6%. Our results of operations for the three months ended March 31, 2017 included the results of Private Bancshares. We acquired Private Bancshares on January 1, 2017, and, therefore, its results are not included in our results of operations for three months ended March 31, 2016.

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The primary reasons for the increase in net income for the three months ended March 31, 2017 compared to the same period of 2016 was an increase in net interest income and lower provision for loan losses. During the three months ended March 31, 2017, net interest income was $22.4 million, an increase of $5.8 million, or 34.6%, compared to the three months ended March 31, 2016. This increase was a result of higher levels of loan volume and other earning assets from organic growth and the acquisition of Private Bancshares. Total noninterest income during the three months ended March 31, 2017 was $5.4 million, an increase of $2.3 million compared to the three months ended March 31, 2016. The largest increase in noninterest income during the first quarter of 2017 was in revenue from the mortgage division. During the three months ended March 31, 2017, mortgage origination and fee income increased $1.8 million. The provision for loan losses during the three months ended March 31, 2017 was $156 thousand, compared to $1.5 million during the three months ended March 31, 2016.

The increased net interest income and noninterest income was partially offset by an increase in other noninterest expense during the three months ended March 31, 2017. Total noninterest expense during the three months ended March 31, 2017 was $18.5 million, an increase of $6.4 million, or 53.2%, compared to the three months ended March 31, 2016. This increase was primarily a result of the addition of the operating expenses of Private Bancshares and costs associated with the growth of the Company. Private Bancshares was not included in our results of operations for the three months ended March 31, 2016. 

The largest contributors to the changes in our net interest income, noninterest income and noninterest expense for the three months ended March 31, 2017 compared to the same period of 2016 were the additional revenues and expenses of Private Bancshares, which we acquired on January 1, 2017. During the three months ended March 31, 2017, net interest income, noninterest income and noninterest expense attributable to the acquired operations of Private Bancshares were approximately $4.1 million, $1.5 million and $4.1 million, respectively.

Net Interest Income and Net Interest Margin Analysis

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.

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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)	March 31, 2017									March 31, 2016
Assets	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate
Loans (1)	$	1,793,241	$	23,377		5.29	%	$	1,352,737	$	17,373		5.17	%
Mortgage loans held-for-sale		21,809		222		4.13			10,503		115		4.40
Securities:
Taxable securities		88,062		571		2.63			61,764		412		2.68
Tax-exempt securities (1)		25,824		317		4.98			26,041		317		4.90
Cash balances in other banks		258,672		535		0.84			151,318		218		0.58
Total interest-earning assets		2,187,608	$	25,022		4.64			1,602,363	$	18,435		4.63
Noninterest-earning assets		220,006							156,260
Total assets	$	2,407,614						$	1,758,623
Liabilities and shareholders' equity
Interest-bearing transaction accounts	$	332,361	$	217		0.26	%	$	204,339	$	123		0.24	%
Savings and money market deposits		804,537		1,096		0.55			620,429		762		0.49
Time deposits		306,404		697		0.92			306,106		684		0.90
Federal Home Loan Bank advances and other borrowed money		9,016		71		3.19			10,959		81		2.97
Subordinated debt		24,507		388		6.42			-		-		-
Total interest-bearing liabilities		1,476,825	$	2,469		0.68			1,141,833	$	1,650		0.58
Noninterest-bearing deposits		600,897							386,674
Total funding sources		2,077,722							1,528,507
Noninterest-bearing liabilities		16,921							11,386
Shareholders' equity		312,971							218,730
Total liabilities and shareholders equity	$	2,407,614						$	1,758,623
Net interest rate spread						3.96	%						4.05	%
Net interest income/margin (taxable equivalent)				22,553		4.18	%				16,785		4.21	%
Tax equivalent adjustment				123							122
Net interest income/margin			$	22,430		4.16	%			$	16,663		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%.

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Net interest income increased by $5.8 million, or 34.6%, to $22.4 million for the three months ended March 31, 2017, compared to $16.7 million for the same period of 2016. The increase was due to an increase in interest income of $6.6 million, resulting from higher levels of loan volume from organic growth and the acquisition of Private Bancshares. This increase in interest income was partially offset by an $819 thousand increase in interest expense due to higher levels of interest-bearing liabilities from organic growth and the acquisition of Private Bancshares. The increase in interest income was primarily due to a 32.6% increase in average loans outstanding for the three months ended March 31, 2017 compared to the three months ended March 31, 2016. The resulting net interest margin for the three months ended March 31, 2017 was 4.16%, compared to 4.18% for the three months ended March 31, 2016.

Interest-earning assets averaged $2.2 billion for the three months ended March 31, 2017, compared to $1.6 billion for the three months ended March 31, 2016, an increase of $585.2 million, or 36.5%. Additional information on growth in our loan portfolio for these periods is presented below. The yield on average interest-earning assets increased 1 basis point, to 4.64% for the three months ended March 31, 2017, compared to 4.63% for the three months ended March 31, 2016. During the three months ended March 31, 2017, the loan yield was 5.29%, compared to 5.17% during the three months ended March 31, 2016. The increase in loan yield was attributable to increased accretion on our acquired loans, higher rates on the 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 contributed average loan balances of $269.9 million during the three months ended March 31, 2017.

Interest-bearing liabilities averaged $1.5 billion for the three months ended March 31, 2017, compared to $1.1 billion for the three months ended March 31, 2016, an increase of $335.0 million, or 29.3%. The rate on total interest-bearing liabilities was 68 basis points for the three months ended March 31, 2017, compared to 58 basis points for the three months ended March 31, 2016. The increase in average deposits was due to organic deposit production and the inclusion of Private Bancshares’ deposits in our results for the three months ended March 31, 2017. Interest-bearing liability costs declined due to a change in the makeup of the deposit base. During the three months ended March 31, 2017, a higher proportion of our deposits was in lower-cost account types, with a corresponding reduction in the portion of the deposit base represented by higher-cost time deposits.

Average noninterest-bearing deposits increased to $600.9 million during the three months ended March 31, 2017, representing an increase of $214.2 million compared to the three months ended March 31, 2016.

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

ANALYSIS OF CHANGES IN NET INTEREST INCOME

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2017 vs. 2016
	Variance due to
Interest-earning assets	Volume			Yield/Rate			Total
Loans	$	5,600		$	404		$	6,004
Mortgage loans held-for-sale		114			(7	)		107
Securities:
Taxable securities		167			(8	)		159
Tax-exempt securities		(3	)		3			-
Cash balances in other banks		194			123			317
Total interest-earning assets	$	6,072		$	515		$	6,587
Interest-bearing liabilities
Interest-bearing transaction accounts	$	82		$	12		$	94
Savings and money market deposits		238			96			334
Time deposits		-			13			13
Federal Home Loan Bank advances and other borrowed money		(15	)		5			(10	)
Subordinated debt		388			-			388
Total interest-bearing liabilities	$	693		$	126		$	819
Net interest income
Net interest income (taxable equivalent)		5,379			389			5,768
Taxable equivalent adjustment		1			-			1
Net interest income	$	5,378		$	389		$	5,767

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Provision for Loan Losses

During the three months ended March 31, 2017, we recorded a provision for loan losses of $156 thousand, compared to $1.5 million during the three months ended March 31, 2016. The lower provision expense during the three months ended March 31, 2017 was a result of net recoveries of $296 thousand during the period and improving asset quality indicators. 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 March 31, 2017, $44 thousand 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.

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

NONINTEREST INCOME

	For the Three Months Ended
	March 31,			March 31,
(Dollars in thousands)	2017			2016
Service charges and fees on deposit accounts	$	667		$	480
Mortgage origination and fee income		3,145			1,392
Merchant sponsorship revenue		744			522
Income from bank-owned life insurance		216			204
Wealth management fees		10			13
(Loss) gain on sale of other real estate		(1	)		156
Other noninterest income		659			358
Total noninterest income	$	5,440		$	3,125

Noninterest income for the three months ended March 31, 2017 and 2016 was $5.4 million and $3.1 million, respectively. The inclusion of Private Bancshares in our results of operations for the three months ended March 31, 2017 accounted for approximately $1.5 million of the $2.3 million increase recorded in noninterest income during the three months ended March 31, 2017.

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All categories of noninterest income (except for wealth management fees) experienced an increase during the three months ended March 31, 2017 compared to same period in 2016. The mortgage division income increased $1.8 million during the three months ended March 31, 2017 and totaled $3.1 million for this period, compared to $1.4 million during the three months ended March 31, 2016. A large portion of this increase was due to the acquisition of Private Bancshares, which had a large retail mortgage operation. Increased production led to higher mortgage division income. During the three months ended March 31, 2017, total production was $130.9 million, compared to $63.8 million during the three months ended March 31, 2016. During the three months ended March 31, 2017, refinance activity accounted for 27.4% of production volume, compared to 18.2% during the same period in 2016. In addition to adding the mortgage operations of Private Bancshares, we are expanding this business line in several markets in Florida and Georgia.

Service charges and fees on deposit accounts increased $187 thousand, to $667 thousand for the three months ended March 31, 2017, compared to $480 thousand for the three months ended March 31, 2016. The addition of Private Bancshares contributed $106 thousand to this increase, and the remaining portion of this increase was the result of an increase in the number of deposit accounts as we continue to increase the number of accounts in our markets. Income from bank-owned life insurance increased $12 thousand to $216 thousand for the three months ended March 31, 2017, compared to $204 thousand for the three months ended March 31, 2016.

During the three months ended March 31, 2017, merchant sponsorship revenue increased $222 thousand to $744 thousand for the three months ended March 31, 2017, compared to $522 thousand for the three months ended March 31, 2016. The increase is due to growth in the volume of transactions we processed.

Noninterest Expense

The increase in our total noninterest expense during the three months ended March 31, 2017 reflects the continued growth of the Company (organic growth and growth through acquisitions), 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
	March 31,		March 31,
(Dollars in thousands)	2017		2016
Salaries and employee benefits	$	10,073	$	6,945
Commission-based compensation		1,723		875
Occupancy and equipment expense		1,473		1,135
Data processing expenses		948		667
Advertising and marketing expenses		468		160
Legal fees		233		122
FDIC insurance assessments		258		263
Property and casualty insurance premiums		143		223
Accounting and audit expenses		318		250
Consulting and other professional expenses		497		243
Telecommunications expenses		186		159
Other real estate owned, repossessed asset and other collection expenses		272		59
Core deposit intangible amortization		348		191
Other noninterest expense		1,521		761
Total noninterest expense	$	18,461	$	12,053

Noninterest expense for the three months ended March 31, 2017 and 2016 was $18.5 million and $12.1 million, respectively. The inclusion of Private Bancshares in our results of operations for the three months ended March 31, 2017 accounted for approximately $4.1 million of the $6.4 million increase in noninterest expense recorded during the three months ended March 31, 2017.

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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 our company grows and we expand our presence in the markets we serve. Higher incentive compensation accruals during the three months ended March 31, 2017 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 the addition of Private Bancshares, contributed to the increased commission-based compensation during the three months ended March 31, 2017.   Additionally, salaries and benefits and commission-based compensation for Private Bancshares employees contributed approximately $2.6 million of the $4.0 million increase in salaries and employee benefits and commission-based compensation expense recorded during the three months ended March 31, 2017.

Many categories of noninterest expense increased during the three months ended March 31, 2017 compared to the three months ended March 31, 2016. This was largely a result of the additional expenses associated with the operations of Private Bancshares, including the costs to convert Private Bank of Buckhead’s systems to our core operating system. Other noninterest expense for the three months ended March 31, 2017 includes a non-cash write-down of other real estate totaling $219 thousand.

Income Tax Provision

We recognized income tax expense of $2.8 million during the three months ended March 31, 2017, compared to $2.1 million during the three months ended March 31, 2016. The increase in income tax expense during the first three months of 2017 was due to the increase in our pre-tax income. The effective tax rate for the first three months of 2017 was 30.7% (32.4% including the minority interest in CBI), compared to 33.6% (35.5% including the minority interest in CBI) during the first three months of 2016. During the three months ended March 31, 2017, the Company adopted ASU No. 2016-09Compensation – 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 three months of 2017, we recorded a tax benefit of $286 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 March 31, 2017 and December 31, 2016

Overview

Our total assets increased $494.4 million, or 25.3%, from $2.0 billion at December 31, 2016 to $2.4 billion at March 31, 2017. Cash and cash equivalents increased by $101.4 million during the first three months of 2017. Loans increased by $329.3 million, or 22.2%, during the first three months of 2017. The Private Bancshares acquisition added total assets and loans of $323.2 million and $260.0 million, respectively.

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During the first three months of 2017, deposits increased $412.6 million and totaled $2.1 billion at March 31, 2017. The Private Bancshares acquisition added $286.2 million in deposits. The remaining increase was a result of organic deposit growth in our existing markets. Some of this growth is seasonal in nature and is expected to decrease during the second quarter of 2017. Deposit production is one of our primary focuses, as deposits serve as a low-cost funding source for the operations of the Bank.

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 three months ended March 31, 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 and $3.3 million in other asset-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 March 31, 2017 and December 31, 2016.

INVESTMENT SECURITIES AVAILABLE-FOR-SALE

	As of
	March 31,				December 31,
(Dollars in thousands)	2017				2016
	Cost		Market		Cost		Market
U.S. government agency obligations (excluding mortgage-backed securities)	$	3,620		3,584		3,653		3,617
Securities issued by states and political subdivisions		4,406		4,548		4,406		4,523
Residential mortgage pass-through securities		37,062		37,324		38,946		39,148
Other asset-backed securities		26,746		26,877		25,991		26,092
Total investment securities available-for-sale	$	71,834		72,333		72,996		73,380

INVESTMENT SECURITIES HELD-TO-MATURITY

	As of
	March 31,				December 31,
(Dollars in thousands)	2017				2016
	Cost		Market		Cost		Market
Securities issued by states and political subdivisions	$	21,294		21,075		21,308		20,900
Residential mortgage pass-through securities		4,763		4,748		5,021		4,994
Total investment securities held-to-maturity	$	26,057		25,823		26,329		25,894

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We invest primarily in mortgage-backed securities, municipal securities and obligations of government-sponsored entities and agencies of the United States, though we may in some situations also invest in direct obligations of the United States or obligations guaranteed as to the principal and interest by the United States. All of our mortgage-backed securities are residential securities issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). During 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.

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 $1.8 billion during the three months ended March 31, 2017, or 82.0% of average earning assets, compared to $1.4 billion, or 84.4% of average earning assets, for the three months ended March 31, 2016. At March 31, 2017, total loans, net of unearned income, were $1.8 billion, compared to $1.5 billion at December 31, 2016, an increase of $329.3 million, or 22.2%. Excluding the loans acquired in the Private Bancshares acquisition, loans increased by $69.2 million, or 4.7%.

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

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

COMPOSITION OF LOAN PORTFOLIO

	As of
	March 31,						December 31,
(Dollars in thousands)	2017						2016
	Amount			Percent of Total			Amount			Percent of Total
Construction, land development, and other land loans	$	234,861			12.94	%	$	155,813			10.49	%
Secured by farmland		16,824			0.93			15,036			1.01
Secured by 1-4 family residential properties		446,412			24.59			387,342			26.07
Secured by multifamily (5 or more) residential properties		50,624			2.79			47,060			3.17
Secured by nonfarm nonresidential properties		728,570			40.13			606,776			40.83
Loans secured by real estate		1,477,291			81.38			1,212,027			81.57
Commercial and industrial loans		195,206			10.75			150,268			10.11
Factored commercial receivables		99,317			5.47			83,901			5.65
Consumer loans		22,313			1.23			19,060			1.28
Other loans		21,265			1.17			20,717			1.39
Total gross loans		1,815,392			100.00	%		1,485,973			100.00	%
Unearned income		(657	)					(489	)
Total loans, net of unearned income		1,814,735						1,485,484
Allowance for loan losses		(12,565	)					(12,113	)
Total net loans	$	1,802,170					$	1,473,371

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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 March 31, 2017, this category totaled $1.5 billion and represented 81.4% 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 three months of 2017.

Loans secured by nonfarm nonresidential properties (“commercial mortgage loans”) increased by $121.8 million, or 20.1%, to $728.6 million at March 31, 2017, compared to $606.8 million at December 31, 2016. Excluding the acquired Private Bancshares loans, commercial mortgage loans increased by $23.0 million, or 3.8%, during the three months ended March 31, 2017. Commercial mortgage loans comprise the single largest category of our loans, and at March 31, 2017, accounted for 40.1% of our entire loan portfolio. Our management team has a great deal of experience and expertise in commercial mortgages, and this loan type has traditionally comprised a large portion of our loan portfolio. Of the $728.6 million in total commercial mortgage loans at March 31, 2017, approximately $299.5 million were loans secured by owner-occupied properties.

Residential mortgage loans increased by $59.1 million, or 15.3%, to $446.4 million at March 31, 2017, compared to $387.3 million at December 31, 2016. Excluding the acquired Private Bancshares loans, residential mortgage loans increased by $11.5 million, or 3.0%, during the three months ended March 31, 2017. At March 31, 2017, residential mortgages accounted for 24.6% of our entire loan portfolio.

Real estate construction, land development and other land loans totaled $234.9 million at March 31, 2017, an increase of 50.7% from $155.8 million at December 31, 2016. Excluding the acquired Private Bancshares loans, real estate construction, land development and other land loans increased by $11.7 million, or 7.5%, during the three months ended March 31, 2017. At March 31, 2017, this loan type accounted for 12.9% of our total loan portfolio.

Commercial and industrial loans totaled $195.2 million at March 31, 2017, an increase of 29.9% from $150.3 million at December 31, 2016. Excluding the acquired Private Bancshares loans, commercial and industrial loans increased by $10.4 million, or 6.9%, during the three months ended March 31, 2017. At March 31, 2017, this loan type accounted for 10.8% of our total loan portfolio.

Factored commercial receivables totaled $99.3 million at March 31, 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. During the three months ended March 31, 2017, we purchased approximately $50 million in receivables from a new customer. During March 2017, we decided to discontinue purchases from this customer and at March 31, 2017, $9.7 million of our factored commercial receivables outstanding balance was from this customer.

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

Allowance for Loan Losses and Provision for Loan Losses

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

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

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
	March 31,
(Dollars in thousands)	2017			2016
Total loans oustanding, net of unearned income	$	1,814,735		$	1,383,539
Average loans oustanding, net of unearned income	$	1,793,241		$	1,352,737
Allowance for loan losses at beginning of period	$	12,113		$	9,842
Charge-offs:
Loans secured by real estate		-			-
Commercial and industrial loans		-			-
Factored receivables		630			888
Consumer loans		30			27
All other loans		1			1
Total charge-offs		661			916
Recoveries:
Loans secured by real estate		4			50
Commercial and industrial loans		3			6
Factored receivables		548			400
Consumer loans		2			4
All other loans		400			8
Total recoveries		957			468
Net (recoveries) charge-offs		(296	)		448
Provision for loan losses		156			1,533
Allowance for loan losses at period end	$	12,565		$	10,927
Allowance for loan losses to period end loans		0.69	%		0.79	%
Net (recoveries) charge-offs to average loans		(0.07	)%		0.13	%

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The table above does not include the allowances of United Legacy Bank (”United”), Reunion Bank of Florida (“RBF”) or Private Bancshares that were established prior to each bank's respective date of acquisition. In accordance with ASC Topic 805,Business Combinations, United’s, RBF’s and Private Bancshares' 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 March 31, 2017, our total acquired loan portfolios totaled $561.5 million and had an aggregate related non-accretable difference of $8.4 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, 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 has been minimal. During the three months ended March 31, 2017, we recorded a provision expense of $156 thousand.

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
	March 31,					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	$	1,535		11.92	%	$	1,588		11.51	%
Factored receivables		500		5.47			500		5.65
Real estate - mortgage		8,546		68.44			8,465		71.07
Real estate - construction		1,806		12.94			1,369		10.49
Consumer		178		1.23			191		1.28
	$	12,565		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.

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Nonperforming Assets

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

NONPERFORMING ASSETS

	As of and for the Three Months Ended
	March 31,						December 31,
(Dollars in thousands)	2017			2016			2016
Nonaccrual loans	$	3,017			3,801			2,837
Loans past due 90 days or more and still accruing		538			452			581
Total nonperforming loans		3,555			4,253			3,418
Other real estate and repossessed assets		1,849			2,884			2,068
Total nonperforming assets	$	5,404			7,137			5,486
Allowance for loan losses to period-end loans		0.69	%		0.79	%		0.82	%
Allowance for loan losses to period-end nonperforming loans		353.45			256.92			354.39
Net (recoveries) charge-offs to average loans		(0.07	)		0.13			0.07
Nonperforming assets to period-end loans and foreclosed property and repossessed assets		0.30			0.51			0.37
Nonperforming loans to period-end loans		0.20			0.31			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 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 decreased by $82 thousand to $5.4 million at March 31, 2017, from $5.5 million at December 31, 2016. 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
	March 31,					December 31,
(Dollars in thousands)	2017					2016
	Amount		Percent of Total			Amount		Percent of Total
Noninterest-bearing demand	$	617,851		29.70	%	$	429,030		25.73	%
Interest-bearing demand		345,602		16.61			262,261		15.73
Savings and money market		820,206		39.43			703,289		42.17
Time less than $100k		64,688		3.11			64,073		3.84
Time equal to or greater than $100k and less than $250k		79,626		3.83			73,028		4.38
Time equal to or greater than $250k		152,334		7.32			136,029		8.15
Total deposits	$	2,080,307		100.00	%	$	1,667,710		100.00	%

Total deposits were $2.1 billion at March 31, 2017, an increase of $412.6 million from December 31, 2016. Excluding the acquired Private Bancshares deposits, deposits increased by $126.4 million, or 7.6%, during the three months ended March 31, 2017.

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Other Funding Sources

We supplement our deposit funding with wholesale funding when needed for balance sheet planning or when the terms are attractive and will not disrupt our offering rates in our markets. One of our sources of wholesale funding is the Federal Home Loan Bank of Atlanta (“FHLB”). We had FHLB borrowings of $7.0 million at March 31, 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 March 31, 2017, we had $23.7 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 $5.4 million and $6.7 million at March 31, 2017 and December 31, 2016, respectively. The decrease during the first three months of 2017 was primarily due to maturities.

Liquidity

Market and public confidence in our financial strength and in financial institutions generally affects 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 our 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.

Cash and cash equivalents at March 31, 2017 and December 31, 2016 were $318.7 million and $217.3 million, respectively. Based on the balance of cash and cash equivalents, we believe that our liquidity resources were sufficient at March 31, 2017 to fund loans and meet our other cash needs as necessary.

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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 March 31, 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	$	-	$	7,000	$	-	$	-	$	7,000
Subordinated debt		-		-		-		24,513		24,513
Certificates of deposit of less than $100k		42,284		16,988		5,365		51		64,688
Certificates of deposit of $100k or more		155,135		43,326		33,325		174		231,960
Operating leases		1,729		2,598		2,279		4,215		10,821
Total contractual obligations	$	199,148	$	69,912	$	40,969	$	28,953	$	338,982

Off-Balance Sheet Arrangements

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

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

CREDIT EXTENSION COMMITMENTS

	As of
	March 31,		December 31,
(Dollars in thousands)	2017		2016
Unfunded lines	$	460,500	$	337,415
Letters of credit		13,286		11,766
Total credit extension commitments	$	473,786		349,181

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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 March 31, 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 March 31, 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)	$	823,281			57,184			175,461			295,260		338,172		144,894			1,834,252
Securities		26,645			5,653			6,371			10,634		11,610		37,477			98,390
Cash balances in other banks		278,493			-			-			-		-		-			278,493
Total interest-earning assets	$	1,128,419			62,837			181,832			305,894		349,782		182,371			2,211,135
Interest-bearing liabilities
Interest-bearing transactions accounts	$	140,485			4,482			20,169			53,784		48,059		78,623			345,602
Savings and money market deposits		487,167			9,186			41,340			86,230		62,220		134,063			820,206
Time deposits		14,472			55,745			127,204			60,314		38,689		224			296,648
Federal Home Loan Bank and other borrowed money		-			-			-			7,000		-		-			7,000
Subordinated debt		-			-			-			-		24,513		-			24,513
Total interest-bearing liabilities	$	642,124			69,413			188,713			207,328		173,481		212,910			1,493,969
Interest sensitivity gap
Period gap	$	486,295			(6,576	)		(6,881	)		98,566		176,301		(30,539	)		717,166
Cumulative gap		486,295			479,719			472,838			571,404		747,705		717,166
Cumulative gap - Rate-Sensitive Assets/Rate-Sensitive Liabilities		21.99	%		21.70			21.38			25.84		33.82		32.43

(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 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 “gap” analysis presents only a static view of the timing and repricing opportunities, without taking into consideration the fact that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short timeframe, but those are viewed by management as significantly less interest-sensitive than market-based rates, such as those paid on non-core deposits. For this and other reasons, we rely more on the simulation analysis (as described above) in managing interest rate risk. Net interest income may be impacted by other significant factors in a given interest rate environment, including changes in the volume and mix of earning assets and interest-bearing liabilities.

Market Risk

Our earnings are dependent, to a large degree, on our net interest income, which is the difference between interest income earned on all earning assets, primarily consisting of loans and securities, and interest paid on all interest-bearing liabilities, primarily consisting of deposits. Market risk is the risk of loss from adverse changes in market prices and interest rates. Our market risk arises primarily from inherent interest rate risk in our lending, investing and deposit-gathering activities. We seek to reduce our exposure to market risk through actively monitoring and managing interest rate risk. Management relies on static “gap” analysis to determine the degree of mismatch in the maturity and repricing distribution of interest-earning assets and interest-bearing liabilities, which quantifies, to a large extent, the degree of market risk inherent in our balance sheet. Gap analysis is further augmented by simulation analysis to evaluate the impact of varying levels of prevailing interest rates and the sensitivity of specific earning assets and interest-bearing liabilities to changes in those prevailing rates. Simulation analysis consists of evaluating the impact on net interest income given changes from 400 basis points below the current prevailing rates to 400 basis points above the current prevailing rates. We make certain assumptions regarding the effect that varying levels of interest rates have on certain earning assets and interest-bearing liabilities, based on both historical experience and consensus estimates of outside sources. We also manage interest rate risk by entering into derivative contracts to modify the characteristics of the related balance sheet instruments in order to reduce the adverse effect of changes in interest rates. To mitigate the interest rate risk associated with mandatory delivery of mortgage loans, we enter into forward commitments to sell mortgage-backed securities. See Note 11 to the Unaudited Consolidated Financial Statements for more information on derivative instruments.

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. The scenarios are inclusive of all interest rate hedging activities.

	MARKET RISK
	Impact on Net Interest Income
	As of
	March 31,			December 31,
Change in prevailing interest rates	2017			2016
+400 basis points		21.70	%		22.37	%
+300 basis points		16.30			16.79
+200 basis points		10.89			11.20
+100 basis points		5.37			5.51
0 basis points		-			-
-100 basis points		(6.52	)		(5.31	)
-200 basis points		(12.87	)		(11.75	)
-300 basis points		(16.70	)		(16.32	)
-400 basis points		(20.06	)		(20.19	)

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Capital Resources

Total shareholders’ equity attributable to NCC at March 31, 2017 was $310.0 million, or 12.7% of total assets. At December 31, 2016, total shareholders’ equity attributable to NCC was $229.7 million, or 11.8% of total assets. The increase in shareholders’ equity during the first quarter of 2017 was primarily attributable to our acquisition of Private Bancshares, the exercise of options to purchase our common stock and other share-based compensation and 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 existing treatment for accumulated other comprehensive income. The Company and Bank have made the election to retain the existing treatment for accumulated other comprehensive income.

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 March 31, 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 has been added to the minimum requirements for capital adequacy purposes and is subject to a three-year phase-in period. The capital conservation buffer will be fully phased-in on January 1, 2019 at 2.5%. A banking organization with a conservation buffer of less than 2.5% (or the required phase-in amount in years prior to 2019) will be subject to limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. The ratios for the Company and Bank are currently sufficient to satisfy the fully phased-in conservation buffer.

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The following table sets forth selected consolidated capital ratios at March 31, 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 PromptCorrective Action Provisions
As of March 31, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-Weighted Assets)
NCC	$	241,126		13.07	%	$	147,606		8.00	%		N/A		N/A
NBC	$	211,336		11.46	%	$	147,514		8.00	%	$	184,393		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)
NCC	$	204,048		11.06	%	$	110,704		6.00	%		N/A		N/A
NBC	$	198,771		10.78	%	$	110,635		6.00	%	$	147,514		8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
NCC	$	204,048		11.06	%	$	83,028		4.50	%		N/A		N/A
NBC	$	198,771		10.78	%	$	82,976		4.50	%	$	119,855		6.50	%
Tier 1 Capital (to Average Assets)
NCC	$	204,048		8.86	%	$	92,089		4.00	%		N/A		N/A
NBC	$	198,771		8.64	%	$	91,986		4.00	%	$	114,983		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 March 31, 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 March 31, 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 as of April 24, 2017, by and among National Commerce Corporation, National Bank of Commerce and Patriot Bank ((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 April 24, 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, 2015)
3.2	By-Laws of National Commerce Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-4 (File No. 333-198219), filed with the Securities and Exchange Commission on August 18, 2014)
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 March 31, 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: May 10, 2017	/s/ John H. Holcomb, III
	John H. Holcomb, III Chief Executive Officer and Chairman of the Board
Date: May 10, 2017	/s/ William E. Matthews, V
	William E. Matthews, V Chief Financial Officer and Vice Chairman of the Board

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