Basis of Presentation

The accompanying unaudited consolidated financial statements of First NBC Bank Holding Company (Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three-month and six-month periods ended June 30, 2015 are not necessarily indicative of the results that may be expected for the entire fiscal year. These statements should be read in conjunction with the Company’s audited financial statements, including the notes thereto, which were filed with the Securities and Exchange Commission as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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

Nature of Operations

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

Correction of Immaterial Errors

The Company identified errors in the accounting for its investments in certain tax credit entities during its quarterly financial statement close process. The errors were corrected in the Company’s consolidated financial statements as of June 30, 2015 and for the three months then ended. The errors did not have a material impact to the consolidated financial statements for any prior periods as previously reported and were not material to the anticipated annual results for the year ended December 31, 2015.

The Company has historically accounted for the investments in tax credits entities using an amortized cost method over the related tax credit compliance period. The Company determined that based on its equity ownership structure in certain of these investments the equity method of accounting should have been applied. Under the equity method of accounting, the Company records its share of earnings (losses) as a component of noninterest expense and evaluates its investments in tax credit entities for impairment at the end of each reporting period. During the review of certain of its investments in tax credit entities, the Company also identified a single investment in a tax credit entity, determined to be a variable interest entity (VIE) that was not consolidated as required. The Company was deemed to have a controlling financial interest in the VIE because it had both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE.

The Company utilized the guidance provided in Accounting Standards Codification (ASC) Topic 250 as well as SEC Staff Accounting Bulletins (SAB) No. 99 and No. 108. The guidance required the Company to evaluate and assess the materiality of these errors both qualitatively and quantitatively, and the Company concluded that these errors did not materially misstate previously issued financial statements for any prior periods. As a result, amendment of the Company’s previously filed Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K are not required. Such changes are reflected in the financial results for the three and six month periods ended June 30, 2015 and are summarized as follows:



	For the Three Months Ended June 30, 2015			For the Three Months Ended June 30, 2015			For the Six Months Ended June 30, 2015			For the Six Months Ended June 30, 2015
(In thousands)	Pre-Tax			Net of tax			Pre-Tax			Net of tax

Low-Income Housing (1)	$	(253	)	$	(164	)	$	(353	)	$	(229	)
Federal Historic Rehabilitation (1)	177			115			358			232
Total investment in tax credit entities impairment (1)	(76		)	(49		)	5			3

Low-Income Housing investment VIE consolidation loss (2)	(1,029		)	(669		)	(1,181		)	(768		)

Net loss impact of error corrections	$	(1,105	)	$	(718	)	$	(1,176	)	$	(765	)

Earnings Per Share (EPS)-Basic (3)	$	(0.06	)	$	(0.04	)	$	(0.06	)	$	(0.04	)

(1) The amounts above represent the cumulative net impact of the reversal of previously recorded amortization and equity income or loss and impairment that should have been recorded on the Company's consolidated statement of income and balance sheets as of and for the three and six month periods ended June 30, 2015.

(2) See Note 7 for the impact on the Company's consolidated balance sheets as of June 30, 2015.

(3) The amounts above represent the net impact of the cumulative errors in accounting for certain of the Company's investments in tax credit entities on the calculation of EPS for the three and six month periods ended June 30, 2015.

Principles of Consolidation

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

Investments in Tax Credit Entities

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

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

For Federal Historic Rehabilitation credits, the Company invests in a tax credit entity, usually a limited liability company, which owns the real estate. The Company receives a 99% interest that must be retained during the compliance period for the credits (5 years). In most cases, the Company’s interest in the entity is generally reduced from a 99% interest to a 5% to 25% interest at the end of the compliance period. Control of the tax credit entity rests in the 1% interest general partner, who has the power and authority to make decisions that impact economic performance of the project and is required to oversee and manage the project. The Company accounts for its investment in Federal Historic Rehabilitation credits utilizing the equity method of accounting and evaluates its investment at the end of each reporting period for impairment.

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

When the Company is the tax credit investor in a CDE formed by an unaffiliated party, it has no control of the applicable CDE or the CDE’s special-purpose subsidiary. When a project is funded through FNBC CDE, the Company consolidates its CDE and the specifically formed special-purpose entities since it maintains control over these entities. As part of the activities of FNBC CDE, the Company makes investments in the CDE for purposes of providing equity to the projects sponsored by the FNBC CDE.

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

Use of Estimates

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

Concentration of Credit Risk

The Company’s loan portfolio consists of the various types of loans described in Note 5. Real estate or other assets secure most loans. The majority of these loans have been made to individuals and businesses in the Company’s market area of southeastern Louisiana, southern Mississippi, and the Florida panhandle, which are dependent on the area economy for their livelihoods and servicing of their loan obligations. The Company does not have any significant concentrations to any one industry or customer.

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

Reclassifications

Certain reclassifications have been made to prior period balances to conform to the current period presentation.

Recent Accounting Pronouncements

ASU No. 2014-09

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 205): An Amendment of the FASB Accounting Standards Codification, which clarifies the principles for recognizing revenue from contracts with customers. The new accounting guidance, which does not apply to financial instruments, is effective on a retrospective basis for annual reporting periods beginning after December 15, 2017, with early adoption permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not expect the new guidance to have a material impact on the Company's financial condition or results of operations.

ASU No. 2014-12

In June 2014, the FASB issued ASU No. 2014-12 Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is intended to resolve the diverse accounting treatments of these types of awards in practice and is effective for annual and interim periods beginning after December 15, 2015. The Company does not expect the new guidance to have a material impact on the Company's financial condition or results of operations.

ASU No. 2014-13

In August 2014, the FASB issued ASU No. 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and Financial Liabilities of a Consolidated Collateralized Financing Entity, which will allow an alternative fair value measurement approach for consolidated collateralized financing entities (CFEs) to eliminate a practice issue that results in measuring the fair value of a CFE’s financial assets at a different amount from the fair value of its financial liabilities even when the financial liabilities have recourse to only the financial assets. The approach would permit the parent company of a consolidated CFE to measure the CFE’s financial assets and financial liabilities based on the more observable of the fair value of the financial assets and the fair value of the financial liabilities. The new accounting guidance is for the annual period ending after December 15, 2015, and for annual periods and interim periods thereafter, with early application permitted as of the beginning of an annual period. The Company does not expect the new guidance to have a material impact on the Company’s financial condition or results of operations.

ASU No. 2014-15

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

ASU No. 2015-02

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which eliminates the deferral of FAS 167 and makes changes to both the variable interest model and the voting model. The new accounting guidance is for the annual period beginning after December 15, 2015, and for annual periods and interim periods thereafter, with early application permitted. The Company does not expect the new guidance to have a material impact on the Company's financial condition or results of operations.

ASU No. 2015-03

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new accounting guidance is for the annual period beginning after December 15, 2015, and for annual periods and interim periods thereafter, with early application permitted. The Company does not expect the new guidance to have a material impact on the Company's financial condition or results of operations.

ASU No. 2015-05

In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance to clarify a customer’s accounting for fees paid in a cloud computing arrangement. The new accounting guidance is for the annual period beginning after December 15, 2015, and for annual periods and interim periods thereafter, with early application permitted. The Company does not expect the new guidance to have a material impact on the Company's financial condition or results of operations.