UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10–Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

Commission file number: 001-35915

FIRST NBC BANK HOLDING COMPANY

(Exact name of registrant as specified in its charter)

Louisiana	14-1985604
(State of incorporation or organization)	(I.R.S. Employer Identification Number)
210 Baronne Street, New Orleans, Louisiana	70112
(Address of principal executive offices)	(Zip code)

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

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

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

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

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

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

As of November 1, 2013, the registrant had 17,934,287 shares of common stock, par value $1.00 per share, outstanding.

FIRST NBC BANK HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS

(In thousands)	(Unaudited) September 30, 2013			December 31, 2012
Assets
Cash and due from banks	$	54,061		$	26,471
Short-term investments		71,096			9,541
Investment securities available for sale, at fair value		487,442			486,399
Investment securities held to maturity		95,429			—
Mortgage loans held for sale		3,988			25,860
Loans, net of allowance for loan losses of $29,990 and $26,977, respectively		2,187,522			1,895,240
Bank premises and equipment, net		49,838			47,067
Accrued interest receivable		9,832			8,728
Goodwill and other intangible assets		8,495			8,682
Investment in real estate properties		9,429			6,935
Investment in tax credit entities		85,857			67,393
Cash surrender value of bank-owned life insurance		26,022			25,506
Other real estate		6,481			8,632
Deferred tax asset		44,295			16,589
Receivables from sales of investments		—			16,909
Other assets		21,285			20,915
Total assets	$	3,161,072		$	2,670,867
Liabilities and equity
Deposits:
Noninterest-bearing	$	241,383		$	239,538
Interest-bearing		2,392,794			2,028,990
Total deposits		2,634,177			2,268,528
Short-term borrowings		—			21,800
Repurchase agreements		67,619			36,287
Long-term borrowings		55,220			75,220
Derivative instruments		5,119			6,854
Accrued interest payable		6,425			5,557
Other liabilities		23,701			8,519
Total liabilities		2,792,261			2,422,765
Shareholders’ equity:
Preferred stock
Convertible preferred stock Series C – no par value; 1,680,219 shares authorized; 916,841 shares issued and outstanding at September 30, 2013 and December 31, 2012		11,231			11,231
Preferred stock Series D – no par value; 37,935 shares authorized, issued and outstanding at September 30, 2013 and December 31, 2012		37,935			37,935
Common stock- par value $1 per share; 20,000,000 shares authorized; 17,933,992 shares issued and outstanding at September 30, 2013 and 13,052,583 shares issued and outstanding at December 31, 2012		17,934			13,052
Additional paid-in capital		229,995			128,984
Accumulated earnings		86,928			59,825
Accumulated other comprehensive loss, net		(15,213	)		(2,926	)
Total shareholders’ equity		368,810			248,101
Noncontrolling interest		1			1
Total equity		368,811			248,102
Total liabilities and equity	$	3,161,072		$	2,670,867

See accompanying notes.

2

FIRST NBC BANK HOLDING COMPANY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	For the three months ended September 30,						For the nine months ended September 30,
(In thousands, except per share data)	2013			2012			2013			2012
Interest income:
Loans, including fees	$	28,566		$	24,603		$	81,117		$	71,640
Investment securities		3,361			2,289			8,348			6,318
Short-term investments		46			35			122			105
		31,973			26,927			89,587			78,063
Interest expense:
Deposits		9,516			7,387			26,578			21,495
Borrowings and securities sold under repurchase agreements		634			548			2,244			1,520
		10,150			7,935			28,822			23,015
Net interest income		21,823			18,992			60,765			55,048
Provision for loan losses		2,400			1,800			7,400			6,235
Net interest income after provision for loan losses		19,423			17,192			53,365			48,813
Noninterest income:
Service charges on deposit accounts		501			608			1,461			1,993
Investment securities gain, net		—			103			306			1,860
Gain (loss) on other assets sold, net		11			(12	)		141			229
Gain (loss) on fixed assets, net		3			—			10			(4	)
Gain on sale of loans, net		44			—			322			603
Cash surrender value income on bank-owned life insurance		166			187			516			567
Income from sales of state tax credits		390			71			1,180			790
Community Development Entity fees earned		400			36			1,728			276
ATM fee income		474			409			1,387			1,250
Other		472			156			964			815
		2,461			1,558			8,015			8,379
Noninterest expense:
Salaries and employee benefits		6,023			4,729			16,643			15,060
Occupancy and equipment expenses		2,626			2,641			7,592			7,434
Professional fees		1,711			329			4,704			2,246
Taxes, licenses and FDIC assessments		1,087			760			2,938			2,333
Tax credit investment amortization		2,403			1,445			6,295			3,907
Write-down of other real estate		29			22			131			251
Data processing		1,086			1,063			3,202			3,180
Advertising and marketing		507			617			1,476			1,617
Other		1,620			1,980			4,928			5,159
		17,092			13,586			47,909			41,187
Income before income taxes		4,792			5,164			13,471			16,005
Income tax benefit		(5,673	)		(3,130	)		(13,884	)		(8,008	)
Net income		10,465			8,294			27,355			24,013
Less net income attributable to noncontrolling interests		—			(17	)		—			(135	)
Net income attributable to Company		10,465			8,277			27,355			23,878
Less preferred stock dividends		(62	)		(226	)		(252	)		(415	)
Income available to common shareholders	$	10,403		$	8,051		$	27,103		$	23,463
Earnings per common share – basic	$	0.55		$	0.58		$	1.65		$	1.69
Earnings per common share – diluted	$	0.54		$	0.57		$	1.61		$	1.66

See accompanying notes.

3

FIRST NBC BANK HOLDING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	For the three months ended September 30,						For the nine months ended September 30,
(In thousands)	2013			2012			2013			2012
Net income	$	10,465		$	8,277		$	27,355		$	23,878
Other comprehensive income (loss):
Fair value of derivative instruments designated as cash flow hedges:
Change in fair value of derivative instruments designated as cash flow hedges during the period, before tax		(5,065	)		(1,232	)		1,734			(7,077	)
Unrealized (loss) gain on investment securities:
Unrealized (loss) gain on investment securities arising during the period		2,510			2,686			(14,412	)		6,079
Less: reclassification adjustment for (gains) losses included in net income		—			(103	)		(306	)		(1,860	)
Transfer of unrealized loss on securities from available for sale to held to maturity during the period		(5,919	)		—			(5,919	)		—
Unrealized (loss) gain on investment securities, before tax		(3,409	)		2,583			(20,637	)		4,219
Other comprehensive income (loss), before taxes		(8,474	)		1,351			(18,903	)		(2,858	)
Income tax (benefit) related to items of other comprehensive income (loss)		(2,966	)		485			(6,616	)		(973	)
Other comprehensive (loss) income, net of tax		(5,508	)		866			(12,287	)		(1,885	)
Comprehensive income		4,957			9,143			15,068			21,993
Comprehensive income attributable to noncontrolling interests		—			(17	)		—			(135	)
Comprehensive income attributable to preferred shareholders		(62	)		(226	)		(252	)		(415	)
Comprehensive income available to common shareholders	$	4,895		$	8,900		$	14,816		$	21,443

See accompanying notes.

4

FIRST NBC BANK HOLDING COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands)	Preferred Stock Series C			Preferred Stock Series D		Common Stock		Additional Paid-In Capital		Accumulated Earnings			Accumulated Other Comprehensive Income			Total Shareholders’ Equity			Non-Controlling Interest			Total Equity
Balance, December 31, 2011(1)	$	20,582		$	37,935	$	12,153	$	118,010	$	31,395		$	1,795		$	221,870		$	1,646		$	223,516
Net income		—			—		—		—		23,878			—			23,878			—			23,878
Other comprehensive income		—			—		—		—		—			(1,885	)		(1,885	)		—			(1,885	)
Restricted stock and share-based compensation		—			—		20		366		—			—			386			—			386
Issuance of common stock		—			—		116		1,707		—			—			1,823			—			1,823
Conversion of preferred stock to common stock		(9,351	)		—		763		8,588		—			—			—			(1,644	)		(1,644	)
Preferred stock dividends and discount accretion		—			—		—		—		(415	)		—			(415	)		—			(415	)
Distribution to noncontrolling interest		—			—		—		—		—			—			—			—			—
Balance, September 30, 2012	$	11,231		$	37,935	$	13,052	$	128,671	$	54,858		$	(90	)	$	245,657		$	2		$	245,659
Balance, December 31, 2012(1)	$	11,231		$	37,935	$	13,052	$	128,984	$	59,825		$	(2,926	)	$	248,101		$	1		$	248,102
Net income		—			—		—		—		27,355			—			27,355			—			27,355
Other comprehensive income		—			—		—		—		—			(12,287	)		(12,287	)		—			(12,287	)
Restricted stock and share-based compensation		—			—		—		320		—			—			320			—			320
Issuance of common stock, net of direct cost of $10,820		—			—		4,882		100,691		—			—			105,573			—			105,573
Preferred stock dividends		—			—		—		—		(252	)		—			(252	)		—			(252	)
Balance, September 30, 2013	$	11,231		$	37,935	$	17,934	$	229,995	$	86,928		$	(15,213	)	$	368,810		$	1		$	368,811

⁽¹⁾  Balances as of December 31, 2011 and December 31, 2012 are audited.

See accompanying notes.

5

FIRST NBC BANK HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended September 30,
(In thousands)	2013			2012
Operating activities
Net income	$	27,355		$	23,878
Adjustments to reconcile net income to net cash provided by operating activities:
Noncontrolling interest		—			(1,644	)
Deferred tax benefit		(13,884	)		(8,008	)
Amortization of tax credit investments		6,295			3,907
Net discount accretion or premium amortization		2,261			3,960
Gain on sale of investment securities		(306	)		(1,860	)
Gain on sale of other assets		(141	)		(229	)
Write-down of other real estate owned		131			251
(Gain) loss on sale of fixed assets		(10	)		4
Proceeds from sale of mortgage loans held for sale		81,744			55,437
Mortgage loans originated and held for sale		(59,872	)		(68,793	)
Gain on sale of loans		(322	)		(603	)
Provision for loan losses		7,400			6,235
Depreciation and amortization		2,210			1,989
Share-based and other compensation expense		320			787
Increase in cash surrender value of bank-owned life insurance		(516	)		(567	)
Decrease in receivables from sales of investments		16,909			—
Changes in operating assets and liabilities:
Change in other assets		(2,794	)		2,225
Change in accrued interest receivable		(1,104	)		(1,027	)
Change in accrued interest payable		(868	)		165
Change in other liabilities		16,918			6,244
Net cash provided by operating activities		81,726			22,351
Investing activities
Purchases of available-for-sale investment securities		(243,084	)		(243,894	)
Proceeds from sales of available-for-sale investment securities		37,385			45,502
Proceeds from maturities, prepayments, and calls of available-for-sale investment securities		86,222			98,579
Proceeds from maturities, prepayments, and calls of held to maturity securities		545			—
Reimbursement of investment in tax credit entities		262			21,168
Purchases of investments in tax credit entities		(24,162	)		(20,207	)
Loans originated, net of repayments		(305,170	)		(159,425	)
Proceeds from sale of bank premises and equipment		10			7
Purchases of bank premises and equipment		(4,794	)		(16,086	)
Proceeds from disposition of real estate owned		783			3,247
Net cash used in investing activities		(452,003	)		(271,109	)
Financing activities
Net change in repurchase agreements		31,332			26,850
Repayment of borrowings		(41,800	)		(1,515	)
Net increase in deposits		364,569			236,492
Proceeds from sale of common stock, net of offering costs		105,573			1,420
Dividends paid		(252	)		(415	)
Net cash provided by financing activities		459,422			262,832
Net change in cash, due from banks, and short-term investments		89,145			14,074
Cash, due from banks, and short-term investments at beginning of period		36,012			67,371
Cash, due from banks, and short-term investments at end of period	$	125,157		$	81,445

See accompanying notes.

6

FIRST NBC BANK HOLDING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of First NBC Bank Holding Company (Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the nine-month period ended September 30, 2013 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, for the year ended December 31, 2012, which were filed with the Securities and Exchange Commission (SEC) as part of the Company’s Registration Statement on Form S-1, dated April 8, 2013.

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 and the Mississippi Gulf Coast. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States and to prevailing practices within the banking industry.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and 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). 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 Certified Development Entity (CDE) formed to apply for and receive allocations of New Markets tax credits (NMTC).

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, and share-based compensation.

Concentration of Credit Risk

The Company’s loan portfolio consists of the various types of loans described in Note 4. Real estate or other assets secure most loans. The majority of these loans have been made to individuals and businesses in the Company’s market area of southeastern Louisiana and southern Mississippi, 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. 2011-11

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 provides new accounting guidance that eliminates offsetting of financial instruments disclosure differences between GAAP and IFRS. ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, clarifies the scope of ASU No. 2011-11. New disclosures will be required for recognized financial instruments, such as derivatives, repurchase agreements, and reverse repurchase agreements, that are either: (a) offset on the balance sheet in accordance with the FASB’s offsetting guidance, or (b) subject to an enforceable master netting arrangement or similar agreement, regardless of

7

whether they are offset in accordance with the FASB’s offsetting guidance. The objective of the new disclosure requirements is to enable users of the financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. This amended guidance will be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The adoption of this guidance, which involves disclosure only, will not impact the Company’s results of operations or financial position. The Company currently does not net its financial instruments on its balance sheets.

ASU No. 2012-06

In October 2012, the FASB issued ASU No. 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution, which clarifies the applicable guidance for subsequently measuring an indemnification asset recognized in a government-assisted acquisition of a financial institution that includes a loss-sharing agreement. The ASU addresses the diversity in practice in the interpretation of the terms “on the same basis” and “contractual limitations” used in accounting guidance. Accounting principles require that an indemnification asset recognized at the acquisition date as a result of a government-assisted acquisition of a financial institution involving an indemnification agreement shall be subsequently measured on the same basis as the indemnified item. The provisions of this ASU clarify that, upon subsequent remeasurement of an indemnification asset, the effect of the change in expected cash flows of the indemnification agreement shall be amortized. Any amortization of changes in value is limited to the lesser of the contractual term of the indemnification agreement and the remaining life of the indemnified assets. The ASU does not affect the guidance relating to the recognition or initial measurement of an indemnification asset. The amendments in this ASU are effective for fiscal years after December 15, 2012, with early adoption permitted. The Company does not have an indemnification asset recorded and therefore, the adoption of this ASU will not have a material impact on the Company’s results of operations, financial position, or disclosures.

ASU No. 2013-02

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires the Company to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income in the Company’s consolidated statement of comprehensive income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. The ASU does not change the current requirements for reporting net income or other comprehensive income in the consolidated financial statements of the Company, but does require the Company to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The provisions of the ASU are effective prospectively beginning after December 15, 2013, with early adoption permitted. The adoption of this ASU is reflected in the accompanying consolidated statements of comprehensive income.

8

2. Earnings Per Share

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

	For the three months ended September 30,				For the nine months ended September 30,
(In thousands, except per share data)	2013		2012		2013		2012
Basic: Net income available to common shareholders	$	10,403	$	8,051	$	27,103	$	23,463
Less: Net income attributable to participating securities (Series C preferred stock)		519		537		1,512		1,692
Net income attributable to common shareholders	$	9,884	$	7,514	$	25,591	$	21,771
Weighted-average common shares outstanding		17,885,333		13,028,416		15,507,969		12,920,261
Basic earnings per share	$	0.55	$	0.58	$	1.65	$	1.69
Diluted: Net income attributable to common shareholders	$	9,884	$	7,514	$	25,591	$	21,771
Weighted-average common shares outstanding		17,885,333		13,028,416		15,507,969		12,920,261
Effect of dilutive securities:
Stock options outstanding		403,610		107,162		305,087		100,325
Restricted stock grants		—		—		—		—
Warrants		80,555		51,956		65,724		49,338
Weighted-average common shares outstanding – assuming dilution		18,369,498		13,187,534		15,878,780		13,069,924
Diluted earnings per share	$	0.54	$	0.57	$	1.61	$	1.66

For the nine month period ended September 30, 2013 and September 30, 2012, and the three month period ended September 30, 2012, the calculations of diluted earnings per share outstanding exclude the effect from the assumed exercise of 87,059 shares of warrants outstanding, respectively. This amount would have had an antidilutive effect on earnings per share.

3. Investment Securities

The amortized cost and market values of investment securities, with gross unrealized gains and losses, as of September 30, 2013 and December 31, 2012, were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses						Estimated Market Value
					Less Than One Year			Greater Than One Year
September 30, 2013
Available for sale:
U.S. government agency securities	$	172,004	$	27	$	(10,092	)	$	—		$	161,939
U.S. Treasury securities		13,024		—		(665	)		—			12,359
Municipal securities		26,175		131		(189	)		—			26,117
Mortgage-backed securities		59,389		573		(1,298	)		(11	)		58,653
Corporate bonds		37,151		251		(1,094	)		—			36,308
Other securities		192,066		—		—			—			192,066
	$	499,809	$	982	$	(13,338	)	$	(11	)	$	487,442
Held to maturity:
Municipal securities	$	44,360	$	1	$	—		$	—		$	44,361
Mortgage-backed securities		51,068		—		—			—			51,068
	$	95,428	$	1	$	—		$	—		$	95,429

9

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses					Estimated Market Value
					Less Than One Year			Greater Than One Year
December 31, 2012
Available for sale:
U.S. government agency securities	$	128,665	$	83	$	(1	)	$	—	$	128,747
U.S. Treasury securities		10,040		5		—			—		10,045
Municipal securities		61,907		884		(44	)		—		62,747
Mortgage-backed securities		152,481		1,615		(254	)		—		153,842
Corporate bonds		49,912		410		(348	)		—		49,974
Other securities		81,044		—		—			—		81,044
	$	484,049	$	2,997	$	(647	)	$	—	$	486,399

Included in other securities are short-term trade receivables purchased on an exchange, which are covered by a repurchase agreement from the seller of the receivables, if not paid within a specified period.

During the third quarter of 2013, the Company transferred securities with a fair value of $95.4 million from available-for-sale to held to maturity. Management determined it has both the positive intent and ability to hold these securities until maturity. The securities were reclassified at fair value at the time of the transfer and represented a non-cash transaction. Accumulated other comprehensive income included net pre-tax unrealized losses of $5.9 million on these securities at the date of transfer. These unrealized losses and offsetting other comprehensive income components are being amortized into net interest income over the remaining life of the related securities as a yield adjustment, resulting in no impact on future net income.

As of September 30, 2013, the Company had 63 securities that were in a loss position. The unrealized losses for each of the 63 securities relate to market interest rate changes. The Company has considered the current market for the securities in a loss position, as well as the severity and duration of the impairments, and expects that the value will recover. As of September 30, 2013, management does not intend to sell these investments until the fair value exceeds amortized cost and it is not more likely than not the Company will be required to sell debt securities before the anticipated recovery of the amortized cost basis of the security; thus, the impairment is determined not to be other-than-temporary.

As of December 31, 2012, the Company had 39 securities that were in a loss position. The unrealized losses for each of the 39 securities relate to market interest rate changes. The Company has considered the current market for the securities in a loss position, as well as the severity and duration of the impairments, and expects that the value will recover. As of December 31, 2012, management had both the intent and ability to hold these investments until the fair value exceeds amortized cost; thus, the impairment is determined not to be other-than-temporary. In addition, management does not believe the Company will be required to sell debt securities before the anticipated recovery of the amortized cost basis of the security.

The amortized cost and estimated market values by contractual maturity of investment securities as of September 30, 2013 and December 31, 2012 are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2013				December 31, 2012
	Amortized Cost		Estimated Market Value		Amortized Cost		Estimated Market Value
Available for sale:
Due in one year or less	$	220,239	$	220,441	$	200,701	$	200,797
Due after one year through five years		70,853		71,041		106,676		108,349
Due after five years through ten years		176,261		166,657		130,396		130,958
Due after ten years		32,456		29,303		46,276		46,295
Total securities	$	499,809	$	487,442	$	484,049	$	486,399
Held to maturity:
Due in one year or less	$	17,810	$	17,810	$	—	$	—
Due after one year through five years		19,952		19,952		—		—
Due after five years through ten years		36,197		36,198		—		—
Due after ten years		21,469		21,469		—		—
Total securities	$	95,428	$	95,429	$	—	$	—

Securities with estimated market values of $192.2 million and $121.4 million at September 30, 2013 and December 31, 2012, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, and long-term borrowings.

Proceeds from sales of securities for the nine months ended September 30, 2013 and the year ended December 31, 2012 were $37.4 million and $125.4 million, respectively. Gross gains of $0.5 million and $4.3 million were realized on these sales for the nine months ended September 30, 2013 and year ended December 31, 2012, respectively. There were gross losses of $0.2 million for the nine months ended September 30, 2013 and there were no gross losses for the year ended December 31, 2012.

10

4. Loans

Major classifications of loans at September 30, 2013 and December 31, 2012 were as follows (in thousands):

	September 30, 2013			December 31, 2012
Commercial real estate loans:
Construction	$	178,041		$	159,999
Mortgage(1)		1,108,897			983,164
		1,286,938			1,143,163
Consumer real estate loans:
Construction		12,276			7,738
Mortgage		110,983			102,699
		123,259			110,437
Commercial and industrial loans		756,953			622,105
Loans to individuals, excluding real estate		17,789			14,000
Nonaccrual loans		18,846			21,083
Other loans		13,727			11,429
		2,217,512			1,922,217
Less allowance for loan losses		(29,990	)		(26,977	)
Loans, net	$	2,187,522			1,895,240

⁽¹⁾  Included in commercial real estate loans, mortgage, are owner-occupied real estate loans, of $351.0 million at September 30, 2013 and $345.4 million at December 31, 2012.

A summary of changes in the allowance for loan losses during the nine months ended September 30, 2013 and September 30, 2012 is as follows (in thousands):

	September 30, 2013			September 30, 2012
Balance, beginning of period	$	26,977		$	18,122
Provision charged to operations		7,400			6,235
Charge-offs		(4,498	)		(1,213	)
Recoveries		111			230
Balance, end of period	$	29,990		$	23,374

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

	September 30, 2013
	Construction			Commercial Real Estate			Consumer Real Estate			Commercial and Industrial			Other Consumer			Total
Allowance for loan losses:
Beginning balance	$	2,004		$	10,716		$	2,450		$	11,675		$	132		$	26,977
Charge-offs		(46	)		(135	)		(88	)		(4,063	)		(166	)		(4,498	)
Recoveries		—			19			21			60			11			111
Provision		832			3,187			250			2,851			280			7,400
Ending balance	$	2,790		$	13,787		$	2,633		$	10,523		$	257		$	29,990
Ending balances:
Individually evaluated for impairment	$	221		$	1,451		$	540		$	1,154		$	—		$	3,366
Collectively evaluated for impairment	$	2,569		$	12,336		$	2,093		$	9,369		$	257		$	26,624
Loans receivable:
Ending balance-total	$	192,241		$	1,120,422		$	113,414		$	773,571		$	17,864		$	2,217,512
Ending balances:
Individually evaluated for impairment	$	1,067		$	10,192		$	2,885		$	3,028		$	—		$	17,172
Collectively evaluated for impairment	$	191,174		$	1,110,230		$	110,529		$	770,543		$	17,864		$	2,200,340

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	September 30, 2012
	Construction		Commercial Real Estate			Consumer Real Estate			Commercial and Industrial			Other Consumer			Total
Allowance for loan losses:
Beginning balance	$	722	$	9,871		$	1,519		$	5,928		$	82		$	18,122
Charge-offs		—		(426	)		(59	)		(575	)		(153	)		(1,213	)
Recoveries		16		129			22			18			45			230
Provision		1,223		1,991			863			1,978			180			6,235
Ending balance	$	1,961	$	11,565		$	2,345		$	7,349		$	154		$	23,374
Ending balances:
Individually evaluated for impairment	$	—	$	704		$	266		$	483		$	—		$	1,453
Collectively evaluated for impairment	$	1,961	$	10,861		$	2,079		$	6,866		$	154		$	21,921
Loans receivable:
Ending balance-total	$	154,471	$	916,849		$	97,791		$	625,825		$	13,407		$	1,808,343
Ending balances:
Individually evaluated for impairment	$	48	$	4,286		$	1,427		$	2,025		$	—		$	7,786
Collectively evaluated for impairment	$	154,423	$	912,563		$	96,364		$	623,800		$	13,407		$	1,800,557

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

	September 30, 2013
	Pass and Pass/Watch		Special Mention		Substandard		Doubtful		Total
Construction	$	176,113	$	5	$	16,123	$	—	$	192,241
Commercial real estate		1,068,183		1,647		50,592		—		1,120,422
Consumer real estate		108,886		740		3,788		—		113,414
Commercial and industrial		767,610		17		5,944		—		773,571
Other consumer		17,685		7		172		—		17,864
Total loans	$	2,138,477	$	2,416	$	76,619	$	—	$	2,217,512
	December 31, 2012
	Pass and Pass/Watch		Special Mention		Substandard		Doubtful		Total
Construction	$	146,748	$	3,258	$	18,538	$	—	$	168,544
Commercial real estate		962,694		1,698		24,602		—		988,994
Consumer real estate		101,334		751		1,431		—		103,516
Commercial and industrial		620,851		18		14,984		11,237		647,090
Other consumer		13,859		13		201		—		14,073
Total loans	$	1,845,486	$	5,738	$	59,756	$	11,237	$	1,922,217

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

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

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

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

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

12

Age analysis of past due loans, including loans acquired with deteriorated credit quality, as of the dates indicated were as follows (in thousands):

	September 30, 2013
	Greater Than 30 and Fewer Than 90 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current Loans		Total Loans
Real estate loans:
Construction	$	—	$	1,924	$	1,924	$	190,317	$	192,241
Commercial real estate		688		8,874		9,562		1,110,860		1,120,422
Consumer real estate		1,576		2,227		3,803		109,611		113,414
Total real estate loans		2,264		13,025		15,289		1,410,788		1,426,077
Other loans:
Commercial and industrial		78		2,246		2,324		771,247		773,571
Other consumer		24		75		99		17,765		17,864
Total other loans		102		2,321		2,423		789,012		791,435
Total loans	$	2,366	$	15,346	$	17,712	$	2,199,800	$	2,217,512
	December 31, 2012
	Greater Than 30 and Fewer Than 90 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current Loans		Total Loans
Real estate loans:
Construction	$	—	$	751	$	751	$	167,793	$	168,544
Commercial real estate		960		5,914		6,874		982,120		988,994
Consumer real estate		483		651		1,134		102,382		103,516
Total real estate loans		1,443		7,316		8,759		1,252,295		1,261,054
Other loans:
Commercial and industrial		671		2,197		2,868		644,222		647,090
Other consumer		25		54		79		13,994		14,073
Total other loans		696		2,251		2,947		658,216		661,163
Total loans	$	2,139	$	9,567	$	11,706	$	1,910,511	$	1,922,217

The table above, as of September 30, 2013, excludes $180,000 and $21,000 of other consumer loans past due greater than 30 and fewer than 90 days and 90 days and greater past due, respectively. These loans are cash secured and the company has a right of offset, against the guarantors deposit account, when the loans are 120 days past due.

13

The following is a summary of information pertaining to impaired loans, which consist primarily of nonaccrual loans, excluding loans acquired with deteriorated credit quality, as of the periods indicated (in thousands):

	September 30, 2013
	Recorded Investment		Contractual Balance		Related Allowance
With no related allowance recorded:
Construction	$	48	$	48	$	—
Commercial real estate		4,408		4,453		—
Consumer real estate		2,141		2,162		—
Commercial and industrial		1,047		1,064		—
Other consumer		—		—		—
Total	$	7,644	$	7,727	$	—
With an allowance recorded:
Construction	$	1,019	$	1,019	$	221
Commercial real estate		5,784		6,074		1,451
Consumer real estate		744		744		540
Commercial and industrial		1,981		2,031		1,154
Other consumer		—		—		—
Total	$	9,528	$	9,868	$	3,366
Total impaired loans:
Construction	$	1,067	$	1,067	$	221
Commercial real estate		10,192		10,527		1,451
Consumer real estate		2,885		2,906		540
Commercial and industrial		3,028		3,095		1,154
Other consumer		—		—		—
Total	$	17,172	$	17,595	$	3,366

	December 31, 2012
	Recorded Investment		Contractual Balance		Related Allowance
With no related allowance recorded:
Construction	$	48	$	48	$	—
Commercial real estate		1,864		1,984		—
Consumer real estate		534		534		—
Commercial and industrial		854		874		—
Other consumer		—		—		—
Total	$	3,300	$	3,440	$	—
With an allowance recorded:
Construction	$	751	$	751	$	176
Commercial real estate		3,339		3,367		548
Consumer real estate		644		644		765
Commercial and industrial		13,279		13,280		5,453
Other consumer		—		—		—
Total	$	18,013	$	18,042	$	6,942
Total impaired loans:
Construction	$	799	$	799	$	176
Commercial real estate		5,203		5,351		548
Consumer real estate		1,178		1,178		765
Commercial and industrial		14,133		14,154		5,453
Other consumer		—		—		—
Total	$	21,313	$	21,482	$	6,942

14

The following is a summary of information pertaining to impaired loans, which consist primarily of nonaccrual loans, excluding loans acquired with deteriorated credit quality, as of the periods indicated (in thousands):

	For the three months ended
	September 30, 2013				September 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Construction	$	48	$	1	$	365	$	1
Commercial real estate		3,225		78		2,438		9
Consumer real estate		1,995		11		2,225		3
Commercial and industrial		1,108		25		1,397		10
Other consumer		—		—		—		—
Total	$	6,376	$	115	$	6,425		23
With an allowance recorded:
Construction	$	1,265	$	5	$	—	$	—
Commercial real estate		5,482		35		4,919		7
Consumer real estate		909		16		1,535		3
Commercial and industrial		1,872		8		2,008		—
Other consumer		—		—		—		—
Total	$	9,528	$	64	$	8,462	$	10
Total impaired loans:
Construction	$	1,313	$	6	$	365	$	1
Commercial real estate		8,707		113		7,357		16
Consumer real estate		2,904		27		3,760		6
Commercial and industrial		2,980		33		3,405		10
Other consumer		—		—		—		—
Total	$	15,904	$	179	$	14,887	$	33

	For the nine months ended
	September 30, 2013				September 30, 2012
	Average Recorded Investment		Average Recorded Investment		Average Recorded Investment		Average Recorded Investment
With no related allowance recorded:
Construction	$	48	$	2	$	1,146	$	2
Commercial real estate		3,136		141		2,636		45
Consumer real estate		1,338		18		953		12
Commercial and industrial		951		56		1,084		37
Other consumer		—		—		—		—
Total	$	5,473	$	217	$	5,819	$	96
With an allowance recorded:
Construction	$	885	$	16	$	—	$	—
Commercial real estate		4,562		253		1,239		16
Consumer real estate		694		17		631		11
Commercial and industrial		7,631		50		673		4
Other consumer		—		—		—		—
Total	$	13,772	$	336	$	2,543	$	31
Total impaired loans:
Construction	$	933	$	18	$	1,146	$	2
Commercial real estate		7,698		394		3,875		61
Consumer real estate		2,032		35		1,584		23
Commercial and industrial		8,582		106		1,757		41
Other consumer		—		—		—		—
Total	$	19,245	$	553	$	8,362	$	127

15

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

As of September 30, 2013, and December 31, 2012, there were no loans past due 90 days or more that were still accruing interest.

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

	September 30, 2013		December 31, 2012
Nonaccrual loans:
Construction	$	1,924	$	806
Commercial real estate		11,525		5,831
Consumer real estate		2,431		818
Commercial and industrial		2,891		13,556
Other consumer		75		72
	$	18,846	$	21,083

As of September 30, 2013 and December 31, 2012, the average recorded investment in nonaccrual loans was $13.8 million and $8.2 million, respectively. The amount of interest income that would have been recognized on nonaccrual loans based on contractual terms was $0.8 million and $0.4 million for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. As of September 30, 2013, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired.

ASC 310-30 Loans

The Company acquired certain loans from the Federal Deposit Insurance Corporation, as receiver for Central Progressive Bank, that are subject to ASC 310-30. ASC 310-30 provides recognition, measurement, and disclosure requirements for acquired loans that have evidence of deterioration of credit quality since origination for which it is probable, at acquisition, that the Company will be unable to collect all contractual amounts owed. The Company’s allowance for loan losses for all acquired loans subject to ASC 310-30 would reflect only those losses incurred after acquisition.

The following is a summary of changes in the accretable yields of acquired loans as of the periods indicated (in thousands):

	September 30, 2013			September 30, 2012
Balance, beginning of period	$	628		$	1,374
Acquisition		—			—
Net transfers from nonaccretable difference to accretable yield		45			—
Accretion		(435	)		(840	)
Balance, end of period	$	238		$	534

16

Information about the Company’s troubled debt restructurings (“TDRs”) as of September 30, 2013 and September 30, 2012, is presented in the following tables (in thousands).

	Current		Greater Than 30 Days Past Due		Nonaccrual TDRs		Total Loans
As of September 30, 2013
Real estate loans:
Construction	$	312	$	—	$	—	$	312
Commercial real estate		358		—		101		459
Consumer real estate		630		—		138		768
Total real estate loans		1,300		—		239		1,539
Other loans:
Commercial and industrial		346		—		—		346
Other consumer		—		—		—		—
Total other loans		346		—		—		346
Total loans	$	1,646	$	—	$	239	$	1,885
As of September 30, 2012
Real estate loans:
Construction	$	48	$	—	$	—	$	48
Commercial real estate		994		—		—		994
Consumer real estate		647		—		—		647
Total real estate loans		1,689		—		—		1,689
Other loans:
Commercial and industrial		397		—		—		397
Other consumer		—		—		—		—
Total other loans		397		—		—		397
Total loans	$	2,086	$	—	$	—	$	2,086

The following table provides information on how the TDRs were modified during the nine months ended September 30, 2013 and September 30, 2012 (in thousands):

	September 30, 2013		September 30, 2012
Maturity and interest rate adjustment	$	599	$	—
Movement to, or extension of, interest rate-only payments		931		1,677
Other concession(s)(1)		355		409
Total	$	1,885	$	2,086

⁽¹⁾  Other concessions include concessions or a combination of concessions, other than maturity extensions and interest rate adjustments.

17

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

	As of September 30, 2013
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled debt restructuring:
Construction		2	$	312	$	312
Commercial real estate		3		459		459
Consumer real estate		3		768		768
Commercial and industrial		1		346		346
Other consumer		—		—		—
		9	$	1,885	$	1,885
	As of September 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled debt restructuring:
Construction		1	$	48	$	48
Commercial real estate		2		994		994
Consumer real estate		2		647		647
Commercial and industrial		1		397		397
Other consumer		—		—		—
		6	$	2,086	$	2,086

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

As of September 30, 2013 and 2012, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired or as a TDR.

5. Investments in Tax Credit Entities

NMTC

Investment in Bank Owned CDE

In April 2013, FNBC CDE was selected to receive an allocation of Federal New Markets Tax Credits (NMTC), totaling $50 million, which is expected to generate $19.5 million in tax credits. During 2012 and 2011, FNBC CDE received allocations of $40 million and $28 million, respectively, which are expected to generate $15.6 million and $10.9 million, respectively in tax credits. The Federal NMTC program is administered by the Community Development Financial Institutions Fund of the U.S. Treasury and is aimed at stimulating economic and community development and job creation in low-income communities. The program provides federal tax credits to investors who make qualified equity investments (QEIs) in a CDE. The CDE is required to invest the proceeds of each QEI in projects located in or benefitting low-income communities, which are generally defined as those census tracts with poverty rates greater than 20% and/or median family incomes that are less than or equal to 80% of the area median family income.

The credit provided to the investor totals 39% of each QEI in a CDE and is claimed over a seven-year credit allowance period. In each of the first three years, the investor receives a credit equal to 5% of the total amount invested in the project. For each of the remaining four years, the investor receives a credit equal to 6% of the total amount invested in the project. The Company will be eligible to receive up to $46 million in tax credits over the seven-year credit allowance period, based on the period in which the QEI was made, for its QEI of $118 million. Through September 30, 2013, FNBC CDE has allocated $78 million to qualifying projects, of which $10 million of the 2013 award and $18.9 million of the 2012 and 2011 awards was invested by the Company and $49.1 million was invested by other investors and leverage lenders, which include the Company. These investments are expected to generate total NMTC of approximately $30.4 million, of which $4.5 million has been recognized by the Company through December 31, 2012, $3.9 million in tax benefits will be recognized from these investments during 2013 and $22 million remain available to be earned over six years beginning in 2014, subject to continuing compliance with applicable regulations. The Federal NMTCs claimed by the Company, with respect to each QEI, remain subject to recapture over each QEI’s credit allowance period upon the occurrence of any of the following:

18

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

• FNBC CDE ceases to be a CDE; or

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

At September 30, 2013 and December 31, 2012, none of the above recapture events had occurred, nor, in the opinion of management, are such events anticipated to occur in the foreseeable future. As of September 30, 2013, FNBC CDE had total assets of $79.3 million, consisting of cash of $1.8 million, loans of $76 million and other assets of $1.5 million, with liabilities of $0.3 million and capital of $79 million.

Investments through Non-Bank Owned CDEs

The Company is also a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved NMTC projects that are CDEs and that are not associated with FNBC CDE. At September 30, 2013, the Company had $32.6 million invested in these partnerships, of which $15.6 million was reimbursed by an outside lender. These investments are expected to generate NMTC of approximately $60.6 million, of which $18.9 million had been recognized by the Company through December 31, 2012, $8.3 million is expected to be recognized during 2013 and $33.4 million is expected to be recognized in periods after 2013. Based on the structure of these transactions, the Company expects to recover its investment totaling $32.6 million solely through use of the tax credits that were generated by the investments. As such, these amounts will be amortized on a straight-line basis over the period over which the Company holds its investment (approximately seven years). The Company also made loans unrelated to the generation and use of tax credits related to these real estate projects totaling $75.1 million and $64.1 million at September 30, 2013 and December 31, 2012, respectively. These loans are subject to the Company’s normal underwriting criteria and all loans were performing according to their contractual term at September 30, 2013.

Low-Income Housing Tax Credits

The Company is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved Low-Income Housing tax credit projects. At September 30, 2013 and December 31, 2012, the Company had $40.5 million and $25.3 million, respectively, invested in these partnerships which are expected to generate Low-Income Housing tax credits of approximately $51.4 million. Of that amount, $5.8 million had been recognized through December 31, 2012, $3.6 million is expected to be recognized during 2013 and $42 million is expected to be recognized in periods beginning in 2014. Based on the structure of these transactions, the Company expects to recover its remaining investments of $40.5 million at September 30, 2013, solely through use of the tax credits that were generated by the investments. As such, this amount will be amortized on a straight-line basis over the period for which the Company is required to maintain its 99.9% interest in the property (approximately 15 years). The Company also made loans unrelated to the generation and use of tax credits related to these real estate projects totaling $42 million at September 30, 2013 and December 31, 2012. These loans are subject to the Company’s normal underwriting criteria and all loans were performing according to their contractual terms at September 30, 2013.

Federal Historic Rehabilitation Tax Credits

The Company is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved Federal Historic Rehabilitation tax credit projects. At September 30, 2013 and December 31, 2012, the Company had $12.8 million and $7.1 million, respectively invested in these partnerships. These investments are expected to generate Federal Historic Rehabilitation tax credits of $12.6 million. Of that amount, $7.3 million had been recognized through December 31, 2012, $2.6 million is expected to be recognized during 2013 and the remainder is expected to be recognized in 2014. The Company also made loans unrelated to the generation and use of tax credits related to these real estate projects totaling $1 million at September 30, 2013. Based on the structure of these transactions, the Company expects to recover its investments totaling $12.8 million at September 30, 2013 solely through use of the tax credits that were generated by the investments. As such, these amounts will be amortized on a straight-line basis over the period during which the Company retains its 99.9% interest in the property (approximately 10 years). These loans are subject to the Company’s normal underwriting criteria and all loans were performing according to their contractual terms at September 30, 2013.

6. Derivative—Interest Rate Swap Agreement

During 2012, the Company entered into a delayed interest rate swap to manage exposure to future interest rate risk through modification of the Company’s net interest sensitivity to levels deemed to be appropriate. The Company entered this interest rate swap agreement to convert a portion of its forecasted variable-rate debt to a fixed rate, which is a cash flow hedge of a forecasted transaction.

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For the nine months ended September 30, 2013 and the year ended December 31, 2012, the Company has not reclassified into earnings any gain or loss as a result of the discontinuance of cash flow hedges because it was probable the original forecasted transaction would not occur by the end of the originally specified term.

At September 30, 2013, no amount of the derivative will mature within the next 12 months. The Company does not expect to reclassify any amount from accumulated other comprehensive income into interest income over the next 12 months for derivatives that will be settled.

At September 30, 2013, and for the nine months then ended, a gain of $4.0 million (net of income taxes) has been recognized in other comprehensive income. For the year ended December 31, 2012, a loss of $4.5 million (net of income taxes) has been recognized in other comprehensive income. The fair value of the derivative liability of $0.5 million and $6.9 million as of September 30, 2013 and December 31, 2012, respectively has been recognized in derivative instruments in the accompanying consolidated balance sheets. No amounts of gains or losses have been reclassified from accumulated comprehensive income nor have any amounts of gains or losses been recognized due to ineffectiveness of a portion of the derivative.

Pursuant to the interest rate swap agreement, the Company pledged collateral to the counterparties in the form of investment securities totaling $12.8 million (with a fair value at September 30, 2013 of $12.4 million), which has been presented gross in the Company’s balance sheet. There was no collateral posted from the counterparties to the Company at September 30, 2013.

During September 2013, the Company entered into a delayed interest rate swap to manage exposure against the variability in the expected future cash flows attributed to changes in the benchmark interest rate on a portion of its variable-rate debt. The Company entered this interest rate swap agreement to convert a portion of its variable-rate debt to a fixed rate, which is a cash flow hedge of a forecasted transaction. The total notional amount of the derivative contract is $150 million. The Company will receive payments from the counterparty at three-month LIBOR and make payments to the counterparty at a fixed rate of 4.165% on the notional amount. The cash flow payments on the derivative begin December 2016 and terminate September 2023.

During September 2013, the Company entered into interest rate swaps to manage exposure against the variability in the expected future cash flows on the designated Prime, Prime plus 1%, Prime plus 1% floored at 5%, and Prime plus 1% floored at 5.5% on pools of its floating rate loan portfolio. The Company entered into the interest rate swap agreements to hedge the cash flows from these pools of its floating rate loan portfolio, which is expected to offset the variability in the expected future cash flows attributable to the fluctuations in the daily weighted average Wall Street Journal Prime index, which is a cash flow hedge of a forecasted transaction. The notional amount of the contracts are Prime tranche of $30 million, Prime plus 1% tranche of $40 million, Prime plus 1% floored at 5% of $100 million, and Prime plus 1% floored at 5.5% tranche of $80 million for a total notional of $250 million. The Company will receive payments from the counterparty at a fixed rate of interest and pay the counterparty at the Prime rate associated with each tranche on its notional amount. The Prime tranche will receive payments at a fixed rate of 4.70% and pay the counterparty at Prime on the notional amount. The Prime plus 1% tranche will receive payments at a fixed rate of 5.70% and pay the counterparty at Prime plus 1% on the notional amount. The Prime plus 1% floored at 5% tranche will receive payments at a fixed rate of 6.01% and pay the counterparty at Prime plus 1%, floored at 5% on the notional amount. The Prime plus 1% floored at 5.5% tranche will receive payments at a fixed rate of 6.26% and pay the counterparty at Prime plus 1% floored at 5.5% on the notional amount. The cash flow payments on the derivatives began September 2013 and terminate September 2019.

For the nine months ended September 30, 2013, the Company has not reclassified into earnings any gain or loss as a result of the discontinuance of cash flow hedges because it was probable the original forecasted transaction would not occur by the end of the originally specified term.

At September 30, 2013, no amount of the derivative will mature within the next 12 months. The Company does not expect to reclassify any amount from accumulated other comprehensive income into interest income over the next 12 months for derivatives that will be settled.

At September 30, 2013, and for the nine months then ended, a loss of $6.2 million (net of income taxes) has been recognized in other comprehensive income. The fair value of the derivative liability of $4.6 at September 30, 2013 has been recognized in derivative instruments in the accompanying consolidated balance sheets. No amounts of gains or losses have been reclassified from accumulated comprehensive income nor have any amounts of gains or losses been recognized due to ineffectiveness of a portion of the derivative.

Pursuant to the interest rate swap agreement, the Company pledged collateral to the counterparties in the form of investment securities totaling $72.7 million (with a fair value at September 30, 2013 of $67.8 million), which has been presented gross in the Company’s balance sheet.

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7. Income Taxes

The income tax benefit on the income from operations for the nine months ended September 30, 2013 and 2012 was as follows (in thousands):

	September 30, 2013			September 30, 2012
Current tax benefit	$	—		$	—
Deferred tax benefit		(13,884	)		(8,008	)
Total tax benefit	$	(13,884	)	$	(8,008	)

The amount of taxes in the accompanying consolidated statements of income is different from the expected amount using statutory federal income tax rates primarily due to the effect of various tax credits. As discussed in Note 5, the Company earns NMTC, Federal Historic Rehabilitation, and Low-Income Housing tax credits, which reduce the Company’s federal income tax liability or create a carryforward as applicable. The Company is also required to reduce its tax basis of the investment in certain of the projects that generated the NMTC or Federal Historic Rehabilitation tax credits by the amount of the credit generated in that year. In the opinion of management, no valuation allowance was required for the net deferred tax assets at September 30, 2013 as the amounts will more likely than not be realized as reductions of future taxable income or by utilizing available tax planning strategies.

8. Commitments and Contingencies

Off-Balance-Sheet Arrangements

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

The following is a summary of the total notional amount of loan commitments and standby letters of credit outstanding at September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013		December 31, 2012
Standby letters of credit	$	95,668	$	92,274
Unused loan commitments		297,819		256,294
	$	393,488	$	348,568

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9. Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income and changes in those components are presented in the following table (in thousands).

	Cash Flow Hedge			Transfers of Available for sale securities to Held to Maturity			Available- for-sale securities			Total
Balance at January 1, 2013	$	(6,854	)	$	—		$	3,928		$	(2,926	)
Other comprehensive income before income taxes:
Net change in unrealized gain (loss)		1,734			(5,919	)		(14,412	)		(18,597	)
Reclassification of net gains realized and included in earnings		—			—			(306	)		(306	)
Amortization of unrealized net gain (loss) on securities		—			—			—			—
Income tax expense (benefit)		607			(2,071	)		(5,152	)		(6,616	)
Balance at September 30, 2013	$	(5,727	)	$	(3,848	)	$	(5,638	)	$	(15,213	)
Balance at January 1, 2012	$	—		$	—		$	1,795		$	1,795
Other comprehensive income before income taxes:
Net change in unrealized gain (loss)		(7,077	)		—			6,079			(998	)
Reclassification of net gains realized and included in earnings		—			—			(1,860	)		(1,860	)
Income tax expense (benefit)		(2,477	)		—			1,504			(973	)
Balance at September 30, 2012	$	(4,600	)	$	—		$	4,510		$	(90	)

10. Fair Value of Financial Instruments

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

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

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

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

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

Securities are classified within Level 1 when quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using pricing models or quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Examples include certain available-for-sale securities. The Company’s investment portfolio did not include Level 3 securities as of September 30, 2013 and December 31, 2012.

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

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			September 30, 2013
			Fair Value Measurement Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities	$	487,442	$	—	$	487,442	$	—
Liabilities
Derivative instruments	$	5,119	$	—	$	5,119	$	—
			December 31, 2012
			Fair Value Measurement Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities	$	486,399	$	—	$	486,399	$	—
Liabilities
Derivative instruments	$	6,854	$	—	$	6,854	$	—

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

			September 30, 2013
			Fair Value Measurement Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Loans	$	3,678	$	—	$	—	$	3,678
OREO		168		—		—		168
	$	3,846	$	—	$	—	$	3,846
			December 31, 2012
			Fair Value Measurement Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Loans	$	21,313	$	—	$	—	$	21,313
OREO		5,434		—		—		5,434
	$	26,747	$	—	$	—	$	26,747

In accordance with ASC Topic 310, the Company records loans and other real estate considered impaired at the lower of cost or fair value. Impaired loans, recorded at fair value, are Level 3 assets measured using appraisals from external parties of the collateral, less any prior liens primarily using the market or income approach.

The Company did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis during the nine months ended September 30, 2013.

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

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

Cash and Cash Equivalents and Short-Term Investments

The carrying amounts of these short-term instruments approximate their fair values.

Investment Securities

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

Loans

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

Bank-Owned Life Insurance

The carrying amounts of the bank-owned life insurance policies are recorded at cash surrender value, which approximate their fair values.

Deposits

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

Short-Term Borrowings and Repurchase Agreements

The carrying amounts of these short-term instruments approximate their fair values.

Long-Term Borrowings

The fair values of long-term borrowings are estimated using discounted cash flows analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company’s long-term debt would, therefore, be categorized within Level 3 of the fair value hierarchy.

Derivative Instruments

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

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

	Fair Value Measurements at September 30, 2013
	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	54,061	$	54,061	$	54,061	$	—	$	—
Short-term investments		71,096		71,096		71,096		—		—
Investment securities available for sale		487,442		487,442		—		487,442		—
Investment securities held to maturity		95,429		95,429				95,429
Loans and loans held for sale		2,221,500		2,203,552		—		—		2,203,552
Cash surrender value of bank-owned life insurance		26,022		26,022		—		26,022		—
Financial Liabilities:
Deposits, noninterest-bearing		241,383		241,383		—		241,383		—
Deposits, interest-bearing		2,392,794		2,324,379		—		—		2,324,379
Short-term borrowings and repurchase agreements		67,619		67,619		—		67,619		—
Long-term borrowings		55,220		56,774		—		—		56,774
Derivative instruments		5,119		5,119		—		5,119		—

	Fair Value Measurements at December 31, 2012
	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	43,380	$	43,380	$	43,380	$	—	$	—
Short-term investments		9,541		9,541		9,541		—		—
Investment securities available for sale		486,399		486,399		—		486,399		—
Loans and loans held for sale		1,948,077		1,939,622		—		—		1,939,622
Cash surrender value of bank-owned life insurance		25,506		25,506		—		25,506		—
Financial Liabilities:
Deposits, noninterest-bearing		239,538		239,538		—		239,538		—
Deposits, interest-bearing		2,028,990		2,033,696		—		—		2,033,696
Short-term borrowings and repurchase agreements		58,087		58,087		—		58,087		—
Long-term borrowings		75,220		77,566		—		—		77,566
Derivative instruments		6,854		6,854		—		6,854		—

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

The following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of First NBC Bank Holding Company and its wholly owned subsidiary, First NBC Bank, from December 31, 2012 to September 30, 2013 and for the nine months ended September 30, 2013 and September 30, 2012. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements, accompanying the footnotes and supplemental data included herein.

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

Forward-looking statements are not historical facts and may be affected by numerous factors, many of which are uncertain and beyond the Company’s control. Factors that may cause actual results to differ materially from these forward-looking statements are discussed in the risk factors discussed in the Company’s Quarterly Report on Form 10-Q, dated August 14, 2013, and other reports and statements the Company has filed with the SEC. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

EXECUTIVE OVERVIEW

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

During the nine months ended September 30, 2013, the Company’s income available to common shareholders totaled $27.1 million, an increase of $3.6 million, or 15.5%, compared to the nine months ended September 30, 2012. Diluted earnings per share for the nine months ended September 30, 2013 were $1.61, a decrease of $0.05, or 3.0%, compared to the nine months ended September 30, 2012. During the third quarter of 2013, the Company’s income available to common shareholders totaled $10.4 million, an increase of $2.4 million, or 29.2%, compared to third quarter of 2012. Diluted earnings per share for the third quarter of 2013 were $0.54, a decrease of $0.03, or 5.3%, compared to third quarter of 2012. The 2013 earnings per share amounts were affected by the Company’s initial public offering, which closed on May 15, 2013, in which it issued 4,791,667 shares at a price of $24.00 per share. The issuance of the new shares, the proceeds of which are expected to support the Company’s continued asset and earnings growth, caused the reduction in earnings per share from the comparable periods of 2012 while not yet impacting the Company’s earnings.

Key components of the Company’s performance during the nine months of 2013 are summarized below.

• Total assets at September 30, 2013 were $3.2 billion, an increase of $490.2 million, or 18.4%, from December 31, 2012.

• Total loans at September 30, 2013 were $2.2 billion, an increase of $295.3 million, or 15.4%, from December 31, 2012. The increase in loans was primarily due to increases of $131.4 million, or 13.3%, in commercial real estate loans, $124.2 million, or 19.5%, in commercial loans, and $23.7 million, or 14.1%, in construction loans from December 31, 2012.

• Total deposits increased $365.6 million, or 16.1%, from December 31, 2012. The increase was due primarily to increases in money market deposits of $130.2 million, or 31.7%, NOW deposits of $106.5 million, or 24.3%, and certificates of deposit of $121.3 million, or 10.7%, from December 31, 2012.

• Shareholders’ equity increased $120.7 million, or 48.7%, to $368.8 million from December 31, 2012. The increase was primarily attributable to the results of the Company’s initial public offering and retained earnings over the period.

• Interest income increased $5.0 million, or 18.7%, in the third quarter of 2013 compared to the third quarter of 2012. For the nine months ended September 30, 2013, interest income increased $11.5 million, or 14.8%, compared to the nine months ended September 30, 2012. The increases were driven by an increase in investment securities and loan growth, and were partially offset by lower yields on average interest-earning assets.

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• Interest expense increased $2.2 million, or 27.9%, in the third quarter of 2013 compared to the third quarter of 2012. For the nine months ended September 30, 2013, interest expense increased $5.8 million, or 25.2%, compared to the nine months ended September 30, 2012. The increases were primarily due to higher average balances of interest-bearing deposits and the Company’s tiered rate structure for all of its deposits. During the third quarter of 2013, the Company began a strategic effort to lower its cost of funds, the primary benefit of which is expected to be realized in the fourth quarter of 2013 and thereafter.

• The provision for loan losses increased $0.6 million, or 33.3%, for the third quarter of 2013 compared to the third quarter of 2012. The increase reflects the growth in the loan portfolio The provision for loan loss remained unchanged on a linked-quarter basis. For the nine months ended September 30, 2013, the provision totaled $7.4 million, an increase of $1.2 million, or 18.7%, compared to the nine months ended September 30, 2012. As of September 30, 2013, the Company’s ratio of allowance for loan losses to total loans was 1.35%, compared to 1.40% at December 31, 2012.

• Net charge-offs for the third quarter of 2013 were $0.2 million, compared to net loan charge-offs of $0.1 million and $4.1 million for the second and first quarter of 2013, respectively. The increase in net charge-offs for the first quarter of 2013 resulted primarily from the partial charge-off of one commercial loan relationship.

• Noninterest income for the third quarter of 2013 increased $0.9 million, or 57.8%, compared to the third quarter of 2012 due primarily to gains on sales of tax credits ($0.3 million) and CDE fees earned ($0.4 million). For the nine months ended September 30, 2013, noninterest income decreased $0.4 million, or 4.4%, compared to the nine months ended September 30, 2012 due to lower service charges on deposit accounts ($0.5 million) and lower securities gains ($1.6 million), which were offset by an increase in CDE fees earned ($1.5 million).

• Noninterest expense for the third quarter of 2013 increased $3.5 million, or 25.8%, compared to the third quarter of 2012. The increase in noninterest expense in the third quarter of 2013 compared to the third quarter of 2012 resulted primarily from higher professional fees ($1.4 million), tax credit amortization ($1.0 million), and salaries and benefits expense ($1.3 million). For the nine months ended September 30, 2013, noninterest expense increased $6.7 million, or 16.3%, compared to the nine months ended September 30, 2012. The increase resulted primarily from increases in tax credit amortization ($2.4 million) and professional fees ($2.5 million).

This discussion and analysis contains financial information determined by methods other than in accordance with GAAP. The Company’s management uses these non-GAAP financial measures in their analysis of the Company’s performance. Tangible book value per common share and the ratio of tangible common equity to tangible assets are not financial measures recognized under GAAP and, therefore, are considered non-GAAP financial measures.

The Company’s management, banking regulators, many financial analysts and other investors use these non-GAAP financial measures to compare the capital adequacy of banking organizations with significant amounts of preferred equity and/or goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. Tangible common equity, tangible assets, tangible book value per share or related measures should not be considered in isolation or as a substitute for total shareholders’ equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Company calculates tangible common equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP. The following table reconciles, as of the dates set forth below, shareholders’ equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets and calculates tangible book value per share.

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TABLE 1—RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

	As of
(in thousands, except per share data)	September 30, 2013			December 31, 2012
Total shareholders’ equity GAAP	$	368,810		$	248,101
Adjustments
Preferred equity		49,166			49,166
Goodwill		4,808			4,808
Other intangibles		3,687			3,874
Tangible common equity	$	311,149		$	190,253
Total assets-GAAP	$	3,161,072		$	2,670,867
Adjustments
Goodwill		4,808			4,808
Other intangibles		3,687			3,874
Tangible assets	$	3,152,577		$	2,662,185
Total common shares		17,933,992			13,052,583
Book value per common share	$	17.82		$	15.24
Effect of adjustment		0.47			0.66
Tangible book value per common share	$	17.35		$	14.58
Total shareholders’ equity to assets		11.67	%		9.29	%
Effect of adjustment		1.80			2.14
Tangible common equity to tangible assets		9.87	%		7.15	%

FINANCIAL CONDITION

Assets increased $490.2 million, or 18.4%, to $3.2 billion as of September 30, 2013, compared to $2.7 billion as of December 31, 2012 as the Company continues to experience strong growth in the New Orleans market area. Net loans increased $292.3 million, or 15.4%, to $2.2 billion as of September 30, 2013, compared to $1.9 billion as of December 31, 2012. During the period, the Company transferred $95.4 million of its investment security portfolio to held-to-maturity. Securities totaled $582.9 million compared to $486.4 million as of December 31, 2012, an increase of 19.8%, on the total portfolio. Deposits increased $365.6 million, or 16.1%, to $2.6 billion as of September 30, 2013, compared to $2.3 billion as of December 31, 2012. Total shareholders’ equity increased $120.7 million, or 48.7%, to $368.8 million as of September 30, 2013, compared to $248.1 million as of December 31, 2012, primarily from the gross proceeds of the initial public offering of 4,791,667 shares of its common stock during the second quarter of 2013.

Loan Portfolio

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

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

TABLE 2—TOTAL LOANS BY LOAN TYPE

	September 30, 2013					December 31, 2012
(dollars in thousands)	Amount		Percent			Amount		Percent
Construction	$	192,241		8.7	%	$	168,544		8.8	%
Commercial real estate		1,120,422		50.5			988,994		51.4
Consumer real estate		113,414		5.1			103,516		5.4
Commercial		759,844		34.3			635,661		33.1
Consumer		17,864		0.8			14,073		0.7
Other		13,727		0.6			11,429		0.6
Total loans	$	2,217,512		100.0	%	$	1,922,217		100.0	%

The Company’s primary focus has been on commercial real estate and commercial lending, which remained at 84% of the loan portfolio as of September 30, 2013 and December 31, 2012. Although management expects continued growth with respect to the loan portfolio, it does not expect any significant changes over the foreseeable future in the composition of the loan portfolio or in the emphasis on commercial real estate and commercial lending.

A significant portion, $351.0 million, or 31.3%, as of September 30, 2013, compared to $345.4 million, or 34.9%, as of December 31, 2012, of the commercial real estate exposure represented loans to commercial businesses secured by owner occupied real estate which, in effect, are commercial loans with the borrowers’ real estate providing a secondary source of repayment. Commercial loans represent the second largest category of loans in the portfolio. The Company attributes its commercial loan growth primarily to the implementation of its relationship-based banking model and the success of its relationship managers in transitioning commercial banking relationships from other local financial institutions and in competing for new business from attractive small to mid-sized commercial customers located in its market for which this approach to customer service is desirable.

Nonperforming Assets

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

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

Once the Company owns the property, it is maintained, marketed, rented and sold to repay the original loan. Historically, foreclosure trends have been low due to the seasoning of the portfolio.

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

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

TABLE 3—NONPERFORMING ASSETS

(dollars in thousands)	September 30, 2013			December 31, 2012
Nonaccrual loans:
Construction	$	1,924		$	806
Commercial real estate		11,525			5,831
Consumer real estate		2,431			818
Commercial		2,891			13,556
Consumer		75			72
Total nonaccrual loans		18,846			21,083
Restructured loans		1,646			2,336
Total nonperforming loans		20,492			23,419
Other assets owned (1)		291			—
Other real estate owned		6,481			8,632
Total nonperforming assets	$	27,264		$	32,051
Accruing loans past due 90+ days	$	81		$	—
Nonperforming loans to total loans		0.92	%		1.22	%
Nonperforming loans to total assets		0.65	%		0.88	%
Nonperforming assets to total assets		0.86	%		1.20	%
Nonperforming assets to loans, other real estate owned and other assets owned		1.23	%		1.66	%

⁽¹⁾  Represents repossessed property other than real estate.

Approximately $0.8 million and $0.4 million of gross interest income would have been accrued if all loans on nonaccrual status had been current in accordance with their original terms at September 30, 2013 and December 31, 2012.

The Company’s historically strong asset quality improved during the third quarter of 2013. Total nonperforming assets decreased $4.8 million, or 14.9%, as compared to December 31, 2012, and total nonperforming assets as a percentage of loans and other real estate owned decreased by 43 basis points over the period. The decrease resulted from a $4.0 million partial charge-off on a commercial loan during the first quarter of 2013. Management believes that the Company’s historical low level of nonperforming assets reflects the strength of the local economy, as well as the Company’s long-term knowledge of and relationships with a significant percentage of its borrowers.

Potential problem loans are those loans that are not categorized as nonperforming loans, but where current information indicates that the borrower may not be able to comply with present loan repayment terms. These are generally referred to as its watch list loans. The Company monitors past due status as an indicator of credit deterioration and potential problem loans. A loan is considered past due when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. To the extent that loans become past due, management assesses the potential for loss on such loans as it would with other problem loans and considers the effect of any potential loss in determining its provision for probable loan losses. Management also assesses alternatives to maximize collection of any past due loans, including, without limitation, restructuring loan terms, requiring additional loan guarantee(s) or collateral or other planned action. Additional information regarding past due loans as of September 30, 2013 is included in Note 4 to the Company’s financial statements for the periods ended September 30, 2013 and December 31, 2012 included in this report.

Allowance for Loan Losses

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

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

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The allowance for loan losses was $29.9 million, or 1.35% of total loans, as of September 30, 2013, compared to $27.0 million, or 1.40% of total loans, as of December 31, 2012, a decrease of 5 basis points over the period. The decrease in allowance for loan losses as a percent of total loans, was primarily attributable to the increase in net charge-offs for the first quarter of 2013 which related to the partial charge-off of one commercial loan. This loss was fully reserved at December 31, 2012. Net charge-offs as a percentage of average loans was 0.21% for the third quarter of 2013, compared to 0.07% for the third quarter of 2012.

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

TABLE 4—SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES

	For the Nine Months Ended September 30,
(dollars in thousands)	2013			2012
Beginning balance	$	26,977		$	18,122
Charge-offs:
Construction		46			—
Commercial real estate		135			426
Consumer real estate		88			59
Commercial		4,063			575
Consumer		166			153
Total charge-offs		4,498			1,213
Recoveries:
Construction		—			16
Commercial real estate		19			129
Consumer real estate		21			22
Commercial		60			18
Consumer		11			45
Total recoveries		111			230
Net charge-offs		4,387			983
Provision for loan loss		7,400			6,235
Balance at end of period	$	29,990		$	23,374
Net charge-offs to average loans		0.21	%		0.07	%
Allowance for loan losses to total loans		1.35	%		1.29	%

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

The allowance for loan losses is allocated to loan categories based on the relative risk characteristics, asset classifications and actual loss experience of the loan portfolio. Note 4 of the footnotes to the consolidated financial statements provides further information on the Company’s allowance for loan losses.

Securities

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

The securities portfolio consists primarily of U.S. government agency obligations, mortgage-backed securities and municipal securities, although the Company also holds corporate bonds and other securities. The other securities are short-term trade receivables purchased on an exchange. All of the securities have varying contractual maturities. However, these maturities do not necessarily represent the expected life of the securities as the securities may be called or paid down without penalty prior to their stated maturities, and the targeted duration for the investment portfolios is in the three to four year range. No investment in any of these securities exceeds any applicable limitation imposed by law or regulation. The asset/liability management committee reviews the investment portfolio on an ongoing basis to ensure that the investments conform to the Company’s investment policy. All securities as of September 30, 2013 were classified as Level 2 assets, as their fair value was estimated using pricing models or quoted prices of securities with similar characteristics.

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The investment portfolio consists of “available-for-sale” and “held-to-maturity” securities. As of September 30, 2013, the Company transferred $95.4 million of its municipal securities and mortgage-backed securities from available-for-sale to held-to-maturity. The securities transferred were predominately longer duration than those remaining in the available-for-sale portfolio, and will allow the Company to reduce the tangible common equity volatility and provide flexibility in asset and liability management. The carrying values of the Company’s available-for-sale securities are adjusted for unrealized gain or loss as a valuation allowance, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income.

The Company’s investment securities portfolio totaled $582.9 million at September 30, 2013, an increase of $96.5 million, or 19.8% from December 31, 2012. The increase in its securities portfolio was primarily due to the Company investing some of the proceeds from the initial public offering. The Company increased its investment in other securities by $111.0 million, as compared to December 31, 2012. The other securities provide a higher short-term return for the Company. During 2013, the other securities have lives ranging from 9 days to 335 days, and have a weighted average interest rate of 1.96%. As of September 30, 2013, investment securities having a carrying value of $202.5 million were pledged to secure public deposits, securities sold under agreements to repurchase and borrowings.

The following table presents a summary of the amortized cost and estimated fair value of the investment portfolio, which includes available-for-sale and held-to-maturity securities.

TABLE 5—CARRYING VALUE OF SECURITIES

	September 30, 2013							December 31, 2012
(dollars in thousands)	Amortized Cost		Unrealized Gain / (Loss)			Estimated Fair Value		Amortized Cost		Unrealized Gain / (Loss)		Estimated Fair Value
Available for sale:
U.S. government agency securities	$	172,004	$	(10,065	)	$	161,939	$	128,665	$	82	$	128,747
U.S. Treasury securities		13,024		(665	)		12,359		10,040		5		10,045
Municipal securities		26,175		(58	)		26,117		61,907		840		62,747
Mortgage-backed securities		59,389		(736	)		58,653		152,481		1,361		153,842
Corporate bonds		37,151		(843	)		36,308		49,912		62		49,974
Other securities		192,066		—			192,066		81,044		—		81,044
	$	499,809	$	(12,367	)	$	487,442	$	484,049	$	2,350	$	486,399
Held to maturity:
Municipal securities	$	44,360	$	1		$	44,361	$	—	$	—	$	—
Mortgage-backed securities		51,068		—			51,068		—		—		—
	$	95,428	$	1		$	95,429	$	—	$	—	$	—

All of the Company’s mortgage-backed securities are agency securities. The Company does not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, sub-prime, Alt-A, or second lien elements in the investment portfolio. At September 30, 2013, the investment portfolio did not contain any securities that were directly backed by subprime or Alt-A mortgages.

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

Note 3 of the footnotes to the consolidated financial statements provides further information on the Company’s investment securities.

Short-term Investments

Short-term investments result from excess funds that fluctuate daily depending on the funding needs of the Company and are currently invested overnight in interest-bearing deposit accounts at the Federal Reserve of Atlanta, First National Bankers Bank, JP Morgan Chase Bank, and Comerica Bank. The balance in interest-bearing deposits at other institutions increased $61.6 million, to $71.1 million at September 30, 2013, from $9.5 million at December 31, 2012. The primary cause of the increase at September 30, 2013 was the existence of cash from the proceeds of the initial public offering and maturities of investment securities that had not been reinvested at September 30, 2013. The Company’s cash activity is further discussed in the “Liquidity and Capital Resources” section below.

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Investment in Tax Credit Entities

During September 2013, the Company’s Community Development Entity (CDE) was awarded $19.6 million in qualified equity investment authority from the State of Louisiana under the Louisiana New Markets Job Act. Subsequently, the CDE was awarded an additional $4.3 million in qualified equity investment authority from the State of Louisiana under the same program. These credits are available for use against Louisiana insurance premium tax liability and will be allocated through a partnership structure and sold to a third party insurance investor.

During the second quarter of 2013, the Company’s CDE was awarded a $50 million allocation of Federal New Market Tax Credits to invest in new economic development projects in the New Orleans area. The allocation represents a 25% increase over the prior year allocation of $40 million and increased total allocations under the program to $118 million. The Company has made and will continue to make material investments in tax credit-motivated projects. Management believes that these investments present attractive after tax economic returns, further the Company’s Community Reinvestment Act responsibilities and support the communities that the Company serves. Currently, the investments are directed at tax credits issued under the New Markets Tax Credit, Federal Historic Rehabilitation Tax Credit and Low-Income Housing Tax Credit programs. The Company generates returns on tax credit-motivated projects through the receipt of federal and, if applicable, state tax credits. The Company’s investment in tax credit entities totaled $85.9 million as of September 30, 2013, an increase of $18.5 million, or 27.4%, compared to December 31, 2012.

Deferred Tax Asset

The Company had a net deferred tax asset of $44.3 million as of September 30, 2013 due to its tax net operating losses, carryforwards related to unused tax credits, and the non-deductibility of the loan loss provision for tax purposes. The Company assesses the recoverability of its deferred tax asset quarterly, and the current and projected level of taxable income provides for the ultimate realization of the carrying value of these deferred tax assets. Net deferred tax assets as of September 30, 2013 increased $27.7 million, or 167.0%, from December 31, 2012, primarily as a result of $21.2 million in tax credits generated during the first nine months of 2013, tax benefit from the workout of a certain loan, and a net benefit of $6.6 million related to other comprehensive income market value adjustments.

Deposits

Deposits are the Company’s primary source of funds to support earning assets. During the third quarter of 2013, total deposits were $2.6 billion at September 30, 2013, compared to $2.3 billion at December 31, 2012, an increase of $365.6 million, or 16.1%, as total interest-bearing deposits were up $363.8 million, or 17.9%.

The following table sets forth the composition of the Company’s deposits as of September 30, 2013 and December 31, 2012.

TABLE 6—DEPOSIT COMPOSITION BY PRODUCT

									Increase/(Decrease)
(dollars in thousands)	September 30, 2013				December 31, 2012				Amount		Percent
Noninterest-bearing demand	$	241,383	9.2	%	$	239,538	10.6	%	$	1,845		0.8	%
NOW accounts		544,005	20.7			437,542	19.3			106,463		24.3
Money market deposits		541,088	20.5			410,928	18.1			130,160		31.7
Savings deposits		51,189	1.9			45,295	2.0			5,894		13.0
Certificates of deposits		1,256,512	47.7			1,135,225	50.0			121,287		10.7
Total deposits	$	2,634,177	100.0	%	$	2,268,528	100.0	%	$	365,649		16.1	%

Short-term Borrowings

Although deposits are the primary source of funds for lending, investment activities and general business purposes, as an alternative source of liquidity, the Company may obtain advances from the Federal Home Loan Bank of Dallas, sell investment securities subject to its obligation to repurchase them, purchase Federal funds, and engage in overnight borrowings from the Federal Home Loan Bank or its correspondent banks. The level of short-term borrowings can fluctuate on a daily basis depending on the funding needs and the source of funds to satisfy the needs. The Company had no short-term borrowings outstanding at September 30, 2013 and $21.8 million at December 31, 2012.

The Company also enters into repurchase agreements to facilitate customer transactions that are accounted for as secured borrowings. These transactions typically involve the receipt of deposits from customers that the Company collateralizes with its investment portfolio and had a weighted-average rates of 1.47% at September 30, 2013.

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The following table details the average and ending balances of repurchase transactions as of and for the nine months ending September 30:

TABLE 7—REPURCHASE TRANSACTIONS

(dollars in thousands)	2013		2012
Average balance	$	65,312	$	37,136
Ending balance		67,619		44,826

Long-term Borrowings

The Company’s long-term borrowings consist of four-year term debt that was issued in 2010 and 2011 at the bank level in connection with the Company’s asset/liability management as a hedge against rising interest rates. The interest related to the debt issuances is tied to the London Interbank Offered Rate, or LIBOR, and includes an interest rate cap to fix the rate at specified levels as the index rate rises.

Shareholders’ Equity

Shareholders’ equity provides a source of permanent funding, allows for future growth and provides the Company with a cushion to withstand unforeseen adverse developments. Shareholders’ equity increased $120.7 million, or 48.7%, from $248.1 million as of December 31, 2012 to $368.8 million as of September 30, 2013, primarily as a result of the Company’s initial public offering and retained earnings over the period.

Regulatory Capital

As of September 30, 2013, the Company and First NBC Bank were in compliance with all applicable regulatory capital requirements, and First NBC Bank was classified as “well capitalized” for purposes of the FDIC’s prompt corrective action requirements.

The following table presents the actual capital amounts and regulatory capital ratios for the Company and First NBC Bank as of September 30, 2013.

TABLE 8—REGULATORY CAPITAL RATIOS

	“Well- Capitalized”			At September 30, 2013
(dollars in thousands)	Minimums			Actual			Amount
First NBC Bank Holding Company
Leverage					11.83	%	$	363,160
Tier 1 risk-based					13.91			363,160
Total risk-based					15.06			393,304
First NBC Bank
Leverage		5.00	%		10.99			336,961
Tier 1 risk-based		6.00			12.92			336,961
Total risk-based		10.00			14.08			367,105

RESULTS OF OPERATIONS

Income available to common shareholders was $10.4 million and $8.1 million for the three months ended September 30, 2013 and 2012, respectively. Earnings per share on a diluted basis were $0.54 and $0.57 for the third quarters of 2013 and 2012, respectively. For the three months ended September 30, 2013, net interest income increased $2.8 million, or 14.9%, over the same period of 2012, as interest income increased $5.0 million, or 18.7%, and interest expense increased $2.2 million, or 27.9%. The increase in interest income of $5.0 million, compared to the same period of 2012, was due to an increase in average interest-earning assets of $497.7 million, which increased interest income volume to $6.1 million; this was offset by a decrease in interest income due to interest rates of $1.0 million, or 21 basis points. Net interest income was also impacted by an increase in interest expense of $2.2 million during the third quarter of 2013 compared to the third quarter of 2012. The increase was attributable to an increase in average interest-bearing liabilities of $474.4 million, which increased interest expense volume to $1.9 million, and interest expense due to rates of $0.3 million, or 5 basis points.

The quarterly trends noted above are consistent on a year-to-date basis. Income available to common shareholders was $27.1 million and $23.5 million for the nine months ended September 30, 2013 and 2012, respectively. Earnings per share on a diluted basis were $1.61 and $1.66 for the nine months ended September 30, 2013 and 2012, respectively. Net interest income increased $5.7 million, or 10.4%, compared to the nine months ended September 30, 2012, as interest income increased $11.5 million, or 14.8%, and interest expense increased $5.8 million, or 25.2%.

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Net Interest Income

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

The Company’s net interest spread, which is the difference between the yields earned on average earning assets and the rates paid on average interest-bearing liabilities, was 2.88% and 3.13% during the three months ended September 30, 2013 and 2012, respectively. On a year-to-date basis, the Company’s net interest spread of 2.85% was 33 basis points lower than the 3.18% earned during the first nine months of 2012.

Net interest income increased 14.9% to $21.8 million for the three months ended September 30, 2013, from $19.0 million for the same period in 2012. The primary driver of the increase in net interest income was a $5.0 million, or 18.7%, increase in interest income during the third quarter of 2013, as compared to the same period in 2012, which was partially offset by a $2.2 million, or 27.9%, increase in interest expense over the same periods. The increase in interest income was due primarily to the significant growth in average interest-earning assets during the third quarter of 2013 to $2.8 billion from $2.3 billion during the third quarter of 2012, which was partially offset by a decrease in the earning asset yield of 21 basis points to 4.52% from 4.73% over the same periods. The decrease in the earning asset yield was due to a combination of factors, including an increase in the proportion of the loan portfolio represented by floating rate loans and an increase in investment securities as a percentage of total assets, which carry lower average yields compared to loans. The increase in interest expense was due primarily to an increase in average interest-bearing deposits for the third quarter of 2013 to $2.5 billion, as compared to $2.0 billion for the same period in 2012, as well as to the general mix of the average interest-bearing liabilities, as the average rate on average interest-bearing liabilities was generally flat for the third quarter of 2013 and 2012. The growth in earning assets and deposits was attributable to the continued implementation of the Company’s organic growth strategy as its existing branches continued to increase market share in their respective markets.

The trends discussed above for the third quarter of 2013 compared to the third quarter of 2012 were the same trends for the nine month period ended September 30, 2013 and 2012.

During September 2013, the Company executed a total of $250 million of receive fixed swap agreements on the cash flows from its floating rate loan portfolio to hedge exposure to variable rates in its loan portfolio. The swaps are expected to offset the shift in the Company’s loan portfolio mix from fixed rates to floating rates, which is a result of a change in customer behavior over the past two years. The change in demand by the Company’s commercial customers, which has led to the shift in the portfolio mix, has lowered the Company’s earning asset yield as rates have remained low, negatively affecting the Company’s net interest margin while significantly enhancing the Company’s future results in an increasing rate environment.

In order to protect the Company’s margin while accommodating its customers’ preferences, the Company entered into a series of interest rate swaps with a six year term to receive a weighted average fixed rate of 5.88% while paying floating rates of Prime, Prime plus 1%, Prime plus 1% with a 5% floor, and Prime plus 1% with a 5.5% floor (current weighted average rate of 4.83%). The Company began receiving fixed payments on the hedge at its inception in September, and the Company earned $154,000, net, on the swaps. Despite the swaps, the Company’s net interest margin is expected to improve substantially as interest rates increase.

Also, the Company began shifting its interest-bearing deposits to tiered rates and pricing during the third quarter and will continue this into the fourth quarter of 2013. The Company expects to realize the impact from the lower cost of funds on its net interest margin in the fourth quarter of 2013 and in subsequent periods.

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

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TABLE 9—AVERAGE BALANCES, NET INTEREST INCOME AND INTEREST YIELDS/RATES

	For The Three Months Ended September 30,
	2013								2012
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Paid		Average Yield/ Rate			Average Outstanding Balance			Interest Earned/ Paid		Average Yield/ Rate
Assets:
Interest-earning assets:
Short-term investments	$	84,019		$	46		0.22	%	$	76,382		$	34		0.18	%
Investment securities		556,360			3,361		2.40			395,593			2,290		2.30
Loans (including fee income)		2,167,325			28,566		5.23			1,794,789			24,603		5.45
Total interest-earning assets		2,807,704			31,973		4.52			2,266,764			26,927		4.73
Less: Allowance for loan losses		(28,507	)							(22,567	)
Noninterest-earning assets		311,719								241,875
Total assets	$	3,090,916							$	2,486,072
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Savings deposits	$	52,215		$	82		0.62	%	$	41,594		$	63		0.60	%
Money market deposits		468,151			1,773		1.50			395,929			1,592		1.60
NOW accounts		551,012			1,845		1.33			349,501			1,098		1.25
Certificates of deposit under $100,000		418,714			1,641		1.56			444,729			1,591		1.42
Certificates of deposit of $100,000 or more		663,698			3,221		1.93			534,363			2,363		1.76
CDARS®		174,161			954		2.17			109,711			680		2.47
Total interest-bearing deposits		2,327,951			9,516		1.62			1,875,827			7,387		1.57
Short-term borrowings and repurchase agreements		70,822			265		1.48			48,477			178		1.47
Other borrowings		55,220			369		2.65			55,330			370		2.66
Total interest-bearing liabilities		2,453,993			10,150		1.64			1,979,634			7,935		1.59
Noninterest-bearing liabilities:
Non-interest-bearing deposits		243,510								235,571
Other liabilities		26,993								29,477
Total liabilities		2,724,496								2,244,682
Shareholders’ equity		366,420								241,390
Total liabilities and equity	$	3,090,916							$	2,486,072
Net interest income				$	21,823							$	18,992
Net interest spread(1)							2.88	%							3.13	%
Net interest margin(2)							3.08	%							3.33	%

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

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

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TABLE 9—AVERAGE BALANCES, NET INTEREST INCOME AND INTEREST YIELDS/RATES

	For The Nine Months Ended September 30,
	2013								2012
(dollars in thousands)	Average Outstanding Balance			Interest Earned/ Paid		Average Yield/ Rate			Average Outstanding Balance			Interest Earned/ Paid		Average Yield/ Rate
Assets:
Interest-earning assets:
Short-term investments	$	75,921		$	122		0.21	%	$	65,085		$	105		0.22	%
Investment securities		525,578			8,348		2.12			361,341			6,318		2.34
Loans (including fee income)		2,064,195			81,117		5.25			1,741,529			71,640		5.49
Total interest-earning assets		2,665,694			89,587		4.49			2,167,955			78,063		4.81
Less: Allowance for loan losses		(27,720	)							(20,747	)
Noninterest-earning assets		269,783								217,729
Total assets	$	2,907,757							$	2,364,937
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Savings deposits	$	49,059		$	230		0.63	%	$	40,907		$	176		0.58	%
Money market deposits		407,045			4,592		1.51			395,128			4,784		1.62
NOW accounts		520,381			5,118		1.31			302,417			2,687		1.19
Certificates of deposit under $100,000		425,203			4,949		1.56			449,967			5,263		1.56
Certificates of deposit of $100,000 or more		627,909			8,904		1.90			501,989			6,634		1.77
CDARS®		169,589			2,785		2.20			106,208			1,951		2.45
Total interest-bearing deposits		2,199,186			26,578		1.62			1,796,616			21,495		1.60
Short-term borrowings and repurchase agreements		66,848			726		1.45			37,280			414		1.48
Other borrowings		76,107			1,518		2.67			55,798			1,106		2.65
Total interest-bearing liabilities		2,342,141			28,822		1.65			1,889,694			23,015		1.63
Noninterest-bearing liabilities:
Non-interest-bearing deposits		237,252								222,151
Other liabilities		20,914								19,609
Total liabilities		2,600,307								2,131,454
Shareholders’ equity		307,450								233,483
Total liabilities and equity	$	2,907,757							$	2,364,937
Net interest income				$	60,765							$	55,048
Net interest spread(1)							2.85	%							3.18	%
Net interest margin(2)							3.05	%							3.39	%

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

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

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The following tables analyze the dollar amount of change in interest income and interest expense with respect to the primary components of interest-earning assets and interest-bearing liabilities. The tables show the amount of the change in interest income or interest expense caused by either changes in outstanding balances or changes in interest rates. The effect of a change in balances is measured by applying the average rate during the first period to the balance (“volume”) change between the two periods. The effect of changes in rate is measured by applying the change in rate between the two periods to the average volume during the first period. Changes attributable to both rate and volume that cannot be segregated have been allocated proportionately to the absolute value of the change due to volume and the change due to rate. Changes attributable to the additional leap year day during 2012 are reflected in the number of days column.

TABLE 10—SUMMARY OF CHANGES IN NET INTEREST INCOME

	For the Three Months Ended September 30, 2013/2012
	Change Attributable To
(dollars in thousands)	Volume		Rate			Number of Days			Total
Interest-earning assets:
Loans (including fee income)	$	5,133	$	(1,170	)	$	—		$	3,963
Short-term investments		4		8			—			12
Securities available for sale		943		129			—			1,072
Total increase (decrease) in interest income	$	6,080	$	(1,033	)	$	—		$	5,047
Interest-bearing liabilities:
Savings deposits	$	16	$	3		$	—		$	19
Money market deposits		289		(108	)		—			181
NOW accounts		643		105			—			748
Certificates of deposit		887		294			—			1,181
Borrowed funds		83		3			—			86
Total increase (decrease) in interest expense		1,918		297			—			2,215
Increase (decrease) in net interest income	$	4,162	$	(1,330	)	$	—		$	2,832
	For the Nine Months Ended September 30, 2013/2012
	Change Attributable To
(dollars in thousands)	Volume		Rate			Number of Days			Total
Interest-earning assets:
Loans (including fee income)	$	13,297	$	(3,537	)	$	(283	)	$	9,477
Short term investments		18		(1	)		—			17
Securities available for sale		2,822		(764	)		(28	)		2,030
Total increase (decrease) in interest income	$	16,137	$	(4,302	)	$	(311	)	$	11,524
Interest-bearing liabilities:
Savings deposits	$	37	$	18		$	(1	)	$	54
Money market deposits		141		(317	)		(16	)		(192	)
NOW accounts		1,988		462			(20	)		2,430
Certificates of deposit		2,576		275			(61	)		2,790
Borrowed funds		737		(4	)		(8	)		725
Total increase (decrease) in interest expense		5,479		434			(106	)		5,807
Increase (decrease) in net interest income	$	10,658	$	(4,736	)	$	(205	)	$	5,717

Provision for Loan Losses

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

For the three months ended September 30, 2013, the provision for loan losses was $2.4 million, a 33.3% increase from the same period in 2012. For the nine months ended September 30, 2013, the provision for loans losses was $7.4 million, an 18.7% increase from the same period in 2012. The increase in the provision, over the prior year three month and nine month periods, is due primarily to the increase in loan growth. As of September 30, 2013, the ratio of allowance for loan losses to total loans was 1.35%, compared to 1.40% and 1.29% at December 31, 2012 and September 30, 2012, respectively.

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Noninterest Income

For the three months ended September 30, 2013 noninterest income was $2.5 million compared to $1.6 million for the same period in 2012, an increase of $0.9 million, or 57.8%. For the first nine months of 2013, noninterest income decreased 4.4% from the same nine month period in 2012. The decrease in noninterest income for the year-to-date is due primarily to securities gains recognized of $1.9 million in the second quarter of 2012.

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

TABLE 11—NONINTEREST INCOME

	Three Months Ended								Nine Months Ended
						Percent								Percent
	September 30,					Increase			September 30,					Increase
(dollars in thousands)	2013		2012			(Decrease)			2013		2012			(Decrease)
Service charge on deposit accounts	$	501	$	608			(17.7	)%	$	1,461	$	1,993			(26.7	)%
Investment securities gains, net		—		103			NM			306		1,860			(83.6	)
Gain on other assets sold, net		11		(12	)		NM			141		229			(38.2	)
Gains on fixed assets, net		3		—			NM			10		(4	)		NM
Gain on sale of loans, net		44		—			NM			322		603			(46.6	)
Cash surrender value income on bank-owned life insurance		166		187			(11.3	)		516		567			(8.9	)
Income from sale of state tax credits		390		71			NM			1,180		790			49.3
Community Development Entity fees earned		400		36			NM			1,728		276			NM
ATM fee income		474		409			15.8			1,387		1,250			10.9
Other		472		156			NM			964		815			18.3
Total noninterest income	$	2,461	$	1,558			57.8	%	$	8,015	$	8,379			(4.4	)%

Service charges on deposit accounts. The Company earns fees from its customers for deposit-related services and these fees comprise a significant and predictable component of the Company’s noninterest income. These charges decreased $0.1 million, or 17.7%, in the third quarter of 2013 over the prior year quarter-to-date period. For the year-to-date period, total service charges decreased $0.5 million, or 26.7%. The decrease in fees was attributable to the conversion of the deposit accounts acquired from Central Progressive Bank to First NBC Bank’s system, which generally resulted in lower fees charged to former Central Progressive Bank customers.

Investment securities gain. The Company experienced a decrease in investment securities gains of $0.1 million during the third quarter of 2013 and $1.6 million for the year-to-date period when compared to the same periods of 2012. In the second quarter of 2012, the Company took advantage of market opportunities associated with the financial crises in Europe. The Company recorded no securities gains during the third quarter of 2013 and $0.3 million for the nine months ended September 30, 2013.

Gains on sale of loans. The Company has historically been an active participant in Small Business Administration and USDA loan programs as a preferred lender and typically sells the guaranteed portion of the loans that it originates. In the third quarter of 2013, the Company generated gains on loan sales of $44,000. The Company generated gains on loan sales of $0.3 million for the nine months ended September 30, 2013, compared to $0.6 million in the same period of 2012, a decrease of $0.3 million, or 46.6%. The decrease is due primarily to one large USDA loan sold in the prior year. The Company believes these government guaranteed loan programs are an important part of its service to the businesses in its communities and expects to continue expanding its efforts and income related to these programs.

Cash surrender value income on bank-owned life insurance. The income earned from bank-owned life insurance decreased in the third quarter of 2013 when compared to the third quarter of 2012, and for the nine month periods of 2013 and 2012, which is consistent with market performance and current yields.

Income from sale of state tax credits. As part of the Company’s investment in projects that generate federal income tax credits, the Company may receive state tax credits along with the federal credits. Although the Company cannot utilize state tax credits, the Company earns income on the sale of state tax credits. The increase of $0.3 million for the third quarter of 2013 compared to the same period of 2012, and the increase of $0.8 million for the nine month period of 2013 compared to the same period of 2012 was due primarily to an increase in income received from the sale of state tax credits associated with Federal Historic Rehabilitation Tax Credit projects.

Community development entity fees earned. The Company earns management fees, through its subsidiary, First NBC Community Development Fund, LLC, related to the Fund’s New Markets Tax Credit investments. Management fees are earned at the time that qualified equity investments are made and over the seven year term of the investment. For the third quarter of 2013, the management fees earned increased $0.4 million compared to the same period of 2012. For the nine months ended September 30, 2013, the management fees increased $1.5 million compared to the same period of 2012. Management expects these management fees to grow as the Company increases the Fund’s New Markets Tax Credit investments.

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ATM fee income. This category includes income generated by automated teller machines, or ATMs. The income earned from ATMs increased for the three and nine month periods ended September 30, 2013 and 2012.

Other. This category includes a variety of other income producing activities, including income generated from trust services, credit cards and wire transfers.

Noninterest Expense

Noninterest expense consists primarily of salary and employee benefits, occupancy and other expenses related to the Company’s operation and expansion. Noninterest expense increased by $3.5 million, or 25.8%, in the third quarter of 2013, compared to the same period in 2012. For the nine months ended September 30, 2013, noninterest expense increased $6.7 million, or 16.3%, compared to the nine months ended September 30, 2012.

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

TABLE 12—NONINTEREST EXPENSE

	Three Months Ended							Nine Months Ended
					Percent							Percent
	September 30,				Increase			September 30,				Increase
(dollars in thousands)	2013		2012		(Decrease)			2013		2012		(Decrease)
Salaries and employee benefits	$	6,023	$	4,729		27.4	%	$	16,643	$	15,060		10.5	%
Occupancy and equipment expenses		2,626		2,641		(0.1	)		7,592		7,434		2.1
Professional fees		1,711		329		NM			4,704		2,246		109.5
Taxes, licenses and FDIC assessments		1,087		760		43.1			2,938		2,333		26.0
Tax credit investment amortization		2,403		1,445		66.3			6,295		3,907		61.1
Write-down of other real estate		29		22		31.7			131		251		(47.8	)
Data processing		1,086		1,063		2.3			3,202		3,180		1.0
Advertising and marketing		507		617		(17.8	)		1,476		1,617		(8.7	)
Other		1,620		1,980		(18.2	)		4,928		5,159		(4.5	)
Total noninterest expense	$	17,092	$	13,586		25.8	%	$	47,909	$	41,187		16.3	%

Salaries and employee benefits. These expenses increased $1.3 million, or 27.4%, during the third quarter of 2013 compared to the same period of 2012. For the same year-to-date periods, the expense increased $1.6 million, or 10.5%. The Company had 461 full-time equivalent employees at September 30, 2013, compared to 417 employees as of September 30, 2012, an increase of 44 full time equivalent employees or 10.6%. The increase in headcount was due to the growth of the Company.

Occupancy and equipment expenses. Occupancy and equipment expenses, consisting primarily of rent and depreciation, were consistent between the third quarter of 2013 and 2012 and on a year-to-date basis over 2012. The level of the Company’s occupancy expenses is related to the number of branch offices that it maintains, and management expects that these expenses will increase as the Company continues to implement its strategic growth plan.

Professional fees. Professional fees increased during the three months ended September 30, 2013 to $1.7 million, compared to $0.3 million for the same period of 2012. For the nine months ended September 30, 2013, professional fees increased to $4.7 million, or 109.5%, compared to $2.2 million for the same period of 2012. The increase is due primarily to increases in external audit cost of $0.1 million and CDE consulting fees of $0.2 million during the third quarter of 2013 as compared to 2012. The increase in professional fees on a year-to-date basis was due to increases in external audit cost of $0.4 million, CDE management fees of $0.6 million and CDE consulting fees of $0.8 million. CDE management and consulting fees are expected to continue to increase in future periods as the Company continues to increase its investment in tax credit projects.

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Taxes, licenses and FDIC assessments. The expenses related to taxes, licenses and FDIC insurance premiums and assessments were higher in the third quarter of 2013 as compared to the same period of 2012. For the nine months ended September 30, 2013, these expenses increased $0.6 million, or 26.0% from the same period of 2012. The increase over the comparable nine month period is primarily attributable to an increase in the FDIC assessment due to the strong growth in the Company’s deposits.

Tax credit investment amortization. Tax credit investment amortization reflects amortization of investments in entities that undertake projects that qualify for tax credits against federal income taxes. At this time, investments are directed at tax credits issued under the New Markets, Federal Historic Rehabilitation and Low-Income Housing Tax Credit programs. The Company amortizes investments related to New Markets Tax Credits, Federal Historic Rehabilitation and Low-Income Housing Tax Credits over the period the Company is required by tax law (compliance period) or contract to maintain its 99.99% ownership interest in the entity. These periods are 15 years for Low-Income Housing projects, 7 years for New Market projects and 10 years for Federal Historic Rehabilitation projects.

The following table presents the amortization of tax credit investments by type of credit for the respective periods.

TABLE 13—TAX CREDIT AMORTIZATION BY CREDIT TYPE

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(dollars in thousands)	2013		2012		2013		2012
Low-Income Housing	$	475	$	475	$	1,425	$	1,425
Federal Historic Rehabilitation		176		120		603		298
New Markets		1,752		850		4,267		2,184
Total tax credit amortization	$	2,403	$	1,445	$	6,295	$	3,907

The significant increases in amortization expense related to Federal Historic Rehabilitation and New Markets’ tax credits reflect the increase in the level of activity throughout the third quarter and year-to-date of 2013 as the Company invested in additional projects.

Data processing. Data processing expenses were flat over the three and nine month periods of 2013 and 2012.

Advertising and marketing. Advertising and marketing expenses were down in the third quarter of 2013 when compared to the third quarter of 2012 and for the comparable year-to-date periods. Advertising expenses were higher in the prior year due to the bank’s expansion into markets from the Central Progressive acquisition.

Other. These expenses include costs related to insurance, customer service, communications, supplies and other operations. The increase in other noninterest expense over the periods shown was primarily attributable to an increase in categories of other noninterest expenses proportional to the overall growth and an increase in transaction volume and number of customers resulting from the Company’s organic growth.

Provision for Income Taxes

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

The Company recognized an income tax benefit for the quarterly period ended September 30, 2013 of $5.7 million, compared to $3.1 million for the same quarterly period in 2012. The Company recognized an income tax benefit for the year-to-date period ended September 30, 2013 of $13.9 million, compared to $8.0 million for the same period of 2012. The increase in income tax benefit for the periods presented was due primarily to the significant increase in New Markets tax credit investment activity in 2013 compared to 2012.

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

Although the Company’s ability to continue to access new tax credits in the future will depend, among other factors, on federal and state tax policies, as well as the level of competition for future tax credits, the Company expects to generate the following levels of tax credits over the next six calendar years based only on New Markets Tax Credit investments that have been made and over the next nine calendar years based upon the Low-Income Housing investments already made.

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TABLE 14—FUTURE TAX CREDITS

	For the Year Ended December 31,
(dollars in thousands)	2013		2014		2015		2016		2017		2018
New Markets	$	11,724	$	12,732	$	13,099	$	12,122	$	10,052	$	4,002
Low-Income Housing		3,580		3,580		3,580		3,580		3,580		3,580
Total tax credits	$	15,304	$	16,312	$	16,679	$	15,702	$	13,632	$	7,582

Liquidity and Capital Resources

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

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

Investing activities are funded primarily by net deposit inflows, principal repayments on loans and securities, and borrowed funds. Gross loans increased to $2.2 billion as of September 30, 2013, from $1.9 billion as of December 31, 2012. At September 30, 2013, First NBC Bank had commitments to make loans of approximately $393.5 million and un-advanced lines of credit and loans of approximately $297.8 million. The Company anticipates that First NBC Bank will have sufficient funds available to meet its current loan originations and other commitments.

At September 30, 2013, total deposits were approximately $2.6 billion, of which approximately $840.8 million were in certificates of deposits of $100,000 or more. Certificates of deposits scheduled to mature in one year or less as of September 30, 2013 totaled approximately $590.1 million while certificates of deposits of $100,000 or more with a maturity of one year or less totaled approximately $395.6 million.

In general, the Company monitors and manages liquidity on a regular basis by maintaining appropriate levels of liquid assets so that funds are available when needed. Excess liquidity is invested in overnight federal funds sold and other short-term investments. As a member of the Federal Home Loan Bank of Dallas, First NBC Bank had access to approximately $338.9 million of available lines of credit secured by qualifying collateral as of September 30, 2013. In addition, First NBC Bank maintains $75.0 million in lines of credit with its correspondent banks to support its liquidity.

Asset/Liability Management

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

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

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

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

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

The Company’s interest sensitivity profile was somewhat asset sensitive as of September 30, 2013, though its base net interest income would increase in the case of either an interest rate increase or decrease. Hedging instruments utilized by First NBC Bank, which consist primarily of interest rate swaps and options, protect the bank in a rising interest rate environment by providing long term funding costs at a fixed interest rate to allow the bank to continue to fund its projected loan growth. In addition, the bank utilizes interest rate floors in loan pricing to manage interest rate risk in a declining rate environment.

The following table sets forth the net interest income simulation analysis as of September 30, 2013.

TABLE 15—CHANGE IN NET INTEREST INCOME FROM INTEREST RATE CHANGES

Interest Rate Scenario	% Change in Net Interest Income
+300 basis points		9.1	%
+200 basis points		7.2	%
+100 basis points		3.6	%
Base		0.0	%
-100 basis points		9.3	%

The Company also manages exposure to interest rates by structuring its balance sheet in the ordinary course of business. An important measure of interest rate risk is the relationship of the repricing period of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk it has. From time to time, the Company may use instruments such as leveraged derivatives, structured notes, interest rate swaps, caps, floors, financial options, financial futures contracts or forward delivery contracts to reduce interest rate risk. As of September 30, 2013, the Company had hedging instruments in the notional amount of $515.0 million and with a fair value of a $5.1 million net liability.

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

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

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

Impact of Inflation

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk are presented at December 31, 2012 in the Company’s Form S-1, dated April 8, 2013, as amended, as filed with the SEC. Additional information at September 30, 2013 is included herein under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 4. Controls and Procedures

An evaluation of the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2013 was carried out under the supervision, and with the participation of, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”).

Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosures. Disclosure controls include review of internal controls that are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and transactions are properly recorded and reported. There was no significant change in the Company’s internal controls over financial reporting.

Any control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are achieved. The design of a control system inherently has limitations, including the controls’ cost relative to their benefits. Additionally, controls can be circumvented. No cost-effective control system can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company and its direct and indirect subsidiaries are parties to lawsuits arising in the ordinary course of business. However, there are no material legal proceedings pending to which the Company, any of its direct and indirect subsidiaries, or any of their respective properties are currently subject.

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Item 1A. Risk Factors

None.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No. 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 101.INS	XBRL Instance Document
Exhibit No. 101.SCH	XBRL Taxonomy Extension Schema Document
Exhibit No. 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit No. 101.LAB	XBRL Taxonomy Extension Label Linkbase Document
Exhibit No. 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit No. 101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document

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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.

	First NBC Bank Holding Company
Date: November 14, 2013	By:	/s/ Ashton J. Ryan, Jr.
	Ashton J. Ryan, Jr.
	President and Chief Executive Officer
Date: November 14, 2013	By:	/s/ Mary Beth Verdigets
	Mary Beth Verdigets
	Executive Vice President and Chief Financial Officer

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