Capital Bank Financial (CBF) 10-Q 2015 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)

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

For the quarterly period ended June 30, 2015

OR

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

For the Transition period from to

Commission File Number 001-35655

________________________________________________

(Exact name of registrant as specified in its charter)

________________________________________________

Delaware	27-1454759
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

121 Alhambra Plaza Suite 1601 Coral Gables, Florida 33134

(Address of principal executive offices) (Zip Code)

(305) 670-0200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

________________________________________________

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

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

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

Large accelerated filer	¨	Accelerated filer	ý
Non-accelerated filer	¨	Smaller reporting company	¨

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

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

Class A Voting Common Stock, $0.01 Par Value	29,886,155
Class B Non-Voting Common Stock, $0.01 Par Value	16,553,429
Class	Outstanding as of July 27, 2015

1

CAPITAL BANK FINANCIAL CORP.

FORM 10-Q

For the quarter ended June 30, 2015

INDEX

PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS	3
CONSOLIDATED BALANCE SHEETS	3
CONSOLIDATED STATEMENTS OF INCOME	4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	6
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY	7
CONSOLIDATED STATEMENTS OF CASH FLOWS	8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF	46
OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	79
ITEM 4. CONTROLS AND PROCEDURES	80
PART II: OTHER INFORMATION	80
ITEM 1. LEGAL PROCEEDINGS	80
ITEM 1A. RISK FACTORS	80
ITEM 2. UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS	80
ITEM 3. DEFAULT UPON SENIOR SECURITIES	81
ITEM 4. MINE SAFETY DISCLOSURES	81
ITEM 5. OTHER INFORMATION	81
ITEM 6. EXHIBITS	82

2

Capital Bank Financial Corp.

Consolidated Balance Sheets

(Unaudited)

(Dollars and shares in thousands)	June 30, 2015			December 31, 2014
Assets
Cash and due from banks	$	93,637		$	106,193
Interest-bearing deposits in other banks	107,649			81,942
Total cash and cash equivalents	201,286			188,135
Trading securities	2,898			2,410
Investment securities available-for-sale at fair value (amortized cost $600,053 and $554,488, respectively)	600,138			555,893
Investment securities held-to-maturity at amortized cost (fair value $431,764 and $443,379, respectively)	426,427			436,962
Loans held for sale	7,127			5,516
Loans, net of deferred loan costs and fees	5,199,287			4,994,703
Less: Allowance for loan and lease losses	48,063			50,211
Loans, net	5,151,224			4,944,492
Other real estate owned	63,737			77,626
FDIC indemnification asset	11,764			16,762
Receivable from FDIC	2,652			3,661
Premises and equipment, net	163,070			173,176
Goodwill	134,522			134,522
Intangible assets, net	16,995			18,897
Deferred income tax asset, net	117,151			129,624
Other assets	155,510			143,734
Total Assets	$	7,054,501		$	6,831,410
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Non-interest bearing demand	$	1,132,085		$	1,054,128
Interest bearing demand	1,367,123			1,383,990
Money market	991,520			898,254
Savings	479,885			500,028
Time deposits	1,521,810			1,418,700
Total deposits	5,492,423			5,255,100
Federal Home Loan Bank advances	355,995			296,091
Short-term borrowings	18,466			23,407
Long-term borrowings	84,688			139,681
Accrued expenses and other liabilities	43,583			53,557
Total liabilities	5,995,155			5,767,836
Commitments and contingencies	—			—
Shareholders’ equity
Preferred stock $0.01 par value: 50,000 shares authorized, 0 shares issued	—			—
Common stock-Class A $0.01 par value: 200,000 shares authorized, 37,160 issued and 29,886 outstanding and 36,936 issued and 30,150 outstanding, respectively.	372			370
Common stock-Class B $0.01 par value: 200,000 shares authorized, 18,327 issued and 16,554 outstanding and 18,743 issued and 17,443 outstanding, respectively.	183			187
Additional paid in capital	1,078,740			1,081,628
Retained earnings	182,782			158,403
Accumulated other comprehensive loss	(4,545		)	(3,824		)
Treasury stock, at cost, 9,047 and 8,086 shares, respectively	(198,186		)	(173,190		)
Total shareholders’ equity	1,059,346			1,063,574
Total Liabilities and Shareholders’ Equity	$	7,054,501		$	6,831,410

The accompanying notes are an integral part of these financial statements.

3

Capital Bank Financial Corp.

Consolidated Statements of Income

(Unaudited)

(Dollars and shares in thousands, except per share data)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Interest and dividend income
Loans, including fees	$	61,400		$	61,667		$	121,659		$	124,886
Investment securities:
Taxable interest income	5,089			4,393			10,002			8,940
Tax-exempt interest income	126			155			266			311
Dividends	14			15			27			30
Interest-bearing deposits in other banks	36			38			69			63
Other earning assets	646			578			1,334			1,159
Total interest and dividend income	67,311			66,846			133,357			135,389
Interest expense
Deposits	4,838			4,245			9,248			8,561
Long-term borrowings	1,645			1,719			3,370			3,423
Federal Home Loan Bank advances	134			41			309			102
Other borrowings	9			10			16			19
Total interest expense	6,626			6,015			12,943			12,105
Net Interest Income	60,685			60,831			120,414			123,284
Provision for loan and lease losses	1,299			1,404			458			1,380
Net interest income after provision for loan and lease losses	59,386			59,427			119,956			121,904
Non-Interest Income
Service charges on deposit accounts	5,189			5,672			9,894			11,108
Debit card income	3,176			3,103			6,140			5,947
Fees on mortgage loans originated and sold	1,278			1,123			2,425			1,882
Investment advisory and trust fees	1,125			910			2,131			2,171
FDIC indemnification asset expense	(2,499		)	(2,064		)	(4,938		)	(4,229		)
Investment securities gains (losses), net	231			(28		)	321			146
Other-than-temporary impairment loss on investments:
Gross impairment loss	(288		)	—			(288		)	—
Less: Impairment recognized in other comprehensive income	—			—			—			—
Net impairment loss recognized in earnings	(288		)	—			(288		)	—
Other income	2,151			3,171			4,598			6,231
Total non-interest income	10,363			11,887			20,283			23,256
Non-Interest Expense
Salaries and employee benefits	21,881			23,449			45,762			46,947
Stock-based compensation expense	108			1,020			392			1,748
Net occupancy and equipment expense	7,754			8,723			15,883			17,322
Computer services	3,343			3,389			6,740			6,642
Software expense	2,082			1,940			4,224			3,808
Telecommunication expense	1,367			1,628			2,747			3,236
OREO valuation expense	1,710			3,022			3,100			6,595
Net gains on sales of OREO	(957		)	(3,192		)	(964		)	(3,913		)
Foreclosed asset related expense	600			991			1,274			2,450

4

Loan workout expense	795		1,117		1,418		2,294
Professional fees	1,723		2,038		3,457		4,042
Losses on extinguishment of debt	1,438		—		1,438		—
Contingent value right expense	4		327		120		1,094
Regulatory assessments	1,831		1,648		3,526		3,277
Restructuring charges, net	178		—		2,519		—
Other expense	5,645		5,173		10,513		10,955
Total non-interest expense	49,502		51,273		102,149		106,497
Income before income taxes	20,247		20,041		38,090		38,663
Income tax expense	7,257		7,616		13,711		14,824
Net income	$	12,990	$	12,425	$	24,379	$	23,839
Earnings per share:
Basic	$	0.28	$	0.25	$	0.53	$	0.48
Diluted	$	0.28	$	0.25	$	0.51	$	0.47
Weighted average shares outstanding:
Basic	45,913		49,090		46,102		49,800
Diluted	47,220		50,261		47,427		51,092

The accompanying notes are an integral part of these financial statements.

5

Capital Bank Financial Corp.

Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Net Income	$	12,990		$	12,425		$	24,379		$	23,839
Other comprehensive (loss) income before tax:
Unrealized holding (losses) gains on investment securities available-for-sale	(6,624		)	4,286			(1,007		)	6,674
Reclassification adjustment for gains realized in net income on securities available-for-sale	(262		)	(26		)	(313		)	(322		)
Reclassification adjustment for losses amortized in net income on securities held-to-maturity	391			367			754			705
Unrealized holding losses on cash flow hedges	(835		)	—			(32		)	—
Reclassification adjustments for net gains included in net income on cash flow hedges	(459		)	—			(567		)	—
Other comprehensive (loss) income, before tax:	(7,789		)	4,627			(1,165		)	7,057
Tax effect	2,970			(1,797		)	444			(2,741		)
Other comprehensive (loss) income, net of tax:	(4,819		)	2,830			(721		)	4,316
Comprehensive income	$	8,171		$	15,255		$	23,658		$	28,155

The accompanying notes are an integral part of these financial statements.

6

Capital Bank Financial Corp.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(Dollars and shares in thousands)
	Shares Common Stock Class A Outstanding		Class A Stock			Shares Common Stock Class B Outstanding		Class B Stock			Additional Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
Balance, December 31, 2014	30,150		$	370		17,443		$	187		$	1,081,628		$	158,403	$	(3,824	)	$	(173,190	)	$	1,063,574
Net income	—		—			—		—			—			24,379		—			—			24,379
Other comprehensive loss, net of tax benefit of $444	—		—			—		—			—			—		(721		)	—			(721		)
Stock-based compensation	—		—			—		—			392			—		—			—			392
Excess tax benefit from share-based payment	—		—			—		—			2,179			—		—			—			2,179
Restricted stock cancelled	(192	)	(2		)	—		—			(5,459		)	—		—			—			(5,461		)
Purchase of treasury stock	(487	)	—			(474	)	—			—			—		—			(24,996		)	(24,996		)
Conversion of shares	415		4			(415	)	(4		)	—			—		—			—			—
Balance, June 30, 2015	29,886		$	372		16,554		$	183		$	1,078,740		$	182,782	$	(4,545	)	$	(198,186	)	$	1,059,346
Balance, December 31, 2013	33,051		$	362		19,047		$	196		$	1,082,235		$	107,485	$	(7,528	)	$	(69,962	)	$	1,112,788
Net income	—		—			—		—			—			23,839		—			—			23,839
Other comprehensive income, net of tax expense of $2,741	—		—			—		—			—			—		4,316			—			4,316
Stock-based compensation	—		—			—		—			1,748			—		—			—			1,748
Full value stock awards	11		—			—		—			—			—		—			—			—
Excess tax benefit from share-based payment	—		—			—		—			1,603			—		—			—			1,603
Restricted stock cancelled	(192	)	(1		)	—		—			(4,851		)	—		—			—			(4,852		)
Purchase of treasury stock	(2,567	)	—			(200	)	—			—			—		—			(65,884		)	(65,884		)
Conversion of shares	622		6			(622	)	(6		)	—			—		—			—			—
Balance, June 30, 2014	30,925		$	367		18,225		$	190		$	1,080,735		$	131,324	$	(3,212	)	$	(135,846	)	$	1,073,558

The accompanying notes are an integral part of these financial statements.

7

Capital Bank Financial Corp.

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)	Six Months Ended
	June 30, 2015			June 30, 2014
Cash flows from operating activities
Net income	$	24,379		$	23,839
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Accretion of purchased credit impaired loans	(49,892		)	(64,183		)
Depreciation and amortization	9,031			9,664
Impairment of premises and equipment	1,525			—
Provision for loan and lease losses	458			1,380
Deferred income tax	12,917			13,054
Net amortization of investment securities premium/discount	3,293			4,272
Other than temporary impairment of investment	288			—
Net realized gains on sales of investment securities	(321		)	(146		)
Stock-based compensation expense	392			1,748
Net gains on sales of OREO	(964		)	(3,913		)
OREO valuation expense	3,100			6,595
Other	2			21
Net deferred loan origination fees	(3,837		)	(3,022		)
Losses on extinguishment of debt	1,438			—
Mortgage loans originated for sale	(92,276		)	(68,141		)
Proceeds from sales of mortgage loans originated for sale	93,090			68,109
Fees on mortgage loans originated and sold	(2,425		)	(1,882		)
FDIC indemnification asset expense	4,938			4,229
Gains on sales/disposals of premises and equipment	(335		)	(44		)
Net proceeds from FDIC loss share agreements	1,128			7,327
Change in other assets	(5,260		)	(3,364		)
Change in accrued expenses and other liabilities	1,260			(8,919		)
Net cash provided by (used in) operating activities	1,929			(13,376		)
Cash flows from investing activities
Purchases of investment securities available-for-sale	(137,382		)	(108,257		)
Purchases of investment securities held-to-maturity	(29,912		)	(44,143		)
Proceeds from sale of investment securities available-for-sale	52,179			150,328
Repayments of principal and maturities of investment securities available-for-sale	36,850			51,660
Repayments of principal and maturities of investment securities held-to-maturity	40,529			33,804
Net purchases of FHLB and FRB stock	(1,995		)	(498		)
Redemption of contingent value right	(17,162		)	—
Net increase in loans	(160,518		)	(121,816		)
Purchases of premises and equipment	(3,154		)	(4,503		)
Proceeds from sales of premises and equipment	698			115
Proceeds from sales of OREO	18,810			48,295
Net cash (used in) provided by investing activities	(201,057		)	4,985

8

Cash flows from financing activities
Net increase in demand, money market and savings accounts	134,213			64,163
Net increase (decrease) in time deposits	103,110			(87,769		)
Net (decrease) increase in federal funds purchased and securities sold under agreement to repurchase	(6,308		)	7,963
Prepayment of long-term repurchase agreements	(52,295		)	—
Net increase (decrease) in short-term FHLB advances	60,000			(55,000		)
Net (decrease) increase in long-term FHLB advances	(95		)	119,907
Prepayment of subordinated debt	(3,529		)	—
Excess tax benefit from share-based payment	2,179			1,603
Purchases of treasury stock	(24,996		)	(65,884		)
Net cash provided by (used in) financing activities	212,279			(15,017		)
Net increase (decrease) in cash and cash equivalents	13,151			(23,408		)
Cash and cash equivalents at beginning of period	188,135			164,441
Cash and cash equivalents at end of period	$	201,286		$	141,033
Supplemental disclosures of cash:
Interest paid	$	10,787		$	10,556
Cash collections of contractual interest on purchased credit impaired loans	31,324			44,245
Income taxes paid	1,242			705
Supplemental disclosures of non-cash transactions:
OREO acquired through loan transfers	$	7,058		$	17,864

The accompanying notes are an integral part of these financial statements.

9

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

Nature of Operations and Principles of Consolidation

Capital Bank Financial Corp. (“CBF” or the “Company”; formerly known as North American Financial Holdings, Inc.) is a bank holding company incorporated in late 2009 in Delaware and headquartered in Florida whose business is conducted primarily through Capital Bank, National Association (“Capital Bank, NA” or the “Bank”). The Company was incorporated with the goal of creating a regional banking franchise in the southeastern region of the United States through organic growth and acquisitions of other banks, including failed, underperforming and undercapitalized banks. CBF has raised $955.6 million to make acquisitions through a series of private placements and an initial public offering of its common stock. Since inception, CBF has acquired seven depository institutions, including the assets and certain deposits from failed banks. CBF has a total of 153 full service banking offices located in Florida, North and South Carolina, Tennessee and Virginia. Through its branches CBF offers a wide range of commercial and consumer loans and deposits, as well as ancillary financial services.

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statement presentation. In the opinion of management, all adjustments consisting of normal recurring accruals and disclosures considered necessary for a fair interim presentation have been included. All significant inter-company accounts and transactions have been eliminated in consolidation. For further information, refer to the Company’s Consolidated Financial Statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2014.

Use of Estimates and Assumptions

To prepare financial statements in conformity with U. S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as presented in the financial statements. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update ("ASU") 2015-3, "Interest - Imputation of interest" (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs". The amendments in ASU 2015-3 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. The amendments in ASU 2015-3 are effective for financial statements issued for fiscal years beginning after December 31, 2015, and interim periods within those fiscal years. The adoption of ASU 2015-3 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In November 2014, the FASB issued ASU 2014-16, “Derivative and Hedging” (Topic 815)”. The amendments in ASU 2014-16 do not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required, but clarifies how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments explain that an entity should consider all relevant terms and features in evaluating the nature of the host contract. Furthermore, the amendments specify that no single term or feature would necessarily determine the economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. In addition, the amendments clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features. The amendments in ASU 2014-16 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2014-16 is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.

In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements-Going Concern (Subtopic 205-40)—Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern". The amendments in ASU 2014-15 provide guidance in U.S. GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The amendments in ASU 2014-15 apply to all entities and will be effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption of ASU 2014-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

10

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

In June 2014, the FASB issued ASU No. 2014-12, “Compensation- Stock Compensation (Topic 718)—Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period”. ASU 2014-12 provides specific guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award. ASU 2014-12 is effective for fiscal years and interim periods beginning after December 15, 2015. The adoption of ASU 2014-12 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In June 2014, the FASB issued ASU No. 2014-11, “Transfers and Servicing (topic 860)—Repurchase-to-Maturity Transactions, Repurchase Financing, and Disclosures”. ASU 2014-11 changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The amendments also require two new disclosures. The first disclosure requires an entity to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements. The second disclosure provides increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The accounting changes in ASU 2014-11 are effective for the first interim or annual period beginning after December 15, 2014. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. 

In May 2014, the FASB issued ASU No. 2014-9, “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-9 clarifies the principles for recognizing revenue from contracts with customers. ASU 2014-9, which does not apply to financial instruments, is effective for interim and annual reporting periods beginning after December 15, 2016. The Company is currently evaluating ASU 2014-9 to determine the impact on its consolidated financial position, results of operations and cash flows.

2. Earnings Per Common Share

Basic earnings per share is computed as net income attributable to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under stock options and unvested restricted shares computed using the treasury stock method. Earnings per share have been computed based on the following:

(Shares in thousands)	Three Months Ended		Six Months Ended
	June 30, 2015	June 30, 2014	June 30, 2015	June 30, 2014
Weighted average number of shares outstanding:
Basic	45,913	49,090	46,102	49,800
Dilutive effect of options outstanding	800	527	743	486
Dilutive effect of unvested restricted shares	507	644	582	806
Diluted	47,220	50,261	47,427	51,092

The dilutive effect of stock options and unvested restricted shares are the only common stock equivalents for purposes of calculating diluted earnings per common share.

Weighted average anti-dilutive stock options and unvested restricted shares excluded from the computation of diluted earnings per share are as follows:

11

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Shares in thousands)	Three Months Ended		Six Months Ended
	June 30, 2015	June 30, 2014	June 30, 2015	June 30, 2014
Anti-dilutive stock options	9	14	9	14
Anti-dilutive unvested restricted shares	—	—	—	—

3. Investment Securities

Trading securities totaled $2.9 million and $2.4 million at June 30, 2015 and December 31, 2014, respectively.

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at June 30, 2015 and December 31, 2014, are presented below:

(Dollars in thousands)	June 30, 2015
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Available-for-Sale
Corporate bonds	$	22,682	$	960	$	—	$	23,642
Mortgage-backed securities—residential issued by government sponsored entities	573,962		2,415		3,384		572,993
Industrial revenue bonds	3,409		94		—		3,503
Total	$	600,053	$	3,469	$	3,384	$	600,138
Held-to-Maturity
U.S. Government agencies	$	13,450	$	208	$	—	$	13,658
Corporate bonds	30,067		244		30		30,281
State and political subdivisions—tax exempt	10,869		382		—		11,251
State and political subdivisions—taxable	533		18		—		551
Mortgage-backed securities—residential issued by government sponsored entities	371,508		4,955		440		376,023
Total	$	426,427	$	5,807	$	470	$	431,764

(Dollars in thousands)	December 31, 2014
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Available-for-Sale
Mortgage-backed securities—residential issued by government sponsored entities	$	550,908	$	3,127	$	1,832	$	552,203
Industrial revenue bonds	3,580		110		—		3,690
Total	$	554,488	$	3,237	$	1,832	$	555,893
Held-to-Maturity
U.S. Government agencies	$	13,989	$	230	$	—	$	14,219
Corporate bonds	25,000		163		—		25,163
State and political subdivisions—tax exempt	13,008		431		3		13,436
State and political subdivisions—taxable	537		26		—		563
Mortgage-backed securities—residential issued by government sponsored entities	384,428		5,626		56		389,998
Total	$	436,962	$	6,476	$	59	$	443,379

12

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

Proceeds from sales of securities were $31.9 million and $52.2 million for the three and six months ended June 30, 2015, respectively. Gross gains of $0.3 million and $0.3 million were realized on sales of these investments during the three and six months ended June 30, 2015, respectively.

Proceeds from sales of securities were $149.5 million and $150.3 million for the three and six months ended June 30, 2014, respectively. Gross gains of $0.8 million and gross losses of $0.8 million were realized on sales of these investments during the three months ended June 30, 2014. Gross gains of $1.1 million and gross losses of $0.8 million were realized on sales of these investments during the six months ended June 30, 2014.

The estimated fair value of investment securities at June 30, 2015, by contractual maturity, is shown in the table that follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties. Debt securities not due at a single maturity date are shown separately.

(Dollars in thousands)	June 30, 2015
	Amortized Cost		Estimated Fair Value		Yield
Available-for-sale
Due in one year or less	$	—	$	—	—	%
Due after one year through five years	—		—		—	%
Due after five years through ten years	—		—		—	%
Due after ten years	26,091		27,145		2.44	%
Mortgage-backed securities—residential issued by government sponsored entities	573,962		572,993		1.94	%
Total	$	600,053	$	600,138	1.96	%
	Amortized Cost		Estimated Fair Value		Yield
Held-to-maturity
Due in one year or less	$	3	$	3	1.10	%
Due after one year through five years	16,265		16,333		4.59	%
Due after five years through ten years	24,668		25,196		4.58	%
Due after ten years	13,983		14,209		2.88	%
Mortgage-backed securities—residential issued by government sponsored entities	371,508		376,023		2.34	%
Total	$	426,427	$	431,764	2.22	%

Securities with unrealized losses not recognized in income, and the period of time they have been in an unrealized loss position, are as follows:

(Dollars in thousands)	Less than 12 Months				12 Months or Longer				Total
June 30, 2015	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Available-for-Sale
Mortgage-backed securities—residential issued by government sponsored entities	$	282,383	$	2,933	$	20,766	$	451	$	303,149	$	3,384
Total	$	282,383	$	2,933	$	20,766	$	451	$	303,149	$	3,384
Held-to-Maturity
U.S. government agencies	$	—	$	—	$	13,658	$	422	$	13,658	$	422
Corporate bonds	5,037		30		—		—		5,037		30
Mortgage-backed securities—residential issued by government sponsored entities	115,555		1,310		144,088		2,919		259,643		4,229
Total	$	120,592	$	1,340	$	157,746	$	3,341	$	278,338	$	4,681

13

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	Less than 12 Months				12 Months or Longer				Total
December 31, 2014	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Available-for-Sale
Mortgage-backed securities—residential issued by government sponsored entities	$	215,139	$	1,596	$	28,439	$	236	$	243,578	$	1,832
Total	$	215,139	$	1,596	$	28,439	$	236	$	243,578	$	1,832
Held-to-Maturity
U.S Government agencies	$	—	$	—	$	14,219	$	445	$	14,219	$	445
Mortgage-backed securities—residential issued by government sponsored entities	47,696		476		204,112		3,710		251,808		4,186
Total	$	47,696	$	476	$	218,331	$	4,155	$	266,027	$	4,631

As of June 30, 2015, the Company’s security portfolio consisted of 129 securities, 32 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s mortgage-backed securities and variable-rate corporate securities.

All of the mortgage-backed securities at June 30, 2015 and December 31, 2014 were issued by U.S. government-sponsored entities and agencies, which the government has affirmed its commitment to support. Unrealized losses associated with these securities are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is more likely than not that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2015 or December 31, 2014.

Investment securities having carrying values of approximately $347.3 million and $339.0 million at June 30, 2015 and December 31, 2014, respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and for other purposes as required by law.

4. Loans

Major classifications of loans, including loans held for sale, are as follows:

(Dollars in thousands)	June 30, 2015		December 31, 2014
Non-owner occupied commercial real estate	$	834,351	$	798,556
Other commercial construction and land	182,283		200,755
Multifamily commercial real estate	76,754		89,132
1-4 family residential construction and land	78,572		68,658
Total commercial real estate	1,171,960		1,157,101
Owner occupied commercial real estate	1,030,111		1,046,736
Commercial and industrial	1,181,451		1,073,791
Lease financing	1,661		2,005
Total commercial	2,213,223		2,122,532
1-4 family residential	959,224		925,698
Home equity loans	375,271		378,475
Other consumer loans	341,590		272,453
Total consumer	1,676,085		1,576,626
Other	145,146		143,960
Total loans	$	5,206,414	$	5,000,219

14

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

Total loans include $7.1 million and $5.5 million of 1-4 family residential loans held for sale and $14.0 million and $10.1 million of net deferred loan origination costs and fees as of June 30, 2015 and December 31, 2014, respectively.

As of June 30, 2015, other loans include $43.9 million, $81.1 million and $1.8 million of farm land, state and political subdivision obligations and deposit customer overdrafts, respectively. As of December 31, 2014, other loans include $41.3 million, $76.9 million and $1.7 million of farm land, state and political subdivision obligations and deposit customer overdrafts, respectively.

Covered loans represent loans acquired from the FDIC subject to loss sharing agreements. Covered loans are further broken out into (i) loans acquired with evidence of credit impairment (“Purchased Credit Impaired", "Acquired Impaired", or "PCI Loans”) and (ii) non-PCI loans. Loans originated or purchased by the Company (“New Loans”) and loans acquired through the purchase of Capital Bank Corp. ("CBKN"), Green Bankshares ("GRNB"), Southern Community Financial ("SCMF" or "Southern Community") and TIB Financial ("TIBB"), are not subject to the loss sharing agreements and are classified as “non covered.” Additionally, certain consumer loans acquired through the acquisition of First National Bank of the South, Metro Bank and Turnberry Bank (collectively, the “Failed Banks”) from the FDIC, are specifically excluded from the loss sharing agreements.

As of June 30, 2015, covered loans and OREO subject to the commercial shared-loss agreements expiring during the quarter ending September 30, 2015, were $91.9 million and $8.0 million, respectively. The commercial shared-loss agreements provide for FDIC loss sharing for five years from July 16, 2010 and our reimbursement for recoveries to the FDIC for eight years from July 16, 2010 for all other covered assets. Covered loans and OREO subject to the single family shared-loss agreements expiring during the quarter ending September 30, 2020, were $84.3 million and $0.4 million, respectively. The single family shared-loss agreements provide for FDIC loss sharing and our reimbursement for recoveries to the FDIC for ten years from July 16, 2010.

The Company designates loans as PCI by evaluating both qualitative and quantitative factors. At the time of acquisition, the Company accounted for the PCI loans by segregating each portfolio into loan pools with similar risk characteristics. Over the lives of the acquired PCI loans, the Company continues to estimate cash flows expected to be collected on each loan pool. The Company evaluates, at each balance sheet date, whether its estimates of the present value of the cash flows from the loan pools, determined using the effective interest rates, has decreased, such that the present value of such cash flows is less than the recorded investment of the pool, and if so, recognizes a provision for loan loss in its Consolidated Statements of Income, unless related to non-credit events.

Additionally, if the Company has favorable changes in estimates of cash flows expected to be collected for a loan pool such that the then-present value exceeds the recorded investment of that pool, the Company will first reverse any previously established allowance for loan and lease losses for the pool. If such estimate exceeds the amount of any previously established allowance, the Company will accrete future interest income over the remaining life of the pool at a rate which, when used to discount the expected cash flows, results in the then-present value of such cash flows equaling the recorded investment of the pool at the time of the revised estimate.

The table below presents a roll forward of accretable yield and income expected to be earned related to PCI loans and the amount of non-accretable difference at the end of the period. Nonaccretable difference represents estimated contractually required payments in excess of estimated cash flows expected to be collected. The accretable yield represents the excess of estimated cash flows expected to be collected over the carrying amount of the PCI loans. Other represents reductions of accretable yield due to non-credit events such as interest rate reductions on variable rate PCI loans and prepayment activity on PCI loans.

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Accretable Yield
Balance at beginning of period	$	246,109		$	346,995		$	292,633		$	383,775
Accretion of income	(25,052		)	(31,021		)	(49,892		)	(64,183		)
Reclassification from nonaccretable difference	19,111			29,229			45,628			35,896
Other	(7,718		)	(15,782		)	(55,919		)	(26,067		)
Balance at end of period	$	232,450		$	329,421		$	232,450		$	329,421
Nonaccretable difference, balance at the end of the period	$	190,771		$	232,776		$	190,771		$	232,776

15

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

The accretable yield is accreted into interest income over the estimated life of the PCI loans using the level yield method. The accretable yield will change due to changes in:

• The estimate of the remaining life of PCI loans which may change the amount of future interest income, and possibly principal, expected to be collected;

• The estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference); and

• Indices for PCI loans with variable rates of interest.

For PCI loans, the impact of loan modifications is included in the evaluation of expected cash flows for subsequent decreases or increases of cash flows. For variable rate PCI loans, expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At acquisition, the expected future cash flows were based on the variable rates that were in effect at that time.

Because of the loss protection provided by the FDIC, the risks of covered loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreements. Refer to Note 7 – Other Real Estate Owned for the covered balances of other real estate owned.

Non-covered Loans

The following is a summary of the major categories of non-covered loans outstanding as of June 30, 2015 and December 31, 2014:

(Dollars in thousands)	Non-PCI Loans
June 30, 2015	New		Acquired		PCI Loans		Total Non-covered Loans
Non-owner occupied commercial real estate	$	431,689	$	56,370	$	318,206	$	806,265
Other commercial construction and land	74,556		217		96,649		171,422
Multifamily commercial real estate	41,943		6,873		23,372		72,188
1-4 family residential construction and land	75,749		—		2,823		78,572
Total commercial real estate	623,937		63,460		441,050		1,128,447
Owner occupied commercial real estate	750,869		39,653		197,410		987,932
Commercial and industrial loans	1,081,441		8,517		85,325		1,175,283
Lease financing	1,661		—		—		1,661
Total commercial	1,833,971		48,170		282,735		2,164,876
1-4 family residential	632,566		37,927		240,590		911,083
Home equity loans	125,256		140,834		73,644		339,734
Other consumer loans	333,147		4,148		4,130		341,425
Total consumer	1,090,969		182,909		318,364		1,592,242
Other	106,473		2,418		35,755		144,646
Total loans	$	3,655,350	$	296,957	$	1,077,904	$	5,030,211

16

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	Non-PCI Loans
December 31, 2014	New		Acquired		PCI Loans		Total Non-covered Loans
Non-owner occupied commercial real estate	$	372,793	$	58,552	$	333,433	$	764,778
Other commercial construction and land	66,817		161		123,398		190,376
Multifamily commercial real estate	47,765		12,327		24,377		84,469
1-4 family residential construction and land	58,046		—		9,742		67,788
Total commercial real estate	545,421		71,040		490,950		1,107,411
Owner occupied commercial real estate	745,728		38,122		215,059		998,909
Commercial and industrial loans	958,628		10,564		97,228		1,066,420
Lease financing	2,005		—		—		2,005
Total commercial	1,706,361		48,686		312,287		2,067,334
1-4 family residential	560,106		43,921		269,768		873,795
Home equity loans	103,644		152,797		82,121		338,562
Other consumer loans	261,935		4,647		5,772		272,354
Total consumer	925,685		201,365		357,661		1,484,711
Other	99,610		3,603		39,903		143,116
Total loans	$	3,277,077	$	324,694	$	1,200,801	$	4,802,572

Covered Loans

The following is a summary of the major categories of covered loans outstanding as of June 30, 2015, and December 31, 2014:

(Dollars in thousands)	Non-PCI Loans
June 30, 2015	New		Acquired		PCI Loans		Total Covered Loans
Non-owner occupied commercial real estate	$	—	$	—	$	28,086	$	28,086
Other commercial construction and land	—		—		10,861		10,861
Multifamily commercial real estate	—		—		4,566		4,566
1-4 family residential construction and land	—		—		—		—
Total commercial real estate	—		—		43,513		43,513
Owner occupied commercial real estate	—		—		42,179		42,179
Commercial and industrial loans	—		211		5,957		6,168
Lease financing	—		—		—		—
Total commercial	—		211		48,136		48,347
1-4 family residential	—		1,989		46,152		48,141
Home equity loans	—		27,084		8,453		35,537
Other consumer loans	—		—		165		165
Total consumer	—		29,073		54,770		83,843
Other	—		—		500		500
Total loans	$	—	$	29,284	$	146,919	$	176,203

17

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	Non-PCI Loans
December 31, 2014	New		Acquired		PCI Loans		Total Covered Loans
Non-owner occupied commercial real estate	$	—	$	—	$	33,778	$	33,778
Other commercial construction and land	—		—		10,379		10,379
Multifamily commercial real estate	—		—		4,663		4,663
1-4 family residential construction and land	—		—		870		870
Total commercial real estate	—		—		49,690		49,690
Owner occupied commercial real estate	—		—		47,827		47,827
Commercial and industrial loans	—		214		7,157		7,371
Lease financing	—		—		—		—
Total commercial	—		214		54,984		55,198
1-4 family residential	—		1,512		50,391		51,903
Home equity loans	—		30,473		9,440		39,913
Other consumer loans	—		—		99		99
Total consumer	—		31,985		59,930		91,915
Other	—		—		844		844
Total loans	$	—	$	32,199	$	165,448	$	197,647

The following tables present the aging of the recorded investment in past due loans, based on contractual terms, as of June 30, 2015:

(Dollars in thousands)	30-89 Days Past Due				Greater than 90 Days Past Due and Still Accruing/Accreting				Non-accrual
Non-purchased credit impaired loans	Non-Covered		Covered		Non-Covered		Covered		Non-Covered		Covered		Total
Non-owner occupied commercial real estate	$	463	$	—	$	—	$	—	$	140	$	—	$	603
Other commercial construction and land	10		—		—		—		331		—		341
Multifamily commercial real estate	—		—		—		—		—		—		—
1-4 family residential construction and land	—		—		—		—		—		—		—
Total commercial real estate	473		—		—		—		471		—		944
Owner occupied commercial real estate	1,724		—		—		—		3,736		—		5,460
Commercial and industrial loans	42		—		—		—		1,481		66		1,589
Lease financing	—		—		—		—		—		—		—
Total commercial	1,766		—		—		—		5,217		66		7,049
1-4 family residential	123		—		—		—		1,380		40		1,543
Home equity loans	835		—		—		—		1,387		306		2,528
Other consumer loans	2,603		—		—		—		940		—		3,543
Total consumer	3,561		—		—		—		3,707		346		7,614
Other	—		—		—		—		—		—		—
Total loans	$	5,800	$	—	$	—	$	—	$	9,395	$	412	$	15,607

18

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	30-89 Days Past Due				Greater than 90 Days Past Due and Still Accruing/Accreting				Non-accrual
Purchased credit impaired loans	Non-Covered		Covered		Non-Covered		Covered		Non-Covered		Covered		Total
Non-owner occupied commercial real estate	$	2,072	$	101	$	2,185	$	298	$	—	$	—	$	4,656
Other commercial construction and land	1,053		3		3,414		235		—		—		4,705
Multifamily commercial real estate	—		—		406		—		—		—		406
1-4 family residential construction and land	—		—		—		—		—		—		—
Total commercial real estate	3,125		104		6,005		533		—		—		9,767
Owner occupied commercial real estate	550		515		4,751		698		—		—		6,514
Commercial and industrial loans	1,414		10		1,363		11		—		—		2,798
Lease financing	—		—		—		—		—		—		—
Total commercial	1,964		525		6,114		709		—		—		9,312
1-4 family residential	2,266		232		3,618		1,001		—		—		7,117
Home equity loans	1,322		69		609		424		—		—		2,424
Other consumer loans	146		—		25		—		—		—		171
Total consumer	3,734		301		4,252		1,425		—		—		9,712
Other	55		—		43		—		—		—		98
Total loans	$	8,878	$	930	$	16,414	$	2,667	$	—	$	—	$	28,889

The following tables present the aging of the recorded investment in past due loans, based on contractual terms, as of December 31, 2014:

(Dollars in thousands)	30-89 Days Past Due				Greater than 90 Days Past Due and Still Accruing/Accreting				Non-accrual
Non-purchased credit impaired loans	Non-Covered		Covered		Non-Covered		Covered		Non-Covered		Covered		Total
Non-owner occupied commercial real estate	$	—	$	—	$	—	$	—	$	534	$	—	$	534
Other commercial construction and land	31		—		—		—		233		—		264
Multifamily commercial real estate	—		—		—		—		—		—		—
1-4 family residential construction and land	—		—		—		—		—		—		—
Total commercial real estate	31		—		—		—		767		—		798
Owner occupied commercial real estate	744		—		—		—		2,524		—		3,268
Commercial and industrial loans	70		—		—		—		1,654		66		1,790
Lease financing	—		—		—		—		—		—		—
Total commercial	814		—		—		—		4,178		66		5,058
1-4 family residential	357		—		—		—		1,284		69		1,710
Home equity loans	627		225		—		—		1,758		443		3,053
Other consumer loans	2,508		—		—		—		909		—		3,417
Total consumer	3,492		225		—		—		3,951		512		8,180
Other	30		—		—		—		10		—		40
Total loans	$	4,367	$	225	$	—	$	—	$	8,906	$	578	$	14,076

19

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	30-89 Days Past Due				Greater than 90 Days Past Due and Still Accruing/Accreting				Non-accrual
Purchased credit impaired loans*	Non-Covered		Covered		Non-Covered		Covered		Non-Covered		Covered		Total
Non-owner occupied commercial real estate	$	1,314	$	—	$	4,036	$	1,636	$	—	$	—	$	6,986
Other commercial construction and land	2,789		—		9,928		2,696		—		—		15,413
Multifamily commercial real estate	249		—		1,392		—		—		—		1,641
1-4 family residential construction and land	—		—		—		—		—		—		—
Total commercial real estate	4,352		—		15,356		4,332		—		—		24,040
Owner occupied commercial real estate	2,531		—		3,957		1,029		—		—		7,517
Commercial and industrial loans	240		—		4,485		92		—		—		4,817
Lease financing	—		—		—		—		—		—		—
Total commercial	2,771		—		8,442		1,121		—		—		12,334
1-4 family residential	3,480		352		5,251		2,010		—		—		11,093
Home equity loans	1,524		335		788		780		—		—		3,427
Other consumer loans	152		—		26		27		—		—		205
Total consumer	5,156		687		6,065		2,817		—		—		14,725
Other	2,012		—		—		—		—		—		2,012
Total loans	$	14,291	$	687	$	29,863	$	8,270	$	—	$	—	$	53,111

* Pooled PCI loans are not classified as nonaccrual as they are considered to be accruing because their interest income relates to the accretable yield recognized under accounting for purchased credit-impaired loans and not to contractual interest payments.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed at origination and upon identification of a material change for all loans, on an annual basis for commercial loans exceeding $0.5 million, and at least quarterly for commercial loans not rated pass. The Company uses the following definitions for risk ratings:

• Pass —These loans range from superior quality with minimal credit risk to loans requiring heightened management attention but that are still an acceptable risk and continue to perform as contracted.

• Special Mention —Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

• Substandard —Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

• Doubtful —Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

20

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

The following table summarizes loans, excluding PCI loans by internal rating at June 30, 2015:

					Substandard
(Dollars in thousands)	Pass		Special Mention		Accruing		Non-accrual		Doubtful		Total
Non-owner occupied commercial real estate	$	485,104	$	1,180	$	1,635	$	140	$	—	$	488,059
Other commercial construction and land	74,369		46		27		331		—		74,773
Multifamily commercial real estate	48,816		—		—		—		—		48,816
1-4 family residential construction and land	72,881		419		2,449		—		—		75,749
Total commercial real estate	681,170		1,645		4,111		471		—		687,397
Owner occupied commercial real estate	773,935		9,097		3,754		3,736		—		790,522
Commercial and industrial loans	1,072,482		12,332		3,808		1,547		—		1,090,169
Lease financing	1,661		—		—		—		—		1,661
Total commercial	1,848,078		21,429		7,562		5,283		—		1,882,352
1-4 family residential	668,621		256		2,185		1,420		—		672,482
Home equity loans	289,552		57		1,872		1,693		—		293,174
Other consumer loans	336,355		—		—		940		—		337,295
Total consumer	1,294,528		313		4,057		4,053		—		1,302,951
Other	108,439		452		—		—		—		108,891
Total loans	$	3,932,215	$	23,839	$	15,730	$	9,807	$	—	$	3,981,591

The following table summarizes loans, excluding PCI loans by internal rating at December 31, 2014:

					Substandard
(Dollars in thousands)	Pass		Special Mention		Accruing		Non-accrual		Doubtful		Total
Non-owner occupied commercial real estate	$	429,126	$	835	$	850	$	534	$	—	$	431,345
Other commercial construction and land	66,667		47		31		233		—		66,978
Multifamily commercial real estate	60,092		—		—		—		—		60,092
1-4 family residential construction and land	56,551		—		1,495		—		—		58,046
Total commercial real estate	612,436		882		2,376		767		—		616,461
Owner occupied commercial real estate	766,822		6,687		7,817		2,524		—		783,850
Commercial and industrial loans	963,273		2,235		2,178		1,720		—		969,406
Lease financing	2,005		—		—		—		—		2,005
Total commercial	1,732,100		8,922		9,995		4,244		—		1,755,261
1-4 family residential	601,738		283		2,165		1,353		—		605,539
Home equity loans	282,597		59		2,057		2,201		—		286,914
Other consumer loans	265,673		—		—		909		—		266,582
Total consumer	1,150,008		342		4,222		4,463		—		1,159,035
Other	102,730		473		—		10		—		103,213
Total loans	$	3,597,274	$	10,619	$	16,593	$	9,484	$	—	$	3,633,970

21

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

5. Allowance for Loan and Lease Losses

Activity in the allowance for loan and lease losses for the three and six months ended June 30, 2015 and 2014 is as follows:

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Balance, beginning of period	$	48,225		$	55,606		$	50,211		$	56,851
Reversal of provision for loan losses for PCI loans	(524		)	(940		)	(2,450		)	(3,428		)
PCI loans charged-off	(162		)	—			(162		)	—
Provision for loan losses for non-PCI loans	1,823			2,344			2,908			4,808
Non-PCI loans charged-off	(2,010		)	(2,176		)	(3,909		)	(4,132		)
Recoveries of non-PCI loans previously charged-off	711			473			1,465			1,208
Balance, end of period	$	48,063		$	55,307		$	48,063		$	55,307

The following tables present the roll forward of the allowance for loan and lease losses for the three and six months ended June 30, 2015 by the class of loans against which the allowance is allocated:

(Dollars in thousands)	March 31, 2015		Provision/ (Reversals)			Net (Charge-offs)/ Recoveries			June 30, 2015
Non-owner occupied commercial real estate	$	1,890	$	2,012		$	63		$	3,965
Other commercial construction and land	12,575		(2,158		)	5			10,422
Multifamily commercial real estate	223		(22		)	—			201
1-4 family residential construction and land	1,020		334			2			1,356
Total commercial real estate	15,708		166			70			15,944
Owner occupied commercial real estate	2,575		279			(95		)	2,759
Commercial and industrial loans	9,217		35			203			9,455
Lease financing	—		—			—			—
Total commercial	11,792		314			108			12,214
1-4 family residential	13,530		(504		)	(57		)	12,969
Home equity loans	2,789		61			(197		)	2,653
Other consumer loans	4,142		918			(983		)	4,077
Total consumer	20,461		475			(1,237		)	19,699
Other	264		344			(402		)	206
Total loans	$	48,225	$	1,299		$	(1,461	)	$	48,063

22

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	December 31, 2014		Provision/ (Reversals)			Net(Charge-offs)/ Recoveries			June 30, 2015
Non-owner occupied commercial real estate	$	2,022	$	1,877		$	66		$	3,965
Other commercial construction and land	12,181		(1,925		)	166			10,422
Multifamily commercial real estate	252		(51		)	—			201
1-4 family residential construction and land	1,102		251			3			1,356
Total commercial real estate	15,557		152			235			15,944
Owner occupied commercial real estate	2,504		462			(207		)	2,759
Commercial and industrial loans	9,502		(347		)	300			9,455
Lease financing	—		—			—			—
Total commercial	12,006		115			93			12,214
1-4 family residential	15,451		(2,214		)	(268		)	12,969
Home equity loans	2,815		103			(265		)	2,653
Other consumer loans	4,122		1,671			(1,716		)	4,077
Total consumer	22,388		(440		)	(2,249		)	19,699
Other	260		631			(685		)	206
Total loans	$	50,211	$	458		$	(2,606	)	$	48,063

The following tables present the roll forward of the allowance for loan and lease losses for the three and six months ended June 30, 2014 by the class of loans against which the allowance is allocated: 

(Dollars in thousands)	March 31, 2014		Provision/ (Reversals)			Net (Charge-offs)/ Recoveries			June 30, 2014
Non-owner occupied commercial real estate	$	3,829	$	785		$	(127	)	$	4,487
Other commercial construction and land	8,892		2,605			5			11,502
Multifamily commercial real estate	403		77			—			480
1-4 family residential construction and land	1,559		69			3			1,631
Total commercial real estate	14,683		3,536			(119		)	18,100
Owner occupied commercial real estate	3,530		(206		)	(7		)	3,317
Commercial and industrial loans	8,198		519			(72		)	8,645
Lease financing	1		—			—			1
Total commercial	11,729		313			(79		)	11,963
1-4 family residential	20,383		(3,169		)	(76		)	17,138
Home equity loans	4,875		(153		)	(432		)	4,290
Other consumer loans	3,063		1,003			(635		)	3,431
Total consumer	28,321		(2,319		)	(1,143		)	24,859
Other	873		(126		)	(362		)	385
Total loans	$	55,606	$	1,404		$	(1,703	)	$	55,307

23

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	December 31, 2013		Provision/ (Reversals)			Net (Charge-offs)/ Recoveries			June 30, 2014
Non-owner occupied commercial real estate	$	4,635	$	(34	)	$	(114	)	$	4,487
Other commercial construction and land	8,217		3,480			(195		)	11,502
Multifamily commercial real estate	320		160			—			480
1-4 family residential construction and land	1,558		71			2			1,631
Total commercial real estate	14,730		3,677			(307		)	18,100
Owner occupied commercial real estate	4,450		(1,013		)	(120		)	3,317
Commercial and industrial loans	8,310		330			5			8,645
Lease financing	3		(2		)	—			1
Total commercial	12,763		(685		)	(115		)	11,963
1-4 family residential	21,724		(4,492		)	(94		)	17,138
Home equity loans	3,869		901			(480		)	4,290
Other consumer loans	2,682		2,023			(1,274		)	3,431
Total consumer	28,275		(1,568		)	(1,848		)	24,859
Other	1,083		(44		)	(654		)	385
Total loans	$	56,851	$	1,380		$	(2,924	)	$	55,307

The following tables present the roll forward of the allowance for loan and lease losses for PCI and non-PCI loans for the three and six months ended June 30, 2015 and 2014, by the class of loans against which the allowance is allocated:

24

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	Three Months Ended
	June 30, 2015									June 30, 2014
	Non-PCI			PCI			Total			Non-PCI			PCI			Total
Allowance for loan and lease losses at the beginning of the period	$	21,295		$	26,930		$	48,225		$	20,194		$	35,412		$	55,606
Charge-offs:
Non-owner occupied commercial real estate	—			—			—			(204		)	—			(204		)
Other commercial construction and land	—			—			—			1			—			1
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	—			—			—			1			—			1
Total commercial real estate	—			—			—			(202		)	—			(202		)
Owner occupied commercial real estate	(95		)	—			(95		)	(8		)	—			(8		)
Commercial and industrial loans	(41		)	—			(41		)	(106		)	—			(106		)
Lease financing	—			—			—			—			—			—
Total commercial	(136		)	—			(136		)	(114		)	—			(114		)
1-4 family residential	(80		)	—			(80		)	(80		)	—			(80		)
Home equity loans	(247		)	—			(247		)	(465		)	—			(465		)
Other consumer loans	(969		)	(162		)	(1,131		)	(781		)	—			(781		)
Total consumer	(1,296		)	(162		)	(1,458		)	(1,326		)	—			(1,326		)
Other	(578		)	—			(578		)	(534		)	—			(534		)
Total charge-offs	(2,010		)	(162		)	(2,172		)	(2,176		)	—			(2,176		)
Recoveries:
Non-owner occupied commercial real estate	63			—			63			77			—			77
Other commercial construction and land	5			—			5			4			—			4
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	2			—			2			2			—			2
Total commercial real estate	70			—			70			83			—			83
Owner occupied commercial real estate	—			—			—			1			—			1
Commercial and industrial loans	244			—			244			34			—			34
Lease financing	—			—			—			—			—			—
Total commercial	244			—			244			35			—			35
1-4 family residential	23			—			23			4			—			4
Home equity loans	50			—			50			33			—			33
Other consumer loans	148			—			148			146			—			146
Total consumer	221			—			221			183			—			183
Other	176			—			176			172			—			172
Total recoveries	711			—			711			473			—			473
Net charge-offs	(1,299		)	(162		)	(1,461		)	(1,703		)	—			(1,703		)
Provision (reversal) for loan and lease losses:
Non-owner occupied commercial real estate	(47		)	2,059			2,012			159			626			785
Other commercial construction and land	66			(2,224		)	(2,158		)	(1		)	2,606			2,605
Multifamily commercial real estate	(20		)	(2		)	(22		)	(13		)	90			77
1-4 family residential construction and land	144			190			334			(36		)	105			69
Total commercial real estate	143			23			166			109			3,427			3,536
Owner occupied commercial real estate	294			(15		)	279			(183		)	(23		)	(206		)
Commercial and industrial loans	(134		)	169			35			347			172			519
Lease financing	—			—			—			(1		)	1			—
Total commercial	160			154			314			163			150			313
1-4 family residential	25			(529		)	(504		)	303			(3,472		)	(3,169		)
Home equity loans	229			(168		)	61			473			(626		)	(153		)
Other consumer loans	942			(24		)	918			899			104			1,003
Total consumer	1,196			(721		)	475			1,675			(3,994		)	(2,319		)
Other	324			20			344			397			(523		)	(126		)
Total provision (reversal) for loan and lease losses	1,823			(524		)	1,299			2,344			(940		)	1,404
Allowance for loan and lease losses at the end of the period	$	21,819		$	26,244		$	48,063		$	20,835		$	34,472		$	55,307

25

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	Six Months Ended
	June 30, 2015									June 30, 2014
	Non-PCI			PCI			Total			Non-PCI			PCI			Total
Allowance for loan and lease losses at the beginning of the period	$	21,355		$	28,856		$	50,211		$	18,951		$	37,900		$	56,851
Charge-offs:
Non-owner occupied commercial real estate	(8		)	—			(8		)	(204		)	—			(204		)
Other commercial construction and land	—			—			—			(207		)	—			(207		)
Multifamily commercial real estate	—			—			—			(2		)	—			(2		)
1-4 family residential construction and land	—			—			—			—			—			—
Total commercial real estate	(8		)	—			(8		)	(413		)	—			(413		)
Owner occupied commercial real estate	(207		)	—			(207		)	(144		)	—			(144		)
Commercial and industrial loans	(95		)	—			(95		)	(161		)	—			(161		)
Lease financing	—			—			—			—			—			—
Total commercial	(302		)	—			(302		)	(305		)	—			(305		)
1-4 family residential	(295		)	—			(295		)	(101		)	—			(101		)
Home equity loans	(407		)	—			(407		)	(594		)	—			(594		)
Other consumer loans	(1,836		)	(162		)	(1,998		)	(1,588		)	—			(1,588		)
Total consumer	(2,538		)	(162		)	(2,700		)	(2,283		)	—			(2,283		)
Other	(1,061		)	—			(1,061		)	(1,131		)	—			(1,131		)
Total charge-offs	(3,909		)	(162		)	(4,071		)	(4,132		)	—			(4,132		)
Recoveries:
Non-owner occupied commercial real estate	66			—			66			90			—			90
Other commercial construction and land	174			—			174			12			—			12
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	3			—			3			4			—			4
Total commercial real estate	243			—			243			106			—			106
Owner occupied commercial real estate	—			—			—			24			—			24
Commercial and industrial loans	395			—			395			166			—			166
Lease financing	—			—			—			—			—			—
Total commercial	395			—			395			190			—			190
1-4 family residential	27			—			27			7			—			7
Home equity loans	142			—			142			114			—			114
Other consumer loans	282			—			282			314			—			314
Total consumer	451			—			451			435			—			435
Other	376			—			376			477			—			477
Total recoveries	1,465			—			1,465			1,208			—			1,208
Net charge-offs	(2,444		)	(162		)	(2,606		)	(2,924		)	—			(2,924		)
Provision (reversal) for loan losses:
Non-owner occupied commercial real estate	(15		)	1,892			1,877			181			(215		)	(34		)
Other commercial construction and land	(138		)	(1,787		)	(1,925		)	499			2,981			3,480
Multifamily commercial real estate	(24		)	(27		)	(51		)	(24		)	184			160
1-4 family residential construction and land	115			136			251			(70		)	141			71
Total commercial real estate	(62		)	214			152			586			3,091			3,677
Owner occupied commercial real estate	594			(132		)	462			39			(1,052		)	(1,013		)
Commercial and industrial loans	(347		)	—			(347		)	382			(52		)	330
Lease financing	1			(1		)	—			(2		)	—			(2		)
Total commercial	248			(133		)	115			419			(1,104		)	(685		)
1-4 family residential	132			(2,346		)	(2,214		)	557			(5,049		)	(4,492		)
Home equity loans	284			(181		)	103			614			287			901
Other consumer loans	1,689			(18		)	1,671			2,087			(64		)	2,023
Total consumer	2,105			(2,545		)	(440		)	3,258			(4,826		)	(1,568		)
Other	617			14			631			545			(589		)	(44		)
Total provision (reversal) for loan losses	2,908			(2,450		)	458			4,808			(3,428		)	1,380
Allowance for loan losses at the end of the period	$	21,819		$	26,244		$	48,063		$	20,835		$	34,472		$	55,307

26

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the balance in the allowance for loan and lease losses and the recorded investment in loans by class of loan and by impairment evaluation method as of June 30, 2015:

(Dollars in thousands)	Allowance for Loan and Lease Losses							Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit- Impaired			Individually Evaluated for Impairment		Collectively Evaluated for Impairment (1)		Purchased Credit- Impaired
Non-owner occupied commercial real estate	$	2	$	1,612	$	2,351		$	463	$	487,596	$	346,292
Other commercial construction and land	—		1,440		8,982			—		74,773		107,510
Multifamily commercial real estate	—		102		99			—		48,816		27,938
1-4 family residential construction and land	—		856		500			—		75,749		2,823
Total commercial real estate	2		4,010		11,932			463		686,934		484,563
Owner occupied commercial real estate	517		1,999		243			5,855		784,667		239,589
Commercial and industrial loans	—		7,696		1,759			1,996		1,088,173		91,282
Lease financing	—		—		—			—		1,661		—
Total commercial	517		9,695		2,002			7,851		1,874,501		330,871
1-4 family residential	5		2,699		10,265			73		665,282		286,742
Home equity loans	14		643		1,996			204		292,970		82,097
Other consumer loans	9		3,957		111			198		337,097		4,295
Total consumer	28		7,299		12,372			475		1,295,349		373,134
Other	—		268		(62		)	—		108,891		36,255
Total loans	$	547	$	21,272	$	26,244		$	8,789	$	3,965,675	$	1,224,823

(1) Loans collectively evaluated for impairment include $326.0 million of acquired loans which are presented net of unamortized purchase discounts of $9.7 million.

The following table presents the balance in the allowance for loan and lease losses and the recorded investment in loans by class of loan and by impairment evaluation method as of December 31, 2014:

(Dollars in thousands)	Allowance for Loan and Lease Losses							Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit- Impaired			Individually Evaluated for Impairment		Collectively Evaluated for Impairment (1)		Purchased Credit- Impaired
Non-owner occupied commercial real estate	$	—	$	1,563	$	459		$	—	$	431,345	$	367,211
Other commercial construction and land	—		1,411		10,770			—		66,978		133,777
Multifamily commercial real estate	—		126		126			—		60,092		29,040
1-4 family residential construction and land	—		739		363			—		58,046		10,612
Total commercial real estate	—		3,839		11,718			—		616,461		540,640
Owner occupied commercial real estate	—		2,129		375			3,423		780,427		262,886
Commercial and industrial loans	—		7,742		1,760			2,704		966,702		104,385
Lease financing	—		—		—			—		2,005		—
Total commercial	—		9,871		2,135			6,127		1,749,134		367,271
1-4 family residential	—		2,840		12,611			745		599,278		320,159
Home equity loans	—		639		2,176			325		286,589		91,561
Other consumer loans	15		3,815		292			221		266,361		5,871
Total consumer	15		7,294		15,079			1,291		1,152,228		417,591
Other	—		336		(76		)	—		103,213		40,747
Total loans	$	15	$	21,340	$	28,856		$	7,418	$	3,621,036	$	1,366,249

(1) Loans collectively evaluated for impairment include $355.4 million of acquired loans which are presented net of unamortized purchase discounts of $11.7 million.

27

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

Troubled Debt Restructuring

If a borrower is experiencing financial difficulty, the Bank may consider, in certain circumstances, modifying the terms of their loan to maximize collection of amounts due. A troubled debt restructuring (“TDR”) typically involves either a reduction of the stated interest rate of the loan, an extension of the loan’s maturity date(s) with a stated rate lower than the current market rate for a new loan with similar risk, or in limited circumstances, a reduction of the principal balance of the loan or the loan’s accrued interest. Upon modification of a loan, the Bank measures the related impairment as the excess of the recorded investment in the loan over the discounted expected future cash flows. The present value of expected future cash flows is discounted at the loan’s effective interest rate. If the impairment analysis results in a loss, an allowance for loan and lease losses is established for the loan. During the three and six months ended June 30, 2015 and 2014, loans modified in TDRs were nominal. Because of the insignificance of the amount and the nature of the modifications, the modifications did not have a material impact on the Company’s Consolidated Financial Statements or on the determination of the allowance for loan and lease losses at June 30, 2015 and 2014. The Company had loans modified in TDRs with recorded investments of $0.4 million and $0.9 million for the three and six months ended June 30, 2015, respectively. The Company had loans modified in TDRs with recorded investments of $3.1 million and $3.4 million for the three and six months ended June 30, 2014, respectively.

6. FDIC Indemnification Asset

The Company has recorded an indemnification asset related to loss sharing agreements entered into with the FDIC wherein the FDIC will reimburse the Company for certain amounts related to certain acquired loans and other real estate owned should the Company experience a loss. Under the loss sharing arrangements, the FDIC has agreed to absorb 80% of all future credit losses and workout expenses on these assets which occur prior to the expiration of the loss sharing agreements. These agreements resulted from the purchase of the Failed Banks.

The loss sharing agreements consist of three (one for each Failed Bank) single-family shared-loss agreements and three (one for each Failed Bank) commercial and other loans shared-loss agreements. The single family shared-loss agreements provide for FDIC loss sharing and our reimbursement for recoveries to the FDIC for ten years from July 16, 2010 for single-family residential loans. The commercial shared-loss agreements provide for FDIC loss sharing for five years from July 16, 2010 and our reimbursement for recoveries to the FDIC for eight years from July 16, 2010 for all other covered assets. As of June 30, 2015, covered loans and OREO subject to the commercial shared-loss agreements that expire during the quarter ending September 30, 2015, were $91.9 million and $8.0 million, respectively.

The following is a summary of the activity in the FDIC indemnification asset:

(Dollars in thousands)
Balance, December 31, 2014	$	16,762
Indemnification asset income	129
Amortization of indemnification asset	(5,067		)
Cash received on reimbursable losses	(60		)
Balance, June 30, 2015	$	11,764
Balance, December 31, 2013	$	33,610
Indemnification asset income	423
Amortization of indemnification asset	(4,652		)
Cash received on reimbursable losses	(3,852		)
Balance, June 30, 2014	$	25,529

7. Other Real Estate Owned

The activity within Other Real Estate Owned (“OREO”) for the three and six months ended June 30, 2015 and 2014 is presented in the table below. Ending balances for OREO covered by loss sharing agreements with the FDIC for these

28

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

periods were $8.4 million and $17.0 million, respectively. Non-covered OREO ending balances for these periods were $55.3 million and $79.3 million, respectively.

For the three and six months ended June 30, 2015, proceeds on sales of OREO were $10.9 million and $18.8 million, respectively and net gains on sales were $1.0 million in each period. For the three and six months ended June 30, 2014, proceeds on sales of OREO were $32.3 million and $48.3 million, respectively and net gains were $3.2 million and $3.9 million, respectively.

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Balance, beginning of period	$	71,453		$	120,270		$	77,626		$	129,396
Real estate acquired from borrowers	3,959			8,159			7,058			17,864
Valuation allowance	(1,710		)	(3,022		)	(3,100		)	(6,595		)
Properties sold	(9,965		)	(29,124		)	(17,847		)	(44,382		)
Balance, end of period	$	63,737		$	96,283		$	63,737		$	96,283

8. Federal Home Loan Bank Advances and Short-Term Borrowings

Short-term borrowings include securities sold under agreements to repurchase and advances from the Federal Home Loan Bank (“FHLB”).

The Bank has securities sold under agreements to repurchase with customers. These overnight agreements are collateralized by investment securities of the United States Government or its agencies which are chosen by the Bank. The amounts outstanding at June 30, 2015 and December 31, 2014 were $18.5 million and $23.4 million, respectively, and were collateralized by $24.9 million and $34.9 million, respectively, of agency mortgage-backed securities.

The Bank invests in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is based on a percentage of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. The Bank’s collateral with the FHLB consists of a blanket floating lien pledge of the Bank’s residential 1-4 family mortgage, multifamily, home equity line of credit and commercial real estate secured loans. The amounts of eligible collateral at June 30, 2015 and December 31, 2014 provided for incremental borrowing availability of up to $331.4 million and $247.7 million, respectively.

At June 30, 2015 and December 31, 2014, the Bank had $25.4 million and $25.7 million in letters of credit issued by the FHLB respectively, of which $25.2 million are used as collateral for public funds deposits in lieu of pledging securities to the State of Florida.

The advances as of June 30, 2015 and December 31, 2014 consisted of the following:

(Dollars in thousands)
Contractual Outstanding Amount
June 30, 2015		Maturity Date	Interest Rate as of June 30, 2015
$	105,000	May 19, 2016	0.36%
50,000		December 31, 2019	0.20%	(1 Month FRC + 2 bps)*
502		November 6, 2017	0.50%
50,000		November 20, 2017	0.21%	(1 Month FRC + 2 bps)*
50,000		November 23, 2018	0.21%	(1 Month FRC + 2 bps)*
40,000		November 25, 2016	0.21%	(1 Month FRC + 2 bps)*
60,000		May 28, 2020	0.20%	(1 Month FRC + 2 bps)*
493		February 10, 2026	—%
$	355,995

29

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)
Contractual Outstanding Amount
December 31, 2014		Maturity Date	Interest Rate as of December 31, 2014
$	105,000	May 19, 2015	0.36%
40,000		November 25, 2016	0.25%	(1 Month FRC + 2 bps)*
578		November 6, 2017	0.50%
50,000		November 20, 2017	0.25%	(1 Month FRC + 2 bps)*
50,000		November 23, 2018	0.26%	(1 Month FRC + 2 bps)*
50,000		December 31, 2019	0.21%	(1 Month FRC + 2 bps)*
513		February 10, 2026	—%
$	296,091

(*) FRC = FHLB Fixed Rate Credit interest rate.

9. Long-Term Borrowings

Structured repurchase agreements

During the three months ended June 30, 2015, the Company prepaid $52.3 million of repurchase agreements acquired through the Company's legacy acquisitions. The Company recorded a $1.6 million loss on extinguishment of debt as a result of this prepayment.

The repurchase agreements as of December 31, 2014 consisted of the following:

(Dollars in thousands)
Carrying Amount
December 31, 2014		Contractual Amount		Maturity Date	Contractual Rate
$	10,540	$	10,000	November 6, 2016	4.75%
10,582		10,000		March 30, 2017	4.50%
10,394		10,000		December 18, 2017	3.79%
10,372		10,000		December 18, 2017	3.72%
10,638		10,000		March 22, 2019	3.56%
$	52,526	$	50,000

These repurchase agreements had a weighted-average rate of 4.06% at December 31, 2014 and were collateralized by $61.4 million of mortgage-backed securities.

Subordinated Debentures

Through its acquisitions of CBKN, GRNB, SCMF and TIBB, the Company assumed thirteen separate pooled offerings of trust preferred securities. The Company is not considered the primary beneficiary of the trusts (variable interest entities), therefore the trusts are not consolidated in the Company’s Consolidated Financial Statements, but rather the subordinated debentures are presented as liabilities. The trusts consist of wholly-owned statutory trust subsidiaries for the purpose of issuing the trust preferred securities. The trusts used the proceeds from the issuance of trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend equal to the interest rate on the debt securities. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by the Company or the trust, at their respective option after a period of time, and at varying premiums and sooner in specific events,

30

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

subject to prior approval by the Federal Reserve Board (“FRB”), if then required. Deferral of interest payments on the trust preferred securities is allowed for up to 60 months without being considered an event of default.

The subordinated debentures as of June 30, 2015 and December 31, 2014 consisted of the following:

(Dollars in thousands)
			Carrying Amount
Date of Offering	Face Amount		June 30, 2015		December 31, 2014		Interest Rate as of June 30, 2015			Maturity Date
July 31, 2001	$	5,000	$	3,929	$	3,900	3.86	%	(3 Month LIBOR + 358 bps)	July 31, 2031
July 31, 2001	4,000		2,732		2,699		3.86	%	(3 Month LIBOR + 358 bps)	July 31, 2031
June 26, 2003	10,000		6,067		6,017		3.38	%	(3 Month LIBOR + 310 bps)	June 26, 2033
September 25, 2003	10,000		6,591		6,516		3.13	%	(3 Month LIBOR + 285 bps)	October 8, 2033
December 30, 2003	10,000		5,853		5,802		3.13	%	(3 Month LIBOR + 285 bps)	December 30, 2033
June 28, 2005	3,000		1,620		1,594		1.97	%	(3 Month LIBOR + 168 bps)	June 28, 2035
December 22, 2005	10,000		4,668		4,607		1.69	%	(3 Month LIBOR + 140 bps)	March 15, 2036
December 28, 2005	13,000		6,775		6,668		1.83	%	(3 Month LIBOR + 154 bps)	March 15, 2036
June 23, 2006	20,000		11,636		11,488		1.83	%	(3 Month LIBOR + 155 bps)	July 7, 2036
May 16, 2007	56,000		29,340		28,904		1.94	%	(3 Month LIBOR + 165 bps)	June 15, 2037
June 15, 2007	10,000		5,477		5,426		1.71	%	(3 Month LIBOR + 143 bps)	September 6, 2037
	$	151,000	$	84,688	$	83,621

Other Subordinated Debentures

On April 1, 2015, the Company prepaid a subordinated promissory note with a fixed interest rate of 10.0% due March 18, 2020 assumed through the acquisition of CBKN. The Company recorded a $0.1 million gain on extinguishment of debt as a result of this prepayment. The note had a carrying value of $3.5 million as of March 31, 2015 and December 31, 2014.

At June 30, 2015, the maturities of long-term borrowings were as follows:

(Dollars in thousands)	Fixed Rate		Floating Rate		Total
Due in 2015	$	—	$	—	$	—
Due in 2016	—		—		—
Due in 2017	—		—		—
Due in 2018	—		—		—
Due in 2019	—		—		—
Thereafter	—		84,688		84,688
Total	$	—	$	84,688	$	84,688

10. Shareholders’ Equity and Minimum Regulatory Capital Requirements

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements results in certain discretionary and required actions by regulators that could have an effect on the Company’s operations. The regulations require the Company and the Bank to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

To be considered well capitalized or adequately capitalized as defined under the regulatory framework for prompt corrective action, the Bank must maintain minimum Tier 1 leverage, Tier 1 common, Tier 1 risk-based and Total Risk-based ratios. At June 30, 2015 and December 31, 2014 the Bank maintained capital ratios exceeding the requirement to be considered

31

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

well capitalized. These minimum ratios along with the actual ratios for the Company and the Bank are presented in the following tables:

(Dollars in thousands)	Well Capitalized Requirement		Adequately Capitalized Requirement		Actual
June 30, 2015	Amount	Ratio	Amount	Ratio	Amount		Ratio
Tier 1 Leverage Capital
(to Average Assets)
CBF Consolidated	N/A	N/A	$269,111	≥ 4.0%	$	986,167	14.7%
Capital Bank, N.A.	$334,648	≥ 5.0%	$267,718	≥ 4.0%	$	745,997	11.2%
Tier 1 Common Equity Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	N/A	$256,127	≥ 4.5%	$	914,613	16.1%
Capital Bank, N.A.	$367,868	≥ 6.5%	$254,678	≥ 4.5%	$	745,997	13.2%
Tier 1 Risk-based Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	N/A	$341,503	≥ 6.0%	$	986,167	17.3%
Capital Bank, N.A.	$452,761	≥ 8.0%	$339,571	≥ 6.0%	$	745,997	13.2%
Total Risk-based Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	N/A	$455,337	≥ 8.0%	$	1,034,687	18.2%
Capital Bank, N.A.	$565,951	≥ 10.0%	$452,761	≥ 8.0%	$	797,910	14.1%

(Dollars in thousands)	Well Capitalized Requirement		Adequately Capitalized Requirement		Actual
December 31, 2014	Amount	Ratio	Amount	Ratio	Amount		Ratio
Tier 1 Capital
(to Average Assets)
CBF Consolidated	N/A	N/A	$261,445	≥ 4.0%	$	933,335	14.3%
Capital Bank, N.A.	$326,050	≥ 5.0%	$260,840	≥ 4.0%	$	881,395	13.5%
Tier 1 Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	N/A	$207,370	≥ 4.0%	$	933,335	18.0%
Capital Bank, N.A.	$310,245	≥ 6.0%	$206,830	≥ 4.0%	$	881,395	17.0%
Total Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	N/A	$414,740	≥ 8.0%	$	987,535	19.1%
Capital Bank, N.A.	$517,074	≥ 10.0%	$413,660	≥ 8.0%	$	935,455	18.1%

In August 2010, Capital Bank, NA entered into an Operating Agreement with the Office of the Comptroller of the Currency (the “OCC Operating Agreement”). The OCC Operating Agreement requires Capital Bank, NA to maintain total capital equal to at least 12% of risk-weighted assets, Tier 1 Capital equal to at least 11% of risk-weighted assets and a minimum leverage ratio of 10% (Tier 1 Capital ratio).

As of June 30, 2015 and December 31, 2014, the Company and the Bank met all capital requirements to which they were subject. Tier 1 Capital for the Company includes trust preferred securities to the extent allowable.

The OCC Operating Agreement requires prior approval from the OCC before paying a dividend to the Company. Dividends that may be paid by a national bank are limited to that bank’s retained net profits for the preceding two years plus retained net profits up to the date of any dividend declaration in the current calendar year. Subsequent to receiving approval from the OCC, the Company received dividends from the bank totaling $199.4 million, $56.0 million and $105.0 million on January 30, 2015, July 15, 2014 and September 24, 2013, respectively. The Company may use these dividends for general

32

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

corporate purposes including acquisitions, or as a return of capital to shareholders through future share repurchases or dividends.

In July 2013, the U.S. banking regulators adopted a final rule which implements the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision, and certain changes required by the Dodd-Frank Act. The final rule established an integrated regulatory capital framework and introduces the “Standardized Approach” for risk-weighted assets, which replaces the Basel I risk-based guidance for determining risk-weighted assets as of January 1, 2015, the date the Company became subject to the new rules. Based on the Company's current capital composition and levels, the Company believes it is in compliance with the requirements as set forth in the final rules.

The rules include new risk-based capital and leverage ratios, which will be phased in from 2015 to 2019, and refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Company and the Bank under the final rules are as follows: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements. The capital conservation buffer will be phased-in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. This will result in the following minimum ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. As of June 30, 2015, our capital buffer would be 6.10%; exceeding the 2.5% 2019 requirement.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are now required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

Dividend Program

The Company's board of directors has approved a quarterly common dividend program commencing in the third quarter at an amount to be determined.

Share Repurchases

The Company’s Board of Directors authorized stock repurchase plans of up to $300.0 million. Stock repurchases may be made from time to time, on the open market or in privately negotiated transactions. The approved stock repurchase programs do not obligate the Company to repurchase any particular amount of shares, and the programs may be extended, modified, suspended, or discontinued at any time.

During the three months ended June 30, 2015, the Company did not repurchase any stock under the aforementioned plans. During the six months ended June 30, 2015, the Company repurchased $25.0 million, or 961,257 common shares at an average price of $25.99 per share. As of June 30, 2015, the Company has repurchased a total of $198.2 million, or 9,046,956 common shares at an average price of $21.91 per share with $101.8 million of remaining availability for future share repurchases.

The Company accounts for treasury stock using the cost method as a reduction of shareholders’ equity in the accompanying Consolidated Balance Sheets and Statements of Changes in Shareholders’ Equity.

33

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

11. Stock-Based Compensation

As of June 30, 2015, the Company had two compensation plans, the 2010 Equity Incentive Plan ("the "2010 Plan") and the 2013 Omnibus Compensation Plan (the “2013 Plan”) under which shares of its common stock are issuable in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, stock bonus awards and other incentive awards. The 2010 Plan was replaced by the 2013 Plan and no further awards may be made pursuant to the 2010 Plan.

The 2013 Plan was effective May 22, 2013 and expires on May 22, 2023, the tenth anniversary of the effective date. The maximum number of shares of common stock of the Company that may be optioned or awarded under this plan is 2,639,000 shares. Awards under this plan may be made to any person selected by the Compensation Committee.

The following table summarizes the components and classification of stock-based compensation expense for the three and six months ended June 30, 2015 and 2014:

(Dollars in thousands)	Three Months Ended				Six Months Ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Stock options	$	104	$	171	$	288	$	366
Restricted stock	4		849		104		1,382
Total stock-based compensation expense	$	108	$	1,020	$	392	$	1,748

The tax benefit related to stock-based compensation expense arising from restricted stock awards and non-qualified stock options was $41 thousand and $391 thousand for the three months ended June 30, 2015 and 2014, respectively and $150 thousand and $670 thousand for the six months ended June 30, 2015 and 2014, respectively.

At June 30, 2015, there was no unrecognized stock-based compensation expense related to stock options and restricted stock.

Stock Options

Under the 2010 Plan and 2013 Plan, the exercise price for common stock must equal at least 100% of the fair market value of the stock on the day an option is granted. The exercise price under an incentive stock option granted to a person owning stock representing more than 10% of the common stock must equal at least 110% of the fair market value at the date of grant, and such option is not exercisable after five years from the date the incentive stock option was granted. The Board of Directors may, at its discretion, provide that an option not be exercised in whole or in part for any period or periods of time as specified in the option agreements. No option may be exercised after the expiration of ten years from the date it is granted. No stock options were granted under these plans during the three and six months ended June 30, 2015 and 2014.

ASC 718 requires the recognition of stock-based compensation expense for the number of awards that are ultimately expected to vest. During the three and six months ended June 30, 2015 and 2014, stock based compensation expense was recorded based upon assumptions that the Company would experience no forfeitures. This assumption of forfeitures will be reassessed in subsequent periods based on historical forfeiture rates and may change based on new facts and circumstances. Any changes in assumptions will be accounted for prospectively in the period of change.

A summary of the stock option activity for the six months ended June 30, 2015 and 2014 is as follows:

	Six Months Ended
	June 30, 2015				June 30, 2014
(Shares in thousands)	Shares		Weighted     Average Exercise Price Per Share		Shares		Weighted     Average Exercise Price  Per Share
Balance, January 1,	3,111		$	20.26	3,123		$	20.50
Granted	—		—		—		—
Exercised	—		—		—		—
Canceled, expired or forfeited	(2	)	372.68		(9	)	59.60
Balance, June 30,	3,109		$	20.12	3,114		$	20.39

34

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

At June 30, 2015, the weighted average remaining contractual life for outstanding stock options was approximately 5.15 years and the aggregate intrinsic values were $28.6 million for stock options outstanding and exercisable.

The intrinsic value for stock options is calculated as the difference between the exercise price of the underlying awards and the market price of the Company’s common stock as of the reporting date.

Options outstanding at June 30, 2015 were as follows:

(Shares in thousands)	Outstanding Options				Exercisable Options
Range of Exercise Prices	Shares	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price Per Share		Shares	Weighted Average Exercise Price Per Share
$18.00	236	7.89 years	$	18.00	236	$	18.00
$20.00	2,864	4.93 years	20.00		2,864	20.00
$28.44 - $2,026.00	9	3.09 years	108.52		9	108.52
$18.00 - $2,026.00	3,109	5.15 years	$	20.12	3,109	$	20.12

Restricted Stock

Restricted stock provides the grantee with voting, dividend and anti-dilution rights equivalent to common shareholders, but is restricted from transfer until vested, at which time all restrictions are removed. The terms of the restricted stock awards granted to employees provide for vesting upon the achievement of stock price goals as follows: (1) one-third at $25.00 per share; (2) one-third at $28.00 per share; and (3) one-third at $32.00 per share. Achievement of stock price goals is generally defined as the average closing price of the shares for any consecutive 30-day period exceeding the applicable price target. The value of the restricted stock is being amortized on a straight-line basis over the implied service periods. No restricted stock awards were granted under the 2013 Plan during the three and six months ended June 30, 2015 and 2014.

On May 22, 2015, 405,129 restricted stock awards vested upon achievement of the $28.00 stock price goal. The Company recognized $2.2 million in excess tax benefits relating to the vesting of such awards.

The following table summarizes unvested restricted stock activity for the six months ended June 30, 2015 and 2014:

	Six Months Ended
	June 30, 2015				June 30, 2014
(Shares in thousands)	Shares		Weighted Average Grant-Date Fair Value     Per Share		Shares		Weighted Average Grant-Date Fair Value     Per Share
Balance, January 1,	810		$	13.89	1,215		$	14.28
Granted	—		—		—		—
Vested or released	(405	)	14.33		(405	)	15.07
Canceled, expired or forfeited	—		—		—		—
Balance, June 30,	405		$	13.45	810		$	13.89

35

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

12. Income Taxes

A reconciliation of income tax computed at applicable Federal statutory income tax rates to total income tax expense reported for the three and six months ended June 30, 2015 and 2014 is as follows:

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Income before income taxes	$	20,247		$	20,041		$	38,090		$	38,663
Income taxes computed at Federal statutory tax rate	7,086			7,014			13,331			13,532
Effect of:				—
State taxes (net of federal benefit)	783			738			1,235			1,483
Tax-exempt interest income, net	(60		)	(158		)	(549		)	(333		)
Contingent value right expense (CVR)	(118		)	114			(118		)	383
Other, net	(434		)	(92		)	(188		)	(241		)
Total income tax expense	$	7,257		$	7,616		$	13,711		$	14,824

The Company uses an estimated annual effective tax rate method of computing its interim tax provision. The effective tax rate is based on forecasted annual pre-tax income, permanent differences and statutory tax rates. For the three and six months ended June 30, 2015, the effective income tax rate was 36%. For the three and six months ended June 30, 2014, the effective income tax rate was 38%. The change in effective income tax rate was mainly due to the favorable impact from higher tax-exempt interest income and lower non-deductible CVR expense in the current year.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the states of Florida, South and North Carolina and Tennessee. The net deferred tax assets as of June 30, 2015 and December 31, 2014 were $117.2 million and $129.6 million, respectively. A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence in concluding that no valuation allowance was necessary at June 30, 2015 and December 31, 2014.

At June 30, 2015 and December 31, 2014, the company had $79.2 million and $91.1 million of gross federal net operating loss carryforwards, respectively, which begin to expire after 2029 if unused and are subject to annual cumulative limitation of $10.9 million.

At June 30, 2015 and December 31, 2014, the Company had no unrecognized tax benefits and no amounts recorded for uncertain tax positions.

13. Fair Value

FASB guidance on fair value measurements defines fair value, establishes a framework for measuring fair value, and requires fair value disclosures for certain assets and liabilities measured at fair value on a recurring and non-recurring basis.

This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability.

This guidance establishes a fair value hierarchy for disclosure of fair value measurements to maximize the use of observable inputs, that is, inputs that reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of the reporting entity. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

36

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Cash & cash equivalents

Cash and cash equivalents include cash on hand and highly-liquid items with an original maturity of three months or less. Accordingly, the carrying amount of such instruments is considered to be a reasonable estimate of fair value.

Derivative financial instruments

Interest rate swaps are valued by a third party, using models that primarily use market observable inputs, such as yield curves, and are validated by comparison with valuations provided by the respective counterparties. The credit risk associated with derivative financial instruments that are subject to master netting agreements is measured on a net basis by counterparty portfolio. Forward loan sales agreements are based upon the amounts required to settle the contracts. Fair values for commitments to originate loans held for sale are based on fees currently charged to enter into similar agreements. Fair values for fixed-rate commitments consider the difference between current levels of interest rates and the committed rates.

Valuation of Investment Securities

The fair values of available-for-sale, held-to-maturity and trading securities are determined by: 1) obtaining quoted prices on nationally recognized securities exchanges when available (Level 1 inputs); 2) matrix pricing, which is a mathematical technique widely used in the financial markets to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs); and 3) for certain other debt securities that are not actively traded, custom discounted cash flow modeling (Level 3 inputs).

As of June 30, 2015, Capital Bank held industrial revenue bonds which are floating rate issues. Since there is no active secondary market for the trading of the bonds, the Company has developed a model to estimate fair value. This model determines an appropriate discount rate for the bonds based on current market rates for liquid corporate bonds with an equivalent credit rating plus an estimated illiquidity factor, and calculates the present value of expected future cash flows using this discount rate.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or estimated fair value. The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics. As such, the fair value adjustment for mortgage loans held for sale is classified as nonrecurring Level 2.

Valuation of Impaired Loans and Other Real Estate Owned

The fair value of collateral dependent impaired loans with specific allocations of the allowance for loan and lease losses and other real estate owned is generally based on recent real estate appraisals and other available observable market information. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

The Company generally uses independent external appraisers in this process who routinely make adjustments to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. The Company’s policy is to update appraisals, at a minimum, annually for classified assets, which include collateral dependent loans and OREO. The Company considers appraisals dated within the past 12 months to be current and do not typically make adjustments to such appraisals. In the Company’s process for reviewing third-party prepared appraisals, any differences of opinion on values, assumptions or

37

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

adjustments to comparable sales data are typically reconciled directly with the independent appraiser prior to acceptance of the final appraisal.

Sensitivity to Changes in Significant Unobservable Inputs

As discussed above, as of June 30, 2015, the Company owns industrial revenue bonds, which require recurring fair value estimates categorized within Level 3 of the fair value hierarchy. The significant unobservable inputs used in the fair value measurement of these securities are incorporated in the discounted cash flow modeling valuation. Rates utilized in the modeling of these securities are estimated based upon a variety of factors including the market yields of other non-investment grade corporate debt. Significant changes in any inputs in isolation would result in significantly different fair value estimates.

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2015 are summarized below:

(Dollars in thousands)			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
Trading securities	$	2,898	$	—	$	2,898	$	—
Available-for-sale securities:
Mortgage-backed securities—residential	572,993		—		572,993		—
Industrial revenue bonds	3,503		—		—		3,503
Corporate bonds	23,642		—		23,642		—
Available-for-sale securities	$	600,138	$	—	$	596,635	$	3,503
Gross asset value of derivatives	$	125	$	—	$	125	$	—
Liabilities
Gross liability value of derivatives	$	713	$	—	$	713	$	—

There were no transfers of assets and liabilities between levels of the fair value hierarchy during the six months ended June 30, 2015.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 are summarized below:

(Dollars in thousands)			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
Trading securities	$	2,410	$	—	$	2,410	$	—
Available-for-sale securities:
Mortgage-backed securities-residential	552,203		—		552,203		—
Industrial revenue bonds	3,690		—		—		3,690
Available-for-sale securities	$	555,893	$	—	$	552,203	$	3,690
Gross asset value of derivatives	$	4	$	—	$	4	$	—
Liabilities
Gross liability value of derivatives	$	26	$	—	$	26	$	—

 There were no transfers of assets and liabilities between levels of the fair value hierarchy during the year ended December 31, 2014.

38

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

The table below presents the activity and income statement classifications of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended and held at June 30, 2015:

(Dollars in thousands)	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Industrial Revenue Bonds
Beginning balance, April 1, 2015	$	3,537
Principal reduction	—
Included in other comprehensive income	(34		)
Ending balance, June 30, 2015	$	3,503

(Dollars in thousands)	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Industrial Revenue Bonds
Beginning balance, January 1, 2015	$	3,690
Principal reduction	(170		)
Included in other comprehensive income	(17		)
Ending balance, June 30, 2015	$	3,503

The table below presents the activity and income statement classifications of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended and held at June 30, 2014:

(Dollars in thousands)	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Industrial Revenue Bonds
Beginning balance, April 1, 2014	$	3,727
Included in other comprehensive income	9
Ending balance, June 30, 2014	$	3,736

39

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Industrial Revenue Bonds
Beginning balance, January 1, 2014	$	3,859
Principal reduction	(170		)
Included in other comprehensive income	47
Ending balance, June 30, 2014	$	3,736

Quantitative Information about Recurring Level 3 Fair Value Measurements

(Dollars in thousands)	Fair Value at June 30, 2015		Valuation Technique	Significant Unobservable Input	Range
Industrial revenue bonds	$	3,503	Discounted cash flow	Discount rate	3.5% - 3.6%
				Illiquidity factor	0.5%

(Dollars in thousands)	Fair Value at December 31, 2014		Valuation Technique	Significant Unobservable Input	Range
Industrial revenue bonds	$	3,690	Discounted cash flow	Discount rate	3.5% - 3.6%
				Illiquidity factor	0.5%

Assets and Liabilities Measured on a Nonrecurring Basis

Assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2015 are summarized below:

(Dollars in thousands)	Fair Value Measurement Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Other real estate owned	$	—	$	—	$	41,292
Other repossessed assets	—		189		—
Impaired loans	—		—		204

Other real estate owned measured at fair value as of June 30, 2015 had a carrying amount of $54.4 million, less valuation allowances totaling $13.1 million. Other repossessed assets are primarily comprised of repossessed vehicles and equipment and are measured at fair value as of the date of repossession.

40

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

Assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2014 are summarized below:

(Dollars in thousands)	Fair Value Measurement Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Other real estate owned	$	—	$	—	$	66,048
Other repossessed assets	—		150		—
Impaired loans	—		—		754

Other real estate owned measured at fair value as of December 31, 2014 had a carrying amount of $85.1 million, less valuation allowances totaling $19.1 million. Other repossessed assets are primarily comprised of repossessed vehicles and equipment and are measured at fair value as of the date of repossession.

Quantitative Information about Nonrecurring Level 3 Fair Value Measurements

(Dollars in thousands)	Fair Value at March 31, 2015		Valuation Technique	Significant Unobservable Input	Weighted Average
Other real estate owned	$	41,292	Fair value of property	Appraised value less cost to sell	7.82%
Impaired loans	204		Fair value of collateral	Appraised value less cost to sell	7.10%

(Dollars in thousands)	Fair Value at December 31, 2014		Valuation Technique	Significant Unobservable Input	Weighted Average
Other real estate owned	$	66,048	Fair value of property	Appraised value less cost to sell	7.86%
Impaired loans	754		Fair value of collateral	Appraised value less cost to sell	7.60%

Carrying amount and estimated fair values of financial instruments were as follows:

41

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)	Fair Value Measurement
June 30, 2015	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	201,286	$	201,286	$	201,286	$	—	$	—
Trading securities	2,898		2,898		—		2,898		—
Investment securities available-for-sale	600,138		600,138		—		596,635		3,503
Investment securities held-to-maturity	426,427		431,764		—		431,764		—
Loans, net	5,158,351		5,251,624		—		7,127		5,244,497
FDIC indemnification asset	11,764		11,764		—		—		11,764
Receivable from FDIC	2,652		2,652		—		2,652		—
Other earning assets (1)	52,651		52,651		—		—		52,651
Gross asset value of derivatives	125		125		—		125		—
Total financial assets	$	6,456,292	$	6,554,902	$	201,286	$	1,041,201	$	5,312,415
Financial Liabilities
Non-contractual deposits	$	3,970,613	$	3,970,613	$	—	$	—	$	3,970,613
Contractual deposits	1,521,810		1,516,474		—		—		1,516,474
Federal Home Loan Bank advances	355,995		355,990		—		355,990		—
Short-term borrowings	18,466		18,466		—		18,466		—
Subordinated debentures	84,688		96,612		—		—		96,612
Gross liability value of derivatives	713		713		—		713		—
Total financial liabilities	$	5,952,285	$	5,958,868	$	—	$	375,169	$	5,583,699

(1) Includes Federal Reserve Bank, Federal Home Loan Bank and Bankers Bank stocks.

(Dollars in thousands)	Fair Value Measurement
December 31, 2014	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	188,135	$	188,135	$	188,135	$	—	$	—
Trading securities	2,410		2,410		—		2,410		—
Investment securities available-for-sale	555,893		555,893		—		552,203		3,690
Investment securities held-to-maturity	436,962		443,379		—		443,379		—
Loans, net	4,950,008		5,058,352		—		5,516		5,052,836
FDIC indemnification asset	16,762		16,762		—		—		16,762
Receivable from FDIC	3,661		3,661		—		3,661		—
Other earning assets (1)	50,943		50,943		—		—		50,943
Gross asset value of derivatives	4		4		—		4		—
Total financial assets	$	6,204,778	$	6,319,539	$	188,135	$	1,007,173	$	5,124,231
Financial Liabilities
Non-contractual deposits	$	3,836,400	$	3,836,400	$	—	$	—	$	3,836,400
Contractual deposits	1,418,700		1,415,122		—		—		1,415,122
Federal Home Loan Bank advances	296,091		296,038		—		296,038		—
Short-term borrowings	23,407		23,407		—		23,407		—
Long-term borrowings	52,526		54,235		—		—		54,235
Subordinated debentures	87,155		97,913		—		—		97,913
Gross liability value of derivatives	26		26		—		26		—
Total financial liabilities	$	5,714,305	$	5,723,141	$	—	$	319,471	$	5,403,670

(1) Includes Federal Reserve Bank, Federal Home Loan Bank and Bankers Bank stocks.

42

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, receivable from FDIC, derivatives, noncontractual demand deposits and certain short-term borrowings. As it is not practicable to determine the fair value of Federal Reserve, Federal Home Loan Bank stock, FDIC indemnification asset and correspondent bank’s stocks due to restrictions placed on transferability, the estimated fair value is equal to their carrying amount. Security fair values are based on market prices or dealer quotes and, if no such information is available, on the rate and term of the security and information about the issuer including estimates of discounted cash flows when necessary. For fixed rate loans or contractual deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life, adjusted for the allowance for loan and lease losses. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of long-term debt is based on current rates for similar financing. The fair value of off-balance sheet items that include commitments to extend credit to fund commercial, consumer, real estate construction and real estate-mortgage loans and to fund standby letters of credit is considered nominal.

14. Derivative and Hedging Activities

The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

During 2015, the company entered into LIBOR-based interest rate swaps with the objective of limiting the variability of interest payment cash flows resulting from changes in the benchmark interest rate LIBOR. These interest rate swaps are designated as cash flow hedges involving the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of the derivatives is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized in earnings.

During the next twelve months, the Company estimates that an additional $2.0 million will be reclassified as an increase to interest income from amounts reported in accumulated comprehensive income. During the six months ended June 30, 2015, no derivative position designated as cash flow hedges were discontinued and none of the gains and losses reported in other comprehensive income were reclassified into earnings as a result of discontinuance of cash flow hedges.

The Company also enters into forward loan sales contracts, which are derived from loans held for sale, or in the Company’s pipeline, to enable those borrowers to manage their exposure to interest rate fluctuations. The interest rate derivative contracts are not designated as hedging instruments or otherwise qualify for hedge accounting treatment and all changes in fair value are recognized in non-interest income or non-interest expense during the period of change. For the three and six months ended June 30, 2015, the Company recorded $31 thousand and $36 thousand, respectively, in non-interest income and $(46) thousand and $1 thousand, respectively, in non-interest expense as a result of changes in fair value of derivatives. For the three and six months ended June 30, 2014, the company recorded $0.6 million and $1.7 million, respectively, in non-interest income and $16 thousand and $35 thousand, respectively, in non-interest expense as a result of changes in fair value of derivatives.

43

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

The Company’s derivative instrument contracts at fair value as well as their classification on the Company's balance sheet is presented below:

(Dollars in thousands)			June 30, 2015				December 31, 2014
	Number of instruments	Balance Sheet Location	Fair Value		Notional Amount		Fair Value		Notional Amount
Asset derivatives
Derivatives designated as hedging instruments
Interest rate swap	1	Other assets	$	86	$	70,000	$	—	$	—
Derivatives not designated as hedging instruments
Forward loan sales contracts	37	Other assets	39		6,847		4		1,640
Total asset derivatives			$	125	$	76,847	$	4	$	1,640
Liability derivatives
Derivatives designated as hedging instruments
Interest rate swap	2	Other liabilities	$	685	$	115,000	$	—	$	—
Derivatives not designated as hedging instruments
Forward loan sales contracts	24	Other liabilities	28		5,448		26		7,578
Total liability derivatives			$	713	$	120,448	$	26	$	7,578

44

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

The table below present the effect off the Company's derivative financial instruments on the Consolidated Statements of Income for the three and six months ended June 30, 2015:

(Dollars in thousands)	Three Months Ended June 30, 2015
Derivatives in Cash Flow Hedging Relationship	Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion)			Location of Gain Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain Reclassified from Accumulated OCI on Derivative (Effective Portion)		Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap	$	(835	)	Interest income	$	459	N/A	$	—

(Dollars in thousands)	Six Months Ended June 30, 2015
Derivatives in Cash Flow Hedging Relationship	Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion)			Location of Gain Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain Reclassified from Accumulated OCI on Derivative (Effective Portion)		Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap	$	(32	)	Interest income	$	567	N/A	$	—

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of June 30, 2015:

							Gross Amounts Not Offset in the Balance Sheets
(Dollars in thousands)	Gross Amount of Recognized Assets		Gross Amount Offset in the Balance Sheets		Net Amount of Assets Presented in the Balance Sheets		Financial Instruments		Cash Collateral		Net Amount
Offsetting of derivative assets:
Interest rate swap	$	86	$	—	$	86			$	—	$	86
Total	$	86	$	—	$	86	$	—	$	—	$	86
Offsetting of derivative liabilities:
Interest rate swap	$	685	$	—	$	685			$	820	$	(135	)
Total	$	685	$	—	$	685	$	—	$	820	$	(135	)

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness or fails to maintain its status as a well capitalized institution, then the Company could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty.

As of June 30, 2015, the fair value of cash flow derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $564 thousand . The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures and agreements that specify collateral levels to be maintained by the Company and the counterparties. These collateral levels are based on the credit rating of the counterparties.

45

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain of the matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and, as such, may involve known and unknown risk, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results described in such forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation: market and economic conditions, the management of our growth, the risks associated with Capital Bank, NA’s loan portfolio and real estate holdings, local economic conditions affecting retail and commercial real estate, the Company’s geographic concentration in the southeastern region of the United States, restrictions imposed by Capital Bank, NA’s loss sharing agreements with the FDIC, the assumptions and judgments required by loss share accounting and the acquisition method of accounting, competition within the industry, dependence on key personnel, government legislation and regulation, the risks associated with identification, completion and integration of any future acquisitions, and risks related to Capital Bank, NA’s technology and information systems. Additional factors that may cause actual results to differ materially from these forward looking statements, include but are not limited to, the risk factors described in Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2014. All forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements. The Company disclaims any intent or obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.

Our financial information is prepared in accordance with U.S. GAAP, for more information on our accounting

policies and estimates, refer to Note 1. Summary of Significant Accounting Policies to our Consolidated Financial Statements

included in our annual report on Form 10-K for the fiscal year ended December 31, 2014. Application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the following discussion and in our Consolidated Financial Statements and accompanying notes. For more information on our accounting policies and estimates, refer to the Company’s Consolidated Financial Statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2014.

The following discussion addresses the factors that have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated statement of condition as of June 30, 2015, and statements of income for the three and six months then ended.

The following discussion pertains to our historical results, which includes the operations of First National Bank of the South, Metro Bank, Turnberry Bank (collectively, the “Failed Banks”), TIB Financial, Capital Bank Corp., Green Bankshares and Southern Community Financial subsequent to our acquisition of each such entity. Throughout this discussion, we collectively refer to the above acquisitions as the “acquisitions” and we refer to loans originated or purchased by Capital Bank, N.A. as “new loans”.

Overview

We are a bank holding company incorporated in late 2009 with the goal of creating a regional banking franchise in the southeastern region of the United States through organic growth and acquisitions of other banks, including failed, underperforming and undercapitalized banks. We have raised $955.6 million to make acquisitions through a series of private placements and an initial public offering of our common stock. Since inception, we have acquired seven depository institutions, including the assets and certain deposits from the Failed Banks. We operate 153 branches in Florida, North and South Carolina, Tennessee and Virginia. Through our branches, we offer a wide range of commercial and consumer loans and deposits, as well as ancillary financial services.

We were founded by a group of experienced bankers with a multi-decade record of leading, operating, acquiring and integrating financial institutions.

Our executive management team is led by our Chief Executive Officer, R. Eugene Taylor. Mr. Taylor is the former Vice Chairman of Bank of America Corp., where his career spanned 38 years and included responsibilities as Vice Chairman and President of the Consumer and Commercial Bank. Mr. Taylor also served on Bank of America’s Risk & Capital and Management

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Operating Committees. He has extensive experience executing and overseeing bank acquisitions, including NationsBank Corp’s acquisition and integration of Bank of America, Maryland National Bank and Barnett Banks, Inc.

Our Chief Financial Officer, Christopher G. Marshall, has over 32 years of financial and managerial experience, including serving as Senior Advisor to the Chief Executive Officer and Chief Restructuring Officer at GMAC, Chief Financial Officer of Fifth Third Bancorp and as the Chief Operations Executive for Bank of America’s Global Consumer and Small Business Bank. Mr. Marshall also served as Chief Financial Officer of Bank of America’s Consumer Products Group. Prior to joining Bank of America, Mr. Marshall served as Chief Financial Officer and Chief Operating Officer of Honeywell International Inc. Global Business Services.

Our Chief Credit Officer, R. Bruce Singletary, has over 34 years of experience, including 21 years of experience managing credit risk. He has served as Head of Credit for NationsBank Corp. for the Mid-Atlantic region. Mr. Singletary then relocated to Florida to establish a centralized underwriting function to serve middle market commercial clients in the southeastern region of the United States. Mr. Singletary also served as Senior Risk Manager for commercial banking for Bank of America’s Florida Bank and as Senior Credit Policy Executive of C&S Sovran (renamed NationsBank Corp).

Our Chief of Strategic Planning and Investor Relations, Kenneth A. Posner, spent 13 years as an equity research analyst including serving as a Managing Director at Morgan Stanley focusing on a wide range of financial services firms. Mr. Posner also served in the United States Army, rising to the rank of Captain and has received professional designations as a Certified Public Accountant, as a Chartered Financial Analyst and for Financial Risk Management.

Primary Factors Used to Evaluate Our Business

As a financial institution, we manage and evaluate various aspects of both our results of operations and our financial condition. We evaluate the levels and trends of the line items included in our Consolidated Balance Sheets and Statements of Income, as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against our budgeted performance and the financial condition and performance of comparable financial institutions in our region and nationally. Our financial information is prepared in accordance with U.S. GAAP. Application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the following discussion and in our Consolidated Financial Statements and accompanying notes. For more information on our accounting policies and estimates, refer to Note 1. Summary of Significant Accounting Policies to our Consolidated Financial Statements included in our annual report on Form 10-K for the fiscal year ended December 31, 2014.

Quarterly Summary

For the three months ended June 30, 2015, we had net income of $13.0 million, or $0.28 per diluted share, and core net income of $14.0 million, or $0.30 per diluted share. Net income rose 14% sequentially and 5% year over year, while net income per diluted share rose 17% and 12%, respectively. Results include the following non-core items: $1.4 million of losses on extinguishment of legacy debt; $0.2 million of additional costs associated with the branch closures announced in the first quarter; and $0.1 million of net losses on investment securities.

Operating and financial highlights for the quarter include the following:

• Record new loans of $489 million, up 55% sequentially and 11% year over year;

• Loan portfolio grew sequentially at a 10% annualized rate;

• Deposits grew sequentially at a 10% annualized rate;

• EPS grew 17% sequentially and 12% year over year; and

• ROA, Core ROA and Core ROA excluding non-single-family FDIC indemnification expense, increased to 0.75%, 0.82% and 0.90%, respectively.

Results of Operations

Net Interest Income

Net interest income is the largest component of our income and is affected by the interest rate environment and the volume and composition of interest-earning assets and interest-bearing liabilities. Our interest-earning assets include loans, interest-bearing deposits in other banks and investment securities. Other earning assets include Federal Reserve Bank, Federal Home Loan Bank and Bankers Bank stock. Our interest-bearing liabilities include deposits, subordinated debentures, repurchase agreements and other short-term borrowings.

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In the net interest margin and rate/volume analysis below, interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax rates in adjusting tax-exempt interest on tax-exempt investment securities and loans to a fully taxable basis. In the rate/volume analysis, average loan volumes include non-performing assets which results in the impact of the non-accrual of interest being reflected in the change in average rate. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes and changes due to rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.

Three months ended June 30, 2015 compared to three months endedMarch 31, 2015:

Net interest income for the three months ended June 30, 2015 increased by $1.0 million, or 2%, to $60.7 million from $59.7 million. The net interest margin declined two basis points to 3.94% from 3.96% and the net interest spread declined to 3.79% from 3.83%. Loan yields remained flat at 4.87% from 4.88%. During the quarter, we originated record new loans of $489.2 million with an average yield of 3.49% compared to $316.5 million and 3.67% in the prior quarter. The implementation of interest rate swaps during the first half of the year resulted in $0.5 million in additional interest income during the second quarter and had a four basis point impact on the margin. New loans represent 76% of our total loan portfolio, up from 74% at March 31, 2015. The cost of core deposits remained flat at 0.15%. The cost of total deposits increased two basis points to 0.36% mainly due to an increase in time deposits as a result of a new CD product which raised $37.6 million in new balances. Additionally, wholesale time deposits increased by $57.2 million, which provided a lower cost source of funding than higher rate legacy time deposits. Total funding costs increased one basis point to 0.46%. Average balances of long-term borrowings decreased slightly as a result of the $52.3 million extinguishment of repurchase agreements with a weighted average rate of 4.06% and $3.5 million of 10% coupon subordinated debt assumed through the Company's legacy acquisitions.

(Dollars in thousands)	Three Months Ended  June 30, 2015						Three Months Ended  March 31, 2015
	Average Balances		Interest		Yield/Rate		Average Balances		Interest		Yield/Rate
Interest earning assets
Loans	$	5,079,878	$	61,717	4.87	%	$	5,044,763	$	60,710	4.88	%
Investment securities	1,038,269		5,296		2.05	%	1,014,448		5,141		2.06	%
Interest bearing deposits in other banks	55,553		36		0.26	%	58,654		33		0.23	%
Other earning assets	47,694		646		5.43	%	50,803		688		5.49	%
Total interest earning assets	6,221,394		$	67,695	4.36	%	6,168,668		$	66,572	4.38	%
Non-interest earning assets	664,119						685,654
Total assets	$	6,885,513					$	6,854,322
Interest bearing liabilities
Time deposits	$	1,464,552	$	3,402	0.93	%	$	1,409,605	$	2,999	0.86	%
Money market	943,160		600		0.25	%	914,385		554		0.25	%
Interest bearing demand	1,381,609		578		0.17	%	1,397,011		592		0.17	%
Savings	484,622		259		0.21	%	496,907		265		0.22	%
Total interest bearing deposits	4,273,943		4,839		0.45	%	4,217,908		4,410		0.42	%
Short-term borrowings and FHLB advances	261,030		143		0.22	%	319,901		182		0.23	%
Long-term borrowings	129,029		1,645		5.11	%	137,394		1,725		5.09	%
Total interest bearing liabilities	4,664,002		$	6,627	0.57	%	4,675,203		$	6,317	0.55	%
Non-interest bearing demand	1,123,466						1,066,401
Other liabilities	36,966						51,653
Shareholders’ equity	1,061,079						1,061,065
Total liabilities and shareholders’ equity	$	6,885,513					$	6,854,322
Net interest income and spread			$	61,068	3.79	%			$	60,255	3.83	%
Net interest margin					3.94	%					3.96	%

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Rate/Volume Analysis

(Dollars in thousands)	Three Months Ended June 30, 2015 Compared to Three Months Ended March 31, 2015 Due to changes in:
	Average Volume			Average Yield / Rate			Net Increase (Decrease)
Interest income
Loans	$	424		$	583		$	1,007
Investment securities	121			34			155
Interest bearing deposits in other banks	(2		)	5			3
Other earning assets	(42		)	—			(42		)
Total interest income	501			622			1,123
Interest expense
Time deposits	120			283			403
Money market	18			28			46
Interest bearing demand	(6		)	(8		)	(14		)
Savings	(7		)	1			(6		)
Short-term borrowings and FHLB advances	(32		)	(7		)	(39		)
Long-term borrowings	(106		)	26			(80		)
Total interest expense	(13		)	323			310
Change in net interest income	$	514		$	299		$	813

Three months ended June 30, 2015 compared to three months endedJune 30, 2014:

Net interest income for the three months ended June 30, 2015 remained flat at $60.7 million. The net interest margin declined thirty-two basis points to 3.94% from 4.26% and the net interest spread declined to 3.79% from 4.12%. Loan yields declined to 4.87% from 5.40% due to the lower average yield on new loans in addition to the decline of our higher yielding legacy acquired loan portfolio as we continue to resolve legacy problem assets. Partially offsetting the decline in yields, was the increase in new loan balances. During the quarter, we originated record new loans of $489.2 million with an average yield of 3.49%, as compared to $441.7 million new loans with an average yield of 3.50% originated during the three months ended June 30, 2014. The implementation of interest rate swaps during the first half of 2015 resulted in $0.5 million in additional interest income during the second quarter and had a four basis point impact on the margin. New loans represent 76% of our total loan portfolio, up from 66% at June 30, 2014. The weighted average yield of acquired impaired loans outstanding at June 30, 2015 is 8.25%. Investment securities yields increased due to the reinvestment of funds into higher yielding securities to assist with interest rate risk and liquidity management. The cost of core deposits increased one basis point to 0.15%. The cost of total deposits increased three basis points to 0.36% mainly due to an increase in wholesale time deposits, which provided a lower cost source of funding than higher rate legacy time deposits. Total funding cost increased one basis point to 0.46%. Average balances of long-term borrowings decreased slightly as a result of the $52.3 million extinguishment of repurchase agreements with a weighted average rate of 4.06% and $3.5 million of 10% coupon subordinated debt assumed through the Company's legacy acquisitions.

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(Dollars in thousands)	Three Months Ended  June 30, 2015						Three Months Ended  June 30, 2014
	Average Balances		Interest		Yield/Rate		Average Balances		Interest		Yield/Rate
Interest earning assets
Loans	$	5,079,878	$	61,717	4.87	%	$	4,593,337	$	61,826	5.40	%
Investment securities	1,038,269		5,296		2.05	%	1,060,611		4,648		1.76	%
Interest bearing deposits in other banks	55,553		36		0.26	%	62,172		37		0.24	%
Other earning assets	47,694		646		5.43	%	40,346		578		5.75	%
Total interest earning assets	6,221,394		67,695		4.36	%	5,756,466		67,089		4.67	%
Non-interest earning assets	664,119						763,185
Total assets	$	6,885,513					$	6,519,651
Interest bearing liabilities
Time deposits	$	1,464,552	$	3,402	0.93	%	$	1,358,478	$	2,878	0.85	%
Money market	943,160		600		0.25	%	931,867		523		0.23	%
Interest bearing demand	1,381,609		578		0.17	%	1,330,856		556		0.17	%
Savings	484,622		259		0.21	%	531,414		286		0.22	%
Total interest bearing deposits	4,273,943		4,839		0.45	%	4,152,615		4,243		0.41	%
Short-term borrowings and FHLB advances	261,030		143		0.22	%	98,002		50		0.20	%
Long-term borrowings	129,029		1,645		5.11	%	135,831		1,719		5.08	%
Total interest bearing liabilities	4,664,002		6,627		0.57	%	4,386,448		6,012		0.55	%
Non-interest bearing demand	1,123,466						1,002,757
Other liabilities	36,966						45,281
Shareholders’ equity	1,061,079						1,085,165
Total liabilities and shareholders’ equity	$	6,885,513					$	6,519,651
Net interest income and spread			$	61,068	3.79	%			$	61,077	4.12	%
Net interest margin					3.94	%					4.26	%

Rate/Volume Analysis

(Dollars in thousands)	Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014 Due to changes in:
	Average Volume			Average Yield / Rate			Net Increase (Decrease)
Interest income
Loans	$	6,217		$	(6,326	)	$	(109	)
Investment securities	(100		)	748			648
Interest bearing deposits in other banks	(4		)	3			(1		)
Other earning assets	101			(33		)	68
Total interest income	6,214			(5,608		)	606
Interest expense
Time deposits	234			290			524
Money market	6			71			77
Interest bearing demand	21			1			22
Savings	(25		)	(2		)	(27		)
Short-term borrowings and FHLB advances	89			4			93
Long-term borrowings	(87		)	13			(74		)
Total interest expense	238			377			615
Change in net interest income	$	5,976		$	(5,985	)	$	(9	)

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Six months ended June 30, 2015 compared to six months ended June 30, 2014:

Net interest income for the six months ended June 30, 2015 declined by $2.9 million, or 2%, to $120.4 million from $123.3 million. The decline was due to the lower average yield on new loans, partially offset by increased loan balances and higher yields on investment securities. The net interest margin declined thirty-eight basis points to 3.95% from 4.33% and the net interest spread declined to 3.81% from 4.20%. Loan yields declined to 4.88% from 5.53% due to the lower average yield on new loans in addition to the decline of our higher yielding legacy acquired loan portfolio as we continue to resolve legacy problem assets. During the six months ended June 30, 2015, we originated new loans of $805.7 million with an average yield of 3.56%, as compared to $694.2 million new loans with an average yield of 3.68% originated during the six months ended June 30, 2014. The implementation of interest rate swaps during the first half of 2015 resulted in $0.6 million in additional interest income and had a two basis point impact on the margin. New loans represent 76% of our total loan portfolio, up from 66% at June 30, 2014. The weighted average yield of acquired impaired loans outstanding at June 30, 2015 is 8.25%. Investment securities yields increased due to the reinvestment of funds into higher yielding securities to assist with interest rate risk and liquidity management. The cost of core deposits remained flat at 0.15%. The cost of total deposits increased one basis point to 0.35% mainly due to an increase in wholesale time deposits, which provided a lower cost source of funding than higher rate legacy time deposits. Total funding cost remained flat at 0.45%. Average balances of long-term borrowings decreased slightly as a result of the $52.3 million extinguishment of repurchase agreements with a weighted average rate of 4.06% and $3.5 million of 10% coupon subordinated debt assumed through the Company's legacy acquisitions.

(Dollars in thousands)	Six Months Ended  June 30, 2015						Six Months Ended  June 30, 2014
	Average Balances		Interest		Yield/Rate		Average Balances		Interest		Yield/Rate
Interest earning assets
Loans	$	5,062,417	$	122,428	4.88	%	$	4,567,937	$	125,230	5.53	%
Investment securities	1,026,424		10,439		2.05	%	1,100,698		9,449		1.73	%
Interest bearing deposits in other banks	57,095		69		0.24	%	54,890		63		0.23	%
Other earning assets	49,240		1,334		5.46	%	41,727		1,159		5.60	%
Total interest earning assets	6,195,176		$	134,270	4.37	%	5,765,252		$	135,901	4.75	%
Non-interest earning assets	674,827						775,274
Total assets	$	6,870,003					$	6,540,526
Interest bearing liabilities
Time deposits	$	1,437,231	$	6,400	0.90	%	$	1,385,952	$	5,850	0.85	%
Money market	928,852		1,153		0.25	%	940,256		1,049		0.22	%
Interest bearing demand	1,389,267		1,170		0.17	%	1,322,325		1,094		0.17	%
Savings	490,731		524		0.22	%	532,115		568		0.22	%
Total interest bearing deposits	4,246,081		9,247		0.44	%	4,180,648		8,561		0.41	%
Short-term borrowings and FHLB advances	290,304		325		0.23	%	100,910		121		0.24	%
Long-term borrowings	133,188		3,371		5.10	%	135,575		3,423		5.09	%
Total interest bearing liabilities	4,669,573		$	12,943	0.56	%	4,417,133		$	12,105	0.55	%
Non-interest bearing demand	1,095,092						972,549
Other liabilities	44,266						50,872
Shareholders’ equity	1,061,072						1,099,972
Total liabilities and shareholders’ equity	$	6,870,003					$	6,540,526
Net interest income and spread			$	121,327	3.81	%			$	123,796	4.20	%
Net interest margin					3.95	%					4.33	%

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(Dollars in thousands)	Six Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014 Due to changes in:
	Average Volume			Average Yield / Rate			Net Increase (Decrease)
Interest income
Loans	$	12,791		$	(15,593	)	$	(2,802	)
Investment securities	(669		)	1,659			990
Interest bearing deposits in other banks	3			3			6
Other earning assets	204			(29		)	175
Total interest income	12,329			(13,960		)	(1,631		)
Interest expense
Time deposits	221			329			550
Money market	(13		)	117			104
Interest bearing demand	56			20			76
Savings	(44		)	—			(44		)
Short-term borrowings and FHLB advances	213			(9		)	204
Long-term borrowings	(60		)	8			(52		)
Total interest expense	373			465			838
Change in net interest income	$	11,956		$	(14,425	)	$	(2,469	)

Provision for Loan and Lease Losses

The following table presents the provision for loan and lease losses for PCI and non-PCI Loans for the three and six months ended June 30, 2015 and 2014:

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Reversal of provision for loan and lease losses on PCI Loans	$	(524	)	$	(940	)	$	(2,450	)	$	(3,428	)
Provision for loan and lease losses on non-PCI Loans	1,823			2,344			2,908			4,808
Provision for Loan and Lease Losses	$	1,299		$	1,404		$	458		$	1,380

Three months ended June 30, 2015 compared to three months endedJune 30, 2014:

The provision for loan and lease losses for the three months ended June 30, 2015 was $1.3 million compared to a provision of $1.4 million for the three months ended June 30, 2014. In each period, the reversal of impairment associated with PCI Loans was due to improvements in our expectations of future cash flows resulting from higher than anticipated payoffs and resolutions. Improvement in cash flows for covered and non-covered loans resulted in reversals of impairment of $0.2 million and $0.3 million, respectively. The provision on the new loan portfolio declined to $1.8 million for the three months ended June 30, 2015, from $2.3 million for the three months ended June 30, 2014, primarily due to a $0.4 million reduction in net charge-offs.

Six months ended June 30, 2015 compared to six months endedJune 30, 2014:

The provision for loan and lease losses for the six months ended June 30, 2015 was $0.5 million compared to a provision of $1.4 million for the six months ended June 30, 2014. The reversal of impairment associated with PCI Loans was due to improvements in our expectations of future cash flows resulting from higher than anticipated payoffs and resolutions. Improvement in cash flows for covered and non-covered loans resulted in reversals of impairment of $0.5 million and $1.9 million, respectively. The provision on the new loan portfolio declined to $2.9 million for the six months ended June 30, 2015, from $4.8 million for the six months ended June 30, 2014, primarily due to a $0.5 million decrease in net charge-offs and lower historical loss rates from the peer group used in determining loss factors in our allowance model.

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The table below illustrates the impact of our second quarter of 2015 estimates of expected cash flows on PCI Loans on impairment and prospective yield:

(Dollars in thousands)			Weighted Average Prospective Yields
	Cumulative Impairment		Based on Original Estimates of Expected Cash Flows	Based on Most Recent Estimates of Expected Cash Flows	Loan Balance (2)		Weighted Average Note Rate	Weighted Average Life (Years)
Covered loan pools (1)	$	8,980	6.09%	8.91%	$	146,919	4.72%	2.66
Non-covered loans pools	17,264		5.59%	8.16%	1,077,904		4.80%	2.77
Total	$	26,244	5.67%	8.25%	$	1,224,823	4.79%	2.76

(1) Covered loan pools are comprised of loans acquired in acquisition of the Failed Banks with loan types guaranteed by the FDIC under loss sharing agreements. Accordingly, certain pools classified as covered may include individual loans which are not, or are no longer covered.

(2) Loan balance represents the recorded investment of all loans in the covered and non-covered pools, respectively. Not all covered loans are classified as PCI.

Non-interest Income

Three months ended June 30, 2015 compared to three months ended June 30, 2014:

Non-interest income declined $1.5 million, or 13%, to $10.4 million for the three months ended June 30, 2015 from $11.9 million for the three months ended June 30, 2014. The decline was mainly due to $0.5 million in lower service charges on deposits accounts as a result of a decline in non-sufficient funds and overdraft protection income, a decline of $0.4 million in OREO rental income reflecting the continued resolution of special assets, an increase of $0.4 million in FDIC indemnification asset amortization due to improvements in cash flow estimates on covered loans, and an other than temporary impairment to fully write-off a $0.3 million on a cost method legacy investment. Partially offsetting the decline, investment advisory and trust fees increased $0.2 million due to an increase in commissions on investment products sold, and fees on mortgage loans originated and sold increased $0.2 million, or 14%, as residential mortgages sold increased 6% year over year. Debit card income increased $0.1 million due to an increase in debit card usage.

As a result of expiration of the FDIC agreement for non-single asset loss sharing at the end of the third quarter of 2015, FDIC indemnification expense is expected to decline significantly in the fourth quarter of 2015.

Six months ended June 30, 2015 compared to six months endedJune 30, 2014:

Non-interest income declined $3.0 million, or 13%, to $20.3 million for the six months ended June 30, 2015 from $23.3 million for the six months ended June 30, 2014. The decline was mainly due to $1.2 million in lower service charges on deposits accounts as a result of a decline in non-sufficient funds and overdraft protection income, a decline of $0.8 million in OREO rental income reflecting the continued resolution of special assets, an increase of $0.7 million in FDIC indemnification asset amortization due to improvements in cash flow estimates on covered loans, and an other than temporary impairment to fully write-off a $0.3 million on a cost method legacy investment. Partially offsetting the decline, fees on mortgage loans originated and sold increased $0.5 million, or 29%, as residential mortgages sold increased 12% year over year. Debit card income increased $0.2 million due to the increase in debit card usage as a result of our continued focus on lower cost deposit growth and related service fees.

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The following table sets forth the components of non-interest income for the periods indicated:

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Service charges on deposit accounts	$	5,189		5,672			9,894			11,108
Debit card income	3,176			3,103			6,140			5,947
Fees on mortgage loans originated and sold	1,278			1,123			2,425			1,882
Investment advisory and trust fees	1,125			910			2,131			2,171
FDIC indemnification asset expense	(2,499		)	(2,064		)	(4,938		)	(4,229		)
Investment securities gains (losses), net	231			(28		)	321			146
Net impairment loss recognized in earnings	(288		)	—			(288		)	—
OREO revenues	167			538			363			1,196
Earnings on bank owned life insurance policies	388			396			770			863
Wire transfer fees	206			188			407			366
Other income	1,390			2,049			3,058			3,806
Total non-interest income	$	10,363		$	11,887		$	20,283		$	23,256

Non-interest Expense

Three months ended June 30, 2015 compared to three months ended June 30, 2014:

Non-interest expense declined $1.8 million, or 3.5%, to $49.5 million for the three months ended June 30, 2015 from $51.3 million for the three months ended June 30, 2014. The improvement was mainly due to a reduction of $1.6 million in salaries and employee benefits and $1.0 million in net occupancy expense as a result of cost savings initiatives, a reduction in stock-based compensation expense of $0.9 million, which has fully amortized, and a reduction in CVR expense of $0.3 million due to the early redemption of the CVR associated with Southern Community Financial Corporation.

Partially offsetting the decline, were $1.4 million of net losses on extinguishment of debt assumed through the Company's legacy acquisitions; a component of the cost savings initiatives which will result in approximately $1.1 million in annual interest savings going forward, and $0.2 million of restructuring charges related to facility consolidation activities and severance announced in the first quarter.

As a result of expiration of the FDIC agreement for non-single asset loss sharing at the end of the third quarter of 2015, FDIC indemnification expense is expected to decline significantly in the fourth quarter of 2015.

Our efficiency ratios for the three months ended June 30, 2015 and 2014 were 69.67% and 70.51%, respectively. Our core efficiency ratios for the three months ended June 30, 2015 and 2014 were 67.32% and 69.30%, respectively. Excluding the impact of the FDIC indemnification expense, the Company's efficiency and core efficiency ratios declined to 67.53% and 65.25%, respectively.

Six months ended June 30, 2015 compared to six months ended June 30, 2014:

Non-interest expense declined $4.3 million, or 4.1%, to $102.1 million for the six months endedJune 30, 2015 from $106.5 million for the six months ended June 30, 2014. The improvement was due to a $2.6 million reduction in the OREO valuation expense, foreclosed asset and loan workout expense components of our legacy credit expenses; a reflection of the continued resolution of special assets. Contributing to the improvement in non-interest expense, was a reduction of $1.2 million in salaries and employee benefits and $1.4 million in net occupancy expense as a result of cost savings initiatives, a reduction in stock-based compensation expense of $1.4 million, which has fully amortized, and a reduction in CVR expense of $1.0 million due to the early redemption of the CVR associated with Southern Community Financial Corporation.

Partially offsetting the decline, were $2.5 million of restructuring charges, net, related to the closure of nine branch facilities and related consolidation activities, which included $2.0 million of facility write-downs, $0.6 million of lease termination costs and $0.2 million in other costs, partially offset by a $0.3 million of gain on sale on one of the closed branches. Excluding the impact of the facility related charges and debt extinguishment discussed above, non-interest expense declined $8.3 million, or 8%, year over year. In addition, as a result of the facility closure activities, we have $4.8 million of premises and equipment as assets held for sale presented in other assets in our consolidated balance sheet.

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OREO sales during the six months endedJune 30, 2015 resulted in $18.8 million in cash proceeds, including $1.0 million in net gains, reducing our OREO balance by 18% and 34% from December 31, 2014 and June 30, 2014, respectively.

Our efficiency ratios for the six months ended June 30, 2015 and 2014 were 72.60% and 72.67%, respectively. Our core efficiency ratios for the six months ended June 30, 2015 and 2014 were 69.56% and 71.27%, respectively.

The following table sets forth the components of non-interest expense for the periods indicated:

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Salaries and employee benefits	$	21,881		23,449			$	45,762		46,947
Stock-based compensation expense	108			1,020			392			1,748
Net occupancy and equipment expense	7,754			8,723			15,883			17,322
Computer services	3,343			3,389			6,740			6,642
Software expense	2,082			1,940			4,224			3,808
Telecommunication expense	1,367			1,628			2,747			3,236
OREO valuation expense	1,710			3,022			3,100			6,595
Net gains on sales of OREO	(957		)	(3,192		)	(964		)	(3,913		)
Foreclosed asset related expense	600			991			1,274			2,450
Loan workout expense	795			1,117			1,418			2,294
Professional fees	1,723			2,038			3,457			4,042
Losses on extinguishment of debt	1,438			—			1,438			—
Restructuring charges, net	178						2,519			—
Contingent value right expense	4			327			120			1,094
Regulatory assessments	1,831			1,648			3,526			3,277
Amortization of intangibles	932			1,186			1,852			2,400
Other expense	4,713			3,987			8,661			8,555
Total non-interest expense	$	49,502		$	51,273		$	102,149		$	106,497

Legacy credit expenses for the three and six months ended June 30, 2015 and 2014 are presented below:

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Reversal of provision on legacy loans	$	(524	)	$	(940	)	$	(2,450	)	$	(3,428	)
FDIC indemnification asset expense	2,499			2,064			4,938			4,229
OREO valuation expense	1,710			3,022			3,100			6,595
Net gains on sales of OREO	(957		)	(3,192		)	(964		)	(3,913		)
Foreclosed asset related expense	600			991			1,274			2,450
Loan workout expense	795			1,117			1,418			2,294
Salaries and employee benefits	797			1,270			1,629			2,540
Total legacy credit expenses	$	4,920		$	4,332		$	8,945		$	10,767

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The core efficiency ratio, which equals core non-interest expense divided by core net revenues (net interest income plus core non-interest income), for the three and six months ended June 30, 2015 and 2014 is as follows:

(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Net interest income	$	60,685		$	60,831		$	120,414		$	123,284
Reported non-interest income	10,363			11,887			20,283			23,256
Less: Securities (gains) losses	(57		)	(28		)	33			146
Core non-interest income	$	10,420		$	11,915		$	20,250		$	23,110
Reported non-interest expense	$	49,502		$	51,273		$	102,149		$	106,497
Less: Stock-based compensation	—			531			95			1,064
Contingent value right expense	4			327			120			1,094
Restructuring charges	178			—			2,519			—
Severance expense	14			—			125			—
Loss on extinguishment of debt	1,438			—			1,438			—
Core non-interest expense	$	47,868		$	50,415		$	97,852		$	104,339
Less: FDIC indemnification asset expense (non-single family)	$	2,253
Efficiency ratio	69.67		%	70.51		%	72.60		%	72.67		%
Core efficiency ratio	67.32		%	69.30		%	69.56		%	71.27		%
Efficiency ratio (excluding FDIC indemnification expense)	67.53		%
Core efficiency ratio (excluding FDIC indemnification asset expense)	65.25		%

The core efficiency ratio is a non-GAAP measure which we believe provides analysts and investors with information useful in understanding our business and evaluating our operating efficiency. We monitor the core efficiency ratio to evaluate and control operating costs. The core efficiency ratio is also a measure utilized by our Board of Directors in measuring management’s performance in controlling operating costs in comparison to peers. This non-GAAP measure has inherent limitations and is not required to be uniformly applied. It should not be considered in isolation or as a substitute for analysis of results reported under GAAP. This non-GAAP measure may not be comparable to similarly titled measures reported by other companies and should not be viewed as a substitute for non-interest expense.

Income Taxes

The provision for income taxes was $7.3 million and $13.7 million for the three and six months ended June 30, 2015, respectively. The effective income tax rate was 36% for these periods. The provision for income taxes was $7.6 million and $14.8 million for the three and six months ended June 30, 2014, respectively. The effective income tax rate was 38% for these periods. The lower effective rate was mainly due to the favorable impact from higher tax exempt interest income and lower non-deductible CVR expense in the 2015 periods.

At June 30, 2015 and December 31, 2014, the Company had no amounts recorded for uncertain tax positions and no unrecognized tax benefits. We do not expect to identify any material unrecognized tax benefits during the next 12 months.

Refer to Note 12. Income Taxes to our Consolidated Financial Statements for further information on our provision for income taxes.

Financial Condition

Our assets totaled $7.1 billion at June 30, 2015 and $6.8 billion at December 31, 2014. Total loans increased $206.2 million to $5.2 billion at June 30, 2015 compared to $5.0 billion at December 31, 2014. The increase in total loans was due to $805.7 million of new loans, partially offset by $68.1 million in resolutions of problem loans and $531.4 million in net principal

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repayments. Investment securities increased by $34.2 million mainly due to $167.3 million of investment purchases, partially offset by $129.6 million of principal reductions and sales. Total deposits increased by $0.2 billion or 5% to $5.5 billion at June 30, 2015 compared to $5.3 billion at December 31, 2014. Deposit growth was primarily from core deposits which increased by $134.2 million. Non-interest bearing checking accounts increased $78.0 million, or 14.8% annualized, and money market balances increased $93.3 million. Core deposits represent 72.3% and 73.0% of total deposits at June 30, 2015 and December 31, 2014, respectively. Time deposits increased by $103.1 million as a result of increased lower-cost brokered time deposits. Borrowed funds, consisting of FHLB advances, short-term borrowings, notes payable and subordinated debentures, totaled $459.1 million and $459.2 million at June 30, 2015 and December 31, 2014, respectively. During 2015, we extinguished $55.8 million of debt assumed through the Company's legacy acquisitions.This higher cost debt was replaced by lower cost short-term FHLB advances, which increased by $59.9 million.

Shareholders’ equity was $1.1 billion at June 30, 2015 and December 31, 2014. During 2013, 2014 and 2015, the Company’s Board of Directors authorized stock repurchase plans of up to $300.0 million. Stock repurchases may be made from time to time, on the open market or in privately negotiated transactions. The approved stock repurchase programs do not obligate the Company to repurchase any particular amount of shares, and the programs may be extended, modified, suspended, or discontinued at any time.

During the three months ended June 30, 2015, the Company did not repurchase any stock under the aforementioned plans. During the six months ended June 30, 2015, the Company repurchased $25.0 million, or 961,257 common shares at an average price of $25.99 per share. As of June 30, 2015, the Company has repurchased a total of $198.2 million, or 9,046,956 common shares at an average price of $21.91 per share, and had $101.8 million of remaining availability for future share repurchases.

Core return-on-assets (“core ROA”) is a non-GAAP measure which we believe provides management and investors with useful information to understand the effects of certain non-interest items and provides an alternative view of the Company’s performance over time and in comparison to the Company’s competitors. This non-GAAP measure has inherent limitations and is not required to be uniformly applied. It should not be considered in isolation or as a substitute for analysis of results reported under GAAP. This non-GAAP measure may not be comparable to similarly titled measures reported by other companies and should not be viewed as a substitute for non-interest expense. A reconciliation to the most directly comparable GAAP financial measure is shown in the table below:

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(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Net Income	$	12,990		$	12,425		$	24,379		$	23,839
Adjustments
Non-interest income
Security (gains) losses	$	57		$	28		$	(33	)	$	(146	)
Non-interest expense
Stock-based compensation expense	—			531			95			1,064
Contingent value right expense	4			327			120			1,094
Severance expense	14			—			125			—
Loss on extinguishment of debt*	1,438			—			1,438			—
Restructuring charges	178			—			2,519			—
Tax effect of adjustments	(648		)	(218		)	(1,634		)	(355		)
Core Net Income	$	14,033		$	13,093		$	27,009		$	25,496
Less: FDIC indemnification asset expense (non-single family)	$	1,397
Average Assets	$	6,885,513		$	6,519,651		$	6,870,003		$	6,540,526
ROA	0.75		%	0.76		%	0.71		%	0.73		%
Core ROA	0.82		%	0.80		%	0.79		%	0.78		%
ROA (excluding FDIC indemnification asset expense)	0.84		%
Core ROA (excluding FDIC indemnification asset expense)	0.90		%

As a result of expiration of the FDIC agreement for non-single asset loss sharing at the end of the third quarter of 2015, FDIC indemnification expense is expected to decline significantly in the fourth quarter of 2015. For the quarter ended June 30, 2015, excluding the impact of the non-single-family FDIC indemnification expense, the Company's ROA and Core ROA increased to 0.84% and 0.90%, respectively.

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Loans

Our loan portfolio is our primary earning asset category. Our strategy is to grow the loan portfolio by originating commercial and consumer loans that we believe to be of high quality, that comply with our conservative credit policies and that produce revenues consistent with our financial objectives. Additionally, we have worked to reduce excessive concentrations in commercial real estate loans, which were the predominant portion of the acquisitions’ legacy portfolios, in order to achieve a more diversified portfolio mix.

The following table sets forth the carrying amounts of our loan portfolio:

(Dollars in thousands)	June 30, 2015				December 31, 2014				Year to Date Change
	Amount		Percent		Amount		Percent		Amount			Percent
Non-owner occupied commercial real estate	$	834,351	16.0	%	$	798,556	16.0	%	$	35,795		4.5	%
Other commercial construction and land	182,283		3.5	%	200,755		4.0	%	(18,472		)	(9.2	)%
Multifamily commercial real estate	76,754		1.5	%	89,132		1.8	%	(12,378		)	(13.9	)%
1-4 family residential construction and land	78,572		1.5	%	68,658		1.4	%	9,914			14.4	%
Total commercial real estate	1,171,960		22.5	%	1,157,101		23.2	%	14,859			1.3	%
Owner occupied commercial real estate	1,030,111		19.8	%	1,046,736		20.9	%	(16,625		)	(1.6	)%
Commercial and industrial	1,181,451		22.7	%	1,073,791		21.5	%	107,660			10.0	%
Lease financing	1,661		—	%	2,005		—	%	(344		)	(17.2	)%
Total commercial	2,213,223		42.5	%	2,122,532		42.4	%	90,691			4.3	%
1-4 family residential	959,224		18.4	%	925,698		18.5	%	33,526			3.6	%
Home equity loans	375,271		7.2	%	378,475		7.6	%	(3,204		)	(0.8	)%
Other consumer loans	341,590		6.6	%	272,453		5.4	%	69,137			25.4	%
Total consumer	1,676,085		32.2	%	1,576,626		31.5	%	99,459			6.3	%
Other	145,146		2.8	%	143,960		2.9	%	1,186			0.8	%
Total loans	$	5,206,414	100.0	%	$	5,000,219	100.0	%	$	206,195		4.1	%

The following tables set forth the carrying amounts of our non-PCI and PCI loan portfolio by category:

(Dollars in thousands)	June 30, 2015
	Non-PCI Loans
	New		Acquired		PCI Loans		Total
Non-owner occupied commercial real estate	$	431,689	$	56,370	$	346,292	$	834,351
Other commercial construction and land	74,556		217		107,510		182,283
Multifamily commercial real estate	41,943		6,873		27,938		76,754
1-4 family residential construction and land	75,749		—		2,823		78,572
Total commercial real estate	623,937		63,460		484,563		1,171,960
Owner occupied commercial real estate	750,869		39,653		239,589		1,030,111
Commercial and industrial	1,081,441		8,728		91,282		1,181,451
Lease financing	1,661		—		—		1,661
Total commercial	1,833,971		48,381		330,871		2,213,223
1-4 family residential	632,566		39,916		286,742		959,224
Home equity loans	125,256		167,918		82,097		375,271
Other consumer loans	333,147		4,148		4,295		341,590
Total consumer	1,090,969		211,982		373,134		1,676,085
Other	106,473		2,418		36,255		145,146
Total loans	$	3,655,350	$	326,241	$	1,224,823	$	5,206,414

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(Dollars in thousands)	December 31, 2014
	Non PCI Loans
	New		Acquired		PCI Loans		Total
Non-owner occupied commercial real estate	$	372,793	$	58,552	$	367,211	$	798,556
Other commercial construction and land	66,817		161		133,777		200,755
Multifamily commercial real estate	47,765		12,327		29,040		89,132
1-4 family residential construction and land	58,046		—		10,612		68,658
Total commercial real estate	545,421		71,040		540,640		1,157,101
Owner occupied commercial real estate	745,728		38,122		262,886		1,046,736
Commercial and industrial	958,628		10,778		104,385		1,073,791
Lease financing	2,005		—		—		2,005
Total commercial	1,706,361		48,900		367,271		2,122,532
1-4 family residential	560,106		45,433		320,159		925,698
Home equity loans	103,644		183,270		91,561		378,475
Other consumer loans	261,935		4,647		5,871		272,453
Total consumer	925,685		233,350		417,591		1,576,626
Other	99,610		3,603		40,747		143,960
Total loans	$	3,277,077	$	356,893	$	1,366,249	$	5,000,219

During the six months ended June 30, 2015, our loan portfolio increased by $206.2 million, as $805.7 million of new loans were partially offset by $68.1 million in resolutions of problem loans and $531.4 million in net principal repayments. New and acquired non-impaired loans represent 76% of our total loan portfolio as compared to 73% at December 31, 2014.

The composition of new loan production is indicative of our business strategy of emphasizing commercial and industrial and consumer loans. As illustrated in the table below, commercial loans and consumer and other loans represented approximately 43% and 37%, respectively, of new loan production for the six months ended June 30, 2015. We expect that this production will be more balanced going forward, as we expect commercial real estate to comprise a larger proportion of new loan production.

The following table sets forth our new loans (excluding renewals of existing loans) segmented by loan type:

(Dollars in thousands)	Six Months Ended
	June 30, 2015				June 30, 2014
	Amount		Percent		Amount		Percent
Non-owner occupied commercial real estate	$	81,877	10.2	%	$	66,717	9.6	%
Other commercial construction and land	36,900		4.6	%	36,324		5.2	%
Multifamily commercial real estate	5,178		0.6	%	3,606		0.5	%
1-4 family residential construction and land	32,717		4.1	%	24,890		3.6	%
Total commercial real estate	156,672		19.5	%	131,537		18.9	%
Owner occupied commercial real estate	87,226		10.8	%	77,137		11.1	%
Commercial and industrial	261,201		32.4	%	241,489		34.8	%
Lease financing	—		—	%	—		—	%
Total commercial	348,427		43.2	%	318,626		45.9	%
1-4 family residential	117,113		14.5	%	128,115		18.5	%
Home equity loans	34,705		4.3	%	25,530		3.7	%
Other consumer loans	126,866		15.7	%	84,678		12.2	%
Total consumer	278,684		34.5	%	238,323		34.4	%
Other	21,877		2.8	%	5,750		0.8	%
Total loans	$	805,660	100.0	%	$	694,236	100.0	%

We underwrite commercial real estate loans based on the value of the collateral, the ratio of debt service to property income and the creditworthiness of tenants. Due to the inherent risk of commercial real estate lending, we underwrite loans selectively. Accordingly, we have reduced the concentration of our portfolio over time, which had characterized our acquired loan portfolios.

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Florida, North Carolina, South Carolina and Tennessee accounted for 31.3%, 31.6%, 10.5% and 26.6%% of our new loans, respectively, for the six months ended June 30, 2015. Florida, North Carolina, South Carolina and Tennessee accounted for 31.9%, 31.2%, 13.4% and 23.5% of our new loans, respectively, for the six months ended June 30, 2014.

Asset Quality

Consistent with our strategy of operating with a sound risk profile, we focus on originating loans we believe to be of high quality, and disposing of non-performing assets rapidly and at reasonable valuations. To achieve these objectives, we underwrite new loans and manage existing loans in accordance with our underwriting standards under the direction of our Chief Credit Officer. Additionally, we have assigned senior credit officers to oversee the Florida, Tennessee and Carolinas markets, and we have established a special assets division to dispose of legacy problem loans and OREO.

We refer to our loans covered under loss sharing agreements with the FDIC as “covered loans.” These are the legacy loans of Metro Bank, Turnberry Bank, and First National Bank of the South where the FDIC reimburses us for 80% of net charge-offs and OREO losses over a five-year period for commercial loans (expiring in the third quarter of 2015) and a ten-year period for residential loans (expiring in the third quarter of 2020). We refer to all other loans as “non-covered loans.” These are new loans we originate or purchase, loans acquired through the acquisitions of Capital Bank, TIB Bank, Green Bank and Southern Community Bank and Trust and certain loans of the Failed Banks that we acquired, which are not covered by any loss sharing agreement.

Covered Loans

As of June 30, 2015, covered loans were $176.2 million, representing 3.4% of our loan portfolio of which 0.5% were past due 30-89 days, 3.1% were nonperforming PCI (of which 1.5% were >90 days past due and still accreting) and 0.2% were nonaccrual. As of December 31, 2014, covered loans were $197.6 million, representing 4.0% of our loan portfolio of which 0.2% were past due 30-89 days, 6.5% were nonperforming PCI (of which 4.2% were >90 days past due and still accreting) and 0.3% were nonaccrual. The status of these loans reflects the severity of the real estate downturn and the excessive concentrations in commercial real estate and poor quality underwriting that characterized the banks we acquired from the FDIC under their prior business models. We have recorded these loans at estimated fair value reflecting expected lifetime losses estimated as of their acquisition date.

As of June 30, 2015, covered loans and OREO subject to the commercial shared-loss agreements expiring during the third quarter of 2015, were $91.9 million and $8.0 million, respectively. The commercial shared-loss agreements provide for FDIC loss sharing for five years from July 16, 2010 and our reimbursement for recoveries to the FDIC for eight years from July 16, 2010 for all other covered assets. Covered loans and OREO subject to the single family shared-loss agreements expiring on July 16, 2020, were $84.3 million and $0.4 million, respectively. The single family shared-loss agreements provide for FDIC loss sharing and our reimbursement for recoveries to the FDIC for ten years from July 16, 2010.

We manage credit risk associated with loans covered under loss sharing agreements in the same manner as credit risk associated with non-covered loans. This includes following consistent policies and procedures relating to the process of working with borrowers in efforts to resolve problem loans resulting in the lowest losses possible and collection including foreclosure, repossession and the ultimate liquidation of any applicable underlying collateral. The loss sharing agreements also contain certain restrictions and conditions which, among other things, provide that certain credit risk management strategies such as loan sales, under certain conditions, could be prohibited under the agreements and may lead to the termination of coverage of any applicable losses on the related loans. Accordingly, actions taken by management in the process of prudently managing credit risk and borrower relationships, including, but not limited to, the renewal of covered loans for periods extending beyond the expiration of the applicable loss sharing agreement, the extension of additional credit or the making of certain modifications of loan terms, can lead to the termination of coverage under the loss sharing agreements for these particular loans.

Collection of loss claims under the loss sharing agreements requires extensive and specific recordkeeping and incremental quarterly reporting to the FDIC on the status of covered loans. The loss claims filed and the related reporting on covered loans to the FDIC are subject to review and approval by the FDIC and various subcontractors utilized by the FDIC. The requirements for such reporting and interpretations thereof are occasionally revised by the FDIC and its subcontractors. Such changes along with our ability to comply with the requirements and revisions require interpretation and can lead to delays in the collection of claims on losses incurred. Claims filed by us for losses realized through June 30, 2015, totaling $133.9 million, have been collected from the FDIC. Additionally, the loss sharing agreements provide for regular examination of compliance with loss sharing agreements including reviews of relevant policies and procedures and detailed

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audits of claims filed. Noncompliance with the provisions of the loss sharing agreements can lead to termination of the agreements.

Non-Covered Loans

As of June 30, 2015, non-covered loans were $5.0 billion, representing 96.6% of our loan portfolio, of which 0.2% were past due 30-89 days, 1.6% were nonperforming PCI (of which 0.3% were >90 days past due and still accreting) and 0.2% were nonaccrual. As of December 31, 2014, non-covered loans were $4.8 billion, representing 96.0% of our loan portfolio, of which 0.2% were past due 30-89 days, 2.3% were nonperforming PCI (of which 0.6% were >90 days past due and still accreting) and 0.2% were nonaccrual.

At June 30, 2015, 27.3% of the non-covered loans were acquired impaired loans. Like our covered loans, these acquired loans had disproportionate commercial real estate concentrations. However, the credit quality of these loans is generally higher than that of the covered loans. In connection with the acquisitions, we applied acquisition accounting adjustments to the acquired non-covered loans to reflect estimates at the time of acquisition of the expected lifetime losses of such loans.

Covered and Non-Covered Loan Credit Quality Summary

The table below summarizes key loan credit quality indicators for covered and non-covered loan portfolios as of the dates indicated:

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(Dollars in thousands)	June 30, 2015								December 31, 2014
	Balance		% 30-89 Days Past Due		% Nonperforming PCI Loans		% Non- accrual		Balance		% 30-89 Days Past Due		% Nonperforming PCI Loans		% Non- accrual
Covered Portfolio
Non-owner occupied commercial real estate	$	28,086	0.4	%	1.1	%	—	%	$	33,778	—	%	4.8	%	—	%
Other commercial construction and land	10,861		—	%	4.1	%	—	%	10,379		—	%	39.0	%	—	%
Multifamily commercial real estate	4,566		—	%	—	%	—	%	4,663		—	%	—	%	—	%
1-4 family residential construction and land	—		—	%	—	%	—	%	870		—	%	—	%	—	%
Total commercial real estate	43,513		0.2	%	1.7	%	—	%	49,690		—	%	11.4	%	—	%
Owner occupied commercial real estate	42,179		1.2	%	1.7	%	—	%	47,827		—	%	2.4	%	—	%
Commercial and industrial loans	6,168		0.2	%	0.4	%	1.1	%	7,371		—	%	0.9	%	0.9	%
Lease financing	—		—	%	—	%	—	%	—		—	%	—	%	—	%
Total commercial	48,347		1.1	%	1.5	%	0.1	%	55,198		—	%	2.2	%	0.1	%
1-4 family residential	48,141		0.2	%	6.0	%	0.1	%	51,903		0.2	%	9.0	%	0.1	%
Home equity loans	35,537		0.2	%	2.9	%	0.9	%	39,913		0.6	%	3.3	%	1.1	%
Other consumer loans	165		—	%	18.2	%	—	%	99		—	%	27.3	%	—	%
Total consumer	83,843		0.2	%	4.7	%	0.4	%	91,915		0.4	%	6.5	%	0.6	%
Other	500		—	%	—	%	—	%	844		—	%	—	%	—	%
Total covered loans	$	176,203	0.5	%	3.1	%	0.2	%	$	197,647	0.2	%	6.5	%	0.3	%
Non-covered Portfolio
Non-owner occupied commercial real estate	$	806,265	0.1	%	0.9	%	—	%	$	764,778	—	%	2.0	%	0.1	%
Other commercial construction and land	171,422		0.5	%	11.6	%	0.2	%	190,376		0.1	%	12.9	%	0.1	%
Multifamily commercial real estate	72,188		—	%	1.5	%	—	%	84,469		—	%	2.3	%	—	%
1-4 family residential construction and land	78,572		—	%	—	%	—	%	67,788		—	%	1.3	%	—	%
Total commercial real estate	1,128,447		0.2	%	2.5	%	—	%	1,107,411		—	%	3.8	%	0.1	%
Owner occupied commercial real estate	987,932		0.2	%	1.1	%	0.4	%	998,909		0.2	%	1.5	%	0.3	%
Commercial and industrial loans	1,175,283		—	%	1.8	%	0.1	%	1,066,420		—	%	2.2	%	0.2	%
Lease financing	1,661		—	%	—	%	—	%	2,005		—	%	—	%	—	%
Total commercial	2,164,876		0.1	%	1.5	%	0.2	%	2,067,334		0.1	%	1.9	%	0.2	%
1-4 family residential	911,083		0.2	%	1.6	%	0.2	%	873,795		0.2	%	2.4	%	0.1	%
Home equity loans	339,734		0.4	%	0.8	%	0.4	%	338,562		0.5	%	1.1	%	0.5	%
Other consumer loans	341,425		0.8	%	0.1	%	0.3	%	272,354		1.0	%	0.1	%	0.3	%
Total consumer	1,592,242		0.4	%	1.1	%	0.2	%	1,484,711		0.4	%	1.7	%	0.3	%
Other	144,646		—	%	0.2	%	—	%	143,116		0.1	%	1.8	%	—	%
Total non-covered loans	$	5,030,211	0.2	%	1.6	%	0.2	%	$	4,802,572	0.2	%	2.3	%	0.2	%
Total loans	$	5,206,414	0.2	%	1.6	%	0.2	%	$	5,000,219	0.2	%	2.4	%	0.2	%

Of the loans that were nonperforming PCI as of June 30, 2015 and December 31, 2014, $5.4 million (or approximately 6.5%) and $12.9 million (or approximately 10.6%) were covered by loss sharing agreements with the FDIC, respectively. Of these loans $2.7 million (or approximately 1.5%) and $8.2 million (or approximately 4.2%) were >90 days past due and still accreting as of June 30, 2015 and December 31, 2014, respectively. There were no non-PCI loans included in this category at the end of each period presented.

Total non-performing loans as of June 30, 2015 declined by $37.3 million, or 29%, to $93.3 million as compared to $130.6 million at December 31, 2014. The change in non-performing loans during the six months ended June 30, 2015 was attributable to $45.9 million in resolutions and $7.1 million in transfers to other real estate owned through foreclosures or receipt of deeds in lieu of foreclosures. Partially offsetting these decreases were $15.7 million of loans that became non-performing. Non-performing loans have declined 76% from a peak of $382.5 million at December 31, 2011.

During the six months ended June 30, 2015, of the loans we foreclosed, or received deeds in lieu of foreclosure, approximately 50.1% consisted of residential loans and 35.7% consisted of commercial real estate loans.

63

The customer-owed principal balances and carrying amounts as of June 30, 2015 and December 31, 2014 are set forth in the tables below:

(Dollars in thousands)	June 30, 2015
	Gross Customer Balance Owed		Carrying Amount (1)		Carrying Amount as a Percentage of Customer Balance		Carrying Amount of Noncurrent Loans (2)		Carrying Amount of Noncurrent Loans as a Percentage of Carrying Amount
Covered Portfolio
Non-owner occupied commercial real estate	$	70,517	$	28,086	39.8	%	$	298	1.1	%
Other commercial construction and land	67,656		10,861		16.1	%	447		4.1	%
Multifamily commercial real estate	10,066		4,566		45.4	%	—		—	%
1-4 family residential construction and land	3,170		—		—	%	—		—	%
Total commercial real estate	151,409		43,513		28.7	%	745		1.7	%
Owner occupied commercial real estate	56,336		42,179		74.9	%	698		1.7	%
Commercial and industrial loans	16,540		6,168		37.3	%	93		1.5	%
Lease financing	—		—		—	%	—		—	%
Total commercial	72,876		48,347		66.3	%	791		1.6	%
1-4 family residential	76,427		48,141		63.0	%	2,946		6.1	%
Home equity loans	51,854		35,537		68.5	%	1,348		3.8	%
Other consumer loans	232		165		71.1	%	30		18.2	%
Total consumer	128,513		83,843		65.2	%	4,324		5.2	%
Other	15,638		500		3.2	%	—		—	%
Total covered loans	$	368,436	$	176,203	47.8	%	$	5,860	3.3	%
Non-covered Portfolio
Non-owner occupied commercial real estate	$	892,658	$	806,265	90.3	%	$	7,765	1.0	%
Other commercial construction and land	430,843		171,422		39.8	%	20,136		11.7	%
Multifamily commercial real estate	80,315		72,188		89.9	%	1,074		1.5	%
1-4 family residential construction and land	107,317		78,572		73.2	%	—		—	%
Total commercial real estate	1,511,133		1,128,447		74.7	%	28,975		2.6	%
Owner occupied commercial real estate	1,057,258		987,932		93.4	%	14,141		1.4	%
Commercial and industrial loans	1,277,640		1,175,283		92.0	%	22,613		1.9	%
Lease financing	1,661		1,661		100.0	%	—		—	%
Total commercial	2,336,559		2,164,876		92.7	%	36,754		1.7	%
1-4 family residential	976,250		911,083		93.3	%	16,040		1.8	%
Home equity loans	390,087		339,734		87.1	%	4,249		1.3	%
Other consumer loans	349,238		341,425		97.8	%	1,113		0.3	%
Total consumer	1,715,575		1,592,242		92.8	%	21,402		1.3	%
Other	143,228		144,646		101.0	%	331		0.2	%
Total non-covered loans	$	5,706,495	$	5,030,211	88.1	%	$	87,462	1.7	%
Total loans	$	6,074,931	$	5,206,414	85.7	%	$	93,322	1.8	%

(1) The carrying amount for total covered and non-covered loans represents a discount from the total gross customer balance of $192.2 million, or 52.2%, and $676.3 million or 11.9%, respectively.

(2) Includes loans greater than 90 days past due, and nonperforming loans less than 90 days past due.

64

(Dollars in thousands)	December 31, 2014
	Gross Customer Balance Owed		Carrying Amount (1)		Carrying Amount as a Percentage of Customer Balance		Carrying Amount of Noncurrent Loans (2)		Carrying Amount of Noncurrent Loans as a Percentage of Carrying Amount
Covered Portfolio
Non-owner occupied commercial real estate	$	79,101	$	33,778	42.7	%	$	1,636	4.8	%
Other commercial construction and land	71,888		10,379		14.4	%	4,043		30.9	%
Multifamily commercial real estate	10,780		4,663		43.3	%	—		—	%
1-4 family residential construction and land	3,170		870		27.4	%	—		—	%
Total commercial real estate	164,939		49,690		30.1	%	5,679		11.4	%
Owner occupied commercial real estate	61,872		47,827		77.3	%	1,131		2.4	%
Commercial and industrial loans	17,493		7,371		42.1	%	129		1.8	%
Lease financing	—		—		—	%	—		—	%
Total commercial	79,365		55,198		69.5	%	1,260		2.3	%
1-4 family residential	81,325		51,903		63.8	%	4,751		9.2	%
Home equity loans	56,631		39,913		70.5	%	1,743		4.4	%
Other consumer loans	230		99		43.0	%	27		27.3	%
Total consumer	138,186		91,915		66.5	%	6,521		7.1	%
Other	15,952		844		5.3	%	—		—	%
Total covered loans	$	398,442	$	197,647	49.6	%	$	13,460	6.8	%
Non-covered Portfolio
Non-owner occupied commercial real estate	$	850,602	$	764,778	89.9	%	$	15,477	2.0	%
Other commercial construction and land	458,778		190,376		41.5	%	24,835		13.0	%
Multifamily commercial real estate	93,140		84,469		90.7	%	1,924		2.3	%
1-4 family residential construction and land	101,241		67,788		67.0	%	873		1.3	%
Total commercial real estate	1,503,761		1,107,411		73.6	%	43,109		3.9	%
Owner occupied commercial real estate	1,071,105		998,909		93.3	%	17,713		1.8	%
Commercial and industrial loans	1,170,378		1,066,420		91.1	%	24,769		2.3	%
Lease financing	2,005		2,005		100.0	%	—		—	%
Total commercial	2,243,488		2,067,334		92.1	%	42,482		2.1	%
1-4 family residential	953,159		873,795		91.7	%	22,508		2.6	%
Home equity loans	392,304		338,562		86.3	%	5,372		1.6	%
Other consumer loans	287,553		272,354		94.7	%	1,083		0.4	%
Total consumer	1,633,016		1,484,711		90.9	%	28,963		2.0	%
Other	151,642		143,116		94.4	%	2,607		1.8	%
Total non-covered loans	$	5,531,907	$	4,802,572	86.8	%	$	117,161	2.4	%
Total loans	$	5,930,349	$	5,000,219	84.3	%	$	130,621	2.6	%

(1) The carrying amount for total covered and non-covered loans represents a discount from the total gross customer balance of $200.8 million, or 50.4%, and $729.3 million, or 13.2%, respectively.

(2) Includes loans greater than 90 days past due and nonperforming loans less than 90 days past due.

65

Allowance and Provision for Loan and Lease Losses

At June 30, 2015, the allowance for loan and lease losses was $48.1 million, of which $26.2 million was associated with PCI loans and $21.8 million related to new loans or acquired non-PCI loans. At June 30, 2015, the allowance for loan and lease losses represents 0.92% of our total $5.2 billion loan portfolio. At December 31, 2014, the allowance for loan and lease losses was $50.2 million, of which $28.9 million was associated with PCI loans and $21.3 million related to new loans or acquired non-PCI loans. At December 31, 2014, the allowance for loan and lease losses represented 1.0% of our total $5.0 billion loan portfolio.

For non PCI loans, the allowance for loan and lease losses reflects an allowance for probable incurred credit losses in the loan portfolio. Our formalized process for assessing the adequacy of the allowance for loan and lease losses and the resultant need, if any, for periodic provisions to the allowance charged to income, includes both individual loan analysis and loan pool analysis. Individual loan analysis are periodically performed on loan relationships of a significant size, or when otherwise deemed necessary, and are performed primarily on commercial real estate and other commercial loans. The result is that commercial real estate loans and commercial loans are divided into the following risk categories: Pass, Special Mention, Substandard and Loss. The allowance consists of specific and general components. When appropriate, a specific reserve will be established for individual loans based upon the risk classifications and the estimated potential for loss. The specific component relates to loans that are individually classified as impaired.

Home equity loans, indirect auto loans, residential loans and consumer loans generally are not analyzed individually or separately identified for impairment disclosures. These loans are grouped into pools and assigned risk categories based on their current payment status and management’s assessment of risk inherent in the various types of loans. The allocations are based on the same factors mentioned above. However, should such loans exceeding certain size thresholds exhibit signs of impairment, they may be individually evaluated for impairment.

For PCI loans, the allowance for loan and lease losses is a measure of impairment based upon our most recent estimates of expected cash flows. Our estimation of expected cash flows, which is used to determine the need for provisions to or reversals of the allowance every reporting period, is determined by assigning probability of default (“PD”) and loss given default (“LGD”) assumptions, amongst other assumptions such as prepayment speeds and recovery or liquidation timing. For commercial real estate and other commercial loans, we generally assign PD assumptions through the mapping of the following loan level risk ratings: Pass, Watch, Sub-Performing and Non-Performing. For home equity loans, residential loans, and consumer loans, PD is determined by mapping payment performance and delinquency status to market based default assumptions. Estimated loan to value ratios, determined using appraisals and/or real estate indices, are used to derive loss given default assumptions for real estate collateralized loans.

Senior management and our Board of Directors review this calculation and the underlying assumptions on a routine basis, not less frequently than quarterly.

The provision for loan and lease losses is a charge to income in the current period to establish or replenish the allowance and maintain it at a level that management has determined to be adequate to absorb estimated incurred losses in the loan portfolio for new loans. A provision for loan and lease losses is also required for any unfavorable changes in expected cash flows related to pools of purchased impaired loans. The provision for loan and lease losses and expectations of cash flows may be impacted by many factors, including changes in the value of real estate collateralizing loans, net charge-offs and credit losses incurred, changes in loans outstanding, changes in impaired loans, historical loss rates and the mix of loan types.

As the majority of our acquired loans are considered PCI loans, our provision for loan and lease losses in future periods for acquired loans will be most significantly influenced in the short term by the differences between the actual credit losses resulting from the resolution of problem loans and the estimated credit losses used in determining the estimated fair values of purchased impaired loans as of their acquisition dates. For new loans, the provision for loan and lease losses will be affected by the loss potential of impaired loans and trends in the delinquency of loans, non-performing loans and net charge offs, which cannot be reasonably predicted. Refer to Provision for loan and lease losses section for further discussion.

Management continuously monitors and actively manages the credit quality of the entire loan portfolio and will continue to recognize the provision required to maintain the allowance for loan and lease losses at an appropriate level.

The following table presents the roll-forward of the allowance for loan and lease losses for PCI and non-PCI loans for the three and six months ended June 30, 2015 and 2014 by the class of loans against which the allowance is allocated:

66

	Three Months Ended
(Dollars in thousands)	June 30, 2015									June 30, 2014
	Non-PCI			PCI			Total			Non-PCI			PCI			Total
Allowance for loan and lease losses at the beginning of the period	$	21,295		$	26,930		$	48,225		$	20,194		$	35,412		$	55,606
Charge-offs:
Non-owner occupied commercial real estate	—			—			—			(204		)	—			(204		)
Other commercial construction and land	—			—			—			1			—			1
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	—			—			—			1			—			1
Total commercial real estate	—			—			—			(202		)	—			(202		)
Owner occupied commercial real estate	(95		)	—			(95		)	(8		)	—			(8		)
Commercial and industrial loans	(41		)	—			(41		)	(106		)	—			(106		)
Lease financing	—			—			—			—			—			—
Total commercial	(136		)	—			(136		)	(114		)	—			(114		)
1-4 family residential	(80		)	—			(80		)	(80		)	—			(80		)
Home equity loans	(247		)	—			(247		)	(465		)	—			(465		)
Other consumer loans	(969		)	(162		)	(1,131		)	(781		)	—			(781		)
Total consumer	(1,296		)	(162		)	(1,458		)	(1,326		)	—			(1,326		)
Other	(578		)	—			(578		)	(534		)	—			(534		)
Total charge-offs	(2,010		)	(162		)	(2,172		)	(2,176		)	—			(2,176		)
Recoveries:
Non-owner occupied commercial real estate	63			—			63			77			—			77
Other commercial construction and land	5			—			5			4			—			4
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	2			—			2			2			—			2
Total commercial real estate	70			—			70			83			—			83
Owner occupied commercial real estate	—			—			—			1			—			1
Commercial and industrial loans	244			—			244			34			—			34
Lease financing	—			—			—			—			—			—
Total commercial	244			—			244			35			—			35
1-4 family residential	23			—			23			4			—			4
Home equity loans	50			—			50			33			—			33
Other consumer loans	148			—			148			146			—			146
Total consumer	221			—			221			183			—			183
Other	176			—			176			172			—			172
Total recoveries	711			—			711			473			—			473
Net charge-offs	(1,299		)	(162		)	(1,461		)	(1,703		)	—			(1,703		)
Provision (reversal) for loan and lease losses:
Non-owner occupied commercial real estate	(47		)	2,059			2,012			159			626			785
Other commercial construction and land	66			(2,224		)	(2,158		)	(1		)	2,606			2,605
Multifamily commercial real estate	(20		)	(2		)	(22		)	(13		)	90			77
1-4 family residential construction and land	144			190			334			(36		)	105			69
Total commercial real estate	143			23			166			109			3,427			3,536
Owner occupied commercial real estate	294			(15		)	279			(183		)	(23		)	(206		)
Commercial and industrial loans	(134		)	169			35			347			172			519
Lease financing	—			—			—			(1		)	1			—
Total commercial	160			154			314			163			150			313
1-4 family residential	25			(529		)	(504		)	303			(3,472		)	(3,169		)
Home equity loans	229			(168		)	61			473			(626		)	(153		)
Other consumer loans	942			(24		)	918			899			104			1,003
Total consumer	1,196			(721		)	475			1,675			(3,994		)	(2,319		)
Other	324			20			344			397			(523		)	(126		)
Total provision (reversal) for loan and lease losses	1,823			(524		)	1,299			2,344			(940		)	1,404
Allowance for loan and lease losses at the end of the period	$	21,819		$	26,244		$	48,063		$	20,835		$	34,472		$	55,307

67

	Six Months Ended
(Dollars in thousands)	June 30, 2015									June 30, 2014
	Non-PCI			PCI			Total			Non-PCI			PCI			Total
Allowance for loan and lease losses at the beginning of the period	$	21,355		$	28,856		$	50,211		$	18,951		$	37,900		$	56,851
Charge-offs:
Non-owner occupied commercial real estate	(8		)	—			(8		)	(204		)	—			(204		)
Other commercial construction and land	—			—			—			(207		)	—			(207		)
Multifamily commercial real estate	—			—			—			(2		)	—			(2		)
1-4 family residential construction and land	—			—			—			—			—			—
Total commercial real estate	(8		)	—			(8		)	(413		)	—			(413		)
Owner occupied commercial real estate	(207		)	—			(207		)	(144		)	—			(144		)
Commercial and industrial loans	(95		)	—			(95		)	(161		)	—			(161		)
Lease financing	—			—			—			—			—			—
Total commercial	(302		)	—			(302		)	(305		)	—			(305		)
1-4 family residential	(295		)	—			(295		)	(101		)	—			(101		)
Home equity loans	(407		)	—			(407		)	(594		)	—			(594		)
Other consumer loans	(1,836		)	(162		)	(1,998		)	(1,588		)	—			(1,588		)
Total consumer	(2,538		)	(162		)	(2,700		)	(2,283		)	—			(2,283		)
Other	(1,061		)	—			(1,061		)	(1,131		)	—			(1,131		)
Total charge-offs	(3,909		)	(162		)	(4,071		)	(4,132		)	—			(4,132		)
Recoveries:
Non-owner occupied commercial real estate	66			—			66			90			—			90
Other commercial construction and land	174			—			174			12			—			12
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	3			—			3			4			—			4
Total commercial real estate	243			—			243			106			—			106
Owner occupied commercial real estate	—			—			—			24			—			24
Commercial and industrial loans	395			—			395			166			—			166
Lease financing	—			—			—			—			—			—
Total commercial	395			—			395			190			—			190
1-4 family residential	27			—			27			7			—			7
Home equity loans	142			—			142			114			—			114
Other consumer loans	282			—			282			314			—			314
Total consumer	451			—			451			435			—			435
Other	376			—			376			477			—			477
Total recoveries	1,465			—			1,465			1,208			—			1,208
Net charge-offs	(2,444		)	(162		)	(2,606		)	(2,924		)	—			(2,924		)
Provision (reversal) for loan losses:
Non-owner occupied commercial real estate	(15		)	1,892			1,877			181			(215		)	(34		)
Other commercial construction and land	(138		)	(1,787		)	(1,925		)	499			2,981			3,480
Multifamily commercial real estate	(24		)	(27		)	(51		)	(24		)	184			160
1-4 family residential construction and land	115			136			251			(70		)	141			71
Total commercial real estate	(62		)	214			152			586			3,091			3,677
Owner occupied commercial real estate	594			(132		)	462			39			(1,052		)	(1,013		)
Commercial and industrial loans	(347		)	—			(347		)	382			(52		)	330
Lease financing	1			(1		)	—			(2		)	—			(2		)
Total commercial	248			(133		)	115			419			(1,104		)	(685		)
1-4 family residential	132			(2,346		)	(2,214		)	557			(5,049		)	(4,492		)
Home equity loans	284			(181		)	103			614			287			901
Other consumer loans	1,689			(18		)	1,671			2,087			(64		)	2,023
Total consumer	2,105			(2,545		)	(440		)	3,258			(4,826		)	(1,568		)
Other	617			14			631			545			(589		)	(44		)
Total provision (reversal) for loan losses	2,908			(2,450		)	458			4,808			(3,428		)	1,380
Allowance for loan losses at the end of the period	$	21,819		$	26,244		$	48,063		$	20,835		$	34,472		$	55,307

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No portion of the allowance allocated to non-PCI loans is in any way restricted to any individual loan or group of new loans or non-PCI loans, and the entirety of such allowance is available to absorb probable incurred credit losses from any and all such loans. The following table represents management’s best estimate of the allocation of the allowance for loan and lease losses for non-PCI loans to the various segments of the loan portfolio based on information available as of June 30, 2015 and December 31, 2014:

(Dollars in thousands)	June 30, 2015						December 31, 2014
	Non-PCI Loan Balance		Allowance for Loan and Lease Losses		Percent of Non-PCI Loans		Non-PCI Loan Balance		Allowance for Loan and Lease Losses		Percent of Non-PCI Loans
Non-owner occupied commercial real estate	$	488,059	$	1,614	0.3	%	$	431,345	$	1,563	0.4	%
Other commercial construction and land	74,773		1,440		1.9	%	66,978		1,411		2.1	%
Multifamily commercial real estate	48,816		102		0.2	%	60,092		126		0.2	%
1-4 family residential construction and land	75,749		856		1.1	%	58,046		739		1.3	%
Total commercial real estate	687,397		4,012		0.6	%	616,461		3,839		0.6	%
Owner occupied commercial real estate	790,522		2,516		0.3	%	783,850		2,129		0.3	%
Commercial and industrial	1,090,169		7,696		0.7	%	969,406		7,742		0.8	%
Lease financing	1,661		—		—	%	2,005		—		—	%
Total commercial	1,882,352		10,212		0.5	%	1,755,261		9,871		0.6	%
1-4 family residential	665,355		2,704		0.4	%	600,023		2,840		0.5	%
Home equity loans	293,174		657		0.2	%	286,914		639		0.2	%
Other consumer loans	337,295		3,966		1.2	%	266,582		3,830		1.4	%
Total consumer	1,295,824		7,327		0.6	%	1,153,519		7,309		0.6	%
Other	108,891		268		0.2	%	103,213		336		0.3	%
Total loans	$	3,974,464	$	21,819	0.5	%	$	3,628,454	$	21,355	0.6	%

Criticized and Classified Loans

Loans with the following attributes are categorized as criticized and classified loans: (1) a potential weakness that deserves management’s close attention; (2) inadequate protection by the current net worth and paying capacity of the obligor or of the collateral pledged; or (3) weaknesses which make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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The following table summarizes criticized and classified loans at June 30, 2015 and December 31, 2014:

(Dollars in thousands)	June 30, 2015 (1)						December 31, 2014 (1)
	Covered		Non- Covered		Total		Covered		Non- Covered		Total
Non-owner occupied commercial real estate	$	8,602	$	65,733	$	74,335	$	9,076	$	91,895	$	100,971
Other commercial construction and land	5,270		50,052		55,322		6,912		52,278		59,190
Multifamily commercial real estate	840		3,445		4,285		811		4,760		5,571
1-4 family residential construction and land	—		2,868		2,868		870		3,011		3,881
Total commercial real estate	14,712		122,098		136,810		17,669		151,944		169,613
Owner occupied commercial real estate	9,660		44,646		54,306		16,679		53,738		70,417
Commercial and industrial	3,592		42,476		46,068		3,748		36,631		40,379
Lease financing	—		—		—		—		—		—
Total commercial	13,252		87,122		100,374		20,427		90,369		110,796
1-4 family residential	5,322		35,539		40,861		8,785		43,379		52,164
Home equity loans	1,489		7,064		8,553		2,073		8,356		10,429
Other consumer loans	30		1,147		1,177		27		1,127		1,154
Total consumer	6,841		43,750		50,591		10,885		52,862		63,747
Other	500		2,346		2,846		844		4,226		5,070
Total loans	$	35,305	$	255,316	$	290,621	$	49,825	$	299,401	$	349,226

 (1) PCI and non-PCI loans are included in the balances presented.

Total criticized and classified loans declined $58.6 million, or 34% annualized, during the six months ended June 30, 2015 as a result of 7.1 million in transfers to other real estate owned and $84.0 million of pay downs, charge offs and upgrades. Loan downgrades of $32.5 million partially offset the decline.

Impaired Loans

Non-performing loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category. A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. Generally, residential mortgages, commercial and commercial real estate loans exceeding certain size thresholds established by management are individually evaluated for impairment. Non-accrual loans and restructured loans where loan term concessions benefiting the borrowers have been made are generally designated as impaired.

Within the context of the accounting for impaired loans described in the preceding paragraph, other than the PCI loans described above, as of June 30, 2015, there were 28 loans individually evaluated for impairment and 20 deemed impaired with a related allowance for loan and lease losses of $533 thousand. At December 31, 2014, there were 22 loans individually evaluated for impairment and 14 deemed impaired with a related allowance for loan and lease losses of $43 thousand.

Due to the pool method of accounting for purchased credit impaired loans, non-performing PCI loans may be reported as 90 days past due and still accruing/accreting. Going forward, additional acquired loans not classified as purchased credit impaired and new loans originated by us may become impaired and will be classified as such. Impaired loans also include loans which were not classified as non-accrual, but otherwise meet the criteria for classification as an impaired loan (i.e., loans for which the collection of all principal and interest amounts as specified in the original loan contract are not expected, or where management has substantial doubt that the collection will be as specified, but is still expected to occur in its entirety). In our evaluation of the adequacy of the allowance for loan and lease losses, we consider (1) purchased credit impaired loans and loans classified as impaired, (2) our historical portfolio loss experience and trends as well as that of peers and (3) certain other quantitative and qualitative factors.

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Non-Performing Assets

Non-performing assets include accruing/accreting loans delinquent 90 days or more, accreting PCI loans less than 90 days with expected cash flows less than contractual, non-accrual loans, repossessed personal property and other real estate. Non-PCI loans are placed on non-accrual status when management has concerns relating to the ability to collect the principal and interest and generally when such assets are 90 days past due. Non-performing assets were as follows:

(Dollars in thousands)	June 30, 2015									December 31, 2014
	Covered			Non- Covered			Total			Covered			Non- Covered			Total
Total non-accrual loans	$	412		$	9,395		$	9,807		$	578		$	8,906		$	9,484
Accruing/accreting loans delinquent 90 days or more	2,667			16,414			19,081			8,270			29,863			38,133
Accreting PCI loans <90 days with expected cash flows less than contractual	2,782			61,652			64,434			4,612			78,392			83,004
Total non-performing loans	5,861			87,461			93,322			13,460			117,161			130,621
Repossessed personal property	—			189			189			—			150			150
Other real estate owned	8,436			55,301			63,737			15,714			61,912			77,626
Total non-performing assets	$	14,297		$	142,951		$	157,248		$	29,174		$	179,223		$	208,397
Allowance for loan and lease losses	$	9,162		$	38,901		$	48,063		$	9,794		$	40,417		$	50,211
Non-performing assets as a percent of total assets	0.20		%	2.03		%	2.23		%	0.43		%	2.62		%	3.05		%
Non-performing loans as a percent of total loans	0.11		%	1.68		%	1.79		%	0.27		%	2.34		%	2.61		%
Allowance for loan and lease losses as a percent of non-performing loans	156.32		%	44.48		%	51.50		%	72.76		%	34.50		%	38.44		%
Non-PCI allowance for loan and lease losses as a percent of non-PCI loans							0.55		%							0.59		%

At June 30, 2015 and December 31, 2014, covered and non-covered loans classified as delinquent 90 days or more and accruing/accreting are entirely comprised of components of PCI loan pools. There were no non-PCI loans included in this category at the end of each period presented. In addition to the discussion in the previous section, please refer to Note 4. Loans in our Consolidated Financial Statements for a description of the accounting for pooled PCI loans.

Total non-performing assets at June 30, 2015 declined by $51.1 million to $157.2 million compared to $208.4 million at December 31, 2014. The change in non-performing assets was attributable to the net decline in non-performing loans and other real estate owned of $37.3 million and $13.9 million, respectively. The net decline in non-performing loans was due to $45.9 million in resolutions and $7.1 million in transfers to other real estate owned through foreclosures or receipt of deeds in lieu of foreclosures, offset by $15.7 million of loans that became non-performing. The decline in other real estate owned was mainly due to sales of $17.8 million, partially offset by acquisitions as noted above.

Investment Securities

Investment securities represent a significant portion of our assets. We invest in a variety of securities including obligations of U.S. government agencies, U.S. government-sponsored entities, including mortgage-backed securities, obligations of states or political subdivisions, privately issued mortgage-backed securities, bank eligible corporate obligations, mutual funds and limited types of equity securities.

Our investment activities are governed internally by a written, Board-approved policy. The investment policy is carried out by our Treasury department. Investment strategies are reviewed by the Risk Committee of the Board based on the interest rate environment, balance sheet mix, actual and anticipated loan demand, funding opportunities and our overall interest rate sensitivity. In general, the investment portfolio is managed in a manner appropriate to the attainment of the following goals: (1) to provide a margin of liquid assets sufficient to meet unanticipated deposit and loan fluctuations and overall funds management objectives; (2) to provide eligible securities to secure public funds and other borrowings; and (3) to manage interest rate risk and earn the maximum return on funds invested that is commensurate with meeting our first two goals.

Trading securities related to our non-qualified deferred compensation program totaled $2.9 million and $2.4 million at June 30, 2015 and December 31, 2014, respectively.

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Our investment securities consisted primarily of U.S. agency mortgage-backed securities, which expose us to a lower degree of credit and liquidity risk. The following tables set forth our investment securities as of June 30, 2015 and December 31, 2014:

(Dollars in thousands)	June 30, 2015
Security Type	Amortized Cost		Estimated Fair Value		Percent of Total Portfolio		Yield	Modified Duration in Years
Available-for-Sale
Corporate bonds	$	22,682	$	23,642	3.9	%	2.47%	11.30
Mortgage-backed securities—residential issued by government sponsored entities	573,962		572,993		95.5	%	1.94%	4.48
Industrial revenue bonds	3,409		3,503		0.6	%	2.24%	0.24
Total	$	600,053	$	600,138	100.0	%	1.96%	4.72
Held-to-Maturity
U.S. Government agencies	$	13,450	$	13,658	3.2	%	2.84%	5.29
Corporate bonds	30,067		30,281		7.0	%	5.06%	4.44
State and political subdivisions—tax exempt	10,869		11,251		2.6	%	3.30%	4.45
State and political subdivisions—taxable	533		551		0.1	%	3.91%	3.48
Mortgage-backed securities—residential issued by government sponsored entities	371,508		376,023		87.1	%	2.34%	3.85
Total	$	426,427	$	431,764	100.0	%	2.22%	4.40

(Dollars in thousands)	December 31, 2014
Security Type	Amortized Cost		Estimated Fair Value		Percent of Total Portfolio		Yield	Modified Duration in Years
Available-for-sale
Mortgage-backed securities—residential issued by government sponsored entities	$	550,908	$	552,203	99.3	%	1.87%	4.02
Industrial revenue bonds	3,580		3,690		0.7	%	2.24%	0.24
Total	$	554,488	$	555,893	100.0	%	1.87%	3.99
Held-to-maturity
U.S. Government agencies	$	13,989	$	14,219	3.2	%	2.85%	5.37
Corporate bonds	25,000		25,163		5.7	%	5.17%	4.97
State and political subdivisions—tax exempt	13,008		13,436		3.0	%	3.24%	4.18
State and political subdivisions—taxable	537		563		0.1	%	3.89%	3.90
Mortgage-backed securities—residential issued by government sponsored entities	384,428		389,998		88.0	%	2.38%	4.09
Total	$	436,962	$	443,379	100.0	%	2.58%	4.18

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Contractual maturities of investment securities at June 30, 2015 and December 31, 2014 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Other securities include mortgage-backed securities and marketable equity securities which are not due at a single maturity date. The following table segments our investment portfolio by maturity date:

(Dollars in thousands)	Within One Year				After One Year Within Five Years				After Five Years Within Ten Years				After Ten Years				Other Securities				Total
June 30, 2015	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Available-for-Sale
Corporate bonds	$	—	—	%	$	—	—	%	$	—	—	%	$	23,642	2.47	%	$	—	—	%	$	23,642	2.47	%
Mortgage-backed securities—residential issued by government sponsored entities	—		—	%	—		—	%	—		—	%	—		—	%	572,993		1.94	%	572,993		1.94	%
Industrial revenue bonds	—		—	%	—		—	%	—		—	%	3,503		2.24	%	—		—	%	3,503		2.24	%
Total	$	—	—	%	$	—	—	%	$	—	—	%	$	27,145	2.44	%	$	572,993	1.94	%	$	600,138	1.96	%
Held-to-Maturity
U.S. Government agencies	$	—	—	%	$	—	—	%	$	—	—	%	$	13,450	2.84	%	$	—	—	%	$	13,450	2.84	%
Corporate bonds	—		—	%	15,067		4.75	%	15,000		5.37	%	—		—	%	—		—	%	30,067		5.06	%
State and political subdivisions—tax exempt	3		1.10	%	1,198		2.64	%	9,668		3.38	%	—		—	%	—		—	%	10,869		3.30	%
State and political subdivisions—taxable	—		—	%	—		—	%	—		—	%	533		3.91	%	—		—	%	533		3.91	%
Mortgage-backed securities—residential issued by government sponsored entities	—		—	%	—		—	%	—		—	%	—		—	%	371,508		2.34	%	371,508		2.34	%
Total	$	3	1.10	%	$	16,265	4.59	%	$	24,668	4.58	%	$	13,983	2.88	%	$	371,508	2.34	%	$	426,427	2.22	%

(Dollars in thousands)	Within One Year				After One Year Within Five Years				After Five Years Within Ten Years				After Ten Years				Other Securities				Total
December 31, 2014	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Available-for-sale
Mortgage-backed securities—residential issued by government sponsored entities	$	—	—	%	$	—	—	%	$	—	—	%	$	—	—	%	$	552,203	1.87	%	$	552,203	1.87	%
Industrial revenue bonds	—		—	%	—		—	%	—		—	%	3,690		2.24	%	—		—	%	3,690		2.24	%
Total	$	—	—	%	$	—	—	%	$	—	—	%	$	3,690	2.24	%	$	552,203	1.87	%	$	555,893	1.87	%
Held-to-maturity
U.S. Government agencies	$	—	—	%	$	—	—	%	$	—	—	%	$	13,989	2.85	%	$	—	—	%	$	13,989	2.85	%
Corporate bonds	—		—	%	10,000		4.87	%	15,000		5.37	%									25,000		5.17	%
State and political subdivisions—tax exempt	205		0.77	%	814		2.04	%	11,374		3.33	%	615		3.95	%	—		—	%	13,008		3.24	%
State and political subdivisions—taxable	—		—	%	—		—	%	—		—	%	537		3.89	%	—		—	%	537		3.89	%
Mortgage-backed securities—residential issued by government sponsored entities	—		—	%	—		—	%	—		—	%	—		—	%	384,428		2.38	%	384,428		2.38	%
Total	$	205	0.77	%	$	10,814	4.66	%	$	26,374	4.48	%	$	15,141	2.93	%	$	384,428	2.38	%	$	436,962	2.58	%

We regularly review each investment security for impairment based on criteria that include the extent to which cost exceeds the estimated fair value, the financial health of and specific prospects for the issuer(s) and our ability and intention with regard to holding the security to maturity. Future declines in the fair value of securities may result in impairment charges which may be material to our financial condition and results of operations. More specifically, our impairment analysis is based on the following: (1) whether it is “more likely than not” we would have to sell a security prior to recovery of the amortized cost; (2) whether we intend to sell the security; and (3) whether or not we expect to recover our recorded investment on an amortized cost basis based on credit characteristics of the investment. If, based upon our analysis, any of those conditions exist for a given security, we would generally be required to record an impairment charge in the amount of the difference between the carrying amounts and estimated fair value of such security. Based on our analysis there were no investment securities considered to be other-than-temporarily impaired at June 30, 2015 or December 31, 2014 other than as discussed below.

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During the quarter ended June 30, 2015, a correspondent bank in which we owned a cost method equity investment filed for bankruptcy protection. Accordingly, we recorded an other than temporary impairment of $288 thousand and completely wrote-off this investment which was acquired along with one of our legacy acquisitions.

Deposits

Our strategy is to fund asset growth primarily with low-cost customer deposits in order to maintain a stable liquidity profile and net interest margin.

As of June 30, 2015, our core deposits, which we define as demand deposits, savings and money market accounts, increased by $134.2 million as compared to December 31, 2014. Net new checking and money market accounts growth contributed to the increase in core deposits during the six months ended June 30, 2015, as we are building our deposit base around service-oriented customer relationships. The average contractual rate on core deposits decreased to 0.13% during six months ended June 30, 2015, from 0.14% at December 31, 2014.

Time deposit balances increased by $103.1 million during the six months ended June 30, 2015. At June 30, 2015, our wholesale time deposits increased by $70.5 million as compared to December 31, 2014, providing a lower cost source of funding than higher rate legacy time deposits and the legacy debt extinguished during the quarter. The $32.6 million net increase in retail time deposit accounts was primarily a result of a new CD product which raised approximately $57.2 million in new balances. The average contractual rate on time deposits decreased to 0.96% from 1.01% at December 31, 2014. The total cost of deposits slightly decreased to 0.36% during the six months ended June 30, 2015 from 0.37% at December 31, 2014.

The following table sets forth the balances and average contractual rates payable to customers on our deposits, segmented by account type as of June 30, 2015 and December 31, 2014:

(Dollars in thousands)	June 30, 2015						December 31, 2014						Sequential Change
	Amount		Percent of Total		Weighted Average Contractual Rate		Amount		Percent of Total		Weighted Average Contractual Rate		Amount			Percent
Non-interest bearing demand	$	1,132,085	20.6	%	—	%	$	1,054,128	20.1	%	—	%	$	77,957		7.4	%
Interest bearing demand	1,367,123		24.9	%	0.14	%	1,383,990		26.3	%	0.15	%	(16,867		)	(1.2	)%
Savings	479,885		8.7	%	0.22	%	500,028		9.5	%	0.22	%	(20,143		)	(4.0	)%
Money market	991,520		18.1	%	0.25	%	898,254		17.1	%	0.23	%	93,266			10.4	%
Total core deposits	3,970,613		72.3	%	0.13	%	3,836,400		73.0	%	0.14	%	134,213			3.5	%
Customer time deposits	1,189,185		21.7	%	1.07	%	1,156,597		22.0	%	1.10	%	32,588			2.8	%
Wholesale time deposits	332,625		6.1	%	0.57	%	262,103		5.0	%	0.59	%	70,522			26.9	%
Total time deposits	1,521,810		27.7	%	0.96	%	1,418,700		27.0	%	1.01	%	103,110			7.3	%
Total deposits	$	5,492,423	100.0	%	0.36	%	$	5,255,100	100.0	%	0.37	%	$	237,323		4.5	%

The following table sets forth our average deposits and the average rates expensed for the periods indicated:

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(Dollars in thousands)	Three Months Ended
	June 30, 2015				December 31, 2014
	Average Amount		Average Rate		Average Amount		Average Rate
Non-interest bearing demand	$	1,123,466	—	%	$	1,047,135	—	%
Interest bearing
Interest bearing demand	1,381,609		0.17	%	1,351,295		0.17	%
Savings	484,622		0.21	%	508,979		0.22	%
Money market	943,160		0.25	%	905,225		0.24	%
Time deposits (1)	1,464,552		0.93	%	1,434,775		0.86	%
Total deposits	$	5,397,409	0.36	%	$	5,247,409	0.34	%

(1) The average rates on time deposits include the amortization of premiums on time deposits assumed in connection with the acquisitions and paid to brokers on wholesale deposits. Such premiums were required to be recorded to initially record these deposits at their fair values as of the respective acquisition dates.

The following table sets forth our time deposits segmented by maturity and deposit amount:

(Dollars in thousands)	June 30, 2015
Months to maturity:	Time Deposits of $100K and Greater		Time Deposits of Less than $100K		Total
Three or less	$	151,564	$	137,943	$	289,507
Over three to six	84,503		94,569		179,072
Over six to twelve	88,359		160,560		248,919
Over twelve	353,569		450,743		804,312
Total deposits	$	677,995	$	843,815	$	1,521,810

Capital Resources and Liquidity

Capital Resources

In order to maintain a conservative risk profile, we operate with a prudent cushion of capital in relation to regulatory requirements and to the risk of our assets and business model. For planning purposes, we expect to operate with a minimum capital target equal to an 8% leverage ratio (defined as Tier 1 capital equal to 8% of average tangible assets), which would be in excess of regulatory standards for “well-capitalized” banks. We believe the 8% target is appropriate for our business model because of our conservative loan underwriting policies, investment portfolio composition, funding strategy, interest rate risk management limits and liquidity risk profile and because of the experience of our senior management team and Board of Directors.

As of June 30, 2015 and December 31, 2014, we had 13.15% and 13.63% tangible common equity ratios, respectively. We calculate tangible common equity, tangible assets and the tangible common equity ratio, which are non-GAAP measures, because we believe they are useful for both investors and management as these are measures commonly used by financial institutions, regulators and investors to measure the capital adequacy of financial institutions. The tangible common equity ratio is calculated as tangible common shareholders’ equity divided by tangible assets. Tangible common equity is calculated as total shareholders’ equity less preferred stock and less goodwill and other intangible assets, net, and tangible assets are total assets less goodwill and other intangible assets, net. We believe these measures facilitate comparison of the quality and composition of the Company’s capital over time and in comparison to its competitors.

These non-GAAP measures have inherent limitations and are not required to be uniformly applied. They should not be considered in isolation or as a substitute for analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies and should not be viewed as a substitute for shareholders’ equity or total assets. The following table provides reconciliations of tangible common equity and the tangible common equity ratio to GAAP total common shareholders’ equity and tangible assets to GAAP total assets:

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(Dollars in thousands)
	June 30, 2015			December 31, 2014
Total shareholders' equity	$	1,059,346		$	1,063,574
Less: goodwill and intangible assets	(151,517		)	(153,419		)
Tangible common equity	$	907,829		$	910,155
Total assets	$	7,054,501		$	6,831,410
Less: goodwill and intangible assets	(151,517		)	(153,419		)
Tangible assets	$	6,902,984		$	6,677,991
Tangible common equity ratio	13.15		%	13.63		%

We calculate tangible book value, and tangible book value per share, which are non-GAAP measures because we believe they are useful for both investors and management as these are measures commonly used by financial institutions, regulators and investors to measure the capital adequacy of financial institutions. Tangible book value is equal to book value, or stockholders' equity, less goodwill and core deposit intangibles, net of related deferred tax liabilities. We believe these measures facilitate comparison of the quality and composition of the Company’s capital over time and in comparison to its competitors. Non-GAAP measures have inherent limitations and are not required to be uniformly applied. They should not be considered in isolation or as a substitute for analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies and should not be viewed as a substitute for total shareholders’ equity.

The following table sets forth a reconciliation of tangible book value and tangible book value per share to total shareholders’ equity, which is the most directly comparable GAAP measure:

(Dollars and shares in thousands, except per share amounts)
	June 30, 2015			December 31, 2014
Total shareholders' equity	$	1,059,346		$	1,063,574
Less: goodwill and intangible assets, net of taxes	(145,035		)	(146,168		)
Tangible book value	$	914,311		$	917,406
Common shares outstanding	46,440			47,593
Book value per share	$	22.81		$	22.35
Tangible book value per share	$	19.69		$	19.28

The Company operates with a significant level of excess capital above regulatory requirements (see the table below for the historical capital ratios as well as minimum and well capitalized ratio requirements).

As of June 30, 2015, we had a Tier 1 leverage ratio of 14.7%, which provided us with $313.4 million in excess capital relative to the 10% Tier 1 leverage ratio required for the Bank under the OCC Operating Agreement and $447.9 million in excess capital relative to our longer-term target of 8%. As of June 30, 2015, Capital Bank, N.A. had a 11.2% Tier 1 leverage ratio, a 13.2% Tier 1 common capital ratio, 13.2% Tier 1 risk-based ratio and a 14.1% Total risk-based capital ratio.

As of December 31, 2014, we had a Tier 1 leverage ratio of 14.3%, which provided us with $279.7 million in excess capital relative to the 10% Tier 1 leverage ratio required for the Bank under the OCC Operating Agreement and $410.4 million in excess capital relative to our longer-term target of 8%. As of December 31, 2014, Capital Bank, N.A. had a 13.5% Tier 1 leverage ratio, a 17.0% Tier 1 risk-based ratio and an 18.1% total risk-based capital ratio.

At present, the OCC Operating Agreement requires Capital Bank, N.A. to maintain total capital equal to at least 12% of risk-weighted assets, Tier 1 capital equal to at least 11% of risk-weighted assets and a minimum leverage ratio of 10% (Tier 1 Capital ratio). We expect to operate under this capital standard until we demonstrate that we have stabilized our acquired operations, improved our profitability and reduced legacy problem assets.

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The minimum ratios along with the actual ratios for us and Capital Bank, N.A. as of June 30, 2015 and December 31, 2014 are presented in the following tables:

(Dollars in thousands)			Actual
June 30, 2015	Well Capitalized Requirement	Adequately Capitalized Requirement	June 30, 2015	December 31, 2014
Tier 1 Leverage Capital
(to Average Assets)
CBF Consolidated	N/A	≥ 4.0%	14.7%	14.3%
Capital Bank, N.A.	≥ 5.0%	≥ 4.0%	11.2%	13.5%
Tier 1 Common Equity Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	≥ 4.5%	16.1%	N/A
Capital Bank, N.A.	≥ 6.5%	≥ 4.5%	13.2%	N/A
Tier 1 Risk-based Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	≥ 6.0%	17.3%	18.0%
Capital Bank, N.A.	≥ 8.0%	≥ 6.0%	13.2%	17.0%
Total Risk-based Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	≥ 8.0%	18.2%	19.1%
Capital Bank, N.A.	≥ 10.0%	≥ 8.0%	14.1%	18.1%

	Actual
(Dollars in thousands)	June 30, 2015		December 31, 2014
CBF Consolidated
Tier 1 Leverage Capital	$	986,167	$	933,335
Excess Tier 1 Leverage Capital:
vs. 10% regulatory requirement	313,389		279,723
vs. 8% target	447,945		410,446
Capital Bank, N.A.
Tier 1 Leverage Capital	745,997		881,395
Excess Tier 1 Leverage Capital:
vs. 10% regulatory requirement	76,701		229,295
vs. 8% target	210,560		359,715

In July 2013, the U.S. banking regulators adopted a final rule which implements the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision, and certain changes required by the Dodd-Frank Act. The final rule establishes an integrated regulatory capital framework and introduces the “Standardized Approach” for risk weighted assets, which replaces the Basel I risk-based guidance for determining risk-weighted assets as of January 1, 2015, the date we became subject to the new rules.

The rules include new risk-based capital and leverage ratios, which will be phased in from 2015 to 2019, and refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Company and the Bank under the final rules are as follows: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements. The capital conservation buffer will be phased-in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and

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2.5% for 2019 and thereafter. This will result in the following minimum ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. As of June 30, 2015, our capital buffer would be 6.10%; well exceeding the 2.5% 2019 requirement.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are now required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

Dividend Program

The Company's board of directors has approved a quarterly common dividend program commencing in the third quarter at an amount to be determined.

Liquidity

Liquidity involves our ability to raise funds to support asset growth or reduce assets to meet deposit withdrawals and other funding needs, to maintain reserve requirements and to otherwise operate on an ongoing basis. To mitigate liquidity risk, our strategy is to fund asset growth primarily with low-cost customer deposits. We also operate under a liquidity policy and contingent liquidity plan that requires us to monitor indicators of potential liquidity risk, utilize cash flow projection models to forecast liquidity needs, identify alternative back-up sources of liquidity and maintain a cushion of cash and liquid securities at 15% of total assets.

Our liquidity needs are met primarily by our cash position, growth in core deposits and cash flow from our amortizing investment and loan portfolios (including scheduled payments, prepayments, and maturities from portfolios of loans and investment securities). Our ability to borrow funds from non-deposit sources provides additional flexibility in meeting our liquidity needs. Short-term borrowings include federal funds purchased, securities sold under repurchase agreements and brokered deposits. We also utilize longer-term borrowings when management determines that the pricing and maturity options available through these sources create cost effective options for funding asset growth and satisfying capital needs. Our long-term borrowings include structured repurchase agreements and subordinated notes underlying our trust preferred securities.

As of June 30, 2015 and December 31, 2014, cash and liquid securities totaled 17.4% and 17.3% of assets, respectively, providing us with $172.6 million and $158.7 million, respectively, of excess liquidity relative to our planning target. As of June 30, 2015, the ratio of wholesale to total funding was 15.1%, which is consistent with our planning target of 15%. In addition to maintaining a stable core deposit base, we maintain adequate liquidity primarily through the use of investment securities, short term investments such as federal funds sold and unused borrowing capacity. We hold investments in FHLB stock for the purpose of maintaining credit lines with the FHLB. The credit availability is based on a percentage of the Bank’s total assets as reported in their most recent quarterly financial information submitted to the FHLB and subject to the pledging of sufficient collateral.

At June 30, 2015 and December 31, 2014, there were $356.0 million and $296.1 million, respectively, in FHLB advances outstanding. In addition, we had $25.4 million and $25.7 million in letters of credit outstanding as of June 30, 2015 and December 31, 2014, respectively. Collateral available under our agreements with the FHLB provided for incremental borrowing availability of up to approximately $331.4 million and $247.7 million, respectively.

We believe that we have adequate funding sources through unused borrowing capacity from the FHLB, unpledged investment securities, cash on hand and on deposit in other financial institutions, loan principal repayment and potential asset maturities and sales to meet our foreseeable liquidity requirements and contractual obligations.

As of June 30, 2015 and December 31, 2014, our holding company had cash of approximately $199.6 million and $54.8 million, respectively. This cash is available for providing capital support to our subsidiary bank and for other general corporate purposes, including potential future acquisitions. The increase in cash was due to the $199.4 million dividend to the Company by its subsidiary Capital Bank N.A., which was paid on January 30, 2015, upon Board and regulatory approval, partially offset by $25.0 million of share buybacks. We may use this dividend for general corporate purposes including acquisitions, or as a return of capital to shareholders through future share repurchases or dividends.

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk Management

The Company pursues a conservative strategy with respect to interest rate risk management, with the goal of minimizing the risk that interest rate volatility will negatively impact our financial results. Due to the current low level of interest rates, we regard rising interest rates as the most likely source of risk and accordingly have sought to maintain an asset-sensitive position.

There are several components to our conservative interest rate strategy. First, we avoid holding loans with long duration. At June 30, 2015, approximately 53% of the loan portfolio was variable rate and of the remaining fixed rate loans, the vast majority had terms of five years or less. Second, the purpose of our securities portfolio is to provide liquidity and to manage interest rate sensitivity, and as such we limit its duration. At June 30, 2015, securities accounted for 15% of assets, and the effective duration of the portfolio was 3.9 years with limited extension risk to 4.1 years in a plus 300 immediate parallel shift in interest rates. We utilize average life estimates based on prepayment rates obtained from an independent source. Third, we seek to fund the Bank, to the extent possible, with long-duration core deposits, and within core deposits, we emphasize checking account balances as the most stable and least risky source of funds. At June 30, 2015, core deposits accounted for 72% of total deposits, and checking balances accounted for 63% of core deposits.

We continuously monitor the Bank’s interest rate risk profile through our Asset Liability Committee, which consists of our Chief Executive Officer, Chief Financial Officer, Chief Credit Officer, Chief of Strategic Planning, Treasurer, business unit heads and certain other officers. To manage interest rate risk, our Board of Directors has established quantitative and qualitative guidelines with respect to our net interest income exposure and how predefined interest rate shocks affect our financial performance, measured in terms of forecast net interest income and economic value of equity, which is the intrinsic value of assets, less the intrinsic value of liabilities. Under our policy, these predefined rate shocks include minus 300, minus 200, minus 100, plus 100, plus 200 and plus 300 basis point immediate parallel shifts in interest rates.

If a predefined immediate parallel rate shock cannot be modeled due to the low level of interest rates, a proportional rate shock and policy limit applies and all other declining rate shocks will be suspended until such scenarios can be modeled. Because of the current low level of interest rates, the minus 100, minus 200 and minus 300 rate shocks have been suspended. The maximum negative impact on forecast net interest income and economic value of equity in a minus 25 basis point immediate parallel shift in interest rates is measured on a proportional basis. In addition to monitoring our compliance with these policies, management undertakes additional analysis, considering a wide range of possible interest rate fluctuations, including changes in the shape of the yield curve, and assessing the sensitivity of these results to key assumptions, including the behavior of depositors and loan customers.

Based upon the current interest rate environment, as of June 30, 2015, our sensitivity to interest rate risk was as follows:

(Dollars in thousands) Interest Rate Change in Basis Points	Next 12 Months Net Interest Income					Economic Value of Equity
	$ Change			% Change		$ Change			% Change
300	$	21,835		9.1	%	$	43,751		4.2	%
200	15,121			6.3	%	37,066			3.6	%
100	7,414			3.1	%	22,734			2.2	%
—	—			—	%	—			—	%
(25)	(1,738		)	(0.7	)%	(6,766		)	(0.6	)%

We used many assumptions to calculate the impact of changes in interest rates on our portfolio, and actual results may not be similar to projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. Actual results may also differ due to our actions, if any, in response to the changing rates. In calculating these exposures, we use an interest rate simulation model which is validated by third-party reviewers on an annual basis.

In the event the model indicates an unacceptable level of risk, we may take a number of actions to reduce this risk, including changing the terms, pricing, and conditions of new loans and deposits, the sale of a portion of our available-for-sale investment portfolio or the use of risk management strategies such as interest rate swaps and caps and cash flow hedges. As of June 30, 2015, we were in compliance with all of the limits and policies established by our Board of Directors for rising rate scenarios. The model indicated the maximum negative impact to net interest income in year two of a 25 basis point parallel falling interest rate scenario was marginally out of compliance as of June 30, 2015 at negative 1.6% (as compared to an imputed proportional limit of negative 1.5%). We believe the Company is more asset sensitive than the median bank based on a recent

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regulatory study published by the OCC. We continuously evaluate all balance sheet strategies to optimize the Company’s interest rate risk position and plan to take prudent and deliberate actions which we anticipate will moderate our asset sensitivity and move the Company back into compliance with the limits and policies established by our Board of Directors. As a component of these strategies, the Company has entered into $185.0 million of notional receive-fixed interest rate swaps during the six months ended June 30, 2015.

Inflation Risk Management

Inflation has an important impact on the growth of total assets in the banking industry and creates a need to increase equity capital to higher than normal levels in order to maintain an appropriate equity-to-assets ratio. We cope with the effects of inflation by managing our interest rate sensitivity position through our asset/liability management program, and by periodically adjusting our pricing of services and banking products to take into consideration current costs.

ITEM 4: CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, they have concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and are also designed to ensure that the information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

(b) Internal Control Over Financial Reporting

Changes in internal control over financial reporting

There have been no changes in the Company’s internal control over financial reporting during the period ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

From time to time we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, results of operations or liquidity.

ITEM 1A: RISK FACTORS

There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission.

ITEM 2: UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDSERT

RAPIMAG

The following table provides information regarding repurchases of the Company’s common stock by the Company during the three months ended June 30, 2015:

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Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program
April 1-30	—	$	—	—	$	101,813,600
May 1-31	—	—		—	101,813,600
June 1-30	—	—		—	101,813,600
Total	—	$	—	—	$	101,813,600

During 2013, 2014 and 2015 the Company’s Board of Directors authorized stock repurchase plans of up to $300.0 million. Stock repurchases may be made from time to time, on the open market or in privately negotiated transactions. The approved stock repurchase programs do not obligate the Company to repurchase any particular amount of shares, and the programs may be extended, modified, suspended, or discontinued at any time.

During the three months ended June 30, 2015, the Company did not purchase common shares under the current authorization.

As of June 30, 2015, the Company has repurchased a total of $198.2 million or 9,046,956 common shares at an average price of $21.91 per share, and had $101.8 million of remaining availability for future share repurchases.

ITEM 3: DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

None.

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ITEM 6: EXHIBITS

Exhibit Number	Description
31.1	Chief Executive Officer's certification required under Section 302 of Sarbanes-Oxley Act of 2002
31.2	Chief Financial Officer's certification required under Section 302 of Sarbanes-Oxley Act of 2002
32.1	Chief Executive Officer's certification required under Section 906 of Sarbanes-Oxley Act of 2002
32.2	Chief Financial Officer's certification required under Section 906 of Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation 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.

		CAPITAL BANK FINANCIAL CORP.
Date:	July 31, 2015	/s/ R. Eugene Taylor
		R. Eugene Taylor
		Chairman and Chief Executive Officer
Date:	July 31, 2015	/s/ Christopher G. Marshall
		Christopher G. Marshall Chief Financial Officer
		(Principal Accounting Officer)

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