Capital Bank Financial (CBF) 10-Q 2017 Q3 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 September 30, 2017

OR

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

For the Transition period from to

Commission File Number 001-35655

________________________________________________

(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.)

4725 Piedmont Row Drive Suite 110 Charlotte, North Carolina 28210

(Address of principal executive offices) (Zip Code)

(704) 554-5901

(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, smaller reporting company, or an emerging growth company. See definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act (Check one):

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨  Yes  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	41,616,875
Class B Non-Voting Common Stock, $0.01 Par Value	10,430,006
Class	Outstanding as of November 1, 2017

1

CAPITAL BANK FINANCIAL CORP.

FORM 10-Q

For the quarter ended September 30, 2017

INDEX

PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS	3
CONSOLIDATED BALANCE SHEETS	3
CONSOLIDATED STATEMENTS OF INCOME	4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY	6
CONSOLIDATED STATEMENTS OF CASH FLOWS	7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF	46
OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	76
ITEM 4. CONTROLS AND PROCEDURES	77
PART II: OTHER INFORMATION	77
ITEM 1. LEGAL PROCEEDINGS	77
ITEM 1A. RISK FACTORS	77
ITEM 2. UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS	77
ITEM 3. DEFAULT UPON SENIOR SECURITIES	78
ITEM 4. MINE SAFETY DISCLOSURES	78
ITEM 5. OTHER INFORMATION	78
ITEM 6. EXHIBITS	79

2

Capital Bank Financial Corp.

Consolidated Balance Sheets

(Unaudited)

(Dollars and shares in thousands, except per share data)	September 30, 2017			December 31, 2016
Assets
Cash and due from banks	$	97,147		$	107,707
Interest-bearing deposits in other banks	86,982			201,348
Total cash and cash equivalents	184,129			309,055
Trading securities	4,458			3,791
Investment securities available-for-sale at fair value (amortized cost $1,161,024 and $927,266, respectively)	1,155,694			912,250
Investment securities held-to-maturity at amortized cost (fair value $415,238 and $460,911, respectively)	412,051			463,959
Loans held for sale	3,060			12,874
Loans, net of deferred loan costs and fees	7,609,540			7,393,318
Less: Allowance for loan and lease losses	45,428			43,065
Loans, net	7,564,112			7,350,253
Other real estate owned	44,416			53,482
Premises and equipment held for sale	17,378			2,599
Premises and equipment, net	183,734			205,425
Goodwill	231,292			235,500
Intangible assets, net	27,938			33,370
Deferred income tax asset, net	113,073			150,272
Bank owned life insurance	100,611			99,702
Other assets	98,039			98,125
Total Assets	$	10,139,985		$	9,930,657
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Non-interest bearing demand	$	1,631,526		$	1,590,164
Interest bearing demand	1,846,172			1,930,143
Money market	1,885,180			1,725,838
Savings	471,931			497,171
Time deposits	2,286,815			2,137,312
Total deposits	8,121,624			7,880,628
Federal Home Loan Bank advances	440,549			545,701
Short-term borrowings	34,802			19,157
Long-term borrowings	118,929			116,456
Accrued expenses and other liabilities	69,462			76,668
Total liabilities	8,785,366			8,638,610
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, 50,632 issued and 39,366 outstanding, and 46,178 issued and 34,911 outstanding, respectively.	506			462
Common stock-Class B $0.01 par value: 200,000 shares authorized, 14,435 issued and 12,661 outstanding, and 18,627 issued and 16,854 outstanding, respectively.	144			186
Additional paid in capital	1,373,227			1,368,459
Retained earnings	299,432			247,758
Accumulated other comprehensive loss	(6,306		)	(12,434		)
Treasury stock, at cost, 13,040 and 13,040 shares, respectively	(312,384		)	(312,384		)
Total shareholders’ equity	1,354,619			1,292,047
Total Liabilities and Shareholders’ Equity	$	10,139,985		$	9,930,657

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

3

Capital Bank Financial Corp.

Consolidated Statements of Income

(Unaudited)

(Dollars and shares in thousands, except per share data)	Three Months Ended					Nine Months Ended
	September 30, 2017		September 30, 2016			September 30, 2017			September 30, 2016
Interest and dividend income
Loans, including fees	$	89,527	$	63,662		$	258,663		$	188,944
Investment securities:
Taxable interest income	9,451		6,732			29,272			19,433
Tax-exempt interest income	158		118			467			359
Dividends	10		11			32			36
Interest-bearing deposits in other banks	198		69			388			227
Other earning assets	367		337			1,112			981
Total interest and dividend income	99,711		70,929			289,934			209,980
Interest expense
Deposits	9,862		6,082			25,743			18,147
Long-term borrowings	2,476		1,586			7,140			4,644
Federal Home Loan Bank advances	1,405		620			3,656			1,637
Other borrowings	52		14			121			43
Total interest expense	13,795		8,302			36,660			24,471
Net interest income	85,916		62,627			253,274			185,509
Provision for loan and lease losses	3,042		586			8,737			3,133
Net interest income after provision for loan and lease losses	82,874		62,041			244,537			182,376
Non-interest income
Service charges on deposit accounts	5,311		4,777			15,923			14,074
Debit card income	4,822		3,389			14,638			9,710
Fees on mortgage loans originated and sold	931		1,334			3,329			3,445
Investment advisory and trust fees	537		290			1,774			1,242
Termination of loss share agreements	—		—			—			(9,178		)
Investment securities gains, net	98		71			235			228
Other income	3,074		2,509			10,726			7,337
Total non-interest income	14,773		12,370			46,625			26,858
Non-interest expense
Salaries and employee benefits	26,708		20,935			83,536			63,236
Stock-based compensation expense	1,441		790			3,305			1,574
Net occupancy and equipment expense	8,894		7,340			26,712			22,398
Computer services	3,794		3,153			11,947			10,002
Software expense	2,524		1,948			7,759			5,984
Telecommunication expense	1,968		1,790			6,331			4,880
OREO valuation expense	249		742			758			2,328
Net losses (gains) on sales of OREO	1		(159		)	(511		)	(1,251		)
Foreclosed asset related expense	487		397			1,227			1,081
Loan workout expense	281		206			763			521
Conversion and merger related expense, net	591		394			4,609			3,317
Professional fees	2,071		1,642			5,967			4,607
Legal settlement expense	—		1,500			45			1,500
Regulatory assessments	1,020		841			2,884			3,375
Restructuring charges, net	595		(113		)	5,485			34
Other expense	6,360		6,124			19,855			15,418
Total non-interest expense	56,984		47,530			180,672			139,004
Income before income taxes	40,663		26,881			110,490			70,230
Income tax expense	14,905		8,370			40,043			24,418
Net income	$	25,758	$	18,511		$	70,447		$	45,812
Earnings per share:
Basic	$	0.50	$	0.43		$	1.36		$	1.06
Diluted	$	0.48	$	0.42		$	1.32		$	1.04
Weighted average shares outstanding:
Basic	51,705		43,028			51,674			43,033
Diluted	53,226		44,118			53,204			44,068

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

4

Capital Bank Financial Corp.

Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Net Income	$	25,758		$	18,511		$	70,447		$	45,812
Other comprehensive income (loss) before tax:
Unrealized holding gains (losses) on investment securities available-for-sale	1,571			(141		)	9,685			16,474
Reclassification adjustment for gains realized in net income on securities available-for-sale	—			—			—			(92		)
Reclassification adjustment for losses amortized in net income on securities transferred from available-for-sale to held-to-maturity	304			363			906			1,052
Unrealized holding gains (losses) on cash flow hedges	(82		)	(1,336		)	117			6,345
Reclassification adjustments for net gains included in net income on cash flow hedges	(171		)	(613		)	(901		)	(1,891		)
Other comprehensive income (loss) before tax:	1,622			(1,727		)	9,807			21,888
Tax effect	(608		)	(95		)	(3,679		)	(9,071		)
Other comprehensive income (loss), net of tax:	1,014			(1,822		)	6,128			12,817
Comprehensive income	$	26,772		$	16,689		$	76,575		$	58,629

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

5

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, 2016	34,911		$	462	16,854		$	186		$	1,368,459		$	247,758		$	(12,434	)	$	(312,384	)	$	1,292,047
Net income	—		—		—		—			—			70,447			—			—			70,447
Dividends paid ($0.36 per share)	—		—		—		—			—			(18,773		)	—			—			(18,773		)
Other comprehensive income, net of tax expense of $3,679	—		—		—		—			—			—			6,128			—			6,128
Stock-based compensation	—		—		—		—			3,392			—			—			—			3,392
Restricted stock grants	175		2		—		—			(2		)	—			—			—			—
Restricted stock cancelled	(26	)	—		—		—			(909		)	—			—			—			(909		)
Nonqualified stock option exercise	113		—		—		—			2,287			—			—			—			2,287
Conversion of shares	4,193		42		(4,193	)	(42		)	—			—			—			—			—
Balance, September 30, 2017	39,366		$	506	12,661		$	144		$	1,373,227		$	299,432		$	(6,306	)	$	(312,384	)	$	1,354,619
Balance, December 31, 2015	26,589		$	370	16,554		$	183		$	1,076,415		$	208,742		$	(5,196	)	$	(294,249	)	$	986,265
Net income	—		—		—		—			—			45,812			—			—			45,812
Dividends paid ($0.20 per share)	—		—		—		—			—			(12,918		)	—			—			(12,918		)
Other comprehensive income, net of tax expense of $9,071	—		—		—		—			—			—			12,817			—			12,817
Stock-based compensation	—		—		—		—			1,626			—			—			—			1,626
Restricted stock grants	209		3		—		—			(3		)	—			—			—			—
Nonqualified stock option exercise	36		—		—		—			648			—			—			—			648
Restricted stock cancelled	(5	)	—		—		—			(19		)	—			—			—			(19		)
Purchase of treasury stock	(148	)	—		—		—			—			—			—			(4,390		)	(4,390		)
Conversion of shares	(300	)	—		300		3			(3		)	—			—			—			—
Balance, September 30, 2016	26,381		$	373	16,854		$	186		$	1,078,664		$	241,636		$	7,621		$	(298,639	)	$	1,029,841

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

6

Capital Bank Financial Corp.

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)	Nine Months Ended
	September 30, 2017			September 30, 2016
Cash flows from operating activities
Net income	$	70,447		$	45,812
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of purchased credit impaired loans	(56,831		)	(59,636		)
Depreciation and amortization	17,435			12,300
Impairment of premises and equipment	2,471			—
Provision for loan and lease losses	8,737			3,133
Deferred income tax	37,001			15,828
Net amortization of investment securities premium/discount	3,965			3,386
Net realized gains on investment securities	(235		)	(228		)
Stock-based compensation expense	3,391			1,626
Net gains on sales of OREO	(511		)	(1,251		)
OREO valuation expense	758			2,328
Other	(138		)	13
Net deferred loan origination fees	806			1,017
Mortgage loans originated for sale	(97,690		)	(111,289		)
Proceeds from sales of mortgage loans originated for sale	110,833			117,141
Origination of mortgage servicing rights	(223		)	—
Fees on mortgage loans originated and sold	(3,329		)	(3,445		)
Termination of loss share agreements	—			9,178
Gains on sales/disposals of premises and equipment	(303		)	(28		)
Net proceeds from FDIC loss share agreements	—			(186		)
Change in other assets	(2,921		)	(6,511		)
Change in accrued expenses and other liabilities	(7,722		)	8,369
Net cash provided by operating activities	85,941			37,557
Cash flows from investing activities
Purchases of investment securities available-for-sale	(359,231		)	(156,551		)
Purchases of investment securities held-to-maturity	—			(48,600		)
Proceeds from sale of investment securities available-for-sale	—			90,646
Repayments of principal and maturities of investment securities available-for-sale	122,441			63,232
Repayments of principal and maturities of investment securities held-to-maturity	51,447			55,689
Net sales (purchases) of FHLB and FRB stock	4,384			(5,440		)
Net increase in loans	(192,685		)	(257,132		)
Proceeds paid to FDIC for settlement of loss share agreements	—			(3,029		)
Proceeds from the sale of loans	14,500			—
Purchases of premises and equipment	(9,511		)	(7,353		)
Proceeds from sales of premises and equipment	1,502			3,127
Proceeds from sales of OREO	22,192			13,227
Net cash used in investing activities	(344,961		)	(252,184		)
Cash flows from financing activities
Net increase in demand, money market and savings accounts	91,493			251,581
Net increase (decrease) in time deposits	149,503			(78,534		)
Net increase in short-term borrowings	15,645			3,018
Proceeds from short-term FHLB advances	1,362,000			1,420,000
Repayment of short-term FHLB advances	(1,517,000		)	(1,480,000		)
Proceeds from long-term FHLB advances	75,000			175,000
Repayment of long-term FHLB advances	(25,152		)	(148		)
Proceeds from exercise of stock options	2,287			648
Restricted stock cancelled	(909		)	(19		)
Dividends paid	(18,773		)	(12,918		)
Purchases of treasury stock	—			(4,390		)
Net cash provided by financing activities	134,094			274,238
Net (decrease) increase in cash and cash equivalents	(124,926		)	59,611
Cash and cash equivalents at beginning of period	309,055			144,696
Cash and cash equivalents at end of period	$	184,129		$	204,307
Supplemental disclosures of cash:
Interest paid	$	33,763		$	23,969
Cash collections of contractual interest on purchased credit impaired loans	29,968			33,203
Income taxes paid	5,020			13,084
Supplemental disclosures of non-cash transactions:
OREO acquired through loan transfers	$	13,373		$	5,944
Transfers of other assets to OREO	—			1,590
Fixed Assets transfered to held for sale	18,084			87,091

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

7

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 North Carolina whose business is conducted primarily through Capital Bank Corporation (“Capital Bank Corporation” 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 eight depository institutions, including the assets and certain deposits from failed banks. CBF has a total of 178 full service banking offices located in Florida, North and South Carolina, Tennessee and Virginia. During the nine months ended September 30, 2017, the Company closed and consolidated 18 branches related to cost savings initiatives and the merger of CommunityOne. As such, the Company transferred $18.1 million from fixed assets to bank properties held for sale during the nine months ended September 30, 2017.

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, 2016.

Proposed merger with First Horizon National Corporation

On May 4, 2017, Capital Bank Financial Corp. issued a press release announcing the execution of an agreement and plan of merger with First Horizon National Corporation (the “First Horizon”) dated May 3, 2017, with First Horizon as the surviving corporation. Subject to terms and conditions of the Merger Agreement, each holder of Capital Bank common stock will be entitled to receive cash or stock with a value equivalent to 1.750 First Horizon shares and $7.90 in cash for each Capital Bank share held, subject to the election allocation and proration provisions of the merger agreement. The transaction has received shareholder approval as well as approval from the Federal Reserve, OCC, and North Carolina Office of the Commissioner of Banks, and remains subject to other customary closing conditions.

Hurricane Irma

On September 10, 2017, Hurricane Irma struck the south coast of Florida, temporarily disrupting our branch network. However within a matter of days, all but two of our offices were back open and assisting customers, while the remaining two offices will open during the fourth quarter. The Company incurred property costs associated with Hurricane Irma of approximately $0.2 million, which are reflected in third quarter results. The Company has also reviewed its lending and deposit portfolio and determined no impairment was indicated at this time as a result of Hurricane Irma. In working with its borrowers and depositors affected by this hurricane, the Company has entered into temporary payment deferral agreements of 90 days or less on loans covering $78.6 million of outstanding principle. Each of these loans were assessed individually and were determined to not be a troubled debt restructuring. The review process is on-going and we will continue to monitor the impact on our loan portfolio.

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 August 2017, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update ("ASU") 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvement Activities”. The purpose of the amendments in this update is to better align an entity’s risk management activities and financial reporting for hedging relationships by changing both the designation and measurement guidance for hedging relationships qualification and hedge results presentation. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedge instrument and the hedged items in the financial statements. Further, the amendments in this update make certain improvements specifically targeted for simplifying hedge accounting application as well as hedge documentation requirements and assessment of hedge effectiveness. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In March 2017, the FASB issued Accounting Standards Update ("ASU") 2017-09, "Compensation—Stock Compensation (Topic 718)". The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In March 2017, the FASB issued ASU 2017-08, "Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization on Purchased Callable Debt Securities". The amendments in this update affect all entities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date. The objective is to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. Securities held at a discount continue to be amortized to maturity. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715)". The amendments in this update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset). The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350)". The amendments in this update aim to simplify the subsequent measurement of goodwill. Under these amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets and still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805)". The amendments in this update provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this update should be applied prospectively on or after the effective date. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients". The amendments in this Update represent minor corrections or improvements to narrow aspects of Topic 606, as amended by ASU No. 2014-09, and do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09), which is not yet effective. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows—Credit Losses (Topic 230)". The amendments in this update provide guidance on the following eight specific cash flow issues: (1) Debt prepayment or debt extinguishment costs; (2) Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) Contingent consideration payments made after a business combination; (4) Proceeds from the settlement of insurance claims; (5) Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) Distributions received from equity method investees; (7) Beneficial interests in securitization transactions; (8) Separately identifiable cash flows and application of the predominance principle. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326)". The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates and affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In March 2016, the FASB issued ASU 2016-9, "Compensation—Stock compensation (Topic 718)". Improvements to employee share-based payment accounting" which objective is the simplification through the identification, evaluation, and improvement of areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. We early adopted ASU 2016-09 during the fourth quarter of 2016 and prior periods were modified retrospectively. The adoption did not have a material impact on the Company's consolidated financial statements. The impact resulted in, among other items, a $0.1 million increase to net income for the nine months ended September 30, 2016. The Company reflected these adjustments in our disclosures including the consolidated financial statements, earnings per common share, business combination and acquisitions, stock-based compensation, and income taxes.

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”. The amendments in this update will clarify the implementation guidance on principal versus agent considerations. Topic 606 requires an entity to determine whether the nature of its promise is to provide that good or service to the customer (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). This determination is based upon whether the entity controls the good or the service before it is transferred to the customer. Topic 606 includes indicators to assist in this evaluation. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by update 2014-09 listed below), which is not yet effective. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In March 2016, the FASB issued ASU 2016-7, "Investments—Equity Method and Joint Ventures (Topic 323)". The amendments in this update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this update require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. The adoption did not have a material impact on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU 2016-6, "Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments". The amendments in this update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The adoption did not have a material impact on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU 2016-2, "Leases (Topic 842)" which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB is amending the FASB Accounting Standards Codification and creating Topic 842, Leases. This update, along with IFRS 16, Leases, are the results of the FASB’s and the International Accounting Standards Board’s (IASB’s) efforts to meet that objective and improve financial reporting. The FASB and IASB decided to not fundamentally change lessor accounting with the amendments in this update. However, some changes have been made to lessor accounting to conform and align that guidance with the lessee guidance and other areas within generally accepted accounting principles (GAAP), such as Topic 606, Revenue from Contracts with Customers. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. For public business entities, the amendments in ASU 2016-2 are effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In January 2016, the FASB issued ASU 2016-1, "Financial instruments—Overall (Subtopic 825-10)" which requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. For public business entities, the amendments in ASU 2016-1 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2016-1 is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.

In May 2014, the FASB issued ASU 2014-9, "Revenue from Contracts with Customers (Topic 606)". The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies the performance obligation. In August 2015, the FASB issued ASU 2015-14, "Revenue from contracts with customers (Topic 606) - Deferral of the Effective Date". The amendments in ASU 2015-14 establish December 15, 2017 as the effective date of the information related to ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. While we anticipate some changes, the Company does not expect a material change from our current accounting for revenue as the majority of our interest and non-interest income is not in scope of Topic 606.

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		Nine Months Ended
	September 30, 2017	September 30, 2016	September 30, 2017	September 30, 2016
Weighted average number of shares outstanding:
Basic	51,705	43,028	51,674	43,033
Dilutive effect of options outstanding	1,447	1,057	1,473	1,032
Dilutive effect of unvested restricted shares	74	33	57	3
Diluted	53,226	44,118	53,204	44,068

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:

(Shares in thousands)	Three Months Ended		Nine Months Ended
	September 30, 2017	September 30, 2016	September 30, 2017	September 30, 2016
Anti-dilutive stock options	—	37	—	34
Anti-dilutive unvested restricted shares	—	1	—	166

3. Business Combinations and Acquisitions

Acquisition of CommunityOne Bancorp

On October 26, 2016, the Company completed its acquisition of CommunityOne Bancorp (“CommunityOne”) whereby CommunityOne merged with and into the Company. CommunityOne was a North Carolina-based bank with $2.4 billion in assets and 45 full service banking branches as of October 26, 2016. The combination will strengthen Capital Bank’s franchise in North Carolina, particularly in Charlotte, as well as in Greensboro/Winston Salem and the Catawba/Caldwell county area.

The Company acquired 100% of the outstanding common stock of CommunityOne. The total purchase price for CommunityOne was $340.5 million, consisting of $51.9 million of cash, and the issuance of 8.9 million shares of Capital Bank Common Stock valued at $288.6 million based on the Company's stock on October 25, 2016.

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Accordingly, the Company recognizes amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair value, with any excess of purchase consideration over the net assets being reported as goodwill. As the fair value of consideration paid exceeded the estimated fair value of net assets acquired, nondeductible goodwill of $100.6 million was recorded. Fair value estimates are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to the closing date fair values becomes available. During the nine months ended September 30, 2017, the Company adjusted the acquisition date balance sheet to reflect (1) a $1.9 million increase in loans due to recoveries on fully charged off loans; (2) a $0.9 million decrease in Premises and

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Equipment due to updated appraisals on several properties; (3) a $3.3 million increase in the deferred tax asset; and (4) a $4.3 million decrease in Goodwill caused by the net effect of these adjustments. These adjustments are reflected in the table below.

The following table summarizes the Company's investment and CommunityOne's opening balance sheet as of October 26, 2016 adjusted to their preliminary fair value:

(Dollars in thousands)
Fair value of assets acquired:	October 26, 2016
Cash and cash equivalents	$	58,308
Investment securities	488,814
Loans	1,499,270
Premises and equipment	45,873
Goodwill	100,576
Other intangible assets	22,518
Deferred tax asset	62,967
Other assets	82,716
Total assets acquired	2,361,042
Fair value of liabilities assumed:
Deposits	1,892,443
Long term debt and other borrowings	105,720
Other liabilities	22,345
Total liabilities assumed	2,020,508
Net assets acquired	$	340,534

The following table summarizes the fair value of loans, the total contractual principal and interest payments, and management's estimate of expected total cash payments of purchase credit impaired loans:

(Dollars in thousands)	Fair Value of Acquired Loans		Gross Contractual Amounts Receivable		Best Estimate of Contractual Cash Flows not to be Collected
Loans acquired subject to ASC 310-30	$	130,247	$	183,852	$	34,219

In addition, the Bank acquired loans of $1.4 billion not determined to be purchase credit impaired at the time of acquisition. These loans have an estimated cash flow of $1.6 billion and management expects to collect contractual required payments from the borrower with similar characteristics as other non-impaired loans.

In the assumption of deposit liabilities, the Company estimated the fair value of the core deposits intangible asset to be $19.9 million, which will be amortized utilizing an accelerated amortization method over an estimated economic life of 10 years. Fair value estimates are based on factors such as type of deposit, retention rates, interest rates and customer relationships.

Pro-forma financial information

Pro-forma data for the nine months ended and September 30, 2016 listed in the table below presents pro-forma information as if the CommunityOne acquisition occurred at the beginning of 2016. The results include $3.9 million of transaction and integration expense incurred during the nine months ended September 30, 2016. The pro-forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.

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(Dollars and shares in thousands, except per share data)	For the three months ended September 30, 2016		For the nine months ended September 30, 2016
Net interest income	$	79,598	$	236,503
Net income	$	19,881	$	53,839
Basic earnings per share	$	0.39	$	1.04
Diluted earnings per share	$	0.38	$	1.02

4. Investment Securities

Trading securities totaled $4.5 million and $3.8 million at September 30, 2017 and December 31, 2016, respectively.

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at September 30, 2017 and December 31, 2016, are presented below:

(Dollars in thousands)	September 30, 2017
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Available-for-Sale
Corporate bonds	$	60,161	$	3,847	$	—	$	64,008
State and political subdivisions—tax exempt	11,859		—		367		11,492
Mortgage-backed securities—residential issued by government sponsored entities	1,085,935		2,475		11,358		1,077,052
Industrial revenue bonds	3,069		73		—		3,142
Total	$	1,161,024	$	6,395	$	11,725	$	1,155,694
Held-to-Maturity
U.S. Government agencies	$	9,738	$	161	$	—	$	9,899
Corporate bonds	94,004		1,894		262		95,636
State and political subdivisions—tax exempt	8,252		616		—		8,868
State and political subdivisions—taxable	513		11		—		524
Mortgage-backed securities—residential issued by government sponsored entities	299,544		2,065		1,298		300,311
Total	$	412,051	$	4,747	$	1,560	$	415,238

(Dollars in thousands)	December 31, 2016
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Available-for-Sale
Corporate bonds	$	28,354	$	786	$	187	$	28,953
State and political subdivisions—tax exempt	11,871		—		794		11,077
Mortgage-backed securities—residential issued by government sponsored entities	883,802		1,644		16,524		868,922
Industrial revenue bonds	3,239		59		—		3,298
Total	$	927,266	$	2,489	$	17,505	$	912,250
Held-to-Maturity
U.S. Government agencies	$	11,234	$	77	$	—	$	11,311
Corporate bonds	94,010		279		2,301		91,988
State and political subdivisions—tax exempt	8,069		389		—		8,458
State and political subdivisions—taxable	520		13		—		533
Mortgage-backed securities—residential issued by government sponsored entities	350,126		1,081		2,586		348,621
Total	$	463,959	$	1,839	$	4,887	$	460,911

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There were no sales of securities during the three and nine months ended September 30, 2017. There were no sales of securities during the three months ended September 30, 2016. Proceeds from sales of securities were $90.6 million for the nine months ended September 30, 2016. Gross gains of $0.2 million were realized on sales of these investments during the nine months ended September 30, 2016. Gross losses of $0.1 million were realized on sales of these investments during the nine months ended September 30, 2016.

The estimated fair value of investment securities at September 30, 2017, 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)	September 30, 2017
	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	46,911		49,753		3.42	%
Due after ten years	28,178		28,889		2.77	%
Mortgage-backed securities—residential issued by government sponsored entities	1,085,935		1,077,052		2.27	%
Total	$	1,161,024	$	1,155,694	2.33	%
	Amortized Cost		Estimated Fair Value		Yield
Held-to-Maturity
Due in one year or less	$	696	$	697	1.72	%
Due after one year through five years	59,803		60,250		4.90	%
Due after five years through ten years	42,270		44,081		5.02	%
Due after ten years	9,738		9,899		2.80	%
Mortgage-backed securities—residential issued by government sponsored entities	299,544		300,311		2.37	%
Total	$	412,051	$	415,238	3.02	%

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
September 30, 2017	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Available-for-Sale
State and political subdivisions—tax exempt	$	1,258	$	20	$	10,234	$	347	$	11,492	$	367
Mortgage-backed securities—residential issued by government sponsored entities	609,111		8,212		118,122		3,146		727,233		11,358
Total	$	610,369	$	8,232	$	128,356	$	3,493	$	738,725	$	11,725
Held-to-Maturity
U.S. government agencies	$	4,904	$	92	$	4,995	$	138	$	9,899	$	230
Corporate bonds	—		—		14,738		262		14,738		262
Mortgage-backed securities—residential issued by government sponsored entities	104,643		1,113		129,856		2,664		234,499		3,777
Total	$	109,547	$	1,205	$	149,589	$	3,064	$	259,136	$	4,269

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(Dollars in thousands)	Less than 12 Months				12 Months or Longer				Total
December 31, 2016	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Available-for-Sale
Corporate bonds	$	—	$	—	$	8,412	$	187	$	8,412	$	187
State and political subdivisions - tax exempt	11,077		794		—		—		11,077		794
Mortgage-backed securities—residential issued by government sponsored entities	672,672		16,524		—		—		672,672		16,524
Total	$	683,749	$	17,318	$	8,412	$	187	$	692,161	$	17,505
Held-to-Maturity
U.S Government agencies	$	11,311	$	402	$	—	$	—	$	11,311	$	402
Corporate bonds	24,629		371		28,112		1,930		52,741		2,301
Mortgage-backed securities—residential issued by government sponsored entities	276,555		6,614		8,494		332		285,049		6,946
Total	$	312,495	$	7,387	$	36,606	$	2,262	$	349,101	$	9,649

As of September 30, 2017, the Company’s security portfolio consisted of 177 securities, 75 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s mortgage-backed securities.

The corporate bonds in an unrealized loss position at September 30, 2017 and December 31, 2016 continue to perform and are expected to perform through maturity. Unrealized losses associated with these securities are primarily due to changes in interest rates and market volatility, and the corporate issuers have not experienced significant adverse events that would call into question their ability to repay those debt obligations according to contractual terms. Further, because the Company does not have the intent to sell these corporate bonds and it is more likely than not that it will not be required to sell the securities before their anticipated recovery of their amortized cost bases, the Company does not consider these securities to be other-than-temporarily impaired as of September 30, 2017 or December 31, 2016.

All of the mortgage-backed securities at September 30, 2017 and December 31, 2016 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 September 30, 2017 or December 31, 2016.

Investment securities having carrying values of approximately $672.4 million and $621.8 million at September 30, 2017 and December 31, 2016, respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and for other purposes as required by law.

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5. Loans

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

(Dollars in thousands)	September 30, 2017		December 31, 2016
Non-owner occupied commercial real estate	$	1,293,647	$	1,130,883
Other commercial construction and land	402,250		327,622
Multifamily commercial real estate	148,192		117,515
1-4 family residential construction and land	143,807		140,030
Total commercial real estate	1,987,896		1,716,050
Owner occupied commercial real estate	1,226,211		1,321,405
Commercial and industrial	1,502,939		1,468,874
Total commercial	2,729,150		2,790,279
1-4 family residential	1,787,690		1,714,702
Home equity loans	481,696		507,759
Other consumer loans	384,728		448,972
Total consumer	2,654,114		2,671,433
Other	241,440		228,430
Total loans	$	7,612,600	$	7,406,192

Total loans include $3.1 million and $12.9 million of loans held for sale and $14.7 million and $15.5 million of net deferred loan origination costs and fees as of September 30, 2017 and December 31, 2016, respectively.

As of September 30, 2017, other loans include $41.3 million, $160.2 million and $1.5 million of farm land, state and political subdivision obligations and deposit customer overdrafts, respectively. As of December 31, 2016, other loans include $41.9 million, $149.0 million and $1.6 million of farm land, state and political subdivision obligations and deposit customer overdrafts, respectively.

The Company designates purchased credit impaired 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. The accretable yield represents the excess of estimated cash flows expected to be collected over the carrying amount of the PCI loans. Nonaccretable difference represents estimated contractually required payments in excess of estimated cash flows expected to be collected. Other represents reductions of accretable yield due to non-credit events such as prepayment activity on PCI loans.

13

(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Accretable Yield
Balance at beginning of period	$	145,419		$	170,935		$	161,639		$	208,844
Accretion of income	(19,432		)	(18,870		)	(56,831		)	(59,636		)
Reclassification from nonaccretable difference	15,122			8,045			47,420			29,668
Other	(5,467		)	(4,815		)	(16,586		)	(23,581		)
Balance at end of period	$	135,642		$	155,295		$	135,642		$	155,295

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.

The following is a summary of the major categories of loans outstanding, as of September 30, 2017 and December 31, 2016:

(Dollars in thousands)	Non-PCI Loans
September 30, 2017	Originated		Acquired		PCI Loans		Total Loans
Non-owner occupied commercial real estate	$	891,125	$	199,244	$	203,278	$	1,293,647
Other commercial construction and land	280,126		77,414		44,710		402,250
Multifamily commercial real estate	118,128		14,138		15,926		148,192
1-4 family residential construction and land	132,701		10,812		294		143,807
Total commercial real estate	1,422,080		301,608		264,208		1,987,896
Owner occupied commercial real estate	908,549		168,521		149,141		1,226,211
Commercial and industrial loans	1,367,979		75,988		58,972		1,502,939
Total commercial	2,276,528		244,509		208,113		2,729,150
1-4 family residential	1,129,241		478,755		179,694		1,787,690
Home equity loans	186,606		239,910		55,180		481,696
Other consumer loans	295,719		67,492		21,517		384,728
Total consumer	1,611,566		786,157		256,391		2,654,114
Other	207,672		7,286		26,482		241,440
Total loans	$	5,517,846	$	1,339,560	$	755,194	$	7,612,600

14

(Dollars in thousands)	Non-PCI Loans
December 31, 2016	Originated		Acquired		PCI Loans		Total Loans
Non-owner occupied commercial real estate	$	680,044	$	221,304	$	229,535	$	1,130,883
Other commercial construction and land	182,486		73,248		71,888		327,622
Multifamily commercial real estate	77,694		19,108		20,713		117,515
1-4 family residential construction and land	105,816		33,831		383		140,030
Total commercial real estate	1,046,040		347,491		322,519		1,716,050
Owner occupied commercial real estate	901,957		239,982		179,466		1,321,405
Commercial and industrial loans	1,283,012		96,494		89,368		1,468,874
Total commercial	2,184,969		336,476		268,834		2,790,279
1-4 family residential	994,323		505,420		214,959		1,714,702
Home equity loans	172,883		268,093		66,783		507,759
Other consumer loans	330,423		88,134		30,415		448,972
Total consumer	1,497,629		861,647		312,157		2,671,433
Other	185,839		9,776		32,815		228,430
Total loans	$	4,914,477	$	1,555,390	$	936,325	$	7,406,192

15

The following tables present the aging of the recorded investment in past due loans, based on contractual terms, as of September 30, 2017:

(Dollars in thousands)	30-89 Days Past Due		Greater than 90 Days Past Due and Still Accruing/Accreting		Non-accrual		Total
Non-purchased credit impaired loans
Non-owner occupied commercial real estate	$	—	$	—	$	2,220	$	2,220
Other commercial construction and land	183		—		47		230
Multifamily commercial real estate	—		—		—		—
1-4 family residential construction and land	—		—		—		—
Total commercial real estate	183		—		2,267		2,450
Owner occupied commercial real estate	162		—		4,336		4,498
Commercial and industrial loans	431		—		2,884		3,315
Total commercial	593		—		7,220		7,813
1-4 family residential	376		—		2,142		2,518
Home equity loans	2,428		—		2,895		5,323
Other consumer loans	9,234		—		3,602		12,836
Total consumer	12,038		—		8,639		20,677
Other	55		—		—		55
Total loans	$	12,869	$	—	$	18,126	$	30,995

(Dollars in thousands)	30-89 Days Past Due		Greater than 90 Days Past Due and Still Accruing/Accreting		Non-accrual		Total
Purchased credit impaired loans (1)
Non-owner occupied commercial real estate	$	633	$	1,679	$	—	$	2,312
Other commercial construction and land	261		801		—		1,062
Multifamily commercial real estate	—		139		—		139
1-4 family residential construction and land	—		—		—		—
Total commercial real estate	894		2,619		—		3,513
Owner occupied commercial real estate	3,308		4,057		—		7,365
Commercial and industrial loans	3		222		—		225
Total commercial	3,311		4,279		—		7,590
1-4 family residential	1,835		1,687		—		3,522
Home equity loans	1,065		401		—		1,466
Other consumer loans	2,099		1,436		—		3,535
Total consumer	4,999		3,524		—		8,523
Other	109		100		—		209
Total loans	$	9,313	$	10,522	$	—	$	19,835

16

The following tables present the aging of the recorded investment in past due loans, based on contractual terms, as of December 31, 2016:

(Dollars in thousands)	30-89 Days Past Due		Greater than 90 Days Past Due and Still Accruing/Accreting		Non-accrual		Total
Non-purchased credit impaired loans
Non-owner occupied commercial real estate	$	—	$	—	$	2,584	$	2,584
Other commercial construction and land	23		—		204		227
Multifamily commercial real estate	—		—		—		—
1-4 family residential construction and land	148		—		—		148
Total commercial real estate	171		—		2,788		2,959
Owner occupied commercial real estate	2,633		—		2,950		5,583
Commercial and industrial loans	169		—		698		867
Total commercial	2,802		—		3,648		6,450
1-4 family residential	493		—		1,048		1,541
Home equity loans	1,336		—		1,568		2,904
Other consumer loans	8,143		—		2,397		10,540
Total consumer	9,972		—		5,013		14,985
Other	—		—		—		—
Total loans	$	12,945	$	—	$	11,449	$	24,394

(Dollars in thousands)	30-89 Days Past Due		Greater than 90 Days Past Due and Still Accruing/Accreting		Non-accrual		Total
Purchased credit impaired loans(1)
Non-owner occupied commercial real estate	$	—	$	1,130	$	—	$	1,130
Other commercial construction and land	550		777		—		1,327
Multifamily commercial real estate	—		420		—		420
1-4 family residential construction and land	—		—		—		—
Total commercial real estate	550		2,327		—		2,877
Owner occupied commercial real estate	1,844		3,776		—		5,620
Commercial and industrial loans	592		509		—		1,101
Total commercial	2,436		4,285		—		6,721
1-4 family residential	4,288		6,060		—		10,348
Home equity loans	1,128		1,470		—		2,598
Other consumer loans	2,558		1,048		—		3,606
Total consumer	7,974		8,578		—		16,552
Other	87		716		—		803
Total loans	$	11,047	$	15,906	$	—	$	26,953

(1)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.

17

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.

The following table summarizes loans, excluding PCI loans, by internal rating at September 30, 2017:

					Substandard
(Dollars in thousands)	Pass		Special Mention		Accruing		Non-accrual		Doubtful		Total
Non-owner occupied commercial real estate	$	1,085,892	$	2,257	$	—	$	2,220	$	—	$	1,090,369
Other commercial construction and land	357,493		—		—		47		—		357,540
Multifamily commercial real estate	132,075		—		191		—		—		132,266
1-4 family residential construction and land	143,513		—		—		—		—		143,513
Total commercial real estate	1,718,973		2,257		191		2,267		—		1,723,688
Owner occupied commercial real estate	1,051,286		18,202		3,246		4,336		—		1,077,070
Commercial and industrial loans	1,429,031		516		11,536		2,884		—		1,443,967
Total commercial	2,480,317		18,718		14,782		7,220		—		2,521,037
1-4 family residential	1,602,050		1,699		2,105		2,142		—		1,607,996
Home equity loans	422,514		55		1,052		2,895		—		426,516
Other consumer loans	359,379		—		230		3,602		—		363,211
Total consumer	2,383,943		1,754		3,387		8,639		—		2,397,723
Other	214,958		—		—		—		—		214,958
Total loans	$	6,798,191	$	22,729	$	18,360	$	18,126	$	—	$	6,857,406

18

The following table summarizes loans, excluding PCI loans, by internal rating at December 31, 2016:

					Substandard
(Dollars in thousands)	Pass		Special Mention		Accruing		Non-accrual		Doubtful		Total
Non-owner occupied commercial real estate	$	896,394	$	1,251	$	1,119	$	2,584	$	—	$	901,348
Other commercial construction and land	255,530		—		—		204		—		255,734
Multifamily commercial real estate	96,802		—		—		—		—		96,802
1-4 family residential construction and land	139,647		—		—		—		—		139,647
Total commercial real estate	1,388,373		1,251		1,119		2,788		—		1,393,531
Owner occupied commercial real estate	1,124,285		10,210		4,494		2,950		—		1,141,939
Commercial and industrial loans	1,351,581		16,709		10,518		698		—		1,379,506
Total commercial	2,475,866		26,919		15,012		3,648		—		2,521,445
1-4 family residential	1,495,653		899		2,143		1,048		—		1,499,743
Home equity loans	437,880		62		1,466		1,568		—		440,976
Other consumer loans	416,117		—		43		2,397		—		418,557
Total consumer	2,349,650		961		3,652		5,013		—		2,359,276
Other	195,615		—		—		—		—		195,615
Total loans	$	6,409,504	$	29,131	$	19,783	$	11,449	$	—	$	6,469,867

19

6. Allowance for Loan and Lease Losses

Activity in the allowance for loan and lease losses for the three and nine months ended September 30, 2017 and 2016 is as follows:

(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Balance, beginning of period	$	44,638		$	44,883		$	43,065		$	45,034
Provision (reversal) for loan losses for PCI loans	167			(48		)	1,171			(835		)
Provision for loan losses for non-PCI loans	2,875			634			7,566			3,968
Non-PCI loans charged-off	(2,934		)	(1,954		)	(8,619		)	(6,094		)
Recoveries of non-PCI loans previously charged-off	682			469			2,245			1,911
Balance, end of period	$	45,428		$	43,984		$	45,428		$	43,984

The following tables present the roll forward of the allowance for loan and lease losses for the three and nine months ended September 30, 2017 by the class of loans against which the allowance is allocated:

(Dollars in thousands)	June 30, 2017		Provision/ (Reversals)			Net (Charge-offs)/ Recoveries			September 30, 2017
Non-owner occupied commercial real estate	$	1,252	$	263		$	(20	)	$	1,495
Other commercial construction and land	11,515		(1,669		)	1			9,847
Multifamily commercial real estate	193		9			—			202
1-4 family residential construction and land	591		(139		)	1			453
Total commercial real estate	13,551		(1,536		)	(18		)	11,997
Owner occupied commercial real estate	1,324		(345		)	13			992
Commercial and industrial loans	9,570		318			135			10,023
Total commercial	10,894		(27		)	148			11,015
1-4 family residential	9,416		(37		)	14			9,393
Home equity loans	1,197		(87		)	(83		)	1,027
Other consumer loans	9,222		4,417			(2,023		)	11,616
Total consumer	19,835		4,293			(2,092		)	22,036
Other	358		312			(290		)	380
Total loans	$	44,638	$	3,042		$	(2,252	)	$	45,428

20

(Dollars in thousands)	December 31, 2016		Provision/ (Reversals)			Net (Charge-offs)/ Recoveries			September 30, 2017
Non-owner occupied commercial real estate	$	1,989	$	(478	)	$	(16	)	$	1,495
Other commercial construction and land	12,692		(2,955		)	110			9,847
Multifamily commercial real estate	171		31			—			202
1-4 family residential construction and land	666		(218		)	5			453
Total commercial real estate	15,518		(3,620		)	99			11,997
Owner occupied commercial real estate	1,397		(455		)	50			992
Commercial and industrial loans	9,509		561			(47		)	10,023
Total commercial	10,906		106			3			11,015
1-4 family residential	9,188		143			62			9,393
Home equity loans	1,214		(107		)	(80		)	1,027
Other consumer loans	5,890		11,245			(5,519		)	11,616
Total consumer	16,292		11,281			(5,537		)	22,036
Other	349		970			(939		)	380
Total loans	$	43,065	$	8,737		$	(6,374	)	$	45,428

The following tables present the roll forward of the allowance for loan and lease losses for the three and nine months ended September 30, 2016 by the class of loans against which the allowance is allocated:

(Dollars in thousands)	June 30, 2016		Provision/ (Reversals)			Net(Charge-offs)/ Recoveries			September 30, 2016
Non-owner occupied commercial real estate	$	2,039	$	(27	)	$	2		$	2,014
Other commercial construction and land	12,757		345			37			13,139
Multifamily commercial real estate	153		3			—			156
1-4 family residential construction and land	958		(142		)	2			818
Total commercial real estate	15,907		179			41			16,127
Owner occupied commercial real estate	1,559		(179		)	—			1,380
Commercial and industrial loans	10,800		(573		)	16			10,243
Total commercial	12,359		(752		)	16			11,623
1-4 family residential	9,964		(579		)	(21		)	9,364
Home equity loans	1,361		(121		)	16			1,256
Other consumer loans	4,988		1,432			(1,129		)	5,291
Total consumer	16,313		732			(1,134		)	15,911
Other	304		427			(408		)	323
Total loans	$	44,883	$	586		$	(1,485	)	$	43,984

21

(Dollars in thousands)	December 31, 2015		Provision/ (Reversals)			Net(Charge-offs)/ Recoveries			September 30, 2016
Non-owner occupied commercial real estate	$	1,598	$	405		$	11		$	2,014
Other commercial construction and land	12,919		174			46			13,139
Multifamily commercial real estate	186		(30		)	—			156
1-4 family residential construction and land	1,275		(462		)	5			818
Total commercial real estate	15,978		87			62			16,127
Owner occupied commercial real estate	1,505		(45		)	(80		)	1,380
Commercial and industrial loans	9,627		1,045			(429		)	10,243
Total commercial	11,132		1,000			(509		)	11,623
1-4 family residential	11,057		(1,852		)	159			9,364
Home equity loans	1,853		(714		)	117			1,256
Other consumer loans	4,751		3,584			(3,044		)	5,291
Total consumer	17,661		1,018			(2,768		)	15,911
Other	263		1,028			(968		)	323
Total loans	$	45,034	$	3,133		$	(4,183	)	$	43,984

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 nine months ended September 30, 2017 and 2016, by the class of loans against which the allowance is allocated:

22

(Dollars in thousands)	Three Months Ended
	September 30, 2017									September 30, 2016
	Non-PCI			PCI			Total			Non-PCI			PCI			Total
Allowance for loan and lease losses at the beginning of the period	$	20,619		$	24,019		$	44,638		$	21,182		$	23,701		$	44,883
Charge-offs:
Non-owner occupied commercial real estate	(22		)	—			(22		)	—			—			—
Other commercial construction and land	1			—			1			—			—			—
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	—			—			—			—			—			—
Total commercial real estate	(21		)	—			(21		)	—			—			—
Owner occupied commercial real estate	1			—			1			—			—			—
Commercial and industrial loans	(133		)	—			(133		)	(6		)	—			(6		)
Total commercial	(132		)	—			(132		)	(6		)	—			(6		)
1-4 family residential	(1		)	—			(1		)	(47		)	—			(47		)
Home equity loans	(209		)	—			(209		)	(50		)	—			(50		)
Other consumer loans	(2,145		)	—			(2,145		)	(1,293		)	—			(1,293		)
Total consumer	(2,355		)	—			(2,355		)	(1,390		)	—			(1,390		)
Other	(426		)	—			(426		)	(558		)	—			(558		)
Total charge-offs	(2,934		)	—			(2,934		)	(1,954		)	—			(1,954		)
Recoveries:
Non-owner occupied commercial real estate	2			—			2			2			—			2
Other commercial construction and land	—			—			—			37			—			37
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	1			—			1			2			—			2
Total commercial real estate	3			—			3			41			—			41
Owner occupied commercial real estate	12			—			12			—			—			—
Commercial and industrial loans	268			—			268			22			—			22
Total commercial	280			—			280			22			—			22
1-4 family residential	15			—			15			26			—			26
Home equity loans	126			—			126			66			—			66
Other consumer loans	122			—			122			164			—			164
Total consumer	263			—			263			256			—			256
Other	136			—			136			150			—			150
Total recoveries	682			—			682			469			—			469
Net charge-offs	(2,252		)	—			(2,252		)	(1,485		)	—			(1,485		)
Provision (reversal) for loan and lease losses:
Non-owner occupied commercial real estate	(88		)	351			263			(96		)	69			(27		)
Other commercial construction and land	(142		)	(1,527		)	(1,669		)	(102		)	447			345
Multifamily commercial real estate	(21		)	30			9			(9		)	12			3
1-4 family residential construction and land	(139		)	—			(139		)	(31		)	(111		)	(142		)
Total commercial real estate	(390		)	(1,146		)	(1,536		)	(238		)	417			179
Owner occupied commercial real estate	(119		)	(226		)	(345		)	(183		)	4			(179		)
Commercial and industrial loans	155			163			318			(695		)	122			(573		)
Total commercial	36			(63		)	(27		)	(878		)	126			(752		)
1-4 family residential	(272		)	235			(37		)	(148		)	(431		)	(579		)
Home equity loans	20			(107		)	(87		)	15			(136		)	(121		)
Other consumer loans	3,178			1,239			4,417			1,461			(29		)	1,432
Total consumer	2,926			1,367			4,293			1,328			(596		)	732
Other	303			9			312			422			5			427
Total provision (reversal) for loan and lease losses	2,875			167			3,042			634			(48		)	586
Allowance for loan and lease losses at the end of the period	$	21,242		$	24,186		$	45,428		$	20,331		$	23,653		$	43,984

23

(Dollars in thousands)	Nine Months Ended
	September 30, 2017									September 30, 2016
	Non-PCI			PCI			Total			Non-PCI			PCI			Total
Allowance for loan and lease losses at the beginning of the period	$	20,050		$	23,015		$	43,065		$	20,546		$	24,488		$	45,034
Charge-offs:
Non-owner occupied commercial real estate	(22		)	—			(22		)	(2		)	—			(2		)
Other commercial construction and land	(6		)	—			(6		)	—			—			—
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	—			—			—			—			—			—
Total commercial real estate	(28		)	—			(28		)	(2		)	—			(2		)
Owner occupied commercial real estate	(5		)	—			(5		)	(80		)	—			(80		)
Commercial and industrial loans	(385		)	—			(385		)	(510		)	—			(510		)
Total commercial	(390		)	—			(390		)	(590		)	—			(590		)
1-4 family residential	(3		)	—			(3		)	(47		)	—			(47		)
Home equity loans	(365		)	—			(365		)	(224		)	—			(224		)
Other consumer loans	(6,340		)	—			(6,340		)	(3,633		)	—			(3,633		)
Total consumer	(6,708		)	—			(6,708		)	(3,904		)	—			(3,904		)
Other	(1,493		)	—			(1,493		)	(1,598		)	—			(1,598		)
Total charge-offs	(8,619		)	—			(8,619		)	(6,094		)	—			(6,094		)
Recoveries:
Non-owner occupied commercial real estate	6			—			6			13			—			13
Other commercial construction and land	116			—			116			46			—			46
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	5			—			5			5			—			5
Total commercial real estate	127			—			127			64			—			64
Owner occupied commercial real estate	55			—			55			—			—			—
Commercial and industrial loans	338			—			338			81			—			81
Total commercial	393			—			393			81			—			81
1-4 family residential	65			—			65			206			—			206
Home equity loans	285			—			285			341			—			341
Other consumer loans	821			—			821			589			—			589
Total consumer	1,171			—			1,171			1,136			—			1,136
Other	554			—			554			630			—			630
Total recoveries	2,245			—			2,245			1,911			—			1,911
Net charge-offs	(6,374		)	—			(6,374		)	(4,183		)	—			(4,183		)
Provision (reversal) for loan and lease losses:
Non-owner occupied commercial real estate	(154		)	(324		)	(478		)	(323		)	728			405
Other commercial construction and land	(344		)	(2,611		)	(2,955		)	(19		)	193			174
Multifamily commercial real estate	18			13			31			(31		)	1			(30		)
1-4 family residential construction and land	(218		)	—			(218		)	55			(517		)	(462		)
Total commercial real estate	(698		)	(2,922		)	(3,620		)	(318		)	405			87
Owner occupied commercial real estate	(200		)	(255		)	(455		)	(145		)	100			(45		)
Commercial and industrial loans	(367		)	928			561			291			754			1,045
Total commercial	(567		)	673			106			146			854			1,000
1-4 family residential	(527		)	670			143			(433		)	(1,419		)	(1,852		)
Home equity loans	5			(112		)	(107		)	(69		)	(645		)	(714		)
Other consumer loans	8,415			2,830			11,245			3,628			(44		)	3,584
Total consumer	7,893			3,388			11,281			3,126			(2,108		)	1,018
Other	938			32			970			1,014			14			1,028
Total provision (reversal) for loan and lease losses	7,566			1,171			8,737			3,968			(835		)	3,133
Allowance for loan and lease losses at the end of the period	$	21,242		$	24,186		$	45,428		$	20,331		$	23,653		$	43,984

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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 September 30, 2017:

(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	$	—	$	789	$	706	$	2,732	$	1,087,637	$	203,278
Other commercial construction and land	17		1,447		8,383		109		357,431		44,710
Multifamily commercial real estate	—		67		135		—		132,266		15,926
1-4 family residential construction and land	—		453		—		—		143,513		294
Total commercial real estate	17		2,756		9,224		2,841		1,720,847		264,208
Owner occupied commercial real estate	—		992		—		8,502		1,068,568		149,141
Commercial and industrial loans	650		5,466		3,907		13,195		1,430,772		58,972
Total commercial	650		6,458		3,907		21,697		2,499,340		208,113
1-4 family residential	97		1,695		7,601		3,003		1,601,933		179,694
Home equity loans	117		444		466		1,916		424,600		55,180
Other consumer loans	27		8,679		2,910		368		362,843		21,517
Total consumer	241		10,818		10,977		5,287		2,389,376		256,391
Other	—		302		78		—		214,958		26,482
Total loans	$	908	$	20,334	$	24,186	$	29,825	$	6,824,521	$	755,194

⁽¹⁾  Loans collectively evaluated for impairment include $1.4 billion of acquired loans which are presented net of unamortized purchase discounts of $14.5 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, 2016:

(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	$	—	$	959	$	1,030	$	2,835	$	898,513	$	229,535
Other commercial construction and land	20		1,678		10,994		109		255,625		71,888
Multifamily commercial real estate	—		49		122		—		96,802		20,713
1-4 family residential construction and land	—		666		—		—		139,647		383
Total commercial real estate	20		3,352		12,146		2,944		1,390,587		322,519
Owner occupied commercial real estate	1		1,141		255		8,858		1,133,081		179,466
Commercial and industrial loans	6		6,524		2,979		9,548		1,369,958		89,368
Total commercial	7		7,665		3,234		18,406		2,503,039		268,834
1-4 family residential	121		2,136		6,931		1,963		1,484,906		214,959
Home equity loans	113		523		578		1,392		439,584		66,783
Other consumer loans	13		5,797		80		452		418,105		30,415
Total consumer	247		8,456		7,589		3,807		2,342,595		312,157
Other	—		303		46		—		195,615		32,815
Total loans	$	274	$	19,776	$	23,015	$	25,157	$	6,431,836	$	936,325

⁽¹⁾  Loans collectively evaluated for impairment include $1.6 billion of acquired loans which are presented net of unamortized purchase discounts of $20.0 million.

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For the three and nine months ended September 30, 2017 and September 30, 2016, the amount of interest income recognized on loans that were impaired was not material.

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 nine months ended September 30, 2017 and 2016, 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 September 30, 2017 and 2016. The Company had loans modified in TDRs with recorded investments of $2.3 million, $2.7 million, and $2.3 million as of September 30, 2017, December 31, 2016 and September 30, 2016, respectively.

Hurricane Irma

     On September 10, 2017, Hurricane Irma struck the south coast of Florida, temporarily disrupting our branch network. However within a matter of days, all but two of our offices were back open and assisting customers, while the remaining two offices will open during the fourth quarter. The Company incurred property costs associated with Hurricane Irma of approximately $0.2 million, which are reflected in third quarter results. The Company has also reviewed its lending and deposit portfolio and determined no impairment was indicated at this time as a result of Hurricane Irma. In working with its borrowers and depositors affected by this hurricane, the Company has entered into temporary payment deferral agreements of 90 days or less on loans covering $78.6 million of outstanding principle. Each of these loans were assessed individually and were determined to not be a troubled debt restructuring. The review process is on-going and we will continue to monitor the impact on our loan portfolio.

7. Other Real Estate Owned

The activity within Other Real Estate Owned (“OREO”) for the three and nine months ended September 30, 2017 and 2016 is presented in the table below.

For the three and nine months ended September 30, 2017 , proceeds on sales of OREO were $6.7 million and $22.2 million, respectively and net gains were $0.0 million and $0.5 million, respectively. For the three and nine months ended September 30, 2016, proceeds on sales of OREO were $1.4 million and $13.2 million, respectively and net gains were $0.2 million and $1.3 million, respectively.

(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Balance, beginning of period	$	41,364		$	44,236		$	53,482		$	52,776
Real estate acquired from borrowers and transfers from other assets	9,909			3,762			13,373			7,534
Valuation allowance	(249		)	(742		)	(758		)	(2,328		)
Properties sold	(6,608		)	(1,249		)	(21,681		)	(11,975		)
Balance, end of period	$	44,416		$	46,007		$	44,416		$	46,007

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

Short-term borrowings include securities sold under agreements to repurchase, cash received from counterparties as collateral for mark-to-market exposure on interest rate swaps, and advances from the Federal Home Loan Bank (“FHLB”) .

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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 September 30, 2017 and December 31, 2016 were $34.6 million and $18.0 million, respectively, and were collateralized by $37.2 million and $27.6 million, respectively, of agency mortgage-backed securities.

The Bank has $0.3 million and $1.2 million of short term borrowings related to cash received from counterparties as collateral for mark-to-market exposure on interest rate swaps at September 30, 2017 and December 31, 2016, respectively.

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 September 30, 2017 and December 31, 2016 provided for incremental borrowing availability of up to $566.9 million and $415.9 million, respectively.

At September 30, 2017 and December 31, 2016, the Bank had $15.8 million and $15.4 million in letters of credit issued by the FHLB respectively, of which $15.0 million and $15.2 million are used as collateral for public funds deposits in lieu of pledging securities to the State of Florida, respectively.

The FHLB advances as of September 30, 2017 and December 31, 2016 consisted of the following:

(Dollars in thousands)
Contractual Outstanding Amount
September 30, 2017		Maturity Date	Interest Rate as of September 30, 2017
151		November 6, 2017	0.50%
50,000		November 20, 2017	1.19%	(1 Month FRC + 2 bps)*
50,000		November 23, 2018	1.19%	(1 Month FRC + 2 bps)*
50,000		December 31, 2019	1.17%	(1 Month FRC + 2 bps)*
60,000		May 28, 2020	1.18%	(1 Month FRC + 2 bps)*
80,000		September 20, 2021	1.25%	(1 Month FRC + 8 bps)*
75,000		September 29, 2021	1.23%	(1 Month FRC + 8 bps)*
75,000		January 20, 2022	1.25%	(1 Month FRC + 8 bps)*
398		February 10, 2026	—%
$	440,549

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

27

(Dollars in thousands)
Contractual Outstanding Amount
December 31, 2016		Maturity Date	Interest Rate as of December 31, 2016
$	25,000	January 20, 2017	0.63%
155,000		May 19, 2017	0.80%
271		November 6, 2017	0.50%
50,000		November 20, 2017	0.65%	(1 Month FRC + 2 bps)*
50,000		November 23, 2018	0.66%	(1 Month FRC + 2 bps)*
50,000		December 31, 2019	0.64%	(1 Month FRC + 2 bps)*
60,000		May 28, 2020	0.63%	(1 Month FRC + 2 bps)*
80,000		September 20, 2021	0.71%	(1 Month FRC + 8 bps)*
75,000		September 29, 2021	0.71%	(1 Month FRC + 8 bps)*
430		February 10, 2026	—%
$	545,701

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

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9. Long-Term Borrowings

Subordinated Debentures

Through its acquisitions of TIB Financial ("TIBB"), Capital Bank Corp. ("CBKN"), Green Bankshares ("GRNB"), Southern Community Financial ("SCMF" or "Southern Community"), and CommunityOne Bancorp ("COB" or "CommunityOne"), the Company assumed fourteen separate pooled offerings of trust preferred securities listed below. 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, 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 are included in Tier 1 capital under the capital guidelines of the Dodd-Frank Act. The subordinated debentures as of September 30, 2017 and December 31, 2016 consisted of the following:

(Dollars in thousands)
			Carrying Amount
Date of Offering	Face Amount		September 30, 2017		December 31, 2016		Interest Rate as of September 30, 2017			Maturity Date
July 31, 2001	$	5,000	$	4,064	$	4,018	4.89	%	(3 Month LIBOR + 358 bps)	July 31, 2031
July 31, 2001	4,000		2,882		2,831		4.89	%	(3 Month LIBOR + 358 bps)	July 31, 2031
December 20, 2002	5,000		3,597		3,544		4.65	%	(3 Month LIBOR + 335 bps)	December 30, 2032
June 26, 2003	10,000		6,320		6,231		4.43	%	(3 Month LIBOR + 310 bps)	June 26, 2033
September 25, 2003	10,000		6,941		6,823		4.15	%	(3 Month LIBOR + 285 bps)	October 8, 2033
December 30, 2003	10,000		6,110		6,020		4.16	%	(3 Month LIBOR + 285 bps)	December 30, 2033
June 28, 2005	3,000		1,737		1,697		3.00	%	(3 Month LIBOR + 168 bps)	June 28, 2035
November 4, 2005	20,000		10,365		10,085		2.69	%	(3 Month LIBOR + 137 bps)	December 15, 2035
December 22, 2005	10,000		4,968		4,863		2.72	%	(3 Month LIBOR + 140 bps)	March 15, 2036
December 28, 2005	13,000		7,278		7,107		2.86	%	(3 Month LIBOR + 154 bps)	March 15, 2036
April 27, 2006	30,000		15,229		14,816		2.62	%	(3 Month LIBOR + 132 bps)	June 30, 2036
June 23, 2006	20,000		12,326		12,092		2.85	%	(3 Month LIBOR + 155 bps)	July 7, 2036
May 16, 2007	56,000		31,380		30,685		2.97	%	(3 Month LIBOR + 165 bps)	June 15, 2037
June 15, 2007	10,000		5,732		5,644		2.75	%	(3 Month LIBOR + 143 bps)	September 6, 2037
Total	$	206,000	$	118,929	$	116,456

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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 September 30, 2017 and December 31, 2016 the Bank maintained capital ratios exceeding the requirement to be considered 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
September 30, 2017	Amount		Ratio	Amount		Ratio	Amount		Ratio
Tier 1 Leverage Capital
(to Average Assets)
CBF Consolidated	N/A		N/A	$	392,224	≥ 4.0%	$	1,176,655	12.0%
Bank	$	488,678	≥ 5.0%	$	390,943	≥ 4.0%	$	1,062,316	10.9%
Tier 1 Common Equity Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A		N/A	$	378,507	≥ 4.5%	$	1,068,825	12.7%
Bank	$	544,345	≥ 6.5%	$	376,854	≥ 4.5%	$	1,062,316	12.7%
Tier 1 Risk-based Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A		N/A	$	504,676	≥ 6.0%	$	1,176,655	14.0%
Bank	$	669,963	≥ 8.0%	$	502,472	≥ 6.0%	$	1,062,316	12.7%
Total Risk-based Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A		N/A	$	672,901	≥ 8.0%	$	1,222,487	14.5%
Bank	$	837,453	≥ 10.0%	$	669,963	≥ 8.0%	$	1,108,148	13.2%

30

(Dollars in thousands)	Well Capitalized Requirement			Adequately Capitalized Requirement			Actual
December 31, 2016	Amount		Ratio	Amount		Ratio	Amount		Ratio
Tier 1 Capital
(to Average Assets)
CBF Consolidated	N/A		N/A	$	360,513	≥ 4.0%	$	1,101,743	12.2%
Bank	$	450,006	≥ 5.0%	$	360,005	≥ 4.0%	$	1,010,409	11.2%
Tier 1 Common Equity Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A		N/A	$	367,521	≥ 4.5%	$	1,012,831	12.4%
Bank	$	529,887	≥ 6.5%	$	366,845	≥ 4.5%	$	1,010,409	12.4%
Tier 1 Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A		N/A	$	490,028	≥ 6.0%	$	1,101,743	13.5%
Bank	$	652,169	≥ 8.0%	$	489,127	≥ 6.0%	$	1,010,409	12.4%
Total Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A		N/A	$	653,371	≥ 8.0%	$	1,145,351	14.0%
Bank	$	815,211	≥ 10.0%	$	652,169	≥ 8.0%	$	1,054,016	12.9%

As of September 30, 2017 and December 31, 2016, 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.

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. The Company received dividends from the Bank totaling $8.0 million, $6.8 million, $4.2 million, $6.1 million, $5.7 million and $64.2 million, on July 28, 2017, May 2, 2017, January 31, 2017, January 24, 2017, October 19, 2016 and June 1, 2016, respectively. The Company may use these dividends for general 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 September 30, 2017, our capital buffer is 6.5%; 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 required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a

31

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

On October 19, 2017, the Company's board of directors approved a quarterly common dividend of $0.12 per share payable on November 13, 2017, to shareholders of record as of November 3, 2017.

Share Repurchases

The Company’s board of directors has authorized stock repurchases of up to $400.0 million. Stock repurchases may be made from time to time, on the open market or in privately negotiated transactions. The approved stock repurchase program does not obligate the Company to repurchase any particular amount of shares, and the program may be extended, modified, suspended, or discontinued at any time.

As of September 30, 2017, the Company has repurchased a total of $312.4 million, or 12,739,763 common shares at an average price of $24.52 per share with $87.6 million remaining under the current board authorized stock repurchase program.

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.

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11. Stock-Based Compensation

As of September 30, 2017, 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 nine months ended September 30, 2017 and 2016:

(Dollars in thousands)	Three Months Ended				Nine Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Stock options	$	28	$	14	$	80	$	35
Restricted stock	1,413		776		3,225		1,539
Total stock-based compensation expense	$	1,441	$	790	$	3,305	$	1,574

The tax benefit related to stock-based compensation expense arising from restricted stock awards and non-qualified stock options was $0.5 million and $0.3 million for the three months ended September 30, 2017 and 2016, respectively and $1.2 million and $0.6 million for the nine months ended September 30, 2017 and 2016, respectively.

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. Stock options have an expiration of ten years from the date it is granted. Under these plans, 112,271 options were exercised and 15,623 stock options were granted during the nine months ended September 30, 2017.

The fair value of each option is estimated as of the date of the grant using the Black-Scholes Option Pricing Model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. The dividend yield assumption is consistent with management expectations of dividend distributions based upon the Company’s business plan at the date of grant. The risk-free interest rate was developed using the U.S. Treasury yield curve for a period equal to the expected life of the options on the grant date. The expected option life for the current period grants was estimated using the vesting period, the term of the option and estimates of future exercise behavior patterns. The expected volatility assumption was based on the historical volatility of the Company's stock price.

ASC 718 requires the recognition of stock-based compensation expense for the number of awards that are ultimately expected to vest. During the nine months ended September 30, 2017 and 2016, 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 nine months ended September 30, 2017 and 2016 is as follows:

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	Nine Months Ended
	September 30, 2017				September 30, 2016
(Shares in thousands)	Shares		Weighted     Average Exercise Price Per Share		Shares		Weighted     Average Exercise Price  Per Share
Balance, January 1,	3,180		$	20.86	3,075		$	20.12
Granted	15		39.55		30		30.54
Exercised	(112	)	20.37		(36	)	18.00
Canceled, expired or forfeited	(4	)	82.09		(3	)	30.54
Balance, September 30,	3,079		$	20.85	3,066		$	20.24

At September 30, 2017, the weighted average remaining contractual life for outstanding stock options was approximately 3.10 years and the aggregate intrinsic values was $60.0 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 September 30, 2017 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	119	5.64 years	$	18.00	119	$	18.00
$18.01 - $20.00	2,793	2.74 years	20.00		2,794	20.00
$20.98 - $1,095.00	167	7.45 years	37.08		114	37.75
$18.00 - $1,095.00	3,079	3.10 years	$	20.85	3,027	$	20.59

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 restricted stock vests ratably over a three-year period subject to continued employment with the company. The value of the restricted stock is being amortized on a straight-line basis over the implied service periods. There were 175,287 restricted stock awards granted under the 2013 Plan during the nine months ended September 30, 2017.

The following table summarizes unvested restricted stock activity for the nine months ended September 30, 2017 and 2016:

	Nine Months Ended
	September 30, 2017				September 30, 2016
(Shares in thousands)	Shares		Weighted Average Grant-Date Fair Value     Per Share		Shares		Weighted Average Grant-Date Fair Value     Per Share
Balance, January 1,	197		$	30.10	—		$	—
Granted	175		39.53		199		30.54
Vested or released	(53	)	31.71		—		—
Canceled, expired or forfeited	(26	)	35.28		(4	)	30.54
Balance, September 30	293		$	35.59	195		$	30.54

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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 nine months ended September 30, 2017 and 2016 is as follows:

(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Income before income taxes	$	40,663		$	26,881		$	110,490		$	70,230
Income taxes computed at Federal statutory tax rate	14,232			9,408			38,671			24,581
Effect of:
State taxes (net of federal benefit)	767			822			2,540			2,143
State statutory rate change	66			356			527			356
Tax-exempt interest income, net	(435		)	(327		)	(1,151		)	(808		)
Other, net	275			(1,889		)	(544		)	(1,854		)
Total income tax expense	$	14,905		$	8,370		$	40,043		$	24,418

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 nine months ended September 30, 2017, the effective income tax rates were 37% and 36%, respectively. For the three and nine months ended September 30, 2016, the effective income tax rates were 31% and 35%.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the states of Florida, New York, South Carolina, North Carolina, and Tennessee. The net deferred tax assets as of September 30, 2017 and December 31, 2016 were $113.1 million and $150.3 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 September 30, 2017 and December 31, 2016.

At September 30, 2017 and December 31, 2016, the Company had $480.7 million and $478.6 million of gross federal net operating loss carry-forwards, respectively, which begin to expire after 2028 and are subject to annual cumulative limitation of $28.5 million for tax year 2017.

At September 30, 2017 and December 31, 2016 the company had $499.3 million and $507.0 million of gross state net operating loss carry-forwards expected to be utilized, respectively.

At September 30, 2017 and December 31, 2016, the Company had no unrecognized tax benefits and no material amounts recorded for uncertain tax positions.

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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.

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 September 30, 2017, the 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.

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

Valuation of Premises and Equipment held for sale

Premises and equipment held for sale are carried at the lower of cost or estimated fair value. The fair values of premises and equipment held for sale are based on recent real estate appraisals and other available observable market information.

Mortgage Servicing Rights

As of September 30, 2017, the fair value of the Company's Level 3 mortgage servicing rights (“MSR”) was $2.3 million, none of which are currently impaired and therefore are carried at amortized cost. The assumptions used include the fee per loan, the cost to service, the expected loan prepayment rate, and the discount rate. In determining the fair value of the existing MSR, the Company reviews the key assumptions, analyzes pricing in the market for comparable MSR, and uses a third party provider to independently calculate the fair value of its MSR.

Sensitivity to Changes in Significant Unobservable Inputs

As discussed above, as of September 30, 2017, 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 September 30, 2017 are summarized below:

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(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	$	4,458	$	—	$	4,458	$	—
Available-for-sale securities:
Mortgage-backed securities—residential	$	1,077,052	$	—	$	1,077,052	$	—
State and political subdivisions—tax exempt	11,492		—		11,492		—
Industrial revenue bonds	3,142		—		—		3,142
Corporate bonds	64,008		—		64,008		—
Available-for-sale securities	$	1,155,694	$	—	$	1,152,552	$	3,142
Gross asset value of derivatives	$	1,194	$	—	$	1,194	$	—
Liabilities
Gross liability value of derivatives	$	2,178	$	—	$	2,178	$	—

There were no transfers of assets and liabilities between levels of the fair value hierarchy during the nine months ended September 30, 2017.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 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	$	3,791	$	—	$	3,791	$	—
Available-for-sale securities:
Mortgage-backed securities-residential	$	868,922	$	—	$	868,922	$	—
State and political subdivisions - tax exempt	11,077		—		11,077		—
Industrial revenue bonds	3,298		—		—		3,298
Corporate bonds	28,953		—		28,953		—
Available-for-sale securities	$	912,250	$	—	$	908,952	$	3,298
Gross asset value of derivatives	$	1,078	$	—	$	1,078	$	—
Liabilities
Gross liability value of derivatives	$	1,354	$	—	$	1,354	$	—

There were no transfers of assets and liabilities between levels of the fair value hierarchy during the year ended December 31, 2016.

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 nine months ended and held at September 30, 2017 and 2016:

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(Dollars in thousands)	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Industrial Revenue Bonds
Beginning balance, July 1, 2017	$	3,137
Principal reduction	—
Included in other comprehensive income	5
Ending balance, September 30, 2017	$	3,142

(Dollars in thousands)	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Industrial Revenue Bonds
Beginning balance, January 1, 2017	$	3,298
Principal reduction	(170		)
Included in other comprehensive income	14
Ending balance, September 30, 2017	$	3,142

(Dollars in thousands)	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Industrial Revenue Bonds
Beginning balance, July 1, 2016	$	3,263
Principal reduction	—
Included in other comprehensive income	24
Ending balance, September 30, 2016	$	3,287

(Dollars in thousands)	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Industrial Revenue Bonds
Beginning balance, January 1, 2016	$	3,437
Principal reduction	(170		)
Included in other comprehensive income	20
Ending balance, September 30, 2016	$	3,287

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Quantitative Information about Recurring Level 3 Fair Value Measurements

(Dollars in thousands)	Fair Value at September 30, 2017		Valuation Technique	Significant Unobservable Input	Range
Industrial revenue bonds	$	3,142	Discounted cash flow	Discount rate	3.03% - 3.05%
				Illiquidity factor	0.5%

(Dollars in thousands)	Fair Value at December 31, 2016		Valuation Technique	Significant Unobservable Input	Range
Industrial revenue bonds	$	3,298	Discounted cash flow	Discount rate	3.31% - 3.35%
				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 September 30, 2017 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	$	—	$	—	$	27,815
Premises and equipment held for sale	—		—		13,362
Other repossessed assets	332		—		—
Impaired loans	—		—		1,487

Other real estate owned measured at fair value as of September 30, 2017 had a gross amount of $35.1 million, less valuation allowances totaling $7.3 million and is made up of $23.2 million commercial properties, $4.0 million residential properties and $0.6 million farmland properties. Impairment charges resulting from the non-recurring changes in the fair value of OREO included in the consolidated statement of income for the three and nine months ended September 30, 2017 was $0.2 million and $0.8 million, respectively. Premises and equipment held for sale measured at fair value as of September 30, 2017 are primarily comprised of branch properties. Other repossessed assets are primarily comprised of repossessed vehicles and equipment and are measured at fair value as of the date of repossession. Impaired loans are primarily comprised of residential properties and are measured at fair value as of September 30, 2017.

Assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2016 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	$	—	$	—	$	41,168
Premises and equipment held for sale	—		—		2,599
Other repossessed assets	163		—		—
Impaired loans	—		—		1,420

40

Other real estate owned measured at fair value as of December 31, 2016 had a gross amount of $50.0 million, less valuation allowances totaling $8.9 million and is made up of $35.5 million commercial properties and $5.7 million residential properties. Premises and equipment held for sale measured at fair value as of December 31, 2016 are primarily comprised of branch properties. Other repossessed assets are primarily comprised of repossessed vehicles and equipment and are measured at fair value as of the date of repossession. Impaired loans are primarily comprised of residential properties and are measured at fair value as of December 31, 2016.

Quantitative Information about Nonrecurring Level 3 Fair Value Measurements

(Dollars in thousands)	Fair Value at September 30, 2017		Valuation Technique	Significant Unobservable Input	Weighted Average
Other real estate owned	$	27,815	Fair value of property	Appraised value and other market conditions	7.98%
Premises and equipment held for sale	13,362		Fair value of property	Appraised value and other market conditions	8.00%
Impaired loans	1,487		Fair value of collateral	Appraised value and other market conditions	7.46%

(Dollars in thousands)	Fair Value at December 31, 2016		Valuation Technique	Significant Unobservable Input	Weighted Average
Other real estate owned	$	41,168	Fair value of property	Appraised value and other market conditions	7.91%
Premises and equipment held for sale	2,599		Fair value of property	Appraised value and other market conditions	8.00%
Impaired loans	1,420		Fair value of collateral	Appraised value and other market conditions	7.47%

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

(Dollars in thousands)	Fair Value Measurement
September 30, 2017	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	184,129	$	184,129	$	184,129	$	—	$	—
Trading securities	4,458		4,458		—		4,458		—
Investment securities available-for-sale	1,155,694		1,155,694		—		1,152,552		3,142
Investment securities held-to-maturity	412,051		415,238		—		415,238		—
Loans, net	7,567,172		7,581,657		—		3,060		7,578,597
Other earning assets (1)	27,666		27,666		—		—		27,666
Gross asset value of derivatives	1,194		1,194		—		1,194		—
Total financial assets	$	9,352,364	$	9,370,036	$	184,129	$	1,576,502	$	7,609,405
Financial Liabilities
Non-contractual deposits	$	5,834,809	$	5,834,809	$	—	$	5,834,809	$	—
Contractual deposits	2,286,815		2,267,172		—		2,267,172		—
Federal Home Loan Bank advances	440,549		440,144		—		440,144		—
Short-term borrowings	34,802		34,793		—		34,793		—
Subordinated debentures	118,929		117,282		—		—		117,282
Gross liability value of derivatives	2,178		2,178		—		2,178		—
Total financial liabilities	$	8,718,082	$	8,696,378	$	—	$	8,579,096	$	117,282

⁽¹⁾  Includes Federal Home Loan Bank stock.

41

(Dollars in thousands)	Fair Value Measurement
December 31, 2016	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	309,055	$	309,055	$	309,055	$	—	$	—
Trading securities	3,791		3,791		—		3,791		—
Investment securities available-for-sale	912,250		912,250		—		908,952		3,298
Investment securities held-to-maturity	463,959		460,911		—		460,911		—
Loans, net	7,363,127		7,395,128		—		12,874		7,382,254
Other earning assets (1)	32,050		32,050		—		—		32,050
Gross asset value of derivatives	1,078		1,078		—		1,078		—
Total financial assets	$	9,085,310	$	9,114,263	$	309,055	$	1,387,606	$	7,417,602
Financial Liabilities
Non-contractual deposits	$	5,743,316	$	5,743,316	$	—	$	5,743,316	$	—
Contractual deposits	2,137,312		2,121,519		—		2,121,519		—
Federal Home Loan Bank advances	545,701		546,023		—		546,023		—
Short-term borrowings	19,157		19,154		—		19,154		—
Subordinated debentures	116,456		114,593		—		—		114,593
Gross liability value of derivatives	1,354		1,354		—		1,354		—
Total financial liabilities	$	8,563,296	$	8,545,959	$	—	$	8,431,366	$	114,593

⁽¹⁾  Includes Federal Home Loan Bank stock.

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, derivatives, noncontractual demand deposits and certain short-term borrowings. As it is not practicable to determine the fair value of Federal Home Loan Bank stock 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 loans does not necessarily represent exit price. 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.

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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 $0.1 million will be reclassified as a decrease to interest income from amounts reported in accumulated comprehensive income. During the nine months ended September 30, 2017, 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.

During the second quarter of 2016, the company implemented an interest rate swap program to allow customers to convert variable rate loans to fixed rates. The interest rate swaps are simultaneously offset by interest rate swaps that the Company executes with its derivative counterparties. The changes in the fair value of the swaps offset each other, except for any differences in the credit risk of the counterparties. None of these interest rate swaps are designated or qualify as hedging relationships. As the interest rate swaps associated with this program do not meet hedge accounting requirements, changes in fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The Company recorded $0.2 million of customer swap fees in non-interest income for the nine months ended September 30, 2017.

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 forward loan sales derivative contracts are not designated as hedging instruments and all changes in fair value are recognized in non-interest income or non-interest expense during the period of change. For the nine months ended September 30, 2017, the Company recorded $27 thousand in non-interest income and $112 thousand in non-interest expense as a result of changes in fair value of derivatives. For the nine months ended September 30, 2016, the company recorded $27 thousand in non-interest income and $0.1 thousand in non-interest expense as a result of changes in fair value of derivatives.

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

(Dollars in thousands)			September 30, 2017				December 31, 2016
	Number of instruments	Balance Sheet Location	Fair Value		Notional Amount		Fair Value		Notional Amount
Asset derivatives
Derivatives designated as hedging instruments
Interest rate swap	—	Other assets	$	—	$	—	$	130	$	120,000
Derivatives not designated as hedging instruments
Forward loan sales contracts	76	Other assets	40		13,091		13		4,205
Interest rate swap	7	Other assets	1,154		39,413		935		24,947
Total asset derivatives			$	1,194	$	52,504	$	1,078	$	149,152
Liability derivatives
Derivatives designated as hedging instruments
Interest rate swap	4	Other liabilities	$	1,031	$	235,000	$	378	$	115,000
Derivatives not designated as hedging instruments
Forward loan sales contracts	6	Other liabilities	2		1,205		114		11,870
Interest rate swap	7	Other liabilities	1,145		39,413		862		24,947
Total liability derivatives			$	2,178	$	275,618	$	1,354	$	151,817

The table below presents the effect of the Company's derivative financial instruments on the Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016:

(Dollars in thousands)	Three Months Ended September 30, 2017
Derivatives in Cash Flow Hedging Relationship	Amount of 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 Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap	$	(82	)	Interest income	$	171	N/A	$	—

(Dollars in thousands)	Nine Months Ended September 30, 2017
Derivatives in Cash Flow Hedging Relationship	Amount of Gain 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 Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap	$	117	Interest income	$	901	N/A	$	—

(Dollars in thousands)	Three Months Ended September 30, 2016
Derivatives in Cash Flow Hedging Relationship	Amount of 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 Loss Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap	$	(1,336	)	Interest income	$	613	N/A	$	—

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(Dollars in thousands)	Nine Months Ended September 30, 2016
Derivatives in Cash Flow Hedging Relationship	Amount of Gain 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	$	6,345	Interest income	$	1,891	N/A	$	—

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of September 30, 2017:

							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	$	1,154	$	—	$	1,154	$	726	$	55	$	373
Total	$	1,154	$	—	$	1,154	$	726	$	55	$	373
Offsetting of derivative liabilities:
Interest rate swap	2,176		—		2,176		726		703		$	747
Total	$	2,176	$	—	$	2,176	$	726	$	703	$	747

The amount of collateral received and posted disclosed in the table above represents the offset of the assets and liabilities as of September 30, 2017. The actual cash collateral received and posted amounted to $0.3 million and $0.6 million, respectively.

The Company has agreements with certain 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 and settle the termination value of derivatives in a liability position.

As of September 30, 2017, there were eleven derivatives in a $2.2 million net liability position, which includes accrued interest and excludes nonperformance risk, related to these agreements. 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. The company has minimum collateral posting thresholds with certain derivative counterparties, and has posted $0.6 million of cash collateral against its obligations under these agreements as of September 30, 2017.

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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 Corporation'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, 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 Corporation'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, 2016. 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, 2016. 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, 2016.

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 September 30, 2017, and statement of income for the three and nine 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, Southern Community Financial, and CommunityOne subsequent to our acquisition of each such entity. Throughout this discussion, we collectively refer to the above acquisitions as the “acquisitions” and loans acquired as “acquired loans”, and loans that are originated or purchased by Capital Bank Corporation as “originated” loans, and the Office of the Comptroller of the Currency as the “OCC”.

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 eight depository institutions, including the assets and certain deposits from the Failed Banks. We operate 178 branches in Florida, North and South Carolina, Tennessee, and Virginia. During the nine months ended September 30, 2017, the Company closed and consolidated 18 branches related to cost savings initiatives and the merger of CommunityOne. As such, the Company transferred $18.1 million from fixed assets to premises and equipment held for sale during the nine months ended September 30, 2017.

Proposed merger with First Horizon National Corporation

On May 4, 2017, Capital Bank Financial Corp. issued a press release announcing the execution of an agreement and plan of merger with First Horizon National Corporation (the “First Horizon”) dated May 3, 2017, with First Horizon as the surviving corporation. Subject to terms and conditions of the Merger Agreement, each holder of Capital Bank common stock will be entitled to receive cash or stock with a value equivalent to 1.750 First Horizon shares and $7.90 in cash for each Capital Bank share held, subject to the election allocation and proration provisions of the merger agreement. The transaction has received shareholder

46

approval as well as approval from the Federal Reserve, OCC, and North Carolina Office of the Commissioner of Banks, and remains subject to other customary closing conditions.

Our Management Team

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 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 34 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 36 years of experience, including 23 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, 2016.

Quarterly Summary

For the three months ended September 30, 2017, the company recorded net income of $25.8 million, which increased 8% over the previous quarter. GAAP net income per diluted share was $0.48. Core net income decreased to $26.5 million, down 1% sequentially. Core net income per diluted share was $0.50. Core pre-tax adjustments for the third quarter of 2017 included $0.6 million of branch closure expenses and $0.6 million of merger related expenses, partially offset by $0.1 million gain on investment securities. The reconciliation of non-GAAP financial measures (including core net income, core net income per diluted share, and core ROA) are included in tabular form in the “Financial Condition” section below.

Highlights of the quarter include:

• Reported ROA of 1.02%, up 7 bps quarter over quarter;

• Reported efficiency ratio of 56.6%; down 365 bps quarter over quarter;

• Sustained only temporary disruption in our branch network associated with Hurricane Irma and reopened all but two offices within a matter of days;

• Shareholders voted to approve merger with First Horizon National Corporation; and

• Declared quarterly dividend of $0.12 per common share.

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Hurricane Irma

On September 10, 2017, Hurricane Irma struck the south coast of Florida, temporarily disrupting our branch network. However within a matter of days, all but two of our offices were back open and assisting customers, while the remaining two offices will open during the fourth quarter. The Company incurred property costs associated with Hurricane Irma of approximately $0.2 million, which are reflected in third quarter results. The Company has also reviewed its lending and deposit portfolio and determined no impairment was indicated at this time as a result of Hurricane Irma. In working with its borrowers and depositors affected by this hurricane, the Company has entered into temporary payment deferral agreements of 90 days or less on loans covering $78.6 million of outstanding principle. Each of these loans were assessed individually and were determined to not be a troubled debt restructuring. The review process is on-going and we will continue to monitor the impact on our loan portfolio.

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 Home Loan Bank stock. Our interest-bearing liabilities include deposits, subordinated debentures, repurchase agreements and other short-term borrowings.

In the net interest margin and rate/volume analyses below, interest income and rates include the effects of a tax equivalent adjustments 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 analyses, 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 September 30, 2017 compared to three months endedJune 30, 2017:

Net interest income for the three months ended September 30, 2017 increased by $0.7 million, or 0.8%, to $85.9 million from $85.2 million. The net interest margin declined four basis points to 3.71% from 3.75% and the net interest spread declined six basis points to 3.53% from 3.59%. Loan yields increased twelve basis points to 4.73% from 4.61%. During the quarter, we originated loans of $485.4 million with an average yield of 4.29%, compared to $481.9 million and 4.51% in the prior quarter. The cost of core deposits, which include all checking, savings and money market accounts, excluding brokered, increased two basis points to 0.24% from 0.22%. The cost of total deposits increased seven basis points to 0.48%.

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(Dollars in thousands)	Three Months Ended  September 30, 2017							Three Months Ended  June 30, 2017
	Average Balances		Interest			Yield / Rate		Average Balances		Interest			Yield / Rate
Interest earning assets
Loans (1)	$	7,557,263	$	90,064		4.73	%	$	7,515,169	$	86,405		4.61	%
Investment securities (1)	1,589,185		9,704			2.42	%	1,596,382		11,005			2.77	%
Interest bearing deposits in other banks	68,435		198			1.15	%	42,140		93			0.89	%
Other earning assets (2)	28,249		367			5.15	%	32,074		388			4.85	%
Total interest earning assets(1)	9,243,132		$	100,333		4.31	%	9,185,765		$	97,891		4.27	%
Non-interest earning assets	857,224							884,900
Total assets	$	10,100,356						$	10,070,665
Interest bearing liabilities
Time deposits	$	2,274,258	$	5,896		1.03	%	$	2,152,086	$	4,789		0.89	%
Money market	1,858,223		2,451			0.52	%	1,787,200		1,963			0.44	%
Interest bearing demand	1,839,844		1,296			0.28	%	1,914,622		1,255			0.26	%
Savings	477,530		219			0.18	%	488,123		220			0.18	%
Total interest bearing deposits	6,449,855		9,862			0.61	%	6,342,031		8,227			0.52	%
Short-term borrowings and FHLB advances	480,830		1,457			1.20	%	568,575		1,433			1.01	%
Long-term borrowings	118,423		2,476			8.30	%	117,576		2,384			8.13	%
Total interest bearing liabilities	7,049,108		$	13,795		0.78	%	7,028,182		$	12,044		0.69	%
Non-interest bearing demand	1,636,625							1,655,233
Other liabilities	70,245							64,318
Shareholders’ equity	1,344,378							1,322,932
Total liabilities and shareholders’ equity	$	10,100,356						$	10,070,665
Net interest income and spread(1)			$	86,538		3.53	%			$	85,847		3.59	%
Net interest margin(1)						3.71	%						3.75	%
Net interest income (FTE)(1)			$	86,538						$	85,847
Tax equivalent adjustment			(622		)					(605		)
Net interest income			$	85,916						$	85,242

(1)Presented on a fully tax equivalent basis.

(2)Includes Federal Home Loan Bank stocks.

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Rate/Volume Analysis

(Dollars in thousands)	Three Months Ended September 30, 2017 Compared to Three Months Ended June 30, 2017 Due to changes in:
	Average Volume			Average Yield / Rate			Net Increase (Decrease)
Interest income
Loans (1)	$	486		$	3,173		$	3,659
Investment securities (1)	(49		)	(1,252		)	(1,301		)
Interest bearing deposits in other banks	70			35			105
Other earning assets (2)	(48		)	27			(21		)
Total interest income	459			1,983			2,442
Interest expense
Time deposits	283			824			1,107
Money market	81			407			488
Interest bearing demand	(50		)	91			41
Savings	(5		)	4			(1		)
Short-term borrowings and FHLB advances	(241		)	265			24
Long-term borrowings	17			75			92
Total interest expense	85			1,666			1,751
Change in net interest income	$	374		$	317		$	691

⁽¹⁾  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.

⁽²⁾  Includes Federal Home Loan Bank stocks.

Three months ended September 30, 2017 compared to three months endedSeptember 30, 2016:

Net interest income for the three months ended September 30, 2017 increased by $23.3 million, or 37.2%, to $85.9 million from $62.6 million. The increase was due to the acquisition of CommunityOne and organic loan growth.The net interest margin increased thirteen basis points to 3.71% from 3.58% and the net interest spread increased ten basis points to 3.53% from 3.43%. Loan yields increased thirty three basis points to 4.73% from 4.40%. During the quarter, we originated loans of $485.4 million with an average yield of 4.29%, compared to $471.5 million with an average yield of 3.84%, during the three months ended September 30, 2016. Investment securities yields declined one basis point to 2.42% . The cost of core deposits increased five basis points to 0.24%. The cost of total deposits increased seven basis points to 0.48%. Total funding cost increased twelve basis points to 0.63% .

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(Dollars in thousands)	Three Months Ended  September 30, 2017							Three Months Ended  September 30, 2016
	Average Balances		Interest			Yield / Rate		Average Balances		Interest			Yield / Rate
Interest earning assets
Loans (1)	$	7,557,263	$	90,064		4.73	%	$	5,786,171	$	64,055		4.40	%
Investment securities (1)	1,589,185		9,704			2.42	%	1,133,031		6,924			2.43	%
Interest bearing deposits in other banks	68,435		198			1.15	%	60,373		69			0.45	%
Other earning assets (2)	28,249		367			5.15	%	29,788		337			4.50	%
Total interest earning assets(1)	9,243,132		100,333			4.31	%	7,009,363		71,385			4.05	%
Non-interest earning assets	857,224							583,413
Total assets	$	10,100,356						$	7,592,776
Interest bearing liabilities
Time deposits	$	2,274,258	$	5,896		1.03	%	$	1,613,502	$	3,992		0.98	%
Money market	1,858,223		2,451			0.52	%	1,225,743		1,132			0.37	%
Interest bearing demand	1,839,844		1,296			0.28	%	1,444,305		752			0.21	%
Savings	477,530		219			0.18	%	404,187		205			0.20	%
Total interest bearing deposits	6,449,855		9,862			0.61	%	4,687,737		6,081			0.52	%
Short-term borrowings and FHLB advances	480,830		1,457			1.20	%	558,313		635			0.45	%
Long-term borrowings	118,423		2,476			8.30	%	87,095		1,586			7.24	%
Total interest bearing liabilities	7,049,108		13,795			0.78	%	5,333,145		8,302			0.62	%
Non-interest bearing demand	1,636,625							1,188,771
Other liabilities	70,245							48,997
Shareholders’ equity	1,344,378							1,021,863
Total liabilities and shareholders’ equity	$	10,100,356						$	7,592,776
Net interest income and spread(1)			$	86,538		3.53	%			$	63,083		3.43	%
Net interest margin(1)						3.71	%						3.58	%
Net interest income (FTE)(1)			$	86,538						$	63,083
Tax equivalent adjustment			(622		)					(456		)
Net interest income			$	85,916						$	62,627

(1)Presented on a fully tax equivalent basis.

(2)Includes Federal Home Loan Bank stocks.

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Rate/Volume Analysis

(Dollars in thousands)	Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016 Due to changes in:
	Average Volume			Average Yield / Rate			Net Increase (Decrease)
Interest income
Loans (1)	$	20,807		$	5,202		$	26,009
Investment securities (1)	2,785			(5		)	2,780
Interest bearing deposits in other banks	10			119			129
Other earning assets (2)	(18		)	48			30
Total interest income	23,584			5,364			28,948
Interest expense
Time deposits	1,705			199			1,904
Money market	721			598			1,319
Interest bearing demand	238			306			544
Savings	35			(21		)	14
Short-term borrowings and FHLB advances	(99		)	921			822
Long-term borrowings	630			260			890
Total interest expense	3,230			2,263			5,493
Change in net interest income	$	20,354		$	3,101		$	23,455

⁽¹⁾  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.

⁽²⁾  Includes Federal Home Loan Bank stocks.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016:

Net interest income for the nine months ended September 30, 2017 increased by $67.8 million, or 36.5%, to $253.3 million from $185.5 million. The increase was due to the acquisition of CommunityOne and higher organic loan growth . The net interest margin increased twelve basis points to 3.73% from 3.61% and the net interest spread increased to 3.57% from 3.47%. Loan yields increased to 4.64% from 4.47% due to higher average yield on loan originations. During the nine months ended September 30, 2017, we originated loans of $1,472.0 million with an average yield of 4.33%, compared to $1,241.2 million with an average yield of 3.73% during the nine months ended September 30, 2016. The cost of core deposits increased four basis points to 0.22%. The cost of total deposits decreased two basis points to 0.43%. Total funding cost increased six basis points to 0.57%.

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	Nine Months Ended  September 30, 2017							Nine Months Ended  September 30, 2016
	Average Balances		Interest			Yield/Rate		Average Balances		Interest			Yield/Rate
Interest earning assets
Loans (1)	$	7,494,448	$	260,222		4.64	%	$	5,684,143	$	190,063		4.47	%
Investment securities (1)	1,562,781		30,022			2.57	%	1,129,129		20,020			2.37	%
Interest bearing deposits in other banks	56,319		388			0.92	%	66,100		227			0.46	%
Other earning assets (2)	29,789		1,113			4.99	%	27,216		981			4.81	%
Total interest earning assets(1)	9,143,337		291,745			4.27	%	6,906,588		$	211,291		4.09	%
Non-interest earning assets	883,562							602,904
Total assets	$	10,026,899						$	7,509,492
Interest bearing liabilities
Time deposits	$	2,189,869	$	15,224		0.93	%	$	1,640,959	$	12,130		0.99	%
Money market	1,807,885		6,171			0.46	%	1,219,227		3,227			0.35	%
Interest bearing demand	1,892,081		3,689			0.26	%	1,422,389		2,149			0.20	%
Savings	486,668		659			0.18	%	411,729		640			0.21	%
Total interest bearing deposits	6,376,503		25,743			0.54	%	4,694,304		18,146			0.52	%
Short-term borrowings and FHLB advances	514,303		3,777			0.98	%	501,892		1,680			0.45	%
Long-term borrowings	117,587		7,140			8.12	%	86,860		4,644			7.14	%
Total interest bearing liabilities	7,008,393		36,660			0.70	%	5,283,056		24,470			0.62	%
Non-interest bearing demand	1,629,334							1,171,599
Other liabilities	66,787							44,594
Shareholders’ equity	1,322,385							1,010,244
Total liabilities and shareholders’ equity	$	10,026,899						$	7,509,493
Net interest income and spread(1)			$	255,085		3.57	%			$	186,821		3.47	%
Net interest margin(1)						3.73	%						3.61	%
Net interest income (FTE)(1)			$	255,085						$	186,821
Tax equivalent adjustment			(1,811		)					(1,312		)
Net interest income			$	253,274						$	185,509

(1)Presented on a fully tax equivalent basis.

(2)Includes Federal Home Loan Bank stocks.

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(Dollars in thousands)	Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016 Due to changes in:
	Average Volume			Average Yield / Rate			Net Increase (Decrease)
Interest income
Loans (1)	$	62,607		$	7,552		$	70,159
Investment securities (1)	8,216			1,786			10,002
Interest bearing deposits in other banks	(38		)	199			161
Other earning assets (2)	95			36			131
Total interest income	70,880			9,573			80,453
Interest expense
Time deposits	3,852			(759		)	3,093
Money market	1,840			1,104			2,944
Interest bearing demand	819			721			1,540
Savings	108			(89		)	19
Short-term borrowings and FHLB advances	43			2,054			2,097
Long-term borrowings	1,804			692			2,496
Total interest expense	8,466			3,723			12,189
Change in net interest income	$	62,414		$	5,850		$	68,264

⁽¹⁾  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.

⁽²⁾  Includes Federal Home Loan Bank stocks.

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 nine months ended September 30, 2017 and 2016:

(Dollars in thousands)	Three Months Ended					Nine Months Ended
	September 30, 2017		September 30, 2016			September 30, 2017		September 30, 2016
Provision (reversal) for loan and lease losses on PCI Loans	$	167	$	(48	)	$	1,171	$	(835	)
Provision for loan and lease losses on non-PCI Loans	2,875		634			7,566		3,968
Provision for Loan and Lease Losses	$	3,042	$	586		$	8,737	$	3,133

Three months ended September 30, 2017 compared to three months endedSeptember 30, 2016:

The provision for loan and lease losses for the three months ended September 30, 2017 was $3.0 million compared to $0.6 million for the three months ended September 30, 2016. The change is primarily due to an increase in the provision on non-PCI loans to $2.9 million for the three months ended September 30, 2017, as compared to $0.6 million for the three months ended September 30, 2016. The increase in the provision on non-PCI loans is due to a combination of stronger new loan production and higher charge-offs for the three months ended September 30, 2017, as compared to 2016. In addition, the provision expense was lower for the three months ended September 30, 2016 due to a decline in reserve levels during the quarter driven by lower historical peer bank losses.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016:

The provision for loan and lease losses for the nine months ended September 30, 2017 was $8.7 million compared to a provision of $3.1 million for the nine months ended September 30, 2016. The provision on non-PCI loans increased to $7.6 million for the nine months ended September 30, 2017, from $4.0 million for the nine months ended September 30, 2016. The increase in provision on non-PCI loans is due to a combination of stronger new loan production and higher charge-offs for the nine months ended September 30, 2017, as compared to 2016. The provision on PCI loans increased to $1.2 million for the nine months ended September 30, 2017, as compared to a reversal of $0.8 million for the nine months ended September 30, 2016. The increase in provision on PCI loans for the nine months ended September 30, 2017 as compared to 2016, is due primarily to impairment in a new pool of loans established upon the acquisition of CommunityOne.

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The table below illustrates the impact of our third quarter of 2017 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		Weighted Average Note Rate	Weighted Average Life (Years)
PCI loans	$	24,186	5.73%	8.07%	$	755,194	4.93%	2.48

Non-interest Income

Three months ended September 30, 2017 compared to three months ended September 30, 2016:

Non-interest income increased $2.4 million, to $14.8 million for the three months ended September 30, 2017 from $12.4 million for the three months ended September 30, 2016. The increase was mainly due to the acquisition of CommunityOne and includes a $1.4 million increase in debit card income, a $0.5 million increase in service charges, and a $0.4 million increase in other income (includes credit card and merchant service income).

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016:

Non-interest income increased $19.8 million, or 73.6%, to $46.6 million for the nine months ended September 30, 2017 from $26.9 million for the nine months ended September 30, 2016. The increase was mainly driven by the absence of $9.2 million related to the termination of the loss share agreements, and higher debit card income of $4.9 million and service charge income of $1.8 million related to the acquisition of CommunityOne.

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

(Dollars in thousands)	Three Months Ended				Nine Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Service charges on deposit accounts	$	5,311	$	4,777	$	15,923	$	14,074
Debit card income	4,822		3,389		14,638		9,710
Fees on mortgage loans originated and sold	931		1,334		3,329		3,445
Investment advisory and trust fees	537		290		1,774		1,242
Termination of loss share agreements	—		—		—		(9,178		)
Investment securities gains, net	98		71		235		228
OREO revenues	85		72		461		264
Earnings on bank owned life insurance policies	615		342		2,034		1,125
Participated loan fees	687		626		2,180		1,898
Wire transfer fees	230		204		713		620
Fee income interest rate swaps	—		243		247		525
Other income	1,457		1,022		5,091		2,905
Total non-interest income	$	14,773	$	12,370	$	46,625	$	26,858

Non-interest Expense

Three months ended September 30, 2017 compared to three months ended September 30, 2016:

Non-interest expense increased $9.5 million, or 19.9%, to $57.0 million for the three months ended September 30, 2017 from $47.5 million for the three months ended September 30, 2016. The increase was mainly due to $5.8 million in additional employee compensation, $0.7 million in restructuring charges and $1.6 million in occupancy and equipment expense, which were mostly related to the acquisition of CommunityOne.

Our efficiency ratios for the three months ended September 30, 2017 and 2016 were 56.59% and 63.38%, respectively. Our core efficiency ratios for the three months ended September 30, 2017 and 2016 were 55.44% and 61.06%, respectively.

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Nine months ended September 30, 2017 compared to nine months ended September 30, 2016:

Non-interest expense increased $41.7 million, or 30.0%, to $180.7 million for the nine months ended September 30, 2017 from $139.0 million for the nine months ended September 30, 2016. The increase was mainly driven by an increase of $20.3 million in salaries and employee benefits, $5.5 million in restructuring charges and $4.3 million in occupancy and equipment expenses, which were mostly related to the acquisition of CommunityOne.

Our efficiency ratios for the nine months ended September 30, 2017 and 2016 were 60.24% and 65.45%, respectively. Our core efficiency ratios for the nine months ended September 30, 2017 and 2016 were 56.90% and 60.58%, respectively.

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

(Dollars in thousands)	Three Months Ended					Nine Months Ended
	September 30, 2017		September 30, 2016			September 30, 2017			September 30, 2016
Salaries and employee benefits	$	26,708	$	20,935		$	83,536		$	63,236
Stock-based compensation expense	1,441		790			3,305			1,574
Net occupancy and equipment expense	8,894		7,340			26,712			22,398
Computer services	3,794		3,153			11,947			10,002
Software expense	2,524		1,948			7,759			5,984
Telecommunication expense	1,968		1,790			6,331			4,880
OREO valuation expense	249		742			758			2,328
Net losses (gains) on sales of OREO	1		(159		)	(511		)	(1,251		)
Foreclosed asset related expense	487		397			1,227			1,081
Loan workout expense	281		206			763			521
Conversion and merger related expense, net	591		394			4,609			3,317
Professional fees	2,071		1,642			5,967			4,607
Restructuring charges, net	595		(113		)	5,485			34
Legal settlement expense	—		1,500			45			1,500
Regulatory assessments	1,020		841			2,884			3,375
Amortization of intangibles	1,662		923			4,992			2,774
Other expense	4,698		5,201			14,863			12,644
Total non-interest expense	$	56,984	$	47,530		$	180,672		$	139,004

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 nine months ended September 30, 2017 and 2016 is as follows:

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(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Net interest income	$	85,916		$	62,627		$	253,274		$	185,509
Reported non-interest income	$	14,773		$	12,370		$	46,625		$	26,858
Less: Termination of loss share agreements	—			—			—			(9,178		)
Securities gains	98			71			235			228
Core non-interest income	$	14,675		$	12,299		$	46,390		$	35,808
Reported non-interest expense	$	56,984		$	47,530		$	180,672		$	139,004
Less: Restructuring charges, net	595			(113		)	5,485			34
Conversion costs and merger tax deductible, net	589			331			3,389			2,319
Conversion costs and merger non-tax deductible	2			61			1,220			996
Severance expense	33			—			33			75
Legal settlement	—			1,500			45			1,500
Core non-interest expense	$	55,765		$	45,751		$	170,500		$	134,080
Efficiency ratio(1)	56.59		%	63.38		%	60.24		%	65.45		%
Core efficiency ratio(2)	55.44		%	61.06		%	56.90		%	60.58		%

⁽¹⁾  Efficiency Ratio: Non-interest expense / (Non-interest income + Net interest income)

⁽²⁾  Core Efficiency Ratio: Core non-interest expense / (Core non-interest income + Net interest income)

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 $14.9 million and $40.0 million for the three and nine months ended September 30, 2017, respectively. The effective income tax rate was 37% and 36% for these periods, respectively.

At September 30, 2017 and December 31, 2016, the Company had no material amounts recorded for uncertain tax positions and no material 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 $10.1 billion at September 30, 2017 and $9.9 billion at December 31, 2016. Total loans increased $206.4 million to $7.6 billion at September 30, 2017 compared to $7.4 billion at December 31, 2016. The increase in loans was due to loan originations of $1,472.0 million, partially offset by $96.3 million in resolutions of problem loans and $1,169.3 million in net principal repayments. Investment and trading securities increased by $192.2 million mainly due to $359.2 million of investment purchases and $9.7 million change in market valuation on available for sale investment securities, partially offset by $176.9 million of principal reductions and amortization. Total deposits increased by $241.0 million or 3.1% to $8.1 billion at September 30, 2017 compared to $7.9 billion at December 31, 2016. Core deposits, which include all checking, savings and money market accounts, excluding brokered, increased by $16.2 million. Non-interest bearing checking accounts increased $41.4 million, interest bearing demand deposits decreased by $84.0 million, money market balances increased $84.1 million and savings deposits decreased by $25.2 million. Core deposits represent 70.0% and 72.0% of total deposits at September 30, 2017 and December 31, 2016, respectively. Brokered deposits and time deposits increased by $224.8 million. Borrowed funds, consisting of FHLB advances, short-term borrowings, notes payable and subordinated debentures, totaled $594.3 million and $681.3 million at

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September 30, 2017 and December 31, 2016, respectively. FHLB advances decreased by $105.2 million to $440.5 million at September 30, 2017 compared to $545.7 million at December 31, 2016.

Shareholders’ equity was $1.4 billion at September 30, 2017 and $1.3 billion at December 31, 2016. The Company’s Board of Directors has authorized a stock repurchase plan of up to $400.0 million. Stock repurchases may be made from time to time, on the open market or in privately negotiated transactions. The approved stock repurchase program does not obligate the Company to repurchase any particular amount of shares, and the programs may be extended, modified, suspended, or discontinued at any time.

As of September 30, 2017, the Company has repurchased a total of $312.4 million, or 12,739,763 common shares at an average price of $24.52 per share, and had $87.6 million remaining under the current board authorized stock repurchase program.

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 results determined in accordance to GAAP. A reconciliation to the most directly comparable GAAP financial measure is shown in the table below:

(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Net Income	$	25,758		$	18,511		$	70,447		45,812
Adjustments
Non-interest income
Termination of loss share agreements	—			—			—			9,178
Less: Securities gains, net(1)	(98		)	(71		)	235			(228		)
Non-interest expense
Legal settlement(1)	—			1,500			45			1,500
Tax adjustment				(1,067		)				(1,067		)
Severance expense(1)	33			—			33			75
Conversion costs and merger tax deductible(1)	589			331			3,389			2,319
Conversion costs and merger non-tax deductible	2			61			1,220			996
Restructuring charges, net(1)	595			(113		)	5,485			34
Tax effect of adjustments(1)	(428		)	(629		)	(3,801		)	(4,922		)
Core Net Income	$	26,451		$	18,523		$	77,053		$	53,697
Diluted shares	53,226			44,118			53,204			44,068
Core Net Income per share	$	0.50		$	0.42		$	1.45		$	1.22
Average Assets	$	10,100,356		$	7,592,776		$	10,026,899		$	7,509,492
ROA(2)	1.02		%	0.98		%	0.94		%	0.81		%
Core ROA(3)	1.05		%	0.98		%	1.02		%	0.95		%

⁽¹⁾  Tax effected at a blended income tax rate of 38%.

⁽²⁾  ROA: Annualized net income / Average assets.

⁽³⁾  Core ROA: Annualized core net income / Average assets.

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Loans

Our loan portfolio is our largest earning asset. Our strategy is to increase 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.

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

(Dollars in thousands)	September 30, 2017				December 31, 2016				Year to Date Change
	Amount		Percent		Amount		Percent		Amount			Percent
Non-owner occupied commercial real estate	$	1,293,647	17.0	%	$	1,130,883	15.3	%	$	162,764		14.4	%
Other commercial construction and land	402,250		5.3	%	327,622		4.4	%	74,628			22.8	%
Multifamily commercial real estate	148,192		1.9	%	117,515		1.6	%	30,677			26.1	%
1-4 family residential construction and land	143,807		1.9	%	140,030		1.9	%	3,777			2.7	%
Total commercial real estate	1,987,896		26.1	%	1,716,050		23.2	%	271,846			15.8	%
Owner occupied commercial real estate	1,226,211		16.1	%	1,321,405		17.8	%	(95,194		)	(7.2	)%
Commercial and industrial	1,502,939		19.7	%	1,468,874		19.8	%	34,065			2.3	%
Total commercial	2,729,150		35.8	%	2,790,279		37.6	%	(61,129		)	(2.2	)%
1-4 family residential	1,787,690		23.5	%	1,714,702		23.1	%	72,988			4.3	%
Home equity loans	481,696		6.3	%	507,759		6.9	%	(26,063		)	(5.1	)%
Other consumer loans	384,728		5.1	%	448,972		6.1	%	(64,244		)	(14.3	)%
Total consumer	2,654,114		34.9	%	2,671,433		36.1	%	(17,319		)	(0.6	)%
Other	241,440		3.2	%	228,430		3.1	%	13,010			5.7	%
Total loans	$	7,612,600	100.0	%	$	7,406,192	100.0	%	$	206,408		2.8	%

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

(Dollars in thousands)	September 30, 2017
	Non-PCI Loans
	Originated		Acquired		PCI Loans		Total
Non-owner occupied commercial real estate	$	891,125	$	199,244	$	203,278	$	1,293,647
Other commercial construction and land	280,126		77,414		44,710		402,250
Multifamily commercial real estate	118,128		14,138		15,926		148,192
1-4 family residential construction and land	132,701		10,812		294		143,807
Total commercial real estate	1,422,080		301,608		264,208		1,987,896
Owner occupied commercial real estate	908,549		168,521		149,141		1,226,211
Commercial and industrial	1,367,979		75,988		58,972		1,502,939
Total commercial	2,276,528		244,509		208,113		2,729,150
1-4 family residential	1,129,241		478,755		179,694		1,787,690
Home equity loans	186,606		239,910		55,180		481,696
Other consumer loans	295,719		67,492		21,517		384,728
Total consumer	1,611,566		786,157		256,391		2,654,114
Other	207,672		7,286		26,482		241,440
Total loans	$	5,517,846	$	1,339,560	$	755,194	$	7,612,600

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(Dollars in thousands)	December 31, 2016
	Non PCI Loans
	Originated		Acquired		PCI Loans		Total
Non-owner occupied commercial real estate	$	680,044	$	221,304	$	229,535	$	1,130,883
Other commercial construction and land	182,486		73,248		71,888		327,622
Multifamily commercial real estate	77,694		19,108		20,713		117,515
1-4 family residential construction and land	105,816		33,831		383		140,030
Total commercial real estate	1,046,040		347,491		322,519		1,716,050
Owner occupied commercial real estate	901,957		239,982		179,466		1,321,405
Commercial and industrial	1,283,012		96,494		89,368		1,468,874
Total commercial	2,184,969		336,476		268,834		2,790,279
1-4 family residential	994,323		505,420		214,959		1,714,702
Home equity loans	172,883		268,093		66,783		507,759
Other consumer loans	330,423		88,134		30,415		448,972
Total consumer	1,497,629		861,647		312,157		2,671,433
Other	185,839		9,776		32,815		228,430
Total loans	$	4,914,477	$	1,555,390	$	936,325	$	7,406,192

During the nine months ended September 30, 2017, our loan portfolio increased by $206.4 million, as $1,472.0 million of loan fundings were partially offset by $96.3 million in resolutions of problem loans and $1,169.3 million in net principal repayments. Non-PCI loans represent 90.1% of our total loan portfolio as compared to 87.4% at December 31, 2016.

The composition of loan originations 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 33.0% and 27.6%, respectively, of loan originations for the nine months ended September 30, 2017. We expect that this production will be more balanced going forward, as we expect commercial real estate to comprise a larger proportion of the loan production.

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

(Dollars in thousands)	Nine Months Ended
	September 30, 2017				September 30, 2016
	Amount		Percent		Amount		Percent
Non-owner occupied commercial real estate	$	255,815	17.4	%	$	148,055	11.8	%
Other commercial construction and land	219,933		14.9	%	127,228		10.3	%
Multifamily commercial real estate	34,193		2.3	%	8,585		0.7	%
1-4 family residential construction and land	70,659		4.8	%	61,674		5.0	%
Total commercial real estate	580,600		39.4	%	345,542		27.8	%
Owner occupied commercial real estate	97,537		6.6	%	85,349		6.9	%
Commercial and industrial	388,157		26.4	%	413,446		33.3	%
Total commercial	485,694		33.0	%	498,795		40.2	%
1-4 family residential	264,486		18.0	%	278,699		22.5	%
Home equity loans	41,888		2.9	%	38,735		3.1	%
Other consumer loans	73,789		5.0	%	38,465		3.1	%
Total consumer	380,163		25.9	%	355,899		28.7	%
Other	25,559		1.7	%	40,956		3.3	%
Total loans	$	1,472,016	100.0	%	$	1,241,192	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 in our portfolio over time, which had characterized our acquired loan portfolios.

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Florida, North Carolina, South Carolina, Georgia and Tennessee accounted for 27.6%, 38.4%, 10.4%, 0.3% and 23.3% of our originated loan portfolio, respectively, for the nine months ended September 30, 2017. Florida, North Carolina, South Carolina, and Tennessee accounted for 34.5%, 27.6%, 9.6% and 28.3% of our originated loan portfolio, respectively, for the nine months ended September 30, 2016.

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 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.    

As of September 30, 2017, total loans were $7.6 billion, of which 0.3% were past due 30-89 days, 0.6% were nonperforming PCI (of which 0.1% were >90 days past due and still accreting) and 0.2% were nonaccrual. As of December 31, 2016, total loans were $7.4 billion, of which 0.3% were past due 30-89 days, 0.9% were nonperforming PCI (of which 0.2% were >90 days past due and still accreting) and 0.2% were nonaccrual.

At September 30, 2017, 9.9% of loans were acquired impaired loans. We applied acquisition accounting adjustments to the acquired loans to reflect estimates at the time of acquisition of the expected lifetime losses of such loans.

Loan Credit Quality Summary

The table below summarizes key loan credit quality indicators as of the dates indicated:

(Dollars in thousands)	September 30, 2017								December 31, 2016
	Balance		% 30-89 Days Past Due		% Nonperforming PCI Loans		% Non- accrual		Balance		% 30-89 Days Past Due		% Nonperforming PCI Loans		% Non- accrual
Non-owner occupied commercial real estate	$	1,293,647	—	%	0.2	%	0.2	%	$	1,130,883	—	%	0.4	%	0.2	%
Other commercial construction and land	402,250		0.1	%	0.9	%	—	%	327,622		0.2	%	3.4	%	0.1	%
Multifamily commercial real estate	148,192		—	%	0.1	%	—	%	117,515		—	%	0.6	%	—	%
1-4 family residential construction and land	143,807		—	%	—	%	—	%	140,030		0.1	%	—	%	—	%
Total commercial real estate	1,987,896		—	%	0.3	%	0.1	%	1,716,050		—	%	1.0	%	0.2	%
Owner occupied commercial real estate	1,226,211		0.2	%	0.6	%	0.4	%	1,321,405		0.2	%	0.7	%	0.2	%
Commercial and industrial loans	1,502,939		—	%	1.1	%	0.2	%	1,468,874		—	%	1.1	%	—	%
Total commercial	2,729,150		0.1	%	0.9	%	0.3	%	2,790,279		0.1	%	0.9	%	0.1	%
1-4 family residential	1,787,690		0.1	%	0.6	%	0.1	%	1,714,702		0.2	%	0.8	%	0.1	%
Home equity loans	481,696		0.7	%	0.6	%	0.6	%	507,759		0.4	%	0.7	%	0.3	%
Other consumer loans	384,728		2.9	%	0.5	%	0.9	%	448,972		2.3	%	0.4	%	0.5	%
Total consumer	2,654,114		0.6	%	0.6	%	0.3	%	2,671,433		0.6	%	0.7	%	0.2	%
Other	241,440		0.1	%	0.1	%	—	%	228,430		—	%	0.5	%	—	%
Total loans	$	7,612,600	0.3	%	0.6	%	0.2	%	$	7,406,192	0.3	%	0.9	%	0.2	%

Total non-performing loans as of September 30, 2017 declined by $11.3 million, or 15.1%, to $63.8 million as compared to $75.1 million at December 31, 2016. The change in non-performing loans during the nine months ended September 30, 2017 was attributable to $20.7 million in resolutions and $6.3 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.

During the nine months ended September 30, 2017, of the loans we foreclosed, or received deeds in lieu of foreclosure, approximately $3.5 million consisted of residential loans and $2.1 million consisted of commercial real estate loans.

61

The customer-owed principal balances and carrying amounts as of September 30, 2017 and December 31, 2016 are set forth in the tables below:

(Dollars in thousands)	September 30, 2017
	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
Non-owner occupied commercial real estate	$	1,415,430	$	1,293,647	91.4	%	$	4,591	0.4	%
Other commercial construction and land	787,084		402,250		51.1	%	3,807		0.9	%
Multifamily commercial real estate	164,008		148,192		90.4	%	139		0.1	%
1-4 family residential construction and land	203,986		143,807		70.5	%	—		—	%
Total commercial real estate	2,570,508		1,987,896		77.3	%	8,537		0.4	%
Owner occupied commercial real estate	1,328,670		1,226,211		92.3	%	11,765		1.0	%
Commercial and industrial loans	1,636,564		1,502,939		91.8	%	18,922		1.3	%
Total commercial	2,965,234		2,729,150		92.0	%	30,687		1.1	%
1-4 family residential	1,907,033		1,787,690		93.7	%	12,952		0.7	%
Home equity loans	549,330		481,696		87.7	%	5,968		1.2	%
Other consumer loans	417,577		384,728		92.1	%	5,483		1.4	%
Total consumer	2,873,940		2,654,114		92.4	%	24,403		0.9	%
Other	260,185		241,440		92.8	%	174		0.1	%
Total Loans	$	8,669,867	$	7,612,600	87.8	%	$	63,801	0.8	%

⁽¹⁾  The carrying amount represents a discount from the total gross customer balance of $1,057.3 million or 12.2%.

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

(Dollars in thousands)	December 31, 2016
	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
Non-owner occupied commercial real estate	$	1,257,156	$	1,130,883	90.0	%	$	7,170	0.6	%
Other commercial construction and land	735,457		327,622		44.5	%	11,482		3.5	%
Multifamily commercial real estate	133,578		117,515		88.0	%	721		0.6	%
1-4 family residential construction and land	199,232		140,030		70.3	%	—		—	%
Total commercial real estate	2,325,423		1,716,050		73.8	%	19,373		1.1	%
Owner occupied commercial real estate	1,437,417		1,321,405		91.9	%	12,740		1.0	%
Commercial and industrial loans	1,658,413		1,468,874		88.6	%	17,099		1.2	%
Total commercial	3,095,830		2,790,279		90.1	%	29,839		1.1	%
1-4 family residential	1,831,407		1,714,702		93.6	%	15,367		0.9	%
Home equity loans	583,204		507,759		87.1	%	5,243		1.0	%
Other consumer loans	508,326		448,972		88.3	%	4,120		0.9	%
Total consumer	2,922,937		2,671,433		91.4	%	24,730		0.9	%
Other	247,782		228,430		92.2	%	1,174		0.5	%
Total Loans	$	8,591,972	$	7,406,192	86.2	%	$	75,116	1.0	%

⁽¹⁾  The carrying amount represents a discount from the total gross customer balance of $1,185.8 million, or 13.8%.

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

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Allowance and Provision for Loan and Lease Losses

At September 30, 2017, the allowance for loan and lease losses was $45.4 million, of which $24.2 million was associated with PCI loans and $21.2 million related to non-PCI loans. At September 30, 2017, the allowance for loan and lease losses represents 0.60% of our total $7.6 billion loan portfolio. At December 31, 2016, the allowance for loan and lease losses was $43.1 million, of which $23.0 million was associated with PCI loans and $20.1 million related to non-PCI loans. At December 31, 2016, the allowance for loan and lease losses represented 0.58% of our total $7.4 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 Doubtful. 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 non-PCI 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.

The 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 non-PCI 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 nine months ended September 30, 2017 and 2016 by the class of loans against which the allowance is allocated:

63

	Three Months Ended
(Dollars in thousands)	September 30, 2017									September 30, 2016
	Non-PCI			PCI			Total			Non-PCI			PCI			Total
Allowance for loan and lease losses at the beginning of the period	$	20,619		$	24,019		$	44,638		$	21,182		$	23,701		$	44,883
Charge-offs:
Non-owner occupied commercial real estate	(22		)	—			(22		)	—			—			—
Other commercial construction and land	1			—			1			—			—			—
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	—			—			—			—			—			—
Total commercial real estate	(21		)	—			(21		)	—			—			—
Owner occupied commercial real estate	1			—			1			—			—			—
Commercial and industrial loans	(133		)	—			(133		)	(6		)	—			(6		)
Total commercial	(132		)	—			(132		)	(6		)	—			(6		)
1-4 family residential	(1		)	—			(1		)	(47		)	—			(47		)
Home equity loans	(209		)	—			(209		)	(50		)	—			(50		)
Other consumer loans	(2,145		)	—			(2,145		)	(1,293		)	—			(1,293		)
Total consumer	(2,355		)	—			(2,355		)	(1,390		)	—			(1,390		)
Other	(426		)	—			(426		)	(558		)	—			(558		)
Total charge-offs	(2,934		)	—			(2,934		)	(1,954		)	—			(1,954		)
Recoveries:
Non-owner occupied commercial real estate	2			—			2			2			—			2
Other commercial construction and land	—			—			—			37			—			37
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	1			—			1			2			—			2
Total commercial real estate	3			—			3			41			—			41
Owner occupied commercial real estate	12			—			12			—			—			—
Commercial and industrial loans	268			—			268			22			—			22
Total commercial	280			—			280			22			—			22
1-4 family residential	15			—			15			26			—			26
Home equity loans	126			—			126			66			—			66
Other consumer loans	122			—			122			164			—			164
Total consumer	263			—			263			256			—			256
Other	136			—			136			150			—			150
Total recoveries	682			—			682			469			—			469
Net charge-offs	(2,252		)	—			(2,252		)	(1,485		)	—			(1,485		)
Provision (reversal) for loan and lease losses:
Non-owner occupied commercial real estate	(88		)	351			263			(96		)	69			(27		)
Other commercial construction and land	(142		)	(1,527		)	(1,669		)	(102		)	447			345
Multifamily commercial real estate	(21		)	30			9			(9		)	12			3
1-4 family residential construction and land	(139		)	—			(139		)	(31		)	(111		)	(142		)
Total commercial real estate	(390		)	(1,146		)	(1,536		)	(238		)	417			179
Owner occupied commercial real estate	(119		)	(226		)	(345		)	(183		)	4			(179		)
Commercial and industrial loans	155			163			318			(695		)	122			(573		)
Total commercial	36			(63		)	(27		)	(878		)	126			(752		)
1-4 family residential	(272		)	235			(37		)	(148		)	(431		)	(579		)
Home equity loans	20			(107		)	(87		)	15			(136		)	(121		)
Other consumer loans	3,178			1,239			4,417			1,461			(29		)	1,432
Total consumer	2,926			1,367			4,293			1,328			(596		)	732
Other	303			9			312			422			5			427
Total provision (reversal) for loan and lease losses	2,875			167			3,042			634			(48		)	586
Allowance for loan and lease losses at the end of the period	$	21,242		$	24,186		$	45,428		$	20,331		$	23,653		$	43,984

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	Nine Months Ended
(Dollars in thousands)	September 30, 2017									September 30, 2016
	Non-PCI			PCI			Total			Non-PCI			PCI			Total
Allowance for loan and lease losses at the beginning of the period	$	20,050		$	23,015		$	43,065		$	20,546		$	24,488		$	45,034
Charge-offs:
Non-owner occupied commercial real estate	(22		)	—			(22		)	(2		)	—			(2		)
Other commercial construction and land	(6		)	—			(6		)	—			—			—
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	—			—			—			—			—			—
Total commercial real estate	(28		)	—			(28		)	(2		)	—			(2		)
Owner occupied commercial real estate	(5		)	—			(5		)	(80		)	—			(80		)
Commercial and industrial loans	(385		)	—			(385		)	(510		)	—			(510		)
Total commercial	(390		)	—			(390		)	(590		)	—			(590		)
1-4 family residential	(3		)	—			(3		)	(47		)	—			(47		)
Home equity loans	(365		)	—			(365		)	(224		)	—			(224		)
Other consumer loans	(6,340		)	—			(6,340		)	(3,633		)	—			(3,633		)
Total consumer	(6,708		)	—			(6,708		)	(3,904		)	—			(3,904		)
Other	(1,493		)	—			(1,493		)	(1,598		)	—			(1,598		)
Total charge-offs	(8,619		)	—			(8,619		)	(6,094		)	—			(6,094		)
Recoveries:
Non-owner occupied commercial real estate	6			—			6			13			—			13
Other commercial construction and land	116			—			116			46			—			46
Multifamily commercial real estate	—			—			—			—			—			—
1-4 family residential construction and land	5			—			5			5			—			5
Total commercial real estate	127			—			127			64			—			64
Owner occupied commercial real estate	55			—			55			—			—			—
Commercial and industrial loans	338			—			338			81			—			81
Total commercial	393			—			393			81			—			81
1-4 family residential	65			—			65			206			—			206
Home equity loans	285			—			285			341			—			341
Other consumer loans	821			—			821			589			—			589
Total consumer	1,171			—			1,171			1,136			—			1,136
Other	554			—			554			630			—			630
Total recoveries	2,245			—			2,245			1,911			—			1,911
Net charge-offs	(6,374		)	—			(6,374		)	(4,183		)	—			(4,183		)
Provision (reversal) for loan and lease losses:
Non-owner occupied commercial real estate	(154		)	(324		)	(478		)	(323		)	728			405
Other commercial construction and land	(344		)	(2,611		)	(2,955		)	(19		)	193			174
Multifamily commercial real estate	18			13			31			(31		)	1			(30		)
1-4 family residential construction and land	(218		)	—			(218		)	55			(517		)	(462		)
Total commercial real estate	(698		)	(2,922		)	(3,620		)	(318		)	405			87
Owner occupied commercial real estate	(200		)	(255		)	(455		)	(145		)	100			(45		)
Commercial and industrial loans	(367		)	928			561			291			754			1,045
Total commercial	(567		)	673			106			146			854			1,000
1-4 family residential	(527		)	670			143			(433		)	(1,419		)	(1,852		)
Home equity loans	5			(112		)	(107		)	(69		)	(645		)	(714		)
Other consumer loans	8,415			2,830			11,245			3,628			(44		)	3,584
Total consumer	7,893			3,388			11,281			3,126			(2,108		)	1,018
Other	938			32			970			1,014			14			1,028
Total provision (reversal) for loan and lease losses	7,566			1,171			8,737			3,968			(835		)	3,133
Allowance for loan and lease losses at the end of the period	$	21,242		$	24,186		$	45,428		$	20,331		$	23,653		$	43,984

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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 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 September 30, 2017 and December 31, 2016:

(Dollars in thousands)	September 30, 2017						December 31, 2016
	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	$	1,090,369	$	789	0.1	%	$	901,348	$	959	0.1	%
Other commercial construction and land	357,540		1,464		0.4	%	255,734		1,698		0.7	%
Multifamily commercial real estate	132,266		67		0.1	%	96,802		49		0.1	%
1-4 family residential construction and land	143,513		453		0.3	%	139,647		666		0.5	%
Total commercial real estate	1,723,688		2,773		0.2	%	1,393,531		3,372		0.2	%
Owner occupied commercial real estate	1,077,070		992		0.1	%	1,141,939		1,142		0.1	%
Commercial and industrial	1,443,967		6,116		0.4	%	1,379,506		6,530		0.5	%
Total commercial	2,521,037		7,108		0.3	%	2,521,445		7,672		0.3	%
1-4 family residential	1,604,936		1,792		0.1	%	1,486,869		2,257		0.2	%
Home equity loans	426,516		561		0.1	%	440,976		636		0.1	%
Other consumer loans	363,211		8,706		2.4	%	418,557		5,810		1.4	%
Total consumer	2,394,663		11,059		0.5	%	2,346,402		8,703		0.4	%
Other	214,958		302		0.1	%	195,615		303		0.2	%
Total loans	$	6,854,346	$	21,242	0.3	%	$	6,456,993	$	20,050	0.3	%

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.

66

The following table summarizes criticized and classified loans at September 30, 2017 and December 31, 2016:

(Dollars in thousands)	September 30, 2017 (1)		December 31, 2016 (1)
Non-owner occupied commercial real estate	$	24,896	$	37,194
Other commercial construction and land	21,582		41,441
Multifamily commercial real estate	1,330		2,191
1-4 family residential construction and land	—		—
Total commercial real estate	47,808		80,826
Owner occupied commercial real estate	50,365		50,469
Commercial and industrial	32,441		54,473
Total commercial	82,806		104,942
1-4 family residential	24,281		31,069
Home equity loans	7,824		9,008
Other consumer loans	5,716		4,180
Total consumer	37,821		44,257
Other	1,368		2,152
Total loans	$	169,803	$	232,177

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

Total criticized and classified loans declined $62.4 million, or 35.8% annualized, during the nine months ended September 30, 2017 as a result of $13.4 million in transfers to other real estate owned and $93.4 million of pay downs, charge offs and upgrades. Loan downgrades of $44.5 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 September 30, 2017, there were 168 loans individually evaluated for impairment and 90 deemed impaired with a related allowance for loan and lease losses of $0.9 million. At December 31, 2016, there were 137 loans individually evaluated for impairment and 83 deemed impaired with a related allowance for loan and lease losses of $0.3 million.

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 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 past due with expected cash flows less than contractual terms, 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)	September 30, 2017			December 31, 2016
	Total			Total
Total non-accrual loans	$	18,126		$	11,449
Accruing/accreting loans delinquent 90 days or more	10,522			15,906
Accreting PCI loans <90 days with expected cash flows less than contractual	35,153			47,761
Total non-performing loans	63,801			75,116
Repossessed personal property	332			163
Other real estate owned	44,416			53,482
Total non-performing assets	$	108,549		$	128,761
Allowance for loan and lease losses	$	45,428		$	43,065
Non-performing assets as a percent of total assets	1.07		%	1.30		%
Non-performing loans as a percent of total loans	0.84		%	1.01		%
Allowance for loan and lease losses as a percent of non-performing loans	71.20		%	57.33		%
Non-PCI allowance for loan and lease losses as a percent of non-PCI loans	0.31		%	0.32		%

At September 30, 2017 and December 31, 2016, 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 5. Loans in our Consolidated Financial Statements for a description of the accounting for pooled PCI loans.

Total non-performing assets at September 30, 2017 declined by $20.2 million to $108.5 million compared to $128.8 million at December 31, 2016, which represents an annualized decline of 20.9%. The change in non-performing assets was attributable to the net decline in non-performing loans and other real estate owned of $11.3 million and $9.1 million, respectively. The net decline in non-performing loans was due to $20.7 million in resolutions and $6.3 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 $21.7 million.

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 and CRA investment fund totaled $4.5 million and $3.8 million at September 30, 2017 and December 31, 2016, respectively.

Our investment securities consisted primarily of U.S. agency mortgage-backed securities, which expose us to a low degree of credit and liquidity risk. The following tables set forth our investment securities as of September 30, 2017 and December 31, 2016:

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(Dollars in thousands)	September 30, 2017
Security Type	Amortized Cost		Estimated Fair Value		Percent of Total Portfolio		Yield	Modified Duration in Years
Available-for-Sale
Corporate bonds	$	60,161	$	64,008	5.5	%	3.46%	8.76
State and political subdivisions—tax exempt	11,859		11,492		1.0	%	1.88%	10.80
Mortgage-backed securities—residential issued by government sponsored entities	1,085,935		1,077,052		93.2	%	2.27%	4.59
Industrial revenue bonds	3,069		3,142		0.3	%	2.61%	3.52
Total	$	1,161,024	$	1,155,694	100.0	%	2.33%	4.90
Held-to-Maturity
U.S. Government agencies	$	9,738	$	9,899	2.4	%	2.80%	4.89
Corporate bonds	94,004		95,636		23.0	%	5.05%	2.85
State and political subdivisions—tax exempt	8,252		8,868		2.2	%	3.60%	3.93
State and political subdivisions—taxable	513		524		0.1	%	3.98%	1.50
Mortgage-backed securities—residential issued by government sponsored entities	299,544		300,311		72.3	%	2.37%	3.62
Total	$	412,051	$	415,238	100.0	%	3.02%	3.48

(Dollars in thousands)	December 31, 2016
Security Type	Amortized Cost		Estimated Fair Value		Percent of Total Portfolio		Yield	Modified Duration in Years
Available-for-Sale
Corporate bonds	$	28,354	$	28,953	3.2	%	3.20%	9.56
State and political subdivisions - tax exempt	11,871		11,077		1.2	%	1.88%	11.35
Mortgage-backed securities—residential issued by government sponsored entities	883,802		868,922		95.2	%	2.19%	4.95
Industrial revenue bonds	3,239		3,298		0.4	%	2.15%	4.12
Total	$	927,266	$	912,250	100.0	%	2.22%	5.20
Held-to-Maturity
U.S. Government agencies	$	11,234	$	11,311	2.5	%	2.81%	5.02
Corporate bonds	94,010		91,988		20.0	%	5.05%	3.80
State and political subdivisions—tax exempt	8,069		8,458		1.8	%	3.58%	4.66
State and political subdivisions—taxable	520		533		0.1	%	3.96%	2.20
Mortgage-backed securities—residential issued by government sponsored entities	350,126		348,621		75.6	%	2.33%	3.64
Total	$	463,959	$	460,911	100.0	%	2.92%	3.73

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Contractual maturities of investment securities at September 30, 2017 and December 31, 2016 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 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
September 30, 2017	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Available-for-Sale
Corporate bonds	$	—	—	%	$	—	—	%	$	48,258	3.48	%	$	15,750	3.40	%	$	—	—	%	$	64,008	3.46	%
State and political subdivisions—tax exempt	—		—	%	—		—	%	1,495		1.60	%	9,997		1.92	%	—		—	%	11,492		1.88	%
Mortgage-backed securities—residential issued by government sponsored entities	—		—	%	—		—	%	—		—	%	—		—	%	1,077,052		2.27	%	1,077,052		2.27	%
Industrial revenue bonds	—		—	%	—		—	%	—		—	%	3,142		2.61	%	—		—	%	3,142		2.61	%
Total	$	—	—	%	$	—	—	%	$	49,753	3.42	%	$	28,889	2.77	%	$	1,077,052	2.27	%	$	1,155,694	2.33	%
Held-to-Maturity
U.S. Government agencies	$	—	—	%	$	—	—	%	$	—	—	%	$	9,738	2.80	%	$	—	—	%	$	9,738	2.80	%
Corporate bonds	—		—	%	55,029		5.03	%	38,975		5.08	%	—		—	%	—		—	%	94,004		5.05	%
State and political subdivisions—tax exempt	696		1.72	%	4,774		3.34	%	2,782		4.50	%	—		—	%	—		—	%	8,252		3.60	%
State and political subdivisions—taxable	—		—	%	—		—	%	513		3.98	%	—		—	%	—		—	%	513		3.98	%
Mortgage-backed securities—residential issued by government sponsored entities	—		—	%	—		—	%	—		—	%	—		—	%	299,544		2.37	%	299,544		2.37	%
Total	$	696	1.72	%	$	59,803	4.90	%	$	42,270	5.02	%	$	9,738	2.80	%	$	299,544	2.37	%	$	412,051	3.02	%

(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, 2016	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Available-for-Sale
Corporate bonds	$	—	—	%	$	—	—	%	$	—	—	%	$	28,953	3.20	%	$	—	—	%	$	28,953	3.20	%
State and political subdivisions - tax exempt	—		—	%	—		—	%	946		1.60	%	10,131		1.91	%	—		—	%	11,077		1.88	%
Mortgage-backed securities—residential issued by government sponsored entities	—		—	%	—		—	%	—		—	%	—		—	%	868,922		2.19	%	868,922		2.19	%
Industrial revenue bonds	—		—	%	—		—	%	—		—	%	3,298		2.15	%	—		—	%	3,298		2.15	%
Total	$	—	—	%	$	—	—	%	$	946	1.60	%	$	42,382	2.79	%	$	868,922	2.19	%	$	912,250	2.22	%
Held-to-Maturity
U.S. Government agencies	$	—	—	%	$	—	—	%	$	—	—	%	$	11,234	2.81	%	$	—	—	%	$	11,234	2.81	%
Corporate bonds	—		—	%	30,042		5.06	%	43,968		4.95	%	20,000		5.25	%	—		—	%	94,010		5.05	%
State and political subdivisions—tax exempt	—		—	%	4,878		3.18	%	3,191		4.20	%	—		—	%	—		—	%	8,069		3.58	%
State and political subdivisions—taxable	—		—	%	—		—	%	—		—	%	520		3.96	%	—		—	%	520		3.96	%
Mortgage-backed securities—residential issued by government sponsored entities	—		—	%	—		—	%	—		—	%	—		—	%	350,126		2.33	%	350,126		2.33	%
Total	$	—	—	%	$	34,920	4.80	%	$	47,159	4.90	%	$	31,754	4.37	%	$	350,126	2.33	%	$	463,959	2.92	%

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

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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 September 30, 2017 or December 31, 2016.

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 September 30, 2017, our core deposits, which we define as demand deposits, savings and money market accounts, excluding brokered, increased by $16.2 million as compared to December 31, 2016. The increase was mainly the result of the Company's continued focus on growing low-cost core deposits. The average contractual rate on core deposits increased to 0.25% at September 30, 2017, from 0.20% at December 31, 2016.

Time deposit balances increased by $149.5 million during the nine months ended September 30, 2017. At September 30, 2017, our wholesale time deposits increased by $11.3 million, while retail time deposits increased by $138.2 million as compared to December 31, 2016. The average contractual rate on time deposits increased to 1.13% from 0.93% at December 31, 2016. The weighted average contractual rate of deposits increased to 0.51% from 0.41% for the periods ended September 30, 2017 and December 31, 2016, respectively.

The following table sets forth the balances and average contractual rates payable to customers on our deposits, segmented by account type as of September 30, 2017 and December 31, 2016:

(Dollars in thousands)	September 30, 2017						December 31, 2016						Year to Date Change
	Amount		Percent of Total		Weighted Average Contractual Rate		Amount		Percent of Total		Weighted Average Contractual Rate		Amount			Percent
Non-interest bearing demand	$	1,631,526	20.1	%	—	%	$	1,590,164	20.2	%	—	%	$	41,362		2.6	%
Interest bearing demand	1,846,172		22.7	%	0.26	%	1,930,143		24.5	%	0.24	%	(83,971		)	(4.4	)%
Savings	471,931		5.8	%	0.18	%	497,171		6.3	%	0.18	%	(25,240		)	(5.1	)%
Money market	1,735,107		21.4	%	0.47	%	1,651,023		21.0	%	0.35	%	84,084			5.1	%
Total core deposits	5,684,736		70.0	%	0.25	%	5,668,501		72.0	%	0.20	%	16,235			0.3	%
Brokered money market	150,073		1.8	%	1.36	%	74,815		0.9	%	0.89	%	75,258			100.6	%
Customer time deposits	2,015,301		24.8	%	1.10	%	1,877,132		23.8	%	0.90	%	138,169			7.4	%
Wholesale time deposits	271,514		3.4	%	1.32	%	260,180		3.3	%	1.17	%	11,334			4.4	%
Total time deposits	2,286,815		28.2	%	1.13	%	2,137,312		27.1	%	0.93	%	149,503			7.0	%
Total deposits	$	8,121,624	100.0	%	0.51	%	$	7,880,628	100.0	%	0.41	%	$	240,996		3.1	%

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

(Dollars in thousands)	Three Months Ended
	September 30, 2017				December 31, 2016
	Average Amount		Average Rate		Average Amount		Average Rate
Non-interest bearing demand	$	1,636,625	—	%	$	1,508,496	—	%
Interest bearing
Interest bearing demand	1,839,844		0.28	%	1,748,269		0.21	%
Savings	477,530		0.18	%	471,466		0.18	%
Money market	1,858,223		0.52	%	1,601,167		0.37	%
Time deposits (1)	2,274,258		1.03	%	2,049,066		0.88	%
Total deposits	$	8,086,480	0.48	%	$	7,378,464	0.39	%

⁽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)	September 30, 2017
Months to maturity:	Time Deposits of $100K and Greater		Time Deposits of Less than $100K		Total
Three or less	$	279,172	$	111,133	$	390,305
Over three to six	135,228		97,787		233,015
Over six to twelve	298,897		216,354		515,251
Over twelve	698,020		450,224		1,148,244
Total time deposits	$	1,411,317	$	875,498	$	2,286,815

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.

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.

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 other intangible assets tax effected.

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:

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(Dollars and shares in thousands, except per share amounts)
	September 30, 2017			December 31, 2016
Total shareholders’ equity	$	1,354,619		$	1,292,047
Less: goodwill	(231,292		)	(235,500		)
Less: intangible assets	(27,938		)	(33,370		)
Tax effect on intangible assets (1)	10,479			12,694
Tangible book value	$	1,105,868		$	1,035,871
Common shares outstanding	52,027			51,765
Book value per share	$	26.04		$	24.96
Tangible book value per share	$	21.26		$	20.01

⁽¹⁾  Tax effected at a blended income tax rate of 38%.

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 September 30, 2017, we had a Tier 1 leverage ratio of 12.0%, which provided us with $392.2 million in excess capital relative to our longer-term target of 8%. As of September 30, 2017, Capital Bank Corporation had a 10.9% Tier 1 leverage ratio, a 12.7% Tier 1 common capital ratio, a 12.7% Tier 1 risk-based ratio and a 13.2% Total risk-based capital ratio.

As of December 31, 2016, we had a Tier 1 leverage ratio of 12.2%, which provided us with $380.7 million in excess capital relative our longer-term planning target of 8%. As of December 31, 2016, Capital Bank Corporation had a 11.2% Tier 1 leverage ratio, a 12.4% Tier I common capital ratio, a 12.4% Tier 1 risk-based ratio and an 12.9% total risk-based capital ratio.

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The minimum ratios along with the actual ratios for us and Capital Bank Corporation as of September 30, 2017 and December 31, 2016 are presented in the following tables:

			Actual
September 30, 2017	Well Capitalized Requirement	Adequately Capitalized Requirement	September 30, 2017	December 31, 2016
Tier 1 Leverage Capital
(to Average Assets)
CBF Consolidated	N/A	≥ 4.0%	12.0%	12.2%
Bank	≥ 5.0%	≥ 4.0%	10.9%	11.2%
Tier 1 Common Equity Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	≥ 4.5%	12.7%	12.4%
Bank	≥ 6.5%	≥ 4.5%	12.7%	12.4%
Tier 1 Risk-based Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	≥ 6.0%	14.0%	13.5%
Bank	≥ 8.0%	≥ 6.0%	12.7%	12.4%
Total Risk-based Capital
(to Risk-weighted Assets)
CBF Consolidated	N/A	≥ 8.0%	14.5%	14.0%
Bank	≥ 10.0%	≥ 8.0%	13.2%	12.9%

	Actual
(Dollars in thousands)	September 30, 2017		December 31, 2016
CBF Consolidated
Tier 1 Leverage Capital	$	1,176,655	$	1,101,743
Excess Tier 1 Leverage Capital:
vs. 8% target	392,206		380,718
Capital Bank Corporation
Tier 1 Leverage Capital	1,062,316		1,010,409
Excess Tier 1 Leverage Capital:
vs. 8% target	280,431		290,399

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 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

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falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. As of September 30, 2017, our capital buffer would be 6.5%; 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

On October 19, 2017, the Company's board of directors approved a quarterly common dividend of $0.12 per share payable on November 13, 2017 to shareholders of record as of November 3, 2017.

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 require 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 September 30, 2017 and December 31, 2016, cash and liquid securities totaled 17.3% and 17.0% of assets, respectively, providing ample liquidity to support our existing bank franchise. As of September 30, 2017 and December 31, 2016, the ratio of wholesale to total funding was 13.7%, and 14.3%, respectively, which is below our policy limit of 25%. 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 its most recent quarterly financial information submitted to the FHLB and subject to the pledging of sufficient collateral.

At September 30, 2017 and December 31, 2016, there were $440.5 million and $545.7 million, respectively, in FHLB advances outstanding. In addition, we had $15.8 million and $15.4 million in letters of credit outstanding as of September 30, 2017 and December 31, 2016, respectively. Collateral available under our agreements with the FHLB provided for incremental borrowing availability of up to approximately $566.9 million and $415.9 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.

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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 September 30, 2017, approximately 53% of the loan portfolio was variable rate and of the remaining fixed rate loans, the majority had terms of less than five years. 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 September 30, 2017, securities accounted for 16% of assets, and the effective duration of the portfolio was 3.7 years with limited extension risk to 4.3 years in a plus 300 basis point 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 September 30, 2017, core deposits accounted for 70% of total deposits, and checking balances accounted for 61% 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 200 and minus 300 rate shocks have been suspended. 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 September 30, 2017, 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	$	15,415		4.7	%	$	94,983		6.2	%
200	11,539			3.5	%	87,629			5.7	%
100	6,491			2.0	%	60,736			3.9	%
—	—			—	%	—			—	%
(100)	(13,576		)	(4.1	)%	(121,051		)	(7.9	)%

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 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 September 30, 2017, we were in compliance with all of the limits and policies established by our Board of Directors in predefined plus rate shocks and remained temporarily out of compliance in the minus 100 basis point rate shocks primarily due to the low level of interest rates. We continuously evaluate all balance sheet strategies to optimize the Company’s interest rate risk position and will take prudent actions to maintain an appropriate interest rate risk position based on the level of interest rates and the policies established by our Board of Directors.

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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 September 30, 2017 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 party to various litigation matters incidental to the conduct of our business. On July 14, 2017, a case captioned Garfield v. First Horizon National Corporation, et al., Index No.CH-17-1022 (the “Garfield Action”), was filed on behalf of a putative class of First Horizon shareholders against First Horizon, its directors, and Capital Bank Financial Corp. in the Chancery Court of Shelby County, Tennessee, Thirtieth Judicial District, in connection with the merger. On August 15, 2017, First Horizon National Corporation made certain supplemental disclosures to the Joint Proxy Statement/Prospectus filed on July 28, 2017. On September 6, 2017, the Court approved the Stipulation and Proposed Order dismissing the Action.

In addition, Capital Bank Financial Corp. and the individual members of the Capital Bank Financial Corp. board of directors have been named as defendants in three substantially similar putative class action lawsuits filed by shareholders of Capital Bank Financial Corp. These actions are captioned: (1) Bushansky v. Capital Bank Financial Corp., et al., No. 3:17-cv-00422 (W.D.N.C. filed July 17, 2017); (2) Parshall v. Capital Bank Financial Corp., et al., No. 3:17-cv-00428 (W.D.N.C. filed July 19, 2017); and (3) Catherine McNamara v. Capital Bank Financial Corp., et al., No. 3:17-cv-00439 (W.D. N.C. filed July 25, 2017). The Parshall complaint also names First Horizon and Firestone Sub, Inc. as defendants. On August 11, 2017, the court ordered the consolidation of the three lawsuits into the lead action captioned In Re: Capital Bank Financial Corp. Stockholder Litigation, No. 3:17-cv-00422.

On August 23, 2017, Capital Bank Financial Corp. made certain supplemental disclosures to the Joint Proxy Statement/Prospectus filed on July 28, 2017. On August 28, 2017, the Court ordered that the Stipulation of Dismissal and Proposed Order was deemed to be a Rule 41(a)(2) Motion to Dismiss and granted such motion.

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, 2016 filed with the Securities and Exchange Commission.

ITEM 2: UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDSERT

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RAPIMAG

The following table provides information regarding repurchases of the Company’s common stock by the Company during the three months ended September 30, 2017:

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 Current Board Program
July 1-30	—	$	—	—	$	87,616,326
August 1-31	—	—		—	87,616,326
September 1-30	—	—		—	87,616,326
Total	—	$	—	—	$	87,616,326

Through 2016, the Company’s Board of Directors authorized stock repurchases of up to $400.0 million. Stock repurchases may be made from time to time, on the open market or in privately negotiated transactions. The approved stock repurchase program does not obligate the Company to repurchase any particular amount of shares, and the program may be extended, modified, suspended, or discontinued at any time.

During the three months ended September 30, 2017, the Company did not repurchase shares.

As of September 30, 2017, the Company has repurchased a total of $312.4 million or 12,739,763 common shares at an average price of $24.52 per share, and had $87.6 million remaining under the current board authorized stock repurchase program.

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
2.1	Agreement and Plan of Merger, dated as of May 3, 2017, by and among First Horizon National Corporation, Capital Bank Financial Corp., and Firestone Sub, Inc. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on May 5, 2017)
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:	November 6, 2017	/s/ R. Eugene Taylor
		R. Eugene Taylor
		Chairman and Chief Executive Officer
Date:	November 6, 2017	/s/ Christopher G. Marshall
		Christopher G. Marshall Chief Financial Officer
		(Principal Accounting Officer)

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