State Bank Financial (STBZ) 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

or

o 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: 000-54056

STATE BANK FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter) 

Georgia	27-1744232
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3399 Peachtree Road, NE, Suite 1900 Atlanta, Georgia	30326
(Address of principal executive offices)	(Zip Code)

404-475-6599

(Registrant’s telephone number, including area code)

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

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

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

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

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

The number of shares outstanding of the registrant’s common stock, as of November 8, 2013 was 32,076,645

TABLE OF CONTENTS

		Page
Cautionary Note Regarding Forward-Looking Statements		1
Part I - Financial Information
ITEM 1.	Financial Statements	2
	Consolidated Statements of Financial Condition at September 30, 2013 (unaudited) and December 31, 2012 (audited)	2
	Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended September 30, 2013 and 2012	3
	Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2013 and 2012	4
	Consolidated Statements of Changes in Shareholders' Equity (unaudited) for the Nine Months Ended September 30, 2013 and 2012	5
	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2013 and 2012	6
	Notes to Consolidated Financial Statements (unaudited)	8
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	44
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	68
ITEM 4.	Controls and Procedures	68
Part II - Other Information
ITEM 1.	Legal Proceedings	68
ITEM 1A.	Risk Factors	68
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
ITEM 3.	Defaults Upon Senior Securities	69
ITEM 4.	Mine Safety Disclosures	69
ITEM 5.	Other Information	69
ITEM 6.	Exhibits	69

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this report that are not statements of historical fact may constitute forward-looking statements. These forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words "may," "would," "could," "will," "expect," "anticipate," "believe," "intend," "plan" and "estimate," as well as similar expressions. These forward-looking statements include statements related to our projected growth, anticipated future financial performance, and management's long-term performance goals, as well as statements relating to the anticipated effects on results of operations and financial condition from expected developments or events, or business and growth strategies, including anticipated future amortization of the FDIC receivable for loss share agreements and future accretion on acquired loans, anticipated internal growth and plans to establish or acquire banks or the assets of failed banks.

These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ materially from those anticipated in such statements. Potential risks and uncertainties include the following:

• general economic conditions (both generally and in our markets) may be less favorable than expected, which could result in, among other things, a continued deterioration in credit quality, a further reduction in demand for credit and a further decline in real estate values;

• the general decline in the real estate and lending markets, particularly in our market areas, may continue to negatively affect our financial results;

• our ability to raise additional capital may be impaired if current levels of market disruption and volatility continue or worsen;

• we may be unable to collect reimbursements on losses that we incur on our assets covered under loss share agreements with the FDIC as we anticipate;

• restrictions or conditions imposed by our regulators on our operations may make it more difficult for us to achieve our goals;

• legislative or regulatory changes, including changes in accounting standards and compliance requirements, may adversely affect us;

• competitive pressures among depository and other financial institutions may increase significantly;

• changes in the interest rate environment may reduce margins or the volumes or values of the loans we make or have acquired;

• other financial institutions have greater financial resources and may be able to develop or acquire products that enable them to compete more successfully than we can;

• our ability to attract and retain key personnel can be affected by the increased competition for experienced employees in the banking industry;

• adverse changes may occur in the bond and equity markets;

• war or terrorist activities may cause further deterioration in the economy or cause instability in credit markets;

• economic, governmental or other factors may prevent the projected population, residential and commercial growth in the markets in which we operate; and

• we will or may continue to face the risk factors discussed from time to time in the periodic reports we file with the SEC.

For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report.  All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  See Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2012 for a description of some of the important factors that may affect actual outcomes.

1

PART I

Item 1. Financial Statements.

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Financial Condition

(Dollars in thousands)

	September 30, 2013			December 31, 2012
	(unaudited)			(audited)
Assets
Cash and amounts due from depository institutions	$	7,888		$	9,974
Interest-bearing deposits in other financial institutions	399,267			433,483
Cash and cash equivalents	407,155			443,457
Investment securities available-for-sale	374,838			303,901
Loans receivable:
Noncovered under FDIC loss share agreements	1,164,854			985,502
Covered under FDIC loss share agreements	290,077			474,713
Allowance for loan losses (noncovered loans)	(16,427		)	(14,660		)
Allowance for loan losses (covered loans)	(12,075		)	(55,478		)
Net loans	1,426,429			1,390,077
Mortgage loans held for sale	885			4,853
Other real estate owned:
Noncovered under FDIC loss share agreements	974			1,115
Covered under FDIC loss share agreements	51,651			45,062
Premises and equipment, net	33,988			35,364
Goodwill	10,381			10,381
Other intangibles, net	2,150			3,188
FDIC receivable for loss share agreements	156,549			355,325
Other assets	62,101			68,311
Total assets	$	2,527,101		$	2,661,034
Liabilities and Shareholders' Equity
Liabilities:
Noninterest-bearing deposits	$	420,269		$	387,450
Interest-bearing deposits	1,629,642			1,760,986
Total deposits	2,049,911			2,148,436
Securities sold under agreements to repurchase	1,082			4,755
Notes payable	5,690			2,523
Other liabilities	41,825			75,104
Total liabilities	2,098,508			2,230,818
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares authorized, no shares issued and outstanding in 2013 and 2012, respectively	—			—
Common stock, $.01 par value; 100,000,000 shares authorized; 32,076,645 and 31,908,665 shares issued and outstanding in 2013 and 2012, respectively	321			319
Additional paid-in capital	295,023			293,963
Retained earnings	127,858			127,406
Accumulated other comprehensive income, net of tax	5,391			8,528
Total shareholders' equity	428,593			430,216
Total liabilities and shareholders' equity	$	2,527,101		$	2,661,034

See accompanying notes to consolidated financial statements.

2

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY Consolidated Statements of Income (Unaudited) (Dollars in thousands, except per share amounts)
	Three Months Ended						Nine Months Ended
	September 30						September 30
	2013			2012			2013			2012
Interest income:
Noncovered loans, including fees	$	15,800		$	14,729		$	45,315		$	40,407
Accretion income on covered loans	27,978			18,893			74,401			74,574
Investment securities:
Taxable	2,227			2,583			6,748			8,136
Tax-exempt	47			79			156			227
Deposits with other financial institutions	313			185			878			442
Total interest income	46,365			36,469			127,498			123,786
Interest expense:
Deposits	1,815			2,180			5,589			7,489
Notes payable	165			54			380			161
Federal funds purchased and repurchase agreements	1			1			3			3
Total interest expense	1,981			2,235			5,972			7,653
Net interest income	44,384			34,234			121,526			116,133
Provision for loan losses (noncovered loans)	905			1,050			1,920			4,710
Provision for loan losses (covered loans)	(636		)	5,441			(4,309		)	7,060
Net interest income after provision for loan losses	44,115			27,743			123,915			104,363
Noninterest income:
Amortization of FDIC receivable for loss share agreements	(18,971		)	(6,291		)	(56,512		)	(17,309		)
Service charges on deposits	1,353			1,298			3,852			3,709
Mortgage banking income	260			255			855			868
Gain on sale of investment securities	717			—			1,081			93
Gain on FHLB stock redemptions	—			101			—			535
Payroll fee income	727			—			2,264			—
ATM income	604			611			1,844			1,806
Other	810			737			2,920			919
Total noninterest income	(14,500		)	(3,289		)	(43,696		)	(9,379		)
Noninterest expense:
Salaries and employee benefits	14,794			12,811			47,736			39,402
Occupancy and equipment	2,431			2,469			7,437			7,345
Legal and professional fees	954			1,265			3,835			4,955
Marketing	457			573			1,135			1,203
Federal insurance premiums and other regulatory fees	939			378			2,012			1,151
Loan collection and OREO costs	374			(484		)	3,606			1,031
Data processing	1,551			1,196			4,492			4,396
Amortization of intangibles	299			256			1,038			778
Other	1,325			1,371			3,958			4,192
Total noninterest expense	23,124			19,835			75,249			64,453
Income before income taxes	6,491			4,619			4,970			30,531
Income tax expense	2,142			1,261			1,640			11,004
Net income	$	4,349		$	3,358		$	3,330		$	19,527
Basic net income per share	$	.14		$	.11		$	.10		$	.62
Diluted net income per share	$	.13		$	.10		$	.10		$	.60
Cash dividends declared per common share	$	.03		$	.03		$	.09		$	.03
Weighted Average Shares Outstanding:
Basic	31,998,901			31,654,046			31,942,470			31,626,511
Diluted	33,296,650			32,808,726			33,215,846			32,793,460

See accompanying notes to consolidated financial statements.

3

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollars in thousands)

	Three Months Ended					Nine Months Ended
	September 30					September 30
	2013			2012		2013			2012
Net income	$	4,349		$	3,358	$	3,330		$	19,527
Other comprehensive income:
Net change in unrealized gains (losses)	(854		)	8,753		(3,616		)	18,955
Reclassification adjustment for net gains realized and included in earnings	(705		)	—		(1,066		)	(93		)
Other comprehensive income (loss), before income taxes	(1,559		)	8,753		(4,682		)	18,862
Income tax expense (benefit)	(514		)	3,291		(1,545		)	7,092
Total other comprehensive income (loss)	(1,045		)	5,462		(3,137		)	11,770
Comprehensive income	$	3,304		$	8,820	$	193		$	31,297

See accompanying notes to consolidated financial statements.

4

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statement of Changes in Shareholders' Equity

(Unaudited)

(Dollars in Thousands)

	Warrants		Common			Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
			Shares	Stock
Balance, December 31, 2011	2,686,827		31,721,236	$	317	$	293,074		$	106,574		$	(2,677	)	$	397,288
Exercise of stock warrants	—		14,002	1		133			—			—			134
Share-based compensation	—		—	—		486			—			—			486
Repurchase of stock warrants	(26,544	)	—	—		(55		)	—			—			(55		)
Restricted stock awards activity	—		161,500	1		(1		)	—			—			—
Change in accumulated other comprehensive income	—		—	—		—			—			11,770			11,770
Dividends declared	—		—	—		—			(952		)	—			(952		)
Net income	—		—	—		—			19,527			—			19,527
Balance, September 30, 2012	2,660,283		31,896,738	$	319	$	293,637		$	125,149		$	9,093		$	428,198
Balance, December 31, 2012	2,640,283		31,908,665	$	319	$	293,963		$	127,406		$	8,528		$	430,216
Exercise of stock warrants	(15,000	)	11,666	—		100			—			—			100
Share-based compensation	—		—	—		966			—			—			966
Repurchase of stock warrants	(1,459	)	—	—		(4		)	—			—			(4		)
Restricted stock awards activity	—		156,314	2		(2		)	—			—			—
Change in accumulated other comprehensive income (loss)	—		—	—		—			—			(3,137		)	(3,137		)
Dividends declared	—		—	—		—			(2,878		)	—			(2,878		)
Net income	—		—	—		—			3,330			—			3,330
Balance, September 30, 2013	2,623,824		32,076,645	$	321	$	295,023		$	127,858		$	5,391		$	428,593

See accompanying notes to consolidated financial statements.

5

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
	Nine Months Ended
	September 30
	2013			2012
Cash Flows from Operating Activities
Net income	$	3,330		$	19,527
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation on premises and equipment	2,230			2,241
Accretion on investment securities available-for-sale	(249		)	(1,230		)
Amortization of intangible assets	1,038			778
Provision for loan losses	(2,389		)	11,770
Accretion of premiums and discounts on acquisitions, net	(17,889		)	(57,265		)
Loss on sale of other real estate owned	229			363
Writedowns of other real estate owned	16,135			26,115
Decrease (increase) in FDIC receivable for covered losses	4,811			(32,075		)
Funds collected from FDIC	103,057			216,567
Deferred income taxes	(48,217		)	14,299
Proceeds from sales of mortgage loans held for sale	38,774			41,009
Originations of mortgage loans held for sale	(34,824		)	(36,978		)
Gains on investment securities available-for-sale	(1,081		)	(93		)
Decrease in prepaid FDIC assessments	4,086			881
Net change in cash surrender value of life insurance	(1,021		)	(1,047		)
Share-based compensation expense	966			486
Accrued income taxes	22,599			500
Changes in other assets, net	(3,233		)	(3,330		)
Changes in other liabilities, net	4,806			(546		)
Net cash provided by operating activities	93,158			201,972
Cash flows from Investing Activities
Purchase of investment securities available-for-sale	(161,271		)	(58,465		)
Proceeds from sales, calls, maturities and paydowns of investment securities available-for-sale	85,932			116,502
Loans to customers, net of repayments	(4,124		)	(12,147		)
Redemptions of Federal Home Loan Bank stock	—			5,897
Net purchases of premises and equipment	(1,163		)	(3,764		)
Proceeds from sales of other real estate owned	56,146			61,515
Net cash (used in) provided by investing activities	(24,480		)	109,538

6

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY Consolidated Statement of Cash Flows (Continued) (Unaudited) (Dollars in Thousands)
	Nine Months Ended
	September 30
	2013			2012
Cash Flows from Financing Activities
Net increase in noninterest-bearing customer deposits	32,819			70,574
Net decrease in interest-bearing customer deposits	(131,344		)	(244,741		)
Net decrease in federal funds purchased and securities sold under repurchase agreements	(3,673		)	(4,142		)
Repurchase of stock warrants	(4		)	(55		)
Exercise of stock warrants	100			134
Dividends declared	(2,878		)	(952		)
Net cash used in financing activities	(104,980		)	(179,182		)
Net (decrease) increase in cash and cash equivalents	(36,302		)	132,328
Cash and cash equivalents, beginning	443,457			219,855
Cash and cash equivalents, ending	$	407,155		$	352,183
Cash Received During the Period for:
Interest income on loans	$	45,640		$	42,239
Cash Paid During the Period for:
Interest expense	$	6,122		$	8,879
Income taxes	$	29,375		$	1,000
Supplemental Disclosure of Noncash Investing and Financing Activities
Unrealized (losses) gains on securities and derivative financial instruments accounted for as cash flow hedges, net of tax	$	(3,137	)	$	11,770
Transfers of loans to other real estate owned	$	78,958		$	60,774

See accompanying notes to consolidated financial statements.

7

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

State Bank Financial Corporation (the “Company”) is a bank holding company whose business is primarily conducted through its wholly-owned banking subsidiary, State Bank and Trust Company (the “Bank”). The Bank operates a full service banking business and offers a broad range of commercial and retail banking products to its customers, primarily located in metropolitan Atlanta and middle Georgia.

The accompanying unaudited consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim period presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our independent registered public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Certain amounts have been reclassified to conform to current period presentation. The reclassifications had no effect on net income or shareholders’ equity as previously reported.

Note 2:  Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in ASU 2013-10 permit the Fed Funds Effective Swap Rate (also referred to as the Overnight Index Swap Rate) to be used as a benchmark interest rate for hedge accounting in addition to United States Treasury Obligations Rate (UST) and the London Interbank Offered Rate (LIBOR). The amendments also remove the restriction on using different benchmark rates for similar hedges. The standard is effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. We do not anticipate the guidance to have a material impact on the Company's financial position, results of operations or disclosures.

Note 3: Investment Securities

The amortized cost and fair value of securities classified as available-for-sale are as follows (in thousands):

	September 30, 2013								December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Investment Securities Available-for-Sale
U.S. Government securities	$	79,905	$	330	$	74	$	80,161	$	59,101	$	1,423	$	16	$	60,508
States and political subdivisions	9,341		35		1		9,375		11,726		406		—		12,132
Residential mortgage-backed securities-nonagency	115,770		7,134		18		122,886		131,183		8,875		297		139,761
Residential mortgage-backed securities-agency	71,499		559		1,113		70,945		36,349		1,202		29		37,522
Collateralized mortgage obligations	90,883		1,036		503		91,416		52,024		1,459		—		53,483
Corporate securities	—		—		—		—		398		97		—		495
Equity securities	51		4		—		55		—		—		—		—
Total investment securities available-for-sale	$	367,449	$	9,098	$	1,709	$	374,838	$	290,781	$	13,462	$	342	$	303,901

8

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost and estimated fair value of available-for-sale debt securities at September 30, 2013 by contractual maturities are summarized in the table below (in thousands). Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers prepay obligations without prepayment penalties. Therefore, these securities are not presented by contractual maturities.

	Amortized Cost (1)		Fair Value (1)
Due within one year	$	753	$	766
Due from one year to five years	52,071		52,259
Due from five years to ten years	13,116		13,141
Due after ten years	23,306		23,370
Residential mortgage-backed securities (nonagency and agency) and collateralized mortgage obligations	278,152		285,247
	$	367,398	$	374,783

(1) Equity securities are excluded from this table as they have no contractual maturity date.

The following table provides information regarding securities with unrealized losses (in thousands):

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2013
Investment securities available-for-sale:
U.S. Government securities	$	43,071	$	74	$	—	$	—	$	43,071	$	74
States and political subdivisions	699		1		—		—		699		1
Residential mortgage-backed-nonagency	—		—		967		18		967		18
Residential mortgage-backed-agency	49,586		1,113		—		—		49,586		1,113
Collateralized mortgage obligations	51,431		503		—		—		51,431		503
Equity securities	—		—		—		—		—		—
Total	$	144,787	$	1,691	$	967	$	18	$	145,754	$	1,709
December 31, 2012
Investment securities available-for-sale:
U.S. Government securities	$	10,278	$	16	$	—	$	—	$	10,278	$	16
Residential mortgage-backed-nonagency	—		—		10,342		297		10,342		297
Residential mortgage-backed-agency	5,119		29		—		—		5,119		29
Total	$	15,397	$	45	$	10,342	$	297	$	25,739	$	342

9

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company had residential mortgage-backed-nonagency securities with aggregate fair values of $967,000 at September 30, 2013 and $10.3 million at December 31, 2012 which had continuous unrealized losses of $18,000 and $297,000, respectively, for 12 months or more. At September 30, 2013, the Company held 32 investment securities that were in an unrealized loss position. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market price of securities fluctuates. The Company reviews its investment portfolio on a quarterly basis for indications of other than temporary impairment ("OTTI"). The analysis differs depending upon the type of investment security being analyzed. The severity and duration of impairment and the likelihood of potential recovery of impairment is considered along with the intent and ability to hold any impaired security to maturity or recovery of carrying value. The Company's nonagency portfolio is tested quarterly for OTTI by the use of cash flow models that estimate cash flows on security-specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most significant of which include current default rates, prepayment rates and loss severities. Credit information is available and modeled at the loan level underlying each security during the OTTI analysis; the Company also considers information such as loan to collateral values, FICO scores and geographic considerations, such as home price appreciation or depreciation. These inputs are updated quarterly or as changes occur to ensure that the most current credit and other assumptions are utilized in the analysis. If, based on the analysis, the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are discounted at the security's initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities. As of September 30, 2013, there was no intent to sell any of the securities available-for-sale, and it is more likely than not that the Company will not be required to sell these securities. Furthermore, the present value of cash flows expected to be collected exceeded the Company's amortized cost basis of the investment securities. Therefore, these securities are not deemed to be other than temporarily impaired.

Sales and calls of securities available-for-sale are summarized in the following table (in thousands):

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2013		2012		2013		2012
Proceeds from sales and calls	$	18,214	$	—	$	21,636	$	11,630
Gross gains on securities available-for-sale	$	717	$	—	$	1,081	$	93
Gross losses on securities available-for-sale	—		—		—		—
Net realized gains on sales and calls of securities available-for-sale	$	717	$	—	$	1,081	$	93

The composition of investment securities reflects the strategy of management to maintain an appropriate level of liquidity while providing a relatively stable source of revenue. The securities portfolio may at times be used to mitigate interest rate risk associated with other areas of the balance sheet while also providing a means for the investment of available funds, providing liquidity and supplying investment securities that are required to be pledged as collateral against specific deposits and for other purposes. Investment securities with an aggregate fair value of $91.8 million and $126.6 million at September 30, 2013 and December 31, 2012, respectively, were pledged to secure public deposits, repurchase agreements, net counterparty exposure and certain borrowing arrangements.

10

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4: Loans Receivable

Concurrently with each of the Bank's 12 failed bank acquisitions, the Bank entered into loss share agreements with the FDIC that cover certain of the acquired loans and other real estate owned. The Company refers to loans subject to loss share agreements with the FDIC as "covered loans" and loans that are not subject to loss share agreements with the FDIC as "noncovered loans."

Noncovered loans are summarized as follows (in thousands):

	September 30, 2013			December 31, 2012
Construction, land & land development	$	285,855		$	230,448
Other commercial real estate	552,579			457,729
Total commercial real estate	838,434			688,177
Commercial & industrial	27,573			35,390
Owner-occupied real estate	181,882			172,445
Total commercial & industrial	209,455			207,835
Residential real estate	63,386			43,179
Consumer & other	53,579			46,311
Total noncovered loans	1,164,854			985,502
Allowance for loan losses	(16,427		)	(14,660		)
Total noncovered loans, net	$	1,148,427		$	970,842

The table above includes net deferred loan fees that totaled approximately $3.6 million and $2.1 million at September 30, 2013 and December 31, 2012, respectively.

Covered loans, net of related discounts, are summarized as follows (in thousands):

	September 30, 2013			December 31, 2012
Construction, land & land development	$	40,268		$	81,288
Other commercial real estate	77,040			139,010
Total commercial real estate	117,308			220,298
Commercial & industrial	6,378			14,859
Owner-occupied real estate	55,723			86,612
Total commercial & industrial	62,101			101,471
Residential real estate	109,806			142,032
Consumer & other	862			10,912
Total covered loans	290,077			474,713
Allowance for loan losses	(12,075		)	(55,478		)
Total covered loans, net	$	278,002		$	419,235

11

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in the carrying value of covered loans are presented in the following table (in thousands):

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2013			2012			2013			2012
Balance, beginning of period	$	316,053		$	620,105		$	419,235		$	752,877
Accretion of fair value discounts	27,978			18,893			74,401			74,574
Reductions in principal balances resulting from repayments, write-offs and foreclosures	(71,584		)	(153,338		)	(259,037		)	(333,722		)
Change in the allowance for loan losses on covered loans	5,555			20,935			43,403			12,866
Balance, end of period	$	278,002		$	506,595		$	278,002		$	506,595

Covered loans are reported at their recorded investment excluding the expected reimbursement from the FDIC. Covered loans are initially recorded at fair value at the acquisition date. Prospective losses incurred on covered loans are eligible for partial reimbursement by the FDIC under loss share agreements. Subsequent decreases in the amount of cash expected to be collected from the borrower result in a provision for loan losses, an increase in the allowance for loan losses and a proportional adjustment to the FDIC receivable for the estimated amount to be reimbursed, discounted to present value. Subsequent increases in the amount of cash expected to be collected from the borrower result in the reversal of any previously-recorded provision for loan losses and related allowance for loan losses and a downward adjustment to the FDIC receivable, or a prospective increase in the accretable discount on the covered loans if no provision for loan losses had been recorded. The accretable discount is accreted into interest income over the estimated lives of the loans on a level yield basis.

Changes in the value of the accretable discount allocated by acquired bank are presented in the following tables as of the dates indicated (in thousands):

Three Months Ended	Security Bank			Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust			United Americas Bank			Piedmont Community Bank			Community Capital Bank			Total
September 30, 2013
Balance, beginning of period	$	101,782		$	41,008		$	2,531		$	16,653		$	50,980		$	26,014		$	18,014		$	256,982
Accretion	(9,181		)	(7,046		)	(273		)	(1,148		)	(2,916		)	(2,565		)	(4,849		)	(27,978		)
Transfers to accretable discount and exit events, net	(5,402		)	4,284			149			352			(3,272		)	4,018			1,002			1,131
Balance, end of period	$	87,199		$	38,246		$	2,407		$	15,857		$	44,792		$	27,467		$	14,167		$	230,135

Three Months Ended	Security Bank			Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust			United Americas Bank			Piedmont Community Bank			Community Capital Bank			Total
September 30, 2012
Balance, beginning of period	$	92,891		$	48,093		$	3,007		$	7,724		$	14,714		$	25,512		$	20,424		$	212,365
Accretion	(7,190		)	(5,142		)	(397		)	(1,483		)	(576		)	(1,274		)	(2,831		)	(18,893		)
Transfers to accretable discount and exit events, net	(9,098		)	(2,152		)	(581		)	1,219			1,280			393			(2,713		)	(11,652		)
Balance, end of period	$	76,603		$	40,799		$	2,029		$	7,460		$	15,418		$	24,631		$	14,880		$	181,820

12

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended	Security Bank			Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust			United Americas Bank			Piedmont Community Bank			Community Capital Bank			Total
September 30, 2013
Balance, beginning of period	$	76,975		$	33,434		$	1,863		$	7,945		$	14,451		$	23,439		$	14,697		$	172,804
Accretion	(31,189		)	(15,946		)	(828		)	(2,997		)	(7,851		)	(6,419		)	(9,171		)	(74,401		)
Transfers to accretable discount and exit events, net	41,413			20,758			1,372			10,909			38,192			10,447			8,641			131,732
Balance, end of period	$	87,199		$	38,246		$	2,407		$	15,857		$	44,792		$	27,467		$	14,167		$	230,135

Nine Months Ended	Security Bank			Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust			United Americas Bank			Piedmont Community Bank			Community Capital Bank			Total
September 30, 2012
Balance, beginning of period	$	97,164		$	49,866		$	6,822		$	9,532		$	24,860		$	18,212		$	24,241		$	230,697
Accretion	(32,152		)	(19,085		)	(2,984		)	(7,369		)	(4,150		)	(3,613		)	(5,221		)	(74,574		)
Transfers to accretable discount and exit events, net	11,591			10,018			(1,809		)	5,297			(5,292		)	10,032			(4,140		)	25,697
Balance, end of period	$	76,603		$	40,799		$	2,029		$	7,460		$	15,418		$	24,631		$	14,880		$	181,820

The change in the accretable discount is a result of the Company's review and re-estimation of expected cash flows and loss assumptions on covered loans using a detailed analytics system focusing on expected cash flows and enhanced historical loss data as the covered loan portfolios season.

13

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5: Allowance for Loan Losses (ALL)

The following tables present the Company’s loan loss experience on noncovered and covered loans for the periods indicated (in thousands):

	Three Months Ended September 30
	2013									2012
	Noncovered Loans			Covered Loans			Total			Noncovered Loans			Covered Loans			Total
Balance, beginning of period	$	15,805		$	17,630		$	33,435		$	13,317		$	67,346		$	80,663
Loans charged-off	(330		)	(11,027		)	(11,357		)	(112		)	(48,466		)	(48,578		)
Recoveries of loans previously charged off	47			14,030			14,077			75			328			403
Net (charge-offs) recoveries	(283		)	3,003			2,720			(37		)	(48,138		)	(48,175		)
Provision for loan losses	905			(8,558		)	(7,653		)	1,050			27,203			28,253
Amount attributable to FDIC loss share agreements	—			7,922			7,922			—			(21,762		)	(21,762		)
Total provision for loan losses charged to operations	905			(636		)	269			1,050			5,441			6,491
Provision for loan losses recorded through the FDIC loss share receivable	—			(7,922		)	(7,922		)	—			21,762			21,762
Balance, end of period	$	16,427		$	12,075		$	28,502		$	14,330		$	46,411		$	60,741
	Nine Months Ended September 30
	2013									2012
	Noncovered Loans			Covered Loans			Total			Noncovered Loans			Covered Loans			Total
Balance, beginning of period	$	14,660		$	55,478		$	70,138		$	10,207		$	59,277		$	69,484
Loans charged-off	(350		)	(30,953		)	(31,303		)	(667		)	(55,495		)	(56,162		)
Recoveries of loans previously charged off	197			26,255			26,452			80			7,289			7,369
Net (charge-offs) recoveries	(153		)	(4,698		)	(4,851		)	(587		)	(48,206		)	(48,793		)
Provision for loan losses	1,920			(38,705		)	(36,785		)	4,710			35,340			40,050
Amount attributable to FDIC loss share agreements	—			34,396			34,396			—			(28,280		)	(28,280		)
Total provision for loan losses charged to operations	1,920			(4,309		)	(2,389		)	4,710			7,060			11,770
Provision for loan losses recorded through the FDIC loss share receivable	—			(34,396		)	(34,396		)	—			28,280			28,280
Balance, end of period	$	16,427		$	12,075		$	28,502		$	14,330		$	46,411		$	60,741

14

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables detail the allowance for loan losses on loans not covered by loss share agreements by portfolio segment for the periods indicated (in thousands):

	Commercial Real Estate			Commercial & Industrial			Residential Real Estate			Consumer & Other			Total
Three Months Ended
September 30, 2013
Allowance for loan losses:
Beginning balance	$	10,377		$	3,425		$	850		$	1,153		$	15,805
Charge-offs	(155		)	(153		)	(16		)	(6		)	(330		)
Recoveries	23			—			3			21			47
Provision	816			48			145			(104		)	905
Ending balance	$	11,061		$	3,320		$	982		$	1,064		$	16,427
Nine Months Ended
September 30, 2013
Allowance for loan losses:
Beginning balance	$	9,495		$	3,103		$	1,050		$	1,012		$	14,660
Charge-offs	(156		)	(163		)	(17		)	(14		)	(350		)
Recoveries	160			6			5			26			197
Provision	1,562			374			(56		)	40			1,920
Ending balance	$	11,061		$	3,320		$	982		$	1,064		$	16,427
Ending allowance attributable to loans:
Individually evaluated for impairment	$	123		$	141		$	43		$	19		$	326
Collectively evaluated for impairment	10,938			3,179			939			1,045			16,101
Total ending allowance balance	$	11,061		$	3,320		$	982		$	1,064		$	16,427
Loans:
Loans individually evaluated for impairment	$	1,328		$	367		$	1,195		$	38		$	2,928
Loans collectively evaluated for impairment	837,106			209,088			62,191			53,541			1,161,926
Total loans	$	838,434		$	209,455		$	63,386		$	53,579		$	1,164,854
	Commercial Real Estate			Commercial & Industrial			Residential Real Estate			Consumer & Other			Total
Year Ended
December 31, 2012
Ending allowance attributable to loans:
Individually evaluated for impairment	$	743		$	217		$	359		$	17		$	1,336
Collectively evaluated for impairment	8,752			2,886			691			995			13,324
Total ending allowance balance	$	9,495		$	3,103		$	1,050		$	1,012		$	14,660
Loans:
Loans individually evaluated for impairment	$	2,864		$	493		$	1,402		$	33		$	4,792
Loans collectively evaluated for impairment	685,313			207,342			41,777			46,278			980,710
Total loans	$	688,177		$	207,835		$	43,179		$	46,311		$	985,502

15

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Commercial Real Estate			Commercial & Industrial			Residential Real Estate			Consumer & Other			Total
Three Months Ended
September 30, 2012
Allowance for loan losses:
Beginning balance	$	8,434		$	3,750		$	804		$	329		$	13,317
Charge-offs	(57		)	(53		)	—			(2		)	(112		)
Recoveries	72			2			1			—			75
Provision	1,124			(567		)	86			407			1,050
Ending balance	$	9,573		$	3,132		$	891		$	734		$	14,330
Nine Months Ended
September 30, 2012
Allowance for loan losses:
Beginning balance	$	6,470		$	2,848		$	561		$	328		$	10,207
Charge-offs	(510		)	(75		)	(73		)	(9		)	(667		)
Recoveries	73			4			1			2			80
Provision	3,540			355			402			413			4,710
Ending balance	$	9,573		$	3,132		$	891		$	734		$	14,330
Ending allowance attributable to loans:
Individually evaluated for impairment	$	1,029		$	148		$	361		$	16		$	1,554
Collectively evaluated for impairment	8,544			2,984			530			718			12,776
Total ending allowance balance	$	9,573		$	3,132		$	891		$	734		$	14,330
Loans:
Loans individually evaluated for impairment	$	3,713		$	297		$	1,373		$	31		$	5,414
Loans collectively evaluated for impairment	657,600			196,847			40,141			37,329			931,917
Total loans	$	661,313		$	197,144		$	41,514		$	37,360		$	937,331

16

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables detail the allowance for loan losses on loans covered by loss share agreements by portfolio segment for the periods indicated (in thousands):

	Commercial Real Estate			Commercial & Industrial			Residential Real Estate			Consumer & Other			Total
Three Months Ended
September 30, 2013
Allowance for loan losses:
Beginning balance	$	10,652		$	3,671		$	3,230		$	77		$	17,630
Charge-offs	(7,127		)	(2,720		)	(641		)	(539		)	(11,027		)
Recoveries	7,427			2,650			2,765			1,188			14,030
Provision for loan losses before amount attributable to FDIC loss share agreements	(4,095		)	(841		)	(2,984		)	(638		)	(8,558		)
Amount attributable to FDIC loss share agreements	3,791			779			2,762			590			7,922
Total provision for loan losses charged to operations	(304		)	(62		)	(222		)	(48		)	(636		)
Provision for loan losses recorded through the FDIC loss share receivable	(3,791		)	(779		)	(2,762		)	(590		)	(7,922		)
Ending balance	$	6,857		$	2,760		$	2,370		$	88		$	12,075
Nine Months Ended
September 30, 2013
Allowance for loan losses:
Beginning balance	$	32,642		$	993		$	21,189		$	654		$	55,478
Charge-offs	(22,193		)	(5,498		)	(2,502		)	(760		)	(30,953		)
Recoveries	14,486			5,985			4,377			1,407			26,255
Provision for loan losses before amount attributable to FDIC loss share agreements	(18,078		)	1,280			(20,694		)	(1,213		)	(38,705		)
Amount attributable to FDIC loss share agreements	16,289			(1,169		)	18,201			1,075			34,396
Total provision for loan losses charged to operations	(1,789		)	111			(2,493		)	(138		)	(4,309		)
Provision for loan losses recorded through the FDIC loss share receivable	(16,289		)	1,169			(18,201		)	(1,075		)	(34,396		)
Ending balance	$	6,857		$	2,760		$	2,370		$	88		$	12,075
Ending allowance attributable to loans:
Individually evaluated for impairment	$	5,997		$	2,088		$	1,410		$	73		$	9,568
Collectively evaluated for impairment	860			672			960			15			2,507
Total ending allowance balance	$	6,857		$	2,760		$	2,370		$	88		$	12,075
Loans:
Loans individually evaluated for impairment	$	64,552		$	19,691		$	14,453		$	282		$	98,978
Loans collectively evaluated for impairment	52,756			42,410			95,353			580			191,099
Total loans	$	117,308		$	62,101		$	109,806		$	862		$	290,077

17

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Commercial Real Estate		Commercial & Industrial			Residential Real Estate		Consumer & Other		Total
Year Ended
December 31, 2012
Ending allowance attributable to loans:
Individually evaluated for impairment	$	17,251	$	5,117		$	4,476	$	654	$	27,498
Collectively evaluated for impairment	15,391		(4,124		)	16,713		—		27,980
Total ending allowance balance	$	32,642	$	993		$	21,189	$	654	$	55,478
Loans:
Loans individually evaluated for impairment	$	102,844	$	22,603		$	13,760	$	10,535	$	149,742
Loans collectively evaluated for impairment	117,454		78,868			128,272		377		324,971
Total loans	$	220,298	$	101,471		$	142,032	$	10,912	$	474,713

18

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Commercial Real Estate			Commercial & Industrial			Residential Real Estate			Consumer & Other			Total
Three Months Ended
September 30, 2012
Allowance for loan losses:
Beginning balance	$	46,097		$	5,796		$	15,855		$	(402	)	$	67,346
Charge-offs	(40,836		)	(3,452		)	(3,987		)	(191		)	(48,466		)
Recoveries	280			47			1			—			328
Provision for loan losses before amount attributable to FDIC loss share agreements	23,079			655			4,128			(659		)	27,203
Amount attributable to FDIC loss share agreements	(18,463		)	(524		)	(3,302		)	527			(21,762		)
Total provision for loan losses charged to operations	4,616			131			826			(132		)	5,441
Provision for loan losses recorded through the FDIC loss share receivable	18,463			524			3,302			(527		)	21,762
Ending balance	$	28,620		$	3,046		$	15,997		$	(1,252	)	$	46,411
Nine Months Ended
September 30, 2012
Allowance for loan losses:
Beginning balance	$	37,332		$	7,573		$	14,372		$	—		$	59,277
Charge-offs	(47,493		)	(3,761		)	(4,037		)	(204		)	(55,495		)
Recoveries	6,781			340			168			—			7,289
Provision for loan losses before benefit attributable to FDIC loss share agreements	32,000			(1,106		)	5,494			(1,048		)	35,340
Amount attributable to FDIC loss share agreements	(25,607		)	885			(4,397		)	839			(28,280		)
Total provision for loan losses charged to operations	6,393			(221		)	1,097			(209		)	7,060
Provision for loan losses recorded through the FDIC loss share receivable	25,607			(885		)	4,397			(839		)	28,280
Ending balance	$	28,620		$	3,046		$	15,997		$	(1,252	)	$	46,411
Ending allowance attributable to loans:
Individually evaluated for impairment	$	18,689		$	5,128		$	5,492		$	362		$	29,671
Collectively evaluated for impairment	9,931			(2,082		)	10,505			(1,614		)	16,740
Total ending allowance balance	$	28,620		$	3,046		$	15,997		$	(1,252	)	$	46,411
Loans:
Loans individually evaluated for impairment	$	104,345		$	33,879		$	16,745		$	10,596		$	165,565
Loans collectively evaluated for impairment	159,349			87,553			139,623			916			387,441
Total loans	$	263,694		$	121,432		$	156,368		$	11,512		$	553,006

For each period indicated, a significant portion of the Company's covered loans were past due, including many that were 90 days or more past due. However, such delinquencies were included in the Company's performance expectations in determining the fair values of covered loans at each acquisition and at subsequent valuation dates. There have been covered loans that have deteriorated 5% or more from management's initial performance expectations, and these individually reviewed covered loans and pools of covered loans are considered impaired by management. However, all covered loan cash flows and the timing of such cash flows continue to be estimable and probable of collection and thus accretion income continues to be recognized on these covered assets. As such, the referenced covered loans are not considered nonperforming assets.

As of September 30, 2013, the Company individually reviewed covered loans totaling $99.0 million, of which $28.9 million were identified as having deteriorated from management's initial performance expectations, resulting in allowance attributable to these loans of $5.8 million. As of September 30, 2013, the Company also evaluated $191.1 million of covered loans as part of their respective pools, of which $244,000 were identified as having deteriorated from management's initial performance expectations, resulting in an allowance attributable to these loans of $2,000.

19

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2012, the Company individually reviewed covered loans totaling $149.7 million, of which $21.9 million were identified as having deteriorated from management's initial performance expectations, resulting in allowance attributable to these loans of $6.3 million. As of December 31, 2012, the Company also evaluated $325.0 million of covered loans as part of their respective pools, of which $191.1 million were identified as having deteriorated from management's initial performance expectations, resulting in allowance attributable to the loans of $12.5 million.

Approved credit losses are expected to be reimbursed for covered loans under the appropriate FDIC loss share agreements at either 80 or 95 percent, in accordance with the applicable corresponding loss share agreement. The Company uses a symmetrical accounting approach in recording the loan carrying values and the FDIC receivable on covered loans. A reduction in the loan value, through a provision for loan losses, and an increase in the FDIC receivable, through an adjustment to income, are taken immediately. An increase in the loan value and a reduction in the FDIC receivable result in the reversal of the previously-recorded allowance for loan losses and then as a prospective yield adjustment over the remaining life of each asset.

Impaired noncovered loans, segregated by class of loans, as of September 30, 2013 are as follows (in thousands):

							Three Months Ended				Nine Months Ended
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment (1)		Interest Income Recognized (2)		Average Recorded Investment (1)		Interest Income Recognized (2)
Impaired loans:
With no related allowance recorded:
Construction, land & land development	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Other commercial real estate	1,305		847		—		899		—		983		—
Total commercial real estate	1,305		847		—		899		—		983		—
Commercial & industrial	—		—		—		—		—		—		—
Owner-occupied real estate	89		84		—		84		—		84		—
Total commercial & industrial	89		84		—		84		—		84		—
Residential real estate	948		914		—		922		—		928		—
Consumer & other	—		—		—		—		—		—		—
Subtotal	2,342		1,845		—		1,905		—		1,995		—
With related allowance recorded:
Construction, land & land development	533		301		33		298		—		319		—
Other commercial real estate	180		180		90		193		—		392		—
Total commercial real estate	713		481		123		491		—		711		—
Commercial & industrial	283		283		141		297		—		359		—
Owner-occupied real estate	—		—		—		—		—		—		—
Total commercial & industrial	283		283		141		297		—		359		—
Residential real estate	295		281		43		280		1		394		4
Consumer & other	40		38		19		43		—		46		—
Subtotal	1,331		1,083		326		1,111		1		1,510		4
Total impaired loans	$	3,673	$	2,928	$	326	$	3,016	$	1	$	3,505	$	4

(1) The average recorded investment for troubled debt restructurings for the three and nine months endedSeptember 30, 2013 was $74,000 and $75,000, respectively.

(2) The total interest income recognized on troubled debt restructurings for the three and nine months endedSeptember 30, 2013 was $1,000 and $2,000, respectively.

20

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impaired noncovered loans, segregated by class of loans, as of December 31, 2012 are as follows (in thousands):

	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment (1)		Interest Income Recognized (2)
Impaired loans:
With no related allowance recorded:
Construction, land & land development	$	—	$	—	$	—	$	—	$	—
Other commercial real estate	826		550		—		584		—
Total commercial real estate	826		550		—		584		—
Commercial & industrial	—		—		—		—		—
Owner-occupied real estate	—		—		—		—		—
Total commercial & industrial	—		—		—		—		—
Residential real estate	—		—		—		—		—
Consumer & other	—		—		—		—		—
Subtotal	826		550		—		584		—
With related allowance recorded:
Construction, land & land development	756		331		166		350		—
Other commercial real estate	2,325		1,983		577		2,618		55
Total commercial real estate	3,081		2,314		743		2,968		55
Commercial & industrial	367		326		163		197		—
Owner-occupied real estate	167		167		54		112		1
Total commercial & industrial	534		493		217		309		1
Residential real estate	1,464		1,402		359		1,301		23
Consumer & other	33		33		17		43		1
Subtotal	5,112		4,242		1,336		4,621		80
Total impaired loans	$	5,938	$	4,792	$	1,336	$	5,205	$	80

(1) The average recorded investment for troubled debt restructurings was $2.4 million for the year ended December 31, 2012.

(2) The total interest income recognized on troubled debt restructurings was $74,000 for the year ended December 31, 2012.

The following table presents the recorded investment in noncovered nonaccrual loans by loan class for the periods indicated (in thousands):

	September 30, 2013		December 31, 2012
Construction, land & land development	$	301	$	331
Other commercial real estate	1,027		1,350
Total commercial real estate	1,328		1,681
Commercial & industrial	283		326
Owner-occupied real estate	84		167
Total commercial & industrial	367		493
Residential real estate	1,121		1,326
Consumer & other	38		33
Total	$	2,854	$	3,533

21

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents an analysis of past due noncovered loans, by class of loans, as of September 30, 2013(in thousands):

	30 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
Construction, land & land development	$	40	$	295	$	335	$	285,520	$	285,855	$	—
Other commercial real estate	—		180		180		552,399		552,579		—
Total commercial real estate	40		475		515		837,919		838,434		—
Commercial & industrial	—		117		117		27,456		27,573		—
Owner-occupied real estate	—		84		84		181,798		181,882		—
Total commercial & industrial	—		201		201		209,254		209,455		—
Residential real estate	302		45		347		63,039		63,386		—
Consumer & other	93		20		113		53,466		53,579		—
Total	$	435	$	741	$	1,176	$	1,163,678	$	1,164,854	$	—

The following table presents an analysis of past due noncovered loans, by class of loans, as of December 31, 2012(in thousands):

	30 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
Construction, land & land development	$	44	$	324	$	368	$	230,080	$	230,448	$	—
Other commercial real estate	1,298		763		2,061		455,668		457,729		—
Total commercial real estate	1,342		1,087		2,429		685,748		688,177		—
Commercial & industrial	—		277		277		35,113		35,390		—
Owner-occupied real estate	100		167		267		172,178		172,445		—
Total commercial & industrial	100		444		544		207,291		207,835		—
Residential real estate	81		346		427		42,752		43,179		—
Consumer & other	243		14		257		46,054		46,311		—
Total	$	1,766	$	1,891	$	3,657	$	981,845	$	985,502	$	—

The following table presents an analysis of past due covered loans, by class of loans, as of September 30, 2013(in thousands):

	30 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans
Construction, land & land development	$	791	$	21,111	$	21,902	$	18,366	$	40,268
Other commercial real estate	7,467		14,213		21,680		55,360		77,040
Total commercial real estate	8,258		35,324		43,582		73,726		117,308
Commercial & industrial	12		1,683		1,695		4,683		6,378
Owner-occupied real estate	3,283		9,774		13,057		42,666		55,723
Total commercial & industrial	3,295		11,457		14,752		47,349		62,101
Residential real estate	3,631		10,894		14,525		95,281		109,806
Consumer & other	4		340		344		518		862
Total	$	15,188	$	58,015	$	73,203	$	216,874	$	290,077

22

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents an analysis of past due covered loans, by class of loans, as of December 31, 2012(in thousands):

	30 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans
Construction, land & land development	$	1,628	$	58,104	$	59,732	$	21,556	$	81,288
Other commercial real estate	7,297		49,505		56,802		82,208		139,010
Total commercial real estate	8,925		107,609		116,534		103,764		220,298
Commercial & industrial	905		4,414		5,319		9,540		14,859
Owner-occupied real estate	7,421		19,288		26,709		59,903		86,612
Total commercial & industrial	8,326		23,702		32,028		69,443		101,471
Residential real estate	10,173		25,319		35,492		106,540		142,032
Consumer & other	10,375		477		10,852		60		10,912
Total	$	37,799	$	157,107	$	194,906	$	279,807	$	474,713

Asset Quality Grades:

The Company assigns loans into risk categories based on relevant information about the ability of borrowers to pay their debts, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company utilizes risk-grading guidelines to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. A description of the general characteristics of grades 5 and above is as follows:

Watch (Grade 5)—Loans graded Watch are pass credits that have not met performance expectations or that have higher inherent risk characteristics warranting continued supervision and attention.

OAEM (Grade 6)—Loans graded OAEM (other assets especially mentioned) have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the Loan or in the Company's credit position at some future date. OAEM Loans are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

Substandard (Grade 7)—Loans classified as substandard are inadequately protected by the current sound worth and payment 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 (Grade 8)—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 presents the risk grades of the noncovered loan portfolio, by class of loans, as of September 30, 2013(in thousands):

	Construction, Land & Land Development		Other Commercial Real Estate		Commercial & Industrial		Owner-Occupied Real Estate		Residential Real Estate		Consumer & Other		Total
Pass	$	210,264	$	527,739	$	25,457	$	152,796	$	58,962	$	53,349	$	1,028,567
Watch	72,313		23,619		1,385		21,397		2,666		136		121,516
OAEM	2,937		194		337		6,885		130		—		10,483
Substandard	341		1,027		394		804		1,628		94		4,288
Doubtful	—		—		—		—		—		—		—
Total	$	285,855	$	552,579	$	27,573	$	181,882	$	63,386	$	53,579	$	1,164,854

23

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the risk grades of the noncovered loan portfolio, by class of loans, as of December 31, 2012(in thousands):

	Construction, Land & Land Development		Other Commercial Real Estate		Commercial & Industrial		Owner-Occupied Real Estate		Residential Real Estate		Consumer & Other		Total
Pass	$	157,955	$	425,893	$	33,097	$	154,729	$	36,039	$	45,901	$	853,614
Watch	65,540		28,259		1,789		17,243		5,403		246		118,480
OAEM	6,579		300		30		237		73		26		7,245
Substandard	374		3,277		474		236		1,664		138		6,163
Doubtful	—		—		—		—		—		—		—
Total	$	230,448	$	457,729	$	35,390	$	172,445	$	43,179	$	46,311	$	985,502

Classifications on covered loans are based upon the borrower's ability to pay the current unpaid principal balance without regard to loss share coverage or the net carrying value of the loan on the Company's balance sheet. Because the values shown in this table are based on each loan's estimated cash flows, any expected losses should be covered by a combination of the specific reserves established in the allowance for loan losses on covered loans plus the discounts to the unpaid principal balances reflected in the recorded investment of each loan.

The following table presents the risk grades of the covered loan portfolio, by class of loans, as of September 30, 2013(in thousands):

	Construction, Land & Land Development		Other Commercial Real Estate		Commercial & Industrial		Owner-Occupied Real Estate		Residential Real Estate		Consumer & Other		Total
Pass	$	4,368	$	17,592	$	1,485	$	17,120	$	44,767	$	411	$	85,743
Watch	5,102		16,267		627		12,074		18,090		64		52,224
OAEM	513		13,612		49		7,868		2,061		3		24,106
Substandard	29,521		29,503		4,012		18,615		44,158		368		126,177
Doubtful	764		66		205		46		730		16		1,827
Total	$	40,268	$	77,040	$	6,378	$	55,723	$	109,806	$	862	$	290,077

The following table presents the risk grades of the covered loan portfolio, by class of loans, as of December 31, 2012(in thousands):

	Construction, Land & Land Development		Other Commercial Real Estate		Commercial & Industrial		Owner-Occupied Real Estate		Residential Real Estate		Consumer & Other		Total
Pass	$	7,219	$	20,243	$	4,686	$	31,824	$	58,414	$	380	$	122,766
Watch	8,482		20,363		1,231		16,633		17,975		159		64,843
OAEM	718		23,121		789		10,063		5,708		8		40,407
Substandard	64,869		75,283		4,045		28,092		54,681		9,960		236,930
Doubtful	—		—		4,108		—		5,254		405		9,767
Total	$	81,288	$	139,010	$	14,859	$	86,612	$	142,032	$	10,912	$	474,713

24

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total noncovered troubled debt restructurings (TDRs) were $956,000 as of September 30, 2013 and $2.2 million at December 31, 2012. Acquired and covered impaired loans modified post-acquisition are not removed from their accounting pool and accounted for as TDRs, even if those loans would otherwise be deemed TDRs.

No noncovered loans were modified under the terms of a TDR during the three and nine months endedSeptember 30, 2013. Noncovered loans modified under the terms of a TDR during the three and nine months endedSeptember 30, 2012are presented below (in thousands):

	September 30, 2013					September 30, 2012
Three Months Ended	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Construction, land & land development	—	$	—	$	—	1	$	7	$	7
Other commercial real estate	—	—		—		1	1,206		1,206
Total commercial real estate	—	—		—		2	1,213		1,213
Commercial & industrial	—	—		—		—	—		—
Owner-occupied real estate	—	—		—		—	—		—
Total commercial & industrial	—	—		—		—	—		—
Residential real estate	—	—		—		—	—		—
Consumer & Other	—	—		—		—	—		—
Total Loans	—	$	—	$	—	2	$	1,213	$	1,213

	September 30, 2013					September 30, 2012
Nine Months Ended	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Construction, land & land development	—	$	—	$	—	1	$	7	$	7
Other commercial real estate	—	—		—		1	1,206		1,206
Total commercial real estate	—	—		—		2	1,213		1,213
Commercial & industrial	—	—		—		1	7		7
Owner-occupied real estate	—	—		—		—	—		—
Total commercial & industrial	—	—		—		1	7		7
Residential real estate	—	—		—		1	77		77
Consumer & Other	—	—		—		—	—		—
Total Loans	—	$	—	$	—	4	$	1,297	$	1,297

During the three and nine months endedSeptember 30, 2013, there were no noncovered TDRs that subsequently defaulted within twelve months of their modification dates. During the three and nine months endedSeptember 30, 2012, there was one noncovered TDR totaling $260,000 that subsequently defaulted within twelve months of its modification date.

The Company allocated $14,000 and $79,000 to the noncovered allowance for loan losses for identified TDRs as of September 30, 2013 and 2012, respectively. The Company had no unfunded commitment obligations to lend to customers that underwent troubled debt restructuring as of September 30, 2013 and 2012.

25

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6: Other Real Estate Owned

The following is a summary of transactions in other real estate owned not covered by loss share agreements (noncovered) and covered under loss share agreements with the FDIC (covered) for the periods presented (in thousands):

	Three Months Ended						Nine Months Ended
	September 30						September 30
Noncovered other real estate owned	2013			2012			2013			2012
Balance, beginning of period	$	1,097		$	976		$	1,115		$	1,210
Other real estate acquired through foreclosure of loans receivable	55			210			1,075			231
Other real estate sold	(50		)	(286		)	(813		)	(450		)
Write down of other real estate	(128		)	(8		)	(403		)	(99		)
Balance, end of period	$	974		$	892		$	974		$	892
	Three Months Ended						Nine Months Ended
	September 30						September 30
Covered other real estate owned	2013			2012			2013			2012
Balance, beginning of period	$	52,345		$	60,334		$	45,062		$	84,496
Other real estate acquired through foreclosure of loans receivable	27,040			18,983			77,883			60,543
Other real estate sold	(22,255		)	(22,957		)	(55,562		)	(61,428		)
Write down of other real estate	(5,479		)	1,235			(15,732		)	(26,016		)
Balance, end of period	$	51,651		$	57,595		$	51,651		$	57,595

26

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7: FDIC Receivable for Loss Share Agreements

The FDIC receivable for loss share agreements is measured separately from the related covered assets. The following table documents changes in the carrying value of the FDIC receivable for loss share agreements relating to covered loans and other real estate owned for the periods indicated (in thousands):

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2013			2012			2013			2012
FDIC receivable for loss share agreements at beginning of period	$	210,557		$	418,826		$	355,325		$	528,499
Provision for loan losses attributable to FDIC for loss share agreements	(7,922		)	21,762			(34,396		)	28,280
Wires received	(24,240		)	(92,641		)	(103,057		)	(216,567		)
Net charge-offs, write-downs and other losses	(6,546		)	7,594			(15,390		)	20,672
Amortization	(18,971		)	(6,291		)	(56,512		)	(17,309		)
External expenses qualifying under loss share agreements	3,671			5,728			10,579			11,403
Balance, end of period	$	156,549		$	354,978		$	156,549		$	354,978

At September 30, 2013, the Company estimated that $22.9 million was due from the FDIC for loss share claims that have been submitted.

Changes in the carrying value of the FDIC receivable for loss share agreements relating to covered loans and other real estate owned allocated by acquired bank are presented in the following table as of the dates indicated (in thousands):

				Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust Company			United Americas Bank			Piedmont Community Bank			Community Capital Bank
Three Months Ended	Security Bank																					Total
September 30, 2013
FDIC receivable for loss share agreements at beginning of period	$	75,035		$	50,812		$	1,564		$	7,013		$	34,597		$	21,220		$	20,316		$	210,557
Provision for loan losses attributable to FDIC for loss share agreements	(4,352		)	(2,033		)	(56		)	123			(1,234		)	(137		)	(233		)	(7,922		)
Wires received	(9,477		)	(7,211		)	97			(395		)	(3,405		)	(3,376		)	(473		)	(24,240		)
Net charge-offs, write-downs and other losses	(3,989		)	(3,289		)	(486		)	(157		)	248			(130		)	1,257			(6,546		)
Amortization	(5,842		)	(1,047		)	(179		)	(1,411		)	(4,439		)	(1,769		)	(4,284		)	(18,971		)
External expenses qualifying under loss share agreements	1,855			622			334			81			325			213			241			3,671
Balance, end of period	$	53,230		$	37,854		$	1,274		$	5,254		$	26,092		$	16,021		$	16,824		$	156,549

27

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

				Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust Company			United Americas Bank			Piedmont Community Bank			Community Capital Bank
Three Months Ended	Security Bank																					Total
September 30, 2012
FDIC receivable for loss share agreements at beginning of period	$	151,117		$	81,877		$	3,916		$	5,657		$	66,147		$	64,286		$	45,826		$	418,826
Provision for loan losses attributable to FDIC for loss share agreements	8,492			10,709			(226		)	137			1,055			94			1,501			21,762
Wires received	(18,654		)	(16,776		)	(1,024		)	(1,977		)	(4,179		)	(31,504		)	(18,527		)	(92,641		)
Net charge-offs, write-downs and other losses	(7,422		)	15,075			329			10,033			(8,065		)	231			(2,587		)	7,594
(Amortization) accretion	(3,038		)	(3,757		)	828			(876		)	(1,045		)	(165		)	1,762			(6,291		)
External expenses qualifying under loss share agreements	2,063			2,338			158			(56		)	265			506			454			5,728
Balance, end of period	$	132,558		$	89,466		$	3,981		$	12,918		$	54,178		$	33,448		$	28,429		$	354,978

				Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust Company			United Americas Bank			Piedmont Community Bank			Community Capital Bank
Nine Months Ended	Security Bank																					Total
September 30, 2013
FDIC receivable for loss share agreements at beginning of period	$	136,333		$	82,613		$	5,395		$	12,349		$	54,230		$	31,273		$	33,132		$	355,325
Provision for loan losses attributable to FDIC for loss share agreements	(18,159		)	(8,210		)	(883		)	(592		)	(7,159		)	1,536			(929		)	(34,396		)
Wires received	(38,491		)	(26,259		)	(1,801		)	(2,461		)	(11,999		)	(13,110		)	(8,936		)	(103,057		)
Net charge-offs, write-downs and other losses	(5,757		)	(9,802		)	(1,507		)	77			(1,547		)	1,390			1,756			(15,390		)
(Amortization) accretion	(26,886		)	(1,445		)	(476		)	(4,149		)	(8,663		)	(6,314		)	(8,579		)	(56,512		)
External expenses qualifying under loss share agreements	6,190			957			546			30			1,230			1,246			380			10,579
Balance, end of period	$	53,230		$	37,854		$	1,274		$	5,254		$	26,092		$	16,021		$	16,824		$	156,549

				Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust Company			United Americas Bank			Piedmont Community Bank			Community Capital Bank
Nine Months Ended	Security Bank																					Total
September 30, 2012
FDIC receivable for loss share agreements at beginning of period	$	201,187		$	121,771		$	8,341		$	10,310		$	71,393		$	67,011		$	48,486		$	528,499
Provision for loan losses attributable to FDIC for loss share agreements	8,033			14,979			1,156			1,614			903			94			1,501			28,280
Wires received	(82,041		)	(57,485		)	(4,919		)	(3,440		)	(12,013		)	(34,988		)	(21,681		)	(216,567		)
Net charge-offs, write-downs and other losses	9,243			13,169			(1,618		)	6,665			(5,182		)	984			(2,589		)	20,672
(Amortization) accretion	(8,629		)	(7,013		)	762			(2,288		)	(1,980		)	(136		)	1,975			(17,309		)
External expenses qualifying under loss share agreements	4,765			4,045			259			57			1,057			483			737			11,403
Balance, end of period	$	132,558		$	89,466		$	3,981		$	12,918		$	54,178		$	33,448		$	28,429		$	354,978

28

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8: Derivative Instruments and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of certain balance sheet assets and liabilities and the use of derivative financial instruments. Specifically, 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 does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated in qualifying hedging relationships. The Company's hedging strategies involving interest rate derivatives are classified as either Fair Value Hedges or Cash Flow Hedges, depending on the rate characteristic of the hedged item.

Fair Value Hedge: As a result of interest rate fluctuations, fixed-rate assets and liabilities will appreciate or depreciate in fair value. When effectively hedged, this appreciation or depreciation will generally be offset by fluctuations in the fair value of the derivative instruments that are linked to the hedged assets and liabilities. This strategy is referred to as a fair value hedge.

Cash Flow Hedge: Cash flows related to floating-rate assets and liabilities will fluctuate with changes in an underlying rate index. When effectively hedged, the increases or decreases in cash flows related to the floating rate asset or liability will generally be offset by changes in cash flows of the derivative instrument designated as a hedge. This strategy is referred to as a cash flow hedge.

The table below presents the fair value of the Company's derivative financial instruments (in thousands):

	Derivatives designated as hedging instruments
	Asset Derivatives						Liability Derivatives
	September 30, 2013			December 31, 2012			September 30, 2013			December 31, 2012
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest rate products	Other assets	$	6,863	Other assets	$	53	Other liabilities	$	1,047	Other liabilities	$	2,605
Total derivatives designated as hedging instruments		$	6,863		$	53		$	1,047		$	2,605

The tables below present the effects of offsetting the Company's derivative financial instruments (in thousands):

							Gross Amounts Not Offset in the Statement of Financial Condition
September 30, 2013	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts Presented in the Statement of Financial Condition		Financial Instruments			Collateral Received/Posted			Net Amount
Offsetting Derivative Assets
Derivatives	$	6,863	$	—	$	6,863	$	(1,047	)	$	(4,150	)	$	1,666
Total	$	6,863	$	—	$	6,863	$	(1,047	)	$	(4,150	)	$	1,666
Offsetting Derivative Liabilities
Derivatives	$	1,047	$	—	$	1,047	$	(1,047	)	$	—		$	—
Total	$	1,047	$	—	$	1,047	$	(1,047	)	$	—		$	—

29

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

							Gross Amounts Not Offset in the Statement of Financial Condition
December 31, 2012	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts Presented in the Statement of Financial Condition		Financial Instruments			Collateral Received/Posted			Net Amount
Offsetting Derivative Assets
Derivatives	$	53	$	—	$	53	$	(25	)	$	—		$	28
Total	$	53	$	—	$	53	$	(25	)	$	—		$	28
Offsetting Derivative Liabilities
Derivatives	$	2,605	$	—	$	2,605	$	(25	)	$	(1,937	)	$	643
Total	$	2,605	$	—	$	2,605	$	(25	)	$	(1,937	)	$	643

The Company uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as fair value hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments over the life of the agreements without the exchange of the underlying notional amount. As of September 30, 2013, the Company had 71 interest rate swaps with an aggregate notional amount of $144.2 million that were designated as fair value hedges associated with the Company's fixed rate loan program.

At September 30, 2013, interest rate caps designated as cash flow hedges involve the payment of a premium to a counterparty based on the notional size and cap strike rate. The Company's current cash flow hedges are for the purpose of capping the interest rate paid on variable rate liabilities which protect the company in a rising rate environment. The caps were purchased during the first quarter of 2013, have a five year life and notional value of $200.0 million. The Company had no active derivative contracts outstanding at December 31, 2012 that were designated as cash flow hedges of interest rate risk.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2013, such derivatives were used to hedge the variable cash outflows associated with existing liabilities. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness was recognized during the three and nine months endedSeptember 30, 2013.

Amounts reported in accumulated other comprehensive income (AOCI) related to derivatives will be reclassified to interest expense as interest payments are received on the Company's variable-rate liabilities. During the next twelve months, the Company estimates that $195,000 will be reclassified as a decrease to net interest income.

For derivatives so designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. The change in fair value of the effective portion of cash flow hedges is accounted for in other comprehensive income rather than net income and the premium paid to purchase the cap is amortized into interest expense over the life of the cap.

During the three and nine months ended September 30, 2013, the Company recognized net gains (losses) of $11,000 and $557,000 respectively, and during the three and nine months ended September 30, 2012, the Company recognized net gains (losses) of $114,000 and $(242,000), respectively, related to hedge ineffectiveness of the fair value hedging relationships. The Company also recognized a net reduction in interest income of $402,000 and $1,034,000, respectively for the three and nine months ended September 30, 2013, respectively, and a net reduction in interest income of $206,000 and $493,000, respectively, for the three and nine months ended September 30, 2012 related to the Company's fair value hedges, which include net settlements on the derivatives and any amortization adjustment of the basis in the hedged items. Terminations of derivatives and related hedged items for interest rate swap agreements prior to their original maturity date resulted in the recognition of a net gain of $46,000 and net loss of $8,000 in noninterest income for the three and nine months ended September 30, 2013 and 2012, respectively, related to the unamortized basis in the hedged items.

30

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents the effect of the Company's derivatives in fair value hedging relationships (in thousands):

	Amount of Net Gain (Loss) Recognized in Income on Derivative						Amount of Net Gain (Loss) Recognized in Income on Hedged Item				Amount of Net Gain (Loss) Recognized in Income on Derivative					Amount of Net Gain (Loss) Recognized in Income on Hedged Item
	Three Months Ended September 30						Three Months Ended September 30				Nine Months Ended September 30					Nine Months Ended September 30
	2013			2012			2013		2012		2013		2012			2013			2012
Interest rate products
Noninterest income	$	(502	)	$	(539	)	$	601	$	652	$	3,384	$	(1,787	)	$	(2,738	)	$	1,545
Total	$	(502	)	$	(539	)	$	601	$	652	$	3,384	$	(1,787	)	$	(2,738	)	$	1,545

The table below presents the effect of the Company's derivatives in cash flow hedging relationships (in thousands):

	Amount of Net Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)					Amount of Net Gain (Loss) Reclassified from AOCI into Income (Effective Portion)					Amount of Net Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)				Amount of Net Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	Three Months Ended September 30					Three Months Ended September 30					Nine Months Ended September 30				Nine Months Ended September 30
	2013			2012		2013			2012		2013		2012		2013			2012
Interest rate products
Interest expense	$	(655	)	$	—	$	(12	)	$	—	$	588	$	—	$	(15	)	$	—
Total	$	(655	)	$	—	$	(12	)	$	—	$	588	$	—	$	(15	)	$	—

As of September 30, 2013, there was no gain or loss recognized in income on the cash flow hedge for ineffectiveness.

Credit-risk-related Contingent Features

The Company manages credit exposure on derivatives transactions by entering into a bi-lateral credit support agreement with each counterparty. The credit support agreements require collateralization of exposures beyond specified minimum threshold amounts. The details of these agreements, including the minimum thresholds, vary by counterparty.

The Company's agreements with the derivative counterparties provide that if the Company defaults on any indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on the derivative obligations.

Such agreements also provide that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of September 30, 2013, there were no derivatives in a net liability position. The Company has minimum collateral posting thresholds with derivative counterparties and was not required to post collateral under these agreements as of September 30, 2013. Although the Company did not breach any of these provisions at September 30, 2013, had a breach occurred, the Company could have been required to settle obligations under the agreements at their termination value.

31

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9: Other Assets, Other Liabilities and Accrued Expenses

The more significant components of other assets outstanding were as follows (in thousands):

Other Assets	September 30, 2013		December 31, 2012
Cash surrender value of life insurance	$	39,812	$	38,791
Derivative financial instruments	6,863		53
Accrued interest receivable	3,961		5,292
Other prepaid expenses	3,472		2,823
Federal Home Loan Bank stock	3,195		4,120
Accrued income tax receivable	—		7,611
Prepaid FDIC insurance assessments	—		4,086
Miscellaneous receivables and other assets	4,798		5,535
Total other assets	$	62,101	$	68,311

The more significant components of other liabilities and accrued expenses outstanding were as follows (in thousands):

Other Liabilities and Accrued Expenses	September 30, 2013		December 31, 2012
Accrued income tax payable	$	15,734	$	746
Net deferred tax liability	10,903		60,809
Accrued incentive compensation	5,059		5,854
Accrued lease expense	3,274		2,026
Accrued severance expense	1,703		—
Accrued professional fees	1,256		885
Derivative financial instruments	1,047		2,605
Accrued interest payable	828		978
Miscellaneous payables and accrued expenses	2,021		1,201
Total accrued expenses and other liabilities	$	41,825	$	75,104

Note 10: Share-Based Compensation

The Company maintains an incentive compensation plan that includes share-based compensation. The State Bank Financial Corporation 2011 Omnibus Equity Compensation Plan (the "Plan") was approved by the Company's shareholders in 2011 and authorizes up to 3,160,000 shares of common stock for issuance in accordance with the Plan terms. Descriptions of these grants and the Plan, including the terms of awards and the number of shares authorized for issuance, were included in Note 18 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The Company issued 156,314 restricted stock awards under the Plan to certain directors and officers during the third quarter ended September 30, 2013. As of September 30, 2013, the Company's Board of Directors approved the accelerated vesting of an aggregate of 28,918 unvested stock options and 14,700 shares of restricted stock upon the retirement of the award holders.

The Company recognized compensation expense related to equity awards of $330,000 and $966,000 for the three and nine months ended September 30, 2013, compared to $178,000 and $486,000 for the same periods in 2012, respectively, in the Company's consolidated statements of income. Unearned share-based compensation associated with these equity awards totaled $3.5 million at September 30, 2013.

32

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11: Regulatory Matters

The Company's and the Bank's regulatory ratios as of September 30, 2013 and December 31, 2012 are presented below (dollars in thousands):

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2013
Total Capital to Risk-Weighted Assets
Consolidated	$	430,387	27.44	%	$	125,480	8.00	%	$	156,850	10.00	%
Bank	$	372,099	23.72	%	$	125,479	8.00	%	$	156,848	10.00	%
Tier I Capital to Risk-Weighted Assets
Consolidated	$	410,671	26.18	%	$	62,740	4.00	%	$	94,110	6.00	%
Bank	$	352,383	22.47	%	$	62,739	4.00	%	$	94,109	6.00	%
Tier I Capital to Average Assets
Consolidated	$	410,671	16.20	%	$	101,375	4.00	%	$	—	N/A
Bank	$	352,383	13.90	%	$	101,384	4.00	%	$	126,730	5.00	%

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2012
Total Capital to Risk-Weighted Assets
Consolidated	$	426,213	30.54	%	$	111,638	8.00	%	$	139,547	10.00	%
Bank	$	390,402	27.98	%	$	111,637	8.00	%	$	139,546	10.00	%
Tier I Capital to Risk-Weighted Assets
Consolidated	$	408,119	29.25	%	$	55,819	4.00	%	$	83,728	6.00	%
Bank	$	372,308	26.68	%	$	55,818	4.00	%	$	83,728	6.00	%
Tier I Capital to Average Assets
Consolidated	$	408,119	15.49	%	$	105,356	4.00	%	$	—	N/A
Bank	$	372,308	14.14	%	$	105,349	4.00	%	$	131,686	5.00	%

The Company and the Bank have entered into a Capital Maintenance Agreement with the FDIC. Under the terms of that agreement, the Bank must at all times maintain a leverage ratio of at least 10% and a total risk-based capital ratio of at least 12%. The agreement terminates on December 31, 2013. At September 30, 2013 and December 31, 2012, the Bank was in compliance with the Capital Maintenance Agreement.

Note 12: Commitments and Contingent Liabilities

In order to meet the financing needs of its customers, the Company maintains financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit, interest rate and/or liquidity risk.

Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed maturity dates or other termination clauses with required fee payments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. The amount of collateral required, if deemed necessary upon extension of credit, is determined on a case by case basis by management through credit evaluation of the customer.

33

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Standby letters of credit are commitments guaranteeing performance of a customer to a third party. Those guarantees are issued primarily to support public and private borrowing arrangements. In order to minimize its exposure, the Company's credit policies govern the issuance of standby letters of credit.

The Company's exposure to credit loss is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments.

A summary of the Company's commitments is as follows (in thousands):

	September 30, 2013		December 31, 2012
Commitments to extend credit:
Fixed	$	12,223	$	8,188
Variable	298,917		248,310
Standby letters of credit:
Fixed	1,093		437
Variable	632		1,399
Total	$	312,865	$	258,334

The fixed rate loan commitments have maturities ranging from one month to six years. We generally do not make commitments longer than three years without hedging the interest rate risk.

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material effect on the Company's financial statements.

Note 13: Fair Value

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Financial Accounting Standards Board's Accounting Standards Codification Topic 820 ("ASC 820") Fair Value Measurements and Disclosures establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs classified within Level 3 of the hierarchy).

Fair Value Hierarchy

Level 1

Valuation is based on inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2

Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as interest rates, yield curves observable at commonly quoted intervals, and other market-corroborated inputs.

Level 3

Valuation inputs are unobservable inputs for the asset or liability, which are used to measure fair value to the extent that observable inputs are not available. The inputs reflect the Company's own assumptions about the assumptions that market participants would use in pricing the asset or liability.

34

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company evaluates fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's valuation process. For the nine months endedSeptember 30, 2013 and the year ended December 31, 2012, there were no transfers between levels.

The following methods and assumptions are used by the Company in estimating the fair value of its financial assets and financial liabilities on a recurring basis:

Investment Securities Available-for-Sale

At September 30, 2013, the Company's investment portfolio primarily consisted of U.S. government agency mortgage-backed securities, nonagency mortgage-backed securities, U.S. government securities, corporate bonds, municipal securities and equity securities. The fair values for U.S. Treasury and equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges utilizing Level 1 inputs. Other securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. The fair value of other securities classified as available-for-sale are determined using widely accepted valuation techniques including matrix pricing and broker-quote-based applications. Inputs may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other relevant items. The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. From time to time, the Company validates the appropriateness of the valuations provided by the independent pricing service to prices obtained from an additional third party or prices derived using internal models.

Derivative Instruments and Hedging Activities

The Company uses interest-rate swaps to provide longer-term fixed rate funding to its customers and interest-rate caps to mitigate the interest rate risk on its variable rate liabilities. The majority of these derivatives are traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract. Therefore, these derivative contracts are classified as Level 2. The Company utilizes an independent third party valuation company to validate the dealer prices. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value, reported amounts are considered to have been derived utilizing Level 3 inputs.

The Company evaluates the credit risk of its counterparties as well as that of the Company. The Company has considered factors such as the likelihood of default by the Company and its counterparties, its net exposures, and remaining contractual life, among other things, in determining if any fair value adjustments related to credit risk are required. Counterparty exposure is evaluated by netting positions that are subject to master netting arrangements, as well as considering the amount of collateral securing the position. The Company reviews its counterparty exposure on a regular basis, and, when necessary, appropriate business actions are taken to adjust the exposure. The Company also utilizes this approach to estimate its own credit risk on derivative liability positions. To date, the Company has not realized any losses due to a counterparty's inability to pay any net uncollateralized position.

35

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Assets and Financial Liabilities Measured on a Recurring Basis:

The following table presents the fair value measurements of financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands).

	Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
U.S. Government securities	$	766	$	79,395	$	—	$	80,161
States and political subdivisions	—		9,375		—		9,375
Residential mortgage-backed securities—nonagency	—		122,886		—		122,886
Residential mortgage-backed securities—agency	—		70,945		—		70,945
Collateralized mortgage obligations	—		91,416		—		91,416
Corporate securities	—		—		—		—
Equity securities	55		—		—		55
Derivative financial instruments	—		6,863		—		6,863
Total recurring assets at fair value	$	821	$	380,880	$	—	$	381,701
Liabilities:
Derivative financial instruments	$	—	$	1,047	$	—	$	1,047
Total recurring liabilities at fair value	$	—	$	1,047	$	—	$	1,047

The following table presents the fair value measurements of financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands).

	Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
U.S. Government securities	$	778	$	59,730	$	—	$	60,508
States and political subdivisions	—		12,132		—		12,132
Residential mortgage-backed securities—nonagency	—		139,761		—		139,761
Residential mortgage-backed securities—agency	—		37,522		—		37,522
Collateralized mortgage obligations	—		53,483		—		53,483
Corporate securities	—		495		—		495
Equity securities	—		—		—		—
Derivative financial instruments	—		53		—		53
Total recurring assets at fair value	$	778	$	303,176	$	—	$	303,954
Liabilities:
Derivative financial instruments	$	—	$	2,605	$	—	$	2,605
Total recurring liabilities at fair value	$	—	$	2,605	$	—	$	2,605

36

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following methods and assumptions are used by the Company in estimating the fair value of its financial assets on a nonrecurring basis:

Impaired Noncovered Loans

Noncovered loans considered impaired are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The fair values of impaired noncovered loans are measured on a nonrecurring basis and are based on the underlying collateral value of each loan if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs that are based on observable market data such as an appraisal. Updated appraisals are obtained on at least an annual basis. Level 3 inputs are based on the Company's customized discounting criteria when management determines the fair value of the collateral is further impaired.

Impaired Covered Loans

The fair values of impaired covered loans are measured on a nonrecurring basis. As of September 30, 2013, the Company identified acquired loans covered by FDIC loss share agreements where the expected performance of such loans had deteriorated 5% or more from management's performance expectations established in conjunction with the determination of the acquisition date fair values and are thus considered impaired by management. The fair values of impaired covered loans are determined by discounted cash flow estimations, or unobservable assumptions; as such, they are recorded within nonrecurring Level 3 hierarchy. The Company determines its fair value of impaired covered loans by discounting the expected cash flows for both covered loans that are individually evaluated for impairment and covered loans that are collectively evaluated for impairment in pools. For collateral dependent loans, the cash flow may be based on the estimated fair value of the underlying collateral.

Potential credit losses on acquired loans are calculated based on the Company's specific review of covered loans individually evaluated for impairment and on the probability of default and loss given default estimates for covered loans collectively evaluated for impairment in pools. The potential credit losses reduce the expected principal cash flows in computing fair value.

The discounted cash flow analysis takes into consideration the contractual terms of the loan, including the period to maturity and use of observable market discount rates for similar instruments with adjustments for implied volatility. The adjustments that impact the fair value include probability of default, loss given default, prepayment rates and cash flow timing assumptions. There are several assumptions for each product type that determine the timing of cash flows for principal, interest, or collateral value.

37

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Assets Measured on a Nonrecurring Basis:

The following table presents the fair value measurements of financial assets measured at fair value on a nonrecurring basis as of September 30, 2013 and December 31, 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands).

	Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2013
Impaired loans, net of specific reserves:
Not covered by loss share agreements	$	—	$	—	$	2,602	$	2,602
Covered by loss share agreements	—		—		23,338		23,338
Total impaired loans	$	—	$	—	$	25,940	$	25,940
December 31, 2012
Impaired loans, net of specific reserves:
Not covered by loss share agreements	$	—	$	—	$	3,456	$	3,456
Covered by loss share agreements	—		—		194,245		194,245
Total impaired loans	$	—	$	—	$	197,701	$	197,701

Noncovered impaired loans that are measured for impairment using the fair value of collateral for collateral dependent loans had a principal balance of $2.9 million with a valuation allowance of $315,000 at September 30, 2013. The Company also had one loan that was classified as a troubled debt restructuring that was not collateral dependent at September 30, 2013 with a principal balance of $74,000. The fair value of the troubled debt restructuring was measured by discounting expected future cash flows at the effective interest rate, or the original contractual loan rate, resulting in a valuation allowance totaling $11,000.

Noncovered impaired collateral dependent loans that are measured for impairment using the fair value of collateral had a principal balance of $3.5 million with a valuation allowance of $1.1 million at December 31, 2012. The Company also had two loans that were classified as troubled debt restructurings that were not collateral dependent at December 31, 2012 with an aggregate principal balance of $1.3 million. The fair values of the troubled debt restructurings were measured by discounting expected future cash flows at the effective interest rate, or the original contractual loan rate, resulting in valuation allowances totaling $189,000.

As of September 30, 2013, the Company individually reviewed covered loans totaling $99.0 million, of which $28.9 million were identified as having deteriorated from management's initial performance expectations, resulting in an allowance attributable to these loans of $5.8 million. As of September 30, 2013, the Company evaluated $191.1 million of covered loans as part of their respective pools, of which $244,000 were identified as having deteriorated from management's initial performance expectations, resulting in an allowance attributable to these loans of $2,000.

As of December 31, 2012, the Company individually reviewed covered loans totaling $149.7 million, of which $21.9 million were identified as having deteriorated from management's initial performance expectations, resulting in an allowance attributable to these loans of $6.3 million. As of December 31, 2012, the Company also evaluated $325.0 million of covered loans as part of their respective pools, of which $191.1 million were identified as having deteriorated from management's initial performance expectations, resulting in an allowance attributable to these loans of $12.5 million.

38

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following methods and assumptions are used by the Company in estimating the fair value of its nonfinancial assets on a nonrecurring basis:

Other Real Estate Owned

The fair value of other real estate owned is determined when the asset is transferred to foreclosed assets. Fair value is based on appraised values of the collateral. When the value is based on observable market prices such as an appraisal, the asset is recorded in Level 2 hierarchy. When an appraised value is not available or management determines the fair value of the collateral is further impaired, the asset is recorded as a nonrecurring Level 3 hierarchy. Management requires a new appraisal at the time of foreclosure or repossession of the underlying collateral. Updated appraisals are obtained on at least an annual basis on all other real estate owned.

The following table presents the fair value measurements of nonfinancial assets measured at fair value on a nonrecurring basis for the periods indicated, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands).

	Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2013
Other Real Estate Owned:
Not covered by loss share agreements	$	—	$	—	$	1,058	$	1,058
Covered by loss share agreements	—		—		60,620		60,620
Total other real estate owned	$	—	$	—	$	61,678	$	61,678
December 31, 2012
Other Real Estate Owned:
Not covered by loss share agreements	$	—	$	—	$	1,200	$	1,200
Covered by loss share agreements	—		—		51,765		51,765
Total other real estate owned	$	—	$	—	$	52,965	$	52,965

Other real estate owned (OREO), consisting of real estate acquired through foreclosure or a deed in lieu of foreclosure in satisfaction of a loan, is initially recorded at the lower of the principal investment in the loan or the fair value of the collateral less estimated costs to sell at the time of foreclosure. Management considers a number of factors in estimating fair value including appraised value, estimated selling prices and current market conditions. Any excess of the loan balance over the fair value less estimated costs to sell is treated as a charge against the allowance for loan losses at the time of foreclosure. For acquired OREO, the loan is transferred into OREO at its fair value not to exceed the carrying value of the loan at foreclosure. Management periodically reviews the carrying value of OREO for impairment and adjusts the values as appropriate through noninterest expense.

39

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table is a reconciliation of the fair value measurement of other real estate owned disclosed in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, to the amount recorded on the consolidated statement of financial condition (in thousands).

	September 30, 2013			December 31, 2012
Noncovered under FDIC loss share agreements:
Other real estate owned at fair value	$	1,058		$	1,200
Estimated selling costs and other adjustments	(84		)	(85		)
Other real estate owned	$	974		$	1,115
Covered under FDIC loss share agreements:
Other real estate owned at fair value	$	60,620		$	51,765
Estimated selling costs and other adjustments	(8,969		)	(6,703		)
Other real estate owned	$	51,651		$	45,062

40

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at September 30, 2013(in thousands):

	Fair Value		Valuation Technique	Unobservable Inputs	Range
Noncovered impaired loans - collateral dependent	$	2,539	Third party appraisal	Management discount for property type and recent market volatility	15% - 50% discount
Noncovered impaired loans - noncollateral dependent	$	63	Discounted cash flow analysis	1) Interest rate 2) Loan term	1) 7.90% 2) 60 months
Covered impaired loans - individually evaluated for impairment	$	23,096	Discounted cash flow analysis and/or third party appraisal	1) Discount rates 2) Management discount for property type and recent market volatility	1) 37.6% average discount rate 2) 10% - 40% discount
Covered impaired loans - collectively evaluated for impairment	$	242	Discount cash flow analysis	1) Probability of default 2) Loss given default 3) Discount rates	1) .5% - 100% 2) 15% - 70% 3) 26.30% average discount rate
Noncovered other real estate owned	$	1,058	Third party appraisal	Management discount for property type and recent market volatility	0% - 28% discount
Covered other real estate owned	$	60,620	Third party appraisal	Management discount for property type and recent market volatility	0% - 53% discount

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at December 31, 2012(in thousands):

	Fair Value		Valuation Technique	Unobservable Inputs	Range
Noncovered impaired loans - collateral dependent	$	2,386	Third party appraisal	Management discount for property type and recent market volatility	15% - 50% discount
Noncovered impaired loans - noncollateral dependent	$	1,070	Discounted cash flow analysis	1) Interest rate 2) Loan term	1) 3.25% - 7.90% 2) 69 - 141 months
Covered impaired loans - individually evaluated for impairment	$	15,613	Discounted cash flow analysis and/or third party appraisal	1) Discount rates 2) Management discount for property type and recent market volatility	1) 47.8% average discount rate 2) 10% - 40% discount
Covered impaired loans - collectively evaluated for impairment	$	178,632	Discount cash flow analysis	1) Probability of default 2) Loss given default 3) Discount rates	1) 2.5% - 100% 2) 30% - 95% 3) 9.9% average discount rate
Noncovered other real estate owned	$	1,200	Third party appraisal	Management discount for property type and recent market volatility	0% - 43% discount
Covered other real estate owned	$	51,765	Third party appraisal	Management discount for property type and recent market volatility	0% - 71% discount

41

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table includes the estimated fair value of the Company's financial assets and financial liabilities. The methodologies for estimating the fair value of financial assets and financial liabilities measured on a recurring and nonrecurring basis are discussed above. The methodologies for estimating the fair value for other financial assets and financial liabilities are discussed below. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data in order to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation techniques may have a material effect on the estimated fair value amounts at September 30, 2013 and December 31, 2012.

		September 30, 2013				December 31, 2012
(in thousands)	Fair Value Hierarchy Level	Carrying  Amount		Estimated  Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents	Level 1	$	407,155	$	407,155	$	443,457	$	443,457
Investment securities available-for-sale	Levels 1 & 2	374,838		374,838		303,901		303,901
Mortgage loans held for sale	Level 2	885		885		4,853		4,853
Net loans	Level 3	1,426,429		1,514,156		1,390,077		1,408,634
Other real estate owned	Level 3	52,625		61,678		46,177		52,965
FDIC receivable for loss share agreements, net	Level 3	156,549		83,670		355,325		336,497
Derivative financial instruments	Level 2	6,863		6,863		53		53
Accrued interest receivable	Level 2	3,961		3,961		5,292		5,292
Federal Home Loan Bank stock	Level 1	3,195		3,195		4,120		4,120
Liabilities:
Deposits	Level 2	$	2,049,911	$	2,050,379	$	2,148,436	$	2,149,187
Securities sold under agreements to repurchase	Level 2	1,082		1,082		4,755		4,755
Notes payable	Level 2	5,690		5,690		2,523		2,523
Derivative instruments	Level 2	1,047		1,047		2,605		2,605
Accrued interest payable	Level 2	828		828		978		978

Cash and Cash Equivalents

The carrying amount approximates fair value because of the short maturity of these instruments.

Mortgage Loans Held for Sale

Mortgage loans held for sale are recorded at the lower of cost or fair value. Estimated fair value is determined on the basis of existing forward commitments, or the current market value of similar loans. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Noncovered Loans

Fair values are estimated for portfolios of noncovered loans with similar financial characteristics. Loans are segregated by type. The fair value of performing noncovered loans is calculated by discounting scheduled cash flows through the estimated maturities using estimated market discount rates that reflect observable market information incorporating the credit, liquidity, yield, and other risks inherent in the loan. The estimate of maturity is based on the Company's historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of the current economic and lending conditions.

42

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Covered Loans

Covered loans are recorded at fair value at the date of acquisition exclusive of expected cash flow reimbursements from the FDIC. The fair values of loans with evidence of credit deterioration are recorded net of a nonaccretable discount and an accretable discount. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases to the expected cash flows result in a reversal of the provision for loan losses to the extent of prior changes or a reclassification of the difference from the nonaccretable to accretable discount with a positive impact on the accretable discount. Any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized in interest income over the remaining life of the loan when there is reasonable expectation about the amount and timing of such cash flows.

FDIC Receivable for Loss Share Agreements

The FDIC receivable is recorded at fair value at the acquisition date. The FDIC receivable is recognized at the same time as the covered loans, and measured on the same basis, subject to collectibility or contractual limitations, and the FDIC receivable is impacted by changes in estimated cash flows associated with these loans.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amounts are a reasonable estimate of fair values.

Federal Home Loan Bank stock

Federal Home Loan Bank stock is considered a restricted equity security and is carried at original cost basis, as cost approximates fair value and there is no readily determinable market value for such investments.

Deposits

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing deposits, and savings and money market deposits, is equal to the amount payable on demand. The fair value of time deposits is estimated by discounting the expected life. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities Sold Under Agreements to Repurchase and Notes Payable

The fair value of securities sold under agreements to repurchase approximates the carrying amount because of the short maturity of these borrowings. The discount rate is estimated using the rates currently offered for borrowings of similar remaining maturities. Notes payable are variable rate subordinated debt for which performance is based on the underlying notes receivable and adjust accordingly.

Commitments and Contingencies

The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on current fees charged to enter into such agreements.

Note 14: Earnings Per Share

Earnings per share have been computed based on the following weighted average number of common shares outstanding (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2013		2012		2013		2012
Net income	$	4,349	$	3,358	$	3,330	$	19,527
Denominator:
Weighted average common shares outstanding	31,999		31,654		31,942		31,627
Weighted average dilutive grants	1,298		1,155		1,273		1,167
Weighted average common shares outstanding including dilutive grants	33,297		32,809		33,215		32,793
Net income per share:
Basic	$	.14	$	.11	$	.10	$	.62
Diluted	$	.13	$	.10	$	.10	$	.60

Note 15: Accumulated Other Comprehensive Income

Accumulated other comprehensive income (AOCI) is reported as a component of shareholders' equity. AOCI can include, among other items, unrealized holding gains and losses on investment securities available-for-sale and gains and losses on derivative instruments that are designated as, and qualify as, cash flow hedges. The components of AOCI are reported net of related tax effects.

43

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of AOCI and changes in those components are as follows (in thousands):

Three Months Ended	Investment Securities Available-for-Sale			Gain (Loss) on Effective Cash Flow Hedges			Total
September 30, 2013
Balance, beginning of period	$	5,193		$	1,243		$	6,436
Other comprehensive income (loss) before income taxes:
Net change in unrealized gains (losses)	135			(989		)	(854		)
Reclassification adjustment for net losses (gains) realized and included in earnings	(717		)	12			(705		)
Income tax expense (benefit)	(192		)	(322		)	(514		)
Balance, end of period	$	4,803		$	588		$	5,391
September 30, 2012
Balance, beginning of period	$	3,631		$	—		$	3,631
Other comprehensive income (loss) before income taxes:
Net change in unrealized gains (losses)	8,753			—			8,753
Reclassification adjustment for net losses (gains) realized and included in earnings	—			—			—
Income tax expense (benefit)	3,291			—			3,291
Balance, end of period	$	9,093		$	—		$	9,093
Nine Months Ended
September 30, 2013
Balance, beginning of period	$	8,528		$	—		$	8,528
Other comprehensive income (loss) before income taxes:
Net change in unrealized gains (losses)	(4,479		)	863			(3,616		)
Reclassification adjustment for net losses (gains) realized and included in earnings	(1,081		)	15			(1,066		)
Income tax expense (benefit)	(1,835		)	290			(1,545		)
Balance, end of period	$	4,803		$	588		$	5,391
September 30, 2012
Balance, beginning of period	$	(2,677	)	$	—		$	(2,677	)
Other comprehensive income (loss) before income taxes:
Net change in unrealized gains (losses)	18,955			—			18,955
Reclassification adjustment for net losses (gains) realized and included in earnings	(93		)	—			(93		)
Income tax expense (benefit)	7,092			—			7,092
Balance, end of period	$	9,093		$	—		$	9,093

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

The following discussion analyzes our financial condition as of September 30, 2013 as compared to December 31, 2012 and describes our results of operations for the three and nine months endedSeptember 30, 2013 as compared to the three and nine months endedSeptember 30, 2012. This discussion should be read in conjunction with our consolidated financial statements and accompanying footnotes appearing in this report and in conjunction with the financial statements and related notes and disclosures in our 2012 Annual Report on Form 10-K. 

Unless the context indicates otherwise, all references to the “Company,” “we,” “us” and “our” refer to State Bank Financial Corporation and our wholly-owned subsidiary, State Bank and Trust Company. All references to the “Bank” refer to State Bank and Trust Company.

The Company is a bank holding company that was incorporated under the laws of the State of Georgia in January 2010 to serve as the holding company for the Bank. The Bank is a Georgia state-chartered bank that opened in October 2005 in Pinehurst, Georgia. From October 2005 until July 23, 2009, the Bank operated as a small community bank from two branch offices located in Dooly County, Georgia with total assets of approximately $33.6 million, total loans receivable of approximately $22.5 million, total deposits of approximately $26.1 million and total shareholders' equity of approximately $5.7 million at December 31, 2008.

On July 24, 2009, the Bank raised approximately $292.1 million in gross proceeds (before expenses) from investors in a private offering of its common stock. In connection with the private offering, the FDIC and the Georgia Department of Banking and Finance approved the Interagency Notice of Change in Control application filed by our new management team, which took control of the Bank on July 24, 2009. Since that date and through the date of this report, the Bank has acquired $3.9 billion in assets and assumed $3.6 billion in deposits from the FDIC, as receiver, in twelve different failed bank transactions. Concurrently with each of our acquisitions, we entered into loss share agreements with the FDIC that cover certain of the acquired loans and other real estate owned. Where applicable, we refer to loans subject to loss share agreements with the FDIC as "covered loans" and loans that are not subject to loss share agreements with the FDIC as "noncovered loans." We refer to the indemnification assets associated with the FDIC loss share agreements related to our acquired banks as the "FDIC receivable."

As a result of our failed bank acquisitions, the Bank was transformed from a small community bank in Pinehurst, Georgia to a much larger commercial bank now operating 20 full service branches throughout middle Georgia and metropolitan Atlanta. As of September 30, 2013, our total assets were approximately $2.5 billion, our total loans receivable were approximately $1.4 billion, our total deposits were approximately $2.0 billion and our total shareholders' equity was approximately $428.6 million.

Overview

Our net income for the quarter ended September 30, 2013 was $4.3 million, or $.13 per diluted share as compared to $3.4 million, or $.10 per diluted share, for the quarter ended September 30, 2012.

Our net interest income increased by $10.2 million to $44.4 million for the quarter ended September 30, 2013 from $34.2 million for the quarter ended September 30, 2012. Our interest income increased $9.9 million primarily as a result of higher accretion income on covered loans, principally from gains on pools that closed during the quarter and higher interest income on noncovered loans driven by organic loan growth. Our interest expense decreased by $254,000 as a result of improvements in our deposit mix resulting in a lower cost of funds.

Noncovered loans have increased $179.4 million, or 18.2%, compared to the year ended December 31, 2012 and represent 80.1% of our total loan portfolio as of September 30, 2013, while covered loans declined to $290.1 at September 20, 2013 from $474.7 million at December 31, 2012. Asset quality remained strong in our noncovered loan portfolio, with a ratio of nonperforming assets to total loans plus other real estate owned of .33% and a ratio of nonperforming loans to total loans of .25%.

The accretable discount on covered loans increased to $230.1 million at September 30, 2013, compared to $172.8 million at December 31, 2012. The increase is primarily due to increased cash flow re-estimations on covered loans. The accretable discount has an estimated weighted average life of nine quarters compared to future scheduled amortization of the FDIC

44

receivable, which has an estimated weighted average life of four quarters. Without the consideration of timing issues, we expect the remaining accretable discount net of the amortization of the FDIC receivable to be positive to longer-term earnings.

The FDIC receivable for loss share agreements decreased to $156.5 million at September 30, 2013, compared to $355.3 million at December 31, 2012. The balance of the FDIC receivable decreased mainly as a result of the submission of claims and the receipt of cash from the FDIC under the terms of our loss share agreements. The balance of the FDIC receivable has also decreased as a result of projected cash flows on our covered loans continuing to be better than we originally expected, resulting in a decrease in the estimated cash flows expected to be received from the FDIC under the terms of our loss share agreements and, therefore, an impairment of the FDIC receivable. The total impairment is not recorded in the current period, but is recognized prospectively as amortization expense in noninterest income over the lesser of the remaining life of the covered asset or the related loss share agreement.

Deposits decreased to $2.0 billion at September 30, 2013 compared to $2.1 billion at December 31, 2012. The majority of the decline was related to interest-bearing transaction accounts with two large relationships. Overall, our concentration of deposits and funding mix continues to improve and our cost of funds remains stable at 38 basis points.

The Company's capital ratios exceeded all regulatory "well capitalized" guidelines, with a Tier 1 leverage ratio of 16.2%, a Tier 1 risk-based capital ratio of 26.2% and a Total risk-based capital ratio of 27.4% at September 30, 2013.

During the third quarter of 2013, we declared a quarterly cash dividend of $.03 per share to common shareholders. In addition, during fourth quarter 2013, our Board of Directors authorized the repurchase of up to one million shares (approximately 3%) of the our outstanding common stock. The shares may be repurchased from time to time in the open market or through privately negotiated transactions, depending upon market conditions and other factors.

45

Financial Summary

The following table provides unaudited selected financial data for the periods presented (dollars in thousands, except per share amounts). This data should be read in conjunction with the consolidated financial statements and the notes thereto in Item 1 and the information contained in this Item 2.

	2013									2012						Nine Months Ended September 30
	Third Quarter			Second Quarter			First Quarter			Fourth Quarter			Third Quarter			2013			2012
Selected Results of Operations Data:
Total interest income on invested funds	$	2,587		$	2,693		$	2,502		$	2,585		$	2,847		$	7,782		$	8,805
Interest income on noncovered loans, including fees	15,800			15,141			14,374			15,053			14,729			45,315			40,407
Accretion income on covered loans	27,978			25,787			20,636			27,839			18,893			74,401			74,574
Total interest expense	1,981			1,995			1,996			2,096			2,235			5,972			7,653
Net interest income	44,384			41,626			35,516			43,381			34,234			121,526			116,133
Provision for loan losses (noncovered loans)	905			665			350			325			1,050			1,920			4,710
Provision for loan losses (covered loans)	(636		)	(1,288		)	(2,385		)	3,021			5,441			(4,309		)	7,060
Amortization of FDIC receivable for loss share agreements	(18,971		)	(20,762		)	(16,779		)	(15,260		)	(6,291		)	(56,512		)	(17,309		)
Other noninterest income	4,471			4,224			4,121			4,641			3,002			12,816			7,930
Total noninterest income	(14,500		)	(16,538		)	(12,658		)	(10,619		)	(3,289		)	(43,696		)	(9,379		)
Noninterest expense	23,124			25,461			26,664			24,783			19,835			75,249			64,453
Income (loss) before income taxes	6,491			250			(1,771		)	4,633			4,619			4,970			30,531
Income tax expense (benefit)	2,142			113			(615		)	1,418			1,261			1,640			11,004
Net income (loss)	$	4,349		$	137		$	(1,156	)	$	3,215		$	3,358		$	3,330		$	19,527
Per Common Share Data:
Basic net income (loss) per share	$	.14		$	—		$	(.04	)	$	.10		$	.11		$	.10		$	.62
Diluted net income (loss) per share	.13			—			(.04		)	.10			.10			.10			.60
Book value per share at period end	13.36			13.34			13.38			13.48			13.42			13.36			13.42
Tangible book value per share at period end	12.97			12.94			12.96			13.06			13.18			12.97			13.18
Cash dividends	.03			.03			.03			.03			.03			.09			.03
Weighted average shares outstanding:
Basic	31,998,901			31,918,677			31,908,776			31,904,381			31,654,046			31,942,470			31,626,511
Diluted	33,296,650			33,124,681			31,908,776			33,179,198			32,808,726			33,215,846			32,793,460
Capital Ratios:
Average equity to average assets	16.68		%	16.16		%	16.35		%	16.32		%	15.99		%	16.39		%	15.58		%
Leverage ratio	16.20		%	15.57		%	15.51		%	15.49		%	15.44		%	16.20		%	15.44		%
Tier 1 risk-based capital ratio	26.18		%	25.88		%	28.17		%	29.25		%	29.95		%	26.18		%	29.95		%
Total risk-based capital ratio	27.44		%	27.14		%	29.45		%	30.54		%	31.23		%	27.44		%	31.23		%
Performance Ratios:
Return on average assets	.67		%	.02		%	(.18		)%	.48		%	.50		%	.17		%	.98		%
Return on average equity	4.04		%	.13		%	(1.09		)%	2.97		%	3.13		%	1.04		%	6.26		%
Cost of funds	.38		%	.37		%	.38		%	.39		%	.41		%	.38		%	.47		%
Net interest margin (1)(4)	7.95		%	7.41		%	6.58		%	8.09		%	6.36		%	7.32		%	7.44		%
Interest rate spread (2)(4)	7.84		%	7.30		%	6.48		%	8.00		%	6.28		%	7.21		%	7.38		%
Efficiency ratio (3)(4)	77.15		%	101.01		%	116.08		%	75.46		%	63.90		%	96.32		%	60.24		%

46

	2013									2012						Nine Months Ended September 30
	Third Quarter			Second Quarter			First Quarter			Fourth Quarter			Third Quarter			2013			2012
Asset Quality Ratios:
Net charge-offs (recoveries) to total average noncovered loans	.10		%	(.01		)%	(.05		)%	—		%	.02		%	.02		%	.09		%
Nonperforming loans to total noncovered loans (5)	.25		%	.33		%	.42		%	.49		%	.58		%	.25		%	.58		%
Nonperforming assets to loans + ORE:
Noncovered	.33		%	.42		%	.44		%	.60		%	.67		%	.33		%	.67		%
Covered	15.11		%	13.56		%	10.67		%	8.67		%	9.43		%	15.11		%	9.43		%
Allowance for loan losses to loans:
Noncovered	1.41		%	1.41		%	1.44		%	1.49		%	1.53		%	1.41		%	1.53		%
Covered	4.16		%	5.28		%	7.23		%	11.69		%	8.39		%	4.16		%	8.39		%
Selected Average Balances:
Total assets	$	2,561,802		$	2,644,241		$	2,627,041		$	2,642,384		$	2,673,526		$	2,610,798		$	2,673,190
Investment securities	375,321			359,391			321,599			311,130			288,662			352,301			307,341
Loans receivable:
Noncovered loans (6)	1,140,052			1,083,549			1,007,094			955,153			901,168			1,075,210			827,500
Covered loans	305,487			351,955			419,204			499,828			622,841			360,647			704,272
Interest-earning assets	2,219,251			2,260,718			2,195,826			2,137,984			2,146,553			2,225,358			2,090,090
Total deposits	2,077,170			2,147,653			2,115,382			2,114,544			2,155,047			2,113,262			2,182,816
Interest-bearing liabilities	1,662,506			1,747,126			1,736,646			1,741,745			1,803,514			1,715,155			1,858,834
Noninterest-bearing liabilities	472,084			469,876			460,809			469,382			442,593			467,631			397,877
Shareholders' equity	427,212			427,239			429,586			431,257			427,419			428,012			416,479
Selected Actual Balances:
Total assets	$	2,527,101		2,607,697			$	2,641,306		$	2,661,034		$	2,642,247		$	2,527,101		$	2,642,247
Investment securities	374,838			370,146			351,565			303,901			311,323			374,838			311,323
Loans receivable:
Noncovered loans	1,164,854			1,123,122			1,051,455			985,502			937,331			1,164,854			937,331
Covered loans	290,077			333,683			396,831			474,713			553,006			290,077			553,006
Allowance for loan losses (noncovered loans)	(16,427		)	(15,805		)	(15,122		)	(14,660		)	(14,330		)	(16,427		)	(14,330		)
Allowance for loan losses (covered loans)	(12,075		)	(17,630		)	(28,706		)	(55,478		)	(46,411		)	(12,075		)	(46,411		)
Interest-earning assets	2,229,921			2,258,641			2,261,731			2,202,452			2,149,189			2,229,921			2,149,189
Total deposits	2,049,911			2,126,084			2,148,190			2,148,436			2,124,298			2,049,911			2,124,298
Interest-bearing liabilities	1,636,414			1,705,398			1,746,293			1,768,264			1,759,670			1,636,414			1,759,670
Noninterest-bearing liabilities	462,094			476,373			468,077			462,554			454,379			462,094			454,379
Shareholders' equity	428,593			425,926			426,936			430,216			428,198			428,593			428,198

(1) Net interest income divided by average interest-earning assets.

(2) Yield on interest-earning assets less cost of interest-bearing liabilities.

(3) Noninterest expenses divided by net interest income plus noninterest income.

(4) Calculated on a fully tax-equivalent basis.

(5) The ratio of nonperforming loans to total loans is disclosed for noncovered loans only because there are no covered loans designated as nonperforming.

(6) Includes average nonaccrual loans of $2.4 million for 3Q13, $4.1 million for 2Q13, $4.0 million for 1Q13, $3.3 million for 4Q12, and $4.1 million for 3Q12.

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Critical Accounting Policies

There have been no changes to our critical accounting policies from those disclosed in our 2012 Annual Report on Form 10-K. The reader should also refer to the notes in the Company's 2012 Annual Report on Form 10-K.

Balance Sheet Review

General

At September 30, 2013, we had total assets of approximately $2.5 billion, consisting principally of $1.1 billion in net noncovered loans, $278.0 million in net covered loans, $374.8 million in investment securities, $156.5 million in FDIC receivable, $52.6 million in other real estate owned and $407.2 million in cash and cash equivalents. Our liabilities at September 30, 2013 totaled $2.1 billion, consisting principally of $2.0 billion in deposits. At September 30, 2013, our shareholders' equity was $428.6 million.

At December 31, 2012, we had total assets of approximately $2.7 billion, consisting principally of $970.8 million in net noncovered loans, $419.2 million in net covered loans, $303.9 million in investment securities, $355.3 million in FDIC receivable, $46.2 million in other real estate owned and $443.5 million in cash and cash equivalents. Our liabilities at December 31, 2012 totaled $2.2 billion, consisting principally of $2.1 billion in deposits. At December 31, 2012, our shareholders' equity was $430.2 million.

Investments

The composition of our investment securities portfolio reflects our investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue. The investment securities portfolio also provides a balance to interest rate risk, while providing a vehicle for the investment of available funds, furnishing liquidity and supplying securities to pledge as required collateral. At September 30, 2013, we had $374.8 million in our available-for-sale investment securities portfolio representing approximately 14.8% of our total assets, compared to $303.9 million, or 11.4% of total assets, at December 31, 2012. Investment securities were up $70.9 million, or 23.3%, compared to December 31, 2012. Our increased investment in securities was due to the continued liquidation of our covered loan portfolio and the receipt of reimbursements from the FDIC on covered loans, which caused management to increase the size of our investment security portfolio to gain a greater return on assets, rather than remaining in cash. Securities purchased were agency-backed with short durations that had no material impact on our overall liquidity or interest rate risk profile. Investment securities with carrying values of $91.8 million were pledged to secure public deposits or for other purposes at September 30, 2013.

Our investment portfolio primarily consists of U.S. government sponsored agency mortgage-backed securities, nonagency mortgage-backed securities, U.S. government agency securities, corporate bonds and municipal securities. Agency mortgage-backed securities are securities that have been developed by pooling a number of real estate mortgages and are principally issued by "quasi-federal" agencies such as Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac"). These securities are deemed to have high credit ratings, and the minimum monthly cash flows of principal and interest are guaranteed by the issuing agencies. Although investors generally assume that the federal government will support these agencies, it is under no obligation to do so. Other agency mortgage-backed securities are issued by Government National Mortgage Association ("Ginnie Mae"), which is a federal agency, and are guaranteed by the U.S. government. The actual maturities of these mortgage-backed securities will differ from their contractual maturities because the loans underlying the securities can prepay. Decreases in interest rates will generally cause an acceleration of prepayment levels. In a declining interest rate environment, we may not be able to reinvest the proceeds from these prepayments in assets that have comparable yields. In a rising rate environment, the opposite occurs: prepayments tend to slow and the weighted average life extends. This is referred to as extension risk, which can lead to lower levels of liquidity due to the delay of cash receipts, and can result in the holding of a below-market-yielding asset for a longer period of time.

At September 30, 2013, $80.2 million, or 21.4%, of our available-for-sale securities were invested in U.S. government agencies, compared to $60.5 million, or 19.9%, as of December 31, 2012. At September 30, 2013, $162.4 million, or 43.3%, of our available-for-sale securities were invested in agency mortgage-backed securities, compared to $91.0 million, or 29.9%, as of December 31, 2012. At September 30, 2013, $122.9 million, or 32.8% of our available-for-sale securities were invested in nonagency mortgage-backed securities, compared to $139.8 million, or 46.0%, as of December 31, 2012. Our nonagency mortgage-backed securities were purchased at significant market discounts compared to par value. The underlying collateral consists of mortgages originated prior to 2006 with the majority being 2004 and earlier. None of the collateral is subprime and we own the senior tranche of each bond.

48

Following is a summary of our available-for-sale investment portfolio for the periods presented (in thousands):

	At September 30, 2013				At December 31, 2012
Available-for-Sale:	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Government securities	$	79,905	$	80,161	$	59,101	$	60,508
States and political subdivisions	9,341		9,375		11,726		12,132
Residential mortgage-backed securities — nonagency	115,770		122,886		131,183		139,761
Residential mortgage-backed securities — agency	71,499		70,945		36,349		37,522
Collateralized mortgage obligations	90,883		91,416		52,024		53,483
Corporate securities	—		—		398		495
Equity securities	51		55		—		—
Total	$	367,449	$	374,838	$	290,781	$	303,901

The following table shows contractual maturities and yields on our investments in debt securities at September 30, 2013 (dollars in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. 

	U.S. Government Securities				States and Political Subdivisions				Mortgage-backed Securities
	Amount		Yield		Amount		Yield		Amount		Yield
Maturity:
One year or less	$	766	2.09	%	$	—	—	%	$	—	—	%
After one year through five years	47,647		.61	%	4,612		.92	%	—		—	%
After five years through 10 years	11,186		1.55	%	1,955		4.60	%	80,614		1.90	%
After 10 years	20,562		1.16	%	2,808		7.00	%	204,633		2.51	%
Total	$	80,161	.90	%	$	9,375	3.51	%	$	285,247	2.34	%

Loans

Total net loans outstanding at September 30, 2013 and December 31, 2012 were approximately $1.4 billion for both periods.

Loans secured by real estate mortgages are the principal component of our loan portfolio. Most of our real estate loans are secured by commercial or residential property. We do not generally originate traditional long-term residential mortgages for our portfolio, but we do originate and hold traditional second mortgage residential real estate loans and home equity lines of credit. Even if the principal purpose of the loan is not to finance real estate, where possible, we obtain a security interest in the real estate in addition to any other available collateral to increase the likelihood of the ultimate repayment or collection of the loan.

During the nine months ended September 30, 2013, our noncovered loans increased by $179.4 million, or 18.2%, and our covered loans decreased by $184.6 million, or 38.9%, from December 31, 2012. We have planned for and expect these trends to continue. Our covered loans will decrease as they are collected, charged-off or the underlying collateral is foreclosed on and sold. Our noncovered loans will increase as we originate and purchase well-underwritten loans. Due to the current economic environment, covered loans may decrease faster than noncovered loans increase, thereby resulting in a decrease in gross loans receivable as we have experienced in the first three quarters of 2013.

49

The following table summarizes the composition of our loan portfolio for the periods presented (dollars in thousands):

	September 30, 2013											December 31, 2012
	Noncovered Loans			Covered Loans			Total Amount			% of Gross Total		Noncovered Loans			Covered Loans			Total Amount			% of Gross Total
Construction, land & land development	$	285,855		$	40,268		$	326,123		22.4	%	$	230,448		$	81,288		$	311,736		21.3	%
Other commercial real estate	552,579			77,040			629,619			43.3	%	457,729			139,010			596,739			40.9	%
Total commercial real estate	838,434			117,308			955,742			65.7	%	688,177			220,298			908,475			62.2	%
Commercial & industrial	27,573			6,378			33,951			2.3	%	35,390			14,859			50,249			3.5	%
Owner-occupied real estate	181,882			55,723			237,605			16.3	%	172,445			86,612			259,057			17.7	%
Total commercial & industrial	209,455			62,101			271,556			18.7	%	207,835			101,471			309,306			21.2	%
Residential real estate	63,386			109,806			173,192			11.9	%	43,179			142,032			185,211			12.7	%
Consumer & other	53,579			862			54,441			3.7	%	46,311			10,912			57,223			3.9	%
Total gross loans receivable, net of deferred fees	1,164,854			290,077			1,454,931			100.0	%	985,502			474,713			1,460,215			100.0	%
Less - allowance for loan losses	(16,427		)	(12,075		)	(28,502		)			(14,660		)	(55,478		)	(70,138		)
Total loans, net	$	1,148,427		$	278,002		$	1,426,429				$	970,842		$	419,235		$	1,390,077

FDIC Receivable for Loss Share Agreements and Clawback Liability

As of September 30, 2013, 19.9% of our outstanding principal balance of loans and 98.1% of our other real estate assets were covered under loss share agreements with the FDIC under which the FDIC has agreed to reimburse us either 80% or 95% of all losses incurred in connection with those assets. We estimate the FDIC reimbursement that will result from losses incurred as we dispose of covered loans and other real estate assets, and we record the estimate as a receivable from the FDIC. Before each applicable loss share agreement expires, decreases in expected losses below acquisition date estimates will result in a decrease in the FDIC receivable, while increases in expected losses in excess of these acquisition date estimates will result in an increase to the FDIC receivable.

The FDIC receivable for loss share agreements was $156.5 million as of September 30, 2013, a decrease of $198.8 million, or 55.9%, from $355.3 million as of December 31, 2012. The decline in the amount of FDIC receivable is largely attributable to cash proceeds we received from the FDIC related to our realized losses on covered assets. We have also amortized an impairment to the FDIC receivable as cash flow estimates have improved for certain of our covered loans resulting in a decrease in the estimated cash flows to be received from the FDIC under the terms of our loss share agreements. The total impairment is not recorded in the current period, but is recognized prospectively as amortization expense in noninterest income over the lesser of the remaining life of the covered asset or the related loss share agreement. Of the remaining FDIC receivable, $73.0 million is currently scheduled for future amortization with an estimated weighted average life of four quarters. This time frame for amortization is driven by the fact that our earliest failed bank acquisitions that occurred in 2009 were our largest transactions and certain of the loss share agreements for these transactions begin to expire in 2014.

At the end of each of the loss share agreements with the FDIC, with the exception of the six bank subsidiaries of Security Bank Corporation, we may be required to reimburse the FDIC in the event that losses on covered assets do not reach originally expected losses, based on the initial discount received less cumulative servicing amounts for the covered assets acquired. As of September 30, 2013, we have recorded a $4.5 million liability to the FDIC related to the First Security National Bank, NorthWest Bank & Trust, United Americas Bank, Community Capital Bank and Piedmont Community Bank acquisitions, which is netted against the FDIC Receivable for Loss Share Agreements in our consolidated statements of financial condition.

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Allowance for Loan Losses (ALL)

The ALL represents the amount that management believes is necessary to absorb probable losses inherent in the loan portfolio at the balance sheet date and involves a high degree of judgment and complexity. The ALL is critical to the portrayal and understanding of our financial condition, liquidity and results of operations. The determination and application of the ALL accounting policy involves judgments, estimates and uncertainties that are subject to change. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on our financial condition, liquidity and results of operations.

The ALL on our noncovered loan portfolio is determined based on factors such as changes in the nature and volume of the portfolio, overall asset quality, delinquency trends, adequacy of collateral, loan concentrations, specific problem loans and economic conditions that may affect the borrowers' ability to pay. The ALL for noncovered loans consists of two components: a specific amount and a general amount. The specific amount is representative of identified credit exposures that are readily predictable by the current performance of the borrower and the underlying collateral and relates to loans that are individually determined to be impaired. The general amount is based on historical loss experience adjusted for current economic factors and relates to nonimpaired loans. Historical losses are adjusted by a qualitative analysis that reflects several key economic indicators such as gross domestic product, unemployment and core inflation as well as asset quality trends, rate risk and unusual events or significant changes in personnel, policies or procedures. The qualitative analysis requires judgment by management and is subject to continuous validation.

The ALL on our covered loan portfolio is determined based on expected future cash flows. Because we record acquired loans at their acquisition date fair values, which are based on expected future cash flows and include estimates for future loan losses, we recorded no allowance for loan losses related to the acquired covered loans on the acquisition date. On the date of acquisition, management determines which covered loans are placed in homogeneous risk pools or reviewed specifically as part of the periodic cash flow re-estimation process. If a loan is placed in a pool, the overall performance of the pool will determine if any future ALL is required.

The covered loan ALL analysis represents management's estimate of the potential impairment of the acquired loan portfolio subsequent to the original acquisition date. Typically, decreased estimated cash flows result in impairment, while increased estimated cash flows result in a full or partial reversal of previously recorded impairment and potentially the calculation of a higher effective yield on the related covered loans, recorded as accretion income on covered loans on our consolidated statements of income. If our expected or actual losses exceed the estimated losses, we record a provision for loan losses on covered loans as an expense on our consolidated statement of income. If our expected or actual losses are less than our previously estimated losses, we reduce the covered ALL by recording a negative provision for loan losses on covered loans up to the amount of the ALL previously recorded. We record the provision for loan losses on covered loans in our consolidated statements of income net of the amount that will be recovered by us under the related FDIC loss share agreements.

At September 30, 2013, our total ALL for noncovered and covered loans was $28.5 million, a decrease of $41.6 million compared to December 31, 2012. The ALL reflected net charge-offs of $4.9 million on noncovered and covered loans and total provisions for loan losses of negative $2.4 million for the nine months ended September 30, 2013, net of $34.4 million recorded through the FDIC receivable.

At September 30, 2013, our noncovered ALL increased$1.8 million to $16.4 million, compared to $14.7 million at December 31, 2012. The noncovered provision for loan losses charged to expense was $1.9 million for the nine months endedSeptember 30, 2013, compared to $4.7 million for the same period in 2012. The increase in our noncovered ALL at September 30, 2013 is primarily due to net organic loan growth. The noncovered ALL to total noncovered loans was 1.4% at September 30, 2013, compared to 1.5% at December 31, 2012.

We established the covered ALL due to additional credit deterioration in our covered loan portfolio subsequent to initial fair value estimates. At September 30, 2013, our covered ALL decreased$43.4 million to $12.1 million, compared to $55.5 million at December 31, 2012. The provision for loan losses charged to expense for the nine months endedSeptember 30, 2013 was negative $4.3 million, net of the amount recorded through the FDIC receivable, compared to a provision of $7.1 million for the same period in 2012. The decrease in the covered ALL was primarily due to the improvement in covered loan performance and a decrease in the balance of covered loans. At September 30, 2013, our overall outstanding covered loan portfolio balance continues to decline with an ending balance of $290.1 million compared to $474.7 million at December 31, 2012.

The overall covered loan portfolio continues to perform in excess of our initial projections at the applicable acquisition dates. However, the performance is not uniform across all asset classes, individually reviewed loans and loan pools. Despite the

51

net positive credit trends in covered loans, there remains the potential for future volatility within the provision for loan losses on covered loans.

As all of our covered loans are considered purchased credit impaired loans, our provision for loan losses in future periods will be most significantly influenced in the short term by differences in actual credit losses resulting from the resolution of problem loans from the estimated credit losses used in determining the estimated fair values of purchased credit impaired loans as of their acquisition or re-estimation dates. For noncovered loans, the provision for loan losses will be affected by the loss potential of impaired loans and trends in the delinquency of loans, nonperforming loans and net charge-offs, which may be more than our historical experience.

The following table summarizes the activity in our allowance for loan losses related to our noncovered and covered loans for the periods presented (dollars in thousands):

	Nine Months Ended September 30
	2013									2012
	Noncovered Loans			Covered Loans			Totals			Noncovered Loans			Covered Loans			Total
Balance, at the beginning of period	$	14,660		$	55,478		$	70,138		$	10,207		$	59,277		$	69,484
Charge-offs:
Construction, land & land development	4			14,092			14,096			287			40,389			40,676
Other commercial real estate	152			8,101			8,253			223			7,104			7,327
Total commercial real estate	156			22,193			22,349			510			47,493			48,003
Commercial & industrial	114			2,072			2,186			75			1,507			1,582
Owner-occupied real estate	49			3,426			3,475			—			2,254			2,254
Total commercial & industrial	163			5,498			5,661			75			3,761			3,836
Residential real estate	17			2,502			2,519			73			4,037			4,110
Consumer & other	14			760			774			9			204			213
Total charge-offs	$	350		$	30,953		$	31,303		$	667		$	55,495		$	56,162
Recoveries on loans previously charged-off:
Construction, land & land development	157			11,086			11,243			2			6,124			6,126
Other commercial real estate	3			3,400			3,403			71			657			728
Total commercial real estate	160			14,486			14,646			73			6,781			6,854
Commercial & industrial	1			2,380			2,381			4			11			15
Owner-occupied real estate	5			3,605			3,610			—			329			329
Total commercial & industrial	6			5,985			5,991			4			340			344
Residential real estate	5			4,377			4,382			1			168			169
Consumer & other	26			1,407			1,433			2			—			2
Total recoveries	$	197		$	26,255		$	26,452		$	80		$	7,289		$	7,369
Net charge-offs	153			4,698			4,851			587			48,206			48,793
Provision for loan losses	1,920			(38,705		)	(36,785		)	4,710			35,340			40,050
Amount attributable to FDIC loss share agreements	—			34,396			34,396			—			(28,280		)	(28,280		)
Total provision for loan losses charged to operations	1,920			(4,309		)	(2,389		)	4,710			7,060			11,770
Provision for loan losses recorded through the FDIC loss share receivable	—			(34,396		)	(34,396		)	—			28,280			28,280
Balance, at end of period	$	16,427		$	12,075		$	28,502		$	14,330		$	46,411		$	60,741
Allowance for loan losses to loans receivable	1.41		%	4.16		%	1.96		%	1.53		%	8.39		%	4.08		%
Ratio of net charge-offs to average loans outstanding	.02		%	1.74		%	.45		%	.09		%	9.14		%	4.25		%

52

Allocation of Allowance for Loan Losses

The following table presents the allocation of the allowance for loan losses for noncovered and covered loans and the percentage of the total amount of loans in each loan category listed as of the dates indicated (dollars in thousands):

	September 30, 2013				December 31, 2012
	Amount		% of Loans to Total Loans		Amount			% of Loans to Total Loans
Noncovered loans:
Construction, land & land development	$	3,630	19.6	%	$	3,479		15.8	%
Other commercial real estate	7,431		38.0	%	6,016			31.3	%
Total commercial real estate	11,061		57.6	%	9,495			47.1	%
Commercial & industrial	577		1.9	%	617			2.4	%
Owner-occupied real estate	2,743		12.5	%	2,486			11.8	%
Total commercial & industrial	3,320		14.4	%	3,103			14.2	%
Residential real estate	982		4.4	%	1,050			3.0	%
Consumer & other	1,064		3.7	%	1,012			3.2	%
Total allowance for noncovered loans	$	16,427	80.1	%	$	14,660		67.5	%
Covered loans:
Construction, land & land development	$	3,410	2.8	%	$	15,716		5.6	%
Other commercial real estate	3,447		5.3	%	16,926			9.5	%
Total commercial real estate	6,857		8.1	%	32,642			15.1	%
Commercial & industrial	1,014		.4	%	1,783			1.0	%
Owner-occupied real estate	1,746		3.8	%	(790		)	5.9	%
Total commercial & industrial	2,760		4.2	%	993			6.9	%
Residential real estate	2,370		7.5	%	21,189			9.7	%
Consumer & other	88		.1	%	654			.8	%
Total allowance for covered loans	$	12,075	19.9	%	$	55,478		32.5	%
Total allowance for loan losses	$	28,502	100.0	%	$	70,138		100.0	%

Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, troubled debt restructurings, other real estate owned and foreclosed property. For noncovered loans, management continuously monitors loans and transfers loans to nonaccrual status when they are 90 days past due.

All of our covered loans were acquired with evidence of deteriorated credit quality and are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. As a result, we do not consider loans acquired with evidence of deteriorated credit quality to be nonperforming assets as long as their cash flows and timing of such cash flows continue to be estimable and probable.

At September 30, 2013, all of our covered loans accounted for under ASC Topic 310-30 continue to be classified as performing loans, as the carrying value of the respective loan or pool of loans cash flows were considered estimable and probable of collection. Therefore, interest income is recognized through accretion of the difference between the carrying value of these loans and the present value of expected future cash flows. As a result, management has excluded covered loans from the table in this section.

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Noncovered nonaccrual loans are considered impaired and are valued at either the observable market price of the loan, the present value of expected future cash flows or the fair value of the collateral if the loan is collateral dependent. The majority of our noncovered nonaccrual loans are collateral dependent and, therefore, are valued at the fair value of collateral. The fair value of collateral is determined through a review of the appraised value and an assessment of the recovery value of the collateral through discounts related to various factors noted below. When a loan reaches nonaccrual status, we review the appraisal on file and determine if the appraisal is current and valid. A current appraisal is one that has been performed in the last twelve months, and a valid appraisal is one that we believe accurately and appropriately addresses current market conditions. If the appraisal is more than twelve months old or if market conditions have deteriorated since the last appraisal, we will order a new appraisal. In addition, we require a new appraisal at the time of foreclosure or repossession of the underlying collateral. Upon determining that an appraisal is both current and valid, management assesses the recovery value of the collateral, which involves the application of various discounts to the market value. These discounts include the following: length of time to market and sell the property, as well as expected maintenance costs, insurance and taxes and real estate commissions on sale.

Other real estate owned (OREO), consisting of real estate acquired through foreclosure or a deed in lieu of foreclosure in satisfaction of a loan, is initially recorded at the lower of the principal investment in the loan or the fair value of the collateral less estimated costs to sell at the time of foreclosure. Management considers a number of factors in estimating fair value including appraised value, estimated selling prices and current market conditions. Any excess of the loan balance over the fair value less estimated costs to sell is treated as a charge against the allowance for loan losses at the time of foreclosure. For acquired OREO, the loan is transferred into OREO at its fair value not to exceed the carrying value of the loan at foreclosure. Management periodically reviews the carrying value of OREO for impairment and adjusts the values as appropriate through noninterest expense.

For noncovered loans, we will record either a specific allowance or a charge-off against the allowance for loan losses if our review of the current appraisal or the new appraisal indicates a loss. Subsequently, we will review our noncovered allowance and replenish it as required by our allowance for loan loss model.

Noncovered nonperforming loans remain on nonaccrual status until the factors that previously indicated doubtful collectibility on a timely basis no longer exist. Specifically, we look at the following factors before returning a nonperforming loan to performing status: documented evidence of debt service capacity; adequate collateral; and a minimum of six months of receiving payments as agreed.

Loan modifications on noncovered loans constitute a troubled debt restructuring if we, for economic or legal reasons related to the borrower's financial difficulties, grant a concession to the borrower that we would not otherwise consider. For loans that are considered troubled debt restructurings, we either compute the present value of expected future cash flows discounted at the original loan's effective interest rate or, as a practical expedient, we may measure impairment based on the observable market price of the loan or the fair value of the collateral when the troubled debt restructuring is deemed collateral dependent. We record the difference between the carrying value and fair value of the loan as a valuation allowance.

Loan modifications on covered loans accounted for within a pool under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, do not result in the removal of the loan from the pool even if the modification of the loan would otherwise be considered a troubled debt restructuring. At September 30, 2013, we did not have any covered loans classified as troubled debt restructurings.

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The following tables set forth our nonperforming assets for the periods presented (dollars in thousands):

	At September 30, 2013									At December 31, 2012
	Noncovered Assets			Covered Assets			Total			Noncovered Assets			Covered Assets			Total
Nonaccrual loans	$	1,972		$	—		$	1,972		$	2,621		$	—		$	2,621
Troubled debt restructurings not included above (1)	956			—			956			2,171			—			2,171
Total nonperforming loans	2,928			—			2,928			4,792			—			4,792
Other real estate owned	974			51,651			52,625			1,115			45,062			46,177
Total nonperforming assets	$	3,902		$	51,651		$	55,553		$	5,907		$	45,062		$	50,969
Nonperforming loans to total loans	.25		%	—		%	.20		%	.49		%	—		%	.33		%
Nonperforming assets to total loans and other real estate owned	.33		%	15.11		%	3.68		%	.60		%	8.67		%	3.38		%

(1) Includes nonaccruing troubled debt restructurings of $882,000 and $912,000 as of September 30, 2013 and December 31, 2012, respectively.

Nonperforming assets, defined as nonaccrual loans, troubled debt restructurings and other real estate owned, totaled $55.6 million, or 3.7% of total loans and other real estate owned, at September 30, 2013, compared to $51.0 million, or 3.4% of total loans and other real estate owned, at December 31, 2012. Of the $55.6 million in nonperforming assets at September 30, 2013, $51.7 million related to other real estate owned covered by loss share agreements with the FDIC. Of the $51.0 million in nonperforming assets at December 31, 2012, $45.1 million related to other real estate owned covered by loss share agreements with the FDIC. Covered assets accounted for 93.0% and 88.4% of total nonperforming assets at September 30, 2013 and December 31, 2012, respectively.

At September 30, 2013 and December 31, 2012, we had no accruing noncovered loans greater than 90 days past due. At September 30, 2013 and December 31, 2012, a significant portion of our covered loans were past due, including many that were 90 days or greater past due. However, as noted above, under ASC 310-30, our covered loans are classified as performing, even though they are contractually past due, as long as their cash flows and the timing of such cash flows continue to be estimable and probable of collection.

Potential noncovered problem loans amounted to $10.5 million, or .9%, of total noncovered loans outstanding at September 30, 2013, compared to $7.2 million, or .7%, of total noncovered loans outstanding at December 31, 2012. Potential noncovered problem loans are those loans where management has a concern about the financial health of a borrower that causes management to have serious doubts as to the ability of the borrower to comply with the present loan terms.

Deposits

Total deposits at September 30, 2013decreased$98.5 million from December 31, 2012. During the nine months endedSeptember 30, 2013, we continued to enhance our deposit product offerings for both commercial and individual customers. Interest rates paid on specific deposit types are determined based on (i) interest rates offered by competitors, (ii) anticipated amount and timing of funding needs, (iii) availability and cost of alternative sources of funding, and (iv) anticipated future economic conditions and interest rates. We regard our deposits as attractive sources of funding because of their stability and relative cost. Deposits are regarded as an important part of our overall client relationship, which provide us opportunities to cross sell other services.

The overall mix of deposits improved during the nine months endedSeptember 30, 2013, with noninterest-bearing deposits increasing$32.8 million to $420.3 million and representing 20.5% of total deposits, compared to 18.0% at December 31, 2012. The increase in noninterest-bearing deposits resulted primarily from commercial checking accounts, many of which are related to commercial real estate lending customers.

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Interest-bearing transaction accounts decreased$51.6 million during the nine months endedSeptember 30, 2013. The majority of the decline was related to interest-bearing transaction accounts with two large relationships. Furthermore, interest-bearing deposits in savings and money market accounts decreased$41.2 million, primarily resulting from customers seeking higher rates as we lowered rates paid on deposits due to our focus on lowering our overall cost of funds. Time deposits, excluding brokered and wholesale time deposits, decreased$38.8 million during the nine months endedSeptember 30, 2013. The duration of our CD portfolio continues to remain short, and we continue to aggressively reprice high cost deposits. Due to our strategy of decreasing our cost of funds, we were not able to renew all maturing deposits. Customers with maturing CDs in 2013 were offered lower rates at renewal resulting in some customers choosing not to renew or opting to invest in other products.

The increase in demand deposits and the continued effort to reprice higher cost interest-bearing deposits, resulted in an average cost of funds of 38 basis points for the nine months endedSeptember 30, 2013, compared to 47 basis points for the nine months endedSeptember 30, 2012.

The following table shows the composition of deposits as of the dates indicated (dollars in thousands):

	September 30, 2013				December 31, 2012
	Amount		% of  Total		Amount		% of  Total
Noninterest-bearing demand deposits	$	420,269	20.5	%	$	387,450	18.0	%
Interest-bearing transaction accounts	304,085		14.8	%	355,651		16.5	%
Savings and money market deposits	908,410		44.3	%	949,631		44.2	%
Time deposits less than $100,000	177,634		8.7	%	201,658		9.4	%
Time deposits $100,000 or greater	132,538		6.5	%	147,363		6.9	%
Brokered and wholesale time deposits	106,975		5.2	%	106,683		5.0	%
Total deposits	$	2,049,911	100.0	%	$	2,148,436	100.0	%

The following table shows the average balance amounts and the average rates paid on deposits held by us for the nine months endedSeptember 30, 2013 and 2012 (dollars in thousands):

	September 30, 2013				September 30, 2012
	Amount		Average Rate		Amount		Average Rate
Noninterest-bearing demand deposits	$	406,171	—	%	$	329,440	—	%
Interest-bearing transaction accounts	334,895		.11	%	318,411		.12	%
Savings and money market deposits	933,694		.43	%	1,054,883		.49	%
Time deposits less than $100,000	190,126		.58	%	237,043		.87	%
Time deposits $100,000 or greater	141,583		.73	%	182,913		.98	%
Brokered and wholesale time deposits	106,793		.93	%	60,126		.96	%
Total deposits	$	2,113,262			$	2,182,816

The maturity distribution of our wholesale and time deposits of $100,000 or greater at September 30, 2013 was as follows (in thousands):

Three months or less	$	20,650
Over three through six months	28,859
Over six though twelve months	59,814
Over twelve months	59,281
Total	$	168,604

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Borrowings and Other Interest-Bearing Liabilities

The following table outlines our various sources of borrowed funds for the nine months endedSeptember 30, 2013 and for the year ended December 31, 2012, the amounts outstanding at the end of each period, the maximum amount for each component during such period, the average amounts outstanding for each period and the average interest rate that we paid for each borrowing source (dollars in thousands). The maximum month-end balance represents the high indebtedness for each component of borrowed funds at any time during each of the periods shown. We have loan participation agreements with various provisions regarding collateral position, pricing and other matters where the junior participation interests were sold to other holders. The terms of the agreements do not convey proportionate ownership rights with equal priority to each participating interest and entitles us to receive principal and interest payments before other participating interest holders. Therefore, the participations sold do not qualify for sale treatment in accordance with guidance provided in ASC Topic 860, Accounting for Transfers of Financial Assets, because they do not qualify as participating interests. As a result, we recorded these transactions as secured borrowings. At September 30, 2013, the balances of the secured borrowings were $5.7 million, an increase of approximately $3.2 million from December 31, 2012. The loans are recorded at their gross balances outstanding on our consolidated statements of financial condition.

	Ending Balance		Period End Rate		Maximum Month-End Balance		Average for the Period
							Balance		Rate
At or for the nine months ended September 30, 2013:
Securities sold under agreements to repurchase	$	1,082	.09	%	$	6,809	$	3,633	.11	%
Notes payable	5,690		10.79	%	5,698		4,431		11.47	%
At or for the year ended December 31, 2012:
Securities sold under agreements to repurchase	$	4,755	.10	%	$	7,748	$	3,537	.11	%
Notes payable	2,523		7.91	%	2,537		2,531		8.53	%

Capital Resources

We strive to maintain an adequate capital base to support our activities in a safe manner while at the same time attempting to maximize shareholder returns. At September 30, 2013, shareholders' equity was $428.6 million, or 17.0% of total assets, compared to $430.2 million, or 16.2% of total assets, at December 31, 2012. The primary factors affecting changes in shareholders' equity were our net income, offset by the change in accumulated other comprehensive income (loss) and dividends declared and paid during the year.

Federal regulations impose minimum regulatory capital requirements on all institutions with deposits insured by the FDIC. The Federal Reserve Board ("FRB") imposes similar capital regulations on bank holding companies. To be considered "well capitalized" under capital guidelines, the Bank must maintain total risk-based capital, Tier I capital and leverage ratios of 10%, 6%, and 5%, respectively. To be considered "adequately capitalized" under capital guidelines, the Company must maintain total risk-based capital of 8% and Tier I and leverage ratios of 4%. At September 30, 2013, we exceeded all minimum regulatory capital requirements as shown in the table below.

The leverage ratio declined for the Bank and increased for the Company from December 31, 2012 to September 30, 2013. Tier 1 and total risk-based capital ratios declined for the Bank and Company from December 31, 2012 to September 30, 2013. The declines in the regulatory capital ratios are a result of the net income in the first nine months of 2013, offset by the declaration of dividends and the increase in risk-weighted assets from December 31, 2012. The increase in risk-weighted assets was attributable in large part to the increase in our noncovered loan portfolio at higher risk-weights compared to the decrease in our covered loan portfolio and the FDIC receivable at lower risk-weights.

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The following table shows the Bank's and the Company's regulatory capital ratios for the periods presented.

	September 30, 2013				December 31, 2012
	Bank		Company		Bank		Company
Leverage ratio	13.90	%	16.20	%	14.14	%	15.49	%
Tier 1 risk-based capital ratio	22.47	%	26.18	%	26.68	%	29.25	%
Total risk-based capital ratio	23.72	%	27.44	%	27.98	%	30.54	%

The Company, the Bank, and certain of the Bank's executive officers entered into a Capital Maintenance Agreement with the FDIC. Under the terms of the agreement, the Bank must at all times maintain a leverage ratio of at least 10% and a total risk-based capital ratio of at least 12%. The agreement terminates on December 31, 2013. At September 30, 2013, the Bank was in compliance with the Capital Maintenance Agreement.

In July 2013, the Federal Reserve announced its approval of a final rule to implement the Basel III regulatory capital reforms, among other changes required by the Dodd-Frank Act. The framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, taking into account the impact of risk. The approved rule includes a new minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% as well as a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking institutions. For the largest, most internationally active banking organizations, the rule includes a new minimum supplementary leverage ratio that takes into account off-balance sheet exposures. In terms of quality of capital, the final rule emphasizes common equity Tier 1 capital and implements strict eligibility criteria for regulatory capital instruments. It also improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. The phase-in for smaller banking organizations will not begin until January 2015, while the phase-in period for larger banks starts in January 2014.  The ultimate impact of the U.S. implementation of the new capital and liquidity standards on the Company and the Bank is currently being reviewed. 

Regulatory policy statements generally provide that bank holding companies should pay dividends only out of current operating earnings and that the level of dividends must be consistent with current and expected capital requirements. Dividends received from our subsidiary bank have been our primary source of funds available for the payment of dividends to our shareholders. Federal and state banking laws and regulations restrict the amount of dividends subsidiary banks may distribute without prior regulatory approval. As of September 30, 2013, our subsidiary bank had no dividend capacity to pay dividends to us without prior regulatory approval. At September 30, 2013, the Company had $57.4 million in cash and due from bank accounts, which can be used for additional capital as needed by the Bank, payment of holding company expenses, payment of dividends to shareholders or for other corporate purposes. On March 19, 2013, June 18, 2013, and September 17, 2013, we paid a cash dividend of $.03 per common share to our shareholders.

Off-Balance Sheet Arrangements

       Commitments to extend credit are agreements to lend to a customer as long as the customer has not violated any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. At September 30, 2013, unfunded commitments to extend credit were $311.1 million. A significant portion of the unfunded commitments related to commercial and residential real estate and consumer equity lines of credit. Based on experience, we anticipate that a significant portion of these lines of credit will not be funded. We evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. The type of collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

       At September 30, 2013, there were commitments totaling approximately $1.7 million under letters of credit. The credit risk and collateral involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Because most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.

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      We use interest rate swaps and caps as part of our interest rate risk management strategy. As of September 30, 2013, we had interest rate swaps and caps with aggregate notional amounts of $144.2 million and $200.0 million, respectively. The fair value of these derivative financial assets was $6.9 million as of September 30, 2013, compared to $53,000 as of December 31, 2012. The fair value of the derivative financial liabilities was $1.0 million as of September 30, 2013, compared to the fair value of $2.6 million as of December 31, 2012. Note 8 to the consolidated financial statements located in Item I of this Quarterly Report provides additional information on these contracts.

Except as disclosed in Note 12 to our consolidated financial statements included in this Quarterly Report, we are not involved in off-balance sheet contractual relationships or commitments, unconsolidated related entities that have off-balance sheet arrangements, or other off-balance sheet transactions that could result in liquidity needs that significantly impact earnings.

Contractual Obligations

       In the normal course of business, we have various outstanding contractual obligations that will require future cash outflows. The following table presents our largest contractual obligations as of September 30, 2013 (in thousands):

	Payments Due by Period
	Total		Less Than 1 Year		1 to 3 Years		3 to 5 Years		More Than 5 Years
Operating lease obligations	$	24,065	$	2,709	$	5,246	$	5,329	$	10,781

Liquidity

Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities. Liquidity management involves monitoring our sources and uses of funds to meet the operating, capital and strategic needs of the Company and the Bank. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control when we make investment decisions. Net deposit inflows and outflows, however, are far less predictable and are not subject to the same degree of certainty.

The asset portion of the balance sheet provides liquidity primarily through scheduled payments, maturities and repayments of loans and investment securities. Cash and short-term investments such as federal funds sold and maturing interest-bearing deposits with other banks are also sources of funding. As we dispose of our covered loans and assets, the collection of the FDIC receivable provides an additional source of funding.

At September 30, 2013, our liquid assets, which consist of cash and amounts due from banks, interest-bearing deposits in other financial institutions and federal funds sold, amounted to $407.2 million, or 16.1% of total assets. Our available-for-sale securities at September 30, 2013 amounted to $374.8 million, or 14.8% of total assets. Investment securities and lines of credit traditionally provide a secondary source of liquidity because they can be converted into cash in a timely manner.

The liability portion of the balance sheet serves as our primary source of liquidity. We plan to meet our future cash needs through the generation of deposits. Core customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. At September 30, 2013, core deposits were 136.7% of net loans, compared with 147.3% at December 31, 2012. We maintain seven federal funds lines of credit with correspondent banks totaling $150.0 million. We are also a member of the Federal Home Loan Bank of Atlanta (FHLB), from whom we can borrow for leverage or liquidity purposes. The FHLB requires that securities and qualifying loans be pledged to secure any advances. At September 30, 2013, we had no advances from the FHLB and a remaining credit availability of $113.1 million. In addition, we maintain a line with the Federal Reserve Bank's discount window of $186.7 million secured by certain loans from our loan portfolio.

Asset/Liability Management

Market risk is the risk of loss from adverse changes in market prices and rates, which principally arise from interest rate risk inherent in our lending, investing, deposit gathering and borrowing activities. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not generally arise in the normal course of our business. Asset/liability management is the process by which we monitor and control the mix and maturities of our assets and liabilities. The essential purposes of asset/liability management are to ensure adequate liquidity and to maintain an appropriate balance between interest sensitive assets and liabilities to minimize potentially adverse effects on earnings from changes in market

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interest rates. Our Risk Committee monitors and considers methods of managing exposure to interest rate risk. The Risk Committee is responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved limits.

Interest rate sensitivity is a function of the repricing characteristics of the portfolio of assets and liabilities. Interest rate sensitivity management focuses on the maturity structure of assets and liabilities and their repricing characteristics during periods of changes in market interest rates. Effective interest rate sensitivity management seeks to ensure that both assets and liabilities respond to changes in interest rates within an acceptable time-frame that minimizes the changes in net interest income.

In the event of a shift in interest rates, management may take certain actions intended to mitigate the negative impact on net interest income or to maximize the positive impact on net interest income. These actions may include, but are not limited to, restructuring of interest-earning assets and interest-bearing liabilities, seeking alternative funding sources or investment opportunities, modifying the pricing or terms of loans and deposits and using derivatives. 

We regularly review our exposure to changes in interest rates. Among the factors we consider are changes in the mix of interest-earning assets and interest-bearing liabilities, interest rate spreads and repricing periods. Typically, our Risk Committee reviews, on at least a quarterly basis, our interest rate risk position. The primary tool used to analyze our interest rate risk and interest rate sensitivity is an earnings simulation model. We also monitor the present value of assets and liabilities under various interest rate scenarios, and, to a lesser extent, monitors the difference, or gap, between rate sensitive assets and liabilities.

This earnings simulation model projects a baseline net interest income (assuming no changes in interest rate levels) and estimates changes to that baseline net interest income resulting from changes in interest rate levels. We rely primarily on the results of this model in evaluating our interest rate risk. This model incorporates a number of additional factors including: (1) the expected exercise of call features on various assets and liabilities, (2) the expected rates at which various rate-sensitive assets and rate-sensitive liabilities will reprice, (3) the expected growth in various interest-earning assets and interest-bearing liabilities and the expected interest rates on new assets and liabilities, (4) the expected relative movements in different interest rate indexes which are used as the basis for pricing or repricing various assets and liabilities, (5) existing and expected contractual cap and floor rates on various assets and liabilities, (6) expected changes in administered rates on interest-bearing transaction, savings, money market and time deposit accounts and the expected impact of competition on the pricing or repricing of such accounts, (7) cash flow and accretion expectations from loans acquired in FDIC transactions, and (8) other relevant factors. Inclusion of these factors in the model is intended to more accurately project our expected changes in net interest income resulting from interest rate changes. We typically model our changes in net interest income assuming interest rates go up 100 basis points, up 200 basis points, down 100 basis points and down 200 basis points. For purposes of this model, we have assumed that the changes in interest rates phase in over a 12-month period. While we believe this model provides a reasonably accurate projection of our interest rate risk, the model includes a number of assumptions and predictions which may or may not be correct and may impact the model results. These assumptions and predictions include inputs to compute baseline net interest income, growth rates, expected changes in administered rates on interest-bearing deposit accounts, competition and a variety of other factors that are difficult to accurately predict. Accordingly, there can be no assurance the earnings simulation model will accurately reflect future results.

The following table presents the earnings simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12-month period commencing October 1, 2013. Based on the simulation run at September 30, 2013, annual net interest income would be expected to increase approximately .06%, if rates increased from current rates by 100 basis points. If rates increased 200 basis points from current rates, net interest income is projected to increase approximately .79%. If they decreased 100 basis points from current rates, net interest income is projected to increase .89%. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve

Shift in Interest Rates  (in basis points)	% Change in Projected Baseline Net Interest Income
+200	.79	%
+100	.06
-100	.89
-200	Not meaningful

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Results of Operations

Net Interest Income (Taxable Equivalent)

       Net interest income is the difference between interest earned on interest-earning assets, as well as any accretion income on covered loans under our loss share agreements with the FDIC, and interest incurred on interest-bearing liabilities and is our primary source of earnings. Net interest income depends upon the relative mix of interest-earning assets and interest-bearing liabilities, the ratio of interest-earning assets to total assets and of interest-bearing liabilities to total funding sources and movements in market interest rates.

Our net interest spread, which is the difference between the yields earned on average earning assets and the rates paid on average interest-bearing liabilities, was 7.8% and 6.3% during the three months ended September 30, 2013 and 2012, respectively. On a year-to-date basis, our net interest spread of 7.2% was 17 basis points lower than the spread earned during the first nine months of 2012. Our net interest margin on a taxable equivalent basis, which is net interest income on a taxable equivalent basis as a percentage of average earning assets, was 8.0% and 6.4% during the three months ended September 30, 2013 and 2012, respectively, and 7.3% and 7.4% for the nine months ended September 30, 2013 and 2012, respectively.

Net interest income on a taxable equivalent basis increased $10.2 million, or 29.6%, for the third quarter of 2013, compared to the third quarter of 2012. The quarterly increase was primarily a result of higher accretion income on our covered loan portfolio, which was up $9.1 million compared to the same period in 2012. In addition to the increase in accretion income was an increase in interest income on noncovered loans, up $1.1 million compared to the same period in 2012, which was driven in part by our solid organic loan growth. Also contributing to the improvement in net interest income for the third quarter of 2013 was a decrease in interest expense on deposits, which was down from the third quarter of 2012 by $365,000 as we continue to improve our deposit mix and reprice higher cost time deposits. Net interest income on a taxable equivalent basis increased $5.5 million, or 4.7%, for the nine months ended September 30, 2013, compared to the same period in 2012. The year-to-date increase was primarily attributable to an increase in interest income on our noncovered loan portfolio of $5.0 million, or 12.4% and decrease in interest expense on deposits of $1.9 million, or 25.4%, partially offset by a decrease in interest income on investment securities of $1.5 million, or 17.7%.

Interest expense on interest-bearing deposits decreased $365,000, or 16.7%, for the three months ended September 30, 2013, compared to the three months ended September 30, 2012, while interest expense on interest-bearing deposits was down for the first nine months of 2013 by $1.9 million, or 25.4%, compared to the same period in 2012. The reduction in interest expense for each period in 2013 was the result of declines in the average rate paid and in the average balances of interest-bearing deposits outstanding. The average rate paid on interest-bearing deposits was .44% for both the three and nine months endedSeptember 30, 2013, compared to .49% and .54% for the same respective periods in 2012. The average balance of interest-bearing deposits outstanding decreased$144.2 million for the third quarter of 2013, compared to the third quarter of 2012, and decreased$146.3 million for the nine months endedSeptember 30, 2013, compared to the nine months endedSeptember 30, 2012. The change for each period in 2013 of the average rate paid was a result of an overall decrease in our market rates across all deposit products and a concerted effort to reduce our cost of funding. Also contributing to the overall lower rate paid on interest-bearing deposit accounts was a shift in our deposit mix away from higher cost money markets accounts and time deposits to lower cost transaction deposits. Our cost of funds was 38 basis points for the three months ended September 30, 2013, compared to 41 basis points for the three months ended September 30, 2012. Our cost of funds was 38 basis points for the nine months ended September 30, 2013, compared to 47 basis points for the nine months ended September 30, 2012.

Our overall yield on average earning assets was 8.3% and 6.8% during the three months ended September 30, 2013 and 2012, respectively. On a year-to-date basis, our yield on average earning assets of 7.7% during the nine months ended September 30, 2013 was 25 basis points lower than the yield during the first nine months of 2012. The increase and subsequent decrease in both our yield on earning assets and our net interest margin for the three and nine months endedSeptember 30, 2013, respectively, is a result of our loan portfolio shifting from higher-yielding covered loans to lower-yielding noncovered loans and accretion income on our covered loan portfolio offset by our lower cost of funding. Our noncovered loan yields continue to trend downward and were 5.5% and 6.5% for the three months ended September 30, 2013 and 2012, respectively, and 5.7% and 6.5% for the nine months ended September 30, 2013 and 2012, respectively. The decrease in noncovered loan yields for both periods in 2013 was primarily a result of competitive pressures and the prolonged low interest rate environment and was partially offset by increases in our covered loan yields. For the three months ended September 30, 2013, we had a covered loan yield of 36.3%, compared to 12.1% for the same period in 2012. Our covered loan yield for the nine months endedSeptember 30, 2013 was 27.6% compared to 14.1% for the same period in 2012. The volatility in our covered loan yield is a result of a number of factors, including increases in estimated cash flows on covered loans, earlier than expected payoffs on covered loans and gains on closing out of covered loan pools.

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Also contributing to the volatility in our net interest margin for the three and nine months ended September 30, 2013 compared to the same period in 2012 is the decreased yield in the investment portfolio. The higher-yielding nonagency mortgage-backed securities have become a smaller percentage of our investment portfolio. Cash flows from these securities were reinvested into lower-yielding agency-backed securities thus lowering the overall yield. Continued reinvestment into lower-yielding bonds, due to the current interest rate environment, is expected to produce lower overall yields in the bond portfolio.

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Average Balances, Net Interest Income, Yields and Rates

The following tables show our average balance sheet and our average yields on assets and average costs of liabilities for the periods indicated (dollars in thousands). We derive these yields by dividing income or expense by the average balance of the corresponding assets or liabilities, respectively. We have derived average balances from the daily balances throughout the periods indicated.

	For the Three Months Ended
	September 30, 2013						September 30, 2012
	Average Balance		Income/ Expense		Yield/ Rate (1)		Average Balance		Income/ Expense		Yield/ Rate (1)
Assets:
Interest-bearing deposits in other financial institutions	$	398,391	$	313	.31	%	$	333,882	$	185	.22	%
Taxable investment securities	369,485		2,227		2.39	%	279,549		2,583		3.68	%
Nontaxable investment securities, tax-equivalent basis (2)	5,836		72		4.89	%	9,113		121		5.28	%
Noncovered loans receivable, tax-equivalent basis (3) (4)	1,140,052		15,872		5.52	%	901,168		14,770		6.52	%
Covered loans receivable	305,487		27,978		36.34	%	622,841		18,893		12.07	%
Total earning assets	2,219,251		46,462		8.31	%	2,146,553		36,552		6.77	%
Total nonearning assets	342,551						526,973
Total assets	$	2,561,802					$	2,673,526
Liabilities:
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	320,168	$	88	.11	%	$	321,328	$	99	.12	%
Savings & money market deposits	908,275		970		.42	%	997,939		1,153		.46	%
Time deposits less than $100,000	181,865		262		.57	%	214,488		364		.68	%
Time deposits $100,000 or greater	137,147		245		.71	%	162,314		326		.80	%
Brokered and wholesale time deposits	106,918		250		.93	%	102,468		238		.92	%
Notes Payable	5,695		165		11.49	%	2,529		54		8.49	%
Securities sold under agreements to repurchase	2,438		1		.16	%	2,448		1		.16	%
Total interest-bearing liabilities	1,662,506		1,981		.47	%	1,803,514		2,235		.49	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	422,797						356,510
Other liabilities	49,287						86,083
Shareholders’ equity	427,212						427,419
Total liabilities and shareholders’ equity	$	2,561,802					$	2,673,526
Net interest income			$	44,481					$	34,317
Net interest spread					7.84	%					6.28	%
Net interest margin					7.95	%					6.36	%
Cost of funds					.38	%					.41	%

(1) Annualized for the applicable period.

(2)Reflects taxable equivalent adjustments using the statutory tax rate of 35% in adjusting interest on tax-exempt securities to a fully taxable basis. The taxable equivalent adjustments included above are $25,000 and $42,000 for the three months endedSeptember 30, 2013 and September 30, 2012, respectively.

(3)Includes average nonaccruing noncovered loans of $2.4 million and $4.1 million for the three months endedSeptember 30, 2013 and 2012, respectively. There are no nonaccrual covered loans.

(4)Reflects taxable equivalent adjustments using the statutory tax rate of 35% in adjusting tax-exempt loan interest income to a fully taxable basis. The taxable equivalent adjustments included above are $72,000 and $41,000 for the three months endedSeptember 30, 2013 and September 30, 2012, respectively.

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	For the Nine Months Ended
	September 30, 2013						September 30, 2012
	Average Balance		Income/ Expense		Yield/ Rate (1)		Average Balance		Income/ Expense		Yield/ Rate (1)
Assets:
Interest-bearing deposits in other financial institutions	$	437,200	$	878	.27	%	$	250,977	$	442	.24	%
Taxable investment securities	345,852		6,748		2.61	%	298,851		8,136		3.64	%
Nontaxable investment securities, tax-equivalent basis (2)	6,449		239		4.95	%	8,490		349		5.49	%
Noncovered loans receivable, tax-equivalent basis (3) (4)	1,075,210		45,529		5.66	%	827,500		40,519		6.54	%
Covered loans receivable	360,647		74,401		27.58	%	704,272		74,574		14.14	%
Total earning assets	2,225,358		127,795		7.68	%	2,090,090		124,020		7.93	%
Total nonearning assets	385,440						583,100
Total assets	$	2,610,798					$	2,673,190
Liabilities:
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	334,895	$	276	.11	%	$	318,411	$	296	.12	%
Savings & money market deposits	933,694		2,971		.43	%	1,054,883		3,867		.49	%
Time deposits less than $100,000	190,126		831		.58	%	237,043		1,551		.87	%
Time deposits $100,000 or greater	141,583		768		.73	%	182,913		1,344		.98	%
Brokered and wholesale time deposits	106,793		743		.93	%	60,126		431		.96	%
Notes Payable	4,431		380		11.47	%	2,533		161		8.49	%
Securities sold under agreements to repurchase and federal funds purchased	3,633		3		.11	%	2,925		3		.14	%
Total interest-bearing liabilities	1,715,155		5,972		.47	%	1,858,834		7,653		.55	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	406,171						329,440
Other liabilities	61,460						68,437
Shareholders’ equity	428,012						416,479
Total liabilities and shareholders’ equity	$	2,610,798					$	2,673,190
Net interest income			$	121,823					$	116,367
Net interest spread					7.21	%					7.38	%
Net interest margin					7.32	%					7.44	%
Cost of funds					.38	%					.47	%

(1) Annualized for the applicable period.

(2)Reflects taxable equivalent adjustments using the statutory tax rate of 35% in adjusting interest on tax-exempt securities to a fully taxable basis. The taxable equivalent adjustments included above are $83,000 and $122,000 for the nine months endedSeptember 30, 2013 and September 30, 2012, respectively.

(3)Includes average nonaccruing noncovered loans of $3.5 million and $3.8 million for the nine months endedSeptember 30, 2013 and 2012, respectively. There are no nonaccrual covered loans.

(4) Reflects taxable equivalent adjustments using the statutory tax rate of 35% in adjusting tax-exempt loan interest income to a fully taxable basis. The taxable equivalent adjustments included above are $214,000 and $112,000 for the nine months endedSeptember 30, 2013 and September 30, 2012, respectively.

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Rate/Volume Analysis on a Taxable Equivalent Basis

Net interest income can be analyzed in terms of the impact of changing interest rates and changing volumes.  The following table reflects the effect that varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented (in thousands):

	Three Months Ended									Nine Months Ended
	September 30, 2013 vs. September 30, 2012									September 30, 2013 vs. September 30, 2012
	Change Attributable to									Change Attributable to
	Volume			Rate			Total Increase (Decrease) (1)			Volume			Rate			Total Increase (Decrease) (1)
Interest income:
Noncovered loans	$	12,801		$	(11,699	)	$	1,102		$	14,282		$	(9,272	)	$	5,010
Covered loans	(84,713		)	93,798			9,085			(64,260		)	64,087			(173		)
Taxable investment securities	2,852			(3,208		)	(356		)	1,470			(2,858		)	(1,388		)
Nontaxable investment securities	(43		)	(6		)	(49		)	(82		)	(28		)	(110		)
Interest-bearing deposits in other financial institutions	46			82			128			349			87			436
Total interest income	(69,057		)	78,967			9,910			(48,241		)	52,016			3,775
Interest expense:
Total deposits	(163		)	(202		)	(365		)	(511		)	(1,389		)	(1,900		)
Notes payable	75			36			111			136			83			219
Securities sold under repurchase agreements and federal funds purchased	—			—			—			1			(1		)	—
Total interest expense	(88		)	(166		)	(254		)	(374		)	(1,307		)	(1,681		)
Net interest income	$	(68,969	)	$	79,133		$	10,164		$	(47,867	)	$	53,323		$	5,456

(1) Amounts shown as increase (decrease) due to changes in either volume or rate includes an allocation of the amount that reflects the interaction of volume and rate changes. This allocation is based on the absolute dollar amounts of change due solely to changes in volume or rate.

Provision for Loan Losses

We have established an allowance for loan losses on both noncovered and covered loans through a provision for loan losses charged as an expense on our consolidated statements of income.

We review our noncovered loan portfolio, consisting of loans that are not covered by loss share agreements with the FDIC, on a quarterly basis to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of the allowance for loan losses.  Please see the discussion above, under “Balance Sheet Review — Allowance for Loan Losses (ALL),” for a description of the factors we consider in determining the amount of periodic provision expense to maintain this allowance.

We did not establish an allowance for loan losses at the date of each acquisition for the covered loans in our loan portfolio that we acquired under loss share agreements with the FDIC because we recorded these loans at fair value at the time of each respective acquisition. We evaluate the recorded investment in our covered loans and compare our actual losses to our estimated losses on a quarterly basis to determine whether additional provision is necessary. This quarterly re-estimation of cash flows expected to be collected is updated based on changes to assumptions regarding default rates, loss severities and other factors that are reflective of current market conditions. If our re-estimated losses exceed the last estimated losses, we record a provision for loan losses in our consolidated statements of income. In that event, due to the FDIC loss share agreements, we would bear a net expense between 5% and 20% of the estimated loss, depending upon the applicable loss share agreement to which the loss is related. Conversely, if the expected cash flows improve from our last estimates, any previous impairment is partially or fully reversed and an adjustment to yield is recognized over the remaining life of the loan or pool of loans, as applicable.

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We recorded a provision for loan losses on noncovered loans of $905,000 for the three months ended September 30, 2013, compared to $1.1 million for the three months ended September 30, 2012. We recorded a provision for loan losses on noncovered loans of $1.9 million for the nine months ended September 30, 2013 compared to $4.7 million for the nine months ended September 30, 2012. The amount of noncovered loan loss provision recorded in each period was the amount required such that the total allowance for loan losses reflected the appropriate balance, in management's opinion, to sufficiently cover probable losses in the noncovered loan portfolio. Net charge-offs on noncovered loans for the nine months endedSeptember 30, 2013 were $153,000, or .02% of average loans, compared to net charge-offs on noncovered loans of $587,000, or .09%, of average loans for the nine months endedSeptember 30, 2012.

We recorded a provision for loan losses on covered loans of a negative $636,000 for the three months ended September 30, 2013 compared to $5.4 million for the three months ended September 30, 2012. We recorded a provision for loan losses on covered loans of negative $4.3 million for the nine months ended September 30, 2013 compared to $7.1 million for the nine months ended September 30, 2012. For both the three and nine months ended September 30, 2013, we saw net improvements in our expected cash flows on covered loans from our original acquisition date estimates, which resulted in the full or partial reversal of previously recorded impairment on certain covered loans. This reversal of impairment on covered loans resulted in a negative provision for loan losses for the three and nine months ended September 30, 2013.

Noninterest Income

Noninterest income totaled a negative $14.5 million for the third quarter of 2013, down$11.2 million compared to the third quarter of 2012. Noninterest income totaled a negative $43.7 million for the nine months endedSeptember 30, 2013, down$34.3 million compared to the same period in 2012. The following table presents the components of noninterest income for the three and nine months ended September 30, 2013 and 2012(in thousands):

	Three Months Ended September 30						Nine Months Ended September 30
	2013			2012			2013			2012
Amortization of FDIC receivable for loss share agreements	$	(18,971	)	$	(6,291	)	$	(56,512	)	$	(17,309	)
Service charges on deposits	1,353			1,298			3,852			3,709
Payroll fee income	727			—			2,264			—
Gain on sale of investment securities	717			—			1,081			93
ATM income	604			611			1,844			1,806
Mortgage banking income	260			255			855			868
Gain on FHLB stock redemptions	—			101			—			535
Other	810			737			2,920			919
Total noninterest income	$	(14,500	)	$	(3,289	)	$	(43,696	)	$	(9,379	)

Net amortization of the FDIC receivable totaled a negative $19.0 million for the three months ended September 30, 2013 compared to a negative $6.3 million for the three months ended September 30, 2012. Net amortization of the FDIC receivable totaled a negative $56.5 million for the nine months ended September 30, 2013 compared to a negative $17.3 million for the nine months ended September 30, 2012. To the extent that currently estimated cash flows on covered loans are more than originally estimated and therefore projected losses are less than originally expected, the related reimbursements from the FDIC contemplated in the FDIC receivable are less, which produces amortization in noninterest income of the excess amount in the FDIC receivable. At the same time, lower projected losses on covered loans causes our loan accretion yields to increase over the remaining life of the applicable covered loans. The increase in amortization expense of the FDIC receivable is due to changes in assumptions during the quarterly re-estimation of cash flows and the short average remaining term of the loss share period.

Payroll fee income of $727,000 and $2.3 million for the three and nine months ended September 30, 2013, respectively, was the result of the acquisition of the assets and business of Altera Payroll, Inc. during the fourth quarter of 2012.

Gain on sale of investment securities were $717,000 and $1.1 million for the three and nine months ended September 30, 2013, respectively, compared to no gains during the same periods in 2012. During the three and nine months ended September 30, 2013, gains were realized on certain investment securities which were sold for asset and liability management purposes to shorten the duration of the investment portfolio.

Other income totaled $810,000 for the three months endedSeptember 30, 2013 compared to $737,000 for the three months ended September 30, 2012. Other income totaled $2.9 million for the nine months ended September 30, 2013 compared to

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$919,000 for the nine months ended September 30, 2012. During the three months ended September 30, 2013, we recognized $11,000 in net gains on hedge ineffectiveness compared to $114,000 in net gains during the same period in 2012. We also recognized a $300,000 write-down of assets related to the Jonesboro branch which is scheduled to close at the end of the year, in addition to higher loan prepayment fees of $392,000 during the third quarter of 2013. For the nine months ended September 30, 2013, we recognized $557,000 in net gains on hedge ineffectiveness compared to $242,000 in net losses during the same period in 2012. The hedge ineffectiveness during 2013 and 2012 was related to the interest rate swaps designated as fair value hedges.

Noninterest Expense

Noninterest expense totaled $23.1 million for the third quarter of 2013, up$3.3 million compared to the third quarter of 2012. Noninterest expense totaled $75.2 million for the nine months endedSeptember 30, 2013, up$10.8 million compared to the same period in 2012. The following table presents the components of noninterest expense for the three and nine months ended September 30, 2013 and 2012 (in thousands):

	Three Months Ended September 30					Nine Months Ended September 30
	2013		2012			2013		2012
Salaries and employee benefits	$	14,794	$	12,811		$	47,736	$	39,402
Occupancy and equipment	2,431		2,469			7,437		7,345
Data processing	1,551		1,196			4,492		4,396
Legal and professional fees	954		1,265			3,835		4,955
Federal insurance premiums and other regulatory fees	939		378			2,012		1,151
Marketing	457		573			1,135		1,203
Loan collection and OREO costs	374		(484		)	3,606		1,031
Amortization of intangibles	299		256			1,038		778
Other	1,325		1,371			3,958		4,192
Total noninterest expense	$	23,124	$	19,835		$	75,249	$	64,453

Salaries and employee benefits is the single largest component of noninterest expense, which increased$2.0 million, or 15.5%, for the three months ended September 30, 2013 compared to the same period in 2012. The increase was primarily a result of higher incentive accruals of $1.1 million, $451,000 related to Altera Payroll, Inc. which was acquired in the fourth quarter of 2012, and severance expenses of $178,000 related to ongoing efficiency efforts. Salaries and employee benefits increased$8.3 million, or 21.2%, for the nine months endedSeptember 30, 2013 compared to the same period in 2012. The increase was primarily a result of severance expenses of $2.6 million related to ongoing efficiency efforts, $2.5 million of higher incentive accruals, $1.5 million related to Altera Payroll, Inc. and $479,000 of increases related to share-based compensation plans. The remaining increase from 2012 to 2013 is primarily the full effect related to the addition of personnel, outside of salary expenses related to Altera Payroll, Inc.

Legal and professional fees decreased$311,000, or 24.6%, to $1.0 million for the three months ended September 30, 2013 compared to the same period in 2012. Legal and professional fees decreased$1.1 million, or 22.6%, to $3.8 million for the nine months endedSeptember 30, 2013 compared to the same period in 2012. Audit and accounting expense increased $66,000 for the three months ended September 30, 2013 and decreased $378,000 for the nine months ended September 30, 2013, compared to the same periods in 2012 due to fewer outsourced internal engagements during the year. Consulting expense decreased $58,000 and $392,000 for the three and nine months ended September 30, 2013, respectively, as compared to the same periods in 2012 due to a greater reliance on using internal resources rather than external consultants on various initiatives involving enhancing our customer relationship management technology.

FDIC insurance premiums and other regulatory fees increased$561,000, or 148.4%, to $939,000 for the three months ended September 30, 2013, compared to the same period in 2012. FDIC insurance premiums and other regulatory fees increased$861,000, or 74.8%, to $2.0 million for the nine months ended September 30, 2013, compared to the same period in 2012. The increase in expenses for each period in 2013 is mainly due to lower net income and capital levels at the Bank as a result of dividends paid to the Company.

Loan collection and OREO costs increased$858,000 to $374,000 for the three months ended September 30, 2013 as compared to the same period in 2012. Loan collection and OREO costs increased$2.6 million to $3.6 million for the nine months ended September 30, 2013 as compared to the same period in 2012. The increases in expenses for both periods in 2013 is largely attributable to a lower amount of gains realized on the disposal of other real estate owned as well as the write-off of

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expenses previously recorded as a receivable from the FDIC under loss share agreements that were determined to be uncollectible from the FDIC.

Income Taxes

       Income tax expense is composed of both state and federal income tax expense. Income tax expense declined $9.4 million for the nine months ended September 30, 2013, compared to the same period in 2012. The effective rate for the three month period ended September 30, 2013 and 2012 was 33.0% and 29.2%, respectively. The effective rate for the nine month period ended September 30, 2013 and 2012 was 33.0% and 36.0%, respectively. The lower year-to-date effective rate in 2013 is largely attributable to the larger effect differences other than temporary and tax credits have on the lower amount of taxable income.

Tax years 2009 through 2011 are currently under examination. Based on the preliminary income tax examination reports received, the differences are primarily temporary differences which did not significantly effect the overall income tax expense.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The information required by Item 305 of Regulation S-K is contained in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this Quarterly Report on Form 10-Q under the heading "Asset/Liability Management," which information is incorporated herein by reference.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures 

Based on management's evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, as of September 30, 2013, the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls 

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any system will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. 

PART II

Item 1. Legal Proceedings.

In the ordinary course of operations, we may be party to various legal proceedings from time to time. We do not believe that there is any pending or threatened proceedings against us, which, if determined adversely, would have a material effect on our business, results of operations, or financial condition.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in Item 1A. of Part I in our Annual Report on Form 10-K for the year ended December 31, 2012.

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

None.

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit No.	Description of Exhibit
10.1	Form of Restricted Stock Agreement of Thomas L. Callicutt, Jr. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on July 29, 2013)
10.2	Executive Officer Annual Cash Incentive Plan (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed on July 29, 2013)
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer
32.1	Section 1350 Certifications
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in eXtensible Business Reporting Language (XBRL); (i) Consolidated Statements of Financial Condition at September 30, 2013 and December 31, 2012, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2013 and 2012, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012, (iv) Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2013 and 2012, (v)  Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and (vi) Notes to Consolidated Financial Statements.(*)

*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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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.

		STATE BANK FINANCIAL CORPORATION
November 8, 2013	By:	/s/ Joseph W. Evans
		Joseph W. Evans
		Chief Executive Officer (Principal Executive Officer)
November 8, 2013	By:	/s/ Thomas L. Callicutt, Jr.
		Thomas L. Callicutt, Jr.
		Chief Financial Officer (Principal Financial and Accounting Officer)

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Exhibit List

10.1	Form of Restricted Stock Agreement of Thomas L. Callicutt, Jr. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on July 29, 2013)
10.2	Executive Officer Annual Cash Incentive Plan (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed on July 29, 2013)
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer
32.1	Section 1350 Certifications
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in eXtensible Business Reporting Language (XBRL); (i) Consolidated Statements of Financial Condition at September 30, 2013 and December 31, 2012, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2013 and 2012, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012, (iv) Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2013 and 2012, (v)  Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and (vi) Notes to Consolidated Financial Statements. *

*   Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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