State Bank Financial (STBZ) 10-Q 2014 Q2 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 June 30, 2014   

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: 001-35139

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 August 8, 2014 was 32,207,145

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 June 30, 2014 (unaudited) and December 31, 2013 (audited)	2
	Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2014 and 2013	3
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Six Months Ended June 30, 2014 and 2013	4
	Consolidated Statements of Changes in Shareholders' Equity (unaudited) for the Six Months Ended June 30, 2014 and 2013	5
	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2014 and 2013	6
	Notes to Consolidated Financial Statements (unaudited)	7
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	42
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	69
ITEM 4.	Controls and Procedures	69
Part II - Other Information
ITEM 1.	Legal Proceedings	69
ITEM 1A.	Risk Factors	69
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
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 are 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, our anticipated acquisitions, including our pending acquisitions of Atlanta Bancorporation, Inc. and Georgia-Carolina Bancshares, Inc., our 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 projections of future amortization of the FDIC receivable and accretion on acquired loans and their impact on earnings, the impact of the expiration of loss share agreements, 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:

• the inability to obtain the requisite regulatory approvals for our anticipated acquisitions and meet other closing terms and conditions;

• the reaction to the anticipated acquisitions of all of the banks' customers, employees and counterparties or difficulties related to the transition of services;

• 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;

• costs or difficulties related to the integration of the banks we may acquire may be greater than expected;

• 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, 2013 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)

	June 30, 2014			December 31, 2013
	(unaudited)			(audited)
Assets
Cash and amounts due from depository institutions	$	8,333		$	8,518
Interest-bearing deposits in other financial institutions	499,400			590,231
Cash and cash equivalents	507,733			598,749
Investment securities available-for-sale	494,874			387,048
Loans receivable:
Noncovered under FDIC loss share agreements	1,230,304			1,123,475
Covered under FDIC loss share agreements	211,302			257,494
Allowance for loan losses (noncovered loans)	(17,885		)	(16,656		)
Allowance for loan losses (covered loans)	(17,722		)	(17,409		)
Net loans	1,405,999			1,346,904
Mortgage loans held for sale	726			897
Other real estate owned:
Noncovered under FDIC loss share agreements	729			965
Covered under FDIC loss share agreements	23,209			46,222
Premises and equipment, net	34,820			33,318
Goodwill	10,381			10,381
Other intangibles, net	1,663			1,986
FDIC receivable for loss share agreements	39,250			103,160
Other assets	60,896			71,075
Total assets	$	2,580,280		$	2,600,705
Liabilities and Shareholders' Equity
Liabilities:
Noninterest-bearing deposits	$	461,434		$	468,138
Interest-bearing deposits	1,653,779			1,660,187
Total deposits	2,115,213			2,128,325
Securities sold under agreements to repurchase	—			1,216
Notes payable	2,779			5,682
Other liabilities	13,981			28,299
Total liabilities	2,131,973			2,163,522
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares authorized, no shares issued and outstanding in 2014 and 2013, respectively	—			—
Common stock, $.01 par value; 100,000,000 shares authorized; 32,130,645 and 32,094,145 shares issued and outstanding in 2014 and 2013, respectively	321			321
Additional paid-in capital	296,374			295,379
Retained earnings	145,894			136,313
Accumulated other comprehensive income, net of tax	5,718			5,170
Total shareholders' equity	448,307			437,183
Total liabilities and shareholders' equity	$	2,580,280		$	2,600,705

See accompanying notes to consolidated financial statements.

2

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share amounts)
	Three Months Ended						Six Months Ended
	June 30						June 30
	2014			2013			2014			2013
Interest income:
Noncovered loans, including fees	$	15,380		$	15,141		$	30,655		$	29,515
Accretion income on covered loans	17,087			25,787			43,623			46,423
Investment securities:
Taxable	2,181			2,355			4,308			4,575
Tax-exempt	21			24			42			55
Deposits with other financial institutions	320			314			665			565
Total interest income	34,989			43,621			79,293			81,133
Interest expense:
Deposits	1,759			1,859			3,505			3,774
Notes payable	87			135			235			215
Federal funds purchased and repurchase agreements	—			1			—			2
Total interest expense	1,846			1,995			3,740			3,991
Net interest income	33,143			41,626			75,553			77,142
Provision for loan losses (noncovered loans)	1,000			665			1,000			1,015
Provision for loan losses (covered loans)	(299		)	(1,288		)	291			(3,673		)
Net interest income after provision for loan losses	32,442			42,249			74,262			79,800
Noninterest income:
Amortization of FDIC receivable for loss share agreements	(1,949		)	(20,762		)	(17,241		)	(37,541		)
Service charges on deposits	1,196			1,284			2,354			2,499
Mortgage banking income	163			289			322			595
Gain on sale of investment securities	12			—			23			364
Payroll fee income	822			705			1,775			1,537
ATM income	636			635			1,226			1,240
Bank-owned life insurance income	329			335			658			679
Other	160			976			63			1,431
Total noninterest income	1,369			(16,538		)	(10,820		)	(29,196		)
Noninterest expense:
Salaries and employee benefits	14,575			15,547			29,652			32,942
Occupancy and equipment	2,314			2,550			4,843			5,006
Legal and professional fees	996			1,280			2,010			2,881
Marketing	548			350			880			678
Federal deposit insurance premiums and other regulatory fees	337			604			671			1,073
Loan collection and OREO costs	(32		)	1,944			592			3,232
Data processing	1,714			1,504			3,386			2,941
Amortization of intangibles	161			369			323			739
Other	1,463			1,313			2,802			2,633
Total noninterest expense	22,076			25,461			45,159			52,125
Income (loss) before income taxes	11,735			250			18,283			(1,521		)
Income tax expense (benefit)	4,228			113			6,454			(502		)
Net income (loss)	$	7,507		$	137		$	11,829		$	(1,019	)
Basic net income (loss) per share	$	.23		$	—		$	.37		$	(.03	)
Diluted net income (loss) per share	$	.22		$	—		$	.35		$	(.03	)
Cash dividends declared per common share	$	.04		$	.03		$	.07		$	.06
Weighted Average Shares Outstanding:
Basic	32,126,260			31,918,677			32,110,454			31,913,754
Diluted	33,589,797			33,124,681			33,617,054			31,913,754

See accompanying notes to consolidated financial statements.

3

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(Dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30						June 30
	2014			2013			2014			2013
Net income (loss)	$	7,507		$	137		$	11,829		$	(1,019	)
Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses)	433			(1,311		)	897			(2,858		)
Reclassification adjustment for net gains realized and included in earnings	(12		)	—			(23		)	(364		)
Amount reclassified into net income on cash flow hedges	57			3			97			3
Other comprehensive income (loss), before income taxes	478			(1,308		)	971			(3,219		)
Income tax expense (benefit)	185			(458		)	423			(1,127		)
Total other comprehensive income (loss)	293			(850		)	548			(2,092		)
Comprehensive income (loss)	$	7,800		$	(713	)	$	12,377		$	(3,111	)

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			Total
			Shares	Stock
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	—		—	—		636		—			—			636
Restricted stock awards activity	—		6,000	—		—		—			—			—
Change in accumulated other comprehensive income	—		—	—		—		—			(2,092		)	(2,092		)
Common stock dividends, $.06 per share	—		—	—		—		(1,915		)	—			(1,915		)
Net income (loss)	—		—	—		—		(1,019		)	—			(1,019		)
Balance, June 30, 2013	2,625,283		31,926,331	$	319	$	294,699	$	124,472		$	6,436		$	425,926
Balance, December 31, 2013	2,623,824		32,094,145	$	321	$	295,379	$	136,313		$	5,170		$	437,183
Exercise of stock warrants	(33,500	)	33,500	—		167		—			—			167
Share-based compensation	—		—	—		828		—			—			828
Restricted stock awards activity	—		3,000	—		—		—			—			—
Change in accumulated other comprehensive income	—		—	—		—		—			548			548
Common stock dividends, $.07 per share	—		—	—		—		(2,248		)	—			(2,248		)
Net income	—		—	—		—		11,829			—			11,829
Balance, June 30, 2014	2,590,324		32,130,645	$	321	$	296,374	$	145,894		$	5,718		$	448,307

See accompanying notes to consolidated financial statements.

5

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
	Six Months Ended
	June 30
	2014			2013
Cash Flows from Operating Activities
Net income (loss)	$	11,829		$	(1,019	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization, and accretion	2,856			2,007
Provision for loan losses	1,291			(2,658		)
Accretion of discounts on acquisitions, net	(26,382		)	(8,882		)
Gain on sale of other real estate owned	(8,151		)	(11,564		)
Writedowns of other real estate owned	7,555			12,005
Net decrease in FDIC receivable for covered losses	14,550			1,936
Funds collected from FDIC	35,135			78,817
Deferred income taxes	(12,240		)	(42,517		)
Proceeds from sales of mortgage loans held for sale	13,067			28,381
Originations of mortgage loans held for sale	(12,882		)	(24,323		)
Gain on available-for-sale securities	(23		)	(364		)
Share-based compensation expense	828			636
Changes in other assets and other liabilities, net	3,248			24,374
Net cash provided by operating activities	30,681			56,829
Cash flows from Investing Activities
Purchase of investment securities available-for-sale	(159,727		)	(116,913		)
Proceeds from sales and calls of investment securities available-for-sale	12,696			3,422
Proceeds from maturities and paydowns of investment securities available-for-sale	40,886			42,680
Net increase in loans to customers	(41,014		)	(1,335		)
Net purchases of premises and equipment	(3,209		)	(965		)
Proceeds from sales of other real estate owned	45,080			35,891
Net cash used in investing activities	(105,288		)	(37,220		)
Cash Flows from Financing Activities
Net (decrease) increase in noninterest-bearing customer deposits	(6,704		)	42,510
Net decrease in interest-bearing customer deposits	(6,408		)	(64,862		)
Net decrease in federal funds purchased and securities sold under repurchase agreements	(1,216		)	(1,179		)
Issuance of common stock	167			100
Dividends paid to shareholders	(2,248		)	(1,915		)
Net cash used in financing activities	(16,409		)	(25,346		)
Net decrease in cash and cash equivalents	(91,016		)	(5,737		)
Cash and cash equivalents, beginning	598,749			443,457
Cash and cash equivalents, ending	$	507,733		$	437,720
Supplemental Disclosure of Noncash Investing and Financing Activities
Unrealized gains (losses) on securities and derivatives, net of tax	$	548		$	(2,092	)
Transfers of loans to other real estate owned	$	21,235		$	43,597

See accompanying notes to consolidated financial statements.

6

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 June 30, 2014 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, 2013.

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

Note 2:  Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The new ASU implements a common revenue standard that clarifies the principles for recognizing revenue from contracts with customers. The new accounting guidance, which does not apply to financial instruments, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and is not expected to have a significant impact on the Company's financial statements.

Note 3: Investment Securities

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

	June 30, 2014								December 31, 2013
	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	$	67,405	$	650	$	3	$	68,052	$	80,692	$	460	$	41	$	81,111
States and political subdivisions	6,469		34		—		6,503		9,317		51		1		9,367
Residential mortgage-backed securities — nonagency	109,085		7,690		31		116,744		110,900		6,766		19		117,647
Residential mortgage-backed securities — agency	275,642		1,940		942		276,640		176,503		1,380		1,957		175,926
Asset-backed securities	26,820		65		—		26,885		2,936		4		—		2,940
Equity securities	51		—		1		50		51		6		—		57
Total investment securities available-for-sale	$	485,472	$	10,379	$	977	$	494,874	$	380,399	$	8,667	$	2,018	$	387,048

7

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost and estimated fair value of available-for-sale debt securities by contractual maturities are summarized in the table below (dollars in thousands):

	Distribution of Maturities (1)
June 30, 2014	1 Year or  Less		1-5  Years		5-10  Years		After 10  Years		Total
Amortized Cost:
U.S. Government securities	$	5,752	$	26,798	$	8,553	$	26,302	$	67,405
States and political subdivisions	3,613		2,552		304		—		6,469
Residential mortgage-backed securities — nonagency	—		—		—		109,085		109,085
Residential mortgage-backed securities — agency	—		—		180,567		95,075		275,642
Asset-backed securities	—		—		—		26,820		26,820
Total debt securities	$	9,365	$	29,350	$	189,424	$	257,282	$	485,421
Fair Value:
U.S. Government securities	$	5,760	$	26,970	$	8,739	$	26,583	$	68,052
States and political subdivisions	3,619		2,562		322		—		6,503
Residential mortgage-backed securities — nonagency	—		—		—		116,744		116,744
Residential mortgage-backed securities — agency	—		—		181,561		95,079		276,640
Asset-backed securities	—		—		—		26,885		26,885
Total debt securities	$	9,379	$	29,532	$	190,622	$	265,291	$	494,824

(1) Actual cash flows may differ from contractual maturities as borrowers may prepay obligations without prepayment penalties.

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

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2014
Investment securities available-for-sale:
U.S. Government securities	$	3,761	$	3	$	—	$	—	$	3,761	$	3
Residential mortgage-backed securities — nonagency	1,476		11		864		20		2,340		31
Residential mortgage-backed securities — agency	46,915		123		52,949		819		99,864		942
Equity securities	50		1		—		—		50		1
Total	$	52,202	$	138	$	53,813	$	839	$	106,015	$	977
December 31, 2013
Investment securities available-for-sale:
U.S. Government securities	$	16,340	$	41	$	—	$	—	$	16,340	$	41
States and political subdivisions	699		1		—		—		699		1
Residential mortgage-backed securities — nonagency	—		—		956		19		956		19
Residential mortgage-backed securities — agency	107,536		1,868		4,411		89		111,947		1,957
Total	$	124,575	$	1,910	$	5,367	$	108	$	129,942	$	2,018

8

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At June 30, 2014, the Company held 23 investment securities that were in an unrealized loss position. Market changes in interest rates and credit spreads may result in temporary unrealized losses as market prices of securities fluctuate. The Company reviews its investment portfolio on a quarterly basis for indications of other than temporary impairment ("OTTI"). 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. More specifically, when analyzing the nonagency portfolio, the Company uses 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. At June 30, 2014, there was no intent to sell any of the securities held as 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 (dollars in thousands):

	Three Months Ended				Six Months Ended
	June 30				June 30
	2014		2013		2014		2013
Proceeds from sales and calls	$	3,560	$	—	$	12,696	$	3,422
Gross gains on securities available-for-sale	$	12	$	—	$	23	$	364
Gross losses on securities available-for-sale	—		—		—		—
Net realized gains on sales and calls of securities available-for-sale	$	12	$	—	$	23	$	364

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 $165.4 million and $132.0 million at June 30, 2014 and December 31, 2013, respectively, were pledged to secure public deposits.

9

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4: Loans Receivable

Concurrently with each of the Bank's twelve 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 (dollars in thousands):

	June 30, 2014			December 31, 2013
Construction, land & land development	$	271,525		$	251,043
Other commercial real estate	616,418			550,474
Total commercial real estate	887,943			801,517
Commercial & industrial	55,555			30,145
Owner-occupied real estate	167,129			174,858
Total commercial & industrial	222,684			205,003
Residential real estate	75,683			66,835
Consumer & other	43,994			50,120
Total noncovered loans	1,230,304			1,123,475
Allowance for loan losses	(17,885		)	(16,656		)
Total noncovered loans, net	$	1,212,419		$	1,106,819

The table above includes net deferred loan fees that totaled approximately $3.6 million and $2.6 million at June 30, 2014 and December 31, 2013, respectively.

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

	June 30, 2014			December 31, 2013
Construction, land & land development	$	23,851		$	35,383
Other commercial real estate	54,212			67,573
Total commercial real estate	78,063			102,956
Commercial & industrial	3,070			4,271
Owner-occupied real estate	43,409			54,436
Total commercial & industrial	46,479			58,707
Residential real estate	86,371			95,240
Consumer & other	389			591
Total covered loans	211,302			257,494
Allowance for loan losses	(17,722		)	(17,409		)
Total covered loans, net	$	193,580		$	240,085

10

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 (dollars in thousands):

	Three Months Ended						Six Months Ended
	June 30						June 30
	2014			2013			2014			2013
Balance, beginning of period	$	227,097		$	368,125		$	240,085		$	419,235
Accretion of fair value discounts	17,087			25,787			43,623			46,423
Reductions in principal balances resulting from repayments, write-offs and foreclosures	(52,064		)	(88,935		)	(89,815		)	(187,453		)
Change in the allowance for loan losses on covered loans	1,460			11,076			(313		)	37,848
Balance, end of period	$	193,580		$	316,053		$	193,580		$	316,053

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 life of the related loan 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 (dollars 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
June 30, 2014
Balance, beginning of period	$	55,847		$	24,016		$	889	$	7,686		$	34,346		$	19,186	$	14,436		$	156,406
Accretion	(10,097		)	(1,904		)	170		(390		)	(3,761		)	223		(1,328		)	(17,087		)
Transfers to accretable discounts and exit events, net	(309		)	(644		)	798		(1,420		)	(92		)	3,069		(773		)	629
Balance, end of period	$	45,441		$	21,468		$	1,857	$	5,876		$	30,493		$	22,478	$	12,335		$	139,948

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
June 30, 2013
Balance, beginning of period	$	103,897		$	44,611		$	2,116		$	9,693		$	13,369		$	22,726		$	8,178		$	204,590
Accretion	(12,738		)	(4,817		)	(254		)	(1,148		)	(3,700		)	(2,069		)	(1,061		)	(25,787		)
Transfers to accretable discounts and exit events, net	10,623			1,214			669			8,108			41,311			5,357			10,897			78,179
Balance, end of period	$	101,782		$	41,008		$	2,531		$	16,653		$	50,980		$	26,014		$	18,014		$	256,982

11

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six 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
June 30, 2014
Balance, beginning of period	$	67,239		$	30,565		$	2,138		$	8,184		$	37,922		$	24,245		$	14,731		$	185,024
Accretion	(21,126		)	(11,037		)	(376		)	(584		)	(5,184		)	(2,434		)	(2,882		)	(43,623		)
Transfers to accretable discounts and exit events, net	(672		)	1,940			95			(1,724		)	(2,245		)	667			486			(1,453		)
Balance, end of period	$	45,441		$	21,468		$	1,857		$	5,876		$	30,493		$	22,478		$	12,335		$	139,948

Six 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
June 30, 2013
Balance, beginning of period	$	76,975		$	33,434		$	1,863		$	7,945		$	14,451		$	23,439		$	14,697		$	172,804
Accretion	(22,008		)	(8,900		)	(555		)	(1,849		)	(4,935		)	(3,854		)	(4,322		)	(46,423		)
Transfers to accretable discounts and exit events, net	46,815			16,474			1,223			10,557			41,464			6,429			7,639			130,601
Balance, end of period	$	101,782		$	41,008		$	2,531		$	16,653		$	50,980		$	26,014		$	18,014		$	256,982

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

12

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 (dollars in thousands):

	Three Months Ended June 30
	2014									2013
	Noncovered Loans			Covered Loans			Total			Noncovered Loans			Covered Loans			Total
Balance, beginning of period	$	16,858		$	19,182		$	36,040		$	15,122		$	28,706		$	43,828
Loans charged-off	(79		)	(4,881		)	(4,960		)	(8		)	(8,710		)	(8,718		)
Recoveries of loans previously charged-off	106			3,326			3,432			26			5,216			5,242
Net recoveries (charge-offs)	27			(1,555		)	(1,528		)	18			(3,494		)	(3,476		)
Provision for loan losses	1,000			95			1,095			665			(7,582		)	(6,917		)
Amount attributable to FDIC loss share agreements	—			(394		)	(394		)	—			6,294			6,294
Total provision for loan losses charged to operations	1,000			(299		)	701			665			(1,288		)	(623		)
Provision for loan losses recorded through the FDIC loss share receivable	—			394			394			—			(6,294		)	(6,294		)
Balance, end of period	$	17,885		$	17,722		$	35,607		$	15,805		$	17,630		$	33,435
	Six Months Ended June 30
	2014									2013
	Noncovered Loans			Covered Loans			Total			Noncovered Loans			Covered Loans			Total
Balance, beginning of period	$	16,656		$	17,409		$	34,065		$	14,660		$	55,478		$	70,138
Loans charged-off	(215		)	(11,551		)	(11,766		)	(20		)	(19,926		)	(19,946		)
Recoveries of loans previously charged-off	444			8,557			9,001			150			12,225			12,375
Net recoveries (charge-offs)	229			(2,994		)	(2,765		)	130			(7,701		)	(7,571		)
Provision for loan losses	1,000			3,307			4,307			1,015			(30,147		)	(29,132		)
Amount attributable to FDIC loss share agreements	—			(3,016		)	(3,016		)	—			26,474			26,474
Total provision for loan losses charged to operations	1,000			291			1,291			1,015			(3,673		)	(2,658		)
Provision for loan losses recorded through the FDIC loss share receivable	—			3,016			3,016			—			(26,474		)	(26,474		)
Balance, end of period	$	17,885		$	17,722		$	35,607		$	15,805		$	17,630		$	33,435

13

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 (dollars in thousands):

	Commercial Real Estate			Commercial & Industrial			Residential Real Estate			Consumer & Other			Total
Three Months Ended
June 30, 2014
Allowance for loan losses:
Beginning balance	$	11,726		$	2,996		$	1,033		$	1,103		$	16,858
Charge-offs	—			(40		)	(1		)	(38		)	(79		)
Recoveries	8			68			22			8			106
Provision	1,007			355			26			(388		)	1,000
Ending balance	$	12,741		$	3,379		$	1,080		$	685		$	17,885
Six Months Ended
June 30, 2014
Allowance for loan losses:
Beginning balance	$	11,163		$	3,139		$	1,015		$	1,339		$	16,656
Charge-offs	(65		)	(105		)	(1		)	(44		)	(215		)
Recoveries	290			122			24			8			444
Provision	1,353			223			42			(618		)	1,000
Ending balance	$	12,741		$	3,379		$	1,080		$	685		$	17,885
Ending allowance attributable to loans:
Individually evaluated for impairment	$	196		$	128		$	54		$	7		$	385
Collectively evaluated for impairment	12,545			3,251			1,026			678			17,500
Total ending allowance balance	$	12,741		$	3,379		$	1,080		$	685		$	17,885
Loans:
Loans individually evaluated for impairment	$	390		$	301		$	1,232		$	15		$	1,938
Loans collectively evaluated for impairment	887,553			222,383			74,451			43,979			1,228,366
Total loans	$	887,943		$	222,684		$	75,683		$	43,994		$	1,230,304
Year Ended
December 31, 2013
Ending allowance attributable to loans:
Individually evaluated for impairment	$	98		$	159		$	49		$	8		$	314
Collectively evaluated for impairment	11,065			2,980			966			1,331			16,342
Total ending allowance balance	$	11,163		$	3,139		$	1,015		$	1,339		$	16,656
Loans:
Loans individually evaluated for impairment	$	807		$	318		$	1,198		$	15		$	2,338
Loans collectively evaluated for impairment	800,710			204,685			65,637			50,105			1,121,137
Total loans	$	801,517		$	205,003		$	66,835		$	50,120		$	1,123,475

14

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
June 30, 2013
Allowance for loan losses:
Beginning balance	$	10,077		$	3,432		$	972		$	641		$	15,122
Charge-offs	—			—			(1		)	(7		)	(8		)
Recoveries	23			1			1			1			26
Provision	277			(8		)	(122		)	518			665
Ending balance	$	10,377		$	3,425		$	850		$	1,153		$	15,805
Six Months Ended
June 30, 2013
Allowance for loan losses:
Beginning balance	$	9,495		$	3,103		$	1,050		$	1,012		$	14,660
Charge-offs	(1		)	(10		)	(1		)	(8		)	(20		)
Recoveries	137			6			2			5			150
Provision	746			326			(201		)	144			1,015
Ending balance	$	10,377		$	3,425		$	850		$	1,153		$	15,805
Ending allowance attributable to loans:
Individually evaluated for impairment	$	638		$	224		$	74		$	23		$	959
Collectively evaluated for impairment	9,739			3,201			776			1,130			14,846
Total ending allowance balance	$	10,377		$	3,425		$	850		$	1,153		$	15,805
Loans:
Loans individually evaluated for impairment	$	1,790		$	448		$	1,383		$	47		$	3,668
Loans collectively evaluated for impairment	802,586			220,112			52,579			44,177			1,119,454
Total loans	$	804,376		$	220,560		$	53,962		$	44,224		$	1,123,122

15

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 (dollars in thousands):

	Commercial Real Estate			Commercial & Industrial			Residential Real Estate			Consumer & Other			Total
Three Months Ended
June 30, 2014
Allowance for loan losses:
Beginning balance	$	12,107		$	4,048		$	2,986		$	41		$	19,182
Charge-offs	(3,267		)	(1,368		)	(246		)	—			(4,881		)
Recoveries	2,459			533			318			16			3,326
Provision for loan losses before amount attributable to FDIC loss share agreements	(693		)	(45		)	815			18			95
Amount attributable to FDIC loss share agreements	400			(20		)	(764		)	(10		)	(394		)
Total provision for loan losses charged to operations	(293		)	(65		)	51			8			(299		)
Provision for loan losses recorded through the FDIC loss share receivable	(400		)	20			764			10			394
Ending balance	$	10,606		$	3,168		$	3,873		$	75		$	17,722
Six Months Ended
June 30, 2014
Allowance for loan losses:
Beginning balance	$	11,226		$	3,630		$	2,481		$	72		$	17,409
Charge-offs	(8,184		)	(2,701		)	(656		)	(10		)	(11,551		)
Recoveries	5,834			1,651			1,016			56			8,557
Provision for loan losses before amount attributable to FDIC loss share agreements	1,730			588			1,032			(43		)	3,307
Amount attributable to FDIC loss share agreements	(1,578		)	(536		)	(941		)	39			(3,016		)
Total provision for loan losses charged to operations	152			52			91			(4		)	291
Provision for loan losses recorded through the FDIC loss share receivable	1,578			536			941			(39		)	3,016
Ending balance	$	10,606		$	3,168		$	3,873		$	75		$	17,722
Ending allowance attributable to loans:
Individually evaluated for impairment	$	2,945		$	879		$	968		$	—		$	4,792
Collectively evaluated for impairment	7,661			2,289			2,905			75			12,930
Total ending allowance balance	$	10,606		$	3,168		$	3,873		$	75		$	17,722
Loans:
Loans individually evaluated for impairment	$	29,933		$	12,749		$	1,999		$	3		$	44,684
Loans collectively evaluated for impairment	48,130			33,730			84,372			386			166,618
Total loans	$	78,063		$	46,479		$	86,371		$	389		$	211,302

Year Ended
December 31, 2013
Ending allowance attributable to loans:
Individually evaluated for impairment	$	6,018	$	1,113	$	966	$	72	$	8,169
Collectively evaluated for impairment	5,208		2,517		1,515		—		9,240
Total ending allowance balance	$	11,226	$	3,630	$	2,481	$	72	$	17,409
Loans:
Loans individually evaluated for impairment	$	49,713	$	15,465	$	2,132	$	265	$	67,575
Loans collectively evaluated for impairment	53,243		43,242		93,108		326		189,919
Total loans	$	102,956	$	58,707	$	95,240	$	591	$	257,494

16

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
June 30, 2013
Allowance for loan losses:
Beginning balance	$	13,902		$	5,093		$	9,242		$	469		$	28,706
Charge-offs	(5,899		)	(1,379		)	(1,406		)	(26		)	(8,710		)
Recoveries	3,828			1,044			125			219			5,216
Provision for loan losses before amount attributable to FDIC loss share agreements	(1,217		)	(1,087		)	(4,696		)	(582		)	(7,582		)
Amount attributable to FDIC loss share agreements	862			1,007			3,913			512			6,294
Total provision for loan losses charged to operations	(355		)	(80		)	(783		)	(70		)	(1,288		)
Provision for loan losses recorded through the FDIC loss share receivable	(862		)	(1,007		)	(3,913		)	(512		)	(6,294		)
Ending balance	$	10,614		$	3,671		$	3,265		$	80		$	17,630
Six Months Ended
June 30, 2013
Allowance for loan losses:
Beginning balance	$	32,642		$	993		$	21,189		$	654		$	55,478
Charge-offs	(15,066		)	(2,778		)	(1,861		)	(221		)	(19,926		)
Recoveries	7,059			3,335			1,612			219			12,225
Provision for loan losses before benefit attributable to FDIC loss share agreements	(14,021		)	2,121			(17,675		)	(572		)	(30,147		)
Amount attributable to FDIC loss share agreements	12,313			(1,862		)	15,520			503			26,474
Total provision for loan losses charged to operations	(1,708		)	259			(2,155		)	(69		)	(3,673		)
Provision for loan losses recorded through the FDIC loss share receivable	(12,313		)	1,862			(15,520		)	(503		)	(26,474		)
Ending balance	$	10,614		$	3,671		$	3,265		$	80		$	17,630
Ending allowance attributable to loans:
Individually evaluated for impairment	$	8,720		$	3,087		$	2,725		$	70		$	14,602
Collectively evaluated for impairment	1,894			584			540			10			3,028
Total ending allowance balance	$	10,614		$	3,671		$	3,265		$	80		$	17,630
Loans:
Loans individually evaluated for impairment	$	74,956		$	20,625		$	13,504		$	271		$	109,356
Loans collectively evaluated for impairment	67,950			55,002			100,532			843			224,327
Total loans	$	142,906		$	75,627		$	114,036		$	1,114		$	333,683

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. 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.

Approved credit losses are expected to be reimbursed for covered loans under the 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. Subsequent decreases in the amount of cash expected to be collected on covered loans results in a provision for loan losses and an increase in the FDIC receivable, through an adjustment to income, which are taken immediately. Subsequent increases in the amount of cash expected to be collected on covered loans results 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.

17

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impaired noncovered loans, segregated by class of loans, are presented in the following table (dollars in thousands):

	June 30, 2014						December 31, 2013
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans:
With no related allowance recorded:
Construction, land & land development	$	—	$	—	$	—	$	501	$	269	$	—
Other commercial real estate	—		—		—		523		350		—
Total commercial real estate	—		—		—		1,024		619		—
Commercial & industrial	—		—		—		—		—		—
Owner-occupied real estate	—		—		—		—		—		—
Total commercial & industrial	—		—		—		—		—		—
Residential real estate	875		875		—		869		869		—
Consumer & other	—		—		—		—		—		—
Subtotal	875		875		—		1,893		1,488		—
With related allowance recorded:
Construction, land & land development	82		82		41		333		52		26
Other commercial real estate	483		308		155		179		136		72
Total commercial real estate	565		390		196		512		188		98
Commercial & industrial	137		137		46		234		234		117
Owner-occupied real estate	169		164		82		89		84		42
Total commercial & industrial	306		301		128		323		318		159
Residential real estate	394		357		54		316		256		38
Consumer & other	17		15		7		17		15		8
Subtotal	1,282		1,063		385		1,168		777		303
Total impaired loans	$	2,157	$	1,938	$	385	$	3,061	$	2,265	$	303

18

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information related to the average recorded investment and interest income recognized on impaired loans, for the periods indicated (dollars in thousands):

	June 30, 2014				June 30, 2013
	Average Recorded Investment (1)		Interest Income Recognized (2)		Average Recorded Investment (3)		Interest Income Recognized (4)
Three Months Ended
Construction, land & land development	$	82	$	—	$	331	$	—
Other commercial real estate	464		9		1,393		—
Total commercial real estate	546		9		1,724		—
Commercial & industrial	191		2		364		—
Owner-occupied real estate	164		—		84		—
Total commercial & industrial	355		2		448		—
Residential real estate	1,238		6		1,292		1
Consumer & other	18		—		43		—
Total	$	2,157	$	17	$	3,507	$	1
Six Months Ended
Construction, land & land development	$	301	$	44	$	329	$	—
Other commercial real estate	497		9		1,449		—
Total commercial real estate	798		53		1,778		—
Commercial & industrial	215		2		390		—
Owner-occupied real estate	144		—		216		—
Total commercial & industrial	359		2		606		—
Residential real estate	1,230		6		1,382		2
Consumer & other	19		3		48		—
Total	$	2,406	$	64	$	3,814	$	2

(1) The average recorded investment for troubled debt restructurings for the three and six months ended June 30, 2014 was $870,000 and $869,000, respectively.

(2) There was no interest income recognized on troubled debt restructurings for the three and six months ended June 30, 2014.

(3) The average recorded investment for troubled debt restructurings for the three and six months ended June 30, 2013 was $890,000 and $887,000, respectively.

(4) There was no interest income recognized on troubled debt restructurings for the three and six months ended June 30, 2013.

The following table presents the recorded investment in noncovered nonaccrual loans by loan class at the dates indicated (dollars in thousands):

	June 30, 2014		December 31, 2013
Construction, land & land development	$	82	$	321
Other commercial real estate	308		486
Total commercial real estate	390		807
Commercial & industrial	137		234
Owner-occupied real estate	164		84
Total commercial & industrial	301		318
Residential real estate	1,232		1,125
Consumer & other	15		15
Total	$	1,938	$	2,265

19

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 June 30, 2014 (dollars 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	$	141	$	60	$	201	$	271,324	$	271,525	$	—
Other commercial real estate	—		—		—		616,418		616,418		—
Total commercial real estate	141		60		201		887,742		887,943		—
Commercial & industrial	17		108		125		55,430		55,555		—
Owner-occupied real estate	—		164		164		166,965		167,129		—
Total commercial & industrial	17		272		289		222,395		222,684		—
Residential real estate	66		956		1,022		74,661		75,683		—
Consumer & other	33		11		44		43,950		43,994		—
Total	$	257	$	1,299	$	1,556	$	1,228,748	$	1,230,304	$	—

The following table presents an analysis of past due noncovered loans, by class of loans, as of December 31, 2013 (dollars 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	$	57	$	275	$	332	$	250,711	$	251,043	$	—
Other commercial real estate	—		—		—		550,474		550,474		—
Total commercial real estate	57		275		332		801,185		801,517		—
Commercial & industrial	65		116		181		29,964		30,145		—
Owner-occupied real estate	44		83		127		174,731		174,858		—
Total commercial & industrial	109		199		308		204,695		205,003		—
Residential real estate	207		62		269		66,566		66,835		—
Consumer & other	85		6		91		50,029		50,120		—
Total	$	458	$	542	$	1,000	$	1,122,475	$	1,123,475	$	—

The following table presents an analysis of past due covered loans, by class of loans, as of June 30, 2014 (dollars in thousands):

	30 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans
Construction, land & land development	$	454	$	3,179	$	3,633	$	20,218	$	23,851
Other commercial real estate	3,583		3,877		7,460		46,752		54,212
Total commercial real estate	4,037		7,056		11,093		66,970		78,063
Commercial & industrial	—		615		615		2,455		3,070
Owner-occupied real estate	1,067		2,143		3,210		40,199		43,409
Total commercial & industrial	1,067		2,758		3,825		42,654		46,479
Residential real estate	2,308		5,868		8,176		78,195		86,371
Consumer & other	14		204		218		171		389
Total	$	7,426	$	15,886	$	23,312	$	187,990	$	211,302

20

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, 2013 (dollars in thousands):

	30 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans
Construction, land & land development	$	1,134	$	13,454	$	14,588	$	20,795	$	35,383
Other commercial real estate	3,346		8,541		11,887		55,686		67,573
Total commercial real estate	4,480		21,995		26,475		76,481		102,956
Commercial & industrial	139		587		726		3,545		4,271
Owner-occupied real estate	1,372		9,634		11,006		43,430		54,436
Total commercial & industrial	1,511		10,221		11,732		46,975		58,707
Residential real estate	5,548		7,541		13,089		82,151		95,240
Consumer & other	1		283		284		307		591
Total	$	11,540	$	40,040	$	51,580	$	205,914	$	257,494

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. A loan's risk grade is assigned at inception based upon the strength of the repayment sources and reassessed periodically throughout the year. Loans over certain dollar thresholds identified as having weaknesses are subject to more frequent review. In addition, the Company's internal loan review department provides an ongoing, comprehensive, and independent assessment of credit risk within the Company.

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.

21

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 June 30, 2014 (dollars in thousands):

	Construction, Land & Land Development		Other Commercial Real Estate		Commercial & Industrial		Owner-Occupied Real Estate		Residential Real Estate		Consumer & Other		Total
Pass	$	224,726	$	590,730	$	51,431	$	141,927	$	64,372	$	43,904	$	1,117,090
Watch	42,215		25,352		3,482		23,427		9,668		69		104,213
OAEM	688		28		190		973		230		—		2,109
Substandard	3,896		308		452		768		1,413		21		6,858
Doubtful	—		—		—		34		—		—		34
Total	$	271,525	$	616,418	$	55,555	$	167,129	$	75,683	$	43,994	$	1,230,304

The following table presents the risk grades of the noncovered loan portfolio, by class of loans, as of December 31, 2013 (dollars in thousands):

	Construction, Land & Land Development		Other Commercial Real Estate		Commercial & Industrial		Owner-Occupied Real Estate		Residential Real Estate		Consumer & Other		Total
Pass	$	174,700	$	528,649	$	28,035	$	147,510	$	55,447	$	49,952	$	984,293
Watch	71,225		21,148		1,502		24,017		9,712		106		127,710
OAEM	4,780		191		365		2,540		437		—		8,313
Substandard	338		486		243		791		1,239		55		3,152
Doubtful	—		—		—		—		—		7		7
Total	$	251,043	$	550,474	$	30,145	$	174,858	$	66,835	$	50,120	$	1,123,475

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 the table below 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 June 30, 2014 (dollars in thousands):

	Construction, Land & Land Development		Other Commercial Real Estate		Commercial & Industrial		Owner-Occupied Real Estate		Residential Real Estate		Consumer & Other		Total
Pass	$	8,295	$	4,782	$	944	$	11,551	$	39,566	$	146	$	65,284
Watch	5,176		11,899		461		15,707		11,583		21		44,847
OAEM	477		10,253		51		3,333		4,260		1		18,375
Substandard	8,402		26,011		554		12,388		27,880		109		75,344
Doubtful	1,501		1,267		1,060		430		3,082		112		7,452
Total	$	23,851	$	54,212	$	3,070	$	43,409	$	86,371	$	389	$	211,302

22

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the risk grades of the covered loan portfolio, by class of loans, as of December 31, 2013 (dollars in thousands):

	Construction, Land & Land Development		Other Commercial Real Estate		Commercial & Industrial		Owner-Occupied Real Estate		Residential Real Estate		Consumer & Other		Total
Pass	$	2,833	$	7,563	$	828	$	15,491	$	42,507	$	239	$	69,461
Watch	7,319		14,189		651		9,780		16,221		48		48,208
OAEM	969		15,027		39		6,702		2,473		1		25,211
Substandard	23,717		29,315		2,622		22,463		33,452		300		111,869
Doubtful	545		1,479		131		—		587		3		2,745
Total	$	35,383	$	67,573	$	4,271	$	54,436	$	95,240	$	591	$	257,494

Total noncovered troubled debt restructurings (TDRs) were $875,000 at June 30, 2014 and $869,000 at December 31, 2013. The Company had no unfunded commitment obligations to lend to customers that underwent troubled debt restructuring at June 30, 2014 and December 31, 2013. Acquired and covered impaired loans modified post-acquisition are not removed from their accounting pools and accounted for as TDRs, even if those loans would otherwise be deemed TDRs.

There was no noncovered allowance for loan losses for identified TDRs during the three and six months ended June 30, 2014 and June 30, 2013. During the three and six months ended June 30, 2014 and 2013, there were no noncovered loans modified under the terms of a TDR. During the three and six months ended June 30, 2014 and 2013, there were no noncovered TDRs that subsequently defaulted within twelve months of their modification dates.

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 (dollars in thousands):

	Three Months Ended						Six Months Ended
	June 30						June 30
Noncovered other real estate owned	2014			2013			2014			2013
Balance, beginning of period	$	901		$	276		$	965		$	1,115
Other real estate acquired through foreclosure of loans receivable	197			1,030			329			1,030
Other real estate sold	(369		)	(209		)	(369		)	(1,048		)
Write down of other real estate	—			—			(196		)	—
Balance, end of period	$	729		$	1,097		$	729		$	1,097
	Three Months Ended						Six Months Ended
	June 30						June 30
Covered other real estate owned	2014			2013			2014			2013
Balance, beginning of period	$	37,536		$	47,401		$	46,222		$	45,062
Other real estate acquired through foreclosure of loans receivable	7,832			14,861			20,906			42,567
Other real estate sold	(17,067		)	(4,746		)	(36,560		)	(23,279		)
Write down of other real estate	(5,092		)	(5,171		)	(7,359		)	(12,005		)
Balance, end of period	$	23,209		$	52,345		$	23,209		$	52,345

23

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 (dollars in thousands):

	Three Months Ended						Six Months Ended
	June 30						June 30
	2014			2013			2014			2013
FDIC receivable for loss share agreements at beginning of period	$	65,248		$	258,848		$	103,160		$	355,325
Provision for loan losses attributable to FDIC for loss share agreements	394			(6,294		)	3,016			(26,474		)
Wires received	(18,647		)	(20,023		)	(35,135		)	(78,817		)
Net charge-offs, write-downs and other losses	(6,447		)	(4,170		)	(17,644		)	(8,844		)
Amortization	(1,949		)	(20,762		)	(17,241		)	(37,541		)
External expenses qualifying under loss share agreements	651			2,958			3,094			6,908
Balance, end of period	$	39,250		$	210,557		$	39,250		$	210,557

At June 30, 2014, the Company estimated that $7.3 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 tables as of the dates indicated (dollars in thousands):

Three Months Ended	Security Bank			Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust Company			United Americas Bank			Piedmont Community Bank			Community Capital Bank			Total
June 30, 2014
FDIC receivable for loss share agreements at beginning of period	$	15,174		$	10,682		$	489		$	1,928		$	16,523		$	10,115		$	10,337		$	65,248
Provision for loan losses attributable to FDIC for loss share agreements	1,207			(1,727		)	(70		)	(296		)	1,132			49			99			394
Wires received	(8,902		)	(2,966		)	47			(926		)	(3,648		)	(992		)	(1,260		)	(18,647		)
Net charge-offs, write-downs and other losses	(2,372		)	(888		)	(444		)	54			(1,294		)	(824		)	(679		)	(6,447		)
(Amortization) accretion	2,357			375			126			(78		)	(2,419		)	(982		)	(1,328		)	(1,949		)
External expenses qualifying under loss share agreements	(571		)	(21		)	136			(78		)	389			466			330			651
Balance, end of period	$	6,893		$	5,455		$	284		$	604		$	10,683		$	7,832		$	7,499		$	39,250

Three Months Ended	Security Bank			Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust Company			United Americas Bank			Piedmont Community Bank			Community Capital Bank			Total
June 30, 2013
FDIC receivable for loss share agreements at beginning of period	$	90,320		$	62,826		$	3,092		$	8,748		$	47,104		$	20,650		$	26,108		$	258,848
Provision for loan losses attributable to FDIC for loss share agreements	10			(808		)	(291		)	(558		)	(4,347		)	1,920			(2,220		)	(6,294		)
Wires received	(6,668		)	(7,883		)	(549		)	(28		)	(2,279		)	(489		)	(2,127		)	(20,023		)
Net charge-offs, write-downs and other losses	(3,760		)	(196		)	(594		)	848			(1,171		)	1,004			(301		)	(4,170		)
Amortization	(6,809		)	(3,350		)	(47		)	(1,962		)	(5,126		)	(2,265		)	(1,203		)	(20,762		)
External expenses qualifying under loss share agreements	1,942			223			(47		)	(35		)	416			400			59			2,958
Balance, end of period	$	75,035		$	50,812		$	1,564		$	7,013		$	34,597		$	21,220		$	20,316		$	210,557

24

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended	Security Bank			Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust Company			United Americas Bank			Piedmont Community Bank			Community Capital Bank			Total
June 30, 2014
FDIC receivable for loss share agreements at beginning of period	$	38,195		$	22,449		$	513		$	4,577		$	17,916		$	12,806		$	6,704		$	103,160
Provision for loan losses attributable to FDIC for loss share agreements	2,374			(726		)	(42		)	28			1,095			1,057			(770		)	3,016
Wires received	(18,679		)	(6,945		)	495			(1,539		)	(4,437		)	(2,281		)	(1,749		)	(35,135		)
Net charge-offs, write-downs and other losses	(13,399		)	(5,550		)	(619		)	(680		)	(926		)	(2,017		)	5,547			(17,644		)
Amortization	(3,032		)	(4,217		)	(128		)	(1,853		)	(3,328		)	(2,124		)	(2,559		)	(17,241		)
External expenses qualifying under loss share agreements	1,434			444			65			71			363			391			326			3,094
Balance, end of period	$	6,893		$	5,455		$	284		$	604		$	10,683		$	7,832		$	7,499		$	39,250

Six Months Ended	Security Bank			Buckhead Community Bank			First Security National Bank			Northwest Bank and Trust Company			United Americas Bank			Piedmont Community Bank			Community Capital Bank			Total
June 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	(13,807		)	(6,177		)	(827		)	(715		)	(5,925		)	1,673			(696		)	(26,474		)
Wires received	(29,014		)	(19,048		)	(1,898		)	(2,066		)	(8,594		)	(9,734		)	(8,463		)	(78,817		)
Net charge-offs, write-downs and other losses	(1,768		)	(6,513		)	(1,021		)	234			(1,795		)	1,520			499			(8,844		)
Amortization	(21,044		)	(398		)	(297		)	(2,738		)	(4,224		)	(4,545		)	(4,295		)	(37,541		)
External expenses qualifying under loss share agreements	4,335			335			212			(51		)	905			1,033			139			6,908
Balance, end of period	$	75,035		$	50,812		$	1,564		$	7,013		$	34,597		$	21,220		$	20,316		$	210,557

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. In the normal course of business, the Company also uses derivative financial instruments to add stability to interest income or expense and to manage its exposure to movements in interest rates. The Company does not use derivatives for trading or speculative purposes and only enters into transactions that have a qualifying hedging relationship. 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.

25

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	Derivatives designated as hedging instruments
	Asset Derivatives						Liability Derivatives
	June 30, 2014			December 31, 2013			June 30, 2014			December 31, 2013
	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	$	4,821	Other assets	$	8,087	Other liabilities	$	1,216	Other liabilities	$	764
Total derivatives designated as hedging instruments		$	4,821		$	8,087		$	1,216		$	764

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

	Gross Amounts Recognized		Gross Amounts Offset on the Statement of Financial Condition		Net Amounts Presented on the Statement of Financial Condition		Gross Amounts Not Offset on the Statement of Financial Condition						Net Amount
June 30, 2014							Financial Instruments			Collateral Received/Posted (1)
Offsetting Derivative Assets
Derivatives	$	4,821	$	—	$	4,821	$	(1,036	)	$	(3,785	)	$	—
Total	$	4,821	$	—	$	4,821	$	(1,036	)	$	(3,785	)	$	—
Offsetting Derivative Liabilities
Derivatives	$	1,216	$	—	$	1,216	$	(1,036	)	$	—		$	180
Total	$	1,216	$	—	$	1,216	$	(1,036	)	$	—		$	180

(1) The collateral received amount has been limited in order to fully offset the net financial position. All positions are fully collateralized per the Bank's bilateral counterparty agreements.

	Gross Amounts Recognized		Gross Amounts Offset on the Statement of Financial Condition		Net Amounts Presented on the Statement of Financial Condition		Gross Amounts Not Offset on the Statement of Financial Condition						Net Amount
December 31, 2013							Financial Instruments			Collateral Received/Posted
Offsetting Derivative Assets
Derivatives	$	8,087	$	—	$	8,087	$	(764	)	$	(6,560	)	$	763
Total	$	8,087	$	—	$	8,087	$	(764	)	$	(6,560	)	$	763
Offsetting Derivative Liabilities
Derivatives	$	764	$	—	$	764	$	(764	)	$	—		$	—
Total	$	764	$	—	$	764	$	(764	)	$	—		$	—

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. The gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings. As of June 30, 2014, the Company had 83 interest rate swaps with an aggregate notional amount of $161.9 million, all but one of which, were designated as fair value hedges associated with the Company's fixed rate loan program.

26

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 to hedge the variable cash outflows associated with these liabilities; they originally had a five-year life and notional value of $200.0 million.

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 (AOCI) and is subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of derivatives that qualify as cash flow hedges is recognized directly in earnings. No hedge ineffectiveness was recognized on the Company's cash flow hedge during the periods ended June 30, 2014 and 2013.

Amounts reported in AOCI related to derivatives are reclassified to interest expense as the interest rate cap premium is amortized over the life of the cap. During the next twelve months, $382,000 is expected to be reclassified as a decrease to net interest income.

During the three and six months ended June 30, 2014, the Company recognized net losses of $175,000 and $418,000, respectively, and during the three and six months ended June 30, 2013, the Company recognized net gains of $455,000 and $546,000, respectively, related to hedge ineffectiveness of the fair value hedging relationships. The Company also recognized a net reduction in interest income of $508,000 and $947,000, respectively, for the three and six months ended June 30, 2014 and a net reduction in interest income of $360,000 and $632,000, respectively, for the three and six months ended June 30, 2013 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 net gains of $21,000 and $23,000 in noninterest income for the three and six months ended June 30, 2014, respectively, and recognition of net (losses) gains of $(18,000) and $2,000 in noninterest income for the three and six months ended June 30, 2013, respectively, related to the unamortized basis in the hedged items.

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

	Amount of Net Gain (Loss) Recognized in Income on Derivatives											Amount of Net Gain (Loss) Recognized in Income on Hedged Items
	Three Months Ended June 30					Six Months Ended June 30						Three Months Ended June 30					Six Months Ended June 30
	2014			2013		2014			2013			2014		2013			2014		2013
Interest rate products											Interest rate products
Noninterest income	$	(1,299	)	$	3,518	$	(2,231	)	$	3,886	Noninterest income	$	1,124	$	(3,063	)	$	1,813	$	(3,340	)

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

	Amount of Net Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)											Amount of Net Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	Three Months Ended June 30					Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
	2014			2013		2014			2013			2014			2013			2014			2013
Interest rate products											Interest rate products
Cash flow hedges	$	(983	)	$	2,870	$	(1,478	)	$	1,909	Interest expense	$	(57	)	$	(3	)	$	(97	)	$	(3	)

27

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit-Risk-Related Contingent Features

The Company manages credit exposure on derivatives transactions by entering into a bilateral 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. As of June 30, 2014, the Company has received $4.2 million in cash collateral under these agreements.

The Company’s agreements with its derivative counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivative counterparties also include provisions that if not met, could result in the Company being declared in default. If the Company were to be declared in default, the counterparty could terminate the derivative positions and the Company and the counterparty would be required to settle their obligations under the agreements. As of June 30, 2014, the termination value of derivatives in a net liability position under these agreements was $237,000. Although the Company did not breach any provisions at June 30, 2014, had a breach occurred, the Company could have been required to settle obligations under the agreements at their termination value.

Note 9: Other Assets, Other Liabilities and Accrued Expenses

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

Other Assets	June 30, 2014		December 31, 2013
Cash surrender value of life insurance	$	40,803	$	40,145
Derivative financial instruments	4,821		8,087
Accrued income tax receivable	3,224		7,737
Federal Home Loan Bank stock	2,344		3,195
Accrued interest receivable	2,209		2,935
Other prepaid expenses	1,689		3,048
Miscellaneous receivables and other assets	5,806		5,928
Total other assets	$	60,896	$	71,075

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

Other Liabilities and Accrued Expenses	June 30, 2014		December 31, 2013
Accrued incentive compensation	$	4,032	$	6,626
Accrued lease expense	3,235		3,192
Derivative financial instruments	1,216		764
Accrued professional fees	927		885
Accrued interest payable	743		865
Accrued severance expense	398		1,165
Deferred tax liability, net	107		12,347
Miscellaneous payables and accrued expenses	3,323		2,455
Total accrued expenses and other liabilities	$	13,981	$	28,299

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 16 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

28

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company issued 7,000 shares of restricted stock under the Plan to its independent directors during the six months ended June 30, 2014. There were 12,000 shares of restricted stock that vested and 4,000 shares of restricted stock that were forfeited during the six months ended June 30, 2014.

The Company recognized compensation expense related to equity awards of $353,000 and $828,000 for three and six months ended June 30, 2014, compared to $324,000 and $636,000 for the same periods in 2013, respectively. Unearned share-based compensation associated with these equity awards totaled $4.2 million at June 30, 2014.

Note 11: Regulatory Matters

The Company's and the Bank's regulatory ratios as of June 30, 2014 and December 31, 2013 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
June 30, 2014
Total Capital to Risk-Weighted Assets
Consolidated	$	450,626	28.32	%	$	127,277	8.00	%	$	159,097	10.00	%
Bank	$	395,046	24.83	%	$	127,267	8.00	%	$	159,084	10.00	%
Tier I Capital to Risk-Weighted Assets
Consolidated	$	430,544	27.06	%	$	63,639	4.00	%	$	95,458	6.00	%
Bank	$	374,966	23.57	%	$	63,634	4.00	%	$	95,450	6.00	%
Tier I Capital to Average Assets
Consolidated	$	430,544	16.84	%	$	102,246	4.00	%	$	—	N/A
Bank	$	374,966	14.67	%	$	102,260	4.00	%	$	127,825	5.00	%

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2013
Total Capital to Risk-Weighted Assets
Consolidated	$	438,670	29.11	%	$	120,549	8.00	%	$	150,686	10.00	%
Bank	$	381,230	25.32	%	$	120,463	8.00	%	$	150,578	10.00	%
Tier I Capital to Risk-Weighted Assets
Consolidated	$	419,646	27.85	%	$	60,274	4.00	%	$	90,412	6.00	%
Bank	$	362,219	24.06	%	$	60,231	4.00	%	$	90,347	6.00	%
Tier I Capital to Average Assets
Consolidated	$	419,646	16.55	%	$	101,429	4.00	%	$	—	N/A
Bank	$	362,219	14.28	%	$	101,438	4.00	%	$	126,797	5.00	%

The Company and the Bank entered into a Capital Maintenance Agreement with the FDIC. Under the terms of the Capital Maintenance Agreement, the Bank is required to maintain a leverage ratio of at least 10% and a total risk-based capital ratio of at least 12%. During the term of the agreement, if at any time the Bank's leverage ratio falls below 10%, or its risk-based capital ratio falls below 12%, the Company is required to immediately cause sufficient actions to be taken to restore the Bank's leverage and risk-based capital ratios to 10% and 12%, respectively. The Capital Maintenance Agreement expires on July 26, 2016. The Company and the Bank were in compliance with the Capital Maintenance Agreement at June 30, 2014.

29

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Regulatory Restrictions on Dividends

Regulatory policy statements provide that generally 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 the Bank have been the primary source of funds available for the declaration and payment of dividends to the Company's common shareholders.

Federal and state banking laws and regulations restrict the amount of dividends the Bank may distribute without prior regulatory approval. At June 30, 2014, the Bank had the capacity to pay $6.9 million in dividends to the Company without prior regulatory approval.

At June 30, 2014, the Company had $54.5 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. The Company declared a cash dividend of $.04 per common share to the Company's shareholders for the quarter ended June 30, 2014 and has declared a cash dividend of $.03 per common share every quarter from the quarter ended September 30, 2012 through the quarter ended March 31, 2014.

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; and involve, to varying degrees, elements of credit, interest rate and/or liquidity risk. Such financial instruments are recorded when they are funded and the related fees are generally recognized when collected.

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.

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.

30

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	June 30, 2014		December 31, 2013
Commitments to extend credit:
Fixed	$	15,043	$	9,848
Variable	331,317		290,079
Standby letters of credit:
Fixed	488		379
Variable	772		1,274
Total	$	347,620	$	301,580

The fixed rate loan commitments have maturities ranging from one month to nine years. Management takes appropriate actions to mitigate interest rate risk associated with these fixed rate commitments through various measures including, but not limited to, the use of derivative financial instruments.

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.

31

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 six months ended June 30, 2014 and the year ended December 31, 2013, there were no transfers between levels.

Financial Assets and Financial Liabilities Measured on a Recurring Basis

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 June 30, 2014, the Company's investment portfolio primarily consisted of U.S. government agency mortgage-backed securities, nonagency mortgage-backed securities, U.S. government securities, municipal securities, asset-backed 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.

32

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the fair value measurements of financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars 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	$	751	$	67,301	$	—	$	68,052
States and political subdivisions	—		6,503		—		6,503
Residential mortgage-backed securities — nonagency	—		116,744		—		116,744
Residential mortgage-backed securities — agency	—		276,640		—		276,640
Asset-backed securities	—		26,885		—		26,885
Equity securities	50		—		—		50
Derivative financial instruments	—		4,821		—		4,821
Total recurring assets at fair value	$	801	$	498,894	$	—	$	499,695
Liabilities:
Derivative financial instruments	$	—	$	1,216	$	—	$	1,216
Total recurring liabilities at fair value	$	—	$	1,216	$	—	$	1,216

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, 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars 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	$	761	$	80,350	$	—	$	81,111
States and political subdivisions	—		9,367		—		9,367
Residential mortgage-backed securities — nonagency	—		117,647		—		117,647
Residential mortgage-backed securities — agency	—		175,926		—		175,926
Asset-backed securities	—		2,940		—		2,940
Equity securities	57		—		—		57
Derivative financial instruments	—		8,087		—		8,087
Total recurring assets at fair value	$	818	$	394,317	$	—	$	395,135
Liabilities:
Derivative financial instruments	$	—	$	764	$	—	$	764
Total recurring liabilities at fair value	$	—	$	764	$	—	$	764

33

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Assets Measured on a Nonrecurring Basis

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 are considered impaired when, based on current information and events, it is probable that the Company 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.

Mortgage Loans Held for Sale

Mortgage loans held for sale are recorded at the lower of cost or fair value. The fair values of mortgage loans held for sale are measured on a nonrecurring basis. Estimated fair value is determined using Level 2 inputs based on observable data such as the existing forward commitment terms or the current market value of similar loans.

The following table presents the fair value measurements of financial assets measured at fair value on a nonrecurring basis as of June 30, 2014 and December 31, 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):

	Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
June 30, 2014
Impaired noncovered loans	$	—	$	—	$	1,553	$	1,553
Mortgage loans held for sale	—		726		—		726
Total nonrecurring assets at fair value	$	—	$	726	$	1,553	$	2,279
December 31, 2013
Impaired noncovered loans	$	—	$	—	$	1,962	$	1,962
Mortgage loans held for sale	—		897		—		897
Total nonrecurring assets at fair value	$	—	$	897	$	1,962	$	2,859

Noncovered impaired loans that are measured for impairment using the fair value of collateral for collateral dependent loans had principal balances of $1.9 million and $2.3 million with respective valuation allowances of $385,000 and $303,000 at June 30, 2014 and December 31, 2013, respectively.

34

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nonfinancial Assets Measured on a Nonrecurring Basis

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 (dollars in thousands):

	Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
June 30, 2014
Other Real Estate Owned:
Not covered by loss share agreements	$	—	$	—	$	784	$	784
Covered by loss share agreements	—		—		28,685		28,685
Total other real estate owned	$	—	$	—	$	29,469	$	29,469
December 31, 2013
Other Real Estate Owned:
Not covered by loss share agreements	$	—	$	—	$	980	$	980
Covered by loss share agreements	—		—		55,982		55,982
Total other real estate owned	$	—	$	—	$	56,962	$	56,962

Other real estate owned (OREO) includes real property that has been acquired in satisfaction of loans receivable, noncovered and covered, and bank premises formerly, but no longer, used for a specific business purpose. Property acquired in satisfaction of loans receivable, 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. Bank premises are transferred at the lower of carrying value or fair value, less estimated selling costs.

35

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 (dollars in thousands):

	June 30, 2014			December 31, 2013
Noncovered under FDIC loss share agreements:
Other real estate owned at fair value	$	784		$	980
Estimated selling costs	(55		)	(15		)
Other real estate owned	$	729		$	965
Covered under FDIC loss share agreements:
Other real estate owned at fair value	$	28,685		$	55,982
Estimated selling costs and other adjustments	(5,476		)	(9,760		)
Other real estate owned	$	23,209		$	46,222

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at June 30, 2014 (dollars in thousands):

	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Noncovered impaired loans - collateral dependent	$	1,553	Third party appraisal	Management discount for property type and recent market volatility	0% - 50% (20%)
Noncovered other real estate owned	$	784	Third party appraisal	Management discount for property type and recent market volatility	0% - 28% (22%)
Covered other real estate owned	$	28,685	Third party appraisal	Management discount for property type and recent market volatility	0% - 83% (32%)

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at December 31, 2013 (dollars in thousands):

	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Noncovered impaired loans - collateral dependent	$	1,962	Third party appraisal	Management discount for property type and recent market volatility	0% - 50% (13%)
Noncovered other real estate owned	$	980	Third party appraisal	Management discount for property type and recent market volatility	0% - 31% (6%)
Covered other real estate owned	$	55,982	Third party appraisal	Management discount for property type and recent market volatility	0% - 84% (39%)

36

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Assets and Financial Liabilities

The following table includes the estimated fair value of the Company's financial assets and financial liabilities (dollars in thousands). 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 June 30, 2014 and December 31, 2013.

		June 30, 2014				December 31, 2013
(in thousands)	Fair Value Hierarchy Level	Carrying  Amount		Estimated  Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents	Level 1	$	507,733	$	507,733	$	598,749	$	598,749
Investment securities available-for-sale	Levels 1 & 2	494,874		494,874		387,048		387,048
Mortgage loans held for sale	Level 2	726		726		897		897
Net loans	Level 3	1,405,999		1,443,246		1,346,904		1,396,958
Other real estate owned	Level 3	23,938		29,469		47,187		56,962
FDIC receivable for loss share agreements, net	Level 3	39,250		19,395		103,160		53,813
Derivative financial instruments	Level 2	4,821		4,821		8,087		8,087
Accrued interest receivable	Level 2	2,209		2,209		2,935		2,935
Federal Home Loan Bank stock	Level 3	2,344		2,344		3,195		3,195
Liabilities:
Deposits	Level 2	$	2,115,213	$	2,115,338	$	2,128,325	$	2,128,611
Securities sold under agreements to repurchase	Level 2	—		—		1,216		1,216
Notes payable	Level 2	2,779		2,779		5,682		5,682
Derivative financial instruments	Level 2	1,216		1,216		764		764
Accrued interest payable	Level 2	743		743		865		865

Cash and Cash Equivalents

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

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.

37

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.

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, classified as a restricted equity security, is considered a Level 3 asset as little or no market activity exists for the security; therefore, the security's value is not market observable and is carried at original cost basis as cost approximates fair value.

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.

38

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14: Earnings Per Share

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

	Three Months Ended				Six Months Ended
	June 30				June 30
	2014		2013		2014		2013
Net income (loss)	$	7,507	$	137	$	11,829	$	(1,019	)
Denominator:
Weighted average common shares outstanding	32,126,260		31,918,677		32,110,454		31,913,754
Weighted average dilutive grants (1)	1,463,537		1,206,004		1,506,600		—
Weighted average common shares outstanding including dilutive grants	33,589,797		33,124,681		33,617,054		31,913,754
Net income (loss) per share:
Basic	$	.23	$	—	$	.37	$	(.03	)
Diluted	$	.22	$	—	$	.35	$	(.03	)

(1) Weighted average anti-dilutive options outstanding were 1,262,384 for the six months ended June 30, 2013.

Since the Company had a loss for the six months ended June 30, 2013, all potential common shares were excluded from the calculation of diluted earnings per share as they would have had an anti-dilutive effect for the period presented.

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.

39

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended	Investment Securities Available-for-Sale			Cash Flow Hedges (Effective Portion)			Total
June 30, 2014
Balance, beginning of period	$	4,904		$	521		$	5,425
Other comprehensive income (loss) before income taxes:
Net change in unrealized gains (losses)	1,416			(983		)	433
Reclassification adjustment for net gains realized and included in earnings	(12		)	—			(12		)
Amount reclassified into net income on cash flow hedges	—			57			57
Income tax expense (benefit)	543			(358		)	185
Balance, end of period	$	5,765		$	(47	)	$	5,718
June 30, 2013
Balance, beginning of period	$	7,911		$	(625	)	$	7,286
Other comprehensive income (loss) before income taxes:
Net change in unrealized (losses) gains	(4,181		)	2,870			(1,311		)
Reclassification adjustment for net gains realized and included in earnings	—			—			—
Amount reclassified into net income on cash flow hedges	—			3			3
Income tax (expense) benefit	(1,463		)	1,005			(458		)
Balance, end of period	$	5,193		$	1,243		$	6,436
Six Months Ended
June 30, 2014
Balance, beginning of period	$	4,323		$	847		$	5,170
Other comprehensive income (loss) before income taxes:
Net change in unrealized gains (losses)	2,375			(1,478		)	897
Reclassification adjustment for net gains realized and included in earnings	(23		)	—			(23		)
Amount reclassified into net income on cash flow hedges	—			97			97
Income tax expense (benefit)	910			(487		)	423
Balance, end of period	$	5,765		$	(47	)	$	5,718
June 30, 2013
Balance, beginning of period	$	8,528		$	—		$	8,528
Other comprehensive income before income taxes:
Net change in unrealized (losses) gains	(4,767		)	1,909			(2,858		)
Reclassification adjustment for net gains realized and included in earnings	(364		)	—			(364		)
Amount reclassified into net income on cash flow hedges	—			3			3
Income tax (benefit) expense	(1,796		)	669			(1,127		)
Balance, end of period	$	5,193		$	1,243		$	6,436

40

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16: Acquisitions

Proposed Acquisition of Atlanta Bancorporation, Inc.

On April 25, 2014, the Company entered into a definitive agreement to acquire Atlanta Bancorporation, Inc. and its wholly-owned subsidiary, Bank of Atlanta. Upon the closing of the transaction, Atlanta Bancorporation, Inc. will merge into State Bank Financial Corporation, immediately followed by the merger of Bank of Atlanta into State Bank and Trust Company.

At March 31, 2014, Bank of Atlanta had approximately $198.3 million of total assets, $123.1 million of loans and $161.2 million of deposits. Bank of Atlanta is headquartered in midtown Atlanta and operates one additional banking office in Duluth, Georgia.

State Bank Financial Corporation has agreed to pay approximately $25.2 million in cash for all outstanding shares of Atlanta Bancorporation, Inc. The definitive agreement has been unanimously approved by the Boards of Directors of both companies and approved by Atlanta Bancorporation, Inc. shareholders. The acquisition is expected to close no later than the fourth quarter of 2014. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals.

Proposed Acquisition of Georgia-Carolina Bancshares, Inc.

On June 23, 2014, the Company entered into a definitive agreement to acquire Georgia-Carolina Bancshares, Inc. and its wholly-owned subsidiary, First Bank of Georgia, in a cash and stock transaction with a purchase price of approximately $82.4 million, or $22.35 per share of Georgia-Carolina Bancshares, Inc. stock. The transaction value at the time of the merger may change due to fluctuations in the price of the Company's common stock. Each share of Georgia-Carolina common stock will be converted into the right to receive $8.85 in cash and a number of shares of the Company's common stock equal to an exchange ratio, subject to the limitations that, if the aggregate value of the stock consideration is less than 40% of the aggregate merger consideration, the exchange ratio will be adjusted such that the aggregate stock consideration is at least 40% of the aggregate merger consideration. The exchange ratio will depend on the average closing price of the Company’s common stock during the twenty trading day period ending five business days before the closing of the transaction (the "Final State Bank Price"). If the Final State Bank Price is above $14.00 but below $17.00, the exchange ratio will be equal to $13.50 divided by the Final State Bank Price. If the Final State Bank Price is at or above $17.00, the exchange ratio will be 0.794. If the Final State Bank Price is at or below $14.00, the exchange ratio will be 0.964.

At March 31, 2014, First Bank of Georgia had total assets of approximately $523.1 million, total loans, including mortgage loans held for sale, of approximately $316.5 million, total deposits of approximately $427.2 million and total shareholder's equity of approximately $59.5 million. First Bank of Georgia is headquartered in Augusta, Georgia and operates seven banking offices in the Augusta metropolitan statistical area. In addition, the bank operates mortgage origination offices in the Augusta and Savannah, Georgia markets.

The definitive agreement has been unanimously approved by the Boards of Directors of both companies and is anticipated to close in the first quarter of 2015. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals and the approval by shareholders of Georgia-Carolina Bancshares, Inc.

41

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

The following discussion analyzes our consolidated financial condition as of June 30, 2014 as compared to December 31, 2013 and our results of operations for the three and six months ended June 30, 2014 as compared to the three and six months ended June 30, 2013. 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 in our 2013 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.

Introduction

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 12 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 19 full service branches throughout middle Georgia and metropolitan Atlanta. As of June 30, 2014, our total assets were approximately $2.6 billion, our total loans receivable were approximately $1.4 billion, our total deposits were approximately $2.1 billion and our total shareholders' equity was approximately $448.3 million.

42

Overview

Our net income for the quarter ended June 30, 2014 was $7.5 million, or $.22 per diluted share, compared to net income of $137,000, or $.00 per diluted share for the quarter ended June 30, 2013.

Our net interest income on a taxable equivalent basis was $33.2 million for the quarter ended June 30, 2014, a decrease of $8.5 million, or 20.4%, from the quarter ended June 30, 2013. Our interest income on a tax equivalent basis decreased $8.6 million to $35.1 million for the quarter ended June 30, 2014, compared to the same period in 2013, primarily as a result of lower accretion income on covered loans. Our interest expense decreased $149,000 to $1.8 million during the quarter ended June 30, 2014, compared to the same period in 2013, primarily as a result of improvements in our deposit mix which lowered our cost of funds. Average earning assets increased 6.2% during the second quarter of 2014 compared to the second quarter of 2013.

Noninterest income for the three months ended June 30, 2014 totaled $1.4 million, up $17.9 million from the three months ended June 30, 2013. The increase in noninterest income is primarily a result of the amortization of the FDIC receivable for loss share agreements decreasing $18.8 million, or 90.6%, to $1.9 million for the three months ended June 30, 2014 compared to the same period in 2013, as the majority of the amortization of the FDIC receivable related to our commercial loss share agreements with reimbursement obligations expiring over the remainder of 2014 was recorded in previous periods. In addition, changes made to our assumptions during our quarterly re-estimation of cash flows on covered loans, the decreasing balance of the FDIC receivable and the timing of actual versus expected collections on covered loans also contributed to the decline in amortization expense.

Our noncovered loans increased $106.8 million, or 9.5%, for the quarter ended June 30, 2014, compared to the year ended December 31, 2013, and represented 85.3% of our total loan portfolio at June 30, 2014. Our covered loans decreased $46.2 million, or 17.9%, for the quarter ended June 30, 2014, compared to the year ended December 31, 2013, as covered loans were paid down or charged-off and submitted to the FDIC for loss share reimbursement. Our asset quality remained strong in our noncovered loan portfolio for the quarter ended June 30, 2014, with a ratio of noncovered nonperforming assets to total noncovered loans plus noncovered other real estate owned of .22% and a ratio of nonperforming loans to total noncovered loans of .16%.

We recorded the loans we acquired in each of our FDIC-assisted acquisitions at their estimated fair values on the date of each acquisition. We refer to the expected cash flows that exceed the net covered loan balance as the "accretable discount." The accretable discount is recognized as interest income over the remaining life of the loan. The accretable discount on covered loans decreased $117.1 million to $139.9 million for the quarter ended June 30, 2014, compared to $257.0 million for the same period in 2013. The decrease is primarily a result of $119.7 million in accretion income recognized, including gains of $54.8 million on covered loan pools that closed. As of June 30, 2014, the accretable discount had an estimated weighted average life of ten quarters compared to future scheduled amortization of the FDIC 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 our longer-term earnings.

The FDIC receivable for loss share agreements decreased to $39.3 million at June 30, 2014, compared to $103.2 million at December 31, 2013. The FDIC receivable decreased as a result of our submission of claims to the FDIC and the receipt of cash from the FDIC under the terms of our loss share agreements and amortization of the FDIC receivable. Projected cash flows on our covered loans continue 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.

Our total covered and noncovered provision for loan losses was $701,000 for the three months ended June 30, 2014, compared to a negative $623,000 for the three months ended June 30, 2013. We recorded provision for noncovered loan losses of $1.0 million for the three months ended June 30, 2014, compared to $665,000 for the same period in 2013. Net recoveries on noncovered loans were $27,000 and $18,000 for the second quarter of 2014 and 2013, respectively. The provision for covered loan losses charged to operations was negative $299,000 and negative $1.3 million for the second quarter of 2014 and 2013, respectively, due to better than expected performance in our covered loan portfolio.

The Company's capital ratios exceeded all regulatory "well capitalized" guidelines, with a Tier 1 leverage ratio of 16.84%, a Tier 1 risk-based capital ratio of 27.06% and a Total risk-based capital ratio of 28.32% at June 30, 2014. During the second quarter of 2014, we declared a quarterly cash dividend of $.04 per share to our common shareholders.

43

Recent Developments

Proposed Acquisition of Atlanta Bancorporation, Inc.

On April 25, 2014, the Company entered into a definitive agreement to acquire Atlanta Bancorporation, Inc. and its wholly-owned subsidiary, Bank of Atlanta. Upon the closing of the transaction, Atlanta Bancorporation, Inc. will merge into State Bank Financial Corporation, immediately followed by the merger of Bank of Atlanta into State Bank and Trust Company.

At March 31, 2014, Bank of Atlanta had approximately $198.3 million of total assets, $123.1 million of loans and $161.2 million of deposits. Bank of Atlanta is headquartered in midtown Atlanta and operates one additional banking office in Duluth, Georgia.

State Bank Financial Corporation has agreed to pay approximately $25.2 million in cash for all outstanding shares of Atlanta Bancorporation, Inc. The definitive agreement has been unanimously approved by the Boards of Directors of both companies and approved by Atlanta Bancorporation, Inc. shareholders. The acquisition is expected to close no later than the fourth quarter of 2014. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals.

Proposed Acquisition of Georgia-Carolina Bancshares, Inc.

On June 23, 2014, the Company entered into a definitive agreement to acquire Georgia-Carolina Bancshares, Inc. and its wholly-owned subsidiary, First Bank of Georgia, in a cash and stock transaction with a purchase price of approximately $82.4 million, or $22.35 per share of Georgia-Carolina Bancshares, Inc. stock. The transaction value at the time of the merger may change due to fluctuations in the price of the Company's common stock. Each share of Georgia-Carolina common stock will be converted into the right to receive $8.85 in cash and a number of shares of the Company's common stock equal to an exchange ratio, subject to the limitations that, if the aggregate value of the stock consideration is less than 40% of the aggregate merger consideration, the exchange ratio will be adjusted such that the aggregate stock consideration is at least 40% of the aggregate merger consideration. The exchange ratio will depend on the average closing price of the Company’s common stock during the twenty trading day period ending five business days before the closing of the transaction (the "Final State Bank Price"). If the Final State Bank Price is above $14.00 but below $17.00, the exchange ratio will be equal to $13.50 divided by the Final State Bank Price. If the Final State Bank Price is at or above $17.00, the exchange ratio will be 0.794. If the Final State Bank Price is at or below $14.00, the exchange ratio will be 0.964.

At March 31, 2014, First Bank of Georgia had total assets of approximately $523.1 million, total loans, including mortgage loans held for sale, of approximately $316.5 million, total deposits of approximately $427.2 million and total shareholder's equity of approximately $59.5 million. First Bank of Georgia is headquartered in Augusta, Georgia and operates seven banking offices in the Augusta metropolitan statistical area. In addition, the bank operates mortgage origination offices in the Augusta and Savannah, Georgia markets.

The definitive agreement has been unanimously approved by the Boards of Directors of both companies and is anticipated to close in the first quarter of 2015. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals and the approval by shareholders of Georgia-Carolina Bancshares, Inc.

44

Financial Summary

The following table provides unaudited selected financial data for the periods presented. 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.

	2014						2013									Six Months Ended June 30
(dollars in thousands, except per share amounts)	Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter			2014			2013
Selected Results of Operations Data:
Total interest income on invested funds	$	2,522		$	2,493		$	2,416		$	2,587		$	2,693		$	5,015		$	5,195
Interest income on noncovered loans, including fees	15,380			15,275			15,861			15,800			15,141			30,655			29,515
Accretion income on covered loans	17,087			26,536			48,065			27,978			25,787			43,623			46,423
Total interest expense	1,846			1,894			1,961			1,981			1,995			3,740			3,991
Net interest income	33,143			42,410			64,381			44,384			41,626			75,553			77,142
Provision for loan losses (noncovered loans)	1,000			—			—			905			665			1,000			1,015
Provision for loan losses (covered loans)	(299		)	590			(98		)	(636		)	(1,288		)	291			(3,673		)
Amortization of FDIC receivable for loss share agreements	(1,949		)	(15,292		)	(31,372		)	(18,971		)	(20,762		)	(17,241		)	(37,541		)
Other noninterest income	3,318			3,103			3,955			4,471			4,224			6,421			8,345
Total noninterest income	1,369			(12,189		)	(27,417		)	(14,500		)	(16,538		)	(10,820		)	(29,196		)
Noninterest expense	22,076			23,083			22,718			23,124			25,461			45,159			52,125
Income (loss) before income taxes	11,735			6,548			14,344			6,491			250			18,283			(1,521		)
Income tax expense (benefit)	4,228			2,226			4,927			2,142			113			6,454			(502		)
Net income (loss)	$	7,507		$	4,322		$	9,417		$	4,349		$	137		$	11,829		$	(1,019	)
Per Common Share Data:
Basic net income (loss) per share	$	.23		$	.13		$	.29		$	.14		$	—		$	.37		$	(.03	)
Diluted net income (loss) per share	.22			.13			.28			.13			—			.35			(.03		)
Cash dividends declared per share	.04			.03			.03			.03			.03			.07			.06
Book value per share at period end	13.95			13.74			13.62			13.36			13.34			13.95			13.34
Tangible book value per share at period end	13.58			13.36			13.24			12.97			12.94			13.58			12.94
Weighted Average Shares Outstanding:
Basic	32,126,260			32,094,473			32,086,781			31,998,901			31,918,677			32,110,454			31,913,754
Diluted	33,589,797			33,644,135			33,519,550			33,296,650			33,124,681			33,617,054			31,913,754
Capital Ratios:
Average equity to average assets	17.18		%	17.05		%	16.78		%	16.68		%	16.16		%	17.11		%	16.25		%
Leverage ratio	16.84		%	16.67		%	16.55		%	16.20		%	15.57		%	16.84		%	15.57		%
Tier 1 risk-based capital ratio	27.06		%	27.20		%	27.85		%	26.18		%	25.88		%	27.06		%	25.88		%
Total risk-based capital ratio	28.32		%	28.47		%	29.11		%	27.44		%	27.14		%	28.32		%	27.14		%
Performance Ratios:
Return on average assets (7)	1.16		%	.68		%	1.46		%	.67		%	.02		%	.92		%	(.08		)%
Return on average equity (7)	6.78		%	3.99		%	8.70		%	4.04		%	.13		%	5.40		%	(.48		)%
Cost of funds	.35		%	.37		%	.37		%	.38		%	.37		%	.36		%	.38		%
Net interest margin (1)(4)	5.55		%	7.38		%	11.26		%	7.95		%	7.40		%	6.45		%	7.00		%
Interest rate spread (2)(4)	5.41		%	7.25		%	11.13		%	7.83		%	7.29		%	6.31		%	6.90		%
Efficiency ratio (3)(4)	63.82		%	76.19		%	61.28		%	77.16		%	101.14		%	69.60		%	108.33		%

45

	2014						2013									Six Months Ended June 30
	Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter			2014			2013
Asset Quality Ratios:
Net (recoveries) charge-offs to total average noncovered loans	(.01		)%	(.07		)%	(.08		)%	.10		%	(.01		)%	(.04		)%	(.03		)%
Nonperforming loans to total noncovered loans (5)	.16		%	.18		%	.20		%	.25		%	.32		%	.16		%	.32		%
Nonperforming assets to loans + ORE:
Noncovered	.22		%	.26		%	.29		%	.33		%	.42		%	.22		%	.42		%
Covered	9.90		%	13.23		%	15.22		%	15.11		%	13.56		%	9.90		%	13.56		%
Allowance for loan losses to loans:
Noncovered	1.45		%	1.44		%	1.48		%	1.41		%	1.41		%	1.45		%	1.41		%
Covered	8.39		%	7.79		%	6.76		%	4.16		%	5.28		%	8.39		%	5.28		%
Selected Average Balances:
Total assets	$	2,585,908		$	2,575,216		$	2,559,725		$	2,561,802		$	2,644,241		$	2,580,614		$	2,635,695
Investment securities	481,240			430,696			379,975			375,321			359,391			456,108			340,600
Loans receivable:
Noncovered loans (6)	1,192,494			1,133,802			1,144,116			1,140,052			1,083,549			1,163,629			1,044,869
Covered loans	236,178			250,824			258,600			305,487			351,955			243,164			386,063
Interest-earning assets	2,399,921			2,333,684			2,271,737			2,219,251			2,260,718			2,367,008			2,228,458
Total deposits	2,108,595			2,088,787			2,089,202			2,077,170			2,147,653			2,098,745			2,131,607
Interest-bearing liabilities	1,646,019			1,652,851			1,663,983			1,662,506			1,747,126			1,649,415			1,741,915
Noninterest-bearing liabilities	495,714			483,260			466,248			472,084			469,876			489,559			465,367
Shareholders' equity	444,175			439,105			429,494			427,212			427,239			441,640			428,413
Selected Actual Balances:
Total assets	$	2,580,280		2,617,378			$	2,600,705		$	2,527,101		$	2,607,697		$	2,580,280		$	2,607,697
Investment securities	494,874			454,053			387,048			374,838			370,146			494,874			370,146
Loans receivable:
Noncovered loans	1,230,304			1,166,913			1,123,475			1,164,854			1,123,122			1,230,304			1,123,122
Covered loans	211,302			246,279			257,494			290,077			333,683			211,302			333,683
Allowance for loan losses (noncovered loans)	(17,885		)	(16,858		)	(16,656		)	(16,427		)	(15,805		)	(17,885		)	(15,805		)
Allowance for loan losses (covered loans)	(17,722		)	(19,182		)	(17,409		)	(12,075		)	(17,630		)	(17,722		)	(17,630		)
Interest-earning assets	2,436,606			2,418,390			2,359,145			2,229,921			2,258,641			2,436,606			2,258,641
Total deposits	2,115,213			2,141,061			2,128,325			2,049,911			2,126,084			2,115,213			2,126,084
Interest-bearing liabilities	1,656,558			1,674,018			1,667,085			1,636,414			1,705,398			1,656,558			1,705,398
Noninterest-bearing liabilities	475,415			501,921			496,437			462,094			476,373			475,415			476,373
Shareholders' equity	448,307			441,439			437,183			428,593			425,926			448,307			425,926

(1) Annualized 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 using a tax rate of 35%.

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

(6) Includes average nonaccrual loans of $2.0 million for second quarter 2014, $2.1 million for first quarter 2014, $2.6 million for fourth quarter 2013, $2.4 million for third quarter 2013 and $4.1 million for second quarter 2013.

(7) Net income annualized for the applicable period.

46

Critical Accounting Policies

There have been no significant changes to our critical accounting policies from those disclosed in our 2013 Annual Report on Form 10-K. The reader should refer to the notes to our consolidated financial statements in our 2013 Annual Report on Form 10-K.

Balance Sheet Review

General

At June 30, 2014, we had total assets of approximately $2.6 billion, consisting principally of $1.2 billion in net noncovered loans, $193.6 million in net covered loans, $494.9 million in investment securities, $39.3 million in FDIC receivable, $23.9 million in other real estate owned and $507.7 million in cash and cash equivalents. Our liabilities at June 30, 2014 totaled $2.1 billion, consisting principally of deposits. At June 30, 2014, our shareholders' equity was $448.3 million.

At December 31, 2013, we had total assets of approximately $2.6 billion, consisting principally of $1.1 billion in net noncovered loans, $240.1 million in net covered loans, $387.0 million in investment securities, $103.2 million in FDIC receivable, $47.2 million in other real estate owned and $598.7 million in cash and cash equivalents. Our liabilities at December 31, 2013 totaled $2.2 billion, consisting principally of $2.1 billion in deposits. At December 31, 2013, our shareholders' equity was $437.2 million.

Investments

Our investment portfolio consists of U.S. government sponsored agency mortgage-backed securities, nonagency mortgage-backed securities, U.S. government agency securities, municipal securities and asset-backed securities. The composition of our portfolio reflects our investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue. The 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 June 30, 2014, we had $494.9 million in available-for-sale securities representing approximately 19.2% of total assets, compared to $387.0 million, or 14.9% of total assets, at December 31, 2013. Investment securities were up $107.8 million, or 27.9%, compared to December 31, 2013. Our increased investment in securities was due to management's decision to gain a greater return on liquid assets, which grew during the six months ended June 30, 2014. The securities we purchased had short durations and no material impact on our overall liquidity or interest rate risk profile. Investment securities with an aggregate fair value of $165.4 million at June 30, 2014 were pledged to secure public deposits.

At June 30, 2014, $68.1 million, or 13.8%, of our available-for-sale securities were invested in securities of U.S. government agencies, compared to $81.1 million, or 21.0%, as of December 31, 2013. At June 30, 2014, $276.6 million, or 55.9%, of our available-for-sale securities were invested in agency mortgage-backed securities, compared to $175.9 million, or 45.5%, at December 31, 2013. 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.

At June 30, 2014, $116.7 million, or 23.6% of our available-for-sale securities were invested in nonagency mortgage-backed securities, compared to $117.6 million, or 30.4%, as of December 31, 2013. Substantially all of 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.

At June 30, 2014, $26.9 million, or 5.4%, of our available-for-sale securities were invested in asset-backed securities, compared to $2.9 million, or .8%, as of December 31, 2013. Asset-backed securities currently consist of highly rated collateralized loan obligations. The growth in this asset class was due to management's decision to invest in securities with significant credit support and variable rate structures that would provide higher returns than other variable rate securities without adding significant risk.

47

The following table is a summary of our available-for-sale investment portfolio for the periods presented (dollars in thousands):

	June 30, 2014				December 31, 2013
Available-for-Sale:	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Government securities	$	67,405	$	68,052	$	80,692	$	81,111
States and political subdivisions	6,469		6,503		9,317		9,367
Residential mortgage-backed securities — nonagency	109,085		116,744		110,900		117,647
Residential mortgage-backed securities — agency	275,642		276,640		176,503		175,926
Asset-backed securities	26,820		26,885		2,936		2,940
Equity securities	51		50		51		57
Total	$	485,472	$	494,874	$	380,399	$	387,048

The following table shows contractual maturities and yields on our investments in debt securities for the period presented (dollars in thousands):

	Distribution of Maturities
June 30, 2014	1 Year or  Less			1-5  Years			5-10  Years			After 10  Years			Total
Amortized Cost (1):
U.S. Government securities	$	5,752		$	26,798		$	8,553		$	26,302		$	67,405
States and political subdivisions	3,613			2,552			304			—			6,469
Residential mortgage-backed securities — nonagency	—			—			—			109,085			109,085
Residential mortgage-backed securities — agency	—			—			180,567			95,075			275,642
Asset-backed securities	—			—			—			26,820			26,820
Total debt securities	$	9,365		$	29,350		$	189,424		$	257,282		$	485,421
Fair Value (1):
U.S. Government securities	$	5,760		$	26,970		$	8,739		$	26,583		$	68,052
States and political subdivisions	3,619			2,562			322			—			6,503
Residential mortgage-backed securities — nonagency	—			—			—			116,744			116,744
Residential mortgage-backed securities — agency	—			—			181,561			95,079			276,640
Asset-backed securities	—			—			—			26,885			26,885
Total debt securities	$	9,379		$	29,532		$	190,622		$	265,291		$	494,824
Weighted average yield (2):
Total debt securities	1.27		%	.80		%	1.47		%	2.08		%	1.75		%

(1) The amortized cost and fair value of investments in debt securities are presented based on contractual maturities. Actual cash flows may differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.

(2) Average yields are based on amortized cost and presented on a fully taxable equivalent basis.

48

Loans

We had total net loans outstanding of approximately $1.4 billion at June 30, 2014 and $1.3 billion at December 31, 2013. Loans secured by real estate, consisting of commercial or residential property, are the principal component of our loan portfolio. 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.

Our noncovered loans increased$106.8 million, or 9.5%, to $1.2 billion at June 30, 2014 from December 31, 2013, as we continued to replace our covered loan run-off with organic loan growth. Our covered loans decreased$46.2 million, or 17.9%, to $211.3 million at June 30, 2014 from December 31, 2013, as covered loans were paid down or charged-off and submitted to the FDIC for loss share reimbursement. We expect our noncovered loans to continue to increase as we originate and purchase well-underwritten loans, while we expect our covered loans to continue to decrease as such loans are collected, charged-off or the underlying collateral is foreclosed on and sold. Due to the current economic environment, covered loans may decrease faster than noncovered loans increase, thereby resulting in a decrease in gross loans receivable.

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

	June 30, 2014											December 31, 2013
	Noncovered Loans			Covered Loans			Total Amount			% of Gross Total		Noncovered Loans			Covered Loans			Total Amount			% of Gross Total
Construction, land & land development	$	271,525		$	23,851		$	295,376		20.5	%	$	251,043		$	35,383		$	286,426		20.7	%
Other commercial real estate	616,418			54,212			670,630			46.5	%	550,474			67,573			618,047			44.8	%
Total commercial real estate	887,943			78,063			966,006			67.0	%	801,517			102,956			904,473			65.5	%
Commercial & industrial	55,555			3,070			58,625			4.1	%	30,145			4,271			34,416			2.5	%
Owner-occupied real estate	167,129			43,409			210,538			14.6	%	174,858			54,436			229,294			16.6	%
Total commercial & industrial	222,684			46,479			269,163			18.7	%	205,003			58,707			263,710			19.1	%
Residential real estate	75,683			86,371			162,054			11.2	%	66,835			95,240			162,075			11.7	%
Consumer & other	43,994			389			44,383			3.1	%	50,120			591			50,711			3.7	%
Total gross loans receivable, net of deferred fees	1,230,304			211,302			1,441,606			100.0	%	1,123,475			257,494			1,380,969			100.0	%
Less - allowance for loan losses	(17,885		)	(17,722		)	(35,607		)			(16,656		)	(17,409		)	(34,065		)
Total loans, net	$	1,212,419		$	193,580		$	1,405,999				$	1,106,819		$	240,085		$	1,346,904

FDIC Receivable for Loss Share Agreements and Clawback Liability

In connection with each of our FDIC-assisted acquisitions, we entered into loss share agreements with the FDIC and we recorded a net receivable from the FDIC which represents the estimated reimbursements we expect to receive from losses we incur as we dispose of loans and other real estate covered under the loss share agreements, less payments owed by us to the FDIC on recoveries and under the clawback liability (discussed below). At June 30, 2014, 14.7% of our outstanding principal balance of loans and 97.0% of our other real estate assets were covered under loss share agreements with the FDIC in which the FDIC has agreed to reimburse us either 80% or 95% of all losses we incur in connection with those assets.

49

At June 30, 2014, we had $211.3 million of covered loans and $23.2 million of covered other real estate owned subject to loss share agreements. Of this amount, $100.9 million of loans and $14.9 million of other real estate owned are associated with commercial loss share agreements under which our right to be reimbursed by the FDIC for losses is expiring in 2014. We are amortizing any impairment of the FDIC receivable for loss share agreements over the lesser of the remaining life of the loan or the expiration of the loss share agreement. The only portion of the FDIC receivable related to each applicable loss share agreement that will remain upon the expiration of such loss share agreement will be for claims on losses submitted to the FDIC prior to the time the agreement expired, but for which we have not yet received reimbursement. Any recoveries on commercial assets during the three year period following expiration of the loss share coverage will be shared with the FDIC generally at 80% or 95%, depending on the threshold included in the loss share agreement. Any losses on formerly covered assets after the applicable loss share agreement expires will not be eligible for reimbursement from the FDIC. We do not anticipate that these losses will be material to our overall financial results. The covered loans will continue to be subject to the quarterly re-estimation of cash flows. The covered other real estate owned is carried at the lower of cost or fair value less estimated costs to sell, with periodic reviews of the carrying value.

The FDIC receivable for loss share agreements was $39.3 million at June 30, 2014, a decrease of $63.9 million, or 62.0%, from $103.2 million at December 31, 2013. The decrease in the FDIC receivable at June 30, 2014 compared to the year ended December 31, 2013 was primarily the result of $35.1 million in cash collected from the FDIC on realized losses on our covered assets. Additionally, we recognized $17.2 million of amortization expense resulting from impairments to the FDIC receivable as cash flow estimates improved for certain of our covered loans. The total impairment on the FDIC receivable 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, $19.9 million is currently scheduled for future amortization with an estimated weighted average life of four quarters. This time frame for amortization is driven, in large part, by the fact that our earliest failed bank acquisitions were our largest transactions and the commercial 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 will be required to reimburse the FDIC in the event that losses on covered assets do not reach certain benchmarks as defined in the loss share agreements, which we refer to as the clawback liability. The potential reimbursement to the FDIC is based on the initial discount received less cumulative servicing amounts for the covered assets acquired. At June 30, 2014, we recorded a clawback liability of $5.5 million to the FDIC related to the First Security National Bank, NorthWest Bank & Trust, United Americas Bank, Piedmont Community Bank and Community Capital Bank acquisitions, which is netted against the "FDIC Receivable for Loss Share Agreements" in our consolidated statements of financial condition.

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 portfolio 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 reserve and a general reserve. The specific reserve 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 reserve 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.

50

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. The potentially higher yield is recorded as accretion income on covered loans on our consolidated statements of operations. If actual losses exceed the estimated losses, we record a provision for loan losses on covered loans as an expense on our consolidated statements of operations. If 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 on our consolidated statements of operations net of the amount that will be recovered by us under the related FDIC loss share agreements.

At June 30, 2014, our total ALL for noncovered and covered loans was $35.6 million, an increase of $1.5 million compared to December 31, 2013. The ALL reflected net charge-offs and provision for loan losses of $2.8 million and $1.3 million, respectively, on noncovered and covered loans for the six months ended June 30, 2014.

At June 30, 2014, our noncovered ALL increased$1.2 million to $17.9 million, compared to $16.7 million at December 31, 2013. The increase in our noncovered ALL at June 30, 2014 is primarily from $1.0 million of provision for loan losses charged to expense for the six months ended June 30, 2014 as a result of organic loan growth during the period. The noncovered ALL to total noncovered loans was 1.45% at June 30, 2014, compared to 1.48% at December 31, 2013.

We established the covered ALL due to additional credit deterioration in our covered loan portfolio subsequent to our initial fair value estimates. At June 30, 2014, our covered ALL increased $313,000 to $17.7 million, compared to $17.4 million at December 31, 2013. The increase in the covered ALL was mainly due to provision expense recorded during the six months ended June 30, 2014 relating primarily to one of the loan pools that closed during the period offset by net charge-offs of $3.0 million recorded during the six months ended June 30, 2014. The provision for loan losses charged to expense for the six months ended June 30, 2014 was $291,000, net of the amount recorded through the FDIC receivable, compared to negative $3.7 million for the same period in 2013. Our covered loan portfolio balance continued to decline with an ending balance of $211.3 million at June 30, 2014, compared to $257.5 million at December 31, 2013. 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 net positive credit trends in covered loans, there remains the potential for future volatility within the provision for loan losses on covered loans.

Because all of our covered loans are purchased credit impaired loans, our provision for loan losses will be most significantly influenced by differences in actual credit losses resulting from the resolution of covered loans from the estimated credit losses used in determining the estimated fair values of such 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.

51

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):

	Six Months Ended June 30
	2014									2013
	Noncovered Loans			Covered Loans			Totals			Noncovered Loans			Covered Loans			Total
Balance, at the beginning of period	$	16,656		$	17,409		$	34,065		$	14,660		$	55,478		$	70,138
Charge-offs:
Construction, land & land development	65			3,762			3,827			—			9,763			9,763
Other commercial real estate	—			4,422			4,422			1			5,303			5,304
Total commercial real estate	65			8,184			8,249			1			15,066			15,067
Commercial & industrial	105			932			1,037			10			909			919
Owner-occupied real estate	—			1,769			1,769			—			1,869			1,869
Total commercial & industrial	105			2,701			2,806			10			2,778			2,788
Residential real estate	1			656			657			1			1,861			1,862
Consumer & other	44			10			54			8			221			229
Total charge-offs	$	215		$	11,551		$	11,766		$	20		$	19,926		$	19,946
Recoveries on loans previously charged-off:
Construction, land & land development	289			3,797			4,086			134			4,415			4,549
Other commercial real estate	1			2,037			2,038			3			2,644			2,647
Total commercial real estate	290			5,834			6,124			137			7,059			7,196
Commercial & industrial	122			652			774			1			650			651
Owner-occupied real estate	—			999			999			5			2,685			2,690
Total commercial & industrial	122			1,651			1,773			6			3,335			3,341
Residential real estate	24			1,016			1,040			2			1,612			1,614
Consumer & other	8			56			64			5			219			224
Total recoveries	$	444		$	8,557		$	9,001		$	150		$	12,225		$	12,375
Net (recoveries) charge-offs	(229		)	2,994			2,765			(130		)	7,701			7,571
Provision for loan losses	1,000			3,307			4,307			1,015			(30,147		)	(29,132		)
Amount attributable to FDIC loss share agreements	—			(3,016		)	(3,016		)	—			26,474			26,474
Total provision for loan losses charged to operations	1,000			291			1,291			1,015			(3,673		)	(2,658		)
Provision for loan losses recorded through the FDIC loss share receivable	—			3,016			3,016			—			(26,474		)	(26,474		)
Balance, at end of period	$	17,885		$	17,722		$	35,607		$	15,805		$	17,630		$	33,435
Allowance for loan losses to loans receivable	1.45		%	8.39		%	2.47		%	1.41		%	5.28		%	2.30		%
Ratio of net (recoveries) charge-offs to average loans outstanding	(.04		)%	2.48		%	.40		%	(.03		)%	4.02		%	1.07		%

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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):

	June 30, 2014				December 31, 2013
	Amount		% of Loans to Total Loans		Amount		% of Loans to Total Loans
Noncovered loans:
Construction, land & land development	$	4,553	18.8	%	$	3,667	18.2	%
Other commercial real estate	8,188		42.7	%	7,496		39.9	%
Total commercial real estate	12,741		61.5	%	11,163		58.1	%
Commercial & industrial	942		3.9	%	604		2.2	%
Owner-occupied real estate	2,437		11.6	%	2,535		12.7	%
Total commercial & industrial	3,379		15.5	%	3,139		14.9	%
Residential real estate	1,080		5.2	%	1,015		4.8	%
Consumer & other	685		3.1	%	1,339		3.6	%
Total allowance for noncovered loans	$	17,885	85.3	%	$	16,656	81.4	%
Covered loans:
Construction, land & land development	$	2,994	1.7	%	$	4,341	2.5	%
Other commercial real estate	7,612		3.8	%	6,885		4.9	%
Total commercial real estate	10,606		5.5	%	11,226		7.4	%
Commercial & industrial	693		.2	%	1,680		.3	%
Owner-occupied real estate	2,475		3.0	%	1,950		3.9	%
Total commercial & industrial	3,168		3.2	%	3,630		4.2	%
Residential real estate	3,873		6.0	%	2,481		6.9	%
Consumer & other	75		—	%	72		.1	%
Total allowance for covered loans	$	17,722	14.7	%	$	17,409	18.6	%
Total allowance for loan losses	$	35,607	100.0	%	$	34,065	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 in failed bank transactions and were considered to have evidence of deteriorated credit quality at the date of acquisition, as limited due diligence was afforded to allow a sufficient detailed review to classify the acquired loans into credit deterioration and performing categories. At the time of acquisition, our covered loans were designated as specifically-reviewed or as part of a loan pool and accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. As a result, we do not consider our covered loans acquired to be nonperforming assets as long as their cash flows and timing of such cash flows continue to be estimable and probable. 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 loans that have been placed on nonaccrual 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 less estimated costs to sell 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 less estimated costs to sell. 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 may 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 banking premises no longer used for a specific business purpose, the property is transferred into OREO at the lower of its carrying value or fair value less estimated costs to sell, with any excess of the carrying value over the fair value less estimated costs to sell recorded to gain or loss on sales of premises and equipment.

For noncovered loans, we will record either a specific allowance or a charge-off against the allowance for loan losses if an impairment analysis indicates a collateral deficiency. Subsequently, we will review our noncovered allowance for loan losses 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 satisfactory payment performance.

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 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 charge-off or valuation allowance, as the situation may warrant.

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 June 30, 2014, 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 June 30, 2014									At December 31, 2013
	Noncovered Assets			Covered Assets			Total			Noncovered Assets			Covered Assets			Total
Nonaccrual loans	$	1,063		$	—		$	1,063		$	1,396		$	—		$	1,396
Troubled debt restructurings not included above	875			—			875			869			—			869
Total nonperforming loans	1,938			—			1,938			2,265			—			2,265
Other real estate owned	729			23,209			23,938			965			46,222			47,187
Total nonperforming assets	$	2,667		$	23,209		$	25,876		$	3,230		$	46,222		$	49,452
Nonperforming loans to total loans	.16		%	—		%	.13		%	.20		%	—		%	.16		%
Nonperforming assets to total loans and other real estate owned	.22		%	9.90		%	1.77		%	.29		%	15.22		%	3.46		%

Nonperforming assets, defined as nonaccrual loans, troubled debt restructurings and other real estate owned, totaled $25.9 million, or 1.8% of total loans and other real estate owned, at June 30, 2014, compared to $49.5 million, or 3.5% of total loans and other real estate owned, at December 31, 2013. Of the $25.9 million in nonperforming assets at June 30, 2014, $23.2 million related to other real estate owned covered by loss share agreements with the FDIC. Of the $49.5 million in nonperforming assets at December 31, 2013, $46.2 million related to other real estate owned covered by loss share agreements with the FDIC.

At both June 30, 2014 and December 31, 2013, we had no accruing noncovered loans greater than 90 days past due. At both June 30, 2014 and December 31, 2013, a significant portion of our covered loans were past due, including many that were 90 days or greater past due. However, as noted previously, 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 are estimable and probable of collection.

The amount of interest that would have been recorded on noncovered nonaccrual loans, had the loans not been classified as nonaccrual, totaled approximately $23,000 and $48,000 for the three and six months ended June 30, 2014, respectively. Interest income recognized on noncovered nonaccrual loans was approximately $17,000 and $64,000 for the three and six months ended June 30, 2014, respectively.

Potential noncovered problem loans amounted to $2.1 million, or .2%, of total noncovered loans outstanding at June 30, 2014, compared to $8.3 million, or .7%, of total noncovered loans outstanding at December 31, 2013. 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 June 30, 2014 were $2.1 billion, a decrease of $13.1 million from December 31, 2013. During the six months ended June 30, 2014, we continued to enhance our deposit product offerings for commercial 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 remained relatively unchanged at June 30, 2014, with noninterest-bearing deposits decreasing$6.7 million from December 31, 2013 to $461.4 million and representing 21.8% of total deposits. The decrease in noninterest-bearing deposits resulted primarily from commercial checking accounts. Average noninterest-bearing deposits increased $55.3 million, or 13.5%, for the three months ended June 30, 2014 compared to the same period in 2013. Average noninterest-bearing deposits increased $56.3 million, or 14.1%, for the six months ended June 30, 2014 compared to the same period in 2013.

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At June 30, 2014, interest-bearing transaction accounts increased$19.9 million from December 31, 2013. The majority of the increase was related to growth in commercial accounts. Furthermore, interest-bearing deposits in savings and money market accounts increased$6.7 million during the six months ended June 30, 2014, primarily resulting from business development activity in commercial deposits. Time deposits, excluding brokered and wholesale time deposits, decreased$24.8 million during the six months ended June 30, 2014. Due to our strategy of decreasing our cost of funds, we were not able to renew all maturing deposits. Customers with maturing CDs in 2014 were offered lower rates at renewal resulting in some customers choosing not to renew or opting to invest in other products.

Our continued focus on growing low cost deposit relationships resulted in an average cost of funds of 35 and 36 basis points for the three and six months ended June 30, 2014, compared to 37 and 38 basis points for the three and six months ended June 30, 2013.

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

	June 30, 2014				December 31, 2013
	Amount		% of  Total		Amount		% of  Total
Noninterest-bearing demand deposits	$	461,434	21.8	%	$	468,138	22.0	%
Interest-bearing transaction accounts	387,855		18.3	%	367,983		17.3	%
Savings and money market deposits	898,833		42.5	%	892,136		41.9	%
Time deposits less than $100,000	155,918		7.4	%	168,611		7.9	%
Time deposits $100,000 or greater	112,705		5.3	%	124,827		5.9	%
Brokered and wholesale time deposits	98,468		4.7	%	106,630		5.0	%
Total deposits	$	2,115,213	100.0	%	$	2,128,325	100.0	%

The following table shows the average balance amounts and the average rates paid on deposits held by us for the dates indicated (dollars in thousands):

	Six Months Ended June 30
	2014				2013
	Average Amount		Average Rate		Average Amount		Average Rate
Noninterest-bearing demand deposits	$	453,974	—	%	$	397,720	—	%
Interest-bearing transaction accounts	367,116		.12	%	342,381		.11	%
Savings and money market deposits	893,573		.45	%	946,613		.43	%
Time deposits less than $100,000	162,211		.54	%	194,325		.59	%
Time deposits $100,000 or greater	118,413		.67	%	143,838		.73	%
Brokered and wholesale time deposits	103,458		.94	%	106,730		.93	%
Total deposits	$	2,098,745			$	2,131,607

The maturity distribution of our wholesale and time deposits of $100,000 or greater at June 30, 2014 was as follows (dollars in thousands):

Three months or less	$	30,337
Over three through six months	25,652
Over six though twelve months	47,127
Over twelve months	37,393
Total	$	140,509

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Capital Resources

We maintain an adequate capital base to support our activities in a safe manner while at the same time attempting to maximize shareholder returns. At June 30, 2014, shareholders' equity was $448.3 million, or 17.4% of total assets, compared to $437.2 million, or 16.8% of total assets, at December 31, 2013. The primary factors affecting changes in shareholders' equity were our net income and the change in accumulated other comprehensive income, offset by dividends declared 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 June 30, 2014, we exceeded all minimum regulatory capital requirements as shown in the table below.

At June 30, 2014, Tier 1 and Total Risk-Based Capital ratios declined for the Bank and Company compared to December 31, 2013, as a result of the declaration of dividends and the increase in risk-weighted assets, offset by net income for the six months ended June 30, 2014. The increase in risk-weighted assets was attributable in large part to the growth in our noncovered loan portfolio, which has higher risk-weights than our covered loan portfolio. The balances of both the covered loan portfolio and the FDIC receivable, which are assigned lower risk-weights, declined $110.1 million from December 31, 2013 to June 30, 2014. We expect in the second half of 2014 that a portion of our covered loans will be assigned higher risk-weights, resulting in an increase in risk-weighted assets, as loss share coverage begins expiring on three commercial loss share agreements with the FDIC. At June 30, 2014, the leverage ratio increased for the Company and Bank compared to December 31, 2013 as a result of an increase in average assets and Tier 1 capital.

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

	June 30, 2014				December 31, 2013
	Bank		Company		Bank		Company
Leverage ratio	14.67	%	16.84	%	14.28	%	16.55	%
Tier 1 risk-based capital ratio	23.57	%	27.06	%	24.06	%	27.85	%
Total risk-based capital ratio	24.83	%	28.32	%	25.32	%	29.11	%

The Company and the Bank entered into a Capital Maintenance Agreement with the FDIC. Under the terms of the Capital Maintenance Agreement, the Bank is required to maintain a leverage ratio of at least 10% and a total risk-based capital ratio of at least 12%. During the term of the agreement, if at any time the Bank's leverage ratio falls below 10%, or its risk-based capital ratio falls below 12%, the Company is required to immediately cause sufficient actions to be taken to restore the Bank's leverage and risk-based capital ratios to 10% and 12%, respectively. The Capital Maintenance Agreement expires on July 26, 2016. The Company and the Bank were in compliance with the Capital Maintenance Agreement at June 30, 2014.

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 covered banking organizations will not begin until January 2015, while the phase-in period for advanced approaches organizations began in January 2014. The U.S. implementation of the new capital and liquidity standards is not expected to significantly impact the Company and the Bank as our current capital levels far exceed those required under the new rules.

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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 June 30, 2014, our subsidiary bank had the capacity to pay $6.9 million in dividends to us without prior regulatory approval. Subsequent to June 30, 2014, our subsidiary bank received regulatory approval to pay a $25.0 million dividend to us, which we will use to fund the merger consideration in the proposed acquisition of Atlanta Bancorporation, Inc. At June 30, 2014, the Company had $54.5 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. We intend to seek regulatory approval in the latter half of 2014 for our subsidiary bank to pay an additional dividend to us to fund the cash portion of the merger consideration that will be made on the proposed acquisition of Georgia-Carolina Bancshares, Inc. On March 18, 2014 and June 17, 2014, we paid cash dividends of $.03 and $.04, respectively, per common share to our shareholders.

We currently have a level of capitalization that will support significant growth, and the long term management of our capital position is an area of significant strategic focus. We actively seek and regularly evaluate opportunities to acquire additional financial institutions as well as acquisitions that would complement or expand our present product capabilities. In accordance with this approach, we recently entered into a definitive agreement to acquire Atlanta Bancorporation, Inc. and its wholly-owned subsidiary bank, Bank of Atlanta, and entered into a material definitive agreement to acquire Georgia-Carolina Bancshares, Inc. and its wholly-owned subsidiary bank, First Bank of Georgia. To the extent that we are unable to appropriately leverage our capital with organic growth and acquisitions, we will actively consider alternative means of normalizing our level of capitalization, including increasing our quarterly dividend, paying a special dividend and/or repurchasing shares.

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 by the borrower. At June 30, 2014, unfunded commitments to extend credit were $346.4 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 June 30, 2014, there were commitments totaling approximately $1.3 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.

      Except as disclosed in Note 12 to our consolidated financial statements located in Part I, Item 1 of this Quarterly Report on Form 10-Q, 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 at June 30, 2014 (dollarsin 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	$	22,085	$	2,716	$	5,235	$	4,915	$	9,219

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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 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 June 30, 2014, 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 $507.7 million, or 19.7% of total assets. Our available-for-sale securities at June 30, 2014 amounted to $494.9 million, or 19.2% 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 June 30, 2014, core deposits were 143.9% of net loans, compared with 150.8% at December 31, 2013. 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 June 30, 2014, we had no advances from the FHLB and a remaining credit availability of $77.0 million. In addition, we maintain a line with the Federal Reserve Bank's discount window of $216.7 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 interest rates. Our Risk Committee monitors and considers methods of managing exposure to interest rate risk and 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 negative impacts on net interest income or to maximize positive impacts 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. 

Through the use of derivatives, we are able to efficiently manage the interest rate risk identified in specific assets and liabilities on our balance sheet. At June 30, 2014, we had interest rate swaps and caps with aggregate notional amounts of $161.9 million and $200.0 million, respectively. The fair value of the derivative financial assets was $4.8 million at June 30, 2014, compared to $8.1 million at December 31, 2013. The fair value of the derivative financial liabilities was $1.2 million at June 30, 2014, compared to $764,000 at December 31, 2013. Note 8 to our consolidated financial statements located in Part I, Item 1 of this Quarterly Report on Form 10-Q provides additional information on these contracts.

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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, monitor 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. We also model more extreme rises in interest rates (e.g. up 500 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 July 1, 2014. Based on the simulation run at June 30, 2014, annual net interest income would be expected to decrease approximately .17%, 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 .74%. If rates decreased 100 basis points from current rates, net interest income is projected to increase approximately .93%. The 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. The decrease in asset sensitivity at June 30, 2014 was primarily the result of cash deployment into fixed income securities and an increase in the mix of short-term interest-bearing deposits.

	% Change in Projected Baseline Net Interest Income
Shift in Interest Rates  (in basis points)	June 30, 2014			December 31, 2013
+200	.74		%	1.61	%
+100	(.17	)		.40
-100	.93			.67
-200	Not meaningful			Not meaningful

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Results of Operations

Net Interest Income (Taxable Equivalent)

       Net interest income, which is our primary source of earnings, 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. 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.

Three Months Ended June 30, 2014 and 2013

Our net interest income on a taxable equivalent basis was $33.2 million for the three months ended June 30, 2014, a decrease of $8.5 million, or 20.4%, from the three months ended June 30, 2013. Our net interest spread on a taxable equivalent basis, which is the difference between the yields earned on average earning assets and the rates paid on average interest-bearing liabilities was 5.41% for the three months ended June 30, 2014 compared to 7.29% for the same period in 2013. Our net interest margin on a taxable equivalent basis, which is net interest income divided by average interest earning assets was 5.55% for the three months ended June 30, 2014 compared to 7.40% for the three months ended June 30, 2013.

The yield on average earnings assets was 5.86% for the three months ended June 30, 2014, compared to 7.75% for the three months ended June 30, 2013, driven primarily by an $8.7 million decline in accretion income on covered loans, due largely to average covered loan balances declining $115.8 million, or 32.9%. The yield on our covered loans can vary significantly from period to period dependent largely on when covered loan pools close and the timing of customer payments. Our covered loan yield decreased to 29.02% for the three months ended June 30, 2014, down 37 basis points from the three months ended June 30, 2013. No covered loan pools closed during the three months ended June 30, 2014, compared to one covered loan pool closing during the same period in 2013, resulting in a gain of $1.2 million for the three months ended June 30, 2013. Our noncovered loan yield for the three months ended June 30, 2014 was 5.20%, a 43 basis point decrease from the three months ended June 30, 2013, primarily as a result of payoffs from higher-yielding loans as well as lower yields on new fundings. The yield on our combined taxable and nontaxable investment portfolio was 1.84% for the three months ended June 30, 2014, down 83 basis points from the three months ended June 30, 2013, primarily driven by our deployment of excess cash on the balance sheet into securities with lower yields. Continued reinvestment into lower-yielding securities, due to the current interest rate environment and our focus on maintaining a short duration portfolio, is expected to produce lower overall yields in our investment portfolio.

The average rate on interest-bearing liabilities was .45% for the three months ended June 30, 2014, a decrease of one basis point from the three months ended June 30, 2013, primarily resulting from a change in the mix of our interest-bearing liabilities. The average rate paid on interest-bearing deposits was .43% for the three months ended June 30, 2014 and June 30, 2013. The average balance of interest-bearing deposits outstanding was $1.6 billion for the three months ended June 30, 2014, a decrease of $94.4 million from the same period in 2013. Our cost of funds was 35 basis points for the three months ended June 30, 2014, a decrease of two basis points from the three months ended June 30, 2013.

Six Months Ended June 30, 2014 and 2013

Our net interest income on a taxable equivalent basis was $75.7 million for the six months ended June 30, 2014, a decrease of $1.6 million, or 2.1%, from the six months ended June 30, 2013. Our net interest spread on a taxable equivalent basis was 6.31% for the six months ended June 30, 2014, a decrease of 59 basis points from the same period in 2013. Our net interest margin on a taxable equivalent basis was 6.45% for the six months ended June 30, 2014, a decrease of 55 basis points from the six months ended June 30, 2013.

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The yield on average earnings assets was 6.77% for the six months ended June 30, 2014, a decrease of 59 basis points from the six months ended June 30, 2013, driven primarily by decreases in the yields on our investment portfolio and noncovered loans offset by increases in our covered loan yield. Our average covered loan balance declined $142.9 million, or 37.0%, during the six months ended June 30, 2014 as compared to the same period in 2013. Our covered loan yield increased to 36.18% for the six months ended June 30, 2014, compared to 24.25% for the same period in 2013. Accretion income on our covered loans for the six months ended June 30, 2014 includes gains of $15.9 million on covered loan pools that closed during the six months ended June 30, 2014, compared to gains of $2.7 million on covered loan pools that closed during the six months ended June 30, 2013. Our noncovered loan yield for the six months ended June 30, 2014 was 5.34%, a 38 basis point decrease from the six months ended June 30, 2013, primarily as a result of payoffs from higher-yielding loans as well as lower yields on new fundings. The yield on our investment portfolio was 1.93% for the six months ended June 30, 2014, down 83 basis points from the six months ended June 30, 2013, primarily driven by our deployment of excess cash on the balance sheet into securities with lower yields. Continued reinvestment into lower-yielding securities, due to the current interest rate environment and our focus on maintaining a short duration portfolio, is expected to produce lower overall yields in our investment portfolio.

The average rate on interest-bearing liabilities was stable at .46% for the six months ended June 30, 2014 and 2013. The average rate paid on interest-bearing deposits was .43% for the six months ended June 30, 2014, a decrease of one basis point from the six months ended June 30, 2013, while the average balance of interest-bearing deposits outstanding was $1.6 billion for the six months ended June 30, 2014, a decrease of $89.1 million from the same period in 2013. The decline in the average rate paid on interest-bearing deposits was a result of our continued shift in our deposit mix away from higher cost money market accounts and time deposits to lower cost transaction deposits. Our cost of funds was 36 and 38 basis points for the six months ended June 30, 2014 and 2013, respectively.

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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 annualized 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
	June 30, 2014						June 30, 2013
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets:
Interest-bearing deposits in other financial institutions	$	490,009	$	320	.26	%	$	465,823	$	314	.27	%
Taxable investment securities	475,739		2,181		1.84	%	352,955		2,355		2.68	%
Nontaxable investment securities, tax-equivalent basis (1)	5,501		32		2.33	%	6,436		37		2.31	%
Noncovered loans receivable, tax-equivalent basis (2) (3)	1,192,494		15,446		5.20	%	1,083,549		15,214		5.63	%
Covered loans receivable	236,178		17,087		29.02	%	351,955		25,787		29.39	%
Total earning assets	2,399,921		35,066		5.86	%	2,260,718		43,707		7.75	%
Total nonearning assets	185,987						383,523
Total assets	$	2,585,908					$	2,644,241
Liabilities:
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	376,143	$	117	.12	%	$	360,221	$	94	.10	%
Savings & money market deposits	892,168		1,005		.45	%	936,819		979		.42	%
Time deposits less than $100,000	159,296		212		.53	%	190,795		281		.59	%
Time deposits $100,000 or greater	114,652		188		.66	%	142,364		257		.72	%
Brokered and wholesale time deposits	100,395		237		.95	%	106,818		248		.93	%
Notes Payable	3,365		87		10.37	%	5,026		135		10.77	%
Securities sold under agreements to repurchase	—		—		—	%	5,083		1		.08	%
Total interest-bearing liabilities	1,646,019		1,846		.45	%	1,747,126		1,995		.46	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	465,941						410,636
Other liabilities	29,773						59,240
Shareholders’ equity	444,175						427,239
Total liabilities and shareholders’ equity	$	2,585,908					$	2,644,241
Net interest income			$	33,220					$	41,712
Net interest spread					5.41	%					7.29	%
Net interest margin					5.55	%					7.40	%
Cost of funds					.35	%					.37	%

(1)Reflects taxable equivalent adjustments using the federal statutory tax rate of 35% in adjusting interest on tax-exempt securities to a fully taxable basis. The taxable equivalent adjustments included above are $11,000 and $13,000 for the three months ended June 30, 2014 and 2013, respectively.

(2)Includes average nonaccruing noncovered loans of $2.0 million and $4.1 million for the three months ended June 30, 2014 and 2013, respectively. There are no nonaccrual covered loans.

(3)Reflects taxable equivalent adjustments using the federal statutory tax rate of 35% in adjusting tax-exempt loan interest income to a fully taxable basis. The taxable equivalent adjustments included above are $66,000 and $73,000 for the three months ended June 30, 2014 and 2013, respectively.

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	For the Six Months Ended
	June 30, 2014						June 30, 2013
	Average Balance		Income/ Expense		Yield/ Rate (1)		Average Balance		Income/ Expense		Yield/ Rate (1)
Assets:
Interest-bearing deposits in other financial institutions	$	504,107	$	665	.27	%	$	456,926	$	565	.25	%
Taxable investment securities	450,589		4,308		1.93	%	333,839		4,575		2.76	%
Nontaxable investment securities, tax-equivalent basis (2)	5,519		64		2.34	%	6,761		85		2.54	%
Noncovered loans receivable, tax-equivalent basis (3) (4)	1,163,629		30,786		5.34	%	1,044,869		29,657		5.72	%
Covered loans receivable	243,164		43,623		36.18	%	386,063		46,423		24.25	%
Total earning assets	2,367,008		79,446		6.77	%	2,228,458		81,305		7.36	%
Total nonearning assets	213,606						407,237
Total assets	$	2,580,614					$	2,635,695
Liabilities:
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	367,116	$	224	.12	%	$	342,381	$	188	.11	%
Savings & money market deposits	893,573		1,973		.45	%	946,613		2,001		.43	%
Time deposits less than $100,000	162,211		433		.54	%	194,325		569		.59	%
Time deposits $100,000 or greater	118,413		394		.67	%	143,838		523		.73	%
Brokered and wholesale time deposits	103,458		481		.94	%	106,730		493		.93	%
Notes Payable	4,283		235		11.06	%	3,788		215		11.45	%
Securities sold under agreements to repurchase	361		—		—	%	4,240		2		.10	%
Total interest-bearing liabilities	1,649,415		3,740		.46	%	1,741,915		3,991		.46	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	453,974						397,720
Other liabilities	35,585						67,647
Shareholders’ equity	441,640						428,413
Total liabilities and shareholders’ equity	$	2,580,614					$	2,635,695
Net interest income			$	75,706					$	77,314
Net interest spread					6.31	%					6.90	%
Net interest margin					6.45	%					7.00	%
Cost of funds					.36	%					.38	%

(1)Reflects taxable equivalent adjustments using the federal statutory tax rate of 35% in adjusting interest on tax-exempt securities to a fully taxable basis. The taxable equivalent adjustments included above are $22,000 and $30,000 for the six months ended June 30, 2014 and 2013, respectively.

(2)Includes average nonaccruing noncovered loans of $2.0 million and $4.1 million for the six months ended June 30, 2014 and 2013, respectively. There are no nonaccrual covered loans.

(3)Reflects taxable equivalent adjustments using the federal statutory tax rate of 35% in adjusting tax-exempt loan interest income to a fully taxable basis. The taxable equivalent adjustments included above are $131,000 and $142,000 for the six months ended June 30, 2014 and 2013, 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 (dollars in thousands):

	Three Months Ended									Six Months Ended
	June 30, 2014 vs. June 30, 2013									June 30, 2014 vs. June 30, 2013
	Change Attributable to									Change Attributable to
	Volume			Rate			Total Increase (Decrease) (1)			Volume			Rate			Total Increase (Decrease) (1)
Interest income:
Noncovered loans	$	5,544		$	(5,312	)	$	232		$	5,936		$	(4,807	)	$	1,129
Covered loans	(8,480		)	(220		)	(8,700		)	(38,954		)	36,154			(2,800		)
Taxable investment securities	2,819			(2,993		)	(174		)	2,718			(2,985		)	(267		)
Nontaxable investment securities	(7		)	2			(5		)	(15		)	(6		)	(21		)
Interest-bearing deposits in other financial institutions	54			(48		)	6			60			40			100
Total interest income	(70		)	(8,571		)	(8,641		)	(30,255		)	28,396			(1,859		)
Interest expense:
Total deposits	(107		)	7			(100		)	(193		)	(76		)	(269		)
Notes payable	(44		)	(4		)	(48		)	41			(21		)	20
Securities sold under repurchase agreements and federal funds purchased	(1		)	—			(1		)	—			(2		)	(2		)
Total interest expense	(152		)	3			(149		)	(152		)	(99		)	(251		)
Net interest income	$	82		$	(8,574	)	$	(8,492	)	$	(30,103	)	$	28,495		$	(1,608	)

(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 operations.

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 during our quarterly re-estimation of cash flows, which includes a comparison of our actual losses to our estimated losses to determine whether additional provision is necessary. We update our re-estimations of cash flows on a quarterly basis based on changes to assumptions regarding default rates, loss severities and other factors that are reflective of current market conditions. If our re-estimated cash flows decline from the last estimated cash flows, we record a provision for loan losses in our consolidated statements of operations. 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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Three Months Ended June 30, 2014 and 2013

We recorded a provision for loan losses of $1.0 million related to noncovered loans for the three months ended June 30, 2014, compared to $665,000 for the three months ended June 30, 2013. The amount of noncovered loan loss provision recorded during the three months ended June 30, 2014 and 2013 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 and is mostly attributable to organic loan growth.

Our provision for loan losses related to covered loans was a negative $299,000 for the three months ended June 30, 2014 compared to negative $1.3 million for the three months ended June 30, 2013. The negative provision for the quarter ended June 30, 2014 and 2013 was primarily due to improved cash flow expectations on covered loans from our previous re-estimations.

Six Months Ended June 30, 2014 and 2013

We recorded a provision for loan losses of $1.0 million related to noncovered loans for both of the six month periods ended June 30, 2014 and 2013. The amount of noncovered loan loss provision recorded in each period reflects the amount required such that the total balance of the allowance for loan losses is appropriate, in management's opinion, to sufficiently cover probable losses in the noncovered loan portfolio.

Our provision for loan losses related to covered loans was $291,000 for the six months ended June 30, 2014 compared to negative $3.7 million for the six months ended June 30, 2013. The covered provision for loan losses charged to operations for the six months ended June 30, 2014 primarily related to one of the loan pools that closed during the first quarter. The negative provision of $3.7 million for the quarter ended June 30, 2013 was primarily due to improved cash flow expectations on covered loans from our previous re-estimations.

Noninterest Income

Noninterest income for the three months ended June 30, 2014 totaled $1.4 million, up $17.9 million from the three months ended June 30, 2013. Noninterest income for the six months ended June 30, 2014 totaled negative $10.8 million, up $18.4 million from the six months ended June 30, 2013. The following table presents the components of noninterest income for the periods indicated (dollars in thousands):

	Three Months Ended June 30						Six Months Ended June 30
	2014			2013			2014			2013
Service charges on deposits	$	1,196		$	1,284		$	2,354		$	2,499
Payroll fee income	822			705			1,775			1,537
ATM income	636			635			1,226			1,240
Bank-owned life insurance income	329			335			658			679
Mortgage banking income	163			289			322			595
Gain on sale of investment securities	12			—			23			364
Other	160			976			63			1,431
Noninterest income before amortization of FDIC receivable for loss share agreements	3,318			4,224			6,421			8,345
Amortization of FDIC receivable for loss share agreements	(1,949		)	(20,762		)	(17,241		)	(37,541		)
Total noninterest income	$	1,369		$	(16,538	)	$	(10,820	)	$	(29,196	)

Three Months Ended June 30, 2014 and 2013

Other noninterest income decreased $816,000, or 83.6%, to $160,000 for the three months ended June 30, 2014 compared to the same period in 2013. Included in other noninterest income were net losses of $175,000 due to hedge ineffectiveness for the three months ended June 30, 2014 compared to net gains of $455,000 due to hedge ineffectiveness for the same period in 2013, which was the primary reason for the decrease. The offset resulting from the change in the fair value of the interest rate swaps and value of the underlying assets which contributed to the ineffectiveness during 2014 and 2013.

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Net amortization of the FDIC receivable decreased $18.8 million, or 90.6%, to $1.9 million for the three months ended June 30, 2014 compared to the same period in 2013. The result of higher expected cash flows from customers and lower projected losses results in amortization of the excess amount of the FDIC receivable. The excess amount is amortized over the lesser of the remaining life of the loan or the applicable loss share period. As of June 30, 2014, 47.8% and 64.2% of our covered loans and covered other real estate, respectively, are associated with commercial loss share agreements under which our right to be reimbursed by the FDIC for losses is expiring in 2014. The majority of the amortization related to the agreements expiring over the remainder of 2014 was recorded in previous periods. In addition, changes made to our assumptions during our quarterly re-estimation of cash flows on covered loans, the decreasing balance of the FDIC receivable and the timing of actual versus expected collections on covered loans also contributed to the decline.

Six Months Ended June 30, 2014 and 2013

Other noninterest income decreased $1.4 million, or 95.6%, to $63,000 for the six months ended June 30, 2014 compared to the same period in 2013. Included in other noninterest income were net losses of $418,000 due to hedge ineffectiveness for the six months ended June 30, 2014 compared to net gains of $546,000 due to hedge ineffectiveness for the same period in 2013. We also recognized losses on the sale of premises and equipment of $263,000 for the six months ended June 30, 2014 compared to losses on the sale of premises and equipment of $4,000 for the same period in 2013.

Net amortization of the FDIC receivable decreased $20.3 million, or 54.1%, to $17.2 million for the six months ended June 30, 2014 compared to the same period in 2013, as the majority of the amortization related to the agreements expiring over the remainder of 2014 was recorded in previous periods. In addition, changes made to our assumptions during our quarterly re-estimation of cash flows on covered loans, the decreasing balance of the FDIC receivable and the timing of actual versus expected collections on covered loans also contributed to the decline.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2014 totaled $22.1 million, down $3.4 million from the three months ended June 30, 2013. Noninterest expense for the six months ended June 30, 2014 totaled $45.2 million, down $7.0 million from the six months ended June 30, 2013. The following table presents the components of noninterest expense for the for the periods indicated (dollars in thousands):

	Three Months Ended June 30					Six Months Ended June 30
	2014			2013		2014		2013
Salaries and employee benefits	$	14,575		$	15,547	$	29,652	$	32,942
Occupancy and equipment	2,314			2,550		4,843		5,006
Data processing	1,714			1,504		3,386		2,941
Legal and professional fees	996			1,280		2,010		2,881
Marketing	548			350		880		678
Federal deposit insurance premiums and other regulatory fees	337			604		671		1,073
Loan collection and OREO costs	(32		)	1,944		592		3,232
Amortization of intangibles	161			369		323		739
Other	1,463			1,313		2,802		2,633
Total noninterest expense	$	22,076		$	25,461	$	45,159	$	52,125

Three Months Ended June 30, 2014 and 2013

Salaries and employee benefits decreased$1.0 million, or 6.3%, to $14.6 million during the three months ended June 30, 2014 compared to the same period in 2013. The decrease was primarily a result of severance expenses of $764,000 related to ongoing efficiency improvements during the three months ended June 30, 2013 that were not repeated during 2014.

Legal and professional fees decreased$284,000, or 22.2%, to $996,000 during the three months ended June 30, 2014 compared to the same period in 2013, primarily as a result of decreases in consulting fees and audit and accounting fees, offset by merger expenses related to our two pending acquisitions. Consulting fees and audit and accounting fees were down $594,000 from second quarter 2013 due to greater reliance on internal resources and fewer outsourced internal audit engagements during the quarter. Merger expenses of approximately $265,000 were recorded during the three months ended June 30, 2014 related to our pending acquisitions of Atlanta Bancorporation, Inc. and Georgia-Carolina Bancshares, Inc.

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FDIC insurance premiums and other regulatory fees decreased$267,000, or 44.2%, to $337,000 for the second quarter of 2014, compared to the same period in 2013, resulting from a lower rate assessment due primarily to the effect of a decrease in the trailing twelve months average covered loans net charge-offs in 2014 as compared to 2013. Loan collection and OREO costs decreased$2.0 million, or 101.6%, to negative $32,000 during the three months ended June 30, 2014 compared to the same period in 2013. The decrease in loan collection and OREO costs is primarily due to quarterly volatility related to our resolution of covered assets. Additionally, we recognized approximately $725,000 in net gains on the disposal of other real estate owned for the three months ended June 30, 2014 compared to $189,000 for the same period in 2013.

Six Months Ended June 30, 2014 and 2013

Salaries and employee benefits decreased $3.3 million, or 10.0%, to $29.7 million during the six months ended June 30, 2014 compared to the same period in 2013. The decrease was primarily a result of severance expenses of $2.4 million related to ongoing efficiency improvements during the six months ended June 30, 2013 that were not repeated during 2014. The remaining decrease is largely attributable to the reduction in personnel within the special assets division.

Legal and professional fees decreased $871,000, or 30.2%, to $2.0 million during the six months ended June 30, 2014 compared to the same period in 2013, primarily as a result of decreases in consulting fees and audit and accounting fees, offset by merger expenses related to our two pending acquisitions. Consulting fees and audit and accounting fees were down $1.2 million from the same period in 2013 due to greater reliance on internal resources and fewer outsourced internal audit engagements during the period and were offset by merger expenses of approximately $265,000 recorded in 2014 related to our pending acquisitions.

FDIC insurance premiums and other regulatory fees decreased $402,000, or 37.5%, to $671,000 for the six months ended June 30, 2014 compared to the same period in 2013, resulting from a lower rate assessment due primarily to the effect of a decrease in the trailing twelve months average covered loans net charge-offs in 2014 as compared to 2013. Loan collection and OREO costs decreased $2.6 million, or 81.7%, to $592,000 during the six months ended June 30, 2014 compared to the same period in 2013. The decrease in loan collection and OREO costs is primarily due to a reduction in the volume and related expenses of other real estate covered by loss share agreements with the FDIC. Additionally, we recognized approximately $596,000 in net gains on the disposal of other real estate owned for the six months ended June 30, 2014 compared to net losses of $441,000 for the same period in 2013.

Income Taxes

       Income tax expense (benefit) is composed of both state and federal income tax expense. The effective tax rate was 36.0% and 45.2% for the three months ended June 30, 2014 and 2013, respectively, which includes adjustments so that the year to date rate is consistent with the full year estimated rate. The effective tax rate was 35.3% and 33.0% for the six months ended June 30, 2014 and 2013, respectively. The increase in the effective rate for the six months ended June 30, 2014 compared to the same period in 2013 is primarily due to a higher level of taxable income taxed at the statutory rates. Currently, years 2012 to present are open to examination by Federal and State taxing authorities.

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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 June 30, 2014, 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 are 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, 2013.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit No.	Description of Exhibit
2.1	Agreement and Plan of Merger dated as of June 23, 2014 by and between State Bank Financial Corporation and Georgia-Carolina Bancshares, Inc. (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed with the Commission on June 24, 2014)
10.1	Form of Director Restricted Stock Agreement
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 June 30, 2014, formatted in eXtensible Business Reporting Language (XBRL); (i) Consolidated Statements of Financial Condition at June 30, 2014 and December 31, 2013, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013, (iv) Consolidated Statement of Changes in Shareholders’ Equity for the six months ended June 30, 2014 and 2013, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 and (vi) Notes to Consolidated Financial Statements.

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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
August 8, 2014	By:	/s/ Joseph W. Evans
		Joseph W. Evans
		Chief Executive Officer (Principal Executive Officer)
August 8, 2014	By:	/s/ Thomas L. Callicutt, Jr.
		Thomas L. Callicutt, Jr.
		Chief Financial Officer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Description of Exhibit
2.1	Agreement and Plan of Merger dated as of June 23, 2014 by and between State Bank Financial Corporation and Georgia-Carolina Bancshares, Inc. (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed with the Commission on June 24, 2014)
10.1	Form of Director Restricted Stock Agreement
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 June 30, 2014, formatted in eXtensible Business Reporting Language (XBRL); (i) Consolidated Statements of Financial Condition at June 30, 2014 and December 31, 2013, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013, (iv) Consolidated Statement of Changes in Shareholders’ Equity for the six months ended June 30, 2014 and 2013, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 and (vi) Notes to Consolidated Financial Statements.

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