Edgar Filing: STATE BANK FINANCIAL CORP

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2016



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

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

The number of shares outstanding of the registrant’s common stock, as of November 3, 2016 was 36,886,131

TABLE OF CONTENTS



		Page
Cautionary Note Regarding Forward-Looking Statements		1

Part I - Financial Information

ITEM 1.	Financial Statements	3
	Consolidated Statements of Financial Condition at September 30, 2016 (unaudited) and December 31, 2015	3
	Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended September 30, 2016 and 2015	4
	Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2016 and 2015	5
	Consolidated Statements of Changes in Shareholders' Equity (unaudited) for the Nine Months Ended September 30, 2016 and 2015	6
	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2016 and 2015	7
	Notes to Consolidated Financial Statements (unaudited)	9
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	58
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	90
ITEM 4.	Controls and Procedures	91

Part II - Other Information

ITEM 1.	Legal Proceedings	91
ITEM 1A.	Risk Factors	91
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91
ITEM 3.	Defaults Upon Senior Securities	91
ITEM 4.	Mine Safety Disclosures	91
ITEM 5.	Other Information	91
ITEM 6.	Exhibits	91

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," "project," "believe," "intend," "plan" and "estimate," as well as similar expressions. These forward-looking statements include statements related to our expectations regarding growth in our markets, our anticipated acquisitions, including our pending acquisitions of NBG Bancorp, Inc. and S Bankshares, Inc., including our belief that we will receive regulatory approvals for both transactions by the end of 2016, our belief that our deposits are attractive sources of funding because of their stability and relative cost, our anticipation that a significant portion of our commercial and residential real estate construction and consumer equity lines of credit will not be funded, our expectation that our total risk-weighted assets will increase, our belief that the implementation of the new capital standards will not significantly impact us, our belief that our recorded deferred tax assets are fully recoverable, as well as statements relating to the anticipated effects on results of operations and financial condition from expected developments or events, the possible normalizing of our level of capitalization, anticipated organic growth, our use of derivatives and their anticipated future effect on our financial statements, and our plans to acquire other 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:


•	completion of the pending transactions with NBG Bancorp and S Bankshares is dependent on, among other things, receipt of regulatory approvals and S Bankshares shareholder approval, the timing of which cannot be predicted and which may not be received at all;


•	negative reactions to our pending acquisition of NBG Bancorp and S Bankshares (or future acquisitions) of each bank's customers, employees and counterparties or difficulties related to the transition of services;


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


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


•	risk associated with income taxes including the potential for adverse adjustments and the inability to fully realize deferred tax benefits;


•	increased cybersecurity risk, including potential network breaches, business disruptions or financial losses;


•	our ability to raise additional capital may be impaired based on conditions in the capital markets;


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


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


•	risks to our operations, earnings or capital resulting from violations of or noncompliance with laws, rules or regulations;


•	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 the volumes or values of the loans we make or have acquired;


•	other financial institutions have greater financial resources than we do 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 deterioration in the economy or cause instability in credit markets;


•	economic, geopolitical or other factors may prevent the growth we expect 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 Securities and Exchange Commission ("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, 2015 for a description of some of the important factors that may affect actual outcomes.

PART I

Item 1. Financial Statements.

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Financial Condition

(Dollars in thousands, except per share amounts)



	September 30, 2016			December 31, 2015
	(unaudited)			(audited)
Assets
Cash and amounts due from depository institutions	$	10,648		$	12,175
Interest-bearing deposits in other financial institutions	103,122			163,187
Cash and cash equivalents	113,770			175,362
Investment securities available-for-sale	822,655			887,705
Investment securities held-to-maturity (fair value of $67,443 and $0, respectively)	67,071			—
Loans	2,346,346			2,160,217
Allowance for loan and lease losses	(27,177		)	(29,075		)
Loans, net	2,319,169			2,131,142
Loans held-for-sale (includes loans at fair value of $45,116 and $48,803, respectively)	63,852			54,933
Other real estate owned	10,609			10,530
Premises and equipment, net	42,009			42,980
Goodwill	36,357			36,357
Other intangibles, net	8,515			10,101
SBA servicing rights	3,275			2,626
Bank-owned life insurance	60,282			58,819
Other assets	68,820			59,512
Total assets	$	3,616,384		$	3,470,067
Liabilities and Shareholders' Equity
Liabilities:
Noninterest-bearing deposits	$	890,588		$	826,216
Interest-bearing deposits	2,068,704			2,035,746
Total deposits	2,959,292			2,861,962
Securities sold under repurchase agreements	20,124			32,179
FHLB borrowings	20,000			—
Notes payable	398			1,812
Other liabilities	55,436			37,624
Total liabilities	3,055,250			2,933,577
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares authorized, no shares issued and outstanding	—			—
Common stock, $.01 par value; 100,000,000 shares authorized; 36,894,553 and 37,077,848 shares issued and outstanding, respectively	369			371
Additional paid-in capital	356,686			358,671
Retained earnings	200,819			179,082
Accumulated other comprehensive income (loss), net of tax	3,260			(1,634		)
Total shareholders' equity	561,134			536,490
Total liabilities and shareholders' equity	$	3,616,384		$	3,470,067

See accompanying notes to consolidated financial statements.

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Income

(Unaudited)

(Dollars in thousands, except per share amounts)



	Three Months Ended						Nine Months Ended
	September 30						September 30
	2016			2015			2016			2015
Interest income:
Loans	$	26,580		$	24,218		$	76,328		$	68,688
Loan accretion	9,335			11,156			33,039			35,590
Investment securities	4,670			3,926			13,883			11,209
Deposits with other financial institutions	44			124			230			475
Total interest income	40,629			39,424			123,480			115,962
Interest expense:
Deposits	2,408			1,911			6,759			5,730
Federal Home Loan Bank advances	73			3			100			3
Notes payable	12			58			93			169
Federal funds purchased and repurchase agreements	11			5			36			26
Total interest expense	2,504			1,977			6,988			5,928
Net interest income	38,125			37,447			116,492			110,034
Provision for loan and lease losses	88			(265		)	(40		)	2,992
Net interest income after provision for loan and lease losses	38,037			37,712			116,532			107,042
Noninterest income:
Amortization of FDIC receivable for loss share agreements	—			—			—			(16,488		)
Service charges on deposits	1,383			1,491			4,121			4,481
Mortgage banking income	3,216			3,079			9,808			9,239
SBA income	1,553			1,720			4,740			4,223
Payroll fee income	1,128			1,004			3,566			3,118
ATM income	759			742			2,273			2,240
Bank-owned life insurance income	533			537			1,463			1,454
Prepayment fees	234			551			715			2,937
Gain on sale of investment securities	38			17			447			338
Other	925			(247		)	2,257			433
Total noninterest income	9,769			8,894			29,390			11,975
Noninterest expense:
Salaries and employee benefits	19,799			23,293			59,221			63,381
Occupancy and equipment	2,984			3,113			9,100			9,437
Data processing	2,097			2,097			6,383			6,812
Legal and professional fees	1,064			1,089			2,993			3,857
Merger-related expenses	135			717			454			1,730
Marketing	665			491			1,786			1,526
Federal deposit insurance premiums and other regulatory fees	441			621			1,556			1,582
Loan collection costs and OREO activity	(841		)	(1,198		)	(452		)	(907		)
Amortization of intangibles	513			436			1,586			1,295
Other	1,623			1,757			5,425			5,147
Total noninterest expense	28,480			32,416			88,052			93,860
Income before income taxes	19,326			14,190			57,870			25,157
Income tax expense	6,885			5,071			20,606			8,855
Net income	$	12,441		$	9,119		$	37,264		$	16,302
Basic earnings per share	$	.34		$	.26		$	1.01		$	.46
Diluted earnings per share	$	.34		$	.25		$	1.01		$	.45
Cash dividends declared per common share	$	.14		$	.07		$	.42		$	.18
Weighted Average Shares Outstanding:
Basic	35,863,183			34,687,354			35,940,402			34,315,916
Diluted	35,965,948			36,003,068			36,040,655			35,615,974

See accompanying notes to consolidated financial statements.

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollars in thousands)



	Three Months Ended					Nine Months Ended
	September 30					September 30
	2016			2015		2016			2015
Net income	$	12,441		$	9,119	$	37,264		$	16,302
Other comprehensive (loss) income, net of tax:
Net change in unrealized (losses) gains	(758		)	1,624		7,737			(2,928		)
Amortization of net unrealized losses on securities transferred to held-to-maturity	(2		)	—		(3		)	—
Amounts reclassified for losses realized and included in earnings	282			129		357			28
Other comprehensive (loss) income, before income taxes	(478		)	1,753		8,091			(2,900		)
Income tax (benefit) expense	(184		)	633		3,197			(1,122		)
Other comprehensive (loss) income, net of income taxes	(294		)	1,120		4,894			(1,778		)
Comprehensive income	$	12,147		$	10,239	$	42,158		$	14,524

See accompanying notes to consolidated financial statements.

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders' Equity

(Unaudited)

(Dollars in thousands)



	Warrants		Common					Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Warrants		Shares		Stock			Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2014	2,581,191		32,269,604		$	323		$	297,479		$	162,373		$	3,920		$	464,095
Exercise of stock warrants	(61,933	)	60,767		—			347			—			—			347
Share-based compensation	—		—		—			2,812			—			—			2,812
Restricted stock activity	—		568,514		6			(191		)	(43		)	—			(228		)
Issuance of common stock	—		2,854,970		28			57,014			—			—			57,042
Other comprehensive loss	—		—		—			—			—			(1,778		)	(1,778		)
Common stock dividends, $.18 per share	—		—		—			—			(6,431		)	—			(6,431		)
Net income	—		—		—			—			16,302			—			16,302
Balance, September 30, 2015	2,519,258		35,753,855		$	357		$	357,461		$	172,201		$	2,142		$	532,161

Balance, December 31, 2015	172,745		37,077,848		$	371		$	358,671		$	179,082		$	(1,634	)	$	536,490
Exercise of stock warrants	(13,833	)	7,247		—			—			—			—			—
Share-based compensation	—		—		—			3,010			—			—			3,010
Repurchase of common stock	—		(270,715	)	(3		)	(5,125		)	—			—			(5,128		)
Restricted stock activity	—		80,173		1			130			(10		)	—			121
Other comprehensive income	—		—		—			—			—			4,894			4,894
Common stock dividends, $.42 per share	—		—		—			—			(15,517		)	—			(15,517		)
Net income	—		—		—			—			37,264			—			37,264
Balance, September 30, 2016	158,912		36,894,553		$	369		$	356,686		$	200,819		$	3,260		$	561,134

See accompanying notes to consolidated financial statements.



STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
	Nine Months Ended
	September 30
	2016			2015
Cash Flows from Operating Activities
Net income	$	37,264		$	16,302
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion	8,485			8,110
Provision for loan and lease losses	(40		)	2,992
Accretion on acquisitions, net	(33,039		)	(33,650		)
Gains on sales of other real estate owned	(894		)	(3,200		)
Writedowns of other real estate owned	207			493
Net decrease in FDIC receivable for covered losses	—			6,250
Funds (paid to) collected from FDIC	—			(1,784		)
Loss share termination	—			16,959
Proceeds from sales of mortgage loans held-for-sale	404,669			448,378
Proceeds from sales of SBA loans	42,518			33,754
Originations of mortgage loans held-for-sale	(389,283		)	(449,609		)
Originations of SBA loans held-for-sale	(51,200		)	(32,739		)
Mortgage banking activities	(9,808		)	(9,239		)
Gains on sales of SBA loans	(3,925		)	(3,318		)
Net gains on sales of available-for-sale securities	(447		)	(338		)
Net change in cash surrender value of life insurance	(1,463		)	(1,454		)
Share-based compensation expense	3,010			2,812
Changes in fair value of SBA servicing rights	314			(142		)
Changes in other assets and other liabilities, net	1,608			(20,378		)
Net cash provided by (used in) operating activities	7,976			(19,801		)
Cash flows from Investing Activities
Purchase of investment securities available-for-sale	(215,818		)	(497,138		)
Proceeds from sales and calls of investment securities available-for-sale	93,584			317,422
Proceeds from maturities and paydowns of investment securities available-for-sale	135,872			114,986
Purchase of investment securities held-to-maturity	(10,500		)	—
Loan originations, repayments and resolutions, net	(156,617		)	(187,648		)
Purchases of loans	(1,300		)	—
Net purchases of premises and equipment	(1,703		)	(850		)
Proceeds from sales of other real estate owned	3,577			15,677
Acquisition of Georgia-Carolina Bancshares	—			(10,958		)
Net cash used in investing activities	(152,905		)	(248,509		)
Cash Flows from Financing Activities
Net increase in noninterest-bearing customer deposits	64,372			164,963
Net increase (decrease) in interest-bearing customer deposits	32,958			(179,112		)
Repayment of other borrowed funds	(1,414		)	—
Proceeds from FHLB advances	440,000			60,000
Repayments of FHLB advances	(420,000		)	(60,000		)
Net decrease in federal funds purchased and securities sold under repurchase agreements	(12,055		)	(22,716		)
Exercise of stock warrants	—			347
Restricted stock activity	121			(228		)
Repurchase of common stock	(5,128		)	—
Dividends paid to shareholders	(15,517		)	(6,431		)
Net cash provided by (used in) financing activities	83,337			(43,177		)
Net decrease in cash and cash equivalents	(61,592		)	(311,487		)



STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
	Nine Months Ended
	September 30
	2016		2015
Cash and cash equivalents, beginning	175,362		481,158
Cash and cash equivalents, ending	$	113,770	$	169,671

Supplemental Disclosure of Noncash Investing and Financing Activities
Goodwill and fair value acquisition adjustments	$	—	$	19,904
Unrealized gains (losses) on securities and cash flow hedges, net of tax	4,894		(1,778		)
Transfer of investment securities available-for-sale to held-to-maturity	56,595		—
Transfers of loans to other real estate owned	2,969		8,735
Acquisitions:
Assets acquired	$	—	$	526,687
Liabilities assumed	—		457,718
Net assets	—		68,969

See accompanying notes to consolidated financial statements.

Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION AND RECENTLY ADOPTED ACCOUNTING STANDARDS

Overview

State Bank Financial Corporation (the "Company" or "we") is a bank holding company whose business is primarily conducted through its wholly-owned banking subsidiary, State Bank and Trust Company ("Bank" or "State Bank"). We operate a full service banking business and offer a broad range of commercial and retail banking products to our customers, primarily located in metropolitan Atlanta, middle Georgia and Augusta, Georgia.

The accompanying unaudited consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim period presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended September 30, 2016 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, 2015.

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

Adoption of New Accounting Standards

ASU 2016-15 — In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU clarify the proper classification for certain cash receipts and cash payments, including clarification on debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, among others. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted and if early adopted, all provisions must be adopted in the same period. We elected to early adopt the amendments in this ASU effective January 1, 2016. The adoption of ASU No. 2016-15 did not have a material impact on our consolidated financial statements.

ASU 2016-09 — In March 2016, FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU simplify several aspects of share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Excess tax benefits and tax deficiencies will be recognized as income tax expense or benefit in the income statement in the period exercise or vesting occurs. In the statement of cash flows, excess tax benefits should be classified with other income tax cash flows as an operating activity. Cash paid by an employer for tax withholding when directly withholding shares should be classified as a financing activity. An entity can make an entity-wide policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The threshold for determining whether an award is classified as equity or a liability is raised to permit withholding up to the maximum statutory tax rate in the applicable jurisdiction. The amendment in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted and if early adopted, all provisions must be adopted in the same period. If adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We elected to early adopt the amendments in this ASU effective January 1, 2016. We elected to account for forfeitures when they occur. The adoption of ASU No. 2016-09 reduced income tax expense previously reported for the second quarter of 2016 by $146,000.

Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASU 2015-16 — In September 2015, FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. Under current GAAP, the acquirer is required to retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill and is also required to revise comparative information for prior periods presented in the financial statements. The amendments in this ASU, require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update also require that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. An entity is required to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustments to the provisional amounts had been recognized as of the acquisition date. We adopted the amendments in this ASU effective January 1, 2016. The adoption of ASU No. 2015-16 did not have a material impact on our consolidated financial statements.

ASC Clarification — In June 2015, FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that are subject to transition guidance were adopted effective January 1, 2016. The adoption of these amendments did not have a material effect on our consolidated financial statements.

ASU 2015-02 — In February 2015, FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain legal entities. The amendments in the standard affect limited partnerships and similar legal entities, evaluating fees paid to a decision maker or a service provider as a variable interest, the effect of fee arrangements on the primary beneficiary determination, the effect of related parties on the primary beneficiary determination, and certain investment funds. We adopted the amendments in this ASU effective January 1, 2016. The adoption of ASU No. 2015-02 did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements

ASU 2016-13 — In June 2016, FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU changed the credit loss model on financial instruments measured at amortized cost, available for sale securities and certain purchased financial instruments. Credit losses on financial instruments measured at amortized cost will be determined using a current expected credit loss model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. Purchased financial assets with more-than-insignificant credit deterioration since origination ("PCD assets") measured at amortized cost will have an allowance for credit losses established at acquisition as part of the purchase price. Subsequent increases or decreases to the allowance for credit losses on PCD assets will be recognized in the income statement. Interest income should be recognized on PCD assets based on the effective interest rate, determined excluding the discount attributed to credit losses at acquisition. Credit losses relating to available-for-sale debt securities will be recognized through an allowance for credit losses. The amount of the credit loss is limited to the amount by which fair value is below amortized cost of the available-for-sale debt security. The amendment in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted and if early adopted, all provisions must be adopted in the same period. The amendments should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the period adopted. A prospective approach is required for securities with other-than-temporary impairment recognized prior to adoption. The Company is still reviewing the impact the adoption of this guidance will have on its consolidated financial statements.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASU 2016-05 — In March 2016, FASB issued ASU No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The amendments in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted and the amendments can be adopted either on a prospective basis or a modified retrospective basis. The guidance is not expected to have a significant impact on the Company's financial position, results of operations or disclosures.

ASU 2016-02 — In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires the recognition of assets and liabilities arising from the lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. Initial costs directly attributable to negotiating and arranging the lease will be included in the asset. For leases with a term of 12 months or less, a lessee can make an accounting policy election by class of underlying asset to not recognize an asset and corresponding liability. Lessees will also be required to provide additional qualitative and quantitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. These disclosures are intended to supplement the amounts recorded in the financial statements and provide additional information about the nature of an organization’s leasing activities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is still reviewing the impact the adoption of this guidance will have on its consolidated financial statements.

ASU 2016-01 — In January 2016, FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. The accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is prohibited except for the presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk which may be early adopted. The guidance is not expected to have a significant impact on the Company's financial position, results of operations or disclosures.

ASU 2015-14 and ASU 2014-09 — In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The ASU defers the effective date of previous ASU 2014-09 for all entities by one year. The accounting guidance is now effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and is not expected to have a significant impact on the Company's financial statements.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3: ACQUISITIONS

Proposed Acquisition of S Bankshares, Inc.

On May 19, 2016, the Company entered into an agreement to acquire S Bankshares, Inc. and its wholly-owned subsidiary, S Bank. Upon the closing of the transaction, S Bankshares, Inc. will merge with and into the Company, immediately followed by the merger of S Bank with and into State Bank. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals and the approval of S Bankshares, Inc. shareholders.

At September 30, 2016, S Bankshares had total assets of approximately $110 million, total loans of approximately $81 million, total deposits of approximately $92 million, and total shareholder’s equity of approximately $11 million. S Bank has banking operations in Savannah, Glennville, Reidsville, and Hinesville, Georgia.

Proposed Acquisition of NBG Bancorp, Inc.

On April 5, 2016, the Company entered into an agreement and plan of merger to acquire NBG Bancorp, Inc. ("NBG") and its wholly-owned subsidiary, The National Bank of Georgia ("National Bank of Georgia"). Upon the closing of the transaction, NBG will merge with and into the Company, immediately followed by the merger of National Bank of Georgia with and into State Bank. At a special meeting held on July 25, 2016, NBG received shareholder approval for the transaction. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals.

At September 30, 2016, NBG had total assets of approximately $416 million, total loans of approximately $356 million, total deposits of approximately $322 million, and total shareholder's equity of approximately $45 million. National Bank of Georgia is headquartered in Athens, Georgia and operates one additional banking office in Gainesville, Georgia and a mortgage office in Athens.

Acquisition of Patriot Capital Corporation's Equipment Finance Group

On October 22, 2015, State Bank announced the purchase of the equipment financing origination platform of Patriot Capital Corporation. The acquisition was not material to the financial results of State Bank. Goodwill of $5.3 million and other intangibles of $2.1 million were recorded in the acquisition. None of the goodwill is deductible for income tax purposes.

Acquisition of Boyett Agency, LLC

On February 26, 2015, State Bank entered into an Asset Purchase Agreement with Boyett Agency, LLC an independent insurance agency, pursuant to which State Bank acquired substantially all of the assets of Boyett Agency, LLC. The acquisition was not material to the financial results of State Bank. Goodwill of $539,000 and other intangibles of $319,000 were recorded in the acquisition. None of the goodwill is deductible for income tax purposes.

Acquisition of Georgia-Carolina Bancshares Inc. and First Bank of Georgia

On January 1, 2015, the Company completed its merger with Georgia-Carolina Bancshares, Inc., the holding company for First Bank of Georgia ("First Bank"). In the merger, First Bank, a Georgia-state-chartered bank, became a wholly-owned subsidiary bank of the Company. Under the terms of the merger agreement, each share of Georgia-Carolina Bancshares, Inc. common stock was converted into the right to receive $8.85 in cash and .794 shares of the Company's common stock. Total consideration paid was approximately $88.9 million, consisting of $31.8 million in cash and $57.0 million in the Company's common stock.

The merger of Georgia-Carolina Bancshares was accounted for under the acquisition method of accounting, using pushdown accounting. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Goodwill of $19.9 million was generated from the acquisition, none of which is deductible for income tax purposes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the assets acquired and liabilities assumed and the consideration paid by the Company at the acquisition date (dollars in thousands):



	As Recorded by Georgia-Carolina Bancshares, Inc.		Fair Value Adjustments				As Recorded by the Company
Assets
Cash and due from banks	$	20,873	$	—			$	20,873
Investment securities	130,218		999			(a)	131,217
Loans, net	293,814		590			(b)	294,404
Loans held-for-sale	34,956		—				34,956
Other real estate owned	4,428		2,042			(c)	6,470
Core deposit intangible	—		6,710			(d)	6,710
Premises and equipment, net	9,175		2,803			(e)	11,978
Bank-owned life insurance	15,414		—				15,414
Other assets	9,122		(4,457		)	(f)	4,665
Total assets acquired	$	518,000	$	8,687			$	526,687
Liabilities
Deposits:
Noninterest-bearing	$	80,888	$	—			$	80,888
Interest-bearing	335,889		878			(g)	336,767
Total deposits	416,777		878				417,655
Securities sold under repurchase agreements	27,588		—				27,588
Other liabilities	11,823		652			(h)	12,475
Total liabilities assumed	456,188		1,530				457,718
Net identifiable assets acquired over liabilities assumed	$	61,812	$	7,157			$	68,969
Goodwill	—		19,904				19,904
Net assets acquired over liabilities assumed	$	61,812	$	27,061			$	88,873
Consideration:
Company common shares issued	2,854,970
Purchase price per share of the Company's common stock	$	19.98
Company common stock issued	57,042
Cash exchanged for shares	31,831
Fair value of total consideration transferred	$	88,873

Explanation of fair value adjustments



(a)	Adjustment reflects the gain on certain securities immediately following close that was deemed to be a more accurate representation of fair value.
(b)	Adjustment reflects the fair value adjustment based on State Bank's third party valuation report and includes the adjustment to eliminate the recorded allowance for loan losses.
(c)	Adjustment reflects the fair value adjustment based on State Bank's evaluation of the acquired other real estate owned portfolio.
(d)	Adjustment reflects the fair value adjustment to record the estimated core deposit intangible based on State Bank's third party valuation report.
(e)	Adjustment reflects the fair value adjustment based on appraised values.
(f)	Adjustment reflects the fair value adjustment based on State Bank's evaluation of acquired other assets.
(g)	Adjustment reflects the fair value adjustment based on State Bank's evaluation of the acquired deposits.
(h)	Adjustment reflects the fair value adjustment based on State Bank's evaluation of other liabilities and to record certain liabilities directly attributable to the acquisition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of the purchased credit impaired loans acquired in the Georgia-Carolina Bancshares, Inc. transaction on January 1, 2015 (dollars in thousands):



	Purchased Credit Impaired
Contractually required principal and interest at acquisition	$	3,060
Contractual cash flows not expected to be collected (nonaccretable difference)	(783		)
Expected cash flows at acquisition	2,277
Accretable difference	(317		)
Basis in acquired loans at acquisition - estimated fair value	$	1,960

On January 1, 2015, the fair value of the purchased non-credit impaired loans acquired in the Georgia-Carolina Bancshares, Inc. transaction was $292.4 million. The contractual cash flows of the purchased non-credit impaired loans at acquisition was $355.0 million, of which $6.4 million was the amount of contractual cash flows not expected to be collected.

NOTE 4: INVESTMENT SECURITIES

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



	September 30, 2016								December 31, 2015
Investment Securities Available-for-Sale	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Government securities	$	89,239	$	382	$	23	$	89,598	$	103,525	$	63	$	316	$	103,272
States and political subdivisions	300		1		—		301		1,809		5		1		1,813
Residential mortgage-backed securities — nonagency	155,085		3,273		801		157,557		146,832		4,269		399		150,702
Residential mortgage-backed securities — agency	496,298		4,277		269		500,306		507,168		770		4,250		503,688
Asset-backed securities	—		—		—		—		46,570		3		328		46,245
Corporate securities	73,868		1,035		10		74,893		82,245		229		489		81,985
Total investment securities available-for-sale	$	814,790	$	8,968	$	1,103	$	822,655	$	888,149	$	5,339	$	5,783	$	887,705

The amortized cost and fair value of securities classified as held-to-maturity are as follows (dollars in thousands):



	September 30, 2016								December 31, 2015
Investment Securities Held-to-Maturity	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Asset-backed securities	$	56,789	$	175	$	21	$	56,943	$	—	$	—	$	—	$	—
Corporate securities	10,282		218		—		10,500		—		—		—		—
Total investment securities held-to-maturity	$	67,071	$	393	$	21	$	67,443	$	—	$	—	$	—	$	—

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the first quarter of 2016, the Company transferred the following investment securities from available-for-sale to held-to-maturity (dollars in thousands):



	At Date of Transfer During the Three Months Ended
	March 31, 2016
Book value	$	56,767
Market value	56,595
Unrealized loss	$	(172	)

There were no transfers of investment securities from available-for-sale to held-to-maturity during the second and third quarter of 2016 or the nine months ended September 30, 2015.

The amortized cost and estimated fair value of debt securities by contractual maturities are summarized in the tables below (dollars in thousands):



Debt Securities Available-for-Sale	Distribution of Maturities (1)
September 30, 2016	1 Year or Less		1-5 Years		5-10 Years		After 10 Years		Total
Amortized Cost:
U.S. Government securities	$	—	$	89,239	$	—	$	—	$	89,239
States and political subdivisions	—		300		—		—		300
Residential mortgage-backed securities — nonagency	—		—		—		155,085		155,085
Residential mortgage-backed securities — agency	—		15,793		360,623		119,882		496,298
Corporate securities	7,712		64,610		—		1,546		73,868
Total debt securities available-for-sale	$	7,712	$	169,942	$	360,623	$	276,513	$	814,790

Fair Value:
U.S. Government securities	$	—	$	89,598	$	—	$	—	$	89,598
States and political subdivisions	—		301		—		—		301
Residential mortgage-backed securities — nonagency	—		—		—		157,557		157,557
Residential mortgage-backed securities — agency	—		15,944		363,990		120,372		500,306
Corporate securities	7,702		65,645		—		1,546		74,893
Total debt securities available-for-sale	$	7,702	$	171,488	$	363,990	$	279,475	$	822,655



Debt Securities Held-to-Maturity	Distribution of Maturities (1)
September 30, 2016	1 Year or Less		1-5 Years		5-10 Years		After 10 Years		Total
Amortized Cost:
Asset-backed securities	$	—	$	—	$	31,670	$	25,119	$	56,789
Corporate securities	—		—		10,282		—		10,282
Total debt securities held-to-maturity	$	—	$	—	$	41,952	$	25,119	$	67,071

Fair Value:
Asset-backed securities	$	—	$	—	$	31,770	$	25,173	$	56,943
Corporate securities	—		—		10,500		—		10,500
Total debt securities held-to-maturity	$	—	$	—	$	42,270	$	25,173	$	67,443

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



	Less than 12 Months				12 Months or More				Total
Investment Securities Available-for-Sale	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2016
U.S. Government securities	$	20,639	$	23	$	—	$	—	$	20,639	$	23
States and political subdivisions	—		—		—		—		—		—
Residential mortgage-backed securities — nonagency	35,122		451		24,051		350		59,173		801
Residential mortgage-backed securities — agency	56,472		139		21,221		130		77,693		269
Corporate securities	7,702		10		—		—		7,702		10
Total temporarily impaired securities	$	119,935	$	623	$	45,272	$	480	$	165,207	$	1,103

December 31, 2015
U.S. Government securities	$	61,723	$	316	$	—	$	—	$	61,723	$	316
States and political subdivisions	1,507		1		—		—		1,507		1
Residential mortgage-backed securities — nonagency	43,112		347		6,578		52		49,690		399
Residential mortgage-backed securities — agency	397,831		3,665		43,112		585		440,943		4,250
Asset-backed securities	41,333		328		—		—		41,333		328
Corporate securities	55,976		489		—		—		55,976		489
Total temporarily impaired securities	$	601,482	$	5,146	$	49,690	$	637	$	651,172	$	5,783



	Less than 12 Months				12 Months or More				Total
Investment Securities Held-to-Maturity	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2016
Asset-backed securities	$	—	$	—	$	9,925	$	21	$	9,925	$	21
Total temporarily impaired securities	$	—	$	—	$	9,925	$	21	$	9,925	$	21

At September 30, 2016, the Company held 58 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 September 30, 2016, there was no intent to sell any of the securities in an unrealized loss position, and it is more likely than not 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.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sales and calls of securities are summarized in the following tables for the periods presented (dollars in thousands):



	Three Months Ended				Nine Months Ended
	September 30				September 30
Securities Available-For-Sale	2016		2015		2016		2015
Proceeds from sales and calls	$	28,705	$	15,535	$	93,584	$	317,422

Gross gains on sales and calls	$	38	$	17	$	447	$	602
Gross losses on sales and calls	—		—		—		(264		)
Net realized gains (losses) on sales and calls	$	38	$	17	$	447	$	338

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 $290.3 million and $424.8 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and repurchase agreements.

NOTE 5: LOANS

Loans, in total, are summarized as follows (dollars in thousands):



Total Loans	September 30, 2016			December 31, 2015
Construction, land & land development	$	507,898		$	514,937
Other commercial real estate	840,769			776,310
Total commercial real estate	1,348,667			1,291,247
Residential real estate	250,347			273,677
Owner-occupied real estate	314,131			306,313
Commercial, financial & agricultural	317,196			196,779
Leases	74,722			71,539
Consumer	41,283			20,662
Total loans	2,346,346			2,160,217
Allowance for loan and lease losses	(27,177		)	(29,075		)
Total loans, net	$	2,319,169		$	2,131,142

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



Organic Loans	September 30, 2016			December 31, 2015
Construction, land & land development	$	486,299		$	482,087
Other commercial real estate	744,270			661,062
Total commercial real estate	1,230,569			1,143,149
Residential real estate	139,926			140,613
Owner-occupied real estate	239,726			219,636
Commercial, financial & agricultural	306,141			181,513
Leases	74,722			71,539
Consumer	39,373			17,882
Total organic loans (1)	2,030,457			1,774,332
Allowance for loan and lease losses	(21,736		)	(21,224		)
Total organic loans, net	$	2,008,721		$	1,753,108

(1) Includes net deferred loan fees that totaled approximately $7.0 million and $5.8 million at September 30, 2016 and December 31, 2015, respectively.

Purchased non-credit impaired loans ("PNCI loans"), net of related discounts, are summarized as follows (dollars in thousands):



Purchased Non-Credit Impaired Loans	September 30, 2016			December 31, 2015
Construction, land & land development	$	10,035		$	18,598
Other commercial real estate	58,261			74,506
Total commercial real estate	68,296			93,104
Residential real estate	56,468			69,053
Owner-occupied real estate	52,016			61,313
Commercial, financial & agricultural	10,447			14,216
Consumer	1,826			2,624
Total purchased non-credit impaired loans (1)	189,053			240,310
Allowance for loan and lease losses	(150		)	(53		)
Total purchased non-credit impaired loans, net	$	188,903		$	240,257

(1) Includes net discounts that totaled approximately $5.1 million and $6.4 million at September 30, 2016 and December 31, 2015, respectively.

Purchased credit impaired loans ("PCI loans"), net of related discounts, are summarized as follows (dollars in thousands):



Purchased Credit Impaired Loans	September 30, 2016			December 31, 2015
Construction, land & land development	$	11,564		$	14,252
Other commercial real estate	38,238			40,742
Total commercial real estate	49,802			54,994
Residential real estate	53,953			64,011
Owner-occupied real estate	22,389			25,364
Commercial, financial & agricultural	608			1,050
Consumer	84			156
Total purchased credit impaired loans	126,836			145,575
Allowance for loan and lease losses	(5,291		)	(7,798		)
Total purchased credit impaired loans, net	$	121,545		$	137,777

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in the carrying value of purchased credit impaired loans are presented in the following table for the periods presented (dollars in thousands):



	Three Months Ended						Nine Months Ended
	September 30						September 30
Purchased Credit Impaired Loans	2016			2015			2016			2015
Balance, beginning of period	$	129,100		$	167,386		$	137,777		$	196,093
Accretion of fair value discounts	9,335			11,156			33,039			35,590
Fair value of acquired loans	—			—			1,300			1,960
Reductions in principal balances resulting from repayments, write-offs and foreclosures	(17,032		)	(29,194		)	(53,078		)	(84,566		)
Change in the allowance for loan and lease losses on purchased credit impaired loans	142			1,221			2,507			1,492
Balance, end of period	$	121,545		$	150,569		$	121,545		$	150,569

Purchased credit impaired loans are initially recorded at fair value at the acquisition date. The Company re-estimates expected cash flows on purchased credit impaired loans on a quarterly basis. Subsequent decreases in the amount of cash expected to be collected from the borrower results in a provision for loan and lease losses and an increase in the allowance for loan and lease losses. Subsequent increases in the amount of cash expected to be collected from the borrower results in the reversal of any previously-recorded provision for loan and lease losses and related allowance for loan and lease losses, and then as a prospective increase in the accretable discount on the purchased credit impaired loans. 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 are presented in the following table for the periods presented (dollars in thousands):



	Three Months Ended						Nine Months Ended
	September 30						September 30
Changes in Accretable Discount	2016			2015			2016			2015
Balance, beginning of period	$	75,390		$	103,800		$	86,100		$	120,061
Additions from acquisitions	—			—			1,648			317
Accretion	(9,335		)	(11,156		)	(33,039		)	(35,590		)
Transfers to accretable discounts and exit events, net	5,939			3,899			17,285			11,755
Balance, end of period	$	71,994		$	96,543		$	71,994		$	96,543

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 purchased credit impaired loans.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6: ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)

The following tables summarize the Company's allowance for loan and lease losses for the periods indicated (dollars in thousands):



	Three Months Ended September 30
	2016												2015
	Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total			Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total
	Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total			Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total
Balance, beginning of period	$	22,008		$	158		$	5,433		$	27,599		$	19,594		$	—		$	9,975		$	29,569
Charge-offs	(311		)	(16		)	(223		)	(550		)	(63		)	—			(3,282		)	(3,345		)
Recoveries	39			1			—			40			31			6			2,934			2,971
Net (charge-offs) recoveries	(272		)	(15		)	(223		)	(510		)	(32		)	6			(348		)	(374		)
Provision for loan and lease losses before amount attributable to FDIC loss share agreements	—			7			81			88			614			(6		)	(873		)	(265		)
Amount attributable to FDIC loss share agreements	—			—			—			—			—			—			—			—
Total provision for loan and lease losses charged to operations	—			7			81			88			614			(6		)	(873		)	(265		)
Provision for loan and lease losses recorded through the FDIC loss share receivable	—			—			—			—			—			—			—			—
Balance, end of period	$	21,736		$	150		$	5,291		$	27,177		$	20,176		$	—		$	8,754		$	28,930

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Nine Months Ended September 30
	2016												2015
	Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total			Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total
	Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total			Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total
Balance, beginning of period	$	21,224		$	53		$	7,798		$	29,075		$	18,392		$	—		$	10,246		$	28,638
Charge-offs	(2,858		)	(80		)	(2,345		)	(5,283		)	(203		)	(48		)	(8,666		)	(8,917		)
Recoveries	189			62			3,174			3,425			81			6			5,085			5,172
Net recoveries (charge-offs)	(2,669		)	(18		)	829			(1,858		)	(122		)	(42		)	(3,581		)	(3,745		)
Provision for loan and lease losses before amount attributable to FDIC loss share agreements	3,181			115			(3,336		)	(40		)	1,906			42			2,089			4,037
Amount attributable to FDIC loss share agreements	—			—			—			—			—			—			(1,045		)	(1,045		)
Total provision for loan and lease losses charged to operations	3,181			115			(3,336		)	(40		)	1,906			42			1,044			2,992
Provision for loan and lease losses recorded through the FDIC loss share receivable	—			—			—			—			—			—			1,045			1,045
Balance, end of period	$	21,736		$	150		$	5,291		$	27,177		$	20,176		$	—		$	8,754		$	28,930

Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Activity in the allowance for loan and lease losses on organic loans is detailed as follows by portfolio segment for the periods indicated (dollars in thousands):



Organic Loans	Commercial Real Estate			Residential Real Estate			Owner-Occupied Real Estate			Commercial, Financial & Agricultural			Leases			Consumer			Total
Three Months Ended
September 30, 2016
Beginning balance	$	12,943		$	1,890		$	1,982		$	3,834		$	881		$	478		$	22,008
Charge-offs	—			(1		)	—			(172		)	(112		)	(26		)	(311		)
Recoveries	—			2			—			35			2			—			39
Provision	(818		)	2			56			699			(55		)	116			—
Ending balance	$	12,125		$	1,893		$	2,038		$	4,396		$	716		$	568		$	21,736

Nine Months Ended
September 30, 2016
Beginning balance	$	13,607		$	2,053		$	1,920		$	2,509		$	865		$	270		$	21,224
Charge-offs	(2,125		)	(29		)	—			(336		)	(327		)	(41		)	(2,858		)
Recoveries	—			5			44			130			9			1			189
Provision	643			(136		)	74			2,093			169			338			3,181
Ending balance	$	12,125		$	1,893		$	2,038		$	4,396		$	716		$	568		$	21,736

Three Months Ended
September 30, 2015
Beginning balance	$	13,218		$	1,575		$	2,216		$	1,966		$	433		$	186		$	19,594
Charge-offs	—			—			—			(58		)	—			(5		)	(63		)
Recoveries	—			9			—			21			—			1			31
Provision	(272		)	195			(165		)	511			279			66			614
Ending balance	$	12,946		$	1,779		$	2,051		$	2,440		$	712		$	248		$	20,176

Nine Months Ended
September 30, 2015
Beginning balance	$	13,134		$	1,190		$	1,928		$	1,770		$	262		$	108		$	18,392
Charge-offs	—			—			—			(185		)	—			(18		)	(203		)
Recoveries	1			10			—			62			—			8			81
Provision	(189		)	579			123			793			450			150			1,906
Ending balance	$	12,946		$	1,779		$	2,051		$	2,440		$	712		$	248		$	20,176

Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the balance of organic loans and the allowance for loan and lease losses based on the method of determining the allowance at the dates indicated (dollars in thousands):



	Allowance for Loan and Lease Losses						Loans
Organic Loans	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Allowance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Loans
September 30, 2016
Commercial real estate	$	166	$	11,959	$	12,125	$	5,021	$	1,225,548	$	1,230,569
Residential real estate	532		1,361		1,893		1,064		138,862		139,926
Owner-occupied real estate	—		2,038		2,038		—		239,726		239,726
Commercial, financial & agricultural	146		4,250		4,396		292		305,849		306,141
Leases	—		716		716		—		74,722		74,722
Consumer	23		545		568		45		39,328		39,373
Total organic loans	$	867	$	20,869	$	21,736	$	6,422	$	2,024,035	$	2,030,457

December 31, 2015
Commercial real estate	$	189	$	13,418	$	13,607	$	3,557	$	1,139,592	$	1,143,149
Residential real estate	394		1,659		2,053		788		139,825		140,613
Owner-occupied real estate	123		1,797		1,920		246		219,390		219,636
Commercial, financial & agricultural	235		2,274		2,509		469		181,044		181,513
Leases	—		865		865		—		71,539		71,539
Consumer	18		252		270		36		17,846		17,882
Total organic loans	$	959	$	20,265	$	21,224	$	5,096	$	1,769,236	$	1,774,332

Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Activity in the allowance for loan and lease losses on purchased non-credit impaired loans is detailed as follows by portfolio segment for the periods indicated (dollars in thousands):




Purchased Non-Credit Impaired Loans	Commercial Real Estate		Residential Real Estate			Owner-Occupied Real Estate		Commercial, Financial & Agricultural			Consumer			Total
Three Months Ended
September 30, 2016
Beginning balance	$	—	$	—		$	—	$	158		$	—		$	158
Charge-offs	—		(14		)	—		—			(2		)	(16		)
Recoveries	—		1			—		—			—			1
Provision	—		13			—		(8		)	2			7
Ending balance	$	—	$	—		$	—	$	150		$	—		$	150

Nine Months Ended
September 30, 2016
Beginning balance	$	—	$	53		$	—	$	—		$	—		$	53
Charge-offs	—		(76		)	—		(1		)	(3		)	(80		)
Recoveries	—		45			—		—			17			62
Provision	—		(22		)	—		151			(14		)	115
Ending balance	$	—	$	—		$	—	$	150		$	—		$	150

Three Months Ended
September 30, 2015
Beginning balance	$	—	$	—		$	—	$	—		$	—		$	—
Charge-offs	—		—			—		—			—			—
Recoveries	—		1			—		—			5			6
Provision	—		(1		)	—		—			(5		)	(6		)
Ending balance	$	—	$	—		$	—	$	—		$	—		$	—

Nine Months Ended
September 30, 2015
Beginning balance	$	—	$	—		$	—	$	—		$	—		$	—
Charge-offs	—		(24		)	—		—			(24		)	(48		)
Recoveries	—		1			—		—			5			6
Provision	—		23			—		—			19			42
Ending balance	$	—	$	—		$	—	$	—		$	—		$	—

Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the balance of purchased non-credit impaired loans and the allowance for loan and lease losses based on the method of determining the allowance at the dates indicated (dollars in thousands):



	Allowance for Loan and Lease Losses						Loans
Purchased Non-Credit Impaired Loans	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Allowance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Loans
September 30, 2016
Commercial real estate	$	—	$	—	$	—	$	—	$	68,296	$	68,296
Residential real estate	—		—		—		642		55,826		56,468
Owner-occupied real estate	—		—		—		197		51,819		52,016
Commercial, financial & agricultural	150		—		150		831		9,616		10,447
Consumer	—		—		—		3		1,823		1,826
Total purchased non-credit impaired loans	$	150	$	—	$	150	$	1,673	$	187,380	$	189,053

December 31, 2015
Commercial real estate	$	—	$	—	$	—	$	24	$	93,080	$	93,104
Residential real estate	53		—		53		776		68,277		69,053
Owner-occupied real estate	—		—		—		222		61,091		61,313
Commercial, financial & agricultural	—		—		—		830		13,386		14,216
Consumer	—		—		—		5		2,619		2,624
Total purchased non-credit impaired loans	$	53	$	—	$	53	$	1,857	$	238,453	$	240,310

Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Activity in the allowance for loan and lease losses on purchased credit impaired loans is detailed as follows by portfolio segment for the periods indicated (dollars in thousands):



Purchased Credit Impaired Loans	Commercial Real Estate			Residential Real Estate			Owner-Occupied Real Estate			Commercial, Financial & Agricultural			Consumer			Total
Three Months Ended
September 30, 2016
Beginning balance	$	2,834		$	1,025		$	1,502		$	69		$	3		$	5,433
Charge-offs	(131		)	(5		)	(87		)	—			—			(223		)
Recoveries	—			—			—			—			—			—
Provision	(341		)	254			173			(4		)	(1		)	81
Ending balance	$	2,362		$	1,274		$	1,588		$	65		$	2		$	5,291

Nine Months Ended
September 30, 2016
Beginning balance	$	3,388		$	1,893		$	2,449		$	60		$	8		$	7,798
Charge-offs	(864		)	(899		)	(298		)	(228		)	(56		)	(2,345		)
Recoveries	2,281			400			207			233			53			3,174
Provision	(2,443		)	(120		)	(770		)	—			(3		)	(3,336		)
Ending balance	$	2,362		$	1,274		$	1,588		$	65		$	2		$	5,291

Three Months Ended
September 30, 2015
Beginning balance	$	4,264		$	2,355		$	2,713		$	625		$	18		$	9,975
Charge-offs	(2,204		)	(283		)	(223		)	(557		)	(15		)	(3,282		)
Recoveries	2,275			96			325			230			8			2,934
Provision	(466		)	(111		)	(89		)	(205		)	(2		)	(873		)
Amount attributable to FDIC loss share agreements	—			—			—			—			—			—
Provision charged to income	(466		)	(111		)	(89		)	(205		)	(2		)	(873		)
Provision recorded through the FDIC loss share receivable	—			—			—			—			—			—
Ending balance	$	3,869		$	2,057		$	2,726		$	93		$	9		$	8,754

Nine Months Ended
September 30, 2015
Beginning balance	$	5,461		$	2,298		$	1,916		$	567		$	4		$	10,246
Charge-offs	(4,718		)	(1,009		)	(1,275		)	(1,533		)	(131		)	(8,666		)
Recoveries	2,927			332			848			789			189			5,085
Provision	199			436			1,237			270			(53		)	2,089
Amount attributable to FDIC loss share agreements	(313		)	(182		)	(402		)	(140		)	(8		)	(1,045		)
Provision charged to income	(114		)	254			835			130			(61		)	1,044
Provision recorded through the FDIC loss share receivable	313			182			402			140			8			1,045
Ending balance	$	3,869		$	2,057		$	2,726		$	93		$	9		$	8,754

Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the balance of purchased credit impaired loans and the allowance for loan and lease losses based on the method of determining the allowance at the dates indicated (dollars in thousands):



	Allowance for Loan and Lease Losses						Loans
Purchased Credit Impaired Loans	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Allowance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Loans
September 30, 2016
Commercial real estate	$	898	$	1,464	$	2,362	$	29,975	$	19,827	$	49,802
Residential real estate	168		1,106		1,274		2,030		51,923		53,953
Owner-occupied real estate	1,395		193		1,588		8,412		13,977		22,389
Commercial, financial & agricultural	3		62		65		107		501		608
Consumer	—		2		2		10		74		84
Total purchased credit impaired loans	$	2,464	$	2,827	$	5,291	$	40,534	$	86,302	$	126,836

December 31, 2015
Commercial real estate	$	1,512	$	1,876	$	3,388	$	26,981	$	28,013	$	54,994
Residential real estate	850		1,043		1,893		3,793		60,218		64,011
Owner-occupied real estate	2,213		236		2,449		9,937		15,427		25,364
Commercial, financial & agricultural	6		54		60		300		750		1,050
Consumer	—		8		8		6		150		156
Total purchased credit impaired loans	$	4,581	$	3,217	$	7,798	$	41,017	$	104,558	$	145,575

For each period indicated, a portion of the Company's purchased credit impaired 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 purchased credit impaired loans at each acquisition and at subsequent valuation dates. All purchased credit impaired 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 assets. As such, the referenced purchased credit impaired loans are not considered nonperforming assets.

Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impaired organic and purchased non-credit impaired loans, segregated by class of loans, are presented in the following table (dollars in thousands):



	September 30, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment (1)		Related Allowance		Unpaid Principal Balance		Recorded Investment (1)		Related Allowance
Impaired Loans: Organic and Purchased Non-Credit Impaired	Unpaid Principal Balance		Recorded Investment (1)		Related Allowance		Unpaid Principal Balance		Recorded Investment (1)		Related Allowance
With no related allowance recorded:
Construction, land & land development	$	4,578	$	2,979	$	—	$	4,652	$	3,203	$	—
Other commercial real estate	—		—		—		—		—		—
Total commercial real estate	4,578		2,979		—		4,652		3,203		—
Residential real estate	259		85		—		134		125		—
Owner-occupied real estate	198		197		—		213		222		—
Commercial, financial & agricultural	232		95		—		903		830		—
Consumer	6		2		—		8		5		—
Subtotal	5,273		3,358		—		5,910		4,385		—
With related allowance recorded:
Construction, land & land development	4,181		2,042		166		16		15		8
Other commercial real estate	—		—		—		395		363		181
Total commercial real estate	4,181		2,042		166		411		378		189
Residential real estate	1,735		1,621		532		1,506		1,439		447
Owner-occupied real estate	—		—		—		259		246		123
Commercial, financial & agricultural	1,083		1,028		296		489		469		235
Consumer	47		46		23		37		36		18
Subtotal	7,046		4,737		1,017		2,702		2,568		1,012
Total impaired loans	$	12,319	$	8,095	$	1,017	$	8,612	$	6,953	$	1,012

(1) Includes loans with SBA guaranteed balances of $1.2 million and $1.2 million at September 30, 2016 and December 31, 2015, respectively.

Table of Contents

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 organic and purchased non-credit impaired loans, for the periods presented (dollars in thousands):



	September 30, 2016				September 30, 2015
	Average Recorded Investment (1)		Interest Income Recognized (2)		Average Recorded Investment (1)		Interest Income Recognized (2)
Three Months Ended	Average Recorded Investment (1)		Interest Income Recognized (2)		Average Recorded Investment (1)		Interest Income Recognized (2)
Construction, land & land development	$	5,083	$	—	$	3,353	$	34
Other commercial real estate	14		—		1,606		12
Total commercial real estate	5,097		—		4,959		46
Residential real estate	1,778		—		534		3
Owner-occupied real estate	183		—		659		5
Commercial, financial & agricultural	1,511		—		547		4
Consumer	52		—		43		—
Total impaired loans	$	8,621	$	—	$	6,742	$	58

Nine Months Ended
Construction, land & land development	$	6,254	$	—	$	3,386	$	75
Other commercial real estate	218		—		981		31
Total commercial real estate	6,472		—		4,367		106
Residential real estate	1,837		—		449		9
Owner-occupied real estate	314		3		415		8
Commercial, financial & agricultural	1,997		24		367		8
Consumer	43		—		34		—
Total impaired loans	$	10,663	$	27	$	5,632	$	131

(1) The average recorded investment for troubled debt restructurings was $5.1 million and $6.8 million for the three and nine months ended September 30, 2016, respectively, and was $3.3 million for both the three and nine months ended September 30, 2015, respectively.

(2) The interest income recognized on troubled debt restructurings was $0 and $24,000 for the three and nine months ended September 30, 2016, respectively, and was $34,000 and $75,000 for the three and nine months ended September 30, 2015, respectively.

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



Nonaccrual Loans (1):	September 30, 2016		December 31, 2015
Construction, land & land development	$	5,021	$	3,218
Other commercial real estate	—		363
Total commercial real estate	5,021		3,581
Residential real estate	1,706		1,564
Owner-occupied real estate	197		468
Commercial, financial & agricultural	1,123		722
Consumer	48		41
Total nonaccrual loans	$	8,095	$	6,376

(1) Includes both organic and purchased non-credit impaired nonaccrual loans. Purchased non-credit impaired nonaccrual loans totaled $1.7 million at September 30, 2016 and $1.3 million at December 31, 2015.

Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents an analysis of past due organic loans, by class of loans, at the dates indicated (dollars in thousands):



Organic Loans	30 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
September 30, 2016
Construction, land & land development	$	47	$	13	$	60	$	486,239	$	486,299	$	—
Other commercial real estate	—		—		—		744,270		744,270		—
Total commercial real estate	47		13		60		1,230,509		1,230,569		—
Residential real estate	399		85		484		139,442		139,926		—
Owner-occupied real estate	955		—		955		238,771		239,726		—
Commercial, financial & agricultural	230		58		288		305,853		306,141		—
Leases	—		—		—		74,722		74,722		—
Consumer	77		15		92		39,281		39,373		—
Total organic loans	$	1,708	$	171	$	1,879	$	2,028,578	$	2,030,457	$	—

December 31, 2015
Construction, land & land development	$	235	$	—	$	235	$	481,852	$	482,087	$	—
Other commercial real estate	—		19		19		661,043		661,062		—
Total commercial real estate	235		19		254		1,142,895		1,143,149		—
Residential real estate	656		417		1,073		139,540		140,613		—
Owner-occupied real estate	127		—		127		219,509		219,636		—
Commercial, financial & agricultural	261		18		279		181,234		181,513		—
Leases	—		—		—		71,539		71,539		—
Consumer	56		20		76		17,806		17,882		—
Total organic loans	$	1,335	$	474	$	1,809	$	1,772,523	$	1,774,332	$	—

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents an analysis of past due purchased non-credit impaired loans, by class of loans, at the dates indicated (dollars in thousands):



Purchased Non-Credit Impaired Loans	30 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
September 30, 2016
Construction, land & land development	$	34	$	—	$	34	$	10,001	$	10,035	$	—
Other commercial real estate	—		—		—		58,261		58,261		—
Total commercial real estate	34		—		34		68,262		68,296		—
Residential real estate	28		565		593		55,875		56,468		—
Owner-occupied real estate	—		—		—		52,016		52,016		—
Commercial, financial & agricultural	129		—		129		10,318		10,447		—
Consumer	15		—		15		1,811		1,826		—
Total purchased non-credit impaired loans	$	206	$	565	$	771	$	188,282	$	189,053	$	—

December 31, 2015
Construction, land & land development	$	17	$	24	$	41	$	18,557	$	18,598	$	—
Other commercial real estate	—		—		—		74,506		74,506		—
Total commercial real estate	17		24		41		93,063		93,104		—
Residential real estate	846		38		884		68,169		69,053		—
Owner-occupied real estate	—		—		—		61,313		61,313		—
Commercial, financial & agricultural	—		—		—		14,216		14,216		—
Consumer	23		—		23		2,601		2,624		—
Total purchased non-credit impaired loans	$	886	$	62	$	948	$	239,362	$	240,310	$	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents an analysis of past due purchased credit impaired loans, by class of loans, at the dates indicated (dollars in thousands):



Purchased Credit Impaired Loans	30 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans
September 30, 2016
Construction, land & land development	$	2,115	$	1,517	$	3,632	$	7,932	$	11,564
Other commercial real estate	360		2,706		3,066		35,172		38,238
Total commercial real estate	2,475		4,223		6,698		43,104		49,802
Residential real estate	1,639		2,059		3,698		50,255		53,953
Owner-occupied real estate	86		3,379		3,465		18,924		22,389
Commercial, financial & agricultural	35		61		96		512		608
Consumer	—		—		—		84		84
Total purchased credit impaired loans	$	4,235	$	9,722	$	13,957	$	112,879	$	126,836

December 31, 2015
Construction, land & land development	$	27	$	3,154	$	3,181	$	11,071	$	14,252
Other commercial real estate	857		5,510		6,367		34,375		40,742
Total commercial real estate	884		8,664		9,548		45,446		54,994
Residential real estate	2,724		6,453		9,177		54,834		64,011
Owner-occupied real estate	2,664		2,823		5,487		19,877		25,364
Commercial, financial & agricultural	—		9		9		1,041		1,050
Consumer	4		—		4		152		156
Total purchased credit impaired loans	$	6,276	$	17,949	$	24,225	$	121,350	$	145,575

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. Pass grades are from 1 to 4. Descriptions of the general characteristics of grades 5 and above are 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.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the risk grades of the organic loan portfolio, by class of loans, at the dates indicated (dollars in thousands):



Organic Loans	Pass		Watch		OAEM		Substandard		Doubtful		Total
September 30, 2016
Construction, land & land development	$	462,283	$	18,896	$	99	$	5,021	$	—	$	486,299
Other commercial real estate	712,546		31,354		—		370		—		744,270
Total commercial real estate	1,174,829		50,250		99		5,391		—		1,230,569
Residential real estate	135,030		2,002		767		2,127		—		139,926
Owner-occupied real estate	213,235		22,104		4,367		20		—		239,726
Commercial, financial & agricultural	303,660		1,087		715		668		11		306,141
Leases	74,722		—		—		—		—		74,722
Consumer	39,201		30		—		141		1		39,373
Total organic loans	$	1,940,677	$	75,473	$	5,948	$	8,347	$	12	$	2,030,457

December 31, 2015
Construction, land & land development	$	460,661	$	15,124	$	3,108	$	3,194	$	—	$	482,087
Other commercial real estate	637,336		20,660		2,310		756		—		661,062
Total commercial real estate	1,097,997		35,784		5,418		3,950		—		1,143,149
Residential real estate	135,588		2,964		684		1,361		16		140,613
Owner-occupied real estate	204,528		13,932		906		270		—		219,636
Commercial, financial & agricultural	178,069		1,619		1,241		584		—		181,513
Leases	71,539		—		—		—		—		71,539
Consumer	17,590		219		—		71		2		17,882
Total organic loans	$	1,705,311	$	54,518	$	8,249	$	6,236	$	18	$	1,774,332

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the risk grades of the purchased non-credit impaired loan portfolio, by class of loans, at the dates indicated (dollars in thousands):



Purchased Non-Credit Impaired Loans	Pass		Watch		OAEM		Substandard		Doubtful		Total
September 30, 2016
Construction, land & land development	$	10,035	$	—	$	—	$	—	$	—	$	10,035
Other commercial real estate	55,252		1,433		1,576		—		—		58,261
Total commercial real estate	65,287		1,433		1,576		—		—		68,296
Residential real estate	53,456		1,976		394		642		—		56,468
Owner-occupied real estate	44,088		7,434		—		494		—		52,016
Commercial, financial & agricultural	9,182		319		115		831		—		10,447
Consumer	1,819		5		—		2		—		1,826
Total purchased non-credit impaired loans	$	173,832	$	11,167	$	2,085	$	1,969	$	—	$	189,053

December 31, 2015
Construction, land & land development	$	18,347	$	227	$	—	$	24	$	—	$	18,598
Other commercial real estate	68,462		4,454		1,590		—		—		74,506
Total commercial real estate	86,809		4,681		1,590		24		—		93,104
Residential real estate	64,709		3,240		329		775		—		69,053
Owner-occupied real estate	52,323		8,436		—		554		—		61,313
Commercial, financial & agricultural	12,935		451		—		830		—		14,216
Consumer	2,609		10		—		5		—		2,624
Total purchased non-credit impaired loans	$	219,385	$	16,818	$	1,919	$	2,188	$	—	$	240,310

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Classifications on purchased credit impaired loans are based upon the borrower's ability to pay the current unpaid principal balance without regard to 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 and lease losses on purchased credit impaired 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 purchased credit impaired loan portfolio, by class of loans (dollars in thousands):



Purchased Credit Impaired Loans	Pass		Watch		OAEM		Substandard		Doubtful		Total
September 30, 2016
Construction, land & land development	$	3,438	$	1,281	$	944	$	5,890	$	11	$	11,564
Other commercial real estate	12,788		12,620		2,405		10,422		3		38,238
Total commercial real estate	16,226		13,901		3,349		16,312		14		49,802
Residential real estate	30,449		9,399		3,339		10,465		301		53,953
Owner-occupied real estate	7,171		4,096		935		10,187		—		22,389
Commercial, financial & agricultural	147		316		47		98		—		608
Consumer	48		26		1		9		—		84
Total purchased credit impaired loans	$	54,041	$	27,738	$	7,671	$	37,071	$	315	$	126,836

December 31, 2015
Construction, land & land development	$	3,915	$	1,961	$	722	$	7,023	$	631	$	14,252
Other commercial real estate	10,716		14,960		3,576		10,727		763		40,742
Total commercial real estate	14,631		16,921		4,298		17,750		1,394		54,994
Residential real estate	34,618		8,707		4,008		12,438		4,240		64,011
Owner-occupied real estate	8,657		3,793		1,244		11,319		351		25,364
Commercial, financial & agricultural	328		392		131		192		7		1,050
Consumer	91		48		1		16		—		156
Total purchased credit impaired loans	$	58,325	$	29,861	$	9,682	$	41,715	$	5,992	$	145,575

Troubled Debt Restructurings (TDRs)

Total troubled debt restructurings (TDRs) were $5.0 million and $3.8 million at September 30, 2016 and December 31, 2015, respectively, with $160,000 in related allowance for loan losses at September 30, 2016 and no related allowance at December 31, 2015. At September 30, 2016, there were no commitments to extend credit to a borrower with an existing troubled debt restructuring. At December 31, 2015, there was one commitment totaling $620,000 to extend credit to a borrower with an existing troubled debt restructuring. Purchased credit 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.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides information on loans that were modified as TDRs during the periods presented (dollars in thousands):




	September 30, 2016					September 30, 2015
TDR Additions (1)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nine Months Ended
Construction, land & land development	1	$	4,168	$	4,168	—	$	—	$	—
Other commercial real estate	—	—		—		—	—		—
Total commercial real estate	1	4,168		4,168		—	—		—
Commercial & industrial	—	—		—		—	—		—
Owner-occupied real estate	—	—		—		—	—		—
Residential real estate	—	—		—		—	—		—
Consumer & Other	—	—		—		—	—		—
Total modifications	1	$	4,168	$	4,168	—	$	—	$	—

(1) The pre-modification and post-modification recorded investment amount represents the recorded investment on the date of the loan modification. Since the modifications on this loan were an interest rate concession and payment term extension, not principal reductions, the pre-modification and post-modification recorded investment amount is the same.

During the three months ended September 30, 2016 and 2015, there were no loans modified under the terms of a TDR. During the three and nine months ended September 30, 2016 and 2015, there were no TDRs that subsequently defaulted within twelve months of their modification dates.

NOTE 7: OTHER REAL ESTATE OWNED (OREO)

The following table presents other real estate owned ("OREO") by property type at the dates indicated (dollars in thousands):




Other real estate owned	September 30, 2016		December 31, 2015
Construction, land development, and other land	$	2,251	$	2,115
Commercial and farmland real estate	6,153		7,098
Residential real estate	2,205		1,317
Total other real estate owned	$	10,609	$	10,530

The following table presents OREO by type of loan foreclosure or banking premises transferred into OREO at the dates indicated (dollars in thousands):




Other real estate owned	September 30, 2016		December 31, 2015
Organic OREO	$	83	$	33
Purchased Non-Credit Impaired OREO	21		—
Purchased Credit Impaired OREO	10,505		10,497
Total other real estate owned	$	10,609	$	10,530

At September 30, 2016, consumer mortgage loans secured by residential real estate properties totaling $125,000 were in formal foreclosure proceedings.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8: SBA SERVICING RIGHTS

All sales of SBA loans, consisting of the guaranteed portion, are executed on a servicing retained basis. These loans, which are partially guaranteed by the SBA, are generally secured by business property such as real estate, inventory, equipment and accounts receivable. During the three and nine months ended September 30, 2016, the Company sold SBA loans with unpaid principal balances totaling $13.7 million and $38.6 million, respectively, and recognized $1.3 million and $3.9 million in gains on the loan sales, respectively. During the three and nine months ended September 30, 2015, the Company sold SBA loans with unpaid principal balances totaling $13.9 million and $30.4 million, respectively, and recognized $1.5 million and $3.3 million in gains on the loan sales, respectively. The Company retains the related loan servicing rights and receives servicing fees on the sold loans. Both the servicing fees and the gains on sales of loans are recorded in SBA income on the consolidated statements of income. SBA servicing fees totaled $383,000 and $974,000 for the three and nine months ended September 30, 2016, respectively. SBA servicing fees totaled $255,000 and $677,000 for the three and nine months ended September 30, 2015, respectively. At September 30, 2016 and December 31, 2015, the Company serviced SBA loans for others with unpaid principal balances totaling $131.1 million and $106.8 million, respectively.

The table below summarizes the activity in the SBA servicing rights asset for the periods presented (dollars in thousands):



	Three Months Ended						Nine Months Ended
	September 30						September 30
SBA Servicing Rights	2016			2015			2016			2015
Balance, beginning of period	$	3,165		$	2,185		$	2,626		$	1,516
Additions	339			403			963			805
Fair value adjustments	(229		)	(125		)	(314		)	142
Balance, end of period	$	3,275		$	2,463		$	3,275		$	2,463

The fair value of the SBA servicing rights asset, key metrics, and the sensitivity of the fair value due to adverse changes in key economic assumptions at the periods presented are as follows (dollars in thousands):



SBA Servicing Rights	September 30, 2016				December 31, 2015
Fair value	$	3,275			$	2,626
Weighted average discount rate	12.3			%	12.1			%
Decline in fair value due to a 100 basis point adverse change	$	(118	)		$	(95	)
Decline in fair value due to a 200 basis point adverse change	(228		)		(183		)
Prepayment speed	7.9			%	7.6			%
Decline in fair value due to a 10% adverse change	$	(103	)		$	(79	)
Decline in fair value due to a 20% adverse change	(201		)		(153		)
Weighted average remaining life (years)	7.2				7.2

The risk inherent in the SBA servicing rights asset includes prepayments at different rates than anticipated or resolution of loans at dates not consistent with the estimated expected lives. These events would cause the value of the servicing asset to decline at a faster or slower rate than originally anticipated.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information about the SBA loans serviced by the Company at and for the period presented is as follows (dollars in thousands):



	September 30, 2016
SBA Loans Serviced	Unpaid Principal Balance		30 - 89 Days Past Due		90 Days or Greater Past Due		Net Charge-offs for the Nine Months Ended September 30, 2016
Serviced for others	$	131,147	$	363	$	—	$	—
Held-for-sale	18,736		—		—		—
Held-for-investment	143,641		471		3,334		2,120
Total SBA loans serviced	$	293,524	$	834	$	3,334	$	2,120

NOTE 9: FDIC RECEIVABLE FOR LOSS SHARE AGREEMENTS

On May 21, 2015, State Bank entered into an agreement with the FDIC to terminate loss share coverage on all 12 of its FDIC-assisted acquisitions which occurred in 2009, 2010, and 2011. As a result, $14.5 million of loss was recognized for the termination of loss share coverage. The termination resulted in the elimination of both the FDIC receivable for loss share agreements and the associated clawback liability.

The following table presents a summary of the calculation of the loss recognized as a result of the termination of the FDIC loss share agreements, including the clawback provisions and settlement of historic loss share and expense reimbursement claims (dollars in thousands):




	Nine Months Ended
	September 30, 2015
Cash paid to the FDIC to settle loss share agreements	$	(3,100	)
FDIC loss share receivable	(16,959		)
FDIC clawback payable	5,511
Loss on termination of FDIC loss share	(14,548		)
Net amortization of FDIC receivable for loss share agreements during the period	(1,940		)
Amortization of FDIC receivable for loss share agreements	$	(16,488	)

The following table documents changes in the carrying value of the FDIC receivable for loss share agreements relating to purchased credit impaired loans and acquired other real estate owned previously covered under loss share agreements with the FDIC for the periods presented (dollars in thousands):



	Three Months Ended		Nine Months Ended
	September 30, 2015		September 30, 2015
Balance, beginning of period	$	—	$	22,320
Provision for loan and lease losses attributable to FDIC for loss share agreements	—		1,045
Wires sent	—		1,784
Net recoveries	—		(6,627		)
Amortization	—		(1,940		)
External expenses qualifying under loss share agreements	—		377
Termination of FDIC loss share	—		(16,959		)
Balance, end of period	$	—	$	—

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10: DERIVATIVE INSTRUMENTS & HEDGING ACTIVITIES

Risk Management Objective of Interest Rate Swaps and Caps

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 upon 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.

Interest Rate Swaps and Caps Fair Values

The table below presents the fair values of the Company's interest rate swaps and caps at the dates presented (dollars in thousands):



	Asset Derivatives (1)				Liability Derivatives (1)
	September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015
Derivatives Designated as Hedging Instruments
Interest rate swaps and caps	$	188	$	1,262	$	4,459	$	1,496

Derivatives Not Designated as Hedging Instruments
Interest rate swaps	$	—	$	—	$	253	$	174

(1) All asset derivatives are located in "Other Assets" on the consolidated statements of financial condition and all liability derivatives are located in "Other Liabilities" on the consolidated statements of financial condition.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest Rate Swaps and Caps Designated as Hedging Instruments

Fair Value Hedges

The Company uses interest rate swaps 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. At September 30, 2016, the Company had 99 interest rate swaps with an aggregate notional amount of $166.9 million, designated as fair value hedges associated with the Company's fixed rate loan program.

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



		Three Months Ended						Nine Months Ended
		September 30						September 30
Interest Rate Products	Location	2016			2015			2016			2015
Amount of gain (loss) recognized in income on derivatives	Noninterest income	$	977		$	(2,352	)	$	(3,396	)	$	(2,485	)
Amount of (loss) gain recognized in income on hedged items	Noninterest income	(956		)	2,136			3,106			2,237
Total net gain (loss) recognized in income on fair value hedge ineffectiveness		$	21		$	(216	)	$	(290	)	$	(248	)

During the three and nine months ended September 30, 2016 the Company recognized a net gain of $21,000 and a net loss of $290,000, respectively, related to hedge ineffectiveness on the fair value swaps. During the three and nine months ended September 30, 2015, the Company recognized net losses of $216,000 and $248,000, respectively, related to hedge ineffectiveness on the fair value swaps. The Company also recognized a net reduction in interest income of $460,000 and $1.4 million for the three and nine months ended September 30, 2016, respectively, related to the fair value hedges, which includes net settlements on derivatives and any amortization adjustment of the basis in the hedged items. For the three and nine months ended September 30, 2015 the Company recognized a net reduction in interest income of $547,000 and $1.7 million, respectively, related to the fair value hedges. Terminations of derivatives and related hedged items for interest rate swap agreements prior to their original maturity date resulted in the recognition of net losses of $61,000 and $108,000, respectively, in interest income for the three and nine months ended September 30, 2016 related to the unamortized basis in the hedged items. For the three and nine months ended September 30, 2015 the Company recognized net losses of $11,000 and $444,000, respectively, related to the unamortized basis in the hedged items.

Cash Flow Hedges

The Company uses interest rate caps as part of its interest rate risk management strategy. 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 interest rates paid on deposits, which protects 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 hedges during the periods ended September 30, 2016 and 2015.

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, $1.7 million is expected to be reclassified as a decrease to net interest income.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



		Three Months Ended					Nine Months Ended
		September 30					September 30
Interest Rate Products	Location	2016		2015			2016			2015
Amount of gain (loss) recognized in AOCI on derivatives (effective portion)	OCI	$	73	$	(893	)	$	(847	)	$	(2,388	)
Amount of loss reclassified from AOCI into income (effective portion)	Interest expense	320		146			804			366
Total gain (loss) recognized in consolidated statements of comprehensive income		$	393	$	(747	)	$	(43	)	$	(2,022	)

Interest Rate Swaps Not Designated as Hedging Instruments

Interest Rate Swaps

At September 30, 2016, the Company had two interest rate swaps with an aggregate notional amount of $6.8 million not designated as fair value hedges associated with the Company's fixed rate loan program. At September 30, 2016, the fair value of the interest rate swaps liability not designated as hedging instruments was $253,000. For the three and nine months ended September 30, 2016, there was a net gain of $21,000 and a net loss of $199,000, respectively, recorded in the income statement for the interest rate swaps not designated as hedging instruments. For the three and nine months ended September 30, 2015 there were net losses of $176,000 and $179,000, respectively, recorded in the income statement for the interest rate swaps not designated as hedging instruments.

Credit and Collateral Risks for Interest Rate Swaps and Caps

The Company manages credit exposure on interest rate swap and cap 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. Refer to Note 11, Balance Sheet Offsetting, for more information on collateral pledged and received under these agreements.

The Company’s agreements with its interest rate swap and cap 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. At September 30, 2016, the termination value of derivatives in a net liability position under these agreements was $4.7 million, for which the Company posted $3.6 million in cash collateral. Although the Company did not breach any provisions at September 30, 2016, if a breach had occurred, the maximum amount of additional collateral the Company would have been required to post to counterparties was $1.1 million.

Mortgage Derivatives

Risk Management Objective of Mortgage Lending Activities

The Company also maintains a risk management program to manage interest rate risk and pricing risk associated with its mortgage lending activities. The risk management program includes the use of forward contracts and other derivatives that are recorded in the financial statements at fair value and are used to offset changes in value of the mortgage inventory due to changes in market interest rates. As a normal part of our operations, we enter into derivative contracts to economically hedge risks associated with overall price risk related to interest rate lock commitments ("IRLCs") and mortgage loans held-for-sale for which the fair value option has been elected. Fair value changes occur as a result of interest rate movements as well as changes in the value of the associated servicing. Derivative instruments used include forward sale commitments and IRLCs.

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Company's practice to enter into forward commitments for the future delivery of mortgage loans in order to economically hedge the effect of changes in interest rates resulting from interest rate lock commitments.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Derivatives Not Designated as Hedging Instruments

Mortgage derivative fair value assets and liabilities are recorded in "Other Assets" and "Other Liabilities," respectively, on the consolidated statements of financial condition. At September 30, 2016 and December 31, 2015, the fair value of mortgage derivative assets was $1.0 million and $869,000, respectively, and the fair value of mortgage derivative liabilities was $676,000 and $505,000, respectively. At September 30, 2016 and December 31, 2015, the Company had approximately $60.1 million and $47.3 million, respectively, of interest rate lock commitments, and $93.7 million and $85.9 million, respectively, of forward commitments for the future delivery of residential mortgage loans. The net gain related to interest rate lock commitments was $313,000 and $615,000 for the nine months ended September 30, 2016 and 2015, respectively. The net loss for forward commitments related to these mortgage loans was $399,000 and $746,000 for the nine months ended September 30, 2016 and September 30, 2015, respectively.

The table below presents the effect of the Company's derivatives not designated as hedging instruments for the periods presented (dollars in thousands):



		Three Months Ended						Nine Months Ended
		September 30						September 30
Interest Rate Products	Location	2016			2015			2016			2015
Amount of gain (loss) recognized in income on interest rate swaps	Noninterest income	$	21		$	(176	)	$	(199	)	$	(179	)
Amount of (loss) gain recognized in income on interest rate lock commitments	Noninterest income	(430		)	431			313			615
Amount of gain (loss) recognized in income on forward commitments	Noninterest income	451			(1,626		)	(399		)	(746		)
Total gain (loss) recognized in income on derivatives not designated as hedging instruments		$	42		$	(1,371	)	$	(285	)	$	(310	)

Credit and Collateral Risks for Mortgage Lending Activities

The Company’s underlying risks are primarily related to interest rates and forward sales commitments entered into as part of its mortgage banking activities. Forward sales commitments are contracts for the delayed delivery or net settlement of an underlying instrument, such as a mortgage loan, in which the seller agrees to deliver on a specified future date, either a specified instrument at a specified price or yield or the net cash equivalent of an underlying instrument. These hedges are used to preserve the Company’s position relative to future sales of mortgage loans to third parties in an effort to minimize the volatility of the expected gain on sale from changes in interest rate and the associated pricing changes.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11: BALANCE SHEET OFFSETTING AND REPURCHASE AGREEMENTS

Balance Sheet Offsetting

Certain financial instruments, including repurchase agreements and derivatives (interest rate swaps and caps), may be eligible for offset in the consolidated statements of financial condition and/or subject to master netting arrangements or similar agreements; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes.

The table below presents information about the Company’s financial instruments that are eligible for offset in the consolidated statements of financial condition at the dates presented (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
	Gross Amounts Recognized						Financial Instruments			Collateral Received/Posted (1)			Net Amount
September 30, 2016
Offsetting Assets
Interest rate swaps and caps	$	188	$	—	$	188	$	(188	)	$	—		$	—
Offsetting Liabilities
Interest rate swaps and caps	$	4,712	$	—	$	4,712	$	(188	)	$	(3,631	)	$	893
Repurchase agreements	20,124		—		20,124		—			(20,124		)	—
Total liabilities	$	24,836	$	—	$	24,836	$	(188	)	$	(23,755	)	$	893

December 31, 2015
Offsetting Assets
Interest rate swaps and caps	$	1,262	$	—	$	1,262	$	(883	)	$	(150	)	$	229
Offsetting Liabilities
Interest rate swaps and caps	$	1,670	$	—	$	1,670	$	(883	)	$	(269	)	$	518
Repurchase agreements	32,179		—		32,179		—			(32,179		)	—
Total liabilities	$	33,849	$	—	$	33,849	$	(883	)	$	(32,448	)	$	518

(1) The application of collateral cannot reduce the net amount below zero; therefore, excess collateral received/posted is not reflected in this table. All positions are fully collateralized.

Repurchase Agreements

The Company utilizes securities sold under repurchase agreements to facilitate the needs of our customers. Securities sold under repurchase agreements consist of balances in the transaction accounts of commercial customers swept nightly to an overnight investment account and are collateralized with investment securities having a market value no less than the balance borrowed. The investment securities pledged are subject to market fluctuations as well as prepayments of principal. The Company monitors the risk of the fair value of its pledged collateral falling below the balance of the repurchase agreements on a daily basis and may be required to provide additional collateral. Securities pledged as collateral are maintained with our safekeeping agent.

At September 30, 2016 and December 31, 2015, securities sold under repurchase agreements were $20.1 million and $32.2 million, respectively, all of which mature on an overnight and continuous basis. At both September 30, 2016 and December 31, 2015, investment securities pledged for the outstanding repurchase agreements consisted of U.S. government sponsored agency mortgage-backed securities.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12: REGULATORY MATTERS

Regulatory Capital Requirements

Beginning on January 1, 2015, the Company and State Bank became subject to the provisions of the Basel III final rule that governs the regulatory capital calculation, including transitional, or phase-in, provisions. The methods for calculating the risk-based capital ratios will change as the provisions of the Basel III final rule related to the numerator (capital) and denominator (risk-weighted assets) are fully phased in on January 1, 2019. The ongoing methodological changes will result in differences in the reported capital ratios from one reporting period to the next that are independent of applicable changes in the capital base, asset composition, off-balance sheet exposures or risk profile.

Beginning on January 1, 2016, the Company and State Bank must maintain a capital conservation buffer to avoid restrictions on capital distributions or discretionary bonus payments. This buffer must consist solely of Common Equity Tier 1 Capital, but the buffer applies to all three measurements (Common Equity Tier 1, Tier 1 capital and total capital) in addition to the minimum risk-based capital requirements. The capital conservation buffer required for 2016 is common equity equal to .625% of risk-weighted assets and will increase by .625% per year until reaching 2.5% beginning January 1, 2019.

The minimum regulatory capital ratios and ratios to be considered well-capitalized under prompt corrective action provisions at both September 30, 2016 and December 31, 2015 are presented in the table below:



Capital Ratio Requirements	Minimum Requirement	Well-capitalized (1)
Common Equity Tier 1 Capital (CET1)	4.50%	6.50%
Tier 1 Capital	6.00%	8.00%
Total Capital	8.00%	10.00%
Tier 1 Leverage	4.00%	5.00%

(1) The prompt corrective action provisions are only applicable at the bank level.

At September 30, 2016 and December 31, 2015, the Company and State Bank exceeded all regulatory capital adequacy requirements to which they were subject.

The Company's regulatory ratios at the dates indicated are presented in the table below (dollars in thousands):



	September 30, 2016						December 31, 2015
	Actual				Required		Actual				Required
	Amount		Ratio		Minimum Amount		Amount		Ratio		Minimum Amount
Company
CET1 Capital	$	512,482	16.68	%	$	138,262	$	493,294	17.71	%	$	125,372
Tier 1 Capital	512,482		16.68	%	184,350		493,294		17.71	%	167,162
Total Capital	539,659		17.56	%	245,800		522,369		18.75	%	222,883
Tier 1 Leverage	512,482		14.64	%	139,975		493,294		14.48	%	136,315

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

State Bank's regulatory ratios at the dates indicated are presented in the table below (dollars in thousands):



	September 30, 2016								December 31, 2015
	Actual				Required				Actual				Required
	Amount		Ratio		Minimum Amount		Well Capitalized Amount		Amount		Ratio		Minimum Amount		Well Capitalized Amount
State Bank
CET1 Capital	$	448,372	14.67	%	$	137,553	$	198,688	$	427,526	15.42	%	$	124,773	$	180,227
Tier 1 Capital	448,372		14.67	%	183,404		244,539		427,526		15.42	%	166,364		221,818
Total Capital	475,549		15.56	%	244,539		305,674		456,601		16.47	%	221,818		277,273
Tier 1 Leverage	448,372		12.88	%	139,292		174,116		427,526		12.62	%	135,507		169,383

The Company and State Bank entered into a Capital Maintenance Agreement with the FDIC. Under the terms of the Capital Maintenance Agreement, State Bank was required to maintain a leverage ratio of at least 10% and a total risk-based capital ratio of at least 12%. The Capital Maintenance Agreement expired on July 26, 2016.

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 State 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 banks may distribute without prior regulatory approval. At September 30, 2016, State Bank had no capacity to pay dividends to the Company without prior regulatory approval.

At September 30, 2016, the Company had $45.6 million in cash and due from bank accounts, which can be used for additional capital as needed by State Bank, payment of holding company expenses, payment of dividends to shareholders, or for other corporate purposes.

NOTE 13: COMMITMENTS AND CONTINGENT LIABILITIES

Commitments

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. The Company uses the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



	September 30, 2016		December 31, 2015
Commitments to extend credit:
Fixed	$	34,296	$	28,744
Variable	569,705		502,538
Letters of credit:
Fixed	2,517		1,907
Variable	3,135		4,925
Total commitments	$	609,653	$	538,114

The fixed rate loan commitments have maturities ranging from one month to fourteen 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.

Contingent Liabilities

Mortgage loan sales agreements contain covenants that may, in limited circumstances, require the Company to repurchase or indemnify the investors for losses or costs related to the loans the Company has sold. As a result of the potential recourse provisions, the Company maintains a recourse liability for mortgage loans sold to investors. At September 30, 2016, the recourse liability was $301,000.

Furthermore, 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 14: FAIR VALUE

Overview

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 is generated from techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company evaluates fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's valuation process. For the nine months ended September 30, 2016 and the year ended December 31, 2015, there were no transfers between levels.

Fair Value Option

ASC 820 allows companies to report selected financial assets and liabilities at fair value using the fair value option. The changes in fair value are recognized in earnings and the assets and liabilities measured under this methodology are required to be displayed separately on the balance sheet. The Company made the election to record mortgage loans held-for-sale at fair value under the fair value option, which allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to hedge them without the burden of complying with the requirements for hedge accounting.

Financial Assets and Financial Liabilities Measured on a Recurring Basis

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

Investment Securities Available-for-Sale

At September 30, 2016, 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 corporate securities. 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.

Mortgage Loans Held-for-Sale

Mortgage loans held-for-sale are recorded at fair value on a recurring basis. The 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. Interest income is recorded in interest income on the consolidated statements of income and is based on the contractual terms of the loan. None of these loans were 90 days or more past due or on nonaccrual at September 30, 2016.

At September 30, 2016, the aggregate fair value of the Company's mortgage loans held-for-sale was $45.1 million and the contractual balance including accrued interest was $43.8 million, with a fair value mark totaling $1.3 million. The Company recognized a loss of $749,000 and a gain of $324,000 for the three and nine months ended ended September 30, 2016, respectively, related to the change in fair value of the mortgage loans held-for-sale, included in "mortgage banking income" on the consolidated statements of income. For the three and nine months ended September 30, 2015, the amounts recognized related to the change in fair value of the mortgage loans held-for-sale were gains of $1.2 million and $885,000, respectively.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Financial Instruments

Interest Rate Swaps and Caps

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.

Mortgage Derivatives

Mortgage derivatives include interest rate lock commitments to originate residential mortgage loans held-for-sale. The Company relies on an internal valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held-for-sale. The model groups the interest rate lock commitments by interest rate and term, applies an estimated pull-through rate based on historical experience, and then multiplies by quoted investor prices which were determined to be reasonably applicable to the loan commitment group based on interest rate, term, and rate lock expiration date of the loan commitment group. While there are Level 2 and 3 inputs used in the valuation model, the Company has determined that the majority of the inputs significant in the valuation of the interest rate lock commitments fall within Level 3 of the fair value hierarchy. Changes in the fair values of these derivatives are included in "mortgage banking income" on the consolidated statements of income.

Mortgage derivatives also include forward commitments to sell residential mortgage loans to various investors when interest rate locks are entered into, in order to hedge the change in interest rates resulting from its commitment to fund loans. The Company also relies on an internal valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available (Level 2). Changes in the fair values of these derivatives are included in "mortgage banking income" on the consolidated statements of income.

SBA Servicing Rights

The Company has the rights to service a portfolio of SBA loans. The SBA servicing rights are measured at fair value when loans are sold on a servicing retained basis. The servicing rights are subsequently measured at fair value on a recurring basis utilizing Level 3 inputs. Management uses a model operated and maintained by a third party to calculate the present value of future cash flows using the third party's market-based assumptions. The future cash flows for each asset are based on the asset's unique characteristics and the third party's market-based assumptions for prepayment speeds, default and voluntary prepayments. For non-guaranteed portions of servicing assets, future cash flows are estimated using loan specific assumptions for losses and recoveries. Adjustments to fair value are recorded as a component of "SBA income" on the consolidated statements of income. Please reference Note 8 for the rollforward of the SBA servicing rights asset at fair value utilizing level 3 inputs.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present financial assets and financial liabilities measured at fair value on a recurring basis at the dates indicated, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):



September 30, 2016	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	$	—	$	89,598	$	—	$	89,598
States and political subdivisions	—		301		—		301
Residential mortgage-backed securities — nonagency	—		157,557		—		157,557
Residential mortgage-backed securities — agency	—		500,306		—		500,306
Corporate securities	—		74,893		—		74,893
Mortgage loans held-for-sale	—		45,116		—		45,116
Mortgage derivatives	—		43		911		954
Interest rate swaps and caps	—		188		—		188
SBA servicing rights	—		—		3,275		3,275
Total recurring assets at fair value	$	—	$	868,002	$	4,186	$	872,188

Liabilities:
Interest rate swaps and caps	$	—	$	4,712	$	—	$	4,712
Mortgage derivatives	—		249		427		676
Total recurring liabilities at fair value	$	—	$	4,961	$	427	$	5,388



December 31, 2015	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	$	—	$	103,272	$	—	$	103,272
States and political subdivisions	—		1,813		—		1,813
Residential mortgage-backed securities — nonagency	—		150,702		—		150,702
Residential mortgage-backed securities — agency	—		503,688		—		503,688
Asset-backed securities	—		46,245		—		46,245
Corporate securities	—		81,985		—		81,985
Mortgage loans held for sale	—		48,803		—		48,803
Mortgage derivatives	—		218		651		869
Interest rate swaps and caps	—		1,262		—		1,262
SBA servicing rights	—		—		2,626		2,626
Total recurring assets at fair value	$	—	$	937,988	$	3,277	$	941,265

Liabilities:
Interest rate swaps and caps	$	—	$	1,670	$	—	$	1,670
Mortgage derivatives	—		144		361		505
Total recurring liabilities at fair value	$	—	$	1,814	$	361	$	2,175

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Three Months Ended September 30						Nine Months Ended September 30
	2016						2016
Mortgage Derivatives	Other Assets			Other Liabilities			Other Assets			Other Liabilities
Balance, beginning of period	$	1,338		$	560		$	651		$	361
Acquired	—			—			—			—
Issuances (1)	427			427			2,084			1,596
Settlements and closed loans (1)	(854		)	(560		)	(1,824		)	(1,530		)
Balance, end of period	$	911		$	427		$	911		$	427



	Three Months Ended September 30						Nine Months Ended September 30
	2015						2015
Mortgage Derivatives	Other Assets			Other Liabilities			Other Assets			Other Liabilities
Balance, beginning of period	$	780		$	303		$	—		$	—
Acquired	—			—			272			135
Issuances (1)	488			488			1,574			1,140
Settlements and closed loans (1)	(378		)	(301		)	(956		)	(785		)
Balance, end of period	$	890		$	490		$	890		$	490

(1) The change in fair value, recorded as a component of "mortgage banking income" on the consolidated statements of income, was a loss of $294,000 for the three months ended September 30, 2016 and a gain of $194,000 for the nine months ended September 30, 2016. The change in fair value resulted in a loss of $77,000 for the three months ended September 30, 2015 and a gain $263,000 for the nine months ended September 30, 2015.

Financial Assets Measured on a Nonrecurring Basis

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

Impaired Loans

Loans, excluding purchased credit impaired 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 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.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents financial assets measured at fair value on a nonrecurring basis at the dates 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
September 30, 2016
Impaired loans	$	—	$	—	$	7,078	$	7,078
Total nonrecurring assets at fair value	$	—	$	—	$	7,078	$	7,078

December 31, 2015
Impaired loans	$	—	$	—	$	5,941	$	5,941
Total nonrecurring assets at fair value	$	—	$	—	$	5,941	$	5,941

Impaired loans, excluding purchased credit impaired loans, that are measured for impairment using the fair value of collateral for collateral dependent loans had recorded investments of $8.1 million and $7.0 million with respective valuation allowances of $1.0 million and $1.0 million at September 30, 2016 and December 31, 2015, respectively.

Nonfinancial Assets Measured on a Nonrecurring Basis

The Company uses the following methods and assumptions in estimating the fair values of its nonfinancial assets on a nonrecurring basis:

Other Real Estate Owned

Other real estate owned ("OREO") consists of real estate acquired through foreclosure or a deed in lieu of foreclosure in satisfaction of a loan, OREO acquired in a business acquisition, and banking premises no longer used for a specific business purpose. Real estate obtained 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 with any excess in loan balance charged against the allowance for loan and lease losses. OREO acquired in a business acquisition is recorded at fair value on Day 1 of the acquisition. Banking premises no longer used for a specific business purpose is transferred into OREO at the lower of its carrying value or fair value less estimated costs to sell with any excess in the carrying value charged to noninterest expense. For all fair value estimates of the real estate properties, management considers a number of factors such as appraised values, estimated selling prices, and current market conditions, resulting in a Level 3 classification. Management periodically reviews the carrying value of OREO for impairment and adjusts the values as appropriate through noninterest expense.

The following table presents nonfinancial assets measured at fair value on a nonrecurring basis at the dates 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
September 30, 2016
Other real estate owned	$	—	$	—	$	13,073	$	13,073

December 31, 2015
Other real estate owned	$	—	$	—	$	12,110	$	12,110

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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 820 to the amount recorded on the consolidated statement of financial condition at the dates indicated (dollars in thousands):



	September 30, 2016			December 31, 2015
Other real estate owned:
Other real estate owned at fair value	$	13,073		$	12,110
Estimated selling costs and other adjustments	(2,464		)	(1,580		)
Other real estate owned	$	10,609		$	10,530

Unobservable Inputs for Level 3 Fair Value Measurements

The following tables provide information describing the unobservable inputs used in Level 3 fair value measurements at the dates indicated (dollars in thousands):



September 30, 2016	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
SBA servicing rights	$	3,275	Discounted cash flows	Discount rate	9% - 18% (12%)
				Prepayment speed	3% - 11% (8%)
Mortgage derivatives - asset	$	911	Pricing model	Pull-through rate	84%
Mortgage derivatives - liability	$	427	Pricing model	Pull-through rate	84%
Impaired loans - collateral dependent	$	7,078	Third party appraisal	Management discount for property type and recent market volatility	0% - 50% (13%)
Other real estate owned	$	13,073	Third party appraisal	Management discount for property type and recent market volatility	0% - 68% (13%)



December 31, 2015	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
SBA servicing rights	$	2,626	Discounted cash flows	Discount rate	9% - 17% (12%)
				Prepayment speed	4% - 10% (8%)
Mortgage derivatives - asset	$	651	Pricing model	Pull-through rate	81%
Mortgage derivatives - liability	$	361	Pricing model	Pull-through rate	81%
Impaired loans - collateral dependent	$	5,941	Third party appraisal	Management discount for property type and recent market volatility	0% - 50% (15%)
Other real estate owned	$	12,110	Third party appraisal	Management discount for property type and recent market volatility	0% - 75% (33%)

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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 Company has determined the estimated fair value amounts using available market information and appropriate valuation methodologies; however, considerable judgment is required to interpret market data in order to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation techniques may have a material effect on the estimated fair value amounts at September 30, 2016 and December 31, 2015.



		September 30, 2016				December 31, 2015
	Fair Value Hierarchy Level	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents	Level 1	$	113,770	$	113,770	$	175,362	$	175,362
Investment securities available-for-sale	Level 2	822,655		822,655		887,705		887,705
Investment securities held-to-maturity	Level 2	67,071		67,443		—		—
Loans held-for-sale	Level 2	63,852		65,710		54,933		55,513
Loans, net	Level 3	2,319,169		2,344,664		2,131,142		2,140,985
Other real estate owned	Level 3	10,609		13,073		10,530		12,110
Interest rate swaps and caps	Level 2	188		188		1,262		1,262
Mortgage derivatives	Levels 2 & 3	954		954		869		869
SBA servicing rights	Level 3	3,275		3,275		2,626		2,626
Accrued interest receivable	Level 2	8,194		8,194		8,382		8,382
Federal Home Loan Bank stock	Level 3	3,960		3,960		3,058		3,058

Liabilities:
Deposits	Level 2	$	2,959,292	$	2,958,697	$	2,861,962	$	2,860,866
Securities sold under repurchase agreements	Level 2	20,124		20,124		32,179		32,179
FHLB borrowings	Level 2	20,000		20,000		—		—
Notes payable	Level 2	398		398		1,812		1,812
Interest rate swaps and caps	Level 2	4,712		4,712		1,670		1,670
Mortgage derivatives	Levels 2 & 3	676		676		505		505
Accrued interest payable	Level 2	1,622		1,622		1,106		1,106

Cash and Cash Equivalents

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

Organic and Purchased Non-Credit Impaired Loans

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type. The fair value of performing 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.

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Purchased Credit Impaired Loans

Purchased credit impaired loans are recorded at fair value at the date of acquisition. 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 and lease losses. Subsequent increases to the expected cash flows results in a reversal of the provision for loan and lease 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.

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 Repurchase Agreements and Notes Payable

The fair value of securities sold under repurchase agreements 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 interest rates adjust according to market value; therefore, the carrying amount approximates fair value.

FHLB Borrowings

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

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15: EARNINGS PER SHARE

The Company has granted stock compensation awards with nonforfeitable dividend rights which are considered participating securities. As such, earnings per share is calculated using the two-class method. Basic earnings per share is calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period which excludes the participating securities. Diluted earnings per share includes the dilutive effect of additional potential common shares from stock compensation awards and warrants.

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						Nine Months Ended
	September 30						September 30
	2016			2015			2016			2015
Numerator:
Net income per consolidated statements of income	$	12,441		$	9,119		$	37,264		$	16,302
Net income allocated to participating securities	(348		)	(272		)	(1,021		)	(452		)
Net income allocated to common stock	$	12,093		$	8,847		$	36,243		$	15,850

Basic earnings per share computation:
Net income allocated to common stock	$	12,093		$	8,847		$	36,243		$	15,850
Weighted average common shares outstanding, including shares considered participating securities	36,895,121			35,752,673			36,953,036			35,294,418
Less: Average participating securities	(1,031,938		)	(1,065,319		)	(1,012,634		)	(978,502		)
Weighted average shares	35,863,183			34,687,354			35,940,402			34,315,916
Basic earnings per share	$	.34		$	.26		$	1.01		$	.46

Diluted earnings per share computation:
Net income allocated to common stock	$	12,093		$	8,847		$	36,243		$	15,850
Weighted average common shares outstanding for basic earnings per share	35,863,183			34,687,354			35,940,402			34,315,916
Weighted average dilutive grants	102,765			1,315,714			100,253			1,300,058
Weighted average shares and dilutive potential common shares	35,965,948			36,003,068			36,040,655			35,615,974
Diluted earnings per share	$	.34		$	.25		$	1.01		$	.45

NOTE 16: ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income, or 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, unrealized gains and losses on investment securities available-for-sale transferred to held-to-maturity, and gains and losses on derivative instruments that are designated as, and qualify as, cash flow hedges. Unrealized holding gains and losses on securities transferred to held-to-maturity are amortized over the estimated remaining life of the security as an adjustment to yield, offsetting the related amortization/accretion of the net premium/discount created in the transfer. The components of AOCI are reported net of related tax effects.

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

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Investment Securities Available-for-Sale			Held-to-Maturity Securities Transferred from Available-For-Sale			Cash Flow Hedges (Effective Portion)			Total
Three Months Ended
September 30, 2016
Balance, beginning of period	$	5,356		$	(173	)	$	(1,629	)	$	3,554
Other comprehensive income (loss) before income taxes:
Net change in unrealized (losses) gains	(831		)	—			73			(758		)
Amounts reclassified for net (gains) losses realized and included in earnings	(38		)	—			320			282
Amortization of net unrealized losses on securities transferred to held-to-maturity	—			(2		)	—			(2		)
Income tax (benefit) expense	(336		)	—			152			(184		)
Balance, end of period	$	4,823		$	(175	)	$	(1,388	)	$	3,260

September 30, 2015
Balance, beginning of period	$	2,094		$	—		$	(1,072	)	$	1,022
Other comprehensive income (loss) before income taxes:
Net change in unrealized gains (losses)	2,517			—			(893		)	1,624
Amounts reclassified for net (gains) losses realized and included in earnings	(17		)	—			146			129
Income tax expense (benefit)	922			—			(289		)	633
Balance, end of period	$	3,672		$	—		$	(1,530	)	$	2,142

Nine Months Ended
September 30, 2016
Balance, beginning of period	$	(272	)	$	—		$	(1,362	)	$	(1,634	)
Other comprehensive income (loss) before income taxes:
Net change in unrealized gains (losses)	8,584			—			(847		)	7,737
Amounts reclassified for net (gains) losses realized and included in earnings	(447		)	—			804			357
Transfer of net unrealized loss from available-for-sale to held-to-maturity	172			(172		)	—			—
Amortization of net unrealized losses on securities transferred to-held-to-maturity	—			(3		)	—			(3		)
Income tax expense (benefit)	3,214			—			(17		)	3,197
Balance, end of period	$	4,823		$	(175	)	$	(1,388	)	$	3,260

September 30, 2015
Balance, beginning of period	$	4,210		$	—		$	(290	)	$	3,920
Other comprehensive income (loss) before income taxes:
Net change in unrealized losses	(540		)	—			(2,388		)	(2,928		)
Amounts reclassified for net (gains) losses realized and included in earnings	(338		)	—			366			28
Income tax benefit	(340		)	—			(782		)	(1,122		)
Balance, end of period	$	3,672		$	—		$	(1,530	)	$	2,142

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STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications from AOCI into income for the periods presented are as follows (dollars in thousands):



	Three Months Ended						Nine Months Ended
	September 30						September 30
Reclassifications from AOCI into income and affected line items on Consolidated Statements of Income	2016			2015			2016			2015
Investment securities available-for-sale
Gain on sale of investment securities	$	38		$	(17	)	$	447		$	(338	)
Income tax expense	(15		)	7			(173		)	131
Net income	$	23		$	(10	)	$	274		$	(207	)

Cash flow hedges (effective portion)
Interest expense on deposits	$	(320	)	$	(146	)	$	(804	)	$	(366	)
Income tax benefit	124			56			311			142
Net income	$	(196	)	$	(90	)	$	(493	)	$	(224	)

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

The following discussion analyzes our consolidated financial condition at September 30, 2016 as compared to December 31, 2015 and our results of operations for the three and nine months ended September 30, 2016 as compared to the three and nine months ended September 30, 2015. 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 2015 Annual Report on Form 10-K.

We have made, and will continue to make, various forward-looking statements with respect to financial and business matters. Comments regarding our business that are not historical facts are considered forward-looking statements, which involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the "Cautionary Note Regarding Forward-Looking Statements" beginning on page 1 of this report.

Business Overview

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 State Bank and Trust Company ("State Bank"). State Bank is a Georgia state-chartered bank that opened in October 2005 in Pinehurst, Georgia, and which initially operated as a small community bank with two branch offices located in Dooly County, Georgia. Between July 24, 2009 and September 30, 2016, we successfully completed 14 bank acquisitions totaling $4.6 billion in assets and $4.1 billion in deposits.

In this report, unless the context indicates otherwise, all references to "we," "us," and "our" refer to State Bank Financial Corporation and our wholly-owned subsidiary, State Bank. During the year ended December 31, 2015, we operated through two subsidiary banks, State Bank and First Bank of Georgia, a Georgia state-chartered bank. First Bank of Georgia was merged with and into State Bank on July 24, 2015. Accordingly, if the discussion relates to a period following our acquisition of First Bank of Georgia on January 1, 2015 but before First Bank of Georgia was merged with and into State Bank on July 24, 2015, the terms "we," "us," and "our" refer to State Bank Financial Corporation, State Bank and First Bank of Georgia.

As a result of our acquisitions, we were transformed from a small community bank to a much larger commercial bank. We are now operating 25 full-service branches throughout middle Georgia, metropolitan Atlanta and Augusta, Georgia. We also operate seven mortgage origination offices. At September 30, 2016, our total assets were $3.6 billion, our total loans receivable were $2.3 billion, our total deposits were $3.0 billion and our total shareholders' equity was $561.1 million.

During the second quarter of 2015, we entered into an agreement with the FDIC to terminate our loss share agreements for all 12 of our FDIC-assisted acquisitions, resulting in a one-time after-tax charge of approximately $8.9 million, or $14.5 million pre-tax. All rights and obligations of the parties under the FDIC loss share agreements, including the clawback provisions and the settlement of historic loss share expense reimbursement claims, were eliminated under the early termination agreement. All future charge-offs, recoveries, gains, losses and expenses related to assets previously covered by FDIC loss share agreements will now be recognized entirely by us since the FDIC will no longer be sharing in such charge-offs, recoveries, gains, losses and expenses. We recognized approximately $1.4 million and $5.9 million in loan recovery income and gain on sales of OREO for the three and nine months ended September 30, 2016, respectively, which we would have owed to the FDIC under the loss share agreements. Offsetting the income and gains are loan collection costs the FDIC would have reimbursed to us under our loss share agreements totaling approximately $38,000 and $362,000 for the three and nine months ended September 30, 2016, respectively.

Quarterly Highlights

The following provides an overview of the major factors impacting our financial performance for the quarter ended September 30, 2016:


•	Net income for the quarter ended September 30, 2016 was $12.4 million, or $.34 per diluted share, compared to net income of $9.1 million, or $.25 per diluted share, for the quarter ended September 30, 2015.

•

Noninterest income was $9.8 million for the quarter ended September 30, 2016 compared to $8.9 million for the quarter ended September 30, 2015, an increase of $875,000, or 9.8%. The increase is primarily a result of $514,000 in writedowns of premises moved to OREO for the quarter ended September 30, 2015. Also contributing to the increase was a current quarter improvement in the mark-to-market on interest rate swaps and hedged assets of $430,000 compared to the quarter ended September 30, 2015.

•

Our net interest income on a taxable equivalent basis was $38.3 million for the quarter ended September 30, 2016, an increase of $637,000, or 1.7%, from the quarter ended September 30, 2015. Our interest income increased $1.2 million for the quarter ended September 30, 2016 attributable to a $2.3 million increase in loan interest income and a $660,000 increase in interest income on invested funds, offset partially by a $1.8 million decline in accretion income on loans.


•	We experienced strong loan growth during the nine months ended September 30, 2016. At September 30, 2016, total organic and purchased non-credit impaired loans were $2.2 billion, an increase of $204.9 million, or 10.2%, from December 31, 2015.

•

The accretable discount on purchased credit impaired loans decreased $24.5 million to $72.0 million at September 30, 2016, compared to $96.5 million at September 30, 2015. The decrease is a result of $47.3 million in accretion income recognized on purchased credit impaired loans, offset by additions from acquisitions of $1.6 million and transfers from nonaccretable to accretable discount of $21.1 million.


•	Asset quality remained strong at September 30, 2016 with a ratio of nonperforming assets to total loans plus other real estate owned of .79% and a ratio of nonperforming loans to total loans of .35%.


•	The average cost of funds remained low at 34 basis points for the quarter ended September 30, 2016, an increase of six basis points from the same period in 2015, primarily due to a time deposit special offered during the fourth quarter of 2015 and first quarter of 2016.


•	The Company's capital ratios exceeded all regulatory "well capitalized" guidelines, with a Tier 1 leverage ratio of 14.64%, CET1 and Tier 1 risk-based capital ratios of 16.68%, and a Total risk-based capital ratio of 17.56% at September 30, 2016.


•	During the third quarter of 2016, we declared and paid a cash dividend of $0.14 per common share to our shareholders.

Recent Developments

Proposed Acquisition of NBG Bancorp, Inc. and The National Bank of Georgia

On April 5, 2016, the Company entered into an agreement and plan of merger (the "NBG merger agreement") to acquire NBG Bancorp, Inc. ("NBG") and its wholly-owned subsidiary, The National Bank of Georgia ("National Bank of Georgia"). Upon the closing of the transaction, NBG will merge with and into the Company, immediately followed by the merger of National Bank of Georgia with and into State Bank.

The NBG merger agreement was unanimously approved by the Boards of Directors of both companies. At a special meeting held on July 25, 2016, NBG received shareholder approval for the transaction. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals. On October 26, 2016, State Bank Financial and NBG executed an amendment to the merger agreement extending the date that the merger may be terminated from December 31, 2016 to March 31, 2017.

Proposed Acquisition of S Bankshares, Inc. and S Bank

On May 19, 2016 the Company entered into an agreement and plan of merger to acquire S Bankshares and its wholly-owned subsidiary, S Bank (the "S Bankshares merger agreement"). Upon the closing of the transaction, S Bankshares will merge with and into the Company, immediately followed by the merger of S Bank with and into State Bank.

The S Bankshares merger agreement has been approved by the Boards of Directors of both companies. Completion of the transaction is subject to certain closing conditions, including customary regulatory approvals and S Bankshares, Inc shareholder approval. On October 26, 2016, State Bank Financial and S Bankshares executed an amendment to the merger agreement extending the date that the merger may be terminated from December 31, 2016 to February 28, 2017.

Extension of Proposed Merger Agreements with NBG Bancorp, Inc. and S Bankshares, Inc.

As noted in the previous paragraphs, we requested and we were granted an extension of both merger agreements into the first quarter of 2017 as we determined additional time may be required to obtain regulatory approvals and to satisfy closing conditions necessary to complete the respective mergers. No other changes to the merger agreements were made. While we anticipate receiving regulatory approvals for both transactions by the end of 2016, these extensions will provide additional time for the parties to close the mergers if such regulatory approvals are not obtained until the first quarter of 2017. However, no assurance can be given as to when or if the necessary regulatory approvals will be received.

Critical Accounting Policies

There have been no significant changes to our critical accounting policies from those disclosed in our 2015 Annual Report on Form 10-K. The reader should refer to the notes to our consolidated financial statements in our 2015 Annual Report on Form 10-K for a full disclosure of all critical accounting policies.

Financial Summary

The following table provides unaudited selected financial data at and 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, including Table 2 below, "Non-GAAP Measure Reconciliation".



Table 1 - Financial Highlights Selected Financial Information
	2016									2015						Nine Months Ended September 30
(dollars in thousands, except per share amounts)	Third Quarter			Second Quarter			First Quarter			Fourth Quarter			Third Quarter			2016			2015

SELECTED RESULTS OF OPERATIONS
Interest income on loans	$	26,580		$	25,406		$	24,342		$	24,250		$	24,218		$	76,328		$	68,688
Accretion income on loans	9,335			13,961			9,743			14,240			11,156			33,039			35,590
Interest income on invested funds	4,714			4,726			4,673			4,139			4,050			14,113			11,684
Total interest income	40,629			44,093			38,758			42,629			39,424			123,480			115,962
Interest expense	2,504			2,371			2,113			1,994			1,977			6,988			5,928
Net interest income	38,125			41,722			36,645			40,635			37,447			116,492			110,034
Provision for loan losses (organic & PNCI loans)	7			1,600			1,689			1,003			608			3,296			1,948
Provision for loan losses (purchased credit impaired loans)	81			(1,594		)	(1,823		)	(509		)	(873		)	(3,336		)	1,044
Total provision for loan losses	88			6			(134		)	494			(265		)	(40		)	2,992
Amortization of FDIC receivable for loss share agreements	—			—			—			—			—			—			(16,488		)
Other noninterest income (1)	9,769			10,230			9,391			8,136			8,894			29,390			28,463
Total noninterest income	9,769			10,230			9,391			8,136			8,894			29,390			11,975
Total noninterest expense	28,480			30,674			28,898			29,562			32,416			88,052			93,860
Income before income taxes	19,326			21,272			17,272			18,715			14,190			57,870			25,157
Income tax expense	6,885			7,287			6,434			6,594			5,071			20,606			8,855
Net income	$	12,441		$	13,985		$	10,838		$	12,121		$	9,119		$	37,264		$	16,302

COMMON SHARE DATA
Basic earnings per share	$	.34		$	.38		$	.29		$	.33		$	.26		$	1.01		$	.46
Diluted earnings per share	.34			.38			.29			.33			.25			1.01			.45
Cash dividends declared per share	.14			.14			.14			.14			.07			.42			.18
Book value per share	15.21			15.00			14.73			14.47			14.88			15.21			14.88
Tangible book value per share (2)	13.99			13.77			13.49			13.22			13.78			13.99			13.78
Dividend payout ratio	41.18		%	36.84		%	48.28		%	42.42		%	28.00		%	41.58		%	40.00		%



Table 1 - Financial Highlights Selected Financial Information
	2016									2015						Nine Months Ended September 30
(dollars in thousands, except per share amounts)	Third Quarter			Second Quarter			First Quarter			Fourth Quarter			Third Quarter			2016			2015
COMMON SHARES OUTSTANDING
Common stock	36,894,553			36,894,641			37,052,008			37,077,848			35,753,855			36,894,553			35,753,855
Weighted average shares outstanding:
Basic	35,863,183			35,822,654			36,092,269			35,208,607			34,687,354			35,940,402			34,315,916
Diluted	35,965,948			35,923,691			36,187,662			36,140,474			36,003,068			36,040,655			35,615,974

AVERAGE BALANCE SHEET HIGHLIGHTS
Loans (3)	$	2,406,629		$	2,326,666		$	2,250,518		$	2,203,993		$	2,136,746		$	2,328,309		$	2,078,225
Assets	3,564,470			3,524,231			3,476,646			3,455,342			3,344,023			3,521,904			3,338,177
Deposits	2,866,822			2,873,019			2,854,514			2,842,788			2,766,314			2,864,830			2,750,220
Equity	557,365			546,838			542,444			534,702			529,498			548,738			526,675
Tangible equity	512,265			501,221			496,287			491,346			489,757			503,117			486,728

SELECTED ACTUAL BALANCES
Total assets	$	3,616,384		$	3,586,503		$	3,532,971		$	3,470,067		$	3,388,673		$	3,616,384		$	3,388,673
Investment securities	889,726			888,060			910,167			887,705			831,548			889,726			831,548
Organic loans	2,030,457			2,004,858			1,895,340			1,774,332			1,694,949			2,030,457			1,694,949
Purchased non-credit impaired loans	189,053			205,705			223,398			240,310			285,419			189,053			285,419
Purchased credit impaired loans	126,836			134,533			139,795			145,575			159,323			126,836			159,323
Allowance for loan and lease losses	(27,177		)	(27,599		)	(30,345		)	(29,075		)	(28,930		)	(27,177		)	(28,930		)
Interest-earning assets	3,403,046			3,375,061			3,326,274			3,266,042			3,184,739			3,403,046			3,184,739
Total deposits	2,959,292			2,885,490			2,905,598			2,861,962			2,795,188			2,959,292			2,795,188
Interest-bearing liabilities	2,109,226			2,152,138			2,049,398			2,069,737			1,979,675			2,109,226			1,979,675
Noninterest-bearing liabilities	946,024			881,009			937,718			863,840			876,837			946,024			876,837
Shareholders' equity	561,134			553,356			545,855			536,490			532,161			561,134			532,161

PERFORMANCE RATIOS
Return on average assets (4)	1.39		%	1.60		%	1.25		%	1.39		%	1.08		%	1.41		%	.65		%
Return on average equity (4)	8.88			10.29			8.04			8.99			6.83			9.07			4.14
Cost of funds	.34			.33			.29			.28			.28			.32			.29
Net interest margin (5)	4.54			5.08			4.53			4.99			4.73			4.72			4.71
Net interest margin excluding accretion income (6)	3.57			3.53			3.48			3.40			3.52			3.53			3.39
Interest rate spread (5)	4.37			4.91			4.37			4.84			4.58			4.55			4.57
Efficiency ratio (7)	59.46			59.04			62.77			60.61			69.95			60.36			76.93

CAPITAL RATIOS
Average equity to average assets	15.64		%	15.52		%	15.60		%	15.47		%	15.83		%	15.58		%	15.78		%
Leverage ratio	14.64			14.56			14.59			14.48			14.93			14.64			14.93
CET1 risk-based capital ratio	16.68			16.52			17.09			17.71			18.20			16.68			18.20
Tier 1 risk-based capital ratio	16.68			16.52			17.09			17.71			18.20			16.68			18.20
Total risk-based capital ratio	17.56			17.42			18.13			18.75			19.28			17.56			19.28



Table 1 - Financial Highlights Selected Financial Information
	2016						2015				Nine Months Ended September 30
(dollars in thousands, except per share amounts)	Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		2016		2015
ORGANIC ASSET QUALITY RATIOS
Annualized net charge-offs (recoveries) to total average loans	.05	%	.47	%	.03	%	(.02	)%	.01	%	.18	%	.01	%
Nonperforming loans to total loans	.32		.35		.50		.29		.30		.32		.30
Nonperforming assets to loans + ORE	.32		.35		.50		.29		.33		.32		.33
Past due loans to total loans	.09		.18		.47		.10		.08		.09		.08
Allowance for loan and lease losses to loans	1.07		1.10		1.19		1.20		1.19		1.07		1.19


(1)	Includes all line items of noninterest income other than amortization of FDIC receivable for loss share agreements.


(2)	Denotes a non-GAAP financial measure. See "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measure" and Table 2, "Non-GAAP Measure Reconciliation" for further information.


(3)	Includes quarter-to-date average nonaccrual loans of $8.6 million for third quarter 2016, $10.0 million for second quarter 2016, $8.9 million for first quarter 2016, $6.5 million for fourth quarter 2015 and $5.9 million for third quarter 2015.


(4)	Net income annualized for the applicable period.


(5)	Interest income annualized for the applicable period and calculated on a fully tax-equivalent basis using a tax rate of 35%.


(6)	Excludes accretion income on loans and average purchased credit impaired loans.


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

GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measure

One of the financial measures included in this report, tangible book value per common share, is a financial measure that is not recognized by generally accepted accounting principles in the United States, or GAAP. This non-GAAP measure excludes the effect of the period end balance of intangible assets. Management believes that this non-GAAP measure provides additional useful information to investors, particularly since this measure is widely used by industry analysts for companies with prior merger and acquisition activities, such as us.

A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is presented in the accompanying table. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. This non-GAAP financial measure should not be considered as a substitute for GAAP financial measures, and we strongly encourage investors to review the GAAP financial measures included in this report and not to place undue reliance upon any single financial measure. In addition, because non-GAAP financial measures are not standardized, it may not be possible to compare the non-GAAP financial measures presented in this report with other companies’ non-GAAP financial measures having the same or similar names.



Table 2 - Non-GAAP Measure Reconciliation Selected Financial Information
	2016						2015				Nine Months Ended September 30
(dollars in thousands, except per share amounts)	Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		2016		2015


BOOK VALUE PER COMMON SHARE RECONCILIATION
Tangible book value per common share	$	13.99	$	13.77	$	13.49	$	13.22	$	13.78	$	13.99	$	13.78
Effect of goodwill and other intangibles	1.22		1.23		1.24		1.25		1.10		1.22		1.10
Book value per common share (GAAP)	$	15.21	$	15.00	$	14.73	$	14.47	$	14.88	$	15.21	$	14.88

Results of Operations

Net Income

We reported net income of $12.4 million and $37.3 million for the three and nine months ended September 30, 2016, respectively, compared to net income of $9.1 million and $16.3 million for the same periods in 2015. Diluted earnings per common share were $.34 and $1.01 for the three and nine months ended September 30, 2016, respectively, compared to diluted earnings per common share of $.25 and $.45 for the same periods in 2015.

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 accretion income on purchased credit impaired loans 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 September 30, 2016 and 2015

Our net interest income on a taxable equivalent basis was $38.3 million for the three months ended September 30, 2016, an increase of $637,000, or 1.7%, from the three months ended September 30, 2015. This increase was primarily attributable to an increase in average loans, excluding purchased credit impaired loans, of $306.2 million and investment securities of $43.9 million compared to the three months ended September 30, 2015. A decline in the yield on average loans, excluding purchased credit impaired loans, of 24 basis points and an increase in average interest bearing deposits of $91.5 million compared to the three months ended September 30, 2015 partially offset the impact of the increases in average loans, excluding purchased credit impaired loans, and investment securities.

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 4.37% for the three months ended September 30, 2016, compared to 4.58% for the same period in 2015, a decrease of 21 basis points. Our net interest margin on a taxable equivalent basis, which is net interest income divided by average interest-earning assets, was 4.54% for the three months ended September 30, 2016 compared to 4.73% for the same period in 2015, a decrease of 19 basis points.

The yield on average earning assets was 4.84% for the three months ended September 30, 2016, compared to 4.98% for the three months ended September 30, 2015, a decrease of 14 basis points, driven primarily by a $1.8 million decline in accretion income on purchased credit impaired loans. The yield on our purchased credit impaired loans can vary significantly from period to period depending largely on the timing of loan pool closings for our purchased credit impaired loans that are accounted for in pools and the timing of customer payments. The decrease in our yield on purchased credit impaired loans was primarily due to timing of customers payments as compared to the three months ended September 30, 2015. Our yield on loans, excluding purchased credit impaired loans, was 4.67% for the three months ended September 30, 2016, compared to 4.91% for the same period in 2015, a decrease of 24 basis points. The decrease primarily resulted from a combination of payoffs of higher-yielding loans and new lower-yielding loan originations. The yield on our investment portfolio was 2.11% and 1.86% for the three months ended September 30, 2016 and 2015, respectively. The increase of 25 basis points compared to the prior period was driven by our deployment of excess cash on the balance sheet into higher yielding investment securities.

The average rate on interest-bearing liabilities was .47% for the three months ended September 30, 2016, an increase of seven basis points from the same period in 2015. The average rate paid on interest-bearing deposits was .47% and .39% for the three months ended September 30, 2016 and 2015, respectively. The increase of eight basis points was primarily the result of an increase in time deposits from a local market time deposit special run during the fourth quarter of 2015 and first quarter of 2016 as part of management's strategy to grow new retail deposit relationships. Our cost of funds was 34 basis points for the three months ended September 30, 2016, an increase of six basis points from the same period in 2015.

Nine Months Ended September 30, 2016 and 2015

Our net interest income on a taxable equivalent basis was $116.9 million for the nine months ended September 30, 2016, an increase of $6.5 million, or 5.9%, from the nine months ended September 30, 2015. This increase was primarily attributable to an increase in average loans, excluding purchased credit impaired loans, of $298.4 million and investment securities of $71.9 million, compared to the nine months ended September 30, 2015. A decrease in the yield on average loans, excluding purchased credit impaired loans, of 19 basis points and a decrease in the average balance of purchased credit impaired loans and related accretion income of $48.3 million and $2.6 million, respectively, compared to the nine months ended September 30, 2015 partially offset the impact of the increases in average loans, excluding purchased credit impaired loans, and investment securities.

Our net interest spread on a taxable equivalent basis was 4.55% for the nine months ended September 30, 2016, compared to 4.57% for the same period in 2015, a decrease of two basis points. Our net interest margin on a taxable equivalent basis was 4.72% for the nine months ended September 30, 2016 compared to 4.71% for the same period in 2015, an increase of one basis points.

The yield on average earnings assets was 5.00% for the nine months ended September 30, 2016, compared to 4.96% for the same period in 2015, an increase of four basis points, driven primarily by an increase of $2.7 million in interest income on investment securities. Our yield on purchased credit impaired loans was 32.54% for the nine months ended September 30, 2016, compared to 25.87% for the nine months ended September 30, 2015, an increase of 667 basis points. The increase in our yield on purchased credit impaired loans was primarily due to an increase of $1.5 million in gains on loan pool closings in relation to average purchased credit impaired loans for the nine months ended September 30, 2016 compared to the same period in 2015. Our yield on loans, excluding purchased credit impaired loans, was 4.68% for the nine months ended September 30, 2016, compared to 4.87% for the same period in 2015, a decrease of 19 basis points. The decrease primarily resulted from a combination of payoffs of higher-yielding loans and new lower-yielding loan originations. The yield on our investment portfolio was 2.08% and 1.83% for the nine months ended September 30, 2016 and 2015, respectively. The increase of 25 basis points was primarily driven by our deployment of excess cash on the balance sheet into higher yielding investment securities.

The average rate on interest-bearing liabilities was 0.45% for the nine months ended September 30, 2016, an increase of six basis points from the same period in 2015. The average rate paid on interest-bearing deposits was .45% and .38% for the nine months ended September 30, 2016 and 2015, respectively. The increase of seven basis points was primarily the result of an increase in amortization on our interest rate caps of $438,000 and a reduction of $402,000 in amortization of time deposit premiums on time deposits acquired in our acquisitions of First Bank of Georgia and Bank of Atlanta. During the next twelve months, $1.7 million is expected to be reclassified as a decrease to net interest income for our interest rate caps. Our cost of funds was 32 basis points for the nine months ended September 30, 2016, an increase of three basis points from the same period in 2015.

Average Balances, Net Interest Income, Yields and Rates

The following table shows 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
	September 30, 2016						September 30, 2015
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets:
Interest-bearing deposits in other financial institutions	$	63,315	$	44	.28	%	$	179,526	$	124	.27	%
Investment securities (1)	881,642		4,670		2.11	%	837,786		3,930		1.86	%
Loans, excluding purchased credit impaired loans (2)(3)	2,275,859		26,722		4.67	%	1,969,651		24,397		4.91	%
Purchased credit impaired loans	130,770		9,335		28.40	%	167,095		11,156		26.49	%
Total earning assets	3,351,586		40,771		4.84	%	3,154,058		39,607		4.98	%
Total nonearning assets	212,884						189,965
Total assets	$	3,564,470					$	3,344,023
Liabilities:
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	515,974	$	159	.12	%	$	486,514	$	164	.13	%
Savings & money market deposits	1,105,635		1,514		.54	%	1,042,941		1,240		.47	%
Time deposits less than $250,000	340,275		569		.67	%	295,304		284		.38	%
Time deposits $250,000 or greater	61,172		118		.77	%	57,511		52		.36	%
Brokered and wholesale time deposits	20,723		48		.92	%	70,004		171		.97	%
Other borrowings	94,455		96		.40	%	15,507		66		1.69	%
Total interest-bearing liabilities	2,138,234		2,504		.47	%	1,967,781		1,977		.40	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	823,043						814,040
Other liabilities	45,828						32,704
Shareholders’ equity	557,365						529,498
Total liabilities and shareholders’ equity	$	3,564,470					$	3,344,023
Net interest income			$	38,267					$	37,630
Net interest spread					4.37	%					4.58	%
Net interest margin					4.54	%					4.73	%
Net interest margin excluding accretion income					3.57	%					3.52	%
Cost of funds					.34	%					.28	%

(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 $0 and $4,000 for the three months ended September 30, 2016 and 2015, respectively.

(2) Includes average nonaccrual loans of $8.6 million and $5.9 million for the three months ended September 30, 2016 and 2015, respectively.

(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 $142,000 and $179,000 for the three months ended September 30, 2016 and 2015, respectively.




	For the Nine Months Ended
	September 30, 2016						September 30, 2015
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets:
Interest-bearing deposits in other financial institutions	$	89,850	$	230	.34	%	$	236,658	$	475	.27	%
Investment securities (1)	892,970		13,887		2.08	%	821,056		11,245		1.83	%
Loans, excluding purchased credit impaired loans (2)(3)	2,192,681		76,748		4.68	%	1,894,314		69,069		4.87	%
Purchased credit impaired loans	135,628		33,039		32.54	%	183,911		35,590		25.87	%
Total earning assets	3,311,129		123,904		5.00	%	3,135,939		116,379		4.96	%
Total nonearning assets	210,775						202,238
Total assets	$	3,521,904					$	3,338,177
Liabilities:
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	528,669	$	483	.12	%	$	505,196	$	519	.14	%
Savings & money market deposits	1,064,999		4,205		.53	%	1,057,324		3,619		.46	%
Time deposits less than $250,000	335,796		1,527		.61	%	310,643		834		.36	%
Time deposits $250,000 or greater	59,969		303		.67	%	57,142		146		.34	%
Brokered and wholesale time deposits	30,978		241		1.04	%	85,494		612		.96	%
Other borrowings	63,301		229		.48	%	18,261		198		1.45	%
Total interest-bearing liabilities	2,083,712		6,988		.45	%	2,034,060		5,928		.39	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	844,419						734,421
Other liabilities	45,035						43,021
Shareholders’ equity	548,738						526,675
Total liabilities and shareholders’ equity	$	3,521,904					$	3,338,177
Net interest income			$	116,916					$	110,451
Net interest spread					4.55	%					4.57	%
Net interest margin					4.72	%					4.71	%
Net interest margin excluding accretion income					3.53	%					3.39	%
Cost of funds					.32	%					.29	%

(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 $4,000 and $36,000 for the nine months ended September 30, 2016 and 2015, respectively.

(2) Includes average nonaccrual loans of $9.0 million and $5.3 million for the nine months ended September 30, 2016 and 2015, respectively.

(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 $420,000 and $381,000 for the nine months ended September 30, 2016 and 2015, respectively.

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									Nine Months Ended
	September 30, 2016 vs. 2015									September 30, 2016 vs. 2015
	Change Attributable to									Change Attributable to
	Volume			Rate			Total Increase (Decrease) (1)			Volume			Rate			Total Increase (Decrease) (1)
Interest income:
Loans	$	3,643		$	(1,318	)	$	2,325		$	10,531		$	(2,852	)	$	7,679
Loan accretion	(2,552		)	731			(1,821		)	(10,562		)	8,011			(2,551		)
Investment securities	214			526			740			1,038			1,604			2,642
Interest-bearing deposits in other financial institutions	(81		)	1			(80		)	(351		)	106			(245		)
Total interest income	1,224			(60		)	1,164			656			6,869			7,525

Interest expense:
Deposits	93			404			497			13			1,016			1,029
Other borrowings	113			(83		)	30			232			(201		)	31
Total interest expense	206			321			527			245			815			1,060
Net interest income	$	1,018		$	(381	)	$	637		$	411		$	6,054		$	6,465

(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 and Lease Losses

The provision for loan and lease losses is the amount of expense that, based on our judgment, is required to maintain the allowance for loan and lease losses (ALLL) at an adequate level to absorb probable losses inherent in the loan portfolio at the balance sheet date and that, in management's judgment, is appropriate under U.S. generally accepted accounting principles. The determination of the amount of the ALLL is complex and involves a high degree of judgment and subjectivity. Our determination of the amount of the ALLL and corresponding provision for loan and lease losses considers ongoing evaluations of the credit quality and level of credit risk inherent in various segments of the loan portfolio and of individually significant credits, levels of nonperforming loans and charge-offs, statistical trends and economic and other relevant factors. Please see the discussion below entitled "Allowance for Loan and Lease Losses (ALLL)" under "Balance Sheet Review" for a description of the factors we consider in determining the amount of periodic provision expense to maintain this allowance.

Organic Loans

We recorded no provision for loan and lease losses related to organic loans for the three months ended September 30, 2016. For the same period in 2015 we recorded a provision of $614,000. For the nine months ended September 30, 2016 and 2015, we recorded provisions of $3.2 million and $1.9 million, respectively. The amount of provision for loan and lease losses recorded for organic loans was the amount required such that the total allowance for loan and lease losses reflected the appropriate balance, in management’s opinion, to sufficiently cover probable losses in the organic loan portfolio. This determination includes, but is not limited to, factors such as loan growth, asset quality, changes in loan portfolio composition, and national and local economic conditions.

Purchased Non-Credit Impaired Loans

We did not record an ALLL at acquisition for our purchased non-credit impaired loans because the loans were recorded at fair value based on a discounted cash flow methodology at the date of each respective acquisition. Subsequent to the purchase date, the ALLL for purchased non-credit impaired loans is evaluated quarterly similar to the method described above for organic loans, and if necessary, additional reserves are recognized in the allowance for loan and lease losses. There was a provision for loan and lease losses of $7,000 and $115,000 recorded for the three months and nine months ended September 30, 2016. This is in comparison to a negative provision of $6,000 and provision of $42,000 for the three and nine months ended September 30, 2015, respectively.

Purchased Credit Impaired Loans

Similar to our purchased non-credit impaired loans, we did not record an ALLL at acquisition for our purchased credit impaired loans as the loans were recorded at fair valued based on a discounted cash flow methodology at the date of each respective acquisition. We re-estimate expected cash flows on our purchased credit impaired loans on a quarterly basis. Subsequent decreases in the amount of cash expected to be collected from the borrower results in a provision for loan and lease losses and an increase in the allowance for loan and lease losses. Subsequent significant increases in the amount of cash expected to be collected from the borrower results in the reversal of any previously-recorded provision for loan and lease losses and related allowance for loan and lease losses, and then as a prospective increase in the accretable discount on the purchased credit impaired loans. Prior to termination of our loss share agreements with the FDIC, the amount of provision for assets covered by loss share agreements was recorded through the FDIC receivable for loss share agreements. Subsequent to termination of the FDIC loss share agreements, the impact of any provision related to these formerly covered assets will not be offset by changes in the FDIC receivable for loss share agreements, which may result in greater volatility. We recorded a provision for loan and lease losses related to purchased credit impaired loans of $81,000 and a negative provision of $3.3 million for the three and nine months ended September 30, 2016, respectively, compared to a negative provision of $873,000 and a provision of $1.0 million for three and nine months ended September 30, 2015, respectively.

Noninterest Income

Noninterest income for the three months ended September 30, 2016 totaled $9.8 million, up $875,000 from the same period in 2015. Noninterest income for the nine months ended September 30, 2016 totaled $29.4 million, up $17.4 million from the same period in 2015. The following table presents the components of noninterest income for the periods indicated (dollars in thousands):



	Three Months Ended September 30					Nine Months Ended September 30
	2016		2015			2016		2015
Service charges on deposits	$	1,383	$	1,491		$	4,121	$	4,481
Mortgage banking income	3,216		3,079			9,808		9,239
SBA income	1,553		1,720			4,740		4,223
Payroll fee income	1,128		1,004			3,566		3,118
ATM income	759		742			2,273		2,240
Bank-owned life insurance income	533		537			1,463		1,454
Prepayment fees	234		551			715		2,937
Gain on sale of investment securities	38		17			447		338
Other	925		(247		)	2,257		433
Noninterest income before amortization of FDIC receivable for loss share agreements	9,769		8,894			29,390		28,463
Amortization of FDIC receivable for loss share agreements	—		—			—		(16,488		)
Total noninterest income	$	9,769	$	8,894		$	29,390	$	11,975

Mortgage banking income increased $137,000, or 4.4%, for the three months ended September 30, 2016 from the same period in 2015. Mortgage banking income increased $569,000, or 6.2%, for the nine months ended September 30, 2016. The increases in mortgage banking income were attributable to increased gains on sale of loans. SBA income for the three months ended September 30, 2016 decreased $167,000, or 9.7%, from the same period in 2015. This decrease in SBA income is mostly attributable to a decrease of $215,000 in gains on sale of loans booked during the three months ended September 30, 2016 compared to the same period in 2015. SBA income for the nine months ended September 30, 2016 increased $517,000, or 12.2%, from the same period in 2015 due to increased gains on sale of loans.

Payroll fee income increased $124,000, or 12.4%, for the three months ended September 30, 2016 from the same period in 2015. Payroll fee income increased $448,000, or 14.4%, for the nine months ended September 30, 2016 from the same period in 2015. The increase in payroll fee income for both periods was attributable to an increase in the number of payroll customers compared to the same periods in 2015.

Prepayment fees decreased $317,000 for the three months ended September 30, 2016 from the same period in 2015. For the nine months ended September 30, 2016 prepayment fees decreased $2.2 million compared to the same period in 2015. The decrease in prepayment fees was a result of increased activity on early payoffs of fixed rate loans during the first quarter and second quarter of 2015.

Other noninterest income increased $1.2 million and $1.8 million, or 474.5% and 421.2%, for the three and nine months ended September 30, 2016, respectively, compared to the same periods in 2015. The increase in other noninterest income was primarily attributable to writedowns and losses totaling $514,000 and $742,000 on premises and equipment primarily associated with closed branches disposed of or transferred to OREO for the three months and nine months ended September 30, 2015, respectively. Additionally, the increase for the three and nine months ended September 30, 2016 attributable to gains on sale of equipment finance loans totaled $160,000 and $404,000, respectively and the mark-to-market on interest rate swaps and hedged assets improved by $430,000 in the three month period ended September 30, 2016 as compared to the same quarter last year.

Noninterest income includes the amortization of the FDIC receivable for loss share agreements, which represents amortization expense on the FDIC receivable for loss share agreements, inclusive of the $14.5 million one-time charge we incurred as a result of terminating our loss share agreements in the second quarter of 2015. The one-time charge was largely the write-off of amortization expense on the FDIC receivable scheduled to be recognized during future quarters had we not terminated our loss share agreements.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2016 totaled $28.5 million, down $3.9 million from the same period in 2015. Noninterest expense for the six months ended September 30, 2016 totaled $88.1 million, down $5.8 million from the same period in 2015.

The following table presents the components of noninterest expense for the periods indicated (dollars in thousands):



	Three Months Ended September 30						Nine Months Ended September 30
	2016			2015			2016			2015
Salaries and employee benefits	$	19,799		$	23,293		$	59,221		$	63,381
Occupancy and equipment	2,984			3,113			9,100			9,437
Data processing	2,097			2,097			6,383			6,812
Legal and professional fees	1,064			1,089			2,993			3,857
Merger-related expenses	135			717			454			1,730
Marketing	665			491			1,786			1,526
Federal deposit insurance premiums and other regulatory fees	441			621			1,556			1,582
Loan collection costs and OREO activity	(841		)	(1,198		)	(452		)	(907		)
Amortization of intangibles	513			436			1,586			1,295
Other	1,623			1,757			5,425			5,147
Total noninterest expense	$	28,480		$	32,416		$	88,052		$	93,860

Salaries and employee benefits decreased $3.5 million, or 15.0%, for the three months ended September 30, 2016 from the same period in 2015. For the nine months ended September 30, 2016, salaries and employee benefits decreased $4.2 million, or 6.6%, compared to the same period in 2015. The decrease in salaries and employee benefits for the three and nine months ended September 30, 2016 was primarily attributable to efficiency initiatives announced in the third quarter of 2015 and a reduction in expenses associated with the merger of First Bank of Georgia with and into State Bank in July 2015, which resulted in severance costs of $3.0 million and $3.8 million for the three and nine months ended September 30, 2015, respectively. Decreases in severance costs for the three and nine months ended September 30, 2016 were partially offset by an increase in commission expense related to our increase in mortgage and SBA production volume during the same periods.

Legal and professional fees decreased $25,000, or 2.3%, for the three months ended September 30, 2016 from the same period in 2015. Legal and professional fees decreased $864,000, or 22.4%, for the nine months ended September 30, 2016, from the same period in 2015. The decrease was largely due to reductions in payments to certain vendors associated with our efficiency initiatives, lower spending related to the infrastructure needed to support assets covered under our loss share agreements with the FDIC, which were terminated in the second quarter of 2015, and lower employee recruiting fees.

Marketing increased $174,000, or 35.4%, for the three months ended September 30, 2016 from the same period in 2015. Marketing increased $260,000, or 17.0%, for the nine months ended September 30, 2016 from the same period in 2015. These increases are primarily related to targeted promotions in certain of our market areas.

Loan collection costs and OREO activity, which are net of rental fees on OREO properties as well as gains and losses on OREO, were $(841,000) for the three months ended September 30, 2016, an increase of 29.8%, compared to $(1.2) million for the same period in 2015. For the nine months ended September 30, 2016, loan collection costs and OREO activity were $(452,000), an increase of 50.2%, compared to $(907,000) for the same period in 2015. The net increase is attributable to a $2.0 million decrease in gain on sales of OREO, partially offset by a net reduction of $1.6 million in loan collection expenses and rental fees for the nine months ended September 30, 2016, compared to the same period in 2015.

Amortization of intangibles increased $77,000, or 17.7%, for the three months ended September 30, 2016 from the same period in 2015. Amortization of intangibles increased $291,000, or 22.5% for the nine months ended September 30, 2016 from the same period in 2015. These increases are primarily related to intangibles recorded and amortized from our acquisition of Patriot Capital Corporation in the fourth quarter of 2015.

Merger-related expenses decreased $582,000, or 81.2%, for the three months ended September 30, 2016 from the same period in 2015. Merger-related expenses decreased $1.3 million, or 73.8%, for the nine months ended September 30, 2016 from the same period in 2015. Merger-related expenses in 2016 were attributable to our proposed acquisitions of NBG Bancorp, Inc. and S Bankshares, Inc. The merger-related expenses in 2015 were directly related to our acquisitions of Bank of Atlanta and First Bank of Georgia.

Income Taxes

Income tax expense is comprised of both state and federal income tax expense. The effective tax rate was 35.6% and 35.7% for the three months ended September 30, 2016 and 2015, respectively. The effective tax rate was 35.6% and 35.2% for the nine months ended September 30, 2016 and 2015, respectively. During the third quarter of 2016, the Company early adopted ASU 2016-09 effective January 1, 2016, which reduced income tax expense by $56,000 and $202,000 for the three and nine months ended September 30, 2016.

Balance Sheet Review

General

At September 30, 2016, we had total assets of approximately $3.6 billion, consisting principally of $2.0 billion in net organic loans, $188.9 million in net purchased non-credit impaired loans, $121.5 million in net purchased credit impaired loans, $889.7 million in investment securities, $10.6 million in other real estate owned and $113.8 million in cash and cash equivalents. Our liabilities at September 30, 2016 totaled $3.1 billion, consisting principally of $3.0 billion in deposits. At September 30, 2016, our shareholders' equity was $561.1 million.

At December 31, 2015, we had total assets of approximately $3.5 billion, consisting principally of $1.8 billion in net organic loans, $240.3 million in net purchased non-credit impaired loans, $137.8 million in net purchased credit impaired loans, $887.7 million in investment securities, $10.5 million in other real estate owned and $175.4 million in cash and cash equivalents. Our liabilities at December 31, 2015 totaled $2.9 billion, consisting principally of $2.9 billion in deposits. At December 31, 2015, our shareholders' equity was $536.5 million.

Investments

Our investment portfolio consists of U.S. Government agency securities, municipal securities, nonagency mortgage-backed securities, U.S. Government sponsored agency mortgage-backed securities, asset-backed securities and corporate bonds. 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 September 30, 2016, we had $822.7 million in available-for-sale securities representing approximately 22.7% of total assets, compared to $887.7 million, or 25.6% of total assets, at December 31, 2015. The $65.1 million, or 7.3%, decrease in our available-for-sale securities from December 31, 2015 to September 30, 2016 was due primarily to the transfer of certain investment securities available-for-sale to held-to-maturity during the first quarter of 2016 and paydowns on existing securities, partially offset by additional purchases of available-for-sale securities.

At September 30, 2016, we had $67.1 million in held-to-maturity securities compared to no such securities at December 31, 2015. During the first quarter of 2016, we reclassified $56.6 million in investment securities from available-for-sale to held-to-maturity. We reclassified these securities, which are expected to be held to maturity, to minimize the impact of future interest rate changes on accumulated other comprehensive income (loss). This reclassification will remain in effect until the investments are called or mature.

At September 30, 2016, $89.6 million, or 10.1%, of our investment securities were invested in securities of U.S. Government agencies, compared to $103.3 million, or 11.6%, at December 31, 2015. U.S Government agency securities consist of debt obligations issued by the Government Sponsored Enterprises or collateralized by loans that are guaranteed by the SBA and are, therefore, backed by the full faith and credit of the U.S. Government. At September 30, 2016, $500.3 million, or 56.2%, of our securities were invested in agency mortgage-backed securities, compared to $503.7 million, or 56.7%, at December 31, 2015. 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 the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The contractual 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 September 30, 2016, $157.6 million, or 17.7% of our investment securities were invested in nonagency mortgage-backed securities, compared to $150.7 million, or 17.0%, at December 31, 2015. The underlying collateral consists of mortgages originated prior to 2006 with the majority being 2004 and earlier. None of the collateral is sub-prime and we own the senior tranche of each bond.

At September 30, 2016, $56.8 million, or 6.4%, of our investment securities were invested in asset-backed securities, compared to $46.2 million, or 5.2%, at December 31, 2015. 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. At September 30, 2016, $85.2 million, or 9.6%, of our investment securities were invested in corporate securities, compared to $82.0 million, or 9.2%, at December 31, 2015. Corporate securities currently consist of short duration debt and longer term financial institution subordinated debt securities. We evaluate and underwrite each issuer prior to purchase and periodically review the issuers after purchase.

The following tables are a summary of our investment portfolio at the dates indicated (dollars in thousands):



	September 30, 2016				December 31, 2015
Investment Securities Available-for-Sale	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Government securities	$	89,239	$	89,598	$	103,525	$	103,272
States and political subdivisions	300		301		1,809		1,813
Residential mortgage-backed securities — nonagency	155,085		157,557		146,832		150,702
Residential mortgage-backed securities — agency	496,298		500,306		507,168		503,688
Asset-backed securities	—		—		46,570		46,245
Corporate securities	73,868		74,893		82,245		81,985
Total investment securities available-for-sale	$	814,790	$	822,655	$	888,149	$	887,705



	September 30, 2016				December 31, 2015
Investment Securities Held-to-Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Asset-backed securities	$	56,789	$	56,943	$	—	$	—
Corporate securities	10,282		10,500		—		—
Total investment securities available-for-sale	$	67,071	$	67,443	$	—	$	—

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



Investment Securities Available-for-Sale	Distribution of Maturities (1)
September 30, 2016	1 Year or Less			1-5 Years			5-10 Years			After 10 Years			Total
Amortized Cost (1):
U.S. Government securities	$	—		$	89,239		$	—		$	—		$	89,239
States and political subdivisions	—			300			—			—			300
Residential mortgage-backed securities — nonagency	—			—			—			155,085			155,085
Residential mortgage-backed securities — agency	—			15,793			360,623			119,882			496,298
Corporate securities	7,712			64,610			—			1,546			73,868
Total debt securities	$	7,712		$	169,942		$	360,623		$	276,513		$	814,790

Fair Value (1):
U.S. Government securities	$	—		$	89,598		$	—		$	—		$	89,598
States and political subdivisions	—			301			—			—			301
Residential mortgage-backed securities — nonagency	—			—			—			157,557			157,557
Residential mortgage-backed securities — agency	—			15,944			363,990			120,372			500,306
Corporate securities	7,702			65,645			—			1,546			74,893
Total debt securities	$	7,702		$	171,488		$	363,990		$	279,475		$	822,655

Weighted average yield (2):
Total debt securities	1.45		%	1.69		%	1.31		%	2.71		%	1.87		%



Investment Securities Held-to-Maturity	Distribution of Maturities (1)
September 30, 2016	1 Year or Less			1-5 Years			5-10 Years			After 10 Years			Total
Amortized Cost (1):
Asset-backed securities	$	—		$	—		$	31,670		$	25,119		$	56,789
Corporate securities	—			—			10,282			—			10,282
Total debt securities	$	—		$	—		$	41,952		$	25,119		$	67,071

Fair Value (1):
Asset-backed securities	$	—		$	—		$	31,770		$	25,173		$	56,943
Corporate securities	—			—			10,500			—			10,500
Total debt securities	$	—		$	—		$	42,270		$	25,173		$	67,443

Weighted average yield (2):
Total debt securities	—		%	—		%	3.61		%	2.72		%	3.28		%

(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 using a tax rate of 35%.

Loans

We had total net loans outstanding, including organic and purchased loans, of $2.3 billion at September 30, 2016 and $2.1 billion at December 31, 2015. Loans secured by real estate, consisting of commercial or residential property, are the principal component of our loan portfolio. Even if the principal purpose of the loan is not to finance real estate, when reasonable, we obtain a security interest in the real estate in addition to any other available collateral to increase the likelihood of ultimate repayment or collection of the loan.

Organic Loans

Organic loans increased $256.1 million, or 14.4%, to $2.0 billion at September 30, 2016 from December 31, 2015. The $256.1 million increase was a result of stable to improving economic conditions, growing market share within our markets and traction in asset generating verticals. Also contributing to organic loan growth was the reclassification of purchased non-credit impaired and purchased credit impaired loans which renewed and met our current underwriting standards for organic loans.

Purchased Loans

Purchased non-credit impaired loans were $189.1 million at September 30, 2016, down $51.3 million, or 21.3%, from December 31, 2015. Our purchased non-credit impaired loans declined as these loans were paid down or refinanced. Our purchased credit impaired loans decreased $18.7 million, or 12.9%, to $126.8 million at September 30, 2016 from December 31, 2015. Our purchased credit impaired loans declined as these loans were paid down or charged-off.

The following table summarizes the composition of our loan portfolio at the dates indicated (dollars in thousands):



	September 30, 2016														December 31, 2015
	Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total Amount			% of Gross Total		Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total Amount			% of Gross Total
Construction, land & land development	$	486,299		$	10,035		$	11,564		$	507,898		21.6	%	$	482,087		$	18,598		$	14,252		$	514,937		23.9	%
Other commercial real estate	744,270			58,261			38,238			840,769			35.8	%	661,062			74,506			40,742			776,310			35.9	%
Total commercial real estate	1,230,569			68,296			49,802			1,348,667			57.4	%	1,143,149			93,104			54,994			1,291,247			59.8	%
Residential real estate	139,926			56,468			53,953			250,347			10.7	%	140,613			69,053			64,011			273,677			12.6	%
Owner-occupied real estate	239,726			52,016			22,389			314,131			13.4	%	219,636			61,313			25,364			306,313			14.2	%
Commercial, financial & agricultural	306,141			10,447			608			317,196			13.5	%	181,513			14,216			1,050			196,779			9.1	%
Leases	74,722			—			—			74,722			3.2	%	71,539			—			—			71,539			3.3	%
Consumer	39,373			1,826			84			41,283			1.8	%	17,882			2,624			156			20,662			1.0	%
Total gross loans receivable, net of deferred fees	2,030,457			189,053			126,836			2,346,346			100.0	%	1,774,332			240,310			145,575			2,160,217			100.0	%
Allowance for loan and lease losses	(21,736		)	(150		)	(5,291		)	(27,177		)			(21,224		)	(53		)	(7,798		)	(29,075		)
Total loans, net	$	2,008,721		$	188,903		$	121,545		$	2,319,169				$	1,753,108		$	240,257		$	137,777		$	2,131,142

FDIC Receivable for Loss Share Agreements and Clawback Liability

During the second quarter of 2015, we entered into an agreement with the FDIC to terminate the loss share agreements for all 12 of our FDIC-assisted acquisitions, resulting in a one-time after-tax charge of $8.9 million, or $14.5 million pre-tax. Approximately $9.3 million of the one-time charge was related to amortization on the FDIC receivable scheduled to be recognized during future quarters with the remainder of the one-time charge primarily consisting of our payment to the FDIC to eliminate all rights and obligations between State Bank and the FDIC under the loss share agreements and settle outstanding claims for reimbursement between the parties. All rights and obligations of the parties under the FDIC loss share agreements, including the clawback provisions and the settlement of historic loss share expense reimbursement claims, have been eliminated under the early termination agreement. All future charge-offs, recoveries, gains, losses and expenses related to assets previously covered by FDIC loss share will now be recognized entirely by us since the FDIC will no longer be sharing in such charge-offs, recoveries, gains, losses and expenses.




	Nine Months Ended
	September 30, 2015
Cash paid to the FDIC to settle loss share agreements	$	(3,100	)
FDIC loss share receivable	(16,959		)
FDIC clawback payable	5,511
Loss on termination of FDIC loss share	(14,548		)
Net amortization of FDIC receivable for loss share agreements during the period	(1,940		)
Amortization of FDIC receivable for loss share agreements	$	(16,488	)

Allowance for Loan and Lease Losses (ALLL)

The ALLL 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 ALLL is critical to the portrayal and understanding of our financial condition, liquidity and results of operations. The determination and application of the ALLL 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.

At September 30, 2016, our total ALLL for the loan portfolio was $27.2 million, a decrease of $1.9 million compared to December 31, 2015. The ALLL reflected $1.9 million of net charge-offs and a $40,000 negative provision for loan and lease losses on our total loan portfolio for the nine months ended September 30, 2016.

Organic loans

The ALLL on our organic 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 ALLL for organic 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 and procedures. The qualitative analysis requires judgment by management and is subject to continuous validation.

At September 30, 2016, our organic ALLL increased $512,000 to $21.7 million, compared to $21.2 million at December 31, 2015. The increase in our organic ALLL at September 30, 2016 is primarily from $3.2 million of provision for loan and lease losses charged to expense for the nine months ended September 30, 2016, primarily due to organic loan growth and an increase in net charge-offs. Net charge-offs on organic loans for the nine months ended September 30, 2016, increased $2.5 million compared to the same period in 2015. The increase in net charge-offs primarily related to one loan that was classified and specifically reserved for in the first quarter of 2016 and subsequently charged down in the second quarter of 2016.

Purchased loans

We maintain an allowance for loan and lease losses on purchased loans based on credit deterioration after the acquisition date. In accordance with the accounting guidance for business combinations, we recorded no allowance for loan and lease losses on any of our purchased loans at the acquisition date because any credit deterioration evident in the loans was included in the determination of the fair value of the loans.

For purchased non-credit impaired loans, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value and the discount is accreted to interest income over the life of the asset. After the purchase date, the method used to evaluate the sufficiency of the credit discount is similar to organic loans, and if necessary, additional reserves are recognized in the allowance for loan and lease losses. At September 30, 2016, our purchased non-credit impaired ALLL was $150,000, an increase of $97,000 compared to December 31, 2015. The increase in the purchased non-credit impaired ALLL was primarily due to the ALLL calculated on one individually evaluated loan exceeding the discount we recorded at acquisition.

We determine the ALLL on our purchased credit impaired loan portfolio based on expected future cash flows. On the date of acquisition, management determines which purchased credit impaired 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 ALLL is required.

The ALLL analysis on purchased credit impaired loans represents management's estimate of the potential impairment of the acquired loans, or pools of acquired loans, after the original acquisition date. We established the purchased credit impaired ALLL due to additional credit deterioration in our purchased credit impaired loan portfolio after initial fair value estimates. 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 our consolidated statements of income. If actual losses exceed the estimated losses, we record a provision for loan and lease losses on purchased credit impaired loans as an expense on our consolidated statements of income. If actual losses are less than our previously estimated losses, we reduce the purchased credit impaired ALLL by recording a negative provision for loan and lease losses on purchased credit impaired loans up to the amount of the ALLL previously recorded. Prior to the early termination of our FDIC loss share agreements in the second quarter of 2015, we recorded the provision for loan and lease losses on purchased credit impaired loans covered by loss share agreements with the FDIC net of the amount that we expected to recover under the related FDIC loss share agreements.

At September 30, 2016, our purchased credit impaired ALLL was $5.3 million, compared to $7.8 million at December 31, 2015. The provision for loan and lease losses charged to expense for the nine months ended September 30, 2016 was negative $3.3 million, compared to a provision of $1.0 million, net of the amount recorded through the FDIC receivable for loss share agreements, for the same period in 2015. The decrease was primarily due to net recoveries during the period and improvement in expected cash flows during the most recent quarterly re-estimation. At September 30, 2016, our overall outstanding purchased credit impaired loan portfolio balance continued to decline with an ending balance of $126.8 million compared to $145.6 million at December 31, 2015. The overall purchased credit impaired loan portfolio continues to perform better than our initial projections at the applicable acquisition dates, although the performance is not uniform across all asset classes within specifically reviewed loans and loan pools.

For organic loans and purchased non-credit impaired loans, the provision for loan and lease losses will be affected by the loss potential on distressed loans and trends in the delinquency of loans, nonperforming loans and net charge-offs, which may be higher than our historical experience. For purchased credit impaired loans, the provision for loan and lease losses will be most significantly influenced by differences in actual credit losses resulting from the resolution of purchased credit impaired 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.

The following table summarizes the activity in our ALLL for the periods presented (dollars in thousands):



	Nine Months Ended September 30
	2016												2015
	Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total			Organic Loans			Purchased Non-Credit Impaired Loans			Purchased Credit Impaired Loans			Total
Balance, at the beginning of period	$	21,224		$	53		$	7,798		$	29,075		$	18,392		$	—		$	10,246		$	28,638
Charge-offs:
Construction, land & land development	(2,125		)	—			(681		)	(2,806		)	—			—			(1,138		)	(1,138		)
Other commercial real estate	—			—			(183		)	(183		)	—			—			(3,580		)	(3,580		)
Total commercial real estate	(2,125		)	—			(864		)	(2,989		)	—			—			(4,718		)	(4,718		)
Residential real estate	(29		)	(76		)	(899		)	(1,004		)	—			(24		)	(1,009		)	(1,033		)
Owner-occupied real estate	—			—			(298		)	(298		)	—			—			(1,275		)	(1,275		)
Commercial, financial & agricultural	(336		)	(1		)	(228		)	(565		)	(185		)	—			(1,533		)	(1,718		)
Leases	(327		)	—			—			(327		)	—			—			—			—
Consumer	(41		)	(3		)	(56		)	(100		)	(18		)	(24		)	(131		)	(173		)
Total charge-offs	$	(2,858	)	$	(80	)	$	(2,345	)	$	(5,283	)	$	(203	)	$	(48	)	$	(8,666	)	$	(8,917	)
Recoveries:
Construction, land & land development	—			—			402			402			1			—			831			832
Other commercial real estate	—			—			1,879			1,879			—			—			2,096			2,096
Total commercial real estate	—			—			2,281			2,281			1			—			2,927			2,928
Residential real estate	5			45			400			450			10			1			332			343
Owner-occupied real estate	44			—			207			251			—			—			848			848
Commercial, financial & agricultural	130			—			233			363			62			—			789			851
Leases	9			—			—			9			—			—			—			—
Consumer	1			17			53			71			8			5			189			202
Total recoveries	$	189		$	62		$	3,174		$	3,425		$	81		$	6		$	5,085		$	5,172
Net (charge-offs) recoveries	(2,669		)	(18		)	829			(1,858		)	(122		)	(42		)	(3,581		)	(3,745		)
Provision for loan and lease losses	3,181			115			(3,336		)	(40		)	1,906			42			2,089			4,037
Amount attributable to FDIC loss share agreements	—			—			—			—			—			—			(1,045		)	(1,045		)
Total provision for loan and lease losses charged to operations	3,181			115			(3,336		)	(40		)	1,906			42			1,044			2,992
Provision for loan and lease losses recorded through the FDIC loss share receivable	—			—			—			—			—			—			1,045			1,045
Balance, at end of period	$	21,736		$	150		$	5,291		$	27,177		$	20,176		$	—		$	8,754		$	28,930
Allowance for loan and lease losses to loans	1.07		%	.08		%	4.17		%	1.16		%	1.19		%	—		%	5.49		%	1.35		%
Ratio of net charge-offs (recoveries) to average loans outstanding	.18		%	.01		%	(.82		)%	.11		%	.01		%	.01		%	2.60		%	.25		%

Allocation of Allowance for Loan and Lease Losses

The following table presents the allocation of the ALLL and the percentage of the total amount of loans in each loan category listed at the dates indicated (dollars in thousands):



	September 30, 2016				December 31, 2015
	Amount		% of Loans to Total Loans		Amount		% of Loans to Total Loans
Organic loans
Construction, land & land development	$	6,373	20.7	%	$	8,185	22.3	%
Other commercial real estate	5,752		31.7	%	5,422		30.6	%
Total commercial real estate	12,125		52.4	%	13,607		52.9	%
Residential real estate	1,893		6.0	%	2,053		6.4	%
Owner-occupied real estate	2,038		10.2	%	1,920		10.2	%
Commercial, financial & agricultural	4,396		13.1	%	2,509		8.4	%
Leases	716		3.2	%	865		3.3	%
Consumer	568		1.7	%	270		0.8	%
Total allowance for organic loans	$	21,736	86.6	%	$	21,224	82.0	%

Purchased Non-credit Impaired loans
Construction, land & land development	$	—	0.4	%	$	—	0.9	%
Other commercial real estate	—		2.5	%	—		3.4	%
Total commercial real estate	—		2.9	%	—		4.3	%
Residential real estate	—		2.4	%	53		3.2	%
Owner-occupied real estate	—		2.2	%	—		2.8	%
Commercial, financial & agricultural	150		0.4	%	—		0.7	%
Consumer	—		0.1	%	—		0.2	%
Total allowance for purchased non-credit impaired loans	$	150	8.0	%	$	53	11.2	%

Purchased Credit Impaired loans
Construction, land & land development	$	785	0.5	%	$	1,516	0.7	%
Other commercial real estate	1,577		1.6	%	1,872		1.9	%
Total commercial real estate	2,362		2.1	%	3,388		2.6	%
Residential real estate	1,274		2.3	%	1,893		3.0	%
Owner-occupied real estate	1,588		1.0	%	2,449		1.2	%
Commercial, financial & agricultural	65		—	%	60		—	%
Consumer	2		—	%	8		—	%
Total allowance for purchased credit impaired loans	$	5,291	5.4	%	$	7,798	6.8	%
Total allowance for loan and lease losses	$	27,177	100.0	%	$	29,075	100.0	%

Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, troubled debt restructurings ("TDRs"), other real estate owned and foreclosed property. For organic and purchased non-credit impaired loans, management continuously monitors loans and transfers loans to nonaccrual status when they are 90 days past due.

We do not consider our purchased credit impaired loans acquired with evidence of deteriorated credit quality to be nonperforming assets as long as their cash flows continue to be estimable and probable of collection. Therefore, interest income is recognized through accretion of the difference between the carrying value of these loans and the present value of expected future cash flows. As a result, management has excluded purchased credit impaired loans from the table in this section.

Loans, excluding purchased credit impaired 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 loans, excluding purchased credit impaired loans, that are on nonaccrual are collateral dependent and, therefore, are valued using the fair value of collateral method. 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.

For nonaccrual organic impaired loans, we will record either a specific allowance or a charge-off against the ALLL if an impairment analysis indicates a collateral deficiency. For nonaccrual purchased non-credit impaired loans, if an impairment analysis indicates a collateral deficiency, a specific allowance or charge-off against the ALLL is recorded only if the collateral deficiency exceeds the fair value mark recognized at acquisition. The ALLL is evaluated at least quarterly to ensure it is sufficient to absorb all estimated credit losses in the loan portfolio given the facts and circumstances as of the evaluation date.

Loans, excluding purchased credit impaired loans, that are nonperforming 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 organic and purchased non-credit impaired 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 purchased credit impaired loans accounted for within a pool under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, do not result in the removal of the loan from the pool even if the modification of the loan would otherwise be considered a troubled debt restructuring. At September 30, 2016, we did not have any purchased credit impaired loans classified as troubled debt restructurings.

Other real estate owned (OREO) consists of real estate acquired through foreclosure or a deed in lieu of foreclosure in satisfaction of a loan, OREO acquired in a business acquisition, and banking premises no longer used for a specific business purpose. Real estate obtained 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 with any excess in loan balance charged against the allowance for loan and lease losses. OREO acquired in a business acquisition is recorded at fair value on Day 1 of the acquisition. Banking premises no longer used for a specific business purpose are transferred into OREO at the lower of their carrying value or fair value less estimated costs to sell with any excess in the carrying value charged to noninterest expense. For all fair value estimates of the real estate properties, management considers a number of factors such as appraised values, estimated selling prices, and current market conditions. Management periodically reviews the carrying value of OREO for impairment and adjusts the values as appropriate through noninterest expense. At September 30, 2016, OREO totaled $10.6 million, an increase of $79,000 from December 31, 2015. The increase is mainly attributed to OREO acquired through foreclosure of loans receivable totaling $3.0 million, offset by $2.7 million in sales of OREO.

The following table set forth our nonperforming assets at the dates indicated (dollars in thousands):



	September 30, 2016												December 31, 2015
Nonperforming Assets	Organic Assets			Purchased Non-Credit Impaired			Purchased Credit Impaired			Total			Organic Assets			Purchased Non-Credit Impaired			Purchased Credit Impaired			Total
Nonaccrual loans	$	6,423		$	1,672		$	—		$	8,095		$	5,096		$	1,280		$	—		$	6,376
Accruing TDRs	—			—			—			—			—			577			—			577
Total nonperforming loans	6,423			1,672			—			8,095			5,096			1,857			—			6,953
Other real estate owned	83			21			10,505			10,609			33			—			10,497			10,530
Total nonperforming assets	$	6,506		$	1,693		$	10,505		$	18,704		$	5,129		$	1,857		$	10,497		$	17,483
Nonperforming loans to total loans	.32		%	.88		%	—		%	.35		%	.29		%	.77		%	—		%	.32		%
Nonperforming assets to total loans and other real estate owned	.32		%	.90		%	7.65		%	.79		%	.29		%	.77		%	6.73		%	.81		%

Nonperforming assets, defined as nonaccrual organic and purchased non-credit impaired loans, troubled debt restructurings and other real estate owned, totaled $18.7 million, or .8% of total loans and other real estate owned at September 30, 2016, compared to $17.5 million, or .8% at December 31, 2015. The $1.2 million increase in nonperforming assets is primarily related to the migration of a small group of credits to nonaccrual and an increase of $79,000 in OREO.

At September 30, 2016 and December 31, 2015, we did not have any organic or purchased non-credit impaired loans greater than 90 days past due and still accruing. At September 30, 2016 and December 31, 2015, a considerable portion of our purchased credit impaired loans were past due, including many that were 90 days or greater past due; however, as noted above, under ASC 310-30, our purchased credit impaired 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 organic and purchased non-credit impaired nonaccrual loans, had the loans not been classified as nonaccrual, totaled approximately $151,000 and $475,000 for the three and nine months ended September 30, 2016, respectively. Interest income recognized on organic and purchased non-credit impaired nonaccrual loans was approximately $27,000 for the nine months ended September 30, 2016. There was no interest income recognized on organic and purchased non-credit impaired nonaccrual loans during the three months ended September 30, 2016.

Potential problem loans are organic and purchased non-credit impaired loans which management has serious doubts as to the ability of the borrowers to comply with the present loan repayment terms. Management classifies potential problem loans as "Substandard" or "Doubtful". Potential problem loans not included in the nonperforming assets table above totaled $2.2 million, or .1%, of total organic and purchased non-credit impaired loans outstanding at September 30, 2016, compared to $1.5 million, or .1%, at December 31, 2015.

Deferred Tax Asset

At September 30, 2016, we had $31.8 million in net deferred tax assets. Deferred tax assets are subject to an evaluation of whether it is more likely than not that they will be realized. In making such judgments, significant weight is given to evidence that can be objectively verified. Although realization is not assured, management believes the recorded deferred tax assets are fully recoverable based on taxable income in carryback years and the current forecast of taxable income that is sufficient to realize the net deferred tax assets during periods through which losses may be carried forward. The amount of taxable income available in the carryback years is approximately $159.3 million. If we are unable to demonstrate that we can continue to generate sufficient taxable income in the near future, then we may not be able to conclude it is more likely than not that the benefits of the deferred tax assets will be fully realized and we may be required to recognize a valuation allowance against our deferred tax assets with a corresponding decrease in income.

Deposits

Total deposits at September 30, 2016 were $3.0 billion, an increase of $97.3 million from December 31, 2015. The increase was largely due to organic growth within our existing markets. Interest rates paid on specific deposit types are determined based on (a) interest rates offered by competitors, (b) anticipated amount and timing of funding needs, (c) availability and cost of alternative sources of funding, and (d) 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 change in the overall deposit mix continued its trend through September 30, 2016, as we grew our noninterest-bearing deposits to $890.6 million, representing 30.1% of total deposits. Average noninterest-bearing deposits increased $110.0 million, or 15.0%, for the nine months ended September 30, 2016 compared to the same period in 2015.

Our interest-bearing transaction accounts decreased $41.3 million from December 31, 2015 to September 30, 2016. The decrease was primarily due to reduction in public fund balances compared to December 31, 2015. Interest-bearing deposits in savings and money market accounts increased $27.3 million from December 31, 2015, primarily resulting from an increase in the balance on one commercial customer's money market account. Time deposits, excluding brokered and wholesale, increased $69.5 million during the nine months ended September 30, 2016 primarily from a local market time deposit special run during the fourth quarter of 2015 and first quarter of 2016 as part of management's strategy to grow new retail deposit relationships.

Our continued focus on growing low cost deposit relationships resulted in an average cost of funds of 32 basis points for the nine months ended September 30, 2016, up three basis points from the nine months ended September 30, 2015.

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



	September 30, 2016				December 31, 2015
	Amount		% of Total		Amount		% of Total
Noninterest-bearing demand deposits	$	890,588	30.1	%	$	826,216	28.9	%
Interest-bearing transaction accounts	547,078		18.5	%	588,391		20.6	%
Savings and money market deposits	1,101,458		37.2	%	1,074,190		37.5	%
Time deposits less than $250,000	332,873		11.3	%	279,449		9.8	%
Time deposits $250,000 or greater	57,556		1.9	%	41,439		1.4	%
Brokered and wholesale time deposits	29,739		1.0	%	52,277		1.8	%
Total deposits	$	2,959,292	100.0	%	$	2,861,962	100.0	%

The maturity distribution of our time deposits of $250,000 or greater was as follows (dollars in thousands):



	September 30, 2016
Three months or less	$	3,854
Over three through six months	6,485
Over six though twelve months	38,563
Over twelve months	8,654
Total time deposits of $250,000 or greater	$	57,556

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



	Nine Months Ended September 30
	2016				2015
	Average Amount		Average Rate		Average Amount		Average Rate
Noninterest-bearing demand deposits	$	844,419	—	%	$	734,421	—	%
Interest-bearing transaction accounts	528,669		.12	%	505,196		.14	%
Savings and money market deposits	1,064,999		.53	%	1,057,324		.46	%
Time deposits less than $250,000	335,796		.61	%	310,643		.36	%
Time deposits $250,000 or greater	59,969		.67	%	57,142		.34	%
Brokered and wholesale time deposits	30,978		1.04	%	85,494		.96	%
Total deposits	$	2,864,830			$	2,750,220

FHLB Borrowings

FHLB borrowings at September 30, 2016 were $20.0 million compared to none at December 31, 2015. We use short-term FHLB borrowings as part of our liquidity management strategy. The increase in FHLB borrowings was attributable to organic loan growth as well as brokered time deposits which matured during the period.

Capital Resources

We believe that our capital base is adequate to support our activities in a safe manner while at the same time attempting to maximize shareholder returns. At September 30, 2016, shareholders' equity was $561.1 million, or 15.5% of total assets, compared to $536.5 million, or 15.5% of total assets, at December 31, 2015. The primary factors affecting changes in shareholders' equity was our net income, offset by dividends declared and our repurchase of $5.1 million of our common stock during the nine months ended September 30, 2016.

Federal regulations impose minimum regulatory capital requirements on all institutions with deposits insured by the FDIC. The Federal Reserve Board imposes similar capital regulations on bank holding companies. On January 1, 2015, the U.S. Basel III final rule replaced the existing Basel I-based approach for calculating risk-weighted assets. Basel III introduced a new minimum ratio of common equity Tier 1 capital (CET1) and raised the minimum ratios for Tier 1 capital, total capital, and Tier 1 leverage. The final rule emphasizes common equity Tier 1 capital and implements strict eligibility criteria for regulatory capital instruments and improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. The methods for calculating the risk-based capital ratios have changed and will change as the provisions of the Basel III final rule related to the numerator (capital) and denominator (risk-weighted assets) are fully phased in by January 1, 2019. The ongoing methodological changes will result in differences in the reported capital ratios from one reporting period to the next that are independent of applicable changes in the capital base, asset composition, off-balance sheet exposures or risk profile. In addition, in order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain a "capital conservation buffer" on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three measurements (Common Equity Tier 1, Tier 1 capital and total capital). The capital conservation buffer will be phased in incrementally over time, becoming fully effective on January 1, 2019, and will consist of an additional amount of common equity equal to 2.5% of risk-weighted assets. Implementation of the new capital and liquidity standards did not and is not expected to significantly impact the Company or State Bank because our current capital levels materially exceed those required under the new rules.

The minimum regulatory capital ratios and ratios to be considered well-capitalized under prompt corrective action provisions at the both September 30, 2016 and December 31, 2015 are presented in the table below:



Capital Ratio Requirements	Minimum Requirement	Well-capitalized (1)
CET1 Capital	4.50%	6.50%
Tier 1 Capital	6.00%	8.00%
Total Capital	8.00%	10.00%
Tier 1 Leverage	4.00%	5.00%

(1) The prompt corrective action provisions are only applicable at the bank level.

At September 30, 2016 and December 31, 2015, the Company and State Bank exceeded all regulatory capital adequacy requirements to which they were subject. The following table shows the Company's and State Bank's regulatory capital ratios at the dates indicated:



	September 30, 2016		December 31, 2015
Company
Tier 1 leverage ratio	14.64	%	14.48	%
CET1 capital ratio	16.68		17.71
Tier 1 risk-based capital ratio	16.68		17.71
Total risk-based capital ratio	17.56		18.75

State Bank
Tier 1 leverage ratio	12.88	%	12.62	%
CET1 capital ratio	14.67		15.42
Tier 1 risk-based capital ratio	14.67		15.42
Total risk-based capital ratio	15.56		16.47

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 State 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. During the quarter ended September 30, 2016, State Bank paid no dividends to the Company. At September 30, 2016, State Bank had no capacity to pay dividends to the Company without prior regulatory approval.

At September 30, 2016, the Company had $45.6 million in cash and due from bank accounts, which could be used for additional capital as needed by State Bank, payment of holding company expenses, payment of dividends to shareholders, or for other corporate purposes. On August 24, 2016, we declared a quarterly dividend of $.14 per common share and paid the dividend on September 13, 2016 to our common stock shareholders of record as of September 6, 2016.

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, including our proposed acquisitions of NBG Bancorp, Inc. and S Bankshares, Inc., as well as acquisitions that would complement or expand our present product capabilities. 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 (including purchases under the Rule 10b5-1 plan we announced on February 25, 2016).

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 September 30, 2016, unfunded commitments to extend credit were $604.0 million. A significant portion of the unfunded commitments related to commercial and residential real estate construction, commercial lines of credit and consumer equity lines of credit. Based on experience, we anticipate that a significant portion of these lines of credit will not be funded. We evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. The type of collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

At September 30, 2016, there were commitments totaling approximately $5.7 million under letters of credit. The credit risk and collateral involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Because most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.

Except as disclosed in Note 13 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 (dollars in thousands):



			Payments Due by Period
September 30, 2016	Total		Less Than 1 Year		1 to 3 Years		3 to 5 Years		More Than 5 Years
Contractual Obligations:
Time deposits, including accrued interest payable	$	421,614	$	342,892	$	66,070	$	12,652	$	—
Operating lease obligations	23,991		3,524		7,041		6,259		7,167
Total contractual obligations	$	445,605	$	346,416	$	73,111	$	18,911	$	7,167

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 State 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.

At September 30, 2016, our liquid assets, which consist of cash and amounts due from banks and interest-bearing deposits in other financial institutions, amounted to $113.8 million, or 3.1% of total assets compared to $175.4 million, or 5.1% of total assets at December 31, 2015. The decline in our liquid assets was primarily due to funding organic loan growth. Our available-for-sale securities at September 30, 2016 amounted to $822.7 million, or 22.7% of total assets compared to $887.7 million or 25.6% at December 31, 2015. Investment securities with an aggregate fair value of $290.3 million and $424.8 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and repurchase agreements. The increase in our unpledged securities was due to decreases in public funds, partially offset by an increase in repurchase agreements.

The liability portion of the balance sheet serves as our primary source of liquidity. We plan to meet our future cash needs through the generation of deposits. Core customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. At September 30, 2016, core deposits were 123.9% of net loans, compared with 130.6% at December 31, 2015. We maintain eight federal funds lines of credit with correspondent banks totaling $175.0 million. We are also a member of the Federal Home Loan Bank of Atlanta (FHLB), from which we can borrow for leverage or liquidity purposes. The FHLB requires that securities and qualifying loans be pledged to secure any advances. At September 30, 2016, we had $20.0 million advances from the FHLB and a remaining credit availability of $230.7 million. In addition, we maintain a $425.5 million line with the Federal Reserve Bank's discount window that is 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 designated as hedging instruments, we are able to efficiently manage the interest rate risk identified in specific assets and liabilities on our balance sheet. At September 30, 2016, we had interest rate swaps and caps with aggregate notional amounts of $166.9 million and $200.0 million, respectively. The fair value of the derivative financial assets was $188,000 at September 30, 2016, compared to $1.3 million at December 31, 2015. The fair value of the derivative financial liabilities was $4.5 million at September 30, 2016, compared to $1.5 million at December 31, 2015. The change in the values of our derivatives was directly related to the decline in interest rates. Note 10 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.

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.

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 purchased credit impaired loans, 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 are instantaneously shocked up or down. While we believe this model provides a reasonably accurate projection of our interest rate risk, the model includes a number of assumptions and predictions which may or may not be correct and may impact the model results. These assumptions and predictions include inputs to compute baseline net interest income, growth rates, expected changes in administered rates on interest-bearing deposit accounts, competition and a variety of other factors that are difficult to accurately predict. Accordingly, there can be no assurance the earnings simulation model will accurately reflect future results.

The following table presents the earnings simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12-month period commencing October 1, 2016. Based on the simulation run at September 30, 2016, annual net interest income would be expected to increase approximately 6.11%, 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 13.83%. If rates decreased 100 basis points from current rates, net interest income is projected to decrease approximately 3.43%. 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 increase in asset sensitivity at September 30, 2016 was primarily due to growth in longer duration deposits, specifically noninterest bearing deposits and CDs.



	% Change in Projected Baseline Net Interest Income
Shift in Interest Rates (in basis points)	September 30, 2016			December 31, 2015
+200	13.83		%	11.34		%
+100	6.11			4.95
-100	(3.43	)		(2.47	)
-200	Not meaningful			Not meaningful

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Based on management's evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, as of September 30, 2016, 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, 2015.

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

Sales of Unregistered Securities

On August 16, 2016, we issued 2,748 shares of our common stock in a cashless exchange for a warrant to purchase 5,000 shares of our common stock. Pursuant to the terms of the warrant, the holder of the warrant used the amount by which 2,252 shares were deemed to be "in the money" as consideration for the $10.00 per share exercise price for the 2,748 shares we issued, and the entire warrant was canceled in the exchange. The shares issued were exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended, because we exchanged the shares with our existing security holder exclusively, and no commission or other remuneration was paid or given directly or indirectly for soliciting the exchange.

Repurchases of Company Common Stock

No shares were repurchased by the Company in the three months ended September 30, 2016. On February 10, 2016, the board of directors authorized the repurchase of up to 1.5 million shares of the Company's outstanding common stock. On February 25, 2016, the Company announced it entered into a written trading plan with a broker for the purpose of purchasing up to 1.5 million shares of the Company's outstanding common stock in accordance with the guidelines specified in Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The trading plan expires on the earlier of (a) the first anniversary of the trading plan, (b) the date on which the maximum aggregate number of shares authorized to be repurchased has been repurchased, or (c) after written notice by the broker or the Company as specified in the trading plan. To date, 270,715 shares have been repurchased and 1,229,285 shares may still be repurchased by the Company under the plan.

Total

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

31.1		Rule 13a-14(a) Certification of the Chief Executive Officer

31.2		Rule 13a-14(a) Certification of the Chief Financial Officer

32.1		Section 1350 Certifications

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in eXtensible Business Reporting Language (XBRL); (i) Consolidated Statements of Financial Condition at September 30, 2016 and December 31, 2015, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015, (iv) Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2016 and 2015, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 and (vi) Notes to Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		STATE BANK FINANCIAL CORPORATION

November 4, 2016	By:	/s/ Joseph W. Evans
		Joseph W. Evans
		Chief Executive Officer (Principal Executive Officer)


November 4, 2016	By:	/s/ Sheila E. Ray
		Sheila E. Ray
		Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX



Exhibit No.		Description of Exhibit

31.1		Rule 13a-14(a) Certification of the Chief Executive Officer

31.2		Rule 13a-14(a) Certification of the Chief Financial Officer

32.1		Section 1350 Certifications

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in eXtensible Business Reporting Language (XBRL); (i) Consolidated Statements of Financial Condition at September 30, 2016 and December 31, 2015, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015, (iv) Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2016 and 2015, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 and (vi) Notes to Consolidated Financial Statements.