XNAS:STBZ State Bank Financial Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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 March 31, 2012
or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to            
 
Commission file number: 000-54056 

STATE BANK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter) 
Georgia
 
27-1744232
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
3399 Peachtree Road, NE, Suite 1900, Atlanta, Georgia
 
30326
(Address of principal executive offices)
 
(Zip Code)
 404-475-6599
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer x
Non-accelerated filer o 
(Do not check if a smaller reporting company)
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

The number of shares outstanding of the registrant’s common stock, as of May 10, 2012 was 31,721,236.
 






TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mine Safety Disclosures





CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Certain statements contained in this report that are not statements of historical fact may constitute forward-looking statements.  These forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words “may,” “would,” “could,” “will,” “expect,” “anticipate,” “believe,” “intend,” “plan” and “estimate,” as well as similar expressions.  These forward-looking statements include statements related to our projected growth, anticipated future financial performance, and management’s long-term performance goals, as well as statements relating to the anticipated effects on results of operations and financial condition from expected developments or events, or business and growth strategies, including anticipated internal growth and plans to establish or acquire banks or the assets of failed banks.
 
These forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ materially from those anticipated in such statements.  Potential risks and uncertainties include the following:
 
                   general economic conditions (both generally and in our markets) may be less favorable than expected, which could result in, among other things, a continued deterioration in credit quality, a further reduction in demand for credit and a further decline in real estate values;
                   the general decline in the real estate and lending markets, particularly in our market areas, may continue to negatively affect our financial results;
                   our ability to raise additional capital may be impaired if current levels of market disruption and volatility continue or worsen;
                   we may be unable to collect reimbursements on losses that we incur on our assets covered under loss share agreements with the FDIC as we anticipate;
                   costs or difficulties related to the integration of the banks we acquired or may acquire from the FDIC as receiver may be greater than expected;
                   restrictions or conditions imposed by our regulators on our operations may make it more difficult for us to achieve our goals;
                   legislative or regulatory changes, including changes in accounting standards and compliance requirements, may adversely affect us;
                   competitive pressures among depository and other financial institutions may increase significantly;
                   changes in the interest rate environment may reduce margins or the volumes or values of the loans we make or have acquired;
                   other financial institutions have greater financial resources and may be able to develop or acquire products that enable them to compete more successfully than we can;
                   our ability to attract and retain key personnel can be affected by the increased competition for experienced employees in the banking industry;
                   adverse changes may occur in the bond and equity markets;
                   war or terrorist activities may cause further deterioration in the economy or cause instability in credit markets;
                   economic, governmental or other factors may prevent the projected population, residential and commercial growth in the markets in which we operate; and
                   other risk factors discussed from time to time in the periodic reports we file with the SEC.
 
For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report.  All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  See Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2011, as well as Part II, Item 1A, Risk Factors, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, for a description of some of the important factors that may affect actual outcomes.




1


PART I 
Item 1.  Financial Statements.
STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
 
March 31, 2012
 
December 31, 2011
 
(Unaudited)
 
(Audited)
Assets
Cash and amounts due from depository institutions
$
11,287

 
$
13,747

Interest-bearing deposits in other financial institutions
199,031

 
206,785

Cash and cash equivalents
210,318

 
220,532

Investment securities available-for-sale
322,832

 
349,929

Federal Home Loan Bank stock
8,802

 
8,802

Loans receivable:
 
 
 
Noncovered under FDIC loss share agreements
754,635

 
701,029

Covered under FDIC loss share agreements, net
792,158

 
812,154

Allowance for loan losses (noncovered loans)
(11,681
)
 
(10,207
)
Allowance for loan losses (covered loans)
(56,087
)
 
(59,277
)
Net loans
1,479,025

 
1,443,699

Mortgage loans held for sale
3,719

 
6,229

Other real estate owned:
 
 
 
Noncovered under FDIC loss share agreements
957

 
1,210

Covered under FDIC loss share agreements
63,572

 
84,496

Premises and equipment, net
36,971

 
36,760

Goodwill
6,562

 
6,562

Core deposit intangible, net
1,636

 
1,882

FDIC receivable for loss share agreements, net
460,593

 
529,440

Other assets
81,661

 
86,793

Total assets
$
2,676,648

 
$
2,776,334

Liabilities and Shareholders' Equity
Liabilities:
 
 
 
Noninterest-bearing deposits
$
312,967

 
$
297,188

Interest-bearing deposits
1,875,908

 
2,001,277

Total deposits
2,188,875

 
2,298,465

Securities sold under agreements to repurchase
1,421

 
4,749

Notes payable
2,535

 
2,539

Other liabilities
75,314

 
73,293

Total liabilities
2,268,145

 
2,379,046

Shareholders' equity:
 
 
 
Preferred stock, $1 par value; 2,000,000 shares authorized, zero shares issued and outstanding in 2012 and 2011, respectively

 

Common stock, $.01 par value; 100,000,000 shares authorized; 31,721,236 shares issued and outstanding in 2012 and 2011, respectively
317

 
317

Additional paid-in capital
293,240

 
293,074

Retained earnings
111,712

 
106,574

Accumulated other comprehensive income (loss), net of tax
3,234

 
(2,677
)
Total shareholders' equity
408,503

 
397,288

Total liabilities and shareholders' equity
$
2,676,648

 
$
2,776,334

See accompanying notes to consolidated financial statements.


2


STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
 
Three Months Ended
 
March 31
 
2012
 
2011
Interest income:
 
 
 
Noncovered loans, including fees
$
11,834

 
$
6,739

Accretion income on covered loans
23,490

 
25,482

Investment securities:
 
 
 
Taxable
2,799

 
2,278

Tax-exempt
104

 
102

Deposits with other financial institutions
102

 
197

Total interest income
38,329

 
34,798

Interest expense:
 
 
 
Deposits
2,796

 
7,033

Notes payable
55

 
72

Federal funds purchased and repurchase agreements
1

 
13

Total interest expense
2,852

 
7,118

Net interest income
35,477

 
27,680

Provision for loan losses (noncovered loans)
1,535

 
961

Provision for loan losses (covered loans)
(1,283
)
 

Net interest income after provision for loan losses
35,225

 
26,719

Noninterest income:
 
 
 
Accretion (amortization) of FDIC receivable for loss sharing agreements
(7,001
)
 
4,973

Service charges on deposits
1,212

 
1,413

Mortgage banking income
302

 
157

Gain (loss) on sale of investment securities
93

 
(3
)
ATM income
585

 
488

Other
1,031

 
1,036

Total noninterest income
(3,778
)
 
8,064

Noninterest expense:
 
 
 
Salaries and employee benefits
12,963

 
11,677

Occupancy and equipment
2,457

 
1,892

Legal and professional fees
1,517

 
1,843

Marketing
264

 
760

Federal insurance premiums and other regulatory fees
418

 
649

Net cost of operations of real estate owned
2,078

 
1,930

Data processing
1,864

 
951

Core deposit intangible amortization
246

 
224

Other
1,406

 
1,513

Total noninterest expense
23,213

 
21,439

Income before income taxes
8,234

 
13,344

Income tax expense
3,096

 
5,113

Net income
$
5,138

 
$
8,231

Basic net income per share
$
.16

 
$
.26

Diluted net income per share
$
.16

 
$
.25

Weighted Average Shares Outstanding:
 
 
 
Basic
31,611,603

 
31,610,904

Diluted
32,794,798

 
32,622,623



See accompanying notes to consolidated financial statements.

3


STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)

 
Three Months Ended
 
March 31
 
2012
 
2011
Net income
$
5,138

 
$
8,231

Other comprehensive income (loss), net of tax
 
 
 
Unrealized gains (losses) on investment securities available-for-sale arising during the period, net of income tax expense of $3,597 and income tax benefit of $54, respectively
5,969

 
(90
)
Reclassification adjustment for (gains) losses on liquidation of equity securities included in investment securities available-for-sale, net of income tax expense of $35 and income tax benefit of $1, respectively
(58
)
 
2

Total other comprehensive income (loss)
5,911

 
(88
)
Comprehensive income
$
11,049

 
$
8,143



See accompanying notes to consolidated financial statements.

4


STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

 
Warrants
 
Common
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other Comprehensive
Income
 
Total
 
 
Shares
 
Stock
 
 
 
 
Balance, December 31, 2010
2,715,561

 
31,610,904

 
$
316

 
$
292,942

 
$
63,568

 
$
2,517

 
$
359,343

Repurchase of stock warrants
(16,000
)
 

 

 
(33
)
 

 

 
(33
)
Change in accumulated other comprehensive income

 

 

 

 

 
(88
)
 
(88
)
Net income

 

 

 

 
8,231

 
 
 
8,231

Balance, March 31, 2011
2,699,561

 
31,610,904

 
$
316

 
$
292,909

 
$
71,799

 
$
2,429

 
$
367,453

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2011
2,686,827

 
31,721,236

 
$
317

 
$
293,074

 
$
106,574

 
$
(2,677
)
 
$
397,288

Stock based compensation

 

 

 
166

 

 

 
166

Change in accumulated other comprehensive income

 

 

 

 

 
5,911

 
5,911

Net income

 

 

 

 
5,138

 

 
5,138

Balance, March 31, 2012
2,686,827

 
31,721,236

 
$
317

 
$
293,240

 
$
111,712

 
$
3,234

 
$
408,503



See accompanying notes to consolidated financial statements.

5


STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
 
Three Months Ended
 
March 31
 
2012
 
2011
Cash Flows from Operating Activities
 

 
 

Net income
$
5,138

 
$
8,231

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion on premises and equipment and investments
362

 
794

Amortization of intangible assets
246

 
224

Provision for loan losses
252

 
961

Amortization of premiums and discounts on acquisitions, net
(16,489
)
 
(30,455
)
Loss on sale of other real estate owned
941

 
1,048

Writedowns of other real estate owned
19,140

 
18,536

Increase in FDIC receivable for covered losses
(9,889
)
 
(5,539
)
Funds collected from FDIC receivable
66,643

 
47,332

Proceeds from sales of mortgage loans held for sale
18,072

 
8,932

Originations of mortgage loans held for sale
(15,647
)
 
(6,249
)
Loss on mortgage loans held for sale
85

 

Loss (gain) on available for sale securities
(93
)
 
3

Net change in cash surrender value of insurance
(344
)
 
(357
)
Stock based compensation expense
166

 

Loss share true-up liability
9

 

Changes in other assets, net
2,293

 
(3,003
)
Changes in other liabilities, net
2,008

 
3,995

Net cash provided by operating activities
72,893

 
44,453

Cash flows from Investing Activities
 
 
 
Purchase of investment securities available-for-sale
(14,097
)
 
(26,883
)
Proceeds from sales, calls, maturities and paydowns of investment securities available for sale
50,740

 
46,288

Loans to customers, net of repayments
(20,224
)
 
(15,762
)
Redemptions of Federal Home Loan Bank stock

 
451

Purchases of premises and equipment
(932
)
 
(648
)
Proceeds from sales of other real estate owned
14,324

 
20,097

Net cash provided by investing activities
29,811

 
23,543


6


STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
 
Three Months Ended
 
March 31
 
2012
 
2011
Cash Flows from Financing Activities
 
 
 
Net increase in noninterest-bearing customer deposits
15,779

 
5,274

Net (decrease) in interest-bearing customer deposits
(125,369
)
 
(157,335
)
Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements
(3,328
)
 
125

Repurchase of stock warrants

 
(33
)
Cash (used in) financing activities
(112,918
)
 
(151,969
)
Net (decrease) in cash and cash equivalents
(10,214
)
 
(83,973
)
Cash and cash equivalents, beginning
220,532

 
386,489

Cash and cash equivalents, ending
$
210,318

 
$
302,516

Cash Received During the Period for:
 
 
 
Interest income on loans
$
12,769

 
$
6,579

Cash Paid During the Period for:
 
 
 
Interest expense
$
3,180

 
$
6,709

Income taxes

 

Supplemental Disclosure of Noncash Investing and Financing Activities
 
 
 
Unrealized gains (losses) on securities, net of tax
$
5,911

 
$
(88
)
Transfers of loans to other real estate owned
13,228

 
14,774



See accompanying notes to consolidated financial statements.

7

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Note 1: Basis of Presentation

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

The accompanying unaudited consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.  Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation.  The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim period presented.  All significant intercompany accounts and transactions have been eliminated in consolidation.  The results of operations for the period ended March 31, 2012 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, 2011.

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

Note 2:  Recently Adopted Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS ("ASU 2011-04"). The amendments in ASU 2011-04 primarily represent clarification to existing guidance over the fair value measurement and disclosure requirements. ASU 2011-04 does not change the concepts of the valuation premise and high and best use, stating that they are only relevant for nonfinancial assets. The guidance also changes the application of premiums and discounts and includes new disclosures. The amendments in this guidance are effective for the Company for interim and annual reporting periods beginning after December 15, 2011. The effect of adopting this standard did not have a material effect on the Company's results of operations or financial position. The additional required disclosures are included in Note 15.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income ("ASU 2011-05"). The amendments in ASU 2011-05 require entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity is eliminated. The amendments in this guidance are effective for the Company as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment had no impact on the consolidated financial statements as the prior presentation of comprehensive income was in compliance with this amendment.



8

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Note 3: Investment Securities

Investment securities as of March 31, 2012 are summarized as follows (in thousands):

 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
 
 
 
Investment Securities Available-for-Sale
 
 
 
 
 
 
 
U.S. Government securities
$
51,949

 
$
1,229

 
$

 
$
53,178

States and political subdivisions
12,389

 
320

 
18

 
12,691

Residential mortgage-backed securities-nonagency
140,365

 
3,602

 
4,072

 
139,895

Residential mortgage-backed securities-agency
31,813

 
1,409

 

 
33,222

Collateralized mortgage obligations
80,961

 
2,512

 
5

 
83,468

Corporate securities
378

 

 

 
378

Total investment securities available-for-sale
$
317,855

 
$
9,072

 
$
4,095

 
$
322,832


Investment securities as of December 31, 2011 are summarized as follows (in thousands):

 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
 
 
 
Investment Securities Available-for-Sale
 
 
 
 
 
 
 
U.S. Government securities
$
76,976

 
$
1,294

 
$

 
$
78,270

States and political subdivisions
10,740

 
356

 

 
11,096

Residential mortgage-backed securities-nonagency
145,768

 
126

 
9,951

 
135,943

Residential mortgage-backed securities-agency
30,031

 
1,423

 

 
31,454

Collateralized mortgage obligations
90,159

 
2,635

 

 
92,794

Corporate securities
372

 

 

 
372

Total investment securities available-for-sale
$
354,046

 
$
5,834

 
$
9,951

 
$
349,929


The amortized cost and estimated fair value of available-for-sale securities at March 31, 2012 by contractual maturity are summarized in the table below.  Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers prepay obligations without prepayment penalties.  Therefore, these securities are not presented by contractual maturity in the following maturity summary (in thousands):

 
Amortized Cost
 
Fair Value
 
 
Due within one year
$
40,467

 
$
40,490

Due from one year to five years
12,761

 
13,395

Due from five years to ten years
1,898

 
2,174

Due after ten years
9,590

 
10,188

Residential mortgage-backed securities (nonagency and agency) and collateralized mortgage obligations
253,139

 
256,585

 
$
317,855

 
$
322,832


The Company’s investment in FHLB stock was $8.8 million at March 31, 2012 and December 31, 2011, respectively.


9

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Gains and losses on the sales and calls of investment securities available-for-sale consist of the following (in thousands):

 
Three Months Ended
 
March 31
 
2012
 
2011
Gross gains on securities available-for-sale
$
93

 
$

Gross losses on securities available-for-sale

 
(3
)
Net realized gains (losses) on sales of securities available-for-sale
$
93

 
$
(3
)

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.

The following table provides information regarding securities with unrealized losses as of March 31, 2012 and December 31, 2011 (in thousands):

 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
 
 
 
 
 
March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
$
4,642

 
$
18

 
$

 
$

 
$
4,642

 
$
18

Residential mortgage-backed-nonagency
26,930

 
997

 
33,294

 
3,075

 
60,224

 
4,072

Collateralized mortgage obligations
7,179

 
5

 

 

 
7,179

 
5

 
 
 
 
 
 
 
 
 
 
 
 
Total
$
38,751

 
$
1,020

 
$
33,294

 
$
3,075

 
$
72,045

 
$
4,095

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed-nonagency
$
109,027

 
$
9,082

 
$
8,936

 
$
869

 
$
117,963

 
$
9,951

Total
$
109,027

 
$
9,082

 
$
8,936

 
$
869

 
$
117,963

 
$
9,951


Investment securities with aggregate fair values of $33.3 million and $8.9 million had continuous unrealized losses of $3.1 million and $869,000 for more than twelve months as of March 31, 2012 and December 31, 2011, respectively.  The unrealized losses arose from changes in interest rates and market conditions.

The Company reviews its investment portfolio on a quarterly basis for indications of other than temporary impairment ("OTTI"). The analysis differs depending upon the type of investment security being analyzed. The severity and duration of impairment and the likelihood of potential recovery of impairment is considered along with the intent and ability to hold any impaired security to maturity or recovery of carrying value.

The Company's nonagency portfolio is tested quarterly for OTTI by the use of cash flow models that estimate cash flows on security-specific collateral and the transaction structure. Future expected credit losses are determined

10

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


by using various assumptions, the most significant of which include current default rates, prepayment rates, and loss severities. For the majority of the securities that the Company has reviewed for OTTI, credit information is available and modeled at the loan level underlying each security; 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 on a regular basis to ensure the most current credit and other assumptions are utilized in the analysis. If, based on our analysis, the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are discounted at the security's initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities. As of March 31, 2012, there was no intent to sell any of the securities available-for-sale, and it is more likely than not that the Company will not be required to sell these securities. Furthermore, the present value of cash flows expected to be collected exceeded the Company's amortized cost basis of the investment securities. Therefore, these securities are not deemed to be other than temporarily impaired.

Investment securities with an aggregate carrying amount of $89.8 million and $156.1 million at March 31, 2012 and December 31, 2011, respectively, were pledged to secure public deposits and FHLB advances.
 
Note 4: Loans Receivable

Loans not covered by loss share agreements are summarized as follows (in thousands):
 
March 31, 2012
 
December 31, 2011
Construction, land & land development
$
197,840

 
$
162,382

Other commercial real estate
321,905

 
307,814

Total commercial real estate
519,745

 
470,196

Commercial & industrial
36,235

 
35,817

Owner-occupied real estate
143,469

 
139,128

Total commercial & industrial
179,704

 
174,945

Residential real estate
33,971

 
33,738

Consumer & other
21,215

 
22,150

Total noncovered loans
754,635

 
701,029

Allowance for loan losses
(11,681
)
 
(10,207
)
Total noncovered loans, net
$
742,954

 
$
690,822


The table above includes net deferred loan fees that totaled approximately $1.8 million and $1.9 million at March 31, 2012 and December 31, 2011, respectively.


11

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Loans covered by loss share agreements, net of related discounts, are summarized as follows (in thousands):

 
March 31, 2012
 
December 31, 2011
Construction, land & land development
$
190,489

 
$
190,110

Other commercial real estate
229,964

 
233,575

Total commercial real estate
420,453

 
423,685

Commercial & industrial
34,507

 
38,174

Owner-occupied real estate
137,302

 
143,523

Total commercial & industrial
171,809

 
181,697

Residential real estate
183,174

 
189,109

Consumer & other
16,722

 
17,663

Total covered loans
792,158

 
812,154

Allowance for loan losses
(56,087
)
 
(59,277
)
Total covered loans, net
$
736,071

 
$
752,877


The following table documents changes in the carrying value of covered loans (in thousands):

 
March 31, 2012
 
March 31, 2011
Balance, beginning of period
$
752,877

 
$
934,967

Accretion of fair value discounts
23,490

 
25,482

Reductions in principal balances resulting from repayments, write-offs and foreclosures
(43,486
)
 
(69,259
)
Change in the allowance for loan losses on covered loans
3,190

 

Balance, end of period
$
736,071

 
$
891,190


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


12

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following table shows changes in the value of the accretable discount for the three months ended March 31, 2012 and 2011 as follows (in thousands):
 
Three Months Ended
 
March 31
 
2012
 
2011
Balance, beginning of period
$
230,697

 
$
123,778

Accretion
(23,490
)
 
(25,482
)
Transfers to accretable discount (exit events), net
(11,994
)
 
45,520

Balance, end of period
$
195,213

 
$
143,816



Note 5: Allowance for Loan Losses (ALL)

The following table presents the Company’s loan loss experience on noncovered and covered loans for the periods indicated (in thousands):
 
Three Months Ended March 31
 
2012
 
2011
 
Noncovered Loans
 
Covered Loans
 
Total
 
Noncovered Loans
 
Covered Loans
 
Total
 
 
 
 
 
 
Balance, beginning of year
$
10,207

 
$
59,277

 
$
69,484

 
$
5,351

 
$

 
$
5,351

Loans charged-off
(65
)
 
(3,369
)
 
(3,434
)
 
(98
)
 

 
(98
)
Recoveries of loans previously charged off
4

 
6,554

 
6,558

 

 

 

Net (charge-offs) recoveries
(61
)
 
3,185

 
3,124

 
(98
)
 

 
(98
)
Provision for loan losses
1,535

 
(6,375
)
 
(4,840
)
 
961

 

 
961

Benefit attributable to FDIC loss share agreements

 
5,092

 
5,092

 

 

 

Total provision for loan losses charged to operations
1,535

 
(1,283
)
 
252

 
961

 

 
961

Provision for loan losses recorded through the FDIC loss share receivable

 
(5,092
)
 
(5,092
)
 

 

 

Balance, end of year
$
11,681

 
$
56,087

 
$
67,768

 
$
6,214

 
$

 
$
6,214



13

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


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

 
 
Commercial Real Estate
 
Commercial & Industrial
 
Residential Real Estate
 
Consumer & Other
 
Nonspecific
 
Total
Three Months Ended
 
 
 
 
 
 
March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
6,470

 
$
2,848

 
$
561

 
$
328

 
$

 
$
10,207

Charge-offs
 
(47
)
 

 
(8
)
 
(10
)
 

 
(65
)
Recoveries
 

 

 

 
4

 

 
4

Provision
 
800

 
718

 
33

 
(23
)
 
7

 
1,535

Ending balance
 
$
7,223

 
$
3,566

 
$
586

 
$
299

 
$
7

 
$
11,681

Ending allowance attributable to loans:
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
915

 
$
346

 
$
157

 
$
45

 
$

 
$
1,463

Collectively evaluated for impairment
 
6,308

 
3,220

 
429

 
254

 
7

 
10,218

Total ending allowance balance
 
$
7,223

 
$
3,566

 
$
586

 
$
299

 
$
7

 
$
11,681


 
 
Commercial Real Estate
 
Commercial & Industrial
 
Residential Real Estate
 
Consumer & Other
 
Nonspecific
 
Total
Three Months Ended
 
 
 
 
 
 
March 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
3,258

 
$
1,385

 
$
246

 
$
223

 
$
239

 
$
5,351

Charge-offs
 
(7
)
 

 

 
(91
)
 

 
(98
)
Recoveries
 

 

 

 

 

 

Provision
 
530

 
239

 
33

 
103

 
56

 
961

Ending balance
 
$
3,781

 
$
1,624

 
$
279

 
$
235

 
$
295

 
$
6,214

Ending allowance attributable to loans:
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$

 
$
722

 
$
5

 
$

 
$

 
$
727

Collectively evaluated for impairment
 
3,781

 
902

 
274

 
235

 
295

 
5,487

Total ending allowance balance
 
$
3,781

 
$
1,624

 
$
279

 
$
235

 
$
295

 
$
6,214



14

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following table details the recorded investment in noncovered loans as of March 31, 2012, December 31, 2011 and March 31, 2011 related to each balance in the allowance for loan losses by portfolio segment and segregated on the basis of the Company's impairment methodology (in thousands):

 
 
Commercial Real Estate
  
Commercial & Industrial
  
Residential Real Estate
  
Consumer & Other
  
Total
March 31, 2012
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
 
$
2,743

  
$
694

 
$
369

  
$
90

  
$
3,896

Loans collectively evaluated for impairment
 
517,002

  
179,010

  
33,602

  
21,125

  
750,739

Ending balance
 
$
519,745

  
$
179,704

  
$
33,971

  
$
21,215

  
$
754,635

December 31, 2011
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
 
$
1,441

 
$
720

 
$

 
$

 
$
2,161

Loans collectively evaluated for impairment
 
468,755

 
174,225

 
33,738

 
22,150

 
698,868

Ending balance
 
$
470,196

 
$
174,945

 
$
33,738

 
$
22,150

 
$
701,029

March 31, 2011
 
 
  
 
  
 
  
 
  
 
Loans individually evaluated for impairment
 
$
1,178

  
$
3,579

  
$
148

  
$

  
$
4,905

Loans collectively evaluated for impairment
 
336,448

  
33,498

  
23,150

  
14,997

  
408,093

Ending balance
 
$
337,626

  
$
37,077

  
$
23,298

  
$
14,997

  
$
412,998



15

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following table details the allowance for loan losses on loans covered by loss share agreements by portfolio segment for the periods indicated (in thousands):
 
 
Commercial Real Estate
 
Commercial & Industrial
 
Residential Real Estate
 
Consumer & Other
 
Nonspecific
 
Total
Three Months Ended
 
 
 
 
 
 
March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
37,332

 
$
7,573

 
$
14,372

 
$

 
$

 
$
59,277

Charge-offs
 
(3,362
)
 

 
(7
)
 

 

 
(3,369
)
Recoveries
 
6,356

 
31

 
167

 

 

 
6,554

Provision for loan losses before benefit attributable to FDIC loss share agreements
 
(3,647
)
 
(2,400
)
 
(568
)
 
240

 

 
(6,375
)
Benefit attributable to FDIC loss share agreements
 
2,913

 
1,917

 
454

 
(192
)
 

 
5,092

Total provision for loan losses charged to operations
 
(734
)
 
(483
)
 
(114
)
 
48

 

 
(1,283
)
Provision for loan losses recorded through the FDIC loss share receivable
 
(2,913
)
 
(1,917
)
 
(454
)
 
192

 

 
(5,092
)
Ending balance
 
$
36,679

 
$
5,204

 
$
13,964

 
$
240

 
$

 
$
56,087

Ending allowance attributable to loans:
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
30,577

 
2,925

 
3,939

 
202

 

 
37,643

Collectively evaluated for impairment
 
6,102

 
2,279

 
10,025

 
38

 

 
18,444

Total ending allowance balance
 
$
36,679

 
$
5,204

 
$
13,964

 
$
240

 
$

 
$
56,087



16

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following table details the recorded investment in covered loans as of March 31, 2012 and December 31, 2011 related to each balance in the allowance for loan losses by portfolio segment and segregated on the basis of the Company's impairment methodology (in thousands):

 
Commercial
Real Estate
  
Commercial & Industrial
  
Residential Real Estate
  
Consumer & Other
  
Nonspecific
 
Total
March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
177,874

  
$
22,769

  
$
17,942

  
$
10,481

  
$

  
$
229,066

Loans collectively evaluated for impairment
242,579

  
149,040

  
165,232

  
6,241

  

 
563,092

Ending balance
$
420,453

  
$
171,809

  
$
183,174

  
$
16,722

  
$

 
$
792,158

December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
197,634

 
$
38,285

 
$
18,508

 
$
12,288

 
$

 
$
266,715

Loans collectively evaluated for impairment
226,051

 
143,412

 
170,601

 
5,375

 

 
545,439

Ending balance
$
423,685

 
$
181,697

 
$
189,109

 
$
17,663

 
$

 
$
812,154


The allowance for loan losses on loans covered by loss share agreements is not presented for the three months ended March 31, 2011 because the Company had no recorded allowance for loan losses on covered loans as of March 31, 2011.

As of March 31, 2012, the Company identified covered loans where the expected performance of such loans had deteriorated from management's performance expectations established in conjunction with the determination of the acquisition date fair values. As of March 31, 2012, the Company identified $113.3 million of impaired covered loans that were individually evaluated for impairment with an allocated allowance of $37.6 million and $296.1 million of impaired covered loans that were evaluated as part of their respective pools with an allocated allowance of $18.4 million. As of December 31, 2011, the Company identified $111.6 million of impaired covered loans that were individually evaluated for impairment with an allocated allowance of $35.5 million and $322.9 million of impaired covered loans that were evaluated as part of their respective pools with an allocated allowance of $23.8 million.

Approved credit losses will be reimbursed for covered loans under the appropriate FDIC loss share agreements at either 80 or 95 percent. The Company uses a symmetrical accounting approach in recording the loan carrying values and the FDIC receivable on covered loans. An increase in the loan value and a reduction in the FDIC receivable are accounted for as a yield adjustment over the remaining life of each asset. A reduction in the loan value, through a provision for loan losses, and an increase in the FDIC receivable, through an adjustment to income, are taken immediately.

17

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Impaired loans not covered by loss share agreements, segregated by class of loans, as of March 31, 2012 are as follows (in thousands):
 
Unpaid Principal Balance
 
Recorded Investment
 
Related Allowance
 
Average Recorded Investment
 
Interest Income Recognized
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Construction, land & land development
$

 
$

 
$

 
$

 
$

Other commercial real estate
881

 
605

 

 
614

 

Total commercial real estate
881

 
605

 

 
614

 

Commercial & industrial

 

 

 

 

Owner-occupied real estate

 

 

 

 

Total commercial & industrial

 

 

 

 

Residential real estate

 

 

 

 
1

Consumer & other

 

 

 

 

Subtotal
881

 
605

 

 
614

 
1

With related allowance recorded:
 
 
 
 
 
 
 
 
 
Construction, land & land development
$
483

 
$
483

 
$
242

 
$
520

 
$

Other commercial real estate
1,816

 
1,655

 
673

 
1,659

 
12

Total commercial real estate
2,299

 
2,138

 
915

 
2,179

 
12

Commercial & industrial
87

 
87

 
43

 
87

 

Owner-occupied real estate
612

 
607

 
303

 
607

 
3

Total commercial & industrial
699

 
694

 
346

 
694

 
3

Residential real estate
369

 
369

 
157

 
373

 

Consumer & other
90

 
90

 
45

 
95

 

Subtotal
3,457

 
3,291

 
1,463

 
3,341

 
15

Total impaired loans
$
4,338

 
$
3,896

 
$
1,463

 
$
3,955

 
$
16



18

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Impaired loans not covered by loss share agreements, segregated by class of loans, as of December 31, 2011 are as follows (in thousands):
 
Unpaid Principal Balance
 
Recorded Investment
 
Related Allowance
 
Average Recorded Investment
 
Interest Income Recognized
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Construction, land & land development
$
1,330

 
$
1,054

 
$

 
$
1,058

 
$
1

Other commercial real estate
387

 
387

 

 
84

 
1

Total commercial real estate
1,717

 
1,441

 

 
1,142

 
2

Commercial & industrial

 

 

 

 

Owner-occupied real estate
846

 
586

 

 
2,143

 
8

Total commercial & industrial
846

 
586

 

 
2,143

 
8

Residential real estate

 

 

 
79

 
2

Consumer & other

 

 

 

 

Subtotal
2,563

 
2,027

 

 
3,364

 
12

With related allowance recorded:
 
 
 
 
 
 
 
 
 
Construction, land & land development

 

 

 

 

Other commercial real estate

 

 

 

 

Total commercial real estate

 

 

 

 

Commercial & industrial

 

 

 

 

Owner-occupied real estate
433

 
134

 
46

 
317

 

Total commercial & industrial
433

 
134

 

 
317

 

Residential real estate

 

 

 

 

Consumer & other

 

 

 

 

Subtotal
433

 
134