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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                        toCommission file number: 000-54056


STATE BANK FINANCIAL CORPORATION(Exact name of registrant as specified in its charter)

Georgia(State or other jurisdiction of
incorporation or organization)

27-1744232(I.R.S. Employer
Identification No.)415 East Paces Ferry Road, NE, Suite 250,
Atlanta, Georgia(Address of principal executive offices)

30305(Zip Code)404-475-6599(Registrant's telephone number, including area code)Securities registered under Section 12(b) of the Exchange Act: NoneSecurities registered under Section 12(g) of the Act:
Common Stock, $0.01 par value per share(Title of class)


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o    No ý

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 ý    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 o    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. 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

Accelerate filer o

Non-accelerated filer ý (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 ý

As of June 30, 2010, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was
$494.4 million based on the closing sale price of $16.00 per share on April 7, 2010, the price at which the common stock was last sold in the most recently completed second fiscal
quarter.

The
number of shares outstanding of the registrant's common stock, as of March 15, 2011 was 31,610,904.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Annual Report on Form 10-K is incorporated by reference from the registrant's definitive
proxy statement relating to the 2011 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which
this Annual Report on Form 10-K relates.



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TABLE OF CONTENTS



PageCautionary Note Regarding Forward-Looking Statements

1Part IITEM 1.

Business

2ITEM 1A.

Risk Factors

30ITEM 1B.

Unresolved Staff Comments

43ITEM 2.

Properties

43ITEM 3.

Legal Proceedings

44ITEM 4.

(Removed and Reserved)

44Part IIITEM 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

45ITEM 6.

Selected Financial Data

46ITEM 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

49ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

80ITEM 8.

Financial Statements and Supplementary Data

81ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

83ITEM 9A.

Controls and Procedures

83ITEM 9B.

Other Information

83Part IIIITEM 10.

Directors, Executive Officers and Corporate Governance

84ITEM 11.

Executive Compensation

84ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

84ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

84ITEM 14.

Principal Accounting Fees and Services

84Part IVITEM 15.

Exhibits, Financial Statement Schedules

84


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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 those described under "Risk Factors" and the following:



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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, for a description of some of the important factors that may affect
actual outcomes.

PART I

Item 1.    Description of Business.

General Overview

State Bank Financial Corporation (the "Company") is a bank holding company incorporated under the laws of the State of Georgia in
January 2010 to serve as the holding company for State Bank and Trust Company (the "Bank"). The Bank is a Georgia state-chartered bank that opened in October 2005 in Pinehurst, Georgia. The Company
was organized at the direction of the board of directors of the Bank for the purpose of acquiring all of the capital stock of the Bank. On July 23, 2010, the Company became the bank holding
company of the Bank under a plan of reorganization and share exchange that was approved by the boards of directors of the Company and the Bank and adopted by the shareholders of the Bank at its annual
meeting held on March 11, 2010.

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 and Trust Company,
except that if the discussions relate to a period before July 23, 2010, these terms refer solely to State Bank and Trust Company. All references to the "Bank" refer to State Bank and Trust
Company.

Under
the plan of reorganization and share exchange, the holding company reorganization was effected through a contribution of all of the outstanding shares of the Bank's common stock to
the Company in a one-for-one exchange for shares of the Company's common stock.
Upon consummation of the reorganization, the Bank became the wholly-owned subsidiary of the Company and all of the former shareholders of the Bank became shareholders of the Company. Before the
reorganization, the Company did not engage in any operations other than organizational activities. The only significant activities of the Company are the ownership and supervision of the Bank.

We
offer a variety of community banking services to individuals and businesses within our middle Georgia and metropolitan Atlanta markets. Our product line includes loans to small and
medium-sized businesses, residential and commercial construction and development loans, commercial real estate loans, farmland and agricultural production loans, residential mortgage loans, home
equity loans, consumer loans and a variety of commercial and consumer demand, savings and time deposit products. We also offer online banking and bill payment services, online cash management, safe
deposit box rentals, debit card and ATM card services and the availability of a network of ATMs for our customers.

As
of December 31, 2010, our total assets were approximately $2.8 billion, our total loans receivable were approximately $1.3 billion, our total deposits were
approximately $2.4 billion and our total shareholders' equity was approximately $359.3 million. We are headquartered at 415 East Paces Ferry Road, Suite 250, Atlanta, Georgia
30305. The Bank's main office is located at 4219 Forsyth Road, Macon, Georgia 31210.

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Acquisitions in 2009 and 2010



In early 2009, Joseph W. Evans, J. Daniel Speight and Kim M. Childers began negotiations with the Bank to develop a plan to acquire and
recapitalize the Bank to be able to use the Bank's charter to acquire failed banks from the FDIC. During this process, Mr. Evans, Mr. Speight and Mr. Childers performed extensive
due diligence on potential failed bank targets, recruited new personnel for the Bank, raised contingent capital from investors, negotiated a change in control transaction with prior management of the
Bank, and obtained the necessary support and approval of the Bank's primary regulators.

On
July 24, 2009, the Bank's new management team led by Mr. Evans, Mr. Speight and Mr. Childers took control of the Bank. Simultaneously with the change in
control transaction, we raised approximately $292.1 million in gross proceeds (before expenses) from investors in a private placement of our common stock, including investments from our new
executive management team. The purchase price for the shares in the offering was $10.00 per share. The investors in the offering, either directly or through affiliated funds, included hedge funds,
mutual funds, an insurance company and individuals. These new investors now own approximately 92% of our outstanding common stock.

Also
on July 24, 2009, the Bank assumed all of the deposits and acquired certain assets and liabilities of the six bank subsidiaries of Security Bank Corporation, Macon, Georgia,
from the FDIC, as receiver, under the terms of a purchase and assumption agreement between the Bank and the FDIC dated July 24, 2009 (the "Security Bank Agreement").

The
six acquired banks (the "Security Banks") had a total of 20 branches in Macon, Perry, Warner Robins, Gray, Woodstock, Alpharetta and Suwanee, Georgia that reopened as branches of our
Bank on July 25, 2009. As a result of the private offering, the acquisition of Security Bank and our other FDIC-assisted acquisitions described below, the Bank was transformed from
a small community bank in Pinehurst, Georgia to a much larger commercial bank operating 23 full service branches throughout middle Georgia and metropolitan Atlanta. The Bank now operates 14 former
Security Bank branches in Macon, Warner Robins, Gray, Alpharetta and Perry.

Terms of the Security Bank Agreement.Under the terms of the Security Bank agreement, we assumed $2.2 billion of liabilities,
including
$1.2 billion of retail deposits and $817.4 million of wholesale deposits with no deposit premium paid. The liabilities assumed also included $159.5 million of Federal Home Loan
Bank advances and $23.5 million of other liabilities. We acquired approximately $2.0 billion of the assets of the Security Banks, including $1.5 billion in loans, net of unearned
income, and $115.2 million of other real estate with a discount of $57.6 million of fair value adjustments. The assets acquired also included $878.1 million of cash and cash
equivalents, securities, Federal Home Loan Bank stock and other assets, including the effect of the $316.5 million negative bid described in the following paragraph.

In
connection with the acquisition, we conducted due diligence on the Security Banks' loan portfolios and created financial models of the portfolios to determine expected losses, the
costs of administering the portfolios and expected carrying costs and expenses. Based on this due diligence, we submitted a negative bid to the FDIC to purchase the assets of the Security Banks at a
discount of $316.5 million in exchange for the Bank assuming substantially all of the Security Banks' deposits and certain other liabilities. We did not pay any deposit premium or other
consideration. The negative bid represents an amount that we believed would be adequate to absorb our share of the probable losses and expenses relating to the Security Banks' loan portfolios,
expected carrying costs for the non-performing assets and the costs to manage those portfolios. Our judgment as to the adequacy of our negative bid is based on a number of assumptions
about future events that we believe to be reasonable but which may or may not prove to be accurate. The terms of the agreement provide for

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the
FDIC to indemnify us against claims with respect to liabilities and assets of the Security Banks that we did not assume and with respect to certain other claims made after the acquisition.

Loss Share Arrangements.In connection with the acquisition of the Security Banks, we entered into 12 loss share agreements with the
FDIC (two for
each Security Bank) that collectively cover approximately $1.6 billion of the acquired assets, including 100% of the acquired loans and other real estate. The first type of loss share agreement
covers single-family residential mortgage loans (the "Single Family Loss Agreement") and the second type of loss share agreement covers construction, commercial real estate and commercial and
industrial loans, other real estate owned and other commercial assets (the "Commercial Loss Agreement"). In this report, we refer to all of the loans and other real estate covered under the loss share
agreements as "covered assets." These loss share agreements with the FDIC afford the Bank significant protection against future losses on the acquired loans and other real estate owned.

Under
the terms of the loss share agreements for the Security Banks, the FDIC's obligation to reimburse us for losses with respect to covered assets begins with the first dollar of loss
incurred. The FDIC agreed to assume 80% of losses and share 80% of loss recoveries on the first $563.0 million of losses on the acquired loans and other real estate owned, and assume 95% of
losses and share 95% of loss recoveries on losses exceeding $563.0 million. The loss share agreements cover losses on single-family residential mortgage loans for 10 years and all other
losses for five years (eight years for recoveries on non-residential loans). The reimbursable losses from the FDIC are based on the book value of the relevant loans as determined by the
FDIC at the date of the transaction. The loss share agreements do not cover new loans made after that date. In addition to the $712.9 million of fair value discounts on loans and other real
estate owned, we recorded a $403.6 million indemnification asset from the FDIC as part of the loss share agreements.



On December 4, 2009, the Bank assumed substantially all of the deposits and acquired certain assets and liabilities of The
Buckhead Community Bank, Atlanta, Georgia, under the terms of a purchase and assumption agreement between the Bank and the FDIC dated December 4, 2009, similar to the Security Bank Agreement.
The Buckhead Community Bank's six branches reopened as branches of the Bank, which now operates three former Buckhead Community Bank branches in Atlanta and Sandy Springs. Under the purchase and
assumption agreement for The Buckhead Community Bank, we assumed $810.0 million of liabilities, including $690.7 million of retail deposits and $99.6 million of wholesale deposits
with no deposit premium paid. The liabilities assumed also included $16.5 million of Federal Home Loan Bank advances and other borrowings and $3.2 million of other liabilities. We
acquired approximately $880.5 million of the assets of The Buckhead Community Bank, including $635.4 million in loans, net of unearned income, with a discount of $291.8 million of
fair value adjustments and $62.1 million of other real estate with a discount of $27.4 million of fair value adjustments. The assets acquired also included $211.8 million of cash
and cash equivalents, securities, Federal Home Loan Bank and Federal Reserve Bank stock and other assets, including the effect of the $100.3 million negative bid we submitted to the FDIC.

The
Bank entered into two loss share agreements with the FDIC on approximately $697.5 million of The Buckhead Community Bank's assets, including 100% of the acquired loans and
other real estate, similar to the loss share agreements described above for the Security Banks. The FDIC agreed to assume 80% of losses and share 80% of loss recoveries on the first
$254.0 million of losses on the acquired loans and other real estate owned, and assume 95% of losses and share 95% of loss recoveries on losses exceeding $254.0 million. In addition to
the $319.2 million of fair value discounts

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on
loans and other real estate owned, we recorded a $213.8 million indemnification asset from the FDIC as part of the loss share agreements.



On December 4, 2009, the Bank also assumed substantially all of the deposits and acquired certain assets and liabilities of
First Security National Bank, Norcross, Georgia under the terms of a purchase and assumption agreement between the Bank and the FDIC dated December 4, 2009, similar to the agreements described
above. The four branches of First Security National Bank reopened as branches of the Bank, which now operates two former First Security National Bank branches in Norcross and Atlanta. Under the
purchase and assumption agreement, we assumed $118.9 million of liabilities, including $113.2 million of retail deposits and $4.5 million of wholesale deposits with no deposit
premium paid. The liabilities assumed also included $1.2 million of other liabilities. We acquired approximately $113.0 million of the assets of First Security National Bank, including
$50.7 million in loans, net of unearned income, with a discount of $17.4 million of fair value adjustments and $29.4 million of other real estate with a discount of
$12.0 million of fair value adjustments. The assets acquired also included $49.5 million of cash and cash equivalents, securities, and other assets, including the effect of the
$10.7 million negative bid we submitted to the FDIC.

The
Bank entered into two loss share agreements on approximately $80.1 million of First Security National Bank's assets, including 100% of the acquired loans and other real
estate, similar to the loss share agreements described above for the Security Banks. The FDIC agreed to assume 80% of losses and share 80% of loss recoveries on the first $27.0 million of
losses on the acquired loans and other real estate owned, and to assume 95% of losses and share 95% of loss recoveries on losses exceeding $27.0 million. In addition to the $29.4 million
of fair value discounts on loans and other real estate owned, we recorded a $19.8 million indemnification asset from the FDIC as part of the loss share agreements.



On July 30, 2010, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC to
assume $133.3 million in liabilities and acquire approximately $154.5 million in assets of NorthWest Bank and Trust, Acworth, Georgia, a former full-service community bank.
The Bank now operates one former NorthWest Bank and Trust branch in Marietta. Under the purchase and assumption agreement, we assumed $132.6 million of retail deposits with no deposit premium
paid. The liabilities assumed also included
$700,000 of other liabilities. We acquired approximately $154.5 million of the assets of NorthWest Bank and Trust, including $97.8 million in loans, net of unearned income, with a
discount of $40.9 million of fair market value adjustments and $5.0 million of other real estate with a discount of $2.5 million of fair value adjustments. The assets acquired
also included $32.0 million of cash and cash equivalents, securities, and other assets, including the effect of the $18.8 million negative bid we submitted to the FDIC.

The
Bank entered into two loss share agreements on approximately $102.0 million of NorthWest Bank and Trust's assets, including 100% of the acquired loans (with the exception of
consumer loans) and other real estate, similar to the loss share agreements described above for the Security Banks. The FDIC agreed to assume 80% of losses and share 80% of loss recoveries on the
acquired loans and other real estate owned. In addition to the $43.4 million of fair value discounts on loans and other real estate owned, we recorded a $25.0 million indemnification
asset from the FDIC as part of the loss share agreements.

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On December 17, 2010, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC to
assume certain liabilities and acquire certain assets of United Americas Bank, N.A., Atlanta, Georgia, a former full-service community bank. The Bank now operates one former United
Americas Bank branch in Chamblee. Under the purchase and assumption agreement, we assumed $174.7 million of customer deposits with no deposit premium paid. The liabilities assumed also included
$50.0 million of other liabilities. We acquired approximately $252.8 million of the assets of United Americas Bank, including $166.8 million in loans, net of unearned income, with
a discount of $98.4 million of fair market value adjustments and $31.3 million of other real estate with a discount of $20.5 million of fair value adjustments. The assets acquired
also included $71.8 million of cash and cash equivalents, securities, and other assets, including the effect of the $45.7 million negative bid we submitted to the FDIC.

The
Bank entered into two loss share agreements on approximately $197.3 million of United Americas Bank's assets, including 100% of the acquired loans (with the exception of
consumer loans) and other real estate, similar to the loss share agreements described above for the Security Banks. The FDIC agreed to assume 80% of losses and share 80% of loss recoveries on the
acquired loans and other real estate owned. In addition to the $118.9 million of fair value discounts on loans and other real estate
owned, we recorded a $78.5 million indemnification asset from the FDIC as part of the loss share agreements.

In
this annual report on Form 10-K, we refer to the six bank subsidiaries of Security Bank Corporation; The Buckhead Community Bank; First Security National Bank;
NorthWest Bank and Trust; and United Americas Bank, N.A. collectively as the "Acquired Banks"; and we refer to the indemnification assets associated with the FDIC loss share agreements related to the
Acquired Banks as the "FDIC receivable."

Strategic Plan

As a result of the ten FDIC acquisitions over the past 18 months and the fair value discounts associated with each acquisition,
we anticipate that a significant portion of our revenue over the next three to four years will be derived from the continued realization of accretable discounts on the loans that we purchased. For
example, for the year ended 2010, we recognized $98.3 million of income, or 49.1% of our total revenue for the year, from the realization of accretable discounts on covered loans and the FDIC
receivable. (See "Lending ActivitiesGeneral" on page 9 below for an explanation of "accretable discounts.") Additionally, we have incurred, and expect to continue to incur,
significantly higher non-interest expenses than many peer banks. These additional expenses are primarily due to the costs associated with staffing and operating our Special Assets
Division, which manages the non-performing assets acquired from the FDIC, and our Regulatory Relations Department, which manages compliance with our loss share agreements.

In
the short term, we expect that the resolution of our non-performing assets acquired under the loss share agreements with the FDIC in the acquisitions of the Acquired Banks
will result in decreasing loan balances as our Special Assets Division works to reduce and resolve these non-performing assets and when necessary liquidate the real estate collateral
associated with these loans. We are also seeking to expand our loan portfolio through traditional community bank lending, the purchase of select loan portfolios, whole loans and loan participations
from correspondent banks and specialty lending, including loans acquired and marketed by the FDIC from failed banks. We will also consider the purchase of select lines of business that complement our
existing operations.

To
achieve our goals, we have assembled an experienced senior management team, combining extensive market knowledge with an energetic and entrepreneurial culture. The members of our
management team have close ties to, and are actively involved in, the communities where we operate,

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which
is critical to our relationship banking focus. We believe this experienced senior management team has implemented the necessary infrastructure to allow us to integrate the Acquired Banks into
our operations and successfully manage the non-performing assets we acquired under the loss share agreements with the FDIC.

As
noted above, we have created a Special Assets Division and a Regulatory Relations Department to manage our problem assets and compliance with the loss share agreements with the FDIC.
These departments are staffed with over 40 bankers with experience in debt restructuring, loan collection and recovery, real estate appraisal and evaluation and regulatory compliance. The Special
Assets Division works to resolve or liquidate those acquired assets that are non-performing, while the Regulatory Relations Department monitors compliance under the loss share agreements
with the FDIC.

Our Market Area

Our primary market area is middle Georgia (including Macon) and metropolitan Atlanta. In addition to our administrative offices located
at 415 East Paces Ferry Road, NE, Suite 250, Atlanta, Georgia (which also operates as a full service branch), we have 21 full service banking offices. Our current banking market consists of
Bibb, Cobb, Dooly, Houston, Jones, Fulton and Gwinnett Counties.

The
following table shows key demographic information about our market areas:

County/Market

Population(1)

2000-2009
Population
Growth(2)

2009-2010
Employment
Growth (Loss)(3)

Unemployment
Rate(4)Middle GeorgiaBibb


155,547


1.4
%

(0.9
)%

9.4
%Dooly


14,918


2.6
%

(4.5
)%

9.6
%Houston


139,900


22.5
%

2.3
%

7.0
%Jones


28,669


17.3
%

1.6
%

8.3
%Metro AtlantaCobb


688,078


17.6
%

(3.7
)%

8.8
%Fulton


920,581


26.7
%

(0.3
)%

9.8
%Gwinnett


805,321


37.3
%

(0.5
)%

8.7
%


(1)Estimated
2009 population provided by the U.S. Census Bureau.(2)Estimate
percentage population change from April 1, 2000 to July 1, 2009 for counties provided by the U.S. Census Bureau.(3)Estimate
based on Bureau of Labor Statistics Quarterly Census of Employment and Wages Year-to-Date percentage change from December
2009 to June 2010 (preliminary).(4)Estimate
based on Bureau of Labor Statistics Labor force data by county, not seasonally adjusted, July 2009-September 2010 (preliminary).


Competition

The banking business is highly competitive, and we experience competition in our market areas from many other financial institutions.
Competition among financial institutions is based on interest rates offered on deposit accounts, interest rates charged on loans, other credit and service charges relating to loans, the quality and
scope of the services rendered, the convenience of banking facilities, and, in the case of loans to commercial borrowers, relative lending limits. We compete with commercial banks, credit unions,
savings institutions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well

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as
super-regional, national and international financial institutions that operate offices in our market areas and elsewhere.

We
compete with these institutions both in attracting deposits and in making loans. In addition, we have to attract our customer base from other existing financial institutions and from
new residents. Many of our competitors are well-established, larger financial institutions, such as SunTrust, Bank of America, Wells Fargo and BB&T. These institutions offer some services,
such as extensive and established branch networks, that we do not provide. In addition, many of our non-bank competitors are not subject to the same extensive federal regulations that
govern bank holding companies and federally insured banks.

Loss Share Resolution

As described above, we have completed ten FDIC-assisted acquisitions that significantly grew our asset and liability base.
As of December 31, 2010, 81.8% of the outstanding principal balance of our loans is covered by loss share agreements with the FDIC. Because of the loss protection provided by the FDIC, the
risks associated with the loans and foreclosed real estate we acquired in the FDIC-assisted acquisitions are significantly different from the
risks associated with our loans and foreclosed real estate that are not covered under the FDIC loss share agreements. Where applicable, we refer to loans subject to loss share agreements with the FDIC
as "covered loans" and loans that are not subject to loss share agreements with the FDIC as "non-covered loans." As of December 31, 2010, our covered loans totaled
$935.0 million, net of fair value discounts of $603.4 million, and our non-covered loans totaled $342.8 million. Given the FDIC loss share protection for our covered
loans, our business model since July 24, 2009 and for the immediate future relies heavily on our loss share resolution business and on the income generated from the remediation and disposal of
the assets we acquired from the FDIC, rather than interest earned on loans and other assets like a traditional community bank.

Both
the Commercial Loss Agreement and the Single Family Loss Agreement for each of our acquisitions contain specific terms and conditions regarding the management of the covered assets
that we must follow to receive reimbursement on losses from the FDIC. In general, under the loss share agreements, we must:



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To
ensure compliance with the terms and conditions of the loss share agreements, we use several departments to monitor, manage and administer the different aspects of the loss share
agreements.

Our
Credit Administration Department supervises the management of performing covered loans. Our personnel use a loan submission sheet to approve all new loans and renewals. The loan
submission sheet requires credit personnel completing the form to indicate whether or not the loan is covered under loss share. We have trained our credit personnel to watch for any actions that could
remove a loan from loss share protection and to contact the Regulatory Relations Department (described below) with any concerns. In that event, the Regulatory Relations Department reviews the
situation and, if necessary, obtains advice from the appropriate FDIC personnel.

We
have also created a Special Assets Division comprised of bankers with extensive experience working with borrowers in distressed situations to manage the part of the covered assets
portfolio that consists of sub-performing loans, non-performing loans and other real estate owned. The immediate objective of the Special Assets Division is to remediate the
covered problem assets to a satisfactory level of performance or, when that cannot be achieved, liquidate the collateral securing a loan in a manner to minimize the loss to the Bank and the FDIC. The
Finance Department, working closely with the Special Assets Division, manages and tracks all expenses and losses on covered assets and reports these expenses and losses to the FDIC for reimbursement
on a quarterly basis. The FDIC typically reimburses us for our reported losses and expenses within 30 to 40 days after submission.

We
monitor compliance with the loss share agreements through the Regulatory Relations Department, a subpart of the Bank's Risk Management Division. Specially trained personnel within the
Regulatory Relations Department are responsible for reviewing the management of our covered assets to ensure full compliance with the loss share agreements.

Lending Activities



We offer a range of lending services, including commercial and residential real estate mortgage loans, real estate construction loans,
commercial and industrial loans and consumer loans. Our customers are generally individuals, owner-managed businesses, farmers, professionals, real estate investors and smaller community banks within
our market areas. At December 31, 2010, the outstanding principal balance of our loan portfolio, net of deferred loan fees was $1.9 billion. After subtracting the accretable discount,
non-accretable discount and allowance for loan losses, we had total loans of $1.3 billion, representing 61.0% of our total earning assets.

We
recorded the loans we acquired in each of our FDIC-assisted acquisitions at their estimated fair values on the date of each acquisition. We calculated the fair value of
loans by discounting scheduled cash flows through the estimated maturity date of the loan using estimated market discount rates that reflect the credit risk inherent in the loan. We refer to the
excess cash flows expected at acquisition over the estimated fair value as the "accretable discount." The accretable discount is recognized into interest income over the remaining life of the loan.
The "non-accretable discount" is the difference, calculated at acquisition, between contractually required payments and the cash flows expected to be collected. We expect to have
sufficient non-accretable discounts to cover our estimated losses on the covered assets.

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At December 31, 2010, our loan portfolio was comprised of the following:

Loans(dollars in thousands)

Balance at
December 31, 2010

% of
LoansResidential real estate

$
337,791


18.0
%Commercial real estate-construction


506,162


26.9
%Commercial real estate-other


809,772


43.0
%Commercial and industrial


183,832


9.8
%Consumer and other


43,653


2.3
%1,881,210
(1)

100.0
%Less:Non-accretable discount


479,616Accretable discount


123,778Allowance for loan losses


5,351Total

$
1,272,465


(1)As
of December 31, 2010, 81.8% of our outstanding principal balance of loans was covered by loss share agreements with the FDIC. For more information
please see Note 9 in the audited consolidated financial statements.




Loans secured by real estate are the principal component of our loan portfolio. Real estate loans are subject to the same general risks
as other loans and are particularly sensitive to fluctuations in the value of real estate. Fluctuations in the value of real estate, as well as other factors arising after a loan has been made, could
negatively affect a borrower's cash flow, creditworthiness and ability to repay the loan. When we make new real estate loans, we obtain a security interest in real estate whenever possible, in
addition to any other available collateral, to increase the likelihood of the ultimate repayment of the loan. To control concentration risk, we monitor collateral type and industry concentrations
within this portfolio.

As
of December 31, 2010, loans secured by first or second mortgages on real estate comprised approximately $1.1 billion, or 61.0% of our loan portfolio. These loans
generally fall into one of two categories: residential real estate loans or commercial real estate loans.



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At December 31, 2010, real estate construction and development loans amounted to $506.2 million, or approximately 26.9%
of our loan portfolio. We offer fixed and adjustable rate residential and commercial construction loans to builders and developers and to consumers who wish to build their own homes. The term of our
construction and development loans generally is limited to 18 months. In some instances a commercial construction loan may have an amortization period following the completion of construction,
with a balloon maturity of not more than five years. Construction and development loans generally carry a higher degree of risk than long-term financing of existing properties because
repayment depends on the ultimate completion of the project and usually on the subsequent lease-up and/or sale of the property. Specific risks include:



We
attempt to reduce the risk associated with construction and development loans by obtaining personal guarantees and by keeping the loan-to-value ratio of the
completed project at or below 85%. Generally, we do not build interest reserves into loan commitments but require periodic cash payments for interest from the borrower's cash flow.

We
make residential land loans to both commercial entities and consumer borrowers for the purpose of financing land upon which to build a residential home. Residential land loans are
reclassified as residential construction loans once construction of the residential home commences. These loans are further categorized as:



We
make commercial land loans to commercial entities for the purpose of financing land on which to build a commercial project. These loans are for projects that typically involve
small-and medium-sized single and multi-use commercial buildings.

We
make commercial construction loans to the borrower for the purpose of financing the construction of a commercial development. These loans are further categorized depending on whether

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the
borrower intends (a) to occupy the finished development (owner-occupied) or (b) to lease or sell the finished development (non owner-occupied).



At December 31, 2010, commercial and industrial loans amounted to $183.8 million, or 9.8% of our total loan portfolio. We
make loans for commercial purposes in various lines of businesses, including the manufacturing industry, service industry and professional service areas. While these loans may have real estate as
partial collateral, they are generally considered to have greater risk than first or second mortgages on real estate because these loans may be unsecured or, if they are secured, the value of the
non-real estate collateral may be difficult to assess and more likely to decrease in value than real estate, and the control of the collateral is more at risk.



At December 31, 2010, consumer and other loans amounted to $43.7 million, or 2.3% of our loan portfolio. We make a
variety of loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. We underwrite consumer loans based on the
borrower's income, current debt level, balance sheet composition, past credit history and the availability and value of collateral. Consumer rates are both fixed and variable, with negotiable terms.
Our installment loans typically amortize over periods up to 60 months. Although we typically require monthly payments of interest and a portion of the principal on our loan products, we may
offer consumer loans with a single maturity date when a specific source of repayment is available. Consumer loans not secured by real estate are generally considered to have greater risk than first or
second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value, and is more
difficult to control, than real estate.



Certain credit risks are inherent in making loans. These include repayment risks, risks resulting from uncertainties in the future
value of collateral, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers. We attempt to mitigate repayment risks by adhering to
internal credit policies and procedures. We employ consistent analysis and underwriting to examine credit information and prepare underwriting documentation. We monitor and approve exceptions to
policy as required, and we also track and address technical exceptions.

Our
loan approval policy contains modest officer lending limits, with approval concurrence from experienced credit risk managers required as the size of the transaction and relationship
exposure increases. Generally, a lender must seek concurring approval from an Executive Vice President Regional Credit Officer to approve relationship debt of up to $2 million. Relationship
debt that exceeds $2 million requires approval of two or more members of our loan committee, which includes our Executive Vice President Regional Credit Officers and our Chief Credit Officer.
Relationship debt of between $6 million and $20 million must be approved by a loan committee consisting of at least three members. Any relationship debt that exceeds $20 million
must be approved by the full board of directors. All loan committee approvals must be unanimous. Total approved relationship debt that exceeds $10 million is reported to all senior executive
officers of the Bank.

As
a policy, we do not make loans to any director, executive officer or principal shareholder, or the related interests of each. One of the banks that we acquired, however, maintained a
loan balance with one of our directors totaling $48,519. The director repaid the loan in January 2010.

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In our loan review process, we apply a credit grading system to each loan, and use an internal loan review specialist to review the
loan underwriting of the portfolio and validate assigned loan grades. The internal loan review specialist also assesses the adequacy of and adherence to our loan policy, systemic risk that may be
inherent in our practices and procedures, concentration risk and portfolio trends. Each loan officer is responsible for each loan he or she makes, its performance and grade integrity, regardless of
whether other individuals or committees joined in the approval. This responsibility continues until the loan is repaid or until the loan is officially assigned to another officer.

On
an ongoing basis, the internal loan review specialist monitors, tests and reviews various areas of the loan portfolio to assess and report risk to the Bank's senior management. This
internal loan review is risk-based to measure areas of highest perceived risk. We also engaged a third party loan review specialist, to review our loan portfolio and to validate the work
performed by our internal loan review specialist. The third party loan review specialist completed its review in October 2010 and generally focused on our non-covered loans with
relationship balances exceeding $2 million, although they also reviewed a sample of our covered loans. Non-covered loans reviewed totaled $123.3 million, or approximately 57%
of the gross balance in our non-covered loan portfolio as of September 30, 2010. The review assessed a variety of factors, including the accuracy of our risk ratings, our adherence
to applicable regulations and bank policies, documentation exceptions and potential loan administration deficiencies. The third party loan review specialist also noted during the review that our
underwriting and loan portfolio management was generally sound and recommended only one loan relationship for adverse classification. In addition, as our non-covered loan portfolio grows,
management plans to increase the frequency of the external loan review from an annual to a semi-annual basis.

We
also manage our performing covered loans that are subject to loss share agreements with the FDIC to ensure continued coverage under the loss share agreements. Generally, under the
Commercial Loss Agreement, coverage will be lost on a covered loan if we make certain advances, amendments, modifications, renewals or extensions that are not permitted under the agreement. For
instance, coverage will be lost if we make any additional advance or commitment on a covered loan unless:



Covered
loans also cannot be amended, modified, renewed or extended, or any term, right or remedy thereunder waived, unless made in good faith and otherwise in accordance with our credit
policy guidelines, provided that no such amendment, modification, renewal, extension or waiver can:



Under
both the Single Family Loss Agreement and Commercial Loss Agreement, the FDIC is not required to make any payments with respect to any charge-off or loss event that it
determines we should not have effected. For instance, under the Single Family Loss Agreement, the FDIC can deny coverage if it finds we failed to undertake reasonable and customary loss mitigation
efforts in accordance with the applicable modification guidelines or failed to follow customary servicing procedures. Under both loss share agreements, the FDIC must provide the Bank with notice and
an

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opportunity
to cure any such deficiency. Any unresolved disputes with the FDIC regarding losses or payments will be subject to binding arbitration.

We
have developed a loan submission sheet for all credit personnel to help us track all actions with respect to loans covered under loss share. When we determine that a borrower is
seeking an advance, amendment, modification, renewal or extension with respect to a covered loan, we first evaluate the covered loan as we would any other loan and seek to make the right banking
decision. We then determine whether the terms, rates and collateral are in line with our loan policy and whether the customer demonstrates the ability to repay the loan. Because significant changes in
the terms of the loan could negate our loss share protection, we may need to work with the customer to arrive at a solution other than amending the terms of the loan.

The
FDIC completed the Bank's first loss share compliance examination on October 15, 2010. We are in compliance in all material respects with the terms and conditions of each of
our loss share agreements.



Our lending activities are subject to a variety of lending limits imposed by federal law. In general, the Bank is subject to a legal
limit on loans to a single borrower equal to 15% of the Bank's capital and unimpaired surplus, or 25% if the loan is fully secured. This limit increases or decreases as the Bank's capital increases or
decreases. Based upon the capitalization of the Bank at December 31, 2010, our legal lending limits were approximately $42.6 million (15%) and $71.0 million (25%) and we
maintained an internal lending limit of $20.0 million. We may seek to sell participations in our larger loans to other financial institutions, which will allow us to manage the risk involved in
these loans and to meet the lending needs of our customers requiring extensions of credit in excess of these limits. In the current economic environment, however, it has been difficult to sell
participations to other financial institutions. As market conditions improve and banks are in need of loan growth, however, we expect to be able to sell participations in soundly underwritten loans.

Deposit Products

We offer a full range of deposit services that are typically available in most banks and savings institutions, including checking
accounts, commercial accounts, savings accounts and other time deposits of various types, ranging from daily money market accounts to longer-term certificates of deposit. Transaction
accounts and time deposits are tailored to and offered at rates competitive to those offered in our primary market areas. In addition, we offer certain retirement account services. We solicit accounts
from individuals, businesses, associations, organizations and governmental authorities. We believe that our branch infrastructure will assist us in obtaining deposits from local customers in the
future. Our local customer deposits were $2.4 billion at December 31, 2010, or 97.9% of our total deposits.

Employees

As of December 31, 2010, we had 473 full-time employees and 22 part-time employees for a total of 495
employees.

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SUPERVISION AND REGULATION

Both State Bank Financial Corporation and State Bank and Trust Company are subject to extensive state and federal banking regulations
that impose restrictions on and provide for general regulatory oversight of their operations. These laws generally are intended to protect depositors and not shareholders. The following summary is
qualified by reference to the statutory and regulatory provisions discussed. Changes in applicable laws or regulations may have a material effect on our business and prospects. Our operations may be
affected by legislative changes and the policies of various regulatory authorities. We cannot predict the effect that fiscal or monetary policies, economic control or new federal or state legislation
may have on our business and earnings in the future.

The
following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of those laws and regulations on our operations. It is
intended only to briefly summarize some material provisions.

Recent Legislative and Regulatory Initiatives to Address the Financial and Economic Crises

Markets in the United States and elsewhere have experienced extreme volatility and disruption for more than 18 months. These
circumstances have exerted significant downward pressure on prices of equity securities and virtually all other asset classes, and have resulted in substantially increased market volatility, severely
constrained credit and capital markets, particularly for financial institutions, and an overall loss of investor confidence. Loan portfolio performances have deteriorated at many institutions
resulting from, among other factors, a weak economy and a decline in the value of the collateral supporting their loans. Dramatic slowdowns in the housing industry, due in part to falling home prices
and increasing foreclosures and unemployment, have created strains on financial institutions. Many borrowers are now unable to repay their loans, and the collateral securing these loans has, in some
cases, declined below the loan balance. In response to the challenges facing the financial services sector, the following regulatory and governmental actions have recently been enacted.



On October 3, 2008, President Bush signed into law The Emergency Economic Stabilization Act of 2008 ("EESA"), which, among other
provisions, allowed the U.S. Treasury to purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose
of stabilizing and providing liquidity to the U.S. financial markets.



On October 14, 2008, the U.S. Treasury announced the creation of a new program, the Troubled Asset Relief Program (the "TARP")
Capital Purchase Program (the "CPP") that encourages and allows financial institutions to build capital through the sale of senior preferred shares to the U.S. Treasury on terms that are
non-negotiable.



On February 17, 2009, President Obama signed into law The American Recovery and Reinvestment Act of 2009 ("ARRA"), more commonly
known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and
education needs. In addition, ARRA imposes certain executive compensation and corporate expenditure limits on all current and future TARP recipients that are in addition to those previously announced
by the U.S. Treasury.

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On July 21, 2010, President Obama signed into law The Dodd-Frank Wall Street Reform and Consumer Protection Act
which, among other things, changes the oversight and supervision of financial institutions, introduces minimum capital requirements, creates a new federal agency to regulate consumer financial
products and services and implements changes to corporate governance and compensation practices. The act is focused in large part on the financial services industry, particularly large bank holding
companies with consolidated assets of $50 billion or more, and contains a number of provisions that will affect us, including:



Many
provisions of the act require the adoption of additional rules to implement the changes. In addition, the act mandates multiple studies that could result in additional legislative
action. Governmental intervention and new regulations under these programs could materially and adversely affect our business, financial condition and results of operations.



Internationally, both the Basel Committee on Banking Supervision (the "Basel Committee") and the Financial Stability Board (established
in April 2009 by the Group of Twenty ("G-20") Finance

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Ministers
and Central Bank Governors to take action to strengthen regulation and supervision of the financial system with greater international consistency, cooperation, and transparency) have
committed to raise capital standards and liquidity buffers within the banking system ("Basel III").

On
September 12, 2010, the Group of Governors and Heads of Supervision agreed to the calibration and phase-in of the Basel III minimum capital requirements (raising
the minimum Tier 1 common equity ratio to 4.5% and minimum Tier 1 equity ratio to 6.0%, with full implementation by January 2015) and introducing a capital conservation buffer of common
equity of an additional 2.5% with full implementation by January 2019.

In
December 2010, the Basel Committee released its final framework for strengthening international capital and liquidity regulation, now officially identified by the Basel Committee as
"Basel III." Basel III, when implemented by the U.S. banking agencies and fully phased-in, will require bank holding companies and their bank subsidiaries to maintain substantially more
capital, with a greater emphasis on common equity.

The
Basel III final capital framework, among other things, (a) introduces as a new capital measure "Common Equity Tier 1" ("CET1"), (b) specifies that Tier 1
capital consists of CET1 and "Additional Tier 1 capital" instruments meeting specified requirements, (c) defines CET1 narrowly by requiring that most adjustments to regulatory capital
measures be made to CET1 and not to the other components of capital, and (d) expands the scope of the adjustments as compared to existing regulations.

When
fully phased in on January 1, 2019, Basel III requires banks to maintain (a) as a newly adopted international standard, a minimum ratio of CET1 to
risk-weighted assets of at least 4.5%, plus a 2.5% "capital conservation buffer" (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum
ratio of CET1 to risk-weighted assets of at least 7%), (b) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital
conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full
implementation), (c) a minimum ratio of Total (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer
(which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full
implementation), and (d) as a newly adopted international standard, a minimum leverage ratio of 3%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain
off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter).

Basel
III also provides for a "countercyclical capital buffer," generally to be imposed when national regulators determine that excess aggregate credit growth becomes associated with a
buildup of systemic risk, that would be a CET1 add-on to the capital conservation buffer in the range of 0% to 2.5% when fully implemented (potentially resulting in total buffers of
between 2.5% and 5%).

The
capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the
minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity
repurchases and compensation based on the amount of the shortfall.

The
implementation of the Basel III final framework will commence January 1, 2013. On that date, banking institutions will be required to meet the following minimum capital
ratios:



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The
Basel III final framework provides for a number of new deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, deferred
tax assets
dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1
or all such categories in the aggregate exceed 15% of CET1.

Implementation
of the deductions and other adjustments to CET1 will begin on January 1, 2014 and will be phased-in over a five-year period (20% per year).
The implementation of the capital conservation buffer will begin on January 1, 2016 at 0.625% and be phased in over a four-year period (increasing by that amount on each subsequent
January 1, until it reaches 2.5% on January 1, 2019).

The
U.S. banking agencies have indicated informally that they expect to propose regulations implementing Basel III in mid-2011 with final adoption of implementing regulations
in mid-2012. Notwithstanding its release of the Basel III framework as a final framework, the Basel Committee is considering further amendments to Basel III, including the imposition of
additional capital surcharges on globally systemically important financial institutions. In addition to Basel III, Dodd-Frank requires or permits the Federal banking agencies to adopt
regulations affecting banking institutions' capital requirements in a number of respects, including potentially more stringent capital requirements for systemically important financial institutions.
Further, new regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations, and competitive relationships of the nation's
financial institutions. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or
statute.

State Bank Financial Corporation

We own 100% of the outstanding capital stock of the Bank, and therefore we are required to be registered as a bank holding company
under the federal Bank Holding Company Act of 1956 (the "Bank Holding Company Act"). As a result, we are primarily subject to the supervision, examination and reporting requirements of the Board of
Governors of the Federal Reserve (the "Federal Reserve") under the Bank Holding Company Act and the regulations promulgated under it. As a bank holding company located in Georgia, the Georgia
Department of Banking and Finance also regulates and monitors our operations.



Under the Bank Holding Company Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control
of more than 5% of the voting shares of any company engaged in, the following activities:



Activities
that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include:



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As
a bank holding company, we also can elect to be treated as a "financial holding company," which would allow us to engage in a broader array of activities. In sum, a financial holding
company can engage in activities that are financial in nature or incidental or complementary to financial activities, including insurance underwriting, sales and brokerage activities, providing
financial and investment advisory services, underwriting services and limited merchant banking activities. We have not sought financial holding company status, but we may elect that status in the
future as our business matures. If we were to elect in writing for financial holding company status, we would be required to be well capitalized and well managed, and each insured depository
institution we control would also have to be well capitalized, well managed and have at least a satisfactory rating under the Community Reinvestment Act (discussed below).

The
Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary
when it has reasonable cause to believe that the bank holding company's continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any
of its bank subsidiaries.



In addition, and subject to certain exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with
regulations promulgated under them, require Federal Reserve approval before any person or company acquires "control" of a bank holding company. Control is conclusively presumed to exist if an
individual or company acquires 25% or more of any class of voting securities of a bank holding company. Following the relaxing of these restrictions by the Federal Reserve in September 2008, control
will be rebuttably presumed to exist if a person acquires more than 33% of the total equity of a bank or bank holding company, of which it may own, control or have the power to vote not more than 15%
of any class of voting securities.



In accordance with Federal Reserve policy, we are expected to act as a source of financial strength to the Bank and to commit resources
to support the Bank in circumstances in which we might not otherwise do so. If the Bank were to become "undercapitalized," we would be required to provide a guarantee of the Bank's plan to return to
capital adequacy. (See "State Bank and Trust CompanyPrompt Corrective Action" below.) Additionally, under the Bank Holding Company Act, the Federal Reserve may require a bank holding
company to terminate any activity or relinquish control of a nonbank subsidiary, other than a nonbank subsidiary of a bank, upon the Federal Reserve's determination that the activity or control
constitutes a serious risk to the financial soundness or stability of any depository institution subsidiary of the bank holding company. In addition, federal bank

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regulatory
authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiaries if the agency determines that divestiture may aid the
depository institution's financial condition. Further, any loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and certain other indebtedness of the
subsidiary bank. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank at a
certain level would be assumed by the bankruptcy trustee and entitled to priority payment.



The Federal Reserve imposes certain capital requirements on the bank holding company under the Bank Holding Company Act, including a
minimum leverage ratio and a minimum ratio of "qualifying" capital to risk-weighted assets. These requirements are essentially the same as those that apply to the Bank and are described
below under "State Bank and Trust CompanyPrompt Corrective Action." Subject to our capital requirements and certain other restrictions, including the consent of the Federal Reserve, we
are able to borrow money to make a capital contribution to the Bank, and these loans may be repaid from dividends paid from the Bank to the Company. Our ability to pay dividends depends on the Bank's
ability to pay dividends to us, which is subject to regulatory restrictions as described below in "State Bank and Trust CompanyDividends." We are also able to raise capital for
contribution to the bank by issuing securities without having to receive regulatory approval, subject to compliance with federal and state securities laws.

State Bank and Trust Company

The Bank operates as a state bank incorporated under the laws of the State of Georgia and is subject to examination by the Georgia
Department of Banking and Finance and the FDIC. Deposits in the Bank are insured by the FDIC up to a maximum amount of $250,000.

The
Georgia Department of Banking and Finance and the FDIC regulate or monitor virtually all areas of the Bank's operations, including:



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The
Georgia Department of Banking and Finance requires the Bank to maintain specified capital ratios and imposes limitations on the Bank's aggregate investment in real estate, bank
premises, and furniture and fixtures. The Georgia Department of Banking and Finance also requires the Bank to prepare
quarterly reports on the Bank's financial condition in compliance with its minimum standards and procedures.

All
insured institutions must undergo regular on site examinations by their appropriate banking agency. The cost of examinations of insured depository institutions and any affiliates may
be assessed by the appropriate agency against each institution or affiliate as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the FDIC, their federal
regulatory agency and their state supervisor when applicable. The FDIC has developed a method for insured depository institutions to provide supplemental disclosure of the estimated fair market value
of assets and liabilities, to the extent feasible and practicable, in any balance sheet, financial statement, report of condition or any other report of any insured depository institution. The FDIC
Improvement Act also requires the federal banking regulatory agencies to prescribe, by regulation, standards for all insured depository institutions and depository institution holding companies
relating, among other things, to the following:





As an insured depository institution, the Bank is required to comply with the capital requirements promulgated under the Federal
Deposit Insurance Act and the regulations under it, which set forth five capital categories, each with specific regulatory consequences. Under these regulations, the categories
are:



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As
a condition to the FDIC's approval of the Interagency Change in Control Application filed by Joseph W. Evans, J. Daniel Speight and Kim M. Childers (our new management team) in
connection with the July 2009 private placement and acquisition, the Bank was required to execute a Capital Maintenance Agreement with the FDIC. Under the terms of that agreement, the Bank must at all
times maintain a leverage ratio of at least 10% and a total risk-based capital ratio of at least 12%. The agreement terminates on July 23, 2012.

If
the FDIC determines, after notice and an opportunity for hearing, that the institution is in an unsafe or unsound condition, the regulator is authorized to reclassify the institution
to the next lower capital category (other than critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition.

If
the institution is not well capitalized, it cannot accept brokered deposits without prior FDIC approval. Even if approved, rate restrictions will govern the rate the institution may
pay on the brokered deposits. In addition, a bank that is undercapitalized cannot offer an effective yield in excess of 75 basis points over the "national rate" paid on deposits (including brokered
deposits, if approval is granted for the bank to accept them) of comparable size and maturity. The "national rate" is defined as a simple average of rates paid by insured depository institutions and
branches for which data are
available and is published weekly by the FDIC. Institutions subject to the restrictions that believe they are operating in an area where the rates paid on deposits are higher than the "national rate"
can use the local market to determine the prevailing rate if they seek and receive a determination from the FDIC that it is operating in a high-rate area. Regardless of the determination,
institutions must use the national rate to determine conformance for all deposits outside their market area.

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Moreover, if the institution becomes less than adequately capitalized, it must adopt a capital restoration plan acceptable to the FDIC. The institution also would
become subject to increased regulatory oversight, and is increasingly restricted in the scope of its permissible activities. Each company having control over an undercapitalized institution also must
provide a limited guarantee that the institution will comply with its capital restoration plan. Except under limited circumstances consistent with an accepted capital restoration plan, an
undercapitalized institution may not grow. An undercapitalized institution may not acquire another institution, establish additional branch offices or engage in any new line of business unless it is
determined by the appropriate federal banking agency to be consistent with an accepted capital restoration plan, or unless the FDIC determines that the proposed action will further the purpose of
prompt corrective action. The appropriate federal banking agency may take any action authorized for a significantly undercapitalized institution if an undercapitalized institution fails to submit an
acceptable capital restoration plan or fails in any material respect to implement a plan accepted by the agency. A critically undercapitalized institution is subject to having a receiver or
conservator appointed to manage its affairs and for loss of its charter to conduct banking activities.

An
insured depository institution may not pay a management fee to a bank holding company controlling that institution or any other person having control of the institution if, after
making the payment, the institution would be undercapitalized. In addition, an institution cannot make a capital distribution, such as a dividend or other distribution that is in substance a
distribution of capital, to the owners of the institution if following such a distribution the institution would be undercapitalized.

As
of December 31, 2010, the Bank's regulatory capital surpassed the levels required to be considered "well capitalized" and met the requirements of the Capital Maintenance
Agreement with the FDIC.



The Company is a legal entity separate and distinct from the Bank. Various legal limitations restrict the Bank from lending or
otherwise supplying funds to the Company or its non-bank subsidiaries. The Company and the Bank are subject to Sections 23A and 23B of the Federal Reserve Act and Federal Reserve
Regulation W. Section 23A of the Federal Reserve Act places limits on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates
and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. The aggregate of all covered transactions is limited in amount, as to any one affiliate,
to 10% of the Bank's capital and surplus and, as to all affiliates combined, to 20% of the Bank's capital and surplus. Furthermore, within the foregoing limitations as to amount, each covered
transaction must meet specified collateral requirements. The Bank is forbidden to purchase low quality assets from an affiliate.

Section 23B
of the Federal Reserve Act, among other things, prohibits an institution from engaging in certain transactions with certain affiliates unless the transactions are on
terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

Regulation W
generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the
Federal Reserve Board decides to treat these subsidiaries as affiliates. The regulation also limits the amount of loans that can be purchased by a bank from an affiliate to not more than 100% of the
bank's capital and surplus.

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The
Bank is also subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests. Those extensions
of credit:



Under current Georgia law, we may open branch offices throughout Georgia with the prior approval of the Georgia Department of Banking
and Finance. In addition, with prior regulatory approval, the Bank will be able to acquire branches of existing banks located in Georgia. Furthermore, the Dodd-Frank Wall Street Reform and
Consumer Protection Act authorizes a state or national bank to branch into any state as if they were chartered in that state.



Under amendments to the Bank Holding Company Act and Federal Reserve regulations, a bank is prohibited from engaging in certain tying
or reciprocity arrangements with its customers. In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for these on the condition
that:



Certain
arrangements are permissible: a bank may offer combined-balance products and may otherwise offer more favorable terms if a customer obtains two or more traditional bank products; and certain
foreign transactions are exempt from the general rule. A bank holding company or any bank affiliate also is subject to anti-tying requirements in connection with electronic benefit
transfer services.



The Community Reinvestment Act requires a financial institution's primary regulator, which is the FDIC for the Bank, to evaluate the
record of each financial institution in meeting the credit needs of its local community, including low and moderate income neighborhoods. These factors are also considered in evaluating mergers,
acquisitions and applications to open a branch or facility. Failure to adequately meet these criteria could result in the imposition of additional requirements and limitations on the institution.
Additionally, the institution must publicly disclose the terms of various Community Reinvestment Act-related agreements.



Under the Gramm-Leach-Bliley Act (the "GLBA"), subject to certain conditions imposed by their respective banking regulators, national
and state-chartered banks are permitted to form "financial subsidiaries" that may conduct financial or incidental activities, thereby permitting bank subsidiaries to engage in certain activities that
previously were impermissible. The GLBA imposes several safeguards and restrictions on financial subsidiaries, including that the parent bank's equity investment in the financial subsidiary be
deducted from the bank's assets and tangible equity for purposes of calculating the bank's capital adequacy. In addition, the GLBA imposes new restrictions on transactions between a bank and its
financial subsidiaries similar to restrictions applicable to transactions between banks and non-bank affiliates.

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Activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers. Interest and other charges
collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The Bank's loan operations are also subject to federal laws applicable to credit
transactions, such as:



The
deposit operations of the Bank also are subject to:





The Bank and its "institution-affiliated parties," including its management, employees, agents, independent contractors, and
consultants such as attorneys and accountants and others who participate in the conduct of the financial institution's affairs, are subject to potential civil and criminal penalties for violations of
law, regulations or written orders of a government agency. These practices can include the failure of an institution to timely file required reports or the filing of false or misleading information or
the submission of inaccurate reports. Civil penalties may be as high as $1,375,000 a day for those violations. Criminal penalties for some financial institution crimes have been increased to
20 years. In addition, regulators are provided with greater flexibility to commence enforcement actions against institutions and institution-affiliated parties. Possible enforcement actions
include the termination of deposit insurance. Furthermore, banking agencies' power to issue cease-and-desist orders were expanded. These orders may, among other things, require
affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be
ordered to restrict its growth, dispose of

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certain
assets, rescind agreements or contracts or take other actions as determined by the ordering agency to be appropriate.



Financial institutions must maintain anti-money laundering programs that include established internal policies, procedures
and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. Financial institutions are also prohibited from
entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and "knowing your customer" in their dealings with foreign financial
institutions, foreign customers and other high risk customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering
and to report any suspicious transactions, and recent laws provide law enforcement authorities with increased access to financial information maintained by banks. Anti-money laundering
obligations have been substantially strengthened as a result of the USA PATRIOT Act, enacted in 2001 and renewed in 2006, as described below. Bank regulators routinely examine institutions for
compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications. The regulatory authorities have been active in imposing "cease and
desist" orders and money penalty sanctions against institutions found to be violating these obligations.



The USA PATRIOT Act became effective on October 26, 2001 and amended the Bank Secrecy Act. The USA PATRIOT Act provides, in
part, for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering by enhancing anti-money
laundering and financial transparency laws, as well as enhanced information collection tools and enforcement mechanics for the U.S. government, including:



The
USA PATRIOT Act requires enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for
non-U.S. persons. Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of
applications.

Under
the USA PATRIOT Act, the Federal Bureau of Investigation can send our banking regulatory agencies lists of the names of persons suspected of involvement in terrorist activities.
The Bank can be
requested to search its records for any relationships or transactions with persons on those lists. If the Bank finds any relationships or transactions, it must file a suspicious activity report
and contact the FBI.



The Office of Foreign Assets Control ("OFAC"), which is a division of the U.S. Department of the Treasury, is responsible for helping
to insure that United States entities do not engage in transactions with "enemies" of the United States, as defined by various Executive Orders and Acts of Congress.

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OFAC
has sent, and will send, our banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the Bank finds a name on any
transaction, account or wire transfer that is on an OFAC list, it must freeze the account, file a suspicious activity report and notify the FBI. The Bank has appointed an OFAC compliance
officer to oversee the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk OFAC areas such as new accounts, wire transfers and customer
files. The Bank performs these checks using software that is updated each time a modification is made to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked
Persons.



Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers
generally may prevent financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of
transactions requested by the consumer or when the financial institution is jointly sponsoring a product or service with a nonaffiliated third party. Additionally, financial institutions generally may
not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers. The Bank's policy is not to disclose any
personal information unless required by law.

Like
other lending institutions, the Bank uses credit bureau data in its underwriting activities. Use of that data is regulated under the Federal Credit Reporting Act on a uniform,
nationwide basis, including credit reporting, prescreening, sharing of information between affiliates, and the use of credit data. The Fair and Accurate Credit Transactions Act of 2003 authorizes
states to enact identity theft laws that are not inconsistent with the conduct required by the provisions of the act.



The Company is a legal entity separate and distinct from its subsidiary. While there are various legal and regulatory limitations under
federal and state law on the extent to which our Bank can pay dividends or otherwise supply funds to the Company, the principal source of the Company's cash revenues is dividends from our Bank. The
relevant federal and state regulatory agencies also have authority to prohibit a bank or bank holding company, which would include the Company and the Bank, from engaging in what, in the opinion of
the regulatory body, constitutes an unsafe or unsound practice in conducting its business. The payment of dividends could, depending upon the financial condition of the subsidiary, be deemed to
constitute an unsafe or unsound practice in conducting its business.

Under
Georgia law, the prior approval of the Georgia Department of Banking and Finance is required before any cash dividends may be paid by a state bank if:



In
addition, under the Georgia Department of Banking and Finance's letter dated July 24, 2009, issuing its approval of the Interagency Notice of Change in Control filing with
respect to the Bank, for a period of three years after consummation of the change in control transaction, the Bank must also obtain approval from the Georgia Department of Banking and Finance before
paying any dividends, including dividend payments to the Company. The Bank received approval from the Georgia Department of Banking and Finance to make a $718,000 dividend payment to the Company to
fund its

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expected
operating expenses for 2010. In addition, during the first three years of the Company's operations, the Company may not pay dividends without the prior written approval of the Georgia
Department of Banking and Finance.



The Check Clearing for the 21st Century Act gives "substitute checks," such as a digital image of a check and copies made from
that image, the same legal standing as the original paper check. Some of the major provisions include:



Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its
agencies. The Federal Reserve Board's monetary policies have had, and are likely to continue to have, an important effect on the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board have major effects on the levels of bank loans,
investments and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve
requirements against member bank deposits. We cannot predict the nature or effect of future changes in monetary and fiscal policies.



Our deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC insured institutions. It also may prohibit any FDIC insured institution from engaging in any activity
the FDIC determines by regulation or order to pose a serious risk to the insurance fund.

Due
to the large number of recent bank failures and the FDIC's new Temporary Liquidity Guarantee Program, the FDIC adopted a revised risk-based deposit insurance assessment
schedule in February 2009 that raised deposit insurance premiums. The FDIC also implemented a five basis point special assessment of each insured depository institution's assets minus Tier 1
capital as of June 30, 2009, which special assessment amount was capped at 10 basis points times the institution's assessment
base for the second quarter of 2009. In addition, the FDIC required financial institutions like us to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009
and for all of 2010 through and including 2012 to re-capitalize the Deposit Insurance Fund.

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In November 2010, the FDIC approved two proposals that amend the deposit insurance assessment regulations. The first proposal implements a provision in the
Dodd-Frank Wall Street Reform and Consumer Protection Act that changes the assessment base from one based on domestic deposits (as it has been since 1935) to one based on assets. The
assessment base changes from adjusted domestic deposits to average consolidated total assets minus average tangible equity.

The
second proposal changes the deposit insurance assessment system for large institutions (those with at least $10 billion in assets) in conjunction with the guidance given in
the Dodd-Frank Act. Since the new base would be much larger than the current base, the FDIC will lower assessment rates, which achieves the FDIC's goal of not significantly altering the
total amount of revenue collected from the industry. Risk categories and debt ratings will be eliminated from the assessment calculation for large banks which will instead use scorecards. The
scorecards will include financial measures that are predictive of long-term performance. Both changes in the assessment system will be effective as of April 1, 2011 and will be
payable at the end of September.

In
December 2010, the FDIC voted to increase the required amount of reserves for the designated reserve ratio to 2.0%. The ratio is higher than the 1.35% set by the
Dodd-Frank Act in July 2010 and is an integral part of the FDIC's comprehensive, long-range management plan for the Deposit Insurance Fund.

In
February 2011, the FDIC approved the final rules that, as noted above, change the assessment base from domestic deposits to average assets minus average tangible equity, adopt a new
scorecard-based assessment system for financial institutions with more than $10 billion in assets, and finalize the designated reserve ratio target size at 2.0% of insured deposits.

The
FDIC may terminate the deposit insurance of any insured depository institution if it determines after a hearing that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. It also may suspend deposit insurance temporarily
during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time
of the termination, less subsequent withdrawals, remain insured for a period of six months to two years, as determined by the FDIC.



In June 2010, the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency and the Office of Thrift Supervision issued
a comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such
organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either
individually or as part of a group, is based upon the key principles that a banking organization's incentive compensation arrangements should (i) provide incentives that do not encourage
risk-taking beyond the organization's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be
supported by strong corporate governance, including active and effective oversight by the organization's board of directors.

The
Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the
Company, that are not "large, complex banking organizations." These reviews will be tailored to each organization based on the scope and complexity of the organization's activities and the prevalence
of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization's supervisory
ratings, which can affect the organization's ability to make acquisitions and take other actions. Enforcement actions may be taken

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against
a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization's
safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.



New regulations and statutes are regularly proposed that contain wide-ranging provisions for altering the structures,
regulations and competitive relationships of the nation's financial institutions. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which
our business may be affected by any new regulation or statute.

Item 1A.    Risk Factors.

Our business is subject to certain risks, including those described below. If any of the events described in the following risk factors
actually occurs then our business, results of operations and financial condition could be materially adversely affected. More detailed information concerning these risks is contained in other sections
of this report, including "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Risks Related to Our Business

Recent negative developments in the financial industry and the current economic environment pose significant challenges for our industry and us and could adversely affect
our business, financial condition and results of operations.

We are operating in a challenging and uncertain economic environment, including generally uncertain national and local conditions.
Recent negative developments in the global credit and securitization markets have resulted in uncertainty in the financial markets in general, and the economy continued to be weak through 2010, both
nationally and in our Georgia markets. As a
result of this "credit crunch," commercial as well as consumer loan portfolio performances have deteriorated at many institutions, and the competition for deposits and quality loans has increased
significantly. Global securities markets, and bank and bank holding company stock prices in particular, have been negatively affected, as has the ability of banks and bank holding companies to raise
capital or borrow in the debt markets.

Financial
institutions like us have been, and may continue to be, affected by sharp declines in the real estate market, including falling home prices and increasing delinquencies,
foreclosures and increased unemployment. Concerns over the stability of the financial markets and the economy have resulted in decreased lending by financial institutions to their customers and to
each other. Those concerns have lead to increased commercial and consumer deficiencies, lack of customer confidence, increased market volatility and widespread reduction in general business activity.
We do not expect these difficult conditions to improve in the near future. A worsening of these conditions would likely exacerbate the adverse effects on us.

As
a result, we may face the following risks:



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These
conditions or similar ones may continue to persist or worsen, causing us to experience continuing or increased adverse effects on our business, financial condition, results of
operations and the price of our common stock.

A further adverse change in real estate market values may result in losses and otherwise adversely affect our profitability.

As of December 31, 2010, approximately 84.6% of our non-covered loan portfolio (those loans not covered by loss
share agreements with the FDIC) was comprised of loans with real estate as a primary or secondary component of collateral. The real estate collateral in each case provides an alternate source of
repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. The recent negative developments in the financial industry and economy as a whole
have adversely affected the real estate market values generally and in our market areas in Georgia specifically and may continue to decline. For example, based on information gathered by CoStar
Group, Inc., commercial real estate property values in the Atlanta market have decreased from January 1, 2008 through December 31, 2010 as follows: office values decreased by 61%;
retail values decreased by 61%; and industrial values decreased by 38%. The majority of our non-covered loans were originated after September 2009. From September 2009 through
December 31, 2010, office and industrial values remained steady and retail values declined by 13%. As of December 31, 2010, approximately 77.8% of our non-covered loan
portfolio consists of loans secured by commercial real estate, comprising $266.8 million of total loans, with approximately 33.4% of the commercial real estate property underlying those loans
located in our Atlanta market.

A
further decline in real estate values could further impair the value of our collateral and our ability to sell the collateral upon any foreclosure. In the event of a default with
respect to any of these loans, the amounts we receive on the sale of the collateral may be insufficient to recover the outstanding principal and interest on the loan. As a result, our profitability
and financial condition may be adversely affected by a further decrease in real estate market values. As of December 31, 2010, approximately 71.9% of the property underlying our
non-covered real estate loans is located in our Atlanta and Middle Georgia markets.

If, over the next three or four years, we are unable to replace the revenue we expect to derive from the continued realization of accretable discounts on our acquired loans
and the FDIC receivable with new loans and other earning assets, our financial condition and earnings may be adversely affected.

As a result of the ten FDIC-assisted acquisitions we have made over the past 18 months and the negative purchase
price associated with each acquisition, we anticipate that a significant portion of our income over the next three to four years will be derived from the continued realization of accretable discounts
on the loans that we purchased in our FDIC-assisted acquisitions and from the FDIC receivable. For year ended December 31, 2010, we recognized $98.3 million of income, or
49.1% of our total income from the period, from the realization of accretable discounts on our acquired loans and the FDIC receivable. The accretable discount on the acquired loans will be recognized
into interest income over the estimated life of the covered loan portfolio. Furthermore, the discount recorded on the FDIC receivable will be accreted into non-interest income using the
level yield method over the estimated life of the receivable. During the period, if we are unable to replace our acquired loans and

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the
related accretion with new performing loans and other earning assets due to a decline in loan demand, competition from other financial institutions in our markets or if current economic conditions
continue or further deteriorate, our financial condition and earnings may be adversely affected.

We may decide to make future acquisitions, which could expose us to additional risks.

We periodically evaluate opportunities to acquire additional financial institutions, including additional purchases from the FDIC. As a
result, we may engage in negotiations or discussions that, if they were to result in a transaction, could have a material effect on our operating results and financial condition, including short and
long-term liquidity.

Our
acquisition activities could be material and could require us to use a substantial amount of cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in
connection with our prior or potential future acquisitions were determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely
affect our results of operations during the period in which the impairment was recognized.

Our
acquisition activities could involve a number of additional risks, including the risks of:



We may be exposed to difficulties in combining the operations of acquired institutions, including the ten banks we acquired from the FDIC, into our own operations, which may
prevent us from achieving the expected benefits from our acquisition activities.

We may not be able to fully achieve the strategic objectives and operating efficiencies that we anticipate in our acquisition
activities, including our recent acquisition of the ten separate banks we acquired from the FDIC, as receiver. Inherent uncertainties exist in integrating the operations of an acquired institution. In
addition, the markets in which we and our potential acquisition targets operate are highly competitive. We may lose customers or the customers of an acquired institution as a result of an acquisition.
We also may lose key personnel from the acquired institution as a result of an acquisition. We may not discover all known and unknown factors when examining an institution for acquisition during the
due diligence period. These factors could produce unintended and unexpected consequences. Undiscovered factors as a result of an acquisition could bring civil, criminal and financial liabilities
against us, our management and the management of the institutions we acquire. These factors could contribute to our not achieving the expected benefits from our acquisitions within desired time
frames, if at all.

Our business is subject to interest rate risk, and fluctuations in interest rates may adversely affect our earnings and capital levels and overall results.

The majority of our assets are monetary in nature and, as a result, we are subject to significant risk from changes in interest rates.
Changes in interest rates may affect our net interest income as well as the valuation of our assets and liabilities. Our earnings depend significantly on our net interest income, which is the
difference between interest income on interest-earning assets, such as loans and securities,

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and
interest expense on interest-bearing liabilities, such as deposits and borrowings. We expect to periodically experience "gaps" in the interest rate sensitivities of our assets and liabilities,
meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest
rates move contrary to our position, this "gap" may work against us, and our earnings may be adversely affected.

An
increase in the general level of interest rates may also, among other things, adversely affect the demand for loans and our ability to originate loans. Conversely, a decrease in the
general level of interest rates, among other things, may lead to prepayments on our loan and mortgage-backed securities portfolios and increased competition for deposits. Accordingly, changes in the
general level of market interest rates may adversely affect our net yield on interest-earning assets, loan origination volume and our overall results.

Although
our asset-liability management strategy is designed to control and mitigate exposure to the risks related to changes in the general level of market interest rates, those rates
are affected by many factors outside of our control, including inflation, recession, unemployment, money supply, international disorder and instability in domestic and foreign financial markets. We
may not be able to accurately predict the likelihood, nature and magnitude of those changes or how and to what extent they may affect our business. We also may not be able to adequately prepare for or
compensate for the consequences of such changes. Any failure to predict and prepare for changes in interest rates or adjust for the consequences of these changes may adversely affect our earnings and
capital levels and overall results.

We depend on our management team, and the loss of our senior executive officers or other key employees could impair our relationship with customers and adversely affect our
business and financial results.

Our success largely depends on the continued service and skills of our existing management team, including Joseph W. Evans, our
Chairman and Chief Executive Officer, J.
Daniel Speight, our Vice Chairman and Chief Operating Officer, Kim M. Childers, our President and Chief Credit Officer, Stephen W. Doughty, our Chief Banking Officer and Executive Risk Officer and
John S. Poelker, our Executive Vice President and Chief Financial Officer, as well as other key employees with long-term customer relationships. Our growth strategy is built primarily on
our ability to retain employees with experience and business relationships within their respective segments. The loss of one or more of these key personnel could have an adverse effect on our business
because of their skills, knowledge of the market, years of industry experience and the difficulty of finding qualified replacement personnel.

Our management team's strategies for the enhancement of shareholder value may not succeed.

Our management team is taking actions to enhance shareholder value, including consolidating operation centers, reviewing personnel,
assembling a team for correspondent banking and purchasing performing loans from the FDIC and others, and continuing to review FDIC-assisted deals on a whole bank and deposit only basis.
These actions may not enhance shareholder value.

FDIC-assisted acquisition opportunities may not become available to us, and increased competition may make it more difficult for us to bid on failed bank
transactions on terms we consider to be acceptable.

Our near-term business strategy includes consideration of potential acquisitions of failing banks that the FDIC plans to
place in receivership. The FDIC may not place banks that meet our strategic objectives into receivership. Failed bank transactions are attractive opportunities in part because of
loss-sharing arrangements with the FDIC that limit the acquirer's downside risk on the purchased loan portfolio and, apart from our assumption of deposit liabilities, we have significant
discretion as to the nondeposit liabilities that we assume. In addition, assets purchased from the FDIC are marked to their fair value and in many cases there is little or no addition to goodwill
arising from an FDIC-assisted

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transaction.
The bidding process for failing banks could become very competitive, and the increased competition may make it more difficult for us to bid on terms we consider to be acceptable.

We are subject to extensive regulation that could limit or restrict our activities and adversely affect our earnings.

We operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various federal
and state agencies, including the Federal Reserve, the FDIC and the Georgia Department of Banking and Finance. Our compliance with these regulations is costly and restricts our activities, including
payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. Our failure to comply with these requirements
can lead to, among other remedies, administrative enforcement actions, termination or suspension of our licenses, rights of rescission for borrowers, and class action lawsuits. Many of these
regulations are intended to protect depositors, the public and the FDIC rather than our shareholders. The laws and regulations applicable to the banking industry are changing rapidly to reflect the
government's concerns about the economy and the banking system, and these changes may adversely affect our business and profitability. Changes to statutes, regulations or regulatory policies, and the
interpretation and implementation of new statutes, regulations or policies could affect us in substantial and unpredictable ways, including limiting the types of financial services and products we may
offer and/or increasing the ability of nonbanks to offer competing financial services and products.

In
addition, following the effective date of our registration statement on Form 10 on December 28, 2010, we became subject to the requirements of the Sarbanes-Oxley Act of
2002. Failure to have in place adequate programs and procedures could cause us to have weakness in our internal control environment, putting us and our shareholders at risk of loss.

These
and other potential changes in government regulation or policies could increase our costs of doing business and could adversely affect our operations and the manner in which we
conduct our business.

Regulatory reform of the U.S. banking system may adversely affect us.

On July 21, 2010, President Obama signed into law The Dodd-Frank Wall Street Reform and Consumer Protection Act
which, among other things, changes the oversight and supervision of financial institutions, introduces minimum capital requirements, creates a new federal agency to regulate consumer financial
products and services and implements changes to corporate governance and compensation practices.

Other
recent developments include:



These
initiatives may increase our expenses or decrease our income. Further, the overall effects of these and other legislative and regulatory efforts on the financial markets remain
uncertain, and they may not have the intended results. These efforts may even have unintended harmful consequences on the U.S. financial system and our business. Should these or other legislative or
regulatory initiatives have unintended effects, our business, financial condition, results of operations and prospects could be materially and adversely affected.

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In addition, we may need to modify our strategies and business operations in response to these changes. We may also incur increased capital requirements and
constraints or additional costs to satisfy new regulatory requirements. Given the volatile nature of the current market and the uncertainties underlying efforts to mitigate or reverse disruptions, we
may not timely anticipate or manage existing, new or additional risks, contingencies or developments in the current or future environment. Our failure to do so could materially and adversely affect
our business, financial condition, results of operations and prospects.

Recent legislative and regulatory initiatives to address the current difficult market and economic conditions may not achieve the desired effect.

Beginning in October 2008, a host of legislation and regulation has been enacted in response to the financial crises affecting the
banking system and financial markets and the threats to investment banks and other financial institutions. These include the following:



Each
of these programs was implemented to help stabilize and provide liquidity to the financial system. However, the long-term effect that these or any other governmental
program may have on the financial markets or our business or financial performance is unknown. A continuation or worsening of current financial market conditions could materially and adversely affect
our business, financial condition, results of operations, access to credit or the trading price of our common stock.

We will incur increased costs as a result of being a public company.

As a privately held company, we were not responsible for the corporate governance and financial reporting practices and policies
required of a publicly traded company. Following the effective date of our registration statement on December 28, 2010, we are now a public company. As a public company,

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we
will incur significant legal, accounting and other expenses that we did not incur in the past and are not reflected in our historical financial statements. In addition, the Sarbanes-Oxley Act, as
well as new rules implemented by the SEC under the Dodd-Frank Act, will require changes in corporate governance practices. We expect that these rules and regulations will increase our
legal and financial compliance costs.

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings will be adversely affected.

Our success depends significantly on the quality of our assets, particularly loans. Like other financial institutions, we are exposed
to the risk that our loan customers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to fully compensate us for the
outstanding balance of the loan plus the costs to dispose of the collateral. As a result, we may experience significant loan losses that may have a material adverse effect on our operating results and
financial condition.

We
maintain an allowance for loan losses with respect to our non-covered loan portfolio not subject to loss share agreements with the FDIC, in an attempt to cover loan losses
inherent in our loan portfolio. In determining the size of the allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. We also make
various assumptions and judgments about the collectibility of our loan portfolio, including the diversification in our loan portfolio, the effect of changes in the economy on real estate and other
collateral values, the results of recent regulatory examinations, the effects on the loan portfolio of current economic indicators and
their probable impact on borrowers, the amount of charge-offs for the period and the amount of non-performing loans and related collateral security. If our assumptions prove to
be incorrect, our current allowance may not be sufficient, and adjustments may be necessary to allow for different economic conditions or adverse developments in our loan portfolio. Material additions
to the allowance for loan losses would materially decrease our net income and adversely affect our financial condition generally.

In
addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize further loan
charge-offs, based on judgments different than our management. Any increase in our allowance for loan losses or loan charge-offs required by these regulatory agencies could
have a material adverse effect on our operating results and financial condition.

We are exposed to higher credit risk by construction and development, commercial real estate, and commercial and industrial lending.

Construction and development, commercial real estate, and commercial and industrial lending usually involve higher credit risks than
single-family residential lending. As of December 31, 2010, the following loan types accounted for the stated percentages of our total loan portfolio: real estate construction and
development26.9%, commercial real estate43.0%, and commercial and industrial9.8%. As of December 31, 2010, of these loans, 63.5% are covered by loss share
agreements with the FDIC. However, over time, we expect that the number of non-covered loans in these categories will increase. These types of loans involve larger loan balances to a
single borrower or groups of related borrowers.

Commercial
real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate
borrowers' ability to repay their loans depends on successful development of their properties, in addition to the factors affecting residential real estate borrowers. These loans also involve greater
risk because they generally are not fully amortizing over the loan period, but have a balloon payment due at maturity.

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A borrower's
ability to make a balloon payment typically will depend on being able to either refinance the loan or sell the underlying property in a timely manner.

Risk
of loss on a construction and development loan depends largely upon whether our initial estimate of the property's value at completion of construction equals or exceeds the cost of
the property construction (including interest), the availability of permanent take-out financing and the builder's ability to ultimately sell the property. During the construction phase, a
number of factors can result in delays and cost overruns. If estimates of value are inaccurate or if actual construction costs
exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan or by seizure of collateral.

Commercial
and industrial loans are typically based on the borrowers' ability to repay the loans from the cash flow of their businesses. These loans may involve greater risk because the
availability of funds to repay each loan depends substantially on the success of the business itself. In addition, the assets securing the loans have the following characteristics: (a) they
depreciate over time, (b) they are difficult to appraise and liquidate, and (c) they fluctuate in value based on the success of the business.

Construction
and development loans, commercial real estate loans, and commercial and industrial loans are more susceptible to a risk of loss during a downturn in the business cycle. Our
underwriting, review and monitoring cannot eliminate all of the risks related to these loans.

As
of December 31, 2010, our outstanding commercial real estate loans were equal to 225.3% of our total capital. The banking regulators are giving commercial real estate lending
greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing,
as well as possibly higher levels of allowances for losses and capital levels as a result of commercial real estate lending growth and exposures.

Changes in local economic conditions where we operate could have a negative effect.

Our success depends significantly on growth in population, income levels, deposits and housing starts in our markets in Georgia. The
local economic conditions in these areas have a significant effect on our loans, the ability of borrowers to repay our loans, and the value of the collateral securing our loans. Adverse changes in,
and further deterioration of, the economic conditions of the Southeastern United States in general or any one or more of our local markets could negatively affect our financial condition, results of
operations and our profitability. A continuing deterioration in economic conditions could result in the following consequences, any of which could have a material adverse effect on our
business:



We face strong competition for customers, which could prevent us from obtaining customers or may cause us to pay higher interest rates to attract customer deposits.

The banking business is highly competitive, and we experience competition in our markets from many other financial institutions.
Customer loyalty can be easily influenced by a competitor's new products, especially offerings that could provide cost savings or a higher return to the customer. Moreover, this competitive industry
could become even more competitive as a result of legislative,

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regulatory
and technological changes and continued consolidation. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies,
securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as super-regional, national and international financial institutions that operate offices in our
primary market areas and elsewhere.

We
compete with these institutions both in attracting deposits and in making loans. In addition, we have to attract our customer base from other existing financial institutions and from
new residents. Many of our competitors are well-established, larger financial institutions, such as SunTrust Bank, Bank of America, Wells Fargo and BB&T. We also compete with local
community banks in our market. We may not be able to compete successfully with other financial institutions in our market, and we may have to pay higher interest rates to attract deposits, accept
lower yields on loans to attract loans and pay higher wages for new employees, resulting in reduced profitability. In addition, competitors that are not depository institutions are generally not
subject to the extensive regulations that apply to us.

Future growth or operating results may require us to raise additional capital, but that capital may not be available or may be dilutive.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We may at
some point need to raise additional capital to support our operations and any future growth.

Our
ability to raise capital will depend on conditions in the capital markets, which are outside of our control and largely do not depend on our financial performance. Accordingly, we
may be unable to raise capital when needed or on favorable terms. If we cannot raise additional capital when needed, we will be subject to increased regulatory supervision and the imposition of
restrictions on our growth and business. These restrictions could negatively affect our ability to operate or further expand our operations through loan growth, acquisitions or the establishment of
additional branches. These restrictions may also result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our financial condition, results of
operations and the price of our common stock.

Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition.

FDIC insurance premiums increased substantially in 2009, and we expect to pay significantly higher FDIC premiums in the future. As the
large number of recent bank failures continues to deplete the Deposit Insurance Fund, the FDIC adopted a revised risk-based deposit insurance assessment schedule in February 2009, which
raised deposit insurance premiums. The FDIC required financial institutions, such as the Bank, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and
for all of 2010 through and including 2012 to re-capitalize the Deposit Insurance Fund. The rule also provides for increasing the FDIC-assessment rates by three basis points
effective January 1, 2011. If FDIC deposit insurance premiums and assessments continue to increase, it could adversely affect our financial condition.

The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are
inaccurate.

The preparation of financial statements and related disclosure in conformity with accounting principles generally accepted in the
United States requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our critical accounting
policies, which are included in this report, describe those significant accounting policies and methods used in the preparation of our consolidated financial statements that we consider "critical"
because they require judgments, assumptions and estimates that materially affect

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our
consolidated financial statements and related disclosures. As a result, if future events differ significantly from the judgments, assumptions and estimates in our critical accounting policies,
those events or assumptions could have a material impact on our audited consolidated financial statements and related disclosures.

We must respond to rapid technological changes, and these changes may be more difficult or expensive than anticipated.

We will have to respond to future technological changes. Specifically, if our competitors introduce new banking products and services
embodying new technologies, or if new banking industry standards and practices emerge, then our existing product and service offerings, technology and systems may be impaired or become obsolete.
Further, if we fail to adopt or develop new technologies or to adapt our products and services to emerging industry standards, then we may lose current and future customers, which could have a
material adverse effect on our business, financial condition and results of operations. The financial services industry is changing rapidly, and to remain competitive, we must continue to enhance and
improve the functionality and features of our products, services and technologies. These changes may be more difficult or expensive than we anticipate.

Our inability to use a short form registration statement on Form S-3 may affect our short-term ability to access the capital markets.

A registration statement on Form S-3 permits an eligible issuer to incorporate by reference its past and future
filings and reports made under the Exchange Act. In addition, Form S-3 enables eligible issuers to conduct primary offerings "off the shelf" under Rule 415 of the Securities
Act. The shelf registration process under Form S-3, combined with the ability to incorporate information on a forward basis, allows issuers to avoid
additional delays and interruptions in the offering process and to access the capital markets in a more expeditious and efficient manner than raising capital in a standard registered offering on
Form S-1. One of the requirements for Form S-3 eligibility is for an issuer to have been subject to the reporting requirements for the 12-month period
immediately preceding the filing of the Form S-3. Because we did not become subject to the reporting requirements of the Exchange Act until our registration statement on
Form 10 became effective on December 28, 2010, we will not be able to use Form S-3 until December 28, 2011. We may experience delays in our ability to raise
capital in the capital markets during the period that we are unable to use Form S-3. Any such delay may result in offering terms that may not be advantageous to us or may cause us
not to obtain capital in a timely fashion to execute our business strategies.

Risks Related to the Acquisition of the Acquired Banks

We are subject to risks related to FDIC-assisted transactions.

The ultimate success of our past FDIC-assisted transactions, and any FDIC-assisted transactions in which we may
participate in the future, will depend on a number of factors, including our ability:



39

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As
with any acquisition involving a financial institution, particularly one involving the transfer of a large number of bank branches as is often the case with FDIC-assisted
transactions, there may be higher than average levels of service disruptions that would cause inconveniences to our new customers or potentially increase the effectiveness of competing financial
institutions in attracting our customers. We anticipate challenges and opportunities because of the unique nature of each acquisition. Integration efforts will also likely divert our management's
attention and resources. We may be unable to integrate acquired branches successfully, and the integration process could result in the
loss of key employees, the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients,
customers, depositors and employees or to achieve the anticipated benefits of the FDIC-assisted transactions. We may also encounter unexpected difficulties or costs during the integration
that could adversely affect our earnings and financial condition, perhaps materially. Additionally, we may be unable to achieve results in the future similar to those achieved by our existing banking
business, to compete effectively in the market areas previously served by the acquired branches or to manage effectively any growth resulting from FDIC-assisted transactions.

Our
willingness and ability to grow acquired branches following FDIC-assisted transactions depend on several factors, most importantly the ability to retain the key personnel
whom we hire or transfer in connection with FDIC-assisted transactions. Our failure to retain these employees could adversely affect the success of FDIC-assisted transactions
and our future growth.

Our ability to continue to receive the benefits of our loss share arrangements with the FDIC is conditioned upon our compliance with certain requirements under the
agreements.

We are the beneficiary of loss share agreements with the FDIC that call for the FDIC to fund a portion of our losses on a majority of
the assets we acquired in connection with our recent FDIC-assisted transactions. To recover a portion of our losses and retain the loss share protection, we must comply with certain
requirements imposed by the agreements. The requirements of the agreements relate primarily to our administration of the assets covered by the agreements, as well as our obtaining the consent of the
FDIC to engage in certain corporate transactions that may be deemed under the agreements to constitute a transfer of the loss share benefits. For example, any merger or consolidation of the Bank or
any public or private offering of common stock by us that would increase our outstanding shares by more than 9% requires the consent of the FDIC.

When
the consent of the FDIC is required under the loss share agreements, the FDIC may withhold its consent or may condition its consent on terms that we do not find acceptable. If the
FDIC does not grant its consent to a transaction we would like to pursue, or conditions its consent on terms that we do not find acceptable, we may be unable to engage in a corporate transaction that
might otherwise benefit our shareholders or we may elect to pursue such a transaction without obtaining the FDIC's consent, which could result in termination of our loss share agreements with the
FDIC.

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Changes in national and local economic conditions could lead to higher loan charge-offs in connection with the acquisition of the Acquired Banks and the loss
sharing agreement with the FDIC may not cover all of those charge-offs.

In connection with the acquisition of the Acquired Banks, we acquired a significant portfolio of loans. Although we have marked down
the loan portfolios we have acquired, the non-impaired loans we acquired may become impaired or may further deteriorate in value, resulting in additional charge-offs to the
loan portfolio. The fluctuations in national, regional and local economic conditions, including those related to local residential, commercial real estate and construction markets, may increase the
level of charge-offs that we make to our loan portfolio and consequently reduce our capital. These fluctuations are not predictable, cannot be controlled and may have a material adverse
impact on our operations and financial condition even if other favorable events occur.

Our loss sharing arrangements with the FDIC will not cover all of our losses on loans we acquired through the acquisition of the Acquired Banks.

Although we have entered into loss share agreements with the FDIC that provide that the FDIC will bear a significant portion of losses
related to specified loan portfolios that we acquired through the Acquired Banks, we are not protected for all losses resulting from charge-offs with respect to those specified loan
portfolios. Additionally, the loss sharing agreements have limited terms (10 years for losses on single-family residential real estate loans, five years for losses on
non-residential real estate loans and eight years with respect to recoveries on non-residential real estate loans). Therefore, the FDIC will not reimburse us for any
charge-off or related losses that we experience after the term of the loss share agreements, and any such charge-offs would negatively impact our net income. Moreover, the loss
share provisions in the loss share agreement may be administered improperly, or the FDIC may interpret those provisions in a way different than we do. In any of those events, our losses could
increase.

The FDIC requires that we make a "true-up" payment to the FDIC if our realized losses are less than expected.

The loss share agreements between the Bank and the FDIC with respect to The Buckhead Community Bank, First Security National Bank,
NorthWest Bank and Trust and United Americas Bank, N.A. each contain a provision that obligates us to make a "true-up" payment to the FDIC if the realized losses of each of these acquired
banks are less than expected. The "true-up" calculation is scheduled to be made as of the 45th day following the last day of the calendar month of the tenth anniversary of the
closing of the acquisitions of The Buckhead Community Bank, First Security National Bank, NorthWest Bank and Trust and United Americas Bank, N.A. Any such "true-up" payment could have a
negative effect on our business, financial condition and results of operations.

Risks Related to Our Common Stock

Although we have applied to list our shares on NASDAQ, we may not be successful in listing our shares. In that event, the lack of any established trading market may
significantly restrict our shareholders' ability to sell shares of our common stock.

There is no established trading market for our common stock. The absence of an active trading market may significantly restrict our
shareholders' ability to transfer shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market or how
liquid that market might become. We applied to list our shares of common stock on NASDAQ in the first quarter of 2011. NASDAQ has its own listing criteria, including criteria related to minimum bid
price, public float, market makers, minimum number of round lot holders and board independence requirements, that we may not meet.

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In
addition, even if our common stock is approved for listing on NASDAQ, we will have no prior public trading history, and thus there is no way to determine the prices or volumes at
which our common stock will trade. Holders of shares of our common stock may not be able to resell the shares at or near their original acquisition price, or at any price. Additionally, NASDAQ has its
own corporate governance and other requirements that we must meet to maintain our listing. If we qualify for listing and subsequently fail to meet the ongoing listing requirements of the exchange, our
shares could be delisted.

Shares of our common stock are subject to dilution.

As of March 15, 2011, we had approximately 31,610,904 shares of common stock issued and outstanding and warrants outstanding to
purchase another 2,715,561 shares of our common stock. If we issue additional shares of common stock in the future and do not issue those shares to all then-existing common shareholders
proportionately to their interests, then the issuance will result in dilution to each shareholder by reducing the shareholder's percentage ownership of the total outstanding shares of our common
stock.

Our board of directors may issue shares of preferred stock that would adversely affect the rights of our common shareholders.

Our authorized capital stock includes 2,000,000 shares of preferred stock of which no preferred shares are issued and outstanding. Our
board of directors, in its sole discretion, may designate and issue one or more series of preferred stock from the authorized and unissued shares of preferred stock. Subject to limitations imposed by
law or our articles of incorporation, our board of directors is empowered to determine:



We
could issue preferred stock with voting and conversion rights that could adversely affect the voting power of the shares of our common stock and with preferences over the common stock with respect
to dividends and in liquidation.

We do not anticipate declaring dividends in the foreseeable future.

Holders of our common stock are not entitled to receive dividends unless our board of directors declares them. Since the inception of
the Company in January 2010, we have not paid any dividends on our common stock and do not intend to pay dividends in the foreseeable future. The Company's principal source of funds to pay dividends
is the cash dividends that it receives from the Bank. Under the Georgia Department of Banking and Finance's letter dated July 24, 2009 issuing its approval of the Interagency Notice of Change
in Control application filed by Joseph W. Evans, J. Daniel Speight and Kim M. Childers, with respect to the Bank, the Bank must obtain approval from the Georgia Department of Banking and Finance
before paying any dividends, including dividend payments to the Company, until July 2012. In addition, during the first three years of the Company's operations, the Company may not pay dividends
without the prior written approval of the Georgia Department of Banking and Finance. Even after these conditions expire, our ability to pay dividends will be limited by

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regulatory
restrictions, our financial condition, results of operations, capital requirements, level of indebtedness and other factors as our board of directors deems relevant.

Our securities are not FDIC insured.

Our securities, including our common stock, are not savings or deposit accounts or other obligations of the Bank, are not insured by
the Deposit Insurance Fund, the FDIC or any other governmental agency and are subject to investment risk, including the possible loss of principal.

Item 1B.    Unresolved Staff Comments.

Not applicable.

Item 2.    Properties.

Our administrative office, which includes a full service branch, is located at 415 East Paces Ferry, Atlanta, Georgia 30305 and the
Bank's main office is located at 4219 Forsyth Road, Macon, Georgia 31210. In addition, the Bank operates 20 additional branches located in Bibb, Cobb, Dooly, Houston, Fulton, Gwinnett and Jones
Counties, Georgia. The address locations of these branches are provided below.

Branch

Address

City, State, Zip

Lease/OwnAlpharetta

2380 Old Milton Parkway

Alpharetta, Georgia 30008

OwnBass Road

1535 Bass Road

Macon, Georgia 31210

OwnBuford Highway

4997 Buford Highway

Chamblee, Georgia

LeaseChastain

4241 Roswell Road

Atlanta, Georgia 30342

OwnGray

282 W. Clinton Street

Gray, Georgia 31032

OwnHartley Bridge

4315 Hartley Bridge Road

Macon, Georgia 31216

OwnHouston Lake

119 S. Houston Lake Road

Warner Robins, Georgia 31088

OwnHighway 96

849 Warren Drive

Warner Robins, Georgia 31088

OwnLog Cabin

4699 Log Cabin Drive

Macon, Georgia 31206

OwnMarietta

250 Church Street

Marietta, Georgia 30060

LeaseMidtown

860 Peachtree Street, Suite J

Atlanta, Georgia 30308

LeaseNorcross

6170 Peachtree Parkway

Norcross, Georgia 30092

OwnNortheast

614 Shurling Drive

Macon, Georgia 31201

OwnPerry

1208 Washington Street

Perry, Georgia 31069

OwnPinehurst

321 Fullington Avenue

Pinehurst, Georgia 31070

OwnPio Nono

3945 Pio Nono Avenue

Macon, Georgia 31206

OwnRiverside

2918 Riverside Drive

Macon, Georgia 31204

OwnUnadilla

2206 Pine Street

Unadilla, Georgia 31091

OwnWalnut

700 Walnut Street

Macon, Georgia 31201

OwnZebulon

5980 Zebulon Road

Macon, Georgia 31210

Own


We
lease our administrative office and own the Bank's main office location. In connection with our acquisition of NorthWest Bank and Trust from the FDIC, pursuant to the terms and
conditions of the purchase and assumption agreement, we intend to purchase its branch office location in Marietta, Georgia. To date, however, we have not finalized the terms and conditions associated
with such purchase with the FDIC. The approximate value of the initial commitment to purchase this location from the FDIC was $750,000. In connection with our acquisition of United Americas Bank from
the FDIC, we have closed one of their two branches and we are leasing the remaining branch in Chamblee, Georgia from the FDIC.

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Item 3.    Legal Proceedings.

We are not a party to any material pending legal proceedings, other than ordinary routine litigation incident to our business.

Item 4.    (Removed and Reserved).

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

As of March 15, 2011, we had 31,610,904 shares of common stock issued and outstanding and approximately 248 shareholders of
record. In addition, we have issued warrants to purchase 2,715,561 shares of our common stock. No public market exists for our common stock, and there can be no assurance that a public trading market
for our common stock will develop. Our common stock is presently quoted on the OTCQB under the symbol "STBZ." OTCQB securities are quoted on OTC Market Group's quotation and trading system. In 2010,
our common stock was considered a "grey market" security. Trades in grey market stocks are reported by broker-dealers to their Self Regulatory Organization (SRO) and the SRO distributes the trade data
to market data vendors and financial websites so investors can track price and volume information. Because grey
market securities are not traded or quoted on an exchange or interdealer quotation system, investors' bids and offers are not collected in a single location and market transparency is diminished.

The
following table contains a summary of the high and low sales price for our common stock for the periods indicated.

Price Range(1)Quarter

High

LowFourth Quarter 2009(2)

$
14.00

$
14.00First Quarter 2010(2)

$
14.00

$
14.00Second Quarter 2010(2)

$
16.00

$
16.00Third Quarter 2010

$
16.00

$
15.25Fourth Quarter 2010

$
16.00

$
14.00


(1)Based
on information gathered from OTC Markets.(2)Trades
reported before the holding company reorganization on July 23, 2010.


We
have not declared or paid any cash dividends on our common stock. For the foreseeable future we do not intend to declare cash dividends and instead we plan to retain earnings to grow
our business. Our ability to pay dividends depends on the ability of the Bank to pay dividends to us. Under Georgia law, the prior approval of the Georgia Department of Banking and Finance is required
before the Bank may pay any cash dividends if:



For
a period of three years after consummation of the July 24, 2009 change in control transaction, the Bank must also obtain approval from the Georgia Department of Banking and Finance before
paying any dividends, including dividend payments to the Company. The Bank received approval from the Georgia Department of Banking and Finance to make a $718,000 dividend payment to the Company to
fund its 2010 operating expenses. In addition, during the first three years of our operations, we may not pay dividends without the prior written approval of the Georgia Department of Banking and
Finance.

On
October 14, 2010, we sold 69,927 shares of our common stock and warrants to purchase 59,927 shares of our common stock for $11.21 per share to certain members of the Bank's
senior management and one of our directors for aggregate gross proceeds of $922,912. Each warrant issued was fully

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exercisable
on the date of grant and remains exercisable for a 10-year period following the date of grant. The shares and warrants were sold in reliance upon the exemption from
registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and, in particular, the safe harbor provisions afforded by Rule 504 of
Regulation D, as promulgated thereunder.

On
July 23, 2010, we consummated our plan of reorganization and share exchange with the Bank pursuant to which we have issued 31,540,977 shares of our common stock in exchange for
31,540,977 shares of the Bank's common stock pursuant to the exemption from registration contained in Section 3(a)(12) of the Securities Act.

Item 6.    Selected Financial Data.

Selected Financial Data

The following table provides summary historical consolidated financial information for the periods and as of dates indicated. You
should read this information in conjunction with our audited consolidated financial statements, including the related notes, and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are included elsewhere in this report. The historical information at December 31, 2010 and 2009 and for the successor period from July 24, 2009 through
December 31, 2009, the predecessor period from January 1, 2009 through July 23, 2009 and for the fiscal year ended December 31, 2008 is derived from our audited
consolidated financial statements that appear in this report. The historical information at December 31, 2007 and 2006 and for the fiscal years ended December 31, 2007 and 2006 is
derived from our audited financial statements that do not appear in this report. The historical results shown below and elsewhere in this report are not necessarily indicative of our future
performance.

At December 31,2010

2009



2008

2007

2006(in thousands)

Successor Period



Predecessor PeriodSelected Balance Sheet Data:Assets

$
2,828,579

$
2,497,958



$
33,591

$
27,623

$
20,452Investment securities


405,581


317,988




3,008


4,031


3,984FDIC receivable for loss share agreements, net


494,428


605,502










Other real estate owned:Not covered under FDIC loss share agreements


75


120




73





Covered under FDIC loss share agreements, net


155,981


141,690










Loan receivable:Not covered under FDIC loss share agreements


342,849


47,389




22,539


19,189


11,669Covered under FDIC loss share agreements, net


934,967


1,134,499










Allowance for loan losses


5,351


2,524




445


316


139Goodwill and other intangible assets, net


9,194


12,334










Deposits


2,421,926


2,153,791




26,061


21,347


13,977Shareholders' equity


359,343


310,764




5,646


6,106


6,384


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Table of Contents

December 31,
2010

Successor Period
from July 24,
2009 to
December 31,
2009



Predecessor
Interim Period from
January 1,
2009 to July 23,
2009

2008

2007

2006(in thousands, except per share data)

Successor Period



Predecessor PeriodSelected Results of Operations Data:Interest income

$
168,243

$
57,843



$
1,114

$
1,917

$
1,789

$
939Interest expense


37,240


14,741




500


823


585


229Net interest income


131,003


43,102




614


1,094


1,204


710Provision for loan losses


3,955


2,689




261


312


196


117Net interest income after provision for loan losses


127,048


40,413




353


782


1,008


593Noninterest income


32,053


10,293




119


177


132


52Noninterest expenses


86,242


22,345




719


1,481


1,446


1,244Income (loss) before income taxes


72,859


28,361




(247
)

(522
)

(306
)

(599
)Income taxes


27,313


10,339













Net income (loss)

$
45,546

$
18,022



$
(247
)
$
(522
)
$
(306
)
$
(599
)Per Share Data:Earnings (loss):Basic

$
1.44

$
0.59



$
(0.32
)
$
(0.68
)
$
(0.40
)
$
(0.78
)Diluted


1.40


0.58




(0.32
)

(0.68
)

(0.40
)

(0.78
)Tangible book value

$
11.08

$
9.46



$
7.04

$
7.36

$
7.96

$
8.32Weighted average shares outstanding:Basic


31,559


30,584




767


767


767


767Diluted


32,469


31,014




767


767


767


767Performance Ratios:Return on average assets


1.73
%

2.04
%



(1.25
)%

(1.69
)%

(1.33
)%

(3.73
)%Return on average equity


13.66
%

14.14
%



(7.61
)%

(8.73
)%

(4.87
)%

(9.04
)%Net interest margin(1)(4)


5.18
%

4.73
%



3.33
%

3.83
%

4.36
%

5.30
%Interest rate spread(2)(4)


4.85
%

4.19
%



2.65
%

2.98
%

5.78
%

4.73
%Efficiency ratio(3)(4)


52.89
%

41.69
%



98.09
%

116.52
%

108.23
%

163.25
%Average interest-earning assets to average interest-bearing liabilities


122.21
%

133.46
%



125.11
%

129.45
%

150.49
%

198.31
%Average loans receivable to average deposits


50.90
%

61.51
%



87.89
%

105.13
%

115.94
%

95.41
%Asset Quality:Non-performing loans to loans receivable:(5)(7)Covered under loss shares agreements with the FDIC


34.41
%

26.61
%












Not covered under loss shares agreements with the FDIC


1.19
%

1.17
%



0.68
%

0.83
%

0.05
%

Non-performing assets to total assets:(6)(8)Covered under loss shares agreements with the FDIC


24.23
%

52.23
%












Not covered under loss shares agreements with the FDIC


0.15
%

0.06
%



0.70
%

0.77
%

0.03
%

Allowance for loan losses to non-covered loans receivable


1.56
%

5.33
%



2.72
%

1.96
%

1.65
%

1.19
%Capital Ratios:Average equity to average assets


12.70
%

14.41
%



16.11
%

19.35
%

27.23
%

41.21
%Leverage ratio


12.77
%

14.57
%



18.08
%

18.05
%

23.23
%

37.88
%Tier 1 risk-based capital ratio(9)


43.56
%

30.60
%



20.54
%

21.60
%

27.13
%

45.91
%Total risk-based capital ratio(9)


44.23
%

30.85
%



21.56
%

22.67
%

28.38
%

46.91
%


(1)Net
interest income divided by average interest-earning assets.(2)Yield
on interest-earning assets less costs of interest-bearing liabilities.(3)Noninterest
expenses divided by net interest income and noninterest income.


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(4)Calculated
on a fully tax-equivalent basis.(5)Non-performing
loans include nonaccrual loans, net of contractual interest, and loans past due 90 days or more and still accruing
interest.(6)Non-performing
assets are non-performing loans plus other real estate.(7)Ratio
of non-covered non-performing loans to non-covered loans receivable and covered non-performing loans
to covered loans receivable.(8)Ratio
of non-covered non-performing assets to non-covered assets and covered non-performing assets to
covered assets.(9)The
increase in our risk-based capital ratios from December 31, 2009 to December 30, 2010 resulted from the FDIC Financial
Institutions Letter (FIL-7-2010) dated February 26, 2010, entitled "Regulatory Capital Standards Clarification of the Risk Weights for FDIC Claims and Guarantees," which
clarifies that the FDIC receivable may be assigned a zero risk weight.


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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction
with our consolidated financial statements and related notes. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not
indicate trends in operations or results of operations for any future periods.

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 that 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" at the beginning of this report.

Overview

On July 23, 2010, the Company became the bank holding company of the Bank under a plan of reorganization and share exchange that
was approved by the boards of directors of the Company and the Bank and adopted by the shareholders of the Bank at the annual meeting held on March 11, 2010. The Bank is a Georgia
state-chartered bank that opened in October 2005 in Pinehurst, Georgia. From October 2005 until July 23, 2009, the Bank operated as a small community bank with two branch offices located in
Dooly County, Georgia with total assets of approximately $33.6 million, total loans receivable of approximately $22.5 million, total deposits of approximately $26.1 million and
total shareholders' equity of approximately $5.7 million at December 31, 2008.

On
July 24, 2009, the Bank raised approximately $292.1 million in gross proceeds (before expenses) from investors in a private offering of its common stock. Immediately
following the private offering, these investors owned approximately 97% of the Bank's outstanding common stock. In connection with the private offering, the FDIC and the Georgia Department of Banking
and Finance approved the Interagency Notice of Change in Control application filed by our new management team, which took control of the Bank on July 24, 2009. As a result of the private
offering and the acquisitions described below, the Bank was transformed from a small community bank in Pinehurst, Georgia to a much larger commercial bank operating 22 full service branches throughout
middle Georgia and metropolitan Atlanta. As of December 31, 2010, our total assets were approximately $2.8 billion, our total loans receivable were approximately $1.3 billion, our
total deposits were approximately $2.4 billion and our total shareholders' equity was approximately $359.3 million.

As
a result of the private offering and change in control transaction, we applied the push-down basis of accounting to our 2009 audited financial statements. Our 2009
financial statements present two periods that reflect our historical basis of accounting for the period from January 1, 2009 through July 23, 2009 (the "predecessor period") and our new
basis of push-down accounting for the period from July 24, 2009 through December 31, 2009 (the "successor period").

Our
2009 acquisitions resulted in total assets acquired of approximately $3.0 billion, compared to the Bank's total asset size of only $33.6 million at December 31,
2008, an increase of almost 9,000%. Given the enormous change in assets and the similar changes in deposits, shareholders' equity and earnings from the predecessor period to the successor period, the
discussion in this section of our annual report on Form 10-K primarily focuses on 2010 and the successor period in 2009. Although we have included a summary discussion and analysis
of our results of operations for the predecessor period from January 1, 2009 through July 23, 2009 and the year ended December 31, 2008, and of our financial condition as of
December 31, 2008, we believe that the financial information for the periods before July 24, 2009 does not contribute meaningfully to an investor's understanding of our operations

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and
financial condition after the July 24, 2009 private offering and our acquisition of the Acquired Banks.

Acquisitions



On July 24, 2009, immediately following the private offering, the Bank entered into a purchase and assumption agreement with a
loss share arrangement with the FDIC, as receiver, under which the Bank assumed all of the $2.2 billion of liabilities of the Security Banks and acquired approximately $2.0 billion of
the assets of the Security Banks.

The
Bank entered into 12 loss share agreements with the FDIC for the Security Banks (two for each Security Bank) that collectively cover $1.6 billion of the acquired assets,
including 100% of the acquired loans and other real estate owned ("OREO"). Under the loss share agreements for the Security Banks, the FDIC agreed to cover 80% of losses on the disposition of loans
and OREO up to $563.0 million, and 95% of the losses that exceed $563.0 million. The term for loss sharing on single-family residential real estate loans is 10 years, while the
term for loss sharing on non-residential real estate loans is five years with respect to losses and eight years with respect to recoveries. The reimbursable losses from the FDIC are based
on the book value of the relevant loans as determined by the FDIC at the date of the transaction. The loss share agreements do not cover new loans made after that date. At the time of acquisition, the
Bank recorded a receivable from the FDIC of $403.6 million, which represented the estimated fair value of the FDIC's portion of the losses that we expected to be incurred and reimbursed to us
as of that date. The value of the FDIC receivable will continue to fluctuate over time based upon the continued performance of the loans and as the Bank receives
payments from the FDIC under the loss share agreements. Realized losses in excess of acquisition date estimates will result in an increase in the FDIC receivable. Conversely, if realized losses are
less than acquisition date estimates, the FDIC receivable for loss share agreements will be reduced.

Accounting
standards prohibit carrying over an allowance for loan losses for impaired loans purchased in the acquisition of the Security Banks. On the July 24, 2009 acquisition
date, the preliminary estimate of the contractually required principal payments receivable for all impaired loans acquired from the Security Banks was $340.9 million, and the estimated fair
value of those loans was $113.7 million. We valued the impaired loans based on the liquidation value of the underlying collateral because we could not reasonably estimate the timing and amount
of the expected cash flows. As a result, we recorded no accretable discount on these impaired loans. We established a credit risk discount (non-accretable) of $227.2 million on the
acquisition date relating to these impaired loans, reflected in the recorded net fair value of the impaired loans.

Our
preliminary estimate on the acquisition date of the contractually required principal payments receivable for all other loans acquired in the acquisition of the Security Banks was
$1.2 billion, and the estimated fair value of the loans was $751.2 million. At the acquisition date, we established a credit risk discount (non-accretable) of
$255.0 million on these loans, representing amounts we did not expect to collect either from the customers or from the liquidation of collateral. In our estimate of cash flows for the
non-impaired loans of the Security Banks, we also recorded an accretable discount of $173.1 million relating to the loans, which represents the undiscounted cash flows expected to
be collected in excess of the estimated fair value of the acquired loans. This accretable discount is accreted into interest income on a method that approximates level yield over the estimated life of
the related performing covered loans.

As
a result of the FDIC acquisition and the loss share agreements, our financial results and future risks related to the acquired assets and liabilities of the Security Banks are
completely altered, making historical financial information of Security Bank Corporation, or the Security Banks, immaterial to an understanding of our present and planned future operations. In
addition, our business since July 24,

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2009
and for the immediate future relies heavily on our loss share resolution business and on the income generated from the remediation and disposal of the assets we acquired from the FDIC and is
fundamentally different from the business of Security Bank Corporation. In light of the foregoing, we have determined that Security Bank Corporation is not the predecessor entity of the Company
because we did not succeed to substantially all of the business of Security Bank Corporation in the acquisition, and we have therefore omitted historical financial statements of Security Bank
Corporation and the Security Banks in this report.



On December 4, 2009, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC, as
receiver, to assume substantially all of the $810.0 million in liabilities and acquire approximately $880.5 million in assets of The Buckhead Community Bank, a former
full-service community bank headquartered in Atlanta, Georgia. All of the loans and OREO of The Buckhead Community Bank that we acquired are covered by loss share agreements between the
Bank and the FDIC that give the Bank significant protection against future losses in the same manner as the loss share agreements for the Security Banks except as noted below. Under the loss share
agreements, the FDIC agreed to cover 80% of losses on the disposition of loans and OREO up to $254.0 million, and 95% of the losses that exceed $254.0 million. At the time of
acquisition, the Bank recorded a receivable from the FDIC of $213.8 million, which represented the estimated fair value of the FDIC's portion of the losses that we expected to be incurred and
reimbursed to us as of that date.

Accounting
standards prohibit carrying over an allowance for loan losses for impaired loans purchased in the acquisition of The Buckhead Community Bank. On the December 4, 2009
acquisition date, the preliminary estimate of the contractually required principal payments receivable for all impaired loans acquired from The Buckhead Community Bank was $184.9 million, and
the estimated fair value of those loans was $68.7 million. We valued the impaired loans based on the liquidation value of the underlying collateral because we could not reasonably estimate the
timing and amount of the expected cash flows. As a result, we recorded no accretable discount on these impaired loans. We established a credit risk discount (non-accretable) of
$116.2 million on the acquisition date relating to these impaired loans, reflected in the recorded net fair value of the impaired loans.

Our
preliminary estimate on the acquisition date of the contractually required principal payments receivable for all other loans acquired in the acquisition of The Buckhead Community
Bank was $450.4 million, and the estimated fair value of the loans was $274.9 million. At the acquisition date, we established a credit risk discount (non-accretable) of
$140.6 million on these loans, representing amounts we did not expect to collect either from the customers or from the liquidation of collateral. In our estimate of cash flows for the
non-impaired loans of The Buckhead Community Bank, we also recorded an accretable discount of $35.4 million relating to the loans, which represents the undiscounted cash flows
expected to be collected in excess of the estimated fair value of the acquired loans. This accretable discount is accreted into interest income on a method that approximates level yield over the
estimated life of the related performing covered loans.



Also on December 4, 2009, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC,
as receiver, to assume substantially all of the $118.9 million in liabilities and acquire approximately $113.0 million in assets of First Security National Bank, a former
full-service community bank headquartered in Norcross, Georgia. All of the loans and OREO that were acquired are covered by loss share agreements between the Bank and the FDIC that give
the Bank significant protection against future losses in the same manner as the loss share agreements for the Security Banks except as noted below. Under the loss share agreements, the FDIC agreed to
cover 80% of losses on the disposition of loans and OREO up to $27.0 million, and 95% of the losses that

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exceed
$27.0 million. At the time of acquisition, the Bank recorded a receivable from the FDIC of $19.8 million, which represented the estimated fair value of the FDIC's portion of the
losses that we expected to be incurred and reimbursed to us as of that date.

Accounting
standards prohibit carrying over an allowance for loan losses for impaired loans purchased in the acquisition of First Security National Bank. On the December 4, 2009
acquisition date, the preliminary estimate of the contractually required principal payments receivable for all impaired loans acquired from First Security National Bank was $4.3 million, and
the estimated fair value of those loans was $1.9 million. We valued the impaired loans based on the liquidation value of the underlying collateral because we could not reasonably estimate the
timing and amount of the expected cash flows. As a result, we recorded no accretable discount on these impaired loans. We established a credit risk discount (non-accretable) of
$2.4 million on the acquisition date relating to these impaired loans, reflected in the recorded net fair value of the impaired loans.

Our
preliminary estimate on the acquisition date of the contractually required principal payments receivable for all other loans acquired in the acquisition of First Security National
Bank was $46.4 million, and the estimated fair value of the loans was $31.3 million. At the acquisition date, we established a credit risk discount (non-accretable) of
$12.3 million on these loans, representing amounts we did not expect to collect either from the customers or from the liquidation of collateral. In our estimate of cash flows for the
non-impaired loans of First Security National Bank, we also recorded an accretable discount of $2.8 million relating to the loans, which represents the undiscounted cash flows
expected to be collected in excess of the estimated fair value of the acquired loans. This accretable discount is accreted into interest income on a method that approximates level yield over the
estimated life of the related performing covered loans.



On July 30, 2010, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC, as
receiver, to assume $133.3 million in liabilities and acquire approximately $154.5 million in assets of NorthWest Bank and Trust, a former full-service community bank
headquartered in Acworth, Georgia. All of the loans and OREO that were acquired (with the exception of consumer loans) are covered by loss share agreements between the Bank and the FDIC that give the
Bank significant protection against future losses in the same manner as the loss share agreements for the Security Banks except as noted below. Under the loss share agreements, the FDIC agreed to
cover 80% of losses on the disposition of loans and OREO. At the time of acquisition, the Bank recorded a receivable from the FDIC of $25.0 million, which represented the estimated fair value
of the FDIC's portion of the losses that we expected to be incurred and reimbursed to us as of that date.

Accounting
standards prohibit carrying over an allowance for loan losses for impaired loans purchased in the acquisition of NorthWest Bank and Trust. On the July 30, 2010
acquisition date, the preliminary estimate of the contractually required principal payments receivable for all impaired loans acquired from NorthWest Bank and Trust was $20.8 million, and the
estimated fair value of those loans was $6.0 million. At the acquisition date, we established a credit risk discount (non-accretable) of $14.0 million on these loans,
representing amounts we did not expect to collect either from the customers or from the liquidation of collateral. In our estimate of cash flows on the impaired loans, we also recorded an accretable
discount of $842,000 relating to the loans, which represents the undiscounted cash flows expected to be collected in excess of the fair value of these loans.

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Our preliminary estimate on the acquisition date of the contractually required principal payments receivable for all other loans acquired in the acquisition of
NorthWest Bank and Trust was $77.0 million, and the estimated fair value of the loans was $51.0 million. At the acquisition date, we established a credit risk discount
(non-accretable) of $16.2 million on these loans, representing amounts we did not expect to collect either from the customers or from the liquidation of collateral. In our estimate
of cash flows for the non-impaired loans of NorthWest Bank and Trust, we also recorded an accretable discount of $9.8 million relating to the loans, which represents the
undiscounted cash flows expected to be collected in excess of the estimated fair value of the acquired loans. This accretable discount is accreted into interest income on a method that approximates
level yield over the estimated life of the related covered loans.



On December 17, 2010, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC, as
receiver, to assume $224.7 million in liabilities and acquire approximately $252.8 in assets of United Americas Bank, N.A., a former full-service community bank headquartered in
Atlanta, Georgia. All of the loans and OREO that were acquired (with the exception of consumer loans) are covered by loss share agreements between the Bank and the FDIC that give the Bank significant
protection against future losses in the same manner as the loss share agreements for the Security Banks except as noted below.
Under the loss share agreements, the FDIC agreed to cover 80% of losses on the disposition of loans and OREO. At the time of acquisition, the Bank recorded a receivable from the FDIC of
$78.5 million, which represented the estimated fair value of the FDIC's portion of the losses that we expected to be incurred and reimbursed to us as of that date.

Accounting
standards prohibit carrying over an allowance for loan losses for impaired loans purchased in the acquisition of United Americas Bank. On the December 17, 2010
acquisition date, the preliminary estimate of the contractually required principal payments receivable for all impaired loans acquired from United Americas Bank was $60.7 million, and the
estimated fair value of those loans was $13.1 million. At the acquisition date, we established a credit risk discount (non-accretable) of $45.0 million on these loans,
representing amounts we did not expect to collect either from the customers or from the liquidation of collateral. In our estimate of cash flows on the impaired loans, we also recorded an accretable
discount of $2.6 million relating to the loans, which represents the undiscounted cash flows expected to be collected in excess of the fair value of these loans.

Our
preliminary estimate on the acquisition date of the contractually required principal payments receivable for all other loans acquired in the acquisition of United Americas Bank was
$106.1 million, and the estimated fair value of the loans was $55.3 million. At the acquisition date, we established a credit risk discount (non-accretable) of
$41.5 million on these loans, representing amounts we did not expect to collect either from the customers or from the liquidation of collateral. In our estimate of cash flows for the
non-impaired loans of United Americas Bank, we also recorded an accretable discount of $9.3 million relating to the loans, which represents the undiscounted cash flows expected to
be collected in excess of the estimated fair value of the acquired loans. This accretable discount is accreted into interest income on a method that approximates level yield over the estimated life of
the related covered loans.



We determined current fair value accounting estimates of the acquired assets and liabilities for the acquisitions in accordance with
accounting requirements for fair value measurement and acquisition transactions as promulgated in FASB Accounting Standards Codification ("ASC") Topic 310-30,Loans
and Debt Securities Acquired with Deteriorated Credit Quality, (AICPA SOP 03-3), FASB ASC Topic No. 805,Business
Combinations, (formerly Statement of Financial Accounting Standards No. 141(R),Business Combinations) and FASB ASC Topic
820,Fair Value Measurements and Disclosures, (formerly

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Statements
of Financial Accounting Standards No. 157,Fair Value Measurements). We recorded identifiable intangible assets, including core
deposit intangible assets, at fair value. Because the fair value of assets acquired and intangible assets created as a result of three of our acquisitions exceeded
the fair value of liabilities assumed in the acquisitions, we recorded a gain in our consolidated statements of income. In addition, in one of our acquisitions the fair value of liabilities assumed
exceeded the fair value of assets acquired. As a result, we recorded goodwill on that acquisition in our consolidated financial statements.

We
expect to have sufficient non-accretable discounts (discounts representing amounts that are not expected to be collected from the customer and liquidation of collateral)
to cover our estimated losses on the covered assets. Furthermore, we expect to have accretable discounts (discounts representing the excess of a loan's cash flows expected to be collected over the
initial investment in the loan) to provide for market yields on the covered loans. We recorded both the purchased assets and the liabilities assumed at their respective acquisition date fair values.

The
loss share agreements will have a material effect on our cash flows and operating results in both the short term and the long term. In the short term, we believe it is likely that a
significant amount of the covered loans will become delinquent and the proceeds from the liquidation of collateral will be inadequate to repay the loans. In those instances, we will stop accruing
interest on the loans, which will affect operating results. Management believes that it has established sufficient non-accretable discounts on covered assets representing the expected
losses compared to their acquired contractual payment amounts. As a result, our operating results would only be adversely affected by loan losses on covered assets to the extent that those losses
exceed the expected losses reflected in the fair value of the covered assets at the acquisition date.

The
effects of the loss share agreements on cash flows and operating results in the long term will be similar to the short-term effects described above. The
long-term effects will depend primarily on the ability of borrowers to make required payments over time. As the loss share agreements cover up to a 10-year period (five years
for loans other than single family residential mortgage loans), changing economic conditions will likely affect the timing of future charge-offs and the resulting reimbursements from the
FDIC. Management believes that any recapture of interest income and recognition of cash flows from borrowers or amounts received from the FDIC arising from the FDIC receivable may be recognized
unevenly over this period, as we exhaust our collection efforts under our normal practices.

In
the income statement, the covered expenses incurred to manage and dispose of covered assets are expensed per our percentage under loss share (generally 20%), and the remaining amount
(generally 80%) is added to the FDIC receivable each quarter. We include these covered expenses in our quarterly reporting to the FDIC, and the FDIC reimburses us for them under the terms of the loss
share agreements.

Critical Accounting Policies

We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United
States and with general practices within the banking industry in the preparation of our financial statements. We describe our significant accounting policies in the notes to our audited consolidated
financial statements as of December 31, 2010.

Some
of the accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of our assets and liabilities. We consider these
accounting policies to be critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors that we believe to be reasonable under the
circumstances. Because of the nature of the judgment and assumptions we make, actual results could differ from these judgments and estimates and could materially affect the carrying values of our
assets and liabilities and our results of operations.

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The
following is a summary of the more judgmental estimates and complex accounting principles, which represent our critical accounting policies.



Generally accepted accounting principles require the use of fair values in determining the carrying values of certain assets and
liabilities, as well as for specific disclosures. The most significant uses of fair values include impaired loans and foreclosed property and the net assets acquired in business combinations. We
recorded assets purchased and liabilities assumed in our FDIC-assisted acquisitions at their fair values. The fair value of a loan portfolio acquired in a business combination requires
greater levels of management estimates and judgment than the remainder of purchased assets or assumed liabilities. The credit risks inherent and evidenced in the FDIC-assisted transactions
resulted in substantially all loans purchased in the transaction were purchased with a credit discount. On the date of acquisition, when the loans have evidence of credit deterioration since their
origination and we believe it is probable that we will not collect all contractually required principal and interest payments, we refer to the difference between contractually required payments and
the cash flows expected to be collected as the non-accretable discount. We must estimate expected cash flows at each reporting date. Subsequent decreases to the
expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and
adjusted accretable discount, which will have a positive effect on interest income. We also use this method to handle purchased loans without evidence of credit deterioration.

Because
we record loans acquired in connection with FDIC-assisted acquisitions at fair value, we record no allowance for loan losses related to the acquired covered loans on
the acquisition date, given that the fair value of the loans acquired incorporates assumptions regarding credit risk. We record acquired loans at fair value in accordance with the fair value
methodology, exclusive of the loss share agreements with the FDIC. These fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of
expected principal, interest and other cash flows.

We
continue to measure the loss share agreements on the same basis as the related covered loans. Because the acquired covered loans are subject to the accounting prescribed by FASB ASC
Topic 310, subsequent changes to the basis of the loss share agreements also follow that model. Deterioration in the credit quality of the loans (immediately recorded as an adjustment to the allowance
for loan losses) would immediately increase the basis of the loss share agreements, with the offset recorded through the consolidated statement of income. Increases in the credit quality or cash flows
of loans (reflected as an adjustment to the discount and accreted into income over the remaining life of the loans) decrease the basis of the loss share agreements. That decrease is accreted into
income over either the same period or the life of the loss share agreements, whichever is shorter. Loss assumptions used in the basis of the covered loans are consistent with the loss assumptions used
to measure the FDIC receivable. Fair value accounting incorporates into the fair value of the FDIC receivable an element of the time value of money, which is accreted back into income over the life of
the loss share agreements.



The majority of our loan and other real estate assets are covered under loss share agreements with the FDIC in which the FDIC has
agreed to reimburse us for between 80% and 95% of all losses incurred in connection with those assets. We estimated the amount that we will receive from the FDIC under the loss share agreements that
will result from losses incurred as we dispose of covered loans and other real estate assets, and we recorded the estimate as a receivable from the FDIC.

The
FDIC receivable for loss share agreements is measured separately from the related covered assets because it is not contractually embedded in the assets and is not transferable if we
sell the assets.

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We
estimated the fair value of the FDIC receivable using the present value of cash flows related to the loss share agreements based on the expected reimbursements for losses and the applicable loss
share percentages. We will review and update the fair value of the FDIC receivable prospectively as loss estimates related to covered loans and other real estate owned change. Subsequent decreases in
the amount expected to be collected result in a provision for loan and lease losses, an increase in the allowance for loan and lease losses, and a proportional adjustment to the FDIC receivable for
the estimated amount to be reimbursed. Subsequent increases in the amount expected to be collected result in the reversal of any previously-recorded provision for loan and lease losses and related
allowance for loan and lease losses and adjustments to the FDIC receivable, or prospective adjustment to the accretable discount if no provision for loan and lease losses had been recorded.

Based
on our due diligence review for each of our acquisitions, including estimates of the timing of cash flow receipts and the disposition of non-performing assets, we were
able to estimate the acquisition date fair value of the FDIC receivable. We discounted the receivable for the expected timing and receipt of these cash flows using a risk free rate plus a premium for
risk. For the risk free rate, we interpolated the three- and five-year U.S. Treasury rate. The ultimate realization of the FDIC receivable depends on the performance of the underlying
covered assets, the passage of time and claims paid by the FDIC. The accretion of the FDIC receivable discount is recorded into noninterest income using the level yield method over the estimated life
of the receivable.



We assess the adequacy of the ALLL quarterly with respect to non-covered loans. This assessment includes procedures to
estimate the allowance and test the adequacy and appropriateness of the resulting balance. The ALLL consists of two components:



Even
though the ALLL is composed of two components, the entire ALLL is available to absorb any credit losses.

We
establish the specific amount by examining impaired loans. Under generally accepted accounting principles, we may measure the loss either by:



Because
the majority of our impaired loans are collateral dependent, we calculate nearly all of our specific allowances based on the fair value of the collateral.

We
establish the general amount by taking the remaining loan portfolio (excluding those impaired loans discussed above) with allocations based on peer information. We then subject the
calculation of the general amount to stress factors that are somewhat subjective. The stress testing attempts to correlate the historical loss rates with current economic factors and current risks in
the portfolio. The stress factors consist of:



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After
we assess the applicable factors, we evaluate the remaining amount based on management's experience.

Finally,
we compare the level of the ALLL with historical trends and peer information as a reasonableness test. Management then evaluates the result of the procedures performed,
including the result of our testing, and makes a conclusion regarding the appropriateness of the ALLL in its entirety.



Income Tax Expense.The calculation of our income tax expense requires significant judgment and the use of estimates. We periodically
assess tax
positions based on current tax developments, including enacted statutory, judicial and regulatory guidance. In analyzing our overall tax position, we consider the amount and timing of recognizing
income tax liabilities and benefits. In applying the tax and accounting guidance to the facts and circumstances, we adjust income tax balances appropriately through the income tax provision. We
maintain reserves for income tax uncertainties at levels we believe are adequate to absorb probable payments. Actual amounts paid, if any, could differ significantly from these estimates.

Deferred Income Taxes.We use the asset and liability method of accounting for income taxes. Under this method, we recognize deferred
tax assets and
liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure
deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We assess
deferred tax assets based on expected realizations, and we establish a valuation allowance for any amounts we do not expect to realize.

Results of Operations



We reported net income of $45.5 million for the year ended December 31, 2010 and $18.0 million for the successor
period from July 24, 2009 to December 31, 2009. Earnings per share on a diluted basis were $1.40 for the year ended December 31, 2010 and $0.58 for the successor period from
July 24, 2009 to December 31, 2009. The accretion of fair value discounts on covered loans under our loss share agreements with the FDIC has significantly affected our earnings for the
2009 successor period and the year ended December 31, 2010. Additionally, we recorded gains of $3.8 million and $1.2 million in 2010 and 2009, respectively, related to our
acquisitions.

We
expect that over the next three to four years, as we manage the disposition of our covered loans and other real estate assets acquired from the FDIC, a significant portion of our
earnings will result from the accretion of fair value discounts on our covered loan portfolio. We recorded the covered loans
at fair value on the date of each acquisition. In our estimate of cash flows for the acquired loans, we recorded an accretable discount relating to the loans, which represents the undiscounted cash
flows expected to be collected in excess of the estimated fair value of the acquired loans. This accretable discount is accreted into interest income on a method that approximates level yield over the
estimated life of the related covered loans. During this period, as we dispose of our covered loans, we also plan to grow our balance sheet by replacing our covered loans and the related accretion on
the accretable discount with new performing loans and related interest income.

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As
part of our acquisitions, we also established an FDIC receivable for loss share agreements, which represents the present value of the estimated losses on covered loans and other real
estate assets to be reimbursed by the FDIC. We based the estimated losses on the same cash flow estimates we used to determine the fair value of the covered loans. The FDIC receivable will be reduced
as losses are recognized on covered loans and other real estate assets and loss share payments are received from the FDIC. We record the accretion of the FDIC receivable discount into noninterest
income using the level yield method over the estimated life of the receivable.

We
report covered loans under loss share agreements with the FDIC exclusive of the FDIC receivable. The covered loans acquired in our acquisitions are, and will continue to be, reviewed
for collectability, based on the expectations of cash flows on these loans. As a result, if there is a decrease in expected cash flows due to an increase in estimated credit losses compared to the
estimate made on the acquisition date, we will record the decrease in the present value of expected cash flows as a provision for covered loan losses charged to earnings and will establish an
allowance for covered loan losses. We will recognize a related credit to income and an increase in the FDIC receivable at the same time, measured based on the applicable loss share percentage.



Our earnings depend to a large extent on net interest income, which is the excess of the interest income recognized on interest earning
assets (such as loans and investment securities), as well as any accretion of fair value discounts on our covered loans, over the interest expense incurred on interest bearing liabilities such as
deposits and borrowings. Net interest income depends upon the volume of average interest-earning assets and average interest-bearing liabilities and the interest rates earned and paid on them. Net
interest income is a function of our balances of interest-earning assets and interest-bearing liabilities and the effect of market rates of interest as influenced by the Federal Reserve's monetary
policy. Following our acquisitions, the accretion of fair value discounts on covered loans under our loss share agreements with the FDIC has significantly affected our net interest income, and we
expect that to continue for the immediate future.

Year ended December 31, 2010 and successor period ended December 31, 2009.Our net interest income was $131.0 million for
the
year ended December 31, 2010. Our net interest rate spread, which is the yield on interest earning assets, including the accretion of the fair value discount on our covered loans, minus the
cost of interest bearing liabilities, was 4.85% for the year ended December 31, 2010, while our net interest margin, which is net interest income divided by average interest earnings assets,
was 5.18%. Our net interest income was $43.1 million for the successor period ended December 31, 2009. Our net interest rate spread, including the accretion of the fair value discount on
our covered loans, was 4.19%, while our net interest margin, was 4.73% for the successor period ended 2009.

Our
interest income was $168.2 million for the year ended December 31, 2010, which included interest and fees earned on loans of $76.5 million and the accretion of
the fair value discounts on our covered loans of $82.6 million. Our interest income was $57.8 million for the successor period ended December 31, 2009, which included interest and
fees earned on loans of $27.6 million and the accretion of the fair value discount on our covered loans of $27.4 million. The continuing accretion of fair value discounts resulting from
acquired loans will likely contribute to volatility in net interest income in future periods.

Interest
expense was $37.2 million for the year ended December 31, 2010, compared to $14.7 million for the successor period ended December 31, 2009 and was
comprised almost entirely of interest paid on deposit accounts of $37.2 million and $13.6 million, respectively. The average balance of interest bearing deposit accounts was
$2.1 billion or 99.5% of total interest bearing liabilities for the year ended December 31, 2010, compared to $1.4 billion or 92% of total interest bearing liabilities for the
successor period ended December 31, 2009. Interest expense on deposits was reduced by

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$2.9 million
and $1.9 million for the year-ended December 31, 2010 and the successor period ended December 31, 2009, respectively, due to the amortization of
certificate of deposit discounts that resulted from our 2009 acquisitions, which have been fully amortized as of December 31, 2010.

Predecessor period ended July 23, 2009 and the year ended December 31, 2008.Our net interest income was $614,000 for the
predecessor
period from January 1, 2009 through July 23, 2009. Our net interest income was $1.1 million for the year ended December 31, 2008. Net interest income remained relatively
consistent in these periods as the growth in the volume of interest earning assets was offset by declining asset yields as rates decreased. The decline in loan yields outpaced the decline in deposit
costs.

Our
interest income was $1.1 million for the predecessor period from January 1, 2009 through July 23, 2009, consisting primarily of interest and fees earned on loans
of $974,000 and $99,000 earned on investment securities. Our interest income was $1.9 million for the year ended December 31, 2008, consisting primarily of interest and fees earned on
loans of $1.7 million and $190,000 earned on investment securities. Growth in earning assets drove increases in interest income, while rate reductions significantly offset these volume
increases.

Interest
expense was $500,000 for the predecessor period from January 1, 2009 through July 23, 2009 and was comprised primarily of interest paid on deposit accounts of
$454,000. Interest expense was $823,000 for the year ended December 31, 2008 and was comprised primarily of interest paid on deposit accounts of $807,000.

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Average Balances, Income and Expenses, and Rates

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

For the Year Ended
December 31, 2010(dollars in thousands)

Average
Balance

Income/
Expense

Yield/
Rate(1)Assets:Interest earning balances

$
293,685

$
768


0.26
%Taxable investment securities


390,236


8,151


2.09
%Non-taxable investment securities, tax-equivalent basis(2)


5,380


339


6.30
%Loans receivable(3)


1,843,428


159,103


8.63
%Total earning assets


2,532,729


168,361


6.65
%Loan fair value discounts


(691,990
)Total nonearning assets


785,827Total assets

$
2,626,566Liabilities:Interest-bearing liabilities:Interest bearing transaction accounts

$
239,795

$
1,705


0.71
%Savings & money market


1,064,404


19,759


1.86
%Time deposits less than $100,000


414,005


8,285


2.00
%Time deposits greater than $100,000


344,464


7,463


2.17
%Advances from FHLB


3,567





0.00
%Notes payable


54


1


2.15
%Repurchase agreements and federal funds sold


6,153


27


0.44
%Total interest-bearing liabilities


2,072,442


37,240


1.80
%Noninterest-bearing liabilities:Noninterest bearing demand deposits


199,592Other liabilities


21,047Shareholders' equity


333,485Total liabilities and shareholders' equity

$
2,626,566Net interest income




$
131,121Net interest spread








4.85
%Net interest margin








5.18
%


(1)Annualized
for the applicable period.(2)Reflects
taxable equivalent adjustments using the statutory tax rate of 35% in adjusting interest on tax-exempt securities to a fully taxable
basis. The taxable equivalent adjustments included above amounts to $119,000 for the year ended December 31, 2010.(3)Includes
nonaccruing loans.


For
the year ended December 31, 2010, interest income on loans receivable in the above table includes $82.6 million of accretion from the accretable discount recorded from
our acquisitions.

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For the Period From
July 24, 2009
Through December 31, 2009



For the Period From
January 1, 2009
Through July 23, 2009(dollars in thousands)

Average
Balance

Income/
Expense

Yield/
Rate(1)



Average
Balance

Income/
Expense

Yield/
Rate(1)Assets:Interest earning balances

$
297,323

$
305


0.23
%


$
5,005

$
41


1.46
%Taxable investment securities


241,889


2,531


2.39
%



3,934


99


4.48
%Non-taxable investment securities, tax-equivalent basis(2)


574


15


5.81
%









Loans receivable(3)


1,537,284


54,998


8.16
%



23,905


974


7.25
%Total earning assets


2,077,070


57,849


6.35
%



32,844


1,114


6.04
%Loan fair value discounts


(661,153
)









Total nonearning assets


603,072










2,208Total assets

$
2,018,989









$
35,052Liabilities:Interest-bearing liabilities:Interest bearing transaction accounts

$
247,629

$
1,538


1.42
%


$
2,709

$
16


1.05
%Savings & money market


223,026


1,757


1.80
%



4,777


59


2.20
%Time deposits less than $100,000


488,240


4,890


1.02
%



9,184


183


3.55
%Time deposits greater than $100,000


473,927


5,451


1.17
%



7,783


196


4.48
%Advances from FHLB


118,006


1,093


2.11
%



1,800


46


4.55
%Repurchase agreements and federal funds sold


5,443


12


0.51
%









Total interest-bearing liabilities


1,556,271


14,741


2.16
%



26,253


500


3.39
%Noninterest-bearing liabilities:Noninterest bearing demand deposits


149,008










2,746Other liabilities


22,866










270Shareholders' equity


290,844










5,783Total liabilities and shareholders' equity

$
2,018,989









$
35,052Net interest income




$
43,108









$
614Net interest spread








4.19
%









2.65
%Net interest margin








4.73
%









3.33
%


(1)Annualized
for the applicable period.(2)Reflects
taxable equivalent adjustments using the statutory tax rate of 35% in adjusting interest on tax-exempt securities to a fully taxable
basis. The taxable equivalent adjustments included above amounts to $5,000 for the successor period ended December 31, 2009.(3)Includes
nonaccruing loans.


For the successor period ended December 31, 2009, interest income on loans receivable in the above table includes $27.4 million of
accretion from the accretable discount recorded from our 2009 acquisitions.

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Table of Contents

For the Year Ended
December 31, 2008(dollars in thousands)

Average Balance

Income/
Expense

Yield/
Rate(1)Assets:Interest earning balances

$
2,432

$
56


2.30
%Taxable investment securities


4,000


190


4.75
%Non-taxable investment securities, tax-equivalent basis








Loans receivable(2)


22,155


1,671


7.54
%Total earning assets


28,587


1,917


6.71
%Total nonearning assets


2,301Total assets

$
30,888Liabilities:Interest-bearing liabilities:Interest bearing transaction accounts

$
2,839


35


1.23
%Savings & money market


3,497


82


2.34
%Time deposits less than $100,000


7,203


352


4.89
%Time deposits greater than $100,000


7,535


338


4.49
%Advances from FHLB


900


14


1.56
%Repurchase agreements and federal funds sold


109


2


1.83
%Total interest-bearing liabilities


22,083


823


3.73
%Noninterest-bearing liabilities:Noninterest bearing demand deposits


2,471Other liabilities


358Shareholders' equity


5,976Total liabilities and shareholders' equity

$
30,888Net interest income




$
1,094Net interest spread








2.98
%Net interest margin








3.83
%


(1)Annualized
for the applicable period.(2)Includes
nonaccruing loans.


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Table of Contents



Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following tables reflect
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.

Year Ended
December 31, 2010 vs.
Successor Period Ended
December 31, 2009 and
Predecessor Period Ended
July 23, 2009

Successor Period Ended
December 31, 2009 vs.
Predecessor Period Ended
July 23, 2009

Predecessor Period Ended
July 23, 2009 vs.
Year Ended
December 31, 2008Increase (Decrease)
Due to

Increase (Decrease)
Due to

Increase (Decrease)
Due to(in thousands)

Volume

Rate

Net
Change

Volume

Rate

Net
Change

Volume

Rate

Net
ChangeInterest incomeLoans

$
102,646

$
485

$
103,131

$
61,824

$
(7,800
)
$
54,024

$
132

$
(829
)
$
(697
)Taxable investment securities


5,538


(17
)

5,521


10,661


(8,229
)

2,432


(3
)

(88
)

(91
)Non-taxable investment securities


323


2


325


15





15








Interest bearing balances and federal funds sold


423





423


4,264


(4,000
)

264


59


(74
)

(15
)Total interest income


108,930


470


109,400


76,764


(20,029
)

56,735


188


(991
)

(803
)Interest expenseDeposits


23,046


77


23,123


45,271


(32,089
)

13,182


136


(489
)

(353
)Advances from FHLB and other borrowings


(1,105
)

(34
)

(1,139
)

5,288


(4,241
)

1,047


14


18


32Notes payable





1


1

















Securities sold under repurchase agreements and federal funds purchased


15





15


12





12


(2
)




(2
)Total interest expense


21,956


44


22,000


50,571


(36,330
)

14,241


148


(471
)

(323
)Net interest income

$
86,974

$
426

$
87,400

$
26,193

$
16,301

$
42,494

$
(40
)
$
(520
)
$
(480
)




We have established an allowance for loan losses through a provision for loan losses charged as an expense on our statement of income
(loss). We review our non-covered loan portfolio, consisting of loans that are not covered by loss share agreements with the FDIC, on a quarterly basis to evaluate our outstanding loans
and to measure both the performance of the portfolio and the adequacy of the allowance for loan losses. Please see the discussion below under "Balance Sheet ReviewProvision and Allowance
for Loan Losses" for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.

We
do not maintain an allowance for loan loss for the covered loans in our loan portfolio that we acquired under the loss share agreements with the FDIC, because we recorded these loans
at fair value at the time of each respective acquisition and to date, there has been no significant deterioration that would require an allowance. However, we do evaluate the adequacy of the
non-accretable discounts on our covered loans, and we determined that no additional provision for loan losses on covered loans was required for the year ended December 31, 2010. At
December 31, 2010, our non-covered loans totaled $342.8 million, or 22.3% of our total loan portfolio, compared to $47.4 million, or 2.3% of our total loan portfolio
at December 31, 2009. Before July 24, 2009, all of our loans were non-covered loans.

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Year ended December 31, 2010 and the successor period ended December 31, 2009.For the year ended December 31, 2010, our
provision for loan losses was $4.0 million, compared to $2.7 million for the successor period ended December 31, 2009. The allowance for loan losses was approximately
$5.4 million and $2.5 million as of December 31, 2010 and December 31, 2009, respectively. The increase in the provision expense is a direct result of the growth in the
non-covered loan portfolio. Our allowance for loan losses as a percentage of gross non-covered loans was 1.6% at December 31, 2010, compared to 5.3% at
December 31, 2009. The decrease in the allowance for loan
losses as a percentage of gross non-covered loans was a result of charge-offs of specific allowances on impaired loans.

Predecessor period ended July 23, 2009 and the year ended December 31, 2008.For the predecessor period ended July 23,
2009, our
provision for loan losses was $261,000, compared to $312,000 for the year ended December 31, 2008. The allowance for loan losses was approximately $445,000 as of December 31, 2008. Our
allowance for loan losses as a percentage of total loans receivable was 1.97% at December 31, 2008.

We
review our loss experience on our covered loan portfolio periodically and compare our losses to the estimated losses in the fair value discounts. In the future, if our actual losses
exceed the estimated losses, we will need to record an adjustment to these discounts through a provision for loan losses charged as an expense on our statement of operations. In that event, due to the
FDIC loss share agreements, we would only expense between 5% and 20% of the estimated loss, depending upon the applicable acquisition and loss share agreement to which the loss is related. No such
adjustments were required for the year ended December 31, 2010.



Year ended December 31, 2010 and the successor period ended December 31, 2009.Noninterest income totaled $32.1 million
for the
year ended December 31, 2010, compared to $10.3 million for the successor period ended December 31, 2009. The accretion of the FDIC receivable discount of $15.7 million
comprised 48.8% of our noninterest income for the year ended December 31, 2010, compared to $4.7 million, or 46.1% of our noninterest income for the successor period ended
December 31, 2009. Service charges on deposits of $6.5 million comprised 20.4% of our noninterest income for the year ended December 31, 2010, compared to $3.3 million, or
32.7% of our noninterest income, for the successor period ended December 31, 2009. These service charges are primarily from fees related to insufficient funds checks and the Bank's bounce
protection product. Acquisition gains of $3.8 million resulting from two of our FDIC-assisted acquisitions during 2010 comprised 11.7% of our noninterest income and
$1.2 million or 11.5% for 2009

Predecessor period ended July 23, 2009 and the year ended December 31, 2008.For the predecessor period from January 1,
2009
through July 23, 2009, our noninterest income totaled $119,000, which was
primarily comprised of service charges on deposit accounts. For the year ended December 31, 2008, noninterest income totaled $177,000, which was primarily composed of service charges on deposit
accounts.



Year ended December 31, 2010 and the successor period ended December 31, 2009.Noninterest expense totaled $86.2 million
for the
year ended December 31, 2010. Salaries and employee benefits were our most significant expense totaling $42.3 million, or 49.1% of noninterest expense for the year ended
December 31, 2010. Total salaries were $30.5 million, cash incentive plan expenses were $4.8 million and payroll taxes were $2.2 million. Noninterest expense totaled
$22.3 million for the successor period from July 24, 2009 through December 31, 2009. Salaries and employee benefits were our most significant expense totaling
$13.2 million, or 58.9% of noninterest expense for the successor period ended December 31, 2009. Total salaries were $10.3 million, cash incentive plan expenses were

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Table of Contents

$1.7 million
and payroll taxes were $851,000. Salaries and benefits increased in 2010 as our mortgage division began operations and we implemented our 401(k) savings and profit sharing plan. We
currently have higher than peer average expenses associated with the operation of our Special Assets Division, which services the problem assets acquired under the loss share agreements with the FDIC,
and our Regulatory Relations Department, which manages our compliance with the FDIC loss share agreements.

Federal
deposit insurance premiums and fees were $4.7 million, or 5.5% of noninterest expense for the year ended December 31, 2010, compared to $1.7 million, or 7.8%
of noninterest expense, for the successor period ended December 31, 2009. During the fourth quarter of 2009, like other banks, we prepaid an amount estimated to be three years of deposit
premiums to the FDIC totaling $12.0 million. This prepayment will be amortized to expense over the three-year period and adjusted for changes in deposit levels and risk factors.
Occupancy and equipment expenses were $8.5 million, or 9.9% of noninterest expense for the year ended December 31, 2010, compared to $1.7 million, or 7.5% of noninterest expense
for the successor period ended December 31, 2009. During 2009 and the first half of 2010, we leased each of the acquired branch locations from our 2009 acquisitions from the FDIC. As a result,
our occupancy and equipment expenses include very little depreciation expense but a significant amount of leasing expense. The settlement with the FDIC on the 2009 acquisitions occurred in the third
quarter of 2010, when we purchased the acquired branch locations for $21.9 million from the FDIC. We have now begun depreciating the acquired assets.

Legal
and professional expenses were $4.1 million, or 4.7% of noninterest expense for the year ended December 31, 2010, comprised of $1.6 million in legal fees,
$1.0 million in accounting and audit fees and $1.5 million of consulting and other professional fees. Legal and professional expenses were $1.4 million, or 6.4% of noninterest
expense for the successor period ended December 31, 2009, comprised of $427,000 in legal fees, $578,000 in accounting and audit fees and $469,000 of consulting and other professional fees. Our
resolution efforts with respect to our covered assets and our acquisition activity in 2009 and 2010 have resulted in increased legal and professional expenses. Following the effective date of our
registration statement on Form 10 on December 28, 2010, we are now obligated to file various reports required by the Exchange Act, including current reports on
Form 8-K, quarterly reports on Form 10-Q and annual reports on Form 10-K. As a result, we anticipate we will incur significant legal,
accounting and other expenses that we did not incur in the past and, therefore, are not reflected in our historical financial statements.

Net
costs of operations of other real estate owned were $14.0 million, or 16.2% of noninterest expense, for the year ended December 31, 2010. These costs include losses on
sales of other real estate of $8.7 million and expenses related to the management and collection of other real estate of $5.3 million. Net costs of operations of other real estate owned
were $887,000, or 4.0% of noninterest expense, for the successor period ended December 31, 2009. These costs include losses on sales of other real estate of $143,000 and expenses related to the
management and collection of other real estate of $744,000. Under the loss share agreements, we record a portion of these losses and expenses in our statements of income (generally 20%) and we record
the remaining 80% to the FDIC receivable.

Predecessor period ended July 23, 2009 and the year ended December 31, 2008.For the predecessor period from January 1,
2009
through July 23, 2009, our noninterest expense totaled $719,000, consisting primarily of $380,000 in salaries and employee benefits, $115,000 in occupancy expenses, $64,000 in data processing
and $89,000 in other expense. For the year ended December 31, 2008, noninterest expense totaled $1.5 million, consisting primarily of $728,000 in salaries and employee benefits, $289,000
in occupancy expenses, $111,000 in data processing and $156,000 in other expense. Because of the small size of the Bank during these periods, there was very little variability in noninterest expenses
as the Bank was experiencing expected growth designed to better absorb fixed costs.

65

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Table of Contents

Balance Sheet Review



At December 31, 2010, we had total assets of $2.8 billion, consisting principally of $1.3 billion in loans,
$405.6 million in investment securities, $494.4 million in FDIC receivable, $156.1 million in other real estate owned and $386.5 million in cash and cash equivalents. Our
liabilities at December 31, 2010 totaled $2.5 billion, consisting principally of $2.4 billion in deposits. At December 31, 2010, our shareholders' equity was
$359.3 million.

At
December 31, 2009, we had total assets of $2.5 billion, consisting principally of $1.2 billion in loans, $318.0 million in investment securities,
$605.5 million in FDIC receivables, $141.8 million in other real estate owned and $200.2 million in cash and cash equivalents. Our liabilities at December 31, 2009 totaled
$2.2 billion, consisting principally of $2.2 billion in deposits. At December 31, 2009, our shareholders' equity was $310.8 million.



Our investment portfolio serves as a source of liquidity and earnings and is also used to manage interest rate risk. At
December 31, 2010, the $405.6 million in our available-for-sale investment securities portfolio represented approximately 14.3% of our total assets compared to
$318.0 million, or 12.7% of total assets, at December 31, 2009. We anticipate maintaining an investment portfolio to provide both increased earnings and liquidity.

Our
investment portfolio primarily consists of U.S. government agency securities and agency mortgage-backed securities. As of December 31, 2010, $169.6 million, or 41.8%,
of our available-for-sale securities were invested in agency mortgage-backed securities, compared to $229.5 million, or 72.2%, as of December 31, 2009. As of
December 31, 2010, $61.0 million, or 15.0% of our available-for-sale securities were invested in non-agency mortgage-backed securities. Such
non-agency mortgage-backed securities were purchased at significant market discounts compared to par value. None of our available-for-sale securities were invested
in non-agency mortgage-backed securities as of December 31, 2009.

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
Fannie Mae and Freddie Mac. These securities are deemed to have high credit ratings, and the minimum monthly cash flows of principal and interest are guaranteed by the issuing agencies. Although
investors generally
assume that the federal government will support these agencies, it is under no obligation to do so. Other agency mortgage-backed securities are issued by Ginnie Mae, which is a federal agency, and are
guaranteed by the U.S. government. As of December 31, 2010, $163.7 million, or 40.4%, of our available-for-sale securities were invested in U.S. government
agencies, compared to $84.7 million, or 26.6%, as of December 31, 2009.

At
December 31, 2008, the $3.0 million in our available-for-sale investment securities portfolio represented approximately 9.0% of our total assets.

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Table of Contents

Following
is a summary of our available for sale investment portfolio for the periods presented.

December 31, 2010

December 31, 2009

December 31, 2008(in thousands)

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
ValueAvailable for Sale:Government-sponsored enterprises

$
163,002

$
163,681

$
85,227

$
84,716

$
2,000

$
2,115Residential mortgage-backed securitiesagency


40,892


41,673


56,647


56,262


867


893Residential mortgage-backed securitiesprivate


61,504


61,025











Collateralized mortgage obligations non-amortizing


125,146


127,955


172,002


173,280





State, county and municipals


9,490


9,555


3,176


3,212





Other investments


1,525


1,692


325


518





Total

$
401,559

$
405,581

$
317,377

$
317,988

$
2,867

$
3,008


The
following table shows contractual maturities and yields on our investments at December 31, 2010. Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment penalties.

Government-
sponsored
enterprises

Mortgage-backed
securities

State, county
and municipals

Other investments(in thousands)

Amount

Yield

Amount

Yield

Amount

Yield

Amount

YieldMaturity:At December 31, 2010One year or less

$
60,928


0.50
%
$





$
2,112


0.70
%
$



After one year through five years


90,980


0.63
%

254


2.21
%

695


2.43
%

509


17.04
%After five years through 10 years


8,660


3.48
%

1,804


2.13
%

432


5.18
%




After 10 years


3,113


4.00
%

228,595


2.99
%

6,316


7.31
%

1,183


7.43
%Total

$
163,681


0.79
%
$
230,653


2.98
%
$
9,555


5.38
%
$
1,692


9.62
%


Loans

Loans receivable constitutes our largest interest-earning asset. Total loans outstanding at December 31, 2010 and
December 31, 2009 were approximately $1.3 billion and $1.2 billion, respectively, after subtracting the accretable discount, non-accretable
discount, allowance for loan losses and net unamortized loan origination fees. Total loans outstanding at December 31, 2008 were $22.5 million.

Loans
secured by real estate mortgages are the principal component of our loan portfolio. Most of our real estate loans are secured by residential or commercial property. We do not
generally originate traditional long-term residential mortgages for the portfolio, but we do issue traditional second mortgage residential real estate loans and home equity lines of
credit. We obtain a security interest in real estate whenever possible, in addition to any other available collateral, to increase the likelihood of the ultimate repayment of the loan. Generally, we
limit the loan-to-value ratio on loans we make to 85%.

We
acquired the vast majority of our loans in our ten FDIC-assisted transactions. We refer to these acquired loans as "covered loans" in the table below. Before we acquired
the Security Banks from the FDIC on July 24, 2009, we had no covered loans. The current concentrations in our loan

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portfolio
may not be indicative of concentrations in our loan portfolio in the future. We will attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in
concentration in certain types of collateral.

As
seen below, during the year ended 2010 our covered loans decreased by 22.0% and our non-covered loans increased by 623.5%. We have planned for and expect these trends to
continue. The covered loans will decrease as they are collected or charged-off or the underlying collateral is foreclosed on and sold. Our covered loans may increase in the future if we
acquire more failed banks from the FDIC in transactions that include loss share agreements. Our non-covered loans will increase as we originate and purchase well-underwritten
loans. Due to the current economic environment, covered loans may continue to decrease faster than non-covered loans increase, thereby resulting in a net decrease in loans receivable.

The
following tables summarize the composition of our loan portfolio for the periods presented:

December 31, 2010

December 31, 2009(dollars in thousands)

Covered
Loans

Non-
Covered
Loans

Total
Amount

% of
Total

Covered
Loans

Non-
Covered
Loans

Total
Amount

% of
TotalCommercialCommercial and industrial

$
144,913

$
38,919

$
183,832


9.8
%
$
187,388

$
5,552

$
192,940


9.6
%Real EstateMortgage(1)


314,536


23,255


337,791


18.0
%

321,326


8,219


329,545


16.3
%Commercial


613,529


196,243


809,772


43.0
%

568,245


14,427


582,672


28.8
%Construction


435,619


70,543


506,162


26.9
%

810,057


8,019


818,076


40.5
%Total real estate


1,363,684


290,041


1,653,725


87.9
%

1,699,628


30,725


1,730,293


85.6
%ConsumerConsumer


29,764


13,889


43,653


2.3
%

85,643


11,172


96,815


4.8
%Total gross loans receivable, net of deferred fees

$
1,538,361

$
342,849

$
1,881,210


100.0
%
$
1,972,659

$
47,389

$
2,020,048


100.0
%Lessallowance for loan losses








(5,351
)










(2,524
)Lessdiscounts








(603,394
)










(838,160
)Total loans, net







$
1,272,465










$
1,179,364


(1)Real
Estate-Mortgage loans are the only type of loan covered by the Single Family Loss Agreement; all other classes are covered by the Commercial Loss
Agreement.


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December 31,2008

2007

2006(dollars in thousands)

Amount

% of
Total

Amount

% of
Total

Amount

% of
TotalCommercialCommercial and industrial

$
3,960


17.6
%
$
2,857


14.9
%
$
1,540


13.2
%Real EstateMortgage


1,374


6.1
%

1,863


9.7
%

1,614


13.8
%Commercial


9,612


42.6
%

7,728


40.3
%

6,779


58.1
%Construction


3,810


16.9
%

3,286


17.1
%

430


3.7
%Total real estate


14,796


65.6
%

12,877


67.1
%

8,823


75.6
%ConsumerConsumer


3,784


16.8
%

3,457


18.0
%

1,309


11.2
%Total loans receivable


22,540


100.0
%

19,191


100.0
%

11,672


100.0
%Deferred origination fees, net


(1
)




(2
)




(3
)Total gross loans, net of deferred fees


22,539





19,189





11,669Lessallowance for loan losses


(445
)




(316
)




(139
)Total loans, net

$
22,094




$
18,873




$
11,530




The information in the following table is based on the contractual maturities of individual loans, including loans that may be subject
to renewal at their contractual maturity. Renewal of these loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from
the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties.

The
following summarizes the loan maturity distribution by type and related interest rate characteristics at December 31, 2010 and 2009:

(in thousands)

One year
or less

After one
but within
five years

After five
years

TotalDecember 31, 2010:Commercial

$
92,041

$
70,468

$
21,323

$
183,832Real estate


835,399


613,801


204,525


1,653,725Consumer


11,618


31,541


494


43,653Total gross loans

$
939,058

$
715,810

$
226,342

$
1,881,210Gross loans maturing after one year with:Fixed interest rates

$
435,356Floating or adjustable interest rates


506,796Total loans

$
942,152


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(in thousands)

One year
or less

After one
but within
five years

After five
years

TotalDecember 31, 2009:Commercial

$
111,228

$
67,363

$
14,349

$
192,940Real estate


1,052,412


471,881


206,000


1,730,293Consumer


17,783


39,748


39,284


96,815Total gross loans

$
1,181,423

$
578,992

$
260,307

$
2,020,048Gross loans maturing after one year with:Fixed interest rates

$
348,813Floating or adjustable interest rates


490,486Total

$
839,299


FDIC Receivable for Loss Share Agreements

As of December 31, 2010, 81.8% of our outstanding principal balance of loans and 99.9% of our other real estate assets were
covered under loss share agreements with the FDIC in which the FDIC has agreed to reimburse us for between 80% and 95% of all losses incurred in connection with those assets. We estimated the FDIC
reimbursement that will result from losses incurred as we dispose of covered loans and other real estate assets, and we recorded the estimate as a receivable from the FDIC. The FDIC receivable for
loss share agreements was $494.4 million as of December 31, 2010 and $605.5 million as of December 31, 2009. Realized losses in excess of acquisition date estimates will
result in an increase in the FDIC receivable for loss share agreements. Conversely, if realized losses are less than acquisition date estimates, the FDIC receivable for loss share agreements will be
reduced. The discount on the FDIC receivable is accreted into noninterest income using the level yield method over the estimated life of the receivable, including estimates of the timing of cash flow
receipts and the disposition of non-performing assets.

Allowance for Loan Losses

We recorded the loans acquired in our acquisitions at their acquisition date fair value, which was based on expected cash flows and
included an estimation of expected future loan losses. As a result, the loans acquired are excluded from the calculation of allowance for loan losses and thus we have not recorded any provision for
loan losses for these loans. At each acquisition date, we were unable to obtain all of the information necessary for us to measure the fair values of the assets we acquired. This was particularly true
because each acquisition was of a failed bank, where we
could perform only limited due diligence before the acquisition date. Under current accounting principles, within a given measurement period not to exceed one year, we may adjust our estimate of loan
and other real estate fair values based on new information we obtain about facts and circumstances that existed as of the acquisition date that, if known, would have affected our loan or other real
estate fair values. This measurement period ends on the earlier of one year after the acquisition or the date we receive the information about the facts and circumstances that existed on each
acquisition date. If we discover during the measurement period that we have materially underestimated or overestimated our loan or other real estate fair values and that the facts and circumstances
that resulted in the adjustment existed at the date of acquisition, we will retroactively adjust our loan or other real estate fair values and make a corresponding adjustment to our bargain purchase
gain or goodwill. Beyond the measurement period (or if we determine that losses arose based on facts and circumstances that arose after the acquisition date) our portion of any additional losses will
be reflected as a provision for loan losses.

The
measurement period has expired for each of our 2009 acquisitions, and we made no measurement period adjustments. We have received all of the information about the acquisition date
facts and circumstances that we were seeking with respect to our July 30, 2010 acquisition of

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NorthWest
Bank and Trust and, therefore, the measurement period has expired and we made no measurement period adjustments. We are currently seeking additional information, namely updated third party
appraisals, on the loans and other real estate we acquired in the United Americas Bank, N.A. acquisition, to determine if we have materially underestimated or overestimated their fair values. To date,
we have not made any measurement period adjustments based on facts and circumstances that existed as of the December 17, 2010 acquisition date. Through December 31, 2010, we have not
recorded any material adjustments to the allowance for loan losses.

For
our non-covered loans, we have established an allowance for loan losses through a provision for loan losses charged to expense on our statement of income. We maintain the
allowance at a level deemed appropriate by management to provide adequately for known and inherent losses in our non-covered loan portfolio. Our judgment as to the adequacy of the
allowance for loan losses is based on a number of assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. In general, loans do not begin to
show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as "seasoning." As a result, a portfolio of older loans will usually
behave more predictably than a newer portfolio. Because our non-covered loan portfolio is relatively new, the current level of delinquencies and defaults may not be representative of the
level that will prevail when the portfolio becomes more seasoned, which may be higher than current levels.

Our
determination of the allowance for loan losses is based on evaluations of the collectability of loans, including consideration of factors such as the balance of impaired loans, the
quality, mix and size of our non-covered loan portfolio, economic conditions that may affect the borrower's ability to repay, the amount and quality of collateral securing the loans and a
review of specific problem loans. In addition, because of the lack of seasoning in our non-covered loan portfolio, we use peer data to develop our historical loss migration analysis,
rather than our own
historical loan loss data. We also consider subjective issues such as changes in the lending policies and procedures, changes in the local/national economy, changes in volume or type of credits,
changes in volume/severity of problem loans, quality of loan review and board of director oversight, concentrations of credit and peer group comparisons. More specifically, in determining our
allowance for loan losses, we review loans for specific impaired reserves based on current appraisals of collateral less disposal costs. We determine general reserves by using the peer data applied to
risk rated loans grouped by FDIC call report classification code. We calculate the general reserves by applying the appropriate historical loss ratio to the loan categories grouped by risk rating
(pass, special mention, substandard and doubtful) and adjusted for quantitative factors. Impaired loans are excluded from this analysis as they are individually reviewed for valuation.

We
assign the relationships that comprise our loan portfolio a risk grade based on a common set of parameters. These parameters include debt to worth, liquidity of the borrower, net
worth, experience in a particular field and other factors. We also give weight to the relative strength of any guarantors on the loan. We have an internal loan specialist dedicated to the review of
loan files on a test basis to confirm the grading of each loan.

A
significant portion of our non-covered loan portfolio has been booked within the last 18 months under stringent underwriting standards and has not experienced any
significant losses to date. Due to the lack of historical loss data, we use peer group data to determine an appropriate basis for historical losses. As a result of the economic conditions present in
the country in general and in our markets in particular, we believe the use of peer group data to develop loss estimates is appropriate until our non-covered loan portfolio ages and
reaches a size that will yield its own loss characteristics.

Separately,
we review all impaired non-covered loans to determine a specific allocation for each. In our assessment of impaired loans, we consider the primary source of
repayment when determining whether loans are collateral dependent. We measure impairment of a loan based on the present value of expected future cash flows discounted at the loan's effective interest
rate or the fair value of the

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collateral
if the loan is collateral dependent. When management determines that a loan is impaired, the difference between our investment in the related loan and the present value of the expected
future cash flows, or the fair value of the collateral, is established as a specific allowance. For collateral-dependant impaired loans, we charge-off such losses on a timely basis.

Periodically,
we adjust the amount of the allowance based on changing circumstances. We recognize loan losses to the allowance and add back subsequent recoveries. In addition, on a
quarterly basis we informally compare our allowance for loan losses to various peer institutions. We recognize, however, that allowances will vary because financial institutions are unique in the
make-up of their loan portfolios and customers, which necessarily creates different risk profiles for the institutions. We would only consider further adjustments to our allowance for loan
losses based on this peer review
if our allowance was significantly different from our peer group. To date, we have not made any such adjustment. Loan charge-offs in future periods may exceed the allowance for loan losses
as estimated at any point in time, and provisions for loan losses may be significant to a particular accounting period, especially considering the overall weakness in the commercial and residential
real estate markets in our market areas.

The
following table summarizes the activity related to our allowance for loan losses related to our non-covered loans for the periods presented. All of our loans before
July 24, 2009 were non-covered loans.

Successor
Period from
July 24, 2009 to
December 31, 2009



Predecessor
Period from
January 1, 2009
to July 23, 2009

December 31,December 31,
2010(dollars in thousands)



2008

2007

2006Balance, at the beginning of period

$
2,524

$




$
445

$
316

$
139

$
22Charge-offs:Commercial and industrial


105


459










23


Commercial real estateother


678
















Commercial real estateconstruction


401










178





Residential real estate


11
















Consumer


14










10


1


Total charge-offs

$
1,209

$
459



$


$
188

$
24

$
Recoveries:Commercial and industrial





294










5


Commercial real estateother


79
















Commercial real estateconstruction



















Residential real estate


2
















Consumer













5





Total recoveries

$
81

$
294



$


$
5

$
5

$
Net charge-offs


1,128


165







183


19


Provision for loan losses


3,955


2,689




261


312


196


117Balance, at end of period

$
5,351

$
2,524



$
706

$
445

$
316

$
139Allowance for loan losses to non-covered loans receivable


1.56
%

5.32
%



2.10
%

1.97
%

1.65
%

1.19
%Ratio of net charge-offs to average loans outstanding


0.42
%

0.09
%



0.00
%

0.83
%

0.12
%

0.00
%


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Allocation of Allowance for Loan Losses

The following tables present the allocation of the allowance for loan losses and the percentage of the total amount of loans in each
loan category listed as of the dates indicated.

December 31,2010

2009

2008

2007

2006(dollars in thousands)

Amount

% of
loans to
total
loans

Amount

% of
loans to
total
loans

Amount

% of
loans to
total
loans

Amount

% of
loans to
total
loans

Amount

% of
loans to
total
loansCommercialCommercial and industrial

$
588


2.2
%
$
241


0.3
%
$
78


17.6
%
$
47


14.9
%
$
18


13.2
%Real EstateMortgage


246


1.4
%

412


0.4
%

27


6.1
%

31


9.7
%

19


13.8
%Commercial


1,803


10.6
%

728


0.7
%

190


42.6
%

127


40.3
%

81


58.1
%Construction


2,252


3.9
%

1,022


0.4
%

75


16.9
%

54


17.1
%

5


3.7
%Total real estate


4,301


15.9
%

2,162


1.5
%

292


65.6
%

212


67.1
%

105


75.6
%ConsumerConsumer


223


0.8
%

121


0.6
%

75


16.8
%

57


18.0
%

16


11.2
%NonspecificNonspecific


239


























Total allowance for non-covered loans


5,351


18.9
%

2,524


2.4
%

445


100.0
%

316


100.0
%

139


100.0
%Total allowance for covered loans





81.1
%




97.6
%
















Total allowance for loan losses

$
5,351


100.0
%
$
2,524


100.0
%
$
445


100.0
%
$
316


100.0
%
$
139


100.0
%




Non-performing assets consist of nonaccrual loans, loans past due 90 days or more as to interest or principal and
still accruing, and other real estate owned, which is real estate acquired through foreclosure. Nonaccrual loans are those loans on which we have discontinued recognition of interest income. When
management believes there is sufficient doubt as to the collectibility of principal or interest on any loan, or generally when loans are 90 days or more past due, we discontinue the accrual of
the applicable interest and designate the loan as "nonaccrual," unless the loan is well secured and in the process of collection. Management reviews past due loans on a monthly basis and will place
certain loans on nonaccrual status at 60 days past due in some circumstances. We apply interest payments received on nonaccrual loans against principal. We return loans to an accrual status
when factors indicating doubtful collectibility on a timely basis no longer exist. We record a provision for estimated losses if a subsequent decline in value occurs.

Nonaccrual
loans are valued at either the observable market price of the loan, the present value of expected future cash flows or the fair value of the collateral if the loan is
collateral dependent. Substantially all of our nonaccrual loans are collateral dependent and, therefore, are valued at the fair value of collateral. The fair value of collateral is determined through
a review of the appraised value and assessment of 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

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deteriorated
since the last appraisal, we will order a new appraisal. In addition, we require a new appraisal at the time of foreclosure or repossession of the underlying collateral. Upon determining
that an appraisal is both current and valid, management assesses the recovery value of the collateral, which involves the application of various discounts to the market value. These discounts include
the following: length of time to market and sell the property, as well as expected maintenance costs, insurance and taxes and real estate commissions on sale. We initially record other real estate
owned at the lower of cost or estimated market value at the date of acquisition.

We
contract a third-party property valuation company to order, obtain and review the appraisals prepared by a pre-approved third-party appraiser. We conduct this process
independently from our loan production staff. Due to the current economic conditions and the number of non-performing loans in our markets, there is often a 60 to 90 day period
between the date we order an appraisal and the date we receive and review it. Once the third-party property valuation company completes its review of the new appraisal, they provide it either to our
Credit Administration Department (for non-covered loans) or the Special Assets Division (for covered loans). For non-covered loans, we will record either a specific allowance
or a charge-off against the allowance for loan losses if our review of the current appraisal or the new appraisal indicates a loss. Subsequently, we will review our allowance at the end of
each quarter and replenish it as required by our ALLL model. For covered loans, we will record a charge-off against the appropriate fair value discount (impaired or other) if our review of
the current appraisal or the new appraisal indicates a loss.

Partially
charged-off collateral dependent loans with an updated appraisal remain on nonaccrual status until the factors that previously indicated doubtful collectability on
a timely basis no longer exist. Specifically, we look at the following factors before returning a partially charged-off loan to performing status: documented evidence of debt service
capacity; adequate collateral; and a minimum of six months of receiving payments as agreed.

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

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Table of Contents

The
following tables set forth our non-performing assets for the periods presented.

At December 31, 2010

At December 31, 2009(dollars in thousands)

Covered
Loans

Non-Covered
Loans

Total

Covered
Loans

Non-Covered
Loans

TotalNonaccrual loans

$
529,360

$
4,079

$
533,439

$
524,855

$
555

$
525,410Accruing loans 90 days or more past due

















Troubled debt restructurings not included in above

















Total non-performing loans


529,360


4,079


533,439


524,855


555


525,410Other real estate owned


155,981


75


156,056


141,690


120


141,810Total non-performing assets

$
685,341

$
4,154

$
689,495

$
666,545

$
675

$
667,220Non-performing loans to total loans


34.41
%

1.19
%

35.60
%

26.61
%

1.17
%

27.78
%Non-performing assets to total assets


24.23
%

0.15
%

24.38
%

52.23
%

0.06
%

52.29
%


December 31,(dollars in thousands)

2008

2007

2006Nonaccrual loans

$
161

$
4

$
Accruing loans 90 days or more past due


27


3


Troubled debt restructurings not included in above.








Total non-performing loans


188


7


Other real estate owned


73


0


Total non-performing assets

$
261

$
7

$
Non-performing loans to total loans


0.83
%

0.04
%

Non-performing assets to total assets


0.77
%

0.03
%




Non-performing
assets, defined as nonaccrual loans, loans past due 90 days or more as to interest or principal and still accruing, and other real estate owned, totaled
$689.5 million, or 24.4% of total assets at December 31, 2010, compared to $667.2 million, or 52.3% of total assets at December 31, 2009. Of the $689.5 million in
non-performing assets at December 31, 2010 and the $667.2 million in non-performing assets at December 31, 2009, $685.3 million and
$666.5 million, respectively, relate to assets that are covered by loss share agreements with the FDIC. Total non-performing covered assets accounted for 98.4% and 99.9% of total
non-performing assets at December 31, 2010 and December 31, 2009, respectively.

Interest
income that would have been reported on the nonaccrual loans for the year ended December 31, 2010 and the successor period from July 24, 2009 through
December 31, 2009 was approximately $40.2 million and $8.4 million, respectively. Interest income recognized on non-covered impaired loans for the year ended
December 31, 2010 and the successor period from July 24, 2009 through December 31, 2009 was approximately $4.0 million and $783,000, respectively.

At
December 31, 2010, we had approximately $86.5 million in potential problem loans, compared to $230.6 million at December 31, 2009. The significant decrease
in potential problem loans from December 31, 2009 to December 31, 2010 resulted primarily from transfers of loans to other real estate, as well as charge-offs resulting from
nonaccrual status. Potential problem loans are those loans where management has a concern about the financial health of a borrower that causes management to have serious doubts as to the ability of
the borrower to comply with the present loan terms. At

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December 31,
2010 and December 31, 2009, substantially all of our potential problem loans were covered loans, with only $1.3 million in non-covered potential problem
loans at December 31, 2010.



Total deposits at December 31, 2010 and December 31, 2009 were $2.4 billion and $2.2 billion, respectively.
At December 31, 2010, noninterest bearing accounts totaled $224.5 million, or 9.3% of total deposits, compared to $187.7 million, or 8.7% of total deposits at December 31,
2009. Time deposits totaled $626.9 million, or 28.5% of interest bearing deposits at December 31, 2010, compared to $1.2 billion, or 60.5% of interest bearing deposits at
December 31, 2009. Out of market brokered and wholesale time deposits totaled $51.3 million and $50.9 million at December 31, 2010 and December 31, 2009,
respectively. Money market and savings accounts totaled $1.3 billion, or 58.1% of interest bearing deposits, at December 31, 2010, compared to $460.2 million, or 23.4% of interest
bearing deposits at December 31, 2009. During 2010, we continued our strategy of actively marketing our State of Banking Money Market account in order to grow transaction accounts and reduce
our reliance on time deposits.

During
2009, we were able to use the liquidity from our recapitalization and our FDIC-assisted acquisitions to pay off more than $628.1 million in brokered and
wholesale time deposits. In addition, under the terms of our purchase and assumption agreements with the FDIC, for each FDIC-assisted acquisition, we were able to reprice these deposits at
a market rate that resulted in many being redeemed (without penalty), which improved our net interest margin.

The
following table shows the average balance amounts and the average rates paid on deposit held by us for the periods presented.

Years EndedDecember 31, 2010

December 31, 2009

December 31, 2008(dollars in thousands)

Amount

Rate

Amount

Rate

Amount

RateNoninterest bearing demand deposits

$
199,592


0.00
%
$
149,008


0.00
%
$
2,471


0.00
%Interest bearing demand deposits


239,795


0.71
%

247,628


1.42
%

2,839


1.23
%Savings and money market accounts


1,064,404


1.86
%

223,026


1.80
%

3,497


2.34
%Time deposits less than $100,000


414,005


0.11
%

488,240


0.31
%

7,203


4.89
%Time deposits greater than $100,000


344,464


4.44
%

473,927


4.66
%

7,535


4.49
%Total deposits

$
2,262,260


1.80
%
$
1,581,829


1.92
%
$
23,545


3.83
%


The
maturity distribution of our time deposits of $100,000 or more at December 31, 2010 was as follows:

(dollars in thousands)

December 31, 2010Three months or less

$
49,929Over three through six months


49,341Over six though twelve months


99,116Over twelve months


67,169Total

$
265,555


Borrowings and Other Interest-Bearing Liabilities

The following table outlines our various sources of borrowed funds for the year ended December 31, 2010, the successor period
ended December 31, 2009 and the year ended December 31, 2008, and the amounts outstanding at the end of each period, the maximum amount for each

76

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component
during such period, the average amounts for each period and the average interest rate that we paid for each borrowing source. The maximum month-end balance represents the high
indebtedness for each component of borrowed funds at any time during each of the periods shown.

Maximum
Month
End
Balance

Average for the PeriodEnding
Balance

Period
End
Rate(dollars in thousands)

Balance

RateAt or for the year ended December 31, 2010:Securities sold under agreement to repurchase

$
5,246


0.24
%
$
11,438

$
6,135


0.44
%Advances from FHLB














Other borrowings














At or for the successor period ended December 31, 2009:Securities sold under agreement to repurchase

$
9,606


0.25
%
$
11,796

$
4,239


0.59
%Advances from FHLB


5,000


0.28
%

161,255


118,006


2.11
%Other borrowings











97


2.35
%At or for the year ended December 31, 2008:Securities sold under agreement to repurchase

$





$


$



Advances from FHLB


1,800


0.79
%

1,800


1,800


0.39
%Other borrowings

















Capital Resources

We strive to maintain an adequate capital base to support our activities in a safe manner while at the same time maximizing shareholder
returns. At December 31, 2010, we exceeded all minimum regulatory capital requirements as shown in the tables below. At December 31, 2010, our shareholders' equity was
$359.3 million, or 12.7% of total assets, compared to $310.8 million, or 12.4% of total assets, at December 31, 2009.

On
July 24, 2009, the Bank raised approximately $292.1 million in gross proceeds (before expenses) from investors in a private offering of its common stock, including the
sale of 28,455,000 shares of common stock to accredited investors at $10.00 per share. Following this recapitalization, the Bank raised an additional $15.7 million in common equity through the
sale of 1,518,540 shares and 458,029 warrants to acquire shares of common stock to certain investors, including officers, directors and employees of the Bank. In October 2010, the Company raised an
additional $923,000 in common equity through the sale of 69,927 shares and 59,927 warrants to acquire shares of common stock to certain members of the Bank's senior management and one of our
directors.

The
following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), and average equity
to average assets ratio (average equity divided by average total assets) for the periods presented:

December 31,2010

2009

2008Return on average assets


1.73
%

2.04
%

(1.69
)%Return on average equity


13.66
%

14.14
%

(8.73
)%Equity to assets ratio


12.70
%

14.41
%

19.35
%


The
Federal Reserve and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and
off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. Under the capital adequacy guidelines, regulatory capital is classified into two tiers. These guidelines
require an institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of common shareholders' equity,
excluding the unrealized gain or loss on securities available for sale, minus certain

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intangible
assets. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor
of 0% to 100% based on the risks believed to be inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus the general reserve for loan losses, subject to certain
limitations. The Bank is required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio.

To
be considered "well capitalized" under capital guidelines, we must maintain total risk-based capital of at least 10%, Tier 1 capital of at least 6%, and a leverage
ratio of at least 5%. To be considered "adequately capitalized" under capital guidelines, we must maintain a minimum total risk-based capital of 8%, with at least 4% being Tier 1
capital. In addition, banking regulators have established a minimum Tier 1 leverage ratio of at least 4%. We expect banking regulators to increase these minimum levels in the future.

The
following table shows the Bank's and the Company's regulatory capital ratios for the periods presented. The capital ratios of the Company have been omitted for the
year-end periods ended 2008 and 2009, as the Company did not become the Bank's holding company until July 23, 2010.

Bank

CompanyDecember 31,December 31,
2010

December 31,
20102009

2008Leverage ratio


12.71
%

12.77
%

14.57
%

18.05
%Tier 1 risk-based capital ratio(1)


43.38
%

43.56
%

30.60
%

21.60
%Total risk-based capital ratio(1)


44.05
%

44.23
%

30.85
%

22.67
%


---

For
all periods, the Bank was considered "well capitalized" and we intend to maintain a capital level for the Bank that exceeds the FDIC requirements to be classified as a "well
capitalized" bank. In addition, as a condition to the FDIC's approval of the Notice of Change in Control filing of Mr. Evans, Mr. Speight and Mr. Childers (our management team) in
connection with the July 2009 recapitalization and acquisition, the Bank was required to execute a Capital Maintenance Agreement with the FDIC. Under the terms of the agreement, the Bank must at all
times maintain a leverage ratio of at least 10% and a total risk-based capital ratio of at least 12%. The agreement terminates on July 23, 2012. At December 31, 2010, the
Bank was in compliance with the Capital Maintenance Agreement.

Effect of Inflation and Changing Prices

The effect of relative purchasing power over time due to inflation is not reflected in our consolidated financial statements. Rather,
our financial statements have been prepared on an historical cost basis in accordance with generally accepted accounting principles.

Unlike
most industrial companies, our assets and liabilities are primarily monetary in nature. Therefore, the effect of changes in interest rates will have a more significant effect on
our performance than will the effect of changing prices and inflation in general. In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the
same magnitude.

Off-Balance Sheet Arrangements

Commitments to extend credit are agreements to lend to a customer as long as the customer has not violated any material condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. At December 31,

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2010,
unfunded commitments to extend credit were $206.7 million. A significant portion of the unfunded commitments related to commercial real estate and land development 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 credit worthiness 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
December 31, 2010, there were commitments totaling approximately $2.2 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 loan facilities 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 this report, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance
sheet arrangements, transactions that could result in liquidity needs or other commitments 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 contractual obligations as of December 31, 2010.

Payments Due by Period(in thousands)
Contractual Obligations

Total

Less than
1 year

1 to 3
years

3 to 5
years

More
than
5 yearsFHLB Advances

$


$


$


$


$
Operating Lease Obligations


3,193


1,127


2,066





Securities Repurchase Agreements


5,246


5,246








Other Borrowings














$
8,439

$
6,373

$
2,066

$


$



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 our day-to-day cash flow requirements while
maximizing profits. 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 control.

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At December 31, 2010, our liquid assets, which consist of cash and due from banks, interest bearing deposits and federal funds sold, amounted to
$386.5 million, or 13.7% of total assets. Our available for sale securities at December 31, 2010 amounted to $405.6 million, or 14.3% of total assets. Investment securities and
lines of credit traditionally provide a secondary source of liquidity because they can be converted into cash in a timely manner.

Our
ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the generation of
deposits and through collection of the FDIC receivable as we dispose of our covered loans and assets. In addition, we receive cash on the maturity and sale of loans and the maturity of investment
securities. We maintain seven federal funds lines of credit with correspondent banks totaling $160.0 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, qualifying mortgage loans and stock of the FHLB owned by the Bank be pledged to secure any advances. At
December 31, 2010, we had no advances from the FHLB and a remaining credit availability of $54.3 million. In addition, we maintain a line of credit with the Federal Reserve Bank of
$47.8 million secured by certain loans in our loan portfolio.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.

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 asset/liability committee monitors and considers methods of managing exposure to interest rate risk. The asset/liability committee is responsible for
maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved limits.

At
December 31, 2010, approximately 54.5% of our loans were variable rate loans. Approximately 93.5% of our interest-bearing liabilities reprice within one year. However, interest
rate movements typically result in changes in interest rates on assets that are different in magnitude from the corresponding changes in rates paid on liabilities. While a substantial portion of our
loans reprice within the first three months of the year, a large majority of our deposits will also reprice within the same 3-month period. Interest rate sensitivity is a function of the
repricing characteristics of the portfolio of assets and liabilities. These repricing characteristics are the time frames within which the interest-earning assets and interest-bearing liabilities are
subject to change in interest rates either at replacement, repricing or maturity during the life of the instruments. 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 timeframe that minimizes the changes in net interest income.

One
of the tools management uses to estimate the sensitivity of net interest revenue changes to interest rates is an asset/liability simulation model. The resulting estimates are based
upon a number of assumptions for each scenario, including the level of balance sheet growth, loan and deposit repricing characteristics and the rate of prepayments. The asset/liability committee
actively monitors the assumptions and estimates based on input data and future expectations. Actual net interest revenue, however, may vary from model results.

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Our
policy is based on a 12-month impact on net interest income of interest rate ramps that increase 200 basis points and decrease 200 basis points from the base scenario. In
the ramp scenarios, rates change 16.7 basis points per month over 12 months. The policy limits the change in net interest income over 12 months to a 10% decrease in either scenario. The
policy ramp and base scenarios assume a static balance sheet. Given the historically low rate environment, management has determined that the use of the down 200 basis point scenario is not meaningful
and, therefore, has used what it believes to be a more reasonable rate scenario of down 100 basis points over a 12-month period, or 8.3 basis points per month over 12 months. At
December 31, 2010, our most recent asset/liability simulation run, the model indicated that a 200 basis point increase would cause an approximate 248 basis point increase in net interest income
over the next 12 months and a 100 basis point decrease in rates would cause an approximate 126 basis point decrease in net interest income over the next 12 months.

In
addition, management seeks to reduce overall interest rate risk by maintaining relatively short maturities. For additional detail on loan maturity and distribution and information
regarding sensitivity of loans and leases to changes in interest rates see the table under "Maturities and Sensitivities of Loans to Changing Interest Rates" on pages 69 and 70. Information on
the maturity of our investment securities is located in the tables on page 67. Information regarding the maturity distributions of our time deposits with balances in excess of $100,000 is
located on page 76.

Item 8.    Financial Statements and Supplementary Data.

Quarterly financial summary for 2010 and 2009

Quarterly Period Ended(dollars in thousands, except per share amounts)

March 31

June 30

September 30

December 31Year Ended December 31, 2010Interest income

$
41,037

$
39,785

$
40,730

$
46,691Interest expense


8,680


10,079


9,899


8,582Net interest income


32,357


29,706


30,831


38,109Provision for loan losses


497


695


655


2,108Noninterest income


5,275


5,522


8,297


12,959Noninterest expense


18,533


19,120


21,272


27,317Income before income taxes


18,602


15,413


17,201


21,643Income taxes


6,883


5,839


6,439


8,152Net income

$
11,719

$
9,574

$
10,762

$
13,491Basic earnings per share

$
0.37

$
0.30

$
0.34

$
0.43Diluted earnings per share

$
0.37

$
0.30

$
0.34

$
0.41


Net
interest income increased during the fourth quarter of 2010 due to adjustments to the fair value discounts on covered acquired loans and fewer loans moving to nonaccrual status
during the quarter. In addition, interest income increased during the fourth quarter of 2010 due to loan growth and increased loan origination fees, which was partially offset by continued renewal of
certificates of deposits at lower rates. The increase in non-interest income during the fourth quarter of 2010 was largely made up of two components: the gain on the FDIC assisted
acquisition of United Americas Bank in December and a reduction in the accretion of the FDIC receivable. Non-interest expense also increased during the fourth quarter of 2010, primarily
due to increased expenses and losses related to

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the
liquidation of other real estate owned. Increases in charitable contributions, salaries, professional fees and other expenses made up the remaining majority of the increase.

Quarterly Period Ended(dollars in thousands, except per share amounts)

March 31

June 30

Predecessor
Period
July 1, 2009
through
July 23,
2009



Successor
Period
July 24, 2009
through
September 30

December 31Year Ended December 31, 2009Interest income

$
478

$
475

$
161



$
27,048

$
30,795Interest expense


211


204


85




6,766


7,975Net interest income


267


271


76




20,282


22,820Provision for loan losses


130


131







1,280


1,409Noninterest income


41


62


16




2,546


7,747Noninterest expense


311


308


100




9,298


13,047Income before income taxes


(133
)

(106
)

(8
)



12,250


16,111(Benefit) provision for income taxes













4,402


5,937Net (loss) income

$
(133
)
$
(106
)
$
(8
)


$
7,848

$
10,174Basic earnings per share

$
(0.17
)
$
(0.14
)
$
(0.01
)


$
0.26

$
0.33Diluted earnings per share

$
(0.17
)
$
(0.14
)
$
(0.01
)


$
0.26

$
0.32


82

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Table of Contents

INDEX TO AUDITED FINANCIAL STATEMENTS        STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Report of Independent Registered Public Accounting Firm


F-2Consolidated Statements of Financial Condition as of December 31, 2010 and 2009


F-3Consolidated Statements of Income (Loss) for the Year Ended December 31, 2010, the Periods Ended
December 31, 2009, July 23, 2009 and the Year Ended December 31, 2008


F-4Consolidated Statements of Shareholders' Equity as of December 31, 2010, 2009 and
2008


F-5Consolidated Statements of Comprehensive Income (Loss) for the Year Ended December 31, 2010, the
Periods Ended December 31, 2009, July 23, 2009 and the Year Ended December 31, 2008


F-6Consolidated Statements of Cash Flows for the Year Ended December 31, 2010, the Periods Ended
December 31, 2009, July 23, 2009 and the Year Ended December 31, 2008


F-7Notes to Consolidated Financial Statements


F-9


F-1

---





Table of Contents



Report of Independent Registered Public Accounting Firm

GRAPHIC

The
Board of Directors
State Bank Financial Corporation:

We
have audited the accompanying consolidated statements of financial condition of State Bank Financial Corporation and Subsidiary (the "Company") as of December 31, 2010 and
2009, and the related consolidated statements of income (loss), shareholders' equity, comprehensive income (loss), and cash flows for the year ended December 31, 2010, the period
July 24, 2009 through December 31, 2009, the period January 1, 2009 through July 23, 2009, and the year ended December 31, 2008. These consolidated financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of State Bank Financial Corporation and
subsidiary as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the year ended December 31, 2010, the period July 24, 2009 through
December 31, 2009, the period January 1, 2009 through July 23, 2009, and the year ended December 31, 2008, in conformity with accounting principles generally accepted in
the United States of America.

As
discussed in note 1 to the financial statements referred to above, the recapitalization of the Company resulted in a successor entity effective July 24, 2009.

/s/
Dixon Hughes PLLC

Atlanta,
Georgia
March 31, 2011

GRAPHIC

F-2

---





Table of Contents



STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY        Consolidated Statements of Financial Condition        December 31, 2010 and 2009    
(Dollars in Thousands)

2010

2009AssetsCash and amounts due from depository institutions

$
25,843

$
48,681Interest-bearing deposits in other financial institutions


360,646


151,485Cash and cash equivalents


386,489


200,166Investment securities available for sale


405,581


317,988Federal Home Loan Bank stock


14,593


12,559Loans receivable:Not covered under FDIC loss sharing agreements


342,849


47,389Covered under FDIC loss sharing agreements, net


934,967


1,134,499Allowance for loan losses


(5,351
)

(2,524
)Loans receivable, net


1,272,465


1,179,364Mortgage loans held for sale


3,542


Other real estate owned:Not covered under FDIC loss sharing agreements


75


120Covered under FDIC loss sharing agreements


155,981


141,690Premises and equipment, net


31,908


2,295Goodwill and other intangibles, net


9,194


12,334FDIC receivable for loss sharing agreements, net


494,428


605,502Other assets


54,323


25,940Total assets

$
2,828,579

$
2,497,958Liabilities and Shareholders' EquityLiabilities:Non-interest bearing deposits

$
224,543

$
187,746Interest-bearing deposits


2,197,383


1,966,045FHLB advances





5,000Securities sold under agreements to repurchase


5,246


9,606Other liabilities


42,064


18,797Total liabilities


2,469,236


2,187,194Commitments and contingenciesShareholders' equity:Preferred stock $1 par value; 2,000,000 shares authorized; zero shares issued and outstanding at December 31, 2010 and 2009





Common stock, $0.01 par value; 100,000,000 and 10,000,000 shares authorized; 31,610,904 and 31,540,977 shares issued and outstanding at December 31,
2010 and 2009, respectively


316


315Additional paid-in capital


292,942


292,030Retained earnings


63,568


18,022Accumulated other comprehensive incomenet unrealized holding gains on securities available for sale, net of tax


2,517


397Total shareholders' equity


359,343


310,764Total liabilities and shareholders' equity

$
2,828,579

$
2,497,958


See
accompanying notes to consolidated financial statements.

F-3

---





Table of Contents



STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY        Consolidated Statements of Income (Loss)        For the Year Ended December 31, 2010, Periods Ended
December 31, 2009, July 23, 2009 and        Year Ended December 31, 2008        (Dollars and Shares in Thousands, except per share data)

Year Ended
December 31,
2010

Successor
Period
July 24, 2009
through
December 31,
2009



Predecessor
Period
January 1, 2009
through
July 23,
2009

Year Ended
Predecessor
2008Interest and dividend income:Loans receivable

$
159,104

$
54,998



$
974

$
1,671Investment securities


8,371


2,540




99


190Deposits in other banks and other


768


305




41


56Total interest and dividend income


168,243


57,843




1,114


1,917Interest expense:Deposits


37,212


13,636




454


807Federal Home Loan Bank advances





1,093




46


14Federal funds purchased and repurchase agreements


28


12







2Total interest expense


37,240


14,741




500


823Net interest income


131,003


43,102




614


1,094Provision for loan losses


3,955


2,689




261


312Net interest income after provision for loan losses


127,048


40,413




353


782Noninterest income:Accretion of FDIC receivable for loss sharing agreements


15,652


4,748







Service charges on deposit accounts


6,543


3,307




99


170Gain on acquisitions


3,759


1,185







Other


6,099


1,053




20


7Total noninterest income


32,053


10,293




119


177Noninterest expenses:Salaries and employee benefits


42,333


13,162




380


728Occupancy


8,549


1,668




115


289Legal and professional


4,057


1,438




36


175Marketing


3,230


583




5


4Federal insurance premiums and other regulatory fees


4,733


1,736




30


18Net cost of operations of real estate owned


13,986


887







Data processing


3,629


671




64


111Core deposit intangible amortization


924


210







Other


4,801


1,990




89


156Total noninterest expenses


86,242


22,345




719


1,481Income (loss) before income taxes


72,859


28,361




(247
)

(522
)Income tax expense


27,313


10,339







Net income (loss)

$
45,546

$
18,022



$
(247
)
$
(522
)Basic net income (loss) per share

$
1.44

$
0.59



$
(0.32
)
$
(0.68
)Diluted net income (loss) per share

$
1.40

$
0.58



$
(0.32
)
$
(0.68
)Weighted Average Shares Outstanding:Basic


31,559


30,584




767


767Diluted


32,469


31,014




767


767


See accompanying notes to consolidated financial statements.

F-4

---





Table of Contents



STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY        Consolidated Statements of Shareholders' Equity        Years Ended December 31, 2010, 2009 and 2008        (Dollars in thousands)

Common





Accumulated
Other
Comprehensive
IncomeRetained
Earnings/
(Deficit)Warrants

Shares

Stock

Surplus

TotalPredecessorBalance, December 31, 2007





767,437

$
8

$
7,592

$
(1,519
)
$
24

$
6,105Change in accumulated other comprehensive income, net of tax

















63


63Net loss














(522
)




(522
)Balance, December 31, 2008





767,437


8


7,592


(2,041
)

87


5,646SuccessorCommon shares issuedOrganizers and Investors


2,202,605


30,022,437


300


276,364








276,664Common shares issuedemployees


458,029


1,518,540


15


15,666








15,681Change in accumulated other comprehensive income

















397


397Net income














18,022





18,022Balance, December 31, 2009


2,660,634


31,540,977


315


292,030


18,022


397


310,764Common shares issued


59,927


69,927


1


922








923Repurchase of stock warrants


(5,000
)







(10
)







(10
)Change in accumulated other comprehensive income

















2,120


2,120Net income














45,546





45,546Balance, December 31, 2010


2,715,561


31,610,904

$
316

$
292,942

$
63,568

$
2,517

$
359,343


See accompanying notes to consolidated financial statements.

F-5

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Table of Contents



STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY        Consolidated Statements of Comprehensive Income (Loss)        For the Year Ended December 31, 2010, Periods
Ended December 31, 2009, July 23, 2009 and        Year Ended December 31, 2008        (Dollars in thousands)

Year Ended
December 31,
2010

Successor
Period
July 24, 2009
through
December 31,
2009



Predecessor
Period
January 1, 2009
through
July 23,
2009

Year Ended
Predecessor
2008Net income (loss)

$
45,546

$
18,022



$
(247
)
$
(522
)Other comprehensive income (loss), net of taxUnrealized gains (losses) on securities arising during the period, net of tax


2,016


397




(46
)

63Reclassification adjustment for net gains included in net income, net of tax


104










2,120


397




(46
)

63Comprehensive income (loss)

$
47,666

$
18,419



$
(293
)
$
(459
)


See
accompanying notes to consolidated financial statements.

F-6

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Table of Contents



STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY        Consolidated Statements of Cash Flows        For the Year Ended December 31, 2010, Periods Ended
December 31, 2009, July 23, 2009 and        Year Ended December 31, 2008        (Dollars in thousands)

Year Ended
December 31,
2010

Successor
Period
July 24, 2009
through
December 31,
2009



Predecessor
Period
January 1, 2009
through
July 23,
2009

Year Ended
Predecessor
2008Cash Flows from Operating ActivitiesNet income (loss)

$
45,546

$
18,022



$
(247
)
$
(522
)Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation, amortization and accretion on premises and equipment and investments


4,714


1,326




44


120Amortization of intangible assets


924


210







Provision for loan losses


3,955


2,689




261


312Accretion of discounts on acquisitions, net


(98,280
)

(32,437
)






(Gain)/loss on sale of other real estate


(350
)

143







Proceeds from sales of mortgage loans held for sale


36,922










Originations of mortgage loans held for sale


(40,464
)









Write downs of other real estate owned


85,030


3,248







Increase in FDIC receivable for covered losses


(60,668
)

(3,993
)






Funds collected from FDIC receivable


290,815


40,474




Deferred income taxes


16,185


2,177







(242
)Impairment of deferred income taxes













242Gain on acquisitions


3,759


1,185







Increase in prepaid FDIC assessments


(4,102
)

(11,183
)






Income on bank owned life insurance


(838
)









Gain on available for sale securities


(165
)









Increase (decrease) in taxes payable


9,485Change in other liabilities, net


(5,263
)

(7,631
)



23


(87
)Other operating activities, net


6,475


(6,182
)



(5
)

7Cash provided by (used in) operating activities


293,680


8,048




76


(170
)Cash flows from investing activitiesPurchase of investment securities available for sale


(242,446
)

(50,452
)



(815
)

(1,000
)Proceeds from sales, calls, maturities and paydown investment securities available for sale


177,331


43,492







2,125Federal Home Loan Bank stock


1,353


(36
)



(11
)

(94
)Purchase of bank owned life insurance


(35,134
)









Loans to customers, net of repayments


(63,058
)

56,850




(3,411
)

(3,606
)Purchase of premises and equipment


(30,781
)

(1,440
)






(3
)Disposal of premises and equipment













19Proceeds from sales of other real estate


88,383


20,483







Capitalized improvements to other real estate





(64
)






Net cash proceeds from FDIC-assisted transactions


93,966


802,910







Cash provided by (used in) investing activities


(10,386
)

871,743




(4,237
)

(2,559
)


See accompanying notes to consolidated financial statements.

F-7

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows (Continued)

For the Year Ended December 31, 2010, Periods Ended December 31, 2009, July 23, 2009 and

Year Ended December 31, 2008

(Dollars in thousands)

Year Ended
December 31,
2010

Successor
Period
July 24, 2009
through
December 31,
2009



Predecessor
Period
January 1, 2009
through
July 23,
2009

Year Ended
Predecessor
2008Cash flows from financing activitiesInterest-bearing customer deposits


(50,087
)

(798,032
)



2,847


4,609Noninterest-bearing customer deposits


12,587


(4,737
)






105Proceeds from other borrowings













1,800Federal funds purchased and securities sold under repurchase agreements





(5,454
)






Repayments of other borrowed money


(60,384
)

(169,432
)






Repurchase of stock warrants


(10
)









Issuance of common stock subsequent to reorganization


923


15,681







Issuance of common stock at reorganization





276,664







Cash provided by (used in) financing activities


(96,971
)

(685,310
)



2,847


6,514Net increase (decrease) in cash and cash equivalents


186,323


194,481




(1,314
)

3,785Cash and cash equivalents, beginning


200,166


5,685




6,999


3,214Cash and cash equivalents, ending

$
386,489

$
200,166



$
5,685

$
6,999Cash Payment For:Interest

$
42,656

$
4,204



$
473

$
851Income taxes

$
18,933

$
8,615



$


$
Supplemental Disclosure of Non-Cash Investing and Financing Activities:Unrealized gains (losses) on securities, net of tax

$
2,016

$
397



$
(46
)
$
63Transfers of loans to other real estate

$
174,024

$
55,887



$


$
73Acquisitions:Assets acquired

$
363,552

$
3,127,175



$


$
Liabilities assumed

$
361,185

$
3,135,207



$


$
Net assets (liabilities) assumed

$
2,367

$
(8,032
)


$


$



See accompanying notes to consolidated financial statements.

F-8

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Table of Contents



STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY        Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies and Nature of Business

The consolidated financial statements of State Bank Financial Corporation and Subsidiary (the "Company") include the financial statements of State Bank Financial Corporation and its
wholly owned subsidiary, State Bank and Trust Company (the "Bank"). All intercompany accounts and transactions have been eliminated in consolidation.

State
Bank and Trust Company was organized as a Georgia-state chartered bank, which opened October 4, 2005 in Pinehurst, Georgia. The Bank is primarily regulated by the FDIC and
undergoes periodic examinations by this regulatory authority. On July 24, 2009 ("date of successor"), State Bank and Trust Company closed on investment agreements under which new investors
infused $277 million of additional capital into the Bank, which resulted in a successor entity. This significant recapitalization resulted in a change of control and a new basis of accounting
was applied. As such, the 2009 financial statements are presented for the period from July 24, 2009 through December 31, 2009 ("successor period") and January 1, 2009 through
July 23, 2009 ("predecessor period").

At
the annual shareholders' meeting held March 11, 2010, approval was granted through proxy vote for the formation of a bank holding company. The required regulatory approval was
obtained in July 2010 and the holding company reorganization was completed July 23, 2010.

The
Company primarily provides real estate loans and a full range of deposit products to individual and small business consumers through its 22 branch offices ranging in locations from
Metro Atlanta to middle Georgia. The Company primarily competes with other financial institutions in its market area
within middle Georgia and metro Atlanta. The Company considers its primary lending market to be the state of Georgia. The Company has no reportable segments.

The
accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to prevailing practices within the financial
institutions industry. The following is a summary of the significant accounting policies that the Company follows in presenting its consolidated financial statements.



State Bank Financial Corporation is a bank holding company whose primary business is presently conducted through State Bank and Trust
Company, its wholly-owned banking subsidiary. Through the Bank, the Company operates a full service banking business and offers a broad range of commercial and retail banking products to its
customers, with a significant focus on the resolution of assets acquired from the FDIC, which range from Metro Atlanta to middle Georgia. The Company is subject to regulations of certain federal and
state agencies and is periodically examined by those regulatory agencies.



In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance sheet and revenue and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that
are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans, the estimates used for fair value acquisition accounting and the FDIC receivable for loss sharing agreements, the assessment for
other-than-temporary impairment of

F-9

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Significant Accounting Policies and Nature of Business (Continued)

investment
securities, mortgage-backed securities, and collateralized mortgage obligations. In connection with the determination of the allowance for loan losses and the value of real estate owned,
management obtains independent appraisals for significant properties. In connection with the assessment for other-than-temporary impairment of investment securities,
mortgage-backed securities, and collateralized mortgage obligations, management obtains fair value estimates by independent quotations, assesses current credit ratings and related trends, reviews
relevant delinquency and default information, assesses expected cash flows and coverage ratios, assesses the
relative strength of credit support from less senior tranches of the securities, reviews average credit score data of underlying mortgagees, and assesses other current data. 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.

A
substantial portion of the Company's loans are secured by real estate located in its market area. Accordingly, the ultimate collectability of a substantial portion of the Company's
loan portfolio is susceptible to changes in the real estate market conditions of this market area.

On
July 24, 2009, the Bank acquired substantially all of the assets and assumed substantially all the deposits and certain other liabilities of the six bank subsidiaries of
Security Bank Corporation from the FDIC, as receiver. As a result of the FDIC acquisition and the loss share agreements, the Company's financial results and future risks related to the acquired assets
and liabilities of the six bank subsidiaries of Security Bank Corporation are completely altered, making historical financial information of Security Bank Corporation, or its six subsidiary banks,
irrelevant to an understanding of the Company's current operations. In addition, the Company's business since July 24, 2009 and for the immediate future relies heavily on the Company's loss
share resolution business and on the income generated from the remediation and disposal of the assets it acquired from the FDIC and is fundamentally different from the business of Security Bank
Corporation. In light of the foregoing, the Company has determined that Security Bank Corporation is not the predecessor entity of the Company because the Company did not succeed to substantially all
of the business of Security Bank Corporation in the acquisition, the Company has therefore omitted historical financial statements of Security Bank Corporation and its six bank subsidiaries in these
financial statements.



Cash and cash equivalents, as presented in the consolidated financial statements, includes cash on hand, cash items in process of
collection and interest-bearing deposits with other financial institutions.



Investments, mortgage-backed securities, and collateralized mortgage obligations available for sale are reported at fair value, as
determined by independent quotations. Investment in stock of the Federal Home Loan Bank ("FHLB") is required of every federally insured financial institution, which utilizes its services. The
investment in FHLB stock is carried at cost and such stock is evaluated for any potential impairment.

Purchase
premiums and discounts on investment securities are amortized and accreted to interest income using a method which approximates a level yield over the period to maturity of the
related securities. Purchase premiums and discounts on mortgage-backed securities and collateralized mortgage

F-10

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Significant Accounting Policies and Nature of Business (Continued)

obligations
are amortized and accreted to interest income using the effective interest rate method over the remaining lives of the securities, taking into consideration assumed prepayment patterns.

Gains
and losses on sales of investments, mortgage-backed securities, and collateralized mortgage obligations are recognized on the trade date, based on the net proceeds received and the
adjusted carrying amount of the specific security sold.

A
decline in the market value of any available for sale security below cost that is deemed other-than-temporary results in a charge to earnings and the
establishment of a new cost basis for that security. At December 31, 2010 and 2009, the Company did not have any securities with other-than-temporary impairment.



Loans are reported at the principal amounts outstanding, net of unearned income, deferred loan fees/origination costs, acquisition
related discounts and the allowance for loan losses.

Interest
income is recognized using the simple interest method on the balance of the principal amount outstanding. Unearned income, primarily arising from deferred loan fees, net of
certain origination costs, and deferred gains on the sale of the guaranteed portion of Small Business Administration (SBA) loans, is amortized over the lives of the underlying loans using the
effective interest rate method.

Generally,
the accrual of interest income is discontinued on loans when reasonable doubt exists as to the full, timely collection of interest or principal. Interest previously accrued
but not collected is reversed against current period interest income when such loans are placed on nonaccrual status. Interest on nonaccrual loans, which is ultimately collected, is credited to income
in the period received.

Impaired
loans are measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, or at the loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent. The Company considers a loan 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 note agreement. Large pools of smaller balance homogeneous loans, such as consumer and installment loans, are collectively evaluated
for impairment by the Company. Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses. Cash receipts on impaired loans for which the accrual
of interest has been discontinued are recorded as income when received unless full recovery of principal is in doubt whereby cash received is recorded as principal reduction.

Acquired
covered loans are recorded at fair value at the date of acquisition exclusive of expected cash flow reimbursements from the FDIC. The fair values of loans with evidence of
credit deterioration (impaired loans) are recorded net of a non-accretable discount and, if appropriate, an accretable discount. The difference between contractually required payments at
acquisition and the cash flows expected to be collected at acquisition is the non-accretable discount, which is included in the carrying amount of acquired loans. Subsequent decreases to
the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior changes or
a reclassification of the difference from non-accretable to accretable with a positive impact on the accretable discount. Any excess of cash flows expected at acquisition over the
estimated fair value is referred to as the accretable discount and is recognized in

F-11

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Significant Accounting Policies and Nature of Business (Continued)

interest
income over the remaining life of the loan when there is reasonable expectation about the amount and timing of such cash flows.

The
Company accounts for performing loans acquired in business combinations using the expected cash flows method of recognizing discount accretion based on the acquired loans' expected
cash flows. Purchased performing loans are recorded at fair value, including a credit discount. Credit losses on acquired performing loans are estimated based on analysis of the performing portfolio.
Such estimated credit losses are recorded as non-accretable discounts in a manner similar to purchased impaired loans. The fair value discount other than for credit loss is accreted as an
adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing loans. A provision for loan losses is
recorded for any further deterioration in these loans subsequent to the acquisition.



Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the
aggregate. Estimated fair value is determined
on the basis of existing forward commitments, or the current market value of similar loans. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.



The allowance for loan losses is adjusted through provisions for loan losses charged or credited to operations. For all portfolio
segments of loans, a charge-off is taken against the allowance for loan losses when management believes that the collection of the principal is unlikely. Subsequent recoveries are added to
the allowance. The allowance is determined through consideration of such factors as changes in the nature and volume of the portfolio, overall portfolio quality, delinquency trends, and adequacy of
collateral, loan concentrations, specific problem loans, and economic conditions that may affect the borrowers' ability to pay.

To
the best of management's ability, all known and inherent losses that are both probable and reasonable to estimate have been recorded. While management uses available information to
recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to adjust the allowance based on their judgment about information available to
them at the time of their examination.



Real estate acquired through foreclosure, consisting of properties obtained through foreclosure proceedings or acceptance of a deed in
lieu of foreclosure, is reported on an individual asset basis at the lower of cost or fair value, less disposal costs. Fair value is determined on the basis of current appraisals, comparable sales,
and other estimates of value obtained principally from independent sources. When properties are acquired through foreclosure, any excess of the loan balance at the time of foreclosure over the fair
value of the real estate held as collateral is recognized and charged to the allowance for loan losses. Based upon management's evaluation of the real estate acquired through foreclosure, additional
expense is recorded when necessary in an amount sufficient to reflect any

F-12

---



Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Significant Accounting Policies and Nature of Business (Continued)

estimated
declines in fair value. Gains or losses recognized on the disposition of the properties are recorded in net costs of operations of other real estate in the consolidated statements of income.

Other
real estate acquired through foreclosure covered under loss sharing agreements with the FDIC is reported exclusive of expected reimbursement cash flows from the FDIC. Subsequent
adjustments to the estimated recoverable value of covered other real estate result in a reduction of covered other real estate, and a charge to other expense, and an increase in the FDIC receivable
for the estimated amount to be reimbursed, with a corresponding net offsetting amount recorded to other expense.

Costs
of improvements to real estate are capitalized, while costs associated with holding the real estate are charged to operations.



Premises and equipment are stated at cost, less accumulated depreciation, which is computed using the straight-line method over the
estimated useful lives of the assets. The estimated useful lives of the assets range from 20 to 39 years for buildings and improvements and 3 to 15 years for furniture, fixtures, and
equipment.



The receivable from the FDIC for loss sharing agreements is measured separately from the related covered assets and it is not
contractually embedded in the assets and is not transferable should the assets be sold. Fair value at acquisition was estimated using projected cash flows related to loss sharing agreements based on
the expected reimbursements for losses using the applicable loss share percentages and the estimated true-up payment at the expiration of the loss sharing agreements, if applicable. These
cash flows were discounted to reflect the estimated timing of the receipt of the loss share reimbursements from the FDIC and any applicable true-up payments owed to the FDIC for
transactions that include claw-back provisions. The FDIC receivable is reviewed and updated prospectively as loss estimates related covered loans and other real estate owned change, and as
reimbursements are received or are expected to be received from the FDIC.



The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies by jurisdiction and entity in
making this assessment.

F-13

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Significant Accounting Policies and Nature of Business (Continued)



Comprehensive income for the Company consists of net income for the period and unrealized holding gains and losses on investments,
mortgage-backed securities, and collateralized mortgage obligations classified as available for sale, net of income taxes.



Intangible assets include goodwill, which is the costs in excess of net assets acquired and core deposit intangibles recorded in
connection with a business combination. The core deposit intangible is being amortized over 4 years on a straight-line basis.

The
Company will test its goodwill for impairment annually during its fourth quarter and upon certain triggering events on an interim basis if circumstances exist that indicate a
possible reduction in the fair
value of the business below its carrying value. No impairment charges have been recognized through the successor periods or the predecessor periods.



Accounting principles generally accepted in the United States ("US GAAP") require that the acquisition method of accounting,
formerly referred to as purchase method, be used for all business combinations and that an acquirer be identified for each business combination. Under US GAAP, the acquirer is the entity that
obtains control of one or more businesses in the business combination, and the acquisition date is the date the acquirer achieves control. US GAAP requires that the acquirer recognize the fair
value of assets acquired, liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date.

The
Bank acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the six bank subsidiaries of Security Bank Corporation
headquartered in Macon, Georgia on July 24, 2009, The Buckhead Community Bank headquartered in Atlanta, Georgia on December 4, 2009, First Security National Bank headquartered in
Norcross, Georgia on December 4, 2009, NorthWest Bank and Trust headquartered in Acworth, Georgia on July 30, 2010 and United Americas Bank headquartered in Atlanta, Georgia on
December 17, 2010 (collectively, the "Acquired Banks"). The acquisitions were completed with the assistance of the FDIC, which had been appointed Receiver of these entities by their state or
federal banking authority, as applicable, immediately prior to the acquisitions. The acquired assets and assumed liabilities of the Acquired Banks were measured at estimated fair value. Management
made significant estimates and exercised significant judgment in accounting for the acquisition of the Acquired Banks. Management judgmentally assigned risk ratings to loans based on appraisals and
estimated collateral values, expected cash flows, and estimated loss factors to measure fair values for loans. Other real estate acquired through foreclosure was valued based upon pending sales
contracts and appraised values. Management used quoted or current market prices to determine the fair value of investment securities, short-term borrowings and long-term
obligations that were assumed from the Acquired Banks.



Basic net income per share is computed on the weighted average number of shares outstanding. Diluted net income per share is computed
by dividing net income by weighted average shares

F-14

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Significant Accounting Policies and Nature of Business (Continued)

outstanding
plus potential common shares resulting from dilutive stock options and warrants, determined using the treasury stock method. Income per share for the successor and predecessor periods are
as follows (in thousands, except per share data):

2010

Successor
Period
2009



Predecessor
Period
2009

Year Ended
Predecessor
2008Net Income (loss)

$
45,546

$
18,022



$
(247
)
$
(522
)Denominator:Weighted average common shares outstanding


31,559


30,584




767


767Equivalent shares issuable upon exercise of stock warrants


910


430







Diluted Shares


32,469


31,014




767


767Net income (loss) per share:Basic

$
1.44

$
0.59



$
(0.32
)
$
(0.68
)Diluted

$
1.40

$
0.58



$
(0.32
)
$
(0.68
)




In January 2010, the FASB issued Accounting Standards Update No. 2010-06 ("ASU 2010-01"), Fair Value Measurements and Disclosures (Topic 820)Improving
Disclosures about Fair Value Measurements.ASU 2010-06 provides
amendments to Subtopic 820-10 that require additional provisions are made to the disclosure. The new disclosures and clarifications of existing disclosures are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the rollforward activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal periods beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance did not have
a material effect on the Company's consolidated financial condition or results of operations.

In
April 2010, the FASB issued Accounting Standards Update No. 2010-18,Effect of a Loan Modification When the Loan Is Part of a Pool That Is
Accounted for as a Single Asset("ASU No. 2010-18"). ASU No. 2010-18 provides guidance on the accounting for loan
modifications when the loan is part of a pool of loans accounted for as a single asset such as acquired loans that have evidence of credit deterioration upon acquisition that are accounted for under
the guidance in ASC 310-30,Loans and Debt Securities Acquired with Deterioration of Credit Quality("ASC 310-30"). ASU No. 2010-18 addresses diversity in practice on whether a loan that is part of a pool of loans accounted for as a single asset should be
removed from that pool upon a modification that would constitute a troubled debt restructuring ("TDR") or remain in the pool after modification. ASU No. 2010-18 clarifies
that modifications of loans that are accounted for within a pool under ASC 310-30 do not result in the removal of these loans from the pool even if the modification of these loans
would otherwise be considered a TDR. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if the expected cash flows for the pool
change. The amendments in this update do not require any additional disclosures and are effective for modifications of loans accounted for within pools under ASC 310-30 occurring in
the first interim

F-15

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(1) Summary of Significant Accounting Policies and Nature of Business (Continued)

or
annual period ending on or after July 15, 2010. ASU 2010-18 is not expected to have a material impact on the Company's results of operations, financial position or disclosures.

In
July 2010, the FASB issued Accounting Standards Update No. 2010-20,Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses("ASU No. 2010-20"). ASU No. 2010-20 requires disclosures regarding loans
and the allowance for loan losses that are disaggregated by portfolio segment and class of financing receivable. Existing disclosures were amended to require a roll-forward of the
allowance for loan losses by portfolio segment, with the ending balance broken out by basis of impairment method, as well as the recorded investment in the respective loans. Nonaccrual and impaired
loans by class must also be shown. ASU No. 2010-20 also requires disclosures regarding: (1) credit quality indicators by class, (2) aging of past due loans by class,
(3) TDRs by class and their effect on the allowance for loan losses, (4) defaults on TDRs by class and their effect on the allowance for loan losses, and (5) significant purchases
and sales of loans disaggregated by portfolio segment. This guidance is effective for interim and annual reporting periods ending on or after December 15, 2010, for end of period type
disclosures. Activity related disclosures are effective for interim and annual reporting periods beginning on or after December 15, 2010. ASU No. 2010-20 has had an impact on
the Company's disclosures, but not its financial position or results of operations.

In
December 2010, the FASB issued IntangiblesGoodwill and Other (Topic 350)When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero
or Negative Carrying Amounts (ASU 2010-28). This update modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting
units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a
goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist such as if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its carrying amount. The provisions of ASU 2010-28 will be effective beginning January 1, 2011 and are not
expected to have a material impact on financial condition, results of operations or liquidity.

(2) Goodwill and Other Intangible Assets

Amortization expense of $924,459 and $210,073 was recorded on the core deposit intangible at December 31, 2010 and for the successor period from July 24, 2009 through
December 31, 2009, respectively. There was no amortization expense for the predecessor periods.

F-16

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(2) Goodwill and Other Intangible Assets (Continued)

At
December 31, 2010 and 2009, the changes in the carrying amounts of goodwill and identifiable intangible assets are presented in the table below(in
thousands):

2010

2009Goodwill, balance beginning of period

$
9,217

$
Buckhead Community Bank acquisition





9,217Less fair value adjustment


(2,655
)

Goodwill, December 31, 2010


6,562


9,217Core deposit intangible, balance beginning of period


3,117


2,504Buckhead Community Bank acquisition





664First Security National Bank acquisition





159NorthWest Bank and Trust acquisition


243


United Americas Bank acquisition


196


Less: accumulated amortization


(924
)

(210
)2,632


3,117Total intangible assets

$
9,194

$
12,334


The
Company adjusted goodwill during the first half of 2010 related to the acquisition of the Buckhead Community Bank on December 4, 2009. At the time of the acquisition, the
Company made certain assumptions related to the fair values of the acquired certificates of deposits. A subsequent review of those assumptions resulted in changes that resulted in a lower fair value
on the acquired certificates. Also, during the quarter ended September 30, 2010, the Company completed the final settlement process with the FDIC related to the banks acquired in 2009. Final
settlement involves a cash payment from one party to the other based on updated information that was originally estimated at the time of acquisition.

Amortization
expense for the core deposit intangible for the next five years is as follows(in thousands):

2011

$
9412012


9412013


6652014


852015


Thereafter


$
2,632


F-17

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(3) Federally Assisted Acquisition of Security Bank

On July 24, 2009, the Bank acquired substantially all of the assets and assumed substantially all the deposits and certain other liabilities of the six bank subsidiaries of
Security Bank Corporation ("Security Bank") from the FDIC, as receiver. Security Bank Corporation's six commercial banking charters operated primarily within the middle Georgia and metropolitan
Atlanta areas. The FDIC took Security Bank under receivership upon its closure by the Georgia Department of Banking and Finance. The Bank's bid to purchase Security Bank included the purchase of
substantially all Security Bank's assets at a discount of $316.5 million in exchange for assuming substantially all of Security Bank's
deposits and certain other liabilities. No cash, deposit premium or other consideration was paid by the Bank. The Bank and the FDIC entered into a purchase and assumption agreement in connection with
the acquisition which included loss sharing agreements regarding future losses incurred on acquired loans and other real estate acquired through foreclosure existing at the acquisition date,
collectively referred to as the covered assets. Under the terms of the loss sharing agreements, the FDIC will reimburse the Bank for 80 percent of net losses incurred on the covered assets up
to $563 million, and 95 percent of net losses exceeding $563 million. The term for loss sharing on residential real estate loans is ten years, while the term for loss sharing on
non-residential real estate loans is five years in respect to losses and eight years in respect to loss recoveries. As a result of the loss sharing agreements with the FDIC, the Company
recorded a receivable of $403.6 million at the time of acquisition. The acquisition of Security Bank was accounted for under the acquisition method of accounting. A summary of net assets
acquired and the resulting gain is presented in the following table. As explained in the explanatory notes that accompany the following table, the purchased assets and assumed liabilities were
recorded at their acquisition date fair values.

(Dollars in thousands)

As Recorded
by Security

Fair Value
Adjustments

As Recorded
by the
CompanyAssetsCash and due from banks

$
171,168

$
480,457
(a)
$
651,625Securities


208,173





208,173FHLB stock


13,745


(3,472
)(i)

10,273Loans, net of unearned income


1,520,191


(655,289
)(b)

864,902Other real estate owned


115,174


(57,587
)(c)

57,587FDIC receivable for loss sharing agreements





403,636
(d)

403,636Other assets


4,518


2,504
(h)

7,022Total assets acquired

$
2,032,969

$
170,249

$
2,203,218LiabilitiesDeposits

$
2,013,924

$
2,966
(e)
$
2,016,890FHLB advances and other borrowings


168,507


2,829
(f)

171,336Other liabilities


14,495





14,495Total liabilities assumed


2,196,926


5,795


2,202,721Excess of liabilities assumed over assets acquired

$
163,957
(g)Aggregate fair value adjustments




$
164,454Gain on Acquisition







$
497


Explanation of fair value adjustments (a)Adjustment
reflects the initial wire received from the FDIC on the acquisition date net of equity adjustments if applicable.


F-18

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(3) Federally Assisted Acquisition of Security Bank (Continued)

(b)Adjustment
reflects fair value adjustments based on the Company's evaluation of the acquired loan portfolio. The fair value adjustment includes adjustments
for estimated credit losses, liquidity, market yield and servicing costs.(c)Adjustment
reflects the estimated other real estate owned losses based on the Company's evaluation of the acquired other real estate owned portfolio.(d)Adjustment
reflects the present value of estimated fair value of payments the Company will receive from the FDIC under loss sharing agreements.(e)Adjustment
reflects fair value adjustments based on the Company's evaluation of the acquired time deposit portfolio.(f)Adjustment
arises since the rates on acquired FHLB advances are higher than rates available on similar borrowings as of the acquisition date.(g)Amount
represents the excess of liabilities assumed over assets acquired and was a cash settlement from the FDIC.(h)Adjustment
reflects fair value adjustments to record the estimated core deposit intangible.(i)Adjustment
reflects the estimated fair value of FHLB stock.


(4) Federally Assisted Acquisition of The Buckhead Community Bank

On December 4, 2009, the Bank acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of The Buckhead Community Bank
("BCB") from the FDIC, as receiver. BCB operated seven commercial banking branches primarily within the Atlanta, Georgia area. The FDIC took BCB under receivership upon its closure by the Georgia
Department of Banking and Finance. The Bank's bid to purchase BCB included the purchase of substantially all of BCB's
assets at a discount of $100.3 million in exchange for assuming substantially all of BCB's deposits and certain other liabilities. No cash, deposit premium or other consideration was paid by
the Bank. The Bank and the FDIC entered into a purchase and assumption agreement in connection with the acquisition which included loss sharing agreements regarding future losses incurred on acquired
loans and other real estate acquired through foreclosure existing at the acquisition date, collectively referred to as the covered assets. Under the terms of the loss sharing agreements, the FDIC will
reimburse the Bank for 80 percent of net losses incurred on the covered assets up to $254 million, and 95 percent of net losses exceeding $254 million. The term for loss
sharing on residential real estate loans is ten years, while the term for loss sharing on non-residential real estate loans is five years in respect to losses and eight years in respect to
loss recoveries. As a result of the loss sharing agreements with the FDIC, the Company recorded a receivable of $213.8 million at the time of acquisition. The purchase and assumption agreement
entered into between the Bank and the FDIC also includes a true-up payment at the end of year ten. On February 14, 2020, the true-up measurement date, the Bank is
required to make a true-up payment to the FDIC equal to 50 percent of the excess, if any, of (i) 20 percent of the stated threshold, or $50.8 million, less
(ii) the sum of (a) 25 percent of the asset discount, or $25.1 million, plus (b) 25 percent of the cumulative loss share payments plus (c) the
cumulative servicing amount. The cumulative servicing amount is one percent of the average covered assets for each year during the terms of the loss sharing agreements. Although no true-up
payment is currently projected under the BCB loss share agreements, those projections are subject to change.

F-19

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(4) Federally Assisted Acquisition of The Buckhead Community Bank (Continued)

The
acquisition of BCB was accounted for under the acquisition method of accounting. A summary of net assets acquired and the resulting acquisition date goodwill is presented in the
following table. As explained in the explanatory notes that accompany the following table, the purchased assets and assumed liabilities were recorded at their acquisition date fair values.

(Dollars in thousands)

As Recorded
by BCB

Fair Value
Adjustments

As Recorded
by the
CompanyAssetsCash and due from banks

$
74,050

$
28,748
(f)
$
102,798Securities


99,421





99,421FHLB and FRB stock


2,811


(703
)(i)

2,108Loans, net of unearned income


635,385


(291,787
)(a)

343,598Other real estate owned


62,071


(27,400
)(b)

34,671FDIC receivable for loss sharing agreements





213,812
(c)

213,812Other assets


6,805


665
(g)

7,470Total assets acquired

$
880,543

$
(76,665
)
$
803,878LiabilitiesDeposits

$
790,259

$
2,998
(d)
$
793,257FHLB advances and other borrowings


16,507


118
(e)

16,625Other liabilities


3,213





3,213Total liabilities assumed


809,979


3,116


813,095Excess of assets acquired over liabilities assumed

$
70,564
(h)Aggregate fair value adjustments




$
(79,781
)Goodwill







$
9,217


Explanation of fair value adjustments (a)Adjustment
reflects fair value adjustments based on the Company's evaluation of the acquired loan portfolio. The fair value adjustment includes adjustments
for estimated credit losses, liquidity, market yield and servicing costs.(b)Adjustment
reflects the estimated other real estate owned losses based on the Company's evaluation of the acquired other real estate owned portfolio.(c)Adjustment
reflects the estimated fair value of payments the Company will receive from the FDIC under loss sharing agreements.(d)Adjustment
reflects fair value adjustments based on the Company's evaluation of the acquired time deposit portfolio.(e)Adjustment
arises since the rates on acquired FHLB advances are higher than rates available on similar borrowings as of the acquisition date.(f)Adjustment
reflects the initial wire received from the FDIC on the acquisition date net of equity adjustments if applicable.


F-20

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(4) Federally Assisted Acquisition of The Buckhead Community Bank (Continued)

(g)Adjustment
reflects fair value adjustment to record the estimated core deposit intangible.(h)Amount
represents the excess assets acquired over liabilities assumed and was a cash settlement from the FDIC as primarily adjusted by the negative bid
amount.(i)Adjustment
reflects the estimated fair value of FHLB stock.


(5) Federally Assisted Acquisition of First Security National Bank

On December 4, 2009, the Bank acquired substantially all of the assets and assumed substantially all the deposits and certain other liabilities of First Security National Bank
("FSNB") from the FDIC, as receiver. FSNB operated four commercial banking branches primarily within the Norcross, Georgia area. The FDIC took FSNB under receivership upon its closure by the Office of
the Comptroller of the Currency. The Bank's bid to purchase FSNB included the purchase of substantially all of FSNB's assets at a discount of $10.7 million in exchange for assuming
substantially all of FSNB's deposits and certain other liabilities. No cash, deposit premium or other consideration was paid by the Bank. The Bank and the FDIC entered into a purchase and assumption
agreement in connection with the acquisition which included loss sharing agreements regarding future losses incurred on acquired loans and other real estate acquired through foreclosure existing at
the acquisition date, collectively referred to as the covered assets. Under the terms of the loss sharing agreements, the FDIC will reimburse the Bank for 80 percent of net losses incurred on
the covered assets up to $27 million and 95 percent of net losses exceeding $27 million. The term for loss sharing on residential real estate loans is ten years, while the term of
for loss sharing on non-residential real estate loans is five years in respect to losses and eight years in respect to loss recoveries. As a result of the loss sharing agreements with the
FDIC, the Company recorded a receivable of $19.8 million at the time of acquisition. The purchase and assumption agreement entered into between the Bank and the FDIC also includes a
true-up payment at the end of year ten. On February 14, 2020, the true-up measurement date, the Bank is required to make a true-up payment to the FDIC equal
to 50 percent of the excess, if any, of (i) 20 percent of the stated threshold or $5.4 million, less (ii) the sum of (a) 25 percent of the asset
discount, or $2.7 million, plus (b) 25 percent of the cumulative loss share payments plus (c) the cumulative servicing amount. The cumulative servicing amount is one
percent of the average covered assets for each year during the terms of the loss sharing agreements. Although no true-up payment is currently projected under the FSNB loss share
agreements, those projections are subject to change.

The
acquisition of FSNB was accounted for under the acquisition method of accounting. A summary of net assets acquired and the resulting acquisition date goodwill is presented in the
following

F-21

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(5) Federally Assisted Acquisition of First Security National Bank (Continued)

table.
As explained in the explanatory notes that accompany the following table, the purchased assets and assumed liabilities were recorded at their acquisition date fair values.

(Dollars in thousands)

As Recorded
by FSNB

Fair Value
Adjustments

As Recorded
by the
CompanyAssetsCash and due from banks

$
31,912

$
16,575
(e)
$
48,487Securities


285





285Loans, net of unearned income


50,660


(17,444
)(a)

33,216Other real estate owned


29,402


(12,000
)(b)

17,402FDIC receivable for loss sharing agreements





19,787
(c)

19,787Other assets


743


159
(f)

902Total assets acquired

$
113,002

$
7,077

$
120,079LiabilitiesDeposits

$
117,696

$
492
(d)
$
118,188Other liabilities


1,203





1,203Total liabilities assumed


118,899


492


119,391Excess of liabilities assumed over assets acquired

$
5,897
(g)Aggregate fair value adjustments




$
6,585Gain on acquisition







$
688


Explanation of fair value adjustments (a)Adjustment
reflects fair value adjustments based on the Company's evaluation of the acquired loan portfolio. The fair value adjustment includes adjustments
for estimated credit losses, liquidity, market yield and servicing costs.(b)Adjustment
reflects the estimated other real estate owned losses based on the Company's evaluation of the acquired other real estate owned portfolio.(c)Adjustment
reflects the estimated fair value of payments the Company will receive from the FDIC under loss sharing agreements.(d)Adjustment
reflects fair value adjustments based on the Company's evaluation of the acquired time deposit portfolio.(e)Adjustment
reflects the initial wire received from the FDIC on the acquisition date net of equity adjustments if applicable.(f)Adjustment
reflects fair value adjustment to record the estimated core deposit intangible.(g)Amount
represents the excess of liabilities assumed over assets acquired and was a cash settlement from the FDIC.


F-22

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)




(6) Federally Assisted Acquisition of NorthWest Bank and Trust

On July 30, 2010, the Bank acquired substantially all of the assets and assumed substantially all the deposits and certain other liabilities of NorthWest Bank and Trust ("NWBT")
from the FDIC, as receiver. NWBT operated primarily within the metropolitan Atlanta area. The FDIC took NWBT under receivership upon its closure by the Georgia Department of Banking and Finance. The
Bank's bid to purchase NWBT included the purchase of substantially all the assets at a discount of $18.8 million in exchange for assuming substantially all of the deposits and certain other
liabilities. No cash, deposit premium or other consideration was paid by the Bank. The Bank and the FDIC entered into a purchase and assumption agreement in connection with the acquisition, which
included loss sharing agreements regarding future losses incurred on acquired loans and other real estate acquired through foreclosure existing at the acquisition date, collectively referred to as the
covered assets. Under the terms of the loss sharing agreements, the FDIC will reimburse the Bank for 80 percent of net losses incurred on the covered assets. The term for loss sharing on
residential real estate loans is ten years, while the term for loss sharing on non-residential real estate loans is five years in respect to losses and eight years in respect to loss
recoveries. As a result of the loss sharing agreements with the FDIC, the Company recorded a receivable of $25.0 million at the time of acquisition.

The
purchase and assumption agreement entered into between the Bank and the FDIC also includes a true-up payment at the first of the end of year ten or upon the disposition
or termination of the loss share agreements. On September 15, 2020, the true-up measurement date, the Bank is required to make a true-up payment to the FDIC equal to
50 percent of the excess, if any, of (i) 20 percent of the stated threshold, or $7.2 million, less (ii) the sum of (a) 25 percent of the asset
discount, or $4.7 million, plus (b) 25 percent of the cumulative loss share payments plus (c) the cumulative servicing amount. The cumulative servicing amount is one
percent of
the average covered assets for each year during the terms of the loss sharing agreements. As of acquisition date, management projected a true-up payment of $597,000 under the NWBT loss
share agreements; this projection is subject to change.

The
acquisition of NWBT was accounted for under the acquisition method of accounting. A summary of net assets acquired and the resulting gain is presented in the following table. As
explained in the explanatory notes that accompany the following table, the purchased assets and assumed liabilities were recorded at their acquisition date fair values. Fair values are preliminary and
subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values become available. As of December 31, 2010,
noninterest income includes a bargain purchase gain of $37,000 that resulted from the acquisition. The amount of the gain

F-23

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(6) Federally Assisted Acquisition of NorthWest Bank and Trust (Continued)

is
equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities assumed.

(Dollars in thousands)

As Recorded
by NWBT

Fair Value
Adjustments

As recorded
by the
CompanyAssetsCash and due from banks

$
34,256

$
(2,400
)(a)
$
31,856Investment securities


16,218





16,218FHLB and other bank stock


275





275Loans, net of unearned income


97,837


(40,855
)(b)

56,982Other real estate owned


5,020


(2,509
)(c)

2,511FDIC receivable for loss sharing agreements





24,955
(d)

24,955Core deposit intangible





243
(e)

243Other assets


866





866Total assets acquired

$
154,472

$
(20,566
)
$
133,906LiabilitiesDeposits:Noninterest-bearing

$
9,349

$


$
9,349Interest-bearing


123,257





123,257Total deposits


132,606





132,606Repurchase agreements


311





311Loss share true-up liability





597
(g)

597Other liabilities


355





355Total liabilities assumed


133,272


597


133,869Excess of assets acquired over liabilities assumed

$
21,200
(f)Aggregate fair value adjustments




$
(21,163
)Gain on Acquisition







$
37


Explanation of fair value adjustments (a)Adjustment
reflects the initial wire sent to the FDIC on the acquisition date.(b)Adjustment
reflects fair value adjustments based on the Company's evaluation of the acquired loan portfolio. The fair value adjustment includes adjustments
for estimated credit losses, liquidity and servicing costs.(c)Adjustment
reflects the estimated other real estate owned losses based on the Company's evaluation of the acquired other real estate owned portfolio.(d)Adjustment
reflects the estimated fair value of payments the Bank will receive from the FDIC under loss sharing agreements. The receivable was recorded at
the present value of the estimated cash flows using an average discount rate of two and one half percent.


F-24

---



Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(6) Federally Assisted Acquisition of NorthWest Bank and Trust (Continued)

(e)Adjustment
reflects fair value adjustments to record the estimated core deposit intangible.(f)Adjustment
represents the excess of the assets acquired over the liabilities assumed. Since the asset discount bid by the Company of $18.8 million
did not exceed this amount and the FDIC retained the brokered deposits, the difference resulted in a cash payment to the FDIC on acquisition date.(g)Amount
reflects the present value of future payments to the FDIC in the event losses fail to reach expected levels.


(7) Federally Assisted Acquisition of United Americas Bank, N.A.

On December 17, 2010, the Bank acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of United Americas Bank, N.A.
("UAB") from the FDIC, as receiver. UAB operated full service commercial banking branches primarily within the Atlanta, Georgia area. The FDIC took UAB under receivership upon its closure by the
Office of the Comptroller of the Currency. The Bank's bid to purchase UAB included the purchase of substantially all of UAB's assets at a discount of $45.7 million in exchange for assuming
substantially all of UAB's deposits and certain other liabilities. No cash, deposit premium or other consideration was paid by the Bank. The Bank and the FDIC entered into a purchase and assumption
agreement in connection with the acquisition which included loss sharing agreements regarding future losses incurred on acquired loans and other real estate acquired through foreclosure existing at
the acquisition date, collectively referred to as the covered assets. Under the terms of the loss sharing agreements, the FDIC will reimburse the Bank for 80 percent of net losses incurred on
the covered assets. The term for loss sharing on residential real estate loans is ten years, while the term for loss sharing on non-residential real estate loans is five years in respect
to losses and eight years in respect to loss recoveries. As a result of the loss sharing agreements with the FDIC, the Company recorded a receivable of $78.5 million at the time of acquisition.

The
purchase and assumption agreement entered into between the Bank and the FDIC also includes a true-up payment at the first of the end of year ten or upon the disposition
or termination of the loss share agreements. On February 14, 2020, the true-up measurement date, the Bank is required to make a true-up payment to the FDIC equal to
50 percent of the excess, if any, of (i) 20 percent of the stated threshold, or $11.6 million, less (ii) the sum of (a) 25 percent of the asset
discount, or $11.4 million, plus (b) 25 percent of the cumulative loss share payments plus (c) the cumulative servicing amount. The cumulative servicing amount is one
percent of the average covered assets for each year during the terms of the loss sharing agreements. Although no true-up payment is currently projected under the UAB loss share agreements,
the projection is subject to change.

F-25

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(7) Federally Assisted Acquisition of United Americas Bank, N.A. (Continued)

The acquisition of UAB was accounted for under the acquisition method of accounting. A summary of net assets acquired and the resulting acquisition date goodwill is presented in the
following table. As explained in the explanatory notes that accompany the following table, the purchased assets and assumed liabilities were recorded at their acquisition date fair values. Fair values
are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values become available. As of
December 31, 2010, noninterest income includes a bargain purchase gain of $3.7 million, resulting in an after tax gain of
$2.3 million from the acquisition. The amount of the gain is equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities assumed.

(Dollars in thousands)

As Recorded
by UAB

Fair Value
Adjustments

As Recorded
by the
CompanyAssetsCash and due from banks

$
44,468

$
17,642
(a)
$
62,110Investment securities


6,229





6,229FHLB and other bank stock


3,112





3,112Loans, net of unearned income


166,780


(98,368
)(b)

68,412Other real estate owned


31,273


(20,499
)(c)

10,774FDIC receivable for loss sharing agreements





78,466
(d)

78,466Core deposit intangible





196
(e)

196Other assets


938


(591
)(i)

347Total assets acquired

$
252,800

$
(23,154
)
$
229,646LiabilitiesDeposits:Noninterest-bearing

$
14,861

$


$
14,861Interest-bearing


159,834





159,834Total deposits


174,695





174,695FHLB advances and other borrowings


49,500


1,213
(h)

50,713Deferred tax liability





1,392
(g)

1,392Other liabilities


516





516Total liabilities assumed


224,711


2,605


227,316Excess of assets acquired over liabilities assumed

$
28,089
(f)Aggregate fair value adjustments




$
(25,759
)$
2,330


Explanation of fair value adjustments (a)Adjustment
reflects the initial wire received from the FDIC on the acquisition date net of equity adjustments if applicable.(b)Adjustment
reflects fair value adjustments based on the Bank's evaluation of the acquired loan portfolio. The fair value adjustment includes adjustments for
estimated credit losses, liquidity and servicing costs.


F-26

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(7) Federally Assisted Acquisition of United Americas Bank, N.A. (Continued)

(c)Adjustment
reflects the estimated other real estate losses based on the Bank's evaluation of the acquired other real estate owned portfolio.(d)Adjustment
reflects the estimated fair value of payments the Bank will receive from the FDIC under loss sharing agreements. The receivable was recorded at
the present value of the estimated future cash flows using an average discount rate of two and one half percent.(e)Adjustment
reflects fair value adjustments to record the estimated core deposit intangible.(f)Amount
represents the excess assets acquired over liabilities assumed and was a cash settlement from the FDIC as primarily adjusted by the negative bid
amount.(g)Deferred
tax liability as a result of the gain on acquisition.(h)Adjustment
arises since the rates on acquired FHLB advances are higher than the rates available on similar borrowings. Subsequent to the UAB acquisition all
FHLB advances were paid off.(i)Adjustment
reflects the accrued interest that would not be recognized on those performing loans that were moved to nonaccrual by management effective as of
the acquisition date.


(8) Investment Securities

The cost basis, unrealized gains and losses, and fair value of securities available for sale at December 31, 2010 and 2009 are listed below(in
thousands):

December 31, 2010Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair valueU.S. Government agencies

$
163,002

$
699

$
20

$
163,681State and political subdivisions


9,490


114


49


9,555Residential mortgage-backed securitiesprivate


61,504


705


1,184


61,025Residential mortgage-backed securitiesagency


40,892


781





41,673Collateralized-mortgage obligations (CMO)


125,146


2,836


27


127,955Corporate securities


1,525


167





1,692Total

$
401,559

$
5,302

$
1,280

$
405,581




December 31, 2009Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair valueU.S. Government agencies

$
85,227

$
69

$
580

$
84,716State and political subdivisions


3,176


92


56


3,212Collateralized-mortgage obligations (CMO)


172,002


1,374


96


173,280Residential mortgage-backed securitiesagency


56,647


116


501


56,262Corporate securities


325


193





518Total

$
317,377

$
1,844

$
1,233

$
317,988


F-27

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(8) Investment Securities (Continued)

The
amortized cost and estimated fair value of the investment securities at December 31, 2010, by contractual maturity, are presented in the following table (in thousands):

Amortized
cost

Estimated
fair valueLess than 1 year

$
62,995

$
63,04015 years


91,888


92,184510 years


8,716


9,09110 years or more


10,418


10,613FNMA, GNMA, FHLMC and CMO mortgage-backed securities


227,542


230,653$
401,559

$
405,581


The
Company's investment in FHLB stock was $14.6 million and $12.6 million at December 31, 2010 and 2009, respectively.

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

December 31,
2010

Successor
Period
July 24, 2009
Through
July 23,
2009

Predecessor
Period
January 1, 2009
Through
December 31,
2009

December 31,
2008Gross gains on securities

$
187

$


$


$
Gross losses of securities


(22
)







Net realized gains (losses) on sales of securities available for sale

$
165

$


$


$



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 provide a balance over 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. Management monitors the investment portfolio and periodically evaluates
investments for other-than-temporary impairment or more often when economic or market concerns support more frequent evaluations. Consideration during the evaluation is placed
on (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and
(3) the positive intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for anticipated recovery in fair value. As of
December 31, 2010, there was no intent to sell any of the securities available for sale. Furthermore, it is not likely that the Company will have to sell such securities before a recovery of
the amortized cost basis.

F-28

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(8) Investment Securities (Continued)

The
following table provides information regarding securities with unrealized losses as of December 31, 2010 and 2009(in
thousands):

Less than 12 months

12 months or more

TotalFair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
LossesDecember 31, 2010Investment securities available for sale:U.S. Government securities

$
34,128

$
20

$


$


$
34,128

$
20State and political subdivisions


3,896


32


239


17


4,135


49Residential mortgage-backed securitiesprivate


23,788


1,184








23,788


1,184Collateralized mortgage obligations


12,598


27








12,598


27Total

$
74,410

$
1,263

$
239

$
17

$
74,649

$
1,280December 31, 2009Investment securities available for sale:U.S. Government securities

$
72,689

$
580

$


$


$
71,495

$
580State and political subdivisions


1,536


56








1,536


56Residential mortgage-backed securitiesagency


39,186


501








39,186


501Collateralized mortgage obligations


14,089


96








14,089


96Total

$
127,500

$
1,233

$


$


$
74,649

$
1,233


An
investment security with an aggregate fair value of $239,000 had a continuous unrealized loss of $17,000 for more than twelve months as of December 31, 2010. The unrealized
loss arose from changes in interest rates and market conditions and maintains an acceptable investment grade where the repayment of principal and interest are fully backed by the U.S. Government. At
December 31, 2010, the Company had the ability and intent to retain this investment security for a period of time sufficient to recover all unrealized losses. Therefore, the security is deemed
to be other than temporarily impaired.

Investment
securities with an aggregate carrying amount of $148.5 million and $175.6 million at December 31, 2010 and 2009, respectively, were pledged to secure
public deposits and FHLB advances.

F-29

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(9) Loans and Allowance for Loan Losses

Loans not covered by loss sharing agreements are summarized as follows(in thousands):

December 31,2010

2009Loans not covered by loss sharing agreements:Residential real estate

$
23,255

$
8,219Commercial real estate-construction


70,543


8,019Commercial real estate-other


196,243


14,427Commercial and Industrial


38,919


5,552Consumer and other


13,889


11,172Loans receivable, net of undisbursed proceeds of loans in process


342,849


47,389Less:Allowance for loan losses


5,351


2,524$
337,498

$
44,865


The
carrying amount of the covered loans consisted of impaired loans and non-impaired loans and are presented in the following tables(in
thousands):

December 31, 2010Impaired at
acquisition
date

All other
acquired
loans

Total
covered
loansLoans covered by loss sharing agreements:Residential real estate

$
19,036

$
295,500

$
314,536Commercial real estate-construction


137,319


298,300


435,619Commercial real estate-other


54,692


558,837


613,529Commercial and industrial


17,213


127,700


144,913Consumer and other


1,941


27,823


29,764Loans receivable, gross


230,201


1,308,160


1,538,361Less:Non-accretable discount


131,979


347,637


479,616Accretable discount


3,150


120,628


123,778Total loans covered, net

$
95,072

$
839,895

$
934,967


F-30

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(9) Loans and Allowance for Loan Losses (Continued)



December 31, 2009Impaired at
acquisition
date

All other
acquired
loans

Total
covered
loansLoans covered by loss sharing agreements:1-4 family residential real estate mortgage

$
26,591

$
294,735

$
321,326Commercial real estate


57,998


510,247


568,245Commercial


11,625


175,763


187,388Real estate construction and development


292,662


517,395


810,057Consumer and other


4,548


81,095


85,643Loans receivable, gross


393,424


1,579,235


1,972,659Less:Non-accretable discount


272,459


381,861


654,320Accretable discount





183,840


183,840Total loans covered, net

$
120,965

$
1,013,534

$
1,134,499


Loans
covered under loss sharing agreements with the FDIC (referred to as covered loans) are reported in loans 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 sharing 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. 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. Interest is
accrued daily on the outstanding principal balances of non-impaired loans. Accretable discounts related to certain fair value adjustments are accreted into income over the estimated lives
of the loans on a level yield basis.

Covered
loans which are more than 90 days past due with respect to interest or principal, unless they are well secured and in the process of collection, and other covered loans on
which full recovery of principal or interest is in doubt, are placed on nonaccrual status. Interest previously accrued on covered loans placed on nonaccrual status is charged against interest income
and the FDIC receivable would be adjusted by the amount of any estimated reimbursement. Payments received are applied against the principal balance of the loans until such time as full collection of
the remaining recorded balance is expected. Additional interest payments received after that time is recorded as interest income.

F-31

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(9) Loans and Allowance for Loan Losses (Continued)

Contractual
loan payments receivable, estimates of amounts not expected to be collected, other fair value adjustments and the resulting fair values of acquired impaired loans and other
acquired loans as of the acquisition dates are provided in the following table(in thousands):

Impaired at
acquisition
date

All other
acquired
loans

Total
covered
loansNWBT loans at acquisition date:Contractual principal and interest payments receivable

$
20,797

$
77,040

$
97,837Non-accretable discount (expected losses and forgone interest)


13,990


16,229


30,219Cash flows expected to be collected at acquisition


6,807


60,811


67,618Accretable discount


842


9,794


10,636Fair value of loans acquired

$
5,965

$
51,017

$
56,982UAB loans at acquisition date:Contractual principal and interest payments receivable

$
60,679

$
106,101

$
166,780Non-accretable discount (expected losses and forgone interest)


44,987


41,451


86,438Cash flows expected to be collected at acquisition


15,692


64,650


80,342Accretable discount


2,582


9,348


11,930Fair value of loans acquired

$
13,110

$
55,302

$
68,412


The
following table documents changes in the value of the accretable discount for the year ended December 31, 2010 and for the period from July 24, 2009 through
December 31, 2009 (in thousands):

Accretable discount2010

2009Balance, at beginning of year

$
183,840

$
Additions


22,566


211,269Accretion


(82,628
)

(27,429
)Transfers from non-accretable discount to accretable discount





Balance, end of year

$
123,778

$
183,840


F-32

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(9) Loans and Allowance for Loan Losses (Continued)

The
changes in the carrying value of the FDIC receivable for loss sharing agreements relating to covered loans and other real estate for the year ended December 31, 2010 and
during the period from July 24, 2009 through December 31, 2009 (in thousands):

2010

2009Fair value of FDIC receivable for loss sharing agreements at beginning of 2010 and acquisition date 2009, respectively

$
605,502

$
637,235Reductions resulting from:Wires received


(290,815
)

(40,474
)Recovery of previous loss reimbursements





Additions resulting from:Charge-offs, write-downs and other losses


39,950


Acquisition of UAB


78,466


Acquisition of NWBT


24,955


Discount accretion


15,652


4,748External expenses qualifying under loss sharing agreements


20,718


3,993Balance, end of period

$
494,428

$
605,502


As
of December 31, 2010, in accordance with Company policy, there were no loans to executive officers, directors and their associates; however, as of December 31, 2009,
these same types of loans totaled $48,519, which consisted of one loan to a director with a balance at origination of $57,254 and $8,735 of repayments on such loan. Management believes that such loan
was made in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons, and
did not involve more than the normal credit risk nor present other unfavorable features.

We
assess the adequacy of the ALLL quarterly with respect to non-covered loans. This assessment includes procedures to estimate the allowance and test the adequacy and
appropriateness of the resulting balance. The ALLL consists of two components:



Even
though the ALLL is composed of two components, the entire ALLL is available to absorb any credit losses.

We
establish the specific amount by examining impaired loans. Under generally accepted accounting principles, we may measure the loss either by:



F-33

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(9) Loans and Allowance for Loan Losses (Continued)

Because
the majority of our impaired loans are collateral dependent, we calculate nearly all of our specific allowances based on the fair value of the collateral.

We
establish the general amount by taking the remaining loan portfolio (excluding those impaired loans discussed above) with allocations based on peer information. We then subject the
calculation of the general amount to stress factors that are somewhat subjective. The stress testing attempts to correlate the historical loss rates with current economic factors and current risks in
the portfolio. The stress factors consist of:



After
we assess the applicable factors, we evaluate the remaining amount based on management's experience.

Finally,
we compare the level of the ALLL with historical trends and peer information as a reasonableness test. Management then evaluates the result of the procedures performed,
including the result of our testing, and makes a conclusion regarding the appropriateness of the ALLL in its entirety.

The
following is a summary of transactions in the allowance for loan losses on loans not covered by loss sharing(in thousands):

2010

Successor
Period 2009



Predecessor
Period 2009

Predecessor
2008Balance, beginning of period

$
2,524

$




$
445

$
316Loans charged off


(1,209
)

(459
)






(188
)Recoveries on loans previously charged off


81


294







5Provision for loan losses charged to operations


3,955


2,689




261


312Balance, end of period

$
5,351

$
2,524



$
706

$
445


The
following is a summary of information related to impaired loans, primarily covered under loss share agreements, at December 31, 2010, 2009 and 2008(in
thousands):

2010

2009

2008Average of individually impaired loans during year

$
560,918

$
564,511

$
188Interest income foregone on impaired loans


40,212


8,401


Cash-basis interest income recognized


4,012


783





F-34

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(9) Loans and Allowance for Loan Losses (Continued)

The following tables present the allocation of the allowance for loan losses in each loan category listed as of the dates indicated(in
thousands):

December 312010
Amount

2009
Amount

2008
AmountCommercialCommercial and industrial

$
588

$
241

$
78Real EstateMortgage


246


412


27Commercial


1,803


728


190Construction


2,252


1,022


75Total real estate


4,301


2,162


292ConsumerConsumer


223


121


75Nonspecific


239





Total allowance for non-covered loans


5,351


2,524


445Covered loans








Total allowance for loan losses

$
5,351

$
2,524

$
445


Impaired
loans not covered by loss share agreements, segregated by class of loans, as of December 31, 2010 are as follows(in
thousands):

Unpaid
Principal
Balance

Recorded
Investment

Allowance for
Loan Losses
AllocatedWith no related allowance recorded:Commercial and industrial

$


$


$
Commercial real estate:Construction


1,362


1,085


Other


2,391


1,719


Residential real estate








Consumer








Subtotal:


3,753


2,804


With an allowance recorded:Commercial and industrial








Commercial real estate:Construction








Other


1,493


1,493


518Residential real estate


64


64


5Consumer








Subtotal:


1,557


1,557


523Total

$
5,310

$
4,361

$
523


At
December 31, 2009, the Company had impaired loans not covered by loss share agreements of $3.3 million with specific allowances totaling $1.4 million.

F-35

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(9) Loans and Allowance for Loan Losses (Continued)

Nonaccrual
loans not covered by loss sharing, segregated by class of loans, as of December 31, 2010 are as follows(in thousands):

Unpaid
Principal
Balance

Recorded
Investment

Allowance for
Loan Losses
AllocatedWith no related allowance recorded:Commercial and industrial

$


$


$
Commercial real estate:Construction


971


695


Other


2,391


1,719


Residential real estate








Consumer








Subtotal:


3,362


2,414


With an allowance recorded:Commercial and industrial








Commercial real estate:Construction








Other


1,225


1,225


479Residential real estate








Consumer








Subtotal:


1,225


1,225


479Total

$
4,587

$
3,639

$
479


An
analysis of past due loans not covered by loss sharing, segregated by class of loans, as of December 31, 2010 was as follows(in
thousands):

3089
Days
Past Due

Greater than
90 days
Past Due

Total
Past Due

Current

Total
Loans

Loans >90
days and
accruingCommercial

$
200

$
2

$
202

$
38,717

$
38,919

$
Commercial real estate:Construction


171


64


235


70,308


70,543


Other


649


2,758


3,407


192,836


196,243


Residential real estate


30


118


148


23,107


23,255


Consumer


1,255


460


1,715


12,174


13,889


Total

$
2,305

$
3,402

$
5,707

$
337,142

$
342,849

$



F-36

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(9) Loans and Allowance for Loan Losses (Continued)

An
analysis of past due loans covered by loss sharing, segregated by class of loans, as of December 31, 2010 was as follows(in
thousands):

3089
days
past due

Greater than
90 days
past due

Total
past due

Current

Total
loans(1)

Loans >90
days and
accruingCommercial

$
4,914

$
49,089

$
54,003

$
90,910

$
144,913

$
Commercial real estate:Construction


31,681


258,679


290,360


145,259


435,619


Other


33,059


129,927


162,986


450,543


613,529


Residential real estate


25,670


55,294


80,964


233,572


314,536


Consumer


673


5,896


6,569


23,195


29,764


Total

$
95,997

$
498,885

$
594,882

$
943,479

$
1,538,361

$



(1)Total
covered loans as of December 31, 2010 are shown gross of the non-accretable and accretable discounts of $479.6 million and
$123.8 million respectively.


Asset Quality Grades:

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



F-37

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(9) Loans and Allowance for Loan Losses (Continued)



The
following table presents the risk grades of the loan portfolio not covered by loss sharing agreements, segregated by class of loans, as of December 31, 2010 (in thousands):

Commercial
and
industrial

Commercial
real estate
construction

Commercial
real estate
other

Residential
real estate

Consumer
and other

TotalPass

$
38,135

$
50,174

$
186,067

$
20,908

$
12,444

$
307,728Watch


661


20,274


6,559


1,514


698


29,706OAEM


64


28


237


489


450


1,268Substandard


59


67


2,105


256


234


2,721Doubtful








1,275


88


63


1,426Total

$
38,919

$
70,543

$
196,243

$
23,255

$
13,889

$
342,849


The
following table presents the risk grades of the loan portfolio covered by loss sharing agreements, segregated by class of loans, as of December 31, 2010 (in thousands):

Commercial
and
industrial

Commercial
real estate
construction

Commercial
real estate
other

Residential
real estate

Consumer
and other

Total(1)Pass

$
57,223

$
85,771

$
286,682

$
200,511

$
11,506

$
641,693Watch


9,083


19,629


68,869


10,552


847


108,980OAEM


16,349


14,990


42,051


11,691


186


85,267Substandard


61,858


311,556


215,900


91,688


17,122


698,124Doubtful


400


3,673


27


94


103


4,297Total

$
144,913

$
435,619

$
613,529

$
314,536

$
29,764

$
1,538,361


(1)Total
covered loans as of December 31, 2010 are shown gross of the non-accretable and accretable discounts of $479.6 million and
$123.8 million respectively.


F-38

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(10) Other Real Estate Owned

The following is a summary of transactions in non-covered and covered other real estate owned(in thousands):

December 31,2010

2009Non-covered other real estate ownedOther real estate acquired at reorganization 2009

$


$
73Other real estate balance, beginning of period 2010


120


Other real estate acquired through foreclosure of loans receivable





75Other real estate sold


(45
)

Write down of other real estate owned





(28
)Loss on sale of other real estate owned





Balance, end of period

$
75

$
120




December 31,2010

2009Covered other real estate ownedBalance, acquired and subject to FDIC loss sharing agreement at fair value

$


$
109,660Other real estate balance, beginning of period 2010


141,690


Other real estate acquired through foreclosure of loans receivable


174,024


55,812Other real estate acquired through UAB acquisition


10,774


Other real estate acquired through NWBT acquisition


2,511Other real estate sold


(87,988
)

(20,626
)Other real estate write-downs


(85,030
)

(3,220
)Other real estate capitalized costs





64Total covered OREO

$
155,981

$
141,690


(11) Premises and Equipment

Premises and equipment are summarized as follows(in thousands):

December 31,2010

2009Land

$
8,701

$
107Buildings and improvements


18,684


607Furniture, fixtures, and equipment


5,241


1,037Construction in progress


516


63433,142


2,385Less accumulated depreciation


1,234


90$
31,908

$
2,295


F-39

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(11) Premises and Equipment (Continued)

Depreciation
expense for premises and equipment for December 31, 2010 and the successor and predecessor periods ended December 31, 2009 was $1.2 million, $90,000 and
$30,000, respectively. In addition, for the year ended December 31, 2008 depreciation expense was $118,000.

Leases

The Company has various operating leases on banking locations. Generally, these leases have terms of less than ten years with renewal
options.

Future
minimum lease commitments under all non-cancellable operating leases with terms of one year or more, excluding any renewal options, are as follows (in thousands):

Year2011

$
1,1272012


1,0642013


8672014


1352015


Thereafter


Total

$
3,193


Rent
expense for the year ended December 31, 2010 and for period from July 24, 2009 through December 31, 2009 was $2.2 million and $445,000, respectively, and
was included in occupancy expense in the consolidated statement of income (loss). Rent expense for the year ended December 31, 2008 and for the period January 1, 2009 through
July 23, 2009 was insignificant.

(12) Deposits

Deposits are summarized as follows(in thousands):

December 31,2010

2009Demand

$
224,543

$
187,746Interest-bearing demand


1,555,033


760,114Savings


15,425


15,461Time


626,925


1,190,470Total deposits

$
2,421,926

$
2,153,791


F-40

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(12) Deposits (Continued)

The
aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2010 and 2009 were $265.6 million and $545.4 million, respectively. The
scheduled maturities of time deposits at December 31, 2010 are as follows(in thousands):

Year ending December 31:2011

$
490,0132012


116,1902013


4,7062014


10,0322015 and thereafter


5,984$
626,925


The
Company had brokered deposits of $16.1 million and $29.4 million at December 31, 2010 and 2009. The scheduled maturities of brokered deposits at
December 31, 2010 and their weighted average costs are as follows(in thousands):

Balance

Average CostYear ending December 31:2011

$
4,143


2.07
%2012


12,000


2.00
%2013 and thereafter






%$
16,143


2.02
%


(13) Borrowings

At December 31, 2010, there were no advances from the FHLB. At December 31, 2009, the Company had advances from the FHLB totaling $5.0 million with adjustable
interest of 0.28% maturing in January 2011. The FHLB advances collateralized by commercial (secured by real estate) and residential mortgage loans, investment securities and FHLB stock, carried a zero
balance as of December 31, 2010.

F-41

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(14) Income Taxes

There was no income tax expense for the period January 1, 2009 through July 23, 2009. The components of income tax expense for the year ended December 31, 2010 and
period from July 24, 2009 through December 31, 2009 and the year ended December 31, 2008, are as follows(in thousands):

December 31,2010

Successor
2009



Predecessor
2008Current tax provision:Federal

$
10,806

$
7,504



$
State


322


658




11,128


8,162




Deferred tax provision:Federal


13,689


1,781




(195
)State


2,496


396




(47
)16,185


2,177




(242
)Provision for income tax expense before adjustment to deferred tax asset valuation allowance


27,313


10,339




(242
)Increase in deferred tax valuation allowance










242Total income tax provision

$
27,313

$
10,339



$



Income
tax expense (benefit) for the successor and predecessor periods differ from the income taxes computed by applying the Federal statutory rate of 35% to income (loss) before income
taxes. The reasons for the difference are as follows(in thousands):

2009 Year EndedSuccessor
2010

Successor
Period



Predecessor
Period

Predecessor
2008Statutory Federal income taxes

$
25,501

$
9,926



$
(86
)
$
(183
)Charitable contribution credit


(315
)

(217
)






(30
)State taxes, net of federal benefit


1,832


685







(31
)Tax-exempt interest


(60
)

(19
)






Increase in valuation allowance for deferred tax asset










86


242Other


355


(36
)






2Actual income taxes

$
27,313

$
10,339



$


$



F-42

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(14) Income Taxes (Continued)

The
components of the net deferred tax liability included in other liabilities in the accompanying consolidated statement of financial condition as of December 31, 2010 and 2009
are as follows(in thousands):

2010

2009Deferred tax assetsAllowance for loan losses

$
2,051

$
943Net operating loss carryforward


484


547Estimated loss on acquired assets


247,688


396,761Other real estate owned


77


9Other





Start up expenses


112


100Total deferred tax assets

$
250,412

$
398,360Deferred tax liabilitiesPremises and equipment


(5,341
)

(51
)Prepaid expenses


(524
)

(365
)Deferred gain on FDIC assisted transactions


(54,607
)

(63,038
)Loan basis differences


(57,516
)

(102,083
)FDIC loss share receivable


(150,787
)

(234,217
)Unrealized gains on securities available for sale


(1,504
)

(214
)Other





(784
)(270,279
)

(400,752
)Net Deferred Tax Liability

$
(19,867
)
$
(2,392
)


At
December 31, 2010, the Company had Federal and State tax net operating loss carry-forwards of approximately $1.2 million and $1.5 million, respectively, available
to offset future taxable income. These loss carry-forwards can be deducted against taxable income during the carry-forward period. These loss carry-forwards expire at the beginning of 2027.

The
Company adopted the accounting standard relating to accounting for uncertainty in income taxes during 2009. The Company has not taken any uncertain tax positions.

F-43

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(15) Stock Warrants

On October 14, 2010, some of the members of the Company's senior management and one of its directors purchased individual warrants that gave them the right to purchase an
additional 59,927 shares of the Company's common stock at $11.21 per share. The Company utilized the Black-Scholes valuation model to determine the fair value of the warrants, which at the date of
issuance was $139,031 based on a $2.32 warrant value and $10.00 strike price. The assumptions used when calculating the value per the Black-Scholes model included a
risk-free rate of 1.98%,
volatility of 13.50% and dividend yield of 2.50%. The warrants were fully exercisable as of the grant date.

In
connection with the Bank's recapitalization on July 24, 2009, certain of the Company's executive officers, a member of the Bank's senior management and one of the Company's
directors purchased 700,000 shares of common stock and 2,102,605 warrants to purchase one share of the Company's common stock at a strike price of $10.00. In addition, certain non-employee
"legacy" directors purchased 100,000 shares of common stock and 100,000 warrants to purchase one share of stock at a $5.00 strike price.

Also
during the successor period ended December 31, 2009, certain members of senior management purchased individual warrants at fair value which resulted in the issuance of
458,029 warrants with a strike price of $10.00. The Company utilized the Black-Scholes valuation model to determine the fair value of the warrants, which at the date of issuance was $494,671
based on a $1.08 warrant value. The assumptions used when calculating the value per the Black-Scholes model included a risk-free rate of 1.98%, volatility of 13.50% and dividend
yield of 2.50%. The warrants were fully exercisable as of the grant date.

The
warrants issued to our executive officers, directors and senior management are subject to repurchase agreements should they leave their employment or their role as director, as
applicable, or in some cases should other executive officers leave their respective roles. The repurchase is at the Company's option at $2.00 per warrant (or $2.32 for warrants purchased on
October 14, 2010), or $12.00 per share for exercised warrants, for the first three years from issue. The repurchase applies to all warrants from the first twelve months of grant,
two-thirds for the next twelve months and one-third for the third twelve months. After three years, the holders' warrants are not subject to repurchase. If the warrant holder
employee has exercised the warrant for shares within the repurchase period, the common stock issued will be subject to the repurchase agreement until the agreement expires. If there is a change in
control during the repurchase period, the repurchase option expires. As of December 31, 2010, the Company has issued 2,720,561 warrants as of the effective date, of which 5,000 have been
repurchased.

(16) Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreements, which are secured borrowings, generally mature within one day from the transaction date. Securities sold under repurchase agreements are
reflected at the amount of cash received in connection with the transaction. The Company is required to provide additional collateral based on the fair value of the underlying securities. The Company
monitors the fair value of the underlying securities on a daily basis. Securities sold under repurchase agreements were $5.2 million and $9.6 million as of December 31, 2010 and
2009, respectively.

F-44

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(17) Commitments and Contingent Liabilities

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

Commitments
to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed maturity dates or other termination clause with required fee payment.
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
obtained, 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 it does for on-balance-sheet instruments. A summary of the Company's commitments is as follows(in thousands):

December 31,2010

2009Commitments to extend credit

$
206,716

$
109,455Financial standby letters of credit


2,204


5,923Total

$
208,920

$
115,378


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.

(18) Fair Value

Fair value measurements are determined based on the assumptions that market participants would use in pricing the 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
Disclosuresestablishes 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).

F-45

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(18) Fair Value (Continued)

Fair Value Hierarchy



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.



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.



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

The
following methods and assumptions were used by the Company in estimating the fair value of its financial instruments and other accounts recorded based on their fair value:



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



The fair value of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges
(Level 1). If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow
models whose inputs are derived from observable market data (Level 2). In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within
Level 3 hierarchy.



FHLB stock is carried at its original cost basis, as cost approximates fair value and there is no ready market for such investments.



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 maturity 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.

F-46

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(18) Fair Value (Continued)

Fair
value for significant non-performing loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate
commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information
and specific borrower information.



The carrying amounts of accrued interest approximate fair value.



The Company's FDIC receivable for loss sharing agreements approximates fair value.



The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW accounts, and money
market and checking accounts, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining maturities.



The fair value of the Company's Federal Home Loan Bank advances is estimated based on the discounted value of contractual cash flows.
The fair value of securities sold under agreements to repurchase approximates the carrying amount because of the short maturity of these borrowings. The discount rate is estimated using rates quoted
for the same or similar issues or the current rates offered to the Company for debt of the same remaining maturities.



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



The fair value of other real estate owned ("OREO") is determined when the asset is transferred to foreclosed assets. The assets are
carried at the lower of the carrying value or fair value. Fair value is based on appraised values of the collateral or management's estimation of the value of the collateral. When the value is based
on observable market prices such as an appraisal, the asset is recorded in Level 2 hierarchy. When an appraised value is not available or management determines the fair value of the collateral
is further impaired, the asset is recorded as a nonrecurring Level 3 hierarchy.

Loans
considered impaired are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect write-downs that are based on the market price or current appraised value of the
collateral, adjusted to reflect local market conditions or other economic factors. After evaluating the underlying collateral, the

F-47

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(18) Fair Value (Continued)

fair
value of the impaired loans is determined by allocating specific reserves from the allowance for loan and lease losses to the loans. Thus, the fair value reflects the loan balance less the
specifically allocated reserve. Impaired loans for which no reserve has been specifically allocated are not included in the table on the next page.

Other
real estate owned is initially accounted for at fair value, less estimated costs to dispose of the property. Any excess of the recorded investment over fair value, less costs to
dispose, is charged to the allowance for loan and lease losses at the time of foreclosure. A provision is charged to earnings for subsequent losses on other real estate owned when market conditions
indicate such losses have occurred. The ability of the Company to recover the carrying value of other real estate owned is based upon future sales of the real estate. The ability to affect such sales
is subject to market conditions and other factors beyond our control, and future declines in the value of the real estate would result in a charge to earnings. The recognition of sales and sales gains
is dependent upon whether the nature and terms of the sales, including possible future involvement of the Company, if any, meet certain defined requirements. If those requirements are not met, sale
and gain recognition is deferred.

Assets and Liabilities Measured on a Recurring Basis:

(Level 1)

(Level 2)

(Level 3)(In thousands)December 31, 2010Assets:U.S. Government securities

$


$
163,681

$
State and political subdivisions





9,555


Residential mortgage-backed securitiesagency





41,673


Residential mortgage-backed securitiesprivate





61,025


Collateralized-mortgage obligations





127,955


Corporate securities

$


$
1,692

$
Total recurring assets at fair value

$


$
405,581

$



Assets and Liabilities Measured on a Nonrecurring Basis:

(Level 1)

(Level 2)

(Level 3)(In thousands)December 31, 2010Assets:Impaired LoansCovered by loss sharing agreement

$


$


$
Not covered by loss sharing agreement








3,838Total Impaired Loans








3,838Other Real EstateCovered by loss sharing agreement








155,981Not covered by loss sharing agreement








75Total Other Real Estate

$


$


$
156,056


F-48

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(18) Fair Value (Continued)

Assets and Liabilities Measured on a Recurring Basis:

(Level 1)

(Level 2)

(Level 3)(In thousands)December 31, 2009Assets:U.S. Government agencies

$


$
84,716

$
State and political subdivisions





3,212


Collateralized-mortgage obligations





173,280


Residential mortgage-backed securitiesagency





56,262


Corporate securities

$


$
518

$
Total recurring assets at fair value

$


$
317,988

$



Assets and Liabilities Measured on a Nonrecurring Basis:

(Level 1)

(Level 2)

(Level 3)(In thousands)December 31, 2009Assets:Impaired LoansCovered by loss sharing agreement

$


$


$
Not covered by loss sharing agreement








1,900Total Impaired Loans








1,900Other Real EstateCovered by loss sharing agreement








141,690Not covered by loss sharing agreement








120Total Other Real Estate

$


$


$
141,810


F-49

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(18) Fair Value (Continued)

The fair carrying amount and estimated fair value of the Company's financial instruments, not shown elsewhere in these financial statements, were as follows (in
thousands):

December 31, 2010

December 31, 2009Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair ValueAssets:Cash and due from banks

$
386,489

$
386,489

$
200,166

$
200,166Investment securities available for sale


405,581


405,581


317,988


317,988Federal Home Loan Bank of Atlanta stock


14,593


14,593


12,559


12,559Loans, net


1,272,465


1,275,579


1,179,364


1,193,024FDIC receivable for loss sharing agreements


494,428


494,428


605,502


605,502Accrued interest receivable


8,594


8,594


12,498


12,498Liabilities:Deposits


2,421,926


2,429,608


2,153,791


2,117,177Short-term borrowings


5,246


5,246


9,606


9,606Accrued interest payable


4,850


4,850


10,266


10,266


(19) Regulatory Matters

At December 31, 2010 and 2009, the Company had required reserve balances at the Federal Reserve Bank of $20.8 million and $2.9 million, respectively.

The
Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.

Qualitative
measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier I capital, as
defined by the regulations, to risk-weighted assets, as defined, and of Tier I capital to average assets, as defined. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on the financial statements.

At
December 31, 2010 and 2009, the Company and the Bank were categorized as well capitalized under the regulatory framework for prompt corrective action. To be
well-capitalized, the Company and the Bank must maintain total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table
below. There are no conditions or events that have occurred subsequent to year-end that would

F-50

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(19) Regulatory Matters (Continued)

change
the Company and the Bank's classification from well-capitalized. The Company's and the Bank's actual ratios as of December 31, 2010 and 2009 are as follows:

Actual

For Capital
Adequacy Purposes

To Be Well
Capitalized Under
Prompt Corrective
Action ProvisionsAmount

Ratio

Amount

Ratio

Amount

Ratio(In Thousands)As of December 31, 2010Total Capital to Risk-Weighted AssetsConsolidated

$
353,902


44.23
%
$
64,016


8.00
%




N/AState Bank and Trust Company

$
352,462


44.05
%
$
64,016


8.00
%
$
80,020


10.00
%Tier I Capital to Risk-Weighted AssetsConsolidated

$
348,552


43.56
%
$
32,008


4.00
%




N/AState Bank and Trust Company

$
347,111


43.38
%
$
32,008


4.00
%
$
48,012


6.00
%Tier I Capital to Average AssetsConsolidated

$
348,552


12.77
%
$
109,215


4.00
%




N/AState Bank and Trust Company

$
347,111


12.71
%
$
109,215


4.00
%
$
136,519


5.00
%As of December 31, 2009Total Capital to Risk-Weighted Assets

$
305,393


30.85
%
$
79,182


8.00
%
$
98,978


10.00
%Tier I Capital to Risk-Weighted Assets

$
302,869


30.60
%
$
39,591


4.00
%
$
59,387


6.00
%Tier I Capital to Average Assets

$
302,869


14.57
%
$
83,169


4.00
%
$
103,962


5.00
%


As
a condition to the FDIC's approval of the Interagency Change in Control Application filed in connection with the July 2009 recapitalization and acquisition of the six bank
subsidiaries of Security Bank Corporation, the Bank was required to execute a Capital Maintenance Agreement with the FDIC. Under the terms of that agreement, the Bank must at all times maintain a
leverage ratio of at least 10% and a total risk-based capital ratio of at least 12%. The agreement terminates on July 23, 2012. At December 31, 2010 and 2009, the Bank
was in compliance with the Capital Maintenance Agreement.

(20) Condensed Financial Information of State Bank Financial Corporation (Parent Company Only)

On July 23, 2010, the Company became the bank holding company of the Bank under a plan of reorganization and share exchange that was approved by the boards of directors of the
Company and the Bank and adopted by the shareholders of the Bank at its annual meeting held on March 11, 2010.

F-51

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(20) Condensed Financial Information of State Bank Financial Corporation (Parent Company Only) (Continued)

Based
on the information provided above, only one year of financial information is presented for the parent company.

Condensed Balance Sheet
December 31, 2010
(Dollars in thousands)

2010AssetsCash and due from banks

$
1,327Investment in subsidiary


357,902Other assets


114Total assets


359,343LiabilitiesOther borrowings


Other liabilities


Total liabilities


Shareholders' Equity


359,343Total liabilities and shareholders' equity

$
359,343


Condensed Statement of Income
December 31, 2010
(Dollars in thousands)

2010Interest income

$
Interest expense


1Net interest income


(1
)Dividends from subsidiary


718Other income


Other operating expense


302Income before income tax benefit and equity in undistributed net income of subsidiary


415Income tax benefit


(113
)Income before equity in undistributed net income of subsidiary


528Equity in undistributed net income of subsidiary


45,018Net income

$
45,546


F-52

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Table of Contents

STATE BANK FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

(20) Condensed Financial Information of State Bank Financial Corporation (Parent Company Only) (Continued)

Condensed Statement of Cash Flow
December 31, 2010
(dollars in thousands)

2010Cash Flows from Operating ActivitiesNet income

$
45,546(Increase) decrease in other assets


(114
)Undistributed earnings of subsidiary


(45,018
)Net cash provided by operating activities


414Cash Flows from Financing ActivitiesIssuance of common stock subsequent to reorganization


923Repurchase of stock warrants


(10
)Net cash provided by financing activities


913Net increase in cash and cash equivalents


1,327Cash and cash equivalents, beginning


Cash and cash equivalents, ending

$
1,327


F-53

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Table of Contents

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Based on our management's evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, as of
December 31, 2010, 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 Rule 13a-15(e) under 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.

Internal Control over Financial Reporting

This report does not include a report of management's assessment regarding internal control over financial reporting or an attestation
report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

Item 9B.    Other Information.

None.

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Table of Contents

PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

Information required by Item 10 is hereby incorporated by reference from our proxy statement to be filed with the SEC not later
than 120 days after the end of the fiscal year covered by this report.

Item 11.    Executive Compensation.

Information required by Item 11 is hereby incorporated by reference from our proxy statement to be filed with the SEC not later
than 120 days after the end of the fiscal year covered by this report.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information required by Item 12 is hereby incorporated by reference from our proxy statement to be filed with the SEC not later
than 120 days after the end of the fiscal year covered by this report.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

Information required by Item 13 is hereby incorporated by reference from our proxy statement to be filed with the SEC not later
than 120 days after the end of the fiscal year covered by this report.

Item 14.    Principal Accounting Fees and Services.

Information required by Item 14 is hereby incorporated by reference from our proxy statement to be filed with the SEC not later
than 120 days after the end of the fiscal year covered by this report.

Item 15.    Exhibits, Financial Statement Schedules.

A list of financial statements filed herewith is contained in Part II, Item 8, "Financial Statements and Supplementary
Data," above of this report and is incorporated by reference herein. The financial statement schedules have been omitted because they are not required, not applicable or the information has been
included in our consolidated financial statements.

Exhibit
No.

Document2.1

Purchase and Assumption Agreement dated as of July 24, 2009 among the Federal Deposit Insurance Corporation, Receiver of Security Bank of Bibb County, Macon Georgia; Security Bank of Gwinnett County, Suwannee,
Georgia; Security Bank of Houston County, Perry, Georgia; Security Bank of Jones County, Gray, Georgia; Security Bank of North Fulton, Alpharetta, Georgia; Security Bank of North Metro, Woodstock, Georgia, State Bank and Trust Company and the Federal
Deposit Insurance Corporation acting in its corporate capacity (incorporated by reference to Exhibit 2.1 of Amendment No. 5 to our registration statement on Form 10 filed on March 4, 2011)2.2

Purchase and Assumption Agreement dated as of December 4, 2009 among the Federal Deposit Insurance Corporation, Receiver of The Buckhead Community Bank, Atlanta, Georgia, State Bank and Trust Company and the
Federal Deposit Insurance Corporation acting in its corporate capacity (incorporated by reference to Exhibit 2.2 of Amendment No. 5 to our registration statement on Form 10 filed on March 4, 2011)


84

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Table of Contents

Exhibit
No.

Document2.3

Purchase and Assumption Agreement dated as of December 4, 2009 among the Federal Deposit Insurance Corporation, Receiver of First Security National Bank, Norcross, Georgia, State Bank and Trust Company and the
Federal Deposit Insurance Corporation acting in its corporate capacity (incorporated by reference to Exhibit 2.3 of Amendment No. 5 to our registration statement on Form 10 filed on March 4, 2011)2.4

Plan of Reorganization and Share Exchange dated January 27, 2010 (incorporated by reference to Exhibit 2.4 of our registration statement on Form 10 filed on October 29, 2010)2.5

Purchase and Assumption Agreement dated as of July 30, 2010 among the Federal Deposit Insurance Corporation, Receiver of NorthWest Bank and Trust, Acworth, Georgia, State Bank and Trust Company and the Federal
Deposit Insurance Corporation acting in its corporate capacity (incorporated by reference to Exhibit 2.5 of Amendment No. 5 to our registration statement on Form 10 filed on March 4, 2011)2.6

Purchase and Assumption Agreement dated as of December 17, 2010 among the Federal Deposit Insurance Corporation, Receiver of United Americas Bank, N.A., Atlanta, Georgia, State Bank and Trust Company and the
Federal Deposit Insurance Corporation acting in its corporate capacity (incorporated by reference to Exhibit 2.6 of Amendment No. 5 to our registration statement on Form 10 filed on March 4, 2011)3.1

Amended and Restated Articles of Incorporation of State Bank Financial Corporation (incorporated by reference to Exhibit 3.1 of our registration statement on Form 10 filed on October 29, 2010)3.2

Bylaws of State Bank Financial Corporation (incorporated by reference to Exhibit 3.2 of our registration statement on Form 10 filed on October 29, 2010)4.1

See Exhibits 3.1 and 3.2 for provisions in State Bank Financial Corporation's Articles of Incorporation and Bylaws defining the rights of holders of common stock (incorporated by reference to Exhibits 3.1
and 3.2 of our registration statement on Form 10 filed on October 29, 2010)4.2

Form of certificate of common stock (incorporated by reference to Exhibit 4.2 of our registration statement on Form 10 filed on October 29, 2010)10.1
*
Employment Agreement dated July 24, 2009 by and among of Joseph W. Evans and State Bank and Trust Company (incorporated by reference to Exhibit 10.1 of our registration statement on Form 10 filed on
October 29, 2010)10.2
*
Employment Agreement dated July 24, 2009 by and among of Kim M. Childers and State Bank and Trust Company (incorporated by reference to Exhibit 10.2 of our registration statement on Form 10 filed on
October 29, 2010)10.3
*
Employment Agreement dated July 24, 2009 by and among of J. Daniel Speight and State Bank and Trust Company (incorporated by reference to Exhibit 10.3 of our registration statement on Form 10 filed on
October 29, 2010)10.4
*
Employment Agreement dated July 19, 2010 by and among of Stephen W. Doughty and State Bank and Trust Company (incorporated by reference to Exhibit 10.4 of our registration statement on Form 10 filed on
October 29, 2010)10.5
*
First Amendment to Employment Agreement dated May 11, 2010 by and among Joseph W. Evans and State Bank and Trust Company (incorporated by reference to Exhibit 10.5 of our registration statement on
Form 10 filed on October 29, 2010)


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Exhibit
No.

Document10.6
*
First Amendment to Employment Agreement dated May 11, 2010 by and among Kim M. Childers and State Bank and Trust Company (incorporated by reference to Exhibit 10.6 of our registration statement on Form 10
filed on October 29, 2010)10.7
*
First Amendment to Employment Agreement dated May 11, 2010 by and among J. Daniel Speight and State Bank and Trust Company (incorporated by reference to Exhibit 10.7 of our registration statement on
Form 10 filed on October 29, 2010)10.8

Stock Purchase Agreement dated July 14, 2009 (incorporated by reference to Exhibit 10.8 of our registration statement on Form 10 filed on October 29, 2010)10.9

Form of Warrant Agreement (Pursuant to Instruction 2 of Item 601, one form of Warrant Agreement has been filed which has been executed by each of the following executive officers and the following director:
Kim M. Childers, Stephen W. Doughty, Joseph W. Evans, J. Daniel Speight and John Thomas Wiley, Jr.) (incorporated by reference to Exhibit 10.9 of our registration statement on Form 10 filed on October 29, 2010)10.10

Form of Purchase Agreement (Pursuant to Instruction 2 of Item 601, one form of Purchase Agreement has been filed which has been executed by Kim M. Childers, Joseph W. Evans and J. Daniel Speight)
(incorporated by reference to Exhibit 10.10 of our registration statement on Form 10 filed on October 29, 2010)10.11

Form of Purchase Agreement (Pursuant to Instruction 2 of Item 601, one form of Purchase Agreement has been filed which has been executed by Stephen W. Doughty and John Thomas Wiley, Jr.) (incorporated by
reference to Exhibit 10.11 of our registration statement on Form 10 filed on October 29, 2010)10.12
*
Second Amendment to Employment Agreement dated November 5, 2010 by and among Joseph W. Evans and State Bank and Trust Company (incorporated by reference to Exhibit 10.12 of Amendment No. 4 to our
registration statement on Form 10 filed on December 14, 2010)10.13
*
Second Amendment to Employment Agreement dated November 5, 2010 by and among Kim M. Childers and State Bank and Trust Company(incorporated by reference to Exhibit 10.13 of Amendment No. 4 to our
registration statement on Form 10 filed on December 14, 2010)10.14
*
Second Amendment to Employment Agreement dated November 5, 2010 by and among J. Daniel Speight and State Bank and Trust Company (incorporated by reference to Exhibit 10.14 of Amendment No. 4 to our
registration statement on Form 10 filed on December 14, 2010)10.15
*
First Amendment to Employment Agreement dated November 5, 2010 by and among Stephen W. Doughty and State Bank and Trust Company (incorporated by reference to Exhibit 10.15 of Amendment No. 4 to our
registration statement on Form 10 filed on December 14, 2010)10.16
*
Third Amendment to Employment Agreement dated December 2, 2010 by and among Joseph W. Evans and State Bank and Trust Company (incorporated by reference to Exhibit 10.16 of Amendment No. 4 to our
registration statement on Form 10 filed on December 14, 2010)10.17
*
Third Amendment to Employment Agreement dated December 2, 2010 by and among Kim M. Childers and State Bank and Trust Company (incorporated by reference to Exhibit 10.17 of Amendment No. 4 to our
registration statement on Form 10 filed on December 14, 2010)


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Exhibit
No.

Document10.18
*
Third Amendment to Employment Agreement dated December 2, 2010 by and among J. Daniel Speight and State Bank and Trust Company (incorporated by reference to Exhibit 10.18 of Amendment No. 4 to our
registration statement on Form 10 filed on December 14, 2010)10.19
*
Second Amendment to Employment Agreement dated December 2, 2010 by and among Stephen W. Doughty and State Bank and Trust Company (incorporated by reference to Exhibit 10.19 of Amendment No. 4 to our
registration statement on Form 10 filed on December 14, 2010)10.20
*
Fourth Amendment to Employment Agreement dated March 8, 2011 by and among J. Daniel Speight and State Bank and Trust Company16.1

Letter from Nichols, Cauley & Associates, LLC dated November 1, 2010 (incorporated by reference to Exhibit 16.1 of Amendment No. 1 to our registration statement on Form 10 filed on
November 5, 2010)21.1

Subsidiaries of State Bank Financial Corporation24.1

Power of Attorney31.1

Rule 13a-14(a) Certification of the Chief Executive Officer31.2

Rule 13a-14(a) Certification of the Chief Financial Officer32.1

Section 1350 Certifications


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 CORPORATIONDate: March 31, 2011

By:

/s/ JOSEPH W. EVANS Joseph W. Evans Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Signature

Title

Date/s/ JAMES R. BALKCOM JR. James R. Balkcom, Jr.

Director

March 31, 2011/s/ ARCHIE L. BRANSFORD, JR. Archie L. Bransford, Jr.

Director

March 31, 2011/s/ KIM M. CHILDERS Kim M. Childers

Chief Credit Officer, President and Director

March 31, 2011/s/ JOSEPH W. EVANS Joseph W. Evans

Chairman, Chief Executive Officer and Director

March 31, 2011/s/ VIRGINIA A. HEPNER Virginia A. Hepner

Director

March 31, 2011/s/ JOHN S. POELKER John S. Poelker

Chief Financial Officer

March 31, 2011/s/ J. DANIEL SPEIGHT J. Daniel Speight

Chief Operating Officer, Vice Chairman and Director

March 31, 2011/s/ J. THOMAS WILEY, JR. J. Thomas Wiley, Jr.

Director

March 31, 2011


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Exhibit List

10.20
*
Fourth Amendment to Employment Agreement dated March 8, 2011 by and among J. Daniel Speight and State Bank and Trust Company21.1

Subsidiaries of the Company24.1

Power of Attorney31.1

Rule 13a-14(a) Certification of the Chief Executive Officer31.2

Rule 13a-14(a) Certification of the Chief Financial Officer32.1

Section 1350 Certifications


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