Edgar Filing: FIRST FINANCIAL HOLDINGS, INC.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2013

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

For the transition period from to

Commission file number 001-12669

FIRST FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

South Carolina		57-0799315
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

520 Gervais Street
Columbia, South Carolina		29201
(Address of principal executive offices)		(Zip Code)

(800) 277-2175

(Registrant’s telephone number, including area code)

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

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

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

Large Accelerated Filer o		Accelerated Filer x

Non-Accelerated Filer o		Smaller Reporting Company o

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

Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date:

Class		Outstanding as of July 31, 2013
Common Stock, $2.50 par value		24,057,792

Table of Contents

First Financial Holdings, Inc. and Subsidiary

June 30, 2013 Form 10-Q

INDEX

			Page

PART I — FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets at June 30, 2013, December 31, 2012 and June 30, 2012	1

		Condensed Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2013 and 2012	2

		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Six Months Ended June 30, 2013 and 2012	3

		Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2013 and 2012	4

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	5

		Notes to Condensed Consolidated Financial Statements	6-46

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47-67

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67

	Item 4.	Controls and Procedures	67

PART II — OTHER INFORMATION

	Item 1.	Legal Proceedings	68

	Item 1A.	Risk Factors	69

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

	Item 3.	Defaults Upon Senior Securities	70

	Item 4.	Mine Safety Disclosures	70

	Item 5.	Other Information	70

	Item 6.	Exhibits	70

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PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

First Financial Holdings, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)

	June 30,			December 31,			June 30,
	2013			2012			2012
	(Unaudited)			(Note 1)			(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	157,362		$	185,708		$	140,855
Interest-bearing deposits with banks	4,478			16,018			2,294
Federal funds sold and securities purchased under agreements to resell	274,641			179,004			166,770
Total cash and cash equivalents	436,481			380,730			309,919
Investment securities:
Securities held to maturity (fair value of $13,047, $16,553, and $17,743, respectively)	12,427			15,440			16,567
Securities available for sale, at fair value	511,347			534,883			478,472
Other investments	7,805			9,768			16,099
Total investment securities	531,579			560,091			511,138
Loans held for sale	47,980			65,279			42,525
Loans:
Acquired (covered of $239,082, $282,728, and $332,874, respectively; non-covered of $682,758, $792,014, and $227,184, respectively)	921,840			1,074,742			560,058
Less allowance for acquired loan losses	(31,597		)	(32,132		)	(35,813		)
Non-acquired	2,665,595			2,571,003			2,481,251
Less allowance for non-acquired loan losses	(38,625		)	(44,378		)	(47,269		)
Loans, net	3,517,213			3,569,235			2,958,227
Premises and equipment, net	109,794			115,587			106,458
FDIC receivable for loss share agreements	104,048			146,171			200,569
Goodwill	100,193			100,193			66,542
Other real estate owned (covered of $35,142, $34,257, and $53,146, respectively; non-covered of $33,486, $32,803, and $31,263, respectively)	68,628			67,060			84,409
Bank owned life insurance	43,286			42,737			35,543
Core deposit and other intangibles	23,159			25,199			13,429
Other assets	60,717			64,131			44,510
Total assets	$	5,043,078		$	5,136,413		$	4,373,269

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	1,046,537		$	981,963		$	806,235
Interest-bearing	3,136,432			3,316,397			2,854,737
Total deposits	4,182,969			4,298,360			3,660,972
Federal funds purchased and securities sold under agreements to repurchase	262,447			238,621			220,264
Other borrowings	54,372			54,897			46,105
Other liabilities	26,698			36,986			21,022
Total liabilities	4,526,486			4,628,864			3,948,363
Shareholders’ equity:
Preferred stock - $.01 par value; authorized 10,000,000 shares; no shares issued and outstanding	—			—			—
Common stock - $2.50 par value; authorized 40,000,000 shares; 17,032,061, 16,937,464, and 15,085,991 shares issued and outstanding	42,580			42,344			37,715
Surplus	330,563			328,843			262,647
Retained earnings	153,040			135,986			126,304
Accumulated other comprehensive income (loss)	(9,591		)	376			(1,760		)
Total shareholders’ equity	516,592			507,549			424,906
Total liabilities and shareholders’ equity	$	5,043,078		$	5,136,413		$	4,373,269

The Accompanying Notes are an Integral Part of the Financial Statements.

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First Financial Holdings, Inc. and Subsidiary

Condensed Consolidated Statements of Income (unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Interest income:
Loans, including fees	$	53,816		$	42,120		$	106,199		$	81,898
Investment securities:
Taxable	2,096			2,870			4,257			4,906
Tax-exempt	1,174			201			2,381			395
Federal funds sold and securities purchased under agreements to resell	444			279			862			491
Total interest income	57,530			45,470			113,699			87,690
Interest expense:
Deposits	1,463			2,272			3,023			4,766
Federal funds purchased and securities sold under agreements to repurchase	115			110			251			236
Other borrowings	668			554			1,340			1,116
Total interest expense	2,246			2,936			4,614			6,118
Net interest income	55,284			42,534			109,085			81,572
Provision for loan losses	179			4,642			1,239			7,365
Net interest income after provision for loan losses	55,105			37,892			107,846			74,207
Noninterest income:
Service charges on deposit accounts	5,736			5,886			11,497			11,333
Bankcard services income	4,245			3,618			8,138			6,938
Mortgage banking income	1,957			3,052			5,352			4,882
Trust and investment services income	2,438			1,642			4,752			3,039
Securities gains	—			61			—			61
Amortization of FDIC indemnification assets, net	(7,310		)	(4,370		)	(14,481		)	(7,603		)
Other	1,419			1,855			2,750			2,567
Total noninterest income	8,485			11,744			18,008			21,217
Noninterest expense:
Salaries and employee benefits	23,746			18,262			46,998			36,310
Information services expense	2,992			2,902			6,184			5,370
OREO expense and loan related	2,820			2,115			5,922			4,831
Net occupancy expense	2,851			2,478			5,783			4,726
Furniture and equipment expense	2,266			2,371			4,783			4,610
Merger and conversion related expense	860			1,998			2,823			2,094
Bankcard expense	1,236			1,118			2,400			2,020
FDIC assessment and other regulatory charges	1,096			1,073			2,320			2,110
Amortization of intangibles	1,022			540			2,056			1,040
Advertising and marketing	648			553			1,490			1,310
Professional fees	760			732			1,451			1,365
Other	4,588			3,366			9,116			6,941
Total noninterest expense	44,885			37,508			91,326			72,727
Earnings:
Income before provision for income taxes	18,705			12,128			34,528			22,697
Provision for income taxes	6,173			4,097			11,347			7,638
Net income	$	12,532		$	8,031		$	23,181		$	15,059
Earnings per common share:
Basic	$	0.75		$	0.55		$	1.38		$	1.06
Diluted	$	0.74		$	0.55		$	1.36		$	1.05
Dividends per common share	$	0.18		$	0.17		$	0.36		$	0.34
Weighted-average common shares outstanding:
Basic	16,790			14,651			16,804			14,260
Diluted	16,990			14,733			16,986			14,334

The Accompanying Notes are an Integral Part of the Financial Statements.

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First Financial Holdings, Inc. and Subsidiary

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)

(Dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012

Net income	$	12,532		$	8,031		$	23,181		$	15,059
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period	(13,360		)	2,109			(16,563		)	1,783
Tax effect	5,094			(804		)	6,315			(680		)
Reclassification adjustment for gains included in net income	—			(61		)	—			(61		)
Tax effect	—			23			—			23
Net of tax amount	(8,266		)	1,267			(10,248		)	1,065
Unrealized gains (losses) on derivative financial instruments qualifying as cash flow hedges:
Unrealized holding gains (losses) arising during period	276			(306		)	301			(267		)
Tax effect	(105		)	117			(115		)	99
Reclassification adjustment for losses included in interest expense	76			73			153			144
Tax effect	(29		)	(28		)	(58		)	(52		)
Net of tax amount	218			(144		)	281			(76		)
Other comprehensive income (loss), net of tax	(8,048		)	1,123			(9,967		)	989
Comprehensive income	$	4,484		$	9,154		$	13,214		$	16,048

The Accompanying Notes are an Integral Part of the Financial Statements.

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First Financial Holdings, Inc. and Subsidiary

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

Six months ended June 30, 2013 and 2012

(Dollars in thousands, except per share data)

															Accumulated Other
	Preferred Stock			Common Stock								Retained			Comprehensive
	Shares	Amount		Shares		Amount			Surplus			Earnings			Income (Loss)			Total

Balance, December 31, 2011	—	$	—	14,039,422		$	35,099		$	233,232		$	116,198		$	(2,749	)	$	381,780
Comprehensive income (loss):
Net income	—	—		—		—			—			15,059			—			15,059
Other comprehensive loss, net of tax	—	—		—		—			—			—			989			989
Total comprehensive income																		16,048
Cash dividends declared at $.34 per share	—	—		—		—			—			(4,953		)	—			(4,953		)
Employee stock purchases	—	—		6,216		16			160			—			—			176
Stock options exercised	—	—		6,661		16			145			—			—			161
Restricted stock awards	—	—		41,374		103			(103		)	—			—			—
Common stock repurchased	—	—		(10,423	)	(26		)	(302		)	—			—			(328		)
Share-based compensation expense	—	—		—		—			877			—			—			877
Common stock issued in Peoples Bancorporation acquisition	—	—		1,002,741		2,507			28,638			—			—			31,145
Balance, June 30, 2012	—	$	—	15,085,991		$	37,715		$	262,647		$	126,304		$	(1,760	)	$	424,906

Balance, December 31, 2012	—	$	—	16,937,464		$	42,344		$	328,843		$	135,986		$	376		$	507,549
Comprehensive income (loss):
Net income	—	—		—		—			—			23,181			—			23,181
Other comprehensive loss, net of tax	—	—		—		—			—			—			(9,967		)	(9,967		)
Total comprehensive income																		13,214
Cash dividends declared at $.36 per share	—	—		—		—			—			(6,127		)	—			(6,127		)
Employee stock purchases	—	—		4,932		12			183			—			—			195
Stock options exercised	—	—		20,746		51			534			—			—			585
Restricted stock awards	—	—		76,254		191			(191		)	—			—			—
Common stock repurchased	—	—		(7,335	)	(18		)	(347		)	—			—			(365		)
Share-based compensation expense	—	—		—		—			1,541			—			—			1,541
Balance, June 30, 2013	—	$	—	17,032,061		$	42,580		$	330,563		$	153,040		$	(9,591	)	$	516,592

The Accompanying Notes are an Integral Part of the Financial Statements.

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First Financial Holdings, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)

	Six Months Ended
	June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	23,181		$	15,059
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,946			5,895
Provision for loan losses	1,239			7,365
Deferred income taxes	2,729			(21,282		)
Gain on sale of securities	—			(61		)
Gains on OREO sales	(4,976		)	(5,359		)
Share-based compensation expense	1,541			877
Loss on disposal of premises and equipment	15			2
Amortization of FDIC indemnification asset	14,481			7,603
Accretion on acquired loans	(47,862		)	(20,979		)
Net amortization of investment securities	2,283			1,564
OREO write downs	3,522			9,038
Net change in:
Loans held for sale	17,299			3,284
Accrued interest receivable	(1,612		)	2,776
Prepaid assets	1,937			293
FDIC loss share receivable	27,642			54,479
Accrued interest payable	(795		)	(1,021		)
Accrued income taxes	6,901			10,568
Miscellaneous assets and liabilities	(9,179		)	(41,663		)
Net cash provided by operating activities	45,292			28,438
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale	—			25,359
Proceeds from maturities and calls of investment securities held to maturity	3,014			—
Proceeds from maturities and calls of investment securities available for sale	89,297			48,475
Proceeds from sales of other investment securities	1,963			4,326
Purchases of investment securities available for sale	(84,585		)	(89,133		)
Net decrease in customer loans	76,229			81,413
Net cash received from acquisitions	—			10,923
Purchases of premises and equipment	(4,943		)	(5,278		)
Proceeds from sale of premises and equipment	—			15
Proceeds from sale of OREO	27,393			37,761
Net cash provided by investing activities	108,368			113,861
Cash flows from financing activities:
Net decrease in deposits	(115,391		)	(28,571		)
Net increase in federal funds purchased and securities sold under agreements to repurchase	23,826			30,286
Repayment of other borrowings	(631		)	(577		)
Common stock issuance	195			175
Common stock repurchased	(366		)	(328		)
Dividends paid on common stock	(6,127		)	(4,953		)
Stock options exercised	585			161
Net cash used in financing activities	(97,909		)	(3,807		)
Net increase in cash and cash equivalents	55,751			138,492
Cash and cash equivalents at beginning of period	380,730			171,425
Cash and cash equivalents at end of period	$	436,481		$	309,917

Supplemental Disclosures:
Cash paid for:
Interest	$	5,268		$	6,029
Income taxes	$	5,036		$	18,206

Noncash investing activities:
Transfers of loans to foreclosed properties (covered of $12,893 and $15,075, respectively; and non-covered of $15,170 and $18,950, respectively)	$	28,063		$	34,025

The Accompanying Notes are an Integral Part of the Financial Statements.

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First Financial Holdings, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period information has been reclassified to conform to the current period presentation, and these reclassifications had no impact on net income or equity as previously reported. Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

The condensed consolidated balance sheet at December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements.

Note 2 — Summary of Significant Accounting Policies

The information contained in the consolidated financial statements and accompanying notes included in First Financial Holdings, Inc.’s (“SCBT” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2013, should be referenced when reading these unaudited condensed consolidated financial statements.

On July 26, 2013, SCBT acquired First Financial Holdings, Inc., and changed its name from “SCBT Financial Corporation” to “First Financial Holdings, Inc.” Unless otherwise mentioned or unless the context requires otherwise, references herein to “SCBT,” the “Company” “we,” “us,” “our” or similar references mean First Financial Holdings, Inc. and its consolidated subsidiaries.

Subsequent Events

The Company has evaluated subsequent events for accounting and disclosure purposes through the date the financial statements are issued.

Note 3 — Recent Accounting and Regulatory Pronouncements

In July 2013, the FASB issued Accounting Standards Update No. 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes (“ASU 2013-10”). The amendments in this update permit the Fed Funds Effective Swap Rate (OIS) to be used as a benchmark interest rate for hedge accounting in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. ASU 2013-10 is effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013 and did not have a significant impact on the Company’s financial statements.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). The ASU amends Topic 220 to require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. ASU 2013-02 became effective for the Company on January 1, 2013 and did not have a significant impact on the Company’s financial statements.

In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210)—Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (“ASU 2013-01”). The ASU amends ASU 2011-11 to clarify that the scope applies to derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to master netting or similar arrangements. Other types of financial assets and liabilities subject to master netting or similar arrangements are not subject to the disclosure requirements in ASU 2011-11. ASU 2013-01 became effective for the Company on January 1, 2013 and did not have a significant impact on the Company’s financial statements.

In October 2012, the FASB issued ASU No. 2012-06, Business Combinations (Topic 805)—Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (“ASU 2012-06”). ASU 2012-06 amends Subtopic 805-20 to require subsequent measurement of an indemnification asset to be on the same basis as the indemnified asset or liability, subject to any contractual limitations on its amount and, for an indemnification asset that is not subsequently measured at its fair value, management’s assessment of the collectability of the indemnification asset. ASU 2012-06 became effective for the Company on January 1, 2013 and did not have a significant impact on the Company’s financial statements.

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Note 4 — Mergers and Acquisitions

First Financial Holdings, Inc. Acquisition

On July 26, 2013, the Company completed the previously announced merger with First Financial Holdings, Inc. (“First Financial”), of Charleston, South Carolina, the bank holding company for First Federal Bank (“First Federal). With the completion of the merger, the Company changed its name from “SCBT Financial Corporation” to “First Financial Holdings, Inc.” The Company’s common stock will continue to trade under the symbol SCBT on the NASDAQ Global Select Market. See Note 18 —Subsequent Events for additional information on the First Financial merger.

The Savannah Bancorp, Inc. Acquisition

On December 13, 2012, the Company acquired all of the outstanding common stock of The Savannah Bancorp, Inc. (“Savannah”), a bank holding company based in Savannah, Georgia, in a stock transaction. Savannah common shareholders received 0.2503 shares of the Company’s common stock in exchange for each share of Savannah stock, resulting in the Company issuing 1,802,137 shares. In total, the purchase price was $68.9 million including the value of “in the money” outstanding stock options (i.e., stock options for which the exercise price of the stock option is below the market price of the underlying stock) totaling $63,000.

The Savannah transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Fair values are preliminary and subject to refinement for up to a year after the closing date of the acquisition.

The following table presents the assets acquired and liabilities assumed as of December 13, 2012, as recorded by Savannah on the acquisition date and initial and subsequent fair value adjustments.

							Subsequent
	As Recorded by			Fair Value			Fair Value			As Recorded
(Dollars in thousands)	Savannah			Adjustments			Adjustments			by SCBT
Assets
Cash and cash equivalents	$	86,244		$	—		$	—		$	86,244
Investment securities	75,460			(1,288		)(a)	31		(a)	74,203
Loans	660,555			(59,196		)(b)	—			601,359
Premises and equipment	12,555			(1,843		)(c)	(260		)(c)	10,452
Intangible assets	3,357			9,546		(d)	15		(d)	12,918
Other real estate owned and repossessed assets	13,934			(5,315		)(e)	819		(e)	9,438
Bank owned life insurance	6,705			—			—			6,705
Deferred tax asset	(790		)	39,143		(f)	(328		)(f)	38,025
Other assets	8,497			(2,348		)(g)	—			6,149
Total assets	$	866,517		$	(21,301	)	$	277		$	845,493

Liabilities
Deposits:
Noninterest-bearing	$	129,902		$	—		$	—		$	129,902
Interest-bearing	619,198			2,530		(h)	—			621,728
Total deposits	749,100			2,530			—			751,630
Federal funds purchased and securities sold under agreements to repurchase	13,491			—			—			13,491
Other borrowings	30,613			(232		)(i)	—			30,381
Other liabilities	8,026			6,657		(j)	(311		)(j)	14,372
Total liabilities	801,230			8,955			(311		)	809,874
Net identifiable assets acquired over (under) liabilities assumed	65,287			(30,256		)	588			35,619
Goodwill	—			33,886			(588		)	33,298
Net assets acquired over liabilities assumed	$	65,287		$	3,630		$	—		$	68,917

Consideration:
SCBT Financial Corporation common shares issued	1,802,137
Purchase price per share of the Company’s common stock	$	38.20
Company common stock issued and cash exchanged for fractional shares	68,854
Cash paid for stock options outstanding	63
Fair value of total consideration transferred	$	68,917

Explanation of fair value adjustments

(a)—Adjustment reflects marking the available for sale portfolio to fair value as of the acquisition date.

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Note 4 — Mergers and Acquisitions (Continued)

(b)—Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio and excludes the allowance for loan losses recorded by Savannah.

(c)—Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired premises and equipment.

(d)—Adjustment reflects the recording of the core deposit intangible on the acquired deposit accounts and other intangibles for non-compete agreements and customer lists.

(e)—Adjustment reflects the fair value adjustments to OREO based on the Company’s evaluation of the acquired OREO portfolio.

(f) —Adjustment to record deferred tax asset related to fair value adjustments at 35.8% income tax rate.

(g)—Adjustment reflects uncollectible portion of accrued interest receivable.

(h)—Adjustment arises since the rates on interest-bearing deposits are higher than rates available on similar deposits as of the acquisition date.

(i)— Adjustment reflects the prepayment fee paid when FHLB advances were completely paid off in December of 2012 and the fair value adjustment based on the Company’s evaluation of the junior subordinated debt.

(j)— Adjustment reflects the incremental accrual for employee related benefits, asset sale termination fee and other liabilities.

Peoples Bancorporation, Inc. Acquisition

On April 24, 2012, the Company acquired all of the outstanding common stock of Peoples Bancorporation, Inc. (“Peoples”), a bank holding company based in Easley, South Carolina, in a stock transaction. Peoples common shareholders received 0.1413 shares of the Company’s common stock in exchange for each share of Peoples stock, resulting in the Company issuing 1,002,741 common shares at a fair value of $31.1 million. Peoples’ outstanding shares of preferred stock (including accrued and unpaid dividends) issued under the U.S. Treasury’s Troubled Asset Relief Program (“TARP”) were purchased by the Company for $13.4 million and retired as part of the merger transaction. In total, the purchase price was $44.5 million including the value of outstanding stock options totaling $96,000.

The Peoples transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at fair value on the acquisition date.

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Note 4 — Mergers and Acquisitions (Continued)

The following table presents the assets acquired and liabilities assumed as of April 24, 2012, as recorded by Peoples on the acquisition date and initial and subsequent fair value adjustments.

			Initial			Subsequent
	As Recorded by		Fair Value			Fair Value			As Recorded
(Dollars in thousands)	Peoples		Adjustments			Adjustments			by SCBT
Assets
Cash and cash equivalents	$	24,459	$	—		$	—		$	24,459
Investment securities	176,334		(442		)(a)	—			175,892
Loans	262,858		(28,613		)(b)	—			234,245
Premises and equipment	10,094		3,240		(c)	(38		)(c)	13,296
Intangible assets	—		2,930		(d)	—			2,930
Other real estate owned and repossessed assets	13,257		(5,341		)(e)	188		(e)	8,104
Deferred tax asset	4,702		11,669		(f)	197		(f)	16,568
Other assets	17,588		(883		)(g)	—			16,705
Total assets	$	509,292	$	(17,440	)	$	347		$	492,199

Liabilities
Deposits:
Noninterest-bearing	$	54,884	$	—		$	—		$	54,884
Interest-bearing	378,781		1,405		(h)	—			380,186
Total deposits	433,665		1,405			—			435,070
Other borrowings	9,542		—			—			9,542
Other liabilities	4,291		2,054		(i)	700		(i)	7,045
Total liabilities	447,498		3,459			700			451,657
Net identifiable assets acquired over (under) liabilities assumed	61,794		(20,899		)	(353		)	40,542
Goodwill	—		3,654			353			4,007
Net assets acquired over (under) liabilities assumed	$	61,794	$	(17,245	)	$	—		$	44,549

Consideration:
SCBT Financial Corporation common shares issued	1,002,741
Purchase price per share of the Company’s common stock	$	31.06
Company common stock issued and cash exchanged for fractional shares	31,160
Cash paid for stock options outstanding	96
Cash paid for TARP preferred stock	13,293
Fair value of total consideration transferred	$	44,549

Explanation of fair value adjustments

(a)—Adjustment reflects marking the available for sale portfolio to fair value as of the acquisition date.

(b)—Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio and excludes the allowance for loan losses recorded by Peoples Bancorporation, Inc.

(c)—Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired premises and equipment.

(d)—Adjustment reflects the recording of the core deposit intangible on the acquired deposit accounts and other intangibles for non-compete agreements.

(e)—Adjustment reflects the fair value adjustments to OREO based on the Company’s evaluation of the acquired OREO portfolio.

(f) —Adjustment to record deferred tax asset related to fair value adjustments at 35.8% income tax rate.

(g)—Adjustment reflects uncollectible portion of accrued interest receivable.

(h)—Adjustment arises since the rates on interest-bearing deposits are higher than rates available on similar deposits as of the acquisition date.

(i)—Adjustment reflects the incremental accrual for SERP termination, other employee related benefits, and other liabilities.

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Note 5 — Investment Securities

The following is the amortized cost and fair value of investment securities held to maturity:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost		Gains		Losses			Value
June 30, 2013:
State and municipal obligations	$	12,427	$	629	$	(9	)	$	13,047

December 31, 2012:
State and municipal obligations	$	15,440	$	1,113	$	—		$	16,553

June 30, 2012:
State and municipal obligations	$	16,567	$	1,176	$	—		$	17,743

The following is the amortized cost and fair value of investment securities available for sale:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost		Gains		Losses			Value
June 30, 2013:
Government-sponsored entities debt *	$	100,231	$	308	$	(4,180	)	$	96,359
State and municipal obligations	140,427		2,338		(3,252		)	139,513
Mortgage-backed securities **	272,932		3,668		(1,582		)	275,018
Corporate stocks	241		217		(1		)	457
	$	513,831	$	6,531	$	(9,015	)	$	511,347
December 31, 2012:
Government-sponsored entities debt *	$	87,584	$	965	$	(31	)	$	88,518
State and municipal obligations	147,201		5,647		(49		)	152,799
Mortgage-backed securities **	285,800		7,489		(102		)	293,187
Corporate stocks	241		139		(1		)	379
	$	520,826	$	14,240	$	(183	)	$	534,883
June 30, 2012:
Government-sponsored entities debt *	$	64,195	$	1,078	$	(8	)	$	65,265
State and municipal obligations	135,068		3,764		(369		)	138,463
Mortgage-backed securities **	267,593		6,578		(49		)	274,122
FHLMC preferred stock***	147		112		—			259
Corporate stocks	240		123		—			363
	$	467,243	$	11,655	$	(426	)	$	478,472

* - Government-sponsored entities holdings are comprised of debt securities offered by Federal Home Loan Mortgage Corporation (“FHLMC”) or Freddie Mac, Federal National Mortgage Association (“FNMA”) or Fannie Mae, FHLB, and Federal Farm Credit Banks (“FFCB”).

** - All of the mortgage-backed securities are issued by government-sponsored entities; there are no private-label holdings.

*** Securities issued by the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”).

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Note 5 — Investment Securities (Continued)

The following is the amortized cost and fair value of other investment securities:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
June 30, 2013:
Federal Home Loan Bank stock	$	6,163	$	—	$	—	$	6,163
Investment in unconsolidated subsidiaries	1,642		—		—		1,642
	$	7,805	$	—	$	—	$	7,805
December 31, 2012:
Federal Home Loan Bank stock	$	8,126	$	—	$	—	$	8,126
Investment in unconsolidated subsidiaries	1,642		—		—		1,642
	$	9,768	$	—	$	—	$	9,768
June 30, 2012:
Federal Reserve Bank stock	$	7,028	$	—	$	—	$	7,028
Federal Home Loan Bank stock	7,739		—		—		7,739
Investment in unconsolidated subsidiaries	1,332		—		—		1,332
	$	16,099	$	—	$	—	$	16,099

The Company has determined that the investment in FHLB stock is not other than temporarily impaired as of June 30, 2013 and ultimate recoverability of the par value of these investments is probable.

Effective July 1, 2012, the Bank converted its national charter to a state charter and changed its name from SCBT, National Association to SCBT. In conjunction with the charter conversion, the Bank became a non-member bank of the Federal Reserve and liquidated its entire position in Federal Reserve Bank stock on July 2, 2012, with no gain or loss.

The amortized cost and fair value of debt securities at June 30, 2013 by contractual maturity are detailed below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

	Securities				Securities
	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	750	$	769	$	3,683	$	3,702
Due after one year through five years	1,075		1,131		15,602		15,921
Due after five years through ten years	7,843		8,225		129,597		127,463
Due after ten years	2,759		2,922		364,949		364,261
	$	12,427	$	13,047	$	513,831	$	511,347

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Note 5 — Investment Securities (Continued)

Information pertaining to the Company’s securities with gross unrealized losses at June 30, 2013, December 31, 2012 and June 30, 2012, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is as follows:

	Less Than Twelve Months				Twelve Months or More
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value
June 30, 2013:
Securities Held to Maturity
State and municipal obligations	$	9	$	493	$	—	$	—

Securities Available for Sale
Government-sponsored entities debt	$	4,180	$	83,549	$	—	$	—
State and municipal obligations	3,247		90,238		5		283
Mortgage-backed securities	1,582		105,472		—		—
Corporate Stocks	1		10		—		—
	$	9,010	$	279,269	$	5	$	283

December 31, 2012:
Securities Held to Maturity
State and municipal obligations	$	—	$	—	$	—	$	—

Securities Available for Sale
Government-sponsored entities debt	$	31	$	4,963	$	—	$	—
State and municipal obligations	49		9,602		—		—
Mortgage-backed securities	102		13,709		—		—
Corporate stocks	1		9		—		—
	$	183	$	28,283	$	—	$	—

June 30, 2012:
Securities Held to Maturity
State and municipal obligations	$	—	$	—	$	—	$	—

Securities Available for Sale
Government-sponsored entities debt	$	8	$	4,986	$	—	$	—
State and municipal obligations	369		45,232		—		—
Mortgage-backed securities	49		13,561		—		—
	$	426	$	63,779	$	—	$	—

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (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, (3) the outlook for receiving the contractual cash flows of the investments, (4) the anticipated outlook for changes in the general level of interest rates, and (5) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that the Company will be required to sell the debt security prior to recovering its fair value. As part of the Company’s evaluation of its intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, the Company considers its investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position. The Company does not currently intend to sell the securities within the portfolio and it is not more-likely-than-not that the Company will be required to sell the debt securities; therefore, management does not consider these investments to be other-than-temporarily impaired at June 30, 2013. Management continues to monitor all of these securities with a high degree of scrutiny. There can be no assurance that the Company will not conclude in future periods that conditions existing at that time indicate some or all of these securities may be sold or are other than temporarily impaired, which would require a charge to earnings in such periods.

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Note 6 — Loans and Allowance for Loan Losses

The following is a summary of non-acquired loans:

	June 30,			December 31,			June 30,
(Dollars in thousands)	2013			2012			2012
Non-acquired loans:
Commercial non-owner occupied real estate:
Construction and land development	$	285,370		$	273,420		$	279,519
Commercial non-owner occupied	298,768			290,071			284,147
Total commercial non-owner occupied real estate	584,138			563,491			563,666
Consumer real estate:
Consumer owner occupied	460,434			434,503			420,298
Home equity loans	250,988			255,284			257,061
Total consumer real estate	711,422			689,787			677,359
Commercial owner occupied real estate	802,125			784,152			763,338
Commercial and industrial	294,580			279,763			228,010
Other income producing property	136,957			133,713			132,193
Consumer	104,239			86,934			87,290
Other loans	32,134			33,163			29,395
Total non-acquired loans	2,665,595			2,571,003			2,481,251
Less allowance for loan losses	(38,625		)	(44,378		)	(47,269		)
Non-acquired loans, net	$	2,626,970		$	2,526,625		$	2,433,982

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Note 6 — Loans and Allowance for Loan Losses (Continued)

In accordance with FASB ASC Topic 310-30, the Company aggregated acquired loans that have common risk characteristics into pools of loan categories as described in the table below. The majority of the acquired loans are accounted for in accordance with FASB ASC Topic 310-30.

The Company’s acquired loan portfolio is comprised of the following balances net of related discount:

				Loans
	Loans Impaired			Not Impaired
(Dollars in thousands)	at Acquisition			at Acquisition			Total
June 30, 2013:
FASB ASC Topic 310-30 acquired loans:
Covered loans:
Commercial loans greater than or equal to $1 million-CBT	$	16,979		$	26,852		$	43,831
Commercial real estate	16,596			33,787			50,383
Commercial real estate—construction and development	8,291			15,980			24,271
Residential real estate	34,940			59,290			94,230
Consumer	608			2,747			3,355
Commercial and industrial	4,886			13,594			18,480
Single pay	4,366			166			4,532
Total covered loans	$	86,666		$	152,416		$	239,082
Non-covered loans:
Commercial real estate	46,275			227,186			273,461
Commercial real estate—construction and development	24,127			49,415			73,542
Residential real estate	35,359			184,028			219,387
Consumer	1,282			6,780			8,062
Commercial and industrial	2,652			36,001			38,653
Total non-covered loans	109,695			503,410			613,105
Total FASB ASC Topic 310-30 acquired loans	196,361			655,826			852,187
Total FASB ASC Topic 310-20 acquired loans (non-covered)	—			69,653			69,653
Total acquired loans	196,361			725,479			921,840
Less allowance for loan losses	(23,856		)	(7,741		)	(31,597		)
Acquired loans, net	$	172,505		$	717,738		$	890,243

December 31, 2012:
FASB ASC Topic 310-30 acquired loans:
Covered loans:
Commercial loans greater than or equal to $1 million-CBT	$	19,483		$	30,201		$	49,684
Commercial real estate	22,946			40,016			62,962
Commercial real estate—construction and development	15,107			17,468			32,575
Residential real estate	39,050			65,761			104,811
Consumer	948			3,376			4,324
Commercial and industrial	8,281			15,319			23,600
Single pay	4,599			173			4,772
Total covered loans	$	110,414		$	172,314		$	282,728
Non-covered loans:
Commercial real estate	53,259			256,703			309,962
Commercial real estate—construction and development	32,975			64,901			97,876
Residential real estate	40,585			209,731			250,316
Consumer	1,672			9,689			11,361
Commercial and industrial	3,064			46,220			49,284
Total non-covered loans	131,555			587,244			718,799
Total FASB ASC Topic 310-30 acquired loans	241,969			759,558			1,001,527
Total FASB ASC Topic 310-20 acquired loans (non-covered)	—			73,215			73,215
Total acquired loans	241,969			832,773			1,074,742
Less allowance for loan losses	(24,988		)	(7,144		)	(32,132		)
Acquired loans, net	$	216,981		$	825,629		$	1,042,610

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Note 6 — Loans and Allowance for Loan Losses (Continued)

				Loans
	Loans Impaired			Not Impaired
(Dollars in thousands)	at Acquisition			at Acquisition			Total
June 30, 2012:
FASB ASC Topic 310-30 acquired loans:
Covered loans:
Commercial loans greater than or equal to $1 million-CBT	$	20,442		$	34,384		$	54,826
Commercial real estate	30,776			54,756			85,532
Commercial real estate—construction and development	21,795			18,336			40,131
Residential real estate	42,493			67,356			109,849
Residential real estate—junior lien	1,288			1,430			2,718
Home equity	513			854			1,367
Consumer	1,802			3,929			5,731
Commercial and industrial	9,916			17,928			27,844
Single pay	4,704			172			4,876
Total covered loans	$	133,729		$	199,145		$	332,874
Non-covered loans:
Commercial real estate	11,937			69,065			81,002
Commercial real estate—construction and development	9,068			16,516			25,584
Residential real estate	5,874			94,775			100,649
Home equity	21			3			24
Consumer	1,783			4,653			6,436
Commercial and industrial	1,357			12,132			13,489
Total non-covered loans	30,040			197,144			227,184
Total FASB ASC Topic 310-30 acquired loans	163,769			396,289			560,058
Less allowance for loan losses	(26,722		)	(9,091		)	(35,813		)
Acquired loans, net	$	137,047		$	387,198		$	524,245

Contractual loan payments receivable, estimates of amounts not expected to be collected, other fair value adjustments and the resulting fair values of FASB ASC Topic 310-30 acquired loans impaired and non-impaired at the acquisition date for Savannah (December 13, 2012) are as follows:

	December 13, 2012
	FASB ASC Topic 310-30 Loans
				Loans
	Loans Impaired			Not Impaired
(Dollars in thousands)	at Acquisition			at Acquisition			Total
Contractual principal and interest	$	155,582		$	483,293		$	638,875
Non-accretable difference	(37,492		)	(9,460		)	(46,952		)
Cash flows expected to be collected	118,090			473,833			591,923
Accretable yield	(8,615		)	(51,466		)	(60,081		)
Carrying value	$	109,475		$	422,367		$	531,842

The table above excludes $69.5 million ($74.9 million in contractual principal less a $5.4 million fair value adjustment) in acquired loans at fair value as of the acquisition date that will be accounted for under FASB ASC Topic 310-20. These loans are primarily commercial and consumer lines of credit for which the entire discount will be accreted into interest income.

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Note 6 — 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 loans impaired and non-impaired at the acquisition date for Peoples (April 24, 2012) are as follows:

	April 24, 2012
	FASB ASC Topic 310-30 Loans
				Loans
	Loans Impaired			Not Impaired
(Dollars in thousands)	at Acquisition			at Acquisition			Total
Contractual principal and interest	$	56,940		$	250,023		$	306,963
Non-accretable difference	(21,237		)	(16,560		)	(37,797		)
Cash flows expected to be collected	35,703			233,463			269,166
Accretable yield	(4,968		)	(29,953		)	(34,921		)
Carrying value	$	30,735		$	203,510		$	234,245

Contractual loan payments receivable, estimates of amounts not expected to be collected, other fair value adjustments and the resulting carrying values of acquired loans (impaired and non-impaired) as of June 30, 2013, December 31, 2012, and June 30, 2012 are as follows:

	FASB ASC Topic 310-30 Loans
				Loans
	Loans Impaired			Not Impaired
(Dollars in thousands)	at Acquisition			at Acquisition			Total
June 30, 2013:
Contractual principal and interest	$	304,357		$	798,006		$	1,102,363
Non-accretable difference	(51,405		)	(35,897		)	(87,302		)
Cash flows expected to be collected	252,952			762,109			1,015,061
Accretable yield	(56,591		)	(106,283		)	(162,874		)
Carrying value	$	196,361		$	655,826		$	852,187
Allowance for acquired loan losses	$	(23,856	)	$	(7,741	)	$	(31,597	)

December 31, 2012:
Contractual principal and interest	$	376,894		$	926,153		$	1,303,047
Non-accretable difference	(86,514		)	(54,157		)	(140,671		)
Cash flows expected to be collected	290,380			871,996			1,162,376
Accretable yield	(48,411		)	(112,438		)	(160,849		)
Carrying value	$	241,969		$	759,558		$	1,001,527
Allowance for acquired loan losses	$	(24,988	)	$	(7,144	)	$	(32,132	)

June 30, 2012:
Contractual principal and interest	$	306,174		$	540,095		$	846,269
Non-accretable difference	(101,973		)	(68,912		)	(170,885		)
Cash flows expected to be collected	204,201			471,183			675,384
Accretable yield	(40,432		)	(74,894		)	(115,326		)
Carrying value	$	163,769		$	396,289		$	560,058
Allowance for acquired loan losses	$	(26,722	)	$	(9,091	)	$	(35,813	)

The table above excludes $69.7 million ($73.8 million in contractual principal less a $4.1 million discount) in acquired loans at carrying value as of June 30, 2013 accounted for under FASB ASC Topic 310-20. The table above excludes $73.2 million ($78.5 million in contractual principal less a $5.3 million discount) in acquired loans at carrying value as of December 31, 2012 accounted for under FASB ASC Topic 310-20.

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Note 6 — Loans and Allowance for Loan Losses (Continued)

Income on acquired loans that are not impaired at the acquisition date is recognized in the same manner as loans impaired at the acquisition date. A portion of the fair value discount on acquired non-impaired loans has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining nonaccretable difference represents cash flows not expected to be collected.

The unpaid principal balance for acquired loans was $1.1 billion, $1.3 billion, and $744.4 million at June 30, 2013, December 31, 2012 and June 30, 2012, respectively.

The following are changes in the carrying value of acquired loans during the six months ended June 30, 2013 and 2012:

	FASB ASC Topic 310-30 Loans
				Loans
	Loans Impaired			Not Impaired
(Dollars in thousands)	at Acquisition			at Acquisition			Total
Balance, December 31, 2012	$	216,981		$	752,414		$	969,395
Net reductions for payments, foreclosures, and accretion	(43,335		)	(104,935		)	(148,270		)
Change in the allowance for loan losses on acquired loans	(1,132		)	597			(535		)
Balance, June 30, 2013, net of allowance for loan losses on acquired loans	$	172,514		$	648,076		$	820,590

Balance, December 31, 2011	$	146,955		$	223,626		$	370,581
Fair value of acquired loans	30,735			203,510			234,245
Net reductions for payments, foreclosures, and accretion	(37,796		)	(38,592		)	(76,388		)
Change in the allowance for loan losses on acquired loans	(2,847		)	(1,346		)	(4,193		)
Balance, June 30, 2012, net of allowance for loan losses on acquired loans	$	137,047		$	387,198		$	524,245

The following are changes in the carrying amount of accretable difference for acquired impaired and non-impaired loans for the six months ended June 30, 2013 and 2012:

	Six Months Ended June 30,
(Dollars in thousands)	2013			2012
Beginning at beginning of period	$	160,849		$	94,600
Addition from the Peoples acquisition	—			34,921
Interest income	(44,145		)	(20,739		)
Reclass of nonaccretable difference due to improvement in expected cash flows	51,060			16,680
Other changes, net	(4,890		)	(10,136		)
Balance at end of period	$	162,874		$	115,326

On December 13, 2006, the FDIC, Federal Reserve, OCC, and other regulatory agencies collectively revised the banking agencies’ 1993 policy statement on the allowance for loan and lease losses to ensure consistency with generally accepted accounting principles in the United States and more recent supervisory guidance. Our loan loss policy adheres to the interagency guidance.

The allowance for loan losses is based upon estimates made by management. We maintain an allowance for loan losses at a level that we believe is appropriate to cover estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated credit losses inherent in the remainder of our loan portfolio. Arriving at the allowance involves a high degree of management judgment and results in a range of estimated losses. We regularly evaluate the adequacy of the allowance through our internal risk rating system, outside credit review, and regulatory agency examinations to assess the quality of the loan portfolio and identify problem loans. The evaluation process also includes our analysis of current economic conditions, composition of the loan portfolio, past due and nonaccrual loans, concentrations of credit, lending policies and procedures, and historical loan loss experience. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on, among other factors, changes in economic conditions in our markets. In addition, regulatory agencies, as an integral part of their examination process, periodically review our allowances for losses on loans. These agencies may require management to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these and other factors, it is possible that the allowances for losses on loans may change. The provision for loan losses is charged to expense in an amount necessary to maintain the allowance at an appropriate level.

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The allowance for loan losses on non-acquired loans consists of general and specific reserves. The general reserves are determined by applying loss percentages to the portfolio that are based on historical loss experience for each class of loans and management’s evaluation and “risk grading” of the loan portfolio. Additionally, the general economic and business conditions affecting key lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, the findings of internal and external credit reviews and results from external bank regulatory examinations are included in this evaluation. Currently, these adjustments are applied to the non-acquired loan portfolio when estimating the level of reserve required. The specific reserves are determined on a loan-by-loan basis based on management’s evaluation of our exposure for each credit, given the current payment status of the loan and the value of any underlying collateral. These are loans classified by management as doubtful or substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Generally, the need for specific reserve is evaluated on impaired loans greater than $250,000, and once a specific reserve is established for a loan, a charge off of that amount occurs in the quarter subsequent to the establishment of the specific reserve. Loans that are determined to be impaired are provided a specific reserve, if necessary, and are excluded from the calculation of the general reserves.

In determining the acquisition date fair value of purchased loans, and in subsequent accounting, SCBT generally aggregates purchased loans into pools of loans with common risk characteristics. Expected cash flows at the acquisition date in excess of the fair value of loans are recorded as interest income over the life of the loans using a level yield method if the timing and amount of the future cash flows of the pool is reasonably estimable. Subsequent to the acquisition date, increases in cash flows over those expected at the acquisition date are reclassified from the non-accretable difference to accretable yield and recognized as interest income prospectively. Decreases in expected cash flows after the acquisition date are recognized by recording an allowance for loan losses. Management analyzes the acquired loan pools using various assessments of risk to determine an expected loss. The expected loss is derived based upon a loss given default based upon the collateral type and/or detailed review by loan officers of loans greater than $25,000 and the probability of default that is determined based upon historical data at the loan level. The Company changed the threshold of loans reviewed from $500,000 during the second quarter in order to more accurately derive the expected loss in pools where there are few, if any, loans greater than $500,000. Trends are reviewed in terms of accrual status, past due status, and weighted-average grade of the loans within each of the accounting pools. In addition, the relationship between the change in the unpaid principal balance and change in the mark is assessed to correlate the directional consistency of the expected loss for each pool. Offsetting the impact of the provision established for acquired loans covered under FDIC loss share agreements, the receivable from the FDIC is adjusted to reflect the indemnified portion of the post-acquisition exposure with a corresponding credit to the provision for loan losses. (For further discussion of the Company’s allowance for loan losses on acquired loans, see “Business Combinations and Method of Accounting for Loans Acquired” in our Annual Report on Form 10-K for the year ended December 31, 2012.)

An aggregated analysis of the changes in allowance for loan losses is as follows:

	Non-acquired
(Dollars in thousands)	Loans			Acquired Loans			Total
Three months ended June 30, 2013:
Balance at beginning of period	$	41,669		$	31,277		$	72,946
Loans charged-off	(3,220		)	—			(3,220		)
Recoveries of loans previously charged off	576			—			576
Net charge-offs	(2,644		)	—			(2,644		)
Provision for loan losses	(400		)	320			(80		)
Benefit attributable to FDIC loss share agreements	—			259			259
Total provision for loan losses charged to operations	(400		)	579			179
Provision for loan losses recorded through the FDIC loss share receivable	—			(259		)	(259		)
Balance at end of period	$	38,625		$	31,597		$	70,222

Three months ended June 30, 2012:
Balance at beginning of period	$	47,607		$	34,355		$	81,962
Loans charged-off	(5,555		)	—			(5,555		)
Recoveries of loans previously charged off	825			—			825
Net charge-offs	(4,730		)	—			(4,730		)
Provision for loan losses	4,392			1,458			5,850
Benefit attributable to FDIC loss share agreements	—			(1,208		)	(1,208		)
Total provision for loan losses charged to operations	4,392			250			4,642
Provision for loan losses recorded through the FDIC loss share receivable	—			1,208			1,208
Balance at end of period	$	47,269		$	35,813		$	83,082

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

	Non-acquired
(Dollars in thousands)	Loans			Acquired Loans			Total
Six months ended June 30, 2013:
Balance at beginning of period	$	44,378		$	32,132		$	76,510
Loans charged-off	(7,827		)	—			(7,827		)
Recoveries of loans previously charged off	1,621			—			1,621
Net charge-offs	(6,206		)	—			(6,206		)
Provision for loan losses	453			(535		)	(82		)
Benefit attributable to FDIC loss share agreements	—			1,321			1,321
Total provision for loan losses charged to operations	453			786			1,239
Provision for loan losses recorded through the FDIC loss share receivable	—			(1,321		)	(1,321		)
Balance at end of period	$	38,625		$	31,597		$	70,222

Six months ended June 30, 2012:
Balance at beginning of period	$	49,367		$	31,620		$	80,987
Loans charged-off	(11,253		)	—			(11,253		)
Recoveries of loans previously charged off	2,465			—			2,465
Net charge-offs	(8,788		)	—			(8,788		)
Provision for loan losses	6,690			4,193			10,883
Benefit attributable to FDIC loss share agreements	—			(3,518		)	(3,518		)
Total provision for loan losses charged to operations	6,690			675			7,365
Provision for loan losses recorded through the FDIC loss share receivable	—			3,518			3,518
Balance at end of period	$	47,269		$	35,813		$	83,082

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for non-acquired loans:

	Construction			Commercial			Commercial			Consumer									Other Income
	& Land			Non-owner			Owner			Owner			Home			Commercial			Producing						Other
(Dollars in thousands)	Development			Occupied			Occupied			Occupied			Equity			& Industrial			Property			Consumer			Loans			Total
Three months ended June 30, 2013:
Allowance for loan losses:
Balance, March 31, 2013	$	9,236		$	5,271		$	8,208		$	6,523		$	3,536		$	4,785		$	3,459		$	434		$	217		$	41,669
Charge-offs	(1,013		)	—			(708		)	(238		)	(465		)	(303		)	(134		)	(357		)	—			(3,218		)
Recoveries	135			73			5			41			27			37			102			154			—			574
Provision	73			(478		)	479			112			(124		)	(480		)	(167		)	195			(10		)	(400		)
Balance, June 30, 2013	$	8,431		$	4,866		$	7,984		$	6,438		$	2,974		$	4,039		$	3,260		$	426		$	207		$	38,625

Loans individually evaluated for impairment	$	735		$	636		$	281		$	667		$	—		$	—		$	716		$	—		$	—		$	3,035
Loans collectively evaluated for impairment	$	7,696		$	4,230		$	7,703		$	5,771		$	2,974		$	4,039		$	2,544		$	426		$	207		$	35,590

Loans:
Loans individually evaluated for impairment	$	9,746		$	3,694		$	17,120		$	1,322		$	—		$	1,534		$	3,025		$	—		$	—		$	36,441
Loans collectively evaluated for impairment	275,624			295,075			785,005			459,112			250,988			293,046			133,932			104,239			32,133			2,629,154

Total non-acquired loans	$	285,370		$	298,769		$	802,125		$	460,434		$	250,988		$	294,580		$	136,957		$	104,239		$	32,133		$	2,665,595

Three months ended June 30, 2012:
Allowance for loan losses:
Balance, March 31, 2012	$	12,598		$	5,662		$	9,271		$	7,567		$	4,033		$	3,750		$	3,517		$	1,075		$	134		$	47,607
Charge-offs	(2,622		)	(371		)	(180		)	(859		)	(548		)	(105		)	(285		)	(522		)	(63		)	(5,555		)
Recoveries	246			80			1			8			225			72			22			171			—			825
Provision	2,045			61			384			901			282			48			156			340			175			4,392
Balance, June 30, 2012	$	12,267		$	5,432		$	9,476		$	7,617		$	3,992		$	3,765		$	3,410		$	1,064		$	246		$	47,269

Loans individually evaluated for impairment	$	1,861		$	177		$	553		$	229		$	—		$	—		$	142		$	—		$	—		$	2,962
Loans collectively evaluated for impairment	$	10,406		$	5,255		$	8,923		$	7,388		$	3,992		$	3,765		$	3,268		$	1,064		$	246		$	44,307

Loans:
Loans individually evaluated for impairment	$	17,320		$	5,901		$	15,885		$	2,667		$	—		$	479		$	2,863		$	—		$	—		$	45,115
Loans collectively evaluated for impairment	262,199			278,246			747,453			417,631			257,061			227,531			129,330			87,290			29,395			2,436,136

Total non-acquired loans	$	279,519		$	284,147		$	763,338		$	420,298		$	257,061		$	228,010		$	132,193		$	87,290		$	29,395		$	2,481,251

The following tables present a disaggregated analysis of activity in the allowance for loan losses for non-acquired loans:

	Construction			Commercial			Commerical			Consumer									Other Income
	& Land			Non-owner			Owner			Owner			Home			Commercial			Producing						Other
(Dollars in thousands)	Development			Occupied			Occupied			Occupied			Equity			& Industrial			Property			Consumer			Loans			Total

Six months ended June 30, 2013
Allowance for loan losses:
Balance, December 31, 2012	$	10,836		$	4,921		$	8,743		$	6,568		$	3,626		$	4,939		$	3,747		$	781		$	217		$	44,378
Charge-offs	(3,212		)	—			(1,403		)	(388		)	(662		)	(627		)	(473		)	(1,062		)	—			(7,827		)
Recoveries	393			327			15			130			99			136			111			410			—			1,621
Provision	414			(382		)	629			128			(89		)	(409		)	(125		)	297			(10		)	453
Balance, June 30, 2013	$	8,431		$	4,866		$	7,984		$	6,438		$	2,974		$	4,039		$	3,260		$	426		$	207		$	38,625

Six months ended June 30, 2012
Allowance for loan losses:
Balance, December 31, 2011	$	12,373		$	6,109		$	10,356		$	7,453		$	4,269		$	3,901		$	3,636		$	1,145		$	125		$	49,367
Charge-offs	(3,632		)	(1,373		)	(1,675		)	(1,305		)	(1,048		)	(435		)	(740		)	(931		)	(114		)	(11,253		)
Recoveries	1,026			96			2			20			406			182			295			427			11			2,465
Provision	2,500			600			793			1,449			365			117			219			423			224			6,690
Balance, June 30, 2012	$	12,267		$	5,432		$	9,476		$	7,617		$	3,992		$	3,765		$	3,410		$	1,064		$	246		$	47,269

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for acquired loans:

	Commercial						Commercial
	Loans Greater						Real Estate-															FASB ASC
	Than or Equal			Commercial			Construction and			Residential						Commercial						Topic 310-20
(Dollars in thousands)	to $1 Million-CBT			Real Estate			Development			Real Estate			Consumer			and Industrial			Single Pay			Loans		Total
Three months ended June 30, 2013:
Allowance for loan losses:
Balance, March 31, 2013	$	14,956		$	842		$	2,484		$	4,561		$	89		$	3,783		$	4,562		$	—	$	31,277
Charge-offs	—			—			—			—			—			—			—			—		—
Recoveries	—			—			—			—			—			—			—			—		—
Provision for loan losses before benefit attributable to FDIC loss share agreements	(1,527		)	(21		)	1,908			588			385			(830		)	(183		)	—		320
Benefit attributable to FDIC loss share agreements	1,451			(22		)	(1,412		)	(394		)	(326		)	788			174			—		259
Total provision for loan losses charged to operations	(76		)	(43		)	496			194			59			(42		)	(9		)	—		579
Provision for loan losses recorded through the FDIC loss share receivable	(1,451		)	22			1,412			394			326			(788		)	(174		)	—		(259		)
Balance, June 30, 2013	$	13,429		$	821		$	4,392		$	5,149		$	474		$	2,953		$	4,379		$	—	$	31,597
Loans individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Loans collectively evaluated for impairment	$	13,429		$	821		$	4,392		$	5,149		$	474		$	2,953		$	4,379		$	—	$	31,597

Loans:*
Loans individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Loans collectively evaluated for impairment	43,831			323,844			97,813			313,617			11,417			57,133			4,532			69,653		921,840
Total acquired loans	$	43,831		$	323,844		$	97,813		$	313,617		$	11,417		$	57,133		$	4,532		$	69,653	$	921,840

Three months ended June 30, 2012:
Allowance for loan losses:
Balance,March 31, 2012	$	16,850		$	1,392		$	2,057		$	4,335		$	10		$	4,583		$	5,128		$	—	$	34,355
Charge-offs	—			—			—			—			—			—			—			—		—
Recoveries	—			—			—			—			—			—			—			—		—
Provision for loan losses before benefit attributable to FDIC loss share agreements	21			420			1,181			80			63			166			(473		)	—		1,458
Benefit attributable to FDIC loss share agreements	(20		)	(399		)	(948		)	(74		)	(58		)	(158		)	449			—		(1,208		)
Total provision for loan losses charged to operations	1			21			233			6			5			8			(24		)	—		250
Provision for loan losses recorded through the FDIC loss share receivable	20			399			948			74			58			158			(449		)	—		1,208
Balance, June 30, 2012	$	16,871		$	1,812		$	3,238		$	4,415		$	73		$	4,749		$	4,655		$	—	$	35,813
Loans individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Loans collectively evaluated for impairment	$	16,871		$	1,812		$	3,238		$	4,415		$	73		$	4,749		$	4,655		$	—	$	35,813

Loans:*
Loans individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Loans collectively evaluated for impairment	54,826			166,534			65,715			214,607			12,167			41,333			4,876			—		560,058
Total acquired loans	$	54,826		$	166,534		$	65,715		$	214,607		$	12,167		$	41,333		$	4,876		$	—	$	560,058

*—The carrying value of FASB ASC Topic 310-30 acquired loans includes a non-accretable difference which is primarily associated with the assessment of credit quality of acquired loans.

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following tables present a disaggregated analysis of activity in the allowance for loan losses for acquired loans:

	Commercial						Commerical
	Loans Greater						Real Estate-
	Than or Equal			Commercial			Construction and			Residential						Commercial
(Dollars in thousands)	to $1 Million-CBT			Real Estate			Development			Real Estate			Consumer			and Industrial			Single Pay			Total

Six months ended June 30, 2013
Allowance for loan losses:
Balance, December 31, 2012	$	15,408		$	1,517		$	1,628		$	4,616		$	96		$	4,305		$	4,562		$	32,132
Charge-offs	—			—			—			—			—			—			—			—
Recoveries	—			—			—			—			—			—			—			—
Provision for loan losses before benefit attibutable to FDIC loss share agreements	(1,979		)	(696		)	2,764			533			378			(1,352		)	(183		)	(535		)
Benefit attributable to FDIC loss share agreements	1,880			504			(2,098		)	(104		)	(319		)	1,284			174			1,321
Total provision for loan losses charged to operations	(99		)	(192		)	666			429			59			(68		)	(9		)	786
Provision for loan losses recorded through the FDIC loss share receivable	(1,880		)	(504		)	2,098			104			319			(1,284		)	(174		)	(1,321		)
Balance, June 30, 2013	$	13,429		$	821		$	4,392		$	5,149		$	474		$	2,953		$	4,379		$	31,597

Six months ended June 30, 2012
Allowance for loan losses:
Balance, December 31, 2011	$	16,706		$	1,318		$	—		$	5,471		$	—		$	4,564		$	3,561		$	31,620
Charge-offs	—			—			—			—			—			—			—			—
Recoveries	—			—			—			—			—			—			—			—
Provision for loan losses before benefit attibutable attibutable to FDIC loss share agreements	165			494			3,238			(1,056		)	73			185			1,094			4,193
Benefit attributable to FDIC loss share agreements	(158		)	(468		)	(2,612		)	1,036			(69		)	(176		)	(1,039		)	(3,486		)
Total provision for loan losses charged to operations	7			26			626			(20		)	4			9			55			707
Provision for loan losses recorded through the FDIC loss share receivable	158			468			2,612			(1,036		)	69			176			1,039			3,486
Balance, June 30, 2012	$	16,871		$	1,812		$	3,238		$	4,415		$	73		$	4,749		$	4,655		$	35,813

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the level of classified loans, (ii) net charge-offs, (iii) non-performing loans (see details below) and (iv) the general economic conditions of the markets that we serve.

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. A description of the general characteristics of the risk grades is as follows:

· Pass—These loans range from minimal credit risk to average however still acceptable credit risk.

· Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

· Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

· Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following table presents the credit risk profile by risk grade of commercial loans for non-acquired loans:

	Construction & Development						Commercial Non-owner Occupied						Commercial Owner Occupied
	June 30,		December 31,		June 30,		June 30,		December 31,		June 30,		June 30,		December 31,		June 30,
(Dollars in thousands)	2013		2012		2012		2013		2012		2012		2013		2012		2012
Pass	$	236,677	$	215,793	$	220,073	$	252,917	$	232,714	$	225,222	$	749,992	$	716,578	$	690,749
Special mention	26,844		31,670		30,495		35,359		38,473		37,625		21,963		31,800		31,645
Substandard	21,849		25,957		28,951		10,492		18,884		21,300		30,170		35,774		40,944
Doubtful	—		—		—		—		—		—		—		—		—
	$	285,370	$	273,420	$	279,519	$	298,768	$	290,071	$	284,147	$	802,125	$	784,152	$	763,338

	Commercial & Industrial						Other Income Producing Property						Commercial Total
	June 30,		December 31,		June 30,		June 30,		December 31,		June 30,		June 30,		December 31,		June 30,
	2013		2012		2012		2013		2012		2012		2013		2012		2012
Pass	$	278,364	$	265,148	$	212,302	$	118,081	$	114,809	$	113,443	$	1,636,031	$	1,545,042	$	1,461,789
Special mention	7,061		8,626		9,458		9,402		9,324		9,583		100,629		119,893		118,806
Substandard	9,155		5,989		6,250		9,474		9,580		9,167		81,140		96,184		106,612
Doubtful	—		—		—		—		—		—		—		—		—
	$	294,580	$	279,763	$	228,010	$	136,957	$	133,713	$	132,193	$	1,817,800	$	1,761,119	$	1,687,207

The following table presents the credit risk profile by risk grade of consumer loans for non-acquired loans:

	Consumer Owner Occupied						Home Equity						Consumer
	June 30,		December 31,		June 30,		June 30,		December 31,		June 30,		June 30,		December 31,		June 30,
(Dollars in thousands)	2013		2012		2012		2013		2012		2012		2013		2012		2012
Pass	$	418,601	$	388,822	$	374,359	$	238,037	$	241,184	$	242,639	$	103,014	$	85,517	$	86,023
Special mention	20,698		24,515		23,540		7,875		7,837		8,823		931		897		781
Substandard	21,135		21,166		22,399		5,051		6,239		5,564		294		519		486
Doubtful	—		—		—		25		24		35		—		1		—
	$	460,434	$	434,503	$	420,298	$	250,988	$	255,284	$	257,061	$	104,239	$	86,934	$	87,290

	Other						Consumer Total
	June 30,		December 31,		June 30,		June 30,		December 31,		June 30,
	2013		2012		2012		2013		2012		2012
Pass	$	32,134	$	33,163	$	29,395	$	791,786	$	748,686	$	732,416
Special mention	—		—		—		29,504		33,249		33,144
Substandard	—		—		—		26,480		27,924		28,449
Doubtful	—		—		—		25		25		35
	$	32,134	$	33,163	$	29,395	$	847,795	$	809,884	$	794,044

The following table presents the credit risk profile by risk grade of total non-acquired loans:

	Total Non-acquired Loans
	June 30,		December 31,		June 30,
(Dollars in thousands)	2013		2012		2012
Pass	$	2,427,817	$	2,293,728	$	2,194,205
Special mention	130,133		153,142		151,950
Substandard	107,620		124,108		135,061
Doubtful	25		25		35
	$	2,665,595	$	2,571,003	$	2,481,251

At June 30, 2013, the aggregate amount of non-acquired substandard and doubtful loans totaled $107.6 million. When these loans are combined with non-acquired OREO of $16.0 million, our non-acquired classified assets (as defined by the state of South Carolina and the FDIC, our primary federal regulators) were $123.6 million. At December 31, 2012, the amounts were $124.1 million, $19.1 million, and $143.2 million, respectively. At June 30, 2012, the amounts were $135.1 million, $25.5 million, and $160.6 million, respectively.

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following table presents the credit risk profile by risk grade of covered acquired loans, net of the related discount (this table should be read in conjunction with the allowance for acquired loan losses table found on page 21):

	Commercial Loans Greater Than												Commercial Real Estate—
	or Equal to $1 million-CBT						Commercial Real Estate						Construction and Development
	June 30,		December 31,		June 30,		June 30,		December 31,		June 30,		June 30,		December 31,		June 30,
(Dollars in thousands)	2013		2012		2012		2013		2012		2012		2013		2012		2012
Pass	$	15,469	$	14,355	$	17,395	$	22,574	$	22,687	$	27,336	$	7,297	$	7,134	$	7,861
Special mention	2,719		3,470		3,405		8,708		10,609		13,914		2,814		3,474		5,621
Substandard	25,644		31,859		34,026		18,942		29,501		44,049		14,160		21,154		25,075
Doubtful	—		—		—		159		165		233		1		813		1,574
	$	43,832	$	49,684	$	54,826	$	50,383	$	62,962	$	85,532	$	24,272	$	32,575	$	40,131

	Residential Real Estate						Consumer						Commercial & Industrial
	June 30,		December 31,		June 30,		June 30,		December 31,		June 30,		June 30,		December 31,		June 30,
	2013		2012		2012		2013		2012		2012		2013		2012		2012
Pass	$	39,776	$	41,907	$	43,200	$	1,829	$	2,215	$	2,575	$	7,546	$	8,073	$	9,141
Special mention	16,920		20,915		25,603		184		574		849		2,093		3,744		4,145
Substandard	37,511		41,963		43,341		1,342		1,534		2,224		8,840		11,753		14,488
Doubtful	23		26		1,790		—		1		83		—		30		70
	$	94,230	$	104,811	$	113,934	$	3,355	$	4,324	$	5,731	$	18,479	$	23,600	$	27,844

	Single Pay
	June 30,		December 31,		June 30,
	2013		2012		2012
Pass	$	56	$	57	$	1,714
Special mention	—		52		54
Substandard	4,475		4,663		3,108
Doubtful	—		—		—
	$	4,531	$	4,772	$	4,876

The following table presents the credit risk profile by risk grade of non-covered acquired loans, net of the related discount (this table should be read in conjunction with the allowance for acquired loan losses table found on page 21):

							Commercial Real Estate—
	Commercial Real Estate						Construction and Development						Residential Real Estate
	June 30,		December 31,		June 30,		June 30,		December 31,		June 30,		June 30,		December 31,		June 30,
(Dollars in thousands)	2013		2012		2012		2013		2012		2012		2013		2012		2012
Pass	$	156,156	$	274,721	$	71,923	$	26,950	$	80,008	$	18,131	$	135,878	$	213,069	$	96,349
Special mention	42,414		11,670		4,622		15,417		4,268		970		30,276		17,324		1,932
Substandard	74,890		23,571		4,456		31,175		13,600		6,481		53,152		19,923		2,391
Doubtful	—		—		1		—		—		2		82		—		1
	$	273,460	$	309,962	$	81,002	$	73,542	$	97,876	$	25,584	$	219,388	$	250,316	$	100,673

	Consumer						Commercial & Industrial						FASB ASC Topic 310-20 Loans
	June 30,		December 31,		June 30,		June 30,		December 31,		June 30,		June 30,		December 31,		June 30,
	2013		2012		2012		2013		2012		2012		2013		2012		2012
Pass	$	7,194	$	10,712	$	5,805	$	33,620	$	45,973	$	11,695	$	59,518	$	71,174	$	—
Special mention	294		209		358		1,476		1,549		652		4,290		574		—
Substandard	574		440		273		3,557		1,762		1,141		5,845		1,467		—
Doubtful	—		—		—		—		—		1		—		—		—
	$	8,062	$	11,361	$	6,436	$	38,653	$	49,284	$	13,489	$	69,653	$	73,215	$	—

The risk grading of acquired loans is determined utilizing a loan’s contractual balance, while the amount recorded in the financial statements and reflected above is the carrying value. In an FDIC-assisted acquisition, covered acquired loans are initially recorded at their fair value, including a credit discount due to the high concentration of substandard and doubtful loans. In addition to the credit discount and the allowance for loan losses on covered acquired loans, the Company’s risk of loss is mitigated by the FDIC loss share arrangement.

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following table presents an aging analysis of past due loans, segregated by class for non-acquired loans:

							Total
	30-59 Days		60-89 Days		90+ Days		Past				Total
(Dollars in thousands)	Past Due		Past Due		Past Due		Due		Current		Loans
June 30, 2013
Commercial real estate:
Construction and land development	$	935	$	1,134	$	5,678	$	7,747	$	277,623	$	285,370
Commercial non-owner occupied	291		—		3,558		3,849		294,919		298,768
Commercial owner occupied	2,607		116		7,602		10,325		791,800		802,125
Consumer real estate:
Consumer owner occupied	3,651		922		3,307		7,880		452,554		460,434
Home equity loans	553		489		152		1,194		249,794		250,988
Commercial and industrial	1,127		129		1,555		2,811		291,769		294,580
Other income producing property	714		1,092		2,648		4,454		132,503		136,957
Consumer	178		46		29		253		103,986		104,239
Other loans	53		12		36		101		32,033		32,134
	$	10,109	$	3,940	$	24,565	$	38,614	$	2,626,981	$	2,665,595

December 31, 2012
Commercial real estate:
Construction and land development	$	812	$	701	$	10,435	$	11,948	$	261,472	$	273,420
Commercial non-owner occupied	1,013		572		3,605		5,190		284,881		290,071
Commercial owner occupied	1,141		40		9,827		11,008		773,144		784,152
Consumer real estate:
Consumer owner occupied	1,433		241		4,045		5,719		428,784		434,503
Home equity loans	735		170		395		1,300		253,984		255,284
Commercial and industrial	1,187		513		549		2,249		277,514		279,763
Other income producing property	322		278		3,253		3,853		129,860		133,713
Consumer	364		151		112		627		86,307		86,934
Other loans	49		41		36		126		33,037		33,163
	$	7,056	$	2,707	$	32,257	$	42,020	$	2,528,983	$	2,571,003

June 30, 2012
Commercial real estate:
Construction and land development	$	1,428	$	852	$	14,349	$	16,629	$	262,890	$	279,519
Commercial non-owner occupied	870		827		4,435		6,132		278,015		284,147
Commercial owner occupied	3,385		407		7,677		11,469		751,869		763,338
Consumer real estate:
Consumer owner occupied	1,281		872		5,571		7,724		412,574		420,298
Home equity loans	472		273		381		1,126		255,935		257,061
Commercial and industrial	355		331		743		1,429		226,581		228,010
Other income producing property	677		981		2,997		4,655		127,538		132,193
Consumer	376		158		31		565		86,725		87,290
Other loans	64		24		31		119		29,276		29,395
	$	8,908	$	4,725	$	36,215	$	49,848	$	2,431,403	$	2,481,251

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following table presents an aging analysis of past due loans, segregated by class for acquired loans:

							Total
	30-59 Days		60-89 Days		90+ Days		Past				Total
(Dollars in thousands)	Past Due		Past Due		Past Due		Due		Current		Loans
June 30, 2013
Covered loans:
Commercial loans greater than or equal to $1 million-CBT	$	—	$	1,210	$	19,435	$	20,645	$	23,186	$	43,831
Commercial real estate	3,675		404		6,920		10,999		39,384		50,383
Commercial real estate—construction and development	775		984		7,766		9,525		14,746		24,271
Residential real estate	1,836		2,087		11,086		15,009		79,221		94,230
Consumer	56		31		522		609		2,746		3,355
Commercial and industrial	183		250		3,714		4,147		14,333		18,480
Single pay	4,366		47		62		4,475		57		4,532
	10,891		5,013		49,505		65,409		173,673		239,082
Non-covered loans:
Commercial real estate	5,054		2,604		7,566		15,224		258,237		273,461
Commercial real estate—construction and development	695		253		11,111		12,059		61,483		73,542
Residential real estate	5,311		1,290		7,985		14,586		204,801		219,387
Consumer	472		48		96		616		7,446		8,062
Commercial and industrial	230		131		421		782		37,870		38,652
FASB ASC Topic 310-20 loans	623		128		947		1,698		67,956		69,654
	12,385		4,454		28,126		44,965		637,793		682,758
	$	23,276	$	9,467	$	77,631	$	110,374	$	811,466	$	921,840
December 31, 2012
Covered loans:
Commercial loans greater than or equal to $1 million-CBT	$	922	$	993	$	22,471	$	24,386	$	25,298	$	49,684
Commercial real estate	3,154		1,536		12,162		16,852		46,110		62,962
Commercial real estate—construction and development	1,381		220		11,615		13,216		19,359		32,575
Residential real estate	2,502		2,636		12,328		17,466		87,345		104,811
Consumer	67		19		687		773		3,551		4,324
Commercial and industrial	739		190		4,870		5,799		17,801		23,600
Single pay	1		3,256		62		3,319		1,453		4,772
	8,766		8,850		64,195		81,811		200,917		282,728
Non-covered loans:
Commercial real estate	2,712		770		5,326		8,808		301,154		309,962
Commercial real estate—construction and development	1,595		1,353		7,103		10,051		87,825		97,876
Residential real estate	5,109		2,193		5,987		13,289		237,027		250,316
Consumer	114		57		49		220		11,141		11,361
Commercial and industrial	529		97		277		903		48,381		49,284
FASB ASC Topic 310-20 loans	388		111		148		647		72,568		73,215
	10,447		4,581		18,890		33,918		758,096		792,014
	$	19,213	$	13,431	$	83,085	$	115,729	$	959,013	$	1,074,742
June 30, 2012
Covered loans:
Commercial loans greater than or equal to $1 million-CBT	$	—	$	—	$	23,580	$	23,580	$	31,246	$	54,826
Commercial real estate	2,070		592		16,470		19,132		66,400		85,532
Commercial real estate—construction and development	1,450		1,080		14,638		17,168		22,963		40,131
Residential real estate	4,654		1,147		11,392		17,193		96,741		113,934
Consumer	206		192		913		1,311		4,420		5,731
Commercial and industrial	561		169		4,600		5,330		22,514		27,844
Single pay	20		58		590		668		4,208		4,876
	8,961		3,238		72,183		84,382		248,492		332,874
Non-covered loans:
Commercial real estate	1,092		130		1,101		2,323		78,679		81,002
Commercial real estate—construction and development	365		4		2,762		3,131		22,453		25,584
Residential real estate	914		170		276		1,360		99,313		100,673
Consumer	187		41		48		276		6,160		6,436
Commercial and industrial	21		62		67		150		13,339		13,489
	2,579		407		4,254		7,240		219,944		227,184
	$	11,540	$	3,645	$	76,437	$	91,622	$	468,436	$	560,058

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following is a summary of information pertaining to impaired non-acquired loans:

					Gross
	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
(Dollars in thousands)	Balance		Allowance		Allowance		Investment		Allowance
June 30, 2013
Commercial real estate:
Construction and land development	$	19,888	$	7,005	$	2,741	$	9,746	$	735
Commercial non-owner occupied	4,879		1,523		2,171		3,694		636
Commercial owner occupied	21,055		14,610		2,510		17,120		281

Consumer real estate:
Consumer owner occupied	1,419		—		1,322		1,322		667
Home equity loans	—		—		—		—		—

Commercial and industrial	1,799		1,534				1,534
Other income producing property	3,666		592		2,433		3,025		716
Consumer	—		—		—		—		—
Other loans	—		—		—		—		—
Total impaired loans	$	52,706	$	25,264	$	11,177	$	36,441	$	3,035

December 31, 2012
Commercial real estate:
Construction and land development	$	21,350	$	8,659	$	4,890	$	13,549	$	1,573
Commercial non-owner occupied	7,564		3,148		2,196		5,344		411
Commercial owner occupied	23,566		15,698		4,514		20,212		648

Consumer real estate:
Consumer owner occupied	2,040		—		1,954		1,954		213
Home equity loans	—		—		—		—		—

Commercial and industrial	2,595		464		1,319		1,783		1,030
Other income producing property	4,656		1,382		3,011		4,393		1,004
Consumer	—		—		—		—		—
Other loans	—		—		—		—		—
Total impaired loans	$	61,771	$	29,351	$	17,884	$	47,235	$	4,879

June 30, 2012
Commercial real estate:
Construction and land development	$	24,501	$	11,262	$	6,058	$	17,320	$	1,861
Commercial non-owner occupied	8,693		5,270		632		5,902		177
Commercial owner occupied	19,975		9,783		6,102		15,885		553

Consumer real estate:
Consumer owner occupied	2,761		1,460		1,206		2,666		229
Home equity loans	—		—		—		—		—

Commercial and industrial	547		479		—		479		—
Other income producing property	3,351		1,737		1,126		2,863		142
Consumer	—		—		—		—		—
Other loans	—		—		—		—		—
Total impaired loans	$	59,828	$	29,991	$	15,124	$	45,115	$	2,962

Acquired loans are accounted for in pools as shown on page 21 rather than being individually evaluated for impairment; therefore, the table above only pertains to non-acquired loans.

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following summarizes the average investment in non-acquired impaired loans and interest income recognized on non-acquired impaired loans:

	Three Months Ended				Three Months Ended
	June 30, 2013				June 30, 2012
	Average				Average
	Investment in		Interest Income		Investment in		Interest Income
(Dollars in thousands)	Impaired Loans		Recognized		Impaired Loans		Recognized
Commercial real estate:
Construction and land development	$	11,406	$	9	$	21,107	$	34
Commercial non-owner occupied	4,620		—		16,357		15
Commercial owner occupied	16,985		13		7,592		64

Consumer real estate:
Consumer owner occupied	1,322		2		2,981		21
Home equity loans	—		—		—		—

Commercial and industrial	1,900		—		1,079		—
Other income producing property	3,771		—		4,011		4
Consumer	—		—		—		—
Other loans	—		—		—		—
Total Impaired Loans	$	40,004	$	24	$	53,127	$	138

	Six Months Ended				Six Months Ended
	June 30, 2013				June 30, 2012
	Average				Average
	Investment in		Interest Income		Investment in		Interest Income
(Dollars in thousands)	Impaired Loans		Recognized		Impaired Loans		Recognized

Commercial real estate:
Construction and land development	$	12,457	$	27	$	21,657	$	51
Commercial non-owner occupied	4,838		1		17,316		15
Commercial owner occupied	15,141		61		8,887		108

Consumer real estate:
Consumer owner occupied	1,336		7		2,488		42
Home equity loans	—		—		—		—

Commercial and industrial	2,024		—		1,351		—
Other income producing property	4,117		8		3,774		17
Consumer	—		—		—		—
Other loans	—		—		—		—
Total Impaired Loans	$	39,913	$	104	$	55,473	$	233

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following is a summary of information pertaining to non-acquired nonaccrual loans by class, including restructured loans:

	June 30,		December 31,		June 30,
(Dollars in thousands)	2013		2012		2012
Commercial non-owner occupied real estate:
Construction and land development	$	8,575	$	11,961	$	15,264
Commercial non-owner occupied	3,742		4,780		5,215
Total commercial non-owner occupied real estate	12,317		16,741		20,479
Consumer real estate:
Consumer owner occupied	8,596		8,025		7,690
Home equity loans	755		1,835		1,023
Total consumer real estate	9,351		9,860		8,713
Commercial owner occupied real estate	11,801		14,146		12,946
Commercial and industrial	1,847		2,152		1,037
Other income producing property	5,450		5,405		4,542
Consumer	88		83		223
Other loans	—		—		—
Restructured loans	11,689		13,151		9,530
Total loans on nonaccrual status	$	52,543	$	61,538	$	57,470

In the course of resolving delinquent loans, the Bank may choose to restructure the contractual terms of certain loans. Any loans that are modified are reviewed by the Bank to determine if a troubled debt restructuring (“TDR” or “restructured loan”) has occurred. A TDR is a modification in which the Bank grants a concession to a borrower that it would not otherwise consider due to economic or legal reasons related to a borrower’s financial difficulties. The concessions granted on TDRs generally include terms to reduce the interest rate, extend the term of the debt obligation, or modify the payment structure on the debt obligation.

The Bank designates loan modifications as TDRs when it grants a concession to the borrower that it would not otherwise consider due to the borrower experiencing financial difficulty (ASC Topic 310.40). Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the note is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. Nonaccrual TDRs are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower’s financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months).

Table of Contents

Note 6 — Loans and Allowance for Loan Losses (Continued)

The following table presents non-acquired loans designated as TDRs segregated by class and type of concession that were restructured during the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30, 2013					Three Months Ended June 30, 2012
(Dollars in thousands)	Number of loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of loans	Pre- Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Interest rate modification
Construction and land development	—	$	—	$	—	1	$	165	$	162
Commercial non-owner occupied	1	247		247
Commercial owner occupied	1	750		750		1	443		442
Consumer owner occupied	—	—		—		—	—		—
Other income producing property	—	—		—		—	—		—
Total interest rate modifications	2	$	997	$	997	2	$	608	$	604

Term modification
Construction and land development	—	—		—		1	230		226
Commercial owner occupied	—	—		—		—	—		—
Consumer owner occupied	—	—		—		—	—		—
Commercial and industrial	—	—		—		—	—		—
Total term modifications	—	$	—	$	—	1	$	230	$	226

	2	$	997	$	997	3	$	838	$	830

	Six Months Ended June 30, 2013					Six Months Ended June 30, 2012
(Dollars in thousands)	Number of loans	Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Interest rate modification
Construction and land development	—	$	—	$	—	1	$	165	$	162
Commercial non-owner occupied	1	247		247
Commercial owner occupied	1	750		750		2	1,144		1,143
Consumer owner occupied	1	124		122		—	—		—
Other income producting property	—	—		—		—	—		—
Total interest rate modifications	3	$	1,121	$	1,119	3	$	1,309	$	1,305

Term modification
Construction and land development	1	696		134		1	230		226
Commercial owner occupied	—	—		—		—	—		—
Consumer owner occupied	—	—		—		—	—		—
Total term modifications	1	$	696	$	134	1	$	230	$	226

	4	$	1,817	$	1,253	4	$	1,539	$	1,531

At June 30, 2013, December 31, 2012, and June 30, 2012, the balance of accruing TDRs was $4.3 million, $6.3 million, and $6.6 million, respectively.

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Note 6 — Loans and Allowance for Loan Losses (Continued)

The following table presents the changes in status of non-acquired loans restructured within the previous 12 months as of June 30, 2013 by type of concession:

	Paying Under
	Restructured Terms			Converted to Nonaccrual			Foreclosures and Defaults
	Number	Recorded		Number	Recorded		Number	Recorded
(Dollars in thousands)	of Loans	Investment		of Loans	Investment		of Loans	Investment
Interest rate modification	7	$	6,177	—	$	—	—	$	—
Term modification	3	1,401		—	—		—	—
	10	$	7,578	—	$	—	—	$	—

The amount of specific reserve associated with non-acquired restructured loans was $687,000 at June 30, 2013, none of which was related to the restructured loans that had subsequently defaulted. The Company had $15,000 in remaining availability under commitments to lend additional funds on these restructured loans at June 30, 2013.

Note 7—FDIC Indemnification Asset

The following table provides changes in FDIC indemnification asset:

	Six Months Ended
	June 30,			June 30,
(Dollars in thousands)	2013			2012
Balance at beginning of period	$	146,171		$	262,651
Increase (decrease) in expected losses on loans	(1,321		)	3,518
Additional losses on OREO	574			6,058
Reimbursable expenses	2,607			4,837
Amortization of discounts and premiums, net	(14,481		)	(7,603		)
Reimbursements from FDIC	(29,502		)	(68,892		)
Balance at end of period	$	104,048		$	200,569

The FDIC indemnification asset is measured separately from the related covered assets. At June 30, 2013, the projected cash flows related to the FDIC indemnification asset for losses on assets acquired were approximately $47.7 million less than the current carrying value. This amount is being recognized as negative accretion (in non-interest income) over the shorter of the underlying asset’s remaining life or remaining term of the loss share agreements. Subsequent to June 30, 2013, the Company expects to receive $8.0 million from loss share claims filed, including reimbursable expenses.

Included in the FDIC indemnification asset is an expected “true up” with the FDIC related to the BankMeridian acquisition. This amount is determined each reporting period and at June 30, 2013, was estimated to be approximately $3.7 million at the end of the loss share agreement (in ten years). The actual payment will be determined at the end of the loss sharing agreement term for each of the three FDIC-assisted acquisitions and is based on the negative bid, expected losses, intrinsic loss estimate, and assets covered under loss share. There was no true up expected from the Community Bank & Trust (“CBT”) or Habersham Bank (“HB”) FDIC-assisted transactions as of June 30, 2013.

Note 8—Other Real Estate Owned

The following is a summary of information pertaining to OREO at June 30, 2013:

(Dollars in thousands)	OREO			Covered OREO			Total
Balance, December 31, 2012	$	32,248		$	34,257		$	66,505
Additions	15,170			12,893			28,063
Write-downs	(2,587		)	(935		)	(3,522		)
Sold	(11,345		)	(11,073		)	(22,418		)
Balance, June 30, 2013	$	33,486		$	35,142		$	68,628

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Note 8—Other Real Estate Owned (Continued)

The following is a summary of information pertaining to OREO at June 30, 2012:

(Dollars in thousands)	OREO			Covered OREO			Total
Balance, December 31, 2011	$	18,022		$	65,849		$	83,871
Acquired in Peoples acquisition	7,916			—			7,916
Additions	18,950			15,075			34,025
Write-downs	(2,622		)	(6,416		)	(9,038		)
Sold	(11,003		)	(21,362		)	(32,365		)
Balance, June 30, 2012	$	31,263		$	53,146		$	84,409

The covered OREO above is covered pursuant to the FDIC loss share agreements and is presented net of the related fair value discount. At June 30, 2013, there were 311 properties included in OREO, with 140 uncovered and 171 covered by loss share agreement with the FDIC. At June 30, 2012, there were 692 properties in OREO, with 134 uncovered and 558 covered by loss share agreement with the FDIC.

Note 9 — Deposits

The Company’s total deposits are comprised of the following:

	June 30,		December 31,		June 30,
(Dollars in thousands)	2013		2012		2012

Certificates of deposit	$	944,080	$	1,062,842	$	978,927
Interest-bearing demand deposits	1,839,220		1,911,673		1,570,287
Non-interest bearing demand deposits	1,046,537		981,963		806,235
Savings deposits	350,061		341,103		302,672
Other time deposits	3,071		779		2,851
Total deposits	$	4,182,969	$	4,298,360	$	3,660,972

The aggregate amounts of time deposits in denominations of $100,000 or more at June 30, 2013, December 31, 2012, and June 30, 2012 were $398.5 million, $464.6 million and $418.3 million, respectively. In July of 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) permanently increased the insurance limit on deposit accounts from $100,000 to $250,000. At June 30, 2013, December 31, 2012, and June 30, 2012, the Company had $116.7 million, $129.6 million, and $128.8 million in certificates of deposits greater than $250,000, respectively. At June 30, 2013 and December 31, 2012, the Company had $1.3 million and $13.0 million in traditional, out-of-market brokered deposits. The Company did not have brokered certificates of deposit at June 30, 2012.

Note 10 — Retirement Plans

The Company and the Bank provide certain retirement benefits to their employees in the form of a non-contributory defined benefit pension plan and an employees’ savings plan. The non-contributory defined benefit pension plan covers all employees hired on or before December 31, 2005, who have attained age 21, and who have completed a year of eligible service. Employees hired on or after January 1, 2006 are not eligible to participate in the non-contributory defined benefit pension plan. On this date, a new benefit formula applies only to participants who have not attained age 45 or who do not have five years of service.

Effective July 1, 2009, the Company suspended the accrual of benefits for pension plan participants under the non-contributory defined benefit plan. The pension plan remained suspended as of June 30, 2013.

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Note 10 — Retirement Plans (Continued)

The components of net periodic pension expense recognized during the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2013			2012			2013			2012

Interest cost	$	(250	)	$	(258	)	$	(500	)	$	(516	)
Expected return on plan assets	430			407			860			815
Recognized net actuarial loss	(301		)	(267		)	(602		)	(534		)
Net periodic pension expense	$	(121	)	$	(118	)	$	(242	)	$	(235	)

The Company contributed $300,000 and $600,000 to the pension plan for the three and six months ended June 30, 2013, respectively, and anticipates making similar additional contributions during the remainder of the year.

Electing employees are eligible to participate in the employees’ savings plan, under the provisions of Internal Revenue Code Section 401(k), after attaining age 21. Plan participants elect to contribute portions of their annual base compensation as a before tax contribution. Employer contributions may be made from current or accumulated net profits. Participants may elect to contribute 1% to 50% of annual base compensation as a before tax contribution. Effective September 1, 2012, employees participating in the plan receive a 100% matching of their 401(k) plan contribution, up to 5% of salary. Prior to September 1, 2012, participating employees received a 50% matching of their 401(k) plan contribution, up to 6% of salary. The Company expensed $748,000 and $342,000 for the 401(k) plan during the three months ended June 30, 2013 and 2012, respectively. The Company expensed $1.2 million and $667,000 for the 401(k) plan during the six months ended June 30, 2013 and 2012, respectively.

Employees hired on January 1, 2006 or thereafter will not participate in the defined benefit pension plan, but are eligible to participate in the employees’ savings plan.

Employees can enter the savings plan on or after the first day of each month. The employee may enter into a salary deferral agreement at any time to select an alternative deferral amount or to elect not to defer in the plan. If the employee does not elect an investment allocation, the plan administrator will select a retirement-based portfolio according to the employee’s number of years until normal retirement age. The plan’s investment valuations are generally provided on a daily basis.

Note 11 — Earnings Per Share

Basic earnings per share are calculated by dividing net income available to common shareholders by the weighted-average shares of common stock outstanding during each period, excluding non-vested shares. The Company’s diluted earnings per share are based on the weighted-average shares of common stock outstanding during each period plus the maximum dilutive effect of common stock issuable upon exercise of stock options or vesting of restricted shares. The weighted-average number of shares and equivalents are determined after giving retroactive effect to stock dividends and stock splits.

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Note 11 — Earnings Per Share (Continued)

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars and shares in thousands)	2013		2012		2013		2012
Basic earnings per share:
Net income	$	12,532	$	8,031	$	23,181	$	15,059

Weighted-average basic shares	16,790		14,651		16,804		14,260
Basic earnings per share	$	0.75	$	0.55	$	1.38	$	1.06

Diluted earnings per share:
Net income	$	12,532	$	8,031	$	23,181	$	15,059

Weighted-average basic shares	16,790		14,651		16,804		14,260
Effect of dilutive securities	200		82		182		74
Weighted-average dilutive shares	16,990		14,733		16,986		14,334
Diluted earnings per share	$	0.74	$	0.55	$	1.36	$	1.05

The calculation of diluted earnings per share excludes outstanding stock options for which the results would have been antidilutive under the treasury stock method as follows:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
(Dollars in thousands)	2013	2012	2013	2012

Number of shares	21,361	141,329	21,361	155,440
Range of exercise prices	$41.45-$41.45	$31.10 - $40.99	$41.45-$41.45	$31.10 - $40.99

Note 12 — Share-Based Compensation

The Company’s 1999, 2004, and 2012 share-based compensation programs are long-term retention programs intended to attract, retain, and provide incentives for key employees and non-employee directors in the form of incentive and non-qualified stock options and restricted stock.

Stock Options

With the exception of non-qualified stock options granted to directors under the 1999, 2004, and 2012 plans, which in some cases may be exercised at any time prior to expiration and in some other cases may be exercised at intervals less than a year following the grant date, incentive stock options granted under the plans may not be exercised in whole or in part within a year following the date of the grant, as these incentive stock options become exercisable in 25% increments pro ratably over the four-year period following the grant date. The options are granted at an exercise price at least equal to the fair value of the common stock at the date of grant and expire ten years from the date of grant. No options were granted under the 1999 plan after January 2, 2004, and the 1999 plan is closed other than for any options still unexercised and outstanding. No options were granted under the 2004 plan after January 26, 2012, and the 2004 plan is closed other than for any options still unexercised and outstanding. The 2012 plan is the only plan from which new share-based compensation grants may be issued. It is the Company’s policy to grant options out of the 1,684,000 shares registered under the 2012 plan, of which no more than 817,476 shares can be granted as restricted stock or restricted stock units (“RSUs”).

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Note 12 — Share-Based Compensation (Continued)

Activity in the Company’s stock option plans is summarized in the following table. All information has been retroactively adjusted for stock dividends and stock splits.

						Weighted-
				Weighted-		Average
				Average		Remaining	Aggregate
	Number of			Exercise		Contractual	Intrinsic
Options	Shares			Price		Life (Yrs.)	Value (000’s)

Outstanding at January 1, 2013	340,140			$	31.79
Granted	23,007			41.45
Exercised	(20,746		)	28.21
Expired/Forfeited	(1,446		)	22.13
Outstanding at June 30, 2013	340,955			32.70		4.77	$	6,032

Exercisable at June 30, 2013	278,094			32.08		3.97	$	5,091

Weighted-average fair value of options granted during the year	$	15.66

The fair value of options is estimated at the date of grant using the Black-Scholes option pricing model and expensed over the options’ vesting periods. The following weighted-average assumptions were used in valuing options issued:

	Six Months Ended
	June 30,
	2013	2012

Dividend yield	1.70%	2.10%
Expected life	6 years	6 years
Expected volatility	42%	46%
Risk-free interest rate	1.02%	1.06%

As of June 30, 2013, there was $661,000 of total unrecognized compensation cost related to nonvested stock option grants under the plans. The cost is expected to be recognized over a weighted-average period of 1.46 years as of June 30, 2013. The total fair value of shares vested during the six months ended June 30, 2013 was $397,000.

Restricted Stock

The Company from time-to-time also grants shares of restricted stock to key employees and non-employee directors. These awards help align the interests of these employees and directors with the interests of the shareholders of the Company by providing economic value directly related to increases in the value of the Company’s stock. The value of the stock awarded is established as the fair market value of the stock at the time of the grant. The Company recognizes expenses, equal to the total value of such awards, ratably over the vesting period of the stock grants. Restricted stock grants to employees typically “cliff vest” after four years. Grants to non-employee directors typically vest within a 12-month period.

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Note 12 — Share-Based Compensation (Continued)

Nonvested restricted stock for the six months ended June 30, 2013 is summarized in the following table. All information has been retroactively adjusted for stock dividends and stock splits.

			Weighted-
			Average
			Grant-Date
Restricted Stock	Shares		Fair Value

Nonvested at January 1, 2013	172,847		$	30.84
Granted	76,754		42.04
Vested	(7,575	)	32.82
Forfeited	(519	)	41.10
Nonvested at June 30, 2013	241,507		34.31

As of June 30, 2013, there was $5.7 million of total unrecognized compensation cost related to nonvested restricted stock granted under the plans. This cost is expected to be recognized over a weighted-average period of 3.28 years as of June 30, 2013. The total fair value of shares vested during the six months ended June 30, 2013 was $249,000.

Restricted Stock Units

The Company from time-to-time also grants performance RSUs to key employees. These awards help align the interests of these employees with the interests of the shareholders of the Company by providing economic value directly related to the performance of the Company. Performance RSU grants contain a three year performance period. The Company communicates threshold, target, and maximum performance RSU awards and performance targets to the applicable key employees at the beginning of a performance period. Dividends are not paid in respect to the awards during the performance period. The value of the RSUs awarded is established as the fair market value of the stock at the time of the grant. The Company recognizes expenses on a straight-line basis typically over three years based upon the probable performance target that will be met. For the six months ended June 30, 2013, the Company accrued at the target RSU award level, or for 70.9% of the RSUs granted, based on Management’s expectations of performance.

Nonvested RSUs for the six months ended June 30, 2013 is summarized in the following table.

		Weighted-
		Average
		Grant-Date
Restricted Stock Units	Shares	Fair Value

Nonvested at January 1, 2013	—	$	—
Granted	36,876	50.45
Nonvested at June 30, 2013	36,876	50.45

As of June 30, 2013, there was $1.6 million of total unrecognized compensation cost related to nonvested RSUs granted under the plan. This cost is expected to be recognized over a weighted-average period of 2.50 years as of June 30, 2013.

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Note 13 — Commitments and Contingent Liabilities

In the normal course of business, the Company makes various commitments and incurs certain contingent liabilities, which are not reflected in the accompanying financial statements. The commitments and contingent liabilities include guarantees, commitments to extend credit, and standby letters of credit. At June 30, 2013, commitments to extend credit and standby letters of credit totaled $878.4 million. The Company does not anticipate any material losses as a result of these transactions.

The Company has been named as defendant in various legal actions, arising from its normal business activities, in which damages in various amounts are claimed. The Company is also exposed to litigation risk related to the prior business activities of banks acquired through whole bank acquisitions as well as banks from which assets were acquired and liabilities assumed in FDIC-assisted transactions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability will not have a material effect on the Company’s consolidated financial statements.

Note 14 — Fair Value

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States, and enhances disclosures about fair value measurements. FASB ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale securities and derivative contracts are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, impaired loans, OREO, and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1	Observable inputs such as quoted prices in active markets;
Level 2	Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following is a description of valuation methodologies used for assets recorded at fair value.

Investment Securities

Securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and The NASDAQ Stock Market, or U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities and debentures issued by government sponsored entities, municipal bonds and corporate debt securities. Securities held to maturity are valued at quoted market prices or dealer quotes similar to securities available for sale. The carrying value of FHLB stock approximates fair value based on the redemption provisions. The Level 3 security is an unrated single-issue private placement bond that was acquired in the Savannah transaction. This security is considered a Level 3 because there is not an active market for the security. Management considers the credit quality of the underlying issuer in determining the fair value of the security. During the second quarter of 2013, the issuer paid off the security for $3.8 million and the Company realized a $31,000 gain on the payoff of the security.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or market value. The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics. As such, the fair value adjustments for mortgage loans held for sale are nonrecurring Level 2.

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Note 14 — Fair Value (Continued)

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan may be considered impaired and an allowance for loan losses may be established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using estimated fair value methodologies. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2013, substantially all of the impaired loans were evaluated based on the fair value of the collateral because such loans were considered collateral dependent. Impaired loans, where an allowance is established based on the fair value of collateral, require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company considers the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company considers the impaired loan as nonrecurring Level 3.

Other Real Estate Owned (“OREO”)

Typically non-covered OREO, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 2). However, both non-covered and covered OREO are considered Level 3 in the fair value hierarchy because management has qualitatively applied a discount due to the size, supply of inventory, and the incremental discounts applied to the appraisals. Management also considers other factors, including changes in absorption rates, length of time the property has been on the market and anticipated sales values, which have resulted in adjustments to the collateral value estimates indicated in certain appraisals. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and generally any subsequent adjustments to the value are recorded as a component of OREO expense, net of any FDIC indemnification proceeds in the case of covered OREO.

Derivative Financial Instruments

Fair value is estimated using pricing models of derivatives with similar characteristics; accordingly, the derivatives are classified within Level 2 of the fair value hierarchy (see Note 16—Derivative Financial Instruments for additional information).

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Note 14 — Fair Value (Continued)

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.

			Quoted Prices
			In Active		Significant
			Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2013:
Assets
Derivative financial instruments	$	212	$	—	$	212	$	—
Securities available for sale:
Government-sponsored entities debt	96,359		—		96,359		—
State and municipal obligations	139,513		—		139,513		—
Mortgage-backed securities	275,018		—		275,018		—
Corporate stocks	457		432		25		—
Total securities available for sale	511,347		432		510,915		—
	$	511,559	$	432	$	511,127	$	—
Liabilities
Derivative financial instruments	$	1,262	$	—	$	1,262	$	—

December 31, 2012:
Assets
Derivative financial instruments	$	312	$	—	$	312	$	—
Securities available for sale:
Government-sponsored entities debt	88,518		—		88,518		—
State and municipal obligations	152,799		—		148,948		3,851
Mortgage-backed securities	293,187		—		293,187		—
Corporate stocks	379		354		25		—
Total securities available for sale	534,883		354		530,678		3,851
	$	535,195	$	354	$	530,990	$	3,851
Liabilities
Derivative financial instruments	$	1,813	$	—	$	1,813	$	—

June 30, 2012:
Assets
Securities available for sale:
Government-sponsored entities debt	$	65,265	$	—	$	65,265	$	—
State and municipal obligations	138,463		—		138,463		—
Mortgage-backed securities	274,122		—		274,122		—
FHLMC preferred stock	259		—		259		—
Corporate stocks	363		338		25		—
Total securities available for sale	$	478,472	$	338	$	478,134	$	—
Liabilities
Derivative financial instruments	$	1,514	$	—	$	1,514	$	—

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Note 14 — Fair Value (Continued)

Changes in Level 1, 2 and 3 Fair Value Measurements

There were no transfers between the fair value hierarchy levels during the six months ended June 30, 2013 and 2012.

When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses below include changes in fair value due in part to observable factors that are part of the valuation methodology.

There were no changes in hierarchy classifications of Level 3 assets or liabilities for the six months ended June 30, 2012. A reconciliation of the beginning and ending balances of Level 3 assets and liabilities recorded at fair value on a recurring basis for the six months ended June 30, 2013 is as follows:

(Dollars in thousands)	Assets			Liabilities

Fair value, January 1, 2013	$	3,851		$	—
Change in unrealized loss recognized in other comprehensive income	—			—
Total realized losses included in income	—			—
Other-than-temporary impairment losses recognized in income	—			—
Purchases, issuances and settlements, net	(3,851		)	—
Transfers in and/or out of level 3	—			—
Fair value, June 30, 2013	$	—		$	—

There were no unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at June 30, 2013 or 2012.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis:

			Quoted Prices
			In Active		Significant
			Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2013:
OREO	$	52,638	$	—	$	—	$	52,638
Non-acquired impaired loans	5,564		—		—		5,564

December 31, 2012:
OREO	$	66,505	$	—	$	—	$	66,505
Non-acquired impaired loans	42,356		—		—		42,356

June 30, 2012:
OREO	$	63,360	$	—	$	—	$	63,360
Non-acquired impaired loans	12,317		—		—		12,317

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Note 14 — Fair Value (Continued)

Quantitative Information about Level 3 Fair Value Measurements

			General Range
	Valuation Technique	Unobservable Input	(Weighted Average)
Nonrecurring measurements:
Impaired loans	Discounted appraisals	Collateral discounts	0-25% (8.33%)
OREO	Discounted appraisals	Collateral discounts and estimated costs to sell	0-50% (32.83%)

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those models are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2013, December 31, 2012 and June 30, 2012. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents — The carrying amount is a reasonable estimate of fair value.

Investment Securities — Securities held to maturity are valued at quoted market prices or dealer quotes. The carrying value of FHLB stock approximates fair value based on the redemption provisions. The carrying value of the Company’s investment in unconsolidated subsidiaries approximates fair value. See Note 5—Investment Securities for additional information, as well as page 37 regarding fair value.

Loans — For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (e.g., one-to-four family residential) and other consumer loans are estimated using discounted cash flow analyses based on the Company’s current rates offered for new loans of the same type, structure and credit quality. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered by the Company for loans with similar terms to borrowers of similar credit quality. Fair values for non-performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

FDIC Receivable for Loss Share Agreements — The fair value is estimated based on discounted future cash flows using current discount rates.

Deposit Liabilities — The fair values disclosed for demand deposits (e.g., interest and non-interest bearing checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts, and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase — The carrying amount of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values.

Other Borrowings — The fair value of other borrowings is estimated using discounted cash flow analysis on the Company’s current incremental borrowing rates for similar types of instruments.

Accrued Interest — The carrying amounts of accrued interest approximate fair value.

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Note 14 — Fair Value (Continued)

Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees — The fair values of commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are based on fees currently charged for similar agreements or on the estimated costs to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

The estimated fair value, and related carrying amount, of the Company’s financial instruments are as follows:

	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
June 30, 2013
Financial assets:
Cash and cash equivalents	$	436,481	$	436,481	$	436,481	$	—	$	—
Investment securities	531,579		532,199		8,237		523,962		—
Loans, net of allowance for loan losses, and loans held for sale	3,565,193		3,578,267		—		47,980		3,530,287
FDIC receivable for loss share agreements	104,048		64,569		—		—		64,569
Accrued interest receivable	9,801		9,801		—		2,846		6,955
Interest rate swap — non-designated hedge	212		212		—		212		—
Financial liabilities:
Deposits	4,182,969		4,049,826		—		4,049,826		—
Federal funds purchased and securities sold under agreements to repurchase	262,447		262,447		—		262,447		—
Other borrowings	54,372		55,719		—		55,719		—
Accrued interest payable	1,391		1,391		—		1,391		—
Interest rate swap — cash flow hedge	1,050		1,050		—		1,050		—
Interest rate swap — non-designated hedge	212		212		—		212		—
Off balance sheet financial instruments:
Commitments to extend credit	—		3,339		—		3,339		—
Standby letters of credit and financial guarantees	—		—		—		—		—

December 31, 2012
Financial assets:
Cash and cash equivalents	$	380,730	$	380,730	$	380,730	$	—	$	—
Investment securities	560,091		561,204		10,122		547,231		3,851
Loans, net of allowance for loan losses, and loans held for sale	3,634,514		3,665,070		—		65,279		3,599,791
FDIC receivable for loss share agreements	146,171		101,898		—		—		101,898
Accrued interest receivable	8,190		8,190		—		8,190		—
Interest rate swap — non-designated hedge	312		312		—		312		—
Financial liabilities:
Deposits	4,298,360		4,216,800		—		4,216,800		—
Federal funds purchased and securities sold under agreements to repurchase	238,621		238,621		—		238,621		—
Other borrowings	54,897		57,903		—		57,903		—
Accrued interest payable	2,045		2,045		—		2,045		—
Interest rate swap — cash flow hedge	1,501		1,501		—		1,501		—
Interest rate swap — non-designated hedge	312		312		—		312		—
Off balance sheet financial instruments:
Commitments to extend credit	—		7,371		—		7,371		—
Standby letters of credit and financial guarantees	—		—		—		—		—

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Note 14 — Fair Value (Continued)

	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
June 30, 2012
Financial assets:
Cash and cash equivalents	$	309,919	$	309,919	$	309,919	$	—	$	—
Investment securities	511,138		512,312		16,436		495,876		—
Loans, net of allowance for loan losses, and loans held for sale	3,000,752		3,043,546		—		42,525		3,001,021
FDIC receivable for loss share agreements	200,569		118,431		—		—		118,431
Accrued interest receivable	10,393		10,393		—		10,393		—
Financial liabilities:
Deposits	3,660,972		3,633,642		—		3,633,642		—
Federal funds purchased and securities sold under agreements to repurchase	220,264		220,264		—		220,264		—
Other borrowings	46,105		48,296		—		48,296		—
Accrued interest payable	2,344		2,344		—		2,344		—
Interest rate swap — cash flow hedge	1,514		1,514		—		1,514		—
Off balance sheet financial instruments:
Commitments to extend credit	—		11,809		—		11,809		—
Standby letters of credit and financial guarantees	—		—		—		—		—

Note 15 — Accumulated Other Comprehensive Income

The changes in each components of accumulated other comprehensive income, net of tax, were as follows:

				Unrealized Gains
				and Losses			Gains and
				on Securities			Losses on
	Benefit			Available			Cash Flow
(Dollars in thousands)	Plans			for Sale			Hedges			Total
Balance at December 31, 2012	$	(7,458	)	$	8,764		$	(930	)	$	376
Other comprehensive income (loss) before reclassifications	—			(10,248		)	186			(10,062		)
Amounts reclassified from accumulated other comprehensive income	—			—			95			95
Net comprehensive income (loss)	—			(10,248		)	281			(9,967		)
Balance at June 30, 2013	$	(7,458	)	$	(1,484	)	$	(649	)	$	(9,591	)

The table below presents the reclassifications out of accumulated other comprehensive income, net of tax, for the six months ended June 30, 2013:

	Amount Reclassified from
Accumulated Other Comprehensive	Accumulated Other
Income Component	Comprehensive Income			Income Statement Line Item Affected

Gains and losses on cash flow hedges:
Interest rate contracts	$	153		Interest expense
	(58		)	Provision for income taxes
	95			Net income

Total reclassifications for the period	$	95

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Note 16 — Derivative Financial Instruments

The Company is exposed to interest rate risk in the course of its business operations and manages a portion of this risk through the use of a derivative financial instrument in the form of an interest rate swap (cash flow hedge). The Company accounts for its interest rate swap in accordance with FASB ASC 815, Derivatives and Hedging, which requires that all derivatives be recognized as assets or liabilities in the balance sheet at fair value. For more information regarding the fair value of the Company’s derivative financial instruments, see Note 14 to these financial statements.

The Company utilizes the interest rate swap agreement to convert a portion of its variable-rate debt to a fixed rate (cash flow hedge). For derivatives designated as hedging exposure to variable cash flows of a forecasted transaction (cash flow hedge), the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings or when the hedge is terminated. The ineffective portion of the gain or loss is reported in earnings immediately. For derivatives that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.

In applying hedge accounting for derivatives, the Company establishes a method for assessing the effectiveness of the hedging derivative and a measurement approach for determining any ineffective aspect of the hedge upon the inception of the hedge.

Cash Flow Hedge of Interest Rate Risk

During 2009, the Company entered into a forward starting interest rate swap agreement with a notional amount of $8.0 million to manage interest rate risk due to periodic rate resets on its junior subordinated debt issued by SCBT Capital Trust II, an unconsolidated subsidiary of the Company established for the purpose of issuing trust preferred securities. The Company hedges the variable rate cash flows of subordinated debt against future interest rate increases by using an interest rate swap to effectively fix the rate on the debt beginning on June 15, 2010, at which time the debt contractually converted from a fixed interest rate to a variable interest rate. This hedge expires on June 15, 2019. The notional amount on which the interest payments are based will not be exchanged. This derivative contract calls for the Company to pay a fixed rate of 4.06% on $8.0 million notional amount and receive a variable rate of three-month LIBOR on the $8.0 million notional amount.

The Company recognized an after-tax unrealized gain on its cash flow hedge in other comprehensive income of $218,000 and $281,000 for the three and six months ended June 30, 2013, respectively. The Company recognized an after-tax unrealized loss on its cash flow hedge in other comprehensive income of $144,000 and $76,000 for the three and six months ended June 30, 2012, respectively. The Company recognized a $1.0 million and a $1.5 million cash flow hedge liability in other liabilities on the balance sheet at June 30, 2013 and 2012, respectively. There was no ineffectiveness in the cash flow hedge during the six months ended June 30, 2013 and 2012.

Credit risk related to the derivative arises when amounts receivable from the counterparty (derivative dealer) exceed those payable. The Company controls the risk of loss by only transacting with derivative dealers that are national market makers whose credit ratings are strong. Each party to the interest rate swap is required to provide collateral in the form of cash or securities to the counterparty when the counterparty’s exposure to a mark-to-market replacement value exceeds certain negotiated limits. These limits are typically based on current credit ratings and vary with ratings changes. As of June 30, 2013 and 2012, the Company was required to provide $1.1 million and $1.6 million of collateral, respectively, which is included in cash and cash equivalents on the balance sheet as interest-bearing deposits with banks. Also, the Company has a netting agreement with the counterparty.

Non-designated Hedges of Interest Rate Risk

As of June 30, 2013, the Company has two interest rate swap contracts that were classified as non-designated hedges that were acquired through the merger transaction with Savannah. These derivatives are not designated as hedges and are not speculative in nature. One of the derivatives is an interest rate swap that was executed with a commercial borrower to facilitate a respective risk management strategy and allow the customer to pay a fixed rate of interest to the Company. This interest rate swap was simultaneously hedged by executing an offsetting interest rate swap that was entered into with a third party to minimize the net risk exposure to the Company resulting from the transactions and allow the Company to receive a variable rate of interest.

The interest rate swap contract with the commercial borrower requires the borrower to pay or receive from the Company an amount equal to and offsetting the value of the interest rate swap. If the commercial borrower fails to perform and the market value for the interest rate swap with the third party is negative (net liability position), the Company would be obligated to pay the settlement amount for the financial derivative. If the market value for the interest rate swap with the third party is positive (net asset position), the Company would receive a payment for the settlement amount for the financial derivative. The settlement amount is determined by the fluctuation of interest rates.

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Note 16 — Derivative Financial Instruments (Continued)

As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of June 30, 2013, the interest rate swaps had an aggregate notional amount of approximately $4.5 million and the fair value of these two offsetting interest rate swap derivatives are recorded in other assets and in other liabilities for $212,000 on the balance sheet. The net effect of recording the derivatives at fair value through earnings was immaterial to the Company’s financial condition and results of operations during 2013.

The Company also has an agreement with the third party in this derivative relationship that contains a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. As of June 30, 2013, the fair value of the interest rate swap derivative with the third party was in a net liability position of $212,000, which excludes any adjustment for nonperformance risk, related to these agreements. As of June 30, 2013, SCBT was required to provide $354,000 of collateral, which is included in cash and cash equivalents on the balance sheet as interest-bearing deposits with banks. If the Company had breached any of these provisions at June 30, 2013, it would have been required to settle its obligations under the agreements at the termination value, $218,000 at June 30, 2013.

Note 17 — Capital Ratios

The Company is subject to certain risk-based capital guidelines. Certain ratios measure the relationship of capital to a combination of balance sheet and off-balance sheet risks. The values of both balance sheet and off-balance sheet items are adjusted to reflect credit risk. Under the guidelines promulgated by the Federal Reserve, which are substantially similar to those of the FDIC, Tier 1 risk-based capital must be at least 4% of risk-weighted assets, while total risk-based capital must be at least 8% of risk-weighted assets.

In conjunction with the risk-based capital ratios, the regulatory agencies have also prescribed a leverage capital ratio for assessing capital adequacy.

The Company’s capital adequacy ratios are reflected below (the name has not been changed since there were bank call reports and bank holding company filings for both entities (Old SCBT Financial Corporation and Old First Financial Holding, Inc.) filed as of the respective dates below):

	June 30,		December 31,		June 30,
	2013		2012		2012

SCBT Financial Corporation:
Tier 1 risk-based capital	13.61	%	12.73	%	13.82	%
Total risk-based capital	14.87	%	13.99	%	15.09	%
Tier 1 leverage	9.22	%	9.87	%	9.24	%

SCBT:
Tier 1 risk-based capital	13.28	%	12.51	%	13.62	%
Total risk-based capital	14.54	%	13.78	%	14.89	%
Tier 1 leverage	9.00	%	9.70	%	9.12	%

Note 18 — Subsequent Events

First Financial Acquisition

On July 26, 2013, the Company completed the previously announced acquisition of First Financial Holdings, Inc. (“First Financial”), of Charleston, South Carolina, the bank holding company for First Federal Bank (“First Federal”). Other First Financial subsidiaries include First Southeast 401(k) Fiduciaries, Inc., a registered investment advisor, and First Southeast Investor Services, Inc., a registered broker-dealer. At June 30, 2013, First Financial reported $3.2 billion in total assets, $2.4 billion in loans and $2.5 billion in deposits. First Federal has a total of 65 branches that serve individuals and businesses throughout coastal South Carolina, Florence and Greenville, South Carolina and Wilmington, North Carolina. With the completion of the merger, the Company changed its name from “SCBT Financial Corporation” to “First Financial Holdings, Inc.” The Company’s common stock will continue to trade under the symbol SCBT on the NASDAQ Global Select Market.

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Note 18 — Subsequent Events (Continued)

Under the terms of the Agreement and Plan of Merger (the “Merger Agreement”), First Financial’s shareholders received aggregate consideration of 7,017,428 shares of SCBT common stock plus cash in lieu of fractional shares of $49,000. In addition, all outstanding “in the money” stock options will receive cash in the amount of $554,000. The stock consideration is based upon a fixed exchange ratio of 0.4237 shares of SCBT common stock for each of the outstanding shares of First Financial’s common stock, which as of July 26, 2013 totaled 16,564,380 shares of common stock. Each outstanding share of First Financial Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“First Financial Preferred Stock”), was converted into the right to receive one share of preferred stock of SCBT, designated Series A Fixed Rate Cumulative Perpetual Preferred Stock and having such rights, preferences and privileges as are not materially less favorable than the rights, preferences and privileges of the First Financial Preferred Stock. The common stock consideration was valued at closing based upon SCBT’s closing stock price on the last trading date prior to the date of acquisition, or $54.34 per share. Based on this closing stock price, the common stock consideration was valued at approximately $381.4 million in the aggregate or $23.02 per fully diluted First Financial share. The aggregate consideration given by SCBT for First Financial was approximately $446.9 million, which included $65.0 million in preferred stock.

In addition, immediately after the consummation of the merger, the Company paid off all $233.0 million in outstanding borrowings from the Federal Home Loan Bank (“FHLB”) of Atlanta. The total paid to the FHLB was $255.9 million, which included $21.8 million in prepayment fee and accrued and unpaid interest of $1.1 million. The average blended interest rate of these borrowings was approximately 3.82% at the time of repayment.

The acquisition will be accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Both the purchased assets and liabilities assumed will be recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities, especially the loan portfolio and foreclosed real estate, is a complicated process involving significant judgment regarding estimates and assumptions used to calculate estimated fair values. Accordingly, the initial accounting for the First Financial merger is currently incomplete. The Company expects to record goodwill in connection with the transaction during the three months ending September 30, 2013; however, since the initial purchase accounting adjustments have not been finalized, the Company is unable to provide the amount or a range of the ultimate goodwill, or the estimated fair values of the acquired assets and liabilities of First Financial at the present time. Therefore, pro forma financial information is not considered meaningful or currently practical for purposes of these consolidated financial statements.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the financial statements contained in this Quarterly Report beginning on page 1. For further information, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in the Annual Report on Form 10-K for the year ended December 31, 2012.

Overview

We are a bank holding company headquartered in Columbia, South Carolina, and were incorporated under the laws of South Carolina in 1985. We provide a wide range of banking services and products to our customers through our wholly-owned bank subsidiary, SCBT (the “Bank”), a South Carolina-chartered commercial bank that opened for business in 1934. We operate as NCBT, a division of the Bank, in Mecklenburg County of North Carolina, Community Bank & Trust (“CBT”), a division of the Bank, in northeast Georgia, and The Savannah Bank (“Savannah”), a division of the Bank, in coastal Georgia. Minis & Company, Inc., is a registered investment advisory firm and a subsidiary of the Bank which provides asset and wealth management services along with our trust and investment services group. We do not engage in any significant operations other than the ownership of our banking subsidiary.

At June 30, 2013, we had approximately $5.0 billion in assets and 1,304 full-time equivalent employees. Through the Bank, we provide our customers with checking accounts, NOW accounts, savings and time deposits of various types, brokerage services and alternative investment products such as annuities and mutual funds, trust and asset management services, business loans, agriculture loans, real estate loans, personal use loans, home improvement loans, automobile loans, credit cards, letters of credit, home equity lines of credit, safe deposit boxes, bank money orders, wire transfer services, correspondent banking services, and use of ATM facilities.

We have pursued, and continue to pursue, a growth strategy that focuses on organic growth, supplemented by acquisition of select financial institutions, branches, or failed bank assets and liabilities in certain market areas.

The following discussion describes our results of operations for the quarter ended June 30, 2013 as compared to the quarter ended June 30, 2012 and also analyzes our financial condition as of June 30, 2013 as compared to December 31, 2012 and June 30, 2012. Like most financial institutions, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we may pay interest. Consequently, one of the key measures of our success is the amount of our net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

Of course, there are risks inherent in all loans, so we maintain an allowance for loan losses (sometimes referred to as “ALLL”) to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section, we have included a detailed discussion of this process.

In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. We describe the various components of this noninterest income, as well as our noninterest expense, in the following discussion.

The following section also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.

Recent Events

First Financial Holdings, Inc. Acquisition

On July 26, 2013, the Company completed the previously announced merger with First Financial of Charleston, South Carolina, the bank holding company for First Federal. In connection with the completion of the merger, the Company changed its name from “SCBT Financial Corporation” to “First Financial Holdings, Inc.” The Company’s common stock will continue to trade under the symbol SCBT on the NASDAQ Global Select Market. See Note 18 —Subsequent Events for additional information on the First Financial merger.

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Critical Accounting Policies

We have established various accounting policies that govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Significant accounting policies are described in Note 1 to the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2012. These policies may involve significant judgments and estimates that have a material impact on the carrying value of certain assets and liabilities. Different assumptions made in the application of these policies could result in material changes in our financial position and results of operations.

Allowance for Loan Losses

The allowance for loan losses reflects the estimated losses that will result from the inability of our bank’s borrowers to make required loan payments. In determining an appropriate level for the allowance, we identify portions applicable to specific loans as well as providing amounts that are not identified with any specific loan but are derived with reference to actual loss experience, loan types, loan volumes, economic conditions, and industry standards. Changes in these factors may cause our estimate of the allowance to increase or decrease and result in adjustments to the provision for loan losses. See “Note 6 — Loans and Allowance for Loan Losses” in this 10-Q, “Provision for Loan Losses and Nonperforming Assets” in this MD&A and “Allowance for Loan Losses” in Note 1 to the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2012 for further detailed descriptions of our estimation process and methodology related to the allowance for loan losses.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. As of June 30, 2013, December 31, 2012 and June 30, 2012, the balance of goodwill was $100.2 million, $100.2 million, and $66.5 million, respectively. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment.

If required, the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted. Management has determined that the Company has one reporting unit.

Our stock price has historically traded above its book value and tangible book value. The lowest trading price during the first six months of 2013, as reported by the NASDAQ Global Select Market, was $39.56 per share, and the stock price closed on June 30, 2013 at $50.39, which is above book value and tangible book value. In the event our stock was to consistently trade below its book value during the reporting period, we would consider performing an evaluation of the carrying value of goodwill as of the reporting date. Such a circumstance would be one factor in our evaluation that could result in an eventual goodwill impairment charge. We evaluated the carrying value of goodwill as of April 30, 2013, our annual test date, and determined that no impairment charge was necessary. Additionally, should our future earnings and cash flows decline and/or discount rates increase, an impairment charge to goodwill and other intangible assets may be required.

Core deposit intangibles consist of costs that resulted from the acquisition of deposits from other financial institutions or the estimated fair value of these assets acquired through business combinations. Core deposit intangibles represent the estimated value of long-term deposit relationships acquired in these transactions. These costs are amortized over the estimated useful lives of the deposit accounts acquired on a method that we believe reasonably approximates the anticipated benefit stream from the accounts. The estimated useful lives are periodically reviewed for reasonableness.

Noncompete intangibles are amortized over the life of the underlying noncompete agreements (generally 2 to 3 years) on the straight-line method. The estimated lives are periodically reviewed for reasonableness.

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Client list intangibles are amortized over the estimated useful lives of the client lists (generally 15 years) on the straight-line method. The estimated lives are periodically reviewed for reasonableness.

Income Taxes and Deferred Tax Assets

Income taxes are provided for the tax effects of the transactions reported in the accompanying consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of available-for-sale securities, allowance for loan losses, accumulated depreciation, net operating loss carryforwards, accretion income, deferred compensation, intangible assets, and pension plan and post-retirement benefits. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company files a consolidated federal income tax return with its subsidiary.

The Company recognizes interest and penalties accrued relative to unrecognized tax benefits in its respective federal or state income taxes accounts. As of December 31, 2012, there were no accruals for uncertain tax positions and no accruals for interest and penalties. The Company and its subsidiary file a consolidated United States federal income tax return, as well as income tax returns for its subsidiary in the state of South Carolina, Georgia, and North Carolina. The Company’s filed income tax returns are no longer subject to examination by taxing authorities for years before 2009.

Other-Than-Temporary Impairment

We evaluate securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (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, (3) the outlook for receiving the contractual cash flows of the investments, (4) the anticipated outlook for changes in the general level of interest rates, and (5) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that the Company will be required to sell the debt security prior to recovering its fair value. For further discussion of the Company’s evaluation of securities for other-than-temporary impairment, see Note 5 to the unaudited condensed consolidated financial statements.

Other Real Estate Owned

Other Real Estate Owned (“OREO”), consisting of properties obtained through foreclosure or through a deed in lieu of foreclosure in satisfaction of loans or through reclassification of former branch sites, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. Management also considers other factors, including changes in absorption rates, length of time the property has been on the market and anticipated sales values, which have resulted in adjustments to the collateral value estimates indicated in certain appraisals. At the time of foreclosure or initial possession of collateral, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. For acquired OREO, the loan is transferred into OREO at its fair value less costs to sell not to exceed the carrying value of the loan at foreclosure. Subsequent adjustments to this value are described below.

Subsequent declines in the fair value of OREO below the new cost basis are recorded through valuation adjustments. Significant judgments and complex estimates are required in estimating the fair value of OREO, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility. In response to market conditions and other economic factors, management may utilize liquidation sales as part of its problem asset disposition strategy. As a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition, the net proceeds realized from sales transactions could differ significantly from appraisals, comparable sales, and other estimates used to determine the fair value of OREO. Management reviews the value of OREO each quarter and adjusts the values as appropriate. Revenue and expenses from OREO operations as well as gains or losses on sales and any subsequent adjustments to the value are recorded as OREO expense and loan related expense, a component of non-interest expense, and, for covered OREO, offset with an increase in the FDIC indemnification asset.

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Business Combinations, Method of Accounting for Loans Acquired, and FDIC Indemnification Asset

We account for acquisitions under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding credit risk.

Acquired credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality, found in FASB ASC Topic 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality, formerly American Institute of Certified Public Accountants (“AICPA”) Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Loans acquired in business combinations with evidence of credit deterioration are considered impaired. Loans acquired through business combinations that do not meet the specific criteria of FASB ASC Topic 310-30, but for which a discount is attributable, at least in part to credit quality, are also accounted for under this guidance. Certain acquired loans, such as lines of credit (consumer and commercial), are accounted for in accordance with FASB ASC Topic 310-20, where the discount is accreted through earnings based on estimated cash flows over the estimated life of the loan.

In accordance with FASB ASC Topic 805, the FDIC indemnification asset was initially recorded at its fair value and is measured separately from the loan assets and foreclosed assets because the loss sharing agreements are not contractually embedded in them or transferrable with them in the event of disposal.

For further discussion of the Company’s loan accounting and acquisitions, see “Business Combinations and Method of Accounting for Loans Acquired” in our Annual Report on Form 10-K for the year ended December 31, 2012, Note 4—Mergers and Acquisitions to the unaudited condensed consolidated financial statements and Note 6—Loans and Allowance for Loan Losses to the unaudited condensed consolidated financial statements.

Results of Operations

We reported consolidated net income available to common shareholders of $12.5 million, or diluted earnings per share (“EPS”) of $0.74, for the second quarter of 2013 as compared to consolidated net income available to common shareholders of $8.0 million, or diluted EPS of $0.55, in the comparable period of 2012. This $4.5 million increase was the net result of the following items:

· Improved net interest income of $12.8 million due primarily to improved interest income on the acquired loan portfolio of $12.6 million, the increase in earning assets from the acquisition of Savannah, and reduced interest expense on deposits and other borrowings of $690,000; these were partially offset by reduced interest income on non-acquired loans of $988,000.

· A decrease in the provision for loan losses by $4.5 million over the comparable quarter;

· A decrease in noninterest income totaling $3.3 million; $1.1 million in mortgage banking income and $2.9 million in negative accretion on the FDIC indemnification asset, which were offset by increases in the other categories of noninterest income.

· An increase in most categories of noninterest expense totaling $7.4 million. The larger increases were $5.5 million in salaries and benefits, $705,000 in OREO and loan related expenses, and $587,000 in business development and staff related expenses; and

· An increase in the provision for income taxes of $2.1 million due to the higher pre-tax net income.

We believe our asset quality related to non-acquired loans continues to be at manageable levels and improved from the end of 2012 as well as from March 31, 2013. Non-acquired nonperforming assets declined from $76.4 million at March 31, 2013 to $68.7 million at June 30, 2013. Compared to the balance of nonperforming assets at June 30, 2012, nonperforming assets decreased $14.4 million due to a reduction in nonperforming loans of $4.9 million and a reduction in non-acquired OREO of $9.6 million. Our non-acquired OREO declined by $3.7 million since March 31, 2013 and by $3.1 million since December 31, 2012 to $16.0 million at June 30, 2013. During the second quarter of 2013, classified assets declined by $17.3 million from March 31, 2013 to $123.6 million. Since December 31, 2012 classified assets have declined by $19.6 million. At June 30, 2012, classified assets were $160.6 million and have declined by $37.0 million. Annualized net charge-offs for the second quarter of 2013 was 0.40%, down from the first quarter of 2013 of 0.56% and from the second quarter of 2012 of 0.77%.

The allowance for loan losses decreased to 1.45% of total non-acquired loans at June 30, 2013, down from 1.73% at December 31, 2012 and 1.91% at June 30, 2012. The allowance provides 0.73 times coverage of nonperforming loans at June 30, 2013, higher than 0.72 times at December 31, 2012, and lower than 0.82 times at June 30, 2012.

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The Company performs ongoing assessments of the estimated cash flows of its acquired loan portfolios. Increases in cash flow expectations result in a favorable adjustment to interest income over the remaining life of the related loans, and decreases in cash flow expectations result in an immediate recognition of a provision for loans losses, in both cases, net of any adjustments to the receivable from the FDIC for loss sharing. These ongoing assessments of the acquired loan portfolio resulted in a positive impact to interest income from a reduction in expected credit losses, which was partially offset by a charge to noninterest income for the impact of reduced cash flows from the FDIC under the loss share agreement during the second quarter of 2013. Below is a summary of the second quarter of 2013 assessment of the estimated cash flows of the acquired loan portfolio and the related impact on the indemnification asset:

· The review of the performance of the loan pools during the second quarter resulted in a net increase in the overall cash flow expectations for the acquired loans, specifically in the CBT acquired loan portfolio and the Peoples acquired loan portfolio; and

· The negative accretion of the indemnification asset also increased by approximately $140,000 from the first quarter of 2013, due to the reduced cash flow expected from the FDIC in the CBT portfolio.

As of June 30, 2013, the Company has not made any changes to the estimated cash flow assumptions or expected losses for the acquired loans from the Savannah acquisition.

Compared to the first quarter of 2013, our non-acquired loan portfolio has increased $61.3 million, or 9.4% annualized, to $2.7 billion, driven by increases in consumer real estate lending of $18.9 million, or 10.9% annualized; in consumer non real estate lending of $10.2 million, or 43.6% annualized; in commercial construction / land development lending of $11.9 million or 17.4% annualized; in other income producing property lending of $5.2 million, or 15.7% annualized; in commercial owner occupied loans of $6.0 million, or 3.0% annualized; and in commercial and industrial of $3.3 million, or 4.5% annualized. The acquired loan portfolio decreased by $73.4 million due to continued charge-offs, transfers to OREO and payoffs. Since June 30, 2012, the non-acquired loan portfolio has grown by $184.3 million, or 7.4%, in all categories. Commercial and industrial loans have led the way and increased by $66.6 million, or 29.2%, in the past year. For the period ended June 30, 2013, mortgage loans originated and held for sale in the secondary market decreased by $2.5 million as refinancing activity and home sales slowed with rising interest rates.

Non-taxable equivalent net interest income for the quarter increased $12.8 million or 30.0% compared to the second quarter of 2012. Non-taxable equivalent net interest margin increased by 31 basis points to 4.93% from the second quarter of 2012 of 4.62% due to the increase in average earning assets and the 12 basis point decrease in the rate on interest-bearing liabilities to 26 basis points at June 30, 2013 from 38 basis points at June 30, 2012. Compared to the first quarter of 2013, net interest margin (taxable equivalent) increased by 7 basis points. Interest earning assets yield increased by 6 basis points primarily from the increase in the average balance of the acquired loan portfolios. Interest bearing liabilities yield declined by 1 basis point compared to the first quarter of 2013 from continued decline in interest bearing deposits (primarily certificates of deposit).

Our quarterly efficiency ratio decreased to 69.5% compared to 72.4% in the first quarter of 2013, and increased from 68.3% in the second quarter of 2012. The decrease in the efficiency ratio compared to the first quarter of 2013 was the result of improved net interest income and a decrease in noninterest expense, specifically merger related expense. The slight increase in the efficiency ratio over the second quarter of 2012 was the result of higher noninterest expense in the second quarter of 2013 than the second quarter of 2012, and lower noninterest income resulting primarily from negative accretion on our indemnification asset. Noninterest expense was down $453,000 compared to the first quarter of 2013 and up $8.5 million compared to the second quarter of 2012, excluding merger and conversion related expenses. The increase compared to the prior year includes the additions from the Savannah acquisition. Excluding OREO and merger and conversion related expenses, the efficiency ratio was 63.8% for the second quarter of 2013, compared to 64.5% for the first quarter of 2013 and 60.8% for the second quarter of 2012.

Diluted EPS increased to $0.74 for the second quarter of 2013 from $0.55 for the comparable period in 2012. Basic EPS increased to $0.75 for the second quarter of 2013 from $0.55 for the comparable period in 2012. The increase in both diluted and basic EPS reflects improved net interest income and a lower provision for loan losses partially offset by an increase in noninterest expense and a decrease in noninterest income.

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Selected Figures and Ratios

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2013			2012			2013			2012

Return on average assets (annualized)	0.99		%	0.75		%	0.92		%	0.73		%
Return on average equity (annualized)	9.72		%	7.77		%	9.09		%	7.58		%
Return on average tangible equity (annualized)*	13.48		%	9.92		%	12.71		%	9.80		%
Dividend payout ratio **	24.46		%	31.93		%	26.43		%	32.90		%
Equity to assets ratio	10.24		%	9.72		%	10.24		%	9.72		%
Average shareholders’ equity (in thousands)	$	517,141		$	415,952		$	514,282		$	399,668

* - Ratio is a non-GAAP financial measure. The section titled “Reconciliation of Non-GAAP to GAAP” below provides a table that reconciles non-GAAP measures to GAAP measures.

** - See explanation of the dividend payout ratio below.

· For the three months ended June 30, 2013, return on average assets (“ROAA”), return on average equity (“ROAE”) and return on average tangible equity increased compared to the same period in 2012. The increases were driven by a 56.0% increase in net income from the comparable quarter in 2012, partially offset by an increase in average assets due to the acquisitions of Savannah and Peoples.

· Dividend payout ratio decreased to 24.46% for the three months ended June 30, 2013 compared with 31.93% for the three months ended June 30, 2012. The decrease from the comparable period in 2012 reflects the higher net income in the second quarter of 2013 generated by an increase in net interest income and partially offset by higher non-interest expense. The dividend payout ratio is calculated by dividing total dividends paid during the quarter by the total net income reported for the same period.

· Equity to assets ratio increased to 10.24% at June 30, 2013 compared with 9.72% at June 30, 2012. The increase in the equity to assets ratio reflects a 15.3% increase in assets as a result of the Savannah acquisition and organic growth compared to the 21.6% increase in equity as a result of the Company’s retained earnings and the issuance of $68.8 million in common equity in the Savannah acquisition.

· Quarterly average shareholders’ equity increased $101.2 million, or 24.3%, from the quarter ended June 30, 2012 driven by the issuance of $68.8 million in common equity in the Savannah acquisition during the fourth quarter of 2012.

Reconciliation of Non-GAAP to GAAP

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2013			2012			2013			2012

Return on average tangible equity (non-GAAP)	13.48		%	9.92		%	12.71		%	9.80		%
Effect to adjust for intangible assets	-3.76		%	-2.15		%	-3.62		%	-2.22		%
Return on average equity (GAAP)	9.72		%	7.77		%	9.09		%	7.58		%

Adjusted average shareholders’ equity (non-GAAP)	$	393,260		$	336,911		$	389,717		$	323,103
Average intangible assets	123,881			79,041			124,565			76,565
Average shareholders’ equity (GAAP)	$	517,141		$	415,952		$	514,282		$	399,668

Adjusted net income (non-GAAP)	$	13,217		$	8,389		$	24,561		$	15,749
Amortization of intangibles	(1,022		)	(540		)	(2,056		)	(1,040		)
Tax effect	337			182			676			350
Net income (GAAP)	$	12,532		$	8,031		$	23,181		$	15,059

The return on average tangible equity is a non-GAAP financial measure. It excludes the effect of the average balance of intangible assets and adds back the after-tax amortization of intangibles to GAAP basis net income. Management believes that this non-GAAP measure provides additional useful information, particularly since this measure is widely used by industry analysts following companies with prior merger and acquisition activities. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the company’s

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performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of our results of financial condition as reported under GAAP.

Net Interest Income and Margin

Summary

Our taxable equivalent (“TE”) net interest margin increased by 32 basis points from the second quarter of 2012, due to the growth in interest earning assets from the Savannah acquisition, organic loan growth, and an increase in low cost funding in core deposits. The net interest margin increased by 7 basis points from the first quarter of 2013 to 5.01%. Yields on average earning assets increased by 6 basis points from the first quarter of 2013 while interest bearing liabilities continued to decline by 1 basis point. The yields on our acquired loan portfolios increased by 1.08% from the first quarter of 2013. This was primarily the result of better expected cash flows in both the Peoples acquired portfolio and CBT acquired portfolio. Compared to June 30, 2012, the yield on interest earning assets increased by 19 basis points and the rate on interest bearing liabilities declined by 12 basis points, resulting in a 32 basis points difference in the net interest margin.

The Company remained in an excess liquidity position during the second quarter of 2013, and the impact represented an estimated 29 basis points reduction in the net interest margin compared to 20 basis points from the first quarter of 2013.

Net interest income increased from the second quarter of 2012 and was driven by a reduced cost of funds and growth in average interest-earning assets due to the Savannah acquisition as well as organic growth. Certificates of deposit average rates declined by 21 basis points compared to the same quarter one year ago, and declined by 1 basis point from the first quarter of 2013. The year over year decline in interest expense totaled $690,000, as the cost of certificates of deposits dropped and the mix of funding shifted to lower costing transaction accounts. Non-TE net interest income increased from the second quarter of 2012 as a result of a volume increase in interest-earning assets and the higher yield in acquired loan portfolio. The cost on interest bearing liabilities decreased by 12 basis points comparing the three month periods June 30, 2013 and 2012. Acquired loan portfolio balances from the Savannah acquisition and average investment securities were up and contributed to the increase in non-TE net interest income. The increase in interest income was $12.1 million driven by organic loan growth and the addition of the Savannah acquired loan portfolio, and the increase in average investment securities, primarily resulting from the Savannah acquisition.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2013			2012			2013			2012

Non-TE net interest income	$	55,284		$	42,535		$	109,085		$	81,572
Non-TE yield on interest-earning assets	5.13		%	4.94		%	5.10		%	4.98		%
Non-TE rate on interest-bearing liabilities	0.26		%	0.38		%	0.26		%	0.42		%
Non-TE net interest margin	4.93		%	4.62		%	4.90		%	4.64		%
TE net interest margin	5.01		%	4.69		%	4.97		%	4.70		%

Non-TE net interest income increased $12.7 million, or 30.0%, in the second quarter of 2013 compared to the same period in 2012. Some key highlights are outlined below:

· Average interest-earning assets increased 21.4% to $4.5 billion in the second quarter of 2013 compared to the same period last year due largely to the acquisition of Savannah.

· Non-TE yield on interest-earning assets for the second quarter of 2013 increased 19 basis points from the comparable period in 2012, and increased by 12 basis points during the first six months of 2013 compared to the same period in 2012. The yield on a portion of our earning assets adjusts simultaneously, but to varying degrees of magnitude, with changes in the general level of interest rates.

· The average cost of interest-bearing liabilities for the second quarter of 2013 decreased 12 basis points from the same period in 2012, and decreased by 16 basis points during the first six months of 2013 compared to the same period in 2012. The decrease since the second quarter of 2012 and for the first six months of 2013 is a reflection of the certificates of deposits repricing at lower interest rates as well as higher costing certificate balances accounting for a smaller portion of our total deposits.

· TE net interest margin increased by 32 basis points in the second quarter of 2013, compared to the second quarter of 2012. For the six months ended June 30, 2013, TE net interest margin increased by 27 basis points, from the improved yield of 12 basis points on interest earning assets and 16 basis point improvement on interest bearing liabilities.

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Loans

Total loans, net of deferred loan costs and fees (excluding mortgage loans held for sale) increased by $546.1 million, or 18.0%, at June 30, 2013 as compared to the same period in 2012. Acquired covered loans decreased by $93.8 million due to principal payments, charge offs, and foreclosures. Acquired non-covered loans increased by $455.6 million due to the Savannah acquisition during 2012 partially offset by payments, charge offs, and foreclosures. Non-acquired loans or legacy SCBT loans increased by $184.3 million, or 7.4%, from June 30, 2012 to June 30, 2013. The increase was driven by loan growth in commercial owner occupied loans of $38.8 million, consumer owner occupied loans of $40.1 million, commercial and industrial loans of $66.6 million, commercial non-owner occupied loans of $14.6 million, consumer loans of $16.9 million, construction and land development loans of $5.6 million, other income producing property loans of $4.8 million, and other loans of $2.7 million. Partially offsetting the growth were reductions in home equity loans of $6.1 million.

The following table presents a summary of the loan portfolio by category:

	June 30,		% of		December 31,		% of		June 30,		% of
(Dollars in thousands)	2013		Total		2012		Total		2012		Total
Acquired covered loans	$	239,082	6.7	%	$	282,728	7.8	%	$	332,874	10.9	%
Acquired non-covered loans	682,758		19.0	%	792,014		21.7	%	227,184		7.5	%
Non-acquired loans:
Commercial non-owner occupied real estate:
Construction and land development	285,370		8.0	%	273,420		7.5	%	279,519		9.2	%
Commercial non-owner occupied	298,768		8.3	%	290,071		8.0	%	284,147		9.3	%
Total commercial non-owner occupied real estate	584,138		16.3	%	563,491		15.5	%	563,666		18.5	%
Consumer real estate:
Consumer owner occupied	460,434		12.8	%	434,503		11.9	%	420,298		13.8	%
Home equity loans	250,988		7.0	%	255,284		7.0	%	257,061		8.5	%
Total consumer real estate	711,422		19.8	%	689,787		18.9	%	677,359		22.3	%
Commercial owner occupied real estate	802,125		22.4	%	784,152		21.5	%	763,338		25.1	%
Commercial and industrial	294,580		8.2	%	279,763		7.7	%	228,010		7.5	%
Other income producing property	136,957		3.8	%	133,713		3.7	%	132,193		4.3	%
Consumer non real estate	104,239		2.9	%	86,934		2.4	%	87,290		2.9	%
Other	32,134		0.9	%	33,163		0.8	%	29,395		1.0	%
Total non-acquired loans	2,665,595		74.3	%	2,571,003		70.5	%	2,481,251		81.6	%
Total loans (net of unearned income)	$	3,587,435	100.0	%	$	3,645,745	100.0	%	$	3,041,309	100.0	%

Note: Loan data excludes mortgage loans held for sale.

Our loan portfolio remains our largest category of interest-earning assets. Non-acquired commercial non-owner occupied real estate loans represented 16.3% of total loans as of June 30, 2013 a decrease from 18.5% of total loans at the end of the same period for 2012 and an increase from 15.5% of total loans at December 31, 2012. At June 30, 2013, non-acquired construction and land development loans represented 8.0% of our total loan portfolio, a decrease from 9.2% of our total loan portfolio at June 30, 2012. At June 30, 2013, non-acquired construction and land development loans consisted of $153.5 million in land and lot loans and $131.8 million in construction loans, which represented 5.8% and 4.9%, respectively, of our total non-acquired loan portfolio. At December 31, 2012, non-acquired construction and land development loans consisted of $164.8 million in land and lot loans and $108.6 million in construction loans, which represented 6.4% and 4.2%, respectively, of our total non-acquired loan portfolio.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2013			2012			2013			2012

Average total loans	$	3,557,417		$	2,940,153		$	3,565,441		$	2,876,951
Interest income on total loans	53,479			41,844			105,480			81,300
Non-TE yield	6.03		%	5.72		%	5.97		%	5.68		%

Interest earned on loans increased $11.6 million, or 27.8%, in the second quarter of 2013 compared to the second quarter of 2012. Some key highlights for the quarter ended June 30, 2013 are outlined below:

· Our non-TE yield on total loans increased 31 basis points during the second quarter of 2013 while average total loans increased 21.0%, as compared to the second quarter of 2012. The increase in average total loans was a result of the growth in

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both non-acquired loans, due to organic growth, and acquired loans, due to the Savannah acquisition during 2012. The acquired loan portfolio effective yield improved primarily due to the impact of greater expected cash flows on the CBT, BankMeridian, and Peoples acquired loan portfolios. This resulted in a yield of 10.6%, compared to approximately 9.9% one year ago.

· Acquired covered loans had a balance of $239.1 million at the end of the second quarter of 2013 compared to $332.9 million in June of 2012.

· Acquired non-covered loans grew to a balance of $682.8 million at the end of the second quarter of 2013 compared to $227.2 million in the comparable period of 2012 due to the loans acquired in the Savannah acquisition.

· Construction and land development loans increased $5.9 million, or 2.1%, to $285.4 million from the ending balance at June 30, 2012.

· Commercial non-owner occupied loans increased $14.6 million, or 5.2%, to $298.8 million from the ending balance at June 30, 2012.

· Consumer real estate loans increased $34.1 million, or 5.0%, to $711.4 million from the ending balance at June 30, 2012. The increase resulted from a $40.1 million, or 9.6%, increase in consumer owner occupied loans, partially offset by a $6.1 million, or 2.4%, decrease in home equity lines of credit (“HELOCs”) from the balance at June 30, 2012.

· Commercial owner occupied loans increased $38.8 million, or 5.1%, to $802.1 million from the ending balance at June 30, 2012.

· Commercial and industrial loans increased $66.6 million, or 29.2%, to $294.6 million from the ending balance at June 30, 2012.

· Consumer non-real estate loans increased $16.9 million, or 19.4%, to $104.2 million from the ending balance at June 30, 2012.

· Commercial loans and HELOCs with interest rate floors locked in above 5.00% had a balance of $127.8 million, which has helped keep our non-TE yield up.

The balance of mortgage loans held for sale decreased $17.3 million from December 31, 2012 to $48.0 million at June 30, 2013, and increased by $5.5 million compared to the balance of mortgage loans held for sale at June 30, 2012 of $42.5 million. The decrease from December 31, 2012 reflects the decreased customer demand for mortgage refinancing.

Investment Securities

We use investment securities, our second largest category of earning assets, to generate interest income through the deployment of excess funds, to provide liquidity, to fund loan demand or deposit liquidation, and to pledge as collateral for public funds deposits and repurchase agreements. At June 30, 2013, investment securities totaled $531.6 million, compared to $560.1 million at December 31, 2012 and $511.1 million at June 30, 2012. The increase in investment securities from the comparable period of 2012 was primarily the result of the purchase of $125.5 million of investment securities as well as the acquisition of $71.9 million in Savannah investment securities partially offset by $154.2 million in sold, maturing or called securities that were typically purchased in higher interest rate environments. This resulted in average and period-end balances increasing by 12.7% and 4.0%, respectively, from June 30, 2012.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2013			2012			2013			2012

Average investment securities	$	527,926		$	468,334		$	540,499		$	396,403
Interest income on investment securities	3,270			3,071			6,638			5,301
Non-TE yield	2.48		%	2.64		%	2.48		%	2.69		%

Interest earned on investment securities increased 6.5% in the second quarter of 2013 compared to the second quarter of 2012. The increase resulted largely from the $59.6 million increase in average investment securities for the second quarter, which was largely the result of purchases of GSEs and mortgage-backed securities as well as the addition of the securities from the Savannah acquisition, partially offset by a 16 basis point decrease in the average yield.

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Our holdings of GSE debt, state and municipal obligations, mortgage-backed securities, and equity securities at June 30, 2013 had fair market values that, on a net basis, exceeded their book values and resulted in an unrealized gain. The following table provides a summary of the credit ratings for our investment portfolio (including held-to-maturity and available-for-sale securities) at the end of the second quarter of 2013:

					Unrealized
	Amortized		Fair		Gain							BB or
(Dollars in thousands)	Cost		Value		(Loss)			AAA - A		BBB		Lower		Not Rated
June 30, 2013
Government-sponsored entities debt	$	100,231	$	96,359	$	(3,872	)	$	86,256	$	—	$	—	$	13,975
State and municipal obligations	152,854		152,560		(294		)	151,196		1,197		—		461
Mortgage-backed securities *	272,932		275,018		2,086			—		—		—		272,932
Corporate stocks	241		457		216			—		—		—		241
	$	526,258	$	524,394	$	(1,864	)	$	237,452	$	1,197	$	—	$	287,609

* - Agency mortgage-backed securities (“MBS”) are guaranteed by the issuing GSE as to the timely payments of principal and interest. Except for Government National Mortgage Association (“GNMA”) securities, which have the full faith and credit backing of the United States Government, the GSE alone is responsible for making payments on this guaranty. While the rating agencies have not rated any of the MBS issued, senior debt securities issued by GSEs are rated consistently as “Triple-A.” Most market participants consider agency MBS as carrying an implied AAA rating because of the guarantees of timely payments and selection criteria of mortgages backing the securities. We do not own any private label mortgage-backed securities.

At June 30, 2013, we had 217 securities available for sale in an unrealized loss position, which totaled $9.0 million. During the latter part of the second quarter, the 10-year treasury increased between 70 and 80 basis points. This caused many securities to move into an unrealized loss position, where in the past these securities were in an unrealized gain position. At March 31, 2013, we had 69 securities available for sale in an unrealized loss position, and totaled $704,000.

During the second quarter of 2013 as compared to the second quarter of 2012, the total number of available for sale securities with an unrealized loss position increased by 123 securities, while the total dollar amount of the unrealized loss increased by $8.6 million.

All securities available for sale in an unrealized loss position as of June 30, 2013 continue to perform as scheduled. We have evaluated the cash flows and determined that all contractual cash flows should be received; therefore impairment is temporary because we have the ability to hold these securities within the portfolio until the maturity or until the value recovers, and we believe that it is not likely that we will be required to sell these securities prior to recovery. We continue to monitor all of these securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of these securities are other than temporarily impaired, which would require a charge to earnings in such periods. Any charges for OTTI related to securities available-for-sale would not impact cash flow, tangible capital or liquidity.

Although securities classified as available for sale may be sold from time to time to meet liquidity or other needs, it is not our normal practice to trade this segment of the investment securities portfolio. While management generally holds these assets on a long-term basis or until maturity, any short-term investments or securities available for sale could be converted at an earlier point, depending partly on changes in interest rates and alternative investment opportunities.

Other Investments

Other investment securities include primarily our investments in Federal Home Loan Bank of Atlanta (“FHLB”) stock with no readily determinable market value. Prior to July 2, 2012, other investments also included our investment in Federal Reserve Bank stock, which was liquidated for no gain or loss on that date. The amortized cost and fair value of all these securities are equal at June 30, 2013. As of June 30, 2013, the investment in FHLB stock represented approximately $6.2 million, or 0.1% as a percentage of total assets. The following factors have been evaluated and considered in determining the carrying amount of the FHLB stock:

· We evaluate ultimate recoverability of the par value.

· We currently have sufficient liquidity or have access to other sources of liquidity to meet all operational needs in the foreseeable future, and would not have the need to dispose of this stock below the recorded amount.

· Historically, the FHLB does not allow for discretionary purchases or sales of this stock. Redemptions of the stock occur at the discretion of the FHLB, subsequent to the maturity or redemption of outstanding advances held by the member institutions. During the first quarter of 2013, the FHLB redeemed approximately $2.0 million of our investment, at par value.

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· Given the expectation that the various FHLBs have a high degree of government support, we have determined that the debt ratings are likely to remain unchanged and the FHLB has the ability to absorb economic losses.

· Our holdings of FHLB stock are not intended for the receipt of dividends or stock growth, but for the purpose and right to receive advances, or funding. We deem the FHLB’s process of determining after each quarter end whether it will pay a dividend and, if so, the amount, as essentially similar to standard practice by most dividend-paying companies. Based on the FHLB’s performance over the past seventeen consecutive quarters, starting with the second quarter 2009, the FHLB has announced a dividend payment after each quarter’s performance, with the most recent dividend payment of 2.53% on July 29, 2013 related to the second quarter 2013.

For the reasons above, we have concluded that our holdings of FHLB stock are not other than temporarily impaired as of June 30, 2013 and ultimate recovery of the par value of this investment is probable.

Interest-Bearing Liabilities

Interest-bearing liabilities include interest-bearing transaction accounts, savings deposits, CDs, other time deposits, federal funds purchased, and other borrowings. Interest-bearing transaction accounts include NOW, HSA, IOLTA, and Market Rate checking accounts.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2013			2012			2013			2012

Average interest-bearing liabilities	$	3,502,396		$	3,070,766		$	3,556,361		$	2,958,474
Interest expense	2,246			2,936			4,614			6,118
Average rate	0.26		%	0.38		%	0.26		%	0.42		%

The average balance of interest-bearing liabilities increased in the second quarter of 2013 compared to the second quarter of 2012. The decrease in interest expense was largely driven by a decline in the average rates on CDs and transaction and money market accounts. Overall, we experienced a 12 basis point decrease in the average rate on all interest-bearing liabilities. Some key highlights are outlined below:

· Average interest-bearing deposits for the three months ended June 30, 2013 grew 12.2% from the same period in 2012.

· Interest-bearing deposits increased 9.9% to $3.1 billion at June 30, 2013 from the period end balance at June 30, 2012 of $2.9 billion. This was the result of the addition of $459.1 million of interest-bearing deposits from the Savannah acquisition, which was partially offset by a decline in interest-bearing deposits of $177.4 million from the remaining franchise. The Company continues to monitor and adjust rates paid on deposit products as part of its strategy to manage its net interest margin.

· The average rate on transaction and money market account deposits for the three months ended June 30, 2013 decreased 9 basis points from the comparable period in 2012, which contributed to a decrease of $270,000 in interest expense for the second quarter of 2013. The impact of the decrease in rates was partially offset by an increase in volume as the average balance increased $274.3 million to $1.8 billion at June 30, 2013 compared to the same quarter in 2012.

· Average certificates of deposit and other time deposits increased 1.1%, up $10.7 million from the average balance in the second quarter of 2012. Interest expense on certificates of deposit and other time deposits decreased $491,000 mainly as a result of a 21 basis point decrease in the interest rate for the three months ended June 30, 2013 as compared to the same period in 2012.

· A decline in interest rates contributed significantly to a $690,000, or 23.5%, reduction in interest expense on average interest-bearing liabilities for the three months ended June 30, 2013 from the comparable period in 2012.

Noninterest-Bearing Deposits

Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. Average noninterest-bearing deposits increased $227.8 million, or 28.6%, to $1.0 billion in the second quarter of 2013 compared to $795.9 million at June 30, 2012. From the fourth quarter of 2012, average noninterest-bearing deposits grew $137.42 million, or 15.5%. Excluding the noninterest-bearing deposits acquired in the Savannah acquisition, period end noninterest-bearing deposits increased $108.8 million, or 13.5%, from the balance at June 30, 2012.

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Provision for Loan Losses and Nonperforming Assets

We have established an allowance for loan losses through a provision for loan losses charged to expense. The ALLL represents an amount we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. We assess the adequacy of the ALLL by using an internal risk rating system, independent credit reviews, and regulatory agency examinations—all of which evaluate the quality of the loan portfolio and seek to identify problem loans. Based on this analysis, management and the board of directors consider the current allowance to be adequate. Nevertheless, our evaluation is inherently subjective as it requires estimates that are susceptible to significant change. Actual losses may vary from our estimates, and there is a possibility that charge-offs in future periods could exceed the ALLL as estimated at any point in time.

In addition, regulatory agencies, as an integral part of the examination process, periodically review our Bank’s ALLL. Such agencies may require additions to the ALLL based on their judgments about information available to them at the time of their examination.

Loans acquired in the CBT, Habersham, BankMeridian, Peoples and Savannah acquisitions were recorded at their acquisition date fair value, which was based on expected cash flows and included an estimation of expected future loan losses, including principal and interest. Our initial estimates of credit losses on loans acquired in the Savannah acquisition continues to be adequate, and there is no evidence of additional credit deterioration that would require additional allowance for loan loss as of June 30, 2013, nor changes in the initial valuation estimates of Savannah. Under current accounting principles, information regarding our estimate of loan fair values may be adjusted for a period of up to one year as we continue to refine our estimate of expected future cash flows in the acquired portfolio. If we determine that losses arise after the acquisition date, generally the additional losses will be reflected as a provision for loan losses, and offset with an increase in the FDIC indemnification asset for those acquired loans covered by loss sharing agreements. The Peoples and Savannah acquisitions were not part of any loss share agreements with the FDIC, therefore, there is no offset for any additional losses recorded in a provision for loan losses. See “Business Combinations and Method of Accounting for Loans Acquired” in our Annual Report on Form 10-K for the year ended December 31, 2012 for further discussion of the method of accounting for acquired loans.

During the second quarter of 2013, we increased the net loan loss reserve by $320,000 on certain acquired loan pools due to evidence of reduced cash flows in these pools during the quarterly review process, which resulted in a $579,000 net provision for loan losses on acquired loans (net of the impact of the FDIC loss sharing agreements).

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The following tables present a summary of the changes in the ALLL for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended
	June 30,
	2013									2012
	Non-acquired			Acquired						Non-acquired			Acquired
(Dollars in thousands)	Loans			Loans			Total			Loans			Loans			Total
Balance at beginning of period	$	41,669		$	31,277		$	72,946		$	47,607		$	34,355		$	81,962
Loans charged-off	(3,220		)	—			(3,220		)	(5,555		)	—			(5,555		)
Recoveries of loans previously charged off	576			—			576			825			—			825
Net charge-offs	(2,644		)	—			(2,644		)	(4,730		)	—			(4,730		)
Provision for loan losses	(400		)	320			(80		)	4,392			1,458			5,850
Benefit attributable to FDIC loss share agreements	—			259			259			—			(1,208		)	(1,208		)
Total provision for loan losses charged to operations	(400		)	579			179			4,392			250			4,642
Provision for loan losses recorded through the FDIC loss share receivable	—			(259		)	(259		)	—			1,208			1,208
Balance at end of period	$	38,625		$	31,597		$	70,222		$	47,269		$	35,813		$	83,082

Total non-acquired loans:
At period end	2,665,595									2,481,251
Average	2,629,897									2,456,069
Net charge-offs as a percentage of average non-acquired loans (annualized)	0.40		%							0.77		%
Allowance for loan losses as a percentage of period end non-acquired loans	1.45		%							1.90		%
Allowance for loan losses as a percentage of period end non-performing non-acquired loans (“NPLs”)	73.23		%							82.05		%

	Six Months Ended
	June 30,
(Dollars in thousands)	2013									2012
	Non-acquired			Acquired						Non-acquired			Acquired
	Loans			Loans			Total			Loans			Loans			Total
Balance at beginning of period	$	44,378		$	32,132		$	76,510		$	49,367		$	31,620		$	80,987
Loans charged-off	(7,827		)				(7,827		)	(11,253		)	—			(11,253		)
Recoveries of loans previously charged off	1,621						1,621			2,465			—			2,465
Net charge-offs	(6,206		)	—			(6,206		)	(8,788		)	—			(8,788		)
Provision for loan losses on non-acquired loans	453			(535		)	(82		)	6,690			4,193			10,883
Benefit attributable to FDIC loss share agreements				1,322			1,322			—			(3,518		)	(3,518		)
Total provision for loan losses charged to operations	453			787			1,240			6,690			675			7,365
Provision for loan losses recorded through the FDIC loss share receivable	—			(1,322		)	(1,322		)	—			3,518			3,518
Balance at end of period	$	38,625		$	31,597		$	70,222		$	47,269		$	35,813		$	83,082

Total non-acquired loans:
At period end	$	2,665,595								$	2,481,251
Average	2,603,368									2,456,075
As a percentage of average non-acquired loans (annualized):
Net charge-offs	0.48		%							0.72		%
Allowance for loan losses as a percentage of period end non-acquired loans	1.45		%							1.90		%
Allowance for loan losses as a percentage of period end non-performing non-acquired loans (“NPLs”)	73.23		%							82.05		%

The allowance for loan losses as a percent of non-acquired loans reflects a decrease due primarily to the decline in our three-year historical charge off rate. Additionally, our classified loans, nonaccrual loans, and non-performing loans declined during the second quarter of 2013 compared to the same quarter in 2012 and to the first quarter of 2013. Seventy-three percent of the net charge-off amount for the second quarter of 2013 was comprised of ten loans ranging from approximately $65,000 to $500,000. The remainder of the charge-offs were less than $65,000 per loan for the quarter. Of the total net charge-offs during the quarter, 33.0% or $880,000 were construction and land development loans, 10.0% or $266,000 were other income producing property loans, 26.6% or $703,000 were commercial owner-occupied loans, and 16.6% or $438,000 were home equity loans. We remain aggressive in

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charging off loans resulting from the decline in the appraised value of the underlying collateral (real estate) and the overall concern that borrowers will be unable to meet the contractual payments of principal and interest. Excluding acquired assets, nonperforming loans decreased by $4.9 million during the second quarter of 2013 compared to the second quarter of 2012 and decreased by $4.0 million from the first quarter of 2013. The ratio of the ALLL to cover these loans decreased from 82.0% at June 30, 2012 to 73.2% at June 30, 2013.

We decreased the ALLL compared to the second quarter of 2012 and the first quarter of 2013, due primarily to the improvement in asset quality metrics during the second quarter of 2013. On a general basis, we consider three-year historical loss rates on all loan portfolios, except residential lot loans where two-year historical loss rates are applied. We also consider economic risk, model risk and operational risk when determining the ALLL. All of these factors are reviewed and adjusted each reporting period to account for management’s assessment of loss within the loan portfolio. Overall, the general reserve decreased by $8.7 million compared to the balance at June 30, 2012 and by $1.3 million from March 31, 2013.

The historical loss rates on an overall basis were down on an annualized basis to 0.40% as of June 30, 2013 from the March 31, 2013 level of 0.56%, and from the June 30, 2012 level of 0.77%.

Economic risk decreased by 8 basis points during the second quarter of 2013 as compared to second quarter of 2012 and was level with the first quarter of 2013. The improvement from one year ago was due to improved home sales, lower unemployment rate and a decrease in bankruptcies and foreclosures.

Model risk declined 3 basis points from the second quarter of 2012 and remained flat compared to the first quarter of 2013. This risk comes from the fact that our ALLL model is not all-inclusive. Risk inherent with new products, new markets, and timeliness of information are examples of this type of exposure. Management has reduced this factor since our model has been used for over four years, and we believe more adequately addresses this inherent risk in our loan portfolio.

Operational risk consists of the underwriting, documentation, closing and servicing associated with any loan. This risk is managed through policies and procedures, portfolio management reports, best practices and the approval process. The risk factors evaluated include the following: exposure outside our deposit footprint, changes in underwriting standards, levels of past due loans, loan growth, supervisory loan to value exceptions, results of external loan reviews, our centralized loan documentation process and significant loan concentrations. At June 30, 2013, the overall operational risk remained consistent from the levels at March 31, 2013 and down by 8 basis points compared to June 30, 2012. This improvement was due primarily to significant improvement in the levels of classified loans and nonaccrual loans from the second quarter of 2012.

On a specific reserve basis, the allowance for loan losses decreased by $1.8 million from March 31, 2013, and increased by approximately $70,000 from June 30, 2012. The loan balances being evaluated for specific reserves decreased from $41.7 million at March 31, 2013 to $36.4 million at June 30, 2013. Our practice, generally, is that once a specific reserve is established for a loan, a charge off occurs in the quarter subsequent to the establishment of the specific reserve.

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During the three months ended June 30, 2013, the decline in our total nonperforming assets (“NPAs”) was reflective of improvement in the real estate market and economy. The table below summarizes our NPAs for the past five quarters.

	June 30,			March 31,			December 31,			September 30,			June 30,
(Dollars in thousands)	2013			2013			2012			2012			2012
Nonaccrual loans (1)	$	40,854		$	42,945		$	48,387		$	46,295		$	47,940
Accruing loans past due 90 days or more	198			121			500			156			137
Restructured loans - nonaccrual	11,689			13,636			13,151			12,882			9,530
Total nonperforming loans	52,741			56,702			62,038			59,333			57,607
Other real estate owned (“OREO”) (2)	15,950			19,680			19,069			22,424			25,518
Other nonperforming assets (3)	—			—			—			—			—
Total nonperforming assets excluding acquired assets	68,691			76,382			81,107			81,757			83,125
Covered OREO (2)	35,142			34,244			34,257			47,063			53,146
Acquired OREO not covered under loss share	17,536			16,766			13,179			5,059			5,745
Other covered nonperforming assets (3)	—			26			44			57			73
Total nonperforming assets including covered assets	$	121,369		$	127,418		$	128,587		$	133,936		$	142,089

Excluding Acquired Assets
Total NPAs as a percentage of total loans and repossessed assets (4)	2.56		%	2.91		%	3.13		%	3.22		%	3.32		%
Total NPAs as a percentage of total assets (5)	1.36		%	1.49		%	1.58		%	1.89		%	1.90		%
Total NPLs as a percentage of total loans (4)	1.98		%	2.18		%	2.41		%	2.36		%	2.32		%

Including Acquired Assets
Total NPAs as a percentage of total loans and repossessed assets (4)	3.32		%	3.47		%	3.46		%	4.31		%	4.55		%
Total NPAs as a percentage of total assets	2.41		%	2.48		%	2.50		%	3.10		%	3.25		%
Total NPLs as a percentage of total loans (4)	1.47		%	1.58		%	1.70		%	1.95		%	1.89		%

(1) Excludes the acquired loans that are contractually past due 90 days or more totaling $77.6 million, $79.6 million, $83.1 million, $71.3 million, and $76.4 million as of June 30, 2013, March 31, 2013, December 31, 2012, September 30, 2012, and June 30, 2012, respectively, including the valuation discount. Acquired loans are considered to be performing due to the application of the accretion method under FASB ASC Topic 310-30. (For further discussion of the Company’s application of the accretion method, see Business Combinations and Method of Accounting for Loans Acquired” in our Annual Report on Form 10-K for the year ended December 31, 2012.

(2) Includes certain real estate acquired as a result of foreclosure and property not intended for bank use.

(3) Consists of non-real estate foreclosed assets, such as repossessed vehicles.

(4) Loan data excludes mortgage loans held for sale.

(5) For purposes of this calculation, total assets includes all asset (both acquired and nonacquired).

Excluding the acquired loans, total nonaccrual loans, including restructured loans, were $52.7 million, or 1.98% of total loans, a decrease of $4.9 million or 8.4% from June 30, 2012. The decrease in nonaccrual loans was driven by a decrease in consumer nonaccrual loans of $2.3 million and a decrease in commercial nonaccrual loans of $2.6 million.

Nonaccrual non-acquired loans and restructured loans decreased by approximately $4.0 million during the second quarter of 2013 from the level March 31, 2013. This decrease was the net result of $2.4 million in charge offs, $1.9 million in transfers to OREO, $2.0 million in payments, $2.3 million returning to accruing loans, and $4.6 million in additions.

At June 30, 2013, non-acquired OREO decreased by $3.7 million from March 31, 2013. At June 30, 2013, non-acquired OREO consisted of 82 properties with an average value of $195,000, a decrease of $12,000 from March 31, 2013 when we had 95 properties. In the second quarter of 2013, we added 17 properties with an aggregate value of $1.8 million into non-acquired OREO, and we sold 30 properties with a basis of $4.6 million in the quarter. We recorded a net gain on sales of $136,000 for the quarter. We wrote down OREO properties by $960,000 during the second quarter of 2013. Our non-acquired OREO balance of $16.0 million at June 30, 2013 is comprised of 19% in the Low Country/Orangeburg region, 40% in the Coastal (Beaufort to Myrtle Beach region), 11% in the Charlotte region, and 18% in the Upstate (Greenville) region.

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Overall, we continue to believe that the loan portfolio remains manageable in terms of charge-offs and NPAs as a percentage of total loans. We remain diligent and aware of our credit costs and the impact that these can have on our financial institution; and, we have taken proactive measures to identify problem loans, including in-house and independent review of larger transactions. Our policy for evaluating problem loans includes obtaining new certified real estate appraisals as needed. We continue to monitor and review frequently the overall asset quality within the loan portfolio.

Potential Problem Loans

Potential problem loans (excluding acquired loans), which are not included in nonperforming loans, amounted to approximately $11.0 million, or 0.41%, of total non-acquired loans outstanding at June 30, 2013, compared to $15.9 million, or 0.64%, of total non-acquired loans outstanding at June 30, 2012, and compared to $7.2 million, or 0.28% of total non-acquired loans outstanding at March 31, 2013. Potential problem loans represent those loans where information about possible credit problems of the borrowers has caused management to have serious concern about the borrower’s ability to comply with present repayment terms.

Noninterest Income

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2013			2012			2013			2012

Service charges on deposit accounts	$	5,736		$	5,886		$	11,497		$	11,333
Bankcard services income	4,245			3,618			8,138			6,938
Mortgage banking income	1,957			3,052			5,352			4,882
Trust and investment services income	2,438			1,642			4,752			3,039
Securities gains	—			61			—			61
Accretion on FDIC indemnification asset	(7,310		)	(4,370		)	(14,481		)	(7,603		)
Other	1,419			1,855			2,750			2,567
Total noninterest income	$	8,485		$	11,744		$	18,008		$	21,217

Excluding the negative accretion on the FDIC indemnification asset, noninterest income decreased 2.0% in the second quarter of 2013 as compared to the same period in 2012. The quarterly decrease in total noninterest income primarily resulted from the following:

· Mortgage banking income decreased 35.9%, driven by a reduction in refinancing activities in the secondary market due to rising interest rates.

· Bankcard services income increased 17.3%, largely driven by an increase in debit card income. Debit card income increased 22.5%, or $627,000, due to organic growth as well as an increased customer base from the Peoples and Savannah acquisitions.

· Trust and investment services income increased 48.5%, driven primarily by the addition of investment services income generated by Minis & Co., Inc, acquired in the Savannah transaction.

· Other noninterest income decreased 23.5%, driven by $729,000 decrease in recoveries on acquired loans partially offset by increases in most other categories of other noninterest income.

· Negative accretion on the FDIC indemnification asset increased $2.9 million, resulting from decreases in expected cash flows from the FDIC. This decrease in expected cash flows from the FDIC was driven by improvement in the cash flows in certain acquired loan pools.

Excluding the negative accretion on the FDIC indemnification asset, noninterest income increased $3.7 million or 12.7% during the six months ended June 30, 2013 as compared to the same period in 2012. The increase in total noninterest income primarily resulted from the following:

· Mortgage banking income increased 9.6%, driven by a $470,000 increase in mortgage banking income generated from lower interest rates and increased volume of mortgage banking activity in the secondary market during the first six months of 2013.

· Bankcard services income increased $1.2 million or 17.3%, largely driven by an increase in debit card income. Debit card income increased 20.3%, or $1.1 million, due primarily to a larger customer base than in 2012.

· Trust and investment services income increased 56.4%, driven primarily by the addition of investment services income generated by Minis & Co., Inc, acquired in the Savannah transaction.

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· Negative accretion on the FDIC indemnification asset increased $6.9 million, resulting from decreases in expected cash flows from the FDIC. This decrease in expected cash flows from the FDIC was driven by improvement in the cash flows in certain acquired loan pools since acquisition.

Noninterest Expense

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2013		2012		2013		2012

Salaries and employee benefits	$	23,746	$	18,262	$	46,998	$	36,310
Information services expense	2,992		2,902		6,184		5,370
Net occupancy expense	2,851		2,478		5,783		4,726
OREO expense and loan related	2,820		2,115		5,922		4,831
Furniture and equipment expense	2,266		2,371		4,783		4,610
Business development and staff related	1,276		689		2,504		1,441
Bankcard expense	1,236		1,118		2,400		2,020
FDIC assessment and other regulatory charges	1,096		1,073		2,320		2,110
Amortization of intangibles	1,022		540		2,056		1,040
Merger and conversion related expense	860		1,998		2,823		2,094
Professional fees	760		732		1,451		1,365
Advertising and marketing	648		553		1,490		1,310
Other	3,312		2,678		6,612		5,500
Total noninterest expense	$	44,885	$	37,509	$	91,326	$	72,727

Noninterest expense increased $7.4 million or 19.7% in the second quarter of 2013 as compared to the same period in 2012. The quarterly increase in total noninterest expense primarily resulted from the following:

· Salaries and employee benefits expense increased by $5.5 million or 30.0% driven by the addition of staff from the Peoples and Savannah acquisitions during 2012 and increases in both incentive and merit pay for employees.

· OREO and loan related expense increased $705,000 or 33.3% driven by an increase in carrying costs on OREO properties.

· Business development and staff related expense increased $587,000 or 85.2% due to an increase in recruitment and relocation costs, travel expenses, and training expenses.

· Merger and conversion related expenses decreased by $1.1 million due to the merger costs related to the Peoples acquisition driving merger expense higher in the second quarter of 2012.

Noninterest expense increased $18.6 million or 25.6% for the six months ended June 30, 2013 as compared to the same period in 2012. The increase in total noninterest expense primarily resulted from the following:

· Salaries and employee benefits expense increased by $10.7 million or 29.4% driven by the addition of staff from the Peoples and Savannah acquisitions during 2012 and increases in both incentive and merit pay for employees.

· Net occupancy expense increased $1.1 million or 22.4% driven by an increase in depreciation expense and lease expense due largely to the Peoples and Savannah acquisitions.

· Amortization of intangibles increased by $1.0 or 97.7% due to the additional amortization of the core deposit, noncompete, and client list intangibles from the Savannah and Peoples acquisitions.

· OREO and loan related expense increased $1.1 million or 22.6% driven by an increase in carrying costs on OREO properties.

· Business development and staff related expense increased $1.1 million or 73.8% due to an increase in recruitment and relocation costs, travel expenses, and training expenses.

Income Tax Expense

Our effective income tax rate decreased to 33.0% for the quarter ended June 30, 2013 compared to 33.8% for the quarter ended June 30, 2012. For the six months ended June 30, 2013, the effective tax rate was 32.9% compared to 33.7% for the six months ended June 30, 2012. The slightly lower effective tax rate is primarily attributable to tax exempt income on municipal bonds making up a larger percentage of pre-tax net income for the quarter and for the six months ended June 30, 2013.

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Capital Resources

Our ongoing capital requirements have been met primarily through retained earnings, less the payment of cash dividends. Equity increased during the second quarter by net income, or $12.5 million, less the dividend paid during the quarter of approximately $3.1 million and the $8.3 net unrealized loss on available for sale securities. As of June 30, 2013, shareholders’ equity was $516.6 million, an increase of $9.0 million, or 1.8%, from $507.5 million at December 31, 2012, and an increase of $91.7 million or 21.6% from $424.9 million at June 30, 2012. The driving factor for the increase from the comparable period of 2012 was the issuance of common shares in the Savannah acquisition fair valued at $68.8 million. Our equity-to-assets ratio increased to 10.24% at June 30, 2013 from 9.88% at the end of the fourth quarter of 2012 and increased from 9.72% at the end of the comparable period of 2012.

We are subject to certain risk-based capital guidelines. Certain ratios measure the relationship of capital to a combination of balance sheet and off-balance sheet risks. The values of both balance sheet and off-balance sheet items are adjusted to reflect credit risk. Under the guidelines promulgated by the Federal Reserve, which are substantially similar to those of the FDIC, Tier 1 risk-based capital must be at least 4% of risk-weighted assets, while total risk-based capital must be at least 8% of risk-weighted assets.

In conjunction with the risk-based capital ratios, the regulatory agencies have also prescribed a leverage capital ratio for assessing capital adequacy.

The Company’s capital adequacy ratios for the following periods are reflected below (the name has not been changed since there were bank call reports and bank holding company filings for both entities (Old SCBT Financial Corporation and Old First Financial Holding, Inc.) filed as of the respective dates below):

	June 30,		December 31,		June 30,
	2013		2012		2012

SCBT Financial Corporation:
Tier 1 risk-based capital	13.61	%	12.73	%	13.82	%
Total risk-based capital	14.87	%	13.99	%	15.09	%
Tier 1 leverage	9.22	%	9.87	%	9.24	%

SCBT:
Tier 1 risk-based capital	13.28	%	12.51	%	13.62	%
Total risk-based capital	14.54	%	13.78	%	14.89	%
Tier 1 leverage	9.00	%	9.70	%	9.12	%

Compared to December 31, 2012, our Tier 1 risk-based capital and total risk-based capital have increased due primarily to an increase in capital and a slight decrease in risk-weighted assets. The growth in capital was generated primarily by retained earnings less the cash dividends paid during 2013. Our Tier 1 risk-based capital and total risk-based capital have decreased from June 30, 2012 due to risk-weighted assets increasing faster than the increase in capital. The growth in risk-weighted assets, average assets, and capital were generated primarily by the Savannah acquisition. The Tier 1 leverage ratio has decreased compared to December 31, 2012 and June 30, 2012 due to the increase in average assets as a result of the Savannah acquisition. Our capital ratios are currently well in excess of the minimum standards and continue to be in the “well capitalized” regulatory classification.

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

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Liquidity

Liquidity refers to our ability to generate sufficient cash to meet our financial obligations, which arise primarily from the withdrawal of deposits, extension of credit and payment of operating expenses. Our Asset/Liability Management Committee (“ALCO”) is charged with monitoring liquidity management policies, which are designed to ensure acceptable composition of asset/liability mix. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management. We have employed our funds in a manner to provide liquidity from both assets and liabilities sufficient to meet our cash needs.

Asset liquidity is maintained by the maturity structure of loans, investment securities and other short-term investments. Management has policies and procedures governing the length of time to maturity on loans and investments. Normally, changes in the earning asset mix are of a longer-term nature and are not utilized for day-to-day corporate liquidity needs.

Our liabilities provide liquidity on a day-to-day basis. Daily liquidity needs are met from deposit levels or from our use of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings. We engage in routine activities to retain deposits intended to enhance our liquidity position. These routine activities include various measures, such as the following:

· Emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with our Bank,

· Pricing deposits, including certificates of deposit, at rate levels that will attract and/or retain balances of deposits that will enhance our Bank’s asset/liability management and net interest margin requirements, and

· Continually working to identify and introduce new products that will attract customers or enhance our Bank’s appeal as a primary provider of financial services.

Our legacy SCBT loan portfolio increased by approximately $184.3 million, or about 7.4% compared to the balance at June 30, 2012. Our investment securities portfolio increased $20.4 million during this same time period. Total cash and cash equivalents were $436.5 million at June 30, 2013 as compared to $380.7 million at December 31, 2012 and $309.9 million at June 30, 2012.

At June 30, 2013, December 31, 2012, and June 30, 2012, the Company had $1.3 million, $13.0 million, and $4.1 million respectively, in traditional, out-of-market brokered deposits. Total deposits increased $522.0 million, or 14.3% from June 30, 2012, to $4.2 billion resulting primarily from organic growth and the Savannah acquisition. Excluding deposits acquired in the Savannah acquisition, total deposits decreased $68.6 million, or 1.9%. Excluding deposits acquired from Savannah, we increased our noninterest-bearing deposit balance by $108.8 million, or 13.5%, at June 30, 2013 as compared to the balance at June 30, 2012. Federal funds purchased and securities sold under agreements to repurchase increased $42.2 million, or 19.2%, from the balance at June 30, 2012, and increased $23.8 million, or 10.0%, from the balance at December 31, 2012. Other borrowings grew by $8.3 million, or 17.9%, from June 30, 2012 due to the addition of SAVB Capital Trust I and II through the Savannah acquisition. To the extent that we employ other types of non-deposit funding sources, typically to accommodate retail and correspondent customers, we continue to emphasize shorter maturities of such funds. Our approach may provide an opportunity to sustain a low funding rate or possibly lower our cost of funds but could also increase our cost of funds if interest rates rise.

Our ongoing philosophy is to remain in a liquid position taking into account our current composition of earning assets, asset quality, capital position, and operating results. Our liquid earning assets include federal funds sold, balances at the Federal Reserve Bank, reverse repurchase agreements, and/or other short-term investments. Cyclical and other economic trends and conditions can disrupt our Bank’s desired liquidity position at any time. We expect that these conditions would generally be of a short-term nature. Under such circumstances, our Bank’s federal funds sold position and any balances at the Federal Reserve Bank serve as the primary sources of immediate liquidity. At June 30, 2013, our Bank had total federal funds credit lines of $376.0 million with no outstanding advances. If additional liquidity were needed, the Bank would turn to short-term borrowings as an alternative immediate funding source and would consider other appropriate actions such as promotions to increase core deposits or the sale of a portion of our investment portfolio. At June 30, 2013, our Bank had $81.3 million of credit available at the Federal Reserve Bank’s Discount Window, but had no outstanding advances as of the end of the quarter. In addition, we could draw on additional alternative immediate funding sources from lines of credit extended to us from our correspondent banks and/or the FHLB. At June 30, 2013, our Bank had a total FHLB credit facility of $355.5 million with total outstanding letters of credit consuming $17.8 million and no outstanding advances. We believe that our liquidity position continues to be adequate and readily available.

Our contingency funding plan incorporates several potential stages based on liquidity levels. Also, we review on at least an annual basis our liquidity position and our contingency funding plans with our principal banking regulator. The Bank maintains various wholesale sources of funding. If our deposit retention efforts were to be unsuccessful, our Bank would utilize these alternative sources of funding. Under such circumstances, depending on the external source of funds, our interest cost would vary based on the

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range of interest rates charged to our Bank. This could increase our Bank’s cost of funds, impacting net interest margins and net interest spreads.

Loss Share

The following table presents the expected losses on acquired assets covered under loss share agreements as of June 30, 2013:

							Losses		Remaining
	FDIC		Original		Original		Incurred *		Estimated		OREO		Projected
	Threshold		Estimated		Estimated		through		Losses		Mark **		Total
(Dollars in thousands)	or ILE		Gross Losses		Covered Losses		6/30/2013		for Loans		6/30/2013		Losses

CBT	$	233,000	$	340,039	$	334,082	$	293,438	$	20,903	$	10,800	$	325,141
Habersham	94,000		124,363		119,978		84,617		8,387		5,278		98,282
BankMeridian	70,827		70,190		67,780		26,972		9,511		3,731		40,214
Total	$	397,827	$	534,592	$	521,840	$	405,027	$	38,801	$	19,809	$	463,637

* Claimed or Claimable loans and OREO losses excluding expenses, net of revenues.

** Represents the estimated losses on OREO at period end. These losses have been recognized to record OREO at net realizable value. These losses are claimable from the FDIC upon sale or receipt of a valid appraisal.

Under the Habersham and BankMeridian loss share agreements, all losses (whether or not they exceed the intrinsic loss estimate (“ILE”)) are reimbursable by the FDIC at 80% of the losses and reimbursable expenses paid. During the fourth quarter of 2011, the losses and reimbursable expenses claimed under the CBT loss share agreement exceeded the $233.0 million threshold and became reimbursable at 95% rather than the 80% rate.

Deposit and Loan Concentrations

We have no material concentration of deposits from any single customer or group of customers. We have no significant portion of our loans concentrated within a single industry or group of related industries. Furthermore, we attempt to avoid making loans that, in an aggregate amount, exceed 10% of total loans to a multiple number of borrowers engaged in similar business activities. As of June 30, 2013, there were no aggregated loan concentrations of this type. We do not believe there are any material seasonal factors that would have a material adverse effect on us. We do not have foreign loans or deposits.

Concentration of Credit Risk

We consider concentrations of credit to exist when, pursuant to regulatory guidelines, the amounts loaned to multiple number of borrowers engaged in similar business activities which would cause them to be similarly impacted by general economic conditions represent 25% of total risk-based capital, or $124.6 million at June 30, 2013. Based on these criteria, we had four such credit concentrations at June 30, 2013, including loans to borrowers engaged in loans to religious organizations, loans to lessors of nonresidential buildings (except mini-warehouses), and loans to lessors of residential buildings, and loans to offices of physicians (except mental health specialists).

Cautionary Note Regarding Any Forward-Looking Statements

Statements included in Management’s Discussion and Analysis of Financial Condition and Results of Operations which are not historical in nature are intended to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “may,” and “intend,” as well as other similar words and expressions of the future, are intended to identify forward-looking statements. We caution readers that forward-looking statements are estimates reflecting our judgment based on current information, and are subject to certain risks and uncertainties that could cause actual results to differ materially from anticipated results. Such risks and uncertainties include, among others, the matters described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2012, and the following:

· Credit risk associated with an obligor’s failure to meet the terms of any contract with the Bank or otherwise fail to perform as agreed;

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· Interest rate risk involving the effect of a change in interest rates on both the Bank’s earnings and the market value of the portfolio equity;

· Liquidity risk affecting our Bank’s ability to meet its obligations when they come due;

· Price risk focusing on changes in market factors that may affect the value of financial instruments which are “marked-to-market” periodically;

· Merger integration risk including potential deposit attrition, higher than expected costs, customer loss and business disruption associated with the integration of First Financial, including, without limitation, potential difficulties in maintaining relationships with key personnel and other integration related-matters;

· Transaction risk arising from problems with service or product delivery;

· Compliance risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards;

· Regulatory change risk resulting from new laws, rules, regulations, proscribed practices or ethical standards, including the possibility that regulatory agencies may require higher levels of capital above the current regulatory-mandated minimums, including the impact of the capital rules under Basel III;

· Strategic risk resulting from adverse business decisions or improper implementation of business decisions;

· Reputation risk that adversely affects earnings or capital arising from negative public opinion;

· Terrorist activities risk that result in loss of consumer confidence and economic disruptions;

· Cybersecurity risk related to our dependence on internal computer systems and the technology of outside service providers, as well as the potential impacts of third-party security breaches, subjects us to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events;

· Noninterest income risk resulting from the effect of final rules amending Regulation E that prohibit financial institutions from charging consumer fees for paying overdrafts on ATM and one-time debit card transactions, unless the consumer consents or opts-in to the overdraft service for those types of transactions; and

· Economic downturn risk resulting in changes in the credit markets, greater than expected non-interest expenses, excessive loan losses and other factors, which risks could be exacerbated by potential negative economic developments resulting from the expiration of the federal tax reductions, and the implementation of federal spending cuts currently scheduled to go into effect.

All forward-looking statements in this report are based on information available to us as of the date of this report. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have no material changes in our quantitative and qualitative disclosures about market risk as of June 30, 2013 from that presented in our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the six months ended June 30, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

As of June 30, 2013 and the date of this form 10-Q, we believe that we are not a party to, nor is any of our property the subject of, any pending material legal proceeding other than those that may occur in the ordinary course of our business, except for those described below.

Arnette Lawsuit. On January 18, 2012, two purported shareholders of Peoples filed a class action lawsuit in the Court of Common Pleas for the Thirteenth Judicial District, State of South Carolina, County of Pickens, captioned F. Davis Arnette and Mary F. Arnette v. Peoples Bancorporation, Inc., Case No. 2012-CP-39-0064 (the “Arnette Lawsuit”). The Complaint names as defendants Peoples, the members of Peoples’ board of directors immediately prior to the completion of the merger between SCBT and Peoples (the “Director Defendants”) and SCBT. The Complaint is brought on behalf of a putative class of shareholders of Peoples common stock and seeks a declaration that it is properly maintainable as a class action. The Complaint alleges that Peoples’ directors breached their fiduciary duties by failing to maximize shareholder value in connection with the merger between SCBT and Peoples, and also alleges that SCBT aided and abetted those breaches of fiduciary duty. The Complaint seeks declaratory and injunctive relief to prevent the completion of the merger, an accounting to determine damages sustained by the putative class, and costs including plaintiffs’ attorneys’ and experts’ fees. SCBT believes that the claims asserted in the Complaint are without merit and that the proceeding will not have any material adverse effect on the financial condition or operations of SCBT.

On April 17, 2012, SCBT entered into a memorandum of understanding (the “Peoples MOU”) with plaintiffs and other named defendants regarding the settlement of the Complaint. Under the terms of the Peoples MOU, SCBT, Peoples, the Director Defendants and the plaintiffs have agreed to settle the Arnette Lawsuit and release the defendants from all claims relating to the Peoples merger, subject to approval by the Court. If the Court approves the settlement contemplated by the Peoples MOU, the Arnette Lawsuit will be dismissed with prejudice. Pursuant to the terms of the Peoples MOU, SCBT and Peoples have made available additional information to Peoples shareholders in the Current Report on Form 8-K filed April 18, 2012. In return, the plaintiffs have agreed to the dismissal of the Arnette Lawsuit with prejudice and to withdraw all motions filed in connection with the Arnette Lawsuit. If the Peoples MOU is finally approved by the Court, it is anticipated that the Peoples MOU will resolve and release all claims in all actions that were or could have been brought challenging any aspect of the Peoples merger, the Peoples merger agreement and any disclosures made in connection therewith. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Court will approve the settlement, even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the Peoples MOU may be terminated.

Rational Lawsuit. On October 11, 2012, a purported shareholder of Savannah filed a lawsuit in the Supreme Court of the State of New York captioned Rational Strategies Fund v. Robert H. Demere, Jr. et al., No. 653566/2012 (the “Rational Lawsuit”), naming Savannah, members of Savannah’s board of directors and SCBT as defendants. This lawsuit is purportedly brought on behalf of a putative class of Savannah’s common shareholders and seeks a declaration that it is properly maintainable as a class action with the Plaintiff as the proper class representative. The Rational Lawsuit alleges that Savannah, Savannah’s directors and SCBT breached duties and/or aided and abetted such breaches by failing to disclose certain material information about the proposed merger between Savannah and SCBT. Among other relief, the Complaint seeks to enjoin the merger. SCBT believes that the claims asserted in the Complaint are without merit and that the proceeding will not have any material adverse effect on the financial condition or operations of SCBT.

On November 23, 2012, SCBT, Savannah and the other named defendants entered into a memorandum of understanding (the “Rational MOU”) with the Plaintiff regarding a settlement of the Rational Lawsuit. Pursuant to the Rational MOU, Savannah made available additional information concerning the Savannah merger to Savannah shareholders in a Current Report on Form 8-K. The Rational MOU provides that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including court approval following notice to Savannah’s shareholders. If the settlement is finally approved by the Court, it is anticipated that the settlement will resolve and release all claims in the action that were or could have been brought challenging any aspect of the Savannah merger, the Savannah merger agreement, and any disclosure made in connection therewith, and that the action will be dismissed with prejudice. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the court will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the Rational MOU may be terminated.

First Financial Litigation. On March 5, 2013, a purported shareholder of First Financial filed a lawsuit in the Court of Chancery of the State of Delaware captioned Arthur Walter v. R. Wayne Hall et al., No. 8386-VCN. On March 25, 2013, another purported shareholder of First Financial filed a lawsuit in the same court captioned Emmy Moore v. R. Wayne Hall et al., No. 8434-VCN. Each complaint named First Financial, members of First Financial’s board of directors and SCBT as defendants. The complaints were purportedly brought on behalf of a putative class of First Financial’s common shareholders and sought a declaration that the lawsuits are properly maintainable as a class action with the named plaintiffs as the proper class representatives. Each

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complaint alleged that First Financial’s board of directors breached their fiduciary duties to First Financial shareholders by attempting to sell First Financial to SCBT by means of an unfair process and for an unfair price and that SCBT aided and abetted these alleged breaches of fiduciary duty. Among other relief, each complaint sought declaratory and injunctive relief to prevent the proposed merger between First Financial and SCBT. On April 18, 2013, the Court of Chancery issued an order consolidating the two lawsuits into one action captioned In re First Financial Holdings, Inc. Shareholder Litigation, No. 8386-VCN, and requiring the plaintiffs to file a single consolidated amended complaint as soon as practicable. On May 7, 2013, the plaintiffs filed a consolidated amended complaint, which generally alleges that First Financial’s board of directors breached their fiduciary duties to First Financial shareholders by attempting to sell First Financial to SCBT by means of an unfair process and for an unfair price and by failing to disclose certain material information about the proposed merger.

On July 16, 2013, SCBT, First Financial and the director defendants entered into a memorandum of understanding (the “First Financial MOU”) with plaintiffs regarding the settlement of the action, subject to the approval of the court. Pursuant to the terms of the MOU, SCBT and First Financial agreed to make available additional information to First Financial shareholders regarding the First Financial merger. In return, the plaintiffs agreed to the dismissal of the lawsuit with prejudice and not to seek any interim relief in favor of the alleged class of First Financial stockholders. If the court approves the settlement contemplated by the First Financial MOU, the lawsuit will be dismissed with prejudice and the defendants will be released from any claims that plaintiffs and the alleged class of First Financial shareholders may have based upon, arising out of, or related to the First Financial merger, defendants’ consideration of the First Financial merger, and any disclosures or public filings related to the First Financial merger (other than any claims of First Financial shareholders under the federal securities law entirely unrelated to the First Financial merger or any disclosures related thereto). The First Financial MOU provides that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including court approval following notice to First Financial’s shareholders. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the court will approve the settlement, even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the First Financial MOU may be terminated.

On May 3, 2013, a purported shareholder of SCBT filed a lawsuit in the Supreme Court of the State of New York in the County of New York captioned Rational Strategies Fund v. Robert R. Hill Jr. et al., No. 651625/2013, naming SCBT and members of its board of directors as defendants. This lawsuit is purportedly brought on behalf of a putative class of SCBT’s common shareholders and seeks a declaration that it is properly maintainable as a class action with the Plaintiff as the proper class representative. The lawsuit alleges that SCBT and members of its board of directors breached duties by failing to disclose certain material information about the proposed merger between First Financial and SCBT. Among other relief, the Complaint seeks to enjoin the merger.

On July 18, 2013, the court granted a temporary injunction enjoining SCBT from certifying the vote of its shareholders at its special meeting on July 24, 2013 to consider and vote upon the First Financial merger, pending a hearing scheduled for the same date on the defendants’ motion to vacate that temporary injunction. On July 19, 2013, SCBT entered into a memorandum of understanding (the “Rational/First Financial MOU”) with plaintiff regarding the settlement of the action. Pursuant to the Rational/First Financial MOU, SCBT agreed to make available additional information to SCBT shareholders regarding the First Financial merger, and the plaintiff agreed to jointly request with SCBT that the temporary injunction be lifted so that the results of the special meeting could be certified without any delay or impediment. Under the terms of the Rational/First Financial MOU, SCBT, the SCBT director defendants and the plaintiff have agreed to settle the lawsuit and release the defendants from all claims made by the plaintiff relating to the First Financial merger, subject to approval by the Court. If the court approves the settlement contemplated by the Rational/First Financial MOU, the lawsuit will be dismissed with prejudice. The Rational/First Financial MOU provides that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including court approval following notice to SCBT’s shareholders. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the court will approve the settlement, even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the Rational/First Financial MOU may be terminated.

Item 1A. RISK FACTORS

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as well as cautionary statements contained in this Form 10-Q, including those under the caption “Cautionary Note Regarding Any Forward-Looking Statements” set forth in Part I, Item 2 of this Form 10-Q, risks and matters described elsewhere in this Form 10-Q and in our other filings with the SEC.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Not applicable

(b) Not applicable

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In February 2004, we announced a stock repurchase program with no formal expiration date to repurchase up to 250,000 shares of our common stock. There are 147,872 shares that may yet be purchased under that program. The following table reflects share repurchase activity during the second quarter of 2013:

Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

April 1- April 30	1,256	*	$	47.77	—	147,872
May 1 - May 31	—		—		—	147,872
June 1 - June 30	—		—		—	147,872

Total	1,256				—	147,872

* These shares were repurchased under arrangements, authorized by our stock-based compensation plans and Board of Directors, whereby officers or directors may sell previously owned shares to the Company in order to pay for the exercises of stock options or for income taxes owed on vesting shares of restricted stock. These shares are not purchased under the plan to repurchase 250,000 shares announced in February 2004.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated by reference.

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

	FIRST FINANCIAL HOLDINGS, INC.
	(Registrant)


Date: August 9, 2013	/s/ Robert R. Hill, Jr.
	Robert R. Hill, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)

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Date: August 9, 2013	/s/ John C. Pollok
	John C. Pollok
	Senior Executive Vice President,
	Chief Financial Officer, and
	Chief Operating Officer
	(Principal Financial Officer)

Date: August 9, 2013	/s/ Keith S. Rainwater
	Keith S. Rainwater
	Executive Vice President and
	Director of External Reporting (Principal Accounting Officer)

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Exhibit Index

Exhibit No.		Description

Exhibit 31.1		Rule 13a-14(a) Certification of Principal Executive Officer

Exhibit 31.2		Rule 13a-14(a) Certification of Principal Financial Officer

Exhibit 32		Section 1350 Certifications of Principal Executive Officer and Principal Financial Officer

Exhibit 101		The following financial statements from the Quarterly Report on Form 10-Q of First Financial Holdings, Inc. for the quarter ended June 30, 2013, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) Condensed Consolidated Statement of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements.(1)

(1) As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.