Exhibit 99.2

Exhibit 99.2

STELLARONE CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands)


	September 30, 2013		December 31, 2012
Assets
Cash and due from banks	$	50,191	$	55,546
Federal funds sold		53		1,552
Interest-bearing deposits in banks		3,988		32,851

Cash and cash equivalents		54,232		89,949
Investment securities available for sale, at fair value		480,332		553,476
Mortgage loans held for sale		18,696		37,778
Loans receivable, net of allowance for loan losses, 2013, $25,827; 2012, $29,824		2,238,257		2,049,769
Premises and equipment, net		74,033		72,060
Accrued interest receivable		8,032		8,265
Core deposit intangibles, net		2,728		3,462
Goodwill		114,167		113,652
Bank owned life insurance		45,491		44,182
Foreclosed assets		4,449		5,760
Other assets		41,810		44,851

Total assets	$	3,082,227	$	3,023,204


Liabilities
Deposits:
Noninterest-bearing	$	416,087	$	362,713
Interest-bearing		2,030,294		2,121,611

Total deposits		2,446,381		2,484,324
Short-term borrowings		29,380		870
Federal Home Loan Bank advances		126,700		55,000
Subordinated debt		32,991		32,991
Accrued interest payable		1,419		1,682
Other liabilities		14,640		16,695

Total liabilities		2,651,511		2,591,562


Stockholders’ Equity

Preferred stock; no par value; 5,000,000 shares authorized; no shares issued and outstanding;
Common stock; $1 par value; 35,000,000 shares authorized; 2013: 22,534,554 shares issued and oustanding; 2012: 22,889,091 shares issued and oustanding.		22,535		22,889
Additional paid-in capital		266,282		271,747
Retained earnings		139,222		127,099
Accumulated other comprehensive income		2,677		9,907

Total stockholders’ equity		430,716		431,642

Total liabilities and stockholders’ equity	$	3,082,227	$	3,023,204

The accompanying notes are an integral part of these consolidated financial statements.

STELLARONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)


	Three Months Ended
	September 30,
	2013			2012
Interest Income
Loans, including fees	$	25,884		$	25,812
Federal funds sold and deposits in other banks		4			24
Investment securities:
Taxable		1,292			1,725
Tax-exempt		1,152			1,282

Total interest income		28,332			28,843


Interest Expense
Deposits		2,654			3,779
Federal funds purchased and securities sold under agreements to repurchase		24			8
Federal Home Loan Bank advances		471			413
Subordinated debt		345			344

Total interest expense		3,494			4,544

Net interest income		24,838			24,299
Provision for loan losses		200			1,900

Net interest income after provision for loan losses		24,638			22,399


Noninterest Income
Retail banking fees		3,535			3,209
Fiduciary and brokerage fee income		1,313			1,172
Mortgage banking-related fees		1,326			1,864
Losses on mortgage indemnifications and repurchases		(144	)		(28	)
Losses (gains) on sale of premises and equipment		(36	)		17
Gains on sale of securities available for sale		—			9
Losses on sale / impairments of foreclosed assets		(285	)		(381	)
Income from bank owned life insurance		440			445
Insurance income		127			137
Other operating income		886			957

Total noninterest income		7,162			7,401

Noninterest Expense
Compensation and employee benefits		11,812			12,188
Net occupancy		2,363			2,223
Equipment		2,117			1,885
Amortization of intangible assets		320			413
Marketing		482			376
State franchise taxes		588			564
FDIC insurance		463			490
Data processing		371			376
Professional fees		370			587
Telecommunications		368			420
Merger related costs		586			—
Other operating expenses		2,980			2,766

Total noninterest expense		22,820			22,288


Income before income taxes		8,980			7,512
Income tax expense		2,691			1,952

Net income	$	6,289		$	5,560


Basic net income per common share available to common shareholders	$	0.28		$	0.24

Diluted net income per common share available to common shareholders	$	0.28		$	0.24

The accompanying notes are an integral part of these consolidated financial statements.

STELLARONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)


	Nine Months Ended
	September 30,
	2013			2012
Interest Income
Loans, including fees	$	76,648		$	77,705
Federal funds sold and deposits in other banks		34			90
Investment securities:
Taxable		4,101			5,054
Tax-exempt		3,497			3,886

Total interest income		84,280			86,735


Interest Expense
Deposits		8,621			12,053
Federal funds purchased and securities sold under agreements to repurchase		40			20
Federal Home Loan Bank advances		1,287			1,260
Subordinated debt		1,023			1,028

Total interest expense		10,971			14,361

Net interest income		73,309			72,374
Provision for loan losses		515			4,150

Net interest income after provision for loan losses		72,794			68,224


Noninterest Income
Retail banking fees		10,042			9,801
Fiduciary and brokerage fee income		3,930			3,583
Mortgage banking-related fees		5,088			5,023
Losses on mortgage indemnifications and repurchases		(215	)		(584	)
Losses (gains) on sale of premises and equipment		(60	)		10
Gains on sale of securities available for sale		6			88
Losses on sale / impairments of foreclosed assets		(659	)		(1,051	)
Income from bank owned life insurance		1,309			1,323
Insurance income		778			796
Other operating income		2,209			2,457

Total noninterest income		22,428			21,446

Noninterest Expense
Compensation and employee benefits		36,214			37,112
Net occupancy		6,926			6,382
Equipment		6,397			6,255
Amortization of intangible assets		951			1,238
Marketing		1,020			1,004
State franchise taxes		1,763			1,691
FDIC insurance		1,475			1,673
Data processing		1,180			1,052
Professional fees		1,718			2,152
Telecommunications		1,125			1,256
Merger related costs		1,457			—
Other operating expenses		8,617			8,080

Total noninterest expense		68,843			67,895


Income before income taxes		26,379			21,775
Income tax expense		7,862			5,833

Net income	$	18,517		$	15,942

Basic net income per common share available to common shareholders	$	0.81		$	0.69

Diluted net income per common share available to common shareholders	$	0.81		$	0.69

The accompanying notes are an integral part of these consolidated financial statements.

STELLARONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)


	Three months ended September 30,
	2013						2012
Net income				$	6,289					$	5,560
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains on securities available for sale	$	(3	)				$	1,810
Reclassification adjustment for gains included in net income		—					$	(6	)
Change in cash flow hedge		(79	)					(184	)

Other comprehensive (loss) income					(82	)					1,620

Total comprehensive income				$	6,207					$	7,180


	Nine months ended September 30,
	2013						2012
Net income				$	18,517					$	15,942
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains on securities available for sale	$	(7,310	)				$	2,137
Reclassification adjustment for gains included in net income		(4	)					(57	)
Change in post retirement liability		(115	)					2
Change in cash flow hedge		199						(484	)

Other comprehensive (loss) income					(7,230	)					1,598

Total comprehensive income				$	11,287					$	17,540

The accompanying notes are an integral part of these consolidated financial statements.

STELLARONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)


	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income			Total
Balance, January 1, 2012	$	22,819		$	271,080		$	110,940		$	9,334		$	414,173
Net income		—			—			15,942			—			15,942
Other comprehensive income		—			—			—			1,598			1,598
Common dividends paid ($0.18 per share)		—			—			(4,156	)		—			(4,156	)
Stock-based compensation expense (59,665 shares)		60			668			—			—			728
Exercise of stock options (3,192 shares)		3			(211	)		—			—			(208	)

Balance, September 30, 2012	$	22,882		$	271,537		$	122,726		$	10,932		$	428,077


Balance, January 1, 2013	$	22,889		$	271,747		$	127,099		$	9,907		$	431,642
Net income		—			—			18,517			—			18,517
Other comprehensive loss		—			—			—			(7,230	)		(7,230	)
Common dividends paid ($0.28 per share)		—			—			(6,394	)		—			(6,394	)
Purchase of common stock under share repurchase program (448,394 shares)		(448	)		(6,490	)		—			—			(6,938	)
Stock-based compensation expense (81,684 shares)		82			835			—			—			917
Exercise of stock options (62,723 shares)		63			1,115			—			—			1,178
Net settle on exercise of stock options (50,550 shares)		(51	)		(925	)		—			—			(976	)

Balance, September 30, 2013	$	22,535		$	266,282		$	139,222		$	2,677		$	430,716

The accompanying notes are an integral part of these consolidated financial statements.

STELLARONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended September 30,
	2013			2012
Cash Flows from Operating Activities
Net income	$	18,517		$	15,942
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,844			4,774
Amortization of intangible assets		951			1,238
Provision for loan losses		515			4,150
Deferred tax expense		407			508
Stock-based compensation expense		917			728
Losses on sale / impairments of foreclosed assets		659			1,051
Losses on mortgage indemnifications and repurchases		215			584
Losses (gains) on sale of premises and equipment		60			(10	)
Gains on sale of securities available for sale		(6	)		(88	)
Mortgage banking-related fees		(5,088	)		(5,023	)
Proceeds from sale of mortgage loans		230,498			226,848
Origination of mortgage loans for sale		(206,328	)		(204,555	)
Amortization of securities premiums and accretion of discounts, net		1,568			1,388
Income on bank owned life insurance		(1,309	)		(1,323	)
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable		233			(465	)
Decrease in other assets		1,506			1,353
Decrease in accrued interest payable		(263	)		(330	)
Increase in other liabilities		29,277			2,979

Net cash provided by operating activities	$	77,173		$	49,749


Cash Flows from Investing Activities
Proceeds from maturities, calls and principal payments of securities available for sale	$	60,331		$	107,498
Purchase of securities available for sale		—			(184,772	)
Net increase in loans		(179,796	)		(34,211	)
Proceeds from sale of premises and equipment		152			1,141
Purchase of premises and equipment		(3,698	)		(5,082	)
Proceeds from sale of foreclosed assets		4,005			3,793
Net proceeds from branch acquisition		6,373			—

Net cash used by investing activities	$	(112,633	)	$	(111,633	)


Cash Flows from Financing Activities
Net increase in demand, money market and savings deposits	$	4,115		$	82,769
Net decrease in certificates of deposit		(62,942	)		(56,634	)
Proceeds from Federal Home Loan Bank advances		71,700			—
Principal payments on Federal Home Loan Bank advances		—			(5,000	)
Purchase of common stock under share repurchase program		(6,938	)		—
Exercise of stock options		202			(208	)
Cash dividends paid		(6,394	)		(4,156	)

Net cash (used) provided by financing activities	$	(257	)	$	16,771


Decrease in cash and cash equivalents	$	(35,717	)	$	(45,113	)

Cash and Cash Equivalents
Beginning		89,949			99,970

Ending	$	54,232		$	54,857

Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	11,234		$	14,691

Cash paid for income taxes	$	6,706		$	3,281


Supplemental Schedule of Noncash Activities
Foreclosed assets acquired in settlement of loans	$	2,776		$	4,245

The accompanying notes are an integral part of these consolidated financial statements.

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation

StellarOne Corporation (“we”) is a Virginia bank holding company headquartered in Charlottesville, Virginia. Our sole banking affiliate is StellarOne Bank headquartered in Christiansburg, Virginia. Additional subsidiaries include VFG Limited Liability Trust and FNB (VA) Statutory Trust II, both of which are associated with our subordinated debt issues and are not subject to consolidation. The consolidated statements include our accounts and those of our wholly-owned banking subsidiary. All significant intercompany accounts have been eliminated. In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position as of September 30, 2013 and December 31, 2012, the results of operations for the three and nine months ended September 30, 2013 and 2012 and cash flows for the nine months ended September 30, 2013 and 2012. The statements should be read in conjunction with the Consolidated financial statements and related Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. The results of operations for the nine month period ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.

Union Merger

On June 9, 2013, StellarOne Corporation (“StellarOne”) and Union First Market Bankshares Corporation (“Union”) entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) pursuant to which StellarOne will merge with and into Union (the “Merger”).

As a result of the Merger, the holders of shares of StellarOne common stock will receive 0.9739 shares of Union common stock for each share of StellarOne common stock held immediately prior to the effective date of the Merger. The transaction has received all regulatory approvals, but is subject to requisite approvals of Union’s and StellarOne’s stockholders with expected closing on or around January 1, 2014.

2.	Investment Securities

Amortized cost and estimated fair value of securities available for sale, with gross unrealized gains and losses as of September 30, 2013 and December 31, 2012 are as follows (In thousands) :


	September 30, 2013									December 31, 2012
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. Treasuries	$	—	$	—	$	—		$	—	$	20,000	$	—	$	—		$	20,000
U.S. Government agencies		240,403		802		(1,326	)		239,879		247,665		1,848		(17	)		249,496
State and municipals		130,536		5,936		(51	)		136,421		136,695		11,971		—			148,666
Corporate bonds		1,325		8		—			1,333		1,825		27		—			1,852
Collateralized mortgage obligations		3,822		146		—			3,968		5,119		214		—			5,333
Mortgage backed securities		83,686		2,804		(508	)		85,982		108,360		5,020		—			113,380
Other investments		12,749		—		—			12,749		14,749		—		—			14,749

Total	$	472,521	$	9,696	$	(1,885	)	$	480,332	$	534,413	$	19,080	$	(17	)	$	553,476

Other investments consist of short-term liquid investments and investments in Small Business Administration loan funds.

The carrying value of securities pledged to secure deposits and for other purposes amounted to $140.7 million and $194.9 million at September 30, 2013 and December 31, 2012, respectively.

Information pertaining to sales and calls of securities available for sale is as follows (In thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Proceeds from sales/calls	$	177	$	5,205	$	7,497	$	20,650
Gross realized gains		—		9		6		88

Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost. As of September 30, 2013 and December 31, 2012, there were no available for sale securities with unrealized losses greater than twelve months.

As of September 30, 2013, management does not have the intent to sell any securities classified as available for sale in a loss position and believes that it is not likely that we will have to sell any such securities before a recovery of cost given the current liquidity position. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or re-pricing date or if market yields for such investments decline. Management does not believe such securities are other-than-temporarily impaired due to reasons of credit quality.

The amortized cost and fair value of securities available for sale at September 30, 2013 are presented below by contractual maturity (In thousands):


	Amortized Cost		Fair Value
Due in one year or less	$	46,964	$	47,310
Due after one year through five years		211,007		211,837
Due after five years through ten years		106,507		108,462
Due after ten years		107,043		111,723
Equity securities		1,000		1,000

Total	$	472,521	$	480,332

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3.	Derivative Financial Instruments

We use derivatives to manage exposure to interest rate risk through the use of interest rate swaps, caps and floors to mitigate exposure to interest rate risk and service the needs of our customers.

Interest rate swaps involve the exchange of fixed and variable rate interest payments between two counterparties, based on a common notional principal amount and maturity date with no exchange of underlying principal amounts. During 2010, we entered into a forward start interest rate swap contract on our subordinated debt that qualifies as a cash flow hedge, effective September 2011. During September 2011, we entered into a forward swap with an effective date of September 30, 2013. Our cash flow hedge effectively modifies our exposure to interest rate risk by converting floating rate subordinated debt to a fixed rate with a maturity in 2016.

On September 30, 2011, we began paying a weighted average fixed rate of 1.245% plus margin, and receive a variable interest rate of three-month LIBOR on a total notional amount of $32.0 million, with quarterly settlements. Beginning in September of 2011, this swap effectively fixed the interest rate on the subordinated debt at 4.11% for the two year swap term (through September 2013). The forward swap entered into during 2011 with an effective beginning in September 2013, effectively fixed the interest rate on the subordinated debt at 4.81%, starting in September of 2013 (through September 2016). The cash flow hedge was fully effective at September 30, 2013 and therefore the change in fair value on the cash flow hedge was recognized as a component of other comprehensive income, net of deferred income taxes. At September 30, 2013 and December 31, 2012, the cash flow hedge had a fair value of $1.2 million and $1.5 million, respectively, and was recorded in Other Liabilities. We anticipate that it will continue to be fully effective and changes in fair value will continue to be recognized as a component of other comprehensive income, net of deferred income taxes. At September 30, 2013, we pledged $1.2 million of cash collateral for this interest rate swap.

We entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which we enter into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay the counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customers to effectively convert a variable rate loan to a fixed rate. Because we act as an intermediary for our customers, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact our results of operations. The aggregate notional amount of these swap agreements with counterparties was $104.4 million as of September 30, 2013 and securities collateral of $210 thousand was pledged.

4.	Loans and Allowance for Loan Losses

Through our banking subsidiary, we grant mortgage, commercial and consumer loans to customers, all of which are considered financing receivables. A substantial portion of the loan portfolio is represented by mortgage loans. The ability of our debtors to honor their contracts is dependent upon the real estate and general economic conditions in our market area.

Loans that we have the intent and ability to hold for the foreseeable future or until maturity or pay-off are generally reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. These amounts are generally being amortized over the contractual life of the loan.

Our loan portfolio is composed of the following (In thousands):


	September 30, 2013			December 31, 2012
	September 30, 2013			December 31, 2012
Construction and land development	$	213,236		$	194,380
Commercial real estate:
Commercial real estate - owner occupied		387,649			343,944
Commercial real estate - non-owner occupied		548,404			458,646
Multifamily, nonresidential, farmland and junior liens		132,254			118,433

Total commercial real estate		1,068,307			921,023
Consumer real estate:
Home equity lines		233,395			246,806
Secured by 1-4 family residential, secured by deeds of trust		495,908			482,090

Total consumer real estate		729,303			728,896
Commercial and industrial loans (except those secured by real estate)		191,732			203,840
Consumer and other		62,155			31,929

Total loans		2,264,733			2,080,068
Deferred loan fees		(649	)		(475	)
Allowance for loan losses		(25,827	)		(29,824	)

Net loans	$	2,238,257		$	2,049,769

As of September 30, 2013 and December 31, 2012, the book value of loans pledged as collateral for advances outstanding with the Federal Home Loan Bank of Atlanta totaled $371.4 million and $360.9 million, respectively.

The accrual of interest is generally discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Deposit overdrafts and other loans are typically charged off no later than 120 days past due. Consumer installment loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual at an earlier date if collection of principal or interest is considered doubtful or charged-off if a loss is considered imminent.

All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future collection of principal and interest are reasonably assured.

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the recorded investment in nonaccrual and loans past due more than 90 days still accruing by loan class (In thousands):


	Nonaccrual				Loans Past Due Over 90 Days Still Accruing
	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
Construction and land development	$	5,249	$	9,400	$	—	$	—
Commercial real estate - owner occupied		1,459		3,646		—		—
Commercial real estate - non-owner occupied		2,030		1,798		—		—
Multifamily, nonresidential, farmland and junior liens		4,268		4,780		—		—
Home equity lines		1,658		3,722		—		—
Secured by 1-4 family residential, secured by deeds of trust		10,428		11,920		316		179
Commercial and industrial loans (except those secured by real estate)		742		584		—		—
Consumer and other		134		32		2		3

Total	$	25,968	$	35,882	$	318	$	182

If interest under the accrual method had been recognized on nonaccrual loans, such income would have approximated $276 thousand and $422 thousand for the three months ended September 30, 2013 and 2012, respectively and $795 thousand and $1.3 million for the nine months ended September 30, 2013 and 2012, respectively.

The following table presents the aging of the recorded investment in past due loans by loan class (In thousands):


	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Non-accrual		Total Past Due		Current		Total Loans
September 30, 2013
Construction and land development	$	2,490	$	719	$	—	$	5,249	$	8,458	$	204,778	$	213,236
Commercial real estate - owner occupied		1,826		4,368		—		1,459		7,653		379,996		387,649
Commercial real estate - non-owner occupied		493		2,345		—		2,030		4,868		543,536		548,404
Multifamily, nonresidential, farmland and junior liens		137		920		—		4,268		5,325		126,929		132,254
Home equity lines		1,690		419		—		1,658		3,767		229,628		233,395
Secured by 1-4 family residential, secured by deeds of trust		3,689		4,752		316		10,428		19,185		476,723		495,908
Commercial and industrial loans (except those secured by real estate)		369		574		—		742		1,685		190,047		191,732
Consumer and other		161		37		2		134		334		61,821		62,155

Total	$	10,855	$	14,134	$	318	$	25,968	$	51,275	$	2,213,458	$	2,264,733


December 31, 2012
Construction and land development	$	2,283	$	2,430	$	—	$	9,400	$	14,113	$	180,267	$	194,380
Commercial real estate - owner occupied		3,730		5,473		—		3,646		12,849		331,095		343,944
Commercial real estate - non-owner occupied		1,990		439		—		1,798		4,227		454,419		458,646
Multifamily, nonresidential, farmland and junior liens		808		68		—		4,780		5,656		112,777		118,433
Home equity lines		3,229		753		—		3,722		7,704		239,102		246,806
Secured by 1-4 family residential, secured by deeds of trust		4,670		6,126		179		11,920		22,895		459,195		482,090
Commercial and industrial loans (except those secured by real estate)		615		338		—		584		1,537		202,303		203,840
Consumer and other		232		101		3		32		368		31,561		31,929

Total	$	17,557	$	15,728	$	182	$	35,882	$	69,349	$	2,010,719	$	2,080,068

We conduct an analysis of the loan portfolio on a regular basis. This analysis is used in assessing the sufficiency of the allowance for loan losses (“ALLL”) and in the determination of the necessary provision for loan losses. The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan balances are charged off against the allowance when management believes a loan balance is confirmed uncollectable. Subsequent recoveries, if any, are credited to the allowance.

The analysis of the loan portfolio generally begins with the identification of potential problem loans to be reviewed on an individual basis for impairment. When a commercial or commercial real estate loan of $500,000 or more has been identified as impaired, our policy requires a new appraisal (to include a liquidation value) unless our in-house Chief Appraiser reviews the existing appraisal (generally less than twelve months old) and determines that it may be used with appropriate market and/or liquidation adjustments as determined by him on a case by case basis. If a new appraisal is not required, the existing appraisal is used in order to estimate the fair value of the collateral, as validated by our in-house appraisal group. Our in-house Chief Appraiser’s review of such appraisals is documented and retained as part of the quarterly ALLL process. New appraisals are generally available within a one-quarter lag and are also reviewed by the Chief Appraiser to ensure appropriateness and reasonableness of the methods and assumptions used by the external third-party appraiser. Typically, charge-offs are recognized when the loss is probable and estimable, which is typically in the same quarter as the foreclosure or disposition of the underlying collateral. Prior to being charged-off, a specific reserve may be established based on our calculation of the loss embedded in the individual loan. Due to the processes described above, we do not experience significant timing differences between the identification of losses on impaired loans and recordation.

In addition to specific reserves on impaired loans, we have a nine point grading system, which we apply to each non-homogeneous loan in the portfolio to reflect the risk characteristic of the loan. The loans identified and measured for impairment are segregated from risk-rated loans within the portfolio. The remaining loans are then grouped by loan type and, in the case of commercial and construction loans, by risk rating. Each loan type is assigned an allowance factor based on historical loss experience, economic conditions, overall portfolio quality including delinquency rates and commercial real estate loan concentrations.

The loan portfolio analysis also consists of appraisal updates on non-impaired loans. Existing appraisals may be validated or new appraisals ordered as loans are renewed or refinanced, depending on the individual circumstances surrounding each loan. Our in-house appraisal department reviews new appraisals on non-impaired loans and documents the review.

The ALLL is an accounting estimate and as such there is uncertainty associated with the estimate due to the level of subjectivity and judgment inherent in performing the calculation. Management’s evaluation of the ALLL also includes considerations of existing general economic and business conditions affecting our key lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, specific industry conditions within portfolio segments, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The total of specific reserves required for impaired classified loans and the calculated reserves comprise the allowance for loan losses.

While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Activity in the allowance for loan losses by loan class is as follows (In thousands):


	Three Months Ended September 30, 2013
	Balance, July 1, 2013		Provision for loan losses			Loans charged off			Recoveries		Net charge-offs			Balance September 30, 2013
Construction and land development	$	7,229	$	(215	)	$	(1,493	)	$	4	$	(1,489	)	$	5,525
Commercial real estate - owner occupied		2,438		(128	)		—			32		32			2,342
Commercial real estate - non-owner occupied		4,255		684			(2	)		45		43			4,982
Multifamily, nonresidential, farmland and junior liens		1,985		45			(3	)		2		(1	)		2,029
Home equity lines		3,122		(611	)		(223	)		84		(139	)		2,372
Secured by 1-4 family residential, secured by deeds of trust		5,858		733			(279	)		62		(217	)		6,374
Commercial and industrial loans (except those secured by real estate)		2,356		(331	)		(44	)		52		8			2,033
Consumer and other		123		23			(33	)		57		24			170

Total	$	27,366	$	200		$	(2,077	)	$	338	$	(1,739	)	$	25,827


	Three Months Ended September 30, 2012
	Balance, July 1, 2012		Provision for loan losses			Loans charged off			Recoveries		Net charge-offs			Balance September 30, 2012
Construction and land development	$	7,953	$	21		$	(301	)	$	66	$	(235	)	$	7,739
Commercial real estate - owner occupied		2,627		226			(150	)		11		(139	)		2,714
Commercial real estate - non-owner occupied		5,415		1,280			(684	)		72		(612	)		6,083
Multifamily, nonresidential, farmland and junior liens		1,014		1,170			(694	)		1		(693	)		1,491
Home equity lines		3,895		(471	)		(205	)		62		(143	)		3,281
Secured by 1-4 family residential, secured by deeds of trust		6,628		(35	)		(438	)		211		(227	)		6,366
Commercial and industrial loans (except those secured by real estate)		2,526		(305	)		(182	)		61		(121	)		2,100
Consumer and other		84		14			(79	)		67		(12	)		86

Total	$	30,142	$	1,900		$	(2,733	)	$	551	$	(2,182	)	$	29,860


	Nine Months Ended September 30, 2013
	Balance, January 1, 2013		Provision for loan losses			Loans charged off			Recoveries		Net charge-offs			Balance September 30, 2013
Construction and land development	$	8,230	$	(818	)	$	(2,031	)	$	144	$	(1,887	)	$	5,525
Commercial real estate - owner occupied		2,328		115			(214	)		113		(101	)		2,342
Commercial real estate - non-owner occupied		4,863		(35	)		(2	)		156		154			4,982
Multifamily, nonresidential, farmland and junior liens		1,854		675			(531	)		31		(500	)		2,029
Home equity lines		3,506		(19	)		(1,242	)		127		(1,115	)		2,372
Secured by 1-4 family residential, secured by deeds of trust		7,305		211			(1,413	)		271		(1,142	)		6,374
Commercial and industrial loans (except those secured by real estate)		1,642		366			(460	)		485		25			2,033
Consumer and other		96		20			(159	)		213		54			170

Total	$	29,824	$	515		$	(6,052	)	$	1,540	$	(4,512	)	$	25,827


	Nine Months Ended September 30, 2012
	Balance, January 1, 2012		Provision for loan losses			Loans charged off			Recoveries		Net charge-offs			Balance September 30, 2012
Construction and land development	$	9,856	$	(601	)	$	(1,598	)	$	82	$	(1,516	)	$	7,739
Commercial real estate - owner occupied		3,224		887			(1,635	)		238		(1,397	)		2,714
Commercial real estate - non-owner occupied		4,234		2,622			(846	)		73		(773	)		6,083
Multifamily, nonresidential, farmland and junior liens		1,107		1,187			(804	)		1		(803	)		1,491
Home equity lines		3,507		975			(1,412	)		211		(1,201	)		3,281
Secured by 1-4 family residential, secured by deeds of trust		6,512		937			(1,399	)		316		(1,083	)		6,366
Commercial and industrial loans (except those secured by real estate)		4,059		(1,772	)		(666	)		479		(187	)		2,100
Consumer and other		89		(85	)		(168	)		250		82			86

Total	$	32,588	$	4,150		$	(8,528	)	$	1,650	$	(6,878	)	$	29,860

Provisioning for home equity lines for the three month period ended September 30, 2013 was reduced compared to prior periods due to a reduction in one of our qualitative factors driven by nonaccrual levels.

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The table below presents the balance in the allowance for loan losses and the recorded investment in loans by class and based on the impairment method. TDRs that have been subsequently removed from impaired status in years subsequent to the restructuring are not presented as individually evaluated for impairment in the table (In thousands):

September 30, 2013

Allowance for loan losses

Loans

Individually
evaluated for
impairment

Collectively
evaluated for
impairment

Total
ending
allowance

Individually
evaluated for
impairment

Collectively
evaluated for
impairment

Total loans

Construction and land development

1,670

3,855

5,525

7,918

205,318

213,236

Commercial real estate - owner occupied

339

2,003

2,342

6,877

380,772

387,649

Commercial real estate - non-owner occupied

2,064

2,918

4,982

11,008

537,396

548,404

Multifamily, nonresidential, farmland and junior liens

1,072

957

2,029

4,203

128,051

132,254

Home equity lines

—

2,372

—

233,395

Secured by 1-4 family residential, secured by deeds of trust

768

5,606

6,374

6,948

488,960

495,908

Commercial and industrial loans (except those secured by real estate)

546

1,487

2,033

583

191,149

191,732

Consumer and other

—

170

—

62,155

Total

6,459

19,368

25,827

37,537

2,227,196

2,264,733


	December 31, 2012
	Allowance for loan losses						Loans
	Individually evaluated for impairment		Collectively evaluated for impairment		Total ending allowance		Individually evaluated for impairment		Collectively evaluated for impairment		Total loans
Construction and land development	$	4,423	$	3,807	$	8,230	$	12,686	$	181,694	$	194,380
Commercial real estate - owner occupied		36		3,342		3,378		6,753		337,191		343,944
Commercial real estate - non-owner occupied		1,737		2,766		4,503		11,701		446,945		458,646
Multifamily, nonresidential, farmland and junior liens		994		170		1,164		4,552		113,881		118,433
Home equity lines		—		3,687		3,687		—		246,806		246,806
Secured by 1-4 family residential, secured by deeds of trust		640		6,484		7,124		5,919		476,171		482,090
Commercial and industrial loans (except those secured by real estate)		—		1,642		1,642		—		203,840		203,840
Consumer and other		—		96		96		—		31,929		31,929

Total	$	7,830	$	21,994	$	29,824	$	41,611	$	2,038,457	$	2,080,068

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining whether a loan is impaired include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Additionally, management’s policy is generally to evaluate only those loans greater than $500 thousand for impairment as these are considered to be individually significant in relation to the size of the loan portfolio. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Larger groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual consumer and residential loans for impairment.

Impaired loans totaled $40.3 million and $49.3 million at September 30, 2013 and December 31, 2012, respectively. Included in these balances were $19.2 million and $25.6 million, respectively, of loans classified as troubled debt restructurings (“TDRs”). A modification of a loan’s terms constitutes a TDR if the creditor grants a concession to the borrower for economic or legal reasons related to the borrower’s financial difficulties that it would not otherwise consider. For loans classified as TDRs, we further evaluate the loans as performing or nonperforming. If, at the time of restructure, the loan is accruing, it will be classified as performing and will continue to be classified as performing as long as the borrower continues making payments in accordance with the restructured terms. A modified loan will be reclassified to nonaccrual if the loan becomes 90 days delinquent or other weaknesses are observed which make collection of principal and interest unlikely. TDRs originally considered nonaccrual will be classified as nonperforming, but are able to be reclassified as performing if subsequent to restructure, they experience consecutive six months of payment performance according to the restructured terms. Further, a TDR may be subsequently removed from impaired status in years subsequent to the restructuring if it meets the following criteria:

•

At the time of restructure, the loan was made at a market rate of interest.

•

The loan has shown at least 6 months of payment performance in accordance with the restructured terms.

•

The loan has been reported as a TDR in at least one annual filing on Form 10-K.

The allowance for loan losses associated with TDRs for every loan class is determined using a discounted cash flow analysis in which the original rate prior to modification is used to discount the modified cash flow stream to its net present value. This value is then compared to the recorded amount to determine the appropriate level of reserve to be included in the allowance for loan losses. In instances where this analysis is deemed ineffective due to rate increases made during modification, a collateral dependent approach is used as a practical alternative. The discounted cash flow analysis is used to calculate the reserve balance for TDRs both evaluated individually and those included within homogenous pools.

Annually during the second quarter, we review those loans designated as TDRs for compliance with the previously stated criteria as part of our ongoing monitoring of the performance of modified loans.

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides information on performing and nonperforming TDRs for the periods presented (In thousands):


	September 30, 2013		December 31, 2012
Performing restructurings:
Construction and land development	$	4,205	$	5,962
Commercial real estate - owner occupied		6,443		5,334
Commercial real estate - non-owner occupied		1,179		1,670
Secured by 1-4 family residential, secured by deeds of trust		5,999		10,278

Total performing restructurings	$	17,826	$	23,244


Nonperforming restructurings:
Construction and land development	$	340	$	380
Commercial real estate - non-owner occupied		60		116
Secured by 1-4 family residential, secured by deeds of trust		938		1,885

Total nonperforming restructurings	$	1,338	$	2,381


Total restructurings	$	19,164	$	25,625

Modifications of terms for loans and their inclusion as TDRs are based on individual facts and circumstances. Loan modifications that are included as TDRs may involve either an increase or reduction of the interest rate, extension of the term of the loan, or deferral of principal payments, regardless of the period of the modification. The loans included in all loan classes as TDRs at September 30, 2013 had either an interest rate modification or a deferral of principal payments, which we consider to be a concession. All loans designated as TDRs were modified due to financial difficulties experienced by the borrower.

There were no TDRs identified during the three month period ended 2013. Additionally, there were no TDRs that subsequently defaulted during either income statement period presented for 2013.

The following table provides information about TDRs identified during the specified periods and those loans identified as TDRs within the prior 12 month timeframe that subsequently defaulted during the period. Defaults are those TDRs that went greater than 90 days past due, and aligns with our internal definition of default for those loans not identified as TDRs (In thousands, except number of contracts):

Modifications for the three months ended,

September 30, 2012

Number of
contracts

Pre-Modification
Outstanding
Recorded Investment

Post-Modification
Outstanding
Recorded Investment

Troubled Debt Restructurings

Commercial real estate - owner occupied

534

Total Troubled Debt Restructurings

534

Troubled Debt Restructurings that Subsequently Defaulted


	Number of contracts		Recorded Investment
Troubled Debt Restructurings
Commercial real estate - owner occupied		1	$	142
Commercial real estate - non-owner occupied		2		62
Secured by 1-4 family residential, secured by deeds of trust		12		2,026

Total Troubled Debt Restructurings		15	$	2,230

Modifications for the nine months ended,

September 30, 2013

Number of
contracts

Pre-Modification
Outstanding
Recorded Investment

Post-Modification
Outstanding
Recorded Investment

Troubled Debt Restructurings

Commercial real estate - owner occupied

1,243

1,260

Total Troubled Debt Restructurings

1,243

1,260


	Modifications for the nine months ended,
	September 30, 2012
	Number of contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Construction and land development		1	$	2,201	$	2,201
Commercial real estate - owner occupied		2		1,400		1,400
Secured by 1-4 family residential, secured by deeds of trust		2		986		1,275

Total Troubled Debt Restructurings		5	$	4,587	$	4,876

Troubled Debt Restructurings that Subsequently Defaulted


	Number of contracts		Recorded Investment
Troubled Debt Restructurings
Commercial real estate - owner occupied		1	$	142
Commercial real estate - non-owner occupied		2		62
Secured by 1-4 family residential, secured by deeds of trust		12		2,026

Total Troubled Debt Restructurings		15	$	2,230

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Interest is not typically accrued on impaired loans, but is accrued for performing TDRs. The following table shows interest income recognized on TDRs (In thousands):


	Three Months Ended September 30
	Interest income recognized		Cash-basis interest income
2013
Construction and land development	$	63	$	61
Commercial real estate - owner occupied		86		66
Commercial real estate - non-owner occupied		120		120
Secured by 1-4 family residential, secured by deeds of trust		56		56

Total	$	325	$	303


2012
Construction and land development	$	95	$	83
Commercial real estate - non-owner occupied		251		251
Secured by 1-4 family residential, secured by deeds of trust		51		49

Total	$	397	$	383


	Nine Months Ended September 30
	Interest income recognized		Cash-basis interest income recognized
2013
Construction and land development	$	210	$	210
Commercial real estate - owner occupied		231		229
Commercial real estate -non-owner occupied		401		393
Secured by 1-4 family residential, secured by deeds of trust		172		172

Total	$	1,014	$	1,004


2012
Construction and land development	$	310	$	310
Commercial real estate - non-owner occupied		382		382
Secured by 1-4 family residential, secured by deeds of trust		178		167

Total	$	870	$	859

Cash basis interest income illustrates income that would have been recognized solely based on cash payments received. Interest income recognized differs from the cash basis due to the movement of loans between performing and nonperforming status during the periods presented. Other than these TDRs, no interest income has been recognized on impaired loans subsequent to their classification as impaired.

In order to measure the amount of impairment, we evaluate loans either individually or in collective pools. Collective pools consist of smaller balance, homogenous loans that are not subject to a restructuring agreement. TDRs evaluated in collective pools consist of mortgage modifications that were made as part of a program implemented during the credit crisis in order to assist homeowners to remain in their homes. Of the $40.3 million of impaired loans at September 30, 2013, $2.8 million, consisting solely of TDRs, was collectively evaluated for impairment and $37.5 million was individually evaluated for impairment. The detail of loans individually evaluated for impairment, which includes $16.4 million of TDRs, is presented below (In thousands):

Recorded
investment

Unpaid
contractual
principal
balance

Allocated
allowance

Average
recorded
investment

September 30, 2013

Loans without a specific valuation allowance:

Construction and land development

2,652

3,046

—

2,853

Commercial real estate - owner occupied

1,243

1,242

—

2,100

Commercial real estate - non-owner occupied

1,179

—

1,258

Secured by 1-4 family residential, secured by deeds of trust

1,746

2,173

—

1,823

Loans with a specific valuation allowance:

Construction and land development

5,266

9,171

1,670

7,556

Commercial real estate - owner occupied

5,634

339

4,359

Commercial real estate - non-owner occupied

9,829

9,830

2,064

9,669

Multifamily, nonresidential, farmland and junior liens

4,203

4,939

1,072

4,315

Secured by 1-4 family residential, secured by deeds of trust

5,202

5,224

768

4,114

Commercial and industrial loans (except those secured by real estate)

583

598

546

450

Total

37,537

43,036

6,459

38,525

As of December 31, 2012, we had $49.3 million of impaired loans, with $7.7 million, consisting solely of TDRs, collectively evaluated for impairment. The other $41.6 million individually evaluated for impairment, which includes $17.9 million of TDRs, is presented below (In thousands):


	Recorded investment		Unpaid contractual principal balance		Allocated allowance		Average recorded investment
December 31, 2012
Loans without a specific valuation allowance:
Construction and land development	$	3,239	$	3,593	$	—	$	3,591
Commercial real estate - owner occupied		5,898		5,995		—		6,484
Commercial real estate - non-owner occupied		1,195		1,215		—		1,314
Multifamily, nonresidential, farmland and junior liens		111		111		—		122
Secured by 1-4 family residential, secured by deeds of trust		1,921		3,479		—		3,228
Loans with a specific valuation allowance:
Construction and land development		9,447		14,045		4,423		10,390
Commercial real estate - owner occupied		855		855		36		687
Commercial real estate - non-owner occupied		10,506		10,525		1,737		8,442
Multifamily, nonresidential, farmland and junior liens		4,441		5,003		994		3,568
Secured by 1-4 family residential, secured by deeds of trust		3,998		4,014		640		3,540

Total	$	41,611	$	48,835	$	7,830	$	41,366

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Credit Quality Indicators

We categorize all business and commercial purpose loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are risk graded at inception through the credit approval process. The definitions used were last updated in early 2010 and are reviewed for applicability annually. The risk grades are reviewed and formally affirmed quarterly by loan officers. In addition, a certain percentage of credit exposure is reviewed each year through our loan review process. The risk rating process is inherently subjective and based upon management’s evaluation of the specific facts and circumstances for individual borrowers. As such, the assigned risk ratings are subject to change based upon changes in borrower status and changes in the external environment affecting the borrower. We use the following definitions for risk ratings:

•

Risk Grade 1 – Prime Risk. Loss potential is rated as none or extremely low. Loans fully secured by deposit accounts at our subsidiary bank will also be rated as Risk Grade 1.

•

Risk Grade 2 – Excellent Risk. Loss potential is demonstrably low. Loans have liquid financial statements or are secured by marketable securities or other liquid collateral.

•

Risk Grade 3 – Good Risk. Loss potential is low. Asset quality and liquidity are considered good. Overall leverage and liquidity measures are better than the industry in which the borrower operates and they are stable.

•

Risk Grade 4 – Average Risk. Loss potential is low, but evidence of risk exists. Margins and cash flow generally equal or exceed industry norm and policy guidelines, but some inconsistency may be evident. Asset quality is average with liquidity comparable to industry norms. Leverage may be slightly higher than the industry, but is stable.

•

Risk Grade 5 – Marginal Risk. Loss potential is variable, but there is potential for deterioration. Asset quality is marginally acceptable. Leverage may fluctuate and is above normal for the industry. Cash flow is marginally adequate.

•

Risk Grade 6 – Special Mention. Loss potential moderate if corrective action not taken. Evidence of declining revenues or margins, inadequate cash flow, and possibly high leverage or tightening liquidity.

•

Risk Grade 7 – Substandard. Distinct possibility of loss to the bank. Repayment ability of borrower is weak and the loan may have exhibited excessive overdue status, extension, or renewals.

•

Risk Grade 8 – Doubtful. Loss potential is extremely high. Ability of the borrower to service the debt is weak, constant overdue status, loan has been placed on nonaccrual status and no definitive repayment schedule exists.

•

Risk Grade 9 – Loss. Loans are considered fully uncollectible and charged off.

We utilize our nine point grading system in order to evaluate the level of inherent risk in the loan portfolio as part of our allowance for loan losses methodology. Loans graded 5 or worse are assigned an additional reserve factor stated in basis points in order to account for the added inherent risk. Additional basis points are applied as a reserve factor to the loan balances as the corresponding loan grades indicate additional risk and increase from grade 5 to grade 8.

Loans not graded are either consumer purpose loans, construction loans to individuals for single-family owner-occupied construction, or are included in groups of homogenous loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (In thousands):


			Risk Grade
	Not Graded		1 - 3		4		5		6		7		8
September 30, 2013
Construction and land development	$	40,280	$	2,964	$	76,821	$	67,647	$	4,404	$	19,424	$	1,696
Commercial real estate - owner occupied		—		22,130		206,340		116,357		16,921		25,901		0
Commercial real estate - non-owner occupied		—		40,713		338,685		132,071		9,686		25,801		1,448
Multifamily, nonresidential, farmland and junior liens		—		17,488		80,382		24,706		1,850		7,828		—
Home equity lines		—		—		231		49		—		—		—
Secured by 1-4 family residential, secured by deeds of trust		—		4,224		90,890		66,641		12,087		21,026		—
Commercial and industrial loans (except those secured by real estate)		—		62,708		77,784		42,052		5,121		3,403		664
Consumer and other		—		—		—		—		—		—		—

Total	$	40,280	$	150,227	$	871,133	$	449,523	$	50,069	$	103,383	$	3,808


December 31, 2012
Construction and land development	$	40,980	$	964	$	65,041	$	56,114	$	2,907	$	24,945	$	3,429
Commercial real estate - owner occupied		—		22,139		196,748		73,469		18,636		32,952		0
Commercial real estate - non-owner occupied		—		35,288		272,701		110,039		9,831		30,101		686
Multifamily, nonresidential, farmland and junior liens		—		29,091		53,678		23,962		2,271		9,431		0
Home equity lines		—		479		3,007		2,616		49		514		0
Secured by 1-4 family residential, secured by deeds of trust		—		6,456		95,425		66,445		12,526		22,689		976
Commercial and industrial loans (except those secured by real estate)		—		66,612		76,748		49,236		4,717		6,470		57
Consumer and other		—		—		—		—		—		—		—

Total	$	40,980	$	161,029	$	763,348	$	381,881	$	50,937	$	127,102	$	5,148

We consider the performance of the loan portfolio and its impact on the allowance for loan losses. For smaller-balance homogenous residential and consumer loans, we also evaluate credit quality based on the aging status of the loan and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity (In thousands):


	Home equity lines				Secured by 1-4 family residential, secured by deeds of trust				Consumer and other
	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
Performing	$	231,457	$	236,419	$	290,612	$	265,652	$	62,141	$	31,897
Nonperforming		1,658		3,722		10,428		11,921		14		32

Total	$	233,115	$	240,141	$	301,040	$	277,573	$	62,155	$	31,929

Repurchased Loans

In certain loan sales, we provide recourse to the buyer whereby we are required to repurchase loans at par value plus accrued interest on the occurrence of certain credit-related events within a certain time period. We evaluate all mortgage loans at the time of repurchase for evidence of deteriorated credit quality. All loans are recorded at estimated realizable value at the time of purchase. At September 30, 2013, $467 thousand of losses associated with mortgage repurchases and indemnifications was accrued. Additionally, losses of $215 thousand and $584 thousand were recognized during the nine months ended September 30, 2013 and 2012, respectively.

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Concentrations of Credit

Most of our lending activity occurs within Richmond, Central and Southwest Virginia. The majority of our loan portfolio consists of consumer and commercial real estate loans. As of September 30, 2013 and December 31, 2012, there were no concentrations of loans related to any single industry in excess of 10% of total loans.

5.	Earnings Per Share

The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common stock for the three month periods ended September 30, 2013 and 2012. Potential dilutive stock had no effect on income per common share for the three month periods (In thousands, except share and per share amounts).


	September 30,
	2013		2012
Earnings per common share
Net income	$	6,289	$	5,560
Weighted average common shares issued and outstanding		22,732,109		23,104,631

Earnings per common share	$	0.28	$	0.24


Diluted earnings per common share
Weighted average common shares issued and outstanding		22,732,109		23,104,631
Stock options and warrants		87,881		918

Total diluted weighted average common shares issued and outstanding		22,819,990		23,105,549

Diluted earnings per common share	$	0.28	$	0.24

The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common stock for the nine month periods ended September 30, 2013 and 2012. Potential dilutive stock had no effect on income per common share for the nine month periods (In thousands, except share and per share amounts).


	September 30,
	2013		2012
Earnings per common share
Net income	$	18,517	$	15,942
Weighted average common shares issued and outstanding		22,816,837		23,086,118

Earnings per common share	$	0.81	$	0.69


Diluted earnings per common share
Weighted average common shares issued and outstanding		22,816,837		23,086,118
Stock options and warrants		41,691		347

Total diluted weighted average common shares issued and outstanding		22,858,528		23,086,465

Diluted earnings per common share	$	0.81	$	0.69

In 2013 and 2012, stock options representing 61,438 and 213,871 shares, respectively, were not included in the three month calculation of earnings per share, as their effect would have been anti-dilutive. For the nine month calculation of earnings per share 116,488 and 245,019 shares in 2013 and 2012, respectively, were excluded. None of the outstanding warrants to purchase 302,622 shares of common stock associated with the U.S. Treasury Capital Purchase Program were considered anti-dilutive during either 2013 period presented. All warrants were considered antidilutive for both 2012 periods presented and thus have not been considered in the fully-diluted share calculations for the three and nine month periods, respectively.

6.	Stock-Based Compensation

Stock-based compensation expense included within compensation and employee benefits expense totaled $297 thousand and $917 thousand during the three and nine months ended September 30, 2013, respectively and $250 thousand and $728 thousand during the three and nine months ended September 30, 2012, respectively.

A summary of the stock option plan at September 30, 2013 and 2012 and changes during the periods ended on those dates are as follows:


	2013					2012
	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price

Outstanding at January 1,		184,431		$	20.30		291,196		$	21.58
Forfeited		(1,755	)		17.54		(7,259	)		18.68
Expired		(15,627	)		18.42		(68,443	)		26.88
Exercised		(62,723	)		18.77		(3,192	)		10.95

Outstanding at September 30,		104,326		$	21.38		212,302		$	20.14


Exercisable at September 30,		103,188					193,041

The aggregate intrinsic value of options outstanding as of September 30, 2013 was $328 thousand and the intrinsic value of options exercisable was $309 thousand and the intrinsic values of options exercised during 2013 were $170 thousand. The intrinsic value associated with options exercised during the nine months ended 2012 was $5 thousand. The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the quarter ended September 30, 2013 and the exercise price, multiplied by the number of options outstanding). The fair value of shares vested during 2013 was $42 thousand. The weighted average remaining contractual life is 1.9 years with a weighted average exercise price of $21.55 for exercisable options at September 30, 2013.

The following table summarizes nonvested restricted shares outstanding as of September 30, 2013 and the related activity during the period:

Nonvested Shares

Number of
Shares

Weighted Average
Grant-Date
Fair Value

Total Intrinsic
Value

(In thousands)

Nonvested at January 1, 2013

210,011

12.49

2,970

Granted

76,518

14.56

Vested and exercised

(81,684

)

12.54

1,261

Forfeited

(1,449

)

12.51

Nonvested at September 30, 2013

203,396

13.25

4,576

The estimated unamortized compensation expense, net of estimated forfeitures, related to nonvested stock and stock options issued and outstanding as of September 30, 2013 that will be recognized through 2018 is $1.9 million.

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7.	Fair Value Measurements

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability (an exit price) in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, we utilize valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. FASB ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

We group assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. These levels are:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value. The determination of where an asset or liability falls in the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter and based on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, we expect changes in classifications between levels will be rare. There were no transfers between levels in 2013 or 2012.

Assets and Liabilities Measured on a Recurring Basis:

Securities: Investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Level 1 securities include those traded on nationally recognized securities exchanges, U.S. Treasury securities, and money market funds. Level 2 securities include U.S. Agency securities, mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Deferred compensation plans: Liabilities associated with deferred compensation plans are recorded at fair value on a recurring basis as Level 1 based on the fair value of the underlying securities. The underlying securities are all Level 1 as described above.

Cash flow hedge: We record the fair value of our cash flow hedge on a recurring basis as Level 2, as the valuation is based on estimates using standard pricing models. These models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves.

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 are summarized below (In thousands).

Fair Value Measurements at
September 30, 2013
Using

Level 1

Level 2

Level 3

Total

(Quoted
Prices)

(Significant
Other
Observable
Inputs)

(Significant
Unobservable
Inputs)

Investment securities available-for-sale

U. S. Government agencies

239,879

—

239,879

—

State and municipals

136,421

—

136,421

—

Corporate bonds

1,333

—

1,333

—

Collateralized mortgage obligations

3,968

—

3,968

—

Mortgage backed securities

85,982

—

85,982

—

Other investments

12,749

11,749

1,000

—

Other assets 1

3,269

—

Total assets at fair value

483,601

15,018

468,583

—

Interest rate swaps

1,381

—

1,381

—

Other liabilities 1

3,313

—

Total liabilities at fair value

4,694

3,313

1,381

—

1	Includes assets and liabilities associated with deferred compensation plans and customer interest rate swaps.


			Fair Value Measurements at December 31, 2012 Using
			Level 1		Level 2		Level 3
	Total		(Quoted Prices)		(Significant Other Observable Inputs)		(Significant Unobservable Inputs)
Investment securities available-for-sale
U. S. Treasuries	$	20,000	$	20,000	$	—	$	—
U. S. Government agencies		249,496		—		249,496		—
State and municipals		148,666		—		148,666		—
Corporate bonds		1,852		—		1,852		—
Collateralized mortgage obligations		5,333		—		5,333		—
Mortgage backed securities		113,380		—		113,380		—
Other investments		14,749		13,749		1,000		—
Other assets 1		5,408		5,408		—		—

Total assets at fair value	$	558,884	$	39,157	$	519,727	$	—


Interest rate swaps	$	1,465	$	—	$	1,465	$	—
Other liabilities 1		5,455		5,455		—		—

Total liabilities at fair value	$	6,920	$	5,455	$	1,465	$	—

1	Includes assets and liabilities associated with deferred compensation plans and customer interest rate swaps.

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Assets and Liabilities Measured on a Nonrecurring Basis:

We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with USGAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period.

Loans held for sale: The fair value of loans held for sale is determined, when possible, using quoted secondary-market prices. Those loans with a quoted price are recorded as Level 2. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan. These loans are recorded as Level 3.

Loans: We do not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is 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.

The fair value of impaired loans is estimated using one of several methods. For real estate secured loans, generally external appraisals by a board approved appraiser are used to determine the fair value of the underlying collateral for collateral dependent impaired loans. These appraisals are sometimes adjusted based on management’s and Chief Appraiser’s knowledge of other factors not embedded within the appraisal, including selling costs, maintenance costs, and other estimable costs that would be incurred if collateral is required to be liquidated. Our in-house appraisal group’s review of such appraisals is documented as part of the quarterly ALLL process. Other estimates of value, such as auctioneer’s estimates of value, purchase offers and/or contracts, and settlement offers and/or agreements, may be used when they are thought to represent a more accurate estimate of fair value. For loans that are not secured by real estate, fair value of the collateral may be determined by discounted book value based on available data such as current financial statements or an external appraisal or an auctioneer’s or liquidator’s estimate of value. Those impaired loans not requiring an allowance represent loans that have been charged down to their net realizable value. At September 30, 2013 and December 31, 2012, substantially all of the total impaired loans, excluding TDRs, were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. As such, we record the impaired loan as nonrecurring Level 3.

Foreclosed assets: Foreclosed assets are initially recorded at fair value less costs to sell upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or net realizable value. Fair value is based upon appraised values of the collateral adjusted for estimated disposition costs or management’s estimation of the value of the collateral. As such, we record the foreclosed asset as nonrecurring Level 3.

Assets measured at fair value on a nonrecurring basis as of September 30, 2013 and December 31, 2012 are included in the table below (In thousands).


			Fair Value Measurements at September 30, 2013 Using
			Level 1		Level 2		Level 3
	Total		(Quoted Prices)		(Significant Other Observable Inputs)		(Significant Unobservable Inputs)
Impaired loans
Construction and land development	$	1,702	$	—	$	—	$	1,702
Commercial real estate - owner occupied		95		—		—		95
Commercial real estate - non-owner occupied		7,706		—		—		7,706
Multifamily, nonresidential, farmland and junior liens		3,131		—		—		3,131
Secured by 1-4 family residential, secured by deeds of trust		1,999		—		—		1,999
Commercial and industrial loans (except those secured by real estate)		37		—		—		37
Foreclosed assets
Construction and land development		2,538		—		—		2,538
Commercial real estate - owner occupied				—		—		—
Home equity lines		431		—		—		431
Secured by 1-4 family residential, secured by deeds of trust		1,480		—		—		1,480

Total assets at fair value	$	19,119	$	—	$	—	$	19,119


			Fair Value Measurements at December 31, 2012 Using
			Level 1		Level 2		Level 3
	Total		(Quoted Prices)		(Significant Other Observable Inputs)		(Significant Unobservable Inputs)

Impaired loans	$	23,667	$	—	$	—	$	23,667
Loans held for sale - mortgage		37,778		—		37,778		—
Foreclosed assets		5,760		—		—		5,760

Total assets at fair value	$	67,205	$	—	$	37,778	$	29,427

The following table displays quantitative information about Level 3 Fair Value Measurements for September 30, 2013 (In thousands):


	Fair Value measurements at September 30, 2013
	Fair Value		Valuation Technique(s)	Unobservable Inputs	Weighted Average Discount
Impaired loans
Construction and land development	$	1,702	Market comparables	Discount applied to market comparables (1)		0.2	%
Commercial real estate - owner occupied		95	Market comparables	Discount applied to market comparables (1)		57.1	%
Commercial real estate - non-owner occupied		7,706	Market comparables	Discount applied to market comparables (1)		0.3	%
Multifamily, nonresidential, farmland and junior liens		3,131	Market comparables	Discount applied to market comparables (1)		0.0	%
Secured by 1-4 family residential, secured by deeds of trust		1,999	Market comparables	Discount applied to market comparables (1)		4.9	%
Commercial and industrial loans (except those secured by real estate)		37	Market comparables	Discount applied to market comparables (1)		0.0	%
Foreclosed assets
Construction and land development		2,538	Market comparables	Discount applied to market comparables (1)		19.3	%
Home equity lines		431	Market comparables	Discount applied to market comparables (1)		0.8	%
Secured by 1-4 family residential, secured by deeds of trust		1,480	Market comparables	Discount applied to market comparables (1)		3.1	%

Total	$	19,119

1	Includes assets and liabilities associated with deferred compensation plans and customer interest rate swaps.

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

There are significant unobservable inputs used for our Level 3 measurements of impaired loans and foreclosed assets. For both types of assets, the measurement is dependent on our planned strategy. For foreclosed assets, quarterly valuations are typically obtained for the properties in the portfolio. For those properties less than $500 thousand associated with realtor sales, this is typically a realtor’s assessment. Properties greater than $500 thousand that will be sold through the retail, wholesale and auction markets are typically reported at liquidation value supported by a current appraisal or an auctioneer’s estimate, as appropriate. For impaired loans with a planned strategy of rehabilitation, a market value is used for the fair value measurement. Adjustments are made if an updated market value is not obtained and we feel that the market has changed significantly since the value was prepared. If our strategy is to liquidate a property, the liquidation value is used. For those properties going to auction, the value may be adjusted downward based on auctioneer feedback, which is typically more reliable than appraisal value based on market knowledge.

ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent our underlying fair value.

The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for cash and cash equivalents, and accrued interest. The methodologies for other financial assets and financial liabilities are discussed below:

Loans: For variable-rate loans that re-price frequently and with no significant changes in credit risk, fair values are based on carrying values. The fair values for other loans were estimated using discounted cash flow analyses, using interest rates currently being offered. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk. These loans are considered Level 3, as the valuation is determined using discounted cash flow methodology.

Deposit Liabilities: The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Deposits are considered Level 3, as the valuation is determined using discounted cash flow methodology.

Federal Home Loan Bank Advances: The fair values of our Federal Home Loan Bank advances are provided by the Federal Home Loan Bank of Atlanta and represent mathematical approximations of market values derived from their proprietary models as of the close of business on the last business day of the quarter and therefore, we consider these advances Level 3.

Subordinated Debt: The values of our subordinated debt are variable rate instruments that re-price on a quarterly basis; therefore, carrying value is adjusted for the three month re-pricing lag in order to approximate fair value. Subordinated debt is Level 3, as the valuation is determined using discounted cash flow methodology.

Off-Balance-Sheet Financial Instruments: The fair value of commitments to extend credit is 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 value of stand-by letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At September 30, 2013 and December 31, 2012, the fair value of loan commitments and stand-by letters of credit was immaterial.

The estimated fair values of our financial instruments are as follows (In thousands):


	September 30, 2013
	Carrying		Fair		Fair Value Measurements Using
	Amount		Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	54,232	$	54,232	$	54,232	$	—	$	—
Investment securities		480,332		480,332		11,749		468,583		—
Mortgage loans held for sale		18,696		18,696		—		18,696		—
Loans receivable, net		2,238,257		2,190,074		—		—		2,190,074
Accrued interest receivable		8,032		8,032		10		2,719		5,303

Liabilities
Deposits	$	2,446,381	$	2,453,492	$	—	$	—	$	2,453,492
Federal Home Loan Bank advances		126,700		130,183		—		—		130,183
Subordinated debt		32,991		32,939		—		—		32,939
Accrued interest payable		1,419		1,419		—		—		1,419

	December 31, 2012
	Carrying		Fair		Fair Value Measurements Using
	Amount		Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	89,949	$	89,949	$	89,949	$	—	$	—
Investment securities		553,476		553,476		33,749		519,727		—
Mortgage loans held for sale		37,778		37,778		—		37,778		—
Loans receivable, net		2,049,769		1,884,523		—		—		1,884,523
Accrued interest receivable		8,265		8,265		14		2,646		5,605

Liabilities
Deposits	$	2,484,324	$	2,497,277	$	—	$	—	$	2,497,277
Federal Home Loan Bank advances		55,000		59,864		—		—		59,864
Subordinated debt		32,991		32,937		—		—		32,937
Accrued interest payable		1,682		1,682		—		—		1,682

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8.	Segment Information

We operate in three business segments, organized around the different products and services offered:

•

Commercial Banking

•

Mortgage Banking

•

Wealth Management

Commercial Banking includes commercial, business and retail banking. This segment provides customers with products such as commercial loans, small business loans, real estate loans, business financing and consumer loans. In addition, this segment provides customers with several choices of deposit products including demand deposit accounts, savings accounts and certificates of deposit. Mortgage Banking engages primarily in the origination of residential mortgages for sale into the secondary market on a best-efforts basis and some portfolio lending. Wealth Management provides investment and financial advisory services to businesses and individuals, including financial planning, retirement planning, estate planning, trust and custody services, investment management, escrows, and retirement plans.

Information about the reportable segments and reconciliation of this information to the consolidated financial statements at and for the three and nine months ended September 30, 2013 and 2012 is as follows:

At and for the Three Months Ended September 30, 2013


	Commercial Bank		Mortgage Banking		Wealth Management		Other			Intersegment Elimination			Consolidated
Net interest income	$	24,375	$	790	$	18	$	(345	)	$	—		$	24,838
Provision for loan losses		200		—		—		—			—			200
Noninterest income		5,858		1,182		1,313		26			(1,217	)		7,162
Noninterest expense		20,864		1,380		1,018		775			(1,217	)		22,820
Provision for income taxes		2,662		178		94		(243	)		—			2,691

Net income (loss)	$	6,507	$	414	$	219	$	(851	)	$	—		$	6,289


Total Assets	$	2,989,592	$	80,267	$	4,528	$	468,514		$	(460,674	)	$	3,082,227
Average Assets	$	2,970,257	$	69,485	$	2,167	$	465,135		$	(457,283	)	$	3,049,761

At and for the Three Months Ended September 30, 2012


	Commercial Bank		Mortgage Banking		Wealth Management		Other			Intersegment Elimination			Consolidated
Net interest income	$	24,482	$	161	$	—	$	(344	)	$	—		$	24,299
Provision for loan losses		1,900		—		—		—			—			1,900
Noninterest income		5,525		1,955		1,172		(99	)		(1,152	)		7,401
Noninterest expense		21,059		1,277		937		167			(1,152	)		22,288
Provision for income taxes		1,848		252		69		(217	)		—			1,952

Net income (loss)	$	5,200	$	587	$	166	$	(393	)	$	—		$	5,560


Total Assets	$	2,925,559	$	26,309	$	636	$	466,591		$	(459,249	)	$	2,959,846
Average Assets	$	2,945,031	$	20,368	$	617	$	462,947		$	(455,452	)	$	2,973,511

At and for the Nine Months Ended September 30, 2013


	Commercial Bank		Mortgage Banking		Wealth Management		Other			Intersegment Elimination			Consolidated
Net interest income	$	72,714	$	1,598	$	19	$	(1,022	)	$	—		$	73,309
Provision for loan losses		515		—		—		—			—			515
Noninterest income		17,217		4,854		3,930		79			(3,652	)		22,428
Noninterest expense		63,479		4,172		3,056		1,788			(3,652	)		68,843
Provision for income taxes		7,470		684		268		(560	)		—			7,862

Net income (loss)	$	18,467	$	1,596	$	625	$	(2,171	)	$	—		$	18,517


Average Assets	$	2,955,487	$	51,893	$	1,777	$	467,295		$	(459,347	)	$	3,017,105

At and for the Nine Months Ended September 30, 2012


	Commercial Bank		Mortgage Banking		Wealth Management		Other			Intersegment Elimination			Consolidated
Net interest income	$	72,863	$	538	$	—	$	(1,027	)	$	—		$	72,374
Provision for loan losses		4,150		—		—		—			—			4,150
Noninterest income		16,827		4,678		3,632		(235	)		(3,456	)		21,446
Noninterest expense		64,114		3,766		2,998		473			(3,456	)		67,895
Provision for income taxes		5,828		434		192		(621	)		—			5,833

Net income (loss)	$	15,598	$	1,016	$	442	$	(1,114	)	$	—		$	15,942


Average Assets	$	2,908,031	$	20,585	$	525	$	458,776		$	(451,606	)	$	2,936,311

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9.	Accumulated Other Comprehensive Income

The components of other comprehensive (loss) income and the related tax effects were (In thousands):


	Three months ended September 30,
	2013									2012
	Before tax			Tax effect			Net of tax			Before tax			Tax effect			Net of tax
Investment securities available for sale:
Unrealized holding (losses) gains arising during the period	$	(5	)	$	2		$	(3	)	$	2,785		$	(975	)	$	1,810
Reclassification adjustment		—			—			—			(9	)		3			(6	)
Change in cash flow hedge		(122	)		43			(79	)		(283	)		99			(184	)

Other comprehensive (loss) income	$	(127	)	$	45		$	(82	)	$	2,493		$	(873	)	$	1,620


	Nine months ended September 30,
	2013									2012
	Before tax			Tax effect			Net of tax			Before tax			Tax effect			Net of tax
Investment securities available for sale:
Unrealized holding (losses) gains arising during the period	$	(11,246	)	$	3,936		$	(7,310	)	$	3,288		$	(1,151	)	$	2,137
Reclassification adjustment		(6	)		2			(4	)		(88	)		31			(57	)
Change in post retirement liability		(177	)		62			(115	)		3			(1	)		2
Change in cash flow hedge		306			(107	)		199			(745	)		261			(484	)

Other comprehensive (loss) income	$	(11,123	)	$	3,893		$	(7,230	)	$	2,458		$	(860	)	$	1,598

There were no significant reclassifications out of accumulated other comprehensive income during the periods presented.

Cumulative other comprehensive income balances were (In thousands):


	Investment securities available for sale			Postretirement liability			Cash flow hedge			Cumulative other comprehensive income
Balance, January 1, 2012	$	11,582		$	(1,725	)	$	(523	)	$	9,334
Net change		2,080			2			(484	)		1,598

Balance, September 30, 2012	$	13,662		$	(1,723	)	$	(1,007	)	$	10,932


Balance, January 1, 2013	$	12,391		$	(1,532	)	$	(952	)	$	9,907
Net change		(7,314	)		(115	)		199			(7,230	)

Balance, September 30, 2013	$	5,077		$	(1,647	)	$	(753	)	$	2,677

10.	Share Repurchase Plan

Our Board approved a share repurchase program in December of 2012, authorizing 1,500,000 shares for repurchase. There is no stated expiration for the share repurchase program. Since the inception of this share repurchase program, we have repurchased 448 thousand shares of our common stock for a total cash investment of $6.9 million. This program was suspended during the second quarter when merger negotiations began with Union First Market Bankshares Corporation.

The table below presents information with respect to our common stock purchases made during the nine months ended September 30, (In thousands, except per share data):


	2013
Total number of shares purchased		448
Average price paid per share	$	15.47
Total investment	$	6,938

11.	New Authoritative Accounting Guidance

In February 2013, the FASB issued ASU 2013-02, Other Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The Update was issued to improve the transparency of reporting these reclassifications; the amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements and all information required by this ASU was already required to be disclosed elsewhere in the financial statements. The ASU requires presentation, either on the face of the statement where net income is presented or in the notes, of the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under USGAAP to be reclassified to net income in its entirety in the same reporting period. Additionally, a company must cross-reference to other disclosures currently required under USGAAP for other reclassification items that are not required under USGAAP to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account instead of directly to income or expense. This Update becomes effective for reporting periods beginning after December 15, 2012. We followed the new guidance effective first quarter of 2013 by adding the required disclosure. This had no effect on our consolidated financial position or consolidated results of operations as a result of adoption.