UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended June 30, 2012
or
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period from
to
CAPITAL BANK CORPORATION
(Exact name of registrant as specified in its charter)
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North Carolina
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000-30062
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56-2101930
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(State or other jurisdiction of
incorporation or organization)
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(Commission
File Number)
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(I.R.S. Employer
Identification No.)
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333 Fayetteville Street, Suite 700
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Raleigh, North Carolina 27601
(Address of principal executive offices)
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(919) 645-6400
(Registrants 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
¨
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes
x
No
¨
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.
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
¨
No
x
As of August 5, 2012 there were 85,802,164 shares outstanding of the registrants common stock, no par value.
CAPITAL BANK CORPORATION
Form 10-Q for the Quarterly Period Ended June 30, 2012
INDEX
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Page No.
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PART I FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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Unaudited Condensed Consolidated Balance Sheets as of June 30, 2012 (Successor) and December 31, 2011 (Successor)
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3
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Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2012 (Successor)
and 2011 (Successor) and the Six Months Ended June 30, 3012 (Successor), the Period of January 29, 2011 to June 30, 2011 (Successor) and the Period of January 1, 2011 to January 28, 2011 (Predecessor)
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4
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Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2012
(Successor) and 2011 (Successor) and the Six Months Ended June 30, 3012 (Successor), the Period of January 29, 2011 to June 30, 2011 (Successor) and the Period of January 1, 2011 to January 28, 2011 (Predecessor)
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5
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Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 3012 (Successor),
the Period of January 29, 2011 to June 30, 2011 (Successor) and the Period of January 1, 2011 to January 28, 2011 (Predecessor)
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6
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Unaudited Notes to Condensed Consolidated Financial Statements
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8
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Item 2.
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Managements Discussion and Analysis of Financial Condition and Results of Operations
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19
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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26
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Item 4.
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Controls and Procedures
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27
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PART II OTHER INFORMATION
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Item 1.
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Legal Proceedings
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28
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Item 1A.
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Risk Factors
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28
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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28
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Item 3.
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Defaults upon Senior Securities
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28
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Item 4.
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Mine Safety Disclosures
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28
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Item 5.
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Other Information
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28
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Item 6.
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Exhibits
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29
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Signatures
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30
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- 2 -
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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Successor Company
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(Dollars in thousands)
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Jun. 30,
2012
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Dec. 31,
2011
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Assets
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Cash and due from banks
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$
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985
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$
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2,163
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Total cash and cash equivalents
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985
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2,163
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Equity method investment in Capital Bank, NA
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250,637
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243,691
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Advance to Capital Bank, NA
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3,393
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3,393
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Other assets
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772
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458
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Total assets
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$
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255,787
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$
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249,705
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Liabilities
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Subordinated debentures
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$
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19,274
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$
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19,163
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Other liabilities
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5,383
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5,715
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Total liabilities
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24,657
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24,878
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Shareholders Equity
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Common stock, no par value; 300,000,000 shares authorized; 85,802,164 and shares issued and outstanding
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218,802
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218,789
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Retained earnings
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10,636
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5,267
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Accumulated other comprehensive income
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1,692
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771
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Total shareholders equity
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231,130
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224,827
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Total liabilities and shareholders equity
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$
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255,787
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$
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249,705
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Successor
Company
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Successor
Company
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Predecessor
Company
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(Dollars in thousands except per share data)
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Three Months
Ended
Jun. 30, 2012
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Three Months
Ended
Jun. 30, 2011
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Six Months
Ended
Jun. 30, 2012
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Jan. 29, 2011
to
Jun. 30, 2011
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Jan. 1, 2011
to
Jan. 28, 2011
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Interest income:
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Loans and loan fees
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$
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$
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16,465
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$
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$
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27,521
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$
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5,479
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Investment securities:
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Taxable interest income
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2,216
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3,206
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391
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Tax-exempt interest income
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239
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398
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74
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Dividends
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30
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59
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Federal funds and other interest income
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85
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40
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170
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87
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11
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Total interest income
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85
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18,990
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170
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31,271
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5,955
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Interest expense:
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Deposits
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2,786
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4,560
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1,551
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Borrowings and subordinated debentures
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369
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765
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731
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1,251
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445
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Total interest expense
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369
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3,551
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731
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5,811
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1,996
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Net interest income
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(284
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)
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|
15,439
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(561
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)
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25,460
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3,959
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Provision for loan losses
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1,283
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|
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1,450
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|
40
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Net interest income (loss) after provision for loan losses
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(284
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)
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14,156
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(561
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)
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24,010
|
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3,919
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|
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|
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Noninterest income:
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Equity income from investment in Capital Bank, NA
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2,937
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6,025
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Service charges and other fees
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|
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|
|
807
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|
|
|
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|
1,355
|
|
|
|
291
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|
Bank card services
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|
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|
547
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|
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|
847
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|
174
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|
Mortgage origination and other loan fees
|
|
|
|
|
|
|
255
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|
|
|
|
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|
518
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|
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|
210
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|
Brokerage fees
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|
|
|
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212
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|
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|
|
|
308
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|
|
|
78
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|
Bank-owned life insurance
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|
|
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|
114
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|
|
|
|
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|
|
134
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|
|
|
10
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|
Other
|
|
|
|
|
|
|
130
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|
|
|
|
|
|
|
155
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|
|
|
69
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
2,937
|
|
|
|
2,065
|
|
|
|
6,025
|
|
|
|
3,317
|
|
|
|
832
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Salaries and employee benefits
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|
|
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|
|
5,568
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|
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|
|
|
|
|
9,525
|
|
|
|
1,977
|
|
Occupancy
|
|
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|
|
|
|
1,830
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|
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|
|
|
|
2,970
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|
|
|
548
|
|
Furniture and equipment
|
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|
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|
857
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1,401
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|
275
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|
Data processing and telecommunications
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|
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|
635
|
|
|
|
|
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|
911
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|
180
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|
Advertising and public relations
|
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|
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|
144
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|
|
|
|
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|
325
|
|
|
|
131
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|
Office expenses
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
498
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|
|
|
93
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|
Professional fees
|
|
|
|
|
|
|
208
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|
|
|
|
|
|
|
543
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|
|
|
190
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|
Business development and travel
|
|
|
|
|
|
|
304
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|
|
|
|
|
|
|
550
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|
|
|
87
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|
Amortization of other intangible assets
|
|
|
|
|
|
|
287
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|
|
|
|
|
|
|
478
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|
|
|
62
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|
ORE losses and miscellaneous loan costs
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
|
|
1,608
|
|
|
|
176
|
|
Directors fees
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
93
|
|
|
|
68
|
|
FDIC deposit insurance
|
|
|
|
|
|
|
513
|
|
|
|
|
|
|
|
1,076
|
|
|
|
266
|
|
Contract termination fees
|
|
|
|
|
|
|
374
|
|
|
|
|
|
|
|
3,955
|
|
|
|
|
|
Other
|
|
|
257
|
|
|
|
670
|
|
|
|
414
|
|
|
|
1,093
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
257
|
|
|
|
12,797
|
|
|
|
414
|
|
|
|
25,026
|
|
|
|
4,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before taxes
|
|
|
2,396
|
|
|
|
3,424
|
|
|
|
5,050
|
|
|
|
2,301
|
|
|
|
596
|
|
Income tax expense (benefit)
|
|
|
(230
|
)
|
|
|
1,115
|
|
|
|
(319
|
)
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,626
|
|
|
|
2,309
|
|
|
|
5,369
|
|
|
|
1,735
|
|
|
|
596
|
|
Dividends and accretion on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
2,626
|
|
|
$
|
2,309
|
|
|
$
|
5,369
|
|
|
$
|
1,735
|
|
|
$
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share basic
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share diluted
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
Company
|
|
|
Successor
Company
|
|
|
Predecessor
Company
|
|
(Dollars in thousands)
|
|
Three Months
Ended
Jun. 30,
2012
|
|
|
Three Months
Ended
Jun. 30,
2011
|
|
|
Six Months
Ended
Jun. 30,
2012
|
|
|
Jan. 29, 2011
to
Jun. 30,
2011
|
|
|
Jan. 1, 2011
to
Jan. 28, 2011
|
|
Net income
|
|
$
|
2,626
|
|
|
$
|
2,309
|
|
|
$
|
5,369
|
|
|
$
|
1,735
|
|
|
$
|
596
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities available for sale
|
|
|
|
|
|
|
5,080
|
|
|
|
|
|
|
|
7,315
|
|
|
|
(528
|
)
|
Unrealized holding gains from investment in Capital Bank, NA
|
|
|
2,535
|
|
|
|
|
|
|
|
1,510
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost on SERP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Income tax effect
|
|
|
(989
|
)
|
|
|
(1,958
|
)
|
|
|
(589
|
)
|
|
|
(2,820
|
)
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
1,546
|
|
|
|
3,122
|
|
|
|
921
|
|
|
|
4,495
|
|
|
|
(323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
4,172
|
|
|
$
|
5,431
|
|
|
$
|
6,290
|
|
|
$
|
6,230
|
|
|
$
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
Company
|
|
|
Predecessor
Company
|
|
(Dollars in thousands)
|
|
Six Months
Ended
Jun. 30, 2012
|
|
|
Jan. 29, 2011
to
Jun. 30, 2011
|
|
|
Jan. 1, 2011
to
Jan. 28, 2011
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,369
|
|
|
$
|
1,735
|
|
|
$
|
596
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity income from investment in Capital Bank, NA
|
|
|
(6,025
|
)
|
|
|
|
|
|
|
|
|
Accretion of purchased credit-impaired loans
|
|
|
|
|
|
|
(26,262
|
)
|
|
|
|
|
Amortization/accretion on acquired liabilities, net
|
|
|
111
|
|
|
|
(3,529
|
)
|
|
|
|
|
Provision for loan losses
|
|
|
|
|
|
|
1,450
|
|
|
|
40
|
|
Amortization of other intangible assets
|
|
|
|
|
|
|
478
|
|
|
|
62
|
|
Depreciation
|
|
|
|
|
|
|
1,354
|
|
|
|
240
|
|
Stock-based compensation
|
|
|
13
|
|
|
|
140
|
|
|
|
42
|
|
Amortization of premium on securities, net
|
|
|
|
|
|
|
695
|
|
|
|
171
|
|
Loss on disposal of premises, equipment and ORE
|
|
|
|
|
|
|
5
|
|
|
|
26
|
|
ORE valuation adjustments
|
|
|
|
|
|
|
74
|
|
|
|
|
|
Bank-owned life insurance income
|
|
|
|
|
|
|
(134
|
)
|
|
|
(10
|
)
|
Deferred income tax expense (benefit)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
1,907
|
|
|
|
4,424
|
|
Accrued interest receivable and other assets
|
|
|
(314
|
)
|
|
|
(4,214
|
)
|
|
|
(1,309
|
)
|
Accrued interest payable and other liabilities
|
|
|
(292
|
)
|
|
|
2,927
|
|
|
|
(3,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(1,178
|
)
|
|
|
(23,374
|
)
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid in Capital Bank merger
|
|
|
|
|
|
|
(42,880
|
)
|
|
|
|
|
Investment in Capital Bank, NA
|
|
|
|
|
|
|
(6,063
|
)
|
|
|
|
|
Principal repayments on loans, net of loans originated or acquired
|
|
|
|
|
|
|
13,048
|
|
|
|
14,547
|
|
Purchases of premises and equipment
|
|
|
|
|
|
|
(607
|
)
|
|
|
(307
|
)
|
Proceeds from sales of premises, equipment and ORE
|
|
|
|
|
|
|
4,545
|
|
|
|
20
|
|
Purchases of FHLB Stock
|
|
|
|
|
|
|
1,259
|
|
|
|
|
|
Purchases of securities available for sale
|
|
|
|
|
|
|
(138,855
|
)
|
|
|
(6,840
|
)
|
Proceeds from principal repayments/calls/maturities of securities available for sale
|
|
|
|
|
|
|
25,761
|
|
|
|
3,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
(143,792
|
)
|
|
|
11,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued on next page)
- 6 -
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
Company
|
|
|
Predecessor
Company
|
|
(Dollars in thousands)
|
|
Six Months
Ended
Jun. 30, 2012
|
|
|
Jan. 29, 2011
to
Jun. 30, 2011
|
|
|
Jan. 1, 2011
to
Jan. 28, 2011
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in deposits, net
|
|
|
|
|
|
|
(2,426
|
)
|
|
|
(4,960
|
)
|
Principal repayments of borrowings
|
|
|
|
|
|
|
(30,000
|
)
|
|
|
(5,000
|
)
|
Repurchase of preferred stock
|
|
|
|
|
|
|
|
|
|
|
(41,279
|
)
|
Proceeds from CBF Investment
|
|
|
|
|
|
|
|
|
|
|
181,050
|
|
Proceeds from issuance of common stock, net of offering costs
|
|
|
|
|
|
|
3,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
(28,612
|
)
|
|
|
129,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(1,178
|
)
|
|
$
|
(195,778
|
)
|
|
$
|
141,510
|
|
Cash and cash equivalents at beginning of period
|
|
|
2,163
|
|
|
|
208,255
|
|
|
|
66,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
985
|
|
|
$
|
12,477
|
|
|
$
|
208,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of noncash assets to Capital Bank, NA
|
|
$
|
|
|
|
|
1,419,308
|
|
|
$
|
|
|
Transfer of liabilities to Capital Bank, NA
|
|
|
|
|
|
|
1,457,413
|
|
|
|
|
|
Equity method investment in Capital Bank, NA
|
|
|
|
|
|
|
232,264
|
|
|
|
|
|
Transfers of loans and premises to ORE
|
|
|
|
|
|
|
7,573
|
|
|
|
248
|
|
Transfers of OREO to loans
|
|
|
|
|
|
|
857
|
|
|
|
146
|
|
Capital leases recorded in premises and other liabilities
|
|
|
|
|
|
|
6,618
|
|
|
|
|
|
|
|
|
|
Cash paid for (received from):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
|
|
|
$
|
130
|
|
|
$
|
|
|
Interest
|
|
|
634
|
|
|
|
9,989
|
|
|
|
1,531
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 7 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation and Significant Accounting Policies
Organization and Nature of Operations
Capital Bank Corporation (the Company) is a bank holding company incorporated under the laws of North Carolina on
August 10, 1998. Prior to June 30, 2011, the Companys primary wholly-owned subsidiary was Capital Bank (Old Capital Bank), a state-chartered banking corporation that was incorporated under the laws of North Carolina on
May 30, 1997 and commenced operations on June 20, 1997. The Company also has interests in three trusts: Capital Bank Statutory Trust I, II, and III (hereinafter collectively referred to as the Trusts).
On January 28, 2011, the Company completed the issuance and sale of 71 million shares of its common stock to Capital Bank
Financial Corp. (CBF, formerly known as North American Financial Holdings, Inc.) for $181.1 million (the CBF Investment). As a result of the CBF Investment and the Companys rights offering on March 11,
2011, CBF currently owns approximately 83% of the Companys common stock. Upon closing of the CBF Investment, R. Eugene Taylor, CBFs Chief Executive Officer, Christopher G. Marshall, CBFs Chief Financial Officer, and R. Bruce
Singletary, CBFs Chief Risk Officer, were named as the Companys CEO, CFO and CRO, respectively, and as members of the Companys Board of Directors. In addition, the Companys Board of Directors was reconstituted with a
combination of two existing members (Oscar A. Keller III and Charles F. Atkins), Messrs. Taylor, Marshall and Singletary, and two additional CBF-designated members (Peter N. Foss and William A. Hodges).
On June 30, 2011, Old Capital Bank merged (the Bank Merger) with and into NAFH National Bank (NAFH Bank), a
national banking association, with NAFH Bank as the surviving entity. In connection with the Bank Merger, NAFH Bank changed its name to Capital Bank, National Association (Capital Bank, NA or the Bank). On
September 7, 2011, CBF acquired a controlling interest in Green Bankshares, Inc. (Green Bankshares) and merged its banking subsidiary, GreenBank, with and into Capital Bank, NA. Following the GreenBank merger, the Company now
owns approximately 26% of Capital Bank, NA, with CBF having a direct ownership of 19%, TIB Financial Corp. (TIB Financial) owning 21%, and Green Bankshares owning the remaining 34%. CBF is the owner of approximately 94% of TIB
Financials common stock and approximately 90% of Green Bankshares common stock.
Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. The accounts of Old Capital
Bank were consolidated with the Company until the Bank Merger on June 30, 2011. The Trusts have not been consolidated with the financial statements of the Company. In connection with the Bank Merger, assets and liabilities of Old Capital Bank
were deconsolidated from the Companys balance sheet resulting in a significant decrease in the total assets and liabilities of the Company in the second quarter of 2011. The Company now accounts for its investment in Capital Bank, NA under the
equity method. Accordingly, as of June 30, 2012, no investment securities, loans or deposits are reported on the Companys Consolidated Balance Sheet.
In the periods subsequent to the Bank Merger, the Company has and will adjust the equity investment balance based on its equity in Capital Bank, NAs net income and other comprehensive income. The
interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). They do not include all of the information and footnotes required by such accounting
principles for complete financial statements, and therefore should be read in conjunction with the audited consolidated financial statements and accompanying footnotes in the Companys Annual Report on Form 10-K for the year ended
December 31, 2011.
In the opinion of management, all adjustments necessary for a fair presentation of the financial
position and results of operations for the periods presented have been included, and all significant intercompany transactions have been eliminated in consolidation. The Company has considered the impact on these condensed consolidated financial
statements of subsequent events. The results of operations for the six months ended June 30, 2012 (Successor Company) are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2012.
The condensed consolidated balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2011 and reflects
the impact of measurement period adjustments.
- 8 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
The initial estimated fair values of assets and liabilities acquired were based upon
information that was available at the time to make preliminary estimates of fair value. The Company expected to obtain additional information during the measurement period which could result in changes to the estimated fair value amounts. The
Company is still within the measurement period and has not yet finalized its estimates of fair value. However, as required by the acquisition method of accounting, the Company has retrospectively adjusted certain preliminary estimates to reflect
refinements of estimates of fair values and new information obtained about facts and circumstances that existed as of the acquisition date. As a result of the Bank Merger, such changes are principally reflected in the accompanying financial
statements as changes in the Companys equity method investment in Capital Bank, NA. The most significant refinements include: (1) increases in the collectability of certain legacy bank fully charged-off loan balances and fees; (2) an
increase in the estimated fair value of the core deposit intangible asset; (3) an increase in deferred tax assets related to the other fair value estimate changes offset by a reduction of expected realization of items considered to be built in
losses; and (4) an increase in Goodwill caused by the net effect of these adjustments. Accordingly, the financial statements herein reflect an decrease of less than $0.1 million in the Companys investment in Capital Bank, NA and addition
paid in capital for the reported period and as of December 31, 2011.
The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates. A description of the accounting policies followed by the Company are as set forth in Note 1 of the Notes to Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the year ended December 31,
2011.
CBF Investment
On January 28, 2011, the Company completed the issuance and sale of 71 million shares of its common stock to CBF for $181.1 million. In connection with the CBF Investment, each Company
shareholder as of January 27, 2011 received one contingent value right per share (CVR) that entitles the holder to receive up to $0.75 in cash per CVR at the end of a five-year period based on the credit performance of Old Capital
Banks then existing loan portfolio. Also, in connection with the CBF Investment, the Companys Series A Preferred Stock and warrant to purchase shares of common stock issued by the Company to the U.S. Treasury in connection with TARP were
repurchased.
Pursuant to the CBF Investment, shareholders as of January 27, 2011 received non-transferable rights to
purchase a number of shares of the Companys common stock proportional to the number of shares of common stock held by such holders on such date, at a purchase price equal to $2.55 per share, subject to certain limitations (the Rights
Offering). The Company issued 1,613,165 shares of common stock in exchange for $4.1 million upon completion of the Rights Offering on March 11, 2011. Direct offering costs of $300 thousand were recorded as a reduction to the proceeds of
the Rights Offering.
Also in connection with the closing of the CBF Investment, the Company amended its Supplemental
Executive Retirement Plan to waive, with respect to unvested amounts only, any change in control provision and corresponding entitlement to change in control benefits that would otherwise be triggered by the CBF Investment or any subsequent
transaction or series of transactions that result in an affiliate of CBF holding the Companys outstanding voting securities or total voting power. On January 28, 2011, the Company received written waivers from each of the participants in
the Executive Plan pursuant to which such executives waived the previously described change in control benefits under the SERP and the accelerated vesting of their outstanding unvested Company stock options in connection with the transactions
contemplated by the CBF Investment. Cash payments made to participants in the Executive Plan upon change in control related to vested benefits totaled $1.1 million. The Supplemental Retirement Plan for Directors was not amended, and cash payments
made to participants upon change in control pursuant to terms of this plan totaled $3.2 million.
Push-down accounting is
required in purchase transactions that result in an entity becoming substantially wholly owned. Push-down accounting is required if 95% or more of the company has been acquired, permitted if 80% to 95% has been acquired, and prohibited if less than
80% of the company is acquired. The Company determined push-down accounting to be appropriate for this transaction, and as such, has applied the acquisition method of accounting due to CBFs acquisition of 85% of the Companys outstanding
common stock on January 28, 2011.
Balances and activity in the Companys consolidated financial statements prior to
the CBF Investment have been labeled with Predecessor Company while balances and activity subsequent to the CBF Investment have been labeled with Successor Company. Balances and activity prior to the CBF Investment
(Predecessor Company) are not comparable to balances and activity from periods subsequent to the CBF Investment (Successor Company) due to new accounting bases as a result of recording them at their fair values as of the CBF Investment date rather
than their historical cost basis. To call attention to this lack of comparability, the Company has placed a black line between Successor Company and Predecessor Company columns in the Consolidated Financial Statements, the tables in the notes to the
statements, and in the Managements Discussion and Analysis of Financial Condition and Results of Operations.
- 9 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU)
No. 2011-11,
Disclosures About Offsetting Assets and Liabilities.
This project began as an attempt to converge the offsetting requirements under U.S. GAAP and International Financial Reporting Standards (IFRS). However, as
the FASB and the International Accounting Standards Board (collectively, the Boards) were not able to reach a converged solution with regards to offsetting requirements, the Boards developed convergent disclosure requirements to assist
in reconciling differences in the offsetting requirements under U.S. GAAP and IFRS. The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement
of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. ASU No. 2011-11 also requires disclosure of collateral received and posted in connection with master netting
agreements or similar arrangements. ASU No. 2011-11 is effective for interim and annual reporting periods beginning on or after January 1, 2013. As the provisions of ASU No. 2011-11 only impact the disclosure requirements related to
the offsetting of assets and liabilities, we expect that the adoption of ASU No. 2011-11 will not have an impact on the Companys consolidated financial condition or results of operation.
- 10 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
Also in December 2011, the FASB issued ASU No. 2011-12,
Comprehensive Income
(Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Stands Update No. 2011-05. ASU 2011-12 amended one of the requirements of
Update 2011-05. Under the amendments in Update 2011-05, entities are required to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income is presented, by
component of net income, and on the face of the financial statements where other comprehensive income is presented, by component of other comprehensive income. In addition, the amendments in Update 2011-05 require that reclassification adjustments
be presented in interim financial periods. The amendments in this Update are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-12 did not have an
impact on the Companys consolidated financial condition or results of operations but did alter disclosures.
In
September 2011, the FASB issued ASU No. 2011-08,
Intangibles Goodwill and Other
(Topic 350):
Testing Goodwill for Impairment
(ASU 2011-08). ASU 2011-08 amended guidance on the annual goodwill impairment test
performed by the Company. Under the amended guidance, the Company will have the option to first assess qualitative factors to determine whether it is necessary to perform a two-step impairment test. If the Company believes, as a result of the
qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than the carrying value, the quantitative impairment test is required. If the Company believes the fair value of a reporting unit is greater than
the carrying value, no further testing is required. A company can choose to perform the qualitative assessment on some or none of its reporting entities. The amended guidance includes examples of events and circumstances that might indicate that a
reporting units fair value is less than its carrying amount. These include macro-economic conditions such as deterioration in the entitys operating environment, entity-specific events such as declining financial performance, and other
events such as an expectation that a reporting unit will be sold. The amended guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, an entity can choose to
early adopt even if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements. The adoption of ASU 2011-08 did not have an
impact on the Companys consolidated financial condition or results of operations.
In June 2011, the FASB issued ASU
No. 2011-05,
Presentation of Comprehensive Income,
to amend FASB Accounting Standards Codification (ASC) Topic 220,
Comprehensive Income
. The amendments in this update eliminate the option to present components of
other comprehensive income as part of the statement of changes in stockholders equity and will require them to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The
single statement format would include the traditional income statement and the components and total other comprehensive income as well as total comprehensive income. In the two statement approach, the first statement would be the traditional income
statement which would immediately be followed by a separate statement which includes the components of other comprehensive income, total other comprehensive income and total comprehensive income. The amendments in this update are to be applied
retrospectively and are effective for the first interim or annual period beginning after December 15, 2011. The adoption of this update did not have a material impact on the Companys financial position or results of operations.
In May 2011, the FASB issued ASU 2011-04,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S. GAAP and IFRSs,
to amend ASC Topic 820,
Fair Value Measurement
. The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. Some of the amendments clarify the
application of existing fair value measurement requirements and others change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. Many of the previous fair value requirements
are not changed by this standard. The amendments in this update are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011. The adoption of this update did not have a material impact on
the Companys financial position or results of operations.
In April 2011, the FASB issued ASU 2011-2,
A
Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring
, to amend ASC Topic 320,
Receivables
. The amendments in this update clarify the guidance on a creditors evaluation of whether it has granted a
concession and whether a borrower is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the
beginning of the annual period of adoption. This update also indicates that companies should disclose the information regarding troubled debt restructurings required by paragraphs 310-10-50-33 through 50-34, which was deferred by ASU 2011-01,
Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20,
for interim and annual periods beginning on or after June 15, 2011. The adoption of this update did not have a material impact
on the Companys financial position or results of operations.
- 11 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
In January 2011, the FASB issued ASU 2011-1,
Deferral of the Effective Date of
Disclosures about Troubled Debt Restructurings in Update No. 2010-20
, to amend FASB Accounting Standards Codification (ASC) Topic 320,
Receivables
. The amendments in this update temporarily delay the effective date of the
disclosures about troubled debt restructurings in ASU 2010-20 for public entities. The delay is intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new
disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated.
2. Equity Method Investment in Capital Bank, NA
On June 30, 2011, Old Capital Bank, formerly a wholly-owned subsidiary of the Company, merged with and into NAFH
Bank, a national banking association, with NAFH Bank as the surviving entity. In connection with the Bank Merger, NAFH Bank changed its name to Capital Bank, NA. On September 7, 2011, CBF acquired a controlling interest in Green Bankshares
and merged its banking subsidiary, GreenBank, with and into Capital Bank, NA. Following the GreenBank merger, Capital Bank, NA is now owned by the Company, CBF, TIB Financial Corp. and Green Bankshares. CBF is the owner of approximately 83% of the
Companys common stock, approximately 94% of TIB Financials common stock and approximately 90% of Green Bankshares common stock.
Capital Bank, NA was formed on July 16, 2010 in connection with the purchase and assumption of assets and deposits of three banks Metro Bank of Dade County (Miami, Florida), Turnberry Bank
(Aventura, Florida) and First National Bank of the South (Spartanburg, South Carolina) from the Federal Deposit Insurance Corporation (the FDIC) and is a party to loss sharing agreements with the FDIC covering the large majority
of the loans it acquired from the FDIC. On April 29, 2011, Capital Bank, NA merged with TIB Bank, then a wholly-owned subsidiary of TIB Financial.
The Bank Merger occurred pursuant to the terms of an Agreement of Merger entered into by and between Old Capital Bank and Capital Bank, NA, dated as of June 30, 2011. In the Bank Merger, each
share of Old Capital Bank common stock was converted into the right to receive shares of Capital Bank, NA common stock based on each entitys relative tangible book value on March 31, 2011. Following the GreenBank merger, the Company
now owns approximately 26% of Capital Bank, NA, with CBF having a direct ownership of 19%, TIB Financial owning 21%, and Green Bankshares owning the remaining 34%. As of June 30, 2012, Capital Bank, NA operated 143 branches in Florida, North
Carolina, South Carolina, Tennessee and Virginia and had total assets of $6.3 billion, total deposits of $5.1 billion and shareholders equity of $966.5 million.
The Bank Merger, the preceding merger of TIB Bank and Capital Bank, NA, and the succeeding merger of GreenBank and Capital Bank, NA were restructuring transactions between commonly-controlled entities. At
the time of the Bank Merger, due to the deconsolidation of Old Capital Bank, the balance of accumulated other comprehensive income was reclassified to common stock within shareholders equity. Immediately following the Bank Merger, on
June 30, 2011, CBF, the Company and TIB Financial made cash contributions of additional capital to Capital Bank, NA of $4.7 million, $6.1 million and $5.2 million, respectively, in proportion to their respective ownership interests in Capital
Bank, NA. On September 30, 2011, the Company made a $10.0 million contribution of additional capital to Capital Bank, NA in exchange for additional shares of Capital Bank, NA. These capital contributions were made to provide additional capital
support for the general business operations of Capital Bank, NA.
As of June 30, 2012 (Successor) and December 31,
2011 (Successor), the Companys investment in Capital Bank, NA totaled $250.6 million and $243.7 million, respectively, which reflected the Companys pro rata ownership of Capital Bank, NAs total shareholders equity. The
Company also had an advance to Capital Bank, NA totaling $3.4 million as of June 30, 2012 (Successor) and December 31, 2011 (Successor). The advance pays annual interest at 10% payable in quarterly installments and matures March 18,
2020. In the three months ended June 30, 2012 (Successor), the Company increased the equity investment balance by $2.9 million based on its equity in Capital Bank, NAs net income and increased the equity investment balance by $1.5 million
based on its equity in Capital Bank, NAs other comprehensive income.
In the six months ended June 30, 2012
(Successor), the Company increased the equity investment balance by $6.0 million based on its equity in Capital Bank, NAs net income and increased the equity investment balance by $921 thousand based on its equity in Capital Bank, NAs
other comprehensive income. Prior to the Bank Merger on June 30, 2011, the equity method of accounting was not appropriate and therefore no comparable period exists for the three and six months ended June 30, 2011.
- 12 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents summarized financial information for the Companys equity
method investee, Capital Bank, NA. Prior to the Bank Merger on June 30, 2011, there was no equity method investment in Capital Bank, NA. As the equity interest includes the operations of the Companys previously consolidated subsidiary
bank, the operations of the equity method investee prior to the Bank Merger is not meaningful and comparable since they do not reflect the subsequent combined operations.
|
|
|
|
|
|
|
|
|
Capital Bank, NA
|
|
Three Months
Ended
Jun. 30, 2012
|
|
|
Six Months
Ended
Jun. 30, 2012
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Interest income
|
|
$
|
72,893
|
|
|
$
|
147,025
|
|
Interest expense
|
|
|
8,000
|
|
|
|
16,725
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
64,893
|
|
|
|
130,300
|
|
Provision for loan losses
|
|
|
6,608
|
|
|
|
11,984
|
|
Noninterest income
|
|
|
12,298
|
|
|
|
26,912
|
|
Noninterest expense
|
|
|
52,799
|
|
|
|
108,017
|
|
Net income
|
|
|
11,326
|
|
|
|
23,234
|
|
3. Earnings (Loss) Per Share
Basic earnings (loss) per common share (EPS) excludes dilution and is computed by dividing net income
(loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock instruments, such as stock options and
warrants, unless the effect is to reduce a loss or increase earnings. Basic EPS is adjusted for outstanding stock options and warrants using the treasury stock method in order to compute diluted EPS.
The calculation of basic and diluted
EPS was based on the following for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
Company
|
|
|
Successor
Company
|
|
|
Predecessor
Company
|
|
(Dollars in thousands except per share data)
|
|
Three Months
Ended
Jun. 30, 2012
|
|
|
Three Months
Ended
Jun. 30, 2011
|
|
|
Six Months
Ended
Jun. 30, 2012
|
|
|
Jan. 29, 2011
to
Jun. 30, 2011
|
|
|
Jan. 1, 2011
to
Jan. 28, 2011
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
2,626
|
|
|
$
|
2,309
|
|
|
$
|
5,369
|
|
|
$
|
1,735
|
|
|
$
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
85,802,164
|
|
|
|
85,802,164
|
|
|
|
85,802,164
|
|
|
|
85,465,250
|
|
|
|
13,188,612
|
|
Dilutive effect of options outstanding
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
85,802,164
|
|
|
|
85,802,173
|
|
|
|
85,802,164
|
|
|
|
85,465,250
|
|
|
|
13,188,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share basic
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share diluted
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average anti-dilutive
stock options and warrants excluded from the computation of diluted earnings per share for each period presented are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
Company
|
|
|
Successor
Company
|
|
|
Predecessor
Company
|
|
|
|
Three Months
Ended
Jun. 30, 2012
|
|
|
Three Months
Ended
Jun. 30, 2011
|
|
|
Six Months
Ended
Jun. 30, 2012
|
|
|
Jan. 29, 2011
to
Jun. 30, 2011
|
|
|
Jan. 1, 2011
to
Jan. 28, 2011
|
|
Anti-dilutive stock options
|
|
|
140,300
|
|
|
|
291,980
|
|
|
|
140,300
|
|
|
|
292,480
|
|
|
|
297,880
|
|
Anti-dilutive warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
749,619
|
|
- 13 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
4. Allowance for Loan Losses
The following is a summary of
activity in the allowance for loan losses for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
Company
|
|
|
|
|
Predecessor
Company
|
|
(Dollars in thousands)
|
|
Six Months
Ended
Jun. 30, 2012
|
|
|
Jan. 29, 2011
to
Jun. 30, 2011
|
|
|
|
|
Jan. 1, 2011
to
Jan. 28, 2011
|
|
Balance at beginning of period, predecessor
|
|
$
|
|
|
|
$
|
|
|
|
|
|
$
|
36,061
|
|
Loans charged off
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
(49
|
)
|
Recoveries of loans previously charged off
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
(40
|
)
|
Provision for loan losses
|
|
|
|
|
|
|
1,450
|
|
|
|
|
|
40
|
|
Merger of Old Capital Bank into Capital Bank, NA
|
|
|
|
|
|
|
(1,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of period, predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
36,061
|
|
Acquisition accounting adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period, successor
|
|
$
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance for credit losses includes the allowance for loan losses, detailed above, and the reserve for unfunded
lending commitments, which is included in other liabilities on the Consolidated Balance Sheet. Due to the Bank Merger, the Company had no allowance for credit losses as of June 30, 2012 (Successor) and December 31, 2011 (Successor).
5. Stock-Based Compensation
Stock Options
Pursuant to the Capital Bank Corporation Equity Incentive Plan (Equity Incentive Plan), the Company had a stock option plan providing for the issuance of up to 1,150,000 options to purchase
shares of the Companys stock to officers and directors. As of June 30, 2012 (Successor), options for 140,300 shares of common stock were outstanding. Pursuant to the Equity Incentive Plan, no options may be granted after February 21,
2012 and the Equity Incentive Plan was terminated. In addition, there were 566,071 options which were assumed under various plans from previously acquired financial institutions, none of which remain outstanding. Grants of options were made by the
Board of Directors or the Compensation/Human Resources Committee of the Board. All grants were made with an exercise price at no less than fair market value on the date of grant and must be exercised no later than 10 years from the date of grant.
A summary of the activity of the Companys
stock option plans, including the weighted average exercise price (WAEP), for each period is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
Company
|
|
|
Predecessor
Company
|
|
|
|
Six Months Ended
Jun. 30, 2012
|
|
|
Period of Jan. 29
to Jun. 30, 2011
|
|
|
Period of Jan. 1
to Jan. 28, 2011
|
|
|
|
Shares
|
|
|
WAEP
|
|
|
Shares
|
|
|
WAEP
|
|
|
Shares
|
|
|
WAEP
|
|
Outstanding options, beginning of period
|
|
|
193,600
|
|
|
$
|
13.11
|
|
|
|
297,880
|
|
|
$
|
12.11
|
|
|
|
297,880
|
|
|
$
|
12.11
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(53,300
|
)
|
|
|
13.50
|
|
|
|
(5,400
|
)
|
|
|
14.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options, end of period
|
|
|
140,300
|
|
|
$
|
12.97
|
|
|
|
292,480
|
|
|
$
|
12.07
|
|
|
|
297,880
|
|
|
$
|
12.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
126,700
|
|
|
$
|
13.62
|
|
|
|
253,280
|
|
|
$
|
12.92
|
|
|
|
226,430
|
|
|
$
|
13.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 14 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
The following
table summarizes information about the Companys stock options as of June 30, 2012 (Successor):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
Number
Outstanding
|
|
|
Weighted Average
Remaining Contractual
Life in Years
|
|
|
Number
Exercisable
|
|
|
Intrinsic
Value
|
|
$3.85 $6.00
|
|
|
45,050
|
|
|
|
5.46
|
|
|
|
33,050
|
|
|
$
|
|
|
$6.01 $9.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$9.01 $12.00
|
|
|
2,500
|
|
|
|
10.29
|
|
|
|
2,500
|
|
|
|
|
|
$12.01 $15.00
|
|
|
16,000
|
|
|
|
13.15
|
|
|
|
14,400
|
|
|
|
|
|
$15.01 $18.00
|
|
|
39,000
|
|
|
|
16.52
|
|
|
|
39,000
|
|
|
|
|
|
$18.01 $18.37
|
|
|
37,750
|
|
|
|
18.35
|
|
|
|
37,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,300
|
|
|
|
12.97
|
|
|
|
126,700
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of options granted are estimated on the date of the grant using the Black-Scholes option pricing model.
Option pricing models require the use of highly subjective assumptions, including expected stock volatility, which when changed can materially affect fair value estimates. There were no options granted in the six months ended June 30, 2012
(Successor), the period from January 29, 2011 to June 30, 2011 (Successor) or the period from January 1, 2011 to January 28, 2011 (Predecessor).
For the six months ended June 30, 2012 (Successor), the period from January 29, 2011 to June 30, 2011 (Successor) and the period from January 1, 2011 to January 28, 2011
(Predecessor), the Company recorded total compensation expense related to stock options of $13,000, $72,000, and $5,000, respectively. On January 28, 2011, vesting was accelerated on certain outstanding stock options in connection with the
controlling investment in the Company made by CBF.
Restricted Stock
Pursuant to the Equity Incentive Plan, the Board of Directors could grant restricted stock to certain employees and Board members at its
discretion. There have been no restricted stock grants since 2008, and the Equity Incentive Plan expired on February 21, 2012. Nonvested shares were subject to forfeiture if employment was terminated prior to the vesting dates. The Company
expensed the cost of the stock awards, determined to be the fair value of the shares at the date of grant, ratably over the period of the vesting. There was no restricted stock activity for the six months ended June 30, 2012 (Successor).
Total compensation expense related to these restricted stock awards for the period of January 29 to June 30, 2011
(Successor) and the period of January 1, 2011 to January 28, 2011 (Predecessor) totaled $68,000, and $2,000, respectively. On January 28, 2011, vesting was accelerated on certain outstanding nonvested restricted shares in connection
with the controlling investment in the Company made by CBF.
Deferred Compensation for Non-employee Directors
Until the CBF Investment, the Company administered the Capital Bank Corporation Deferred Compensation Plan for Outside Directors
(Deferred Compensation Plan). Eligible directors may have elected to participate in the Deferred Compensation Plan by deferring all or part of their directors fees for at least one calendar year, in exchange for common stock of the
Company. If a director did not elect to defer all or part of his fees, then he was not considered a participant in the Deferred Compensation Plan. The amount deferred was equal to 125 percent of total director fees. Each participant was fully vested
in his account balance. The Deferred Compensation Plan provides for payment of share units in shares of common stock of the Company after the participant ceased to serve as a director for any reason.
Upon closing of the CBF Investment, the Deferred Compensation Plan was terminated and all phantom shares in the Plan were distributed to
the participants. For the period of January 1, 2011 to January 28, 2011 (Predecessor), the Company recognized stock-based compensation expense of $35,000 related to the Deferred Compensation Plan.
- 15 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
6. Fair Value
Fair Value Measurements
The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. FASB guidance on fair value measurements defines
fair value, establishes a framework for measuring fair value, and requires fair value disclosures for certain assets and liabilities measured at fair value on a recurring and nonrecurring basis. The guidance defines fair value as the exchange price
that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability.
The guidance establishes a fair value hierarchy for disclosure of fair value measurements to maximize the use of observable inputs, that
is, inputs that reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of the reporting entity. The valuation hierarchy is based upon the transparency of inputs
to the valuation of an asset or liability as of the measurement date. A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The three levels of inputs and the classification of financial instruments within the fair value hierarchy are as follows:
|
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 or
other inputs that are observable or can be corroborated by observable market data; and
|
|
Level 3:
|
Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or
liability.
|
Due to the Bank Merger and related deconsolidation of Old Capital Bank, the Company had no assets or
liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2012 (Successor) and December 31, 2011 (Successor). Prior to the Bank Merger, investment securities, available for sale, were recorded at fair value on
a recurring basis. Additionally, prior to the Bank Merger, the Company may have been required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, impaired loans and certain other assets. These nonrecurring fair
value adjustments typically involved application of lower of cost or market accounting or write-downs of individual assets.
Sensitivity
to Changes in Significant Unobservable Inputs
Prior to the Bank Merger, the Company owned two corporate bonds measured
at fair value on a recurring basis using significant unobservable inputs (Level 3). The first of these investments was subordinated debt of a community bank and the second an investment in trust preferred securities of a different community bank.
The significant unobservable inputs used in the fair value measurement of the Companys corporate bonds were incorporated in the discounted cash flow method used. Discount rates utilized in the modeling of the bonds were estimated based on a
variety of factors including the market yields of other non-investment grade corporate debt and a review of each banks performance. Significant changes in any of the inputs in isolation would have resulted in a significantly different fair
value measurement.
Due to the Bank Merger, the Company had no assets or liabilities measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) as of June 30, 2012 (Successor) and December 31, 2011 (Successor).
- 16 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
The table below presents a
reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
Company
|
|
|
|
|
Predecessor
Company
|
|
(Dollars in thousands)
|
|
Six Months
Ended
Jun. 30, 2012
|
|
|
Jan. 29, 2011
to
Jun. 30, 2011
|
|
|
|
|
Jan. 1, 2011
to
Jan. 28, 2011
|
|
Balance at beginning of period
|
|
$
|
|
|
|
$
|
1,107
|
|
|
|
|
$
|
1,300
|
|
Total unrealized losses included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
(193
|
)
|
Purchases, sales and issuances, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers into Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger of Old Capital Bank into Capital Bank, NA
|
|
|
|
|
|
|
(1,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
|
|
|
$
|
|
|
|
|
|
$
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
Due to the nature of the Companys business, a significant portion of its assets and liabilities consist of financial instruments. Accordingly, the estimated fair values of these financial
instruments are disclosed. Quoted market prices, if available, are utilized as an estimate of the fair value of financial instruments. Because no quoted market prices exist for a significant part of the Companys financial instruments, the fair
value of such instruments has been derived based on managements assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect
these estimates. Accordingly, the net amounts ultimately collected could be materially different from the estimates presented below. In addition, these estimates are only indicative of the values of individual financial instruments and should not be
considered an indication of the fair value of the Company taken as a whole.
Fair values of cash and cash equivalents are
equal to the carrying value. The carrying amounts of accrued interest receivable and payable approximate the fair value given the short-term nature of these instruments. Fair value of subordinated debt is estimated based on managements
assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates.
The carrying values, estimated fair
values, and fair value measurement levels of the Companys financial instruments as of June 30, 2012 (Successor) and December 31, 2011 (Successor) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Quoted Prices in
Active
Markets
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
985
|
|
|
$
|
985
|
|
|
$
|
985
|
|
|
$
|
|
|
|
$
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debentures
|
|
$
|
19,274
|
|
|
$
|
22,315
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,315
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,163
|
|
|
$
|
2,163
|
|
|
$
|
2,163
|
|
|
$
|
|
|
|
$
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debentures
|
|
$
|
19,163
|
|
|
$
|
22,205
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,205
|
|
- 17 -
Capital Bank Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)
7. Regulatory Capital Requirements
The Company is subject to various regulatory capital requirements administered by federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Companys financial position and results
of operation. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios, as set forth in the table below.
The Companys actual
capital amounts and ratios as of June 30, 2012 (Successor) and December 31, 2011 (Successor) and the minimum requirements are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
|
|
|
|
|
|
Minimum Requirements To Be:
|
|
|
|
Actual
|
|
|
Adequately Capitalized
|
|
|
Well Capitalized
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
250,404
|
|
|
|
98.20
|
%
|
|
$
|
20,400
|
|
|
|
8.00
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
Tier I capital (to risk-weighted assets)
|
|
|
246,822
|
|
|
|
96.79
|
|
|
|
10,200
|
|
|
|
4.00
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Tier I capital (to average assets)
|
|
|
246,822
|
|
|
|
97.22
|
|
|
|
10,155
|
|
|
|
4.00
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
243,990
|
|
|
|
98.39
|
%
|
|
$
|
19,838
|
|
|
|
8.00
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
Tier I capital (to risk-weighted assets)
|
|
|
240,400
|
|
|
|
96.95
|
|
|
|
9,919
|
|
|
|
4.00
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Tier I capital (to average assets)
|
|
|
240,400
|
|
|
|
96.56
|
|
|
|
9,959
|
|
|
|
4.00
|
|
|
|
n/a
|
|
|
|
n/a
|
|
- 18 -
Item 2.
Managements Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion presents an overview of the unaudited financial statements
for the three months ended June 30, 2012 (Successor) and June 30, 2011 (Successor) as well as the six months ended June 30, 2012 (Successor), the period of January 29 to June 30, 2011 (Successor) and the period of
January 1 to January 28, 2011 (Predecessor) for Capital Bank Corporation (Capital Bank Corp. or the Company). This discussion and analysis is intended to provide pertinent information concerning financial condition,
results of operations, liquidity, and capital resources for the periods covered and should be read in conjunction with the unaudited financial statements and related footnotes contained in Part I, Item 1 of this report.
Information set forth below contains various forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which statements represent the Companys judgment concerning the future and are subject to risks and uncertainties that could
cause the Companys actual operating results to differ materially. Such forward-looking statements can be identified by the use of forward-looking terminology, such as may, will, expect,
anticipate, estimate, believe, or continue, or the negative thereof or other variations thereof or comparable terminology. The Company cautions that such forward-looking statements are further
qualified by important factors that could cause the Companys actual operating results to differ materially from those in the forward-looking statements, including those factors set forth in Part II, Item 1A of this report, and the
Companys periodic reports and other filings with the Securities and Exchange Commission, or SEC
Overview
Capital Bank Corporation is a bank holding company incorporated under the laws of North Carolina on August 10, 1998. Prior to
June 30, 2011, the Companys primary wholly-owned subsidiary was Old Capital Bank, which was a state-chartered banking corporation that was incorporated under the laws of the State of North Carolina on May 30, 1997 and commenced
operations on June 20, 1997. As of June 30, 2012 (Successor), the Company had a 26% equity method investment in Capital Bank, NA, a national banking association with approximately $6.3 billion in total assets and 143 full-service banking
offices throughout Florida, North Carolina, South Carolina, Tennessee and Virginia. The Company also has interests in three trusts: Capital Bank Statutory Trust I, II, and III.
CBF Investment
On January 28, 2011, the Company completed the
issuance and sale of 71 million shares of its common stock to CBF for $181.1 million. In connection with the CBF Investment, each Company shareholder as of January 27, 2011 received one CVR per share that entitles the holder to receive up
to $0.75 in cash per CVR at the end of a five-year period based on the credit performance of Old Capital Banks then existing loan portfolio. Also in connection with the CBF Investment, the Companys Series A Preferred Stock and warrant to
purchase shares of common stock issued by the Company to the U.S. Treasury in connection with the Troubled Asset Relief Program were repurchased.
Pursuant to the CBF Investment, shareholders as of January 27, 2011 received non-transferable rights to purchase a number of shares of the Companys common stock proportional to the number of
shares of common stock held by such holders on such date, at a purchase price equal to $2.55 per share, subject to certain limitations. The Company issued 1,613,165 shares of common stock in exchange for $4.1 million upon completion of the Rights
Offering on March 11, 2011. Direct offering costs of $300 thousand were recorded as a reduction to the proceeds of the Rights Offering.
Upon closing of the CBF Investment, R. Eugene Taylor, CBFs Chief Executive Officer, Christopher G. Marshall, CBFs Chief Financial Officer, and R. Bruce Singletary, CBFs Chief Risk
Officer, were named as the Companys CEO, CFO and CRO, respectively, and as members of the Companys Board of Directors. In addition, the Companys Board of Directors was reconstituted with a combination of two existing members (Oscar
A. Keller III and Charles F. Atkins), Messrs. Taylor, Marshall and Singletary, and two additional CBF-designated members (Peter N. Foss and William A. Hodges).
Balances and activity in the Companys consolidated financial statements prior to the CBF Investment have been labeled with Predecessor Company while balances and activity subsequent to
the CBF Investment have been labeled with Successor Company. Balances and activity prior to the CBF Investment (Predecessor Company) are not comparable to balances and activity from periods subsequent to the CBF Investment (Successor
Company) due to new accounting bases as a result of recording them at their fair values as of the CBF Investment date rather than their historical cost basis. To call attention to this lack of comparability, the Company has placed a black line
between Successor Company and Predecessor Company columns in the Consolidated Financial Statements, the tables in the notes to the statements, and in the Managements Discussion and Analysis of Financial Condition and Results of Operations.
- 19 -
Bank Mergers
On June 30, 2011, Old Capital Bank, formerly a wholly-owned subsidiary of the Company, merged with and into NAFH Bank, a national banking association, with NAFH Bank as the surviving entity. In
connection with the Bank Merger, NAFH Bank changed its name to Capital Bank, National Association. On September 7, 2011, CBF acquired a controlling interest in Green Bankshares, and merged its banking subsidiary, GreenBank, with and into
Capital Bank, NA. Following the GreenBank merger, Capital Bank, NA is now owned by the Company, CBF, TIB Financial and Green Bankshares. CBF is the owner of approximately 83% of the Companys common stock, approximately 94% of TIB
Financials common stock and approximately 90% of Green Bankshares common stock.
Capital Bank, NA was formed on
July 16, 2010 in connection with the purchase and assumption of assets and deposits of three banks Metro Bank of Dade County (Miami, Florida), Turnberry Bank (Aventura, Florida) and First National Bank of the South (Spartanburg, South
Carolina) from the FDIC and is a party to loss sharing agreements with the FDIC covering the large majority of the loans it acquired from the FDIC. On April 29, 2011, Capital Bank, NA merged with TIB Bank, then a wholly-owned
subsidiary of TIB Financial.
The Bank Merger occurred pursuant to the terms of an Agreement of Merger entered into by and
between Old Capital Bank and Capital Bank, NA, dated as of June 30, 2011. In the Bank Merger, each share of Old Capital Bank common stock was converted into the right to receive shares of Capital Bank, NA common stock based on each
entitys relative tangible book value on March 31, 2011. Following the GreenBank merger, the Company now owns approximately 26% of Capital Bank, NA, with CBF having a direct ownership of 19%, TIB Financial owning 21%, and Green
Bankshares owning the remaining 34%. As of June 30, 2012, Capital Bank, NA operated 143 branches in Florida, North Carolina, South Carolina, Tennessee and Virginia and had total assets of $6.3 billion, total deposits of $5.1 billion and
shareholders equity of $966.5 million.
Potential Merger of the Company and CBF
On September 1, 2011, the Boards of Directors of CBF and the Company approved and adopted a merger agreement. The merger agreement
provides for the merger, following the receipt of shareholder approval by the Companys shareholders (including CBF), of the Company with and into CBF, with CBF continuing as the surviving entity. In the merger, each share of the Companys
common stock issued and outstanding immediately prior to the completion of the merger, except for shares for which appraisal rights are properly exercised and certain shares held by CBF or the Company, will be converted into the right to receive
0.1354 of a share of CBF Class A common stock. No fractional shares of Class A common stock will be issued in connection with the merger, and holders of the Companys common stock will be entitled to receive cash in lieu thereof.
Since CBF is the majority shareholder of the Company, CBF will be able to determine the outcome of the shareholder vote
needed to approve the merger.
Critical Accounting Policies and Estimates
The following discussion and analysis of the Companys financial condition and results of operations are based on the Companys
condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires the Company to make estimates and judgments regarding uncertainties that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. However, because future events and their effects cannot be determined
with certainty, actual results may differ from these estimates under different assumptions or conditions, and the Company may be exposed to gains or losses that could be material.
Prior to the Bank Merger, the Company had identified the following accounting policies as being critical in terms of significant
judgments and the extent to which estimates were used: (1) allowance for loan losses, (2) other-than-temporary impairment on investment securities, (3) valuation allowance on deferred income tax assets, and (4) impairment of
goodwill and long-lived assets. Due to the CBF Investment, the Company added an accounting policy related to purchased credit-impaired loans, and due to the Bank Merger, the Company added an accounting policy related to its equity method investment
in Capital Bank, NA. These policies are important in understanding managements discussion and analysis. For more information on the Companys critical accounting policies, refer to Part II, Item 7 of the Companys Annual Report
on Form 10-K for the year ended December 31, 2011.
- 20 -
Executive Summary
The following is a summary of the Companys results of operations and changes in financial condition for the three and six months ended June 30, 2012:
|
|
|
Net income totaled $2.6 million, or $0.03 per share, in the second quarter of 2012 and totaled $5.4 million, or $0.06 per share, in the six months
ended June 30, 2012;
|
|
|
|
The Company held a 26% ownership interest in Capital Bank, NA, which has $6.3 billion in assets and operates 143 branches in Florida, North Carolina,
South Carolina, Tennessee and Virginia; and
|
|
|
|
The Company increased the equity investment balance in Capital Bank, NA by $2.9 million based on its equity in Capital Bank, NAs net income and
increased the equity investment balance by $1.5 million based on its equity in Capital Bank, NAs other comprehensive income in the second quarter of 2012.
|
Results of Operations
Financial results for the first quarter of 2011 were
significantly impacted by the controlling investment in the Company by CBF. The Company used push-down accounting, and as such, has applied the acquisition method of accounting to the CBF Investment. Accordingly, the Companys assets and
liabilities were adjusted to estimated fair value at the acquisition date, and the allowance for loan losses was eliminated at that date. The Companys operating results in the periods subsequent to the acquisition date were impacted by these
fair value adjustments as the underlying assets and liabilities were converted in the normal course of business. Further, in connection with the Bank Merger on June 30, 2011, the Company deconsolidated the assets and liabilities of Old Capital
Bank and began reporting its ownership of Capital Bank, NA on the Consolidated Balance Sheet as an equity method investment.
In the successor periods, net income totaled $2.6 million, or $0.03 per share, for the three months ended June 30, 2012, and totaled
$2.3 million, or $0.03 per share, for the three months ended June, 30 2011. Further, net income totaled $5.4 million, or $0.06 per share, for the six months ended June 30, 2012, and totaled $1.7 million, or $0.02 per share, for the period of
January 29 to June 30, 2011. In the predecessor period, net loss to common shareholders totaled $265 thousand, or ($0.02) per share, for the period of January 1 to January 28, 2011.
Net Interest Income
Net
interest income in the second quarter of 2012 was significantly impacted by the Bank Merger, upon which Old Capital Banks interest-earning assets and interest-bearing liabilities were deconsolidated from the Company. Following the Bank Merger
on June 30, 2011, the Companys interest-bearing liabilities, which consisted of subordinated debentures, significantly exceeded interest-earning assets, thus creating net interest loss and a negative net interest margin. Net interest
income (loss) for the three months ended June 30, 2012 (Successor) and the three months ended June 30, 2011 (Successor) totaled ($284) thousand and $15.4 million, respectively. Net interest margin decreased from 4.23% in the three months
ended June 30, 2011 (Successor) to (33.57)% in the three months ended June 30, 2012 (Successor).
Further, net
interest income (loss) for the six months ended June 30, 2012 (Successor), the period of January 29 to June 30, 2011 (Successor) and the period of January 1 to January 28, 2011 (Predecessor) totaled ($561) thousand, $25.5
million and $4.0 million, respectively. The Companys net interest margin increased from 3.09% in the period of January 1 to January 28, 2011 (Predecessor) to 4.23% for the period of January 29 to June 30, 2011 (Successor),
and decreased to (33.16)% for the six months ended June 30, 2012 (Successor) primarily due to the CBF Investment and Bank Merger, respectively. Average interest-earning assets decreased from $1.54 billion in the period of January 1 to
January 28, 2011 (Predecessor) to $1.49 billion in the period of January 29 to June 30, 2011 (Successor) to $3.4 million in the six months ended June 30, 2012 (Successor). The decline in average interest-earning assets in the
successor period was primarily related to the Bank Merger, upon which Old Capital Banks interest-earning assets and interest-bearing liabilities were deconsolidated from the Company. As of June 30, 2012 (Successor), the Companys
only interest-earning asset was a $3.4 million advance to Capital Bank, NA.
The following tables (Average Balances, Interest
Earned or Paid, and Interest Yields/Rates) reflect the Companys effective yield on interest-earning assets and cost of funds. Yields and costs are computed by dividing income or expense for the period by the respective daily average asset or
liability balance. Changes in net interest income cannot be explained in terms of fluctuations in volume and rate due to the different lengths of the periods presented in the following tables.
- 21 -
Average Balances, Interest Earned or Paid, and Interest Yields/Rates
Tax Equivalent Basis
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
(Dollars in thousands)
|
|
Three Months Ended
Jun. 30, 2012
|
|
|
Three Months Ended
Mar. 31, 2012
|
|
|
Three Months Ended
Jun. 30, 2011
|
|
|
|
Average
Balance
|
|
|
Amount
Earned
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Amount
Earned
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Amount
Earned
|
|
|
Average
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
2
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
1,098,266
|
|
|
$
|
16,579
|
|
|
|
6.05
|
%
|
Investment securities
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334,230
|
|
|
|
2,639
|
|
|
|
3.16
|
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,149
|
|
|
|
40
|
|
|
|
0.29
|
|
Advance to Capital Bank, NA
|
|
|
3,393
|
|
|
|
85
|
|
|
|
10.00
|
|
|
|
3,393
|
|
|
|
85
|
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
3,393
|
|
|
$
|
85
|
|
|
|
10.00
|
%
|
|
|
3,393
|
|
|
$
|
85
|
|
|
|
10.00
|
%
|
|
|
1,488,645
|
|
|
$
|
19,258
|
|
|
|
5.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
1,239
|
|
|
|
|
|
|
|
|
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
|
16,587
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
250,003
|
|
|
|
|
|
|
|
|
|
|
|
245,961
|
|
|
|
|
|
|
|
|
|
|
|
195,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
254,635
|
|
|
|
|
|
|
|
|
|
|
$
|
251,304
|
|
|
|
|
|
|
|
|
|
|
$
|
1,701,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and money market accounts
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
345,307
|
|
|
$
|
666
|
|
|
|
0.77
|
%
|
Savings accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,241
|
|
|
|
10
|
|
|
|
0.12
|
|
Time deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
843,725
|
|
|
|
2,110
|
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,221,273
|
|
|
|
2,786
|
|
|
|
0.91
|
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,349
|
|
|
|
410
|
|
|
|
1.76
|
|
Subordinated debentures
|
|
|
19,253
|
|
|
|
369
|
|
|
|
7.58
|
|
|
|
19,191
|
|
|
|
362
|
|
|
|
7.46
|
|
|
|
19,323
|
|
|
|
355
|
|
|
|
7.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
19,253
|
|
|
$
|
369
|
|
|
|
7.58
|
%
|
|
|
19,191
|
|
|
$
|
362
|
|
|
|
7.46
|
%
|
|
|
1,333,945
|
|
|
$
|
3,551
|
|
|
|
1.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,326
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
5,515
|
|
|
|
|
|
|
|
|
|
|
|
5,754
|
|
|
|
|
|
|
|
|
|
|
|
13,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
24,768
|
|
|
|
|
|
|
|
|
|
|
|
24,945
|
|
|
|
|
|
|
|
|
|
|
|
1,469,329
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
229,867
|
|
|
|
|
|
|
|
|
|
|
|
226,359
|
|
|
|
|
|
|
|
|
|
|
|
231,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
254,635
|
|
|
|
|
|
|
|
|
|
|
$
|
251,304
|
|
|
|
|
|
|
|
|
|
|
$
|
1,701,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
4
|
|
|
|
|
|
|
|
|
|
|
2.42
|
%
|
|
|
|
|
|
|
|
|
|
|
2.54
|
%
|
|
|
|
|
|
|
|
|
|
|
4.12
|
%
|
Tax equivalent adjustment
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
268
|
|
|
|
|
|
Net interest income and net interest margin
5
|
|
|
|
|
|
$
|
(284
|
)
|
|
|
(33.57
|
)%
|
|
|
|
|
|
$
|
(277
|
)
|
|
|
(32.75
|
)%
|
|
|
|
|
|
$
|
15,707
|
|
|
|
4.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
The tax equivalent adjustment is computed using a federal tax rate of 34% and is applied to interest income from tax exempt municipal loans and
investment securities.
|
2
|
Loans include mortgage loans held for sale in addition to nonaccrual loans for which accrual of interest has not been recorded.
|
3
|
The average balance for investment securities excludes the effect of their mark-to-market adjustment, if any.
|
4
|
Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing
liabilities.
|
5
|
Net interest margin represents net interest income divided by average interest-earning assets.
|
- 22 -
Average Balances, Interest Earned or Paid, and Interest Yields/Rates
Tax Equivalent Basis
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
(Dollars in thousands)
|
|
Six Months Ended
Jun. 30, 2012
|
|
|
Period of
Jan. 29 to Jun. 30, 2011
|
|
|
Period of
Jan. 1 to Jan. 28, 2011
|
|
|
|
Average
Balance
|
|
|
Amount
Earned
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Amount
Earned
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Amount
Earned
|
|
|
Average
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
2
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
1,102,487
|
|
|
$
|
27,734
|
|
|
|
6.12
|
%
|
|
$
|
1,253,296
|
|
|
$
|
5,530
|
|
|
|
5.20
|
%
|
Investment securities
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298,283
|
|
|
|
3,893
|
|
|
|
3.13
|
|
|
|
225,971
|
|
|
|
504
|
|
|
|
2.68
|
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,465
|
|
|
|
87
|
|
|
|
0.24
|
|
|
|
63,350
|
|
|
|
11
|
|
|
|
0.20
|
|
Advance to Capital Bank, NA
|
|
|
3,393
|
|
|
|
170
|
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
3,393
|
|
|
$
|
170
|
|
|
|
10.00
|
%
|
|
|
1,489,235
|
|
|
$
|
31,714
|
|
|
|
5.18
|
%
|
|
|
1,542,617
|
|
|
$
|
6,045
|
|
|
|
4.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
1,594
|
|
|
|
|
|
|
|
|
|
|
|
16,503
|
|
|
|
|
|
|
|
|
|
|
|
16,112
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
247,983
|
|
|
|
|
|
|
|
|
|
|
|
191,902
|
|
|
|
|
|
|
|
|
|
|
|
34,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
252,970
|
|
|
|
|
|
|
|
|
|
|
$
|
1,697,640
|
|
|
|
|
|
|
|
|
|
|
$
|
1,592,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and money market accounts
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
344,867
|
|
|
$
|
1,084
|
|
|
|
0.76
|
%
|
|
$
|
334,668
|
|
|
$
|
211
|
|
|
|
0.74
|
%
|
Savings accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,958
|
|
|
|
16
|
|
|
|
0.12
|
|
|
|
30,862
|
|
|
|
3
|
|
|
|
0.11
|
|
Time deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
846,753
|
|
|
|
3,460
|
|
|
|
0.99
|
|
|
|
870,146
|
|
|
|
1,337
|
|
|
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,223,578
|
|
|
|
4,560
|
|
|
|
0.91
|
|
|
|
1,235,676
|
|
|
|
1,551
|
|
|
|
1.48
|
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,414
|
|
|
|
664
|
|
|
|
1.69
|
|
|
|
120,032
|
|
|
|
343
|
|
|
|
3.36
|
|
Subordinated debentures
|
|
|
19,222
|
|
|
|
731
|
|
|
|
7.52
|
|
|
|
19,417
|
|
|
|
587
|
|
|
|
7.26
|
|
|
|
34,323
|
|
|
|
102
|
|
|
|
3.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
19,222
|
|
|
$
|
731
|
|
|
|
7.52
|
%
|
|
|
1,338,410
|
|
|
$
|
5,811
|
|
|
|
1.06
|
%
|
|
|
1,390,031
|
|
|
$
|
1,996
|
|
|
|
1.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,897
|
|
|
|
|
|
|
|
|
|
|
|
114,660
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
5,635
|
|
|
|
|
|
|
|
|
|
|
|
10,683
|
|
|
|
|
|
|
|
|
|
|
|
9,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
24,857
|
|
|
|
|
|
|
|
|
|
|
|
1,467,990
|
|
|
|
|
|
|
|
|
|
|
|
1,514,326
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
228,113
|
|
|
|
|
|
|
|
|
|
|
|
229,650
|
|
|
|
|
|
|
|
|
|
|
|
78,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
252,970
|
|
|
|
|
|
|
|
|
|
|
$
|
1,697,640
|
|
|
|
|
|
|
|
|
|
|
$
|
1,592,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
4
|
|
|
|
|
|
|
|
|
|
|
2.48
|
%
|
|
|
|
|
|
|
|
|
|
|
4.13
|
%
|
|
|
|
|
|
|
|
|
|
|
2.92
|
%
|
Tax equivalent adjustment
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
443
|
|
|
|
|
|
|
|
|
|
|
$
|
90
|
|
|
|
|
|
Net interest income and net interest margin
5
|
|
|
|
|
|
$
|
(561
|
)
|
|
|
(33.16
|
)%
|
|
|
|
|
|
$
|
25,903
|
|
|
|
4.23
|
%
|
|
|
|
|
|
$
|
4,049
|
|
|
|
3.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
The tax equivalent adjustment is computed using a federal tax rate of 34% and is applied to interest income from tax exempt municipal loans and
investment securities.
|
2
|
Loans include mortgage loans held for sale in addition to nonaccrual loans for which accrual of interest has not been recorded.
|
3
|
The average balance for investment securities excludes the effect of their mark-to-market adjustment, if any.
|
4
|
Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing
liabilities.
|
5
|
Net interest margin represents net interest income divided by average interest-earning assets.
|
- 23 -
Noninterest Income
The following table presents the detail of noninterest income for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
Company
|
|
|
Successor
Company
|
|
|
|
|
Predecessor
Company
|
|
(Dollars in thousands except per share data)
|
|
Three Months
Ended
Jun. 30, 2012
|
|
|
Three Months
Ended
Jun. 30, 2011
|
|
|
Six Months
Ended
Jun. 30, 2012
|
|
|
Jan. 29, 2011
to
Jun. 30, 2011
|
|
|
|
|
Jan. 1, 2011
to
Jan. 28, 2011
|
|
Equity income from investment in Capital Bank, NA
|
|
$
|
2,937
|
|
|
$
|
|
|
|
$
|
6,025
|
|
|
$
|
|
|
|
|
|
$
|
|
|
Service charges and other fees
|
|
|
|
|
|
|
807
|
|
|
|
|
|
|
|
1,355
|
|
|
|
|
|
291
|
|
Bank card services
|
|
|
|
|
|
|
547
|
|
|
|
|
|
|
|
847
|
|
|
|
|
|
174
|
|
Mortgage origination and other loan fees
|
|
|
|
|
|
|
255
|
|
|
|
|
|
|
|
518
|
|
|
|
|
|
210
|
|
Brokerage fees
|
|
|
|
|
|
|
212
|
|
|
|
|
|
|
|
308
|
|
|
|
|
|
78
|
|
Bank-owned life insurance
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
10
|
|
Other
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
155
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
2,937
|
|
|
$
|
2,065
|
|
|
$
|
6,025
|
|
|
$
|
3,317
|
|
|
|
|
$
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income for the three months ended June 30, 2012 (Successor) and the three months ended
June 30, 2011 (Successor) totaled $2.9 million and $2.1 million, respectively. Noninterest income in the second quarter of 2012 was solely related to the Companys equity income from its investment in Capital Bank, NA.
Further, noninterest income for the six months ended June 30, 2012 (Successor), the period of January 29 to June 30, 2011
(Successor) and the period of January 1 to January 28, 2011 (Predecessor) totaled $6.0 million, $3.3 million and $832 thousand, respectively. Noninterest income in the first half of 2012 was solely related to the Companys equity
income from its investment in Capital Bank, NA. The following table presents summarized financial information for the Companys equity method investee, Capital Bank, NA. Prior to the Bank Merger on June 30, 2011, there was no equity method
investment in Capital Bank, NA. As the equity interest includes the operations of the Companys previously consolidated subsidiary bank, the operations of the equity method investee prior to the Bank Merger is not meaningful and comparable
since they do not reflect the subsequent combined operations.
|
|
|
|
|
|
|
|
|
Capital Bank, NA
|
|
Three Months
Ended
Jun. 30, 2012
|
|
|
Six Months
Ended
Jun. 30, 2012
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Interest income
|
|
$
|
72,893
|
|
|
$
|
147,025
|
|
Interest expense
|
|
|
8,000
|
|
|
|
16,725
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
64,893
|
|
|
|
130,300
|
|
Provision for loan losses
|
|
|
6,608
|
|
|
|
11,984
|
|
Noninterest income
|
|
|
12,298
|
|
|
|
26,912
|
|
Noninterest expense
|
|
|
52,799
|
|
|
|
108,017
|
|
Net income
|
|
|
11,326
|
|
|
|
23,234
|
|
- 24 -
Noninterest Expense
The following table presents the detail of noninterest expense for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
Company
|
|
|
Successor
Company
|
|
|
Predecessor
Company
|
|
(Dollars in thousands except per share data)
|
|
Three Months
Ended
Jun. 30, 2012
|
|
|
Three Months
Ended
Jun. 30, 2011
|
|
|
Six Months
Ended
Jun. 30, 2012
|
|
|
Jan. 29, 2011
to
Jun. 30, 2011
|
|
|
Jan. 1, 2011
to
Jan. 28, 2011
|
|
Salaries and employee benefits
|
|
$
|
|
|
|
$
|
5,568
|
|
|
$
|
|
|
|
$
|
9,525
|
|
|
$
|
1,977
|
|
Occupancy
|
|
|
|
|
|
|
1,830
|
|
|
|
|
|
|
|
2,970
|
|
|
|
548
|
|
Furniture and equipment
|
|
|
|
|
|
|
857
|
|
|
|
|
|
|
|
1,401
|
|
|
|
275
|
|
Data processing and telecommunications
|
|
|
|
|
|
|
635
|
|
|
|
|
|
|
|
911
|
|
|
|
180
|
|
Advertising and public relations
|
|
|
|
|
|
|
144
|
|
|
|
|
|
|
|
325
|
|
|
|
131
|
|
Office expenses
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
498
|
|
|
|
93
|
|
Professional fees
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
543
|
|
|
|
190
|
|
Business development and travel
|
|
|
|
|
|
|
304
|
|
|
|
|
|
|
|
550
|
|
|
|
87
|
|
Amortization of other intangible assets
|
|
|
|
|
|
|
287
|
|
|
|
|
|
|
|
478
|
|
|
|
62
|
|
ORE losses and miscellaneous loan costs
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
|
|
1,608
|
|
|
|
176
|
|
Directors fees
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
93
|
|
|
|
68
|
|
FDIC deposit insurance
|
|
|
|
|
|
|
513
|
|
|
|
|
|
|
|
1,076
|
|
|
|
266
|
|
Contract termination fees
|
|
|
|
|
|
|
374
|
|
|
|
|
|
|
|
3,955
|
|
|
|
|
|
Other
|
|
|
257
|
|
|
|
670
|
|
|
|
414
|
|
|
|
1,093
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
$
|
257
|
|
|
$
|
12,797
|
|
|
$
|
414
|
|
|
$
|
25,026
|
|
|
$
|
4,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense for the three months ended June 30, 2012 (Successor) and the three months ended
June 30, 2011 (Successor) totaled $257 thousand and $12.8 million, respectively. Expenses in the second quarter of 2012 were significantly reduced by the Bank Merger and related deconsolidation of Old Capital Bank.
Further, noninterest expense for the six months ended June 30, 2012 (Successor), the period from January 29 to June 30,
2011 (Successor) and the period from January 1 to January 28, 2011 (Predecessor) totaled $414 thousand, $25.0 million and $4.2 million, respectively. Expenses in the first half of 2012 were significantly reduced by the Bank Merger and
related deconsolidation of Old Capital Bank. Additionally, expenses in the period from January 29 to June 30, 2011 (Successor) were impacted by $4.0 million of contract termination fees related to the conversion and integration of the
Companys operations onto a common technology platform utilized across the CBF enterprise. Salaries and benefits expense increased in the period from January 29 to June 30, 2011 (Successor) from the accelerated vesting of stock
options and restricted shares at closing of the CBF Investment.
Analysis of Financial Condition
The Companys financial condition was significantly impacted by the controlling investment in the Company by CBF on January 28,
2011. CBF owns approximately 83% of the Companys outstanding common stock. Because of the CBF Investment, the Companys assets and liabilities were adjusted to estimated fair value at the acquisition date, and the allowance for loan
losses was eliminated at that date.
Due to the Bank Merger on June 30, 2011, the Company deconsolidated the assets and
liabilities of Old Capital Bank and began reporting its ownership of Capital Bank, NA on the Consolidated Balance Sheet as an equity method investment. As of June 30, 2012 (Successor) and December 31, 2011 (Successor), the Companys
investment in Capital Bank, NA totaled $250.6 million and $243.7 million, respectively, which reflected the Companys pro rata ownership of Capital Bank, NAs total shareholders equity. The Company also had an advance to Capital
Bank, NA totaling $3.4 million as of June 30, 2012 (Successor) and December 31, 2011 (Successor). In the three months ended June 30, 2012 (Successor), the Company increased the equity investment balance by $2.9 million based on its
equity in Capital Bank, NAs net income and increased the equity investment balance by $1.5 million based on its equity in Capital Bank, NAs other comprehensive income.
In addition to the investment in and advance to Capital Bank, NA, the Company also had $985 thousand of cash on deposit with Capital
Bank, NA and $772 thousand of other assets as of June 30, 2012 (Successor). As of December 31, 2011 (Successor), the Company had $2.2 million of cash on deposit with the Bank and $458 thousand of other assets.
The Companys subordinated debentures had a carrying value of $19.3 million and $19.2 million, respectively, and a notional value of
$33.4 million as of June 30, 2012 (Successor) and December 31, 2011 (Successor). The small increase in the carrying value of these debt instruments since December 31, 2011 (Successor) was due to the accretion of the fair value
discount in first half of 2012.
- 25 -
Total shareholders equity increased from $224.8 million as of December 31, 2011
(Successor) to $231.1 million as of June 30, 2012 (Successor). Common stock, no par value, totaled $218.8 million as of June 30, 2012 (Successor) and December 31, 2011 (Successor). The Companys retained earnings increased by
$5.4 million in the six months ended June 30, 2012 (Successor), which represents the Companys net income in the first half of 2012. Accumulated other comprehensive income totaled $1.7 million as of June 30, 2012 (Successor) compared
to $771 thousand as of December 31, 2011 (Successor), and represented the Companys equity in Capital Bank, NAs other comprehensive income in the period subsequent to the Bank Merger.
Capital
The
Companys actual capital amounts and ratios as of June 30, 2012 (Successor) and the minimum requirements are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
|
|
|
|
|
|
Minimum Requirements To Be:
|
|
|
|
Actual
|
|
|
Adequately Capitalized
|
|
|
Well Capitalized
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
250,404
|
|
|
|
98.20
|
%
|
|
$
|
20,400
|
|
|
|
8.00
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
Tier I capital (to risk-weighted assets)
|
|
|
246,822
|
|
|
|
96.79
|
|
|
|
10,200
|
|
|
|
4.00
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Tier I capital (to average assets)
|
|
|
246,822
|
|
|
|
97.22
|
|
|
|
10,155
|
|
|
|
4.00
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Liquidity
The Bank Merger resulted in a significant decrease in the total assets and total liabilities of the Company. As of June 30, 2012 (Successor) and December 31, 2011 (Successor), the Company had
cash on deposit with Capital Bank, NA of approximately $985 thousand and $2.2 million, respectively. This cash is available for providing additional capital support to Capital Bank, NA and for other general corporate purposes.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk that a financial institutions earnings and capital, or its ability to meet its business objectives, will be
adversely affected by movements in market rates or prices such as interest rates, foreign exchange rates, equity rates, equity prices, credit spreads and/or commodity prices. The Company has assessed its market risk as predominately interest rate
risk. As of June 30, 2012 (Successor), the Companys only interest-earning asset was a $3.4 million advance to Capital Bank, NA which is earning interest at a fixed 10% annual rate. The Companys interest-bearing liabilities consisted
of subordinated debentures with notional amounts totaling $33.4 million. Accordingly, the Companys net interest income and net interest margin are sensitive to changes in interest rates.
The most significant component of the Companys future operating results will be derived from its investment in Capital Bank, NA.
Thus, net interest income has become a less significant measure of operating results for the Company. As $30.0 million of notional value of the Companys subordinated debentures are trust preferred securities with interest rates tied to 90-day
LIBOR, changes in net interest income would be directly correlated to changes in this rate. Accordingly, 100 and 200 basis point changes in this rate would result in $300 thousand and $600 thousand changes in interest expense, respectively.
- 26 -
Item 4.
Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the
reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to the Companys
management, including its Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such
controls and procedures, which, by their nature, can provide only reasonable assurance regarding managements control objectives.
As required by paragraph (b) of Rule 13a-15 under the Exchange Act, an evaluation was carried out under the supervision and with the participation of the Companys management, including the CEO
and CFO, of the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the CEO and CFO concluded that, as of the end of the period covered by the report,
the Companys disclosure controls and procedures are effective in that the information the Company is required to disclose in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time
periods required by the SECs rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act) that occurred during the period covered by this report that have materially affected or are reasonably likely to materially affect, the Companys internal control over financial reporting.
- 27 -
PART II OTHER INFORMATION
Item 1. Legal P
roceedings
There are no material pending legal proceedings to which the Company is a party or to which any of the Companys property is subject. In addition, the Company is not aware of any threatened
litigation, unasserted claims or assessments that could have a material adverse effect on the Companys business, liquidity, operating results or condition.
Item
1A. Risk Factors
There have been no
material changes to our risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
There were no repurchases (both open market and private transactions) during the three months ended June 30, 2012 of any of the Companys securities registered under Section 12 of the
Exchange Act, by or on behalf of the Company, or any affiliated purchaser of the Company.
The Company has not completed any
unregistered sales of equity securities during the six months ended June 30, 2012.
Item 3.
Defaults
upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not
applicable.
Item 5. Ot
her Information
None.
- 28 -
Item 6.
Ex
hibits
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|
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Exhibit No.
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|
Description
|
|
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31.1
|
|
Certification of R. Eugene Taylor pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
|
31.2
|
|
Certification of Christopher G. Marshall pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
|
32.1
|
|
Certification of R. Eugene Taylor pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
|
|
32.2
|
|
Certification of Christopher G. Marshall pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
|
|
101.INS
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|
XBRL Instance Document**
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document**
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document**
|
|
|
101.DEF
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|
XBRL Taxonomy Extension Definition Linkbase Document**
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|
|
101.LAB
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|
XBRL Taxonomy Extension Label Linkbase Document**
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|
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101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document**
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**
|
Users of this data are advised that pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to
liability under those sections.
|
- 29 -
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Raleigh, North Carolina, on the 10th day of August 2012.
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CAPITAL BANK CORPORATION
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By:
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/s/ Christopher G. Marshall
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Christopher G. Marshall
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Chief Financial Officer
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- 30 -
Exhibit Index
|
|
|
Exhibit No.
|
|
Description
|
|
|
31.1
|
|
Certification of R. Eugene Taylor pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
|
31.2
|
|
Certification of Christopher G. Marshall pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
|
32.1
|
|
Certification of R. Eugene Taylor pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
|
|
32.2
|
|
Certification of Christopher G. Marshall pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
|
|
101.INS
|
|
XBRL Instance Document**
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document**
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document**
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document**
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document**
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document**
|
**
|
Users of this data are advised that pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to
liability under those sections.
|
- 31 -
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