Capital Bank Financial
Capital Bank Financial Corp. (Form: 10-Q, Received: 05/08/2013 16:55:14)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended March 31, 2013

OR

 

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

For the Transition period from                      to                     

Commission File Number 001-35655

 

 

CAPITAL BANK FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-1454759

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

121 Alhambra Plaza Suite 1601 Coral Gables, Florida 33134

(Address of principal executive offices) (Zip Code)

(305)-670-0200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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.     x   Yes     ¨   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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x   Yes     ¨   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 definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer   ¨                     Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

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

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

 

Class A Common Stock, $0.01 Par Value                   32,192,017                 

Class B Non-Voting Common, $0.01 Par Value

 

22,806,553

Class   Outstanding as of April 30, 2013

 

 

 


CAPITAL BANK FINANCIAL CORP.

FORM 10-Q

For the Quarter Ended March 31, 2013

INDEX

 

PART I. FINANCIAL INFORMATION

  

ITEM 1. FINANCIAL STATEMENTS

     1   

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

     37   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     71   

ITEM 4. CONTROLS AND PROCEDURES

     72   

PART II. OTHER INFORMATION

  

ITEM 1. LEGAL PROCEEDINGS

     72   

ITEM 1A. RISK FACTORS

     72   

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

     72   

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     73   

ITEM 4. MINE SAFETY DISCLOSURES

     73   

ITEM 5. OTHER INFORMATION

     73   

ITEM 6. EXHIBITS

     73   


Capital Bank Financial Corp.

Consolidated Balance Sheets

(Unaudited)

 

(Dollars and shares in thousands, except per share data)    March 31,
2013
    December 31,
2012
 

Assets

    

Cash and due from banks

   $ 93,251      $ 142,361   

Interest-bearing deposits with banks

     417,206        592,375   

Federal funds sold

     —         138   
  

 

 

   

 

 

 

Total cash and cash equivalents

     510,457        734,874   
  

 

 

   

 

 

 

Investment securities available-for-sale (amortized cost $1,115,706 and $991,566 at March 31, 2013 and December 31, 2012, respectively)

     1,131,957        1,006,744   

Loans held for sale

     12,588        11,276   

Loans, net of deferred loan costs and fees

     4,589,382        4,679,290   

Less: allowance for loan losses

     56,307        54,896   
  

 

 

   

 

 

 

Loans, net

     4,533,075        4,624,394   
  

 

 

   

 

 

 

Other real estate owned

     151,788        154,267   

Receivable from FDIC

     7,277        8,486   

Indemnification asset

     44,261        49,417   

Premises and equipment, net

     197,171        198,457   

Goodwill

     147,863        147,863   

Intangible assets, net

     27,315        28,636   

Deferred income tax asset, net

     194,548        198,424   

Accrued interest receivable and other assets

     125,580        132,875   
  

 

 

   

 

 

 

Total assets

   $ 7,083,880      $ 7,295,713   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Liabilities

    

Deposits

    

Noninterest-bearing demand

   $ 901,191      $ 895,274   

Time deposits

     1,919,091        2,070,698   

Money market

     1,095,240        1,125,967   

Savings

     508,992        492,187   

Negotiable order of withdrawal accounts

     1,274,185        1,288,742   
  

 

 

   

 

 

 

Total deposits

     5,698,699        5,872,868   
  

 

 

   

 

 

 

Federal Home Loan Bank advances

     1,415        1,460   

Short-term borrowings

     29,980        41,508   

Long-term borrowings

     146,490        180,430   

Accrued interest payable and other liabilities

     45,953        43,416   
  

 

 

   

 

 

 

Total liabilities

     5,922,537        6,139,682   
  

 

 

   

 

 

 

Shareholders’ Equity

    

Preferred stock $0.01 par value: 50,000 shares authorized, 0 shares issued

     —         —    

Common stock-Class A $0.01 par value: 200,000 shares authorized, 33,048 and 33,025 shares issued and outstanding, respectively

     330        330   

Common stock-Class B $0.01 par value: 200,000 shares authorized, 22,798 and 22,821 shares issued and outstanding, respectively

     228        228   

Additional paid in capital

     1,078,372        1,076,797   

Retained earnings

     74,882        69,329   

Accumulated other comprehensive income

     9,986        9,347   

Treasury stock, at cost, 143 shares

     (2,455     —    
  

 

 

   

 

 

 

Total shareholders’ equity

     1,161,343        1,156,031   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 7,083,880      $ 7,295,713   
  

 

 

   

 

 

 

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

 

1


Capital Bank Financial Corp.

Consolidated Statements of Income

(Unaudited)

 

(Dollars in thousands, except per share amounts)    Quarter Ended
March 31, 2013
    Quarter Ended
March 31, 2012
 

Interest and dividend income

    

Loans, including fees

   $ 72,492      $ 68,101   

Investment securities:

    

Taxable interest income

     3,279        5,153   

Tax-exempt interest income

     166        301   

Dividends

     15        12   

Interest-bearing deposits in other banks

     372        222   

Federal Home Loan Bank stock

     490        345   

Federal funds sold

     —          7   
  

 

 

   

 

 

 

Total interest and dividend income

     76,814        74,141   
  

 

 

   

 

 

 

Interest expense

    

Deposits

     6,478        7,855   

Long-term borrowings

     2,500        1,944   

Federal Home Loan Bank advances

     1        473   

Borrowings

     13        17   
  

 

 

   

 

 

 

Total interest expense

     8,992        10,289   
  

 

 

   

 

 

 

Net interest income

     67,822        63,852   

Provision for loan losses

     6,904        5,376   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     60,918        58,476   
  

 

 

   

 

 

 

Noninterest income

    

Service charges on deposit accounts

     6,342        5,991   

Fees on mortgage loans originated and sold

     1,241        1,103   

Investment advisory and trust fees

     96        152   

FDIC indemnification asset income (expense)

     (2,169     322   

Debit card income

     2,836        2,761   

Other income

     2,563        1,741   

Investment securities gains, net

     —          2,759   

Other-than-temporary impairment losses on investments:

    

Gross impairment loss

     —          (6

Less: Impairments recognized in other comprehensive income

     —          —     
  

 

 

   

 

 

 

Net impairment losses recognized in earnings

     —          (6
  

 

 

   

 

 

 

Total noninterest income

     10,909        14,823   
  

 

 

   

 

 

 

Noninterest expense

    

Salaries and employee benefits

     20,819        24,002   

Stock-based compensation expense

     1,577        6,473   

Net occupancy and equipment expense

     10,730        9,290   

Foreclosed asset related expense

     6,822        4,207   

Loan workout expense

     2,064        1,615   

Conversion and merger related expense

     113        1,288   

Professional fees

     2,648        3,727   

Losses on extinguishment of debt

     308        321   

Legal settlement expenses

     —          900   

Computer services

     3,100        2,354   

CVR Expense

     2,610        —     

FDIC assessments

     1,803        1,705   

Telecommunication expenses

     1,754        1,261   

Other expenses

     6,692        6,090   
  

 

 

   

 

 

 

Total noninterest expense

     61,040        63,233   
  

 

 

   

 

 

 

Income before income taxes

     10,787        10,066   

Income tax expense

     5,234        3,903   
  

 

 

   

 

 

 

Net income before attribution of noncontrolling interests

     5,553        6,163   

Net income attributable to noncontrolling interests

     —          910   
  

 

 

   

 

 

 

Net income attributable to Capital Bank Financial Corp .

   $ 5,553      $ 5,253   
  

 

 

   

 

 

 

Basic income per share

   $ 0.10      $ 0.12   
  

 

 

   

 

 

 

Diluted income per share

   $ 0.10      $ 0.12   
  

 

 

   

 

 

 

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

 

2


CAPITAL BANK FINANCIAL CORP.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

(Dollars in thousands)    Quarter Ended
March 31, 2013
    Quarter Ended
March 31, 2012
 

Net income

   $ 5,553      $ 6,163   

Other comprehensive income before tax:

    

Unrealized holding gains (losses) on available for sale securities

     1,072        (1,192

Less: Reclassification adjustments for gains recognized in income

     —          (2,732
  

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     1,072        (3,924

Tax effect

     (433     1,513   
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     639        (2,411
  

 

 

   

 

 

 

Comprehensive income

   $ 6,192      $ 3,752   

Less: Comprehensive income attributable to noncontrolling interests

     —          693   
  

 

 

   

 

 

 

Comprehensive income attributable to Capital Bank Financial Corp.

   $ 6,192      $ 3,059   
  

 

 

   

 

 

 

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

 

3


Capital Bank Financial Corp.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

 

(Dollars and shares in thousands)   Shares
Common
Stock
Class A
    Class A
Stock
    Shares
Common
Stock
Class B
    Class B
Stock
    Additional
Paid in
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Treasury
Stock
    Non-controlling
Interests
    Total
Shareholders’
Equity
 

Balance, December 31, 2012

    33,025      $ 330        22,821      $ 228      $ 1,076,797      $ 69,329      $ 9,347      $ —        $ —        $ 1,156,031   

Net income

    —          —          —          —          —          5,553        —          —          —          5,553   

Other comprehensive income, net of tax expense of $433

    —          —          —          —          —          —          639        —          —          639   

Fractional shares

    —          —          —          —          (2     —          —          —          —          (2

Stock based compensation and related tax effect

    —          —          —          —          1,577          —          —          —          1,577   

Purchase of treasury stock

    —          —          —          —          —          —          —          (2,455     —          (2,455

Conversion of shares

    23        —          (23     —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2013

    33,048      $ 330        22,798      $ 228      $ 1,078,372      $ 74,882      $ 9,986      $ (2,455   $ —        $ 1,161,343   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

    20,028      $ 200        26,122      $ 261      $ 890,627      $ 18,150      $ 7,167      $ —        $ 74,505      $ 990,910   

Net income

    —          —          —          —          —          5,253        —          —          910        6,163   

Other comprehensive loss, net of tax benefit of $1,513

    —          —          —          —          —          —          (2,194     —          (217     (2,411

Restricted stock grants

    306        4        —          —          (4     —          —          —          —          —     

Stock based compensation and related tax effect

    —          —          —          —          6,470        —          —          —          3        6,473   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

    20,334      $ 204        26,122      $ 261      $ 897,093      $ 23,403      $ 4,973      $ —        $ 75,201      $ 1,001,135   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


Capital Bank Financial Corp.

Consolidated Statements of Cash Flows

(Unaudited)

 

(Dollars in thousands)    Quarter
Ended
March 31,
2013
    Quarter
Ended
March 31,
2012
 

Cash flows from operating activities

    

Net income

   $ 5,553      $ 6,163   

Adjustments to reconcile net income to net cash used in operating activities:

    

Accretion of acquired loans

     (45,135     (50,314

Depreciation and amortization

     5,280        3,498   

Provision for loan losses

     6,904        5,376   

Deferred income tax

     3,445        1,811   

Net amortization of investment securities premium/discount

     3,296        2,775   

Other than temporary impairment of investment securities

     —          6   

Net realized gains on sales of investment securities

     —          (2,759

Stock-based compensation expense

     1,577        6,473   

Gain on sales of OREO

     (1,188     (1,021

OREO valuation adjustments

     6,590        3,032   

Other

     (643     (75

Loss on extinguishment of debt

     308        321   

Mortgage loans originated for sale

     (40,848     (46,282

Proceeds from sales of mortgage loans originated for sale

     40,777        56,515   

Fees on mortgage loans sold

     (1,241     (1,103

FDIC indemnification asset expense ( income)

     2,169        (322

Loss on sale/disposal of premises and equipment

     —          85   

Proceeds from FDIC loss share agreements

     5,566        —     

Change in accrued interest receivable and other assets

     2,762        4,056   

Change in accrued interest payable and other liabilities

     2,612        (11,623
  

 

 

   

 

 

 

Net cash used in operating activities

     (2,216     (23,388
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of investment securities

     (196,984     (496,449

Sales of investment securities

     —          32,482   

Repayments of principal and maturities of investment securities available for sale

     69,547        50,707   

Net sales (purchases) of FHLB and Federal Reserve stock

     3,161        (2,296

Net decrease in loans

     111,455        90,666   

Purchases of premises and equipment

     (2,452     (7,769

Proceeds from sales of OREO

     15,768        19,601   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     495        (313,058
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net increase (decrease) in demand, money market and savings accounts

     (22,562     147,591   

Net decrease in time deposits

     (151,606     (135,106

Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase

     (11,528     3,542   

Net decrease of long term FHLB advances

     (45     (147,825

Prepayment of long-term borrowings

     (34,500     —     

Purchase of treasury stock

     (2,455     —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (222,696     (131,798
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (224,417     (468,244

Cash and cash equivalents at beginning of period

     734,874        709,963   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 510,457      $ 241,719   
  

 

 

   

 

 

 

Supplemental disclosures of cash:

    

Interest paid

   $ 10,887      $ 13,070   

Cash collections of contractual interest on acquired impaired loans

     33,837        44,017   

Income taxes paid

     800        12,573   

Supplemental disclosures of noncash transactions :

    

OREO acquired through loan transfers

   $ 18,691      $ 23,285   

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

 

5


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

1. Basis of Presentation

Principles of Consolidation and Nature of Operations

Capital Bank Financial Corp (“CBF” or the “Company”; formerly known as North American Financial Holdings, Inc.) is a bank holding company incorporated in Delaware and headquartered in Florida whose business is conducted primarily through Capital Bank, National Association (“Capital Bank, NA” or the “Bank”). All significant inter-company accounts and transactions have been eliminated in consolidation. CBF has a total of 164 full service banking offices located in Florida, North Carolina, South Carolina, Tennessee and Virginia.

In September 2012, Capital Bank Corporation (“CBKN”), Green Bankshares Inc. (“GRNB”) and TIB Financial Corp. (“TIBB”), majority owned subsidiaries of the Company, merged with and into Capital Bank Financial Corp. with CBF continuing as the surviving corporation (the “Reorganization”). Upon completion of the Reorganization, the outstanding common shares held by the minority shareholders were converted into an aggregate of 3,709 shares of CBF’s Class A common stock.

The Reorganization was accounted for as a merger with CBF as the accounting acquirer (which is the surviving entity for legal purposes). As this was a common control transaction under Accounting Standard Codification (“ASC”) 805, Business Combinations, the Reorganization was accounted for as an equity transaction in accordance with ASC 810, Consolidation, as the acquisition of a noncontrolling interest. As a result, there was no adjustment to CBF’s historical cost carrying amounts of assets and liabilities reflected in the accompanying balance sheet.

On October 1, 2012, the Company completed its acquisition of Southern Community Financial Corporation, a publicly held bank holding company headquartered in Winston Salem, North Carolina. See Note 3 – Business Combinations, for further information regarding this acquisition.

The accompanying unaudited consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and Regulation S-X. Accordingly, they do not include all of the information and disclosures required by US GAAP for complete financial statement presentation. In the opinion of management, all adjustments consisting of normal recurring accruals and disclosures considered necessary for a fair interim presentation have been included. For further information refer to the Company’s consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2012.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are currently any such matters that will have a material effect on the financial statements.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2013-02, “ Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income .” This update requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. For public entities, this ASU is effective prospectively for fiscal years and interim periods within those years beginning after December 15, 2012. This update adopted on January 1, 2013, as required, impacted presentation only and it did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

In October 2012, the FASB issued ASU No. 2012-06, “ Business Combinations: Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution .” This ASU addresses the diversity in practice about how to interpret the terms on the same basis and contractual limitations when subsequently measuring an indemnification asset recognized in a government-assisted (Federal Deposit Insurance Corporation or National Credit Union Administration) acquisition of a financial institution that includes a loss-sharing agreement (indemnification agreement). For public and nonpublic entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. The adoption on January 1, 2013, as required, did not have a material impact on the Company’s consolidated financial condition or results of operations. Subsequent changes in the measurement of the indemnification asset will be accounted for on the same basis as the changes in the assets subject to indemnification resulting from future changes in the expected cash flows.

 

6


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

In July 2012, the FASB issued ASU No. 2012-02, “Topic 350—Intangibles Goodwill and Other” , which amends Topic 350 to allow an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. An entity would not be required to determine the fair value of the indefinite-lived intangible unless the entity determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. This ASU was effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The adoption on July 1, 2012, did not have a material impact on the Company’s consolidated financial condition or results of operations for the quarter ended March 31, 2013.

In December 2011, the FASB issued ASU 2011-11, “ Disclosures about Offsetting Assets and Liabilities .” This update requires entities to disclose both gross information and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The application of this ASU was clarified by ASU 2013-01. The scope of this ASU includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements and securities borrowing and lending arrangements. The Company is required to adopt this update retrospectively for periods beginning after January 1, 2013. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

2. Earnings Per Common Share

Basic earnings per share is net income attributable to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options and unvested restricted shares computed using the treasury stock method. Earnings per share have been computed based on the following:

 

     Quarter Ended
March  31,

2013
     Quarter Ended
March 31,
2012
 

Weighted average number of common shares outstanding:

     

Basic

     54,623         45,183   

Dilutive effect of options outstanding

     —           —     

Dilutive effect of restricted shares

     870         295   
  

 

 

    

 

 

 

Diluted

     55,493         45,478   
  

 

 

    

 

 

 

The dilutive effect of stock options and unvested restricted shares are the only common stock equivalents for purposes of calculating diluted earnings per common share.

Weighted average anti-dilutive stock options and unvested restricted shares excluded from the computation of diluted earnings per share are as follows:

 

     Quarter Ended March 31,
2013
     Quarter Ended March 31,
2012
 

Anti-dilutive stock options

     2,871         2,781   

Anti-dilutive restricted shares

     —          —    

 

7


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

3. Business Combinations and Acquisitions

CBF Acquisition of Southern Community Financial Corporation

On October 1, 2012, the acquisition of all of the preferred and common share interests of Southern Community Financial Corporation (“SCMF” or “Southern Community”) was consummated for a total purchase price of $99,325 in cash. In addition, SCMF shareholders received a contingent value right (“CVR”) which could pay up to $1.30 per share (maximum potential payment of $21,912) in cash at the end of a five-year period based on 75% of the savings to the extent that legacy loan and foreclosed asset losses are less than a prescribed amount. As part of the acquisition, the Company purchased from the United States Department of the Treasury (the “Treasury”) all of the outstanding shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A and related warrants originally issued by SCMF to the Treasury in connection with SCMF’s participation in the Treasury’s Troubled Asset Relief Program (“TARP”). The cash purchase price included approximately $46,932 paid in cash to the Treasury, which is equal to the outstanding liquidation amount of the preferred stock and is included in the $99,325 above. Subsequently, SCMF cancelled the Series A Preferred stock. SCMF was the parent of Southern Community Bank and Trust, a bank with 22 branches in Winston-Salem, the Piedmont Triad, and other North Carolina markets. The acquisition of SCMF will allow the Company to continue to fill in its footprint in targeted areas. For the acquisition of SCMF, estimated fair values of assets acquired and liabilities assumed are based on the information that is available and the Company believes this information provides a reasonable basis for determining fair values. Management is evaluating these fair values and they are subject to revision as more detailed analyses are completed and additional information becomes available. Among other analyses being conducted, additional analyses of the potential impact of the legacy institution’s underwriting criteria and risk rating procedures and practices on commercial real estate loans and residential and home equity loans are currently in process. Any changes resulting from the evaluation of these or other estimates as of the acquisition date may change the amount of the preliminary fair values recorded.

The following table summarizes the Company’s investment and SCMF’s opening balance sheet as of October 1, 2012 adjusted to preliminary fair values:

 

     October 1,
2012
 

Fair value of assets acquired:

  

Cash and cash equivalents

   $ 256,267   

Investment securities

     189,771   

Loans

     774,781   

Goodwill

     31,903   

Premises and equipment

     35,061   

Other intangible assets

     6,860   

Deferred tax asset

     43,481   

Other assets

     60,159   
  

 

 

 

Total assets acquired

     1,398,283   
  

 

 

 

Fair value of liabilities assumed:

  

Deposits

     1,093,914   

Long term debt and other borrowings

     187,341   

Other liabilities

     17,703   
  

 

 

 

Total liabilities assumed

     1,298,958   
  

 

 

 

Net assets acquired

   $ 99,325   
  

 

 

 

 

8


.Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

Pro Forma

The following table reflects the pro forma total net interest income, non-interest income and net income for the quarter ended March 31, 2012 as though the acquisition of SCMF had taken place as of the beginning of fiscal 2012. The pro forma results are not necessarily indicative of the results of operations that would have occurred had the acquisition actually taken place on the first day of the respective period, nor of future results of operations.

 

     Quarter Ended
March 31, 2012
 

Net interest income

   $ 74,940   

Non-interest income

     17,764   

Net income

     6,068   

4. Investment Securities

The amortized cost and estimated fair value of investment securities available for sale at March 31, 2013, and December 31, 2012 are presented below:

 

     March 31, 2013  

Available for Sale

   Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Estimated
Fair Value
 

U.S. Government agencies

   $ 16,400       $ 38       $ 77       $ 16,361   

Asset-backed securities

     47,430         3         103         47,330   

States and political subdivisions—tax exempt

     14,365         1,174         —          15,539   

States and political subdivisions—taxable

     508         64         —           572   

Marketable equity securities

     2,731         —           29         2,702   

Mortgage-backed securities—residential issued by government sponsored entities

     1,029,991         15,810         538         1,045,263   

Industrial revenue bond

     3,750         107         —           3,857   

Corporate bonds

     26         —           —           26   

Collateralized debt obligations

     505         —           198         307   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,115,706       $ 17,196       $ 945       $ 1,131,957   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2012  

Available for Sale

   Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Estimated
Fair Value
 

U.S. Government agencies

   $ 7,913       $ 102       $ —         $ 8,015   

States and political subdivisions—tax exempt

     16,019         1,196         —           17,215   

States and political subdivisions—taxable

     509         64         —           573   

Marketable equity securities

     2,731         —           12         2,719   

Mortgage-backed securities—residential issued by government sponsored entities

     959,863         15,048         1,058         973,853   

Industrial revenue bond

     3,750         50         —           3,800   

Corporate bonds

     26         —           —           26   

Trust preferred securities

     250         —           4         246   

Collateralized debt obligations

     505         —           208         297   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 991,566       $ 16,460       $ 1,282       $ 1,006,744   
  

 

 

    

 

 

    

 

 

    

 

 

 

Proceeds from sales and calls of securities available for sale were $985 and $32,482 for the quarters ended March 31, 2013 and 2012, respectively. Gross gains of approximately $0 and $2,731 were realized on these sales and calls during the quarters ended March 31, 2013 and 2012, respectively. For the quarters ended March 31, 2013 and 2012, net gains from investments including trading securities, was $0 and $2,759, respectively.

 

9


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

The table below presents a rollforward for the quarters ended March 31, 2013 and 2012 of the other than temporary impairment credit losses recognized in earnings.

 

     Quarter Ended
March 31, 2013
     Quarter Ended
March 31, 2012
 

Beginning balance

   $ 660       $ 616  

Additions/subtractions:

     

Credit losses recognized during the period

     —           6   
  

 

 

    

 

 

 

Ending balance

   $ 660       $ 622   
  

 

 

    

 

 

 

The estimated fair value of investment securities available for sale at March 31, 2013, by contractual maturity, are shown as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Debt securities not due at a single maturity date are shown separately.

 

     Estimated
Fair Value
     Yield  

Due in one year or less

   $ 204         2.79

Due after one year through five years

     1,905         2.11

Due after five years through ten years

     8,044         3.97

Due after ten years

     73,839         1.29

Mortgage-backed securities—residential

     1,045,263         1.60
  

 

 

    
   $ 1,129,255         1.60

Marketable equity securities

     2,702      
  

 

 

    
   $ 1,131,957      
  

 

 

    

Securities with unrealized losses not recognized in income, and the period of time they have been in an unrealized loss position, are as follows:

 

     Less than 12 Months      12 Months or Longer      Total  

March 31, 2013

   Estimated Fair
Value
     Unrealized
Losses
     Estimated Fair
Value
     Unrealized
Losses
     Estimated Fair
Value
     Unrealized
Losses
 

U.S. Government agencies

   $ 8,412       $ 77       $ —         $  —         $ 8,412       $ 77   

Asset-backed securities

     15,476         103         —           —           15,476         103   

Marketable equity securities

     2,702         29         —           —           2,702         29   

Mortgage-backed securities— residential

     139,064         457         17,489         81         156,553         538   

Collateralized debt obligation

     —           —           307         198         307         198   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired

   $ 165,654       $ 666       $ 17,796       $ 279       $ 183,450       $ 945   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Less than 12 Months      12 Months or Longer      Total  

December 31, 2012

   Estimated Fair
Value
     Unrealized
Losses
     Estimated Fair
Value
     Unrealized
Losses
     Estimated Fair
Value
     Unrealized
Losses
 

Marketable equity securities

   $ 988       $ 12       $ —         $  —         $ 988       $ 12   

Mortgage-backed securities— residential

     247,515         846         21,221         212         268,736         1,058   

Trust preferred securities

     246         4         —           —           246         4   

Collateralized debt obligation

     —           —           297         208         297         208   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired

   $ 248,749       $ 862       $ 21,518       $ 420       $ 270,267       $ 1,282   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

10


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

The Company owns a collateralized debt obligation (“CDO”) collateralized by trust preferred securities issued primarily by banks and several insurance companies. Valuation and measurement of other-than-temporary impairment (“OTTI”) of this investment falls under ASC 325-40, Beneficial Interests in Securitized Financial Assets. The Company compares the present value of expected cash flows to the previous estimate to ensure there are no adverse changes in the expected cash flows which would require the recognition of impairment. The Company utilizes a discounted cash flow valuation model which considers the structure and term of the CDO and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults by issuers of the underlying trust preferred securities. Assumptions used in the model include expected future default rates. Interest payment deferrals are generally treated as defaults even though they may not actually result in defaults.

Based on this analysis, as of March 31, 2013, the estimated fair value of the CDO improved by $10 during the period. In addition, the credit loss potential of the CDO improved. Since previous credit impairment was recognized, no recovery is allowed under U.S. GAAP. The CDO was recorded at fair value and the remaining unrealized loss was recognized as a component of accumulated other comprehensive income.

As of March 31, 2013, the Company’s security portfolio consisted of 131 securities, 16 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s mortgage-backed securities.

The majority of the mortgage-backed securities at March 31, 2013 and December 31, 2012 were issued by U.S. government-sponsored entities and agencies, institutions which the government has affirmed its commitment to support. Unrealized losses associated with these securities are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is not more likely than not that it will be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2013, or December 31, 2012.

Investment securities having carrying values of approximately $446,446 at March 31, 2013 were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and for other purposes as required by law.

5. Loans

Major classifications of loans, including loans held for sale, are as follows:

 

     March 31, 2013      December 31, 2012  

Non-owner occupied commercial real estate

   $ 879,864       $ 895,187   

Other commercial construction and land

     400,708         405,481   

Multifamily commercial real estate

     76,158         85,020   

1-4 family residential construction and land

     79,647         82,124   
  

 

 

    

 

 

 

Total commercial real estate

     1,436,377         1,467,812   
  

 

 

    

 

 

 

Owner occupied commercial real estate

     1,042,648         1,059,469   

Commercial and industrial loans

     640,299         658,328   
  

 

 

    

 

 

 

Total commercial

     1,682,947         1,717,797   
  

 

 

    

 

 

 

1-4 family residential

     825,978         836,112   

Home equity loans

     417,843         430,667   

Other consumer loans

     137,658         137,157   
  

 

 

    

 

 

 

Total consumer

     1,381,479         1,403,936   
  

 

 

    

 

 

 

Other (1)

     101,167         101,021   
  

 

 

    

 

 

 

Total loans

   $ 4,601,970       $ 4,690,566   
  

 

 

    

 

 

 

 

(1)     Other loans include deposit customer overdrafts of $1,995 and $3,250 as of March 31, 2013 and December 31, 2012, respectively.

        

Total loans as of March 31, 2013 and December 31, 2012, include $12,588 and $11,276 of 1-4 family residential loans held for sale and $1,270 and $673 of deferred loan origination costs, respectively.

 

11


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

Covered loans represent loans acquired from the FDIC subject to loss sharing agreements. Covered loans are further broken out into (i) loans acquired with evidence of credit impairment (“Purchased Credit Impaired or PCI Loans”) and (ii) non-PCI loans. Loans originated by the Company and loans acquired through the purchase of CBKN, GRNB, SCMF and TIBB are excluded from the loss sharing agreements and are classified as “non covered.” Additionally, certain consumer loans acquired through the acquisitions of First National Bank in Spartanburg, South Carolina, Metro Bank in Miami, Florida and Turnberry Bank in Aventura, Florida (collectively, the “Failed Banks”) from the FDIC are specifically excluded from the loss sharing agreements.

The Company identifies PCI loans by evaluating both qualitative and quantitative factors. The loans are analyzed by taking into account the individual loan risk rating assigned by the Company along with an understanding of the credit underwriting and monitoring practices of the originating institution as well as loan level data available regarding credit risk, such as delinquency status, origination vintage, accrual and charge off history.

Loans acquired are recorded at fair value in accordance with acquisition accounting, exclusive of any loss share agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows adjusted for expected credit losses and interest rate fluctuations. At the time of acquisition, the Company accounted for the impaired purchased loans by segregating each portfolio into loan pools with similar risk characteristics, which included:

 

   

The loan type based on regulatory reporting guidelines, namely whether the loan was a mortgage, consumer, or commercial loan;

 

   

The nature of collateral; and

 

   

The relative credit risk of the loan on performance.

From these pools, the Company uses certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average term to re-price (if a variable rate loan), weighted average margin, and weighted average interest rate to estimate the expected cash flow for each loan pool. Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected on each loan pool. The Company evaluates, at each balance sheet date, whether its estimates of the present value of the cash flows from the loan pools, determined using the effective interest rates, has decreased, such that the present value of such cash flows is less than the recorded investment of the pool, and if so, recognizes a provision for loan loss in its consolidated statement of income, unless interest rate driven. Additionally, if we have favorable changes in our estimates of cash flows expected to be collected for a loan pool such that the then-present value exceeds the recorded investment of that pool, we will first reverse any previously established allowance for loan losses for the pool. If such estimate exceeds the amount of any previously established allowance, we will accrete future interest income over the remaining life of the pool at a rate which, when used to discount the expected cash flows, results in the then-present value of such cash flows equaling the recorded investment of the pool at the time of the revised estimate.

The table below presents a rollforward of accretable yield and income expected to be earned related to purchased credit-impaired loans:

 

     Quarter Ended March  31,
2013
    Quarter Ended March  31,
2012
 

Balance, beginning of period

   $ 552,999      $ 715,479   

New loans purchased

     —          —    

Accretion of income

     (45,135     (50,314

Reclassifications from nonaccretable difference

     10,273        9,725   

Disposals

     (27,916     (35,740
  

 

 

   

 

 

 

Balance, end of period

   $ 490,221      $ 639,150   
  

 

 

   

 

 

 

Nonaccretable difference represents contractually required payments in excess of the amount of estimated cash flows expected to be collected. The accretable yield represents the excess of estimated cash flows expected to be collected over the initial fair value of the PCI loans.

 

12


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

The accretable yield is accreted into interest income over the estimated life of the PCI loans using the level yield method. The accretable yield will change due to changes in:

 

   

The estimate of the remaining life of PCI loans which may change the amount of future interest income, and possibly principal, expected to be collected;

 

   

The estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference); and

 

   

Indices for PCI loans with variable rates of interest.

For PCI loans, the impact of loan modifications is included in the evaluation of expected cash flows for subsequent decreases or increases of cash flows. For variable rate PCI loans, expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At acquisition, the expected future cash flows were based on the variable rates that were in effect at that time.

Because of the loss protection provided by the FDIC, the risks of CBF covered loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreement. Refer to Note 8 – Other Real Estate Owned, for the covered and non-covered balances of other real estate owned.

As a result from overall improvement in our most recent estimates of cash flows, substantially related to the Company’s legacy Green Bankshares portfolio, the Company recognized a $2,610 CVR expense.

Non-covered Loans

The following is a summary of the major categories of non-covered loans outstanding as of March 31, 2013 and December 31, 2012:

 

March 31, 2013

   PCI Loans      Non-PCI
Loans
     Total
Non-covered
Loans
 

Non-owner occupied commercial real estate

   $ 573,846       $ 218,864       $ 792,710   

Other commercial C&D

     302,986         69,726         372,712   

Multifamily commercial real estate

     37,313         26,657         63,970   

1-4 family residential C&D

     29,375         47,349         76,724   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     943,520         362,596         1,306,116   

Owner occupied commercial real estate

     382,253         575,589         957,842   

Commercial and industrial

     165,603         459,288         624,891   
  

 

 

    

 

 

    

 

 

 

Total commercial

     547,856         1,034,877         1,582,733   

1-4 family residential

     445,344         295,379         740,723   

Home equity

     133,709         224,457         358,166   

Consumer

     22,038         115,567         137,605   
  

 

 

    

 

 

    

 

 

 

Total consumer

     601,091         635,403         1,236,494   

Other

     57,043         42,871         99,914   
  

 

 

    

 

 

    

 

 

 

Total

   $ 2,149,510       $ 2,075,747       $ 4,225,257   
  

 

 

    

 

 

    

 

 

 

 

December 31, 2012

   PCI Loans      Non-PCI
Loans
     Total
Non-covered
Loans
 

Non-owner occupied commercial real estate

   $ 623,290       $ 176,925       $ 800,215   

Other commercial C&D

     318,025         55,734         373,759   

Multifamily commercial real estate

     46,148         27,258         73,406   

1-4 family residential C&D

     35,987         41,970         77,957   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,023,450         301,887         1,325,337   

Owner occupied commercial real estate

     439,059         536,404         975,463   

Commercial and industrial

     204,991         436,280         641,271   
  

 

 

    

 

 

    

 

 

 

 

13


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

December 31, 2012

   PCI Loans      Non-PCI
Loans
     Total
Non-covered
Loans
 

Total commercial

     644,050         972,684         1,616,734   

1-4 family residential

     485,477         258,822         744,299   

Home equity

     135,737         234,820         370,557   

Consumer

     29,163         107,809         136,972   
  

 

 

    

 

 

    

 

 

 

Total consumer

     650,377         601,451         1,251,828   

Other

     56,238         40,419         96,657   
  

 

 

    

 

 

    

 

 

 

Total

   $ 2,374,115       $ 1,916,441       $ 4,290,556   
  

 

 

    

 

 

    

 

 

 

Covered Loans

The following is a summary of the major categories of covered loans outstanding as of March 31, 2013 and December 31, 2012:

 

March 31, 2013

   PCI Loans      Non-PCI
Loans
     Total Covered
Loans
 

Non-owner occupied commercial real estate

   $ 87,154       $ —         $ 87,154   

Other commercial C&D

     27,996         —          27,996   

Multifamily commercial real estate

     12,188         —          12,188   

1-4 family residential C&D

     2,923         —          2,923   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     130,261         —           130,261   

Owner occupied commercial real estate

     84,806         —          84,806   

Commercial and industrial

     15,012         396         15,408   
  

 

 

    

 

 

    

 

 

 

Total commercial

     99,818         396         100,214   

1-4 family residential

     84,948         307         85,255   

Home equity

     18,206         41,471         59,677   

Consumer

     53         —          53   
  

 

 

    

 

 

    

 

 

 

Total consumer

     103,207         41,778         144,985   

Other

     1,253         —          1,253   
  

 

 

    

 

 

    

 

 

 

Total

   $ 334,539       $ 42,174       $ 376,713   
  

 

 

    

 

 

    

 

 

 

 

December 31, 2012

   PCI Loans      Non-PCI
Loans
     Total Covered
Loans
 

Non-owner occupied commercial real estate

   $ 94,916       $ 56       $ 94,972   

Other commercial C&D

     31,722         —          31,722   

Multifamily commercial real estate

     11,614         —          11,614   

1-4 family residential C&D

     4,167         —          4,167   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     142,419         56         142,475   

Owner occupied commercial real estate

     84,006         —          84,006   

Commercial and industrial

     16,451         606         17,057   
  

 

 

    

 

 

    

 

 

 

Total commercial

     100,457         606         101,063   

1-4 family residential

     91,586         227         91,813   

Home equity

     16,823         43,287         60,110   

Consumer

     185         —          185   
  

 

 

    

 

 

    

 

 

 

Total consumer

     108,594         43,514         152,108   

Other

     4,364         —          4,364   
  

 

 

    

 

 

    

 

 

 

Total

   $ 355,834       $ 44,176       $ 400,010   
  

 

 

    

 

 

    

 

 

 

 

14


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

The following tables present the aging of the recorded investment in past due loans, based on contractual terms, as of March 31, 2013 by class of loans:

 

Non-purchased credit impaired loans

   30-89 Days Past Due      Greater than 90 Days
Past Due and Still
Accruing/Accreting
     Nonaccrual      Total  
     Covered      Non-Covered      Covered      Non-Covered      Covered      Non-Covered     

Non-owner occupied commercial real estate

   $ —        $ —        $ —        $ —        $ —         $ —         $ —     

Other commercial C&D

     —          269        —          —          —          212         481   

Multifamily commercial real estate

     —          —          —          —          —          —          —    

1-4 family residential C&D

     —          289         —          —          —          649         938   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          558         —          —          —           861         1,419   

Owner occupied commercial real estate

     —          138         —          —          —          2,102         2,240   

Commercial and industrial

     —          553         —          —          66         6,466         7,085   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     —          691         —          —          66         8,568         9,325   

1-4 family residential

     —          3,374         —          —          —          3,901         7,275   

Home equity

     218         578         —          —          2,191         2,340         5,327   

Consumer

     —          1,186         —          —          —          427         1,613   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     218         5,138         —          —          2,191         6,668         14,215   

Other

     —          111         —          —          —          —          111   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 218       $ 6,498       $ —        $ —        $ 2,257       $ 16,097       $ 25,070   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Purchased credit impaired loans

   30-89 Days Past Due      Greater than 90 Day
Past Due and Still
Accruing/Accreting
     Nonaccrual      Total  
     Covered      Non-Covered      Covered      Non-Covered      Covered      Non-Covered     

Non-owner occupied commercial real estate

   $ 1,514       $ 10,238       $ 16,068       $ 46,551       $ —        $ —        $ 74,371   

Other commercial C&D

     277         16,057         19,616         85,140         —          —          121,090   

Multifamily commercial real estate

     263         869         2,100         4,324         —          —          7,556   

1-4 family residential C&D

     —          1,337         2,074         4,814         —          —          8,225   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,054         28,501         39,858         140,829         —          —          211,242   

Owner occupied commercial real estate

     762         5,562         6,747         50,769         —          —          63,840   

Commercial and industrial

     —           1,941         888         28,388         —          —          31,217   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     762         7,503         7,635         79,157         —          —          95,057   

1-4 family residential

     965         12,086         11,487         43,638         —          —          68,176   

Home equity

     2,974         3,346         2,787         9,650         —          —          18,757   

Consumer

     —           661         2         450         —          —          1,113   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     3,939         16,093         14,276         53,738         —          —          88,046   

Other

     —          483         696         5,101         —          —          6,280   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,755       $ 52,580       $ 62,465       $ 278,825       $ —        $ —        $ 400,625   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

The following tables present the aging of the recorded investment in past due loans, based on contractual terms, as of December 31, 2012 by class of loans:

 

Non-purchased credit impaired loans

   30-89 Days Past Due      Greater than 90 Days
Past Due and Still
Accruing/Accreting
     Nonaccrual      Total  
     Covered      Non-Covered      Covered      Non-Covered      Covered      Non-Covered     

Non-owner occupied commercial real estate

   $ —        $ —        $ —        $ —        $ 56       $ 24       $ 80   

Other commercial C&D

     —          —          —          —          —          97         97   

Multifamily commercial real estate

     —          —          —          —          —          —          —    

1-4 family residential C&D

     —          474         —          —          —          363         837   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          474         —          —          56         484         1,014   

Owner occupied commercial real estate

     —          383         —          —          —          1,966         2,349   

Commercial and industrial

     —          445         —          —          276         2,057         2,778   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     —          828         —          —          276         4,023         5,127   

1-4 family residential

     —          1,612         —          —          —          3,733         5,345   

Home equity

     1,614         1,474         —          —          2,460         2,581         8,129   

Consumer

     —          1,793         —          —          —          367         2,160   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     1,614         4,879         —          —          2,460         6,681         15,634   

Other

     —          49         —          —          —          —          49   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,614       $ 6,230       $ —        $ —        $ 2,792       $ 11,188       $ 21,824   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Purchased credit impaired loans

   30-89 Days Past Due      Greater than 90 Days
Past Due and Still
Accruing/Accreting
     Nonaccrual      Total  
     Covered      Non-Covered      Covered      Non-Covered      Covered      Non-Covered     

Non-owner occupied commercial real estate

   $ 2,799       $ 4,663       $ 17,286       $ 44,089       $ —        $ —        $ 68,837   

Other commercial C&D

     135         6,995         21,659         84,317         —          —          113,106   

Multifamily commercial real estate

     —          194         3,612         3,394         —          —          7,200   

1-4 family residential C&D

     —          2,321         3,482         5,283         —          —          11,086   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,934         14,173         46,039         137,083         —          —          200,229   

Owner occupied commercial real estate

     873         4,163         7,646         54,753         —          —          67,435   

Commercial and industrial

     99         3,889         2,045         32,860         —          —          38,893   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     972         8,052         9,691         87,613         —          —          106,328   

1-4 family residential

     1,214         15,399         13,685         42,072         —          —          72,370   

Home equity

     345         4,227         3,024         9,750         —          —          17,346   

Consumer

     1         1,285         —          557         —          —          1,843   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     1,560         20,911         16,709         52,379         —          —          91,559   

Other

     —          2,896         1,014         2,172         —          —          6,082   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,466       $ 46,032       $ 73,453       $ 279,247       $ —        $ —        $ 404,198   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

Purchased credit-impaired loans are not classified as nonaccrual as they are considered to be accruing because their interest income relates to the accretable yield recognized under accounting for purchased credit-impaired loans and not to contractual interest payments.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:

 

   

Pass —These loans range from superior quality with minimal credit risk to loans requiring heightened management attention but that are still an acceptable risk and continue to perform as contracted.

 

   

Special Mention —Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

   

Substandard —Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

   

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

The following table summarizes loans, excluding purchased credit-impaired loans, monitored for credit quality based on internal ratings at March 31, 2013:

 

     Pass      Special
Mention
     Substandard      Doubtful      Total  

Non-owner occupied commercial real estate

   $ 217,967       $ —        $ 897       $  —         $ 218,864   

Other commercial C&D

     68,850         322         554         —          69,726   

Multifamily commercial real estate

     26,342         —          315         —          26,657   

1-4 family residential C&D

     42,744         750         3,855         —          47,349   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     355,903         1,072         5,621         —          362,596   

Owner occupied commercial real estate

     570,911         —           4,678         —          575,589   

Commercial and industrial

     448,516         1,575         9,593         —          459,684   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     1,019,427         1,575         14,271         —          1,035,273   

1-4 family residential

     291,312         305         4,069         —          295,686   

Home equity

     260,379         191         5,358         —          265,928   

Consumer

     115,111         —           456         —          115,567   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     666,802         496         9,883         —          677,181   

Other

     42,871         —           —          —          42,871   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,085,003       $ 3,143       $ 29,775       $  —        $ 2,117,921   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

6. Allowance for Loan Losses

Activity in the allowance for loan losses for the quarters ended March 31, 2013 and 2012 is as follows:

 

     Quarter Ended
March 31,
2013
    Quarter Ended
March 31,
2012
 

Balance, beginning of period

   $ 54,896      $ 34,749   

Provision for loan losses charged to expense

     6,904        5,376   

Loans charged off

     (7,321     (242

Recoveries of loans previously charged off

     1,828        725   
  

 

 

   

 

 

 

Balance, end of period

   $ 56,307      $ 40,608   
  

 

 

   

 

 

 

The following table presents the roll forward of the allowance for loan losses for the quarter ended March 31, 2013 by the class of loans against which the allowance is allocated:

 

     December 31,
2012
     Provision     Net (Charge-
offs)/Recoveries
    March 31,
2013
 

Non-owner occupied commercial real estate

   $ 2,991       $ 494      $ (36   $ 3,449   

Other commercial C&D

     12,704         (274     442        12,872   

Multifamily commercial real estate

     243         (93     41        191   

1-4 family residential C&D

     1,711         (175     21        1,557   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total commercial real estate

     17,649         (48     468        18,069   

Owner occupied commercial real estate

     3,669         92        44        3,805   

Commercial and industrial

     7,043         7,548        (4,367     10,224   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total commercial

     10,712         7,640        (4,323     14,029   

1-4 family residential

     15,218         1,391        28        16,637   

Home equity

     8,607         (3,370     (683     4,544   

Consumer

     2,077         653        (563     2,167   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total consumer

     25,902         (1,326     (1,218     23,358   

Other

     633         638        (420     851   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 54,896       $ 6,904      $ (5,493   $ 56,307   
  

 

 

    

 

 

   

 

 

   

 

 

 

The following table presents the roll forward of the allowance for loan losses for the quarter ended March 31, 2012 by the class of loans against which the allowance is allocated:

 

     December 31,
2011
     Provision     Net (Charge-
offs)/Recoveries
    March 31,
2012
 

Non-owner occupied commercial real estate

   $ 3,854       $ (749   $ 725      $ 3,830   

Other commercial C&D

     7,627         2,079        —         9,706   

Multifamily commercial real estate

     398         (262     —         136   

1-4 family residential C&D

     921         240        —         1,161   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total commercial real estate

     12,800         1,308        725        14,833   

Owner occupied commercial real estate

     5,454         316        —          5,770   

Commercial and industrial

     4,166         672        (2     4,836   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total commercial

     9,620         988        (2     10,606   

1-4 family residential

     7,252         2,326        —          9,578   

Home equity

     2,711         495        (235     2,971   

Consumer

     1,594         218        (5     1,807   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

18


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

     December 31,
2011
     Provision      Net (Charge-
offs)/Recoveries
    March 31,
2012
 

Total consumer

     11,557         3,039         (240     14,356   

Other

     772         41         —          813   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 34,749       $ 5,376       $ 483      $ 40,608   
  

 

 

    

 

 

    

 

 

   

 

 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by class of loans and by impairment evaluation method as of March 31, 2013:

 

     Allowance for Loan Losses      Loans  
     Individually
Evaluated
for
Impairment
     Collectively
Evaluated
for
Impairment
     Purchased
Credit-
Impaired
     Individually
Evaluated
for
Impairment
     Collectively
Evaluated
for
Impairment (1)
     Purchased
Credit-
Impaired
 

Non-owner occupied commercial real estate

   $ —        $ 1,448       $ 2,001       $ —        $ 218,864       $ 661,000   

Other commercial C&D

     —          2,063         10,809         —          69,726         330,982   

Multifamily commercial real estate

     —          128         63         —          26,657         49,501   

1-4 family residential C&D

     —          1,064         493         —          47,349         32,298   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          4,703         13,366         —          362,596         1,073,781   

Owner occupied commercial real estate

     29         2,371         1,405         1,154         574,435         467,059   

Commercial and industrial

     3,653         4,730         1,841         5,069         454,615         180,615   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     3,682         7,101         3,246         6,223         1,029,050         647,674   

1-4 family residential

     —          1,809         14,828         —          283,098         530,292   

Home equity

     —          293         4,261         —          265,928         151,915   

Consumer

     —          1,775         392         —          115,567         22,091   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     —          3,877         19,481         —          664,593         704,298   

Other

     —          269         582         —          42,871         58,296   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,682       $ 15,950       $ 36,675       $ 6,223       $ 2,099,110       $ 2,484,049   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Loans collectively evaluated for impairment include $231,784 of acquired home equity loans, $189,026 of commercial and agricultural loans and $74,093 of other consumer loans. The acquired home equity loans and commercial and agricultural loans are presented net of unamortized purchase discounts of $19,056 and $530, respectively.

 

19


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and by impairment evaluation method as of December 31, 2012:

 

     Allowance for Loan Losses      Loans  
     Individually
Evaluated
for
Impairment
     Collectively
Evaluated
for
Impairment
     Purchased
Credit-
Impaired
     Individually
Evaluated
for
Impairment
     Collectively
Evaluated
for
Impairment (2)
     Purchased
Credit-
Impaired
 

Non-owner occupied commercial real estate

   $  —        $ 688       $ 2,303       $ —        $ 176,981       $ 718,206   

Other commercial C&D

     —          1,803         10,901         —          55,734         349,747   

Multifamily commercial real estate

     —          24         219         —          27,258         57,762   

1-4 family residential C&D

     —          938         773         —          41,970         40,154   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          3,453         14,196         —          301,943         1,165,869   

Owner occupied commercial real estate

     38         2,519         1,112         1,756         534,648         523,065   

Commercial and industrial

     —          5,473         1,570         —          436,886         221,442   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     38         7,992         2,682         1,756         971,534         744,507   

1-4 family residential

     —          1,393         13,825         3,153         244,620         577,063   

Home equity

     —          313         8,294            278,107         152,560   

Consumer

     —          1,563         514         —          107,809         29,348   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     —          3,269         22,633         3,153         630,536         758,971   

Other

     —          324         309         —          40,419         60,602   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 38       $ 15,038       $ 39,820       $ 4,909       $ 1,944,432       $ 2,729,949   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) Loans collectively evaluated for impairment include $244,582 of acquired home equity loans, $171,666 of commercial and agricultural loans and $77,397 of other consumer loans. The acquired loans are presented net of unamortized purchase discounts of $17,687, $901 and $286, respectively.

7. FDIC Indemnification Asset

The Company has recorded an indemnification asset related to loss share agreements entered into with the FDIC wherein the FDIC will reimburse the Company for certain amounts related to certain acquired loans and other real estate owned should the Company experience a loss. Under the loss sharing arrangements, the FDIC has agreed to absorb 80% of all future losses and workout expenses on these assets which occur prior to the expiration of the loss sharing agreements. These agreements resulted from the purchase of the Failed Banks.

The loss sharing agreements consists of three (one for each Failed Bank) single-family shared-loss agreements and three (one for each Failed Bank) commercial and other loans shared-loss agreements. The single family shared-loss agreements provide for FDIC loss sharing and our reimbursement for recoveries to the FDIC for ten years from July 16, 2010 for single-family residential loans. The commercial shared-loss agreements provide for FDIC loss sharing for five years from July 16, 2010 and our reimbursement for recoveries to the FDIC for eight years from July 16, 2010 for all other covered assets.

The following is a summary of the activity in the FDIC indemnification asset.

 

Balance, December 31, 2012

   $ 49,417   
  

 

 

 

Indemnification asset expense

     (492

Amortization on indemnification asset

     (1,677

Reimbursable losses claimed

     (2,987
  

 

 

 

Balance, March 31, 2013

   $ 44,261   
  

 

 

 

 

20


Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, except per share data)

 

 

Balance, December 31, 2011

   $ 66,282   
  

 

 

 

Indemnification asset income

     2,434   

Amortization on indemnification asset

     (2,112

Reimbursable losses claimed

     (2,890
  

 

 

 

Balance, March 31, 2012

   $ 63,714   
  

 

 

 

8. Other Real Estate Owned

The activity within Other Real Estate Owned (“OREO”) for the quarters ended March 31, 2013 and 2012 is presented in the table below. Ending balances for OREO covered by loss sharing agreements with the FDIC for these periods were $32,961 and $44,367, respectively. Non-covered OREO ending balances for these periods were $118,827 and $125,066, respectively:

 

     Quarter Ended
March 31, 2013
    Quarter Ended
March 31, 2012
 

Balance, beginning of period

   $ 154,267      $ 168,781   

Real estate acquired from borrowers

     18,691        23,285   

Valuation adjustments

     (6,590     (3,032

Properties sold

     (14,580     (19,601
  

 

 

   

 

 

 

Balance, end of period

   $ 151,788      $ 169,433   
  

 

 

   

 

 

 

9. Federal Home Loan Bank Advances and Short-Term Borrowings

Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, and advances from the Federal Home Loan Bank.

The Bank has securities sold under agreements to repurchase with customers. These agreements are collateralized by investment securities issued by the United States Government or its agencies which are chosen by the Bank. The amounts outstanding at March 31, 2013 and December 31, 2012 were $29,980 and $41,508, respectively.

The Bank invests in Federal Home Loan Bank stock for the purpose of establishing credit lines with the Federal Home Loan Bank. The credit availability to the Bank is based on a percentage of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral.

At March 31, 2013, in addition to $25,450 in letters of credit issued by the Federal Home Loan Bank, of which $25,150 is used in lieu of pledging securities to the State of Florida, the Bank had $1,415 in advances outstanding with a carrying value of $1,415.

The advances as of March 31, 2013 consisted of the following:

 

Carrying
Amount
     Contractual
Outstanding
Amount
     Maturity Date      Repricing
Frequency
     Contractual
Rate at
March 31,
2013
 
$ 832