Capital Bank Financial
Capital Bank Financial Corp. (Form: 10-Q, Received: 08/08/2013 16:14:36)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2013

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   33,236,070
Class B Non-Voting Common, $0.01 Par Value   19,783,345
Class   Outstanding as of July 31, 2013

 

 

 


Table of Contents

CAPITAL BANK FINANCIAL CORP.

FORM 10-Q

For the Quarter Ended June 30, 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

     43   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     77   

ITEM 4. CONTROLS AND PROCEDURES

     78  

PART II. OTHER INFORMATION

     78  

ITEM 1. LEGAL PROCEEDINGS

  

ITEM 1A. RISK FACTORS

     78  

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

     78  

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     79  

ITEM 4. MINE SAFETY DISCLOSURES

     79  

ITEM 5. OTHER INFORMATION

     79  

ITEM 6. EXHIBITS

     79  

 

2


Table of Contents

Capital Bank Financial Corp.

Consolidated Balance Sheets

(Unaudited)

 

(Dollars and shares in thousands, except per share data)    June 30,
2013
    December 31,
2012
 

Assets

    

Cash and due from banks

   $ 99,958     $ 142,361  

Interest-bearing deposits with banks

     56,505       592,375  

Federal funds sold

     —         138  
  

 

 

   

 

 

 

Total cash and cash equivalents

     156,463       734,874  
  

 

 

   

 

 

 

Trading securities

     13        —     

Investment securities available-for-sale at fair value (amortized cost $1,277,296 and $991,566 at June 30, 2013 and December 31, 2012, respectively)

     1,258,752       1,006,744  

Loans held for sale

     20,702       11,276  

Loans, net of deferred loan costs and fees

     4,536,003       4,679,290  

Less: allowance for loan losses

     55,369       54,896  
  

 

 

   

 

 

 

Loans, net

     4,480,634       4,624,394  
  

 

 

   

 

 

 

Other real estate owned

     142,967       154,267  

Receivable from FDIC

     7,573       8,486  

Indemnification asset

     38,730       49,417  

Premises and equipment, net

     186,368       198,457  

Goodwill

     147,863       147,863  

Intangible assets, net

     25,996       28,636  

Deferred income tax asset, net

     202,056       198,424  

Accrued interest receivable and other assets

     128,859       132,875  
  

 

 

   

 

 

 

Total assets

   $ 6,796,976     $ 7,295,713  
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Liabilities

    

Deposits

    

Noninterest-bearing demand

   $ 909,428     $ 895,274  

Time deposits

     1,780,200       2,070,698  

Money market

     1,002,907       1,125,967  

Savings

     511,616       492,187  

Negotiable order of withdrawal accounts

     1,266,388       1,288,742  
  

 

 

   

 

 

 

Total deposits

     5,470,539       5,872,868  
  

 

 

   

 

 

 

Federal Home Loan Bank advances

     1,369       1,460  

Short-term borrowings

     28,964       41,508  

Long-term borrowings

     146,753       180,430  

Accrued interest payable and other liabilities

     44,418       43,416  
  

 

 

   

 

 

 

Total liabilities

     5,692,043       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; 36,075 issued and 33,236 outstanding as of June 30, 2013 and 33,025 issued and outstanding as of December 31, 2012.

     360       330  

Common stock-Class B $0.01 par value: 200,000 shares authorized, 19,783 and 22,821 issued and outstanding, respectively

     198       228  

Additional paid in capital

     1,079,736       1,076,797  

Retained earnings

     86,017       69,329  

Accumulated other comprehensive (loss) income

     (11,394 )     9,347  

Treasury stock, at cost, 2,839 shares

     (49,984 )     —    
  

 

 

   

 

 

 

Total shareholders’ equity

     1,104,933       1,156,031  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 6,796,976     $ 7,295,713  
  

 

 

   

 

 

 

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

 

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Table of Contents

Capital Bank Financial Corp.

Consolidated Statements of Income

(Unaudited)

 

(Dollars in thousands, except per share amounts)    Three Months Ended
June 30, 2013
    Three Months Ended
June 30, 2012
    Six Months Ended
June 30, 2013
    Six Months Ended
June 30, 2012
 

Interest and dividend income

        

Loans, including fees

   $ 69,988      $ 66,509      $ 142,480      $ 134,610   

Investment securities:

        

Taxable interest income

     4,263        5,625        7,542        10,778   

Tax-exempt interest income

     160        187        326        488   

Dividends

     15        19        30        31   

Interest-bearing deposits in other banks

     101        65        473        287   

Federal Home Loan Bank stock

     462        488        952        833   

Federal funds sold

     —         —         —         7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and dividend income

     74,989        72,893        151,803        147,034   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

        

Deposits

     5,928        7,303        12,406        15,158   

Long-term borrowings

     1,894        1,928        4,394        3,872   

Federal Home Loan Bank advances

     1        296        2        769   

Other borrowings

     14        21        27        38   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     7,837        9,548        16,829        19,837   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     67,152        63,345        134,974        127,197   

Provision for loan losses

     3,868        6,608        10,772        11,984   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     63,284        56,737        124,202        115,213   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest income

        

Service charges on deposit accounts

     6,335        6,332        12,677        12,323   

Fees on mortgage loans originated and sold

     1,601        1,205        2,842        2,308   

Investment advisory and trust fees

     164        142        260        294   

FDIC indemnification asset (expense) income

     (1,108     (164     (3,277     158   

Debit card income

     2,979        2,589        5,815        5,350   

Other income

     3,330        1,180        5,893        2,921   

Investment securities gains, net

     205        933        205        3,692   

Other-than-temporary impairment losses on investments:

        

Gross impairment loss

     —         (38     —         (44

Less: Impairments recognized in other comprehensive income

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net impairment losses recognized in earnings

     —         (38     —         (44
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     13,506        12,179        24,415        27,002   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense

        

Salaries and employee benefits

     22,660        21,654        43,479        45,656   

Stock-based compensation expense

     1,364        4,212        2,941        10,685   

Net occupancy and equipment expense

     10,503        9,584        21,233        18,874   

OREO valuation expenses

     6,539        3,752        12,799        6,896   

Gain on sales of OREO

     (2,535     (1,289     (3,392     (2,423

Foreclosed asset related expense

     2,224        2,687        3,644        4,884   

Loan workout expense

     2,236        1,830        4,300        3,445   

Conversion and merger related expense

     140        1,757        253        3,045   

Professional fees

     2,344        3,025        4,992        6,752   

Losses on extinguishment of debt

     —         —         308        321   

Legal settlement expenses

     —         97        —          997   

Computer services

     3,541        2,190        6,641        4,544   

CVR Expense

     187        —         2,797        —    

FDIC assessments

     1,763        1,596        3,566        3,301   

Telecommunication expenses

     1,631        1,317        3,385        2,578   

Other expenses

     6,543        6,222        13,235        12,312   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     59,141        58,634        120,181        121,867   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     17,649        10,282        28,436        20,348   

Income tax expense

     6,514        3,909        11,748        7,812   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income before attribution of noncontrolling interests

     11,135        6,373        16,688        12,536   

Net income attributable to noncontrolling interests

     —         862        —         1,772   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Capital Bank Financial Corp .

   $ 11,135      $ 5,511      $ 16,688      $ 10,764   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic income per share

   $ 0.21      $ 0.12      $ 0.31      $ 0.24   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted income per share

   $ 0.21      $ 0.12      $ 0.30      $ 0.24   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

CAPITAL BANK FINANCIAL CORP.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

(Dollars in thousands)    Three Months
Ended

June 30, 2013
    Three Months
Ended

June 30, 2012
    Six Months
Ended

June  30, 2013
    Six Months
Ended

June  30, 2012
 

Net income

   $ 11,135      $ 6,373      $ 16,688      $ 12,536   

Other comprehensive (loss) income before tax:

        

Unrealized holding (losses) gains on available for sale securities

     (34,590     10,499        (33,518     9,306   

Less: Reclassification adjustments for gains recognized in income

     (205     (794     (205     (3,526
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, before tax

     (34,795     9,705        (33,723     5,780   

Tax effect

     13,415        (3,741     12,982        (2,228
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax

     (21,380     5,964        (20,741     3,552   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

   $ (10,245   $ 12,337      $ (4,053   $ 16,088   

Less: Comprehensive income attributable to noncontrolling interests

     —         1,400        —         2,092   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to Capital Bank Financial Corp.

   $ (10,245   $ 10,937      $ (4,053   $ 13,996   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

Capital Bank Financial Corp.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

 

(Dollars and shares in thousands)   Shares
Common
Stock
Class A
Outstanding
    Class A
Stock
    Shares
Common
Stock
Class B
Outstanding
    Class B
Stock
    Additional
Paid in
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
(Loss) 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

    —         —         —         —         —         16,688        —         —         —         16,688   

Other comprehensive income, net of tax benefit of $12,982

    —         —         —         —         —         —         (20,741     —         —         (20,741

Fractional shares

    —         —         8        —         (2     —         —         —         —         (2

Stock based compensation and related tax effect

    —         —         —         —         2,941        —         —         —         —         2,941   

Restricted stock grants

    4        —         —         —         —         —         —         —         —         —    

Purchase of treasury stock

    (2,839 )     —         —         —         —         —         —         (49,984     —         (49,984

Conversion of shares

    3,046        30       (3,046     (30 )     —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

    33,236      $ 360        19,783      $ 198      $ 1,079,736      $ 86,017      $ (11,394   $ (49,984   $ —       $ 1,104,933   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

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

Net income

    —         —         —         —         —         10,764        —         —         1,772        12,536   

Other comprehensive loss, net of tax benefit of $2,228

    —         —         —         —         —         —         3,232        —         320        3,552   

Restricted stock grants

    306        4        —         —         (4     —         —         —         —         —    

Stock based compensation and related tax effect

    —         —         —         —         10,672        —         —         —         13        10,685   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

    20,334      $ 204        26,122      $ 261      $ 901,295      $ 28,914      $ 10,399      $ —       $ 76,610        1,017,683   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

Capital Bank Financial Corp.

Consolidated Statements of Cash Flows

(Unaudited)

 

(Dollars in thousands)

   Six Months Ended
June 30, 2013
    Six Months
Ended

June 30, 2012
 

Cash flows from operating activities

    

Net income

   $ 16,688      $ 12,536   

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

    

Accretion of acquired loans

     (88,092     (98,097

Depreciation and amortization

     10,577        7,712   

Provision for loan losses

     10,772        11,984   

Deferred income tax

     9,350        (2,832

Net amortization of investment securities premium/discount

     6,720        6,135   

Other than temporary impairment of investment securities

     —         44   

Net realized gains on sales of investment securities

     (205     (3,692

Stock-based compensation expense

     2,941        10,685   

Gain on sales of OREO

     (3,392     (2,423

OREO valuation adjustments

     12,799        6,896   

Other

     (1,339     (1,227

Losses on extinguishment of debt

     308        321   

Mortgage loans originated for sale

     (98,748     (87,896

Proceeds from sales of mortgage loans originated for sale

     92,164        98,499   

Fees on mortgage loans originated and sold

     (2,842     (2,308

FDIC indemnification asset expense (income)

     3,277        (158

(gain) loss on sale/disposal of premises and equipment

     (407     85   

Proceeds from FDIC loss share agreements

     8,358        10,695   

Change in accrued interest receivable and other assets

     4,959        858   

Change in accrued interest payable and other liabilities

     1,104        (6,421
  

 

 

   

 

 

 

Net cash used in operating activities

     (15,008     (38,604
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of investment securities

     (436,272     (540,154

Sales of investment securities

     225        92,143   

Repayments of principal and maturities of investment securities available for sale

     143,787        115,487   

Net purchases of FHLB and Federal Reserve stock

     (978     (2,877

Net decrease in loans

     179,550        155,515   

Purchases of premises and equipment

     (1,631     (8,801

Proceeds from sales of premises and equipment

     6,647        —    

Proceeds from sales of OREO

     44,716        48,945   
  

 

 

   

 

 

 

Net cash used in investing activities

     (63,956     (139,742
  

 

 

   

 

 

 

Cash flows from financing activities

    

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

     (111,831     129,489   

Net decrease in time deposits

     (290,497     (274,445

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

     (12,545     (4,816

Net decrease of long term FHLB advances

     (90     (152,825

Prepayment of long-term borrowings

     (34,500     —    

Purchase of treasury stock

     (49,984     —    
  

 

 

   

 

 

 

Net cash used in financing activities

     (499,447     (302,597
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (578,411     (480,943

Cash and cash equivalents at beginning of period

     734,874        709,963   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 156,463      $ 229,020   
  

 

 

   

 

 

 

Supplemental disclosures of cash:

    

Interest paid

   $ 19,764      $ 23,396   

Cash collections of contractual interest on purchased credit impaired loans

     61,570        84,441   

Income taxes paid

     1,538        16,779   

Supplemental disclosures of noncash transactions :

    

OREO acquired through loan transfers

   $ 42,822      $ 43,898   

Transfer of OREO to premises and equipment

     —         1,026   

Transfer of financed portion of premises and equipment sold

     —         930   

Non-cash portion of acquired premises and equipment

     —         (2,717

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

 

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Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

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 162 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”), then 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 3.7 million 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 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 (“SCMF” or “Southern Community”), 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.

 

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Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

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:

 

(Shares in thousands)

   Three Months
Ended June  30,

2013
     Three Months
Ended June  30,

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

Weighted average number of common shares outstanding:

           

Basic

     53,108         45,183         53,865         45,183   

Dilutive effect of options outstanding

     —          —          —          —    

Dilutive effect of restricted shares

     954         449         912         371   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

     54,062         45,632         54,777         45,554   
  

 

 

    

 

 

    

 

 

    

 

 

 

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:

 

(Shares in thousands)

   Three Months Ended
June  30,

2013
     Three Months Ended
June  30,

2012
     Six Months Ended
June  30,

2013
     Six Months Ended
June  30,

2012
 

Anti-dilutive stock options

     3,000         2,864         2,942         2,823   

Anti-dilutive restricted shares

     —          —          —          —    

 

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Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

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 was consummated for a total purchase price of $99.3 million 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 $21.9 million) 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 $46.9 million paid in cash to the Treasury, which is equal to the outstanding liquidation amount of the preferred stock and is included in the $99.3 million 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:

 

(Dollars in thousands)

   October 1,
2012
 

Estimated fair value of assets acquired:

  

Cash and cash equivalents

   $ 256,267   

Investment securities

     189,771   

Loans

     774,781   

Premises and equipment

     35,061   

Other intangible assets

     6,860   

Deferred tax asset

     43,481   

Other assets

     60,159   
  

 

 

 

Total assets acquired

     1,366,380   
  

 

 

 

Estimated 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   
  

 

 

 

Estimated fair value of net assets acquired

     67,422   

Purchase price

     99,325   
  

 

 

 

Goodwill

   $ 31,903   
  

 

 

 

 

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Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

Pro Forma

The following table reflects the pro forma total net interest income, non-interest income and net income for the three and six months ended June 30, 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.

 

(Dollars in thousands)

   Three Months
Ended

June 30, 2012
     Six Months
Ended

June 30, 2012
 

Net interest income

   $ 74,015       $ 148,785   

Non-interest income

     16,077         34,332   

Net income attributable to Capital Bank Financial Corp.

     6,602         12,670   

4. Investment Securities

The amortized cost and estimated fair value of investment securities available for sale at June 30, 2013, and December 31, 2012 are presented below:

 

(Dollars in thousands)

   June 30, 2013  

Available for Sale

   Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Estimated
Fair Value
 

U.S. Government agencies

   $ 16,160       $ —        $ 807       $ 15,353   

Asset-backed securities

     144,714         —          1,653         143,061   

States and political subdivisions—tax exempt

     14,143         662         32         14,773   

States and political subdivisions—taxable

     508         41         —          549   

Marketable equity securities

     2,731         —          115         2,616   

Mortgage-backed securities—residential issued by government sponsored entities

     1,094,786         4,067         20,626         1,078,227   

Industrial revenue bond

     3,750         122         —          3,872   

Collateralized debt obligations

     505         —          204         301   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,277,297       $   4,892       $ 23,437       $ 1,258,752   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(Dollars in thousands)

   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 $0.2 million and $1.2 million for the three and six months ended June 30, 2013, respectively. Gross gains of approximately $0.2 million were realized on these sales and calls during the three and six months ended June 30, 2013, respectively. Proceeds from sales and calls of securities available for sale were $59.7 million and $92.1 million for the three and six months ended June 30, 2012, respectively. Gross gains of approximately $0.8 million and $3.6 million were realized on these sales and calls during the three and six months ended June 30, 2012, respectively.

 

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Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

Trading securities totaled $13 thousand and $0 at June 30, 2013 and December 31, 2012, respectively. Gross realized losses on trading securities were $0 for the three and six months ended June 30, 2013. Gross realized gains on trading securities were $0.1 million for the three and six months ended June 30, 2012.

The estimated fair value of investment securities available for sale at June 30, 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.

 

(Dollars in thousands)

   Amortized
Cost
     Estimated
Fair Value
     Yield  

Due in one year or less

   $ 776       $ 782         1.80

Due after one year through five years

     1,426         1,433         2.70

Due after five years through ten years

     68,074         67,909         0.99

Due after ten years

     109,504         107,785         1.09

Mortgage-backed securities—residential issued by government sponsored entities

     1,094,786         1,078,227         1.61
  

 

 

    

 

 

    
   $ 1,274,566       $ 1,256,136         1.53

Marketable equity securities

     2,731         2,616      
  

 

 

    

 

 

    
   $ 1,277,297       $ 1,258,752      
  

 

 

    

 

 

    

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

 

(Dollars in thousands)

   Less than 12 Months      12 Months or Longer      Total  

June 30, 2013

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

U.S. Government agencies

   $ 15,353       $ 807       $ —        $ —        $ 15,353       $ 807   

Asset-backed securities

     143,061         1,653         —          —          143,061         1,653   

State and political subdivisions—tax exempt

     1,836         32         —          —          1,836         32   

Marketable equity securities

     2,616         115         —          —          2,616         115   

Mortgage-backed securities—residential issued by government sponsored entities

     778,983         20,558         14,336         68         793,319         20,626   

Collateralized debt obligation

     —          —          301         204         301         204   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 941,849       $ 23,165       $ 14,637       $ 272       $ 956,486       $ 23,437   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Dollars in thousands)

   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 issued by government sponsored entities

     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

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

The table below presents a rollforward for the three and six months ended June 30, 2013 and 2012 of the other than temporary impairment credit losses recognized in earnings.

 

(Dollars in thousands)

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

Beginning balance

   $ 660       $ 622       $ 660       $ 616   

Additions/subtractions:

           

Credit losses recognized during the period

     —          38         —           44  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 660       $ 660       $ 660       $ 660   
  

 

 

    

 

 

    

 

 

    

 

 

 

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, the estimated fair value of the CDO increased by $4 thousand during the six months ended June 30, 2013. In addition, the credit loss potential of the CDO declined. 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 June 30, 2013, the Company’s security portfolio consisted of 142 securities, 74 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 June 30, 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 June 30, 2013, or December 31, 2012.

Investment securities having carrying values of approximately $336.5 million at June 30, 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:

 

(Dollars in thousands)

   June 30, 2013      December 31, 2012  

Non-owner occupied commercial real estate

   $ 805,235       $ 895,187   

Other commercial construction and land

     358,719         405,481   

Multifamily commercial real estate

     74,682         85,020   

1-4 family residential construction and land

     71,406         82,124   
  

 

 

    

 

 

 

Total commercial real estate

     1,310,042         1,467,812   
  

 

 

    

 

 

 

Owner occupied commercial real estate

     1,051,804         1,059,469   

Commercial and industrial loans

     727,436         658,328   
  

 

 

    

 

 

 

Total commercial

     1,779,240         1,717,797   
  

 

 

    

 

 

 

1-4 family residential

     825,738         836,112   

Home equity loans

     397,169         430,667   

Other consumer loans

     147,004         137,157   
  

 

 

    

 

 

 

Total consumer

     1,369,911         1,403,936   
  

 

 

    

 

 

 

Other (1)

     97,512         101,021   
  

 

 

    

 

 

 

Total loans

   $ 4,556,705       $ 4,690,566   
  

 

 

    

 

 

 

 

(1) Other loans include deposit customer overdrafts of $2.6 million and $3.2 million as of June 30, 2013 and December 31, 2012, respectively.

Total loans as of June 30, 2013 and December 31, 2012, include $20.7 million and $11.3 million of 1-4 family residential loans held for sale and $2.0 million and $0.7 million of deferred loan origination costs, respectively.

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 “none 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.

 

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Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

The Company designates loans as 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 PCI 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 lives 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:

 

(Dollars in thousands)

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

Balance, beginning of period

   $ 490,221      $ 639,150      $ 552,999      $ 715,479   

New loans purchased

     —         —         —         —    

Accretion of income

     (42,957     (47,783     (88,092     (98,097

Reclassifications from nonaccretable difference

     43,223        47,838        53,496        57,564   

Disposals

     (25,624     (29,212     (53,540     (64,953
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 464,863      $ 609,993      $ 464,863      $ 609,993   
  

 

 

   

 

 

   

 

 

   

 

 

 

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. Disposals represent reductions of accretable yield due to non-credit events such as interest rate reductions on variable rate loans, prepayment activity on loans and transfers to OREO.

 

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Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

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 of overall improvement of credit loss expectations in our most recent estimates of cash flows, substantially related to the Company’s legacy Southern Community portfolio, the Company recognized a $0.2 million CVR expense for the three months ended June 30, 2013 and a $2.8 million expense related to improvement of credit loss expectations of the Green Bankshares portfolio during the six months ended June 30, 2013.

Non-covered Loans

The following is a summary of the major categories of non-covered loans outstanding as of June 30, 2013 and December 31, 2012:

 

(Dollars in thousands)

                    

June 30, 2013

   PCI Loans      Non-PCI
Loans
     Total
Non-covered
Loans
 

Non-owner occupied commercial real estate

   $ 522,635       $ 202,360       $ 724,995   

Other commercial C&D

     261,075         75,951         337,026   

Multifamily commercial real estate

     40,079         27,473         67,552   

1-4 family residential C&D

     16,550         52,377         68,927   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     840,339         358,161         1,198,500   

Owner occupied commercial real estate

     341,567         631,186         972,753   

Commercial and industrial

     156,038         558,838         714,876   
  

 

 

    

 

 

    

 

 

 

Total commercial

     497,605         1,190,024         1,687,629   

1-4 family residential

     404,585         339,701         744,286   

Home equity

     124,516         217,819         342,335   

Consumer

     18,532         128,423         146,955   
  

 

 

    

 

 

    

 

 

 

Total consumer

     547,633         685,943         1,233,576   

Other

     50,571         42,699         93,270   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,936,148       $ 2,276,827       $ 4,212,975   
  

 

 

    

 

 

    

 

 

 

 

15


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

(Dollars in thousands)

      

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   
  

 

 

    

 

 

    

 

 

 

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 June 30, 2013 and December 31, 2012:

 

(Dollars in thousands)

                    

June 30, 2013

   PCI Loans      Non-PCI
Loans
     Total Covered
Loans
 

Non-owner occupied commercial real estate

   $ 80,240       $ —        $ 80,240   

Other commercial C&D

     21,693         —          21,693   

Multifamily commercial real estate

     7,130         —          7,130   

1-4 family residential C&D

     2,479         —          2,479   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     111,542         —          111,542   

Owner occupied commercial real estate

     79,051         —          79,051   

Commercial and industrial

     12,198         362         12,560   
  

 

 

    

 

 

    

 

 

 

Total commercial

     91,249         362         91,611   

1-4 family residential

     81,146         306         81,452   

Home equity

     16,212         38,622         54,834   

Consumer

     49         —          49   
  

 

 

    

 

 

    

 

 

 

Total consumer

     97,407         38,928         136,335   

Other

     4,242         —          4,242   
  

 

 

    

 

 

    

 

 

 

Total

   $ 304,440       $ 39,290       $ 343,730   
  

 

 

    

 

 

    

 

 

 

 

16


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

(Dollars in thousands)

                    

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   
  

 

 

    

 

 

    

 

 

 

The following tables present the aging of the recorded investment in past due loans, based on contractual terms, as of June 30, 2013 by class of loans:

 

(Dollars in thousands)

                    

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

     —          394         —          —          —          47         441   

Multifamily commercial real estate

     —          —          —          —          —          —          —    

1-4 family residential C&D

     —          —           —          —          —          472         472   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          394         —          —          —          519         913   

Owner occupied commercial real estate

     —          265         —          —          —          2,063         2,328   

Commercial and industrial

     —          456         —          —          66         2,503         3,025   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     —          721         —          —          66         4,566         5,353   

1-4 family residential

     —          304         —          —          —          1,413         1,717   

Home equity

     298         305         —          —          1,844         2,064         4,511   

Consumer

     —          1,634         —          —          —          557         2,191   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     298         2,243         —          —          1,844         4,034         8,419   

Other

     —          —           —          —          —          11        11   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 298       $ 3,358       $ —        $ —        $ 1,910       $ 9,130       $ 14,696   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

(Dollars in thousands)

                                                

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

   $ 307       $ 13,932       $ 14,013       $ 53,009       $ —        $ —        $ 81,261   

Other commercial C&D

     354         8,970         10,372         69,887         —          —          89,583   

Multifamily commercial real estate

     —           —           1,182         3,073         —          —          4,255   

1-4 family residential C&D

     —          744         2,091         3,608         —          —          6,443   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     661         23,646         27,658         129,577         —          —          181,542   

Owner occupied commercial real estate

     954         7,940         5,465         35,417         —          —          49,776   

Commercial and industrial

     —          2,652         443         25,630         —          —          28,725   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     954         10,592         5,908         61,047         —          —          78,501   

1-4 family residential

     1,732         9,899         11,595         43,204         —          —          66,430   

Home equity

     345         3,522         2,691         7,565         —          —          14,123   

Consumer

     —          607         —           576         —          —          1,183   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     2,077         14,028         14,286         51,345         —          —          81,736   

Other

     —          420         105         4,705         —          —          5,230   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,692       $ 48,686       $ 47,957       $ 246,674       $ —        $ —        $ 347,009   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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:

 

(Dollars in thousands)

                    

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

18


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

(Dollars in thousands)

                                                

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PCI 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.

 

19


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

The following table summarizes loans, excluding purchased credit-impaired loans, monitored for credit quality based on internal ratings at June 30, 2013:

 

                   Substandard         

(Dollars in thousands)

   Pass      Special
Mention
     Accruing/
Accreting
     Nonaccrual      Doubtful      Total  

Non-owner occupied commercial real estate

   $ 201,466       $ —        $ 894       $ —        $ —        $ 202,360   

Other commercial C&D

     75,132         320         452         47         —          75,951   

Multifamily commercial real estate

     27,161         —          312         —          —          27,473   

1-4 family residential C&D

     45,226         2,003         4,676         472         —          52,377   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     348,985         2,323         6,334        519         —          358,161   

Owner occupied commercial real estate

     626,568         —          2,555         2,063         —          631,186   

Commercial and industrial

     552,745         408         3,478         2,569         —          559,200   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     1,179,313         408         6,033         4,632         —          1,190,386   

1-4 family residential

     338,594         —           —           1,413         —          340,007   

Home equity

     251,488         102         943         3,908         —          256,441   

Consumer

     127,833         —          33         557         —          128,423   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     717,915         102         976         5,878         —          724,871   

Other

     42,688         —          —           11        —          42,699   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,288,901       $ 2,833       $ 13,343       $ 11,040       $ —        $ 2,316,117   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes loans, excluding purchased credit-impaired loans, monitored for credit quality based on internal ratings at December 31, 2012:

 

                   Substandard                
     Pass      Special
Mention
     Accruing/
Accreting
     Nonaccrual      Doubtful      Total  

Non-owner occupied commercial real estate

   $ 175,996       $ —        $ 905       $ 80       $ —        $ 176,981   

Other commercial C&D

     55,162         325         150         97         —          55,734   

Multifamily commercial real estate

     26,940         —          318         —           —          27,258   

1-4 family residential C&D

     38,788         160         2,659         363         —          41,970   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     296,886         485         4,032         540         —          301,943   

Owner occupied commercial real estate

     528,885         2,953         2,600         1,966         —          536,404   

Commercial and industrial

     420,215         1,470         12,868         2,333         —          436,886   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     949,100         4,423         15.468         4,299         —          973,290   

1-4 family residential

     255,008         308         —          3,733         —          259,049   

Home equity

     270,750         777         1,539         5,041         —          278,107   

Consumer

     107,223         110         109         367         —          107,809   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     632,981         1,195         1,648         9,141         —          644,965   

Other

     40,370         49         —          —          —          40,419   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,919,337       $ 6,152       $ 21,148       $ 13,980       $ —        $ 1,960,617   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

6. Allowance for Loan Losses

Activity in the allowance for loan losses for the three and six months ended June 30, 2013 and 2012 is as follows:

 

(Dollars in thousands)

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

Balance, beginning of period

   $ 56,307      $ 40,608      $ 54,896      $ 34,749   

Provision for loan losses charged to expense

     3,868        6,608        10,772        11,984   

Loans charged off

     (6,069     (2,624     (13,390     (2,866

Recoveries of loans previously charged off

     1,263        880        3,091        1,605   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 55,369      $ 45,472      $ 55,369      $ 45,472   
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the roll forward of the allowance for loan losses for the three months ended June 30, 2013 by the class of loans against which the allowance is allocated:

 

(Dollars in thousands)

   March 31,
2013
     Provision /
(Reversals)
    Net (Charge-
offs)/Recoveries
    June 30,
2013
 

Non-owner occupied commercial real estate

   $ 3,449       $ 665      $ 9      $ 4,123   

Other commercial C&D

     12,872