Capital Bank Financial
Capital Bank Financial Corp. (Form: 10-Q, Received: 05/09/2014 06:04:28)
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 March 31, 2014

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

 

 

 

LOGO

(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   x
Non-accelerated filer   ¨    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

  31,975,601

Class B Non-Voting Common, $0.01 Par Value

  18,369,977

Class

  Outstanding as of April 30, 2014

 

 

 


Table of Contents

Table of Contents

CAPITAL BANK FINANCIAL CORP.

FORM 10-Q

For the Three Months Ended March 31, 2014

INDEX

 

PART I. FINANCIAL INFORMATION

  

ITEM 1. FINANCIAL STATEMENTS

     1   

CONSOLIDATED BALANCE SHEETS

     3   

CONSOLIDATED STATEMENTS OF INCOME

     4   

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

     5   

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

     6   

CONSOLIDATED STATEMENTS OF CASH FLOWS

     7   

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     8   

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

     33   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     54   

ITEM 4. CONTROLS AND PROCEDURES

     55   

PART II. OTHER INFORMATION

     55   

ITEM 1. LEGAL PROCEEDINGS

     55   

ITEM 1A. RISK FACTORS

     55   

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

     55   

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     56   

ITEM 4. MINE SAFETY DISCLOSURES

     56   

ITEM 5. OTHER INFORMATION

     56   

ITEM 6. EXHIBITS

     56   

 

2


Table of Contents

Capital Bank Financial Corp.

Consolidated Balance Sheets

(Unaudited)

 

(Dollars and shares in thousands)    March 31, 2014     December 31, 2013  

Assets

    

Cash and due from banks

   $ 122,145      $ 118,937   

Interest-bearing deposits with banks

     52,735        45,504   
  

 

 

   

 

 

 

Total cash and cash equivalents

     174,880        164,441   

Trading securities

     6,562        6,348   

Investment securities available-for-sale at fair value (amortized cost $658,971 and $688,717, respectively)

     657,788        685,441   

Investment securities held-to-maturity at amortized cost (fair value $449,739 and $459,693, respectively)

     449,131        465,098   

Loans held for sale

     4,833        8,012   

Loans, net of deferred loan costs and fees

     4,541,652        4,544,017   

Less: Allowance for loan losses

     55,606        56,851   
  

 

 

   

 

 

 

Loans, net

     4,486,046        4,487,166   
  

 

 

   

 

 

 

Other real estate owned

     120,270        129,396   

FDIC indemnification asset

     28,744        33,610   

Receivable from FDIC

     5,832        7,624   

Premises and equipment, net

     178,629        179,855   

Goodwill

     134,522        131,987   

Intangible assets, net

     22,111        23,365   

Deferred income tax asset, net

     158,074        166,762   

Accrued interest receivable and other assets

     121,202        128,456   
  

 

 

   

 

 

 

Total Assets

   $ 6,548,624      $ 6,617,561   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Liabilities

    

Deposits:

    

Noninterest-bearing demand

   $ 1,000,914      $ 923,993   

Negotiable order of withdrawal accounts

     1,326,555        1,321,903   

Money market

     945,354        961,526   

Savings

     536,948        530,144   

Time deposits

     1,382,422        1,447,497   
  

 

 

   

 

 

 

Total deposits

     5,192,193        5,185,063   
  

 

 

   

 

 

 

Federal Home Loan Bank advances

     21,231        96,278   

Short-term borrowings

     30,453        24,850   

Long-term borrowings

     138,837        138,561   

Accrued interest payable and other liabilities

     62,154        60,021   
  

 

 

   

 

 

 

Total liabilities

     5,444,868        5,504,773   
  

 

 

   

 

 

 

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, 36,405 issued and 32,475 outstanding and 36,212 issued and 33,051 outstanding, respectively.

     364        362   

Common stock-Class B $0.01 par value: 200,000 shares authorized, 19,454 issued and 18,654 outstanding and 19,647 issued and 19,047 outstanding, respectively.

     194        196   

Additional paid in capital

     1,082,963        1,082,235   

Retained earnings

     118,899        107,485   

Accumulated other comprehensive loss

     (6,042     (7,528

Treasury stock, at cost, 4,730 and 3,761 shares, respectively

     (92,622     (69,962
  

 

 

   

 

 

 

Total shareholders’ equity

     1,103,756        1,112,788   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 6,548,624      $ 6,617,561   
  

 

 

   

 

 

 

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

 

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Capital Bank Financial Corp.

Consolidated Statements of Income

(Unaudited)

 

(Dollars in thousands, except per share data)    Three Months Ended  
     March 31, 2014     March 31, 2013  

Interest and dividend income

    

Loans, including fees

   $ 63,219      $ 71,784   

Investment securities:

    

Taxable interest income

     4,547        3,279   

Tax-exempt interest income

     156        166   

Dividends

     15        15   

Interest-bearing deposits in other banks

     25        372   

Other earning assets

     581        490   
  

 

 

   

 

 

 

Total interest and dividend income

     68,543        76,106   

Interest expense

    

Deposits

     4,316        6,478   

Long-term borrowings

     1,704        2,500   

Federal Home Loan Bank advances

     61        1   

Other borrowings

     9        13   
  

 

 

   

 

 

 

Total interest expense

     6,090        8,992   

Net Interest Income

     62,453        67,114   
  

 

 

   

 

 

 

Provision (reversal) for loan losses

     (24     5,402   

Net interest income after provision for loan losses

     62,477        61,712   
  

 

 

   

 

 

 

Non-Interest Income

    

Service charges on deposit accounts

     5,436        6,342   

Debit card income

     2,844        2,836   

Fees on mortgage loans originated and sold

     759        1,241   

Investment advisory and trust fees

     1,261        283   

FDIC indemnification asset expense

     (2,165     (2,169

Investment securities gains, net

     174        —     

Other-than-temporary impairment losses on investments:

    

Gross impairment loss

     —          —     

Less: Impairments recognized in other comprehensive income

     —          —     
  

 

 

   

 

 

 

Net impairment losses recognized in earnings

     —          —     
  

 

 

   

 

 

 

Other income

     3,060        2,376   
  

 

 

   

 

 

 

Total non-interest income

     11,369        10,909   
  

 

 

   

 

 

 

Non-Interest Expense

    

Salaries and employee benefits

     23,498        20,784   

Stock-based compensation expense

     728        1,577   

Net occupancy, equipment and software expense

     10,467        10,730   

OREO valuation expense

     3,573        6,590   

Gain on sales of OREO

     (721     (1,187

Foreclosed asset related expense

     1,459        1,419   

Loan workout expense

     1,177        2,064   

Conversion and merger related expense

     —          113   

Professional fees

     2,004        2,648   

Loss on extinguishment of debt

     —          308   

Computer services

     3,253        3,100   

CVR expense

     767        2,883   

FDIC assessments

     1,629        1,803   

Telecomunication expense

     1,608        1,754   

Other expense

     5,782        6,727   
  

 

 

   

 

 

 

Total non-interest expense

     55,224        61,313   
  

 

 

   

 

 

 

Income before income taxes

     18,622        11,308   

Income tax expense

     7,208        5,543   
  

 

 

   

 

 

 

Net income

   $ 11,414      $ 5,765   
  

 

 

   

 

 

 

Basic earnings per share

   $ 0.23      $ 0.11   
  

 

 

   

 

 

 

Diluted earnings per share

   $ 0.22      $ 0.10   
  

 

 

   

 

 

 

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

 

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Capital Bank Financial Corp.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

(Dollars in thousands)    Three Months Ended  
     March 31, 2014     March 31, 2013  

Net Income

   $ 11,414      $ 5,765   

Other comprehensive income before tax:

    

Unrealized holding gains on investment securities available-for-sale

     2,388        1,072   

Reclassification adjustment for gains realized in net income on securities available-for-sale

     (296     —     

Reclassification adjustment for losses amortized in net income on securities held-to-maturity

     338        —     
  

 

 

   

 

 

 

Other comprehensive income, before tax:

     2,430        1,072   

Tax effect

     (944     (433
  

 

 

   

 

 

 

Other comprehensive income, net of tax:

     1,486        639   
  

 

 

   

 

 

 

Comprehensive income

   $ 12,900      $ 6,404   
  

 

 

   

 

 

 

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

 

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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
Income (Loss)
    Treasury
Stock
    Total
Shareholder’s
Equity
 

Balance, December 31, 2013

     33,051      $ 362         19,047      $ 196      $ 1,082,235      $ 107,485       $ (7,528   $ (69,962   $ 1,112,788   

Net income

     —          —           —          —          —          11,414         —          —          11,414   

Other comprehensive income, net of tax expense of $944

     —          —           —          —          —          —           1,486        —          1,486   

Stock based compensation

     —          —           —          —          728        —           —          —          728   

Purchase of treasury stock

     (769     —           (200     —          —          —           —          (22,660     (22,660

Conversion of shares

     193        2         (193     (2     —          —           —            —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance, March 31, 2014

     32,475      $ 364         18,654      $ 194      $ 1,082,963      $ 118,899       $ (6,042   $ (92,622   $ 1,103,756   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 31, 2012

     33,025        330         22,821        228        1,076,797        68,641         9,347        —          1,155,343   

Net income

     —          —           —          —          —          5,765         —          —          5,765   

Other comprehensive income, net of tax expense of $433

     —          —           —          —          —          —           639        —          639   

Stock based compensation

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

Fractional shares

     —          —           —          —          (2     —           —          —          (2

Purchase of treasury stock

     (143     —           —          —          —          —           —          (2,455     (2,455

Conversion of shares

     23        —           (23     —          —          —           —          —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance, March 31, 2013

     32,905      $ 330         22,798      $ 228      $ 1,078,372      $ 74,406       $ 9,986      $ (2,455   $ 1,160,867   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

 

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Capital Bank Financial Corp.

Consolidated Statements of Cash Flows

(Unaudited)

 

(Dollars in thousands)    Three Months Ended  
     March 31, 2014     March 31, 2013  

Cash flows from operating activities

    

Net income

   $ 11,414      $ 5,765   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    

Accretion of purchased credit impaired loans

     (33,162     (44,985

Depreciation and amortization

     4,814        5,280   

Provision (reversal) for loan losses

     (24     5,402   

Deferred income tax

     5,209        3,753   

Net amortization of investment securities premium/discount

     2,190        3,296   

Net realized gains on sales of investment securities

     (174     —     

Stock-based compensation expense

     728        1,577   

Gain on sales of OREO

     (721     (1,187

OREO valuation expenses

     3,573        6,590   

Other

     (1,037     (644

Loss on extinguishment of debt

     —          308   

Mortgage loans originated for sale

     (22,820     (40,848

Proceeds from sales of mortgage loans originated for sale

     26,758        40,777   

Fees on mortgage loans originated and sold

     (759     (1,241

FDIC indemnification asset expense

     2,165        2,169   

Gain on sale/disposal of premises and equipment

     (17     —     

Proceeds from FDIC loss share agreements

     4,898        5,566   

Change in accrued interest receivable and other assets

     671        2,762   

Change in accrued interest payable and other liabilities

     2,170        2,886   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     5,876        (2,774
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of investment securities available-for-sale

     (335     (196,984

Sales of investment securities available-for-sale

     800        —     

Repayments of principal and maturities of investment securities available-for-sale

     27,674        69,547   

Repayments of principal and maturities of investment securities held-to-maturity

     15,682        —     

Net sales of FHLB and FRB stock

     6,180        3,161   

Net decrease in loans

     25,647        112,013   

Purchases of premises and equipment

     (2,093     (2,452

Proceeds from sales of premises and equipment

     3        —     

Proceeds from sales of OREO

     15,979        15,768   
  

 

 

   

 

 

 

Net cash provided by investing activities

     89,537        1,053   
  

 

 

   

 

 

 

Cash flows from financing activities

    

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

     72,205        (22,562

Net decrease in time deposits

     (65,075     (151,606

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

     5,602        (11,528

Net decrease in short term FHLB advances

     (75,000     —     

Net decrease of long term FHLB advances

     (46     (45

Prepayments of long term borrowings

     —          (34,500

Purchase of treasury stock

     (22,660     (2,455
  

 

 

   

 

 

 

Net cash used in financing activities

     (84,974     (222,696
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     10,439        (224,417

Cash and cash equivalents at beginning of period

     164,441        734,874   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 174,880      $ 510,457   
  

 

 

   

 

 

 

Supplemental disclosures of cash:

    

Interest paid

   $ 5,212      $ 10,887   

Cash collections of contractual interest on purchased credit impaired loans

     22,620        33,837   

Income taxes paid

     320        800   

Supplemental disclosures of noncash transactions:

    

OREO acquired through loan transfers and acquisitions

   $ 9,706      $ 18,691   

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

 

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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”). CBF has a total of 163 full service banking offices located in Florida, North and 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 3.7 million shares of CBF’s Class A common stock. The Reorganization was accounted for as a merger with CBF as the acquirer (which is the surviving entity for legal purposes).

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.

The accompanying Consolidated Financial Statements (Unaudited) 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. All significant inter-company accounts and transactions have been eliminated in consolidation. For further information refer to the Company’s consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2013.

Out of Period Adjustments

During the three months ended March 31, 2014, the Company recorded a correction of an error resulting from the state net operating loss that the Company was not entitled to subsequent to the 2011 Green Bankshares acquisition. The impact of this correction decreased deferred tax assets and increased goodwill by $2.5 million. After evaluating the quantitative and qualitative aspects of this error, the Company concluded that its prior period financial statements were not materially misstated.

Recent Accounting Pronouncements

In January 2014, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-04, “Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force).” This update clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. This ASU is effective for fiscal years and interim periods beginning after December 15, 2014. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In January 2014, the FASB issued ASU 2014-01, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force).” This ASU allows for use of the proportional amortization method for qualified affordable housing projects if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and the net investment performance is recognized in the income statement as a component of income tax expense. This ASU provides for a practical expedient, which allows for amortization of only expected tax credits over the period tax credits are expected to be received. This method is permitted if it produces a measurement that is substantially similar to the measurement that would result from using both tax credits and other tax benefits. This ASU is effective for fiscal years and interim periods beginning after December 15, 2014. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. This update requires an unrecognized tax benefit related to a net operating loss carryforward, a similar tax loss or a tax credit carryforward to be presented as a reduction to a deferred tax asset, unless the tax benefit is not available at the reporting date to settle any additional income taxes under the tax law of the applicable tax jurisdiction. For public entities, this ASU is effective for fiscal years and interim periods beginning after December 15, 2013, with early adoption permitted. The adoption on January 1, 2014 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

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Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

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 include 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  
     March 31, 2014      March 31, 2013  

Weighted average number of shares outstanding:

     

Basic

     50,518         54,623   

Dilutive effect of options oustanding

     970         —     

Dilutive effect of restricted shares

     444         870   
  

 

 

    

 

 

 

Diluted

   $ 51,932       $ 55,493   
  

 

 

    

 

 

 

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  
     March 31, 2014      March 31, 2013  

Anti-dilutive stock options

     15         2,871   

Anti-dilutive restricted shares

     —           —     

3. Investment Securities

Trading securities totaled $6.6 million and $6.3 million at March 31, 2014 and December 31, 2013, respectively.

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at March 31, 2014, and December 31, 2013 are presented below:

 

(Dollars in thousands)    March 31, 2014  
     Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Estimated
Fair Value
 

Available-for-Sale

           

Asset-backed securities

   $ 127,912       $ —         $ 678       $ 127,234   

Marketable equity securities

     946         —           10         936   

Mortgage-backed securities—residential issued by government sponsored entities

     526,533         2,734         3,376         525,891   

Industrial revenue bond

     3,580         147         —           3,727   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 658,971       $ 2,881       $ 4,064       $ 657,788   
  

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-Maturity

           

U.S. Government agencies

   $ 14,777       $ —         $ 322       $ 14,455   

State and political subdivisions—tax exempt

     14,233         182         —           14,415   

State and political subdivisions—taxable

     543         —           2         541   

Mortgage-backed securities—residential issued by government sponsored entities

     419,578         1,697         947         420,328   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 449,131       $ 1,879       $ 1,271       $ 449,739   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

(Dollars in thousands)    December 31, 2013  
     Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Estimated
Fair Value
 

Available-for-Sale

           

Asset-backed securities

   $ 133,647       $ 363       $ 785       $ 133,225   

Marketable equity securities

     946         —           15         931   

Mortgage-backed securities—residential issued by government sponsored entities

     549,869         2,337         5,580         546,626   

Industrial revenue bond

     3,750         109         —           3,859   

Collateralized debt obligations

     505         295         —           800   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 688,717       $ 3,104       $ 6,380       $ 685,441   
  

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-Maturity

           

U.S. Government agencies

   $ 14,972       $ —         $ 401       $ 14,571   

State and political subdivisions—tax exempt

     14,201         27         129         14,099   

State and political subdivisions—taxable

     545         —           12         533   

Mortgage-backed securities—residential issued by government sponsored entities

     435,380         328         5,218         430,490   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 465,098       $ 355       $ 5,760       $ 459,693   
  

 

 

    

 

 

    

 

 

    

 

 

 

Proceeds from sales and calls of securities were $0.8 million and $1.0 million for the three months ended March 31, 2014 and 2013, respectively. Gross gains of $0.3 million and $0 were realized on these sales and calls during the three months ended March 31, 2014 and 2013.

The estimated fair value of investment securities at March 31, 2014, by contractual maturity, is 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)    March 31, 2014  
     Amortized
Cost
     Estimated
Fair Value
     Yield  

Available-for-sale

        

Due in one year or less

   $ —         $ —           —     

Due after one year through five years

     —           —           —     

Due after five years through ten years

     56,958         56,907         0.75

Due after ten years

     74,534         74,054         0.60

Mortgage-backed securities—residential issued by government sponsored entities

     526,533         525,891         1.66
  

 

 

    

 

 

    
     658,025         656,852         1.46

Marketable equity securities

     946         936      
  

 

 

    

 

 

    

Total

   $ 658,971       $ 657,788      
  

 

 

    

 

 

    
     Amortized
Cost
     Estimated
Fair Value
     Yield  

Held-to-maturity

        

Due in one year or less

   $ 670       $ 670         0.85

Due after one year through five years

     1,126         1,138         2.00

Due after five years through ten years

     8,687         8,788         3.28

Due after ten years

     19,070         18,815         2.99

Mortgage-backed securities—residential issued by government sponsored entities

     419,578         420,328         2.42
  

 

 

    

 

 

    

Total

   $ 449,131       $ 449,739         2.46
  

 

 

    

 

 

    

 

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Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

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

March 31, 2014

                 

Available-for-Sale

                 

Asset-backed securities

   $ 52,137       $ 206       $ 75,097       $ 472       $ 127,234       $ 678   

Marketable equity securities

     936         10         —           —           936         10   

Mortgage-backed securities—residential issued by government sponsored entities

     305,368         3,376         —           —           305,368         3,376   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 358,441       $ 3,592       $ 75,097       $ 472       $ 433,538       $ 4,064   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-Maturity

                 

U.S. Government agencies

   $ 14,455       $ 322       $ —         $ —         $ 14,455       $ 322   

State and political subdivisions—tax exempt

     111         —           —           —           111         —     

State and political subdivisions—taxable

     541         2         —           —           541         2   

Mortgage-backed securities—residential issued by government sponsored entities

     240,980         947         —           —           240,980         947   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 256,087       $ 1,271       $ —         $ —         $ 256,087       $ 1,271   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
(Dollars in thousands)    Less than 12 Months      12 Months or Longer      Total  
     Estimated
Fair Value
     Unrealized
Losses
     Estimated
Fair Value
     Unrealized
Losses
     Estimated
Fair Value
     Unrealized
Losses
 

December 31, 2013

                 

Available-for-Sale

                 

Asset-backed securities

   $ 102,835       $ 785       $ —         $ —         $ 102,835       $ 785   

Marketable equity securities

     931         15         —           —           931         15   

Mortgage-backed securities—residential issued by government sponsored entities

     339,565         5,580         —           —           339,565         5,580   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 443,331       $ 6,380       $ —         $ —         $ 443,331       $ 6,380   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-Maturity

                 

U.S. Government agencies

   $ 14,571       $ 401       $ —         $ —         $ 14,571       $ 401   

State and political subdivisions—tax exempt

     10,489         129         —           —           10,489         129   

State and political subdivisions—taxable

     533         12         —           —           533         12   

Mortgage-backed securities—residential issued by government sponsored entities

     342,333         5,218         —           —           342,333         5,218   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 367,926       $ 5,760       $ —         $ —         $ 367,926       $ 5,760   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The table below presents a rollforward of the other than temporary impairment credit losses recognized in earnings for the three months ended March 31, 2014 and 2013.

 

(Dollars in thousands)    Three Months Ended  
     March 31, 2014      March 31, 2013  

Beginning balance

   $ 714       $ 660   

Additions/Subtractions:

     

Credit losses recognized during the period

     —           —     
  

 

 

    

 

 

 

Ending balance

   $ 714       $ 660   
  

 

 

    

 

 

 

As of March 31, 2014, the Company’s security portfolio consisted of 138 securities, 90 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, 2014 and December 31, 2013 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, 2014 or December 31, 2013.

Investment securities having carrying values of approximately $327.6 million and $313.5 million at March 31, 2014 and December 31, 2013, respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and for other purposes as required by law.

 

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Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

4. Loans

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

 

(Dollars in thousands)    March 31, 2014      December 31, 2013  

Non-owner occupied commercial real estate

   $ 790,698       $ 775,733   

Other commercial construction and land

     256,190         300,494   

Multifamily commercial real estate

     68,701         67,688   

1-4 family residential construction and land

     79,508         71,351   
  

 

 

    

 

 

 

Total commercial real estate

     1,195,097         1,215,266   

Owner occupied commercial real estate

     1,061,571         1,058,148   

Commercial and industrial loans

     806,359         803,736   

Lease financing

     2,513         2,676   
  

 

 

    

 

 

 

Total commercial

     1,870,443         1,864,560   

1-4 family residential

     801,573         804,322   

Home equity loans

     382,946         386,366   

Other consumer loans

     183,611         170,526   
  

 

 

    

 

 

 

Total consumer

     1,368,130         1,361,214   

Other

     112,815         110,989   
  

 

 

    

 

 

 

Total loans

   $ 4,546,485       $ 4,552,029   
  

 

 

    

 

 

 

Total loans as of March 31, 2014 and December 31, 2013, include $4.8 million and $8.0 million of 1-4 family residential loans held for sale and $4.8 million and $3.8 million of deferred loan origination costs, respectively.

Other loans include $46.7 million, $41.3 million and $1.5 million of farm land, state and political subdivision obligations and deposit customer overdrafts, respectively, as of March 31, 2014. Other loans include $49.7 million, $36.2 million and $2.2 million of farm land, state and political subdivision obligations and deposit customer overdrafts, respectively, as of December 31, 2013.

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 not subject to the loss sharing agreements and are classified as “non covered.” Additionally, certain consumer loans acquired through the acquisition of the First National Bank, Metro Bank and Turnberry Bank (collectively, the “Failed Banks”) from the FDIC, are specifically excluded from the loss sharing agreements.

The Company designates loans as PCI by evaluating both qualitative and quantitative factors. At the time of acquisition, the Company accounted for the PCI loans by segregating each portfolio into loan pools with similar risk characteristics. 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.

 

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Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

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  
     March 31, 2014     March 31, 2013  

Balance, beginning of period

   $ 383,775      $ 553,348   

Accretion of income

     (33,162     (44,985

Reclassification from nonaccretable difference

     6,667        10,273   

Other

     (10,285     (27,399
  

 

 

   

 

 

 

Balance, end of period

   $ 346,995      $ 491,237   
  

 

 

   

 

 

 

The following table represents the periods we estimate the accretable yield will accrete into income based on the Company’s most recent estimates of cash flows for purchased credit-impaired loans:

 

(Dollars in thousands)       

Periods ending December 31,

  

2014

   $ 84,561   

2015

     85,901   

2016

     56,292   

2017

     39,098   

2018

     26,416   

Thereafter

     54,727   
  

 

 

 

Total

   $ 346,995   
  

 

 

 

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 carrying amount of the PCI loans. Other represent reductions of accretable yield due to non-credit events such as interest rate reductions on variable rate loans and prepayment activity on loans.

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 covered loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreement. Refer to Note 7 – 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 and Green Bankshares portfolios, the Company recognized $0.8 million and $2.9 million in Contingent Value Right (“CVR”) expense for the three months ended March 31, 2014 and 2013, respectively.

 

13


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

Non-covered Loans

The following is a summary of the major categories of non-covered loans outstanding as of March 31, 2014 and December 31, 2013:

 

(Dollars in thousands)                     

March 31, 2014

   PCI      Non-PCI      Total
Non-covered
Loans
 

Non-owner occupied commercial real estate

   $ 408,625       $ 334,823       $ 743,448   

Other commercial construction and land

     186,304         54,828         241,132   

Multifamily commercial real estate

     27,441         32,439         59,880   

1-4 family residential construction and land

     15,612         63,896         79,508   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     637,982         485,986         1,123,968   

Owner occupied commercial real estate

     275,738         720,246         995,984   

Commercial and industrial loans

     122,605         674,323         796,928   

Lease financing

     —           2,513         2,513   
  

 

 

    

 

 

    

 

 

 

Total commercial

     398,343         1,397,082         1,795,425   

1-4 family residential

     329,317         409,900         739,217   

Home equity loans

     97,031         236,144         333,175   

Other consumer loans

     9,615         173,935         183,550   
  

 

 

    

 

 

    

 

 

 

Total consumer

     435,963         819,979         1,255,942   

Other

     45,282         66,354         111,636   
  

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,517,570       $ 2,769,401       $ 4,286,971   
  

 

 

    

 

 

    

 

 

 
(Dollars in thousands)                     

December 31, 2013

   PCI      Non-PCI      Total
Non-covered
Loans
 

Non-owner occupied commercial real estate

   $ 432,437       $ 287,562       $ 719,999   

Other commercial construction and land

     213,543         67,789         281,332   

Multifamily commercial real estate

     29,392         29,187         58,579   

1-4 family residential construction and land

     14,372         56,979         71,351   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     689,744         441,517         1,131,261   

Owner occupied commercial real estate

     299,593         691,253         990,846   

Commercial and industrial loans

     129,961         663,563         793,524   

Lease financing

     —           2,676         2,676   
  

 

 

    

 

 

    

 

 

 

Total commercial

     429,554         1,357,492         1,787,046   

1-4 family residential

     349,060         384,663         733,723   

Home equity loans

     100,995         234,056         335,051   

Other consumer loans

     12,433         157,991         170,424   
  

 

 

    

 

 

    

 

 

 

Total consumer

     462,488         776,710         1,239,198   

Other

     47,888         61,279         109,167   
  

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,629,674       $ 2,636,998       $ 4,266,672   
  

 

 

    

 

 

    

 

 

 

 

14


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

Covered Loans

The following is a summary of the major categories of covered loans outstanding as of March 31, 2014 and December 31, 2013:

 

(Dollars in thousands)                     

March 31, 2014

   PCI      Non-PCI      Total Covered
Loans
 

Non-owner occupied commercial real estate

   $ 47,250       $ —         $ 47,250   

Other commercial construction and land

     15,058         —           15,058   

Multifamily commercial real estate

     8,821         —           8,821   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     71,129         —           71,129   

Owner occupied commercial real estate

     65,587         —           65,587   

Commercial and industrial loans

     9,228         203         9,431   
  

 

 

    

 

 

    

 

 

 

Total commercial

     74,815         203         75,018   

1-4 family residential

     61,343         1,013         62,356   

Home equity loans

     14,835         34,936         49,771   

Other consumer loans

     61         —           61   
  

 

 

    

 

 

    

 

 

 

Total consumer

     76,239         35,949         112,188   

Other

     1,179         —           1,179   
  

 

 

    

 

 

    

 

 

 

Total loans

   $ 223,362       $ 36,152       $ 259,514   
  

 

 

    

 

 

    

 

 

 
(Dollars in thousands)                     

December 31, 2013

   PCI      Non-PCI      Total Covered
Loans
 

Non-owner occupied commercial real estate

   $ 55,734       $ —         $ 55,734   

Other commercial construction and land

     19,162         —           19,162   

Multifamily commercial real estate

     9,109         —           9,109   
  

 

 

    

 

 

    

 

 

 

Total commercial real estate

     84,005         —           84,005   

Owner occupied commercial real estate

     67,302         —           67,302   

Commercial and industrial loans

     9,856         356         10,212   
  

 

 

    

 

 

    

 

 

 

Total commercial

     77,158         356         77,514   

1-4 family residential

     69,582         1,017         70,599   

Home equity loans

     15,201         36,114         51,315   

Other consumer loans

     102         —           102   
  

 

 

    

 

 

    

 

 

 

Total consumer

     84,885         37,131         122,016   

Other

     1,822         —           1,822   
  

 

 

    

 

 

    

 

 

 

Total loans

   $ 247,870       $ 37,487       $ 285,357   
  

 

 

    

 

 

    

 

 

 

 

15


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

The following tables present the aging of the recorded investment in past due loans, based on contractual terms, as of March 31, 2014:

 

(Dollars in thousands)    30-89 Days Past Due      Greater than 90 Days Past Due
and Still Accruing/Accreting
     Non-accrual         

Non-purchased credit impaired loans

   Covered      Non-Covered      Covered      Non-Covered      Covered      Non-Covered      Total  

Non-owner occupied commercial real estate

   $ —         $ —         $ —         $ —         $ —         $ 89       $ 89   

Other commercial construction and land

     —           9         —           —           —           391         400   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           9         —           —           —           480         489   

Owner occupied commercial real estate

     —           2,290         —           —           —           1,999         4,289   

Commercial and industrial loans

     5         717         —           —           66         1,701         2,489   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     5         3,007         —           —           66         3,700         6,778   

1-4 family residential

     —           134         —           —           29         1,711         1,874   

Home equity loans

     292         237         —           —           1,183         2,392         4,104   

Other consumer loans

     —           1,956         —           —           —           546         2,502   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     292         2,327         —           —           1,212         4,649         8,480   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 297       $ 5,343       $ —         $ —         $ 1,278       $ 8,829       $ 15,747   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
(Dollars in thousands)    30-89 Days Past Due      Greater than 90 Days Past Due
and Still Accruing/Accreting
     Non-accrual         

Purchased credit impaired loans

   Covered      Non-Covered      Covered      Non-Covered      Covered      Non-Covered      Total  

Non-owner occupied commercial real estate

   $ 465       $ 1,577       $ 5,835       $ 42,910       $ —         $ —         $ 50,787   

Other commercial construction and land

     5         1,221         8,444         46,968         —           —           56,638   

Multifamily commercial real estate

     2,235         —           248         1,862         —           —           4,345   

1-4 family residential construction and land

     —           —           —           2,305         —           —           2,305   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,705         2,798         14,527         94,045         —           —           114,075   

Owner occupied commercial real estate

     1,443         1,058         5,729         28,862         —           —           37,092   

Commercial and industrial loans

     9         226         202         30,693         —           —           31,130   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     1,452         1,284         5,931         59,555         —           —           68,222   

1-4 family residential

     2,121         5,127         6,116         35,699         —           —           49,063   

Home equity loans

     2,906         2,144         1,662         5,892         —           —           12,604   

Other consumer loans

     —           247         28         249         —           —           524   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     5,027         7,518         7,806         41,840         —           —           62,191   

Other

     —           890         294         2,943         —           —           4,127   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 9,184       $ 12,490       $ 28,558       $ 198,383       $ —         $ —         $ 248,615   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

(Dollars in thousands)    30-89 Days Past Due      Greater than 90 Days Past Due
and Still Accruing/Accreting
     Non-accrual         

Non-purchased credit impaired loans

   Covered      Non-Covered      Covered      Non-Covered      Covered      Non-Covered      Total  

Non-owner occupied commercial real estate

   $ —         $ —         $ —         $ —         $ —         $ 90       $ 90   

Other commercial construction and land

     —           —           —           —           —           563         563   

Multifamily commercial real estate

     —           305         —           —           —           —           305   

1-4 family residential construction and land

     —           —           —           —           —           1         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           305         —           —           —           654         959   

Owner occupied commercial real estate

     —           20         —           —           —           3,394         3,414   

Commercial and industrial loans

     —           2         —           —           66         1,879         1,947   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     —           22         —           —           66         5,273         5,361   

1-4 family residential

     —           862         —           —           —           1,417         2,279   

Home equity loans

     146         1,046         —           —           1,270         2,324         4,786   

Other consumer loans

     —           1,800         —           —           —           806         2,606   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     146         3,708         —           —           1,270         4,547         9,671   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 146       $ 4,035       $ —         $ —         $ 1,336       $ 10,474       $ 15,991   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

(Dollars in thousands)    30-89 Days Past Due      Greater than 90 Days Past Due
and Still Accruing/Accreting
     Non-accrual         

Purchased credit impaired loans

   Covered      Non-Covered      Covered      Non-Covered      Covered      Non-Covered      Total  

Non-owner occupied commercial real estate

   $ 107       $ 1,463       $ 10,658       $ 35,563       $ —         $ —         $ 47,791   

Other commercial construction and land

     —           1,105         8,479         58,633         —           —           68,217   

Multifamily commercial real estate

     —           —           —           2,641         —           —           2,641   

1-4 family residential construction and land

     —           5         —           1,796         —           —           1,801   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     107         2,573         19,137         98,633         —           —           120,450   

Owner occupied commercial real estate

     260         4,626         6,631         33,974         —           —           45,491   

Commercial and industrial loans

     —           249         1,597         29,819         —           —           31,665   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     260         4,875         8,228         63,793         —           —           77,156   

1-4 family residential

     227         6,696         10,824         37,646         —           —           55,393   

Home equity loans

     59         1,733         1,227         7,313         —           —           10,332   

Other consumer loans

     —           344         67         1,249         —           —           1,660   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     286         8,773         12,118         46,208         —           —           67,385   

Other

     —           433         954         4,745         —           —           6,132   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 653       $ 16,654       $ 40,437       $ 213,379       $ —         $ —         $ 271,123   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 at origination and upon identification of a material change for all loans, on annual basis for commercial loans exceeding $0.5 million and at least quarterly for loans not rated Pass. 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.

 

17


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 March 31, 2014:

 

                   Substandard                
(Dollars in thousands)    Pass      Special Mention      Accruing/
Accreting
     Non-accrual      Doubtful      Total  

Non-owner occupied commercial real estate

   $ 333,099       $ 121       $ 1,514       $ 89       $ —         $ 334,823   

Other commercial construction and land

     54,327         48         61         392         —           54,828   

Multifamily commercial real estate

     32,138         —           301         —           —           32,439   

1-4 family residential construction and land

     59,977         1,989         1,930         —           —           63,896   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     479,541         2,158         3,806         481         —           485,986   

Owner occupied commercial real estate

     703,379         10,625         4,243         1,999         —           720,246   

Commercial and industrial loans

     661,795         5,335         5,629         1,767         —           674,526   

Lease financing

     2,513         —           —           —           —           2,513   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     1,367,687         15,960         9,872         3,766         —           1,397,285   

1-4 family residential

     408,766         28         381         1,739         —           410,913   

Home equity loans

     264,754         —           2,751         3,575         —           271,080   

Other consumer loans

     173,367         —           22         546         —           173,935   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     846,887         28         3,154         5,860         —           855,928   

Other

     66,091         —           263         —           —           66,354   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 2,760,206       $ 18,146       $ 17,095       $ 10,107       $ —         $ 2,805,553   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

                   Substandard                
(Dollars in thousands)    Pass      Special Mention      Accruing/
Accreting
     Non-accrual      Doubtful      Total  

Non-owner occupied commercial real estate

   $ 285,919       $ 568       $ 985       $ 90       $ —         $ 287,562   

Other commercial construction and land

     67,178         48         —           563         —           67,789   

Multifamily commercial real estate

     28,882         —           305         —           —           29,187   

1-4 family residential construction and land

     53,224         1,958         1,796         1         —           56,979   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     435,203         2,574         3,086         654         —           441,517   

Owner occupied commercial real estate

     681,571         4,093         2,195         3,394         —           691,253   

Commercial and industrial loans

     651,585         1,183         9,206         1,945         —           663,919   

Lease financing

     2,676         —           —           —           —           2,676   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     1,335,832         5,276         11,401         5,339         —           1,357,848   

1-4 family residential

     384,235         28         —           1,417         —           385,680   

Home equity loans

     263,490         37         3,050         3,593         —           270,170   

Other consumer loans

     157,157         —           28         806         —           157,991   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     804,882         65         3,078         5,816         —           813,841   

Other

     61,006         —           273         —           —           61,279   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 2,636,923       $ 7,915       $ 17,838       $ 11,809       $ —         $ 2,674,485   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

5. Allowance for Loan Losses

Activity in the allowance for loan losses for the three months ended March 31, 2014 and 2013 is as follows:

 

(Dollars in thousands)    Three Months Ended  
     March 31, 2014     March 31, 2013  

Balance, beginning of period

   $ 56,851      $ 57,262   

Reversal of provision for loan losses on PCI loans

     (2,488     (3,148

Provision for loan losses on non-PCI loans

     2,464        8,550   

Non-PCI loans charged-off

     (1,956     (7,321

Recoveries of non-PCI loans previously charged-off

     735        1,828   
  

 

 

   

 

 

 

Balance, end of period

   $ 55,606      $ 57,171   
  

 

 

   

 

 

 

 

18


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

The following table presents the roll forward of the allowance for loan losses for the three months ended March 31, 2014 by the class of loans against which the allowance is allocated:

 

(Dollars in thousands)    December 31, 2013      Provision/
(Reversals)
    Net (Charge-offs)/
Recoveries
    March 31, 2014  

Non-owner occupied commercial real estate

   $ 4,635       $ (819   $ 13      $ 3,829   

Other commercial construction and land

     8,217         875        (200     8,892   

Multifamily commercial real estate

     320         83        —          403   

1-4 family residential construction and land

     1,558         2        (1     1,559   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total commercial real estate

     14,730         141        (188     14,683   

Owner occupied commercial real estate

     4,450         (807     (113     3,530   

Commercial and industrial loans

     8,310         (189     77        8,198   

Lease financing

     3         (2     —          1   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total commercial

     12,763         (998     (36     11,729   

1-4 family residential

     21,724         (1,323     (18     20,383   

Home equity loans

     3,869         1,054        (48     4,875   

Other consumer loans

     2,682         1,020        (639     3,063   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total consumer

     28,275         751        (705     28,321   

Other

     1,083         82        (292     873   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total loans

   $ 56,851       $ (24   $ (1,221   $ 55,606   
  

 

 

    

 

 

   

 

 

   

 

 

 

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

 

(Dollars in thousands)    December 31, 2012      Provision/
(Reversals)
    Net (Charge-offs)/
Recoveries
    March 31, 2013  

Non-owner occupied commercial real estate

   $ 3,764       $ (279   $ (36   $ 3,449   

Other commercial construction and land

     12,711         (273     442        12,880   

Multifamily commercial real estate

     348         (197     41        192   

1-4 family residential construction and land

     1,716         (178     21        1,559   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total commercial real estate

     18,539         (927     468        18,080   

Owner occupied commercial real estate

     4,055         15        44        4,114   

Commercial and industrial loans

     7,490         7,392        (4,367     10,515   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total commercial

     11,545         7,407        (4,323     14,629   

1-4 family residential

     15,740         1,032        28        16,800   

Home equity loans

     8,670         (3,372     (683     4,615   

Other consumer loans

     2,082         651        (563     2,170   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total consumer

     26,492         (1,689     (1,218     23,585   

Other

     686         611        (420     877   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total loans

   $ 57,262       $ 5,402      $ (5,493   $ 57,171   
  

 

 

    

 

 

   

 

 

   

 

 

 

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, 2014:

 

(Dollars in thousands)    Allowance for Loan Losses      Loans  

Non-purchased credit impaired 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

   $ —         $ 1,651       $ 2,178       $ 872       $ 333,951       $ 455,875   

Other commercial construction and land

     —           1,501         7,391         —           54,828         201,362   

Multifamily commercial real estate

     —           105         298         —           32,439         36,262   

1-4 family residential construction and land

     —           1,030         529         —           63,896         15,612   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           4,287         10,396         872         485,114         709,111   

Owner occupied commercial real estate

     —           2,720         810         3,389         716,857         341,325   

Commercial and industrial loans

     426         6,563         1,209         5,364         669,162         131,833   

Lease financing

     —           1         —           —           2,513         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     426         9,284         2,019         8,753         1,388,532         473,158   

1-4 family residential

     3         2,512         17,868         175         405,905         390,660   

Home equity loans

     17         474         4,384         757         270,323         111,866   

Other consumer loans

     8         2,859         196         162         173,773         9,676   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     28         5,845         22,448         1,094         850,001         512,202   

Other

     —           324         549         —           66,354         46,461   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 454       $ 19,740       $ 35,412       $ 10,719       $ 2,790,001       $ 1,740,932   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Loans collectively evaluated for impairment include $425.9 million of acquired loans which are presented net of unamortized purchase discounts of $15.5 million.

 

19


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

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, 2013:

 

(Dollars in thousands)    Allowance for Loan Losses      Loans  

Non-purchased credit impaired 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

   $ —         $ 1,615       $ 3,020       $ 877       $ 286,685       $ 488,171   

Other commercial construction and land

     —           1,201         7,016         —           67,789         232,705   

Multifamily commercial real estate

     —           116         204         —           29,187         38,501   

1-4 family residential construction and land

     —           1,065         493         —           56,979         14,372   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           3,997         10,733         877         440,640         773,749   

Owner occupied commercial real estate

     —           2,611         1,839         4,844         686,409         366,895   

Commercial and industrial loans

     507         6,370         1,433         9,623         654,296         139,817   

Lease financing

     —           3         —           —           2,676         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     507         8,984         3,272         14,467         1,343,381         506,712   

1-4 family residential

     —           2,279         19,445         —           377,668         418,642   

Home equity loans

     —           398         3,471         —           270,170         116,196   

Other consumer loans

     5         2,313         364         207         157,784         12,535   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     5         4,990         23,280         207         805,622         547,373   

Other

     —           468         615         273         61,006         49,710   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 512       $ 18,439       $ 37,900       $ 15,824       $ 2,650,649       $ 1,877,544   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Loans collectively evaluated for impairment include $435.0 million of acquired loans which are presented net of unamortized purchase discounts of $16.4 million.

Troubled Debt Restructurings

If a borrower is experiencing financial difficulty, the Bank may consider, in certain circumstances, modifying the terms of their loan to maximize collection of amounts due. A troubled debt restructuring (“TDR”) typically involves either a reduction of the stated interest rate of the loan, an extension of the loan’s maturity date(s) with a stated rate lower than the current market rate for a new loan with similar risk, or in limited circumstances, a reduction of the principal balance of the loan or the loan’s accrued interest. Upon modification of a loan, the Bank measures the related impairment as the excess of the recorded investment in the loan over the discounted expected future cash flows. The present value of expected future cash flows is discounted at the loan’s effective interest rate. If the impairment analysis results in a loss, an allowance for loan losses is established for the loan. During the three months ended March 31, 2014, loans modified in TDRs were nominal. Because of the immateriality of the amount and the nature of the modifications, the modifications did not have a material impact on the Company’s consolidated financial statements or on the determination of the allowance for loan losses at March 31, 2014. The Company had loans modified in TDRs with recorded investments of $0.3 million and $0 for the three months ended March 31, 2014 and 2013, respectively.

6. FDIC Indemnification Asset

The Company has recorded an indemnification asset related to loss sharing 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 credit 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:

 

(Dollars in thousands)       

Balance, December 31, 2013

   $ 33,610   

Indemnification asset income

     345   

Amortization of indemnification asset

     (2,510

Cash received on reimbursable losses

     (2,701
  

 

 

 

Balance, March 31, 2014

   $         28,744   
  

 

 

 

Balance, December 31, 2012

   $ 49,417   

Indemnification asset income

     (492

Amortization of indemnification asset

     (1,677

Cash received on reimbursable losses

     (2,987
  

 

 

 

Balance, March 31, 2013

   $ 44,261   
  

 

 

 

 

20


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

7. Other Real Estate Owned

The activity within Other Real Estate Owned (“OREO”) for the three months ended March 31, 2014 and 2013 is presented in the table below. Ending balances for OREO covered by loss sharing agreements with the FDIC for these periods were $18.6 million and $33.0 million, respectively.

 

(Dollars in thousands)    Three Months Ended  
     March 31, 2014     March 31, 2013  

Balance, beginning of period

   $ 129,396      $ 154,093   

Real estate acquired from borrowers

     9,706        18,691   

Valuation allowance

     (3,573     (6,590

Properties sold and other

     (15,259     (14,581
  

 

 

   

 

 

 

Balance, end of period

   $ 120,270      $ 151,613   
  

 

 

   

 

 

 

8. 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 (“FHLB”).

The Bank has securities sold under agreements to repurchase with customers. These agreements are collateralized by investment securities of the United States Government or its agencies which are chosen by the Bank. The amounts outstanding at March 31, 2014 and December 31, 2013 were $30.5 million and $24.9 million, respectively.

The Bank invests in FHLB stock for the purpose of establishing credit lines with the FHLB. 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.

The Bank’s collateral with the FHLB consists of a blanket floating lien pledge of the Bank’s residential 1-4 family mortgage, multifamily, home equity line of credit and commercial real estate secured loans. The amounts of eligible collateral at March 31, 2014 and December 31, 2013, provided for incremental borrowing availability of up to $209.7 million and $95.4 million, respectively.

At March 31, 2014 and December 31, 2013 the bank had $25.6 million in letters of credit issued by the FHLB, of which $25.2 million are used as collateral in lieu of pledging securities to the State of Florida.

The advances as of March 31, 2014 and December 31, 2013 consisted of the following:

 

(Dollars in thousands)

 

                  
Contractual
Outstanding
Amount
March 31, 2014
     Contractual
Outstanding
Amount
December 31, 2013
     Maturity Date    Fixed
Contractual
Rate
$ 20,000       $ 95,000       May 16, 2014    0.36%
  688         724       November 6, 2017    0.50%
  543         554       February 10, 2026    0.00%

 

 

    

 

 

       
$ 21,231       $ 96,278         

 

 

    

 

 

       

9. Long Term Borrowings

Structured repurchase agreements

The repurchase agreements as of March 31, 2014 and December 31, 2013 consisted of the following:

 

(Dollars in thousands)

 

                         
March 31, 2014
Carrying Amount
     December 31, 2013
Carrying Amount
     Contractual Amount      Maturity Date    Contractual
Rate
$ 10,754       $ 10,823       $ 10,000       November 6, 2016    4.75%
  10,772         10,833         10,000       March 30, 2017    4.50%
  10,490         10,521         10,000       December 18, 2017    3.79%
  10,463         10,492         10,000       December 18, 2017    3.72%
  10,744         10,780         10,000       March 22, 2019    3.56%

 

 

    

 

 

    

 

 

       
$ 53,223       $ 53,449       $ 50,000         

 

 

    

 

 

    

 

 

       

 

21


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

These repurchase agreements have a weighted-average rate of 4.06% at March 31, 2014 and December 31, 2013 and are collateralized by $67.0 million and $62.1 million, respectively, of mortgage-backed securities.

Subordinated Debentures

Through its acquisitions of CBKN, GRNB, SCMF and TIBB, the Company assumed thirteen separate pooled offerings of trust preferred securities. The Company is not considered the primary beneficiary of the trusts (variable interest entities), therefore the trusts are not consolidated in the Company’s consolidated financial statements, but rather the subordinated debentures are presented as liabilities. The Trusts consist of wholly-owned statutory trust subsidiaries for the purpose of issuing the trust preferred securities. The Trusts used the proceeds from the issuance of trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend equal to the interest rate on the debt securities. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by the companies or the Trust, at their respective option after a period of time as outlined below, and at varying premiums and sooner in specific events, subject to prior approval by the Federal Reserve Board (“FRB”), if then required. Deferral of interest payments on the trust preferred securities is allowed for up to 60 months without being considered an event of default. On March 18, 2013, the Company called and redeemed $34.5 million of trust preferred securities issued by SCMF, which had a fixed interest rate of 7.95%. The prepayment resulted in a $0.3 million loss on extinguishment of debt.

 

(Dollars in thousands)                               

Date of Offering

   Original
Face
     Carrying Amount
March 31, 2014
     Carrying Amount
December 31, 2013
    

Interest Rate as of March 31, 2014

  

Maturity Date

July 31, 2001

   $ 5,000       $ 3,863       $ 3,851       3.82% (3 Month LIBOR+358 bps)   

July 31, 2031

July 31, 2001

     4,000         2,651         2,636       3.82% (3 Month LIBOR+358 bps)   

July 31, 2031

June 26, 2003

     10,000         5,944         5,921       3.34% (3 Month LIBOR+310 bps)   

June 26, 2033

September 25, 2003

     10,000         6,405         6,368       3.09% (3 Month LIBOR+285 bps)   

September 25, 2033

December 30, 2003

     10,000         5,728         5,704       3.09% (3 Month LIBOR+285 bps)   

December 30, 2033

June 28, 2005

     3,000         1,557         1,545       1.91% (3 Month LIBOR+168 bps)   

June 28, 2035

December 22, 2005

     10,000         4,519         4,491       1.63% (3 Month LIBOR+140 bps)   

March 15, 2036

December 28, 2005

     13,000         6,510         6,458       1.77% (3 Month LIBOR+154 bps)   

March 15, 2036

June 23, 2006

     20,000         11,276         11,206       1.79% (3 Month LIBOR+155 bps)   

July 7, 2036

May 16, 2007

     56,000         28,261         28,050       1.88% (3 Month LIBOR+165 bps)   

June 15, 2037

June 15, 2007

     10,000         5,350         5,327       1.67% (3 Month LIBOR+143 bps)   

September 6, 2037

  

 

 

    

 

 

    

 

 

       
   $ 151,000       $ 82,064       $ 81,557         
  

 

 

    

 

 

    

 

 

       

Other Subordinated Debentures

Through the acquisition of CBKN, the Company assumed $3.4 million in aggregate principal amount of subordinated promissory notes with a fixed interest rate of 10.0% due March 18, 2020. The notes had a carrying value of $3.6 million as of March 31, 2014 and December 31, 2013. The Company may prepay the notes at any time after March 18, 2015 subject to regulatory approval and compliance with applicable law. The Company’s obligation to repay the notes is subordinate to all indebtedness owed by the Company to its current and future secured creditors and general creditors and certain other financial obligations of the Company.

At March 31, 2014, the maturities of long-term borrowings were as follows:

 

(Dollars in thousands)    Fixed Rate      Floating Rate      Total  

Due in 2014 through 2015

   $ —         $ —         $ —     

Due in 2016

     10,754         —           10,754   

Due in 2017

     31,725         —           31,725   

Due in 2018

     —           —           —     

Thereafter

     14,294         82,064         96,358   
  

 

 

    

 

 

    

 

 

 
   $ 56,773       $ 82,064       $ 138,837   
  

 

 

    

 

 

    

 

 

 

10. Shareholders’ Equity and Minimum Regulatory Capital Requirements

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements results in certain discretionary and required actions by regulators that could have an effect on the Company’s operations. The regulations require the Company and the Bank to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

 

22


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

To be considered well capitalized or adequately capitalized as defined under the regulatory framework for prompt corrective action, the Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based and Total Risk-based ratios. At March 31, 2014 and December 31, 2013 the Bank maintained capital ratios exceeding the requirement to be considered well capitalized. These minimum ratios along with the actual ratios for the Company and the Bank are presented in the following tables.

 

(Dollars in thousands)    Well Capitalized
Requirement
  Adequately Capitalized
Requirement
  Actual

March 31, 2014

   Amount    Ratio   Amount    Ratio   Amount      Ratio

Tier 1 Capital

               

(to Average Assets)

               

Consolidated

   N/A    N/A   ³  $252,747    ³  4.0%   $ 944,237       14.9%

Capital Bank, N.A.

   ³  $315,423    ³  5.0%   ³  $252,338    ³  4.0%     864,354       13.7%

Tier 1 Capital

               

(to Risk Weighted Assets)

               

Consolidated

   N/A    N/A   ³  $191,951    ³  4.0%   $ 944,237       19.7%

Capital Bank, N.A.

   ³  $287,549    ³ 6.0%   ³  $191,699    ³  4.0%     864,354       18.0%

Total Capital

               

(to Risk Weighted Assets)

               

Consolidated

   N/A    N/A   ³  $383,902    ³  8.0%   $ 1,003,800       20.9%

Capital Bank, N.A.

   ³  $479,248    ³  10.0%   ³  $383,398    ³  8.0%     923,760       19.3%
(Dollars in thousands)    Well Capitalized
Requirement
  Adequately Capitalized
Requirement
  Actual

December 31, 2013

   Amount    Ratio   Amount    Ratio   Amount      Ratio

Tier 1 Capital

               

(to Average Assets)

               

Consolidated

   N/A    N/A   ³  $254,126    ³  4.0%   $ 949,619       14.9%

Capital Bank, N.A.

   ³  $317,562    ³  5.0%   ³  $254,050    ³  4.0%     849,520       13.4%

Tier 1 Capital

               

(to Risk Weighted Assets)

               

Consolidated

   N/A    N/A   ³  $192,428    ³  4.0%   $ 949,619       19.7%

Capital Bank, N.A.

   ³  $288,410    ³  6.0%   ³  $192,273    ³  4.0%     849,520       17.7%

Total Capital

               

(to Risk Weighted Assets)

               

Consolidated

   N/A    N/A   ³  $384,856    ³  8.0%   $ 1,010,422       21.0%

Capital Bank, N.A.

   ³  $480,683    ³  10.0%   ³  $384,546    ³  8.0%     910,162       18.9%

In August 2010, Capital Bank, NA entered into an Operating Agreement with the Office of the Comptroller of the Currency (the “OCC Operating Agreement”). At present, the OCC Operating Agreement requires Capital Bank, NA to maintain total capital equal to at least 12% of risk-weighted assets, Tier 1 capital equal to at least 11% of risk-weighted assets and a minimum leverage ratio of 10% (Tier 1 Capital ratio).

As of March 31, 2014 and December 31, 2013, the Company and the Bank met all capital requirements to which they were subject. Tier 1 Capital for the Company includes trust preferred securities to the extent allowable.

Currently, the OCC Operating Agreement prohibited Capital Bank, NA from paying a dividend to us for three years following our acquisition of the Failed Banks (which period elapsed in July 2013) and, once the three-year period has elapsed, imposes other restrictions on Capital Bank’s ability to pay dividends, including requiring prior approval from the OCC before any distribution is made. On September 5, 2013, the OCC approved a dividend of $105.0 million to the Company by its subsidiary Capital Bank N.A.

Dividends that may be paid by a national bank are limited to that bank’s retained net profits for the preceding two years plus retained net profits up to the date of any dividend declaration in the current calendar year. As of March 31, 2014, the bank had $58.7 million available for dividends.

Share Repurchases

On February 5, 2013, the Board of Directors authorized the repurchase of up to $50.0 million of the Company’s common stock. The Company has repurchased $50.0 million, or 2,839,441 common shares at an average price of $17.60 per share, completing the aforementioned stock repurchase authorization.

On September 16, 2013, the Board of Directors authorized the repurchase of up to an additional $100.0 million of the Company’s common stock. Stock repurchases may be made from time to time, on the open market or in privately negotiated transactions. The approved stock repurchase program does not obligate the Company to repurchase any particular amount of shares, and the program may be extended, modified, suspended, or discontinued at any time. During the three months ended March 31, 2014, the Company repurchased $22.7 million, or 968,865 common shares at an average price of $23.39 per share.

 

23


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

Under this plan, the Company has repurchased $42.6 million, or 1,890,741 common shares at an average price of $22.55 per share. The Company accounts for treasury stock using the cost method as a reduction of shareholders’ equity in the accompanying consolidated balance sheets and statement of changes in shareholders’ equity. As of March 31, 2014, the Company had $57.4 million of remaining availability for future share repurchases under the current authorization.

11. Stock-Based Compensation

As of March 31, 2014, the Company had two compensation plans, the 2010 Equity Incentive Plan (the “2010 Plan”) and the 2013 Omnibus Compensation Plan (the “2013 Plan”) under which shares of its common stock are issuable in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, stock bonus awards and other incentive awards. The 2010 Plan was replaced by the 2013 Plan and no further awards may be made pursuant to the 2010 Plan.

The 2013 Plan was effective May 22, 2013 and expires on May 22, 2023, the tenth anniversary of the effective date. The maximum number of shares of common stock of the Company that may be optioned or awarded under this plan is 2,639,000 shares. Awards under this plan may be made to any person selected by the Compensation Committee.

The following table summarizes the components and classification of stock-based compensation expense for the three months ended March 31, 2014 and 2013.

 

(Dollars in thousands)    Three Months Ended  
     March 31, 2014      March 31, 2013  

Stock options

   $ 195       $ 83   

Restricted stock

     533         1,494   
  

 

 

    

 

 

 

Total stock-based compensation expense

   $ 728       $ 1,577   
  

 

 

    

 

 

 

The tax benefit related to stock-based compensation expense arising from restricted stock awards and non-qualified stock options was $0.3 million and $0.6 million for the three months ended March 31, 2014 and 2013, respectively.

Stock Options

Under the 2010 and 2013 Plan, the exercise price for common stock must equal at least 100% of the fair market value of the stock on the day an option is granted. The exercise price under an incentive stock option granted to a person owning stock representing more than 10% of the common stock must equal at least 110% of the fair market value at the date of grant, and such option is not exercisable after five years from the date the incentive stock option was granted. The Board of Directors may, at its discretion, provide that an option not be exercised in whole or in part for any period or periods of time as specified in the option agreements. No option may be exercised after the expiration of ten years from the date it is granted. No stock options were granted under these plans during the three months ended March 31, 2014 and 2013.

ASC 718 requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. During the three months ended March 31, 2014 and 2013, stock based compensation expense was recorded based upon assumptions that the Company would experience no forfeitures. This assumption of forfeitures will be reassessed in subsequent periods based on historical forfeiture rates and may change based on new facts and circumstances. Any changes in assumptions will be accounted for prospectively in the period of change.

A summary of the stock option activity for the three months ended March 31, 2014 and 2013 is as follows:

 

                                                                           
     Three Months Ended  
     March 31, 2014      March 31, 2013  
(Shares in thousands)    Shares      Weighted
Average
Exercise
Price Per
Share
     Shares      Weighted
Average
Exercise
Price Per
Share
 

Balance January 1,

     3,124       $ 20.50         2,890       $ 21.39   

Granted

     —           —           —           —     

Excercised

     —           —           —           —     

Expired or Forfeited

     2         301.94         3         178.57   
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance March 31,

     3,122       $ 20.40         2,887       $ 21.25   
  

 

 

    

 

 

    

 

 

    

 

 

 

The weighted average remaining term for outstanding stock options was approximately 6.4 years at March 31, 2014. The aggregate intrinsic value at March 31, 2014 was $16.4 million and $14.6 million for stock options outstanding and exercisable, respectively. The aggregate intrinsic value at March 31, 2013 was $0 for stock options outstanding and exercisable. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of the Company’s common stock as of the reporting date.

 

24


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

Options outstanding at March 31, 2014 were as follows:

 

                                                                                                             
(Shares in thousands)    Outstanding Options      Excercisable Options  

Range of Exercise Prices

   Shares      Weighted Average
Remaining
Contractual Life
     Weighted Average
Exercise Price Per
Share
     Shares      Weighted Average
Exercise Price Per
Share
 

$18.00

     244         9.14 years       $ 18.00         —         $ —     

$20.00

     2,864         6.18 years         20.00         2,864         20.00   

$28.44 - $2,026.00

     14         3.56 years         140.70         14         140.70   

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

$18.00 - $2,026.00

     3,122         6.40 years       $ 20.40         2,878       $ 20.60   

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Options outstanding at March 31, 2013 were as follows:

 

                                                                                                             
(Shares in thousands)    Outstanding Options      Excercisable Options  

Range of Exercise Prices

   Shares      Weighted Average
Remaining
Contractual Life
     Weighted Average
Exercise Price Per
Share
     Shares      Weighted Average
Exercise Price Per
Share
 

$20.00

     2,864         7.18 years       $ 20.00         2,864       $ 20.00   

$28.44 - $2,026.00

     23         3.35 years         173.92         23         178.58   

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

$20.00 - $2,026.00

     2,887         7.15 years       $ 21.25         2,887       $ 21.24   

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Restricted Stock

Restricted stock provides the grantee with voting, dividend and anti-dilution rights equivalent to common shareholders, but is restricted from transfer until vested, at which time all restrictions are removed. The terms of the restricted stock awards granted to employees provide for vesting upon the achievement of stock price goals as follows: (1) one-third at $25.00 per share; (2) one-third at $28.00 per share; and (3) one-third at $32.00 per share. Achievement of stock price goals is generally defined as the average closing price of the shares for any consecutive 30-day trading period exceeding the applicable price target. No restricted stock was granted under the 2010 and 2013 Plans during the three months ended March 31, 2014 and 2013.

The value of the restricted stock is being amortized on a straight-line basis over the implied service periods.

The following table summarizes unvested restricted stock activity for the three months ended March 31, 2014 and 2013:

 

                                                                           
     Three Months Ended  
     March 31, 2014      March 31, 2013  
(Shares in thousands)    Shares      Weighted
Average
Grant-
Date
Fair Value
Per Share
     Shares      Weighted
Average
Grant-
Date
Fair Value
Per Share
 

Balance January 1,

     1,216       $ 14.28         1,212       $ 14.27   

Granted

     —           —           —           —     

Vested or released

     —           —           —           —     

Expired or forfeited

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance March 31,

     1,216       $ 14.28         1,212       $ 14.27   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

12. Income Taxes

A reconciliation of income tax computed at applicable Federal statutory income tax rates to total income tax expense reported is as follows for the three months ended March 31, 2014 and 2013:

 

(Dollars in thousands)    Three Months Ended  
     March 31, 2014     March 31, 2013  

Income before income taxes

   $ 18,622      $ 11,308   
  

 

 

   

 

 

 

Income taxes computed at Federal statutory tax rate

     6,518        3,958   

Effect of:

    

State taxes (net of federal benefit)

     709        434   

Tax-exempt interest income, net

     (175     —     

CVR expense

     268        1,009   

Other, net

     (112     142   
  

 

 

   

 

 

 

Total income tax expense

   $ 7,208      $ 5,543   
  

 

 

   

 

 

 

The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income, permanent tax differences and statutory tax rates. For the three months ended March 31, 2014 and 2013, the effective income tax rates were 38.71% and 49.02% respectively. The change in effective income tax rates was mainly due to the impact of the CVR expense.

For the three months ended March 31, 2014 and 2013, the change in value of the CVR and related expense resulted from the overall improvement in our most recent estimates of cash flows, substantially related to the Company’s legacy Southern Community and Green Bankshares portfolios. The potential payments resulting from CVRs issued as a part of these acquisitions, which were non-taxable transactions, are considered by the Internal Revenue Service as additional consideration to the former shareholders. Accordingly, the expense associated with changes in estimated value of the CVRs is not deductible for income tax purposes.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the states of Florida, South and North Carolina and Tennessee. The net deferred tax assets as of March 31, 2014 and December 31, 2013 were $158.1 million and $166.8 million, respectively. A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence in concluding that no valuation allowance was necessary at March 31, 2014 and December 31, 2013.

At March 31, 2014 and December 31, 2013, the Company had $97.5 million and $101.9 million of gross federal and state net operating loss carryforwards, respectively, which begin to expire after 2029 if unused and are subject to an annual cumulative limitation of $10.9 million.

At March 31, 2014 and December 31, 2013, the Company had no amounts recorded for uncertain tax positions.

13. Fair Value

FASB guidance on fair value measurements defines fair value, establishes a framework for measuring fair value, and requires fair value disclosures for certain assets and liabilities measured at fair value on a recurring and non-recurring basis.

This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability.

This guidance establishes a fair value hierarchy for disclosure of fair value measurements to maximize the use of observable inputs, that is, inputs that reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of the reporting entity. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

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

 

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

 

  Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

26


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

Cash & cash equivalents

For cash & cash equivalents, the carrying value is primarily utilized as a reasonable estimate of fair value.

Derivative financial instruments

Fair values for interest rate swaps, foreign exchange contracts, forward loan sales agreements and interest rate caps are based upon the amounts required to settle the contracts. Fair values for commitments to originate loans held for sale are based on fees currently charged to enter into similar agreements. Fair values for fixed-rate commitments also consider the difference between current levels of interest rates and the committed rates.

Valuation of Investment Securities

The fair values of available for sale, held-to-maturity and trading securities are determined by: 1) obtaining quoted prices on nationally recognized securities exchanges when available (Level 1 inputs); 2) matrix pricing, which is a mathematical technique widely used in the financial markets to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs); and 3) for certain corporate debt securities that are not actively traded, custom discounted cash flow modeling (Level 3 inputs).

As of March 31, 2014, Capital Bank held industrial revenue bonds which are floating rate issues. Since there is no active secondary market for the trading of the bonds, the Company has developed a model to estimate fair value. This model determines an appropriate discount rate for the bonds based on current market rates for liquid corporate bonds with an equivalent credit rating plus an estimated illiquidity factor, and calculates the present value of expected future cash flows using this discount rate.

Mortgage Loans Held for Sale

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

Valuation of Impaired Loans and Other Real Estate Owned

The fair value of collateral dependent impaired loans with specific allocations of the allowance for loan losses and other real estate owned is generally based on recent real estate appraisals and other available observable market information. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. The Company generally uses independent external appraisers in this process who routinely make adjustments to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. The Company’s policy is to update appraisals, at a minimum, annually for classified assets, which include collateral dependent loans and OREO. We consider appraisals dated within the past 12 months to be current and do not typically make adjustments to such appraisals. In the Company’s process for reviewing third-party prepared appraisals, any differences of opinion on values, assumptions or adjustments to comparable sales data are typically reconciled directly with the independent appraiser prior to acceptance of the final appraisal.

Sensitivity to Changes in Significant Unobservable Inputs

As discussed above, as of March 31, 2014, the Company owned industrial revenue bonds, which require recurring fair value estimates categorized within level 3 of the fair value hierarchy. The significant unobservable inputs used in the fair value measurement of these securities are incorporated in the discounted cash flow modeling valuation. Rates utilized in the modeling of these securities are estimated based upon a variety of factors including the market yields of other non-investment grade corporate debt. Significant changes in any inputs in isolation would result in significantly different fair value estimates.

 

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Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below as of March 31, 2014:

 

(Dollars in thousands)           Fair Value Measurement Using:  
     Total      Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets

           

Trading securities

   $ 6,562       $ 4,337       $ 2,225       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

           

Asset-backed securities

     127,234         —           127,234         —     

Mortgage-backed securities—residential

     525,891         —           525,891         —     

Industrial revenue bonds

     3,727         —           —           3,727   

Marketable equity securities

     936         —           936         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     657,788         —           654,061         3,727   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross asset value of derivatives

     7         —           7         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Gross liability value of derivatives

   $ 574       $ —         $ 574       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no transfers of assets and liabilities between levels of the fair value hierarchy during the three months ended March 31, 2014.

Assets and liabilities measured at fair value on a recurring basis are summarized below as of December 31, 2013:

 

(Dollars in thousands)           Fair Value Measurement Using:  
     Total      Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 

Assets

          

Trading securities

   $ 6,348       $ 4,477       $ 1,871 (1)    $ —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Available-for-sale securities

          

Asset-backed securities

     133,225         —           133,225        —     

Mortgage-backed securities—residential

     546,626         —           546,626        —     

Industrial revenue bonds

     3,859         —           —          3,859   

Marketable equity securities

     931         —           931 (1)      —     

Collateralized debt obligations

     800         —           800        —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Available-for-sale securities

     685,441         —           681,582        3,859   
  

 

 

    

 

 

    

 

 

   

 

 

 

Gross asset value of derivatives

     15         —           15        —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities

          
  

 

 

    

 

 

    

 

 

   

 

 

 

Gross liability value of derivatives

   $ 1,330       $ —         $ 1,330      $ —     
  

 

 

    

 

 

    

 

 

   

 

 

 

 

  (1) Transferred from Level 1 to Level 2 due to limited observable market data.

The table below presents reconciliations and income statement classifications of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended and held at March 31, 2014.

 

(Dollars in thousands)    Fair Value Measurement Using
Significant Unobservable
Inputs (Level 3)
 
     Industrial
Revenue Bonds
 

Beginning balance, January 1, 2014

   $ 3,859   

Principal reduction

     (170

Included in other comprehensive income

     38   
  

 

 

 

Ending balance, March 31, 2014

   $ 3,727   
  

 

 

 

 

28


Table of Contents

Capital Bank Financial Corp.

Notes to Consolidated Financial Statements (Unaudited)

 

The table below presents reconciliations and income statement classifications of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended and held at March 31, 2013.

 

(Dollars in thousands)    Fair Value Measurement Using Significant
Unobservable Inputs (Level 3)
 
     Corporate Bonds      Industrial
Revenue
Bonds
     Collateralized
Debt
Obligations
 

Beginning balance, January 1, 2013

   $ 26       $ 3,800       $ 297   

Included in other comprehensive income

     —           57         10   
  

 

 

    

 

 

    

 

 

 

Ending balance, March 31, 2013

   $ 26       $ 3,857       $ 307   
  

 

 

    

 

 

    

 

 

 

Quantitative Information about Recurring Level 3 Fair Value Measurements

 

(Dollars in thousands)    Fair Value at
March 31, 2014
     Valuation Technique      Significant
Unobservable
Input
   Range
Industrial revenue bonds    $ 3,727         Discounted cash flow       Discount rate    3.7%-3.8%
         Illiquidity factor    0.5%
(Dollars in thousands)    Fair Value at
December 31, 2013
     Valuation Technique      Significant
Unobservable
Input
   Range
Industrial revenue bonds    $ 3,859         Discounted cash flow       Discount rate    3.7%-3.9%
         Illiquidity factor    0.5%

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Valuation of Impaired Loans and Other Real Estate Owned

The fair value of collateral dependent impaired loans with specific allocations of the allowance for loan losses and other real estate owned is generally based on recent real estate appraisals. These appraisals ma