Capital Bank Financial
Capital Bank Financial Corp. (Form: 10-Q, Received: 04/29/2015 06:11:53)


 
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, 2015
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
  ________________________________________________
 
(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:    ý   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):    ý   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
 
ý
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   ý     No
Indicate the number of shares outstanding of each issuer's classes of common stock, as of the latest practicable date:
Class A Voting Common Stock, $0.01 Par Value
 
30,078,235
Class B Non-Voting Common Stock, $0.01 Par Value
 
16,553,429
Class
 
Outstanding as of April 23, 2015
 

1


CAPITAL BANK FINANCIAL CORP.
FORM 10-Q
For the quarter ended March 31, 2015

INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



Capital Bank Financial Corp.
Consolidated Balance Sheets
(Unaudited)
(Dollars and shares in thousands)
March 31, 2015
 
December 31, 2014
Assets
 
 
 
Cash and due from banks
$
96,484

 
$
106,193

Interest-bearing deposits in other banks
143,497

 
81,942

Total cash and cash equivalents
239,981

 
188,135

Trading securities
2,853

 
2,410

Investment securities available-for-sale at fair value (amortized cost $568,621 and $554,488, respectively)
575,593

 
555,893

Investment securities held-to-maturity at amortized cost (fair value $457,939 and $443,379, respectively)
448,962

 
436,962

Loans held for sale
12,403

 
5,516

Loans, net of deferred loan costs and fees
5,065,606

 
4,994,703

Less: Allowance for loan and lease losses
48,225

 
50,211

Loans, net
5,017,381

 
4,944,492

Other real estate owned
71,453

 
77,626

FDIC indemnification asset
15,195

 
16,762

Receivable from FDIC
3,172

 
3,661

Premises and equipment, net
163,501

 
173,176

Goodwill
134,522

 
134,522

Intangible assets, net
17,943

 
18,897

Deferred income tax asset, net
121,083

 
129,624

Other assets
152,694

 
143,734

Total Assets
$
6,976,736

 
$
6,831,410

Liabilities and Shareholders’ Equity
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest bearing demand
$
1,114,423

 
$
1,054,128

Negotiable order of withdrawal
1,405,390

 
1,383,990

Money market
924,228

 
898,254

Savings
491,394

 
500,028

Time deposits
1,428,121

 
1,418,700

Total deposits
5,363,556

 
5,255,100

Federal Home Loan Bank advances
356,043

 
296,091

Short-term borrowings
27,605

 
23,407

Long-term borrowings
139,975

 
139,681

Accrued expenses and other liabilities
35,208

 
53,557

Total liabilities
5,922,387

 
5,767,836

 
 
 
 
Commitments and contingencies

 

 
 
 
 
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, 37,310 issued and 30,037 outstanding and 36,936 issued and 30,150 outstanding, respectively.
373

 
370

Common stock-Class B $0.01 par value: 200,000 shares authorized, 18,369 issued and 16,595 outstanding and 18,743 issued and 17,443 outstanding, respectively.
184

 
187

Additional paid in capital
1,081,912

 
1,081,628

Retained earnings
169,792

 
158,403

Accumulated other comprehensive income (loss)
274

 
(3,824
)
Treasury stock, at cost, 9,047 and 8,086 shares, respectively
(198,186
)
 
(173,190
)
Total shareholders’ equity
1,054,349

 
1,063,574

Total Liabilities and Shareholders’ Equity
$
6,976,736

 
$
6,831,410

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

3


Capital Bank Financial Corp.
Consolidated Statements of Income
(Unaudited)

(Dollars and shares in thousands, except per share data)
Three Months Ended
 
March 31, 2015
 
March 31, 2014
Interest and dividend income
 
 
 
Loans, including fees
$
60,259

 
$
63,219

Investment securities:
 
 
 
Taxable interest income
4,913

 
4,547

Tax-exempt interest income
140

 
156

Dividends
13

 
15

Interest-bearing deposits in other banks
33

 
25

Other earning assets
688

 
581

Total interest and dividend income
66,046

 
68,543

Interest expense
 
 
 
Deposits
4,410

 
4,316

Long-term borrowings
1,725

 
1,704

Federal Home Loan Bank advances
175

 
61

Other borrowings
7

 
9

Total interest expense
6,317

 
6,090

Net Interest Income
59,729

 
62,453

Net reversal of provision for loan and lease losses
(841
)
 
(24
)
Net interest income after reversal of provision for loan and lease losses
60,570

 
62,477

Non-Interest Income
 
 
 
Service charges on deposit accounts
4,705

 
5,436

Debit card income
2,964

 
2,844

Fees on mortgage loans originated and sold
1,147

 
759

Investment advisory and trust fees
1,006

 
1,261

FDIC indemnification asset expense
(2,439
)
 
(2,165
)
Investment securities gains, net
90

 
174

Other income
2,447

 
3,060

Total non-interest income
9,920

 
11,369

Non-Interest Expense
 
 
 
Salaries and employee benefits
23,881

 
23,498

Stock-based compensation expense
284

 
728

Net occupancy and equipment expense
8,129

 
8,599

Computer services
3,397

 
3,253

Software expense
2,142

 
1,868

Telecommunication expense
1,380

 
1,608

OREO valuation expense
1,390

 
3,573

Net gains on sales of OREO
(7
)
 
(721
)
Foreclosed asset related expense
674

 
1,459

Loan workout expense
623

 
1,177

Professional fees
1,734

 
2,004

Contingent value right expense
116

 
767

Regulatory assessments
1,695

 
1,629

Restructuring charges
2,341

 

Other expense
4,868

 
5,782

Total non-interest expense
52,647

 
55,224


4


Income before income taxes
17,843

 
18,622

Income tax expense
6,454

 
7,208

Net income attributable to Capital Bank Financial Corp.
$
11,389

 
$
11,414

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.25

 
$
0.23

Diluted
$
0.24

 
$
0.22

 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
46,294

 
50,518

Diluted
47,632

 
51,932

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


5


Capital Bank Financial Corp.
Consolidated Statements of Comprehensive Income
(Unaudited)
 
(Dollars in thousands)
Three Months Ended
 
March 31, 2015
 
March 31, 2014
Net Income
$
11,389

 
$
11,414

Other comprehensive income before tax:
 
 
 
Unrealized holding gains on investment securities available-for-sale
5,617

 
2,388

Reclassification adjustment for gains realized in net income on securities available-for-sale
(51
)
 
(296
)
Reclassification adjustment for losses amortized in net income on securities held-to-maturity
363

 
338

Unrealized holding gains on cash flow hedges
803

 

Reclassification adjustments for net gains included in net income on cash flow hedges
(108
)
 

Other comprehensive income, before tax:
6,624

 
2,430

Tax effect
(2,526
)
 
(944
)
Other comprehensive income, net of tax:
4,098

 
1,486

Comprehensive income
$
15,487

 
$
12,900

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


6


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
Shareholders'
Equity
Balance, December 31, 2014
30,150

 
$
370

 
17,443

 
$
187

 
$
1,081,628

 
$
158,403

 
$
(3,824
)
 
$
(173,190
)
 
$
1,063,574

Net income

 

 

 

 

 
11,389

 

 

 
11,389

Other comprehensive income, net of tax expense of $2,526

 

 

 

 

 

 
4,098

 

 
4,098

Stock-based compensation

 

 

 

 
284

 

 

 

 
284

Purchase of treasury stock
(487
)
 

 
(474
)
 

 

 

 

 
(24,996
)
 
(24,996
)
Conversion of shares
374

 
3

 
(374
)
 
(3
)
 

 

 

 

 

Balance, March 31, 2015
30,037

 
$
373

 
16,595

 
$
184

 
$
1,081,912

 
$
169,792

 
$
274

 
$
(198,186
)
 
$
1,054,349

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

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


7


Capital Bank Financial Corp.
Consolidated Statements of Cash Flows
(Unaudited)
 
(Dollars in thousands)
Three Months Ended
 
March 31, 2015
 
March 31, 2014
Cash flows from operating activities
 
 
 
Net income
$
11,389

 
$
11,414

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Accretion of purchased credit impaired loans
(24,840
)
 
(33,162
)
Depreciation and amortization
4,655

 
4,814

Impairment of premises and equipment
1,525

 

Net reversal of provision for loan and lease losses
(841
)
 
(24
)
Deferred income tax
6,015

 
5,209

Net amortization of investment securities premium/discount
1,663

 
2,190

Net realized gains on sales of investment securities
(90
)
 
(174
)
Stock-based compensation expense
284

 
728

Net gains on sales of OREO
(7
)
 
(721
)
OREO valuation expense
1,390

 
3,573

Other
2

 
10

Net deferred loan origination fees
(839
)
 
(1,047
)
Mortgage loans originated for sale
(49,165
)
 
(22,820
)
Proceeds from sales of mortgage loans originated for sale
43,425

 
26,758

Fees on mortgage loans originated and sold
(1,147
)
 
(759
)
FDIC indemnification asset expense
2,439

 
2,165

Gains on sales/disposals of premises and equipment
(3
)
 
(17
)
Proceeds from FDIC loss share agreements
276

 
4,898

Change in other assets
(1,685
)
 
671

Change in accrued expenses and other liabilities
(18,300
)
 
2,170

Net cash (used in) provided by operating activities
(23,854
)
 
5,876

Cash flows from investing activities
 
 
 
Purchases of investment securities available-for-sale
(54,469
)
 
(335
)
Purchases of investment securities held-to-maturity
(29,911
)
 

Sales of investment securities available-for-sale
20,328

 
800

Repayments of principal and maturities of investment securities available-for-sale
18,023

 
27,674

Repayments of principal and maturities of investment securities held-to-maturity
18,243

 
15,682

Net (purchases) sales of FHLB and FRB stock
(1,997
)
 
6,180

Net (increase) decrease in loans
(49,467
)
 
25,647

Purchases of premises and equipment
(547
)
 
(2,093
)
Proceeds from sales of premises and equipment

 
3

Proceeds from sales of OREO
7,887

 
15,979

Net cash (used in) provided by investing activities
(71,910
)
 
89,537

Cash flows from financing activities
 
 
 
Net increase in demand, money market and savings accounts
99,035

 
72,205

Net increase (decrease) in time deposits
9,421

 
(65,075
)
Net increase in federal funds purchased and securities sold under agreement to repurchase
4,198

 
5,602

Net increase (decrease) in short-term FHLB advances
60,000

 
(75,000
)

8


Decrease in long-term FHLB advances
(48
)
 
(46
)
Purchases of treasury stock
(24,996
)
 
(22,660
)
Net cash provided by (used in) financing activities
147,610

 
(84,974
)
Net increase in cash and cash equivalents
51,846

 
10,439

Cash and cash equivalents at beginning of period
188,135

 
164,441

Cash and cash equivalents at end of period
$
239,981

 
$
174,880

 
 
 
 
Supplemental disclosures of cash:
 
 
 
Interest paid
$
3,527

 
$
5,212

Cash collections of contractual interest on purchased credit impaired loans
15,642

 
22,620

Income taxes paid
930

 
320

Supplemental disclosures of non-cash transactions:
 
 
 
OREO acquired through loan transfers
$
3,098

 
$
9,706

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


9

Table of Contents
Capital Bank Financial Corp.
Notes to Consolidated Financial Statements (Unaudited)



1. Basis of Presentation
Nature of Operations and Principles of Consolidation
Capital Bank Financial Corp. (“CBF” or the “Company”; formerly known as North American Financial Holdings, Inc.) is a bank holding company incorporated in late 2009 in Delaware and headquartered in Florida whose business is conducted primarily through Capital Bank, National Association (“Capital Bank, NA” or the “Bank”). The Company was incorporated with the goal of creating a regional banking franchise in the southeastern region of the United States through organic growth and acquisitions of other banks, including failed, underperforming and undercapitalized banks. CBF has raised $955.6 million to make acquisitions through a series of private placements and an initial public offering of its common stock. Since inception, CBF has acquired seven depository institutions, including the assets and certain deposits from failed banks. CBF has a total of 162 full service banking offices located in Florida, North and South Carolina, Tennessee and Virginia. Through its branches CBF offers a wide range of commercial and consumer loans and deposits, as well as ancillary financial services.
The accompanying unaudited Consolidated Financial Statements 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 U.S. 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, 2014.
Certain prior period amounts have been reclassified to conform to the current period presentation.

Use of Estimates and Assumptions
To prepare financial statements in conformity with U. S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as presented in the financial statements. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Material estimates that are particularly susceptible to significant change include the determination of the allowance for loan and lease losses, including estimates of expected cash flows for impaired loans, determination of fair value, determination of impairment of financial instruments, goodwill and intangible assets and the determination of deferred income tax assets and liabilities. Changes in assumptions or in market conditions could significantly affect the fair value estimates.

Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update ("ASU") 2015-3, "Interest - Imputation of interest" (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs". The amendments in ASU 2015-3 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. The amendments in ASU 2015-3 are effective for financial statements issued for fiscal years beginning after December 31, 2015, and interim periods within those fiscal years. The adoption of ASU 2015-3 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In November 2014, the FASB issued ASU 2014-16, “Derivative and Hedging” (Topic 815)”. The amendments in ASU 2014-16 do not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required, but clarifies how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments explain that an entity should consider all relevant terms and features in evaluating the nature of the host contract. Furthermore, the amendments specify that no single term or feature would necessarily determine the economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. In addition, the amendments clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features. The amendments in ASU 2014-16 are effective for fiscal years,

10

Table of Contents
Capital Bank Financial Corp.
Notes to Consolidated Financial Statements (Unaudited)


and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2014-16 is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements-Going Concern (Subtopic 205-40)—Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern". The amendments in ASU 2014-15 provide guidance in U.S. GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The amendments in ASU 2014-15 apply to all entities and will be effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption of ASU 2014-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In August 2014, the FASB issued ASU 2014-14, "Receivables—Troubled Debt Restructuring by Creditors (Subtopic 310-40)—Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure". The amendment in ASU 2014-14 requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in ASU 2014-14 affect creditors that hold government-guaranteed mortgage loans, including those guaranteed by the Federal Housing Administration ("FHA") of the U.S. Department of Housing and Urban Development ("HUD"), and the U.S. Department of Veterans Affairs ("VA"). ASU 2014-14 will be effective for the annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of ASU 2014-14 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In June 2014, the FASB issued ASU No. 2014-12, “Compensation- Stock Compensation (Topic 718)—Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period”. ASU 2014-12 provides specific guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award. ASU 2014-12 is effective for fiscal years and interim periods beginning after December 15, 2015. The adoption of ASU 2014-12 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In June 2014, the FASB issued ASU No. 2014-11, “Transfers and Servicing (topic 860)—Repurchase-to-Maturity Transactions, Repurchase Financing, and Disclosures”. ASU 2014-11 changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The amendments also require two new disclosures. The first disclosure requires an entity to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements. The second disclosure provides increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings.
The accounting changes in ASU 2014-11 are effective for the first interim or annual period beginning after December 15, 2014. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after December 15, 2015. The adoption of ASU 2014-11 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.  Disclosures for repurchase agreements, securities lending transactions and repurchase-to-maturities transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after December 15, 2015. These disclosures are not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. 
In May 2014, the FASB issued ASU No. 2014-9, “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-9 clarifies the principles for recognizing revenue from contracts with customers. ASU 2014-9, which does not apply to financial instruments, is effective for interim and annual reporting periods beginning after December 15, 2016. The Company is currently evaluating ASU 2014-9 to determine the impact on its consolidated financial position, results of operations and cash flows.
In January 2014, the FASB issued ASU 2014-4, “Receivables—Troubled Debt Restructuring 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).” ASU 2014-4 clarifies that when 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

11

Table of Contents
Capital Bank Financial Corp.
Notes to Consolidated Financial Statements (Unaudited)


through completion of a deed-in-lieu of foreclosure or through a similar legal agreement. ASU 2014-4 is effective for fiscal years and interim periods beginning after December 15, 2014. The adoption of ASU 2014-4 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
2. Earnings Per Common Share
Basic earnings per share is computed as net income attributable to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options and unvested restricted shares computed using the treasury stock method. Earnings per share have been computed based on the following:
(Shares in thousands)
 
Three Months Ended
 
 
March 31, 2015
 
March 31, 2014
Weighted average number of shares outstanding:
 
 
 
 
Basic
 
46,294

 
50,518

Dilutive effect of options outstanding
 
676

 
970

Dilutive effect of unvested restricted shares
 
662

 
444

Diluted
 
47,632

 
51,932

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, 2015
 
March 31, 2014
Anti-dilutive stock options
 
10

 
15

Anti-dilutive unvested restricted shares
 

 

 

12

Table of Contents
Capital Bank Financial Corp.
Notes to Consolidated Financial Statements (Unaudited)


3. Investment Securities
Trading securities totaled $ 2.9 million and $2.4 million at March 31, 2015 and December 31, 2014 , respectively.
The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at March 31, 2015 and December 31, 2014 , are presented below:

(Dollars in thousands)

March 31, 2015
 

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
Available-for-Sale








Corporate bonds
 
$
22,588

 
$
13

 
$
117

 
$
22,484

Mortgage-backed securities—residential issued by government sponsored entities
 
542,624

 
$
7,415

 
467

 
549,572

Industrial revenue bonds

3,409

 
128

 

 
3,537

Total

$
568,621

 
$
7,556

 
$
584

 
$
575,593

Held-to-Maturity

 
 
 
 
 
 
 
U.S. Government agencies

$
13,709

 
$
295

 
$

 
$
14,004

Corporate bonds

30,071

 
294

 
23

 
30,342

State and political subdivisions—tax exempt

11,922

 
524

 
8

 
12,438

State and political subdivisions—taxable

535

 
29

 

 
564

Mortgage-backed securities—residential issued by government sponsored entities

392,725

 
7,907

 
41

 
400,591

Total

$
448,962

 
$
9,049

 
$
72

 
$
457,939


(Dollars in thousands)

December 31, 2014
 

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
Available-for-Sale








Mortgage-backed securities—residential issued by government sponsored entities

$
550,908


$
3,127


$
1,832


$
552,203

Industrial revenue bonds

3,580


110




3,690

Total

$
554,488


$
3,237


$
1,832


$
555,893

Held-to-Maturity








U.S. Government agencies

$
13,989


$
230


$


$
14,219

Corporate bonds
 
25,000

 
163

 

 
25,163

State and political subdivisions—tax exempt

13,008


431


3


13,436

State and political subdivisions—taxable

537


26




563

Mortgage-backed securities—residential issued by government sponsored entities

384,428


5,626


56


389,998

Total

$
436,962


$
6,476


$
59


$
443,379


Proceeds from sales of securities were $20.3 million and $0.8 million for the three months ended March 31, 2015 and 2014 , respectively. Gross gains of $0.1 million and $0.3 million were realized on sales of these investments during the three months ended March 31, 2015 and 2014, respectively.
The estimated fair value of investment securities at March 31, 2015 , by contractual maturity, is shown in the table that follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties. Debt securities not due at a single maturity date are shown separately.

13

Table of Contents
Capital Bank Financial Corp.
Notes to Consolidated Financial Statements (Unaudited)


(Dollars in thousands)

March 31, 2015
 

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


 

 
%
Due after ten years

25,997

 
26,021

 
2.42
%
Mortgage-backed securities—residential issued by government sponsored entities

542,624

 
549,572

 
1.92
%
Total

$
568,621

 
$
575,593

 
1.94
%
 
 
 
 
 
 
 
 

Amortized
Cost
 
Estimated
Fair Value
 
Yield
Held-to-maturity


 

 

Due in one year or less

$
203

 
$
203

 
0.77
%
Due after one year through five years

16,267

 
16,368

 
4.59
%
Due after five years through ten years

25,523

 
26,210

 
4.53
%
Due after ten years

14,244

 
14,567

 
2.88
%
Mortgage-backed securities—residential issued by government sponsored entities

392,725

 
400,591

 
2.40
%
Total

$
448,962

 
$
457,939

 
2.62
%
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
March 31, 2015
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
$
14,109

 
$
117

 
$

 
$

 
$
14,109

 
$
117

Mortgage-backed securities—residential issued by government sponsored entities
 
63,213

 
342

 
11,248

 
125

 
74,461

 
467

Total
 
$
77,322

 
$
459

 
$
11,248

 
$
125

 
$
88,570

 
$
584

Held-to-Maturity
 

 

 

 

 

 

Corporate bonds
 
$
5,048

 
$
23

 
$

 
$

 
$
5,048

 
$
23

State and political subdivisions—tax exempt
 
1,000

 
8

 

 

 
1,000

 
8

Mortgage-backed securities—residential issued by government sponsored entities
 
3,445

 
41

 

 

 
3,445

 
41

Total
 
$
9,493

 
$
72

 
$

 
$

 
$
9,493

 
$
72




14

Table of Contents
Capital Bank Financial Corp.
Notes to Consolidated Financial Statements (Unaudited)


(Dollars in thousands)
 
Less than 12 Months
 
12 Months or Longer
 
Total
December 31, 2014
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities—residential issued by government sponsored entities
 
$
215,139

 
$
1,596

 
$
28,439

 
$
236

 
$
243,578

 
$
1,832

Total
 
$
215,139

 
$
1,596

 
$
28,439

 
$
236

 
$
243,578

 
$
1,832

Held-to-Maturity
 
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions—tax exempt
 
$
896

 
$
3

 
$

 
$

 
$
896

 
$
3

Mortgage-backed securities—residential issued by government sponsored entities
 
13,995

 
56

 

 

 
13,995

 
56

Total
 
$
14,891

 
$
59

 
$

 
$

 
$
14,891

 
$
59

As of March 31, 2015 , the Company’s security portfolio consisted of 135 securities, 15 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s mortgage-backed securities and variable-rate corporate securities.
All of the mortgage-backed securities at March 31, 2015 and December 31, 2014 were issued by U.S. government-sponsored entities and agencies, 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 more likely than not that it will not 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, 2015 or December 31, 2014 .
Investment securities having carrying values of approximately $392.0 million and $339.0 million at March 31, 2015 and December 31, 2014 , respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and for other purposes as required by law.

4. Loans
Major classifications of loans, including loans held for sale, are as follows:
(Dollars in thousands)

March 31, 2015
 
December 31, 2014
Non-owner occupied commercial real estate

$
823,763


$
798,556

Other commercial construction and land

180,166


200,755

Multifamily commercial real estate

88,980


89,132

1-4 family residential construction and land

66,547


68,658

Total commercial real estate

1,159,456


1,157,101

Owner occupied commercial real estate

1,038,493


1,046,736

Commercial and industrial

1,125,708


1,073,791

Lease financing

1,834


2,005

Total commercial

2,166,035

 
2,122,532

1-4 family residential

928,832


925,698

Home equity loans

379,946


378,475

Other consumer loans

296,753


272,453

Total consumer

1,605,531

 
1,576,626

Other

146,987


143,960

Total loans

$
5,078,009

 
$
5,000,219

Total loans include $12.4 million and $5.5 million of 1 -4 family residential loans held for sale and $11.0 million and $10.1 million of net deferred loan origination costs and fees as of March 31, 2015 and December 31, 2014 , respectively.

15

Table of Contents
Capital Bank Financial Corp.
Notes to Consolidated Financial Statements (Unaudited)


As of March 31, 2015 , other loans include $44.3 million , $78.0 million and $1.5 million of farm land, state and political subdivision obligations and deposit customer overdrafts, respectively. As of December 31, 2014 , other loans include $41.3 million , $76.9 million and $1.7 million of farm land, state and political subdivision obligations and deposit customer overdrafts, respectively.
Covered loans represent loans acquired from the FDIC subject to loss sharing agreements. Covered loans are further broken out into (i) loans acquired with evidence of credit impairment (“Purchased Credit Impaired", "Acquired Impaired", or "PCI Loans”) and (ii) non-PCI loans. Loans originated or purchased by the Company (“New Loans”) and loans acquired through the purchase of Capital Bank Corp. ("CBKN"), Green Bankshares ("GRNB"), Southern Community Financial ("SCMF" or "Southern Community") and TIB Financial ("TIBB"), are not subject to the loss sharing agreements and are classified as “non covered.” Additionally, certain consumer loans acquired through the acquisition of First National Bank of the South, Metro Bank and Turnberry Bank (collectively, the “Failed Banks”) from the FDIC, are specifically excluded from the loss sharing agreements.
As of March 31, 2015 , covered loans and OREO subject to the commercial shared-loss agreements expiring on July 16, 2015, were $103.5 million and $14.3 million , respectively. 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. Covered loans and OREO subject to the single family shared-loss agreements expiring on July 16, 2020, were $84.9 million and $0.7 million , respectively. 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.
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 PCI 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 Statements of Income, unless related to non-credit events.
Additionally, if the Company has favorable changes in 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, the Company will first reverse any previously established allowance for loan and lease losses for the pool. If such estimate exceeds the amount of any previously established allowance, the Company 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 roll forward of accretable yield and income expected to be earned related to PCI loans and the amount of non-accretable difference at the end of the period. Nonaccretable difference represents estimated contractually required payments in excess 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 represents reductions of accretable yield due to non-credit events such as interest rate reductions on variable rate PCI loans and prepayment activity on PCI loans.

(Dollars in thousands)

Three Months Ended
 

March 31, 2015
 
March 31, 2014
Accretable Yield




Balance at beginning of period

$
292,633

 
$
383,775

Accretion of income

(24,840
)
 
(33,162
)
Reclassification from nonaccretable difference

26,517

 
6,667

Other

(48,201
)
 
(10,285
)
Balance at end of period

$
246,109

 
$
346,995

 

 
 
 
Nonaccretable difference, balance at the end of the period

$
207,762

 
$
253,865


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;

16

Table of Contents
Capital Bank Financial Corp.
Notes to Consolidated Financial Statements (Unaudited)


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 agreements. Refer to Note 7 – Other Real Estate Owned for the covered balances of other real estate owned.
Non-covered Loans
The following is a summary of the major categories of non-covered loans outstanding as of March 31, 2015 and December 31, 2014 :

(Dollars in thousands)

Non-PCI Loans

 

 
March 31, 2015

New
 
Acquired

PCI Loans
 
Total
Non-covered
Loans
Non-owner occupied commercial real estate

$
401,128

 
$
56,303

 
$
335,812

 
$
793,243

Other commercial construction and land

67,723

 
144

 
101,489

 
169,356

Multifamily commercial real estate

49,598

 
11,004

 
23,768

 
84,370

1-4 family residential construction and land

60,822

 

 
4,857

 
65,679

Total commercial real estate

579,271

 
67,451

 
465,926

 
1,112,648

Owner occupied commercial real estate

744,802

 
37,107

 
210,403

 
992,312

Commercial and industrial loans

1,023,319

 
9,276

 
86,221

 
1,118,816

Lease financing

1,834

 

 

 
1,834

Total commercial

1,769,955

 
46,383

 
296,624

 
2,112,962

1-4 family residential

577,772

 
41,413

 
259,705

 
878,890

Home equity loans

114,890

 
149,352

 
78,062

 
342,304

Other consumer loans

287,488

 
4,403

 
4,756

 
296,647

Total consumer

980,150

 
195,168

 
342,523

 
1,517,841

Other

105,615

 
3,563

 
36,983

 
146,161

Total loans

$
3,434,991

 
$
312,565

 
$
1,142,056

 
$
4,889,612




17

Table of Contents
Capital Bank Financial Corp.
Notes to Consolidated Financial Statements (Unaudited)


(Dollars in thousands)
 
Non-PCI Loans
 
 
 
 
December 31, 2014
 
New
 
Acquired
 
PCI Loans
 
Total
Non-covered
Loans
Non-owner occupied commercial real estate
 
$
372,793

 
$
58,552

 
$
333,433

 
$
764,778

Other commercial construction and land
 
66,817

 
161

 
123,398

 
190,376

Multifamily commercial real estate
 
47,765

 
12,327

 
24,377

 
84,469

1-4 family residential construction and land
 
58,046

 

 
9,742

 
67,788

Total commercial real estate
 
545,421

 
71,040

 
490,950

 
1,107,411

Owner occupied commercial real estate
 
745,728

 
38,122

 
215,059

 
998,909

Commercial and industrial loans
 
958,628

 
10,564

 
97,228

 
1,066,420

Lease financing
 
2,005

 

 

 
2,005

Total commercial
 
1,706,361

 
48,686

 
312,287

 
2,067,334

1-4 family residential
 
560,106

 
43,921

 
269,768

 
873,795

Home equity loans
 
103,644

 
152,797

 
82,121

 
338,562

Other consumer loans
 
261,935

 
4,647

 
5,772

 
272,354

Total consumer
 
925,685

 
201,365

 
357,661

 
1,484,711

Other
 
99,610

 
3,603

 
39,903

 
143,116

Total loans
 
$
3,277,077

 
$
324,694

 
$
1,200,801

 
$
4,802,572

Covered Loans
The following is a summary of the major categories of covered loans outstanding as of March 31, 2015 , and December 31, 2014 :

(Dollars in thousands)

Non-PCI Loans
 
 
 
 
March 31, 2015

New
 
Acquired
 
PCI Loans
 
Total
Covered
Loans
Non-owner occupied commercial real estate

$

 
$

 
$
30,520

 
$
30,520

Other commercial construction and land


 

 
10,810

 
10,810

Multifamily commercial real estate


 

 
4,610

 
4,610

1-4 family residential construction and land


 

 
868

 
868

Total commercial real estate


 

 
46,808

 
46,808

Owner occupied commercial real estate


 

 
46,181

 
46,181

Commercial and industrial loans


 
211

 
6,681

 
6,892

Lease financing


 

 

 

Total commercial


 
211

 
52,862

 
53,073

1-4 family residential


 
1,400

 
48,542

 
49,942

Home equity loans


 
28,758

 
8,884

 
37,642

Other consumer loans


 

 
106

 
106

Total consumer


 
30,158

 
57,532

 
87,690

Other


 

 
826

 
826

Total loans

$

 
$
30,369

 
$
158,028

 
$
188,397




18

Table of Contents
Capital Bank Financial Corp.
Notes to Consolidated Financial Statements (Unaudited)


(Dollars in thousands)
 
Non-PCI Loans
 
 
 
 
December 31, 2014
 
New
 
Acquired
 
PCI Loans
 
Total Covered
Loans
Non-owner occupied commercial real estate
 
$

 
$

 
$
33,778

 
$
33,778

Other commercial construction and land
 

 

 
10,379

 
10,379

Multifamily commercial real estate
 

 

 
4,663

 
4,663

1-4 family residential construction and land
 

 

 
870

 
870

Total commercial real estate
 

 

 
49,690

 
49,690

Owner occupied commercial real estate
 

 

 
47,827

 
47,827

Commercial and industrial loans
 

 
214

 
7,157

 
7,371

Lease financing
 

 

 

 

Total commercial
 

 
214

 
54,984

 
55,198

1-4 family residential
 

 
1,512

 
50,391

 
51,903

Home equity loans
 

 
30,473

 
9,440

 
39,913

Other consumer loans
 

 

 
99

 
99

Total consumer
 

 
31,985

 
59,930

 
91,915

Other
 

 

 
844

 
844

Total loans
 
$

 
$
32,199

 
$
165,448

 
$
197,647


The following tables present the aging of the recorded investment in past due loans, based on contractual terms, as of March 31, 2015 :

(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
Non-Covered

Covered
 
Non-Covered
 
Covered
 
Non-Covered
 
Covered
 
Total
Non-owner occupied commercial real estate
$

 
$

 
$

 
$

 
$
648

 
$

 
$
648

Other commercial construction and land
143

 

 

 

 
383

 

 
526

Multifamily commercial real estate

 

 

 

 

 

 

1-4 family residential construction and land
106

 

 

 

 

 

 
106

Total commercial real estate
249

 

 

 

 
1,031

 

 
1,280

Owner occupied commercial real estate
229

 

 

 

 
4,380

 

 
4,609

Commercial and industrial loans
54

 

 

 

 
1,561

 
65

 
1,680

Lease financing

 

 

 

 

 

 

Total commercial
283

 

 

 

 
5,941

 
65

 
6,289

1-4 family residential
654

 

 

 

 
1,628

 
66

 
2,348

Home equity loans
568

 
73

 
— </