Capital Bank Financial
Capital Bank Financial Corp. (Form: 10-Q, Received: 07/31/2015 15:00:26)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  ______________________________________
FORM 10-Q
______________________________________
   (Mark One)
X
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
 
29,886,155
Class B Non-Voting Common Stock, $0.01 Par Value
 
16,553,429
Class
 
Outstanding as of July 27, 2015
 

1


CAPITAL BANK FINANCIAL CORP.
FORM 10-Q
For the quarter ended June 30, 2015

INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



Capital Bank Financial Corp.
Consolidated Balance Sheets
(Unaudited)
(Dollars and shares in thousands)
June 30, 2015
 
December 31, 2014
Assets
 
 
 
Cash and due from banks
$
93,637

 
$
106,193

Interest-bearing deposits in other banks
107,649

 
81,942

Total cash and cash equivalents
201,286

 
188,135

Trading securities
2,898

 
2,410

Investment securities available-for-sale at fair value (amortized cost $600,053 and $554,488, respectively)
600,138

 
555,893

Investment securities held-to-maturity at amortized cost (fair value $431,764 and $443,379, respectively)
426,427

 
436,962

Loans held for sale
7,127

 
5,516

Loans, net of deferred loan costs and fees
5,199,287

 
4,994,703

Less: Allowance for loan and lease losses
48,063

 
50,211

Loans, net
5,151,224

 
4,944,492

Other real estate owned
63,737

 
77,626

FDIC indemnification asset
11,764

 
16,762

Receivable from FDIC
2,652

 
3,661

Premises and equipment, net
163,070

 
173,176

Goodwill
134,522

 
134,522

Intangible assets, net
16,995

 
18,897

Deferred income tax asset, net
117,151

 
129,624

Other assets
155,510

 
143,734

Total Assets
$
7,054,501

 
$
6,831,410

Liabilities and Shareholders’ Equity
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest bearing demand
$
1,132,085

 
$
1,054,128

Interest bearing demand
1,367,123

 
1,383,990

Money market
991,520

 
898,254

Savings
479,885

 
500,028

Time deposits
1,521,810

 
1,418,700

Total deposits
5,492,423

 
5,255,100

Federal Home Loan Bank advances
355,995

 
296,091

Short-term borrowings
18,466

 
23,407

Long-term borrowings
84,688

 
139,681

Accrued expenses and other liabilities
43,583

 
53,557

Total liabilities
5,995,155

 
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, 37,160 issued and 29,886 outstanding and 36,936 issued and 30,150 outstanding, respectively.
372

 
370

Common stock-Class B $0.01 par value: 200,000 shares authorized, 18,327 issued and 16,554 outstanding and 18,743 issued and 17,443 outstanding, respectively.
183

 
187

Additional paid in capital
1,078,740

 
1,081,628

Retained earnings
182,782

 
158,403

Accumulated other comprehensive loss
(4,545
)
 
(3,824
)
Treasury stock, at cost, 9,047 and 8,086 shares, respectively
(198,186
)
 
(173,190
)
Total shareholders’ equity
1,059,346

 
1,063,574

Total Liabilities and Shareholders’ Equity
$
7,054,501

 
$
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
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
Interest and dividend income
 
 
 
 
 
 
 
Loans, including fees
$
61,400

 
$
61,667

 
$
121,659

 
$
124,886

Investment securities:
 
 
 
 
 
 
 
Taxable interest income
5,089

 
4,393

 
10,002

 
8,940

Tax-exempt interest income
126

 
155

 
266

 
311

Dividends
14

 
15

 
27

 
30

Interest-bearing deposits in other banks
36

 
38

 
69

 
63

Other earning assets
646

 
578

 
1,334

 
1,159

Total interest and dividend income
67,311

 
66,846

 
133,357

 
135,389

Interest expense
 
 
 
 
 
 
 
Deposits
4,838

 
4,245

 
9,248

 
8,561

Long-term borrowings
1,645

 
1,719

 
3,370

 
3,423

Federal Home Loan Bank advances
134

 
41

 
309

 
102

Other borrowings
9

 
10

 
16

 
19

Total interest expense
6,626

 
6,015

 
12,943

 
12,105

Net Interest Income
60,685

 
60,831

 
120,414

 
123,284

Provision for loan and lease losses
1,299

 
1,404

 
458

 
1,380

Net interest income after provision for loan and lease losses
59,386

 
59,427

 
119,956

 
121,904

Non-Interest Income
 
 
 
 
 
 
 
Service charges on deposit accounts
5,189

 
5,672

 
9,894

 
11,108

Debit card income
3,176

 
3,103

 
6,140

 
5,947

Fees on mortgage loans originated and sold
1,278

 
1,123

 
2,425

 
1,882

Investment advisory and trust fees
1,125

 
910

 
2,131

 
2,171

FDIC indemnification asset expense
(2,499
)
 
(2,064
)
 
(4,938
)
 
(4,229
)
Investment securities gains (losses), net
231

 
(28
)
 
321

 
146

Other-than-temporary impairment loss on investments:
 
 
 
 
 
 
 
Gross impairment loss
(288
)
 

 
(288
)
 

Less: Impairment recognized in other comprehensive income

 

 

 

Net impairment loss recognized in earnings
(288
)
 

 
(288
)
 

Other income
2,151

 
3,171

 
4,598

 
6,231

Total non-interest income
10,363

 
11,887

 
20,283

 
23,256

Non-Interest Expense
 
 
 
 
 
 
 
Salaries and employee benefits
21,881

 
23,449

 
45,762

 
46,947

Stock-based compensation expense
108

 
1,020

 
392

 
1,748

Net occupancy and equipment expense
7,754

 
8,723

 
15,883

 
17,322

Computer services
3,343

 
3,389

 
6,740

 
6,642

Software expense
2,082

 
1,940

 
4,224

 
3,808

Telecommunication expense
1,367

 
1,628

 
2,747

 
3,236

OREO valuation expense
1,710

 
3,022

 
3,100

 
6,595

Net gains on sales of OREO
(957
)
 
(3,192
)
 
(964
)
 
(3,913
)
Foreclosed asset related expense
600

 
991

 
1,274

 
2,450


4


Loan workout expense
795

 
1,117

 
1,418

 
2,294

Professional fees
1,723

 
2,038

 
3,457

 
4,042

Losses on extinguishment of debt
1,438

 

 
1,438

 

Contingent value right expense
4

 
327

 
120

 
1,094

Regulatory assessments
1,831

 
1,648

 
3,526

 
3,277

Restructuring charges, net
178

 

 
2,519

 

Other expense
5,645

 
5,173

 
10,513

 
10,955

Total non-interest expense
49,502

 
51,273

 
102,149

 
106,497

Income before income taxes
20,247

 
20,041

 
38,090

 
38,663

Income tax expense
7,257

 
7,616

 
13,711

 
14,824

Net income
$
12,990

 
$
12,425

 
$
24,379

 
$
23,839

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.28

 
$
0.25

 
$
0.53

 
$
0.48

Diluted
$
0.28

 
$
0.25

 
$
0.51

 
$
0.47

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
45,913

 
49,090

 
46,102

 
49,800

Diluted
47,220

 
50,261

 
47,427

 
51,092

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
 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
Net Income
$
12,990

 
$
12,425

 
$
24,379

 
$
23,839

Other comprehensive (loss) income before tax:
 
 
 
 
 
 
 
Unrealized holding (losses) gains on investment securities available-for-sale
(6,624
)
 
4,286

 
(1,007
)
 
6,674

Reclassification adjustment for gains realized in net income on securities available-for-sale
(262
)
 
(26
)
 
(313
)
 
(322
)
Reclassification adjustment for losses amortized in net income on securities held-to-maturity
391

 
367

 
754

 
705

Unrealized holding losses on cash flow hedges
(835
)
 

 
(32
)
 

Reclassification adjustments for net gains included in net income on cash flow hedges
(459
)
 

 
(567
)
 

Other comprehensive (loss) income, before tax:
(7,789
)
 
4,627

 
(1,165
)
 
7,057

Tax effect
2,970

 
(1,797
)
 
444

 
(2,741
)
Other comprehensive (loss) income, net of tax:
(4,819
)
 
2,830

 
(721
)
 
4,316

Comprehensive income
$
8,171

 
$
15,255

 
$
23,658

 
$
28,155

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

 

 

 

 

 
24,379

 

 

 
24,379

Other comprehensive loss, net of tax benefit of $444

 

 

 

 

 

 
(721
)
 

 
(721
)
Stock-based compensation

 

 

 

 
392

 

 

 

 
392

Excess tax benefit from share-based payment

 

 

 

 
2,179

 

 

 

 
2,179

Restricted stock cancelled
(192
)
 
(2
)
 

 

 
(5,459
)
 

 

 

 
(5,461
)
Purchase of treasury stock
(487
)
 

 
(474
)
 

 

 

 

 
(24,996
)
 
(24,996
)
Conversion of shares
415

 
4

 
(415
)
 
(4
)
 

 

 

 

 

Balance, June 30, 2015
29,886

 
$
372

 
16,554

 
$
183

 
$
1,078,740

 
$
182,782

 
$
(4,545
)
 
$
(198,186
)
 
$
1,059,346

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2013
33,051

 
$
362

 
19,047

 
$
196

 
$
1,082,235

 
$
107,485

 
$
(7,528
)
 
$
(69,962
)
 
$
1,112,788

Net income

 

 

 

 

 
23,839

 

 

 
23,839

Other comprehensive income, net of tax expense of $2,741

 

 

 

 

 

 
4,316

 

 
4,316

Stock-based compensation

 

 

 

 
1,748

 

 

 

 
1,748

Full value stock awards
11

 

 

 

 

 

 

 

 

Excess tax benefit from share-based payment

 

 

 

 
1,603

 

 

 

 
1,603

Restricted stock cancelled
(192
)
 
(1
)
 

 

 
(4,851
)
 

 

 

 
(4,852
)
Purchase of treasury stock
(2,567
)
 

 
(200
)
 

 

 

 

 
(65,884
)
 
(65,884
)
Conversion of shares
622

 
6

 
(622
)
 
(6
)
 

 

 

 

 

Balance, June 30, 2014
30,925

 
$
367

 
18,225

 
$
190

 
$
1,080,735

 
$
131,324

 
$
(3,212
)
 
$
(135,846
)
 
$
1,073,558

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
Six Months Ended
 
June 30, 2015
 
June 30, 2014
Cash flows from operating activities
 
 
 
Net income
$
24,379

 
$
23,839

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Accretion of purchased credit impaired loans
(49,892
)
 
(64,183
)
Depreciation and amortization
9,031

 
9,664

Impairment of premises and equipment
1,525

 

Provision for loan and lease losses
458

 
1,380

Deferred income tax
12,917

 
13,054

Net amortization of investment securities premium/discount
3,293

 
4,272

Other than temporary impairment of investment
288

 

Net realized gains on sales of investment securities
(321
)
 
(146
)
Stock-based compensation expense
392

 
1,748

Net gains on sales of OREO
(964
)
 
(3,913
)
OREO valuation expense
3,100

 
6,595

Other
2

 
21

Net deferred loan origination fees
(3,837
)
 
(3,022
)
Losses on extinguishment of debt
1,438

 

Mortgage loans originated for sale
(92,276
)
 
(68,141
)
Proceeds from sales of mortgage loans originated for sale
93,090

 
68,109

Fees on mortgage loans originated and sold
(2,425
)
 
(1,882
)
FDIC indemnification asset expense
4,938

 
4,229

Gains on sales/disposals of premises and equipment
(335
)
 
(44
)
Net proceeds from FDIC loss share agreements
1,128

 
7,327

Change in other assets
(5,260
)
 
(3,364
)
Change in accrued expenses and other liabilities
1,260

 
(8,919
)
Net cash provided by (used in) operating activities
1,929

 
(13,376
)
Cash flows from investing activities
 
 
 
Purchases of investment securities available-for-sale
(137,382
)
 
(108,257
)
Purchases of investment securities held-to-maturity
(29,912
)
 
(44,143
)
Proceeds from sale of investment securities available-for-sale
52,179

 
150,328

Repayments of principal and maturities of investment securities available-for-sale
36,850

 
51,660

Repayments of principal and maturities of investment securities held-to-maturity
40,529

 
33,804

Net purchases of FHLB and FRB stock
(1,995
)
 
(498
)
Redemption of contingent value right
(17,162
)
 

Net increase in loans
(160,518
)
 
(121,816
)
Purchases of premises and equipment
(3,154
)
 
(4,503
)
Proceeds from sales of premises and equipment
698

 
115

Proceeds from sales of OREO
18,810

 
48,295

Net cash (used in) provided by investing activities
(201,057
)
 
4,985

 
 
 
 
 
 
 
 

8


Cash flows from financing activities
 
 
 
Net increase in demand, money market and savings accounts
134,213

 
64,163

Net increase (decrease) in time deposits
103,110

 
(87,769
)
Net (decrease) increase in federal funds purchased and securities sold under agreement to repurchase
(6,308
)
 
7,963

Prepayment of long-term repurchase agreements
(52,295
)
 

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

 
(55,000
)
Net (decrease) increase in long-term FHLB advances
(95
)
 
119,907

Prepayment of subordinated debt
(3,529
)
 

Excess tax benefit from share-based payment
2,179

 
1,603

Purchases of treasury stock
(24,996
)
 
(65,884
)
Net cash provided by (used in) financing activities
212,279

 
(15,017
)
Net increase (decrease) in cash and cash equivalents
13,151

 
(23,408
)
Cash and cash equivalents at beginning of period
188,135

 
164,441

Cash and cash equivalents at end of period
$
201,286

 
$
141,033

 
 
 
 
Supplemental disclosures of cash:
 
 
 
Interest paid
$
10,787

 
$
10,556

Cash collections of contractual interest on purchased credit impaired loans
31,324

 
44,245

Income taxes paid
1,242

 
705

Supplemental disclosures of non-cash transactions:
 
 
 
OREO acquired through loan transfers
$
7,058

 
$
17,864

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 153 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.
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.
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, 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.

10

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


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 March 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. 
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.

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 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
 
Six Months Ended
 
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
45,913

 
49,090

 
46,102

 
49,800

Dilutive effect of options outstanding
 
800

 
527

 
743

 
486

Dilutive effect of unvested restricted shares
 
507

 
644

 
582

 
806

Diluted
 
47,220

 
50,261

 
47,427

 
51,092

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:

11

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


(Shares in thousands)
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
Anti-dilutive stock options
 
9

 
14

 
9

 
14

Anti-dilutive unvested restricted shares
 

 

 

 

 
3. Investment Securities
Trading securities totaled $ 2.9 million and $2.4 million at June 30, 2015 and December 31, 2014 , respectively.
The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at June 30, 2015 and December 31, 2014 , are presented below:

(Dollars in thousands)

June 30, 2015
 

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
Available-for-Sale








Corporate bonds
 
$
22,682

 
$
960

 
$

 
$
23,642

Mortgage-backed securities—residential issued by government sponsored entities
 
573,962

 
2,415

 
3,384

 
572,993

Industrial revenue bonds

3,409

 
94

 

 
3,503

Total

$
600,053

 
$
3,469

 
$
3,384

 
$
600,138

Held-to-Maturity

 
 
 
 
 
 
 
U.S. Government agencies

$
13,450

 
$
208

 
$

 
$
13,658

Corporate bonds

30,067

 
244

 
30

 
30,281

State and political subdivisions—tax exempt

10,869

 
382

 

 
11,251

State and political subdivisions—taxable

533

 
18

 

 
551

Mortgage-backed securities—residential issued by government sponsored entities

371,508

 
4,955

 
440

 
376,023

Total

$
426,427

 
$
5,807

 
$
470

 
$
431,764


(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



12

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


Proceeds from sales of securities were $31.9 million and $52.2 million for the three and six months ended June 30, 2015 , respectively. Gross gains of $0.3 million and $0.3 million were realized on sales of these investments during the three and six months ended June 30, 2015 , respectively.
Proceeds from sales of securities were $149.5 million and $150.3 million for the three and six months ended June 30, 2014 , respectively. Gross gains of $0.8 million and gross losses of $0.8 million were realized on sales of these investments during the three months ended June 30, 2014 . Gross gains of $1.1 million and gross losses of $0.8 million were realized on sales of these investments during the six months ended June 30, 2014 .
The estimated fair value of investment securities at June 30, 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.
(Dollars in thousands)

June 30, 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

26,091

 
27,145

 
2.44
%
Mortgage-backed securities—residential issued by government sponsored entities

573,962

 
572,993

 
1.94
%
Total

$
600,053

 
$
600,138

 
1.96
%
 
 
 
 
 
 
 
 

Amortized
Cost
 
Estimated
Fair Value
 
Yield
Held-to-maturity


 

 

Due in one year or less

$
3

 
$
3

 
1.10
%
Due after one year through five years

16,265

 
16,333

 
4.59
%
Due after five years through ten years

24,668

 
25,196

 
4.58
%
Due after ten years

13,983

 
14,209

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

371,508

 
376,023

 
2.34
%
Total

$
426,427

 
$
431,764

 
2.22
%
Securities with unrealized losses not recognized in income, and the period of time they have been in an unrealized loss position, are as follows:
(Dollars in thousands)
 
Less than 12 Months
 
12 Months or Longer
 
Total
June 30, 2015
 
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
 
$
282,383

 
$
2,933

 
$
20,766

 
$
451

 
$
303,149

 
$
3,384

Total
 
$
282,383

 
$
2,933

 
$
20,766

 
$
451

 
$
303,149

 
$
3,384

Held-to-Maturity
 

 

 

 

 

 

U.S. government agencies
 
$

 
$

 
$
13,658

 
$
422

 
$
13,658

 
$
422

Corporate bonds
 
5,037

 
30

 

 

 
5,037

 
30

Mortgage-backed securities—residential issued by government sponsored entities
 
115,555

 
1,310

 
144,088

 
2,919

 
259,643

 
4,229

Total
 
$
120,592

 
$
1,340

 
$
157,746

 
$
3,341

 
$
278,338

 
$
4,681



13

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
 
 
 
 
 
 
 
 
 
 
 
 
U.S Government agencies
 
$

 
$

 
$
14,219

 
$
445

 
$
14,219

 
$
445

Mortgage-backed securities—residential issued by government sponsored entities
 
47,696

 
476

 
204,112

 
3,710

 
251,808

 
4,186

Total
 
$
47,696

 
$
476

 
$
218,331

 
$
4,155

 
$
266,027

 
$
4,631

As of June 30, 2015 , the Company’s security portfolio consisted of 129 securities, 32 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 June 30, 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 June 30, 2015 or December 31, 2014 .
Investment securities having carrying values of approximately $347.3 million and $339.0 million at June 30, 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)

June 30, 2015
 
December 31, 2014
Non-owner occupied commercial real estate

$
834,351


$
798,556

Other commercial construction and land

182,283


200,755

Multifamily commercial real estate

76,754


89,132

1-4 family residential construction and land

78,572


68,658

Total commercial real estate

1,171,960


1,157,101

Owner occupied commercial real estate

1,030,111


1,046,736

Commercial and industrial

1,181,451


1,073,791

Lease financing

1,661


2,005

Total commercial

2,213,223

 
2,122,532

1-4 family residential

959,224


925,698

Home equity loans

375,271


378,475

Other consumer loans

341,590


272,453

Total consumer

1,676,085

 
1,576,626

Other

145,146


143,960

Total loans

$
5,206,414

 
$
5,000,219


14

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


Total loans include $7.1 million and $5.5 million of 1 -4 family residential loans held for sale and $14.0 million and $10.1 million of net deferred loan origination costs and fees as of June 30, 2015 and December 31, 2014 , respectively.
As of June 30, 2015 , other loans include $43.9 million , $81.1 million and $1.8 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 June 30, 2015 , covered loans and OREO subject to the commercial shared-loss agreements expiring during the quarter ending September 30, 2015, were $91.9 million and $8.0 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 during the quarter ending September 30, 2020, were $84.3 million and $0.4 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
 
Six Months Ended
 

June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
Accretable Yield

 
 
 
 



Balance at beginning of period

$
246,109

 
$
346,995

 
$
292,633

 
$
383,775

Accretion of income

(25,052
)
 
(31,021
)
 
(49,892
)
 
(64,183
)
Reclassification from nonaccretable difference

19,111

 
29,229

 
45,628

 
35,896

Other

(7,718
)
 
(15,782
)
 
(55,919
)
 
(26,067
)
Balance at end of period

$
232,450

 
$
329,421

 
$
232,450

 
$
329,421

 

 
 
 
 
 
 
 
Nonaccretable difference, balance at the end of the period

$
190,771

 
$
232,776

 
$
190,771

 
$
232,776



15

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


The accretable yield is accreted into interest income over the estimated life of the PCI loans using the level yield method. The accretable yield will change due to changes in:  
The estimate of the remaining life of PCI loans which may change the amount of future interest income, and possibly principal, expected to be collected;
The estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference); and
Indices for PCI loans with variable rates of interest.
For PCI loans, the impact of loan modifications is included in the evaluation of expected cash flows for subsequent decreases or increases of cash flows. For variable rate PCI loans, expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At acquisition, the expected future cash flows were based on the variable rates that were in effect at that time.
Because of the loss protection provided by the FDIC, the risks of 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 June 30, 2015 and December 31, 2014 :

(Dollars in thousands)

Non-PCI Loans

 

 
June 30, 2015

New
 
Acquired

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

$
431,689

 
$
56,370

 
$
318,206

 
$
806,265

Other commercial construction and land

74,556

 
217

 
96,649

 
171,422

Multifamily commercial real estate

41,943

 
6,873

 
23,372

 
72,188

1-4 family residential construction and land

75,749

 

 
2,823

 
78,572

Total commercial real estate

623,937

 
63,460

 
441,050

 
1,128,447

Owner occupied commercial real estate

750,869

 
39,653

 
197,410

 
987,932

Commercial and industrial loans

1,081,441

 
8,517

 
85,325

 
1,175,283

Lease financing

1,661

 

 

 
1,661

Total commercial

1,833,971

 
48,170

 
282,735

 
2,164,876

1-4 family residential

632,566

 
37,927

 
240,590

 
911,083

Home equity loans

125,256

 
140,834

 
73,644

 
339,734

Other consumer loans

333,147

 
4,148

 
4,130

 
341,425

Total consumer

1,090,969

 
182,909

 
318,364

 
1,592,242

Other

106,473

 
2,418

 
35,755

 
144,646

Total loans

$
3,655,350

 
$
296,957

 
$
1,077,904

 
$
5,030,211




16

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 June 30, 2015 , and December 31, 2014 :

(Dollars in thousands)

Non-PCI Loans
 
 
 
 
June 30, 2015

New
 
Acquire