Capital Bank Financial
Capital Bank Financial Corp. (Form: 10-Q, Received: 11/06/2015 17:45:14)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  ______________________________________
FORM 10-Q
______________________________________
   (Mark One)
X
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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
 
27,215,416
Class B Non-Voting Common Stock, $0.01 Par Value
 
16,553,429
Class
 
Outstanding as of October 30, 2015
 

1


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

INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



Capital Bank Financial Corp.
Consolidated Balance Sheets
(Unaudited)
(Dollars and shares in thousands)
September 30, 2015
 
December 31, 2014
Assets
 
 
 
Cash and due from banks
$
80,642

 
$
106,193

Interest-bearing deposits in other banks
53,947

 
81,942

Total cash and cash equivalents
134,589

 
188,135

Trading securities
2,893

 
2,410

Investment securities available-for-sale at fair value (amortized cost $640,447 and $554,488, respectively)
647,423

 
555,893

Investment securities held-to-maturity at amortized cost (fair value $475,428 and $443,379, respectively)
467,544

 
436,962

Loans held for sale
8,515

 
5,516

Loans, net of deferred loan costs and fees
5,396,429

 
4,994,703

Less: Allowance for loan and lease losses
46,278

 
50,211

Loans, net
5,350,151

 
4,944,492

Other real estate owned
54,691

 
77,626

FDIC indemnification asset
9,789

 
16,762

Receivable from FDIC
1,052

 
3,661

Premises and equipment, net
161,342

 
173,176

Goodwill
134,522

 
134,522

Intangible assets, net
16,045

 
18,897

Deferred income tax asset, net
104,950

 
129,624

Other assets
167,690

 
143,734

Total Assets
$
7,261,196

 
$
6,831,410

Liabilities and Shareholders’ Equity
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest bearing demand
$
1,099,252

 
$
1,054,128

Interest bearing demand
1,251,365

 
1,383,990

Money market
1,005,406

 
898,254

Savings
436,385

 
500,028

Time deposits
1,773,170

 
1,418,700

Total deposits
5,565,578

 
5,255,100

Federal Home Loan Bank advances
520,947

 
296,091

Short-term borrowings
16,708

 
23,407

Long-term borrowings
85,230

 
139,681

Accrued expenses and other liabilities
50,091

 
53,557

Total liabilities
6,238,554

 
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, 37,178 issued and 27,912 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
1,079,229

 
1,081,628

Retained earnings
198,103

 
158,403

Accumulated other comprehensive income (loss)
2,578

 
(3,824
)
Treasury stock, at cost, 11,039 and 8,086 shares, respectively
(257,823
)
 
(173,190
)
Total shareholders’ equity
1,022,642

 
1,063,574

Total Liabilities and Shareholders’ Equity
$
7,261,196

 
$
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
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
Interest and dividend income
 
 
 
 
 
 
 
Loans, including fees
$
62,126

 
$
61,942

 
$
183,785

 
$
186,828

Investment securities:
 
 
 
 
 
 
 
Taxable interest income
5,668

 
4,913

 
15,670

 
13,853

Tax-exempt interest income
133

 
152

 
399

 
463

Dividends
13

 
14

 
40

 
44

Interest-bearing deposits in other banks
19

 
18

 
88

 
81

Other earning assets
759

 
604

 
2,093

 
1,763

Total interest and dividend income
68,718

 
67,643

 
202,075

 
203,032

Interest expense
 
 
 
 
 
 
 
Deposits
5,396

 
4,362

 
14,644

 
12,923

Long-term borrowings
1,413

 
1,731

 
4,783

 
5,154

Federal Home Loan Bank advances
266

 
115

 
575

 
217

Other borrowings
6

 
10

 
22

 
29

Total interest expense
7,081

 
6,218

 
20,024

 
18,323

Net Interest Income
61,637

 
61,425

 
182,051

 
184,709

Provision for loan and lease losses
799

 
(1,332
)
 
1,257

 
48

Net interest income after provision for loan and lease losses
60,838

 
62,757

 
180,794

 
184,661

Non-Interest Income
 
 
 
 
 
 
 
Service charges on deposit accounts
5,472

 
5,565

 
15,366

 
16,673

Debit card income
3,113

 
3,017

 
9,253

 
8,964

Fees on mortgage loans originated and sold
990

 
1,195

 
3,415

 
3,077

Investment advisory and trust fees
860

 
1,183

 
2,991

 
3,354

FDIC indemnification asset expense
(1,418
)
 
(3,881
)
 
(6,356
)
 
(8,110
)
Investment securities gains (losses), net
(43
)
 
317

 
278

 
463

Other-than-temporary impairment loss on investments:
 
 
 
 
 
 
 
Gross impairment loss

 

 
(288
)
 

Less: Impairment recognized in other comprehensive income

 

 

 

Net impairment loss recognized in earnings

 

 
(288
)
 

Other income
2,444

 
2,561

 
7,042

 
8,792

Total non-interest income
11,418

 
9,957

 
31,701

 
33,213

Non-Interest Expense
 
 
 
 
 
 
 
Salaries and employee benefits
22,620

 
22,590

 
68,382

 
69,537

Stock-based compensation expense
309

 
443

 
701

 
2,191

Net occupancy and equipment expense
7,621

 
8,475

 
23,504

 
25,797

Computer services
3,471

 
3,332

 
10,211

 
9,974

Software expense
2,198

 
1,932

 
6,422

 
5,740

Telecommunication expense
1,515

 
1,406

 
4,262

 
4,642

OREO valuation expense
2,075

 
2,752

 
5,175

 
9,347


4


Net gains on sales of OREO
(351
)
 
(223
)
 
(1,315
)
 
(4,136
)
Foreclosed asset related expense
872

 
845

 
2,146

 
3,295

Loan workout expense
194

 
911

 
1,612

 
3,205

Professional fees
1,958

 
1,532

 
5,415

 
5,574

Losses on extinguishment of debt

 

 
1,438

 

Contingent value right expense

 
278

 
120

 
1,372

Regulatory assessments
1,423

 
1,637

 
4,949

 
4,914

Restructuring charges, net
23

 

 
2,542

 

Other expense
4,418

 
5,508

 
14,931

 
16,463

Total non-interest expense
48,346

 
51,418

 
150,495

 
157,915

Income before income taxes
23,910

 
21,296

 
62,000

 
59,959

Income tax expense
8,589

 
8,053

 
22,300

 
22,877

Net income
$
15,321

 
$
13,243

 
$
39,700

 
$
37,082

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.34

 
$
0.28

 
$
0.87

 
$
0.75

Diluted
$
0.33

 
$
0.27

 
$
0.84

 
$
0.74

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
45,359

 
47,912

 
45,852

 
49,164

Diluted
46,534

 
49,069

 
47,129

 
50,406

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
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
Net Income
$
15,321

 
$
13,243

 
$
39,700

 
$
37,082

Other comprehensive (loss) income before tax:
 
 
 
 
 
 
 
Unrealized holding (losses) gains on investment securities available-for-sale
6,904

 
(4,634
)
 
5,897

 
2,040

Reclassification adjustment for gains realized in net income on securities available-for-sale
(13
)
 
(333
)
 
(326
)
 
(655
)
Reclassification adjustment for losses amortized in net income on securities held-to-maturity
402

 
379

 
1,156

 
1,084

Unrealized holding losses on cash flow hedges
5,000

 

 
4,968

 

Reclassification adjustments for net gains included in net income on cash flow hedges
(778
)
 

 
(1,345
)
 

Other comprehensive (loss) income, before tax:
11,515

 
(4,588
)
 
10,350

 
2,469

Tax effect
(4,392
)
 
1,782

 
(3,948
)
 
(959
)
Other comprehensive (loss) income, net of tax:
7,123

 
(2,806
)
 
6,402

 
1,510

Comprehensive income
$
22,444

 
$
10,437

 
$
46,102

 
$
38,592

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

 

 

 

 

 
39,700

 

 

 
39,700

Other comprehensive loss, net of tax expense of $3,948

 

 

 

 

 

 
6,402

 

 
6,402

Stock-based compensation

 

 

 

 
701

 

 

 

 
701

Excess tax benefit from share-based payment

 

 

 

 
2,202

 

 

 

 
2,202

Full value stock award
10

 

 

 

 

 

 

 

 

Nonqualified stock option exercise
9

 

 

 

 
157

 

 

 

 
157

Restricted stock cancelled
(192
)
 
(2
)
 

 

 
(5,459
)
 

 

 

 
(5,461
)
Purchase of treasury stock
(2,480
)
 

 
(474
)
 

 

 

 

 
(84,633
)
 
(84,633
)
Conversion of shares
415

 
4

 
(415
)
 
(4
)
 

 

 

 

 

Balance, September 30, 2015
27,912

 
$
372

 
16,554

 
$
183

 
$
1,079,229

 
$
198,103

 
$
2,578

 
$
(257,823
)
 
$
1,022,642

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2013
33,051

 
$
362

 
19,047

 
$
196

 
$
1,082,235

 
$
107,485

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

Net income

 

 

 

 

 
37,082

 

 

 
37,082

Other comprehensive income, net of tax expense of $959

 

 

 

 

 

 
1,510

 

 
1,510

Stock-based compensation

 

 

 

 
2,191

 

 

 

 
2,191

Full value stock awards
12

 

 

 

 

 

 

 

 

Excess tax benefit from share-based payment

 

 

 

 
1,603

 

 

 

 
1,603

Restricted stock cancelled
(192
)
 
(1
)
 

 

 
(4,852
)
 

 

 

 
(4,853
)
Purchase of treasury stock
(3,387
)
 

 
(200
)
 

 

 

 

 
(85,382
)
 
(85,382
)
Conversion of shares
630

 
6

 
(630
)
 
(6
)
 

 

 

 

 

Balance, September 30, 2014
30,114

 
$
367

 
18,217

 
$
190

 
$
1,081,177

 
$
144,567

 
$
(6,018
)
 
$
(155,344
)
 
$
1,064,939

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
Cash flows from operating activities
 
 
 
Net income
$
39,700

 
$
37,082

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Accretion of purchased credit impaired loans
(73,770
)
 
(92,743
)
Depreciation and amortization
13,510

 
14,248

Impairment of premises and equipment
1,525

 

Provision for loan and lease losses
1,257

 
48

Deferred income tax
20,728

 
23,879

Net amortization of investment securities premium/discount
4,680

 
6,375

Other than temporary impairment of investment
288

 

Net realized gains on sales of investment securities
(278
)
 
(463
)
Stock-based compensation expense
701

 
2,191

Net gains on sales of OREO
(1,315
)
 
(4,136
)
OREO valuation expense
5,175

 
9,347

Other
22

 
39

Net deferred loan origination fees
(5,459
)
 
(5,417
)
Losses on extinguishment of debt
1,438

 

Mortgage loans originated for sale
(135,387
)
 
(107,232
)
Proceeds from sales of mortgage loans originated for sale
135,803

 
111,882

Fees on mortgage loans originated and sold
(3,415
)
 
(3,077
)
FDIC indemnification asset expense
6,356

 
8,110

Gains on sales/disposals of premises and equipment
(803
)
 
(45
)
Net proceeds from FDIC loss share agreements
2,600

 
9,616

Change in other assets
(7,474
)
 
(7,220
)
Change in accrued expenses and other liabilities
8,474

 
(4,218
)
Net cash provided by (used in) operating activities
14,356

 
(1,734
)
Cash flows from investing activities
 
 
 
Purchases of investment securities available-for-sale
(250,348
)
 
(140,653
)
Purchases of investment securities held-to-maturity
(89,174
)
 
(44,143
)
Proceeds from sale of investment securities available-for-sale
108,557

 
172,594

Repayments of principal and maturities of investment securities available-for-sale
51,644

 
73,896

Repayments of principal and maturities of investment securities held-to-maturity
59,051

 
53,897

Net purchases of FHLB and FRB stock
(9,006
)
 
(3,421
)
Redemption of contingent value right
(17,162
)
 

Net increase in loans
(336,593
)
 
(212,736
)
Proceeds from the sale of loans

 
2,564

Purchases of premises and equipment
(4,362
)
 
(5,241
)
Proceeds from sales of premises and equipment
2,202

 
139

Proceeds from sales of OREO
27,982

 
64,360

Net cash used in investing activities
(457,209
)
 
(38,744
)
 
 
 
 

8


 
 
 
 
Cash flows from financing activities
 
 
 
Net (decrease) increase in demand, money market and savings accounts
(43,991
)
 
7,783

Net increase (decrease) in time deposits
354,470

 
(17,390
)
Net decrease in short-term borrowings
(6,700
)
 
(1,027
)
Prepayment of long-term repurchase agreements
(53,661
)
 

Net increase in short-term FHLB advances
225,000

 
129,720

Net (decrease) increase in long-term FHLB advances
(144
)
 
140

Prepayment of subordinated debt
(3,393
)
 

Excess tax benefit from share-based payment
2,202

 
1,603

Proceeds from exercise of stock options
157

 

Purchases of treasury stock
(84,633
)
 
(85,382
)
Net cash provided by financing activities
389,307

 
35,447

Net decrease in cash and cash equivalents
(53,546
)
 
(5,031
)
Cash and cash equivalents at beginning of period
188,135

 
164,441

Cash and cash equivalents at end of period
$
134,589

 
$
159,410

 
 
 
 
Supplemental disclosures of cash:
 
 
 
Interest paid
$
18,421

 
$
17,869

Cash collections of contractual interest on purchased credit impaired loans
45,348

 
63,528

Income taxes paid
1,411

 
1,315

Supplemental disclosures of non-cash transactions:
 
 
 
OREO acquired through loan transfers
$
8,905

 
$
30,452

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 September 2015, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update ("ASU") 2015-15, "Interest—Imputation of interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements". The amendments in ASU 2015-15, adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force (EITF) meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. Given the absence of authoritative guidance within Update 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of ASU 2015-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In August 2015, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update ("ASU") 2015-14, "Revenue from contracts with customers (Topic 606) - Deferral of the Effective Date". The amendments in ASU 2015-14 establish December 15, 2017 as the effective date of the information related to ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The Company is currently evaluating ASU 2014-9 to determine the impact on its consolidated financial position, results of operations and cash flows.
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

10

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


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.
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.

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
 
Nine Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
45,359

 
47,912

 
45,852

 
49,164

Dilutive effect of options outstanding
 
855

 
498

 
786

 
490

Dilutive effect of unvested restricted shares
 
320

 
659

 
491

 
752

Diluted
 
46,534

 
49,069

 
47,129

 
50,406

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
 
Nine Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
Anti-dilutive stock options
 
9

 
12

 
9

 
12

Anti-dilutive unvested restricted shares
 

 

 

 

 


11

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 September 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 September 30, 2015 and December 31, 2014 , are presented below:

(Dollars in thousands)

September 30, 2015
 

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
Available-for-Sale








Corporate bonds
 
$
22,776

 
$
1,129

 
$
30

 
$
23,875

Mortgage-backed securities—residential issued by government sponsored entities
 
614,262

 
6,544

 
702

 
620,104

Industrial revenue bonds

3,409

 
35

 

 
3,444

Total

$
640,447

 
$
7,708

 
$
732

 
$
647,423

Held-to-Maturity

 
 
 
 
 
 
 
U.S. Government agencies

$
13,022

 
$
334

 
$

 
$
13,356

Corporate bonds

70,063

 

 
321

 
69,742

State and political subdivisions—tax exempt

10,805

 
451

 

 
11,256

State and political subdivisions—taxable

530

 
21

 

 
551

Mortgage-backed securities—residential issued by government sponsored entities

373,124

 
7,428

 
29

 
380,523

Total

$
467,544

 
$
8,234

 
$
350

 
$
475,428


(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 $56.4 million and $108.6 million for the three and nine months ended September 30, 2015 , respectively. Gross gains of $0.2 million and $0.5 million were realized on sales of investments during the three and nine months ended September 30, 2015 . Gross losses of $0.1 million and $0.2 million were realized on sales of these investments during the three and nine months ended September 30, 2015 .


12

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



Proceeds from sales of securities were $22.3 million and $172.6 million for the three and nine months ended September 30, 2014 , respectively. Gross gains of $0.3 million and $1.4 million were realized on sales of these investments during the three and nine months ended September 30, 2014 . Gross losses of $0.8 million were realized on sales of these investments during the nine months ended September 30, 2014 .
The estimated fair value of investment securities at September 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)

September 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

26,185

 
27,319

 
2.47
%
Mortgage-backed securities—residential issued by government sponsored entities

614,262

 
620,104

 
2.08
%
Total

$
640,447

 
$
647,423

 
2.09
%
 
 
 
 
 
 
 
 

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

19,139

 
19,176

 
4.39
%
Due after five years through ten years

61,726

 
61,819

 
4.88
%
Due after ten years

13,552

 
13,907

 
2.87
%
Mortgage-backed securities—residential issued by government sponsored entities

373,124

 
380,523

 
2.38
%
Total

$
467,544

 
$
475,428

 
2.80
%
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
September 30, 2015
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
$
8,400

 
$
30

 
$

 
$

 
$
8,400

 
$
30

Mortgage-backed securities—residential issued by government sponsored entities
 
158,055

 
554

 
19,844

 
148

 
177,899

 
702

Total
 
$
166,455

 
$
584

 
$
19,844

 
$
148

 
$
186,299

 
$
732

Held-to-Maturity
 

 

 

 

 

 

U.S. government agencies
 
$

 
$

 
$
13,356

 
$
264

 
$
13,356

 
$
264

Corporate bonds
 
69,742

 
321

 

 

 
69,742

 
321

Mortgage-backed securities—residential issued by government sponsored entities
 
69,363

 
208

 
150,413

 
1,570

 
219,776

 
1,778

Total
 
$
139,105

 
$
529

 
$
163,769

 
$
1,834

 
$
302,874

 
$
2,363




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 September 30, 2015 , the Company’s security portfolio consisted of 129 securities, 20 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 September 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 September 30, 2015 or December 31, 2014 .
Investment securities having carrying values of approximately $277.1 million and $339.0 million at September 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)

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

$
847,225


$
798,556

Other commercial construction and land

192,283


200,755

Multifamily commercial real estate

82,762


89,132

1-4 family residential construction and land

87,193


68,658

Total commercial real estate

1,209,463


1,157,101

Owner occupied commercial real estate

1,065,875


1,046,736

Commercial and industrial

1,219,101


1,073,791

Lease financing

1,488


2,005

Total commercial

2,286,464

 
2,122,532

1-4 family residential

985,982


925,698

Home equity loans

373,993


378,475

Other consumer loans

401,324


272,453

Total consumer

1,761,299

 
1,576,626

Other

147,718


143,960

Total loans

$
5,404,944

 
$
5,000,219

Total loans include $8.5 million and $5.5 million of 1 -4 family residential loans held for sale and $15.6 million and $10.1 million of net deferred loan origination costs and fees as of September 30, 2015 and December 31, 2014 , respectively.

14

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


As of September 30, 2015 , other loans include $44.1 million , $92.3 million and $1.7 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.
Covered loans and OREO that were subject to the commercial shared-loss agreements which expired during the quarter ending September 30, 2015 were reclassified and are presented as non-covered. The commercial shared-loss agreements provided 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 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
 
Nine Months Ended
 

September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
Accretable Yield

 
 
 
 



Balance at beginning of period

$
232,450

 
$
329,421

 
$
292,633

 
$
383,775

Accretion of income

(23,878
)
 
(28,560
)
 
(73,770
)
 
(92,743
)
Reclassification from nonaccretable difference

28,172

 
12,720

 
73,800

 
48,616

Other

(6,952
)
 
(6,394
)
 
(62,871
)
 
(32,461
)
Balance at end of period

$
229,792

 
$
307,187

 
$
229,792

 
$
307,187

 

 
 
 
 
 
 
 
Nonaccretable difference, balance at the end of the period

$
165,699

 
$
210,101

 
$
165,699

 
$
210,101



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 September 30, 2015 and December 31, 2014 :

(Dollars in thousands)

Non-PCI Loans

 

 
September 30, 2015

New
 
Acquired

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

$
482,476

 
$
49,011

 
$
315,738

 
$
847,225

Other commercial construction and land

93,060

 
216

 
98,926

 
192,202

Multifamily commercial real estate

51,608

 
6,608

 
24,546

 
82,762

1-4 family residential construction and land

84,261

 

 
2,932

 
87,193

Total commercial real estate

711,405

 
55,835

 
442,142

 
1,209,382

Owner occupied commercial real estate

800,558

 
38,828

 
226,410

 
1,065,796

Commercial and industrial loans

1,127,004

 
6,788

 
85,309

 
1,219,101

Lease financing

1,488

 

 

 
1,488

Total commercial

1,929,050

 
45,616

 
311,719

 
2,286,385

1-4 family residential

680,554

 
36,000

 
225,013

 
941,567

Home equity loans

138,107

 
130,610

 
71,364

 
340,081

Other consumer loans

393,577

 
4,085

 
3,661

 
401,323

Total consumer

1,212,238

 
170,695

 
300,038

 
1,682,971

Other

110,940

 
2,352

 
34,426

 
147,718

Total loans

$
3,963,633

 
$
274,498

 
$
1,088,325

 
$
5,326,456




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