Capital Bank Financial
Capital Bank Financial Corp. (Form: 10-Q, Received: 05/04/2016 17:24:44)

 
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, 2016
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.)

4725 Piedmont Row Drive Suite 110 Charlotte, North Carolina 28210
(Address of principal executive offices) (Zip Code)
(704) 554-5901
(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
 
ý
 
 
  
Accelerated filer
 
¨

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
 
26,635,965
Class B Non-Voting Common Stock, $0.01 Par Value
 
16,553,429
Class
 
Outstanding as of April 30, 2016
 

1


CAPITAL BANK FINANCIAL CORP.
FORM 10-Q
For the quarter ended March 31, 2016

INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



Capital Bank Financial Corp.
Consolidated Balance Sheets
(Unaudited)
(Dollars and shares in thousands)
March 31, 2016
 
December 31, 2015
Assets
 
 
 
Cash and due from banks
$
88,802

 
$
87,985

Interest-bearing deposits in other banks
93,218

 
56,711

Total cash and cash equivalents
182,020

 
144,696

Trading securities
3,418

 
3,013

Investment securities available-for-sale at fair value (amortized cost $657,631 and $640,455, respectively)
663,925

 
637,329

Investment securities held-to-maturity at amortized cost (fair value $467,372 and $475,134, respectively)
460,483

 
472,505

Loans held for sale
8,070

 
10,569

Loans, net of deferred loan costs and fees
5,626,887

 
5,622,147

Less: Allowance for loan and lease losses
45,263

 
45,034

Loans, net
5,581,624

 
5,577,113

Other real estate owned
48,505

 
52,776

FDIC indemnification asset

 
6,725

Receivable from FDIC

 
678

Premises and equipment, net
157,131

 
159,149

Goodwill
134,522

 
134,522

Intangible assets, net
14,166

 
15,100

Deferred income tax asset, net
95,363

 
105,316

Other assets
130,571

 
129,988

Total Assets
$
7,479,798

 
$
7,449,479

Liabilities and Shareholders’ Equity
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest bearing demand
$
1,190,831

 
$
1,121,160

Interest bearing demand
1,402,342

 
1,382,732

Money market
1,262,581

 
1,190,121

Savings
420,073

 
418,879

Time deposits
1,663,906

 
1,747,318

Total deposits
5,939,733

 
5,860,210

Federal Home Loan Bank advances
400,849

 
460,898

Short-term borrowings
16,200

 
12,410

Long-term borrowings
86,328

 
85,777

Accrued expenses and other liabilities
39,695

 
43,919

Total liabilities
6,482,805

 
6,463,214

 
 
 
 
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, 37,207 issued and 26,635 outstanding and 37,012 issued and 26,589 outstanding, respectively.
372

 
370

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

 
183

Additional paid in capital
1,076,931

 
1,076,415

Retained earnings
214,268

 
208,742

Accumulated other comprehensive income (loss)
3,878

 
(5,196
)
Treasury stock, at cost, 12,345 and 12,196 shares, respectively
(298,639
)
 
(294,249
)
Total shareholders’ equity
996,993

 
986,265

Total Liabilities and Shareholders’ Equity
$
7,479,798

 
$
7,449,479

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, 2016
 
March 31, 2015
Interest and dividend income
 
 
 
Loans, including fees
$
62,653

 
$
60,259

Investment securities:
 
 
 
Taxable interest income
6,287

 
4,913

Tax-exempt interest income
120

 
140

Dividends
13

 
13

Interest-bearing deposits in other banks
84

 
33

Other earning assets
315

 
688

Total interest and dividend income
69,472

 
66,046

Interest expense
 
 
 
Deposits
6,062

 
4,410

Long-term borrowings
1,511

 
1,725

Federal Home Loan Bank advances
518

 
175

Other borrowings
14

 
7

Total interest expense
8,105

 
6,317

Net Interest Income
61,367

 
59,729

Provision (reversal) for loan and lease losses
1,375

 
(841
)
Net interest income after provision (reversal) for loan and lease losses
59,992

 
60,570

Non-Interest Income
 
 
 
Service charges on deposit accounts
4,811

 
4,705

Debit card income
3,086

 
2,964

Fees on mortgage loans originated and sold
971

 
1,147

Investment advisory and trust fees
497

 
1,006

FDIC indemnification asset expense

 
(2,439
)
Termination of loss share agreements
(9,178
)
 

Investment securities gains (losses), net
40

 
90

Other income
2,339

 
2,447

Total non-interest income
2,566

 
9,920

Non-Interest Expense
 
 
 
Salaries and employee benefits
22,162

 
23,881

Stock-based compensation expense
317

 
284

Net occupancy and equipment expense
7,703

 
8,129

Computer services
3,575

 
3,397

Software expense
2,036

 
2,142

Telecommunication expense
1,532

 
1,380

OREO valuation expense
467

 
1,390

Net gains on sales of OREO
(679
)
 
(7
)
Foreclosed asset related expense
285

 
674

Loan workout expense
244

 
623

Conversion and merger related expense
1,687

 

Professional fees
1,612

 
1,734

Contingent value right expense

 
116

Regulatory assessments
1,275

 
1,695

Restructuring charges, net
142

 
2,341

Other expense
4,580

 
4,868

Total non-interest expense
46,938

 
52,647

Income before income taxes
15,620

 
17,843

Income tax expense
5,780

 
6,454

Net income
$
9,840

 
$
11,389

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.23

 
$
0.25

Diluted
$
0.22

 
$
0.24

 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
43,063

 
46,294

Diluted
43,904

 
47,632

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


4


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

(Dollars in thousands)
Three Months Ended
 
March 31, 2016
 
March 31, 2015
Net Income
$
9,840

 
$
11,389

Other comprehensive income before tax:
 
 
 
Unrealized holding gains on investment securities available-for-sale
9,419

 
5,617

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

 
(51
)
Reclassification adjustment for losses amortized in net income on securities held-to-maturity
337

 
363

Unrealized holding gains on cash flow hedges
5,526

 
803

Reclassification adjustments for net gains included in net income on cash flow hedges
(644
)
 
(108
)
Other comprehensive income, before tax:
14,638

 
6,624

Tax effect
(5,564
)
 
(2,526
)
Other comprehensive income, net of tax:
9,074

 
4,098

Comprehensive income
$
18,914

 
$
15,487

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


5


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, 2015
26,589

 
$
370

 
16,554

 
$
183

 
$
1,076,415

 
$
208,742

 
$
(5,196
)
 
$
(294,249
)
 
$
986,265

Net income

 

 

 

 

 
9,840

 

 

 
9,840

Dividends paid

 

 

 

 

 
(4,314
)
 

 

 
(4,314
)
Other comprehensive loss, net of tax expense of $5,564

 

 

 

 

 

 
9,074

 

 
9,074

Stock-based compensation

 

 

 

 
317

 

 

 

 
317

Restricted stock grants
184

 
2

 

 

 

 

 

 

 
2

Nonqualified stock option exercise
10

 

 

 

 
199

 

 

 

 
199

Purchase of treasury stock
(148
)
 

 

 

 

 

 

 
(4,390
)
 
(4,390
)
Balance, March 31, 2016
26,635

 
$
372

 
16,554

 
$
183

 
$
1,076,931

 
$
214,268

 
$
3,878

 
$
(298,639
)
 
$
996,993

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

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


6


Capital Bank Financial Corp.
Consolidated Statements of Cash Flows
(Unaudited)
 
(Dollars in thousands)
Three Months Ended
 
March 31, 2016
 
March 31, 2015
Cash flows from operating activities
 
 
 
Net income
$
9,840

 
$
11,389

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Accretion of purchased credit impaired loans
(20,843
)
 
(24,840
)
Depreciation and amortization
4,223

 
4,655

Impairment of premises and equipment

 
1,525

Provision (reversal) for loan and lease losses
1,375

 
(841
)
Deferred income tax
4,389

 
6,015

Net amortization of investment securities premium/discount
1,123

 
1,663

Net realized gains on investment securities
(40
)
 
(90
)
Stock-based compensation expense
317

 
284

Net gains on sales of OREO
(679
)
 
(7
)
OREO valuation expense
467

 
1,390

Other
(6
)
 
2

Net deferred loan origination fees
1,105

 
(839
)
Mortgage loans originated for sale
(29,550
)
 
(49,165
)
Proceeds from sales of mortgage loans originated for sale
33,021

 
43,425

Fees on mortgage loans originated and sold
(971
)
 
(1,147
)
FDIC indemnification asset expense

 
2,439

Termination of loss share agreements
9,178

 

Gains on sales/disposals of premises and equipment
(20
)
 
(3
)
   Net proceeds from FDIC loss share agreements
(186
)
 
276

Change in other assets
61

 
(1,685
)
Change in accrued expenses and other liabilities
(2,652
)
 
(18,300
)
Net cash provided by (used in) operating activities
10,152

 
(23,854
)
Cash flows from investing activities
 
 
 
Purchases of investment securities available-for-sale
(35,489
)
 
(54,469
)
Purchases of investment securities held-to-maturity
(4,000
)
 
(29,911
)
Proceeds from sale of investment securities available-for-sale

 
20,328

Repayments of principal and maturities of investment securities available-for-sale
15,824

 
18,023

Repayments of principal and maturities of investment securities held-to-maturity
17,359

 
18,243

Net purchases of FHLB and FRB stock
1,993

 
(1,997
)
Net decrease (increase) in loans
12,854

 
(49,467
)
Proceeds paid to FDIC for settlement of loss share agreements
(3,029
)
 

Purchases of premises and equipment
(721
)
 
(547
)
Proceeds from sales of premises and equipment
550

 

Proceeds from sales of OREO
7,072

 
7,887

Net cash provided by (used in) investing activities
12,413

 
(71,910
)
Cash flows from financing activities
 
 
 
Net increase in demand, money market and savings accounts
162,935

 
99,035

Net (decrease) increase in time deposits
(83,412
)
 
9,421

Net change in short-term borrowings
3,790

 
4,198

Repayment of short-term FHLB advances
(215,000
)
 
(500,000
)
Proceeds from short-term FHLB advances
155,000

 
560,000

Decrease in long-term FHLB advances
(49
)
 
(48
)
Excess tax benefit from share-based payment
19

 

Proceeds from exercise of stock options
180

 

Dividends paid
(4,314
)
 

Purchases of treasury stock
(4,390
)
 
(24,996
)
Net cash provided by financing activities
14,759

 
147,610

Net increase in cash and cash equivalents
37,324

 
51,846

Cash and cash equivalents at beginning of period
144,696

 
188,135

Cash and cash equivalents at end of period
$
182,020

 
$
239,981

 
 
 
 
Supplemental disclosures of cash:
 
 
 
Interest paid
$
5,390

 
$
3,527

Cash collections of contractual interest on purchased credit impaired loans
11,764

 
15,642

Income taxes paid
189

 
930

Supplemental disclosures of non-cash transactions:
 
 
 
OREO acquired through loan transfers
$
998

 
$
3,098

Transfers of other assets to OREO
1,590

 

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


7

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 North Carolina whose business is conducted primarily through Capital Bank Corporation (“Capital Bank Corporation” 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 151 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, 2015.
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 March 2016, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update ("ASU") 2016-9, "Compensation—Stock compensation (Topic 718): Improvements to employee share-based payment accounting" which objective is the simplification through the identification, evaluation, and improvement of areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. The adoption of ASU 2016-9 will be effective for the fiscal year beginning after December 15, 2016. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.
In January 2016, the FASB issued ASU 2016-2, "Leases (Topic 842)" which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB is amending the FASB Accounting Standards Codification and creating Topic 842, Leases. This Update, along with IFRS 16, Leases, are the results of the FASB’s and the International Accounting Standards Board’s (IASB’s) efforts to meet that objective and improve financial reporting. The Boards decided to not fundamentally change lessor accounting with the amendments in this Update. However, some changes have been made to lessor accounting to conform and align that guidance with the lessee guidance and other areas within generally accepted accounting principles (GAAP), such as Topic 606, Revenue from Contracts with Customers. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The adoption of ASU 2016-2 will be effective for the fiscal year beginning after December 15, 2018. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.
In January 2016, the FASB issued ASU 2016-1, "Financial instruments Overall (Subtopic 825-10)" which requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in

8

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


this Update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this Update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. For public business entities, the amendments in ASU 2016-1 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2016-1 is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In November 2015, the FASB issued ASU 2015-17, "Income taxes (Topic 740)" which requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. Deferred tax liabilities and assets that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of the temporary difference. The amendments in ASU 2015-17 are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The adoption of ASU 2015-17 is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In September 2015, the FASB issued ASU 2015-16, "Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments". The amendments in ASU 2015-16 require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in ASU 2015-16 require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in ASU 2015-16 also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The adoption of ASU 2015-16 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In September 2015, the FASB issued 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 ASU 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 FASB issued 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)”h. 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 FASB issued 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 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”h. 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

9

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


December 15, 2015. The adoption of ASU 2014-12 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 2014-11, "Transfers and Servicing (Topic 860) - Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures". The amendments in ASU 2014-11 change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments in ASU 2014-11 require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments in ASU 2014-11 also require disclosures for certain transactions comprising (1) a transfer of a financial asset accounted for as a sale and (2) an agreement with the same transferee entered into in contemplation of the initial transfer that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. 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 2014-9, "Revenue from Contracts with Customers (Topic 606)". The FASB and the International Accounting Standards Board (the “IASB”) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. As a result, the FASB created a new Topic 606, Revenue from Contracts with Customers, which completes the joint effort by the FASB and IASB to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and IFRS. The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies the performance obligation. The adoption of ASU 2014-9 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
 
 
March 31, 2016
 
March 31, 2015
Weighted average number of shares outstanding:
 
 
 
 
Basic
 
43,063

 
46,294

Dilutive effect of options outstanding
 
840

 
676

Dilutive effect of unvested restricted shares
 
1

 
662

Diluted
 
43,904

 
47,632

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, 2016
 
March 31, 2015
Anti-dilutive stock options
 
39

 
10

Anti-dilutive unvested restricted shares
 

 

 

3. Investment Securities
Trading securities totaled $ 3.4 million and $3.0 million at March 31, 2016 and December 31, 2015 , respectively.

10

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


The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at March 31, 2016 and December 31, 2015 , are presented below:

(Dollars in thousands)

March 31, 2016
 

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
Available-for-Sale








Corporate bonds
 
$
42,959

 
$
23

 
$
3,170

 
$
39,812

Mortgage-backed securities—residential issued by government sponsored entities
 
611,433

 
9,603

 
172

 
620,864

Industrial revenue bonds

3,239

 
10

 

 
3,249

Total

$
657,631

 
$
9,636

 
$
3,342

 
$
663,925

Held-to-Maturity

 
 
 
 
 
 
 
U.S. Government agencies

$
12,491

 
$
456

 
$

 
$
12,947

Corporate bonds

74,016

 
232

 
3,000

 
71,248

State and political subdivisions—tax exempt

10,533

 
601

 

 
11,134

State and political subdivisions—taxable

526

 
24

 

 
550

Mortgage-backed securities—residential issued by government sponsored entities

362,917

 
8,593

 
17

 
371,493

Total

$
460,483

 
$
9,906

 
$
3,017

 
$
467,372


(Dollars in thousands)

December 31, 2015
 

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
Available-for-Sale








Corporate bonds
 
$
22,870

 
$
112

 
$
227

 
$
22,755

Mortgage-backed securities—residential issued by government sponsored entities

614,176


1,376


4,415


611,137

Industrial revenue bonds

3,409


28




3,437

Total

$
640,455


$
1,516


$
4,642


$
637,329

Held-to-Maturity








U.S. Government agencies

$
12,805


$
230


$


$
13,035

Corporate bonds
 
70,059

 

 
401

 
69,658

State and political subdivisions—tax exempt

10,849


488




11,337

State and political subdivisions—taxable

528


17




545

Mortgage-backed securities—residential issued by government sponsored entities

378,264


3,107


812


380,559

Total

$
472,505


$
3,842


$
1,213


$
475,134


There were no sales of securities during the three months ended March 31, 2016 . Proceeds from sales of securities and gross gains realized on sales of investments during for the three months ended March 31, 2015 were $20.3 million and $0.1 million respectively.
The estimated fair value of investment securities at March 31, 2016 , 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.

11

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


(Dollars in thousands)

March 31, 2016
 

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

46,198

 
43,061

 
2.95
%
Mortgage-backed securities—residential issued by government sponsored entities

611,433

 
620,864

 
2.09
%
Total

$
657,631

 
$
663,925

 
2.14
%
 
 
 
 
 
 
 
 

Amortized
Cost
 
Estimated
Fair Value
 
Yield
Held-to-maturity


 

 

Due in one year or less

$

 
$

 
%
Due after one year through five years

19,311

 
18,330

 
4.37
%
Due after five years through ten years

65,238

 
64,052

 
4.89
%
Due after ten years

13,017

 
13,497

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

362,917

 
371,493

 
2.40
%
Total

$
460,483

 
$
467,372

 
2.83
%
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, 2016
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
$
35,791

 
$
3,170

 
$

 
$

 
$
35,791

 
$
3,170

Mortgage-backed securities—residential issued by government sponsored entities
 
43,975

 
76

 
30,090

 
96

 
74,065

 
172

Total
 
$
79,766

 
$
3,246

 
$
30,090

 
$
96

 
$
109,856

 
$
3,342

Held-to-Maturity
 

 

 

 

 

 

U.S. government agencies
 
$

 
$

 
$
12,947

 
$
100

 
$
12,947

 
$
100

Corporate bonds
 
41,391

 
2,571

 
4,625

 
429

 
46,016

 
3,000

Mortgage-backed securities—residential issued by government sponsored entities
 
27,033

 
128

 
122,880

 
546

 
149,913

 
674

Total
 
$
68,424

 
$
2,699

 
$
140,452

 
$
1,075

 
$
208,876

 
$
3,774


12

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, 2015
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
$
8,237

 
$
227

 
$

 
$

 
$
8,237

 
$
227

Mortgage-backed securities—residential issued by government sponsored entities
 
378,852

 
3,723

 
31,273

 
692

 
410,125

 
4,415

Total
 
$
387,089

 
$
3,950

 
$
31,273

 
$
692

 
$
418,362

 
$
4,642

Held-to-Maturity
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
$

 
$

 
$
13,035

 
$
351

 
$
13,035

 
$
351

U.S Government agencies
 
44,658

 
401

 

 

 
44,658

 
401

Mortgage-backed securities—residential issued by government sponsored entities
 
143,368

 
1,691

 
143,147

 
3,298

 
286,515

 
4,989

Total
 
$
188,026

 
$
2,092

 
$
156,182

 
$
3,649

 
$
344,208

 
$
5,741

As of March 31, 2016 , 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 corporate securities and mortgage-backed securities.
The corporate bonds in an unrealized loss position at March 31, 2016 and December 31, 2015 continue to perform and are expected to perform through maturity. Unrealized losses associated with these securities are primarily due to changes in interest rates and market volatility, and the corporate issuers have not experienced significant adverse events that would call into question their ability to repay those debt obligations according to contractual terms. Further, because the Company does not have the intent to sell these corporate bonds and it is more likely than not that it will not be required to sell the securities before their anticipated recovery of their amortized cost bases, the Company does not consider these securities to be other-than-temporarily-impaired as of March 31, 2016 or December 31, 2015.
All of the mortgage-backed securities at March 31, 2016 and December 31, 2015 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, 2016 or December 31, 2015 .
Investment securities having carrying values of approximately $362.4 million and $311.5 million at March 31, 2016 and December 31, 2015 , respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and for other purposes as required by law.


13

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


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

March 31, 2016
 
December 31, 2015
Non-owner occupied commercial real estate

$
850,766


$
866,392

Other commercial construction and land

194,971


196,795

Multifamily commercial real estate

75,737


80,708

1-4 family residential construction and land

96,703


93,242

Total commercial real estate

1,218,177


1,237,137

Owner occupied commercial real estate

1,095,460


1,104,972

Commercial and industrial

1,375,233


1,309,704

Lease financing

1,088


1,256

Total commercial

2,471,781

 
2,415,932

1-4 family residential

1,015,071


1,017,791

Home equity loans

368,510


375,276

Other consumer loans

401,971


436,478

Total consumer

1,785,552

 
1,829,545

Other

159,447


150,102

Total loans

$
5,634,957

 
$
5,632,716

Total loans include $8.1 million and $10.6 million of 1 -4 family residential loans held for sale and $16.0 million and $17.1 million of net deferred loan origination costs and fees as of March 31, 2016 and December 31, 2015 , respectively.
As of March 31, 2016 , other loans include $42.3 million , $103.3 million and $1.3 million of farm land, state and political subdivision obligations and deposit customer overdrafts, respectively. As of December 31, 2015 , other loans include $42.8 million , $96.2 million and $1.3 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.
On March 18, 2016, the Bank entered into an agreement to terminate all existing loss sharing agreements with the FDIC effective January 1, 2016. All rights and obligations of the Bank and the FDIC under these loss sharing agreements have been resolved and terminated under this agreement. Covered loans and OREO that were subject to the loss sharing agreements were reclassified and are presented as non-covered as of March 31, 2016.
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

14

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


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, 2016
 
March 31, 2015
Accretable Yield

 
 
 
Balance at beginning of period

$
208,844

 
$
292,633

Accretion of income

(20,843
)
 
(24,840
)
Reclassification from nonaccretable difference

14,937

 
26,517

Other

(7,873
)
 
(48,201
)
Balance at end of period

$
195,065

 
$
246,109

 

 
 
 
Nonaccretable difference, balance at the end of the period

$
134,060

 
$
207,762

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.
Non-covered Loans
The following is a summary of the major categories of non-covered loans outstanding as of March 31, 2016 and December 31, 2015 :
(Dollars in thousands)

Non-PCI Loans

 

 
March 31, 2016

New
 
Acquired

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

$
528,675

 
$
41,750

 
$
280,341

 
$
850,766

Other commercial construction and land

118,279

 
190

 
76,502

 
194,971

Multifamily commercial real estate

48,426

 
5,563

 
21,748

 
75,737

1-4 family residential construction and land

93,861

 

 
2,842

 
96,703

Total commercial real estate

789,241

 
47,503

 
381,433

 
1,218,177

Owner occupied commercial real estate

856,384

 
35,621

 
203,455

 
1,095,460

Commercial and industrial loans

1,290,852

 
5,784

 
78,597

 
1,375,233

Lease financing

1,088

 

 

 
1,088

Total commercial

2,148,324

 
41,405

 
282,052

 
2,471,781

1-4 family residential

745,534

 
32,929

 
236,608

 
1,015,071

Home equity loans

151,483

 
144,066

 
72,961

 
368,510

Other consumer loans

395,455

 
3,760

 
2,756

 
401,971

Total consumer

1,292,472

 
180,755

 
312,325

 
1,785,552

Other

124,754

 
2,086

 
32,607

 
159,447

Total loans

$
4,354,791

 
$
271,749

 
$
1,008,417

 
$
5,634,957


15

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



(Dollars in thousands)
 
Non-PCI Loans
 
 
 
 
December 31, 2015
 
New
 
Acquired
 
PCI Loans
 
Total
Non-covered
Loans
Non-owner occupied commercial real estate
 
$
517,559

 
$
46,081

 
$
302,752

 
$
866,392

Other commercial construction and land
 
110,716

 
202

 
85,754

 
196,672

Multifamily commercial real estate
 
51,413

 
5,686

 
23,609

 
80,708

1-4 family residential construction and land
 
90,304

 

 
2,938

 
93,242

Total commercial real estate
 
769,992

 
51,969

 
415,053

 
1,237,014

Owner occupied commercial real estate
 
858,068

 
36,927

 
209,910

 
1,104,905

Commercial and industrial loans
 
1,222,320

 
6,255

 
81,129

 
1,309,704

Lease financing
 
1,256

 

 

 
1,256

Total commercial
 
2,081,644

 
43,182

 
291,039

 
2,415,865

1-4 family residential
 
733,349

 
32,194

 
211,361

 
976,904

Home equity loans
 
148,855

 
126,547

 
67,449

 
342,851

Other consumer loans
 
429,346

 
3,911

 
3,221

 
436,478

Total consumer
 
1,311,550

 
162,652

 
282,031

 
1,756,233

Other
 
114,995

 
2,269

 
32,838

 
150,102

Total loans
 
$
4,278,181

 
$
260,072

 
$
1,020,961

 
$
5,559,214

Covered Loans
The following is a summary of the major categories of covered loans outstanding as of December 31, 2015 :
(Dollars in thousands)
 
Non-PCI Loans
 
 
 
 
December 31, 2015
 
New
 
Acquired
 
PCI Loans
 
Total Covered
Loans
Non-owner occupied commercial real estate
 
$

 
$

 
$

 
$

Other commercial construction and land
 

 

 
123

 
123

Multifamily commercial real estate
 

 

 

 

1-4 family residential construction and land
 

 

 

 

Total commercial real estate
 

 

 
123

 
123

Owner occupied commercial real estate
 

 

 
67

 
67

Commercial and industrial loans
 

 

 

 

Lease financing
 

 

 

 

Total commercial
 

 

 
67

 
67

1-4 family residential
 

 
2,265

 
38,622

 
40,887

Home equity loans
 

 
24,890

 
7,535

 
32,425

Other consumer loans
 

 

 

 

Total consumer
 

 
27,155

 
46,157

 
73,312

Other
 

 

 

 

Total loans
 
$

 
$
27,155

 
$
46,347

 
$
73,502


16

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


The following tables present the aging of the recorded investment in past due loans, based on contractual terms, as of March 31, 2016 :

(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
$

 
$

 
$

 
$

 
$
1,214

 
$

 
$
1,214

Other commercial construction and land
18

 

 

 

 
186

 

 
204

Multifamily commercial real estate

 

 

 

 
84

 

 
84

1-4 family residential construction and land

 

 

 

 

 

 

Total commercial real estate
18

 

 

 

 
1,484

 

 
1,502

Owner occupied commercial real estate
158

 

 

 

 
1,139

 

 
1,297

Commercial and industrial loans
490

 

 

 

 
951

 

 
1,441

Lease financing

 

 

 

 

 

 

Total commercial
648

 

 

 

 
2,090

 

 
2,738

1-4 family residential
382

 

 

 

 
1,008

 

 
1,390

Home equity loans
1,570

 

 

 

 
2,196

 

 
3,766

Other consumer loans
2,497

 

 

 

 
1,748

 

 
4,245

Total consumer
4,449

 

 

 

 
4,952

 

 
9,401

Other

 

 

 

 

 

 

Total loans
$
5,115

 
$

 
$