Capital Bank Financial
Capital Bank Financial Corp. (Form: 10-Q, Received: 10/31/2016 06:15:50)


 
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, 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
  ________________________________________________
CBFLOGOA01A01A01A14.JPG  
(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
 
26,385,200
Class B Non-Voting Common Stock, $0.01 Par Value
 
16,853,429
Class
 
Outstanding as of October 24, 2016
 

1


CAPITAL BANK FINANCIAL CORP.
FORM 10-Q
For the quarter ended September 30, 2016

INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



Capital Bank Financial Corp.
Consolidated Balance Sheets
(Unaudited)
(Dollars and shares in thousands)
September 30, 2016
 
December 31, 2015
Assets
 
 
 
Cash and due from banks
$
88,171

 
$
87,985

Interest-bearing deposits in other banks
116,136

 
56,711

Total cash and cash equivalents
204,307

 
144,696

Trading securities
3,701

 
3,013

Investment securities available-for-sale at fair value (amortized cost $639,687 and $640,455, respectively)
652,945

 
637,329

Investment securities held-to-maturity at amortized cost (fair value $474,834 and $475,134, respectively)
466,063

 
472,505

Loans held for sale
95,253

 
10,569

Loans, net of deferred loan costs and fees
5,840,680

 
5,622,147

Less: Allowance for loan and lease losses
43,984

 
45,034

Loans, net
5,796,696

 
5,577,113

Other real estate owned
46,007

 
52,776

FDIC indemnification asset

 
6,725

Receivable from FDIC

 
678

Premises and equipment, net
157,863

 
159,149

Goodwill
134,522

 
134,522

Intangible assets, net
12,288

 
15,100

Deferred income tax asset, net
80,418

 
105,316

Other assets
142,395

 
129,988

Total Assets
$
7,792,458

 
$
7,449,479

Liabilities and Shareholders’ Equity
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest bearing demand
$
1,207,800

 
$
1,121,160

Interest bearing demand
1,463,520

 
1,382,732

Money market
1,291,948

 
1,190,121

Savings
401,205

 
418,879

Time deposits
1,668,784

 
1,747,318

Total deposits
6,033,257

 
5,860,210

Federal Home Loan Bank advances
575,751

 
460,898

Short-term borrowings
15,428

 
12,410

Long-term borrowings
87,445

 
85,777

Accrued expenses and other liabilities
50,736

 
43,919

Total liabilities
6,762,617

 
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, 37,253 issued and 26,381 outstanding and 37,012 issued and 26,589 outstanding, respectively.
373

 
370

Common stock-Class B $0.01 par value: 200,000 shares authorized, 18,627 issued and 16,854 outstanding and 18,327 issued and 16,554 outstanding, respectively.
186

 
183

Additional paid in capital
1,078,746

 
1,076,415

Retained earnings
241,554

 
208,742

Accumulated other comprehensive income (loss)
7,621

 
(5,196
)
Treasury stock, at cost, 12,645 and 12,196 shares, respectively
(298,639
)
 
(294,249
)
Total shareholders’ equity
1,029,841

 
986,265

Total Liabilities and Shareholders’ Equity
$
7,792,458

 
$
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
 
Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Interest and dividend income
 
 
 
 
 
 
 
Loans, including fees
$
63,662

 
$
62,126

 
$
188,944

 
$
183,785

Investment securities:
 
 
 
 
 
 
 
Taxable interest income
6,732

 
5,668

 
19,433

 
15,670

Tax-exempt interest income
118

 
133

 
359

 
399

Dividends
11

 
13

 
36

 
40

Interest-bearing deposits in other banks
69

 
19

 
227

 
88

Other earning assets
337

 
759

 
981

 
2,093

Total interest and dividend income
70,929

 
68,718

 
209,980

 
202,075

Interest expense
 
 
 
 
 
 
 
Deposits
6,082

 
5,396

 
18,147

 
14,644

Long-term borrowings
1,586

 
1,413

 
4,644

 
4,783

Federal Home Loan Bank advances
620

 
266

 
1,637

 
575

Other borrowings
14

 
6

 
43

 
22

Total interest expense
8,302

 
7,081

 
24,471

 
20,024

Net Interest Income
62,627

 
61,637

 
185,509

 
182,051

Provision for loan and lease losses
586

 
799

 
3,133

 
1,257

Net interest income after provision for loan and lease losses
62,041

 
60,838

 
182,376

 
180,794

Non-Interest Income
 
 
 
 
 
 
 
Service charges on deposit accounts
4,777

 
5,472

 
14,074

 
15,366

Debit card income
3,389

 
3,113

 
9,710

 
9,253

Fees on mortgage loans originated and sold
1,334

 
990

 
3,445

 
3,415

Investment advisory and trust fees
290

 
860

 
1,242

 
2,991

FDIC indemnification asset expense

 
(1,418
)
 

 
(6,356
)
Termination of loss share agreements

 

 
(9,178
)
 

Investment securities gains
71

 
(43
)
 
228

 
278

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
2,509

 
2,444

 
7,337

 
7,042

Total non-interest income
12,370

 
11,418

 
26,858

 
31,701

Non-Interest Expense
 
 
 
 
 
 
 
Salaries and employee benefits
20,935

 
22,620

 
63,236

 
68,382

Stock-based compensation expense
790

 
309

 
1,574

 
701

Net occupancy and equipment expense
7,340

 
7,621

 
22,398

 
23,504

Computer services
3,153

 
3,471

 
10,002

 
10,211

Software expense
1,948

 
2,198

 
5,984

 
6,422

Telecommunication expense
1,790

 
1,515

 
4,880

 
4,262

OREO valuation expense
742

 
2,075

 
2,328

 
5,175

Net gains on sales of OREO
(159
)
 
(351
)
 
(1,251
)
 
(1,315
)
Foreclosed asset related expense
397

 
872

 
1,081

 
2,146

Loan workout expense
206

 
194

 
521

 
1,612

Conversion and merger related expense
394

 

 
3,317

 

Professional fees
1,642

 
1,958

 
4,607

 
5,415

Losses on extinguishment of debt

 

 

 
1,438

Legal settlement expense
1,500

 

 
1,500

 

Contingent value right expense

 

 

 
120

Regulatory assessments
841

 
1,423

 
3,375

 
4,949

Restructuring charges, net
(113
)
 
23

 
34

 
2,542

Other expense
6,124

 
4,418

 
15,418

 
14,931

Total non-interest expense
47,530

 
48,346

 
139,004

 
150,495

Income before income taxes
26,881

 
23,910

 
70,230

 
62,000

Income tax expense
8,393

 
8,589

 
24,500

 
22,300

Net income
$
18,488

 
$
15,321

 
$
45,730

 
$
39,700

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.43

 
$
0.34

 
$
1.06

 
$
0.87

Diluted
$
0.42

 
$
0.33

 
$
1.04

 
$
0.84

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
43,028

 
45,359

 
43,033

 
45,852

Diluted
43,909

 
46,534

 
43,861

 
47,129

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
 
Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Net Income
$
18,488

 
$
15,321

 
$
45,730

 
$
39,700

Other comprehensive income (loss) before tax:
 
 
 
 
 
 
 
Unrealized holding gains (losses) on investment securities available-for-sale
(141
)
 
6,904

 
16,474

 
5,897

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

 
(13
)
 
(92
)
 
(326
)
Reclassification adjustment for losses amortized in net income on securities held-to-maturity
363

 
402

 
1,052

 
1,156

Unrealized holding gains (losses) on cash flow hedges
(1,336
)
 
5,000

 
6,345

 
4,968

Reclassification adjustments for net gains included in net income on cash flow hedges
(613
)
 
(778
)
 
(1,891
)
 
(1,345
)
Other comprehensive income (loss), before tax:
(1,727
)
 
11,515

 
21,888

 
10,350

Tax effect
(95
)
 
(4,392
)
 
(9,071
)
 
(3,948
)
Other comprehensive income (loss), net of tax:
(1,822
)
 
7,123

 
12,817

 
6,402

Comprehensive income
$
16,666

 
$
22,444

 
$
58,547

 
$
46,102

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

 

 

 

 

 
45,730

 

 

 
45,730

Dividends paid

 

 

 

 

 
(12,918
)
 

 

 
(12,918
)
Other comprehensive loss, net of tax expense of $9,071

 

 

 

 

 

 
12,817

 

 
12,817

Stock-based compensation

 

 

 

 
1,626

 

 

 

 
1,626

Restricted stock grants
209

 
3

 

 

 
(3
)
 

 

 

 

Restricted Stock cancelled
(5
)
 

 

 

 
(19
)
 

 

 

 
(19
)
Nonqualified stock option exercise
36

 

 

 

 
730

 

 

 

 
730

Conversion of shares
(300
)
 

 
300

 
3

 
(3
)
 

 

 

 

Purchase of treasury stock
(148
)
 

 

 

 

 

 

 
(4,390
)
 
(4,390
)
Balance, September 30, 2016
26,381

 
$
373

 
16,854

 
$
186

 
$
1,078,746

 
$
241,554

 
$
7,621

 
$
(298,639
)
 
$
1,029,841

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 awards
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
Nine Months Ended
 
September 30, 2016
 
September 30, 2015
Cash flows from operating activities
 
 
 
Net income
$
45,730

 
$
39,700

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Accretion of purchased credit impaired loans
(59,636
)
 
(73,770
)
Depreciation and amortization
12,300

 
13,510

Impairment of premises and equipment

 
1,525

Provision for loan and lease losses
3,133

 
1,257

Deferred income tax
15,828

 
20,728

Net amortization of investment securities premium/discount
3,386

 
4,680

Other-than-temporary impairment of investment

 
288

Net realized gains on investment securities
(228
)
 
(278
)
Stock-based compensation expense
1,626

 
701

Net gains on sales of OREO
(1,251
)
 
(1,315
)
OREO valuation expense
2,328

 
5,175

Other
13

 
22

Net deferred loan origination fees
1,017

 
(5,459
)
Losses on extinguishment of debt

 
1,438

Mortgage loans originated for sale
(111,289
)
 
(135,387
)
Proceeds from sales of mortgage loans originated for sale
117,141

 
135,803

Fees on mortgage loans originated and sold
(3,445
)
 
(3,415
)
FDIC indemnification asset expense

 
6,356

Termination of loss share agreements
9,178

 

Gains on sales/disposals of premises and equipment
(28
)
 
(803
)
 Net proceeds from FDIC loss share agreements
(186
)
 
2,600

Change in other assets
(6,511
)
 
(7,474
)
Change in accrued expenses and other liabilities
8,369

 
8,474

Net cash provided by operating activities
37,475

 
14,356

Cash flows from investing activities
 
 
 
Purchases of investment securities available-for-sale
(156,551
)
 
(250,348
)
Purchases of investment securities held-to-maturity
(48,600
)
 
(89,174
)
Proceeds from sale of investment securities available-for-sale
90,646

 
108,557

Repayments of principal and maturities of investment securities available-for-sale
63,232

 
51,644

Repayments of principal and maturities of investment securities held-to-maturity
55,689

 
59,051

Net purchases of FHLB and FRB stock
(5,440
)
 
(9,006
)
Redemption of contingent value right

 
(17,162
)
Net increase in loans
(257,132
)
 
(336,593
)
Settlement of loss share agreements
(3,029
)
 

Purchases of premises and equipment
(7,353
)
 
(4,362
)
Proceeds from sales of premises and equipment
3,127

 
2,202

Proceeds from sales of OREO
13,227

 
27,982

Net cash used in investing activities
(252,184
)
 
(457,209
)
Cash flows from financing activities
 
 
 
Net increase (decrease) in demand, money market and savings accounts
251,581

 
(43,991
)
Net (decrease) increase in time deposits
(78,534
)
 
354,470

Net increase (decrease) in federal funds purchased and securities sold under agreement to repurchase
3,018

 
(6,700
)
Prepayment of long-term repurchase agreements

 
(53,661
)
Repayment of short-term FHLB advances
(1,480,000
)
 

Proceeds from short-term FHLB advances
1,420,000

 
225,000

Proceeds from long-term FHLB advances
175,000

 

Decrease in long-term FHLB advances
(148
)
 
(144
)
Prepayment of subordinated debt

 
(3,393
)
Excess tax benefit from share-based payment
82

 
2,202

Proceeds from exercise of stock options
648

 
157

Restricted stock cancelled
(19
)
 

Dividends paid
(12,918
)
 

Purchases of treasury stock
(4,390
)
 
(84,633
)
Net cash provided by financing activities
274,320

 
389,307

Net increase (decrease) in cash and cash equivalents
59,611

 
(53,546
)
Cash and cash equivalents at beginning of period
144,696

 
188,135

Cash and cash equivalents at end of period
$
204,307

 
$
134,589

 
 
 
 
Supplemental disclosures of cash:
 
 
 
Interest paid
$
23,969

 
$
18,421

Cash collections of contractual interest on purchased credit impaired loans
33,203

 
45,348

Net income taxes paid
13,084

 
1,411

Supplemental disclosures of non-cash transactions:
 
 
 
OREO acquired through loan transfers
$
5,944

 
$
8,905

Transfers of other assets to OREO
1,590

 

Loans transfered to held for sale
87,091

 

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 August 2016, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update ("ASU") 2016-15, "Statement of Cash Flows—Credit Losses (Topic 230)". The amendments in this Update provide guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs: Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing: At the settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, the issuer should classify the portion of the cash payment attributable to the accreted interest related to the debt discount as cash outflows for operating activities, and the portion of the cash payment attributable to the principal as cash outflows for financing activities; (3) Contingent Consideration Payments Made after a Business Combination: Cash payments not made soon after the acquisition date of a business combination by an acquirer to settle a contingent consideration liability should be separated and classified as cash outflows for financing activities and operating activities. Cash payments up to the amount of the contingent consideration liability recognized at the acquisition date (including measurement-period adjustments) should be classified as financing activities; any excess should be classified as operating activities. Cash payments made soon after the acquisition date of a business combination by an acquirer to settle a contingent consideration liability should be classified as cash outflows for investing activities; (4) Proceeds from the Settlement of Insurance Claims: Cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage (that is, the nature of the loss). For insurance proceeds that are received in a lump-sum settlement, an entity should determine the classification on the basis of the nature of each loss included in the settlement; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies: Cash proceeds received from the settlement of corporate-owned life insurance policies should be classified as cash inflows from investing activities. The cash payments for premiums on corporate-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities; (6) Distributions Received from Equity Method Investees: When a reporting entity applies the equity method, it should make an accounting policy election to classify distributions received from equity method investees using either of the following approaches: a. Cumulative earnings approach: Distributions received are considered returns on investment and classified as cash inflows from operating activities, unless the investor’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the investor. When such an excess occurs, the current-period distribution up to this excess should be considered a return of investment and classified as cash inflows from investing activities. b. Nature of the distribution approach: Distributions received should be classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities) when such information is available to the investor. If an entity elects to apply the nature of the distribution approach and the information to apply that approach to distributions received from an individual equity method investee is not available to the investor, the entity should report a change in accounting principle on a retrospective basis by applying the cumulative earnings approach in (1) for that investee. In such situations, an entity should disclose that a change in accounting principle has occurred with respect to the affected investee(s) due to the lack of available information and should provide the disclosures required in paragraphs 250-10-50-1(b) and 250-10-50-2, as applicable. This amendment does not address equity method investments measured using the fair value option; (7) Beneficial Interests in Securitization Transactions: A transferor’s beneficial interest obtained in a securitization of financial assets should be disclosed as a non cash activity, and cash receipts from payments on a transferor’s beneficial interests in securitized trade receivables should be classified as cash inflows from investing activities; (8) Separately Identifiable Cash Flows and Application of the Predominance Principle: The classification of cash receipts and payments that have aspects of more than one class of cash flows should be determined first by applying specific guidance in generally accepted accounting principles (GAAP). In the absence of specific guidance, an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. An entity should then classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing, investing, or operating activities. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326)". Assets Measured at Amortized Cost—this update requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (PCD assets) that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Interest income for PCD assets should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer assessment of credit losses at acquisition. Available-for-Sale Debt Securities—Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value. The allowance for credit losses for purchased available-for-sale securities with a more-than-insignificant amount of credit deterioration since origination is determined in a similar manner to other available-for-sale debt securities; however, the initial allowance for credit losses is added to the purchase price rather than reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded in credit loss expense. Interest income should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer’s assessment of credit losses at acquisition. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.
In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606)". The core principle of the guidance in 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 2 exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (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; (5) Recognize revenue when (or as) the entity satisfies a performance obligation. The amendments in this Update do not change the core principle of the guidance in Topic 606. The amendments in this Update affect the guidance in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

In March 2016, the FASB issued 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 March 2016, the FASB issued ASU 2016-7, "Investments—Equity Method and Joint Ventures (Topic 323)". The amendments in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-bystep basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this Update require that an entity that has an available-forsale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated 2 other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.
In March 2016, the FASB issued ASU 2016-6, "Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments". The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. 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 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.

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, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
43,028

 
45,359

 
43,033

 
45,852

Dilutive effect of options outstanding
 
847

 
855

 
825

 
786

Dilutive effect of unvested restricted shares
 
34

 
320

 
3

 
491

Diluted
 
43,909

 
46,534

 
43,861

 
47,129

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, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Anti-dilutive stock options
 
37

 
9

 
34

 
9

Anti-dilutive unvested restricted shares
 
1

 

 
166

 



8

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


3. Business Combinations and Acquisitions

Pending Acqusitions at September 30, 2016

On November 22, 2015, we entered into an Agreement and Plan of Merger with CommunityOne Bancorp, or CommunityOne, pursuant to which CommunityOne will merge with and into CBF on the terms and subject to the conditions set forth in the CommunityOne Merger Agreement (the “Merger”). CommunityOne is a bank holding company headquartered in Charlotte, North Carolina. Founded in 1907 as First National Bank of Asheboro, CommunityOne operates 45 banking centers. At June 30, 2016 CommunityOne reported total assets of $2.4 billion and net loans of $1.5 billion . Pursuant to the merger agreement, shareholders of CommunityOne have the right to receive, $14.25 per share in cash or 0.43 of a share of Capital Bank Class A common stock, with the total consideration to consist of 85% stock and 15% cash. The transaction closed on October 26, 2016. Based on Capital Bank's closing share price of $32.20 , this represents a total transaction value of approximately $338 million . Due to the timing of the acquisition, the Company is continuing to determine the preliminary fair values of the assets and liabilities assumed and the purchase price allocation. The Company expects to finalize the analysis of the acquired assets and liabilities over the next few months and within one year of the acquisition.



4. Investment Securities
Trading securities totaled $ 3.7 million and $3.0 million at September 30, 2016 and December 31, 2015 , respectively.
The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at September 30, 2016 and December 31, 2015 , are presented below:

(Dollars in thousands)

September 30, 2016
 

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
Available-for-Sale








Corporate bonds
 
$
43,324

 
$
1,497

 
$
265

 
44,556

State and political subdivisions—tax exempt
 
7,646

 
25

 
2

 
7,669

Mortgage-backed securities—residential issued by government sponsored entities
 
585,478

 
12,181

 
226

 
597,433

Industrial revenue bonds

3,239

 
48

 

 
3,287

Total

$
639,687

 
$
13,751

 
$
493

 
$
652,945

Held-to-Maturity

 
 
 
 
 
 
 
U.S. Government agencies

$
11,650

 
$
529

 
$

 
$
12,179

Corporate bonds

74,012

 
413

 
2,371

 
72,054

State and political subdivisions—tax exempt

9,530

 
709

 

 
10,239

State and political subdivisions—taxable

522

 
23

 

 
545

Mortgage-backed securities—residential issued by government sponsored entities

370,349

 
9,511

 
43

 
379,817

Total

$
466,063

 
$
11,185

 
$
2,414

 
$
474,834



9

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


(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 September 30, 2016. Proceeds from sales of securities were $90.6 million for the nine months ended September 30, 2016 . Gross gains of $0.2 million were realized on sales of these investments during the nine months ended September 30, 2016 , respectively. Gross losses of $0.1 million were realized on sales of these investments during the nine months ended September 30, 2016.
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 these investments during the three and nine months ended September 30, 2015 , respectively. 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 .
The estimated fair value of investment securities at September 30, 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.

10

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


(Dollars in thousands)

September 30, 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

1,000

 
1,008

 
1.60
%
Due after ten years

53,209

 
54,504

 
2.93
%
Mortgage-backed securities—residential issued by government sponsored entities

585,478

 
597,433

 
2.19
%
Total

$
639,687

 
$
652,945

 
2.25
%
 
 
 
 
 
 
 
 

Amortized
Cost
 
Estimated
Fair Value
 
Yield
Held-to-maturity


 

 

Due in one year or less

$

 
$

 
%
Due after one year through five years

34,895

 
32,776

 
4.80
%
Due after five years through ten years

48,647

 
49,518

 
4.85
%
Due after ten years

12,172

 
12,723

 
2.86
%
Mortgage-backed securities—residential issued by government sponsored entities

370,349

 
379,817

 
2.33
%
Total

$
466,063

 
$
474,834

 
2.79
%
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, 2016
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
$
8,300

 
$
265

 
$

 
$

 
$
8,300

 
$
265

State and political subdivisions—tax exempt
 
1,195

 
2

 

 

 
$
1,195

 
$
2

Mortgage-backed securities—residential issued by government sponsored entities
 
40,504

 
226

 

 

 
40,504

 
226

Total
 
$
49,999

 
$
493

 
$

 
$

 
$
49,999

 
$
493

Held-to-Maturity
 

 

 

 

 

 

U.S. government agencies
 
$
6,286

 
$
22

 
$

 
$

 
$
6,286

 
$
22

Corporate bonds
 
22,950

 
2,050

 
4,725

 
321

 
27,675

 
2,371

Mortgage-backed securities—residential issued by government sponsored entities
 
22,397

 
39

 
9,303

 
152

 
31,700

 
191

Total
 
$
51,633

 
$
2,111

 
$
14,028

 
$
473

 
$
65,661

 
$
2,584


11

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
 
 
 
 
 
 
 
 
 
 
 
 
U.S Government agencies
 
$

 
$

 
$
13,035

 
$
351

 
$
13,035

 
$
351

Corporate bonds
 
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 September 30, 2016 , the Company’s security portfolio consisted of 143 securities, 11 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s corporate bonds and mortgage-backed securities.
The corporate bonds in an unrealized loss position at September 30, 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 September 30, 2016 or December 31, 2015 .
All of the mortgage-backed securities at September 30, 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 September 30, 2016 or December 31, 2015 .
Investment securities having carrying values of approximately $404.0 million and $311.5 million at September 30, 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.

12

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


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

September 30, 2016
 
December 31, 2015
Non-owner occupied commercial real estate

$
920,521


$
866,392

Other commercial construction and land

222,794


196,795

Multifamily commercial real estate

76,296


80,708

1-4 family residential construction and land

111,954


93,242

Total commercial real estate

1,331,565


1,237,137

Owner occupied commercial real estate

1,072,586


1,104,972

Commercial and industrial

1,458,523


1,309,704

Lease financing

525


1,256

Total commercial

2,531,634

 
2,415,932

1-4 family residential

1,168,468


1,017,791

Home equity loans

364,117


375,276

Other consumer loans

349,013


436,478

Total consumer

1,881,598

 
1,829,545

Other

191,136


150,102

Total loans

$
5,935,933

 
$
5,632,716

Total loans include $8.2 million and $10.6 million of 1 -4 family residential loans held for sale, $87.1 million and $0.0 million of Commercial and Industrial loans held for sale and $16.1 million and $17.1 million of net deferred loan origination costs and fees as of September 30, 2016 and December 31, 2015 , respectively.
As of September 30, 2016 , other loans include $38.9 million , $134.4 million and $1.2 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.
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.

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


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, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Accretable Yield

 
 
 
 
 
 
 
Balance at beginning of period

$
170,935

 
$
232,450

 
$
208,844

 
$
292,633

Accretion of income

(18,870
)
 
(23,878
)
 
(59,636
)
 
(73,770
)
Reclassification from nonaccretable difference

8,045

 
28,172

 
29,668

 
73,800

Other

(4,815
)
 
(6,952
)
 
(23,581
)
 
(62,871
)
Balance at end of period

$
155,295

 
$
229,792

 
$
155,295

 
$
229,792

 

 
 
 
 
 
 
 
Nonaccretable difference, balance at the end of the period

$
91,929

 
$
165,699

 
$
91,929

 
$
165,699

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

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


The following is a summary of the major categories of non-covered loans outstanding as of September 30, 2016 and December 31, 2015 :
(Dollars in thousands)

Non-PCI Loans

 

 
September 30, 2016

New
 
Acquired

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

$
644,034

 
$
36,510

 
$
239,977

 
$
920,521

Other commercial construction and land

160,062

 
103

 
62,629

 
222,794

Multifamily commercial real estate

51,155

 
5,238

 
19,903

 
76,296

1-4 family residential construction and land

111,671

 

 
283

 
111,954

Total commercial real estate

966,922

 
41,851

 
322,792

 
1,331,565

Owner occupied commercial real estate

878,104

 
28,703

 
165,779

 
1,072,586

Commercial and industrial loans

1,388,333

 
3,856

 
66,334

 
1,458,523

Lease financing

525

 

 

 
525

Total commercial

2,266,962

 
32,559