RALEIGH, N.C., Nov. 12, 2010 /PRNewswire-FirstCall/ -- Capital Bank Corporation , the parent company of Capital Bank, today reported financial results for the third quarter of 2010.
Key Items in Third Quarter of 2010: -- Regulatory capital ratios remained in excess of "well capitalized" levels as of September 30, 2010; -- Net loss to common shareholders was $9.7 million, or $0.74 per share, in the third quarter of 2010 compared with net income to common shareholders of $3.0 million, or $0.26 per share, in the third quarter of 2009; -- Net interest margin improved to 3.48% in the third quarter of 2010 from 3.25% in the second quarter of 2010 and 3.41% in the third quarter of 2009; -- Nonperforming assets, including restructured loans, were 5.69% of total assets as of September 30, 2010 compared with 5.76% as of June 30, 2010 and 4.87% as of December 31, 2009; -- Allowance for loan losses increased to 2.74% of total loans as of September 30, 2010 from 2.65% as of June 30, 2010 and 1.88% as of December 31, 2009; -- Provision for loan losses fell to $6.8 million in the third quarter of 2010 from $20.0 million in the second quarter of 2010 but increased from $3.6 million in the third quarter of 2009; and -- The valuation allowance recorded against deferred tax assets increased to $8.8 million as of September 30, 2010 from $3.3 million as of June 30, 2010.
On November 4, 2010, subsequent to the third quarter of 2010, the Company announced that North American Financial Holdings, Inc. ("NAFH") agreed to invest approximately $181 million in the Company through the purchase of the Company's common stock at $2.55 per share. The transaction will result in NAFH owning approximately 85% of the Company's common stock. This investment is pursuant to terms and conditions in the investment agreement and is subject to receipt of all necessary regulatory approvals, shareholder approval, and certain other customary closing conditions.
"Our quarterly financial results were impacted by elevated credit losses and an increase in the valuation allowance on our deferred tax assets," stated B. Grant Yarber, president and CEO. "While these factors negatively impacted our bottom line, we remain focused on capital preservation, asset quality, and liquidity management as we emerge from the 'great recession.' Many of our borrowers remain under stress, but we continue to work aggressively to resolve our problem loans and have experienced measurable success with many of these efforts. We are encouraged by the decrease in our nonperforming assets during the third quarter of 2010. As previously announced, we are thrilled to have NAFH commit to investing a significant amount of capital in Capital Bank Corporation, and we look forward to the opportunities this investment will provide for our shareholders, our customers, and our employees."
Net Interest Income
Net interest income decreased by $173 thousand, declining from $13.6 million in the third quarter of 2009 to $13.4 million in the third quarter of 2010. This decrease was primarily due to a 3.3% drop in average earning assets from the third quarter of 2009 to the third quarter of 2010 and was partially offset by an increase in net interest margin from 3.41% in the third quarter of 2009 to 3.48% in the third quarter of 2010. Net interest margin benefited from a significant decline in funding costs partially offset by a decline in asset yields. Rates on total interest-bearing liabilities fell from 2.33% for the quarter ended September 30, 2009 to 1.76% for the quarter ended September 30, 2010. The Company's interest rate swap on prime-indexed commercial loans, which expired in October 2009, increased interest income by $1.1 million in the third quarter of 2009, representing a benefit to net interest margin of 0.27% in that quarter. Since the swap expired in 2009, the Company received no benefit in the third quarter of 2010.
Year-to-date net interest income increased by $2.8 million, rising from $35.9 million in the first nine months of 2009 to $38.7 million in the first nine months of 2010. This improvement was due to an increase in net interest margin from 3.11% in the first nine months of 2009 to 3.30% in the first nine months of 2010, coupled with 0.9% growth in average earning assets over the same period. The interest rate swap contributed $3.4 million to interest income in the first nine months of 2009, representing a benefit to net interest margin of 0.28% in that period.
Mr. Yarber continued, "Ongoing improvement in our margin has been a highlight for Capital Bank. The third quarter 2010 net interest margin of 3.48% was our highest reported quarterly margin in three years despite elevated levels of nonaccrual loans and an interest rate swap that provided margin benefit through the fourth quarter of 2009."
Provision for Loan Losses and Asset Quality
Provision for loan losses for the quarter ended September 30, 2010 totaled $6.8 million, an increase from $3.6 million for the quarter ended September 30, 2009 and a decrease from $20.0 million for the quarter ended June 30, 2010. The loan loss provision remains elevated compared to the same quarter last year due to significantly higher levels of nonperforming assets as well as increased charge-off rates as the Company continues making progress resolving problem loans. On a linked-quarter basis, however, the loan loss provision declined as charge-offs were reduced and nonperforming assets fell. Net charge-offs totaled $6.3 million, or 1.87% of average loans, in the third quarter of 2010, an increase from $2.7 million, or 0.80% of average loans, in the third quarter of 2009 and a decrease from $13.4 million, or 3.91% of average loans, in the second quarter of 2010.
Provision for loan losses totaled $38.5 million for the first nine months of 2010, an increase from $11.2 million for the first nine months of 2009. Net charge-offs increased from $6.5 million, or 0.67% of average loans, in the first nine months of 2009 to $28.4 million, or 2.76% of average loans, in the first nine months of 2010.
Nonperforming assets, which include nonperforming loans and other real estate, totaled 5.32% of total assets as of September 30, 2010, a decrease from 5.37% as of June 30, 2010 and an increase from 2.90% as of December 31, 2009. Nonperforming assets, including restructured loans, totaled 5.69% of total assets as of September 30, 2010, a decrease from 5.76% as of June 30, 2010 and an increase from 4.87% as of December 31, 2009. Loans past due more than 30 days, excluding nonperforming loans, increased to 1.00% of total loans as of September 30, 2010 compared to 0.72% of total loans as of June 30, 2010 and 0.67% as of December 31, 2009.
The allowance for loan losses increased to 2.74% of total loans as of September 30, 2010 compared to 2.65% as of June 30, 2010 and 1.88% as of December 31, 2009. The allowance for loan losses covered 52% of nonperforming loans as of September 30, 2010, which was an increase from 48% as of June 30, 2010 and a decrease from 66% as of December 31, 2009. The allowance for loan losses covered 401% of nonperforming loans, net of impaired loans charged down to fair value, which was a significant increase from 295% as of June 30, 2010 and 115% as of December 31, 2009. As the Company continues to charge down the majority of its impaired loans to current fair value, the allowance for loan losses increasingly represents reserves against performing loans rather than specific reserves against impaired loans.
Noninterest Income
Noninterest income remained relatively flat, totaling $2.5 million in both quarters ended September 30, 2010 and 2009. Bank card services increased by $112 thousand from a higher volume of debit card transactions, and brokerage fees increased by $116 thousand as a result of improved sales efforts. Further, net gains on investment securities, including sales of debt securities as well as appreciation in fair market value of an equity investment, increased by $96 thousand. Offsetting these increases in noninterest income, service charges and other fees declined by $244 thousand due to a reduction in the volume of overdrawn accounts and non-sufficient funds transactions. Additionally, bank owned life insurance, or BOLI, income fell by $102 thousand after the Company surrendered certain BOLI contracts in the third quarter of 2010.
Year-to-date noninterest income decreased by $792 thousand, or 10%, declining from $8.3 million in the first nine months of 2009 to $7.5 million in the first nine months of 2010. This decrease was primarily related to a nonrecurring BOLI gain of $913 thousand in the nine months ended September 30, 2009. In addition, service charges and other fees declined by $433 thousand while mortgage origination and other loan fees declined by $412 thousand. Partially offsetting the decline in noninterest income was an increase of $477 thousand in net gains on investment securities. Additionally, bank card services increased by $346 thousand from a higher volume of debit card transactions, and brokerage fees increased by $275 thousand as a result of improved sales efforts.
Noninterest Expense
Noninterest expense increased $3.1 million, or 28%, rising from $11.1 million in the third quarter of 2009 to $14.2 million in the third quarter of 2010. This increase was primarily due to a $1.5 million increase in other real estate and loan-related costs, of which $1.0 million was related to valuation adjustments to and losses on the sale of other real estate with the remaining increase representing higher loan workout, appraisal and foreclosure costs to resolve problem assets. Additionally, salaries and employee benefits expense increased by $790 thousand due to lower deferred loan costs, which decrease expense, and increased employee health insurance expense. Other noninterest expense increased by $376 thousand primarily due to legal fees and other professional fees associated with the Company's recent public stock offering and withdrawn registration statement.
Year-to-date noninterest expense increased $4.1 million, or 12%, rising from $35.1 million in the first nine months of 2009 to $39.2 million in the first nine months of 2010. This increase was primarily due to a $2.9 million increase in other real estate and loan-related costs, of which $1.9 million was related to valuation adjustments to and losses on the sale of other real estate with the remaining increase representing higher loan workout, appraisal and foreclosure costs to resolve problem assets. Professional fees increased by $614 thousand due to higher legal and audit expense, and other noninterest expense increased by $657 thousand primarily due to fees associated with the Company's recent public stock offering and withdrawn registration statement.
Income Taxes
Income taxes recorded in both the three and nine-month periods ended September 30, 2010 were primarily impacted by net losses before income taxes in those periods, which created tax benefits, offset by valuation allowances recorded against deferred tax assets. The valuation allowance recorded against deferred tax assets increased to $8.8 million as of September 30, 2010 from $3.3 million as of June 30, 2010.
Deferred tax assets represent timing differences in the recognition of certain tax benefits for accounting and income tax purposes, including the expected value of future tax savings that will be available to the Company to offset future taxable income through the carry forward of net operating losses. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. In future periods, the Company may be able to reduce some or all of the valuation allowance upon a determination that it will be able to realize such tax savings.
Balance Sheet
Loan balances declined by $65.4 million in the first nine months of 2010 due in part to net charge-offs in the period as well as net principal paydowns on outstanding loans. The declining loan portfolio reflects an effort by the Company to de-leverage its balance sheet to preserve capital and reduce its exposure to certain sectors of the commercial real estate market. Total investment securities decreased by $49.4 million over the same period as management has continued to sell certain municipal bonds to reduce the duration of its fixed income portfolio and to mitigate its exposure to a future rising interest rate environment. The Company's portfolio has also experienced relatively high levels of paydowns on U.S. government sponsored mortgage-backed securities. The cash surrender value of BOLI policies decreased by $15.9 million after the Company surrendered certain BOLI contracts on former employees and directors in the third quarter of 2010 for the purpose of repositioning the BOLI portfolio for capital, liquidity and tax planning purposes.
Total deposits declined by $18.6 million in the first nine months of 2010. Savings accounts and time deposits increased by $2.2 million and $31.3 million, respectively, during the nine months ended September 30, 2010 while checking accounts and money market accounts decreased by $7.7 million and $44.4 million, respectively, in the same period. Borrowings and repurchase agreements decreased by $44.5 million in the first nine months of 2010 as the Company paid off certain short-term borrowings with increased liquidity from paydowns on loans and investment securities as well as the surrender of certain BOLI contracts.
Capital Bank Corporation, headquartered in Raleigh, N.C., with approximately $1.6 billion in total assets, offers a broad range of financial services. Capital Bank operates 32 banking offices in Asheville (4), Burlington (3), Cary (2), Clayton, Fayetteville (4), Graham, Hickory, Holly Springs, Mebane, Morrisville, Oxford, Pittsboro, Raleigh (5), Sanford (3), Siler City, Wake Forest and Zebulon. The Company's website is http://www.capitalbank-us.com/.
Cautionary Statement
The investment by NAFH discussed above involves the sale of securities in a private transaction that will not be registered under the Securities Act of 1933, as amended, and will be subject to the resale restrictions under that act. Such securities may not be offered or sold absent registration or an applicable exemption from registration requirements. This document does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any sale of securities in any state or jurisdiction in which such an offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
Forward-looking Statements
Information in this press release contains forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, the inability to comply with the requirements of our Memorandum of Understanding with the FDIC and the North Carolina Office of the Commissioner of Banks (the "NC Commissioner"), delays in obtaining or failure to receive required regulatory approvals for the NAFH investment, including approval by the NC Commissioner and the Board of Governors of the Federal Reserve System and the U.S. Department of the Treasury's agreement to permit the Company to redeem or repurchase the Treasury's preferred stock and warrant, the possibility that fewer than the required number of the Company's shareholders vote to approve the NAFH investment or the related amendment to the Company's articles of incorporation, the occurrence of events that would have a material adverse effect on the Company as described in the NAFH investment agreement, the risk that the investment agreement could be terminated under circumstances that would require the Company to pay a termination fee of $5 million, the management of our growth, the risks associated with Capital Bank's loan portfolio, local economic conditions affecting retail and commercial real estate, competition within the industry, dependence on key personnel, government regulation and the risks associated with possible or completed acquisitions. Additional factors that could cause actual results to differ materially are discussed in Capital Bank Corporation's filings with the Securities and Exchange Commission (the "SEC"), including without limitation its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. Capital Bank Corporation does not undertake a duty to update any forward-looking statements in this press release.
Additional Information and Where To Find It
This communication may be deemed to be solicitation material in respect of the proposed investment in the Company by NAFH. The Company will file a definitive proxy statement and other documents regarding the proposed investment transaction described in this press release with the SEC. SHAREHOLDERS OF THE CAPITAL BANK CORPORATION ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE COMPANY'S DEFINITIVE PROXY STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain the proxy statement and other relevant documents free of charge at the SEC's website, http://www.sec.gov/, and the Company's shareholders will receive information at an appropriate time on how to obtain the proxy statement and other transaction-related documents for free from the Company. Such documents are not currently available.
The Company and its directors, executive officers, certain members of management, and employees may have interests in the proposed investment transaction or be deemed to be participants in the solicitation of proxies of the Company's shareholders to approve the proposed investment transaction. Certain information regarding the participants and their interest in the solicitation is set forth in the proxy statement for the Company's 2010 Annual Meeting of Shareholders filed with the SEC on April 30, 2010. Shareholders may obtain additional information regarding the interests of such participants by reading the definitive proxy statement relating to the proposed transaction when it becomes available.
All selected financial data presented below is unaudited. CAPITAL BANK CORPORATION Quarterly Results 2010 ---- September 30 June 30 March 31 ---------- ------- -------- (Dollars in thousands) Interest income $19,535 $19,794 $20,066 Interest expense 6,153 7,050 7,516 ----- ----- ----- Net interest income 13,382 12,744 12,550 Provision for loan losses 6,763 20,037 11,734 ----- ------ ------ Net interest income (loss) after provision for loan losses 6,619 (7,293) 816 Noninterest income 2,500 2,514 2,531 Noninterest expense 14,210 12,380 12,590 ------ ------ ------ Net income (loss) before taxes (5,091) (17,159) (9,243) Income tax expense (benefit) 3,975 (3,576) (3,909) ----- ------ ------ Net income (loss) $(9,066) $(13,583) $(5,334) ======= ======== ======= Dividends and accretion on preferred stock 588 589 589 --- --- --- Net income (loss) attributable to common shareholders $(9,654) $(14,172) $(5,923) ======= ======== ======= 2009 ---- December September 31 30 --------- ---------- (Dollars in thousands) Interest income $20,863 $21,858 Interest expense 7,885 8,303 ----- ----- Net interest income 12,978 13,555 Provision for loan losses 11,822 3,564 ------ ----- Net interest income (loss) after provision for loan losses 1,156 9,991 Noninterest income 1,830 2,507 Noninterest expense 14,683 11,098 ------ ------ Net income (loss) before taxes (11,697) 1,400 Income tax expense (benefit) (4,452) (2,143) ------ ------ Net income (loss) $(7,245) $3,543 ======= ====== Dividends and accretion on preferred stock 588 590 --- --- Net income (loss) attributable to common shareholders $(7,833) $2,953 ======= ====== End of Period Balances 2010 ---- September 30 June 30 March 31 ---------- ------- -------- (Dollars in thousands) Total assets $1,649,699 $1,694,336 $1,739,857 Total earning assets 1,579,489 1,602,891 1,639,864 Cash and cash equivalents 68,069 41,417 53,341 Investment securities 196,046 228,812 232,780 Loans 1,324,932 1,351,101 1,376,085 Allowance for loan losses 36,249 35,762 29,160 Intangible assets 2,006 2,241 2,475 Deposits 1,359,411 1,370,777 1,380,539 Borrowings 129,000 153,000 172,000 Subordinated debentures 34,323 34,323 34,323 Shareholders' equity 116,103 125,479 138,792 Tangible common equity 72,818 81,959 95,038 2009 ---- December September 31 30 --------- ---------- (Dollars in thousands) Total assets $1,734,668 $1,734,950 Total earning assets 1,640,305 1,634,119 Cash and cash equivalents 29,513 52,694 Investment securities 245,492 262,499 Loans 1,390,302 1,357,243 Allowance for loan losses 26,081 19,511 Intangible assets 2,711 2,995 Deposits 1,377,965 1,385,250 Borrowings 167,000 147,000 Subordinated debentures 30,930 30,930 Shareholders' equity 139,785 149,525 Tangible common equity 95,795 105,251 Average Quarterly Balances 2010 ---- September 30 June 30 March 31 ---------- ------- -------- (Dollars in thousands) Total assets $1,665,975 $1,719,240 $1,732,940 Total earning assets 1,578,241 1,623,279 1,639,214 Investment securities 218,883 230,138 231,916 Loans 1,342,835 1,373,613 1,393,169 Deposits 1,345,562 1,382,527 1,374,520 Borrowings 150,478 153,264 170,956 Subordinated debentures 34,323 34,323 31,232 Shareholders' equity 125,103 136,949 140,907 2009 ---- December September 31 30 --------- ---------- (Dollars in thousands) Total assets $1,736,421 $1,705,290 Total earning assets 1,648,872 1,632,707 Investment securities 254,383 265,976 Loans 1,384,285 1,330,199 Deposits 1,379,554 1,375,931 Borrowings 155,989 130,098 Subordinated debentures 30,930 30,930 Shareholders' equity 150,007 145,487 CAPITAL BANK CORPORATION Nonperforming Assets 2010 ---- September 30 June 30 March 31 ---------- ------- -------- (Dollars in thousands) Nonperforming assets: Nonaccrual loans: Commercial real estate $54,770 $61,181 $44,086 Consumer real estate 4,824 4,742 3,809 Commercial owner occupied 5,194 4,854 6,085 Commercial and industrial 3,164 3,311 4,217 Consumer 24 7 8 Other loans 781 781 - --- --- --- Total nonaccrual loans 68,757 74,876 58,205 Accruing loans over 90 days past due 1,169 - - ----- --- --- Total nonperforming loans 69,926 74,876 58,205 Other real estate 17,865 16,088 15,635 ------ ------ ------ Total nonperforming assets 87,791 90,964 73,840 Performing restructured loans 6,066 6,570 24,814 ----- ----- ------ Total nonperforming assets and TDRs $93,857 $97,534 $98,654 ======= ======= ======= 2009 ---- December September 31 30 --------- ---------- (Dollars in thousands) Nonperforming assets: Nonaccrual loans: Commercial real estate $25,593 $14,991 Consumer real estate 3,330 2,235 Commercial owner occupied 6,607 710 Commercial and industrial 3,974 586 Consumer 8 - Other loans - - --- --- Total nonaccrual loans 39,512 18,522 Accruing loans over 90 days past due - - --- --- Total nonperforming loans 39,512 18,522 Other real estate 10,732 8,441 ------ ----- Total nonperforming assets 50,244 26,963 Performing restructured loans 34,177 29,040 ------ ------ Total nonperforming assets and TDRs $84,421 $56,003 ======= ======= Allowance for Loan Losses 2010 ---- September 30 June 30 March 31 ---------- ------- -------- (Dollars in thousands) Allowance for loan losses, beginning $35,762 $29,160 $26,081 Net charge-offs: Charge-offs: Commercial real estate 2,244 8,433 6,891 Consumer real estate 236 1,571 715 Commercial owner occupied 287 1,249 637 Commercial and industrial 4,078 1,875 467 Consumer 18 146 48 Other loans - 209 - --- --- --- Total charge-offs 6,863 13,483 8,758 ----- ------ ----- Recoveries: Commercial real estate 503 38 57 Consumer real estate 22 4 24 Commercial owner occupied 10 - - Commercial and industrial 44 1 16 Consumer 8 5 6 --- --- Total recoveries 587 48 103 --- --- --- Total net charge-offs 6,276 13,435 8,655 ----- ------ ----- Provision for loan losses 6,763 20,037 11,734 ----- ------ ------ Allowance for loan losses, ending $36,249 $35,762 $29,160 ======= ======= ======= 2009 ---- December September 31 30 --------- ---------- (Dollars in thousands) Allowance for loan losses, beginning $19,511 $18,602 Net charge-offs: Charge-offs: Commercial real estate 3,431 978 Consumer real estate 671 137 Commercial owner occupied 710 495 Commercial and industrial 701 920 Consumer 30 145 Other loans - - --- --- Total charge-offs 5,543 2,675 ----- ----- Recoveries: Commercial real estate 189 1 Consumer real estate 93 - Commercial owner occupied - - Commercial and industrial 1 1 Consumer 8 18 Total recoveries 291 20 --- --- Total net charge-offs 5,252 2,655 ----- ----- Provision for loan losses 11,822 3,564 ------ ----- Allowance for loan losses, ending $26,081 $19,511 ======= ======= Other Financial Data and Ratios 2010 ---- September 30 June 30 March 31 ---------- ------- -------- Per Share Data Net income (loss) - basic and diluted $(0.74) $(1.09) $(0.49) Book value 5.81 6.54 7.57 Tangible book value 5.65 6.36 7.38 Common shares outstanding 12,880,954 12,880,954 12,881,354 Average shares outstanding 13,060,739 13,021,208 12,014,430 2009 ---- December September 31 30 --------- ---------- Per Share Data Net income (loss) - basic and diluted $(0.68) $0.26 Book value 8.68 9.58 Tangible book value 8.44 9.31 Common shares outstanding 11,348,117 11,300,369 Average shares outstanding 11,528,693 11,469,064 CAPITAL BANK CORPORATION Other Financial Data and Ratios - Continued 2010 ---- September 30 June 30 March 31 ---------- ------- -------- Net Interest Margin (1) Yield on earning assets 5.04% 4.99% 5.08% Cost of interest-bearing liabilities 1.76 1.97 2.10 Net interest spread 3.28 3.02 2.98 Net interest margin 3.48 3.25 3.22 Asset Quality Ratios Nonperforming loans to total loans 5.28% 5.54% 4.23% Nonperforming assets to total assets 5.32 5.37 4.24 Nonperforming assets and TDRs to total 5.69 5.76 5.67 assets Allowance for loan losses to total loans 2.74 2.65 2.12 Allowance to nonperforming loans 52 48 50 Allowance to nonperforming loans, net of 401 295 132 loans charged down to fair value Net charge-offs to average loans 1.87 3.91 2.48 Past due loans, excluding nonperforming 1.00 0.72 1.24 loans, to total loans Capital Ratios Tangible equity to tangible assets 6.92% 7.28% 7.85% Tangible common equity to tangible assets 4.42 4.84 5.47 Average shareholders' equity to average 7.51 7.97 8.13 total assets Tier 1 leverage 7.56 7.75 8.80 Tier 1 risk-based capital 8.99 9.10 10.24 Total risk-based capital 10.50 10.60 11.73 2009 ---- December September 31 30 --------- ---------- Net Interest Margin (1) Yield on earning assets 5.15% 5.43% Cost of interest-bearing liabilities 2.18 2.33 Net interest spread 2.96 3.10 Net interest margin 3.25 3.41 Asset Quality Ratios Nonperforming loans to total loans 2.84% 1.36% Nonperforming assets to total assets 2.90 1.55 Nonperforming assets and TDRs to total 4.87 3.23 assets Allowance for loan losses to total loans 1.88 1.44 Allowance to nonperforming loans 66 105 Allowance to nonperforming loans, net of 115 182 loans charged down to fair value Net charge-offs to average loans 1.52 0.80 Past due loans, excluding nonperforming 0.67 1.20 loans, to total loans Capital Ratios Tangible equity to tangible assets 7.91% 8.46% Tangible common equity to tangible assets 5.53 6.08 Average shareholders' equity to average 8.64 8.53 total assets Tier 1 leverage 8.94 9.87 Tier 1 risk-based capital 10.16 11.17 Total risk-based capital 11.41 12.42 (1) Annualized and on a fully taxable equivalent basis. Supplemental Loan Portfolio Analysis As of September 30, 2010 ------------------------ Loans Nonaccrual Nonaccrual Outstanding Loans Loans to ----------- ----- Loans Outstanding ----------- (Dollars in thousands) Commercial RE: Residential C&D $208,676 $40,438 19.38% Commercial C&D 183,073 9,761 5.33 Other commercial RE 274,635 4,571 1.66 ------- ----- ---- Total commercial RE 666,384 54,770 8.22 ------- ------ ---- Consumer RE: Residential mortgages 171,792 4,678 2.72 Home equity lines 92,944 146 0.16 ------ --- ---- Total consumer RE 264,736 4,824 1.82 ------- ----- ---- Commercial owner occupied RE 180,002 5,194 2.89 Commercial and industrial 165,526 3,164 1.91 Consumer 6,683 24 0.36 Other loans 41,601 781 1.88 ------ --- ---- Total $1,324,932 $68,757 5.19% ========== ======= ==== As of September 30, 2010 ------------------------ Allowance Allowance for Loan to Loans Losses Outstanding ------ ----------- (Dollars in thousands) Commercial RE: Residential C&D $8,234 3.95% Commercial C&D 4,859 2.65 Other commercial RE 5,389 1.96 ----- ---- Total commercial RE 18,482 2.77 ------ ---- Consumer RE: Residential mortgages 3,149 1.83 Home equity lines 800 0.86 --- ---- Total consumer RE 3,949 1.49 ----- ---- Commercial owner occupied RE 4,124 2.29 Commercial and industrial 9,053 5.47 Consumer 409 6.12 Other loans 232 0.56 --- ---- Total $36,249 2.74% ======= ==== As of September 30, 2010 ------------------------ YTD YTD Net Net Charge- Charge- offs offs to -------- Average Loans ----- (Dollars in thousands) Commercial RE: Residential C&D $15,123 8.54% Commercial C&D 1,536 1.65 Other commercial RE 311 0.16 --- ---- Total commercial RE 16,970 3.32 ------ ---- Consumer RE: Residential mortgages 2,171 1.72 Home equity lines 301 0.42 --- ---- Total consumer RE 2,472 1.25 ----- ---- Commercial owner occupied RE 2,163 1.54 Commercial and industrial 6,359 4.86 Consumer 193 3.14 Other loans 209 0.67 --- ---- Total $28,366 2.76% ======= ==== CAPITAL BANK CORPORATION Supplemental Commercial Real Estate Analysis Residential Construction & Development Loan Analysis by Type As of September 30, 2010 ------------------------ Residential Land / Residential Total Development Construction ----- ----------- ------------ (Dollars in thousands) Loans outstanding $122,147 $86,529 $208,676 Nonaccrual loans 38,179 2,259 40,438 Allowance for loan losses 4,594 3,640 8,234 YTD net charge-offs 12,221 2,902 15,123 Loans outstanding to total loans 9.22% 6.53% 15.75% Nonaccrual loans to loans in category 31.26 2.61 19.38 Allowance to loans in category 3.76 4.21 3.95 YTD net charge-offs to average loans in category (annualized) 11.44 4.13 8.54 Residential Construction & Development Loan Analysis by Region As of September 30, 2010 ------------------------ Percent Loans of Nonaccrual Total Outstanding Loans Loans ----------- Outstanding ----- ----------- (Dollars in thousands) Triangle $156,527 75.01% $34,410 Sandhills 24,907 11.94 977 Triad 4,676 2.24 - Western 22,566 10.81 5,051 ------ ----- ----- Total $208,676 100.00% $40,438 ======== ====== ======= As of September 30, 2010 ------------------------ Nonaccrual Allowance Allowance Loans for Loan to Loans to Loans Losses Outstanding Outstanding ------ ----------- ----------- (Dollars in thousands) Triangle 21.98% $6,176 3.95% Sandhills 3.92 870 3.49 Triad - 217 4.64 Western 22.38 971 4.30 ----- --- ---- Total 19.38% $8,234 3.95% ===== ====== ==== CAPITAL BANK CORPORATION Supplemental Commercial Real Estate Analysis - Continued Commercial Construction & Development and Other CRE Loan Analysis by Type As of September 30, 2010 ------------------------ Commercial Land / Commercial Multifamily Development Construction ----------- ----------- ------------ (Dollars in thousands) Loans outstanding $121,996 $61,077 $40,545 Nonaccrual loans 9,761 - - Allowance for loan losses 3,420 1,439 581 YTD net charge-offs 1,537 (1) 10 Loans outstanding to total loans 9.21% 4.61% 3.06% Nonaccrual loans to loans in category 8.00 - - Allowance to loans in category 2.80 2.36 1.43 YTD net charge-offs to average loans in category (annualized) 1.63 - 0.03 As of September 30, 2010 ------------------------ Commercial Total Non-Owner ----- Occupied RE --------- (Dollars in thousands) Loans outstanding $234,090 $457,708 Nonaccrual loans 4,571 14,332 Allowance for loan losses 4,808 10,248 YTD net charge-offs 301 1,847 Loans outstanding to total loans 17.67% 34.55% Nonaccrual loans to loans in category 1.95 3.13 Allowance to loans in category 2.05 2.24 YTD net charge-offs to average loans in category (annualized) 0.18 0.83 Commercial Construction & Development and Other CRE Loan Analysis by Region As of September 30, 2010 ------------------------ Percent Loans of Nonaccrual Total Outstanding Loans Loans ----------- Outstanding ----- ----------- (Dollars in thousands) Triangle $293,894 64.21% $13,633 Sandhills 66,326 14.49 610 Triad 40,623 8.88 - Western 56,865 12.42 89 ------ ----- --- Total $457,708 100.00% $14,332 ======== ====== ======= As of September 30, 2010 ------------------------ Nonaccrual Allowance Allowance Loans for Loan to Loans to Loans Losses Outstanding Outstanding ------ ----------- ----------- (Dollars in thousands) Triangle 4.64% $6,597 2.24% Sandhills 0.92 1,843 2.78 Triad - 854 2.10 Western 0.16 954 1.68 ---- --- ---- Total 3.13% $10,248 2.24% ==== ======= ==== CAPITAL BANK CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 2010 and December 31, 2009 September 30, December 31, 2010 2009 -------------- ------------- (Dollars in thousands) (Unaudited) Assets Cash and cash equivalents: Cash and due from banks $18,086 $25,002 Interest-bearing deposits with banks 49,983 4,511 ------ ----- Total cash and cash equivalents 68,069 29,513 Investment securities: Investment securities - available for sale, at fair value 184,724 235,426 Investment securities - held to maturity, at amortized cost 2,822 3,676 Other investments 8,500 6,390 ----- ----- Total investment securities 196,046 245,492 Mortgage loans held for sale 8,528 - Loans: Loans - net of unearned income and deferred fees 1,324,932 1,390,302 Allowance for loan losses (36,249) (26,081) ------- ------- Net loans 1,288,683 1,364,221 Other real estate 17,865 10,732 Premises and equipment, net 24,855 23,756 Bank-owned life insurance 6,895 22,746 Core deposit intangible, net 2,006 2,711 Deferred income tax 15,152 12,096 Other assets 21,600 23,401 ------ ------ Total assets $1,649,699 $1,734,668 ========== ========== Liabilities Deposits: Demand, noninterest checking $125,438 $141,069 NOW accounts 183,014 175,084 Money market deposit accounts 139,772 184,146 Savings accounts 31,177 28,958 Time deposits 880,010 848,708 ------- ------- Total deposits 1,359,411 1,377,965 Repurchase agreements and federal funds purchased - 6,543 Borrowings 129,000 167,000 Subordinated debentures 34,323 30,930 Other liabilities 10,862 12,445 ------ ------ Total liabilities 1,533,596 1,594,883 Shareholders' Equity Preferred stock, $1,000 par value; 100,000 shares authorized; 41,279 shares issued and outstanding (liquidation preference of $41,279) 40,345 40,127 Common stock, no par value; 50,000,000 shares authorized; 12,880,954 and 11,348,117 shares issued and outstanding 145,461 139,909 Accumulated deficit (73,955) (44,206) Accumulated other comprehensive income 4,252 3,955 ----- ----- Total shareholders' equity 116,103 139,785 ------- ------- Total liabilities and shareholders' equity $1,649,699 $1,734,668 ========== ========== CAPITAL BANK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Nine Months Ended September 30, 2010 and 2009 (Unaudited) Three Months Ended September 30, 2010 2009 ---- ---- (Dollars in thousands except per share data) Interest income: Loans and loan fees $17,357 $18,720 Investment securities: Taxable interest income 1,854 2,348 Tax-exempt interest income 285 759 Dividends 22 13 Federal funds and other interest income 17 18 --- --- Total interest income 19,535 21,858 ------ ------ Interest expense: Deposits 4,683 6,797 Borrowings and repurchase agreements 1,470 1,506 ----- ----- Total interest expense 6,153 8,303 ----- ----- Net interest income 13,382 13,555 Provision for loan losses 6,763 3,564 ----- ----- Net interest income after provision for loan losses 6,619 9,991 ----- ----- Noninterest income: Service charges and other fees 746 990 Bank card services 521 409 Mortgage origination and other loan fees 442 410 Brokerage fees 271 155 Bank-owned life insurance 138 240 Net gain on investment securities 244 148 Other 138 155 --- --- Total noninterest income 2,500 2,507 ----- ----- Noninterest expense: Salaries and employee benefits 5,918 5,128 Occupancy 1,460 1,471 Furniture and equipment 867 771 Data processing and telecommunications 488 555 Advertising and public relations 435 394 Office expenses 320 386 Professional fees 626 358 Business development and travel 363 268 Amortization of core deposit intangible 235 287 ORE and other loan-related losses 1,833 370 Directors' fees 236 295 FDIC deposit insurance 712 474 Other 717 341 --- --- Total noninterest expense 14,210 11,098 ------ ------ Net income (loss) before income taxes (5,091) 1,400 Income tax expense (benefit) 3,975 (2,143) ----- ------ Net income (loss) $(9,066) $3,543 ======= ====== Dividends and accretion on preferred stock 588 590 --- --- Net income (loss) attributable to common shareholders $(9,654) $2,953 ======= ====== Net income (loss) per common share - basic and diluted $(0.74) $0.26 ====== ===== Nine Months Ended September 30, 2010 2009 ---- ---- (Dollars in thousands except per share data) Interest income: Loans and loan fees $52,080 $52,224 Investment securities: Taxable interest income 5,851 7,708 Tax-exempt interest income 1,369 2,286 Dividends 58 26 Federal funds and other interest income 37 34 --- --- Total interest income 59,395 62,278 ------ ------ Interest expense: Deposits 16,438 21,596 Borrowings and repurchase agreements 4,281 4,782 ----- ----- Total interest expense 20,719 26,378 ------ ------ Net interest income 38,676 35,900 Provision for loan losses 38,534 11,242 ------ ------ Net interest income after provision for loan losses 142 24,658 --- ------ Noninterest income: Service charges and other fees 2,468 2,901 Bank card services 1,479 1,133 Mortgage origination and other loan fees 1,108 1,520 Brokerage fees 743 468 Bank-owned life insurance 632 1,663 Net gain on investment securities 641 164 Other 474 488 --- --- Total noninterest income 7,545 8,337 ----- ----- Noninterest expense: Salaries and employee benefits 16,637 16,945 Occupancy 4,418 4,192 Furniture and equipment 2,312 2,340 Data processing and telecommunications 1,530 1,759 Advertising and public relations 1,464 940 Office expenses 940 1,043 Professional fees 1,785 1,171 Business development and travel 937 843 Amortization of core deposit intangible 705 862 ORE and other loan-related losses 3,858 938 Directors' fees 828 1,131 FDIC deposit insurance 2,028 1,882 Other 1,738 1,081 ----- ----- Total noninterest expense 39,180 35,127 ------ ------ Net income (loss) before income taxes (31,493) (2,132) Income tax expense (benefit) (3,510) (2,561) ------ ------ Net income (loss) $(27,983) $429 ======== ==== Dividends and accretion on preferred stock 1,766 1,764 ----- ----- Net income (loss) attributable to common shareholders $(29,749) $(1,335) ======== ======= Net income (loss) per common share - basic and diluted $(2.34) $(0.12) ====== ====== CAPITAL BANK CORPORATION Average Balances, Interest Earned or Paid, and Interest Yields/Rates For the Three Months Ended September 30, 2010, June 30, 2010 and September 30, 2009 Tax Equivalent Basis (1) September 30, 2010 ------------------ (Dollars in thousands) Average Amount Average Balance Earned Rate ------- ------ ---- Assets Loans (2) $1,342,835 $17,512 5.23% Investment securities (3) 211,547 2,309 4.37 Interest- bearing deposits 23,859 17 0.29 ------ --- ---- Total interest- earning assets 1,578,241 $19,838 5.04% ======= ==== Cash and due from banks 17,285 Other assets 108,461 Allowance for loan losses (38,012) ------- Total assets $1,665,975 ========== Liabilities and Equity Savings accounts $31,594 $10 0.13% Interest- bearing demand deposits 323,242 634 0.79 Time deposits 859,968 4,039 1.88 ------- ----- ---- Total interest- bearing deposits 1,214,804 4,683 1.55 Borrowed funds 150,478 1,156 3.08 Subordinated debt 34,323 314 3.67 Repurchase agreements - - - --- --- --- Total interest- bearing liabilities 1,399,605 $6,153 1.76% ====== ==== Noninterest- bearing deposits 130,758 Other liabilities 10,509 ------ Total liabilities 1,540,872 Shareholders' equity 125,103 ------- Total liabilities and shareholders' equity $1,665,975 ========== Net interest spread (4) 3.28% Tax equivalent adjustment $303 Net interest income and net interest margin (5) $13,685 3.48% ======= ==== June 30, 2010 ------------- (Dollars in thousands) Average Amount Average Balance Earned Rate ------- ------ ---- Assets Loans (2) $1,373,613 $17,465 5.10% Investment securities (3) 224,366 2,722 4.85 Interest- bearing deposits 25,300 10 0.16 ------ --- ---- Total interest- earning assets 1,623,279 $20,197 4.99% ======= ==== Cash and due from banks 17,819 Other assets 111,383 Allowance for loan losses (33,241) ------- Total assets $1,719,240 ========== Liabilities and Equity Savings accounts $30,721 $10 0.13% Interest- bearing demand deposits 326,706 648 0.80 Time deposits 891,645 4,946 2.22 ------- ----- ---- Total interest- bearing deposits 1,249,072 5,604 1.80 Borrowed funds 153,264 1,146 3.00 Subordinated debt 34,323 298 3.48 Repurchase agreements 1,590 2 0.50 ----- --- ---- Total interest- bearing liabilities 1,438,249 $7,050 1.97% ====== ==== Noninterest- bearing deposits 133,455 Other liabilities 10,587 ------ Total liabilities 1,582,291 Shareholders' equity 136,949 ------- Total liabilities and shareholders' equity $1,719,240 ========== Net interest spread (4) 3.02% Tax equivalent adjustment $403 Net interest income and net interest margin (5) $13,147 3.25% ======= ==== September 30, 2009 ------------------ (Dollars in thousands) Average Amount Average Balance Earned Rate ------- ------ ---- Assets Loans (2) $1,330,199 $18,809 5.61% Investment securities (3) 263,513 3,512 5.33 Interest- bearing deposits 38,995 18 0.18 ------ --- ---- Total interest- earning assets 1,632,707 $22,339 5.43% ======= ==== Cash and due from banks 8,256 Other assets 83,589 Allowance for loan losses (19,262) ------- Total assets $1,705,290 ========== Liabilities and Equity Savings accounts $29,267 $11 0.15% Interest- bearing demand deposits 366,632 1,095 1.18 Time deposits 845,311 5,691 2.67 ------- ----- ---- Total interest- bearing deposits 1,241,210 6,797 2.17 Borrowed funds 130,098 1,260 3.84 Subordinated debt 30,930 240 3.08 Repurchase agreements 10,646 6 0.22 ------ --- ---- Total interest- bearing liabilities 1,412,884 $8,303 2.33% ====== ==== Noninterest- bearing deposits 134,721 Other liabilities 12,198 ------ Total liabilities 1,559,803 Shareholders' equity 145,487 ------- Total liabilities and shareholders' equity $1,705,290 ========== Net interest spread (4) 3.10% Tax equivalent adjustment $481 Net interest income and net interest margin (5) $14,036 3.41% ======= ==== (1)The tax equivalent basis is computed using a federal tax rate of 34%. (2)Loans include mortgage loans held for sale in addition to nonaccrual loans for which accrual of interest has not been recorded. (3)The average balance for investment securities excludes the effect of their mark-to-market adjustment, if any. (4)Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest- bearing liabilities. (5)Net interest margin represents net interest income divided by average interest-earning assets. CAPITAL BANK CORPORATION Average Balances, Interest Earned or Paid, and Interest Yields/Rates For the Nine Months Ended September 30, 2010 and 2009 Tax Equivalent Basis (1) September 30, 2010 ------------------ Average Amount Average (Dollars in thousands) Balance Earned Rate -------- ------- -------- Assets Loans (2) $1,369,688 $52,539 5.13% Investment securities (3) 220,525 7,987 4.83 Interest-bearing deposits 23,142 37 0.21 ------ --- ---- Total interest-earnings assets 1,613,355 $60,563 5.02% ======= ==== Cash and due from banks 18,177 Other assets 107,411 Allowance for loan losses (33,136) ------- Total assets $1,705,807 ========== Liabilities and Equity Savings accounts $30,445 $30 0.13% Interest-bearing demand deposits 330,596 2,168 0.88 Time deposits 874,331 14,240 2.18 ------- ------ ---- Total interest-bearing deposits 1,235,372 16,438 1.78 Borrowed funds 158,158 3,446 2.91 Subordinated debt 33,304 830 3.33 Repurchase agreements 2,068 5 0.32 ----- --- ---- Total interest-bearing liabilities 1,428,902 $20,719 1.94% ======= ==== Noninterest-bearing deposits 132,058 Other liabilities 10,585 ------ Total liabilities 1,571,545 Shareholders' equity 134,262 ------- Total liabilities and shareholders' equity $1,705,807 ========== Net interest spread (4) 3.08% Tax equivalent adjustment $1,168 Net interest income and net interest margin (5) $39,844 3.30% ======= ==== September 30, 2009 ------------------ Average Amount Average (Dollars in thousands) Balance Earned Rate -------- ------- -------- Assets Loans (2) $1,293,974 $52,313 5.41% Investment securities (3) 276,649 11,200 5.40 Interest-bearing deposits 28,001 34 0.16 ------ --- ---- Total interest-earnings assets 1,598,624 $63,547 5.31% ======= ==== Cash and due from banks 15,171 Other assets 80,917 Allowance for loan losses (17,731) ------- Total assets $1,676,981 ========== Liabilities and Equity Savings accounts $29,225 $37 0.17% Interest-bearing demand deposits 362,724 3,449 1.27 Time deposits 814,328 18,110 2.97 ------- ------ ---- Total interest-bearing deposits 1,206,277 21,596 2.39 Borrowed funds 138,945 3,923 3.77 Subordinated debt 30,930 839 3.63 Repurchase agreements 12,156 20 0.22 ------ --- ---- Total interest-bearing liabilities 1,388,308 $26,378 2.54% ======= ==== Noninterest-bearing deposits 130,061 Other liabilities 11,963 ------ Total liabilities 1,530,332 Shareholders' equity 146,649 ------- Total liabilities and shareholders' equity $1,676,981 ========== Net interest spread (4) 2.77% Tax equivalent adjustment $1,269 Net interest income and net interest margin (5) $37,169 3.11% ======= ==== (1)The tax equivalent basis is computed using a tax rate of 34%. (2)Loans include mortgage loans held for sale in addition to nonaccrual loans for which accrual of interest has not been recorded. (3)The average balance for investment securities excludes the effect of their mark-to-market adjustment, if any. (4)Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest- bearing liabilities. (5)Net interest margin represents net interest income divided by average interest-earning assets.
Capital Bank Corporation
CONTACT: B. Grant Yarber, President and Chief Executive Officer,
+1-919-645-3494, gyarber@capitalbank-us.com
Web Site: https://www.capitalbank-us.com/
