Capital Bank Financial Corp. Reports Third Quarter Net Income of $11.4 Million or $0.22 Per Diluted Share and Core Net Income of $12.7 Million or $0.24 Per Diluted Share

• Loan originations increased 68% from the prior year third quarter to $291.3 million;
• Total cost of deposits declined during the quarter by five basis points to 0.38%;
• Net interest margin increased during the quarter by thirteen basis points to 4.45%;
• Resolved $79.0 million in problem assets on strong long collections and REO sales;
• Repurchased 600,000 shares and ended the quarter with a Tier 1 leverage ratio of 14.5%;
• Recorded Southern Community Financial Corporation measurement period adjustments, which increased estimated fair values of loans by $43.2 million.

CORAL GABLES, Fla., Oct. 17, 2013 (GLOBE NEWSWIRE) -- Capital Bank Financial Corp. (Nasdaq:CBF) (the "Company") today reported third quarter 2013 net income of $11.4 million, or $0.22 per diluted share, an increase of 29% compared to net income of $9.4 million, or $0.17 per diluted share, for the second quarter of 2013. Core net income for the third quarter of 2013, increased 20% to $12.7 million, or $0.24 per diluted share, compared to core net income of $10.6 million, or $0.20 per diluted share for the second quarter of 2013.

Core adjustments for the third quarter of 2013 included $1.1 million of non-cash equity compensation associated with original founder awards, $0.8 million of income from the reduction of contingent value right ("CVR") expected payouts, a $0.4 million gain on extinguishment of debt related to $8.0 million in prepayments of trust preferred securities, a $0.1 million loss on investment securities, and a tax adjustment of $1.6 million associated with changes in certain statutory rates that were enacted into law during the third quarter, which are effective in future years. The reconciliation of non-GAAP measures (including core net income, tangible book value and tangible book value per share), which the Company believes facilitate the assessment of its banking operations and peer comparability, is included in tabular form at the end of this release. In addition, the reconciliation of the impact of measurement period adjustments details the retrospective adjustments and their impact on the operating results of the Company during the fourth quarter of 2012 and the first and second quarters of 2013.

Gene Taylor, Chairman and Chief Executive Officer of Capital Bank Financial Corp., commented, "I am very pleased with our improving return on assets and continued momentum in loan originations, which were up 68% year-over-year. We remain committed to further improvements in return on assets and return on tangible equity and to generating organic growth in loans and core deposits."

Chris Marshall, Chief Financial Officer of Capital Bank Financial Corp., added, "Our third quarter results reflect consistent improvement across our company, but most importantly in our bottom line. Despite the sluggish economy, we continue to generate new business with top tier clients, while carefully exiting less profitable, higher risk relationships. "

Financial Discussion

The Company's banking operations began with the acquisitions of three banks from the FDIC on July 16, 2010 and subsequently included the acquisitions of TIB Financial Corp. on September 30, 2010, Capital Bank Corporation on January 28, 2011, Green Bankshares, Inc. on September 7, 2011 and Southern Community Financial Corporation on October 1, 2012. Accordingly, operating results for the three and nine months ended September 30, 2013 and 2012 are not generally comparable.

As previously discussed in the Company's annual report on Form 10-K, the initial estimated fair values of assets acquired and liabilities assumed for the acquisition of Southern Community Financial Corporation were based on the information that was available at the time to make the preliminary estimates of fair value. During the third quarter of 2013, we concluded that the underlying asset quality should lead to stronger than initially expected credit performance for the Southern Community Financial Corporation loan portfolio, which required revisions to the original estimated fair value amounts. As required by the acquisition method of accounting, the Company retrospectively adjusted the acquisition date balance sheet and the results of operations of the fourth quarter of 2012 and first two quarters of 2013 to reflect the following: (1) increase in the estimated fair value of the loan portfolio; (2) increase in the associated CVR; (3) decrease in the deferred tax asset related to the increased value of loans; and (4) decrease in Goodwill caused by the net effect of these adjustments. All amounts presented in this press release reflect such adjustments. A reconciliation of their impact on the acquired assets, assumed liabilities and prior period operating results is included in tabular form at the end of this release.

Loan Portfolio and Composition

During the third quarter, the loan portfolio decreased by $121.8 million, or 3%, to $4.5 billion as originations of $291.3 million were offset by $65.8 million of resolutions of problem loans and $337.0 and $10.3 million of principal repayments and transfers to OREO, respectively.

Commenting on this performance, Mr. Taylor stated, "We are seeing intense competition involving long-term fixed rates and unattractive credit terms for commercial and commercial real estate loans that we believe would be imprudent for us to match. To achieve our loan growth goals in this difficult environment, we are continuing to invest in our salesforce and realigning certain parts of the commercial team to more effectively identify and manage payoff risk."

The relative composition of the Company's loan portfolio at the end of the third and second quarters of 2013 and the fourth quarter of 2012, was as follows:

At September 30, 2013, the mix of the loan portfolio remained consistent with the prior quarter.

Deposits, Composition and Yields

During the third quarter, total deposits decreased to $5.3 billion from $5.5 billion at June 30, 2013. The $202.1 million decrease was mainly due to continued planned shrinkage in high-cost legacy time deposits.  Core deposits now make up 70.0% of total deposits as compared to 67.5% in the second quarter of 2013.

The cost of deposits declined during the third quarter to 0.38% from 0.43% for the second quarter of 2013.  Lower average balances and rates in time deposits coupled with increased noninterest bearing accounts drove the improvement during the third quarter.  The costs of core deposits remained flat at 0.14%. 

Net Interest Income and Net Interest Margin

Net interest income for the third quarter of 2013 remained consistent with the second quarter of 2013 at $65.4 million and increased $5.0 million, or 8%, from $60.3 million for the third quarter of 2012.  The increase in net interest income over the prior year third quarter was mainly due to increased loan and securities balances attributable to the acquisition of Southern Community Financial Corporation, a decline in cost of all deposit types and the extinguishment of debt through the prepayment of $8.0 million of high coupon trust preferred securities during the third quarter of 2013.

The net interest margin for the third quarter was 4.45%, an increase of thirteen basis points, from the second quarter of 2013, which was also largely driven by additional accretion from legacy loan portfolios, the decline in average balances and rates in time deposits and the reduction in high coupon trust preferred debt pre-paid in the third quarter.  New loan originations, which were booked at an average yield of 3.98%, partially offset funding cost savings and the higher loan yields on legacy portfolios. The net interest margin remained consistent with the third quarter of 2012.

Non-Interest Income

Non-interest income increased $1.8 million to $15.3 million for the third quarter of 2013 from $13.5 million for the second quarter of 2013 and decreased $5.0 million from $20.3 million for the third quarter of 2012.  The increase during the quarter was mainly driven by gains of $1.5 million and $0.9 million on the sale of two small investment company partnership interests and favorable legal settlements, respectively, and a quarter-over-quarter decrease in FDIC indemnification asset amortization of $0.6 million. The higher second quarter amortization resulted from lower credit loss expectations, which remained consistent with the Company's most recent estimates for covered loans.  The decrease in non-interest income over the prior year third quarter was mainly due to the decrease in investment securities gains and higher FDIC indemnification asset amortization.  The higher prior-year third quarter investment securities gains were as a result of the Company's strategy to sell non-core assets and lower premium and prepayment risk in our investment portfolio.

Provision for Loan Losses and Credit Quality

The provision for loan losses of $1.0 million recorded for the third quarter of 2013 includes a $1.1 million provision for originated loans and $0.1 million reversal due to improvements in cash flow expectations on certain acquired impaired loan pools.  Net charge-offs for the third quarter of 2013 were $1.4 million.    

The provision for originated loans served to increase the allowance for originated loans to $17.3 million, or 0.88% of $2.0 billion in originated loans outstanding.

During the third quarter, non-performing loans decreased by $36.2 million to $275.3 million, or 6.1% of total loans, from $311.5 million, or 6.8% of total loans at the end of the second quarter of 2013.  Acquired impaired loans greater than 90 days past due and still accruing decreased by $39.0 million or 13.0% to $261.5 million at the end of the quarter.   Nonaccrual loans increased to 0.57% of total non-purchased credit impaired loans from 0.48% at the end of the second quarter. 

Non-Interest Expense

Non-interest expense decreased to $59.3 million for the third quarter of 2013 from $59.4 million for the second quarter of 2013 and decreased from $69.4 million for the third quarter of 2012.  The decrease in non-interest expense over the prior year third quarter was mainly due to a reduction in non-cash equity compensation, conversion and merger related expenses and foreclosed asset related expenses along with a gain on the prepayment of $8.0 million of high coupon trust preferred securities during the third quarter of 2013.

Income Tax Expense

Income tax expense was $9.0 million for the third quarter of 2013, an effective income tax rate of 44.0%. Income tax expense was $5.6 million for the second quarter of 2013, an effective income tax rate of 37.2%. The increase in effective rate is mainly due to the impact of a $1.6 million charge as a result of changes in certain statutory rates that were enacted into law during the third quarter, which are effective in future years. For the third quarter of 2012, the Company reported an income tax benefit of  $32.4 million as a result of an improvement in forecasted tax deductible credit losses from acquired loans.  

Financial Position

Total assets decreased by $205.9 million to $6.6 billion as of September 30, 2013 from $6.8 billion as of June 30, 2013, mainly due to a $202.1 million reduction in deposits and its associated effect on cash.

Cash and cash equivalents increased to $163.7 million at the end of the third quarter from $156.5 million as of June 30, 2013. The Company's investment securities decreased by $52.1 million mainly due to principal payments partially offset by an improvement in the market value of our available-for-sale securities as a result of favorable interest rate fluctuations.  During the third quarter of 2013, the Company transferred $511.0 million of available-for-sale securities to held-to-maturity securities, at fair value, reflecting the Company's intent and ability to hold those securities to maturity. The related $9.7 million of unrealized holding loss, net of tax, related to the assets transferred is retained in accumulated other comprehensive (loss) income, a component of shareholders equity, and is being amortized as an adjustment to interest income over the remaining life of the securities. This will offset the impact of amortization of the net discount created in the transfer. There were no gains or losses recognized as a result of this transfer. 

Total shareholders' equity increased by $5.1 million during the quarter to $1.1 billion at September 30, 2013. Tangible book value per share was $18.33 as of September 30, 2013. During the third quarter of 2013, the Company's Board of Directors authorized a $100.0 million stock repurchase program, and the Company repurchased approximately 600,000 shares of its common stock at an average price of $21.50 per share. 

The Company's national bank subsidiary, Capital Bank N.A., reported Tier 1, Tier 1 Risk-Based and Total Risk-Based capital ratios of 12.8%, 17.5% and 18.7%, respectively, as of September 30, 2013, under currently applicable regulations.

Conference Call

The Company will host a conference call today at 10:00 a.m. Eastern Time.  The number to call for this interactive teleconference is (719) 325-2454, and the confirmation pass code is 1681125. Please dial in 10 minutes prior to the beginning of the call. A live broadcast of the conference call will be available online at the Company's web site at www.capitalbank-us.com, by following the link to Investor Relations.  An on-line replay of the call will be available for 90 days. A telephonic replay of the conference call will be available through October 24, 2013, by dialing (719) 457-0820 and entering pass code 1681125. 

Forward Looking Statements

Information in this press release contains forward-looking statements. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "anticipate," "believes," "can," "could," "may," "predicts," "potential," "should," "will," "estimate," "plans," "projects," "continuing," "ongoing," "expects," "intends" and similar words or phrases. Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors more fully described under the caption "Risk Factors" in the annual report on Form 10-K and other periodic reports filed by us with the Securities and Exchange Commission. Any or all of our forward-looking statements in this press release may turn out to be inaccurate. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward looking statements including, but not limited to: (1) changes in general economic and financial market conditions; (2) changes in the regulatory environment; (3) economic conditions generally and in the financial services industry; (4) changes in the economy affecting real estate values; (5) our ability to achieve loan and deposit growth; (6) the completion of future acquisitions or business combinations and our ability to integrate the acquired business into our business model; (7) projected population and income growth in our targeted market areas; (8) competitive pressures in our markets and industry; and (9) volatility and direction of market interest rates and a weakening of the economy which could materially impact credit quality trends and the ability to generate loans. All forward-looking statements are necessarily only estimates of future results and actual results may differ materially from expectations. You are, therefore, cautioned not to place undue reliance on such statements which should be read in conjunction with the other cautionary statements that are included elsewhere in this press release. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Use of Non-GAAP Financial Measures

Core net income, tangible book value and tangible book value per share are each non-GAAP measures used in this report. A reconciliation to the most directly comparable GAAP financial measures – net income in the case of core net income and total shareholders' equity in the case of tangible book value and tangible book value per share – appears in tabular form at the end of this release. The Company believes core net income is a useful for both investors and management to understand the effects of certain non-interest items and provides an alternative view of the Company's performance over time and in comparison to the Company's competitors. Core net income should not be viewed as a substitute for net income. The Company believes that tangible book value and tangible book value per share are useful for both investors and management as these are measures commonly used by financial institutions, regulators and investors to measure the capital adequacy of financial institutions. The Company believes these measures facilitate comparison of the quality and composition of the Company's capital over time and in comparison to its competitors. These measures should not be viewed as a substitute for total shareholders' equity. 

These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for analyses of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. 

About Capital Bank Financial Corp.

Capital Bank Financial Corp. is a national bank holding company, formed in 2009 to create a premier regional banking franchise in the southeastern United States. CBF is the parent of Capital Bank N.A., a national banking association with approximately $6.6 billion in total assets as of September 30, 2013 and 163 full-service banking offices throughout Florida, North Carolina, South Carolina, Tennessee and Virginia. To learn more about Capital Bank, N.A., please visit www.capitalbank-us.com.