Capital Bank Financial Corp. Reports Second Quarter Net Income of $12.4 Million or $0.25 Per Diluted Share, Up 47% Year Over Year

• Loan portfolio grew sequentially at an annualized rate of 16%;
• Record new loans of $442 million during the quarter; up 75% and 46% sequentially and year over year, respectively;
• Legacy credit expense declined 32% and 67% on a sequential and year-over-year basis;
• Efficiency and core efficiency ratio declined to 70.5% and 69.3%, respectively;
• ROA and core ROA increased to 76 and 80 basis points, respectively; and
• Tangible book value per share increased to $18.85.

CORAL GABLES, Fla., July 24, 2014 (GLOBE NEWSWIRE) -- Capital Bank Financial Corp. (Nasdaq:CBF) (the "Company") today reported second quarter 2014 net income of $12.4 million, or $0.25 per diluted share, and core net income of $13.1 million, or $0.26 per diluted share. Net income rose 32% year over year and net income per diluted share rose 47%. Core net income rose 22% year over year and core net income per diluted share rose 30%. This resulted in a ROA of 76 basis points and a core ROA of 80 basis points, both of which reflect continued improvements on a sequential and year-over-year basis.

Core adjustments for the second quarter of 2014 included $0.3 million of non-cash equity compensation associated with original founder awards and $0.3 million of contingent value right ("CVR") expense. The reconciliation of non-GAAP measures (including core net income, core efficiency ratio, core ROA, 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.

Gene Taylor, Chairman and Chief Executive Officer of Capital Bank Financial Corp., commented, "Record new loans, combined with reduced run-off from the legacy book, resulted in positive 16% net growth this quarter. I am very pleased with the quality of the new loan book and with the momentum in checking account sales in our retail branches."

Chris Marshall, Chief Financial Officer of Capital Bank Financial Corp., added, "This quarter's improvement in growth and profitability reflects consistent execution by talented teammates throughout the bank. At the same time, we are maintaining our disciplined approach to risk management, which is evident in the bank's diversified portfolio, strong credit quality, and conservative interest rate risk profile."

Loan Portfolio and Composition

During the second quarter, the loan portfolio increased by $175.7 million to $4.7 billion, an annualized growth rate of 16%. New loans of $441.7 million were offset by resolutions totaling $69.8 million, including transfers to OREO of $8.2 million, and principal repayments of $196.2 million.

The relative composition of the Company's loan portfolio at the end of the second and first quarters of 2014 and fourth quarter of 2013 was as follows:

Deposits, Composition and Yields

During the second quarter, total deposits remained consistent at $5.2 billion. The cost of deposits remained flat at 0.33% from the first quarter of 2014 and declined ten basis points from the second quarter of 2013. Continued planned shrinkage in high-cost legacy time deposits drove the improvement year over year. The cost of core deposits remained flat at 0.14% sequentially and year over year. Core deposits include all checking, savings and money market accounts and now represent 73.7% of total deposits.

Net Interest Income and Net Interest Margin

Net interest income declined $1.6 million to $60.8 million from $62.5 million for the first quarter of 2014 and $4.5 million from $65.4 million for the second quarter of 2013. The net interest margin for the second quarter of 2014 was 4.26%, a decline of fifteen basis points sequentially and six basis points year over year. The decline over the first quarter reflects the lower rate of new loans, as compared to the rate on our legacy portfolio. The rate on new loans was 3.50% in the quarter, down from 4.00% in the prior quarter. This decline was driven by a significant shift in customer preference for variable rate financing. The percentage of new loans with variable rates increased to 65% in the quarter, as compared to 54% in the prior quarter.

Non-Interest Income

Non-interest income increased $0.5 million to $11.9 million for the second quarter of 2014 from $11.4 million for the first quarter of 2014 and declined $1.6 million from $13.5 million for the second quarter of 2013.  The decline year over year was mainly driven by an increase of $1.0 million in FDIC indemnification asset amortization as a result of lower credit loss expectations in our legacy loan portfolios.

Provision for Loan Losses and Credit Quality

The provision for loan losses of $1.4 million recorded for the second quarter of 2014 includes a $2.3 million provision for new and acquired non-impaired loans and $0.9 million in reversals of impairments due to improvements in cash flow estimates for certain acquired impaired loan pools.  Net charge-offs for the second quarter of 2014 were $1.7 million.    

The provision for new and acquired non-impaired loans served to increase the related allowance to $20.8 million, or 0.78% of the $2.7 billion in new and acquired non-impaired loans outstanding.

During the second quarter, non-performing loans declined by $24.9 million, or 11% sequentially to $212.1 million. Acquired impaired loans greater than 90 days past due and still accruing declined by $26.2 million sequentially, or 12% to $200.8 million. Nonaccrual loans increased to 0.37% of total non-purchased credit impaired loans from 0.36%, at the end of the first quarter. 

Non-Interest Expense

Non-interest expense declined to $51.3 million for the second quarter of 2014 from $55.2 million for the first quarter of 2014 and declined from $59.4 million for the second quarter of 2013.  The sequential and year over year decline was largely driven by lower legacy credit expenses reflecting the continued resolution of special assets.

OREO valuation and foreclosed asset related expenses, net of gains on sale, declined $3.5 million and $5.4 million sequentially and year over year, respectively. OREO sales during the quarter resulted in a $29.2 million reduction of the OREO balance, approximately 20%, to $96.3 million at June 30, 2014. 

Income Tax Expense

Income tax expense was $7.6 million for the second quarter of 2014, an effective income tax rate of 38.0%. Income tax expense was $7.2 million for the first quarter of 2014, an effective income tax rate of 38.7%. The higher first quarter effective rate was due to the change in value of the CVR in connection with the Company's legacy Green Bankshares portfolio. The change in estimated value of the CVR is not deductible for income tax purposes. Income tax expense was $5.6 million for the second quarter of 2013, an effective income tax rate of 37.2%.  The lower prior year second quarter effective rate was due to higher tax-exempt interest income compared to the current quarter. 

Financial Position

Total assets increased by $75.0 million to $6.6 billion as of June 30, 2014 from $6.5 billion as of March 31, 2014. During the quarter, the Company's loan portfolio increased by $175.7 million to $4.5 billion, an annualized growth rate of 16%. Cash and investment securities declined by $70.9 million to fund loan growth and the repurchase of 1.8 million shares of common stock at an average price of $24.04 per share. In addition, the Company's Board of Directors has authorized a $50.0 million increase in our common stock repurchase authorization. While deposits remained flat, FHLB borrowings increased by $140.0 million. Tangible book value per share was $18.85 as of June 30, 2014, an increase of $0.16 and $0.84 over March 31, 2014 and June 30, 2013, respectively.

The Company's national bank subsidiary, Capital Bank N.A., has preliminary Tier 1, Tier 1 Risk-Based and Total Risk-Based capital ratios of 14.1%, 18.0% and 19.2%, respectively, as of June 30, 2014, 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) 325-2464, and the confirmation pass code is 1013515. Please dial in 10 minutes prior to the beginning of the call. A telephonic replay of the conference call will be available through August 2, 2014, by dialing (719) 457-0820 and entering pass code 1013515. The 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 at the same site for 90 days. 

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 any acquired businesses into our business model; (7) projected population and income growth in our targeted market areas; (8) competitive pressures in our markets and industry; (9) our ability to attract and retain key personnel; (10) changes in accounting policies or judgments and (11) 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, core efficiency ratio, core return-on-assets ("core ROA"), 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 core ROA, total non-interest income and total non-interest expense in the case of core efficiency ratio, 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 each of core net income, core efficiency ratio, and core ROA is 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. Neither core net income, core efficiency ratio, nor core ROA should 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 $6.6 billion in total assets as of June 30, 2014, and 162 full-service banking offices throughout Florida, North and South Carolina, Tennessee and Virginia. To learn more about Capital Bank, N.A., please visit www.capitalbank-us.com.