OREANDA-NEWS. Capital Bank Financial Corp. (Nasdaq:CBF) (the “Company”) today reported net income for the second quarter of 2016 of $17.4 million, or $0.40 per diluted share and core net income of $18.2 million, or $0.42 per diluted share. Year over year net income per diluted share and core net income per diluted share rose 43% and 40%, respectively.

Core adjustments for the second quarter of 2016 included $0.4 million of non-tax deductible merger related expenses, $0.9 million of tax deductible merger related expenses, and $0.1 million of gains on sales of investment securities.

Second quarter highlights include:

•   New loan fundings of $473 million;
•   Sequential growth in loan portfolio at an 8% annualized rate;
•   GAAP and Core efficiency ratio of 60.6% and 59.1%, respectively;
•   An increase in GAAP and Core ROA to 0.93% and 0.97%, respectively; and
•   Declaration of a $0.10 per share quarterly common stock dividend.

Gene Taylor, Chairman and Chief Executive Officer of Capital Bank Financial Corp., commented, “Our team continues to execute well in a tough operating environment, with solid loan growth despite runoff from indirect, tight cost control, excellent credit quality, reduced deposit costs, and relative stability in the net interest margin.”

Chris Marshall, Chief Financial Officer of Capital Bank Financial Corp., added, “We are pleased with our second quarter results, which include continued improvement in ROA, efficiency and EPS. We are focused on generating improvements as we plan for completing the CommunityOne acquisition.”

Loan Portfolio and Composition

During the second quarter, the loan portfolio was up $109.9 million at $5.7 billion. New loans of $473.3 million were offset by loan resolutions and payoffs totaling $363.4 million.

The relative composition of the Company’s loan portfolio at the end of the second and first quarters of 2016 and fourth quarter of 2015 was as follows:

    Jun 30,
 2016		   Mar 31,
 2016		   Dec 31,
 2015
Commercial real estate   22 %   22 %   22 %
C&I   44 %   44 %   43 %
Consumer   31 %   32 %   32 %
Other   3 %   2 %   3 %
Total   100 %   100 %   100 %
 

Deposits Composition and Cost of Funds

During the second quarter, total deposits decreased by $132.6 million to $5.8 billion. The sequential decrease included $129 million in brokered deposits, as a result of the Company's efforts to lower the cost of deposits. The cost of total deposits decreased one basis point to 0.41%, while the cost of core deposits increased one basis point to 0.18%. Core deposits include all checking, savings and money market accounts, excluding brokered, and now represent 71% of total deposits. The contractual cost of total deposits, which excludes purchase accounting, was flat sequentially at 0.42%.

Net Interest Income and Net Interest Margin

Net interest income increased $0.1 million to $61.5 million from $61.4 million for the first quarter of 2016 and increased $0.8 million from $60.7 million for the second quarter of 2015. The net interest margin for the second quarter of 2016 was 3.62%, a decline of two basis points sequentially and 32 basis points year over year. The sequential and year over year net interest margin decline was mostly due to the lower average yield on new loans as compared to the yields of the Company's legacy acquired loans. New and acquired non-impaired loans represent $4.8 billion with an average yield of 3.63%, compared to $0.9 billion of acquired impaired loans outstanding with an average yield of 8.48%.

Non-Interest Income

Non-interest income increased $9.4 million to $11.9 million from $2.6 million for the first quarter of 2016 and increased $1.6 million from $10.4 million for the second quarter of 2015. The sequential increase was mainly driven by the absence of the $9.2 million termination for the FDIC loss share agreements.

The year over year increase was mainly due to the absence of $2.5 million of FDIC indemnification asset expense and $0.3 million of gross impairment loss recorded in the prior year. Partially offsetting the increase was a $0.7 million decline in investment advisory income and a $0.7 million decline in service charges.

Provision for Loan and Lease Losses and Credit Quality

The provision of $1.2 million recorded for the second quarter of 2016 included a $2.0 million provision for new and acquired non-impaired loans partially offset by a provision reversal of $0.8 million on acquired impaired loans during the quarter. Net charge-offs for the second quarter of 2016 were $1.5 million, up from $1.1 million in the first quarter of 2016.

At June 30, 2016, the allowance for loan and lease losses was $44.9 million, of which $23.7 million related to acquired impaired loans and $21.2 million related to new and acquired non-impaired loans. The allowance for loan and lease losses represents 0.78% of the Company's total $5.7 billion loan portfolio.

At June 30, 2016, non-performing loans were $65.1 million, an increase of 0.77% from March 31, 2016, and a decrease of 30.22%, from June 30, 2015, mainly as a result of resolutions and upgrades.

Non-Interest Expense

Non-interest expense declined $2.4 million to $44.5 million from $46.9 million for the first quarter of 2016 and declined $5.0 million from $49.5 million for the second quarter of 2015. The sequential decline was mainly due to a $2.0 million decrease in salaries and benefit expense resulting from seasonality decreases in tax and employee benefit expenses, a $0.6 million decrease in combined merger and restructuring expense, and a $0.4 million decrease in occupancy expense and equipment expense. Partially offsetting the decline was a $0.7 million increase in OREO write downs.

The year over year decline was mainly due to a $1.7 million decrease in salaries and benefit expense resulting from cost saving initiatives, the absence of $1.4 million loss on extinguishment of debt in the prior year, and a decrease of $0.4 million in occupancy and equipment due to the consolidation of facilities.

Income Tax Expense

Income tax expense was $10.3 million for the second quarter of 2016, an effective rate of 37%, compared to $5.8 million and 37% for the first quarter of 2016. Income tax expense was $7.3 million and 36% for the second quarter of 2015.

Financial Position

Total assets increased by $141.4 million to $7.6 billion as of June 30, 2016, from $7.5 billion as of March 31, 2016. During the quarter, the Company’s loan portfolio increased $109.9 million to $5.7 billion. Total deposits decreased by $132.6 million to $5.8 billion, and core deposits decreased by $38.2 million, or a 4% annualized rate. FHLB borrowings increased $250.0 million. Book value per share was $23.52 as of June 30, 2016, an increase of $0.44 and $0.71 over March 31, 2016 and June 30, 2015, respectively.  Tangible book value per share was $20.22 as of June 30, 2016, an increase of $0.45 and $0.53 over March 31, 2016 and June 30, 2015, respectively. During the second quarter, the Company did not repurchase shares of common stock. The Company has $101 million remaining under the current board authorized stock repurchase program.

The Company’s bank subsidiary, Capital Bank Corporation, had preliminary Tier 1 Leverage, Tier 1 Common, Tier 1 Risk-Based and Total Risk-Based capital ratios of 10.4%, 12.0%, 12.0% and 12.7%, respectively, as of June 30, 2016, under currently applicable regulations.

The Company declared a cash dividend of $0.10 per share, payable on August 25, 2016, to shareholders of record as of August 11, 2016.

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 7425320.  Please dial in 10 minutes prior to the beginning of the call. A telephonic replay of the conference call will be available through July 28, 2016, by dialing (719) 457-0820 and entering pass code 7425320. 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 core net income, the core efficiency ratio and core ROA are useful for both investors and management to understand the effects of certain non-interest items and provide an alternative view of the Company’s performance over time and in comparison to the Company’s competitors. These measures 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.

The Company uses these non-GAAP measures for various purposes, including measuring performance for incentive compensation and as a basis for strategic planning and forecasting.

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 analysis 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 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 Corporation, a State of North Carolina chartered financial institution with $7.6 billion in total assets as of June 30, 2016, and 151 full-service banking offices throughout Florida, North and South Carolina, Tennessee and Virginia. 

CAPITAL BANK FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands, except per share data)
(Unaudited)
 
  Three Months Ended
  Jun 30,
 2016		   Mar 31,
 2016		   Dec 31,
 2015		   Sep 30,
 2015		   Jun 30,
 2015
Interest and dividend income $ 69,579     $ 69,472     $ 69,553     $ 68,718     $ 67,311  
Interest expense 8,064     8,105     7,475     7,081     6,626  
Net Interest Income 61,515     61,367     62,078     61,637     60,685  
Provision for loan and lease losses 1,172     1,375     1,089     799     1,299  
Net interest income after provision for loan and lease losses 60,343     59,992     60,989     60,838     59,386  
Non-Interest Income                  
Service charges on deposit accounts 4,486     4,811     4,911     5,472     5,189  
Debit card income 3,235     3,086     3,029     3,113     3,176  
Fees on mortgage loans originated and sold 1,140     971     875     990     1,278  
Investment advisory and trust fees 455     497     597     860     1,125  
FDIC indemnification asset expense —     —     (1,526 )   (1,418 )   (2,499 )
Termination of loss share agreements —     (9,178 )   —     —     —  
Investment securities gains (losses), net 117     40     54     (43 )   231  
Other-than-temporary impairment loss on investments:                  
Gross impairment loss —     —     —     —     (288 )
Other income 2,489     2,339     2,657     2,444     2,151  
Total non-interest income 11,922     2,566     10,597     11,418     10,363  
Non-Interest Expense                  
Salaries and employee benefits 20,139     22,162     20,219     22,620     21,881  
Stock-based compensation expense 467     317     —     309     108  
Net occupancy and equipment expense 7,355     7,703     7,385     7,621     7,754  
Computer services 3,274     3,575     3,479     3,471     3,343  
Software expense 2,000     2,036     2,061     2,198     2,082  
Telecommunication expense 1,558     1,532     1,168     1,515     1,367  
OREO valuation expense 1,119     467     341     2,075     1,710  
Net gains on sales of OREO (413 )   (679 )   (801 )   (351 )   (957 )
Foreclosed asset related expense 399     285     405     872     600  
Loan workout expense 71     244     650     194     795  
Conversion and merger related expense 1,236     1,687     704     —     —  
Professional fees 1,353     1,612     1,529     1,958     1,723  
Losses on extinguishment of debt —     —     —     —     1,438  
Restructuring charges, net 5     142     4,248     23     178  
Contingent value right expense —     —     —     —     4  
Regulatory assessments 1,259     1,275     1,486     1,423     1,831  
Other expense 4,714     4,580     4,882     4,418     5,645  
Total non-interest expense 44,536     46,938     47,756     48,346     49,502  
Income before income taxes 27,729     15,620     23,830     23,910     20,247  
Income tax expense 10,327     5,780     8,809     8,589     7,257  
Net income $ 17,402     $ 9,840     $ 15,021     $ 15,321     $ 12,990  
Earnings per share:                  
Basic $ 0.40     $ 0.23     $ 0.35     $ 0.34     $ 0.28  
Diluted $ 0.40     $ 0.22     $ 0.34     $ 0.33     $ 0.28  
Weighted average shares outstanding:                  
Basic 43,011     43,063     43,499     45,359     45,913  
Diluted 43,879     43,904     44,550     46,534     47,220  
 
CAPITAL BANK FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
(Unaudited)
 
  Jun 30,
 2016		   Mar 31,
 2016		   Dec 31,
 2015
Assets          
Cash and due from banks $ 84,038     $ 88,802     $ 87,985  
Interest-bearing deposits in other banks 135,977     93,218     56,711  
Total cash and cash equivalents 220,015     182,020     144,696  
Trading securities 3,536     3,418     3,013  
Investment securities available-for-sale at fair value (amortized cost $637,072,
$657,631 and $640,455, respectively)		 650,470     663,925     637,329  
Investment securities held-to-maturity at amortized cost (fair value $477,731,
$467,372 and $475,134, respectively)		 468,943     460,483     472,505  
Loans held for sale 6,446     8,070     10,569  
Loans, net of deferred loan costs and fees 5,738,459     5,626,887     5,622,147  
Less: Allowance for loan and lease losses 44,883     45,263     45,034  
Loans, net 5,693,576     5,581,624     5,577,113  
Other real estate owned 44,236     48,505     52,776  
FDIC indemnification asset —     —     6,725  
Receivable from FDIC —     —     678  
Premises and equipment, net 158,305     157,131     159,149  
Goodwill 134,522     134,522     134,522  
Intangible assets, net 13,231     14,166     15,100  
Deferred income tax asset, net 92,277     95,363     105,316  
Other assets 135,668     130,571     129,988  
Total Assets $ 7,621,225     $ 7,479,798     $ 7,449,479  
Liabilities and Shareholders’ Equity          
Liabilities          
Deposits:          
Non-interest bearing demand $ 1,172,481     $ 1,190,831     $ 1,121,160  
Interest bearing demand 1,456,558     1,402,342     1,382,732  
Money market 1,155,475     1,262,581     1,190,121  
Savings 403,106     420,073     418,879  
Time deposits 1,619,507     1,663,906     1,747,318  
Total deposits 5,807,127     5,939,733     5,860,210  
Federal Home Loan Bank advances 650,800     400,849     460,898  
Short-term borrowings 16,785     16,200     12,410  
Long-term borrowings 86,883     86,328     85,777  
Accrued expenses and other liabilities 43,132     39,695     43,919  
Total liabilities $ 6,604,727     $ 6,482,805     $ 6,463,214  
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, 37,237
issued and 26,665 outstanding, 37,207 issued 26,636 outstanding and 37,012
issued and 26,589 outstanding, respectively.		 372     372     370  
Common stock-Class B $0.01 par value: 200,000 shares authorized, 18,327
issued and 16,554 outstanding, 18,327 issued and 16,554 outstanding and
18,327 issued and 16,554 outstanding, respectively.		 183     183     183  
Additional paid in capital 1,077,769     1,076,931     1,076,415  
Retained earnings 227,370     214,268     208,742  
Accumulated other comprehensive (loss) income 9,443     3,878     (5,196 )
Treasury stock, at cost, 12,345, 12,345 and 12,196 shares, respectively (298,639 )   (298,639 )   (294,249 )
Total shareholders’ equity 1,016,498     996,993     986,265  
Total Liabilities and Shareholders’ Equity $ 7,621,225     $ 7,479,798     $ 7,449,479  
 
CAPITAL BANK FINANCIAL CORP.
KEY METRICS
(Dollars in thousands)
(Unaudited)
 
  Three Months Ended
  Jun 30,
 2016		   Mar 31,
 2016		   Dec 31,
 2015		   Sep 30,
 2015		   Jun 30,
 2015
Performance Ratios                  
Interest rate spread 3.48 %   3.50 %   3.57 %   3.68 %   3.79 %
Net interest margin 3.62 %   3.64 %   3.70 %   3.82 %   3.94 %
Return on average assets 0.93 %   0.53 %   0.82 %   0.86 %   0.75 %
Return on average shareholders' equity 6.87 %   3.96 %   5.99 %   5.85 %   4.90 %
Efficiency ratio 60.65 %   73.42 %   65.71 %   66.18 %   69.67 %
Average interest-earning assets to average interest-bearing liabilities 131.21 %   129.54 %   129.55 %   132.10 %   133.39 %
Average loans receivable to average deposits 96.56 %   95.66 %   96.68 %   96.01 %   94.12 %
Yield on interest-earning assets 4.09 %   4.11 %   4.14 %   4.26 %   4.36 %
Cost of interest-bearing liabilities 0.62 %   0.62 %   0.57 %   0.58 %   0.57 %
Asset and Credit Quality Ratios-Total Loans                  
Non-accrual loans $ 9,016     $ 8,526     $ 8,945     $ 9,647     $ 9,807  
Nonperforming acquired loans $ 56,108     $ 56,041     $ 59,194     $ 72,023     $ 83,515  
Nonperforming loans to loans receivable 1.13 %   1.15 %   1.21 %   1.51 %   1.79 %
Nonperforming assets to total assets 1.44 %   1.51 %   1.63 %   1.88 %   2.23 %
Covered loans to total gross loans — %   — %   1.30 %   1.45 %   3.39 %
ALLL to nonperforming assets 40.98 %   39.97 %   37.13 %   33.88 %   30.56 %
ALLL to total gross loans 0.78 %   0.80 %   0.80 %   0.86 %   0.92 %
Annualized net charge-offs/average loans 0.11 %   0.08 %   0.17 %   0.20 %   0.12 %
Asset and Credit Quality Ratios-New Loans                  
Nonperforming new loans to total new loans receivable 0.12 %   0.11 %   0.11 %   0.17 %   0.19 %
New loans ALLL to total gross new loans 0.46 %   0.47 %   0.47 %   0.51 %   0.59 %
Asset and Credit Quality Ratios-Acquired Loans                  
Nonperforming acquired loans to total acquired loans receivable 5.08 %   4.67 %   4.69 %   5.21 %   5.58 %
Covered acquired loans to total gross acquired loans — %   — %   5.43 %   5.45 %   11.38 %
Acquired loans ALLL to total gross acquired loans 2.04 %   1.93 %   1.83 %   1.80 %   1.71 %
Capital Ratios (Company)                  
Total average shareholders' equity to total average assets 13.55 %   13.35 %   13.67 %   14.79 %   15.41 %
Tangible common equity ratio (1) 11.62 %   11.57 %   11.46 %   12.26 %   13.15 %
Tier 1 leverage capital ratio 12.64 %   12.49 %   12.67 %   13.60 %   14.66 %
Tier 1 common capital ratio 13.38 %   13.38 %   14.73 %   14.44 %   16.07 %
Tier 1 risk-based capital ratio 14.57 %   14.58 %   13.63 %   15.60 %   17.33 %
Total risk-based capital ratio 15.29 %   15.32 %   15.47 %   16.38 %   18.18 %
Capital Ratios (Bank)                  
Tangible common equity ratio (1) 10.71 %   11.45 %   11.20 %   11.36 %   11.35 %
Tier 1 leverage capital ratio 10.42 %   11.10 %   11.09 %   11.19 %   11.15 %
Tier 1 common capital ratio 11.97 %   12.95 %   12.89 %   12.85 %   13.18 %
Tier 1 risk-based capital ratio 11.97 %   12.95 %   12.89 %   12.85 %   13.18 %
Total risk-based capital ratio 12.72 %   13.72 %   13.68 %   13.69 %   14.10 %
                             
(1) See "Reconciliation of Non-GAAP Measures"                            
                             
CAPITAL BANK FINANCIAL CORP.
LOANS AND DEPOSITS
(Dollars in thousands)
(Unaudited)
 
  Jun 30,
 2016		   Mar 31,
 2016		   Dec 31,
 2015		   Sep 30,
 2015		   Jun 30,
 2015
Loans                  
Non-owner occupied commercial real estate $ 891,830     $ 850,766     $ 866,392     $ 847,225     $ 834,351  
Other commercial construction and land 212,315     194,971     196,795     192,283     182,283  
Multifamily commercial real estate 74,328     75,737     80,708     82,762     76,754  
1-4 family residential construction and land 100,306     96,703     93,242     87,193     78,572  
Total commercial real estate 1,278,779     1,218,177     1,237,137     1,209,463     1,171,960  
Owner occupied commercial real estate 1,075,306     1,095,460     1,104,972     1,065,875     1,030,111  
Commercial and industrial 1,448,698     1,375,233     1,309,704     1,219,101     1,181,451  
Lease financing 877     1,088     1,256     1,488     1,661  
Total commercial 2,524,881     2,471,781     2,415,932     2,286,464     2,213,223  
1-4 family residential 1,039,309     1,015,071     1,017,791     985,982     959,224  
Home equity loans 364,169     368,510     375,276     373,993     375,271  
Indirect auto loans 285,618     317,863     351,817     318,841     263,723  
Other consumer loans 85,964     84,108     84,661     82,483     77,867  
Total consumer 1,775,060     1,785,552     1,829,545     1,761,299     1,676,085  
Other 166,185     159,447     150,102     147,718     145,146  
Total loans $ 5,744,905     $ 5,634,957     $ 5,632,716     $ 5,404,944     $ 5,206,414  
                   
Deposits                  
Non-interest bearing demand $ 1,172,481     $ 1,190,831     $ 1,121,160     $ 1,099,252     $ 1,132,085  
Interest bearing demand 1,456,558     1,402,342     1,382,732     1,251,365     1,367,123  
Money market 1,105,460     1,162,546     1,040,086     927,391     991,520  
Savings 403,106     420,073     418,879     436,385     479,885  
Total core deposits 4,137,605     4,175,792     3,962,857     3,714,393     3,970,613  
Wholesale money market 50,015     100,035     150,035     78,015     —  
Time deposits 1,619,507     1,663,906     1,747,318     1,773,170     1,521,810  
Total deposits $ 5,807,127     $ 5,939,733     $ 5,860,210     $ 5,565,578     $ 5,492,423