Capital Bank Corporation Announces Financial Results for the Fourth Quarter and Full Year of 2011

RALEIGH, N.C., April 9, 2012 /PRNewswire/ -- Capital Bank Corporation (the "Company") (Nasdaq: CBKN), a majority-owned subsidiary of Capital Bank Financial Corp. ("CBF"; formerly North American Financial Holdings, Inc.), today reported financial results for the fourth quarter and full year of 2011. Operating and financial highlights include the following:

• Net income totaled $1.5 million, or $0.02 per share, in the fourth quarter of 2011 and totaled $5.3 million, or $0.06 per share, in the successor period from January 29 to December 31, 2011; and

• Following the merger of GreenBank, the wholly-owned subsidiary of Green Bankshares, Inc. ("Green Bankshares"), into Capital Bank, NA, the Company held a 26% ownership interest in Capital Bank, NA, which has $6.5 billion in assets and operates 143 branches in Florida, North Carolina, South Carolina, Tennessee and Virginia.

"Thanks to the hard work of team mates across the company, I am very proud to be able to say that today, Capital Bank, NA is a single bank, with 143 branches operating under one brand, offering a common set of products and processing on one IT system. That is a huge accomplishment for us in such a short period of time," stated Gene Taylor, Chairman and Chief Executive Officer of CBF and Capital Bank Corporation.

"We are pleased with continued success in generating new loans and core deposits. These activities are helping customers achieve their goals and will lead to higher profitability for the company," commented Chris Marshall, Chief Financial Officer of CBF and Capital Bank Corporation.

Bank Mergers

On June 30, 2011, Capital Bank, formerly a wholly-owned subsidiary of the Company ("Old Capital Bank"), merged with and into NAFH National Bank, a national banking association, with NAFH National Bank as the surviving entity (the "Bank Merger"). In connection with the Bank Merger, NAFH National Bank changed its name to Capital Bank, NA. On September 7, 2011, CBF acquired a controlling interest in Green Bankshares and merged its banking subsidiary, GreenBank, with and into Capital Bank, NA. Following the GreenBank merger, Capital Bank, NA is now owned by the Company, CBF, TIB Financial Corp. ("TIB Financial") and Green Bankshares. CBF is the owner of approximately 83% of the Company's common stock, approximately 94% of TIB Financial's common stock and approximately 90% of Green Bankshares' common stock. Previously, on April 29, 2011, Capital Bank, NA merged with TIB Bank, then a wholly-owned subsidiary of TIB Financial.

The Bank Merger occurred pursuant to the terms of an Agreement of Merger entered into by and between Old Capital Bank and Capital Bank, NA, dated as of June 30, 2011. In the Bank Merger, each share of Old Capital Bank common stock was converted into the right to receive shares of Capital Bank, NA common stock based on each entity's relative tangible book value on March 31, 2011. Following the GreenBank merger, the Company now owns approximately 26% of Capital Bank, NA, with CBF having a direct ownership of 19%, TIB Financial owning 21%, and Green Bankshares owning the remaining 34%.

The Bank Merger, the preceding merger of TIB Bank and Capital Bank, NA, and the succeeding merger of GreenBank and Capital Bank, NA were restructuring transactions between commonly-controlled entities. At the time of the Bank Merger, due to the deconsolidation of Old Capital Bank, the balance of accumulated other comprehensive income was reclassified to common stock within shareholders' equity. Immediately following the Bank Merger, on June 30, 2011, CBF, the Company and TIB Financial made cash contributions of additional capital to Capital Bank, NA of $4.7 million, $6.1 million and $5.2 million, respectively, in proportion to their respective ownership interests in Capital Bank, NA. On September 30, 2011, the Company made a $10.0 million contribution of additional capital to Capital Bank, NA in exchange for additional shares of Capital Bank, NA. These capital contributions were made to provide additional capital support for the general business

operations of Capital Bank, NA. As of December 31, 2011, Capital Bank, NA operated 143 branches in Florida, North Carolina, South Carolina, Tennessee and Virginia and had total assets of $6.5 billion, total deposits of $5.1 billion and shareholders' equity of $939.8 million.

The Company reports its investment in Capital Bank, NA on the Consolidated Balance Sheet as an equity method investment in that entity. As of December 31, 2011, the Company's investment in Capital Bank, NA totaled $243.7 million, which reflected the Company's pro rata ownership of Capital Bank, NA's total shareholders' equity. The Company also had an advance to Capital Bank, NA totaling $3.4 million as of December 31, 2011. In the quarter ended December 31, 2011, the Company increased the equity investment balance by $1.8 million based on its equity in Capital Bank, NA's net income and decreased the equity investment balance by $148 thousand based on its equity in Capital Bank, NA's other comprehensive income.

The following table presents summarized financial information for the Company's equity method investee, Capital Bank, NA, for each period presented:

Potential Merger of the Company and CBF

On September 1, 2011, the Boards of Directors of CBF and the Company approved and adopted a merger agreement. The merger agreement provides for the merger, following the receipt of shareholder approval by the Company's shareholders (including CBF), of the Company with and into CBF, with CBF continuing as the surviving entity. In the merger, each share of the Company's common stock issued and outstanding immediately prior to the completion of the merger, except for shares for which appraisal rights are properly exercised and certain shares held by CBF or the Company, will be converted into the right to receive 0.1354 of a share of CBF Class A common stock. No fractional shares of Class A common stock will be issued in connection with the merger, and holders of the Company's common stock will be entitled to receive cash in lieu thereof.

Since CBF is the majority shareholder of the Company, CBF will be able to determine the outcome of the shareholder vote needed to approve the merger.

Net Interest Income

Net interest income in the fourth quarter of 2011 was significantly impacted by the Bank Merger, upon which Old Capital Bank's earning assets and interest-bearing liabilities were deconsolidated from the Company. Following the Bank Merger on June 30, 2011, the Company's interest-bearing liabilities, which consisted of subordinated debentures, significantly exceeded interest-earning assets, thus creating negative net interest income and a negative net interest margin. Net interest income for the quarter ended December 31, 2011 (Successor) and the quarter ended December 31, 2010 (Predecessor) totaled ($277) thousand and $12.3 million, respectively. Net interest margin decreased from 3.16% in the fourth quarter of 2010 (Predecessor) to (32.39)% in the fourth quarter of 2011 (Successor) primarily due to the Bank Merger.

Further, net interest income for the period of January 29 to December 31, 2011 (Successor), the period of January 1 to January 28, 2011 (Predecessor), and the year ended December 31, 2010 (Predecessor) totaled $24.9 million, $4.0 million and $51.0 million, respectively. Net interest margin increased from 3.27% in the year ended December 31, 2010 (Predecessor) to 4.13% for the period of January 29 to December 31, 2011 (Successor) primarily due to a decline in funding costs as the average rate on total interest-bearing liabilities fell from 1.88% to 1.17% over that period. Average earning assets decreased from $1.60 billion in the year ended December 31, 2010 (Predecessor) to $1.54 billion in the period of January 1 to January 28, 2011 (Predecessor) to $670.7 million in the period of January 29 to December 31, 2011 (Successor). The decline in average earning assets in the successor period was primarily related to the Bank Merger.

Provision for Loan Losses

Due to the Bank Merger, there was no provision for loan losses in the quarter ended December 31, 2011 (Successor). Provision for loan losses for the quarter ended December 31, 2010 (Predecessor) totaled $20.0 million. In addition, provision for loan losses for the period of January 29 to December 31, 2011 (Successor), the period of January 1 to January 28, 2011 (Predecessor), and the year ended December 31, 2010 (Predecessor) totaled $1.5 million, $40 thousand and $58.5 million, respectively. The loan loss provision in the successor period reflects $752 thousand of estimated losses inherent in loans originated subsequent to the CBF investment date, $359 thousand of impairment related to probable decreases in cash flows expected to be collected on certain purchase credit-impaired loan pools, and $339 thousand of losses on acquired non-PCI loans.

Noninterest Income

Noninterest income for the quarter ended December 31, 2011 (Successor) and the quarter ended December 31, 2010 (Predecessor) totaled $1.8 million and $8.0 million, respectively. Noninterest income in the fourth quarter of 2011 (Successor) was solely related to the Company's equity income from its investment in Capital Bank, NA.

Further, noninterest income for the period of January 29 to December 31, 2011 (Successor), the period of January 1 to January 28, 2011 (Predecessor), and the year ended December 31, 2010 (Predecessor) totaled $7.4 million, $832 thousand and $15.5 million, respectively. Noninterest income in the successor period was significantly impacted by the Company's $4.0 million of equity income from its investment in Capital Bank, NA. Additionally, noninterest income in the year ended December 31, 2010 (Predecessor) benefited from $5.9 million of gains recorded on the sale of investment securities while no gains or losses were recognized in the period from January 29 to December 31, 2011 (Successor) or the period from January 1 to January 28, 2011 (Predecessor).

Noninterest Expense

Noninterest expense for the quarter ended December 31, 2011 (Successor) and the quarter ended December 31, 2010 (Predecessor) totaled $175 thousand and $15.1 million, respectively. Expenses in the successor period were significantly reduced by the Bank Merger and related deconsolidation of Old Capital Bank.

Further, noninterest expense for the period from January 29 to December 31, 2011 (Successor), the period from January 1 to January 28, 2011 (Predecessor) and the year ended December 31, 2010 (Predecessor) totaled $25.3 million, $4.2 million and $54.3 million, respectively. Additionally, expenses in the year ended December 31, 2011 were significantly reduced by the Bank Merger and related deconsolidation of Old Capital Bank. Expenses in the period from January 29 to December 31, 2011 (Successor) were impacted by a $4.0 million contract termination fee related to the conversion and integration of the Company's operations onto a common technology platform utilized across the CBF enterprise. This system conversion is intended to create operating efficiencies and better position the Company for future growth.

Measurement Period Adjustments

Financial results for the year ended 2011 were significantly impacted by the controlling investment in the Company by CBF. The Company elected to apply push-down accounting. Accordingly, the Company's assets and liabilities were adjusted to estimated fair value at the CBF investment date. During the fourth quarter of 2011, the Company was still in the process of completing its fair value analysis (not to exceed one year from the acquisition date) of assets and liabilities, and the Company made adjustments which are retrospectively reflected herein.

The measurement period adjustments were primarily due to a $30.7 million decrease in the acquisition date estimated fair values of certain acquired loans based on further analysis of estimated credit losses and other relevant facts and circumstances existing as of the acquisition date. This adjustment resulted in the Company retrospectively increasing net income by $1.0 million, net of tax, for the second quarter of 2011 (Successor) and retrospectively increasing the equity income from the investment in Capital Bank, NA by $114,000 in the third quarter of 2011 (Successor).

Forward-looking Statements

Information in this press release contains forward-looking statements. Such forward looking statements can be identified by the use of forward looking terminology such as "may," "will," "expect," "anticipate," "estimate," "believe," or "continue," or the negative thereof or other variations thereof or comparable terminology. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, market and economic conditions, the management of our growth, the risks associated with Capital Bank, NA's loan portfolio and real estate holdings, local economic conditions affecting retail and commercial real estate, ability to integrate our new management and directors without encountering potential difficulties, the Company's geographic concentration in the southeastern region of the United States, ability to integrate the operations of Old Capital Bank with those of Capital Bank, NA, the potential for the interests of the other shareholders of Capital Bank, NA to differ from those of the Company, restrictions imposed by Capital Bank, NA's loss sharing agreements with the FDIC, the assumptions and judgments required by loss share accounting and the acquisition method of accounting, competition within the industry, dependence on key personnel, government legislation and regulation, the risks associated with identification, completion and integration of any future acquisitions, risks related to Capital Bank, NA's technology and information systems, the fact that the Company has experienced net losses during the last three fiscal years, risks associated with the controlling interest of CBF in the Company, and risks associated with the limited liquidity of the Company's common stock. Additional factors that could cause actual results to differ materially are discussed in Capital Bank Corporation's filings with the Securities and Exchange Commission, 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.

SOURCE Capital Bank Corporation