Capital Bank Financial Corp. Reports 2Q EPS of $0.40, Up 43% Year Over Year, and Core EPS of $0.42, Up 40% Year Over Year

CHARLOTTE, N.C., July 21, 2016 (GLOBE NEWSWIRE) -- Capital Bank Financial Corp. 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:

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. To learn more about Capital Bank Financial Corp., please visit www.capitalbank-us.com.