UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to ____
Commission File Number 0-30062
CAPITAL BANK CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-2101930
-------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4901 Glenwood Avenue
Raleigh, North Carolina 27612
-----------------------------
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 645-6400
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. [ x ] Yes No [ ]
----- -----
As of August 4, 2000, there were issued and outstanding 3,658,689 shares of the
Registrant's common stock, no par value.
<PAGE>
Capital Bank Corporation
CONTENTS
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated statements of financial condition at June 30,
2000 (Unaudited) and December 31, 1999 1
Consolidated statements of income (loss) for the three months
ended June 30, 2000 and June 30, 1999 (Unaudited) 2
Consolidated statements of income (loss) for the six months ended 3
June 30, 2000 and June 30, 1999 (Unaudited)
Consolidated statements of cash flows for the six months ended
June 30, 2000 and June 30, 1999 (Unaudited) 4 - 5
Notes to consolidated financial statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12 - 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2000 and December 31, 1999
June 30, December 31,
ASSETS 2000 1999
---------------------------------------------------------------------------------------
(In thousands except per share data) (Unaudited)
<S> <C> <C>
Cash and due from banks $ 32,284 $ 9,702
Federal funds sold 4,090 1,960
Investment securities - available for sale, at fair value 54,150 46,581
Loans-net of unearned income 214,677 159,329
Allowance for loan losses (3,200) (2,328)
--------- ---------
Net loans 211,477 157,001
--------- ---------
Premises and equipment, net 4,874 3,501
Accrued interest receivable 1,983 1,244
Deposit premium and goodwill, net 4,887 1,617
Other assets 1,718 731
--------- ---------
Total assets $ 315,463 $ 222,337
========= =========
LIABILITIES
Deposits
Demand, non-interest bearing $ 18,964 $ 10,923
Savings and interest bearing demand deposits 60,683 42,144
Time deposits 176,345 110,178
--------- ---------
Total deposits 255,992 163,245
--------- ---------
Accrued interest payable 847 671
Repurchase agreements 7,688 4,818
Borrowings 15,000 20,000
Other liabilities 3,939 2,477
--------- ---------
Total liabilities 283,466 191,211
STOCKHOLDERS' EQUITY
Common stock, no par value; 20,000,000 shares
authorized; 3,658,689 shares issued and outstanding 34,806 34,806
Accumulated deficit (1,340) (2,287)
Accumulated other comprehensive income (loss) (1,469) (1,393)
--------- ---------
Total stockholders' equity 31,997 31,126
--------- ---------
Total liabilities and stockholders' equity $ 315,463 $ 222,337
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
-1-
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three Months Ended June 30, 2000 and 1999
2000 1999
-------------------------------------------------------------------------------------
(In thousands except per share data) (Unaudited)
<S> <C> <C>
Interest income:
Loans and loan fees $ 4,630 $ 2,524
Investment securities 841 736
Federal funds and other interest income 500 153
------- -------
Total interest income 5,971 3,413
------- -------
Interest expense:
Deposits 2,935 1,624
Borrowings and repurchase agreements 316 232
------- -------
Total interest expense 3,251 1,856
------- -------
Net interest income 2,720 1,557
Provision for loan losses 255 195
------- -------
Net interest income after provision for loan losses 2,465 1,362
Noninterest income:
Service charges and other fees 228 108
Other noninterest income 301 192
------- -------
Total noninterest income 529 300
------- -------
Noninterest expenses:
Salaries and employee benefits 1,399 977
Occupancy 173 126
Data processing 123 82
Directors fees 59 46
Advertising 107 67
Furniture and equipment 121 70
Amortization of intangibles 138 54
Merger/acquisition related expenses 50 --
Other expenses 277 143
------- -------
Total noninterest expenses 2,447 1,565
------- -------
Net income (loss) before income tax expense 547 97
Income tax expense (benefit) -- (4)
------- -------
Net income (loss) $ 547 $ 101
======= =======
Earnings per share - basic and diluted $ 0.15 $ 0.02
======= =======
Dividends per share $ -- $ --
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Six Months Ended June 30, 2000 and 1999
2000 1999
-------------------------------------------------------------------------------------
(In thousands except per share data) (Unaudited)
<S> <C> <C>
Interest income:
Loans and loan fees $ 8,296 $ 4,913
Investment securities 1,606 1,473
Federal funds and other interest income 631 252
------- -------
Total interest income 10,533 6,638
------- -------
Interest expense:
Deposits 5,020 3,171
Borrowings and repurchase agreements 638 350
------- -------
Total interest expense 5,658 3,521
------- -------
Net interest income 4,875 3,117
Provision for loan losses 510 399
------- -------
Net interest income after provision for loan losses 4,365 2,718
Noninterest income:
Service charges and other fees 381 205
Other noninterest income 525 367
------- -------
Total noninterest income 906 572
------- -------
Noninterest expenses:
Salaries and employee benefits 2,513 1,846
Occupancy 311 238
Data processing 216 163
Directors fees 119 125
Advertising 211 130
Furniture and equipment 211 133
Amortization of intangibles 192 108
Merger/acquisition related expenses 90 1,647
Other expenses 461 357
------- -------
Total noninterest expenses 4,324 4,747
------- -------
Net income (loss) before income tax expense 947 (1,457)
Income tax expense (benefit) -- (40)
------- -------
Net income (loss) $ 947 $(1,417)
======= =======
Earnings per share - basic and diluted $ 0.26 $ (0.39)
======= =======
Dividends per share $ -- $ 0.05
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999
2000 1999
------------------------------------------------------------------------------------------
(In thousands) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 947 $ (1,417)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization of deposit premium and goodwill 192 108
Depreciation 272 184
Amortization of premium on securities, net 13 24
MRP and ESOP compensation -- 209
Provision for loan losses 510 399
Changes in assets and liabilities:
Accrued interest receivable (739) (342)
Other assets (940) 126
Accrued interest payable and other liabilities 1,638 1,413
-------- --------
Net cash provided by operating activities 1,893 704
-------- --------
Cash Flows From Investing Activities
Loan originations, net of principal repayments (29,558) (17,961)
Additions to premises and equipment (1,102) (525)
Purchase of Federal Home Loan Bank stock -- (343)
Purchase of securities available for sale (9,497) (16,281)
Proceeds from maturities of securities available for sale 1,839 4,432
Proceeds from maturities of securities held to maturity -- 1,560
Net cash from purchase of branches from
Centura Bank 37,013 --
-------- --------
Net cash used in investing activities (1,305) (29,118)
-------- --------
Cash Flows From Financing Activities
Net increase in deposits 26,254 10,517
Net increase in repurchase agreements 2,870 1,158
Net increase (decrease) in borrowings (5,000) 10,986
Cash dividends -- (183)
-------- --------
Net cash provided by financing activities $ 24,124 $ 22,478
-------- --------
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended June 30, 2000 and 1999
2000 1999
--------------------------------------------------------------------------------
(In thousands) (Unaudited)
<S> <C> <C>
Net change in cash and cash equivalents $24,712 $(5,936)
Cash and cash equivalents:
Beginning 11,662 26,765
------- -------
Ending $36,374 $20,829
======= =======
Supplemental Disclosure of Cash Flow Information
Transfers from loans to real estate acquired
through foreclosure $ 32 $ --
======= =======
Purchase of branches from Centura Bank:
Loans and other assets acquired $26,018 $ --
Goodwill 3,462 --
Deposits and other liabilities assumed 66,493 --
------- -------
Net cash and cash equivalents $37,013 $ --
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE>
Notes to the Consolidated Financial Statements
1. Significant Accounting Policies and Interim Reporting
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments necessary for a fair presentation
of the financial position and results of operations for the periods presented
have been included. The results of operations for the three and six month
periods ended June 30, 2000 are not necessarily indicative of the results of
operations that may be expected for the year ended December 31, 2000.
The accounting policies followed are as set forth in Note 1 of the Notes to
Financial Statements in the 1999 Capital Bank Corporation annual report.
2. Operating Structure
Capital Bank Corporation (the "Company") is a bank holding company incorporated
under the laws of North Carolina on August 10, 1998. The Company's primary
function is to serve as the holding company for its wholly-owned subsidiary,
Capital Bank. Capital Bank (the "Bank") was incorporated under the laws of North
Carolina on May 30, 1997 and commenced operations on June 20, 1997. The Bank is
not a member of the Federal Reserve System and has no subsidiaries. Capital Bank
is a locally owned community bank engaged in general commercial banking,
providing a full range of banking services. The majority of the Bank's customers
are individuals and small to medium-size businesses. The Bank's primary source
of revenue is interest earned from loans to customers and from invested cash and
securities.
Prior to April 14, 2000, the Bank operated primarily throughout the central part
of North Carolina with branch facilities located in Raleigh (1), Cary (2),
Sanford (3), and Siler City (1). In April, 2000, the Bank acquired 5 branches
from another area financial institution which was accounted for as a purchase
transaction. The transaction included branches in the eastern part of North
Carolina including Oxford (2), Warrenton (1), Seaboard (1), and Woodland (1). In
June, 2000, the Bank opened a new branch and moved its corporate headquarters to
the same facility on Glenwood Avenue in Raleigh, North Carolina.
As used in this report, the term "Company" refers to Capital Bank Corporation
and its subsidiary, Capital Bank.
-6-
<PAGE>
3. Comprehensive Loss
Comprehensive income (loss) includes net income (loss) and all other changes to
the Company's equity, with the exception of transactions with shareholders
("Other Comprehensive Income"). The Company's only components of other
comprehensive income relate to unrealized gains and losses on securities
available for sale. The Company's total comprehensive net loss and information
concerning the Company's other comprehensive income items for the three and six
month periods ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
(In thousands) (Unaudited)
Three month period ended June 30, 2000 and 1999:
<S> <C> <C>
Net income (loss) before comprehensive items $ 547 $ 101
Unrealized gains (losses) on securities available for sale 164 (922)
------- -------
Comprehensive net income $ 711 $ (821)
======= =======
Six month period ended June 30, 2000 and 1999:
Net loss before comprehensive items $ 947 $(1,417)
Unrealized gains (losses) on securities available for sale (76) (1,259)
------- -------
Comprehensive net income (loss) $ 871 $(2,676)
======= =======
</TABLE>
4. Earnings Per Share
The Bank is required to report a dual presentation of basic and diluted earnings
per share ("EPS"). Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. For loss periods, diluted EPS is the same as
basic EPS due to the fact that including common stock equivalents computed as a
result of the 312,298 stock options outstanding in the calculation of diluted
EPS would not be dilutive. For periods where the Bank has positive earnings,
diluted EPS are presented due to the effect of those same options. The following
tables provide a computation and reconciliation of basic and diluted EPS for the
three and six month periods ended June 30, 2000 and 1999.
-7-
<PAGE>
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(In thousands except number of shares) (Unaudited)
Three month period ended June 30, 2000 and 1999:
<S> <C> <C>
Income available to stockholders - basic and diluted $ 547 $ 101
=========== ===========
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic 3,709,005 3,674,964
Incremental shares from assumed exercise of stock
options 7,747 10,155
----------- -----------
Weighted average number of shares outstanding - diluted 3,716,752 3,685,119
=========== ===========
Six month period ended June 30, 2000 and 1999:
Income (loss) available to stockholders - basic and diluted $ 947 $ (1,417)
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic 3,709,005 3,674,386
Incremental shares from assumed exercise of stock
options - antidilutive during loss periods 4,412 n/a
----------- -----------
Weighted average number of shares outstanding - diluted 3,713,417 3,674,386
=========== ===========
</TABLE>
Item 2
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
------------------------------------------------
The following discussion presents an overview of the unaudited financial
statements for the three and six month periods ended June 30, 2000 and 1999 for
Capital Bank Corporation and its wholly owned subsidiary, Capital Bank. This
discussion and analysis is intended to provide pertinent information concerning
financial position, results of operations, liquidity, and capital resources. It
should be read in conjunction with the unaudited financial statements and
related footnotes contained in Part I, Item 1 of this report.
Information set forth below contains various forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which statements represent the Company's
judgment concerning the future and are subject to risks and uncertainties that
could cause the Company's actual operating results to differ materially. 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. The Company cautions that such forward-looking
statements are further qualified by important factors that could cause the
Company's actual operating results to differ materially from those in the
forward-looking statements, as well as the factors set forth in the Company's
periodic reports and other filings with the SEC.
-8-
<PAGE>
Overview
Capital Bank Corporation (the "Company") is a bank holding company incorporated
under the laws of North Carolina on August 10, 1998. The Company's primary
function is to serve as the holding company for its wholly-owned subsidiary,
Capital Bank. Capital Bank (the "Bank") was incorporated under the laws of the
State of North Carolina on May 30, 1997, and commenced operations as a
state-chartered banking corporation on June 20, 1997. The Bank is not a member
of the Federal Reserve System and has no subsidiaries. At a special meeting of
shareholders held on March 26, 1999, the shareholders of Capital Bank approved
the reorganization of Capital Bank into Capital Bank Corporation. In the holding
company reorganization, the shareholders of Capital Bank each received a right
to one share of Company stock for each share of Capital Bank stock that they
owned. Thus, the shareholders of Capital Bank before the holding company
reorganization are now the shareholders of the Company. In addition, on March
31, 1999 the Company completed its acquisition of Home Savings Bank of Siler
City SSB, Inc. in a stock-for-stock exchange in which the Company issued
1,181,038 shares of its Common Stock. On July 16, 1999, Home Savings Bank merged
with Capital Bank to form one subsidiary under Capital Bank Corporation. Prior
to the merger date, Home Savings Bank capitalized the holding company with an
upstream dividend of $100,000. In conjunction with the merger, the common stock
of Home Savings Bank was retired. In April, 2000, the Bank acquired 5 branches
from another area financial institution which was accounted for as a purchase
transaction. The transaction included branches in the eastern part of North
Carolina including Oxford (2), Warrenton (1), Seaboard (1), and Woodland (1). In
June, 2000, the Bank opened a new branch and moved its corporate headquarters to
an office on Glenwood Avenue in Raleigh, North Carolina.
As used in this report, the term "Company" refers to Capital Bank Corporation
and its subsidiary, Capital Bank, after the holding company reorganization.
The Company has no operations other than those of its subsidiary, Capital Bank.
The Bank is a full-service community bank. The Company's profitability depends
principally upon the net interest income, provision for loan losses, noninterest
income and noninterest expenses of the bank.
Financial Condition
Total consolidated assets of the Company for the quarter ended June 30, 2000
were $315 million compared to $222 million at December 31, 1999, an increase of
$93 million, or 42%. On June 30, 2000, loans were $215 million, up $55 million,
or 35%, compared to December 31, 1999. Investment securities were $54 million
and federal funds sold were $4 million at period end. During the six month
period, cash and cash equivalents, including federal funds sold increased by $25
million due primarily to monies received from the acquisition of 5 branches from
another area financial institution where the deposits and liabilities assumed
exceeded the loans and other assets received by about $37 million. As of June
30, 2000, a large portion of those funds had not yet been invested in securities
or used to fund new loans. Earning assets represented 95% of total assets on
June 30, 2000. The allowance for loan losses on June 30, 2000 was $3.2 million
and represented approximately 1.49% of total loans. Management believes that the
amount of the allowance is adequate at this time.
-9-
<PAGE>
Deposits on June 30, 2000 were $256 million, an increase of $93 million or 57%
from December 31, 1999. This increase was primarily due to the acquisition of
about $66 million in deposits from another area financial institution and a
large advertising campaign run by the Company with special rates and terms on
certain Certificates of Deposit, whose growth of $66 million represented 60% of
the total deposit growth. Borrowings decreased from $20 million at December 31,
1999 to $15 million at June 30, 2000, as the Company used funds received from
the increase in deposits to pay down a higher rate Federal Home Loan Bank
advance. Total consolidated stockholders' equity was $32 million at June 30,
2000, an increase of $871,000 from December 31, 1999, due to net income
partially offset by declines in the market value of available for sale
securities.
Results of Operations
For the three month period ended June 30, 2000, the Company reported net income
of $547,000 or $.15 per share compared to $101,000 or $.02 per share in the
second quarter of 1999. For the six month period ended June 30, 2000, the
Company reported net income of $947,000 or $.26 per share compared to a loss of
$1.4 million or $.39 per share for the same period of 1999. Included in the
income for the six month period ended June 30, 2000 were $90,000 of certain
nonrecurring costs related to the acquisition of five branches from another area
financial institution. Included in the loss for the six month period ended June
30, 1999 were certain nonrecurring charges related to the establishment of the
bank holding company and the acquisition of Home Savings of $1.6 million.
Excluding those costs, the Company had consolidated net income from operations
of approximately $230,000 or $0.06 per share for the six month period ended June
30, 1999.
Net interest income in the second quarter was $4.9 million, up 56% compared to
$2.7 million in the second quarter of 1999. The Company's net interest margin
(net interest income as a percentage of average earning assets) was 3.80% and
3.81% for the three and six month periods ended June 30, 2000.
The provision for loan losses was $255,000 and $510,000 for the three and six
month periods ended June 30, 2000. This provision was used to build the
allowance for loan losses to a prudent level to support the Company's loan
growth. At June 30, 2000, the allowance for loan losses was 1.49% of total
loans. Loans 90 days or more past due totaled $341,000 and represented .16% of
total loans on June 30, 2000.
Non-interest income for the three and six months period ended June 30, 2000, was
$529,000 and $906,000, respectively, compared to $300,000 and $572,000 for the
same periods in 1999. The increases in non-interest income are primarily
attributable to increases in fees associated with deposit accounts relative to
the overall increase in deposits.
Non-interest expense for the three and six month periods ended June 30, 2000,
was $2.4 million and $4.3 million, respectively, compared to $1.6 million and
$4.7 million for the same periods in 1999. Salaries and employee benefits,
representing the largest expense category during the period, increased from
$977,000 and $1.8 million for the three and six month periods in 1999 to $1.4
million and $2.5 million for the same periods in 2000. These increases reflect
an increase in the number of personnel employed by the Company as the Company
must maintain adequate staffing levels in order to meet customer needs and to
keep pace with its expected growth. As of June 30, 2000 the Company had 105
full-time equivalent employees. Mergers and acquisitions
-10-
<PAGE>
related expenses, the second largest expense category during the six month
period ended June 30, 1999, decreased from $1.6 million in 1999 relating to the
establishment of a holding company and the merger of Home Savings Bank, to
$90,000 in 2000 relating to the acquisition of five branches from another area
financial institution. There were no mergers and acquisitions related expenses
during the three month period ended June 30, 1999. Occupancy costs, the third
highest component of non-interest expenses, increased from $126,000 and $238,00
for the three and six month periods in 1999 to $173,000 and $311,000 for the
same periods in 2000. This increase is primarily associated with the addition of
5 branches as a result of the acquisition previously mentioned and the opening
of new branches in Lee County and Wake County. Although management expects
noninterest expense to increase on an absolute basis as the Company continues
its growth, these expenses as a percentage of asset size and operating revenue
are anticipated to decrease over time.
At December 31, 1999, the Company had net deferred tax assets of $1.6 million
resulting from timing differences associated with the deductibility of certain
expenses reflected on the financial statements. Due to prior net operating
losses, a valuation allowance was established for the net deferred tax assets in
the amount of $1.3 million. During 2000, the Company has generated taxable
income and the valuation allowance has been reversed to offset current tax
expense of $654,000. Management will continue to monitor its financial
performance to determine when the remaining allowance should be reversed.
Liquidity and Capital Resources
The Company's liquidity management involves planning to meet the Company's
anticipated funding needs at a reasonable cost. Liquidity management is guided
by policies formulated by the Company's senior management and the
Asset/Liability Management Committee of the Board of Directors. The Company had
$36 million in its most liquid assets, cash and cash equivalents at quarter end.
The Company's principal sources of funds are deposits, Federal Home Loan Bank
borrowings and capital. Core deposits (total deposits less certificates of
deposits in the amount of $100,000 or more), one of the most stable sources of
liquidity, together with equity capital funded 80% of total assets at June 30,
2000. In addition, the Company has the ability to take advantage of various
other funding programs available from the Federal Home Loan Bank of Atlanta.
Stockholder's equity was $32 million or $8.75 per share at June 30, 2000.
Management believes this level of shareholders' equity provides adequate capital
to support the Company's growth for at least the next 12 months and to maintain
a well-capitalized position. At June 30, 2000, Capital Bank had a Tier 1 capital
ratio of 13.0%, a total risk-based capital ratio of 14.2%, and a leverage ratio
of 9.6%. These ratios substantially exceed the federal regulatory minimum
requirements for a "well-capitalized" bank. Management's challenge is to use
this capital to implement a prudent growth strategy of branch and bank
acquisitions while growing the existing branch structure through quality service
and responsiveness to its customers' needs, although there is no assurance that
the Company will meet these objectives.
Effects of Inflation
Inflation can have a significant effect on the operating results of all
industries. However, management believes the inflationary factors are not as
critical to the banking industry as they are to other industries, due to the
high concentration of relatively short-duration monetary assets
-11-
<PAGE>
in the banking industry. Inflation does, however, have some impact on the
Company's growth, earnings and total assets, and on its need to closely monitor
capital levels.
Interest rates are significantly affected by inflation, but it is difficult to
assess the impact, since neither the timing nor the magnitude of the changes in
the various inflation indices coincides with changes in interest rates.
Inflation does impact the economic value of longer-term interest-bearing assets
and liabilities, but the Company attempts to limit its long-term assets and
liabilities.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
------ ----------------------------------------------------------
The Company has not experienced any material change in its portfolio risk from
December 31, 1999 to June 30, 2000.
Part II - Other Information
Item 1 Legal Proceedings
------ -----------------
There are no material pending legal proceedings to which the Company is a party
or to which any of its property is subject. In addition, the Company is not
aware of any threatened litigation, unasserted claims or assessments that could
have a material adverse effect on the Company's business, operating results or
condition.
Item 2 Changes in Securities and Use of Proceeds
--------- -----------------------------------------
None
Item 3 Defaults Upon Senior Securities
------ -------------------------------
None
Item 4 Submission of Matters to a Vote of Security Holders
------ ---------------------------------------------------
On April 20, 2000, the annual meeting of stockholders of the Company was held to
consider and vote upon two issues; the election of Class III directors and the
ratification of the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year ended December 31, 2000. All items were
approved by the stockholders. Of the 3,658,685 shares eligible to vote,
3,119,963 were voted as shown on the following tables:
-12-
<PAGE>
Vote concerning the election of Class III directors:
For Withheld Total
-------------------------------------------
Lamar Beach 3,108,388 11,575 3,119,963
William C. Burkhardt 3,108,838 11,125 3,119,963
David J. Gospodarek 3,108,838 11,125 3,119,963
Darleen M. Johns 3,108,138 11,825 3,119,963
O.A. Keller, III 3,108,138 11,825 3,119,963
George R. Perkins, III 3,108,438 11,525 3,119,963
Vote concerning the ratification of the appointment of PricewaterhouseCoopers
LLP as the independent auditors for the fiscal year ended December 31, 2000:
For Against Abstain Total
-------------------------------------------------------------
3,113,334 3,000 3,629 3,119,963
In each case, the vote required to elect such directors or approve the action
was obtained.
Item 5 Other Information
------ -----------------
None
Item 6 Exhibits and Reports on Form 8-K
------ --------------------------------
(a) Exhibits
--------
27.01 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on form 8-K were filed during the period covered by this
report.
-13-
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL BANK CORPORATION
Date: August 10, 2000 By: /s/Allen T. Nelson, Jr.,
------------------------
Allen T. Nelson, Jr.,
Senior Vice President and CFO
-14-
