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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission File Number 0-30062
CAPITAL BANK CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 56-2101930
(State of incorporation) (I.R.S. Employer Identification Number)
4901 Glenwood Avenue 27612
Raleigh, North Carolina (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: (919) 645-6400
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(Title of Class)
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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock, no par
value per share, as of March 20, 2001, held by those persons deemed by the
registrant to be non-affiliates was approximately $31,534,000.
As of March 20, 2001, there were 3,658,689 shares of the registrant's
Common Stock, no par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated
- -------- ------------------
1. Portions of the registrant's Annual Report to
Shareholders for the year ended December 31, 2000 Part II
2. Portions of the registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held on April 19, 2001 Part III
CAPITAL BANK CORPORATION
Annual Report on Form 10-K
INDEX
PART I.....................................................................................................1
Item 1. Business........................................................................................1
Item 2. Properties.....................................................................................11
Item 3. Legal Proceedings..............................................................................12
Item 4. Submission of Matters To A Vote Of Security Holders............................................12
PART II...................................................................................................12
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..........................12
Item 6. Selected Financial Data........................................................................12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........12
Item 7A. Quantitative and Qualitative Disclosure About Market Risk....................................12
Item 8. Financial Statements and Supplementary Data....................................................13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..........13
PART III..................................................................................................13
Item 10. Directors and Executive Officers of the Registrant............................................13
Item 11. Executive Compensation........................................................................13
Item 12. Security Ownership of Certain Beneficial Owners and Management................................13
Item 13. Certain Relationships and Related Transactions................................................13
PART IV...................................................................................................14
Item 14. Exhibits, Financial Statement Schedules, and Reports On Form 8-K..............................14
Forward-Looking Statements................................................................................15
Signatures................................................................................................16
PART I
Item 1. Business.
General
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.
As used in this report, the term "Company" refers to Capital Bank
Corporation and its subsidiary, Capital Bank, after the holding company
reorganization.
As of December 31, 2000, the Company had assets of approximately $343.6
million, gross loans outstanding of approximately $242.3 million and deposits of
approximately $279.1 million. The Company's corporate office is located at 4901
Glenwood Avenue, Raleigh, North Carolina 27612, and its telephone number is
(919) 645-6400. In addition to the corporate office, the Company has three
branch offices in Raleigh, two in Cary, one in Siler City, two in Oxford, one in
Warrenton, one in Woodland, one in Seaboard and three in Sanford, North
Carolina.
The Bank is a locally-owned community bank engaged in the general
commercial banking business in Wake, Chatham, Northampton, Granville, Warren and
Lee Counties, North Carolina. Wake County has a diversified economic base,
comprised primarily of services, retail trade, government and manufacturing and
includes the City of Raleigh, the state capital. Lee, Northampton, Granville,
Warren and Chatham counties are significant centers for various industries,
including agriculture, manufacturing, lumber and tobacco.
The Bank offers a full range of banking services, including the
following: checking accounts; savings accounts; NOW accounts; money market
accounts; certificates of deposit; loans for real estate, businesses,
agriculture, personal uses, home improvement and automobiles; equity lines of
credit; credit cards; individual retirement accounts; safe deposit boxes; bank
money orders; electronic funds transfer services including wire transfers;
traveler's checks; and free notary services to all Bank customers. In addition,
the Bank provides automated teller machine access to its customers for cash
withdrawals through nationwide ATM networks. At present, the Bank does not
provide the services of a trust department.
Recent Developments
On March 1, 2001, Capital Bank Corporation announced that it had formed
an investment services subsidiary, agreed to acquire an independent branch
brokerage office located in Raleigh and entered into a strategic alliance with
Raymond James Financial Services, Inc. ("Raymond James").
1
The investment services subsidiary, Capital Bank Investment Services,
Inc., will make available a full range of non-deposit investment services to
individuals and corporations, including the customers of the Bank. These
investment services will include full-service securities brokerage, asset
management, financial planning and retirement services, such as 401-k plans, all
provided exclusively through Raymond James. These services will be available in
the offices of Capital Bank through registered investment representatives.
In a separate transaction that is subject to regulatory approval,
Capital Bank Investment Services, Inc., has agreed to acquire an independent
branch brokerage office from Rick C. Rogers. The business, which is located at
7610 Six Forks Road in Raleigh, has been owned and operated by Rogers as a
branch office of Raymond James Financial Services since 1996. Rogers has been
named President and Chief Executive Officer of Capital Bank Investment Services.
Inc., and will serve on its board of directors.
Capital Bank Investment Services, Inc., has also entered into a
Nondeposit Investment Product Marketing Agreement with the Financial
Institutions Division of Raymond James. Through this agreement, the two firms
have formed a strategic alliance to provide a wide range of investment and
advisory services to clients in the markets served by Capital Bank. Raymond
James Financial Services is a wholly owned subsidiary of Raymond James
Financial, Inc. (NYSE: RJF). Raymond James Financial has 5,000 Financial
Advisors in more than 1,900 locations throughout the United States and
internationally. In addition, its asset management subsidiaries currently manage
in excess of $17.6 billion. Through its Financial Institutions Division, Raymond
James is a leading provider of third party investment services, serving more
than 250 community banks nationwide.
Lending Activities and Deposits
Loan Types and Lending Policies. The Company makes a variety of loans,
including loans secured by real estate, loans for commercial purposes and loans
to individuals for personal and household purposes. There were no large
concentrations of credit to any particular industry. The economic trends of the
area served by the Company are influenced by the significant industries within
the region. Consistent with the Company's emphasis on being a community-oriented
financial institution, virtually all the Company's business activity is with
customers located in the Cary, Siler City, Raleigh, Sanford and other Eastern
North Carolina areas. The ultimate collectibility of the Company's loan
portfolio is susceptible to changes in the market conditions of these geographic
regions.
The Company uses a centralized risk management process to insure
uniform credit underwriting that adheres to bank policy. Lending policies are
reviewed on a regular basis to confirm that the Company is prudent in setting
its underwriting criteria. Credit risk is managed through a number of methods
including loan grading of commercial loans, committee approval of larger loans
and class and purpose coding of loans. Management believes that early detection
of credit problems through regular contact with the Company's clients coupled
with consistent reviews of the borrowers' financial condition are important
factors in overall credit risk management.
The following table sets forth, as of December 31, 2000, the
approximate composition of the Company's loan portfolio:
2
Loan Type Amount Percentage
(in thousands)
Commercial...................... $164,967 68.1%
Consumer........................ 24,364 10.1
Real Estate..................... 27,423 11.3
Equity Lines.................... 25,558 10.5
------ ----
Total............... $242,312 100.0%
======== =====
Deposits. The majority of the Company's customers are individuals and
small to medium-size businesses located in Wake, Chatham, Granville, Warren,
Northampton and Lee Counties, North Carolina and contiguous areas. The Company's
deposits and loans are well diversified, with no material concentration in a
single industry or group of related industries. The management of the Company
does not believe that the deposits or the business of the Company in general are
seasonal in nature. The deposits may, however, vary with local and national
economic conditions but not enough, management believes, to have a material
effect on planning and policy making. The Company attempts to control deposit
flow through the pricing of deposits and promotional activities. Management
believes that the Company's rates are competitive with those offered by other
institutions in the same geographic area.
The following table sets forth the mix of depository accounts at the
Company as a percentage of total deposits as of December 31, 200:
Non-interest bearing demand ................. 7.2%
Interest checking ........................... 8.9
Market rate investment ...................... 13.5
Savings .................................... 2.3
Time deposits
Under $100,000............................. 53.7
Equal to or over $100,000.................. 14.4
-----
100.0%
=====
Competition
Commercial banking in North Carolina is extremely competitive in large
part due to statewide branching. The Company competes in its market area with
some of the largest banking organizations in the state and the country and other
financial institutions, such as federally and state-chartered savings and loan
institutions and credit unions, as well as consumer finance companies, mortgage
companies and other lenders engaged in the business of extending credit. Many of
the Company's competitors have broader geographic markets and higher lending
limits than the Company and are also able to provide more services and make
greater use of media advertising.
The enactment of legislation authorizing interstate banking has caused
great increases in the size and financial resources of some of the Company's
competitors. In addition, as a result of interstate banking, out-of-state
commercial banks may acquire North Carolina banks and heighten the competition
among banks in North Carolina.
3
Despite the competition in its market area, the Company believes that
it has certain competitive advantages that will distinguish it from its
competition. The Company believes that its primary competitive advantages are
its strong local identity and affiliation with the community and its emphasis on
providing specialized services to small and medium-sized business enterprises,
as well as professional and upper-income individuals. The Company offers
customers modern, high-tech banking without forsaking community values such as
prompt, personal service and friendliness. The Company offers many personalized
services and intends to attract customers by being responsive and sensitive to
their individualized needs. The Company also relies on goodwill and referrals
from shareholders and satisfied customers, as well as traditional media to
attract new customers. To enhance a positive image in the community, the Company
supports and participates in local events and its officers and directors serve
on boards of local civic and charitable organizations.
Employees
At March 15, 2001, the Company employed 125 persons, of which 114 were
full-time and 11 were part-time. None of its employees are represented by any
collective bargaining unit. The Company considers relations with its employees
to be good.
Supervision and Regulation
Holding companies, banks and many of their non-bank affiliates are
extensively regulated under both federal and state law. The following is a brief
summary of certain statutes, rules and regulations affecting the Company and the
Bank. This summary is qualified in its entirety by reference to the particular
statutory and regulatory provisions referred to below and is not intended to be
an exhaustive description of the statutes or regulations applicable to the
Company's or the Bank's business. Supervision, regulation and examination of the
Company and the Bank by bank regulatory agencies is intended primarily for the
protection of the Bank's depositors rather than holders of the Common Stock of
the Company.
Holding Company Regulation
General. The Company is a holding company registered with the Federal
Reserve under the Bank Holding Company Act of 1956 (the "BHCA"). As such, the
Company and the Bank are subject to the supervision, examination and reporting
requirements contained in the BHCA and the regulation of the Federal Reserve.
The BHCA requires that a bank holding company obtain the prior approval of the
Federal Reserve before (i) acquiring direct or indirect ownership or control of
more than five percent of the voting shares of any bank, (ii) taking any action
that causes a bank to become a subsidiary of the bank holding company, (iii)
acquiring all or substantially all of the assets of any bank or (iv) merging or
consolidating with any other bank holding company.
The BHCA generally prohibits a bank holding company, with certain
exceptions, from engaging in activities other than banking, or managing or
controlling banks or other permissible subsidiaries, and from acquiring or
retaining direct or indirect control of any company engaged in any activities
other than those activities determined by the Federal Reserve to be closely
related to banking, or managing or controlling banks, as to be a proper incident
thereto. In determining whether a particular activity is permissible, the
Federal Reserve must consider whether the performance of such an activity can
4
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. For
example, banking, operating a thrift institution, extending credit or servicing
loans, leasing real or personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance underwriting activities have all been determined by regulations of the
Federal Reserve to be permissible activities.
Pursuant to delegated authority, the Federal Reserve Bank of Richmond
has authority to approve certain activities of holding companies within its
district, including the Company, provided the nature of the activity has been
approved by the Federal Reserve. Despite prior approval, the Federal Reserve has
the power to order a holding company or its subsidiaries to terminate any
activity or to terminate its ownership or control of any subsidiary when it has
reasonable cause to believe that continuation of such activity or such ownership
or control constitutes a serious risk to the financial safety, soundness or
stability of any bank subsidiary of that bank holding company.
Financial Holding Companies. On November 12, 1999, the President of the
United States signed into law the Gramm-Leach-Bliley Act ("GLB"), which alters
the regulatory framework for banking and other financial services companies. The
GLB creates a new type of holding company called a "financial holding company."
The new financial holding company structure allows banks, insurance companies,
and securities firms to affiliate within a single entity, provided that the
financial holding company satisfies and maintains certain new regulatory
standards. Bank holding companies that meet these standards may elect to become
financial holding companies, but if they remain bank holding companies, they are
subject to the restrictions on their activities existing prior to the GLB,
including those restrictions described above imposed by the BHCA.
The Company has not elected to become a financial holding company, so
it remains under essentially the same regulatory framework as it did before the
enactment of the GLB. However, the financial holding company structure created
by the GLB would allow insurance companies or securities firms operating under
the financial holding company structure to acquire the Company, and, if the
Company elects to become a financial holding company in the future, it could
acquire insurance companies or securities firms.
In addition to creating the more flexible financial holding company
structure, GLB introduced several additional customer privacy protections that
will apply to the Company and the Bank. The GLB's privacy provisions require
financial institutions to, among other things, (i) establish and annually
disclose a privacy policy, (ii) give consumers the right to opt out of
disclosures to nonaffiliated third parties, with certain exceptions, (iii)
refuse to disclose consumer account information to third-party marketers and
(iv) follow regulatory standards to protect the security and confidentiality of
consumer information.
Mergers and Acquisitions. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "IBBEA") permits interstate acquisitions
of banks and bank holding companies without geographic limitation, subject to
any state requirement that the bank has been organized for a minimum period of
time, not to exceed five years, and the requirement that the bank holding
company, prior to, or following the proposed acquisition, controls no more than
10% of the total amount of deposits of insured depository institutions in the
5
U.S. and no more than 30% of such deposits in any state (or such lesser or
greater amount set by state law).
In addition, the IBBEA permits a bank to merge with a bank in another
state as long as neither of the states has opted out of the IBBEA prior to May
31, 1997. The state of North Carolina has "opted in" to such legislation,
effective June 22, 1995. In addition, a bank may establish and operate a de novo
branch in a state in which the bank does not maintain a branch if that state
expressly permits de novo interstate branching. As a result of North Carolina's
opt-in law, North Carolina law permits unrestricted interstate de novo
branching.
Additional Restrictions and Oversight. Subsidiary banks of a bank
holding company are subject to certain restrictions imposed by the Federal
Reserve on any extensions of credit to the bank holding company or any of its
subsidiaries, investments in the stock or securities thereof and the acceptance
of such stock or securities as collateral for loans to any borrower. A bank
holding company and its subsidiaries are also prevented from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. An example of a prohibited tie-in would be
any arrangement that would condition the provision or cost of services on a
customer obtaining additional services from the bank holding company or any of
its other subsidiaries.
The Federal Reserve may issue cease and desist orders against bank
holding companies and non-bank subsidiaries to stop actions believed to present
a serious threat to a subsidiary bank. The Federal Reserve also regulates
certain debt obligations, changes in control of bank holding companies and
capital requirements.
Under the provisions of the North Carolina law, the Company is
registered with and subject to supervision by the North Carolina Commissioner of
Banks (the "Commissioner").
Capital Requirements. The Federal Reserve has established risk-based
capital guidelines for bank holding companies and state member banks. The
minimum standard for the ratio of capital to risk-weighted assets (including
certain off balance sheet obligations, such as standby letters of credit) is
eight percent. At least half of this capital must consist of common equity,
retained earnings and a limited amount of perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries, less certain
goodwill items ("Tier 1 capital"). The remainder ("Tier 2 capital") may consist
of mandatory convertible debt securities and a limited amount of other preferred
stock, subordinated debt and loan loss reserves.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
leverage ratio of Tier 1 capital to adjusted average quarterly assets less
certain amounts ("Leverage Ratio") equal to three percent for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies will generally be required
to maintain a Leverage Ratio of between four percent and five percent.
The guidelines also provide that bank holding companies experiencing
significant growth, whether through internal expansion or acquisitions, will be
expected to maintain strong capital ratios substantially above the minimum
supervisory levels without significant reliance on intangible assets. The same
6
heightened requirements apply to bank holding companies with supervisory,
financial, operational or managerial weaknesses, as well as to other banking
institutions if warranted by particular circumstances or the institution's risk
profile. Furthermore, the guidelines indicate that the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") will continue to consider a
"tangible Tier 1 Leverage Ratio" (deducting all intangibles) in evaluating
proposals for expansion or new activity. The Federal Reserve has not advised the
Company of any specific minimum Leverage Ratio or tangible Tier 1 Leverage Ratio
applicable to it.
As of December 31, 2000, the Company had Tier 1 risk-adjusted, total
regulatory capital and leverage capital of approximately 11.76%, 13.02% and
10.27%, respectively, all in excess of the minimum requirements.
Bank Regulation
The Bank is subject to numerous state and federal statutes and
regulations that affect its business, activities, and operations, and is
supervised and examined by the Commissioner and the Federal Reserve. The Federal
Reserve and the Commissioner regularly examine the operations of banks over
which they exercise jurisdiction. They have the authority to approve or
disapprove the establishment of branches, mergers, consolidations and other
similar corporate actions. They also have authority to prevent the continuance
or development of unsafe or unsound banking practices and other violations of
law. The Federal Reserve and the Commissioner regulate and monitor all areas of
the operations of banks and their subsidiaries, including loans, mortgages,
issuances of securities, capital adequacy, loss reserves and compliance with the
Community Reinvestment Act of 1977 (the "CRA") as well as other laws and
regulations. Interest and certain other charges collected and contracted for by
banks are also subject to state usury laws and certain federal laws concerning
interest rates.
The deposit accounts of the Bank are insured by the Bank Insurance Fund
(the "BIF") of the Federal Deposit Insurance Corporation (the "FDIC") up to a
maximum of $100,000 per insured depositor. The FDIC issues regulations and
conducts periodic examinations, requires the filing of reports and generally
supervises the operations of its insured banks. This supervision and regulation
is intended primarily for the protection of depositors. Any insured bank that is
not operated in accordance with or does not conform to FDIC regulations,
policies and directives may be sanctioned for noncompliance. Civil and criminal
proceedings may be instituted against any insured bank or any director, officer
or employee of such bank for the violation of applicable laws and regulations,
breaches of fiduciary duties or engaging in any unsafe or unsound practice. The
FDIC has the authority to terminate insurance of accounts pursuant to procedures
established for that purpose.
Under the North Carolina corporation laws, the Company may not pay a
dividend or distribution, if after giving it effect, the Company would not be
able to pay its debts as they become due in the usual course of business or the
Company's total assets would be less than its liabilities. In general, the
Company's ability to pay cash dividends is dependent upon the amount of
dividends paid by the Bank. The ability of the Bank to pay dividends to the
Company is subject to statutory and regulatory restrictions on the payment of
cash dividends, including the requirement under the North Carolina banking laws
that cash dividends be paid only out of undivided profits and only if the bank
has surplus of a specified level. The Federal Reserve also imposes limits on the
Bank's payment of dividends.
7
Like the Company, the Bank is required by federal regulations to
maintain certain minimum capital levels. The levels required of the Bank are the
same as required for the Company. At December 31, 2000, the Bank had Tier 1
risk-adjusted, total regulatory capital and leverage capital of approximately
11.76%, 13.02% and 10.27%, respectively, all in excess of the minimum
requirements.
The Bank is subject to insurance assessments imposed by the FDIC.
Effective January 1, 1997, the FDIC adopted a risk-based assessment schedule
providing for annual assessment rates ranging from 0% to 27% of an institution's
average assessment base, applicable to institutions insured by both the BIF and
the Savings Association Insurance Fund ("SAIF"). The actual assessment to be
paid by each insured institution is based on the institution's assessment risk
classification, which focuses on whether the institution is considered "well
capitalized," "adequately capitalized" or "under capitalized," as such terms are
defined in the applicable federal regulations. Within each of these three risk
classifications, each institution will be assigned to one of three subgroups
based on supervisory risk factors. In particular, regulators will assess
supervisory risk based on whether the institution is financially sound with only
a few minor weaknesses (Subgroup A), whether it has weaknesses which, if not
corrected, could result in an increased risk of loss to the BIF (Subgroup B) or
whether such weaknesses pose a substantial risk of loss to the BIF unless
corrective action is taken (Subgroup C). The FDIC also is authorized to impose
one or more special assessments in an amount deemed necessary to enable
repayment of amounts borrowed by the FDIC from the United States Treasury
Department and, beginning in 1997, all banks are required to pay additional
annual assessments at rates set by the Financing Corporation, which was
established by the Competitive Equality Banking Act of 1987.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") provides for, among other things, (i) publicly available annual
financial condition and management reports for certain financial institutions,
including audits by independent accountants, (ii) the establishment of uniform
accounting standards by federal banking agencies, (iii) the establishment of a
"prompt corrective action" system of regulatory supervision and intervention,
based on capitalization levels, with greater scrutiny and restrictions placed on
depository institutions with lower levels of capital, (iv) additional grounds
for the appointment of a conservator or receiver and (v) restrictions or
prohibitions on accepting brokered deposits, except for institutions which
significantly exceed minimum capital requirements. FDICIA also provides for
increased funding of the FDIC insurance funds and the implementation of
risk-based premiums.
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to FDICIA, the federal
bank regulatory authorities have adopted regulations setting forth a five-tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." An institution may be deemed by the regulators to
be in a capitalization category that is lower than is indicated by its actual
capital position if, among other things, it receives an unsatisfactory
examination rating with respect to asset quality, management, earnings or
liquidity. FDICIA provides the federal banking agencies with significantly
expanded powers to take enforcement action against institutions which fail to
comply with capital or other standards. Such action may include the termination
of deposit insurance by the FDIC or the appointment of a receiver or conservator
for the institution.
8
Banks are also subject to the CRA, which requires the appropriate
federal bank regulatory agency, in connection with its examination of a bank, to
assess such bank's record in meeting the credit needs of the community served by
that bank, including low and moderate-income neighborhoods. Each institution is
assigned one of the following four ratings of its record in meeting community
credit needs: "outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance." The regulatory agency's assessment of the bank's record is made
available to the public. Further, such assessment is required of any bank which
has applied to (i) charter a national bank, (ii) obtain deposit insurance
coverage for a newly chartered institution, (iii) establish a new branch office
that will accept deposits, (iv) relocate an office or (v) merge or consolidate
with, or acquire the assets or assume the liabilities of, a federally regulated
financial institution. In the case of a bank holding company applying for
approval to acquire a bank or other bank holding company, the Federal Reserve
will assess the record of each subsidiary bank of the applicant bank holding
company, and such records may be the basis for denying the application.
Effective May 12, 2000, the GLB's "CRA Sunshine Requirements" call for
financial institutions to disclose publicly certain written agreements made in
fulfillment of the CRA. Banks that are parties to such agreements also must
report to federal regulators the amount and use of any funds expended under such
agreements on an annual basis, along with such other information as regulators
may require. This annual reporting requirement is effective for any agreements
made after May 12, 2000.
Monetary Policy and Economic Controls
The Company and the Bank are directly affected by governmental policies
and regulatory measures affecting the banking industry in general. Of primary
importance is the Federal Reserve Board, whose actions directly affect the money
supply which, in turn, affects banks' lending abilities by increasing or
decreasing the cost and availability of funds to banks. The Federal Reserve
Board regulates the availability of bank credit in order to combat recession and
curb inflationary pressures in the economy by open market operations in United
States government securities, changes in the discount rate on member bank
borrowings, changes in reserve requirements against bank deposits and
limitations on interest rates that banks may pay on time and savings deposits.
Deregulation of interest rates paid by banks on deposits and the types
of deposits that may be offered by banks have eliminated minimum balance
requirements and rate ceilings on various types of time deposit accounts. The
effect of these specific actions and, in general, the deregulation of deposit
interest rates has generally increased banks' cost of funds and made them more
sensitive to fluctuations in money market rates. In view of the changing
conditions in the national economy and money markets, as well as the effect of
actions by monetary and fiscal authorities, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand, or the
business and earnings of the Bank or the Company. As a result, banks, including
the Bank, face a significant challenge to maintain acceptable net interest
margins.
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Executive Officers
The executive officers of the Company are as follows:
Name Age Position With Company
- ---- --- ---------------------
James A. Beck 48 President and Chief Executive Officer
Allen T. Nelson, Jr. 51 Senior Vice President, Chief
Financial Officer and Secretary
Franklin G. Shell 42 Senior Vice President and Chief
Credit Officer
James A. Beck is currently President and Chief Executive Officer of the
Company, a position he has held since the Company commenced operations. Mr. Beck
served as Chairman, President and Chief Executive Officer of SouthTrust Bank of
North Carolina, N.A. from January 1991 until June 1996 when it was merged into
the SouthTrust Charlotte-based bank. Mr. Beck thereafter served as President and
a director of the combined bank until January 1997, when he resigned to join the
Company.
Allen T. Nelson, Jr. has been employed by the Company since February 2,
1998, as its Chief Financial Officer and Secretary. From December 1993 through
January 1998, Mr. Nelson served as the Senior Vice President and Chief Financial
Officer for Jefferson Bankshares, Inc. and its principal subsidiary, Jefferson
National Bank, both based in Charlottesville, Virginia.
Franklin G. Shell has been employed with the Company since April 14,
1997, as its Senior Vice President and Chief Credit Officer. Prior thereto, from
1989, Mr. Shell was employed by the North Carolina-based bank, Branch Banking
and Trust Company, serving as a commercial loan officer in its Raleigh, North
Carolina office.
10
Item 2. Properties.
The Company currently leases property located at 4901 Glenwood Avenue,
Raleigh, North Carolina for the its principal offices and a branch office. The
lease is for approximately 17,500 square feet, of which approximately 14,500
square feet is for the Company's principal offices and the remainder for the
branch office. In addition to this facility, the Company also has various
branches and offices either owned or leased throughout its market area. The
following table sets forth certain information regarding the Company's
properties as of December 31, 2000. See also Note 6 to the Company's
Consolidated Financial Statements included in the Annual Report which is
incorporated herein by reference.
Owned/ Annual Owned/ Annual
Address Leased Lease Address Leased Lease
- -------------------------------- ------------- ------------ -------------------------- ------------ ------------
Raleigh - Glenwood Ave. Cary - Harrison Ave.
4901 Glenwood Avenue Leased $ 320,300 915 North Harrison Ave. Owned N/A
Raleigh, NC 27612 Cary, NC 27513
Raleigh - Falls of Neuse Rd. Cary - Kildaire Farm Rd. Building Owned
4400 Falls of Neuse Rd. Leased $ 56,500 1201 Kildaire Farm Rd. Land
Raleigh, NC 27609 Cary, NC 27511 Leased $ 16,000
Raleigh - Six Forks Rd. Oxford - Main Office
8816 Six Forks Rd., Suite 101 Leased $ 107,600 109 Hillsboro Street Leased $ 14,400
Raleigh, NC 27615 Oxford, NC 27565
Sanford - Main Office Oxford - Linden Ave.
130 N. Steele Street Leased $ 31,200 703 Linden Ave. Owned N/A
Sanford, NC 27330 Oxford, NC 27565
Sanford - Kendale Plaza Seaboard Office
2800 Williams Street Leased $ 10,200 200 S. Main St. Leased $ 12,000
Sanford, NC 27330 Seaboard, NC 27876
Sanford - Tramway Crossing Warrenton Office
2222 Jefferson Davis Highway Owned N/A 207 S. Main St. Owned N/A
Sanford, NC 27330 Warrenton, NC 27589
Siler City Office Woodland Office
300 East Raleigh St. Owned N/A 123 E. Main St. Owned N/A
Siler City, NC 27344 Woodland, NC 27897
Cary Lending Office
1150-5 Executive Circle Leased $ 17,300
Cary, NC 27511
11
Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Company is a party
or of 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
financial condition.
Item 4. Submission of Matters To A Vote Of Security Holders.
During the fourth quarter of the year ended December 31, 2000, there
were no matters submitted to a vote of the Company's shareholders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Information relating to the market for the Company's Common Stock is
incorporated by reference from page 39 of the 2000 Annual Report to Shareholders
of Capital Bank Corporation, filed as Exhibit 13 to this report. Information
relating to dividends on the Company's Common Stock is incorporated by reference
from the section entitled "Capital Resources" on page 13 of the 2000 Annual
Report, filed as Exhibit 13 to this report, and from Note 11 in the Notes to
Consolidated Financial Statements on page 30 of the 2000 Annual Report, filed as
Exhibit 13 to this report.
Recent Sales of Unregistered Securities. The Company did not sell any
securities in the fiscal year ended December 31, 2000 which were not registered
under the Securities Act of 1933, as amended, except that during such fiscal
year the Company granted options to employees and directors to acquire an
aggregate of 100,800 shares of its Common Stock at a weighted average exercise
price of $8.09 per share pursuant to the Company's Stock Option Plans.
Item 6. Selected Financial Data.
This information is incorporated by reference from page 1 of the 2000
Annual Report, filed as Exhibit 13 to this report.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
This information is incorporated by reference from pages 6 through 14
of the 2000 Annual Report, filed as Exhibit 13 to this report.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
This information is incorporated by reference from page 14 of the 2000
Annual Report, filed as Exhibit 13 to this report.
12
Item 8. Financial Statements and Supplementary Data.
This information is incorporated by reference from pages 15 through 36
of the 2000 Annual Report, filed as Exhibit 13 to this report.
Item 9. Changes In and Disagreements With Accountants On Accounting
and Financial Disclosure.
None.
PART III
This Part incorporates certain information from the definitive proxy
statement (the "2001 Proxy Statement") for the 2001 Annual Meeting of
Shareholders of Capital Bank Corporation, as filed with the Securities and
Exchange Commission on March 13, 2001 which is not later than 120 days after the
end of the Company's fiscal year covered by this Report on Form 10-K.
Item 10. Directors and Executive Officers of the Registrant.
Information concerning the Company's executive officers is included
under the caption "Executive Officers" on pages 9 and 10 of this report.
Information concerning the Company's directors and filing of certain reports of
beneficial ownership is incorporated by reference to the 2001 Proxy Statement.
Item 11. Executive Compensation.
This information is incorporated by reference to the Company's 2001
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information is incorporated by reference to the Company's 2001
Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
This information is incorporated by reference to the Company's 2001
Proxy Statement.
13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports On Form 8-K.
(a)(1) Financial Statements. The following financial statements
included in the 2000 Annual Report, filed as Exhibit 13 to this report, are
incorporated by reference in Item 8 of this report:
Annual Report to
----------------
Financial Statements and Information Shareholders Page
Consolidated Balance Sheets dated as of December 31,
2000 and 1999 15
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 16
Consolidated Statements of Changes in Shareholders'
Equity for the years 17
ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 18 - 19
Notes to Consolidated Statements 20 - 36
Report of Independent Accountants 37
(a)(2) Financial Statement Schedules. All applicable financial
statement schedules required under Regulation S-X and pursuant to Industry Guide
3 under the Securities Act of 1933 have been included in the Notes to the
Financial Statements.
(a)(3) Exhibits. The exhibits required by Item 601 of Regulation S-K
are listed in the Exhibit Index immediately following the signature pages to
this report.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K in
the fourth quarter of the year ended December 31, 2000.
14
FORWARD-LOOKING STATEMENTS
Information set forth in this Annual Report on Form 10-K 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 and financial position to differ materially from the 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.
The Company cautions that any 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, including without limitation, the Company's management of its
growth, the risks associated with possible or completed acquisitions,
competition within the industry, dependence on key personnel, government
regulation and the other risk factors described in Exhibit 99 attached to this
report.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Raleigh, North
Carolina, on the day of March, 2001.
CAPITAL BANK CORPORATION
By: /s/James A. Beck
----------------
James A. Beck
President and Chief Executive Officer
16
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James A. Beck and Allen T. Nelson, Jr.,
and each of them, with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated and on March __, 2001.
Signature Title
- --------- -----
/s/James A. Beck President, Chief Executive Officer and Director
- ----------------
James A. Beck
/s/Allen T. Nelson, Jr. Senior Vice President and Chief Financial Officer
- ----------------------
Allen T. Nelson, Jr.
/s/Charles F. Atkins Director
- --------------------
Charles F. Atkins
/s/Lamar Beach Director
- --------------
Lamar Beach
/s/Edwin E. Bridges Director
- -------------------
Edwin E. Bridges
/s/William C. Burkhardt Director
- ----------------------
William C. Burkhardt
/s/ L.I. Cohen, Jr. Director
- -------------------
L.I. Cohen, Jr.
/s/David G. Gospodarek Director
- ----------------------
David G. Gospodarek
/s/Carolyn W. Grant Director
- -------------------
Carolyn W. Grant
Signature Title
- --------- -----
/s/John F. Grimes Director
- -----------------
John F. Grimes
/s/ Darleen M. Johns Director
- --------------------
Darleen M. Johns
/s/Robert L. Jones Director
- ------------------
Robert L. Jones
/s/ Oscar A. Keller, III Chairman of the Board of Directors
- -----------------------
Oscar A. Keller, III
/s/ Oscar A. Keller, Jr. Director
- ------------------------
Oscar A. Keller, Jr.
/s/ Vernon Malone Director
- -----------------
Vernon Malone
/s/ George R. Perkins, III Director
- ---------------------------
George R. Perkins, III
/s/ Don W. Perry Director
- ----------------
Don W. Perry
/s/J. Rex Thomas Director
- ----------------
J. Rex Thomas
/s/ Bruce V. Wainright Director
- ----------------------
Bruce V. Wainright
/s/ Samuel J. Wornom, III Director
- -------------------------
Samuel J. Wornom, III
EXHIBIT INDEX
-------------
Exhibit No. Description
3.01(1) Articles of Incorporation of the Company
3.02(1) Bylaws of the Company
4.01(1) Specimen Common Stock Certificate of the Company
10.01(1) Lease Agreement, dated January 4, 1994, between Buchanan
Properties Joint Venture and Triangle East Bank, together
with assignment to the Company.
10.02(1) Lease Agreement, dated February 1, 1992, between Moretti
Construction, Incorporated and Triangle Bank, together with
assignment to the Company.
10.03(1) Sublease, dated January 30, 1997 between Centura Bank and NB
Acquisition Corp., predecessor to the Company.
10.04(1) Agreement of Sublease, dated June 3, 1997, between Medical
Records Corporation and the Company.
10.05(1) Lease Agreement, dated July 10, 1997, between Forty-Four
Hundred F-N Associates and Dixon-Odom Company and the
Company.
10.06(1,2) Amended and Restated Employment Agreement, dated May 22,
1997, between NB Acquisition Corp., as predecessor to the
Company, and James A. Beck.
10.07(1,2) Letter agreement, dated April 10, 1997, between the Company
and Franklin G. Shell regarding employment terms.
10.08(1,2) Incentive Stock Option Plan
10.9(1,2) Non-Qualified Stock Option Plan
10.10(1,2) Deferred Compensation Plan for Outside Directors
10.11(2) Change in Control Agreement, dated February 1, 2000 between
Capital Bank and Allen T. Nelson, Jr.
10.12(2) Change in Control Agreement, dated February 27, 2000 between
Capital Bank and Franklin G. Shell
10.13(1) Agreement, dated May 5, 1997, between Alphanumeric Systems
Inc. and the Company
10.14(1) Master Service Agreement, dated June 23, 1997, between
Central Service Corporation and the Company.
10.15(1) Lease Agreement, dated November 16, 1999, between Crabtree
Park, LLC and the Company.
10.16 Lease Agreement, dated November 3, 1999, between Beacon
Center Properties, LLC and the Company.
13 Portions of the Annual Report to Shareholders for fiscal year
ended December 31, 2000.
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
99 Risk Factors Relating to the Company
- --------------------------
1 Incorporated by reference to the Company's Registration Statement on Form S-4
filed with the SEC on October 19, 1998, as amended on November 10, 1998,
December 21, 1998 and February 8, 1999.
2 Denotes a management contract or compensatory plan, contract or arrangement.