8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 3)

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): January 3, 2006

CAPITAL BANK CORPORATION

(Exact name of registrant as specified in its charter)

North Carolina	000-30062	56-2101930
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)

4901 Glenwood Ave.

Raleigh, North Carolina 27612

(Address of principal executive offices)

(919) 645-6400

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

On January 9, 2006, Capital Bank Corporation (the “Company”) filed a Current Report on Form 8-K (the “Original Form 8-K”) reporting its acquisition of 1^st State Bancorp, Inc. (“1^st State Bancorp”). The Company indicated in the Original Form 8-K that it would file certain financial information by amendment, as permitted under Item 9.01 of Form 8-K. On January 10, 2006, the Company filed Amendment No. 1 to the Original Form 8-K for the purpose of including the audited financial statements for 1^st State Bancorp required under Item 901(a). On March 21, 2006, the Company filed Amendment No. 2 to the Original Form 8-K to correct an inadvertent reference to unaudited interim financial statements in Item 9.01(a) of the Original Form 8-K and Amendment No. 1 thereto and to include unaudited pro forma condensed combined financial information required under Item 9.01(b). The purpose of this Amendment No. 3 to the Original Form 8-K is to correct a typographical error contained in the unaudited pro forma condensed combined statement of financial condition as of December 31, 2005 included in Exhibit 99.3 to Amendment No. 2.

Item 9.01Financial Statements and Exhibits.

(a)Financial statements of business acquired.

The following audited consolidated financial statements for 1^st State Bancorp were previously filed, within the meaning of Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended, in 1^st State Bancorp’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on December 29, 2005, and are filed as Exhibit 99.2 to this Current Report on Form 8-K and incorporated into this Item 9.01(a) by reference:

Report of KPMG LLP, Independent Registered Public Accounting Firm

Report of McGladrey & Pullen, LLP, Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of September 30, 2005 and 2004

Consolidated Statements of Income for the Years Ended September 30, 2005, 2004 and 2003

Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended September 30, 2005, 2004 and 2003

Consolidated Statements of Cash Flows for the Years Ended September 30, 2005, 2004 and 2003

Notes to Consolidated Financial Statements

(b)Pro forma financial information.

The unaudited pro forma condensed combined statement of financial condition as of December 31, 2005 and the unaudited pro forma condensed combined statement of income for the year ended December 31, 2005 and the notes thereto are filed as Exhibit 99.3 to this Current Report on Form 8-K and incorporated into this Item 9.01(b) by reference.

(d)Exhibits

The following exhibits are being filed herewith:

Exhibit No.	Description
Exhibit 2.1	Merger Agreement, dated June 29, 2005, by and among Capital Bank Corporation and 1st State Bancorp, Inc. (incorporated by reference to Exhibit 2.1 to Capital Bank Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 29, 2005)
Exhibit 2.2	List of Schedules Omitted from Merger Agreement included as Exhibit 2.1 above (incorporated by reference to Exhibit 2.2 to Capital Bank Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 29, 2005)

Exhibit No.	Description
Exhibit 10.1	Employment Agreement, dated January 3, 2006, between Capital Bank and A. Christine Baker (incorporated by reference to Exhibit 10.1 to Capital Bank Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2006)
Exhibit 23.1	Consent of McGladrey & Pullen, LLP (incorporated by reference to Exhibit 23.1 to Capital Bank Corporation’s Current Report on Form 8-K/A (Amendment No. 1) filed with the Securities and Exchange Commission on January 10, 2006)
Exhibit 23.2	Consent of KPMG LLP (incorporated by reference to Exhibit 23.2 to Capital Bank Corporation’s Current Report on Form 8-K/A (Amendment No. 1) filed with the Securities and Exchange Commission on January 10, 2006)
Exhibit 99.1	Press Release of Capital Bank Corporation dated January 3, 2006 (incorporated by reference to Exhibit 10.1 to Capital Bank Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2006)
Exhibit 99.2	Financial Statements of Business Acquired for the years ended September 30, 2005, 2004 and 2003, as described in Item 9.01(a) above (incorporated by reference to Exhibit 99.2 to Capital Bank Corporation’s Current Report on Form 8-K/A (Amendment No. 1) filed with the Securities and Exchange Commission on January 10, 2006)
Exhibit 99.3	Unaudited Pro Forma Condensed Combined Financial Information for the year ended December 31, 2005, as described in Item 9.01(b) above

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned hereunto duly authorized.

CAPITAL BANK CORPORATION
By:	/s/ B. Grant Yarber
	B. Grant Yarber
	Chief Executive Officer

Date: March 22, 2006

EXHIBIT INDEX

Exhibit No.	Description
Exhibit 2.1	Merger Agreement, dated June 29, 2005, by and among Capital Bank Corporation and 1st State Bancorp, Inc. (incorporated by reference to Exhibit 2.1 to Capital Bank Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 29, 2005)
Exhibit 2.2	List of Schedules Omitted from Merger Agreement included as Exhibit 2.1 above (incorporated by reference to Exhibit 2.2 to Capital Bank Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 29, 2005)
Exhibit 10.1	Employment Agreement, dated January 3, 2006, between Capital Bank and A. Christine Baker (incorporated by reference to Exhibit 10.1 to Capital Bank Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2006)
Exhibit 23.1	Consent of McGladrey & Pullen, LLP (incorporated by reference to Exhibit 23.1 to Capital Bank Corporation’s Current Report on Form 8-K/A (Amendment No. 1) filed with the Securities and Exchange Commission on January 10, 2006)
Exhibit 23.2	Consent of KPMG LLP (incorporated by reference to Exhibit 23.2 to Capital Bank Corporation’s Current Report on Form 8-K/A (Amendment No. 1) filed with the Securities and Exchange Commission on January 10, 2006)
Exhibit 99.1	Press Release of Capital Bank Corporation dated January 3, 2006 (incorporated by reference to Exhibit 10.1 to Capital Bank Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2006)
Exhibit 99.2	Financial Statements of Business Acquired for the years ended September 30, 2005, 2004 and 2003, as described in Item 9.01(a) above (incorporated by reference to Exhibit 99.2 to Capital Bank Corporation’s Current Report on Form 8-K/A (Amendment No. 1) filed with the Securities and Exchange Commission on January 10, 2006)
Exhibit 99.3	Unaudited Pro Forma Condensed Combined Financial Information for the year ended December 31, 2005, as described in Item 9.01(b) above

EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information is based on the historical financial statements of Capital Bank Corporation and subsidiaries (“Capital”) and 1st State Bancorp, Inc. and subsidiaries (“1st State”). The unaudited pro forma condensed combined balance sheet as of December 31, 2005 and the unaudited pro forma condensed combined statements of income for the year ended December 31, 2005 give effect to the merger transaction, accounted for under the purchase method of accounting.

The unaudited pro forma condensed combined income statement for the year ended December 31, 2005 has been derived from the audited financial statements of Capital, the audited financial statements of 1st State for the year ended September 30, 2005 and the unaudited interim financial statements of 1st State for the three months ended December 31, 2005. These unaudited pro forma condensed combined income statements give effect to the transaction as if it had been consummated at the beginning of the earliest period presented, or January 1, 2005. The unaudited pro forma condensed combined financial statements do not give effect to the anticipated cost savings or revenue enhancements in connection with the transaction.

The unaudited pro forma condensed combined financial statements should be considered together with the historical financial statements of Capital and 1st State, including the respective notes to those statements. The pro forma information does not necessarily indicate the combined financial position or the results of operations in the future or the combined financial position or the results of operations that would have been realized had the merger transaction been consummated during the periods or as of the dates for which the pro forma information is presented.

Capital Bank Corporation

Unaudited Pro Forma Condensed Combined Statement of Financial Condition as of December 31, 2005

 

	Capital Bank		1st State		Pro Form					Pro Forma
(In thousands)	Corporation		Bancorp, Inc.		Adjustments					Combined
Assets
Cash and cash equivalents	$	43,904	$	9,100	$	(13,358	)	(A	)	$	39,646
Cash held in escrow		33,185		-		(33,185	)	(A	)		-
Investment securities:
Available-for-sale		143,239		85,574		(463	)	(B	)		228,350
Held-to-maturity		12,334		23,247		(521	)	(B	)		35,060
Federal Home Loan Bank stock		6,027		2,271		-					8,298
Loans receivable held for investment, net		659,390		230,782		604		(B	)		890,776
Intangible assets		805		-		5,331		(B	)		6,136
Goodwill		12,048		-		46,033		(E	)		58,081
Premises and equipment		14,868		7,279		746		(B	)		22,893
Other assets		35,106		12,102		7,908		(D	)		55,116
Total assets	$	960,906	$	370,355	$	13,095				$	1,344,356
Liabilities and Shareholder’s Equity
Deposits	$	698,480		271,307	$	730		(B	)	$	970,517
Advances from Federal Home Loan Bank		93,173		34,000		144		(B	)		127,317
Repurchase agreements		14,514		-		-					14,514
Short-term debt		30,000		-		-					30,000
Subordinated debentures		30,930		-		-					30,930
Accrued expenses and other liabilities		10,317		1,864		897		(C	)		13,078
Total liabilities		877,414		307,171		1,771					1,186,356
Shareholders’ equity		83,492		63,184		11,324		(A	)		158,000
Total liabilities and shareholders’ equity	$	960,906	$	370,355	$	13,095				$	1,344,356

Capital Bank Corporation

Unaudited Pro Forma Condensed Combined Statement of Income for the Year Ended December 31, 2005

	Capital Bank			1st State					Pro Form					Pro Forma
(In thousands, except share and per share data)	Corporation			Bancorp, Inc.					Adjustments					Combined
Interest income	$	50,749		$	19,706				$	(1,224	)	(K	)	$	69,301
										(3	)	(G	)
										73		(F	)
Interest expense		21,459			6,770					(638	)	(H	)		28,012
										491		(J	)
										(70	)	(I	)
		29,290			12,936					(937	)				41,289
Provision (credit) for loan losses		(396	)		3,416		(1	)		-					3,020
Net interest income		29,686			9,520					(937	)				38,269
Other income		6,731			2,205					(56	)	(N	)		8,880
Other expense		26,242			10,856		(2	)		4		(L	)		37,102
Amortization of intangible assets		212			-					1,914		(M	)		2,126
Income (loss) before income taxes		9,963			869					(2,911	)				7,921
Income taxes		3,264			944					(1,122	)	(O	)		3,086
Net income (loss)	$	6,699		$	(75	)			$	(1,789	)			$	4,835
Net income (loss) per common share:
Basic	$	0.99		$	(0.03	)								$	0.41
Diluted	$	0.97		$	(0.03	)								$	0.41
Weighted number of shares outstanding:
Basic		6,790,846			2,805,440					2,077,190					11,673,476
Diluted		6,920,388			2,966,346					1,916,284					11,803,018

(1) 1st State’s provision for loan losses includes a pre-acquisition adjustment of $2,609 to adjust 1st State’s allowance for loan losses as required under the terms of the merger agreement.

(2) 1st State’s other expenses includes merger-related costs of $2,351 that were charged to expense prior to the closing date of the transaction.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

Note 1 - Basis of Presentation and Acquisitions

On January 3, 2006, 1st State merged with and into Capital pursuant to the Merger Agreement, dated June 29, 2005 by and between Capital and 1st State (the “Merger Agreement”). Under the terms of the Merger Agreement, Capital issued an aggregate of 4,882,630 shares of its common stock and paid a total of $33,185,195.76 to 1st State shareholders. As a result of the merger, each outstanding option to purchase shares of 1st State common stock was terminated in exchange for a cash payment by Capital to each option holder in an amount equal to $37.15 per option minus the applicable exercise price of such option. In the aggregate, $6,929,741.28 in cash was paid to 1st State option holders.

The unaudited pro forma condensed combined financial information gives effect to the acquisition under the purchase method of accounting, and the unaudited condensed combined balance sheet assumes the transaction occurred on December 31, 2005, reflecting the purchase consideration noted above.

Described below is the pro forma estimate of the total purchase price of the transactions as well as adjustments to allocate the purchase price based on preliminary estimates of fair values of the assets and liabilities of 1st State (in thousands):

Estimated fair value of shares issued	$	74,508
Cash paid to shareholders		33,185
Cash paid for stock options		6,930
Estimated transaction costs		6,428
Total purchase price		121,051
Net assets based on carrying amounts at December 31, 2005		63,184
Increase (decrease) in net assets to reflect estimated fair value adjustments under the purchase method of accounting:
Available-for-sale investment securities		(463	)
Held-to maturity investment securities		(521	)
Loans held for investment		604
Premises and equipment		746
Other assets		7,908
Deposits		(730	)
Federal Home Loan Bank advances		(144	)
Other liabilities		(897	)
Fair value of net assets acquired		69,687
Total purchase price in excess of fair value of net assets acquired		51,364
Identifiable intangible assets:
Core deposit		(5,331	)
Goodwill	$	46,033

Except as discussed in Note 2, there are no adjustments to other asset or liability groups, and the book values approximate fair values.

The effects of the transaction, as reflected in the unaudited pro forma condensed combined financial data, will be accounted for by Capital under the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations,” and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). In accordance with SFAS No. 142, intangible assets other than goodwill must be amortized over their estimated useful lives. Goodwill will not be amortized to expense, but instead will be reviewed for impairment at least annually and to the extent goodwill is impaired, its carrying value will be written down to its implied fair value and a charge to earnings will be made.

Note 2 - Purchase Accounting and Pro Forma Acquisition Adjustments

(A) Reflects the issuance of 4,882,630 shares of Capital common stock at the value described in Note 1 above, plus other items associated with the transaction, including cash consideration of $33,185, the fair value of stock options of $6,930 and estimated transaction costs of $6,428.

(B)	Represents the recording of fair value adjustments relating to the assets and liabilities of 1st State.
(C) (D)	Represents an adjustment to record a four year consulting agreement with former CEO of 1st State. Represents the estimated tax benefit associated with certain transaction expenses and fair value adjustments.
(E)	Represents an adjustment to record the estimated goodwill related to the transaction.

(F) Represents the adjustment to record the amortization of the fair value adjustment on acquired loans over their expected average life of 15 years.

(G) Represents the adjustment to record the amortization of the fair value adjustment on acquired securities over their expected average life of four years.

(H) Represents the adjustment to record the amortization of the fair value adjustment on acquired time deposits over their expected average life of five years.

(I) Represents the adjustment to record the amortization of the fair value adjustment on acquired Federal Home Loan Bank advances over their expected average life of two years.

(J)   (K) Represents interest expense related to borrowings to finance the payment of cash consideration.   Represents loss of interest income on investment securities sold to retire the short-term debt used to finance the payment of cash consideration.

(L) Represents the adjustment to record the amortization of the fair value adjustment on acquired premises over their expected useful life of 20 years.

(M) Represents the adjustment to record the amortization of the fair value adjustment on acquired core deposits on the sum-of-the-years-digits basis over their expected average life of eight years.

(N)   (O) Represents the adjustment to record the amortization of acquired mortgage servicing rights over their expected average life of 15 years.   Represents estimated tax savings on transaction adjustments at a combined rate of 38.5%.