EX-99.3 2 ex99-3.htm 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%.