form8-k.htm

CONTACT:

B. Grant Yarber

President and Chief Executive Officer

Phone: (919) 645-3494

Email: gyarber@capitalbank-nc.com

FOR IMMEDIATE RELEASE

Capital Bank Announces Strong Loan Growth, Solid Earnings and Improved Asset Quality

RALEIGH, N.C., October 21, 2008 – Capital Bank Corporation (Nasdaq: CBKN), the parent company of Capital Bank, today reported net income for the nine months ended September 30, 2008 of $6.4 million compared to $7.8 million for the nine months ended September 30, 2007. Earnings per share on a fully diluted basis was $0.57 for the first nine months of 2008 compared to $0.68 for the first nine months of 2007. Net income was $2.0 million, or $0.18 per share on a fully diluted basis, for the third quarter ended September 30, 2008 compared to $2.8 million, or $0.24 per share on a fully diluted basis, for the third quarter ended September 30, 2007.

“Although economic conditions continue to deteriorate beyond all of our expectations, Capital Bank continues to focus on asset quality and revenue enhancements, and this focus paid off with stable financial performance. During this time of financial crisis, many of our customers have come to see us as a refuge of trust and consistency which has enabled us to exceed our loan and deposit growth objectives. In addition, we were presented with the opportunity to expand into our neighboring market, Fayetteville, through the acquisition of four branches currently belonging to Omni National Bank. We look forward to the completion of this transaction late in the fourth quarter,” stated B. Grant Yarber, president and CEO.

Asset quality continued to improve compared to both the second quarter of 2008 and the third quarter of 2007. Past due loans as a percent of total loans declined to 0.75% at September 30, 2008 from 0.78% at June 30, 2008 and 1.23% at September 30, 2007. Nonperforming assets, which include loans on nonaccrual and other real estate owned, decreased to 0.47% as a percent of total assets at the end of September 30, 2008 compared to 0.71% at September 30, 2007 and increased from 0.37% at June 30, 2008. Allowance for loan losses totaled 1.17% of total loans at September 30, 2008 compared to 1.25% at September 30, 2007 and 1.18% at June 30, 2008. The allowance for loan losses was 219% of nonperforming loans as of September 30, 2008 compared to 131% at the end of the third quarter 2007 and 267% at the end of June 2008.

Capital Bank achieved $99.0 million in loan growth during the nine months ended September 30, 2008. Much of the growth has occurred in the Triangle and Western North Carolina markets, which we believe continue to present quality growth opportunities. Deposits also increased $99.0 million during the nine months ended September 30, 2008, rising from $1.10 billion at December 31, 2007 to $1.20 billion at September 30, 2008. Checking and savings accounts increased $19.0 million from December 31, 2007 as the bank continued to emphasize growth in this critical product area. Time deposits increased $111.2 million over the same period. Some of the growth in time deposits was due to a new deposit product offering through CDARS, which provides large-balance customers the opportunity for increased FDIC insurance through the convenience of working with one financial institution. Another reason for growth in time deposits was due to retail customers electing to shift funds from money market savings products to CDs. Money market deposits decreased $31.2 million during the first nine months of 2008.

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Net interest income for the first nine months of 2008 decreased $485 thousand compared to the first nine months of 2007. This decline was due to the impact of a decrease in net interest margin from 3.58% to 3.18% for the first nine months of 2007 and 2008, respectively. The decline in net interest margin was primarily a result of the reduction in the prime rate over the periods under comparison and competitive pressures in the marketplace for retail deposits. Partially offsetting this decline in net interest margin was 9.6% growth in average earning assets for the comparable periods.

Provision for loan losses increased $1.7 million for the nine months ended September 30, 2008 compared to the same period one year ago. The increase in the provision was partially due to loan growth but was also partially due to enhancements in the methodology for calculating the allowance for loan losses, which reduced the allowance and related provision for the nine months ended September 30, 2007. The enhancements to the allowance methodology were implemented during 2007 based on updated guidance issued through an interagency policy statement by the FDIC, Federal Reserve, and other regulatory agencies. Management continues to thoroughly review its loan portfolio and the adequacy of its allowance for loan losses.

Noninterest income increased $1.7 million, or approximately 24%, on a year-to-date basis compared to the same period one year ago despite an $877 thousand decline in mortgage revenue. Service charge income, bank card income and other loan-related fees increased a combined $1.4 million, or 34.2%, compared to the same period one year ago primarily as a result of management’s continued emphasis on increasing income from these sources. Gains on the sale of certain investment securities and the sale of a branch in Greensboro contributed $249 thousand and $426 thousand, respectively, to noninterest income.

“Our noninterest income improvement strategies, which were implemented early in the second quarter, continue to show success. These strategies are based on fee collection efforts, restructured pricing and innovative product enhancements, including our Smart Checking product,” stated B. Grant Yarber.

Noninterest expense increased from $28.6 million during the first nine months of 2007 to $30.4 million during the first nine months of 2008. Salaries, furniture and equipment, and data processing costs increased a combined $1.1 million over the same periods. Salaries increased 2.4% from last year due to routine annual compensation adjustments while furniture and equipment expense rose due to equipment and building upgrades as well as higher maintenance costs. Data processing costs increased with the implementation of an internet-based phone system. In addition, FDIC deposit insurance rose $243 thousand as the regulatory agency continued to increase premiums to cover higher monitoring costs and claims.

Capital Bank Corporation, headquartered in Raleigh, N.C., with approximately $1.6 billion in total assets, offers a broad range of financial services. Capital Bank operates 27 banking offices in Asheville (4), Burlington (4), Cary, Graham (2), Hickory, Mebane, Morrisville, Oxford, Pittsboro, Raleigh (5), Sanford (3), Siler City, Wake Forest and Zebulon. The Company’s website is http://www.capitalbank-nc.com.

Information in this press release contains forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates, and the effects of competition. Additional factors that could cause actual results to differ materially are discussed in Capital Bank Corporation’s filings with the Securities and Exchange Commission, including without limitation its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. Capital Bank Corporation does not undertake a duty to update any forward-looking statements in this press release.

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CAPITAL BANK CORPORATION

Summary of Operations

(Unaudited)	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
(In thousands except per share data)

Interest income	$	20,931	$	23,955	$	64,932	$	70,697
Interest expense		10,104		12,775		32,268		37,548
Net interest income		10,827		11,810		32,664		33,149
Provision for loan losses		760		261		2,175		507
Net interest income after provision for loan losses		10,067		10,919		30,489		32,642
Noninterest income		3,267		2,522		8,754		7,056
Noninterest expense		10,517		9,583		30,376		28,636
Income before taxes		2,817		3,858		8,867		11,062
Income tax expense		805		1,105		2,473		3,249
Net income	$	2,012	$	2,753	$	6,394	$	7,813

Income per share – basic	$	0.18	$	0.24	$	0.57	$	0.68
Income per share – fully diluted	$	0.18	$	0.24	$	0.57	$	0.68
Weighted average shares outstanding:
Basic		11,302		11,451		11,301		11,482
Fully diluted		11,313		11,510		11,314		11,552

End of Period Balances

(Unaudited)	2008						2007
	September 30		June 30		March 31		December 31(a)		September 30
(Dollars in thousands except per share data)

Total assets	$	1,594,402	$	1,592,034	$	1,575,301	$	1,517,603	$	1,490,244
Investment securities		244,310		246,468		258,086		259,116		249,083
Loans (gross)*		1,194,149		1,178,157		1,150,497		1,095,107		1,070,656
Allowance for loan losses		14,017		13,910		13,563		13,571		13,366
Total earning assets		1,444,727		1,435,020		1,419,174		1,362,048		1,335,434
Deposits		1,197,721		1,182,615		1,150,897		1,098,698		1,090,589
Shareholders’ equity		166,521		165,731		167,967		164,300		164,089

Book value per share	$	14.83	$	14.76	$	14.95	$	14.71	$	14.58
Tangible book value per share	$	9.26	$	9.16	$	9.33	$	9.04	$	8.93