SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
---------
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934 for the Fiscal Year Ended December 31, 2003
[_] Transition report pursuant to Section 15(d) of the Securities Exchange Act
of 1934 for the transition period from ___________________.
Commission File Number: 000-30062
CAPITAL BANK 401(k) RETIREMENT PLAN
(Full title of the plan)
CAPITAL BANK CORPORATION
4901 Glenwood Avenue
Raleigh, NC 27612-3820
(Name of issuer of the securities held pursuant to the plan
and address of its principal executive office)
CONTENTS
Page
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Signatures 3
Report of Independent Registered Public Accounting Firm F-1
Financial Statements:
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002 F-2
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2003 F-3
Notes to Financial Statements F-4
Supplemental Schedules:
Schedule H, Line 4i: Schedule of Assets (Held at End of Year)
December 31, 2003 F-9
Schedule of Non-Exempt Transactions
Year Ended December 31, 2003 F-10
Exhibit 23 Consent of Independent Registered Public Accounting Firm B-1
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
Capital Bank 401(k) Retirement Plan
Date: October 1, 2004 /s/ B. Grant Yarber
--------------- -------------------
B. Grant Yarber
President and Chief Executive Officer
Capital Bank Corporation
3
Report of Independent Registered Public Accounting Firm
To the Participants and Administrator of
Capital Bank 401(k) Retirement Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Capital Bank 401(k) Retirement Plan (the "Plan") at December 31, 2003 and
2002 and the changes in net assets available for benefits for the year ended
December 31, 2003 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule H, Line 4i -
Assets (Held at End of Year) and the Schedule of Non-Exempt Transactions are
presented for the purpose of additional analysis and are not a required part of
the basic financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's management. The supplemental
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
September 13, 2004
F-1
Capital Bank 401(k) Retirement Plan
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002
2003 2002
---------- ----------
Assets
Participant-directed investments, at fair value $5,826,903 $4,455,037
---------- ----------
Contributions receivable
Employer 30,182 114,382
Employee 34,338 40,494
---------- ----------
64,520 154,876
---------- ----------
Net assets available for benefits $5,891,423 $4,609,913
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
Capital Bank 401(k) Retirement Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2003
Additions to net assets attributed to
Investment income
Interest and dividends $ 54,725
Net appreciation in fair value of investments 961,591
----------
1,016,316
----------
Contributions
Employer 392,433
Employee 578,244
Rollover 29,085
----------
999,762
----------
Total additions 2,016,078
----------
Deductions from net assets attributed to
Benefits paid to participants 679,970
Administrative expenses 54,598
----------
734,568
----------
Net increase 1,281,510
Net assets available for benefits
Beginning of year 4,609,913
----------
End of year $5,891,423
==========
The accompanying notes are an integral part of these financial statements.
F-3
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2003 and 2002
1. Description of Plan
The following description of the Capital Bank 401(k) Retirement Plan (the
"Plan") provides only general information. Participants should refer to the
Plan Agreement for a more complete description of the Plan's provisions.
General
The Plan is a defined contribution plan, which covers substantially all
salaried employees of Capital Bank Corporation (the "Company"). The Plan
was established effective September 1, 1997 and is subject to the
provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
Plan Administration
EMJAY Corporation ("EMJAY"), a division of Great-West, is the appointed
trustee and record keeper for the Plan. In addition at December 31, 2002,
there were balances from the former High Street 401(k) plan which were
being held by two other institutions, Annuity Investors and Capital
Investment Company, but were transferred to EMJAY subsequent to year end.
In addition at December 31, 2002, there were balances from the former High
Street 401(k) plan which were being held by two other institutions, Annuity
Investors and Capital Investment Company, which were transferred to EMJAY
during the early part of 2003.
Eligibility of Participation
All full-time, salaried employees over the age of 21 and employed by the
Company for at least 3 months are eligible to participant in the Plan.
Contributions
Participant contributions are voluntary, and the Company imposes no
limitations on participant contributions other than certain Internal
Revenue Code limitations. The Company may make a discretionary match on
participant contributions. During the year ended December 31, 2003, the
Company matched individual participant contributions up to 6 percent of the
employee's eligible salary.
Participants may make changes in their contribution percentage monthly.
Investments
Upon enrollment in the Plan, participants may direct the investment of
contributions to any of the investment options offered by the Plan,
including Company stock (limited to 25 percent of total allocation) and
nine funds managed by EMJAY Retirement Services. Contributions are
allocated to investment options in whole percentages with a minimum of 5
percent per elected investment option. The Plan permits participants to
redistribute asset balances and to change investment allocations on a daily
basis during business days.
Vesting
Employee contributions are always 100 percent vested. Employer matching
contributions are subject to the following vesting schedule:
F-4
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2003 and 2002
Years 1 2 3 4 5
Vested % 0% 20% 40% 60% 100%
Participant Accounts
Each participant's separate account is credited with the participant's
contribution, the Company's matching contribution and earnings on the
account. The benefit to which a participant is entitled is the benefit that
can be provided from the participant's vested account.
Participant Loans
Participants may borrow from their account balances subject to Internal
Revenue Service regulation. Participants must have a financial hardship and
may not borrow less than $1,000. Interest charged on participant loans by
the Plan administrator ranged from 5.14 percent to 9.50 percent during 2003
and 2002. Principal and interest is paid through payroll deductions.
Payment of Benefits
On termination of service due to separation from the Company, retirement,
permanent disability or death, a participant will receive either a lump sum
amount or installment payments equal to the value of the participant's
vested account.
Forfeited Accounts
At December 31, 2003 and 2002, forfeited nonvested accounts totaled $37,512
and $74,656, respectively. Amounts totaling $74,656, representing
accumulated prior year forfeitures, were used during the year ended
December 31, 2003 to reduce employer contributions.
Party-in-Interest
The Plan invests in Company stock and certain mutual funds managed by EMJAY
Retirement Plan Services. The income of the Plan is derived from these
investments; therefore, these transactions qualify as party-in-interest
transactions, which are allowable under ERISA.
During the year ended December 31, 2003, the plan purchased and sold 12,098
shares and 9,889 shares, respectively, of Capital Bank Corporation stock.
2. Summary of Significant Accounting Policies
Basis of Accounting
The Plan's financial statements are prepared using the accrual basis of
accounting.
Administrative Expenses
The Plan and the Company pay administrative expenses of the Plan. During
the year ended December 31, 2003, all administrative expenses totaling
$54,598 were paid by the Plan.
Investment Valuation and Income Recognition
The Plan's investments consist of the Company's common stock and mutual
funds held with EMJAY Retirement Services. All investments are recorded at
fair value. Quoted market prices are used to value common stock. Shares of
mutual funds are valued at the net asset value of shares held by the Plan
at year end. The value of the common/collective trust is based on the
Plan's interest in the net assets of the common/collective trust. The
common/collective trust unit
F-5
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2003 and 2002
values equals the total value of assets held by the fund less any
liabilities (including fees payable to the manager) divided by the total
number of units outstanding on the valuation date. Participant loans are
valued at their outstanding balances, which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Dividends are recorded on the ex-dividend date.
The Plan presents in the statement of changes in net assets available for
benefits the net appreciation (depreciation) in the fair value of its
investments, which consists of the realized gains or losses and the
unrealized appreciation (depreciation) on these investments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of net assets available for
benefits at the dates of the financial statements and the reported changes
in net assets available for benefits, and disclosure of contingent assets
and liabilities during the reported periods. Actual results could differ
from those estimates.
Risks and Uncertainties
The Plan invests in various investment securities. Investment securities
are exposed to various risks such as interest rate, market, and credit
risks. Due to the level of risk associated with certain investment
securities, it is at least reasonably possible that changes in the values
of investment securities will occur in the near term and that such changes
could materially affect participants' account balances and the amounts
reported in the statement of net assets available for benefits.
Payment of Benefits
Benefits are recorded when paid.
3. Investments
The following presents investments that represent five percent or more of
the Plan's net assets in one or both years:
2003 2002
------------------------ ------------------------
Shares Value Shares Value
---------- ---------- ---------- ----------
Capital Bank Corporation Stock 65,548 $ 965,170 63,339 $ 782,027
Wells Fargo Stable Return Fund 35,066 1,253,535 32,176 1,098,056
American Century Ultra Fund 29,841 795,268 24,300 514,665
Washington Mutual Investors Fund 20,355 585,803 13,904 326,894
Franklin Small Cap Growth II Fund 40,963 436,663 29,578 212,372
PIMCO Total Return Fund 36,520 391,125 23,325 248,878
Vanguard Index 500 Fund 5,889 604,645 5,542 449,729
EuroPacific Growth Fund 10,965 331,249 8,211 188,604
Invesco Dynamics Fund 21,331 314,412 17,805 189,805
F-6
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2003 and 2002
During 2003, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
in value by $961,591 as follows:
Common/collective trust $ 60,239
Mutual funds 744,826
Common stock 156,526
--------
$961,591
========
4. Tax Status
The Company adopted a Prototype Non-Standardized Profit Sharing arrangement
which received a favorable opinion letter from the Internal Revenue Service
("IRS") on August 30, 2001 which stated that the form of the prototype plan
is designed in accordance with applicable sections of the Internal Revenue
Code ("IRC"). The Plan has since been amended. However, the Plan
administrator believes that the Plan is designed and is currently being
operated in compliance with the applicable requirements of the IRC.
Therefore, no provision for income taxes has been included in the Plan's
financial statements.
5. Plan Termination
Although it has not expressed any intent to do so, the Company has the
right under the Plan to amend or terminate the Plan subject to the
provisions of ERISA. In the event of Plan termination, distribution of
assets would continue in accordance with existing Plan provisions and would
be distributed to participants with a deduction for expenses.
6. Plan Amendment
Effective January 1, 2002, the Plan was amended and restated to incorporate
operational provisions required in the Uruguay Round Agreements Act, the
Uniformed Services Employment and Re-employment Rights Act of 1994, the
Small Business Job Protection Act of 1996 and the Tax Reform Act of 1997,
collectively referred to as GUST.
Effective January 1, 2003, the Plan was amended and restated to incorporate
provisions required by the Economic Growth and Tax Relief Reconciliation
Act of 2001 ("EGTRRA").
7. Acquisitions
In 2002, the Company acquired two financial institutions. During the first
quarter, the Company acquired First Community Financial Corporation and
merged its subsidiary, Community Savings Bank, into Capital Bank. In the
fourth quarter of 2002, the Company acquired High Street Corporation and
merged its subsidiary, High Street Banking Company, into Capital Bank. As a
result of these acquisitions, 401(k) participant balances in the amount of
$2,317,190 and $428,915 were transferred into the Capital Bank 401(k) Plan
from the Community Savings Bank Employees' Savings and Profit Sharing Plan
and the High Street Banking Company Retirement Savings Plan, respectively.
F-7
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2003 and 2002
8. Nonexempt Transactions
Title I of ERISA requires that all employee contributions be submitted to
the Plan as soon as administratively possible but no later than the 15th
business day of the month following the month of being withheld from
compensation. Failure to remit employee contributions into the Plan on a
timely basis is considered a non-exempt transaction with a
party-in-interest. Management has determined that non-exempt transactions
occurred in 2003. These transactions involved the untimely remittance of
employee contributions and loan repayments for the pay period ended in
February 2003. The past due contributions and loan repayments totalling
$52,077 were remitted to the Plan no later than twenty-two business days
following the month in which the deferral was withheld from compensation.
9. SEC Filing
The Plan has commenced filing Form 11-K's with the Securities and Exchange
Commission for each of the two years ended December 31, 2002 and 2003. A
Form 11-K is required for any period in which the Plan participants can
elect to invest their individual contributions in the securities of the
Plan sponsor, which became an available election in July, 2000. In the
event that additional filings are required, the Plan sponsor would be
responsible for paying any associated costs not permitted to be paid by the
Plan under Department of Labor Rules and Regulations.
F-8
Capital Bank 401(k) Retirement Plan
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2003
Description of Investment
Including Maturity Date,
Identity of Issuer, Borrower, Rate of Interest, Collateral, Number of Current
Lessor or Similar Party Par or Maturity Value Shares/Units Cost Value
- ----------------------------------------------- ------------------------------ -------------- ------- ---------------
Capital Bank Corporation Stock* Common Stock 65,548 ** $ 965,170
Wells Fargo Stable Return Fund* Common /Collective Trust 35,066 ** 1,253,535
American Century Ultra Fund Mutual fund 29,841 ** 795,268
Washington Mutual Investors Fund Mutual fund 20,355 ** 585,803
EuroPacific Growth Fund Mutual fund 10,965 ** 331,249
Franklin Small Cap Growth II Fund Mutual fund 40,963 ** 436,663
Invesco Dynamics Fund Mutual fund 21,331 ** 314,412
Neuberger & Berman Genesis Mutual fund 3,934 ** 145,686
PIMCO Total Return Fund Mutual fund 36,520 ** 391,125
Vanguard Index 500 Fund Mutual fund 5,889 ** 604,645
Participant Loans 6.00% due December, 2006 3,347
-----------
$5,826,903
===========
* Party-in-interest
** Cost information has been omitted because all investments are
participant-directed.
F-9
Capital Bank 401(k) Retirement Plan
Schedule of Non-Exempt Transactions
Year Ended December 31, 2003
Identity
of Party Relationship Description Purchase Selling Lease Expenses
Involved to Plan of Transaction Price Price Rental Incurred
- --------------------------- --------------- ---------------------------- ----------- --------- ---------- ----------
Capital Bank Plan Sponsor Failure to remit employee $ - $ - $ - $ -
contributions and loan
repayments on a timely
basis for February 2003.
Identity Current Net gain or
of Party Relationship Cost of Value of (loss) on each
Involved to Plan Asset Asset transaction
- --------------------------- --------------- ------------ ------------ ---------------
Capital Bank Plan Sponsor $ 52,077 $ 52,180 $ 103
F-10