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, 2004
[_] 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 1
Reports of Independent Registered Public Accounting Firms F-1 - F-2
Financial Statements:
Statements of Net Assets Available for Benefits
December 31, 2004 and 2003 F-3
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2004 F-4
Notes to Financial Statements F-5 - F-9
Supplemental Schedules:
Schedule H, Line 4i: Schedule of Assets (Held at End of Year)
December 31, 2004 F-10
Exhibit 23 Consents of Independent Registered Public Accounting Firms B-1 - B-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: June 29, 2005 /s/ B. Grant Yarber
------------- -------------------------------------
B. Grant Yarber
President and Chief Executive Officer
Capital Bank Corporation
1
Report of Independent Registered Public Accounting Firm
To the Participants and Administrator of
Capital Bank 401(k) Retirement Plan:
We have audited the accompanying statement of net assets available for benefits
of Capital Bank 401(k) Retirement Plan as of December 31, 2004, and the related
statement of changes in net assets available for benefits for the year then
ended. 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 audit.
We conducted our audit 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2004, and the changes in net assets available for benefits for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audit was performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) is presented for the purpose of additional analysis and is not a
required part of the basic financial statements, but is supplementary
information required by the Department of Labor Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ Grant Thornton LLP
Raleigh, North Carolina
June 23, 2005
F-1
Report of Independent Registered Public Accounting Firm
To the Participants and Administrator of
Capital Bank 401(k) Retirement Plan
In our opinion, the accompanying statement of net assets available for benefits
presents 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 in
conformity with accounting principles generally accepted in the United States of
America. This financial statement is the responsibility of the Plan's
management. Our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement 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 statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
September 13, 2004
F-2
Capital Bank 401(k) Retirement Plan
Statements of Net Assets Available for Benefits
December 31, 2004 and 2003
2004 2003
---------- ----------
Assets
Participant-directed investments, at fair value $6,182,434 $5,826,903
---------- ----------
Contributions receivable
Employer 17,356 30,182
Employee 24,472 34,338
---------- ----------
41,828 64,520
---------- ----------
Net assets available for benefits $6,224,262 $5,891,423
========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
Capital Bank 401(k) Retirement Plan
Statements of Net Assets Available for Benefits
December 31, 2004
Additions to net assets attributed to
Investment income
Interest and dividends $ 80,207
Net appreciation in fair value of investments 530,348
----------
610,555
----------
Contributions
Employer 371,657
Employee 506,483
Rollover 164,612
----------
1,042,752
----------
Total additions 1,653,307
----------
Deductions from net assets attributed to
Benefits paid to participants 1,278,415
Administrative expenses 42,053
----------
1,320,468
----------
Net increase 332,839
Net assets available for benefits
Beginning of year 5,891,423
----------
End of year $6,224,262
==========
The accompanying notes are an integral part of these financial statements.
F-4
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2004 and 2003
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
full-time 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 Life and Annuity
Insurance Company, is the appointed trustee and record keeper for the plan.
Eligibility of Participation
All full-time employees over the age of 18 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, 2004, the
Company matched 100% of 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 1
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
Years 1 2 3 4 5
Vested % 0% 20% 40% 60% 100%
F-5
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2004 and 2003
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 qualified financial
hardship and may not borrow less than $1,000. Interest charged on
participant loans by the Plan administrator ranged from 5.00 percent to
9.50 percent during 2004 and 2003. 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.
Forfeitures
At December 31, 2004 and 2003, forfeited nonvested amounts totaled $119,036
and $37,512, respectively. Forfeitures are used to reduce Company
contributions. No forfeitures were used during the year ended December 31,
2004.
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, 2004, the plan purchased and sold 9,266
shares and 15,853 shares, respectively, of Capital Bank Corporation common
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, 2004, all administrative expenses totaling
$42,053 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 except the Wells Fargo Stable Return Fund as described below.
Quoted market prices are used to value common stock. Shares of mutual funds
are valued at the quoted market net asset value of shares held by the Plan
at year end.
F-6
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2004 and 2003
Participant loans are valued at their outstanding balances, which
approximates fair value.
Certain assets are maintained in the Wells Fargo Stable Return Fund, a
guaranteed investment account which is valued at contract value by the
Trustee. The contract value represents contributions plus accumulated
interest at the contract rate less benefits paid to participants, contract
administration fees and other direct expenses. For the year ended December
31, 2004, the fund's average yield, net of expenses, was approximately
3.80% and the daily crediting interest rate as of that date, without
expenses, was approximately .012%. In accordance with Statement of Position
(SOP) 94-4 issued by the American Institute of Certified Public
Accountants, Reporting of Investment Contracts Held by Health and Welfare
Benefit Plans and Defined Contribution Pension Plans, the underlying
contracts held in the Wells Fargo Stable Return Fund are fully benefit
responsive. Thus, the Plan's investment in the guaranteed investment
contracts is recorded at contract value as defined above.
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.
F-7
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2004 and 2003
3. Investments
The following presents investments that represent five percent or more of
the Plan's net assets in one or both years presented:
2004 2003
------------------- -------------------
Shares Value Shares Value
-------- ---------- -------- ---------
Capital Bank Corporation Stock 58,961 $1,034,898 65,548 $ 965,170
Wells Fargo Stable Return Fund 32,571 1,196,786 35,066 1,253,535
American Century Ultra Fund 26,164 771,846 29,841 795,268
Washington Mutual Investors Fund 22,786 701,361 20,355 585,803
EuroPacific Growth Fund 12,290 437,878 10,965 331,249
Fidelity Capital Appreciation Fund 12,735 331,501 -- --
Invesco Dynamics Fund -- -- 21,331 314,412
Franklin Small Cap Growth II Fund 37,252 441,063 40,963 436,663
PIMCO Total Return Fund 39,236 418,651 36,520 391,125
Vanguard Index 500 Fund 5,541 618,563 5,889 604,645
During 2004, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
in value by $530,348 as follows:
2004
--------
Common/collective trust $ 47,868
Mutual funds 310,246
Common stock 172,234
--------
$530,348
========
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 February 28, 2004 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 document 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.
F-8
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2004 and 2003
6. Plan Amendment
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.
Effective May 1, 2004, the Plan was amended and restated to drop the
minimum age requirement from age 21 to age 18. The plan was also amended
and restated on May 17, 2004 to drop the minimum investment in any one
investment option from 5 percent to 1 percent.
Effective October 21, 2004, the Plan was amended and restated to allow 100%
vesting of all unvested matching contributions into the Plan upon a change
in controlling ownership of the Company.
7. 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. There were no such non-exempt transactions during 2004.
8. SEC Filing
The Plan has commenced filing Form 11-K 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-9
Capital Bank 401(k) Retirement Plan
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) December 31, 2004
- ----------------------------------------------------------------------------------------------------------------------
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 58,961 ** $ 1,034,898
Wells Fargo Stable Return Fund* Common /Collective Trust 32,571 ** 1,196,786
American Century Ultra Fund Mutual fund 26,164 ** 771,846
Washington Mutual Investors Fund Mutual fund 22,786 ** 701,361
EuroPacific Growth Fund Mutual fund 12,290 ** 437,878
Fidelity Capital Appreciation Fund Mutual fund 12,735 ** 331,501
Franklin Small Cap Growth II Fund Mutual fund 37,252 ** 441,063
Neuberger & Berman Genesis Mutual fund 5,368 ** 229,046
PIMCO Total Return Fund Mutual fund 39,236 ** 418,651
Vanguard Index 500 Fund Mutual fund 5,541 ** 618,563
Participant Loans 5.00% due December, 2008 841
------------
$ 6,182,434
============
* Party-in-interest
** Cost information has been omitted because all investments are participant-directed.
F-10