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, 2005
[_] 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
333 Fayetteville Street, Suite 700
Raleigh, NC 27601
(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
Report of Independent Registered Public Accounting Firm F-1
Financial Statements:
Statement of Net Assets Available for Benefits
December 31, 2005 and 2004 F-2
Statement of Changes in Net Assets Available for Benefits
Years Ended December 31, 2005 and 2004 F-3
Notes to Financial Statements F-4 - F-8
Supplemental Schedule:
Schedule H, Line 4i: Schedule of Assets (Held at End of Year)
December 31, 2005 F-9
Exhibit 23 Consent of Independent Registered Public Accounting Firm B-1
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, 2006 /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 statements of net assets available for benefits
of Capital Bank 401(k) Retirement Plan as of December 31, 2005 and 2004, and the
related statements of changes in net assets available for benefits for the years
ended December 31, 2005 and 2004. 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 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 audits provide 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, 2005 and 2004, and the changes in net assets available for benefits
for the years ended December 31, 2005 and 2004 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 16, 2006
F-1
Capital Bank 401(k) Retirement Plan
Statements of Net Assets Available for Benefits
December 31, 2005 and 2004
2005 2004
---------- ----------
Assets
Participant-directed investments, at fair value $6,116,220 $6,182,434
---------- ----------
Contributions receivable:
Employer 18,517 17,356
Employee 24,206 24,472
---------- ----------
42,723 41,828
---------- ----------
Net assets available for benefits $6,158,943 $6,224,262
========== ==========
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
Years Ended December 31, 2005 and 2004
2005 2004
----------- -----------
Additions to net assets attributed to:
Investment income:
Interest and dividends $ 129,887 $ 80,207
Net appreciation in fair value of investments 12,607 530,348
----------- -----------
142,494 610,555
----------- -----------
Contributions:
Employer 284,549 371,657
Employee 602,972 506,483
Rollover 241,108 164,612
----------- -----------
1,128,629 1,042,752
----------- -----------
Total additions 1,271,123 1,653,307
----------- -----------
Deductions from net assets attributed to:
Benefits paid to participants 1,301,317 1,278,415
Administrative expenses 35,125 42,053
----------- -----------
1,336,442 1,320,468
----------- -----------
Net increase (65,319) 332,839
Net assets available for benefits:
Beginning of year 6,224,262 5,891,423
----------- -----------
End of year $ 6,158,943 $ 6,224,262
=========== ===========
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, 2005 and 2004
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 Retirement Services ("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 ("IRC") limitations. The Company may make a discretionary
match on participant contributions. During the years ended December 31,
2005 and 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 common stock (limited to 25 percent of total
allocation) and nine funds administered by EMJAY. 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-4
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2005 and 2004
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 ("IRS") regulation. Participants must have a qualified
financial hardship, as defined, and may not borrow less than $1,000.
Interest charged on participant loans by the Plan administrator ranged
from 5.00 percent to 7.75 percent during 2005 and 2004. 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, 2005 and 2004, forfeited nonvested amounts totaled
$44,929 and $119,036, respectively. Forfeitures are used to reduce
Company contributions. During the year ended December 31, 2005 and
2004, the Company used $168,391 and $0, respectively, to reduce Company
matching contributions.
Party-in-Interest
The Plan invests in the Company's common stock and certain mutual funds
administered by EMJAY. 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 years ended December 31, 2005 and 2004, the Plan purchased
9,617 shares and 9,266 shares, respectively, and sold 16,241 and 15,853
shares, respectively, of the Company's common stock.
2. Summary of Significant Accounting Policies
Basis of Accounting
The Plan's financial statements are prepared using the accrual basis of
accounting, in conformity with accounting principles generally accepted
in the United States.
Administrative Expenses
The Plan and the Company pay administrative expenses of the Plan.
During the year ended December 31, 2005 and 2004, all administrative
expenses totaling $35,125 and $42,053, respectively, were paid by the
Plan. The Company pays certain accounting and legal fees associated
with the audit of the Plan's financial statements and filing of Form
11-K with the Securities and Exchange Commission ("SEC").
F-5
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2005 and 2004
Investment Valuation and Income Recognition
The Plan's investments consist of the Company's common stock and mutual
funds administered by EMJAY. 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. 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 years
ended December 31, 2005 and 2004, the fund's average yield, net of
expenses, was approximately 3.89% and 3.80%, respectively, and the
daily crediting interest rate as of December 31, 2005 and 2004, 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-6
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2005 and 2004
3. Investments
The following presents investments that represent five percent or more
of the Plan's net assets in one or both years presented:
2005 2004
----------------------- -----------------------
Shares Value Shares Value
---------- ---------- ---------- ----------
Capital Bank Corporation Stock 52,337 $ 783,839 58,961 $1,034,898
Wells Fargo Stable Return Fund 25,838 986,003 32,571 1,196,786
American Century Ultra Fund 27,259 820,227 26,164 771,846
Vanguard Windsor Fund II 24,475 766,811 -- --
Washington Mutual Investors Fund -- -- 22,786 701,361
EuroPacific Growth Fund 12,626 518,943 12,290 437,878
Fidelity Capital Appreciation Fund 12,422 311,800 12,735 331,501
Franklin Small Cap Growth II Fund 36,176 447,494 37,252 441,063
PIMCO Total Return Fund 46,963 493,114 39,236 418,651
Neuberger & Berman Genesis Fund 6,805 330,373 5,368 229,046
Vanguard Index 500 Fund 5,665 651,031 5,541 618,563
During 2005 and 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 $12,607 and $530,348, respectively, as follows:
2005 2004
--------- ---------
Common/collective trust $ 41,039 $ 47,868
Mutual funds 125,709 310,246
Common stock (154,141) 172,234
--------- ---------
$ 12,607 $ 530,348
========= =========
4. Tax Status
The Company adopted a Prototype Non-Standardized Profit Sharing
arrangement which received a favorable opinion letter from the IRS on
February 28, 2004 which stated that the form of the prototype plan is
designed in accordance with applicable sections of the 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-7
Capital Bank 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2005 and 2004
6. Plan Amendments
Effective January 1, 2006, the Plan was amended and restated to
eliminate the requirement that new employees must be employed for 3
months to be eligible to participate in the Plan.
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
2005 and 2004.
8. SEC Filing
The Plan commenced filing Form 11-K with the SEC 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, 2005
- -----------------------------------------------------------------------------------------------------------
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 52,337 ** $ 783,839
Wells Fargo Stable Return Fund* Common /Collective Trust 25,838 ** 986,003
American Century Ultra Fund Mutual fund 27,259 ** 820,227
Vanguard Windsor II Fund Mutual fund 24,475 ** 766,811
EuroPacific Growth Fund Mutual fund 12,626 ** 518,943
Fidelity Capital Appreciation Fund Mutual fund 12,422 ** 311,800
Franklin Small Cap Growth II Fund Mutual fund 36,176 ** 447,494
Neuberger & Berman Genesis Mutual fund 6,805 ** 330,373
PIMCO Total Return Fund Mutual fund 46,963 ** 493,114
Vanguard Index 500 Fund Mutual fund 5,665 ** 651,031
Participant Loans* 5.00%-7.75%, due 2007-2008 6,585
----------
$6,116,220
==========
* Party-in-interest
** Cost information has been omitted because all investments are
participant-directed.
F-9