Jul. 22--Capital Bank posted a $1.3 million profit in the second quarter, down 39 percent from a year ago.

Still, the earnings announced Tuesday marked a return to profitability after the Raleigh bank lost money in the first quarter.

"In a deep recession, if you are still making money, this is an accomplishment in and of itself," CEO Grant Yarber said.

The bank also disclosed plans to close two branches in Alamance County. The company plans to consolidate its two branches in Burlington and Graham into one branch in each town.

"There just isn't enough business growth there" to justify two branches, Chief Financial Officer Mike Moore said.

But Capital Bank is opening new branches in West Cary and Holly Springs -- targeted to open in August and September, respectively -- so it will continue to have 32 branches in all. Those two locations offer more "growth opportunity," Moore said.

In the second quarter, a higher provision for loan losses and increased expenses, including a $998,000 increase in payments to the Federal Deposit Insurance Corp., led to the lower profits. The FDIC is charging higher insurance premiums and recently levied a special assessment against all banks to shore up its insurance fund, which has been depleted by a wave of bank failures.

On the plus side, the bank's net interest margin -- a measure of its profitability on loans and investments -- improved in the quarter compared to a year ago thanks to lower interest rates paid on deposits and higher loan rates.

"We remain cautiously optimistic that an improved net interest margin will have a positive impact on future earnings," Yarber said in a prepared statement.

The bank's provision for loan losses nearly doubled to $1.7 million because of an expanded loan portfolio and weak real estate markets.

Capital Bank's stock, which has lost a third of its value in the past year, rose 58 cents Tuesday to close at $5.57.

david.ranii@newsobserver.com or 919-829-4877

-----

To see more of The News & Observer, or to subscribe to the newspaper, go to http://www.newsobserver.com.

Copyright (c) 2009, The News & Observer, Raleigh, N.C.

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NASDAQ-NMS:CBKN,

A service of YellowBrix, Inc.