Promise, opportunity and risk await Cape Fear Bank in 2009

Cape Fear Bank is entering a new phase in its existence – one filled with promise and opportunity as well as risk. New leadership has been appointed, most notably Ralph N. Strayhorn, III who has come on board as its new president and chief executive officer. He has more than 25 years of experience in North Carolina’s banking industry.
In 2004 Strayhorn had a nearly identical post at SterlingSouth Bank & Trust Company, a community bank in Greensboro, N.C.
During his two-year stay there, he restructured the bank from a marginally profitable, $87 million concern to a profitable $163 million bank with three locations.
He also established a profitable commercial leasing division and diversified the bank’s revenue stream by establishing alliances with wealth-management and commercial insurance firms.
Ultimately he oversaw the 2006 sale of SterlingSouth to BNC Bancorp, the holding company for the Bank of North Carolina where he served as executive vice president and chief administrative officer before joining Cape Fear Bank. This information was made available in a recent Cape Fear press release.
No one knows what’s lying ahead for Cape Fear Bank or for the entire banking industry.
The current nationwide economic downturn has stymied the aggressive growth-by-acquisition mode that dominated the last ten years of banking-industry activity.
The economic slowdown will very likely reduce the amount of deposits coming into banks and loans made by them. When combined with a climate characterized by tight credit conditions and a consumer that’s reluctant to spend or invest, it’s a fair bet to say that bank profits in the near future will generally not be as robust as we’ve come to expect.
But business is an unpredictable game. The geographic region Cape Fear Bank serves has been unlike the majority of our country as it has been growing in most categories.
It enjoys a rising population as new families continue to move here and many businesses still find this a vibrant community in which to relocate, thus creating jobs and expanding our tax base.
Consider once again Cape Fear’s situation. With the exception of expenses related to its takeover battle, its results effectively mirror what’s taking place in banks across the country.
Losses are up. Revenue and profits are down. Cape Fear reported a net loss of $4.5 million or ($1.18) per diluted share for the third quarter of 2008 compared with net income of $359,000 or $0.09 per diluted share for the third quarter of 2007.
For the first nine months of 2008, it recorded a net loss of $5.6 million, or ($1.46) per diluted share, compared with net income of $1.3 million, or $0.34 per diluted share, for the prior-year nine-month period.
Factors contributing to the 2008 earnings decline were the $7 million increase in its loan-loss provision, of which $6 million was recorded in the third quarter plus other extraordinary expenses including pre-tax proxy related (takeover) expenses of $1.3 million plus a one-time, pre-tax severance expense of $1 million for outgoing chairman Cameron Coburn.
Today Cape Fear’s stock price is hovering in the low single-digit range — significantly lower than the approximately $6.50 per share price at the time of the takeover – as it seeks its new direction.
Under so-called “normal” business conditions, one might speculate that Cape Fear’s ripe to be the prize of yet another takeover.
But considering that it just went through this experience plus financial-services firms, the most likely acquirer of a bank like Cape Fear, are generally low on funds and confidence themselves, it’s easy to say this would not be a likely scenario.
Then again, considering that Strayhorn helped engineer a takeover of SterlingSouth, this may not be such a farfetched idea – even in today’s very challenging business climate.
Although a key goal is to enhance shareholder value, new management should not overlook one of its greatest assets, it’s talented workforce and the culture its helped to create.
While it’s easy to speculate, business takeovers are not simple to execute. Until we get a clearer picture of what Cape Fear’s future will be, it is our wish that the new management team enjoys the success its predecessors had in this community.
Likewise, we trust the community it serves will also benefit from the friendly, local and homegrown bank Cape Fear remains.
While our community was able to grow along with Cape Fear, the bank also grew, thanks to the community
it served. All parties should keep this in mind.
Mark Hall is President/CEO of Market Street Advisors, an independent financial advisory firm with offices in Wilmington and Smithfield. It
furnishes insurance and investment services to community banks and
individuals. cmhall@cantella.com.