A Cape Fear Bank Corp. investor who had been pressuring it to sell itself to another banking company has identified a potential buyer: himself.
Frustrated with the $453 million-asset Wilmington, N.C., company's lackluster performance and its management team's reluctance to consider merger options, Maurice J. Koury made a hostile bid late last month to buy Cape Fear for $45.2 million in cash, or $12 a share, according to a Securities and Exchange Commission filing.
The company had not responded to the offer as of late Tuesday, but Mr. Koury, Cape Fear's second-largest shareholder, could be in for a fight.
Its top executive said two months ago that his company was not ready to sell, and there is little evidence that its position has changed.
But one analyst who follows Cape Fear said that, given the general malaise in bank stocks, the offer is a good one, and that Cape Fear's management and board should consider it.
The hostile offer was made Dec. 20 and disclosed in a SEC filing Dec. 28.
Mr. Koury, the president of Carolina Hosiery Mills Inc. in Burlington, pointed out in the Dec. 20 letter that the price represents 160% of Cape Fear's book value and 26.7 times its earnings per share in the year that ended Sept. 30.
"Based on the 2008 consensus estimate, $12 per share would still represent more than 150% of book value at Dec. 31, 2008, and 31.6 [times] earnings per share," he wrote.
Mr. Koury, who owns a 7.1% stake in Cape Fear, did not specify in his letter what his plans would be for the company if he bought it. He declined to be interviewed for this story.
He has been critical of Cape Fear's performance, and in the fall he sent several letters to Cameron Coburn, its chairman, president, and chief executive officer, demanding that it start soliciting bids from other banking companies.
Cape Fear's efficiency ratio in the nine months that ended Sept. 30 rose 17.8 percentage points from a year earlier, to 78.1%, and its return on equity fell 160 basis points, to 6.35%, according to Federal Deposit Insurance Corp. data. Though its credit quality remains strong, its performance ratios are well below the average for North Carolina commercial banking companies in its asset class.
"I have grown weary of continued poor performance and inaction on the part of company management and the board," Mr. Koury wrote in November. "The time has come for the board to act!"
Executives for Cape Fear did not return calls for this article, but in an interview with American Banker in November, Mr. Coburn said that an investment bank had reviewed the company's strategic alternatives and advised it to not sell at that time.
"If there is an opportunity that fits our strategic plan to enhance our value or our franchise, then we would pursue that," Mr. Coburn said then.
Citing that remark, Mr. Koury wrote in his most recent letter that he and Mr. Coburn share the same goals for Cape Fear.
"But I have to wonder if 'enhance our value' is truly emphasized, especially versus the phrase 'that fits our strategic plan,' " the letter said. "I believe the board has not fully considered its options to 'enhance our value.' "
Christopher W. Marinac, an analyst with FIG Partners LLC, said in an interview Monday that Mr. Koury was "putting his money where his mouth is" by making the offer.
"This has now changed from an investor complaining to an investor with a real offer on the table," Mr. Marinac said.
Even though he believes Cape Fear ultimately would be worth much more than $12 a share if it could build up its depository base over the next few years, he said the offer is "attractive" relative to where Cape Fear's shares are trading now.
As of Tuesday afternoon Cape Fear's stock was trading at $10.50, and Mr. Marinac said that it might not be trading that high if Mr. Koury had not been agitating for a sale.
"The reality is if this company did not have Mr. Koury giving them a hard time, one could make the case that it would be selling cheaper than it is right now," Mr. Marinac said.
Cape Fear's main problem is its high cost of funds, he said. Certificates of deposit make up about 73% of its deposit base — a level that Mr. Marinac said is fine "when everyone wants to borrow money to do residential development, [and] no one cares that you're paying up for CDs, because you're making a lot of spread on the back end."
But now that construction lending has slowed, "those spreads have gone away, and you still have the higher-cost CDs," he said.
Cape Fear, founded in 1998, opened two branches last year and one in each of the three previous years. It now has a total of seven.
Mary Quinn, an analyst with Howe Barnes Hoefer & Arnett Inc., said she expects Cape Fear's efficiency ratio to improve as the company slows its branch expansion and switches its focus to increasing its core deposits.
Mr. Marinac said he suspects that if Mr. Koury did acquire the company, he would try to get away from CDs and try to gain more commercial accounts through remote deposit capture and small-business lending.
In addition, Mr. Koury would be likely to sell the company after two or three years to a larger bank holding company, Mr. Marinac said.
"This is not rocket science," he said. "It's an issue of focus."
