In a scramble to save Cape Fear Bank, the board of directors asked at least 38 other firms to buy the troubled institution, worried about their liability and considered a merger with another ailing Wilmington lender.
In a meeting on April 9, the day before the eight-branch bank officially failed, directors discussed a run on the bank that week, according to board meeting minutes obtained under the Freedom of Information Act. A top federal regulator had advised that a prospective buyer “needed to make an offer immediately – next week was too late.”
The next day, Cape Fear became the 22nd U.S. bank to fail this year, a tally that now reaches 84.
Directors and bank executives wouldn't discuss the collapse, but board minutes and regulatory filings indicate concerns and discord at least two years prior to the failure.
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Spring 2007: Directors discussed “cost overruns not communicated to the Board” and the concentration of power with Cameron Coburn holding the titles of chief executive, chairman and president.
Fall 2007: Shareholder and Burlington textile mill owner Maurice Koury complained of poor returns, weak earnings and excessive executive compensation. Late in the year, he offered to buy the bank for $12 per share, a premium over its high for the year. Coburn talked about the bank's “progress in addressing the deficiencies” from the bank's most recent regulatory exam.
Winter 2007/2008: Directors talk about the “need for better underwriting of loans, the need for a more pro-active management style and the need to improve” exam ratings. They also rejected Koury's offer.
Spring 2008: Koury began a proxy battle, asking shareholders to vote in new directors. Directors' discussion included “management has too much involvement on how the board is run.” They agreed they'd sell at $14 a share and wondered about the benefits they would get in the event of a sale.
Summer 2008: The bank reported a loss and said “declining real estate values and deteriorating credit quality” were causing loan delinquencies. The bank also settled with Koury, agreeing to add four of his directors. CEO Coburn resigned.
Fall 2008: Ralph Strayhorn of Charlotte, was chosen as president and CEO and began meeting with potential investors to rebuild the bank. The board was meeting weekly rather than monthly. David Hanson, then chief deputy banking commissioner for North Carolina, told the board “it is imperative to raise capital and that all avenues to save the bank must be left open.”
Winter 2008/2009: Directors had “lengthy discussion” of the liability they might have if the bank failed and talked repeatedly about attracting new investment. They talked about a merger with Cooperative Bank, a longtime Wilmington firm, which in June became the second N.C. bank to fail this year.
In February, regulators entered what's called an order to cease and desist, publicly directing Cape Fear to stop “unsafe and unsound banking practices and violations of law and/or regulations.”
March 26: The board had shopped itself to 38 banks. Four took a second look, but only one “expressed further interest.”
8:04 a.m., April 9: The board dealt with “what closing day would entail.” Directors discussed that federal regulators could sue them if they found “acute mismanagement or breach of fiduciary duty.” Koury's directors, who had been serving for a short time, weren't at much risk, the minutes say. “The legacy directors, including those no longer serving … may be at greater risk.” And former CEO Coburn “probably has the greatest risk of any director, past or present,” according to minutes. The meeting ended at 9:15 a.m.
April 10: Regulators closed Cape Fear. Branches reopened April 13 under the ownership of Charleston-based First Federal Savings and Loan Assoc. Stella M. Hopkins