A large Cape Fear Bank Corp. (NDAQ:CAPE) shareholder expressed his concerns regarding the company's belief that its long-term plan for success trumps any short-term sale of the company. The activist shareholder believes that there is little the company could do, short of a sale, to maximize shareholder value in a company that has been among the worst bank stocks of the de novo banks started in North Carolina over the past nine years.

Maurice Koury, who owns a 5.8 percent stake in the company, said that he believes there is little investor confidence in the struggling Cape Fear. The bank recently retained an investment banking firm that found it is "premature to abandon the bank's long-term plan for success". Arguable, the "long-term plan for success" will need to be dramatically different from the past nine years' lack of success measured by shareholder returns.

Cape Fear also told a newspaper that "the bank's recent returns reflect substantial investment in expanding its ability to serve customers and expand its customer base and create long-term shareholder value". However, shareholders and the market don't appear to be buying this and there is little confidence reflected in the stock price, according to Mr. Koury.

The activist investor also pointed out another problem: The company reduced its second quarter provisions and added a modest provision for the first quarter of 2007. This could be an attempt to artificially boost the company's earnings in order to convince shareholders that it is on the right track when it is really simply pushing numbers around on the balance sheet.

"A skeptic might wonder if the second quarter provision was reduced in order that the Company might show quarter to quarter comparisons that, just by happenstance, were equal to one another," said Koury in a letter to the board. "It also makes a shareholder wonder if perhaps the loan loss provision was being 'managed' in order to boost earnings and hence impact management compensation."

In the end, it will be interesting to see what becomes of this situation. Any sale of the company could result in a windfall for shareholders while a board that continues to ignore shareholders could be detrimental. Overall, this stock is definitely one worth watching in case any actions take place that would increase the likelihood of a sale.

Related Companies
Hawthorn Bancshares Inc. (HWBK)
Eagle Bancorp Inc. (EGBN)
Heritage Oaks Bancorp (HEOP)