First Federal of Charleston had been looking to expand its banking franchise into coastal North Carolina for some time. Mission accomplished.
The bank on Monday reopened a failed Wilmington-based lender in a deal that instantly gave it eight new locations, $300 million in deposits and about $380 million in loans.
The former offices of Cape Fear Bank now are being run as First Federal branches under a deal with the Federal Deposit Insurance Corp. The FDIC seized Cape Fear Friday afternoon.
The transition has gone smoothly, said Dee Bee Wright, First Federal's vice president of investor relations. "The employees have been extremely helpful," she said Monday. "They're really a great group of folks and easy to work with."
Like many banks, Cape Fear was weakened and ultimately brought down by real estate development loans that went south. The FDIC previously had classified the lender as undercapitalized, and it issued a cease-and-desist order Feb. 24 requiring the company to raise more money or seek a sale or takeover.
In an April 1 filing with the Securities and Exchange Commission, Cape Fear said it had "substantial doubt" that it would survive.
By then, the troubled company was already in play. When the cease-and-desist order was issued, the FDIC began seeking other banks willing to assume the loans and deposits in the event of a failure, Wright said.
First Federal submitted a proposal and was notified Wednesday that its bid had been accepted. Wright said Cape Fear was No. 5 in terms of market-share among banks in Wilmington. Before this week First Federal's nearest branch was in Sunset Beach, N.C.
"From a strategic perspective, we've been interested in coastal North Carolina for a while," Wright said. "We're excited about the opportunity this acquisition gives us to get a good strong foothold in this market."
First Federal spent Thursday meeting with the FDIC to review the takeover, which took place at 5 p.m. Friday.
Representatives from the Charleston-based company fanned out to the newly acquired offices over the weekend to meet with workers and change out the signs. Tom Hood, chief executive officer, and Wayne Hall, chief financial officer, plan to spend the rest of the week in North
Carolina. Also, a First Federal official will be in each of the newly acquired branches to answer customers' questions, Wright said.
While the amount has not been finalized, the FDIC will pay the Charleston bank owner to take over the loan portfolio. The agency is shouldering the majority of the risk under a "loss-sharing agreement" with the bank. The FDIC said the offer was the "least costly resolution" for its deposit insurance fund.
Tony Plath, professor of finance at the University of North Carolina-Charlotte, said First Federal had to put some "skin in the game" to pick up Cape Fear's business but that it likely negotiated a good deal that will pay off.
"The FDIC is not going to put the acquiring banks in a position ... that puts their solvency at risk," he said.
He described Cape Fear as "a big franchise" in an attractive coastal resort market.
The caveat, he added, is that the deal requires First Federal to take the long view because the coast is saddled with a large amount of distressed real estate.
"When the economy comes back, that economy will recover," Plath said. "The key is you have to have enough capital and a sufficient cushion to weather the storm. It's going to be a bumpy ride, but they'll be fine."