Capital Bank shrinks its board

Capital Bank has cut the size of its board to reduce costs and improve its management.

The Raleigh bank will have 10 directors, down from 17. Capital Bank made the move after hiring an outside consultant to assess the composition and size of its board.

To account for the weak economy, the company has frozen salaries for all workers this year and suspended 401(k) matches. Asking the board to sacrifice made sense, CEO B. Grant Yarber said.

Reducing the size of the board also will give the bank a chance to add some diversity in terms of age, sex, race and geography down the road, he said. Most of the retiring board members are older men from Sanford and Burlington. Capital Bank was started by investors mostly in Sanford, and it bought Burlington banks as it expanded.

"It was getting more difficult to be nimble and move quickly with 17 board members," Yarber said. "It's painful, because I genuinely like each and every one of these people."

Six directors resigned Monday, the company reported in a regulatory filing: James A. Barnwell Jr., Leopold I. Cohen, James G. McClure Jr., James D. Moser Jr., Richard H. Shirley and J. Rex Thomas.

Another director, Oscar A. Keller Jr., will resign Dec. 17. Several of the men who are leaving, including Keller, have been directors since Capital Bank was founded in June of 1997. Others were added to help establish its presence in new markets when Capital Bank bought other lenders.

"As the bank continues to age and evolve, you need to have some turnover on the board," Yarber said. "You can't become stagnant or stale." Capital Bank will look at adding women and minorities to its ranks as other directors' terms expire, he said.

The bank paid the seven departing directors about $370,000 in cash, stock and other benefits last year, according to a filing with the U.S. Securities and Exchange Commission.

Besides cost, "a large board can be inefficient," said David L. Dicks, an assistant professor of finance at the UNC Kenan-Flagler Business School in Chapel Hill. Having too many members can make it harder to coordinate meetings and may discourage directors from standing up to the CEO if they disagree with him.

Capital Bank has 32 branches in 10 counties. In July, it reported a $1.3 million second-quarter profit, down 39 percent from the same period a year earlier.

Shortly before Christmas, Capital Bank received $41.3 million from the U.S. Treasury's bank bailout effort, known as the Troubled Asset Relief Program. Capital is using the money mostly to offer low-interest mortgage loans to home builders and developers. Accepting that funding put some limits on Capital Bank's business, including how much it can pay its executives.

Its stock, which rose 2 cents to $4.98 Tuesday, is down about 45 percent in the past year.