A well-known shareholder activist has set his sights on another small thrift.
Jerome H. Davis is urging Security Federal Bancorp to seek a merger partner, less than a year after the Tuscaloosa, Ala., institution went public. It is the holding company for $69 million-asset Security Federal Bank.
Mr. Davis, who owns 8% of Security Federal's common stock, sent a letter to its board of directors Jan. 22, expressing a desire to see the company declare a special $2 per share dividend, approve a 3-for-2 stock split, and pursue merger options.
The letter, included in a filing with the Securities and Exchange Commission, is most likely an effort to encourage the thrift to sell in or sometime after April, one year after it went public.
This tactic is nothing new for Mr. Davis. Last July, he wrote letters to more than a dozen thrifts in which he owned stock, urging them to consider options to enhance shareholder value. Among them were Gateway Bancorp, Catlettsburg, Ky.; LSB Financial Corp., Lafayette, Ind.; and Mutual Bancompany, Jefferson City, Mo.
Donald L. Connor, president and chief executive of Mutual Bancompany, said his thrift took Mr. Davis' recommendation under advisement but was under no obligation to act on his wishes.
Mr. Davis' actions often bring pressure on the thrifts to consider merger by getting word out to other banks and investors that a sale is possible.
"He has no more leverage than that public opinion would go in his favor," said Mr. Davis' lawyer, David M. Perlmutter of New York. "We assume some of the companies are considering selling and some are not."
Officials at Security Federal could not be reached for comment.
In his letter to Security Federal's board, Mr. Davis cited the thrift's 15.3% capital-to-assets ratio, stock illiquidity, and investor speculation as the basis for his recommendation.
He said a special $2 dividend, similar to a "not-of-capital" dividend paid recently by Southfirst Bancshares, Sylacauga, Ala., could be used to dispense of excess capital and bring the capital ratio from 15.3% to 13.4%.
Mr. Davis added that the excess capital drags down return on equity and that "an acquirer (should one develop in the future) will not pay a multiple on this excess cash." A stock split would also provide more stock liquidity, he wrote.
The current bid price for the company's stock is about 15 times estimated earnings per share and 93% of book value, he wrote, and there is no reason for the stock to rise further.
