How Activism Paid Off for This Investor and His Ohio Bank

Six years ago investor Umberto Fedeli just wanted PVF Capital (PVFC) to do better.

Last month the $782 million-asset company in Solon, Ohio, announced it would sell itself to F.N.B. Corp. (FNB) in Hermitage, Pa., in a stock transaction valued at $106.4 million, or 137% of PVF's tangible book value — and he is happy.

For Fedeli, a PVF board member and its largest single shareholder, the deal caps a relationship with the parent of Park View Federal Savings Bank that got a whole lot more involved than he ever imagined.

His story mirrors that of many investors in, and directors of, community banks across the country who dove in to rescue their investments when the economy tanked. He like some others learned to reconcile the concessions made along the way with a sense of satisfaction at having survived.

"Park View is a tremendous platform — I've always thought that," Fedeli says. "The bank has turned around; the more successful you are the more options you have."

Fedeli, who also runs The Fedeli Group, an insurance company in Cleveland, began investing in PVF a decade or more ago when he was content to be a passive investor. But around 2007, he felt the thrift needed a more diverse loan portfolio and began writing letters that urged an overhaul of its strategy, management and board.

He cooled down a few months later when PVF announced it would sell itself to United Community Financial Corp., in Youngstown, Ohio, for $130.8 million. He then  revived the effort in April 2008 after that deal was called off, threatening a hostile takeover unless major changes were made. PVF relented and Fedeli joined the board in late 2008.

When the financial crisis hit, an increase in nonperforming assets overshadowed Fedeli's calls for more diverse business lines. Chief Executive John Male resigned in early 2009.

The small company took a major step toward recovery, Fedeli says, in recruiting veteran banker Marty E. Adams to be the interim CEO. Adams was CEO of the $18 billion-asset Sky Financial Group, which was sold to Huntington Bancshares (HBAN) in 2007.

The rest of the year was a mixed bag. The Office of Thrift Supervision hit PVF with an order to boost capital and reduce problems, but the board recruited Robert J. King Jr. to lead the company. King had spent three decades at Fifth Third Bancorp (FITB), retiring as its northeast Ohio president in 2004. Adams became a board member.

In March 2010, the company raised $30 million of capital. Though capital was precious in those days, Fedeli says the money followed the talent.

"We were dealing with significant challenges from this unprecedented recession," Fedeli says. "But we ended up having a very committed and invested board, an outstanding executive team and capital to write off the bad loans."

It returned to profitability in the quarter ended March 31, 2012. In August 2012 the Office of the Comptroller of the Currency, which absorbed the OTS in 2011, released PVF from the order.

F.N.B. executives said last month that they had kept tabs on PVF, as they saw it as a good way to deepen F.N.B's presence in Cleveland but were waiting for PVF to fix its problems. F.N.B.'s interest validated the hard work the executives and directors had put in, though their prime motivation had not been to sell, Fedeli says.

"We were looking to create value and that could have been achieved a number of ways," Fedeli says. "We were OK continuing to do what we were doing. But all of sudden, you get a couple of quarters of profitability and things change."

The attractiveness of F.N.B.'s stock, which trades at a significant premium to book value, was part of the allure, he says.

"It is a stock you'd want to own," Fedeli says. "They've have a great track record on acquisitions."

Fedeli, who owns nearly 10% of PVF's shares, has no qualms about the deal's premium of 137% of tangible book, a healthy multiple in today's market but a far cry from the two times tangible book value that United Community had offered in 2007.

"It was a very different time," he says. "It feels like a million years ago."