Joseph Stilwell, an activist investor behind a number of proxy battles, is now causing a hullabaloo at Harvard Illinois Bancorp Inc. in Harvard, Ill.
Stilwell is looking to gain representation on the $170 million-asset mutual holding company’s board for his Stilwell Group, according to recent filings with the Securities and Exchange Commission. His intentions are singular: Stilwell believes Harvard Illinois should sell because it hasn’t been able to reach normalized earnings.
Stilwell wrote in a March 2 letter to shareholders that the company, which is operating under a memorandum of understanding with regulators, has reported more than $2 million of losses in the last five years. Meanwhile, Duffield Seyller 3rd, Harvard’s president and chief executive, earns $178,000 annually and has received salary increases for the past three years, the letter said.
“Over the past half-decade, the board and management have not been able to run a profitable bank. Banking in our country is changing, and some community banks as currently configured cannot earn a profit,” wrote Stilwell, who owns 80,000 shares, or a roughly 9.8% stake, in the company. “We believe [Harvard Illinois] should seek a stronger community bank as a merger partner. In the upcoming Board election, we will be running a strong, independent candidate who shares these beliefs.”
The company’s board responded Monday with a note entitled, “Re: New York Hedge Fund Attacking Your Bank.” In it, directors warned that Harvard Illinois’ May 24 annual meeting will be different from previous gatherings because of Stilwell’s “attack.” The board added that it has been profitable for the past two years, including a $114,000 profit last year and a $149,000 profit in 2010.
“We have made incremental yet significant changes to our operations over the last several years and believe that our community oriented business plan is beginning to bear fruit,” the board’s letter said, adding that directors believes a sale in the current environment is not what is best for shareholders.
“Your board … is committed to delivering value to shareholders and has not excluded any particular course of action to achieve the best results for our shareholders,” the directors wrote. “However, we are not convinced that a forced sale in today’s mediocre merger market driven by a hostile proxy contest is the most effective means to provide value to you.”
Stilwell Group has been particularly active in the last year trying to motivate management teams to change how they run banks. Late last month, Spencer Schneider, the firm’s general counsel, resigned from the board of First Financial Northwest Inc. after just five weeks because the board was unwilling to cut what he considered over-the-top expenses, including iPads for its directors.
Calls to Stilwell Group and Harvard were not immediately returned.