Activist shareholder Jerome H. Davis isn't happy with a small Missouri thrift's plan to buy a local bank company.
Mr. Davis said the thrift, Lexington B&L Financial Corp., isn't financially ready to take on the acquisition. Instead he wants it to spend the money to buy back its stock-and reward investors with dividends.
Lexington B&L, which has $61.8 million of assets, announced plans March 12 to acquire $32.5 million-asset Lafayette Bancshares, also based in Lexington. The stock deal was then worth about $2.6 million.
But "a house that cannot stand firmly alone should not have additions put on," Mr. Davis wrote in a May 15 letter to the Lexington B&L. He and his wife, Susan B. Davis, own 8.6% of its stock.
Lexington B&L officials see it differently.
The thrift, which went public last June, completed buying back 10% of its outstanding stock in April, said E. Steva Vialle, chief financial officer. "We've done more in the (first) year than most people even think about," he said.
Mr. Vialle said the thrift's board has no plans to act on Mr. Davis' advice. "We feel we've got a long-range plan that's going to benefit the shareholders," he said. "We've had a very good reaction from everyone else.
"He's the only one who has said anything against it."
The merger, which awaits regulatory and shareholder approval, is expected to close in the fourth quarter, Lexington B&L said.
Mr. Davis said evidence of financial weakness can be found in Lexington's expense-to-assets ratio, which was 2.28% in the first quarter. The figure had increased for three consecutive quarters.
"Lexington should get its own house in order before acquiring anything," said Mr. Davis' lawyer David M. Perlmutter. "If you take a weak bank, start overpaying officers, start overpaying for an acquisition, instead of having a small weak bank you'll have a large weak bank."
Mr. Vialle said converting to a public company and adding to loan-loss reserves contributed to the overall cost increase.
Mr. Davis has pushed for the sale of several thrifts nationally. The May 15 letter to Lexington's board, in Mr. Davis' signature style, does not call directly for a sale. However, he makes a case that the thrift should wait for a larger merger partner.
"Achieving desired critical mass, and ... rewarding shareholders, would seem to compel unifying with a much larger financial institution," Mr. Davis wrote.