Proxy season always delivers fireworks, but a dust-up in North Carolina could emerge as this year's most unusual skirmish.
The fight involves Mark Jaindl in Allentown, Pa., and South Street Financial, a thrift company in Albemarle, a sleepy town an hour northeast of Charlotte. Jaindl, who has a 21.6% stake in the $281 million-asset thrift, is lobbying for control of three of five available board seats, one of which he wants for himself.
Jaindl's day job, as chairman and chief executive of American Bank in Allentown, adds intrigue, though he says his fight with South Street is an individual endeavor that has nothing to do with the bank he runs.
South Street executives have a simple response: Mind your own business and leave us alone.
"I have received numerous calls from people outraged that a man from Pennsylvania is trying to come down here to cause trouble," says R. Ronald Swanner, South Street's chairman, president and chief executive. "With his residence and livelihood in Pennsylvania, we can't think of anything he would bring to the board besides his own personal interests."
South Street's 253 shareholders are expected to vote on Jaindl's nominees during a meeting tentatively set to take place in Albemarle on May 20.
The skirmish is one of at least four upcoming proxy battles involving community banks.
Veteran activist Joseph Stilwell is seeking board seats at the $965 million-asset HopFed Bancorp (HFBC) in Hopkinsville, Ky., and the $169 million-asset Harvard Illinois Bancorp (HARI). Gerald Armstrong, an investor from Denver, submitted a proposal to require an independent chairman at the $15 billion-asset UMB Financial (UMBF) in Kansas City, Mo.
Investors who took stakes in small banks before the financial crisis have had to sit on those holdings for several years, says Lee Burrows, chief executive of Banks Street Partners, an Atlanta investment bank that is not involved with South Street.
"You've got restless shareholders who want to get out," Burrows says. Investors "anticipated they would have a liquidity event within five years."
Jaindl says he has no plans for forcing South Street to merge with the $528 million-asset American Bank. Jaindl says he has yet to decide if he would force South Street to sell to someone else.
"We'd try to wrap our arms around what is" occurring at the thrift, Jaindl says. "Asset quality will be the primary focus."
Nonperforming assets made up 5.3% of South Street's total assets at Dec. 31, according to regulatory filings. Its Tier 1 capital ratio was 13.4% at the end of last year.
In a letter seeking to rally shareholder support, Jaindl wrote that nonperforming assets hit $20 million last year, compared to $988,000 in 2008. Jaindl says most of the increase has taken place recently. "NPAs have gone down on a national basis and theirs have gone up dramatically," he says.
South Street's loan problems, which are relatively small and manageable, mirror issues at other banks, Swanner says. "We think we've done a great job of managing the bank," he says. "This bank would be more valuable if we have time to work on our loans ourselves."
South Street has been involved in controversy before. In 1994, an ambitious agricultural bank called BB&T tried to use a merger conversion to buy the former mutual thrift. BB&T withdrew its offer hitting a roadblock with the Federal Deposit Insurance Corp.
Jaindl says he made an offer in July to buy South Street outright and was rebuffed. He says the thrift, while flattered by his valuation of its stock, "didn't want to enter into any negotiations."
Jaindl never made an official offer, Swanner says. Jaindl "said he thought he could pay a certain amount for the stock, subject to the usual due diligence," he says.
"You know what that means," Swanner adds. "He would want to conduct a review of the loan portfolio, and that would mean a mark down like it would at every bank in the United States. That doesn't qualify as an offer."
Still, Swanner says the company's board would consider selling under the right circumstances.
"Our vision is to remain a strong community bank and serve our community," he says. "Most of shareholders are local people and have expressed no interest in selling the company. But our directors wouldn't shy away from [a sale] if it was a good decision for our shareholders."
Jaindl's investments include other banks, but he would not identify any of them. His holdings are not big enough to trigger filings with the Securities and Exchange Commission. He says South Street is his first proxy battle.
Jaindl says his purchases of South Street shares represent roughly 70% of the stock's liquidity since March 2010. But that doesn't mean South Street stock is illiquid, Swanner says.
"Our stock was trading before he was involved and we have never had any problems with people buying our stock," Swanner says.