Owners Narrowly Defeat Sale Plan at Illinois' Damen

Shareholders at Damen Financial Corp. barely defeated a measure this week that could have led to sale of the beleaguered Chicago-area institution.

A proposal by shareholder Joseph Sonnenberg called for Damen to hire an investment banker to arrange the sale of a branch or the entire company. He also wanted Damen to buy back more shares. The measure failed, although with 49.9% of the votes, or 1,129,217 to 1,167,103.

"Effectively, it passed with that kind of vote count," said Mr. Sonnenberg, who controls 5,001 shares of $236 million-asset Damen. "If management didn't get the message, it says something very bad about the management."

Damen, which went public in October 1995, has struggled since converting from a thrift to a national bank charter about a year ago. But Tuesday, Damen officials said the company is working hard to turn itself around.

Mary Beth Poronsky Stull, Damen president and chief executive officer, said the company is still adding products and people as it transforms itself from a savings bank. It also has added two board members with banking expertise.

"It's going more slowly than we had anticipated," she said.

Damen changed its charter so it could boost fee-based income, but some investors said they are tired of waiting for results.

"We're a bank, but we don't act like a bank," said Paul J. Duggan, who controls 11.6% of Damen's stock. "I don't want to hear, 'We're working on it.' It's too late."

Mr. Duggan, president of Chicago's Jackson Boulevard Fund, also said Damen's executive salaries are too high and that it paid too much to buy back its stock last year.

Mr. Sonnenberg faulted the company's financial performance.

"Your ROA is so low that a person could invest in a CD and do as well as you're doing," he said. Return on average assets was 0.79% for the quarter ended Dec. 31, up from 0.67% during the same period the year before.

A third shareholder activist, Saul Binder, president of Success Bancshares, Lincolnshire, Ill., and owner of 1,000 Damen shares, questioned its plan to increase its commercial loan portfolio. Mr. Binder said Damen can't afford to maintain the loan-loss reserves needed to cover commercial loans.

"The reserves will eat tremendously into your income," he said.

But Ms. Stull said that, overall, the company's financial picture is improving and it is working to cut costs. The ratio of operating expenses to average total assets was down to 2.05% at Dec. 31 from 2.20% the year before, she said.

And Albert C. Baldermann, a new Damen board member and former CEO of Southwest Financial Bank and Trust, Orland Park, Ill., said Damen's returns on equity and assets should improve during the next 18 months as it boosts fee income.

"With all of the acquisitions that have happened," he said, "there are opportunities in our market to increase commercial loans. Management is open to moving forward and making the changes that need to be made."

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