Bazile R. Lanneau Jr. is an unlikely activist investor.
He worked at Britton & Koontz Capital Corp. in Natchez, Miss., for 26 years - most recently as chief financial officer - and his family's ties to the $390 million-asset company go back even farther. Mr. Lanneau's grandfather, Orrick Metcalfe, was the chairman of Britton & Koontz Bank in the 1960s and 1970s.
But Mr. Lanneau quit Britton & Koontz in June 2004 after clashing with W. Page Ogden, its chairman and chief executive officer, over how the company was being run. Now, frustrated with its earnings performance and deposit growth, Mr. Lanneau is leading a shareholder revolt aimed at forcing management to make sweeping changes or find a buyer.
"A financial institution should be growing, or shareholders should have their money in other financial institutions that have demonstrated the ability to grow," Mr. Lanneau said last week.
He and relatives who support him own more than 18% of Britton & Koontz's outstanding shares. In a Securities and Exchange Commission filing last month Mr. Lanneau said the group would seek to elect a representative to the board at the annual meeting on April 25.
He also appears to have the backing of one of the company's largest investors, Hot Creek Capital LLC of Reno, Nev., which owns a 7% stake.
David Harvey, Hot Creek's managing director, said as far back as last spring that Britton & Koontz should consider selling itself, and he reiterated that position in an interview last week.
Mr. Harvey, well-known activist investor, has purchased stakes in dozens of poorly performing community banks and pressured them to shape up or sell themselves. (He is currently waging a proxy contest at the $422 million-asset Millennium Bancshares Corp. of Reston, Va., and is running four candidates for election to its board of directors.)
Mr. Lanneau, 54, said agitating for a shake-up or a sale of the 170-year-old Britton & Koontz has been difficult for him. The Lanneau and Metcalfe families have lived in Natchez for generations, and they still have a lot of affection for the bank. Indeed, Mr. Lanneau said a number of his relatives who own stock in the company were initially reluctant to sign on to the SEC filing in which he asked that the company consider selling itself.
Few of his family members are particularly happy with the way things are going for Britton & Koontz, but "there's a lot of southern sentimental stuff," involved, he said in Thursday. "The phrase 'sell the bank' was very difficult for some."
Mr. Lanneau might have trouble convincing other shareholders that a shake-up is necessary. Though Britton & Koontz's earnings have been lackluster, its stock has performed quite well; it is up 24% since the beginning of 2005.
Net income rose 13% last year, to $3.2 million, but that was still below what it earned in 2002, its best year.
Deposit growth, moreover, has been slow: a compound annual growth rate of 4.2% in the past five years. The average was 10.5% for commercial banks with $300 million to $500 million of assets, according to the Federal Deposit Insurance Corp.
Of course Mr. Lanneau was part of top management until two years ago and was on the company's board for 16 years, so he bears some responsibility for its performance.
He was also behind its 1999 decision to invest $1 million in Sumx Inc., a technology firm he founded to provide Internet banking services to other banks. Sumx failed to catch on, however, and Britton & Koontz wrote off its entire investment. (Sumx now operates as an independent company in Dallas; it has eight bank customers.)
Mr. Lanneau noted that the Sumx investment received strong support from the entire board and that Britton & Koontz had touted its involvement until Sumx's prospects began to dim.
Like Mr. Lanneau, Mr. Harvey said he believes that Britton & Koontz needs to make wholesale changes. In an SEC filing last year he cited "a history of poor expense management as evidenced by an above average efficiency ratio; a balance-sheet strategy favoring growth in the company's securities portfolio over repurchases of stock; and a history of below-average returns on equity."
"This company needs to make more money and make better use of its capital," Mr. Harvey said last week.
He said that he has read Mr. Lanneau's SEC filings and was "inclined to vote for" Mr. Lanneau's director candidate, Paul Benoist.
Britton & Koontz apparently sees Mr. Lanneau's campaign as a real threat. It has proposed eliminating cumulative voting, a move that would dilute the voting power of dissident groups and make it harder to elect their candidates.
Mr. Harvey said maneuvers like that send the message that management is running scared. "What is says it that they are afraid of being held accountable," he said.
