Pennsylvania Thrift Faces Double Threat from Pair of Activists

Management at Malvern Bancorp in Paoli, Pa., is gearing up for what can easily be summed up as "double trouble."

Almost a year after caving in to outside pressure to convert to a fully stock-owned company, the $666 million-asset thrift is again feeling the heat. This time, Joseph Stilwell, who controls 9.8% of Malvern's common stock, is aiming to put a director on the thrift's board. He is also vowing to fight for dividends and stock repurchases.

Malvern is familiar with shareholder activists; its management has endured several years of dealing with PL Capital, which also owns 9.8% of the thrift's stock.

PL Capital "conceptually" agrees with Stilwell's aim of getting a board seat, says Richard Lashley, managing member of the Naperville, Ill., firm. Lashley says PL Capital has not decided whether it will officially back Stilwell or nominate its own candidate.

As Malvern faces another heated proxy battle, OBA Financial Services in Germantown, Md., is feeling pressure. Lawrence Seidman, a veteran activist who owns about 7% of OBA's common stock, recently told the $382 million-asset thrift to sell itself, describing its returns as "miserable."

Such efforts are part of a new world of heightened involvement by activists in the affairs of small banks. Threats from Stilwell and Seidman show that dissident investors rarely give management teams time to craft a plan, or turn things around, before pressing them to sell, says Jim Fleischer, a lawyer at Silver Freedman & Taff who has advised mutuals on conversions.

"The activists are pretty sensitive to corporate performance," says Fleischer, who has no ties to Malvern or OBA. Stilwell and Seidman are "doing what they do, at the first chance they can get."

Thrifts that are partially owned by mutual holding companies, or those that recently converted, face relentless pressure from activists, says Mike Nolan, chairman, president and chief executive of Fifth District Savings Bank in New Orleans.

The $366 million-asset thrift has never considered selling stock and subjecting itself to that kind of criticism, Nolan says. "Other people may want to see it another way, but our major goal is to preserve our charter as a mutual," he says.

Stilwell has sparred with Malvern before. In 2011, he filed a lawsuit in the Court of Common Pleas in Chester County, Pa., in an effort to force Malvern to pursue a second-step conversion. The conversion, which took place last October, has not produced the desired returns, however, Stilwell claims.

"We do not believe the value of [Malvern's] assets is adequately reflected in the current market price of" its common stock, Stilwell wrote in a Sept. 11 regulatory filing.

Malvern's shares have increased in value by about 22%, to $12.18 a share, since its conversion.

Stilwell, through a spokeswoman, declined to comment further.

Malvern has not yet filed a response to Stilwell. Ronald Anderson, the thrift's president and chief executive, and Raymond Tiernan, a lawyer at Elias, Matz, Tiernan & Herrick who advised Malvern on its conversion, did not return calls seeking comment.

PL Capital has also criticized Malvern. Soon after the thrift converted, PL Capital complained that Malvern's management had too much control over the new corporate bylaws. Lashley's firm threatened to oppose executive compensation packages unless bylaw changes were made.

Malvern's management "clearly hasn't made any changes," in the past year, Lashley says. To address investors' concerns, Malvern's executives should enter talks with Stilwell, he says.

"If management wants to be proactive, they could reach some kind of settlement with" Stilwell, Lashley says.

Executives at other financial institutions have recently shown more willingness to have dialogues with activists, "which is smart on their part," Lashley says. "Everyone ends up in a better position, even if you have to compromise a bit."

Some thrifts have argued that activists conspire to force conversions so they can profit at the institution's expense.

It is likely that Stilwell and PL Capital are getting their ducks in a row before Malvern can legally put itself up for sale, Fleischer says. Converted mutual thrifts are barred from selling within three years following a conversion.

Securing board representation before the end of that three-year prohibition can help an activist push a thrift to sell, Lashley says without admitting that such a plan is afoot. "That's one benefit" of getting a director elected, he says.