It looks like Fairfax-based MainStreet Bank is in for a fight.
As I report in Friday’s print edition, local activist shareholder Frank Williams Jr. is taking aim at the 9-year old institution, which he calls underperforming. He hopes to marshal a stockholder revolt to shake up the board, fire management and sell the bank to the highest bidder.
“We’re looking to see if we can get any support for a proxy contest,” Williams told me.
MainStreet, which has $271 million in assets and five branches, is an unusual bank with a different strategy from other local institutions. While most nondistressed local community banks have been feverishly expanding in recent years, stealing business from the big banks that retrenched during the downturn, MainStreet has been targeting growth of about 5 percent a year — a fraction of what many local banks have been posting. The bank is hesitant to overextend itself in what CEO Jeff Dick sees as a still uncertain economy.
While Dick tells me that his institutional investors agree with the bank’s slow growth strategy, its stock is trading at $6.35 — well below its $9.73 book value and the $10 per share that original investors paid.
Williams and his allies are miffed about it.
“With a mixture of a weak board and a management that’s driven by feathering their own nest, it’s a perfect storm for shareholders,” says Kevin Keyes, a former MainStreet director who has teamed up with Williams to try to force changes. “That’s why Frank and I and many other shareholders have decided that we own this institution. Management doesn’t. And we’re going to work to try to take it back. It’s as simple as that.”
Aside from the bank’s slow growth and low profitability, the bank’s sparkling new headquarters also has become a soar spot for Williams and his allies. The 30,000-square-foot building is decked out with a fitness center, locker rooms, a TV production studio and an office for the CEO that is designed to mimic an English pub. Williams and Keyes point to it as an example of management enriching themselves at the expense of shareholders. Dick counters that the bank needed new space and got a fantastic deal on the building.
Williams, who owns stock in a least a half dozen local banks, has done this before. He successfully waged a similar campaign at Alliance Bank, which he pressured to appoint new directors, ax the CEO and sell itself.
“This is an environment that could be ripe for that kind of activity,” said Columbia, Md., banking consultant Anita Gentle Newcomb. “There are banks that are underperforming, and these activist shareholders who have an interest are looking to change that.”
How often are these activists successful?
“It’s hard to say,” Newcomb said. “It takes a lot to get them to go away, if they ever go away. They just stay on it. … This is a fear of every bank, that suddenly you have an activist shareholder that shows up on your doorstep.”
I asked the CEOs of Access National Bank and Freedom Bank of Virginia, where Williams also is a stockholder, if they get a flicker of fear whenever he calls.
“I have a good relationship with Frank,” said Reston-based Access National CEO Mike Clarke. “He has expectations on what he wants as an investor, and I don’t think his expectations are unreasonable. I think that my interests and Frank’s are aligned.”
But Clarke also said that most shareholders at community banks don’t pay nearly as much attention to what’s happening as Williams does.
“One of the challenges or problems with our industry is that a lot of investors are apathetic,” Clarke said, explaining that this often allows management to operate without paying much mind to stockholders.
“For a shareholder who cares about their economic interests, it’s extraordinarily frustrating,” he said. “That’s the angle that Frank comes from.”
Craig Underhill, CEO of Fairfax-based Freedom Bank, also said he has a good relationship with Williams, who got a little irked a year or two ago about the bank’s progress and made his feelings known. The bank listened.
“Frank is very supportive of the strategy we’re following,” Underhill said, adding later: “As with all shareholders, he’s looking for a return, and we are looking to provide him with one.”
“We certainly respect him as a knowledgeable community bank investor,” Underhill continued. “He is willing to put his money into community banks, and none of us can be in business without that capital.”
Here’s a non-comprehensive list of local banks where Williams is a stockholder