Battle for Harvard Savings Bank

HARVARD – A New York investment manager is attempting to force a sale of Harvard Savings Bank.

The Stilwell Group, a group of hedge funds controlled by Joseph Stilwell, has launched a proxy battle with Harvard Illinois Bancorp Inc., the parent of the Harvard bank worth approximately $170 million. Tomorrow’s annual meeting of stockholders is a pivotal moment in Stilwell’s efforts, as the group tries to get its nominee onto the board of directors to further its influence.

Through a series of letters to shareholders and advertisements in local media sources, Stilwell has attacked the bank’s board of directors and said a change in management could ultimately mean increased profits for shareholders. The Stilwell Group is the company’s largest stockholder, owning 9.8 percent of shares. The stock is traded under the symbol HARI which closed Tuesday at $12. It opened at $10 when the company went public in 2010.

At tomorrow’s 8 a.m. meeting, the group will present Peter Wilson as a nominee for one of two open spots on the board of directors. In the invitation to the stockholders meeting, the board “strongly urged” re-election of President and CEO Duffield Seyller and retired businessman Richard Walker.

“We believe that Mr. Wilson lacks the background and experience to make him a suitable addition to the board,” Seyller wrote, on behalf of the board, in an April 27 letter to shareholders. “We further believe that the Stilwell Group’s agenda is shortsighted and will not be in the best interests of all shareholders.”

Monday night, the Stilwell group held a cocktail reception at Bull Valley Golf Club in Woodstock during which stockholders were invited to meet and talk with representatives from Stilwell. Stockholders also could fill out and submit proxy cards ahead of Thursday’s election.

“The purpose is to discuss voting CEO Duffield Seyller off the board of directors,” a recent Stilwell radio ad said.

The Northwest Herald wasn’t allowed inside the private reception, but a reporter spoke to shareholders who were there. Fewer than a dozen shareholders attended in the first hour of the event, which was scheduled from 6 to 8 p.m.

Paul Stricker of Williams Bay, Wis., said he was at the reception to get a better feel for what Stilwell was all about. He said he likely would still side with current management.

“A lot of the banks have been hit hard,” Stricker said. “I think they’ll turn it around.”

Marty Smith, a lifelong Woodstock resident who works in Rockford, said he attended the reception with an open mind. Tuesday morning, he said he’d decided to cast his vote for the board’s nominees.

“My perspective is that long-term value for shareholders is best created when you start, number one, by creating great client service and, number two, when you create an environment that’s extremely attractive for employees,” Smith said. “So what I was going to learn last night was how someone from New York City was going to provide those two features to the community of Harvard. ... And I didn’t hear that.”

Other shareholders attending Monday night’s declined comment.

The Stilwell Group wrote in an April 1, 2011, beneficial ownership report to the Securities and Exchange Commission that its purpose in acquiring HARI stock was to “profit from the appreciation in the market price of the shares of Common Stock through asserting shareholder rights.” Investors are required to file a beneficial ownership report upon acquiring at least 5 percent of a company’s shares.

In that report, Stilwell outlined 25 other publicly traded companies the group has taken 5-percent ownership in since 2000, each with the same goal. Many have ended in a company sale or merger, with the Stilwell Group selling its shares afterward.

The group is also currently involved in a proxy battle with Anchor Bancorp in Lacey, Wash.

In letters and advertisements, Joseph Stilwell has criticized the Harvard Savings Bank board of directors for being “unable to properly steward our capital.”

“Non-performing assets are hovering around 5 percent,” Stilwell wrote in a May 7 letter to shareholders, which also ran as an advertisement in the Northwest Herald and Morris Daily Herald. “This is a poor number and speaks ill of either our managers’ abilities or the Bank’s likelihood of success if it remains independent.”

The board responded in a May 10 letter to shareholders, citing a strong start to the year as evidence its strategic plan is working.

“We continue to execute on our strategic plan, which produced earnings of $151,000 in the first quarter of 2012, despite spending approximately $100,000 defending our bank against Mr. Stilwell’s hostile proxy contest,” the board wrote in a Northwest Herald advertisement appearing in print yesterday and online through today.

Mike Neese, a former vice president of residential lending with the bank for 19 years, said the bank is going in the right direction under current management. He added that the bank put a strong emphasis on being involved in the community.

“People recognize the people that are involved in this institution and the people that serve the community,” he said.

The bank, established in 1934, isn’t eligible to sell until April 9, 2013, the three-year anniversary of its IPO.

Members of the board of directors and the Stilwell Group declined to comment for this story.