Dissidents seek seats on BankRI board of directors

The pressure is back on at Bank Rhode Island.

The principals of activist shareholder PL Capital LLC, an Illinois investment firm, have filed notice that they intend to seek seats on the board of directors of BankRI’s parent, Bancorp Rhode Island.

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It’s a replay of last year’s contentious proxy battle in which PL Capital’s principals, John Palmer and Richard Lashley, sought spots on the 15-member board and talked publicly about engineering a sale of BankRI.

This time around, the pair has been joined by Daniel Mullane, a former investment banking executive who lives in Killingworth, Conn.

Palmer and Lashley did not immediately return calls seeking comment last week. But in a press release announcing the trio’s intention to seek spots on the board, Lashley renewed their criticism of the bank’s executives.

“I believe that Bancorp RI has reached the point at which it is unable to substantially grow its business and profitability without changes in the existing management team, operating structure, capital structure and/or business model,” he said. “We believe that it is time to challenge the status quo, particularly if the board remains committed to its strategy of not pursuing strategic alternatives to maximize the value of Bancorp RI.”

In a recent interview with Providence Business News, BankRI President and CEO Merrill W. Sherman defended the bank’s performance, saying it’s done relatively well in a tough environment. Sherman noted that BankRI holds no subprime loans, and doesn’t have a credit-card portfolio.

Last month, Bank RI said it finished 2007 with a $9.05 million profit, a 17.3-percent increase from $7.71 million in 2006. For the year, diluted earnings per share were $1.84, up from $1.57 in 2006.

It did, however, post a 5.6 percent year-over-year decline in its earning for the fourth quarter. And diluted earnings per share were 50 cents for the quarter, down from 51 cents a year before.

Sherman predicted that the looming proxy battle could get “expensive and get nasty.”

She acknowledged that employees are feeling some tension, but added that she won’t let that distract them from day-to-day operations. “We’ve already been through this before,” Sherman said. “And we’re going to do exactly what we did last year.”

Last year, proxy battle lines were drawn early and tensions between PL Capital and the bank’s leadership steadily increased ahead of the annual shareholders meeting in May.

When the votes were tabulated following that meeting, it proved to be shutout: Shareholders elected the entire slate nominated by the bank’s leadership.

Top executives of BankRI, who had suffered through several quarterly earnings declines in 2006 – giving ammunition to PL Capital – received some good news a month before the annual meeting when the bank recorded $2.2 million of earnings in the first quarter, a 43-percent increase from a year earlier.

Ultimately, BankRI leaders were able to convince enough major institutional shareholders that the bank was better off without PL Capital playing a role.

In their press release earlier this month, Lashley and Palmer noted areas of concern, including a 7.72 percent “core” return on equity in 2007, a figure they said had been on a downward trend since 2000.

They also said Bancorp RI’s efficiency ratio stood at 73.4 percent – what PL Capital said is the second worst annual efficiency performance in 10 years.

Sherman disputed PL Capital’s numbers, saying for instance that the bank’s return on equity for the fourth quarter of 2007 stood at a “very respectable” 8.2 percent.

She said it’s not clear how PL Capital reached its “core” ROE number. “That’s part of the problem,” she said. “They can almost say anything they want.”

Sherman can’t argue with the amount of stock PL Capital controls – it’s the second largest shareholder with 387,920 shares, or 8.5 percent of the outstanding common stock.

Mullane, a former chairman, CEO and president of Advest Group Inc., a firm with regional brokerage and trust banking operations in New England, only holds 1,000 shares, which he purchased last month.

Bancorp Rhode Island already has named its slate of nominees for re-election to the board: Anthony F. Andrade, Chairman Malcolm G. Chace, Ernest J. Chornyei Jr., Edward J. Mack II and Sherman.

The meeting will be held May 21. •