Dissidents Face Steep Climb to Sit on First Niles Board
NILES, Ohio – The annual meeting Wednesday afternoon of First Niles Financial Corp., holding company of the Home Federal Savings and Loan Co. of Niles, promises to be anything but routine.
Lance Osborne, who owns 7% of its shares, and Steven Passov, a commercial real estate broker, seek to unseat the chairman of First Niles, James Kramer, and attorney Robert Shaker on the five-member board. The terms run three years.
Kramer, who has been on the board since 1998, is president of Wm. Kramer & Sons, a heating and air conditioning company in Niles. Shaker, on the board since 2006, is a lawyer with the firm Shaker & Shaker LLP in Niles. The other three, including Home Federal Savings President Lawrence Safarek, were elected to the board in 2012.
Osborne, who first bought shares of First Niles that year, has been unhappy with the company’s performance. He says the directors have been unwilling to respond to his proposals on how it could be more profitable, that when he’s meet with them – and never during a board meeting – they have listened politely and said nothing.
Osborne and Passov have hired a proxy solicitation firm, Advantage Proxy Inc., to approach and collect the votes of First Niles shareholders in advance of Wednesday’s meeting to be held in the office of the 119-year-old thrift.
An independent proxy firm, Institutional Shareholder Services Inc., says members of the board, employees and former employees own 45% of First Niles shares and reports that its management says Osborne’s ideas “don’t work.”
Home Federal has $98.5 million in assets, a market cap of $8.7 million, and Safarek first responded to request for an interview last fall by insisting that questions be put in writing. Subsequent requests were directed to the attorney for First Niles, who did not respond to requests for a copy of First Niles 2015 annual report and proxy statement.
Safarek did respond to American Banker, a trade publication based in New York City, about Osborne’s criticisms of poor performance. In Monday’s edition, Safarek blamed Home Federal Savings lackluster results on being “in the middle of an economically depressed area.”
“Things really haven’t recovered [since the Great Recession],” American Banker quoted Safarek. “We want to make loans, but we want to do it in a safe and sound manner.”
Osborne and Passov note that all other commercial banks and thrifts that serve the region have some 20% of their portfolios in securities and 60% in loans. Home Federal Savings has those percentages reversed. Over the last decade, loans on the company’s books have declined 45% to $25.8 million from $47.2 million.
Osborne, who has attended all First Niles annual meetings since becoming a shareholder, rebuts Safarek’s insistence on caution because of an ailing economy: “I’ve been to three annual meetings and I’ve heard the same thing each year.”
His 7% stake in First Niles makes him the second-largest single shareholder, ISS says.
ISS recommends that shareholders vote for Osborne but “withhold” their support of Passov, owner of Passov Real Estate Group. “While we see no reason to believe the dissident nominee would not be a good director if elected,” ISS wrote, “there appears to be nothing in his professional experience which makes him a compelling candidate for this particular board.”
ISS recommends a “Do not vote” after Kramer and Shaker’s names.
The firm met with Osborne April 12 and management April 14. It its report, ISS noted, “ISS engages in ongoing dialog with issuers to ask for additional information or clarification, but not to engage on behalf of its clients. … All ISS recommendations are based solely upon publicly disclosed information.”
Osborne, founder and president of Osborne Capital Group, sits on the board of Lake National Bank, which has $150 million in assets. He believes Lake National could serve as a model to turn around Home Federal Savings performance.
Osborne Capital Group is a real estate investment and management company that specializes in commercial property development, acquisitions and asset recapitalizations. It claims a record of completing more than $50 million in real estate transactions and the development or redevelopment of 400,000 square feet of retail, office and residential space.
Osborne would like to see Home Federal become involved in commercial real estate. One question The Business Journal asked Safarek was for a breakdown of its lending portfolio and the names of its commercial lending officers.
ISS says Osborne and Passov’s efforts to sit on First Niles board are uphill because at least 45% of the shares are likely to be voted for Kramer and Shaker.
Osborne and Passov would have to get nearly 93% of the 55% not controlled the board, management, employees and former employees. Nonetheless, when they met with four shareholders in February – the shareholders did not identify themselves or the size of their stakes – at least one signed his shares for Osborne and Passov.
Also hurting their chances is the structure of the ballot, ISS notes. Shareholders must choose between two slates. They cannot vote for one from each slate.
“Accordingly,” ISS states, “a vote FOR dissident nominee Osborne is warranted.”
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