Shareholders of Chester County-based bank score big protest vote against board after insurgents challenged management

Shareholders at DNB Financial Corp., which owns the former Downingtown National Bank, registered a significant protest vote at the company’s annual meeting Wednesday at the Downingtown Country Club, the company said in a Securities and Exchange Commission report filed after the stock market closed for the day.

Investors approved all three directors supported by management, who were running unopposed, but by margins of only around 2 to 1, compared to margins approaching 50 to 1 in last year’s board elections, according to the company’s SEC reports.

Some 1.02 milllion DNB shares were withheld against director Mary Latoff, compared to 1.81 million who were voted Yes. Investors withheld 998,000 shares from Mildred C. Joyner, while 1.82 million backed her, and withheld 913,000 shares against John F. McGill, versus 1.91 million in his favor. Management didn’t immediately respond to queries about the result.

By contrast, the four management-backed directors running last year each received more than 2.5 million votes, while an average of fewer than 100,000 were withheld from each that time.

Also this year, 3.38 million shares were voted to approve BDO USA as the company’s auditor, versus 100,000 shares voted against, and 274,000 abstentions.

In January, investors J. Abbott R. Cooper, of New York, and John B. Thompson II, of Jupiter, Fla. (corrected), filed a public notice with the SEC challenging the bank’s managers to improve its financial performance. Their partnership, CT Opportunity Partners I LP, is among the bank’s largest owners.

The insurgents urged DNB chief executive William J. Hieb and board chairman James H. Thornton, a Connecticut hospital consultant, to rein in expenses, such as what they called uncalled-for severance payments to an ex-executive; and to boost sales and profits; or, if they couldn’t find a plan to boost returns, at least to prepare the bank for sale so shareholders can make money.

In an interview, Cooper said he had heard from shareholders who supported the pair’s efforts. Reminded that small banks like DNB have had a tough time boosting profits given the low interest rates prevailing in recent years, Cooper said South Jersey’s Parke Bank and other community banks in the New York area have expanded successfully in recent years, and DNB ought to do likewise if its leaders want it to remain a public company.

(An earlier version of this story wrongly called DNB the largest bank still based in Chester County. Customers and Meridian are larger.)