Local bank experts weigh in on Willow mystery

Donna M. Coughey, president and chief executive officer of Willow Financial Bancorp Inc., has a strong reputation.

"She's one of the best I've ever worked with," said James J. Clarke, a Villanova banking consultant, who was on Coughey's board at Chester Valley Bancorp Inc.

So Clarke was mystified after hearing that Coughey's bank, based in Wayne, announced this week that it had given up trying to figure out why its books were off $6.2 million after spending $2 million looking for a way to fix the discrepancies.

"I just can't imagine she got dumb all of a sudden," said Clarke, who was among the directors not asked to join the Willow Financial's board after the $145.3 million merger with Chester Valley in 2005.

Coughey was not available for comment yesterday, said Joe Crivelli, an outside spokesman. He said management was busy working on its already delayed quarterly report for the period ended Dec. 31.

Joseph T. Lynyak III, a lawyer with expertise in banking regulation, said the $6.2 million loss did not jeopardize the bank financially, because it still had plenty of capital backing up its operations, according to public disclosures.

That does not mean, however, that regulators will not take action.

"It would be very difficult for the government not to require an accounting . . . on the part of management. I'm an old safety-and-soundness guy. You just don't let this happen. If it happens on your watch, it's your fault," said Lynyak, a partner in the Los Angeles office of Venable L.L.P.

Lynyak and other experts said it was likely that Willow's accounting problems stemmed from the 2005 merger of Willow Grove Bancorp Inc. and Chester Valley. The bank changed its name in 2006.

Coughey and Willow's chief financial officer, Joseph T. Crowley, both held their current positions at Chester Valley, which was based in Downingtown. Before joining Chester Valley in 2000, Coughey was president of Mellon Bank of Delaware.

In the year ended June 30, Coughey, who last year was named one of America's 25 most powerful women in banking by U.S. Banker magazine, was paid $639,891. The bank's most recent proxy statement gave her age as 57.

Only one of nine Willow Financial directors responded to telephone calls yesterday. James E. McErlane, a lawyer in West Chester and the fifth-largest Willow shareholder, according to Bloomberg News, referred questions to Coughey and board chairwoman Rosemary C. Loring.

Loring, president of Loring Careers Inc., of Willow Grove, is unavailable until next week, according to a representative in her office.

Meanwhile, Willow's regulator, the federal Office of Thrift Supervision, is watching.

"Anytime we become aware of deficiencies in one of our regulated institutions, we heighten our scrutiny of that institution as a matter of course," said agency spokesman William Ruberry.

He declined to comment further or to discuss specific actions.

The circumstances at Willow, which has 29 branches in the Philadelphia region, thus far are not as severe as those last year at Sterling Financial Corp., of Lancaster. Sterling, after uncovering huge fraud at an equipment-leasing subsidiary, took an after-tax charge of $200 million against earnings of $36.45 million, halted its dividend, consolidated subsidiaries to shore up its capital base, and finally sold itself to PNC Financial Services Group.

A competing local bank executive said Willow was not necessarily for sale because of its problem, as was Sterling.

"If they're patient, they can get it back together. They have a nice Chester County franchise," plus the older branches in eastern Montgomery County, said Patrick Ward, chairman and CEO of Penn Liberty Bank, of Wayne.

W. Kirk Wycoff, a banking veteran now with Philadelphia's Patriot Financial Partners L.P., a private-equity investor in banks, said he thought Willow "is a good company that had a stumble."

For stockholders, such as Richard Bernstein of Fort Washington, that stumble has been costly. The shares closed yesterday at $7.83, down from as much as $13.12 last summer.

Bernstein, who said he and several family members had held their shares in Willow Financial since Willow Grove Bank demutualized in 1998, complained that that bank's officials "haven't talked to us, which I find very unusual."

Bernstein also wondered about the company's usual May dividend. There has been no declaration.

In what Willow said was a separate matter, a branch manager at Willow Financial Bank stole $36,204 from a customer's account last May.

The theft at the bank's Rhawnhurst branch was "an isolated situation of employee fraud," Crivelli said. The bank prosecuted the case and received full restitution.

The former branch manager, Michelle D. Monreal, was banned by the Office of Thrift Supervision in an "order of prohibition" effective last week from ever again working in a financial institution. Monreal could not be reached for comment yesterday.