The secrets of the proxy are a few clicks away Skip Hageboeck runs one of the banking industry’s most consistently profitable banks – City Holding in West Virginia (CHCO) – but he was frustrated during a recent conversation. Too many of his merger targets weren’t interested in discussion. Some executives weren’t even telling the board. He calls them his “wall of shame” and vows he will make public the names of banks who escaped their legal fiduciary duty once he retired.
We can save Skip some time over the years and just shown him some proxies. Farmers (FMBM) is in neighboring Virginia. The majority of the board owns less than 10,000 shares of a $27 stock. First National (FXNC) is similar. How many boards would vote to sell the bank when there’s no reward? “We will cancel your prestige, networking and stipends in exchange for a 40% premium on your $25,000 investment.”
Unless a lawyer gets involved I think most of us would probably pass that up; due to human nature and simple economics.
Some banks are honest that they are not for sale. First Citizens in North Carolina and Alpine Banks in Colorado have different classes of shares because they don’t care about shareholder votes.
Many other banks pretend they might merge, but secretly wish they had two share classes. So, we need to look in proxies before we allocate too many dollars.
The folks at Middlefield (MBCN) in Ohio were recently under attack from an activist investor demanding a sale process (http://Ancora pressures Middlefield Banking Co. to pursue a sale or revamp its board (crainscleveland.com). Management is clear in conversations – we will sell if it makes sense! Does it make sense?
7 directors own less than 10,000 shares of a $21 stock. If I’m making $40,000 a year all cash, but perhaps someone is offering a $40,000 premium on my stock to fire me as a director, am I voting to sell? I’m not sure that would “make sense.”
This is a separate lesson – be aware when buying shares in a publicly-traded bank where directors are paid in cash exclusively.
What does make sense for shareholders? Below is color on how directors are motivated at Triumph Bancorp (TBK). I choose Triump because the bank just made a material acquistion, dilutive to tangible, and used all cash despite their own stock trading over 4x tangible book. The shot below is valued before today’s 11% increase in value post-deal.
What if Maribess Miller near the bottom, wants to hold up a strategic decision?
5 board members have 10 million+ reasons to overrule her. Note also that Triumph board members think like owners because unlike at Middlefield, they are paid heavily in stock:
If you follow @colarion on twitter, you have seen other examples of Middlefields – they are much more common than the Triumphs. A few more banks with light (and heavy) insider ownership are at bottom of this post.
In the meantime, the more time goes by, the more we see shareholder-oriented banks partner up while the mis-aligned boards become a greater percentage of the publicly-traded bank pool. These boards exercise 100% power with 5% ownership.
Your vote matters
Post Script: A few examples of tiny ownership, 100% control:
Professional (PFHD): 2.1% insider ownership (per S&P)
Shore (SHBI): 2.6%
Ames (ATLO): 1.8%
Northrim (NRIM): 2.6%
Bar Harbor (BHB): 3.1%
Insiders aligned:
Village Bank and Trust (Richmond, 62%)
Partners Bancorp (Fredericksburg, 45%)
Capital Bank (CBNK, 42%)
First Bancshares (FBSI, 37%)