Less than four months after end a hotly contested proxy campaign Against a Maryland community bank, a New York-based activist investor pressured a 157-year-old Pennsylvania institution to sell.
Driver Management, whose self-proclaimed mission is to “unlock trapped value in the US banking industry”, asked $ 2.2 billion asset Codorus Valley Bancorp in York to hire a financial advisor to review strategic options , including a potential sale. If Codorus Valley does not, Abbott Cooper, founder and managing member of Driver, has said he will consider mounting a new proxy fight.
“For an activist, running a proxy contest makes the most sense if you’re not getting any traction with the current board of directors,” Cooper said Friday in an interview.
Although he has not yet committed to this course with Codorus Valley, Cooper said he has had “informal” talks with Pennsylvania banking regulators to familiarize himself with the relevant banking rules.
“In Pennsylvania, you must get approval from the state banking regulator before you can solicit proxies representing more than 10% of a bank‘s shares,” Cooper said. “It’s a conversation that’s been going on informally for the past three or four months, long before we started buying the shares. I wanted to be prepared.
Codorus Valley’s roots go back to April 1864, when its banking unit first opened as the First National Bank of Glen Rock. The bank adopted its current name, PeoplesBank, in 1997. Larry Miller has led the business since 1981, first as President and CEO of Peoples Bank of Glen Rock, and since 1986 as President and Chief Executive Officer of Codorus Valley.
Miller was appointed president in 2015. Craig Kauffman has served as president of PeoplesBanks since August 2019.
Codorus has made profits over the past decade, but not enough, Cooper said. According to Cooper, the total return to shareholders of Codorus Valley over the past five years is about half of the average for banks with $ 1 billion to $ 5 billion in assets.
In the first six months of 2021, Codorus Valley reported net income totaling $ 7.2 million, good for a return on equity of 7.3%. According to the Federal Deposit Insurance Corp.
This apparent underperformance, combined with growing premiums offered by potential buyers, is a compelling case for Codorus Valley to consider a sale, Cooper argued. He pointed to Howard Bancorp’s $ 2.6 billion assets in Baltimore, which last month agreed to sell to Pittsburgh-based FNB Corp. for $ 418 million in stock, 1.6 times its tangible book value, for example.
“The fact that Howard got 1.6 times the tangible book value – to me, any responsible board in this area would be rushing to figure out what they could get in a sale,” Cooper said. “I thought it was an extremely rich assessment. Nothing against Howard, but I think Codorus has a better franchise.
Chris DeMuth, founder of Rangely Capital in New Caanan, Connecticut, said he was sympathetic to Cooper’s efforts. While expressing respect for corporate executives like Miller, their primary role is that of agent for the company’s shareholders, who agree to pay their salaries, DeMuth said in an interview on Friday.
“Its job is to maximize profits and return capital” for and for investors, DeMuth said of Miller.
Often times, a merger is the best way to maximize shareholder value because it gives a buyer the ability to eliminate duplication costs and more efficiently operate a seller’s platform, DeMuth added.
For Codorus Valley, there would be no shortage of suitors, Cooper predicted. Since July 6, when Driver filed a 13-D report with the Securities and Exchange Commission detailing his share purchases and announcing his desire to sell the company, “not a day has gone by without a banker investment calls, ”Cooper said.
“Once a sales process is started, people start to become opportunists,” Cooper added. “There is no shortage of banks that would like to acquire” Codorus Valley.
Driver currently owns a 6.5% stake in Codorus Valley, at a cost of $ 12.6 million, according to his latest filing with the SEC. Miller’s stake stood at 1.4% as of April 2, the date of Codorus Valley’s most recent proxy statement.
“He doesn’t think like an owner,” DeMuth said.
In a statement to American Banker, Codorus Valley said it appreciates shareholder input, but has steered clear of any discussion of its merger and acquisition plans.
“Led by PeoplesBank CEO Craig Kauffman, with the support of the Board of Directors, we are focused on executing our long-term strategic initiatives for the benefit of shareholders, customers, employees and other stakeholders. ”Said Codorus Valley. “We have come a long way over the past year and are proud to have helped our customers through the pandemic, while maintaining our focus on customer service. As always, as we execute our plan, we welcome feedback from shareholders in the context of our overall strategy. “
PeoplesBank operates five branches in the Baltimore metro area as well as 28 in southeastern Pennsylvania. In its home market in York County, PeoplesBank controlled 15% of the $ 9 billion deposit market, behind just 26% of M&T Bank shares.
In January, Abbott ran for the board of directors in Driver’s proxy fight with $ 1.76 billion in First United Corp. assets. in Oakland, Maryland. If Driver launches a competition against Codorus Valley, Abbott has said he would prefer to present candidates with more banking experience. He mentioned Dwight Utz, former COO of Codorus Valley, as a potential candidate, although he added that he had no deal with him.
Utz was COO from September 2015 to January 2018, when the bank brought him out despite a strong performance the year before, when the bank earned $ 12 million.
Utz “has been a leader of the company; he was director of the banking subsidiary, ”Cooper said. “He obviously knows the company well and has a real insider’s view of the strengths and weaknesses and what needs to happen.
In an interview on Monday, Utz said he hoped Driver and Codorus would be able to settle their differences without a proxy fight, though he didn’t rule out the possibility of agreeing to seek a seat on the board of administration if it follows.
“I had initial contact with Mr. Cooper,” Utz said. “He asked me if I would consider [to standing for a board seat] and I told him that if things got to this point and his requirements weren’t met, I would consider doing it.
Regarding his departure from Codorus, Utz called it “disappointing”.
“I thought we were on the right path,” Utz said.
During Driver’s contest with Oakland, Maryland-based First United Corp., each party sued the other in federal court. The issue was resolved in April when First United agreed to acquire Driver’s 5% stake for $ 6.5 million.
Another community bank that Driver targeted, with $ 1.75 billion in assets, Community Bankers Trust Corp. in Richmond, Va., agreed on June 3 to sell in Charleston, United Bankshares for $ 303 million in stock, roughly 1.67 times the tangible book value of Community Bankers Trust.