Less than four months after terminating a hard-fought proxy campaign against a Maryland community bank, a New York-based activist investor is pressing a 157-year-old Pennsylvania institution to sell itself.
Driver Management, whose self-stated mission is “unlocking trapped value in the US banking sector,” has called on the $ 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 doesn’t do this, Abbott Cooper, Driver’s founder and managing member, said he would consider mounting a new proxy fight.
“For an activist, running a proxy contest is the most logical option if you’re not getting any traction with the current board,” Cooper said Friday in an interview.
Though he has yet to commit to this course with Codorus Valley, Cooper said he has held “informal” talks with Pennsylvania banking regulators to familiarize himself with relevant banking rules.
“In Pennsylvania, you have to get approval from the state banking regulator before you request proxies representing more than 10% of the shares of a bank,” Cooper said. “That’s a conversation that’s been going on informally for three or four months, well before we started buying the stock. I wanted to be prepared. “
Codorus Valley’s roots extend back to April 1864, when its banking unit first opened its doors as First National Bank of Glen Rock. The bank adopted its current name, PeoplesBank, in 1997. Larry Miller has managed the company since 1981, first as president and CEO of Peoples Bank of Glen Rock, and since 1986 as president and CEO of Codorus Valley.
Miller was appointed chairman in 2015. Craig Kauffman has served as PeoplesBanks’ president since August 2019.
Codorus has delivered profits throughout the past decade – just not enough, Cooper said. Codorus Valley’s total shareholder return over the past five years is about half that of the average for banks with $ 1 billion to $ 5 billion of assets, according to Cooper.
Through the first six months of 2021, Codorus Valley reported net income totaling $ 7.2 million, good for a 7.3% return on equity. Codorus Valley’s return on equity for the quarter ending March 31 was 8.08%, compared to 14.1% for banks with $ 1 billion to $ 10 billion of assets, according to the Federal Deposit Insurance Corp.
That seeming underperformance, combined with the increasing premiums potential buyers are offering, creates a compelling case for Codorus Valley to consider a sale, Cooper argued. He pointed to $ 2.6 billion-asset Howard Bancorp in Baltimore, which last month agreed to sell itself to Pittsburgh-based FNB Corp. for $ 418 million in stock, or 1.6 times its tangible book value, as an example.
“The fact Howard got 1.6 times tangible book value – to me, any responsible board in that area would be rushing to figure out what they could get in a sale,” Cooper said. “I thought that was an extremely rich valuation. 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 effort. While expressing respect for corporate managers like Miller, their primary role is that of agent for the company’s shareholders, who agree to pay their salaries, DeMuth said Friday in an interview.
“His job is to maximize profits and return capital” for and to investors, DeMuth said of Miller.
Oftentimes, a merger is the best means of maximizing shareholder value since it offers a buyer the chance to strip out duplicative costs and operate a seller’s platform more efficiently, 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 its share purchases and announcing its desire for a sale of the company, “not a day has gone by without some investment banker calling,” Cooper said.
“Once a sale process gets underway, people start to get opportunistic,” Cooper added. “There’s no scarcity of banks that would like to acquire” Codorus Valley.
Driver currently holds a 6.5% stake in Codorus Valley, at a cost of $ 12.6 million, according to its most recent SEC filing. Miller’s ownership interest totaled 1.4% at 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 input from shareholders, but it steered clear of any discussion of its merger-and-acquisition plans.
“Led by CEO of PeoplesBank, Craig Kauffman, with the support of the board, we are focused on executing our long-term strategic initiatives for the benefit of shareholders, clients, employees and other constituents,” Codorus Valley stated. “We have come a long way in the past year and are proud to have helped our clients navigate the pandemic, while maintaining our client-focused attention to service. As always, while we execute our plan, we welcome input from shareholders in the context of our overall strategy. “
PeoplesBank operates five branches in the Baltimore metropolitan area as well as 28 in Southeastern Pennsylvania. In its home market of York County, PeoplesBank controlled 15% of the $ 9 billion deposit market, behind only M&T Bank’s 26% share.
In January, Abbott put himself forward as a board candidate in Driver’s proxy fight with the $ 1.76 billion-asset First United Corp. in Oakland, Maryland. If Driver launches a contest against Codorus Valley, Abbott said he would prefer to field candidates with more banking experience. He mentioned Dwight Utz, a former chief operating officer of Codorus Valley, as a potential nominee, though he added that he has no agreement with him.
Utz was COO from September 2015 until January 2018, when the bank ushered him out despite a strong prior-year performance, when the bank earned $ 12 million.
Utz “has been an officer of the corporation; he’s been a director of the bank subsidiary, ”Cooper said. “He obviously knows the business well and has a real insider’s view of the strengths and weaknesses and what needs to happen.”
In an interview Monday, Utz said he hoped Driver and Codorus would be able to settle their differences short of a proxy fight, though he did not rule out the possibility of agreeing to seek a board seat if one ensues.
“I have had some initial contact with Mr. Cooper,” Utz said. “He was asking me if I would give consideration [to standing for a board seat] and I shared with him that if things got to that point and his requirements were not satisfied that I would give consideration to doing that. “
Regarding his departure from Codorus, Utz called it “disappointing.”
“I thought we were on the right trajectory,” Utz said.
During Driver’s contest with Oakland, Maryland-based First United Corp., each side 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 Driver has targeted, $ 1.75 billion-asset Community Bankers Trust Corp. in Richmond, Virginia, agreed June 3 to sell itself to Charleston, United Bankshares for $ 303 million in stock, about 1.67 times Community Bankers Trust’s tangible book value.