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Five Star parent may face challenge to board seats

Five Star Bank’s parent company could face a battle in elections for its board of directors.

Warsaw-based Financial Institutions mentioned in a regulatory filing this week that an activist shareholder, Clover Partners, wrote the board last December “raising concerns regarding our strategic direction, expressing Clover’s desire to see the company sold, expressing its desire for representation on our board of directors. and threatening a proxy contest.” A proxy contest refers to an effort to replace existing members of a board.

Whether Clover will actually present a slate of rival board candidates is not yet clear. Johnny Guerry, Clover Partners’ managing partner, did not return a call to comment Wednesday. Financial Institutions usually holds its annual meeting – where voting for board seats is completed – in May, but has not yet set the date.

Financial Institutions’ board of directors consists of 11 members who serve staggered three-year terms. Four directors’ terms are scheduled to expire at this year’s meeting, including that of president and CEO Martin K. Birmingham. One of the four, James L. Robinson, has announced he will not seek re-election.

Financial Institutions’ nominating and governance committee has not yet finalized its director slate, said Charles Guarino, senior vice president and retail banking executive at Five Star. However, the bank has announced that Kim VanGelder, Eastman Kodak’s chief information officer, will be nominated as a replacement for Robinson.

Guerry in his letter criticized the bank’s deals for Courier Capital Corp., an investment advisory and wealth management firm with offices in Buffalo and Jamestown, and Amherst-based insurance agency Scott Danahy Naylon. Guerry said those deals diluted shareholder value and had earn-back periods that were too long for investors. “It is Clover’s strong belief that (Financial Institutions) should halt any future acquisition plans and sell the bank to a larger competitor,” he wrote. Texas-based Clover, a hedge fund with about $240 million in assets under management, owns 5 percent of the bank’s stock.

After Clover’s comments became public, Peter Humphrey, a former Financial Institutions CEO who remains a shareholder, also suggested the bank consider a sale.

Earlier this year, Clover had threatened a proxy contest for three seats at Bank Mutual Corp., based in Milwaukee, Wis. In February, the bank and Clover said they had agreed that a Clover analyst would be nominated to the Bank Mutual board – which would be expanded by one member – for election at the bank’s annual meeting in May. As part of the agreement, Clover will not present a rival slate of board candidates.

In a January interview with the Journal Sentinel newspaper, Guerry said that in four cases where Clover took an activist approach, the banks ended up being sold. Those banks were not named.

Board elections at public companies’ annual meetings are usually routine matters, but challenges do surface from time to time. In April 2015, Synacor’s slate of management-backed candidates prevailed over a rival slate of candidates presented by dissident investors.

In its regulatory filing, Financial Institutions advised shareholders that if “any significant investor” seeks a change in the board of directors or makes proposals concerning the bank’s operations or governance, “our review and consideration of such proposals may require the devotion of a significant amount of time by our management and employees and could require us to expend significant resources.”

And if the board disagrees with or determines not to pursue the strategic direction suggested by an activist shareholder, “our business could be adversely affected by responding to a costly and time-consuming proxy contest or other actions from an activist shareholder that will divert the attention of our management and employees, interfere with our ability to execute our strategic plan, result in the loss of business opportunities and customers, and make it more difficult for us to attract and retain qualified personnel and business partners.”