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Five Star Bank’s parent aims to avoid proxy fight

The board of Five Star Bank’s parent company is offering a compromise to avoid a proxy fight.

Activist shareholder Johnny Guerry and Terry Philen Jr., a Texas-based businessman, are seeking two seats on the board of Warsaw-based Financial Institutions. Four of the bank’s 11 board seats are up for election at the annual shareholders meeting June 3.

Guerry is managing partner of Texas-based Clover Partners, which is affiliated with MHC Mutual Conversion Fund Group. MHC submitted their names for nomination.

In a regulatory filing, Financial Institutions said that it sent a letter to Clover on Wednesday, floating the idea of adding to the board one “mutually agreeable director candidate” not connected to either the bank or Clover, who would qualify as an independent director and had “relevant industry experience.” As of the regulatory filing Friday, the bank said that it had not received a reply.

The bank’s offer is the latest turn of events involving Guerry, who caused a stir last December when he called for the bank to stop making acquisitions and put itself up for sale. In a letter, he criticized the bank’s deals for both Amherst-based insurance agency Scott Danahy Naylon and Courier Capital, an investment management firm, saying they diluted shareholder value and their earn-back periods were too long.

The bank’s regulatory filing recounted the events leading up to the push by Guerry and Philen to be elected to the board.

Clover began accumulating shares of the bank’s stock last August and now has 5.5 percent of it. In November, Financial Institutions executives held one-on-one meetings with institutional investors and analysts at a conference in Florida, including with Guerry and Mike I. Shafir, a Clover analyst. They discussed the bank’s business and strategy.

About two weeks later, Financial Institutions announced plans to acquire Courier. That deal spurred the critical letter from Clover.

On Jan. 28, four Financial Institutions executives met with Guerry and Michael C. Mewhinney, senior partner and founding member of Clover, to talk more about the bank’s business and strategy. Guerry expressed interest in being appointed to or nominated to the board.

Bank officials followed up with Guerry on Feb. 10, telling him that the board’s nominating and governance committee would consider him as a candidate, following its standard process.

The interview took place March 4. In its filing, the bank said Guerry “confirmed that he had no experience working for a bank or other operating company and that he had limited public company board and governance experience.”

On March 25, Guerry was told he would not be nominated or appointed. The board decided that Guerry “does not possess the qualifications, experience and skills that would enhance the depth and breadth of the company’s board,” the bank said in the filing. On April 1, MHC gave notice it would nominate Guerry and Philen for board seats. Financial Institutions said after it received word of those nominations, it proposed its “amicable resolution” to Clover.

Meanwhile, Financial Institutions is urging its shareholders to reject Guerry and Philen in their bid for board seats. The bank’s four candidates of choice are president and CEO Martin K. Birmingham, Samuel M. Gullo, James H. Wyckoff and Kim E. VanGelder.

email: mglynn@buffnews.com