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Proxy firm sides with parent of Five Star

Five Star Bank’s parent company Monday played up an independent proxy advisory firm’s recommendation that shareholders vote for the bank’s board nominees.

It was the latest development in a battle for board seats between Warsaw-based Financial Institutions and activist shareholder Johnny Guerry.

ISS, the advisory firm, said “the dissident has not made a compelling case that additional change at the board level is warranted.” ISS offers voting advice to shareholders and institutional investors.

The bank is backing four nominees for seats up for election. Guerry and fellow challenger Terry Philen Jr. hope to win two of those seats.

Financial Institutions said ISS “recognized that the board’s strategic plan has been producing superior returns for shareholders over the last three years.”

Barring a compromise, the proxy fight will be decided at the bank’s annual meeting June 3.

Guerry is managing partner of Texas-based Clover Partners, which controls 5.2 percent of Financial Institutions’ shares. He has criticized the bank for its deals for Amherst-based Scott Danahy Naylon and Courier Capital Corp., which has offices in Buffalo and Jamestown. The bank has defended those acquisitions as part of a strategy to diversify its sources of revenue.

In a letter last year, Guerry advocated for the bank to put itself up for sale. More recently, he has said he would be open to various options for the bank – a sale still among them – if he and Philen won seats. Guerry has accused the bank of disregarding input from a major shareholder and dragging out its review of his candidacy for a board seat before rejecting him in March.

ISS sided with Financial Institutions’ view of the bank’s track record. Financial Institutions “has delivered solid growth and profitability over the past five years, despite suffering the same compression in net interest margin experienced by the banking sector generally,” the firm said.

ISS advised that shareholders stay the course by voting for the bank’s nominees: “As the board’s growth strategy appears to be driving additional positive returns to shareholders, without creating structural obstacles to a sale of the company should a compelling suitor come along, there does not seem to be a compelling case that change is warranted at the time.”

Guerry called ISS’ recommendation “not entirely unexpected. Our criticisms around (Financial Institutions) are somewhat unique and a bit different than the kind of issues (ISS) generally focuses on.” He noted that in a previous proxy fight at Hampden Bancorp in Massachusetts, ISS twice sided with Guerry. He and an ally won board seats on the second try in that case.

Guerry said he didn’t want to slight ISS for its recommendation at Financial Institutions and would have welcomed its backing. “It would have been a positive, but it certainly doesn’t undermine the direction we’re that we’re trying to take. It’s still very competitive, we’ve gotten a lot of positive feedback from people, and we’re continuing on.”

Financial Institutions expects to spend $1.8 million on the proxy fight. ISS addressed Guerry’s contention that the bank prolonged its review of his candidacy – he had requested to be added to an expanded board – while preparing for a proxy fight.

“Certainly, a process which would have avoided $1.8 million in advisory fees for a full-blown proxy fight would have been preferable,” he said. “On the other hand, for a well-performing company whose outcomes suggest a board attentive to doing the right things for shareholders, it is difficult to understand what else the board might have done, other than capitulate, in its quest to do the right thing.”

ISS said its research team provides proxy analyses and vote recommendations for more than 34,000 meetings annually in more than 115 markets worldwide. Its recommendations have come up at other local companies in the last few years.

Last year, ISS recommended that shareholders of Buffalo-based Synacor side with dissident investors’ efforts to put three of their own on the board. But the dissident candidates were defeated.

In 2012 and 2013, ISS recommended National Fuel Gas Co. shareholders vote against an executive compensation program, but shareholders voted in favor of the proposal.


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