UPDATE: First Commerce Bancorp, Lakewood, NJ (CMRB)

A Case of Being Run Off the Road


Image of Young White Boy in Red Shirt with Skinned Knee beside Red Bike on the Ground
It's been five years since I reviewed First Commerce Bank, and I'm sorry to say it wasn't the good buy I thought it was. The Board's high ownership stake failed to incentivize doing the right thing the way it normally does. (See April 2019 Timyan Bank Alert post "A Case of Growing Too Fast.")

The photo I selected for the CMRB review series strikes me very differently today. This kid didn't fall off his bike. He was shoved.

Experts say the best way to deal with characters as self-serving and shameless as the folks running First Commerce is to Run The Other Way. Do Not Engage. Do Not Look Back. Someday I will learn.

CMRB is a Sell.

Disclosure: As of this posting, I no longer own shares of CMRB and definitely have no plans to purchase any ever again.


Prospective Buyers
This list has getting shorter and more paltry, because First Commerce squandered its best opportunities for a sale. The three remaining prospects listed here are overcapitalized underperformers that likely can't pay a premium:

Blue Foundry Bancorp, Rutherford, NJ (BLFY)
Columbia Financial, Fair Lawn, NJ (CLBK)
SR Bancorp, Bound Brook, NJ (SRBK)

Financial Snapshot
†as of 03/31/2024
Total assets:
$1.5B†
Tangible book value per share:   
$8.13†
NPAs to assets:
1.3%†
Price to book:
74%
Market cap:
$135M
Dividend yield:
2.7%
Trailing 12-month ROA:
0.8%†
Trailing 12-month ROE:
6.3%†

Scoundrels
Thomas P. Bovino, Chairman
Abraham M. Penzer, Vice Chairman
Donald Mindiak, President and CEO

The Skinny
Why I'm calling CMRB a Sell
  • The prospects for acquisition at a meaningful premium are bleak
  • Although First Commerce could still fetch an offer near today's book value of $8, I don't believe there's anything that would actually compel Management to take the franchise to market
  • No shareholder proposal has a prayer in this case, because Board ownership is still too high for it to garner enough votes
  • The stock is going nowhere due to mismanagement
Since my 2019 review of First Commerce 
  • The Board has waged two coups
    • First they ousted Chairman Abe Opatut, the bank's largest shareholder 
    • Then they voted successor Chairman Benedict Romeo and three other Directors off the board
  • Bank operations are suffering
    • Deposit costs are rising faster than loan yields
    • Reliance on office and other commercial real estate is too high
  • Nepotism is a likely factor
    • One of Director Gershon Beigeleisen's first moves upon joining the Board was to install his son on a speed-track from Teller to First Commerce Loan Officer
    • Per the rumor mill, there are more install-my-kid initiatives in the works
  • There's more self-dealing in the mix here than normal
    • Director Salvatore Alfieri bills the bank $200K per year for legal work through his firm
    • Vice Chairman Abe Penzer's only income is from title work he does on First Commerce Bank's loans, which has funneled $350K to $600K a year his way
    • New Chairman Thomas Bovino is allegedly campaigning hard to triple his own compensation

Sources
  • Confidential interviews with shareholders and analysts
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ES Bancorp, Staten Island, NY (ESBS)

Evading Shareholder Proposals, Non-SEC Filer Edition 


Photo of White Male in Black Suit Pulling Ace of Clubs from His Sleeve
For the most part, you can expect that a bank receiving a shareholder proposal will pull whatever tricks it can to avoid giving other shareholders an opportunity to vote on the proposal. That's the nature of the beast — banks deserving of shareholder proposals are by definition typically not run by Managers who naturally do the right thing by their shareholders.

Since my Timyan Bank Alert October 2023 post on the topic of SEC Rule §14a-8, I've delivered three shareholder proposals of my own, and am learning that the specific tricks a bank will pull can vary more than I had imagined.

My third shareholder proposal so far was to ES Bancorp / Empire State Bank. As a Non-SEC Filer, ES Bancorp had a special trick to pull, and has elected to withhold my proposal from the Proxy for their Annual Meeting this month. See below for The Skinny.

If you are an ESBS shareholder who isn't thrilled about being robbed of the opportunity to vote on Timyan's shareholder proposal, let Finkelstein and Guarnieri know.

Disclosure: As of this posting, I own shares of ESBS and may subsequently either dispose of them or purchase more.


Prospective Buyers
All four of these area banks have shown recent interest in growing via acquisition and would make better use of Empire State Bank's assets going forward than its current managers ever have, ever could, or ever will.

BCB Bancorp, Bayonne, NJ (BCBP)
Northfield Bancorp, Woodbridge, NJ (NFBK)
Spencer Savings Bank, Elmwood Park, NJ (private)
Unity Bancorp, Clinton, NJ (UNTY)

Financial Snapshot
†as of 03/31/2024
Total assets:
$628M†
Tangible book value per share:   
$6.67†
NPAs to assets:
0.2%†
Price to book:
76%
Market cap:
$35.3M
Dividend yield:
0.0%
Trailing 12-month ROA:
0.1%†
Trailing 12-month ROE:
2%†

Scoundrels
Andrew G. Finkelstein, Chairman
Philip Guarnieri, President and CEO
Michael P. Ostrow, Director 

The Skinny
Why Timyan Submitted a Shareholder Proposal to ES Bancorp

For a full quarter of a century, ES Bancorp's operators, Finkelstein and Guarnieri, have failed to earn even a modest return for shareholders. 

Management never lived up to its 1999 IPO projections, nor either of its later recap projections. Finkelstein and Guarnieri spurned a 2021 indication of acquisition interest by BCB Bancorp that was well above today’s ESBS stock price. And the pair is always chock full of excuses, blaming Covid, interest rates, local market forces — y'know, things every other banker in the nation faces.

In a merit-based world — which publicly held companies are supposed to be operating within — these guys should have been canned decades ago.

How ES Bancorp Got Around SEC Requirements to Publish Timyan's Proposal

SEC Filers that want to exclude your proposal from their proxy statement need to submit a formal No Action Request to the SEC and succeed in proving their case for exclusion. 

ES Bancorp is not an SEC Filer, so Maryland State Law dictates what's required and allowed in response to the bank's receipt of a Shareholder Proposal. 

Although Maryland State law on this matter is similar to SEC rules in most material regards, it requires no official ruling on grounds for exclusion of a proposal from the upcoming proxy statement. 

To enforce inclusion would require additional legal action, which is too late to pursue given the Annual Meeting is this month.

Word on the street has it that Finkelstein and Guarnieri are pretending the reason for excluding my shareholder proposal from the bank's proxy statement is that I allegedly withdrew it myself. On this matter, nothing could be further from the truth.

My shareholder proposal to ES Bancorp is neither deficient, nor withdrawn.

How to Determine Whether a Bank is an SEC Filer

The best way to tell whether a bank is an SEC Filer is to use the CIK Lookup page on the SEC Edgar website. 
  1. Visit https://www.sec.gov/edgar/searchedgar/companysearch 
  2. Enter the stock symbol for the bank to see if a record is found
All SEC Filers have a Central Index Key (CIK) tied to their stock symbol. Non filers don't, and won't show up in a CIK Lookup.

Sources
  • Confidential interviews with management, shareholders, and competitors
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LCNB Corp, Lebanon, OH (LCNB)

Shareholder Proposal Shenanigans at LCNB


Image of Unmasked Male Burglar Climbing Fence into Back Yard
As an investor stuck owning shares of several banks that deserve a kick in the pants, I took my own advice and delivered a few shareholder proposals of my own, as recommended in Timyan Bank Alert's October 2023 post.

Sadly, one of my proposals wasn't sufficiently air tight. Bad faith actors look for loopholes and technicalities to exploit. In my shareholder proposal to LCNB Corp, I made it too easy for LCNB to do what was perfectly predictable it would do.

If you are a qualified shareholder looking to submit your own proposal to an underperforming bank, please read my summary below of the weak link in my LCNB proposal, so your own proposal has a higher chance of success.
Disclosure: As of this posting, I unfortunately own shares of LCNB and may subsequently either dispose of them or purchase more.


Prospective Buyers
There's no shortage of competently managed, acquisitive banks that would happily and skillfully put LCNB's assets to better use for shareholders, customers, and communities. I'd be thrilled to see the bank sold to any of these three, in particular: 

First Financial Bancorp, Cincinnati, OH (FFBC)
Park National Corp, Newark, OH (PRK)
Peoples Bancorp, Marietta, OH (PEBO)

Financial Snapshot
†as of 12/31/2023
Total assets:
$2.3B†
Tangible book value per share:   
$11.16†
NPAs to assets:
0.0%†
Price to book:
84%
Market cap:
$199M
Dividend yield:
5.85%
Trailing 12-month ROA:
0.6%†
Trailing 12-month ROE:
6%†

Scoundrels
Spencer S. Cropper, Chairman
Eric J. Meilstrup, President and CEO
William G. Huddle, Director 

The Skinny
How Banks Respond to Shareholder Proposals

When you submit your shareholder proposal to a bank, the bank has a legal right to report any deficiencies it sees in your proposal via a No Action Request to the SEC. If you're submitting a shareholder proposal, you should be prepared for this possibility.

Banks operating in Good Faith won't bother. They'll put your proposal in the proxy for the next annual meeting and shareholders will get to vote.

Banks like LCNB will spend tens of thousands of dollars to find or invent "deficiencies" they hope will excuse them from legal obligation to allow the proposal to proceed to a shareholder vote.

Where Timyan's Shareholder Proposal to LCNB Went Wrong

Ultimately, one paragraph made it easy for LCNB to get around having to present my proposal for a shareholder vote.

The "deficiency" my proposal provided LCNB's outside counsel was a loophole that allowed the bank to pretend it had already met the Substantially Implemented Rule 14a-8(i)(10) by hiring an investment bank to – allegedly – "begin evaluation of the potential outcome of a sale or merger," rendering the need for a shareholder vote presumably unnecessary.

In reality, LCNB hired an investment banker to do exactly the opposite of what the bank represented to the SEC. LCNB has not begun and has no plans to begin "evaluation of the potential outcome of a sale or merger." It hired an investment banker only to pursue acquisition opportunities.

Two weeks after receiving my proposal, LCNB announced the acquisition of Eagle Financial Bancorp.

Remarkably, CEO Eric Meilstrup is now unabashedly broadcasting to reporters that his stated mission is decidedly NOT to pursue a sale of the bank as my proposal recommended and as he personally represented to the SEC, but to remain independent and to grow the bank via acquisitions. The scoundrel is quite gleeful to have deceived the industry's highest regulatory body and robbed LCNB shareholders of an opportunity to vote on the bank's strategic direction.

Stronger Language Timyan's Proposal Should Have Used

The loophole my proposal gave LCNB, was the "out" of being able to say it had already "[begun] evaluation of the potential outcome of a sale or merger."

As written, my proposal made it easy for LCNB to lie in its No Action Request to the SEC, in which the bank pretended its step of hiring an investment banker was sufficient action toward fulfilling the intent of my proposal, when the assignment LCNB gave the investment banker was directly counter to the proposal.

My shareholder proposal to LCNB included this paragraph:

RESOLVED, that the Stockholders of LCNB Corp recommend that the Board of Directors immediately engage an investment banking firm experienced in community bank mergers and acquisitions to guide the Company in promptly taking steps to merge or sell LCNB on terms that will maximize stockholder value.

Future shareholder proposals I present will include language more like this to preclude false claims of "substantial implementation":

RESOLVED, that the stockholders of the Company, believing that the value of their investment in the Company can best be maximized through a sale of the Company, hereby request that the Board of Directors promptly proceed to effect such a sale by (i) retaining a nationally recognized investment banking firm for the specific purpose of soliciting offers to acquire the Company by way of merger, asset sale or otherwise and (ii) establishing a committee of the Board of Directors consisting of directors, who are not current or former officers or employees of the Company or related by blood or marriage to a current or former officer or employee of the Company, and who otherwise qualify as independent directors, to consider and recommend to the full Board of Directors for approval the best available offer to acquire the Company.

Sources



  • Confidential interviews with shareholders, analysts, and Ohio bankers
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INFOGRAPHIC: Unionized Banks in the US


Click upper-right corner of infographic for download and print options.

See also February 2024 Timyan Bank Alert post Unionized Banking in the US.
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Unionized Banking in the USA

Bank Tellers Serving Elderly Male Customer
Those of you who follow Timyan Bank Alert closely know that I'm on a tear about unionized banks in the US.

Evaluating Amalgamated and AmeriServ's respective performance in the context of unionized banking has me seeing the recent Wells Fargo branch unionization in an entirely new light.

Disclosure: As of this posting, I own shares in ASRV, CNAF, and WFC, and may subsequently either dispose of them or purchase more.

A Brief History
There have been three waves of bank unionization in the US. Interest in organizing in the industry appears to surge every 50 years.

1st Wave (1920s)
At least 50 of our nation's oldest banks were unionized from the start. Of these, only three remain, but all can be said to be performing well.
  1. Amalgamated Bank of Chicago (1922)
  2. Amalgamated Bank of New York (1923)
  3. Bank of Labor, Kansas City (1924)
2nd Wave (1970s)
Three banks were unionized during the second wave. None are exemplary performers.
  1. AmeriServ, founded in 1901, unionized in 1971
  2. CNA Financial, founded in 1934, unionized in 1973
  3. Union Bank and Trust, founded by unions in 1976
3rd Wave (2020s)
Two recent labor organization successes suggest we are in the third wave of bank unionization. So far, Beneficial Bank has performed poorly since unionizing in 2020. How the Wells Fargo branch unionized in 2023 will perform remains to be seen. Is a third predictable, based on prior waves?
  1. Beneficial Bank and Trust
  2. Wells Fargo Albuquerque, New Mexico branch
Takeaways
There's a case to be made for increasing Union Ownership in US banks.

Generally speaking, unionized banks that were both founded by unions and maintained significant Union ownership have performed much better than their peers.

Four of the aforementioned unionized banks boast Union Ownership — the old-schoolers, plus 70's newcomer Union Bank and Trust:
  1. Amalgamated Bank of Chicago
  2. Amalgamated Bank of New York
  3. Bank of Labor, Kansas City
  4. Union Bank and Trust
The average ROA and ROE for these four banks are 1.2% and 18.3%, respectively, vs 0.4% and 6.0% for the two publicly traded peers that don't feature notable Union ownership (i.e., CNA Financial and AmeriServ).

It's not surprising today's bank tellers are expressing interest in organized labor. 

Frankly, many tellers are being financially exploited — and at the expense of taxpayers.

The US Bureau of Labor and Statistics indicates as much as 35% of America's bank tellers are making less than $15/hour.
 
According to a recent Axios article about labor organization efforts at Wells Fargo, as many as one in three bank tellers relies on some form of government assistance.” 

Bank profits are high enough that banks can afford to pay their workers a living wage, and societally, we should be expecting, encouraging, and if needed, requiring, them to do so.

There's no need and no excuse for US banking to be operating as a government-subsidized industry.

There's a case to be made for encouraging Teller Ownership in our banks.

Financial stewardship and fiduciary thinking are mindsets crucial to the DNA of a strong banking system. A bank that doesn't care about the financial well-being of all its stakeholders isn't a world class bank.

There's literally no bank in the nation that can't afford to gift some shares to every employee, getting them truly vested in the bank's performance.
Sources
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Amalgamated Financial Corp, New York, NY (AMAL)

Unionized Banking at its Best

Posting the January 2024 Timyan Bank Alert™ Review of AmeriServ Financial got me looking into unionized banks as a class. 

The Big Aha for me? There's both room and reason for Unionized Banking in America, and it can be done well. 

Unionized banks are a rarity in the US –– it takes a special banker to even know what to do with them, and those bankers are even more rare than the banks in this niche. 
 
Although there were 50 or so before the Great Depression, only six of 4,458 community banks left in the US today are unionized. Among them, Amalgamated is the top performer, and it owes its success to the good fortune of having been led by a non-traditional banker — Keith Mestrich.

Were AmeriServ or any other of the country’s unionized banks to engage Mestrich in any capacity, I would Follow The Leader and seriously consider buying shares in that entity.

Disclosure: As of this posting, I do not own any shares of AMAL.


Prospective Buyers

As attractive as the Amalgamated franchise is from a fundamentals standpoint, I don't see any acquisitive bankers in the area who'd be open to moving into unionized banking.

Financial Snapshot
†as of 12/31/2023

Total assets:$8B†
Tangible book value per share:   $18.74†
NPAs to assets:0.4%†
Price to book:125%
Market cap:$730M
Dividend yield:1.7%
Trailing 12-month ROA:1.15%†
Trailing 12-month ROE:17.1%†

Luminaries

Keith Mestrich, Former CEO
Lynne P. Fox, Chair
Priscilla Sims Brown, President and CEO

Gold Stars

Most of the Gold Stars that apply to Amalgamated now are attributable to Keith Mestrich, whom the bank hired in 2012. (Amalgamated had lost money in 4 of the prior 5 years.)

Despite being a “newbie” in the field, Mestrich managed the fundamentals of “normal” banking expertly, by:
  • Closing most of Amalgamated's 32 unprofitable consumer branches in New York,
  • Hiring talented bankers,
  • Bringing in needed low-cost deposit customers,
  • Cleaning up poor credit, and 
  • Introducing efficiencies in every corner of the bank.
Mestrich even grew Amalgamated's value via effective acquisition by:
  • Leading Amalgamated's purchase of the underperforming New Resource Bank in San Francisco, and turned it around, too. 
If you bought NWBN shares when the February 2014 Timyan Bank Alert™ Review of New Resource Bank and/or NRBC shares after our February 2017 Updated Review of New Resource Bank were posted, you have Mestrich to thank for the 281% and/or 194% bumps in value of those shares to what they're worth now in AMAL stock.

Even more impressive to me are the ways Mestrich brought unique value to the Amalgamated franchise and community by:
  • Embracing unions and unionization instead of fighting them; 
  • Building on the bank’s history serving diverse populations, including immigrants; and, 
  • Inventing profitable products and services for the union marketplace. 
In my perfect world, Amalgamated would scale the Mestrich game! 

Roll up some other unionized banks, bring Amalgamated's innovative products and superior service to their uniquely shared markets, and ring out their inefficiencies. 

Sources

  • Confidential interviews with analysts and shareholders

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UPDATE: AmeriServ Financial, Johnstown, PA (ASRV)

On the 10-year anniversary of my January 2014 Timyan Bank Alert™ Review of AmeriServ Financial, I'm disheartened to report that this bank is being run into the ground by a bunch of bumbling money grubbers.

ASRV is still flying under the radar in terms of coverage it gets from industry analysts and reporters, and I would still very much like to see it get on the radar, albeit for different — and less friendly — reasons.

My sincerest apologies to readers of my original post and/or 2017 Updated Review of AmeriServ. My only consolation is this: if you meet SEC Rule §240.14a-8 criteria, you could try submitting a Shareholder Proposal to change the bank's bylaws to make it easier to nominate a more independent slate of directors. 

Per AmeriServ's April 2023 Proxy, the window for submitting shareholder proposals is between January 27 and Feburary 26, 2024.

Disclosure: As of this posting, I own shares of ASRV and may subsequently either dispose of them or purchase more.


Prospective Buyers
AmeriServ has a unionized workforce, which likely acts as a poison pill for potential acquirers. 

The only acquisitive bank I can imagine might not be put off by this is Amalgamated Bank, which is also unionized.

Amalgamated Financial Corp, New York, NY (AMAL)

Financial Snapshot
†as of 09/30/2023
Total assets:
$1.361B†
Tangible book value per share:   
$5.11†
NPAs to assets:
0.4%†
Price to book:
55%
Market cap:
$55.9M
Dividend yield:
3.7%
Trailing 12-month ROA:
0.22%†
Trailing 12-month ROE:
2.82%†

Scoundrels
Jerome Michael Adams, Jr, Chairman
Jeffrey A. Stopko, President, CEO, and Head of Investor Relations
Allan R. Dennison, Former Chairman and CEO

Red Flags
The red flags about AmeriServ and ASRV are too many, for too long, to enumerate succinctly, but here are a few summative and recent highlights. 
  • With an efficiency ratio that's consistently running over 50% higher than the average bank (i.e., 85% vs 55%, respectively), AmeriServ is just too inefficiently managed to have a prayer of earning a competitive return on equity or assets under current leadership.
  • Note: AmeriServ can't blame its disastrous efficiency ratio on its unionized workforce — Amalgamated has a unionized workforce, too, and boasts a better-than-average 52% efficiency ratio.
  • In the first 9 months of 2023, AmeriServ blew over $2M just to keep shareholders from having the opportunity to vote on qualified candidates for the Board that a fellow shareholder with expertise in the banking sector (Driver Management) had recruited and recommended.
  • Had AmeriServ simply invested that $2M in a stock repurchase, they could have retired 4% of the company's shares, yielding an immediate 50% return to shareholders.

Sources
  • Confidential interviews with management and analysts
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