Shareholder Proposal Shenanigans at LCNB
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)
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Financial Snapshot
†as of 12/31/2023 |
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Scoundrels
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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:
Future shareholder proposals I present will include language more like this to preclude false claims of "substantial implementation":
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Sources
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