Bank battle: VNB titan wants back in (and Craig out)
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In December, Giles quit the bank board over 'governance' issues which appear to point to Craig.hawes spencer
Just days before the annual shareholders meeting, former Virginia National Bank chairman Mark Giles, whose Christmas-time resignation led a wave of defections from the board of directors, has fired a shot across the bow of the ship he once captained. He's offering a "proxy contest," a power battle that might include an attempt to reclaim a leadership role at an institution that's been rocked by hints that it has been run more like a private club than a publicly held company.
"Many shareholders and customers have asked me if I would return to the board," Giles writes in a mid-March letter to VNB chair William Dittmar. "A great board can be a tremendous driver of shareholder value."
Giles goes on to recommend a slate of would-be directors who would be interested in serving only if Giles returns to the board. Conspicuously absent from the Gilesian slate is one of the bank's founders and its largest shareholder: Hunter Craig.
But coming on strong is the second-largest shareholder: Giles.
Having served as VNB's founding president from 1998 until he quietly withdrew from the executive role in 2007, Giles now holds 214,356 shares of the company, about eight percent of the stock.
To banking observer Richard Spurzem, recent moves by Giles clarify the "governance" issues to which Giles so cryptically alluded upon his December 19 resignation. Giles seems to be contending that Craig– who is suing the state to claim millions in taxpayer cash for a flopped real estate speculation called Biscuit Run– is bad for business.
In a government form he filed in May, seven weeks after his letter to chairman Dittmar, Giles complains that unnamed directors holding over 16 percent of company stock– which VNB's own documents confirm as Craig and father-in-law Wick McNeely– have pledged their VNB shares as collateral to an "in-market competitor" bank.
Giles further claims, in what's known as federal form 13D, that "significant business connections and interdependencies among various directors "have quashed the stock's value" and sent a "chilling effect" toward investors.
"I gave that 13D filing a lot of thought," Giles tells a reporter via voicemail. "And I stand by my filing in its entirety."
Spurzem amplifies what Giles hints at: that VNB is populated by Craig cronies, "good old boys" so enmeshed with each other that they've taken their eyes off any corporate board's primary purpose: delivering shareholder value.
Spurzem points out that 14 years after the stock went public, VABK.OB trades for barely 50 percent more than the original issue price and that even that has been propped up by share-buying board members. Spurzem contends that the bank has jeopardized earnings by spending too much on employee salaries, a situation that contributes to an alleged inability to muster sufficient cash to buy other banks.
"Charlottesville is a great market," says Spurzem. "They should be making money hand over fist, and they could be buying banks that are in trouble."
VNB president Glenn Rust, however, disputes such assertions. While declining to address Giles's potential battle for the board other than calling it "unfortunate," Rust says VNB is coming off a strong quarter that saw earnings leap from 11 cents to 19 cents per share compared to the same period a year ago.
"We had a really good first quarter," says Rust. "I'm more about staying focused on the future."
As for the debt-soaked shares held by Craig and McNeely, the latest VNB proxy statement notes that both men have "represented that these VNB shares are pledged to another financial institution as collateral for a loan unrelated to any real estate project or development," a statement that seems designed to downplay any taint from Biscuit Run.
While phone messages left for Craig and McNeely went unreturned, President Rust says that even if any pledging directors defaulted, their VNB shares would simply be sold on the open market like a foreclosed house.
"That's a conversation that keeps persisting," says Rust, disputing the notion that a competitor would gobble VNB. And as for raising money, Rust notes, "We would not have trouble getting access to capital if we wanted to buy another bank."
Chairman Dittmar also disputes things Giles alleges– including a claim Giles made to the government that he received "no response" to his March letter. "I immediately called him," says Dittmar, "and we spoke about it that day."
As for worries over pledged shares, Dittmar says there shouldn't be any. Dittmar says the bank invited multiple lawyers as well as the U.S. Office of the Comptroller of the Currency to determine whether pledging matters.
"The OCC's view was that if you stop directors from pledging their stock, then they won't want to be directors, and that's a bad thing," says Dittmar.
Rust and Dittmar urge a reporter to buy a share or two, which would allow him entrance to the next shareholders' meeting, which is slated for Monday, May 21 at the Boar's Head Inn. "It might be really boring," Dittmar warns.
7 comments
Mr Giles is correct when he says that the pledging of such a large share of stock to a competitor bank shakes the confidence of potential shareholders. It is not illegal, however it is no different than if Mark Zuckerberg pledged his shares in Facebook to Linked-in so he could use the money on an anonymous project. I am sure that might make shareholders queasy. If Hunters Craigs shenanigans catch up to him VNB could have a competitor swoop in and become the largest shareholder.
The proclamation about access to capital for aquisitions is disingenuous in that it is obvious that VNB would most likely face much more scrutiny, and possess less leverage to get that money while Hunter Craig is in the picture. While he has "friends" he also has a lot of people in the business world who see what he is doing to the taxpayers with Bisquit Run and have no inclination to get into the bus with him having access to the steering wheel.
If Hunter Craigs shares needed to be surrendered the odds are that they would NOT nessasarily be sold on the open market like a forecosure. It is possible that the holding bank could work out a deal to own them for a while in a negotiayed deal to gain access to VNB. Hunter Craig could also sell the entire block to a partner in a loan rengotiation of sorts so that he can stay on the board.
It is obvious that the Bank is simply playing down everything in the interest of the near term stock price. Thats too bad. The long term price is what come first.
I have heard of at least one local bank looking for a buyer and have been surprised that VNB has not stepped in - maybe this article explains why. Ask local folk if the Biscuit Run debacle and ties to VNB have shaken their confidence - I would love to see the results of that poll.
If I recall correctly, back in the dark days of the financial meltdown Craig bought the old Jefferson Nat'l Bank building from Wachovia for somewhere in the neighborhood of $7M despite its assessed value of $20+M. Now I'm wondering wouldn't he have had a duty as a director to pass that opportunity on to VNB? And then only proceed individually if they passed on it? If I was a director of a business that operated banks in the Charlottesville area and a bank building in that area came on the market (publicly or privately), I'd consider it a corporate opportunity first, and a private one only if they deferred. I wonder if he did?
The salaries ARE inflated. In 2011, the CEO made close to $300,000 and the Senior Loan Officer $150,000. All officers except for the Orange branch make at least 100,000 annually.
Compare those salaries to banks of similar size and setting you will find that are pretty much in line. To attract talent you have to pay market rates.
As a non shareholder I offer the following:
It would be interesting for someone to create a chart of all the interconnectiveness of the BOD with VNB loans and personal profiles. Who knows, we all might learn a few things of interest?
It would be terrible day in VNB life if this community was subject to a form of spiral (concentrated interlinked loan) risk that has destroyed other banks. I don't believe this is the case but- one never knows till it's confirmed.
Plus, it would be shame to create another local bank that has served this community so well under Giles leadership. This all occuring before his "resignation" and not removal.
Current VNB management needs to address the issues, hidden or not, so the community of customers, depositors and shareholders can digest the information and take action if needed.
Afterall the truths do finally surface- why not address them and move on- and I would hope the annual meeting would be open to all interested parties and not just shareholders.....Otherwise it's just another form of information elitism. Don't the depositors have say as well?
With that said it's going to be an interesting year of informational development.
Good luck to all.
@Insider What do you expect them to make? Most of those officers are incredibly experienced commercial lenders. They are folks who have been lending for 25+ years and generate a load of revenue for the bank. The senior lenders at VNB probably have more combined commercial and business loan experience than all of the the rest of the local business bankers combined. It's exactly how and why Mark Giles targeted them when he was building the bank.
I think the shareholders should vote Mark back in.