Investors at Mid-Southern Bancorp in Salem, Indiana, voted in favor of a shareholder-driven measure to hire an investment banking firm to explore a possible sale.
J. David Rosenberg, owner of 46,000 shares of Mid-Southern, put forward the initial proposal that called for the prompt hiring of an investment bank “with experience in community banking M&A” to guide a sale.
Alex Babey, executive director of Mid-Southern, did not respond to a request for comment.
The measure was approved in a non-binding vote during the company’s annual meeting in late May with nearly 1.2 million votes cast in favor of the proposal and around 920,000 votes against. Another 59,000 votes abstained. Rosenberg told American Banker that he was “moderately surprised” by the outcome, as he did not solicit any support for the proposal.
In his proposal, Rosenberg called Mid-Southern’s performance “disappointing,” citing that the bank’s tangible book value (TBV) per share declined from $15.42 in December 2021 to $10.74 in September 2022. He attributed this in part to unrealized losses on available-for-sale shares. values.
Rosenberg also blamed this decline on the company. buy back your own shares at a large premium to TBV in 2021, diluting other shareholders. The bank repurchased 139,000 shares from an unnamed activist investor at 13.7% above the share’s closing price the day before. At the time, other shareholders were angered by the news and demanded clarity from management about the transaction.
Rosenberg also wrote that Mid-Southern’s earnings per share were not satisfactory. Mid-Southern earned 55 cents a share for the nine months ending Sept. 30, representing an average return on equity of about 5.13%, he said. He noted that the bank’s share price has remained largely stagnant since the company went public in 2018.
“I believe it is unlikely that Mid-Southern shareholders will receive an acceptable return on their investment in the foreseeable future through the continued independent operation of the company,” Rosenberg wrote in his proposal. “Conversely, the sale or merger of the company with a larger financial institution will likely provide shareholders with a substantial premium over current market value. Mid-Southern should take advantage of rapid consolidation in the banking industry by selling or merging the company “.
But more broadly, Rosenberg argued that the bank’s small size was a handicap in an industry where scale matters. Mid-Southern’s banking unit, Mid-Southern Savings Bank, has about $266 million in assets.
“I spoke to their president a year ago, in May 2022, and I urged them to start looking for a sale opportunity at that time. My point was that they were too small to succeed as an independent bank,” he said during an interview with American Banker. .
In a letter a week and a half before the vote, Dana J. Dunbar, president of Mid-Southern, urged shareholders to vote against the proposal to seek a sale, citing recommendations from advisory firms Glass Lewis Co. and Institutional Shareholder Services to vote against. Rosenberg measure.
In both that letter and an earlier statement opposing the board’s Rosenberg proposal, Dunbar warned that “actively seeking a buyer” would create unnecessary uncertainty, especially during the “current state of volatility in the credit and capital markets.” . Bank stocks have taken a hit this year after the failure of three large regional banks. The KBW Nasdaq banking index is down 20% since the start of the year. Rising interest rates also hurt the value of Mid-Southern’s portfolio of securities and contributed to broader market turmoil, the company argued.
The board said it was open to potentially selling when market conditions had improved, citing previous meetings with two investment bankers in the past year.
“The board will continue to periodically review the business and prospects of the company and, as part of the review and consistent with the exercise of its fiduciary duties, will consider whether strategic alternatives, such as the sale of the company, will enhance value to shareholders. shareholders”. said the opposition statement.