Driver launches 3rd proxy battle against Pa. community bank in 2 years

Johnstown, Pa.-based AmeriServ Financial Inc. is now the third community bank in the Keystone State to face a proxy contest from Driver Management Co. LLC in the past two years.

A battle that began privately over two months ago has now turned public as Abbott Cooper, founder and managing member of Driver, nominated himself and two other individuals to AmeriServ's board and called for a "complete overhaul" of the company. With an 8.63% stake in AmeriServ as of Jan. 20, Driver is the company's top shareholder, according to S&P Global Market Intelligence data.

AmeriServ's financial performance

Starting in November 2022, Cooper began privately expressing concerns about AmeriServ's compensation practices and underperformance in letters to the company's chairman, Allan Dennison. In multiple subsequent letters, Cooper claims that Dennison cited the costs associated with AmeriServ's union labor workforce as the reason why the company's performance lags peers.

In an interview with S&P Global Market Intelligence, Cooper criticized AmeriServ's board for its "complacency" in allowing what he called "consistent underperformance" both relative to peers and on an absolute basis in terms of profitability as measured by return on assets, or ROA.

"They rarely break over 60 basis points ROA," Cooper said. "They don't really care about shareholders and shareholder value and they've traded under book value forever." The company was trading at 0.77x price to tangible book value as of Jan. 23.

In an email to Market Intelligence, however, a spokesperson for AmeriServ said the company's strategy has driven "strong" net income and earnings and diversified the bank's revenue streams.

AmeriServ's return on average assets for the last 12 months ended Sept. 30, 2022, was 0.62%, below a peer average of 0.88%. AmeriServ's peer group includes major exchange-traded Pennsylvania-based banks with between $500 million and $2 billion in assets as of Sept. 30, 2022. Three of those peers had lower ROAAs than AmeriServ in the third quarter of 2022.

In addition to ROAA, AmeriServ's efficiency ratio, deposit growth, loan growth and price-to-tangible-book-value lagged the medians for those 10 peers. The company's net interest margin, however, was 3.27% at Sept. 30, 2022, above the peer median of 3.16%.

AmeriServ's one-year stock return consistently outperformed those of the S&P U.S. BMI Banks Index and the S&P 500 during the period from Jan. 13, 2022, to Jan. 13, 2023.

A contested annual meeting

Given his concerns, Cooper launched a proxy contest and nominated himself and two other individuals — Julius Rudolph and Brandon Simmons — as candidates for election to the company's board, according to a regulatory filing on Jan. 17.

AmeriServ publicly shot back at Cooper's concerns in a Jan. 19 letter from Chairman Dennison, saying the bank could not "blindly agree" to Driver's demands, but will review the nomination materials. Dennison also wrote that AmeriServ already had plans in place to address board composition and corporate governance, counter to Cooper's accusations of "entrenchment."

"We now understand that Driver prefers to forgo constructive engagement in favor of running a public campaign and nominating director candidates for election," Dennison wrote.

According to Cooper, AmeriServ's board offered to refer his candidates to the nominating committee — a process Cooper was opposed to.

"I'm not going to put our nominees through some kangaroo court proceeding with the nominating committee that has no incentive to do anything but continue the status quo," Cooper said.

In the Jan. 19 letter responding to Cooper's nominations, Dennison wrote that AmeriServ previously "invited Driver to participate in AmeriServ's ongoing board refreshment process by asking it to provide director candidate biographies, make candidates available for interviews and submit related questionnaires."

Driver's history

As the founder of Driver, Cooper is no stranger to investor activism in the bank industry, particularly among Pennsylvania-based community banks.

In December 2021, Driver launched a proxy contest against Philadelphia-based Republic First Bancorp Inc. Ten months later, the parties struck a cooperation agreement, which included adding one of Driver's nominees to the company's board.

Driver's proxy contest with Codorus Valley Bancorp Inc. also came to a conclusion in 2022. Driver originally expressed concern about the York, Pa.-based company's performance in July 2021, Reuters reported.

In April 2022, Codorus Valley implemented a series of initiatives following engagement and input from shareholders like Driver, including the appointment of three new independent directors to its board. One appointee was from Driver's slate of proposed nominees.