Princeton National Bancorp (PNBC): How I Voted – Proxy Score 12.5

Princeton National Bancorp ($PNBC) was one of the stocks in my portfolio. I sold it when they failed to file their proxy statement on time, since that looked to me like one more sign that PNBC is nearly a hopeless case. However, I can still vote the shares I held, since I sold well after the date of record. According PNBC’s proxy, the meeting “will be held at The Galleria Convention Center, 1659 North Main Street, Princeton, Illinois, on Tuesday, May 17, 2012.”  That seems to be yet another sign of incompetence, since May 17th is a Thursday.

Here’s part of my post back on February 1st.

David Monier reports that his proxy access proposal, which utilized model USPX language, will be included on the proxy of the Princeton National Bancorp, Inc (PNBC). See list of other proxy access proposals maintained by proxy maintained by ISS.

According to a 1/31/2012 e-mail from Lou Ann Birkey, Vice President – Investor Relations at PBNC to Mr. Monier:

Yes, your proposal will appear in the Proxy Statement.  The Company will include a statement in opposition to your proposal in the Proxy Statement; you should receive a copy of the opposition statement in February.

According to analysis by TheStreet released 1/29/2012, at third quarter 2011 book value per share was $11.75 but the company is bleeding badly.

Net income has significantly decreased by 85.1% when compared to the quarter one year ago, falling from -$1.91 million to -$18.83 million.

The stock price has dropped from more than $10 in 2010 to less than $1.50 as of today. That course is unsustainable. According to Yahoo Finance, top holders include:

  1. Dimensiona Fund Advisors
  2. Dowling & Yahnke Inc.
  3. Vanguard Group
  4. James Miller
  5. CalPERS
  6. Craig Wesner (Director)
  7. Thomas Ogaard (CEO, President, Director)
  8. Guggenheim Capital, LLC
  9. Northern Trust
  10. Colorado Public Employees Retirement Assn (PERA)
  11. Sharon Covert (Director)
  12. Todd Fanning (VP, COO, Director)
  13. Wells Fargo
  14. UBS AG
  15. Ameriprise Financial

Share price recently dropped to as low as $1.08. Shareowners should be clamoring for change.

Unfortunately, PNBC is so small that neither Moxy Vote’s proxy voting platform not had any voting recommendations, although it looks like at least one other shareowner used MoxyVote to cast their ballot. Normally, at this point, I go into an analysis of the pay package and evaluation of directors. However, in this case I have decided that problems at PNBC are so grave that I decided to simply withhold from all directors. I want to send the strongest message possible that change is needed.

My votes should be seen in the context of PNBC’s failure to make five scheduled dividend payments on Series B preferred shares.  Last month PNBC was notified it was no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the NASDAQ Global Market. Additionally, PNBC has a classified board, a poison pill with a 10% trigger and no shareowner ratification required, a plurality voting standard for director elections, does not provide shareowners with the ability to call special meetings and does not allow shareowners to act by written consent.

In that context, I also voted against approval of the executive compensation and for ratification of accountants… maybe they can help sort this out, since they have raised substantial doubt about the company’s ability to continue as a going concern.

Of course, I voted in favor of the proxy-access proposal I and other members of the United States Proxy Exchange (USPX or wrote, which was introduced by David J. Monier. This was the first one I’ve actually been able to vote in favor for. For more information, see Monier’s website, Passing this proposal will send a strong message to the current board and will increase the chances that new board members will be appointed and/or elected… if the bank doesn’t go under first.

ISS recommends against the proxy access proposal because it would, in their words:

enable holders of as little as $200,000 to nominate candidates to the company’s board. While this amount equates to four percent of the company’s market value, shareholders should still be concerned by this low bar, which would allow many individual holders of relatively few shares to wield considerable influence in the nomination process… and poses a risk that a shareholder group’s nominee may not bring the type of expertise and qualifications needed to add value to the board. Furthermore, such a low bar risks complicating elections and could undermine the efforts of larger, long-term shareholders whose interests might better reflect those of the broader shareholder base.

ISS seems to fail to take into account that such 4% groups of 100 shareowners would only be able to nominate one candidate each. At the heart of their objection is the assumption that individual investors aren’t qualified to assess potential candidates for nomination. That’s nonsense. Nominations should be as open as possible without clogging the proxy with unqualified candidates. Individual shareowners and small institutional shareowners should not be excluded from the nomination process.

This is more than an issue of fairness. Deliberative bodies tend to make better decisions when all opinions—not just those of a dominant few—are heard. Based on experience with Rule 14a-8 shareowner proposals, where individual shareowners and small institutional investors have often shown successful leadership, we have every reason to believe that nominations by those same shareowners, if permitted, will benefit corporations. Shareowner proposals come frequently from individuals shareowners but are supported institutional investors.

However, the proxy access proposal language doesn’t allow a single shareowner to propose a nominee (unless they have held at least 1% of the company for two years). It requires 100 shareowners to agree on a nominee. Getting 100 shareowners to agree on a nominee will be difficult but it seems much more likely if the nominee is highly qualified. There is little danger “a shareholder group’s nominee may not bring the type of expertise and qualifications needed to add value to the board,” as ISS contends and there is even less danger that should that occur, a majority of shareowners would approve an unqualified candidate over the board’s nominee.

Four of the top proponents of Rule 14a-8 proposals in 2011 were individuals or families. They submitted 358 proposals, while union affiliated submitted 130 and public pension funds submitted 96. While we appreciate the efforts of unions and public pension funds to improve governance at many corporations, we cannot depend on them to act on behalf of shareowners at every public company.  We must get retail shareowners more involved in governance and our proxy access proposal will help accomplish that goal. Please vote in favor of the proxy access proposal. Let shareowners decide who the most qualified candidates really are.

Mark your calendars; here’s the deadline for proposals by shareowners for next year (page 24), if PNBC pulls this one out and is still in business:

Any stockholder who intends to present a proposal (a “Proponent”) at next year’s Annual Meeting of Stockholders to be held in 2013 must submit the proposal in writing to the Corporation on or before December 13, 2012, in order for the proposal to be eligible for inclusion in the Corporation’s proxy statement and form of proxy for that meeting, pursuant to Rule 14A-8.

And here’s how I actually voted, using Moxy Vote’s proxy voting platform… voting with management only 12.5% of the time.


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