Bank battle: VNB titan wants back in (and Craig out)
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.Read more on: Virginia National Bank