Slide 1: Schedule 14A Proxy Statement cover
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant ☐ Filed by a Party other than the Registrant ☒ Check the appropriate box: ☐ Preliminary Proxy
Slide 2: Important Information and Participants in Solicitation
Filed by Clover Partners, L.P. The Participants (as defined below) have made available a presentation regarding the proxy solicitation. A copy of the presentation is attached hereto. The presentation is being filed herewith under Rule 14a-12 of the Securities Exchange Act of 1934, as amended, by the
Slide 3: [See attached presentation]
[See attached presentation]
Slide 4: Financial Institutions, Inc. (FISI) Presentation to ISS
Financial Institutions, Inc. (FISI) Presentation to ISS May 12, 2016 Clover Partners LP
Slide 5: Business Overview
Business Overview q Financial Institutions, Inc. (“FISI” or “Company”) operates as the bank holding company for Five Star Bank that provides banking products and services to individuals, families, and businesses in Western New York. q FISI’s loan portfolio is comprised of commercial real estate loan
Slide 6: Timeline
Timeline q On August 11, 2015, Clover began accumulating shares of the Company’s common stock. q On November 11, 2015, Representatives of Clover met with the CEO and CFO of FISI at the Sandler O’Neil Conference. Clover expressed our dismay with the SDN acquisition and related dilution (30 year earn
Slide 7: Timeline (cont.)
Timeline (cont.) q On January 28, 2016 Members of FISI’s executive management team met with Mr. Guerry (Managing Partner) and Michael Mewhinney (Partner) of Clover Partners, L.P., to further discuss the Company’s business and strategy. At this meeting, Mr. Guerry expressed his interest in being appo
Slide 8: Timeline (cont.)
Timeline (cont.) q On April 1, 2016, the Clover Group delivered a letter to the Company to provide notice of its intention to nominate two director candidates, including Mr. Guerry, for election to the Board at the 2016 Annual Meeting q On April 26, 2016, FISI reported 1Q16 earnings results and disc
Slide 9: Why Change is Needed?
Why Change is Needed? q In the last 18 months, FISI has purchased two fee-based businesses which have destroyed approximately $24 million of shareholders’ tangible capital, and we estimate this is worth $52.25 million - $56 million in lost value to shareholders in the event of a sale of FISI. Furthe
Slide 10: Fee-Based Acquisitions
Fee-Based Acquisitions q In 2014, FISI acquired Scott-Danahay Naylon (SDN), which is an insurance brokerage firm. This acquisition resulted in the dilution of approximately $19.3 million in shareholders’ tangible common equity. The earn-back associated with this dilution was estimated at 20 years. q
Slide 11: FISI's Profitability and Capital levels
FISI’s Profitability and Capital levels - FISI’s valuation is rich, given it’s profitably, and capital levels are thin
Slide 12: FISI underperforms peers
FISI underperforms peers Reference peers on slide 8 9
Slide 13: FISI's compensation policies are misaligned with shareholders
FISI’s compensation policies are misaligned with shareholders In FISI’s 2016 proxy statement, the Company outlines the performance metrics for the Annual Cash Incentive Plan awarded to management. Based on the metrics in the exhibit below, management is incentivized to bolster Relative Return on Ave
Slide 14: Total Return Performance
Total Return Performance Total Return Performance 220 200 Financial Ins titations, Ine. +--+ NASDAQ Composite 180 — <> SNL Bank $1B-$5B Index 1241410 1241A1 12/31A2 12/31/13 12/3114 121A. Source: FISI 10K Filing Period Ending Index 42/31/10 42/32/12 42/31/12 42/31/13 42/31/14 42/31/15 Financial Inst
Slide 15: 1, 3, and 5 Year Total Return Performance (TRP)
1, 3, and 5 Year Total Return Performance (TRP) FISI SNL U.S. Bank $1-$5 Billion Index 1 Yr. TRP 15.04% 11.94% 3 Yr. TRP 66.38% 70.20% 5 Yr. TRP 73.96% 91.39% 12
Slide 16: This contest could have been avoided
This contest could have been avoided, and the facts suggest that FISI did not deal with us in good faith q FISI’s board determined they would rather spend $1.8 million of shareholders’ money in a proxy contest than add one representative from Clover as a director. Notably, Clover owns a greater perc
Slide 17: Contest could have been avoided (cont.)
Contest could have been avoided (cont.) q In FISI’s 1Q16 earnings report, they disclosed the bank had already spent $360,000 by March 31, 2016 dealing with an activist shareholder. How is that possible if they were seriously evaluating Mr. Guerry and did not reject him until March 25, 2016? Furtherm
Slide 18: FISI's stock price seems to be reacting favorably to our involvement
FISI’s stock price seems to be reacting favorably to our involvement 15
Slide 19: FISI's stock price reacting favorably (cont.)
FISI’s stock price seems to be reacting favorably to our involvement (cont.) - Based on our past experience, logic would suggest that a loss by our candidates may result in an unfavorable reaction in the stock price and thus a lower shareholder return. This logic played out in a prior proxy contest
Slide 20: Sale could result in meaningful upside for shareholders
Sale could result in meaningful upside for shareholders without any execution risk q FISI’s former CEO (Peter Humphrey) has publicly stated he believes a sale is in the best interest of shareholders. q Another member of the Humphrey family recently sent a letter to FISI in opposition of Clover and r
Slide 21: Questionable corporate governance practices
Questionable corporate governance practices q FISI incorporates the following shareholder unfriendly corporate governance practices: – Classified board. – The board is authorized to issue blank check preferred stock. – The Company has a plurality vote standard without a director resignation policy –
Slide 22: Our Plan
Our Plan qComprehensive strategic analysis- “buy, sell or hold” qHalt future acquisitions that result in meaningful dilution with long earn back periods qRealign management compensation policies qDeep analysis of the bank’s earnings potential and capital position 19
Slide 23: Our Nominees
Our Nominees q Terrell T, Philen, Jr.: q Since September 2014, Mr. Philen, age 61, has been the Chief Financial Officer of Custom Extrusions Holdings, LLC. From 2010 to July 2014, Mr. Philen worked at Alan Ritchey, Inc. & Affiliates, first from 2010 to 2013 as Chief Financial Officer and from June 2
Slide 24: Our Nominees (contd.)
Our Nominees (contd.) q Johnny Guerry: q Mr. Guerry, age 34, joined Clover Partners, L.P. in 2004, and was named a partner of the firm in 2007. Mr. Guerry is the portfolio manager of MHC Mutual Conversion Fund, L.P., which primarily invests in small community banks. Mr. Guerry has managed the fund s