Indifferent Investors Create Quorum Quandary for Banks

Investor apathy is making it hard for a number of community banks to get enough shareholders to show up at annual meetings and vote on key issues.

Earlier this year, a number of community banks disclosed that they lacked a required quorum under their bylaws to hold meetings. Most did not involve monumental decisions and largely went under the radar.

The issue took on greater significance when First BanCorp said it would delay a $560 million recapitalization plan by two weeks after failing to get enough votes to conduct a special meeting. Shareholders were to vote Tuesday on a plan to offer 150 million shares of common stock; the $15 billion-asset company has rescheduled a special meeting for Sept. 9.

"They have all this capital committed; you'd think their shareholders would show up," said Joe Gladue, an analyst at B. Riley & Co "Now, they are redoubling their efforts to get it done."

Gladue said it doesn't appear to be an investor protest. Rather, he said the company's shareholder base mostly includes retail investors who may not think their vote matters.

"Maybe some just figure that the big shareholders will decide it and they are too small to matter," Gladue said. "It has been going on so long that maybe some investors might even think it is a done deal."

Changes to the proxy system have also made the process more challenging for retail investors, said Chip MacDonald, a partner at Jones Day. Companies are no longer obligated to send shareholders the entire proxy statement. If shareholders want that, they must go online.

"As a shareholder you have to be your printing center," MacDonald said. "That can be very cumbersome."

There are other reasons, observers said. Brokers are very limited in their ability to vote for their clients. The dog days of summer present a challenge, too. So has Hurricane Irene. "Summer really does complicate things," MacDonald said.

Joe Morrow, the chief executive of Morrow & Co., a proxy solicitation firm, said voting is always a difficult process, so companies must be better prepared when trying to pass a measure. (Morrow's firm is working with First BanCorp, so he declined to comment on the company and its efforts.)

"People tend to be apathetic toward voting. We are lucky to get half the people in the country to vote for the president," Morrow said. "You really have to set this up like a battle campaign."

First Bancorp's early results are positive so far, with 92% of shareholder votes voting in favor of the issuance. The company did not return a call seeking comment.

The company's capital plan includes Thomas H. Lee Partners LP and Oaktree Capital Management LP, private-equity groups that plan on investing a total of $525 million. The company would also hold a rights offering for another $37.3 million. All the shares would be priced at $3.50 a share.

That capital would allow the San Juan, Puerto Rico, company to convert its $422 million in preferred shares from Troubled Asset Relief Program into common shares.

Regulators have ordered First BanCorp's bank to have a leverage ratio of 8% and a total risk-based capital ratio of 12%. At June 30, the bank's leverage ratio was 7.85% and its total risk-based capital ratio was 12.14%.