A feud between two founders of Touchmark Bancshares (TMAK) in Alpharetta, Ga., highlights the boardroom tension other community banks may be feeling.
A disagreement over Touchmark's strategic direction spilled over to investors after Vice Chairman Bobby Williams made a public appeal to sell the $135 million-asset company. He claimed in a May 6 letter that Jayendrakuma Shah, Touchmark's chairman and biggest shareholder, has lost perspective and evolved into an autocrat.
Shah refuses to consider selling because he is "emotionally invested in running a bank," Williams wrote. "Our friend has lost perspective of where his duty lies. Let's sell this bank and set us all free."
Directors at other banks likely share Williams' frustration as it gets harder to boost revenue and control costs, says Walter Todd 3rd, managing director of Greenwood Capital in Greenwood, S.C.
"I think this is a fairly common question that smaller players in any industry must evaluate," Todd adds. "There are inefficiencies of scale. It is getting harder and harder for banks [of their size] that to remain independent."
Williams launched a write-in campaign to remain on the board after Touchmark removed his name from its proxy ballot. He claimed that he was being punished for questioning the company's focus on Small Business Administration lending.
"Over the long term a single individual controlling an enterprise like ours is likely to end badly," Williams wrote.
Touchmark's annual meeting was held today, though the results were not immediately available.
Shah declined to comment. Williams, who is chief executive of a credit card processing company, and Jorge Forment, Touchmark's president and CEO, did not return calls seeking comment.
The dispute is the latest headache for Touchmark, which lost millions of dollars after its January 2008 debut. The company was unlucky with its timing and geography. It is located in Atlanta, a region dubbed the "circle of death" because of a high number of bank failures.
Touchmark has also suffered from management turnover. Its first CEO, former Washington Mutual executive Bill Short, left the company in 2010. He was replaced by Pin Pin Chau, a veteran banker who established a strong reputation by leading Summit Bank in Atlanta to a successful sale in 2006. Chau retired in July, and was succeeded by Forment, a former CEO of United Americas Bank in Atlanta, which failed in December 2010.
Touchmark lost nearly $11 million from 2008 to 2010, though it earned about $5 million from 2011 through last year. The company earned $290,000 in the first quarter.
But recent profits mask slim margins. The largest single source of profit over the last several years was a $3.7 million tax gain in 2012. Touchmark has also cut two branches to reduce costs, and now has just one location.
Touchmark's slim profits have spurred Williams, who owns about 2% of the bank's shares, to press for a sale.
"Who wants to invest with the prospect of waiting 15 or 20 years for a return?" he wrote in his letter, adding that Verity Capital Group in Winder, Ga., sold last year at a 115% premium to tangible book value to Community & Southern Holdings in Atlanta. A similar deal would nearly make Touchmark's investors whole, he added.
Shah is taking a longer-term view and wants to find a similar-sized bank to buy, investors say. Touchmark is overcapitalized and has cash on hand to make a deal. At March 31, its bank's Tier 1 leverage ratio was 18.92%, while its total risk-based capital was 24.2%, according to data from the Federal Deposit Insurance Corp.
Touchmark is "mindful of the need to leverage our capital" and is looking for an acquisition, Forment said in a May letter to shareholders posted on the company's website.
"We believe technology will be paramount to our success in the future and will allow us to compete despite having one location," Forment added.
There are plenty of interested buyers and sellers around Atlanta, which should help Touchmark regardless of what management decides to do. The key is for management and the board to choose one path or the other, industry observers say.
Atlanta "has improved quite a bit," says Lee Bradley, senior managing director of Community Capital Advisors in Duluth, Ga. Hamilton State Bank in Hoschton, Ga., and Community & Southern are among the banks that could have an interest in an institution like Touchmark, he adds.
Park Sterling (PSTB) in Charlotte, N.C., and First Financial Holdings (SCBT) in Columbia, S.C., are among bigger banks in nearby states that have bought institutions similar to Touchmark's size in recent years, Todd says.
Banks around Atlanta have been receiving better valuations in recent years, but industry observers say it is unclear if Touchmark could command the kind of return in a sale that would allow its founders to break even.
"Not only do you have the cost of being a bank that size and the inefficiencies of scale, but the fact that they're a public company adds another level of complexity and cost," Todd says.
Public wrestling on the board is unlikely to help matters.
Early on, potential investors raised questions about the board's makeup. Touchmark initially planned to have 25 directors, which would have been an unusually high number, says T. Stephen Johnson, chairman of Brightlane, a community banking consulting firm. Half of Touchmark's ten directors are doctors, which Johnson says is a potential problem.
"There's just not enough diversity in the makeup of the board," Johnson says. The problem would be the same if there were "too many lawyers, too many real estate developers or too many preachers."
There are also several family relationships on Touchmark's scaled-down board. Shah's wife and brother-in-law are directors, as is Williams' wife.
"It's not surprising to see them have this kind of internal turmoil," Johnson says, who agrees with Williams. "They need to just join up with one of these bigger banks."
Paul Davis contributed to this report.