Hailed when it was announced in February as a savvy move that promised to bring an activist investor inside the fold and head off a bruising proxy fight, Yardville National Bancorp's consulting deal with Lawrence B. Seidman has all but collapsed.
Mr. Seidman said that the Hamilton, N.J., company's management refuses to provide him with information about Yardville's strategy.
"I don't have any access," he said in an interview Monday. "Every time I've been scheduled to meet with the board of directors, the meeting has been canceled." The Parsippany, N.J., investor acknowledged that Yardville president and chief executive Patrick M. Ryan takes his calls. But "being a consultant involves getting information and having discussions" with decision makers, Mr. Seidman said.
On Nov. 10, Mr. Seidman, who owns or controls nearly 8% of Yardville's outstanding shares, returned his monthly retainer - about $2,700 - to the company and asked to be released from the agreement.
Mr. Ryan disputed Mr. Seidman's claims. He said Monday that the $3 billion-asset company has abided by the agreement and has always listened to Mr. Seidman's input, though he did not specify what advice Mr. Seidman offered, or if the company ever acted on his advice. He added that Yardville would not agree to Mr. Seidman's request to terminate the deal early but that he expects Mr. Seidman to initiate a proxy contest after it does expire on Jan. 31.
"He has indicated to me that he is unhappy … and he feels he has to pursue his rights through a proxy or some other means," Mr. Ryan said in a phone interview.
Joseph Fenech, an analyst who covers Yardville for Sandler O'Neill & Partners LP, praised the arrangement when it was announced but said Monday that he "would not be surprised" if Mr. Seidman - a well-known activist investor - launches a proxy fight seeking representation on Yardville's board.
In a report he issued in February, Mr. Fenech noted that 13 of the 18 banking companies Mr. Seidman targeted between 1995 and early 2005 ended up selling themselves. He is "someone who has to be taken seriously," Mr. Fenech said Monday.
Mr. Seidman would not say whether he was considering launching a proxy fight challenging management or whether he would push Yardville to sell itself. He said that the failure of the consulting agreement - his first with a company in which he is an investor - a bitter disappointment to him and that he would probably never consider another deal like it.
Mr. Fenech said that recent stumbles in Yardville's performance could provide Mr. Seidman with some potent ammunition.
In August the company signed an agreement with the Office of the Comptroller of the Currency promising to bolster its capital levels as well as its credit administration and internal audit functions.
It followed that news up by disclosing in its third-quarter 10-Q report, filed with the Securities and Exchange Commission on Nov. 10, that nonperforming loans had jumped by $8.7 million in recent weeks, requiring an increase in the allowance for loan losses.
As a result, fourth-quarter earnings "could come in below consensus expectations" of about 39 cents a share, Mr. Fenech said.
Said Mr. Seidman: "Mr. Ryan called the problems 'bumps in the road.' I just hope these 'bumps in the road' don't push us off the road."
To be sure, not all the news for Yardville has been bad. The company said its expansion plans are on schedule, with five branches opened since the beginning of 2003 and as many as 14 more planned over the next three years. And for the first nine months of 2005 it reported a profit of $16.6 million, up 20% from the like period in 2004.
Mr. Ryan's outlook for 2006 and 2007 is bullish. He noted that several five-year, no-call Federal Home Loan Bank advances will expire in 2006, giving Yardville the chance to replace them with lower-cost deposits or borrowings. Moreover, he said the rising interest rate environment can only help the company, since it is asset-sensitive.
"We're aware of the need to perform," he said. "We're not at the level we think we can achieve in 2006 and 2007."
Under the consulting agreement, Mr. Seidman is supposed to advise Yardville on possible acquisition targets. The deal also forbids him from criticizing Yardville publicly, mounting a proxy contest, or suing the company, and requires him to vote his shares in favor of management initiatives.
