A proxy advisory firm has sided with Financial Institutions in Warsaw, N.Y., in its battle with an activist investor.

Financial Institutions said in a press release Monday that Institutional Shareholders Services has recommended that shareholders back the $3.4 billion-asset company's board nominees. Financial Institutions is facing a proxy challenge from Clover Partners in Dallas, which owns about 5.5% of the company's stock.

ISS said in its report that the board's strategy is driving profitable growth and that shareholder return appears to have "handily outperformed" peers. Clover "had not made a compelling case that additional change in the board level is warranted," the report added.

Clover, which has expressed frustration with Financial Institutions' recent nonbank acquisitions and has pressed the company to sell itself, presented its case to ISS on May 12, according to a regulatory filing from the investment firm.

The proxy battle has revealed rifts among members of the Humphrey family, which has long maintained a large ownership stake in the company. Peter Humphrey, a former Financial Institutions' president, said in January that he wanted to see the company find a buyer. Richard Humphrey, one of Peter Humphrey's cousins, recently sent a letter to the company's board that openly supported its strategy.

Financial Institutions will hold its annual shareholders meeting June 3. 

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