Embassy Bancorp in Bethleham, Pa., is facing a shareholder proposal to find a buyer.
The $1.7 billion-asset Embassy disclosed in its proxy statement that the investor, who has a roughly 0.2% stake, claims the company is underperforming and has taken issue with a corporate lease agreement with an entity that includes directors and executives among its owners.
The shareholder that Embassy’s 0.61% return on assets is suboptimal and reflects a mismanaged balance sheet. The investor believes an acquirer could more effectively manage the assets and liabilities and reduce costs, especially fixed expenses tied to real estate.
At the heart of the shareholder’s argument is Embassy’s lease agreement with Red Bird Associates, the entity that owns the company’s headquarters. In 2023, Embassy paid $624,971 in rent for the property. The investor contends that the rent exceeds the property’s assessed value and may reflect a conflict of interest, particularly as the lease is set to renew on March 1, 2027.
Embassy’s board encouraged shareholders to reject the proposal and firmly denied any suggestion of self-dealing or misalignment.
Embassy noted that six of Red Bird’s seven owners are members of the company’s board or executive team, and those individuals collectively own about a fifth of the banking company’s stock—representing a strong alignment with other shareholders.
Further, the board said the lease was originally negotiated with an unaffiliated third party, and Red Bird simply assumed the lease during its purchase of the building in an arm’s-length transaction. Embassy said it had purposefully kept lease renewal terms limited to five-year increments, and all renewals are subject to approval by a majority of directors who do not have a stake in Red Bird.
In response to claims about overpayment, the board argued that the investor misunderstands Pennsylvania tax assessment law. While the assessed value of the property is listed as $1.1 million, the “common level ratio” for Northampton County is 5.49, resulting in an implied fair market value of about $6.1 million. This figure is supported by a 2016 appraisal valuing the property at $6.2 million, as well as more recent market analyses.