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TMCNet:  FNCB settles shareholders' lawsuit [The Times-Tribune, Scranton, Pa.]

[December 04, 2013]

FNCB settles shareholders' lawsuit [The Times-Tribune, Scranton, Pa.]

(Times-Tribune (Scranton, PA) Via Acquire Media NewsEdge) Dec. 04--The directors and officers of First National Community Bank have settled shareholders' legal claims against them, clearing a major hurdle in the restoration of the bank's fiscal health and public image.


In exchange for $5 million and a host of governance changes, shareholders will drop their claims of negligence and a breach of fiduciary duty levied against the directors and officers of the bank in their posts as the institution lost tens of millions of dollars and the company's share value plunged more than 80 percent.

FNCB directors and officers deny any wrongdoing in entering the settlement, moving to "eliminate the potential burden of distracting and costly litigation," the settlement reads. The settlement was filed with the Securities and Exchange Commission Wednesday afternoon.

In a prepared statement, Scranton attorney Joseph Solfanelli, who filed the suit on behalf of shareholder Lori Gray, said the settlement will benefit shareholders.

"This settlement addresses every issue raised by FNCB shareholders in a fair and equitable manner," he said. "The cash payment, combined with substantial corporate governance reform, provides tremendous value to the shareholder while positioning FNCB for future growth and success." According to the agreement filed with the Securities & Exchange Commission, the bank agreed to add two new independent directors to the board who must pass regulatory review. The bank will adopt additional safeguards to mitigate risk and strengthen loan standards. The boards' audit and risk management committees will be required to include one of the new directors.

FNCB general council Mary Griffin Cummings said once a judge approves the settlement, the board will begin vetting candidates for appointment to the board and have them in place "as soon as practicable." Ms. Gray filed the initial claim, known as a derivative shareholder action, in Lackawanna County Court in May 2012. Another shareholder, Frank Lombardo, was contemplating filing a similar suit and later joined in the settlement.

Unlike a class action lawsuit, a derivative action is filed by shareholders on behalf of the company against the company's officers. Damages will be payable in the amount of $2.5 million to the banking corporation where it will contribute to bank capital. The other $2.5 million will be paid to plaintiff's attorneys: Mr. Solfanelli who represented Ms. Gray, and Richard Greenfield, who represented Mr. Lombardo. Another law firm, Faruqi & Faruqi, who participated in the case early on was not mentioned in the settlement, but is likely to receive a piece of the settlement.

The attorneys' fees were determined at a mediation headed by retired U.S. District Court Judge Edward N. Cahn.

The bank is still embroiled in a separate lawsuit with the provider of what is commonly called errors and omissions insurance, Fidelity and Deposit Co. of Maryland. The insurer seeks to have its policy covering directors and officers declared void by a judge, claiming FNCB officials withheld information on their insurance application.

Bert Ely, an Alexandria, Va.-based independent consultant to financial institutions, said the resolution will help the once-struggling bank.

"The money goes into the bank, presumably the bank will be stronger because of it and the shareholder will benefit," he said.

While the dollar value of the governance reforms are arguable, they may be of some benefit to shareholders, too, he said. "We can be cynical, but let's not be completely cynical," he said. "Plus, reaching an agreement on this certainly won't hurt them as they try to smooth things over with regulators." FNCB has been working under the heightened scrutiny of regulators for three years as it worked to comply with conditions set out in a consent order. In the last several fiscal quarters, the bank reported profits.

Contact the writer: dfalchek@timesshamrock.com ___ (c)2013 The Times-Tribune (Scranton, Pa.) Visit The Times-Tribune (Scranton, Pa.) at thetimes-tribune.com Distributed by MCT Information Services

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