Friendly Hills Bank Shareholder Frank Kavanaugh Releases Public Letter to Shareholders ($FHLB)

Friendly Hills Bank is a small bank in Whittier, California (a city in Los Angeles County) that was founded as a community bank in 2006. The shares are OTC-listed (ticker FHLB) and trade for around $10, which is about the same as the IPO price a decade and a half ago. We did several posts about rising activist pressure at FHLB earlier this summer:

Since we last wrote about it, the company has announced that incumbent CEO Jeffrey K. Ball, Chief Executive Officer is moving on to greener pastures, "in connection with his desire to pursue other business opportunities." 

We also saw that Frank Kavanaugh, a long-term shareholder of Friendly Hills Bank, released a public letter to shareholders of FHLB yesterday:

November 22, 2021

Dear Fellow Friendly Hills Shareholders,

We are a group of shareholders that represent more than 25% of the outstanding shares of Friendly Hills Bank (“Friendly Hills” or “the Company”). We have long been concerned and dismayed by the inability of management and the Company’s board of directors (the “Board”) to create value for shareholders, and we believe that it is time for that to change.

Soon, you will receive proxy materials from us in which we outline our vision for a better future for the bank and its employees and customers. In our view, any change must start by refreshing the Board with the addition of new, independent members who understand the bank, its history and its mission, and who are committed to make Friendly Hills responsive to its stakeholders rather than a piggybank for its current Chairman, Vice Chairman, and CEO.

We urge you to consider the following recent failures of the Company’s management and Board, which we believe have destroyed tremendous value for shareholders:

  • June 2021, the Board approved a poorly conceived, strategically flawed merger that cost shareholders $0.66 per share in Q3 2021 alone, by reducing net tangible value to $9.56 while burying additional losses in a 10-year expense recognition. 
  • Bloated, top-heavy management, with four executives earning more than $200,000 in base salary (with bonuses & expenses the annual amount is over $1 million). 
  • Over the past five years, the Company’s return on assets has been mired around 0.45% - for comparison, well-run banks typically return approximately 1.0-1.5%. 
  • Federal Home Loan Bank borrowings totaled $20.5 million and cost $491,000 in interest expense in 2020 – in our view, a waste of precious shareholder resources. 
  • Management has granted options representing 7.0% of the bank to themselves at $6.89, significantly below net tangible book value. 
  • In total, since 2016 management and directors have rewarded themselves more than $5 million in compensation in a bank with approximately $19 million in equity.

We believe Friendly Hills urgently needs new independent directors who will advocate for shareholder rights and interests. With the departure of the CEO, the board will select the direction and leadership for the future. The CEO, Chairman, and Vice Chairman have not generated value for shareholders in over 15 years, and they have not been held accountable. The Bank needs leadership focused on creating value for Friendly Hills’ owners – its shareholders – we need a Board with a demonstrated track record of successfully building community banks. Join us in creating a strong future for Friendly Hills Bank, its employees, and shareholders. Help us hold the Board leadership accountable at this critical juncture.

We urge Friendly Hills’ shareholders NOT to respond to solicitations made by the Company, its current management, or the Board until you have received our proxy material.

We would value your feedback. Please contact us at 949 212-2222.

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