Oddball Stocks Newsletter Excerpt: Allied First Bancorp from Issue 36

We wrote an update on Allied First Bancorp in Issue 36 of the Oddball Stocks Newsletter:

AFBA is a standout as a very small bank with a very high return on equity that trades at a 12% discount to tangible book value as of June 30, 2021. Based in Oswego, Illinois (southwest Chicago exurbs), it started as a credit union for American Airline pilots in 1994 and converted in 2000. Our guest writer Catahoula first mentioned it in Issue 26 (August 2019) at $1 so it has returned 8.5x since. The current market capitalization is $16 million at $8.50 per share which is 88% of TBV. (We use a 1,911,892 total share count which assumes that 139,995 shares of convertible preferred stock that were issued under TARP are converted to common.)

OBN - AFBA - Issue 36 (August 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: "Feature: Paired Comparisons of OTC and NASDAQ-Listed Banks" from Issue 35

Our Feature in Issue 35 of the Oddball Stocks Newsletter was on paired comparisons of listed and unlisted banks, highlighting the valuation discounts available in OTC banks: 

It is difficult to look at the paired comparison of Bank of the James and Centric Bank without concluding that Centric is the better bank. Centric is certainly more efficient and more profitable. But the valuation difference is thirty percent of tangible book value. We find this really fascinating because these paired comparisons, using industry competitors of similar size, demonstrate a discount that arises purely by virtue of being OTC-listed instead of public. If the Oddball Stocks Newsletter stands for anything, it is for harvesting this OTC valuation discount.

OBN - Paired Comparisons of OTC and NASDAQ-Listed Banks - Issue 35 (June 2021) by Nate Tobik on Scribd

Oddball News Updates ($GWOX $PDER $UNIF $VWTR)

Interesting news at our Oddball companies this winter. Lots of special dividends, big asset sales, corporate transformations. It is coming at a time when value is cheap relative to growth. See this FT article, "US small-cap stocks trade at historic discount to corporate titans".

The Goodheart-Willcox Co., Inc.
Nate wrote about GWOX on the blog in October 2012 when it was trading for $72. Has paid $32.25 in dividends since then... and is paying a $50 special dividend (!) this month. Not to mention earnings per share of $15 for the 1H of fiscal year. Shares are currently $180 bid and no offer. See our previous posts: tender offer (March 2019), tender offer results (June 2019), 2019 annual report (July 2019), and 2020 annual report (July 2020).

Pardee Resources Co.
Pardee has declared a nice special dividend of $15 vs $4 last year and $3 in 2019. We have covered PDER extensively in the Newsletter, as well as on the blog. 

We had a great idea last month. Imagine if the Keweenaw Land Association copper royalty stub buys Pardee in a hostile takeover (for stock), fires the expensive board, sells the agricultural investments and some of the timber, and retains the coal and oil and gas. Maybe they buy Beaver Coal too, for good measure.

U & I Financial Corp
Community bank UNIF announced a stock repurchase program, starting December 1, 2021, under which the Company may repurchase up to $3.0 million of its outstanding common stock. See some of our Newsletter coverage of UNIF, part of our long campaign of content relating to small banks (example) since the covid crash.

Vidler Water Resources, Inc.
Press release from VWTR: "Vidler Water Resources, Inc. announced today an alternative energy company has exercised its option to purchase 53,750 Long Term Storage Credits (“LTSC”) at the Company’s recharge facility in the Harquahala Valley, Arizona for $400 per LTSC. The Company expects the sale to close in 2021 and to generate revenue of approximately $21.5 million." 

We did an interview in the Newsletter with fund manager Eric Speron who is on the board of Vidler (as well as Keweenaw).

FT article: "Bolloré Group in talks to sell African ports and logistics business". Two of our guest writers talked about Bollore in recent Issues of the Newsletter.

Oddball Stocks Newsletter Excerpt: The Goodheart-Willcox Company, Inc. from Issue 34

We wrote an update in Issue 34 of the Oddball Stocks Newsletter about The Goodheart-Willcox Company, Inc.:

One of the amazing things about the coronavirus “pandemic” of the past is how it has created winners and losers – even companies in the same industry. For example, as we will see below, educational publishing company Goodheart-Willcox (GWOX) had a great 2020. Meanwhile, its fellow educational publisher William H Sadlier, Inc. (SADL; which we won't cover in this Issue) did not have a great 2020. But the dispersion in performance this past year was nothing new, it just continues the trend of the past several years where things have been getting better at GWOX and worse at SADL.

Obn - Gwox - Issue 34 (March 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter: "Small Banks and the OTC Discount" from Issue 34

Our Feature article in Issue 34 of the Oddball Stocks Newsletter was about inferring the size of the "OTC discount" by comparing unlisted and listed banks.

We have noticed recently that small banks, and especially OTC-listed banks, are lagging this recovery. This may be an opportunity to replay the reopening trade that happened in liquid public banks with a set of less liquid public and private ones that are still cheap even with the same or better metrics. To give you an example, among two sets of banks that we track (NASDAQ and OTC) which were each chosen last year for cheapness, here is how they are priced relative to tangible book value.

Our sample of OTC-listed banks is 2100 bps cheaper on tangible book value than our sample of publicly traded banks despite earning a significantly higher ROE, having higher capital, having lower non-performing assets, a touch better demand deposits, and buying back more stock year over year. Note that both sets (which number a couple dozen banks each) are very small banks with average market capitalization under $500 million.

We find this really fascinating because for the first time, using sets of companies in the same industry that are highly comparable, we are demonstrating a discount that is stemming from not being public – or, conversely, from being OTC listed. If the Oddball Stocks Newsletter stands for anything, it is for harvesting this OTC valuation discount.

OBN - Small Banks and the OTC Discount - Issue 34 (March 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: "Delaware Chancery Corner" from Issue 33

Most Issues of the Oddball Stocks Newsletter contain a section of "General Commentary" at the end, and a frequent subsection is something that we call "Delaware Chancery Corner" - an update on recent opinions of the Delaware Chancery Court that are relevant to minority shareholders in small companies:

In Issue 31, we mentioned a Delaware Chancery case (Sahara Enterprises) that established that in
Delaware shareholders have an absolute right to know how “directors and senior officers are
compensated and whether they are the beneficiaries of any related-party transactions.” This Delaware
Supreme Court opinion seems to push the law further in shareholders' direction.

OBN - Delaware Chancery Corner - Issue 33 (January 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: U & I Financial Corp from Issue 33

We wrote an update on U & I Financial Corp., in the Oddball Stocks Newsletter, Issue 33:

The “K-Banks” are known for being a good lending source for Korean-American small business borrowers. It is an interesting niche since there are barriers to entry (like language fluency) that make it harder for other banks to serve these customers. The K-Banks seem to focus on lending to their base and staying very well capitalized. They are less aggressive about buying back stock and dividend payments are not always consistent. UNIF has not paid a dividend since 2018. FIEB has not paid a dividend since 2016. OPBK pays a regular dividend (currently yielding 3%) and bought back stock last year, but it does not trade at a TBV discount.

It is a recurring theme with Oddballs and value investing: if there isn't something a prospective investor could complain about, it isn't going to be cheap. The question is pricing the flaws. The K-Banks we have mentioned (FIEB, OPBK, UNIF) are all pretty similar but OPBK is NASDAQ listed and better about returning capital to shareholders. It is also much more expensive.

OBN - UNIF - Issue 33 (January 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: Allied First Bankcorp from Issue 33

We wrote an update on Allied First Bancorp in the Oddball Stocks Newsletter, Issue 33:

Banks' 2020 results have been rolling in the past few weeks, and the standouts in various categories tend to capture our attention. The highest ROEs we have seen, which happen to trade at big discounts to TBV too, are Allied and CIB Marine (CIBH). The cheapest bank to TBV, and one of the most overcapitalized, is Bank of Utica. Another observation is that OTC banks with the same or even better ROE, capitalization, NPAs, demand deposits, and buyback history trade far cheaper to TBV than banks that are NASDAQ listed.

OBN - AFBA - Issue 33 (January 2021) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: "Bank of Utica" from Issue 32

We wrote an update on Bank of Utica in the Oddball Stocks Newsletter, Issue 32:

We brought up Bank of Utica in the Small Bank Feature article in this Issue, and the situation is the same as every other time we have mentioned it: big discount to tangible book value, very overcapitalized, but stubbornly refusing to buy back stock. Often when we see an Oddball management making an error like this, the reflexive answer is that they are dumb. However, we have discovered something that makes us think that lack of intelligence is not the problem here.

OBN - BKUTK - Issue 32 (November 2020) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: "Small Banks" from Issue 32

This was our Feature story in Oddball Stocks Newsletter, Issue 32, in November 2020. As we wrote,

As long as covid goes away (either through vaccination or herd immunity) in the early part of next year and borrowers who have deferred resume their normal payments, the current valuations will look cheap. There are certainly many bankers feeling sanguine about their loan portfolios given the astonishing number of share repurchases that have been conducted or announced by banks this fall and winter. Profitable companies buying back stock is a great sign, but we should always question why we are being presented with an opportunity that appears juicy. Perhaps the explanation is in something that Gator Capital wrote about in its October letter; a lack of generalists interested in the bank sector. With that valuation and that much excess capital, and a management inclined to repurchase shares, there seems to be a good chance that shares recover to where they were pre-covid. We also very much like the signal of bankers announcing share repurchases – not just the implications for individual banks but for the sector as a whole. They can see what is happening with their borrowers and they have decided to spend capital on accretion instead of hoarding it.

OBN - Small Banks - Issue 32 (November 2020) by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: "Small Bank Snapshot" from Issue 31

This was our Feature story in the Oddball Stocks Newsletter, Issue 31, in August 2020. 

We pointed out that small bank stocks had crashed with coronavirus in the spring and represented an interesting recovery trade.

OBN - Small Bank Snapshot -... by Nate Tobik

Horrible Quarterly Earnings Report from Hanover Foods

The quarterly report from Hanover Foods for the period that ended August 29, 2021 shows that sales, gross profit, operating expense, and net income all dropped versus the prior year's quarter.

The company spent $6.4 million on “acquisitions of property, plant and equipment” last quarter. Over the past five fiscal years (not including the recent $6.4 million), the company has spent an immense amount on capital expenditures, a total of almost $80 million dollars.

It is hard to know what this $80 million of capital expenditure has accomplished for shareholders without any disclosure of what it was spent on. Certainly, it is difficult to see in the financial statements that this has been a worthwhile expenditure of capital.

All that we can see is that assets (both current assets and property and equipment) are growing, but seem to be generating less revenue. Asset turnover is slowing. Revenue, gross profit, and operating profit were all lower in fiscal 2021 than they were in fiscal 2017. And since cash from operations has not been sufficient to pay for the capital expenditures, debt has been rising, from total liabilities of $63 million in May 2016 to $106 million in August 2021.

Hanover Fiscal Q1 2022 Earnings by Nate Tobik on Scribd


Our past posts on Hanover Foods:

Life Insurance Company of Alabama Repurchases Massive Block of Stock ($LINSA)

There is something interesting on page 5 of the quarterly statement for Life Insurance Company of Alabama (LICOA) for Q3 2021. 

Notice the "change in treasury stock" since the beginning of the year.  

We knew that on June 14th, a block of 205,221 LINSA (LICOA non-voting) shares had traded for $24 per share, and that the same block traded again on July 22nd for $32 per share. But we did not know who had bought for $24 (a $4.9 million purchase) or $32 ($6.6 million).

However, we now see that LICOA's regulatory financial statements for the third quarter of 2021 disclose a $6,576,662 purchase of treasury stock. That would be $32.05 per share if it was that same block from July. That purchase price was well below book value (approximately 75% of statutory book), and it was for a huge percentage (~20%) of the company, so the result is very accretive to book value. 

LICOA borrowed $6,600,000 from the Federal Home Loan Bank of Atlanta in connection with the share repurchase. Perhaps management has finally figured out that it makes sense to replace outside shareholder capital with cheap debt, especially if shares can be had at a discount to book value.

The minority shareholders who sued the company in the US District Court for the Northern District of
Alabama in 2019 are awaiting a ruling from the court on the company's motion to dismiss their case. Be sure to check out the Concerned Shareholders of Life Insurance Company of Alabama website as well.

LICOA Quarterly Statement Q3 2021 by Nate Tobik on Scribd

Previously, regarding Life Insurance Company of Alabama:

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.

Keweenaw Land Association enters into Definitive Agreement for Sale of Timber Assets ($KEWL)

Big news announced this evening from Keweenaw Land Association (KEWL):

Keweenaw Land Association, Limited (OTC US: KEWL) today announced it has entered into a definitive agreement to sell its timber assets to an entity managed by a non-affiliated large institutional timberland investment manager in an all cash transaction. The transaction is expected to close by the end of 2021, subject to shareholder approval, completion of buyer’s inspection period, and other customary closing conditions. Keweenaw will retain ownership of 428,789 acres of subsurface mineral rights and will continue to trade as a public company while the board continues to explore the most efficient structure for its remaining assets.

The company also announced that its board of directors approved a plan of partial liquidation in connection with the sale (“Plan of Partial Liquidation” or “Plan”). If the Plan of Partial Liquidation is approved, the net proceeds from the sale following the deduction of corporate taxes, other expenses related to the sale, cash retained for the ongoing business, and an indemnity holdback, will be distributed to the company's shareholders. We estimate this special distribution will equal approximately $100 per share, payable in two installments as follows: an initial distribution of approximately $92 per share payable on or before December 31, 2021, and a second distribution of approximately $8 per share payable on or before December 31, 2022. The second distribution is subject to potential reduction for indemnity claims or other contingencies.

It is intended that the special distribution will be treated as a “redemption in partial liquidation of the Company” within the meaning of Section 302(b)(4) of the Internal Revenue Code. Each shareholder is urged to consult and rely on their own tax adviser with respect to the tax consequences of the special distribution.

Notwithstanding the adoption of the Plan, the Company expects to continue operating as a going concern and a publicly traded company focused on maximizing the value of Keweenaw’s remaining assets, including its mineral rights. The Company will take steps immediately upon closing to substantially reduce its overhead costs; most notably by decreasing headcount, board size and professional service fees. Possible savings contemplated at this time include moving from a PCAOB audit standard to an AICPA standard and potentially moving from the OTC Pink Current Tier to the OTC Pink Limited Tier. Tim Lynott will become Keweenaw’s President on January 1, 2022, replacing Mark Sherman who is retiring.

The Company has prepared a proxy statement, which it anticipates mailing to shareholders beginning on or about November 24, 2021.
Nate first wrote about Keweenaw ten years ago: "A small cap pure timber play". The price before this announcement was exactly the same as when he wrote it up, and it has not paid a dividend over the past decade. We wrote about KEWL in Issue 20 of the Newsletter (June 2018):
Keweenaw is a forest products and land management company located in Ironwood, Michigan. Keweenaw has land holdings of approximately 185,000 surface acres and owns over 400,000 acres of mineral rights, located predominantly in the western Upper Peninsula of Michigan and in nearby northern Wisconsin. The company is really just a timber company right now, but they are hoping that Highland Copper Company will be successful with its Copperwood project on some of the company's land (the last time they had mining income was in 1994).

The history of the company dates back to something called the Portage Lake and Lake Superior Ship Canal, built through the Keweenaw Peninsula to reduce the distance that ships traveling Lake Superior would need to travel. The Federal Government granted 400,000 acres of land for the construction of the canal. Some of the land grant ended up being reorganized in 1908 as the Keweenaw Land Association, Ltd as a partnership, and then again in 1999 as a corporation, today’s KEWL.

At the April annual shareholder meeting there was a victory by the activist investors Cornwall Capital Management (who were profiled in The Big Short by Michael Lewis for having put on the mortgage CDS trade). Shareholders elected Cornwall's nominees and professional investors Ian Haft, Steve Winch and Paul Sonkin. Cornwall has owned shares in the Company for over a decade and Jamie Mai, Founder of Cornwall Capital, has served as a director since late 2015. Cornwall’s current ownership is approximately 26% of the outstanding shares. James Mai, who needed to have his nominees elected or he would have been kicked off of he board, is now the Chairman.

The activists put up a website with their proxy statement, a pitch deck with their “Plan to Return Keweenaw to Success,” and their mailings to shareholders of the company. (It would be smart to download these materials now if you are interested in the company, because sites like this do not stay up forever.)

The activists proposed a four point plan. First, re-position the company for cash flow growth by increasing harvest rates, “given sub-optimal historical under-harvesting,” and align the compensation of management and other employees with this objective. Second, reduce costs by reducing board expenses, including eliminating the Chairman's salary and other non-essential board related expenses. Third, improve corporate governance by eliminating the staggered board, the super-majority provisions, and improving disclosure of timber inventory and the quality of communications with shareholders. And fourth, repair the balance sheet by ceasing acquisitions, selling non-core assets, and paying down debt. (The company borrowed $5 million from MetLife in December 2016 at a 3.05% rate for ten years and a further $12.7 million from them in March 2017 at the ten year yield plus 1.5%, for ten year money as well. It probably makes sense to pay off the more expensive money but not the 3.05% loan.)

Dave Waters at OTC Adventures wrote about Keweenaw in October 2015 (well worth reading). At that point James Mai had just come on the board and shares were trading for around $80. With the activist victory (and probably also the increase in timber prices), the shares are now trading for a little over $100. This is no different than where they were trading in 2007. The shares have been dead money for over a decade, and to our knowledge no dividends have been paid since 2009. Owning timber would be very interesting (if it were well managed and in a low-debt company) because you would have an opportunity to play the building cycle. If you have a lean organization with no debt, nobody makes you cut timber when the housing market is in the tank. You can let the trees grow, generating untaxed value, and have them cut when the lumber will command a better price.

The company has 1,301,550 shares outstanding which makes the market capitalization about $135 million. As of the end of the first quarter, the company had net debt of about $15 million which would make the enterprise value about $150 million. For that you get 185,750 surface acres and over 400,000 acres of mineral rights. If you value the mineral rights at zero, then you are paying an enterprise value of about $800 per acre for the timber. Meanwhile, in its most recent major purchase transaction in March 2017, the company bought 14,035 acres in northern Wisconsin from Great Northern Forest for $12.8 million, which was $912 per acre. One bit of interesting sleuthing to do would be to get more details about the aborted effort by Stifel to market the company in 2017 – how do those bids compare to the current market valuation?

Another valuation point was the appraisal commissioned by the company in 2016 by Sewall, which was only for 167,613 acres because it was before the Great Northern Forest transaction. At that time, the estimated value by the appraiser was $151 million which was $901 per acre. The report noted that since 2010 the company had sold 1,600 acres in small sales for $1,525 per acre and bought 8,351 acres in bigger transactions for $954 per acre.

It would be interesting to know why the company made some of those acquisitions when its own stock was trading for less money per acre. Of course, it is obviously possible that the acreage they bought had more mature trees or a more valuable mix of timber. By the way, another interesting way to look at KEWL is that there are 1,301,550 shares which own 185,750 surface acres. So essentially for each share you get about 1/7th of a timber acre (and then your share of net debt).

One funny thing about the current trading price is that lumber prices are up immensely in 2018 and the company is in activists' hands but the share price is not up that much. Timber EBITDA was up 93% in the first quarter compared to the previous year. It will be very interesting to see what the company reports for the second quarter of 2018.

We mentioned it again in the Newsletter in Issue 21

Nate has a theory that activist takeovers should be bought. The hypothesis would be that in those companies, minority shareholders have had dead money for a long time. Sure, the stock might rally when the activists win, but this could be an under-reaction to what better aligned activist investors can do with the underutilized assets.
It will be very interesting to watch where the company goes from here. Maybe the Keweenaw copper royalty stub (will they change the name?) buys Pardee Resources in a hostile takeover, fires the expensive board, sells the timber and agricultural investments,and retains the coal royalties and the oil and gas production. Perhaps they could buy Beaver Coal (with its metallurgical coal royalties) for good measure.

Just Published: Issue 37 of the Oddball Stocks Newsletter

We just published Issue 37 of the Oddball Stocks Newsletter. If you are a subscriber, it should be in your inbox right now. If not, you can sign up right here.

Remember that we have made some back Issues of the Newsletter available à la carte, so you can try those before you sign up for a subscription: Issues 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, and 31. We lowered the price of most of our back Issues to $99 from $139. If you are curious about them, there has never been a better chance to try them.

We also published a Highlights Issue in February 2020. The Highlights Issue is available here for purchase as a single Issue. If you have been curious about the Newsletter, the Highlights Issue is the perfect opportunity to try about two Issues worth of content (much of which is still topical and interesting) at a low cost.

Hanover Foods FY 2021 Annual Report

The Hanover Foods annual report for 2021 came in last week.

At a share price of $63 for the HNFSA (non-voting) share class, the market capitalization of the company (with 706,846 common shares outstanding) is now about $45 million, compared with net current assets of $101 million ($144 per share), and a book value of $241 million ($341 per share).

That is 45% of current assets (net of all liabilities) and 19% of book value.

Hanover's earnings were not as good in FY 2021 as in FY 2020. Their revenue declined from $401 million to $369 million, and gross profit declined from $41 million to $28 million. On the plus side, SG&A expense shrank by $3.8 million, with the result that operating profit was still $2.4 million.

Hanover bought back stock last year: 8,329 of the voting (class B) shares for $1,304,000, which was $156.56 per share. Those trade more expensive than the class A shares, but the $156.56 is still more than double the recent trading price $71 of the B shares. (The share classes have the same economic interest.) This is the first time we have seen Hanover repurchase a significant amount of stock.

We'll have much more about Hanover Foods in the upcoming November Issue of the Oddball Stocks Newsletter.

Our past posts on Hanover Foods:

The annual report for the most recent fiscal year (2021) that ended May 30, 2021:

Hanover Foods Corp 2021 Annual Report by Nate Tobik on Scribd

LAACO Is Said to Explore Storage West Sale as Self-Storage Booms ($LAACZ)

From Bloomberg (h/t @Catahoula_Value)
LAACO Ltd., owner of the Los Angeles Athletic Club and the California Yacht Club, is exploring a sale of Storage West, its division that acquires, develops and manages self-storage facilities, according to people with knowledge of the matter.

Los Angeles-based LAACO, which has shares that trade over the counter, is working with an adviser to solicit interest in Storage West from potential suitors, said the people, who asked not to be identified discussion private information. A targeted valuation couldn’t immediately be learned.

A spokesman for LAACO declined to comment. Storage West directed inquiries to its parent company.

Storage West, founded in 1978, operates almost 60 facilities in California, Nevada, Arizona and Texas. It posted “impressive year-over-year growth” and recorded occupancy of 92%, according to LAACO’s 2020 annual report, written by Karen Hathaway, the company’s president and managing partner.
Nate posted about LAACO way back in April 2014 when shares were trading for around $1,100. Shares are up 2.4x since then plus it paid $712 in dividends along the way.

Oddball Stocks Newsletter Excerpt: "Full Steam Ahead" by Guest Writer "Catahoula"

This excerpt is from the most recent Issue (#36) of the Oddball Stocks Newsletter: a guest piece by "Catahoula" (@Catahoula_Value).

Catahoula Excerpt by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: Editors' Interview with Mutual Fund Manager Eric Speron

This excerpt is from the most recent Issue (#36) of the Oddball Stocks Newsletter: an interview with mutual fund manager Eric Speron (@off_the_run).

Eric Speron Pages From Oddball_Newsletter_Issue_36 by Nate Tobik on Scribd

Just Published: Issue 36 of the Oddball Stocks Newsletter!

We just published Issue 36 of the Oddball Stocks Newsletter. If you are a subscriber, it should be in your inbox right now. If not, you can sign up right here.

Remember that we have made some back Issues of the Newsletter available à la carte, so you can try those before you sign up for a subscription: Issues 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, and 31. We lowered the price of most of our back Issues to $99 from $139. If you are curious about them, there has never been a better chance to try them.

We also published a Highlights Issue in February 2020. The Highlights Issue is available here for purchase as a single Issue. If you have been curious about the Newsletter, the Highlights Issue is the perfect opportunity to try about two Issues worth of content (much of which is still topical and interesting) at a low cost.

Make It Rain? Yes! With Make It Ring

 As Founder of CompleteBankData I talk to a lot of banks.  A universal message I heard across banks is that they want to grow, but they aren't built with an outbound sales culture.  Growing loans by outbound direct mail and cold calls is foreign and sometimes scary.  To grow in a predictable outbound manner would require an entire cultural transformation.  Let's break down why this is untenable and how we can solve it.

What we hear from executives is that it just isn't worth lender time to make cold calls, prepare mailing lists, and mail sales collateral to prospects.  At best a lender might bat 1 for 100 from these efforts.  Additionally at most banks the process of going from a mailing list to mailed outbound collateral can take weeks to months.  In our experience it typically takes a bank one month to six months to execute on a direct mail marketing campaign.  Ironically the larger the bank the slower to execute.  When you look at it like this it makes sense why banks aren't investing in outbound outreach.

What makes sense is for lenders to focus on handing inbound requests and farming business from existing relationships.  Banks know that this works, and why try to fix what isn't broken?

What is worth it is for us (CompleteBankData) to do this outreach for you.  This is why we're in business in the first place: it's not worth your time to prospect, but it is worth our time to prospect for you.

Let me explain how it works.

We use our next generation market intelligence to assess where the market is going, not where the market has been (to paraphrase a Wayne Gretzky quote).  From this we identify areas of opportunity and recommend prospects to you based on your lending preferences.  We can be as broad as "everyone in county X with a loan maturing in the next six months above 3.75%."  Or as specific as "small business owners who also own a personal airplane, have recently financed an auto and have a house worth $1m."

Once we have identified a set of prospects you decide if they are good to go or not.  Typically banks like to browse this list and knock off people they have worked with in the past that they don't wish to interact with again.

Then we execute on the mailing and or telephone prospecting on your behalf.  Since our tools can identify prospects who are in an ideal position to borrow, our conversion results are significantly higher than average.  

Finally we make your phones ring with prospective borrowers at the other end.

To summarize:

  1. We recommend prospects based on your idea borrower profiles
  2. You decide if they're good to go
  3. We execute on mail and/or telephone prospecting
  4. Your phones ring with prospective borrowers on the other end
That's it!  It really is that simple.

So what does this mean for your bank?  Let's take a look at some rough cut numbers.  In Pennsylvania right now there are over a million outstanding mortgages with rates above 3.75%.  With an average loan size of $240k that's $240b worth of mortgages that can be refinanced saving borrowers money.  Think Pennsylvania is unique?  It isn't, there are similar number of high rate mortgages nationwide.  You probably think that these are bad credits, they aren't.

Here's an example I ran yesterday.  In two of the most prosperous Philadelphia suburban counties there are 422 borrowers who have a loan between $1m-$4m, who all earn $200k or more and many who have $1m of liquid assets and yet still have a mortgage above 4%.

We don't do just residential.  Surprisingly residential mortgages are an afterthought for many of our clients.  We can identify these same types of opportunities for commercial loans as well.  Commercial credits can be even better due to the sticky nature of the relationships and sizes of the loans.

In many markets there are at least $500m-$1b in commercial loans that will be maturing in the next six months to a year.  Sometimes substantially more!  

The possibilities for prospect automation are almost endless.  Want to target commercial borrowers at a bank that's closing branches?  We can do that.  How about targeting borrowers at a bank that's merging? We do that as well.  High income borrowers? Yup, that too!

I want to share a slide on how impactful this is for our clients.  When one client sent a single postcard to ideal prospects identified by us they....

Imagine if prospects received multiple mailings.  We can, at another client using Make It Ring with multiple direct mail pieces their response rate was 5%.  Five percent of prospects picked up the phone and called our client asking about financing.  If you know anything about direct mail that number is off the charts.

If you are a banker and want to grow your loans without your headcount we can help you.  Click through and setup a time to get a demonstration of our software.  If you are a bank investor who owns shares in an underperforming bank, or a bank that wants to grow but might not know how we can help them as well.  

Contact Us Now

Sonics & Materials, Inc. Tender Offer ($SIMA)

We received this recently regarding Sonics & Materials, Inc. (OTC: SIMA). Some highlights from the tender offer document:

  • Sonics & Materials, Inc. (“Sonics” or the “Company”) is offering to purchase up to 837,580 of its
    common stock (the “Common Stock”) in a tender offer at a price per share of $10.00 in cash.
  • We will purchase up to a maximum of 837,580 shares of Common Stock, which number of shares represents all of the outstanding shares of Common Stock held by stockholders other than Robert Soloff, Lauren Soloff and their respective affiliates, including JBH Sonics, LLC (collectively, the “Soloff family”), and shares held by Sonics. The Soloff family is our largest stockholder, controls our Board of Directors and will not participate in this offer as a selling stockholder. As of the date hereof, the Soloff family beneficially owns 2,563,490 shares of our Common Stock (representing 73.2% of the outstanding shares of our Common Stock).
  • In recent years, the Company has received inquiries from stockholders regarding how the Company plans to use the cash on its balance sheet. While the Board has explored various options, including having engaged an investment banker to present possible acquisition targets (none of which is contemplated at this time), the Company has received several requests from stockholders that the Company use its available cash to repurchase its issued and outstanding shares not held by the Soloff family. In connection with this offer, the Company recently retained Access Value, LLC (“Access Value”), an independent third-party valuation firm to determine the fair market value of the our Common Stock. Access Value has determined that the fair market value per share of Common Stock as of March 31, 2021 was $6.11 on a minority, non-marketable basis and $9.60 on a minority, marketable basis.
  • Sonics designs, manufactures and sells (i) ultrasonic bonding equipment for the welding, joining
    and fastening of thermoplastic components, textiles and other synthetic materials, and (ii) ultrasonic liquid processors for dispersing, blending, cleaning, degassing, atomizing and reducing particles as well as expediting chemical reactions. To further address the needs of its customers, the Company also manufactures a spin welder and the vibration welder, both of which are used for the bonding of thermoplastic components. The Company was incorporated in New Jersey in April 1969, and was reincorporated in Delaware in October 1978. Robert S. Soloff, its chief executive officer and founder, invented the ultrasonic plastic welding process early in his career. He has been granted numerous patents in the field of power ultrasonics and is considered to be a pioneer in the application of ultrasonic technology to industrial processes. The certain patents granted to Mr. Soloff in the field of power ultrasonics have expired and the technology related to them is now in the public domain and is used in part in the development and manufacture of the Company's products. Lauren Soloff, Robert Soloff’s daughter, has worked in the business since 1994. In 2019, she became president of the Company.

The tender offer document shows unaudited financials for the nine months ended March 31, 2021. The company made $2 million (net) on $18.5 million of sales in just nine months. Book value at the end of March was $35 million and current assets net of all liabilities were $31.7 million.

At $10 per share (the tender offer price), the market cap is $34 million. However, the enterprise value is much less, because of all the cash on the balance sheet. 

You might wonder how a company with $9.32 in net current assets could have a fair market value of $6.11. Here is the reasoning applied by the Access Value appraisal report:

Based on the LOCD [lack of control] market indications and the analysis of key factors of control noted above, a 19.0 percent LOCD was selected to convert the control basis of value to a minority basis of value in the market approach and the asset approach to valuing the Subject Interest. [...]

An LOMD [lack of marketability] of 38.0 percent was selected for the income approach, which reflected public market liquidity; and a 30.0 percent LOMD was selected for market approach and asset approach, which reflected control liquidity in the private markets.

If I owned Sonics & Materials shares, I'd be on guard on the future for the controlling shareholders to try to squeeze me out at a ridiculously low "appraised" valuation.

SEC Rule 15c2-11 Restricted Securities

Last September, we wrote about a proposed SEC rule change that threatened to make it more difficult to trade in opaque micro cap companies. 

Over a hundred people wrote in to comment, almost all in opposition, including well-known investors, firms, and funds like: Mitchell Partners, the OTC Markets Group, and the Oddball land company Aztec Land and Cattle Company, Ltd..

TD Ameritrade just sent an email to clients with a 162 page list of OTC stocks (embedded below) that they are going to restrict from trading because of the new SEC Rule 15c2-11. Here is how they are describing their new policy:

On September 28, 2021, new amendments to Rule 15c-211 under the Securities Exchange Act of 1934
go into effect to enhance investor protection and improve issuer transparency. These amendments
restrict the ability of market makers to publish quotations for those companies that have not made
required current financial and company information available to regulators and investors.

Ahead of the regulatory enforcement date, TD Ameritrade will only accept orders to liquidate positions - (i.e. no new buy orders) starting in mid-August 2021. Please note: After the amendment officially goes into effect on September 28, 2021, it may be more difficult to liquidate these securities. Quoting and market liquidity may also be very limited.

The list is below as of June 30, 2021 and is subject to change at any time.

The TD Ameritrade list includes such Oddball companies as Hanover Foods (both HNSFA/HNFSB), Pardee Resources, PD-RX Pharmaceuticals, Queen City Investments, Pinelawn Cemetery, ACMAT Corp, Advant-e Corp, Aztec Land & Cattle, Avoca, and Boston Sand & Gravel. 

It includes some banks, but not very many.

We will be continuing to cover this regulatory change in the Oddball Stocks Newsletter. If you haven't yet, give us a try.

Tda 101550 by Nate Tobik on Scribd

Just Published: Issue 35 of the Oddball Stocks Newsletter!

We just published Issue 35 of the Oddball Stocks Newsletter. If you are a subscriber, it should be in your inbox right now. If not, you can sign up right here.

Remember that we have made some back Issues of the Newsletter available à la carte, so you can try those before you sign up for a subscription: Issues 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, and 31.

We also published a Highlights Issue in February 2020. The Highlights Issue is available here for purchase as a single Issue.

We just lowered the price of most of our back Issues to $99 from $139. If you are curious about them, there has never been a better chance to try them.

If you have been curious about the Newsletter, the Highlights Issue is the perfect opportunity to try about two Issues worth of content (much of which is still topical and interesting) at a low cost.

"Friendly Hills Bank Plans Dubious Branch Acquisition" $FHLB

Dave Waters writes:

The economic rationale for this branch purchase is dubious at best. Moreover, Friendly Hills is a chronic under-performer that has shown no ability to manage its own assets successfully, let alone the cast-offs of a successful bank.

Also see our recent posts, Shareholder Vote at Friendly Hills Bank and A Story of Two CEOs.

Friendly Hills Bank ($FHLB): "A Story of Two CEOs"

We did a post last month about the upcoming shareholder vote at Friendly Hills Bank (FHLB) regarding the proposed acquisition of three branches, all from Southern California Bancorp (BCAL). A Friendly Hills shareholder wrote in today with his analysis of the situation, which we are sharing below.

The key thing to understand is that the proposed acquisition is a "story of two CEOs": one CEO is buying three branches that the other CEO owns and wants to get rid of. 

What you worry about is an adverse selection problem: how can the buying CEO make sure that the price he's paying is low enough when he's buying an asset from someone who knows it better (asymmetric information problem) and wants to get rid of it. 

Is the Friendly Hills CEO familiar with one of the all-time most important economics papers, "The Market for Lemons"? Since the assets come with expense commitments, it is even possible that he should be getting paid to take them!

Friendly Hills BANK Story ... by Nate Tobik

Double Bottomline Corp. Reaches Definitive Agreement to Purchase Community Savings Bancorp, Inc. ($CCSB)

Press release yesterday: 

Double Bottomline Corp. ("DB") and Evan M. Stone have reached a definitive agreement with Community Savings Bancorp, Inc. (OTC: CCSB), and its wholly-owned subsidiary, Community Savings, a federal savings and loan association, to acquire Community Savings Bancorp, Inc. ("CCSB"), the registered savings and loan holding company for Community Savings. The aggregate merger consideration for the transaction is $9.5 million, subject to adjustment as provided in the definitive agreement. CCSB currently estimates that, without any adjustments, this will result in approximately $22.76 per share to the current holders of CCSB common stock. However, the estimated per share consideration may be subject to significant adjustment based on a variety of factors, including, but not limited to, transaction costs and whether the organization obtains CDFI status, as defined below. As a result, CCSB shareholders should not assume they will receive $22.76 per share upon closing of the transaction. Community Savings operates a full service location in Caldwell, Ohio. As of March 31, 2021, CCSB reported $59.58 million in total assets and total equity capital of $7.79 million. 

We wrote about Community Savings Bancorp in Issue 16 of the Oddball Stocks Newsletter (March 2017) when it was trading for $13.25. It had just de-mutualized at that point and was trading at a big discount to book value. Here was how Nate explained the idea in that Issue:

Following the conversion their equity to assets is about 18%, and their Tier 1 ratio should be about 40%. These are very high levels. The significant excess capital explains the paltry 0.2% return on equity (“ROE”). The bank barely ekes out a profit with a 97% efficiency ratio. The bank only has $32m in loans with the rest of their assets sitting in cash or investment securities. This is truly the epitome of a bank net-net if there ever was one.

Many people will think about all of this for a second and wonder why anyone would pay book value for this dog. After all, there are any number of people who believe that unless a bank can earn something like a 10% ROE they aren’t even worth book value. With that in mind, there are really a few reasons you might want to consider investing in this bank.

The first reason is that by consummating the conversion management took the first step towards realizing value, both for themselves and for shareholders. In most cases mutual banks convert either as a way to grow or as a way to cash out. There are banking regulations that prevent newly converted mutuals from selling within three years of their IPO date, but they are permitted to engage in value accretive actions before then. On the first anniversary of their IPO they can buy back stock, and on the second anniversary they can pay a dividend. Once the third anniversary rolls around they are afforded the opportunity, if they wish, to sell and cash out. The statistics on newly demutualized banks selling after the three year mark is encouraging. Over 80% of demutualized banks have been sold to another institution within five years of their IPO. If you’re looking to buy a bank hoping that it will be acquired at a tidy premium (ideally after you’ve made your purchase) then mutuals are fertile ground.

But what if the bank doesn’t want to sell? Remember that the 2 primary reasons to convert are to raise capital for growth or as a means of cashing out. So, if the bank isn’t going to sell and cash out, by process of elimination we are left with a growth strategy. With a larger asset base the bank is in a better position to make additional loans and grow, although it remains to be seen in Community Savings Bancorp’s case. This is because management hasn’t demonstrated any ability to grow beyond drifting up and down with the local economy.

The good news is that the bank’s management has skin in the game along with investors. They purchased 10% of the shares offered in the IPO for approximately $360k in the aggregate. This might seem like a nominal sum to many ritzy investors, but it is significant considering the CEO makes a base salary of $120k and got $20k in bonuses last year.

Community Savings never performed well as a bank, but what mattered in the end was purchasing at a big discount to tangible book value.

Shareholder Vote at Friendly Hills Bank ($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 $11, which is not much greater than the IPO price a decade and a half ago.

What caught our eye recently is that Friendly Hills is having a special meeting on June 22nd in order to hold a shareholder vote on a proposed acquisition of three branches from Bank of Southern California. The other thing that we noticed was a couple of smart bank investors (like @TimyanBankAlert) on Twitter mentioning Friendly Hills and the acquisition:

We follow @OurBank3 on Twitter, a bank investor account that has the motto: "The shareholders are the rightful owners. Management has a fiduciary responsibility. Proud #SHT member-Shareholders who Hate value Traps". So far we agree on banks wholeheartedly! So if this account has a beef with this proposed acquisition, we thought that we should dig a little deeper.

Let's first back up and understand Friendly Hills a little better. As of March 31, 2021, this is a bank with $214 million in assets, $127 million in loans, $171 million in deposits (L/D only 74%), and $20.7 million in shareholder equity (all tangible). In 2020, FHLB had comprehensive income of $1.4 million, which was a 7.4% return on equity and a 77 bps return on average assets for the year. However, for Q1 2021, the net income was only $240k which is a 4.7% annualized return on equity.

Unusually for a bank of this size, Friendly Hills is not a residential lender. Their loans are 70% commercial real estate and 30% commercial and industrial. The average interest coupon is 4.2%. Since their loans/deposits are so low, they have a significant amount of investment securities, more than half of which is of ten year or greater maturity. The bank is overcapitalized with Tier 1 RBC of 18.8%.

You can see the efficiency ratio trend for Friendly Hills as calculated by Complete Bank Data:

Book value per share for FHLB is $10.34 vs the recent trading price on May 27th of $10.95 per share, so it is trading for 106% of TBV. This is not exactly a screaming bargain when Oddball Stocks has recently written about a basket of small banks that are earning higher ROEs and trading for about 80 percent of tangible book.

Also, Friendly Hills management has a lackluster (at best) history of value creation. As you can see from a long term chart of the share price it has gone nowhere since the IPO. (And it has never paid a dividend.) The current president of the bank has been in place since the founding. We found an LA Times article from 2013 with his complaints about how small banks are over-regulated. 

It looks as though he and Friendly Hills stumbled right out of the gate after the bank was founded, losing a significant amount of money during the 2008 credit crisis. The bank originally raised about $17 million in equity, and by the end of 2010 the bank had accumulated a deficit of $5.2 million and was down to $11.8 million in equity ($7.29 per share). Even today, the bank has only $3 million of retained earnings since inception.

Now Friendly Hills wants to buy three branches from a local competitor (one each in Orange, Redlands, and Santa Fe Springs) for $1.17 million (plus assumption of the lease liabilities for the branches) that have $92 million in deposits. Here is what we wonder about with this proposed transaction:

  • Why does a bank with only 74% of its deposits lent want to buy more deposits? Don't they need loans and not deposits?
  • The pro-forma financials (disclosed on p34 of the special meeting proxy) show that in Q1 2021, these three branches would have been responsible for $432k of additional non-interest expense. So, in addition to the purchase price of $1.17 million, there is going to be commitment to a fixed overhead burden: lease payments, compensation, etc.
  • Are going to stick with their long-term securities portfolio strategy and term out / increase the tenor (time until maturity) of the $92 million that is coming in? It seems like this acquisition could result in pressure to earn back this incremental overhead burden by taking either more interest rate risk or more credit risk, plus more leverage from the additional $92 million of deposits on the existing equity base.
  • Is acquiring more branches really the right move for any bank in a country that is staggeringly over-branched (especially given changes in customer habits and technology)? Plus, is there an adverse selection problem in buying branches that a local competitor wants to get rid of? Is this an example of a smarter bank dumping an albatross on a bank that is "slow to realize their branch networks are a drag"?
  • Was there a better deal to be done here? If Friendly Hills shareholders turn this down, can Bank of Southern California really do just as well, or might the deal get sweetened?

We noticed in the proxy statement for the special meeting is that there is a significant outside shareholder who happens to be the largest shareholder of Friendly Hills. The officers and directors of FHLB as a group own 21.1% of the company, with the plurality of this held by the Chairman William Greenbeck and the CEO Jeffrey Ball. But the largest shareholder, Frank Kavanaugh in Newport Beach, owns 26.2%, which is more than all of the insiders combined. (The other shareholder disclosed in the proxy is AllianceBernstein which owns 9.6%.)

The 21% owned by management seems like good ownership skin in the game, but unfortunately a lot of this stock was essentially given to them and not purchased:

Stock Option Grants to Executive Officers
On December 31, 2018, we granted incentive stock options under the 2017 Equity Incentive Plan to our executive officers. We granted an option to Jeffrey K. Ball, President and Chief Executive Officer, to purchase shares in an amount equal to 2.5% of our issued and outstanding shares, or 50,000 shares, an option to our Chief Operating Officer, to purchase shares in an amount equal to 0.5% of our issued and outstanding shares, or 10,000 shares, an option to our Chief Financial Officer to purchase shares in an amount equal to 0.3% of our issued and outstanding shares, or 5,000 shares, and an option to our Chief Credit Officer to purchase shares in an amount equal to 0.3% of our issued and outstanding shares, or 5,000 shares.

The incentive stock options, which we granted to our executive officers in 2018, vest at the rate of 20% per year, beginning on December 31, 2019, which is one year after the date of grant. The options shall all remain exercisable, subject to earlier termination upon the happening of certain events, until December 31, 2028, ten years after the date of grant. The exercise price of the incentive stock options granted to our executive officers is $6.80 per share, which is equal to or in excess of the fair market value of the shares of our common stock on December 31, 2018, the time of the grant of such stock options. We did not grant any stock options or other stock awards to any of our executive officers in 2020.

Stock Option Grants to Directors
On December 31, 2018, we granted nonstatutory stock options to our non-employee directors under the 2017 Equity Incentive Plan. The nonstatutory stock options granted to our non-employee directors in the aggregate is equal to 4.5% of our issued and outstanding shares or 89,750 shares. The non-employee directors’ option grants vest at the rate of 20% per year, beginning on December 31, 2019, which is one year after the date of grant and the term of each of the option grants is ten years from the date of grant. The exercise price of the nonstatutory stock options granted to our non-employee directors is $6.80 per share, which is equal to or in excess of the fair market value of the shares of our common stock at the time of the grant of such stock options. We did not grant any stock options (or other stock awards) to our directors in 2020.
So that is really brutal from a shareholder perspective. The end of 2018, you may recall, was a big market crash. And how did FHLB insiders respond? Why, they gave themselves options to acquire 8.1% of the bank at 80 percent of tangible book value, and less than 70 percent of the IPO price a dozen years earlier.

Something else brutal about management is that FHLB has never bought back stock when it was cheap. The share count now is higher than it was a decade ago, even though the bank has excess capital and even though the stock had traded at big discounts to tangible book. After having been in business for a decade and a half under the same management, you get a pretty clear view that management doesn't allocate capital well (which should worry us about the branch acquisitions) and is opportunistic about transferring value to themselves (with the 2018 options grants).

We found that the largest shareholder Kavanaugh made a change in control filing with the Federal Reserve in December 2018 to acquire shares of FHLB. At the end of 2018, the shares had collapsed down to around $6-7, so this may have been a very astutely timed buy. (Yet notice that he, an outside shareholder, was paying cash for his stake, while the insiders were being granted cheap options.)

Really good things can happen for shareholders if someone with significant ownership skin in the game - that they paid for - comes in and pushes things in the direction of shareholder value maximization. This is "reading the tea leaves": remember how SouthFirst in Alabama was acquired last year? The only clues to long-suffering outside shareholder that things were moving in that direction were (a) unhappy minority shareholders with big ownership positions and (b) right before the sale, the termination of the golden parachutes for execs.

If you want to dig in further on Friendly Hills, we have uploaded some helpful documents on Scribd:

And if you like small banks and shareholder activism, be sure to try the Oddball Stocks Newsletter. We've been talking about almost nothing but small banks since last summer, and we are always very interested in shareholder activism and small bank activism.

Hanover Foods Quarterly Financials

We just received the latest quarterly financials from Hanover Foods.

Notice that between the end of fiscal second quarter (Nov 29, 2020) and the fiscal third quarter (Feb 28, 2021), the company bought back $1.26 million of stock. This is the first time that we have seen the company repurchase a significant amount of stock.

We would love to know the details about that repurchase and whether the company plans to do more repurchases at a fraction of book value and net current assets.

Hanover Foods 3rd Fiscal Quarter by Nate Tobik on Scribd