Friendly Hills Bank Shareholder Frank Kavanaugh Releases Public Letter to Shareholders

Rhea-AI Summary

Frank Kavanaugh, a major shareholder of Friendly Hills Bank (OTCBB: FHLB), expressed dissatisfaction with the bank's management and board in a letter dated November 22, 2021. Representing over 25% of outstanding shares, Kavanaugh criticized recent management decisions, including a merger that cost shareholders $0.66 per share, poor returns on assets, and excessive executive compensation. He advocates for new independent board members to enhance shareholder value and encourages fellow shareholders to wait for proxy materials before responding to company solicitations.

Positive

• Kavanaugh's shareholder group represents over 25% of outstanding shares, indicating significant shareholder engagement.
• The call for new independent board members signals a potential shift towards better governance.

Negative

• Management approved a merger costing shareholders $0.66 per share in Q3 2021.
• Return on assets stagnated around 0.45% over the past five years, below the typical 1.0-1.5% for well-run banks.
• Executive compensation exceeded $5 million since 2016, in contrast to approximately $19 million in bank equity.

NEWPORT BEACH, Calif.--(BUSINESS WIRE)-- Frank Kavanaugh, a long-term shareholder of Friendly Hills Bank (OTCBB: FHLB) (“FHLB”) today released a public letter to shareholders of FHLB.

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.

Sincerely,

Frank Kavanaugh

View source version on businesswire.com: https://www.businesswire.com/news/home/20211122006524/en/

Frank Kavanaugh

949 212-2222

Source: Alliance Advisors on behalf of Frank Kavanaugh

FAQ

What concerns did Frank Kavanaugh raise in his letter to FHLB shareholders?

He expressed concerns about management's inability to create shareholder value and criticized their recent merger decisions.

What financial issues did Friendly Hills Bank face according to the letter?

The bank reported a return on assets around 0.45%, a merger loss of $0.66 per share, and over $5 million in executive compensation.

What actions are being proposed for Friendly Hills Bank's board?

Kavanaugh calls for the election of new independent board members to improve governance and advocate for shareholder interests.

How should FHLB shareholders respond to management's solicitations?

Kavanaugh urges shareholders not to respond to solicitations until they receive his proxy material.