Liquidation: Harvard Illinois Bancorp (OTC:HARI)

I’ve picked up a few shares of Harvard Illinois Bancorp (OTC:HARI). This is a liquidation that could offer a reasonable return depending on the final liquidating distribution(s). I think it is pretty unusual for a bank to liquidate. The reason for the liquidation is that the company ran into big problems in 2014 when it found out that some repurchase agreements that were sold to them by Pennant Management were backed by fraudulent loans. There is a nice post about this from 2014 (includes a great picture of a HARI executive napping) on OddballStocks.com.

Since then HARI, the holding company, has sold of its operating bank subsidiary, Harvard Savings Bank, to another bank in 2015.

HARI itself was left with some residual assets, mainly the rights to the $18.1m in repurchase agreements. It has been litigating to get this money back and has recovered some of it. The company is now finally nearing the end of this process. HARI announced a $13.30 liquidation distribution on November 21. The effective date and payment date for that distribution is January 2, 2020. On this day the company’s stock will stop trading as well.

The total payment of $11.0m should leave HARI with just a tiny amount of net assets in liquidation. On September 30, net assets in liquidation were $11.5m. So after the payment in January there should only be $0.5m left. With ~827,000 shares outstanding that leaves an amount of around $0.60 per share. If, or how much, shareholders will receive in the future is unclear. The company mentions the following in their press release:

To the extent that these funds are not exhausted, the Company expects to use residual cash to execute a future distribution to its shareholders. A future distribution is anticipated to be in the range of $0 to $0.63 per share; however, the amount and timing of a future distribution ultimately will depend on a number of factors, including, but not limited to, the timing and amount of the receipt of cash with respect to the Company’s remaining receivables, and the timing of and costs the Company will incur to complete the liquidation and wind-down process.

(bold text mine)

Shares are currently trading at $13.40. I think this could present a reasonable bet. A buyer today pays $0.10 to receive something between $0 and $0.63. I think that companies tend to be fairly conservative in estimating a final liquidation distribution like this. I think the fact that they only held back $0.5m to wind up the liquidation process indicates that this should not be a very lengthy process anymore. Because a buyer today receives almost all of his/her investment back in January, the IRR should still be decent if the liquidating payment is somewhere in the middle of the range ($0.30) and if it is received sometime in 2020.

Press releases and financials can be found on HARI’s website.

Disclosure: long Harvard Illinois Bancorp (OTC:HARI)

Posted in Pink Sheet stocks, Special situations and tagged .

6 Comments

  1. I’m sort of confused to your thesis. You’re buying the stock at $13.35 only to receive .30?

    Its actually more like he’s spending $13.35 to get $13.30 in cash back on Jan 2, 2020 via a liquidating distribution from the Company (less than 4 weeks from now). This leaves him with a 5-cent net cost basis after the distribution. That 5-cents could then be worth anywhere from zero – 60-cents (timing to be determined).

    With much of the federal case complete, and HARI having received its share of the recoveries by the Court-appointed Receiver, its likely that there aren’t many other things left for HARI to do in order complete its liquidation. So the timing may not be all that long for the Company to issue a final liquidating distribution.

    Hope that helps.

  2. Thanks for the write-up. Attractive odds.

    Does anyone know whether the non-US investors’ distribution proceeds would be subject to withholding taxes?

  3. Has the $7.9m for the investment in defaulted repurchase agreement been converted to cash?

    Almost certainly yes. The Court approved the Receiver’s motion to distribute recovered funds at a hearing on Oct. 3rd. HARI issued its press release including announcing the distribution on Nov 21st. That’s probably around the time they received the cash, I reckon.

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