HCBN

HCBN was a small bank in Michigan that we started acquiring at $35 per share in early 2025. In March of 2026, it was announced they were being acquired by a larger bank for around $70 per share, giving us a roughly 100% gain from our initial buying in about a year - an outcome that had no relevance to what the broader stock market was doing. We ended up buying around 15,000 of the 1 million shares outstanding, making us one of the largest shareholders at 1.5% of the company.

In early 2025, after our initial buying, we included this in one of our quarterly client letters:

“HCBN: This one is interesting. This is a tiny bank in Michigan. The stock is selling for $35 a share, there are 1 million shares outstanding, so this entire business is being offered to the market for $35 million. In 2024, this business made $6 million of profit. So if you purchased this entire business for $35 million, you would have received $6 million last year that you could do whatever you wanted with. That would be your profit. 6 divided by 35 is 17%, so your year 1 return would have been 17%. To us, that just seems too high. And when we say too high, that obviously means the stock price is too cheap! What is a fair year 1 return for buying this small Michigan bank? Is it 1%? No, that's too low. Is it 17%? That's too high. You can't really come to an exact answer, but let's say a businessperson would want somewhere between 8-12% on their money to purchase this bank. Well, that would mean the business should actually sell for between $50 million and $75 million. Now, of course, anyone buying this bank doesn't want just one year of profits, but actually this is again where it's more attractive. Here are the last 5 years of profits:

2024: $6 mil
2023: $5 mil
2022: $3 mil
2021: $2.36 mil
2020:$2.7 mil

You can never really know what the future will hold, but it seems that in 10 years it's more likely profits are $10 million versus $1 million. This business has been growing and expanding, providing comfort to the idea that $35 million is just too cheap for this business. Stock prices can spend a long time at silly levels, but eventually value exerts a magnetic pull on them. We will see in time if we’re right on HCBN.”

We told our clients this business that was selling for $35 million was actually worth $50 to $75 million. One year later, a larger bank agreed, paying $70 million to purchase HCBN - 100% more than we had first bought it for one year prior.