THE ODDBALL STOCKS NEWSLETTER | 4

alleging that Avalon is entitled to recover the profits that MintBroker made trading Avalon stock under
the short-swing profits rule (since MintBroker owned more than ten percent of the company and held
the stock for less than six months).

In its amended complaint filed on September 28 th, Avalon refers to Guy Gentile as an “experienced
securities market operator and connosseur of scams.” Michael Goode wrote about this on his website
Goode Trades: “The story of MintBroker International buying up large stakes in microcap companies
and quickly selling them continues.” Avalon claims that Gentile and MintBroker owe the company
$7.25 million for the short-swing profits made in their stock.

So here is a funny thought. If it is true that the profits on the trading were that high, it must represent
money that Gentile made at the expense of other participants in the marketplace – trend followers and
penny stock daytraders – and not from the company itself. Imagine if the company is successful at
recovering that amount: it would be $1.90 per share for a company that trades at $2.92. This could be
looked at as a speculative litigation play. (Perhaps the big problem here would be that Gentile has
operated out of foreign jurisdictions like Puerto Rico and Bahamas, which would make enforcing any
judgments against him much more difficult.)

Lost in this fracas, of course, has been the performance of Avalon as a business. The company also
announced a new acquisition earlier this year: “On March 7, 2018, Avalon, through a newly created
subsidiary, Avalon Mahoning Sports Center, Inc., completed the acquisition of the Boardman Tennis
Center facility in Boardman, Ohio for approximately $1.3 million in cash.”

As of the quarter ended June 30th, the Avalon shareholders' equity was $38.3 million – up very slightly
since Nate first wrote about it a little over a year ago. For the first six months of 2018, cash from
operations was $2.2 million versus $718k for the first six months of 2017. Besides the tennis center
acquisition there was $670k of capital expenditures, so at least recently there has been free cash flow.
(For the full years 2017 and 2016, there was $1.25 million and $2.6 million of cash from operations
versus $1.8 million and $3 million of capital expenditure, respectively.)

Hopefully the capital investments (which we understand have been for the tennis and resort side of the
business) will be drawing to a close. In Q2 the waste management revenues were up 21% year-over-
year while the resort side was up only 2% year-over-year.

Bank of Utica
We mentioned them in the March Issue (#19) of the Newsletter. At that time, the nonvoting shares of
the company (OTC:BKUTK) were trading at $550, which was 62% of book. We also calculated that
those shares were trading at 70% of “adjusted book,” which we defined as shareholder equity less
certain other items such as (primarily) the bank's $23 million of premises and equipment. (Someday we
will visit Utica and see how the bank spent $9,993,295 for purchases of premises and improvements in
2016 and another $6,923,822 in 2017.)

Since then, the BKUTK share price has declined 9% and is currently offered at about $500 per share.
We took a look at their third quarter call report which was published on October 28 th. Interest income
(which almost all comes from line 1d3, “all other securities”) was $20.8 million for the first three

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 THE ODDBALL STOCKS NEWSLETTER | 5

months of the year, which annualizes to $27.7 million. That would be barely higher than the $27.5
million of interest income for the full year of 2017. Having interest income fail to grow with rising
rates would be an obvious consequence of having bought longer-term bonds for the fixed income
portfolio that comprises most of the bank's assets.

Meanwhile, Bank of Utica's interest expense was $6.7 million for the first three months of the year,
which annualizes to $8.9 million. That unfortunately is significantly higher than the $7.9 million for the
full year of 2017. The issue with falling net interest income is that Bank of Utica borrows short and
lends long, and even when bond yields were at record lows they did not seem to waver from that
strategy. Salaries look to be up a touch but other noninterest expense looks to be up 30% on an
estimated annualized basis. Another thing we noticed on the call report is that the company made $1.1
million in “donations” year-to-date in 2018 (this was $728k in 2017).

The other whopper on the income statement in the call report is that the company disclosed an
unrealized $12.1 million loss on equity securities not held for trading. (Remember this is a bank with
$231 million of capital.) The balance of equity securities at September 30 th was $79 million. The call
report also discloses that the equity securities had a cost of $28.7 million. The company has
consistently refused to disclose its equity or debt securities. All we know is that there are $461 million
of “other domestic debt securities” at fair value (down from $469 million cost) and $230 million of
“other foreign debt securities” at fair value (down from $235 million cost).

As we have observed before, this is a black box bond hedge fund or closed end fund that is a billion
dollar bond portfolio leveraged almost five to one on its equity. They actually did sell about $10 million
of three to five year paper and about $5 million of five through fifteen year paper. The bulk of assets
($405 million) are one year through three year debt securities.

Bank of Utica pays 1.1% on its deposits right now and is earning 2.8% (coupon yield) on its portfolio
of securities. Seems like a good trade to lever up five times right? But then you have $8.5 million in
annualized non-interest expense, which is actually just about as much as the interest expense. This is
something we have been mentioning in recent Newsletters: when you factor in the cost of running the
bank, banking is not normally that attractive of a business.

CIB Marine Bancshares, Inc.

We wrote about CIB Marine (OTC: CIBH) in Newsletter Issues 20 and 21. This is the small bank in the
Milwaukee suburbs with the fifteen year history of capital structure machinations that left the trust
preferred securities originally issued between 2000 and 2002 high and dry. Last time we wrote, the
company had completed a reverse tender dutch auction for its noncumulative preferred stocks on which
it has not been paying any dividends, but it was unclear exactly what price was paid or how accretive
the transaction was. However the third quarter financial release contained a little more detail:

Book and tangible book value per share of common stock improved to $2.34 and $2.71, respectively,
for September 30, 2018, compared to $2.04 and $2.53 at December 31, 2017.

During 2018, the carry value of preferred stock has declined $11.6 million due to repurchases of
preferred stock resulting in $1.8 million being transferred to additional paid in capital through

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