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.