Small Banking Revisited

Periodically I encounter an article that hits at the core of one of my strategies.  As many of  you know, I’m currently a little overweight financials with an emphasis on regional banks.  This was not always the case as I (fortunately) exited the sector in late 2007  reentering only in early 2013.  My five year pause was bookended by what Richard J. Parsons refers to as the Great Panic of 2008-2009.  His article, Finding Alpha In Reliable Dividend Banks(14 June 2017) struck a chord with me and illustrated some of the style I came to embrace for a time. Though I’m not selling my banks, other than special situations, I’m currently not a buyer either.  If you are a bank investor (or considering being one) I’d recommend reading his article.

His article highlights 30 regionals that actually raised dividends during the Panic.  By comparison, my hypothesis was segmented into three ‘buckets’ which were:
1.Good dividend payers
2.Stock dividend payers
3.Acquisition candidates

Although he includes some stock payers (CMBH, AROW, SBSI, and FLIC (roundups on splits)) this is not his article’s focus.  I’ve written on these before so I’ll exclude them.

His article also points out that only one of the original 30 was acquired which is a slight disappointment when one of my goals is to obtain a merger premium.  Several on his list were acquirers which kind of proves my rationale to expand the universe to include potential acquisition targets in my bank holdings a couple of years ago.

Leaving us with his list.  One notable point is his geographic analysis.  “Certain states are more likely to be home to these reliable dividend banks: Indiana, Texas, California, Kentucky, Missouri, and upper state New York.”  This melds with my findings though I attributed this to state regulatory agencies as certain states had disproportionate numbers of bank failures.  Therefore I excluded western (California) and southern US banks.  To his mix, I found Pennsylvania to be a viable candidate as well.  This difference could be that mutual conversions (notably preeminent in PA, NY, NJ, VA and MA) were identified as likely targets by my study.

Another note on his analysis, “…a few critical factors influence long-term success in banking: hands-on expert management…”  In fact he elaborates a little on this in the comment stream.  A tidbit is both Missouri banks on his list were established by the Kemper family.

So the actual question is how do my portfolio holdings stack up against his list?  Half of the thirty are owned.  Of the nine owned by Richard, seven are owned (one obtained via a merger).  One being in California was excluded by geographic screening.  I’m not sure offhand though, why I excluded CBU out of New York.  My primary takeaway from his article was a validation of my strategy and I need to further investigate a few.

His complete list follows:

Access National ANCX 1.4B VA
Arrow Financial Corp. AROW 2.7B NY
Auburn National Bancorp AUBN .8B AL
BancFirst Corp.   BANF 7.2B OK
Bar Harbor Bankshares  BHB 3.4B ME
Bank of Marin Bancorp BMRC 2.0B CA
Bryn Mawr Bank Corp. BMTC 3.3B PA
Bank of Oklahoma   BOKF 32.6B OK
Commerce Bancshares   CBSH 25.3B MO
Community Bank System CBU 8.9B NY
Cullen/Frost Bankers CFR 30.5B TX
Community Trust Bancorp CTBI 4.0B KY
First Capital  FCAP .8B IN
First of Long Island Corp.  FLIC 3.6B NY
Farmers & Merchants Bancorp  FMCB 3.0B CA
Horizon Bancorp   HBNC 3.2B IN
National Bankshares NKSH 1.2B VA
Norwood Financial Corp.  NWFL 1.1B PA
Bank of the Ozarks OZRK 19.2B AR
Prosperity Bancshares  PB 22.5B TX
People’s United Financial, Inc.   PBCT 40.2B CT
Stock Yards Bancorp  SYBT 3.0B KY
Tompkins Financial Corp.  TMP 6.3B NY
United Bankshares UBSI 14.8B WV
UMB Financial Corp.  UMBF 20.6B MO
Westamerica   WABC 5.4B CA
Washington Trust  WASH 4.4B RI
First Source  SRCE 5.5B IN
First Financial THFF 3.0B IN
Southside Bancshares SBSI 5.7B TX
Bold-owned by Richard, Italics-owned by me

Recent Buy

ozrk

Bank of the Ozarks has been a part of my portfolio for a couple of years.  I felt it was overpriced when I initially bought it and feel the same today.  However, since I bought it has appreciated about 60%.  Plus increased their dividend quarterly.

OZRK was not top of the list today but when it dropped 4% midday I decided to pounce, particularly since its’ size in my portfolio had dropped to about 1% and my target weighting is 3%.  So my order was executed at $49.85 and should be eligible for January’s dividend.

Top on my list were FLIC and FMBI since they are more underweight – but their prices held.  I also looked at KMI and was a little surprised that it was up.  Good assets, questionable management and up on the news of a dividend cut?  Perhaps it’s short covering.  Well I can always initiate a new position – or not.

Final note on OZRK – historically they perform a stock split between $50 and $60 so a s.plit in 2016 wouldn’t surprise me.

Portfolio Structure

Whimsical Dividends recently wrote a piece on monthly dividends – posing some good and thoughtful questions.  So rather than answer in a lengthy response, I figured this would be a good starting point for my weekly (or thereabouts) post.

When I first started investing one of my goals was to build a monthly paying portfolio.  This goal was achieved many years ago.  But when I retired, I guess I had too much time on my hands so I wondered if it was possible to build a weekly paying portfolio.  To this end I have pretty much succeeded.

My research began with Dave Fish’s CCC list.  A wonderful repository of data.  I also used articles by Dividend House as a resource.  Although she’s a recent convert to DGI, and I’m not at all in full agreement with some selections, her style and illustrations make her a must read.

My end result is I have placed 26 companies (of about 105 in my portfolio) into three categories, segmented by quarter, with two payees per week.  The result is (almost) weekly payments.

(updated 26 Oct due to PNY merger)

1 A Kimberly-Clark KMB 1 C PNC Financial PNC 1 A WEC Energy WEC
2 C Piedmont Nat. PNY 2 A Clorox CLX 2 C 3M MMM
3 C Sysco SYY 3 C Legacy Texas LTXB 3 C Home Depot HD
4 C Bnk of The Ozarks OZRK 4 C Starbucks SBUX 4 C Blackrock BLK
1 S PepsiCo PEP 1 S Blackstone BX 5 C ADP ADP
2 C First Long Island FLIC 2 S Apple AAPL 1 S Southside Banc. SBSI
3 S Comcast CMCSA 3 S Lakeland Bancorp LBAI 2 S Chevron CVX
4 S Lake Sunapee Bnk LSBG 4 S Webster Financial WBS 3 S Norfolk Southern NSC
 2  S  First Midwest  FMBI 4 S Flushing Financial FFIC
5 S Wesbanco WSBC