Show Me The Money!

politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.”

Oscar Ameringer 1870-1943

With apologies to the cast of Jerry Maguire, this post is not about sports – unless politics  is now the national pastime.  This post is only peripherally related to the forthcoming election by virtue of the cash.  Period.  Today is not about Purple, Red or Blue – but Green.

Last week I mentioned that any sales of my banks were on hold pending a study which I have now completed.  The common denominator in any US election is fundraising.  The Federal Election Commission lays out the rules of the game, one of which is that cash must be held in one (or more) domestic financial institutions.  For a multitude of reasons (mostly tax related), most campaign advisors recommend placement in a non-interest bearing account.  (Exceptions are rampant – particularly among PACs, but we’ll assume otherwise for simplicity’s sake).

In the current environment, low or no-cost money is key to profitability.  Once critical mass is attained, the spread between cost of funds and the amount earned can be significant.  Three ready sources (that I’m aware of) exist – HSA/FSA accounts (covered previously), state and local tax accounts (still looking for a data source) and political money.

The main problems with political money are additional reporting requirements and stickiness.  A media buy can pull thousands (or millions) of dollars from an account in short order – which could be problematic for many smaller banks.  That said, I kind of had to wonder if the PE ratio noted by Lanny of Peoples United (PBCT) is attributable in part to the fact it was of two used by the Bernie Sanders campaign.  Or perhaps it is an offset to one of my banks’ heavy leverage to the oil patch (BOKF).

Political money is quite often invested in brokered CDs (ensuring FDIC insurance), Treasuries and other low risk and therefore low-yielding investments.  One such bank, Amalgamated (AMAL) reported (March 2020) $774.8m in political deposits (campaigns, PACs, and state and national party committees) with a net interest margin of 3.46%.  All that is required is a decent algorithm to ensure liquidity as the candidates spend their money.

As I was identifying which banks to retain in a post-Motif world, figured it might be enlightening to identify if there was a Republican alternative to the Democratic Amalgamated?  The amount of blatant hypocrisy embedded in the money?  Preconceived notions that were pierced?

I identified 842 campaign accounts reported to the FEC.  116 candidates had no report on file – pretty evenly split between parties.  One of the reasons is explained in this article.  115 of the accounts were held at non-public institutions (private banks, mutual societies or Credit Unions).  For the purpose of this analysis, both categories were ignored with one exception.  66 institutions had the account of only one candidate which were also ignored (except for the self-reporting piece) as they were generally banks in the state or district of the candidate.

The first exception was the answer to Question #1  – a Republican alternative to AMAL.  The answer is an unqualified yes, although Chain Bridge Bank is a closely held (not publicly traded) corporation.  It probably played the spread a little better than AMAL by investing in Treasuries last year, locking in then higher rates.  I identified 42 Republican accounts  held at Chain Bridge versus 88 Democratic at AMAL.  Some Republican accounts of note (at Chain Bridge) include: John Cornyn (TX), Tom Cotton (AR), Lindsey Graham (SC), Joshua Hawley (MO), Rand Paul (KY), the Republican National Committee and one Donald J. Trump.  Notable Democratic accounts at AMAL include: Richard Durbin (IL), Kamala Harris (CA), John Lewis (GA), AOC (NY), Bernie Sanders (VT), Elizabeth Warren (MA), the Democratic National Committee and Joe Biden.

As far as hypocrisy goes, in politics it’s second nature and there’s little difference with the money.  While Democrats seem to thrive keeping Wells Fargo’s feet to the fire after multiple misdeeds over the years, apparently they aren’t severe enough to warrant fellow House Financial Services Committee members David Scott (GA) and Madeleine Dean (PA) to move their accounts or other notable Dems such as Timothy Kaine (VA) or Ted Lieu (CA) either.   Republican’s aren’t immune from hypocrisy either.  Consider the President’s America First campaign.  Apparently Brian Bavin (TX), Richard Shelby (AL) – both BBVA, Glenn Grothman (WI – BMO), Devin Nunes (CA – MUFG) , Ken Calvert (CA – RY) and John Cornyn (TX – UBS) all consider repatriating profits to other countries (Spain, Canada, Japan and Switzerland) the path to making America Great Again.  Moving along …

Let’s talk of my biases – things I had presumed accurate with little basis for the assumption.  Things like Zions Bancorp (ZION) based in Utah would have a conservative political bent.  In fact, 75% of their political accounts are Democratic.  Or the International Bank of Commerce (IBOC) with their CEO an ardent Trump supporter headquartered in a border town with both their political accounts being Democratic.  Or First Republic (FRC) that had some interesting – if not questionable – dealings with Trump associates entrusted by two Democrats. So much for preconceived notions …

The top ten publicly traded banks holding political campaign money are (# of accounts):

Bank of America Corp BAC 115
Amalgamated Bank AMAL 89
Wells Fargo & Co WFC 87
Truist Financial Corp TFC 81
PNC Financial Services Group Inc PNC 23
Citigroup Inc C 19
JPMorgan Chase & Co. JPM 17
Eagle Bancorp, Inc. EGBN 14
Cadence Bancorp CADE 13
Capital One Financial Corp. COF 13

If I were to wager a guess, Amalgamated and Chain Bridge have the number of accounts to move the needle a little where the others either don’t have the critical mass or their sheer size dwarfs any impact to earnings.

I currently own AMAL, BAC, BANF, BMO, BOKF, C, CBSH, CFR, CHCO, CMA, FFIC, FHN, FMBH, HOMB, HTH, IBOC, JPM, KEY, ONB, PB, PBCT, PNC, RY, TD, UMBF, USB, VLY and WFC all with varying degrees of campaign funds.

November 2019 Update

Alright, I do have a bias.  Generally I don’t pay much attention to Jim Cramer, but his recent attention grabbing headline did pull me in.  “Owning too many stocks and not enough cash can set you up for failure: Cramer” was the title.  As one who owns 200+ issues, I’m always on the lookout for alternative views.  My expectation was for the sage advice to be essentially “have a war chest and shopping list at the ready”.  But rather it was, “Limiting your holdings can be a great tool for investors who don’t have the time or the drive to do their homework for 20 or 30 different companies”.  The essential message being if you “own more than 10 stocks, you might want to consider paring back”. Say what? This recommendation doesn’t even provide exposure across all sectors. So what to do if like me you have an overabundance?  Sell, he says. “Sometimes, it can be as simple as selling some stocks and getting some cash on hand. Go sit on the sidelines — nothing wrong with that.” Very true if one has a knack for timing the markets. My methods aren’t for everyone either as my emphasis is on consolidation, typically M&A – which results in slightly higher mediocrity for this portion of my portfolio with the aspiration of getting a tape measure homer.  As they say, the devil is in the details. His view was apparently honed as a trader rather as a buy and hold type of investor as he states, “I would analyze every losing trade … I realized that good performance could be linked directly to having fewer positions”. Okey dokey, ‘nuff said ….

Certainly a long and roundabout way of saying the market was basically on an upward tear this month with only a few down days.  Try timing that movement! So the S&P rose a stellar 3.9% – the best since June while my portfolio – including the purchase spree I’ve been on – rose 9.84%.  Excluding the final round of purchases – even with no fresh money being used – the portfolio value rose by 2.43%, a tad below the index, probably due in part to buying at elevated levels.

PORTFOLIO UPDATES

  • increased my PB position and lost LTXB (merger).  I’m now overweight PB as my position doubled which I’ll reduce in the next tax year.
  • New Position – PBCT and lost UBNK (merger)
  • increased my WFC position (replication strategy)
  • New Position – KFC  (replication strategy)
  • New Position – PG (replication strategy)
  • increased my YUMC position basically as a rebellion against the President’s antics.  They derive 100% of their sales, all of their profits, no imports or exports (all domestic), and their entire supply chain is in China.  Yet they are incorporated in Delaware and pay a USD dividend. The major question is currency exchange on their P&L statement and the president’s delisting campaign.
  • increased my TD position (IRA).  I’ll increase it further and sell my taxable account shares after the first of the year.
  • New Position – KNBWY – another statement selection – message being , “Mr. President, play with tariffs all you like but there are Japanese companies other than car manufacturers employing thousands of Americans”.  Besides, I see their sales improving in 2020 with the Olympics being in Japan and it fits my bottler strategy.

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis.

  • November delivered an increase of 15.51% Y/Y.
  • Dividend increases averaged 10.11% with 68.72% of the portfolio delivering at least one increase (including 5 cuts). This is off last years’ pace and I believe a new personal record for dividend cuts in a single year since about 1980.
  • 2019 Dividends received were 99.63% of 2018 total dividends putting me on target to exceed last year’s total on December 1st. The YTD run rate is 110.76% of 2018, slightly over my 110.0% goal. Point of reference, this is the first time since starting this blog that I didn’t exceed the prior year dividends before the end of October.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

AT A GLANCE

Inspired by Simple Dividend Growth‘s reporting

Key thing I’m looking at is the ratio between market action and purchase activity. This month was roughly 80/20. I suspect most months will be 95/5 as I rebuild the war chest. Another point of interest was the M&A cash exceeding my dividends. I can assure you this is a rare occurrence. It will be interesting to see what I track going forward.

SPINOFFs

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which remains in progress.

MERGERS

VLY to acquire ORIT for 1.6 sh VLY to 1 ORIT. This merger will result in a slight dividend cut November forward as the rate will be normalized to VLY’s current rate. In my view, the other positives outweigh this negative.  Should close December 1st.

Spirit MTA REIT (SMTA) voted on Sept. 4th to approve the sale of most assets to HPT for cash. A second vote was held to liquidate the REIT. The first payment was received and am awaiting final settlement payout. Fully expecting a profitable outcome for one of my most speculative positions.

SCHW to acquire AMTD for 1.0837 sh SCHW to 1 AMTD.  My only surprise with AMTD being taken out was the suitor – I had expected TD.  Regardless, I have three concerns over this deal, 1) profit margin compression with the onset of $0 fee trades, 2) possible liquidation of a partial TD stake to reduce their ownership share from 13.4% to 9.9% (the same issue Buffet regularly faces) and 3) 10 year phase-out of AMTD/TD cash sweep account relationship.  The third one means TD has a low cost (albeit, decreasing) source of deposits for the foreseeable future. After the first of the year, I’ll probably cash in AMTD and increase TD a little further.  

Although XRX is officially off the list with their Fujifilm settlement, Icahn & Co. couldn’t wait for the ink to dry before stirring things up with HPQ.  As of now, I am considering exiting my XRX position.

SUMMARY

Overall, the only complaint being not exceeding last year’s dividend haul until December. The culprits being five dividend cuts and merger timings (a couple of completions were accelerated to avoid a payment). My cash position is close to zero, but with replicating the kids’ portfolio complete, I expect this to rapidly change to rebuild a stash for my next sizable purchases (unless market conditions warrant), expected in tax season.

Here’s hoping your month was successful!

Reporting Style Update

On my “to-do” list was to refine my monthly results presentation to make it more relevant – particularly in light of the significant movements in my portfolio of late.  In search of ideas, I stumbled across the Simple Dividend Growth methodology. While not exactly what I had in mind, it covered probably 80% of which I could mix, match and modify to my hearts’ content.

His presentation covers Weekly actual and Forward Annual views, illustrated below.

XXX is text, $$$ currency

The largest differences are that I report monthly (as opposed to weekly), I convert actuals to percentages and I don’t use forward anything (except announced cuts) preferring to use trailing actuals.

The more subtle differences are twofold, I embrace stock dividends and M&A activity (one of his sell signals is a merger announcement).  So I’ve enhanced this template to serve my purposes as follows:

Actual as of 16 Nov 2019

The left column contains all ticker symbols – essentially a point of reference for portfolio activity.  The right column is the activity – as a percentage of portfolio value. The exception being the Dividends which are percentages of dividend activity.

I’ve segmented my new buys between the source of funds – the default being dividends accrued from prior months.  I don’t show my available cash as I reserve the right to spend it on my tax bill (like last April), take a trip or – in this case – replicate the granddaughter’s portfolio.  I may add a “new cash” line item in the event I hit the lottery or my living expenses decrease, otherwise I expect to continue funding purchases via excess funds generated by the portfolio.

I’m not sure how relevant the separate itemization of increases will be, but I’ll let it run for now.  In this example, BX increased their dividend but it doesn’t register as it amounts to 0.001962% – thereby rounding to 0.00%.  This becomes even more negligible when ORIT’s dividend cut is added. Likewise, the increase from stock dividends and DRIPs may also be too small to be meaningful.

The key point I wanted to visualize was the delta between market fluctuations and dividend growth.  Since my purchases are (generally) self funded by the portfolio, the fields: Increase from New Buys, Less Dividends, Less M&A cash and Incr/Decr from Market Action should equal 100%. 

The selfish reason?  After the four dividend cuts I experienced to start 2019, my assumption was the market was in for a rough year and I went into a little of a retrenchment mode.  My cash position rose and my purchases decreased. Now my dividend run rate is below normal – I might exceed 2018 dividends by month end which would be a month later than usual.  I’m used to coasting into the fourth quarter starting some positioning moves to get a head start for the new year. 

I’m thinking dividends deployed for purchases should be in the 3-5% range.  If I had used this method earlier in the year I probably would have realized faster how far I was lagging behind.

The term M&A Cash may be a little bit of a misnomer as a merger may be the trigger for multiple portfolio transactions which can be illustrated through this example.  The PB/LTXB merger was a cash and stock transaction and I owned both sides – PB in my IRA and LTXB in a taxable account. The cash was received this month.  I will sell PB in the IRA replacing it with TD and finally selling the TD in the taxable account. Excess cash in the IRA was used to create a TD starter position there. However, this daisy chain of events will occur over roughly two months to maximize the dividend payments.  The sales of the (current) overweight PB position and the soon to be overweight TD position will be classified as Positions Reduced.

Others present their results in a manner I found interesting including Dividend Driven and Wallet Squirrel.  Tom at Dividends Diversify had suggested creating an index. This solution is less complex but equally illustrative (I think).  I will probably track (perhaps on the side) the Buys to Dividends ratio as a correlation to market value (think “be greedy when others are fearful”) as this presentation may reflect increased buys when the market drops (or failure to do so).

So I’ll lay it out here for ideas, thoughts and discussion and intend to use it starting with my November review.

October 2019 Update

On the 1.9% Q3 GDP growth rate, “The Greatest Economy in American History!” as contrasted with the 1.9% Q1 2012 growth rate under the prior administration, “Q1 GDP has just been revised down to 1.9%. The economy is in deep trouble.

As tweeted Oct 30, 2019 and May 31, 2012 by the now president, Donald Trump

With renewed optimism for a China trade deal (again), generally good earnings reports (though there were a few snags) and additional rate cuts in this Great Economy – perhaps to spur growth to the promised sustained 4%+ envisioned with the tax cuts (doubtful) – the markets did achieve new records. In spite of all this noise, the S&P rose 2.0% and my portfolio – sans purchases – rose 2.0%. I did deploy funds that were previously generated by the portfolio, accounted for in my reports , but then stashed in an interest bearing account. When incorporating these funds (repeat – no fresh money was used), the portfolio value rose by 8.65%. So, yes, purchases can have an impact on the portfolio. Imagine the potential results if it was “new money” and I had some years to let it run.

PORTFOLIO UPDATES

  • increased my LTXB position going into the PB merger
  • increased my JNJ position on weakness
  • Performed a partial rebalance resulting in slight increases to AROW, BANF, BKSC, BRKL, CVLY, FMBH, LSBK, NWBI, TMP, UMBF and WFC
  • New Position – GIS
  • New Position – WMT
  • New Position – UNP
  • New Position – RDS.B
  • New Position – HSY
  • New Position – TXN
  • New Position – ATO
  • New Position – T

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis.

  • October delivered an increase of 7.49% Y/Y.
  • Dividend increases averaged 10.27% with 66.52% of the portfolio delivering at least one increase (including 4 cuts). This is off last years’ pace and I believe a new personal record for dividend cuts in a single year since about 1980.
  • 2019 Dividends received were 93.01% of 2018 total dividends putting me on target to exceed last year’s total in mid-November. The YTD run rate is 108.77% of 2018, slightly under my 110.0% goal – but still recoverable. Point of reference, this the first time since starting this blog that I didn’t exceed the prior year dividends before the end of October.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

SPINOFFs

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which remains in progress.

MERGERS

XRX merger with Fujifilm cancelled (still being litigated). The expected settlement was disallowed by the judge September 13th.

PB acquired LTXB for 0.528 shares and $6.28 cash for each LTXB share which completed November 1st. I plan to pocket the cash and sell the old shares – retaining the new PB shares.

VLY to acquire ORIT for 1.6 sh VLY to 1 ORIT. This merger will result in a slight dividend cut November forward as the rate will be normalized to VLY’s current rate. In my view, the other positives outweigh this negative.

PBCT acquired UBNK for .875 sh PBCT to 1 UBNK – completed November 1st. I plan to hold this one as I wouldn’t be surprised if PBCT gets taken out at some point.

Spirit MTA REIT (SMTA) voted on Sept. 4th to approve the sale of most assets to HPT for cash. A second vote was held to liquidate the REIT. The first payment was received and am awaiting final settlement payout. Fully expecting a profitable outcome for one of my most speculative positions.

SUMMARY

Overall, no complaints. The initial quote can also bear reference to the growth rate of my portfolio this month – which is why I presented the results in two ways. Although accurate, I do not care to be viewed as tilting the scales in favor of one narrative over another. My cash position will hover close to zero while replicating the kids’ portfolio but expect the dividend growth to accelerate into the first half of 2020 with this strategy.

Here’s hoping your month was successful!

September 2019 Update

The market continued with its’ on-going roller coaster, triggered primarily by external factors in the political arena – basically trade and impeachment. Despite the turmoil, the S&P gained 2.46% and my portfolio rose 4.15%. For the year, I’m outperforming the benchmark by 4.96%.

Like DivHut, I try to make at least one buy per month although these purchases have become smaller as my sentiment has grown increasingly cautious. Therefore, my cash position via non-reinvested dividends (not reported) has grown. The lack of Y/Y dividend growth for September is a testament against hoarding cash – particularly when hit with dividend cuts earlier in the year. This month the grandkid was forced to liquidate her portfolio or face losing 25% of her college assistance (grants/scholarships, etc.). Reminder to self: Future topic possibility being the dark ugly underbelly of custodial accounts (529s are even worse …) Anyway, I decided to deploy part of my accumulated cash to build a replica of her portfolio that I will hold. Bottom line, just when I think I’m shrinking the number of companies owned I get thrown a curveball.

PORTFOLIO UPDATES

  • increased my JNJ position
  • increased my CL position
  • increased my CHD position
  • added GPN (lost TSS via merger)
  • increased my DIS position

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis.

  • September delivered a decrease of 3.4% Y/Y. This was my first decrease since December 2018 and is primarily a result of not staying ahead of the first quarter dividend cuts (e.g., cash position)
  • Dividend increases averaged 10.34% with 61.67% of the portfolio delivering at least one increase (including 4 cuts). This is off last years’ pace and I believe a new personal record for dividend cuts in a single year since about 1980.
  • 2019 Dividends received were 82.89% of 2018 total dividends putting me on target to exceed last year’s total in late October or early November. The YTD run rate is 108.08% of 2018, slightly under my 110.0% goal – but still recoverable – especially with the portfolio replication decision.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

SPINOFFs

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which remains in progress.

MERGERS

XRX merger with Fujifilm cancelled (still being litigated). The expected settlement was disallowed by the judge September 13th.

PB to acquire LTXB for 0.528 shares and $6.28 cash for each LTXB share. I plan voted in favor of the transaction (on both sides), pocket the cash and sell the new shares – retaining the old PB shares post-merger. I will not add to my PB stake.

VLY to acquire ORIT for 1.6 sh VLY to 1 ORIT. This merger will result in a slight dividend cut November forward as the rate will be normalized to VLY’s current rate. In my view, the other positives outweigh this negative.

PBCT to aquire UBNK for .875 sh PBCT to 1 UBNK. I plan to hold this one as I wouldn’t be surprised if PBCT gets taken out at some point.

Spirit MTA REIT (SMTA) voted on Sept. 4th to approve the sale of most assets to HPT for cash. A second vote was held to liquidate the REIT. Awaiting final settlement payouts and still expecting to be a profitable outcome for one of my most speculative positions.

The three banks continue to validate my strategy of bank consolidations from a few years ago. The only flaw (so far) was the holding period required – but dividends were received while waiting.

SUMMARY

Overall, no complaints. It appears the pending mergers/liquidation might provide enough of a premium to improve my performance over the index, but I don’t want to get too far ahead of myself yet. I still see a little consolidation in my holdings through the last half of the year and am still migrating to a slightly risk off stance, offset slightly by companies with compelling stories. My cash position will hover close to zero while replicating the kids’ portfolio but expect the dividend growth to accelerate into the first half of 2020 with this strategy.

Here’s hoping your month was successful!

August 2019 Update


The market had significant bouts of volatility this month triggered by some weaker than expected earnings reports – though the consumer still is spending, continuing yield curve inversion – but I remain uncertain as to the weight that should be factored into this, the ongoing tariff whiplash coupled with all the pronouncements of terrific trade deals that seem to whither on the vine, increased international tensions with Russia and Iran having failed military tests and yesterday’s Russian incursion into Georgia. This list doesn’t even include European economic weakness centered in Germany. With all this, the S&P lost some ground dropping 1.84% while my portfolio lost 0.34%. For the year, I’m outperforming the benchmark by 2.5%.

As a reminder to the older readers and a refresher to my newer ones, I am technically in the distribution phase of my investing career – meaning I have minimal new cash (other than self-generated dividends) being deployed. Other than RMDs (required minimum distributions – coming from an account I exclude from this report and are not reinvested in the market), what is reflected is basically a result of market valuation. For August, total cash invested was less than 0.00% of the portfolio value even when rounding generously. The source of funds being accrued (non-reinvested) dividends (42.0%), new cash (49.4%) and reinvested dividends (8.6%. Basically for the month, over half my purchases were funded by the snowball resulting in an even larger forthcoming dividend stream.

PORTFOLIO UPDATES

  • increased my BLK position
  • new position MFG (Japan)
  • new position ERIC (Sweden)
  • new position G (Bermuda)
  • new position CSCO

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis.

  • August delivered an increase of 13.89% Y/Y.
  • Dividend increases averaged 10.2% with 58.59% of the portfolio delivering at least one increase (including 4 cuts). This is off last years’ pace and I believe a new personal record for dividend cuts in a single year since about 1980.
  • 2019 Dividends received were 71.11% of 2018 total dividends putting me on target to exceed last year’s total in late October. The YTD run rate is 108.5% of 2018, slightly under my 110.0% goal – but still recoverable and an improvement over last month.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

SPINOFFs

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which remains in progress.

MERGERS

XRX merger with Fujifilm cancelled (still being litigated). Pending settlement expected in September.

TSS to merge into GPN (all stock, .8101 sh GPN for each TSS sh) estimated to complete in October – Upon the announcement, I was prepared to sell my TSS position to book almost a triple in just over 4 years as GPN currently pays only a penny per share dividend per quarter. However, page 14 of their slideshow states: Dividend – maintain TSYS’ dividend yield. This would appear to indicate an increase in GPN’s dividend, so for now I’ll hold.

PB to acquire LTXB for 0.528 shares and $6.28 cash for each LTXB share. I plan to vote in favor of the transaction (on both sides), pocket the cash and sell the new shares – retaining the old and perhaps use some of the cash to purchase additional PB shares post-merger.

VLY to acquire ORIT for 1.6 sh VLY to 1 ORIT. This merger will result in a slight dividend cut November forward as the rate will be normalized to VLY’s current rate. In my view, the other positives outweigh this negative.

PBCT to aquire UBNK for .875 sh PBCT to 1 UBNK. I plan to hold this one as I wouldn’t be surprised if PBCT gets taken out at come point.

Spirit MTA REIT (SMTA) will vote on Sept. 4th to approve the sale of most assets to HPT for cash. A second vote will be held to liquidate the REIT. If approved in total, this would be a profitable outcome for one of my most speculative positions.

The three banks continue to validate my strategy of bank consolidations from a few years ago. The only flaw (so far) was the holding period required – but dividends were received while waiting.

SUMMARY

Overall, no complaints. It appears the pending mergers/liquidation might provide enough of a premium to improve my performance over the index, but I don’t want to get too far ahead of myself yet. I still see a little consolidation in my holdings through the last half of the year and migrating to a slightly risk off stance, offset slightly by companies with compelling stories. My cash position still remains slightly above mean as I do expect further volatility.

Here’s hoping your month was successful!



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