Monday, February 19, 2024

President's Day: The Great Refrainer

Why not Calvin Coolidge? In a time when we administer clarion calls to the government that "SOMETHING MUST BE DONE!", Coolidge would likely respond, "no it doesn't."

It is with this admiration of our 30th president, the Great Refrainer, the one that presided over the Roaring Twenties when life improved significantly for all Americans, that I read the official results of the 2024 Presidential Greatness Project Expert Survey administered by professors from the University of Houston and Coastal Carolina University.

The survey was issued to members of the American Political Science Association and asked them to rate each president on a greatness scale of 0-100 with 100 being the greatest. Where did Calvin Coolidge rank of the 46 presidents measured... 34th of 46, between Richard Nixon and Chester Arthur.

I disagree. I full-throated disagree. And Silent Cal signed the Immigration Act of 1924 that was designed to reduce immigrants from, among other countries, Italy. Note my last name. By that measure, I should dislike Coolidge. But I don't.

Because Coolidge's philosophy about the United States is in his probably best-known quotes: "the chief business of the American people is business." He was pro-business, and anti-government intervention in economic affairs. Some criticize that this laissez faire attitude led to the stock market crash of 1929 and the subsequent Great Depression. And non-existent regulation likely played a role in the crash. But there is credible evidence that the actions of Coolidge successors likely caused and extended the Great Depression.

The dramatic stock market crash was probably fueled by wild speculation because of the economic expansion that happened under Coolidge's watch. Coolidge ascended to the presidency from vice president in 1923, when Warren Harding passed away suddenly. In 1923, the GDP was $803 billion, and in 1929 when Coolidge departed for Herbert Hoover, GDP was $977 billion, a 22% increase.

What was Coolidge's greatest attribute: restraint. In a letter to his father when he was Governor of Massachusetts he said "It is much more important to kill bad bills than to pass good ones." Where are you today Calvin!

The truth is, he wouldn't make it in today's politics. Doing nothing is not considered a good attribute. I would agree with that to this extent: doing nothing to reduce the myriads of laws and regulations imposed on us by an ever-expanding government bureaucracy would be bad. And I think Coolidge-like leadership would set about righting this listing ship. Restraint in advancing government. Action in reversing its advance.

Silent Cal was his nickname, but truth be told he had two press conferences per week and used the newfangled radio to speak directly to Americans. It takes explanation why he would do nothing, such as when post WWI veterans lobbied for a pension, or when farmers lobbied for aid. No and no. And Coolidge was a farmer!

After he won the presidency in his own right in 1924, and as a result of unprecedented prosperity and human advancement while he was president, he was poised for a landslide victory in 1928. Except he chose not to run. That's what he said to the press: "I choose not to run in nineteen twenty-eight." How many president's today would bask in such popularity, stare in the face of sure victory, and say, "no thank you, it's time for someone new"? 

Coolidge might very well have been our humblest president. He didn't seek the limelight, spent most of his time in office reducing taxes and the government. He balanced every budget. And the Federal budget was lower when he left office than when he came in. He didn't need big spending resume bullet bills that were not absolutely necessary. And at the height of his popularity, he walked away.

No, the American Political Science Association got it wrong. They clearly do not value government restraint, humility, and freedom. Coolidge, however, took seriously our Constitution and the context from which it was written. 

Some other notable quotes that made Coolidge such a great president courtesy of AZ Quotes:

"Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent."

"Unless the people, through unified action, arise and take charge of their government, they will find that their government has taken charge of them. Independence and liberty will be gone, and the general public will find itself in a condition of servitude to an aggregation of organized and selfish interest."

"Don't expect to build up the weak by pulling down the strong."

"You can't increase prosperity by taxing success."

"Wherever despotism abounds, the sources of public information are the first to be brought under its control."

"You can't know too much. But you can say too much."

"A government which lays taxes on the people not required by urgent public necessity and sound public policy is not a protector of liberty, but an instrument of tyranny. It condemns the citizen to servitude."

"Silence can never be misquoted."

"Doubters do not achieve; skeptics do not contribute; cynics do not create."

"Collecting more taxes than is absolutely necessary is legalized robbery."

"It is difficult for men in high office to avoid the malady of self-delusion. They are always surrounded by worshipers."

Monday, February 12, 2024

Analyst Insights: Two Banks that Deliver to Shareholders

Be curious. That's how I approach Twitter ("X"). Yes, there are some dumpster fire opinions. But then again, there are some real valuable insights that I and we can learn from. And this most recent string by bank analyst Perry Weinstein is one of them that I thought should not be lost to a tweet stream. 

Perry's perspective is clearly focused on shareholder value and may be viewed as shareholder primacy, a sometimes derogatory term because pursuing shareholder value could be done at the expense of other stakeholders, such as employees, customers, and communities.

But the pursuit of shareholder value need not be a zero-sum game, if executed correctly... i.e. not at the expense of stakeholders. In that context, his observations on QCR Holdings, Inc. ($QCRH), an $8.5 billion bank from Moline, IL, and CF Bancshares, Inc. ($CFBK) a $2.1 billion bank from Columbus, OH are very valuable. To the curious.

I offer the string without edits. References to "I" means Perry.

1/25 I like to touch on a topic that can get overlooked, decision making, and how past decisions or lack thereof, can give an investor a better understanding of what will occur in the future. I will highlight $QCRH and $CFBK.

2/25 Past actions/decisions give the best insights into a management team's acumen, capabilities, willpower, and its pursuit of excellence...effort lol.

3/25 Before we start, a summary of a quote by Einstein that perfectly captures the concepts being discussed; doing the exact same think and expecting a different result is the definition of insanity.

4/25 Look how much $CFBK accomplished in just over 4 years. (1/2)
1. Raised capital in late 2019.
2. Launched its equipment finance group - 11/2020
3. Agreed to sell 2 branches in weak markets - 12/2020

5/25 Look how much $CFBK accomplished in just over 4 years. (2/2)
4. Entered Indianapolis on 5/2021, a top 2 Midwest market with Columbus, another market $CFBK is in.
5. Shuttered large parts of its mortgage operations in stages, first in 7/2021 and later in early 2023

6/25 Selling branches is not easy, but it was best for shareholders. Management did not prioritize how things were or what certain people "might like". This management team clearly continues to question how things were/are and are relentlessly trying to improve.

7/25 These actions make it clear what $CFBK's management team will prioritize in the future... shareholder value.

8/25 Due to these decisive decisions/actions, $CFBK has positioned itself to be a very desirable target, with a market presence in the two fastest growing markets in the Midwest, Indianapolis and Columbus.

9/25 $QCRH is another great example of a management team prioritizing long-term shareholder value, not how things are or what certain individuals might like.

10/25 Past actions taken by $QCRH:
1. In 2018, started its LIHTC lending line.
2. Instead of doing what was "easy" and raising capital, $QCRH decided to sell its least profitable charter, Rockford Bank and Trust, to bring in the capital to support its robust growth.

11/25 These two decisions are what first prompted me to closely follow this organization. This management team, led by Larry and Todd, demonstrated its focus on long-term shareholder value, rather than what other banks do or prioritizing how things were.

12/25 Now let's discuss what we can learn from the actions that $QCRH's management team DID NOT take that maximized shareholder value. $QCRH did not raise capital and despite earnings skyrocketing, $QCRH has resisted raising its dividend...interesting, what does this tell us?

13/25 Not raising its dividend clearly demonstrates to me that $QCRH's management team understands the key principles of Deploying Capital Most Profitably.

14/25 Capital priorities for banks:
1. Balance sheet growth-regulatory must
2. Use excess capital for acquisitions, business or bank, and share repurchases.
3. Dividends: If a bank always trades at a high premium to earnings, like CBU, increasing the dividend is more appropriate.

15/25 Great banks ALWAYS have excess capital in order to take advantage of unforeseen opportunities. Understanding the value of time, not having to use excess capital immediately, is another quality I look for in a management team.

16/25 To summarize, topflight management teams continuously find more profitable ways to deploy excess capital than simply increasing the dividend.

Now let's discuss what we can learn from inaction that harms shareholder value.

17/25 A few blatant examples come to mind:
1. A bank that continues to be over-branched
2. A bank that has core fee businesses, wealth management, trust, insurance, that continue to be subscale and these businesses are more like "Hobbies" than businesses.

18/25 These examples are telltale signs that a management team is content, not willing to make tough decisions to cut expenses, and lacks motivation to find ways to scale fee income businesses.

19/25 With the new proposal for higher capital requirements for certain banks, do you think capital light businesses are less valuable or more valuable? Do higher capital requirements increase or decrease the profitability of loans, a capital-intensive business?

20/25 Another example is when a management team waits for a merger to close because "it will be easier to make changes." A merger announcement is no excuse to postpone actions that can be taken TODAY to improve shareholder value.

21/25 If I see a bank that possesses one or more of these "telltale signs", it is evident to me that this franchise is run like a bank not a business. So, what does this tell you about management?

22/25 Management is not asking the question "what can we do to increase profitability?" Great management teams always ask "can we do this better?" A curious mindset is vital. Often, in this type of organization, there are too many layers of management.

23/25 An overcrowded exec team results in a slow acting bank, causing any positive changes to take forever, if at all.

A noncentralized management team can produce a lack of proper information flow to the very top. The CEO could very well not know, but that is no excuse.

24/25 A CEO needs to have an "I can attitude" and do it yourself mind set. If not, the cycle continues. The best CEO's take responsibility for everything and don't say "well it's not my job."

25/25 In summary, understanding "the why and how" a management team both thinks and makes its decisions can be incredibly helpful in better predicting future returns. Actions or lack thereof, are clear signs of the capabilities and motivations of a given management team.

//Note: This post or this blog does not offer investment advice.//

Perry is currently the CEO of
PCW Advisors, a financial consulting firm focused on the community banking industry. PCW Advisors looks to serve community bank focused investment funds by providing unique and customized analysis that is significantly different than traditional research. Perry combines a deep understanding of the fundamentals of bank investing with a more specialized emphasis geared towards understanding decision making, to provide clients with actionable ideas. Before launching PCW Advisorsin December 2021, Perry worked as an analyst at Hovde Group, Ares Management, MJC Partners, and BDO. Perry’s work has earned high praise from many prominent investors in the financial sector. More recently, Perry’s work on the strategic side has received positive reviews from community bank management teams.

Perry graduated from the University of Southern California with a Business Administration degree. He holds licenses Series 7, 63, 79, 86 and 87.

Contact Information:

Phone: 310-384-6153