Wednesday, October 19, 2011


This is my new Gateway Post for the Regional Bank Stocks Basket Strategy. This particular strategy started in the Spring of 2009. The dollar commitment will generally range between $40,000 to $50,000. Due to a spat of profit taking, I am considerably below the bottom end of that range as of today. 

I am tracking realized gains and losses at the end of this post. On a yearly basis, starting with 2010, I will note at the end of this post the total amount of dividends received from the stocks included in this strategy. Over the life of this strategy, I anticipate that dividends will provide a substantial part of my total return.   

The strategy is based on history. During my adult life, the banks have blown themselves up on three separate occasions. Real estate loans are frequently the main culprit in those episodes, and the problems are aggravated by a recession at least partly due to the banks making improvident and/or recklessly imprudent loans. Those frequently foolish loans are written down, credit conditions tighten even for worthy borrowers, and borrowers teetering on the edge before the economic downturn default causing more problems for the economy and the banks. 

The U.S. is currently experiencing the aftershocks of the latest banking fiasco precipitated by the Masters of Disaster who populate large financial institutions. The most recent episode was primarily caused by the improvident extension of home mortgage loans to clearly unqualified borrowers and by loans to developers of residential and commercial real estate. The origins of the crisis also involved widespread fraud in the origination of mortgage loans, both by borrowers and those who catered to unqualified borrowers. Many mortgage originators, now bankrupt, were nothing more or less than fraud factories.

All of those problems have been, and continue to be exacerbated by satanic creations such as Collateralized debt obligations Cubed and Squared. It is interesting that the GOP candidates for President want to abolish financial regulations and set the Masters of Disaster free again to perform their magic tricks, making money disappear into their pockets while disintegrating trillions. 

A similar problem developed in the late 1980s and early 1990s. Some refer to this period as the savings and loan crisis, but the problems included commercial banks too. Fraud was prevalent then too, but more limited to some S & Ls and some of their commercial borrowers, rather than to individual homeowners. Lending to real estate developers was imprudent and reckless which is standard for banking fiascos. Problems were exacerbated by inflation and the 1990-1991 recession.

After this mess was cleaned up, the stocks of the survivors entered into a long term secular bull market, lasting until the most recent fiasco due largely to self-inflicted wounds. The shares of some bank stocks started to top out in 2005, others in 2006 or 2007, and the remainder during the Near Depression period (2008- early 2009). And, as one would expect, the stock prices for many of them cratered to prices last seen in the early or mid-1990s, as managers destroyed in many cases over two decades of value creation and were richly compensated for their mistakes. Many of those banks are still hovering at or near two decade lows. 

Bankers will make the same type of mistakes over and over again. When business conditions improve, particularly during a long term bull cycle, they will pat themselves on the back as earnings and dividends increase virtually every year. Investors forget about the bankers' collective stupidity that caused the last near death experience. Many of the new generation of bankers, far more interested in bonuses for themselves than the financial health of their employers, will start to take on more extreme risks, based in part on a too rosy forecast about the future, as people start to assume that the next five years will be like the last five or ten.

In short, banks can not be buy and hold investments. Eventually, many of them will manage to destroy whatever value has been created under optimal financial conditions. Dividends that had been raised during the best of times will be eliminated or substantially reduced to preserve capital when the banks start to implode again due to reckless lending decisions. 

Between those periods of self destruction, banks can prove to be worthwhile investments, and will provide a source of income. Several institutions will prosper and grow during the banking crisis since their managers were not inept or stupid during the period leading up to the implosion. Those banks will not lower their dividends and will frequently expand their operations during the crisis through FDIC assisted acquisitions of failed banks. And there has been a lot of failed banks over the past two years. 

The regional bank strategy is a long term strategy that will last at least for five years, but no longer than 10. I would not give the banks more than 10 years before the same cycle of destruction renews itself. 

I am playing the potential rejuvenation of the banks in the following ways, buying stocks whose prices are depressed.

1. Buying banks that did not reduce their dividend during the Near Depression, did not accept TARP money, and have been growing their footprint through FDIC assisted acquisitions.  

 2. Buying banks that did not reduce their dividend during the Near Depression, did not accept TARP money, and growing more slowly and cautiously or using their capital position to expand by purchasing other strong banks. 

3. Banks that accepted TARP money and did not cut their dividend during the Near Depression.

4. Banks that made a lot of mistakes leading up to the Near Depression, sending their shares back to levels last seen in the early 1990s and at least have the potential to recover long term. These banks will have cut their dividends mostly to 1 cent per quarter and accepted TARP money because they needed the funds.  

5. Banks paying high current dividends based on their share price.

I will try to emphasize the several of the following financial criteria when making selections:

A. A dividend yield of over 3% based on my total cost, except for those banks bought in category 4 above.

B. Capital ratios well in excess of the minimum criteria for well capitalized banks. Regulatory Capital Categories

C.  An  efficiency ratios  of less than 60%.

D.  An allowance for non-performing loans to non-performing loans of more than 80%, preferably over 100%. As this number goes higher, I become more comfortable that the bank will not have a major earnings surprise due to a significant addition to its loan loss reserve.

E.  The ratio of non-performing loans to total loans less than 2%, except in category 4 referenced above where the number will invariably be greater than 2%. How well did the bank do during the Near Depression. If they kept NPLs less than 2% of total loans, then they are not wild and crazy, and may even be run by sensible people. Nonperforming Loans to  Total Loans  St. Louis Fed  Nonperforming Loans (past due 90+ days plus nonaccrual) Total Loans for U.S. Banks with average assets between $300M and $1B-St. Louis Fed Nonperforming Loans (past due 90+ days plus nonaccrual) / Total Loans for U.S. Peer Banks (with average assets less than $15B)

F. An above average net interest margin under current interest rate conditions. The St. Louis Federal Reserve provides the investor interested in this topic with some helpful charts:  Net Interest Margin for U.S. Banks with average assets under $1B)- St. Louis Fed Net Interest Margin for all U.S. Banks (USNIM) - St. Louis Fed Net Interest Margin for U.S. Banks with average assets between $1B and $15B - St. Louis Fed

G. I prefer to buy banks with a return on average assets over 1% and a return on equity of over 10%. Return on Average Assets for all U.S. Banks- St. Louis FedReturn on Average Assets for U.S. Banks with average assets between $1B and $15B- St. Louis FedReturn on Average Assets for U.S. Banks with average assets under $1B- St. Louis FedReturn on Average Assets for U.S. Banks with average assets between $100M and $300M- St. Louis FedReturn on Average Equity for U.S. Banks with average assets between $1B and $15B - St. Louis FedReturn on Average Equity for U.S. Banks with average assets under $1B- St. Louis FedReturn on Average Equity for U.S. Banks with average assets between $300M and $1B- St. Louis FedReturn on Average Equity for U.S. Banks with average assets under $300M- St. Louis FedReturn on Average Equity for all U.S. Banks- St. Louis Fed

For general data, see links at Reports of Condition and Income for All Insured U.S. Commercial Banks - St. Louis Fed;

There are several negatives applicable to most banks now. As a result, their share prices have been sliding for several months. An ETF proxy for the stocks in my regional bank basket would be the SPDR KBW Regional Banking ETF (interactive chart). This is a link to the sponsor's web site: SPDR KBW Regional Banking ETF

Increasing regulation by Washington will hurt many banks. The most negative piece of legislation for the banks was the Dodd–Frank Wall Street Reform and Consumer Protection Act and the Durbin Amendment in that Act. That later amendment was designed to aid large retailers and will end up costing consumers as banks find different ways to levy fees to recoup costs. I believe this "financial reform" legislation  will have a greater adverse impact on larger financial institutions (JPM, BAC, WFC, GS), rather than the smaller regional banks that are the focus of this strategy. Another problem is that the fall in intermediate and long term rates will hurt net interest margins and thereby reduce profitability. Lastly, housing prices continue to decline in many areas and unemployment remains stubbornly high. Consequently, it may take longer for these stocks to start a sustainable recovery compared to prior banking debacles.

While my basket has been losing value over the past several weeks, there was a strong rally in regional bank stocks yesterday (10/18/11), with my basket rising almost 5% in value yesterday.  During this recent slide, there have been similar rallies, generally of short duration, and then these stocks would resume a decline.  

The stocks that are currently owned can be found in tables periodically posted by me or by reviewing what has not been sold in Item # 2 Regional Bank Stocks. I am no longer using the first category reference in that post. Instead, stocks fitting the criteria of that category are now solely confined to the Lottery Ticket Strategy. A current list of banks included in the LT strategy, and still owned, can be found in LOTTERY TICKET PURCHASES: LINKS IN ONE POST. I try to keep that post up to date on sales and new purchases. In 2011, several regional banks have been added as LTs.

The following is a list of links discussing stocks bought and sold pursuant to this strategy, following by snapshots of those trades. 
Astoria Financial (AF)
Bought: 100 AF @ $13.08
Bought  50 AF @ $12.08
Sold 50 AF at $14.09
Sold 101 AF at $14.89

Bank of California (BANC)
Bought 50 BANC at $11.3 February 2013
Sold:  50 BANC at $13.5

Bank of Commerce (BOCH)
Bought 50 BOCH at $4.46
Sold BOCH at 3.8

BCB Bancorp (BCBP)
Bought 50 BCBP at $9
Rounded BCBP to 100 at $7.5
Bought 50 BCBP @ $8.82
Sold: 150 BCBP @ $9.4

Berkshire Hills Bancorp (BHLB)
Bought 50 BHLB AT $21.66
Sold 50 BHLB at $28.74+

Bridge Bancorp (BDGE)
Added 50 BDGE at $20.76 (sold highest cost shares)

Century Bancorp (CNBKA)
Bought 50 CNBKA at $20.53
Sold 50 CNBKA $22.92

Citizens Holding (CIZN)
Bought  50 CIZN @ $18.7
Bought: 50 CIZN @ $18.25
SOLD 100 CIZN @ $20.56

Citizens & Northern (CZNC)
Bought 50 CZNC at $11.77
Added 50 CZNC at $10.46
Sold 100 CZNC at $16.53

CVB Financial (CVBF)
Bought CVBF at $7.94
Sold 50 CVBF at $9.65
Sold 50 CVBF at 9.65

East West (EWBC)
Buy of 50 EWBC at $5.7
SOLD 50 EWBC at $19.04

Enterprise Bancorp (EBTC)
Bought 50 EBTC at $11.75
Added 50 EBTC at $10.33
Bought 50 EBTC at $11.27
Sold   50 EBTC @ $13
Sold 100 EBTC at $15.95

Financial Institutions (FISI)
Added 50 FISI at $19.8
Sold 50 of 150+ FISI at $21.26

First Bancorp (Maine) (FNLC)
Bought 50 FNLC at $12.79
Sold 52 FNLC at $15.55

First Bancorp of N.C. (FBNC)
Bought 50 FBNC at 12.58
Bought 50 FBNC at $12.01
Sold 50 FBNC at 13.25

First Community Bancshares (FCBC)
Bought 100 FCBC at $13.89
Sold 100 FCBC at $14.44
Bought 50 FCBC at $12.5

First Financial Bancorp Ohio (FFBC)
Added 50 FFBC at $15.95

First Interstate Bancsystem (FIBK)
Bought 50 FIBK at $15.64
Sold 51+ FIBK at $19.33

First Niagara (FNFG)
Bought 50 FNFG at 13.7
Sold 50 of 250 of FNFG at $14.67

Flushing Financial (FFIC)
Bought 50 FFIC at $12.18
Sold 50 FFIC @ $14.51
Added 50 FFIC at 11.05
Sold 50 FFIC at $13.53

F.N.B. (FNB)
Bought 50 FNB at $8.42
Bought 50 FNB at $9.36
Pared FNB: Sold 50 at $10 and 50 at $10.18

Glacier Bank (GBCI)
Bought 50 GBCI at $13
Sold 50 GBCI at $14.58
Bought 50 GBCI at $10.15
Sold 50 GBCI at $12.53

Great Southern Bancorp (GSBC)
Bought 50 GSBC at $18.55
Added 50 GSBC at $17.27
Sold 50 of 100 GSBC at $19.27
Sold Remaining 50 GSBC at $19.5

HopeFed (HFBC)
Bought 50 HFBC at $9.1
Added 50 HFBC at $9.26
Sold 102 HFBC at $8.01

Horizon Bancorp:
Bought 60 HBNC at $17.55
Sold 60 HBNC at $24.96

Hudson City (HCBK):
Bought 50 HCBK at $13.27
RB Adds 50 HCBK at $12.15
Sold 111+ HCBK at $8.74

Huntington Bancshares (HBAN)
Bought 50 Huntington Bank at $4.27
Added 40 shares of HBAN at $3.69
Sold 90 HBAN at $5.83

Keycorp (KEY)
Bought 50 KEY at $5.88
Sold KEY at $8.12
Bought 30 KEY at 8.75
Added 40 KEY at $7.87
Added 70 KEY at $8.77
Sold: 140 KEY at $11.8025

Lakeland Bancorp (LBAI)
Bought 100 LBAI at $9.46
Sold 100 LBAI at $11.04

Landmark (LARK)
Bought 50 LARK @ 16.6
SOLD 52 LARK at $18.75

Marshall & Ilsley (acquired)
Bought 50 MI at $5.84
Sold: 50 MI at $7.14

Merchants Bancshares (MBVT)
Bought 50 MBVT at $22.9
SOLD 50 MBVT at $26.5

Monarch Financial (MNRK)(split 6 for 5)
Bought 120 MNRK at $8.65
Sold 100 MNRK at $10.59
Bought 80 MNRK at $9.97
Sold 100 MNRK at $11.5

New Hampshire Thrift (NHTB)
Bought 100 NHTB at $9.51
Sold 100 NHTB at $12.15

New York Community Bancorp (NYCB)(symbol changed from NYB)
Bought 50 NYB at $10.57
Sold 50 NYB in IRA at $17.51
Bought 50 NYCB at $12.94-Regular IRA
Sold: 50 NYCB at $14.25-Regular IRA

Northrim Bancshares (NRIM)
Bought 50 NRIM at $16.66
Sold 50 NRIM at $20.05

Northwest Bancshares (NWBI)
Added 50 NWBI at $11.88
Bought 50 NWBI at $11.47
Added 50 NWBI at $11.10
Bought: 50 NWBI at $10.45
Sold 50 NWBI @ $12.5
Sold 156+ NWBI at $12.52

Old National Bank (ONB)
Bought 100 ONB at $11.85
SOLD 100 ONB at $13
Bought Back 50 ONB at $11.9
Sold 50 ONB at $14.12

Oneida Financial (ONFC)
Bought 50 ONFC at $7.7
Sold 50+ ONFC at $9.35

Oritani Financial (ORIT)
Bought 50 ORIT @ $11.58
Sold:  50 ORIT @ $12.49
Sold: 50 PFS @ $14.4
SOLD 50 PFS at $14.88

Pacific Continental (PCBK)
Bought 30 PCBK at $9.42
Added 70 PCBK AT $9
Sold PCBK at $12.99

People's United Financial (PBCT):
Bought 100 PBCT at $11.47
Sold 100 PBCT at $14.61

Porter Bancorp (PBIB)
Bought 50 PBIB at 14.1
Sold 50 PBIB at 14.7
Bought 50 PBIB at $14.1
Sold 1/2 PBIB at $10.18  for a Loss 

Premier Financial (PFBI)
Bought 50 PFBI at 7.95
Sold 50 PFBI at 6.46

Provident New York Bancorp (PBNY)
Bought 100 PBNY at $7.4
Sold 100 PBNY at $9.05

Provident Financial Services (PFS)
Bought 50 PFS at 12.74
Added 50 PFS at 11.68
Sold: 50 PFS @ 14.4
SOLD 50 PFS at 14.88

Renasant (RNST)
Bought 50 RNST at 14.14
Sold 50 RNST at 14.91
Bought: 50 RNST at 13.70
Added 50 RNST at 15.85

Southside Bancshares (SBSI)
Bought 50 SBSI at $19.49
Bought 50 SBSI @ $18.73
(5% stock dividend)
Sold 107+ SBSI at $20.5
Bought 100 SBSI at $20.4
Sold 100 SBSI at $21.53
Bought 50 SBSI at $20.2
Sold 50 SBSI at $21.27

Southwest Bancorp (OKSB)
Bought 50 OKSB at $6.84
Sold 50 OKSB at $13.19

Sterling Bancorp (STL)
Bought 50 STL at $6.58
Sold STL at $10.5
BOUGHT 88 STL AT $8.98
Added 112 STL at $8.69
Sold 200 STL at $11.39

Susquehanna (SUSQ)
Bought 50 SUSQ at $5.85
Sold 50 SUSQ @ $7.5

S.Y. Bancorp (SYBT)
Bought 50 SYBT at $21.84
SOLD 50 SYBT at 24.31
Bought 50 SYBT at $22.16
Sold 50 SYBT at $26.2

Tower Bancorp (acquired by Susquehanna)
Bought 40 TOBC at $21.35
Bought: 60 TOBC at $21.75
Sold 100 TOBC at $23.12

TrustCo (TRST)
Added 70 TRST at $5.9 (February 2010)
Bought 50 TRST at $5.45 (August 2010) 
Added 50 TRST @ $5.48 (October 2010) 
Added 100 TRST at $5.94 (February 2011)
Sold 308 TRST at $6.64
Bought 50 TRST at $6.3 (December 2009)
Sold 50 TRST at $7.29

Trustmark (TRMK)
Bought 50 TRMK at 19.57
Sold 50 TRMK at 24.7
Bought 50 TRMK at $21.54
Sold 50 Trustmark at $26.52

Union Bankshares (UNB)
Bought 50 UNB at $18
Sold 50 UNB at $19.5
Bought 50 UNB at $19.45
Sold 50 UNB at $24.56

United Bancorp (UBCP)
Bought 50 UBCP at $8.49
Sold 50 UBCP at $10.05

Univest (UVSP):
Bought 50 UVSP at $15.1
Sold UVSP at $20.5

Umpqua (UMPQ)
Bought 50 UMPQ at $12.05
Sold 50 UMPQ at $16.12

Wainwright (acquired)
Bought 50 WAIN at $8.72
Sold 50 Wain at $18.7-Being Acquired

Washington Banking Company (WBCO)
Added 50 WBCO at $13.3
Bought 100 WBCO at $13.46
Sold 151+ WBCO at $15

Washington Trust (WASH)
Bought 100 WASH at $15.26
Sold 50 of 100 WASH @ $22.44

Webster Financial (WBS)
Buy of 50 WBS at $4.58
Sold 50 WBS at $22.49

WesBanco (WSBC)
Bought 50 WSBC at $13.3
Sold 50 WSBC @ $20.01

Wilbur (acquired)
Bought 100 GIW at $7.03
Added 50 GIW at $6.55
Sold 151 GIW @ $9.26

Wilshire Bancorp (WIBC)
Bought 45 shares of  WIBC at $6.54
Added 65 Shares at $8.6
Sold 110 WIBC at $10.99
Bought 40 WIBC at $6.09
Sold 40 WIBC @ $6.8

Wilmington (acquired)
BOUGHT 30 WL at $9.98
Added 70 shares to WL $12.36
Sold 100 Wilmington Trust (WL) at $14.13

The following are snapshots of realized gains and losses from this strategy since its inception in 2009 but does not include snapshots or realized gains or losses of less than $30. Those items will offset.
Bold green letters indicate largest dollar and percentage gains. Some snapshots include realized gains and losses from reinvested dividends that are not tracked in Realized Gains Regional Banks

2009 KEY +$86.98


AF + $35.57

BCBP +$98.52

BOCH -$52.9


CVBF 50 SHARES +$65.6

EWBC 50 SHARES +$651.03

FNB 50 SHARES +$72.15

HBAN +74.06 LT/+$65.58 ST

MI 50 SHARES $49.04

2010 Regular IRA 50 NYB $331.03

OKSB 50 SHARES +$301.53

PBIB NET LOSS= -130.53

PFBI 50 SHARES  -90.41

PFS 50 SHARES +67.08

SUSQ 50 SHARES +66.54

WAIN +483.08/WILMINGTON +224.38/WILBER  +340.25/WIBC +343.82=$1,391.53


AF 101.0797  Shares $209.4
101 BRKL -63.5
CBU 51+ Shares + $65.58

100 CIZN +$185.61

CZNC 100 Shares +517.61

EBTC 100 Shares $491.11

EBTC 50 SHARES $46.58
FFIC 100 Shares +$200.70

GBCI 50 SHARES +$103.08

GSBC  100.932 SHARES +$115.81

HFBC  -62.73

HOPFED -68.5

MBVT 50 SHARES +$160.1

NRIM 50 SHARES +$153.58

NWBI +$201.89/ONFC $62.74/ORIT/SBSI +$120.9/STL +$176.1/WSBC 50 SHARES +$315.6 
OCFC 50 Shares +81.1
PBIB 53+ SHARES -624.48

PFS 50 SHARES +$144.08


2011 TOBC (BEING ACQUIRED) +$129.6

UNB 50 SHARES +$59.08

WASH 50 SHARES +$347.03

WBS 50 SHARES +879.52

FBNC +194/FCBC +35.6/FFIC +96.60/GBCI +59.1= $385.3 

TRMK 50 Shares +240.57
LARK 52 Shares $91.89

NHTB 100 Shares +248.02
HBNC 60 Shares +$428.68
UBCP 50 Shares +$50.39
FNLC 52 Shares +$123.88
GABC 52+ Shares +$111.71
SBSI 100 Shares +$97.05
FCBC 50 Shares +$136.08
SYBT 50 Shares +$107.58
ONB 100 Shares +$99.07
PBNY 100 Shares +$149.36
NBN 100 Shares +$64.07

MNRK 100 Shares +$186.06
2013 FIBK 51+ Shares +$175.18
2013 Regular IRA NYCB 50 Shares +$49.58
2013 SBSI 50 Shares +39.47
2013 STL 200 Shares +$491
2013 RNST 155+ Shares +$1,433.21
2013 HCBK 111+ Shares -$422.55
2013 ONB 50 Shares +$95.13
2013 BHLB 50 Shares +$338.12
2013 SYBT 50 Shares +$187.97
2013 UVSP 50 shares +$243.1
2013 UMPQ 50 Shares $187.58

2013 TRMK 50 Shares $233.07
2013 KEY 140 Shares +$429.32

2013 ANCX 50 Shares + $123.59
2013 WBCO 151+ Shares +$217.23
2013 PCBK 100 Shares +$362.92 (ST: $266.04; LT $96.88)
2013 PBCT 100 Shares +$298.47
2013 LBAI 100 Shares +$142.09
2013 FISI 50 Shares +$59.15
2013 TRST 308+ Shares +$238.38
2013 BANC 50 Shares +$95.98
2013 TRST 50 Shares $32.67
2013 BDGE 56 Shares +$200.65 ($189.05 ST; $11.15 LT)
2013 FFBC 57 Shares +$37.68

2014 UNB 50 Shares +$238.61
2014 MNRK 100 Shares +$163.5

Dividends 2010: $1,133.97
Dividends 2011: $1,660.57
Dividends 2012: $1,896.25 
Dividends 2013: $1,932.93 (total to 12/31/13=$6,623.72)
Total Realized Gains as of 2/18/2014  = +$15,808.58

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