Big Picture: No Change
Stable Vix Pattern (Bullish):
Recent Developments:
China's consumer price index rose 1.4% Y-O-Y in November, a five year low.
For 2015, Citigroup anticipates a "9% total return on global equities and a 1.5% return on fixed income." Barron's
OPEC forecasted that the demand for its oil in 2015 would decline to 28.9M barrels per day, down from an estimated 29.5M barrels per day this year. That forecast, along with a surprise rise in oil inventory for the week ending 12/5, sent crude prices tumbling down last Wednesday. Spot Prices for Crude Oil and Petroleum Products Perhaps their motive for making this prediction is not pure.
Oil inventory rose 1.5M barrels to 380.5M barrels while the consensus estimate was for a decline of 2.7M barrels.
EIA Petroleum Status Report 12/5/14.pdf
U.S. oil reserves continue rising, surpass 36 billion barrels for first time since 1975-EIA (12/5/2014)
Household net worth decreased slightly in the third quarter according to the Federal Reserve's Z.1 Flow of Funds report. Net worth was reported at $81.3 trillion. The value of stocks declined by $700B while the value of real estate increased by $245B. Household debt increased at an annualized rate of 2.7%.
Retail sales increased by .7% in November, compared to October, and were up 5.1% over November 2013. census.govpdf Retail sales ex-autos rose .5%. The consensus forecast was for a .4% gain and .1% ex autos.
***********************
1. Sold 206+ IRC at $10.945-Satellite Taxable Account (Equity REIT Common and Preferred Stock Basket)(see Disclaimer): Before the FED's Jihad Against the Savings Class was underway, I had a savings account at an online bank that was used to fund CD purchases.
When the FED announced its ZIRP policy late in 2008, I went online and purchased several longer term CDs, with the longest being 2 years as I recall. All of them paid more than 4%. It did not occur to me at that time that the Jihad Against the Savings Class would last at least 6 years. My best guess in November 2008 was 2 to 3 years.
As those CDs and others came due, I refused to accept the rates then being offered, which produced a negative real rate of return before taxes.
I set up a brokerage account instead and started to buy dividend paying stocks. I have a strong emphasis on capital preservation for those funds. I would be content to buy 1 year, FDIC insured CDs, with a 4% coupon, that pay interest monthly. Maybe I will be able to do that before I meet the Great Stock Jock in the Sky. It may be a close call however. Maybe it will happen when Congress decides to repeal the tax on my SS benefits, a tax on a tax.
Snapshot of Trade:
Snapshot of Profit:
Dividends: $67.68
Item # 3 Added 50 IRC at $9.93 (10/11/14 Post); Item # 6 Bought 150 IRC at $10.35 (3/3/14 Post)
Total Return: $189.91 (or 8.91% based on total cost of $2,130.58)
Security Description: The Inland Real Estate Corp. (IRC) is a self-advised and managed small REIT that owns retail centers, primarily in the Chicago and Minneapolis MSAs. IRC owned interests in 136 properties with 15M square feet of leasable space as of 9/30/14. The company is expanding into the Southeast. Corporate Profile
Pictures of Recent Acquisitions
Company Website: Inland Real Estate
Inland Real Estate Profile Page at Reuters
Inland Real Estate Key Developments Page at Reuters
I view this REIT's dividend history extremely negatively for two reasons. First, there was a monthly dividend slash from $.08167 to $.0475, effective for the May 2009 payment. Second, the dividend has not been raised since that slash. Inland Real Estate Corporation (IRC) Dividend History
The long term chart shows a rise from $9.5 (May 2004) to $20.83 (February 2007), followed by a downward sloping plunge to $6+ in March 2009.
The last investor presentation was made in October 2014: IRC (map showing concentration in Chicago and Minneapolis at page 8)
SEC Filings for IRC
Inland Real Estate sold 4M shares of a 6.95% series B cumulative preferred stock in October. The offering price to the public was $25, raising an estimated $96.45M net of the underwriting discount and before IRC's expenses related to the offering. Inland Real Estate Corp. 6.95% Cumulative Preferred Series B (IRC.PB )
Inland Real Estate announced on 10/6/14 that it had completed the acquisition of Prairie Crossings cash consideration of $24.7M. That retail development is in "an affluent southwest suburb of Chicago" and consists of approximately 109,000 square feet of leasable space. The anchor tenants are Office Depot, Bed Bath & Beyond, Kohl's and Sports Authority. Other tenants include Panera Bread, Game Stop and Chipotle. The press release has a picture.
Inland Real Estate also announced in October a joint venture to develop a 158,000 square foot retail power center in Elizabeth City, N.C. that is approximately 70% pre-leased to several retail firms including TJ Maxx, Dollar Tree and Hobby Lobby.
Last Quarterly Report: IRC- Q/E 9/30/14 SEC Form 10-Q
Earnings Press Release 11/4/14
Rationale: I am going to transfer ownership of this REIT to the Roth IRA.
The dividend slash in 2009, going from $.08167 to $.0475, and the lack of any raises since that slash, takes the air out of meaningful capital appreciation possibilities in my opinion. The best near or intermediate term option for IRC shareholders would be an acquisition at a premium price (20% to 30% above the current market price). It is hard for me see the current management generating material upside share appreciation given this REIT's history.
As mentioned above, I had a strong capital preservation emphasis in this satellite taxable account.
Future Buys: I will postpone my next purchase until I can buy shares at below $10.25.
Closing Price Today: IRC: $10.95 +0.03 (+0.27%)
2. Bought 50 BKSC at $14.6 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer): The last update for this basket strategy was published on 12/3/14. With this purchase, I am using some of the proceeds realized from selling Susquehanna Bancshares after it agreed to be acquired by BB & T. Sold SUSQ: 100 at $13.2 and 30 at $13.10-Being Acquired by BBT
Snapshot of Trade: This stock is a micro cap and is lightly traded. The average three month volume at the time of my trade was 3,128. The total market capitalization is about $65+M at a $14.6 market price.
I used a limit order to buy this odd lot. A bid-ask spread of $.10 to $.2 is fairly normal. My first two efforts to buy using limit orders were unsuccessful.
Prior Trades: None
Company Description: The Bank of South Carolina (BKSC) is the holding company for the Bank of South Carolina which has four banking offices in the Charleston, S.C. area.
Pictures of Main Office and 3 Branches: Locations
The main office is located at 256 Meeting Street, Charleston, S.C. (256 Meeting St - Google Maps).
The bank's South Carolina market share for deposits was just .46% and at 3.35% in Charleston country.
The Bank of South Carolina did not participate in TARP, which I view positively.
Dividends: I would give this bank a "C" for its dividend history described below. While this history is understandable under the circumstances, I still view it negatively.
The company paid a 10% stock dividend in 2010 (page 9) and several others prior to then. BKSC Historical Prices
The current quarterly dividend is $.13 per share. Dividends A $.10 special dividend was paid in October 2014. Prior special dividends were paid in 2006 ($.0929 per share), 2003, 2002, 2000, and 1997 ($.1365)
The Bank omitted the 2009 third quarter dividend in order to increase loan loss reserves. It appears that the 2010 dividends for the first and second quarters were likewise omitted.
The bank then resumed its dividend payments after slashing the quarterly rate from the prior $.1455 per share to $.0909 (both penny rates are adjusted for the 10% stock dividend paid in 2010).
At the current quarterly rate of $.13 per share, the dividend yield is about 3.56% at a total cost of $14.6 per share.
Chart: The long term chart, which starts in September 1986, looks good to me but I am easier to please than most. BKSC Interactive Stock Chart
There has been some drama along the way.
After a parabolic spike from $2.85 (April 2005) to $13.82 (April 1998), there was a price adjustment to that parabola that took the price down to $6.75 (April 2000), a period that coincided with a recession and the infamous savings and loan crisis that ended up costing taxpayers an estimated $124B to clean up.
The stock thereafter went into a channel pattern trade, mostly churning in the $6 to $9 range, before taking off again. The apex, near $15.65, was hit in August 2006, whereupon the stock started to roll over again. Regional bank stocks started to roll over at various times throughout 2006, giving an early warning signal of problems that the overall market was ignoring until 2008.
A lower channel was then formed, starting in October 2008 and lasting until March 2013, where the stock price churned largely between $9 to $12. By September 2013, the stock had reached an all time high over $16 before retreating to its current level. Regional bank stocks have been churning in price throughout 2014 after having robust gains in 2013.
The regional bank ETF KRE, which I own, had a 2013 total return of 47.5% based on price. KRE's total return was -1.75% in 2014 through 12/10/14.
Last Earnings Report: The earnings reports during 2014 has not been inspiring, but contain many positive qualities that justified a nibble at this time. BKSC reported diluted earnings per share of $.25, up from $.24 reported in the 2013 third quarter. That is the uninspiring part.
The following informing is sourced from the last 10-Q filing: Q/E 9/30/14 SEC Form 10-Q
The returns on average assets and average equity were 1.23% and 11.52% respectively (page 40).
Deposits increased 10.31% or $31.774+M to $329.275+M compared to the 2013 third quarter (page 39) Non-interest bearing demand deposits constituted 33.21% of the total. The average yield on interest bearing deposits was .19% (page 40)
Average loans increased by $6.257M. Outstanding loans equaled 69.75 of total deposits at quarter's end.
The risk-based capital ratio was good at 14.81% as of 9/30/14 (page 48)
For the third quarter, the bank had charge-offs of $18,038 and recoveries of $12,206. The allowance for loan losses to total loans stood at 1.47% as of 9/30/14.
Bank of South Carolina Corporation Announces Third Quarter Earnings
I took the following information from a fact sheet prepared by the bank that compiled data for the trailing 4 quarters: BKSC.pdf
ROAA: 1.19%
ROAE: 11.66%
Net Interest Margin 3.69%
Efficiency Ratio: 60.24
Loans/Deposit Ratio: 69.75
NPA Ratio: .33% (non-performing assets to total assets)
Allowance of Loan Losses to NPAs: 275.28%
The NPA ratio is excellent.
The coverage ratio of 275.28% is comforting for a new owner.
BKSC's returns on average assets and average equity are well above BKSC's peer group numbers. Generally, I like to see ROA at over 1% and ROE over 10%.
Rationale: On balance, this small micro cap bank appears to be competently managed, as reflected in the preceding data.
Prior to the recent Near Depression, the bank was steadily raising its dividend, going from a quarterly rate of $.0063 in 1989 to $.1455 in 2007. Those numbers appear to be adjusted for the several stock dividends paid by the bank.
Hopefully, the bank can return to a similar growth path in the coming years. The dividend rate doubled from $.0727 (first paid in the 2005 first quarter) to $.1455 (first paid in the 2007 second quarter).
Recessions and bank profits do not go together well. The last recession was a particularly bad for the banking industry. The FDIC has a long list of banking failures: FDIC: Failed Bank List
Needless to say, when the FDIC seizes the operating subsidiary of a bank holding company, the bank holding company has lost its principal asset. The liabilities at the holding company level will most likely exceed the market value of any remaining assets. In other words, the common and any preferred stocks become worthless.
Knowing that the downside risk is a zero stock price after an FDIC seizure of a failed bank, I place some emphasis on banks that successfully navigated the last Near Depression, continuing to earn profits and paying dividends.
I can look a 10-K filing and find that pertinent historical data that tells me how the bank performed during the last major banking crisis.
BKSC remained profitable in 2008-2013, and I view that as important. Annual E.P.S. did decline Y-O-Y in 2009 but then increased in each year thereafter:
Historical Data 2013 10-K at page 11
I would describe the Charleston area as a vibrant economy. Forbes (tied for 7th in projected 2015 job growth); Charleston SC Employer Statistics Population grew 7.2% to 712,200 between 2010-2013.
Given its small size, this bank would be a mere morsel for a large banking institution who wants to expand in the Charleston, S.C. geographic area. I would not base an investment decision based on that possible outcome.
Risks: Bank stocks will be poor performers during a recession. Hopefully, investors do not need to be reminded of that fact.
BKSC is a small fish even in its home market. It has several large and well known competitors. Many banking customers prefer to avoid those large institutions whenever possible that allows for a small bank like BKSC to find a niche.
Net interest margin compression is an ongoing problem for banks. Deposits have already repriced to abnormally low levels and have no meaningful downside left. With the decline in interest rates, the spread between the cost of funds and the yields on investments and loans contracts, and the net interest margin spread is a major source of bank earnings and earnings growth.
Net Interest Margin for all U.S. Banks-St. Louis Fed
Rightly or wrongly, investors believe that a rise in intermediate and long term rates will help banks by improving their net interest margins. Regional banks had an exceptional year in 2013 when intermediate and longer term interest rates rose significantly. I would note that it takes time for a positive impact to occur and the rise in rates can hurt profits too. A number of regional banks saw their mortgage origination business decline significantly during that rate spike last year. The bank's investment portfolio will also be declining in value and there will be less profits available from selling available for sale securities.
In part, I view the regional bank basket as an interest rate hedge of sorts for my somewhat larger REIT basket: REIT and Regional Bank Baskets
Banks have been faced with increases in regulatory costs since the recent Near Depression.
Future Buys: Whenever I buy 50 shares, I am most likely contemplating a possible average down at a lower price and have simply chopped a potential 100 share order into two pieces. While I do not have a downside target price set, I would consider buying the other 50 shares near $14. If there is no material adverse change, I will buy the next 50 shares at below $14.
China's consumer price index rose 1.4% Y-O-Y in November, a five year low.
For 2015, Citigroup anticipates a "9% total return on global equities and a 1.5% return on fixed income." Barron's
OPEC forecasted that the demand for its oil in 2015 would decline to 28.9M barrels per day, down from an estimated 29.5M barrels per day this year. That forecast, along with a surprise rise in oil inventory for the week ending 12/5, sent crude prices tumbling down last Wednesday. Spot Prices for Crude Oil and Petroleum Products Perhaps their motive for making this prediction is not pure.
Oil inventory rose 1.5M barrels to 380.5M barrels while the consensus estimate was for a decline of 2.7M barrels.
EIA Petroleum Status Report 12/5/14.pdf
U.S. oil reserves continue rising, surpass 36 billion barrels for first time since 1975-EIA (12/5/2014)
Household net worth decreased slightly in the third quarter according to the Federal Reserve's Z.1 Flow of Funds report. Net worth was reported at $81.3 trillion. The value of stocks declined by $700B while the value of real estate increased by $245B. Household debt increased at an annualized rate of 2.7%.
Retail sales increased by .7% in November, compared to October, and were up 5.1% over November 2013. census.govpdf Retail sales ex-autos rose .5%. The consensus forecast was for a .4% gain and .1% ex autos.
***********************
1. Sold 206+ IRC at $10.945-Satellite Taxable Account (Equity REIT Common and Preferred Stock Basket)(see Disclaimer): Before the FED's Jihad Against the Savings Class was underway, I had a savings account at an online bank that was used to fund CD purchases.
When the FED announced its ZIRP policy late in 2008, I went online and purchased several longer term CDs, with the longest being 2 years as I recall. All of them paid more than 4%. It did not occur to me at that time that the Jihad Against the Savings Class would last at least 6 years. My best guess in November 2008 was 2 to 3 years.
As those CDs and others came due, I refused to accept the rates then being offered, which produced a negative real rate of return before taxes.
I set up a brokerage account instead and started to buy dividend paying stocks. I have a strong emphasis on capital preservation for those funds. I would be content to buy 1 year, FDIC insured CDs, with a 4% coupon, that pay interest monthly. Maybe I will be able to do that before I meet the Great Stock Jock in the Sky. It may be a close call however. Maybe it will happen when Congress decides to repeal the tax on my SS benefits, a tax on a tax.
Snapshot of Trade:
 |
| 2014 IRC 206+ SHARES +$122.33 |
Item # 3 Added 50 IRC at $9.93 (10/11/14 Post); Item # 6 Bought 150 IRC at $10.35 (3/3/14 Post)
Total Return: $189.91 (or 8.91% based on total cost of $2,130.58)
Security Description: The Inland Real Estate Corp. (IRC) is a self-advised and managed small REIT that owns retail centers, primarily in the Chicago and Minneapolis MSAs. IRC owned interests in 136 properties with 15M square feet of leasable space as of 9/30/14. The company is expanding into the Southeast. Corporate Profile
Pictures of Recent Acquisitions
Company Website: Inland Real Estate
Inland Real Estate Profile Page at Reuters
Inland Real Estate Key Developments Page at Reuters
I view this REIT's dividend history extremely negatively for two reasons. First, there was a monthly dividend slash from $.08167 to $.0475, effective for the May 2009 payment. Second, the dividend has not been raised since that slash. Inland Real Estate Corporation (IRC) Dividend History
The long term chart shows a rise from $9.5 (May 2004) to $20.83 (February 2007), followed by a downward sloping plunge to $6+ in March 2009.
The last investor presentation was made in October 2014: IRC (map showing concentration in Chicago and Minneapolis at page 8)
SEC Filings for IRC
Inland Real Estate sold 4M shares of a 6.95% series B cumulative preferred stock in October. The offering price to the public was $25, raising an estimated $96.45M net of the underwriting discount and before IRC's expenses related to the offering. Inland Real Estate Corp. 6.95% Cumulative Preferred Series B (IRC.PB )
Inland Real Estate announced on 10/6/14 that it had completed the acquisition of Prairie Crossings cash consideration of $24.7M. That retail development is in "an affluent southwest suburb of Chicago" and consists of approximately 109,000 square feet of leasable space. The anchor tenants are Office Depot, Bed Bath & Beyond, Kohl's and Sports Authority. Other tenants include Panera Bread, Game Stop and Chipotle. The press release has a picture.
Inland Real Estate also announced in October a joint venture to develop a 158,000 square foot retail power center in Elizabeth City, N.C. that is approximately 70% pre-leased to several retail firms including TJ Maxx, Dollar Tree and Hobby Lobby.
Last Quarterly Report: IRC- Q/E 9/30/14 SEC Form 10-Q
Earnings Press Release 11/4/14
Rationale: I am going to transfer ownership of this REIT to the Roth IRA.
The dividend slash in 2009, going from $.08167 to $.0475, and the lack of any raises since that slash, takes the air out of meaningful capital appreciation possibilities in my opinion. The best near or intermediate term option for IRC shareholders would be an acquisition at a premium price (20% to 30% above the current market price). It is hard for me see the current management generating material upside share appreciation given this REIT's history.
As mentioned above, I had a strong capital preservation emphasis in this satellite taxable account.
Future Buys: I will postpone my next purchase until I can buy shares at below $10.25.
Closing Price Today: IRC: $10.95 +0.03 (+0.27%)
2. Bought 50 BKSC at $14.6 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer): The last update for this basket strategy was published on 12/3/14. With this purchase, I am using some of the proceeds realized from selling Susquehanna Bancshares after it agreed to be acquired by BB & T. Sold SUSQ: 100 at $13.2 and 30 at $13.10-Being Acquired by BBT
Snapshot of Trade: This stock is a micro cap and is lightly traded. The average three month volume at the time of my trade was 3,128. The total market capitalization is about $65+M at a $14.6 market price.
I used a limit order to buy this odd lot. A bid-ask spread of $.10 to $.2 is fairly normal. My first two efforts to buy using limit orders were unsuccessful.
Prior Trades: None
Company Description: The Bank of South Carolina (BKSC) is the holding company for the Bank of South Carolina which has four banking offices in the Charleston, S.C. area.
Pictures of Main Office and 3 Branches: Locations
The main office is located at 256 Meeting Street, Charleston, S.C. (256 Meeting St - Google Maps).
The bank's South Carolina market share for deposits was just .46% and at 3.35% in Charleston country.
The Bank of South Carolina did not participate in TARP, which I view positively.
Dividends: I would give this bank a "C" for its dividend history described below. While this history is understandable under the circumstances, I still view it negatively.
The company paid a 10% stock dividend in 2010 (page 9) and several others prior to then. BKSC Historical Prices
The current quarterly dividend is $.13 per share. Dividends A $.10 special dividend was paid in October 2014. Prior special dividends were paid in 2006 ($.0929 per share), 2003, 2002, 2000, and 1997 ($.1365)
The Bank omitted the 2009 third quarter dividend in order to increase loan loss reserves. It appears that the 2010 dividends for the first and second quarters were likewise omitted.
The bank then resumed its dividend payments after slashing the quarterly rate from the prior $.1455 per share to $.0909 (both penny rates are adjusted for the 10% stock dividend paid in 2010).
At the current quarterly rate of $.13 per share, the dividend yield is about 3.56% at a total cost of $14.6 per share.
Chart: The long term chart, which starts in September 1986, looks good to me but I am easier to please than most. BKSC Interactive Stock Chart
There has been some drama along the way.
After a parabolic spike from $2.85 (April 2005) to $13.82 (April 1998), there was a price adjustment to that parabola that took the price down to $6.75 (April 2000), a period that coincided with a recession and the infamous savings and loan crisis that ended up costing taxpayers an estimated $124B to clean up.
The stock thereafter went into a channel pattern trade, mostly churning in the $6 to $9 range, before taking off again. The apex, near $15.65, was hit in August 2006, whereupon the stock started to roll over again. Regional bank stocks started to roll over at various times throughout 2006, giving an early warning signal of problems that the overall market was ignoring until 2008.
A lower channel was then formed, starting in October 2008 and lasting until March 2013, where the stock price churned largely between $9 to $12. By September 2013, the stock had reached an all time high over $16 before retreating to its current level. Regional bank stocks have been churning in price throughout 2014 after having robust gains in 2013.
The regional bank ETF KRE, which I own, had a 2013 total return of 47.5% based on price. KRE's total return was -1.75% in 2014 through 12/10/14.
Last Earnings Report: The earnings reports during 2014 has not been inspiring, but contain many positive qualities that justified a nibble at this time. BKSC reported diluted earnings per share of $.25, up from $.24 reported in the 2013 third quarter. That is the uninspiring part.
The following informing is sourced from the last 10-Q filing: Q/E 9/30/14 SEC Form 10-Q
The returns on average assets and average equity were 1.23% and 11.52% respectively (page 40).
Deposits increased 10.31% or $31.774+M to $329.275+M compared to the 2013 third quarter (page 39) Non-interest bearing demand deposits constituted 33.21% of the total. The average yield on interest bearing deposits was .19% (page 40)
Average loans increased by $6.257M. Outstanding loans equaled 69.75 of total deposits at quarter's end.
The risk-based capital ratio was good at 14.81% as of 9/30/14 (page 48)
For the third quarter, the bank had charge-offs of $18,038 and recoveries of $12,206. The allowance for loan losses to total loans stood at 1.47% as of 9/30/14.
Bank of South Carolina Corporation Announces Third Quarter Earnings
I took the following information from a fact sheet prepared by the bank that compiled data for the trailing 4 quarters: BKSC.pdf
ROAA: 1.19%
ROAE: 11.66%
Net Interest Margin 3.69%
Efficiency Ratio: 60.24
Loans/Deposit Ratio: 69.75
NPA Ratio: .33% (non-performing assets to total assets)
Allowance of Loan Losses to NPAs: 275.28%
The NPA ratio is excellent.
The coverage ratio of 275.28% is comforting for a new owner.
BKSC's returns on average assets and average equity are well above BKSC's peer group numbers. Generally, I like to see ROA at over 1% and ROE over 10%.
Rationale: On balance, this small micro cap bank appears to be competently managed, as reflected in the preceding data.
Prior to the recent Near Depression, the bank was steadily raising its dividend, going from a quarterly rate of $.0063 in 1989 to $.1455 in 2007. Those numbers appear to be adjusted for the several stock dividends paid by the bank.
Hopefully, the bank can return to a similar growth path in the coming years. The dividend rate doubled from $.0727 (first paid in the 2005 first quarter) to $.1455 (first paid in the 2007 second quarter).
Recessions and bank profits do not go together well. The last recession was a particularly bad for the banking industry. The FDIC has a long list of banking failures: FDIC: Failed Bank List
Needless to say, when the FDIC seizes the operating subsidiary of a bank holding company, the bank holding company has lost its principal asset. The liabilities at the holding company level will most likely exceed the market value of any remaining assets. In other words, the common and any preferred stocks become worthless.
Knowing that the downside risk is a zero stock price after an FDIC seizure of a failed bank, I place some emphasis on banks that successfully navigated the last Near Depression, continuing to earn profits and paying dividends.
I can look a 10-K filing and find that pertinent historical data that tells me how the bank performed during the last major banking crisis.
BKSC remained profitable in 2008-2013, and I view that as important. Annual E.P.S. did decline Y-O-Y in 2009 but then increased in each year thereafter:
Historical Data 2013 10-K at page 11
I would describe the Charleston area as a vibrant economy. Forbes (tied for 7th in projected 2015 job growth); Charleston SC Employer Statistics Population grew 7.2% to 712,200 between 2010-2013.
Given its small size, this bank would be a mere morsel for a large banking institution who wants to expand in the Charleston, S.C. geographic area. I would not base an investment decision based on that possible outcome.
Risks: Bank stocks will be poor performers during a recession. Hopefully, investors do not need to be reminded of that fact.
BKSC is a small fish even in its home market. It has several large and well known competitors. Many banking customers prefer to avoid those large institutions whenever possible that allows for a small bank like BKSC to find a niche.
Net interest margin compression is an ongoing problem for banks. Deposits have already repriced to abnormally low levels and have no meaningful downside left. With the decline in interest rates, the spread between the cost of funds and the yields on investments and loans contracts, and the net interest margin spread is a major source of bank earnings and earnings growth.
Net Interest Margin for all U.S. Banks-St. Louis Fed
Rightly or wrongly, investors believe that a rise in intermediate and long term rates will help banks by improving their net interest margins. Regional banks had an exceptional year in 2013 when intermediate and longer term interest rates rose significantly. I would note that it takes time for a positive impact to occur and the rise in rates can hurt profits too. A number of regional banks saw their mortgage origination business decline significantly during that rate spike last year. The bank's investment portfolio will also be declining in value and there will be less profits available from selling available for sale securities.
In part, I view the regional bank basket as an interest rate hedge of sorts for my somewhat larger REIT basket: REIT and Regional Bank Baskets
Banks have been faced with increases in regulatory costs since the recent Near Depression.
Future Buys: Whenever I buy 50 shares, I am most likely contemplating a possible average down at a lower price and have simply chopped a potential 100 share order into two pieces. While I do not have a downside target price set, I would consider buying the other 50 shares near $14. If there is no material adverse change, I will buy the next 50 shares at below $14.
