Tuesday, March 6, 2012

Regional Bank Basket Table/FCBC/Bought 50 SYBT at $21.84/Bought 50 UVSP at $15.1/Bought 50 of the Stock ETF VYM at $47.61

First Community Bancshares (Nasdaq:FCBC), own, signed a merger agreement with the People's Bank of Virginia (PBV), whereby FCBC would acquire PBV for a total valuation of approximately of $40.6 million. After completion of this acquisition, FCBC would become the 10th largest Virginia based bank. PBV owns 4 branches in the greater Richmond area. Peoples Bank FCBC anticipates that the acquisition will be accretive in its first full year.

The Chinese Premier lowered expectations for China's GDP growth to 7.5% from 8%. This news drove commodity stocks down yesterday, along with currencies whose value is perceived to be linked to commodities.

The European PMI number for services was reported by Markit at 49.3. As with the U.S. numbers published by ISM, any number below 50 indicates contraction. The ISM index for U.S. services rose to 57.3% in February from 56.8% in January.

I do believe that it is inevitable that the U.S. government will face a severe financial crisis, and neither political party will do anything material to avert it. Instead, each party will contribute, in relatively close to equal amounts, to causing that crisis. Ultimately, the American people will be responsible for what will inevitably happen, though few will recognize their culpability. Certainly, few members of the GOP tribe will accept even a smidgen of responsibility, seeing no relationship for example between the Bush tax cuts and the burgeoning federal deficit, and virtually all of them suffer collective amnesia about the trillion or so dollar cost of the IRAQ War. 

Paul Krugman notes correctly in his NYT column that the proposals made by GOP candidates for President will increase the deficit. I previously noted that this conclusion was reached by the non-partisan Committee for a Responsible Federal Budget (2/24/12 Post, see Primary Numbers: The GOP Candidates and the National Debt | Committee for a Responsible Federal Budget)  I would also view that organizations conclusions to be self-evident and obvious. 

Notwithstanding all credible evidence to the contrary, the GOP tribe members still believe that tax cuts for the wealthy, now called the Job Creators, will generate more revenue than lost. And that canard is actually believed by a substantial number of GOP tribe members who receive little or no benefit flowing from those cuts. Yet, many of them do receive benefits from the programs that the GOP plans to cut, and the most obvious one is Medicare, where the Ryan proposal, approved by virtually every GOP politician, would end up costing in premiums about twice as much as traditional Medicare for those 55 or under. The middle class and the poor would be the ones paying for more tax cuts benefiting primarily those who richly fill the GOP's campaign coffers. Modern Day GOP: No Longer A Conservative Party GOP's Plan To Bankrupt the Middle Class The GOP does not have to worry about losing the True Believers' support since they frequently have a disconnect between what they receive from the government in benefits and what they actually pay in taxes. No amount of facts inconsistent with their beliefs will change their opinions.

There have been a number of studies done that establish that most Americans are unaware of their reliance on federal programs. One study is referenced in Ezra Klein column at  Bloomberg.

Gallup poll shows that a majority of Americans have unfavorable opinions of both political parties.

I am under invested in my Regional Bank Basket Strategy after selling a number of positions. With the decline in prices last week, I started to add some new ones and will continue to do so on declines. My goal is to receive an averaged 10% annual total return with this strategy by investing between 40 and 50 thousand, and I am currently around seven thousand below that minimum target. So far, I have exceeded the 10% goal through a combination of realized gains and dividends that are being tracked in the Gateway Post for this topic.  Snapshots of the realized gains can be found at the end of REGIONAL BANK BASKET STRATEGY GATEWAY POST.

1. Bought 50 S.Y. Bancorp (SYBT) at $21.84 Last Wednesday (REGIONAL BANK BASKET STRATEGY)(see Disclaimer): S.Y. Bancorp is a bank holding company that is the parent company for the Stock Yards Bank & Trust Company headquartered in Louisville, Kentucky. Stock Yards has 30 full service banking offices located in Louisville, Indianapolis, and Cincinnati metropolitan markets. Twenty five of those locations are located in the Louisville market, Item 2 at page 8 of the 2011 Annual Report.

For the 4th quarter of 2011, the bank reported net income of $6.342 million or 46 cents per share, up from 44 cents in the 2010 4th quarter. As of 12/31/11, the net interest margin was 3.91%; the efficiency ratio was at 60.57%; the total risk based capital ratio was 14.63%; the allowance for loan losses as a percentage of NPLs was 127.67%; NPLs stood at 1.51% of total loans; and the tangible common equity ratio was 9.11%.

SYBT recently increased its quarterly dividend by 5.6% to 19 cents per share. SEC Filed Press Release At a total cost of $21.84, the current dividend yield would be around 3.48%.

Another positive from my viewpoint is that the bank did not participate in TARP. SEC Filed Press Release

SYBT has a trust preferred security.  SYBTP It is currently selling at a premium to its $10 par value. Prospectus

This stock was not walloped by the Near Depression. The trading range was mostly between $22 and $26 before the Near Depression, with a brief spurt to $34. While the stock sank some in early 2009, the bottom was soon found at around $20. SYBT Interactive Chart

Importantly, the dividend was not cut during the recession. The annual dividend rate was 57 cents per share in 2006; 63 cents in 2007; 68 cents in 2008 and 2009;  69 cents in 2010 and 72 cents in 2011. With the recent raise, the annual dividend is currently running at 76 cents per share. For those who have suffered with Citigroup, Bank of America and the other large financial institutions, this kind of dividend history is more comforting to the OG.

S.Y. Bancorp rose 67 cents yesterday to close at $22.26.

2. Bought 50 of the Stock ETF VYM at $47.61 Last Thursday (see Disclaimer): VYM is the symbol for the Vanguard High Dividend Yield ETF. The expense ratio for this fund is .13%.  I bought this fund in a Vanguard brokerage account where I do not pay a commission for trading Vanguard ETFs as one of their "Voyager" customers.

This fund invests in dividend paying large caps. Vanguard VYM - All fund holdings

I have been increasing my holdings in stock ETFs just in case a Stable VIX Pattern forms. Some other recent additions include VWO and VEU:  Bought 50 of the ETF VWO at $39.73Bought 50 of the Stock ETF VEU at $44

Vanguard High Dividend Yield ETF fell 3 cents yesterday to close at $47.56.

3. BOUGHT 50 UVSP at $15.10 Last Friday (Regional Bank Basket Strategy)(see Disclaimer): The main attraction of this small bank, headquartered in Souderton, Pennsylvania, is the 5.25 % dividend yield at my cost. I would be content to harvest a 10% annualized total return for this kind of investment, and the dividend gives me half of that return. Univest recently declared a 20 cent per share quarterly dividend. SEC Filed Press Release The stock went ex dividend yesterday.

There was across the board weakness in regional bank stocks last Friday. Normally, I would not buy a dividend, unless there is a downdraft in the stock price shortly before the ex dividend date to more than compensate for the dividend's after tax value.The price for UVSP had declined by more than the value of the dividend last Friday. The close on 2/28 was $16.01 and at $16.78 on 2/17/12. The stock was on my monitor list for potential adds to the regional bank basket so I noticed its abrupt decline last week just before the ex dividend date.

For the 2011 4th quarter, Univest reported net income of $5.3 million or 32 cents per share, up from 30 cents in the year ago quarter.

As of 12/31/11, the net interest margin was 3.96%; the efficiency ratio was 63.48%; the total risk based capital ratio was 15.56%; NPLs stood at 2.94% to total loans (high for my taste); and the allowance for loan losses to NPLs was 70.34%.

The bank did not participate in TARP:  SEC Filed Press Release

This bank operates in the Pennsylvania counties of Bucks, Chester, Montgomery and Lehigh. This is a link to the locations of the bank's 32 branches: Univest Bank Branches

While Univest did not cut its dividend during the Near Depression period, it has not raised it from its current quarterly rate of 20 cents per share since 2006. The annual rate was at 40 cents per share in 2003; 67 cents in 2004; 72 cents in 2005; 79 cents in 2006 and 80 cents starting in 2008 until now.

A long term chart, going back to 1998, reveals stock peaks at close to $35 per share in both 2004 and 2008. UVSP Interactive Chart

Adjusted for the ex dividend yesterday, Univest Corp. of Pennsylvania rose 36 cents to close at $15.36.

4. Regional Bank Basket Strategy Table:  I will frequently use basket strategies. I started the regional bank basket strategy in 2009 and had over 40 banks in this basket before cutting back. I have a loss in the First Niagara shares due to the incompetent decision made by management and its board after I bought the shares.  First Niagara: Just Another Incompetent Bank Board of Directors I am averaging down by reinvesting the dividend which was recently slashed by 50% due that incompetent decision. First Niagara Dividend Slash I was bushwhacked on that one.

I am not tracking shares purchased with reinvested dividends in this table. With a few exceptions, I am reinvesting the dividends. I am not reinvesting the dividends in banks where I have a large percentage gain such as UBSI and WASH. As mentioned above, I am waiting for opportunities to add to some existing positions or to purchase new ones. Most of these banks are relatively small.

As a general rule, I prefer to avoid taking my entire stock position with one purchase. So, even with baskets, where the total amount in each position is small, I will frequently slice the position into several orders and trade the small lots, averaging down in some cases, and selling the highest cost shares on pops to harvest gains and to lower my average cost using FIFO accounting.

An example in this basket would be my current 50 share position in FNB, which were the last shares bought in a cycle of buys and sells, with the shares purchased at $7.8 (July 2010).  Bought 50 FNB at 9.36 (April 2010); Bought 50 FNB at 8.42 (May 2010); Pared FNB: Sold 50 at $10 and 50 at $10.18 (December 2010). So, I harvested a gain on the highest cost shares after collecting a couple of dividends and kept the lowest cost shares which were bought last and are still owned as part of this basket.