Monday, July 29, 2013

Updated Tables for Regional Bank and Lottery Ticket Basket Strategies/Sold: 100 FFEX at $2.07 & 50 NVTL at $4.04/Bought 100 DSS at $1.6 & 100 GST at $2.68/PBCT, FNFG, UNB, PCBK, TRST, MBVT, WASH, LBAI, FNB, NYB, BRKL, FISI, UBSI, WTBA

1. Update of Lottery Ticket Basket Strategy

The Lottery Ticket Basket Strategy uses a deep contrarian value strategy, appropriately characterized as catching a "falling knife". A common criteria for the stocks contained in this basket is a smashed stock price at the time of purchase and an ugly looking chart. Any technical analyst would most likely have a sell rating on the stock.

Selections are made primarily on statistical criteria including price to book, price to sales, forward P/E, cash per share and/or free cash flow. I spend anywhere from thirty minutes to an hour researching a potential purchase prior to purchase.

For many selections, I may be pessimistic about the firm's future, but not as pessimistic as the market. I will also occasionally see a ray of light at the end of a dark tunnel. Since I expect failures, which are inevitable and unavoidable in this kind of approach, I limit my exposure to $300 per stock plus any prior trading profits. 

After experiencing some success with this strategy, I now have a requirement that my total investment in all LT holdings can not exceed my total realized gains for this basket strategy. My total exposure is currently under $7,000.

I am not finding much of anything to buy in this basket, other than gold mining stocks, but they look to hot to touch.

The name of the strategy aptly describes the risk. It is somewhat analogous in many cases to playing a hand of blackjack for the purchase amount knowing that the card count favors the house. It is a form of entertainment and an alternative to a casino visit. Based on the results to date, this strategy is far more likely to produce positive results even with the LB's skill at the tables. The primary purpose of the LT strategy is to entertain Right Brain, let it swing for the fences with up to $300, and keep the Nit Wit from interfering with Left Brain's management of Headknocker's portfolio.

Snapshots of realized gains can be found at the end of the Gateway Post on this topic: Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

Total Realized Gain Since 2009 Inception: $12,729.56

Snapshots as of 7/26/13 of Largest Percentage Unrealized Gains:

FIAT +53.43%
Forest City +51.54%
Susquehanna +46.58%

Sunopta +43.87%
Capstone Turbine +41.35%
National Penn +35.76%
New Purchase See Below: Gastar +29.37%
My largest unrealized loss continues to be Velti at -87%. I have had several come back from 50% to 70% unrealized losses but none as large as 87%.

A. Bought 100 of GST at $2.68 (see Disclaimer): 

Snapshot of Trade:

Gastar Exploration (GST) is a small energy exploration and production (E & P) company.

Company Website: Welcome to Gastar  (Gastar Operations)

Based on the estimates made by seven analysts, the current consensus E.P.S. for 2013 is $.38 and $.46 in 2014. GST Analyst Estimates The forward P/E would therefore be 5.83 based on the forward 2014 estimate and a total cost per share of $2.68.

For the 2013 first quarter, Gastar reported adjusted earnings of $.09 per share, an improvement over the adjusted loss of 6 cents per share for the 2012 first quarter. The 2013 non-GAAP number excludes the impact of an unrealized hedging loss and litigation settlement cost of $1M. Revenues increased 96% to $20.9M. The increase in revenues was primarily due to a 36% growth in production and a 44% increase in average sales price per Mcfe including the impact of realized hedging activity. For the 2013 second quarter, the company expects net average production of 52-55 MMcfe per day with liquids (primarily natural gas liquids) accounting for 30% to 34%  GST 1Q13 Financial Results (MMcfe=one million cubic feet of gas equivalent-MMC: Glossary of Oil and Gas Terms)

Key Developments Page at Reuters

Company Website: Gastar Exploration

Earlier this year, Gastar sold $200M of 8.625% senior secured notes due in 2018. SEC Filed Press Release;  Form 8-K

Gastar also has outstanding a 8.625% cumulative preferred stock with a $25 par value. Definitive Prospectus Supplement Dividends are paid monthly. There is an usual penalty provision in the event Gastar defers a dividend payment which, along with the high coupon, is indicative of how institutions view this firm's credit. The public offering was at $23.25 per share, rather than at par value, a red flag showing institutional concern about Gastar's credit worthiness long term. ($1.16 per share was paid to the underwriters, leaving Gaspar with $22.09 per share or net proceeds of $14,275,041)

The company has been selling some some assets.

Back in April, the company announced the sale of 16,300 net leaseholds acres in the Hilltop area of East Texas for $46M, subject to a subsequent accounting adjustment. 8-K Asset Disposal That transaction was recently extended to give the buyer more time to secure financing. 8-K Cubic Extension 3rd Amdmt The new deadline is 7/1.

A few days ago the company announced a decision to sell "non-core" Oklahoma properties for $62M, which were part of the acreage acquired by Gastar in a recent settlement with Chesapeake. Gastar Exploration Announces Agreement to Sell its Interest in Non-Core Oklahoma Acreage for $62 million

Chesapeake Settlement: SEC Filing

I am not going to discuss here in detail what one GST bull calls "ancient history". I was not aware of it until the bullish investor mentioned that GST had just won a case on appeal, without providing any specifics. Seeking Alpha

My curiosity was aroused further when I noted that this case, filed by Gastar against its insurance company, was not even mentioned in the 10-K section involving litigation. The brief description provided by the Lexis Nexis link given by that author referred to a "fraudulent investment scheme involving thoroughbred breeding mare leases".

Say What? Horses? Isn't Gastar an a E & P energy company?

Well that just aroused my curiosity, needless to say, and I have left some comments and links to court decisions and SEC filings in that SA article. The author did not want to discuss it. I wonder if he has figured out my work history by the fact that I found so quickly a very recent U.S. Sixth Circuit decision affirming a summary judgment issued by a Kentucky federal judge. That is something that your average SA commenter is not likely to do.

The lawsuit against the insurance coverage involves the carrier's denial of coverage for the lawsuits filed against Gastar involving those horse leases. GST incurred legal expenses and settled seven lawsuits for $21.2M in cash: Page F-40, GST-2011.12.31-10K

If GST eventually wins the case, it will receive monetary damages in some amount.

How much?

Since GST has not issued a press release or discussed this case in its SEC filings, to my knowledge, I can not estimate that potential recovery without knowing the deductible and the policy limits, as I noted in a more recent comment to this SA author's latest bullish article published at Seeking Alpha, where he stated that a favorable result "could return an additional $.42 per share of cash to the company".

Since GST has around 64 million shares outstanding, that $.42 cent per share number assumes that the entire settlement amount and attorney's fees would be recoverable when and if GST wins the insurance coverage issue. That would necessitate a relatively low deductible and a high policy limit.

I seriously doubt that any information about the deductible and policy limit has been made public in court filings.  GST may have made statements in its complaint about the amount of attorneys fees paid by it and the settlement amount. Even if those statements are made, this would not give me any non-public information about the potential recovery amount under the policy, unless I knew the policy limits and the amount of the deductible. As I noted, it is not uncommon for a company to self insure with a high deductible and even have some kind of sharing agreement for costs when there is a high deductible (e.g. 2 million).

I have no idea about Gastar's insurance policy since there are no press releases or documents filed with the SEC disclosing the policy limits and deductible information. It is certainly possible that all or virtually all of a settlement amount, as well as reasonable attorneys' fees incurred in connection with that prior litigation, may be within the policy limits and the policy very well may have an extremely low deductible. I have no way of knowing one way or another since there has been no public disclosure in a means accessible to an individual investor.

I am not offering an opinion on the outcome or the potential recovery since GST had not disclosed the material and relevant information including its policy limits and deductible.

The personality and maturity, as well as the writing skills, of the young author of those GST articles are on full display in his responses to my inquiry on the source for his $.42 per share number as well as his previous responses to questions about the Mare Lease litigation matter in another one of his frequent bullish articles on GST.

Please keep in mind that I have not seen any publicly disseminated statement from the company confirming that big number as an approximate amount of recoverable damages under the insurance policy. I have not even seen a press release mentioning the favorable appellate court decision. I did find the Texas appellate court decision at gastar.pdf (opinion filed 7/16/13)

I would view the CEO's confirmation of that number as an approximate measure of damages, given GST's size, debt and current financial resources, to be very material information to me as an investor, assuming that has occurred and I can not make an assumption one way or the other.

I am not offering an opinion, one way or the other, whether the failure to even disclose this litigation in a SEC filing and/or any material non-public statements allegedly made by officers to analysts violates the securities laws. That is not for me to decide and is not relevant to my position on this matter as an investor anyway. I simply do not like receiving this kind of information from a SA author rather than in a publicly available document.

In OG's Qualifications and Lack of Qualifications, I readily admit to being ignorant about securities law.

As an investor, I view this material as unquestionably material to my investment decisions relating to my Gastar common stock.

Last Friday's Close: GST: $3.57 -0.01 (-0.28%)

B. Sold 50 NVTL at $4.04 (see Disclaimer): For virtually the entire period that I owned NVTL shares, I had an unrealized loss. The shares fell, and then decline some more, until bottoming at around $1.25 last year. NVTL Interactive Chart The stock has been impressive technically since November 2012, as noted in this article published at TheStreet. For the 2013 first quarter, NVTL did report a 22% increase in revenues to $85.9M, but there was a GAAP loss of $9.1M or $.27 per share. SEC Filed Press Release While the GAAP loss was better than a $.44 per share loss in the 2012 first quarter, I was not inspired sufficiently enough to keep the shares.

The company has introduced a number of new products, but I have no qualifications to judge their potential success or lack thereof.

The consensus estimate, which is probably a non-GAAP number, is for a $.48 per share loss in 2013 and a $.20 per share loss in 2014. NVTL Analyst Estimates

Snapshot of Trade:

2013 Sold 50 NVTL at $4.04

Snapshot of Profit: I only take snapshots of trades that result in greater than $30 gains or losses and this one barely qualified for a snapshot:

2013 NVTL 50 SHARES +$37.09

BOUGHT 50 NVTL at $2.98-LT

Last Friday's Close: NVTL: $4.10 +0.18 (+4.59%)

C. Bought 100 DSS at $1.6 (see Disclaimer): Document Security Systems (DSS) is a micro cap company whose operates four business segments: DSS Printing, DSS Plastics DSS Packaging and DSS Digital. My primary interest in this company involves its patent litigation franchise.

Snapshot of Trade:

Profile Page at Reuters

Key Developments page at Reuters

I came across DSS after reading two SA articles, one was written about the current patent litigation  Seeking Alpha The possibility of a payday from that litigation perked my interest.

Subsequent to my purchase on 7/12, another article was published by Seeking Alpha about DSS.

DSS recently completed a merger with Lexington Technology Group, an intellectual asset property management firm. I will be referring below to Bascom Research, a wholly-owned subsidiary of Lexington.

Website: Lexington Technology Group - Catalyzing Technology Development, Rewarding Innvoation

Lexington has recently filed patent litigation against five firms to date, and two of those firms have settled in exchange for royalty payments. Those two settling defendants are believed to be Broadcom and Jive Software (JIVE) who have agreed to pay royalties of 4% and 5% respectively for their use of the Bascom patents. Another defendant, Novell, is purportedly in settlement discussions. The two big fish are Facebook and Linkedin who are not likely to be pushovers and may easily decide to take the case to the mat.

Bascom Research, LLC Files Patent Litigation Lawsuits Against Facebook, Inc. and LinkedIn Corp.

Lexington Technology Group Reaches Settlement with a Second Defendant in Bascom Patent Case

Lexington Technology Group Reaches Settlement with a Defendant in Bascom Patent Case

The company added Salesforce as a defendant in late June 2013: Bascom Research Files Patent Infringement Suit Against

I looked at a long term chart after reading that article which displayed a characteristic common to LT selections: DSS Interactive Chart There is a lot of up and down chop in that chart with the most recent movement being a water fall slide to levels last seen back in March 2009. In other words, sort of a warning to just stay away from this stock and move on to something else, the sine qua non of LT selections.

The recently completed merger with Lexington Technology expanded the share count to 46M and 3.4M warrants were issued to certain Lexington stockholders: Document Security Systems Completes Merger with Lexington Technology GroupInvestor Update Conference (Transcript) - Seeking Alpha. As noted in that transcript, DSS will receive about 60% of funds received from the Bascom patent litigation with the remainder going to their attorneys and to a firm managing that litigation.

The company lost $1.112+M in the first quarter or 5 cents per share, on revenues of $3.77+M, down from $3.842+M in the year ago quarter. ‎Form 10-Q for Q/E 3/31/13

The net loss for 2012 was $.21 per share, up from $.17 in 2011, Annual Report at page 30 10-k. Revenues increased 28% to $17.1M. Document Security Systems, Inc. Announces 2012 Fourth Quarter and Full-Year Financial Results

Outside of the patent litigation, the firm has four business lines whose potential has yet to show up in positive earnings, and I can not make an assessment whether any of these divisions will be able to grow and be profitable in the future. I just took a snapshot from the recently filed SEC Form 10-Q:

Four Operating Segments: From Page 15 of 10-Q

Click to Enlarge

A J.P. Moreno wrote a very long article (75 pages) about this company: DSS.pdf I just skimmed it. After all I only bought 100 shares as a Lotto and it would take me almost two hours to read the whole piece. I did read the sections starting at page 18 about the DSS history and starting at page 34 relating to the "Bascom Technology."

Last Friday's Close: DSS: $1.58 -0.04 (-2.47%)

D. Sold 100 FFEX at $2.07 (see Disclaimer): Frozen Food Express Industries has agreed to be acquired for $2.1 in cash. This is another one where I was in the red for most of my ownership period, with the shares falling below a buck late in 2012: FFEX Interactive Chart

Snapshot of Trade:

Snapshot of Profit:

2013 FFEX 100 Shares +$51.27

Bought 100 FFEX at $1.4-Lottery Ticket

Closing Price on 7/15/13: FFEX: $2.06 +0.36 (+21.18%)

2. Update for Regional Bank Basket Strategy

This strategy is explained in my Gateway Post on this topic:

I am not tracking reinvested dividends in the following table. The dividend yield showed in this table is calculated by Yahoo Finance based on last Friday's close. My dividend yield for each position will be different based on my total cost numbers. In most cases, with FNFG and VLY being notable exceptions, my dividend yield will be higher.

Needless to say, the dividend yield for each position is higher than the 2.58% yield on the 10 year treasury as of last Friday's close. Some of the dividend yields are higher than the  3.61% yield on the 30 year treasury, even after the recent run up in prices, and many of these banks are raising their dividends. A buyer last Friday of that 30 year treasury bond with a  3.61% is stuck with that yield until the bond is sold.

Daily Treasury Yield Curve Rates

The unrealized gains per holding do not include reinvested dividends.

Since my last post, I have booked several gains:

Sold: 140 KEY at $11.8025 & 50 ANCX at $14.9-Regional Bank Basket (7/27/13 Post)(total gain=$552.91)

Sold 50 Trustmark at $26.52, Sold 50 UMPQ at $16.12, Sold UVSP at $20.5, Sold 50 SYBT at $26.2 (7/20/13 Post)(total gain=$871.22)

Sold 50 BHLB at $28.74+ (7/13/13 Post)(gain $338.12)

Sold 50 ONB at $14.12 (7/6/13 Post)(gain $95.13)

Total Gains Booked Since Last Monthly Update: $1,857.38
-Loss Booked HCBK= $422.55
Net Realized Gain 1 Month=$1,434.83 (last update 6/24/13)

I have bought only two new positions since that last update: Bought 50 CZNC at $19.15/Sold 111+ HCBK at $8.74/Bought 100 WTBA at $11.67 (6/29/13 Post)(HCBK sold for a loss)

Over the life of this basket strategy, I anticipate that the dividends will provide 40% to 50% of the total return. I am generally keeping my total exposure between $40,000 to $50,000.

Realized Capital Gains To Date 2010-To Date: $13,721.25

Current Basket of Owned Positions Excluding Shares Purchased with Dividends:  

I am going to discuss some, but not all, of the earnings reports for banks currently owned in this basket.

A.  Peoples United Financial (PBCT): People's United Financial reported net income of $62.1M or $.2 per share for the third quarter, up from $.19 in the year ago quarter.

The consensus estimate was for $.19. PBCT Analyst Estimates 

Key Metrics:
Net Interest Margin: 3.35% (down from 3.97% Y-O-Y)
Efficiency Ratio: 62.7%
ROA: .81%
ROE: 5.2%
Dividend Payout Ratio: 91.3%
NPA Ratio (originated loans): 1.33%
Coverage Ratio (originated loans): 71.8%
Charge Offs: .19%
Total Risk Based Capital Ratio: 12.8%
Tangible Equity to Assets: 8.7%

Earnings Call Transcript - Seeking Alpha

I view this one as a marginal hold at the current price.

Bought 100 PBCT at $11.47

Last Friday's Close: PBCT: $15.23 -0.15 (-0.98%)

B. First Niagara (FNFG): Sterne, Agee downgraded FNFG to underperform. Their report is summarized at While  the rise in intermediate and long term rates were a "net positive development" for banks, the analyst pointed out that banks with large available-for-sale (AFS) securities will be negatively impacted by the loss in value for those securities. The analyst characterized FNFG as one of those banks. The analyst estimated that AFS securities represented 386% of tangible common equity as of 3/31/13, substantially higher than the average NE community bank. Each 100 basis point decline in the AFS portfolio would cause an expected reduction in TCE of 15 basis points. The firm had a $10 price target on FNFG shares and the price recently exceeded that target.

This report is helpful in understanding the downside to higher rates. While a bank's operating earnings will likely increase due to a net interest margin expansion, particularly when rates paid to depositors remain stuck near zero, the bank will suffer declines in AVS portfolio.

While it is just an opinion, the benefits associated with a higher net interest margin, lower loan losses and more loans due to an improving economy, are far more important to most regional banks than lower profits from AVS securities. I would place far more value on recurring earnings from operations rather than one time investment gains or losses. The bank also has the option of holding those securities until maturity, and can ultimately generate more income through the purchase of higher yielding securities once the interest rate normalization process is complete.

For the 2013 second quarter, First Niagara reported net income of $63.6M or $.18 per share, in line with estimates. The net interest margin was 3.36%, up from 3.26% in the year ago quarter. Return on average assets was reported at .77%, probably the lowest in my regional bank basket. Organic loan growth was 8% annualized compared to the prior quarter with average commercial loans increasing 10% annualized.

Earnings Call Transcript - Seeking Alpha

I am gradually approaching break-even on my FNFG position. The position is in two accounts, and one of the accounts is in the green.

I was bushwhacked on this one. First Niagara Dividend Slash; First Niagara: Just Another Incompetent Bank Board of Directors The stock has started to move up after the Board gave the CEO the boot.

C. Union Bankshares (UNB): I have not discussed this small Vermont bank recently so I will highlight its second quarter report:

Union Bankshares reported second quarter net income of $1.8M or $.40 per share, up from $1.4M or $.32 in the year ago quarter. Total loans grew to $449.4M from $436.4M as of 6/30/12. Total deposits grew to $474M, up 3.2% Y-O-Y. The Board declared a regular quarterly dividend of $.25 per share.

Union Bankshares is the holding company for Union Bank that operates 13 banking offices in Vermont and 4 branches in New Hampshire.

This bank provides few details until it files its SEC Form 10-Q. The last filed 10-Q was for the Q/E 3/31/13. For the Q/E 3/31/13, UNB reported a net interest margin of 4.16% (down from 4.27%); an efficiency ratio of 68.13% (down from 76.02% as of 3/31/12); a return on average assets of 1.23%; a return on average equity of 15.36%; and a NPA ratio of .53%; all of which are good numbers (page 30). The capital ratios were at that time in excess of the minimum levels for well capitalized banks (page 47).

Bought 50 UNB at $19.45 (January 2013)

Last Friday's Close: UNB: $21.35 -0.15 (-0.70%)

D. Pacific Continental (PCBK): This bank declared a regular cash dividend of 9 cents per share and a special dividend of 12 cents per share. Pacific Continental Corporation Declares Regular and Special Cash Dividend I am not reinvesting the dividends.

This stock was originally purchased as part of the Lottery Ticket Basket Strategy and then elevated to the Regional Bank Basket Strategy that permits a larger investment.

Pacific Continental also reported second quarter net income $3.7M or 21 cents per share up from $.17 in the year ago quarter.

2013 2nd Quarter vs. 2012 2nd Quarter
Net Interest Margin: 4.2% / 4.31%
Efficiency Ratio: 63.17% / 62.64%
NPL Ratio: .67% / .97%
Coverage Ratio: 254.62% / 193.29%
Charge Offs: .06% / .06%
Return on Average Assets: 1.04% / .97%
Total Capital To Risk Weighted Assets: 16.56% / 18.15%
Tangible Common Equity to Tangible Assets: 11.03% 11.94%

Item # 1 Added 70 PCBK AT $9Bought 30 PCBK as LT at $9.42

Last Friday's Close: PCBK: 13.36 -0.16 (-1.18%)

D. Trustco (TRST): TrustCo reported net income of $9.763M or $.104 per share, up from $9.066M or $.097 per share in the 2012 second quarter. The consensus estimate was for $.10: TRST Analyst Estimates

2013 2nd quarter vs. 2012 second quarter
Net Interest Margin: 3.1% / 3.16%
Efficiency Ratio: 53.51% / 53.02%
NPL Ratio: 1.57% / 2.01%
NPA Ratio: 1.21% / 1.25%
Coverage Ratio: 109.5%/ 93.3%
Charge Offs: .3% / .55%
Tangible Equity to Tangible Assets: 7.83% / 7.91%
Return on Average Assets:  .88% / .83%
Return on Average Equity: 10.83% / 10.49%
Branches: 138 / 137

Bought 50 TRST at $6.3Added 70 TRST at $5.9Bought 50 TRST at $5.45Added 50 TRST @ $5.48Added 100 TRST at $5.94; Bought 50 TRST at $4.01Added 150 TRST at $5.17

Trustco's stock responded well to this release:

Closing Price 7/23/13: TRST: $6.25 +0.28 (+4.69%)

E. Merchant's Bancshares (MBVT): Merchants Bancshares reported net income of $4.03M or $.64 per share for the 2013 second quarter, up from $.6 in the year ago quarter. The consensus estimate was for $.59 per share.MBVT Analyst Estimates

List of Key Metrics:
Net Interest Margin: 3.2%
NPL Ratio: .14%
NPA Ratio: .11%
Coverage Ratio: 743%
Charge Offs: .01%
Total Risk Based Capital Ratio: 16.42%
ROA: .96%
ROE: 13.61%

Bought 50 MBVT at $26.25 (May 2012)

The recent rise in interest rates had an adverse impact on MBVT's investment portfolio, which went from a "tax effected" unrealized gain of $6.03M as of 12/31/12 to an unrealized loss of $2.1M as of 6/30/13.

On the flip side, the CEO noted that the "recent steepening of the yield curve should ultimately provide an opportunity for margin improvement provided loan demand is sustained".  That is the underlying premise in the robust rally in regional banks over the past several weeks.

Previous Trade: Bought 50 MBVT at $22.9-SOLD 50 MBVT at $26.5

I left a comment to a recent Seeking Alpha article on MBVT.

Response to Earnings Release 7/23/13: MBVT: $32.99 -0.16 (-0.48%)

F. Washington Trust Bancorp (WASH): Washington Trust reported second quarter net income of $9M or 54 cents per share, up from $.45 in the 2012 second quarter. There were a couple of unusual expense items that subtracted two cents from the results. The consensus estimate was for $.57 per share. WASH Analyst Estimates

Key Metrics:
Net Interest Margin: 3.26%
ROA: 1.18%
ROE: 11.84%
ROTE: 15.01% (tangible equity)
Total Risk Based Capital Ratio: 12.93%
Tangible Equity to Assets:  7.99%

Total loans and total deposits increased by 8% Y-O-Y.

Bought 100 WASH at $15.26-Sold 50 of 100 WASH @ 22.44 (currently own 50 shares)

Response to Earnings Release 7/23/13: WASH: $31.05 -0.05 (-0.16%)

G. Lakeland Bancorp (LBAI): I left a comment to a Seeking Alpha article on LBAI. At the current price, this one is a marginal hold.

Lakeland closed its acquisition of Somerset Hills Bank on 5/31/13. After that closing, LBAI has 52 branches in 8 NJ counties. SEC Filed Press Release

Somerset had 6 banking offices in NJ, with four of those branches in Morris County, one in Union County and its headquarters in Somerset County. For the three months ending 3/31/13, Somerset reported net income of $402,000 or 7 cents per share, which  included seven cents per share in merger related expenses, down from $.15 in the year ago quarter.  Net interest margin declined to 3.37% from 3.84% in the 2012 second quarter.  NPL's stood at .3% to total loans with a 428% coverage ratio. The total risk based capital ratio was 16.23%. Somerset Hills SEC Form 10-Q for Q/E 3/31/13 

For the second quarter, Lakeland Bancorp reported adjusted net income of $6.9M or $.22 per share, which excluded expenses relating to the Somerset acquisition, but that number included a 1.2M pre-tax gain from an early debt extinguishment. The consensus estimate was for $.18. The bank paid a 5% share dividend on 4/16/2012 which, along with the gain on early debt extinguishment, makes the comparison difficult with the prior year's E.P.S. of  $.2 on an operating basis.

2013 2nd Quarter vs. 2012 2nd Quarter:
Net Interest Margin: 3.68%/ 3.7%
Efficiency Ratio: 59.7% / 57.18%
NPL Ratio: .81% / 1.3%
NPA Ratio: .62% / .98%
Charge Offs to Total Loans (annualized): .46% / .78%
ROA: .79% / .78%
ROE: 7.76% / 8.94%
Return on Tangible Equity: 11.31% / 13.87%
Tangible Equity to Assets: 7.24% / 5.78%

The stock reacted favorably to this report.

Closing Price on 7/25/13: LBAI: $11.65 +0.51 (+4.58%)

Bought 100 LBAI at $9.46

H. FNB:  F.N.B. Corporation reported in line results for the 2013 second quarter. Adjusted E.P.S. was $.21, unchanged from a year ago.

Deposits: +7.9%
Organic Commercial Loan Growth: +7.5%
Organic Consumer Loan Growth: +10.8%
NPL Ratio: .98% / 1.22%
NPA Ratio: .97% / 1.15%
NPLs +OREO to Total Loans + OREO: 1.4% / 1.67%
Coverage Ratio: 121.68% / 104.89%
Return on Average Tangible Equity: 16.93% / 19.01%
Return on Average Tangible Assets: 1.05% / 1.12%
Net Interest Margin:  3.63% / 3.8%
Efficiency Ratio:  58.63% / 57.74%
Tangible Equity to Tangible Assets: 6.63% / 6.33%

Earnings Call Transcript - Seeking Alpha

I recently added 50 shares to what remained of my earlier position after several trades:  Bought 50 FNB at $11.25 (6/24/13 Post); Added 50 FNB at $7.8 (July 2010)

Bought 50 FNB at $8.42Bought 50 FNB at $9.36-Pared FNB: Sold 50 at $10 and 50 at $10.18 (December 2010)

I. New York Community Bank (NYCB): New York Community Bancorp reported 2Q GAAP earnings of $122.5M or $.28 per share, providing a 1.21% return on average tangible assets and a 15.9% return on average tangible equity. The efficiency ratio was reported at 41.75%. Net interest margin rose 20 basis points sequentially to 3.15% as prepayment penalty income rose to a record $44.4M. The NPL and NPA ratios for non-covered loans and assets were reported at .54% and .57% respectively.

On an adjusted basis, NYB reported a $.3 E.P.S. beating the consensus estimate by 5 cents.

I own 150 shares: Added 50 NYB at $12.79 (February 2012); and two trades in October 2009 Bought 50 NYB at $11.3Added 50 NYB at $11

I have sold 100 shares bought in an IRA realizing a total gain $331.03 gain with the largest gain being on a 50 share lot:  Sold 50 NYB in IRA at $17.51-Item # 4 Added 50 NYB at $10.57

Closing Price Last Friday: NYCB: $14.85 -0.07 (-0.47%)

J. Brookline (BRKL): Brookline Bancorp reported net income of $9.5M or $.14 per share, up from $.11 in the 2012 second quarter. The consensus estimate was for $.13: BRKL Analyst Estimates

The NPL and NPA ratios were good at .42% and .37% respectively. Charge offs were negligible at .06% of total loans annualized. Net interest margin was reported at 3.75%, down from 3.85% a year ago. The efficiency ratio was 63.53%. ROA was at .74%. Tangible equity to assets was at 9.1%.

Bought 100 BRKL at $8.48 (November 2012)

Last Friday's Close: BRKL: $9.80 +0.07 (+0.72%) 

K. Financial Institutions (FISI): Financial Institutions reported second quarter net income of $6.5M after preferred dividend or $.47 per share, up from $.46 in the year ago quarter. The consensus estimate was for $.46. ROA and ROE was reported at .94% and 10.22% respectively. The net interest margin was at 3.68% and the efficiency ratio was 59.62%. The NPA and NPL ratios remained excellent at .43% and .65% respectively.

Bought 50 FISI at $15.55 (April 2012)

Last Friday's Close: FISI: $20.94 -0.38 (-1.78%)

L. United Bankshares (UBSI): United Bankshares reported second quarter earnings of $22.2M or $.44 cents per share, up from $.42 in the year ago quarter.

2013 2nd Quarter/2012 2nd Quarter

Net Interest Margin: 3.65% / 3.76%
Efficiency Ratio: 52.78% / 54.5%
NPL Ratio: 1.43% / 1.23%
NPA Ratio: 1.63% / 1.49%
Charge Offs: .28%
ROA: 1.07% / 1.%
ROE: 8.81% / 8.58%
Total Risk Based Capital Ratio: 13.8%
Dividend Payout Ratio: 70.27% / 74.14%

UBSI is in the process of acquiring Virginia Commerce Bancorp, headquartered in Arlington, Virginia which has 28 banking offices in Northern Virginia and Washington, D.C.

UBSI has increased its dividend for "39 consecutive years". The rate of growth is slow however. The rate was $.1550 for the 1996 third quarter, so that is one slow double in the payout.

The current quarterly dividend is $.31 per share. United Bankshares, Inc. - Investor Relations

The main reason for keeping my position is the dividend. Any increase will add to my already high yield based on my constant cost per share.

Item # 2 Bought 50 of UBSI at $16.56 (November 2009)

At a total cost of $16.56, the current yield is about 7.49% but I started out close to 7% in November 2009.

Last Friday's Close: UBSI: $28.77 +0.19 (+0.66%)

M. West Bancorporation (WTBA): West Bancorporation increased its quarterly dividend to $.11 per share from $.1, announced a stock purchase authorization of "up to " $2M of the stock, and reported 2nd quarter earnings that slightly beat the consensus estimate by 1 cent per share. For the second quarter, the bank reported E.P.S. of 25 cents, unchanged from the year ago quarter which included a $841,000 unusual gain item.


Y-O-Y (some numbers impacted by unusual gain from 2012 2nd quarter)
Net Interest Margin: 3.51% / 3.44% (going in the right direction)
Efficiency Ratio: 53.15% / 49.31%
ROA: 1.19% / 1.32%
ROE: 12.93% / 13.69%
Texas Ratio (usually not provided in reports) 10% / 13% (very good)
Tangible Equity to Assets: 8.38% / 9.63%

WTBA was one of the few recent additions to the basket: Bought 100 WTBA at $11.67 (6/29/13 Post)

Last Friday's Close: WTBA: $13.67 -0.18 (-1.30%) 

Saturday, July 27, 2013

Initiated Position in BIAUX/Sold: 140 KEY at $11.8025 & 50 ANCX at $14.9-Regional Bank Basket/Sold 100 MTOR at $7.65/Added 50 NPI at $12.45/Roth IRA: Bought 50 ELB at $25.06 and Sold 50 TDIV at $22.26/PEO, ADX, BHB

Big Picture Analysis


Stable Vix Pattern (Bullish)
Short Term: Market Needs a 10+% Correction
Intermediate and Long Term: Bullish


Short Term to Long Term: Slightly Bearish (Based on Interest Rate Normalization)

Stocks, Bonds & Politics: The Difficult Path to Interest Rate Normalization

Bonds had a bad day last Wednesday on the heels of several positive economic reports. The 10 year treasury rose in yield to 2.61% on Wednesday 7/24/13 from 2.53% on 7/23.  The 20 and 30 year yields rose .07%.

Daily Treasury Yield Curve Rates

While that does not sound like much, it caused this kind of decline in TLT: $107.52 -1.38 (-1.27%).

Rates declined somewhat last Friday.

The director of credit research at Pioneer succinctly discusses why he recommends shorting treasuries in this article published by MarketWatch. He also places odds on the bear case (25%), the base case (50%), the stagnant case (20%) and the bull case (5%). That kind of exercise is helpful, even if the investor does not agree with his conclusions, since we are all dealing with possible scenarios when making decisions now.

The break-even for the 10 year TIP closed last Friday at 2.15, the market's estimate of the average inflation rate over the next ten years. If prescient, that rate would be ideal for stocks and will place a lid on a rise in rates caused by interest rate normalization.


The cover story in Barrons last week was titled "Europe's Economy Will Rebound", which is not saying much. Of course, the European economy "will" rebound but the important questions are when and by how much.

I noted in a post another Barrons article titled "Europe on Sale", wherein the author argued that European equities could "rally as much as 20%" in 2013. The phrase "as much" has the same meaning as "up to" which is no meaning at all. I mentioned in that article having a position in the ETF BLDRS Europe Select ADR Index Fund (ADRU), a low cost fund (.3% expense ratio) that owns 100 European market based ADRs. Holdings It is lightly traded so I would use another ETF to increase my European equity exposure now, and would consider buying the low cost Vanguard FTSE Europe ETF (VGK) which has a .12% expense ratio and about 504 stocks.

The performance of European stocks has left a great deal to be be desired over the past five years, with  the Vanguard ETF VGK having a five year annualized return of -.92% through 6/30/13. That would have been a good reason for avoiding a European index fund; and an even a better reason is the index's 3.53% annualized performance since March 2005, at least owning that index over those two time periods. Those performance numbers are not a reason to avoid Europe now, but instead probably justify a contrarian "bet" going forward. The question is "when" to place that bet.

There are still a lot of unfavorable economic numbers coming out of Europe. I review periodically the statistical releases published by Eurostat.  For example, the last release on unemployment shows a jobless rate of 12.2%. in the EA 17: ‎ The second estimate for the first quarter Euro area GDP was down .2% compared to the prior quarter. ‎ PDF

The U.K. reported last Thursday that its GDP grew .6% in the second quarter from the first quarter, the fastest pace of growth since 2011. The U.K. service PMI index hit a 27 month high in June.

I also look at the Markit purchasing manager indexes that are the same kind of data points as the ISM numbers in the U.S., and those numbers have been showing consistent trends of contraction for both manufacturing and services, but the recent number showed some improvement. Markit Economics - Press releases)

Earlier this week, Markit released its "flash" composite Eurozone PMI indexes for July (services and manufacturing). The composite output index rose to 50.4, an 18 month high. The Manufacturing PMI rose to 50.1 from 48.8 in June, a 24 month high, while the manufacturing PMI output index rose to 52.3, a 25 month high. markiteconomics  The flash composite for Germany rose to 52.8 from 50.4 in June, markiteconomics.

A large part of the optimism is based on the EC's prediction that the recession will end later this year and growth will accelerate to +1.4% next year. Hopefully, that prediction will prove prescient, the world really needs Europe to quit being a drag, but there is probably more hope than substance in that forecast.

Europe has way too many structural problems that retard productivity, particularly in countries like France and the Mediterranean countries. An example is France's 35 hour work week and the difficulty of firing unproductive workers.

Just as another example, a recent WSJ article highlighted how difficult it was to collect on an unpaid debt, a problem that is particularly critical to small business owners who make up the vast majority of employers, as in the U.S.

The European system is geared toward protecting those who renege on their financial obligations and consequently encourage irresponsibility and defaults.

If an owner defaults on a car loan, for example, the U.S. lender can seize the automobile without going to court, but their counterparts in Europe have to first go to court where the proceedings can last for years. The U.S. lender can also go to the small claims court and most likely receive a disposition of their claim within a few weeks but the small business owner in Europe may face several years in a crowded and inefficient court system that will end up costing the business more to navigate than the value of the claim. After reading that article, the only sensible solution for most small businesses would be to accept only cash payment or a credit card. Extending credit to a customer to assist them with the purchase would be difficult to justify.


Recent Economic Reports:

NAR reported that existing home sales fell a seasonally adjusted 1.2% in June, with the annualized rate at 5.08M  The rate was 15.2% higher than in June 2012, marking the 24th consecutive month of Y-O-Y increases. The median price home rose 13.5% from June 2012. Inventory levels were at a 5.2 month supply. The median time that a home was on the market was 37 days, down 47% from June 2012.

There were some reports last week that China will not tolerate GDP growth less than 7%. One remark was attributed to Chinese Premier Li Keqiang, the top economic policy maker in China.

FHFA reported that its national home price index rose .7% in May from the previous month. .pdf The index is still 11.2% below its April 2007 level and is roughly where it was in January 2005. That kind of data just highlights what happens when a parabola in price hits a brick wall and comes back to earth.

Zillow reported that home sales in the Spring were the hottest since 2004.

The Markit "flash" manufacturing PMI for the U.S. rose to 53.2 in July from 51..9 in June. markit Markit's PMI index has been higher than the ISM version for 22 out of 24 months. MarketWatch The new orders component rose to 55.1 from 53.4.  Export orders rose to 52.3 from 46.3.

The Commerce Department reported that new home sales rose a higher than expected annual rate of 497,000 in June, the highest level since May 2008. This was up sequentially 8.3% above May 2013 and up 38.1% over the June 2012 number.

The Commerce Department reported that durable goods orders rose to $244.5B or 4.2% in June, stronger than the 2.3 consensus expectation. Excluding transportation, however, orders were flat. Orders for "core" capital goods increased by .7%.  The number for May was revised up to +5.2% from a 3.7% increase.

Bar Harbor Bankshares (BHB)(own):

Bar Harbor Bankshares increased its quarterly dividend by .5 or 1.6% compared with the prior quarter. The dividend is up by 6.9% Y-O-Y. While that is modest, it is at least going in the right direction.

This stock has had a robust move this month: BHB Interactive Chart

Bought 50 BHB at $30

Closing Price Last Friday: BHB: $39.23 -0.67 (-1.68%)

Adams Express Second Quarter Report:

ADX is my largest stock CEF position. CEF Portfolio as of 7/22/13

The approach of this fund suits my temperament as an investor. The tilt is toward value and growth at a reasonable price. The fund is not going to shoot the lights out in robust stock market moves.

I will review each quarterly report and the 2013 second quarter report was just released by the fund. Shareholder reports can be found at the fund's website; adx_q2_2013.pdf, or at the SEC.

Link to ADX Filings at the SEC.

The financial websites will have an incorrect distribution yield for this fund. ADX has a 6% minimum managed distribution policy. The recent quarterly income dividend was only $.05 per share. The fund will make one large capital gains distribution at year end that will provide the bulk of that managed distribution. As noted in that 2nd quarter report, the fund had realized gains for the first six months of $26,817,557 or $.29 per share.  The fund had an unrealized appreciation as of 6/30/13 of $238+M and no loss carryforwards. The annual distributions since 2002 can be found at page 15.

The largest single position is in another stock CEF, Petroleum & Resources (PEO), that I also own. ADX and PEO share office space and employees. The funds are not externally managed by an investment company.

I took a snapshot of the top ten holdings as of 6/30/13:

The expense ratio was .65% for 2012.

ADX Purchases Discussed from 1/1/2009: Item # 4 Bought 100 ADX at $10.14 (November 2012); Item # 1 Added 50 of the Stock CEF ADX at $9.79 (December 2011); Item # 2 Added 50 ADX at $10.95 (June 2011); Item # 1 Bough 200 ADX @ $9.99 (October 2010); Item # 6 Added 50 ADX at $9.7 (July 2010); Item # 5 Added To CEF ADX at $9.98 (November 2009); Item # 2 Bought  ADX at $8.34 (May 2009)

I have quit reinvesting the dividend.

CEFConnect Page for ADX

Closing Price Last Friday: ADX: 12.45 +0.03 (+0.24%)

Discount as of 7/26/13: -14.08

Link to PEO's second quarter report: peo_q2_2013.pdf As noted in that report, PEO also has a minimum 6% managed distribution policy and will likewise source that distribution mostly from capital gains paid at year end. Through 6/30/13, that fund had realized gains of about 50 cents per share.

CEFConnect Page for PEO


I recently bought back my usual 100 share position in Husky, buying the ordinary shares available on the pink sheet exchange in the U.S. Item # 2 Bought 100 HUSKF at $26.42 (7/6/13 Post). The shares have done well so far this month, closing last Friday at $29.42 +0.16.

Husky reported second quarter net income of C$605 million or 59 cents per share from C$431 million or 43 cents per share in the 2012 second quarter. Adjusted earnings were C$.62 per share, beating the consensus estimate of C$.57. Total upstream production rose to 310,000 barrels of oil equivalent per day from 282,000. Cash flow increased 26%. The Liwan Gas Project in the South China Sea remains on schedule for first production late this year or early in 2014. Nine wells at that site are ready for production now. SEC Filed Press ReleaseReuters

Earnings Call Transcript - Seeking Alpha


1. Sold 140 KEY at $11.8025 (REGIONAL BANK BASKET STRATEGY) (See Disclaimer):

Snapshot of Trade:

Snapshot of Profit:

2013 KEY 140 Shares +$429.32 ($347.4 ST; $81.92 LT)
KeyCorp's stock was initially purchased in the Lottery Ticket Basket Strategy and later elevated in October 2012 to the Regional Bank Basket Strategy.

There were several prior roundtrip trade as a LT: Bought 50 KEY at $5.88-Lottery Ticket (September 2009)-Sold50  KEY at $8.12 (July 2010)($98.52 Profit) and the following two 50 shares trades:

2009 KEY +$86.98 (two 50 Share Trades)
During the Near Depression, I bought one of Key's trust preferred securities in the single digits: Bought KEYPRA at $7 (October 2008). That security was called in September 2011 at its $25 par value plus accrued interest. 

Total Realized Gain on KEY Common Shares= $614.82

BMO upgraded KEY to outperform with a $13 price target, arguing that KEY's assets were more rate sensitive than generally believed by investors.

Rationale: I sold this one for three reasons. (1) I was not impressed with Key's earnings report for the 2013 second quarter; (2) this stock has a dividend yield less than 2% at $11.8, the lowest in my regional bank basket; (3) the profit was excellent based on my cost (35.33%; mostly short term however)

SEC Filed Earnings Press Release
During the 2nd quarter, KEY "incurred $37 million, or $.03" per share for its "efficiency initiative".
2013 2nd Quarter/ 2012 2nd Quarter
Net Income: $193M / $217M
E.P.S.= $.21 / $.23
Net Interest Margin: 3.07% / 2.99%
Cash Efficiency Ratio:  69.06% / 69.13%
NPL Ratio: 1.23%/ 1.32%
Coverage Ration: 134.36% / 135.16%
Charge Offs: .34% / .63%
Total Capital to Risk Weighted Assets: 14.75% / 15.83%
Tangible Equity to Assets: 9.96% / 10.44%
Return on Average Assets: .95% / 1.1%
Return on Average Equity: 7.72% / 8.9%
Return on Average Tangible Equity: 8.82%/ 10.46%
Branches: 1,052/ 1,062

Earnings Call Transcript - Seeking Alpha

Friday's Close: KEY: $12.40 +0.04 (+0.32%) 

2. Sold 100 MTOR at $7.65 (see Disclaimer): Meritor provides drivetrains, brakes and braking systems, axles, and undercarriages for commercial vehicle

Snapshot of Trade:

Snapshot of Profit:

2013 MTOR +$32.83

Added 50 MTOR at $6.55; Bought 50 MTOR at $7.62

The earnings estimates for this company are not reliable. In the post discussing a purchase, I noted that the E.P.S. was $1.63 for the F/Y ending in September 2013. The estimate is now $.32. MTOR Analyst Estimates It is really hard to figure out an appropriate price when the earnings are that unpredictable. MTOR is a cyclical company and the stock can be a winner during an up cycle. The current forecast is for an E.P.S. of $.72 for the 2014 F/Y. If MTOR exceeds that estimate by a significant amount, and the market does not see a downturn on the horizon, the stock could clear $10.

The stock has enjoyed a powerful rally since late April 2013, rising from $4.5 on 4/26 to $7.96 on 7/18/13: MTOR Interactive Chart

The last earnings report was another factor motivating the sell. Revenues declined 22%, FCF was a negative $26M and the company had a GAAP loss from continuing operations of $4M compared to $20M in net income for the year ago quarter.

SEC Filed Earnings Press Release for Q/E 3/31/13: MTOR-2013.Q2-8K

Key Developments Page at Reuters

Rationale: This was an unsuccessful trade, even though I managed to break into profit territory. I did better on the ArvinMeritor bonds. I will invest the proceeds into an income generating security.

Last Friday's Close: MTOR: $7.46 -0.27 (-3.49%)

3. Added 50 NPI at $12.45 (see Disclaimer):

Snapshot of Trade:

Security Description: The Nuveen Premium Income Municipal Fund (NPI) is a leverage closed end bond fund that owns tax free municipal bonds. As shown under the "portfolio characteristics" tab at CEFConnect, this fund is weighted in "A" rated or better municipal bonds.  The average duration is shown at 6.21 years at that page.

Last SEC Filed Shareholder Report: npi

CEFConnect Page

Sponsor's Page: NPI - Nuveen Premium Income Municipal Fund, Inc.

Data on Day of Purchase (Monday 7/22/13)
Closing Net Asset Value: $13.93
Closing Market Price: $12.38
Discount: -11.13%

Average Discounts as of 7/22/13:
1 Year: -3.05%
3 Years: -2.5%
5 Years: -3.86%

Prior Trades: I am averaging down from two prior purchases: ITEM # 5 Bought 58 Shares of NPI at $13.4 and 42 shares at $13.17 (June 2013)

Rationale: As previously noted, I am devoting up to $1,000 per week toward the purchases of leveraged bond CEFs which are being hammered in price.

The rationale for this approach is explained in detail in Item # 4 Added 70 BTZ at $12.63.

NPI is currently paying a tax free dividend of $.072 per share. Nuveen Closed-End Funds Declare Monthly Distributions At a total cost of $12.45, the tax free dividend yield is about 6.94% assuming a continuation of that monthly dividend which is in no way assured of course.

I am currently reinvesting the dividend.

Risks: First, the recent carnage in the bond CEF space highlights one of their disadvantages. During times of turmoil, volatility, stress and/or downdrafts in asset values, the market price of CEFs can go down much faster than their net asset values. Second, the existence of leverage, even at a very low cost, will accelerate that decline simply due to the assets purchased with borrowed money adding to the decline that would otherwise exist for that fund without any leverage.

All bond funds face interest rate risks and risks associated with interest rate normalization which is currently a significant risk for them.

Friday's Close: NPI: $12.42 +0.08 (+0.65%)

4. Bought 50 ELB at $25.06-Roth IRA (See Disclaimer):

Snapshot of Trade:

2013 Bought 50 ELB at $25.06-Roth IRA

Security Description: The Entergy Louisiana LLC First Mortgage Bonds 6.00% Series 2040 (ELB) is an exchange traded First Mortgage Bond issued by Entergy Louisiana, a subsidiary of  Entergy Corp.(ETR). (ETR 10-Q for Q/E 3/31/13)

Prospectus for ELB

Interest payments are made quarterly.

The issuer may call this bond on or after 3/15/15 at its par value plus accrued interest.

If not redeemed early, the bond matures on 3/15/2040.

According to Quantumonline, this bond is rated A3 by Moody's and A- by S & P.

The lien does not attach to cash, certain equipment, automobiles and receivables:

Description of Security Interest at pages 5-6 Prospectus

Rationale: The yield is tax free in the Roth IRA and becomes modestly attractive only due to that tax advantage. A 6% yield will double an investment in about 11.9 years. Estimate Compound Interest

This is in part a contrarian play to my own outlook for interest rates. I have to recognize that my future forecasts may be proved wrong. I view it as a low probability scenario that interest rates will remain about the same as now over the next few years, or decline some. I view the higher probability event to be a rise in long term rates caused by interest rate normalization due to the phasing out of QE and its eventual termination next year. Interest rates may accelerate up even faster than currently expected due to an upward revision in inflation expectations.

In effect, the purchase of ELB is a play on being wrong about the future course of rates. This security closed at $26.55 on May 1, 2013, when the 10 year treasury was yielding 1.66%, just before the rapid increase in long term rates commenced in earnest. ELB Historical Prices Last September and October, ELB was trading mostly over $28 per share. ELB Interactive Chart If rates do decline some, this security may find some buyers, affording me a opportunity to exit the position after collecting one or more interest payments at a profit. The last ex interest date was on 6/12/13.

Generally, the optimal result for this kind of security would be to collect two interest payments and to sell the security at over $27.

So, I have modest upside goals. If need be, I would not mind be stuck with this one, as a result of a rise in rates, given its quality and tax free income generation when owned in the ROTH IRA.

Preservation of capital and income generation are the two primary management criteria for my retirement accounts. In the unlikely event that I ever need those funds, the money better be there, rather than in money heaven.

Risks: Interest rate is the most important risk. The bond owner has the risk associated with a rise in rates, while the issuer has the right to call the bond at par value in the event interest rates fall and refinancing is worthwhile. It is a heads the issuer wins, tails the bond owner loses, kind of situation.

Friday's Closing Price: ELB: $25.01 +0.01 (+0.04%)

5. Sold 50 TDIV at $22.26 Roth IRA (see Disclaimer): The First Trust ETF VI NASDAQ Technology Dividend Index Fund is an ETF that focuses on dividend paying technology stocks.

Snapshot of Trade:

2013 Roth IRA Sold 50 TDIV at $22.26
Snapshot of History:

Snapshot of Profit:

2013 Roth IRA 50 TDIV +$101.98
Item # 1 Bought 50 TDIV at $19.94-ROTH IRA (October 2012)

Sponsor's webpage: First Trust NASDAQ Technology Dividend Index Fund (TDIV)


Other Trades: I still own 100 shares bought in a taxable account. Item # 3 Added 50 TDIV at $19.2 (October 2012); Item # 1 Bought 50 TDIV at $19.95 (August 2012)

Rationale: The income generation is low. I basically substituted the higher yielding ELB for TDIV. The overall percentage total return was about 12.42% for the TDIV trade, realized in 9+ months.

As a practitioner of an enhanced version of turtle investing in my retirement accounts, I am not likely to hit any home runs, but I find with a continuous series of singles, walks, hit by pitches and an occasional double.

Through July 22, 2013, I have a total realized gain in the ROTH of $3,848.72 or 13.4% based on the cost basis of those securities sold:

Roth IRA Realized Gains 1/1/13 to 7/22/13/Cost-Proceeds-Short Term Gain-Long Term Gain-Total Gain

Friday's Closing Price: TDIV: $22.39 +0.01 (+0.07%)

6. Sold 50 ANCX at $14.9 (REGIONAL BANK BASKET STRATEGY) (see Disclaimer): I thought that I owned 100 shares of ANCX but could only find 50 shares. Access National is a small regional bank based in Reston, Virginia.

Snapshot of Trade:

Snapshot of Profit:

2013 ANCX 50 Shares +$123.59
Recent Earnings ReportAccess National reported a second quarter E.P.S. of $.34 cents per share or $.31 on a pro forma basis which assumes no contribution from the Denver mortgage loan operation. The E.P.S. was $.38 in the 2012 second quarter or $.27 on the pro forma basis.The consensus estimate was for $.27. I do not know whether that estimate is the GAAP or pro forma number but suspect that it is a pro forma number that excludes the Denver operation.

Rationale: Prior to the earnings release, the consensus E.P.S. estimate was for $1.14 in 2013 and $1.02 in 2014. ANCX Analyst Estimates While that consensus may be too pessimistic, it does highlight an issue relating to valuation at the $15 share price.

The process that led to the closure of the Denver mortgage loan office is of some concern. As noted in a  8-K filing, the decision was made by management and then communicated to the Board, as if the Board had nothing to say on the matter (see first sentence).

The closure of that office had a sufficiently important impact on earnings that someone at the bank felt the need to prepare pro forma statements showing the earnings as if the Denver office did not exist and then compare those results to the much higher reported results.

I left a comment to a Seeking Alpha discussing that issue along with the recent earnings report.

Friday's Closing Price: ANCX: $15.20 -0.46 (-2.94%)

7. Initiated Position in BIAUX at $21.29 (see Disclaimer): The Brown Advisory Small-Cap Fundamental Value Fund (BIAUX) is a mutual fund.

This fund is available at Fidelity on a NTF basis and with a minimum initial investment of $2,500.  Brown Advisory Small-Cap Fundamental Value Fund Investor Shares | Fidelity Investments

Snapshot of Trade:

I would not pay a transaction fee to buy this fund which would be required at several brokerage firms which is required at all but two of the firms offering it. Fund Purchase Information - MSN Money

Sponsor's webpage: Brown Advisory Mutual Funds

Last SEC Filed Shareholder Report (list of holdings as of 12/31/12 starts at page 16)

Snapshot of Top Ten Holdings as of 6/30/13 Taken From Sponsor's Web Site:

BIAUX Brown Advisory Sm-Cp Fundamental Value Inv Fund (Morningstar Page: rated 5 stars)

I decided to add a small cap value fund after I came across this data from Fidelity which compared the result of value and growth indexes between 1980-2010. Fidelity Learning Center Value indexes beat growth indexes and the small cap value index smashed all of the others in performance. That may be a good reason to go light on this category going forward. Over the 31 year period reflected in Fidelity's table, a $10,000 investment in the small cap value index would have grown to $601,860, while large cap growth rose to $187,071.

This purchase is part of a paired trade. I will discuss what I sold in the post. This one is already long enough.  

Friday's Closing Price: BIAUX: $21.37 -0.13 (-0.60%)