Friday, January 2, 2015

Regional Bank Basket Update as of 1/2/15

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

Snapshots of realized gains and losses can be found at the end of that post.

This basket will be updated randomly, usually within 1 to 2 months after the last update. 

The dividend yield showed in this table is calculated by Yahoo Finance based on yesterday's closing prices. 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.

Dividend Yields 5% or higher: Based on Total Cost
NYCB: 8.44%
WASH: 8.34%
UBSI: 7.66%
FNLC: 5.38%
CBU: 5.15%
TRST: 5.1%
CCNE: 5.%

I am not tracking reinvested dividends in the following table. The unrealized gains per holding do not include reinvested dividends.

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.

After a number of adds, I am now over my minimum $40,000 allocation after a bout of profit taking in 2013.

In 2013, my dividend total from this basket totaled $1,932,93, up from $1,896.25 in 2012 and $1,660.57 in 2011.  

Regional bank stocks churned in price during 2014 as interest rates started to go back down. One of the regional bank ETFs, KRE, closed at $40.61 on 12/31/13 and closed the year at $40.70 -0.44 (-1.07%). SPDR S&P Regional Banking ETF ETF Chart

I have bought and sold that low yielding ETF: Bought Taxable Accounts: 50 KRE at $39.55 (9/20/14 Post)- Sold 50 KRE at $41.35 (1/15 Post) 

The abnormally low rates benefited banks some when deposit yields were repriced down, but even 5 year bank CDs taken out in 2008 at higher rates have now matured, and the positive impact of that repricing is no longer present to any meaningful degree. 

Instead, the decline in rates for loans simply compresses net interest margin. When rates were rising last year, regional bank stocks were in an uptrend based on the common belief that higher intermediate and long rates would be a net positive for them, particularly when short terms were likely to remain near zero through mid-2015 and then rise slowly and modestly in 2016-2017. The rate spike starting last May impacted intermediate and long term rates. Short term rates remained anchored by ZIRP. 

I have used the downdraft in prices this year to add positions to my basket after selling into last year's strength. My dividend total for 2014 was $1,831.19, down slightly from 2013. The decline was not due to dividend cuts but to the lower exposure during the 2014 first half after a bout of profit taking during 2013.

The yields shown in the table below are calculated by Yahoo Finance based on today's closing prices rather than at my total cost per share.

Over the holiday, I was able to calculate the dividends paid by my regional bank stocks during 2014 and have updated the total dividend payment number through 2014 now. 

Net Realized Gains 2010 to Date: $17,427.81  (snapshots are in the Gateway Post) 
Dividends Received 2010 through 2014$8,454.91
Total Realized Return= $25,882.72

Since the last update, I added 50 shares of Bank South Carolina: Bought 50 BKSC at $14.6 Regional Bank Basket I liquidated Berkshire Hills: Sold 51 BHLB at $26.19.

Today, regional bank stocks declined in price as interest rates continued to decline. My basket performed in line with KRE: $40.22 -0.48 (-1.18%). The general belief among many investors is that a continued decline in intermediate and longer term rates will continue to cause problems for regional banks by compressing their net interest margins further.

Closing Prices 1/2/15:

TLT: $127.32 +1.40 (+1.11%) : iShares 20+ Year Treasury Bond ETF
IEF: $106.53 +0.54 (+0.51%) : iShares 7-10 Year Treasury Bond ETF
BABS: 63.50 +0.54 (+0.86%) : SPDR Nuveen Barclays Build America Bond ETF
LQD: $119.83 +0.42 (+0.35%) : iShares Investment Grade Corporate Bond ETF

Click to Enlarge
Regional Bank Basket as of 1/2/15 
Comparison Data From the St. Louis Fed:
Assets at Banks whose ALLL exceeds their Nonperforming Loans (I prefer a coverage ratio of  over 100% at the time of my initial purchase)(ALLL=Allowance for loan losses)

New Capital Rules From the FDIC to Implement Basel III Capital Rules: 

2014 Performance Numbers: 

I can not track the performance of the basket given the constant additions and deletions. I had several profitable trades during the year.

I can go to Morningstar for yearly total returns for each stock. I substantially outperformed KRE (+1.85% total return) last year based on several successful round trip trades, usually with brief holding periods, and the following numbers:

Total Returns of over 9% Highlighted (8 positions, with 2 over 20%):

Bar Harbor Bankshares (BHB): +23.42%
BDGE Bridge Bancorp (BDGE): +6.42%
BPFH Boston Private Financial Holdings (BPFH): +9.27%
First Bancorp (FNLC): +9.76% 
First Financial Bancorp (FFBC): +10.17%
Financial Institutions Inc (FISI) +4.9%
F N B Corp (FNB): +9.35% 
NBT Bancorp (NBTB) +4.67%
Trustco Bank Corp (TRST): +4.77%
United Bancorp Inc (UBCP): +4.61%
United Bankshares Inc (UBSI) +23.15%
Washington Trust Bancorp (WASH): +11.13%
West Bancorp (WTBA): +10.68%

FNLC closed the year at $18.09. My purchase was made during the year at $15.6.

ONB closed the year at $14.88, and had a total return of -.33% for 2014. My position was bought during the year at lower prices which gave me a positive total return. Bought 50 ONB at $13.29Regional Bank Basket Strategy: Added 50 ONB At $12.45-South Gent | Seeking Alpha (10/21/14 Instablog Post)

Trustco, FISI and UBCP basically ended the year close to unchanged on a price basis, with the total return numbers being generated by the dividend. As noted in the Gateway Post for this basket and above, I am counting on dividends to provide close to 40% of the total return over the life of this basket strategy.

I had a few bank stocks within 1% of unchanged like New York Community (NYCB) at +.89% and CNB Financial Corporation (CCNE) at +.84%. My return on CCNE was better since I added 50 shares at $16.11 mid-year and the stock closed at $18.50. NYCB has a good dividend which was in effect just about wiped out through share depreciation during the year.

My main loser, based on 2014 total return numbers, was First Niagara Financial Group at -17.61%, which has been a problem child in this basket for several years.

I realized $2,021.54 in net trading gains during 2014 (about 4.32% of the year end value). I exited the year with about $8,150 in net unrealized gains (unrealized profits minus unrealized losses mostly in FNFG and VLY).

The following snapshots include most of the unrealized gains over $500. Prices are as of the close on 12/31/14:

1. Washington Trust (WASH) 50 shares +$1,242

2.  United Bankshares (UBSI) 50 shares +$1,036+

3. Bar Harbor Bankshares (BHB) 100 Shares +$1,025

4. Bridge Bancorp (BDGE) 109+ Shares +$843

5. Financial Institutions 100 shares +$786+ (2 accounts):

6. Community Bank Systems (CBU) 50 Shares +$740.5

7. Trustco (TRST) 315+ Shares +$665+

8. First Merit (FMER) 143+ Shares +$622+

9.  New York Community 150 Shares +$621+

10. West Bancorporation 100 Shares +$527+

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