Friday, March 13, 2015

Bought 100 LBAI at $10.91/ Sold 50 HUSIPRG at $24.43/Sold 60 FIDU at $28.67

Stable Vix Pattern (Bullish):
Links to SeekingAlpha Instablog, Articles and Comments:

South Gent's Instablog | Seeking Alpha

South Gent's Articles | Seeking Alpha

South Gent's Comments | Seeking Alpha


Recent Developments:

The Federal Reserve reported this week that household and nonprofit net worth rose to $82.8 trillion in the last quarter. The value of corporate equities increased by $742B. The value of real estate rose $356B. Household debt increased at a 2.7% annualized rate in the 4th quarter and stood at $13.5T at quarter's end. I have always found it aggravating that the government lumps non-profit organizations with households.

FED's Z.1 Release .pdf

Households and Nonprofit Organizations; Net Worth, Level -St. Louis Fed

Household liabilities to disposable income continues to move down after hitting a a peak near 130% in the 2007 4th quarter:

Households and Nonprofit Organization Liability Level to Disposable Personal Income -St. Louis Fed

The Producer Price Index for final demand fell by .5% in February after declining .8% in January and .2% in December. Prices for final demand services fell by .5%, the largest decline since the inception of that index in December 2009.

Crude oil plummeted last Friday after the the International Energy Agency reported in its March report that production has increased 1.3M barrels per day to 94M barrels in February. March:- IEA releases Oil Market Report for March The IAE noted that the decline in U.S. rigs has yet to dent output, which is apparent from the weekly crude oil production data released by the EIA. U.S. production continues to hit all time highs. Weekly U.S. Field Production of Crude Oil (Thousand Barrels per Day) For the week ending 3/6/15, the daily field U.S. crude production average was 9.366M barrels per day, up from 8.182M barrels per day for the week ending 3/7/14 before the crude oil price collapse due to oversupply.


Regional Banks:

My regional banks are not concerned about the USDs strength. Those stocks have largely bucked the down days so far during March and have gone up more than the major market averages on the up days such as last Thursday.

My regional bank basket gave back some of yesterday's gains today, falling .43%, which was better than the KRE's .55% loss.  The S & P declined .61%.

The two largest unrealized percentage gainers were either up or unchanged today (3/13/15).

WASH Unrealized Gain +150.59%
UBSI Unrealized Gain +127.15%

Compass Point recently started coverage of WASH with a neutral rating and a $38 price target.  The analyst believed the stock was fully valued and was justifiably selling at a premium to its peers since it was a "top performing, clean community bank".

UBSI has become a bond substitute for me, with a current yield of 7.66%, based on my constant total cost  The yield at my total cost for the WASH shares is 8.44%.

I discussed WASH's most recent earnings report in a SA Instablog: Comments On Washington Trust's (WASH) Earnings Report - South Gent | Seeking Alpha

Both banks have a long history of increasing their dividends and neither cut their dividend rates during the recent Near Depression.

Investor Relations - Washington Trust Bancorp, Inc.

United Bankshares, Inc. - Investor Relations

WASH Interactive Stock Chart

UBSI Interactive Stock Chart

Another winner for me is Bar Harbor (BHB). The unrealized gain is larger in BHB than the WASH or UBSI, but the percentage gain is less. I own 100 BHB in the basket and only 50 UBSI and WASH shares. I took a snapshot of both BDGE and BHB as of today's close since both are together in the account:

BHB 100 Shares Unrealized Profit=$1,105.6/BDGE at +$677.65

BHB Interactive Stock Chart

A bank that has provided good total returns since my purchases almost 4 years ago is NYCB (constant annual dividend=$1 per share/quarterly at $.25):

NYCB +$738.61
Perhaps the best performer among the recent buys, which are still owned, is WTBA:

WTBA +51.92%
Bought 100 WTBA at $11.67

The biggest stinker remains FNFG, but that one has being well this year. FNFG Interactive Stock Chart

While I can not remember the energy loan exposure for all of these banks, most of them would have none. They are small community banks located in places like South Carolina, Vermont, Maine and Iowa. TRMK, a new add, may have the highest percentage. Trustmark is not an oil and gas exploration or reserve base lender, pages 2 and 5. Q4 2014 Results - Earnings Call Transcript | Seeking Alpha.


1. Bought 100 LBAI at 10.91 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer):

Snapshot of Trade:

Company Description: Lakeland Bancorp (LBAI) is the holding company for Lakeland Bank which has 51 branches located in 8 northern New Jersey counties. The bank is headquartered in Oak Ridge, N.J. Lakeland Bank - About Us

Map of Locations

I looked at the HQ at Google Maps.

Peer Analysis

An efficiency ratio below 60% is viewed as good by me. The capital ratios are adequate, but at the lower end of banks in my basket.

SEC Filings

LBAI did participate in TARP: FORM S-3 The bank has redeemed the government's cumulative preferred stock and repurchased the government's stock warrant, page 80, Form 10-K.

In September  2012, the bank sold 2,667,253 shares at $9.65. Those funds were apparently used to redeem a 7.535% junior subordinated bond maturing in 2034, 8-k.

Prior Trade: I have only one prior trade.

Item # 3 Sold 100 LBAI at $11.04 (8/9/13 Post)(snapshot of profit=$142.09)- Item # 1 Bought 100 LBAI at $9.46 (4/16/13 Post)

Chart: The long term chart looks unappealing, mostly a sideways channel pattern between $8 and $12 with dips to $5 during the last two recessions. LBAI Interactive Stock Chart

This bank has not done much for its shareholders long term. The stock has presented a few trading opportunities from depressed levels.

The best course of action IMO would be for this bank ceasing to remain independent. I would have not gained anything other than a small dividend by continuing to hold this stock after I sold at $11.04 back in August 2013.

Dividends: The current quarterly dividend rate is $.075 per share. The dividend was slashed from $.0864 to $.0432 in 2009, which I view most negatively. Lakeland Bank Dividend History

Due to that dividend slash, I will keep my exposure to this stock small forever, even though my first buy was in 2013 after that slash. I will also keep a my small position on a short leash in response to that action.

I am not a forgive and forget dividend investor when it comes to a 50% dividend slash. That is a major and unwashable stain on management and the Board that will remain for a minimum of 25 years in my book.

Based on the current dividend rate, and a total cost per share of $10.91, the dividend yield is about 2.75%. 

Recent Earnings Report: For the 2014 4th quarter, Lakeland reported net income of $7.9, or 8% above the $7.3M earned in the 2013 4th quarter. E.P.S. increased to $.21 per share from $.19.

Net Interest Margin: 3.58%
NPL Ratio: .78%
NPA Ratio: .61%
Annualized Charge-Offs to Total Loans: .15%

The NPL, NPA and Charge-Off ratios are good. The NIM is okay under the circumstances.

Selected Operating Ratios for the 2014 4th Quarter:

I prefer to see the ROA number over 1%.

Sourced: Lakeland Bancorp Reports Record Full Year Results

Rational and Risks: The valuation is fair IMH at a TTM P/E of about 13.35 based on my purchase price. The current consensus E.P.S. is for $.88 in 2015 and $.98 in 2016. LBAI Analyst Estimates That consensus is generated by 3 analysts.

There is at least some potential for buyout.

The bank has an efficiency ratio below 60%, which is a positive. The NPL and NPA ratios are currently below 1%, yet another positive.

While the dividend is gradually returning to its pre-slash level, the payout ratio is less than 40% and needs to move up closer to 50%. This stock currently has the second lowest dividend yield in my regional bank basket.

The bank discusses risks incident to its operations starting at page 14 of its 2013 Annual Report. Form 10-K

The bank did suffer a $8.59M loss in 2009, page 24 2011 Annual Report Form 10-K

Future Buys: I am not likely to buy more. I have no sell target either. Given the history, LBAI will be one of the first stocks jettisoned when I decide to pare my regional bank basket due to macro issues negatively impacting all banks.

Close 3/13/15: $11.19 down $.10

2. Sold 50 HUSIPRG at $24.43 (see Disclaimer): 

I paid too much for this security when I bought it back in 2013. Consequently, I was looking for an out as a prerequisite to reestablishing a lower entry point.

I have recently discussed other reasons for paring these low yielding equity preferred floaters. Sold 50 of 100 GSPRC at $20.89Item # 3 Sold 50 BMLPRJ at $21.14 (3/5/15 Post)Item # 2 Sold 100 of 200 MSPRA at $20.91 (3/2/15 Post)

Most likely, I am done selling my equity preferred floaters, and my next transaction will probably be a purchase when and if there is a downdraft.

Snapshot of Trade:

Snapshot of Profit:

2015 Sold 50 HUSIPRG +$25.07 
I bought this security when the symbol was HBAPRG: Bought 50 HBAPRG at $23.61 (8/3/13 Post)

Dividends Received: $77.38

Total Return: +$102.45 (at least it is a positive number)

Security Description: HSBC USA Inc.  Floating Rate Non-Cumulative Preferred Series G (HUSI.PG) pays non-cumulative and qualified dividends at the greater of 4% or .75% over the 3 month LIBOR rate on a $25 par value:


Advantages and Disadvantages of Equity Preferred Floating Rate Securities

Close Today: $23.64 down $.15

3. Sold 60 FIDU at $28.67 (see Disclaimer): This ETF was bought and sold commission free in my Fidelity brokerage account.

Snapshot of Trade: 

Snapshot of Profit: 

2015 FIDU 60 Shares +$80.97

I did a paired trade where I sold the Fidelity Energy ETF (FENY) at $27.41 and bought the Fidelity Industrial ETF at $27.41: Bought 50 FIDU at $27.41 and Sold 50 FENY at $27.81 (8/16/14 Post) The Energy ETF has tanked since that disposition while the industrial ETF did go up some, so the paired trade worked this time.

I later added 10 shares at $26.84: Item # 6

I realized a gain of $115.96 on the FENY shares bough at $25.49 (3/10/14 Post).

Security Description: The Fidelity MSCI Industrials Index ETF (FIDU) has a .12% expense ratio and can be bought commission free by Fidelity brokerage customers provided the shares are held for more than 30 days.

FIDU | ETF Snapshot - Fidelity

Rationale: I turned a little sour on U.S. industrials based on their current valuations, low yield, and the likely negative impact on earnings flowing from the strong USD. The parabolic rise in the USD will certainly have a negative impact on reported revenues and earnings for U.S. manufacturers who operate overseas or who have meaningful international revenues from products produced in the U.S. The  manufacturers whose costs are in USDs are also at a competitive disadvantage to foreign manufacturers producing goods in weaker currencies.

The U.S. Dollar Index went over 100 last Friday for the first time in 12 years: U.S. Dollar Index (DXY)

While I focus on currency neutral revenues and profits, there are simply too many investors who will grab hold of the GAAP numbers that will be negatively impacted by the strong USD.

As of 3/6/15, the 30 day SEC yield was 1.68%. The TTM P/E was at 18.37 and the price to cash flow was 12.02%.

I will look for another, lower entry point.

Close on 3/13/15: $28.79