Update for Lottery Ticket, REIT and Regional Bank Basket Strategies/Sold 101+ BRKL at $9.53/Bought 50 LARK at $19.76, 50 UVSP at $18.8, 100 SUSQ at $10.15, 50 UVSP at $18.8/Bought 50 ODP at $5.09 as a LT/CBU, BHLB, FFBC, WASH, FNLC, FMER, FISI, TRST, CCNE, HBAN, BPFH, NYCB, NPBC, WTBA, FNB, MBVT, UBCP

The combined market value of the three baskets discussed below was $120,993.7 as of 7/25/14. The combined decline last Friday was $273.92 or .00227%.

7/25/14: S&P 500 -.48%

The regional bank, REIT and lottery ticket basket strategies are updated on the last Monday of each month. The price shown in the following tables will be from last Friday.

Last Update 6/30/14: Stocks, Bonds & Politics: Update for Regional Bank, Lottery Ticket and REIT Basket Strategies/Bought 50 NKSH at $30.4

I frequently use a basket approach, particularly with industry sectors, that will vary in size as to the number of components. The focus will be on the total return of the basket, rather than individual components. Some of the advantages to this approach include diversification and risk mitigation. I am not concerned about a few mishaps provided other components are doing better than I anticipated when I made the initial purchase. As noted previously, I have been surprised by some of best and worst performers in the regional bank basket.

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, though I may occasionally buy one who does not fit those common criteria. Any technical analyst would most likely have a sell rating on the stock.

See 2004 Study by the Brandes Institute: "Falling Knives Around the World" 

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 slightly under $6,000.

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 to 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

There were no deletions since the last update. There was one addition discussed below.

Net Realized Gains: $14,024 (same as last update)


Click to Enlarge:

Lottery Ticket Basket as of 7/25/14

The unrealized gains exceeding 30% are as follows:

AMOT +105.73%

AMOT corrected some since the last update and almost lost its number #1 pole position to the up and coming RFMD.

RFMD +103.85%

RFMD reported better than expected earnings and raised guidance: Reuters; News Release

FCE/A +64.1%

AWCMY +61.81%

ING +48.44%

FCF +43.55%

NPBC +30%

A. Bought 50 ODP at $5.09 (see Disclaimer):

Snapshot of Trade:

Office Depot qualifies as a Lottery Ticket due to its recovery potential after its acquisition of OfficeMax late last year. This consolidation in the office supply space makes sense to me. The recovery potential is tied to a reduction in competition and store rationalization at a time when employment and the economy are gathering upward momentum, hopefully for the remainder of 2014 and throughout 2015. ODP plans to close about 400 stores by 2016 due to overlapping locations. NYTimes One of those closures will likely be near HQ, since the OMX and ODP stores are within a few hundred feet of one another.

I would not expect much, if any, share price gain until investors become convinced that the current analyst consensus forecast will be achieved or exceeded by ODP. The current consensus forecast, as of 7/22/14, was for an E.P.S. of $.15 this year and $.34 in 2015. ODP Analyst Estimates The P/E on that forward 2015 estimate would be about 14.97 at a total cost of $5.09 per share. A primary issue would be a confirmation of the acceleration in earnings growth in 2015, rather than the current P/E or even the forecasted P/E based on the 2015 estimate, in my opinion.

Goldman Sachs has ODP as one of its 25 small caps to buy. The price target is just $7.

S & P has the stock rated 5 stars as of 7/22/14 with a 12 month price target of $8.

ODP Key Statistics (based on $5.09 price and earnings reports through March 14)
P/B: 1.38
P/S: .21
P.E.G.: .37 (estimated 5 years)

I also own two senior unsecured bonds that were an OfficeMax obligation but are not an ODP debt obligation Bought 2 OfficeMax Senior Bonds at 97.494 (1/11/11 Post). That bond has a 7.35% coupon and matures on 2/1/16. Finra Information As of 12/31/13, only $18M in principal amount was outstanding. (Note 8 at page 81, 10-K) Total recourse debt stood $696M, including capital lease obligations, as of 12/31/13.

2. Update for REIT Common and Preferred Stock Basket:

This basket is starting to contract, primarily though preferred stock deletions under the current trading guidelines. The first publication of this basket was made on 3/5/14: Stocks, Bonds & Politics: Equity REIT Common and Preferred Stock Table as of 3/5/14

I am using a blended strategy of including both common and preferred stocks. I am not likely to add back preferred stocks until there is another meaningful correction in their prices.

Since my last update, I have sold the following securities:

Sold on the Toronto Exchange: 200 CAR_UN:CA at C$23.16/Sold Roth IRA 50 DLRPRE at $25.5 (7/12/14 Post)

Sold 100 REI_UN.CA at C$27.04 (7/19/14 Post)

Click to Enlarge:

REIT Basket as of 7/25/14 

3. Update for Regional Bank Basket Strategy:

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

REGIONAL BANK BASKET STRATEGY GATEWAY POST

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

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.

Dividend Yields 5% or higher: Based on Total Cost
NYCB: 8.44%
UBSI: 7.66%
WASH: 7.56%
CZNC: 5.39%
FNLC: 5.38%
CBU: 5.15%
TRST: 5.1%
CCNE: 5.%

CBU is a new addition to the list after raising its quarterly dividend to $.3 per share. My total cost for the 50 share lot, bought at $23.18, is $1,166. (see discussion in Item F below)

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 last year. 

I have not been impressed with several of the recent earnings reports from regional banks. Some of the banks discussed below have decent 2014 second quarter reports. While net interest margin has not contracted much, it is yet to show any expansion either for most banks. Chart: Net Interest Margin for all U.S. Banks - St. Louis Fed

One ETF will own several of the small cap regional banks and REITs that I own now or have owned in the past: PSCF | S&P SmallCap Financials Portfolio

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. I will have to increase my current exposure in order to exceed the 2013 amount this year, given my light exposure for the first four months which was several thousand below the "minimum" level.    

Regional bank stocks are in a funk this year as interest rates started to go back down. One of the regional bank ETFs, KRE, closed at $40.61 on 12/31/13 and at $39.12 last Friday, but has closed as low as $36.84 this year (2/3/14). SPDR S&P Regional Banking ETF ETF Chart That ETF had worked its way back over its 50 and 200 SMA lines when I published the last update but has since fallen below those lines again.

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.  

Realized Gains 2010 to Date: $16,156.25  (snapshots in Gateway Post)
Dividends Received 2010 through 2013=$6,623.72

Click to Enlarge:

Regional Bank Basket as of 7/25/14

Comparison Data From the St. Louis Fed:
Net Interest Margin for all U.S. Banks
Net Interest Margin for U.S. Banks with average assets under $1B
Net Interest Margin for U.S. Banks with average assets between $1B and $15B
Return on Average Equity for all U.S. Banks   (abbreviated to "ROE")
Return on Average Assets for all U.S. Banks (abbreviated to "ROA")
Nonperforming Loans (past due 90+ days plus nonaccrual) to Total Loans for all U.S. Banks (abbreviated to "NPL ratio")
Charge-Off Rate On All Loans, All Commercial Banks
Assets at Banks whose ALLL exceeds their Nonperforming Loans (coverage ratio over 100%)(ALLL=Allowance for loan losses)

A. Sold 100 BRKL at $9.53 (see Disclaimer):

Snapshot of Trade:

2014 Sold 101+BRKL at $9.53 

Closing Price on Day of Trade (7/1/14): BRKL: $9.49 +0.12 (+1.28%)

Snapshot of Profit:

2014 BRKL 101+ Shares +$92.21

Bought 100 BRKL at $8.48

Snapshot of History:

Dividends=$59.5
Total Return= $151.71 or 17.75% 

The TTM P/E was close to 18 at the $9.53 price, which is a rich valuation for a small regional bank estimated to grow its E.P.S to $.59 per share next year from $.54 in 2014. I consequently chose to sell this stock and to redeploy the proceeds into another bank stock.

Closing Price Last Friday: BRKL: $9.20 -0.02 (-0.22%)

B. Bought Back LARK at $19.76 (see Disclaimer):

Snapshot of Quote Shortly Before Order Entry:

Even for LARK shares, a volume of just 4 shares within an hour of the closing bell is lighter than normal.

Normally, there is a large bid/ask spread. The market capitalization is around $61M at the $19.76 price.

Snapshot of Trade:

2014 Bought 50 LARK at $19.76

I recently sold 50 LARK shares after an inexplicable pop in the shares. Item # 4 Sold 50 LARK at $23.5 (6/29/14 Post) I had bought those shares earlier this year at $19.7 (1/13/14 Post).

I had earlier bought and sold a 50 share lot. SOLD 52 LARK at $18.75 (1/9/12 Post)-Bought 50 LARK @ 16.6 (5/2/11 Post)

Landmark Bancorp Inc. (LARK) is a bank holding company that owns Landmark National Bank which currently has 30 branches across Kansas and is headquartered in Manhattan Kansas: Landmark National Bank Locations

As noted in the quote snapshot, the bank is currently paying a quarterly dividend of $.19 per share. Landmark Bancorp Inc. (LARK) Dividend History At a total cost of $19.76 per share, the dividend yield is respectable at about 3.85%.

Even though the quarterly dividend has remained at $.19 per share since 2006, LARK has paid a 5% stock dividend every year since 2001. Landmark National Bank-Dividends In effect, that stock dividend results in an equivalent dividend increase every year assuming my math skills, or lack thereof, are correct (since the same penny amount is paid on 5% more shares each year).

2014 First Quarter Earnings Report:
SEC Filed Press Release

2014 1st Q vs. 2013 1st Q
Net Income: $1.699M / $1.44M
E.P.S. (diluted): $.53 / $.46
Net Interest Margin: 3.49% / 3.38%
NPA Ratio: 1.53% / 1.24%
Coverage Ratio: 45.66% / 56.32%
ROA: .84% / .92%LARK has been paying a 5% stock dividend every year since 2001
ROE: 10.81% / 9.18%
ROTE: 16.5% / 12.14%
Book Value Per Share: $20.64 / $19.96

Capital ratios are okay as of 3/31/14:

Page 27 SEC Form 10-Q for the Q/E 3/31/14

Landmark did report a decline in earnings during and after the Near Depression. In 2008, E.P.S. was reported at $1.56, and then declined to $1.13 per share in 2009 before bottoming in 2010 at $.7. Thereafter, E.P.S. rebounded to $1.54 in 2011 and $2.18 in 2012. (page 37-2012 Annual Report SEC Form 10-K Risk factors are summarized starting at page 27 of the 2013 Annual Report.

While remaining a small bank, Landmark has grown some through acquisitions. Effective 11/1/13, Landmark completed its acquisition of Citizens Bank which added eight branches: Page 67. Earnings in 2013 were impacted by $1.9M in costs associated with this acquisition: Page 42.

Landmark owns its main office and 24 of its branches. Five branches are leased: Page 37.

Landmark did not participate in TARP: Page 9 2009 Annual Report 10-K.

After my purchase, LARK reported second quarter net income of $2.1M or $.65 per share, up from $.45 in the year ago quarter. SEC Filed Press Release

There are no analyst forecasts. I view 2014 earnings of $2.05 to $2.1 per share or higher to be a reasonable forecast given the first and second quarter results, though an unexpected large loan loss could derail that result. Any E.P.S. number over $1.96 would result in a less than 10 P/E at a total cost of $19.6 per share.

Closing Price Last Friday 7/25/14: LARK: $20.51 +0.17 (+0.84%)

C. Boston Private Financial (BPFH): Boston Private Financial Holdings, Inc. reported second quarter net income of $21.3M or $.25 per share, up from $.11 in the 2013 third quarter (adjusted to $.18 after items)

Net Interest Margin: 3.14%
Efficiency Ratio (non-GAAP):  64.39%
Nonaccruals to Total Loans: .82%
Coverage Ratio: 179%
ROA: 1.32%
ROTE: 17.15%
Tangible Equity to Tangible Assets: 7.77%

The capital ratios are good:

Closing Price Last Friday: BPFH: $12.70 +0.04 (+0.32%)

D. Huntington Bancshares (HBAN): Huntington's stock price reacted positively to the second quarter earning's report, rising 4.84% on 7/18/14: HBAN: $9.75 +0.45 (+4.84%) Net income rose 9% to $164.6M or $.19 per share, up from $.17 in the 2013 second quarter and one cent better than the consensus estimate of $.18. An encouraging sign was the 9% increase in total lending and a 39% increase in auto lending. News Release

I took a snapshot of some key data points:

Quarterly Financial Supplement

HBAN shares were initially bough in the LT category and later promoted to the regional bank basket. Added 40 HBAN at $7.04; Bought 30 HBAN @ 7.25 as LT; Added 30 HBAN as LT at $4.8

Closing Price Last Friday: HBAN: $9.98 +0.01 (+0.10%)

E. CNB Financial (CCNE): CNB Financial reported net income of $.39 per share. The estimate, made by just one analyst, was for $.34. CCNE Analyst Estimate

2014 Second Quarter vs. 2013 Second Quarter

The capital ratios are okay:

Capital Ratios CCNE as of 6/30/14

I recently averaged up in CCNE: Item # 6 Added 50 CCNE at $16.11 (6/14/14 Post). The prior purchase was at $11.06 (6/30/10 Post)

Closing Price Last Friday: CCNE: $16.53 -0.35 (-2.07%)

F. Community Bank System (CBU): Community Bank System reported second quarter net income of $23.7M or $.57 per diluted share, up from $.52 in the the 2013 second quarter. The consensus estimate was for an E.P.S. of $.54. CBU Analyst Estimates As of 7/21/14, the day of the earnings release, the consensus E.P.S. estimate for 2014 is $2.17 and $2.23 for 2015.

The Board increased the quarterly dividend by 7.1%. The new rate will be $.30 per share, up from the previous $.28. This increase constitutes the 22nd  consecutive year of increased dividends.

Metrics: Net Interest Margin 3.94%

Bought 50 CBU @ $23.18 (October 2010)

Closing Price Last Friday: CBU: $35.92 -0.11 (-0.31%) 

G. Washington Trust Bancorp (WASH): Washington Trust reported net income of $9.8M or 58 cents per share, up from $.55 in the year ago quarter. The consensus estimate was for $.59 per share. WASH Analyst Estimates

Net Interest Margin: 3.35%
NPL Ratio: .49%
NPA Ratio: .42%

Bought 100 WASH at $15.26 (January 2010)-Sold 50 of 100 WASH @ $22.44 (January 2011)

Closing Price Last Friday: WASH: $34.16 -0.14 (-0.41%)

H. TrustCo (TRST): TrustCo reported net income improved by 20.9% to $11.8M compared to $9.9M in the 2013 second quarter. E.P.S. was reported at $.125 per share. The consensus E.P.S. estimate was for $.11  TRST Analyst Estimates

Net Interest Margin: 3.15%
Efficiency Ratio: 53%
Tangible Equity to Tangible Assets: 8.38%
Tangible Book Value Per Share: $4.06

My last two transactions were to pare my position based on valuation. Sold 308 TRST at $6.64 (profit $271.05); Sold 50 TRST at $7.29 (profit: $32.67). I currently own with 315+ shares at an average cost of $5.16. Bought 50 TRST at $4.01 (August 2011); ADDED 50 TRST at $5.1 (June 2012); Added 150 TRST at $5.17 (January 2013)(plus some reinvested dividends)

J. First Merit (FMER): FirstMerit reported second quarter net income of $59.5M or $.35 per share, up from $.29 in the 2013 second quarter. The consensus E.P.S. estimates were for $.36 and $1.45 this year. FMER Analyst Estimates 

The market reacted negatively to this report:

Closing Price 7/22/14: FMER: $18.23 -0.45 (-2.41%)

I thought that was an overreaction and simply changed my dividend option to reinvestment in response.

JPM downgraded FMER to neutral based on "accretion" headwinds, an issue that was well known prior to that downgrade. Barron's. The accretion issues impact on net interest margin is discussed at page 6 of the earnings call transcript.

Earnings Call Transcript | Seeking Alpha (page 5-expects net interest margin to decline in next two quarters)

After selling my 100 highest cost shares, I currently own 141+ at an average cost per share of $14.52: Item # 2 Bought 30 FMER at $11.35 (August 2011); Item # 2 Added 50 FMER at $15.2 (September 2012); Item # 3 Added 50 FMER at $15.09 (February 13, 2013 Post) The foregoing purchases account for 130 of the 141+ shares with shares purchased with dividends accounting for the remainder. I quit reinvesting the dividend based on valuation after the 2013 second quarter.

Closing Price Last Friday: FMER: $18.00 -0.23 (-1.26%)

K. Merchants Bancshares (MBVT): Merchants Bancshares reported second quarter net income of $3.41M or $.54 per share. The consensus E.P.S. estimate was for $.53. MBVT Analyst Estimates Profit will be hurt this year by spending on a "core conversion project" whose benefits will will start to be "seen in the fourth quarter".

In addition, MBVT is reducing "exposure to price volatility in the investment portfolio, increasing liquidity and building capital" in response "to market conditions that do not favor asset extension or compensate adequately for credit risk". I would agree with that approach now.

The NPA and NPL ratios are the lowest in my regional bank basket.

After harvesting a profit on one 50 share lot, I currently own 50 shares of MBVT: Item # 5  Bought 50 MBVT at $26.25 (5/2/2012)

The market responded favorably to this report:

Closing Price on 7/23/14: MBVT: $30.04 +0.54 (+1.83%)

L. F.N.B. (FNB): F.N.B. reported second quarter net income of $32.821M or $.2 per share. The consensus E.P.S. estimates were for $.2 and $.83 for the year. FNB Analyst Estimates For the 2013 second quarter, FNB reported net income of $29.123M or $.2 per share. There were more shares outstanding in the last quarter (diluted shares at 167.867+M vs.  145.844+M)

After some profitable trading, I was left with 50 shares bought at using FIFO accounting. Added 50 FNB at $7.8 (July 2010). I later added another 50. Bought 50 FNB at $11.25 (6/24/13)

The market responded favorably to this report:

Closing Price 7/23/14:  FNB: $12.40 +0.27 (+2.23%)

Closing Price 7/25/14: FNB: $12.58 +0.02 (+0.16%)

M. West Bancorporation (WTBA): West Bancorporation reported second quarter net income of $4.74M or $.3 per share, up from $.25 for the 2013 second quarter. The consensus estimate was for $.28 and $1.13 for the year. WTBA Analyst Estimates

Bought 100 WTBA at $11.67 (6/29/13 Post)

The market responded favorably to this report:

Closing Price 7/25/14: WTBA: $14.57 +0.35 (+2.46%)

N. National Penn (NPBC): National Penn Bancshares reported net income of $26.2M or $.19 per share. The consensus E.P.S. estimates were for $.17 in the second quarter and $.7 for the year. NPBC Analyst Estimates

NPL Ratio: .8%
Coverage Ratio: 207%

Other metrics include the following:

Capital ratios are good:

NPBC was initially bought in the LT basket and was later promoted to the regional bank basket with the original LT purchase remaining in that basket. Item # 2 Added 100 NPBC at $10.68 (8/17/13 Post); Added 50 NPBC at $9.85 (October 28, 2013 Post);  Item # 1 RB Bought as LT 30 NPBC @ $7.83 (4/26/11 Post)

Closing Price Last Friday 7/25/14: NPBC: $10.49 +0.03 (+0.29%)

O. Bought 100 SUSQ at $10.15-Satellite Taxable Account (see Disclaimer): I initially bought and sold SUSQ shares as part of the LT basket. Bought 50 SUSQ at $5.85 (10/1/09 Post)- Sold: 50 SUSQ @ 7.5 (11/3/2010 Post). I later decided to buy the shares back as an LT, Bought 30 SUSQ at $8.75, and will simply keep those shares in that basket. I am now elevating SUSQ to the Regional Bank Basket Strategy which is a "risk on" promotion.

Snapshot of Email Confirmation:

After my purchase, Susquehanna Bancshares reported second quarter net income of $43.5M or $.23 per share. The consensus E.P.S. estimates were for $.2 and $.8 for 2014. SUSQ Analyst Estimates The Board also announced a stock repurchase program of up to 3.5% of the outstanding shares.

SUSQ was originally classified as a LT due to its poor performance in 2008-2009. The poor results were manifested by the steep dividend cuts and severe share price decline. In the 2009 first quarter, the quarterly dividend was $.29 per share, which was then cut to $.05 for the 2009 second quarter, and then cut again to $.01 per share by the 2009 4th quarter. Susquehanna Bancshares, Inc. (SUSQ) Dividend Date & History The share price decline from $27+ in 2006 to 5+ in early 2009. SUSQ Interactive Chart

Earnings reports during that period reflected the problems during that period. E.P.S. declined from $1.23 in 2007 to a loss of 5 cents per share in 2009, barely recovering to just a $.13 per share annual profit in 2010. FORM 10-K at page 29.

Susquehanna Bancshares recently increased its quarterly dividend by 1 cent to 9 cents per share.

Closing Price Last Friday: SUSQ: $10.36 -0.04 (-0.38%)

P. Berkshire Hills (BHLB): Berkshire Hills reported second quarter core earnings of $.44 per share. The consensus E.P.S. estimates were for $.42 in the quarter; $1.68 for 2014 and $1.85 for 2015. BHLB Analyst Estimates

Net Interest Margin: 3.26%
Efficiency Ratio: 62.96%
Core Return Tangible Equity: 11.34%
NPL Ratio: .59%
NPA Ratio: .45%
Coverage Ratio: 132%
Charge-Offs to Total Loans (annualized): .31%

I am slightly in the hole after profitably selling a 50 share lot: Added 50 BHLB at $23.75; Bought: 50 BHLB at $24.51

Item # 1 Sold 50 BHLB at $28.74+ (7/13/13 Post)-Item # 2 Bought 50 BHLB AT $21.66 (3/12/12 Post)

The market responded favorably to this report:

Closing Price 7/24/14: BHLB: $23.67 +$1.07 (+4.73%)

Closing Price Last Friday 7/25/14: BHLB: $23.67 0.00 (0.00%)

Q. New York Community Bank (NYCB): New York Community Bancorp reported cash earnings of $.29 per share (GAAP at $.27). The consensus E.P.S. estimate was for $.26. NYCB Analyst Estimates

The capital ratios are okay:

The board declared a regular dividend of $.25 per share. At that quarterly rate, the dividend yield is about 8.43% at my total average cost per share of $11.86. Item # 2 Bought 50 NYB at $11.3 (10/15/2009 Post); Item # 4 Added 50 NYB at $10.57 (11/4/2009 Post); Item # 1 Added 50 NYB at $12.79 (2/17/2012 Post)

The largest of the three gains realized to date was booked on this 50 share lot: Bought 50 NYB at $10.57-Item # 7 Sold 50 NYB in IRA at $17.51 (7/28/2010 Post)($331.03-snapshot in Gateway Post on this topic)

The market responded favorably to this report:

Closing Price on 7/23/14: NYCB: $15.90 +0.34 (+2.19%)

Closing Price Last Friday 7/25/14: NYCB: $16.05 +0.06 (+0.38%)

R. Financial Institutions (FISI): Financial Institutions reported net income of $7M or $.48 cents per share for the 2014 second quarter. The consensus E.P.S. estimates were for $.46; $1.9 for 2014 and $2.07 in 2015. FISI Analyst Estimates

Net Interest Margin: 3.47%
Efficiency Ratio: 60.15%
NPL Ratio: .47%
NPA Ratio: .32%
Coverage Ratio: 306%
ROA:    .95%
ROE: 10.52%
ROTE:  13.31%

The capital ratios are okay as of 6/30/14:

Bought 50 FISI at $15.55 (4/17/12 Post)

Added 50 FISI at $19.8 (8/30/13 Post)-Item # 5 Sold 50 of 150+ FISI at $21.26 (10/13/13 Post)

Added 50 FISI at $18.8 (9/30/13 Post)

Closing Price Last Friday: FISI: $22.53 +0.75 (+3.44%)

S. First Bancorp (FNLC): The First Bancorp Reports reported second quarter E.P.S. of $.35 per share up from $.29 per share in the 2013 second quarter. There are no analyst estimates.

I recently bought back a small position: Bought:  50 FNLC at $15.6

Bought 50 FNLC at $12.79-Sold 52 FNLC at $15.55 (June 2012)

Closing Price Last Friday: FNLC: $16.40 0.00 (0.00%)

T. United Bancorp (UBCP): This small Ohio banks is mostly out of sight, out of mind. I did notice an unusual earnings report that I decided to just briefly mention by linking the press release: United Bancorp, Inc. Reports Quarterly Earnings up 40% ($.14 vs. $.1)

I am reinvesting the dividend and currently own 100 shares bought in the open market.

Bought 50 UBCP @ 8.13; Bought 50 UBCP at 7.99

Sold 50 UBCP at $10.05 (May 2012)-Bought 50 UBCP at $8.49 (May 2010)

Closing Price Last Friday: UBCP: $8.10 +0.18 (+2.27%)

U. First Financial (FFBC): First Financial Bancorp reported second quarter net income of $16M or $.28 per share.  The consensus E.P.S. estimate was for $.27. FFBC Analyst Estimates

Net Interest Margin: 3.7%
ROA: .99%
ROE: 9.19%

The capital ratios are good:

This bank holding company was paying out a regular and special quarterly dividend that together equalled its net income, with the last special payment made last year. When that was occurring, I reinvested the dividends. That practice started in the 2011 third quarter and ended in the 2013 third quarter. When the extra payment started, the regular dividend was $.12 per share and is now at $.15. Stock Splits & Cash Dividends | First Financial Bank

After profitably selling my highest cost shares, I currently own 139+ shares at an average cost of $14.88. Item # 4 Sold 57 FFBC at $17.03-Highest Cost Share (December 2013 Post); Item # 3 Sold 50 FFBC at $17.51 (September 2012) The current dividend yield based on that total cost number is 4.04%. 

The open market purchases-for the shares currently owned-were discussed in these posts: Item # 1 ADDED 50 FFBC at $14.87 (December 2011 Post); Added Regional Bank Basket: 30 FFBC at $14.24 December 2012); Item # 2 Added 50 FFBC at $14.65 (June 2013 Post)

Closing Price Last Friday: FFBC: $16.59 +0.23 (+1.41%)

V. Bought Back 50 UVSP at $18.8-Satellite Taxable Account (see Disclaimer): I happened to notice late Friday that this stock had fallen back into my buy range, so I placed a limit order below the then existing bid price which was filled late in the trading day. The shares continued to slide after my purchase on lower than average volume:

Closing Price 7/25/14: UVSP: $18.74 -0.47 (-2.45%)

At that closing price, the TTM P/E was about 14.37, a little high for this bank, but the P/E based on the consensus E.P.S. for 2015 was acceptable at 11.12. UVSP Key Statistics The E.P.S. estimates are generated, however, by only one analyst: UVSP Analyst Estimates The estimate from that analyst is for an E.P.S. of $1.37 this year and $1.68 in 2015.

Snapshot of Trade:

Email Confirmation-Satellite Taxable Account

I have previously sold UVSP: Bought 50 UVSP at $15.1 (March 2012 Post)-Item # 3 Sold UVSP at $20.5 (July 2013 Post)(snapshot of profit=$253.1)

When I sold those shares about one year ago at $20.5, the T.T.M. P/E was about 16.48. I was concerned about the valuation, so I decided to harvest a profit and move on to something else.

For the 2014 second quarter, Univest Corporation of Pennsylvania reported net income of $5.1M or $.31 per share, which included 2 cents per share of acquisition related costs.

As of 6/30/14, the capital ratios are okay:

The current quarterly dividend is $.2 per share. Univest Corporation of Pennsylvania (UVSP) Dividend Date & History-NASDAQ.com At that rate, the dividend yield at a total cost of $18.8 per share is about 4.25%. On the positive side, the dividend was not cut during the Near Depression period. On the negative side, the quarterly dividend was last raised from $.19 per share back in 2006. Given a payout ratio of over 60%, I would not anticipate an increase in the dividend anytime soon. Univest - Stock Splits & Dividends The last ex dividend date was on 6/9/14.

Univest currently has 31 branches. It owns the insurance broker Univest Insurance, Univest Capital Inc (corporate lease financing for business equipment and technology solutions); and Univest Investments (a full service broker and investment advisory firm).

Univest is in the process of acquiring the privately held Valley Green Bank with three offices in the Philadelphia. Univest - Mergers & Acquisitions

Valley Green Bank Branch Locations & Hours

The Valley Green branches look much better than the typical Univest branch located in rural areas near Philadelphia. The market may not like this move, given the price action since the announcement, but it at least appears to me to be a potentially positive bolt on acquisition. The Univest branches are located in rural areas near Philadelphia.

When buying a bank stock, I will drag and drop addresses of branch offices into my browser, and then click "google maps" for that address. I will take a tour of the area. The main Univest office is in a place called Souderton, PA. I did not see anything that look new in the town after driving my little google man around town. It looked like a small rural town. When the map is expanded, I can see that the branches are near the greater metropolitan Philadelphia area.

14 N Main St - Google Maps

Univest  Stock Chart (long term)

The stock broke its 50 and 200 day SMA lines-to the downside-earlier this month. (One Year Univest Stock Chart)

Closing Price Last Friday: UVSP: $18.74 -0.47 (-2.45%) 

GE-U.S. & Europe Orders/Continued Regional Basket Pare: Sold 50 Trustmark at $26.52, Sold 50 UMPQ at $16.12, Sold UVSP at $20.5, Sold 50 SYBT at $26.2/Added 100 PFLT at $14/Bought Roth IRA: 50 SANPRB at $19.35 and 50 SGL at $9.35

Big Picture Synopsis:

Stocks

Stable Vix Pattern (Bullish)

VIX Asset Allocation Model Explained Simply 

Use of the VIX as a Timing Model

Short Term: Hoping for a 10%+ Correction

Intermediate and Long Term: Bullish

Bonds

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

I will become more bearish on bonds when and if I see a material up move in inflation expectations.

Inflation expectations have been moving up based on the pricing of the ten year TIP. Last month, I did one calculation where the forecast was for an average 1.93% rate of inflation over the next ten years.

Last Friday, the break-even closed at 2.21% for the 10 Year TIP:

Daily Treasury Yield Curve Rates: 2.5%
Daily Treasury Real Yield Curve Rates: .29%

*****************
Recent Economic Reports:

CPI increased .5% in June on a seasonally adjusted basis with the core up .2%. The annual increase on a non-seasonally adjusted basis was reported at 1.8%. The Y-O-Y core inflation number was 1.6%. Consumer Price Index Summary Gasoline accounted for about two-thirds of the June increase. The median price index calculated by the Cleveland Fed was up .2% in June or a 2.1% annualized rate. Current Median CPI :: Federal Reserve Bank of Cleveland

China reported that its second quarter GDP grew 7.5% from the 2012 second quarter, the slowest growth since 1990. Industrial output rose 8.9% in June, down from May's 9.2%. Consumer spending rose 13.3% in June, up from 12.9% growth in May.

The Commerce Department reported that retail sales increased .4% in June from the previous month, less than the consensus forecast of .8%. The May number was revised down to .5% from .6%. Core retail sales, which excludes gasoline, building materials and automobiles, rose .1%, compared to .2% in May. Total sales for April-June 2013 were up 4.6% from the 2012 second quarter. census.gov.pdf

Empire State Manufacturing Survey for July showed modest improvement, rising two points to 9.5, with the new orders component increasing 10 points to 3.8.

‎The Philadelphia Fed Manufacturing Survey rose to a two year high, surging to 19.8 in July from 12.5 in June, higher than the 10 consensus estimate. Shipments rose 14.3 from 4.1, but the new orders component declined to 10.2 from 16.6.

***************
Royce Value Trust (RVT)

Subject to approval by its shareholders, Royce Value Trust will contribute approximately $100M of its cash and securities to a new CEF called the Royce Global Value Trust. I see no reason for this kind of maneuver so I voted against the proposal.

I will sell my shares in the event the prosal passes.

I see no advantage to RVT shareholders from this transaction. This kind of transaction simply appears to be a cheaper way for the sponsor to launch a new fund, bypassing the underwriter's take.

There is one clear advantage to the sponsor The expense ratio for the Royce Global Value Trust "is expected to be higher" than the RVT expense ratio. sec.gov

I did not care for the complicated tax issue summarized in this missive:

I will sell my shares in the event the proposal passes.

***************
General Electric (own):

I thought that the title of the press release was more important than the actual E.P.S. number for the second quarter.

GE Reports 2Q’13 Operating EPS $0.36, Revenues $35.1B; Infrastructure orders +4%, U.S. orders +20%, record backlog of $223B; Industrial segment margins +50 basis points

The results for the second quarter were not that impressive, but the outlook was more positive for the U.S.

Immelt noted that U.S. orders "were the strongest in some time". Orders for new equipment and services in the U.S. rose 20% in the second quarter and grew 2% in Europe after declining 17% in the prior quarter.

The market reacted positively to this report: GE: $24.72 +1.09 (+4.61%)

The upbeat news about orders had a positive impact on other industrials last Friday:
HON: $83.57 +0.60 (+0.72%)
UTX: $102.48 +1.14 (+1.12%)
EMR: $58.80 +1.06 (+1.84%)
XLI: $45.41 +0.46 (+1.02%) : SPDR Select Sector ETF - Industrials
VIS: $87.04 +0.86 (+1.00%) : Vanguard Industrials ETF

GE Earnings Call Transcript - Seeking Alpha

I am still reinvesting the dividend to buy more shares. My plan at the moment is to sell my highest cost shares at some point after the shares cross above $30 and then keep longer term the shares bought after Lehman's failure with an average cost per share near $15. (Introduction Section: Stocks, Bonds & Politics: GE)

***************

Regional Banks:

I decided to pare my regional bank basket further by selling four 50 share positions.

Needless to say, those stocks continued to rise after I sold them.

There were two primary reasons for selling these four positions discussed below.

The first was profit taking, coupled with realizing some decent percentage gains quickly. When that happens, which was the case with TRMK, UMPQ and SYBT discussed below, then the funds devoted to those investments have done their work for a year or two.

Percentage Returns/Approximate Time Period (Excludes Dividends):
SYBT= 16.86%/ 3+ Months
TRMK= 21.8%/ 7+ Months
UMPQ= 30.73%/ 8+ Months

UVSP=33% / 16+ Months

The second was valuation. In two of the four, SYBT and TRMK, the consensus E.P.S. estimate for 2014 is actually lower than 2013.

In the following discussion, I will note for each stock the trailing 12 month P/E (TTM P/E), the consensus E.P.S. forecasts for both 2013 and 2014, and the forward P/E on the 2014 estimate.

A forward P/E of 15 would be viewed as expensive for a stock experiencing negative or low single digit E.P.S. year-over-year.

While I anticipate that higher intermediate and long term interest rates will have a positive impact on net interest margin, particularly when rates paid to depositors remain near zero, the improvement in net interest margin will take time to develop. As noted previously, the bank will suffer more immediate negative impacts resulting from lower profits, or even losses, realized from their available for sale investments.

I follow a large number of regional banks. A couple of weeks ago, I looked at my monitor list and could not find any to buy. That was another signal to me at least to lighten up.

I became somewhat more concerned after Comerica, one of the larger and stronger regional banks, reported earnings last Tuesday. I have no position at the current time.

Comerica is headquartered in Texas and has branches in California, Arizona, Michigan and Florida with 484 offices and total assets of $62.9 billion as of 6/30/13. Investor Relations | Comerica Bank The bank has locations in 7 of the largest ten U.S. cities.

For the 2013 second quarter, operating revenues declined 2% from a year ago; the net interest margin declined to 2.83% from 3.1% as of 6/30/12 and 2.88% sequentially; total deposits increased 1.49% and loan growth was up less than 1% sequentially; and the efficiency ratio was reported at 66.43% down minimally from 67.53% reported as of 6/30/12. The loan and deposit growth are both anemic and the net interest margin continued to decline.

Non-performing loans declined to 1.18% from 1.78% with the NPA ratio declining from 1.85% to 1.1%. SEC Filed News Release

While declines in NPLs is positive of course, most of that favorable trend has already been realized by Comerica. Growth in earnings going forward will be more dependent on net interest margin expansion coupled with increased loan growth funded by low cost deposits, with an assist to profits coming from an improvement in the bank's efficiency ratio. Prior to this earnings release, the consensus E.P.S. estimate was $2.87 in 2013 and $2.91 in 2014: CMA Analyst Estimates The stock closed down in response to this report: CMA: $40.86 -0.70 (-1.68%)

I have avoided this one for several reasons, including valuation, price and the dividend history in particular. Dividend History (CMA) | Comerica Bank

I sold one other position last week that I will discuss in the next post. Snapshots of the trades can be found at the Gateway Post for this subject.

***

1. Sold 50 Trustmark at $26.52 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer):

Snapshot of Trade:

2013 Sold 50 TRMK at $26.52

Snapshot of Profit:

2013 TRMK 50 Shares +$233.07

Bought 50 TRMK at $21.54 November 2012

Prior Trade: Item# 3 Bought 50 TRMK at $19.57 August 2010- Item # 3 Sold 50 TRMK at $24.7 January 2012

2012 TRMK 50 Shares +$240.57

Total Realized Gain Two Small Exposure Trades (Excluding Dividends)= $473.64

Rationale: At $26.52, Trustmark was selling at a rich multiple for a stock currently anticipated to experience negative Y-O-Y E.P.S. growth from 2013 to 2014. Possibly, the market believes that TRMK will do better than the current forecasts discussed below.

Closing Price 7/10/13 TRMK: $26.41 -0.14 (-0.53%). At $26.51, the TTM P/E is 15.37 and the P/E on the consensus 2014 estimate of $1.78 is 14.83. The consensus E.P.S. forecast is for $1.82 in 2013 and $1.78 in 2014. TRMK Analyst Estimates

Trustmark was one of the banks identified by J P Morgan as being hurt by rising rates due to the size of its bond portfolio and relative size. The JPM report is summarized at Barrons.com. I currently own 4 out of the 6 banks recommended by JPM. Those four banks on JPM's recommended list are FHN and KEY as value picks and PBCT and FMER as "special situations". FHN is owned as a LT, while the other three are included in the regional bank basket. 

Future Buys: If there is no material adverse development,  and the 2014 consensus E.P.S. estimate is no lower than $1.78, I would consider buying back this 50 share lot at less than $21.5.

For all of the bank stocks mentioned in this post, I would move the potential re-entry price up or down based on future earnings and changes to the forward year's E.P.S. estimates.

Last Friday's Close: TRMK: $27.55 +0.10 (+0.36%) 

2. Sold 50 Umpqua Holdings at $16.12 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer)

Snapshot of Trade:

2013 Sold 50 UMPQ at $16.12

Snapshot of Profit:

2013 UMPQ 50 Shares +$187.58

Item # 2 Bought 50 UMPQ at $12.05 October 2012

Prior Trade: The only prior trade was when Umpqua was classified as a Lottery Ticket: SOLD 30 UMPQ at $13.33 (snapshot of gain=$38.09)- Bought 30 UMPQ as LT at 11.53

Total Realized Gain 50 and 30 share Trades=$225.67

Rationale: This stock had the highest TTM P/E of the four sold:

Closing Price 7/10/13: UMPQ: $15.93 -0.19 (-1.18%). At $15.93, the TTM P/E is 18.1 and the P/E on the consensus 2014 estimate is 15.47. The consensus E.P.S. forecast for 2013 is $.93 and $1.03 in 2014: UMPQ Analyst Estimates

Future Buys: To buy back the 50 shares sold, Umpqua would need to fall to less than $13 with no significant adverse developments, with a 2014 E.P.S. consensus estimate being no worse than $1.

Last Friday's Close: UMPQ: $16.55 +0.22 (+1.35%)

3. Sold 50 UVSP at $20.5 (REGIONAL BANK BASKET STRATEGY GATEWAY POST)(see Disclaimer):


Snapshot of Trade:

UVSP EMAIL Confirmation

Snapshot of Profit:

2013 UVSP 50 Shares +$253.1

Item # 3 Bought 50 UVSP at $15.1 March 2012

Rationale: Both the TTM P/E and the future P/E is high for a company estimate to grow earnings 5.26% from 2013 to 2014.

Closing Price 7/10/13: UVSP: $20.60 +0.17 (+0.83%). At $20.6, the TTM P.E is 16.48 and the P/E on the consensus 2014 earnings is 14.71.  The consensus estimate for 2013 is for an E.P.S. of $1.33 and $1.4 for 2014. UVSP Analyst Estimates

Last Friday's close:  UVSP: $20.48 -0.02 (-0.10%)

4. Sold 50 SYBT at $26.2 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer):


Snapshot of Trade:

Snapshot of Profit:

2013 SYBT 50 Shares +$189.97

SYBT was a recent add. Pared Trade: Bought 50 SYBT at $22.16 and Sold 50 SBSI at $21.27 (4/29/13 Post)

Prior Trade:

2012 SYBT 50 Shares +$107.58

Bought 50 SYBT at $21.84 March 2012-SOLD 50 SYBT at $24.31 July 2012

Total Realized Gains Two 50 Share Trades (Excluding Dividends)= $297.55


Rationale: The SYBT E.P.S. is expected to decline in 2014 compared to 2013.

Closing Price 7/10/13: SYBT: $26.37 0.00 (0.00%). At $26.37, the TTM P/E is 14.01, and the P/E on the consensus estimate for 2014 is also 14.1. The consensus forecast is for $1.9 in 2013 and $1.87 in 2014. SYBT Analyst Estimates

Future Buys: If there are no material adverse developments and the 2014 consensus E.P.S. forecast is no worse than $1.87, I would consider buying back this 50 share lot at less than $22.

Last Friday's close: SYBT: $26.98 -0.01 (-0.04%)

5. Added 100 PFLT at $14 (see Disclaimer):

Snapshot of Purchase:

Security Description:  PennantPark Floating Rate Capital is a BDC that invests mostly in floating rate, first lien secured notes issued by private companies.

A list of those investments can be found, starting at page 6, in the last filed SEC Form 10-Q.

I recently discussed this BDC after purchasing just 50 shares in an IRA: Pared Trade Roth IRA: Sold 50 GJR at $20.48-Bought 50 PFLT at $14.24

After the close last Monday, PennantPark Floating Rate Capital announced its intention to sell 4.7M shares plus an over-allotment option of up to another 705,000 shares. Prospectus The net asset value per share was $14.1 as of 3/31/13. The shares were priced at $14.2. Prospectus In that prospectus, the firm estimated its book value at between $13.95 to $14 as of 6/30/13 (page S-6)

The company previously sold 3M shares back in April at $14 per share plus an additional 450,000 shares purchased under the over allotment option.

PennantPark Floating Rate Capital declared its regular monthly dividend of $.0875 per share payable on 8/1/13,  SEC Filed Press Release The ex dividend date was 7/17/13, the day after my purchase.

The weighting in first lien floating rate debt will cause this BDC to have a lower dividend yield than other BDCs that have more significant exposure to subordinated debt. A second lien note will frequently attach to nothing but air around a firm's HQ, a fact that is brought home during a BK.

I was actually looking for an income security to buy last Tuesday morning after I received two email notices from Fidelity that two of my GMAC bonds were about to be redeemed by the issuer:

Both of those bonds make monthly interest payments, and I will make a couple of bucks at maturity on the bonds plus those interest payments.Bought 1 GMAC 7.125% Bond Maturing 10/15/2017 at 98.072 (April 2011);  Bought 1 GMAC 7.25% Bond Maturing 4/15/2018 at 98.396 (April 2011)

There is one recent comprehensive research article on this BDC published at Seeking Alpha. The author of that article is knowledgeable about BDCs.

I discussed this purchase in a comment left at a Seeking Alpha Instablog.

Recent Earnings Report: PFLT reported core net investment income for the first quarter of 31 cents per share. During the first three months, this BDC invested in 12 new portfolio companies with an average weighted yield on debt investments of 8.9%.

The yield on the debt portfolio was 8.8%, up from 8.6% as of 3/31/12. I took a snapshot of the relevant general summary of the loans:

SEC Filed Press Release

Rationale: I am simply replacing two income securities that are about to be redeemed with another. Both the GMAC bonds and PFLT make monthly interest payments. The current yield for the PFLT, assuming a continuation of the monthly $.0875 per share dividend and a total cost of $14, would be about 7.5%, slightly higher than the two GMAC bonds.

As with all BDC purchases, my goal is to achieve a total annualized return of 10%. Most of that return will likely be generated by the dividend. For some BDCs (e.g. PSEC), I can realize that objective with the dividend and even a small loss on the shares. For PFLT, I will need slightly more than a 2.5% annualized appreciation in the shares adjusted up or down based on future dividend increases or decreases.

The floating rate feature of the loans provides benefits when short term rates start to rise, but I do not anticipate a meaningful rise in those rates for at least another two years. I would assign a low probability to significant increases within three years. With all future probability estimates, I have to acknowledge that I may be wrong, and consequently I will play to some degree the alternative scenario. The low probability alternative scenario is that inflation will accelerate within the next two to three years to such an extent that the FED will be forced to raise the federal funds rate; both more rapidly and significantly than currently expected or foreseeably foreseeable based on current data which shows inflation at less than 2%.

In the prior tightening cycle, which occurred from June 2004 to July 2006, the FED raised the federal funds rate from 1% to 5.25%. ‎(Data: research.stlouisfed.org)  I do not expect that to happen this time.

Risks: The loans made by BDC would probably be rated junk in the event any of them were rated by S & P and/or Moody's. Credit risk is mitigated, not eliminated, in part by first lien secured loans. The number of loans and their diversity provide another measure of credit risk protection. The likelihood of one loan going sour is high but the BDC had 63 loans as of 3/31/13.

A good summary of risks can be found in the risk section of each Annual Report. (see discussion starting at page 20: Form 10-K)

Last Friday's close: PFLT: $14.01 -0.09 (-0.64%)

6. Bought Back 50 SANPRB at $19.35 Roth IRA (see Disclaimer): I have bought and sold this security several times.

Snapshot of Trade:

2013 Roth IRA Bought 50 SANPRB at $19.35

Security Description:  Santander Finance Preferred S.A. Unipersonal Floating Rate Gtd. Pfd. Series 6 (SAN.PB) is an equity preferred stock that pays qualified, non-cumulative dividends at the greater of 4% or .52% over the 3 month Libor rate on a $25 par value. Prospectus

The prospectus does contain a stopper clause that prevents Santander from paying common stock cash dividends after eliminating the cumulative preferred stock dividend.

Stopper Clause Page 47

Prior Trades: I sold earlier this year 50 shares of SANPRB in the ROTH IRA and another 50 shares in a taxable account:

2013 Roth IRA 50 Shares SANPRB +$225.47

2013 Taxable 50 Shares SANPRB +$124.58

Item # 7 Sold 50 SANPRA at $21.72-ROTH IRA (April 2013)-Bought 50 SANPRB at $16.93-Roth IRA (October 2012)

Item # 4 Bought 50 STDPRB at $17.96 January 2011-Item # 4 Sold 50 SANPRB at $20.77 February 2013

I also have several trades when the symbol was STDPRB:

2010 STDPRB 100 Shares +$265.01

2011 STDPRB +$143.16 (two 50 share lots)

2010 STDPRB 50 Shares +$37.03

Bought 100 STDPRB at $15.3 (September 2009)-Sold 100 STDPRB at $18.11 (August 2010)

Bought STDPRB at $18.6 March 2010 Roth IRA-Sold 50 STDPRB at $19.64 in the Roth IRA February 2011

Bought 50 STDPRB at $18.54 March 2010-Sold 50 STDPRB at $20.2 March 2011

Bought 50 SANPRB at $18.5 March 2010-Sold 50 STDPRD at $20.34 May 2011

Total Realized Gains (Excluding Dividends): =$795.25

I also have an unrealized gain on 80 shares, held in a satellite taxable account, that I have decided to hold long term, or until I develop serious concerns about Santander's ability to pay the dividend. I have a low cost basis for those shares: Bought: STDPRB at $13 (August 2011); Added 50 STDPRB at $15.44 (November 2011)

Rationale: The main advantage of this security is that it provides a measure of problematic inflation and low inflation/deflation protection in the same security. The low inflation/deflation protection is provided through the 4% minimum coupon, while the problematic inflation problem is addressed by the 3 month Libor float provision.

By buying this security at a discount to its $25 par value, I juice the yield for both scenarios. At a total cost of $19.35, with the 4% coupon in effect, the yield becomes about 5.17%. When and if the 3 month LIBOR rises to 5%, the yield would then become about 7.13%.

While Santander has no obligation to call this security, it has the right to redeem it on or after 3/15/17. I doubt that this right would be exercised unless there was problematic inflation that would cause a serious spike in the coupon rate, reasonably estimated to last for a prolonged period of time, when SAN could refinance at much better rates using senior bonds or even a fixed coupon equity preferred stock. I would give that scenario a very low possibility rating for the next five years.

SANPRB is much more favorably priced than two similar equity preferred floater issued by Suntrust and Zions, both of which have 4% minimum coupons and similar floating rate provisions:

SunTrust Banks Inc. Dep. Pfd. (Rep 1/4000th Interest in a share of Perp. Pfd. Series A)(STI.PA)

Zions Bancorp Dep. Pfd. (Rep. 1/40th Interest in a Share of Fltg. Rate Non-Cum. Perp. Pfd. Series A) (ZB.PA)

According to quantumonline, the current ratings for those three securities are as follows:

                  MOODY'S / S & P
SANPRB:  Ba3 / BB
ZBPRA:     B1 / BB
STIPRA:  Baa3/BB+

S & P does not see any difference in the credit quality between ZBPRA and SANPRB but there was a market price difference on 7/17/13 of 18.5% in favor of ZBPRA (i.e. ZBPRA is selling at a much higher price than SANPRA, closing last Friday at $23.77 +0.07 (+0.32%), while the Suntrust floater closed at STI-PA: $24.18 -0.07)

I discuss the disadvantages and advantages of equity preferred floating rate stocks in this 2009 post: Stocks, Bonds & Politics: Advantages and Disadvantages of Equity Preferred Floating Rate Securities That post also contains snapshots of my trades in this niche sector.

Risks: I discuss risks for this type of security in the preceding linked post.  I have also discussed the risks in a previous discussions of this security linked above.

Equity preferred securities issued by financial institutions would become worthless in a bankruptcy just like the issuer's common stock. Senior bond owners would likely be paid at most pennies on the dollar. The fear of a security going to zero, which is the ultimate downside risk, will create volatility due to both real and imagined concerns about the issuer's ability to pay.

As late as August 2011, I was able to buy this security at $13 per share after selling it at $20.34 a few months earlier. That kind of volatility creates both risks and opportunities.

For the Santander preferred, volatility can simply be created by some negative story coming out of Spain. Santander of course has operations worldwide including significant operations in the U.S. and in Latin America. 2012 Annual Report.PDF Total customers totaled 101.9 million for the Group with 44 million in Latin America, 30 million in Continental Europe, 1.7 million in the U.S. and 26.2 million in the UK. The total number of branches stood at 14,392. (page 32 Annual Report)

I last discussed Santander in detail when buying 50 shares of the common: Item # 3 Added 40 SAN at $6.8

The issuer discusses risks starting a page 15 of the Prospectus.

SAN-PB: $19.20 -0.05 (-0.26%)

The shares trades as low as $18.86 last Friday.

7. Added 50 SGL at $9.33 Roth IRA (see Disclaimer):

Snapshot of Trade:

Security Description: Strategic Global Income Fund is an unleveraged world bond closed end fund.

SGL Page at CEFConnect
SGL Page at Morningstar

Last SEC Filed Shareholder Report: Strategic Global Income Fund (period ending 11/30/12)

Last SEC Filed Form N-Q:  Strategic Global Income Fund (holdings as of 2/28/13)

Data Day of Purchase 7/17/13:
Closing Net Asset Value= $10.58
Closing Market Price= $9.32
Discount= -11.91%

Last Friday, 7/19/13, SGL closed at a $10.62 net asset value per share and at a -12.05% discount.

Average Discounts as of 7/17/13:
1 Year: -7.25%
3 Years: -5.75%
5 Years: 8.25%

Rate of Decline Since 5/1/2013 Unadjusted for Monthly Dividends:
Net Asset Value 7/17/13: $10.58
Net Asset Value 5/1/13: $11.52
Decline: -8.16%

Market Value 7/17/13: $9.32
Market Value 5/1/13: $10.61
Decline: -12.16%
Total of Two Dividends=$.1128
Adjusted for Dividends= -11%

The five year discount data still includes those extreme discounts from October 2008. The discount hit -36.25% on 10/10/2008.

As of 6/30/13, the credit quality of the fund's holdings were listed as follows:

Strategic Global Income Fund, Inc. – Distribution Declaration and Portfolio Statistics

The fund has adopted a managed distribution policy whereby it pays monthly dividends at annualized rate equal to 6% of the fund's net asset value. The next dividend is $.0523 per share and goes ex dividend on 7/23/13. Distribution Declaration and Portfolio Statistics Since the net asset value has been declining recently, the monthly dividend has fallen too.

Rationale: (1) Income: The goal with this kind of bond CEF purchase is simply to generate tax free income in the Roth IRA. If I can successfully exit the position at any profit after collecting several dividends, then I will view this investment as successful, given its limited purpose.

Unfortunately, after successfully trading this bond CEF for small profits, I started to buy back shares in the ROTH before the recent bond swoon. Item # 2 Bought Back 100 SGL at $10.57-Roth IRA (5/6/13 Post). One purchase was made after the recent carnage was already well underway: Item # 7 Bought Roth IRA 50 SGL at $9.89 (6/8/13). As noted in that June post, the net asset value per share was then $11.09 and the closing discount was at -10.73.

I have decided to reinvest the dividend which is a way to average down and to lower my average cost per share. I am also buying shares at a significant discount to net asset value at the present time with those monthly dividends.

While the monthly dividend rate will move slightly up and down based on the managed distribution policy, and capital gain distributions are possible, I calculated the yield at a total cost of $9.33 per share at about 6.73% using the last $.0523 monthly distribution rate. As noted, the annualized yield will go up or down based on the fund's net asset value.

I would not be buying this security with money market rates at or above 3%. Investors have to be realistic and to play the hand that is dealt to them. I am not going to receive a 3%+ yield in a money market for several more years, probably not before 2016-2017.

(2) Expense Ratio: Compared to other world bond funds that I own or have owned, the expense ratio for SGL at 1.17% after waivers is lower than other funds.

(3) Capital Gains:  Recently, SGL has returned significant capital gains distributions to its shareholders, at least for a bond fund.

As of 2/29/13, the fund had unrealized capital gains of $10.919+M

Risks: (1) Credit Risks (e.g. Argentina and Venezuela Government Debt): As previously discussed, I would prefer that a fund just say no to Argentina's debt.  As of 2/28/13, SGL had a 3.99% overall weighting in several bonds issued by Argentina. I am not a fan of Venezuela's debt either. The fund had a 1.59% weighting in one Venezuelan government bond maturing in 2024. This fund has other credit risks, including several junk rated corporate bonds.

(2) Currency Risks and Hedging Issues: This fund has bought a large number of bonds whose value is based in a foreign currency. Interest payments for non-dollar foreign bonds will be paid in a foreign currency and the value of those distributions after conversion into USDs will impact the fund's interest income for better or worse.

While there is an ongoing effort to hedge that risk, the hedging may only be partially successful when foreign currencies are losing value against the dollar and may cause the fund to lose money. There are also costs associated with hedging.

(3) Interest Rate Risks: The value of a bond will go down as interest rates increase. Rates are abnormally low at the present time so there is not much room for further appreciation and plenty of room to the downside.

The decline in both the net asset value per share and the market price highlight those risks.

I am still adding up to $1,000 per week in a bond CEF. The 50 shares SGL add was on the anemic side.

Last Friday's Close: SGL: $9.34 0.00 (0.00%)