Dividend Tax Rate in 2011?/Bought 50 NPBCO at 23.09/ Bank Director's Magazine Bank Rankings/GS & the SEC/

The ^VIX has closed 40 consecutive days below 20. The DJIA volatility index closed last Friday at 14.63 and has been moving continuously below 20 since a close at 19.35 on 2/16/2010: Djia Volatility Chart I would generally require continuous movement below 20 for 3 months before declaring the start of a Stable VIX Pattern, though this is not a hard and fast rule. Vix Asset Allocation Model Explained Simply With as Few Words as Possible Historically, once the Stable Vix Pattern forms, a bull market in stocks has lasted for several years. The two previous periods, where the Stable Vix Pattern formed out of the Unstable Vix Pattern, were in 1991 and 2003, with the cyclical bull move thereafter lasting six and four years respectively. VIX and S & P Compared 1990 to 1997 & Item # 7 Historical VIX Patterns Of course, this time may be different.

1. The Fabulous Fabrice Tourre: Apparently, the source of some of the Fabulous Fab's emails is a girlfriend, identified in the press as Marine Serres. Some of the new disclosures can be found at the WP and the WSJ which shows Fabulous to be a cad and not a sympathetic individual. In short, about what I would expect him to be working at GS. I am surprised that his attorney is allowing him to testify before the Senate on Tuesday, unless he has a cogent and convincing explanation for some of his emails that contradict the conclusions being drawn by the SEC. He did meet with Senate investigators on Saturday.

The most damaging email is his response to a request from ACA about Paulson's role in Abacus. This email is summarized in paragraph 47 of the Complaint:

"On January 10, 2007, Tourre emailed ACA a “Transaction Summary” that included a description of Paulson as the “Transaction Sponsor” and referenced a “Contemplated Capital Structure” with a “[0]% - [9]%: pre-committed first loss” as part of the Paulson deal structure. The description of this [0]% - [9]% tranche at the bottom of the capital structure was consistent with the description of an equity tranche and ACA reasonably believed it to be a reference to the equity tranche. In fact, GS&Co never intended to market to anyone a “[0]% - [9]%” first loss equity tranche in this transaction. "

www.sec.gov/litigation/complaints/2010/comp-pr2010-59.pdf

I did notice in the FlipBook at page 14 that the "first loss" tranche was "Not Offered". Abacus 2007-Ac1 Flipbook 20070226 Pelligrini told the SEC that there was no equity tranche in Abacus. News Headlines

If Tourre is going to be allowed to testify by his attorney, I will be most interested in hearing his explanation on this particular contention by the SEC. If his excuse is to say that it was a mistake, or something along those lines, he would be better off staying in England.

The SEC does not address in the Complaint other information, possessed by it, that contradicts the main contention in the allegation contained in the foregoing paragraph. These omissions include the testimony of the Paulson point man that he told ACA of Paulson's intent (WSJ), ACA had the legal authority to select the securities and their interest was aligned with the German bank, and the fact that these synthetic CDOs exist for the sole purpose of providing experienced institutional investors the opportunity to go both long and short. The Abacus transactions was just a form of casino gambling. An apt analogy was made by Thomas Donlan in his Barrons column, comparing it to a game of craps.

The NYT has mentioned reports that Tourre received 2 million in compensation in 2007, partly due to his work on the Abacus deal.

I also noted this detail while reviewing the "Transaction Overview" referenced by the SEC in paragraph 47:

"The upward-sloping fee structure increases ACA’s incentives to avoid losses relative to a standard flat fee accrued on the overall reference portfolio notional amount."

Goldman's position paper, apparently for use in Lloyd's testimony this week, can be found at online.wsj.com /goldman pdf This is a harder story to tell than the one that the public will gleam from the FAB's emails.

The SEC is apparently telling the press that none of the revelations last week involving ACA impact the part of its case dealing with the German bank IKB: SEC confident on IKB part The alleged reason for this fall back position is that IKB wanted an independent selection agent, and instead got ACA who took suggestions from Paulson's firm. This argument still overlooks the extremely inconvenient truth that ACA's interests were aligned in a big way with IKB, not with Paulson, and ACA had the sole legal authority to make the final selections.

The basic problem, ignored by the SEC, was that both IKB nor ACA were wrong about the future value of these subprime mortgages, and Paulson turned out to be right. At the time, a lot of "professional" investors would have sided with IKA and ACA's side of the bet. ACA ended up losing for its parent company far more money than IKB. Possibly someone needs to drill that point home to the SEC. Apparently these points about alignment of interests and legal authority go way over the head of the reporters writing about this case. The SEC is trying to sweep inconvenient facts under the rug. As I understand the SEC's enforcement chief, Robert Khuzami, believes that it is okay for the long and short to work together on selecting the securities for the synthetic CDO, since he apparently blessed those transaction when he worked for Deutshe. (WSJ). But if a firm is employed to select securities, whose interest is unquestionably tied to the long side, it is wrong according to Khuzami for that long interest only investor to work with the short side investor to select those securities.

In the last analysis, however, the purpose of Abacus transaction was to provide a vehicle for Paulson to short the subprime mortgage market. The effect was to both magnify and spread the losses from those securities. The European financial institutions that were the patsies suffered close to 1 billion dollars in losses just from this one transaction, and both had to be bailed out by their host governments.

2. What Will be the Tax Rate for Dividends in 2011?: The short answer is that no one knows now. The 15% maximum rate for qualified dividends is set to expire at the end of this year. It is far from clear that Congress will be able to do anything to resolve their differences on this issue. The Republicans would want to extend it and to allow the wealthy the benefit of the current tax rate. The Democrats want to apply a higher rate to taxpayers making what they consider to be a lot of money, usually defined by them to mean a couple with annual income of over $250,000. This is an important issue for those of us who invest in fixed coupon equity preferred stocks that pay qualified dividends. If their favorable tax treatment is taken away, then their appeal would certainly be diminished and it would be reasonable to predict a fall in price to reflect any negative tax change. The same may happen to electric utility stocks. Many pay dividends at their current prices in the 5 to 6% (some pay over 6%) which makes them appealing to conservative investors in high tax brackets now due to their after tax yields. In effect, the after tax yield would in many cases be more attractive than the after tax yield from their bonds, in part due to the differences in tax rates applied to those types of investments. But, if nothing is done, the new top rate for dividends will be the same as interest.

Although I own some fixed coupon equity preferred stocks, I view those securities as a disfavored asset class and consequently keep my total commitment small. If it looked like the favorable tax treatment was about to expire for them, I would consider selling them and moving up the priority chain.

An article in the WSJ highlights the uncertainty now about what will happen in 2011 regarding dividend tax rates.

3. Bank Director's Magazine 2009 Bank Performance Scorecard: A reader let me know that Bank Director's Magazine has released its 2009 bank performance scorecard: bankdirector.com/PDF/ A summary of the results can be found at Bank Director Magazine. Glacier Bancorp (GBCI) is at #3, and is the only bank in the top 20 where I have a common stock position in my regional bank strategy. I do own SIVBO, a TP issued by #17 SVB Financial and an equity preferred from #19 Oriental Financial Group. I also own common shares in #28, #29, # 30, #31, #32, #37, # 42, #43, #53, #56, #58, #69, #71, #88, #89, #90, #94, #97, #114, #122, and #126.

Regional Bank Stocks

4. Red Flags in Bank Accounting: This article in Seeking Alpha highlights some red flags to consider when evaluating whether to purchase a bank stock. One item is the percentage of non-performing loans to total loans. I also focus on the allowance set aside as a percentage of non-performing loans. Many trouble banks will frequently have reserved a low percentage for even their non-performing loans.

The author also mentions the Texas ratio which is another item worth considering. Fortunately, I have a reader who sends me spreadsheets containing calculations of the Texas Ratio. Being a philosopher, I have never prepared a spreadsheet in my life and most likely never will.

The author of the Seeking Alpha article also mentions TCE (Tangible Common Equity"). Tangible common equity is considered more conservative than the tier 1 capital ratio since it excludes preferred stock and intangible assets. An example of an intangible asset would be deferred tax assets, which may have an uncertain value or even no value in cases where the firm is not able to generate future profits. A bank losing a lot of money might have a large deferred tax asset which inflates its other capital ratios. TCE is calculated generally to mean tangible common equity divided by tangible assets.

I have never had an accounting course, but these concepts are fairly easy to understand and worth knowing for individuals investing in bank stocks.

5. Bought 50 NPBCO at $23.09 (See Disclaimer): NPBCO is a Trust Preferred from NPB Capital Trust II, a Delaware Trust, that has as its underlying security a junior bond issued by National Penn Bancshares (NPBC). National Penn is primarily a regional bank operating in Pennsylvania and has 127 offices.

NPBCO is a typical bank TP. The coupon is 7.85%. Par value is $25. The bond matures on 9/30/2032. At a total cost of $23.09, the yield is around 8.5%. I do not believe this TP is rated. The bid/ask spread early this morning was 23/23.09, when I placed the order, so I just placed a limit order to buy 50 shares at $23.09.

A link to the prospectus can be found at www.sec.gov. Provided no cash dividend is being paid on a junior security, the TP's interest payments may be deferred up to 5 years. The interest payments are cumulative and deferred payments earn interest at the coupon rate (see p. 47). The stopper provision is standard.

Since National Penn still has outstanding equity preferred stock issued to the government, the TP interest payments can not be deferred unless National Penn first eliminates its common share dividend and defers the cumulative preferred dividend payable to the government. National Penn is currently paying a quarterly stock dividend of 1 cent. Any cash dividend is sufficient to activate the stopper provision.

I have been reluctant to pay this TP until recently due to the large losses suffered by this bank in 2009. The bank reported a 356.379 million dollar loss shown for 2009. The total net income for the preceding four years was 219.276 (see page 31 Annual Report npb10k.htm) Part of the 2009 loss was a goodwill impairment charge of 275 million. The bank did raise some equity capital in 2009 through a common stock issuance of 31 million shares, raising a net 153.3 million. The bank has not paid back the 150 million in TARP funds received from the government.

The bank did report a small profit of 2 cents per share in the 1st quarter of 2010: ex99-1.htm The total capital ratio was 14.17% as of 3/31/2010. Allowance for loan losses to nonperforming loans was at 127.8%. Net interest margin was 3.44%.

6. Southwest Bancorp (OKSB)(own-Regional Bank Stocks strategy): Southwest announced this morning that it will be offering newly issued common stock to raise gross proceeds of approximately 40 million dollars. exv99

OKSB closed on Friday at $15.37, and I purchased shares at 6.84 in January 2010. I believe that the government still owns 70 million in preferred stock (see annual report at p. 22 and balance sheet at p. 33)

Bought 50 JNJ at 64.44/Greece/EXC/Sold 100 of the 150 ABWPRA at 22.2/Bought 50 KO at 53.77/Sold 50 of 200 MRO at 33.05

At least we know now the real problem at the SEC, something that explains their failure to catch the Madoff and Stanfords, and similar ilk, notwithstanding repeated warnings. About 33 employees, half of whom made between $99,000 to $223,000, were watching porn on their office computer. One lady had attempted to access 1800 porn sites and had saved 600 images on her laptop. ABC News RB wants her email address. Another accountant attempted to access porn sites 16,000 times in one month. A senior attorney had downloaded so much porn that his computer was full, and he had to store the stuff on DVDs in his office. He spent as much as 8 hours a day watching porn. And, we just found out that one of the SEC attorneys who repeatedly quashed the SEC's investigation of Stanford's "alleged" Ponzi scheme later sought to represent him. Times Online

The WSJ is reporting that the SEC's enforcement chief, who has been in the forefront of the Commission's action against Goldman Sachs, oversaw the legal department at Deutsche Bank that developed the same products that is the subject of the SEC's case.

Seven banks in Illinois were seized by the FDIC yesterday at a cost of close to 1 billion dollars. MarketWatch The FDIC's fund is about to run dry. Recently, the FDIC estimated that the cost of bank failures will grow 100 billion dollars over the next four years. The FDIC is seeking to require the banks to prepay 45 billion in insurance premiums for 2010-2012 to help defray its cleanup costs. FDIC: Press Releases - PR-178-2009 9/29/2009 NYT

It is amazing that Jon Stewart is the only real journalist who routinely facts checks the "fair and balanced" network (e.g. Video: A Farewell to Arms Scandal-List - Tea Bagging and see more at Videos Tagged Fox News)

Morningstar is starting a Closed-End Fund Weekly Update, which may be available to non-subscribers. The update can be found by clicking the link at the end of the article. I have been investing in closed end funds since around 1983.

1. Greece: Greece is increasingly looking like a basket case, where the only viable solution would be to give about 60% of the population a brain transplant. The Eurostat claimed that Greece's budget deficit was wider than represented just recently by the Greek government. The current estimate for the 2009 budget deficit is 13.6 of Greece's GDP for 2009. WSJ Public sector employee have gone on strike complaining about cuts in benefits as their government runs out of money, unable to repay 11.4 billion in borrowing coming due on May 19th without being bailed out by the more responsible EU countries and by the IMF. The ten year Greek government bond is yielding around 9%, close to the yield of several emerging market countries. The 2 year notes hit 12% on Tuesday: WSJ Randall Forsyth pointed out in a recent Barrons that the German's government's thirty year bond auction failed, in that Germany tried to sell €3 billion and received bids only for €2.752 billion. Some attribute the problem to Germany possibly ending up as nation bearing the brunt of the bailout burden for the PIGS.

After this significant deterioration in Greece's ability to raise capital to retire upcoming bond maturities, Greece formally requested the activation of the EU/IMF bailout package. NYT The IMF will likely be more prompt with its share than the EU, since the participation of the EU countries has to be approved by their legislative bodies. From what I understand, the Greek bailout is very unpopular in Germany and understandably so.

2. Exelon (EXC)(own-core electric utility holding): Exelon beat estimates by 10 cents and raised the lower end of its guidance for 2010 to $3.7 from $3.6. The company maintained its high end guidance at $4.

Bought 100 EXC at 44.25

3. Bought 50 JNJ at $64.44 (dividend growth strategy)(See Disclaimer): After KMB's report yesterday, I sold 50 of my 100 shares and mentioned that I would redeploy the proceeds into another firm meeting the criteria of the dividend growth strategy. Johnson & Johnson announced last Thursday that it was raising its dividend by 10.2%. The new quarterly penny rate will be 54 cents per share, up from 49 cents. The new dividend rate brought the yield at a total cost of $64.44 above the 3% threshold requirement for the dividend growth strategy. This strategy requires, with some exceptions allowed on one of the criteria, the following:

(1) a minimum starting point of a 3% yield at my cost

(2) a long history of annual dividend growth

(3) no dividend reductions in at least the last 10 years

(4) a payout ratio to net income of less than 60%

(5) a historical rate of dividend growth that results in a doubling of the dividend in 12 years or less (the preference is a double in 8 years or less)

After the dividend raise, the yield at a total cost of $64.44 would be around 3.35%. The current annual run rate is $2.16 per share. The annual rate for 2004 was $1.10 and $.55 in 1999. I am going to call that a doubling every 5 or 6 years, better than KO which is on a historical path to double its dividend every 7 years. Barrons Recommendations and My Trades in The Barron's Columnists' Recommendations in 2009 The payout ratio (dividends as % of profits) hovers around 35% to 40% and the rate of dividend growth is consequently supported by the growth in earnings over time. Conditions (2) and (3) above are likewise satisfied easily.

Some investors following a dividend growth strategy will look at the free cash flow/payout ratio: 10 Dividend Stocks (Article dated 4/23/2010 by Todd Wenning in Motley Fool) JNJ's free cash flow/payout ratio was 38%, according to the author of the preceding linked article, indicating that JNJ has plenty of room to increase its dividend and to invest in its business. The KO number provided by Wenning in that article is much higher at 61%. Kraft, another one owned in this strategy, is in between JNJ and KO at 46%. Exelon (EXC) is also listed among the top 10 by this author.

I would not characterize the last earnings report as stellar: firstq20108k The current forecasts call for $4.87 in 2010 and $5.27 in 2011. If the 2011 number is hit, then my buy yesterday would be at a 12.23 P/E of the 2011 estimated earnings.

4. Added 50 Shares to KO at $53.77 (dividend growth strategy)(see Disclaimer): This brings me to my limit in KO. I just own the common stock. Admittedly, it would have been better to just buy all of the shares at $38.72 in March 2009, but there was a limit to my bravery back then. Earlier this month, I bought 50 shares at 54.26. The current forecasted earnings of $3.76 in 2011 (KO) translates into what I would consider a reasonable P/E of 14.3 at a total cost of $53.77.

I have changed my dividend distribution option from cash to reinvestment into additional shares.

5. Sold 100 of the 150 ABWPRA at 22.2 (see Disclaimer): I did not care for the 1st quarter earnings report from Associated Banc-Corp. The bank continued to lose way too much money in my opinion at this stage in the credit cycle. I would have sold all of my shares in ABWPRA except the bank did raise $500 million in a common stock offering earlier in the year, giving it a buffer to work through the poor decisions made by it in the past. Some would say that credit related charges in the 1st quarter of 165.7 million is an improvement over 405.3 million in charges in the 4th quarter of 2009. I would agree that the trend is positive but the amounts for a bank this size speak volumes about the competence of management. I do not own the common stock and have no intention of buying it.

I sold 50 of the 100 shares in the main taxable account, and those shares were the highest cost shares purchased at $21.04. I will keep the 50 shares bought at $19.42 in that account. The other 50 shares were sold out of the ROTH, and those shares were bought at $21. I no longer view this TP from Associated Bank to be an appropriate investment for the retirement account. A couple of quarterly interest payments were received so this was a slightly profitable investment. I would consider buying back the 50 shares sold in the taxable account at below $19, provided I gain more comfort than now about the credit risk.

6. Sold 50 of 201 of MRO at $33.05 (See Disclaimer): I bought my position in MRO in two round lots of 100 shares. The first lot was purchased at $31.68. Using FIFO accounting, the fifty shares sold last Friday came from that lot. RB just said that it wants a divorce. I thereafter bought another 100 shares at $28.15. This transactions lowers my cost basis in the remaining shares. I am reinvesting the dividend to buy additional shares. In the event the share price falls below $28, I would consider buying back those 50 shares.

Qwest and CTL Bonds/Sold SNV/Sold 50 KMB at $62.13/Bought 50 STD at 13.35/Earnings NHTB WBS KMB GBCI OCFC

LB is sick and tired of reading these regional bank earnings reports. Maybe, when no one is looking, LB may sell all of them. Besides, LB does not receive any credit for its magnificent work. LB is not even paid for working 24/7. Then to add insult to injury, Headknocker says that the LB is paid more than its worth. Isn't there a law about sweat shops? HK replied that the LB needs to work harder and longer than 24/7 to advance the Great Leaders' capital base.

LB, being somewhat versed in arcane legal matters, also believes that there is a law about a lame brain RB claiming credit for all of LB's fine grunt work, all of that focus on details. RB just said "Don't Sweat the Details, Nerd!". And, HK just leveled another criticism at the 16 year old Stock Stud, claiming the Fabulous LB may be losing it, may not have all the functioning brain cells claimed by it.

Okay, LB will admit that it neglected to mention in a recent post that the HK also owned KVW, bought at around $16, one of the AON TCs, and inadvertently claimed HK only owned DKK and KTN. Bought 50 DKK AT 24.5 And, sure, given the large number of banks in the regional bank strategy, with the no wit wanting to add more by the day, the LB loses track every now and then. So what, the LB lost track of a few of them and temporarily could not remember whether it owned one with operations in Virginia. Who can remember a name like Fauquier? Besides, that name sounds both French and obscene.

The LB may be close to perfection, but never has claimed yet to be perfect. And it goes without saying that the LB still has all of its brain cells And just to show who is boss in the operation, the LB sold 50 shares of SNV yesterday and will never read again one of that bank's earnings releases. The sale was at near break-even.

1. Qwest (own senior bond in TC form only-PJA): CenturyLink and Qwest have signed a merger agreement whereby CTL will acquire Qwest in an all stock transaction. I have never owned the common stock of either company. This is the second time that I have owned bonds issued by a company acquired by CTL. In the first case, CTL acquired Embarq, and I owned a senior bond issued by Embarq in the TC FJA. BOUGHT 100 of the TC FJA at $15.35 Bought another 50 FJA at $ 14.2 The acquisition of Embarq was pending at the time of my purchases of FJA, and this bond has subsequently performed well. FJA closed yesterday at $22.87, down 82 cents. FJA had a current yield at my purchase price of over 12%, matures in 2036, and is rated investment grade. So, assuming no early call and CTL survives to pay value, that is a long time to be earning 12% annually, year in and year out, from an investment, plus the additional yield by capturing the spread between my cost and par value at maturity. (prospectus: www.sec.gov).

I will be following over the next few days and weeks how the bond ghouls price Qwest and CTL senior bonds. CTL is currently investment, while Qwest's debt is rated junk. My exposure to Qwest's debt is small. I recently purchased last February a senior Qwest bond in TC form. Bought 50 PJA at 19.45 PJA rose yesterday $1.41 to close at $24.

This merger will not create what I would characterize as an over-exposure to CTL bonds. I will start to monitor some trades in the underlying Qwest and CTL bonds, however.

Qwest 2031 Bond: FINRA

CTL 2036 Bond: FINRA

According to Finra, the Qwest bond, which is the underlying security in PJA, is currently rated B1 by Moody's and B+ by S & P. It will be interesting to see how the ratings agencies respond in their ratings of both the Qwest and CTL bonds.

I am somewhat concerned that the acquisition may result in a lowering of the CTL bond ratings. I was not surprised to read a news story yesterday that S & P placed its CTL bond ratings on a negative credit watch. MarketWatch As expected, S & P said the merger would be a positive for the ratings on Qwest bonds. This explains their rally yesterday. The merger will likely result in the Q bonds to be upgraded and the ones from CTL to be downgraded.

2. Valley National (VLY)(own- Regional Bank Stocks strategy-CAT 2): Valley National Bancorp reported net income of 27.4 million or 17 cents per share for the 1st quarter of 2010 (adjusted earnings at 18 cents). As of 3/31/2010, tangible common equity to tangible assets was 6.55. Net interest margin was 3.48%. Total NPLs as a percentage of loans was .96%.

3. New Hampshire Thrift Bancshares (NHTB) (own-Regional Bank Strategy): Admittedly, the LB had a temporary memory impairment on this one, the kind where the memory is there but the storage box has been moved to an unknown location, even hidden, probably by the infamous RB to make LB's work even harder. Everyone knows that the LB would never misplace anything, "Everything has its Place" in one of its favorite sayings, but the nefarious RB is always up to mischief, doing its best to create chaos out of order.

New Hampshire Thrift Bancshares reported earnings almost two weeks ago and the Board declared the regular 13 cent per share quarterly dividend. The stock has already gone ex dividend, all of the foregoing was unknown until yesterday to the LB, the RB hastened to add. Net income increased to $1,721,497, a 29.23% increase from the year ago quarter. The E.P.S. number was 29 cents up from 21 cents in the comparable quarter a year ago. The net interest margin was 3.53%. The Tier 1 Capital to assets ratio was 8.46% as of 3/31/2010.

This one does not have a consensus analyst estimate.

4. Webster Financial (WBS) (own-Cat 1- Regional Bank Stocks strategy): LB hungers to sell this one, and can not comprehend why the HK will not let it capture an almost 400% gain. Now, that may have something to do with the rumor about HK needing to be forcefully committed to the Old Folks home. LB would never repeat such a rumor, which goes without saying. Admittedly, the market may be looking into the distant future when pricing WBS now, forecasting a continued improvement in credit trends deep into the future.

RB added "Have Your Cake and Eat it TOO, Nerd!

Babble, worse than a cockroach, somewhere between a parasite and cockroach, was the Great LB's reply.

What will the stock be worth- Mr. Tunnel Vision- when the dividend returns to pre-Near Depression levels, saith the True Visionary RB- Have one's cake and eat it too, Worthless, Mind Numbing NERD!!!!

Webster did beat the consensus estimate by four cents. BUT, the bank still reported a loss of 8 cents per share. Tangible book value was 12.44. Book value was 19.41. Net interest margin was 3.28%. The total risk based capital ratio was 14.37%. The tier 1 common equity to risk-weighted average ratio was 7.9%. WBS rose 81 cents yesterday to close at $21.48. RB made the buy at $4.58 in March 2009 during its frolic and detour, in what LB then referred to as a scatter gun approach to the neophyte regional bank strategy.

Fortunately, the LB would later give the strategy the structure that it needed to grow and prosper. LB wants to quote some comments made by the RB about the WBS in the above referenced post, and then rest its case: "Right Brain (RB) is always optimistic, willing to not only throw caution out the window but also to bury it where Left Brain (LB) can not find it again" and "RB does not weigh pros and cons, just brings the idea to LB for analysis by the deep thinker." Come to think about it, that last quote sounds sarcastic.

5. Enterprise Bancorp (own-RB strategy): EBTC was a recent addition to the regional bank basket strategy. Enterprise Bancorp reported E.P.S. for the first quarter of 32 cents compared to 19 cents in the year ago quarter. The Board also declared a 10 cent quarterly dividend, a 5.3% increase over the rate in 2009. Net interest margin was 4.44%. Total capital to risk weighted assets was 11.18%.

6. Glacier Bancorp (GBCI) (own RB Strategy): Glacier Bancorp reported net income of $10.07 million or 16 cents per share for the 1st quarter. The net interest margin was 4.23%. The allowance for loan losses is high at 3.53% of total loans. Non-performing assets as a percentage of total bank assets is likewise too high at 4.19%. Tangible book value was $9.44 per share as of 3/31/2010. If the YF estimate is correct, the forecast was for 8 cents: GBCI: Analyst Estimates for Glacier Bancorp, Inc. I noticed that Briefing.Com claims that the consensus estimate was 11 cents, which would make it a 5 cent beat.

7. More Evidence of Government Bad Faith in Goldman Case Dribbled Out: Yesterday CNBC reported that ACA selected securities that contributed to the failure of Abacus after rejecting recommended by the Paulson hedge fund. /www.cnbc.com This suggests to me that the core problem was not the alleged failure to inform ACA about Paulson's role but the competence of ACA.

8. Kimberly-Clark (KMB)(SOLD 50 of 100 at 62.13)(see Disclaimer): I was rubbed the wrong way about the KMB earnings. The company warned yesterday that, due to pulp price increases, the 2010 earnings will be at the lower range of the forecast given about a month ago. Before that guidance, several analysts were arguing that KMB was being too optimistic with its forecast giving those pulp increases. KMB KMB basically shrugged their comments off by reiterating the guidance. Kimberly Clark Update (KMB) I don't think that circumstances have changed that much over the past few weeks since KMB reaffirmed its guidance without the qualifier made yesterday. KMB also missed the consensus forecast for both its 1st quarter sales and earnings slightly. Most of the lift from sales came from currency exchange. The volume of goods rose only 1 percent.

My reaction to this report was to sell 50 shares of the 100 owned at $62.13. KMB was purchased in late March at $60.58 pursuant to the dividend growth strategy after it raised its dividend by 10%. While I am disappointed in this earnings report, the dividend growth story is still intact. So the compromise was to shed 1/2 of the position, possibly buying it back on a slippage below $58. In the meantime, I will simply redeploy the proceeds to a new name to be included in this strategy.

9. Bought 50 Banco Santander (STD) at $13.35 (See Disclaimer): I will frequently purchase a firm's securities up the entire capital structure, from the common stock to the senior bonds. My only limitation is that I will not exceed a 10 thousand capital expenditure on purchases of securities from one firm. I am well under that limit with STD. My only existing positions are in the floating rate equity preferred, STDPRB. Bought 100 STDPRB at $15.3 Added to STDPRB at 18.6 Odd Lot Trade on STDPRB

Santander has been under some selling pressure as of late due to Spain being its home market. STD also has large operations in South America (close to 40% of STD's earnings) that are not impacted by the severe recession and high unemployment in Spain.

The bank also pays a generous dividend. The next ex dividend date is 4/28/2010 at .2396 before withholding. The last 4 dividend quarterly payments were .1363, .3218, .1563, and .2774. At that rate, the total was $.8918 over a four quarter period, resulting in a yield of 6.68% before the withholding tax and at a total cost of $13.35. This gives me a better current yield before tax than the guaranteed rate of the floater, STDPRB, at its current price of $18.69, as of 4/22/2010. (a 4% guarantee of the floater works out to around a 5.35% yield at a total cost of $18.69) Due to the problems in its home market, the stock has declined in 2010 from a closing price of $16.92 on 1/4/2010 (STD: Historical Prices for Banco Santander) And the stock is currently trading below its 200 day moving average: Banco Santander, S.A. Sponsored Share Price Chart | STD If STD comes close to the $1.89 estimate for 2011, then there is room to run on the share price and a decent total return possibility with the dividend. The unknowable downside is the potential longevity of the problems in Spain. Needless to say, it is not possible to forecast the future economic conditions in Spain from a desk in the SUV Capital.

10 OCEANFIRST (OCFC)(RB STRATEGY): OceanFirst Financial reported earnings of 24 cents for the 1st quarter. This is 2 cents more than the consensus estimate provided by YF: OCFC: Analyst Estimates for OceanFirst Financial The consensus estimate for 2010 before this report was 96 cents and $1.09 for 2011. The Board also declared its regular dividend of 12 cents per share. The net interest margin increased to 3.76%. The NPLs as a percent of total loans stood at 1.95% at the end of the 1st quarter.

Bought 50 MBVT at 22.9/GS/Bought 50 RNRPRB at 24.24/Earnings: KEY WASH NRIM HBAN NWBI

I added a name yesterday to the regional bank strategy. I may not post this updated table again until I have several changes in it. You have to click the table to read it. Only a few of my readers are interested in this particular basket strategy.

I figured out that paying ClusterMaps a few bucks would stop the ads that appear in the event anyone clicks on the map to the right.

Andy wrote and is the lead singer on three of the songs on the new Infamous Stringduster album, which can be downloaded from Itunes or purchased at most retailers including Amazon.com: Things That Fly: Infamous Stringdusters: Music. His songs on the album, where he is also the lead vocalist, are:

1. You Can't Stop The Changes

5. Those Who've Gone On

10. Love One Another

RB says that Andy had not been held prisoner by an insufferable NERD like our LB and is a kindred spirit. Set the RB FREE! Maybe the RB needs to start a petition drive to end its unjust imprisonment for over 58 years now. LB just said that if it sees that petition, it will eat it and squash the RB like some varmint. No. More like one of those cockroaches. In fact, the LB is going to show that it means business by changing the profile picture to the one most feared by the RB. The RB replied "Go All In You Insufferable Nerd, Just Like the Great RB Said Back in March 2009". Even the VIX Asset Allocation Model, one of the LB's stinking models, has flashed a green signal, the RB added with evident satisfaction of yet another argument won against the originator of rule plagues-case closed. LB replied that the RB has never understood the Vix Asset Allocation Model, and that model has not yet flashed a green light, contrary to the RB's babble. And, LB noted that the Barrons technical analyst claims the scales have tilted in favor of the sellers. The OG was heard to say, please just a moment of peace and quiet.

1. Bought 50 Merchants Bancshares (MBVT) at $22.9 (Regional Bank Stocks Strategy-Category 1) (See Disclaimer): Merchants is a state bank with 34 branches in Vermont.

This stock has very light volume and mostly a very large bid/ask spread. Consequently, I did not place my limit order at Fidelity.

Merchants did not participate in TARP: www.sec.gov

Both the holding company Merchants Bancshares and Merchants Bank exceed the capital ratios for well capitalized banks by a comfortable margin. As of 12/31/2009, the holding company has a total risk based capital ratio of 14.16% and the well capitalized percentage is 10%. (see page 75: 2009 Annual Report) The holding companies tier 1 risk based capital ratio is 13.34% and the Tier 1 leverage capital ratio is 7.67. Merchant's Bank had a Tier 1 risk based capital ratio of 12.9%, and well capitalized is 6%.

The bank remained profitable during the Near Depression period. The bank had an E.P.S. of $1.77 in 2007, $1.96 in 2008 and $2.04 in 2009 (see page 47 2009 Annual Report). The one analyst that has an earnings estimates predicts an E.P.S. of $2.13 in 2010 and $2.20 in 2011, so not much growth. This would be the main knock against this stock. Still, the dividend is well covered, and the bank has room for dividend increases. However, looking at the dividend history, there has been no raises since the $1.12 annual rate was established in 2006. The dividend was increased in stages from 65 cents in 2000 to $1.08 in 2004 and then went into more of a maintenance mode.

The allowance for loan losses as a percentage of nonperforming loans is 76%. The allowance for loan losses to total loans is 1.19% (see page 38). Net interest margin was 3.8%.

The bank just declared its regular quarterly dividend of 28 cents per share. At an annual rate of $1.12, the yield at a total cost of $22.9 would be about 4.89%. Merchants Bancshares Inc, MBVT This one was bought in a satellite account.

The LB wants everyone to know that it will go on strike if requested to read another earnings release from SNV.

2. New York Community Bancorp (NYB)(own-Regional Bank Strategy): New York Community Bancorp reported that its GAAP earnings increased 40.2% to 124.4 million, year-over-year, or 29 cents per diluted share. The consensus estimate was for 30 cents. Net interest margin was 3.41%, up from 2.89% in the year ago quarter. The ratio of tangible equity to tangible asset rose 10 basis points to 7.23% from 12/31/2009. Stockholder equity rose 54.4 million during the quarter. The Board declared its regular 25 cent per share dividend. Based on my cost per share that is around $11, my dividend yield is close to 9%. NYB has performed exceptionally well since my purchases a few months ago: Added 50 NYB at $10.57 50 NYB at 10.9 50 NYB at $11 Bought 50 NYB at $11.3

3. Goldman's Skin in the Game Argument & The Bombshell About the Pellegrini Testimony (own GS bonds only in Trust Certificate Form-JBK, PYT, GYB, & PJI): An article in the NYT yesterday addresses one of the material issues where I previously did not know the answer. If the statements in the article are true, GS was an involuntary owner of a residual slice in Abacus. ACA Management apparently withdrew its willingness to buy the residual part that ultimately caused GS' losses. Then, the Fabulous FAB tried to unload that slice on other buyers. This obviously diminishes the value of GS's argument about having skin in the game. I would withhold judgment on whether it renders that argument useless and even counter-productive. There is another statement that GS apparently may have turned down some offers for that Abacus slice when one or more potential buyers were unwilling to pay Goldman's price. If GS turned down meaningfully high offers, this would help to restore the skin in the game argument.

I thought that the government had overplayed its hand in its suit against Goldman, and its case appeared to be weak both factually and legally: Item # 2 Goldman's Defense and Possible Penalties in the SEC Case & Item # 3 GS After reading reports yesterday about what Pellegrini told the government, I would question the merits of the SEC in bringing the case even more strongly. Pelligrini is alleged to have told ACA that Paulson intended to short the Abacus portfolio, a statement that directly undermines the SEC's case. WSJ CNBC obtained a transcript of his testimony where he clearing testified that he told ACA of Paulson's intentions. The person at ACA who was allegedly told this information has been identified as Laura Schwartz, no longer with the company, who hung up the phone on a reporter making an inquiry: Barrons.com Ms. Schwartz was a former Merrill Lynch banker who had worked in a division of that company originating subprime loans. WSJ.com According to a GS defense submission to the SEC, she worked on a transaction in December 2006 in which the hedge fund Magnetar, a hedge fund that participated in the equity tranche of a CDO also took short positions. So, even if she had been mislead into believing Paulson was taking an equity position, she would have known according to GS documents, based on prior experience, that an equity hedge fund investor would also take short positions.

According to CNBC Pellegrini also testified that there was no equity stake in the Abacus deal. This undermines the SEC's contention that ACA was misled to believe Paulson was buying the equity stake. News Headlines

The SEC was in effect presenting a novel legal theory. The SEC is not complaining that the professional investors were misled about the securities in Abacus, or that the parties in the transaction were unable to evaluate or assess their potential value. Instead, the SEC is trying to claim that the parties were misled about the selection process for the securities and Paulson's role therein. This is already pretty weak. Now, we find out that there is at best a very mushy contradictory factual case underlying the novel legal theory.

Goldman's defense document submitted to the SEC in September 2009 by Sullivan and Cromwell, a very large NYC based firm, is publicly available for anyone to review: http://av.r.ftdata.co.uk/files/2010/04/Goldman-defence-do.pdf

There was an unusual amount of detail in the Complaint that is normally not seen. This leads me to believe that the government unloaded most of what it had in the Complaint, held nothing of significance back, and wanted to play to the mob, hoping for a public lynching before anyone started to scratch the surface.

I would say that the evidence is mounting that the SEC's complaint was filed in bad faith and for ulterior motives.

4. Northwest Banchshares (own-Regional Bank Strategy): Northwest Bancshares reported earnings of 12 cents per share in the 1st quarter. The Board declared a regular dividend of 10 cents per share. The net interest margin was 3.32%. Nonperforming assets to total assets was 1.72%. Tangible book value was $10.16. All figures are as of 3/31/2010. The expectation was for 9 cents. As discussed previously, this bank underwent a demutualization process recently, raising a lot of cash and issuing a large number of shares. It will just take time for it to deploy the cash into income producing loans. The bank has 171 offices.

5. Bought 50 RNRPRB at $24.24 (See Disclaimer): As a result of several bond calls, I have a surplus of funds sitting idle now earning nothing in a money market account that are targeted for reinvestment in bonds or bond like investments such as preferred stocks. Given the long Jihad by the Fed against savers, the pickings are mighty slim now. I am generally reluctant to buy non-cumulative fixed coupon equity preferred stocks, viewing their numerous negatives to outweigh their few positive features. But, beggars can not be too picky.

RenaissanceRe Holdings (RNR) is a large reinsurance firm that pays a small common stock dividend. Analysts currently estimate E.P.S. of $6.55 in 2010 and $8.28 in 2011: RNR: Analyst Estimates for RenaissanceRe Holdings Ltd. The Annual Report shows earnings fluctuate widely from year to year, due in main part to the presence or absence of large catastrophes. ANNUAL REPORT TO SECURITY HOLDERS A five year stock chart shows a relatively stable company that held its value well during the Near Depression period: RenaissanceRe Holdings Ltd. Com Share Price Chart

There are many reasons to dislike equity preferred stocks that have fixed coupons. I have referred to this type of security in the past as a monstrosity. It combines some of the worst features of a bond and a stock without many of the beneficial characteristics. For one, the security is part of the firm's equity but the owner of equity preferred stock really has no interest in the business. Unlike a bond, the traditional preferred stock has no maturity and is perpetual like its common stock relative. The priority is between common stock and all bonds. An equity preferred stock may have cumulative or non-cumulative dividends. Cumulative is always the better choice. RNRPRB is cumulative, which is a point in its favor.

The only real protection that the owner of RNRPRB has for continued payment of the dividend, which is all the preferred shareholder has in the last analysis, is a dividend payment on a more junior security. Once a cash common share dividend is eliminated, there is no legal protection on continued payment of the traditional preferred dividend. So, there is a lot of negatives with these securities. Most of my investments in them are minor for that reason, and are mostly limited to equity preferred floating rate securities that pay the greater of a guaranteed rate or a float over a short term rate like the 3 month LIBOR or 3 month Treasury bill. Advantages and Disadvantages of Equity Preferred Floating Rate Securities Unfortunately, I view the prices of those securities to be too high now for further investment. (See also: REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages Embracing Volatility as A Risk Management Tool In the Sub-Asset Class of Equity Preferred Stock Managing Risk for Each Security in the Asset allocation)

There are a few reasons for adding the fixed coupon equity preferred in small amounts. The main reason is the after tax yield issue. According to QuantumOnline, all of the RNR traditional preferred stocks pay qualified dividends. This caps my effective tax rate, at least until the Democrats change it, at 15%. This gives me a better after tax yield than a bond that has the same yield.

Unlike a lot of traditional preferred stocks now, the RNR issues are rated investment grade according to quantum at Baa3 by Moody's and BBB+ by S & P. QuantumOnline.com

There are three traditional preferred stocks issued by RNR:

RNRPRB Coupon 7.3% Prospectus ww.sec.gov Quote RNR.PRB

RNRPRC Coupon 6.08% www.sec.gov

RNRPRD Coupon 6.6% Final Prospectus Supplement

The dividends are paid quarterly. The yield at a total cost of $24.24 is about 7.53%. Yesterday, the yields on the three preferred stocks were close, but RNRPRB had a slight advantage over the other two. Yield at the purchase price is the only relevant consideration in choosing among the three available RNR preferred stocks. I do not view the coupon to be relevant, but only the yield at my potential cost.

On this kind of buy, I do not not expect much, if any, capital appreciation. Instead, I would be pleased to receive a few dividends and to unload the shares for a $1 profit.

6. Huntington Bancshares & KeyCorp (own both-Regional Bank Stocks strategy-Category 1): Huntington Bancshares (HBAN) surged over 13% in price yesterday after reporting a profit in its first quarter. The pace of charge-offs fell to the lowest level since the 3rd quarter of 2008. The results included a tax benefit of 38.2 million or five cents per share. The net interest margin increased to 3.47% from 3.19% as of 12/31/2009. Bought 50 HBAN at$4.27 /Added 40 to LT HBAN at 3.7

KeyCorp Reports reported a lower loss of 11 cents, beating expectations by 19 cents.Bought 50 KEY at 5.88-Lottery Ticket

7. Northrim Bancorp (NRIM)(own Regional Bank Strategy-CAT 2): Northrim BanCorp reported earnings of 1.9 million in the 1st quarter or 29 cents per share. This was 1 cent better than the consensus estimate from two analysts. The Tier 1 capital/risk adjusted ratio was 14.43%. The total capital to risk adjusted assets was 15.57%. And the net interest margin was 5.34%, the highest that I have seen in the reports for the 1st quarter reviewed to date. The efficiency ratio was 71.21%. Tangible book value increased to $16.2, up from $15.3 a year earlier. Nonperforming loans were 2.41% of total loans. Net charge-offs in the 1st quarter were .27% of annualized of average loans. Commercial real estate loans accounted for 46% of the loan portfolio. 85% of the loans have been made to customers in the Anchorage, Alaska area. The last two tidbits will keep my position in NRIM to 50 shares even though it has favorable ratios and a high net interest margin.

8. Washington Trust (WASH) (own Regional Bank Strategy-CAT 2): Washington Trust beat estimates by 2 cents, reporting an E.P.S. of 32 cents compared to 17 cents in the year ago quarter. The Board declared the regular 21 cent per share dividend. Tangible book value was at $11.99 per share. The capital ratios increased from 12/31/2009. As of 3/31/2010, the tier 1 risk-based capital ratio was 11.24%; the total risk-based capital ratio was 12.5%; and the tangible equity to tangible asset ratio was at 6.81%. Bought 100 WASH at $15.26