The Wall Street Journal reports that three banks that received TARP funds have stopped paying the required dividends to the Treasury. The Treasury says a “number” of banks have not been making their payments.

From the WSJ:

Last May at the annual SunTrust "Unconference" in New York City I met the management teams of BankUnited (BKUNA) and BankAtlantic (BBX), two Florida-based banks with large exposures to the Florida real estate market that was quickly deteriorating. At the time both of the companies' stocks were trading at less than 35% of tangible book value and were at least 80% off their 52 week highs. Just like today, capital raising opportunities were the main topic of discussion due to the fact that both companies had non-performing loans at or above 4% of total loans. Also, with the value of Florida residential real estate falling virtually by the minute, investors were obviously concerned with BKUNA's $9.7B and BBX's $2.1B residential mortgage portfolios. However, despite similarly adverse circumstances, the tone of the discussion was very different between the two companies, a fact that I think provides a very relevant and pertinent example of the risk of unfounded optimism.

Q4 2008 Earnings Call

January 28, 2009; 09:00 am ET

Q3 2008 Earnings Call

October 23, 2008 10:00 am ET

I continue to believe that to best profit from investing, you must embrace the irrational behavior of all forces influencing the market. I spoke about this before when oil prices were at $125 per barrel this summer and surmised that prices had to come down because of the stupid headlines and frankly things just not making sense.

I believe that on the night of Thursday, October 9 and the morning of Friday, October 10, stupidity and lunacy were out in full force.

Q2 2008 Earnings Call Transcript

July 25, 2008 10:00 a.m. ET

Seacoast Banking Corporation of Florida (NASDAQ: SBCF) reported earnings for the 2^nd quarter ended June 30, 2008 after the bell on Thursday, July 24, 2008. The results were, well, horrible.

Estimates called for SBCF to earn at least $0.06 per share. Instead, the community bank that serves the South Florida market posted a loss of $21.3M or $1.12 per share. SBCF also indicated it would be declaring a “de minimis” dividend, and although the amount is not indicated, it might as well be zero. Furthermore, the healthy 7%+ yield many SBCF holders have been expecting at these levels has been negated for the foreseeable future.

On Wednesday, July 16, 2008 before the market opened, Wells Fargo (NYSE: WFC) announced financial results that helped propel some huge stock market gains over the next two days. Also fueling the rally was JP Morgan Chase (NYSE: JPM) beating expectations and seeing oil decline by more than $15 from its recent highs. Wells Fargo did report weaker financial results compared to the prior year, but surprised the Street by not only beating expectations but also raising their dividend by 10%. The market reacted positively and WFC has since rallied 30% since hitting its 52-week low on Tuesday.

WFC has experienced write-downs, but has remained relatively healthy from a financial standpoint when compared to its peers. That is, WFC has remained solved, and even with lower earnings and a higher dividend when compared to last year, their payout ratio is well less than 100%, unlike some of their peers, such as Bank of America (NYSE: BAC).

When looking at a stock, it can be awfully tempting to blindly look at the dividend yield as support for it being a good investment. After all, if you can be earning 5%,7%, or even 10% on your money from dividends, that sure beats a savings account. After all, the money is in the bag, right?

In particular, I have closely been following the action of these three companies that are currently sporting yields well above their 5-year trailing average and are paying out more than 100%.

Seacoast Banking Corporation of Florida (SBCF)

Q1 2008 Earnings Call Transcript

Seacoast Banking Corporation (SBCF) is a strong, conservative banking institution based in Martin County, Florida, boasting Florida's highest per capita income. The Hudson family controls over 22% of the Company and has over 80 years of successful banking experience. The Hudsons, along with their board of directors, control over 25% of the outstanding shares of Seacoast, which is exactly why they will maintain the dividend. Their directors and stockholders have earned a return for their time and investment in Seacoast. At Friday's close of $10.51, the dividend yield is a strong 6%, but this is less than their book value of $11.22. Seacoast is not like many of the larger financial institutions that are seeing major losses because of the subprime crisis. Traditionally, Seacoast has traded in the 2.5 to 3 times book range over the years.

Yesterday morning, Seacoast Banking Corporation of Florida (NASDAQ: SBCF) declared its 1Q 2008 dividend of $0.16 per share, indicating a forward annual dividend of $0.64 per share. I must admit, I am somewhat surprised by the decision of the board of directors to keep the dividend intact in this challenging economic environment. I have adamantly believed that before SBCF could come out of the gutter, they would have to cut their dividend just as their peers have. However, after reviewing the factors, it seems that at least 80%, if not 100%, of the SBCF dividend of $0.64 is safe for 2008.

I know it is a little early in the game, but it's time to get the portfolio ready for 2008. The time to prepare your strategy for the coming year is now. Companies that will likely experience the tax-loss selling in December are good candidates for a bounce in January. It's better to be in a little sooner than later, though it's never a good idea to try to time the market.

This is where I am putting my money the next 12 months. I think 2008 will be a tough year, though not necessarily a bad one. We are likely not to see the number of super high fliers that we had in 2007. Fortunately, the recent market cooling has over-punished a handful of companies and some valuations appear to be very attractive. On top of these stocks, you may also want to consider taking some of your U.S. Dollars and buying Euros or British Pounds. The lagging days of the U.S. Dollar are not over – just wait until they take oil off of this standard. It may not happen in 2008, but it's more likely to happen in the next 5 years than 50.

Seacoast is trading at about a 50% discount to its 52-week high which was reached before the widespread mortgage panic hit the markets and on speculation of a buy-out, especially after National City (NYSE: NCC) bought out Ft. Pierce, Florida based Harbor Federal for a big premium.
 
SBCF and Harbor Federal were very similar banks – both with 70+ years of history and were serving essentially the same areas, though Harbor expanded more to the north than SBCF did.  Many were expecting SBCF to be quickly scooped up by a larger bank following NCC’s acquisition of Harbor Federal, but it never happened and here are the compelling reasons why:

Strong Lenders With Weaker Shares by Lawrence C. Strauss

Summary: Worries about subprime fallout have kept regional bank stocks flat this year, vs. a 3.8% gain in the Russell 2000 Index. An inverted yield curve is squeezing banks' margins, and sluggish loan demand driven by wary buyers and stricter guidelines has hurt revenues. Fund manager David Ellison admits that the 'catalyst' to reverse their slide isn't there yet, but cautions that no one knows when it will arrive. He suggests buying banks with deep deposit bases, so that "you're not going to wake up one day and find out they can't fund themselves." He likes:

The Top Three: Utilities, Regional Banks and Real Estate Investment Trusts: