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Update For Regional Bank Basket Strategy As Of 1/28/16

|Includes: FFBC, FMER, FNB, FNLC, LBAI, ONB, Regions Financial Corporation (RF), VLY

Since I have published two recent portfolio positioning updates, I am skipping that topic and moving to the top of the order.

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This basket strategy was last updated here: Update For Regional Bank Basket As Of 1/19/16 - South Gent | Seeking Alpha

This basket has a minimum out-of-pocket exposure of $40K and a maximum of $80K. For several months prior to 2016, I have been hovering around $4K to $6 below my minimum level for the reasons discussed here:

Update On Regional Bank Basket Strategy As Of 7/17/15 - South Gent | Seeking Alpha

With several recent and small adds, I am moving closer to that $40K minimum level.

My net realized gain in this basket strategy currently stands at $25,467.49: REGIONAL BANK BASKET STRATEGY GATEWAY POST I started to build this basket in the 2009 Spring.

I sold my FMER position since the last update as noted below.

Snapshots of round trip trades can be found at the end of that post.

Over the life of this basket strategy, I anticipate that dividends will generate about 40% of my total return. Over the past 4 years ending 12/31/15, dividends have averaged $1,939.37 per year.

The dividend yield of this basket is significantly in excess of the yields provided by regional bank ETFs that include a large number of low yielding stocks and several that pay no dividends.

I am doing most of my small odd lot trades in my IB account where my commission rate is $1.

Since the last update, however, I did buy five odd lots in non-IB accounts (4 discussed below), including two fifty share lots bought in a Vanguard ROTH IRA.

Comparative Data From the St. Louis Federal Reserve:

Net Interest Margin for all U.S. Banks (abbreviated to "NIM")

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

Net Percentage of Domestic Banks Tightening Standards on Consumer Loans, Credit Cards-St. Louis Fed

Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms-St. Louis Fed (starting to increase over zero)

Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Small Firms-St. Louis Fed

Basket as of 1/28/16:

I am not tracking reinvested dividends in this table. The cost numbers shown in the preceding table do not include commission costs. Profit and loss snapshots calculated by my brokers include shares purchased with dividends and commission costs.

My unrealized profit has taken a hit so far this year.

Based on earnings reports reviewed so far, I would summarize them as okay under the circumstances. Deposit and loan growth remain generally healthy. NIM is stable to down slightly Y-O-Y. Charge-offs remain at cycle lows, while NPLs continue to trend down.

An expansion in NIM remains the missing ingredient in earnings growth. An acceleration in NIM to a 3.5% national average from the current 2.9% would translate into significant earnings growth for banks who have been cutting their expenses, improving their efficiency ratios, bringing in more low cost deposits and increasing loans, and just maintaining charge-offs near where they are presently.

1. Averaged Down Bought 50 RF at $7.95

Quote: Regions Financia (RF)

Trade Snapshot ($1 Commission):

This brings me up to 100 shares with the other 50 share purchase discussed here: Update For Regional Bank Basket Strategy As Of 10/9/15 - South Gent | Seeking Alpha (scroll to 1. Bought 50 Region's Financial (NYSE:RF) at $9.08)

On 1/19/16, RF was upgraded by Piper Jaffray to overweight.

The current E.P.S. consensus is for $.84 per share this year and $.96 in 2017 or a 14.29% anticipated growth rate. RF Analyst Estimates The forward P/E based on the current year's $.84 estimate is 9.46 at the $7.95 market price.

RF has a 4 star rating from Morningstar with a FV estimate of $10 per share.

Recent earnings release: For the 2015 4th quarter, RF reported E.P.S. at $.21 per share, two cents better than the consensus estimate. Regions Reports $1 Billion Full Year 2015 Net Income Available to Common Shareholders from Continuing Operations; Results Reflect Strong Loan and Revenue Growth (NYSE:RF)

Some investors are concerned about RF's energy portfolio. The bank made the following statements in its earnings conference call:

"Regarding our energy portfolio, while oil prices have declined, exposure remains manageable. Should oil prices remain at current levels, charge-offs will be in the $50 million to $75 million range in 2016.

The energy charge-off taken this quarter reduces the previous range of $50 million to $100 million. Additionally, we currently have just over $150 million reserved or 6% of our direct energy exposure." Page 4 Q4 2015 Results - Earnings Call Transcript | Seeking Alpha

While no one wants to see loans go sour, and the losses are likely to be significant in RF's energy loan portfolio, I see no reason for alarm.

RF Tangible Book Value Per Share = $8.52.

2. Bought Back LBAI at $10.55

Quote:

Trade Snapshot

Closing Price Day of Trade: LBAI: 10.30 -0.50 (-4.63%)(new 52 week low established at $10.29/trading range $10.29 to $10.78)

Prior Trades: Item # 3 Sold 100 LBAI at $11.04 (8/9/13 Post)(profit snapshot=$142.09)-Item # 1 Bought 100 LBAI at $9.46 (April 2013); Item # 1 Bought 100 LBAI at $10.91 (3/13/15 Post)

Company Description: Lakeland Bancorp (NASDAQ:LBAI) is the holding company for Lakeland Bank which has 53 branches located in 8 northern New Jersey counties. The bank is headquartered in Oak Ridge, N.J.

Map of Branches

I looked at the HQ at Google Maps.

Deposit Marketshare | Lakeland Bank (#1 Sussex County; #10 in Morris; #16 in New Jersey)

LBAI completed its acquition of Pascack Bancorp on 1/7/2016.

LBAI did participate in TARP: FORM S-3 The bank has redeemed the government's cumulative preferred stock and repurchased the government's stock warrant, page 80, Form 10-K. The bank did suffer a $8.59M loss in 2009, page 24 of the 2011 Annual Report Form 10-K

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

Peer Analysis:

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

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

The best course of action IMO would probably be for this bank ceasing to remain independent.

Dividends: The current quarterly dividend rate is $.085 per share. The dividend was slashed from $.0864 to $.0432 in 2009, which I view most negatively. Lakeland Bank Dividend History The dividend rate was raised from $.075 to $.085 effective for the 2015 second quarter. The payout ratio is relatively low for a bank at around 38%.

Due to that 50% slash, I will keep my exposure to this stock small, even though my first buy was in 2013 after that slash.

Based on the current dividend rate, and a total cost per share of $10.55, the dividend yield is about 3.22%.

Recent Earnings Report: When I bought this 50 share lot, the most recent earnings report was for the 2015 third quarter which was okay looking at all of the metrics. Lakeland Bancorp Third Quarter Results Driven by Strong Loan Growth There was some extraordinary expenses during that quarter relating to a acquisition.

Four analysts provide E.P.S. estimates. On the day of my purchase, the E.P.S. prediction for this year was $.88 and $1 next year. LBAI Analyst Estimates The forward P/E at the $10.55 price was then 10.55 with an estimated Y-O-Y growth rate of 13.64%.

Subsequent to my purchase, Lakeland Bancorp reported 4th quarter net income of "$8.5 million, a 7% increase compared to $7.9 million for the fourth quarter of 2014. Earnings per diluted share in the fourth quarter of 2015 was $0.22, compared to $0.21 in the fourth quarter of 2014. Excluding the impact of $822 thousand in merger related expenses, net income for the fourth quarter of 2015 was $9.2 million, or $0.24 per diluted share."

The consensus forecast wa for $.23 per share which probably excluded merger related expenses.

3. Averaged Down: Bought 50 FFBC at $15.46:

Trade Snapshot:

The market reacted irrationally in response to FFBC's last earnings report. There was a gap down to $13.76 when the stock opended after the release, down from the prior days close of $15.61. I noticed that gap down and confirmed that over 11K shares traded at that price and could not even fathom why anyone would sell shares at $13.76.

Jan 27, 2016 15.40 15.77 15.28 15.58 622,500 15.58
Jan 26, 2016 15.36 15.71 15.22 15.48 424,900 15.48
Jan 25, 2016 15.95 15.95 14.89 14.91 330,400 14.91
Jan 22, 2016 14.40 16.01 13.76 15.51 725,400 15.51

The then current E.P.S. consensus estimate for this year was $1.4 and $1.49 for next year. FFBC Analyst Estimates

I thought the report was okay.

For the 2015 4th quarter, First Financial Bancorp "reported net income of $19.8 million, or $0.32 per diluted common share, compared to net income of $18.7 million, or $0.30 per diluted common share, in the third quarter of 2015 and $18.6 million, or $0.30 per diluted common share, in the fourth quarter of 2014." E.P.S. rose to $1.21 for 2015 from $1.09 in 2014.

Excluding an extraordinary items involving primarily severance benefits, "net income was $20.5 million, or $0.33 per diluted common share, return on average assets was 1.02% and return on average tangible common equity was 13.40%."

"Total loans increased by $172.7 million, or 13.1% annualized, from the prior quarter and by $611.5 million, or 12.8%, over the prior year. Investment securities increased by $91.5 million, or 19.3% annualized, from the prior quarter and increased by $209.5 million, or 11.9%, over the prior year.

Total deposits were $6.2 billion as of December 31, 2015, an increase of $98.2 million, or 6.4% annualized, compared to the prior quarter and $523.9 million, or 9.3%, higher than a year ago"

I am now reinvesting the dividend to buy more shares.

4. Averaged Down: Bought 50 VLY at $8.62: And, Left Brain had to ask, what is the FIRST LAW OF HOLES AGAIN? Remembering rules is not within Right Brain's bailiwick and this was a Right Brain buy. LB was working on a modification to its Unstable Vix Pattern Trading Playbook, rule 1,039,967iiv and was otherwise distracted when RB entered this order in a flash and before it could be restrained by the responsible parties here at HQ. The stock continued to sink as the thundering herd came to the unfortunate conclusion that bank stocks were likely to become extinct before President's Day.

VLY and FNFG are my two less than optimal buys in this basket.

Trade Snapshot:

After my prior VLY purchases, the bank slashed its quarterly dividend from $.1625 per share to $.11 effective for the 2013 third quarter: VLY Dividend History Earnings growth has been uninspiring as well. VLY 2014 Annual Report at page - 12.31.2014-10K Last year's results were impacted as well by extradinary items including Valley's acquisition of the Florida bank 1st United and charges caused by the early extinguishment of debt. VLY is reducing its costs, which also includes bank brach closures, which are long term positives.

On the positive side, the existing quarterly rate of $.11 per share results in a 5.1% dividend yield at an all-in price of $8.62 per share. Admittedly, I would have preferred to make my first buy at that price.

The 4th quarter earnings report was issued after my last purchase: Valley National Bancorp The quarter had a number of extraordinary charges that render the results unworthy of much discussion since those charges distort earnings and some financial ratios. Those charges include acquisition expenses relating to VLY's recent purchase of CNLBank, headquartered in Orlando, Florida and a "$51.1 million loss on the extinguishment of higher cost debt."

Charge Offs to Total Loans (annualized): .05%

Coverage Ratio: 79%

Total Non-Accrual Loans to Total Loans: .39%

Book Value: $8.26 per share

Tangible Book Value: $5.36 per share

Total Capital Ratio: 12.02%

NIM on FTE Basis: 3.3%

5. Bought in Roth IRA: 50 ONB at $11.38 and 50 FNB at $11.3: In my retirement accounts, I will attempt to profitably flip regional bank stocks, so these two buys may not be around in a year. I am not talking about day trading 50 share lots but harvesting 2 to 4 quarterly dividends and selling at profit sufficient to generate a 8% to 10% annualized return.

Trade Snapshots:

I recently discussed purchases of two 50 share ONB lots bought in my IB taxable account. Update For Regional Bank Basket As Of 1/19/16 - South Gent | Seeking Alpha (2. Averaged Down: Bought 50 ONB at $12.25); Update For Regional Bank Basket Strategy As Of 1/6/16 - South Gent | Seeking Alpha (scroll to 2. Bought 50 ONB AT $13.1) So my recent ONB buys have proven to be less than optimal so far. On the positive side, each successive purchase has resulted in a higher dividend yield, admittedly for the wrong reason.

At an all-in cost of $11.38, the ONB dividend yield is about 4.22%. The bank is currently paying a $.12 quarterly dividend per share. Dividends - Old National

For ONB, I have nothing to add to my two recent discussions.

For FNB, my position prior to this last odd lot buy consisted of just 50 shares bought at $7.8 (7/20/2010 Post).

I have not substantively discussed this bank in a long time so I will devote some space to discussing it now.

F.N.B. Corp. (NYSE:FNB) is the parent holding company for the First National Bank that operates "nearly 290 banking offices throughout Pennsylvania, Maryland, Ohio and West Virginia" Corporate Overview | First National Bank F.N.B. also operates Regency Finance, which has more than 70 consumer finance offices in Pennsylvania, Ohio, Kentucky and Tennessee.

Dividends: FNB is currently paying a quarterly dividend of $.12 per share which has been in effect since the first quarter of 2009. That does not mean that FNB raised the dividend to $.12. No, FNB slashed its dividend from $.24 to $.12. While I did not own any shares prior to that cut, the dividend cut and the failure to raise the dividend since that cut are viewed as major and unwashable stains on FNB's management and Board.

On the positive side, a new shareholder who purchases at an all-in price of $11.3 has a dividend yield of about 4.25%.

Recent Earnings Report: I did review the 2015 4th quarter report before making this small add which only brought my position up to 100 shares.

"Net income available to common shareholders for the fourth quarter of 2015 totaled $37.1 million or $0.21 per diluted common share. . . Net income available to common shareholders for the full year of 2015 totaled $151.6 million, or $0.86 per diluted common share, compared to net income of $135.7 million, or $0.80 per diluted common share in 2014. "

Using the $.86 E.P.S. number for 2015, the TTM P/E is 13.14. Acquisition related expenses reduced E.P.S. from $.87.

NIM: 3.38% (better than the average which is now less than 3%)

Efficiency Ratio Excellent at 56.32%

NPL Ratio: .59% (NASDAQ:GOOD)

NPA Ratio: .63%

Charge Offs to Total Loans Annualized: .23% (better than average)

Coverage Ratio: 190.64% (prefer over 100% for a new purchase)

ROA: .91%

ROTE: 13.08%

Tangible Book Value Per Share: $6.38

Book Value Per Share: $11.34

Sourced: F.N.B. Corporation Reports Significant Revenue Growth and Record 2015 Net Income

Prior FNB Round Trips:

2010 50 Shares Taxable +$72.15

2010 50 Shares Satellite Taxable +$12.1

Pared FNB: Sold 50 at $10 and 50 at $10.18 (December 23, 2010 Post)-Bought 50 FNB at $8.42 (May 7, 2010 Post) and Bought 50 FNB at $9.36 (April 27, 2010 Post); and

2015 50 FNB Shares +$125.5

Bought 50 FNB at $11.25 (6/24/13 Post)-Sold in the 2015 Purge: Referenced in the Update On Regional Bank Basket Strategy As Of 7/17/15 - South Gent | Seeking Alpha

Total FNB Trading Profits: +$209.75

It has been hard to generate a profit on this one, but I keep trying. The total return with the dividend has been okay.

The ONB trading profit to date is +$283.67 and a good chunk of that amount is covered by my current unrealized loss.

6. Added 50 FNLC at $18.1: "The First Bancorp, headquartered in Damariscotta, Maine, is the holding company for The First, N.A. Founded in 1864. The First is an independent community bank serving Mid-Coast and Down East Maine with 16 offices in Lincoln, Knox, Hancock, Penobscot and Washington Counties."

Pictures of the bank's branches can be found at The First Locations.

Most of the branches dot the Maine coastline in places like Calais, Eastport, Bar Harbor, Northeast and Southwest Harbor. There is a branch in Bangor.

I also own 50 shares bought at $15.6.

Trade Snapshot ($1 Commission):

Closing Price Day of Trade: FNLC: $18.11 -0.57 (-3.05%) : First Bancorp

Intra-day: $17.86 to $18.6

Volume Heavy at 52,772 vs. 14,983 three month average

52 Weeks: High $22.56/Low $16.2

Dividend Yield at $18.1= 4.86%

The First Bancorp Keeps Quarterly Dividend at 22 Cents per Share

Recent Earnings Report: FNLC reported 2015 4th quarter net income of "$3.8 million, up $343,000 or 10.0% from the fourth quarter of 2014, and earnings per common share on a fully diluted basis of $0.35 were up $0.03 or 9.4% from the fourth quarter of 2014."

""Total loans increased $71.1 million or 7.7%," and "low-cost deposits were up $100.5 million or 21.0% in 2015".

NPL Ratio=.75%

NPA Ratio= .57%

NIM: 3.11%

Efficiency Ratio: 55.69%

ROA: .96%

ROTE: 10.77% (i.e. return on tangible equity)

Book Value Per Share: $15.58 up from $15.06 as of 12/31/14

Tangible Book Value Per Share: $12.78 up from $12.25 as of 12/31/14

Y-O-Y Comparison 2015 vs. 2014: Highlights Favorable Trends

The First Bancorp Reports Record Year in 2015

Prior Trades Round Trip Trades:

2015:

Roth IRA 50 Shares +$115.48

Taxable Account: +$215.56

I briefly mentioned those sales in connection with a substantial paring of this basket during the 2015 summer: Update On Regional Bank Basket Strategy As Of 7/17/15 - South Gent | Seeking Alpha (SCROLL TO 1. Parabolic Price Spikes Shortly After Purchase)

2012: 52+ SHARES +$124.6

Item # 2 Sold 52 FNLC at $15.55 (6/15/2012 Post) Bought 50 FNLC at $12.79 (9/26/11 Post)

2011: 50 SHARES +$16.58

Total Trading Profit To Date= $472.22

Link to Another Substantive Discussions: Regional Bank Basket Strategy: Added 100 FNLC At $16.81 - South Gent | Seeking Alpha (2/13/15 POST)

7. Sold FMER

Profit Snapshot:

FMER is being acquired by HBAN.

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I had one more purchase, made late today, that will be discussed in the next update. The lot is not included in the preceding table.

Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics:ERROR CREEP and the INVESTING PROCESS. Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.

Disclosure: I am/we are long RF, ONB, LBAI, FFBC, FNB, VLY. FNLC.