Friday, January 29, 2010

Bought 50 AMAT at 12.48/Bought 100 ATP:TO at 11.97 CAD/ Bought 50 FFIC at 12.18/ AT & T SNV GBCI OKSB SUSQ

1. AT & T (own common and bonds): AT&T reported 4th quarter E.P.S. of 51 cents, in line with estimates, versus 41 cents in the year earlier period. The firm added 2.7 million wireless customers during the quarter and activated 3.1 million IPhones. One third of the IPhone activations were new customers.

2. Susquehanna Bancshares (own Category 1 Regional Bank Strategy): After reviewing the earnings report for SUSQ, I am keeping it for now in Category 1, though it is becoming a borderline Category 2. The bank did report a small profit in the 4th quarter of 4 cents per share, down from 21 cents in the 4th quarter of 2008. As of 12/31/09, the total risk based capital ratio was 13.42 and the Tier 1 capital ratios was 11.11%, both above the the well capitalized thresholds of 10% and 6% respectively. Book value was $19.53 per share, while tangible book was much less at $7.25. Net interest margin increased to 3.77%.

3. Bought 50 Applied Materials Yesterday at $12.48 (see Disclaimer) : Even though the market is undergoing significant institutional selling pressure, and I previously said that I would just get out of the way, AMAT fell enough yesterday that I went ahead and bought another 50 shares, bringing my total to 100. This is not material. I watched the interview with Michael Splinter on CNBC yesterday morning. While he was cautious, Splinter did say that AMAT had started to hire again and that the "semiconductor sector had picked up quite a bit". CNBC Asia now accounts for 70% of AMAT's business.

4. Bought 50 Flushing Financial (FFIC) at $12.18 Yesterday (see Disclaimer): Flushing will be added to Category 2 of the Regional Bank Stocks' stratagem. I will quit adding stocks to that strategy when I hit 30 names. I am now close to that objective. I may add shares to some of the ones previously purchased from time to time, as I recently did with both Wilshire and Wilmington when I took those banks out of Category 1.

Flushing is a savings and loan operating in the NYC metropolitan area Locations - Queens - Brooklyn - Manhattan - Nassau
The dividend yield at my cost is close to 4.4%. The consensus estimate for 2010 is $1.09 per share and $1.2 in 2011. FFIC: Analyst Estimates for Flushing Financial Corporation Price to book is .91: FFIC: Key Statistics

The bank reported a 4th quarter E.P.S. of 15 cents, which was reduced by 5 cents for TARP preferred stock costs. Net income for 2009 was $.91 per share with the company paying out 52 cents in dividends. The net interest margin was 3.14%. form10-q.htm

Flushing did participate in TARP receiving 70 million: forms Flushing later sold 8,317,400 shares at $11.5 per share with net proceeds of approximately 90.5 million. The purchase of the over-allotment option raised the net proceeds to 101.6 million: The company used part of those proceeds to pay back the 70 million in TARP funds:

5. Problems Yesterday: S & P Report on U.K. Banks/Greece/ & Qualcomm/ Worldwide Budget Deficits: Part of the negativity yesterday was due to the S & P report arguing that U.K. banks were no longer among the world's "most stable". Instead, they were more on par with those in Portugal and Chile. That was a pretty good slam on the U.K. Another problem yesterday was that Qualcomm had a bad day after lowering its forecast for 2010 revenue and a below consensus E.P.S. prediction for the current quarter of 49 to 53 cents, versus prior expectations of 57 cents. Bloomberg CNBC Qualcomm did report earnings for its first fiscal quarter, ending 12/27/2009 of 62 cents per share, excluding items, that handily beat expectations for 56 cents. Morgan Keegan downgraded QCOM to market perform: Barrons

There were increasing concerns about Greece's debt. The cost to insure 10 million € in Greece's sovereign debt for five years rose to a record 397,000 €. Some reports claimed that Greece was trying to peddle 25 billion € in bonds to the Chinese. And there are rumblings from the usual suspects about the Euro being doomed due to the problems in Greece, Portugal, Spain and Italy. 'Doctor Doom' I have a small double short position in the Euro versus the U.S. Dollar (the EUO ETF bought at $17.17) The Dollar Index continues to move higher, having recently pierced its 200 day moving average to the upside. DXY Index Charts And concurrently with the dollar's strength, the DJ UBS Commodity Index has been declining (Java Chart). I recently sold out of my position in RJI on 1/20 based on the movement of the DXY. Sold 300 RJI at 7.6 The recent decline in the UBS commodity index also gives me some more breathing room on MKN: Bought 100 MKN at 9.85

The European Central Bank President commented yesterday that the budget deficits in the U.S. and Europe are not sustainable, and he expected only a modest economic recovery in Europe. Possibly, the politicians need to be informed about the sustainability of trillion plus dollar per year budget deficits in the U.S.

The S & P 500 closing high for 2010 was on 1/19 at 1,150.23. ^GSPC: Historical Prices for S&P 500 INDEX,RTH Yesterday's close was at 1084.53. It does feel worse than a 5.7% decline. The decline started with China attempting to reign in bank lending. NYT

6. Bought 100 ATP.TO at 11.97 Canadian (see disclaimer): I used the remainder of my Canadian dollars to buy Atlantic Power on the Toronto stock exchange. The shares are traded in the U.S. on the pink sheets, and no bid or ask information is displayed for this particular company. ATLIF This firm is similar to Macquarie, discussed above, and pays monthly dividends. It just went ex dividend earlier this week. The company says the distribution currently qualifies as a qualified dividend. Press Release At the current rate of .0912, which I assume to be Canadian, my yield is close to 9%. The Canadians will withhold 15% for a U.S. citizen to pay a tax, which is why I buy these securities in a taxable account rather than an IRA, since a foreign tax credit is lost in a retirement account.

While Atlantic is a Canadian company, it owns generating facilities in the U.S. and a list of them can be found at its web site: Atlantic Power Corporation This is a link to the management's discussion of the 3rd quarter results: PDF The company is discussed in this Seeking Alpha article.

7. OceanFirst (owned): There were some positive comments about OCFC in this article from the, referencing the opinions of the Sterne Agee analyst Matthew Kelly.

8. Synovus (owned-Category 1 Regional Bank Strategy): It might be better to place SNV in Category 1/4 with Regions. Synovus continued its losing ways by reporting a 4th quarter loss of 249.9 million or 54 cents per share. The expectation was for a greater loss at $.59 per share. "As of December 31, 2009, the tangible common equity to tangible assets ratio was 5.79%, Tier 1 Capital Ratio was 10.11%, Tier 1 common equity was 6.65%, and total risk-based capital ratio was 13.50%." The net interest margin was 3.25%. For 2009, SNV managed to lose 1.47 billion dollars. At best, SNV will be a very long turnaround situation. SNV still believes it will return to profitability in 2010: Reuters

9. Glacier Bancorp (GBCI)(owned Category 2 Regional Bank Strategy): Glacier Bancorp reported diluted earnings of 15 cents per share in the 4th quarter, down from 29 cents in the year ago quarter. The estimate was for 4 cents. However, the E.P.S. for the 4th quarter included a 3.5 million dollar gain in connection with the purchase of First National Bank & Trust. The number of shares outstanding was 61.62 million (rounded). So even if the analysts did not factor in that gain, it would still better than expected at 9 cents according to my calculation. Net interest margin was 4.64%. The allowance for loan losses was 3.46% of loans. The bank said it is seeing some signs of credit quality stabilizing but is uncertain whether the trend will continue.

10. Southwest Bancorp (OKSB)(owned Category 2-Regional Bank Strategy): Southwest Bancorp reported 4th quarter earnings of 17 cents per diluted share, nine cents better than the consensus estimate. "Southwest and its bank subsidiaries have maintained capital levels that significantly exceed the minimums for regulatory “well capitalized” status. At December 31, 2009, our total regulatory capital was $413.4 million for a total risk-based capital ratio of 14.55%, and Tier 1 capital was $377.4 million for a Tier 1 risk-based capital ratio of 13.28%." Allowance for loan losses increased by 57% in 2009 and represented 2.46% of noncovered portfolio loans. Nonperforming assets, excluding covered loans, increased in 2009 to 124.6 million or 4.87% of loans and other real estate owned, which is way too high in my view.

Importantly, Southwest entered into an agreement with the United States Controller of the Currency on 1/27/2010 that is summarized in its earnings release, near the bottom under "regulatory matters". Approval of Controller is necessary now for the payment of dividends. Apparently, this bank is going to have to monitor its commercial lending better and to reduce it. This is in part reflected in the general description of the agreement with the Controller. It is also expressly stated by the bank in the following language: " In 2010, we plan to reduce the percentage of commercial real estate and commercial real estate construction loans to total portfolio loans in view of current economic conditions. Our plan focus is on reductions in particular subcategories of commercial real estate loans that are identified in our regular real estate market reviews."

I had a low confidence in this one when I bought only 50 shares at 6.84. One way that I always control risk is by the amount invested in a security, and Southwest in my view merited less than a $350 risk, barely above the LT limit of $300. The amount invested is a sign of a lack of confidence and an analysis of the potential risk.

11. Dividends and Interest: Over the past couple of days, I noticed the following dividend declarations of interest to me. Pepco (POM) declared its regular quarterly dividend of 27 cents. I have not been pleased with the recent earnings reports, and previously mentioned that I would sell my stock if and when that dividend was ever reduced to any degree. So, at least for another quarter, I am staying with POM. New York Community Bank (NYB) declared its regular dividend of 25 cents. My yield on the NYB shares is close to 9% with a good unrealized gain in the shares. JBI declared its semi-annual interest payment, going ex interest in February. This is a TC with a senior Duke Capital bond, now part of Spectra Energy (SE).

12. Net Interest Margin: I refer to net interest margin frequently when talking about banks. I view it as one of the important metrics, which is now being influenced to a large extent by the FED's near zero short term interest rate policy. That policy is keeping the rates paid to savers at very low levels, thus improving the margin between the cost of funds and the amount received by the bank from its borrowers. The net difference between the interest paid for funds by the bank and the interest it earns is a key measure of its profitability.

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