Friday, October 29, 2010

Sold 50 PYI @ 25.66/Added 30 to FE @ 36.1/Bought 100 PMACK at 10.01/TOBC SUSQ WASH RA XOM DUK BDN FBNC SBSI/Bought 100 PYB @ 23.81

As previously noted, the senior bond originally issued from PMA Capital, PMK, was delisted from the NYSE on Thursday as a result of PMA Capital being acquired by Old Republic International who no longer wanted to continue with the necessary SEC filing requirements. Item # 2 PMK I own 150 shares of PMK, and decided to stay with it after this announcement, due to its decent yield, monthly payments, intermediate term maturity, and the better credit rating of PMA's new corporate parent. Apparently, this senior note was picked up by the pink sheet exchange after the voluntary delisting from the NYSE: PMACK PMA Capital Corp. (Added: I found out later this morning that the listing on the pink sheet exchange with that symbol was just for yesterday, and it is not listed today under that symbol) I wanted to see how much trouble it would be to buy or sell this security on the pink sheet exchange, so I managed to buy 100 more shares yesterday without any problem at $10.01 as discussed below.

I no longer own two CEF bond funds, HSF and BDF, and would simply note that the Rivus Bond Fund (BDF) has completed its acquisition of the Hartford Income Fund (HSF): Rivus Bond Fund

DFY, the senior bond from Delphi Financial Group was ex interest yesterday for its quarterly interest payment, as was the junior bond DFP.

I read an article in MarketWatch that quoted Bill Gross as called QE 2 a "Ponzi scheme". Some would argue that the issuance of vast sums of new debt by the treasury is nothing more than a Ponzi scheme.

Fortunately, the LB was at the helm of the trading desk on Thursday, for the Old Geezer was just spooked by the 6.5% downdraft in MMM's stock, and had to take a nap during the trading day. HK has no current position in MMM but has owned it from time to time. There is no interest in the stock here even after Thursday's decline. MMM said that the market in both the U.S. and Europe was "uninspiring" and that it expected an "extended period of slow recovery". OG, having awaken from its nap, and rather than saying buying a 1000 of whatever, was heard to murmur incoherently of course, "sell everything". LB just writes down in these minutes of HQ's operation what actually happens, and does not make those value judgments so common among the masses. RB wanted to know what happened to its Microsoft shares. The OG muttered "sell everything, and move to Tibet, and start reading the Bible more".

1. Earnings from Regional Banks: TOBC SUSQ WASH FBNC (all owned-Regional Bank Stocks' basket strategy)

Tower Bancorp reported operating net income of 2.6 million or 37 cents per share (35 cents GAAP). The bank earned 30 cents on a GAAP basis in the 3rd quarter of 2009. The estimate was for 34 cents. TOBC Analyst Estimates | Tower Bancorp As of 9/30/2010, the total capital to risk-weighted assets was 13.2%; the tangible equity to tangible assets ratio was at 9.41%; NPLs to total loans was 1.15%; the net interest margin was at 3.64% (down slightly from 3.73% for Q/E 6/30/2010), and the tangible book value per share was $21.02. The Board declared the regular quarterly dividend of 28 cents per share.

Susquehanna Bancshares released another uninspiring earnings report. My SUSQ shares will remain in Category 1 of the regional bank basket, reserved for those banks deemed the most risky and/or having other characteristics deemed undesirable. Banks in Category 1 can be bought subject to a limit of $300. The current limitation on Category 2 is $3000. The capital ratios for SUSQ appear to be fine, though part of the bank's equity capital consists of some government TARP money (1/3rd of original issue) and a significant amount of trust preferred stock which is not viewed as equity here at HQ. As of 9/30, the total risk based capital ratio was 15.76%; the tangible common equity ratio was 7.64%; and the tier 1 capital ratio was 13.54%. One problem now is the earnings are just not impressive at just four cents, one cent below the estimate of 5 cents. But, I would still keep SUSQ in Category 1 if it had reported 10 cents. The dividend rate is still just a penny a quarter. Net interest margin is okay at 3.58%. SUSQ continues to be a weak hold for the 50 shares bought at $5.85. A more positive view that focuses on different metrics can be found in this article at TheStreet. About the only positive thing that I can say is that SUSQ is not a Regions Financial, so I can at least read its earnings release without becoming nauseous.

I have a decent percentage gain in the 100 shares of Washington Trust (WASH) bought at $15.26 last January, and this bank pays a good dividend (currently 84 cents annually). Washington Trust reported net income of 6.4 million or 39 cents per share, up from 31 cents in the 3rd quarter of 2009. The consensus estimate from 3 analysts was for 36 cents. As of 9/30/2010, the net interest margin was low at 3.01%, though up slightly from the prior quarter; the total risk based capital ratio was at 12.5%; the tangible equity to tangible assets ratio was at 7.07%; allowance for loan losses to nonaccrual loans was a comforting 143.8%; NPAs to total assets was low at .79%; and nonaccrual loans to total loans was .97%.

First Bancorp (FBNC) reported net income of 2.8 million or 17 cents per share. This missed the consensus estimate from 5 analysts of 19 cents. The net interest margin increased to 4.3% from the 3.83% as of the Q/E 9/09. The net interest margin declined from 4.35% from the 2nd quarter of 2010, however. As of 9/30, the total risk based capital ratio was 16.74%; tangible equity to tangible assets was 8.52%; and the ratio of non-covered assets that are non-performing to total non-covered assets was 4.16%, up from 3.89% at the end of the last quarter. The bank said that demand for loans remains weak. Based on that comment and more particularly the elevated NPAs, which I regard as worrisome, I view my 50 shares of FBNC to be a weak hold. By weak hold, I mean that it could liquidate my position at any time, notwithstanding the long term holding period of this basket strategy, but I may continue to be hold a small position for one or more reasons. For FBNC, the reasons for continuing to hold just 50 shares in the regional bank basket would include geographic diversification, particularly after I sold my other NC based bank (SOLD 100 FSBK @ 10.1), and the potential growth due to a previous FDIC assisted acquisition. This one is also in a trading mode classification, where I will buy and sell in an effort to lower my overall cost basis, while keeping only 50 shares as a core. In that type of trading mode, I will be allowed under that trading rule to temporarily increase the holding up to 100 shares as a maximum. Bought 50 FBNC at 12.58 Bought 50 FBNC at $12.01 Sold 50 FBNC at 13.25

Southside Bancshares (SBSI) reported net income of 11 million for the 3rd quarter or 70 cents per share, up from 67 cents in the 3rd quarter of 2009. As of 9/30, the net interest margin was 3.35%; nonaccruing loans to total loans was at 1.41%; and the allowance for loan losses to nonaccruing loans was at 128.02%. The bank repurchased during the quarter 254,276 shares at an average price of $18.45, as the bank started its authorized buyback of up to 6 million dollars of stock. I am not sure about the consensus estimate which has a 46 cent estimate for the quarter. SBSI Analyst Estimates | Southside Bancshares If that is correct, SBSI beat the consensus estimate by 24 cents.

2. Bought 100 of the TC PYB at $23.81 on Wednesday (see Disclaimer): RB just said that the NERD is definitely back at the helm of the trading desk, as demonstrated by this buy, along with the recent buys and sells of the TCs containing the Goldman Sachs senior 2033 bond.

I bought 100 PYB at $23.81, which contains that GS bond as its underlying security, after selling 100 of DKW, another TC with the same GS bond which was called by the owner of the call warrant. Bought 100 DKW at 22.86 Sold 100 DKW @ 25.25 Alert on TC DKW-Exercise of Call Warrant/SOLD 50 OF 150 @ 25.20 Bought 50 DKW @ 23.07 Apparently the NERD has been flipping those TCs, and there are several of them, for awhile now, holding them for a short period. Bought 50 PJI at 20.85 Added 50 PJI at 20.17 Sold 50 PJI at 23.52 Sold 50 JZS @24.15 Bought 50 PYB at 22.83 and 50 JZS at 22.95

PYB prospectus: The trustee's last distribution report shows that the trust owns 73 million in principal amount of this GS bond.

One reason for these purchases, as previously discussed, is the possibility of a call by the owner of the call warrant. The underlying GS 2033 senior bond is currently trading over its par value. FINRA While the owner of the call warrant is under no obligation to do anything, it would be profitable to exercise that call, redeem the TC's at par value, take possession of the bonds, and then sell them at a profit in the bond market. If this does not happen, then I will continue to receive the semi-annual interest payments. The current yield at a total cost of $23.81 is around 6%, and the YTM is around 6.24%, Morningstar Bond Calculator: Yield to Maturity. The underlying bond at a 107 price has a current yield of 5.724% and a lower yield to maturity due to its premium to par value.

I became aware last night that two other TCs (DKP & HJG) containing the same 2033 GS bond have received partial calls by their respective call warrant owners. DKP, HJG and DKW all originate from Morgan Stanley. Structured Asset Trust Unit Repackagings (SATURNS) Series 2003-6 Trust Receipt of Notice of Intent to Exercise Call Options in Part Structured Asset Trust Unit Repackagings (SATURNS) Series 2004-2 Trust Receipt of Notice of Intent to Exercise Warrants in Part

3. RailAmerica (RA)(owned): RailAmerica reported income from continuing operations of 15 cents, up from 8 cents in the 2009 third quarter, on a 16% increase in revenue from the 3rd quarter of 2009. The consensus estimate from 11 analysts was for earnings of 11 cents. RA Analyst Estimates | RailAmerica, Inc RA was a recent purchase at 9.75.

RailAmerica had a volatile day yesterday, rising as high as $12.74 before closing up 5.71% to $11.47.

4. Exxon (owned): XOM reported net income for the third quarter of 7.35 billion or $1.44 per share, up from 98 cents in the year ago quarter. This beat the consensus estimate by five cents.

Exxon Mobil Corporation closed up 55 cents yesterday to $66.22.

5. Duke Energy (own-core electric utility holding): Duke Energy (DUK) reported net income of 670 million or 51 cents per share, beating the consensus estimate by 9 cents. The utility was favorably impacted by unusually warm summer weather in its service territory. Duke increased its outlook for 2010 to a E.P.S. range of $1.4 to $1.45.

Duke Energy Corporation closed up 20 cents to $18.07.

6. Brandywine Realty (BDN)(own): While I sold out of BDN's preferred stock, I still own just 100 shares of its common. Brandywine Realty raised its FFO guidance for 2010 to a range between $1.32 to $1.34. As of 9/30, BDN's core portfolio consisted of 237 properties, with an occupancy rate of 84.9%. With new leases signed after the end of the quarter, the leased rate increased to 86.5%. BDN is an office building REIT. Brandywine Realty Trust

Brandywine Realty Trust closed down 4.09% to $11.95 yesterday.

7. SOLD 50 PYI at $25.66 on Thursday (see Disclaimer): This TC popped almost 6% yesterday on huge volume for it. I was barely interested in this security when I bought those 50 shares at 23.98. I had previously bought and sold this TC, and never had a material position in it. Bought TC PYI at $19.05 The TC has a $25 par value and a 6% coupon. The underlying security is a senior bond maturing in 2029 from Time Warner. One reason for doing the recent nibble was the possibility of a call warrant exercise, which had just happened for another TC containing this same TW bond. The underlying bond has been trading recently at more than a 10% premium to its par value, and has a 6.625% coupon. The rise yesterday in PYI on Thursday brought the current yields of the TC and the underlying bond roughly in balance.

8. Added 30 FE @ 36.1 (see Disclaimer): This brings me up to 130 shares, and I changed my reinvestment option on Thursday morning to reinvestment. I had previously been taking the dividend in cash. Both First Energy and Exelon have significant merchant power businesses, and both have declined almost in tandem after reporting decent third quarter results. This has occurred at a time when my other electric utility holdings, without the power generation business, have continued to increase in value. An example of that later type holding is Consolidated Edison (ED). Both FE and EXC have disclosed recent news that indicates that the sluggish U.S. economy is hurting demand for, and pricing of power generation sold in the open market. Eventually, with a more healthy economy, investors will be bidding up the price of these merchant power producers with significant regulated, retail operations. But, patience will be required which is why I am reinvesting the dividends paid by both FE and EXC to buy more shares at their current depressed prices.

First Energy appears to be making progress in overcoming the regulatory hurdles necessary for its proposed acquisition of Allegheny Energy (AYE), as noted in this press release from earlier in the month: FirstEnergy Corp. Investor: Investor Information: News Release Morningstar has a five star rating on FE. S & P has it rated 4 stars with a $45 price target.

After trading down to $35.88 intra-day yesterday, FE closed at $36.17, down 9 cents. At that price, the dividend yield is close to 6%.

9. Added 100 of PMACK at 10.01 on Thursday (see Disclaimer): This security was delisted on Thursday, voluntarily, from the NYSE. When it was trading on the NYSE, the symbol was PMK. I bought 100 shares on the pink sheet exchange at $10.01 on the day of the delisting from the NYSE. This is a senior bond, originally issued by PMA Capital, that has a $10 par value and a 8.5% coupon. Interest is paid monthly. So my yield will be a tad lower than the coupon at my cost. I discussed this bond in several prior posts, and now own 250 shares. Bought 100 PMK at $8.35 Added 50 PMK at $8.21 Bought 100 PMK at 9.71 Prior to PMA's acquisition, this bond was rated as junk. I believe that Old Republic bonds are considered investment grade, and the site does show this PMA bond now rated at Baa3 by Moody's. If that is correct, this bond, formerly traded under the symbol PMK, may be the highest yielding investment grade bond, particularly with an intermediate term maturity, currently available. The only bond issued by Old Republic (ORI) that I could find is rated Baa1 by Moody's and BBB+ by S & P: FINRA

(Added: I learned something about listing requirements on the pink sheet exchange after noticing later this morning that this security was not available today for purchase. OTC Companies and Advisors Frequently Asked Questions - In that link, it appears that this was what they call a "piggyback qualified quote". For this security to trade now, a dealer would have to go through the process of filing a form 211 with that exchange.)

I had quite a few more trades from Thursday which will be discussed in the next post.


  1. UTL went ex- $21 is support, over 6%

  2. WTU sold, are they going to still pay distributions? Might be a $2 Lotto?

  3. I do not follow WTU. The news release from yesterday is self-explanatory.