Thursday, November 4, 2010

Bought 50 FFBC @ 16.85/Sold 100 PBI @ 22.88/Added 50 DFY @ 25.06 & 35 JNK @ 40.72 in the Roth/FFIC CBL

We have heard rumors here at HQ that word may have leaked out about HQ's intent to acquire Canada, all of it, and to rename it Northern Tennessee, which may have spurred some of the Canadian visitors in late October, no doubt concerned about Headknocker's intentions. Progress toward this objective has been retarded some by the Fed's Jihad against savers, which is likely to restrain capital expansion here at HQ for some time. So for now, the Canucks are safe with there Red Maple Leaf flag. It will not be a big transition for them to the Tennessee flag which is of course also red with no blue at all, Tennessee State Flag, HK, known as generous to a fault, may even allow a Maple Leaf to be immersed in the Tennessee red. And this is one RED STATE now. Of course, to pacify the natives in the Volunteer State, it will be necessary to eliminate all of that government healthcare provided in Canada now.

In a widely anticipated move that had probably been priced into both the bond and stock market, the FED launched round two of quantitative easing yesterday with an announcement that it will buy 600 more in longer term U.S. treasuries by the end of the second quarter of 2011. FRB: Press Release--FOMC statement--November 3, 2010 The pace of those purchases will be around 75 billion a month. This will be in addition to purchases of about 35 billion per month from the redemption of the FED's mortgage securities acquired during QE 1.

If a financial autopsy could be conducted on Wilmington Trust (WL), I wonder whether management of that bank was ever forthcoming with its shareholders about the extent of its losses. The market was certainly surprised by the take under by M & T that proved that the potential losses are actually much greater than investors have been told even recently. In a post from August I made a salient point about banks with reference to the continuing saga of Wilmington's disclosure issues:

"The only way for me to have known about the problems in southern Delaware, where the bank apparently made a large number of bad loans to finance vacation and retirement homes, was to visit the area. I would need to go the register of deeds and find out exactly where Wilmington was making loans and how much was being borrowed by developers. Then I would need to eyeball all of the property and talk to real estate professionals in the area. Then, I might be able to make an informed judgement in early 2010 whether or not Wilmington was adequately recognizing actual and potential bad loans. Obviously, analysts do not do that and that is their job. And, I am in no position to do any of that kind of research. Instead, I have to work off instinct and whether something smells right. For Wilmington, something did not smell right after the 2009 4th quarter report was released so I dumped the shares. This kind of approach may end up being premature or just wrong, based on subsequent events, but it falls under the LB motto of "better safe than sorry"." Item # 2 Construction Loans & WL

1. CBL & Associates Properties (own common): I was buying common shares of CBL Properties, an owner of retail malls including the Cool Springs complex near HQ, during the Near Depression period as LOTTERY TICKETS. One of the buys, which I discussed briefly in a November 2008 post, was a purchase of 40 shares at $3.7 in what I called then a scatter gun buy using cash flow from dividends and interest payments received during the prior week. LATE DAY TRADES: GCI, CBL, FR, SLG, NYT, NWSA I later had a purchase of 10.365 shares with a reinvested dividend at $3.10 on 4/15/2009, whereupon I changed my distribution option to cash. After slashing the quarterly dividend to as low as 5 cents, CBL raised it to 20 cents in February 2010, a pleasant surprise. Item # 4 CBL. The stock is now trading at over $16 per share and I still own all of the shares previously purchased, now totalling over 170. I have sold one of CBL's cumulative equity preferred shares on two occassions, and no longer own one of its preferred stocks. REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages

CBL reported an FFO of 47 cents for the third quarter. Occupancy increased to 91% from 89.2% as of 9/30/09. The company raised its full year FFO to a range between $1.93 to $1.99, up from its prior estimate of $1.87 to $1.9.

CBL rose 80 or 4.85% in trading yesterday to close at $17.28.

2. Sold 100 Pitney Bowes (PBI) at 22.88 (see Disclaimer): Since purchasing 100 shares of PBI at 21.9 last January, I have not been pleased with a single earnings report. (e.g. see Item # 3 PBI). Pitney Bowes reported another lackluster quarter, with GAAP earnings per share falling to 43 cents per share from 50 cents in the Q/E 9/2009. Revenue declined 1% to 1.35 billion. The adjusted earnings per share, which excludes a number of items, was reported at 55 cents unchanged from the year ago quarter. While the Non-GAAP number beat expectations by 3 cents, it is impossible to overlook the decline in revenue and the lack of earnings growth.

Free cash flow was 221 million during the quarter which exceeded the dividend payments of 77 million in cash. The main reason for owning PBI is its generous dividend which generates around a 6.7% yield at a price of $22.2. That dividend is still PBI's only attraction.

I elected to dispose of my 100 shares at $22.88 for a small profit plus a few dividend payments.

2. Bought 50 FFBC at $16.85 (Regional Bank Stocks' basket strategy)(see disclaimer): This is basically the replacement for SUSQ & BNCN, which were sold last Monday. First Financial Bancorp reported earnings after the close on Tuesday. Third quarter net income was 15.6 million or 27 cents per share. But those numbers included a charge of 8 million or 9 cents per share relating to the early repayment of 232 million in advances from the Federal Home Loan Bank. (SEC Filed Press Release) I would add that number back to the GAAP number which results in earnings of 36 cents per share. The consensus estimate by 8 analysts was for an E.P.S. of 26 cents. As of 9/30, the net interest margin was at 4.34%; the allowance for losses to NPLs was at 86.54%; NPLs to total loans was at 2.88%; the total capital ratio was at 19.91%; and the Tier 1 ratio was at 18.64%. There was no government preferred stock on the balance sheet. The bank operates in Ohio, Indiana, Kentucky and Michigan with 113 banking centers in 75 communities. As noted in the last filed 10Q, the bank has been expanding with FDIC assisted acquisitions. (pages 6-7 10Q for Q/E 6/2009)

After selling 6.4 million in shares at $15.14 in February 2010, resulting in net proceeds of 91.2 million, FFBC paid back TARP (80M) (page 40 & SEC Filed Press Release).

FFBC closed at $17.37 yesterday, up 6.37%.

The regional bank basket had a decent day yesterday rising $420.89 or .97%. As of the close yesterday, the unrealized gains totaled $3,786. I have realized gains from this basket of $2,812, which are being tracked in Item # 3, 2010 Realized Gains Regional Bank Stock.

3. Added 50 DFY @ 25.06 in the Roth IRA (see disclaimer): DFY is a senior bond from Delphi Financial, an insurance company, with a 8% coupon and a $25 par value. It has been discussed in a number of posts, along with a junior bond DFP from the same issuer. Bought DFY at 22.48 Bought 50 DFP at $17.10 & Sold 50 DFY in Roth at $24.45 Bought 50 DFY at 24.36 Bought 75 DFY @ 25.31 Bought 60 DFY @ 25.32 IRA Bought 100 DFP at $17.1 Sold 50 of the 150 DFP Added 50 DFP at 19.75 Sold 50 of 150 DFP at 21.7 Sold: 50 DFP @ 23.10 and @23.17

This brings me up to 150 shares in the Roth IRA and 60 shares in the regular IRA. Delphi has performed two partial calls of DFY so far this year, retiring 75 million in principal amount of this senior bond. Thus, I would not want to pay much more than par value plus accrued interest for it. Those calls will save Delphi, according to its CEO, about 5 to 6 million in pre-tax interest expense annually.

This security makes quarterly interest payments and is rated investment grade. When I buy this kind of security in the Roth, I view it as equivalent to a tax free investment grade municipal bond in a taxable account. And we all know that no such bond, yielding 8%, exists. If it did, it would be yielding 8% for less than a nano second.

Prospectus: e424b5

Delphi reported operating earnings of 83 cents per share for the Q/E 6/2010: 10q For the last quarter, Delphi reported a operating E.P.S. of 86 cents and net income of 83 cents: SEC Filed Press Release The common stock symbol is DFG. The current consensus estimate is for an E.P.S. of $3.41 in 2010 and $3.67 in 2011.

4. Added 35 of the ETF SPDR Barclays Capital High Yield (JNK) in the Roth IRA (see disclaimer): I ran out of money in the IRA with just a 35 share buy of this junk bond ETF. It just seemed to the LB yesterday, after mulling a few million variables and considering a few thousand alternate scenarios, that QE 2 would be a positive for the junk bond market. Possibly if QE 2 does spur more robust economic activity, then that would help the credit risk profile of these securities. And, given a continuation of the FED's JIHAD against savers into 2011, anything with a yield will start to look even more like an ocean of fresh water to investors dying of thirst. I previously bought 50 of JNK in a taxable account and discussed it in that post: Bought 50 of JNK at 40.25 Dividends are paid monthly and the expense ratio is .4%. SPDR Barclays Capital High Yield Bond ETF _9.30.2010a.pdf This is a link to the annual report, and the list of holdings begins at page 142: Annual Report for the period ending 6.30.10 in pdf

I have also bought recently 100 shares of another high yield (JUNK) fund in both a taxable account and in the regular IRA. Bought 100 PHB at 18.15 100 PHB @ 18.5

5. Flushing Financial (own-regional bank basket): After the bell yesterday, Flushing Financial Corporation (FFIC) increased its previously reported net income figure for the 3rd quarter due to a tax law change recently passed in NY. This change resulted in an increase in 3rd EPS to 48 cents from 30 cents. I discussed the 3rd quarter report, as originally released, in item # 1, FFIC. The stock closed yesterday at $13.24. Bought 50 FFIC at 12.18 Added 50 FFIC at 11.05


  1. ALJ bonds on Fidelity look to be (1)min, fyi...

  2. THANKS, I BOUGHT 2 of that bond a few minutes ago. I have raised too much cash over the past few weeks, and was looking for a bond investment with a good yield. I am cognizant of the risk, but this one has a short maturity.

  3. I see they issued 8% convertible preferred, but don't see how that affects this.

  4. The convertible preferred is an issue for the common shareholders only. The preferred stock financing does provide ALJ with some funds The convertible preferred shares are senior only to common stock.

    SEE SEC Filing 10/28: "The convertible preferred stock will rank with respect to dividend rights and rights upon our liquidation, winding-up or dissolution:

    • senior to all of our common stock and to all of our other capital stock issued in the future unless the terms of that stock expressly provide that it ranks senior to, or on a parity with, the convertible preferred stock;

    • on a parity with any of our capital stock issued in the future, the terms of which expressly provide that it will rank on a parity with the convertible preferred stock; and

    • junior to all of our capital stock issued in the future, the terms of which expressly provide that such stock will rank senior to the convertible preferred stock."