Thursday, April 21, 2011

NYB RNST CZNC/Bought 1 Senior 6.9% Dean Foods Bond Maturing 10/15/2017 at 93.5/Intel NYB TRST/Bought 30 PCBK as LT at 9.42/Sold 200 JPC at 8.6

Senator Corker (R-TN) has joined the other TBs in stating that he will not vote to raise the debt ceiling unless Obama agrees to the GOP's spending cuts.  The GOP has made it clear to everyone that they prefer to see the U.S. default on the nation's debts unless the Democrats agree to their spending cuts. Corker views this linkage, which involves holding approval of the debt ceiling increase hostage, to be responsible conduct. It is without question in my mind irresponsible.

For anyone interested in a fact check of Obama's recent budget speech responding to the GOP's budget plan, which I hope to discuss soon, this is a link to the analysis. (see also PolitiFact) Of course, any politician has trouble stringing two sentences of accurate information together, and Obama is certainly no exception.  In the President's speech, I understood the specifics about the tax increases proposed for those deemed well off by the Democrats but the spending cuts did sound a little mushy to me.  There was a lot of detail about spending reductions and program terminations in the President's budget that is available at the White House web site: .pdf 

For a breakdown of federal spending by category, see The President's Budget for Fiscal Year 2012 | The White House

I have seen a number of statistics estimating that the federal government loses close to 60 billion per year in medicare fraud.  Rampant Medicare Fraud (February 2010 Post) I would think that everyone agrees that more needs to be done to substantially lower that number.  For example, it should be a strong vetting process for potential medical suppliers before allowing them to bill medicare. Fraud in this billing was exposed in a recent 60 minutes story. Medicare Fraud: A $60 Billion Crime - 60 Minutes - CBS News PolitiFact Medicare fraud   No one should be allowed to open a store in Miami, and just start billing Medicare for supplies that do not exist, with the government writing the checks.  And prison sentences for convictions need to be really severe. A conviction for defrauding Medicare out of 23 million for example should be no less than 30 years. Miami doctor convicted of $23 million Medicare fraud - A 200 million dollar fraud conviction should result in a life sentence without possibility of parole,  Fla. couple pleads guilty in $200M Medicare fraud - BusinessWeekMore than 100 charged nationwide with Medicare fraud - Los Angeles Times

Maybe the GOP needs to channel some of their zealotry into significantly increasing funding for investigations of, and prosecutions for fraud, and for supporting legislation that would make fraud far more difficult to implement, before punishing seniors by fundamentally altering Medicare to shift more costs to those least able to afford it and away from the government while reducing the tax rates substantially- again- for the wealthy.

Few would disagree that the government is invariably careless with large amounts of money. How many billions went down a rat  hole in IRAQ with no clear proof of what happened to the money? BBC  IG: $9B in Iraq project funds unaccounted for - Army News  ABC News  And, then you have the IRS doling out 500 million in potentially false claims associated with the first home buyer income tax credit. Audit Finds IRS Paid $500 Million In Unjustified Home Buyer Credits Why can't the IRS have a computer system where there could be a check of a prior tax return to determine eligibility before the check is sent out to an unqualified recipient, one who claimed mortgage deductions on a primary residence in the past but who now claims to be a first time home buyer. Billions could be saved by the government ceasing to be grossly incompetent and ineptly mismanaged, a condition that continues to worsen no matter which political Tribe has the power.

One thing is for certain, the pay of Federal workers rises no matter what, until the recent temporary freeze for many of them. Maybe everyone needs to go to work for the U.S. government, as the number of federal workers making more than $100,000 per year grew by 19% during the last recession, USATODAY. How many persons do you think make more than $100,000 per year working for the federal government, excluding the value of the generous health and retirement benefits? Answer: As of 6/2009, 382,758 according to the article in USAToday.

Christopher Danely, the J P Morgan analyst on Intel, had predicted earnings of 39 cents for the 1st quarter on 11.3 billion in revenues. JPMorgan Capitulates Like many of the highly paid analysts on Intel, Danely had done his channel checks and was up to speed on one of the few companies in his coverage universe, working day and night to earn  every cent of his pay. Intel actually reported a non-GAAP E.P.S. of 59 cents on 12.9 billion in revenues.  I did not see a mea culpa from the Roth analyst who recently caused a downdraft in the stock by lowering his price target to $20 and his recommendation to neutral.   INTC rose $1.55 or 7.8% in trading yesterday to close at $21.41.

I have previously referred to some other analyst pessimistic comments made shortly before the latest earnings release in the following posts: Item # 5  Intel (Gus Richard from Piper Jaffray says Intel is less relevant); Item # 3 Intel (J P Morgan analyst Chris Danely says Intel is being too optimistic about sales; Jefferies Adam Benjamin says Intel is facing headwinds and the PC market is in secular decline, MarketWatch). Maybe these big brokerage companies should start paying the LB to opine about the prospects of all of the companies covered by their analysts.

I am not going to discuss the earnings report from Renasant. I own 100 shares in my regional bank basket strategy. The stock did rise 53 cents in trading yesterday, closing at $16.46, in response to the earnings release.  PRNewswire This small regional bank has been growing its service territory with FDIC assisted acquisitions.

Citizens & Northern (owned) increased its quarterly dividend to 14 cents per share, up from 13, representing the 5th consecutive quarterly increase.   I discussed the 1st quarter earnings report from CZNC in Item # 7 GOP Comes Out of the Closet on Medicare.  My average constant total cost for 100 shares is $11.27, as shown in the snapshot in that linked post.  That dividend raise increases by current yield to 4.97% from 4.61%.

1. New York Community Bancorp (own: Regional Bank Stocks' basket strategy): New York Community Bancorp reported GAAP net income of 123.176 million or 28 cents per share, down from 29 cents a share in the first quarter of 2009.  The "operating earnings" were lower at 27 cents per share, down from 29 cents in the 1st quarter of 2010.  And lastly, just to add some work to individual investors who own the stock, NYB reported "cash" earnings of 31 cents per share.  Cash earnings contributed to a 12.6 million to tangible capital. Total delinquent loans fell 13.2%.  The estimate was for 31 cents.

As of 3/31/2011, the GAAP efficiency ratio was 38.5; the net interest margin was 3.58% (up from 3.41% in the year ago quarter); NPLs (non-covered) were 2.19% to total loans; the allowance for losses on non-covered loans to non-covered loans was 23.72% (viewed here at HQ as potentially troubling); and tangible stockholder equity to tangible assets was at 7.87.

I currently own 100 shares of NYB at an average cost of $11.31 per share:

NYB Total Average Cost Per Share =$11.31
The dividend yield at my constant total cost number is currently 8.84%. My unrealized gain is a long term capital gain.

I sold the 100 shares held in an IRA at a good profit, and those shares have never been included in my regional bank stock table or the realized gains reported in Item # 3 Realized Gains Regional Bank Stocks' Basket Strategy Starting in 2010

The market did not like this earnings report, taking NYB shares down 77 cents in trading on Tuesday to close at $16.31.  I do not disagree with that selloff.  However, I am likely to keep NYB for several years due to my dividend yield, provided I am comfortable with the earnings and overall operating performance.

I am devoting $40,000 to $50,000 to my Regional Bank Basket Strategy, with that range of funds devoted to the strategy over the next several years.  I will trade positions to lower my average cost per share where feasible, eliminate some failures, book profits as I proceed, reinvest some of the dividends to buy additional shares, and keep around 30 to 50 stocks in the basket.  I am currently close to the bottom part of both of those ranges.  The unrealized gains are moving in a range between $3500 and $4500, and the realized gains are close to 6 thousand.

2. Added 1 Dean Foods 6.9% Senior Bond Maturing 10/15/2017 at 93.5 on Tuesday (Junk Bond Ladder Strategy)(see Disclaimer): This purchase brings me up to 3 Dean Food (DF) bonds and hopefully that is my limit.  This purchase is an average up from my prior purchase of the 2017 bond: 1 Dean Foods 6.9% Senior Bond Maturing 10/15/2017 at 89.48 last December. This is a link to the FINRA information about this bond. I also own 1 senior DF bond maturing in 2016: 1 Dean Foods 7% Senior Bond Maturing 6/1/2016

The common stock is currently rated 4 stars by Morningstar.  The company is heavily indebted (see pages 39 to 46 of the 2010 Form 10-K).  Analysts estimate that the company will earn 58 cents per share in 2011 and 77 cents in 2012 on revenues of over 12 billion each year. DF Analyst Estimates

3. Sold 200 of the 400 JPC at $8.6 on Tuesday (see Disclaimer):  I own over 900 shares of a similar balanced CEF, JQC.  I wanted to pare my position in either JPC or JQC, since both are heavy into junk bonds, and I have recently added a number of individual junk bonds.  I have also own two junk bond ETFs and several exchange traded bonds that are rated in junk territory. I had become slightly uncomfortable in my dollar volume of exposure to that bond sector.

Both of these CEFs are included in the same  Annual Report filed by Nuveen with the SEC. I view them to be functionally equivalent and will make buy and sell decisions based on their respective yields and discounts to net asset value. JQC has performed slightly better over a five year period. Both are selling at significant discounts and pay quarterly dividends. Both went ex dividend for their quarterly distributions in March.

I am reinvesting the dividend paid by JQC and will start reinvesting the dividend on the remaining 200 of JPC. 

The JPC asset allocation can be found at page 16 of the Annual Report and JQC's allocation is at page 17. 

4. TrustCo (TRST)(ownRegional Bank Stocks' basket strategy):  Trustco produced yet another lackluster and uninspiring earnings report, neither bad nor good.  The bank reported net income of 7.4 million or $.096 for the 2011 1st quarter, barely budging from the $.09 per share earned in the year ago quarter.  As of 3/31/2011, NPLs to total loans was 2.14%; the coverage ratio was somewhat comforting at .9; the net interest margin was 3.4%; the efficiency ratio was okay at 52.18;  the total risk based capital ratio was at 13.92%; and total equity to assets was at 6.55%.

I am near break-even on this one.  The dividend yield is good at close to 4.5% which may be the only significant positive.  

5. Bought Back 30 Pacific Continental (PCBK) at 9.42 on Tuesday as an LT (LOTTERY TICKET strategy) (see Disclaimer):  PCBK reported 1st quarter net income of 1.4 million, up 31% over the year ago quarter, or 8 cents per share.  This was in line with estimates.  This small bank has twelve branches in Oregon and Washington, located in the three large metropolitan areas of Eugene and Portland, Oregon and Seattle, Washington. Locations :: Pacific Continental Bank I previously bought shares in this bank as an LT at $8.9.

I noted in the LT Gateway Post that those shares were later sold at $10.18 with no write up in the blog. LB sold the shares, after becoming disgusted with the sheer number of RB's LT selections. A compromise was later reached between the RB and the LB, # 33,464,395,902,751, where the RB could buy whatever as long as the LB did not have to look at the company more than one time.  So LT's will now be discussed once when the purchase is made.  The general approach on LTs will be mostly to ignore them for several years and then see what happens. It may take a few years to discover whether PCBK can return to its growth path prevailing in the period between 2002-2007: PCBK Interactive Chart

I did note in the prior post that PCBK did not participate in TARP, which is viewed favorably here at HQ.

LB would add at this juncture that the banks in the Northwest appear to be rivaling the good ole boys in Georgia for blowing their institutions up.

There are some positives.  The net interest margin is good, relatively speaking, at 4.66% during the 1st quarter.

As of 3/31/2011, the efficiency ratio was 68.05% which is almost not okay; the allowance for loan losses as a percentage of NPLs is a somewhat uncomfortable for me 50.11% (one among many reasons for the LT classification);  NPLs to total loans was 3.61% (another reason for the LT classification); the tangible book value of $8.22 per share is a positive given the share price; and the capital ratios are good.  The tangible common equity to tangible assets ratio was high at 12.82% (very good); the total capital to risk weighted assets ratio was 18.18% (above 10% considered well capitalized); the Tier 1 leverage ratio was 13.42% (over 5% deemed well capitalized); and the tier 1 risk based capital ratio was 16.93% (over 6% deemed well capitalized by the government).

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