Friday, February 3, 2012

Panetta's Comments About Iran/Bought 40 BNCN at $7.09 as LT/SWZ FBSS GABC/Bought 100 GNT at $15.75

I am going to discuss an investment made yesterday in response mostly to some recent comments made by Secretary of Defense Leon Panetta. Normally, it takes me several days to get around to discussing a trade.  The discussion is at the end of this post, Item # 5.

The Treasury Borrowing Advisory Committee has recommended that the treasury allow treasury bill auctions at negative interest rates.  CNBC The most recent auction of 91 day treasury  bills produced an interest rate of .05%. The last 6 month treasury bills were auctioned to yield .075%.

1. Bought 40 BNC Bancorp (BNCN) at $7.09 Last Tuesday as LT (Lottery Ticket Basket Strategy)(see Disclaimer): BNC Bancorp is the parent company of Bank of North Carolina. I previously bought this bank stock as part of my regional bank basket strategy, and sold the shares after a disappointing earnings report. Item # 6  Sold:  50 BNCN @ 9.7.

After reviewing the subsequent earnings reports, I decided to buy back some shares at $7.09 as a Lottery Ticket. In other words, I still see some negatives that will limit the amount of my exposure, but I see enough positives to at least make a small LT investment. 

On the positive side, the bank is expanding its geographic service territory, in part by an FDIC assisted acquisition of a failed bank operating in Ashville, North Carolina.  SEC Form 8-K BNCN also recently closed the acquisition of Regent Bank, operating in Greenville, South Carolina, and expects that acquisition to be immediately accretive to earnings.

The acquisition of KeySource Financial was announced in December 2011. That acquisition is expected to close in the 2012 second quarter. SEC Form 8-K KeySource has a single branch in Durham with total assets of $206 million, consisting of $157 million in loans and $166 million in deposits, as of 9/30/1. The purchase price is approximately $12.2 million in stock. The press release announcing that acquisition claimed that it would be immediately accretive to BNC's forward earnings, Tier one common ratios, and the tangible equity to assets ratio.

For the 2011 4th quarter, BNCN reported net income available to shareholders of 8 cents per share, compared to a loss of 61 cents in the year ago period. The 8 cents per share included 7 cents in acquisition related expenses for the quarter. SEC Filed Press Release Another positive is that the net interest margin rose to 4.18% compared to 3.79% as of the Q/E 9/30/11 and 3.71% as of 12/31/2010. Another positive is the decrease in NPLs not covered by a FDIC loss share to 1.4% of total loans from 2.28% as of 9/30/11.

This is a link to the branch locations in North and South Carolina. Locations BNCN currently has 31 full service locations. 

Before the Near Depression, this stock traded at over $20 for a time in 2007. BNCN Interactive Chart

The consensus estimate, with contributions by 3 analysts, is for an E.P.S of $.64 in 2012.

My limit order was filled at $7.09 for 40 shares, although the financial websites do not show a trade below $7.18 on the day of my purchase. BNCN Historical Prices 

BNC Bancorp closed at $7.41 yesterday.

2. Swiss Helvetia Fund Dividend (SWZ): I recently received shares purchased with the year end distribution paid by this CEF:

42.204 SWZ Shares Purchased with Year End Distribution
I would just highlight a point that some individual investors may not fully appreciate. I will likely end up owning more shares of SWZ purchased with dividends than shares purchased in the open market. It would not be surprising to see an unrealized loss on the total amount of shares. Some individuals may just look at the share price, or the amount shown as an unrealized gain or loss on the shares, and conclude that the investment was not successful. It is important to look at a fund's results from a total return perspective which would include the amounts received in dividend distributions.

Swiss Helvetia Fund closed at $10.84 yesterday. 

3. Fauquier Bankshares (own: REGIONAL BANK BASKET STRATEGY): Fauquier Bankshares reported net income of $910,000 or 25 cents per share, up from 24 cents per share in the 2010 4th quarter. Net income increased 12.3% in 2011 compared to 2010. 

As of 12/31/2011, the net interest margin was 4%; the efficiency ratio continues to be too high at 72.05%; the tangible equity to tangible assets ratio was 7.74%; the total risk based capital ratio was 13.31%; NPAs to total assets stood at 1.1%; and the allowance for losses to NPLs was 145.61%. The current management is either unwilling or unable to bring down the efficiency ratio. The Board must be satisfied with the inefficient efficiency ratio. As a result of that issue and the unnecessary dividend cut in September 2010, I will vote against the Board and any resolution relating to management compensation. 

I do not believe that any analyst publishes earnings estimates for this small Virginia based bank. 

I am in the hold on FBSS. Bought 50 FBSS at 14.08 Bought 50 FBSS @ 13 Added 50 FBSS at $11.79

Fauquier Bankshares closed at $12.1 yesterday. 

4. German American Bancorp (own: REGIONAL BANK BASKET STRATEGY):  German American Bancorp (GABC) reported 4th quarter net income of $5.6 million or 44 cents per share, up from 28 cents in the year ago quarter.  The 2011 4th quarter results were juiced by realized gains from the sale of securities and loans.  The consensus estimate was for 40 cents. 

The efficiency ratio improved to 54% for the 2011 4th quarter from 63.35% in the 4th quarter of 2010.  As of 12/31/2011, NPLs to total loans stood at 1.63% (up from 1.22% as of 12/31/2010);  the net interest margin was 3.76% (a decline of .14% from the 2010 4th quarter); and the book value per share was $13.31 (up from $10.94 Q/E 12/2010). 

Bought 50 GABC at 17.05

German American Bancorp closed at $20.78 yesterday.

5. BOUGHT 100 of the Stock CEF GNT at $15.75 Yesterday-Satellite Taxable (see Disclaimer): GAMCO Natural Resources, Gold & Income Trust (GNT) is very similar to the GAMCO Global Gold, Natural Resources & Income (GGN). GNT is the newer fund and was selling at a discount to its net asset value at the time of my purchase. GGN was selling at a small premium. Both pay a 14 cent per share monthly dividend supported in part by a return of capital. 

Both funds own any of the same stocks, though in differing amounts and weightings.  GGN has a 45.5% weighting in metals and mining and 34.2 in energy & energy services. GNT is more diverse, with a 53.5% weighting in metals and mining, 13.6% in specialty chemicals, 6.2% in agriculture, 18.2% in energy and energy services, and 3.6% in machinery. 

GNT page at CEFA 
GGN page at CEFA 

GNT page at Morningstar

At the current monthly dividend rate, the yield is approximately 10.67%. I would be content to sell the shares for any profit after collecting several dividends. 

I currently own 400 GGN (150 taxable/150 Roth IRA/100 Regular IRA).

One potential wild card for both oil and gold prices is a possible attack on Iran's nuclear facilities. While I would not hazard a guess on that eventuality, I did recently listen to some tough talk from the Leon Panetta, the Secretary of Defense, that made it clear that a military strike would likely occur in the event Iran moved closer to developing a nuclear strike capability.   An interview with Leon Panetta - CBS News

"Panetta: The United States, and the president's made this clear, does not want Iran to develop a nuclear weapon. That's a red line for us. And it's a red line obviously for the Israelis so we share a common goal here. If we have to do it, we will do it." 

Pelly: What is it?

Panetta: If they proceed and we get intelligence that they're proceeding with developing a nuclear weapon, then we will take whatever steps are necessary to stop it"

While I can not predict whether there will be military action, I do believe that any such attack would likely send both oil and gold much higher. 

According to an article at the The Washington Post, Panetta believes that Israel "could" strike Iran this spring.

Some of this tough talk may be an effort to bring Iran to the negotiating table. But, there  is not much doubt in my mind where this is heading in the event Iran continues along its current path.

I have continued to sell some junk silver coins this year. A Franklin 50 cent piece, which is 90% silver, will sell at around $10.75 to a dealer, just at the scrap price. I am going to suspend further sales until this picture comes into better focus. I will typically plan for eventualities that may occur. 

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