Friday, April 27, 2012

Earnings: FMER FCF CBU RNST SYMM /Edgen Group IPO/Sold 200 FOFI at $7.31/Bought 100 WIN at $11.2

S & P lowered Spain's sovereign debt rating to BBB+ from A late yesterday.

Edgen Group priced its IPO yesterday at $11, below the prior indicated range of $14 to $16. Reuters The symbol will be EDG. The proceeds will be used to repay debt. I have no interest in the stock. I bought one Edgen Murray Corporation 12.25% Senior Secured Bond Maturing 2015 at 97.5 back in March 2011 and still own it.

As previously noted, I view the IPO to be a positive for the owners of the senior secured bond issued by the Edgen Murray Corporation, maturing in 2015, which is guaranteed by Edgen Murray II and its existing and future U.S. subsidiaries that are 80% owned by EM II, as discussed in the Bond Prospectus and in the 2011 EM II Annual Report as follows:

2011 Annual Report Summary of 2015 Senior Secured EMC Bond

The relationship of these entities after the Edgen Group IPO can be found at page 12 of Amendment No. 6 to Form S-1 filed 4/24/12 by the Edgen Group.

First Commonwealth (FCF), a LT selection, increased its quarterly dividend to 5 cents from 3 cents, and reported net income for the first quarter of $11.1 million or 11 cents per share (up from 5 cents in the year ago quarter). has an article on the four riskiest places to swipe your debit card and to enter your pin.  Just as a precaution, I have a separate checking account tied to a debit card and I will generally keep the funds in that account at relatively low levels. Whenever I need funds, I will move some money online from another checking account, with a much higher balance, where I do not use a debit card.

Prospect Capital (own common) sold $100 million of 6.95% senior notes maturing in 2022, and expects to list that bond for trading on the NYSE. Prospectus I have no interest in the bond anywhere near its par value, but will place it on my monitor list for exchange traded bonds. As with other bonds traded on the stock exchange, this security will trade "flat", meaning that buyers will not have to be accrued interest to the seller upon purchase. Instead, like a common stock, the owner of the bond on the ex interest date will receive the interest.

The market reacted negatively to Symmetricom's earnings report for its third fiscal quarter which missed expectations by 3 cents. Free cash flow was reported at $6.8 million. The company also guided down its fiscal 4th quarter to $.07 to $.12, compared to the consensus estimate of 14 cents. The company used $4 million in cash to repurchase stock during the last quarter. Cash and cash equivalents increased to $61.5 million as of 4/1/12 from $58.1 as of 1/1/12. SYMM is owned in the LT basket.

1. FirstMerit (FMER)(own: Regional Bank Basket Strategy): FirstMerit reported net income for the first quarter of $30.3 million or 28 cents per share, up from 25 cents in the year ago quarter. The consensus estimate was for 25 cents. 

As of 3/31/2012, the net interest margin was 3.78% (down from 4.01% in the first quarter of 2011); the efficiency ratio was 65.52% (up from 64.37% in the year ago quarter); NPAs to total assets stood at .87% (down from 1.61% as of 3/31/11); the allowance for loan losses as a percentage of NPLs was 194.83%; the tangible equity to tangible assets ratio was 7.86%; and the return on average assets was .84%.

FirstMerit rose 23 cents to close at $16.98 yesterday.

2. Bought 100 Windstream at $11.195 Last Tuesday (see Disclaimer): Given the dividend yield of this common stock, I am content to collect the dividends and to sell the stock at any profit. Last year, I sold out of my Windstream stock position and was pleased to realized a net gain of $189.67. Those shares were sold at $12.31 (August 2011)

2011 Windstream 300 Shares + $189.67
After selling the stock I bought 3 Windstream senior bonds that yielded less than the common stock and later sold them at a profit:

2011 Windstream 3 Bonds +$123
Sold All Winstream Bonds: Two 2019s at 101 and One 2020 at 103.5 (November 2011)

The current quarterly dividend is 25 cents per share. At that rate, the dividend yield would be about 8.93% at a total cost of $11.2. That is a higher yield than the Windstream senior bonds. Of course, unlike the senior bonds, whose owners are entitled to receive timely interest payments at a fixed rate, WIN has no legal obligation to pay any common stock dividend. While that is an important distinction to keep in mind, the Windstream stock can be viewed as similar to a bond without the legal protections afforded to bond owners. From my perspective, I have identical objectives with both the WIN common stock and bonds, which is to collect the distributions without suffering a diminution in total return due to a loss in principal. So, I am content to make the distribution yield for both securities and to sell at any profit.

And, the qualified dividend has a tax rate that is currently significantly lower than the highest marginal rate applied to interest income. This may change next year.

I did review the S & P report on WIN. That firm rates the stock with five stars and a $14 price target. Morningstar has the stock rated 3 stars with a $6 consider to buy target. Without question, a negative for the stock is Windstream's exposure to the declining land line business. I would not consider the stock to be acceptable as a long term hold for that reason and a few others, including its large debt load, which was over $9 billion as of 12/31/2011. 2011 10K

Windstream rose 8 cents in trading yesterday to close at $11.31.

3. Community Bank System (CBU)(own Regional Bank Basket Strategy): Community Bank System reported net income of $18.8 million or 48 cents per share for the 1st quarter.

The consensus estimate was for 49 cents.

Compared to the 4th quarter of 2011, the net interest margin declined to 3.96% from 4.06%, and the efficiency ratio increased to 59% from 57.2%. Both of those numbers are going the wrong way.

As of 3/31/12, NPLs to total loans stood at .92%; the return on assets for the quarter was 1.14%; the tangible equity to tangible assets ratio was 7.7%; and the allowance for loan losses to NPLs was at 132%.

I am not reinvesting the dividend.

The bank anticipates closing in the third quarter of 2012 the purchase of 19 branches in its core NY state market from FirstNiagara and HSBC. CBU has already raised the funds for that purchase by selling 2.13 million shares at $27. SEC Filing Some of the drag for this last quarter, and possibly the next two, will be those funds sitting around on the balance sheet earning very little.

Bought 50 CBU @ 23.18

Community Bank System rose 19 cents yesterday to close at $28.29.

4. Renasant (own 155+ shares: Regional Bank Basket Strategy)Renasant Corporation reported net income of $5.74 million or 24 cents for the first quarter.

The consensus estimate was for 23 cents.

I was reinvesting the dividend. I changed that option to payment in cash this week. That decision is based primarily on the P.E.G. ratio. It is also based on the increase in the efficiency ratio to 72.19% from 68.92% as of 12/31/2011, and the return on average assets number of .57%.

More positive metrics include: the 1.33% ratio of NPLs to total loans (down from 1.56%); the allowance for loan losses as a percentage of NPLs at 145.15%; and the capital ratios:

RNST Capital Ratios
Bought 50 RNST at 14.14 Bought: 50 RNST at 13.70 Sold 50 RNST at 14.91 Added 50 RNST at 15.85

Renasant Corp. rose 23 cents in trading yesterday to close at $15.86.

5. Sold 200 FOFI at $7.31 Last Tuesday (see disclaimer): This sell was a spur of the moment kind of decision. I just bought these shares at $6.77. FOFI is a CEF that owns a lot of regional banks directly or through its interest in certain hedge funds. After reflection, I will simply focus on buying my own positions in this sector, rather than pay someone else to do so.

I used the proceeds to add to my regional bank basket, but it will be late next week before I get around to discussing that buy.

First Opportunity Fund fell 17 cents yesterday to close at $7.22. 

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