Wednesday, October 24, 2012

Earnings: WASH, NBN, TRST, CCNE, DD, MMM/Sold 50 AVK at $16.92-ROTH IRA/Sold 50 EWH at $18.42

The earnings disappointments, primarily from multinationals adversely impacted by currency headwinds and the European recession, continued yesterday.

The two main culprits yesterday were DuPont and more importantly MMM.

3M reported net income for the third quarter of $1.65 per share on a slight decline in revenues to $7.5B (down .4% year-over-year). Organic local currency sales grew 2.2%, not much better. The company lowered its full year forecast to $6.27 to $6.35 per share from its previous estimate of $6.35 to $6.5, "reflecting current economic realities". Revenue for 2012 are expected to be flat, as currency headwinds wipe out any organic increase which is expected to grow between 2%-2.5%.

Yesterday's Close: MMM: 88.73 -3.80 (-4.11%)

For the third quarter, DuPont reported a 9% decline in sales to $7.5B, compared to the consensus estimate of $8.15 billion. Excluding significant items, DuPont reported net income per share of just 32 cents, down from 69 cents earned in the 2011 third quarter, and significantly lower than the consensus estimate of 46 cents. The company plans to lay off about 2% of its worldwide workforce, approximately 1,500 workers. DuPont now expects its 2012 earnings, excluding significant items, to be between $3.25-$3.3 per share.

Yesterday's Close: DD: 45.23 -4.53 (-9.10%)

{Dow Chemical inadvertently and prematurely announced last night its plans to eliminate 5% of its workforce (2,400 jobs) and to shut down 20 factories, Bloomberg,  WSJ.comDow Announces New Date and Time for Third Quarter 2012 Earnings Conference Call}

I do not have a position in either DD or MMM.

I have no interest in DD shares anywhere near their current level.

I would consider buying a small odd lot position in MMM below $75.

My last buy of DD shares was at $16.68. The Most Abused Word: Reform/Buys of IR & DD/Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology (March 2009). Those shares have already been jettisoned. SOLD DD AT $39.6 (August 2010)

Bar Harbor Bankshares (own) increased its quarterly dividend to 30 cents per share, up 1.7% from the prior quarter and a 7.1% increase compared to the 2011 4th quarter. Bought 50 BHB at $30 (February 2012 Post-regional bank basket strategy)

The treasury sold two year notes yesterday at a .295% yield. .pdf There is a period before the "2". It would be almost 100% certain that the buyers of those notes will experience a negative real rate of return, with the prior 12 month inflation rate at a non-seasonally adjusted 2% through September. Professional forecasters are estimating greater than 2% CPI increases between 2012-2014. Third Quarter 2012 Survey of Professional Forecasters - Philadelphia Fed

The OG did not have much fun yesterday.

Yesterday's Closes:
S & P 500: 1,413.11 -20.71 (-1.44%)
DJIA: 13,102.53 -243.36 (-1.82%)
VIX: 18.79 +2.17 (+13.06%)

TLT: 122.69 +1.73 (+1.43%)
LQD: 122.72 +0.21 (+0.17%)
TIP: 121.78 +0.27 (+0.22%)
BAB: 30.04 +0.27 (+0.91%)

The portfolio in my main taxable account fell .59% which is viewed as satisfactory for a day like yesterday.

The trust certificates and numerous bonds that I own in that account gained in value yesterday (e.g. Trust Certificates: JZV, JZJ, KTN; bond PFK which is also owned in retirement accounts):

Trust Certificate  KTN
Trust Certificates JZJ JZV
Exchange Traded Bond PFK

I would not buy any of those securities anywhere near their current prices.  Most of my TCs have been called by their respective call warrant owners. Most of my exchange traded bonds other than trust certificates have been redeemed by the issuer or sold for profits. Most of the bonds that are now owned were bought in the bond market.

My regional bank basket performed relatively well, down $114 or .3%, with 7 out of 27 stocks rising in value, including two out of the four discussed in this post.

1. WASH (own 50 sharesRegional Bank Basket Strategy): Washington Trust reported third quarter net income of $8.9M or 54 cents per share, up from 46 cents per share in the 2011 third quarter. The consensus estimate, originating from two analysts, was for 53 cents.   

As of 9/30/12, the net interest margin was 3.28%; NPAs stood at .69% of total assets; the total risk-based capital ratio was 13.18%; the Tier 1 risk based capital ratio was 13.18%; the tangible equity to tangible assets ratio was 7.84%; tangible book value per share was $14.29; and the return on average assets during the quarter was 1.17%.

Bought 100 WASH at $15.26-Sold 50 of 100 WASH @ 22.44

The current quarterly dividend is 24 cents per share. At a total cost of $15.26, the dividend yield at that run rate is about 6.3%.

I have a realized gain on 50 shares of $347.03.

2011 WASH 50 Shares +$347.03

The remaining 50 shares of the 100 share lot bought at $15.26 have not been sold:

50 WASH Unrealized Gain as of 10/23/12=+$552
Like most of the banks in my regional bank basket, Washington Trust did not reduce its dividend during the Near Depression. The quarterly dividend was hiked by 1 cent to 21 during the 2008 second quarter and then raised by a penny again in both the first quarters of 2011 and 2012. The Washington Trust Company - Dividends/Stock Splits I bought my share during January 2010, so the dividend has been raised twice since my original purchase.

The dividend growth rate is slightly slower than a double over the past decade. In early 2002, the quarterly rate was 13 cents and is 24 cents per share now.

The quarterly rate in the first quarter of 2001 was 12 cents per share, so that would be a double in 11 years. If that growth rate continued for another 11 years, the first quarter of 2023, then the dividend yield would be about 12.58% at a total cost of $15.26.

Since WASH did not cut the dividend during the Near Depression and does not appear to be governed by worse than worthless Masters of Disaster that routinely make money disappear by the truckload at larger banking institutions, and given the stock profit already booked to date, I am likely to hold this one for a long time and simply ride out the vicissitudes in the stock price, for as long as that dividend continues to go up.

Quote: Washington Trust Bancorp
Yesterday's Close: WASH: 26.38 +0.33 (+1.27%)

2. NBN (own 100 shares: Regional Bank Basket Strategy): Northeast Bancorp reported net income of $1M or 9 cents per share. There is no analyst consensus estimate. The Board declared a 9 cent quarterly dividend. 

The net interest margin for the quarter was 3.8%. The efficiency ratio was way too high at 81.12%. The NPL ratio was 1.35% (non-performing loans to total loans)

The capital ratios are good:

NBN Capital Ratios as of 9/30/12
Bought 100 NBN at $8.7

Quote: Northeast Bancorp (NBN)
Yesterday's Close: NBN: 9.49 +0.20 (+2.15%)

3. Trustco (own 403+: Regional Bank Basket Strategy)TrustCo reported third quarter  net income of $9.8M (up 5.7%)  or $.104 per share. The consensus estimate was for 10 cents. 

As of 9/30/12, the net interest margin was up slightly from the prior quarter at 3.21%; the GAAP efficiency ratio was good at 51.3% and 49.18% non-GAAP (prefer below 60%); NPL ratio=1.92%; the coverage ratio was 94.9% (prefer over 100%); NPA ratio=1.36%;  tangible equity to tangible asset ratio was 8.27%;  tangible book value per share was $3.81; and the return on average assets for the quarter was .85% (prefer over 1%)

Compared to the 2011 third quarter, average loans were up $134.7M or 5.5%.

This bank is held primarily due to its dividend yield. The dividend payout ratio for the third quarter was 66.51%.

Quote: Trustco Bank  (TRST)
Yesterday's Close: TRST: 5.60 -0.06 (-1.06%)

4. CCNE (own 50 Shares: Regional Bank Basket Strategy): CNB Financial reported net income of $4.6M or $.37 per share, up from $.33 in the year ago quarter. The consensus estimate, originating from two analysts, was for $.35.

CCNE is a small bank with 28 full service branches in Pennsylvania.   CNB Bank - Locations & Hours

As of 9/30/12, the net interest margin was 3.53%; NPAs stood at 1.12% of total assets; the tangible net asset value per share was $10.64; the tangible common equity to tangible assets ratio was 7.67%; the total risk-based capital ratio was 15.36%; the Tier 1 risk-based ratio was 14.1%; and the return on average assets for the quarter was 1.05%. 

Total loans increased by 8.9% and total deposit were up 14.1%, compared to the 2011 third quarter.

CNB Financial is currently paying a 16.5 cent quarterly dividend.  On the positive side, the dividend was not cut during the Near Depression period. However, it has not been raised since a bump from 16 cents to 16.5 cents in the 2008 third quarter. CNB Bank - Stock Splits/Dividends

Bought 50 CCNE at $11.06 (June 2010)

Quote: CNB Financial Corp. (Pennsylvania)
Yesterday's Close: CCNE: 16.75 -0.10 (-0.59%)

5. Sold 50 AVK at $16.92 Last Monday-ROTH IRA (see Disclaimer): When I bought AVK, a CEF that invests in convertible securities, it closed at a -7.27% discount to its $16.5 net asset value per share. Bought Roth IRA: 50 AVK at $15.3 (6/27/12 Post) Last Friday, the discount had narrowed to -2.13, based on a closing market price of $17.01 and a net asset value per share of $17.38. I received several monthly dividend. When the discount narrows,  the net asset value per share goes up after a purchase, and the fund pays several dividends ($14.1 on 50 shares for 3 months), I will make money in three ways. I took a snapshot of my realized gain on the shares:

2012 AVK 50 Shares +$66.98
Altogether (dividend + realized gain), the total annualized return would be 10.5% on a $772 investment achieved in four months.

Closed-End Fund Association page on AVK

Quote: Advent Claymore Convertible Securities & Income Fund (AVK)

6. Sold 50 of the ETF EWH at $18.4228 Last Monday (The $500 to $1,000 Flyers Basket Strategy)(see Disclaimer): I am simply raising some cash with this minor sales. These shares were recently bought:

2012 EWH 50 Shares +$69.21
Bought 50 EWH at $16.72 (9/7/12 Post)

Quote: iShares MSCI Hong Kong Index Fund
Yesterday's Close: EWH: 18.34 -0.14 (-0.76%)

So far, the Flyer Basket Strategy appears to be a trading strategy entirely, and a source of funds whenever the OG becomes nervous.


I had one more sell from Monday, another stock CEF, which I hope to discuss briefly in tomorrow's post.  I expect the market to be choppy for the remainder of October, with a downside bias. My current downside target in the S & P 500 is 1300, returning close to the levels from June 2012. S&P 500 Index Chart Sine that is a guess originating from the OG's gut, I will probably add odd lot positions on down days where it makes sense to me. 

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