Update for Lottery Ticket, REIT and Regional Bank Basket Strategies/Sold 101+ BRKL at $9.53/Bought 50 LARK at $19.76, 50 UVSP at $18.8, 100 SUSQ at $10.15, 50 UVSP at $18.8/Bought 50 ODP at $5.09 as a LT/CBU, BHLB, FFBC, WASH, FNLC, FMER, FISI, TRST, CCNE, HBAN, BPFH, NYCB, NPBC, WTBA, FNB, MBVT, UBCP

The combined market value of the three baskets discussed below was $120,993.7 as of 7/25/14. The combined decline last Friday was $273.92 or .00227%.

7/25/14: S&P 500 -.48%

The regional bank, REIT and lottery ticket basket strategies are updated on the last Monday of each month. The price shown in the following tables will be from last Friday.

Last Update 6/30/14: Stocks, Bonds & Politics: Update for Regional Bank, Lottery Ticket and REIT Basket Strategies/Bought 50 NKSH at $30.4

I frequently use a basket approach, particularly with industry sectors, that will vary in size as to the number of components. The focus will be on the total return of the basket, rather than individual components. Some of the advantages to this approach include diversification and risk mitigation. I am not concerned about a few mishaps provided other components are doing better than I anticipated when I made the initial purchase. As noted previously, I have been surprised by some of best and worst performers in the regional bank basket.

1. Update of Lottery Ticket Basket Strategy 

The Lottery Ticket Basket Strategy uses a deep contrarian value strategy, appropriately characterized as catching a "falling knife". A common criteria for the stocks contained in this basket is a smashed stock price at the time of purchase and an ugly looking chart, though I may occasionally buy one who does not fit those common criteria. Any technical analyst would most likely have a sell rating on the stock.

See 2004 Study by the Brandes Institute: "Falling Knives Around the World" 

Selections are made primarily on statistical criteria including price to book, price to sales, forward P/E, cash per share and/or free cash flow. I spend anywhere from thirty minutes to an hour researching a potential purchase prior to purchase.

For many selections, I may be pessimistic about the firm's future, but not as pessimistic as the market. I will also occasionally see a ray of light at the end of a dark tunnel. Since I expect failures, which are inevitable and unavoidable in this kind of approach, I limit my exposure to $300 per stock plus any prior trading profits. 

After experiencing some success with this strategy, I now have a requirement that my total investment in all LT holdings can not exceed my total realized gains for this basket strategy. My total exposure is currently slightly under $6,000.

The name of the strategy aptly describes the risk. It is somewhat analogous in many cases to playing a hand of blackjack for the purchase amount knowing that the card count favors the house. It is a form of entertainment and an alternative to a casino visit.

Based on the results to date, this strategy is far more likely to produce positive results even with the LB's skill at the tables. The primary purpose of the LT strategy is to entertain Right Brain, let it swing for the fences with up to $300, and to keep the Nit Wit from interfering with Left Brain's management of Headknocker's portfolio.

Snapshots of realized gains can be found at the end of the Gateway Post on this topic: Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

There were no deletions since the last update. There was one addition discussed below.

Net Realized Gains: $14,024 (same as last update)


Click to Enlarge:

Lottery Ticket Basket as of 7/25/14

The unrealized gains exceeding 30% are as follows:

AMOT +105.73%

AMOT corrected some since the last update and almost lost its number #1 pole position to the up and coming RFMD.

RFMD +103.85%

RFMD reported better than expected earnings and raised guidance: Reuters; News Release

FCE/A +64.1%

AWCMY +61.81%

ING +48.44%

FCF +43.55%

NPBC +30%

A. Bought 50 ODP at $5.09 (see Disclaimer):

Snapshot of Trade:

Office Depot qualifies as a Lottery Ticket due to its recovery potential after its acquisition of OfficeMax late last year. This consolidation in the office supply space makes sense to me. The recovery potential is tied to a reduction in competition and store rationalization at a time when employment and the economy are gathering upward momentum, hopefully for the remainder of 2014 and throughout 2015. ODP plans to close about 400 stores by 2016 due to overlapping locations. NYTimes One of those closures will likely be near HQ, since the OMX and ODP stores are within a few hundred feet of one another.

I would not expect much, if any, share price gain until investors become convinced that the current analyst consensus forecast will be achieved or exceeded by ODP. The current consensus forecast, as of 7/22/14, was for an E.P.S. of $.15 this year and $.34 in 2015. ODP Analyst Estimates The P/E on that forward 2015 estimate would be about 14.97 at a total cost of $5.09 per share. A primary issue would be a confirmation of the acceleration in earnings growth in 2015, rather than the current P/E or even the forecasted P/E based on the 2015 estimate, in my opinion.

Goldman Sachs has ODP as one of its 25 small caps to buy. The price target is just $7.

S & P has the stock rated 5 stars as of 7/22/14 with a 12 month price target of $8.

ODP Key Statistics (based on $5.09 price and earnings reports through March 14)
P/B: 1.38
P/S: .21
P.E.G.: .37 (estimated 5 years)

I also own two senior unsecured bonds that were an OfficeMax obligation but are not an ODP debt obligation Bought 2 OfficeMax Senior Bonds at 97.494 (1/11/11 Post). That bond has a 7.35% coupon and matures on 2/1/16. Finra Information As of 12/31/13, only $18M in principal amount was outstanding. (Note 8 at page 81, 10-K) Total recourse debt stood $696M, including capital lease obligations, as of 12/31/13.

2. Update for REIT Common and Preferred Stock Basket:

This basket is starting to contract, primarily though preferred stock deletions under the current trading guidelines. The first publication of this basket was made on 3/5/14: Stocks, Bonds & Politics: Equity REIT Common and Preferred Stock Table as of 3/5/14

I am using a blended strategy of including both common and preferred stocks. I am not likely to add back preferred stocks until there is another meaningful correction in their prices.

Since my last update, I have sold the following securities:

Sold on the Toronto Exchange: 200 CAR_UN:CA at C$23.16/Sold Roth IRA 50 DLRPRE at $25.5 (7/12/14 Post)

Sold 100 REI_UN.CA at C$27.04 (7/19/14 Post)

Click to Enlarge:

REIT Basket as of 7/25/14 

3. Update for Regional Bank Basket Strategy:

This strategy is explained in my Gateway Post on this topic:

REGIONAL BANK BASKET STRATEGY GATEWAY POST

Snapshots of realized gains and losses can be found at the end of that post.

The dividend yield showed in this table is calculated by Yahoo Finance based on last Friday's close. My dividend yield for each position will be different based on my total cost numbers. In most cases, with FNFG and VLY being notable exceptions, my dividend yield will be higher.

Dividend Yields 5% or higher: Based on Total Cost
NYCB: 8.44%
UBSI: 7.66%
WASH: 7.56%
CZNC: 5.39%
FNLC: 5.38%
CBU: 5.15%
TRST: 5.1%
CCNE: 5.%

CBU is a new addition to the list after raising its quarterly dividend to $.3 per share. My total cost for the 50 share lot, bought at $23.18, is $1,166. (see discussion in Item F below)

I am not tracking reinvested dividends in the following table. The unrealized gains per holding do not include reinvested dividends.

Over the life of this basket strategy, I anticipate that the dividends will provide 40% to 50% of the total return. I am generally keeping my total exposure between $40,000 to $50,000.

After a number of adds, I am now over my minimum $40,000 allocation after a bout of profit taking last year. 

I have not been impressed with several of the recent earnings reports from regional banks. Some of the banks discussed below have decent 2014 second quarter reports. While net interest margin has not contracted much, it is yet to show any expansion either for most banks. Chart: Net Interest Margin for all U.S. Banks - St. Louis Fed

One ETF will own several of the small cap regional banks and REITs that I own now or have owned in the past: PSCF | S&P SmallCap Financials Portfolio

In 2013, my dividend total from this basket totaled $1,932,93, up from $1,896.25 in 2012 and $1,660.57 in 2011. I will have to increase my current exposure in order to exceed the 2013 amount this year, given my light exposure for the first four months which was several thousand below the "minimum" level.    

Regional bank stocks are in a funk this year as interest rates started to go back down. One of the regional bank ETFs, KRE, closed at $40.61 on 12/31/13 and at $39.12 last Friday, but has closed as low as $36.84 this year (2/3/14). SPDR S&P Regional Banking ETF ETF Chart That ETF had worked its way back over its 50 and 200 SMA lines when I published the last update but has since fallen below those lines again.

The abnormally low rates benefited banks some when deposit yields were repriced down, but even 5 year bank CDs taken out in 2008 at higher rates have now matured, and the positive impact of that repricing is no longer present to any meaningful degree. 

Instead, the decline in rates for loans simply compresses net interest margin. When rates were rising last year, regional bank stocks were in an uptrend based on the common belief that higher intermediate and long rates would be a net positive for them, particularly when short terms were likely to remain near zero through mid-2015 and then rise slowly and modestly in 2016-2017. The rate spike starting last May impacted intermediate and long term rates. Short term rates remained anchored by ZIRP. 

I have used the downdraft in prices this year to add positions to my basket after selling into last year's strength.  

Realized Gains 2010 to Date: $16,156.25  (snapshots in Gateway Post)
Dividends Received 2010 through 2013=$6,623.72

Click to Enlarge:

Regional Bank Basket as of 7/25/14

Comparison Data From the St. Louis Fed:
Net Interest Margin for all U.S. Banks
Net Interest Margin for U.S. Banks with average assets under $1B
Net Interest Margin for U.S. Banks with average assets between $1B and $15B
Return on Average Equity for all U.S. Banks   (abbreviated to "ROE")
Return on Average Assets for all U.S. Banks (abbreviated to "ROA")
Nonperforming Loans (past due 90+ days plus nonaccrual) to Total Loans for all U.S. Banks (abbreviated to "NPL ratio")
Charge-Off Rate On All Loans, All Commercial Banks
Assets at Banks whose ALLL exceeds their Nonperforming Loans (coverage ratio over 100%)(ALLL=Allowance for loan losses)

A. Sold 100 BRKL at $9.53 (see Disclaimer):

Snapshot of Trade:

2014 Sold 101+BRKL at $9.53 

Closing Price on Day of Trade (7/1/14): BRKL: $9.49 +0.12 (+1.28%)

Snapshot of Profit:

2014 BRKL 101+ Shares +$92.21

Bought 100 BRKL at $8.48

Snapshot of History:

Dividends=$59.5
Total Return= $151.71 or 17.75% 

The TTM P/E was close to 18 at the $9.53 price, which is a rich valuation for a small regional bank estimated to grow its E.P.S to $.59 per share next year from $.54 in 2014. I consequently chose to sell this stock and to redeploy the proceeds into another bank stock.

Closing Price Last Friday: BRKL: $9.20 -0.02 (-0.22%)

B. Bought Back LARK at $19.76 (see Disclaimer):

Snapshot of Quote Shortly Before Order Entry:

Even for LARK shares, a volume of just 4 shares within an hour of the closing bell is lighter than normal.

Normally, there is a large bid/ask spread. The market capitalization is around $61M at the $19.76 price.

Snapshot of Trade:

2014 Bought 50 LARK at $19.76

I recently sold 50 LARK shares after an inexplicable pop in the shares. Item # 4 Sold 50 LARK at $23.5 (6/29/14 Post) I had bought those shares earlier this year at $19.7 (1/13/14 Post).

I had earlier bought and sold a 50 share lot. SOLD 52 LARK at $18.75 (1/9/12 Post)-Bought 50 LARK @ 16.6 (5/2/11 Post)

Landmark Bancorp Inc. (LARK) is a bank holding company that owns Landmark National Bank which currently has 30 branches across Kansas and is headquartered in Manhattan Kansas: Landmark National Bank Locations

As noted in the quote snapshot, the bank is currently paying a quarterly dividend of $.19 per share. Landmark Bancorp Inc. (LARK) Dividend History At a total cost of $19.76 per share, the dividend yield is respectable at about 3.85%.

Even though the quarterly dividend has remained at $.19 per share since 2006, LARK has paid a 5% stock dividend every year since 2001. Landmark National Bank-Dividends In effect, that stock dividend results in an equivalent dividend increase every year assuming my math skills, or lack thereof, are correct (since the same penny amount is paid on 5% more shares each year).

2014 First Quarter Earnings Report:
SEC Filed Press Release

2014 1st Q vs. 2013 1st Q
Net Income: $1.699M / $1.44M
E.P.S. (diluted): $.53 / $.46
Net Interest Margin: 3.49% / 3.38%
NPA Ratio: 1.53% / 1.24%
Coverage Ratio: 45.66% / 56.32%
ROA: .84% / .92%LARK has been paying a 5% stock dividend every year since 2001
ROE: 10.81% / 9.18%
ROTE: 16.5% / 12.14%
Book Value Per Share: $20.64 / $19.96

Capital ratios are okay as of 3/31/14:

Page 27 SEC Form 10-Q for the Q/E 3/31/14

Landmark did report a decline in earnings during and after the Near Depression. In 2008, E.P.S. was reported at $1.56, and then declined to $1.13 per share in 2009 before bottoming in 2010 at $.7. Thereafter, E.P.S. rebounded to $1.54 in 2011 and $2.18 in 2012. (page 37-2012 Annual Report SEC Form 10-K Risk factors are summarized starting at page 27 of the 2013 Annual Report.

While remaining a small bank, Landmark has grown some through acquisitions. Effective 11/1/13, Landmark completed its acquisition of Citizens Bank which added eight branches: Page 67. Earnings in 2013 were impacted by $1.9M in costs associated with this acquisition: Page 42.

Landmark owns its main office and 24 of its branches. Five branches are leased: Page 37.

Landmark did not participate in TARP: Page 9 2009 Annual Report 10-K.

After my purchase, LARK reported second quarter net income of $2.1M or $.65 per share, up from $.45 in the year ago quarter. SEC Filed Press Release

There are no analyst forecasts. I view 2014 earnings of $2.05 to $2.1 per share or higher to be a reasonable forecast given the first and second quarter results, though an unexpected large loan loss could derail that result. Any E.P.S. number over $1.96 would result in a less than 10 P/E at a total cost of $19.6 per share.

Closing Price Last Friday 7/25/14: LARK: $20.51 +0.17 (+0.84%)

C. Boston Private Financial (BPFH): Boston Private Financial Holdings, Inc. reported second quarter net income of $21.3M or $.25 per share, up from $.11 in the 2013 third quarter (adjusted to $.18 after items)

Net Interest Margin: 3.14%
Efficiency Ratio (non-GAAP):  64.39%
Nonaccruals to Total Loans: .82%
Coverage Ratio: 179%
ROA: 1.32%
ROTE: 17.15%
Tangible Equity to Tangible Assets: 7.77%

The capital ratios are good:

Closing Price Last Friday: BPFH: $12.70 +0.04 (+0.32%)

D. Huntington Bancshares (HBAN): Huntington's stock price reacted positively to the second quarter earning's report, rising 4.84% on 7/18/14: HBAN: $9.75 +0.45 (+4.84%) Net income rose 9% to $164.6M or $.19 per share, up from $.17 in the 2013 second quarter and one cent better than the consensus estimate of $.18. An encouraging sign was the 9% increase in total lending and a 39% increase in auto lending. News Release

I took a snapshot of some key data points:

Quarterly Financial Supplement

HBAN shares were initially bough in the LT category and later promoted to the regional bank basket. Added 40 HBAN at $7.04; Bought 30 HBAN @ 7.25 as LT; Added 30 HBAN as LT at $4.8

Closing Price Last Friday: HBAN: $9.98 +0.01 (+0.10%)

E. CNB Financial (CCNE): CNB Financial reported net income of $.39 per share. The estimate, made by just one analyst, was for $.34. CCNE Analyst Estimate

2014 Second Quarter vs. 2013 Second Quarter

The capital ratios are okay:

Capital Ratios CCNE as of 6/30/14

I recently averaged up in CCNE: Item # 6 Added 50 CCNE at $16.11 (6/14/14 Post). The prior purchase was at $11.06 (6/30/10 Post)

Closing Price Last Friday: CCNE: $16.53 -0.35 (-2.07%)

F. Community Bank System (CBU): Community Bank System reported second quarter net income of $23.7M or $.57 per diluted share, up from $.52 in the the 2013 second quarter. The consensus estimate was for an E.P.S. of $.54. CBU Analyst Estimates As of 7/21/14, the day of the earnings release, the consensus E.P.S. estimate for 2014 is $2.17 and $2.23 for 2015.

The Board increased the quarterly dividend by 7.1%. The new rate will be $.30 per share, up from the previous $.28. This increase constitutes the 22nd  consecutive year of increased dividends.

Metrics: Net Interest Margin 3.94%

Bought 50 CBU @ $23.18 (October 2010)

Closing Price Last Friday: CBU: $35.92 -0.11 (-0.31%) 

G. Washington Trust Bancorp (WASH): Washington Trust reported net income of $9.8M or 58 cents per share, up from $.55 in the year ago quarter. The consensus estimate was for $.59 per share. WASH Analyst Estimates

Net Interest Margin: 3.35%
NPL Ratio: .49%
NPA Ratio: .42%

Bought 100 WASH at $15.26 (January 2010)-Sold 50 of 100 WASH @ $22.44 (January 2011)

Closing Price Last Friday: WASH: $34.16 -0.14 (-0.41%)

H. TrustCo (TRST): TrustCo reported net income improved by 20.9% to $11.8M compared to $9.9M in the 2013 second quarter. E.P.S. was reported at $.125 per share. The consensus E.P.S. estimate was for $.11  TRST Analyst Estimates

Net Interest Margin: 3.15%
Efficiency Ratio: 53%
Tangible Equity to Tangible Assets: 8.38%
Tangible Book Value Per Share: $4.06

My last two transactions were to pare my position based on valuation. Sold 308 TRST at $6.64 (profit $271.05); Sold 50 TRST at $7.29 (profit: $32.67). I currently own with 315+ shares at an average cost of $5.16. Bought 50 TRST at $4.01 (August 2011); ADDED 50 TRST at $5.1 (June 2012); Added 150 TRST at $5.17 (January 2013)(plus some reinvested dividends)

J. First Merit (FMER): FirstMerit reported second quarter net income of $59.5M or $.35 per share, up from $.29 in the 2013 second quarter. The consensus E.P.S. estimates were for $.36 and $1.45 this year. FMER Analyst Estimates 

The market reacted negatively to this report:

Closing Price 7/22/14: FMER: $18.23 -0.45 (-2.41%)

I thought that was an overreaction and simply changed my dividend option to reinvestment in response.

JPM downgraded FMER to neutral based on "accretion" headwinds, an issue that was well known prior to that downgrade. Barron's. The accretion issues impact on net interest margin is discussed at page 6 of the earnings call transcript.

Earnings Call Transcript | Seeking Alpha (page 5-expects net interest margin to decline in next two quarters)

After selling my 100 highest cost shares, I currently own 141+ at an average cost per share of $14.52: Item # 2 Bought 30 FMER at $11.35 (August 2011); Item # 2 Added 50 FMER at $15.2 (September 2012); Item # 3 Added 50 FMER at $15.09 (February 13, 2013 Post) The foregoing purchases account for 130 of the 141+ shares with shares purchased with dividends accounting for the remainder. I quit reinvesting the dividend based on valuation after the 2013 second quarter.

Closing Price Last Friday: FMER: $18.00 -0.23 (-1.26%)

K. Merchants Bancshares (MBVT): Merchants Bancshares reported second quarter net income of $3.41M or $.54 per share. The consensus E.P.S. estimate was for $.53. MBVT Analyst Estimates Profit will be hurt this year by spending on a "core conversion project" whose benefits will will start to be "seen in the fourth quarter".

In addition, MBVT is reducing "exposure to price volatility in the investment portfolio, increasing liquidity and building capital" in response "to market conditions that do not favor asset extension or compensate adequately for credit risk". I would agree with that approach now.

The NPA and NPL ratios are the lowest in my regional bank basket.

After harvesting a profit on one 50 share lot, I currently own 50 shares of MBVT: Item # 5  Bought 50 MBVT at $26.25 (5/2/2012)

The market responded favorably to this report:

Closing Price on 7/23/14: MBVT: $30.04 +0.54 (+1.83%)

L. F.N.B. (FNB): F.N.B. reported second quarter net income of $32.821M or $.2 per share. The consensus E.P.S. estimates were for $.2 and $.83 for the year. FNB Analyst Estimates For the 2013 second quarter, FNB reported net income of $29.123M or $.2 per share. There were more shares outstanding in the last quarter (diluted shares at 167.867+M vs.  145.844+M)

After some profitable trading, I was left with 50 shares bought at using FIFO accounting. Added 50 FNB at $7.8 (July 2010). I later added another 50. Bought 50 FNB at $11.25 (6/24/13)

The market responded favorably to this report:

Closing Price 7/23/14:  FNB: $12.40 +0.27 (+2.23%)

Closing Price 7/25/14: FNB: $12.58 +0.02 (+0.16%)

M. West Bancorporation (WTBA): West Bancorporation reported second quarter net income of $4.74M or $.3 per share, up from $.25 for the 2013 second quarter. The consensus estimate was for $.28 and $1.13 for the year. WTBA Analyst Estimates

Bought 100 WTBA at $11.67 (6/29/13 Post)

The market responded favorably to this report:

Closing Price 7/25/14: WTBA: $14.57 +0.35 (+2.46%)

N. National Penn (NPBC): National Penn Bancshares reported net income of $26.2M or $.19 per share. The consensus E.P.S. estimates were for $.17 in the second quarter and $.7 for the year. NPBC Analyst Estimates

NPL Ratio: .8%
Coverage Ratio: 207%

Other metrics include the following:

Capital ratios are good:

NPBC was initially bought in the LT basket and was later promoted to the regional bank basket with the original LT purchase remaining in that basket. Item # 2 Added 100 NPBC at $10.68 (8/17/13 Post); Added 50 NPBC at $9.85 (October 28, 2013 Post);  Item # 1 RB Bought as LT 30 NPBC @ $7.83 (4/26/11 Post)

Closing Price Last Friday 7/25/14: NPBC: $10.49 +0.03 (+0.29%)

O. Bought 100 SUSQ at $10.15-Satellite Taxable Account (see Disclaimer): I initially bought and sold SUSQ shares as part of the LT basket. Bought 50 SUSQ at $5.85 (10/1/09 Post)- Sold: 50 SUSQ @ 7.5 (11/3/2010 Post). I later decided to buy the shares back as an LT, Bought 30 SUSQ at $8.75, and will simply keep those shares in that basket. I am now elevating SUSQ to the Regional Bank Basket Strategy which is a "risk on" promotion.

Snapshot of Email Confirmation:

After my purchase, Susquehanna Bancshares reported second quarter net income of $43.5M or $.23 per share. The consensus E.P.S. estimates were for $.2 and $.8 for 2014. SUSQ Analyst Estimates The Board also announced a stock repurchase program of up to 3.5% of the outstanding shares.

SUSQ was originally classified as a LT due to its poor performance in 2008-2009. The poor results were manifested by the steep dividend cuts and severe share price decline. In the 2009 first quarter, the quarterly dividend was $.29 per share, which was then cut to $.05 for the 2009 second quarter, and then cut again to $.01 per share by the 2009 4th quarter. Susquehanna Bancshares, Inc. (SUSQ) Dividend Date & History The share price decline from $27+ in 2006 to 5+ in early 2009. SUSQ Interactive Chart

Earnings reports during that period reflected the problems during that period. E.P.S. declined from $1.23 in 2007 to a loss of 5 cents per share in 2009, barely recovering to just a $.13 per share annual profit in 2010. FORM 10-K at page 29.

Susquehanna Bancshares recently increased its quarterly dividend by 1 cent to 9 cents per share.

Closing Price Last Friday: SUSQ: $10.36 -0.04 (-0.38%)

P. Berkshire Hills (BHLB): Berkshire Hills reported second quarter core earnings of $.44 per share. The consensus E.P.S. estimates were for $.42 in the quarter; $1.68 for 2014 and $1.85 for 2015. BHLB Analyst Estimates

Net Interest Margin: 3.26%
Efficiency Ratio: 62.96%
Core Return Tangible Equity: 11.34%
NPL Ratio: .59%
NPA Ratio: .45%
Coverage Ratio: 132%
Charge-Offs to Total Loans (annualized): .31%

I am slightly in the hole after profitably selling a 50 share lot: Added 50 BHLB at $23.75; Bought: 50 BHLB at $24.51

Item # 1 Sold 50 BHLB at $28.74+ (7/13/13 Post)-Item # 2 Bought 50 BHLB AT $21.66 (3/12/12 Post)

The market responded favorably to this report:

Closing Price 7/24/14: BHLB: $23.67 +$1.07 (+4.73%)

Closing Price Last Friday 7/25/14: BHLB: $23.67 0.00 (0.00%)

Q. New York Community Bank (NYCB): New York Community Bancorp reported cash earnings of $.29 per share (GAAP at $.27). The consensus E.P.S. estimate was for $.26. NYCB Analyst Estimates

The capital ratios are okay:

The board declared a regular dividend of $.25 per share. At that quarterly rate, the dividend yield is about 8.43% at my total average cost per share of $11.86. Item # 2 Bought 50 NYB at $11.3 (10/15/2009 Post); Item # 4 Added 50 NYB at $10.57 (11/4/2009 Post); Item # 1 Added 50 NYB at $12.79 (2/17/2012 Post)

The largest of the three gains realized to date was booked on this 50 share lot: Bought 50 NYB at $10.57-Item # 7 Sold 50 NYB in IRA at $17.51 (7/28/2010 Post)($331.03-snapshot in Gateway Post on this topic)

The market responded favorably to this report:

Closing Price on 7/23/14: NYCB: $15.90 +0.34 (+2.19%)

Closing Price Last Friday 7/25/14: NYCB: $16.05 +0.06 (+0.38%)

R. Financial Institutions (FISI): Financial Institutions reported net income of $7M or $.48 cents per share for the 2014 second quarter. The consensus E.P.S. estimates were for $.46; $1.9 for 2014 and $2.07 in 2015. FISI Analyst Estimates

Net Interest Margin: 3.47%
Efficiency Ratio: 60.15%
NPL Ratio: .47%
NPA Ratio: .32%
Coverage Ratio: 306%
ROA:    .95%
ROE: 10.52%
ROTE:  13.31%

The capital ratios are okay as of 6/30/14:

Bought 50 FISI at $15.55 (4/17/12 Post)

Added 50 FISI at $19.8 (8/30/13 Post)-Item # 5 Sold 50 of 150+ FISI at $21.26 (10/13/13 Post)

Added 50 FISI at $18.8 (9/30/13 Post)

Closing Price Last Friday: FISI: $22.53 +0.75 (+3.44%)

S. First Bancorp (FNLC): The First Bancorp Reports reported second quarter E.P.S. of $.35 per share up from $.29 per share in the 2013 second quarter. There are no analyst estimates.

I recently bought back a small position: Bought:  50 FNLC at $15.6

Bought 50 FNLC at $12.79-Sold 52 FNLC at $15.55 (June 2012)

Closing Price Last Friday: FNLC: $16.40 0.00 (0.00%)

T. United Bancorp (UBCP): This small Ohio banks is mostly out of sight, out of mind. I did notice an unusual earnings report that I decided to just briefly mention by linking the press release: United Bancorp, Inc. Reports Quarterly Earnings up 40% ($.14 vs. $.1)

I am reinvesting the dividend and currently own 100 shares bought in the open market.

Bought 50 UBCP @ 8.13; Bought 50 UBCP at 7.99

Sold 50 UBCP at $10.05 (May 2012)-Bought 50 UBCP at $8.49 (May 2010)

Closing Price Last Friday: UBCP: $8.10 +0.18 (+2.27%)

U. First Financial (FFBC): First Financial Bancorp reported second quarter net income of $16M or $.28 per share.  The consensus E.P.S. estimate was for $.27. FFBC Analyst Estimates

Net Interest Margin: 3.7%
ROA: .99%
ROE: 9.19%

The capital ratios are good:

This bank holding company was paying out a regular and special quarterly dividend that together equalled its net income, with the last special payment made last year. When that was occurring, I reinvested the dividends. That practice started in the 2011 third quarter and ended in the 2013 third quarter. When the extra payment started, the regular dividend was $.12 per share and is now at $.15. Stock Splits & Cash Dividends | First Financial Bank

After profitably selling my highest cost shares, I currently own 139+ shares at an average cost of $14.88. Item # 4 Sold 57 FFBC at $17.03-Highest Cost Share (December 2013 Post); Item # 3 Sold 50 FFBC at $17.51 (September 2012) The current dividend yield based on that total cost number is 4.04%. 

The open market purchases-for the shares currently owned-were discussed in these posts: Item # 1 ADDED 50 FFBC at $14.87 (December 2011 Post); Added Regional Bank Basket: 30 FFBC at $14.24 December 2012); Item # 2 Added 50 FFBC at $14.65 (June 2013 Post)

Closing Price Last Friday: FFBC: $16.59 +0.23 (+1.41%)

V. Bought Back 50 UVSP at $18.8-Satellite Taxable Account (see Disclaimer): I happened to notice late Friday that this stock had fallen back into my buy range, so I placed a limit order below the then existing bid price which was filled late in the trading day. The shares continued to slide after my purchase on lower than average volume:

Closing Price 7/25/14: UVSP: $18.74 -0.47 (-2.45%)

At that closing price, the TTM P/E was about 14.37, a little high for this bank, but the P/E based on the consensus E.P.S. for 2015 was acceptable at 11.12. UVSP Key Statistics The E.P.S. estimates are generated, however, by only one analyst: UVSP Analyst Estimates The estimate from that analyst is for an E.P.S. of $1.37 this year and $1.68 in 2015.

Snapshot of Trade:

Email Confirmation-Satellite Taxable Account

I have previously sold UVSP: Bought 50 UVSP at $15.1 (March 2012 Post)-Item # 3 Sold UVSP at $20.5 (July 2013 Post)(snapshot of profit=$253.1)

When I sold those shares about one year ago at $20.5, the T.T.M. P/E was about 16.48. I was concerned about the valuation, so I decided to harvest a profit and move on to something else.

For the 2014 second quarter, Univest Corporation of Pennsylvania reported net income of $5.1M or $.31 per share, which included 2 cents per share of acquisition related costs.

As of 6/30/14, the capital ratios are okay:

The current quarterly dividend is $.2 per share. Univest Corporation of Pennsylvania (UVSP) Dividend Date & History-NASDAQ.com At that rate, the dividend yield at a total cost of $18.8 per share is about 4.25%. On the positive side, the dividend was not cut during the Near Depression period. On the negative side, the quarterly dividend was last raised from $.19 per share back in 2006. Given a payout ratio of over 60%, I would not anticipate an increase in the dividend anytime soon. Univest - Stock Splits & Dividends The last ex dividend date was on 6/9/14.

Univest currently has 31 branches. It owns the insurance broker Univest Insurance, Univest Capital Inc (corporate lease financing for business equipment and technology solutions); and Univest Investments (a full service broker and investment advisory firm).

Univest is in the process of acquiring the privately held Valley Green Bank with three offices in the Philadelphia. Univest - Mergers & Acquisitions

Valley Green Bank Branch Locations & Hours

The Valley Green branches look much better than the typical Univest branch located in rural areas near Philadelphia. The market may not like this move, given the price action since the announcement, but it at least appears to me to be a potentially positive bolt on acquisition. The Univest branches are located in rural areas near Philadelphia.

When buying a bank stock, I will drag and drop addresses of branch offices into my browser, and then click "google maps" for that address. I will take a tour of the area. The main Univest office is in a place called Souderton, PA. I did not see anything that look new in the town after driving my little google man around town. It looked like a small rural town. When the map is expanded, I can see that the branches are near the greater metropolitan Philadelphia area.

14 N Main St - Google Maps

Univest  Stock Chart (long term)

The stock broke its 50 and 200 day SMA lines-to the downside-earlier this month. (One Year Univest Stock Chart)

Closing Price Last Friday: UVSP: $18.74 -0.47 (-2.45%) 

GE, ARR, GIS, CTL & WIN, OMX/Sold 50 Cisco at $21.06/Bought 100 PBA at $29.21/Bought 50 WBSPRE at $25.1/Sold 207+ FUND at $7.28/Bought Back 1 JCP 7.95% Senior Unsecured Bond Maturing in 2017 at $95

As a housekeeping matter, I have moved the google search box to the last item in the right hand column. A few days ago, that search quit producing anything remotely close to adequate search results. The results are so bad now that I will eliminate that search option altogether soon. The results produced by the Google search box are just way, way off and frequently return "no results" when there would be a large number of hits with a properly functioning search. In short, it has become worse than worthless.

The box in the upper left hand corner is better, but inadequate in many respects including the display of relevant material.

Another way to search the blog, which produces decent results, is to use the Google Advanced Search, enter my domain address in the "site or domain" box (Stocks, Bonds & Politics) and then enter the search term.

There is a reason that I have the word verification option for the comment section. If I turned it off, I would have at least twenty comments within a few hours to examine and all of them would be spam. While I could immediately delete those that are in a foreign language, I would have to read those in English.

Big Picture Synopsis

Stocks:

Stable Vix Pattern

Vix Asset Allocation Model Explained Simply

Mark Hulbert and the Use of the VIX as a Timing Model

Short Term: Slightly Bearish

Intermediate and Long Term: Bullish

Bonds: 

Short Term: Neutral to Slightly Bearish

Intermediate Term: Bearish

Long Term: Extremely Bearish

I lowered my short term outlook for stocks based in part on the deteriorating euro-zone economies. Last week, Eurostat released updated 4th quarter GDP numbers for the European countries. eurostat..PDF GDP is currently estimated to have declined by .6% in the 4th quarter, compared to the third, or at an annualized rate of 2.3%. Importantly, GDP in Germany declined .6% from the previous quarter. Italy's GDP slid at an annualized rate of 3.7%.

I would not expect much of a recovery in Europe before the 2013 second half. The euro-zone will continue to be a drag on worldwide GDP for at least another year.

Sequestration is scheduled to activate on 3/1/13 unless Congress grants another extension. No one really knows how the market will react. Sequestration will cause job losses. There will be a significant number of job cuts in the civilian labor force connected to defense spending. (Washington Post: The sequester cuts in one graph) Since there would be a 2% cut in Medicare spending, limited to provider and insurer payments, there would also likely be significant job losses in the healthcare industry.

The Director of the CBO, Douglas Elmendorf, estimated that the sequester could result in the loss of 750,000 jobs in 2013.

On the other hand, the U.S. economy can not rely on the government spending $1+ trillion per year more than its revenues to keep it out of a recession. Many investors may react positively to the government being forced to trim spending, even though virtually everyone recognizes the sequester as an inappropriate method to use. It may be the only viable means to reduce federal spending, given the level of dysfunction however.

The increasing likelihood of sequestration is another reason for the near term stock outlook downgrade.

The main reason is just a feeling in my gut that a 5% to 10% correction is just overdue.

So far, my response to that change was a relatively small trim in stock CEF positions and the elimination of the CEF FUND, as noted below.

My next post will be the regular monthly update of the Lottery Ticket and Regional Bank Basket strategies which is published on the last Monday of each month.

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I noted in a January post that Goldman Sachs had slapped a sell rating on General Mills (own). 1/15/13 Post That downgrade caused the stock to decline from a close of $41.6 on 1/10/13 to $40.62 the next day. The stock has been on an uphill trajectory thereafter.

The market shrugged off the GS analyst after just one day, and the stock popped on very heavy volume on the day that Berkshire announced the proposed acquisition of Heinz.

In connection with the Consumer Analyst Group conference on 2/19, General Mills reaffirmed guidance for the fiscal year ending May 26, 2013 of $2.65 to $2.67 per share before certain items. The company expects high single digit E.P.S. growth for the 2014 F/Y. The consensus estimate for the 2014 F/Y was an 8% increase in E.P.S. to $2.9 per share.

************

Market Vectors launched last week an ETF that owns 25 Business Development Corporations: Market Vectors BDC Income ETF (BIZD)

Sponsor's website: Market Vectors® BDC Income ETF - BIZD- Van Eck Global

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In a interview, Rob Arnott stated that the U.S. may already be in a recession and that "mainstream stocks and bonds are expensive and vulnerable".  I did not read any cogent or persuasive reasons for his opinion. I would not regard investor sentiment to be a criteria for investment decisions.

I do own shares in a mutual fund managed by Arnott. PAUDX - PIMCO All Asset All Authority D 

*****************

I received a good pop last week in my General Electric position based on this news: GE Sells Remaining Stake in NBCUniversal Joint Venture and Related Assets to Comcast for $18.1B 

GE Position as of 2/13/13

Closing Price 2/13/13: GE: $23.39 +$0.81 (+3.59%)

My average cost per share is currently $20.04. My long term plan is to reduce my average cost per share to around $15 by selling 172 shares, bought in 2008, at over $30 (see snapshot in the introduction of Stocks, Bonds & Politics: GE 12/12/12 Post). I hope that price target can be reached in 12 to 18 months.  

***************

One of the many known hazards inherent in owning both BDCs and Mortgage REITs is the replenishment of funds through sizable new share offerings. ARMOUR Residential REIT announced last Thursday that it was selling 65M shares, plus up to 9.75M additional shares in the over-allotment option. Prospectus Needless to say, that announcement caused a downdraft in the common stock price. I recently bought 100 shares in an IRA. Bought Roth IRA 100 ARR at $6.86 & 100 BKCC at $10.38 I would generally view this kind of activity as a positive for the owners of cumulative preferred stock, and I own 50 shares of ARRPRA. Bought 150 ARR at $7.46 & Bought 50 ARRPRA at $25.50

ARR Closing Price 2/14/13: ARR: 6.70 -0.39 (-5.50%).

The stock declined another ten cents on last Friday (2/15/13). Deutsche Bank downgraded ARR to hold and reduced its price target to $6.75 from $8.3.

Armour also recently sold 5.4M shares of a cumulative preferred stock with a 7.875% coupon. That preferred stock will trade under the symbol ARRPRB. Prospectus

The company also announced preliminary results for the 4th quarter. GAAP earnings were estimated to be $.36 to $.38 per share with a book value between $7.28 to $7.3 per share. SEC Filed Press Release The company estimated that its current book value after the issuance of 5.4 million series B preferred shares would be between $6.7 to $6.76 as of 2/12/13. I believe the total value of those series B shares (5.4 million x. $25 per share) would be subtracted from the prior book value number which probably would account for most of the decline from 12/31/12.

Book value per share=Shareholder Equity minus Par Value of Preferred Stock Divided by Average Outstanding Common Stock: Equity Valuation: Book Value; Accounting Principles

Deutsche Bank noted the decline in book value in its downgrade and further stated that the recent capital raise could be "slightly accretive" assuming roughly 9 times leverage.

Bank of America/Merrill Lynch downgraded ARR from buy to hold shortly before the capital raise.

I will be keeping my position in the common and preferred stock. I start reinvesting the common's monthly dividends as my only response to date to this downdraft.

*************

CenturyLink cut its quarterly dividend 25% from $.725 per share to $.54 and authorized a new share repurchase program to buy up to $2B in stock. This announcement caused a substantial downdraft in the stock last Thursday (2/14/13): CTL: $32.27 -$9.42 (-22.60%)

The announcement also caused a severe downdraft in Windstream's stock price: WIN: $9.09 -$0.73 (-7.39%)

I bought 50 shares of WIN in the regular IRA: Item # 1 Bought 50 WIN at $8.5-Regular IRA As I have noted in that post, investors are rationally concerned that WIN will cut its generous $.25 per share quarterly dividend.

On 2/19/13, Windstream reported 4th quarter results and announced that the Board had unanimously agreed to continue its $1 per share annual dividend. I have not had an opportunity yet to review this report. I did see that UBS downgraded Windstream to sell, reducing their price target to $7.5 from $9. Zacks referred to the report as "lackluster" which is not unusual for Windstream.

While I do not own any CTL stock, I do own a trust certificate PJA that has, as its underlying security, a senior Qwest Capital bond maturing in February 2031. CTL acquired Qwest in 2011. That TC just went ex interest (2/12/13) for its semi-annual interest payment. Merrill Lynch Depositor Inc. PreferredPLUS Cl A 8% TRUCs QWS-2 for Qwest Capital Funding  (PJA) Stock Quote

I received the interest payment on 2/15/13.

The TC has a 8% coupon on a $25 par value. www.sec.gov The underlying bond has a 7.75% coupon. FINRA I currently own 150 PJA shares: Bought 50 PJA at 19.45 December 2009; Bought 50 PJA at 24.65 December 2010 Roth IRA-Sold 50 PJA at $25.4-ROTH IRA; Bought 50 of the TC PJA at 25.06 April 2011; Added 50 of the TC PJA at $24.6 November 2011

PJA has a call warrant attached to it.

*********************

The FHA reported yesterday that 130,000 homeowners refinanced their mortgages through the HARP program in November, bringing the 2012 total close to 1 million. fhfa.gov.pdf From inception through November 2012, there have been 2,088,560 refinances completed through the HARP program.

Link to November FHA Refinance Report: Nov2012RefiReport.pdf

HARP is set to expire at the end of this year.

The government reported today that single family housing starts in January rose to the highest level since July 2008. Overall, builders broke ground on 613,000 single family homes at an annual rate last month. census.gov/construction.pdf

**************

1. Sold 50 of 153+ Cisco at $21.06 (see Disclaimer): Shortly before the closing bell last Wednesday, when Cisco was scheduled to report earnings, I made a spur of the moment decision to pare my position. While this may sound a tad ridiculous, I simultaneously made the decision to substitute 50 shares of WBSPRE for those 50 Cisco shares. I do pick up almost 4% in yield with this switch. 

LB is quick to note that it had nothing to do with this silly pared trade. Maybe the Old Geezer, who is unfortunately Headkocker's Head Trader here at HQ during Stable Vix Patterns, just reacts rather than thinks, which is of course to be expected from someone way past his prime. 

This pare lowered my average cost per share slightly to $19.45. 

Prior Trades: I frequently sell some or all of my Cisco position before an earnings release, expecting more often than not a downdraft in the stock price thereafter.   

This last transaction netted a $59.57 profit:

2013 Cisco 50 Shares +$59.57

From the OG's perspective, he is not losing money trading Cisco shares, but admittedly those trades are unlikely to generate enough profits  to pay for his nursing home expenses down the road.

Similar round trip transaction have occurred in the past: Bought 50 CSCO at $22.45 (June 2010)-Sold Cisco near the closing price of $24.31 Aug. 2010); Bought CSCO at $20.39 (September 2010)-SOLD 50 CSCO @ $24.42 on 11/8/2010

I am reinvesting the dividend to buy more shares. Cisco did raise its quarterly dividend to 14 cents per share from 6 cents last year.

I have only become slightly interested in Cisco shares, starting in 2010, for the first time since the late 1990s, and my interest was perked only after the shares were pummeled from the bubble land heights reached in 1999-2000.

Recent Earnings Release: For its second fiscal quarter ending on 1/26/13, Cisco reported non-GAAP income of $2.7B or 51 cents per share on revenues of $12.098B, compared to $2.6B and 47 cents per share in the year earlier quarter. The consensus estimate was for 46 cents. SEC Filed Earnings Release (GAAP at 53 cents per share) Cash flow for the quarter was $3.3B, up from $3.1B in the 2012 fiscal second quarter.

As of 1/26/13, cash and cash equivalents totaled $46.4B. Long term debt stood at $16.254B. The debt is low cost. FINRA Information of Cisco Debt One of the higher cost issues with a 5.5% coupon matures in 2016 and is currently trading with a YTM of less than 1%. FINRA

Cisco repurchased approximately 25 million shares during the quarter at an average cost of $20.34. 

Earnings Call Transcript - Seeking Alpha

In response to the earnings release, the stock traded in a $20.51 to $21 range on 66.89+M shares, compared to the average volume of 38+M, and closed down 15 cents on 2/14/13: CSCO: 20.99 -0.15 (-0.71%)

Rationale: (1) Attempting to Manage My Small Position to Harvest Some Gains and To Lower My Average Cost Per Share Over Time: I need to do better in executing that objective. It would have been better, for example, to buy some shares when the price fell below $17 last November or, better yet, below $16 last July. CSCO Interactive Chart I failed at that simple task. If I get another chance, I will add to the position at those levels and then sell my higher cost shares on another pop to lower my average cost per share. Admittedly, this approach can be characterized as picayune, given my small lots and meager goals, but I am only comfortable playing Cisco stock in this fashion. 

Future Buys/Sells: I will be looking to buy back 50 shares at less than my average cost per share, preferably at below $19. I will certainly add 50 at below $17 unless there is some really bad news events causing the price adjustment.

If I am unable to average down, I will start to consider selling the remaining shares at $22, though my 12 to 18 month target range is closer to $25. 

2. Bought 50 WBSPRE at $25.1 (see Disclaimer): Both the RB and the LB renounce this pick and simply note for posterity that it was the Old Geezer's selection:  

Security Description: Webster Financial Corp. Dep Shs (Rep. 1/1000th 6.4% Non-Cum. Perp. Pfd. Series E) (WBS.PE) is an equity preferred stock issued by Webster Financial that pays non-cumulative, qualified dividends at 6.4% on a $25 par value. Dividends are paid quarterly. The security has no maturity date. Webster has the right to redeem this security at par value, plus accrued dividends, on or after 12/15/2017. That kind of provision gives Webster the option to refinance at a lower rate after the call option date, whereas the owner of the security has no way to stop the bleeding when interest rates rise other than to sell at a lose.

Prospectus: Prospectus Supplement

The prospectus has a typical stopper clause. Webster can not eliminate the non-cumulative preferred dividend unless it eliminates its common share dividend. (see pp.17-18). The stopper clause extends to share repurchases, with certain usual exceptions.

Webster Financial is a bank holding company who operates, through its banking subsidiary (Webster Bank), 165 branches throughout New England and Westchester County, NY.

Webster's quarterly common stock dividend was slashed from $.30 per share to just one penny in 2009 and has since been raised to $.10 per share. Webster Financial Corp. - Investor Relations - Dividend History

Prior Trades: WBSPRE is a new issue. In a somewhat inspired trade, RB bought the common shares as a lottery ticket during the Dark Period and sold the shares for a large percentage profit:

2011 WBS 50 Shares +$879.52

Buy of 50 WBS at $4.58: Lottery Ticket (March 2009)-Sold 50 WBS at $22.49 (March 2011)

Recent Earnings Release: Even though I bought the preferred stock, a review of earnings reports are relevant for the purpose of making a judgment about the continued payment of the preferred dividend.

2012 4th Quarter:
Q4 Earnings release
Net Income=$47.9M or $.52 per share vs. $.43 Q/E 12/31/2011
Net Interest Margin= 3.27%
Efficiency Ratio= 59.68%
NPL Ratio=1.62%
Coverage Ratio= 90.93%
NPA Ratio= 1.65%
Tangible Equity Ratio= 7.94%
Tier 1 Common Equity Ratio= 10.78%
Total Risk Based Capital Ratio= 13.73%
Return on Average Assets=.98%
Return on Average Shareholder Equity=9.54%
Tangible Book Value per share= $16.47

Webster repaid TARP in 2010 (page 10, 2011 Annual Report: Form 10-K)

The bank's turnaround from its mistakes made prior to the Near Depression is discussed in this 2011 article published by Barrons.

Rationale: (1) Decent Qualified Dividend Income in the Current Abnormally Low Yield Environment: The owner of a preferred stock does not have a real equity stake in the business. The preferred stock owner only has their dividend. The WBSPRE dividend yield at a total cost of $25.1 is about 6.37%, whereas the common shares yielded about 1.75% at their closing price of $22.82 on 2/13/13. It will take several years for the common shareholder to receive dividends sufficient to generate a 6.37% yield on that closing price.

WBSPRE goes ex dividend on 2/27/14. Webster Financial Corp. - Investor Relations - News Release That dividend is for $.448889 per share which includes both the 2013 first quarter and a brief period from the late 2012 IPO date. The normal quarterly dividend will be $.40 per share based on my calculation (.064% x. $25 par value=$1.6 annually and $.4 per quarter).

And, the common shareholders can have their dividend cut, which is not the case for the owners of WBSPRE. Both can have their dividends eliminated by the bank however. But if WBS hits the skids again, and reduces its common dividend to one cent per share, it has to pay the preferred dividend in full. The only way to eliminate the non-cumulative preferred dividend is to eliminate the common cash dividend altogether.

I may be wrong about the likely course of interest rates over the near or intermediate term. It is possible,  that deflation will occur once the FED ends QE. I currently anticipate that inflation will become a problem. In effect, by buying this security and a few more like it, I am betting against my forecast to a very limited degree.

Hopefully, I can exit this position with a small loss if and when it becomes apparent that my current forecast proves to be correct.  

Risks: 1. Interest Rate Risk is Huge: WBSPRE will not hold its value during a period of rising rates. Possibly, the loss in value would be lessened in such an eventuality, which will happen sooner or later, by an improving credit profile, where this security goes from a junk rating to investment grade.

2. Downside Risk Is a Zero Price with a Lack of Meaningful Upside from the Current Price: Anyone owning equity and even trust preferred stocks issued by financial institutions during the recent Near Depression does not need to be told about the downside risk. I bought trust preferred issues from Wells Fargo and Bank of America during that period in the single digits. Those securities are in effect junior bonds, senior in the capital structure to equity preferred stocks. I also bought equity preferred stocks in the single digits. Back then, I could have bought virtually every equity preferred stock at some point at less than $10. That needs to be kept in mind when buying these securities now, when they are selling near their par values.

If WBS is seized by the FDIC, WBSPRE would be a worthless security. 

3. Non-cumulative Equity Preferred Stocks Have a Tendency to be Volatile with a Downside Bias: Volatility is calm now, but give it time. These securities can hit air pockets that can make virtually any owner nauseous.  

Future Buys: I may average down by buying another 50 shares, but only when I can generate a current yield on 100 shares greater than 7%. An 8% yield would result with a 50 share buy at a total cost of $20, so I would be looking for a possible add in the $20 to $21 area only.

3. Bought 100 of Pembina Pipeline at $29.2067 (Canadian Dollar (CAD) Strategy)(see Disclaimer):

Snapshot of Trade:

The shares were bought on the NYSE using USDs. It is slightly cheaper from a commission standpoint to buy the shares in the U.S. using USDs rather than on the Toronto exchange using my CADs. I am exposed to currency risk irrespective of whether I use USDs to buy the ADR or convert my USDs into CADs in order to buy ordinary shares on the Toronto exchange.

Pembina Pipeline Corp. Stock Price (PBA:NYSE)
Pembina Pipeline Corp. (PPL:TOR)

Stocks, Bonds & Politics: International Trading and Currency Risks

Stocks, Bonds & Politics: Strong U.S. Dollar + Weak Market=Time to Start Looking Overseas

USD/CAD Currency Conversion Chart

Security Description: Pembina Pipeline is a Canadian company that owns and operates pipelines that transport crude, natural gas liquids, diluents and diluted bitumen produced in western Canada. The company also owns natural gas liquids infrastructure and logistics businesses.

The company owns about 9,500-km of pipelines, including 1500-km of oil sands and heavy oil pipelines, that transport approximately 50% of Alberta's conventional crude and 30% of Western Canada's natural gas liquids. The company has allocated more than C$600M to expand its liquids pipelines.

I am describing above only part of the Pembina's businesses. A more complete description can be found at the following sites:

Pembina Pipeline Profile Page at Reuters

Pembina Pipeline Key Developments Page at Reuters

About Pembina

Growth Projects

2011 Annual Report.pdf  For 2011, the company reported net income of C$.99 per share on revenues of C$1.676.7B, up from C$1.232B in 2010. Pembina reported adjusted cash flow of C$297.5B and paid out C$261.2B in dividends.

PBA has a three star rating from Morningstar.

The stock has performed well given the nature of the company: PBA Interactive Chart

PBA closed the acquisition of Provident Energy, formerly traded under the symbol PVX in the U.S., last April. Pembina Pipeline Corporation - Provident News Release

PBA is discussed in this Seeking Alpha article. The best report is the one from Morningstar, available to its subscribers.

Recent Earnings Report: For the 2012 third quarter, Pembina reported an E.P.S. of C$.11 cents per share, down from C$.18 in the 2011 third quarter, on revenues of $C.815.3. Adjusted cash flow from operations was C$133.2 or C$.46 per share. The company paid out C$.405 per share in dividends during the 2012 third quarter. SEC Filed News Release

‎Earnings Call Transcript - Seeking Alpha

Rational: (1) Monthly Dividend Income: The dividend yield before tax is about 5.5% at a total cost of $29.21. The Canadian Dollar strategy is premised on increasing my CAD stash primarily through dividends paid on securities bought on the Toronto exchange, and secondarily through some profits on security sales.

The stock will go ex dividend on 2/21/13 for its monthly distribution.

The current payout is C$.135 per month. www.pembina.com - Dividends

Risks: 1. Capital Appreciation is Limited at the Current Price: I would not expect more than an annualized 8% total return, before taxes, with the dividend. I would need to buy this stock in the $24 to $26 range to rationally estimate a 10% total return before taxes.

(2) Potential Competition/Potential Accidents/Capital Intensive Business

(3) Increasing Costs in Exploration in PBA's Service Area Could Limit Future Production Thereby Negatively Impacting PBA's Pipeline Returns.

Future Buys: I may buy 50 in an IRA provided I can acquire the shares at below $27.  Canada does not currently withhold its 15% tax for dividends paid into an IRA.

4. Bought Back 1 JCP 7.95% Senior Unsecured Bond Maturing on 4/1/17 at $95 (see Disclaimer): I bought this bond in my Vanguard brokerage account where my commission was $2 for this one bond purchase.

Vanguard has made significant improvements in its online brokerage, particularly in the presentation of positions and navigation.

The bond order page has more information than any other broker that I currently use, and I took a snapshot of that page for this JCP bond:

Security Description: This is a senior unsecured bond.  If JCP borrows money under its secured credit facility, those borrowings would have a superior claim to this unsecured bond in the event of a bankruptcy.

JCP recently increased it borrowing capacity under its bank facility to $2.25B with a $400M accordion feature from $1.75B. jcpenney8k JCP has not drawn on that facility.

The author of this WSJ article headlined the story about this credit facility expansion with the phrase "J C Penney Not Acting Like "Financially Healthy Company'" As noted in that article, UBS cut JCP to sell based on concerns about deteriorating earnings and cash flow distress as the company continues to plod through the CEO's "turnaround" strategy. It certainly remains to be seen whether that strategy will be successful.

Bill Ackman has not lost faith-yet.

The CEO maintains that JCP will return to growth this year: JCP's CEO CNBC Video Interview

According to FINRA, this bond is currently rated Caa1 by Moody's and B- by S & P.

FINRA Information on 2017 Bond

JCP Common Stock Chart: This chart highlights that JCP is a struggling company.

2011 Annual Report: Form 10-K The JCP properties are listed starting at page 11. As of 1/28/12, JCP had 1,102 department stores, of which 426 were owned, including 121 stores located on ground leases. The long term debt is set out at page F-18. The weighted average maturity was then 23 years.

Long Term Debt Due Before 4/1/2017:
200M 6.875% due 2015 FINRA
200M 7.65% due 2016 FINRA

Prior Trades: I have bought and sold this bond one time.

Bought 1 J.C. Penney 7.95% Senior Bond Maturing on 4/1/17 at $97.5 with commission-Sold 1 J.C. Penney 7.95% Senior Bond Maturing in 2017 at 105 (September 2012).

Rationale: (1) Income with a Possibility of Capital Appreciation: My confirmation states that the yield to maturity at my cost is 9.378%. I thought that was worth the risk of a one bond purchase only. The annualized current yield is 8.35%.

(2) Some Analysts are Optimistic: The JCP Morningstar analyst is one such optimist. Morningstar has a 5 star rating on the stock with a consider to buy price at $22.8 or less and a $38 fair value estimate.

Risks: 1. Default Risk is Growing: I suspect that JCP will have at least another tough year. If and when there is significant proof that the turnaround strategy is working, then I will hopefully be able to sell this bond at over 100 again after collecting some interest. Otherwise, I may have to sweat it out on being repaid at maturity. I am obviously concerned since I limited my purchase to just one bond purchase.

The recent JCP earnings reports have been worse than awful.

10-Q for the Q/E 10/27/12 E.P.S. of ($.56)

10-Q for the Q/E. 7/28/12 E.P.S. ($.67)

10-Q for the Q/E 4/28/12   E.P.S. ($.75)

5. Sold 207+ of the Stock CEF FUND at $7.2826 (see Disclaimer): I am in a trading mode for this stock CEF.

I am a long term holder of two other Royce closed end funds, RVT and RMT, where I have not yet sold any shares. By trading FUND, I satisfy my urge to sell something.

This is my second round trip for the Royce Focus Trust (FUND) I made a decision to harvest the profit after seeing that the total return exceeded 15% since these shares were purchased last July.

2013 FUND 207 Shares +$176.98

Part of the total return was due to a narrowing of the discount, which was close to 13% at the time of the purchase. Item # 1  Bought 200 of the Stock CEF FUND at $6.34

FUND Data on 2/15/2013 (date sold)
Net Asset Value Per Share= $7.96
Market Price = $7.31
Discount -8.17

My only other transaction occurred in 2010, when I flipped a 300 share lot:

2010 FUND 300 Shares 

RB Bought 300 of the CEF FUND at $6.22-Sold: 300 FUND @ $7.2

6. OfficeMax and Office Depot Merger: I own two senior OfficeMax bonds. Item # 1 Bought 2 OfficeMax Senior Bonds at $97.494 (January 2011); FINRA - Investor Information on 2016 bond That bond was originally issued by Boise Cascade, who acquired OfficeMax in 2003, and then changed its name to OfficeMax.

In 2004, OMX sold its forest products and timberland operations, part of the original Boise Cascade to Boise Cascade, LLC, a company created by Madison Dearborn Partners. OfficeMax received earlier this month $129M related to investment in Boise Cascade Holdings, LLC when the Boise Cascade Company (BCC) was taken public earlier this month. OMX retained a 20.4% ownership interest in Boise Cascade Holdings which owns 29.7M shares of BCC after the IPO plus another $28M or so in cash.

OMX was looking better to me as a result of that IPO.

Office Depot agreed to acquire OfficeMax in shares, whereby each OMX share will be exchanged for 2.69 shares in ODP. OfficeMax And Office Depot Announce Merger Of Equals; Bloomberg; Reuters; WSJ.com

Consolidation is necessary in this retailing sector, but it remains to be seen whether this merger will pass antitrust scrutiny. In areas near HQ, it is not unusual to see a ODP and a OMX store near one another. In Brentwood, TN, where I live, the stores are within a quarter mile of each other.  If the merger closes, one of those stores will be closed which inherently reduces competition in my geographic area. At least around here, the OfficeDepot stores are free standing, while the OMX stores are part of strip centers.

As an OMX bond owner, I would just as soon see OMX stand alone. Over time, this combination could increase profitability due to store closings and reduced competition. ODP is in my opinion the weaker of the two entities.


Politics and ETC.

1. Democrats Won the 2012 Popular Vote in House of Representative Races: In an earlier post, I discussed how gerrymandering of congressional districts skews elections in an undemocratic manner.  The republicans lost the popular vote cast in House races but won 234 districts to 201 for the Democrats. House Seats vs. Popular Vote

2. The GOP Has Found Their New Joe McCarthy: While all politicians engage in certain amount of reality creation, the modern day GOP takes it to a new level. The new republican Senator from Texas, Ted Cruz, is one of the modern day "conservatives" who believe that telling the truth or being accurate with one's statements are in no way conservative values. Needless to say, Senator Cruz is a Tea Party darling.

An article in the NYT mentions that Senator Cruz accused Chuck Hagel, a former republican senator from Nebraska and a decorated war veteran, of all kinds of possible activities including accepting money from North Korea without offering a shed of evidence in support. Trail Blazers Blog; Morning Joe Cruz of course avoided military service.

3. Eisenhower and Nixon: I read the NYT review of a new book titled "Ike and Dick" and thought that this statement by Eisenhower was priceless. During the close presidential between Nixon and Kennedy, Eisenhower was asked to name one policy position that Nixon had influenced and Ike said "give me a week, I might think of one".

4. Mississippi Finally Ratifies the 13 Amendment: After a Mississippi resident watched the new "Lincoln" movie, he started to do some research and discovered that Mississippi had never ratified that Amendment which abolished slavery. This "oversight" was just corrected as Mississippi became the last state to ratify this Amendment. CBS News

5. Judicial Foreclosures: In prior posts, I noted that foreclosures had slowed to a crawl in states that required court approval prior to a foreclosure. The Foreclosure Mess-Rewards for Failing to Pay One's Obligations A 2011 article in the NYT pointed out that it would take 62 years to foreclose on all delinquent mortgages at the then current pace, and 49 years in New Jersey. Those kind of delays encourage defaults since the homeowner continues to live in their home until the lender can successfully remove them. What happens when you stop paying your mortgage? - CBS News Possibly the record for living rent free after defaulting on a mortgage is held by a Florida resident who has successfully fought off foreclosure after defaulting on their mortgage loan in 1985. WSJ.com I have to admit that is impressive. But why is it allowed?

In these cases, it can be shown without any doubt that the homeowner borrowed money, signed a note and defaulted on the payments. Those facts are not even in dispute. The problem is frequently that the paperwork is so messed up that the lender can not prove to the satisfaction of a court that it owns the loan.

One simple law change could end abuses by homeowners who game the system after admittedly defaulting on a loan. One remedy would be to end judicial foreclosures altogether and adopt the Tennessee model for non-judicial foreclosures.

That may not be practical politically in some states that now require court approval. I would then propose the following. The Court would allow the person or entity claiming to own the loan to foreclose once it is proven by the preponderance of the evidence that the borrower signed the loan document and defaulted on the loan. At that point, the homeowner is absolved from any further liability based solely on who owns the loan, but would still be liable for any deficiency judgment.  If another person and entity claims to own the loan, their right of action would be against the person or entity who incorrectly instituted the foreclosure proceeding and would be entitled to collect attorney's fees and prejudgment interest solely against the person or entity who wrongfully asserted ownership of the mortgage. The solution to these problems and issues is relatively easy to figure out, but the will to do so is just absent in most cases.

I decided to bring this subject up again after reading an article earlier this week in USAToday that home prices have generally recovered faster in states where courts do not have to approve foreclosures.