Economy:
February 2023 CPI: Consumer Price Index Summary - 2023 M02 Results
Annual Core CPI: 5.5%
The annual CPI through January was at 6.4%. Consumer Price Index News Release - 2023 M01 Results
The ECB lifted its benchmark rate by .5% last Thursday. ECB rate decision March meeting: Lagarde announces new 50 basis point hike; Inflation: Euro zone prices dip to 8.5% as ECB flags rate hiking not over (3/2/23 article)
ECB Statement: Monetary policy decision ("The Governing Council decided to raise the three key ECB interest rates by 50 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.50%, 3.75% and 3.00% respectively, with effect from 22 March 2023.")
Taking short term rates over 3%, when the annual inflation rate is 8.5%, will not IMO have any material impact on inflationary pressures standing alone. Where is the historical evidence that these abnormally low CB rates will cure problematic inflation? There is none. In Europe, inflation will have to fix itself.
A primary reason IMO of the recent bank failures and the ongoing problems at several other regional banks is the rapid and massive withdrawals of uninsured deposits.
The most direct way for the government to address this contagion is to insure all non-interest paying deposits, as it did in 2008-2012. FDIC: Temporary Liquidity Guarantee Program (I have not researched whether the FDIC's existing authority would allow it to restart that program. Sheila Barr, a former FDIC Chairman, believes that legislation will need to be passed and claimed there is a streamlined process for that legislation in place, Watch Bair: FDIC Bailouts Can't be on a One-Off Basis - Bloomberg)
Bloomberg reported yesterday that the Mid-Size Bank Coalition of America has asked regulators to extend FDIC insurance coverage to all deposits. Midsize U.S. banks reportedly ask the FDIC to insure all deposits for two years That letter indicates that bank runs are occurring throughout the system.
Until deposit flows stabilize, the contagion may continue to spread and take down more profitable banks with low NPL and charge off ratios.
It is clear that what the government has done so far has not contained the bank runs.
Having major banks deposit billions into uninsured accounts at one bank is not an effective to deal with the primary problem impacting most regional banks and may even increase the contagion effect.
While deposit withdrawals is clearly in a contagion phase and has not been directly addressed by the government, the conditions creating the current crop of bank failures were created by the Federal Reserve which actions included the following: (1) the creation of excessive bank deposits through an a prolonged period of QE; (2) failure to address problematic inflation until the annual CPI was at 8.5% and then raising the FF rate by .25% off ZIRP in March 2022; (3) rapidly increasing the FF rate through 2022 that caused a substantial mismatch in what banks had to pay depositors and the yields on vintage securities owned by the banks; and (4) extending a rate suppression regime for more than a decade that left banks will no alternatives for credit risk free investments other than abnormally low yielding securities and have caused massive unrealized losses in bank owned securities.
The recent turmoil in the banking industry has significantly increased the recession odds IMO. Banks will likely respond by tightening credit.
The Bond Ghouls are now predicting that the FF rate will almost certainly be below where it is now by prior to year end.
A 50 basis point hike next week is at zero percent down from 40.2% one week ago. The odds of a 25 basis point hike is at 62%.
++++
SIPC - What SIPC Protects; Your Rights Under SIPC Protection | FINRA.org ("SIPC does not protect against market risk, which is the risk inherent in a fluctuating market. It protects the value of the securities held by the broker-dealer as of the time that a SIPC trustee is appointed. Trustees are appointed through a SIPC-initiated court proceeding to supervise the liquidation of a SIPC member that is insolvent or cannot return customer cash or securities.") If a money market fund breaks the buck, the SIPC does not insure against the loss. Insurance takes effect when the brokerage firm becomes insolvent. SIPC - Investor FAQs
I suffered my first ever loss trading an investment grade corporate bond.
After SIVB's main asset, the Silicon Valley Bank, was seized by the FDIC after a bank run, I mentioned in a 3/12/23 comment that my best wild guess was that this SU bond would be priced thereafter somewhere between 30 to 40 cents on the dollar, so I dumped the position at 55.1 and was glad to get that price under the circumstances.
Loss: -$869.32
%20-$869.32%20.png){kind=small}
I did not receive accrued and unpaid interest from the seller.
When I bought this bond in July 2022, SVB Financial senior unsecured debt was rated A3 by Moody's. The company had just reported net income of $333M for the second quarter.
I also own 20 shares of a SVB Financial preferred stock (SIVBP) which is halted for trading. I anticipate a near total loss.
I do not recall another bank failure over the past 50 years where the bank had operating profits and low NPL and charge off ratios. SIVB reported a $275M 2022 4th quarter profit with a NPL ratio at .18%.
++++
Allocations Shifts Discussed in this Post:
Treasury Bill Purchases: +$5,000 in principal amount
Corporate Bonds: +$2,000 in principal amount minus $1,100 in proceeds from selling 2 SVB Financial SU bonds at 55.1.
FDIC Insured CDs: +$6,000
REIT Equity Preferred: +$57 (yield at 10.42%)
Net Inflow Individual Common Stocks: +$218.4 (hardly a vote of confidence)
(consisting of $1,042.45 in purchases minus $824.05 in proceeds)
Realized Gain Common Stocks: +$201.6
2023 Net Outflow Stocks and Stock Funds: -$34,005.73
+++
Putin and His Servile Orcs:
The International Criminal Court has issued an arrest warrant for Putin. Situation in Ukraine: ICC judges issue arrest warrants against Vladimir Vladimirovich Putin and Maria Alekseyevna Lvova-Belova | International Criminal Court
The war crime committed by Putin involves Russia kidnapping Ukrainian children, sending them to Russia for "reeducation" and Russification. Russia responded to the indictment by making it clear that it will continue kidnapping Ukrainian children. Putin Arrest Warrant Shines Light on Deportation of Ukraine’s Children - The New York Times (noting that Russia's kidnapping of Ukrainian children was so well documented that doctors at a Kherson hospital hid children from Russian troops before they deported from that city)
Besides being a state sponsor of terrorism, war crimes and crimes against humanity, Russia is a state sponsor of child trafficking and proud of it. How Russia grabs Ukrainian Children - AP News; Thousands of children forcibly deported from Ukraine and sent to Russia | CNN
There are thousands of Russians who need to be arrested and tried for war crimes and crimes against humanity. Only the Russian war criminals captured by Ukraine will probably see punishment for their crimes.
Russia destroyed a U.S. drone flying in international waters over the Black Sea. The U.S. has publicly released a video showing that the Russian pilot attacked the unmanned U.S. plane and directly caused its destruction. U.S Air Force footage shows Russian fighter jet crashing into U.S drone over Black Sea - YouTube;US releases video of Russian jet dumping fuel on its drone - ABC7 Chicago; Russia warns U.S. to stop 'hostile' flights after Black Sea drone collision The U.S. will continue to fly drones over international waters.
Russia will repeatedly violate international law and norms. The attack on a U.S. drone over international waters is just the latest example.
Russian Orcs will have captured and unarmed professional Ukrainian soldiers dig their own graves before executing them. Mother of PoW shot by Russians after declaring 'Glory to Ukraine' reveals horror of identifying son
AT A MEETING, KADYROV IS SHAKING LIKE A LEAF AND PUTIN TRIES TO HOLD ON HIS TABLE-YouTube
Russian spy network disrupted as Poland sends jets to Ukraine - YouTube
China-made Mugin-5 drone downed in eastern Ukraine | CNN
+++
Trump and His Party:
Trump has blamed Pence for the 1/6/21 attack on the Capitol. Trump claims violence he inspired on Jan. 6 was Pence’s fault - The Washington Post
Trump: "Had he sent the votes back to the legislatures, they wouldn’t have had a problem with Jan 6, so in many ways you can blame him for Jan. 6. t Had he sent them back to Pennsylvania, Georgia, Arizona, the states, I believe, number one, you would have had a different outcome. But I also believe you wouldn’t have had ‘Jan. 6’ as we call it."
If Pence had only refused to accept the certified election results from 4 states and allowed the republican controlled state legislatures in those states to decide who won the election, there would have been no republican effort to overthrow the certified election results.
Donald did not want the jury to hear the "Access Hollywood" tape during Jean Carroll's defamation trial. Judge okays use of Access Hollywood tape in Trump defamation trial - POLITICO
A federal court judge, Lewis Kaplan who was appointed by Bill Clinton, ruled that the jury can hear that tape: Access Hollywood - DocumentCloud
The court will also allow testimony from two other women, Jessica Leeds and Natasha Stoynoff, who claim that Donald sexually assaulted them.
Most, if not all, of the jurors would know about the Access Hollywood tape including the part that Ms. Carroll wants to play for the jury which is excerpted in the court's opinion.
I doubt that most of them will know about the allegations made by Leeds and Stoynoff. Their deposition testimony is cited in the opinion as well.
Donald urged his cult members to "take out nation back" in the event he indicted by a NY grand jury for some alleged crime related to his $130,000 hush money payoff to porn star Stormy Daniels shortly before the 2016 election. Michael Cohen made the payoff and was then reimbursed by the Trump Organization and the company deducted that payment as a legal expense. Trump predicts he’ll be arrested Tuesday, calls for protests This appears to be a tax fraud issue. If so, and more will be known when and if an indictment is returned, a conviction would depend on whether the prosecution has proof on Trump's knowledge of the scheme sufficient to convince a jury that he is guilty beyond a reasonable doubt. If the proof is entirely the testimony of Michael Cohen, then I doubt that any conviction will occur.
Republicans are coming to Trump's defense. So far I have not seen any statement that addresses whether they support treating a hush money payment to a porn star as a deductible legal expense. Republican lawmakers blast potential Trump indictment as ‘politically motivated,’ ‘abuse of power’ | The Hill Instead high ranking republican politicians made these statements supporting Trump:
These kind of comments reveal the low regard republican officials have for the intelligence and common sense of their party members.
Tennessee lieutenant governor, 79, comments on young gay man's racy Instagram photos; Tennessee Lt. Gov. Randy McNally (R) apologizes for commenting on suggestive Instagram photos - CBS News Just another hypocrite.
Ron DeSantis Says Protecting Ukraine Is Not a Key U.S. Interest - The New York Times Desantis (R), who is just another Trumpian demagogue, will be Putin's candidate for the republican presidential nomination. I have previously made that observation.
David Frum, President Reagan's speechwriter, agrees, and made a number of accurate comments buttressing that conclusion in an article published on 3/14/23. Is Ron DeSantis Flaming Out Already? - The Atlantic Those facts include the following statements made recently by DeSantis: (1) He defined American "vital interests" in a way that excluded both NATO and Ukraine; (2) He accepted Putin's characterization of the war as a mere "territorial dispute"; (3) He endorsed Putin's talking point that "peace" was the objective without regard to the terms of that peace; (4) He accepted Putin's argument that providing military aid to Ukraine was tantamount to direct involvement in Russia's war; (5) He suggested without evidence that Ukraine was squandering U.S. aid; (6) He bought into the talking points on Putin TV that Biden was plodding a regime change in Russia; and (7) He denounced the sanctions against Russia as futile. Putin could have written the first important foreign policy statement made by DeSantis. Republicans will vote for him in droves even though he is silent on disclosing his U.S. domestic policy positions other than his opposition to what he characterizes as wokeism.
DeSantis Thrills Tucker Carlson By Taking Pro-Russian Stance
+++
++++
1. Corporate Bonds:
A. Bought 2 Williams Partners 4.3% SU Maturing on 3/4/24 at a Total Cost of 98.816:
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Issuer: Williams Partners was acquired by Williams Cos. (WMB)
Most Recent WMB Bond Offering (early March 2023): Prospectus
SEC Filed Earnings Press Release for the Q/E 12/31/22
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings: Baa2/BBB
YTM at Total Cost: 5.553%
Current Yield at TC: 4.35%
I also own the common stock and intend during 2023 to eliminate all shares except for those the shares held in my Schwab account. Item # 2 Added 95 WMB at $24.98 and 5 at $23.8 (8/20/21 Post); Item # 3.B. Added 5 WMB at $24.2 (10/8/21 Post)
2. Small Ball Buys:
Two of the most disfavored stock sectors now are Office REITs and regional banks. I am adding to some positions in those sectors. The dollar amounts are not material.
I suspect, but do not know of course, that the selling in those sectors is overdone.
Office REIT stocks are selling at prices below the lowest prices hit in March 2020.
The lowest HPP closing price in March 2020 was $16.78 on 5/23/20. HPP has had no stock splits. HPP Split History
As for regional bank stocks, implosion is currently possible even when the bank is profitable and with historically low NPL and charge off ratios. It is a most undesirable situation for the U.S. economy.
A. Added 5 HPP at $8.3; 5 at $7.65; 5 at $7.3; 5 at $6.07:
Quote: Hudson Pacific Properties Inc. (HPP)
Last Discussed: Item #4.A. Added to HPP - Bought 5 at $9.34; 5 at $9.1; 5 at $8.95 (3/6/23 Post) I discussed the 2022 4th quarter report in that post. SEC Filed Press Release and SEC Filed Supplemental
Working my way up to 100 shares.
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
Website: Hudson Pacific Properties: A West Coast Real Estate Group
View All the HPP Properties | Hudson Pacific Properties
Redefining Studios in Los Angeles | Hudson Pacific Properties
I would describe the office properties as prime Class A.
5 Year Chart: Major Bear Trend, starting with the pandemic in March 2020
I attribute most of the 2022-2023 HPP price decline to two factors: (1) the increase in debt financing costs coupled with the level of debt and (2) the worsening demand for office space trend created primarily in the technology sector, which has been reducing staff, and the work from home trend which combine to reduce demand for space and consequently pressures rental revenue as lease terms expire.
The failure of SVB may have added to the recent angst given the location of HPP's office properties.
The turmoil in the U.S. banking industry may make it more difficult to keep or secure bank credit lines for commercial real estate companies.
Last Thursday, Wells Fargo downgraded its PT to $7 from $10 and that does not help. Wells Fargo has reduced its PT several times over the past year. The PT was lowered from $15 to $14 back in August 2022. Markets Insider
Largest 15 Tenants as of 12/31/22:
New Average Cost per share: $10.17 (95 shares)
Dividend: Quarterly at $.25 per share
Hudson Pacific Properties Declares First Quarter 2023 Dividends
I changed my dividend option to reinvestment last week.
Yield at New AC: 9.83%
Last Ex Dividend: 3/17/23 (owned 90 out of 95 as of)
B. Added 5 HPPPRC at $11.4:
Quote: Hudson Pacific Properties Inc. 4.750% Cumulative Preferred
Issuer: See Item # 2.A. above.
Investment Category: Advantages and Disadvantages of Equity REIT Cumulative Equity Preferred Stocks, part of the Equity REIT Common and Preferred Stock Basket Strategy
Last Discussed: Item # 2.G. Added 5 HPPPRC at $12.31 (1/3/22 Post)
Average cost per share: $13.45 (110 shares)
Yield at AC = 8.83%
.0475% coupon x. $25 par value = $1.1875 annual dividend per share ÷ $13.45 Total Cost = 8.83%
Last Ex Dividend: 3/17/23 (owned all as of)
Security: Prospectus
Par Value: $25 (offered at $25 in November 2021)
Placement in the Capital Structure: Equity Preferred Stock, senior only to common stock.
Maturity: Potentially perpetual unless called by issuer.
Optional Call Date: Anytime on or after 11/16/26
Stopper Clause: The Stopper Clause prevents the issuer from deferring payment of a cumulative preferred dividend while paying a cash common stock dividend or using cash to buy back common stock. The Clause enforces the preferred stock's superior claim to cash compared only to the common stock.
Dividends: Paid quarterly, cumulative and non-qualified
C. Added 5 PDM at $8.69; 5 at $7.78:
Quote: Piedmont Office Realty Trust Inc. Cl A (PDM)
Cost: $82.35
I am now up to a 100 share position which is where I previously planned to stop purchases. Given the current valuation, I will continue buying in 5 share lots provided each subsequent purchase is at the lowest price in the chain.
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
Investor Presentation March 2023.pdf
5 Year Chart: Major Bear Trend
Average Cost per share: $10.78 (100+ shares)
A 5 share purchase near the current price lowers my AC per share by about 20 cents.
Dividend: Quarterly at $.21 per share
I am reinvesting the dividend.
Yield at New AC: 7.79%
Last Ex Dividend: 2/23/23
Last Discussed: Item # 2.A. Bought 5 PDM at $9.76; 5 at $9.2 (2/27/23 Post)
Last Substantive Discussion: Item # 3.C. Added 5 PDM at $10.3 (2/20/23 Post) I discussed the 2022 4th quarter report in this post. SEC Filed Press Release
PDM does not own properties in metropolitan San Francisco or L.A. and consequently is not as impacted as HPP from technology companies downsizing their office space. Market Strategy - Piedmont Office Realty Trust
Properties by Location as of 12/31/22:
Debt as of 12/31/22:
 |
| Page F-19 Annual Report |
A $350M SU matures on 6/1/2023. I own 2.
"On January 31, 2023, Piedmont entered into an additional new $
Sell Discussions: Item # 1.A. Eliminated PDM in Schwab Account - Sold 5 at $18.71 and 34+ at $18 (12/31/21 Post)(profit snapshot = $235.88); Item # 2.H. Eliminated PDM- Sold 10 at $17.95 in Fidelity Account and 10 at $18.02 in Vanguard Taxable Account (1/7/22 Post)(profit snapshots = $128.95)
PDM Realized Gains to Date: $364.83
D. Added 5 COLB at $25.46; 5 at $21.6; 5 at $20.9:
Quote: Columbia Banking System Inc.
Cost: $339.8
Working my way slowly to 100 shares.
Investment Category: Regional Bank Basket Strategy
COLB Analyst Estimates | MarketWatch (current 2023 E.P.S. average estimate is $3.75)
Last Discussed: Item # 2.D. Eliminated COLB in Vanguard Taxable Account - Sold 15 at $31.86 (2/20/23 Post)(profit snapshot = $41.56)
Last Buy Discussion: Item # 3.B. Added 5 COLB in Vanguard Taxable Account at $27.5 (1/30/23 Post)
Recent Material News: Columbia Banking System and Umpqua Holdings Corporation Complete Merger (3/1/23); 2022 Umpqua Annual Report (page 46, owned securities)
I have in the past occasionally referenced or included snapshots of bank owned securities. This will now be a regular practice given what happened to Silicon Valley Bank.
COLB Available-for-Sale and Held-to-Maturity Securities as of 12/31/22:
"Debt securities available for sale decreased $1.32 billion from the prior year due to maturities and repayments of $770.7 million, $706.7 million in net unrealized losses, and premium amortization of $31.0 million, partially offset by purchases of $186.5 million. Debt securities held to maturity decreased by $113.5 million due to maturities and repayments of $188.4 million and premium amortization of $22.7 million, partially offset by purchases of $97.7 million." (emphasis and coloring added)
COLB does not "currently intend to sell any securities in a loss position nor does available evidence suggest it is more likely than not that management will be required to sell any securities currently in a loss position before the recovery of the amortized cost basis."
Sourced: 2022 Annual Report at page 41 The weighted average yields are better than SIVB but in need of much improvement.
Deposit Characteristics: Of the $16.711+B in deposits, $8.373+B were in non-interest bearing accounts.
Average Yields Paid for Interest Bearing Deposits as of 12/31/22:
 |
| Page 46/Average Annual Deposit Numbers |
Uninsured Deposits as of 12/31/22: $7.19B or 43.03% of year end deposits.
Included in uninsured deposits are those from Oregon, California and Washington states which are subject to various collateral requirements (p. 46 Annual Report) The total uninsured public deposits was $877.7M. California requires 110% collateral. Washington and Oregon are at 50% and 40% respectively. I would imagine those deposits are sticky since the states have collateral and accounts need to be maintained to pay bills and salaries.
Average cost per share: $28.31 (51+ shares)
Dividend: Quarterly at $.30
Yield at New AC per share: 4.24%
Last Ex Dividend: 2/3/23
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release
Comparisons are to the 2021 4th quarter.
Net income = $68.9M
E.P.S. = $.88, up from $.55
Non-GAAP E.P.S. = $.93 which excludes 5 cents per share related to acquisition expenses.
NIM: 3.64%, up from 3.05%
Efficiency Ratio: 52.29%, down from 59.57
NPL Ratio: .12%, down from .22%
Coverage Ratio (allowance for credit losses to nonaccrual loans) = 1,178.77%
Charge Off Ratio: Net recovery
ROA: 1.36%
ROE: 12.94%
ROTE: 22.3%
Tangible Book Value per share: $17.34
E. Added 5 WU at $10.55:
Quote: Western Union Co. (WU)
Cost: $52.75
WU Analyst Estimates | MarketWatch (current 2023 E.P.S. average estimate is $1.58)
New Average Cost per share: $11.89 (40 shares)
Dividend: Quarterly at $.235 per share
The Western Union Company -- Dividend History
Yield at new AC = 7.91%
Last Ex Dividend: 3/16/23 (owned all as of)
I have nothing to add to my substantive discussion contained in my last post. Item # 7.C. Started WU - Bought 10 at $12.7; 5 at $12.05; 5 at $11.82; 5 at $11.67; 5 at $11.25 (3/11/23 Post) I discussed the last earnings report in that post. SEC Filed Earnings Press Release
G. Restarted FHN -Bought 5 at $16.72; 5 at $15.9; 5 at $14.71:
Quote: First Horizon Corp. (FHN)
Cost = $236.65
FHN Analyst Estimates | MarketWatch (current average 2023 E.P.S. estimate is $2.02)
Investment Category: Regional Bank Basket Strategy
Last Discussed: Item # 1. Eliminated FHN - Sold 5 at $24.38; 20+ at $24.47; and 47+ at $24.38 (11/15/22 Post)(profit snapshots = $1,071.04); Item # 1. Pared FHN in Fidelity Account - Sold 450 at $24.33 (11/1/22 Post) (profit snapshot = $1,261.77); Item # 5.K. Pared FHN in Fidelity Taxable Account - Sold 26+ at $24.02 and Item # 5.L. Pared FHN in Schwab Account - Sold 10 at $24.15 (10/25/22 Post)(profit snapshots = $63.63)
FHN Realized Gains to Date: $2,818.19
Average cost per share: $15.78 (15 shares)
Dividend: Quarterly at $.15 per share
Yield at AC = 3.8%
Last Ex Dividend: 3/16/23 (owned 10 of 15 as of)
Part of my abnormally high earlier FHN position was an arbitrage play made in response to Toronto Dominion's $25 per share cash offer plus a kicker for a delay in closing the acquisition. TD to Expand in the Southeastern U.S. with Acquisition of First Horizon
As the price approached the buyout price, I liquidated my entire position in several trades between $24.15 and $24.47, seeing no good reason to risk my profit which proved to be the right call.
There was a regulatory delay in approving the merger which resulted in the parties mutually agreeing to extend the deadline to 5/27/23. In its Annual Report, FHN disclosed that TD would not be able to secure the necessary regulatory approvals by that date. 2022 Annual Report at page 5
The Stock Jocks have concluded that the merger will not take place and certainly will not be consummated under the terms previously agreed to by the parties. There is no other explanation for the current price. A big shock would be another extension of the deadline with no material changes in the price.
Last Earnings Report (Q/E 12/31/22): SEC Filed Earnings Press Release
Comparisons are to the 2021 4th quarter.
GAAP Net income of $258M or $.45 per share
Non-GAAP Net Income of $293M or $.51 per share
The largest adjustment to GAAP was TD acquisition related expenses.
NIM: 3.89%, up from 2.42% in the 2021 4th quarter
Adjusted Efficiency Ratio: 51.7%, down from 63.31%
NPL Ratio: .54%, up from .5%
Charge off ratio: .18%, up from .01%
Total Capital Ratio = 13.3%
Adjusted ROTE: 17%
Tangible Book Value per share: $10.23
Loan-to-Deposit Ratio (average balances): 88.73%
"Average deposits of $64.9 billion decreased $3.3 billion, or 5%. Period-end deposits of $63.5 billion decreased $2.5 billion reflecting a $2.3 billion decrease in noninterest-bearing and a $0.2 billion decrease in interest-bearing. Total deposit costs of 69 basis points increased 44 basis points with a 70 basis point increase in interest-bearing deposit costs."
Earnings millions in profits is no longer a guarantee that the bank will survive.
I look at the uninsured deposit levels and unrealized losses on FHN's owned securities, which are now more important than the usual criteria of profits, E.P.S., loan losses and charge offs, etc.
Deposits: Estimated Uninsured Deposits: $30.304B out of $63.489B
Non-Interest Paying Deposits: $23.466B or 37%
I did not see how much of the uninsured deposits were from public entities. Usually, those will have some collateral backing. FHN disclosed at page 131 that $6.5B in owned securities was pledged as collateral for public entity deposits. FHN has a significant public sector business in Tennessee which includes municipal bond sales and deposits.
Public Finance - FHN Financial I generally regard those deposits as sticky.
Owned Securities: Overall, I would characterize the risk management from owned securities as poor, but not as bad as Silicon Valley Bank:
 |
| Average Yields |
Estimated Interest Rate Sensitivity: More net interest income as rates rise.
H. Added 5 TPVG at $10.67-Schwab Account:
Quote: TriplePoint Venture Growth BDC - Externally Managed BDC
Cost: $53.35
2022 Annual Report (risk factor summary starts at page 24 and ends at page 53; summary of investments starts at page 83 and those companies are unknown to me)
Website: TriplePoint Venture Growth – Sponsored by the Global Leader In Venture Financing
While I have been eliminating duplicate stock positions, TPVG is an exception since I have residual positions in two other taxable accounts where I have sold my highest cost shares and the remaining shares have a low average cost per share. I will not be selling or adding to those positions.
Vanguard Account: 10 shares with a $4.68 AC (yield = 34.19%)
Fidelity Account: 29 shares with a $5.11 AC (yield = 31.21%)
Last Discussed: Item # 3.D. Added to TPVG: Bought 10 at $10.35 - Schwab Account (12/27/22 Post)
Average cost per share this account: $11.99 (36+ shares)
Regular Dividend: Quarterly at $.40 per share, increased from $.37 effective for the 2023 first quarter payment.
TriplePoint Venture Growth (TPVG) Dividend History | Seeking Alpha
Special Dividend: $.10 per share with an ex dividend on 12/21/22.
TriplePoint Venture Growth BDC Corp. Announces Special Distribution of $0.10 per Share
Yield at New AC This Account: 13.34% (using current regular dividend)
Last Regular Ex Dividend: 3/14/23 (owned all as of)
Net asset value per share history:
12/31/22: $11.88
12/31/21: $14.01
9/30/21: $13.92
9/30/19: $13.47
12/31/18: $13.50
9/30/18: $13.59
12/31/17: $13.25
9/30/17: $13.39
9/30/16: $13.44
9/30/15: $14.52
IPO in March 2014 at $15
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release
NII per share = $.58
Consensus at $.47 per Schwab
15.3% weighted average annualized yield on debt investments
Realized a $6.5M gain from the sale of ForgeRock Inc. (FORG) shares.
"During the fourth quarter of 2022, the Company recognized net realized losses on investments of $29.0 million, resulting primarily from $34.6 million of realized losses from the disposition of investments in Medly Health Inc. and $0.9 million of other realized losses, partially offset by $6.5 million of realized gains from the sale of publicly traded shares held in ForgeRock, Inc. During the fourth quarter of 2021, the Company recorded $1.2 million of net realized losses on investments." (emphasis and color added)
I previously discussed the Medly Health loans. (see discussion at Item # 2.J.) I found the TPVG valuation marks extremely troubling. The size of the loan ($34.39M) and Medly's swift downward spiral into bankruptcy were also troubling. The loan was valued at $31.829M as of 9/30/22. 10-Q at page 9 TPVG disclosed in a 12/12/22 filing that Medly had filed for BK. SEC Filing
Debt investments in 56 companies, warrants in 107 companies, and equity investments in 48.
TPVG Risk Assessment of Loans:
 |
| P. 63 Annual Report |
Estimated Impacts of Interest Rate Changes:
 |
| P. 75 Annual Report |
Needless to say, I am a frequent trader of this stock.
I. Added 5 BDN at $5.11; 5 at $4.65:
Quote: Brandywine Realty (BDN) - Office REIT
Cost: $48.8
Our Properties | Brandywine Realty Trust
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
Last Substantive Discussion: I discussed the last earnings report in this post: Item # 4.C. Added to BDN - Bought 10 at $5.79 (3/6/23 Post)
New Average Cost per share = $7.49 (155+ shares)
Hopefully I will live to see a profit on the shares.
Dividend: Quarterly at $.19 per share
Yield at New AC = 10.15%
Yield at $4.65 = 16.34%, strongly suggesting a consensus opinion that the dividend will be cut, but I lack that certainty.
Next Ex Dividend: 4/4/23
5 Year Chart: Major Bear Trend: The current price is far below the lowest price hit in March 2020.
J. Added 5 HTBK at $8.78:
Quote: Heritage Commerce Corp.
Cost: $43.9
HTBK Analyst Estimates | MarketWatch
Last Discussed: Item # 3.C. Added 5 HTBK at $11.88 (1/30/23 Post) I discussed the last earnings report in that post. SEC Filing I would emphasize that NIM rose to 4.1% from 2.84% in the 2021 4th quarter.
Average cost per share: $11.09 (25 shares)
Dividend: Quarterly at $.13 per share
Heritage Commerce Corp (HTBK) Dividend History | Seeking Alpha
Yield at New AC = 4.69%
Last Ex Dividend: 2/8/23
The 2022 annual report has the following details about owned securities which has become a major focus for bank stock investors since the Silicon Valley Bank collapse:
2022 Annual Report at pages 67-68
The weighted average maturity was 4.93 years as of 12/31/22. Note that $425.7M in U.S. treasuries were purchased last year with a weighted average life of 2.25 years and book yield of 3.08%.
As of 12/31/22, the net unrealized losses on owned securities was $116.913M, consisting of $16.117M in available for sale securities and $100.796M for securities classified as held to maturity:
Most of the unrealized loss was in agency backed MBS.
Another issue that has become important involves deposits. This is the deposit breakdown as of 12/31/22:
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| 40% of Deposits non-interest bearing |
Time deposits over $250K were $32.455M out of $4.289+B.
Another issue that has become important is whether net interest income goes up with interest rates or down. HTBK benefits from rising rates:
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| Annual Report at page 87 |
K. Added 5 BBDC at $7.65:
Quote: Barings BDC Inc. (BBDC) - Externally Managed BDC
Cost: $38.25
Working my way up slowly to 100 shares.
2022 Annual Report (risk summary starts at page 36 and ends at page 70)
New Average Cost per share: $9.24 (55 shares)
Dividend: $.25, last raised from $.24 effective for the 2023 first quarter payment.
Yield at new AC = 10.82%
Last Ex Dividend: 3/7/23
Last Discussed: Item # 5.A. Added to BBDC - Bought 10 at $8.68 (2/13/23 Post)
Last Earnings Report (Q/E 12/31/22): SEC Filing
Net Investment Income: $37M
NII per share: $.34
Net Realized Gains = $16.7M
Net Asset value per share: $11.05, down from $11.36 as of 12/31/21
Impact on Net Investment Income-Changes in Interest Rates:
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| Page 99 Annual Report; $1.9041B of loans are at variable rates |
Summary of Loan Terms: Starts at page F-10 Annual Report
Borrowings: Summarized at page F-92 Annual Report
Portfolio Composition:
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| Page F-80 Annual Report |
Summary of non-accrual investments:
I have discussed some of those problem loans in prior posts. My most recent discussion involved the $29.6 loan to Core Scientific which filed for bankruptcy. Bitcoin miner Core Scientific filing for bankruptcy, will keep mining
3. Small Ball Sells:
My selling pace is slowing down. Equity REIT and regional bank stocks are unlikely to be sold at currently depressed prices.
A. Eliminated JPM -Sold 4 at $133.7:
Quote: JPMorgan Chase & Co. (JPM)
Proceeds: $533.6
JPM Analyst Estimates | MarketWatch
While I am more comfortable with JPM than with BAC or C, big banks make antsy. JPM has held up relatively well during the latest regional bank stock meltdowns.
Profit Snapshot: +$143.16
Last Discussed: Item # 1.C. Started JPM as a Placeholder - Bought 1 99.88, 1 at $98.69; 1 at$97.87; 1 at $94 (10/10/2020 Post)
Dividend: Quarterly at $1 per share
The annual dividend was at $1.52 in 2008, slashed to $.53 in 2009 and slashed again to $.20 in 2010.
Last Ex Dividend: 1/5/23
Last Earnings Report (Q/E 12/31/22): SEC Filing and Supplemental
Net Income: $11B
E.P.S. = $3.57 per share
Net Income available to common shareholders = $10.6B
NPL Ratio: .68%
ROE = 16%
ROTE = 20%
Tangible Book value per share: $73.12
2022 E.P.S. = $12.09
Owned Securities -Huge Unrealized Loss as of 12/31/22
Net Unrealized Loss as a % of Amortized Cost = 7.32% (okay IMO under the circumstances)
In millions: Net Unrealized loss at $46,988 with amortized cost at $641,493
B. Eliminated HR in Schwab Account - Sold 5 at $19.09:
Proceeds: $95.45
Quote: Healthcare Realty Trust Inc. (HR)
Management: Internal
My Management Rating: C
Consisting of a F rating for failing to increase CAD per share, increased to a C rating due to the overall quality of the portfolio.
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
Most of current HR position, held in my Fidelity account, originated from owning Healthcare Trust of America (HTA), not HR.
HR acquired HTA but HTA was the company that survived, a reverse merger. After the merger was consummated, the name of the surviving company was change to Healthcare Realty and the symbol changed from HTA to HR.
Prior to the closing, HTA paid its shareholders a special dividend of $4.82 per share. I owned 50 HTA shares and received a $241 cash payment. As previously discussed, I expected all of that payment, or almost all, to be classified as ROC which would reduce my cost basis in those HTA shares.
As I have discussed many times, both HTA and HR during their separate existence failed to increase cash available for distribution (CAD) per share over a long period of time. Prior posts contain the relevant data.
Combining two entities who have proven an inability to increase CAD per share will not create one that can IMO.
I attribute the long term poor performance, measured on a CAD per share basis, to buying Medical Office Buildings at low capitalization rates, paying out almost all CAD to common shareholders, and raising capital to expand by selling shares and acquiring more debt which has become more expensive now to refinance.
Profit Snapshot: +$3.2
I am keeping the 80 shares held in my Fidelity account and will consider adding to that position until I reach 100 shares.
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| Average Cost per share = $19.46 |
The AC was reduced from $22.3 after a 2021 ROC adjustment. That large downward adjustment was made for a $4.82 per share special distribution made by Healthcare Trust of America (HTA) in 2022 (see discussion above). Properties were sold to fund that payment.
Dividend: Quarterly at $.31 per share
Yield at AC for remaining position: 6.37%
I am not likely to add this position at a price higher than $18 based on my unfavorable assessment of the first full quarter report of the combined companies.
Last Ex Dividend: 3/6/23
Last Earnings Report (Q/E 12/31/22): SEC Filing and Supplemental
"Normalized" FFO per share = $.42
FFO per share = $.35
CAD per share: $.285 (does not cover the dividend)
CAD per share calculation: CAD $109.397M ÷ $383.228M weighted average common shares outstanding.
The poor CAD dividend coverage per share is just another confirmation IMO of the historical problem that the two REITs had before combining into 1.
Occupancy:
I own 5 SU bonds.
C. Eliminated VABK in Vanguard Account - Sold 5 at $39:
Quote: Virginia National Bankshares Corp.
Proceeds: $195
Investment Category: Regional Bank Basket Strategy
Profit Snapshot: +$26
Last Discussed: Item # 2.F. Bought 5 VABK in Vanguard Taxable Account at $33.8 (12/3/2021 Post)
I am keeping the 5 share lot bought in another taxable account and will consider averaging down in that account. Item # 2.G. Bought 5 VABK at $32.6 (6/25/21 Post) This was my first purchase.
Dividend: Quarterly at $.33 per share, last raised from $.30 effective for the 2023 first quarter payment.
Virginia National Bankshares Corporation (VABK) Dividend History | Seeking Alpha
Last Ex Dividend: 3/9/23
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release I would characterize the report as solid.
Comparisons are to the 2021 4th quarter.
Net Income: $7.1M
E.P.S. = $1.32, up from $.98
NIM: 3.91%, up from 2.72%
If there was little change in NIM Y-O-Y, I would assume that the primary culprit was a widening spread between customer deposit and bank owned securities yields.
Efficiency Ratio: 51.7%, down from 57.7%
NPL Ratio: .07%
Charge Off Ratio: .03%
NPA Ratio: .08%
ROE: 22.23%
D. Eliminated MDLZ in Schwab Account - Sold 3 at $66.32:
Quote: Mondelez International Inc. Cl A (MDLZ)
MDLZ Analyst Estimates | MarketWatch
Mondelez International History: Everything Investors Need to Know | The Motley Fool
Our Brands | Mondelēz International, Inc. I characterize MDLZ as a snack company.
Valuation and the relatively low dividend yield have kept my interest at a barely measurable level.
Profit Snapshot: $26.6
I am keeping the 3 share lot held in my Fidelity account Item # 6.O. Added to MDLZ - Bought 1 at $56.05 (10/18/22 Post); Item # 2.G. Bought 2 MDLZ at $58.31 (11/5/21 Post) I will consider adding to that position when the purchase lowers my average cost per share.
Dividend: Quarterly at $.385 per share ($1.54 annually), last increased from $.35 effective for the 2022 4th quarter payment
Dividend Info | Mondelēz International, Inc.
Next Ex Dividend: 3/30/23
Yield at $66.32: 2.32%
Last Earnings Report (Q/E 12/31/22): SEC Filing
GAAP E.P.S. = $.42
Non-GAAP E.P.S. = $.73
GAAP to Non-GAAP Reconciliation:
The European commission "legal matter" accounted for 23 cents of the difference. Mondelez sets aside 300 million euro to resolve EU antitrust probe | Euronews
Revenues: $8.695B, up 13.5% "driven by Organic Net Revenue growth of 15.4 percent, and incremental sales from the company’s acquisitions of Chipita, Clif Bar and Ricolino, partially offset by unfavorable currency."
4. Treasury Auction Purchases:
I am starting to pray that the republican House members will not cause a U.S. government debt default, a potential depression causing action, by refusing to raise the debt limit. Debt ceiling: China would be among first paid under GOP debt limit plan, Yellen says; Debt Ceiling Deadline: GOP Preps for US Default, Washington Post Reports
March 2023 Treasury Yield Curve:
A. Bought 3 Treasury Bills at 3/13/23 Auction:
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91 Day Bill
Matures on 6/15/23
Interest: $36.02
Investment Rate: 4.888%
B. Bought 2 Treasury Bills at 3/15/23 Auction:
%207:18:23.png){kind=small}
119 Day Bill
Matures on 7/18/23
Interest:
Investment Rate: 4.906%
5. CD Purchase - FDIC Insured: $6,000
A. Bought 2 Schwab Bank 5.35% CDs Maturing on 3/22/24:
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Interest paid semiannually.
B. Bought 2 Connectone Bank 5.4% CDs Maturing on 3/15/24:
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Interest paid monthly.
Issuer: Operating subsidiary of the bank holding company ConnectOne Bancorp Inc. (CNOB)
CNOB Analyst Estimates | MarketWatch
SEC Filed Earnings Press Release for the 2022 4th Q.
C. Bought 1 Connectone Bank 5.3% CD Maturing on 12/18/23:
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Interest paid monthly.
D. Bought 1 Brookline Bank 5.25% CD Maturing on 6/12/24:
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Interest paid monthly.
Issuer: Operating bank owned by the holding company Brookline Bancorp Inc. (BRKL)
SEC Filed Earnings Press Release for the Q/E 12/31/22
This is the first time that I have seen this bank offer a brokered CD.
6. Third Party Pricing of Bonds:
All of the following senior unsecured bonds issued by Royal Bank of Canada are rated Aa1.
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| Fidelity Account - Third Party Prices as of 3/17/23/All rated Aa1 |
Almost invariably, the third party services used by brokerage firms price bonds below fair market value or the last trade when that information is available.
Another issue, reflected in the above snapshot, is internal inconsistency in pricing SU debt from a single issuer that have the same credit rating.
The glaring inconsistency is the pricing shown for the 5.1% SU maturing on 1/17/24.
That bond was not issued under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act that requires conversion into common stock under certain circumstances. Prospectus Filed Pursuant to Rule 424(b)(2) (424b2) Those bonds have a A1 Moody's rating. Credit Ratings - RBC
Disclaimer: I am not a financial advisor, but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sale of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals, and situational risks. I can only make that kind of assessment for myself and my family members.
