I have been watching the earnings releases this past week as I always suspected we would see write-offs increase–previous earnings were always highly suspect to me–i.e. too good to be true.
Now we are seeing some items come home to roost–not necessary threatening to their existence, but certainly meaningful.
A few of the smaller banks that have preferreds outstanding and have released earnings are below.
Midland States State Bancorp (MSBI) which has a 7.75% fixed rate reset perpetual preferred (MSBIP) outstanding reported a $55 million net loss. This banks has some really troubling loan portfolios and took sizable write-offs. Seems to me that with the sizable write-offs that the banker was not being totally upfront in previous reporting. Preferred shares are selling off this morning
Dime Community Bank (DCOM) announced earning which were in the green, BUT just barely at $22 million–virtually nothing for a $13 billion asset bank. The bank had charges for ‘repositioning’ their investment portfolio. Repositioning is now the term being used by all the banks that screwed up by holding low, low coupon investments which were massively hit in the interest rate runup. Many of these banks are selling the low coupons for losses and buying current market rate securities.
Customers Bancorp (CUBI) also remained in the green–with a net income of $23 million–again a tiny profit for a $22 billion in assets bank. CUBI has 2 fixed to floating preferreds outstanding which are paying coupons in the 9-10% area.
OceanFirst and Valley National also reported–and like most bankers earnings are not stellar–but their reports don’t set off alarms.
All of the bankers have their hands full in trying to navigate the current interest rate environment and sometimes rocky reports can create some bargains. (MBSIP) is off 75 cents this morning which may be ‘on sale’ depending on how you view prospects moving forward.
“The bank had charges for ‘repositioning’ their investment portfolio. Repositioning is now the term being used by all the banks that screwed up by holding low, low coupon investments which were massively hit in the interest rate runup.”
Yah, sometimes it’s better to take a beating now than endure the slow drip back to par. To me this is a statement of confidence not defeat.
I own a boatload of DCOMP around $16.
Somewhat orthogonal, but everyone needs a debit card from this bank, and the 4.65% ain’t bad. No, that’s not a real fly on your screen. I found out trying to swat it.
https://redneck.bank/
WAFD dropped on earnings, adding to the growing loss. It’s now 23% below the Nov. high. CY on WAFDP is 7.1%
Thanks R2S I’m going to go over the report. 4th QTR things are slowing down Y/Y down but not negative. Banks are a good indication of things slowing down in the economy. It’s not just the higher rates they have to contend with.
The market must not be listening to you today Tim. CUBI jumped up around $8.00 (15%) a share today. The market must like the earning release.
We are coming up on ex-dividend date for the preferred. With rates still high, the floating rate based off SOFR is pretty good.
I understand the CEO is pretty smart, but still. At one point I owned over 2,500 shares in several accounts but I sold most off as it became sure the fed’s would cut rates. Currently I hold 500 shares in only one account.
A bank that appears to be performing well is the Bank of the Ozarks. They have OZKAP 4.625% preferred that is currently yielding 6.7%. Qtr-4 profit was $178 mil. Provisions for credit losses more than covers their actual losses. Non-performing loans of 0.44%. The bank does have high exposure to CRE.
I hold a 1/4 position in my wife’s conservative retirement account and thinking about increasing the position. They recently increased their common dividend.
Have owned and added to their preferred many times. One of the things I like about a preferred is when the common stock (here OZK) has long history of steady or, better yet, increasing dividends. Look at the dividend history for OZK
https://www.buyupside.com/dividendcharts/dividendchartdisplayav.php?symbol=ozk&interval=allyears&submit=Display+Charts
Note-if the common pay a dividend the preferred by statute must pay its preferred distribution. Anyhow if there was simply a buy-sell thread on site I would have posted before, but yup I like OZKAP too. Think once upon a time I posted at length about it on Fidelity Community Forum. Moreover its already fat distribution is eligible for the 15% tax rate so for me its tax equivalent yield is over 7.5% at the current market price.
Tacitus I think the words Commercial real estate loans have scared investors. I have NOT read their 10k or listened to their investor conference calls, but I seem to remember they work with development and construction loans. These are short term loans a lot of times 6 months or less that are re-paid at end of construction and the bank rolls the money over into new loans. The worst that can happen like in the GFC is the bank ends up with the property that could be worth less than originally appraised.
This is similar to another bank WAFD
I read Bk OZK has some of the highest CRE loan portfolios as% of capital….. of all banks
Tacitus, picked up some OZKAP during the Mar 2023 banking crisis for $15. Still a holder. Have also owned the common shares from time to time. Bank is a serial dividend raiser and has been a terrific investment.
Pig same with WAFDP bought in around 14.00 to 15.00
Very timely article. I was just trying to figure out why MSBI tanked. I only own 56 shares of this preferred MSBIP because I never bothered to fill the position out. There were other better things to buy. Now I need to see if it is worth adding or letting them go. Based on reading your link this appears to be a kitchen sink quarter. Rip the bandaid off and report all the losses in a single report?