Marty Fridson is a leading expert in a wide variety of income oriented securites, ranging from stocks and bonds to convertibles and preferreds. In his Forbes/Fridson Income Securities Investor, he reviews two preferred plays in the regional banking sector.
First Citizens BancShares, Inc. (FCNCA) is a regional bank holding company, based in Raleigh, NC, offering retail and commercial banking services. It operates in 18 states and the District of Columbia.
The company announced in October 2020 that it had entered a definitive agreement to merge with CIT Group, Inc. (CIT), the parent company of CIT Bank, N.A., based in Pasadena, California. Although the terms of the transaction call for an all-stock merger of equals, FCNCA will be the legal surviving entity.
The merger is expected to broaden the scope of the combined companies’ commercial lines of business, while creating the nation’s 19th largest bank, based on total assets of over $100 billion. The transaction is expected to close during the first half of 2021.
FCNCA reported 3Q 2020 net income of $142.7 million or $14.03 per share, in line with analysts’ estimates. Net income increased 14.3% from a year earlier.
Loan and deposit growth were solid, but low interest rates contributed to margin pressure. The banking company’s credit quality has been a key strength and its risk profile is conservative.
First Citizens Bancshares Non Cumulative Perpetual Preferred Shares Series A (FCNCP) is fixed at 5.375%, and callable on 03/15/25 or any dividend payment date thereafter.
This investment is suitable for medium-risk taxable portfolios. Dividends are qualified and taxed at the 15%-20% rate. Buy at $27.00 or below for a 4.98% current yield and 3.31% yield to call.
Truist Financial Corp. (TFC) is a large regional bank holding company that was created as a result of the merger between BB&T Corp. and SunTrust Banks, Inc. that closed in late 2019.
The all-stock transaction was valued at approximately $66 billion, creating the sixth largest U.S. bank holding company with $324 billion in total deposits. The banking company is based in Charlotte, NC, with a geographic footprint throughout the Mid-Atlantic and Southeast regions.
TFC reported adjusted 4Q 2020 net income of $1.6 billion or $1.18 per share, easily outpacing analysts’ $0.99 estimates. Results benefited from higher fee-based income, a significant decline in the provision for credit losses, and a modest reserve release as credit quality risks have ebbed.
Truist Financial Corp.; 4.75% Fixed Rate Series R (TFC-R) has an annual cash dividend of $1.1875. Dividends on this preferred investment are qualified and taxed at the 15%-20% rate.
This fixed-rate preferred is callable on 09/01/25, or on any dividend payment date thereafter. This preferred investment is suitable for low- to medium-risk taxable portfolios. Buy at $26.75 or below for a current yield of 4.44% and 3.12% yield to call.