Marty Fridson — editor of Forbes/Fridson Income Securities Investor — is a well-known expert in income investing, often covering lesser-followed securities, such as these two non-cumulative, perpetual preferreds — both issued by regional banking firms.
Regions Financial Corp. (RF) is a major U.S. regional bank holding company based in Alabama. RF is one of the nation’s largest full- service providers of financial products and services based on total assets of over $150 billion.
The banking company offers consumer and commercial banking, mortgage banking, and related services, in addition to wealth management and treasury services. RF serves customers across the Southeast, Midwest, and Texas.
RF reported strong 3Q 2021 earnings results. Net income of $624.0 million, or $0.65 per share, easily exceeded analysts’ $0.52 estimates on lower credit costs. Bottom-line results benefited from the release of reserves as healthy credit quality metrics continue to hold up better than expected. Net earnings increased a sharp 24.5% from a year ago, although revenue of $1.6 billion was largely unchanged.
Non-interest expenses grew less than 5.0%. Lower loan loss provisions this year and in early 2022, reflecting the economy’s strong reopening, should continue to be a tailwind in 2022.
We are recommending the Regions Financial Corp. 4.45% Fixed Rate, Series E, Non-Cumulative Perpetual (RF-E). This 4.45% fixed rate preferred issue is callable at par plus any declared and unpaid dividends on 06/15/26 or any dividend payment date thereafter. Dividends on this preferred issue are qualified and taxed at the 15%-20% rate.
This investment is suitable for medium-risk taxable portfolios. Buy at $25.90 or lower for a 4.30% current yield and a 3.59% yield to call.
Texas Capital Bancshares, Inc. (TCBI) is a Dallas-based bank and financial holding company with $35.2 billion in total assets. It is the parent of Texas Capital Bank, NA. The company offers a range of consumer and commercial products and services, including financing for working capital, internal growth, acquisitions, and financing for business insurance premiums.
The banking company also provides medium- and long-term tax-exempt loans for municipalities and other governmental and tax-exempt entities. In addition to financing personal and corporate needs, TCBI offers wealth management, trust services, and Internet banking.
The company reported 3Q 2021 net income of $43.4 million or $0.76 per share, well short of analysts’ $1.11 estimates. Bottom-line earnings results were challenged by a $12.0 million charge, associated with the write-off of certain software assets.
Management’s action was initiated to reposition TCBI’s capitalized technology investment to be more aligned with the company’s long-term strategy. Pre-tax earnings benefited from continued improvement in credit quality, resulting in lower charge-offs and a reserve release.
We are recommending the Texas Capital Bancshares, Inc.; 5.75% Fixed Rate, Series Non-Cumulative Perpetual (TCBIO). TCBI’s 5.75% preferred issue is callable on 06/15/26 or any dividend payment date thereafter, at par plus any declared and unpaid dividends. Dividends are qualified and taxed at the 15%-20% rate.
This issue is suitable for medium-risk taxable portfolios. Buy at $26.85 or lower for a 5.35% current yield and a 3.97% yield to call.