Our preferred stocks continue to do well for us, explains Jack Adamo. Here, the editor of Insiders Plus highlights two of the current favorite preferred stock recommendations in his high-income model portfolio.
Cullen/Frost Bankers 5.375% Perpetual Preferred Series A (CFR-PA) reported earnings per common share at $1.17, slightly below the prior-year quarter figure of $1.18.
Turning to the statistic most important to preferred shareholders, the bank remained very well capitalized with a Tier 1 risk-based capital ratio of 12.61%.
Return on average assets (ROA) and return on average common equity (ROE) were 1.04% and 10.73%.
The ROA is considered good for a bank. The ROE is lower than ideal, but that is largely because the company is holding excess capital, as seen in its Tier 1 ratio. For preferred shareholders this is a big plus.
Texas Capital Bancshares 6.50% Non-Cumulative Perpetual Preferred, Series A (TCBIP) saw total loans grow 17.9% year-over-year to $15.9 billion, while total deposits surged 29.4% to $15.2 billion.
Thus, loans are almost entirely funded by deposits, a rare case in banking these days. Usually, loans are funded largely by borrowing from other sources, leaving the banks with a lower interest rate spread.
On the negative side, credit metrics deteriorated during the quarter with nonperforming assets of $109.9 million or 0.69% of the loan portfolio, compared with $38.4 million or 0.28% in the year-ago quarter.
Net charge-offs rose to $2.3 million from $0.6 million in the year-ago period. ROA and ROE were fair and equity ratios were adequate.
To our benefit was the fact that total shareholder equity increased 22.5% due to a secondary common stock offering of 2.5 million shares. All that extra equity provides a big cushion for our dividends.
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