Bank on These Preferreds

11/13/2015 9:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

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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