"Preferred" Picks Among Regional Banks

Money, Profit, Finance, Business, Return, Yield

Marty Fridson, a leading expert on a wide variety of fixed-income securities, looks at two recommended preferred securities issued by regional banks.

BancorpSouth Bank (BXS) is a small regional bank holding company with total assets of approximately $25.0 billion as of 12/31/20.

The company is based in Tupelo, Mississippi and has retail and middle-market operations in Alabama, Arkansas, Florida, Illinois, Louisiana, Mississippi, Missouri, Tennessee, and Texas. In 2020, BXS acquired Texas First Bancshares, Inc. with total assets of almost $400 million.

The dividend rate on the BancorpSouth Bank 5.50% Fixed Rate Non-Cumulative Perpetual Preferred Shares (BXS-A) is callable on 11/20/24 or anytime thereafter, at par plus any declared dividends.

This preferred security is rated non-investment grade. However, BXS has implied senior debt ratings of Baa1/BBB+, based on the company’s subordinated debt ratings of Baa2/BBB by Moody’s and S&P, respectively.

The banking company reported 1Q 2021 net income of $79.2 million or $0.77 per share, beating analysts’ $0.65 estimates. Earnings results were driven by higher net interest income on stronger loan growth and fee-based mortgage revenue.

The company’s revenue and earnings momentum was also paced by strong credit quality and improved operating efficiency.

The BancorpSouth Bank 5.50% preferred is suitable for medium-risk taxable portfolios. Dividends are qualified and taxed at the 15%-20% rate. Buy up to $27.10 for a current yield of 5.07% and a 3.01% yield to call.

Washington Federal, Inc. (WAFD) also known as WaFd Bank, is a regional bank holding company based in Seattle, Washington with more than $19.0 billion in total assets.

The company’s banking operations are spread across eight western and mountain states, as well as Texas, with more than 230 branch office locations.

WAFD provides traditional retail and commercial banking services, including home loan, corporate real estate financing, small businesses lending, and retirement services.

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