I'm not so sure FHN is a good example. A good rule of thumb is that any bank with C&D loans >20% is not a safe bank stock (I doubt they had this much for the tech crash etc). Unfortunately it seems like all the real estate fintech guys are jumping into C&D lending. I sure hope it isn't a train wreck.
Where does 6% come from? But I agree with your conclusion about lower grade notes. I don't see much incentive to invest in them.
I gotta admit I was totally unaware of C&D Loans>20% implies unsafe bank stock thesis. FHN imploded most recently because it ventured into national mortgage lending during the housing boom. Afterward, Fannie and Freddie crammed their stupidly underwritten mortgage loans back down FHN's throat a little at a time so as not to bankrupt the company over the past 7 or 8 years. Anyway, if you have an example of a safe bank stock or two over the span of circa 1992 to date I'd really like to know. I'd seriously consider investing.
Lived in and around FHN's target market, off and on, for years, and never invested, though they do still send me $200 bribe offers every few weeks to open a checking account or a "competitive" (~0.04%) MMA. I think they're losing marketshare to RF and STI... There are a number of reasons for that, one of which is lack of decent technology, but another is that Republicans swept into local government in a lot of the major metropolitan areas in the South in which FHN operates - and those guys are cutting finance costs, shopping around, and, in general, dismantling the monopoly/municipal deals that FHN enjoyed for decades during Democrat administrations.
Purely on price, FHN is really expensive at the moment, ~25% moreso than most "peers". I'd have sold it, too, if I had owned any. On the other hand, they just took a big chunk of Tri-State Bank, which historically served an almost exclusively African-American population, so, maybe FHN is about to start rolling out a big marketing push for the lower (fee-rich) socio-economic end of the their regional market, which they have traditionally totally ignored for deposit activities but for whom they were very happy to write mortgages, as you noted.
Anyway, if you want to play "bank picking", start a thread, I'll play. I've been doing it awhile now already as prep for the next ~8 years.