By the numbers: When the Best Acquisition Is More of Yourself

These days buying back your own stock is becoming as popular as buying another bank.

And although the vast majority of shares bought back are by corporate giants-Coca Cola, Intel, and NationsBank Corp. to name a few-community banks have become avid investors in their own companies.

Some bank analysts say it's a good way for banks and thrifts to use capital and receive short-term earnings benefits. But others say buybacks can prevent a bank from embarking on a long-term growth or acquisition strategy.

"For institutions that are truly undervalued, it's an appropriate piece of financial engineering," said John Carusone, president of Bank Analysis Center in Hartford, Conn. "In the long run, it can be construed as an admission that you have limited growth opportunities, no better investment than your own stock."

But analyst Jeffrey L. Cohn sees it a bit differently. With community banks selling at 2.5 to 3 times book value, he said, some banks should just look in the mirror.

"Sometimes the cheapest bank you can buy is your own," said Mr. Cohn, partner of M. Kraus & Co. in Burlington, Vt.

Some 52 banks with less than $3 billion of assets announced buyback programs last year, according to SNL Securities. Eric Croson, an SNL bank analyst, said that though records aren't kept on bank and thrift buybacks, he observed that just two years ago the stock buyback was an unusual occurrence.

The value of public-company buybacks is expected to reach $200 billion this year, breaking last year's record of $176 billion.

In the first quarter public companies bought back $60 billion of stock-a third more than in the same time last year.

It's impossible to determine the dollar value of stock buybacks by banks and savings and loans, but analysts say there has been a similar rise. Over the last year especially, small newly converted mutuals have been buying back stock at a frenetic pace.

"Those not having a stock buyback are the exception, not the rule," said Robert Dixon Clore, a director at Cowen & Co., an investment firm in Albany, N.Y. "Community banks quite a bit are mirroring the large banks."

Mr. Clore said many of the smaller banks can't buy back stock because they lack the liquidity. Among those who can, he expects to see a continuation of the buyback trend this year.

"It enhances shareholder value and is being very well received by the shareholders," Mr. Clore said.

The value of buybacks is expected to grow this year largely because the banking industry is loaded with capital and looking for ways to use some up-and boost shareholder value at the same time.

"It's an opportunity for corporations and boards of directors to endorse the company themselves," said Richard J. Peterson, a spokesman for Securities Data Co. in Newark, N.J. "On the more cynical note, it allows them to juice up earnings per share. My own suspicion is it could be a combination of both."

For Jefferson Bankshares, a $2.2 billion-asset bank in Charlottesville, Va., buying back $35 million worth of stock was a way to get rid of some capital that it didn't have immediate plans for, said Donald W. Fulton, vice president of investor relations.

The bank initiated a self-tender offer, or Dutch auction, where shareholders had the chance to sell their shares at a price they determined. Mr. Fulton said the buyback plan probably increased earnings per share about 8 cents on an annualized basis.

He said the bank wasn't able to find a suitable acquisition target, so buying its own stock made sense.

"We perceive the price we would have had to pay (for another bank) in today's environment would not have been as financially attractive," Mr. Fulton said.

But he and other bankers interviewed said they've made sure that the outlay of capital won't hinder future growth.

"We would not be in favor of repurchasing so much stock that it limited the growth potential of the company," said Charles M. Johnston, chief financial officer of Commonwealth Bancorp, Norristown, Pa. "We regarded the capital we used as being truly excess capital."

Commonwealth, which fully converted from a mutual to stock institution last year, completed a buyback this year of 897,600 shares-about 5% of the $2.1 billion-asset company's outstanding shares.

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