Share buybacks are not the sole province of large banking companies, as several smaller banks and thrifts are proving.
Liberty Bancorp, MBT Financial Corp., and Pittsburgh Financial Corp. added themselves to the list of companies that are taking advantage of buybacks, which reduce the number of shares outstanding and lift earnings per share and return on equity. Liberty Bancorp of Avenel, N.J., said last week that its board approved the repurchase of up to 148,067 shares, or 10% of outstanding stock. And MBT Financial Corp., the holding company for Monroe Bank and Trust, based in Monroe, Mich., announced plans to buy back up to 2 million shares of its common stock, also about 10%, over a two-year period beginning Jan. 1.
Pittsburgh Financial Corp. said Friday that its board of directors had authorized the repurchase of up to 84,875, or about 5% of outstanding common stock.
They join a lineup of other financial institutions that announced share buyback plans in the fourth quarter.
American Financial Holdings Inc. of New Britain, Conn., said at the end of November that it would buy back 1.4 million shares, or 5% of its outstanding stock, while Hemlock Federal Financial Corp. of Oak Forest, Ill., said that it would repurchase up to 10% of its total shares outstanding.
In October, BB&T Corp. in Winston-Salem, N.C., said that it would repurchase 20 million shares of common stock to help fund acquisitions. Bank of Granite Corp. of Granite Falls, N.C., announced that it would buy back $5 million worth of shares of its common stock.
In September, North Fork Bancorp in Melville, N.Y., said that it would repurchase 17 million shares.
Buybacks are certainly not new. They are often initiated when a company believes its stock price is too low as was the case with Pittsburgh Financial. Buybacks are also often used in conjunction with other capital management strategies, such as raising or lowering dividend payments.
Pittsburgh Financial said in a press release that it was buying back shares because the current trading price of our stock does not adequately reflect the companys value.
Four of the companies to recently announce buybacks are thrifts: Liberty, American Financial, Hemlock Federal, and Pittsburgh Financial. Despite widely held concerns about asset quality erosion, the ratio of equity to assets among thrifts is 11%, higher than the 6% threshold that is considered adequate, said Laurie H. Hunsicker, an analyst at Friedman, Billings, Ramsey. With the excess cash on hand, she said, capital management is one of the important issues facing thrifts.
The buyback is really one of the best capital management tools out there, Ms. Hunsicker said. The only risk for thrifts and it is a minor one is that bondholders and rating agencies might not look favorably on a move that shrinks the shares outstanding too much, she said.
Financial stocks edged up Friday in pre-holiday trading. On word of the buyback plans, Pittsburgh Financial Corp. rose 50 cents, or 7%, to close at $8, as MBT Financial lost ground, ending the day down 37.5 cents, or 3%, at $13.125. Liberty Bancorp stock rose 6.25 cents, or 0.7%, to close at $8.75.
The American Banker index of the top 50 banks rose 1.3%, while the index of the top 225 banks rose 3%. The Dow Jones industrial average rose 1.4%.