Insiders at regional banks have been aggressively buying their companies' shares in recent months, a possible precursor to a new wave of mergers.
Last year, insider buying was prevalent among the larger regionals and superregionals that were more active in the record-breaking consolidation deals.
But by the end of 1995, and so far this year, insider buying has been more concentrated among banks with $1 billion to $5 billion of assets.
Companies like Keystone Financial Inc., Bancorpsouth, Whitney Holding Corp., Valley National Corp., Amcore Financial Inc., and UMB Financial have all seen sizable insider share purchases during the past few months. Many of them took place at prices near the issues' 52-week highs.
"Insiders usually buy shares when they are cheap," said Robert Gabele, president of CDA/Investnet, a Fort Lauderdale, Fla.-based company that tracks insider trading data. Buying at the highs "makes me think that consolidation is at least part of the reason."
Mr. Gabele cautioned that the bank executives are not necessarily buying because takeovers are imminent. But he said the bankers must be aware that their companies are considered takeover targets.
Last year was a record for banking industry mergers and acquisitions, but much of the activity involved larger banks. In fact, there were 140 fewer deals in 1995 than 1994, but three times the volume in deal value.
As the big banks rationalize the previous year's purchases, there should be more deals among the smaller players in 1996, said Emmett Daly, an investment banker with Keefe, Bruyette & Woods Inc.
Another reason for the insider buying is the flow of deposits and assets from larger banks into smaller banks, Mr. Daly said.
"Smaller banks are seeing a tremendous inflow of deposits, and consumer and industrial loans from large banks that have merged," he said. Small banks should benefit from this trend, he said, arguing that the insider buying reflects the expectation of enhanced profitability in 1996 among smaller banks.
One midsize bank with heavy insider buying is Keystone Financial of Harrisburg, Pa. Between mid-November and mid-December, six insiders bought 19,222 shares for $319,598. These figures include option-related sales.
The $4.8 billion-asset bank's president, Carl L. Campbell, exercised an option on 5,600 shares on Dec. 27, and kept them. Most insiders sell some of the shares they buy when exercising options to help pay for the transaction.
The transaction was even more bullish in Mr. Campbell's case because the options were "nonqualified," which means he will have to pay taxes on the paper profit in his next tax filing.
That Mr. Campbell exercised nonqualified options, and then did not cash them right away, is an extremely bullish sign for the bank, Mr. Gabele said.
Commonly, options are "incentive stock options," and taxes are only paid when the stock is sold - and then only if at the time of the sale there is a profit from the option price.
Mr. Campbell exercised his option at $14.30, when the stock was trading at $30. He must pay a capital gains tax on each share's $15.50 paper profit, regardless of whether the stock actually falls in value later or is lower at the time he sells the shares.
At Bancorpsouth, a $3 billion-asset bank in Tupelo, Miss., four insiders bought 20,696 shares between October and late December for nearly $450,000. Hassell Franklin, a director, bought 10,000 shares on Dec. 19 for $222,500.
"The South is the sector showing the strongest signals of all the regional banks," Mr. Gabele said.
Other southern banks that have seen high levels of insider buying include Trustmark Corp., in Jackson Miss., and Whitney Holding in New Orleans.
Insiders at One Valley Bancorp. of West Virginia also were enthusiastic buyers.
Edward H. Maier, a director, increased his holdings 73% on Dec. 19, spending $134,534 to buy 4,220 shares.
At $5.5 billion-asset UMB Financial in Kansas City, Mo., chief executive R. Crosby Kemper purchased 23,300 shares in three transactions in mid- to late December.
At Amcore Financial, a $2.3 billion-asset bank in Rockford, Ill., three insiders exercised options on 30,100 shares, selling none. Vice president Robert J. Meuleman exercised an option on 17,600 shares between Dec. 19 and Dec. 22.
In Wayne, N.J., Valley National chairman and chief executive Gerald Lipkin exercised an option on 7,092 shares, disposing of only 424 by gift, between Dec. 8 and Jan. 2.
Not all bank insiders were extremely bullish on their fortunes. Mr. Gabele identified Chicago-based Northern Trust Corp. and Golden West Financial Corp. as bearish in their stock transactions.
At California-based Golden West, insiders exercised options on 152,725 shares in December, and sold 84,918 of them. Chief executive Herbert M. Sandler exercised an option on 127,300 shares between Dec. 19 and Dec. 21 and disposed of 73,668 shares as gifts.
At Northern Trust, vice president James J. Mitchell sold 3,500 shares, or 5% of his holdings, for $189,455 on Dec. 11.