Why executives are spending millions to buy their banks' stock
A significant number of bankers and directors view their companies' stock as a bargain.
Insiders at more than 50 publicly traded banks have collectively spent nearly $10 million buying stock since early October, based on data compiled by FIG Partners and S&P Global Market Intelligence.
The moves follows a period where bank stocks have been pummeled; the KBW Nasdaq Bank Index has fallen by 9% in the last three months as investors react to sluggish loan growth and rising deposit costs.
A rise in insider purchases comes at a time when many banks are also authorizing repurchase programs. Both efforts are viewed as ways to communicate to investors that management teams and boards believe stock prices are undervalued.
“I think it’s happening because the market has gone through such a swift correction,” said Tim Coffey, an analyst at FIG Partners. He said bankers have told him in recent weeks that their business outlooks have not changed.
That is the case at Cadence Bancorp., where insiders have spent more than $630,000 since early October to buy shares in the Houston company. The $11.8 billion-asset company’s stock price has fallen by nearly 30% since May 13, when it agreed to buy State Bank Financial in Atlanta.
“There just seems to be significant disconnect right now between the stock price and company’s performance without a strong negative catalyst that is driving the stock price right now, or one that appears to be looming,” said Valerie Toalson, Cadence's chief financial officer. “It’s an interesting dynamic right now.”
The purchases signal that bank officers have confidence in the company, Toalson said. Cadence has posted solid earnings results in recent quarters, and executives are optimistic about near-term growth prospects, she said.
Executives may view their own purchases, compared to a buyback program, as a faster way to shore up a sagging stock price, said Jonathan Hightower, a lawyer at Bryan Cave Leighton Paisner. Buyback programs often take more time and planning, given the need for board authorization.
“Insiders, if they are outside of their quiet periods, are able to be much more nimble than their companies,” Hightower said.
While some purchases are in response to an overall decline in bank stocks, some executives oversee banks that are under pressure because of shareholder concerns about their operations or business models.
Executives at Bank OZK in Little Rock, Ark., have bought $3.3 million worth of the $22 billion-asset company's stock since October, leading all banks tracked by FIG Partners. Bank OZK’s stock has fallen by more than 45% this year on concerns over its exposure to commercial real estate; those worries were compounded last month when the company had large charge-offs tied to a pair of CRE loans.
Bank OZK declined to comment for this story.
Other banks that have reported a surge of insider buying include Malvern Bancorp in Paoli, Pa., and BancorpSouth in Tupelo, Miss.
Three BancorpSouth executives and four directors have bought stock in recent weeks, said Dan Rollins, the $18 billion-asset bank's chairman and CEO.
"We believe the pullback in bank stocks provides a buying opportunity," Rollins said. "As with any company, our executives generally purchase stock because they believe that it is currently undervalued or they are confident it’s going to perform strongly in the future."
Malvern, which recently announced a $25 million stock offering of its stock, declined to comment for this story.
A domino effect may also be in play; executives may decide to buy their stock after observing insider purchases at other banks, Coffey said. Insider buying should continue as long as bank stocks are suppressed, he said.
The prospect of year-end bonuses also could be contributing to the recent spike in activity, said Greyson Tuck, an investment banking adviser at Gerrish Smith Tuck.
"If you see a dip and you know you're soon going to come into a significant pile of cash, why not buy low?” Tuck said. "I think that’s probably driving it a little bit.”