Once again, I’m not surprised by the latest trend among banking executives. Over the last few weeks, I’m seeing more and more chief financial officers buying their company’s stock with their own money. The deals are adding up, and this is a very bullish sign for these institutions. The question is whether investors are willing to be patient enough to ride the extraordinary trend in the banking space.
Let’s look at who is buying their own stock… and more importantly… why.
The Banking Trend for the Decade Ahead
This isn’t going to be a popular way to make a lot of money fast. But if you’re patient enough, you can certainly find a small fortune playing banking’s biggest trend. Over the last 30 years, banks have consolidated at a pace of roughly 3% to 5% per year.
The ongoing pace of mergers and acquisitions have not slowed down. In fact, deal-making in the space has picked up thanks to the ongoing waves of capital poured into the financial system by the U.S. central bank over the last decade.
The United States had roughly 15,000 banks in the 1980s. Today, that figure sits right around 4,500 banks. Keep in mind that Canada, by comparison, has just six banks. Yes, a lot of consolidation is in the banking industry’s future.
Now remember, banks buy other banks typically to increase their deposits. Given that deposits are the lifeblood of their available money to loan, they can only increase their deposits in one of two ways.
First, they can experience a population boost near their banking centers. For example, I live in Florida, where populations continue to increase. In Southwestern Florida, new residents are bringing their money to these local banks and depositing them.
Meanwhile, I used to live in Chicago, where the population is decreasing. People are moving out of Chicago due to high taxes, crime, and other economic and social issues. With populations departing, banks must buy other banks to increase their capital at hand.
CFOs Buying into the Banks
One of the reasons why I explore insider buying among CFOs is very simple. The CFOs know the balance sheet better than any other person. If they are buying up the stock, they might believe that the market has undervalued it or it is possible that a future catalyst might turbocharge the stock in the future.
Over the last few weeks, we’ve seen CFOs at various banks buying into the stocks over the last week.
On July 29, Nicolet Bankshares (NASDAQ:NCBS) CFO Hubert Moore purchased $510,630 in company stock.
On July 28, NBT Bancorp (NASDAQ:NBTB) CFO Scott Kingsley bought $200,019 in company stock.
And Capstar Financial Holdings (NASDAQ:CSTR) CFO Denis Duncan loaded up on $168,000 in company stock on July 27.
South State Corp. (NASDQ:SSB) CFO Dennis Reilly bought $54,145 in the bank’s stock on July 26.
That’s a lot of buying in a week for such a narrow category of stocks. Three of these banks fit in the community banking category, while South State is a bit larger but not one the scale of any large regional bank.
We’ll continue to monitor this trend. It appears that smaller banks anticipate a series of catalysts that could include rising interest rates, increased consumer borrowing due to the end of public assistance and lending programs, or changes in demographics and public policy.
I’m staying long on this trend. I advise you to do the same.