AROW - Bank Insider Buys Were Up March 8-10: Watch Insiders This Week (3/13)

2023-03-13 13:52:45 ET

Summary

• Last week bank stock prices plummeted ~15%. The big drop prompted me to write two grim articles.
• While dark clouds are on the bank horizon, a silver lining may be developing. Or maybe I am just looking for good cheer.
• For the first time since September 2020, 40 bank insiders bought their banks' shares on Wednesday to Friday of last week. Ten buys $100,000+. And there were hardly any sales.
• Here is a run-down of the banks showing insider buys March 8-10 as well as my headline thoughts on four of the banks of special interest to me.
• I will be closely monitoring bank insider activity this week and will report back to Seeking Alpha readers on what I find.

Background

Having written two grim articles this past Saturday, I need some good news.

Maybe I have some. Or maybe I am just looking for silver linings around dark clouds.

I pay close attention to bank insider sales and buys. My study of insider trades shows that buying patterns should be monitored.

For example, there have been two times during the past decade when insider buying got so brisk that it prompted me to act.

The first was in February 2016 when the world (once again) seemed to be coming to an end (the problem then was Brexit and oil/natural gas prices). Bank stocks got creamed. Two big buys caught my attention. The first was Jamie Dimon buying $25 million in shares of JPMorgan Chase & Co. ( JPM ) and the other being a $1 million purchase of Cullen/Frost Bankers, Inc. ( CFR ) by the retiring CEO of the bank. I saw both as clear "Buy" signals and jumped on board. I still hold shares bought then.

The second time was September 2020. Insider bank buys exploded. Those buys coincided with bank lows. How prescient were those buyers of bank stocks in September 2020? The SPDR S&P Bank ETF ( KBE ) popped a whopping 71% from 8/31/2020 to 9/30/2021. Not bad.

While any one individual bank insider share purchase or sale can be meaningless, major trends can be revealing. I want to know about bank insider confidence at this time when storm clouds seem thick.

Source and Methodology

I go to openinsider.com almost every day. The first tab I usually check is "Financials Industry/Depository Institutions." I look for two things. First, what's the big picture trend? Second, are there any really big (>$250,000) buys by highly informed insiders. As a rule of thumb, I view CFO and CEO buys as the most important to watch. History indicates that buys by CFO and CEOs, especially if material (like real skin in the game) can be a buy signal.

March 8th to 10th

Since September 2020, insider buying has been tepid and haphazard.

For the first time in more than two years I saw a meaningful pop in insider buying during the last three days of last week. The buys correspond to the 15% average decline in bank stock prices as well as the awful news from the West Coast.

The first table below shows the most recent buys for bank insiders from March 8 - 10. The second table shows bank insiders buys by just CFOs, CEO, and Board Chairs. I added buys from March 7 to this list.

Table 1: Bank Insider Buys from March 8-10

Table 2: Insider Buys by CFOs, CEOs, COBs March 7-10.

Headline Thoughts

I will keep an eye on bank insider trades this week. With the quarter coming to an end on March 31, I expect insider trades will slow as the SEC imposes blackout rules on trading when earnings announcements are imminent.

Certain trades in the tables above seem most interesting for follow-up.

First, the Raleigh, North Carolina-based First Citizens trades March 7 to 10 came after four other buys by the bank's CEO/COB and CFO in January and February. For those who know the bank, you know that the Holding family controls it. Smart people. Great CFO.

I find it intriguing that insiders at Southern California's (CVBF) are stepping up and buying shares at ~$21.50 after hitting a $28+ high last year. However, the buys are pretty small in the scheme of things. I owned the bank for several years but sold in 2018 at about the same price the bank is today. As I recall, I rotated out of CVBF because I found greater long-term value in owning Stock Yards Bancorp, Inc. ( SYBT ) shares. Readers of my recent " Finding Buffett Banks " article may recall that CVBF was among the banks I mentioned.

Also noted in the "Buffett Banks" article was First Financial headquartered in Abilene, Texas. March 10 close: $32.88. Insiders there have been buyers the past six months. I count six trades this year (price range $34.08 - $37.95) and six last October (range $36.80 - $37.99). I noticed this trend last month and started nibbling on the shares for the first time. The new CFO has significant banking experience. She is a fantastic add to a bank that is perennially one of the most profitable banks in the US. I especially like seeing the new CFO step-up three different times to buy 11,000 shares in the open market (~$400,000). For all too long I avoided FFIN shares because of nosebleed valuations. Expect to hear more from me on this one in the future.

The biggest buy comes out of SouthState Bank (SSB). I do not know this bank as well as I should. It is based in Winter Haven, FL (home of Publix Supermarket). It was known as Centerstate until it bought a South Carolina bank a few years ago and kept the bank's name. As a serial acquirer, it has not been on my radar. But after the $1 million buy, I will dig in and see what might be motivating the SSB director to make such an aggressive move. This same director acquired another $500,000 in shares in December ($78.94/share).

The last insider buy I will mention is Arrow Financial. I wrote about this small upper state New York bank in September 2021 . This low-Beta investment has not worked as planned. Share buybacks have been anemic. And until the March 10 insider buy, insiders have been frequent sellers of a small number of shares over the past six months. Late last year I began selling shares and continued to do so into last week. My current position is miniscule and will likely move to zero soon. Do not get me wrong, this is a very well-managed bank, however, its bread-and-butter loan product is auto lending. This kind of lending gets no respect today by investors. My sense is that AROW will bump along just fine, but I like holding some cash and FFIN for now instead of AROW shares.

Final Thoughts and Observations

I mentioned the "Buffett Banks" article earlier. I am currently culling through the 16 banks to identify the five I think are most worthy for investment consideration. Please know that not all of these banks are equally attractive or that all 16 share all six of the characteristics of the bank Warren Buffett owned from 1969-1980. However, all six meet his profitability criterion, or at least they have in recent history.

My current view is that bank stocks will be under considerable pressure over the next six weeks. There is just too much uncertainty. Q1 earnings calls should be spicey.

I will keep a close eye on insider activity this week. Heavy buying/selling will be a key indicator of insider sentiment.

Appreciate your comments, ideas, and suggestions.

CAVEATs

Investors need to do their own research before buying bank stocks. The data presented in this analysis is correct to the best of my judgment, but investors should do their own independent analysis to confirm.

Investors are prudent to quantify their appetite for bank risk given this sector's history for volatility. My in-house cap is 6-10% of equity holdings. The actual weighting is dependent on market conditions. In addition, I recommend investors diversify bank holdings across a minimum of ten banks. These banks should encompass different strategies/customer segments, asset classes, and geographies. As a rule, I prefer owning High Quality banks with a long history of generating returns in excess of cost of capital.

For further details see: