Southside Bancshares’ stock price has been declining for the past month, and with a rebound hardly guaranteed, the Tyler, Texas, company has decided that now is a good time to buy back its shares.
Loan growth at the $6.1 billion-asset company has been sluggish at best and higher deposit costs have caused its net interest margin to shrink. Unsure if loan demand will recover enough to juice its stock price, Southside on Oct. 25 approved a plan to
It was a wise decision, said Brad Milsaps, an analyst at Sandler O’Neill.
“Loan growth hasn’t been as strong as they’d hoped,” Milsaps said. “They’re looking at what their capital needs are and they’ve got some ability to buy back, so they said, ‘Let’s see if we can pick up some shares while they’re under pressure.' "
An increasing number of banks are concluding likewise. Through Oct. 30, a total of 86 publicly traded banking companies approved new stock repurchase plans, according to Capital Performance Group. That is nearly twice as many banks that initiated buyback plans in all of 2017, and with two months left to go in the year, the number is sure to rise. (Southside did not return calls seeking comment.)
To be certain, the entire stock market has taken a pounding in recent weeks, with the banking sector has especially taking it on the chin. The KBW Bank Index has declined by 7% since Oct. 1 while the American Bankers Association Nasdaq Community Bank Index has dropped 8% in the same period.
The
Deposit costs are likely to continue increasing as the Federal Reserve raises interest rates. And on the policy front, bankers fret about the long-term impact of the trade war with China and the prospect of Democrats winning control of the House of Representatives and potentially thwarting the Trump administration’s efforts to roll back regulations.
Thus, there’s not much hope for a turnaround in the short term, but the buyback plans indicate that banking executives have faith that their share prices will climb as the headwinds subside, said Brady Gailey, an analyst at Keefe, Bruyette & Woods.
“Banks’ results are still good and most banks these days have excess capital, so they’re being aggressive in buying back stock,” Gailey said.
When a company repurchases its stock and reduces the number of shares outstanding, that improves earnings accretion for the remaining shareholders, Gailey said. That’s why investors are eager for buybacks.
“A buyback certainly sends a message to the market that management is willing to support the stock,” Gailey said.
In October, new repurchase plans were approved by several regional and community banks, many of which have seen sharp declines in the value of their stocks this year. These include the $5.5 billion-asset Hanmi Financial in Los Angeles; the $4.2 billion-asset First of Long Island in Glen Head, N.Y.; and the $11.5 billion-asset Pacific Premier Bancorp in Irvine, Calif.
Through the close of the market Tuesday, Pacific Premier’s stock has dropped by nearly 28% this year, to $29.10 a share.
“We believe that the current market price of Pacific Premier’s common stock does not accurately reflect our franchise value,” Chairman and CEO Steven Gardner said in an Oct. 26 press release announcing the company’s plan to buy back as much as $100 million worth of its common stock. “Our strong capital levels and solid operating results provide us the flexibility to repurchase shares, which we believe is an efficient way to deploy excess capital.”
Gardner did not return a call seeking additional comment.
Many large and regional banks also approved repurchase plans on June 28, after
Some banks that have previously announced buyback programs but haven’t completed them are now facing pressure from investors to speed up the process, especially while their shares are depressed.
One example is the $13.8 billion-asset Hilltop Holdings in Dallas, the parent of PlainsCapital Bank. During an Oct. 26 conference call, Gailey asked co-CEO Jeremy Ford about his plans for repurchasing shares under an already approved plan. Hilltop’s stock, which closed at $19.88 a share on Tuesday, are down nearly 22% year to date.
“We didn’t see any buybacks in the third quarter,” Gailey said. “You look at your stock at one times tangible book value and I’ve got to imagine you all will be aggressive this quarter on the buyback front.”
Ford responded that the company’s share price is top of mind for the management team.
“We’re obviously very cognizant of where we’re trading,” Ford said. “We’re actually considering, given the sell-off, what we want to do for the quarter as far as share repurchases.”
