Members of senior management or a board of directors may sell shares of their own company for many reasons -- perhaps they are making a big purchase such as a house or paying for a child's college education. But typically, these insiders are only buying shares when they have confidence in the stock, especially right now when the future for banks is so uncertain.
Here are four banks that each have a market cap of over $200 million and multiple insiders who bought shares in August. Let's investigate whether you should, too.
Live Oak Bancshares
Insiders at Live Oak Bancshares (NASDAQ:LOB), an $8.2 billion asset bank based in North Carolina, have been buying up shares of the company since the pandemic sent most bank stocks tumbling in March. Most recently, Live Oak CEO James Mahan III purchased more than 233,000 shares at prices ranging from $18.89 to $20.62. He now owns almost 6.5 million shares, and the stock is already trading over $23 per share. No officers have sold shares since 2018.
Buy/Sell: As I wrote recently, I am a big fan of this stock right now, and would recommend investors follow insiders and buy shares. The largest lender of U.S. Small Business Administration (SBA) loans in 2019, Live Oak benefited tremendously from the Paycheck Protection Program (PPP), which lent hundreds of billions of dollars to struggling businesses through the SBA and banks.
Live Oak originated more than $1.7 billion in PPP loans and collected roughly $62 million in fees. Most of those fees will be recognized as interest income in the fourth quarter of this year and the first quarter of 2021, so I expect there are some good quarters ahead for the bank.
First Merchants Corp.
First Merchants (NASDAQ:FRME) is the second-largest state-chartered bank in Indiana, approaching $14 billion in assets. On Aug. 12, President and CEO Michael Rechin purchased $15,000 shares for $27.14 per share. That same day, CFO and COO Mark Hardwick purchased 9,500 shares; Chief Banking Officer Michael Stewart purchased 9,200 shares; and Chief Credit Officer John Martin purchased 7,500 shares. Several other executives purchased shares, too.
Buy/Sell: I don't follow this bank too closely, but it looks like it has a lot going for it right now, so I would recommend a buy. Currently trading at about $25.40 per share, it's down about 38% on the year.
It's coming off a solid second quarter, where it turned a profit of roughly $33 million, down about 20% from the second quarter of 2019. Despite the decline in profits, it's still generating a solid return on assets and a return on average tangible common equity. The bank has also managed to drop its efficiency ratio, a measure of its expenses as a percentage of revenue (lower is better), to about 48%, which is very strong by industry standards. In July, Piper Sandler gave the bank an "overweight" rating, Keefe, Bruyette & Woods placed an "outperform" on it, and Raymond James gave it a "market perform" rating.
WesBanco (NASDAQ:WSBC) is a $16.8 billion asset bank based in West Virginia. On Aug. 4, President and CEO Todd Clossin purchased 4,000 shares of preferred stock at $25 per share. Throughout the month, other members of the board of directors purchased preferred shares or common stock as well.
Buy/Sell: It has been a difficult couple of quarters for WesBanco, whose profit through the first six months of the year has declined nearly 74% from the first six months of 2019. Loan deferrals have started to trend better from more than 17% of the total loan portfolio after the second quarter of the year to about 10.7% in early August.
But WesBanco has set aside lots of cash for future potential loan losses and its total allowance for loan losses still only makes up about 1.52% of total loans. So I'm not sold on this bank yet.
Boston Private Financial Holdings
Boston Private Financial Holdings (NASDAQ:BPFH) is a $9.1 billion asset bank that focuses heavily on the wealth management space. A number of directors purchased shares of the company in August.
Buy/Sell: The company is having a tough year. In the second quarter, the bank took a nearly $3.3 million loss, compared to a $19 million profit in the second quarter of 2019. The bank also recently slashed its quarterly dividend by 50%. Assets under management at the bank, at just under $16 billion, are also down about 2% year over year.
Prior to the pandemic, the bank set an ambitious goal to reach $50 billion in assets under management in its wealth management division by 2022. Obviously, the pandemic hasn't made things any easier, but it really didn't seem like the bank was making enough progress toward this goal even before the pandemic.
While the stock is trading cheaply right now, I think there is a valid reason for this and therefore would avoid this company right now.
CORRECTION: The original version of this report misstated how many Live Oak shares are owned by CEO James Mahan III.