Stock buybacks by local banks sitting on excess cash have accelerated in recent months as financial institutions attempt to boost their share price and build investor appetite.
The repurchase programs follow several interest rate hikes in the past two years that have pinched profits for banks and changed the lending landscape. Financial stocks were also particularly hard hit during the market downturn at the end of 2018, and some banks consider their stock to be undervalued as a result.
“There definitely have been more repurchases over the last nine to 12 months,” said David Chiaverini, banking analyst with Los Angeles-based Wedbush Securities. “If stocks stay depressed, you may see a continuation of repurchases or fewer if stocks rise.”
Chinatown-based Cathay General Bancorp, parent of the $17.1 billion-in-asset Cathay Bank, is one of the latest major local banks to announce a share repurchase program.
Cathay announced May 7 that it planned to repurchase up to $50 million of the company’s stock after it completed a previous repurchase program last week for $45 million. That program was first announced in October.
Cathay’s decision to repurchase nearly $100 million in stock since October is among the larger buyback initiatives that have been announced by banks in recent months.
Other banks announcing share repurchase programs included Beverly Hills-based PacWest Bancorp, parent of the $26.3 billion-in-asset Pacific Western Bank; Koreatown-based Pacific City Financial Corp., parent of the $1.7 billion-in-asset Pacific City Bank; Hanmi Financial Corp., parent of the $5.6 billion-in-asset Hanmi Bank; and downtown-based OP Bancorp, parent of the $1 billion-in-asset Open Bank.
Some analysts see the repurchase trend continuing into the second quarter, particularly if stock prices remain depressed.
“We believe there could be additional opportunities for several companies to remain active on the buyback coming out of (the 2019 first quarter) earnings season, especially in light of building capital ratios and stock prices that remain well below peak levels,” said Christopher McGratty, banking analyst with Keefe Bruyette & Woods Inc. in New York.
Share buyback programs aren’t a cure-all for bank stocks, however, and local financial institutions have seen mixed results since announcing their recent repurchase plans.
PacWest, which began a stock buyback initiative early last year, has seen its stock fluctuate despite the program. In the first nine months of 2018, the bank spent $306 million to repurchase 5.9 million shares at $52 per share. As financial stocks dropped in the fourth quarter of last year — and with an attempted acquisition of El Dorado Savings Bank in full swing — PacWest paused buybacks. After the El Dorado deal fell through, the bank began repurchasing shares again in the first quarter, announcing in February plans to repurchase another 4.1 million shares. The new stock buyback program authorizes the repurchase of $225 million in stock by next February.
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