Small and regional banks have been prominent on the list of insider buying, and the trend is unlikely to change. Many bank stocks trade near long-term lows while the business is stable or stabilizing and capital returns flow. The takeaway is that three new names popped up on the radar; the question is which is the best one to buy.
Undervalued Hawthorn Bancshares Inc. Grows its Dividend
Hawthorn Bancshares (NASDAQ: HWBK) is a small-cap bank in Missouri that pays dividends and grows its distribution annually. The company has increased for eight years and is on track for a ninth in 2024. The payout ratio is reliably safe at 17% of earnings, but there is some risk for this 3.5% yield. The last earnings report included a significant loss that cut into annual results and pressured the bank's ability to pay. However, reducing underperforming loans helped clean up the balance sheet, free up future cash flow, and improve credit quality, limiting the impact.
Insiders have only bought this stock for over three years, and their activity spiked to a new high in Q1. Buyers include three directors and a senior vice president; their purchases bring insider holdings to nearly 13%. Insider activity is offset, however, by institutional selling, which also spiked in the quarter. However, institutional interest is low at 20%, so it is unlikely to impact price action significantly without an additional catalyst. No analysts are tracking this stock.
Shares of HWBK are trending lower following the Q4 release and may move lower. The market is trapped within a volatile range, with a move down to $16 possible. Because the company is at a turning point, a move below critical resistance targets is not expected but not out of the question. The bank must follow through on its moves and return to profitable growth.
High-Yield Shore Bancshares Bought By Insiders
Maryland-based Shore Bancshares (NASDAQ: SHBI) yields more than 4.0%, and insiders are buying it. Four directors made a purchase each over the last quarter, but don’t read too much into it. A filing in 2023 includes increasing the number of directors by six, which is related. Regardless, insiders have only bought this stock for years, and their activity ramped in Q1. Holdings top 11.25% of the stock, representing significant skin in the game.
Institutional holdings are also robust. The institutions own about 65% of the company and have ramped up their activity over the past few quarters. Institutional trading was net-buying in all four quarters of 2022 and 2023, which continues in Q1 2024. Activity ramped to a peak in Q4 and is strong in the first two months of 2024. Analysts, which rate the stock at Buy, view it as undervalued. They see it rising 40% at the consensus midpoint and more than 30% at the range low end.
Highlights from the Q4 report include underperformance relative to the analyst forecasts but a solid 50% top-line gain and a net profit versus loss. Deposits and loans grew, cash flow is solid, and the balance sheet is healthy.
Byline Bancorp, Lower Yield, Safer Payout
Byline Bancorp (NYSE: BY) is headquartered in Chicago. It pays a lower-than-average yield for this grouping but has the safest payout at 12% of earnings. Among the takeaways from the latest report is that the payout could grow substantially over time. The bank trades below book value, up more than 1000 basis points YOY. Insiders buying the stock include several directors, a president, and a large shareholder who collectively own 35% of the shares. Institutions are also well-represented, owning about 45%, and analysts see an upside. The single target tracked by Insidertrades.com is from Piper Sandler. It was issued on January 30 this year and forecasts a 35% upside.
