The First Republic Bank crisis and the possible contagion it could bring has the entire financial services industry down compared to a month ago, but this is an opportunity for investors. There is risk in the financial sector, but not all institutions are the same, and babies are getting thrown out with the bathwater. This opportunity is used by insiders in The Charles Schwab Company (NYSE: SCHW), Summit Financial Group (NASDAQ: SMMF), and TrustCo Bank Corp NY (NASDAQ: TRST) and is a signal for the market. If insiders are buying these stocks, there’s a good chance they are undervalued and will rebound smartly as the crisis fads.
The Charles Schwab Company Assets On Rise
The Charles Schwab Company got hit hard by fears that its clients would begin to pull assets out of their accounts. That fear was misplaced as Schwab reported an influx of core net-new deposits, and the analysts are taking note. The analysts are adjusting their targets but upping their sentiment, which has the stock bottoming. The analysts see about 50% upside from the current price action, which is also consistent with the insider activity.
Schwab insiders had been selling shares until the crisis broke, so why shouldn’t they? The stock was trading at all-time high levels, and they still owned 7.5% of the company. The crisis caused a near 50% decline in the price action that has been used as an entry point. Insiders, including the president, CEO, CFO, and director, have bought shares since the implosion and are also helping the market to bottom. Institutional activity has also increased, surging to the highest quarterly total in many years, bringing total ownership to 74%. Recent buyers include Rockefeller Capital Management, Voya, and B. Riley Wealth Advisors.
Summit Financial Has Yield And Value
Summit Financial is the holding company for Summit Community Bank, a small regional bank serving the greater Shenandoah Valley, including parts of Virginia, West Virginia, and Kentucky. The bank is vastly different in scope from First Republic, with little exposure to high-risk tech start-ups. Compared to other financials, it is a decent value at only 5X earnings and pays 3.8% in yield compared to 1.8% with shares of Schwab. The dividend is safe at less than 20% of the company’s earnings, and there is also a history of distribution growth.
Insiders have been buying this stock since last summer, but the activity increased following the banking crash. The insider buying in Q1 2023 is the highest in years, equal to more than the last few years combined. Total holdings are up to 13.5%, and there is some favorable news from the institutional quarter. Institutional activity didn’t surge but is bullish and supportive of the price action. Institutions own another 31% of the company and growing.
TrustCo Bank Corp NY, A Small Federal Bank With Great Yield
TrustCo is a small Federal Savings Bank with a 4.4% dividend yield. Like Summit Financial, the yield is relatively healthy, with a low 30% payout ratio and a history of dividend increases. The company doesn’t have much analyst coverage but the institutions like it. It’s 65% institutionally owned, and they have been buying the stock this year.
Regarding the insiders, TrustCo insiders have been buying since early 2022, and their activity surged in Q1 2023. Purchases are made by a wide variety of insiders and have their holdings up to nearly 3.0%. This has the stock bottoming at the $33 level, where it may begin to move up within the range. A move up to the top of the range is worth about 15%.
