FDIC Red Cards Regional Banks

California, Georgia and Florida have the heaviest concentration of banks above the 100% and 300% thresholds.

With the help of Jack Phelps, regional manager of the FDIC Division of Insurance & Research in Atlanta, I've built a spreadsheet of loan ratios for 82 publicly traded banks for which ValuEngine has enough financial data to calculate a fair value and provide a rating. Of the 82, 29 had ratios at the end of 2005 that were above the 100% threshold for CD loans, and 42 exceeded the 300% threshold for CRE loans.

When real estate last peaked in the late 1980s, more than 20% of community banks exceeded the 100% CD loan-capital ratio in some states, and a banking crisis ensued. Current underwriting guidance makes a repeat of this breakdown less likely, but nonetheless, my advice is to book long-term profits now while share prices are on the rise.

Most of the companies in the sector are small caps and micro caps -- liquidity could become an issue on share-price weakness. The stocks in the table below are just a sampling of the community banks that have ratio red flags.

All these stocks have positive weekly chart profiles, with Citizens First (CTZN Quote), PFF Bancorp (PFB Quote), Sterling Financial (STSA Quote) and Willow Grove (WGBC Quote) showing overbought momentum.

Community Banks

Company / Symbol

State

CD Loans

CRE Loans

27-Apr Price

Rating

(-UV) /OV By

Fair Value

MOM

5-Week MMA

Value Levels

Pivots

Risky Levels

Banner Corp. (BANR:Nasdaq)

WA

278%

559%

$37.44

HOLD

46.70%

$25.52

RM

$33.55

33.03 M

33.94 Q

none

Citizens First (CTZN:Nasdaq)

MI

102%

300%

$31.65

HOLD

54.50%

$20.49

OB

$28.52

24.58 Q

27.22 M

none

First South (FSBK:Nasdaq)

NC

399%

659%

$40.88

BUY

13.10%

$36.14

RM

$37.51

37.79 S

39.65 S

none

IndyMac Banc (NDE:NYSE)

CA

162%

162%

$48.10

BUY

20.90%

$39.77

RM

$41.17

39.11 S

44.16 Q

none

PFF Bancorp (PFB:NYSE)

CA

244%

457%

$34.06

BUY

3.90%

$32.77

OB

$33.27

32.67 M

33.86 Q

none

Sterling Financial (STSA:Nasdaq)

WA

197%

501%

$31.14

HOLD

22.80%

$25.36

OB

$28.85

27.80 S

28.99 S

32.47 S

Willow Grove (WGBC:Nasdaq)

PA

107%

421%

$17.80

HOLD

12.40%

$15.84

OB

$17.38

15.28 Q

15.80 M

22.71 S

Source: Global Market Consultants Key: OB, overbought; DM, declining momentum; RM, rising momentum; OS, oversold; M, monthly; Q, quarterly; S, semiannual; A, annual. A value level is a price at which my models project that buyers will emerge; a risky level is a price at which investors are likely to reduce holdings, according to my models. A pivot is a value or risky level that has been breached in its particular time horizon; the stock will likely trade around this pivot.

Due to liquidity issues, I don't recommend using sell stops, as those orders could get triggered well away from your desired price level. All seven of these stocks have traded to new highs since April 20 with three setting new highs Friday: Banner ( BANR Quote), Citizens First and Sterling.

Do you own a regional bank? If readers email me the names of their regional or community bank holdings, I will respond with profiles. It would help if you describe the housing market within the region you live.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider all of the issues discussed in this article to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.