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TheStreet Open House

Four Healthy Community Banks Worth Watching

NEW YORK ( TheStreet) -- Investors looking to buy community bank stocks have more than 1,100 to choose from, which means identifying the healthy banks can require a lot of research.

I've already done that heavy lifting and can help investors avoid banks that have too much exposure to commercial real estate loans.

On Thursday three healthy community banks report earnings: Lakeland Bancorp (LBAI); Bank of the Ozarks (OZRK); and Commerce Bankshares (CBSH).

On Friday morning Webster Financial (WBS) reports its quarterly results.

All four of these banks are worth watching.

Because there are so many publicly traded community banks, I will be periodically profiling them during second-quarter earnings season. The idea is to separate the healthy banks from those that have the exposures to commercial real estate loans including construction and development loans. I will also remind investors about pipeline risks that usually lead to a bank's listing on the Federal Deposit Insurance Corp.'s List of Problem Banks.

My benchmark for community banks is the America's Community Bankers Index (ABAQ), which tracks more than 400 small publicly traded FDIC-insured financial institutions.

ABAQ (164.84) has an overbought daily chart with the index above its 50-day and 200-day simple moving averages at 160.94 and 153.73, respectively.

With the technicals stretched in this way, good earnings news is factored into the share performance of community banks. I show a quarterly value level at 161.51 with an annual pivot at 166.87 and monthly risky level at 172.92. Below is risk to my annual value level at 135.62.

Chart Courtesy of Thomson Reuters

Bank failures continue in 2012, and one small nonpublic community bank bit the dust last Friday. The total for 2012 is now 32 bank failures, well below the pace of the past three years.

Since the end of 2007 when the "Great Credit Crunch" began, 446 FDIC-insured financial institutions have failed, and my prediction remains that more than 500 banks will fail before the credit crunch ends.

The FDIC's List of Problem banks fell to 773 from 813 in the first quarter of 2012, but this is still an elevated number.

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