Book Profits With These 11 Community Banks

NEW YORK (TheStreet) -- The 11 publicly traded banks profiled below are among 580 that still have one or more of the three warning flags I look for during my 'crunching of the numbers' among the data points in the Federal Deposit Insurance Corporation quarterly banking profile for the fourth quarter of 2013. The warnings flags are:

Exposures to Construction & Development Loans: Banks with C&D loans at 100% or more of total risk-based capital has an overexposure to this real estate loan category. Six of the 11 in the table have this warning flag. Among the 6,812 FDIC-insured financial institutions 294 still have overexposures to C&D loans, 50 of which are publicly traded.

Exposures to Commercial Real Estate Loans: Banks with CRE loans at 300% or more of total risk-based capital has an overexposure to this real estate loan category. Ten of the 11 in today's table have this warning flag. Among the 6,812 FDIC-insured financial institutions 1569 still have overexposures to CRE loans, 464 of which are publicly traded.

Pipeline: Banks with 80% or more of their real estate loan commitments fully-funded have this warning flag. Among the 6812 institutions, 1833 have a pipeline that are 80% or more funded of which 583 have pipelines that have 100% fully-funded. For publicly traded community banks 97 have 80% or more fully-funded, 42 at the 100% watermark. Only one in today's table has this warning flag.

Improving trends shown in the fourth-quarter 2013 FDIC Quarterly Banking Profile:

The number of banks on the FDIC's non-list of "problem" institution ended 2013 at 467 banks, down from 884 at the end of 2010. This remains elevated versus 76 at the end of 2007.

Trust me, there were many more problem banks at the end of 2007. On June 29, 2006, I wrote a RealMoney article that included a list of 50 community and regional banks on what we called The Domino List: 32 are gone, 11 were merged and I cannot find info on the other seven.

At the end of 2007 I predicted that at least 500 banks would fail before the Great Credit Crunch ended. To date the total is 493.

Key Date from the FDIC Quarterly Banking Profile:

Total Assets: At $14.72 trillion total assets are up 0.9% sequentially and up 12.9% since the end of 2007.

Residential Mortgages: Mortgages on one to four family homes fell 0.7% sequentially to $1.83 trillion on the books of our nation's banks. That's down 18.6% since the end of 2007. The decline in mortgage lending is a drag on the bigger banks as mortgage rates rise and as credit guidelines remain too tight. The rise in home prices has priced many potential buyers out of the market.

Nonfarm Nonresidential Real Estate Loans: At $1.11 trillion this portion of CRE loans is up 1.6% sequentially and up 14.6% since the end of 2007. This is a sign that banks feel safer lending to builders of office buildings, strip malls, condos and apartments, rather than single-family homes.

Construction & Development Loans: At $209.9 billion C&D loans rose by 1.9% sequentially but are down 66.6% since the end of 2007. After declining in almost every quarter, there has been a modest rise over the last two quarters. Community banks are thus beginning to be less stingy to community developers and homebuilders. This portion of CRE lending had been the Achilles heel for community banks.

Home Equity Loans: At $510.8 billion this category of real estate loans declined 1.3% sequentially despite fewer underwater primary mortgages. Home equity loans are down 15.9% since the end of 2007. Rather than offering home equity lines of credit some banks are now offering home improvement loans.

Total Real Estate Loans: At $3.66 trillion total loans are about unchanged sequentially but are down by $791.2 billion or 17.8% since the end of 2007.

Other Real Estate Owned: At $30.2 billion this category is down 5% sequentially but is still up 148.9% since the end of 2007. Banks are less willing to sell properties waiting for further increases in the value of homes and other properties they own due to foreclosures.

Notional Amount of Derivatives: At $236.1 trillion derivative exposures remain huge but slipped 2% sequentially. Despite the Great Credit Crunch and the goal to reduce risk exposures, derivatives are up 43.3% since the end of 2007. This is more of an issue for the nation's biggest banks including the four considered "too big to fail."

Deposit Insurance Fund: At $47.2 billion the DIF is up 15.8% sequentially but down 9.9% since the end of 2007. The FDIC is doing a great job in replenishing the fund through assessments from insured institutions.

Insured Deposits: At $6.01 trillion deposits are up 0.7% sequentially and up 40% since the end of 2007 as the FDIC guarantee rose to $250,000 from $100,000. This is why the FDIC is increasing DIF. Under Dodd-Frank, DIF has to be at 1.35% of insured deposits. At $6 trillion DIF would have to be $81 billion, and insured deposits are likely to increase between now and then.

Reserves for Losses: At $135.9 billion it's down 4.7% sequentially but still up 33.6% since the end of 2007. Banks have been reducing loan loss provisions, which has been a major contributor to increased revenue.

30-89 Day Past Due: At $76 billion it's up 4% sequentially which is a red flag, as this category is down 31.5% since the end of 2007.

Noncurrent Loans: At $207.1 billion this category is down 6.3% sequentially but is up 88.5% since the end of 2007. This shows that the banking system still has work to do to reduce bad loans.

Here are brief profiles of the 11 community banks you will see in the "Crunching the Numbers" table that follows:

Cardinal Financial (CFNL) ($18.36, up 2.1% YTD) is above all five key moving averages in today's table with a positive weekly chart. This southeast community bank has assets of $3.22 billion with overexposures to both C&D and CRE loans.

Meridian Interstate Bancorp (EBSB) ($27.25, up 20.7% YTD) is above all five key moving averages in today's table with a positive but overbought weekly chart. This savings & loan has assets of $2.68 billion with an overexposure in CRE loans.

Eagle Bancorp (EGBN) ($36.25, up 18.3% YTD) is above all five key moving averages in the table with a positive but overbought weekly chart. This northeast community bank has assets of $3.76 billion with overexposures to both C&D and CRE loans.

Home Bancshares (HOMB) ($34.60, down 7.4% YTD) is above all five key moving averages in the table with a positive weekly chart. This southeast community bank has assets of $6.83 billion with overexposures to both C&D and CRE loans.

Investors Bancorp (ISBC) ($27.04, up 5.7% YTD) is above all five key moving averages in the table with a positive but overbought weekly chart. This savings & loan has assets of $15.58 billion with an overexposure to CRE loans.

Old Line Bankshares (OLBK) ($17.60, up 21.4% YTD) is above all five key moving averages in the table with a neutral weekly chart as the 12x3x3 weekly slow stochastic is declining. This northeast community bank has assets of $1.16 billion with an overexposure to CRE loans.

Bank of the Ozarks (OZRK) ($67.38, up 19.1% YTD) is above all five key moving averages in today's table with a positive but overbought weekly chart. This southeast community bank has assets of $4.78 billion with overexposures to both C&D and CRE loans.

Signature Bank (SBNY) ($128.22, up 19.4% YTD) is above all five key moving averages in today's table with a positive but overbought weekly chart. This northeast community bank has assets of $22.38 billion with an overexposure to CRE loans.

Texas Capital Bancshares (TCBI) ($64.74, up 4.1% YTD) is above all five key moving averages in today's table with a positive weekly chart. This southwest community bank has assets of $11.71 billion with overexposures to both C&D and CRE loans.

Viewpoint Financial (VPFG) ($25.71, down 6.3% YTD) is above all five key moving averages in today's table with a positive weekly chart. This southwest community bank has assets of $3.52 billion with overexposures to both C&D and CRE loans, and has real estate loan commitments 87.5% funded.

Wilshire Bancorp (WIBC) ($10.93, unchanged YTD) is above all five key moving averages in today's table with a positive weekly chart. This community bank is located out west and has assets of $3.62 billion with an overexposure to CRE loans.

Crunching the Numbers with Richard Suttmeier

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.

Interpretations: (stocks below a moving average listed in Red are below that moving average)

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three to five year horizon. (Even Apple declined to its 200-week SMA in June 2013.)

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six to 12 month horizon. (Even Apple tested or crossed its 200-day SMA in nine of the last 10 years.)

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

At the time of publication the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at ValuEngine.com.

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