4 Community Banks Builds Lending to Support the Housing Market

NEW YORK (TheStreet) -- Old National Bancorp (ONB), Bank of the Ozarks (OZRK), PacWest Bancorp (PACW) and Umpqua Holdings (UMPQ) are four of the many community banks that have increased lending to the real estate market including home construction.

Today's focus is on the four major categories of real estate lending as presented in the FDIC Quarterly Banking Profile for the first quarter of 2015. The four banks profiled have increased total assets significantly year over year, but have mixed performances year to date. Two have strong technical profiles, two do not. Let's take a look.

Here's a table of the FDIC data for real estate lending that shows the status of mortgage lending, nonfarm/nonresidential lending, construction and development loans and home equity loans.

 

Residential Mortgages (1- to 4-family structures) represent the mortgage loans on the books of our nation's banks. Banks increased mortgage issuance by 1.7% year over year in the first quarter to $1.86 trillion. As a sign of reluctance to increase lending significantly, mortgage loans are down 17.4% since the end of 2007.

Nonfarm/Nonresidential Real Estate Loans represent lending to construction companies and homebuilders to build office buildings, strip malls, apartment buildings and condos which has been a major focus for community banks. This category of real estate lending held up well during the Great Recession. These loans were up 4.1% in the first quarter to $1.16 trillion and are up 20.1% since the end of 2007.

Construction & Development Loans represent loans to community developers and homebuilders to finance planned communities. This was the Achilles Heel for community banks during the credit crunch. This loan exposure was a major reason that 501 banks have been closed by the FDIC failed-bank process since the end of 2007.

The recovery in this real estate loan category has been impressive. C&D loans were up 14.6% year over year in the first quarter to $246.1 billion. As an indication of continued stress, however, is that C&D loans are down 60.9% since the end of 2007.

The recent increase in C&D lending may be a warning that the housing bubble may be re-inflating. The number of community banks overexposed to C&D loans versus risk-based capital increased by 12% year over year to 335 institutions. This is also an indication that homebuilders may be building too many home on speculation. 

Home Equity Loans represents second-lien loans to homeowners who borrow against the equity of their homes. Many of these loans failed as the housing bubble popped as homeowners became underwater on their original mortgages. These loans declined 3.6% in the first quarter year over year to $483.9 billion and down 20.3% since the end of 2007.

Total Real Estate Loans sums it all up. This is the sum of the above four real estate loan categories. The total of these loans increased by 2.5% year over year in the first quarter to $3.75 trillion. However the healing process remains slow as these loans are down 15.8% since the end of 2007 when the Great Recession began.

Here are the performance measures and how to trade the four community banks.

Old National Bancorp, currently at $13.75, had a close of $13.55 on Monday, down 8.9% year to date and 5.7% above its Feb. 2 low of $12.82. This community bank has increased total assets by 25% year over year in the first quarter to $11.8 billion. The stock is below its 50-day and 200-day simple moving averages of $13.95 and $13.83, respectively, and has a negative weekly chart with shares trading below its key weekly moving average of $13.80. The 200-week simple moving average is support of $13.17.

Investors looking to buy Old National Bancorp should place a good till canceled limit order to purchase the stock if it drops to $13.41, which is a key level on technical charts until the end of this week only.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $14.88, which is a key level on technical charts until the end of June.

Bank of the Ozarks, currently at $44.32, had a close of $43.75 on Monday, up 15% year to date and 35% above its Jan. 15 low of $32.35. This community bank has increased total assets by 65% year over year in the first quarter to $8.3 billion. The stock is above its 50-day and 200-day simple moving averages of $39.92 and $35.87, respectively, and its weekly chart is positive but overbought with the stock above its key weekly moving average of $41.41. The 200-week simple moving average is the long-term uptrend at $23.97.

Investors looking to buy Bank of the Ozarks should place a good till canceled limit order to purchase the stock if it drops to $41.09, which is a key level on technical charts until the end of June.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $44.80, which is a key level on technical charts until the end of this week.

PacWest Bancorp, now at $44.85, had a close of $44.69 on Monday, down 1.7% year to date and up 8.5% since its Jan. 16 low of $41.18. This community bank has increased total assets by 153% year over year in the first quarter to $16.5 billion. The stock is between its 200-day simple moving average of $44.41 and its 50-day simple moving average of $45.89, and its weekly chart is negative with the stock below its key weekly moving average of $45.28. The 200-week simple moving average is the long-term uptrend at $32.45.

Investors looking to buy PacWest should place a good till canceled limit order to purchase the stock if it drops to $42.69, which is a key level on technical charts until the end of June.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $45.59, which is a key level on technical charts until the end of June.

Umpqua Holdings, at $17.72, had a close of $17.60 on Monday, up 3.5% year to date and is 19% above its Jan. 29 low of $17.60. This community bank has increased total assets by 94% year over year in the first quarter to $23 billion. The stock is above its 50-day and 200-day simple moving averages of $17.28 and $16.92, respectively, and its weekly chart is positive with the stock above its key weekly moving average of $17.32. The 200-week simple moving average is the long-term uptrend at $14.78.

Investors looking to buy Umpqua should place a good till canceled limit order to purchase the stock if it drops to $16.29, which is a key level on technical charts until the end of June.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $18.38, which is a key level on technical charts until the end of June.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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