Research will guide investors on matter of regional banks

Almost all regional bank stockholders suffered big losses in March when government agencies took over three banks teetering on bankruptcy. The regional bank market hasn't yet stabilized.

Even after last Wednesday's 7% or so pop, most regional bank shares were still down more than 25% year-to-date, regardless of their financial outlook.

The good news is not all regional banks are bankruptcy candidates. Eventually those with solid balance sheets will trade back up to pre-crisis levels.

Today, I'm going to describe my ideas for a stock screen for pinpointing the banks with the most promising outlooks. Details in a minute, but first, a few things you need to know about regional banks.

For starters, regional banks are defined by their asset size, not their market area. The Federal Reserve defines a regional bank as one with $10 billion to $100 billion in assets. Most regional banks offer typical banking services such as checking accounts, loans, and credit cards. Also, many focus on serving the banking needs of small businesses.

Screening for strongest

As usual, I'll use the free and user-friendly Finviz Stock Screener to identify financially solid regional bank prospects.

Start from the Finviz homepage (finviz.com) by selecting Screener. Finviz uses “filters” to search for stocks meeting your selection criteria. Select “All” on the Filters bar to see the available screening choices. We'll start by defining our candidate universe.

Candidate universe

Use the Industry filter to specify “Banks-Regional” and then, using the Country filter, specify “USA” to limit your list to US-based banks. Then, specify “Over 3%” for “Dividend Yield,” so that we'll get paid to wait for the banks to recover.

Finally in this category, using the Price filter, specify “Over $15” Why? Higher-priced stocks typically outperform cheap stocks.

Financially solid

We want to limit our list to profitable banks carrying minimal debt. Start by using the Return on Equity filter, which measures profitability, and specify “Over +10%” to isolate the most profitable players.

Then, specify “Under 1” for both “Debt/Equity” and “Long Term (LT) Debt/Equity” to limit our list to the lowest-debt banks.

Tap stock analysts' data

Earnings growth typically drives share prices higher. Specify “Positive (more than 0%) for forecast “EPS Growth This Year” and “EPS Growth Next Year” to limit the list to expected earnings growers.

Analysts set target prices for stocks that they're following. Finviz's “Target Price” parameter is the difference between the average of all analysts' target prices and the current stock price. In other words, expected share price appreciation. Using “Target Price,” specify “20% Above Price.”

Institutional players

Institutions such as mutual funds and hedge funds have access to information that we'll never see. Limit your list to banks that these “wiredin” players like by specifying “Over 50%” for institutional ownership.

Short interest

People short stocks that they expect to drop in price. Short Interest, which Finviz labels “Float Short,” is the percentage of shares outstanding that have been shorted. Specify “Low (Candidates

My screen turned up three banks: Bank of Marin Bancorp, dividend yield 6.5% (ticker BMRC), Popular, 4.0% yield (BPOP), and CNB Financial 4.1% yield (CCNE).

Consider these stocks to be research candidates, not a buy list. The more you know about your stocks, the better your results.

Harry Domash of Aptos publishes the Winning Investing and the Dividend Detective websites. Contact him at www.winninginvesting.com or Santa Cruz Sentinel, 318 Encinal

St., Santa Cruz, CA 95060. To see previous Domash columns, visit santacruzsentinel.com/ topic/Harry_Domash.