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Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com. ValuEngine is a fundamentally-based quant research firm in Princeton, NJ. ValuEngine

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Marc h 12, 2010 – Non-cur rent Loans Plague Comm unit y and Regional Banks  

I am back in Land O’ Lakes, Florida after a week on the road. I gave luncheon and dinnerpresentations in Wilmington, North Carolina on March 4th, celebrated my granddaughter’ssecond birthday in New Jersey, and made several media appearances in New York on Mondayand Tuesday. The bottom line is that the housing market and banking system are not out of thewoods, and strength in community and regional banks is a selling opportunity for those withSELL and STRONG SELL ratings. Market wise, I predict Dow 8,500 before Dow 11,500.

When you can travel from midtown Manhattan to Santee South Carolina in eleven hours theeconomy is slow. Truck traffic does not match the rush to buy truckers in the stock market. Americansare not on the road as motels seemed to be 50% full at best. Isn’t March the month for those Floridafamily vacations? Even heavy rain from Santee to Land O’ Lakes Florida on Thursday did not deter justa six and three quarter hour trek.

From my perspective the US economy will have a difficult time in sustaining economic growth with jobcreation from small businesses on Main Street USA. State and local government budget cuts are atleast cutting employee hours if not shedding jobs all together. More Americans are working less thantwenty hours a week, which enables them to get at partial unemployment. This is one statistic that’stough to track in the weekly Initial Jobless Claims, which remains well above the Recessionary 350,000level. In the monthly employment data workers are considered employed even if they worked only onehour during the survey week.

President Obama promised that “shovel ready” jobs would be funded, but where are they? Jobs onMain Street have depended upon construction, and that part of the economy lost 64,000 jobs inFebruary. Small businesses either don’t want to borrow due to economic uncertainties, and those thatwant a loan can’t get one as more than half of the community banks of America have a growing

problem with non-current loans with loans outstanding more than 80% disbursed versus loancommitments. Yet Wall Street is willing to speculate that some of the community banks are buys as TheAmerica’s Community Bankers’ Index (ABAQ) is up 10.6% year to date. I bet that as these banksrise in price insiders will be selling, as they did during the ban on shorting in 2008.

The Regional Bankers Index (BKX) is up a whopping 19.2% year to date, as investors rush to buythose “too big to fail” banks; Bank of America, which rates a HOLD, Citigroup, which was upgraded to aBUY before this week’s price spike, JP Morgan is an overvalued BUY and Wells Fargo has been aSTRONG BUY. I worry about these ratings as they are based upon typical financial data filings,ignoring the bulging toxic loans that the Congressional Oversight Panel is worried about. These bankshave been huge creators of those $213 trillion in notional amount of derivative contacts.

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Since “The Great Credit Crunch” began at the end of 2007, there have been many trading opportunityfor the Community and Regional Banks, and this one is not yet overbought. Note that the 38.2%Fibonacci Retracement of the decline from February 2007 comes in at $57.

Chart Courtesy of Thomson / Reuters

Noncur r en t loans c on t inue to r i se at a fas te r pace t han

Reser ves for Losses.

Reserves for Losses increased $7.0 billion in the fourth quarter, while Noncurrent Loansincreased $24.3 billion. Year over year reserves are up 30.8% while noncurrent loans are up 67.5%.This continues to put significant stress on the banking system and extends “The Great Credit Crunch”into 2012 / 2013.

Q3 2009 Q4 2009 $ Change%

Change % YOY

Total assets 13,246,624,000 13,109,456,000 -137,168,000 -1.0% -5.3%

Reserve for Losses 220,499,000 227,480,000 6,981,000 3.2% 30.8%

30-89 Day Past Due 142,617,000 140,430,000 -2,187,000 -1.5% -11.9%

Noncurrent Loans 366,991,000 391,310,000 24,319,000 6.6% 67.5%

Other real estate owned 37,143,000 41,357,000 4,214,000 11.3% 55.1%

Courtesy of the FDIC

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Dow 8,500 Before 11,500 – The 61.8% Fibonacci Retracement is 11,263.

Chart Courtesy of Thomson / Reuters

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That’s today’s Four in Four. Have a great day.

Check out the latest Main Street versus Wall Street on Forex TV Live each day at 1:30 PM. The next broadcast is Monday, March 8, 2010.

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Richard SuttmeierChief Market Strategistwww.ValuEngine.com (800) 381-5576

As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. Ihave daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as

well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as theValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sampleissues of my research.

“I Hold No Positions in the Stocks I Cover.”