NEW YORK ( TheStreet) The FDIC Quarterly Banking Profile for the third quarter of 2013 continues to show that community banks remain overexposed to real estate loans. Many publicly traded community banks are trading near multi-year highs and, given data from the FDIC, ValuEngine, chart patterns and my proprietary analytics, it's time to book profits.
Two of the top 10 components of the 108 represented in the First Trust Nasdaq ABA Community Bank (QABA - Get Report) index fund include Commerce Bank Shares (CBSH) and Zions Bancorp (ZION), which are also in the regional bank index.
The number of banks on the FDIC's "Problem List" declined to 515 in the third quarter from 553 in the second quarter and is now 40% below the high of 888 set at the end of the first quarter of 2011. The number of problem banks remains well above the 76 reported in the fourth quarter of 2007.
The number of FDIC-insured financial institutions declined to 6,891 in the third quarter down from 6,940 in the second quarter. Within this universe are 1,152 publicly traded banks, including the 108 in the community bank index fund. Another issue for community and regional banks is raising the capital to fund the Deposit Insurance Fund. The DIF balance rose to $40.8 billion at the end of the third quarter from $37.9 billion in the second quarter. Assessments and reduced estimated losses from potential failures are contributing to the rise in the DIF balance. The DIF reserve ratio rose to 0.68% on Sept. 30 from 0.64% on June 30, which is the percentage of estimated insured deposits. By law, the DIF must achieve a minimum reserve ratio of 1.35% by the end of September 2020. This means that many community banks will need to raise additional capital. The First Trust Nasdaq ABA Community Bank (QABA - Get Report) ($35.37) has a positive but overbought weekly chart profile with the five-week modified moving average at $34.46. My monthly pivot is $35.63, with a quarterly pivot at $36.04 and weekly risky level at $36.63. Last week's high at $36.08 was a test of the quarterly pivot and Monday's close was below my monthly pivot, which are warnings of a potential top for community banks.