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Bank of the Ozarks, Union Bankshares Are Community Banks to Avoid

NEW YORK (TheStreet) -- The number of FDIC-insured institutions declined to 6,730 in the first quarter from 6,812 at the end of 2013. This decline is among the smaller community banks that attempt to compete with larger regional banks moving into neighborhoods around the country.

The good news is 54% of all banks had year-over-year growth in quarterly earnings according to the FDIC's Quarterly Banking Profile for the first quarter of 2014. Just 7.3% were unprofitable down from 8.5% year over year.

But there are still some community banks to avoid including Bank of the Ozarks (OZRK - Get Report) and New York Community Bancorp (NYCB - Get Report). The other three on my list are Cardinal Financial (CNL), Dime Community Bancshares (DCOM) and Union Bankshares (UBSH).

On June 11 I wrote 9 Community Bank Stocks on the Rise, Plus Must-See Charts for Traders. These are the community banks to bank on given a resumed economic recovery.

On June 16, I wrote Why the Big Banks Aren't Doing More to Boost the Economy where I profiled the reasons why the four "too big to fail" banks are not positioned to take leadership actions to help re-boot and economic recovery.

While there are promising statistics, noninterest income from the securitization and servicing or mortgages, the life's blood for banking, was just $4 billion in the first quarter, down 53.6% year over year. Loans for residential mortgages originated and intended for sale declined 70.6% year over year to $323.6 billion.

Realized income from securities "held-for-trading" were down 60.1% year over year to just $827 million as higher U.S. Treasury yields reduced market values for these investment portfolios.

Reductions in loan-loss provisions continued in the first quarter of 2014, but a drop of $7.6 billion was down 30.3% year over year. While this was the 18th consecutive decline, it's the second-smallest decline.

Compared to the end of 2007, the recovery in the banking system has further to go.

Residential Mortgages (1 to 4 family structures) -- down 19% since the end of 2007 to $1.822 trillion. These are loans on the books of the FDIC-insured financial institutions.

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