FDIC Red Cards Regional Banks

This column was originally published on RealMoney on April 28 at 3 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

The red-hot real estate market has fueled tremendous growth for community banks across the country, but this trend appears ready to turn, and they could be left with portfolios riddled with bad real estate loans. With the shares of many trading at or near all-time highs, the prudent investor should book profits now.

Community banks are heavily dependent on fees and interest income from real estate loans. As the housing market slows, fee income will decrease and the risks associated with nonperforming loans will increase.

Furthermore, the Federal Deposit Insurance Corporation is waving warning flags -- many banks' balance sheets have exceeded key capital ratios that measure real estate risks. ...