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Investors trading community and regional banks should be aware these and other bank stocks are no bargains.

The Federal Deposit Insurance Corporation Quarterly Banking Profile for the third quarter shows the number of banks are down 26.5% since the end of 2007. In addition, the banking industry is not in growth mode -- the total number of employees is down 8% at a time when the economy is supposed to be recovering from a credit crunch.

How should you trade banks? Focus on two exchange-traded funds that represent the banking system. The bigger banks, excluding the four "too big to fail" banks, are represented by the iShares U.S. Regional Banks ETF (IAT) - Get iShares U.S. Regional Banks ETF Report . The smaller community banks are represented by the First Trust Nasdaq ABA Community Bank Index Fund (QABA) - Get First Trust NASDAQ ABA Community Bank Index Fund Report .

Before we look at the charts of these ETFs let's look at key metrics from the FDIC QBP for the third quarter of 2015.

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Total Assets has been recovering but appears to be slowing in recent quarters. The sequential increase in the third quarter was just 0.3% but the rise since the end of 2007 is 21.2%. Remember that the four "too big to fail" money center banks control 42.3% of the total assets in the banking system.

Residential Mortgages (one- to four-family structures) represent the mortgage loans on the books of our nation's banks. Banks increased mortgage issuance by just 0.4% sequentially in the third quarter down from a gain of 1.3% in the second quarter. As a warning that regional banks are reluctance to increase lending, mortgage loans are down 16% since the end of 2007.

Nonfarm/Nonresidential Real Estate Loans represent lending to construction companies and homebuilders to build office buildings, strip malls, apartment buildings and condos which has been a major focus for community banks. This category of real estate lending held up well during the Great Recession. These loans were up 2% in the third quarter versus 1.1% in the second quarter, and are up 23.9% since the end of 2007.

Construction and Development Loans represent loans to community developers and homebuilders to finance planned communities. This was the Achilles Heel for community banks and the major reason that more than 500 banks were seized by the FDIC since the end of 2007. The recovery in this real estate loan category has been solid in recent quarters. C&D loans were up 4% in the third quarter versus 3.9% in the second quarter.

An increase in C&D loans can be a double-edged sword. As an indication of continued stress, C&D loans are still down 57.7% since the end of 2007. I estimate that there could be as much as $200 billion in legacy loans in this category left over from stalled housing projects began before the financial crisis began.

Home Equity Loans represents second-lien loans to homeowners who borrow against the equity of their homes. Many of these loans failed as homeowners became underwater on their original mortgages. According to the S&P/Case-Shiller Home Price Indices the price of an average single-family home is up 35% since the March 2012 low, yet home equity loans continue to slide. These loans declined 1.3% in the third quarter versus 1.2% in the second quarter and are down 22.4% since the end of 2007.

Total Real Estate Loans sums it all up. The total of these loans increased by 0.9% in the third quarter down from a growth rate of 1.1% in the second quarter. However the healing process remains slow as these loans are down 14.1% since the end of 2007 when the Great Credit Crunch began.

Other Real Estate Owned declined 8% in the third quarter slowing from a decline of 9.4% in the second quarter. Banks have been selling foreclosed homes they have in inventory taking advantage of the increased prices of homes. A slowing decline may show that much of the OREO may not be sellable properties, such as unfinished planned communities. OREO remains 32.7% above the level at the end of 2007, and peaked at $53.2 billion in the third quarter of 2010, which was a peak for foreclosure activities.

Notional Amount of Derivatives has been a financial stress among the seven largest banks. The overall exposure declined 3.2% in the third quarter versus 2.4% in the second quarter. Derivative exposures are still 17.2% above the level at the end of 2007. Investors should be aware that there is no way to know whether or not there are any time bombs ticking among $194.7 trillion in derivatives.

Deposit Insurance Fund are the dollars available to protect insured deposits. These monies are funded by all FDIC-insured institutions via annual assessments. The third quarter gain of 7.4% to $70.1 billion has the FDIC well on its way to satisfy the regulatory guidelines, which is to have the fund at 1.35% of insured deposits by Sept. 20, 2020. At the current level of insured deposits the DIF would have at $86.7 billion, so there is still work to do. This puts financial stress on the nation's bigger banks.

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Insured Deposits grew by 1.2% in the third quarter to $6.42 trillion up 49.6% since the end of 2007. This growth can be attributed to the rise in deposit insurance guarantees to $250,000 from $100,000 which occurred during the height of the credit crisis.

Reserves for Losses have been declining during the healing process of the banking system. The decline in reserves slowed to 0.9% in the third quarter down from a decline of 1.2% in the second quarter. As a sign of continued stress, reserves are still up 16.6% since the end of 2007.

Noncurrent Loans have been declining, but the decline of 3.8% in the third quarter was a slowdown from the pace of 5.4% in the second quarter. Even so, noncurrent loans are 26.6% above the level at the end of 2007.

Here is the weekly chart for the iShares U.S. Regional Banks ETF.


Courtesy of MetaStock Xenith

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The regional bank ETF had a close of $36.89 on Tuesday, up 9.4% so far in the fourth quarter and up 5.6% year to date.

The weekly chart is positive but overbought with the ETF above its key weekly moving average of $35.81 with its weekly momentum reading projected to rise to 85.80 this week up from 82.56 on Nov. 27, becoming more overbought.

Investors looking to reduce holdings should place a good till canceled limit order to sell the ETF if it rises to $37.61 and $39.01, which are key levels on technical charts until the end of this week and the end of 2015, respectively.

Here's the weekly chart for the First Trust Nasdaq ABA Community Bank Index Fund.


Courtesy of MetaStock Xenith

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The community bank ETF had a close of $42.25 on Tuesday, up 10.4% so far in the fourth quarter and up 15% year to date.

The weekly chart is positive the ETF above its key weekly moving average of $40.75 with the weekly momentum reading projected to rise to 71.25 this week up from 69.46 on Nov. 27.

Investors looking to reduce holdings should place a good till canceled limit order to sell the ETF if it rises to $45.71 and $46.70, which are key levels on technical charts until the end of 2015.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.