latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/sec-eyes-commercial-real-estate-exposure-questions-4-banks-80326097 content esgSubNav
In This List

SEC eyes commercial real estate exposure, questions 4 banks

Blog

Global M&A and Equity Issuance Values Rise Despite Fewer Deals in Q2 of 2024

Podcast

MediaTalk | Season 2
EP 25 - Sports, Streaming, Ad Spending Spotlighted at 2024 Kagan Media & Telecom Summit

Podcast

Next in Tech | Ep. 179: Kagan Media Summit

Blog

Investor Activism Campaigns Set Torrid Pace in H1 2024


SEC eyes commercial real estate exposure, questions 4 banks

Commercial real estate exposure at US banks has appeared on the radar of the SEC, which has reached out to at least four institutions for additional disclosures on their activity in the sector.

Bank regulators regularly monitor commercial real estate (CRE) exposure, but the topic has come up less often from the SEC. The four banks known to have received inquiries — MainStreet Bancshares Inc., Alerus Financial Corp., Mid Penn Bancorp Inc. and Ohio Valley Banc Corp. — all have higher exposure to the sector than the US banking industry as a whole, according to S&P Global Market Intelligence data. Each of the four banks has assets below $10 billion.

As of the end of 2023, Fairfax, Va.-based MainStreet Bank, the banking unit for MainStreet Bancshares, had the highest concentration of CRE loans in its portfolio of the four, at 43.1%. It was followed by Millersburg, Pa.-based Mid Penn Bank, a subsidiary of Mid Penn Bancorp, at 41.9%.

The banking subsidiaries for Grand Forks, ND-based Alerus Financial and Gallipolis, Ohio-based Ohio Valley Banc reported concentrations of 30.4% and 19.3%, respectively. By comparison, the industry aggregate was 14.6% at Dec. 31, 2023.

Mid Penn Bank had the highest nonowner-occupied CRE to total loans ratio among the four, at 27.1%, as of fourth quarter-end. The industry aggregate was 9.4%.

SNL Image

The four banks also had greater exposure to multifamily than the industry aggregate of 4.9%.

MainStreet Bank had the highest multifamily loan concentration, at 15.7%, while the other three had multifamily exposure ranging from 5.9% to 8.9%.

In the third quarter, Mid Penn and MainStreet were among the US banks exceeding 2006 regulatory guidance for CRE loan concentration. Alerus Financial did not exceed the guidance, but posted CRE loan growth of 124% in the 36 months prior to Sept. 30, 2023.

SNL Image

Banks' CRE exposure has been dominating headlines since early 2023 due to the persistent challenges confronting the property sector, particularly the office segment.

The seemingly growing permanence of hybrid work and aggressive interest rate hikes caused office vacancies to rise and property valuations to decline, prompting banks to grow cautious and tighten lending conditions. These trends threaten to increase financing difficulties for CRE borrowers as debt maturities loom.

The downturn in the office segment may be only in the beginning stages, and community banks' CRE portfolios are expected to remain among the biggest areas of credit concern.

There has been an uptick in CRE loan delinquencies over the past year, as well as a rise in reserves against the portfolios, particularly those tied to office credits. Maintaining strong risk management of CRE portfolios, especially for banks with high CRE concentrations, has also been a key focus for regulators.

SNL Image

SNL Image– Set email alerts for future Data Dispatch articles.
– Read some of the day's top news and insights from S&P Global Market Intelligence.

SEC requests detailed disclosures

As financial regulators keep a close eye on whether the CRE downturn will spill over into the broader financial system, the SEC recently requested more detailed disclosures from the four community banks about their exposure to the debt-reliant sector.

Specifically, the SEC asked Alerus Financial, Mid Penn Bancorp and Ohio Valley Banc to revise their disclosures in future filings to break down their CRE loan portfolios by borrower type, geographic concentrations and any other characteristics. In addition, Mid Penn was asked to separately present owner-occupied and nonowner-occupied properties in future disclosures. Alerus Financial and Mid Penn Bancorp both agreed to make the requested revisions.

In response to the SEC's request, Ohio Valley agreed to disclose the breakdown of its CRE loans based on applicable characteristics and to categorize the portfolio by industry using the North American Industry Classification System. However, the company said it will not disclose the range of its loan-to-value ratios or occupancy rates for its portfolio because its core data processing system is not designed to provide meaningful data at that level of detail.

At MainStreet Bancshares, the SEC sought a disclosure of the company's brokered deposits and CRE portfolio in its future filings. The company agreed to comply with the requested information.

MainStreet already discloses investor CRE office exposure and CRE originations, while Alerus Financial already discloses the percentage of total CRE commitments by industry type.