Ten Banks Most Exposed to Unrealized CRE Losses

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Although interest rates have eased in recent months, banks are still grappling with significant exposure to unrealized losses linked to commercial real estate (CRE), according to a report from the Banking Initiative at Florida Atlantic University.

In the third quarter of 2024, 59 out of the largest 155 banks in the U.S. had CRE exposures exceeding 300%, placing them at risk of regulatory scrutiny and enforcement actions.

Industry experts have expressed concerns over potential losses tied to CRE mortgages, especially as hundreds of billions of dollars in loans are set to be repriced in the coming years within the context of a high-rate environment, FAU notes. Many of these loans were originated as five-year balloon mortgages during a lower-rate environment between 2019 and 2021.

“The looming refinancing of loans, coupled with a growing number of commercial properties being sold at discounted prices compared to pre-pandemic values, has revealed weaknesses not only in commercial real estate mortgages but also in commercial real estate construction loans and unused commitments to fund such loans,” FAU explained.

The U.S. Banks’ Exposure to Risk from Commercial Real Estate screener analyzes 155 of the country’s largest banks and reviews quarterly data from the Federal Financial Institutions Examination Council’s Central Data Repository. The screener calculates each bank’s total CRE exposure as a percentage of the bank’s total equity.

Here are the top 10 banks most exposed to CRE risk, based on this ratio:

  1. Dime Community Bank (602% CRE exposure to equity)
  2. EagleBank (571%)
  3. Bank OZK (566%)
  4. Live Oak Banking Company (550%)
  5. Merchants Bank of Indiana (539%)
  6. Flagstar Bank (539%)
  7. ServisFirst Bank (538%)
  8. First Foundation Bank (513%)
  9. Provident Bank (488%)
  10. First United Bank and Trust Co. (478%)

 

Source:  GlobeSt.