Real Estate Pain on Tap for Smaller Banks

This is the second of a two-part look at banks that could suffer from their exposure to nonperforming commercial real estate and construction loans. Part I looked at larger banks.

Commercial real estate delinquency rates are spiking hard for some smaller regional banks.

Worsening commercial real estate loan quality is a rising trouble spot for larger banks too, as we pointed out on Wednesday. While delinquencies in commercial real estate loans are still historically low, they are rapidly rising.

The table below ranks banks with between $5 billion and $10 billion in assets by the ratio of nonperforming domestic commercial real estate loans (CRE) and commercial construction loans (CCL) as of Sept. 30. The way bank call reports break down nonperforming loan numbers, some nonperforming multifamily mortgages (usually condominium projects) are mixed into the numbers.

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The banks on this list were all considered well-capitalized under regulatory guidelines, as of Sept. 30, with leverage ratios of at least 5% and risk-based capital ratios of at least 10%.

One significantly undercapitalized bank that would have made the list was Franklin Bank SSB of Houston, which had $5.1 billion in total assets when it failed on Nov. 7 , with branches and deposits taken over by Prosperity Bank of El Campo, Texas (held by Prosperity Bancshares (PRSP Quote)).

Corus Bank

Out of all the banks with at least $5 billion in assets as of Sept. 30, the one with the highest ratio of nonperforming CRE and CCL to total assets was Corus Bank of Chicago, a subsidiary of Corus Bankshares (CORS Quote). The ratio was 8.10% as of Sept. 30, and the total nonperforming assets ratio was 11.96%.

After avoiding significant charge-offs for over a year despite its high level of nonperformers, Corus Bank reported net charge-offs of $128 million and posted a net loss of $121 million for the third quarter as it set aside $177 million for loan loss reserves.

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