The Federal Deposit Insurance Corp. indicates that community banks had a strong first quarter of 2017. These smaller banks reported net income of $5.6 billion, up 10.4% year over year. But, there are growing risks below the surface.
Today's focus is on 13 publicly traded community banks. Twelve increased their exposures to commercial real estate loans including construction and development loans.
At the end of 2006, bank regulators including the U.S. Treasury, the Federal Reserve and the FDIC established regulatory guidelines to exposures of these types of real estate lows versus risk-based capital. Overly simplified, exposures for C&D loans should not exceed 100% of risk-based capital, and exposures to CRE loans should not exceed 300% of risk-based capital. These exposures are shown in the right two columns in the table below.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.