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The Securities and Exchange Commission questioned some regional banks about their exposure to commercial real estate loans, concerned that potential losses on those loans could impede their ability to do business, The Wall Street Journal reports.
The agency reached out to Mid Penn Bank, Ohio Valley Bank and MainStreet Bank, as well as Alerus Financial Corp., a publicly traded firm, among others.
The SEC asked Alerus, for example, to revise its future disclosures to specify borrower property type in its loan portfolio, as well as geographic concentrations and other information, the WSJ reported, noting that the agency made similar queries to the other banks. North Dakota-based Alerus has about $40.7B in assets under administration.
“The SEC is worried that some of the banks may not be disclosing as much of their risk or exposure as they should to their investors,” Kenneth Chin, a partner at law firm Kramer Levin Naftalis & Frankel, told the WSJ.
Such information would be useful since some property types — office in particular — represent a heightened risk in the current CRE climate. A recent report found that roughly 14% of all CRE loans and 44% of loans associated with office assets have fallen into negative equity.
Regional and community banks are particularly exposed to CRE risk, holding about three-quarters of all CRE loans.
Alerus reported its Q4 2023 results recently, posting a net loss of $14.8M for the quarter. The company reported a CRE loan portfolio of about $1.1B, and $124M in construction loans at the end of 2023, but did not break it down by property type or geography.
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