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WSJ: SEC Wants More Info on CRE Exposure at Small Banks 

January 29, 2024

Last week, The Wall Street Journal reported the SEC sent letters in December 2023 to four small banks asking for additional details about their commercial real estate loan portfolios, which are disclosed in their 2022 10-K filings.

Four banks received letters from the SEC (asset size per the Federal Reserve as of Sep. 30, 2023):

• Mid Penn Bank’s holding company ($5.2 billion);
• Alerus Financial ($3.9 billion);
• MainStreet Bank’s holding company ($2.0 billion); and
• Ohio Valley Bank’s holding company ($1.3 billion).

The following is an excerpt from the SEC letter to Alerus Financial Corp.:

We note the tabular disclosure on page 75 detailing the composition of your gross loan portfolio, which includes commercial real estate (“CRE”). Given the significance of CRE in your total loan portfolio, please revise your disclosures, in future filings, to further disaggregate the composition of your CRE loan portfolio by borrower type (e.g., by office, hotel, multifamily, etc.), geographic concentrations, and other characteristics (e.g., current weighted average and/or range of loan-to-value ratios, occupancy rates, etc.), if any. In addition, revise to describe the specific details of any risk management policies, procedures or other actions undertaken by management in response to the current environment.

The SEC’s actions aim to provide more information for investors, but the focus on publicly traded banks also raises questions on how (or whether) prudential bank regulators are coordinating on oversight.

• While banks file call reports that outline their exposures, the level of detail now sought by the SEC is much more granular.
• The SEC undertook similar efforts in the aftermath of the regional bank crisis in 2023.
• The Financial Stability Oversight Council (FSOC) and other federal regulators have flagged CRE loan concentration as a risk for smaller regional and community banks.

The SEC is asking four banks for more granular information on their CRE loan exposures

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