A CRE Lesson, from a Local Player
By: Myles, February 11th, 2010
We normally would NOT reproduce language from a prospectus filed with the SEC. HOWEVER the following language is culled directly from a very interesting and timely filing made by First Mariner Bank on Tuesday (2.9.10).
It is so related to our recent posts – regarding the collapse of the commercial real estate market and the heavy-weight focus small/regional banks have in this arenea (56%+ for First Mariner) – we just had to share First Mariner’s exact words, so that you can see how our recent posts are actually playing out, right here in old-Baltimore-town:
“We have a high percentage of commercial real estate and real estate construction loans (56%+, to be exact – if you can believe it!), in relation to our total loans.
At September 30, 2009, we had $355.15 million in loans secured by commercial real estate. More specifically:
- $150.94 million in real estate construction loans, which included $105.16 million in residential construction loans and $45.78 million for the construction of commercial properties.
- Commercial real estate loans and construction loans represented 39.48% and 16.78%, respectively, of our net loan portfolio.
- While commercial real estate and construction loans are generally more interest rate sensitive and carry higher yields than do residential mortgage loans, these types of loans generally expose a lender to greater risk of non-payment and loss than single-family residential mortgage loans because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers and, for construction loans, the accuracy of the estimate of the property’s value at completion of construction and the estimated cost of construction. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to single-family residential mortgage loans.
Current regulatory guidance suggests that institutions whose commercial real estate loans exceed certain percentages of capital should implement heightened risk management practices appropriate to their concentration risk and may be required to maintain higher capital ratios than institutions with lower concentrations in commercial real estate lending.
Based on our commercial real estate concentration as of September 30, 2009, we may be subject to further supervisory analysis during future examinations.
Although we continuously evaluate our concentration and risk management strategies, we cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our commercial real estate portfolio. Management cannot predict the extent to which this guidance will impact our operations or capital requirements.”
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