Smaller regionals breeze through commercial real estate worries with ease.

Banks like Cullen/Frost Bankers, Bank OZK, and BankUnited are dismissing concerns about the impact of a potential downturn in commercial real estate (CRE) on their portfolios. Executives at these banks have made positive comments about the credit quality of their CRE loans, seeking to reassure analysts and investors. The executives have emphasized the relationships they have built with borrowers and the quality of their underwriting decisions. Share prices of these banks have generally risen over the past week. Cullen/Frost, which reported a rise in charge-offs during Q4 2023, said that the increase was not due to its commercial real estate loans. BankUnited’s CEO stated that nonperforming loans, including CRE loans, are at a low level and that he is not concerned about credit quality. Brookline Bancorp also reported declines in both total and CRE nonperforming loans. Bank OZK noted that credit quality is relatively benign and limited to a few transactions. WaFd Inc. reported a low ratio of nonperforming loans to total loans in Q4 2023. The banks’ optimistic views are partly supported by positive signs such as elevated levels of loan loss reserves and a recent decline in long-term interest rates, which could narrow the refinance gap for borrowers and lower credit risk for banks. While these smaller regional banks may have allayed some investors’ fears for now, concerns about CRE remain a key area to watch.