Small Banks Say Their Commercial Real Estate Loans Are Fine

Small banks are feeling misunderstood.

They see themselves as integral to neighborhoods across the country: backers of local dry cleaners, dentists and sandwich shops. Investors worry that those banks could be a crisis waiting to happen.

The pride and the anxiety both reflect the fact that community banks are big lenders in the commercial real-estate market, which has been rocked by falling property values as large office buildings sit empty.

But executives at these firms — which number about 4,100 in total — say there is an important distinction, and some industry analysts concur. They caution that small banks are being lumped in with lenders to the owners of half-empty towers in Manhattan, San Francisco and Chicago, which are in the most trouble.

Instead, a majority of commercial building loans by community banks are for smaller buildings — like those housing doctors and local businesses — that tend to be fully leased. And while there are concerns about financial pressure on apartment building landlords if interest rates remain high, missed payments on those types of mortgages have not risen substantially.

“The focus has been on office as that is the weak category,” said John Buran, the chief executive officer of Flushing Financial, based in Uniondale, N.Y., which operates branches as Flushing Bank in Queens, Manhattan and Brooklyn and on Long Island. “Most community banks don’t have the type of exposure.”