Small banks, commonly known as community banks, are essential supporters of local businesses in neighborhoods nationwide. Despite their critical role, concerns have arisen among investors regarding the potential risks associated with these banks, particularly due to their significant involvement in the commercial real-estate sector.
Community banks, totaling approximately 4,100 institutions, emphasize that they differ from larger lenders that have been significantly impacted by the downturn in the commercial property market. These smaller banks primarily focus on providing loans for smaller commercial properties, such as those accommodating local doctors’ offices and small businesses, which generally maintain higher occupancy rates.
While challenges persist in the commercial real-estate market, community banks highlight their resilience and prudent lending practices. For instance, Flushing Financial, based in Uniondale, N.Y., operating branches as Flushing Bank in various New York locations, emphasizes that its loan portfolio remains robust, with all loans performing well.
John Buran, the CEO of Flushing Financial, notes the industry’s emphasis on the weakness in office properties, which contrasts with the smaller building loans that community banks predominantly support. Despite concerns about potential financial strains on landlords of apartment buildings, community banks have not experienced a significant increase in delinquencies related to such properties.
Community banks stress the importance of distinguishing their lending practices from those of larger institutions, underscoring their commitment to supporting the local economy and maintaining prudent risk management strategies to navigate challenges in the commercial real-estate market.
