--- title: "CRE Concentration at Community Banks: The 300% Test" description: "CRE concentration at community banks: how the 100% and 300% screens work, why the ratio drifts without new loans, and what examiners ask at each level." canonical_url: https://www.bankregreports.com/blog/cre-concentration-community-banks/ source: BankRegReports published: "2026-10-28" updated: "2026-11-12" --- Picture a community bank whose CRE book is flat for two years while its CRE-to-capital ratio climbs anyway. It made no new CRE loans; credit losses and dividends shrank the denominator, total risk-based capital. Most community banks have opted out of counting unrealized securities losses (AOCI) in regulatory capital, so for them it is earnings, losses, and growth, not bond marks, that move the denominator. That is how a bank can earn [an MRA](/blog/mra-mria-supervisory-escalation/) for a concentration it never added to. This is the version of CRE concentration at community banks that does not show up in generic risk management frameworks: the denominator problem. (For the industry-wide picture across all bank sizes, see [CRE concentration risk in banking](/blog/cre-concentration-risk-banks/).) And it can play out at any community bank whose capital shrinks or fails to keep pace with its balance sheet, which then watches its concentration ratio drift toward the supervisory screens without adding any new CRE exposure.
Commercial real estate concentration risk across U.S. banks
CRE concentration relative to capital across the U.S. banking industry.
## The Regulatory Framework Every Banker Needs to Internalize [The interagency guidance that OCC, Federal Reserve, and FDIC issued in 2006](/blog/supervisory-guidance-bulletins-fils-sr-letters/) established two thresholds that examiners still treat as the opening bid in any CRE conversation: **Construction and land development loans at or above 100% of total risk-based capital.** This is the tighter threshold, and it catches banks with significant speculative or pre-lease construction exposure. A $500 million bank with $50 million in construction loans and $45 million of risk-based capital is already there. **Total CRE loans (excluding owner-occupied) at or above 300% of total risk-based capital, combined with portfolio growth exceeding 50% over the prior 36 months.** The growth trigger is what most institutions miss in their initial read of the guidance. A bank sitting at 280% that grew its CRE book 60% over three years does not meet the screen but is still in the examiner's line of sight. Neither threshold is an automatic enforcement trigger. Both are the start of a supervisory conversation about underwriting standards, concentration management policy, stress testing discipline, and board-level oversight. In practice, the conversation gets harder to have at 320% than at 270%, and it gets harder still when capital is thin. ![CRE Concentration Distribution - Community Banks $300M-$10B, Q2 2026](figures/cre-concentration-risk-banks-1.svg) About one in seven community banks in the $300 million to $10 billion asset range (14% at June 30, 2026, measured on the UBPR basis: non-owner-occupied CRE over Tier 1 capital plus the allowance) currently reports a CRE/capital ratio above 300%, before applying the growth test. That is not a crisis. Many of those institutions have strong underwriting, diversified sub-segments, and capital levels well above well-capitalized minimums. But it does mean that several hundred community banks are operating in the zone of heightened supervisory attention, which has direct implications for exam preparation, capital planning, and strategic decisions about loan mix. ### The Split That Changes the Analysis Owner-occupied CRE is not the same risk as investor CRE, and the regulatory guidance is explicit about this distinction. When a plumbing supply company borrows against the warehouse it operates out of, repayment comes from the business: from receivables, inventory turns, and operating margins. That credit behaves like a commercial and industrial loan with real estate as secondary collateral. Non-owner-occupied CRE (retail strip centers, office buildings, apartment complexes) depends on lease-up, tenant quality, cap rate stability, and the willingness of a future buyer or refinancing lender to assign value to the property. The 300% screen counts CRE excluding owner-occupied nonfarm nonresidential loans; it includes multifamily and construction lending. Owner-occupied is tracked separately and generally draws less examiner concern at equivalent concentration levels, though it still appears in the CRE discussion. Community banks that have built their portfolios around owner-occupied business real estate (a dentist's office, a manufacturing facility, a veterinary clinic) are in a materially different position than banks of identical size with similar ratios driven by speculative multifamily or suburban office. Call Report [Schedule RC-C](/blog/how-to-read-schedule-rc-c/) captures this disaggregation. Getting the split right in your internal reporting is the first credibility test in any CRE exam discussion. ## What Are Examiners Actually Looking At? The ratio itself is a screening tool. What examiners spend time on is the management architecture around the concentration. Five areas come up in almost every CRE-focused exam: **Stress testing.** Examiners expect banks above the thresholds to run portfolio-level stress scenarios, typically a 20–30% collateral value decline, a 200–300 basis point cap rate expansion, and a significant increase in vacancy rates, and to have articulated how losses under those scenarios would affect capital. The stress test does not need to use sophisticated modeling, but it does need to reflect actual sub-segment composition, not just a blanket haircut applied to the whole CRE book. **Concentration management policy.** Institutions that meet either screen should have a formal policy that sets internal sub-limits, often by property type, geography, and loan size, with board approval and documented rationale. Examiners look for whether management actually monitors against those limits or whether the policy exists only on paper. **Appraisal quality and recency.** On any CRE credit with a loan-to-value ratio that looks stretched, or any credit approaching maturity in a softened market, examiners will pull the appraisal. Dated appraisals on office credits, say, a 2021 appraisal on an office building with 2025 lease expirations, are a frequent source of examiner questions. **Pipeline and maturity schedule.** Construction loan maturities, interest reserve balances, and the rollover schedule on investor CRE loans are forward-looking indicators the ratio alone does not capture. A bank at 280% CRE/capital with $40 million in construction loans maturing in the next 12 months, half of which have not achieved stabilized occupancy, faces a different near-term risk than the ratio suggests. **Capital adequacy in context.** Examiners evaluate concentration ratios alongside capital ratios, not independently. A bank at 320% CRE/capital with a CET1 ratio of 14% is in a different conversation than one at 280% with CET1 at 9.5%. The median [CET1 ratio](/glossary/cet1-ratio/) for $1B–$10B banks was 13.5% at June 30, 2026, well above the 6.5% well-capitalized minimum, but banks that have taken significant credit losses or paid aggressive dividends may be operating with less buffer than peers at equivalent concentration levels. ![CRE/Capital vs. CET1 - Community Banks $300M-$10B, Q2 2021 to Q2 2026](figures/cre-concentration-risk-banks-2.svg) The chart plots a different measure from the one-in-seven figure above. Its line is the cohort median of the platform's own CRE-to-capital ratio, which reads higher than the UBPR basis (non-owner-occupied CRE over Tier 1 capital plus the allowance) that the 14% share uses. On the chart's measure the typical bank in this range sits just above 300%; on the UBPR basis that examiners apply, about one bank in seven does. Read the chart for the trend, and the 14% for how many banks are in the zone the guidance describes. ## How Sub-Segment Composition Changes the Story The Call Report gives you the construction/non-construction split and the owner-occupied/non-owner-occupied split. That is useful but incomplete. The real credit story in CRE right now is sub-segment: office versus multifamily versus industrial versus retail versus hospitality are experiencing materially different market conditions. Office is the obvious headline. Vacancy rates in suburban and secondary-market office have climbed to levels that make 2019 appraisals fictional in many markets. A bank with 40% of its non-owner-occupied CRE in suburban office is in a different risk position than the aggregate CRE/capital ratio reveals. That sub-segment detail does not come from Call Report data; it comes from the bank's loan tape. For ALCO and credit committee purposes, management should be producing a sub-segment view alongside the aggregate ratio. Multifamily has had a different trajectory. Cap rate expansion of 150–200 basis points from 2021 peaks has compressed property values, and new supply deliveries in certain Sun Belt markets have pushed vacancy up. But multifamily has a clear path to agency takeout financing that speculative office does not have, and the rental demand fundamentals remain stronger in most geographies. A bank at 350% CRE/capital driven primarily by stabilized multifamily in supply-constrained markets is not the same risk as one at 300% with heavy suburban office exposure. Industrial and neighborhood retail have held up better than the headlines suggest. Net absorption has remained positive for industrial in most major logistics corridors, and grocery-anchored retail has shown resilience that was not widely predicted three years ago. ## Peer Benchmarking: Where Your Bank Actually Stands Examiners always evaluate concentration in peer context, and so should your ALCO and board. The same 280% ratio that draws significant supervisory attention at a bank with thin capital and aggressive growth may be entirely defensible at an institution with strong underwriting history, 14% CET1, and a portfolio concentrated in owner-user commercial properties in a stable local economy. The FFIEC UBPR peer group structure provides a baseline for peer comparison: peer groups defined by asset size are reported alongside each bank's own ratios in the quarterly UBPR. But UBPR peer groupings are broad. More useful analysis often comes from [building a custom peer set](/blog/bank-peer-group-analysis/) based on geography, asset size, and loan mix, comparing your bank to the 30 or 40 institutions most similar to yours in market structure and business model. That kind of analysis used to require significant data work: pulling FFIEC bulk downloads, normalizing filing amendments, joining across Call Report schedules. You can do it directly through the [BankRegReports platform](https://www.bankregreports.com): search your institution, define a peer group by asset tier and geography, and pull CRE concentration ratios, capital ratios, and asset quality metrics across the full peer set. Export to Excel and you have what you need for the ALCO package or the board risk committee presentation. The platform pulls from FFIEC Call Reports, UBPR, FDIC, Federal Reserve NIC and Y-9C, and NCUA 5300, the same underlying data the examiners use, already cleaned and standardized across quarters. The official source for the Call Report and UBPR is the [FFIEC](https://www.ffiec.gov). ## What the Board Wants to See vs. What Management Tracks These are not the same thing, and the gap between them creates presentation problems. Management tracks the ratio monthly or quarterly, monitors it against internal limits, and flags breaches in the credit committee. That is the right operating cadence. The board wants context. Specifically: where does this ratio put us relative to peers, what has it done over the past four quarters, what are the scenarios under which it becomes a problem, and what is management doing about it. A board risk committee presentation (or an [exam preparation package](/blog/bank-examination-preparation-guide/)) that shows only the current CRE/capital ratio without trend, peer comparison, or stress scenario context is not giving directors what they need to exercise oversight. A well-constructed board presentation on CRE concentration typically includes: the current ratio vs. the 300% threshold, the four-quarter trend, the peer distribution (where does the bank rank among its custom peer set), the sub-segment composition in plain language, the stress scenario output under a defined adverse case, and the management actions (sub-limits, underwriting overlays, portfolio monitoring criteria) that bound the risk. ## The Forward View The maturity wall on commercial real estate loans originated in 2020–2022, when rates were near zero and values were near peak, is not fully in the rearview mirror. Significant volumes of non-owner-occupied CRE originated at that vintage will seek refinancing at materially higher rates against collateral values that have compressed. Banks with concentrated office exposure and loans maturing through 2027 should be stress-testing refinancing capacity at current market rates before each maturity approaches. The good news for community banks that have managed their concentration actively is that the credit quality data through Q1 2025 (the latest this paragraph was written against) was more constructive than the macro headlines suggest. CRE noncurrent ratios industry-wide remain below 1.5% for most sub-segments outside office, and community bank NCO rates on CRE, while rising from pandemic-era lows, are still near the 0.15% community bank norm that would be considered normal in a historical context. The risk is not absent, but it is concentrated, and institutions that understand where they actually sit in the distribution have time to manage it. --- The benchmarks and peer data referenced in this post are available through the [BankRegReports platform](https://www.bankregreports.com), no data engineering required. 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