It’s usually noteworthy whenever a bank sees its financial strength and deposit ratings dropped, but it’s especially noteworthy when the rating agency making the downgrade does so ahead of earnings. Colonial Bank, scheduled to report Q4 earnings on January 23, saw its financial strength rating downgraded from C to C-, while its long-term bank deposit rating was downgraded to Baa1 from A3, Moody’s said in a press statement after market close on Friday. Colonial BancGroup, the bank’s holding company, operates 323 branches in Florida, Alabama, Georgia, Nevada and Texas with more than $24.5 billion in assets. The culprit here is commercial real estate exposure in heavily overbuilt Florida, where Colonial has significant exposure to residential construction lending (considered part of commercial real estate); HW has covered more than a few banks recently that have experienced write-downs due to their contruction portfolios, but I can’t recall any rating agency issuing a downgrade on such exposure ahead of an earnings report. The bottom line, according to the rating agency:

Moody’s noted that Colonial’s CRE exposure accounts for over six times tangible common equity, with construction lending comprising two-thirds of total CRE. Moody’s believes this portfolio will worsen significantly beyond the deterioration experienced to date.

Interestingly, it’s worth noting that Colonial is also a warehouse provider to troubled Alt-A outfit Impac Mortgage Holdings. For more information, visit http://www.moodys.com. Disclosure: At the time this post was published, the author owned no position in CNB.