Construction loan delinquencies fall at US banks in Q3 after Q2 spike

Construction loan delinquencies at U.S. banks subsided in the third quarter, after a spike in the second quarter that interrupted a yearlong recovery from the COVID-19 pandemic.

Delinquencies fall

There were $2.57 billion in nonresidential construction loan delinquencies in the third quarter, down from nearly $3.32 billion in the previous quarter. Delinquencies represented 0.75% of total nonresidential construction loans, the lowest level since they hit 0.73% in the third quarter of 2019, according to S&P Global Market Intelligence data.

Delinquencies on residential construction loans reached roughly $535.5 million in the quarter, up from $529.1 million in the second quarter and $521.1 million in the same quarter of 2021. As a percentage of total residential construction loans, however, residential construction delinquencies fell to 0.52%, a low in the last decade.

Construction loan growth

Meanwhile, construction loan balances at U.S. banks continued their upward climb in the third quarter. U.S. banks reported roughly $447.30 billion in the third quarter total, up from $429.48 billion in the second quarter and $402.22 billion in the third quarter of 2021. Construction loans were 3.73% of gross loans and leases, up from 3.65% in the second quarter and from 3.68% in the third quarter of 2021. As a percentage of gross loans and leases, construction loans reached their highest level since the second quarter of 2011.

Wells Fargo led construction lenders

Wells Fargo & Co. had the most construction loans outstanding among U.S. banks for the third quarter, a total of $20.73 billion made up of roughly $19.34 billion in nonresidential loans and $1.38 billion in residential. Bank of America Corp. was second with $10.60 billion in total construction loans, and U.S. Bancorp third with $9.61 billion total.

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JPMorgan Chase & Co. fell from third to fourth place on the list from the second quarter, with a 30.2% sequential change in residential construction loans. Goldman Sachs Group Inc. reported a sequential decline in residential construction loans of 41.1% and a decline in nonresidential construction loans of 22.9%.

Housing starts

Wells Fargo saw a continued increase in demand for multifamily loans.

"I think even if you look at new housing, new multifamily housing starts, it is still growing," Wells Fargo CFO Michael Santomassimo said during the bank's third-quarter earnings call Oct. 14, according to a transcript. "It hasn't really turned like single-family homes has over the last number of months … so really strong demand there."

At M&T Bank Corp., where nonresidential construction loans fell by 8.9% sequentially in the third quarter and residential construction loans fell by 1.5%, exposure continues to fall as projects reach completion, CFO Darren King said during the bank's third-quarter earnings call Oct. 19.