High-volatility commercial real estate loans rose at US banks in Q4 2023

Total high-volatility commercial real estate loans at US banks rose in the 2023 fourth quarter following a three-year low balance one quarter earlier.

The aggregate high-volatility commercial real estate (HVCRE) loan balance of US banks rose 21.2% quarter over quarter to $36.52 billion in the quarter ended Dec. 31, 2023, according to S&P Global Market Intelligence data. The fourth-quarter balance was 11.8% below the year-ago total of $41.38 billion.

The 2023 fourth-quarter HVCRE loans accounted for 0.25% of the sector's total risk-weighted assets, up 4 basis points from 0.21% in the previous quarter and down 3 basis points from 0.28% a year earlier.

Regulators define high-volatility commercial real estate acquisition, development and construction loans as credit facilities that primarily finance or refinance acquisitions, developments or constructions of real properties and are used to provide financing to acquire, develop or improve properties into income-producing ones that are dependent on future income, sales or refinancing of such real properties for repayments.

These exclude one-to-four-family residential properties, community development projects, agricultural land, existing income-producing property secured by permanent financings, certain commercial real property projects, real property where the loan has been reclassified as a non-HVCRE acquisition, development and construction loan, and real estate where the loan was made before Jan. 1, 2015.

The rule is not applicable to qualifying community banking organizations that elected to use the community bank leverage ratio framework.

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Goldman Sachs top HVCRE lender in Q4 2023

Goldman Sachs Group Inc. was the largest HVCRE lender in the 2023 fourth quarter among top-tier US banks and thrifts that did not opt into the community bank leverage ratio framework. The company's total HVCRE balance at the end of the quarter was $2.10 billion, a 5.1% increase sequentially, accounting for 0.3% of its risk-weighted assets.

Houston-based Prosperity Bancshares Inc. logged a 2.9% sequential decline in its HVCRE loan balance to $1.97 billion, which was the second-highest among the top 20 banks. HVCRE loans accounted for 8.3% of its risk-weighted assets. Minneapolis-based U.S. Bancorp retained the third spot, with a total HVCRE loan balance of $1.18 billion, a 4.8% decline from the 2023 third quarter.

Raleigh, NC-based First Citizens BancShares Inc. posted the largest sequential jump in HVCRE loan balance among the top 20 US banks in the 2023 fourth quarter, a 22.8% increase to $718.5 million.

Sequentially, three other banks in the top 20 logged double-digit percentage increases in their HVCRE loan balances: Birmingham, Ala.-based Regions Financial Corp.; Pittsburgh-based F.N.B. Corp.; and Ammon, Idaho-based Bank of Commerce.

Bank of Commerce continues to log the highest HVCRE-to-risk-weighted assets ratio

Bank of Commerce remained the institution with the highest ratio of HVCRE loans to risk-weighted assets since the 2023 third quarter. Its total HVCRE loans stood at $386.1 million at quarter-end, representing 21.2% of its risk-weighted assets.

Dublin, Ga.-based Morris Bank's HVCRE-to-risk-weighted assets ratio was 18.2%.