US banks' high-volatility commercial real estate loans decline to multiyear low

Total high-volatility commercial real estate loans at US banks declined to the lowest level in four years in the first quarter.

US banks' aggregate high-volatility commercial real estate (HVCRE) loan balance stood at $29.11 billion as of March 31 — down 20% quarter over quarter and 10% year over year, according to S&P Global Market Intelligence data. The first-quarter balance was the lowest since the community bank leverage ratio framework became effective April 1, 2020.

First-quarter HVCRE loans accounted for 0.20% of the sector's total risk-weighted assets, down 5 basis points from the 2023 fourth quarter and down 2 basis points from the same period a year ago.

Regulators define HVCRE acquisition, development and construction (ADC) loans as credit facilities that primarily finance or refinance acquisitions, developments or constructions of real properties and that 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 ADC 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.

Goldman Sachs remains top HVCRE lender in Q1

Goldman Sachs Group Inc. retained the top spot among US banks with the largest HVCRE loan balances since the 2023 fourth quarter. The company's total HVCRE balance at the end of the first quarter was $2.07 billion, a 1.3% quarterly decline, accounting for 0.3% of its risk-weighted assets.

Houston-based Prosperity Bancshares Inc. again landed the No. 2 spot with a $1.83 billion total HVCRE loan balance, down 7.2% from the 2023 fourth quarter, accounting for 7.8% of its risk-weighted assets.

Cleveland, Ohio-based KeyCorp posted the largest quarter-over-quarter decline in its HVCRE loan balance among the 20 banks in the analysis. The company's first-quarter HVCRE loan balance declined 40.7% sequentially to $297.2 million, accounting for 0.2% of its risk-weighted assets.

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Bank of Commerce again logs the highest HVCRE-to-risk-weighted assets ratio

Ammon, Idaho-based Bank of Commerce has logged the highest ratio of HVCRE loans to risk-weighted assets since the 2023 third quarter. In the 2024 first quarter, the bank's total HVCRE loans accounted for 14.2% of its risk-weighted assets.

Miles City, Mont.-based Stockman Financial Corp.'s HVCRE-to-risk-weighted assets ratio was 11.6%.