Nonresidential and residential construction loans at US banks rose in the first quarter of 2023 from the previous quarter, alongside delinquencies.
Construction loans also grew as a percentage of gross loans and leases, reaching 3.93% in the first quarter, marking the highest percentage in at least eight years.
Regulators increase their scrutiny of banks that exceed either of two thresholds: construction loans with at least 100% of risk-based capital, or commercial real estate loans with at least 300% of risk-based capital levels and 50% growth in commercial real estate over the past 36 months.
Delinquent residential construction loans grew as a percentage of total residential construction loans by 13 basis points to 0.69% quarter over quarter, while delinquent nonresidential construction loans grew by 3 basis points to 0.74%.
Delinquent residential loans totaled $73 million in the three months ended March 31, while delinquent nonresidential loans totaled $2.79 billion in the same period.
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Wells Fargo, U.S. Bancorp book most construction loans
Wells Fargo & Co., U.S. Bancorp and Bank of America Corp. continued to be the banks that carried the most construction loans in the first quarter. Wells Fargo had $22.82 billion, U.S. Bancorp had $11.04 billion and Bank of America had $10.23 billion in total construction loans. All three banks had more nonresidential than residential.
Of the US banks with the most construction loans, the ones that had the largest proportions of gross loans and leases were Bank OZK at 39.3%, PacWest Bancorp at 18.6% and Pinnacle Financial Partners Inc. at 12.9%.
In May, PacWest Bancorp unit Pacific Western Bank agreed to sell a portfolio of 74 real estate construction loans with about $2.6 billion in aggregate outstanding principal balance to a wholly owned subsidiary of Kennedy-Wilson Holdings Inc. As part of the transaction, Pacific Western Bank will also sell to Kennedy Wilson six more real estate construction loans with an aggregate principal balance of about $363 million once the bank secures certain consents required under the underlying loan and related agreements.