US banks' high-volatility commercial real estate loan balance rises in Q2 2024

US banks reported a 20% sequential increase in total high-volatility commercial real estate loans in the second quarter following a four-year low balance in the previous quarter.

The aggregate high-volatility commercial real estate (HVCRE) loan balance for US banks stood at $34.93 billion during the quarter, up 20% from $29.11 billion in the first quarter but down 5.2% from $36.83 billion in the same period a year earlier, according to S&P Global Market Intelligence data.

HVCRE loans in the second quarter accounted for 0.24% of the sector's total risk-weighted assets, up 4 basis points from a quarter earlier.

Regulators define high-volatility commercial real estate ADC 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 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.



Morris Bank logs highest proportion of HVCRE loans to risk-weighted assets

Dublin, Ga.-based Morris Bank reported the highest ratio of HVCRE loans to risk-weighted assets among top-tier US banks with at least $1 billion in total assets. The Morris State Bancshares Inc. subsidiary reported $265.3 million in total HVCRE loans during the quarter, accounting for 19.9% of its risk-weighted assets.

Ammon, Idaho-based Bank of Commerce, which reported the largest ratio in at least the four previous consecutive quarters, landed in the second position with $240.5 million in total HVCRE loans, accounting for 13.6% of risk-weighted assets.

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Goldman Sachs remains top HVCRE lender

With $2.09 billion in total HVCRE loans as of June 30, Goldman Sachs Group Inc. retained its position as the top HVCRE lender for the third consecutive quarter. The total loan balance represented a 1.0% quarter-over-quarter increase and accounted for 0.3% of the company's risk-weighted assets.

Houston-based Prosperity Bancshares Inc. followed Goldman Sachs with a $1.88 billion total HVCRE loan balance, up 2.4% from the first quarter.

Raleigh, NC-based First Citizens BancShares Inc. reported a 22.8% quarterly increase in total HVCRE loans to $901.0 million. Other banks that recorded large sequential growth in their second-quarter HVCRE balances included Northern Trust Corp. and Capital Funding Bancorp Inc., each with a 16.1% increase.