Commercial real estate loans kept growing in the second quarter, and credit quality improved after a momentary blip at the beginning of the year.
As of June 30, U.S. commercial banks and thrifts reported $1.777 trillion in commercial real estate loans, a 1.6% increase quarter over quarter and a 5.8% increase year over year. CRE loan delinquencies fell to 0.58% of total CRE loans at the end of June, down 2 basis points from March 31 and the year-ago quarter.
Meanwhile, the number of banks concentrated in CRE, as defined by regulators, fell to 449 from 463 in the first quarter and 507 in the year-ago quarter.
Since 2006, U.S. banking regulators have advised that CRE loan concentrations above a certain threshold could lead to increased regulatory scrutiny. In 2015, that guidance was reissued in light of substantial CRE loan growth.
The guidance states that banks may be considered concentrated in CRE loans if they meet at least one of two thresholds: First, if CRE loans are greater than 300% of risk-based capital and CRE loans have grown by more than 50% over the last three years, or second, if construction and land development loans are more than 100% of risk-based capital.
The regulatory definition of CRE includes four categories: construction and land development loans, multifamily loans, loans secured by nonowner-occupied commercial properties, and loans used to finance CRE or C&D activities that are not secured by real estate.
The largest bank to become concentrated in CRE the second quarter was Pacific Western Bank, a unit of Beverly Hills, Calif.-based PacWest Bancorp. Pacific Western's CRE loans as a percentage of total risk-based capital were already above the 300% threshold, but the company's three-year CRE loan growth rate jumped over the 50% threshold in the second quarter.
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Click here to access an Excel spreadsheet that lists companies concentrated in CRE as of June 30, 2018.