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CRE Lending by Banks Surpasses Pre-Recession Levels

Despite Lending Rebound from Healthier Economy, Risks Remain as Banks' Inventory of Distressed Property Remains Elevated
September 3, 2014
U.S. bank lending on commercial real estate has now rebounded to levels not seen since before the Great Recession, but loans from those heady days of 2007 are still acting as a drag on bank coffers, though much less of one.

The total volume of CRE loans made by banks as of June 30 is now 2% higher than it was going into the summer of 2007. Total CRE loans on the books of the nation’s 6,680 FDIC-insured banks stands at $1.63 trillion vs $1.60 trillion as of March 31, 2007, according to the latest FDIC numbers released last week.

Those numbers also continue to show the damage done by the two-year long real estate-fueled recession and the five years of climbing back. There are 1,982 fewer insured bank and savings institutions today than there were then, and the ones remaining are saddled with 528% more foreclosed properties on their books than reported in March 2007.

Total ‘other real estate owned’ (i.e. foreclosed upon) properties on bank books stands at a hefty $14.16 billion today vs just $2.26 billion seven years ago.

Residential construction and development properties make up more than half of the foreclosed inventory. In fact, construction and development lending is still the one segment of banks' CRE lending that has not recovered from the recession. The total amount of such loans is down 62% than it was in March 2007: $223 billion today vs. $582 billion then.

Despite the steady increase in commercial property values, U.S. banks are still losing money in disposing of their foreclosed properties, although their losses are decreasing. Overall this year, banks have lost $11.83 million on the sale of distressed properties, down significantly from the $352 million banks lost on the sale of foreclosed properties in all of 2013.

Outside of construction and development lending, every other segment of CRE lending has surpassed pre-recession levels.

Multifamily lending is up 47% to $281 billion; owner-occupied property lending is up 39% to $477 billion; and non-residential investment property lending is up 35% to $649 billion.

The improvement in CRE lending is also reflected in the declining delinquency level of bank loans. According to the FDIC, noncurrent loan balances improved for a 17th consecutive quarter, falling by $13.4 billion (6.9%) during the three months ended June 30. At the end of the quarter, the industry’s noncurrent loan rate was 2.24 percent, the lowest level since second quarter 2008.

Noncurrent real estate loans secured by nonfarm nonresidential properties fell by $1.9 billion (9.6%), and even noncurrent real estate construction loans declined by $1.2 billion (15.9%), according to the FDIC.

FDIC-insured banks reported total net income of $40.2 billion in the second quarter of 2014, up $2 billion (5.3%) from a year earlier.

"We saw further improvement in the banking industry during the second quarter," FDIC chairman Martin J. Gruenberg said. "Net income was up, asset quality improved, loan balances grew at their fastest pace since 2007, and loan growth was broad-based across institutions and loan types."

"However, challenges remain, Gruenberg added. "Institutions have been extending asset maturities, which is raising concerns about interest-rate risk. And banks have been increasing higher-risk loans to leveraged commercial borrowers. These issues are matters of ongoing supervisory attention. Nonetheless, on balance, results from the second quarter reflect a stronger banking industry and stronger community banks."

Sheet1

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Select Bank CRE Lending Performance

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BankTotal CRE Loans March 2007 ($000)Total CRE Loans June 2014 ($000)% Change

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Capital One$3,150,798 $22,264,383 607%

.

PNC Bank$5,915,690 $33,461,137 466%

.

JPMorgan Chase Bank$22,911,000 $78,895,000 244%

.

Wells Fargo Bank$45,948,000 $122,880,000 167%

.

Santander Bank$7,095,835 $17,996,702 154%

.

TD Bank$9,495,626 $22,020,719 132%

.

Union Bank$8,649,195 $15,073,150 74%

.

Manufacturers and Traders Trust$15,948,662 $26,227,917 64%

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New York Community Bank$17,589,540 $28,340,178 61%

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U.S. Bank$26,176,167 $38,871,290 48%

.

Bank of the West$9,242,754 $11,439,596 24%

.

Compass Bank$10,786,455 $11,291,046 5%

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Branch Banking and Trust$31,387,831 $29,759,730 -5%

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Bank of America$72,313,239 $63,204,000 -13%

.

SunTrust Bank$26,587,084 $15,781,773 -41%

.

Comerica Bank$18,060,675 $10,375,882 -43%

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KeyBank$18,045,684 $9,095,149 -50%

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Regions Bank$31,965,724 $16,067,286 -50%

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Citibank$19,431,000 $9,675,000 -50%

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