While U.S. banks' outstanding construction loans grew during the third quarter, construction loan delinquencies kept declining.
Banks continued to increase their real estate construction lending portfolios, both nominally and relative to their balance sheets. Construction loans at U.S. banks increased 2.2% from the linked quarter to $402.06 billion in the third quarter, 4.1% higher than the year-ago period, according to S&P Global Market Intelligence data. On a relative basis, construction loans accounted for 3.7% of gross loans and leases, up from 3.6% in the prior quarter and 3.5% in the prior-year period.
Meanwhile, the total volume of delinquent construction loans on bank balance sheets fell to $3.37 billion in the quarter. Delinquent loans represented 0.9% of total nonresidential construction loans, while residential construction loans that were delinquent stood at 0.6%.
Nonresidential construction loans clocked in at $315.15 billion, up from the $311.54 billion in the second quarter and $307.89 billion a year earlier. Construction loans on one- to four-family residential properties totaled $86.90 billion in the third quarter, up from $82.00 billion a quarter earlier and $78.50 billion in the third quarter of 2020.
Although Wells Fargo & Co. remained at the top of the table of U.S. banks by greatest nominal exposure to construction in the third quarter, the company decreased its exposure to real estate construction loans. Wells Fargo's construction portfolio stood at $19.51 billion during the third quarter, representing 2.2% of the bank's gross loans and leases, mostly concentrated in nonresidential construction.
Bank of America Corp. also stayed as the No. 2 bank by nominal exposure with $10.75 billion in construction loans, representing 1.1% of its gross loans and leases. Similar to Wells Fargo, nonresidential construction accounted for the vast majority of the bank's exposure while residential construction loans decreased 11.2% to slightly below $500 million.
By contrast, Fifth Third Bancorp grew its exposure to residential construction loans the most during the quarter among banks with the largest construction books. The company increased its residential construction loans portfolio by 27.7%, totaling $383.1 million during the most recent quarter. Fifth Third's total construction loans represented 4.3% of gross loans and leases in the most recent quarter.
Bank OZK remained the bank with the largest proportion of construction loans among the top 20 lenders, and the Arkansas-based bank continued to increase its exposure in the third quarter. Construction loans accounted for 42.2% of Bank OZK's gross loans and leases in the third quarter, totaling $7.72 billion.
