The delinquency rate of commercial real estate loans at U.S. banks was sharply down in the third quarter.

The rate ticked up in the past two quarters, but dropped in the third quarter to 0.58%, compared to 0.73% in the second quarter, according to an S&P Market Intelligence analysis. The lowest delinquency rate recorded since 2016 was 0.50% in the fourth quarter of 2019.

Regulators define commercial real estate loans as construction and land development loans + multifamily loans + nonowner-occupied nonresidential property loans + commercial real estate loans secured by collateral other than real estate.

The 0.58% delinquency rate in the third quarter was down 25 basis points from the year-ago quarter and 30 basis points from the third quarter of 2020.

CRE loan exposure continues to rise

Regulators increase their scrutiny of banks that exceed either of two thresholds: construction loans with at least 100% of risk-based capital, or CRE loans with at least 300% of risk-based capital levels and 50% growth in CRE over at least the last 36 months.

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The number of U.S. banks exceeding regulatory guidance on CRE loan concentration grew for the sixth straight quarter to its highest level compared to the previous high in the second quarter.

The number of banks exceeding either metric climbed to 540 in the third quarter, up by 7.1% from 504 in the previous quarter and 43.2% from 377 in the same period of 2021.

Banks exceeding guidance

The largest bank exceeding regulatory guidance in the third quarter was Wayne, N.J.-based Valley National Bank, with $55.93 billion in total assets. Valley National posted 101.9% CRE loan growth in the last 36 months, while having a CRE loans-to-Tier 1 capital plus allowance for loan and lease losses ratio of 433.1%.

The two largest banks to exceed both regulatory thresholds in the quarter were Seattle-based Washington Federal Bank, with $20.77 billion in total assets, and San Diego-based Axos Bank, with $17.32 billion in total assets.