Net charge-offs at US banks increased further across multiple lending segments in the third quarter, while credit quality metrics worsened on a year-over-year basis.

Sequentially, industrywide net charge-off ratios worsened in the credit card, commercial and industrial (C&I), construction and auto lending segments. The C&I net charge-off rate rose 7 basis points in the third quarter to 0.39%, the highest level since the 2020 fourth quarter.

The net charge-off rate for credit cards was at the highest quarterly level in three years. The average 30-plus-days credit card delinquency rate also rose to a three-year high for the six major US card issuers in September.

Banks' credit quality metrics decline

Net charge-offs as a percentage of average loans and leases were 0.51% in the third quarter, 25 basis points higher than a year earlier. Total net charge-offs at US banks amounted to $15.65 billion, up more than 103% from $7.68 billion in the 2022 third quarter.

Early-stage delinquencies, or loans and leases past due between 30 days and 89 days, totaled $59.33 billion in the third quarter, about 15% higher than the year-ago period. Loans and leases past due 90 days or more also increased by roughly 31.9% to $19.79 billion.

Nonperforming assets as a percentage of total assets ticked up 3 basis points year over year to 0.42%.

CRE net charge-offs down quarter over quarter, up YOY

Third-quarter net charge-offs in US banks' commercial real estate (CRE) loan portfolios increased on a yearly basis but remained lower than the linked quarter.

The CRE loans' total net charge-off rate jumped 15 basis points year over year to 0.16% in the third quarter, down from 0.27% in the second quarter. Total CRE loan net charge-offs were $735.8 million in the third quarter, down from $1.19 billion in the second quarter but up 1,248.8% year over year.

Total CRE loans at US banks grew 3.3% year over year to $1.805 trillion in the third quarter.

About 41.1% of respondents to S&P Global Market Intelligence's latest bank outlook survey said that their institution had limited exposure to office CRE loans over the last 12 months, with 40% expecting to reduce exposure over the next year. However, banks cited CRE credit quality as their top concern in the next 12 months.

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Of the top 20 US banks by CRE net charge-offs, Wells Fargo & Co. logged the highest CRE net charge-off in the third quarter, at $90 million. The bank's net charge-off rate was 0.4%, a 46-basis-point increase year over year.

Greenwich, Conn.-based Fieldpoint Private Bank & Trust posted the highest net charge-off rate among the top 20 companies ranked by CRE net charge-offs in the third quarter. The rate, 13.5%, was a 1,347-basis-point increase from the 2022 third quarter.

Goldman Sachs Group Inc.'s net charge-off rate rose 226 basis points year over year to 2.3% in the third quarter. The company recorded the second-highest CRE loan delinquency rate among the top 20 companies, at 16.8%.

Goldman Sachs said on a third-quarter earnings call that it marked down or impaired its office-related CRE exposures across both equity investments and consolidated investment entities by roughly 50% in 2023.

The highest CRE loan delinquency ratio among the top 20 us banks by CRE net charge-offs was 18.9%, at New York Private Bank & Trust Corp.

CRE delinquencies worsen YOY

US Banks' total delinquent CRE loans stood at $22.67 billion in the third quarter, a more than 83% increase from $12.36 billion a year earlier. Property owners continued to grapple in the quarter with remote work trends and high interest rates that made refinancing difficult.

Delinquent CRE loans as a percentage of total CRE loans increased 55 basis points year over year to 1.26%.