- U.S. banks opened their nonresidential construction lending spigots even wider in the second quarter, despite delinquencies on outstanding loans hovering at a higher level than any point in 2018 or 2019, according to an S&P Global report.
- Nonresidential construction lending rose 4.2% in Q2 to a total of $300 billion on banks' books in the face of $2.78 billion in delinquencies, which amounted to 0.93% of all loans in the category. While those delinquencies were down marginally from the first quarter, they still represented a level not seen since the third quarter of 2017.
- Wells Fargo and JPMorgan Chase were the leading nonresidential construction lenders in Q2, both of which increased their exposure to nonresidential loans in the quarter. Little Rock, Arkansas-based Bank OZK had the greatest exposure to construction loans overall, as a percentage of its total loans outstanding, S&P reported.
The increase in nonresidential construction lending amid continued delinquencies comes as many construction financiers have said they are ready and willing to back new construction deals while they can.
Some developers have been dragging their feet on kicking off new projects due to the uncertainty brought on by the pandemic, but observers have reported that banks are anxious to make construction loans now, in case conditions should grow worse in the months ahead and the lending window closes.
Here are the 10 U.S. banks with the most construction loans as of the second quarter of 2020:
|Company||Total nonresidential construction loans||% change Q1 to Q2|
|Wells Fargo||$18.52 billion||3.2|
|JPMorgan Chase||$9.40 billion||4.9|
|Bank of America||$8.76 billion||4.5|
|Truist Financial Corp.||$8.58 billion||3.9|
|U.S. Bancorp||$8.30 billion||2.3|
|M&T Bank||$8.17 billion||5.8|
|PNC Financial Services Group||$6.92 billion||7.4|
|Bank OZK||$5.03 billion||18.5|
|Fifth Third Bancorp||$4.48 billion||4.8|
Making new loans was certainly the focus for Bank OZK, according to S&P’s report, which highlighted the regional bank’s efforts to aggressively grab market share even as its competitors may have tightened up. Bank OZK increased its nonresidential loans by 18.5% in the quarter to $5.03 billion, and construction loans in general represented 36.4% of its overall outstanding loans.
“Our sponsors have always appreciated our sophistication and expertise and ability to execute,” said George Gleason II, Bank OZK’s chairman and CEO, on the company’s July 24 earnings conference call, according to a transcript.
“I think that appreciation is higher now,” said Gleason. “They've always appreciated our enduring up-cycle and down-cycle commitment to the space and the fact that we're... always there for them, if they've got a good project that makes sense.”
Other banks that upped their nonresidential construction lending substantially in Q2 include Zions BanCorp, which grew its loans by 16.5%; Citizens Financial Group, which increased them by 10.7%; and Synovus Financial Corp., which reported a 9.6% expansion.
The move to grab lending market share during the uncertain conditions surrounding COVID-19 mirrors the efforts by some developers with an appetite for increased risk to move ahead with new projects and take advantage of lower construction costs as contractors submit bids at low or no profit, just to keep their crews active.
Plowing ahead in that “survival bidding” environment could pay off for developers and the banks that are willing to back them, if they finish their projects on the right side of the risk curve.
On the other hand, moving forward with projects in the current environment could also have less favorable outcomes, should conditions continue to tighten.
“If you’re struggling, how do you bid work? You bid it cheap,” said Shane Napper, president of construction at Grand Rapids, Michigan-based Rockford Construction, which also has a development arm. “So developers say, 'Great, I got 4% off this job.' But what happens when that contractor goes into default in four months? How cheap is it then?”