As commercial real estate lending gained momentum in 2013, so did the percentage of banks with CRE concentrations, an analysis of call report data by Trepp shows.

Concentrations peaked in the second quarter of 2008, when 40% of all banks exceeded the regulatory guidance for CRE levels. A steady decline lasted for the next five years, followed by a slight uptick in last year's third quarter to 8.2% (or 567 banks).

Here we measure the changes in CRE concentrations since the first quarter of 2007, breaking down the data by the asset size of the banks (see charts 1, 2 and 5) and the states where they are based (see charts 3 and 4). Trepp classifies a bank as having a CRE concentration if the amount of its construction loans is greater than total capital, or if the amount of its CRE loans (excluding owner-occupied commercial mortgages) is greater than 300% of total capital. Both measures come from regulatory guidelines.

Only one or two of the largest banks (those with more than $100 billion in assets) had an issue with CRE concentrations in 2007, 2008 and 2009, and not a single one has in the years since. That's because increased capital of $240 billion among the largest banks far outpaced their $1.25 billion net gain in CRE lending since the second quarter of 2008, says Matthew Anderson, a managing director at Trepp.

CRE trouble also has been relatively minimal among banks with less than $100 million of assets. Only 13.8 percent of them exceeded the regulatory guidelines at the peak in the second quarter of 2008, and this is down to 4.3 percent as of the third quarter of 2013.

In contrast, 42% of banks with $100 million to $1 billion of assets had concentrations at the high point for this size group (in the first quarter of 2008), as did 56.5% of those with $1 billion to $10 billion of assets (in the third quarter of 2007). This almost makes the peak level of 32.4% for those in the $10 billion to $100 billion range (in the fourth quarter of 2008) seem low.

The proportions have fallen dramatically since then. Only the $1 billion-to-$10 billion group was still in double digits as of the third quarter, when 12.6% had concentrations. (See chart 5.)

Anderson attributes the decline to two factors: banks with $100 million to $100 billion of assets have shed $147 billion of CRE loans since the midpoint of 2008, while their capital levels have risen by nearly the same amount ($150 billion) in that time, he says.

A look at more recent trends shows another dynamic emerging among banks in these three size categories, however.

From the third quarter of 2012 through the third quarter of 2013, banks with less than $1 billion of assets continued to shrink CRE lending. Their construction and commercial mortgage lending contracted, while multifamily mortgage lending remained flat, Anderson says.

But during that same period, CRE lending grew by 8% among banks with $1 billion to $10 billion of assets and by 7.5% among those with $10 billion to $100 billion of assets. The expansion outpaced the 1% growth in total capital for these banks, so a handful of them joined the ranks of those with CRE concentrations, pushing up the overall tally.

When overall concentrations were at their worst back in mid-2008, a majority of banks in 14 states exceeded the regulatory guidelines. In seven states, more than 60% of the banks had concentrations, the highest being Washington's 74%. (See chart 3.)

But the outsize numbers have shrunk since then. No states are running much above 20% anymore, with Georgia's 20.5% being the highest as of the third quarter of 2013. (See chart 4.)

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