Major Banks Accelerate Resolution of Troubled CRE Loans

Wells Fargo and Bank of America increased commercial real estate loan write-offs in the third quarter as they continued to reduce exposure to troubled borrowers. The higher write-offs coincided with declines in the banks’ reported problem CRE loan balances, reflecting efforts to resolve or remove distressed debt from their portfolios.

Wells Fargo’s CRE write-offs rose to $107 million from $16 million in the second quarter. Over the same period, its problem CRE loans declined 20% to $2.7 billion, supported by reductions in office and hotel lending exposure.

Bank of America recorded $105 million in CRE write-offs, compared with $2 million in the previous quarter. Its troubled CRE loans fell 17% to $888 million.

The relationship between these figures is important. When a bank writes off a loan, that balance is removed from its problem loan totals. Consequently, a declining troubled-loan portfolio does not necessarily mean borrowers have become more capable of repaying their debts. It can also reflect the recognition and resolution of existing losses.

Credit Conditions Improve, but Industry Risks Persist

Commercial real estate credit stress has eased across large U.S. banks, although it remains above historical norms. Federal Deposit Insurance Corp. data showed that 3.08% of CRE loans at banks with more than $250 billion in assets were past due or in nonaccrual status in the second quarter.

The share has declined for seven consecutive quarters but remains more than five times the pre-pandemic average of 0.59%. The trend indicates gradual improvement without a complete return to historically healthier credit conditions.

Banks are also adjusting their reserves against potential CRE losses. Wells Fargo reduced its reserves to approximately $1.61 for every $100 in CRE loans, down from $1.77 in the second quarter. Bank of America’s reserves declined to $1.14 per $100, compared with $1.28 previously.

These reductions suggest that the banks anticipate lower future losses. However, the outlook remains sensitive to financing conditions and the performance of commercial property borrowers.

Banks Follow Different CRE Lending Strategies

Major U.S. banks are taking different approaches to their commercial property portfolios. Bank of America increased CRE loans by nearly 6% quarter over quarter to $75.2 billion. JPMorgan Chase, which held a larger $148.7 billion CRE portfolio, expanded its lending by approximately 1%.

Wells Fargo continued to reduce its exposure, particularly in office properties. Its office loans declined 7% from the previous quarter to $18.6 billion, more than 21% below the year-earlier level. Its total CRE portfolio fell by approximately $1 billion to $132 billion.

Bank of America executives reported substantial improvement in criticized office exposure, estimating that the bank’s watchlisted office loans had declined by 50% to 60% over the preceding year. The bank attributed the improvement partly to economic resilience and indicated that overall criticized commercial exposure was below pre-pandemic levels.

Meanwhile, JPMorgan reported a slight decline in its overall nonaccrual business loans to $4.8 billion, although its earnings supplement does not separately disclose CRE problem loans. Citigroup has also emphasized maintaining client relationships through economic growth while remaining prepared for less favorable conditions.

Refinancing Costs Remain a Critical Vulnerability

Interest rates continue to pose a challenge for commercial property owners facing refinancing. Higher borrowing costs can increase debt-service expenses and make it more difficult to refinance loans on acceptable terms, particularly where property income or valuations have weakened.

JPMorgan Chief Financial Officer Jeremy Barnum identified higher rates and energy costs as pressures on parts of the economy, including commercial real estate, while describing the bank’s overall credit outlook as relatively stable.

The source report places the Federal Reserve’s benchmark rate at 3.75% to 4% following a September increase, while the 10-year Treasury yield exceeded 5.1% on Monday. These financing conditions reinforce the importance of monitoring debt maturities, refinancing capacity, and property-level cash flow.

Bank of America’s management indicated that commercial credit losses were already sufficiently low that further improvement might be limited. Its outlook for 2027 was positive, but executives did not anticipate a major change in underlying credit quality at current levels.

What Investors Should Watch Next

The next phase of CRE credit performance will depend on whether declining problem-loan balances translate into sustained improvements in repayment and refinancing conditions. Continued reductions in criticized loans and loss reserves would support the view that the sector is stabilizing, while renewed increases in delinquencies or write-offs could indicate that underlying pressures remain unresolved.

Investors should also distinguish between banks reducing exposure and those expanding lending. Portfolio growth, reserve coverage, and realized credit losses will provide different signals about each institution’s risk appetite and expectations for commercial property markets.