Commercial real estate (CRE) lending continues to play a pivotal role in both the banking sector and broader financial markets. For institutions with significant asset bases, understanding the nuances of CRE exposure, particularly the difference between owner-occupied and other nonfarm nonresidential mortgages, is essential for assessing portfolio risk and identifying strategic opportunities. Drawing on the latest FFIEC Call Report data for Q2 2025, this analysis provides a detailed comparison of nonperforming loan (NPL) trends across the largest U.S. banks and smaller institutions with high CRE concentration.
Nonperforming Loan Ratios Across the Largest U.S. Banks Highlight Risk Disparities
Among the four largest banks (JPMorgan Chase, Bank of America, Citibank, and Wells Fargo) NPLs for “other” nonfarm nonresidential mortgages remain elevated, ranging from 2.1% to 5.7%. Owner-occupied CRE loans, in contrast, demonstrate markedly lower default rates, averaging approximately 1.1%. This performance gap underscores the resilience of owner-occupied CRE and highlights the additional risk inherent in investment-oriented commercial mortgages.
| Bank | Other Nonfarm Nonresidential NPL (%) | Owner-Occupied Nonfarm Nonresidential NPL (%) |
| JPMorgan Chase | 2.1 | 1.1 |
| Bank of America | 5.3 | 1.0 |
| Citibank | 3.9 | 1.2 |
| Wells Fargo | 5.7 | 1.1 |
These figures suggest that even in the largest, highly regulated institutions, certain segments of CRE lending remain vulnerable to default risk.
Smaller Banks with High CRE Exposure Exhibit Lower NPL Ratios, Masking Underlying Risk
Interestingly, banks with CRE exposure exceeding 500% of equity often report lower NPL ratios. For example, Live Oak Bank, Dime Community Bank, ServisFirst Bank, and Bank OZK report “other” CRE NPLs of 2.2%, 1.1%, 0.3%, and 0.1%, respectively. Owner-occupied NPLs range from 0.7% to 4.3%, further emphasizing the apparent strength of these portfolios. Flagstar Bank stands out with “other” CRE NPLs of 10.5%, indicating localized portfolio stress.
| Bank | CRE Exposure (% of Equity) | Other Nonfarm Nonresidential NPL (%) | Owner-Occupied Nonfarm Nonresidential NPL (%) |
| Live Oak Bank | >500 | 2.2 | 4.3 |
| Eagle Bank | >500 | 6.2 | 1.8 |
| Dime Community Bank | >500 | 1.1 | 0.7 |
| ServisFirst Bank | >500 | 0.3 | 0.7 |
| Bank OZK | >500 | 0.1 | 1.0 |
| Flagstar Bank | >500 | 10.5 | 2.7 |
| ConnectOne Bank | >500 | 0.3 | 0.4 |
While these numbers appear favorable, industry intelligence suggests that many of these institutions engage in extensive loan modifications to maintain loans in a “performing” status, a practice commonly referred to as “extend and pretend.” Such measures can temporarily mask underlying credit stress, creating the need for careful analysis beyond reported ratios.
Visualizing CRE NPL Trends Across Institutions
Below is a line graph comparing NPL percentages for owner-occupied versus other CRE loans at high-asset banks and high-exposure banks. The visual highlights the divergence in risk profiles between these two loan categories.
[Insert Line Graph Here]
X-Axis: Banks (Largest Banks vs High CRE Exposure Banks)
Y-Axis: NPL Percentage
Lines: Owner-Occupied CRE, Other CRE
The graph underscores the key insight: owner-occupied loans maintain low NPL levels across all institutions, while “other” CRE loans are far more sensitive to portfolio composition and lending practices.
Implications for Risk Management and CRE Investment Strategy
For developers, investors, and institutional lenders, these trends provide critical guidance:
- Prioritize Owner-Occupied CRE: Lower default rates make these loans more resilient and predictable for lenders and investors.
- Evaluate High-Exposure Banks with Scrutiny: While reported NPLs may be low, loan modifications can obscure true risk.
- Combine Quantitative and Qualitative Analysis: Market intelligence, local economic factors, and bank lending practices must complement reported NPL data.
- Monitor Regulatory Oversight: Changes in capital requirements or stress testing protocols may impact CRE loan performance.
- Align Financing with Market Opportunities: Regional banks with concentrated portfolios may provide access to niche markets, but thorough due diligence is essential.
The Strategic Takeaway
NPL ratios offer valuable insight into commercial loan performance but must be interpreted within the broader context of bank practices, market dynamics, and regulatory oversight. Owner-occupied CRE loans consistently outperform other commercial segments, presenting both lower risk and strategic opportunities. Developers and investors who integrate quantitative data with market intelligence will be best positioned to identify opportunities while mitigating exposure to latent credit risk.
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Thank you,
Robert Kravitz
NFRC Companies
Atlantic Commercial & Business Brokers, Atlantic M & A Advisory
Commercial Loan Capital
Complete Debt Solutions
President