After months of industry anxiety over the health of American banks, regional lenders are showing unexpected stability. A new Reuters analysis of Q3 earnings reports finds that these institutions are proving broadly resilient despite widespread worries triggered by a handful of troubled loans. But the full picture is more nuanced. Reuters notes that its assessment covers only regional banks—a category just below the nation’s giants—leaving thousands of smaller community institutions outside its lens. Meanwhile, the troubled office space remains a significant challenge, with origination for sector loans up sharply, according to data from the Mortgage Bankers Association.
In fact, Reuters reported that at least eight mid-sized and regional U.S. banks saw lower non-performing commercial real estate loan rates in Q3 2025 than in the same period a year earlier. Almost a dozen lenders reduced their office loan concentration, tempering industry fears of widespread distress.
Flagstar Bank, which made headlines earlier this year after transitioning from New York Community Bank and incurring billions in related losses, is now a turnaround story. As detailed in its Q3 report, Flagstar’s credit loss allowance for non-owner-occupied office properties dropped by 142 basis points, from 6.85% in Q2 to 5.43% in Q3. Allowances for loans outside the office sector, including owner-occupied properties, declined from 2.14% to 2.02%.
Regions Financial’s CEO John Turner addressed the office and transportation portfolios on an October 17 earnings call, saying, “We've identified office and transportation as portfolios of interest for quite some time and the charge-offs, predominantly the charge-offs you saw in the third quarter, related to office.”
He added, “We expect to resolve some additional credit exposures, either in office or transportation in the fourth quarter, which is why we're guiding to continued somewhat elevated charge-offs, but still feel good about long-term, our guidance of 40 to 50 basis points.”
Other institutions remain cautious. M&T Bank’s CFO Daryl Bible explained in an October 16 earnings call that “we’re still looking to reduce” office loan exposures. However, their CRE origination approval rates have “about double[d]” compared to previous quarters. Citizens Financial Group interim CFO Chris Emerson reported the bank’s general office portfolio declined modestly in Q3 to $2.5 billion, with reserves of $314 million equating to a “robust 12.4% coverage.”
Despite efforts to reduce risk, office properties continue to pose problems for banks. Thomas Mason, principal analyst at S&P Global, told Reuters,
"There is a profound change in the way people work. Office vacancy rates are higher than they were even post the global financial crisis. We definitely haven't worked through all of the office issues."
Yet, in a somewhat surprising twist, the Mortgage Bankers Association reported Q3 mortgage originations up 36% year-over-year, with office loan originations up a staggering 181%. The resilience of some banks and the surge in new lending underscore how the office sector remains both a problem area and a source of new activity within the broader CRE landscape.
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