For some time, many government bank regulators, analysts, and others have assumed that the weak link in commercial real estate lending by financial institutions has been smaller than community ones. But a new analysis by Reuters suggests that regional banks are feeling the strain of lending, especially on office projects. And a previous deep dive by Morningstar said that the 4,100 or so community financial institutions that represent 90% of commercial banking are in better shape now than before the pandemic.

Start with the Reuters analysis that examined earnings reports from "nearly a dozen mid-sized and regional" U.S. commercial banks. The organization compared third-quarter reports in 2024 to those from 2023 and looked at the percentages of non-performing loans (NPLs) in their commercial real estate loan portfolios. These were loans in which the borrowers missed scheduled payments.

The first question to ask is how representative fewer than a dozen banks might be. Regional and mid-sized banks range in size between $10 billion and $100 billion in assets, which is roughly 104 banks according to the Federal Reserve's June 30, 2024 list of financial institutions with at least $300 million in consolidated assets. A dozen examples, assuming they were taken randomly, would be far smaller than the number needed to get a 95% confidence interval with a 5% margin of error. So, the Reuters analysis is anecdotal and not statistical. This can't necessarily be extrapolated to explain the entire population of mid-sized and regional banks.