The amount of past due commercial real estate loans in banks' portfolios has skyrocketed even as the banking industry has seen profits grow, new federal data shows.

Past due nonresidential commercial real estate loans last quarter increased by $1.8B, or 9%, from the prior quarter, according to a quarterly report from the Federal Deposit Insurance Corp. However, the banking industry saw a rebound in net income to $64.2B in the first quarter, a 79.5% increase from the prior quarter, the report found.

“Weak demand for office space is softening property values, and higher interest rates are affecting the credit quality and refinancing ability of office and other types of commercial real estate loans,” FDIC outgoing Chairman Martin Gruenberg said, according to CoStar. “As a result, the noncurrent rate for non-owner occupied commercial real estate loans is now at its highest level since fourth quarter 2013.”

The largest banks, those with assets greater than $250M, saw a past due and nonaccrual rate of 4.48%, well above the pre-pandemic rate of 0.59%. For banks with assets between $10B and $250B, that rate was 1.47%, up from 1.35% in the first quarter and 0.66% pre-pandemic.

This increase is contributing to the amount of ‘problem banks’ that either have low capital reserves, a high number of nonperforming loans, weak management, consistent losses or liquidity problems, according to CoStar.

The number of banks on the FDIC's problem list jumped from 52 in the fourth quarter of 2023 to 63 in Q1. These banks held a total of $82.1B in assets in Q1.