OCC’s Spring 2025 Risk Report: No Shocks, But CRE Still Looms

The OCC just released its Spring 2025 Semiannual Risk Perspective and, for community banks, it mostly backed up what we already know.

🏢 No real surprises.....BUT, I did want to highlight why the CRE refinance disaster we've been talking about for a while hasn't materialized with a significant spike in defaults, despite increased stress (past-due and nonaccrual, or PDNA). 

But first, here are some highlights from the OCC:

✅ Credit risk is rising, especially in commercial real estate. Office continues to struggle, and loans underwritten in the low‑rate era face tricky refinancing math.

 ✅ Operational risk remains high, with cyber threats, fraud, and third‑party exposures still front and center.

 ✅ Compliance and BSA/AML risk stay elevated, driven by fraud spikes and Reg E disputes, especially with fast-moving fintechs.

 ✅ Interest rate and liquidity risk still matter. Margins improved with recent rate cuts, but unrealized losses and deposit shifts remain concerns.

 ✅ AI is gaining attention. The OCC highlighted banks experimenting with AI-fraud detection, document processing, compliance, while stressing proper governance.

✋ But here’s the part worth highlighting: CRE refinance risk has been talked about for years, yet we haven’t seen a default wave despite increased loans past-due and in nonaccrual (currently at their highest levels since 2014).

Here’s why:

👉 Lenders and borrowers have leaned into “extend‑and‑pretend” by stretching maturities and modifying terms rather than forcing refinancing at today’s high rates.

 👉 Borrowers are selectively injecting equity, selling weaker assets, and staying current on performing properties.

 👉 Many loans were conservatively underwritten with strong equity cushions, giving both sides the runway to wait.

 👉 And, crucially, defaults remain very low: FDIC data shows CRE non‑accrual and past‑due rates are still far below post‑recession levels, even as distress volume hits decade highs.

👏 Lenders have shown real resilience and discipline thus far. Rather than triggering waves of defaults, many have managed exposures through extensions, portfolio sales, and cautious underwriting. That’s a testament to smart, proactive risk management - especially in the regional and community banking space.

💥 Community banks with CRE exposure need to continue to stay close to borrowers, stress-test for refinance waves or other potential default triggers, and remember that delaying maturity isn’t the same as solving the problem.