Two large banks are showing that any return from the office market downturn may well be a bumpy ride.

Bank of America and PNC Financial Services, in second-quarter earnings reports, said they wrote off hundreds of millions of dollars more in delinquent commercial real estate loans during the three months that ended June 30. That extends a streak of several quarters of commercial real estate loan charge-offs. A significant amount of the charge-offs are tied to loans for office properties.

Federally regulated banks, significant lenders for commercial real estate, have been forced to grapple with less demand for office buildings. JPMorgan Chase and Wells Fargo last week reported elevated levels of commercial real estate loan charge-offs during the second quarter, primarily from their office portfolios.

At the same time, Bank of America suggested some positive signs are emerging. The bank recorded drops in reservable criticized loans, where the borrower missed some payments so the loans have an elevated risk of default, as well as nonperforming loans and net charge-offs for commercial real estate loans during the second quarter.

The expectation is that "net charge-offs [of office loans] in the second half of 2024 will be lower than the first half of 2024,” Bank of America CEO Brian Moynihan said during a conference call with analysts.

Bank of America, based in Charlotte, North Carolina, recorded $1.97 billion of nonperforming commercial real estate loans in the second quarter, a 13% decline from the first quarter. Bank of America didn’t provide a figure specifically for nonperforming office loans.

Nonperforming loans are those where the borrower has not made payments for at least three months.

Nevertheless, Bank of America charged off $272 million of commercial real estate loans in the second quarter, a 75% increase from the same period a year earlier.

Bank of America held $64.4 billion in commercial real estate loans for properties located in the United States as of June 30. About $16.3 billion of that total is for office properties.

At Pittsburgh-based PNC, net loan charge-offs increased by 7.8% to $262 million compared to the first quarter mainly because of higher commercial real estate net loan charge-offs. About 40% of those charge-offs, or $106 million, were tied to office-property mortgages.

PNC expects that its elevated level of loan charge-offs will persist throughout 2024 though, in a signal of future volatility, “the size of [loan charge-offs] will vary quarter to quarter given the nature of the loans,” Chief Financial Officer Robert Reilly said during a call.

The amount of office loans that PNC has charged off has varied each quarter going back a year. The $106 million of charge-offs in the second quarter is more than double the $50 million it charged off in the first quarter. In the second quarter of last year, PNC charged off $87 million of office loans.

PNC may still have much work to do in paring delinquent office loans.

About half of its loans on office buildings with multiple tenants are marked criticized, while it classified about 20% of office mortgages as “nonperforming.” Multitenant office buildings are typically considered riskier than owner-occupied and single-tenant office buildings.

PNC has set aside reserves to cover about 10% of its $7.5 billion office loan portfolio in the event borrowers become late on payments and the bank loses money.

Morgan Stanley, a New York-based investment bank, said in a statement its provision for losses on all types of loans fell 66% to $22 million due to “lower provisions in the commercial real estate sector.” Morgan Stanley held $12.6 billion in commercial and residential real estate loans as of June 30, though it did not break out dollar amounts for its commercial real estate or office loans.

Morgan Stanley recorded $48 million in net loan charge-offs in the second quarter within its institutional securities business division, Chief Financial Officer Sharon Yeshaya said during a conference call. The charge-offs were "primarily related to two commercial real estate loans," Yeshaya said without providing further details.

A group of regional and online-only banks are scheduled to report second-quarter earnings on Wednesday: Ally Financial, Bank OZK, Citizens Financial Group, First Horizon and U.S. Bancorp.