Share of Nonperforming Loans Increases during Second Quarter of 2024

The share of nonperforming loans continued to increase during the second quarter of 2024, both within the Sixth District and nationwide at commercial banks with less than $10 billion in total consolidated assets (see the chart).

The share of nonperforming loans-defined as those on nonaccrual or as other real estate owned-at Sixth District commercial banks has increased more steeply over the past two quarters compared to US commercial banks and now slightly exceeds that of US commercial banks. As of June 30, 2024, the share of nonperforming loans at Sixth District commercial banks was equal to 0.67 percent of total loans, while the share at US commercial banks was 0.63 percent.

Although the aggregate share of nonperforming loans remains below 2021 levels for both the Sixth District and more broadly, the sustained increasing trend warrants monitoring to determine whether this is normalization to prepandemic levels, as noted by bank management at several institutions, or whether it indicates a turn in the credit cycle.

It is important to note that performance by individual banks will vary as conditions evolve. The ability to remain resilient to potential asset quality deterioration depends on strong credit risk management practices. You can read here about supervisory policy and guidance on credit risk management.

By Saba Haq, a lead financial institution specialist in the Federal Reserve Bank of Atlanta's Risk Analysis Unit