- Concerns over potential credit deterioration led community banking organizations (CBOs) to significantly increase provisions for loan losses at the onset of the COVID-19 pandemic._ This resulted in a substantial increase in allowance for credit losses (ACL) in 2020.
- However, significant credit losses did not materialize. Contrary to expectations, the level of noncurrent loans fell to a historic low during the pandemic._ Strong loan performance coupled with elevated ACL levels resulted in historically high ACL coverage of noncurrent loans.
- For the past three years, loan delinquencies have been rising while ACL levels relative to loan balances have been gradually falling. These trends have moved asset quality metrics toward more normal levels. As of year-end 2025, noncurrent loans increased to 0.8 percent of total loans while ACL declined to 1.3 percent, resulting in a decline in ACL coverage of noncurrent loans to 1.6 times.
Questions or comments? Please contact KC.SRM.SRA.CommunityBankingBulletin@kc.frb.org
Endnotes
-
1 Community banking organizations are defined as having less than $10 billion in total assets.
-
2 Noncurrent loans are loans that are 90 days or more past due or on nonaccrual status.
The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.