Credit quality

Executives and boards are bracing for elevated loan losses and stagnant revenue, which will mean more conversations about belt tightening as opposed to added investment.

Criticized assets are on the rise, especially in commercial portfolios, and may be the forerunner of a wave of loan losses later this year or next year unless economic conditions strengthen.

More than a third fear the fallout from the coronavirus pandemic could drag into 2022 or later, and they are most worried about commercial real estate loans, according to a Promontory Interfinancial Network survey.

Community bank earnings are usually easy to understand, but loan deferrals and modifications as well as the complexities of the Paycheck Protection Program are skewing financial statements.

Current economic conditions will have "a continued adverse effect on our businesses” if they persist or worsen, Bank of America warns.

In what was a challenging quarter for the industry, the company reported strong loan growth and a wider margin. Continued momentum will depend on government stimulus, the reopening of New York City and borrowers' ability to make payments after their deferral periods end.

The Ohio company, which has beefed up its loan-loss reserves, raised the possibility of more sales of oil and gas credits and talked up strong retail segments such as its marine and RV loans.

CEO Greg Carmichael says the Cincinnati company has cut expenses but will proceed with branch openings in the Southeast and investments in its commercial loan and mortgage origination platforms to lay the groundwork for post-pandemic growth.

Other regionals set more aside for loan losses than the Cleveland bank did in the second quarter, and its ratio of reserves to total loans is slightly lower, too. But Key executives say the portfolio is balanced and holding up well despite the pandemic’s economic toll.

The Georgia company warned that outstanding loans could fall and deferrals will likely rise as its home state and Florida grapple with the pandemic.

Loans to retailers and hotels are at the highest risk of default, the Salt Lake City company said in its second-quarter earnings presentation.

The Mississippi company said it decided to take aggressive measures to reduce its exposure to energy firms.

The company said it recorded a large loan-loss provision in the second quarter to reflect Coex Coffee International's pending liquidation.

Net charge-offs fell at Citigroup and Wells Fargo, thanks to forbearance and federal stimulus. Leaders of those banks are warning that delinquencies could rise once the benefits of those programs wear off.

Megabanks like JPMorgan Chase boosted loan-loss provisions to record levels in the second quarter in preparation for what could be a wave of loan defaults.

The results show how Wall Street giants such as Citigroup leaned on volatile businesses in the second quarter to counter mounting signs of distress from lending operations.

The country's largest bank said second-quarter profit fell 51% to $4.69 billion, a smaller drop than forecast, as record trading revenue helped counter the biggest loan-loss provision in its history.

Bankers had asserted in April that they could handle a slump in oil prices tied to the coronavirus pandemic. Continued volatility, combined with declining collateral values and a rise in bankruptcies for exploration companies, is denting their confidence.

The New York-area companies' $489 million agreement runs counter to recent merger pacts built around branch cuts and more tech spending.

Deferral periods on scores of commercial loans will soon be ending, and many banks’ profits this year could turn on whether borrowers can resume making payments or will seek extensions.