Credit quality

While customers of the nation’s largest bank are spending more, an unusually small percentage of their purchases are becoming debt. Executives warn that the bank’s predicament could persist for the rest of the year.

Bankers insist borrowing will pick up on the back of a post-pandemic economic recovery. But so far there are few signs of a rebound, and analysts are skeptical one is imminent.

Only 0.9% of mortgage borrowers are currently at least 90 days delinquent. That figure could rise as high as 3.8% once pandemic-related deferrals lapse — still well below the 6% mark reached after the Great Recession, according to research by the New York Fed.

About 13% of Pacific Mercantile Bancorp's loans are tied to high-risk sectors such as entertainment and food services. The company must build shareholders' equity or its loan-loss allowance above last year's levels to make sure the sale goes through.

Kerry Killinger, former CEO of Washington Mutual, says the asset bubbles and increased consumer debt that contributed to his company's failure are reappearing.

The Texas company kept allowances steady, citing lingering concerns over the pandemic and commercial real estate. Yet it plans to open 25 offices in Dallas after a similar expansion in Houston drove asset and customer growth.

Bank economists predict further improvement in the quality and availability of consumer and business credit now that a third stimulus package has been approved. Still, COVID-19 vaccine distribution will determine how quickly the U.S. economy rebounds.

M&T Bank, Citizens Financial and Huntington Bancshares are playing it safe even as some of their counterparts have started to trim allowances in response to government stimulus efforts and rapid progress in the rollout of the coronavirus vaccine.

Community banks, which for years have relied heavily on commercial real estate lending, have been tightening underwriting standards, conducting more frequent loan reviews and stepping back from certain subsectors to minimize their credit exposure.

The California company said the issue involves a line of credit it funded earlier this year and that it is working with law enforcement authorities on the matter.