Credit quality

Lenders are bracing for more companies to fall behind on their loan payments. That could create more opportunities for banks to dispose of these nonperforming credits through an Article 9 sale.

Banks with strong underwriting and stress testing should be well positioned to survive the credit and liquidity issues that may come while being able to continue to serve customers.

A reasonable approach to comprehensive credit risk management can protect banks against the impact of a recession while ensuring the industry doesn't contribute to any potential economic volatility.

Cleveland-based KeyCorp posts a subdued profit in the wake of a loan loss provision that was more than six times greater than the level of fourth-quarter net charge-offs.

Overdue loans for U.S. credit unions hit 0.42% in June — the lowest level in the industry's history. But some warn of deteriorating credit quality as the economy sours.

Late-payment rates are rising at nonbanks that lend to people with lower credit scores. "We're probably entering a stretch where you're going to see a separation between those that are relatively good underwriters and those that are not," one analyst said.

The Buffalo, New York, bank flagged urban hotels and construction projects as potential sources of trouble. “But there’s nothing that’s flashing red right now that says there’s a big crisis coming,” said a top executive.

Credit quality at the largest U.S. bank by assets remains strong for now, but a top executive issued a warning about what may lie ahead.

U.S. lenders issued more credit cards than ever last year, with a growing share of them going to consumers with lower credit scores.

Comerica, which focuses on the energy sector, reported strong payment trends last quarter, while M&T, which concentrates more on real estate, showed deterioration. The divergence reflects varying exposures to sectors hit hard by the COVID-19 recession.

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.