Credit quality

Washington Trust shares plunged after the Westerly, Rhode Island, company disclosed it booked an office deal in the third quarter, boosting the size of its portfolio while other lenders are pulling back.

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.

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.

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.

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

Federal relief efforts have minimized loan losses so far, but risks remain in credit card, auto and business lending. Many borrowers will need another lifeline to stay afloat until the economy rebounds, CEO Jamie Dimon says.

Commercial real estate portfolios have held up better than expected during the pandemic. But rising delinquencies and fears of a delayed economic recovery are renewing questions about credit quality.

Hospitality sector credits are coming out of forbearance just as coronavirus cases surge. Restructurings and charge-offs could mount unless vaccine distribution happens quickly enough to jump-start travel by mid-2021.

Lenders also increased jumbo product availability as well as rolling out new SOFR-indexed ARMs.

Lenders pushed back against the notion that city dwellers' pandemic-driven flight to suburbia would hurt them. They say fewer landlords have sought deferrals as vacancy rates remain low and rent collections have stabilized.