Credit quality

The subprime lender cited low odds that Washington will deliver further economic relief, and the fact that $1.5 billion of loans whose deferral period expired are now more than 30 days behind.

The company's Silicon Valley Bank unit reduced its loan-loss cushion by $52 million. Private-equity and VC clients have warmed to the practice of doing deals virtually, which increases lending opportunities, SVB executives said.

The Cincinnati company, one of just a handful of lenders to reduce its cushion against bad credits in the third quarter, was grilled by analysts who suggested it was being too optimistic about the long-term effects of the pandemic recession.

Banks have managed to steer around trouble spots in energy, hotel and mall-related credits. But fears of further deterioration, an eviction wave or more job losses are keeping lenders circumspect.

Weak loan demand, persistently low yields and the continued struggles of sectors such as hospitality and retail are among the myriad lending challenges facing small regional banks.

Spending is up and deferrals are down sharply, signaling that the economy has turned a corner, CEO Brian Moynihan said. The outlook stood in stark contrast to JPMorgan Chase, which set aside more funds to address potential exposure in consumer banking.

The banking giant may be sitting pretty with plenty of money reserved for bad loans — or it could have to set aside billions more in coming quarters. It hinges on an ongoing U.S. recovery and the passage of a new stimulus package.

The company defied expectations by cutting its reserve for loan losses by $569 million, after adding $20 billion to the allowance in the first half.

Deferrals may be hiding credit issues, leading lenders to track deposit flows, property maintenance and other factors to gauge the true health of their portfolios.

Low rates and intense competition might lead some banks to ease underwriting standards in 2021, when the economy may not yet have recovered.