Large numbers of payment deferrals granted to borrowers hard-hit by the economic impact of the coronavirus pandemic are now expiring, and some banks sound confident that they have largely worked as intended by giving consumers and businesses space to regain their footing and find a way forward in the COVID-19 economy.

Many of the deferrals allowed borrowers to put off payments for 90 days, with deferred amounts tacked onto the end of original loan terms. That means many deferrals that started as the crisis deepened and reverberated through April, May and June are lapsing in August and September. Many borrowers need extensions, and a sizable portion may not ultimately survive. However, a number of banks disclosing numbers through late July and early August report that significant proportions are resuming scheduled payments and that balances in forbearance have dropped substantially.

It remains early in the process, and there is considerable skepticism among investors and analysts that the good news will hold. Without a deal between the White House and Democrats on another major relief package, the economy is entering a period of renewed uncertainty where the pandemic continues on without the federal dollars that have helped to keep many households and businesses afloat despite massive levels of unemployment and changes in behavior that have made normal commercial activity impossible.

"There's been a lot of, 'Here's where we were June 30 and it could get a lot better and here is why and here's some anecdotal information,'" said Janney Montgomery Scott analyst Christopher Marinac. For example, a bank might say that a third of its deferrals have come up for renewal "and of that third, only 20% are sticking around. 'We're very optimistic, and we think it's going to be less on the next.' But they haven't finished that process so there's still some ongoing uncertainty."

Marinac warned that requests for deferral extensions could decline less than banks expect. "You could have a company that had 18% deferrals, and it went down to 15%, and the company is suggesting that it could go down to 6% or 7%, but it ends up being 9%," Marinac said. "It's still a big improvement, it's a drop, but less of a drop than they thought. But it's going to vary widely company to company."

Among banks with more than $50 billion of assets, deferrals have generally increased from levels reported in a group of disclosures before June 30 to levels reported afterward, according to data compiled by S&P Global Market Intelligence. They rose at 12 of the 19 banks for which disclosures before June 30 are available. Moreover, at a median of 6.7% of total loans as of the most recent disclosures through Aug. 11, balances with deferrals are large enough to shatter banks under the extreme hypothetical situation where they all default.

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But most of the disclosures before June 30 were for dates through the end of April, when initial deferrals were generally still ramping up. A number of banks that have given updates recently have described favorable trends.

Hancock Whitney Corp. reported that its active loan deferrals have continued to tail off rapidly, dropping to $622 million of balances, or 3% of loans, at Aug. 2 from a peak of $3.6 billion of balances, or 17% of total loans, in May.

Most deferrals at the bank, or $3 billion, have expired after initial 90-day periods elapsed, and Hancock Whitney said 80% of those loans have returned to making scheduled payments or are likely to. The other 20% are likely to need another deferral or a more extensive modification, and some could deteriorate further into the bank's formal categories for loans with weaknesses.

In a conference call on second-quarter earnings, Hancock Whitney executives said their expectations for loan deferrals that would return to making payments have steadily improved from about 50% in late June. They also said the need for second deferrals and more extensive modifications is concentrated among hotel and restaurant borrowers.

Signature Bank said in a Form 10-Q that its loan deferrals fell to $9.24 billion, or 21%, of loans at July 31 from $11.08 billion, or 25%, of loans at June 30. About 60% of $2.36 billion of loans that had reached the end of their deferral period had returned to current payments, and another $526.8 million of loans had returned to current payments even though deferral periods had not yet expired. Most deferral periods at the bank are scheduled to expire in late August and September.

The bulk of deferrals at Signature Bank are in its large commercial real estate portfolio, almost all of which is in the New York metropolitan area and experiencing varying degrees of stress. In a call on second-quarter earnings, Signature Bank executives said rent collections had been running at about 80% among multifamily borrowers, but ranged from just 35% to 65% among retail landlords. Still, the executives expect the vast majority of borrowers to return to making payments, even if pandemic conditions necessitate another round of 90-day deferrals. They cited low loan-to-value ratios and borrowers' commitment to holding onto their properties.

In a July 21 note, Keefe Bruyette & Woods analyst Christopher McGratty observed that the continuation of a 60% cure rate would still leave a large amount of loans in deferral that "could continue to place an overhang on the shares near-term." But, in a July 22 note, Compass Point analyst David Rochester emphasized the prospect that Signature Bank would continue to reduce deferral balances and said its borrowers could "see tailwinds" in rent collections as New York continues to reopen.

Synovus Financial Corp. reported that its deferrals fell to $701.9 million, or 2%, of its total loans on Aug. 4, including $246.0 million in a second 90-day deferral period, down from a peak of 15% of its total loans. The bank reiterated that it expects 3% to 5% of its portfolio to ultimately be subject to second 90-day deferrals, partly because of the surge of coronavirus cases across many of its markets in the Southeast in recent weeks.

Regions Financial Corp. disclosed Aug. 11 that its balances with deferrals fell to $2.15 billion, or 2% of total loans, at July 31, from $5.69 billion, or 6%, at June 30. Less than 25% of business borrowers that had received assistance were still on deferral.

Cadence Bancorp. and Renasant Corp. are also among the banks that have given recent figures showing significant improvement in deferral levels. Cadence said its active payment deferrals fell more than 50% to $671 million at July 31 from $1.4 billion at June 30, or to about 5% of total loans, excluding federally backed small-business rescue loans. Renasant said its deferrals fell to 12.3% of total loans, excluding Paycheck Protection Program loans, on Aug. 5, from 21% on June 30.

In an Aug. 11 note, analysts at Raymond James summed up their view on the recent batch of upbeat news on deferrals. "While the jury is still out on ultimate loss content, a declining pool of loans on deferment or on an interest-only payment structure bodes positively for what assuredly will be increasing credit migration in coming quarters," they said.