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Several banks with heavy hotel exposure grew loans in Q2

Several banks with notable hotel portfolios increased their exposures in the second quarter despite heightened uncertainty as the COVID-19 pandemic continues to weigh on tourism.

Western Alliance Bancorporation, Simmons First National Corp. and WesBanco Inc. were among the large banks with the highest second-quarter exposure to U.S. hotels, an asset class devastated by the pandemic.

Western Alliance reported $2.01 billion in outstanding hotel loans in quarterly filings, or 8.0% of total outstanding gross loans. Simmons' $1.03 billion in hotel loans represented 7.0% of outstanding gross loans, and WesBanco's $729.2 million in hotel loans accounted for 6.6% of outstanding gross loans.

Western Alliance and Simmons First both grew their hotel lending books from first-quarter totals, by 1.7% and 1.4%, respectively.

In a July 17 earnings conference call, Western Alliance President and CEO Kenneth Vecchione noted that the bank's $2 billion hotel franchise finance business is largely focused on "select service" hotels — a lower-priced type of property that has recovered more quickly than luxury properties, in part because it is less dependent on corporate and group travel.

Nearly 85% of Western Alliance's hotel borrowers were either paying as originally agreed or on payment deferral plans bridging into 2021, Vecchione said.

Many U.S. hotels closed in the novel coronavirus' early months in the country, and the industry has rebounded haltingly, with business and group travel still largely dormant and virus cases still high in several key states. Nearly one-quarter of loans in commercial mortgage-backed securities tied to U.S. hotels were at least 30 days delinquent in June.

As in the first quarter, Wells Fargo & Co. was the leader in hotel lending by volume, with $12.25 billion in hotel loans representing 1.3% of outstanding gross loans.

WSFS Financial Corp. and BancorpSouth Bank were among the banks with the largest increases in outstanding hotel loans in the quarter, posting gains of 11.5% and 8.8%, respectively.

A handful of banks did pull back in the quarter, with KeyCorp's hotel lending book shrinking by 12.6% in the quarter and First Hawaiian Inc.'s exposure declining by 12.1%.

WesBanco President and CEO Todd Clossin said in a July 23 earnings conference call that he was "curious" to see data on hotel performance for the full month of July, when viral infections increased in some states. While he called himself encouraged by many hotel borrowers' resilience, Clossin noted that hotels are likely to be more reliant on business travel in the fall, when summer vacations end.

"I would expect the next couple of months to be very telling for that portfolio [and] hotels in general," he said.

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Click here to see the lodging exposure data in Excel.