Several US banks continued to cut restaurant exposure in Q3

A number of U.S. banks continued to log quarter-over-quarter declines in restaurant sector exposure as the pandemic-hit industry's future remains uncertain.

Restaurant performance fell for the third consecutive month in September mainly because of broad-based declines in forward-looking indicators, according to the National Restaurant Association, which has an index that measures same-store sales and other performance metrics.

A decreasing proportion of restaurant operators are expecting business conditions to keep improving in the next months, even though a "solid" majority of operators booked same-store sales and customer traffic levels that were above September 2020 readings, the association noted.

The majority of banks with outstanding exposure to restaurants of more than $100 million as of Sept. 30 recorded quarter-over-quarter decreases in their exposure, according to S&P Global Market Intelligence data. San Francisco-based First Republic Bank posted the largest decline at 17.1%, closely followed by Pine Bluff, Ark.-based Simmons First National Corp., which recently completed two acquisitions and revealed it is looking for more bank deals, at 16.1%.

Despite the decline in restaurant outstanding exposure, Simmons First Chairman and CEO George Makris said the company's third-quarter commercial loan pipeline was up for the fourth consecutive quarter to $1.5 billion.

"We're encouraged by this trend and other anecdotal evidence in the market that will translate into an increase in total loans," the executive said during the company's earnings call.

Meanwhile, more banks have booked quarter-over-quarter increases in restaurant outstanding exposure compared to the previous quarter, including Green Bay, Wis.-based Associated Banc-Corp to 17.7% and Rosemont, Ill.-based Wintrust Financial Corp. to 8.2%.

On the company's earnings call, Associated Banc-Corp President and CEO Andrew Harmening said the bank continued to see signs of growing commercial lending activity in the third quarter. According to the executive, average commercial and business lending loans, excluding Paycheck Protection Program loans, rose by more than 3% from the previous quarter, with general commercial leading the increase.

"On a longer-term trend, we're pleased to see commercial and business lending rebound during the quarter, reflecting our first expansion in more than five quarters," Harmening said.

Fifth Third Bancorp's restaurant outstanding exposure also went up 6.3%. Chairman and CEO Greg Carmichael said during the bank's third-quarter earnings call that the Cincinnati-based company's commercial loan production rose 5% from the previous quarter, representing the strongest quarter since the fourth quarter of 2019.

Click here to see the restaurant exposure data in Excel.