Some U.S. banks shed hotel loans during 2021 as the sector struggles to recover from the disruption of the COVID-19 pandemic.
A handful of small regional banks reported the largest year-over-year declines in hotel loans. Sioux Falls, S.D.-based Great Western Bancorp Inc. reported $540 million in outstanding hotel loans at the end of the fourth quarter, a decrease of 34.4% year over year, according to S&P Global Market Intelligence data. Cincinnati-based First Financial Bancorp. and McKinney, Texas-based Independent Bank Group Inc. also reported significant percentage decreases, cutting their outstanding loan balances by 24.7% and 21.5%, respectively.
First Financial executives said the bank decided to sell some hotel loans as the properties continued to struggle, especially hotels in city centers that rely on conventions and business travel.
"Some of those in the central business districts, or maybe they came new online during the pandemic, they were just ramping up slower. And with the continued concerns about where the pandemic is going, we thought it was prudent to exit some of those that were more problematic in our mind," First Financial President and CEO Archie Brown said on the bank's earnings call.
Across the U.S. hotel sector, performance regained some footing in 2021 but still lagged pre-pandemic levels. Average revenue per available room for the full year reached $71.87, which was 16.8% lower than the average in 2019, according to data from STR.
Some much larger banks went the opposite direction, increasing hotel balances on a year-over-year basis. Wells Fargo & Co., the top hotel lender in the analysis with $12.76 billion of hotel loans, grew its balance by 5.2%. Charleston, W.Va.-based United Bankshares Inc. disclosed $846 million in outstanding hotel loans at Dec. 31, 2021, an increase of 18.2% from a year prior. Pasadena, Calif.-based East West Bancorp Inc. had $2.09 billion of commercial real estate hotel exposure, up by 10.4% year over year.
S&P Global Market Intelligence's analysis focused on 18 banks that disclosed outstanding exposure to the lodging sector of greater than $300 million at year-end 2021. In that group, Los Angeles-based Hope Bancorp Inc. reported the highest concentration at 9.3% of its total gross loans. The bank reported $1.31 billion in loans to hotels and motels at Dec. 31, 2021, down 19.9% year over year.
In a Jan. 25 earnings call, executives said the bank saw a significant uptick in multifamily and warehouse loans during the fourth quarter as the company worked to reduce its concentration of lodging loans.
"The broader business development capabilities we have built have enabled us to generate record loan production while substantially eliminating originations of hotel/motel loans in order to continue working down this concentration in our portfolio," said Hope Bancorp Chairman, President and CEO Kevin Sung Kim.
Click here to see the lodging exposure data in Excel.