U.S. Banks Disclose Exposure To Foodservice Industry Hit Hard By COVID-19

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Many of the US banks that disclose exposure to restaurants in their first quarter results are primarily exposed to the limited-service segment of the industry. Loans to limited-service restaurants, especially national franchises, may pose less credit risk compared to full-service restaurants, as the coronavirus pandemic keeps many businesses closed and customers at home.

Full-service restaurants usually offer a wide range of food and drink options as well as wait staff. Examples include Outback Steakhouse and Red Lobster. In limited-service restaurants, customers pay before eating. Typically, menus are more focused and place more emphasis on low-cost items that can be prepared quickly – think McDonald’s.

A survey by the National Restaurant Association found that year-over-year sales for the first 10 days of April were down more than 80% each for full-service categories: family dining, casual dining, and dining. refined. Sales declines were less pronounced for certain limited-service categories: 57% for fast service and 64% for fast casual.

“While almost all of the limited-service operators also reported declining sales, the losses were somewhat less severe,” wrote Bruce Grindy, the association’s chief economist. “This is because most of these operations were already well equipped to handle offsite traffic, which is the only option available in most of the country where mandatory dining room closures have been implemented.”

Among banks in the S&P Global Market Intelligence analysis, Wells Fargo & Co. reported the highest restaurant loan balance. As of March 31, Wells Fargo had $ 5.8 billion in assets, including $ 3.9 billion in limited-service restaurants, according to an April 14 financial supplement.

Houston-based Cadence Bancorp reported the highest proportion of restaurant loans to gross loans, with a ratio of 8.1% as of March 31. More than two-thirds of its current exposure was for limited service according to an April 29 investor presentation. The Cadence Bank, or CBRG, restaurant group is home to the vast majority of the company’s restaurant loans.

On the bank’s April 29 earnings conference call, Cadence Bancorp President and CEO Paul Murphy Jr. described quick-service pizza restaurants as “the most resilient segment” of CBRG. . He said year-over-year comparable store sales were “fairly stable.” He also said the full-service segment of the portfolio was the most stressed, with weekly sales drops of at least 60%.

Almost a third of CBRG’s portfolio as of March 31 was held by franchisees of Taco Bell, KFC and Pizza Hut, which are divisions of Yum! Brands Inc. Another 16% was allocated to franchisees of The Wendy’s Co. and Burger King. CBRG operates 20 of the 40 largest restaurant franchise companies in the United States.

“We believe that as the industry restructures and reopens, it is reasonable to expect these stronger brands to recover faster, especially since some of the weaker brands may not survive. “said Murphy.

Citizens Financial Group Inc. also highlighted one of the advantages of franchise loans: a wide range of potential help in times of economic crisis. “Franchisees enjoy strong support from franchisors with concessions and deferrals of base rents, royalties and suspended cap-ex requirements,” noted a presentation to the bank’s investors on April 17.

Approximately 42% of Citizens Financial’s exceptional food and drinking places portfolio, valued at $ 2.9 billion, was held by franchisees of McDonald’s Corp. And 32% of the exhibition was in other fast food and fast food services.

Rosemont, Ill., Based Wintrust Financial Corp. listed two other ways franchisors could provide relief in its April 22 investor presentation: advertising assistance and vendor negotiations. As of March 31, Wintrust had $ 994 million in franchise loans, 85% of which was for prompt service.

BankUnited Inc., based in Miami Lakes, Fla., Reported $ 401 million in restaurant loans for franchise financing. The April 29 investor presentation exhibit included $ 67 million for Burger King, $ 39 million for Dunkin ‘Donuts, $ 28 million for Sonic, $ 26 million for Domino’s Pizza Inc. and $ 23 million for Jimmy John’s.

According to an investor presentation on April 21, the main chains in Cincinnati-based First Financial Bancorp’s franchise portfolio were Domino’s, Burger King, Denny’s, Golden Corral and Arby’s.

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Some of the smaller restaurant portfolios in banks are geared towards full service.

At Independent Bank Corp., based in Rockland, Mass., Roughly two-thirds of its $ 155 million foodservice portfolio has gone to full-service restaurants. In an 8-K filed on April 23, the bank said the the average loan size of borrowers is approximately $ 388,000 and approximately 61% of outstanding loan balances are secured by real estate assets with a portfolio balance weighted average loan-to-value ratio of 46.7%.

More than half of At the end of March, Trustmark Corp.’s $ 116 million restaurant loans segment. was full service. The Jackson, Mississippi-based bank revealed in an April 29 investor presentation that 74% of the restaurant portfolio was secured by real estate and provided the components to calculate an average loan amount of approximately $ 337,000.

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