M&T braces for more loan losses as office default risk rises

M&T Bank socked away more funds last quarter to cover expected losses on commercial real estate loans — a response to the one-two punch of falling property values and higher interest rates.

The bank, a major lender to New York commercial property owners, boosted its provision for credit losses by 67 percent year-over-year to $200 million. It also reported a 25 percent drop in profits, driven by the added expense of those reserves and the higher interest it has paid on deposits.

Diluted earnings per common share came in at $3.02 compared to $4.01 in the same period last year.

The specter of New York Community Bank’s chaos and commercial real estate’s threat to regional banks loomed over the firm’s Monday morning’s earnings call. (NYCB, after hiking its provision for credit losses by 790 percent in the first quarter, received a $1 billion equity infusion in March to stave off collapse. The bank lost about 7 percent of its deposits.)

M&T had ratched up liquidity levels to offset potential CRE loan losses, Chief Financial Officer Daryl Bible disclosed. 

“Any time there is any scare in the industry, we’re going to be conservative,” he said.

Compared with rival NYCB, which reported a near $2 billion increase in criticized loans or those at risk of default, M&T had a relatively uneventful first quarter.

The Buffalo-based bank reported a $277 million decrease in criticized CRE loans quarter-over-quarter, effectively a blip. The bank’s share of debt at risk of a default stayed flat at 26 percent.

About a quarter of its office loans — a pain point for the lender — are reported criticized, a 2.5-percentage-point increase from the previous quarter.

Amid those persistent signs of distress, analysts on the earnings call prodded Bible for context.

“How do the criticized levels today compare to where they were in the ’08-’09 … peak?” asked CBC’s Thomas Leddy, referring to loans at risk of default.

“Numbers on the commercial side are higher than what they would have been back then,” M&T controller John Taylor offered, noting that mortgage defaults during the Financial Crisis were largely residential.

The bulk of the bank’s $2.3 billion in CRE loans that came due in January, February and March were extended, Bible said, adding that in workouts, it typically requires borrowers to gin up more equity or recourse.

Bible also brushed off an analyst’s inquiry about M&T’s downgraded outlook. S&P Global last month cut that outlook to negative from stable, citing the risk of CRE market stress.

“We feel very comfortable that that won’t result in a downgrade,” the CFO said. “We have a good handle on both our CRE exposure and the amount of criticized [debt] that we are working towards right now.”

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