UPDATED April 21, 2022, 12:25 p.m.: M&T Bank on Wednesday reported a decline — as expected — in commercial real estate lending in the first three months of 2022.
The rest of the year isn’t looking any better: Citing rising interest rates, the Buffalo-based bank — a top multifamily lender in New York — said Thursday it doesn’t expect to make more commercial real estate loans this year than last.
In this year’s first quarter, M&T’s profits and revenue slipped. The firm posted diluted earnings of $2.62 per share, down from $3.33 a year ago. Net income dipped to $362 million, a 19 percent drop from the $447 million reported this time last year.
The firm attributed the declines to lower interest, income and fees pulled from outstanding PPP loans, which fell 84 percent to $870 million in the first quarter compared to $5.73 billion this time last year.
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But save for consumer loans, every sector of the bank’s lending portfolio took a hit. Commercial real estate loans slumped to $34.5 billion, a decline of nearly 8 percent from last year.
Darren King, the firm’s chief financial officer, said the commercial real estate drop-off was driven by payoffs, which he said could signal a stronger market for building sales as owners part with assets and settle up mortgages.
“We tend to see growth in our portfolio when there’s activity in the market,” King said. “So that typically is a benefit for us.”
The executive added that many of the paid-off loans were criticized debt — those at risk of default — concentrated in the hospitality sector. Loans 90 days past due dipped to $777 million, down more than 28 percent from the same quarter last year.
Those payoffs, he said, were another sign of an improving market.
Still, some settled loans last quarter derived from the Fed’s decision to raise interest rates. King said a portion of payoffs were construction loans with variable interest rates that borrowers had refinanced to lock in fixed rates before the hike.
Entering the second quarter, King said payoffs had likely run their course. However, he cautioned that the continuation of a higher interest rate environment — the Fed is expected to approve a series of rate bumps this year — would inhibit loan growth for multifamily.
“The outlook for total combined CRE loans is essentially flat for the rest of the year,” he said.
Correction: An earlier version of this story misstated the volume of M&T Bank’s commercial real estate loans in the first quarter.