M&T Bank isn't quite ready to declare victory in its
About four years ago, the $211.5 billion-asset bank set a goal of reducing the size of its CRE portfolio to 160% of its capital and reserves from about 260%. Bible now expects the commercial real estate book to be "in the mid-to-low 160s" by the end of 2024, he said on Monday.
Criticized commercial real estate loans at M&T totaled $8.5 billion on March 31. That total was equal to 26.4% of the bank's $32.4 billion-asset CRE portfolio, but also down 3% year over year.
"We feel very good we're going to work through those issues," Bible said on a conference call with analysts. "We definitely feel CRE is very manageable."
M&T's target of 160% is well below regulators' 300%-of-total-capital threshold, which triggers heightened review of an institution's CRE holdings.
For M&T, the timing of Monday's progress report, which it included in its first-quarter earnings release, proved fortuitous. The Buffalo, New York-based bank's share price rose nearly 5% Monday to $140.94.
Regional bank investors are focusing on "the progression of CRE exposure performance," viewing it as a critical indicator of the sector's resilience, Laurent Birade, an analyst at Moody's, wrote Monday in a research note.
David Rochester, an analyst at Compass Point Research & Trading, wrote in a separate research note: "We are encouraged to see CRE exposure and criticized assets both lower."
Rochester characterized M&T's broader first-quarter results as mixed, with positive news on CRE lending and net interest income counterbalanced by an increase in problem commercial-and-industrial loans.
While net charge-offs fell modestly on a linked-quarter basis, the volume of criticized C&I loans spiked, jumping by $641 million from the end of 2023. Primary areas of concern were loans to marine and recreational vehicle dealers, which have seen demand drop as interest rates have risen, and health care providers, which are struggling with staffing and reimbursement headwinds, according to Bible.
Borrowers in the logistics sector have also suffered, as the amount of freight hauled has dipped, Bible added. "We are seeing areas of pressure, particularly in certain businesses that may be more acutely impacted by the lag effects of higher rates," he said.
M&T recorded a $200 million provision for credit losses for the quarter ending March 31, which was larger than what Rochester expected.
"Growth in nonperforming assets and criticized C&I loans, as well as stronger loan trends, were the primary drivers," he wrote, "despite the stable economic backdrop and lower net charge-offs in the quarter."
Bible noted that M&T has traditionally reported higher levels of criticized and nonperforming loans than its peers, preferring to work with borrowers to remedy issues rather than shuttling them out of the bank. "If we work with our clients and get them through these [stressful] times, they're very loyal to our company," he said.
M&T reported quarterly net income totaling $531 million Monday, down 24% year over year as funding costs more than doubled from a year ago. On a more positive note, the rate of increase in the cost of interest-bearing deposits slowed, advancing a total of three basis points during the first quarter, which was the smallest three-month increase in two years, Bible said.
Meanwhile, strong commercial-and-industrial loan demand pushed overall lending up, prompting the company to revise its guidance for full-year net interest income upward by $100 million to $6.8 billion.
M&T reported 5% year-over-year growth in deposits to $167.2 million at March 31. That advance was stronger than the bank expected, and it gives M&T the flexibility to allow higher-cost brokered certificates of deposit to roll off its balance sheet, Wedbush Analyst David Chiaverini wrote Monday in a research note.
