The Buffalo-based bank reported net charge-offs — a measure of debt unlikely to be paid back — fell $96 million in the third quarter, a 24 percent decline from the previous three months, when it had spiked by 80 percent.
Meanwhile, nonaccrual loans — delinquent debt on which the bank is no longer collecting interest — fell 4 percent both annually and from the second quarter.
But CFO Daryl Bible conceded those numbers don’t paint a full picture.
He told investors on an earnings call Wednesday that he expected the bank’s 10-Q to show a greater level of criticized loans, which is debt at risk of default. The quarterly filing is released a few weeks after quarterly earnings and offers a more detailed look at a company’s financial performance.
Bible estimated that loans with a default risk would be up by “a mid to high single-digit percent” this quarter compared to last, and that the office sector would drive that uptick.
“It’s really just more of the same that we’re seeing: It’s more increases in our [investor real estate] portfolio, primarily on the office side,” the CFO said of the anticipated rise in criticized debt.
Though M&T’s balance sheet has shown minimal commercial real estate distress this cycle, the trouble it has reported stems from office loans.
Bible said last quarter’s net charge-offs were tied to loans collateralized by three office buildings in downtown New York and Washington, D.C., plus one health care company. This quarter’s debt marked nonrecoverable is tied to four large office properties in Boston, Connecticut and Washington, D.C., and a health care provider serving Western New York and Pennsylvania.
Despite the grim outlook for office, with valuations estimated to fall as much as 40 percent in some markets, Bible said M&T didn’t plan to stop office lending.
The CFO emphasized that the bank values its long-term relationships with commercial real estate borrowers, many of whom have other capital sources to help sustain loans and would be willing to toss in more equity to de-risk their debts.
“So we really don’t look at trying to get out of the criticized loans,” Bible said.
The bank said its credit team is also tracking multifamily, an asset class with a record number of maturities set to come due this month and next.
“Nothing really is popping out as anything very severe there yet, but, you know, we’re just trying to stay ahead of what’s coming down the pike,” Bible said.
All told, M&T had both bottom- and top-line growth this quarter. Revenue grew 4 percent annually to $2.3 billion, and profits, measured in diluted earnings per share, reached $3.98, a 13 percent annual increase.