M&T Bank forecasts decline in commercial real estate loans
Another day, another multi-family lender tightens its purse strings.
After its commercial real estate loan balances fell 2%, or $830 million, in the second quarter, M&T Bank said it expects to make fewer loans to the sector for the rest of the year, citing the rise in interest rates.
The forecast comes a day after Signature Bank, another major lender to multifamily homeowners in the city, said it would limit commercial real estate lending in the coming months to maintain a healthy loan-to-deposit ratio as rates continue. to increase.
In an earnings call on Wednesday, Chief Financial Officer Darren King said M&T’s construction loan portfolio shrank in the second quarter as developers completed projects and fewer new developments came online. .
“We continue to reduce our construction exposure as there is a lack of new business to offset the conversion of construction loans to permanent mortgages,” King said.
This slowdown in development may be a byproduct of interest rate hikes by the Federal Reserve, which have pushed up mortgage rates. The absence of the 421a property tax abatement for multi-family New York developers is also expected to limit new construction.
The expiry of the abatement on June 15 sparked a rush of new building filings and construction starts as developers rushed to ensure their projects would qualify, meaning any slowdown in construction could take a few quarters to materialize.
In the near term, M&T reported an uptick in permanent mortgages, but those gains were offset by more repayments as customers used excess cash to pay off their balances. In total, M&T reported a 38% drop in mortgage banking revenue for the quarter.
King said fewer issues could come as borrowing becomes more expensive.
“With rates moving, it affects cap rates and asset values,” he said. “You don’t see turnover from properties as you might under normal circumstances.”
Rising rates also hit the bank’s residential mortgage portfolio, whose revenue fell 34% to $50 million in the second quarter as home loans fell more than 50%.
M&T saw its profits drop significantly in the second quarter, which it said was largely the result of spending related to its merger with regional bank People’s United.
The bank reported diluted earnings per share of $1.08 in the second quarter, down 59% from the same period last year. Its shares were flat in Wednesday trading, rising less than 1% to $165.54.
The bank reported a 35.6% increase in revenue to just under $2 billion for the quarter. King attributed these gains to higher net interest margins. Going forward, continued growth will depend on the bank’s ability to continue lending.
And as things stand, commercial and residential real estate, which accounts for more than half of its loan book, is likely to face continued headwinds.