Through 2024 and predictions that commercial real estate would tank regional lenders, M&T Bank kept its head down, steadily chipping away at its at-risk debt.
Two weeks into January, the Buffalo-based bank peeled its nose off the grindstone to report solid headway and expectations it could soon start lending again.
“We expect the [CRE] balances to grow modestly through the second half of the year as we build the pipeline and begin to offset payoffs and paydowns with new originations,” Chief Financial Officer Daryl Bible said on a Thursday morning earnings call.
If M&T takes that route it could signal a sea change for CRE lending after banks, responding to higher interest rates, office vacancy rates and the combined hit to valuations, scrambled to curb their exposure to CRE debt last year.
M&T in 2024 cut its concentration of those loans to 136 percent from 183 percent of total debts, according to a fourth-quarter earnings presentation. The reduction came as total loans and leases remained relatively flat, ticking up just 2 percent to $135 billion in the same period.
Crucially, the bank trimmed its troubled debts to about $1.7 billion by the end of 2024, 22 less than it reported a year prior.
“Full payoffs” of at-risk CRE loans overwhelmingly drove the decline, Bible said.
Bible added that partial paydowns and, in some instances, net charge-offs or debt written off as unlikely to be paid back, accounted for the decline.
M&T reported an 8 percent increase in net charge-offs in the fourth quarter compared to the period a year earlier. But it also cut its provision for credit losses or loss reserves by 38 percent in the same stretch, signaling it expects less pain to come.
“The good news is we got out of a lot of credits that were higher risk,” Bible said. “And the criticized balances we have on the books right now are a better quality criticized book.”
“So we feel really good about where we are,” he added.
Over the last two years, office deals were the bane of M&T’s books.
At the end of 2022 — a good nine months into the Federal Reserve’s rate-hiking cycle — M&T reported that about 20 percent of its $5.1 billion office loan book was in questionable shape.
It’s unclear where that percentage stood at the end of 2024. The breakdown will likely be in the bank’s 10-Q filing with the Securities and Exchange Commission, which was not yet available as of Thursday morning.
But at the end of the third quarter, the bank had marked 29 percent of its office loans criticized. Fewer office loans accounted for the rise, but so did more at-risk office loans.
Heading into 2025, the bank said its ability to shrink its share of criticized loans further depends heavily on how the yield curve slopes.
The Fed’s cuts in the back half of 2024 drove a flatter yield curve in August and September, Bible said, which allowed borrowers to refinance.
Last month, the yield curve steepened to a degree last seen in 2022 in response to the Fed’s projections of fewer interest rate cuts in 2025, Bloomberg reported. In the weeks that followed, fears around President-elect Donald Trump’s promises to impose inflationary tariffs have buoyed that higher level, according to Marketwatch.
“So we still expect to have improvement in our criticized commercial loans,” Bible said.
“But from what we see today, based upon the projections of the Fed, and based upon where the yield curve is today, we’ll have a much more modest reduction than what we had in 2024,” he added.
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