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M&T Bank to Lend More After Cutting At-Risk CRE Loans

After a cautious 2024 focused on reducing its exposure to at-risk CRE debt, M&T Bank is signaling a return to lending in 2025.
M&T Bank to Lend More After Cutting At-Risk CRE Loans
  • M&T Bank expects modest growth in its commercial real estate (CRE) balances in 2025 as it begins to offset loan payoffs with new originations.
  • In 2024, the bank significantly reduced its at-risk CRE loans, reducing its concentration of such debt from 183% to 136% of total loans.
  • Despite increasing charge-offs in the fourth quarter of 2024, M&T Bank is optimistic about its portfolio’s quality and expects a more modest reduction in criticized loans in 2025.
  • The bank’s ability to shrink at-risk loans further will depend on the shape of the yield curve and ongoing inflationary pressures.
Key Takeaways

M&T Bank Corp (MTB), based in Buffalo, NY, had a cautious approach to commercial real estate CRE lending through 2024, focused on reducing exposure to high-risk loans. However, with the start of 2025, the bank is signaling a potential shift toward growth, per The Real Deal.

On a Thursday morning earnings call in January, CFO Daryl Bible indicated the bank expects to see modest growth in its CRE portfolio during 2H24, as it works to offset loan paydowns with new originations.

This cautious optimism comes after a tumultuous year, when many regional lenders, including M&T, scaled back their CRE exposure in response to rising interest rates, office vacancy concerns, and declining property valuations.

2024: The Year of Debt Reduction

Last year, M&T Bank made significant strides in managing its CRE loan book, cutting the concentration of at-risk CRE loans to 136% of total loans, down from 183% the previous year.

The reduction was largely due to “full payoffs” of troubled debts, with partial paydowns and net charge-offs also contributing to the decline. By the end of 2024, the bank reported a total of $1.7B in troubled loans, $400M less than the prior year.

Despite an 8% rise in net charge-offs in Q4, M&T Bank cut its provision for credit losses by 38%, signaling confidence that the worst may be over for its CRE portfolio. “The good news is we got out of a lot of credits that were higher risk,” Bible said, referring to the bank’s strategy of reducing its exposure to riskier CRE loans.

Office Concerns Continue

Office loans have been a major headache for M&T Bank in recent years, particularly as the office sector has struggled with rising vacancy rates and shifting work habits post-pandemic.

At the end of 2022, 20% of M&T’s $5.1B office loan portfolio was deemed at risk. By 3Q24, that percentage had risen to 29%, as fewer loans were categorized as at risk, but the remaining office loans became more troubled.

While the full breakdown of the office loan book at the end of 2024 has yet to be disclosed, M&T Bank remains optimistic about the potential for further improvement in 2025.

Inflationary Pressures

One key factor influencing M&T Bank’s outlook for 2025 is the yield curve. The Federal Reserve’s actions in 2H24 flattened the yield curve, allowing borrowers to refinance their debt more easily. 

However, by late 2024, the yield curve had steepened, reflecting market expectations that the Fed would not aggressively cut interest rates in 2025.

This shift, combined with inflationary pressures linked to potential policy changes under the incoming Trump administration, led to concerns that borrowing conditions could remain tight. Bible noted that while the bank expects some improvement in its criticized loans, the pace of reduction is likely to be slower than last year.

Modest Growth Ahead

As M&T Bank looks to 2025, its approach to CRE lending is more cautious but optimistic. The bank plans to modestly grow its CRE portfolio in 2H25 by building its pipeline and starting new originations. 

However, M&T is also aware that the broader economic environment—shaped by Fed policy and inflation concerns—will limit the pace of recovery.

Bible concluded, “We feel really good about where we are,” acknowledging the significant progress the bank made in reducing its exposure to higher-risk loans in 2024. However, he cautioned that future reductions in criticized loans would be more modest, influenced by both the yield curve and ongoing inflationary pressures.

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