27% of CRE loans show risk of default, M&T reports

M&T Bank in the fourth quarter flagged over one-quarter of its commercial real estate debt as criticized, a marker of higher risk of default or delinquency.

At-risk loans jumped to 27 percent in the period from 24 percent at the end of the third quarter, driven by debt backed by medical offices and multifamily. The uptick came after M&T reviewed about 60 percent of the outstanding loan book, said Chief Financial Officer Daryl Bible.

Net charge-offs or debt unlikely to be paid back surged 270 percent year over year to $148 million. The bank also hiked its provision for credit losses — an estimate of potential loan losses  — to $225 million in the fourth quarter compared to $90 million in the fourth quarter of 2023.

Higher rates and “deteriorating values” drove the growth in distress and informed the bank’s darker forecasts, said Bible.

Some multifamily borrowers, particularly those that relied on floating-rate debt before the Federal Reserve kicked off rate hikes in 2022, have struggled with loan payments amid slipping values, plateauing rent growth and higher monthly debt costs.

Some operators have also failed to realize plans to renovate and raise rents. But M&T’s multifamily borrowers are pulling adequate operating income, King said.

The troubles with doctor’s offices stem from reimbursement problems — tenants paying landlords for their share of property taxes, insurance and maintenance costs — the CFO said.

The bank pointed to forecasts the Fed will cut rates this year as cause for cautious optimism, both for its troubled debts and shrinking commercial real estate loan book, which fell 6 percent annually to $33.5 billion in the quarter.

“If the Fed lowers rates just a little bit, I think the markets will get excited,” Bible said. “There’ll be a lot more investment.”

Fed Governor Christopher Wallace said rate cuts are in the cards for 2024 but the central bank wouldn’t “cut as rapidly [as] in the past,” during a Tuesday speech, CNBC reported. Stocks fell Wednesday in response.

After M&T reported an uptick in office distress mid-way through last year, fourth quarter results showed its share of criticized office loans held steady from the third quarter at 23 percent.

“Structural challenges” in the space would likely play out as leases and loans matured, Bible acknowledged.

“The one advantage we have on office is that we have a really good distribution of maturities,” the CFO detailed. “Over two-thirds start in 2026 and beyond.”

Profits, measured in diluted earnings per share, slumped to $2.74 in the quarter, a 36 percent decline from the $4.29 reported in the fourth quarter of 2023. Revenues clocked in at $2.3 billion in the fourth-quarter, 8 percent below the same period last year. 

Read more

New York

NYC office losses sully M&T Bank earnings growth

New York

Bad office debt grows at M&T

New York

M&T reports less CRE distress, but warns of office defaults