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M&T Bank's Earnings Drop As Alt-A Loan Market Falters

With the effects of the subprime meltdown in the residential market also being felt in the alt-A sector, M&T Bank Corp.'s earnings report for the first quarter of 2007 reflects the impact that has had on the its bottom line.

"Clearly our results for the first quarter fell well short of our intended expectations," said René F. Jones, executive vice president and chief financial officer, during a conference call to discuss the earnings report. "The quarter's events also introduced an element of uncertainty regarding our outlook for the year."

M&T reported that diluted earnings per share for the first quarter dropped $0.20 from $1.77 in the first quarter of 2006 to $1.57 per share in the first quarter of 2007 as measured in accordance with generally accepted accounting principals. Net income in the first quarter totaled $176 million, down 13% from $203 million in the first quarter of 2006.

"Pricing and liquidity for alt-A mortgage loans have deteriorated somewhat," said Mr. Jones. "Accordingly, we reconsidered our willingness to sell alt-A mortgages, which we previously originated for sale, given prices that we do not believe reflect the loans' true economic value." He said that in accordance with GAAP, the corporation reduced the carrying value of $883 million of previously "held-for-sale" loans by $12 million and transferred these loans into M&T's "held-for-investment" residential mortgage portfolio. While the average FICO score of these loans is 740 and the average LTV is 74%, these loans are in the alt-A category because of the alternative loan documentation required. Mr. Jones also explained that M&T has a contractual obligation to buy back previously sold alt-A loans that don't meet investor sale criteria and the company has reserved $6 million to provide for declines in value of alt-A loans that may need to be repurchased. That has reduced M&T's net income by $4 million, or $0.03 per diluted share.

"It is our intention to continue to originate alt-A loans for sale to outside investors," said Mr. Jones. "That said, we have modified our approach such that we will no longer hold mortgages for sale in large blocks, but instead will sell them on an almost loan-by-loan basis at the time of commitment."

He said that additionally, M&T will continue to focus on originating loans at the high end of the alt-A spectrum, but will not originate high loan-to-value mortgages without "appropriate" insurance. He noted that the company's revised mortgage banking business practices would probably reduce the volume of non-agency mortgages originated and sold. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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