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MTB 106.54
Earnings released tomorrow
Looking overvalued and under the radar and very sweet.
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Form 10-Q for M&T BANK CORP
7-May-2007
Quarterly Report
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Net income for M&T Bank Corporation ("M&T") in the first quarter of 2007 was $176 million or $1.57 of diluted earnings per common share, representing decreases of 13% and 11%, respectively, from $203 million or $1.77 of diluted earnings per common share in the year-earlier quarter. During the fourth quarter of 2006, net income was $213 million or $1.88 of diluted earnings per common share. Basic earnings per common share were $1.60 in the initial quarter of 2007, compared with $1.82 and $1.93 in the first and fourth quarters of 2006, respectively.
The annualized rate of return on average total assets for M&T and its consolidated subsidiaries ("the Company") in the recent quarter was 1.25%, compared with 1.49% in the first quarter of 2006 and 1.50% in 2006's final quarter. The annualized rate of return on average common stockholders' equity was 11.38% in the initial quarter of 2007, compared with 13.97% and 13.55% in the first and fourth quarters of 2006, respectively.
The Company's financial results for the first quarter of 2007 were adversely impacted by changing market conditions in the residential mortgage lending sector. Well-publicized problems in the subprime residential mortgage lending market had a negative effect on the rest of the residential mortgage marketplace, specifically with regard to alternative ("Alt-A") residential mortgage loans that the Company actively originates for sale in the secondary market. Alt-A loans originated by the Company typically include some form of limited documentation requirements, as compared with more traditional residential mortgage loans. Unfavorable market conditions and lack of market liquidity impacted the Company's willingness to sell Alt-A loans in the first quarter. During March 2007, an auction of such loans received fewer bids than normal and the pricing of those bids was lower than expected. As a result, $883 million of Alt-A loans previously held for sale (including $808 million of first mortgage loans and $75 million of second mortgage loans) were transferred in March to the Company's held-for-investment residential mortgage loan portfolio. In accordance with generally accepted accounting principles ("GAAP"), loans held for sale must be recorded at the lower of cost or market value. Accordingly, prior to reclassifying the Alt-A mortgage loans to held for investment, the carrying value of such loans was reduced by $12 million in the first quarter of 2007, which resulted in an after-tax reduction of net income of $7 million, or $.07 per diluted share. The loans were reclassified to the held-for-investment portfolio because management of the Company believes that the value of the Alt-A residential mortgage loans it holds is greater than the amount implied by the few bidders presently active in the market.
In addition, the Company is contractually obligated to repurchase previously sold Alt-A loans that do not ultimately meet investor sale criteria, including instances when mortgagors fail to make timely payments during the first 90 days subsequent to the sale date. As a result, during the first quarter of 2007, the Company accrued $6 million to provide for declines in market value of previously sold Alt-A mortgage loans that the Company may be required to repurchase. That loss reduced the Company's net income by $4 million or $.03 per diluted share.
The Company has initiated changes in its origination and sales practices as they relate to Alt-A lending that will likely result in lower originations of Alt-A mortgage loans in future quarters.
On February 5, 2007, M&T invested $300 million to acquire a minority interest in Bayview Lending Group LLC ("BLG"), a Florida-based privately-held commercial mortgage lender that specializes in originating, securitizing and servicing small balance commercial real estate loans in the United States, and to a lesser extent, in Canada and the United Kingdom. The investment
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