MSR Jolt Doesn't Derail M&T Bank

M&T Bank Corp. earned net income of $186 million in the third quarter, or $1.56 per share, under generally accepted accounting principles, despite taking a hit on the value of the bank's mortgage servicing rights.

Earnings per share were up 22% from the same quarter last year, the company reported, and the company's share price rose to a new 52-week high on the news.

The third-quarter net income reflected an annualized rate of return on average assets of 1.42%, the bank said. The return on average common equity was 13.02%.

Those strong results came despite having to add reserve funds to reflect the impairment of mortgage servicing rights, the bank said. That was a reversal from last year, when higher interest rates in the third quarter allowed the bank to recapture $13 million in valuation allowance against its servicing portfolio.

The bank's mortgage servicing rights are valued at $131 million as of Sept. 30, 2004. "As the result of falling interest rates over the course of the third quarter, we recognized a $7 million addition to the valuation allowance for the value of capitalized mortgage servicing rights," chief financial officer Michael Pinto said during a conference call for investors and analysts.

During the first three quarters of this year, the company has cumulatively recouped $3 million of its servicing valuation allowance despite the third-quarter addition, he said.

The bank also saw strong growth in its commercial real estate lending during the quarter. Mr. Pinto said the company's quarterly report shows a 22% increase in commercial real estate loans on an annualized basis, but he said that a reclassification of some residential real estate loans into the CRE category accounted for some of the growth.

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