Impairment Slows Growth at M&T Bank in 2nd Quarter

M&T Bank Corp. here said second-quarter earnings per share rose 10% on a year-over-year basis, despite a $27 million hit to its mortgage servicing rights.

M&T said EPS was $1.69 in the second quarter, reflecting net income of $197 million. The net profit was up 7% from the second quarter of 2004.

The MSR impairment added to an increase in non-interest expense at M&T. The company said the $27 million increase in the provision for impairment of capitalized mortgage servicing rights was the biggest contributor to an increase in operating expenses on the bank's earnings report.

In last year's second quarter, the bank benefited from a $22 million recovery of MSR impairment.

Rene F. Jones, senior vice president and chief financial officer, said that the bank benefited from favorable trends involving credit quality, such as historically low levels of net charge-offs and nonperforming loans as a percentage of loans outstanding. Cost control has also benefited the bank, he said in the company release.

"In fact, excluding the mortgage servicing rights adjustments, operating expenses in the first half of 2005 were lower than in 2004," Mr. Jones said.

The bank reported mortgage banking revenue of $31.3 million in the second quarter, an increase of 4% compared to the second quarter of 2004.

"The mortgage business assumed from Regions Financial in May did not have a significant impact on the quarter's net income," Mr. Jones said in the company's conference call.

He noted that mortgage origination business picked up toward the end of the quarter, reflecting a drop in long-term interest rates that occurred in late May through June. That pickup in activity is likely to affect third-quarter mortgage origination volume as well.

"There is a lot of stuff in the pipeline that hasn't yet been delivered," he said.

Average commercial real estate loans grow at a 6% annualized rate in the second quarter, Mr. Jones said.

On the consumer loan side of the business, Mr. Jones said that growth in home-equity lines of credit was offset by lower auto loans and auto leases. Home-equity lines of credit were up about 14% from the end of March through the end of June, he said. He called the pricing of automobile financing assets "unattractive" and suggested the bank will continue to see this portfolio contract.

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