READING, Pa. -- Meridian Bancorp. is exiting the mortgage servicing business, which has been a money-loser at the Pennsylvania bank for the last year.
The decision resulted in a $11.4 million after-tax charge, partially related to a writedown of the $6.8 billion servicing portfolio. The establishment of reserves to cover restructuring also contributed to the charge.
The bank made the announcement Wednesday in conjunction with releasing its third-quarter results. Meridian's profits were $34.6 million, up 2% from a year ago.
The charge, plus expenses related to the bank's acquisition of Commonwealth Bancshares Corp., accounted for the meager improvement, said Samuel A. McCullough, chairman and chief executive officer.
Profits translated to 60 cents per share, a dime short of analysts' consensus estimate of 70 cents, compiled by Zacks Investment Research Co. in Chicago.
Analysts said the charge for the mortgage business was unanticipated, but they applauded the move.
"It gets the problem behind them," said Stephanie Maltz, an analyst at McDonald & Co. Securities, Cleveland. She said that barring significant changes in real estate values and interest rates, further charges would not be necessary.
Meridian's stock closed at $31, unchanged from yesterday's price.
Mr. McCullough said in a teleconference Wednesday that declining servicing volumes, a speed-up in prepayments, and high overhead costs compelled Meridian to shed the mortgage servicing operation, which employs about 240 people.
Meridian's mortgage banking subsidiary lost $17.3 million in the third quarter, including the charge for writedowns and restructuring. The bank has servicing operations in Walla Walla, Wash., and Wayne, Pa. "If we can, we'd like to sell the business as a whole," said Mr. McCullough. Meridian will focus on mortgage originations, he added.
Merger-related expenses of $11.9 million were partially offset by $8.3 million in securities gains during the third quarter, the bank said.