(Adds CFO comment, updates shares, paragraphs 2, 12)
By Jonathan Stempel
NEW YORK, July 14 (Reuters) - M&T Bank Corp <MTB.N said on Monday mounting credit losses from residential real estate led to a 25 percent drop in second-quarter profit, causing shares of the large mid-Atlantic regional bank to plunge.
Shares fell as much as 23.1 percent to $53.61, their lowest level since November 2000, even though operating profit topped forecasts. In afternoon trading, the shares were down $12.41, or 17.8 percent, at $57.29. The KBW Bank Index .BKX, which includes M&T, was down 7.2 percent.
M&T more than tripled the amount it set aside to cover bad debt, while loans it doesn’t expect to be paid back more than quadrupled. The bank’s largest investors include Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) (BRKb.N).
“The primary risk we see is that the housing slowdown and the rising energy prices continue to represent a drag on the broader economy, causing credit to continue to deteriorate in areas beyond the housing industry,” Chief Financial Officer Rene Jones said on a conference call. He said capital raising “is not an issue at this time” for the bank.
Net income for M&T fell to $160.3 million, or $1.44 per share, from $214.2 million, or $1.95, a year earlier.
M&T said operating earnings fell 24 percent to $170.4 million, or $1.53 per share. On that basis, analysts on average forecast $1.50 per share, according to Reuters Estimates.
Results also included a $10 million loss from an investment in Bayview Lending Group LLC, a commercial mortgage lender.
The bank set aside $100 million for credit losses, up from $30 million a year earlier, while net charge-offs increased to $99 million from $22 million. It said the latter reflected declining residential real estate valuations, making it harder for homeowners, builders and developers to repay loans.
M&T is the first of the 20 largest U.S. banks to report quarterly results. Investors expect a poor quarter from the industry because of losses tied to mortgage, commercial and construction lending.
“While the company was solidly profitable, we note that the stock was already trading at 2.5 times tangible book value,” wrote Joseph Fenech, an analyst at Sandler O‘Neill & Partners LP. “In this market environment, the stock was priced for perfection and the quarter certainly wasn’t perfect.”
Total nonperforming loans roughly doubled from a year earlier to $587.4 million. M&T nevertheless increased its reserve for credit losses by just 16 percent from a year earlier, and by just 2 percent from year end, to $774 million.
Asked by Morgan Stanley analyst Ken Zerbe why M&T didn’t reserve more, Jones said: “We can’t sock away reserves just for the sake of socking away reserves. It’s all about identifying specific loss content that you have and reserving appropriately.”
Average loans and leases rose 14 percent to $49.5 billion, while total deposits rose 6 percent to $41.9 billion.
Berkshire owned a 6.1 percent stake in M&T as of March 31, according to Thomson ShareWatch. Only Allied Irish Banks Plc ALBK.I and M&T Chief Executive Robert Wilmers owned more.
Buffalo, New York-based M&T ended June with $65.9 billion of assets and more than 700 branches in seven mid-Atlantic states and Washington, D.C.
Through Friday, M&T shares were down 15 percent this year, compared with a 38 percent drop in the KBW Bank Index .BKX. (Editing by Mark Porter and Gerald E. McCormick)