M&T Bank shares hit 8-year low on 2Q results

Shares of M&T Bank Corp. hit an eight-year low Monday after the regional bank said its second-quarter profit fell 25 percent as it set aside $100 million to cover bad loans.

Shares tumbled $13.25, or 19 percent, to $56.45 in afternoon trading. Shares bottomed out at $53.61 earlier in the session, their lowest point since 2000. Regional banks were among the worst performing stocks Monday as investors worried about the prospect of more bank failures after the government's takeover of IndyMac Bancorp Inc.

For the three months ended June 30, the Buffalo, N.Y.-based bank reported net income of $160.3 million, or $1.44 per share, compared with $214.2 million, or $1.95 per share, in the year-ago period.

Analysts had expected earnings of $1.50 per share on revenue of $756.6 million.

The bank set aside $100 million for bad loans during the quarter, up from $30 million in the prior-year quarter.

Net charge offs increased to $99 million from $22 million. About $38 million of the charge offs stemmed from loans to builders and developers of residential real estate, M&T said. There were no such loans charged off in the year-ago quarter, and only $3 million of residential construction loans were charged off in the first quarter of this year.

But analysts managed to find some silver lining in the results.

Despite higher-than-expected credit quality deterioration during the quarter, the bank was able to build up its capital ratios, said Fox-Pitt Kelton analyst Albert Savastano. He believes the bank's capital position remains strong and that it will not need to raise capital in 2008.

Stifel, Nicolaus & Co. analyst Collyn Bement Gilbert also noted the bank's strong fee income growth. Many of M&T's fee income lines, including fees generated from deposit accounts, trusts and brokerage services, posted increases during the quarter. Gilbert rates the shares "Buy."

While the bank is not immune to the current environment, its results should outperform peers, said Robert W. Baird & Co. analyst David George in a note to clients.

"Growth trends at M&T will be superior to most regional banks, in our opinion, as we expect the company to suffer lower earnings risk to continuing degradation in credit quality trends," said George, who maintained an "Outperform" rating on the stock and a $90 price target. "M&T has among the more prudent and conservative management teams in the banking industry, as the company has consistently posted above-average credit quality trends while consistently and effectively managing interest rate risk."