July 14 (Bloomberg) -- M&T Bank Corp., the lender whose second-largest shareholder is Berkshire Hathaway Inc., slumped the most since 1980 in New York trading after second-quarter profit plunged 25 percent on losses tied to mortgages.

Net income declined to $160.3 million, or $1.44 a share, from $214.2 million, or $1.95, in the same period a year ago, the Buffalo, New York-based bank said today in a statement.

Banks are setting aside more to cover bad debts as builders default on commercial mortgages because they're unable to complete projects amid the worst U.S. housing slump since the Great Depression. M&T said ``unfavorable conditions'' in residential real estate have driven up bad loans.

``M&T is not immune to the effects of the higher credit costs evident throughout the banking industry,'' Chief Financial Officer Rene Jones said in the statement. Even so, ``we are fortunate to have little exposure to some of the high-risk of problem markets around the country,'' Jones said in a conference call today.

M&T fell $10.88, or 16 percent, to $58.82 at 4:01 p.m. in New York Stock Exchange composite trading. Profit excluding merger expenses and other items was $1.53 a share, down 25 percent from $2.04 a year earlier. Fourteen analysts surveyed by Bloomberg estimated adjusted profit of $1.55 a share.

M&T set aside $100 million to cover bad debt, more than three times the $30 million for second-quarter 2007. The lender said debt it didn't expect to be repaid rose to $99 million from $22 million last year.

Jones said on the call that he expected some ``chunkiness' in uncollectible debt due to builders. ``On an overall basis, I wouldn't expect charge-offs or nonperforming levels to abate significantly,'' he said.

Increased Provisions

M&T said $10 million after tax was trimmed from net income by the lender's investment in Bayview Lending Group LLC, a privately held commercial mortgage lender. M&T invested in the company in February 2007. Bayview specialized in smaller commercial real-estate loans.

``In response to the stagnant market conditions of recent months, BLG has reduced its originations activities, scaled back its workforce and begun using its contingent liquidity sources,'' M&T said in the statement.

Jones said on the conference call that M&T ``concluded it is not appropriate to consider the investment in Bayview other than temporarily impaired at this time.''

The lender said loans for which it is no longer receiving interest rose 98 percent to $587 million from $296 million a year earlier as more homebuilders fell behind on their payments.

M&T has about $190 million in unsecured debt with Fannie Mae and Freddie Mac. The lender's exposure to it ``is somewhat limited,'' Jones said on the call.

Warren Buffett's Berkshire holds 6.9 percent of M&T, Bloomberg data show, making it second to Allied Irish Banks Plc, which has a 24.2 percent stake.

To contact the reporter on this story: Linda Shen in New York at lshen21@bloomberg.net

Last Updated: July 14, 2008 16:20 EDT