* Operating profit $0.79/shr, tops forecasts

* Credit losses rise, commercial real estate a concern

* M&T shares up 4.6 percent (Recasts first paragraph; adds analyst and CFO comments, byline)

M&T Bank Corp (MTB.N), a large U.S. mid-Atlantic regional bank, on Monday posted better-than-expected results even as increased credit losses and writedowns led to a 75 percent decline in second-quarter profit.

The results suggest that M&T, in which Warren Buffett's Berkshire Hathaway Inc (BRKa.N) (BRKb.N) has said it holds a 6 percent stake, is faring better than most rivals in navigating the nation's credit crisis.

Analysts worry though that the Buffalo, New York-based bank has set aside too little for bad loans, after boosting its reserve by just $9 million in the quarter.

Most major regional banks are expected this week to report lower quarterly earnings, hurt in particular by increases in soured commercial and commercial real estate loans.

The economy is still in somewhat of a malaise, M&T Chief Financial Officer Rene Jones said on a conference call.

Quarterly net income applicable to M&T common shareholders fell to $40.5 million, or 36 cents per share, from $160.3 million, or $1.44, a year earlier.

Before the payment of preferred stock dividends, profit fell 68 percent to $51.2 million. M&T took $600 million from the government's Troubled Asset Relief Program.

Excluding items, M&T said operating profit was 79 cents per share, topping the average analyst forecast of 56 cents, according to Reuters Estimates.

Results benefited from the May purchase of Baltimore-based Provident Bankshares Corp, which gave M&T $69.9 billion of assets and more than 800 branches in seven U.S. states and Washington, D.C.

In late morning trading, M&T shares were up $2.50, or 4.6 percent, to $56.94 on the New York Stock Exchange.

Through Friday, M&T shares had fallen 5 percent this year, while the KBW Bank Index .BKX was down 16 percent.

COMMERCIAL REAL ESTATE DETERIORATING Jones said we probably haven't seen the peak in credit losses, and that commercial real estate loan losses may peak in late 2009 or early 2010. He said the bank will not be immune from such losses but would fare much better than rivals.

M&T is one of the few large banks not to lower its dividend since the credit crisis began, and Jones said the bank has a pretty good handle on its ability to maintain its 70 cents per share quarterly payout.

Operating results also benefited from a wider lending margin, higher fees and deposit service charges, and lower losses at Bayview Lending Group LLC, a commercial mortgage lender in which M&T has an investment.

Results included per-share charges of 13 cents for securities writedowns, 17 cents to replenish a federal deposit insurance fund, and 35 cents related to Provident.

M&T set aside $147 million for credit losses, up from $100 million a year earlier. Net charge-offs rose to $138 million from $99 million. M&T ended June with an $855 million reserve for credit losses and $1.2 billion of nonperforming assets.

We are growing increasingly concerned that it will need to rapidly build reserves, take a large charge to write down Bayview, and possibly raise capital, Morgan Stanley analyst Ken Zerbe wrote. (Reporting by Jonathan Stempel; editing by John Wallace and Tim Dobbyn)

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