Remarks to Annual Meeting of Shareholders: April 16, 2002

To put the good news about earnings and the overall financial condition of the Company into context, I would like to take this occasion to report on one of the key reasons underlying the growth of both our revenue and earnings: the successful integration of our most recent acquisitions, those of Keystone Financial and Premier National Bancorp.

As you know, both these acquisitions were completed prior to last year’s annual meeting. So, strictly speaking, they are not news. But closing these deals was just the beginning of our work. In doing so, we had taken on a major challenge. We increased the size of the company, by some measures, by fully a third—and became, in terms of assets, the 26th largest bank in the nation. In taking on more than 200 new branches, the risk of significant problems was substantial.

Many of you are no doubt familiar with the service issues which have arisen in connection with some other high-profile bank mergers—some undertaken by major banks which subsequently disappeared themselves.

I am happy to report to you, however, that, thanks to the talents and dedication of our employees, we have avoided the serious service pitfalls which can accompany major acquisitions. There are a number of ways to measure our success. First, there is our sheer growth. We have increased our number of branches by more than 40 percent and the numbers of households doing business with M&T by 47 percent. We have firmly established or expanded our presence in two regions—Central Pennsylvania and New York's Hudson Valley.

Just like any individual investor, we wanted to diversify our portfolio—and by adding to our base we have done just that. In the Hudson Valley, moreover, we have grown in a region where the economy is somewhat stronger than that of our other markets in upstate New York. We have made the most of the staff, technology and facilities which the acquisitions brought with them. For example, 12 of our 13 area branch managers in Pennsylvania came to us from Keystone. Thanks to the acquisitions, our ATM network is now the 20th-largest in the nation.

But the most important ways to gauge the success of acquisitions involve customers. Crucially, we have avoided the sharp fall-off in customer loyalty which often accompanies mergers. We have maintained a customer base in the Keystone and Premier regions equal to more than 90 percent of its pre-merger level. And since the mergers, the profitability of former Keystone and Premier households has increased by 15% — in part because of our effective cross-selling; which has helped lead to a 9% increase in the number of services purchased by customers we inherited from Keystone and Premier. We are now the market share leader in deposits in the combined markets of central Pennsylvania and upstate New York.

Today, more than a year after the Premier closing and 18 months after the Keystone closing, the hard technical work of those acquisitions — the merging of systems, extension of platform automation to new branches, the conversion of trust accounts—is behind us. New green-and-white M&T signs have gone up all over Harrisburg, Poughkeepsie, Altoona and all our new markets, thanks to a lot of people who worked nights and weekends!

Now comes the good part. Now we can focus on the many opportunities, both in commercial and retail banking, which these acquisitions present. We anticipate that the customers whom we inherited and have retained, as well as the new customers we have attracted, and former customers we will win back, all have an interest in a wide range of additional products and services which we can provide.

The smooth integration of Keystone and Premier, it’s worth noting, has not only been good news for M&T. It’s been good news for a city that needs some good news these days: Buffalo. The expansion of M&T into new regions has the side benefit of increasing employment in our headquarters city, where, since closing the Keystone and Premier deals, we have added nearly 300 jobs right here.

Regional banking has changed dramatically since I came to M&T in 1983. It was not long ago that there was no web banking, there were no debit cards and almost no ATMs. And, of course, there were far more independent banks than there are today. I believe that our efforts to streamline and automate our internal processes have prepared the company well for a future in which the ways that banking services are delivered will continue to change, and in which the trend of consolidation will likely continue. It’s our intention, I should emphasize, to be one of the consolidators, not one of the acquisitions.

Some things, however, will not change—and should not change. As recent events have dramatically reminded us, the need for honest, transparent financial accounting and reporting never goes out of style. We can never lose sight of the fact that the legal and regulatory framework provided by government is crucial to the consumer confidence which is the lifeblood of the banking and financial services industries. The example of Argentina, where that confidence was lost, is a sobering reminder of this truth.

But this would not be an M&T annual meeting if I didn’t do some complaining, too. Let me speak briefly about bank regulation. As important as appropriate regulation and monitoring are, it’s my hope that the well-publicized problems of a handful of public corporations will not prompt a new round of additional, onerous regulation for banks.

It is important for public officials to keep in mind, as we struggle with hard economic times, that the cost of regulatory compliance is not insubstantial —whether in direct expenses, including the time spent by employees, or in the cost of opportunities missed when employees are engaged in regulation-related tasks. We estimate that our annual cost of regulatory compliance is now up to $37 million and counting. This figure represents some 4.5% of our 2001 operating expense. These are, of course, costs that must be passed on to our customers or absorbed by our shareholders.

One can agree with the intent of much of regulation and still have many concerns about the way it is written and enforced. For instance, during the years 2000 and 2001, the bank went through the steps necessary to comply with federal requirements related to privacy of consumer financial information.

It is reasonable for those who do business with us to have the assurance that personal information about them will not be shared with third parties. For that reason, regulations permitted consumers the chance to “opt out”—to tell us that they did not want such sharing to occur. There was, to put it mildly, no groundswell of demand for this service; of 1.3 million customers to whom we mailed letters offering them the chance to opt-out, less than one percent said they would, indeed, like to do so.

Adding insult to injury, today, less than nine months after the effective date of the federal requirements, individual states are taking a diametrically opposite approach: preventing the sharing of information unless consumers choose to “opt in” to such arrangements. If the state governments in our markets were to pass such legislation, M&T would be forced to re-engineer a privacy process which has already cost $1.7 million and required, at a cost of more than $200,000, that all 9,000-plus M&T employees attend a one-hour privacy policy training session, whether or not such regulation had anything to do with their jobs.

Mixed signals also characterize public policy as regards high-cost mortgages, sometimes considered an element of so-called predatory lending. Even if one accepts the need for such regulation—and we must never forget that higher prices are generally a good and proper response to higher risk—there is no good reason for the emerging patchwork of law.

Within the M&T bank market regions, there are currently 3 laws which have passed and four others proposed on this topic. Across the country, laws have been passed in 13 states and municipalities and proposed in 27 others. Each law has its own special requirements—and thus brings its own special cost of compliance. If — and I emphasize if—high-cost mortgages are to be regulated, it is imperative that such regulation be drafted at the federal level. Otherwise, such laws represent government-mandated inefficiency.

It is important, too, that regulations be fairly applied across industries. For instance, in the wake of September 11th, so-called “know your customers” regulations, previously proposed but then put on hold, were revived and formalized in the USA patriot act. They require banks to know the nature of their customers’ business, to monitor banking transactions and to report suspicious activity.

We are proud and eager to do our part in the wars against both terrorism and drug trafficking, which can, of course, be closely related. However, one cannot help but notice that prior to September 11, 2001, the airline industry was compelled by regulation to cover the costs and expenses of security screening of its passengers. Now, the government will be employing and paying these security personnel — in effect reducing the burden on the airline industry of providing this security function by transferring it to the government and spreading the cost to all citizens. Industries compete with each other for capital and should, if possible, be treated similarly. Not that I'd be eager, mind you, to trade our bottom line today for that of any of the major airlines.

The events of September 11th have, of course, deeply affected the markets we serve, especially cities in New York state, such as Buffalo, which have seen levels of financial assistance from a suddenly cash-strapped New York state government plummet. In recent weeks, the financial crisis in Buffalo city government was followed by another: the possible closing of the city's free-standing Children’s Hospital. It is important to realize that these twin crises are not unrelated.

Research commissioned by this company has, in years past, made clear how the high tax burden in western New York has helped to drive away our young people. Loss of population has meant a declining tax base—and forced us to go to Albany with our hand out. It is the same loss of our younger families, which has contributed to the problems at Children’s hospital.

For western New York truly to rebound economically—and not just to celebrate when the latest recession isn’t quite as bad as previous ones—we must permanently reduce the size and inefficiency of government, factors which drive up costs and drive away young families. There are other steps which we must take, as well, for we can’t continue to lose new families and new businesses and expect to stop this region’s decline.

This company and its leadership pledges to continue to do our part in helping to bring back Buffalo and western New York, and to bring the same level of community involvement and concern to all the markets we serve. But ultimately, in America, the decisions of each individual family are the ones that matter most—where they choose to live, where they choose to bank. Let’s help them find good reasons to stay and raise their families here.

Thank you very much.

Robert G. Wilmers
Chairman of the Board,
President and Chief Executive Officer