Remarks to Annual Meeting of Shareholders: April 19, 2005

I am pleased to address this meeting again this year. As you know, I’ve been addressing these meetings for quite some time—some might say ‘for more years than I care to remember.’ But, actually, I do care to remember. I remember addressing my first annual meeting in this room in 1984, when the company had $2 billion in assets and 56 branches, and operated only in New York State. Today, our assets total nearly $54 billion and we have 660 branches, located across six states and the District of Columbia.

And we are operating successfully: a recent survey of companies with sales greater than $5 million in our upstate New York, central Pennsylvania and Maryland markets found that we are the bank for one of every three. Keep in mind we have no shortage of competitors for that business.

In that light, a question certainly suggests itself: how did we go from the way things were back then to the way they are now when we’ve taken a place amongst the top 20 bank holding companies in the country? I think it’s worth a few minutes to reflect a bit on how we’ve done it.

Several factors strike me as having been key. One must look first to our people and to what might be described broadly as continuity. We’ve been fortunate to have retained our senior management corps—and I don’t mean just me. Of the current members of our management group, some 70 percent have been with the company for at least 10 years and 62 percent have been part of the management group itself for at least five. We’ve had the same treasurer for 8 years, the same controller for 9 years, the same chief auditor for 21 years and, yes, the same chief executive officer for 22 years. But it doesn’t feel like a minute over 21.

But loyalty and continuity at M&T extend well beyond our senior management. It is true that, because of our mergers and acquisitions, a great many of our employees have been with us for less than five years. But a vital core of those who were with us during our long period of growth are still with us today. Indeed, of those M&T employees who were on the payroll ten years ago, fully 34 percent remain with the company—in an industry in which more than 30 percent turnover annually is average.

This continuity, too, is of crucial importance. It has allowed us to pass along our corporate culture—conservative with credit, active in our communities—to new generations of employees. It’s allowed us, time and again, to train the employees we have retained from banks we’ve acquired in the systems and methods of M&T. That’s required many employees to do double duty—adding to their ongoing tasks the responsibilities of making an acquisition work. To all those who have gone that extra mile—or perhaps the extra 500 miles—I extend my personal thanks.

It is just that sort of extra effort that has made possible the promising results attained to date through our acquisition two years ago of Allfirst. Indeed, some 25 percent of M&T’s net income this past year can be attributed to operations of the former Allfirst franchise. We are proud to have emerged, despite competition from some of the largest banks in the country, as a significant participant in the vibrant Baltimore-Washington market, where we not only serve a major share of the market but where we have, I believe, established a reputation similar to that for which we’ve strived wherever we do business: as a bank which understands that for it to be healthy, the communities in which we do business must be healthy.

Let me take a moment here to give special recognition to someone who had a great deal to do with making the Allfirst acquisition work and is now returning to his native Ireland as CEO of Allied Irish Banks. Thank you, Eugene Sheehy. I hope we’ll continue to find ways to work together.

We take neither the loyalty of our employees nor our community reputation for granted, however. Both require investments, not just lip-service. That is why, for instance, we have provided a discounted stock purchase plan for our employees. Almost 3300 employees now take advantage of the program. Our concern for the communities in which we operate leads us to provide financial support for hundreds of community organizations.

We are proud that Business Week magazine ranked our corporate philanthropy as a percentage of revenue in the top 10 of all publicly-traded U.S. companies—not just banks but all public companies in the country. Such financial contributions are just a small part of what M&T tries to contribute to its communities. I am particularly proud of the fact that M&T employees serve on the boards of directors of some 900 community-based not-for-profit organizations. I believe firmly that such volunteer service is a linchpin of a healthy community.

Finally, I attribute much of this company’s good fortune to consistency in our business practices. We have hewed to a conservative credit culture through boom and through bust, judging loan requests on such time-honored measures as ability to repay. But that sort of consistency does not mean we believe in standing pat.

We have been, and remain, willing not only to take on the risks of acquisition but, just as important, to look closely and unsentimentally at our internal business practices. In times such as these, when growth is not as easy to achieve as it once was, it is all the more important for us to focus on efficiency. That it is why we are currently devoting so much effort to examining five major operational areas of the company to see where improvements can be made.

We’re approaching these “five areas of focus” with the same sort of diligence we bring to a major acquisition. We are examining our infrastructure—meaning our physical and technical systems, along with our human resources; our spending patterns—we’ve initiated what we call “SmartSpend” to make sure we get the most for our procurement dollar; our base in community banking —which has led us to redesign our organizational structure to make it as responsive as possible to the localities in which we operate; our revenue streams, which we seek to enhance, and our loan systems and processes, which we will consolidate.

These are the five areas of focus: Infrastructure, SmartSpend, Community Banking, Revenue Enhancement and Loan Process Optimization. The larger point is this: when past practices continue to prove their worth, we will hold to them. But when change is needed, we will not hesitate to undertake it.

The commitment we feel to the communities in which we do business also compels us to take an active interest in public affairs. As you know, I am completing my second year as a member of the Buffalo Fiscal Stability Authority, the so-called Control Board overseeing the city government’s fiscal situation. If anyone thought the process of putting those finances in order would be quick or easy, events have clearly shown otherwise.

But before I reflect on some of the details of the financial picture which we face in Buffalo and Erie County, I’d like to take a moment to tell you why I care so much about this area. It’s easy and perhaps inevitable that we dwell on its weaknesses but I try, as well, not to forget its strengths.

This is a part of the United States which has wonderful people and a lovely family environment. It is a place where, day in and day out, we find good neighbors. It is home to more than a dozen institutions of higher education. In particular, in the University at Buffalo, with its 12 top-flight professional schools – including law, medicine, engineering and management – the region boasts a foundation for economic innovation and development of which many cities would be justifiably envious.

We have an excellent road structure and virtually no traffic jams, almost unheard-of in most cities of the world today. Air travel, too, is convenient. Our airport is within 500 miles of about half of the population of the United States—and we have the unique attractions, and trade benefits, of having a foreign country on our doorstep. Niagara Falls is one of the natural wonders of the world.

But we live amongst man-made wonders, as well: the Albright- Knox Art Gallery, the Buffalo Museum of Science, the Buffalo Zoo, the Buffalo Philharmonic Orchestra and our many local theater companies. Our sports and recreation options are superb. Within an hour’s drive of this building, there are 48 golf courses, as well as the water sports afforded by two Great Lakes. And we have great professional sports teams with storied histories in the Bills, Sabres and Bisons. We were the eighth-largest city in the United States in 1900 and the attendant prosperity of that era makes today’s Buffalo an architectural wonderland. Visitors from abroad gape at buildings we may forget to notice.

And yet despite our heritage, the endowments of nature, and the many positive steps taken each day by our citizenry, we are concerned, and properly so, about the downward spiral in this region. Consider the following:

• Our regional population has declined 10 years in a row and in 25 of the last 32 years.
• Between 1990 and 2000, the population of those in the 18-to 34-year-old age group declined 23 percent.
• In part as a result, sixteen percent of housing units in the City of Buffalo are vacant.
• That’s nearly 23,000 dwellings.
• Twenty-six percent of the city’s population lives below the poverty line.
• The assessed value of real estate in Buffalo declined from $9.6 billion in 1994 to $8.6 billion in 2004. In other words, the real estate owned by Buffalo families and businesses lost 10 percent of its value during a time of unparalleled prosperity in the country as a whole. Let me say that again: our property lost one billion dollars of its value while the rest of the country was in a time of boom.
• The city has proved unable to balance its own budget and was forced to accept a state-imposed Control Board. Buffalo must face the humiliation of being the largest jurisdiction in the United States under such supervision.

The picture is no prettier when we look at Erie County. Despite its legal obligation to balance its budget, the county ran a significant deficit in 2004 and has been forced abruptly to eliminate 2000 jobs. It avoided even worse cuts only by fiscal gimmickry—in effect selling the Erie County Medical Center to itself for $100 million, allowing it to take the unwise step of issuing bonds to cover normal operating expenses.

Then there is the matter of public education—crucial to the future of any metropolitan area. More than a third of those entering the ninth grade in the Buffalo schools fail to graduate four years later, a rate that’s 50 percent worse than the New York statewide average. Only 64 percent of Buffalo students who entered the ninth grade in September 1999 graduated by August 2004. Statewide, the graduation rate is 76 percent.

More public schools in Buffalo are on the state’s watch list than those in Rochester and Syracuse combined. It’s no wonder that parents, desperate to educate their children, are enrolling them in charter schools, which 13.5 percent of Buffalo students now attend. That’s nearly twice as many as in Rochester—and 25 percent of all charter school students in New York State, despite the fact that the Buffalo school population as a whole represents little more than one percent of all New York students.

Fixing these sorts of problems requires cooperation and imagination. Instead, we see a community whose institutions consistently show a lack of capacity to work together—and, worse, still, publicly embarrass themselves by their actions.

Consider some examples. For more than a decade, we have been unable even to develop a plan to replace a key element of our transportation infrastructure, the Peace Bridge.

Our elected officials have failed to recognize the severity of our situation and to act accordingly. These officials squabble with each other rather than making the hard choices that signal leadership. Our elected leaders and legislative bodies—including the Legislature, the Common Council and the Buffalo Board of Education—fight with each other and amongst themselves. At one time or another, all have been public embarrassments. And speaking of embarrassment? Has there been any worse than the reports in the national media that Proctor and Gamble, when it learned of a particular supply shortage that had resulted from Erie County’s financial problems, sent us a free truckload of toilet paper? People remember stories like that.

The Buffalo Board of Education will pay $27 million more for health insurance over two years because it hasn’t been able to choose a single health care provider—despite the fact that the change would not affect the health care options of employees.

We stand now to reap the bitter fruit of these failures. The Buffalo schools risk consigning yet another generation to the most limited of prospects. With yet another budget deficit looming, it is anticipated that the County will increase taxes and fees $100 MM next year. The city faces its own deep financial hole.

To date, the Control Board has had to use its authority to borrow $110 million. That’s borrowing which the state allows only in the belief that the city and Control Board working together will, indeed, be able to take the steps necessary, for the long term, to control spending that exceeds the city’s means.

Simply put, you can’t spend what you don’t have. When a city’s population and tax base both decline, its government must get smaller. There are, however, many in the city unwilling to accept that fact of life. How else to explain the six lawsuits filed against the Control board, most by organizations upset over an unavoidable freeze on wages?

There is a common thread to all of this. Implicit in the resistance to reductions in the scale of government is the apparent belief that somehow, some way, we can soon return to business as usual—that if those affected can just dig in their heels for awhile, the gravy train will be right back on the tracks. This view is both wrong—and dangerous.

The status quo is unacceptable and unsustainable. If we fail to bring down our tax burden—now amongst the highest in the nation—we will continue to drive away existing business and keep away new business, and we will continue, as a result, to drive away our young. The danger here is of a slow, painful, downward spiral from which the region finds it cannot emerge. The economies of eastern Europe, long-strangled by Communism, are today far more dynamic than that of this region, while Buffalo looks more and more like the eastern Europe of old.

Reversing this terrible trend requires not small steps but bold ones. Buffalo and Erie County must send a signal—to citizens, to potential residents, to businesses, to credit-rating agencies and to the country—that significant change is afoot here. Holding the line on new taxes is a start. Living within our means is crucial. But we must do much more.

Even if we do not undertake government consolidation, our many governments must work together to limit duplication and reduce costs, at the same time we improve the quality of those services which must not be cut. For improvements like these to come to pass, our leaders and our community must change the way they operate. Civility must become our norm. Elected officials and unions must work together.

The business community must look beyond getting the best deal for itself and become involved. In short, we must all stop being in denial about the depth of our problems—and start working together to solve them. If we truly want to reverse this misfortune, if we want to resolve our fiscal problems, if we want our children and grandchildren to have good schools and a bright future right here in western New York, it’s time to stop groping for magical solutions. It’s time to stop arguing and, instead, to forge a new social compact.

It’s time to work together, young and old, rich and poor, labor and management. You can be sure that, as one of the largest private employers in western New York, M&T will do its best to do our part. I implore others—not just those in positions of authority but every household and every citizen--to play a role in this effort to turn ourselves around.

The time is right to see Buffalo as if we had just come upon it and thus to see it through fresh eyes—not as a place on hard times and in decline but as a city of beautiful homes, architecturally important buildings and hard-working people, set on the shores of a Great Lake and amidst a bountiful countryside.

Ours is a city with a great past—and one which holds great promise, if we can only put aside petty quarrels, short-term self-interest and the habits of pessimism.

Today is not too soon to start.

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