Remarks to Annual Meeting of Shareholders: April 15, 2014

Yesterday, we announced our earnings results for the first quarter of 2014.  Net Income amounted to $229 million and diluted earnings per common share were $1.61.  We earned a return on tangible common equity of 12.76 percent.  The quarter’s earnings reflect a slow start in January and February, with lower than normal levels of customer activity, followed by a marked improvement in March.  Our credit performance remained strong in the recent quarter, with net charge-offs as a percentage of average loans outstanding amounting to 0.20 percent, a level well below our long term average of 0.37 percent.  We continued our higher levels of investment spending in connection with upgrading our compliance, risk management and operating infrastructure.  While this higher level of spending has adversely impacted the cost of producing a dollar of revenue in the near term, we view the investment as essential to ensuring continued high performance in the longer term.  Significantly, during the quarter the Federal Reserve advised us that they did not object to the capital plan we filed with them, we successfully accessed the debt and preferred equity capital markets and we continued to make substantial progress in those compliance and risk management projects to which I just referred.  All in all, it was a very productive quarter.   

Nonetheless, in the current environment, you might expect my remarks—and my outlook for M&T—to be less than sanguine.  No one, after all, would call these the best of times for the banking industry.  Too many banks are competing for too few loans in an economy that continues to be characterized by slow and uneven growth.  These forces have combined to compress net interest margins, making it more difficult to grow revenues by taking deposits and making loans, the lifeblood of our traditional approach to the business of banking.  
At the same time, the enactment and enforcement of a more comprehensive regulatory regime has led to greater costs.  From Dodd-Frank to Basel III to the Bank Secrecy Act and Anti-Money Laundering laws—all these and many other new rules, regulations and requirements have caused us to multiply our spending on regulatory, compliance and risk-related infrastructure.  Last year, our estimate of those outlays totaled $265 million—or 10.3 percent of our total operating expense—more than double what we spent in 2012, and nearly four times as much as in 2007.  To put that in perspective, M&T spent more on regulatory requirements last year than we did on personnel costs for our entire network of 721 branches.

So it is with the banking industry as a whole—the economy is making revenue growth more difficult to achieve, new regulations are increasing expenses, and, together with higher mandatory capital requirements, it will be harder than ever for banks to generate returns at the level at which shareholders have been accustomed.

If we look back over the past 30 years, M&T’s annualized stock price appreciation of 15.6 percent ranks first compared to the 100 largest banks with which we were competing in 1983.  And by the way, only 23 of those banks still exist today.  

M&T’s total shareholder return still ranks first among our peer institutions over the most recent six-year period, which includes the financial crisis—our annualized total shareholder return since December 31, 2007 is 10.05 percent compared to a negative eight-tenths of one percent median for the peer group.  So while we continue to demonstrate substantial outperformance relative to our peers, our absolute returns have narrowed in the face of industry difficulties. 
Despite these challenges, the truth is that I am not a bit downbeat in my thinking about what we’ve accomplished so far at M&T—or about what we can and will achieve together in the future.  Not only do I see the glass as half full, but I believe that its level will continue to rise.  

Indeed, I remain optimistic about our future, and confident that we will continue to be able to outperform our peers in the banking industry, because I believe that our business model is more relevant, and our core values more important, than ever before.  In my messages to shareholders over the years, I have cited as examples the importance of our conservative and consistent credit culture and our prudent deployment and stewardship of capital.  Such fundamental operating principles are important, to be sure, but they are not the only reasons for our record of outperformance, which began in the 1980s and has continued through the worst financial crisis and deepest recession in generations.  

We also recognize, as we must, that we exist in an ever-changing world.  Our competitors, communities and customers are constantly evolving, and we must adapt to changes all around us.  Our ability to remain nimble and resilient has been just as important as our steadfast commitment to our core values.  It is, in fact, our ability to adapt and apply those values to dynamic situations and circumstances that has enabled us to excel.  

M&T’s post-crisis record of success, which I see manifested in markets from our newest to our oldest, is the evidence that corroborates my hypothesis—and that inspires my confidence in the future.  Look, by way of example, at all that we’ve accomplished in Baltimore since the financial crisis began.  We started from a position of strength, built up over time through our relentless focus on financial discipline, with credit quality and the prudent deployment of shareholder capital our hallmarks.  Then, when the crisis struck, we were able to capitalize on opportunities created by the difficulties experienced by other institutions.  We merged with Provident Bankshares in May 2009 and then, through two FDIC-assisted transactions within the next 18 months, we acquired Bradford Bank and K-Bank.  Our employees demonstrated their capacity to adapt to each of these new and unique situations, and to convert and integrate those institutions quickly, effectively and successfully.

We have, as a result, significantly increased our share of customers in the Baltimore marketplace across all major aspects of banking—commercial, small business and consumer.  We’ve come a long way since 2003, when we had no presence there at all.  Today, we rank first in branch share and second in deposit share, and on a regional basis, the largest portion of M&T’s net earnings contribution comes from our Greater Baltimore market.

It is important to note that, not only have our shareholders profited through our growth, but our employees and communities have benefitted as well.  We have become the 12th largest private sector employer in Baltimore, and one of the most active supporters of civic organizations, both financially and through the volunteer efforts of our employees.  Our $18.9 million in Baltimore-area philanthropic giving has been complemented by tens of thousands of hours of employee volunteer time in the six years since the crisis.  This is how we adapt our community banking approach, born here in Buffalo, to the newer markets in which we now do business.  

A second—and different—example of our post-crisis adaptability occurred in Delaware by way of our May 2011 acquisition of Wilmington Trust, showing clearly how our success in this new era goes well beyond the application of the same formula in new situations.  We’ve done things differently in this case—maintaining their brand, for instance—giving us a chance both to grow and to learn.  And we’ve taken on—and met—big new challenges, from an unprecedented level of credit quality review, to an understanding of specialty businesses in which M&T had less experience.  Wilmington Trust’s renowned expertise in wealth management has helped inform—and improve—our approach to that crucially important business line throughout M&T.  

We’re putting the lessons we’ve learned to good work, and it shows.  Revenue from trust, brokerage and insurance grew from 21.4 percent of M&T’s total non-interest income in the fourth quarter six years ago, to 33.9 percent in the last quarter of 2013, helping to diversify our sources of fee income.  Not only that, but the economics of the transaction have exceeded projections we set when we announced the deal—strong revenues, lower expenses and credit have performed better. 

It is well worth noting that, in addition to what we have learned and earned with Wilmington Trust, we have continued to apply our time-tested community banking approach in that new market as well.  We are now the top S.B.A. lender in Delaware—just as we are the leader in our vintage markets.  And, not only have we invested $28 million in our Millsboro Operations and Data Center, we are also the 10th largest private sector employer in the entire state.  But you don’t have to believe me when I say that M&T has become a major, constructive presence.  At the dedication of the Millsboro center, Governor Jack Markell put it this way, “M&T has said clearly that it is committed to Delaware and to our communities.  Its decision to expand operations and put people to work building its new data center here puts even more action behind its words.”

Our recent examples of success have not, however, been limited to new markets—we’ve also been growing strongly in Buffalo, our headquarters since we were established in 1856.  As in Baltimore and Wilmington, our growth here reflects our ability to build on our strengths while adapting to new opportunities.  For example, we attracted significant numbers of new customers, along with their deposits and loans, as some traditional competitors retreated from the market.  In the six-year period since the financial crisis, M&T grew its deposits in Western New York by $2.67 billion—an increase of 51.6 percent, while loans increased by $735 million or 21.75 percent.  It’s hard not to view that as a vote of confidence in M&T.

Yet we’re doing more than just growing deposits and loans in Buffalo—we’re also growing a business line that generates another significant source of non-interest income for M&T, namely through our acquisition from Bank of America of a portion of its local mortgage servicing operation, which had been slated for closure.  This has made it possible for us to provide servicing not only for loans in our own portfolio, but for major mortgage investors across the country.  And in a period when income from origination has fallen substantially, revenue from residential mortgage subservicing accounted for 26.1 percent of our total mortgage revenue in the fourth quarter of 2013.  

I’m also gratified that our Western New York workforce has grown by 1,343 employees since the financial crisis—from 4,838 in 2007 to 6,181 at the end of 2013–while total private sector employment in the region declined by some 900 jobs.  Indeed, we are now the largest for-profit employer in the region.  As always, our position as the leading bank in Buffalo and Western New York enables us to act as any reputable employer should and take a leading civic role in the community.  In the period since the financial crisis, we have contributed $27.2 million to local non-profit organizations. 

It is with all this in mind—our proven ability to adapt to changes and undertake new challenges, the successful growth we have achieved in Baltimore, Wilmington, Buffalo and elsewhere, and the tremendous benefits we have provided to our shareholders, employees and the customers and communities we serve—that I look forward with such confidence to the opportunities still ahead of us.

I’m particularly optimistic about what I believe will be our next shining success story—our acquisition of Hudson City Savings Bank.  Of course, like all of you, I look forward with hopeful anticipation to its formal approval, at this point still pending.  There are a lot of good reasons why, even in the face of challenges and disappointments, we have decided to stick with it.  Hudson City is quite simply a great complement to our existing operations—one that equals and in some ways exceeds the potential we’ve seen in our existing markets.  With a relatively affluent and growing population of 8.4 million, more people live in New Jersey than in Upstate New York, Maryland or Delaware.  New Jersey also has a high concentration of valuable commercial and small business prospects as well—also more than in those other three markets.  

Yet, its retail branch network will supplement and strengthen our existing commercial banking presence in New Jersey, where we don’t have any branches.  We already have 189 bankers serving the market, and they will be thrilled to join forces with Hudson City’s robust network of branches and branch salespeople.  But even without the merger, M&T generated $165.4 million in new loan balances and $379.3 million in new deposits last year.  

They aren’t the only ones who are working hard to help us prepare us for the Hudson City opportunity, though.  We have many employees who have devoted a great deal of their time and energy—perhaps I should say their blood, sweat and tears—to one of the main prerequisites for approval of this acquisition: that is, our new Bank Secrecy Act/Anti-Money Laundering program.  From the front line to the back office, thousands of our employees are involved in the effective development and implementation of this particular program.  

Indeed, strengthening our infrastructure—and our overall culture of compliance—is a key organizational priority, one to which we’ve already dedicated $59.6 million.  These investments of both our human and financial resources are critical to both our short- and long-term best interest, for this work will be required of any bank that seeks to grow, either by adding new customers organically, or through participation in future consolidation within the banking industry.  
You might conclude from my remarks that the M&T story is largely about acquisitions—those we’ve done already, and any we might hope to do in the future—but that would be a mistake.  We don’t measure success by how large we have grown.  Rather, it’s measured in terms of quality.  Success, in my view, means that we are acting as good stewards of our shareholders’ capital.  It means that we are creating opportunities for our employees to grow.  It means that we are meeting the needs of our customers while enriching the communities we serve.  In order to be truly considered a success, our shareholders, employees and communities must all have benefitted from our work.

I believe that, by adapting to new and demanding situations, especially as we have through and since the credit crisis, we have, in many ways and in many places, met and even surpassed those measures of success.  I am deeply proud of our record, as I am proud of all those who helped us achieve it, and I am equally confident about the future of M&T Bank.

Thank you.

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