Yesterday, we announced our earnings for the first quarter of 2015. Net Income amounted to $242 million and diluted earnings per common share were $1.65. We earned a return on tangible common equity of 11.9 percent. Loan growth remained good, particularly in commercial, real estate and auto loans. Our credit performance remained strong in the recent quarter, with net charge-offs as a percentage of average loans outstanding amounting to 0.22 percent, a level well below our long term average of 0.37 percent. Notwithstanding our normal seasonal uptick in salaries and benefits compared with the fourth quarter, occupancy and equipment expense, the FDIC assessment and professional services costs were all lower than the first quarter of 2014. Professional services expenses incurred in connection with our BSA/AML work are starting to trend downward as some of those work streams reach completion. Looking forward, we still have some infrastructure and technology initiatives we're working on that will absorb some of those savings over the remainder of 2015. We continue to expect lower overall spending this year compared to last year. Last month, the Federal Reserve advised us for the second year in a row that they did not object to the capital plan we filed with them. In connection with that plan, we expect to resume repurchases of our stock in the first half of next year.
Now that we’ve reviewed this past quarter’s financial results, let’s talk about the big picture. Our company has recently undergone a great deal of change. We’ve worked feverishly to strengthen our foundation to meet our regulatory obligations and ultimately hope that we might be given the opportunity to broaden our reach. Unfortunately, we know that good things can take time and this merger—one we still believe to be very good—has taken more time than any of us could have ever conceived.
You know by now that we received word earlier this month that the Federal Reserve will require more time to consider our Hudson City merger application. We now have an extension in place and will look to consummate the deal on or before October 31, 2015. We have been advised by the Federal Reserve Board that it intends to act on the merger application no later than September 30. While we may not have yet reached our goal, the progress we’ve made is nonetheless heartening. Our long journey continues in earnest, and I thank you for your patience.
Be assured that we remain deeply committed to the transaction. It still works for all parties and that’s why we’ve labored so hard. Time and circumstance may have altered the route—but not the desired destination—this is a merger we will continue to pursue with our full might and mettle. Truth be told, it’s insightful to see how the assumptions we made in our due diligence when we first entered into the transaction have actually played out in the intervening two years and eight months of reality—and to render judgment on the quality of our work with the benefit of some hindsight. A careful review of the financial condition of both banks indicates that the economics of the transaction remain intact—we have identified an opportunity that adds tremendous value to our shareholders—a practice consistent with our long-standing reputation as a conservative yet opportunistic acquirer. Though M&T’s share price has advanced since the deal was first announced, the fact that we negotiated a fixed exchange ratio means the effect on our ownership stake being transacted remains unimpacted. Moreover, M&T’s Tier 1 common ratio accretion will remain unchanged by the merger. And since due diligence, the fair value of the Hudson City balance sheet has increased due to improvements in the characteristics of their portfolio that have subsequently lowered credit marks.
But the financial benefits of the deal tell only a part of the story. The merger with Hudson City still presents a magnificent opportunity to expand into the New Jersey market—one with which we’re very familiar but where we have only a modest physical presence. That the deal still projects to be accretive to earnings in the first full year following the merger is of small consequence when one considers the possibilities for future growth and the extension of our franchise.
Yes, like so many of our previous acquisitions, this transaction presents a logical marriage of resources; affording us the chance to combine an extensive branch network in a growth market, contiguous to those in which we already have an established presence, with our wide array of commercial banking products and services.
But in other ways this merger has been unlike any other, perhaps in the history of American banking. It has necessitated hard and tedious work of new and different varieties, and has required more time than any other in our history. Our expanded Compliance division has deployed to great effect our newly designed Know-Your-Customer program—collecting data from clients both new and familiar that we then leveraged to determine their validity and assess their risk level. Dedicated customer-facing bankers across the enterprise have worked with hundreds of newly-hired colleagues in the Risk division to verify and validate the identities of more than one million customers in the past year—working over the phone, through the mail and face-to-face to ensure we had every field of data, every signed form—everything we could possibly need to meet and exceed the expectations of our regulators and to fulfill our duty to protect our country and its citizens from terrorists, drug dealers and other criminals who seek to utilize the U.S. financial system to advance their nefarious plots. We have met or exceeded every customer validation target we’ve established with our regulators and remain on pace to complete a full-scale review of our customer base.
These activities were made possible by the yeoman efforts of our technology teams who developed the complex new systems our mission necessitated with remarkable alacrity. Even an epic November snowstorm in downtown Buffalo couldn’t keep our colleagues from meeting a deadline. They stayed in hotel rooms and, after a brief break, were back toiling away—ever on schedule and on point. I want to thank my colleagues for an unprecedented effort. Thank you for stepping forward, staying late and offering your unyielding commitment. It’s nice to know that, even in our dynamic new world, some things never change. Thank you for doing it the M&T way.
But as I look forward, optimistic that we might still have the opportunity to expand our bank and broaden our horizons, I can’t help but think of two old friends who are no longer with us. Mike Pinto, M&T’s Vice Chairman and my longtime confidant, played a seminal role in the transaction. It was he who met with Hudson City’s CEO, Ron Hermance, and negotiated the particulars of the deal in the fall of 2012—two Buffalo Bills fans chatting over what I presume were a couple of cold beverages. Mike and Ron passed away last year—in fact tomorrow marks the anniversary of Mike’s death. I think of them often and regret that they haven’t been alongside us throughout this journey.
Our pursuit of the Hudson City transaction is bringing great change to our bank, as I’ve discussed. We are strengthening our foundation and improving our infrastructure. We have augmented our Risk and Compliance teams and broadened our knowledge base to include previously off-the-radar topics like Cybersecurity and data warehousing. We’ve hired thousands of new colleagues and built a more diverse workforce with a broader range of backgrounds and perspectives.
In my Annual Letter to Shareholders, I asked you to kindly “pardon our dust”—words that suggested a temporary condition of disrepair as we sought to build something strong and enduring. But at M&T Bank, change has been more than a temporary condition. We have, since I arrived in 1983, been changing in one way or another, evolving to suit changing circumstances and opportunities. We expanded into new markets, completing some 23 acquisitions and transforming a bank that was once the fourth largest in Buffalo into a regional bank that stretches from the Queen City into Virginia. We’ve built new ways for customers to access our bank and developed new products, new services, new logos and new television commercials. And we’ve developed and hired new leaders to help shape our direction. Change, at M&T Bank, is constant. Never have we stopped moving forward and it’s not as though the world around us is standing still.
In the wake of the financial crisis, lawmakers have asked more of bankers than ever before. We’re subject to rigorous new capital requirements and risk management guidelines. In today’s more regulated world, there’s more scrutiny and focus on process than ever before. It’s no longer sufficient to come up with the right answer to an ever-growing litany of regulatory requests; we must now show our work and prove our mettle.
Amidst all this change, there are core values that have remained constant. I’m pleased today to tell you that some things have not changed—that some things have stood the tests and toils of time. It’s hard to believe I’ve been talking to you about M&T Bank’s performance for parts of four decades. I remember coming here to Buffalo in 1982. As I reflect on those good, old days, I remember having fewer gray hairs and standing a bit taller. I remember wanting to build a bank in which we could take pride – one that did the right thing the right way. I remember it like it was yesterday and I believe that’s the version of M&T Bank that has persisted to this day. Through the tumult of time, the core elements of our operating philosophy have not changed. We may have more processes and procedures, more branches and bylaws, but through it all we are the same bank that we’ve always sought to be. At our core and in our heart, we are and forever will be a bank for our stakeholders—the employees, customers, communities and shareholders that are our reason for being.
We remain committed to our 15,782 colleagues, a collection of talented individuals who never cease to amaze. Never before have I seen such passion for work. Strong apart, they are all but unbreakable when working together.
These are people who know their business and know their customers. Their vast stores of local knowledge and expertise are rooted in experience—in fact, the typical M&T employee has worked here for more than 10 and a half years, or more than twice the industry average. Our colleagues are committed to our customers—customers remain at the heart of what we do. We now serve more than 3.6 million—far more than we could ever have conceived of back in the early-1980s. We’re honored to be a financial partner to so many.
In 2014 alone, we made 20,403 loans to help customers purchase and refinance homes and we’re proud to be counted as the nation’s number six Small Business Administration (SBA) lender— and we’re number one SBA lender in many of the communities we serve.
We help our customers buy homes, cars and boats. We help them save for weddings, educations and dream vacations. We help them develop plans to ensure they have sufficient resources to enjoy their golden years. We help them start businesses, create jobs and enrich communities. That’s why we have more than $47 billion in commercial loans and leases outstanding—deals that drive the kind of economic progress that supports job creation in our communities.
We were proud to have helped Jim Fox and O’Brien and Gere, a Syracuse-based engineering firm, complete an acquisition in February of this year. We worked closely with Ed D’Alba and the team at Urban Engineers, Inc. in Philadelphia to provide financing to facilitate a recent ownership transition, and we continue to work with Francis J. Greenburger of Time Equities, Inc. as they expand their full service real estate business in locales that span from New York to Canada to Germany.
M&T Bank has, I believe, done its part to contribute to the economic vitality of our communities. Yes, we’ve helped to start businesses that promote job creation but we also paid more than $1 billion in salary and benefits to our 15,782 employees last year, hiring 4,475 new colleagues in 2014 alone.
And so we remain deeply committed to the communities we serve. We believe in the notion that community success is a shared responsibility—one measured not just in dollars lent or dollars spent but in the dedication of valuable personal time and resources. That’s why M&T employees logged more than 320,000 volunteer hours and served on 2,298 community boards last year. No matter the cause, it’s likely you’ll find an M&T banker close by.
And, of course, we remain committed to you—our shareholders—to delivering the type of exceptional value you’ve come to expect. Of the 100 largest banks that were around back in 1983, only 23 exist today. Among the survivors, M&T’s stock has the highest compound annual growth rate, checking in at 15.3%. In fact, had an enterprising investor purchased $6,795 worth of M&T stock in May of 1983 and continued to reinvest dividends, he or she would have holdings valued at $1 million today.
Just as an operating philosophy can endure, so too can the value of a profession. I believe that banking is a noble pursuit. Indeed, a healthy, competitive banking system is vital to sustaining economic growth in many of the small cities and towns that typify M&T’s core markets and make America great. I say this because it is the community-based banker who can best identify and provide seed funding to the imaginative entrepreneur whose idea may employ hundreds in a few years. It is the community-based banker who can best direct capital to energetic newcomers moving into and restoring once-declining neighborhoods. And, yes, it’s the community banker who knows best which prospective borrower is the one to whom to grant a loan—not because of some formula or algorithm alone but because of personal ties, knowledge of neighborhoods and roots in the community. That is our core business model at M&T—one about which I am not defensive, but resolutely proud. It is this community-focused approach which has allowed M&T to serve its customers well—and which we hope we can someday extend to those markets served by Hudson City, by building on a similar understanding it has long had of its own communities. For the reasons I’ve just described, it’s my belief that banking—and bankers—are quite generally forces for good. But I do believe, given the climate of distrust in which we find ourselves, that it’s worth putting on the record what I view as the inherent high-level characteristics of the bankers I work with, and the bankers I know.
Bankers come to work every day driven by the opportunity to do the right thing for their clients. Colleagues unite across business lines to deliver the whole of the bank to our customers—their friends and neighbors. They steadfastly believe that acting as such will benefit the communities they share. They believe that a rising tide lifts all boats. They know that when our communities succeed, we all succeed. It’s why bankers actively work to make their communities better places in which to live and work, and to “give back” to the communities they serve. While such support positions the banker as a leading corporate citizen, he or she also acknowledges a certain “enlightened self-interest” in giving, knowing that the bank can only do well when the community does well.
A banker does all of those things with intense personal responsibility—the kind that can only come with having a stake in the company and the communities in which he or she operates. A banker operates as an owner would, treating the bank’s money as if it were their own—making prudent loans that drive civic progress to customers they know.
A banker understands that the company’s fortunes are closely tied to his or her own work. A banker feels responsible for the long-term performance of the company—and ultimately, for the long-term performance of the stock. That’s why long-term equity compensation is typically a significant part of the banker’s compensation structure. A banker understands that aligning the interests of ownership and management is critical to fostering long-term success.
We’ve talked about how the banking industry is always changing. The only certainties in a banker’s life are death, taxes, change… oh, and regulation.
Perhaps above all, a banker must be above reproach, cut from the finest cloth of character. A banker is defined by simple values—by honesty, integrity, ethics and respect. A banker is wholly committed to doing the right thing the right way and, even in this changing world, the right way has no short cut.
A banker operates simply and ethically. Whether taking deposits in Albany, making loans in Harrisburg or providing portfolio advice in Richmond, a banker acts in the client’s best interest. A banker is as motivated by suitability as substance. No matter how potentially profitable the product, a banker doesn’t sell it if it’s not the right fit for the customer. Safeguarding the hard-earned savings of their neighbors and putting deposits to work through soundly underwritten loans to families and businesses constitutes an honest day’s work.
The banker is often seen as a pillar in the community—indeed, as a community banker—as a concerned, involved citizen who can lend an ear, expertise or a hand.
And a banker must be a sound manager of risk.
These qualities are not confined to board rooms and executives suites or, despite what some might suggest, to pages of fiction. No, what I’ve attempted to articulate is a way of doing business—a set of core operating principles that can set a company apart and permeate it at all levels. What I’ve described here is a culture—a word you hear more and more lately as industry experts grapple to find the root cause of what they perceive as the downfall of community banking.
One of the larger consulting firms believes you can measure culture with a scorecard—But, I believe that a company’s culture is built over the span of generations. It exists in the hearts, minds and actions of every banker in its employ. Culture is measured in the good work being done for communities and customers, employees and shareholders—in doing the right thing the right way. Culture manifests itself in a company for which you can be proud to work and with which you can be proud to do business.
I believe that the 15,782 employees who work for M&T embody the best version of what a banker can be. I’m proud to call these people my colleagues. I’m proud of their intense personal responsibility, their astounding ability to adapt to changing circumstances and, most of all, proud of the way they conduct themselves each and every day. M&T bankers are good bankers. They make banking a noble profession. They make this company a great place to work and they make our communities better places to live. That’s the only scorecard I need.
Please join me in giving the good bankers a round of applause. Thank you.
Robert G. Wilmers
Chairman of the Board
and Chief Executive Officer