2018 Annual Report Message to Shareholders

Our 2018 results reflect a confluence of events that produced exceptional improvement in our operations, earnings  and level of return for shareholders.

After a long period of compression, caused by almost a decade of near zero interest rates, margins expanded as the Federal Reserve continued to raise interest rates. While rates rose, consumers and businesses alike found value in retaining uncharacteristically high cash balances with banks. In fact, last year our customers held 23 percent of deposits in transaction accounts,  13 percentage points higher than before the financial crisis. In 2018, net interest margin reached a level not seen since 2010.

The health of our customer base proved strong, leading to the lowest level of net charge-offs that we have experienced in the last 31 years.

The cost of significant investments during the year in talent, technology and marketing, which enhanced customer experience and awareness, was masked to some extent by the elimination of the FDIC large bank surcharge, as the Deposit Insurance Fund achieved its statutorily required minimum reserve ratio of 1.35 percent.

The Tax Cuts and Jobs Act, implemented last year, dramatically increased earnings available for reinvestment in our business or return to  our shareholders.

All of these factors combined to produce a return on tangible common equity not seen since 2012.

At the same time, loan growth was characterized as slow or challenged relative to past cycles, due to strong competition from banks and nonbanks alike for a limited pool of loans, particularly commercial and industrial loans. While originations were healthy, they were offset by payoffs, pay-downs or refinances, as customers took advantage of the lower pricing or the most favorable terms and conditions available from new forms of lenders. At times like these, our disciplined capital allocation philosophy often results in tempered loan growth—as asset prices inflate and the number of capital providers expands, making credit widely available.

The combination of higher revenues, lower credit costs and the change in tax policy provided more capital than could effectively be put to use by, or in the service of, customers and communities.

A hallmark of M&T has been the prudent deployment of capital when and where it makes sense. Our first priority is to invest in our own business and in the communities in which we operate by extending credit to our customers or, periodically, in expansion through acquisition. When returns offered in those areas appear inadequate, we prefer to return excess capital to shareholders—hopefully enabling its deployment into alternative, higher returning investments, perhaps outside the financial services sector in which M&T operates.

Recently, there has been significant debate  over the record amount of capital distributions  by banks and other financial institutions, with estimates exceeding $150 billion being returned in the last year. Some argue that it would be more reasonable for banks, like M&T, to hold onto excess capital or deploy it either in or outside  our current communities, even if the returns  are less than ideal.

These arguments fail to recognize the fact that  a fundamental role of the banking system is to help customers finance their investment needs, which enhances their communities and expands the economy. When those opportunities are exhausted, the role of the banking system is to avoid deploying capital in ways that could exacerbate the severity of a boom and bust credit cycle, which could diminish long-term economic growth. There are all too many examples throughout history where capital, sub-optimally invested by banks and bankers, has resulted in the destruction of shareholder resources that could have been utilized more effectively.

Also, for institutions that hold onto capital beyond that which they can productively deploy, the mere process of finding uses for that capital tends to promote excessive risk taking, often times at the peril of those institutions. Of the 50 largest banks in existence in 1989, the year when the longest tenured members of M&T’s Executive Management Committee joined the bank, only nine remain today. The rest were either acquired or failed.

Our own approach, carried out over those 30 years, has proven central to keeping M&T safe and sound. Only 28 percent of the $17.8 billion in total capital we generated through earnings over that period has been retained to support loan growth or acquisitions.



With that landscape in mind, let’s examine the details behind M&T’s financial results. Net income surpassed the previous high-water mark, recorded in 2017, rising 36 percent to $1.92 billion from $1.41 billion in the prior year. Diluted earnings per common share tallied $12.74, a jump of 46 percent from $8.70 one year earlier. Last year’s results, expressed as rates of return on average assets and average common equity, were 1.64 percent and 12.82 percent, respectively, significantly improved from 2017.

As has been the case since 1998, M&T also reports results on a “net operating” or “tangible” basis, which excludes expenses arising from  the amortization of intangible assets as well as merger-related gains or expenses in years when they occur. Net operating income was $1.94 billion in 2018, improved by 36 percent from  the prior year. Diluted net operating income per common share was up 46 percent to $12.86. Net operating income expressed as a rate of return  on average tangible assets was 1.72 percent. Net operating return on average tangible common shareholders’ equity was 19.09 percent.

The full-year improvement in GAAP and net operating earnings included a sizable benefit from the reduction in the federal corporate income tax rate approved in late 2017. The  base federal rate declined to 21 percent in  2018 compared with 35 percent in 2017.

The primary driver of M&T’s revenue is net interest income, that is, interest collected on loans and investments less interest paid on deposits and borrowings. Expressed on a  taxable-equivalent basis, net interest income grew by 7 percent to $4.09 billion in 2018. The higher interest rate environment contributed  to a 51 basis point (hundredths of one percent) increase in the yield on earning assets with just a 23 basis point increase in the rate paid on deposits and borrowings. Combined with the impact of a higher contribution from interest-free funds, the result was expansion of the net interest margin, or taxable-equivalent net interest income expressed as a percentage of average earning assets, to 3.83 percent in 2018, compared with 3.47 percent in 2017.

The benefit of 2018’s wider net interest margin was somewhat checked by a year-over-year decline in average loans. Total loans averaged $87.4 billion last year, or some $1.4 billion lower than in 2017.

To look only at total loans would be to miss  the intentional balance sheet transformation underway since late 2015, when Hudson City Bancorp, Inc. (“Hudson City”) merged with M&T. The average balance of residential mortgage loans, most of which were acquired through the Hudson City combination, declined by $2.7 billion during 2018, continuing the planned runoff which has reduced their balance by nearly half since the merger. Partially offsetting that contraction was an increase in commercial and other consumer loans of more than $1.2 billion.

The improved rate of economic growth in the United States, combined with a near-record low unemployment rate, continued to bolster the financial health of our consumer and commercial customers. Loans on which we no longer accrue interest due to concerns about their ultimate collectibility were little changed, with the ratio  of non-accrual loans to total loans inching up by a scant one basis point to 1.01 percent. Net chargeoffs, that is, loans written off as uncollectible less the recovery of loans previously written-off, expressed as a percentage of average loans, were historically low at 15 basis points. That was an improvement from the already low 16 basis points reported in 2017 and was the lowest level recorded by M&T since 1987. At 2018’s year end, the ratio of the allowance for loan losses to loans outstanding stood at 1.15 percent.

Noninterest income totaled $1.86 billion last year, representing merely a $5 million increase from the previous year. However, that modest increase was significantly dampened by the impact of both realized gains from sales of investment securities in 2017 and a change in accounting rules for unrealized gains or losses on marketable equity securities. While those unrealized amounts were recorded directly in shareholders’ equity in prior years, beginning in 2018, they were recognized in the income statement. In combination, these items account for $28 million of the difference compared to the prior year. Additionally, implementation of new revenue recognition accounting rules resulted in the classification  of $14 million of rewards provided to retail customers for using our credit cards as a reduction of noninterest income. For years prior to 2018, those rewards are classified as other expense in our financial statements. If not for  the impact of those changes, spurred, in large part, by new accounting requirements, noninterest income would have increased by  $46 million as compared with 2017. Leading the way in that year-over-year improvement was trust income, predominantly comprised of revenues from our Wealth Advisory Services  and Institutional Client Services businesses, which together comprise our Wilmington Trust brand. Trust income totaled $538 million for 2018, representing a 7 percent increase. Other  fee categories, which include residential and commercial mortgage banking revenues and service charges on deposit accounts, were little changed from the prior year. Residential mortgage banking in particular was challenged by higher long-term interest rates, resulting in limited mortgage refinancing opportunities. Lower housing inventories, particularly for starter homes, have also impacted the market  for mortgages.

Noninterest expenses totaled $3.29 billion in 2018 representing a 5 percent, or $148 million, increase from 2017. Salaries and benefits grew by $103 million, reflecting our determination to invest a portion of tax-related savings into employee compensation. Last year we initiated mid-cycle wage adjustments for some 8,960 employees in addition to our practice of annual merit-based  pay increases. Further, we added a net of 473  new employees, largely in customer facing and information technology-related roles. Coupled with increases of $17 million in advertising and marketing and $14 million in outside data processing and software, these initiatives represented significant investments in further improving our customer experience and awareness, and our operating systems and processes. As was the case in 2017, expenses in 2018 included litigation-related charges relating to matters at Wilmington Trust that predate its acquisition by M&T in 2011. Higher expenses for such matters accounted for $85 million of the year- over-year increase in our noninterest expenses.

Consistent with our long-standing philosophy, capital beyond that necessary to support prudent lending to our customers and investment in our businesses was returned to shareholders. For the full year of 2018, M&T repurchased 12,295,817 shares of its common stock valued at $2.2 billion and paid $510 million of common dividends to our shareholders in a year when the quarterly dividend rate was increased twice. Those distributions resulted in a payout ratio for the year that was equal to 147 percent of net income available to common shareholders.

By any financial measure, 2018 was a successful year for M&T and we shared that success with our customers, our shareholders, our employees and our communities.


The natural temptation after a year in which M&T’s earnings grew by 36 percent is to focus on that achievement, but to do so would gloss over recent trends that affect our company, industry and economy.

Given the unevenness of the recovery from the financial crisis, a prominent and deceptively alluring narrative about banking today has emerged: that scale and location have conveyed insurmountable competitive advantages to certain institutions, and that without such scale, and outside those markets, other banks cannot compete. It is a story that would, superficially, seem to consign M&T to the margin—not so.

Regional banks like M&T have played—and will continue to play—a vital role in the communities they serve. Indeed, our performance, both last year and over time, can be said to reflect the value we create for our customers and our communities, and which has accrued to our shareholders. What follows will examine broad trends in banking and in the overall economy—and make clear how M&T will continue to prosper notwithstanding both.

Often cited as evidence in this emerging narrative is the outsized growth rate of low-cost deposits— long a key ingredient in successful banking— realized by the largest U.S. financial institutions in the post-crisis era. 

In 2017, three of the largest institutions grew deposits by $120 billion—an amount greater than all of the deposits at the 12th largest commercial bank in the country. Those same three banks opened more than 45 percent of all new checking accounts in the country in 2017, according to one study. That caps a five-year period in which those institutions increased deposit balances three times more than M&T and the 11 regional bank peers of similar size and business model combined—without paying above market rates.

Core deposits, money held by consumers and businesses in checking, savings, money market and time accounts, are important funding sources for financing new homes and small businesses,  so the recent shifts in deposit trends have been notable to industry observers.

What has helped these large banks attract new customers, particularly millennials, is investment in new products and services in today’s digital era. Those institutions with the most scale vastly outspend their regional competitors in absolute dollars, while their overall size enables them to maintain a ratio of technology and marketing expenses to revenue that is similar to regional banks. In 2017 alone, according to a recent research report, just one of the largest banking institutions spent more on technology and marketing than the amount spent by M&T and  all of its peers combined.

However—and these facts are overlooked in the narrative—a shift in demographic trends seems to have contributed a substantial portion of this higher deposit growth.

More than half of total deposits are concentrated in the nation’s 20 largest markets—which are home to 38 percent of the country’s population. The three largest financial institutions hold  45 percent of all deposits in those markets, significantly exceeding their 36 percent share nationally. In fact, at least one of the three institutions holds a leading deposit share  position in 18 of the top 20 markets. 

Six out of every ten jobs created in the United

States since the crisis were added in those same

20 markets, where fewer than four of ten Americans reside. Median household income  in these markets exceeds the national average  by 20 percent. And nearly half of the country’s total population growth since the crisis occurred in just these 20 large metropolitan areas.

Historically, deposit growth itself is highly correlated to increased employment, income  and population. The banks with the most scale have benefited from their outsized presence in the largest U.S. markets, which unlike past recoveries, have experienced a disproportionate share of the nation’s economic growth.

As bankers, we cannot dismiss the importance of demographics and location—in addition to scale and the ability of some institutions to invest more heavily in technology and marketing—at least as it relates to success in gaining deposits. However, there are much broader implications to the diverging demographic fortunes between the metropolitan markets targeted by large institutions and the mid-tier cities, towns and rural areas served predominantly by regional  and community banks. These trends affect families and businesses, too. Indeed, they affect our national economy and our social fabric.


On the surface, America is riding a wave of recovery and prosperity. Nationwide employment has increased a record 100 consecutive months, driving the unemployment rate to its lowest level since the 1960s. Housing values are 14 percent above their pre-crisis peak, and stock valuations have rarely been higher. If the economy continues to grow, by mid-year this expansion will be the longest in U.S. recorded history.

M&T and its various business lines are intertwined with these economic trends, which  is why we understand that we must pay close attention to them. We see that, although these numbers imply broad gains across the country, not everyone is participating. Progress on jobs and income over the past ten years has been uneven, and trends in population growth and small business formation differ significantly  from prior recoveries.

The gap in prosperity between the largest 50 markets and the rest of the country has widened over the past decade. Although these large cities are home to only 54 percent of the U.S. population, they have accrued 70 percent of the country’s population growth, two thirds of its economic output and 80 percent of the employment gains over this period. This is a marked difference  from prior recoveries, when the population and economies of the largest metropolitan areas  grew at approximately the same rate as the rest  of the country.

At M&T, we see these geographic disparities firsthand. Our proven operating model was developed in, and remains based on, serving mid-tier cities like Harrisburg, Rochester, Syracuse and Wilmington, but we also do business in larger cities like Baltimore,  New York and Washington, D.C. The diversity  of our footprint provides a unique window into the disparate rates of recovery in different  size markets. For example, real GDP in the Washington D.C. metro area increased by  14.4 percent since 2007, slightly above the national average, while Upstate New York metro areas, excluding Buffalo, grew 3.1 percent over the same period. Similarly, the labor force in Northern Virginia grew by 13.8 percent compared to a 4.5 percent decline in the Upstate New York metro areas outside of Buffalo. We see similar weaknesses in other mid-tier cities such as Altoona, Scranton and Williamsport, Pennsylvania, and Cumberland, Maryland.

Even more troubling—small urban areas, towns and rural communities with fewer than 50,000 people are at risk of being left behind altogether.

Home to 46 million Americans, or 15 percent of the population, these communities have grown a scant three-tenths of one percent in the last 10 years while the national population grew by 8 percent. Less populous areas are still losing jobs, despite the 11 percent job growth experienced in the rest of the country since 2007.

Not only are population and employment trends different in this recovery, so too is the role of small business in job creation and economic growth. Although the number of startups in 2016 was the highest since the crisis, it was still lower than any year from 1980 to 2008. Consistent  with the other trends, formation of new small businesses has lagged the most in small cities and towns, where such firms have historically served as the backbone of the economy and workforce. The number of new small businesses, which was essentially unchanged in the top twenty metropolitan areas between 2007 and 2014, declined by nearly 13 percent outside the 50 largest metropolitan areas. 

Existing small businesses are ailing, too. As startup activity slowed, the total number of  small business establishments declined nearly  4 percent from 2007 to 2014, while the number  of Americans they employ fell 5 percent—a loss  of more than one million jobs. Again, the decline was especially stark outside the largest metropolitan areas. In those years, small business establishments outside of the top 100 metropolitan areas decreased by 122,674—this comprised nearly 70 percent of the total decline nationally.

This widening gap between the prosperity of large metropolitan areas and Middle America is evidenced not just in the differing rates of job, income and population growth—it can even be seen in the rate of broadband internet access.  In large cities, 97 percent of the population has broadband access, while in our nation’s smallest communities, 39 percent of the population goes without access to this vital link to modern society and the modern economy.

Ensuring that our economy becomes more inclusive, and opportunity more equally available, is an important national priority. The disparate economic and demographic trends evident in the current recovery must be addressed. Doing so will require participation from every sector, including banks of all size, and bankers like  those of us at M&T.


It is understandable that the trends described above—uneven economic growth and the advantages it provides to larger banks in larger markets—might to some seem problematic for a company like M&T, given our history of serving small and mid-sized communities. Batavia has never been mistaken for Baltimore, nor Newburgh for New York City. And yet in each, we thrive.

There are ways of doing business, as demonstrated by banks like M&T, which act as counterweights to the pressures of scale and population shifts. The role traditionally served  by regional and community banks remains a source of immense value, for customers and communities, and the demand for such services has only become more critical in light of the uneven expansion.

Recently, in a small town not known for its mild winters, a heating contractor needed a key piece of equipment to complete a job. He contacted his local M&T Bank branch, in need of a loan that would enable him to purchase the $40,000 piece of equipment that same day. This contractor was a long-time client, well known to the branch manager. Based on that deep relationship, and utilizing our digital lending capability, the branch manager secured rapid approval of the loan—then drove to the contractor’s job site personally to close the transaction. The funds were deposited into the customer’s account, the equipment was purchased—and the whole process took just four hours. Our client was delighted, and in turn, so too were his customers, who were not left out in the cold.

So it is that being close to a community, and knowing its most urgent needs, is a business model for which scale cannot substitute. More broadly, though, it reflects the extent to which the interests of regional banks and the interests of the communities they serve are linked inextricably.

The fact is that across the country, regional and community banks provide a significant majority of the small business loans, those less than $1 million, accounting for 61 percent of all such loans in 2017. Regional banks like M&T play an especially important role outside the largest metropolitan areas. Overall, regional banks make 63 percent of their small business loans in the vast sections of the country that exist outside of the top 20 metropolitan areas. By contrast, the largest three institutions make 59 percent of their small business loans in just the top 20 markets.

Not only do regional banks disproportionately support small business outside the largest metros, they tend to provide larger loans. The average small business loan made by all banks is $37,000—twenty percent lower than the $48,000 average made by regional banks and well below the $255,000 average small business loan made by M&T. For small business loans between $100,000 and $1 million, which often finance investments in plant and equipment or seasonal working capital, regional banks collectively advance 30 percent more funds than the three largest institutions combined.

Smaller banks are particularly indispensable to the agricultural industry, where by one estimate, more than half of farm households have lost money in recent years, challenged by continued declines in commodity prices. Regional and community banks make 85 percent of all farm loans and 90 percent of loans secured by farmland.

At M&T, we have long found success in serving mid-tier cities, despite the slower growth profile of these markets, even during periods of economic challenge. In fact, that stability— avoiding the booms and busts seen in some markets—may be the most important element  of long-term success, as it certainly has been  for M&T.

One might go so far as to assert that our approach to banking in these markets, where every relationship with every customer matters—a lot— has actually conferred certain advantages to us: higher deposit balances per branch, higher rates of customer retention, lower cost of deposits, lower efficiency ratio and lower charge-offs, to name a few. Most importantly, our approach in these markets produces low volatility in earnings, allowing us to support our customers consistently and reliably, especially in the difficult times, when they need our services the most.

These advantages transcend size and are relevant in all our markets. What we learned by serving customers in smaller communities and mid-sized markets laid the groundwork for successful growth in our larger markets such as Baltimore, New York and Washington, D.C. 

For M&T, however, the mission has never been solely to grow assets or to achieve strong financial performance simply for their own sake. Those  are the outcomes of the way we work to fulfill our larger mission: to enable, encourage and empower  our customers and communities to thrive.

To begin to restore parity and inclusivity in our economy, and in our society as a whole, more must be done to ignite economic activity beyond the biggest cities and across Middle America. Regional banks will continue to play a leading role in this effort, working with customers, community partners and government.


In the years since the crisis, the level of financial regulation has garnered significant attention from the public, legislators and even the industry itself. Economic researchers, such as those at the Bank for International Settlements, the Federal Reserve and others, have sought to define an optimum level of regulation using models that assume a single lender, single borrower and single geography. The real world is decidedly more complex, of course, with significant differences between communities and the institutions that serve them.

Importantly, a number of studies concluded that the regulatory system can be weakened by allowing certain parties to operate outside its bounds. The existing regulatory framework must, therefore, continuously be refined to account for differences in regional economic trends and new entrants to the financial system.

M&T has long documented the impacts of these changes on its regulatory costs, which have ebbed and flowed over time based on the external environment. Twenty-five years ago, compliance costs were calculated to be 10 percent of operating expense, or $33 million, consistent with a 1992 study by the Federal Financial Institutions Examination Council (FFIEC) pegging the cost  of compliance for the entire industry at between  6 percent and 14 percent of operating expenses. This past year, M&T’s regulatory compliance  cost was $407 million, or 12 percent of operating expenses, down from $441 million and 16 percent at its peak four years ago, back within the range identified by the FFIEC 26 years ago.

Regulation, like monetary policy, is a tool whose purpose is simultaneously to promote the economy while protecting those who operate within it. It is a difficult balance— especially  so after significant events such as the financial crisis. The practice of implementing and adjusting regulation is both necessary and healthy, because its impacts are felt by communities large and small. As the crisis receded and the banking system stabilized, policymakers were able to focus on the economic impacts of the regulations that were previously adopted, which might have in fact been contributing to the uneven recovery.

Federal Reserve rule changes, stemming from  the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, which better align regulation with the level of risk posed to  the financial system, are a welcome step forward. The proposed four-tiered approach might well counterbalance the negative impacts, noted in a study by the Clearing House Association, that  the stress test process has had on small business lending, and make it easier for regional banks to provide credit in the smaller communities that need it most.

These recent changes, however, barely contemplate the effects of another phenomenon that began at the same time as the crisis—the introduction of the modern-day smartphone and the ensuing digital revolution. These devices,  and more importantly the software they run, enabled enterprising developers to create applications, or “apps,” that alleviate friction from everyday life. In banking, apps that did not exist 10 years ago now move billions of dollars between customers instantaneously, and others have provided billions more in mortgages and small business loans. By lowering costs and increasing accessibility, these new technologies are reaching underserved customers in ways never before possible. 

However, consumers may not fully appreciate  the distinctions between banks and nonbanks, nor understand the risks they are assuming by borrowing from or entrusting their savings to firms outside of the regulated bank sector. Financial services companies that facilitate the movement of money or offer credit, deposit services or advice using digital solutions—but that do so outside the regulated banking system— are often referred to as fintechs.

Take the example of a leading payments app, upon which millions rely to transfer money or pay their household bills. As more customers signed up, the balance of funds that they entrusted to this firm also grew. At the end of the third quarter of 2018, these balances had grown to $22 billion, exceeding the demand deposits at all but the largest 20 U.S. commercial banks. Nominally designated as “amounts due to customers,” it is difficult to discern how such accounts differ in practice from checking accounts at a bank—with one notable difference: unlike bank deposits, the funds entrusted to this firm are not covered by FDIC deposit insurance.

Today, the debate is whether to bring fintechs under the regulatory umbrella, either in part or  in full. An alternative could be adapting the current regulatory framework for both traditional banks as well as nonbank upstarts to support innovation—especially in the service of underbanked and underperforming communities.

Last year’s Message to Shareholders devoted a full eight pages to our concerns about the rise  of nonbank lenders who are responsible for a growing share of total credit provided to businesses. This trend has continued, and our concerns have not abated. Total debt of U.S. corporations outside the financial sector increased to 74 percent of gross domestic product by the end of the second quarter of 2018, meaningfully exceeding the 63 percent level in 2006, just prior to the last crisis. Particularly notable has been the growth in so-called “leveraged lending,” or loans to companies with high levels of debt relative to earnings, the volume of which remained near the record level set in 2017. The large and mid-sized companies  in the Russell 3000® Index alone, more than one-fifth of which do not earn a profit, have approximately $525 billion of debt maturing within the next two years that will likely need  to be replaced at a higher cost.

Thanks to relatively low interest rates, tax  reform and a robust economy, this debt does  not seemingly pose an imminent threat. Total interest payments on corporate debt consume only half as much of businesses’ profits as in the early 1990s. However, circumstances may change, and economic cycles have not been eliminated.

Today, more than half of investment grade debt  is deemed to reside at the lowest credit rating that many passive investment funds are allowed to hold. Small changes in circumstances, like an economic slowdown or reduction in corporate profits, could push much of that debt over the precipice into non-investment grade status. The potential exists for a selloff of the downgraded bonds that strains liquidity in the short-term, and could potentially spill over into other asset classes and the broader economy.

Ultimately, little is known about how these nonbank entities would operate under stress. What is known, however, is that the relative growth of nonbank lenders outside the purview of regulators not only reduces their visibility into the risk of the broader financial system, but also their ability to stem the damage should a crisis arise.

For these reasons and more, regulatory frameworks must continuously be balanced  and rebalanced. This work is hard, but  necessary. Ensuring the strong recovery not  only continues, but becomes more inclusive, will require concerted efforts by leaders in banking, government and regulatory agencies.


One should not get the impression from the preceding that M&T is pursuing an unchanging business model. It is no accident, nor the result of complacency, that M&T has enjoyed remarkable success over the past 40 years, growing from a small underperforming bank in Buffalo into a high performing regional institution. As we have grown, we have worked continuously to identify and perpetuate those elements of our culture that have enabled our success over time. We have evolved and adapted to the world around us, while remaining committed to our culture and to providing a unique customer experience.

We remain confident that our brand of local banking will always be in high demand, yet we know that, in today’s digital world, competitors are for the first time able to reach our clients without necessarily residing close to our markets. As this digital transformation accelerates, so must we accelerate our efforts to deliver a customer experience that is not only high-tech, but high-touch as well.

In the case of the heating contractor, we could make a loan decision based on our personal relationship—and we could make it quickly because of the investments we are making in our digital products and programs. This is how we will maintain our unique advantage, and it requires us to bring new thinking and a wider diversity of ideas, perspectives and talent to add value and solve problems for our customers.

Our colleagues made substantial progress in 2018 on several fronts. Last year, we developed a steady stream of upgrades to our digital capabilities  that are consistent with the expectations of our customers, especially the younger generation that we identified last year as a priority. Among the upgrades, customers can now manage and service their debit cards from their mobile device. Existing customers can now open new checking accounts through our online and mobile banking channels, reducing the account opening time from over 20 minutes to less than seven. Additional features include the ability to order a custom debit card and add funding mechanisms to the account. As a result, last year we increased the percentage of checking accounts opened online from 10.9 percent in the first quarter to 15 percent in the fourth quarter—and that increased to 20 percent in January. Features like these make it easier for customers to self-serve, while  at the same time freeing our employees to spend more time with clients providing advice and guidance on more complex issues.

In late 2018, we launched MyWay Banking, a “checkless checking” account that provides the convenient features of a transaction account without the worry of over-spending or overdraft fees. Insights that led to this product came through focus groups with parents in our Buffalo Promise Neighborhood, where we have worked for 25 years to promote educational outcomes and economic opportunity. MyWay was designed to benefit unbanked and underserved consumers, and we are also making it available to minors between the ages of 13 and 17, providing access  to the banking system, including usage of debit cards and web and mobile banking. Within the first month of launch, we opened 2,010 MyWay accounts, with approximately 52 percent of them including a minor. These new customers are gaining an opportunity to develop financial literacy, while forming an early relationship  with M&T.

In 2019, we will continue to build out our  banking capabilities with mobile flash funds, offering immediate availability of deposited checks, as well as contactless technology for debit cards that will help consumers breeze through checkout lines. Personal financial management tools and more card self-service options will be coming as well. We also will continue our program to modernize our branches, with an emphasis on digital servicing and person-toperson consultation.

For small and medium-sized businesses, we launched in 2018 an industry leading payment product, making it faster and easier for business owners to move cash. We also introduced our proprietary M&T Business Credit Card, giving them the ability to manage spending on business and employee cards through the mobile app  or online.

Additionally, we continue to build out our digital lending platform, which we already used to help our aforementioned client, the heating contractor. Business customers will be able to complete a loan, from application to closing, entirely online and in a fraction of the time.

Middle market companies will experience a steady stream of upgrades to M&T’s credit, treasury management and merchant services platforms, with improved speed to decision on credit requests, faster access to funds and better access to data and documents. Simultaneously, our clients will experience even higher levels of service from our growing number of commercial bankers—we added 114 last year—who will now be free to focus less on paperwork and more on helping their clients solve problems.

We continue to improve the services and solutions we offer to our Wilmington Trust clients as well. The merger fundamentally changed our bank: trust income now makes up  29 percent of total fees, up from 11 percent in 2010. To support this growing business segment, we added 171 new employees last year. In wealth, we commenced a new program that integrates our expertise on complex issues such as business valuation, estate and tax planning, asset protection and retirement funding. In our institutional business, we became the first to  offer an online portal to improve the speed and execution of M&A transactions. Clearly, the merger brought a new source of fee income; more importantly, however, it expanded our ability to meet clients’ needs.

While we are proud of the new capabilities introduced in 2018, more fundamental to our future success was the rethinking of our approach to product development itself. A 2017 self-examination revealed that too much of our technology spend was absorbed in the project planning stages—and not enough on execution.  A new approach was needed to redirect that spend toward capabilities that directly impact our clients. 

We are leveraging modern development techniques—those that emphasize human communication, feedback and adaptation to produce working results when building new capabilities. Structured around the idea that  the final product must always meet changing client needs, it focuses on the quick delivery of individual pieces or parts of the solution rather than the entire application. Today, developers  are working alongside product owners, breaking work down into small chunks, meeting daily to ensure they are on track and remaining open to changes at all stages of development. Products and services can be designed and built in much less time than previously possible, adding value  to our customers more quickly, continuously  and at a lower cost.

To further enhance our capabilities, last year,  we sent a team of rising leaders to work with an external partner comprised of a diverse team of innovators, entrepreneurs, engineers, creatives, growth architects and investors. Together, they are taking the best elements of fintech startups (agility, responsiveness, entrepreneurship)  and combining them with our own distinct advantages (customers, experience) to develop and deliver new, customer-focused products quickly and impactfully. We are learning how to rapidly invent, launch and scale new products that have been relentlessly vetted with our customers—all part of our goal to deliver memorable customer experiences that are uniquely identifiable as M&T.

Last year marked a change in our approach to hiring highly skilled professionals, bringing  more talent on board on a full-time basis in order to maintain the most critical skills inside our company. Last year, M&T grew its technology team by 111 people.

Industry commentators place a great deal of  focus on the size of a bank’s technology budget  as a measure of its strength. While it is clear that increased investment to improve customer experience is an essential ingredient for success, we believe that it is the teams of people—the technologists, data scientists and customer experience engineers working with product owners and relationship managers and others— who are the real differentiators. Given the customer-driven transformation now underway, talent is even more important than ever.

Indeed, what gives us confidence is our talent infrastructure, which has been built, maintained and adapted over the last 40 years. Today, 48 members of our senior management team ranked Group Vice President and above were originally hired into one of our development programs. We view these programs as a vital part of our culture and our infrastructure, so we are enhancing these offerings with the new class that begins this summer to include several new development programs directed specifically at the new skills and capabilities we need—today and tomorrow.

Throughout 2018, we also continued to invest heavily in our existing employees through several enhancements to our recognition and reward structure. M&T increased the minimum wage  to $14-$16 per hour, based on geography. This change, along with other compensation adjustments, resulted in salary adjustments for more than half of our employee base. As a result of these investments, the average year-over-year increase in total salary in 2018 was 13.8 percent for employees making less than $50,000, and  5.9 percent for those making more than $50,000.

Additionally, we implemented enhancements  to our retirement savings program in 2018 and began auto-enrolling and auto-increasing employees’ 401(k) contributions. In 2017, only  65 percent of employees making less than $50,000 participated in the bank’s 401(k) program and, after the changes made in 2018,  the participation has increased to 85 percent, so more of our colleagues benefit from the bank’s matching program.

Even as we are working to grow our capabilities internally, we are also working every day to share them with our communities. That’s why in Buffalo, for example, we teamed with 43North,  a startup competition and incubator program, along with Facebook, Amazon Web Services, Intuit, Woo Commerce and WordPress.com,  to launch Ignite Buffalo. This business grant, training and mentorship program promotes sustainable growth, job creation and ongoing education to local small business owners. More than 1,000 entrepreneurs attended a three-day e-commerce training session last July, and over 500 small businesses applied to the grant competition. Hundreds of those applicants received personalized help on their applications from M&T Bankers. Ignite Buffalo awarded a total of $1 million to 27 small business owners— 81 percent of whom are women, and 33 percent minorities—seed money that they are using to invest in their businesses and communities. 

Most importantly, every winning business has been partnered with a handpicked mentor from M&T. We worked with 43North to identify the unique needs of each business, and then matched them to an M&T Banker with corresponding skills to help address their specific needs.

This year, we will be building on this momentum, as we join 43North and others in a new initiative— helping to bring TechStars, a worldwide network that helps grow start up ecosystems, to Buffalo for a multi-year program to help innovative entrepreneurs and knowledge workers succeed by connecting them with actively engaged mentors and supporters.

Through these endeavors, our colleagues have  had the opportunity to share their experience and expertise and, along the way, we all learned something too: that when a community invests— not just its money, but its people too—that community can grow to compete in today’s dynamic, digital world. That is how to overcome the advantage of size and scale. That is what is happening in Buffalo today, and it serves as a model for our other communities.

For its size, Buffalo is bucking the trend. It is diversifying its economy—becoming a hub for financial services, health care, tourism, energy, education and business services.  Real GDP grew 9.2 percent over the past decade, three times the Upstate New York mean. Overall population has stabilized and the millennial population grew  by 22 percent, outpacing the 13 percent national average over the past decade.  

From our founding in Buffalo 163 years ago, through our expansion into new states, cities  and towns in the Northeast and Mid-Atlantic,  the role and responsibility of a community banker is not new to us at M&T. We have actively engaged with the families and businesses, along with the not-for-profit, civic and political entities that comprise our communities, to support their economic vitality.

Despite the changes affecting our communities and our industry—indeed, because of those very changes—my colleagues at M&T and I believe that our mission and our operating model have never been more relevant, or more important. Bankers provide financial services and financial expertise that facilitate trade and commerce  and fuel economic growth, and in smaller communities across the country, where economic growth is needed most, it is bankers like those of us at M&T who strive to meet the particular needs of those communities.

It is with profound gratitude, therefore, that along with our entire Executive Management Committee, I congratulate our 17,252 colleagues for making 2018 our most successful year to date, for positioning us to prevail in the future—and  for working every day to help our customers and communities participate fully in a changing economy and a changing world.


René F. Jones
Chairman of the Board and Chief Executive Officer
February 22, 2019