We convene our meeting today in a new location: the main lobby in our headquarters building at One M&T Plaza in downtown Buffalo, home to our flagship branch office, which as you can see, is in the midst of a transformation.
This building was designed in the mid-1960s by architect Minuro Yamasaki. With windows stretching 35-feet from floor-to-ceiling, this “banking hall,” as Yamasaki referred to it, was meant to feel open and bright and transparent, welcoming and inviting to our customers and neighbors, while allowing us to always keep in our view the community where we started.
Over 50 years later, and amidst great changes in our industry, Yamasaki’s vision remains a powerful reminder of the way we strive to operate.
Yet the sheer size of this hall was also meant to convey a sense of strength and stability.
Today, however, the strength of a financial institution must be represented by more than the size of its branches—by much more than spacious lobbies and soaring ceilings.
We are making changes to this banking hall today because we no longer need a branch that spans the entire footprint of our headquarters building. In the years since this building was designed, there have been massive changes—including, though by no means limited to, a decline in manufacturing and a rise in computing, which have led to changes in how and where we work, where we live and even how we bank.
The needs of our customers and our communities are changing too, and my colleagues seek new ways to work more closely with our clients, providing them with advice in ways that no longer require all 17 teller stations that were included in the original design.
So we are reimagining and reinventing the banking hall, to create a new kind of space where we can interact more closely and more innovatively with our constituents to better meet and support their current needs.
With this as our setting and our context, we gather this morning to report on the condition of our company, as we do every year, and I am pleased to say to you—the strength and stability of our company, and the success that we have achieved, is something in which my colleagues and I, and our entire community, can be proud.
Yesterday, Darren King, our Chief Financial Officer, announced the financial results for the first quarter of 2019. Earnings per share were $3.35 for first quarter. Earnings and returns both exceeded prior year results. Revenue growth remains solid, expenses are well managed, credit quality is strong and returns continue their ascent.
Our results in the first quarter extended the performance we achieved in 2018… full-year results that stand out in the history of our company.
Return on tangible common equity, for example, topped 19 percent— among the best in our industry.
Net income increased by 36 percent to $1.92 billion and earnings per share increased 46 percent to $12.74—both new highs for M&T.
Underlying these results were a net interest margin, which returned to its 2010 level at 3.83 percent, and loan charge-offs, which at just 15 basis points, represent a level not experienced since 1987.
Indeed, 2018 was an exceptional year for M&T, but it was the culmination of not just one, but many years of hard work and many years of choices and decisions—some bold and some prudent—made in the interests of our customers.
In fact, M&T has never been overly focused on short term results. We prefer instead to measure our efforts and our success over many years.
That’s because ours is an owner-operator culture, focused not just on making sound financial decisions, but also on our recognition that the well-being of our company is dependent upon the well-being of each of our constituents.
It’s a record and a culture that we’re proud of, to be sure, and I want to talk about it for a moment. Not so much because we’re proud—but because it will help put into context our views on long-term performance, and most importantly, how our views differ from the narrative that is prevalent in our industry today.
This spring marks 10 years since the stock market lows of the financial crisis—a period of reckoning for the banking industry, which had not only lost sight of the risks associated with decisions based on short term profits, but had also lost sight of its true role in our economy. That is, serving reliably as a facilitator of productive, sustainable and inclusive economic growth and opportunity—in other words, creating value for customers and communities, which in turn should lead to the creation of long-term value for its stakeholders.
Consider that, from the stock market lows, the banking index has seemingly done very well, producing returns to shareholders of 19.1 percent compounded annually. In this light, our 20.1 percent compounded return is only modestly better than that provided by the average financial institution.
But this shorter time frame omits the impact of the decisions and choices that were made in the years leading up to and during the crisis.
Viewed over a longer period that encompasses those decisions, the banking industry performance is less than stellar—generating returns of just 2.9 percent annually over the past twenty years, less than half that of the S&P 500.
M&T’s compound annual growth rate of return to shareholders, however, was 9.2 percent over that period—the highest among the top 20 banks in the United States, and more than three times higher than the average of the banks in the S&P.
Our industry-leading performance is a testament to our operating model: the way we make decisions that are rooted in our owner-operator culture; the way we operate and manage the bank over the long-term, focused on doing the right thing, not the most expedient thing; the way we allocate capital to customers and communities that generates returns to—and value for—our shareholders over time.
Accordingly, we believe today—as we have always believed—that the strength of the bank must be measured by more than just the strength of our financial statements.
Indeed, our company’s strength—and our value—must also be measured by the achievements of our colleagues, the success of our customers and the vitality of the communities we serve.
To us, these measures—and the principles to which we adhere—say far more about the performance of our bank than our quarterly or annual earnings report, and they certainly say far more about our ability to perform in the future.
Yet today, despite all we’ve learned from the crisis about the dangers of short-term decision-making, a new narrative has emerged in the banking industry that says it’s size and significant scale that are necessary for banks to fulfill their role—and even to survive—rather than a fundamentally sound, long-term operating model, one that enables rather than demands growth.
I talked about this extensively in our Message to Shareholders—that some believe size conveys an insurmountable competitive advantage to the biggest banks, and that without such scale, other smaller banks cannot compete and might therefore become irrelevant.
Their narrative is conveyed in two parts:
First, the cost of regulation has increased for traditional banks, while unregulated non-bank entities ranging from small fintech startups to larger companies like Venmo, Kabbage, Chime and even Amazon threaten to disrupt our customer base using technology to set and deliver new standards for customer convenience and experience.
And second, so the story goes, that against these pressures, only big banks can keep up by vastly outspending their competitors in absolute dollars on compliance, technology and marketing, as their larger size enables them to leverage those expenses across a broader base of customers.
In this view—one in which growth for its own sake is a must—it’s grow or die; get bigger in order to thrive.
But at M&T, we have been growing—growing and thriving.
In the decade since the crisis, we completed five acquisitions.
In the Mid-Atlantic, we’ve expanded our branch network, becoming the largest in Baltimore and, in fact, across the entire State of Maryland.
We’ve further expanded our operations into Delaware, New Jersey and New England.
Our loan and deposit balances have essentially doubled, up 1.8 and 2.1 times respectively.
Net income in 2018 was 3.5 times greater than in 2008.
And M&T’s market capitalization is 310 percent greater now than it was 10 years earlier, and is the 12th highest among U.S. bank holding companies.
Looking back even further:
Over the past 30-plus years, we’ve grown from the fourth largest bank in Buffalo to the 17th largest bank in the U.S. in assets, with operations in eight states and the District of Columbia, and with Wilmington Trust, another ten states and five countries.
We now employ 17,257 colleagues—six-and-a-half times more people than we did in 1987.
Today we have 7,359 colleagues based here in Buffalo and Western New York, more than 3.5 times the number we had in 1987.
In fact, since 2012, M&T has been responsible for 12 percent of the net private sector job growth in Western New York.
So yes—we have grown over the past 10, 20, 30, 40 years. We have grown loans, deposits, income, assets, products and services, branches, clients and employees.
But it would be wrong to assume that our expanding size was the driving force behind our industry-leading performance over those decades.
Rather, the driving force has always been our operating model, which has afforded us the opportunity to extend our brand of banking to customers and communities where we can add value.
It is our operating model that enables us to achieve growth—not the other way around.
So if not growth for the sake of growth—what is it that is important to us? What is it that has allowed us and enabled us to thrive?
It is important to us that we produce successful outcomes, not just for our own company, but for our customers and clients; that we listen to and learn from them; that we adapt to meet their expectations and innovate to meet their needs; that we be able to delight them with our service, as we help them achieve their goals and fulfill their dreams and ambitions.
It is important to us that we provide our colleagues with rewarding career opportunities, and with opportunities to learn and grow; that we provide our colleagues with a respectful workplace, where diversity and inclusion are valued and promoted and appreciated, and where they can help create a true sense of belonging for all; that our colleagues feel free to be their true, full selves, empowered with the means and the opportunity to make a positive difference—within our company, within each of their communities and within all the communities we serve.
It is important to us that we promote trade and commerce and economic vitality; that through the services and solutions we bring, we support local families and local businesses; that we enable the creation of local jobs; that we empower our neighbors, including our underserved neighbors—every neighbor, in every neighborhood.
It is important to us that we fuel economic opportunity—sustainable, equitable and inclusive opportunity—particularly in smaller and mid-sized cities, communities like so many of the ones that we serve that have not participated proportionately in the nation’s economic recovery.
And it is important to us that we support educational opportunities for people in our communities; that we support health care and human services; that we support those not-for-profit and cultural institutions that improve the overall quality of life and enrich and strengthen the fabric of our communities—not just through the financial support of our charitable foundation, but through the efforts of our colleagues who last year recorded 273,965 hours of volunteer service to others.
This is our purpose. Making a difference in people’s lives is our driving force.
This is how we compete against size. This is how we use technology—as a complement, not competing against it, but supplementing new technologies with personalized, localized service that is uniquely identifiable as an M&T experience.
This is how we achieve performance and profits, while achieving an even greater, and deeper and broader good, consistently over time, for our generation and the generations to come.
Of course, to make a difference in people’s lives, we need to continuously seek to understand what’s important—because what’s important in one community is often different in others.
As we have grown—bringing our way of banking to new communities—we’ve worked continuously to learn.
When we entered Maryland, for example, we added over 4,357 new employees to our existing workforce of 9,000 people. It was a massive undertaking—learning about, not just our new colleagues, but our new customers as well: their unique qualities, priorities and problems; engaging with them at every level to build a common and inclusive culture.
Our merger with Wilmington Trust served, not so much to teach us a new lesson, but to re-emphasize and reinforce old ones.
When that community came close to losing Wilmington Trust, it was a traumatic event, causing wounds that have yet to fully heal.
Both colleagues and clients in Delaware remind us of the importance of strong local roots and the critical role we play—that of being a big part of the glue that binds a community together.
These stories exemplify our brand of banking—long an important part of who we are and what we do—that we extend to new markets when we grow.
But we’re not done. The good news is there’s lots of work left to do, lots for us to learn and lots of opportunities to get better.
We must keep working, for example, to improve the products and services we offer, and to ensure that they continue to meet our customers’ changing needs.
We learned of some much needed improvements recently through work we’ve been doing to renew our efforts on Buffalo’s East Side, where we have long had a presence as the founders and leaders of the Buffalo Promise Neighborhood educational initiative.
Our work began, simply enough—by asking, and by listening.
We learned from our neighbors in that community that our products didn’t fully meet their needs—that they needed better options.
So we launched a new type of transaction account that offers protection from the worry of over-spending or overdraft fees, and we will soon be introducing a new cash secured credit card—new products with features that will prove valuable to many consumers in many communities.
We must also keep working to improve the support we provide to women- and minority-owned businesses.
At a client event organized by our African-American Resource Group in Baltimore, we learned how we could do more to leverage the strength of our purchasing power to engage minority-owned businesses as vendors and suppliers. So we’re working to expand and improve the reach of our Supplier Diversity program.
And we need to keep working to ensure that our neighbors in the smallest communities and in rural communities retain full access to banking services, even as we work to rationalize and right-size our branch network in light of changing customer usage.
The fact is that branch banking is changing. You can see that everywhere—from the smallest rural communities to the “banking hall” where we now convene.
Through our conversations with people in these communities, we understand that they worry about the future of their towns: about losing, not just a physical branch office, but the affinity and connectivity that comes with community banking; about what will happen to their towns without a bank, and without a banker.
So we will continue to work with civic leaders and residents and businesses and non-profit organizations to explore creative ways of maintaining long-standing linkages to these communities.
And we’ll continue working to enhance our digital offerings, making it easier to get more of the services and solutions our customers need— wherever, whenever they need them.
Technology is changing the way people bank, and changing the way bankers do business—as I wrote in the letter—although the correlation between size and technology may not be as direct as some say in their narrative.
We are investing accordingly, with a strong focus on talent, and with an eye toward—not just strengthening our own internal skill set—but on strengthening the skill set of our communities as a whole.
We believe that talent is a differentiator—for our company and our communities—and in the next couple of years, we expect to add some 200 new tech hires in Wilmington, Delaware and more than 1,000 in downtown Buffalo.
We will be locating them in new tech hubs—innovation factories— where technologists, data scientists and customer experience engineers will work side-by-side with product owners and customer relationship managers to rapidly develop new products and services that meet changing customer needs and expectations.
In the very near future, we expect to announce the location of our new tech hub in Buffalo—a place where we’ll not only attract tech talent to M&T, but we’ll attract other companies, along with different tech and entrepreneurial organizations, to co-locate in and around this hub in order to advance a culture and a community of innovation, where creative collisions happen, where new talent and new ideas come together to grow our businesses and grow our community.
Today and tomorrow, from downtown Wilmington to downtown Buffalo, we are undertaking new work and new ways of working to design and deliver new banking experiences that our customers love, and that our colleagues love to deliver.
We do this not because the big banks are, but to better meet the needs of our customers and communities, to better deliver our brand of banking, in today’s changing world, to better fulfill our promise and our purpose and to make a difference in people’s lives.
Gratefully, I am not alone in this effort. I have 17,000 colleagues—in this audience, in this building, in this community and across our footprint—colleagues who embody our commitment to listening and learning, to adaptation and transformation and who are working to meet and exceed our customers’ and our communities’ evolving expectations in today’s world and tomorrow’s.
For all of them, I am grateful.
To our shareholders, you can rest assured—thanks to the efforts of my 17,000 colleagues—that the strength and future of M&T are sound.
Thank you for being here this morning, and for being such an important part of our long-term success.
René F. Jones
Chairman of the Board and Chief Executive Officer