Banking the Buffalo way

At a time of crisis in the financial system, the big boys could learn a lot from the success of a thriving regional player, M&T Bank. Really.

By Jennifer Reingold, senior writer

M&T Bank CEO Rober Wilmers at Buffalo's Westminster Community Charter School - to which the bank has donated almost $1.2 million - with students and Principal Yvonne Minor-Ragan.
Wilmers sent M&T execs to the Fed to share what they hard learned about modifying delinquent loans.
Vice Chairman Michael Pinto (left) and President Mark Czarnecki, in a downtown Buffalo branch, run M&T's day-to-day operations.

(Fortune Magazine) -- It was an unseasonably warm day in Buffalo, which for anyone living there is already a sign that something is not right with the world. And as the 12-member executive committee of M&T Bank Corp. sat down around a long, polished conference table for its weekly management meeting, Lake Erie flowing 19 floors below, it was clear that it was going to be a strange day all around.

At the same time that the meeting was going on, U.S. Treasury Secretary Timothy Geithner was making his first formal policy speech on the financial meltdown, and the bankers in the room had no idea how his comments would affect the 153-year-old M&T with its $66 billion in assets. Would he call for nationalizing troubled banks? For more rigorous capital controls? Would they have to raise more money, change their loan guidelines, take more government funds?

It would be entirely reasonable to expect the group, led by longtime CEO and chairman Robert Wilmers, to have been distracted that morning, sneaking looks at their BlackBerrys and texting lobbyists to find out what Geithner had in store for them. But to watch the executives calmly go about their business, you'd have never known that M&T (MTB) was in the midst of the greatest banking crisis since the Great Depression.

While Geithner was speaking - and the stock market was simultaneously tanking - the committee members discussed the pending acquisition of Baltimore-based Provident Bankshares; a Maryland business customer's problems with a $1 million loan; the recent presentation the bank had made to the Federal Reserve Bank of New York; and an in-depth talent review.

"You can't sit around wondering, wasting your energy," says Wilmers, 75. "We're keeping busy with what we think has a reasonable chance of happening."

Other banks might pay attention to M&T's approach, which offers one of the only working models in the hobbled industry. The bank - one of the 20 largest bank holding companies in the U.S. and part of a group of superregionals that also includes State Street (STT, Fortune 500) and U.S. Bancorp (USB, Fortune 500) - didn't try to build a financial supermarket. It didn't fall all over itself trying to lend to anyone with a pulse. M&T's modus operandi isn't sexy, but with a few exceptions, it has been successful: Stay focused on the old-fashioned banking basics.

That is why M&T has been one of the bright spots in the industry, with a 10-year compound annual earnings-per-share growth rate of 6.4%, compared with -12.6% for its peer group. That doesn't mean the company escaped all the travails of its industry. Net operating income was down 15%, to $599 million, last year, mainly because of a few poorly timed investments, and the stock price has fallen 41% since the end of 2007 (it's trading around $48).

Yet in a field of losers, the bank posted actual earnings, managed to increase its loan portfolio by $2.4 billion, and announced a major acquisition that will boost market share in its core regions. Says Warren Buffett, whose company, Berkshire Hathaway, first bought shares in 1991 and currently owns 6.1% of M&T: "Many years ago Morris Shapiro, one of the leading specialists in bank stocks on Wall Street, said, 'There are more banks than bankers.' At M&T you have bankers. They know what they know."

It certainly helps that M&T is based in Buffalo, a down-to-earth place that feels a lot farther than an hour's flight from the flash and dash of Wall Street. The long-depressed region never saw much of a real estate boom - and has not experienced the painful bust afflicting so many other regions. Even more critical has been the steady hand of Wilmers. An alumnus of Morgan Guaranty Trust and a onetime assistant to New York mayor John Lindsay, Wilmers and an investment group put up some $20 million in 1983 to buy 30% of the company, planning to bring New York City-style ambition to a sleepy local bank.

In his 25 years at the helm, M&T has made 18 acquisitions, becoming one of the top three banks in all of its main markets (most of which are in the Mid-Atlantic states: for example, Baltimore, Buffalo, Rochester, N.Y., and Harrisburg, Pa.). It has also become a magnet for banking talent, paying Manhattan salaries and promising fast-track careers for those who come to Wilmers's attention. "It's been run very well ever since Bob took it over," says Buffett. "The tone at the top is important in any business, but there is no business where it's more important than banking."

Wilmers calls that tone "community banking," which means building business relationships that take into account the specific needs of each area. Bankers should do what he calls "public relations" - not burnishing an image but actually relating to the public and its needs. At M&T, regional banking heads live in their communities (vice chairman Michael Pinto is based in Baltimore, New York Metro head Kevin Pearson in New York City), and their employees get involved in everything from volunteering at a bake sale to schmoozing the local pols. Every area has its own advisory board made up of merchants who weigh in on key loans. President Mark Czarnecki, who started as a bank manager in 1977, says the bank has learned that the closer a customer lives to a retail branch, the better he performs on his loans and the more bank services he is likely to use.

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