M&T Bank – Understanding what’s Important

M&T Bank

Table of Contents Abstract History Industry Assessment SWOT Analysis Strengths Weaknesses Opportunities Threats Stakeholder Analysis Financial Analysis BCG Matrix Recommendations.......................................................15 Works Cited............................................................16

Tables

Table 1 - Top 50 Commercial Banks (USA) Table 2 - FDIC Ratios Table 3 - M&T & Competitors

Figures

Figure 1- Loans to Assets Ratio Figure 2 - Asset Growth Figure 3 - Loan Growth Figure 4 - BCG Matrix.....................................................14

Abstract

For my final project I have chosen to examine M&T Bank. It will be of importance to examine the industry as whole, perform a SWOT analysis, and review financial statements. Through examining each of these factors a clearer understanding of how M&T Bank operates in the commercial banking industry will be generated. Thereafter, a conclusion will be drawn on how M&T Bank should pursue their future in the banking industry.

History

M&T Bank was founded in 1856 in Buffalo, NY as the Manufacturers and Traders Bank by Pascal Pratt and Bronson Rumsey. By the end of this decade the bank’s ownership increased from 13 founding stockholders to over 145, all of which received a primary dividend of four percent. Fast forwarding to the beginning of the twenty first century M&T Bank began acquiring not only land and buildings throughout Buffalo, NY but also other banks. The 1970’s ushered in a new ear for M&T Bank, this began with the hiring of a new chairman and CEO; Robert Wilmers. Currently, Wilmers is still the CEO of M&T Bank and has been able to perpetuate the tradition of long standing success. Through continued success M&T has been able to acquire other banks and expand its reach into Pennsylvania, Virginia, and Washington DC. By 2011 the bank’s assets reached nearly $80 Billion making it the 24th largest bank in the United States.

Industry Assessment

The industry that M&T currently operates is the commercial banking industry. The commercial banking industry has seen much change over the past century, this change has predominately occurred from government intervention. The basic aim of government regulation is to ensure that firms are able to be competitive while also preventing market failures. These include natural monopolies, excessive competition, and economic rents. To help with this overall goal the government tends to regulate in two facets; economic and social. An economic regulation deals with the government having a direct or indirect control over the firms in an industry. This is beneficial because it limits markets with monopolies from raising prices too high which would result in unfair payments made by their customers (Conte & Karr, 2001). The social aspect of government regulations is seen in antitrust laws. These are laws that prohibit practices or mergers that would ultimately lead to the degradation of competition. These regulations play an important part in commercial banking because they are directly correlated to preventing market failures (Conte & Karr, 2001). Commercial banking is defined as a financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit (Commercial Banking, 2014). As of September 2013 there are currently 539 commercial banks with assets over $1 Billion. Of the 539 commercial banks the top 20 banks currently hold 31% market share and the top 50 banks hold 41% market share. Furthermore, the top 20 banks currently hold 59% of totals assets and the top 50 banks hold 70% of all totals assets (Census, 2007). In the commercial banking industry market share and total assets have become the major focus. This most closely aligns with the mantra of the maturity stage of the industry life cycle, firms in this stage are concerned with market share. Potential new entrants find these markets unattractive because of high barriers to entry and first mover advantages. Table 1 - Top 50 Commercial Banks (USA)

Top 50 Commercial Banks (USA)
1	JPMORGAN CHASE BK NA/JPMORGAN CHASE & CO
2	BANK OF AMER NA/BANK OF AMER CORP
3	CITIBANK NA/CITIGROUP
4	WELLS FARGO BK NA/WELLS FARGO & CO
5	U S BK NA/U S BC
6	PNC BK NA/PNC FNCL SVC GROUP
7	BANK OF NY MELLON/BANK OF NY MELLON CORP
8	CAPITAL ONE NA/CAPITAL ONE FC
9	STATE STREET B&TC/STATE STREET CORP
10	T D BK NA/TD US P & C HOLD ULC
11	HSBC BK USA NA/HSBC NORTH AMER HOLD
12	BRANCH BKG&TC/BB&T CORP
13	SUNTRUST BK/SUNTRUST BK
14	FIA CARD SVC NA/BANK OF AMER CORP
15	FIFTH THIRD BK/FIFTH THIRD BC
16	CHASE BK USA NA/JPMORGAN CHASE & CO
17	REGIONS BK/REGIONS FC
18	GOLDMAN SACHS BK USA/GOLDMAN SACHS GROUP THE
19	UNION BK NA/UNIONBANCAL CORP
20	RBS CITIZENS NA/RBS CITIZENS FNCL GRP
21	NORTHERN TC/NORTHERN TR CORP
22	ALLY BK/ALLY FNCL
23	BMO HARRIS BK NA/BMO FNCL CORP
24	KEYBANK NA/KEYCORP
25	MORGAN STANLEY BK NA/MORGAN STANLEY
26	MANUFACTURERS & TRADERS TC/M&T BK CORP
27	CAPITAL ONE BK USA NA/CAPITAL ONE FC
28	SOVEREIGN BK NA/SANTANDER HOLDS USA
29	DISCOVER BK/DISCOVER FS
30	COMPASS BK/BBVA COMPASS BSHRS
31	BANK OF THE WEST/BANCWEST CORP
32	COMERICA BK/COMERICA
33	HUNTINGTON NB/HUNTINGTON BSHRS
34	DEUTSCHE BK TC AMERICAS/DEUTSCHE BK TR CORP
35	WELLS FARGO BK S CENT NA/WELLS FARGO & CO
36	FIRST REPUBLIC BK/
37	FIRST NIAGARA BK NA/FIRST NIAGARA FNCL GROUP
38	BOKF NA/BOK FC
39	BANK OF AMER CA NA/BANK OF AMER CORP
40	CITY NB/CITY NAT CORP
41	SYNOVUS BK/SYNOVUS FC
42	FIRST TN BK NA/FIRST HORIZON NAT CORP
43	FIRSTMERIT BK NA/FIRSTMERIT CORP
44	ASSOCIATED BK NA/ASSOCIATED BANC-CORP
45	EAST W BK/EAST W BC
46	FROST BK/CULLEN/FROST BKR
47	COMMERCE BK/COMMERCE BSHRS
48	FIRST-CITIZENS B&TC/FIRST CITIZENS BSHRS
49	SILICON VALLEY BK/SVB FNCL GRP
50	BARCLAYS BK DE/BARCLAYS DE HOLDS LLC

(FRB, 2014) Mention previously the goal of regulation in the commercial banking industry is to provide a competitive market, this prevents total dominance by a few firms. However, the banking industry is associated with high barriers to entry for new banks because of the regulatory restrictions associated with charters and high costs of capital. High barriers to entry are also associated with markets that are unfavorable to enter because established firms have an exponential advantage. As shown from the previous empirical evidence this industry is highly concentrate in both market share and total assets. In an attempt to reduce barriers to entry the Riegle-Neal Interstate Banking and Branching Efficiency Act was passed. This act changed interstate banking laws for both bank holding companies and individual banks. BHCs and individual banks were given the ability to merge with other banks located in different states. In theory this greatly reduced barriers to entry, however, in practice it potentially help top banks become larger and more dominant.

SWOT Analysis

The SWOT analysis of M&T bank will help to evaluate the institutions strengths, weaknesses, opportunities, and threats. Following the conclusions of the analysis will allow for recommendations that leverage M&T Banks strengths to take advantage of potential business opportunities. Additionally, this conclusion will allow for a better understanding of operational weaknesses to contest threats to prospective growth.

Strengths

M&T bank has garnered much strength since its founding in 1856. It has grown into one of the countries thirty largest banks with roughly $80 billion in assets. In addition the bank boasts 700 branches and ATMs in 1,500 different locations greatly extending is banking power (M&T Bank Corp, 2014). Its growth can be attributed to the acquisition of banks in upstate New York, eastern Pennsylvania, Washington D.C., and the Baltimore region. Market dominance in these select regions has allowed M&T to not only create a competitive advantage but also sustain an advantage. Another key strength to M&T Bank is the services the bank can offer. To this point we have only mentioned M&T’s role in the commercial banking industry. However, M&T offers services in retail and investment banking.

Weaknesses

Not only has M&T Bank created a competitive advantage in the areas it serves, it has also created a customizable approach to banking that customers love. However, the scope of coverage is limited to eight states which ultimately means the bank has a relatively small to negligible service area in comparison to other banks. M&T Bank service area can be seen in above picture. This scenario could sway potential new customers to choose another bank which has a greater physical presence throughout the United States.

Opportunities

In recent years M&T bank has created many opportunities that have positively affected the company’s position. Since 2006 M&T has acquired over 130 brick and mortar banking locations, many of which are outside the state of New York. Along with the purchase of physical brick and mortar locations M&T Banks has purchased other commercial banks such as Wilmington Trust. and Hudson City Bancorp (Rochester, 2014). This was a strategic move that has allowed M&T’s total assets to increase greatly over the past five years. Since the year 2005, which is a significant year, M&T has increased their total assets by nearly 50% (M&T Bank Corporation, 2014) Lastly, M&T Bank is not only located in the United States but has a location across the border in Toronto, ON. According to bank President Mark Czarnecki, “…our understanding of cross-border commerce, along with decades of experience serving Canadian businesses operating in the U.S., makes Ontario an ideal location for M&T's first international commercial bank office (M&T Bank, 2010).” This branch will not only allow M&T to serve a large number of US-based companies operating Canada but will allow M&T to differentiate itself from the competition.

Threats

Since the financial crisis of 2008 – 2009 banking laws and regulations have become more stringent. Regulatory compliance poses an undoubtable burden on M&T Bank. Regulatory compliance is also positively correlated to higher cost. One such regulation is Dodd-Frank Act, this act has mandated that banks need to keep higher ratios of capital on hand. Therefore, this limits M&T’s ability to expand into other regions. Secondly, M&T Bank faces other external threats such as the loss of their sustained competitive advantage. This loss can occur because of their small geographical coverage area. Other banks, through acquisitions and mergers, could open branches in similar locations. Thus, this would decrease their market share and potentially make them less valuable.

Stakeholder Analysis

The stakeholder analysis aims to evaluate the stakeholders of M&T Bank. The stakeholders can be broken down into three major groups; Customer both potential and current, investors, and management. Following figure, the interest/power grid allows us to plot current and potential customers in the quadrant “keep satisfied.” The customers of M&T Bank are responsible for driving profits without them the bank would be forced to close its doors. The group of investors and management can be grouped into the quadrant labeled keep informed. Keeping investors and especially management informed allows the company to make the best possible decisions.

Financial Analysis

Table 2 - FDIC Ratios

Ratio Measures of Bank Performance
Identification of Variable	What the Variable Measures
Loans-to-assets ratio	Liquidity and risk. The higher the ratio, the greater the amount of the bank’s total portfolio that is subject to default risk
Return on Assets (ROA)	The bank’s profitability. Low ROA may encourage risk taking by the bank. High ROA may indicate high-risk lending to increase profits
Asset growth from previous year	Risk of growth
Loan growth from previous year	Risk of growth
Salary expenses per employee	Management’s control of expenses
Interest on loans and leases to total loans and leases (interest yield)	The average income of loans. High yields might indicate that the bank is originating high-risk loans.
Interest and fee income to total loans and leases (interest & fees to loans)	Income. The addition of fees to the variables may catch firms that are loading up on fee income.
Operating expenses to total expenses	Management’s control of expenses. Higher expenses are assumed to be indicators of loose control.

(FDIC) The success of any bank depends on several factors which involve many different aspects of the balance sheet. The FDIC has created (Table 2 - FDIC Ratios) to help explain the performance of a bank in regard to the balance sheet. Although the entire list is used by the FDIC to ensure a thorough understanding of a bank’s performance, not all of these ratios and years are able to be used due to a lack of information. The areas that we will examine in our financial analysis are the total loans to assets ratio, the asset growth from the previous year, the loan growth from the previous year, and the return on assets. To aid in this analysis we will compare M&T to the average US bank, and the average New York bank. Figure 1- Loans to Assets Ratio (Mergent Online) (FDIC) The total loans to assets ratio helps to explain the bank’s liquidity and risk. The higher the ratio the more likely a banks is to default. Figure (Figure 1- Loans to Assets Ratio) upon comparison shows that M&T is more likely to default. Although this is an improbable scenario, M&T Bank’s loan to assets ratio is the riskiest The asset growth and loan growth from the previous year are two ratios that deal with the overall risk of growth. The figures of (Figure 2 - Asset Growth & Figure 3 - Loan Growth) show this comparison. During times of economic prosperity, such as the recovery and peak stage of the economic business cycle, M&T’s loans and assets increase greatly. However, during downturns in the economy, such as a recession or trough, M&T’s loans and assets decrease. Furthermore, over the long run M&T Bank has experience the best overall growth in loans and assets from the previous years. Figure 2 - Asset Growth (Mergent Online) (FDIC) Figure 3 - Loan Growth (Mergent Online) (FDIC) 1 Lastly, we examine M&T’s return on assets. This ratio helps to explain the bank’s profitability. Low ROA may encourage risk taking by the bank and high ROA may indicate high-risk lending to increase profits (FDIC). M&T has experience an average ROA of 1.20%, for the banking industry a ROA of slightly higher than 1.5% is optimal (Loth, 2009).

BCG Matrix

The above BCG Matrix analyses M&T Bank and its four closest regional competitors. From the data we can see that that M&T is ranked in the “question mark” quadrant. It has both a small overall market share and relative markets share. Businesses that are located in this quadrant require vast resources to grow, but whether they will succeed and move into the star quadrant is unknown. Table 3 - M&T & Competitors

M&T & Competitors BCG Matrix
Brands	Revenues (Billions)	Bank's Market Share	Relative Market Share (RMS)	Market Growth Rate
M&T Bank	$4.35	5.18%	0.0738	6.52%
PNC	$15.30	18.23%	0.2595	12.50%
HSBC	$58.96	70.26%	1.0000	5.36%
First Niagara	$1.35	1.61%	0.0229	12.18%
KeyCorp	$3.96	4.72%	0.0672	0.51%

However, of the five banks compared M&T has one of the best market growth rates. Additionally, the poor placement of M&T Bank on the BCG Matrix can be explained. Two of the banks, HSBC and PNC, currently reside in the top twenty banks nationally. As mentioned previously banks in the top twenty control 59% of total assets and 31% of the market share, thus, these two banks adversely skew the data. Furthermore, M&T Bank is mid-market regional bank that competes on a regional (North Eastern States) level not on a national level. Figure 4 - BCG Matrix

Recommendations

For M&T Bank to remain successful they should concentrate on two areas of focus. The first area of focus should be on financial ratios. As stated previously, financial ratios are important in understanding the overall performance of the bank. Even though M&T was one of the best performing banks through the Great Recession of 2008 they should strive to lower their loan to asset ratio. Their higher than average ratio can lead to the ultimate failure of M&T. Secondly, the bank should focus of mergers and acquisitions to help maintain their competitive advantage. M&T’s current small market size puts them at a potential disadvantage in comparison to their competition. Acquiring other banks would allow them further convey their idea of community banking. This gives customers the personal touch that many large commercial banks are not able to give. The examination of M&T Bank versus its competitors at both a national and state level is important in understanding the banks success. M&T Bank has succeeded in out performing their competition through not only good economic times, but the same bad ones that have led to the failures of their competition. M&T’s success is garnered in their mantra of “community banking” and their ability to exploit their competitive advantage (Throwback, 2014).

Works Cited

"Census Bureau Homepage." Census Bureau Homepage. N.p., n.d. Web. 03 Mar. 2014. "Commercial Bank." Investopedia. N.p., n.d. Web. 05 Mar. 2014. Conte, C., & Karr, A. R. (2001). An outline of the U.S. economy. Washington, D.C.: U.S. Dept. of State, International Information Programs. "FDIC: Statistics on Depository Institutions." FDIC: Statistics on Depository Institutions. N.p., n.d. Web. 05 Mar. 2014. "FRB: Large Commercial Banks-- June 30, 2013." FRB: Large Commercial Banks-- June 30, 2013. N.p., n.d. Web. 05 Mar. 2014. Loth, Richard. Financial Ratio Tutorial “ROA” Retrieved October 23, 2009, from https://www.investopedia.com/university/ratios/profitability-indicator/ratio3.asp "M&T Bank Corporation - About M&T Bank Corporation." M&T Bank Corporation - About M&T Bank Corporation. N.p., n.d. Web. 05 Mar. 2014. "M&T Bank Corporation - M&T Bank Approved to Open Canadian Commercial Banking Branch." M&T Bank Corporation - M&T Bank Approved to Open Canadian Commercial Banking Branch. N.p., 07 June 2010. Web. 05 Mar. 2014. "Rochester Business Journal." M&T Acquires Delaware Bank for $351 Million. N.p., n.d. Web. 05 Mar. 2014. "Throwback Approach Keeps Wilmers, M&T on Top." American Banker RSS. N.p., n.d. Web. 05 Mar. 2014.

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