UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9861
FIRST EMPIRE STATE CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0968385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One M & T Plaza 14240
Buffalo, New York (Zip Code)
(Address of principal
executive offices)
(716) 842-5445
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
---- ---
Number of shares of the registrant's Common Stock, $5 par value, outstanding
as of the close of business on April 30, 1997: 6,616,932 shares.
FIRST EMPIRE STATE CORPORATION
FORM 10-Q
For the Quarterly Period Ended March 31, 1997
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT PAGE
- --------------------------------------------------- ----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31, 1997 and December 31, 1996 3
Consolidated Statement of Income -
Three months ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows -
Three months ended March 31, 1997 and 1996 5
Consolidated Statement of Changes in
Stockholders' Equity--Three months ended
March 31, 1997 and 1996 6
Consolidated Summary of Changes in
Allowance for Possible Credit Losses -
Three months ended March 31, 1997 and 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Part II. Other Information 21
Signatures 23
Exhibit Index 24
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- --------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET (unaudited)
MARCH 31, DECEMBER 31,
DOLLARS IN THOUSANDS, EXCEPT PER SHARE 1997 1996
- ------------------------------------------------------------------------------------- ------------ -------------
Assets Cash and due from banks $ 376,741 324,659
Money-market assets
Interest-bearing deposits at banks................... 47,713 47,325
Federal funds sold and agreements to resell
securities.......................................... 20,926 125,326
Trading account...................................... 56,040 37,317
------------------------------------------------------------------------------------
Total money-market assets.......................... 124,679 209,968
------------------------------------------------------------------------------------
Investment securities
Available for sale (cost: $1,558,244 at March 31, 1997;
$1,400,976 at December 31, 1996).................... 1,543,855 1,396,672
Held to maturity (market value: $94,636 at March 31,
1997; $119,316 at December 31, 1996)................ 94,224 118,616
Other (market value: $55,226 at March 31, 1997; $56,410
at December 31, 1996)............................... 55,226 56,410
------------------------------------------------------------------------------------
Total investment securities........................ 1,693,305 1,571,698
------------------------------------------------------------------------------------
Loans and leases....................................... 11,177,030 11,120,221
Unearned discount.................................... (374,257) (398,098)
Allowance for possible credit losses................. (273,573) (270,466)
------------------------------------------------------------------------------------
Loans and leases, net.............................. 10,529,200 10,451,657
------------------------------------------------------------------------------------
Premises and equipment................................. 126,646 128,521
Accrued interest and other assets...................... 271,661 257,412
------------------------------------------------------------------------------------
Total assets....................................... $ 13,122,232 12,943,915
------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits $ 1,218,840 1,352,929
NOW accounts........................................... 329,010 334,787
Savings deposits....................................... 3,295,495 3,280,788
Time deposits.......................................... 5,464,580 5,352,749
Deposits at foreign office............................. 225,440 193,236
------------------------------------------------------------------------------------
Total deposits..................................... 10,533,365 10,514,489
------------------------------------------------------------------------------------
Federal funds purchased and agreements to repurchase
securities............................................ 866,548 1,015,408
Other short-term borrowings............................ 273,531 134,779
Accrued interest and other liabilities................. 208,645 195,578
Long-term borrowings................................... 327,960 178,002
------------------------------------------------------------------------------------
Total liabilities...................................... 12,210,049 12,038,256
------------------------------------------------------------------------------------
Stockholders' equity Preferred stock, $1 par, 1,000,000 shares authorized,
none outstanding...................................... -- --
Common stock, $5 par, 15,000,000 shares authorized,
8,097,472 shares issued............................... 40,487 40,487
Additional paid-in capital............................. 98,150 96,597
Retained earnings...................................... 972,978 937,072
Unrealized investment losses, net...................... (8,486) (2,485)
Treasury stock--common, at cost -
1,455,170 shares at March 31, 1997;
1,411,286 shares at December 31, 1996................. (190,946) (166,012)
------------------------------------------------------------------------------------
Total stockholders' equity......................... 912,183 905,659
------------------------------------------------------------------------------------
Total liabilities and stockholders' equity......... $ 13,122,232 12,943,915
------------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME (unaudited)
THREE MONTHS ENDED MARCH 31
---------------------------
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE 1997 1996
- ---------------------------------------------------------------------------------------------- --------- ---------
Interest income Loans and leases, including fees $ 229,575 213,206
Money-market assets
Deposits at banks 709 1,031
Federal funds sold and agreements to resell securities 405 1,403
Trading account 221 273
Investment securities
Fully taxable 23,798 27,419
Exempt from federal taxes 1,058 445
-----------------------------------------------------------------------------------
Total interest income 255,766 243,777
- --------------------------------------------------------------------------------------------------------------------
Interest expense NOW accounts 920 2,773
Savings deposits 22,248 20,521
Time deposits 73,757 65,456
Deposits at foreign office 3,239 2,129
Short-term borrowings 13,700 19,689
Long-term borrowings 5,457 3,617
-----------------------------------------------------------------------------------
Total interest expense 119,321 114,185
-----------------------------------------------------------------------------------
Net interest income 136,445 129,592
Provision for possible credit losses 11,000 9,675
-----------------------------------------------------------------------------------
Net interest income after provision for possible credit
losses 125,445 119,917
- --------------------------------------------------------------------------------------------------------------------
Other income Mortgage banking revenues 12,075 10,391
Service charges on deposit accounts 10,385 9,905
Trust income 6,903 6,173
Merchant discount and other credit card fees 5,231 3,055
Trading account and foreign exchange gains (losses) 1,349 (704)
Gain (loss) on sales of bank investment securities (45) 318
Other revenues from operations 10,025 7,113
-----------------------------------------------------------------------------------
Total other income 45,923 36,251
- --------------------------------------------------------------------------------------------------------------------
Other expense Salaries and employee benefits 55,559 52,128
Equipment and net occupancy 13,233 13,416
Printing, postage and supplies 3,351 3,819
Deposit insurance 486 780
Other costs of operations 31,655 26,174
-----------------------------------------------------------------------------------
Total other expense 104,284 96,317
-----------------------------------------------------------------------------------
Income before income taxes 67,084 59,851
Income taxes 25,825 23,698
-----------------------------------------------------------------------------------
Net income $ 41,259 36,153
- --------------------------------------------------------------------------------------------------------------------
Net income per common share
Primary $ 5.81 5.20
Fully diluted 5.80 4.96
Cash dividends per common share .80 .70
Average common shares outstanding
Primary 7,100 6,778
Fully diluted 7,114 7,295
4
- --------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31
IN THOUSANDS 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from Net income $ 41,259 36,153
operating activities Adjustments to reconcile net income to
net cash provided by operating activities
Provision for possible credit losses 11,000 9,675
Depreciation and amortization of premises
and equipment 5,123 4,938
Amortization of capitalized mortgage
servicing rights 3,230 2,507
Provision for deferred income taxes (1,017) (4,479)
Asset write-downs 216 250
Net gain on sales of assets (1,470) (418)
Net change in accrued interest
receivable, payable 11,749 1,190
Net change in other accrued income and
expense 15,550 18,283
Net change in loans held for sale 74,695 (15,359)
Net change in trading account assets and
liabilities (5,061) (27,777)
-------------------------------------------------------------------------------------------
Net cash provided by operating activities 155,274 24,963
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from Proceeds from sales of investment
investing activities securities Available for sale 120,429 20,531
Proceeds from maturities of investment
securities
Available for sale 54,098 81,547
Held to maturity 29,345 5,069
Purchases of investment securities
Available for sale (329,941) (443,763)
Held to maturity (4,956) (7,230)
Other (882) (2,776)
Net (increase) decrease in interest-
bearing deposits at banks (388) 67,191
Additions to capitalized mortgage
servicing rights (12,179) (4,095)
Net increase in loans and leases (163,308) (346,107)
Capital expenditures, net (1,961) (3,744)
Acquisitions, net of cash acquired 123,043 --
Other, net (3,326) 6,082
----------------------------------------------------------------------------------------------
Net cash used by investing activities (190,026) (627,295)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from Net increase (decrease) in deposits (112,376) 248,515
financing activities Net increase (decrease) in short-term
borrowings (23,770) 461,090
Proceeds from issuance of trust
preferred securities 150,000 --
Payments on long-term borrowings (68) (2,382)
Purchases of treasury stock (29,529) (28,360)
Dividends paid--common (5,353) (4,446)
Dividends paid--preferred -- (900)
Other, net 3,530 (9,528)
----------------------------------------------------------------------------------------------
Net cash provided (used) by financing
activities (17,566) 663,989
----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents $ (52,318) 61,657
Cash and cash equivalents at beginning of
period 449,985 364,119
Cash and cash equivalents at end of
period $ 397,667 425,776
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental Interest received during the period $ 262,527 244,530
disclosure of cash Interest paid during the period 115,090 114,943
flow information Income taxes paid during the period 2,500 3,224
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash Real estate acquired in settlement of
investing and loans $ 1,766 1,945
financing activities Conversion of preferred stock to common
stock -- 40,000
- ----------------------------------------------------------------------------------------------------------------------------
5
- --------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
ADDITIONAL UNREALIZED
DOLLARS IN THOUSANDS, PREFERRED COMMON PAID-IN RETAINED INVESTMENT TREASURY
EXCEPT PER SHARE STOCK STOCK CAPITAL EARNINGS LOSSES, NET STOCK TOTAL
- ----------------------- ----------------------- --------- ----------- --------- ----------- ---------- ----------
1996
Balance--January 1,
1996................. $40,000 40,487 98,657 805,486 (3,155) (135,222) $ 846,253
Net income............. -- -- -- 36,153 -- -- 36,153
Preferred stock cash
dividends............ -- -- -- (900) -- -- (900)
Common stock cash
dividends -$.70 per
share................ -- -- -- (4,446) -- -- (4,446)
Exercise of stock
options.............. -- -- 663 -- -- 2,068 2,731
Purchases of treasury
stock................ -- -- -- -- -- (28,360) (28,360)
Conversion of preferred
stock into
506,930 shares of
common stock......... (40,000) -- (6,534) -- -- 46,534 --
Unrealized losses on
investment
securities available
for sale, net........ -- -- -- -- (4,280) -- (4,280)
- -------------------------------------------------------------------------------------------------------------------------
Balance--March 31,
1996................. $-- 40,487 92,786 836,293 (7,435) (114,980) $ 847,151
- -------------------------------------------------------------------------------------------------------------------------
1997
Balance--January 1,
1997................. $-- 40,487 96,597 937,072 (2,485) (166,012) $ 905,659
Net income............. -- -- -- 41,259 -- -- 41,259
Common stock cash
dividends -$.80 per
share................ -- -- -- (5,353) -- -- (5,353)
Exercise of stock
options.............. -- -- 1,553 -- -- 4,595 6,148
Purchases of treasury
stock................ -- -- -- -- -- (29,529) (29,529)
Unrealized losses on
investment securities
available for sale,
net.................. -- -- -- -- (6,001) -- (6,001)
- -------------------------------------------------------------------------------------------------------------------------
Balance--March
31,1997.............. $-- 40,487 98,150 972,978 (8,486) (190,946) $ 912,183
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR POSSIBLE CREDIT LOSSES
(unaudited)
- -------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
DOLLARS IN THOUSANDS 1997 1996
- ----------------------------------------------------------------------- ---------- ---------
Beginning balance...................................................... $ 270,466 262,344
Provision for possible credit losses................................... 11,000 9,675
Net charge-offs
Charge-offs.......................................................... (13,653) (8,162)
Recoveries........................................................... 5,760 3,058
- -------------------------------------------------------------------------------------------------------------------------
Total net charge-offs.............................................. (7,893) (5,104)
- -------------------------------------------------------------------------------------------------------------------------
Ending balance......................................................... $ 273,573 266,915
- -------------------------------------------------------------------------------------------------------------------------
6
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
The consolidated financial statements of First Empire State Corporation and
subsidiaries ("the Company") were compiled in accordance with the accounting
policies set forth on pages 41 and 42 of the Company's 1996 Annual Report. In
the opinion of management, all adjustments necessary for a fair presentation
have been made and were all of a normal recurring nature.
2. Borrowings
In January 1997, First Empire Capital Trust I ("Issuer Trust"), a Delaware
business trust, issued $150 million of 8.234% capital securities ("Capital
Securities"). The common securities of the Issuer Trust are wholly owned by
First Empire State Corporation ("First Empire"), and such securities are the
only class of the Issuer Trust's securities possessing general voting powers.
The Capital Securities represent preferred undivided interests in the assets of
the Issuer Trust, and are classified in the Company's consolidated balance sheet
as long-term borrowings, with distributions on such securities included in
interest expense. Under the Federal Reserve Board's current risk-based capital
guidelines, the Capital Securities are includable in First Empire's Tier 1
capital. The proceeds from the issuance of the Capital Securities ($150 million)
and common securities ($4.64 million) were used by the Issuer Trust to purchase
$154.64 million of 8.234% junior subordinated debentures ("Junior Subordinated
Debentures") issued by First Empire. The Junior Subordinated Debentures
represent the sole asset of the Issuer Trust and payments under the Junior
Subordinated Debentures are the Issuer Trust's sole source of cash flow.
Holders of the Capital Securities receive preferential cumulative cash
distributions semi-annually each February 1st and August 1st at a rate of 8.234%
per annum on the stated liquidation amount ($1,000) per Capital Security unless
First Empire exercises its right to extend the payment of interest on the Junior
Subordinated Debentures for up to ten semi-annual periods, in which case payment
of distributions on the Capital Securities will be deferred for a comparable
period. During an extended interest period, First Empire may not pay dividends
or distributions on, or repurchase, redeem or acquire any shares of its capital
stock. The agreements governing the Capital Securities, in the aggregate,
provide a full, irrevocable and unconditional guarantee by First Empire of the
payment of distributions on, the redemption of, and any liquidation distribution
with respect to the Capital Securities, but only in each case to the extent of
funds held by the Issuer Trust. The obligations of First Empire under such
guarantee and the Capital Securities are subordinate and junior in right of
payment to all senior indebtedness of First Empire.
The Capital Securities are mandatorily redeemable in whole, but not in part,
upon repayment at the stated maturity date of the Junior Subordinated Debentures
(February 1, 2027) or the earlier redemption of the Junior Subordinated
Debentures in whole upon the occurrence of one or more events ("Events") set
forth in the indenture relating to the Capital Securities, and in whole or in
part at any time after February 1, 2007 contemporaneously with First Empire's
optional redemption of the Junior Subordinated Debentures in whole or in part.
The Junior Subordinated Debentures are redeemable prior to their stated maturity
date at First Empire's option (i) on or after February 1, 2007, in whole at any
time or in part from time to time, or (ii) in whole, but not in part, at any
time within 90 days following the occurrence and during the continuation of one
or more of the Events, in each case subject to possible regulatory approval. The
redemption price of the Capital Securities upon their early redemption will be
expressed as a percentage of the liquidation amount plus accumulated but unpaid
distributions. Such percentage adjusts annually and ranges from 104.117% at
February 1, 2007 to 100.412% for the annual period ending January 31, 2017,
after which the percentage is 100%, subject to a make-whole amount if the early
redemption occurs prior to February 1, 2007.
-7-
3. Earnings per share
During the first quarter of 1997, Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," was issued. SFAS No. 128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
SFAS No. 128 replaces the presentation of primary earnings per share required by
Accounting Principles Board Opinion No. 15, "Earnings Per Share," with a
presentation of basic earnings per share. It also requires dual presentation of
basic and diluted earnings per share on the face of the income statement for all
entities with complex capital structures and requires a reconciliation of the
numerator and denominator in the basic earnings per share computation to the
numerator and denominator in the diluted earnings per share computation.
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in earnings.
SFAS No. 128 is effective for financial statements for periods ending after
December 15, 1997, including interim periods. Earlier application is not
permitted, however, after the effective date all prior period earnings per share
data presented shall be restated to conform with the provisions of SFAS No. 128.
Pro forma amounts for basic and diluted earnings per share as if SFAS No.
128 was effective January 1, 1996, were $6.17 and $5.81, respectively, for the
three months ended March 31, 1997 and $5.51 and $4.97, respectively, for the
three months ended March 31, 1996.
4. Contingencies
Information regarding legal proceedings is included in Part II, Item I,
("Legal Proceedings") of this Quarterly Report on Form 10-Q.
-8-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
First Empire State Corporation ("First Empire") earned $41.3 million or
$5.80 per fully diluted common share in the first quarter of 1997, increases of
14% and 17%, respectively, from the first quarter of 1996 when net income was
$36.2 million or $4.96 per common share on a fully diluted basis. Net income was
$40.4 million or $5.68 per fully diluted common share in the fourth quarter of
1996. Primary earnings per common share rose 12% to $5.81 in the recent quarter
from $5.20 in the first quarter of 1996. Primary earnings per share were $5.70
in 1996's fourth quarter. The annualized rate of return on average assets for
First Empire and its consolidated subsidiaries ("the Company") in the first
quarter of 1997 was 1.30%, compared with 1.20% in the year-earlier quarter and
1.26% in 1996's last quarter. The annualized return on average common
stockholders' equity was 18.24% in the initial 1997 quarter, compared with
17.50% and 18.05% in the first and fourth quarters of 1996, respectively.
On January 31, 1997, First Empire completed an offering of trust
preferred securities ("Capital
Securities") that raised $150 million of regulatory capital. The 30-year
offering of 8.234% fixed-rate cumulative Capital Securities was issued through
First Empire Capital Trust I ("the Issuer Trust"), a Delaware business trust
that was formed by First Empire to facilitate the transaction. The Capital
Securities provide investors with call protection for ten years. The Issuer
Trust was formed solely to issue the Capital Securities and advance the proceeds
to First Empire by purchasing a like amount of First Empire's 8.234% junior
subordinated debentures. The proceeds of the Capital Securities qualify as Tier
1 or core capital for First Empire under the Federal Reserve Board's current
risk-based capital guidelines. The Capital Securities are classified as
long-term borrowings and distributions on the securities are included in
interest expense. Payments on the junior subordinated debt of First Empire,
which are in turn passed through the Issuer Trust to the holders of the Capital
Securities, are serviced through existing liquidity and cash flow sources of
First Empire. Under current federal tax law, First Empire is permitted to deduct
interest payments on the junior subordinated debt in computing taxable income.
On January 24, 1997, the Company acquired two branch offices from GreenPoint
Bank, including approximately $131 million in deposits. The branches are located
in Westchester County, New York.
Taxable-equivalent Net Interest Income
Taxable-equivalent net interest income rose 5% to $137.7 million in the
first quarter of 1997 from $130.5 million in the year-earlier quarter. Growth in
average loans and leases was the most significant factor contributing to the
rise. Average loans and leases increased $1.0 billion, or 11%, to $10.7 billion
in the first quarter of 1997 from $9.7 billion in the year-earlier quarter.
While first quarter 1997 average loans and leases were 2% higher than the $10.5
billion averaged in 1996's final quarter, the rate of growth slowed from that
experienced in 1996's quarterly periods. The accompanying table summarizes
quarterly changes in the major components of the loan and lease portfolio.
-9-
AVERAGE LOANS AND LEASES
(net of unearned discount)
Dollars in millions
Percent increase
(decrease) from
----------------------------
1ST QTR. 1ST QTR. 4TH QTR.
1997 1996 1996
--------- ------------- -------------
Commercial, financial, etc $ 2,187 10% 6%
Real estate--commercial 4,005 10 3
Real estate--consumer 2,134 6 (2)
Consumer
Automobile 1,117 25 --
Home equity 636 6 2
Credit cards 300 35 2
Other 336 16 1
--------- -- --
Total consumer 2,389 19 1
--------- -- --
Total $ 10,715 11% 2%
--------- -- --
--------- -- --
Due, in part, to loan growth, average holdings of investment securities in
the first quarter of 1997 were decreased from both the first and final quarters
of 1996. Average investment securities declined to $1.6 billion in the recent
quarter from $1.8 billion in the first quarter of 1996 and $1.7 billion in
1996's fourth quarter. Money-market assets averaged $138 million in 1997's
initial quarter, compared with $193 million in the year-earlier quarter and $122
million in the fourth quarter of 1996. In general, the size of the investment
securities and money-market assets portfolios are influenced by such factors as
demand for loans, which generally yield more than investment securities and
money-market assets, ongoing repayments, the levels of deposits, and management
of balance sheet size and resulting capital ratios.
As a result of the changes described herein, average earning assets totaled
$12.5 billion in the initial 1997 quarter, an increase of $769 million, or 7%,
from $11.7 billion in the first quarter of 1996. Average earning assets were
$12.3 billion in the fourth quarter of 1996.
Core deposits, which include noninterest-bearing demand deposits,
interest-bearing transaction accounts, savings deposits and nonbrokered domestic
time deposits under $100,000, represent a significant source of funding to the
Company. The Company's New York State branch network is the principal source of
core deposits, which generally carry lower interest rates than wholesale funds
of comparable maturities. Core deposits include certificates of deposit under
$100,000 generated on a nationwide basis by M&T Bank, National Association ("M&T
Bank, N.A."), a wholly owned commercial bank subsidiary of First Empire. Average
core deposits increased to $8.1 billion in 1997's initial quarter from $7.7
billion in the year earlier quarter, and were essentially equal to the fourth
quarter of 1996. Average core deposits of M&T Bank, N.A., which began operations
in the fourth quarter of 1995, were $388 million in the recently completed
quarter, compared with $87 million in the first quarter of 1996 and $382 million
in the fourth quarter of 1996. The accompanying table provides an analysis of
quarterly changes in the components of average core deposits.
AVERAGE CORE DEPOSITS
Dollars in millions
Percent increase
(decrease) from
-------------------------
1ST QTR. 1ST QTR. 4TH QTR.
1997 1996 1996
--------- -------- --------
NOW accounts $ 281 (63)% ( 14)%
Savings deposits 3,346 19 2
Time deposits less than $100,000 3,337 11 1
Demand deposits 1,162 3 (4)
----- -- --
Total $8,126 6 % - %
----- -- --
----- -- --
-10-
In addition to core deposits, the Company obtains funding through domestic
time deposits of $100,000 or more, deposits originated through the Company's
offshore branch office, and brokered certificates of deposit. Brokered deposits
are used to reduce short-term borrowings and lengthen the average maturity of
interest-bearing liabilities. Brokered deposits averaged $1.1 billion during the
recent quarter and totaled $1.1 billion at March 31, 1997, compared with an
average balance of $830 million during the comparable 1996 period and a total
balance of $879 million at March 31, 1996. Brokered deposits averaged $1.2
billion in the fourth quarter of 1996. The weighted average remaining term to
maturity of brokered deposits at March 31, 1997 was 1.8 years. Additional
amounts of brokered deposits may be solicited in the future depending on market
conditions and the cost of funds available from alternative sources at the time.
As a supplement to deposits, the Company uses short-term borrowings from
banks, securities dealers, the Federal Home Loan Bank of New York ("FHLB") and
others as sources of funding. Short-term borrowings averaged $1.1 billion in the
recent quarter, compared with $1.5 billion and $881 million in the first and
fourth quarters of 1996, respectively. Also providing funding during the first
quarter of 1997 was the aforementioned issuance of $150 million of Capital
Securities. These securities are included in long-term borrowings, which also
include $175 million of subordinated notes issued by Manufacturers and Traders
Trust Company ("M&T Bank"), a wholly owned commercial bank subsidiary of First
Empire. Long-term borrowings averaged $278 million and $192 million in the first
quarter of 1997 and 1996, respectively, and $186 million in the fourth quarter
of 1996.
Net interest income is impacted by changes in the composition of the
Company's earning assets and interest-bearing liabilities, as well as changes in
interest rates and spreads. Net interest spread, or the difference between the
taxable-equivalent yield on earning assets and the rate paid on interest-bearing
liabilities, was 3.81% in the first quarter of 1997, compared with 3.85% in the
year-earlier quarter. The 4 basis point (hundredths of one percent) narrowing of
the net interest spread was the result of a 6 basis point decline in the yield
on earning assets to 8.36% in the initial 1997 quarter from 8.42% in the first
quarter of 1996, partially offset by a 2 basis point decline in the cost of
interest-bearing liabilities to 4.55% in the first quarter of 1997 from 4.57% in
the corresponding 1996 quarter. The net interest spread was 3.77% in the fourth
quarter of 1996 when the yield on earning assets was 8.31% and the rate paid on
interest-bearing liabilities was 4.54%.
The contribution to net interest margin of interest-free funds in the first
quarter of 1997 was .67%, up from .64% in the comparable quarter of 1996, but
down slightly from .69% in 1996's final quarter. The increase from the first
quarter of 1996 resulted from a 10% increase in average interest-free funds.
Average interest-free funds, consisting largely of non-interest bearing demand
deposits and stockholders' equity, totaled $1.8 billion in the first quarter of
1997, up from $1.6 billion a year earlier, but essentially equal to the fourth
quarter of 1996.
Management assesses the potential impact of future changes in interest rates
and spreads by projecting net interest income under a number of different
interest rate scenarios. As part of the management of interest rate risk, the
Company utilizes interest rate swap agreements to modify the repricing
characteristics of certain portions of the loan and deposit portfolios. Revenue
and expense arising from these agreements are reflected in either the yields
earned on loans or, as appropriate, rates paid on interest-bearing deposits. The
notional amount of interest rate swap agreements used as part of the Company's
management of interest rate risk in effect at March 31, 1997 and 1996 was $2.3
billion. In general, under the terms of these swaps, the Company receives
payments based on the outstanding notional amount of the swaps at fixed rates of
interest and makes payments at variable rates. However, under the terms of a $34
million swap, the Company pays a fixed rate of interest and receives a variable
rate. At March 31, 1997 the weighted average rates to be received and paid under
interest rate swap agreements were 6.20% and 5.53%, respectively. As of March
31, 1997, the Company had also entered into forward-starting swaps with an
aggregate
-11-
notional amount of $115 million. Such forward-starting swaps had no
effect on the Company's net interest income through March 31, 1997. The average
notional amounts of interest rate swaps and the related effect on net interest
income and margin are presented in the accompanying table.
INTEREST RATE SWAPS
Dollars in thousands
THREE MONTHS ENDED MARCH 31
----------------------------------------------------
1997 1996
-------------------------- ------------------------
AMOUNT RATE * AMOUNT RATE *
------------- ----------- ----------- -----------
Increase (decrease) in:
Interest income.................................................. $ 177 .01% $ (39) -%
Interest expense................................................. (3,208) (.12) (3,153) (.13)
------------- ----------
Net interest income/margin......................................... $ 3,385 .11% $ 3,114 .11%
------------- --- ---------- ---
------------- --- ---------- ---
Average notional amount **......................................... $ 2,287,090 $2,232,907
------------- ----------
------------- ----------
- ------------------------
* Computed as an annualized percentage of average earning assets or
interest-bearing liabilities.
** Excludes forward-starting interest rate swaps.
The Company estimates that as of March 31, 1997 it would have paid
approximately $18 million if all interest rate swap agreements entered into for
interest rate risk management purposes had been terminated. This estimated fair
value of the interest rate swap portfolio results from the effects of changing
interest rates and should be considered in the context of the entire balance
sheet and the Company's overall interest rate risk profile. Changes in the
estimated fair value of interest rate swaps entered into for interest rate risk
management purposes are not reflected in the consolidated financial statements.
Giving consideration to interest rate swaps in place at March 31, 1997 and
utilizing a computer model which aids management in assessing the potential
impact of future changes in interest rates and spreads, management's assessment
is that the variability of net interest income in the next two years may be
largely unaffected by changes in interest rates, but that additional interest
rate risk management actions may be necessary to counter any detrimental effect
which a sustained decrease in interest rates could likely have on net interest
income in later years.
As a financial intermediary, the Company is exposed to liquidity risk
whenever the maturities of financial instruments included in assets and
liabilities differ. Accordingly, a critical element in managing a financial
institution is ensuring that sufficient cash flow and liquid assets are
available to satisfy demands for loans and deposit withdrawals, to fund
operating expenses, and to be used for other corporate purposes. Deposits and
borrowings, maturities of money-market assets, repayments of loans and
investment securities, and cash generated from operations, such as fees
collected for services, provide the Company with other sources of liquidity.
Through membership in the FHLB, as well as other available borrowing facilities,
First Empire's banking subsidiaries have access to additional funding sources.
In addition to the proceeds of the $150 million of junior subordinated debt
issued in January 1997, First Empire utilizes dividend payments from its banking
subsidiaries, which are subject to various regulatory limitations, to pay
dividends, repurchase treasury stock, and fund debt service and other operating
expenses. First Empire also maintains a $25 million line of credit with an
unaffiliated commercial bank, all of which was available for borrowing at March
31, 1997. Management does not anticipate engaging in any activities, either
currently or in the long-term, which would cause a significant strain on
liquidity at either First Empire or its subsidiary banks. Furthermore,
management closely monitors the Company's liquidity position for compliance with
internal policies and believes that available sources of liquidity are adequate
to meet anticipated funding needs.
-12-
PROVISION FOR POSSIBLE CREDIT LOSSES
The provision for possible credit losses in the first quarter of 1997 was
$11.0 million, up from $9.7 million in the first quarter of 1996, but down
slightly from $11.5 million in 1996's fourth quarter. Net loan charge-offs in
the first three months of 1997 totaled $7.9 million, up from $5.1 million in
1996's first quarter, but down from $11.5 million in last year's fourth quarter.
Net charge-offs as an annualized percentage of average loans and leases were
.30% in the first quarter of 1997, compared with .21% in the corresponding 1996
quarter and .43% in the fourth quarter of 1996. Net charge-offs of consumer
loans in the first quarter of 1997 were $8.8 million, compared with $5.0 million
in the year-earlier quarter and $9.5 million in the fourth quarter of 1996.
Higher charge-offs of credit card balances and indirect automobile loans were
the most significant factors contributing to the increased level of consumer
loan charge-offs in the first quarter of 1997 compared with the first quarter of
1996. Net consumer loan charge-offs as an annualized percentage of average
consumer loans and leases were 1.50% in the initial 1997 quarter, compared with
1.00% in the first quarter of 1996 and 1.60% in 1996's final quarter.
Nonperforming loans were $97.0 million or .90% of total loans and leases
outstanding at March 31, 1997, compared with $82.6 million or .83% at March
31, 1996 and $97.9 million or .91% at December 31, 1996. The increase from
the corresponding quarter in 1996 was due mainly to the inclusion in loans
past due ninety days but still accruing interest of one-to-four family
residential mortgage loans serviced by the Company and repurchased from the
Government National Mortgage Association during the second and third quarters
of 1996. These loans are covered by guarantees of government agencies. The
costs associated with servicing these loans were reduced as a result of the
repurchases. Such repurchased loans totaled $13.9 million and $16.3 million
at March 31, 1997 and December 31, 1996, respectively. Nonperforming
commercial real estate loans totaled $25.6 million at March 31, 1997, $33.7
million at March 31, 1996 and $27.1 million at December 31, 1996. Included in
these totals were loans secured by properties located in the New York City
metropolitan area of $8.2 million at March 31, 1997, $10.4 million at March
31, 1996 and $10.3 million at December 31, 1996. Nonperforming consumer loans
and leases totaled $17.4 million at March 31, 1997, compared with $13.7
million at March 31, 1996 and $17.6 million at December 31, 1996. The
increase in nonperforming consumer loans from March 31, 1996 is generally
consistent with current industry trends and also reflects growth in the
Company's consumer loan portfolio, particularly credit card balances and
automobile loans. As a percentage of consumer loan balances outstanding,
nonperforming consumer loans and leases were .74% at March 31, 1997 and .66%
and .73% at March 31 and December 31, 1996, respectively. The repayment
performance of consumer loans continues to be closely monitored by
management. Assets taken in foreclosure of defaulted loans were $8.7 million
at March 31, 1997, $7.5 million at March 31, 1996 and $8.5 million at
December 31, 1996.
A comparative summary of nonperforming assets and certain credit quality
ratios is presented in the accompanying table.
-13-
NONPERFORMING ASSETS
Dollars in thousands
1997 1996 QUARTERS
FIRST --------------------------------------------
QUARTER FOURTH THIRD SECOND FIRST
------------ --------- ------------- --------- ---------
Nonaccrual loans..................................... $ 57,366 58,232 59,517 57,603 67,098
Loans past due 90 days or more....................... 36,857 39,652 36,958 27,406 15,513
Renegotiated loans................................... 2,741 -- -- -- --
------------ --------- ------------- --------- ---------
Total nonperforming loans............................ 96,964 97,884 96,475 85,009 82,611
Other real estate owned.............................. 8,694 8,523 8,467 8,890 7,508
------------ --------- ------------- --------- ---------
Total nonperforming assets........................... $ 105,658 106,407 104,942 93,899 90,119
------------ --------- ------------- --------- ---------
------------ --------- ------------- --------- ---------
Government guaranteed nonperforming loans*........... $ 22,753 25,847 27,475 18,267 6,663
------------ --------- ------------- --------- ---------
------------ --------- ------------- --------- ---------
Nonperforming loans to total loans and leases, net of
unearned discount.................................. .90% .91% .92% .84% .83%
Nonperforming assets to total net loans and other
real estate owned.................................. .98% .99% 1.00% .93% .91%
------------ --------- ------------- --------- ---------
------------ --------- ------------- --------- ---------
- --------------------
* Included in total nonperforming loans.
The allowance for possible credit losses at March 31, 1997 was $273.6
million, or 2.53% of total loans and leases, compared with $266.9 million or
2.69% a year earlier and $270.5 million or 2.52% at December 31, 1996. The ratio
of the allowance for possible credit losses to nonperforming loans was 282% at
the most recent quarter-end, compared with 323% at March 31, 1996 and 276% at
December 31, 1996.
Management regularly assesses the adequacy of the allowance for possible
credit losses and records a provision to replenish or build the allowance to a
level necessary to maintain an adequate reserve position. In making such
assessment, management performs an ongoing evaluation of the loan and lease
portfolio, including such factors as the differing economic risks associated
with each loan category, the current financial condition of specific borrowers,
the economic environment in which borrowers operate, the level of delinquent
loans and the value of any collateral. Based upon the results of such review,
management believes that the allowance for possible credit losses at March 31,
1997 was adequate to absorb credit losses in the loan and lease portfolio.
OTHER INCOME
Other income totaled $45.9 million in the first quarter of 1997, compared
with $36.3 million in the year-earlier quarter and $47.6 million in the fourth
quarter of 1996.
Mortgage banking revenues were $12.1 million in the recent quarter, compared
with $10.4 million in the year-earlier quarter and $11.5 million in the final
quarter of 1996. Residential mortgage loan servicing fees totaled $5.8 million
in the initial quarter of 1997, up from $5.2 million in the first quarter of
1996 and $5.4 million in the fourth quarter of 1996. Gains from sales of
residential mortgage loans and loan servicing rights were $5.6 million in the
recently completed quarter, compared with $4.7 million in the year earlier
quarter and $5.7 million in 1996's final quarter. Residential mortgage loans
serviced for others totaled $6.5 billion and $5.5 billion at March 31, 1997 and
1996, respectively. Capitalized servicing assets were $51 million and $42
million at March 31, 1997 and 1996, respectively.
Service charges on deposit accounts totaled $10.4 million in the first
quarter of 1997, an increase of 5% from $9.9 million in the corresponding
quarter of the previous year and essentially equal to the fourth quarter of
-14-
1996. Trust income was $6.9 million in the first quarter of 1997, compared
with $6.2 million in last year's first quarter and $7.8 million in the fourth
quarter of 1996. Merchant discount and other credit card fees were $5.2
million in the recent quarter, compared with $3.1 million and $5.8 million in
the first and fourth quarters of 1996, respectively. The increase over the
year-earlier period resulted from previous expansion of the Company's
co-branded credit card business. Effective March 28, 1997, M&T Bank, N.A.
terminated the co-branded credit card program that had been initiated in May
1996 with Giant of Maryland, Inc. Approximately $1.5 million of merchant
discount and other credit card fees for the first quarter of 1997 were
related to this program. Trading account and foreign exchange activity
resulted in gains of $1.3 million in the first 1997 quarter and the last
quarter of 1996, compared with losses of $704 thousand in the first quarter
of 1996. Other revenue from operations totaled $10.0 million in 1997's
initial quarter, up $2.9 million from the comparable quarter of 1996, largely
due to a $1.5 million gain realized upon termination of a lease for one of
the Company's branch offices and higher fees earned from the sales of mutual
funds and annuities. Other revenue from operations totaled $11.2 million in
the fourth quarter of 1996 when $2.8 million of gains were realized from
sales of venture capital investments of the Company.
Other Expense
Other expense totaled $104.3 million in the first quarter of 1997,
compared with $96.3 million in the first quarter of 1996 and $107.1 million
in the fourth quarter of 1996.
Salaries and employee benefits expense was $55.6 million in the recent
quarter, an increase of 7% from $52.1 million in the corresponding 1996
quarter and 2% from $54.6 million in the fourth quarter of 1996. Factors
contributing to the higher expenses were merit salary increases and higher
costs associated with incentive-based compensation arrangements and employee
benefits.
Nonpersonnel expense totaled $48.7 million in the first quarter of 1997,
compared with $44.2 million in the year-earlier quarter. The increase was
largely the result of expansion of the Company's credit card and mortgage
banking businesses. Rebate and other operating expenses based on card usage
directly attributable to the recently terminated co-branded credit card
program were approximately $2.2 million in the first quarter of 1997.
Nonpersonnel expense in the recent quarter declined $3.8 million from $52.5
million in the fourth quarter of 1996 due largely to lower advertising
expenses.
Capital
Stockholders' equity at March 31, 1997 of $912 million was equal to 6.95%
of total assets, compared with $847 million or 6.69% of total assets a year
earlier and $906 million or 7.00% at December 31, 1996. On a per share basis,
stockholders' equity was $137.33 at March 31, 1997, up from $123.76 and
$135.45 at March 31 and December 31, 1996, respectively.
Stockholders' equity at March 31, 1997 was reduced by $8.5 million, or
$1.28 per common share, for the net after-tax impact of unrealized losses on
investment securities classified as available for sale, compared with $7.4
million or $1.09 per common share at March 31, 1996 and $2.5 million or $.37
per common share at December 31, 1996. Such unrealized losses represent the
amount by which amortized cost exceeded the fair value of investment
securities classified as available for sale, net of applicable income taxes.
The market evaluation of investment securities should be considered in the
context of the entire balance sheet of the Company. With the exception of
investment securities classified as available for sale, trading account
assets and liabilities, and residential mortgage loans held for sale, the
carrying values of financial instruments in the balance sheet are generally
not adjusted for appreciation or depreciation in market value resulting from
changes in interest rates.
15
Federal regulators generally require banking institutions to maintain
"core capital" and "total capital" ratios of at least 4% and 8%,
respectively, of risk-adjusted total assets. In addition to the risk-based
measures, Federal bank regulators have also implemented a minimum "leverage"
ratio guideline of 3% of the quarterly average of total assets. The January
1997 issuance of Capital Securities enhanced the Company's capital ratios.
Under regulatory guidelines, core capital includes the Capital Securities and
total capital also includes subordinated notes issued by M&T Bank. Unrealized
gains or losses on investment securities classified as available for sale are
not recognized in determining regulatory capital. The capital ratios of the
Company and its banking subsidiaries, M&T Bank, The East New York Savings
Bank ("East New York") and M&T Bank, N.A., as of March 31, 1997 are presented
in the accompanying table.
REGULATORY CAPITAL RATIOS
March 31, 1997
FIRST EMPIRE M&T EAST M&T
(CONSOLIDATED) BANK NEW YORK BANK, N.A.
--------------- --------- ----------- ----------
Core capital................ 9.76% 7.47% 12.80% 14.78%
Total capital............... 12.66% 10.59% 14.06% 16.04%
Leverage.................... 8.15% 6.45% 7.65% 6.64%
The Company has historically maintained capital ratios in excess of
minimum regulatory guidelines largely through a high rate of internal capital
generation. The rate of internal capital generation, or net income less
dividends paid expressed as an annualized percentage of average total
stockholders' equity, was 15.88% during the first quarter of 1997, compared
with 14.60% and 15.96% in the first and fourth quarters of 1996, respectively.
During the first quarter of 1997, First Empire acquired 29,062 shares
pursuant to and thereby completing the program announced in November 1995 to
repurchase up to 380,582 shares of its common stock to be held as treasury
stock for reissuance at the time of stock option exercises. The 380,582
shares repurchased under that plan were acquired at an average cost of
$243.72 per share.
In February 1997, another plan was announced to repurchase and hold as
treasury stock up to 303,317 additional shares, also for reissuance upon the
possible future exercise of outstanding stock options. As of March 31, 1997,
First Empire had repurchased 63,361 common shares pursuant to the new plan at
an average cost of $328.59 per share.
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this quarterly report contain
forward-looking statements that are based on current expectations, estimates
and projections about the Company's business, management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions ("Future Factors") which
are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. First Empire undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Future Factors include changes in interest rates, spreads on earning
assets and interest-bearing liabilities, and interest rate sensitivity;
credit losses; sources of liquidity; regulatory supervision and oversight,
16
including required capital levels; increasing price and product/service
competition by competitors, including new entrants; rapid technological
developments and changes; the ability to continue to introduce competitive
new products and services on a timely, cost-effective basis; the mix of
products/ services; containing costs and expenses; governmental and public
policy changes, including environmental regulations; protection and validity
of intellectual property rights; reliance on large customers; technological,
implementation and cost/financial risks in large, multi-year contracts; the
outcome of pending and future litigation and governmental proceedings;
continued availability of financing; and financial resources in the amounts,
at the times and on the terms required to support the Company's future
businesses. These are representative of the Future Factors that could affect
the outcome of the forward-looking statements. In addition, such statements
could be affected by general industry and market conditions and growth rates,
general economic conditions, including interest rate and currency exchange rate
fluctuations, and other Future Factors.
17
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
QUARTERLY TRENDS
1996 QUARTERS
1997 -----------------------------------------
TAXABLE-EQUIVALENT BASIS FIRST QUARTER FOURTH THIRD SECOND FIRST
- -------------------------------------------------------- ------------- --------- --------- --------- ---------
EARNINGS AND DIVIDENDS
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
Interest income......................................... $ 257,029 257,196 251,336 248,673 244,714
Interest expense........................................ 119,321 119,343 117,884 114,996 114,185
------------ --------- --------- --------- ---------
Net interest income..................................... 137,708 137,853 133,452 133,677 130,529
Less: provision for possible credit losses.............. 11,000 11,475 10,475 11,700 9,675
Other income............................................ 45,923 47,641 44,893 41,463 36,251
Less: other expense..................................... 104,284 107,082 107,658 97,921 96,317
------------ --------- --------- --------- ---------
Income before income taxes.............................. 68,347 66,937 60,212 65,519 60,788
Applicable income taxes................................. 25,825 25,288 23,090 25,790 23,698
Taxable-equivalent adjustment........................... 1,263 1,229 1,251 1,070 937
------------ --------- --------- --------- ---------
Net income.............................................. $ 41,259 40,420 35,871 38,659 36,153
------------ --------- --------- --------- ---------
Cash dividends on preferred stock....................... $ -- -- -- -- 900
Per common share data
Net income
Primary............................................... 5.81 5.70 5.05 5.36 5.20
Fully diluted......................................... 5.80 5.68 5.05 5.36 4.96
Net income, excluding securities transactions
Primary............................................... 5.81 5.73 5.05 5.36 5.17
Fully diluted......................................... 5.80 5.71 5.05 5.36 4.93
Cash dividends......................................... $ .80 .70 .70 .70 .70
Average common shares outstanding
Primary............................................... 7,100 7,098 7,104 7,212 6,778
Fully diluted......................................... 7,114 7,121 7,106 7,216 7,295
------------ --------- --------- --------- ---------
Balance sheet data
Dollars in millions, except per share
Average balances
Total assets.......................................... $ 12,866 12,728 12,556 12,486 12,141
Earning assets........................................ 12,464 12,308 12,124 12,044 11,695
Investment securities................................. 1,611 1,659 1,798 1,939 1,830
Loans and leases, net of unearned discount............ 10,715 10,527 10,253 9,997 9,672
Deposits.............................................. 10,454 10,609 10,459 10,069 9,496
Stockholders' equity.................................. 917 891 857 855 849
------------ --------- --------- --------- ---------
At end of quarter
Total assets.......................................... $ 13,122 12,944 12,821 12,542 12,671
Earning assets........................................ 12,621 12,504 12,282 12,015 12,129
Investment securities................................. 1,693 1,572 1,753 1,817 2,108
Loans and leases, net of unearned discount............ 10,803 10,722 10,437 10,129 9,912
Deposits.............................................. 10,533 10,514 10,554 10,193 9,719
Stockholders' equity.................................. 912 906 878 861 847
Equity per common share............................... 137.33 135.45 130.58 126.70 123.76
------------ --------- --------- --------- ---------
Performance ratios, annualized
Return on
Average assets........................................ 1.30% 1.26% 1.14% 1.25% 1.20%
Average common stockholders' equity................... 18.24% 18.05% 16.64% 18.18% 17.50%
Net interest margin on average earning assets........... 4.48% 4.46% 4.38% 4.46% 4.49%
Nonperforming assets to total assets, at end of
quarter............................................... .81% .82% .82% .75% .71%
------------ --------- --------- --------- ---------
Market price per common share
High.................................................. $ 336 289 5/8 258 247 247 3/4
Low................................................... 281 250 239 232 209
Closing............................................... 320 288 249 241 246
- 18 -
- --------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
1997 FIRST QUARTER 1996 FOURTH QUARTER
AVERAGE BALANCE IN MILLIONS; INTEREST IN AVERAGE AVERAGE AVERAGE AVERAGE
THOUSANDS BALANCE INTEREST RATE BALANCE INTEREST RATE
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc................ $ 2,187 $ 44,623 8.27% 2,072 42,480 8.16%
Real estate............................... 6,139 131,135 8.54 6,082 131,894 8.67
Consumer.................................. 2,389 54,311 9.22 2,373 55,118 9.24
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Total loans and leases, net............. 10,715 230,069 8.71 10,527 229,492 8.67
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Money-market assets
Interest-bearing deposits at banks........ 48 709 6.01 50 762 6.03
Federal funds sold and agreements to
resell securities....................... 32 405 5.22 37 492 5.32
Trading account........................... 58 255 1.78 35 283 3.21
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Total money-market assets............... 138 1,369 4.04 122 1,537 5.01
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Investment securities**
U.S. Treasury and federal agencies........ 1,064 16,679 6.36 1,097 17,069 6.19
Obligations of states and political
subdivisions............................ 41 677 6.66 41 682 6.54
Other..................................... 506 8,235 6.61 521 8,416 6.43
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Total investment securities............. 1,611 25,591 6.44 1,659 26,167 6.27
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Total earning assets.................... 12,464 257,029 8.36 12,308 257,196 8.31
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Allowance for possible credit losses........ (272) (271)
Cash and due from banks..................... 298 325
Other assets................................ 376 366
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Total assets............................ $ 12,866 12,728
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts.............................. $ 281 920 1.33 327 1,247 1.52
Savings deposits.......................... 3,346 22,248 2.70 3,291 22,458 2.71
Time deposits............................. 5,410 73,757 5.53 5,516 77,006 5.55
Deposits at foreign office................ 255 3,239 5.16 258 3,354 5.16
Total interest-bearing deposits......... 9,292 100,164 4.37 9,392 104,065 4.41
Short-term borrowings....................... 1,075 13,700 5.17 881 11,785 5.32
Long-term borrowings........................ 278 5,457 7.96 186 3,493 7.47
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing liabilities...... 10,645 119,321 4.55 10,459 119,343 4.54
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Demand deposits............................. 1,162 1,217
Other liabilities........................... 142 161
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Total liabilities....................... 11,949 11,837
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Stockholders' equity........................ 917 891
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity................................ $ 12,866 12,728
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Net interest spread......................... 3.81 3.77
Contribution of interest-free funds......... .67 .69
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Net interest income/margin on earning
assets.................................... $137,708 4.48% 137,853 4.46%
- -------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
1996 THIRD QUARTER
AVERAGE BALANCE IN MILLIONS; INTEREST IN AVERAGE AVERAGE
THOUSANDS BALANCE INTEREST RATE
- -------------------------------------------- ----------- ----------- -----------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc................ 2,023 41,322 8.12%
Real estate............................... 5,972 128,704 8.62
Consumer.................................. 2,258 52,268 9.21
- -------------------------------------------- ----------- ----------- -----------
Total loans and leases, net............. 10,253 222,294 8.62
- -------------------------------------------- ----------- ----------- -----------
Money-market assets
Interest-bearing deposits at banks........ 24 354 5.98
Federal funds sold and agreements to
resell securities....................... 23 311 5.46
Trading account........................... 26 247 3.73
- -------------------------------------------- ----------- ----------- -----------
Total money-market assets............... 73 912 5.00
- -------------------------------------------- ----------- ----------- -----------
Investment securities**
U.S. Treasury and federal agencies........ 1,208 18,719 6.16
Obligations of states and political
subdivisions............................ 44 711 6.43
Other..................................... 546 8,700 6.34
- -------------------------------------------- ----------- ----------- -----------
Total investment securities............. 1,798 28,130 6.23
- -------------------------------------------- ----------- ----------- -----------
Total earning assets.................... 12,124 251,336 8.25
- -------------------------------------------- ----------- ----------- -----------
Allowance for possible credit losses........ (271)
Cash and due from banks..................... 345
Other assets................................ 358
- -------------------------------------------- ----------- ----------- -----------
Total assets............................ 12,556
- -------------------------------------------- ----------- ----------- -----------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts.............................. 794 2,768 1.39
Savings deposits.......................... 2,854 21,170 2.95
Time deposits............................. 5,359 74,706 5.55
Deposits at foreign office................ 257 3,382 5.23
- -------------------------------------------- ----------- ----------- -----------
Total interest-bearing deposits......... 9,264 102,026 4.38
- -------------------------------------------- ----------- ----------- -----------
Short-term borrowings....................... 928 12,311 5.28
Long-term borrowings........................ 188 3,547 7.48
- -------------------------------------------- ----------- ----------- -----------
Total interest-bearing liabilities...... 10,380 117,884 4.52
- -------------------------------------------- ----------- ----------- -----------
Demand deposits............................. 1,195
Other liabilities........................... 124
- -------------------------------------------- ----------- ----------- -----------
Total liabilities....................... 11,699
- -------------------------------------------- ----------- ----------- -----------
Stockholders' equity........................ 857
- -------------------------------------------- ----------- ----------- -----------
Total liabilities and stockholders'
equity................................ 12,556
- -------------------------------------------- ----------- ----------- -----------
Net interest spread......................... 3.73
- -------------------------------------------- ----------- ----------- -----------
Contribution of interest-free funds......... .65
Net interest income/margin on earning
assets.................................... 133,452 4.38%
- -------------------------------------------- ----------- ----------- -----------
- ------------------------
* Includes nonaccrual loans.
** Includes available for sale securities at amortized cost. (continued)
19
- --------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
1996 SECOND QUARTER 1996 FIRST QUARTER
AVERAGE AVERAGE AVERAGE
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS BALANCE INTEREST RATE BALANCE INTEREST
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc.................................... $ 2,032 $ 41,682 8.25% 1,995 40,538
Real estate................................................... 5,846 126,747 8.67 5,672 124,924
Consumer...................................................... 2,119 49,160 9.33 2,005 48,285
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Total loans and leases, net................................. 9,997 217,589 8.75 9,672 213,747
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Money-market assets
Interest-bearing deposits at banks............................ 18 266 6.14 62 1,031
Federal funds sold and agreements to resell securities........ 58 779 5.38 102 1,403
Trading account............................................... 32 264 3.33 29 306
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Total money-market assets................................... 108 1,309 4.89 193 2,740
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Investment securities**
U.S. Treasury and federal agencies............................ 1,324 20,248 6.15 1,173 17,987
Obligations of states and political subdivisions.............. 41 668 6.50 36 617
Other......................................................... 574 8,859 6.21 621 9,623
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Total investment securities................................. 1,939 29,775 6.17 1,830 28,227
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Total earning assets........................................ 12,044 248,673 8.30 11,695 244,714
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Allowance for possible credit losses............................ (269) (266)
Cash and due from banks......................................... 331 335
Other assets.................................................... 380 377
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Total assets................................................ $ 12,486 12,141
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts.................................................. $ 760 2,642 1.40 759 2,773
Savings deposits.............................................. 2,872 20,673 2.90 2,803 20,521
Time deposits................................................. 5,026 68,920 5.51 4,642 65,456
Deposits at foreign office.................................... 273 3,534 5.20 166 2,129
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Total interest-bearing deposits............................. 8,931 95,769 4.31 8,370 90,879
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Short-term borrowings........................................... 1,243 15,657 5.07 1,484 19,689
Long-term borrowings............................................ 190 3,570 7.55 192 3,617
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Total interest-bearing liabilities.......................... 10,364 114,996 4.46 10,046 114,185
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Demand deposits................................................. 1,138 1,126
Other liabilities............................................... 129 120
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Total liabilities........................................... 11,631 11,292
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Stockholders' equity............................................ 855 849
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity.................. $ 12,486 12,141
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Net interest spread............................................. 3.84
Contribution of interest-free funds............................. .62
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
Net interest income/margin on earning assets................... $ 133,677 4.46% 130,529
- ---------------------------------------------------------------- --------- ----------- ----------- ----------- -----------
* Includes nonaccrual loans.
**Includes available for sale securities at amortized cost.
AVERAGE
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS RATE
- ---------------------------------------------------------------- -----------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc.................................... 8.17%
Real estate................................................... 8.81
Consumer...................................................... 9.68
- ---------------------------------------------------------------- -----------
Total loans and leases, net................................. 8.89
- ---------------------------------------------------------------- -----------
Money-market assets
Interest-bearing deposits at banks............................ 6.68
Federal funds sold and agreements to resell securities........ 5.53
Trading account............................................... 4.34
- ---------------------------------------------------------------- -----------
Total money-market assets................................... 5.73
- ---------------------------------------------------------------- -----------
Investment securities**
U.S. Treasury and federal agencies............................ 6.17
Obligations of states and political subdivisions.............. 6.85
Other......................................................... 6.23
- ---------------------------------------------------------------- -----------
Total investment securities................................. 6.20
- ---------------------------------------------------------------- -----------
Total earning assets........................................ 8.42
- ---------------------------------------------------------------- -----------
Allowance for possible credit losses............................
Cash and due from banks.........................................
Other assets....................................................
- ---------------------------------------------------------------- -----------
Total assets................................................
- ---------------------------------------------------------------- -----------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts.................................................. 1.47
Savings deposits.............................................. 2.94
Time deposits................................................. 5.67
Deposits at foreign office.................................... 5.16
- ---------------------------------------------------------------- -----------
Total interest-bearing deposits............................. 4.37
- ---------------------------------------------------------------- -----------
Short-term borrowings........................................... 5.34
Long-term borrowings............................................ 7.57
- ---------------------------------------------------------------- -----------
Total interest-bearing liabilities.......................... 4.57
- ---------------------------------------------------------------- -----------
Demand deposits.................................................
Other liabilities...............................................
- ---------------------------------------------------------------- -----------
Total liabilities...........................................
- ---------------------------------------------------------------- -----------
Stockholders' equity............................................
- ---------------------------------------------------------------- -----------
Total liabilities and stockholders' equity..................
- ---------------------------------------------------------------- -----------
Net interest spread............................................. 3.85
Contribution of interest-free funds............................. .64
- ---------------------------------------------------------------- -----------
Net interest income/margin on earning assets.................... 4.49%
- ---------------------------------------------------------------- -----------
- ------------------------
*Includes nonaccrual loans.
**Includes available for sale securities at amortized cost.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
M&T Bank, N.A. and Giant of Maryland, Inc. ("Giant") are arbitrating the
rights and liabilities of the parties to each other in connection with the
termination of their co-branded credit card agreement. The resolution of this
matter has been submitted to arbitration under the auspices of the American
Arbitration Association following the termination of legal proceedings between
the parties that were formerly pending in the United States District Court for
the District of Maryland. M&T Bank, N.A. initiated the arbitration proceeding.
Giant alleges in the arbitration proceeding that M&T Bank, N.A. breached the
co-branded credit card agreement by seeking to terminate the agreement and
negligently misrepresenting certain information provided to Giant, and seeks
damages in excess of $37 million, plus interest, costs, attorneys fees and
other unspecified relief. M&T Bank, N.A. has denied Giant's allegations in the
arbitration proceeding, and is pursuing its own claims against Giant in the
same proceeding. Management believes that M&T Bank, N.A. has meritorious
defenses to Giant's claims and is vigorously defending against them while
pursuing relief under M&T Bank, N.A.'s claims against Giant.
First Empire and its subsidiaries are subject in the normal course of
business to various other pending and threatened legal proceedings in which
claims for monetary damages are asserted. Management, after consultation with
legal counsel, does not anticipate that the aggregate ultimate liability, if
any, arising out of litigation pending against First Empire or its
subsidiaries will be material to First Empire's consolidated financial
position, but at the present time is not in a position to determine whether
such litigation will have a material adverse effect on First Empire's
consolidated results of operations in any future reporting period.
Item 2. Changes in Securities.
(a) (Not applicable)
(b) In January 1997, the Issuer Trust, a Delaware business trust,
issued $150 million of 8.234% Capital Securities. The common securities
of the Issuer Trust are wholly owned by First Empire, and the Capital
Securities represent preferred undivided interests in the assets of the
Issuer Trust. The proceeds from the issuance of the Capital Securities
($150 million) and common securities ($4.64 million) were used by the
Issuer Trust to purchase $154.64 million of 8.234% junior subordinated
debentures ("Junior Subordinated Debentures") issued by First Empire.
The Junior Subordinated Debentures represent the sole asset of the Issuer
Trust and payments under the Junior Subordinated Debentures are the Issuer
Trust's sole source of cash flow.
Holders of the Capital Securities receive preferential cumulative
cash distributions semi-annually each February 1st and August 1st at a rate
of 8.234% per annum on the stated liquidation amount ($1,000) per Capital
Security unless First Empire exercises its right to extend the payment of
interest on the Junior Subordinated Debentures for up to ten semi-annual
periods, in which case payment of distributions on the Capital Securities
will be deferred for a comparable period. During an extended interest
period, First Empire may not pay dividends or distributions on, or
repurchase, redeem or acquire any shares of its capital stock.
Item 3. Defaults Upon Senior Securities.
(Not applicable.)
Item 4. Submission of Matters to a Vote of Security Holders.
The 1997 Annual Meeting of Stockholders of First Empire was held on April
15, 1997. At the 1997 Annual Meeting, stockholders elected seventeen (17)
directors, all of whom were then serving as directors of First Empire, for
terms of one (1) year and until their successors are elected and
21
qualified. The following table reflects the tabulation of the votes with
respect to each director who was elected at the 1997 Annual Meeting.
NUMBER OF VOTES
---------------------
NOMINEE FOR WITHHELD
- ------------------------------ --------- ---------
Brent D. Baird...................................... 6,104,990 7,076
John H. Benisch..................................... 6,105,034 7,032
C. Angela Bontempo.................................. 6,096,827 15,239
Robert T. Brady................................... . 6,097,534 14,532
Patrick J. Callan................................... 6,105,034 7,032
Richard E. Garman................................... 6,102,368 9,698
James V. Glynn...................................... 6,105,034 7,032
Roy M. Goodman...................................... 5,659,634 452,432
Patrick W.E. Hodgson................................ 6,105,034 7,032
Samuel T. Hubbard, Jr............................... 6,097,734 14,332
Lambros J. Lambros.................................. 6,105,008 7,058
Wilfred J. Larson................................... 6,102,394 9,672
Jorge G. Pereira.................................... 5,664,858 447,208
Raymond D. Stevens, Jr.............................. 6,101,872 10,194
Herbert L. Washington............................... 5,661,083 450,983
John L. Wehle, Jr................................... 6,097,734 14,332
Robert G. Wilmers................................... 6,104,926 7,140
Item 5. Other Information. (None.)
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of this report:
Exhibit
No.
- --------
3.1 Restated Certificate of Incorporation of First Empire State Corporation
dated May 7, 1997, filed by the Secretary of State of New York on
May 8, 1997. Filed herewith.
11.1 Statement re: Computation of Earnings Per Common Share. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K. First Empire filed the following Current Reports on
Form 8-K during the fiscal quarter ended March 31, 1997, all of which only
reported Other Events disclosed under Item 5 of Form 8-K:
On January 2, 1997, First Empire filed a Current Report on Form 8-K dated
December 27, 1996, reporting on its December 27, 1996 public announcement of the
intended merger of East New York with and into M&T Bank.
On January 23, 1997, First Empire filed a Current Report on Form 8-K dated
January 9, 1997, announcing its results of operations for the quarter and fiscal
year ended December 31, 1996 and other matters.
On February 11, 1997, a Current Report on Form 8-K dated January 31, 1997
was filed to announce First Empire's completion of a $150 million offering of
trust preferred securities.
On February 21, 1997, First Empire filed a Current Report on Form 8-K dated
February 19, 1997, concerning the public announcement of a new program to
repurchase up to 303,317 shares of First Empire's common stock and other
matters.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Empire State Corporation
Date: May 14, 1997 By: /s/ Michael P. Pinto
-----------------------------
Michael P. Pinto
Executive Vice President
and Chief Financial Officer
23
EXHIBIT INDEX
Exhibit
No.
- --------
3.1 Restated Certificate of Incorporation of First Empire State Corporation,
dated May 7, 1997. Filed herewith.
11.1 Statement re: Computation of Earnings Per Common Share. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
24
Exhibit No. 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
FIRST EMPIRE STATE CORPORATION
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
The undersigned, being the Chairman of the Board, President and Chief
Executive Officer and the Senior Vice President, General Counsel and
Secretary of First Empire State Corporation, pursuant to Section 807 of the
Business Corporation Law of the State of New York, do hereby restate, certify
and set forth:
(1) The name of the corporation is FIRST EMPIRE STATE CORPORATION.
(2) The certificate of incorporation was filed by the Department of State
on the 6th day of November, 1969. A first restated certificate of
incorporation was filed by the Department of State on the 19th day of
December, 1969; a second restated certificate of incorporation was filed by
the Department of State on the 28th day of April, 1986; and a third restated
certificate of incorporation was filed by the Department of State on the 20th
day of April, 1989.
(3) Thereafter, an amendment to the restated certificate of incorporation
was filed by the Department of State on the 14th day of March, 1991 which
designated a series of 9% convertible preferred shares of the Corporation.
All of the shares of the 9%
convertible preferred shares of the Corporation authorized by that
designation were issued on March 15, 1991, and on March 29, 1996 all of such
preferred shares were converted into shares of the common stock of the
Corporation and thereupon canceled.
(4) The restated certificate of incorporation, as amended, is hereby
further amended to effect an amendment authorized by the Business Corporation
Law, to repeal the amendment to the third restated certificate of
incorporation and thereby delete from Article FOURTH the provisions that
established the series of 9% convertible preferred shares of the Corporation.
Article FIFTH, relating to the service of process address, is also hereby
amended.
(5) The text of the certificate of incorporation, as amended heretofore,
is hereby restated as amended to read as hereinafter set forth in full:
CERTIFICATE OF INCORPORATION
of
FIRST EMPIRE STATE CORPORATION
------------------------------
FIRST: The name of the Corporation is FIRST EMPIRE STATE
CORPORATION.
2
SECOND: The purpose or purposes for which it is formed are:
(1) To engage in the business of a bank holding company.
(2) To acquire by purchase, subscription or otherwise, and to own and
hold and exercise all the powers and privileges of ownership and to sell,
exchange, or otherwise dispose of and deal in and with shares, bonds, and
other securities, interests or obligations issued by any person,
corporation, firm, or other entity, domestic or foreign.
(3) To the extent permitted by law to cause to be organized, merged or
consolidated, any corporation, firm or other entity, domestic or foreign.
(4) To the extent permitted by law to render services, assistance, and
advice to, and to act as representative or agent in any capacity of, any
person, corporation, firm, or other entity, domestic or foreign.
(5) To arrange for, finance, pay or cause to be paid the compensation of
the directors, officers or employees of any corporation, firm, or other
entity in the business affairs of which the Corporation shall have any
interest and to adopt, alter or amend any plan or plans for additional
compensation to such directors, officers or employees.
(6) To purchase, lease, or otherwise acquire, and to own, improve,
mortgage or otherwise encumber, real and personal property, or any
interest therein wherever situated.
The foregoing purposes shall be construed in furtherance and not in
limitation of powers now or hereafter conferred by the laws of the State of
New York.
THIRD: The office of the Corporation is to be located in the City
of Buffalo, County of Erie, and State of New York.
3
FOURTH: 1. The aggregate number of shares of stock which the
Corporation shall have authority to issue is sixteen million (16,000,000)
shares, divided into two classes, namely, preferred shares and common shares.
The number of preferred shares authorized is one million (1,000,000) shares
of the par value of one dollar ($1.00) per share. The number of common shares
authorized is fifteen million (15,000,000) shares of the par value of five
dollars ($5.00) per share.
2. Authority is hereby granted to the Board of Directors at any time and
from time to time to issue the preferred shares in one or more series and for
such consideration, not less than the par value thereof, as may be fixed from
time to time by the Board of Directors, and, before the issuance of any
shares of a particular series to fix the designation of such series, the
number of shares to comprise such series, the dividend rate or rates payable
with respect to the shares of such series, the redemption price or prices,
the voting rights, and any other relative rights, preferences and limitations
pertaining to such series. In lieu of issuing a new series, the Board of
Directors may increase the number of shares of a series already outstanding.
Before the issue of any shares of a series established by the Board of
Directors, the Board shall cause to be delivered to the Department of State
the necessary certificate of amendment under the Business Corporation Law of
the State of New York as now in effect or hereafter amended.
4
3. The description of the common shares and of their relative rights and
limitations are as follows:
(a) Out of the assets of the Corporation which are by law available for
the payment of dividends remaining after all dividends to which any
preferred shares then outstanding shall be entitled shall have been declared
and paid or set apart for payment for all past dividend periods, dividends
may be declared and paid upon the common shares to the exclusion of the
holders of preferred shares.
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of record of any
preferred shares then outstanding shall be entitled to be paid the amount
which the Board of Directors prior to issuance of such preferred shares
fixed to be paid for each such share upon such liquidation, dissolution or
winding up as set forth in the necessary certificate of amendment, as
required by Article FOURTH, Paragraph 2 above plus accumulated dividends on
such shares up to the date of such liquidation, dissolution or winding up of
the Corporation and no more. After payment to the holders of any preferred
shares then outstanding of the amount payable to them as aforesaid, the
remaining assets of the Corporation shall be payable to and distributed
ratably among the holders of record of the common shares.
(c) The holders of the common shares shall vote share for share,
together with the holders of any series of the preferred shares entitled to
have voting rights except as may be provided by the Board of Directors with
respect to any other series of the preferred shares.
FIFTH: The Secretary of State is designated as the agent of the
Corporation upon whom process against the Corporation may be served. The post
office address to which the Secretary of State shall mail a copy of any
process against the Corporation
5
served upon him is Executive Offices, 19th Floor, One M&T Plaza, Buffalo, New
York 14240.
SIXTH: No holder of shares of the Corporation of any class, now or
hereafter authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive any shares of the Corporation of any
class, now or hereafter authorized, or any options or warrants for such
shares, or any rights to subscribe to or purchase such shares, or any
securities convertible into or exchangeable for such shares, which may at any
time be issued, sold or offered for sale by the Corporation.
SEVENTH: As to any act or omission occurring after the adoption of
this provision, a director of the Corporation shall, to the maximum extent
permitted by the laws of the State of New York, have no personal liability to
the Corporation or any of its stockholders for damages for any breach of duty
as a director, provided that this Article SEVENTH shall not eliminate or
reduce the liability of a director in any case where such elimination or
reduction is not permitted by law.
----------------------------
(6) This restatement of the certificate of incorporation of FIRST EMPIRE
STATE CORPORATION was authorized by the Board of Directors of the Corporation
at a meeting thereof duly convened and held on April 15, 1997.
6
IN WITNESS WHEREOF, the undersigned have executed, signed and verified this
certificate this 7th day of May, 1997.
FIRST EMPIRE STATE CORPORATION
By: /s/ Robert G. Wilmers
-----------------------
Chairman of the Board,
President and
Chief Operating Officer
By: /s/ Richard A. Lammert
-------------------------
Senior Vice President,
General Counsel and Secretary
7
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
Robert G. Wilmers and Richard A. Lammert, being first duly sworn, depose
and say that they are respectively, the Chairman of the Board, President and
Chief Executive Officer and the Senior Vice President, General Counsel and
Secretary of FIRST EMPIRE STATE CORPORATION, that they have read the
foregoing certificate and know the contents thereof and that the statements
therein contained are true.
/s/ Robert G. Wilmers
----------------------
/s/ Richard A. Lammert
-----------------------
Sworn to before me
this 7th day of
May, 1997.
/s/ Timothy G. McEvoy
- ---------------------
Notary Public
8
RESTATED CERTIFICATE OF INCORPORATION
OF
FIRST EMPIRE STATE CORPORATION
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
Dated: May 7, 1997
Filer: Richard A. Lammert, Esq.
Senior Vice President,
General Counsel and Secretary
First Empire State Corporation
One M & T Plaza
Buffalo, New York 14240
9
Exhibit No. 11.1
- -----------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
COMPUTATION OF EARNINGS PER COMMON SHARE
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE 1997 1996
- -----------------------------------------------------------------------------------------------------------
Primary Average common shares outstanding...................... 6,685 6,399
Common stock equivalents *............................. 415 379
- -----------------------------------------------------------------------------------------------------------
Primary common shares outstanding...................... 7,100 6,778
- -----------------------------------------------------------------------------------------------------------
Net income............................................. $41,259 36,153
Less: Cash dividends on preferred stock................ -- 900
- -----------------------------------------------------------------------------------------------------------
Net income available to common shareholders........... $41,259 35,253
- -----------------------------------------------------------------------------------------------------------
Earnings per common share--primary..................... $5.81 5.20
- -----------------------------------------------------------------------------------------------------------
Fully diluted Average common shares outstanding...................... 6,685 6,399
Common stock equivalents *............................. 429 406
Assumed conversion of 9% convertible
preferred stock....................................... -- 490
- -----------------------------------------------------------------------------------------------------------
Fully diluted average common shares outstanding..... 7,114 7,295
- -----------------------------------------------------------------------------------------------------------
Net income..................................... $41,259 36,153
- -----------------------------------------------------------------------------------------------------------
Earnings per common share--fully diluted....... $5.80 4.96
- -----------------------------------------------------------------------------------------------------------
* Represents shares of First Empire's common stock issuable upon the assumed
exercise of outstanding stock options granted pursuant to the First Empire
State Corporation 1983 Stock Option Plan under the "treasury stock" method
of accounting.
9
3-MOS
DEC-31-1997
MAR-31-1997
376,741
47,713
20,926
56,040
1,543,855
149,450
149,862
11,177,030
273,573
13,122,232
10,533,365
1,140,079
208,645
327,960
0
0
40,487
871,696
13,122,232
229,575
24,856
1,335
255,766
100,164
119,321
136,445
11,000
(45)
104,284
67,084
41,259
0
0
41,259
5.81
5.80
4.48
57,366
36,857
2,741
0
270,466
13,653
5,760
273,573
144,574
0
128,999
