<PAGE>1
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
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 of incorporation) (I.R.S. Employer
Identification No.)
One M&T Plaza, Buffalo, New York 14240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716)842-5445
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5 par value American Stock Exchange
(Title of each class) (Name of each exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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,
and (2) has been subject to such filing requirements for the past
90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the Common Stock, $5 par value, held by
non-affiliates of the registrant, computed by reference to the
closing price as of the close of business on March 1, 1994:
$641,768,904.
Number of shares of the Common Stock, $5 par value, outstanding
as of the close of business on March 1, 1994: 6,862,810 shares.
Documents Incorporated By Reference:
(1) Portions of the Proxy Statement for the 1994 Annual Meeting
of Stockholders of First Empire State Corporation in Part
III.
<PAGE>2
FIRST EMPIRE STATE CORPORATION
------------------------------
FORM 10-K
---------
For the fiscal year ended December 31, 1993
-------------------------------------------
CROSS-REFERENCE SHEET
- ---------------------
Form
10-K
PART I Page
- ------ ----
Item 1. Business 5
Statistical disclosure pursuant to Guide 3
I. Distribution of assets, liabilities, and
stockholders' equity; interest rates and
interest rate differential
A. Average balance sheets 38-39
B. Interest income/expense and resulting
yield or rate on average interest-earning
assets (including non-accruing loans) and
interest-bearing liabilities 38-39
C. Rate/volume variances 18
II. Investment portfolio
A. Year-end balances 57
B. Maturity schedule and weighted average yield 44
III. Loan Portfolio
A. Year-end balances 59
B. Maturity and sensitivity to changes in
interest rates 45
C. Risk elements
Nonaccrual, past-due and renegotiated loans 41
Actual and pro forma interest on certain loans 59
Nonaccrual policy 55
Foreign outstandings 27
IV. Summary of loan loss experience
A. Charge-offs and recoveries 40
Factors influencing management's judgment
concerning the adequacy of the allowance and
provision 55
B. Allocation of allowance to loan categories 42
V. Deposits
A. Average balances 38-39
B. Maturity schedule of domestic time
deposits with balances of $100,000
or more 43
VI. Return on equity and assets, etc. 17,22,30,31
<PAGE>3
FIRST EMPIRE STATE CORPORATION
------------------------------
FORM 10-K
---------
For the fiscal year ended December 31, 1993
-------------------------------------------
CROSS-REFERENCE SHEET--continued
- --------------------------------
Form
10-K
Page
----
PART I, continued
- -------
Item 1. Business, continued
VII. Short-term borrowings 61
Item 2. Properties 19, 60
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
Executive Officers of the Registrant 19-20
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 21
A. Principal market 21
Market prices 32-33
B. Approximate number of holders at year end 15
C. Frequency and amount of dividends declared 33
D. Restrictions on dividends 9, 70
Item 6. Selected Financial Data
A. Selected consolidated year-end balances 15
B. Consolidated earnings, etc. 16-17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 21-47
Item 8. Financial Statements and Supplementary Data
A. Report of Independent Accountants 49
B. Consolidated Balance Sheet -
December 31, 1993 and 1992 50
<PAGE>4
FIRST EMPIRE STATE CORPORATION
------------------------------
FORM 10-K
---------
For the fiscal year ended December 31, 1993
-------------------------------------------
CROSS-REFERENCE SHEET--continued
- --------------------------------
Form
10-K
Page
----
PART II, continued
- --------
Item 8, continued
C. Consolidated Statement of Income -
Years ended December 31, 1993, 1992 and 1991 51
D. Consolidated Statement of Cash Flows -
Years ended December 31, 1993, 1992 and 1991 52
E. Consolidated Statement of Changes in
Stockholders' Equity - Years ended
December 31, 1993, 1992 and 1991 53
F. Notes to Financial Statements 54-72
G. Quarterly Trends 33
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 73
PART III
- --------
Item 10. Directors and Executive Officers of the
Registrant 73
Item 11. Executive Compensation 73
Item 12. Security Ownership of Certain Beneficial
Owners and Management 73
Item 13. Certain Relationships and Related
Transactions 73
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 74
Signatures 75-77
Exhibit Index 78-79
<PAGE>5
PART I
Item 1. Business.
--------
First Empire State Corporation (the "Registrant" or "First Empire
(Parent)" or, together with its direct and indirect subsidiaries,
the "Company") is a New York business corporation which is
registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA") and under Article
III-A of the New York Banking Law (the "Banking Law"). The
principal executive offices of the Registrant are located at One
M&T Plaza, Buffalo, New York 14240. First Empire (Parent) was
incorporated in November 1969. As of December 31, 1993, the
Company had consolidated total assets of $10.4 billion, deposits
of $7.4 billion and stockholders' equity of $724 million. The
Company had 3,655 full-time and 745 part-time employees as of
December 31, 1993.
At December 31, 1993, the Registrant had two wholly owned bank
subsidiaries conducting business primarily in the State of New
York: Manufacturers and Traders Trust Company ("M&T Bank") and
The East New York Savings Bank ("East New York").
Since the beginning of 1990, the Company has experienced
significant growth through federally-assisted acquisitions of
assets and liabilities of failed thrift institutions and through
unassisted mergers. In January and September 1990, respectively,
M&T Bank, in two federally-assisted transactions, purchased
selected assets and assumed selected liabilities of Monroe
Savings Bank, FSB, Rochester, New York, and Empire Federal
Savings Bank of America, Buffalo, New York, two institutions that
had been placed in receivership. In May 1991, M&T Bank and East
New York similarly purchased certain assets and assumed certain
liabilities of Goldome, a Buffalo, New York savings bank, from
the Federal Deposit Insurance Corporation ("FDIC"), as receiver.
In July 1992, Central Trust Company and Endicott Trust Company,
two banks located in Rochester and Endicott, New York,
respectively, were acquired and merged with and into M&T Bank.
The following table summarizes the loans and deposits acquired by
the Company in these transactions at the time the transactions
were consummated:
Recent Acquisitions and Mergers
Loans Deposits
----- --------
(In billions of dollars)
Monroe Savings Bank, FSB $0.4 $0.5
Empire Federal Savings Bank of America 0.5 1.2
Goldome 1.0 2.2
Central Trust Company 0.8 1.0
Endicott Trust Company 0.2 0.3
The Company from time to time considers acquiring additional
banks or thrift institutions, generally within markets it
currently services or in other nearby markets. The Company has
pursued such opportunities in the past, currently continues to
actively review different opportunities, including the
possibility of major acquisitions, and intends to continue this
practice.
Subsidiaries
------------
M&T Bank is a banking corporation which is incorporated under the
laws of the State of New York. M&T Bank is a member of the
Federal Reserve System, the FDIC and, since October 25, 1993, the
Federal Home Loan Bank System. First Empire (Parent) acquired
all of the issued and outstanding shares of the capital stock of
M&T Bank in December 1969. The stock of M&T Bank represents
<PAGE>6
a major asset of First Empire (Parent). M&T Bank operates under
a charter granted by the State of New York in 1892, and the
continuity of its banking business is traced to the organization
of the Manufacturers and Traders Bank in 1856. The principal
executive offices of M&T Bank are located at One M&T Plaza,
Buffalo, New York 14240. As of December 31, 1993, M&T Bank had
122 banking offices located throughout New York State, including
106 in Western New York and in the Southern Tier of New York
State, principally in Buffalo, Rochester and Endicott, 13 banking
offices in the Hudson Valley region and one in New York City,
plus a branch in Nassau, The Bahamas and representative offices
in Albany and Syracuse. As of December 31, 1993, M&T Bank had
consolidated total assets of $8.6 billion, deposits of $6.1
billion and stockholder's equity of $570 million. The deposit
liabilities of M&T Bank are insured by the FDIC through either
its Bank Insurance Fund ("BIF") or its Savings Association
Insurance Fund ("SAIF"). Of M&T Bank's $6.1 billion in
assessable deposits at December 31, 1993, 87% were assessed as
BIF-insured and the remainder as SAIF-insured deposits. As a
commercial bank, M&T Bank offers a broad range of financial
services to a diverse base of consumers, businesses, professional
clients, governmental entities and financial institutions located
in its markets. Lending is focused on consumers residing in New
York State and on New York-based small and medium-size
businesses. M&T Bank also provides other financial services
through its operating subsidiaries.
East New York was acquired by First Empire (Parent) in December
1987. East New York, originally organized in 1868, is a New
York-chartered capital stock savings bank, a member of the FDIC
and, since October 25, 1993, a member of the Federal Home Loan
Bank System. The deposit liabilities of East New York are
insured by the FDIC through the BIF. The stock of East New York
represents a major asset of First Empire (Parent). The principal
executive offices of East New York are located at 2644 Atlantic
Avenue, Brooklyn, New York 11207. Its banking business is
conducted from 19 branch offices located in New York City and
Nassau County, Long Island. As of December 31, 1993, East New
York had total assets of $1.8 billion, deposits of $1.2 billion
and stockholder's equity of $133 million. East New York takes
deposits from, and offers other banking services to, a diverse
base of customers located in its markets. East New York
concentrates on making commercial mortgage loans which are
secured by income producing properties that are primarily located
throughout the metropolitan New York City area, especially
apartment buildings and cooperative apartments.
M&T Capital Corporation ("M&T Capital"), a wholly owned
subsidiary of M&T Bank, was incorporated as a New York business
corporation in January 1968. M&T Capital is a federally-licensed
small business investment company operating under the provisions
of the Small Business Investment Act of 1958, as amended
("SBIA"). M&T Capital provides equity capital and long-term
credit to "small-business concerns", as defined by the SBIA. M&T
Capital had assets of $19 million as of December 31, 1993, and
recorded approximately $3.6 million of revenues in 1993. The
headquarters of M&T Capital are located at One M&T Plaza,
Buffalo, New York.
M&T Mortgage Corporation ("M&T Mortgage") is the mortgage banking
subsidiary of M&T Bank. M&T Mortgage was incorporated as a New
York business corporation in November 1991. M&T Mortgage's
principal activities are comprised of the origination of
residential mortgages from loan production offices currently
located in Columbus and Cincinnati, Ohio and Pittsburgh,
Pennsylvania, and providing mortgage servicing to M&T Bank and
others. M&T Mortgage had assets of $67 million as of December
31, 1993 and recorded approximately $10.1 million of revenues
during 1993. The headquarters of M&T Mortgage are located at M&T
Center, One Fountain Plaza, Buffalo, New York.
<PAGE>7
M&T Financial Corporation ("M&T Financial"), a New York business
corporation, is a wholly owned subsidiary of M&T Bank which
specializes in capital-equipment leasing. M&T Financial was
formed in October 1985, had assets of $86 million as of December
31, 1993 and recorded approximately $908,000 of revenues in 1993.
The headquarters of M&T Financial are located at 4925 Main
Street, Amherst, New York.
M&T Securities, Inc. ("M&T Securities"), formerly named M&T
Discount Brokerage Services, Inc. ("M&T Discount Brokerage"), is
a wholly owned subsidiary of M&T Bank which was incorporated as a
New York business corporation in November 1985. M&T Securities
is registered as a broker/dealer under the Securities Exchange
Act of 1934, as amended, and provides securities brokerage and
investment advisory services. M&T Securities changed its name
from M&T Discount Brokerage Services, Inc. effective as of
December 1, 1993. M&T Securities recorded $446,000 of revenues
during the fiscal year ended December 31, 1993. As of December
31, 1993, M&T Securities had immaterial assets, liabilities and
net worth. The headquarters of M&T Securities are located at One
M&T Plaza, Buffalo, New York.
The Registrant and its banking subsidiaries have a number of
other special-purpose or inactive subsidiaries. These other
subsidiaries represented, individually and collectively, an
insignificant portion of the Company's consolidated assets, net
income and stockholders' equity at December 31, 1993.
Lines of Business, Principal Services, Industry Segments
--------------------------------------------------------
and Foreign Operations
----------------------
Commercial and retail banking, with activities incidental
thereto, represents the sole significant line and/or segment of
business of the Company. The Company's international activities
are discussed in Note 14 of the Financial Statements filed
herewith in Exhibit No. 13. The only activities that, as a
class, contributed 10% or more of the sum of consolidated
interest income and other income in each of the last three years
were lending and investment securities transactions. The amount
of income from such sources during those years is set forth on
the Company's Consolidated Statement of Income filed herewith in
Exhibit No. 13.
Supervision and Regulation
--------------------------
The banking industry is subject to extensive state and federal
regulation and is undergoing significant change. In 1991, the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
was enacted. FDICIA substantially amended the Federal Deposit
Insurance Act ("FDI Act") and certain other statutes. Since
FDICIA's enactment, the federal bank regulatory agencies have
been in the process of adopting regulations to implement its
statutory provisions. Most of these new regulatory provisions
are now in effect, while others are being phased in over time.
FDICIA and implementing regulations contain a number of
substantial provisions that likely will have a significant impact
on the banking industry as a whole and potentially could have a
material impact upon the operations and earnings of the Company.
The following discussion summarizes certain aspects of the
banking laws and regulations that affect the Company. Proposals
to change the laws and regulations governing the banking industry
are frequently raised in Congress, in the state legislature, and
before the various bank regulatory agencies. The likelihood and
timing of any changes and the impact such changes might have on
the Company are impossible to determine with any certainty. A
change in applicable laws or regulations, or a change in the way
such laws or regulations are interpreted by regulatory agencies
or courts, may have a material impact on the business of the
Company. To the extent that the following information describes
statutory or regulatory provisions, it is qualified entirely by
reference to the particular statutory or regulatory provision.
<PAGE>8
Bank Holding Company Regulation
-------------------------------
As a registered bank holding company, the Registrant and its
nonbank subsidiaries are subject to supervision and regulation
under the BHCA by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") and the New York State
Banking Superintendent (the "Banking Superintendent"). The
Federal Reserve Board requires regular reports from the
Registrant and is authorized by the BHCA to make regular
examinations of the Registrant and its subsidiaries.
Under the BHCA, the Registrant may not acquire direct or indirect
ownership or control of more than 5% of the voting shares of any
company, including a bank, without the prior approval of the
Federal Reserve Board, except as specifically authorized under
the BHCA. The Registrant is also subject to regulation under the
Banking Law with respect to certain acquisitions of domestic
banks. Under the BHCA, the Registrant, subject to the approval
of the Federal Reserve Board, may acquire shares of nonbanking
corporations the activities of which are deemed by the Federal
Reserve Board to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
The Federal Reserve Board has enforcement powers over bank
holding companies and their nonbanking subsidiaries, among other
things, to interdict activities that represent unsafe or unsound
practices or constitute violations of law, rule, regulation,
administrative orders or written agreements with a federal bank
regulator. These powers may be exercised through the issuance of
cease-and-desist orders, civil money penalties or other actions.
Under the Federal Reserve Board's statement of policy with
respect to bank holding company operations, a bank holding
company is required to serve as a source of financial strength to
its subsidiary depository institutions and to commit all
available resources to support such institutions in circumstances
where it might not do so absent such policy. Although this
"source of strength" policy has been challenged in litigation,
the Federal Reserve Board continues to take the position that it
has authority to enforce it. For a discussion of circumstances
under which a bank holding company may be required to guarantee
the capital levels or performance of its subsidiary banks, see
Capital Adequacy, below. The Federal Reserve also has the
authority to terminate any activity of a bank holding company
that constitutes a serious risk to the financial soundness or
stability of any subsidiary depository institution or to
terminate its control of any bank or nonbank subsidiaries.
The BHCA includes a prohibition against interstate banking which
can be overridden by any state which adopts a law that expressly
permits out-of-state banking companies to form or acquire banks
in such state. The Banking Law allows out-of-state banking
companies to control New York banks if reciprocal rights are
granted to New York banking companies. Most states have
permitted New York banking companies to form or acquire banks
located within their boundaries.
Bank holding companies and their subsidiary banks are also
subject to the provisions of the Community Reinvestment Act of
1977 ("CRA"). Under the terms of the CRA, the Federal Reserve
Board (or other appropriate bank regulatory agency) is required,
in connection with its examination of a bank, to assess such
bank's record in meeting the credit needs of the community served
by that bank, including low- and moderate-income neighborhoods.
Further, such assessment is also required of any bank that has
applied, among other things, to merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally-
regulated financial institution, or to open or relocate a branch
office. In the case of a bank holding company applying for
approval to acquire a bank or bank holding company, the Federal
Reserve Board will assess the record of each subsidiary bank of
the applicant bank holding company in
<PAGE>9
considering the application. The Banking Law contains provisions
similar to the CRA which are applicable to New York-chartered
banks.
Supervision and Regulation of Bank Subsidiaries
-----------------------------------------------
The Registrant's banking subsidiaries are subject to regulation,
and are examined regularly, by various bank regulatory agencies:
M&T Bank by the Federal Reserve Board and the Banking
Superintendent and East New York by the FDIC and the Banking
Superintendent. The Registrant and its direct, nonbanking
subsidiaries are affiliates, within the meaning of the Federal
Reserve Act, of the Registrant's subsidiary banks and their
subsidiaries. As a result, the Registrant's subsidiary banks and
their subsidiaries are subject to restrictions on loans or
extensions of credit to, purchases of assets from, investments
in, and transactions with the Registrant and its direct,
nonbanking subsidiaries and on certain other transactions with
them or involving their securities.
Under the "cross-guarantee" provisions of the FDI Act, insured
depository institutions under common control are required to
reimburse the FDIC for any loss suffered by either the BIF or
SAIF of the FDIC as a result of the default of a commonly
controlled insured depository institution or for any assistance
provided by the FDIC to a commonly controlled insured depository
institution in danger of default. Thus, any insured depository
institution subsidiary of First Empire (Parent) could incur
liability to the FDIC in the event of a default of another
insured depository institution owned or controlled by First
Empire (Parent). The FDIC's claim under the cross-guarantee
provisions is superior to claims of stockholders of the insured
depository institution or its holding company and to most claims
arising out of obligations or liabilities owed to affiliates of
the institution, but is subordinate to claims of depositors,
secured creditors and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository
institution. The FDIC may decline to enforce the cross-guarantee
provisions if it determines that a waiver is in the best interest
of the BIF or SAIF or both.
Dividends from Bank Subsidiaries
--------------------------------
M&T Bank and East New York are subject, under one or more of the
banking laws, to restrictions on the amount and frequency (no
more often than quarterly) of dividend declarations. Future
dividend payments to the Registrant by its subsidiary banks will
be dependent on a number of factors, including the earnings and
financial condition of each such bank, and are subject to the
limitations referred to in Note 16 to the financial statements
contained in Exhibit No. 13 hereto and to other statutory powers
of bank regulatory agencies.
A condition precedent was interposed by the Banking
Superintendent in connection with the Banking Superintendent's
approval of a $41 million dividend payment by East New York to
the Registrant in May 1991, which condition requires the Banking
Superintendent's further approval before East New York can
declare any subsequent dividends to the Registrant. The Banking
Superintendent has approved dividend payments aggregating $9.5
million from East New York to the Registrant since imposing this
condition. This condition precedent expired in 1994.
Under FDICIA, an insured depository institution is prohibited
from making any capital distribution to its owner, including any
dividend, if, after making such distribution, the depository
institution fails to meet the required minimum level for any
relevant capital measure, including the risk-based capital
adequacy and leverage standards discussed below.
<PAGE>10
Capital Adequacy
----------------
The Federal Reserve Board and the FDIC have adopted risk-based
capital adequacy guidelines for bank holding companies and banks
under their
supervision. Under the guidelines the so-called "Tier 1 capital"
and "total capital" as a percentage of risk-weighted assets and
certain off-balance sheet instruments must be at least 4% and 8%,
respectively.
The Federal Reserve Board and the FDIC have also imposed a
leverage standard to supplement their risk-based ratios. This
leverage standard focuses on a banking institution's ratio of
Tier 1 capital to average total assets, adjusted for goodwill and
certain other items. Under these guidelines, banking
institutions that meet certain criteria, including excellent
asset quality, high liquidity, low interest rate exposure and
good earnings, and have received the highest regulatory rating
must maintain a ratio of Tier 1 capital to total assets of at
least 3%. Institutions not meeting these criteria, as well as
institutions with supervisory, financial or operational
weaknesses, along with those experiencing or anticipating
significant growth are expected to maintain a Tier 1 capital to
total assets ratio equal to at least 4 to 5%.
As reflected in the following table, the risk-based capital
ratios and leverage ratios of the Registrant, M&T Bank and East
New York as of December 31, 1993 exceeded the fully phased-in
risk-based capital adequacy guidelines and the leverage standard.
Capital Components and Ratios at December 31, 1993
(dollars in millions)
Registrant
(Consolidated) M&T Bank East New York
------------- -------- -------------
Capital Components
Tier 1 capital $ 715 $ 567 $ 133
Total capital 887 721 150
Risk-weighted assets
and off-balance sheet
instruments $7,659 $6,300 $1,364
Risk-based Capital Ratio
Tier 1 capital 9.33% 8.99% 9.73%
Total capital 11.58 11.45 10.98
Leverage Ratio 6.63 6.07 7.64
FDICIA required each federal banking agency, including the
Federal Reserve Board, to revise its risk-based capital standards
within 18 months of the enactment of the statute into law on
December 19, 1991 in order to ensure that those standards take
adequate account of interest rate risk, concentration of credit
risk and the risk of nontraditional activities, as well as
reflect the actual performance and expected risk of loss on
multifamily mortgages. In August 1992, the Federal Reserve Board
and the FDIC issued a joint advance notice of proposed
rulemaking, soliciting comments on a proposed framework for
implementing these revisions. Based on comments received, the
federal banking agencies in September 1993 issued proposed rules
whereby exposures to interest rate risk would be measured as the
effect that a specified change in market interest rates would
have on the net economic value of a bank. This economic
perspective considers the effect that changing market interest
rates may have on the value of a bank's assets, liabilities, and
off-balance-sheet positions. The banking agencies propose to
measure an institution's exposure using either a standardized,
supervisory model or each bank's own internal model. In
<PAGE>11
either case, the results could be used in one of two ways when
assessing capital adequacy for interest rate risk. One approach
would be to reduce an institution's risk-based capital ratios by
an amount based on the level of measured risk. The other would
be to use the measured exposure as only one of several factors in
assessing the need for capital. The Registrant is studying these
latest proposals but cannot assess at this point the impact the
proposals would have on the Company's capital requirements.
Additional proposals, including proposals which concern the risks
of credit concentrations and nontraditional activities are
currently pending, and there is no assurance that the adoption of
these or other proposals implementing FDICIA will not have an
adverse impact on the Company's capital requirements.
Bank regulators and legislators continue to indicate their desire
to raise capital requirements applicable to banking organizations
beyond their current levels. However, management is unable to
predict whether and when higher capital requirements would be
imposed and, if so, at what levels and on what schedule.
FDICIA substantially revised the bank regulatory and funding
provisions of the FDI Act and made revisions to several other
federal banking statutes. Among other things, FDICIA required
the federal banking agencies to take "prompt corrective action"
in respect of depository institutions that do not meet minimum
capital requirements. FDICIA establishes five capital tiers:
"well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically
undercapitalized". A depository institution's capital tier will
depend upon where its capital levels are in relation to various
relevant capital measures, which will include a risk-based
capital measure and a leverage ratio capital measure, and certain
other factors.
Under the implementing regulations adopted by the federal banking
agencies, a bank is considered "well capitalized" if it has (i) a
total risk-based capital ratio of 10% or greater, (ii) a Tier 1
risk-based capital ratio of 6% or greater, (iii) a leverage ratio
of 5% or greater and (iv) is not subject to any order or written
directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" bank is defined as
one that has (i) a total risk-based capital ratio of 8% or
greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater
and (iii) a leverage ratio of 4% or greater (or 3% or greater in
the case of a bank with a composite CAMEL rating of 1). A bank
is considered (A) "undercapitalized" if it has (i) a total risk-
based capital ratio of less than 8%, (ii) a Tier 1 risk-based
capital ratio of less than 4% or (iii) a leverage ratio of less
than 4% (or 3% in the case of a bank with a composite CAMEL
rating of 1); (B) "significantly undercapitalized" if the bank
has (i) a total risk-based capital ratio of less than 6%, or (ii)
a Tier 1 risk-based capital ratio of less than 3% or (iii) a
leverage ratio of less than 3% and (C) "critically
undercapitalized" if the bank has a ratio of tangible equity to
total assets equal to or less than 2%. The Federal Reserve Board
may reclassify a "well capitalized" bank as "adequately
capitalized" or subject an "adequately capitalized" or
"undercapitalized" institution to the supervisory actions
applicable to the next lower capital category if it determines
that the bank is in an unsafe or unsound condition or deems the
bank to be engaged in an unsafe or unsound practice and not to
have corrected the deficiency. M&T Bank and East New York
currently meet the definition of "well capitalized" institutions.
"Undercapitalized" depository institutions, among other things,
are subject to growth limitations, are prohibited, with certain
exceptions, from making capital distributions, are limited in
their ability to obtain funding from a Federal Reserve Bank and
are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the
depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the
<PAGE>12
depository institution's parent holding company must guarantee
that the institution will comply with such capital restoration
plan and provide appropriate assurances of performance. If a
depository institution fails to submit an acceptable plan,
including if the holding company refuses or is unable to make the
guarantee described in the previous sentence, it is treated as if
it is "significantly undercapitalized". Failure to submit or
implement an acceptable capital plan also is grounds for the
appointment of a conservator or a receiver. "Significantly
undercapitalized" depository institutions may be subject to a
number of additional requirements and restrictions, including
orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cessation of
receipt of deposits from correspondent banks. Moreover, the
parent holding company of a significantly undercapitalized
depository institution may be ordered to divest itself of the
institution or of nonbank subsidiaries of the holding company.
"Critically undercapitalized" institutions, among other things,
are prohibited from making any payments of principal and interest
on subordinated debt, and are subject to the appointment of a
receiver or conservator.
FDICIA directed, among other things, that each federal banking
agency prescribe standards for depository institutions and
depository institution holding companies relating to internal
controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset
growth, compensation, a maximum ratio of classified assets to
capital, minimum earnings sufficient to absorb losses, a minimum
ratio of market value to book value for publicly traded shares
and other standards as they deem appropriate. The Federal
Reserve Board adopted such standards in 1993.
FDICIA also contains a variety of other provisions that may
affect the operations of the Company, including new reporting
requirements, regulatory standards for real estate lending,
"truth in savings" provisions, limitations on the amount of
purchased mortgage servicing rights and purchased credit card
relationships includable in Tier 1 capital, and the requirement
that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch.
FDICIA also contains a prohibition on the acceptance or renewal
of brokered deposits by depository institutions that are not
"well capitalized" or are "adequately capitalized" and have not
received a waiver from the FDIC.
FDIC Deposit Insurance Assessments
As institutions insured by the BIF and the SAIF, M&T Bank and
East New York are subject to FDIC deposit insurance assessments.
Under current law, as amended by FDICIA, the insurance assessment
to be paid by BIF-insured institutions shall be specified in a
schedule required to be issued by the FDIC that specifies, at
semiannual intervals, target reserve ratios designed to increase
the reserve ratio to 1.25% of estimated insured deposits (or such
higher ratio as the FDIC may determine in accordance with the
statute) in 15 years. FDICIA also authorizes the FDIC to impose
one or more special assessments in any amounts deemed necessary
to enable repayment of amounts borrowed by the FDIC from the
Treasury Department. The FDIC set an assessment rate for the BIF
of 0.195% for periods prior to June 30, 1991, and an assessment
rate of 0.23% effective on June 30, 1991. Consistent with
FDICIA, on September 15, 1992, the FDIC approved the
implementation of a risk-based deposit premium assessment system
under which each depository institution is placed in one of nine
assessment categories based on the institution's capital
classification under the prompt corrective action provisions
described above, and whether such institution is considered by
its supervisory agency to be financially sound or to have
supervisory concerns. The assessment rates under the new system
range from 0.23% to 0.31% depending upon the assessment category
into which the insured institution is placed. The new assessment
system became effective January 1, 1993. It is possible that BIF
assessments
<PAGE>13
will be further increased and that there may be a special
additional assessment.
With respect to deposit insurance assessments on SAIF-insured
deposits at M&T Bank (which represent approximately 13% of its
total assessed deposit liabilities), under current law such
assessments must be the greater of 0.15% of M&T Bank's average
assessment base (as defined) or such rate as the FDIC at its sole
discretion determines to be appropriate to increase (or maintain)
the reserve ratio to 1.25% of estimated insured deposits (or such
higher ratio as the FDIC may determine in accordance with the
statute) within a reasonable period of time. Through December
31, 1993 the assessment rate could not have been less than 0.23%
of the institution's average assessment base, and from January 1,
1994 through December 31, 1997 the assessment rate must not be
less than 0.18% of the institution's average assessment base.
The assessment rate may be higher if the FDIC, in its sole
discretion, determines such higher rate to be appropriate.
Effective January 1, 1993, the risk-based deposit premium
assessment system described above was made applicable to SAIF-
insured deposits.
A significant increase in the assessment rate or a special
additional assessment with respect to insured deposits could have
an adverse impact on the results of operations and capital of M&T
Bank or East New York.
Governmental Policies
---------------------
The earnings of the Company are significantly affected by the
monetary and fiscal policies of governmental authorities,
including the Federal Reserve Board. Among the instruments of
monetary policy used by the Federal Reserve Board to implement
these objectives are open-market operations in U.S. Government
securities and Federal funds, changes in the discount rate on
member bank borrowings and changes in reserve requirements
against member bank deposits. These instruments of monetary
policy are used in varying combinations to influence the overall
level of bank loans, investments and deposits, and the interest
rates charged on loans and paid for deposits. The Federal
Reserve Board frequently uses these instruments of monetary
policy, especially its open-market operations and the discount
rate, to influence the level of interest rates and to affect the
strength of the economy, the level of inflation or the price of
the dollar in foreign exchange markets. The monetary policies of
the Federal Reserve Board have had a significant effect on the
operating results of banking institutions in the past and are
expected to continue to do so in the future. It is not possible
to predict the nature of future changes in monetary and fiscal
policies, or the effect which they may have on the Company's
business and earnings.
Competition
-----------
The Company competes in offering commercial and personal
financial services with other banking institutions and with firms
in a number of other industries, such as thrift institutions,
credit unions, personal loan companies, sales finance companies,
leasing companies, securities brokers and dealers, insurance
companies and retail merchandising organizations. Furthermore,
diversified financial services companies are able to offer a
combination of these services to their customers on a nationwide
basis.
As described in Bank Holding Company Regulation, above, the
Banking Law allows out-of-state banking companies to control New
York banks if reciprocal rights are granted to New York banking
companies. No such reciprocity is required of foreign banking
companies. Most states have permitted New York banking companies
to form or acquire banks located within their boundaries.
Moreover, it is possible that federal or state legislative
initiatives may follow the legislation signed into law in New
York State in June 1992 which permits a form of reciprocal
interstate branching. As a result, the number of banking
<PAGE>14
organizations with which the Registrant's subsidiary banks
compete may grow in the future.
Other Legislative Initiatives
-----------------------------
From time to time, various proposals are introduced in the United
States Congress and in the New York Legislature and before
various bank regulatory authorities which would alter the powers
of, and restrictions on, different types of banking organizations
and which would restructure part or all of the existing
regulatory framework for banks, bank holding companies and other
financial institutions.
Moreover, a number of other bills have been introduced in
Congress which would further regulate, deregulate or restructure
the financial services industry. It is not possible to predict
whether these or any other proposals will be enacted into law or,
even if enacted, the effect which they may have on the Company's
business and earnings.
Statistical Disclosure Pursuant to Guide 3
------------------------------------------
See cross-reference sheet for disclosures incorporated elsewhere
in this Annual Report on Form 10-K. Additional information is
included in the following tables.
<PAGE>15
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Item 1, Table 1
SELECTED CONSOLIDATED YEAR-END BALANCES
Dollars in thousands 1993 1992 1991 1990 1989
- -------------------------------------------------- ----------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Money - market assets
Interest - Bearing deposits at banks $ 55,044 110,041 - 403,373 247,396
Federal funds sold and resell agreements 329,429 312,461 67,351 65,532 21,800
Trading account 9,815 53,515 42,957 125,268 72,587
- -------------------------------------------------- ---------- --------- ----------- -------- -------
Total Money - market assets 394,288 476,017 110,308 594,173 341,783
Investment securities
U.S. Treasury and federal agency 1,387,395 916,621 1,725,604 1,125,794 937,412
Obligations of states and political subdivisions 49,230 53,789 128,409 164,096 100,777
Other 992,527 750,154 731,973 133,327 98,461
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Total investment securities 2,429,152 1,720,564 2,585,986 1,423,217 1,136,650
Loans and leases
Commercial, financial, leasing, etc. 1,510,205 1,478,555 1,068,606 1,136,590 1,028,562
Real estate - construction 51,384 35,831 30,895 37,799 58,835
Real estate - mortgage 4,540,177 4,422,730 4,091,414 3,403,105 2,809,487
Consumer 1,337,293 1,211,401 1,015,722 924,575 602,042
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total loans and leases 7,439,059 7,148,517 6,206,637 5,502,069 4,498,926
Unearned discount (177,960) (164,713) (160,083) (129,176) (125,241)
Allowance for possible credit losses (195,878) (151,690) (100,265) (74,982) (58,041)
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Loans and leases, net 7,065,221 6,832,114 5,946,289 5,297,911 4,315,644
Other real estate owned 12,222 16,694 10,354 5,655 3,383
Total assets 10,364,958 9,587,931 9,171,066 7,715,385 6,233,799
================================================= =========== ========== ========== ========== ==========
Demand deposits 1,052,258 1,078,690 655,876 622,490 521,970
NOW accounts 764,690 770,618 683,732 482,029 425,912
Savings deposits 3,364,983 3,573,717 2,841,590 1,708,383 961,273
Time deposits 1,982,272 2,536,309 3,066,897 3,216,476 2,763,006
Deposits at foreign office 189,058 117,776 226,229 171,632 198,406
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total deposits 7,353,261 8,077,110 7,474,324 6,201,010 4,870,567
Short - term borrowings 2,101,667 692,691 1,022,430 971,817 834,677
Long - term borrowings and capital leases 75,590 75,685 9,477 3,205 13,088
Total liabilities 9,640,964 8,961,136 8,635,291 7,278,173 5,827,453
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Stockholders' equity 723,994 626,795 535,775 437,212 406,346
================================================= =========== ========== ========== ========== ==========
STOCKHOLDERS, EMPLOYEES AND OFFICES
Number at year - end 1993 1992 1991 1990 1989
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Stockholders 3,985 4,157 4,346 4,579 4,748
Employees 4,400 4,275 3,338 2,928 2,541
Banking Offices 145 151 115 114 89
================================================= =========== ========== ========== ========== ==========
</TABLE>
<PAGE>16
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Item 1, Table 2
CONSOLIDATED EARNINGS
Dollars in thousands 1993 1992 1991 1990 1989
- -------------------------------------------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Interest income
Loans and leases, including fees $ 608,473 602,932 592,395 522,455 440,335
Money - market assets
Deposits at banks 6,740 1,083 7,864 18,424 33,691
Federal funds sold and resell agreements 20,403 18,100 5,322 7,689 7,265
Trading account 1,242 2,927 15,716 5,151 4,115
Investment securities
Fully taxable 101,187 125,529 138,808 95,398 83,381
Exempt from federal taxes 2,584 5,906 9,292 8,351 7,926
- -------------------------------------------------- ---------- --------- ----------- -------- -------
Total interest income 740,629 756,477 769,397 657,468 576,713
- -------------------------------------------------- ---------- --------- ----------- -------- -------
Interest Expense
NOW accounts 13,113 16,544 27,418 24,190 22,848
Savings deposits 90,392 110,142 123,468 70,857 55,498
Time deposits 98,508 153,588 242,684 247,284 234,644
Deposits at foreign office 3,243 4,348 9,014 12,008 20,887
Short - term borrowings 58,459 38,386 36,972 72,088 49,718
Long - term borrowings and capital leases 6,158 590 659 501 825
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Total interest expense 269,873 323,598 440,215 426,928 384,420
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Net interest income 470,756 432,879 329,182 230,540 192,293
Provision for possible credit losses 79,958 84,989 63,412 27,412 15,285
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision
for possible credit losses 390,798 347,890 265,770 203,128 177,008
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Other income
Trust income 23,865 16,905 11,847 9,696 8,713
Service charges on deposit accounts 32,291 28,372 20,688 17,427 14,950
Merchant discount and other credit card fees 7,932 6,728 5,776 5,887 5,157
Trading account profits 2,702 1,684 5,015 284 362
Gain on sales of bank investment securities 870 28,050 450 4 1,145
Gain on sales of venture capital investments 2,896 3,230 2,064 727 513
Other revenues from operations 39,988 41,257 31,846 18,713 18,121
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total other income 110,544 126,226 77,686 52,738 48,961
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Other expense
Salaries and employee benefits 154,340 130,751 103,201 85,884 78,316
Equipment and net occupancy 47,823 41,659 33,350 28,617 22,588
Printing, postage and supplies 13,021 13,111 10,727 7,603 6,254
Deposit insurance 17,684 17,783 15,222 6,680 3,800
Other costs of operations 94,951 108,034 66,161 42,349 38,659
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total other expense 327,819 311,338 228,661 171,133 149,617
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and accounting change 173,523 162,778 114,795 84,733 76,352
Applicable income taxes 71,531 64,841 47,601 30,791 25,646
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Income before accounting change 101,992 97,937 67,194 53,942 50,706
Cumulative effect of accounting change - - - - (9,455)
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net income $ 101,992 97,937 67,194 53,942 41,251
================================================= =========== ========== ========== ========== ==========
Dividends declared
Common $ 13,054 10,780 9,344 8,275 7,632
Preferred 3,600 3,600 2,860 - -
================================================= =========== ========== ========== ========== ==========
</TABLE>
<PAGE>17
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Item 1, Table 3
COMMON SHAREHOLDER DATA
1993 1992 1991 1990 1989
- -------------------------------------------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Per Share
Net income $13.87 13.41 9.32 7.91 5.73
Cash dividends declared 1.90 1.60 1.40 1.25 1.10
Stockholders' equity at year - end 99.43 85.79 73.91 65.94 59.44
Dividend pay out ratio 13.27 % 11.43 14.52 15.34 18.50
================================================= =========== ========== ========== ========== ==========
</TABLE>
<PAGE>18
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Item 1, Table 4
CHANGES IN INTEREST INCOME AND EXPENSE*
1993 compared with 1992 1992 compared with 1991
--------------------------- --------------------------------
Resulting from Resulting from
changes in: changes in:
Total ---------------- Total -----------------
Increase (decrease) in thousands change Volume Rate change Volume Rate
- -------------------------------- -------- ------ ----- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans and leases, including fees $5,407 36,814 (31,407) $9,489 66,979 (57,490)
Money - market assets
Deposits at banks 5,657 5,716 (59) (6,781) (4,114) (2,667)
Federal funds sold and resell
agreements 2,303 3,392 (1,089) 12,778 15,397 (2,619)
Trading account (1,662) (1,504) (158) (12,777) (8,815) (3,962)
Investment securities
U.S. Treasury and federal agency (19,520) 6,139 (25,659) (27,360) (1,615) (25,745)
State and municipal (5,522) (4,232) (1,290) (5,305) (3,521) (1,784)
Other (4,163) 8,384 (12,547) 14,220 22,650 (8,430)
- ---------------------------------- -------- -------- -------- -------- -------- --------
Total interest income $ (17,500) $ (15,736)
================================== ======== ========
Interest expense
Interest - bearing deposits
NOW accounts $ (3,431) 1,849 (5,280) $ (10,874) 3,760 (14,634)
Savings deposits (19,750) 5,124 (24,874) (13,326) 39,481 (52,807)
Time deposits (55,080) (26,143) (28,937) (89,096) (37,833) (51,263)
Deposits at foreign office (1,105) (321) (784) (4,666) (1,439) (3,227)
Short - term borrowings 20,073 24,774 (4,701) 1,414 19,921 (18,507)
Long - term borrowings 5,568 5,581 (13) (69) 4 (73)
- ---------------------------------- -------- -------- -------- -------- -------- --------
Total interest expense $ (53,725) $ (116,617)
================================== ======== ========
* Interest income data are on a taxable - equivalent basis. The apportionment of changes resulting from the combined effect
of both volume and rate was based on the separately determined volume and rate changes.
</TABLE>
<PAGE>19
Item 2. Properties.
----------
Both First Empire (Parent) and M&T Bank maintain their executive offices at
One M&T Plaza in Buffalo, New York. This twenty-one story headquarters
building, containing approximately 276,000 rentable square feet, is owned
in fee by M&T Bank, and was completed in 1967 at a cost of approximately
$17 million. First Empire (Parent), M&T Bank and their subsidiaries occupy
approximately 69% of the building and the remainder is leased. At December
31, 1993, the cost of this property, net of accumulated depreciation, was
$10.3 million.
In September 1992, M&T Bank acquired an additional facility in Buffalo, New
York with approximately 349,000 rentable square feet at a cost of
approximately $12 million. This facility, known as M&T Center, is occupied
by the Company's personnel and by non-affiliated tenants. At December 31,
1993, the cost of this building, including improvements made subsequent to
acquisition and net of accumulated depreciation, was $16.4 million.
M&T Bank also owns and occupies two separate facilities in the Buffalo area
which support certain back-office and operations functions of the Company.
The total square footage of these facilities approximates 213,000 square
feet and their combined cost, net of accumulated depreciation, was $12.4
million.
The cost, net of accumulated depreciation and amortization, of the
Company's premises and equipment is detailed in Note 6 of the Financial
Statements filed herewith in Part II, Item 8, "Financial Statements and
Supplementary Data". Of the 141 domestic banking offices of the
Registrant's subsidiary banks, 54 are owned in fee and 87 are leased.
Item 3. Legal Proceedings.
-----------------
A number of lawsuits were pending against the Registrant and its
subsidiaries at December 31, 1993. In the opinion of management, the
potential liabilities, if any, arising from such litigation will not have a
materially adverse impact on the Company's consolidated financial
condition. Moreover, management believes that the Company has substantial
defenses in such litigation, but there can be no assurance that the
potential liabilities, if any, arising from such litigation will not have a
materially adverse impact on the Company's consolidated results of
operations in the future.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not applicable
Executive Officers of the Registrant
------------------------------------
Information concerning the Registrant's executive officers is presented
below as of March 1, 1994. Shown parenthetically is the year since which
the officer has held the indicated position with the Registrant or its
subsidiaries. In the case of each such corporation, officers' terms run
until the first meeting of the board of directors after such corporation's
annual meeting, and until their successors are elected and qualified.
Robert G. Wilmers, age 59, is president (1988), chief executive
officer (1983) and a director (1982) of the Registrant. Mr.
Wilmers served as chairman of the board of the Registrant prior
to its acquisition of East New York. He is chairman of the board,
president and chief executive officer (1983) and a director (1982)
of M&T Bank. Mr. Wilmers is a director of East New York (1988)
and M&T Financial (1985). In 1980, he formed Robert G. Wilmers
Associates, New York City, a private investment firm.
Paul B. Murray, age 70, is chairman of the board and a director
(1988) of the Registrant. He is chairman of the board (1988),
president (1978), chief executive officer (1980) and a director
(1962) of East New York. Mr. Murray is a director of M&T Bank
(1988).
<PAGE>20
William A. Buckingham, age 51, is an executive vice president (1990)
of the Registrant and of M&T Bank, is in charge of its Retail
Banking Division and serves as president (1992) of its Rochester
Division. Mr. Buckingham held a number of management positions
with Manufacturers Hanover Trust Company from 1973 to 1990,
including the position of executive vice president of its branch
banking division which he held immediately prior to joining the
Registrant and M&T Bank.
Atwood Collins, III, age 47, is the executive vice president and
chief operating officer (1988) of East New York. Mr. Collins held
a number of management positions with Morgan Guaranty Trust
Company of New York from 1972 to 1988, including the position of
senior vice president and manager of treasury operations which he
held immediately prior to joining East New York.
James L. Hoffman, age 54, is president (1992) of the Hudson Valley
Division of M&T Bank. Mr. Hoffman served as chairman of the
board, president, chief executive officer and a director (1983) of
The First National Bank of Highland, which had been a wholly owned
subsidiary of the Registrant prior to its merger with and into M&T
Bank on February 29, 1992. Mr. Hoffman is a director of M&T
Financial (1986). He served as an executive vice president of M&T
Bank from 1974 to 1984.
Barbara L. Laughlin, age 49, is an executive vice president (1993) of
the Registrant and of M&T Bank (1990), and is in charge of its
Technology and Banking Operations Division. Ms. Laughlin was
executive vice president of retail banking and technology at The
Seamen's Bank for Savings from June 1986 to April 1990 before
joining M&T Bank.
William C. Rappolt, age 48, is an executive vice president and the
treasurer (1993) of the Registrant and of M&T Bank (1984), and is
in charge of its Treasury Division. Mr. Rappolt is a director of
M&T Financial (1985), and chairman of the board and a director of
M&T Securities, Inc., formerly M&T Discount Brokerage, (1985).
Robert E. Sadler, Jr., age 48, is an executive vice president (1990)
of the Registrant and of M&T Bank (1983), and is in charge of its
Commercial Banking Division. Mr. Sadler is chairman of the board
(1987) and a director of M&T Capital (1983), chairman of the board
(1989) and a director of M&T Financial (1985) and chairman of the
board and a director of M&T Mortgage (1991).
Harry R. Stainrook, age 57, is an executive vice president (1993) of
the Registrant and of M&T Bank (1985), and is in charge of its
Trust and Investment Services Division.
Harry S. Tishelman, age 70, is a senior vice president of M&T Bank
(1983) and a vice president of East New York (1988). Mr.
Tishelman is a director of M&T Mortgage Corporation (1991).
James L. Vardon, age 52, is an executive vice president and the chief
financial officer (1984) of the Registrant and of M&T Bank, and is
in charge of its Finance Division. Mr. Vardon is a director of
M&T Capital (1984) and M&T Financial (1985).
<PAGE>21
PART II
-------
Item 5. Market for Registrant's Common Equity and Related
-------------------------------------------------
Stockholder Matters.
-------------------
The Registrant's common stock is traded under the symbol FES on
the American Stock Exchange. See cross-reference sheet for
disclosures incorporated elsewhere in this Annual Report on Form
10-K for market prices of Registrant's common stock, approximate
number of common stockholders at year-end, frequency and amounts
of dividends on common stock and restrictions on the payment of
dividends.
Item 6. Selected Financial Data.
------------------------
See cross-reference sheet for disclosures incorporated elsewhere
in this Annual Report on Form 10-K.
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
-----------------------------------
CORPORATE PROFILE AND SIGNIFICANT DEVELOPMENTS
- ----------------------------------------------
First Empire State Corporation ("First Empire") is a regional bank holding
company headquartered in Buffalo, New York with consolidated assets of
$10.4 billion at December 31, 1993. First Empire and its consolidated
subsidiaries are hereinafter referred to as "the Company". The Company
operates principally through two wholly owned banking subsidiaries,
Manufacturers and Traders Trust Company ("M&T Bank") and The East New York
Savings Bank ("East New York"). M&T Bank, with total assets of $8.6
billion at December 31, 1993, is a New York-chartered commercial bank with
106 offices throughout Western New York State and New York's Southern Tier,
13 offices in New York's Hudson Valley region and offices in New York City,
Albany, Syracuse and Nassau, The Bahamas. East New York, with total assets
of $1.8 billion at December 31, 1993, is a New York-chartered savings bank
with 19 offices in metropolitan New York City.
M&T Bank's subsidiaries include M&T Mortgage Corporation, a mortgage
banking company with offices in Ohio and Pennsylvania, M&T Securities,
Inc., a broker/dealer, M&T Financial Corporation, an equipment leasing
company, and M&T Capital Corporation, a venture capital company.
In recent years, the Company has grown through a series of acquisitions of
part or all of other New York State-based financial institutions. In July
1992, the Company acquired Central Trust Company of Rochester, New York
("Central Trust"), and Endicott Trust Company of Endicott, New York
("Endicott Trust"), and simultaneously merged them with and into M&T Bank.
The acquisitions added approximately $1.4 billion in assets and $1.3
billion in deposits to the Company's consolidated balance sheet on the
acquisition date, and brought 38 banking offices in Western New York and
New York's Southern Tier into M&T Bank's branch network.
In 1991 and 1990, M&T Bank and East New York also acquired selected assets
and assumed selected liabilities of three failed thrift institutions in
financially-assisted transactions with Federal regulators. In 1991, M&T
Bank and East New York purchased approximately $1.7 billion of assets and
assumed approximately $2.2 billion of deposits. In two similar
transactions in 1990, M&T Bank acquired nearly $889 million in assets of
the failed institutions and assumed approximately $1.7 billion of deposits.
No material amounts of intangible assets were recorded in connection with
these financially-assisted
<PAGE>22
transactions. The 1991 and 1990 acquisitions gave M&T Bank the rights to
operate 20 former branch offices of the failed thrift institutions in the
Buffalo metropolitan area and 15 branch offices in the Rochester, New York
area. Additionally, as part of the 1991 acquisition, East New York added 3
branches in the New York City metropolitan area.
The acquisitions significantly expanded M&T Bank's market presence in both
Buffalo and Rochester, despite the merger of many of the acquired branches
with existing branches of M&T Bank. Each of the acquisitions has
contributed to increases in net interest and fee income, as well as
increased the level of operating expenses. The overall effect of the
acquisitions was a significant positive contribution to the Company's net
income in 1993.
During the fourth quarter of 1993, M&T Bank and East New York became
stockholders of the Federal Home Loan Bank of New York. The Federal Home
Loan Bank of New York is part of the Federal Home Loan Bank System, a
national wholesale banking network of 12 regional, stockholder-owned banks.
Such memberships provide M&T Bank and East New York with access to a
readily-available, relatively low-cost wholesale funding source.
In response to increased consumer interest in alternative investments,
three new mutual funds were added in 1993 to the Vision Group of Funds for
which M&T Bank serves as investment adviser. These new funds expand the
alternative investment options available to the Company's customers.
OVERVIEW
- --------
The Company's net income was $102.0 million or $13.87 per common share in
1993, compared to $97.9 million or $13.41 per common share in 1992 and
$67.2 million or $9.32 per common share in 1991. Fully diluted earnings
per common share, which assumes the full conversion of outstanding
preferred stock into common, was $13.42 in 1993, $12.98 in 1992 and $9.15
in 1991. The 1992 results include $28.1 million of gains from the sales of
investment securities. Excluding the after-tax impact of these gains, net
income in 1992 was $81.9 million or $11.13 per common share and fully
diluted earnings per share was $10.86.
The securities gains realized in 1992 were the result of management's
decision to adjust the Company's holdings of investment securities in
response to the declining interest rate environment and the expected
erosion in economic value of certain securities resulting from prepayment
risk. Sales were additionally prompted by the restructuring of the
Company's balance sheet in anticipation of the Central Trust and Endicott
Trust acquisitions. These sales served to reduce the size of the Company's
balance sheet and mitigated the impact of the acquisitions on regulatory
capital ratios.
The Company achieved a return on average assets in 1993 of .98%, compared
to 1.03% in 1992 and .81% in 1991. The return on average common
stockholders' equity was 15.61% in 1993, 17.39% in 1992 and 13.82% in 1991.
Excluding the effects of the 1992 securities gains, the return on average
assets in 1992 was .86%, while the return on average common stockholders'
equity was 14.43%.
Taxable-equivalent net interest income increased 8% in 1993 to $474.8
million, from $438.6 million in 1992. Taxable-equivalent net interest
income was $337.7 million in 1991. An $823 million increase in 1993 in
average earning assets resulting from loans obtained in the 1992
acquisitions and increased holdings of investment securities was the
primary reason for the improved performance. Net interest income expressed
as an annualized percentage of average earning assets was 4.76% in 1993,
compared to 4.79% in 1992 and 4.22% in 1991.
<PAGE>23
Despite a 28% decline in 1993 from the prior year-end in the level of
nonperforming loans, management considered it prudent to record a provision
for possible credit losses of $80.0 million in 1993, 6% lower than the
$85.0 million provided in 1992. The provision for possible credit losses
was $63.4 million in 1991. Caution about the timing and sustainability of
economic recovery in market areas served by the Company and the unsettled
commercial real estate market in the New York City metropolitan area were
the primary factors affecting management's decisions in determining the
provision for possible credit losses.
Excluding securities gains, noninterest income for 1993 totaled $109.7
million, 12% above the $98.2 million in 1992, and 42% above the $77.2
million in 1991. Noninterest expense was $327.8 million in 1993, up 5%
from $311.3 million in 1992 and 43% from $228.7 million in 1991.
On December 31, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". SFAS No. 115 expands the use of fair value accounting
for certain securities that the reporting enterprise does not have the
positive intent or ability to hold to maturity. For securities classified
as "held to maturity", SFAS No. 115 retains the use of the "amortized cost"
method of accounting. The adoption of the accounting statement had no
impact on reported net income, but increased the carrying value of
investment securities "available for sale" by $15.8 million. This resulted
in an after-tax increase in stockholders' equity of $9.1 million, or $1.33
per common share.
NET INTEREST INCOME/LENDING AND FUNDING ACTIVITIES
- --------------------------------------------------
As a result of growth in average earning assets, which rose $823 million or
9% to $10.0 billion, 1993 taxable-equivalent net interest income rose $36.2
million or 8% from 1992 to $474.8 million. Net interest income was $438.6
million in 1992 and $337.7 million in 1991, while average earning assets
were $9.2 billion and $8.0 billion, respectively. The Company's net
interest margin, expressed as an annualized percentage of average earning
assets, was 4.76% in 1993, down slightly from 4.79% achieved in 1992, but
up from 4.22% in 1991.
The Company continued to benefit from a relatively wide net interest
spread, or the difference between the yield on earning assets and the rate
paid on interest-bearing liabilities, of 4.33%, up from 4.29% in 1992. The
net interest spread in 1991 was 3.57%. The increased net interest spread
in 1993 reflects a 56 basis point (hundredths of one percent) widening in
the difference between the yield on loans and leases and the rate paid on
interest-bearing deposits. Largely offsetting such increase was the impact
of increases in average balances of investment securities and money-market
investments, which generally yield less than loans, and short-term
borrowings.
Growth in average earning assets during 1993 was largely comprised of a
$411 million or 6% increase in average loans. The growth in loans was
driven by the full-year effect in 1993 of the July 1, 1992 acquisitions of
Central Trust and Endicott Trust. Nevertheless, sluggish economic
conditions in market areas served by the Company tended to hamper loan
demand throughout much of 1993, particularly in the commercial sector. In
addition to the increase in average loans, average investment securities
grew $180 million and money-market assets rose $232 million from 1992.
The current interest rate environment as reflected in the historically high
spread between prime and money-market rates has been favorable to many
banks. However, management believes that reductions in such spread would
adversely impact the Company's net interest margin. Although not
necessarily indicative of a trend, 1993's fourth quarter net interest
spread of 4.14% was below that achieved in any other quarter of 1993.
<PAGE>24
To help lessen the exposure to changing interest rates, the Company has
entered into interest rate swaps as hedging transactions. The effects of
these swaps, which had an aggregate notional amount of approximately $1.2
billion at December 31, 1993, are reflected in the yields on loans and the
rates paid on interest-bearing deposits. The net effect of such swaps was
to increase the Company's net interest spread by 36 basis points in 1993,
22 basis points in 1992 and 9 basis points in 1991. In general, in each
interest rate swap transaction the Company is entitled to receive a fixed
rate of interest and must pay a variable rate of interest based on London
Inter-Bank Offer Rates ("LIBOR"). During 1993 the Company paid a weighted
average variable rate of 3.32% on interest rate swaps and received a
weighted average fixed rate of 6.10%. In 1992 and 1991 the weighted
average variable rates paid were 4.08% and 6.10%, respectively, and the
weighted average fixed rates received were 8.10% and 8.22%, respectively.
Additionally, as of December 31, 1993, the Company had also entered into
forward interest rate swaps with an aggregate notional amount of $475
million. These forward swaps had no effect on net income in 1993. Under
the terms of the forward swaps outstanding at December 31, 1993, the
Company will pay a weighted average variable rate based on LIBOR and
receive a weighted average fixed rate of 5.89%.
Despite average net interest-free funds rising 22% to nearly $1.4 billion
in 1993, the contribution of interest-free funds to the net interest margin
fell in 1993 to .43% from .50% in 1992 and .65% in 1991. A 90 basis point
drop in the average cost of interest-bearing liabilities, which is used to
value the contribution of interest-free funds, offset the benefit derived
from the increase in funding from interest-free sources in 1993.
While the acquisitions of loans in the July 1992 Central Trust and Endicott
Trust transactions added significantly to the average balance of loans
outstanding in 1993, the acquisitions did not materially alter the
Company's mix of loans. Table 4 depicts by type, average loans outstanding
for the Company in 1993, together with the percentage change in average
loans by category over the past two years. Excluding home equity lines of
credit, which are classified as consumer loans, approximately 63% of the
Company's loans during 1993 were real estate loans, down slightly from 64%
in 1992 and 67% in 1991. At the recent year-end, the Company held
approximately $3.0 billion of commercial real estate loans and $1.5 billion
of consumer real estate loans.
Commercial real estate loans are originated by the Company predominately in
the metropolitan New York City area, including properties in neighboring
states generally considered to be within commuting distance of New York
City, and Western New York, which includes Buffalo, Rochester and the
surrounding area. Commercial real estate loans are also originated in the
Hudson Valley and Southern Tier regions of New York State. The typical
commercial mortgage loan originated by the Company is a fixed-rate
instrument with monthly payments and a five-year balloon payment of the
remaining principal at maturity. For borrowers in good standing, the terms
of the loan agreement may be extended for an additional five years at the
then-current market rate of interest. Table 5 depicts by geographical area
the type of collateral supporting commercial real estate loans as of
December 31, 1993, as well as the size of the loans outstanding.
Approximately 60% of the $1.7 billion of commercial real estate loans in
the metropolitan New York City area were secured by multi-family
residential properties. In addition, the Company had approximately $361
million of loans secured by office space and $158 million of loans secured
by retail properties in the New York City metropolitan area. The Company's
experience has been that office space and, to a lesser degree, retail
properties tend to experience more volatile swings in value through
economic cycles. Approximately 59% of the aggregate dollar amount of New
York City area loans were for $3 million or less.
<PAGE>25
Commercial mortgage loans secured by properties located elsewhere in New
York State were chiefly comprised of loans originated in Western New York.
Given the nature of customers served in this market, collateral types tend
to show greater diversity and include a significant amount of lending to
customers who use the property in their trade or business, as well as real
estate investors. The typical loan in this segment of the portfolio was $3
million or less.
The Company normally refrains from construction lending, except when the
borrower has obtained a commitment for permanent financing upon project
completion. As a result, the commercial construction loan portfolio
totaled only $45.4 million, or .6% of total loans as of the recent year-
end.
Of the $1.5 billion of real estate loans secured by one-to-four family
residential properties at the 1993 year-end, approximately 80% were for
properties located in New York State. At December 31, 1993, residential
mortgage loans held for sale totaled $205 million. In 1992, the Company
began originating residential mortgage loans in Ohio and Pennsylvania
through M&T Mortgage Corporation. Most of these loans were originated for
sale in the secondary market with servicing rights retained.
The Company's investment securities portfolio averaged $2,173 million in
1993, up from $1,993 million in 1992 and $1,725 million in 1991. These
increases occurred despite ongoing prepayments of mortgage-backed
securities held in the investment portfolio, induced by the current
interest rate environment, and were largely achieved through purchases of
collateralized mortgage obligations ("CMOs"), other adjustable rate
mortgage-backed securities and shorter-term U.S. Treasury notes. The
Company considered its overall interest-rate risk profile, including the
effects of interest rate swaps, when purchasing securities during 1993.
The Company attempts to purchase securities which management believes
provide reasonable rates of return for the prepayment risk assumed.
As noted earlier, the Company adopted SFAS No. 115 on December 31, 1993 and
designated approximately $2.2 billion of investment securities as
"available for sale", as defined in the accounting pronouncement. The
excess of estimated fair value over amortized cost, or net unrealized
investment gain, for such securities was $9.1 million, net of applicable
income taxes. Such amount has been included in stockholders' equity in the
consolidated balance sheet as "Unrealized investment gains, net". The
adoption of SFAS No. 115 had no impact on the Company's reported earnings
for 1993.
The average balance of money-market assets, which are comprised of
interest-bearing deposits at banks, trading account assets, Federal funds
sold and agreements to resell securities, was $826 million in 1993, up from
$594 million a year earlier. Total money-market assets averaged $396
million in 1991. The increase in 1993 in these lower-yielding
discretionary investments generally reflects investment opportunities in
various short-term money-market instruments, the relative lack of
alternative securities deemed attractive for longer-term investment and
sluggish loan demand.
Core deposits, which are comprised of noninterest-bearing demand deposits,
interest-bearing transaction accounts, savings deposits and domestic time
deposits under $100,000, provide the Company with a stable source of funds
at generally lower interest rates than wholesale funds of similar expected
maturities. Average core deposits in 1993 declined 1% to $7,178 million
from $7,240 million in 1992, but, primarily due to acquisitions, grew 14%
in 1992 from $6,366 million in 1991. Funding provided by core deposits
totaled 72% of average earning assets in 1993, compared with 79% a year
earlier and 80% in 1991. The declines in core deposits have been primarily
in time deposit accounts as depositors seeking potentially higher returns
continued to redeploy investment funds out of the banking system into
alternative investment vehicles, such as mutual funds. An analysis of
changes in the components of core deposits is presented in table 6.
<PAGE>26
In addition to core deposits, the Company uses short-term borrowings from
banks, securities dealers, the Federal Home Loan Bank of New York and
others as sources of funding. Short-term borrowings averaged $1,922
million in 1993, $801 million above 1992's average of $1,121 million.
Short-term borrowings averaged $650 million in 1991. In general, short-
term borrowings have been used to fund the Company's investments in
discretionary money-market assets and investment securities, and to replace
deposit outflows. With regard to deposits not considered to be core
deposits, domestic time deposits of $100,000 or more averaged $294 million
in 1993, down 10% from $326 million in 1992 and 44% from $522 million in
1991. Average offshore deposits, which are primarily comprised of accounts
with balances of $100,000 or more, amounted to $120 million in 1993, down
from $130 million a year earlier and $159 million in 1991.
PROVISION FOR POSSIBLE CREDIT LOSSES
- ------------------------------------
The purpose of the provision is to replenish and build the Company's
allowance for possible credit losses to a level necessary to maintain an
adequate reserve position. In establishing the provision for possible
credit losses, management considers historical loan losses incurred, the
quality and size of the loan portfolios, the level of the allowance for
possible credit losses and the economic climate.
The provision for possible credit losses was $80.0 million in 1993,
compared with $85.0 million in 1992 and $63.4 million in 1991. Net charge-
offs in 1993 decreased $10.5 million to $35.8 million, while nonperforming
loans also decreased to $82.3 million at December 31, 1993 from $113.6
million a year earlier. Net charge-offs totaled $44.1 million in 1991 and
nonperforming loans were $89.7 million at 1991's year-end. Net charge-offs
as a percentage of average loans in 1993 were .51%, compared with .70% in
1992 and .75% in 1991. Despite declines in the level of net charge-offs
and nonperforming loans of 23% and 28%, respectively, management considered
it prudent to record a provision for possible credit losses in 1993 which
was only 6% lower than 1992 due to concerns about the unsettled commercial
real estate market, in particular in the New York City metropolitan area,
and the timing and sustainability of economic recovery in market areas
served by the Company in general. As a result, the allowance for possible
credit losses was $195.9 million or 2.70% of net loans and leases
outstanding at December 31, 1993, up from $151.7 million or 2.17% at
December 31, 1992 and $100.3 million or 1.66% at December 31, 1991. The
decrease in net charge-offs and lower nonperforming loan levels enabled the
Company to establish an allowance-to-nonperforming loan ratio of 238%. The
allowance's coverage of nonperforming loans was 134% a year earlier and
112% at December 31, 1991.
M&T Bank retains the contractual right to require the Federal Deposit
Insurance Corporation ("FDIC") to repurchase prior to May 31, 1994 at a
discount of 4% certain loans sold to M&T Bank by the FDIC from the
portfolio of a failed thrift institution in the event such loans become
adversely classified for regulatory purposes. As of December 31, 1993,
such loans included approximately $100 million of commercial real estate
loans and $249 million of consumer and residential mortgage loans.
A comparative allocation of the allowance for possible credit losses for
each of the past five year-ends is presented in table 10. Amounts were
allocated to specific loan categories based upon management's
classification of loans under the Company's internal loan grading system
and estimates of potential charge-offs inherent in each category. However,
as the total reserve is available to absorb losses from any loan category,
amounts assigned do not necessarily indicate future losses within these
categories. The increase in the allocated portion of the reserve in 1993
compared to prior years is not necessarily indicative of a deterioration of
credit quality within the loan portfolio, but rather reflects certain
revisions to the assumptions used to
<PAGE>27
calculate the allocated portion of the reserve in 1993. Nevertheless, the
unallocated portion of the reserve represents management's assessment of
the overall level of credit risk in the loan portfolio over a longer time
frame.
Due to the size of the Company's commercial real estate loan portfolio, the
Company's credit loss experience has been and will continue to be
influenced by real estate prices, in particular, and overall economic
conditions, in general. During 1993 the Company incurred $19.2 million of
net charge-offs on commercial real estate loans, including $14.2 million on
loans domiciled in the New York City metropolitan area, where declines in
real estate values have been more pronounced. Nonperforming commercial
real estate loans totaled $48.3 million at December 31, 1993, compared to
$93.3 million a year earlier. Included in these totals were loans secured
by properties in the New York City metropolitan area of $29.7 million and
$49.3 million at December 31, 1993 and 1992, respectively.
The Company has limited exposure to possible losses originating from
concentrations of credit extended to any specific industry. No such
concentration exceeded 10% of total loans outstanding at December 31, 1993.
Furthermore, the Company had no exposure to lesser-developed countries, and
only $1.4 million of foreign loans in total. Highly leveraged
transactions, including outstanding commitments, comprised only $87.0
million or approximately 1% of loans outstanding at December 31, 1993.
At December 31, 1993, repossessed assets taken in foreclosure of defaulted
loans totaled $12.2 million, compared to $16.7 million and $10.4 million at
year-end 1992 and 1991, respectively.
OTHER INCOME
- ------------
Excluding the effects of investment securities transactions, other income
totaled $109.7 million in 1993, 12% above the $98.2 million earned in 1992
and 42% improved from $77.2 million in 1991.
Benefiting from a full year of revenue derived from customers of the former
Central Trust and Endicott Trust, along with higher revenues from
securities clearing, income from trust and investment services increased
41% to $23.9 million in 1993 from $16.9 million in 1992. The 1993 result
was more than double 1991's $11.8 million, also largely due to twelve
months of income from former Central Trust and Endicott Trust customers and
higher securities clearing revenues. Including fee income from acquired
deposits, service charges on deposit accounts increased 14% to $32.3
million in 1993, while in 1992 there was a 37% increase to $28.4 million
from $20.7 million in 1991. The full-year effect of the Central Trust and
Endicott Trust acquisitions helped increase merchant discount and other
credit card fees to $7.9 million in 1993, from $6.7 million and $5.8
million in 1992 and 1991, respectively. Trading account profits were $2.7
million in 1993, up from $1.7 million earned in 1992, but down from $5.0
million earned in 1991.
Other revenues from operations were $42.9 million in 1993, down slightly
from $44.5 million in 1992, but up 26% from $33.9 million in 1991.
Included in other revenues from operations were gains from the sales of
out-of-state loans obtained in acquisitions of $2.8 million in 1993, $6.0
million in 1992 and $5.6 million in 1991. Excluding such gains, other
revenues from operations increased 4% from 1992 and 41% from 1991.
Although revenues attributable to the acquisitions contributed to the
improvement in 1993, the increase in other revenue from 1992 was, in large
part, also due to additional income from the origination, sale and
servicing of residential mortgage loans, asset management services and
other loan fees. Other revenues in 1992 included $2.5 million of non-
recurring earnings on options written to sell certain mortgage-backed
securities. At December 31, 1993, residential mortgage loans serviced for
others were approximately $2.9 billion. In 1993, the Company purchased
servicing rights for approximately $395 million of residential mortgage
loans.
<PAGE>28
OTHER EXPENSE
- -------------
Other expense totaled $327.8 million in 1993, up from $311.3 million in
1992 and $228.7 million in 1991. During 1993, the Company completed both
the integration of Central Trust and Endicott Trust operations into M&T
Bank and the major project to upgrade the Company's computer systems. The
completion of these significant initiatives served to reduce operating
expenses. However, offsetting the impact of these reduced expenses were
the inclusion of a full year of ongoing operating expenses associated with
the Central Trust and Endicott Trust franchises, increased processing costs
associated with the additional revenues from residential mortgage banking
activities and increased advertising and promotional expenses.
Salaries and employee benefits expense was $154.3 million in 1993, 18%
higher than the $130.8 million in 1992. Salaries and benefits expense was
$103.2 million in 1991. The additional six months of expense associated
with the acquired franchises of Central Trust and Endicott Trust, merit
salary increases and growth in the Company's residential mortgage lending
and servicing business were the primary factors contributing to the
increase in 1993. Staffing requirements necessitated in large part by
acquisition activity has resulted in an increase in the number of employees
in recent years. The number of full-time equivalent employees was 4,028 at
December 31, 1993, compared to 3,959 and 3,053 at December 31, 1992 and
1991, respectively.
Nonpersonnel expenses for 1993 totaled $173.5 million, down 4% from $180.6
million in 1992. Such expenses were $125.5 million in 1991. Several
significant factors in 1993 more than offset the increases in expenses
associated with the 1992 acquisitions and other business growth previously
noted. Most notable was a $12.1 million reduction to $4.7 million in
write-downs of the carrying value of excess servicing fees and purchased
mortgaged servicing rights associated with residential mortgage loans
serviced for others. The amount of excess fees and purchased servicing
rights recorded as assets was $17 million at December 31, 1993. As
previously noted, the project to significantly upgrade the Company's major
computer systems was successfully completed in 1993. Expenses associated
with this project were approximately $1.0 million in 1993, compared with
$9.2 million in 1992 and $4.7 million in 1991.
INCOME TAXES
- ------------
The provision for income taxes in 1993 was $71.5 million, up from $64.8
million in 1992 and $47.6 million in 1991. The effective tax rates were
41% in 1993 and 1991 and 40% in 1992.
On August 10, 1993, President Clinton signed the Omnibus Budget
Reconciliation Act of 1993 into law. As part of the legislation, effective
January 1, 1993, the tax rate applied to corporate taxable income in excess
of $10 million was increased 1% to 35%. Under SFAS No. 109, the effects of
the higher tax rate (and other changes made by the legislation) are
recognized in determining financial statement income and deferred tax
assets and liabilities in the period that includes the date of enactment.
Accordingly, the aggregate effect of the legislation was to increase income
tax expense and the effective tax rate in 1993 by approximately $792
thousand and .46%, respectively, including a $698 thousand benefit related
to years prior to 1993.
In the first quarter of 1992, the Company prospectively adopted SFAS No.
109 which mandates a liability method of accounting for income taxes. Such
adoption did not result in any net adjustment to the Company's balance
sheet and, accordingly, there was no charge in the consolidated statement
of income for 1992 resulting from the change in accounting principle.
<PAGE>29
INTERNATIONAL ACTIVITIES
- ------------------------
The Company's investment in international assets was $62 million and $36
million at December 31, 1993 and 1992, respectively. Total offshore
deposits were $189 million and $118 million at December 31, 1993 and 1992,
respectively.
LIQUIDITY AND INTEREST RATE SENSITIVITY
- ---------------------------------------
A critical element in managing a banking institution is ensuring that
sufficient cash flow and liquid assets exist to satisfy demands for loans,
deposit withdrawals and other corporate purposes. The Company's core
deposit base has historically provided a large source of funds. Such
deposits financed 68% of the Company's earning assets at December 31, 1993,
compared to 83% at December 31, 1992. Consistent with the experience of
other financial institutions, the Company's core deposits, both in amount
and as a percentage of earning assets, have declined. Such decline has
been primarily in time deposit accounts as many depositors have transferred
funds out of the banking system into alternative investment vehicles, such
as mutual funds. The Company supplements funding from core deposits with
various wholesale funds such as Federal funds purchased and securities sold
under agreements to repurchase. Additionally, during 1993 M&T Bank and
East New York became stockholders of the Federal Home Loan Bank of New
York. Among other things, such memberships provide a combined credit
facility of approximately $500 million, secured by residential mortgage
loans and investment securities. Borrowings outstanding under such credit
facility were $310 million at December 31, 1993. Further, funding is
available through various arrangements for unsecured short-term borrowings
from a wide group of banks and other financial institutions which, while
informal and sometimes reciprocal, aggregate to several times anticipated
funding needs. Other sources of liquidity include maturities of money-
market assets, repayments of loans and investment securities, and cash flow
generated from operations.
First Empire's ability to pay dividends and fund operating expenses is
primarily dependent on the receipt of dividend payments from its banking
subsidiaries, which are subject to various regulatory limitations.
Additionally, First Empire maintains a line of credit with a commercial
bank.
First Empire and the Company do not currently anticipate engaging in any
activity, in either the short- or long-term, which would cause a
significant strain on liquidity. Management believes that available
sources of funds are currently more than sufficient to meet anticipated
funding needs.
Table 14 reflects the effect of repricing assets and liabilities on a
contractual basis, and is presented in accordance with industry practice.
The cumulative repricing figures in the table represent the net position of
assets and liabilities contractually subject to repricing in specific time
periods, adjusted for the impact of interest rate swaps entered into as
hedge transactions. Management believes this measure does not
appropriately depict interest rate risk since changes in interest rates do
not necessarily affect all categories of earning assets and interest-
bearing liabilities equally nor, as presented in the table, on the
contractual maturity or repricing date. Additionally, assessing interest
rate risk from a static position fails to consider ongoing lending and
deposit gathering activities as well as projected changes in balance sheet
composition.
In management's opinion, the foregoing interest rate sensitivity analysis
does not appropriately reflect the Company's actual sensitivity to changes
in the interest rate environment. Management monitors interest rate
sensitivity with the aid of a computer model which takes into account
typical interrelationships in the magnitude and timing of the repricing of
all banking
<PAGE>30
and investment products, including the effects of expected prepayments.
Through analysis of such information, management believes that the
Company's exposure to changing interest rates, as modified by interest rate
swaps, is substantially different than the data presented in the
accompanying table may imply. Management believes that the Company's net
interest income would benefit from rising interest rates over a two to
three year period; however, it is expected that higher interest rates would
have a short-term detrimental effect on net interest income. Management
closely monitors interest rate risk and stands ready to take action to
mitigate the Company's exposure when circumstances deem it prudent to do
so.
As part of overall interest rate sensitivity management, the Company has
entered into currently effective interest rate swap contracts to help
balance the Company's interest rate sensitivity position. The notional
amount of such contracts was approximately $1.2 billion at December 31,
1993. In general, under the terms of these swaps, the Company receives a
fixed rate of interest and pays a variable rate. The swaps increased net
interest income by $34.2 million and net interest margin by 34 basis points
in 1993. The increase in net interest income and margin in 1992 was $20.1
million and 22 basis points, respectively. Of the interest rate swaps
currently in effect, $400 million mature in the first quarter of 1996. In
general, beginning in 1995, the notional amount of the remaining swaps
currently in effect will decline depending on the level of interest rates
or the prepayment behavior of mortgage-backed securities to which the swaps
are indexed. As of December 31, 1993, the Company had also entered into
several forward swaps having a notional amount of $475 million. Such
forward swaps had no effect on net interest income in 1993.
CAPITAL
- -------
Common stockholders' equity totaled $684.0 million at December 31, 1993,
compared with $586.8 million and $495.8 million at the end of 1992 and
1991, respectively. On a per share basis, common stockholders' equity was
$99.43 at December 31, 1993, up from $85.79 per share a year earlier and
$73.91 at December 31, 1991. Total stockholders' equity was $724.0 million
or 6.99% of total assets at December 31, 1993, compared with $626.8 million
or 6.54% at December 31, 1992 and $535.8 million or 5.84% at December 31,
1991. The ratio of average total stockholders' equity to average total
assets was 6.45%, 6.10% and 5.96% in 1993, 1992 and 1991, respectively.
Included in stockholders' equity were $9.1 million of net unrealized
investment gains resulting from the Company's adoption of SFAS No. 115 on
December 31, 1993. Such unrealized gains represent the amount by which
fair value exceeded amortized cost for investment securities classified
pursuant to SFAS No. 115 as "available for sale", net of applicable income
taxes.
To assess the capital adequacy of banking institutions, Federal regulators
have implemented risk-based capital measures. Generally, a banking
institution is required to maintain risk-based "core capital" and "total
capital" ratios of at least 4% and 8%, respectively. 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 capital ratios of the Company and its banking subsidiaries,
M&T Bank and East New York, as of December 31, 1993 are presented in table
15.
Excluding the effects of realized and unrealized gains from investment
securities, First Empire's rate of internal capital generation rose to
12.66% in 1993 from 11.59% in 1992 and 11.00% in 1991. As a supplement to
capital additions generated from earnings, First Empire issued $40 million
of cumulative convertible 9% preferred stock in March 1991. Additionally,
M&T Bank issued $75 million of ten year subordinated notes in December
1992, which further strengthened the "total capital" ratios of M&T Bank and
the Company.
<PAGE>31
Cash dividends on common stock of $13.1 million were paid in 1993 compared
with $10.8 million in 1992 and $9.3 million in 1991. In the second quarter
of 1993, First Empire's quarterly common dividend rate was increased to
$.50 per share from $.40. In total, dividends per common share increased
to $1.90 in 1993 from $1.60 in 1992. Total dividends paid per common share
were $1.40 in 1991. Dividends of $3.6 million were paid to the preferred
stockholder in 1993 and 1992. Preferred stock dividends totaled $2.9
million in 1991.
In December 1993 First Empire announced a plan to purchase and hold as
treasury stock up to 506,930 shares of its common stock as a reserve for
the possible future conversion of its 9% convertible preferred stock. Such
preferred stock is convertible at any time into shares of First Empire's
common stock at a conversion price of $78.90625 per share, subject to
certain adjustments. First Empire has the right to redeem the preferred
stock without premium on or after March 31, 1996. However, upon receipt of
notification of such a planned redemption, the holder may convert the
preferred stock into common shares. As of December 31, 1993, no common
shares had been purchased pursuant to the plan.
RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
- ----------------------------------------------------
In May 1993 the Financial Accounting Standards Board issued SFAS No. 114
"Accounting by Creditors for Impairment of a Loan". SFAS No. 114 requires
that creditors measure certain impaired loans based on the present value of
expected future cash flows, discounted at the loan's effective interest
rate or at the loan's observable value or the fair value of underlying
collateral, if the loan is collateral-dependent. SFAS No. 114 applies to
financial statements for fiscal years beginning after December 15, 1994.
When adopted, SFAS No. 114 is not expected to have an adverse impact on the
Company's results of operations.
<PAGE>32
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Table 1
FINANCIAL HIGHLIGHTS
Amounts in thousands, except per share 1993 1992 Change
- -------------------------------------- ---- ---- ------
<S> <C> <C> <C>
For the year
- --------------------------------------
Net income $ 101,992 97,937 + 4%
Per common share
Net income
Primary 13.87 13.41 + 3
Fully diluted 13.42 12.98 + 3
Cash dividends 1.90 1.60 + 19
Proforma net income*
Primary 13.81 11.13 + 24
Fully diluted 13.36 10.86 + 23
Average common shares outstanding
Primary 7,091 7,033 + 1
Fully diluted 7,601 7,544 + 1
Return on
Average total assets 0.98% 1.03%
Average common stockholders' equity 15.61% 17.39%
Proforma return on*
Average total assets 0.98% 0.86%
Average common stockholders' equity 15.53% 14.43%
Market price per common share
Closing $ 140.75 134.50 + 5
High 159.00 142.00
Low 130.25 99.00
- ----------------------------------------- -------- -------- -------
At December 31
- -----------------------------------------
Loans and leases, net of unearned discount $ 7,261,099 6,983,804 + 4%
Total assets 10,364,958 9,587,931 + 8
Total deposits 7,353,261 8,077,110 - 9
Total stockholders' equity 723,994 626,795 + 16
Stockholders' equity per common share $99.43 85.79 + 16
========================================= ========== ========== ========
*Before gains on sales of bank investment securities.
</TABLE>
<PAGE>33
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Table 2
QUARTERLY TRENDS, Taxable-equivalent basis
1993 Quarters
-------------------------------------------------------
Fourth Third Second First
- ------------------------------------------- ------ ----- ------ ------
<S> <C> <C> <C> <C>
Earnings and dividends
Amounts in thousands, except per share
- -------------------------------------------
Interest income $ 185,550 185,069 189,417 184,673
Interest expense 66,761 66,014 69,062 68,036
- ------------------------------------------ -------- ------- ------- -------
Net interest income 118,789 119,055 120,355 116,637
Less: provision for possible credit losses 21,713 19,715 20,215 18,315
Other income 28,702 27,484 27,491 26,867
Less: other expense 79,388 80,426 84,566 83,439
- ------------------------------------------ -------- ------- ------- -------
Income before income taxes 46,390 46,398 43,065 41,750
Applicable income taxes 18,848 19,358 16,874 16,451
Taxable-equivalent adjustment 909 1,188 1,006 977
- ------------------------------------------ -------- ------- ------- -------
Net income $ 26,633 25,852 25,185 24,322
- ------------------------------------------ -------- ------- ------- -------
Cash dividends on preferred stock $900 900 900 900
Per common share data
Net income
Primary $3.62 3.52 3.42 3.31
Fully diluted 3.50 3.40 3.31 3.21
Net income,excluding securities
transactions (note 2)
Primary 3.62 3.51 3.42 3.25
Fully diluted 3.50 3.39 3.31 3.15
Cash dividends .50 .50 .50 .40
Average common shares outstanding
Primary 7,097 7,097 7,102 7,069
Fully diluted 7,604 7,604 7,609 7,586
============================================== ====== ====== ====== ======
Balance sheet data
Dollars in millions, except per share
- ----------------------------------------------
Average balances
Total assets $ 10,775 10,348 10,483 9,951
Earning assets 10,371 9,947 10,070 9,527
Investment securities 2,521 2,384 2,063 1,713
Loans and leases,
net of unearned discount 7,080 6,991 6,957 6,899
Deposits 7,352 7,516 7,649 7,856
Stockholders' equity 703 680 659 638
- ------------------------------------------ -------- ------- ------- -------
At end of quarter
Total assets $ 10,365 10,930 10,457 10,423
Earning assets 10,085 10,462 10,059 9,895
Investment securities 2,429 2,523 2,526 1,726
Loans and leases,
net of unearned discount 7,261 7,092 7,021 6,887
Deposits 7,353 7,538 7,591 7,788
Stockholders' equity 724 692 670 649
Book value per common share $99.43 94.88 91.67 88.68
============================================== ====== ====== ====== ======
Performance ratios, annual basis
- ----------------------------------------------
Return on
Average assets 0.98% 0.99% 0.96% 0.99%
Average common stockholders' equity 15.39% 15.46% 15.74% 15.88%
Net interest margin on average
earning assets 4.54% 4.75% 4.79% 4.96%
Nonperforming assets to total assets,
at end of quarter 0.91% 0.92% 1.01% 1.21%
- ------------------------------------------ -------- ------- ------- -------
Market price per common share
High $ 147 147 159 150 1/2
Low 132 1/4 136 1/8 133 1/8 130 1/4
Closing 140 3/4 140 3/4 137 149 3/4
============================================== ======= ======= ======= =======
Note 1: Prior period information has been reclassified to conform to current period presentation.
Note 2: Due to rounding, the total of the quarterly amounts may not equal the amount for the full year.
</TABLE>
<PAGE>33.1
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Table 2
QUARTERLY TRENDS, Taxable-equivalent basis - continued
1992 Quarters
-------------------------------------------------------
Fourth Third Second First
- ------------------------------------------- ------ ----- ------ ------
<S> <C> <C> <C> <C>
Earnings and dividends
Amounts in thousands, except per share
- -------------------------------------------
Interest income $ 189,638 195,553 185,631 191,387
Interest expense 75,005 80,077 80,776 87,740
- ------------------------------------------ -------- ------- ------- -------
Net interest income 114,633 115,476 104,855 103,647
Less: provision for possible credit losses 21,424 21,720 24,127 17,718
Other income 31,318 24,028 35,470 35,410
Less: other expense 87,960 81,918 68,401 73,059
- ------------------------------------------ -------- ------- ------- -------
Income before income taxes 36,567 35,866 47,797 48,280
Applicable income taxes 13,812 13,532 18,382 19,115
Taxable-equivalent adjustment 1,130 1,322 1,653 1,627
- ------------------------------------------ -------- ------- ------- -------
Net income $ 21,625 21,012 27,762 27,538
- ------------------------------------------ -------- ------- ------- -------
Cash dividends on preferred stock $900 900 900 900
Per common share data
Net income
Primary $2.93 2.85 3.82 3.81
Fully diluted 2.86 2.78 3.68 3.66
Net income,excluding securities
transactions (note 2)
Primary 3.00 2.80 2.74 2.59
Fully diluted 2.92 2.73 2.67 2.53
Cash dividends .40 .40 .40 .40
Average common shares outstanding
Primary 7,054 7,044 7,033 7,000
Fully diluted 7,561 7,556 7,542 7,517
============================================== ====== ====== ====== ======
Balance sheet data
Dollars in millions, except per share
- ----------------------------------------------
Average balances
Total assets $ 10,346 9,954 8,937 8,966
Earning assets 9,910 9,527 8,594 8,590
Investment securities 1,789 1,773 2,063 2,352
Loans and leases,
net of unearned discount 7,065 7,103 6,093 6,014
Deposits 8,128 8,274 7,120 7,249
Stockholders' equity 612 593 572 552
- ------------------------------------------ -------- ------- ------- -------
At end of quarter
Total assets $ 9,588 10,266 8,752 9,019
Earning assets 9,180 9,843 8,411 8,655
Investment securities 1,721 1,790 1,767 2,278
Loans and leases,
net of unearned discount 6,984 7,112 6,121 5,972
Deposits 8,077 8,159 7,133 7,166
Stockholders' equity 627 603 585 560
Book value per common share $85.79 83.46 80.94 77.40
============================================== ====== ====== ====== ======
Performance ratios, annual basis
- ----------------------------------------------
Return on
Average assets 0.83% 0.84% 1.25% 1.24%
Average common stockholders' equity 14.42% 14.46% 20.29% 20.92%
Net interest margin on average
earning assets 4.60% 4.82% 4.91% 4.85%
Nonperforming assets to total assets,
at end of quarter 1.36% 1.24% 1.26% 1.18%
- ------------------------------------------ -------- ------- ------- -------
Market price per common share
High $ 142 134 132 130 1/4
Low 131 126 117 99
Closing 134 1/2 133 1/2 126 1/2 121
============================================ ======= ======= ======= =======
Note 1: Prior period information has been reclassified to conform to current period presentation.
Note 2: Due to rounding, the total of the quarterly amounts may not equal the amount for the full year.
</TABLE>
<PAGE>34
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Table 3
EARNINGS SUMMARY
Dollars in millions
Increase (decrease)* Compound
1992 to 1993 1991 to 1992 growth rate
------------- ------------ - 5 years
Amount % Amount % 1993 1992 1991 1990 1989 1988 to 1993
------ -- ------ -- ----------------------- ----- ----- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ (17.5) (2) $ (15.7) (2) Interest income** $ 744.7 762.2 777.9 666.4 585.9 8 %
(53.7) (17) (116.6) (26) Interest expense 269.9 323.6 440.2 426.9 384.4 (3)
------ ---- ------- ---- ----------------------- ------ ----- ----- ----- ----- ------------
36.2 8 100.9 30 Net interest income** 474.8 438.6 337.7 239.5 201.5 19
Less: provision for
(5.0) (6) 21.6 34 possible credit losses 80.0 85.0 63.4 27.4 15.3 42
Gain (loss) on sales of
(27.2) (97) 27.6 - bank investment securities 0.9 28.1 0.4 - 1.1 -
11.5 12 20.9 27 Other income 109.7 98.2 77.2 52.7 47.8 19
Less:
Salaries and employee
23.6 18 27.6 27 benefits 154.3 130.8 103.2 85.9 78.3 15
(7.1) (4) 55.1 44 Other expense 173.5 180.6 125.4 85.2 71.3 19
------ ---- ------- ---- ----------------------- ------ ----- ----- ----- ----- ------------
Operating income***
9.1 5 45.2 37 before income taxes 177.6 168.5 123.3 93.7 85.5 19
Less:
Taxable-equivalent
(1.7) (29) (2.8) (33) adjustment** 4.1 5.8 8.5 9.0 9.2 (16)
6.7 10 17.2 36 Applicable income taxes 71.5 64.8 47.6 30.8 25.6 28
------ ---- ------- ---- ----------------------- ------ ----- ----- ----- ----- ------------
4.1 4 30.7 46 Operating income*** 102.0 97.9 67.2 53.9 50.7 18
Cumulative effect of
- - - - accounting change - - - - (9.4) -
------ ---- ------- ---- ----------------------- ------ ----- ----- ----- ----- ------------
$ 4.1 4 $ 30.7 46 Net income $ 102.0 97.9 67.2 53.9 41.3 18%
------ ---- ------- ---- ----------------------- ------ ----- ----- ----- ----- ------------
* Changes were calculated from unrounded amounts.
** Interest income data are on a taxable-equivalent basis. The taxable-equivalent adjustment represents additional
income taxes that would be due if all interest income were subject to income taxes. This adjustment is primarily
to interest received on qualified municipal securities and industrial revenue financings and is based on a composite
income tax rate of approximately 42% for 1993 and 41% for all other periods.
*** Represents income before the after-tax cumulative effect of change in accounting principle related to postretirement
benefits.
</TABLE>
<PAGE>35
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
Table 4
<CAPTION>
AVERAGE LOANS AND LEASES
(net of unearned discount)
Percent increase
(decrease) from
---------------------------
Dollars in millions 1993 1992 to 1993 1991 to 1992
- ---------------------------------- ------ ------------ ------------
<S> <C> <C> <C>
Commercial, financial, etc. $1,420 15 % 16 %
Real estate - commercial 2,872 10 14
Real estate - consumer 1,515 (7) -
Consumer 1,175 6 23
- ---------------------------------- ------- ----------- --------
Total $6,982 6 % 12 %
================================== ======= =========== ========
</TABLE>
<PAGE>36
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Table 5
COMMERCIAL REAL ESTATE LOAN PORTFOLIO AT DECEMBER 31, 1993
(net of unearned discount)
Percent of dollars outstanding by loan size
Out- -------------------------------------------
Dollars in millions standings $0-1 $1-3 $3-10 $10+
- ------------------------- --------- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Metropolitan NYC
Apartments/
Multifamily $ 1,029.5 16 % 23 % 17 % 3 %
Office 360.9 2 7 10 2
Retail 157.8 2 4 3 1
Construction 1.6 - - - -
Industrial 79.4 1 2 2 -
Other 83.7 1 1 2 1
- ------------------------- --------- ------ ------ ------ ------
Total Metro NYC $ 1,712.9 22 % 37 % 34 % 7 %
- ------------------------- --------- ------ ------ ------ ------
Other New York State
Apartments/
Multifamily $ 194.6 7 % 6 % 3 % - %
Office 308.3 11 8 5 3
Retail 223.2 9 7 3 -
Construction 43.8 2 1 1 -
Industrial 131.0 7 3 2 -
Other 267.1 8 9 5 -
- ------------------------- --------- ------ ------ ------ ------
Total Other NY State $ 1,168.0 44 % 34 % 19 % 3 %
- ------------------------- --------- ------ ------ ------ ------
Out-of-State
Apartments/
Multifamily $ 51.2 6 % 17 % 14 % - %
Office 20.7 - - 3 12
Retail 18.3 2 6 5 -
Construction - - - - -
Industrial 14.8 2 - 8 -
Other 34.0 3 3 11 8
- ------------------------- --------- ------ ------ ------ ------
Total Out-of-State $ 139.0 13 % 26 % 41 % 20 %
- ------------------------- --------- ------ ------ ------ ------
Total Loans $ 3,019.9 30 % 36 % 28 % 6 %
========================= ========= ====== ====== ====== ======
</TABLE>
<PAGE>37
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Table 6
AVERAGE CORE DEPOSITS
Percent increase
(decrease) from
---------------------------
Dollars in millions 1993 1992 to 1993 1991 to 1992
- ---------------------------------- ------ ------------ ------------
<S> <C> <C> <C>
NOW accounts $ 747 12 % 16 %
Savings deposits 3,500 5 39
Time deposits under $100,000 1,955 (20) (14)
Demand deposits 976 24 40
- ---------------------------------- ------- ---------- ---------
Total $7,178 (1) % 14 %
================================== ======= ========== =========
</TABLE>
<PAGE>38
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
Table 7
<CAPTION>
AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES
1993 1992
---------------------------- ----------------------------
Average Balance in millions; Average Average Average Average
interest in thousands balance Interest rate balance Interest rate
- -------------------------------------------- -------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,420 $ 112,568 7.93 % 1,237 103,786 8.39 %
Real estate 4,387 379,832 8.66 4,225 392,384 9.29
Consumer 1,175 118,461 10.08 1,109 109,284 9.85
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total loans and leases, net 6,982 610,861 8.75 6,571 605,454 9.21
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Money-market assets
Interest-bearing deposits at banks 189 6,740 3.56 29 1,083 3.76
Federal funds sold and agreements
to resell securities 610 20,403 3.35 510 18,100 3.55
Trading account 27 1,434 5.32 55 3,096 5.62
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total Money-market assets 826 28,577 3.46 594 22,279 3.75
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Investment securities
U.S. Treasury and federal agency 1,300 62,420 4.80 1,204 81,940 6.81
State and municipal 41 2,600 6.40 103 8,122 7.85
Other 832 40,251 4.84 686 44,414 6.48
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total investment securities 2,173 105,271 4.84 1,993 134,476 6.75
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total earning assets 9,981 744,709 7.46 9,158 762,209 8.32
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Allowance for possible credit losses (174) (130)
Cash and due from banks 304 273
Other assets 279 253
- -------------------------------------------- -------- ------
Total assets $ 10,390 9,554
============================================ ======== ======
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 747 13,113 1.75 666 16,544 2.48
Savings deposits 3,500 90,392 2.58 3,338 110,142 3.30
Time deposits 2,249 98,508 4.38 2,773 153,588 5.54
Deposits at foreign office 120 3,243 2.71 130 4,348 3.35
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total interest-bearing deposits 6,616 205,256 3.10 6,907 284,622 4.12
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Short-term borrowings 1,922 58,459 3.04 1,121 38,386 3.42
Obligations under capital leases 1 64 10.06 1 78 10.08
Other long-term borrowings 75 6,094 8.12 6 512 8.11
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total interest-bearing liabilities 8,614 269,873 3.13 8,035 323,598 4.03
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Demand deposits 976 789
Other liabilities 130 147
- -------------------------------------------- -------- ------
Total liabilities 9,720 8,971
- -------------------------------------------- -------- ------
Stockholders' equity 670 583
- -------------------------------------------- -------- ------
Total liabilities and stockholders'
equity $ 10,390 9,554
============================================ ======= ======
Net interest spread 4.33 4.29
Contribution of interest-free funds 0.43 0.50
- -------------------------------------------- -------- ------ -------- -----
Net interest income/margin on earning assets $ 474,836 4.76 % 438,611 4.79 %
============================================ ======== ====== ======== ======
* Includes nonaccruing loans
</TABLE>
<PAGE>38
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
Table 7(continued)
<CAPTION>
AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES
1991 1990
---------------------------- ----------------------------
Average Balance in millions; Average Average Average Average
interest in thousands balance Interest rate balance Interest rate
- -------------------------------------------- -------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,067 $ 101,717 9.53 % 1,014 105,519 10.41 %
Real estate 3,910 389,748 9.97 3,297 341,553 10.36
Consumer 898 104,500 11.64 635 79,835 12.58
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total loans and leases, net 5,875 595,965 10.14 4,946 526,907 10.65
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Money-market assets
Interest-bearing deposits at banks 109 7,864 7.19 215 18,424 8.54
Federal funds sold and agreements
to resell securities 95 5,322 5.62 96 7,689 8.03
Trading account 192 15,873 8.27 64 5,334 8.37
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total Money-market assets 396 29,059 7.34 375 31,447 8.38
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Investment securities
U.S. Treasury and federal agency 1,222 109,300 8.94 947 87,233 9.22
State and municipal 146 13,427 9.21 121 11,893 9.81
Other 357 30,194 8.47 93 8,968 9.66
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total investment securities 1,725 152,921 8.87 1,161 108,094 9.31
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total earning assets 7,996 777,945 9.73 6,482 666,448 10.28
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Allowance for possible credit losses (91) (66)
Cash and due from banks 213 203
Other assets 227 172
- -------------------------------------------- -------- ------
Total assets $ 8,345 6,791
============================================ ======== ======
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 576 27,418 4.76 445 24,190 5.44
Savings deposits 2,395 123,468 5.16 1,244 70,857 5.69
Time deposits 3,354 242,684 7.24 2,988 247,284 8.28
Deposits at foreign office 159 9,014 5.68 153 12,008 7.85
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total interest-bearing deposits 6,484 402,584 6.21 4,830 354,339 7.34
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Short-term borrowings 650 36,972 5.69 896 72,088 8.04
Obligations under capital leases 1 95 10.24 1 107 10.21
Other long-term borrowings 6 564 9.21 7 394 6.04
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Total interest-bearing liabilities 7,141 440,215 6.16 5,734 426,928 7.45
- -------------------------------------------- -------- -------- ------ ------ -------- -----
Demand deposits 563 529
Other liabilities 143 113
- -------------------------------------------- -------- ------
Total liabilities 7,847 6,376
- -------------------------------------------- -------- ------
Stockholders' equity 498 415
- -------------------------------------------- -------- ------
Total liabilities and stockholders'
equity $ 8,345 6,791
============================================ ======= ======
Net interest spread 3.57 2.83
Contribution of interest-free funds 0.65 0.87
- -------------------------------------------- -------- ------ -------- -----
Net interest income/margin on earning assets $ 337,730 4.22 % 239,520 3.70 %
============================================ ======== ====== ======== ======
* Includes nonaccruing loans
</TABLE>
<PAGE>39
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
Table 7(continued)
<CAPTION>
AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES
1989
------------------------------
Average Balance in millions; Average Average
interest in thousands balance Interest rate
- -------------------------------------------- -------- -------- -------
<S> <C> <C> <C>
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 909 $ 101,418 11.16 %
Real estate 2,703 278,595 10.31
Consumer 493 65,179 13.21
- -------------------------------------------- -------- -------- ------
Total loans and leases, net 4,105 445,192 10.85
- -------------------------------------------- -------- -------- ------
Money-market assets
Interest-bearing deposits at banks 350 33,691 9.62
Federal funds sold and agreements
to resell securities 80 7,265 9.11
Trading account 52 4,259 8.22
- -------------------------------------------- -------- -------- ------
Total Money-market assets 482 45,215 9.39
- -------------------------------------------- -------- -------- ------
Investment securities
U.S. Treasury and federal agency 865 76,041 8.79
State and municipal 109 11,254 10.29
Other 88 8,230 9.31
- -------------------------------------------- -------- -------- ------
Total investment securities 1,062 95,525 8.99
- -------------------------------------------- -------- -------- ------
Total earning assets 5,649 585,932 10.37
- -------------------------------------------- -------- -------- ------
Allowance for possible credit losses (55)
Cash and due from banks 190
Other assets 159
- -------------------------------------------- --------
Total assets $ 5,943
============================================ ========
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 410 22,848 5.57
Savings deposits 984 55,498 5.64
Time deposits 2,750 234,644 8.53
Deposits at foreign office 260 20,887 8.06
- -------------------------------------------- -------- -------- ------
Total interest-bearing deposits 4,404 333,877 7.58
- -------------------------------------------- -------- -------- ------
Short-term borrowings 556 49,718 8.94
Obligations under capital leases 1 120 10.18
Other long-term borrowings 12 705 5.79
- -------------------------------------------- -------- -------- ------
Total interest-bearing liabilities 4,973 384,420 7.73
- -------------------------------------------- -------- -------- ------
Demand deposits 481
Other liabilities 95
- -------------------------------------------- --------
Total liabilities 5,549
- -------------------------------------------- --------
Stockholders' equity 394
- -------------------------------------------- --------
Total liabilities and stockholders'
equity $ 5,943
============================================ =======
Net interest spread 2.64
Contribution of interest-free funds 0.93
- -------------------------------------------- -------- ------
Net interest income/margin on earning assets $ 201,512 3.57 %
============================================ ======== ======
* Includes nonaccruing loans
(continued)
</TABLE>
<PAGE>40
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
Table 8
<CAPTION>
LOAN CHARGE-OFFS, PROVISION AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES
Dollars in thousands 1993 1992 1991 1990 1989
- -------------------------------------------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for possible credit losses
Beginning balance $ 151,690 100,265 74,982 58,041 51,839
- -------------------------------------------------- ---------- --------- ----------- -------- -------
Charge-offs during period
Commercial, financial, agricultural, etc. 14,118 15,966 23,014 7,766 7,877
Real estate-construction 150 400 - - -
Real estate-mortgage 22,686 27,530 18,447 2,872 -
Consumer 9,135 7,488 7,033 5,924 4,595
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Total charge-offs 46,089 51,384 48,494 16,562 12,472
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Recoveries during period
Commercial, financial, agricultural, etc. 5,403 2,095 2,268 1,103 1,491
Real estate-construction - - - - 164
Real estate-mortgage 1,772 445 247 114 110
Consumer 3,144 2,531 1,850 1,874 1,624
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Total recoveries 10,319 5,071 4,365 3,091 3,389
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Net charge-offs 35,770 46,313 44,129 13,471 9,083
Provision for possible credit losses 79,958 84,989 63,412 27,412 15,285
Allowance for possible credit losses acquired - 12,749 6,000 3,000 -
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Allowance for possible credit losses
ending balance $ 195,878 151,690 100,265 74,982 58,041
- -------------------------------------------------- ---------- ---------- ----------- ---------- ---------
Net charge-offs as a percent of:
Provision for possible credit losses 44.74% 54.49% 69.59% 49.14% 59.42%
Average loans and leases, net of
unearned discount 0.51% 0.70% 0.75% 0.27% 0.22%
- -------------------------------------------------- ---------- ---------- ----------- ---------- ---------
Allowance for possible credit losses as a
percent of loans and leases, net
of unearned discount, at year-end 2.70% 2.17% 1.66% 1.40% 1.33%
================================================= =========== ========== ========== ========== ==========
</TABLE>
<PAGE>41
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Table 9
NONPERFORMING ASSETS
December 31
----------------------------------------------------------------------
Dollars in thousands 1993 1992 1991 1990 1989
- -------------------------------------------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 68,936 96,057 74,267 43,521 21,408
Loans past due
90 days or more 11,122 17,536 15,422 8,740 4,801
Renegotiated loans 2,195 - - - -
- -------------------------------------------------- ---------- --------- ----------- -------- -------
Total nonperforming loans 82,253 113,593 89,689 52,261 26,209
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Other real estate owned 12,222 16,694 10,354 5,655 3,383
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Total nonperforming assets $ 94,475 130,287 100,043 57,916 29,592
- -------------------------------------------------- ---------- ---------- ----------- ---------- ----------
Nonperforming loans
to total loans, net of
unearned discount 1.13% 1.63% 1.48% 0.97% 0.60%
Nonperforming assets
to total net loans and
other real estate owned 1.30% 1.86% 1.65% 1.08% 0.68%
================================================= =========== ========== ========== ========== ==========
</TABLE>
<PAGE>42
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
Table 10
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE CREDIT LOSSES TO LOAN CATEGORIES
December 31
----------------------------------------------------------------------
Dollars in thousands 1993 1992 1991 1990 1989
- -------------------------------------------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural, etc. $ 42,820 18,100 5,100 5,077 4,750
Real estate-mortgage 78,823 19,740 15,293 3,200 1,000
Consumer 13,630 6,700 6,500 4,700 3,900
Unallocated 60,605 107,150 73,372 62,005 48,391
- -------------------------------------------------- ---------- --------- ----------- -------- -------
Total $ 195,878 151,690 100,265 74,982 58,041
================================================== ========== ========== ========== ========== ==========
As a percentage of gross loans
and leases outstanding
- -------------------------------------------------- ---------- --------- ----------- -------- -------
Commercial, financial, agricultural, etc. 2.84% 1.22% 0.48% 0.45% 0.46%
Real estate-mortgage 1.74 0.45 0.37 0.09 0.04
Consumer 1.02 0.55 0.64 0.51 0.65
================================================== =========== ========== ========== ========== ==========
</TABLE>
<PAGE>43
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
Table 11
MATURITY OF DOMESTIC CERTIFICATES OF DEPOSIT AND TIME DEPOSITS
WITH BALANCES OF $100,000 OR MORE
Dollars in thousands December 31, 1993
- ---------------------------- -----------------
Under 3 months $ 188,666
3 to 6 months 30,336
6 to 12 months 19,243
over 12 months 51,072
- ---------------------------- -----------------
Total $ 289,317
============================ =================
<PAGE>44
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Table 12
MATURITY AND TAXABLE-EQUIVALENT YIELD OF INVESTMENT SECURITIES
One year or less One to five years Five to ten years
------------------ ------------------ ------------------
Carrying Carrying Carrying
Dollars in thousands Value Yield Value Yield Value Yield
- -------------------------------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993
Investment securities available for sale
- --------------------------------------------
Mortgage-backed securities*
Government issued or guaranteed $ 74,082 4.21% 154,222 4.46% 203,306 4.66%
Other 24,323 4.40% 125,307 4.65% 211,026 4.73%
Other debt securities 5,195 8.01% 29,294 8.04% 4,857 7.95%
Equity securities - - - - - -
- -------------------------------------------- ------ ----- ------ ----- ------ -----
Total investment securities
available for sale $ 103,600 4.44% 308,823 4.88% 419,189 4.73%
============================================ ======= ===== ======= ===== ======= ======
Investment securities held to maturity
- --------------------------------------------
U.S. Treasury and federal agency $ 1,933 3.71% 171,162 4.36% 98 6.88%
Obligations of states and political
subdivisions 40,922 4.93% 6,097 8.77% 1,817 10.74%
Other debt securities - - 908 7.38% - -
- -------------------------------------------- ------ ----- ------ ----- ------ -----
Total investment securities held
to maturity $ 42,855 4.87% 178,167 4.52% 1,915 10.54%
============================================ ======= ===== ======= ===== ======= ======
Other investment securities $ - - - - - -
- -------------------------------------------- ------ ----- ------ ----- ------ -----
Total investment securities $ 146,455 4.57% 486,990 4.75% 421,104 4.76%
============================================ ======= ===== ======= ===== ======= ======
December 31, 1992
Other investment securities
- --------------------------------------------
U.S. Treasury and federal agency $ 2,000 7.94% - - 13 6.81%
Mortgage-backed securities*
Government issued or guaranteed 47,439 6.29% 102,589 6.09% 158,453 6.63%
Other 34,982 5.90% 121,887 5.76% 67,558 6.22%
Obligations of states and political
subdivisions 31,913 5.66% 13,041 8.07% 1,628 11.36%
Other debt securities 15,435 8.33% 79,178 8.34% 1,078 7.38%
Equity securities - - - - - -
- -------------------------------------------- ------ ----- ------ ----- ------ -----
Total other investment securities $ 131,769 6.30% 316,695 6.61% 228,730 6.54%
============================================ ======= ===== ======= ===== ======= ======
Investment securities held for sale $ 15,093 3.84% 11,071 3.84% 32,052 3.86%
============================================ ======= ===== ======= ===== ======= ======
Total investment securities $ 146,862 6.04% 327,766 6.52% 260,782 6.21%
============================================ ======= ===== ======= ===== ======= ======
* Maturities are reflected based upon contractual payments due. Actual maturities are expected to
be significantly shorter as a result of loan prepayments in the underlying mortgage pools.
</TABLE>
<PAGE>44
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
Table 12
MATURITY AND TAXABLE-EQUIVALENT YIELD OF INVESTMENT SECURITIES-continued
Over ten years Total
------------------ ------------------ Average
Carrying Carrying maturity
Dollars in thousands Value Yield Value Yield in months
- -------------------------------------------- ------ ----- ------ ----- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1993
Investment securities available for sale
- --------------------------------------------
Mortgage-backed securities*
Government issued or guaranteed $ 782,592 4.62% $ 1,214,202 4.58% 169.5
Other 535,246 4.54% 895,902 4.59% 162.0
Other debt securities 1,485 7.95% 40,831 8.03% 44.6
Equity securities - - 23,132 - -
- -------------------------------------------- ------ ----- ------ ----- ------
Total investment securities
available for sale $ 1,319,323 4.59% $ 2,174,067 4.60% 164.0
============================================ ========= ===== ========= ===== =======
Investment securities held to maturity
- --------------------------------------------
U.S. Treasury and federal agency $ - - $ 173,193 4.35% 26.7
Obligations of states and political
subdivisions 394 11.10% 49,230 5.67% 13.7
Other debt securities - - 908 7.38% 59.4
- -------------------------------------------- ------ ----- ------ ----- ------
Total investment securities held
to maturity $ 394 11.10% $ 223,331 4.66% 23.9
============================================ ======= ====== ======= ===== =======
Other investment securities $ - - $ 31,754 - -
- -------------------------------------------- --------- ----- --------- ----- ------
Total investment securities $ 1,319,717 4.59% $ 2,429,152 4.55% 150.8
============================================ ========= ===== ========= ===== =======
December 31, 1992
Other investment securities
- --------------------------------------------
U.S. Treasury and federal agency $ - - $ 2,013 7.93% 1.7
Mortgage-backed securities*
Government issued or guaranteed 420,360 6.22% 728,841 6.30% 153.1
Other 326,221 5.76% 550,648 5.83% 160.4
Obligations of states and political
subdivisions 7,207 11.08% 53,789 7.14% 51.5
Other debt securities - - 95,691 8.33% 38.5
Equity securities - - 15,859 - -
- -------------------------------------------- ------- ----- --------- ----- ------
Total other investment securities $ 753,788 6.07% $ 1,446,841 6.22% 144.2
============================================ ======= ===== ========= ===== =======
Investment securities held for sale $ 215,507 3.83% $ 273,723 3.84% 200.3
============================================ ======= ===== ========= ===== =======
Total investment securities $ 969,295 5.57% $ 1,720,564 5.84% 153.2
============================================ ======= ===== ========= ===== =======
* Maturities are reflected based upon contractual payments due. Actual maturities are expected to
be significantly shorter as a result of loan prepayments in the underlying mortgage pools.
</TABLE>
<PAGE>45
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
Table 13
<CAPTION>
MATURITY DISTRIBUTION OF LOANS*
December 31, 1993
After
Dollars in thousands Demand 1994 1995-98 1998
- ----------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial, financial, agricultural, etc. $ 871,172 204,163 280,752 52,865
Real estate-construction 12,330 27,048 11,853 -
- ----------------------------------------- -------- -------- -------- --------
Total $ 883,502 231,211 292,605 52,865
========================================= ======== ======== ======== ========
Floating or adjustable interest rates $ 226,472 39,436
Fixed or predetermined interest rates 66,133 13,429
- ----------------------------------------- -------- --------
Total $ 292,605 52,865
========================================= ======== ========
* The data do not include nonaccrual loans.
</TABLE>
<PAGE>46
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
Table 14
<CAPTION>
INTEREST-RATE SENSITIVITY
Amount in Percent of
December 31, 1993 millions total assets
- ----------------------------------------------- ------------ ------------
<S> <C> <C>
Net assets (liabilities) rate-sensitive within:
Three Months $ (1,397) (13.5)%
Six months (1,119) (10.8)
Twelve months (740) (7.1)
=============================================== ============ ============
December 31, 1992
- -----------------------------------------------
Net assets (liabilities) rate-sensitive within:
Three Months $ (2,146) (22.4)%
Six months (2,076) (21.7)
Twelve months (1,852) (19.3)
============================================== ============ ============
</TABLE>
<PAGE>47
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
Table 15
<CAPTION>
REGULATORY CAPITAL RATIOS
First East
Empire M&T New
December 31, 1993 (Consolidated) Bank York
- ----------------------------------- -------------- --------- --------
<S> <C> <C> <C>
Core capital 9.33% 8.99% 9.73%
Total capital 11.58% 11.45% 10.98%
Leverage 6.63% 6.07% 7.64%
=================================== ============== ========= ========
</TABLE>
<PAGE>48
Item 8. Financial Statements and Supplementary Data. Financial
Statements and Supplementary Data consist of the financial
statements as indexed and presented below and table 2 "Quarterly
Trends" presented in Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants
Consolidated Balance Sheet -
December 31, 1993 and 1992
Consolidated Statement of Income -
Years ended December 31, 1993, 1992 and 1991
Consolidated Statement of Cash Flows -
Years ended December 31, 1993, 1992 and 1991
Consolidated Statement of Changes in
Stockholders' Equity - Years ended December 31,
1993, 1992 and 1991
Notes to Financial Statements
<PAGE>49
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of First Empire State
Corporation:
We have audited the accompanying consolidated balance sheet of First Empire
State Corporation and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of First Empire
State Corporation and subsidiaries at December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 115, which
changed its method of accounting for investments in debt and equity
securities as of December 31, 1993.
/s/ Price Waterhouse
- --------------------
Price Waterhouse
Buffalo, New York
January 10, 1994
<PAGE>50
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED BALANCE SHEET
December 31
-------------------------------
Dollars in thousands, except per share 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Cash and due from banks $ 195,792 264,506
Money-market assets
Interest-bearing deposits at banks 55,044 110,041
Federal funds sold and
agreements to resell securities 329,429 312,461
Trading account 9,815 53,515
- ------------------------------------------------------------------------------------------------------------
Total money-market assets 394,288 476,017
- ------------------------------------------------------------------------------------------------------------
Investment securities
Available for sale (cost: $2,158,262) 2,174,067 -
Held to maturity (market value: $223,617) 223,331 -
Held for sale (cost: $274,402) - 273,723
Other (market value: $31,754 in 1993;
$1,472,995 in 1992) 31,754 1,446,841
- -------------------------------------------------------------------------------------------------------------
Total investment securities 2,429,152 1,720,564
- -------------------------------------------------------------------------------------------------------------
Loans and leases 7,439,059 7,148,517
Unearned discount (177,960) (164,713)
Allowance for possible credit losses (195,878) (151,690)
- -------------------------------------------------------------------------------------------------------------
Loans and leases, net 7,065,221 6,832,114
- -------------------------------------------------------------------------------------------------------------
Premises and equipment 134,874 128,783
Accrued interest and other assets 145,631 165,947
- -------------------------------------------------------------------------------------------------------------
Total assets $ 10,364,958 9,587,931
=============================================================================================================
Liabilities Noninterest-bearing deposits $ 1,052,258 1,078,690
NOW accounts 764,690 770,618
Savings deposits 3,364,983 3,573,717
Time deposits 1,982,272 2,536,309
Deposits at foreign office 189,058 117,776
- -------------------------------------------------------------------------------------------------------------
Total deposits 7,353,261 8,077,110
- -------------------------------------------------------------------------------------------------------------
Federal funds purchased and agreements
to repurchase securities 1,381,335 329,161
Other short-term borrowings 720,332 363,530
Accrued interest and other liabilities 110,446 115,650
Long-term borrowings 75,000 75,000
Obligations under capital leases 590 685
- -------------------------------------------------------------------------------------------------------------
Total liabilities 9,640,964 8,961,136
- -------------------------------------------------------------------------------------------------------------
Stockholders' Equity Preferred stock, $1 par, 1,000,000 shares
authorized, 40,000 shares issued, stated
at aggregate liquidation value 40,000 40,000
Common Stock, $5 par, 15,000,000 shares
authorized, 8,097,472 shares issued 40,487 40,487
Surplus 97,787 96,816
Undivided profits 595,322 509,984
Unrealized investment gains, net 9,148 -
Treasury stock-common, at cost-1,218,347 shares
in 1993; 1,257,426 shares in 1992 (58,750) (60,492)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 723,994 626,795
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,364,958 9,587,931
==============================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>51
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31
-------------------------------------------------------
Dollars in thousands, except per share 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income Loans and leases, including fees $ 608,473 602,932 592,395
Money-market assets
Deposits at banks 6,740 1,083 7,864
Federal funds sold and
agreements to resell securities 20,403 18,100 5,322
Trading account 1,242 2,927 15,716
Investment securities
Fully taxable 101,187 125,529 138,808
Exempt from federal taxes 2,584 5,906 9,292
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 740,629 756,477 769,397
- ----------------------------------------------------------------------------------------------------------------------------------
Interest Expense NOW accounts 13,113 16,544 27,418
Savings deposits 90,392 110,142 123,468
Time deposits 98,508 153,588 242,684
Deposits at foreign office 3,243 4,348 9,014
Short-term borrowings 58,459 38,386 36,972
Long-term borrowings and capital leases 6,158 590 659
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 269,873 323,598 440,215
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 470,756 432,879 329,182
Provision for possible credit losses 79,958 84,989 63,412
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible credit losses 390,798 347,890 265,770
- ---------------------------------------------------------------------------------------------------------------------------------
Other income Trust income 23,865 16,905 11,847
Service charges on deposit accounts 32,291 28,372 20,688
Merchant discount and other credit card fees 7,932 6,728 5,776
Trading account profits 2,702 1,684 5,015
Gain on sales of bank investment securities 870 28,050 450
Other revenues from operations 42,884 44,487 33,910
- ---------------------------------------------------------------------------------------------------------------------------------
Total other income 110,544 126,226 77,686
- ---------------------------------------------------------------------------------------------------------------------------------
Other expense Salaries and employee benefits 154,340 130,751 103,201
Equipment and net occupancy 47,823 41,659 33,350
Printing, postage and supplies 13,021 13,111 10,727
Deposit insurance 17,684 17,783 15,222
Other costs of operations 94,951 108,034 66,161
- ---------------------------------------------------------------------------------------------------------------------------------
Total other expense 327,819 311,338 228,661
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 173,523 162,778 114,795
Applicable income taxes 71,531 64,841 47,601
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 101,992 97,937 67,194
=================================================================================================================================
Net income per common share
Primary $13.87 13.41 9.32
Fully diluted 13.42 12.98 9.15
See accompanying notes to financial statements.
</TABLE>
<PAGE>52
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31
-------------------------------------------------------
Dollars in thousands 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net income $ 101,992 97,937 67,194
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 79,958 84,989 63,412
Depreciation and amortization of premises
and equipment 16,238 12,970 9,611
Provision for deferred income taxes (23,700) (27,868) 3,307
Asset write-downs 9,037 23,102 4,245
Net gain on sales of assets (870) (34,813) (7,840)
Net change in accrued interest receivable, payable (6,946) 11,392 2,162
Net change in other accrued income and expense 35,807 14,477 (1,541)
Net change in loans held for sale (70,462) (51,571) (40,296)
Net change in trading account assets 43,700 186,697 159,467
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 184,754 317,312 259,721
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from Proceeds from sales of investment securities - 843,547 117,322
investing activities Proceeds from maturities of investment securities 1,298,887 992,545 516,012
Purchases of investment securities (2,011,405) (901,257) (1,315,184)
Net (increase) decrease in interest-bearing
deposits at banks 54,997 (109,113) 403,373
Proceeds from sales of loans - 103,461 207,857
Purchase of loans - (264,324) -
Net (increase) decrease in loans issued
and collected (242,060) 257,022 79,916
Purchase of assets to be leased (2,508) (488) (305)
Payments on lease receivables 2,319 714 392
Capital expenditures, net (22,329) (32,335) (28,573)
Acquisitions, net of cash acquired - 17,182 626,071
Other, net 28,842 (12,061) (9,325)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (893,257) 894,893 597,556
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from Net decrease in deposits (722,480) (700,910) (880,657)
financing activities Net increase (decrease) in short-term borrowings 1,408,976 (338,285) 50,613
Proceeds from issuance of subordinated notes - 75,000 -
Payments on long-term borrowings (95) (1,595) (926)
Proceeds from issuance of preferred stock - - 40,000
Dividends paid-common (13,054) (10,780) (9,344)
Dividends paid-preferred (3,600) (3,600) (2,860)
Other, net (12,990) 8,413 (18,921)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 656,757 (971,757) (822,095)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents $ (51,746) 240,448 35,182
Cash and cash equivalents at beginning of year 576,967 336,519 301,337
Cash and cash equivalents at end of year $ 525,221 576,967 336,519
==================================================================================================================================
Supplemental Interest received during the year $ 750,947 761,857 756,432
disclosure of cash Interest paid during the year 278,125 328,100 440,129
flow information Income taxes paid during the year 77,024 97,182 44,501
==================================================================================================================================
Supplemental
schedule of noncash
investing activities Real estate acquired in settlement of loans $ 9,415 20,572 13,707
==================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 53
<TABLE>
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
Preferred Common Undivided investment Treasury
Dollars in thousands, except per share stock stock Surplus profits gains,net stock Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 Balance - January 1, 1991 $ - 40,487 95,337 371,437 - (70,049) $437,212
Net income - - - 67,194 - - 67,194
Issuance of preferred stock 40,000 - - - - - 40,000
Preferred stock cash dividends - - - (2,860) - - (2,860)
Common stock cash dividends -
$ 1.40 per share - - - (9,344) - - (9,344)
Exercise of stock options - - (50) - - 3,623 3,573
- -----------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1991 $40,000 40,487 95,287 426,427 - (66,426) $535,775
- -----------------------------------------------------------------------------------------------------------------------
1992 Net income - - - 97,937 - - 97,937
Preferred stock cash dividends - - - (3,600) - - (3,600)
Common stock cash dividends -
$ 1.60 per share - - - (10,780) - - (10,780)
Exercise of stock options - - 1,529 - - 5,934 7,463
- -----------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1992 $40,000 40,487 96,816 509,984 - (60,492) $626,795
- ----------------------------------------------------------------------------------------------------------------------
1993 Net income - - - 101,992 - - 101,992
Preferred stock cash dividends - - - (3,600) - - (3,600)
Common stock cash dividends -
$ 1.90 per share - - - (13,054) - - (13,054)
Exercise of stock options - - 971 - - 1,742 2,713
Unrealized gain on investment
securities available for sale, net - - - - 9,148 - 9,148
- -----------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1993 $40,000 40,487 97,787 595,322 9,148 (58,750) $723,994
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>54
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Empire State Corporation and
subsidiaries ("the Company") conform to generally accepted accounting
principles and to general practices within the banking industry. The more
significant accounting policies are as follows:
Consolidation
The consolidated financial statements include First Empire State
Corporation ("Parent Company") and its subsidiaries, all of which are
wholly owned. The financial statements of the Parent Company report
investments in subsidiaries under the equity method, adjusted for the
impact of significant intercompany transactions, all of which are
eliminated in consolidation. Certain data have been reclassified to
conform with the current year presentation.
Consolidated Statement of Cash Flows
For purposes of this statement, cash and due from banks, Federal funds sold
and agreements to resell securities are considered cash and cash
equivalents.
Trading account
Trading account assets are stated at market value. Gains and losses on the
sales of trading account assets and adjustments to market values are
included in trading account profits in the Consolidated Statement of
Income.
Investment securities
On December 31, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". As required, the provisions of SFAS No. 115 were not
applied to any prior periods.
Investments in debt securities are classified as held to maturity and
stated at amortized cost when management has the positive intent and
ability to hold such securities to maturity. Investments in other debt
securities and equity securities having readily determinable fair values
are classified as available for sale and stated at estimated fair value.
Unrealized gains or losses related to investment securities available for
sale are reflected in stockholders' equity, net of applicable income taxes.
Other securities at December 31, 1993 included stock of the Federal Reserve
Bank of New York and Federal Home Loan Bank of New York and are stated at
cost.
Amortization of premiums and accretion of discounts for investment
securities available for sale and held to maturity are included in interest
income. The cost basis of individual securities is written down to
estimated fair value through a charge to earnings when declines in value
below amortized cost are considered to be other than temporary. Realized
gains and losses on the sales of investment securities are determined using
the specific identification method.
Prior to December 31, 1993 debt securities were carried at amortized cost
when management had both the ability and intent to hold such securities to
maturity. Periodic sales of these securities occurred principally as a
result of reactive measures taken by management to changing business
circumstances.
<PAGE>55
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
1. SIGNIFICANT ACCOUNTING POLICIES, continued
Investment securities, continued
When it became probable that a debt security would be sold, the security
was classified as held for sale. Investment securities held for sale were
reported at the lower of aggregate cost or fair market value. Adjustments
to the carrying value of investment securities held for sale were included
in gain on sales of bank investment securities in the Consolidated
Statement of Income. Equity securities were stated at the lower of cost or
fair market value. Declines in value considered to be other than temporary
were recognized as losses on sales of bank investment securities in the
Consolidated Statement of Income. Securities not classified as held for
sale at December 31, 1992 were included in other securities in the
Consolidated Balance Sheet.
Loans
Interest income on loans is accrued on a level yield method. Loans are
placed on nonaccrual status and previously accrued interest thereon is
charged against income when principal or interest is delinquent 90 days,
unless management determines that the loan status clearly warrants other
treatment. Loan fees and certain direct loan origination costs are
deferred and recognized as an interest yield adjustment over the life of
the loan. Net deferred fees have been included in unearned discount on the
Consolidated Balance Sheet as a reduction of loans outstanding. Loans held
for sale are carried at the lower of cost or fair market value. Valuation
adjustments made on these loans are included in other revenues from
operations in the Consolidated Statement of Income.
Allowance for possible credit losses
The allowance for possible credit losses represents the amount which, in
management's judgment, will be adequate to absorb credit losses from
existing loans, leases and credit commitments. The adequacy of the
allowance is determined by management's evaluation of the loan portfolio
based on 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, any delinquency in
payments, and the value of any collateral.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed principally using the straight-line method
over the estimated useful lives of the assets.
Income taxes
In 1992 the Company adopted SFAS No. 109, "Accounting for Income Taxes".
The provisions for SFAS No. 109 were not applied to any prior periods.
Investment tax credits related to leveraged leasing property are amortized
into income tax expense over the life of the lease agreement.
Financial futures
On occasion the Company uses interest rate futures contracts as part of its
management of interest rate risk. Outstanding financial futures contracts
represent future commitments and are not included in the Consolidated
Balance
<PAGE>56
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Financial futures, continued
Sheet. Futures contracts used in securities trading operations are marked
to market and the resulting gains or losses are recognized in trading
account profits. Gains and losses on futures contracts designated as
hedges are amortized as an adjustment to interest income or expense over
the life of the item hedged.
Interest rate swap agreements
For interest rate swap agreements entered into for the purpose of hedging
interest rate risk, income or expense is recognized as accrued under the
terms of the agreement as an adjustment to interest income or expense on
the item hedged. Agreements and commitments entered into for trading
purposes are marked to market with resulting gains or losses recorded in
trading account profits.
Earnings per common share
Earnings per common share data are computed on the basis of the weighted
average number of shares outstanding during the year, plus shares issuable
upon the assumed exercise of outstanding common stock options. Proceeds
assumed to have been received on such exercise are treated as if applied
toward the repurchase of outstanding common shares in the open market
during the year, as required under the "treasury stock" method of
accounting.
2. ACQUISITIONS
On July 1, 1992, the Company consummated the merger of Central Trust
Company, Rochester, New York ("Central Trust"), and Endicott Trust Company,
Endicott, New York ("Endicott Trust"), with and into Manufacturers and
Traders Trust Company ("M&T Bank"), a wholly owned subsidiary of the Parent
Company, simultaneous with their acquisition from Midlantic Corporation.
Assets totaling approximately $1.4 billion and deposits totaling
approximately $1.3 billion were acquired, for which M&T Bank paid $57.2
million in cash. The transaction, which was accounted for under the
purchase method of accounting, did not create a material amount of
intangible assets.
The following table depicts certain proforma information as if the Central
Trust and Endicott Trust acquisitions had occurred on January 1, 1991.
These results combine the historical results of Central Trust and Endicott
Trust into the Company's income statement and, while certain adjustments
were made for the estimated impact of purchase accounting adjustments and
other acquisition-related activity, they are not necessarily indicative of
what would have occurred had the acquisition taken place at that time.
Proforma
Year ended December 31
1992 1991
---- ----
(in thousands,
except per share)
Interest income $ 809,687 888,413
Other income 143,103 96,381
Net income 98,285 74,850
Earnings per common share $ 13.46 10.43
======== =======
<PAGE>57
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
3. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities were
as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ------------ ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1993
Investment securities
available for sale:
Mortgage-backed securities
Government issued
or guaranteed $1,210,921 7,950 4,669 1,214,202
Other 896,362 3,670 4,130 895,902
Other debt securities 39,893 938 - 40,831
Equity securities 11,086 12,266 220 23,132
--------- ------------ ---------- ----------
2,158,262 24,824 9,019 2,174,067
========= ============ ========== ==========
Investment securities
held to maturity:
U.S. Treasury and
federal agency 173,193 83 405 172,871
Obligations of states and
political subdivisions 49,230 701 51 49,880
Other debt securities 908 13 55 866
---------- ------------ ---------- ------------
223,331 797 511 223,617
----------- ------------ ---------- ------------
Other securities 31,754 - - 31,754
----------- ------------ ---------- ------------
Total $2,413,347 25,621 9,530 2,429,438
=========== ============ ========== ============
December 31, 1992
U.S. Treasury and
federal agency $ 2,013 10 - 2,023
Obligations of states
and political
subdivisions 53,789 920 203 54,506
Mortgage-backed securities
Government issued
or guaranteed 728,841 12,870 1,690 740,021
Other 550,648 3,383 2,880 551,151
Other securities 111,550 13,801 57 125,294
----------- ------------ ---------- ------------
1,446,841 30,984 4,830 1,472,995
=========== ============ ========== ============
Investment securities
held for sale:
Mortgage-backed securities
Government issued
or guaranteed 186,215 - 448 185,767
Other 88,187 - 231 87,956
---------- ------------ ----------- ------------
274,402 - 679 273,723
---------- ------------ ----------- ------------
Total $1,721,243 30,984 5,509 1,746,718
========== ============= =========== ============
</TABLE>
<PAGE>58
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
3. INVESTMENT SECURITIES, CONTINUED
On December 31, 1993 the Company adopted SFAS No. 115 which expands the use
of fair value accounting for certain investments in debt and equity
securities, while retaining the use of the amortized cost method of
accounting for investments in debt securities that the reporting enterprise
has the positive intent and ability to hold to maturity. The adoption of
SFAS No. 115 had no impact on reported net income, but increased
stockholders' equity by $9.1 million. Such increase is the unrealized gain
on investment securities available for sale, as defined in SFAS No. 115,
net of applicable income taxes.
At December 31, 1993, mortgage-backed securities included collateralized
mortgage obligations with an amortized cost and market value of
$1,184,026,000 and $1,182,194,000, respectively. At December 31, 1992,
collateralized mortgage obligations included in mortgaged-backed securities
held for investment had an amortized cost and market value of $733,489,000
and $734,585,000, respectively. The securities held for sale at December
31, 1992 were all collateralized mortgage obligations. Included in other
securities at December 31, 1992 are equity securities with a cost and
market value of $15,859,000 and $26,226,000, respectively.
Proceeds from the sales of debt securities were $843,315,000 and
$116,902,000 in 1992 and 1991, respectively. Gross realized gains and
losses were $31,742,000 and $3,013,000 in 1992, respectively, and $501,000
and $28,000 in 1991, respectively. Gains recognized in 1993 consisted of
appreciation in market value of investment securities held for sale at
December 31, 1992.
The amortized cost and estimated fair value of debt securities by
contractual maturity were as follows:
Estimated
Amortized fair
cost value
--------- --------
(in thousands)
December 31, 1993
Debt securities available for sale:
Due in one year or less $ 5,076 5,195
Due after one year through five years 28,623 29,294
Due after five years through ten years 4,743 4,857
Due after ten years 1,451 1,485
--------- --------
39,893 40,831
Mortgage-backed securities available
for sale 2,107,283 2,110,104
--------- ---------
$2,147,176 2,150,935
========= =========
Debt securities held to maturity:
Due in one year or less $ 42,855 42,944
Due after one year through five years 178,167 178,032
Due after five years through ten years 1,915 2,152
Due after ten years 394 489
--------- ---------
$ 223,331 223,617
========= =========
At December 31, 1993, investment securities with a carrying value of
$1,327,289,000, including $1,202,194,000 of investment securities available
for sale, were pledged to secure demand notes issued to the U.S. Treasury,
borrowings from the Federal Home Loan Bank of New York, repurchase
agreements and governmental deposits.
<PAGE>59
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
4. LOANS AND LEASES
Total gross loans and leases outstanding were comprised of the following:
December 31
1993 1992
---------- ---------
(in thousands)
Loans
Commercial, financial,
agricultural, etc. $1,419,039 1,389,893
Real estate - construction 51,384 35,831
Real estate - mortgage 4,540,177 4,422,730
Consumer 1,337,293 1,211,401
--------- ---------
Total loans 7,347,893 7,059,855
--------- ---------
Leases 91,166 88,662
--------- ---------
Total loans and leases $7,439,059 7,148,517
========= =========
Approximately $204.7 million of the real estate mortgage loans at December
31, 1993 were one-to-four family residential mortgage loans held for sale.
The Company typically retains the mortgage servicing rights related to one-
to-four family residential mortgage loans sold. One-to-four family
residential mortgage loans serviced for others totaled approximately $2.9
billion at December 31, 1993 and $2.2 billion at December 31, 1992.
Approximately $17.6 million of one-to-four family residential mortgage
loans have been sold with recourse. The total credit loss exposure
resulting from loans sold with recourse was considered negligible as of
December 31, 1993.
Included in the table above are nonperforming loans (loans on which
interest was not being accrued, or which were ninety days or more past due
or had been renegotiated at below-market interest rates) of $82,253,000 at
December 31, 1993 and $113,593,000 at December 31, 1992. If nonaccrual and
renegotiated loans had been accruing interest at their originally
contracted terms, interest income on these loans would have amounted to
$10.2 million in 1993 and $9.4 million in 1992. The actual amount included
in interest income during 1993 and 1992 on these loans was $1.4 million and
$1.0 million, respectively.
At December 31, 1993, M&T Bank retained the contractual right to require
the Federal Deposit Insurance Corporation ("FDIC") to repurchase prior to
May 31, 1994, at a discount of 4% of book value, certain loans acquired on
May 31, 1991 from the FDIC from the portfolio of a failed thrift
institution which become adversely classified for regulatory reporting
purposes. The loans on which this right is retained included approximately
$100 million of commercial real estate loans, $53 million of consumer loans
and $196 million of residential mortgage loans at December 31, 1993.
At December 31, borrowings by directors and officers of the Parent Company
and its banking subsidiaries, and by associates of such persons, exclusive
of loans aggregating less than $60,000, amounted to $61,179,000 in 1993 and
$61,061,000 in 1992. During 1993, new borrowings by such persons amounted
to $21,015,000 (including borrowings of new directors or officers that were
outstanding at the time of their election) and repayments and other
deductions equaled $20,897,000.
At December 31, 1993, approximately $132 million of real estate loans,
primarily residential mortgage loans, were pledged to secure short-term
borrowings.
<PAGE>60
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
5. ALLOWANCE FOR POSSIBLE CREDIT LOSSES
Changes in the allowance for possible credit losses were as follows:
1993 1992 1991
----- ----- -----
(in thousands)
Beginning balance $151,690 100,265 74,982
Provision for possible
credit losses 79,958 84,989 63,412
Allowance for possible
credit losses acquired - 12,749 6,000
Net charge-offs
Charge-offs (46,089) (51,384) (48,494)
Recoveries 10,319 5,071 4,365
------- ------- -------
Net charge-offs (35,770) (46,313) (44,129)
------- ------- -------
Ending balance $195,878 151,690 100,265
======= ======= =======
6. PREMISES AND EQUIPMENT
The detail of premises and equipment was as follows:
December 31
1993 1992
` -------- -------
(in thousands)
Land $ 15,151 14,628
Buildings owned 89,613 84,017
Buildings under capital leases 1,773 1,773
Leasehold improvements 30,185 31,176
Furniture and equipment owned 92,544 79,600
-------- -------
229,266 211,194
Less: accumulated depreciation
and amortization
Owned assets 92,819 80,879
Capital leases 1,573 1,532
-------- -------
94,392 82,411
-------- -------
Premises and equipment, net $134,874 128,783
======= =======
Net lease expense for all operating leases totaled $12,051,000 in 1993,
$11,617,000 in 1992 and $10,008,000 in 1991. The bank subsidiaries occupy
certain banking offices and use certain equipment under noncancellable
operating lease agreements expiring at various dates over the next 23
years. Minimum lease payments under noncancellable operating leases are
summarized as follows:
Year ending December 31 (in thousands)
1994 $ 5,782
1995 7,193
1996 6,548
1997 6,820
1998 6,184
Later years 61,299
------
$93,826
======
Payments required under capital leases are not material.
<PAGE>61
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
7. BORROWINGS
The amount and interest rate of short-term borrowings were as follows:
Federal funds
purchased and
repurchase Other
agreements borrowings Total
---------- ---------- -----
(dollars in thousands)
At December 31, 1993
Amount outstanding $ 1,381,335 720,332 2,101,667
Weighted-average
interest rate 3.41% 2.97% 3.26%
For the year ended
December 31, 1993
Highest amount
at a month-end $ 2,434,239 720,332
Daily-average
amount outstanding 1,639,537 282,989 1,922,526
Weighted-average
interest rate 3.06% 2.93% 3.04%
=========== ========== ==========
At December 31, 1992
Amount outstanding $ 329,161 363,530 692,691
Weighted-average
interest rate 3.19% 2.49% 2.82%
For the year ended
December 31, 1992
Highest amount
at a month-end $ 1,350,404 883,236
Daily-average
amount outstanding 831,494 289,917 1,121,411
Weighted-average
interest rate 3.45% 3.34% 3.42%
========== ========== ==========
At December 31, 1991
Amount outstanding $ 492,887 529,543 1,022,430
Weighted-average
interest rate 3.79% 3.88% 3.84%
For the year ended
December 31, 1991
Highest amount
at a month-end $ 781,807 529,543
Daily-average
amount outstanding 472,335 177,664 649,999
Weighted-average
interest rate 5.67% 5.73% 5.69%
========== ========== ==========
The Parent Company, M&T Bank and The East New York Savings Bank ("East New
York"), a wholly owned subsidiary of the Parent Company, had available
lines of credit under formal agreements at December 31, 1993 aggregating
$25 million, $198 million and $310 million, respectively. Outstanding
borrowings under such arrangements totaled $310 million at East New York.
The Parent Company and M&T Bank had no outstanding borrowings under
available lines of credit at December 31, 1993.
<PAGE>62
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
7. BORROWINGS, CONTINUED
Long-term borrowings at December 31, 1993 and 1992 consisted of M&T Bank's
8 1/8% subordinated notes, due December 1, 2002. Such notes are
subordinate to the claims of depositors and other creditors of M&T Bank.
8. PREFERRED STOCK
On March 15, 1991, the Parent Company issued and sold 40,000 shares of 9%
cumulative convertible preferred stock, $1 par value, for $1,000 per share,
or $40,000,000 in total. The preferred stock is convertible at any time
into shares of the Parent Company's common stock at an initial conversion
price of $78.90625 per share. The conversion formula provides the holder
with anti-dilution protections in the event the Parent Company issues
additional common stock at a price which is less than the conversion price
or in the event that there are other capital changes such as common stock
dividends or stock splits. The Parent Company has the right, subject to
regulatory approval, to redeem the preferred stock, in whole, but not in
part, on or after March 31, 1996 at a price of $40,000,000 plus accrued and
unpaid dividends. The Parent Company must provide at least 45 days notice
to the preferred stockholder of its intention to redeem the shares, during
which time the preferred stockholder may exercise the conversion privilege.
The preferred stock is not considered to be a common stock equivalent.
Preferred stock dividends are deducted from net income when calculating
primary earnings per common share. Fully diluted earnings per common share
calculations assume that the preferred stock was converted to 506,930
shares of common stock at issuance and that no preferred stock dividends
were paid.
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires that financial institutions disclose the estimated "fair value" of
their financial instruments. "Fair value" is generally defined as the
price a willing buyer and a willing seller would exchange for a financial
instrument in other than a distressed sale situation. Disclosures related
to fair value presented herein are as of December 31, 1993 and 1992.
With the exception of marketable securities, certain off-balance sheet
financial instruments and one-to-four family residential mortgages
originated for sale, the Company's financial instruments are not readily
marketable and market prices do not exist. The Company, in attempting to
comply with the provisions of SFAS No. 107, has not attempted to market its
financial instruments to potential buyers, if any exist. Since negotiated
prices in illiquid markets depend greatly upon the then present motivations
of the buyer and seller, it is reasonable to assume that actual sales
prices could vary widely from any estimate of fair value made without the
benefit of negotiations. Additionally, changes in market interest rates
can dramatically impact the value of financial instruments in a short
period of time.
The Company, in arriving at estimated fair value, primarily used
calculations based upon discounted cash flows of the related financial
instruments. In general, discount rates used for loan products were based
upon the Company's pricing at the respective year-end. A higher discount
rate was assumed with respect to estimated cash flows associated with
nonaccrual loans. No value
<PAGE>63
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
was ascribed to existing loan put privileges (see note 4) since these
rights are generally not transferable.
The following table presents the book values and calculated estimates of
fair value related to loans and loan commitments:
Book Calculated
value estimate
---------- ----------
(in thousands)
December 31, 1993
Commercial loans and leases $ 1,490,745 1,490,869
Commercial real estate loans 3,019,859 3,086,602
Residential real estate loans 1,526,104 1,550,504
Consumer loans 1,224,391 1,259,579
---------- ---------
$ 7,261,099 7,387,554
========== =========
December 31, 1992
Commercial loans and leases $ 1,459,371 1,467,377
Commercial real estate loans 2,770,300 2,828,601
Residential real estate loans 1,637,540 1,666,788
Consumer loans 1,116,593 1,159,502
---------- ---------
$ 6,983,804 7,122,268
========== =========
SFAS No. 107 requires that the estimated fair value ascribed to
noninterest-bearing deposits, savings deposits and NOW accounts be
established at book value because of the customer's ability to withdraw
funds immediately. Additionally, time deposit accounts are required to be
revalued based upon prevailing market interest rates for similar maturity
instruments. The following summarizes the results of these calculations:
Book Calculated
value estimate
---------- ----------
(in thousands)
December 31, 1993
Noninterest-bearing deposits $ 1,052,258 1,052,258
Savings deposits and NOW accounts 4,129,673 4,129,673
Time deposits 1,982,272 2,016,376
Deposits at foreign office 189,058 189,058
========== =========
December 31, 1992
Noninterest-bearing deposits $ 1,078,690 1,078,690
Savings deposits and NOW accounts 4,344,335 4,344,335
Time deposits 2,536,309 2,583,752
Deposits at foreign office 117,776 117,746
========== =========
The Company believes that deposit accounts clearly have a value greater
than that prescribed by SFAS No. 107. The Company feels, however, that the
value associated with these deposits is greatly influenced by
characteristics of the buyer, such as its ability to reduce costs of
servicing the deposits and the expected deposit attrition which is
customary in acquisitions. Accordingly, estimating the fair value of
deposits with any degree of certainty is not practical.
<PAGE>64
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Due to the near maturity of short-term borrowings and money-market assets,
the Company estimates that book value of these instruments approximates
estimated fair value. The estimated fair value of long-term borrowings was
$83,607,000 and $77,155,000, compared with a book value of $75,590,000 and
$75,685,000 at December 31, 1993 and 1992, respectively.
The Company does not feel the above is representative of the earnings power
of the Company nor its value. The above analysis, which is inherently
limited in depicting fair value, also does not consider any value
associated with existing customer relationships nor the ability of the
Company to create value through its loan origination, deposit gathering, or
fee generating activities.
Many of the fair value estimates presented herein are based upon the use of
highly subjective information and assumptions and, accordingly, the results
may not be precise. Management believes that fair value estimates may not
be comparable between financial institutions due to the wide range of
permitted valuation techniques and numerous estimates which must be made.
Further, since the fair value is estimated as of the balance sheet date,
the amounts actually realized or paid upon maturity or settlement of the
various financial instruments could be significantly different.
10. STOCK OPTION PLAN
The stock option plan allows the grant of stock options and stock
appreciation rights (either in tandem with options or independently) which
are exercisable over terms not exceeding ten years and one day, and at
prices which may not be less than the fair market value of the common stock
on the date of grant. When exercisable, the stock appreciation rights
issued in tandem with stock options entitle grantees to receive cash, stock
or a combination equal to the amount of stock appreciation between the
dates of grant and exercise. Stock appreciation rights issued
independently of stock options contain similar terms as the stock options,
although upon exercise the holder is only entitled to receive cash instead
of purchasing shares of the Parent Company's common stock. Of the stock
options outstanding at December 31, 1993, 413,633 were granted with limited
stock appreciation rights attached thereto. A summary of related activity
follows:
<PAGE>65
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
10. STOCK OPTION PLAN, CONTINUED
<TABLE>
<CAPTION>
Outstanding
Outstanding cash-only
stock appreciation Exercise price per share
options rights Range Average
--------- ------------ ------- --------
<S> <C> <C> <C> <C>
1991
Beginning balance 508,778 78,500 $ 15.75- 65.25 $ 42.23
Granted 41,559 61,000 53.00- 70.00 54.99
Exercised (81,778) - 15.75- 65.25 29.73
Canceled (8,576) - 40.25- 53.75 50.37
-------- -------- ------------- -------
At year-end 459,983 139,500 15.75- 70.00 46.00
1992
Granted 110,702 - 105.13-131.88 106.65
Exercised (137,288) (14,300) 15.75- 70.00 30.78
Canceled (2,200) (4,000) 40.25-105.13 63.76
-------- -------- ------------- -------
At year-end 431,197 121,200 23.00-131.88 62.13
1993
Granted 119,725 - 133.88-141.50 134.00
Exercised (40,540) (5,800) 35.25-105.13 50.78
Canceled (3,150) (2,200) 53.00-133.88 96.87
-------- -------- ------------- -------
At year-end 507,232 113,200 23.00-141.50 76.55
======== ======== ============= =======
Exercisable at
December 31, 1993 248,838 43,500 $ 23.00- 130.75 $ 50.28
========= ======== ============== ======
</TABLE>
At December 31, 1993 and 1992, respectively, there were 275,670 and 390,045
shares available for future grant. A total of 1,500,000 shares were
authorized under the plan.
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time employees. Pension benefits accrue to
participants based on their level of compensation and the number of years
of service. The Company contributes to the plan an amount sufficient to
meet Internal Revenue Code funding standards.
Net periodic pension cost (benefit) consisted of the following:
1993 1992 1991
---- ---- ----
(in thousands)
Service cost $ 3,075 2,357 1,719
Interest cost on projected benefit
obligation 4,904 4,569 4,323
Actual return on assets (8,217) (6,022) (12,647)
Net amortization and deferral 293 (1,601) 5,294
-------- ------- -------
Net periodic pension cost (benefit) $ 55 (697) (1,311)
======== ======= =======
<PAGE>66
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS, CONTINUED
Data relating to the funding position of the plan were as follows:
1993 1992
---- ----
(in thousands)
Vested accumulated benefit obligation $ (64,169) (50,325)
Total accumulated benefit obligation (66,317) (52,462)
Projected benefit obligation (81,943) (63,769)
Plan assets at fair value 93,601 89,132
Plan assets in excess of projected
benefit obligation 11,658 25,363
Unrecognized net asset (3,775) (4,632)
Unrecognized past service cost - (1,661)
Unrecognized net (gain) loss 2,775 (8,357)
-------- -------
Pension asset $ 10,658 10,713
======== =======
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.0% for 1993 and 7.5% for 1992, while the
assumed rate of increase in future compensation was 5.0% for 1993 and 5.2%
for 1992. The expected long-term rate of return on assets was 8.25% for
1993 and 1992.
The Company also provides health care and life insurance benefits for
qualified retired employees who reached the age of 55 while working for the
Company. Substantially all salaried employees are covered in the plan.
Net postretirement benefit cost consisted of the following:
1993 1992 1991
---- ---- ----
(in thousands)
Service cost $ 94 48 45
Interest cost on projected benefit obligation 1,094 1,057 989
Actual return on assets (364) (394) (583)
Net amortization and deferral (281) (592) (361)
------- ------ ------
Net postretirement benefit cost $ 543 119 90
======= ====== ======
Data relating to the funding position of the plan were as follows:
1993 1992
---- ----
(in thousands)
Accumulated benefit obligation
Retirees $ 15,196 10,643
Actives
Fully eligible 1,695 2,072
Other 1,180 731
Plan assets at fair value (8,621) (9,076)
------- -------
Accumulated benefit obligation in
excess of plan assets 9,450 4,370
Unrecognized net loss (5,637) (914)
Unrecognized past service cost 2,855 2,734
------- -------
Accrued postretirement benefit cost $ 6,668 6,190
======= =======
The Company on occasion funds a portion of these postretirement benefit
obligations through contributions to a Voluntary Employee Benefit
Association trust account.
<PAGE>67
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS, CONTINUED
The discount rate used in determining the accumulated benefit obligations
was 7% for 1993 and 8% for 1992. The expected long-term rate of return on
assets was 8% for both 1993 and 1992. The medical inflation rate was
assumed to be 14.5% for 1993 and 15.25% for 1992, with a gradual reduction
to 5.5% over twenty years.
The Company's 1993 service cost, interest cost and accumulated benefit
obligation, assuming a 1% increase in the medical inflation rate
assumption, are depicted as follows:
(in thousands)
Accumulated postretirement benefit obligation $19,513
Service cost 94
Interest cost 1,168
======
For purposes of calculating the December 31, 1993 accumulated benefit
obligation for both pension and postretirement benefits, the Company
revised certain mortality assumptions used to estimate the expected lives
of plan participants. This change had no impact on net periodic costs for
1993, but increased the projected benefit obligation for the pension plan
and the accumulated benefit obligation for the postretirement benefit plan
by approximately $8.5 million and $2.3 million, respectively.
12. INCOME TAXES
The components of income tax expense were as follows:
1993 1992 1991
---- ---- ----
(in thousands)
Current
Federal $69,744 65,672 28,287
State and city 25,487 27,037 16,007
------ ------ ------
Total current 95,231 92,709 44,294
====== ====== ======
Deferred
Federal (18,124) (19,919) 5,027
State and city (5,576) (7,949) (1,720)
------ ------ ------
Total deferred (23,700) (27,868) 3,307
------ ------ ------
Total income taxes
applicable to pre-tax income $71,531 64,841 47,601
====== ====== ======
In 1992 the Company adopted SFAS No. 109, "Accounting for Income Taxes".
The provisions of SFAS No. 109, which mandate a liability method of
accounting for income taxes payable and receivable, were not applied for
any period prior to 1992. Since the application of SFAS No. 109 did not
result in any net adjustment to the Company's tax assets and liabilities,
there was no charge or credit reflected in the Consolidated Statement of
Income representing the cumulative effect of a change in accounting
principle in 1992.
The Company files a consolidated tax return which includes all
subsidiaries. East New York may elect to compute its bad debt deduction
for tax purposes as a percentage of taxable income. Applicable federal tax
law allows qualified savings banks the option of deducting as bad debt
expense 8% of their taxable income. However, failure to maintain savings
bank status as defined by the Internal Revenue Code or charges to the
reserve established by these deductions for other than bad debt losses
would create taxable income, subject to the applicable tax rates in effect
at that time. At December 31, 1993,
<PAGE>68
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
12. INCOME TAXES, CONTINUED
East New York's bad debt reserve for federal tax purposes was $45,460,000.
No actions are planned which would cause this reserve to become wholly or
partially taxable.
The portion of income tax expense attributable to gains on sales of bank
investment securities was $392,000 in 1993, $12,016,000 in 1992, and
$186,000 in 1991. No alternative minimum tax ("AMT") expense was recognized
in any year.
Total income taxes differed from the amount computed by applying the
statutory federal income tax rate to pre-tax income as follows:
1993 1992 1991
---- ---- ----
(in thousands)
Income taxes at statutory rate $ 60,733 55,345 39,030
Increase (decrease) in taxes:
Tax-exempt income (2,066) (3,138) (4,759)
State and city income taxes,
net of federal income
tax effect 12,942 12,598 9,429
Thrift bad debt provision, net - - 2,361
Other (78) 36 1,540
------- ------- -------
$ 71,531 64,841 47,601
======= ======= =======
Deferred tax assets (liabilities) were comprised of the following at
December 31:
1993 1992
---- ----
(in thousands)
Retirement benefits $ (4,904) (4,552)
Leasing transactions (72,019) (71,597)
Unrealized investment gains (6,657) -
Gross deferred tax liabilities (83,580) (76,149)
Interest on loans 7,115 6,811
Gain on sales of loans 2,207 2,571
Depreciation and amortization 3,477 2,897
Losses on loans and other assets 76,783 54,747
Postretirement and other
supplemental employee benefits 5,969 5,311
Incentive compensation plans 9,247 7,282
Other 3,060 3,765
Gross deferred tax assets 107,858 83,384
-------- -------
Net deferred asset $ 24,278 7,235
======== =======
Certain timing differences in 1991 had deferred income tax effects
amounting to more than 5% of the year's income taxes computed at 34% of
pre-tax income. Such differences and the related deferred tax charges
(credits) were as follows:
1991
---------
(in thousands)
Losses on loans and other assets $ (8,673)
Leasing transactions 6,583
AMT utilization 10,034
The income tax credits shown in the Statement of Income of the Parent
Company arise principally from its operating losses, before dividends from
subsidiaries.
<PAGE>69
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
13. OTHER INCOME AND OTHER EXPENSE
The following items, which exceeded 1% of total revenues in the respective
period, were included in either other revenues from operations or other
costs of operations in the Consolidated Statement of Income:
1993 1992 1991
---- ----- ----
(in thousands)
Residential mortgage servicing fees $10,359 - -
Gains from sales of loans - - 8,657
Professional services expense
Data processing - 14,343 -
Other - 5,362 -
Advertising expense 9,069 - -
Write-downs of mortgage
servicing rights - 16,800 -
====== ====== ======
14. INTERNATIONAL ACTIVITIES
The Company engages in certain international activities consisting
primarily of purchasing Eurodollar placements, collecting Eurodollar
deposits and engaging in a limited amount of foreign currency trading.
At December 31, 1993 and 1992, assets identified with international
activities amounted to $62,419,000 and $35,653,000, respectively.
15. COMMITMENTS AND CONTINGENCIES
In 1993, the Company entered into currently effective interest rate swap
contracts designated for hedging purposes of $1.0 billion. At December 31,
1993, the Company had outstanding currently effective interest rate swap
contracts with a notional value of approximately $1.2 billion. Under the
terms of these swap agreements, the Company receives interest at a fixed
rate and pays interest at a variable rate. The effects of these interest
rate swap contracts are reflected in interest income on loans and leases
and interest expense on time deposits in the Consolidated Statement of
Income. The net effect of interest rate swaps was to increase net interest
income by $34.2 million, $20.1 million and $7.6 million in 1993, 1992 and
1991, respectively. Of the interest rate swaps currently in effect, $400
million mature in the first quarter of 1996. In general, beginning in
1995, the notional amount of the remaining swaps currently in effect will
decline depending on the level of interest rates or the prepayment behavior
of mortgage-backed securities to which the swaps are indexed. As of
December 31, 1993, the Company had also entered into forward swaps with a
notional amount of $475 million. These forward interest rate swap
commitments had no effect on net income. At December 31, 1992, the Company
had outstanding interest rate swap contracts with a notional value of $525
million.
Interest rate swap contracts are generally entered into with counterparties
with substantial net worth and most contain collateral provisions
protecting the at-risk party. The Company considers the credit risk
inherent in these contracts to be negligible. The Company's interest rate-
swap contracts had estimated market values of $15.6 million and $9.2
million at December 31, 1993 and 1992, respectively.
<PAGE>70
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, continued
15. COMMITMENTS AND CONTINGENCIES, CONTINUED
Additionally, at December 31, 1993, the Company had entered into option
contracts with a face value totaling $60 million. At December 31, 1993,
the Company's maximum loss exposure under these option contracts, all of
which were carried for trading account purposes, was not material.
In the normal course of business, various commitments and contingent
liabilities are outstanding, such as commitments to extend credit
guarantees and "standby" letters of credit (approximately $152,604,000 at
December 31, 1993), which are not reflected in the financial statements.
No material losses are expected as a result of these transactions.
In the opinion of management, the potential liabilities, if any, arising
from all lawsuits pending against the Company at December 31, 1993 will not
have a materially adverse impact on the Company's consolidated financial
condition. Moreover, management believes that the Company has substantial
defenses in such litigation, but that there can be no assurance that the
potential liabilities, if any, arising from such litigation will not have a
materially adverse impact on the Company's consolidated results of
operations in the future.
16. REGULATORY RESTRICTIONS
The payment of dividends by the banking subsidiaries is restricted by
various legal and regulatory limitations. Dividends by any banking
subsidiary to the Parent Company are limited by the amount of earnings of
the banking subsidiary in the current year and the preceding two years.
For purposes of this test, at December 31, 1993, approximately $186,494,000
was available in the aggregate for payment of dividends to the Parent
Company from M&T Bank without prior regulatory approval. As a result of
dividends paid in prior years, East New York was not permitted to pay
dividends to the Parent Company without prior regulatory approval until
1994.
Banking regulations prohibit extensions of credit by the subsidiary banks
to the Parent Company unless appropriately secured by assets. Securities
of affiliates are not eligible as collateral for this purpose.
The banking subsidiaries are required to maintain noninterest-earning
reserves against deposit liabilities. During the maintenance periods that
included December 31, 1993 and 1992, cash and due from banks included a
daily average of $159,742,000 and $146,536,000, respectively, for such
purpose.
17. PARENT COMPANY REVOLVING CREDIT AGREEMENT
The Parent Company has a revolving credit agreement whereby the Parent
Company may borrow up to $25,000,000 at its discretion through December 28,
1994. The agreement provides for a facility fee assessed on the entire
amount of the commitment (whether or not utilized) ranging from 3/16 to
5/16 of 1% depending on the credit rating of the subordinated notes of M&T
Bank. Additionally, a utilization fee of 1/8 of 1% is assessed on the
daily average of outstandings under the commitment whenever such
outstandings exceed 50% of the commitment. Various interest rate options
exist, including a variable rate based upon the higher of the lender's
prime or the Federal funds rate plus 1/4 of 1%, or a fixed rate based upon
London Interbank Offer Rates. At December 31, 1993, there were no
outstanding balances under such agreement.
<PAGE>71
18. PARENT COMPANY FINANCIAL STATEMENTS
See other notes to financial statements.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
- --------------------------------------------------------------------------------------------------------------------------------
December 31
Dollars in thousands 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Cash
In subsidiary bank $ 91 233
Other 18 17
- ----------------------------------------------------------------------------------------------------------------------------------
Total cash 109 250
Due from subsidiaries
Money-market assets 9,351 2,113
Current income tax receivable 410 4,341
- ----------------------------------------------------------------------------------------------------------------------------------
Total due from subsidiaries 9,761 6,454
Investments in subsidiaries
Banks 702,823 619,561
Other 6 1
Other assets 15,066 4,223
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 727,765 630,489
==================================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings $ - 3,500
Accrued expenses and other liabilities 3,771 194
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,771 3,694
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 723,994 626,795
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 727,765 630,489
==================================================================================================================================
CONDENSED STATEMENT OF INCOME
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
Dollars in thousands, except per share 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends from bank subsidiaries $ 23,000 21,000 57,350
Other income 665 421 439
- ----------------------------------------------------------------------------------------------------------------------------------
Total income 23,665 21,421 57,789
==================================================================================================================================
Expense
- ----------------------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 29 565 944
Other expense 1,979 1,829 2,495
- ----------------------------------------------------------------------------------------------------------------------------------
Total expense 2,008 2,394 3,439
==================================================================================================================================
Income before income taxes and equity in
undistributed income of subsidiaries 21,657 19,027 54,350
Parent Company income tax credits 688 879 1,306
- ----------------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiaries 22,345 19,906 55,656
- ----------------------------------------------------------------------------------------------------------------------------------
Equity in undistributed income of subsidiaries
- ----------------------------------------------------------------------------------------------------------------------------------
Net income
Banks subsidiaries 102,642 99,031 68,888
Other subsidiaries 5 - -
Less: dividends received (23,000) (21,000) (57,350)
- ----------------------------------------------------------------------------------------------------------------------------------
Equity in undistributed income of subsidiaries 79,647 78,031 11,538
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 101,992 97,937 67,194
==================================================================================================================================
Net income per common share $13.87 13.41 9.32
</TABLE>
<PAGE>72
18. PARENT COMPANY FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
Dollars in thousands 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 101,992 97,937 67,194
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed income of subsidiaries (79,647) (78,031) (11,538)
Provision for deferred income taxes (82) (20) (177)
Net change in accrued interest receivable, payable (24) (34) (209)
Net change in other accrued income and expense 5,033 1,378 885
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 27,272 21,230 56,155
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in capital investment in subsidiaries - - (86,000)
Other, net (1,809) (6) 89
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,809) (6) (85,911)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
- ----------------------------------------------------------------------------------------------------------------------------------
Net decrease in short-term borrowings (3,500) (8,500) (500)
Proceeds from issuance of preferred stock - - 40,000
Dividends paid-common (13,054) (10,780) (9,344)
Dividends paid-preferred (3,600) (3,600) (2,860)
Other, net 1,788 3,172 2,246
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (18,366) (19,708) 29,542
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ 7,097 1,516 (214)
Cash and cash equivalents at beginning of year 2,363 847 1,061
Cash and cash equivalents at end of year $ 9,460 2,363 847
==================================================================================================================================
Supplemental disclosure of cash flow
Information
- ----------------------------------------------------------------------------------------------------------------------------------
Interest received during the year $ 658 421 438
Interest paid during the year 46 600 1,152
Income taxes received during the year 5,462 2,399 1,383
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>73
Item 9. Changes In and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure. None.
--------------------
PART III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The identification of the Registrant's directors is incorporated by
reference to the caption "NOMINEES FOR DIRECTOR" contained in the
Registrant's definitive Proxy Statement for its 1994 Annual Meeting
of Stockholders, which was filed with the Securities and Exchange
Commission on March 10, 1994. The identification of the
Registrant's executive officers is presented under the caption
"Executive Officers of the Registrant" contained in Part I of this
Annual Report on Form 10-K.
Disclosure of compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, by the Registrant's directors and
executive officers, and persons who are the beneficial owners of
more than 10% of the Registrant's common stock, is incorporated by
reference to the caption "STOCK OWNERSHIP BY DIRECTORS AND
EXECUTIVE OFFICERS" contained in the Registrant's definitive Proxy
Statement for its 1994 Annual Meeting of Stockholders.
Item 11. Executive Compensation. Incorporated by reference to the
-----------------------
Registrant's definitive Proxy Statement for its 1994 Annual Meeting
of Stockholders, which was filed with the Securities and Exchange
Commission on March 10, 1994.
Item 12. Security Ownership of Certain Beneficial Owners and
---------------------------------------------------
Management. Incorporated by reference to the Registrant's
----------
definitive Proxy Statement for its 1994 Annual Meeting of
Stockholders, which was filed with the Securities and Exchange
Commission on March 10, 1994.
Item 13. Certain Relationships and Related Transactions. Incorporated
----------------------------------------------
by reference to the Registrant's definitive Proxy Statement for its
1994 Annual Meeting of Stockholders, which was filed with the
Securities and Exchange Commission on March 10, 1994.
<PAGE>74
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a) Financial statements and financial statement schedules filed as part of
this Annual Report on Form 10-K. See Part II, Item 8. "Financial
Statements and Supplementary Data".
The financial statement schedules required by Rule 9-07 under
Regulation S-X are omitted because the required information is not
applicable.
(b) Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K dated December 14,
1993 with the Securities and Exchange Commission on December 17, 1993
reporting that the Registrant had been authorized by the Executive
Committee of its Board of Directors to purchase and hold as treasury
stock up to 506,930 additional shares of the Registrant's common stock,
or approximately 7.4% of those then currently outstanding, as a reserve
for the possible future conversion of the shares of the 9% Convertible
Preferred Stock of First Empire (Parent) into shares of the
Registrant's common stock. Under this authorization, shares of common
stock may be purchased from time-to-time in the open market or in
privately negotiated transactions.
(c) Exhibits required by Item 601 of Regulation S-K.
The exhibits listed on the Exhibit Index on pages 78 and 79 of this
Annual Report on Form 10-K have been previously filed, are filed
herewith or are incorporated herein by reference to other filings.
(d) Additional financial statement schedules.
None.
<PAGE>75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 16th day of March,
1994.
FIRST EMPIRE STATE CORPORATION
By: /s/ Robert G. Wilmers
------------------------------------
Robert G. Wilmers
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- -----
Principal Executive
Officers:
/s/ Robert G. Wilmers
- ---------------------- President and
Robert G. Wilmers Chief Executive Officer 3/16/94
/s/ Paul B. Murray
- ---------------------- Chairman of the Board 3/16/94
Paul B. Murray
Principal Financial
and Accounting Officer:
/s/ James L. Vardon
- ----------------------- Executive Vice President
James L. Vardon and Chief Financial Officer 3/16/94
<PAGE>76
A majority of the board of directors:
/s/ Brent D. Baird 3/16/94
- ------------------------------------ ------------
Brent D. Baird
/s/ John H. Benisch 3/16/94
- ------------------------------------ ------------
John H. Benisch
/s/ Angela Bontempo 3/16/94
- ------------------------------------ ------------
Angela Bontempo
/s/ Patrick J. Callan 3/16/94
- ------------------------------------ ------------
Patrick J. Callan
/s/ David N. Campbell 3/16/94
- ------------------------------------ ------------
David N. Campbell
/s/ James A. Carrigg 3/16/94
- ------------------------------------ ------------
James A. Carrigg
/s/ Barber B. Conable, Jr. 3/16/94
- ------------------------------------ ------------
Barber B. Conable, Jr.
/s/ Richard E. Garman 3/16/94
- ------------------------------------ ------------
Richard E. Garman
/s/ Roy M. Goodman 3/16/94
- ------------------------------------ ------------
Roy M. Goodman
/s/ Patrick W.E. Hodgson 3/16/94
- ------------------------------------ ------------
Patrick W.E. Hodgson
/s/ Lambros J. Lambros 3/16/94
- ------------------------------------ ------------
Lambros J. Lambros
/s/ Wilfred J. Larson 3/16/94
- ------------------------------------ ------------
Wilfred J. Larson
/s/ Paul B. Murray 3/16/94
- ------------------------------------ ------------
Paul B. Murray
/s/ Jorge G. Pereira 3/16/94
- ------------------------------------ ------------
Jorge G. Pereira
/s/ William C. Shanley, III 3/16/94
- ------------------------------------ ------------
William C. Shanley, III
<PAGE>77
/s/ Raymond D. Stevens, Jr. 3/16/94
- ------------------------------------ ------------
Raymond D. Stevens, Jr.
/s/ Peter Tower 3/16/94
- ------------------------------------ ------------
Peter Tower
/s/ Richard D. Trent 3/16/94
- ------------------------------------ ------------
Richard D. Trent
/s/ Samuel F. Ward 3/16/94
- ------------------------------------ ------------
Samuel F. Ward
/s/ Robert G. Wilmers 3/16/94
- ------------------------------------ ------------
Robert G. Wilmers
<PAGE>78
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation of First Empire State
Corporation dated April 19, 1989, filed by the Secretary of State
of New York on April 20, 1989. Incorporated by reference to
Exhibit No. 19 to the Form 10-Q for the quarter ended March 31,
1989 (File No. 1-9861).
3.2 Certificate of Amendment of the Certificate of Incorporation of
First Empire State Corporation dated March 13, 1991, filed by the
Secretary of State of New York on March 14, 1991. Incorporated by
reference to Exhibit No. 19 to the Form 10-Q for the quarter ended
March 31, 1991 (File No. 1-9861).
3.3 By-Laws of First Empire State Corporation as last amended on July
16, 1991. Incorporated by reference to Exhibit No. 3.2 to the Form
10-K for the year ended December 31, 1991 (File No. 1-9861).
4 Instruments defining the rights of security holders, including
indentures. Incorporated by reference to Exhibit Nos. 3.1, 3.2,
3.3, 10.1 and 10.2 hereof.
10.1 Credit Agreement, dated as of December 30, 1993, between First
Empire State Corporation and The Chase Manhattan Bank, N.A. Filed
herewith.
10.2 First Empire State Corporation 1983 Stock Option Plan, as amended.
Incorporated by reference to Exhibit No. 10.3 to the Form 10-K for
the year ended December 31, 1991 (File No. 1-9861).
10.3 First Empire State Corporation Annual Executive Incentive Plan.
Incorporated by reference to Exhibit No. 10.4 to the Form 10-K for
the year ended December 31, 1992 (File No. 1 - 9861).
Supplemental Deferred Compensation Agreements between Manufacturers and
Traders Trust Company and:
10.4 Robert E. Sadler, Jr. and James L. Vardon, each dated as of March
7, 1985. Incorporated by reference to Exhibit Nos. (10)(d) (A) and
(B), respectively, to the Form 10-K for the year ended December 31,
1984 (File No. 0-4561);
10.5 Harry R. Stainrook dated as of December 12, 1985. Incorporated by
reference to Exhibit No. (10)(e)(ii) to the Form 10-K for the year
ended December 31, 1985 (File No. 0-4561);
10.6 William C. Rappolt dated as of March 7, 1985. Incorporated by
reference to Exhibit No. (10)(e)(iv) to the Form 10-K for the year
ended December 31, 1987 (File No. 1-9861); and
10.7 William A. Buckingham dated as of August 7, 1990. Incorporated by
reference to Exhibit No. 10.8 to the Form 10-K for the year ended
December 31, 1990 (File No. 1-9861).
10.8 Salary Continuation Agreement, dated as of April 16, 1987, between
The East New York Savings Bank and Paul B. Murray. Incorporated by
reference to Exhibit No. (10)(f) to the Form 10-K for the year
ended December 31, 1987 (File No. 1-9861).
<PAGE>79
10.9 Employment Agreement, dated as of December 24, 1987, among First
Empire State Corporation, The East New York Savings Bank and Paul
B. Murray. Incorporated by reference to Exhibit No. (10)(g) to the
Form 10-K for the year ended December 31, 1987 (File No. 1-9861).
10.10 Supplemental Deferred Compensation Agreement, dated July 17, 1989,
between The East New York Savings Bank and Atwood Collins, III.
Incorporated by reference to Exhibit No. 10.11 to the Form 10-K for
the year ended December 31, 1991 (File No. 1-9861).
11 Statement re: Computation of Earnings Per Common Share. Filed
herewith.
21 Subsidiaries of the Registrant. Incorporated by reference to
the caption "Subsidiaries" contained in Part I, Item 1 hereof.
23.1 Consent of Price Waterhouse re: Registration Statement No. 33-
32044. Filed herewith.
23.2 Consent of Price Waterhouse re: Registration Statement No. 33-
12207. Filed herewith.
23.3 Consent of Price Waterhouse re: Registration Statement No. 33-
58500. Filed herewith.
99.1 Annual Report of the First Empire State Corporation Retirement
Savings Plan and Trust for the fiscal year ended December 31, 1993.
Filed herewith.
99.2 Reconciliation of selected annual and quarterly financial data from
amounts previously reported. Filed herewith.
<PAGE>i
EXHIBIT 10.1
CREDIT AGREEMENT
dated as of December 30, 1993
between
FIRST EMPIRE STATE CORPORATION
and
THE CHASE MANHATTAN BANK, N.A.
<PAGE>ii
Table of Contents
ARTICLE 1 DEFINITIONS; ACCOUNTING TERMS.
Section 1.01 Definitions. . . . . . . . . . . . . . 1
Section 1.02 Accounting Terms . . . . . . . . . . . 9
ARTICLE 2 THE CREDIT.
Section 2.01 The Loans. . . . . . . . . . . . . . . 9
Section 2.02 The Note . . . . . . . . . . . . . . . 9
Section 2.03 Purpose. . . . . . . . . . . . . . . . 9
Section 2.04 Borrowing Procedures . . . . . . . . . 9
Section 2.05 Prepayments. . . . . . . . . . . . . . 10
Section 2.06 Interest Periods . . . . . . . . . . . 10
Section 2.07 Changes of Commitment. . . . . . . . . 10
Section 2.08 Certain Notices. . . . . . . . . . . . 10
Section 2.09 Minimum Amounts. . . . . . . . . . . . 11
Section 2.10 Interest . . . . . . . . . . . . . . . 11
Section 2.11 Fees . . . . . . . . . . . . . . . . . 12
Section 2.12 Payments Generally . . . . . . . . . . 12
ARTICLE 3 YIELD PROTECTION; ILLEGALITY; ETC.
Section 3.01 Additional Costs . . . . . . . . . . . 13
Section 3.02 Limitation on Eurodollar Loans . . . . 14
Section 3.03 Illegality . . . . . . . . . . . . . . 14
Section 3.04 Certain Compensation . . . . . . . . . 15
ARTICLE 4 CONDITIONS PRECEDENT.
Section 4.01 Documentary Conditions Precedent . . . 15
Section 4.02 Additional Conditions Precedent. . . . 16
Section 4.03 Deemed Representations . . . . . . . . 16
ARTICLE 5 REPRESENTATIONS AND WARRANTIES.
Section 5.01 Incorporation, Good Standing and Due
Qualification. . . . . . . . . . . . . 17
Section 5.02 Corporate Power and Authority;
No Conflicts . . . . . . . . . . . . . 17
Section 5.03 Legally Enforceable Agreements . . . . 17
Section 5.04 Litigation . . . . . . . . . . . . . . 17
Section 5.05 Financial Statements . . . . . . . . . 18
Section 5.06 Ownership and Liens. . . . . . . . . . 18
Section 5.07 Taxes. . . . . . . . . . . . . . . . . 18
Section 5.08 ERISA. . . . . . . . . . . . . . . . . 19
Section 5.09 Subsidiaries and Ownership of Stock. . 19
Section 5.10 Credit Arrangements. . . . . . . . . . 19
ARTICLE 6 AFFIRMATIVE COVENANTS.
Section 6.01 Maintenance of Existence . . . . . . . 19
Section 6.02 Conduct of Business. . . . . . . . . . 20
<PAGE>iii
Section 6.03 Maintenance of Properties. . . . . . . 20
Section 6.04 Maintenance of Records . . . . . . . . 20
Section 6.05 Maintenance of Insurance . . . . . . . 20
Section 6.06 Compliance with Laws . . . . . . . . . 20
Section 6.07 Right of Inspection. . . . . . . . . . 20
Section 6.08 Reporting Requirements . . . . . . . . 20
ARTICLE 7 NEGATIVE COVENANTS.
Section 7.01 Debt . . . . . . . . . . . . . . . . . 22
Section 7.02 Liens. . . . . . . . . . . . . . . . . 23
Section 7.03 Leases . . . . . . . . . . . . . . . . 24
Section 7.04 Stock of Subsidiaries Etc. . . . . . 24
Section 7.05 Transactions with Affiliates . . . . . 25
Section 7.06 Mergers, Etc . . . . . . . . . . . . . 25
Section 7.07 Sale of Assets . . . . . . . . . . . . 26
ARTICLE 8 FINANCIAL COVENANTS.
Section 8.01 Minimum Tangible Net Worth . . . . . . 26
Section 8.02 Leverage Ratio . . . . . . . . . . . . 26
Section 8.03 Double Leverage. . . . . . . . . . . . 26
Section 8.04 Capital Requirements . . . . . . . . . 26
ARTICLE 9 EVENTS OF DEFAULT.
Section 9.01 Events of Default. . . . . . . . . . . 27
Section 9.02 Remedies . . . . . . . . . . . . . . . 29
ARTICLE 10 MISCELLANEOUS.
Section 10.01 Amendments and Waivers . . . . . . . . 30
Section 10.02 Usury. . . . . . . . . . . . . . . . . 30
Section 10.03 Expenses . . . . . . . . . . . . . . . 30
Section 10.04 Survival . . . . . . . . . . . . . . . 30
Section 10.05 Assignment; Participations . . . . . . 31
Section 10.06 Notices. . . . . . . . . . . . . . . . 31
Section 10.07 Setoff . . . . . . . . . . . . . . . . 31
Section 10.08 Jurisdiction; Immunities . . . . . . . 32
Section 10.09 Table of Contents; Headings. . . . . . 32
Section 10.10 Severability . . . . . . . . . . . . . 32
Section 10.11 Counterparts . . . . . . . . . . . . . 32
Section 10.12 Integration. . . . . . . . . . . . . . 32
Section 10.13 Governing Law. . . . . . . . . . . . . 33
<PAGE>1
CREDIT AGREEMENT dated as of December 30, 1993 between FIRST EMPIRE STATE
CORPORATION, a corporation organized under the laws of New York (the "Borrower")
and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national banking
association organized under the laws of the United States of America (the
"Bank").
The Borrower desires that the Bank extend credit as provided herein, and
the Bank is prepared to extend such credit. Accordingly, the Borrower and the
Bank agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.01. Definitions. As used in this Agreement the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa):
"Acceptable Acquisition" means any Acquisition which has been either (a)
approved by the Board of Directors of the corporation which is the subject of
such Acquisition, or (b) recommended by such Board to the shareholders of such
corporation, or (c) is of an insolvent or failing financial institution and made
at the direction or with the approval of the regulatory authority charged with
administering the affairs of such institution.
"Acquisition" means any transaction pursuant to which the Borrower or any
of its Subsidiaries (a) acquires 5% or more of any class of the voting
securities (or warrants, options or other rights to acquire such securities) of
any corporation other than the Borrower or any corporation which is not then a
Subsidiary of the Borrower, pursuant to a solicitation of tenders therefor, or
in one or more negotiated block, market or other transactions not involving a
tender offer, or a combination of any of the foregoing, or (b) makes any
corporation a Subsidiary of the Borrower, or causes any such corporation to be
merged into the Borrower or any of its Subsidiaries, in any case pursuant to a
merger, purchase of assets or any reorganization providing for the delivery or
issuance to the holders of such corporations then outstanding securities, in
exchange for such securities, of cash or securities of the Borrower or any of
its Subsidiaries, or a combination thereof, or (c) purchases all or
substantially all of the business or assets of any corporation, provided that
the Borrower and its Subsidiaries shall not be prohibited from forming de novo
Subsidiaries.
"Affiliate" means any Person: (a) which directly or indirectly controls, or
is controlled by, or is under common control with, the Borrower or any of its
Subsidiaries; (b) which directly or indirectly beneficially owns or holds 5% or
more of any class of voting stock of the Borrower or any such Subsidiary; or (c)
5% or more of the voting stock of which is directly or indirectly beneficially
owned or held by the Borrower or, such Subsidiary.
<PAGE>2
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Credit Agreement, as amended or supplemented from
time to time. References to Articles, Sections, Exhibits, Schedules and the
like refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
"Applicable Margin" means, with respect to (a) a Variable Rate Loan, 0%,
and (b) Eurodollar Loans, the rate per annum for each rating level period set
forth below:
Rating Level Period Applicable Margin
------------------- -----------------
Level I Period .3750%
Level II Period .5000%
Level III Period .6250%
Level IV Period .7500%
Any change in the Applicable Margin by reason of a change in the S&P Rating or
Moody's Rating shall become effective on the date of announcement or publication
by the respective rating agency of a change in such rating or in the absence of
such announcement or publication, on the effective date of such changed rating.
"Banking Day" means any day on which commercial banks are not authorized or
required to close in New York City and whenever such day relates to a Eurodollar
Loan or notice with respect to any Eurodollar Loan, a day on which dealings in
Dollar deposits are also carried out in the London interbank market.
"Capital Lease" means any lease which has been or should be capitalized on
the books of the lessee in accordance with GAAP.
"Closing Date" means the date this Agreement has been executed by both the
Borrower and the Bank.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" means the obligation of the Bank to make Loans under this
Agreement in the aggregate principal amount of $25,000,000, as such amount may
be reduced or otherwise modified from time to time.
"Consolidated Capitalization" means the sum of (a) Consolidated Funded Debt
and (b) Consolidated Tangible Net Worth.
"Consolidated Funded Debt" means as to any Person the
<PAGE>3
Funded Debt of such Person and its Consolidated Subsidiaries on a consolidated
basis, as determined in accordance with GAAP.
"Consolidated Subsidiary" means any Subsidiary whose accounts are or are
required to be consolidated with the accounts of the Borrower in accordance with
GAAP.
"Consolidated Tangible Net Worth" means Tangible Net Worth of the Borrower
and its Consolidated Subsidiaries on a consolidated basis, as determined in
accordance with GAAP, except as otherwise provided herein.
"Consolidated Total Assets" means, as to any Person, total assets of such
Person and its Consolidated Subsidiaries on a consolidated basis, as determined
in accordance with GAAP.
"Consolidated Total Assets (RAP)" means the average total consolidated
assets of the Borrower determined in accordance with Appendix A to Regulation Y.
"Debt" means, with respect to any Person: (a) indebtedness of such Person
for borrowed money; (b) indebtedness for the deferred purchase price of property
or services (except trade payables in the ordinary course of business); (c)
Unfunded Vested Liabilities of such Person (if such Person is not the Borrower,
determined in a manner analogous to that of determining Unfunded Vested
Liabilities of the Borrower); (d) the face amount of any outstanding letters of
credit issued for the account of such Person; (e) obligations arising-under
acceptance facilities; (f) guaranties, endorsements (other than for collection
in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person,
or otherwise to assure a creditor against loss; (g) obligations secured by any
Lien on property of such Person; and (h) obligations of such Person as lessee
under Capital Leases.
"Default" means any event which with the giving of notice or lapse of time,
or both, would become an Event of Default.
"Default Rate" means, with respect to an amount of any Loan not paid when
due, a rate per annum equal to: (a) if such Loan is a Variable Rate Loan, a
variable rate 1% above the rate of interest thereon (including any Applicable
Margin); (b) if such Loan is a Eurodollar Loan, a fixed rate 1% above the rate
of interest in effect thereon (including the Applicable Margin) at the time of
default until the end of the then current Interest Period therefor and,
thereafter, a variable rate 1% above the rate of interest for a Variable Rate
Loan (including any Applicable Margin).
"Dollars" and the sign "$" mean lawful money of the United States of
America.
<PAGE>4
"Equity Investments in Subsidiaries" means, as to any Person, the total
common stock, Perpetual Preferred Stock, surplus and retained earnings held by
such Person.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, including any rules and
regulations,promulgated thereunder.
"ERISA Affiliate" means any corporation or trade or
business which is a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the Code) as the Borrower or is under common
control (within the meaning of Section 414(c) of the Code) with the Borrower.
"Eurodollar Base Rate" means the rate per annum (rounded upwards if
necessary to the nearest 1/16 of 1%) quoted at approximately 11:00 a.m. London
time by the principal London branch of the Bank two Banking Days prior to the
first day of the Interest Period for such Loan for the offering to leading banks
in the London interbank market of Dollar deposits in immediately available
funds, for a period, and in an amount, comparable to such Interest Period and
principal amount of the Eurodollar Loan which shall be made by the Bank and
outstanding during such Interest Period.
"Eurodollar Loan" means any Loan when and to the extent the interest rate
therefor is determined on the basis of the definition "Eurodollar Base Rate".
"Event of Default" has the meaning given such term in Section 9.01.
"Excluded Bank Debt" means all liabilities incurred in the ordinary course
of the banking or trust business, such as deposits, letters of credit, bankers
acceptances, certificates of deposit, federal funds purchases, borrowings from
the Federal Reserve or Federal Home Loan Bank system, foreign exchange
contracts, futures contracts and interest rate protection and swap agreements.
"Facility Documents" means this Agreement and the Note.
"Federal Funds Rate" means, for any day, the rate per annum (expressed on a
365/366 basis of calculation, if the rate on Variable Rate Loans is so
calculated) equal to the weighted average of the rates on overnight federal
funds transactions as published by the Federal Reserve Bank of New York for such
day (or for any day that is not a Banking Day, for the immediately preceding
Banking Day).
"Fixed Rate" means, for any Eurodollar Loan, a rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) determined by the Bank to be
equal to the sum of the quotient of (i) the Eurodollar Base Rate for such Loan
for the Interest Period
<PAGE>5
therefor, divided by (ii) one minus the Reserve Requirement for such Loan for
such Interest Period.
"Form FRY-9C Consolidated Total Assets" means the Consolidated Total Assets
of the Borrower contained in the most recent quarterly report on Form FRY-9C
which the Borrower files with the Federal Reserve Bank of New York.
"Funded Debt" means all Debt for money borrowed which by
its terms matures more than one year from the date as of which such Funded Debt
is incurred, and any Debt for money borrowed maturing within one year from such
date which is renewable or extendable at the option of the obligor to a date
beyond one year from such date (whether or not theretofore renewed or extended),
including any such indebtedness renewable or extendable at the option of the
obligor under, or payable from the proceeds of other indebtedness which may be
incurred pursuant to, the provisions of any revolving credit agreement or other
similar agreement.
"GAAP" means generally accepted accounting principles in
the United States of America as in effect on the date hereof, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 5.05 (except for changes concurred in by the Borrowers
independent public accountants).
"Insured Subsidiary" means any "insured depositary institution" (as defined
in 12 U.S.C. Section 1813(c)(2) (or any successor provision), as amended,
reenacted or redesignated from time to time) that is controlled (within the
meaning of 12 U.S.C. Section 1841 (or any successor provision), as amended,
reenacted or redesignated from time to time).
"Interest Period" means the period commencing on the date a Loan is made,
and ending, as the Borrower may select pursuant to Section 2.06: (a) in the case
of Variable Rate Loans, 30 days thereafter; and (b) in the case of Eurodollar
Loans, on the numerically corresponding day in the first, second, third, or
sixth calendar month thereafter, provided that each such Interest Period which
commences on the last Banking Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Banking Day of the appropriate calendar month.
"Lending Office" means, for each type of Loan, the lending office of the
Bank (or of an affiliate of the Bank) designated as such for such type of Loan
on its signature page hereof or such other office of the Bank (or of an
affiliate of the Bank) as the Bank may from time to time specify to the Borrower
as the office by which its Loans of such type are to be made and maintained.
<PAGE>6
"Level I Period" means any period during which (a) no Event of Default
shall have occurred and be continuing and (b) the S&P Rating is at or above A-
(or any successor rating) and the Moody's Rating is at or above A3 (or any
successor rating).
"Level II Period" means any period (other than a Level I Period) during
which (a) no Event of Default shall have occurred and be continuing and (b) the
S&P Rating is at or above BBB+ (or any successor rating) and the Moody's Rating
is at or above Baa1 (or any successor rating).
"Level III Period" means any period (other than a Level I Period or a Level
II Period) during which (a) no Event of Default shall have occurred and be
continuing and (b) the S&P Rating is at or above BBB (or any successor rating)
and the Moody's Rating is at or above Baa2 (or any successor rating).
"Level IV Period" means any period during which the S&P Rating is less than
BBB (or any successor rating) or the Moody's Rating is less than Baa2 (or any
successor rating).
"Lien" means any lien (statutory or otherwise), security
interest, mortgage, deed of trust, priority, pledge, charge, conditional sale,
title retention agreement, financing lease or other encumbrance or similar right
of others, or any agreement to give any of the foregoing.
"Loan" means any loan made by the Bank pursuant to Section 2.01 and, to the
extent provided therein, Section 2.10.
"Moody's Rating" means, at any time, the then current rating (including any
failure to rate) by Moody's Investors Service, Inc. (or any successor
corporation thereto) of the subordinated debt of Manufacturers and Traders Trust
Company.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of ERISA
to which contributions have been made by the Borrower or any ERISA Affiliate and
which is covered by Title IV of ERISA.
"Note" means the promissory note of the Borrower in the form of Exhibit A
hereto evidencing the Loans made by the Bank hereunder.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
<PAGE>7
"Plan" means any employee benefit or other plan established or maintained,
or to which contributions have been made, by the Borrower or any ERISA Affiliate
and which is covered by Title IV of ERISA or to which Section 412 of the Code
applies.
"Prime Rate" means that rate of interest from time to time
announced by the Bank at the Principal Office as its prime commercial lending
rate.
"Principal Office" means the principal office of the Bank, presently
located at 1 Chase Manhattan Plaza, New York, New York 10081.
"Prohibited Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Code.
"RAP" means regulatory accounting principles prescribed by the Board of
Governors of the Federal Reserve System from time to time.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulatory Change" means any change after the date of this
Agreement in United States federal, state, municipal or foreign laws or
regulations (including Regulation D) or the adoption or. making after such date
of any interpretations, directives or requests applying to a broad class of
banks including the Bank of or under any United States, federal, state,
municipal or foreign laws or regulations (whether or not having the force of
law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA as to which events the PBGC by regulation has not waived the requirement
of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence
of such event, provided that a failure to meet the minimum funding standard of
Section 412 of the Code or Section 302 of ERISA shall be a Reportable Event
regardless of any waivers given under Section 412(d) of the Code.
"Reserve Requirement" means, for any Eurodollar Loan, the
average maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during the Interest Period for
such Loan under Regulation D by member banks of the Federal Reserve System in
New York City with deposits exceeding $1,000,000,000 against in the case of
Eurodollar
<PAGE>8
Loans, "Eurocurrency liabilities" (as such term is used in Regulation D).
Without limiting the effect of the foregoing, the Reserve Requirement shall also
reflect any other reserves required to be maintained by such member banks by
reason of any Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the Eurodollar Base Rate for Eurodollar
Loans is to be determined as provided in the definition of "Eurodollar Base
Rate" in this Section 1.01 or (ii) any category of extensions of credit or other
assets which include Eurodollar Loans.
"S&P Rating" means, at any time, the then current rating (including any
failure to rate) by Standard & Poor's Corporation (or any successor corporation
thereto) of the subordinated debt of Manufacturers and Traders Trust Company.
"Significant Subsidiary" means each Subsidiary of the Borrower other than
those inactive, special purpose and dissolving corporations listed with an
asterisk on Schedule I.
"Subsidiary" means, as to any Person, any corporation or
other entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by such Person.
"Tangible Net Worth" means the excess of total assets over total
liabilities, excluding, however, from the determination of total assets:
goodwill, patents, copyrights, trademarks, tradenames, licenses, franchises,
organizational expenses, treasury stock and minority interests in Subsidiaries,
and unamortized debt discount.
"Termination Date" means December 29, 1994; provided that if such date is
not a Banking Day, the Termination Date shall be the next preceding Banking
Day).
"Tier I Capital" means the tier I capital of the Borrower determined in
accordance with Appendix A to Regulation Y of the Board of Governors of the
Federal Reserve System (or any successor provision), as amended, reenacted or
redesignated from time to time).
"Unfunded Vested Liabilities" means, with respect to any Plan, the amount
(if any) by which the present value of all vested benefits under the Plan
exceeds the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential liability of the Borrower
or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA.
<PAGE>9
"Variable Rate" means, for any day, the higher of (a) the Federal Funds
Rate for such day plus 1/4 of 1% or (b) the Prime Rate for such day.
"Variable Rate Loan" means any Loan when and to the extent the interest
rate for such Loan is determined in relation to the Variable Rate.
Section 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP or RAP, in the case of
Section 8.02, and all financial data required to be delivered hereunder shall be
prepared in accordance with GAAP or RAP.
ARTICLE 2. THE CREDIT.
Section 2.01. The Loans. (a) Subject to the terms and conditions of this
Agreement, the Bank agrees to make loans (the "Loans") to the Borrower from time
to time from and including the date hereof to but excluding the Termination Date
up to but not exceeding the amount of the Commitment. The Loans may be
outstanding as Variable Rate Loans or Eurodollar Loans (each a "type" of Loans).
The Loans of each type shall be made and maintained at the Banks Lending Office
for such type of Loans.
(b) Each Loan shall be due and payable on the last day of the Interest
Period therefor.
Section 2.02. The Note. The Loans shall be evidenced by a single
promissory note in favor of the Bank in the form of Exhibit A, dated the date of
this Agreement, duly completed and executed by the Borrower.
Section 2.03. Purpose. The Borrower shall use the proceeds of the Loans
for general corporate purposes. Such proceeds shall not be used for the
purpose, whether immediate, incidental or ultimate, of buying or carrying
"margin stock" within the meaning of Regulation U, or of financing an
Acquisition other than an Acceptable Acquisition.
Section 2.04. Borrowing Procedures. The Borrower shall give the Bank
notice of each borrowing to be made hereunder as provided in Section 2.08. Not
later than 1:00 p.m. New York City time on the date of such borrowing, the Bank
shall, through its Lending Office and subject to the conditions of this
Agreement, make the amount of the Loan to be made by it on such day available to
the Borrower, in immediately available funds, by the Bank crediting an account
of the Borrower designated by the Borrower and maintained with the Bank at the
Principal Office.
<PAGE>10
Section 2.05. Prepayments. The Borrower shall have the right to prepay
Loans at any time or from time to time; provided that: (a) the Borrower shall
give the Bank notice of each such prepayment as provided in Section 2.08; and
(b) Eurodollar Loans may not be prepaid, except that, if after the giving effect
to any reduction or termination of the Commitment pursuant to Section 2.07, the
outstanding aggregate principal amount of the Loans exceeds the aggregate amount
of the Commitment, the Borrower shall pay or repay the Loans on the date of such
reduction or termination in an aggregate principal amount equal to the excess,
together with interest thereon accrued to the date of such payment or repayment
and any amounts payable pursuant to Section 3.04 in connection therewith.
Section 2.06. Interest Periods. In the case of each Loan, the Borrower
shall select an Interest Period of any duration in accordance with the
definition of Interest Period in Section 1.01, subject to the following
limitations: (a) no Interest Period may extend beyond the Termination Date; (b)
notwithstanding clause (a) above, no Interest Period for a Eurodollar Loan shall
have a duration less than one month (in the case of a Eurodollar Loan), and if
any such proposed Interest Period would otherwise be for a shorter period, such
Interest Period shall not be available; (c) if an Interest Period would end on a
day which is not a Banking Day, such Interest Period shall be extended to the
next Banking Day, unless, in the case of a Eurodollar Loan, such Banking Day
would fall in the next calendar month in which event such Interest Period shall
end on the immediately preceding Banking Day; and (d) only five Eurodollar Loans
may be outstanding at any one time.
Section 2.07. Changes of Commitment. (a) The Borrower shall have the
right to reduce or terminate the amount of unused Commitment at any time or from
time to time, provided that: (i) the Borrower shall give notice of each such
reduction or termination to the Bank as provided in Section 2.08; and (ii) each
partial reduction shall be in an aggregate amount at least equal to $1,000,000.
(b) The Commitment once reduced or terminated may not be reinstated.
Section 2.08. Certain Notices. Notices by the Borrower to the Bank of
each borrowing pursuant to Section 2.04, each prepayment pursuant to Section
2.05 and each reduction or termination of the Commitment pursuant to Section
2.07 shall be irrevocable ind shall be effective only if received by the Bank
not later than 1 p.m. New York City time, and (a) in the case of borrowings and
(in the case of Variable Rate Loans) prepayments of (i) Variable Rate Loans,
given on the Banking Day therefor; and (ii) Eurodollar Loans, given three
Banking Days prior thereto; (b) in the case of reductions or termination of the
Commitment, given three Banking Days prior thereto. Each such notice shall
specify
<PAGE>11
the Loans to be borrowed or prepaid and the amount (subject to Section 2.09) and
type of the Loans to be borrowed or prepaid and the date of borrowing or
prepayment (which shall be a Banking Day). Each such notice of reduction or
termination shall specify the amount of the Commitment to be reduced or
terminated.
Section 2.09. Minimum Amounts. Except for borrowings which exhaust the
full remaining amount of the Commitment, and prepayments (in the case of
Variable Rate Loans) which result in the prepayment of all Loans, each borrowing
and prepayment of principal of Variable Rate Loans shall be in an amount at
least equal to $1,000,000, and each borrowing of Eurodollar Loans having
concurrent Interest Periods shall be at least equal to $1,000,000.
Section 2.10. Interest. (a) Interest shall accrue on the outstanding and
unpaid principal amount of each Loan for the period from and including the date
of such Loan to but excluding the date such Loan is due, at the following rates
per annum: (i) for a Variable Rate Loan, at a variable rate per annum equal to
the Variable Rate plus the Applicable Margin; (ii) for a Eurodollar Loan, at a
fixed rate equal to the Fixed Rate plus the Applicable Margin. If any principal
amount shall not be paid when due (at stated maturity, by acceleration or
otherwise), interest shall accrue on such amount from,and including such due
date to but excluding the date such amount is paid in full at the Default Rate.
(b) The interest rate on each Variable Rate Loan shall change when the
Variable Rate changes and interest on each such Loan shall be calculated on the
basis of a year of 365 (or, in the case of a leap year, 366) days for the actual
number of days elapsed. The interest rate on each Eurodollar Loan shall be
fixed at the applicable Fixed Rate, and interest on each Eurodollar Loan shall
be calculated on the basis of a year of 360 days for the actual number of days
elapsed.
(c) Accrued interest shall be due and payable in arrears upon any payment
of principal and on the last day of the Interest Period with respect thereto
and, in the case of an Interest Period greater than three months, at three-month
intervals after the first day of such Interest Period; provided that interest
accruing at the Default Rate shall be due and payable from time to time on
demand of the Bank.
(d) Notwithstanding anything herein to the contrary, from time to time to
but not including the Termination Date, the Bank may make loans to the Borrower
hereunder at such other rates and on such other terms and conditions as the Bank
and the Borrower may agree, and the amount of such loans shall be deemed usage
of the Commitment and, to the extent provided in the next sentence, Loans
hereunder. Such loans shall be entitled to the benefits of the provisions of
Articles 6, 7, 8 and 9 and Sections 4.03, 10.05 and 10.07.
<PAGE>12
Section 2.11. Fees. (a) A facility fee shall accrue on the amount of the
Commitment then in effect (whether or not utilized) for the period from and
including the date hereof to the earlier of the date the Commitment is
terminated or the Termination Date at a rate per annum equal to (i) .1875%
during any Level I Period or Level II Period, (ii) .2500% during any Level III
Period, and (iii) .3125% during any Level IV Period. The accrued commitment fee
shall be due and payable in arrears upon any reduction or termination of the
Commitment and on the last day of each February, May, August and November,
commencing on the first such date after the Closing Date.
(b) A utilization fee shall accrue on the daily average amount of loans
outstanding at a rate per annum equal to .1250% for each day on which the
aggregate principal amount of Loans outstanding exceeds 50% of the Commitment.
The utilization fee shall be payable in arrears upon termination of the
Commitment and on the last day of each February, May, August and November.
Section 2.12. Payments Generally. All payments under this Agreement or
the Note shall be made in Dollars in immediately available funds not later than
1:00 p.m. New York City time on the relevant dates specified above (each such
payment made after such time on such due date to be deemed to have been made on
the next succeeding Banking Day) at the Principal Office for the account of the
applicable Lending Office of the Bank; provided that, when a new Loan is to be
made by the Bank on a date the Borrower is to repay any principal of an
outstanding Loan, the Bank shall apply the proceeds thereof to the payment of
the principal to be repaid and only an amount equal to the difference between
the principal to be borrowed and the principal to be repaid shall be made
available by the Bank to the Borrower as provided in Section 2.04 or paid by the
Borrower to the Bank pursuant to this Section 2.12, as the case may be. The
Bank may (but shall not be obligated to) debit the amount of any such payment
which is not made by such time to any ordinary deposit account of the Borrower
with the Bank. The Borrower shall, at the time of making each payment under
this Agreement or the Note, specify to the Bank the principal or other amount
payable by the Borrower under this Agreement or the Note to which such payment
is to be applied (and in the event that it fails to so specify, or if a Default
or Event of Default has occurred and is continuing, the Bank may apply such
payment as it may elect in its sole discretion). If the due date of any payment
under this Agreement or the Note would otherwise fall on a day which is not a
Banking Day, such date shall be extended to the next succeeding Banking Day and
interest shall be payable for any principal so extended for the period of such
extension.
<PAGE>13
ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC.
Section 3.01. Additional Costs. (a) The Borrower shall pay to the Bank
from time to time on demand such amounts as the Bank may reasonably determine to
be necessary to compensate it for any costs which the Bank reasonably determines
are attributable to its making or maintaining any Eurodollar Loans under this
Agreement or the Note or its obligation to make any such Loans hereunder, or any
reduction in any amount receivable by the Bank hereunder in respect of any such
Loans or such obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to the Bank under this Agreement or the Note in respect of any of such
Loans (other than taxes imposed on the overall net income of the Bank or of its
Lending Office for any of such Loans by the jurisdiction in which the Principal
Office or such Lending Office is located); or (ii) imposes or modifies any
reserve, special deposit, deposit insurance or assessment, minimum capital,
capital ratio or similar requirements relating to any extensions of credit or
other assets of, or any deposits with or other liabilities of, the Bank
(including any of such Loans or any deposits referred to in the definition of
"Eurodollar Base Rate" in Section 1.01); or (iii) imposes any other condition
affecting this Agreement or the Note (or any of such extensions of credit or
liabilities). The Bank will notify the Borrower of any event occurring after
the date of this Agreement which will entitle the Bank to compensation pursuant
to this Section 3.01(a) as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation and will furnish the
Borrower with a certificate setting forth the computation of the amounts
requested.
(b) Without limiting the effect of the foregoing provisions of this Section
3.01, in the event that, by reason of any Regulatory Change, the Bank either (i)
incurs Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of the Bank
which includes deposits by reference to which the interest rate on Eurodollar
Loans is determined as provided in this Agreement or a category of extensions of
credit or other assets of the Bank which includes Eurodollar Loans or (ii)
becomes subject to restrictions on the amount of such a category of liabilities
or assets which it may hold, then, if the Bank so elects by notice to the
Borrower, the obligation of the Bank to make Eurodollar Loans hereunder shall be
suspended until the date such Regulatory Change ceases to be in effect.
(c) Without limiting the effect of the foregoing provisions of this Section
3.01 (but without duplication), the Borrower shall pay to the Bank from time to
time on request such amounts as the Bank may reasonably determine to be
necessary to compensate the Bank for any costs which it determines are
attributable to the maintenance
<PAGE>14
by it or any of its affiliates pursuant to any law or regulation of any
jurisdiction or any interpretation, directive or request (whether or not having
the force of law and whether in effect on the date of this Agreement or
thereafter) of any court or governmental or monetary authority of capital in
respect of its Loans hereunder or its obligation to make Loans hereunder (such
compensation to include, without limitation, an amount equal to any reduction in
return on assets or equity of the Bank to a level below that which it could have
achieved but for such law, regulation, interpretation, directive or request).
The Bank will notify the Borrower if it is entitled to compensation pursuant to
this Section 3.01(c) as promptly as practicable after it determines to request
such compensation and will furnish the Borrower with a certificate setting forth
the computation of the amounts requested.
(d) Determinations and allocations by the Bank for purposes of this Section
3.01 of the effect of any Regulatory Change pursuant to subsections (a) or (b),
or of the effect of capital maintained pursuant to subsection (c), on its costs
of making or maintaining Loans or its obligation to make Loans, or on amounts
receivable by, or the rate of return to, it in respect of Loans or such
obligation, and of the additional amounts required to compensate the Bank under
this Section 3.01, shall be conclusive, provided that such determinations and
allocations are made on a reasonable basis.
Section 3.02. Limitation on Eurodollar Loans. Anything herein to the
contrary notwithstanding, if the Bank reasonably determines (which determination
shall be conclusive absent manifest error) that:
(a) quotations of interest rates for the relevant deposits referred to in
the definition of "Eurodollar Base Rate" in Section 1.01 are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining the rate of interest for Eurodollar Loans as
provided in this Agreement; or
(b) the relevant rates of interest referred to in the definition of
"Eurodollar Base Rate" in Section 1.01 upon the basis of which the rate of
interest for Eurodollar Loans is to be determined do not adequately cover
the cost to the Bank of making or maintaining such Loans;
then the Bank shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Bank shall be under no obligation to make
Eurodollar Loans.
Section 3.03. Illegality. Notwithstanding any other provision in this
Agreement, in the event that it becomes
unlawful for the Bank or its Lending Office to honor its
obligation to make or maintain Eurodollar Loans hereunder and
<PAGE>15
such illegality cannot be cured by selection of an alternate
Lending office, then the Bank shall promptly notify the Borrower thereof and
the Banks obligation to make or maintain Eurodollar Loans hereunder shall be
suspended until such time as the Bank may again make and maintain such affected
Loans and the Borrower shall, upon the request of the Bank on the date
specified (which date may include any grace period which the Bank may be
entitled to), prepay any of such Loans then outstanding together with
accrued interest and any amount due under Section 3.04.
Section 3.04. Certain Compensation. The Borrower shall pay to the Bank,
upon the request of the Bank, such reasonable amount or amounts as shall be
sufficient (in the reasonable opinion of the Bank) to compensate it for any
loss, cost or expense which the Bank determines is attributable to:
(a) any payment of a Eurodollar Loan on a date other than the last day of
an Interest Period for such Loan (whether by reason of acceleration or
otherwise); or
(b) any failure by the Borrower to borrow a Eurodollar Loan to be made by
the Bank on the date specified therefor in the relevant notice under
Section 2.04.
Without limiting the foregoing, such compensation shall include an amount equal
to the excess, if any, of: (i) the amount of
interest which otherwise would have accrued on the principal
amount so paid or not borrowed for the period from and including the date of
such payment or failure to borrow to but excluding the last day of the Interest
Period for such Loan (or, in the case of a failure to borrow, to but excluding
the last day of the Interest Period for such Loan which would have commenced on
the date specified therefor in the relevant notice) at the applicable rate of
interest for such Loan provided for herein; over (ii) the amount of interest (as
reasonably determined by the Bank) the Bank would have bid in the London
interbank market for Dollar deposits for amounts comparable to such principal
amount and maturities comparable to such period. A determination of the Bank as
to the amounts payable pursuant to this Section 3.04 shall be conclusive absent
manifest error. The Bank will furnish the Borrower with a certificate setting
forth the computation of the amounts requested.
ARTICLE 4. CONDITIONS PRECEDENT.
Section 4.01. Documentary Conditions Precedent. The obligation of the
Bank to make the Loan constituting the initial borrowing is subject to the
condition precedent that the Bank shall have received on or before the date of
such Loan each of the following, in form and substance satisfactory to the Bank
and its counsel:
<PAGE>16
(a) the Note duly executed by the Borrower;
(b) a certificate of the Secretary or Assistant Secretary of the Borrower,
dated the Closing Date, certifying the names and true signatures of the
officers of the Borrower authorized to sign the Facility Documents and the
other documents to be delivered by the Borrower under this Agreement;
(c) a certificate of a duly authorized officer of the Borrower, dated the
Closing Date, stating that the representations and warranties in Article 5
are true and correct on such date as though made on and as of such date and
that no event has occurred and is continuing which constitutes a Default or
Event of Default;
(d) a favorable opinion of counsel for the Borrower, dated the Closing
Date, in substantially the form of Exhibit B and as to such other matters
as the Bank may reasonably request.
Section 4.02. Additional Conditions Precedent. The obligation of the Bank
to make any Loan (including the initial Loan) shall be subject to the further
conditions precedent that on the date of such Loan:
(a) the following statements shall be true:
(i) the representations and warranties contained in Article 5 are
true and correct on and as of the date of such Loan as though
made on and as of such date, provided that the representations
and warranties in Section 5.04 and the final sentence of Section
5.05 need not be true and correct if after such Loan there is no
net increase in the aggregate principal amount outstanding
hereunder; and
(ii) No Default or Event of Default has occurred and is
continuing, or would result from such Loan; and
(b) the Bank shall have received from the Borrower such approvals, opinions
or documents as the Bank may reasonably request.
Section 4.03. Deemed Representations. Each notice of a Loan and
acceptance by the Borrower of the proceeds thereof shall constitute a
representation and warranty that the statements contained in Section 4.02(a) are
true and correct both on the date of such notice and, unless the Borrower
otherwise notifies the Bank prior to such borrowing, as of the date of such
Loan.
<PAGE>17
ARTICLE 5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants that:
Section 5.01. Incorporation, Good Standing and Due Qualification. Each of
the Borrower and its Significant
Subsidiaries is duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its assets and to transact the business in which it is now
engaged or proposed to be engaged, and is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction in
which such qualification is required.
Section 5.02. Corporate Power and Authority; No Conflicts. The execution,
delivery and performance by the Borrower of the Facility Documents have been
duly authorized by all necessary corporate action and do not and will not: (a)
require any consent or approval of its stockholders; (b) contravene its charter
or by-laws; (c) violate any provision of, or require any filing, registration,
consent or approval under, any law, rule, regulation (including, without
limitation, Regulation U), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the Borrower
or any of its Significant Subsidiaries or affiliates; (d) result in a breach of
or constitute a default or require any consent under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected;
(e) result in, or require, the creation or imposition of any Lien, upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower; or (f) cause the Borrower (or any Significant Subsidiary) to be in
default under any such law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award or any such indenture, agreement, lease or
instrument.
Section 5.03. Legally Enforceable Agreements. Each Facility Document is,
or when delivered under this Agreement will be, a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in accordance with
its terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and other similar laws affecting creditors
rights generally.
Section 5.04. Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened, against or affecting
the Borrower or any of its Significant Subsidiaries before any court,
governmental agency or arbitrator, which may, in any one case or in the
aggregate, materially adversely affect the financial condition, operations,
properties or business of the Borrower or any such Significant Subsidiary or of
the ability of the Borrower to perform its
<PAGE>18
obligation under the Facility Documents, except the depositors, class action
litigation first referenced under the caption "Legal Proceedings" in the
Borrowers Annual Report on Form 10-K for the fiscal year ended December 31,
1992.
Section 5.05. Financial Statements. The consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as at December 31, 1992, and the
related consolidated income statement and statement of cash flows and statement
of changes in stockholders, equity of the Borrower and its Consolidated
Subsidiaries for the fiscal year then ended, and the accompanying footnotes,
together with the opinion thereon, dated January 11, 1993, of Price Waterhouse,
independent certified public accountants, and the interim consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as at September 30,
1993, and the related consolidated income statement and statement of cash flows
and, statement of changes in stockholders equity for the nine month period then
ended, copies of which have been furnished to the Bank, are complete and correct
and fairly present the financial condition of the Borrower and its Consolidated
Subsidiaries as at such dates and the results of the operations of the Borrower
and its Consolidated Subsidiaries for the periods covered by such statements,
all in accordance with GAAP consistently applied (subject to year end
adjustments in the case of the interim financial statements). There are no
liabilities of the Borrower or any of its Consolidated Subsidiaries, fixed or
contingent, which are material but are not reflected in the financial statements
or in the notes thereto, other than liabilities arising in the ordinary course
of business since December 31, 1992. No information, exhibit or report
furnished by the Borrower to the Bank in connection with the negotiation of this
Agreement contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
materially misleading. Since December 31, 1992, there has been no material
adverse change in the condition (financial or otherwise), business, operations
or prospects of the Borrower or any of its Significant Subsidiaries.
Section 5.06. Ownership and Liens. Each of the Borrower and its
Consolidated Subsidiaries has title to, or valid leasehold interests in, all of
its properties and assets, real and personal, including the properties and
assets, and leasehold interests reflected in the financial statements referred
to in Section 5.05 (other than any properties or assets disposed of in the
ordinary course of business), and none of the properties and assets owned by the
Borrower or any of its Significant Subsidiaries and none of its leasehold
interests is subject to any Lien, except as disclosed in such financial
statements or as may be permitted hereunder.
Section 5.07. Taxes. Each of the Borrower and its Significant
Subsidiaries has filed all tax returns (federal, state and local) required to be
filed and has paid all taxes, assessments
<PAGE>19
and governmental charges and levies thereon to be due, including interest and
penalties, except taxes, assessments, governmental charges and levies the
validity of which is being contested in good faith by appropriate proceedings
and with respect to which the Borrower or such Significant Subsidiary, as the
case may be, shall have set aside on its books adequate reserves.
Section 5.08. ERISA. Each of the Borrower and its Subsidiaries is in
compliance in all material respects with all applicable provisions of ERISA.
Neither a Reportable Event nor a Prohibited Transaction has occurred with
respect to any Plan; no notice of intent to terminate a Plan has been filed nor
has any Plan been terminated; no circumstance exists which constitutes grounds
under Section 4042 of ERISA entitling the PBGC to institute proceedings to
terminate, or appoint a trustee to administer, a Plan, nor has the PBGC
instituted any such proceedings; neither the Borrower nor any ERISA Affiliate
has completely or partially withdrawn under Sections 4201 or 4204 of ERISA from
a Multiemployer Plan; each of the Borrower and each of its ERISA Affiliates has
met its minimum funding requirements under ERISA,with respect to all of its
Plans and there are no Unfunded Vested Liabilities; and neither the Borrower nor
any ERISA Affiliate has incurred any liability to the PBGC under ERISA.
Section 5.09. Subsidiaries and Ownership of Stock. Schedule I is a
complete and accurate list of the Subsidiaries of the Borrower, showing the
jurisdiction of incorporation or organization of each Subsidiary and showing the
percentage of the Borrowers direct or indirect ownership of the outstanding
stock or other interest of each such Subsidiary. All of the outstanding capital
stock or other interest of each such Subsidiary has been validly issued, is
fully paid and nonassessable and is owned by the Borrower free and clear of all
Liens.
Section 5.10. Credit Arrangements. Schedule II is a complete and correct
list of all Debt, other than Excluded Bank Debt of the Borrower or any of its
Subsidiaries the aggregate principal or face amounts of which equals or exceeds
(or may equal or exceed) $1,000,000 and the aggregate principal or face amount
outstanding or which may become outstanding under each such arrangement is
correctly described or indicated in such Schedule.
ARTICLE 6. AFFIRMATIVE COVENANTS.
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement, the Borrower shall:
Section 6.01. Maintenance of Existence. Preserve and maintain, and cause
each of its Significant Subsidiaries to preserve and maintain, its corporate
existence and good standing in the jurisdiction of its incorporation, and
qualify and remain
<PAGE>20
qualified, and cause each of its Significant Subsidiaries to qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is required.
Section 6.02. Conduct of Business. Continue, and cause each of its
Significant Subsidiaries to continue, to engage in an efficient and economical
manner in a business of the same general type as conducted by it on the date of
this Agreement.
Section 6.03. Maintenance of Properties. Maintain, keep and preserve, and
cause each of its Significant Subsidiaries to maintain, keep and preserve, all
of its properties, (tangible and intangible) necessary or useful in the proper
conduct of its business in good working order and condition, ordinary wear and
tear excepted.
Section 6.04. Maintenance of Records. Keep, and cause each of its
Significant Subsidiaries to keep, adequate records and books of account, in
which complete entries will be made in accordance with GAAP, reflecting all
financial transactions of the Borrower and its Significant Subsidiaries.
Section 6.05. Maintenance of Insurance. Maintain, and cause each of its
Significant Subsidiaries to maintain, insurance with financially sound and
reputable insurance companies or associations in such amounts and covering such
risks or to self insure as to the same in such amounts as are prudent, which
insurance may provide for reasonable deductibility from coverage thereof.
Section 6.06. Compliance with Laws. Comply, and cause each of its
Significant Subsidiaries to comply, in all respects with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
paying before the same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its property, except when contested by
appropriate proceedings upon establishment of adequate reserves.
Section 6.07. Right of Inspection. At times reasonably acceptable to the
Borrower, from time to time, permit the Bank or any agent or representative
thereof, to examine and make copies and abstracts from the records and books of
account of, and visit the properties of, the Borrower and any of its Significant
Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower
and any such Significant Subsidiary with any of their respective officers and
directors and the Borrowers independent accountants.
Section 6.08. Reporting Requirements. Furnish to the Bank:
(a) as soon as available and in any event within 100 days after the end of
each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its
<PAGE>21
Consolidated Subsidiaries as of the end of such fiscal year and a
consolidated income statement and statement of cash flows and statement of
changes in stockholders, equity of the Borrower and its Consolidated
Subsidiaries for such fiscal year, all in reasonable detail and stating in
comparative form the respective consolidated figures for the corresponding
date and period in the prior fiscal year and all prepared in accordance
with GAAP and as to the consolidated statements accompanied by an opinion
thereon acceptable to the Bank by Price Waterhouse or other independent
accountants of national standing selected by the Borrower;
(b) as soon as available and in any event within 55 days after the end of
each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such quarter and a consolidated income
statement and statement of cash flows and statement of changes in
stockholders equity, of the Borrower and its Consolidated Subsidiaries for
the period commencing at the end of the previous fiscal year and ending
with the end of such quarter, all in reasonable detail and stating in
comparative form the respective consolidated figures for the corresponding
date and period in the previous fiscal year and all prepared in accordance
with GAAP and certified by the chief financial officer of the Borrower
(subject to year-end adjustments);
(c) as soon as possible and in any event within 10 days after the Borrower
knows or has reason to know of the occurrence of each Default or Event of
Default, a written notice setting forth the details of such Default or
Event of Default and the action which is proposed to be taken by the
Borrower with respect thereto;
(d) promptly after the filing or receiving thereof, copies of all reports,
including annual reports, and notices which the Borrower or any Subsidiary
files with or receives from the PBGC or the U.S. Department of Labor under
ERISA; and as soon as possible and in any event within 10 days after the
Borrower or any of its Subsidiaries knows or has reason to know that any
Reportable Event or Prohibited Transaction has occurred with respect to any
Plan or that the PBGC or the Borrower or any such Subsidiary has instituted
or will institute proceedings under Title IV of ERISA to terminate any
Plan, the Borrower will deliver to the Bank a certificate of the chief
financial officer of the Borrower setting forth details as to such
Reportable Event or Prohibited Transaction or Plan termination and the
action the Borrower proposes to take with respect thereto;
(e) promptly after the furnishing thereof, copies of any statement or
report furnished to any other party pursuant to
<PAGE>22
the terms of any indenture, loan or credit or similar agreement (other than
agreements relating to Excluded Bank Debt) and not otherwise required to be
furnished to the Bank pursuant to any other clause of this Section 6.08;
(f) promptly after the sending or filing thereof, copies of all proxy
statements, financial statements and reports which the Borrower sends to
its stockholders, and copies of all regular, periodic and special reports,
and all registration statements which the Borrower files with the
Securities and Exchange Commission or any governmental authority which may
be substituted therefor, or with any national securities exchange;
(g) as soon as available after the end of each fiscal quarter or year of
the Borrower, as the case may be, the Borrower's Forms FRY-9LP and FRY-9C,
accompanied by a certificate of the chief financial officer of the Borrower
to the effect that the forms present fairly the financial condition and
results of operation of the Borrower (in the case of Form FRY-9LP) or the
Borrower and its Subsidiaries (in the case of Form FRY-9C), in accordance
with applicable bank regulatory accounting requirements.
(h) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its Subsidiaries as the
Bank may from time to time reasonably request, subject to such reasonable
confidentiality understanding as may be agreed between the Bank and the
Borrower.
ARTICLE 7. NEGATIVE COVENANTS.
So long as the Note shall remain unpaid or the Bank shall
have any Commitment under this Agreement, the Borrower shall not:
Section 7.01. Debt. Permit any of its Subsidiaries to
create, incur, assume or suffer to exist any Debt, except:
(a) Debt described in Schedule II and renewals, extensions and refinancings
thereof, provided that the principal amount thereof does not increase;
(b) Debt of any Subsidiary to the Borrower or another such Subsidiary;
(c) Debt of any such Subsidiary secured by purchase money Liens permitted
by Section 7.02;
(d) Debt maturing within one year of incurrence;
<PAGE>23
(e) Excluded Bank Debt; and
(f) Funded Debt of its Subsidiaries not in excess of 35% of Consolidated
Capitalization.
Section 7.02. Liens. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur,
assume or suffer to exist, any Lien, upon or with respect to any of its
properties, now owned or hereafter acquired, except:
(a) Liens securing the Loans hereunder;
(b) Liens for taxes or assessments or other government charges or levies if
not yet due and payable or if due and payable if they are being contested
in good faith by appropriate proceedings and for which appropriate reserves
are maintained;
(c) Liens imposed by law, such as mechanics, materialmen's, landlords,
warehousemen's and carriers Liens, and other similar Liens, securing
obligations incurred in the ordinary course of business which are not past
due for more than 30 days, or which are being contested in good faith by
appropriate proceedings and for which appropriate reserves have been
established;
(d) Liens under workmen's compensation, unemployment insurance, social
security or similar legislation (other than ERISA);
(e) Liens, deposits or pledges to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money which are excluded
from the definition of Excluded Bank Debt), leases (permitted under the
terms of this Agreement), public or statutory obligations, surety, stay,
appeal, indemnity, performance or other similar bonds, or other similar
obligations arising in the ordinary course of business;
(f) judgment and other similar Liens arising in connection with court
proceedings; provided that the execution or other enforcement of such Liens
is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(g) easements, rights-of-way, restrictions and other similar encumbrances
which, in the aggregate, do not materially interfere with the occupation,
use and enjoyment by the Borrower or any such Subsidiary of the property or
assets encumbered thereby in the normal course of its business or
materially impair the value of the property subject thereto;
<PAGE>24
(h) Liens securing obligations of such a Subsidiary to the Borrower or
another such Subsidiary;
(i) purchase money Liens on any property hereafter acquired or the
assumption of any Lien on property existing at the time of such
acquisition, or a Lien incurred in connection with any conditional sale or
other title retention agreement or a Capital Lease; provided that:
(i) any property subject to any of the foregoing is acquired by
the Borrower or any such Subsidiary in the ordinary course of its
business and the Lien on any such property is created
contemporaneously with such acquisition;
(ii) the obligation secured by any Lien so created, assumed or
existing shall not exceed 90% of the lesser of cost or fair
market value as of the time of acquisition of the property
covered thereby to the Borrower or such Subsidiary acquiring the
same;
(iii) each such Lien shall attach only to the property so
acquired and fixed improvements thereon;
(iv) the obligations secured by such Lien are permitted by the
provisions of Section 7.01; and
(j) Liens securing Excluded Bank Debt.
Section 7.03. Leases. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
obligation as lessee for the rental or hire of any real or personal property,
except: (a) leases existing on the date of this Agreement and any extensions or
renewals thereof; (b) leases (other than Capital Leases) which do not in the
aggregate require the Borrower and its Subsidiaries on a consolidated basis to
make payments (including taxes, insurance, maintenance and similar expense which
the Borrower or any Subsidiary is required to pay under the terms of any lease)
in any fiscal year of the Borrower in excess of 1/2 of 1 % of Consolidated Total
Assets; (c) Capital Leases permitted by Section 7.02.
Section 7.04. Stock of Subsidiaries Etc. Sell or otherwise dispose of or
permit or suffer any Lien to exist with respect to any shares of capital stock
of any of its Subsidiaries which is a bank or a savings bank, except in
connection with a transaction permitted under Section 7.06, or permit any
Subsidiary to issue any additional shares of its capital stock, except directors
qualifying shares if, after giving effect to such transaction (or assuming
foreclosure upon any such Lien) the Borrower would directly or indirectly
control less than 80% of the stock of such Subsidiary.
<PAGE>25
Section 7.05. Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate or permit any of its Subsidiaries
to enter into any transaction including, without limitation, the purchase, sale
or exchange of property or the rendering of any service, with any Affiliate,
except in the ordinary course of and pursuant to the reasonable requirements of
the Borrowers or such Subsidiary's business and upon fair and reasonable terms
no less favorable to the Borrower or such Subsidiary than would obtain in a
comparable arms length transaction with a Person not an Affiliate.
Section 7.06. Mergers, Etc. Merge or consolidate with, or
sell, assign, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to, any Person, or acquire all or substantially all
of the assets or the business of any Person (or enter into any agreement to do
any of the foregoing), or permit any of its Subsidiaries to do so, except that:
(a) any such Subsidiary may merge into or transfer assets to the Borrower; (b)
any Subsidiary may merge into or consolidate with or transfer assets to any
other Subsidiary; (c) the Borrower may so merge or consolidate (in a transaction
which does not satisfy subsections (d) or (e) below) provided that (i) the
surviving Person assumes all the obligations of the Borrower hereunder, (ii) no
Default or Event of Default would result therefrom, and (iii) after giving
effect to such merger or consolidation the surviving Person has long term senior
unsecured debt rated at least BBB+ by Standard & Poor's Corporation or at least
Baa1 by Moody's Investors Service, Inc., or if the surviving Person's debt is
not rated, the surviving Person's principal Subsidiary has a long term deposit
rating of at least A3 from Moody's Investors Service, Inc. or at least BBB+ from
Standard & Poor's Corporation; (d) the Borrower or any Subsidiary may merge or
consolidate or may acquire all or a majority of the voting shares or all or a
substantial portion of the assets of any Person if (i) before giving effect to
any such acquisition, the Form FRY-9C Consolidated Total Assets of the Borrower
will constitute no less than 70% of the sum of the Form FRY-9C Consolidated
Total Assets of the Borrower and the portion of the Consolidated Total Assets to
be acquired from the acquired Person, (ii) immediately after the consummation of
the acquisition and after giving effect thereto, no Default or Event of Default
would exist, and (iii) the Borrower or any Subsidiary is the surviving entity;
and (e) the Borrower or any Subsidiary may merge or consolidate or may acquire
all or a majority of the voting shares or all or a substantial portion of the
assets of any Person if (i) before giving effect to any such acquisition, the
Form FRY-9C Consolidated Total Assets of the Borrower will constitute no less
than 50% of the sum of the Form FRY-9C Consolidated Total Assets of the Borrower
and the portion of the Consolidated Total Assets to be acquired from the
acquired Person and (ii) prior to the acquisition the Borrower provides the Bank
with pro forma
<PAGE>26
financial projections which demonstrate to the Bank's reasonable satisfaction
that, before giving effect to such acquisition, the Form FRY-9C Consolidated
Total Assets of the Borrower will constitute no less than 70% of the sum of the
Form FRY-9C Consolidated Total Assets of the Borrower and the portion of the
Consolidated Total Assets to be acquired from the acquired Person within 6
months after the consummation of the acquisition, (iii) immediately after the
consummation of the acquisition and after giving effect thereto, no Default or
Event of Default would exist, and (iv) the Borrower or any Subsidiary is the
surviving entity.
Section 7.07. Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, assign, transfer
or otherwise dispose of, any of its now owned or hereafter acquired assets
(including, without limitation, shares of stock and indebtedness of its
Subsidiaries, receivables and leasehold interests); except: (a) for assets
disposed of in the ordinary course of business; (b) the sale or other
disposition of assets no longer used or useful in the conduct of its business;
(c) that any such Subsidiary may sell, lease, assign, or otherwise transfer its
assets to the Borrower; and (d) assets sold or otherwise disposed of for
consideration equal to the fair market value of such assets where the proceeds
of such disposition are either (i) received entirely in cash, or (ii) in the
case of non-cash proceeds, such non-cash proceeds have a fair market value not
in excess of 10% of Consolidated Capitalization.
ARTICLE 8. FINANCIAL COVENANTS.
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement:
Section 8.01. Minimum Tangible Net Worth. The Borrower shall maintain at
all times a Consolidated Tangible Net Worth of not less than 80% of its
Consolidated Tangible Net Worth at September 30, 1993.
Section 8.02. Leverage Ratio. The Borrower shall maintain Tier I Capital
at least equal to 5.5% of Consolidated Total Assets (RAP).
Section 8.03. Double Leverage. The Borrower shall maintain at all times a
ratio of (x) the sum of (a) its Equity Investments in Subsidiaries plus (b) its
goodwill to (y) the sum of (a) its Tangible Net Worth and (b) its goodwill; of
not greater than 1.25 to 1.00.
Section 8.04. Capital Requirements. The Borrower will, and will cause
each of its banking Subsidiaries to, maintain at all times such amount of
capital as may be prescribed by the Board of Governors of the Federal Reserve
System (in the case of the
<PAGE>27
Borrower and any state member banking Subsidiary), the Federal Deposit Insurance
Corporation (in the case of any state nonmember banking Subsidiary), or the
Comptroller of the Currency (in the case of any national banking Subsidiary), as
the case may be, from time to time, whether by regulation, agreement or order.
The Borrower shall ensure that each Insured Subsidiary shall be "adequately
capitalized" (within the meaning of 12 U.S.C. Section 1831o, as amended,
reenacted or redesignated from time to time).
ARTICLE 9. EVENTS OF DEFAULT.
Section 9.01. Events of Default. Any of the following events shall be an
"Event of Default":
(a) the Borrower shall: (i) fail to pay the principal of the Note as
and.when due and payable; (ii) fail to pay interest on the Note or any fee
or other amount due hereunder as and when due and payable;
(b) any representation or warranty made or deemed made by the Borrower in
this Agreement or in any other Facility Document or which is contained in
any certificate, document, opinion, financial or other statement furnished
at any time under or in connection with any Facility Document shall prove
to have been incorrect in any material respect on or as of the date made or
deemed made;
(c) the Borrower or any Subsidiary shall: (i) fail to perform or observe
any term, covenant or agreement contained in Section 2.03 or Articles 7 or
8 (other than Section 7.06); or (ii) enter into a transaction or an
agreement to enter into a transaction violative of Section 7.06 and fail to
obtain a waiver therefor within the later of 10 days of the public
announcement of such agreement or 10 days after having entered into such an
agreement); or (iii) fail to perform or observe any term, covenant or
agreement on its part to be performed or observed (other than the
obligations specifically referred to elsewhere in this Section 9.01) in any
Facility Document and such failure shall continue for 30 consecutive days;
(d) the Borrower or any of its Subsidiaries shall: (i) fail to pay any
indebtedness, including but not limited to indebtedness for borrowed money
(other than the payment obligations described in (a) above), of the
Borrower or such Subsidiary, as the case may be, or any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise); or (ii) fail to perform or observe any
term, covenant or condition on its part to be performed or observed under
any agreement or instrument relating to any such indebtedness, when
required to be performed or observed, if the effect of such failure to
<PAGE>28
perform or observe is to accelerate, or to permit the acceleration of,
after the giving of notice or passage of time, or both, the maturity of
such indebtedness, whether or not such failure to perform or observe shall
be waived by the holder of such indebtedness; or any such indebtedness
shall be declared to be due and payable, or required to be prepaid (other
than by a regularly scheduled required prepayment), prior to the stated
maturity thereof;
(e) the Borrower or any of its Subsidiaries: (i) shall generally not, or be
unable to, or shall admit in writing its inability to, pay its debts as
such debts become due; or (ii) shall make an assignment for the benefit of
creditors, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets;
or (iii) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (iv) shall have had any such petition or application filed or
any such proceeding shall have been commenced, against it, in which an
adjudication or appointment is made or order for relief is entered, or
which petition, application or proceeding remains undismissed for a period
of 30 days or more; or (v) by any act or omission shall indicate its
consent to, approval of or acquiescence in any such petition, application
or proceeding or order for relief or the appointment of a custodian,
receiver or trustee for all or any substantial part of its property; or
(vi) shall suffer any such custodianship, receivership or trusteeship to
continue undischarged for a period of 30 days or more;
(f) one or more judgments, decrees or orders for the payment of money in
the aggregate in excess of 5% of its Consolidated Tangible Net Worth shall
be rendered against the Borrower or any of its Subsidiaries and such
judgments, decrees or orders shall continue unsatisfied and in effect for a
period of 30 consecutive days without being vacated, discharged, satisfied
or stayed or bonded pending appeal;
(g) any of the following events shall occur or exist with respect to the
Borrower or any ERISA Affiliate: (i) any Prohibited Transaction involving
any Plan; (ii) any Reportable Event shall occur with respect to any Plan;
(iii) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan; (iv) any event or
circumstance exists which might constitute grounds entitling the PBGC to
institute proceedings under Section 4042 of ERISA for the termination of,
or for the appointment of a trustee to administer, any Plan, or the
institution by the PBGC of any such proceedings; (v) complete or partial
withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or
the
<PAGE>29
reorganization, insolvency, or termination of any Multiemployer Plan; and
in each case above, such event or condition, together with all other events
or conditions, if any, could in the opinion of the Bank subject the
Borrower to any tax, penalty, or other liability to a Plan, Multiemployer
Plan, the PBGC, or otherwise (or any combination thereof) which in the
aggregate exceed or may exceed $10,000,000;
(h) any bank Subsidiary shall cease accepting deposits or making commercial
loans on the instruction of any Federal or state regulatory body with
authority to give such instruction;
(i) any Federal or state bank regulatory authority having jurisdiction to
regulate any bank Subsidiary shall notify such bank Subsidiary that such
bank Subsidiary's capital stock has become impaired, or any Insured
Subsidiary shall cease to be an insured bank under the Federal Deposit
Insurance Act;
(j) any Insured Subsidiary shall be required to enter into a capital
maintenance agreement (other than in connection with an acquisition and
when the duration of such agreement shall be six months or less from the
time of consummation of such acquisition) or shall be required to submit a
capital restoration plan of the type referred to in 12 U.S.C. Section
1831o(b)(2)(C), as amended, reenacted or redesignated from time to time
(whether or not the time allowed by the appropriate Federal banking agency
for the submission of such plan has been established or elapsed);
(k) the Borrower shall enter into any agreement to guarantee (whether or
not voluntarily) the capital of any Insured Subsidiary as part of or in
connection with any agreement or arrangement with any Federal banking
agency other than in connection with obtaining regulatory approval for the
acquisition of such Insured Subsidiary.
Section 9.02. Remedies. If any Event of Default shall occur and be
continuing, the Bank may, by notice to the Borrower, (a) declare the Commitment
to be terminated, whereupon the same shall forthwith terminate, and (b) declare
the outstanding principal of the Note, all interest thereon and all other
amounts payable under this Agreement and the Note to be forthwith due and
payable, whereupon the Note, all such interest and all such amounts shall become
and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower; provided, that, in the case of an Event of Default referred to in
Section 9.01(c)(ii) above, such acceleration of the Note may not occur until 30
days have elapsed from the sooner of the consummation of the transaction
violative of Section 7.06 or the Bank's refusal to grant a waiver therefor; and,
provided, further, that, in the case of an Event of Default referred to in
Section 9.01(e) above, the Commitment shall
<PAGE>30
be immediately terminated, and the Note, all interest thereon and all other
amounts payable under this Agreement shall be immediately due and payable
without notice, presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
ARTICLE 10. MISCELLANEOUS.
Section 10.01. Amendments and Waivers. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Bank, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given. No
failure on the part of the Bank to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof or preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
Section 10.02. Usury. Anything herein to the contrary notwithstanding,
the obligations of the Borrower under this Agreement and the Note shall be
subject to the limitation that payments of interest shall not be required to the
extent that receipt thereof would be contrary to provisions of law applicable to
the Bank limiting rates of interest which may be charged or collected by the
Bank.
Section 10.03. Expenses. The Borrower shall reimburse the Bank on demand
for all costs, expenses, and charges (including, without limitation, fees and
charges of external legal counsel for the Bank and costs allocated by its
internal legal department) incurred by the Bank in connection with the
performance or enforcement of this Agreement or the Note. The Borrower agrees
to indemnify the Bank and its respective directors, officers, employees and
agents from, and hold each of them harmless against, any and all losses,
liabilities, claims, damages or expenses incurred by any of them arising out of
or by reason of any investigation or litigation or other proceedings (including
any threatened investigation or litigation or other proceedings) relating to any
actual or proposed use of the proceeds of the Loans, including without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
Section 10.04. Survival. The obligations of the Borrower under Sections
3.01, 3.04 and 10.03 shall survive the repayment of the Loans and the
termination of the Commitment.
<PAGE>31
Section 10.05. Assignment; Participations. This Agreement shall be
binding upon, and shall inure to the benefit of, the Borrower, the Bank and
their respective successors and assigns, except that the Borrower may not assign
or transfer its rights or obligations hereunder. The Bank may assign, or sell
participations in, all or any part of any Loan to another bank or other entity,
in which event (a) in the case of an assignment, upon notice thereof by the Bank
to the Borrower, the assignee shall have, to the extent of such assignment
(unless otherwise provided therein), the same rights, benefits and obligations
as it would have if it were the Bank hereunder; and (b) in the case of a
participation, the participant shall have no rights under the Facility Documents
and all amounts payable by the Borrower under Article 3 shall be determined as
if the Bank had not sold such participation. The agreement executed by the Bank
in favor of the participant shall not give the participant the right to require
the Bank to take or omit to take any action hereunder except action directly
relating to (i) the extension of a payment date with respect to any portion of
the principal of or interest on any amount outstanding hereunder allocated to
such participant, (ii) the reduction of the principal amount outstanding
hereunder or (iii) the reduction of the rate of interest payable on such amount
or any amount of fees payable hereunder to a rate or amount, as the case may be,
below that which the participant is entitled to receive under its agreement with
the Bank. The Bank may furnish any information concerning the Borrower in the
possession of the Bank from time to time to assignees and participants
(including prospective assignees and participants); provided that the Bank shall
require any such prospective assignee or such participant (prospective or
otherwise) to agree in writing to maintain the confidentiality of such
information.
Section 10.06. Notices. Unless the party to be notified otherwise
notifies the other party in writing as provided in this Section, and except as
otherwise provided in this Agreement, notices shall be given to the Bank and to
the Borrower by ordinary mail or telex addressed to such party at its address on
the signature page of this Agreement. Notices shall be effective: (a) if given
by mail, 72 hours after deposit in the mails with first class postage prepaid,
addressed as aforesaid; and (b) if given by telex, when the telex is transmitted
to the telex number as aforesaid; provided that notices to the Bank shall be
effective upon receipt.
Section 10.07. Setoff. The Borrower agrees that, in addition to (and
without limitation of) any right of setoff, bankers lien or counterclaim the
Bank may otherwise have, the Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final) held by it
for the account of the Borrower at any of the Banks offices, in Dollars or in
any other currency, against any amount payable by the Borrower under this
Agreement or the Note which is not paid when due (regardless of whether such
balances are then due to the Borrower), in which
<PAGE>32
case it shall promptly notify the Borrower thereof; provided that the Banks
failure to give such notice shall not affect the validity thereof.
Section 10.08. Jurisdiction; Immunities. (a) The Borrower and the Bank
hereby irrevocably submit to the jurisdiction of any New York State or United
States Federal court sitting in New York City over any action or proceeding
arising out of or relating to this Agreement or the Note, and the Borrower and
the Bank hereby irrevocably agree that all claims in respect of such action or
proceeding may be heard and determined in such New York State or Federal court.
The Borrower irrevocably consents to the service of any and all process in any
such action or proceeding by the mailing of copies of such process to the
Borrower at its address specified in Section 10.06. The Borrower agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. The Borrower further waives any objection to venue in such
State and any objection to an action or proceeding in such State on the basis of
forum non conveniens. The Borrower further agrees that any action or proceeding
brought against the Bank shall be brought only in New York State or United
States Federal court sitting in New York County. The Borrower waives any right
it may have to jury trial.
(b) Nothing in this Section 10.08 shall affect the right of the Bank to
serve legal process in any other manner permitted by law or affect the right of
the Bank to bring any action or proceeding against the Borrower or its property
in the courts of any other jurisdictions.
Section 10.09. Table of Contents; Headings. Any table of contents and the
headings and captions hereunder are for convenience only and shall not affect
the interpretation or construction of this Agreement.
Section 10.10. Severability. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 10.11. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart.
Section 10.12. Integration. The Facility Documents set forth the entire
agreement between the parties hereto relating to the
<PAGE>33
transactions contemplated thereby and supersede any prior oral or written
statements or agreements with respect to such transactions.
Section 10.13. Governing Law. This Agreement shall be governed by, and
interpreted and construed in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
FIRST EMPIRE STATE CORPORATION
By /s/ Gary S. Paul
---------------------------
Gary S. Paul
Senior Vice President
Address for Notices:
One M & T Plaza
Buffalo, New York 14240
Telex No.: 91-347
Telecopier No.: 716-842-5021
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By /s/ Thomas M. Houston
---------------------------
Thomas M. Houston
Vice President
Lending Office for Variable Rate
and Eurodollar Loans:
The Chase Manhattan Bank, N.A.
4 Metrotech Center
Brooklyn, New York
Address for Notices:
1 Chase Manhattan Plaza - 5th Floor
New York, New York 10081
Attn: Domestic Banking Division
Telecopier No.: (212) 552-7879
<PAGE>1
Exhibit 11
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
Year ended December 31
-------------------------
Amounts in thousands, except per share 1993 1992 1991
Primary ---- ---- ----
Average common share outstanding 6,869 6,735 6,673
Common stock equivalents* 222 298 232
----- ----- -----
Primary common shares outstanding 7,091 7,033 6,905
===== ===== =====
Net income $101,992 97,937 67,194
Less: Preferred stock dividends 3,600 3,600 2,860
------- ------ ------
Net income available to common shareholders 98,392 94,337 64,334
======= ====== ======
Earnings per common share-primary $ 13.87 13.41 9.32
===== ===== =====
Fully diluted
Average common shares outstanding 6,869 6,735 6,673
Common stock equivalents* 225 302 268
Assumed conversion of convertible
preferred stock 507 507 406
----- ----- -----
Fully diluted average common
shares outstanding 7,601 7,544 7,347
===== ===== =====
Net income $ 101,992 97,937 67,194
======= ====== ======
Earnings per common share-fully diluted $ 13.42 12.98 9.15
====== ===== =====
* Represents shares issuable upon the assumed exercise of outstanding
common stock options under the "Treasury Stock" method of accounting.
<PAGE>1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-32044) of First Empire State Corporation of
our report dated January 10, 1994 appearing on page 49 of this Annual
Report on Form 10-K. We also consent to the incorporation by reference in
the Registration Statement of our report dated March 15, 1994 appearing on
page 3 of the Annual Report of First Empire State Corporation Retirement
Savings Plan and Trust for the year ended December 31, 1993, filed herewith
as Exhibit 99.1 of this Annual Report on Form 10-K. We consent to the
reference to us under the caption "Experts" in such Registration Statement.
/S/ PRICE WATERHOUSE
- --------------------
Buffalo, New York
March 16, 1994
<PAGE>1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-12207) of First Empire State Corporation of
our report dated January 10, 1994 appearing on page 49 of this Annual
Report on Form 10-K. We also consent to the reference to us under the
caption "Experts" in such Registration Statement.
/S/ PRICE WATERHOUSE
- --------------------
Buffalo, New York
March 16, 1994
<PAGE>1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-58500) of First Empire State Corporation of
our report dated January 10, 1994 appearing on page 49 of this Annual
Report on Form 10-K. We also consent to the reference to us under the
caption "Experts" in such Registration Statement.
/S/ PRICE WATERHOUSE
- --------------------
Buffalo, New York
March 16, 1994
<PAGE>1
Exhibit 99.2
Reconciliation of selected annual and quarterly financial data from amounts
previously reported
Certain reclassifications of nonrefundable loan fees and certain direct loan
origination costs have been made to prior period financial statements filed
on Form 10-K for each of the years 1989 through 1992 and on Form 10-Q for
each quarter in 1992 and 1993 to conform with the current period
presentation. Additionally, certain income previously included in trust
income has been reclassified to interest income from loans.
The following tables reconcile the amounts previously reported with the
reclassified amounts.
<PAGE>2
<TABLE>
Exhibit 99.2
(continued)
FIRST EMPIRE STATE CORPORATION
Reconciliation of Selected Annual Financial Data
From Amounts Previously Reported
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------
1992 1991
----------------------------------- ------------------------------------
Previously Previously
dollars in thousands Reported Reclass Reclassified Reported Reclass Reclassified
- ------------------------------------ ----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and leases, including fees 602,017 915 602,932 592,021 374 592,395
Money-market assets
Deposits at banks 1,083 1,083 7,864 7,864
Federal funds sold and agreements
to resell securities 18,100 18,100 5,322 5,322
Trading account 2,927 2,927 15,716 15,716
Investment securities
Fully taxable 125,529 125,529 138,808 138,808
Exempt from federal taxes 5,906 5,906 9,292 9,292
- ------------------------------------ ----------------------------------- ------------------------------------
Total interest income 755,562 915 756,477 769,023 374 769,397
- ------------------------------------ ----------------------------------- ------------------------------------
Interest expense:
NOW accounts 16,544 16,544 27,418 27,418
Savings deposits 110,142 110,142 123,468 123,468
Time deposits 153,588 153,588 242,684 242,684
Deposits at foreign office 4,348 4,348 9,014 9,014
Short-term borrowings 38,386 38,386 36,972 36,972
Long-term borrowings and capital leases 590 590 659 659
- ------------------------------------ ----------------------------------- ------------------------------------
Total interest expense 323,598 0 323,598 440,215 0 440,215
- ------------------------------------ ----------------------------------- ------------------------------------
Net interest income 431,964 915 432,879 328,808 374 329,182
Provision for possible credit losses 84,989 84,989 63,412 63,412
- ------------------------------------ ----------------------------------- ------------------------------------
Net interest income after provision
for possible credit losses 346,975 915 347,890 265,396 374 265,770
- ------------------------------------ ----------------------------------- ------------------------------------
Other income:
Trust income 17,820 (915) 16,905 12,221 (374) 11,847
Service charges on deposit accounts 28,372 28,372 20,688 20,688
Merchant discount and other credit card fees 6,728 6,728 5,776 5,776
Trading account profits 1,684 1,684 5,015 5,015
Gain on sales of bank investment securities 28,050 28,050 450 450
Gain on sales of venture capital investments 3,230 3,230 2,064 2,064
Other revenues from operations 48,393 (7,136) 41,257 35,815 (3,969) 31,846
- ------------------------------------ ----------------------------------- ------------------------------------
Total other income 134,277 (8,051) 126,226 82,029 (4,343) 77,686
- ------------------------------------ ----------------------------------- ------------------------------------
Other expense:
Salaries and employee benefits 136,470 (5,719) 130,751 106,446 (3,245) 103,201
Equipment and net occupancy 41,659 41,659 33,350 33,350
Printing, postage and supplies 13,111 13,111 10,727 10,727
Deposit insurance 17,783 17,783 15,222 15,222
Other costs of operations 109,451 (1,417) 108,034 66,885 (724) 66,161
- ------------------------------------ ----------------------------------- ------------------------------------
Total other expense 318,474 (7,136) 311,338 232,630 (3,969) 228,661
- ------------------------------------ ----------------------------------- ------------------------------------
Income before income taxes and
accounting change 162,778 0 162,778 114,795 0 114,795
Applicable income taxes 64,841 64,841 47,601 47,601
- ------------------------------------ ----------------------------------- ------------------------------------
Income before accounting change 97,937 0 97,937 67,194 0 67,194
Cumulative effect of accounting change 0 0 0 0
- ------------------------------------ ----------------------------------- ------------------------------------
Net income 97,937 0 97,937 67,194 0 67,194
==================================== =================================== ====================================
</TABLE>
<PAGE>2.1
<TABLE>
<CAPTION>
Exhibit 99.2
(continued)
FIRST EMPIRE STATE CORPORATION
Reconciliation of Selected Annual Financial Data
From Amounts Previously Reported
Year ended December 31,
-------------------------------------------------------------------------
1990 1989
----------------------------------- ------------------------------------
Previously Previously
dollars in thousands Reported Reclass Reclassified Reported Reclass Reclassified
- ------------------------------------ ----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and leases, including fees 522,363 92 522,455 440,258 77 440,335
Money-market assets
Deposits at banks 18,424 18,424 33,691 33,691
Federal funds sold and agreements
to resell securities 7,689 7,689 7,265 7,265
Trading account 5,151 5,151 4,115 4,115
Investment securities
Fully taxable 95,398 95,398 83,381 83,381
Exempt from federal taxes 8,351 8,351 7,926 7,926
- ------------------------------------ ----------------------------------- ------------------------------------
Total interest income 657,376 92 657,468 576,636 77 576,713
- ------------------------------------ ----------------------------------- ------------------------------------
Interest expense:
NOW accounts 24,190 24,190 22,848 22,848
Savings deposits 70,857 70,857 55,498 55,498
Time deposits 247,284 247,284 234,644 234,644
Deposits at foreign office 12,008 12,008 20,887 20,887
Short-term borrowings 72,088 72,088 49,718 49,718
Long-term borrowings and capital leases 501 501 825 825
- ------------------------------------ ----------------------------------- ------------------------------------
Total interest expense 426,928 0 426,928 384,420 0 384,420
- ------------------------------------ ----------------------------------- ------------------------------------
Net interest income 230,448 92 230,540 192,216 77 192,293
Provision for possible credit losses 27,412 27,412 15,285 15,285
- ------------------------------------ ----------------------------------- ------------------------------------
Net interest income after provision
for possible credit losses 203,036 92 203,128 176,931 77 177,008
- ------------------------------------ ----------------------------------- ------------------------------------
Other income:
Trust income 9,788 (92) 9,696 8,790 (77) 8,713
Service charges on deposit accounts 17,427 17,427 14,950 14,950
Merchant discount and other credit card fees 5,887 5,887 5,157 5,157
Trading account profits 284 284 362 362
Gain on sales of bank investment securities 4 4 1,145 1,145
Gain on sales of venture capital investments 727 727 513 513
Other revenues from operations 21,471 (2,758) 18,713 19,973 (1,852) 18,121
- ------------------------------------ ----------------------------------- ------------------------------------
Total other income 55,588 (2,850) 52,738 50,890 (1,929) 48,961
- ------------------------------------ ----------------------------------- ------------------------------------
Other expense:
Salaries and employee benefits 88,024 (2,140) 85,884 79,664 (1,348) 78,316
Equipment and net occupancy 28,617 28,617 22,588 22,588
Printing, postage and supplies 7,603 7,603 6,254 6,254
Deposit insurance 6,680 6,680 3,800 3,800
Other costs of operations 42,967 (618) 42,349 39,163 (504) 38,659
- ------------------------------------ ----------------------------------- ------------------------------------
Total other expense 173,891 (2,758) 171,133 151,469 (1,852) 149,617
- ------------------------------------ ----------------------------------- ------------------------------------
Income before income taxes and
accounting change 84,733 0 84,733 76,352 0 76,352
Applicable income taxes 30,791 30,791 25,646 25,646
- ------------------------------------ ----------------------------------- ------------------------------------
Income before accounting change 53,942 0 53,942 50,706 0 50,706
Cumulative effect of accounting change 0 0 (9,455) (9,455)
- ------------------------------------ ----------------------------------- ------------------------------------
Net income 53,942 0 53,942 41,251 0 41,251
==================================== =================================== ====================================
</TABLE>
<PAGE>3
<TABLE>
Exhibit 99.2
(continued)
<CAPTION>
FIRST EMPIRE STATE CORPORATION
Reconciliation of Selected Quarterly Financial Data
From Amounts Previously Reported
Three months ended
-------------------------------------------------------------------------
September 30, 1993 June 30, 1993
----------------------------------- ------------------------------------
Previously Previously
dollars in thousands Reported Reclass Reclassified Reported Reclass Reclassified
- ------------------------------------ ----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and leases, including fees 152,368 241 152,609 152,869 284 153,153
Money-market assets
Deposits at banks 1,897 1,897 1,780 1,780
Federal funds sold and agreements
to resell securities 2,953 2,953 6,468 6,468
Trading account 202 202 557 557
Investment securities
Fully taxable 25,653 25,653 25,804 25,804
Exempt from federal taxes 567 567 649 649
- ------------------------------------ ----------------------------------- ------------------------------------
Total interest income 183,640 241 183,881 188,127 284 188,411
- ------------------------------------ ----------------------------------- ------------------------------------
Interest expense:
NOW accounts 3,204 3,204 3,198 3,198
Savings deposits 22,108 22,108 22,694 22,694
Time deposits 23,499 23,499 26,020 26,020
Deposits at foreign office 827 827 790 790
Short-term borrowings 14,837 14,837 14,820 14,820
Long-term borrowings and capital leases 1,539 1,539 1,540 1,540
- ------------------------------------ ----------------------------------- ------------------------------------
Total interest expense 66,014 0 66,014 69,062 0 69,062
- ------------------------------------ ----------------------------------- ------------------------------------
Net interest income 117,626 241 117,867 119,065 284 119,349
Provision for possible credit losses 19,715 19,715 20,215 20,215
- ------------------------------------ ----------------------------------- ------------------------------------
Net interest income after provision
for possible credit losses 97,911 241 98,152 98,850 284 99,134
- ------------------------------------ ----------------------------------- ------------------------------------
Other income:
Trust income 6,024 (241) 5,783 6,032 (284) 5,748
Service charges on deposit accounts 8,585 8,585 8,244 8,244
Merchant discount and other credit card fees 2,010 2,010 1,979 1,979
Trading account profits 840 840 280 280
Gain on sales of bank investment securities 68 68 (21) (21)
Gain on sales of venture capital investments 668 668 592 592
Other revenues from operations 12,549 (3,019) 9,530 13,861 (3,192) 10,669
- ------------------------------------ ----------------------------------- ------------------------------------
Total other income 30,744 (3,260) 27,484 30,967 (3,476) 27,491
- ------------------------------------ ----------------------------------- ------------------------------------
Other expense:
Salaries and employee benefits 42,530 (2,365) 40,165 38,681 (2,625) 36,056
Equipment and net occupancy 12,470 12,470 11,713 11,713
Printing, postage and supplies 2,905 2,905 3,366 3,366
Deposit insurance 4,271 4,271 4,603 4,603
Other costs of operations 21,269 (654) 20,615 29,395 (567) 28,828
- ------------------------------------ ----------------------------------- ------------------------------------
Total other expense 83,445 (3,019) 80,426 87,758 (3,192) 84,566
- ------------------------------------ ----------------------------------- ------------------------------------
Income before income taxes and
accounting change 45,210 0 45,210 42,059 0 42,059
Applicable income taxes 19,358 19,358 16,874 16,874
- ------------------------------------ ----------------------------------- ------------------------------------
Income before accounting change 25,852 0 25,852 25,185 0 25,185
Cumulative effect of accounting change 0 0 0 0
- ------------------------------------ ----------------------------------- ------------------------------------
Net income 25,852 0 25,852 25,185 0 25,185
==================================== =================================== ====================================
</TABLE>
<PAGE>3.1
<TABLE>
Exhibit 99.2
<CAPTION>
(continued)
FIRST EMPIRE STATE CORPORATION
Reconciliation of Selected Quarterly Financial Data
From Amounts Previously Reported
Three months ended
-----------------------------------
March 31, 1993
-----------------------------------
Previously
dollars in thousands Reported Reclass Reclassified
- ------------------------------------ -----------------------------------
<S> <C> <C> <C>
Interest income:
Loans and leases, including fees 152,588 255 152,843
Money-market assets
Deposits at banks 1,510 1,510
Federal funds sold and agreements
to resell securities 6,006 6,006
Trading account 269 269
Investment securities
Fully taxable 22,385 22,385
Exempt from federal taxes 683 683
- ------------------------------------ -----------------------------------
Total interest income 183,441 255 183,696
- ------------------------------------ -----------------------------------
Interest expense:
NOW accounts 3,651 3,651
Savings deposits 24,218 24,218
Time deposits 28,399 28,399
Deposits at foreign office 838 838
Short-term borrowings 9,390 9,390
Long-term borrowings and capital leases 1,540 1,540
- ------------------------------------ -----------------------------------
Total interest expense 68,036 0 68,036
- ------------------------------------ -----------------------------------
Net interest income 115,405 255 115,660
Provision for possible credit losses 18,315 18,315
- ------------------------------------ -----------------------------------
Net interest income after provision
for possible credit losses 97,090 255 97,345
- ------------------------------------ -----------------------------------
Other income:
Trust income 5,923 (255) 5,668
Service charges on deposit accounts 7,321 7,321
Merchant discount and other credit card fees 1,984 1,984
Trading account profits 754 754
Gain on sales of bank investment securities 823 823
Gain on sales of venture capital investments 536 536
Other revenues from operations 11,310 (1,529) 9,781
- ------------------------------------ -----------------------------------
Total other income 28,651 (1,784) 28,867
- ------------------------------------ -----------------------------------
Other expense:
Salaries and employee benefits 41,082 (1,167) 39,915
Equipment and net occupancy 11,839 11,839
Printing, postage and supplies 3,612 3,612
Deposit insurance 4,539 4,539
Other costs of operations 23,896 (362) 23,534
- ------------------------------------ -----------------------------------
Total other expense 84,968 (1,529) 83,439
- ------------------------------------ -----------------------------------
Income before income taxes and
accounting change 40,773 0 40,773
Applicable income taxes 16,451 16,451
- ------------------------------------ -----------------------------------
Income before accounting change 24,322 0 24,322
Cumulative effect of accounting change 0 0
- ------------------------------------ -----------------------------------
Net income 24,322 0 24,322
==================================== ===================================
</TABLE>
<PAGE>4
<TABLE>
Exhibit 99.2
(continued)
<CAPTION>
FIRST EMPIRE STATE CORPORATION
Reconciliation of Selected Quarterly Financial Data
From Amounts Previously Reported
Three months ended
-------------------------------------------------------------------------
December 31, 1992 September 30, 1992
----------------------------------- ------------------------------------
Previously Previously
dollars in thousands Reported Reclass Reclassified Reported Reclass Reclassified
- ------------------------------------ ----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and leases, including fees 153,377 161 153,538 160,088 216 160,304
Money-market assets
Deposits at banks 766 766 77 77
Federal funds sold and agreements
to resell securities 7,538 7,538 4,974 4,974
Trading account 538 538 1,076 1,076
Investment securities
Fully taxable 25,084 25,084 26,435 26,435
Exempt from federal taxes 1,044 1,044 1,365 1,365
- ------------------------------------ ----------------------------------- ------------------------------------
Total interest income 188,347 161 188,508 194,015 216 194,231
- ------------------------------------ ----------------------------------- ------------------------------------
Interest expense:
NOW accounts 4,013 4,013 4,481 4,481
Savings deposits 26,042 26,042 29,460 29,460
Time deposits 32,581 32,581 37,692 37,692
Deposits at foreign office 898 898 831 831
Short-term borrowings 11,080 11,080 7,569 7,569
Long-term borrowings and capital leases 391 391 44 44
- ------------------------------------ ----------------------------------- ------------------------------------
Total interest expense 75,005 0 75,005 80,077 0 80,077
- ------------------------------------ ----------------------------------- ------------------------------------
Net interest income 113,342 161 113,503 113,938 216 114,154
Provision for possible credit losses 21,424 21,424 21,720 21,720
- ------------------------------------ ----------------------------------- ------------------------------------
Net interest income after provision
for possible credit losses 91,918 161 92,079 92,218 216 92,434
- ------------------------------------ ----------------------------------- ------------------------------------
Other income:
Trust income 5,489 (161) 5,328 4,499 (216) 4,283
Service charges on deposit accounts 7,792 7,792 7,752 7,752
Merchant discount and other credit card fees 2,056 2,056 1,765 1,765
Trading account profits 303 303 471 471
Gain on sales of bank investment securities (720) (720) 780 780
Gain on sales of venture capital investments 405 405 435 435
Other revenues from operations 17,309 (1,155) 16,154 10,780 (2,238) 8,542
- ------------------------------------ ----------------------------------- ------------------------------------
Total other income 32,634 (1,316) 31,318 26,482 (2,454) 24,028
- ------------------------------------ ----------------------------------- ------------------------------------
Other expense:
Salaries and employee benefits 37,273 (622) 36,651 37,483 (1,763) 35,720
Equipment and net occupancy 13,166 13,166 11,164 11,164
Printing, postage and supplies 4,139 4,139 2,873 2,873
Deposit insurance 4,700 4,700 4,733 4,733
Other costs of operations 29,837 (533) 29,304 27,903 (475) 27,428
- ------------------------------------ ----------------------------------- ------------------------------------
Total other expense 89,115 (1,155) 87,960 84,156 (2,238) 81,918
- ------------------------------------ ----------------------------------- ------------------------------------
Income before income taxes and
accounting change 35,437 0 35,437 34,544 0 34,544
Applicable income taxes 13,812 13,812 13,532 13,532
- ------------------------------------ ----------------------------------- ------------------------------------
Income before accounting change 21,625 0 21,625 21,012 0 21,012
Cumulative effect of accounting change 0 0 0 0
- ------------------------------------ ----------------------------------- ------------------------------------
Net income 21,625 0 21,625 21,012 0 21,012
==================================== =================================== ====================================
</TABLE>
<PAGE>4.1
<TABLE>
Exhibit 99.2
(continued)
<CAPTION>
FIRST EMPIRE STATE CORPORATION
Reconciliation of Selected Quarterly Financial Data
From Amounts Previously Reported
Three months ended
-------------------------------------------------------------------------
June 30, 1992 March 31, 1992
----------------------------------- ------------------------------------
Previously Previously
dollars in thousands Reported Reclass Reclassified Reported Reclass Reclassified
- ------------------------------------ ----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and leases, including fees 143,850 261 144,111 144,702 277 144,979
Money-market assets
Deposits at banks 240 240 0 0
Federal funds sold and agreements
to resell securities 3,805 3,805 1,783 1,783
Trading account 486 486 827 827
Investment securities
Fully taxable 33,589 33,589 40,421 40,421
Exempt from federal taxes 1,747 1,747 1,750 1,750
- ------------------------------------ ----------------------------------- ------------------------------------
Total interest income 183,717 261 183,978 189,483 277 189,760
- ------------------------------------ ----------------------------------- ------------------------------------
Interest expense:
NOW accounts 3,891 3,891 4,159 4,159
Savings deposits 27,011 27,011 27,629 27,629
Time deposits 38,586 38,586 44,729 44,729
Deposits at foreign office 1,194 1,194 1,425 1,425
Short-term borrowings 10,047 10,047 9,690 9,690
Long-term borrowings and capital leases 47 47 108 108
- ------------------------------------ ----------------------------------- ------------------------------------
Total interest expense 80,776 0 80,776 87,740 0 87,740
- ------------------------------------ ----------------------------------- ------------------------------------
Net interest income 102,941 261 103,202 101,743 277 102,020
Provision for possible credit losses 24,127 24,127 17,718 17,718
- ------------------------------------ ----------------------------------- ------------------------------------
Net interest income after provision
for possible credit losses 78,814 261 79,075 84,025 277 84,302
- ------------------------------------ ----------------------------------- ------------------------------------
Other income:
Trust income 4,002 (261) 3,741 3,830 (277) 3,553
Service charges on deposit accounts 6,302 6,302 6,526 6,526
Merchant discount and other credit card fees 1,475 1,475 1,432 1,432
Trading account profits 955 955 (45) (45)
Gain on sales of bank investment securities 13,620 13,620 14,370 14,370
Gain on sales of venture capital investments 1,029 1,029 1,361 1,361
Other revenues from operations 10,127 (1,779) 8,348 10,177 (1,964) 8,213
- ------------------------------------ ----------------------------------- ------------------------------------
Total other income 37,510 (2,040) 35,470 37,651 (2,241) 35,410
- ------------------------------------ ----------------------------------- ------------------------------------
Other expense:
Salaries and employee benefits 30,570 (1,568) 29,002 31,144 (1,766) 29,378
Equipment and net occupancy 8,610 8,610 8,719 8,719
Printing, postage and supplies 2,868 2,868 3,231 3,231
Deposit insurance 4,175 4,175 4,175 4,175
Other costs of operations 23,957 (211) 23,746 27,754 (198) 27,556
- ------------------------------------ ----------------------------------- ------------------------------------
Total other expense 70,180 (1,779) 68,401 75,023 (1,964) 73,059
- ------------------------------------ ----------------------------------- ------------------------------------
Income before income taxes and
accounting change 46,144 0 46,144 46,653 0 46,653
Applicable income taxes 18,382 18,382 19,115 19,115
- ------------------------------------ ----------------------------------- ------------------------------------
Income before accounting change 27,762 0 27,762 27,538 0 27,538
Cumulative effect of accounting change 0 0 0 0
- ------------------------------------ ----------------------------------- ------------------------------------
Net income 27,762 0 27,762 27,538 0 27,538
==================================== =================================== ====================================
</TABLE>
