<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9861
FIRST EMPIRE STATE CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0968385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One M & T Plaza
Buffalo, New York
(Address of principal 14240
executive offices) (Zip Code)
(716) 842-5445
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
-- --
Number of shares of the registrant's Common Stock, $5 par value, outstanding
as of the close of business on May 1, 1995: 6,492,281 shares.
<PAGE>2
FIRST EMPIRE STATE CORPORATION
------------------------------
FORM 10-Q
---------
For the Quarterly Period Ended March 31, 1995
---------------------------------------------
Table of Contents of Information Required in Report Page
- --------------------------------------------------- ----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31,1995 and December 31, 1994 3
Consolidated Statement of Income -
Three months ended March 31, 1995 and 1994 4
Consolidated Statement of Cash Flows -
Three months ended March 31, 1995 and 1994 5
Consolidated Statement of Changes in
Stockholders' Equity - Three months ended
March 31, 1995 and 1994 6
Consolidated Summary of Changes in
Allowance for Possible Credit Losses -
Three months ended March 31, 1995 and 1994 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Part II. Other Information 20
Signatures 22
Exhibit Index 23
Exhibit No. 10 23
Exhibit No. 11 36
Exhibit No. 27 37
<PAGE>3
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
- ----------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
March 31,
1995 December 31,
Dollars in thousands, except per share (unaudited) 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Cash and due from banks $ 419,719 377,781
Money-market assets
Interest-bearing deposits at banks 70,444 143
Federal funds sold and
agreements to resell securities 15,000 3,080
Trading account 36,724 5,438
-------------------------------------------------------------------------------------
Total money-market assets 122,168 8,661
-------------------------------------------------------------------------------------
Investment securities
Available for sale (cost: $1,721,990 at March 31, 1995;
$1,602,916 at December 31, 1994) 1,666,964 1,514,395
Held to maturity (market value: $324,159 at
March 31, 1995; $221,165 at December 31, 1994) 327,428 227,651
Other (market value: $50,802 at March 31, 1995;
$48,994 at December 31, 1994) 50,802 48,994
-------------------------------------------------------------------------------------
Total investment securities 2,045,194 1,791,040
-------------------------------------------------------------------------------------
Loans and leases 8,819,885 8,447,117
Unearned discount (260,700) (229,824)
Allowance for possible credit losses (248,741) (243,332)
-------------------------------------------------------------------------------------
Loans and leases, net 8,310,444 7,973,961
-------------------------------------------------------------------------------------
Premises and equipment 126,986 127,274
Accrued interest and other assets 252,448 249,927
-------------------------------------------------------------------------------------
Total assets $ 11,276,959 10,528,644
- ----------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits $ 1,082,744 1,087,102
NOW accounts 774,785 748,199
Savings deposits 3,009,888 3,098,438
Time deposits 3,956,183 3,106,723
Deposits at foreign office 220,498 202,611
-------------------------------------------------------------------------------------
Total deposits 9,044,098 8,243,073
-------------------------------------------------------------------------------------
Federal funds purchased and agreements
to repurchase securities 892,643 695,665
Other short-term borrowings 351,017 669,185
Accrued interest and other liabilities 142,413 103,538
Long-term borrowings 96,198 96,187
-------------------------------------------------------------------------------------
Total liabilities 10,526,369 9,807,648
- ----------------------------------------------------------------------------------------------------------
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 98,348 98,014
Undivided profits 716,591 694,274
Unrealized investment losses, net (31,416) (50,555)
Treasury stock - common, at cost -
1,556,991 shares at March 31, 1995;
1,486,969 shares at December 31, 1994 (113,420) (101,224)
-------------------------------------------------------------------------------------
Total stockholders' equity 750,590 720,996
-------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,276,959 10,528,644
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>4
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME (unaudited)
Three months ended March 31
Amounts in thousands, except per share 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income Loans and leases, including fees $ 185,016 148,483
Money-market assets
Deposits at banks 1,294 154
Federal funds sold and agreements
to resell securities 200 1,443
Trading account 172 132
Investment securities
Fully taxable 27,577 26,242
Exempt from federal taxes 827 716
--------------------------------------------------------------------------
Total interest income 215,086 177,170
- -------------------------------------------------------------------------------------------
Interest expense NOW accounts 2,765 2,846
Savings deposits 22,312 20,689
Time deposits 51,573 18,747
Deposits at foreign office 2,336 928
Short-term borrowings 15,663 14,501
Long-term borrowings 1,930 1,538
--------------------------------------------------------------------------
Total interest expense 96,579 59,249
--------------------------------------------------------------------------
Net interest income 118,507 117,921
Provision for possible credit losses 8,500 19,862
--------------------------------------------------------------------------
Net interest income after provision
for possible credit losses 110,007 98,059
- -------------------------------------------------------------------------------------------
Other income Trust income 5,737 5,435
Service charges on deposit accounts 9,219 8,893
Merchant discount and other credit card fees 2,273 1,896
Trading account gain (loss) 693 (208)
Other revenues from operations 8,480 12,433
--------------------------------------------------------------------------
Total other income 26,402 28,449
- -------------------------------------------------------------------------------------------
Other expense Salaries and employee benefits 46,227 39,831
Equipment and net occupancy 12,706 12,812
Printing, postage and supplies 3,595 3,187
Deposit insurance 4,264 4,144
Other costs of operations 22,702 19,241
--------------------------------------------------------------------------
Total other expense 89,494 79,215
--------------------------------------------------------------------------
Income before income taxes 46,915 47,293
Income taxes 19,747 19,665
--------------------------------------------------------------------------
Net income $ 27,168 27,628
- -------------------------------------------------------------------------------------------
Net income per common share
Primary $3.85 3.77
Fully diluted 3.68 3.64
Cash dividends per common share .60 .50
Average common shares outstanding
Primary 6,820 7,083
Fully diluted 7,384 7,590
</TABLE>
<PAGE>5
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Three months ended March 31
Dollars in thousands 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net income $ 27,168 27,628
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 8,500 19,862
Depreciation and amortization of premises
and equipment 4,762 4,291
Provision for deferred income taxes (5,026) (10,465)
Asset write-downs 2,355 1,269
Net gain on sales of assets (195) (2,097)
Net change in accrued interest receivable, payable 3,303 2,056
Net change in other accrued income and expense 49,293 6,470
Net change in loans held for sale (40,030) 118,785
Net change in trading account assets (31,286) (1,405)
------------------------------------------------------------------------------------
Net cash provided by operating activities 18,844 166,394
- ----------------------------------------------------------------------------------------------------------------
Cash flows from Proceeds from maturities of investment securities
investing activities Available for sale 79,797 251,637
Held to maturity 9,327 5,099
Purchases of investment securities
Available for sale (202,651) (2)
Held to maturity (109,144) (11,183)
Other (2,641) (5,190)
Net (increase) decrease in interest-bearing
deposits at banks (70,301) 54,899
Net increase in loans and leases (276,645) (102,748)
Capital expenditures, net (2,720) (3,005)
Acquisitions, net of cash acquired (18,691) -
Other, net (1,619) (432)
------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (595,288) 189,075
- ----------------------------------------------------------------------------------------------------------------
Cash flows from Net increase (decrease) in deposits 800,396 (24,092)
financing activities Net increase (decrease) in short-term borrowings (154,190) 58,088
Payments on long-term borrowings (28) (25)
Purchases of treasury stock (12,003) (6,347)
Dividends paid - common (3,951) (3,431)
Dividends paid - preferred (900) (900)
Other, net 978 (1,043)
------------------------------------------------------------------------------------
Net cash provided by financing activities 630,302 22,250
------------------------------------------------------------------------------------
Net increase in cash and cash equivalents $ 53,858 377,719
Cash and cash equivalents at beginning of period 380,861 525,221
Cash and cash equivalents at end of period $ 434,719 902,940
- ----------------------------------------------------------------------------------------------------------------
Supplemental Interest received during the period $ 203,963 180,861
disclosure of cash Interest paid during the period 79,061 59,234
flow information Income taxes paid (received) during the period (18,345) 13,544
- ----------------------------------------------------------------------------------------------------------------
Supplemental schedule
of noncash investing
and financing activities Real estate acquired in settlement of loans $ 1,329 2,774
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>6
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
-----------------------------------------------------------------------------------------------------------------------------
Unrealized
investment
Preferred Common Undivided gains (losses) Treasury
Dollars in thousands, except per share stock stock Surplus profits net stock Total
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
Balance - January 1, 1994 $40,000 40,487 97,787 595,322 9,148 (58,750) $723,994
Net income - - - 27,628 - - 27,628
Preferred stock cash dividends - - - (900) - - (900)
Common stock cash dividends -
$.50 per share - - - (3,431) - - (3,431)
Exercise of stock options - - 23 - - 99 122
Purchases of treasury stock - - - - - (6,347) (6,347)
Unrealized losses on investment
securities available for sale, net - - - - (16,091) - (16,091)
-----------------------------------------------------------------------------------------------------------------------------
Balance - March 31, 1994 $40,000 40,487 97,810 618,619 (6,943) (64,998) $724,975
-----------------------------------------------------------------------------------------------------------------------------
1995
Balance - January 1, 1995 $40,000 40,487 98,014 694,274 (50,555) (101,224) $720,996
Net income - - - 27,168 - - 27,168
Preferred stock cash dividends - - - (900) - - (900)
Common stock cash dividends -
$.60 per share - - - (3,951) - - (3,951)
Exercise of stock options - - 334 - - 963 1,297
Purchases of treasury stock - - - - - (13,159) (13,159)
Unrealized gains on investment
securities available for sale, net - - - - 19,139 - 19,139
-----------------------------------------------------------------------------------------------------------------------------
Balance - March 31, 1995 $40,000 40,487 98,348 716,591 (31,416) (113,420) $750,590
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR POSSIBLE CREDIT LOSSES (unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31
Dollars in thousands 1995 1994
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $243,332 195,878
Provision for possible credit losses 8,500 19,862
Net charge-offs
Charge-offs (5,441) (9,147)
Recoveries 2,350 6,448
-----------------------------------------------------------------------------------------------------------------------------
Total net charge-offs (3,091) (2,699)
-----------------------------------------------------------------------------------------------------------------------------
Ending balance $248,741 213,041
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>7
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
The consolidated financial statements of First Empire State Corporation and
subsidiaries ("the Company") were compiled in accordance with the accounting
policies set forth on pages 36 and 37 of the Company's 1994 Annual Report.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan" in the first quarter
of 1995. Adoption of SFAS No. 114 had no impact on the Company's results of
operations. In the opinion of management, all adjustments necessary for a
fair presentation have been made and were all of a normal recurring nature.
2. Investment securities
The amortized cost and estimated fair value of investment securities were as
follows:
March 31, 1995 December 31, 1994
----------------------- ---------------------
Estimated Estimated
Amortized fair Amortized fair
In thousands cost value cost value
--------- --------- --------- ---------
Investment securities
available for sale:
U.S. Treasury and federal
agencies $ 182,270 182,162 5,775 5,762
Mortgage-backed securities
Government issued
or guaranteed 834,307 804,265 869,031 822,533
Other 686,467 660,827 706,909 665,209
Other debt securities 4,862 4,896 6,537 6,557
Equity securities 14,084 14,814 14,664 14,334
--------- --------- --------- ---------
1,721,990 1,666,964 1,602,916 1,514,395
--------- --------- --------- ---------
Investment securities
held to maturity:
U.S. Treasury and
federal agencies 270,279 266,782 171,112 164,602
Obligations of states and
political subdivisions 56,397 56,630 55,787 55,872
Other debt securities 752 747 752 691
--------- --------- --------- ---------
327,428 324,159 227,651 221,165
--------- --------- --------- ---------
Other securities 50,802 50,802 48,994 48,994
--------- --------- --------- ---------
Total $2,100,220 2,041,925 1,879,561 1,784,554
========= ========= ========= =========
3. Interest rate swap agreements
At March 31, 1995, the Company had outstanding currently effective interest
rate swap agreements entered into for interest rate risk management purposes
with a notional amount of approximately $2.6 billion. The swaps modify the
repricing characteristics of certain portions of the loan and deposit
portfolios. The net effect of interest rate swaps was to decrease net
interest income by $449 thousand during the three months ended March 31, 1995
and to increase net interest income by $6.6 million during the three months
ended March 31, 1994. The Company estimates that as of March 31, 1995, it
would have had to pay approximately $51 million to terminate all interest
rate swap agreements. Since these swaps have been entered into for interest
rate risk management purposes, the estimated amount noted above should be
considered in the context of the entire balance sheet of the Company. The
estimated market value of interest rate swaps entered into for interest rate
risk management purposes is not recognized in the consolidated financial
statements.
<PAGE>8
4. Acquisition
On March 6, 1995, the Company's mortgage banking subsidiary, M&T Mortgage
Corporation, acquired Statewide Funding Corporation ("Statewide"), a
privately-owned mortgage banking company based near Albany, New York. As of
the acquisition date, Statewide serviced residential mortgage loans owned by
other investors having an outstanding principal balance of approximately $1.0
billion. The acquisition has been accounted for as a purchase transaction
and, accordingly, the operating results of Statewide have been included in
the Company's results of operations since the acquisition date.
<PAGE>9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Net income for First Empire State Corporation ("First Empire") was $27.2
million or $3.85 per common share in the first quarter of 1995, compared with
$27.6 million or $3.77 per common share in the first quarter of 1994. The
improvement in earnings per share reflects the decrease in average common
shares outstanding in the recent quarter compared with a year earlier. The
decrease in shares outstanding resulted from the repurchase of shares of
First Empire's common stock pursuant to a plan announced in December 1993.
Shares repurchased under the plan totaled 382,900 at March 31, 1995 and
46,200 at March 31, 1994. Net income was $31.9 million or $4.53 per common
share in the fourth quarter of 1994, including the after-tax benefit of $2.4
million resulting from the transfer of appreciated investment securities to
The M&T Charitable Foundation, a private, tax-exempt charitable foundation
affiliated with First Empire. The rate of return on average assets for First
Empire and its consolidated subsidiaries ("the Company") in the first quarter
of 1995 was 1.03%, down from 1.11% in the year-earlier quarter and 1.24% in
1994's last quarter. The return on average common stockholders' equity was
15.29% in the initial quarter of 1995, compared with 15.68% and 17.97% in the
first and fourth quarters of 1994, respectively.
As previously reported, on December 1, 1994 First Empire acquired Ithaca
Bancorp, Inc. ("Ithaca Bancorp"), Ithaca, New York and simultaneously merged
Ithaca Bancorp's savings bank subsidiary, Citizens Savings Bank, F.S.B., into
First Empire's commercial bank subsidiary, Manufacturers and Traders Trust
Company ("M&T Bank"). As of December 1, 1994, assets acquired totaled $470
million, including $369 million of loans, and liabilities assumed totaled
$425 million, including $330 million of deposits. On December 10, 1994, M&T
Bank purchased, in another cash transaction, approximately $146 million of
deposits from Chemical Bank, along with seven branch offices in the Hudson
Valley region of New York State.
On March 6, 1995, M&T Mortgage Corporation, the mortgage banking subsidiary
of M&T Bank, acquired Statewide Funding Corporation ("Statewide"), a
privately-held mortgage banking company based near Albany, New York.
Statewide had a mortgage servicing portfolio of approximately $1.0 billion at
the acquisition date and originated more than $400 million of mortgage loans
in 1994. In the first quarter of 1995, M&T Mortgage Corporation continued to
expand its network of out-of-state mortgage origination offices, opening
offices in Portland, Oregon, Seattle, Washington and Salt Lake City, Utah.
The acquisitions noted in the two preceding paragraphs have been accounted
for as purchase transactions and, accordingly, the operating results of the
acquired entities have been included in the consolidated results of
operations of the Company since the respective acquisition dates.
On February 9, 1995, M&T Bank entered into a definitive agreement to acquire
four branch offices and approximately $90 million in deposits from The Chase
Manhattan Bank, N.A. Two of the branch offices are located in Dutchess
County, one in Ulster County and one in Niagara County, New York.
Consummation of the transaction is subject to a number of conditions,
including regulatory approvals, but is anticipated to be completed in the
second half of 1995.
The Company's first quarter results of operations included three unusual
expense items. First, the Statewide acquisition resulted in the recognition
of $1.3 million in costs of integrating and conforming the acquired
operations with M&T Mortgage Corporation. Secondly, First Empire's $2.3
<PAGE>10
million investment in nonmarketable securities of Nationar, a bank that
provided services to financial institutions, was written off to expense
during the first quarter of 1995. The Nationar investment was obtained
through the acquisition of Ithaca Bancorp in 1994 and the 1987 merger with
The East New York Savings Bank ("East New York"). The write-off was in
response to the seizure of Nationar by banking regulators in February.
Thirdly, First Empire's common stock experienced unusually strong
appreciation during the first quarter of 1995, increasing 26% in market value
per share from 1994's year-end. This resulted in $3.0 million of expense
associated with outstanding stock appreciation rights, whose expense
recognition fluctuates with the underlying market value of First Empire's
common stock. Together, the after-tax effect of these three unusual expenses
depressed net income by $3.8 million or $.56 per common share.
Taxable-equivalent Net Interest Income
The Company's taxable-equivalent net interest income was $119.7 million and
$118.9 million in the first quarter of 1995 and 1994, respectively, and
$118.3 million in the final quarter of 1994. Net interest margin, or
taxable-equivalent net interest income expressed as an annualized percentage
of average earning assets, was 4.70% in the recent quarter, down from 4.99%
in the initial quarter of 1994 and 4.75% in 1994's final quarter. Increased
demand for loans and the December 1994 acquisition of Ithaca Bancorp resulted
in a $1.1 billion increase in average loans from the first quarter of 1994.
Growth in average loans was partially offset by declines in holdings of
investment securities and money-market assets resulting in a $665 million
increase in average earning assets to $10.3 billion in the first quarter of
1995 from $9.7 billion in the first quarter of 1994. Average earning assets
were $9.9 billion in the fourth quarter of 1994. The greater proportion of
loans, which generally yield more than investment securities and money-market
assets, in the portfolio of earning assets and rising interest rates in
general resulted in an overall yield on average earning assets of 8.49% in
1995's initial quarter, up 101 basis points (hundredths of one percent) from
the first quarter of 1994 and 39 basis points from the final quarter of 1994.
However, higher interest rates also resulted in an increase in the cost of
interest-bearing liabilities to 4.43% during the first three months of 1995,
up 151 basis points from the corresponding quarter in 1994 and 48 basis
points from the final quarter of 1994. As a result, the Company's net
interest spread, or the difference between the yield on earning assets and
the rate paid on interest-bearing liabilities, narrowed to 4.06% in the
recent quarter from 4.56% and 4.15% in the first and fourth quarters of 1994,
respectively.
While narrowing the net interest spread, rising interest rates also had the
effect of increasing the contribution to net interest margin of interest-free
funds, which rose to .64% in the first quarter of 1995 from .43% in the
comparable quarter of 1994 and .60% in 1994's final quarter. The improvement
in the first quarter of 1995 from a year earlier resulted from the 151 basis
point increase in the rate paid on interest-bearing liabilities used to value
these funds and a 5% increase in average interest-free funds. Average
interest-free funds, consisting primarily of noninterest-bearing demand
deposits and stockholders' equity, totaled $1.5 billion in the first quarter
of 1995, up from $1.4 billion a year earlier, and essentially unchanged from
the fourth quarter of 1994.
As a financial intermediary, the Company's earnings are sensitive to the
effects of changing interest rates. Management assesses this interest rate
risk by the variability of projected net interest income under a number of
interest rate scenarios. The projections consider statistically derived
interrelationships in the magnitude and timing of the repricing of financial
instruments, including the effect of changing interest rates on expected
prepayments and maturities.
<PAGE>11
As part of its interest rate risk management, the Company has entered into
several interest rate swap agreements. The swaps modify the repricing
characteristics of certain portions of the loan and deposit portfolios.
Revenue and expense arising from these agreements are reflected in either the
yields earned on loans or, as appropriate, rates paid on interest-bearing
deposits. The aggregate notional amount of interest rate swap agreements
used as part of the Company's interest rate risk management program in effect
at March 31, 1995 and 1994 was $2.6 billion and $1.2 billion, respectively.
In general, under the terms of these swaps, the Company receives payments
based on the outstanding notional amount of the swaps at a fixed rate of
interest and makes payments at a variable rate. At March 31, 1995 the
weighted average rates to be received and paid under interest rate swap
agreements were each 6.18%. The effect of interest rate swaps on the
Company's net interest income and margin as well as average notional amounts
are presented in the accompanying table.
INTEREST RATE SWAPS
Dollars in thousands
Three months ended March 31
-----------------------------------------------
1995 1994
----------------------- --------------------
Amount Rate(1) Amount Rate(1)
-------- ----- -------- -----
Increase (decrease) in:
Interest income $(1,525) (.06)% $ 4,705 .20%
Interest expense (1,076) (.05) (1,936) (.10)
------ ------
Net interest
income/margin $ (449) (.02)% $ 6,641 .28%
===== === ====== ===
Average notional
amount (2) $2,536,134 $1,210,451
========= =========
(1) Computed as an annualized percentage of interest-earning assets or
interest-bearing liabilities
(2) Excludes forward-starting interest rate swaps
The Company estimates that as of March 31, 1995 it would have had to pay
approximately $51.0 million to terminate all interest rate swap agreements
entered into for interest rate risk management purposes. This estimated fair
value of the interest rate swap portfolio results from the effects of
changing interest rates and should be considered in the context of the entire
balance sheet and the Company's overall interest rate risk profile. Changes
in the estimated fair value of interest rate swaps entered into for interest
rate risk management purposes are not reflected in the consolidated financial
statements.
Stronger loan demand resulting in part from improved economic conditions and
the December 1994 acquisition of $369 million of loans of Ithaca Bancorp
increased average loans and leases, net of unearned discount, to $8.3 billion
in the first quarter of 1995 from $7.2 billion in the first quarter of 1994
and $7.8 billion in the final quarter of 1994. The accompanying table
summarizes quarterly changes in the major components of the loan and lease
portfolio.
<PAGE>12
AVERAGE LOANS AND LEASES
(net of unearned discount)
Dollars in millions
Percent increase
(decrease) from
1st Qtr. 1st Qtr. 4th Qtr.
1995 1994 1994
-------- -------- --------
Commercial, financial, etc. $1,671 13 % 8 %
Real estate - commercial 3,402 12 4
Real estate - consumer 1,646 16 10
Consumer 1,592 27 6
----- -- --
Total $8,311 16 % 6 %
===== == ==
Average investment securities totaled $1.9 billion in the initial quarter of
1995, down from $2.3 billion in the first quarter of 1994, but essentially
unchanged from the final quarter of 1994. The decline from a year ago
reflected management's decision to accommodate the 1994 acquisitions and the
growth in loans, which generally yield more than investment securities,
without unduly affecting tangible capital ratios.
The Company's New York State branch network is the principal source of core
deposits, which generally carry lower interest rates than wholesale funds of
comparable maturities. Core deposits represent a significant source of
funding to the Company and include noninterest-bearing demand deposits,
interest-bearing transaction accounts, savings deposits and nonbrokered
domestic time deposits under $100,000. Including the core deposits obtained
in the December 1994 acquisitions, average core deposits increased to $7.2
billion in 1995's initial quarter, up from $6.8 billion in the year earlier
quarter and $6.9 billion in the fourth quarter of 1994. Increases in
interest rates paid on deposits in response to higher money-market rates have
served to mitigate the tendency of depositors in recent years to seek
potentially higher returns by redeploying deposits, primarily time deposits,
out of the banking system into alternative investment vehicles, such as
mutual funds, and also contributed to a shift into time deposits from more
liquid deposit accounts. The accompanying table provides an analysis of
quarterly changes in the components of average core deposits.
AVERAGE CORE DEPOSITS
Dollars in millions
Percent increase
(decrease) from
1st Qtr. 1st Qtr. 4th Qtr.
1995 1994 1994
-------- -------- --------
NOW accounts $ 734 (4)% - %
Savings deposits 3,040 (11) (2)
Time deposits under $100,000 2,421 45 21
Demand deposits 1,038 4 -
----- -- --
Total $7,233 6 % 5 %
===== == ==
To reduce short-term borrowings and lengthen the average maturity of
interest-bearing liabilities, the Company began accepting brokered retail
certificate of deposits in the fourth quarter of 1994 under a program to
solicit up to approximately $900 million of deposits. Brokered deposits
averaged $775 million during the first quarter of 1995 and totaled $888
million at March 31, 1995, compared with an average balance of $179 million
during the fourth quarter of 1994 and a total balance of $456 million at
December 31, 1994. The weighted average remaining term to maturity of
brokered deposits at March 31, 1995 was 2.3 years.
<PAGE>13
In addition to deposits, the Company uses short-term borrowings from banks,
securities dealers, the Federal Home Loan Bank of New York ("FHLB") and
others. The brokered deposit program and decreased holdings of investment
securities and money-market assets allowed the Company to reduce short-term
borrowings to an average of $1.1 billion in the recent quarter from $1.9
billion and $1.6 billion in the first and fourth quarters of 1994,
respectively.
Maturities of money-market assets, repayments of loans and investment
securities, and cash generated from operations provide the Company with other
sources of liquidity. Through membership in the FHLB, as well as other
available borrowing facilities, First Empire's banking subsidiaries have
access to funding aggregating several times anticipated needs. First
Empire's ability to pay dividends, repurchase treasury stock and fund
operating expenses is primarily dependent on the receipt of dividend payments
from its banking subsidiaries, which are subject to various regulatory
limitations. First Empire also maintains a line of credit with an
unaffiliated commercial bank. Management does not anticipate engaging in any
activity, either currently or in the long-term, which would cause a
significant strain on liquidity at either First Empire or its subsidiary
banks. Furthermore, management believes that available sources of liquidity
are more than adequate to meet anticipated funding needs.
Provision for Possible Credit Losses
The purpose of the provision is to replenish or build the Company's allowance
for possible credit losses to a level necessary to maintain an adequate
reserve position. In assessing the adequacy of the allowance for possible
credit losses, management performs an ongoing evaluation of the loan
portfolio, including such factors as the differing economic risks associated
with each loan category, the current financial condition of specific
borrowers, the economic environment in which borrowers operate, the level of
delinquent loans and the value of any collateral. Based upon the results of
such review, management believes that the allowance for possible credit
losses at March 31, 1995 was adequate to absorb credit losses from existing
loans, leases and credit commitments.
Improved economic conditions in market areas served by the Company and lower
nonperforming loans contributed to a reduction in the provision for possible
credit losses to $8.5 million in the first quarter of 1995 from $19.9 million
in the year earlier quarter. The provision for possible credit losses was
$12.9 million in the fourth quarter of 1994. Net loan charge-offs in the
first three months of 1995 totaled $3.1 million, up from $2.7 million in
1994's first quarter, but down from $7.4 million in last year's fourth
quarter. Net charge-offs as an annualized percentage of average loans and
leases were .15% in the first quarters of 1995 and 1994, and .37% in the
fourth quarter of 1994.
Nonperforming loans were $79.8 million or .93% of total loans and leases
outstanding at March 31, 1995, down from $86.8 million or 1.20% at March 31,
1994 and little changed from $77.5 million or .94% at December 31, 1994.
Nonperforming loans secured by commercial real estate properties totaled
$47.7 million at March 31, 1995, $56.2 million at March 31, 1994 and $47.5
million at December 31, 1994. Included in these totals were loans secured by
properties located in the New York City metropolitan area of $26.3 million at
March 31, 1995, $37.3 million at March 31, 1994 and $27.1 million at December
31, 1994. Assets taken in foreclosure of defaulted loans were $8.8 million
at March 31, 1995, $10.1 million at December 31, 1994 and $11.9 million at
March 31, 1994.
<PAGE>14
The allowance for possible credit losses was $248.7 million, or 2.91% of
total loans and leases at March 31, 1995, compared with $213.0 million or
2.94% a year earlier and $243.3 million or 2.96% at December 31, 1994. The
ratio of the allowance for possible credit losses to nonperforming loans was
312% at the most recent quarter-end, up from 245% at March 31, 1994 and
little changed from 314% at December 31, 1994.
A comparative summary of nonperforming assets and certain credit quality
ratios is presented in the accompanying table.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
Dollars in thousands
1995 1994 Quarters
First Quarter Fourth Third Second First
------------- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $64,941 62,787 72,355 68,881 74,951
Loans past due
90 days or more 12,275 11,754 9,663 11,444 11,890
Renegotiated loans 2,600 2,994 - - -
------ ------ ------ ------ ------
Total nonperforming loans 79,816 77,535 82,018 80,325 86,841
------ ------ ------ ------ ------
Other real estate owned 8,824 10,065 11,281 12,418 11,916
------ ------ ------ ------ ------
Total nonperforming assets $88,640 87,600 93,299 92,743 98,757
====== ====== ====== ====== ======
Nonperforming loans
to total loans and leases,
net of unearned discount .93% .94% 1.08% 1.09% 1.20%
Nonperforming assets
to total net loans and
other real estate owned 1.03% 1.06% 1.23% 1.25% 1.36%
==== ==== ==== ==== ====
</TABLE>
Other Income
Other income totaled $26.4 million in the first quarter of 1995, compared
with $28.4 million in the year-earlier quarter and $38.7 million in the
fourth quarter of 1994 when $10.4 million of nontaxable income was recognized
for the transfer of appreciated investment securities to The M&T Charitable
Foundation.
Reflecting the effect of deposits from the December 1994 acquisitions,
service charges on deposit accounts totaled $9.2 million in the first quarter
of 1995, an increase of 4% from $8.9 million in the corresponding quarter of
the previous year and up 8% from $8.5 million in the fourth quarter of 1994.
Trust income of $5.7 million in the first quarter of 1995 was up from $5.4
million in last year's first quarter, but down from $6.3 million in the
fourth quarter of 1994 with the decline due, in part, to lower revenues from
securities clearing activities. Merchant discount and credit card fees were
$2.3 million in the recent quarter, compared with $1.9 million and $2.5
million in the first and fourth quarters of 1994, respectively. Trading
account gains totaled $693 thousand in the first quarter of 1995, compared
with a loss of $208 thousand in the corresponding quarter of 1994 and a gain
of $224 thousand in the fourth quarter of 1994.
Other revenue from operations totaled $8.5 million in the first quarter of
1995, down from $12.4 million and $21.2 million in the first and fourth
quarters of 1994, respectively. During the first quarter of 1994, the
Company realized $1.4 million of gains from the sale of residential mortgage
loan participations acquired in 1992 from the Federal Deposit Insurance
<PAGE>15
Corporation ("FDIC") and $2.1 million of revenues for asset management
services provided to the FDIC. The decrease from the fourth quarter of 1994
was primarily due to $10.4 million of nontaxable income recognized in that
quarter related to the transfer of appreciated investment securities to The
M&T Charitable Foundation. Tighter pricing margins on residential mortgage
loan originations resulted in losses on loans originated for sale to other
investors of $1.5 million in the first quarter of 1995 compared with $.5
million in the first quarter of 1994. A gain of $126 thousand was recognized
in the fourth quarter of 1994 on mortgage loans originated for sale to
others.
Other Expense
Other expense totaled $89.5 million in the first quarter of 1995, compared
with $79.2 million in the first quarter of 1994 and $95.0 million in the
fourth quarter of 1994. Excluding the previously noted expenses of $6.6
million related to the acquisition of Statewide, the write-off of investment
securities issued by Nationar and increased stock appreciation rights
expense, other expense totaled $82.9 million in this year's first quarter, an
increase of $3.7 million from 1994's initial quarter. That $3.7 million
increase was primarily the result of expenses associated with the operations
of the recently completed acquisitions. In the fourth quarter of 1994, $13.8
million of charitable contribution expense arising from the transfer of
investment securities to The M&T Charitable Foundation was incurred.
For the first quarter of 1995, salaries and employee benefits expense was
$46.2 million, increases of $6.4 million and $7.2 million from the first and
fourth quarters of 1994, respectively. Personnel costs resulting from the
completed acquisitions, merit salary increases and the higher expenses
associated with stock appreciation rights granted in 1990 and 1991 were
largely responsible for the higher expense in 1995.
Nonpersonnel expenses of $43.3 million for the first quarter of 1995 were
$3.9 million higher than in the first quarter of 1994. Expenses for the
write-off of $2.3 million of nonmarketable securities of Nationar and $1.3
million of costs to integrate Statewide into and conform its operations with
M&T Mortgage Corporation were recognized during the first quarter of the
current year. Nonpersonnel expenses were $12.8 million lower in the first
quarter of 1995 than in the fourth quarter of 1994 when the aforementioned
$13.8 million of charitable contributions expense was incurred.
Capital
Common stockholders' equity totaled $710.6 million at March 31, 1995, up from
$685.0 million a year earlier and $681.0 million at December 31, 1994. On a
per share basis, common stockholders' equity was $108.64 at March 31, 1995,
an increase of 8% from $100.19 at March 31, 1994 and 5% from $103.02 at
December 31, 1994. Total stockholders' equity at March 31, 1995 was $750.6
million or 6.66% of total assets, compared with $725.0 million or 6.96% of
total assets a year earlier and $721.0 million or 6.85% of total assets at
December 31, 1994.
Stockholders' equity at March 31, 1995 was reduced by $31.4 million, or $4.80
per common share, for the net after-tax impact of unrealized losses on
investment securities classified as available for sale, compared with $6.9
million or $1.02 per common share at March 31, 1994 and $50.6 million or
$7.65 per common share at December 31, 1994. The market valuation of
investment securities and other assets and liabilities should be considered
in the context of the entire balance sheet of the Company. In general, with
the exception of investment securities classified as available for sale,
trading account assets and mortgage loans held for sale by M&T Mortgage
Corporation, the carrying values of financial instruments in the balance
<PAGE>16
sheet are not adjusted for appreciation or depreciation in market value
resulting from changes in interest rates.
Federal regulators generally require banking institutions to maintain "core
capital" and "total capital" ratios of at least 4% and 8%, respectively, of
risk-adjusted total assets. In addition to the risk-based measures, Federal
bank regulators have also implemented a minimum "leverage" ratio guideline of
3% of the quarterly average of total assets. Under regulatory guidelines,
unrealized gains or losses on investment securities classified as available
for sale are not recognized in determining regulatory capital. The capital
ratios of the Company and its banking subsidiaries, M&T Bank and East New
York, as of March 31, 1995 are presented in the accompanying table.
REGULATORY CAPITAL RATIOS
March 31, 1995
First Empire M&T
(Consolidated) Bank East New York
-------------- ---------- -------------
Core capital 8.53% 8.35% 8.95%
Total capital 10.65% 10.64% 10.22%
Leverage 7.02% 6.74% 7.52%
First Empire has historically maintained capital ratios well in excess of
minimum regulatory guidelines largely through a high rate of internal capital
generation. The rate of internal capital generation, or net income less
dividends paid expressed as an annualized percentage of average total
stockholders' equity, was 12.29% during the first quarter of 1995, compared
with 12.92% and 14.80% in the first and fourth quarters of 1994,
respectively.
In December 1993, First Empire announced a plan to repurchase and hold as
treasury stock up to 506,930 shares of common stock for reissuance upon the
possible future conversion of its 9% convertible preferred stock. As of
March 31, 1995, First Empire had repurchased 382,900 shares pursuant to such
plan at an average cost of $149.19.
<PAGE>17
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Three months ended
March 31
Amounts in thousands, except per share 1995 1994 Change
- ------------------------------------------------------------------------------------
For the period
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $27,168 27,628 - 2 %
Per common share
Net income
Primary $3.85 3.77 + 2
Fully diluted 3.68 3.64 + 1
Cash dividends .60 .50 + 20
Average common shares outstanding
Primary 6,820 7,083 - 4
Fully diluted 7,384 7,590 - 3
Annualized return on
Average total assets 1.03 % 1.11 %
Average common stockholders' equity 15.29 % 15.68 %
Market price per common share
Closing $171.00 139.25 + 23
High 171.00 144.00
Low 136.50 135.00
- ------------------------------------------------------------------------------------
At March 31
- ------------------------------------------------------------------------------------
Loans and leases,
net of unearned discount $ 8,559,185 7,239,869 + 18 %
Total assets 11,276,959 10,411,622 + 8
Total deposits 9,044,098 7,329,084 + 23
Total stockholders' equity 750,590 724,975 + 4
Stockholders' equity per common share $108.64 100.19 + 8
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>18
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
1995 First quarter 1994 Fourth quarter
Average Average Average Average
Average balance in millions; 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. $ 1,671 $ 35,772 8.68 % 1,551 32,609 8.34 %
Real estate 5,048 112,059 8.88 4,757 103,982 8.74
Consumer 1,592 37,788 9.62 1,497 34,881 9.25
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 8,311 185,619 9.06 7,805 171,472 8.72
- -----------------------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 67 1,294 7.82 11 138 4.85
Federal funds sold and agreements
to resell securities 14 200 5.75 124 1,674 5.35
Trading account 13 193 5.94 6 86 5.62
- -----------------------------------------------------------------------------------------------------------------------------------
Total money-market assets 94 1,687 7.25 141 1,898 5.32
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agencies 1,100 15,671 5.78 1,075 14,841 5.48
Obligations of states and political subdivisions 56 948 6.86 53 841 6.24
Other 769 12,325 6.50 795 12,491 6.24
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,925 28,944 6.10 1,923 28,173 5.81
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 10,330 216,250 8.49 9,869 201,543 8.10
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (247) (240)
Cash and due from banks 313 314
Other assets 285 257
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 10,681 10,200
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 734 2,765 1.53 734 2,786 1.51
Savings deposits 3,040 22,312 2.98 3,105 21,936 2.80
Time deposits 3,702 51,573 5.65 2,606 33,216 5.06
Deposits at foreign office 184 2,336 5.14 221 2,539 4.55
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 7,660 78,986 4.18 6,666 60,477 3.60
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,076 15,663 5.90 1,609 21,135 5.21
Long-term borrowings 96 1,930 8.13 83 1,675 8.06
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,832 96,579 4.43 8,358 83,287 3.95
- -----------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,038 1,037
Other liabilities 74 81
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,944 9,476
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 737 724
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,681 10,200
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest spread 4.06 4.15
Contribution of interest-free funds .64 .60
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 119,671 4.70 % 118,256 4.75 %
- -----------------------------------------------------------------------------------------------------------------------------------
*Includes nonaccrual loans
</TABLE>
<PAGE>18(continued)-19
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
1994 Third quarter 1994 Second quarter
Average Average Average Average
Average balance in millions; 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. $ 1,457 $ 29,797 8.11 % 1,463 27,993 7.68 %
Real estate 4,562 98,574 8.64 4,471 95,067 8.50
Consumer 1,423 33,281 9.28 1,332 30,071 9.06
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 7,442 161,652 8.62 7,266 153,131 8.45
- -----------------------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 158 1,863 4.68 5 57 4.38
Federal funds sold and agreements
to resell securities 20 244 4.86 138 1,390 4.03
Trading account 8 110 5.34 9 126 5.65
- -----------------------------------------------------------------------------------------------------------------------------------
Total money-market assets 186 2,217 4.73 152 1,573 4.14
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agencies 1,116 13,954 4.96 1,186 13,217 4.47
Obligations of states and political subdivisions 53 760 5.69 54 740 5.49
Other 823 11,972 5.77 857 12,510 5.86
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,992 26,686 5.32 2,097 26,467 5.06
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 9,620 190,555 7.86 9,515 181,171 7.64
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (230) (219)
Cash and due from banks 298 309
Other assets 271 281
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 9,959 9,886
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 739 2,840 1.52 751 2,814 1.50
Savings deposits 3,214 21,258 2.62 3,380 20,921 2.48
Time deposits 2,119 24,307 4.55 1,993 20,797 4.18
Deposits at foreign office 159 1,610 4.01 104 817 3.14
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,231 50,015 3.18 6,228 45,349 2.92
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,836 20,841 4.50 1,775 17,391 3.93
Long-term borrowings 76 1,537 8.07 76 1,537 8.16
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,143 72,393 3.53 8,079 64,277 3.19
- -----------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,019 992
Other liabilities 82 92
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,244 9,163
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 715 723
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 9,959 9,886
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest spread 4.33 4.45
Contribution of interest-free funds .54 .48
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 118,162 4.87 % 116,894 4.93 %
- -----------------------------------------------------------------------------------------------------------------------------------
*Includes nonaccrual loans
</TABLE>
<PAGE>19-continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
1994 First quarter
Average Average
Average balance in millions; interest in thousands balance Interest rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,475 $ 26,080 7.17 %
Real estate 4,457 93,058 8.35
Consumer 1,256 29,884 9.65
- ---------------------------------------------------------------------------------------------
Total loans and leases, net 7,188 149,022 8.41
- ---------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 18 154 3.55
Federal funds sold and agreements
to resell securities 155 1,443 3.76
Trading account 11 177 6.81
- ---------------------------------------------------------------------------------------------
Total money-market assets 184 1,774 3.92
- ---------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agencies 1,297 14,673 4.59
Obligations of states and political subdivisions 52 731 5.66
Other 944 11,960 5.14
- ---------------------------------------------------------------------------------------------
Total investment securities 2,293 27,364 4.84
- ---------------------------------------------------------------------------------------------
Total earning assets 9,665 178,160 7.48
- ---------------------------------------------------------------------------------------------
Allowance for possible credit losses (203)
Cash and due from banks 308
Other assets 286
- ---------------------------------------------------------------------------------------------
Total assets $ 10,056
- ---------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 761 2,846 1.52
Savings deposits 3,400 20,689 2.47
Time deposits 1,992 18,747 3.82
Deposits at foreign office 137 928 2.75
- ---------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,290 43,210 2.79
- ---------------------------------------------------------------------------------------------
Short-term borrowings 1,872 14,501 3.14
Long-term borrowings 76 1,538 8.25
- ---------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,238 59,249 2.92
- ---------------------------------------------------------------------------------------------
Demand deposits 997
Other liabilities 90
- ---------------------------------------------------------------------------------------------
Total liabilities 9,325
- ---------------------------------------------------------------------------------------------
Stockholders' equity 731
- ---------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,056
- ---------------------------------------------------------------------------------------------
Net interest spread 4.56
Contribution of interest-free funds .43
- ---------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 118,911 4.99 %
- ---------------------------------------------------------------------------------------------
*Includes nonaccrual loans
</TABLE>
<PAGE>20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
A number of lawsuits were pending against First Empire and its
subsidiaries at March 31, 1995. 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 First Empire or its subsidiaries have 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.
Item 2. Changes in Securities.
(Not applicable.)
Item 3. Defaults Upon Senior Securities.
(Not applicable.)
Item 4. Submission of Matters to a Vote of Security Holders.
The 1995 Annual Meeting of Stockholders of First Empire was held on
April 18, 1995. At the 1995 Annual Meeting, stockholders elected twenty-one
(21) directors, all of whom were then serving as directors of First Empire,
for terms of one (1) year and until their successors are elected and
qualified. The following table reflects the tabulation of the votes with
respect to each director who was elected at the 1995 Annual Meeting.
Number of Votes
------------------------
Nominee For Withheld
- ---------------- --------- ---------
Brent D. Baird 5,876,381 18,256
John H. Benisch 5,876,380 18,257
C. Angela Bontempo 5,864,650 29,987
Robert T. Brady 5,870,731 23,906
Patrick J. Callan 5,876,380 18,257
David N. Campbell 5,873,381 21,256
James A. Carrigg 5,873,181 21,456
Barber B. Conable, Jr. 5,864,151 30,486
Richard E. Garman 5,870,472 24,165
James V. Glynn 5,873,030 21,607
Roy M. Goodman 5,869,372 25,265
Patrick W.E. Hodgson 5,876,380 18,257
Samuel T. Hubbard, Jr. 5,870,557 24,080
Lambros J. Lambros 5,876,407 18,230
Wilfred J. Larson 5,874,741 19,896
Jorge G. Pereira 5,855,406 39,231
William C. Shanley, III 5,874,741 19,896
Raymond D. Stevens, Jr. 5,872,741 21,896
Richard D. Trent 5,873,732 20,905
John L. Wehle, Jr. 5,870,805 23,832
Robert G. Wilmers 5,856,265 38,372
At the Annual Meeting, stockholders also approved amendments to the
First Empire State Corporation 1983 Stock Option Plan (the "Stock Option
Plan") (i) increasing from 1,500,000 to 2,000,000 the number of shares of
First Empire common stock subject to the Stock Option Plan and (ii)
establishing a maximum number of shares of common stock that may be covered by
stock options and stock appreciation rights (including stock appreciation
rights exercisable only for cash) granted to key employees of the Company
under the Stock Option Plan during any fiscal year. The following table
presents the tabulation of the votes with respect to the amendments to the
Stock Option Plan.
Number of Votes
------------------------------------------------------
Broker
For Against Abstain Non-Votes
--------- ------- ------- ---------
4,560,700 858,295 32,404 443,238
<PAGE>21
Item 5. Other Information. (None.)
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of this report:
Exhibit
No.
-------
10 First Empire State Corporation 1983 Stock Option Plan as
amended. Filed herewith.
11 Statement re: Computation of Earnings Per Common Share.
Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K.
On March 8, 1995, First Empire filed a Current Report on Form
8-K with the Securities and Exchange Commission dated March 6,
1995 reporting that M&T Mortgage Corporation ("M&T Mortgage"),
the Company's mortgage banking subsidiary, had acquired
Statewide Funding Corporation ("Statewide"), a privately-owned
mortgage banking company based near Albany, New York, and that
Statewide had been merged into M&T Mortgage.
<PAGE>22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST EMPIRE STATE CORPORATION
Date: May 10, 1995 By: /s/ James L. Vardon
---------------------------
James L. Vardon
Executive Vice President
and Chief Financial Officer
<PAGE>23
EXHIBIT INDEX
Exhibit
No.
- -------
10 First Empire State Corporation 1983 Stock Option Plan as amended.
Filed herewith.
11 Statement re: Computation of Earnings Per Common Share. Filed herewith.
27 Financial Data Schedule. Filed herewith.
<PAGE>24
Exhibit No. 10
--------------
FIRST EMPIRE STATE CORPORATION
1983 STOCK OPTION PLAN
(COMPOSITE COPY AS OF FEBRUARY 21, 1995)
1. Definitions
In this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Agreement" means the written agreement implementing a grant
of an Option and/or Right.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee of the Board meeting the
standards of Rule 16b-3(c)(2)(i), Rule 16b-3(e)(2), and Regulation 1.162-27,
or any similar successor rules or regulations, appointed by the Board to
administer this Plan. Unless otherwise determined by the Board, the
Compensation Committee of the Board shall be the Committee.
(e) "Common Stock" means the authorized but unissued or
reacquired Common Stock, par value $5.00 per share, of the Company.
(f) "Company" means First Empire State Corporation.
(g) "Date of Exercise" means the date on which the Company
receives notice pursuant to Article 8 of the exercise of an Option or Right.
(h) "Date of Grant" means the date on which an Option or Right
is granted by the action of the Committee or such later date as may be
specified by the Committee in taking such action.
(i) "Director" means any person who is a director of the Company
or any Subsidiary.
(j) "Employee" means any person determined by the Committee to
be an employee of the Company or any Subsidiary.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" of a share of Common Stock means the
amount equal to the closing price for a share of Common Stock on the American
Stock Exchange as reported by such source as the Committee may select, or, if
such price quotation for a share of Common Stock is not so reported, then the
fair market value of such stock as determined by the Committee pursuant to a
reasonable method adopted in good faith for such purpose, in each case subject
to adjustment under Article 10.
(m) "Grant Price" means (i) in the case of a Right that is not a
Related Right, the Fair Market Value per share on the Date of Grant of the
Right, (ii) in the case of a Right that is a Related Right to a Nonstatutory
Stock Option and not to another Right, either (A) the Option Price per share
as provided in the Related Option or (B) the Fair Market Value per share on
the Date of Grant of the Right, as designated by the Committee in the
Agreement granting the Right, (iii) in the case of a Right that is a Related
Right to an Incentive Stock Option, the Option Price per share as provided in
the Related Option, (iv) in the case of a Right that is a Related Right to
<PAGE>25
another Right and not to an Option, either (A) the Fair Market Value per share
on the Date of Grant of the Right or (B) the Fair Market Value per share on
the Date of Grant of its Related Right, as designated by the Committee in the
Agreement granting the Right, or (v) in the case of a Right that is a Related
Right both to a Nonstatutory Stock Option and to another Right, (A) the Option
Price per share as provided in the Related Option, (B) the Fair Market Value
per share on the Date of Grant of the Right, or (C) the Fair Market Value per
share on the Date of Grant of its Related Right, as designated by the
Committee in the Agreement granting the Right.
(n) "Incentive Stock Option" means an Option granted under the
Plan that qualifies as an incentive stock option under section 422 of the Code
and that the Company designates as such in the Agreement granting the Option.
(o) "Key Employee" means (i) an Employee who is an officer of
the Company or a Subsidiary, or who is determined by the Committee to be in a
managerial, professional, or other key position of the Company or a
Subsidiary, or (ii) a former trustee or officer of The East New York Savings
Bank who, upon closing of the acquisition by the Company of The East New York
Savings Bank, was granted nonstatutory stock options under the Plan pursuant
to the terms of Section 5(i) of the Merger Agreement by and between First
Empire State Corporation, The East New York Savings Bank and the incorporators
of West Interim Savings Bank.
(p) "Limited Right" means a limited stock appreciation right
granted under the Plan.
(q) "Limited Right Period" means the period during which a
Limited Right may be exercised as provided in Paragraph 7(h) hereof.
(r) "Nonlimited Right" means a nonlimited stock appreciation
right granted under the Plan.
(s) "Nonlimited Right Period" means the period during which a
Nonlimited Right may be exercised as provided in Paragraph 7(g) hereof.
(t) "Nonstatutory Stock Option" means an Option granted under
the Plan which is not an Incentive Stock Option.
(u) "Offer" means any tender offer or exchange offer for the
Company's Common Stock made by an Offeror which might, if consummated pursuant
to its terms or pursuant to any power reserved in its terms, cause the Offeror
to become the beneficial owner of twenty percent or more of the outstanding
Common Stock. As used in this definition, "beneficial owner" shall have the
meaning ascribed to it from time to time under the rules and regulations
promulgated by the SEC under Section 13(d) of the Exchange Act, or in the
event of the repeal or alteration of such section, such meaning as may from
time to time be ascribed to "beneficial owner" under the rules and regulations
promulgated by the SEC under any similar federal law.
(v) "Offer Price per Share" with respect to the exercise of a
Limited Right means the greater of (i) the highest price per share of Common
Stock paid in any Offer which Offer is in effect at any time during the period
beginning on the ninetieth day prior to the Date of Exercise of such Limited
Right and ending on the Date of Exercise of such Limited Right or (ii) the
highest Fair Market Value per share of Common Stock during such period. Any
securities or property that is part or all of the consideration paid for
shares in the Offer shall be valued in determining the Offer Price per Share
at the higher of (A) the valuation placed on such securities or property by
the corporation, person or other entity making such Offer or (B) the valuation
placed on such securities or property by the Committee.
<PAGE>26
(w) "Offeror" means any person, other than the Company or any of
its Subsidiaries, who makes an Offer. As used in this definition, "person"
shall include any natural person, corporation, partnership, trust,
association, business entity, or any group of persons, whose ownership of
Common Stock would be required to be reported collectively pursuant to Section
13(d) of the Exchange Act and the rules and regulations promulgated by the SEC
thereunder, as from time to time in effect, or in the event of the repeal or
alteration of such section, such reporting requirements as may from time to
time be prescribed by any similar federal law.
(x) "Option" means an Incentive Stock Option or Nonstatutory
Stock Option granted under the Plan.
(y) "Option Period" means the period during which an Option may
be exercised.
(z) "Option Price" means the price per share at which an Option
may be exercised. The Option Price shall be determined by the Committee, but
in no event shall the Option Price be less than the greater of the Fair Market
Value of the Common Stock determined as of the Date of Grant or the par value
of the Common Stock, except that in connection with grants of Options to those
Key Employees who were granted Options upon the closing of the Company's
acquisition of The East New York Savings Bank as described in Section 1(o)(ii)
hereof, the Option Price of Options granted upon closing of the acquisition
may not be less than the price at which Common Stock was sold to the public
pursuant to the underwritten offering in connection with the Company's
acquisition of The East New York Savings Bank.
(aa) "Optionee" means a Key Employee to whom an Option or Right
has been granted.
(bb) "Plan" means the First Empire State Corporation 1983 Stock
Option Plan, as amended.
(cc) "Regulation 1.162-27" shall mean proposed Regulation Section
1.162-27 promulgated by the Internal Revenue Service, as the same may be
finalized and amended from time to time.
(dd) "Related Option" means an Option in connection with which,
or by amendment to which, a specified Right is granted.
(ee) "Related Right" means a Right granted in connection with, or
by amendment to, a specified Option or other Right.
(ff) "Right" means a Limited Right or Nonlimited Right granted
under the Plan.
(gg) "Rule 16b-3" means Rule 16b-3 of the rules and regulations
as promulgated and amended from time to time by the SEC under Section 16(b) of
the Exchange Act.
(hh) "SEC" means the Securities and Exchange Commission.
(ii) "Subsidiary" means a corporation at least fifty percent of
the total combined voting power of all classes of stock of which is owned by
the Company, either directly or through one or more other Subsidiaries.
(jj) "Unused Limit Carryover" means "unused limit carryover" as
defined in section 422A of the Internal Revenue Code of 1954, as amended, as
in effect on October 21, 1986 and the regulations thereunder.
<PAGE>27
2. Purpose
This Plan is intended to aid in maintaining and developing strong
management through encouraging the ownership of Common Stock by Key Employees
and through stimulating their efforts by giving suitable recognition, in
addition to their other remuneration, to the ability and industry which
contribute materially to the success of the Company's business interests, and
to provide an incentive to the continued service of such Key Employees.
3. Administration
This Plan shall be administered by the Committee. In addition to
any other powers granted to the Committee, it shall have the following powers,
subject to the express provisions of the Plan:
(a) subject to the provisions of Articles 4, 6 and 7, to
determine in its discretion the Key Employees to whom Options or Rights shall
be granted under the Plan, the number of shares to be subject to each Option
or Right, and the terms upon which, the times at which, and the periods within
which such Options or Rights may be acquired and exercised;
(b) to determine all other terms and provisions of each
Agreement, which need not be identical;
(c) without limiting the foregoing, to provide in its discretion
in an Agreement:
(i) for an agreement by the Optionee to render services to
the Company or a Subsidiary upon such terms and conditions as may
be specified in the Agreement, provided that the Committee shall
not have the power to commit the Company or any Subsidiary to
employ or otherwise retain any Optionee;
(ii) for restrictions on the transfer, sale or other
disposition of the Common Stock issued to the Optionee upon the
exercise of an Option or Right;
(iii) for an agreement by the Optionee to resell to the
Company, under specified conditions, stock issued upon the
exercise of an Option or Right; and
(iv) for the form of payment of the Option Price upon the
exercise of an Option, including without limitation in cash, by
delivery of shares of Common Stock valued at Fair Market Value on
the Date of Exercise of the Option, or by a combination of cash
and Common Stock;
(d) to construe and interpret the Agreements and the Plan;
(e) to require, whether or not provided for in the pertinent
Agreement, of any person exercising an Option or Right granted under the Plan,
at the time of such exercise, the making of any representations or agreements
which the Committee may deem necessary or advisable in order to comply with
the securities laws of the United States or of any state;
(f) to provide for satisfaction of an Optionee's tax liabilities
arising in connection with the Plan through, without limitation, retention by
the Company of shares of Common Stock otherwise issuable on the exercise of a
Nonstatutory Stock Option or Nonlimited Right or through delivery of shares of
Common Stock to the Company by the Optionee under such terms and conditions as
the Committee deems appropriate; and
<PAGE>28
(g) to make all other determinations and take all other actions
necessary or advisable for the administration of the Plan.
Any determinations or actions made or taken by the Committee
pursuant to this Article shall be binding and final.
4. Eligibility
Options and Rights may be granted only to Key Employees, provided,
however, that the members of the Committee are not eligible to receive Options
or Rights under the Plan. A Key Employee who has been granted an Option or
Right may be granted additional Options and Rights.
5. Stock Subject to the Plan
(a) There is hereby reserved for issuance upon the exercise of
Options and Rights granted under this Plan an aggregate of 2,000,000 shares of
Common Stock, subject to the provisions of Article 10; provided, however,
that:
(i) no Key Employee shall be granted in any fiscal year of
the Company Options and Rights (including Rights that may be
exercised only for cash) for more than 50,000 shares, provided
that a newly-hired Key Employee who will serve as an executive
officer of the Company may receive an additional one-time grant of
Options and/or Rights covering up to 50,000 shares of the Common
Stock upon commencement of employment with the Company, and
provided further that such limits shall be subject to such
adjustment, if any, as the Committee deems appropriate to reflect
such events as stock dividends, stock splits, recapitalizations,
mergers, consolidations or reorganizations of or by the Company;
and
(ii) neither (A) the grant or exercise of a Limited Right
nor (B) the grant or exercise of a Nonlimited Right that is
exercisable only for cash shall reduce the number of shares of
Common Stock available for the grant of Options and Rights under
the Plan; and
(iii) in the case of a Nonlimited Right that may be
exercised for Common Stock and that is a Related Right to an
Option, the grant of such a Right shall not reduce the number of
shares of Common Stock available for the grant of Options and
Rights under the Plan.
The provisions of subparagraph (i) shall apply to all grants of
Options and Rights after the amendment of the Plan to add those provisions.
The provisions of subparagraphs (ii) and (iii) shall apply to all grants and
exercises of Rights both before and after the amendment of the Plan to add
those provisions.
(b) If an Option granted under the Plan expires or terminates
for any reason (other than termination by virtue of the exercise of a Related
Right) without having been exercised fully, the unpurchased shares of Common
Stock that had been subject to the Option at the time of its expiration or
termination shall become available for other Options and Rights to be granted
under the Plan.
(c) If a Nonlimited Right that may be exercised for Common Stock
and that is not a Related Right expires or terminates for any reason without
having been exercised fully, the unpurchased shares of Common Stock which had
been subject to such Nonlimited Right at the time of its expiration or
<PAGE>29
termination shall become available for Options and other Rights to be granted
under the Plan. If a Nonlimited Right that may be exercised for Common Stock
and that is a Related Right to a Limited Right expires or terminates for any
reason (other than termination by virtue of the exercise of the Limited Right)
without having been exercised fully, the unpurchased shares of Common Stock
that had been subject to the Nonlimited Right at the time of its expiration or
termination shall become available for Options and other Rights to be granted
under the Plan.
(d) In the case of a Nonlimited Right that may be exercised for
Common Stock and that is not a Related Right, if upon the exercise of such a
Right, a number of the shares of Common Stock subject to the portion of the
Right being exercised are not issued in settling the Company's obligations
arising out of such exercise, such number of shares of Common Stock shall
become available at the time of exercise for Options and other Rights to be
granted under the Plan. In the case of a Related Right (other than a Related
Right described in the following sentence), if upon the exercise of such a
Right, a number of the shares of Common Stock subject to the portion of the
Right being exercised are not issued in settling the Company's obligations
arising out of such exercise, such number of shares of Common Stock shall
become available at the time of exercise for Options and other Rights to be
granted under the Plan. The preceding sentence shall not apply to the
exercise of (i) a Nonlimited Right exercisable only for cash that is a Related
Right to a Limited Right, or (ii) a Limited Right that is a Related Right to a
Nonlimited Right exercisable only for cash.
6. Options
(a) Pursuant to the terms of the Plan, the Committee is hereby
authorized to grant Nonstatutory Stock Options and Incentive Stock Options to
Key Employees.
(b) All Agreements granting Options shall contain a statement
that the Option is intended to be either (i) a Nonstatutory Stock Option or
(ii) an Incentive Stock Option.
(c) The Option Period shall be determined by the Committee and
specifically set forth in the Agreement, provided, however, that an Option
shall not be exercisable after ten years from the Date of Grant in the case of
an Incentive Stock Option and after ten years and one day from the Date of
Grant in the case of a Nonstatutory Stock Option.
(d) The aggregate Fair Market Value (determined as of the date
an Incentive Stock Option is granted) of the Common Stock for which an
Incentive Stock Option is granted to any one person in any calendar year
before 1987 (under all stock option plans of the person's employer corporation
and its "parent" and "subsidiary" corporations) shall not exceed $100,000 plus
any Unused Limit Carryover to such year. The aggregate Fair Market Value
(determined as of the date an Incentive Stock Option is granted) of the Common
Stock with respect to which all Incentive Stock Options granted to any one
person at any time after 1986 (under all stock option plans of the person's
employer corporation and its "parent" and "subsidiary" corporations) may first
become exercisable in any calendar year shall not exceed $100,000. For
purposes of this Paragraph (d), the terms "parent" and "subsidiary"
corporations shall have the respective meanings given to them in section 424
of the Code.
(e) All Incentive Stock Options granted under the Plan shall
comply with the provisions of the Code governing incentive stock options and
with all other applicable rules and regulations.
<PAGE>30
(f) All other terms of Options granted under this Plan shall be
determined by the Committee in its sole discretion.
7. Rights
(a) Pursuant to the terms of the Plan, the Committee is hereby
authorized to grant Rights.
(b) A Nonlimited Right may be granted under the Plan as follows:
(i) in connection with, and at the same time as, the grant
of an Option or a Limited Right under the Plan;
(ii) by amendment of an outstanding Nonstatutory Stock
Option or Limited Right granted under the Plan; or
(iii) independently of any Option or Limited Right granted
under the Plan.
(c) A Limited Right may be granted under the Plan as follows:
(i) in connection with, and at the same time as, the grant
of an Option or a Nonlimited Right under the Plan;
(ii) by amendment of an outstanding Nonstatutory Stock
Option or Nonlimited Right granted under the Plan; or
(iii) independently of any Option or Nonlimited Right
granted under the Plan.
(d) A Related Right may apply, in the Committee's discretion, to
all or a portion of the Common Stock subject to its Related Right or Related
Option.
(e) A Nonlimited Right granted under the Plan may be exercised
in whole or in part as provided in the Agreement and, subject to the
provisions of the Agreement and Paragraph (l) of this Article, entitles its
Optionee to receive, without any payment to the Company, either cash or that
number of shares of Common Stock (up to the highest whole number of shares),
or a combination thereof, in the amount of or having a Fair Market Value
determined as of the Date of Exercise equal to the number of shares of Common
Stock subject to the portion of the Nonlimited Right exercised multiplied by
an amount equal to the excess of (i) the Fair Market Value per share on the
Date of Exercise of the Nonlimited Right over (ii) the Grant Price of the
Nonlimited Right.
(f) A Limited Right granted under the Plan may be exercised in
whole or in part as provided in the Agreement and entitles its Optionee to
receive, without any payment to the Company, cash in an amount equal to the
number of shares of Common Stock subject to the portion of the Limited Right
exercised multiplied by an amount equal to the excess of (i) in the case of a
Limited Right that is not a Related Right to an Incentive Stock Option, (A)
the Offer Price per Share over (B) the Grant Price of the Limited Right or
(ii) in the case of a Limited Right that is a Related Right to an Incentive
Stock Option, (A) the Fair Market Value per share on the Date of Exercise of
such Limited Right over (B) the Grant Price of the Limited Right.
(g) Subject to the provisions of Paragraph (i) of this Article,
the Nonlimited Right Period shall be determined by the Committee and set forth
in the Agreement.
<PAGE>31
(h) Subject to the provisions of Paragraph (i) of this Article,
the Limited Right Period shall be the period beginning on the first day
following the date of the first purchase of shares of Common Stock pursuant to
any Offer and ending on the date ninety days thereafter.
(i) Notwithstanding any other provision of this Plan or any
provision of any Agreement, the following rules shall apply:
(i) a Right may not be exercised until the expiration of
six months from the Date of Grant of the Right, except that this
limitation shall not apply in the event the death or disability of
the Optionee occurs prior to the expiration of the six-month
period;
(ii) a Right will expire no later than the earlier of (A)
ten years from the Date of Grant or (B) in the case of a Related
Right, the expiration of its Related Right or Related Option;
(iii) a Right may be exercised only when the Fair Market
Value of a share of Common Stock on the Date of Exercise exceeds
the Grant Price of the Right;
(iv) a Right that is a Related Right to an Incentive Stock
Option may be exercised only when and to the extent the Related
Option is exercisable; and
(v) a Limited Right that is a Related Right to a
Nonstatutory Stock Option or to a Nonlimited Right may be
exercised with respect to all or any portion of the shares subject
to the Limited Right whether or not its Related Right or Related
Option is then exercisable to that extent.
(j) The Company intends that this Article shall comply with the
requirements of Rule 16b-3 during the term of this Plan. Should any provision
of this Article not be necessary to comply with the requirements of Rule 16b-3
or should any additional provisions be necessary for this Article to comply
with the requirements of Rule 16b-3, the Board or the Committee may amend this
Plan to delete, add to or modify the provisions of the Plan accordingly. The
Company intends to seek to comply with the public information and reporting
requirements of Rule 16b-3(e)(1); however, the Company's failure for any
reason whatsoever to comply with such requirements or with any other
requirements of Rule 16b-3, and any resultant unavailability of Rule 16b-3 to
Optionees shall not impose any liability on the Company to any Optionee or to
any other party.
(k) The exercise, in whole or in part, of a Related Right shall
cause a reduction in the number of shares of Common Stock subject to its
Related Right or Related Option equal to the number of shares of Common Stock
with respect to which the Right being exercised is exercised. Similarly, the
exercise, in whole or in part, of a Related Option shall cause a reduction in
the number of shares subject to the Related Right equal to the number of
shares with respect to which the Related Option is exercised.
(l) Subject to the limitations of the Agreement and this
Paragraph (l), an Optionee may (A) elect to receive cash upon exercise of a
Right and exercise such Right or (B) exercise a Right exercisable only for
cash, and upon such election and exercise or such exercise, the Company shall
settle its obligations arising out of the exercise of the Right by the payment
of cash in the amount set forth in Paragraph (e) of this Article if the Right
is a Nonlimited Right, or in the amount set forth in Paragraph (f) of this
Article if the Right is a Limited Right; provided, however, that to the extent
required to satisfy the conditions of Rule 16b-3(e) or as otherwise provided
<PAGE>32
in the Agreement, the Committee shall have the sole discretion to consent to
or to disapprove the election of any Optionee to receive cash in full or
partial settlement of a Right; and further provided that to the extent
required to satisfy the conditions of Rule 16b-3(e) or as otherwise provided
in the Agreement, the Committee shall not consent to any such election for
settlement in cash and an Optionee shall not exercise a Right for cash unless
the following conditions are met:
(i) the Company shall have been subject to the reporting
requirements of Section 13 of the Exchange Act, as from time to
time in effect, or in the event of the repeal of such section,
such reporting requirements as may from time to time be prescribed
by any similar federal law, for at least one year prior to such
election or exercise; shall have filed all reports and statements
required to be filed pursuant to that section or other applicable
provision during the year ending upon the date of such election or
exercise; and shall have at the time of such election or exercise
the practice of releasing on a regular basis for publication
quarterly and annual statements of sales and earnings, which data
appear on a wire service, in a financial news service, in a
newspaper of general circulation, or is otherwise publicly made
available; and
(ii) the Date of Exercise of a Right must be (A) within a
period beginning on the third business day next following the date
of release of the quarterly or annual financial data specified in
subparagraph (i) and ending on the twelfth business day following
such date of release and/or (B) upon the happening (and during a
specified period thereafter) of an event fixed in advance in the
Agreement which event is outside the control of the Optionee and
which event occurs at least six months after the Date of Grant of
the Right (except in the case of the death or disability of the
Optionee).
Any election by an Optionee for settlement in cash must be made in
the notice of exercise of the Right. In cases where an election of settlement
in cash must be consented to by the Committee, the Committee may consent to,
or disapprove, such election at any time after such election, or within such
period for taking such action as is specified in the notice of exercise and
election, and failure to give such consent shall be disapproval. Such consent
may be given in whole or as to a portion of the Right surrendered by the
Optionee. If such election to receive cash is disapproved in whole or in
part, the Right shall be deemed to have been exercised for stock, or, if so
specified in the notice of exercise and election, not to have been exercised,
to the extent such election to receive cash is disapproved.
8. Exercise
An Option or Right may be exercised, subject to the provisions of
the Agreement under which it was granted, in whole or in part by the delivery
to the Company of written notice of the exercise, in such form as the
Committee may prescribe, accompanied, in the case of an Option, by full
payment for the Common Stock with respect to which the Option is exercised.
9. Nontransferability
Options and Rights granted under the Plan shall not be
transferable otherwise than by will or the laws of descent and distribution,
and an Option or Right may be exercised, during the Optionee's lifetime, only
by the Optionee or, in the event of the Optionee's legal disability, by the
Optionee's legal representative. A Related Right is transferable only when
<PAGE>33
its Related Right or Related Option is transferable and only with its Related
Right or Related Option and under the same conditions.
10. Capital Adjustments
The number, class and Fair Market Value of shares subject to each
outstanding Option or Right, the Option Price and the aggregate number and
class of shares for which grants thereafter may be made shall be subject to
such adjustment, if any, as the Committee in its sole discretion deems
appropriate to reflect such events as stock dividends, stock splits,
recapitalizations, mergers, consolidations or reorganizations of or by the
Company.
11. Termination or Amendment
The Board shall have the power to terminate the Plan and to amend
it in any respect, provided that after the Plan has been approved by the
stockholders of the Company, the Board may not amend the Plan, without the
approval of the stockholders of the Company, if such amendment would be
required to be approved by the stockholders of the Company under the laws of
the State of New York, in order for the Plan to continue to satisfy the
conditions of Rule 16b-3, in order for Incentive Stock Options to qualify as
such under section 422 of the Code, or under the rules of any securities
exchange on which shares of Common Stock are listed. No termination or
amendment of the Plan shall affect adversely the rights or obligations of the
holder of any Option or Right granted under the Plan without the holder's
consent.
12. Modification, Extension and Renewal of Options and Rights
Subject to the terms and conditions and within the limitations of
the Plan, the Committee may modify, extend or renew outstanding Options and
Rights granted under the Plan; or may accept the surrender of outstanding
Options and Rights (to the extent not exercised theretofore) granted under the
Plan, or outstanding options and rights (to the extent not exercised
theretofore) granted under any other stock option, stock purchase, stock
appreciation rights, or other stock-related plan of the Company or of a
company which has been merged or consolidated with the Company or a Subsidiary
or which has become a Subsidiary through the acquisition by the Company or by
a Subsidiary of stock or assets of the company, and authorize the granting of
new Options and Rights pursuant to the Plan in substitution therefor (to the
extent not exercised theretofore), and the substituted Options and Rights may
specify terms different than the surrendered options and rights or have any
other provisions which are authorized by the Plan; or may assume options and
rights granted by such other company, and such options and rights shall not
reduce the number of shares of Common Stock available for the grant of Options
and Rights under this Plan, except to the extent that such options and rights
are granted under this Plan pursuant to a provision of a plan or agreement of
merger of such other company with the Company, and to the extent that such
options and rights, if granted under this Plan, would reduce the number of
shares of Common Stock available pursuant to the provisions of Article 5. The
Company may grant options and rights otherwise than under the provisions of
this Plan and may adopt other stock option plans or stock purchase, stock
appreciation rights, or other stock-related plans, and such options and rights
and the options, rights, and stock granted or issued under such plans shall
not reduce the number of shares of Common Stock available for the grant of
Options and Rights under this Plan. Neither the adoption or amendment of this
Plan nor the submission of the Plan or amendments for stockholder approval
shall be deemed to impose any limitation on the powers of the Company to grant
or assume options or rights otherwise than under this Plan or to adopt other
stock option plans or stock purchase, stock appreciation rights, or other
stock-related plans, nor shall they be deemed to impose any requirement of
<PAGE>34
stockholder approval upon the same. Notwithstanding the foregoing, however,
no modification of an Option or Right granted under the Plan shall alter or
impair the rights or obligations of the holder of such Option or Right without
the consent of the holder.
13. Effectiveness of the Plan
The Plan and any amendments which require stockholder approval
pursuant to Article 11 are subject to approval by vote of the stockholders of
the Company within twelve months after their adoption by the Board. Subject
to such approval, the Plan and any amendments are effective on the date on
which they are adopted by the Board. Options and Rights may be granted prior
to stockholder approval of the Plan or amendments, but each such Option or
Right granted shall be subject to the approval, if required, of the Plan or
amendments by the stockholders. Except as otherwise required to satisfy the
requirements of Rule 16b-3, the day on which any Option or Right granted prior
to required stockholder approval of the Plan or amendments is granted shall be
the Date of Grant for all purposes as if the Option or Right had not been
subject to such approval. No Option or Right granted may be exercised prior
to such required stockholder approval.
14. Term of the Plan
Unless sooner terminated by the Board pursuant to Article 11, the
Plan shall terminate ten years from the date on which the Board approves the
most recent amendment to the Plan that changes either the aggregate number of
shares of Common Stock that may be issued under the Plan or the class of
persons eligible to receive Options or Rights under the Plan, and which
amendment subsequently is approved by the stockholders of the Company. No
Options or Rights may be granted after termination. Termination of the Plan
shall not affect the validity of any Option or Right outstanding on the date
of termination.
15. Indemnification of Committee
In addition to such other rights of indemnification as they may
have as Directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company against the reasonable expenses, including
attorneys' fees, actually and reasonably incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Option or
Right granted hereunder, and against all amounts reasonably paid by them in
settlement thereof or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, if such members acted in good faith and in a
manner which they believed to be in, and not opposed to, the best interests of
the Company.
16. General Provisions
(a) The establishment of the Plan shall not confer upon any
Employee or Key Employee any legal or equitable right against the Company, any
Subsidiary or the Committee except as expressly provided in the Plan.
(b) The Plan does not constitute inducement or consideration for
the employment of any Employee, nor is it a contract between the Company or
any Subsidiary and any Employee or Key Employee. Participation in the Plan
shall not give any Employee or Key Employee any right to be retained in the
service or employ of the Company or any Subsidiary. The Company and its
Subsidiaries retain the right to hire and discharge any Employee at any time,
with or without cause, as if the Plan never had been adopted.
<PAGE>35
(c) The interests of any Optionee under the Plan are not subject
to the claims of creditors and may not be assigned, alienated or encumbered in
any way.
(d) The Plan shall be governed, construed and administered in
accordance with the laws of the State of New York and the intention of the
Company that Incentive Stock Options granted under the Plan qualify as such
under section 422 of the Code.
<PAGE>36
<TABLE>
<CAPTION>
Exhibit No. 11
--------------
- ------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION
- ------------------------------------------------------------------------------------------
COMPUTATION OF EARNINGS PER COMMON SHARE
Amounts in thousands, except per share data
Three months ended
March 31
1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Primary Average common shares outstanding 6,589 6,871
Common stock equivalents * 231 212
----------------------------------------------------------------------------------------
Primary common shares outstanding 6,820 7,083
----------------------------------------------------------------------------------------
Net income $27,168 27,628
Less: Cash dividends on preferred stock 900 900
----------------------------------------------------------------------------------------
Net income available to common shareholders $26,268 26,728
----------------------------------------------------------------------------------------
Earnings per common share - primary $3.85 3.77
----------------------------------------------------------------------------------------
Fully diluted Average common shares outstanding 6,589 6,871
Common stock equivalents * 288 212
Assumed conversion of 9% cumulative convertible
preferred stock 507 507
----------------------------------------------------------------------------------------
Fully diluted average common shares outstanding 7,384 7,590
----------------------------------------------------------------------------------------
Net income $27,168 27,628
----------------------------------------------------------------------------------------
Earnings per common share - fully diluted $3.68 3.64
----------------------------------------------------------------------------------------
* Represents shares of First Empire's common stock issuable upon the assumed
exercise of outstanding stock options granted pursuant to the First Empire State
Corporation 1983 Stock Option Plan under the "treasury stock" method of accounting.
</TABLE>
<PAGE>37
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