First Empire's Wilmers: Blunt Talk, Big Profits

No one could accuse Robert G. Wilmers, the plain-spoken president and chief executive officer of First Empire State Corp., of shying from controversy.

In his introduction to First Empire's 1990 annual report, a type of corporate document known more for dishing up pabulum than personality, the alumnus of Bankers Trust New York Corp. and J.P. Morgan & Co. railed against overpaid executives of underperforming banks.

He described "lending rampages which earned nice bonuses but are remembered now in defaults and restructurings."

He alerted shareholders to "the widespread desertion by bankers of their traditional role as censor of their customers' more extravagant ideas."

He highlighted the pay of chief executives at the nation's seven biggest banks -- which rose more than tenfold in the preceding 20 years to an average of $2.8 million while their companies' market value rose less than threefold.

"Overreaching for the bottom line was matched, and in some cases exceeded by overreaching for personal compensation," he wrote.

From his office overlooking the 50-yard line of the Buffalo Bills football team's stadium, Mr. Wilmers offers no apologies for his screed.

"It struck me the way all these guys' salaries were going up," he said. "With stock options going up, and nonperformers rising, too, it just didn't seem fair.

"The numbers," he added, "are probably understated."

A Justified Assurance

Only an executive with a steady hand on his company's balance sheet and a modest salary himself would take such target practice. But if anyone can afford the privilege, analysts say, it's Mr. Wilmers.

"Management is very conservative, having avoided most of the problems of its peers," Brent Erensel of Mabon Securities Corp. wrote in a recent report. "Its philosophy is essentially to avoid mistakes, espousing the strategy that banking is a game of singles, not home runs."

Net income at First Empire grew 31% in 1990, one of the worst years for banks in the Northeast. In the first nine months of 1991, earnings increased 20% from the previous year.

Investor Warren Buffett -- renowned for his own tell-it-like-it-is style -- sent the Buffalo bank a vote of confidence this year by buying $40 million in convertible preferred stock, based largely on Mr. Wilmers' record.

The two have something else in common.

United Shareholders Association, an activist group of institutional investors, identified Messrs. Buffett and Wilmers last month as two of America's most underpaid executives.

|I Get What I Deserve'

Mr. Wilmers' total 1990 compensation of $740,000 was $170,000 short of what he could have expected, given First Empire's record earnings, the group reported.

Mr. Wilmers, a straightforward man whose salary rose 3% in 1990, demurs. "I get what I deserve," he said.

There's no false modesty in the claim. He just doesn't believe in overstatement about himself or his colleagues.

Shrinking Horizons

"He doesn't have the regal trappings that traditional bank chief executives have," said Andrew Rudnick, president of the Greater Buffalo Development Foundation, a civic group that Mr. Wilmers chairs. "The last word you'd ascribe to him is |pretentious.'"

Since arriving at First Empire eight years ago, Mr. Wilmers has transformed the company from a troubled backwater bank with international ambitions to a localcompany concentrating on loans to consumers and small businesses.

In the past six years, First Empire has more than doubled its assets, to $9 billion.

The expansion has been driven in part by the acquisitions of three failed thrifts in the Buffalo region that spurred expansion at little cost.

In early 1990, First Empire bought $439 million in assets and $482 million of deposits from Monroe Savings Bank of Buffalo and Rochester. It paid a $7.2 million premium for the deposits.

A Productive Partnership

In September 1990, Mr. Wilmers shepherded the purchase of $1.2 billion in deposits of Empire of America Corp., which is no relation to First Empire, in a unique joint bid with Albany-based KeyCorp. He paid a $12 million premium.

"It was Victor's idea," Mr. Wilmers said, referring to Victor Riley, chairman of the $23 billion-asset KeyCorp. "He called me up one day and said, |While I was shaving this morning, I thought Empire was too big for either of us alone. What do you think about bidding together?'"

The next time around, the deal was bigger, and it was Mr. Wilmers' turn to galvanize Mr. Riley about a joint acquisition. The prize: Goldome, the $11.4 billion-asset savings bank that was seized and sold this year.

With $39.8 million in government aid, First Empire overnight added $2.1 billion in deposits and 14 branches to its franchise.

Analysts predict the acquisition will break even in 1991 and add earnings of about $1 per share in 1992.

Before the Goldome purchase, First Empire -- whose lead bank is Manufacturers and Traders Trust Co. -- had 23.1% of the market in Erie and Niagara counties, compared with 9.3% belonging to KeyCorp.

Today, First Empire has 34.6% of the market, and KeyCorp's share has leapt to 20.2%.

"It's bizarre," admits Mr. Wilmers, "because when you do one of these [joint acquisitions] you have to work very closely together. There's this one moment in time when you work very closely together. The rest of the time, you're out there competing."

The deals appear to make sense for both companies.

KeyCorp, whose small-bank empire stretches across the northern United States, has limited interest in expanding beyond its current share of the Buffalo market, analysts said.

First Empire, which is almost exclusively focused in northern New York, has effectively barred competition from out-of-state or downstate giants.

Secure Market Shares

In effect, Mr. Wilmers and Mr. Riley have achieved a virtual lockout of the competition.

Colleagues say Mr. Wilmers has a Herculean appetite for detail and little patience with indirect answers.

His style is informal, his Harvard-schooled manner almost bookish. His results are eye-opening.

Robust Balance Sheet

Although commercial real estate loans are a huge 38% of First Empire's $6.3 billion loan portfolio -- about twice the industry average -- only 2.3% of real estate is nonperforming, and only $38 million is in risky construction loans. Just three loans are in excess of $10 million.

Reserves are a muscular 111% of total nonperforming loans. Just 1.7% of total loans and foreclosed real estate at the bank were nonperforming at the end of the third quarter.

With results like these, Mr. Wilmers has few qualms about blasting irresponsible lending practices that he says characterized banking in the 1980s. Banking, he insists, should be local.

"We don't believe in taking money out of the market," he said. "If we're lending money in Argentina, we'd be the last guys to know what's going on in Argentina. If we're lending money in Nashville, we're the last guy to know what's going on in Nashville."

That thinking also drives his acquisition strategy.

Mr. Wilmers said his company was invited by Lawrence K. Fish, former chairman of failed Bank of New England Corp., to consider a purchase of BNE's western Massachusetts subsidiary.

After due diligence, he concluded that regulators, who had been criticized for being too rough on New England banks, were not conservative enough.

First Empire's farthest-flung office is in Manhattan, where the company bought East New York Savings Bank in 1987. Mr. Wilmers spends about two days a week in Manhattan.

Just as he lashes out at banks that know no geographic restraint, he scorns fee-fevered banks that rushed headlong into highly leveraged transactions for iffy leveraged buyouts.

"As far as I'm concerned, HLT loans are just domestic third world loans," he asserted.

Kind Words for Regulators

Mr. Wilmers, not surprisingly, is foursquare behind tough examinations by regulators. "I might live to regret saying this, but 98% of the time they are very fair," he said.

As outspoken as he is about the industry, Mr. Wilmers is reticent about his past. He was born and brought up in New York City.

He studied modern European history at Harvard University and returned to the Cambridge campus for graduate studies in business.

He went straight to Bankers Trust as a loan officer in 1962. In 1966, he joined the administration of New York City May John V. Lindsay as first deputy and acting finance administrator.

In 1970, Mr. Wilmers, who recently won credit for keeping the Buffalo Philharmonic out of bankruptcy, moved to that citadel of credit, J.P. Morgan & Co., and stayed 11 years.

A Lesson from Morgan

He was sent overseas to run Morgan's bank in Belgium, then returned to New York to head international private banking.

Morgan taught him that there is "no premium for going out and making a bad loan," he said. "They had a discipline of credit quality."

In 1980, Mr. Wilmers went out on his own, forming his own investment and consulting firm. It wasn't long before he came across First Empire during a search for underperforming banks with $1 billion to $3 billion of assets. Its stock was selling for about $10 a share.

By 1982, he was a director of the Buffalo company. The next year, when First Empire's chief executive stepped down amid lending problems, the board elected Mr. Wilmers chairman.

First Empire was laboring under heavy loan losses, but within two years, Mr. Wilmers got the bank out of international lending and revived its focus on local mortgage lending.

By 1988, the company's stock price peaked at $80 per share, leading the company to declare a two-for-one split shortly thereafter.

The stock was trading at about $87.50 per share Monday afternoon. Its 52-week high was $99.625; its low, $52.50.

Mr. Wilmers said he sees no big secret to his company's success. "As a banker, you can do a lot of dumb things," he said, "as long as you don't make many bad loans."

PHOTO : SOLID ASSETS: Robert Wilmers has produced stellar results at First Empire State Bank by sticking close to Buffalo.

PHOTO : Robert G. Wilmers of First Empire State Corp. believes bankers should hit singles, not home runs, and should avoid superstar salaries.

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