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 September 30, 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 14240
(Address of principal (Zip Code)
executive offices)
(716) 842-5445
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
----- -----
Number of shares of the registrant's Common Stock, $5 par value, outstanding
as of the close of business on November 3, 1995: 6,443,804 shares.
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FIRST EMPIRE STATE CORPORATION
FORM 10-Q
For the Quarterly Period Ended September 30, 1995
Table of Contents of Information Required in Report Page
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30,1995 and December 31, 1994 3
Consolidated Statement of Income -
Three and nine months ended
September 30, 1995 and 1994 4
Consolidated Statement of Cash Flows -
Nine months ended September 30, 1995 and 1994 5
Consolidated Statement of Changes in
Stockholders' Equity - Nine months ended
September 30, 1995 and 1994 6
Consolidated Summary of Changes in
Allowance for Possible Credit Losses -
Nine months ended September 30, 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 21
Signatures 22
Exhibit Index 23
Exhibit No. 11 24
Exhibit No. 27 25
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
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FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
September 30,
1995 December 31,
Dollars in thousands, except per share (unaudited) 1994
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Assets Cash and due from banks $ 310,019 377,781
Money-market assets
Interest-bearing deposits at banks 125,500 143
Federal funds sold and
agreements to resell securities -- 3,080
Trading account 18,850 5,438
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Total money-market assets 144,350 8,661
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Investment securities
Available for sale (cost: $1,453,215 at September 30, 1995;
$1,602,916 at December 31, 1994) 1,434,401 1,514,395
Held to maturity (market value: $471,010 at
September 30, 1995; $221,165 at December 31, 1994) 469,219 227,651
Other (market value: $50,802 at September 30, 1995;
$48,994 at December 31, 1994) 50,802 48,994
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Total investment securities 1,954,422 1,791,040
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Loans and leases 9,531,247 8,447,117
Unearned discount (309,106) (229,824)
Allowance for possible credit losses (259,110) (243,332)
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Loans and leases, net 8,963,031 7,973,961
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Premises and equipment 125,262 127,274
Accrued interest and other assets 256,778 249,927
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Total assets $11,753,862 10,528,644
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Liabilities Noninterest-bearing deposits $ 1,157,229 1,087,102
NOW accounts 767,252 748,199
Savings deposits 2,825,934 3,098,438
Time deposits 4,262,481 3,106,723
Deposits at foreign office 157,152 202,611
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Total deposits 9,170,048 8,243,073
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Federal funds purchased and agreements
to repurchase securities 1,247,819 695,665
Other short-term borrowings 150,583 669,185
Accrued interest and other liabilities 179,862 103,538
Long-term borrowings 196,206 96,187
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Total liabilities 10,944,518 9,807,648
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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 98,525 98,014
Undivided profits 774,110 694,274
Unrealized investment losses, net (10,838) (50,555)
Treasury stock - common, at cost -
1,661,312 shares at September 30, 1995;
1,486,969 shares at December 31, 1994 (132,940) (101,224)
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Total stockholders' equity 809,344 720,996
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Total liabilities and stockholders' equity $11,753,862 10,528,644
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FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF INCOME (unaudited)
Three months ended Nine months ended
September 30 September 30
Amounts in thousands, except per share 1995 1994 1995 1994
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Interest income Loans and leases, including fees $203,683 161,107 584,662 462,176
Money-market assets
Deposits at banks 2,331 1,863 5,850 2,074
Federal funds sold and agreements
to resell securities 189 244 2,616 3,077
Trading account 565 77 1,085 300
Investment securities
Fully taxable 32,766 25,583 90,035 77,297
Exempt from federal taxes 660 676 2,225 1,966
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Total interest income 240,194 189,550 686,473 546,890
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Interest expense NOW accounts 3,129 2,840 8,842 8,500
Savings deposits 21,770 21,258 66,002 62,868
Time deposits 60,943 24,307 172,524 63,851
Deposits at foreign office 1,297 1,610 5,137 3,355
Short-term borrowings 25,559 20,841 65,009 52,733
Long-term borrowings 3,631 1,537 7,490 4,612
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Total interest expense 116,329 72,393 325,004 195,919
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Net interest income 123,865 117,157 361,469 350,971
Provision for possible credit losses 11,310 13,802 28,325 47,686
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Net interest income after provision
for possible credit losses 112,555 103,355 333,144 303,285
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Other income Trust income 6,533 5,099 18,117 16,304
Service charges on deposit accounts 9,649 8,817 28,442 26,495
Merchant discount and other credit card fees 2,815 2,147 7,503 6,240
Trading account gain (loss) (579) 591 473 476
Gain on sales of bank investment securities 4,933 128 4,887 128
Other revenues from operations 21,047 10,479 45,266 35,445
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Total other income 44,398 27,261 104,688 85,088
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Other expense Salaries and employee benefits 49,650 40,784 140,025 122,238
Equipment and net occupancy 13,252 11,881 38,137 37,138
Printing, postage and supplies 3,561 3,224 10,660 9,744
Deposit insurance 4,701 4,065 13,229 12,289
Other costs of operations 26,468 20,630 75,344 60,405
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Total other expense 97,632 80,584 277,395 241,814
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Income before income taxes 59,321 50,032 160,437 146,559
Income taxes 23,694 20,934 66,188 61,152
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Net income $ 35,627 29,098 94,249 85,407
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Net income per common share
Primary $5.14 4.09 13.50 11.82
Fully diluted 4.89 3.93 12.83 11.34
Cash dividends per common share .60 .60 1.80 1.60
Average common shares outstanding
Primary 6,763 6,899 6,783 6,998
Fully diluted 7,291 7,406 7,347 7,530
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FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Nine months ended September 30
Dollars in thousands 1995 1994
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Cash flows from Net income $ 94,249 85,407
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 28,325 47,686
Depreciation and amortization of premises
and equipment 14,427 13,339
Provision for deferred income taxes (9,492) (20,336)
Asset write-downs 3,622 2,422
Net gain on sales of assets (8,246) (4,447)
Net change in accrued interest receivable, payable 6,298 1,895
Net change in other accrued income and expense 58,822 (22)
Net change in loans held for sale (151,611) 145,694
Net change in trading account assets and liabilities (1,032) 3,025
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Net cash provided by operating activities 35,362 274,663
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Cash flows from Proceeds from sales of investment securities
investing activities Available for sale 387,696 3,052
Other -- 252
Proceeds from maturities of investment securities
Available for sale 197,096 493,957
Held to maturity 44,942 36,875
Purchases of investment securities
Available for sale (443,507) (16,244)
Held to maturity (286,624) (39,707)
Other (2,641) (12,741)
Net increase in interest-bearing
deposits at banks (125,357) (15,099)
Net increase in loans and leases (832,004) (488,190)
Capital expenditures, net (10,463) (3,550)
Acquisitions, net of cash acquired 58,697 --
Other, net 5,567 2,255
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Net cash used by investing activities (1,006,598) (39,140)
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Cash flows from Net increase in deposits 840,819 9,277
financing activities Net increase (decrease) in short-term borrowings 552 (52,076)
Proceeds from the issuance of subordinated debt 100,000 --
Payments on long-term borrowings (86) (77)
Purchases of treasury stock (34,141) (39,719)
Dividends paid - common (11,713) (10,780)
Dividends paid - preferred (2,700) (2,700)
Other, net 7,663 (4,380)
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Net cash provided (used) by financing activities 900,394 (100,455)
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Net increase (decrease) in cash and cash equivalents $ (70,842) 135,068
Cash and cash equivalents at beginning of period 380,861 525,221
Cash and cash equivalents at end of period $ 310,019 660,289
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Supplemental Interest received during the period $ 670,928 548,519
disclosure of cash Interest paid during the period 292,415 194,610
flow information Income taxes paid during the period 42,013 85,160
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Supplemental schedule
of noncash investing
and financing activities Real estate acquired in settlement of loans $ 5,152 8,912
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FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
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Unrealized
investment
Preferred Common Undivided gains (losses), Treasury
Dollars in thousands, except per share stock stock Surplus profits net stock Total
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1994
Balance - January 1, 1994 $40,000 40,487 97,787 595,322 9,148 (58,750) $723,994
Net income -- -- -- 85,407 -- -- 85,407
Preferred stock cash dividends -- -- -- (2,700) -- -- (2,700)
Common stock cash dividends -
$1.60 per share -- -- -- (10,780) -- -- (10,780)
Exercise of stock options -- -- 542 -- -- 813 1,355
Purchases of treasury stock -- -- -- -- -- (39,719) (39,719)
Unrealized losses on investment
securities available for sale, net -- -- -- -- (36,840) -- (36,840)
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Balance - September 30, 1994 $40,000 40,487 98,329 667,249 (27,692) (97,656) $720,717
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1995
Balance - January 1, 1995 $40,000 40,487 98,014 694,274 (50,555) (101,224) $720,996
Net income -- -- -- 94,249 -- -- 94,249
Preferred stock cash dividends -- -- -- (2,700) -- -- (2,700)
Common stock cash dividends -
$1.80 per share -- -- -- (11,713) -- -- (11,713)
Exercise of stock options -- -- 511 -- -- 2,425 2,936
Purchases of treasury stock -- -- -- -- -- (34,141) (34,141)
Unrealized gains on investment
securities available for sale, net -- -- -- -- 39,717 -- 39,717
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Balance - September 30, 1995 $40,000 40,487 98,525 774,110 (10,838) (132,940) $809,344
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CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR POSSIBLE CREDIT LOSSES (unaudited)
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Nine months ended September 30
Dollars in thousands 1995 1994
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Beginning balance $243,332 195,878
Provision for possible credit losses 28,325 47,686
Net charge-offs
Charge-offs (19,693) (23,093)
Recoveries 7,146 13,846
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Total net charge-offs (12,547) (9,247)
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Ending balance $259,110 234,317
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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,
except as noted below. 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. As described in Note 5, the Company
adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights", in 1995.
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:
September 30, 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 $ 15,777 15,966 5,775 5,762
Mortgage-backed securities
Government issued
or guaranteed 812,335 798,291 869,031 822,533
Other 606,353 598,091 706,909 665,209
Other debt securities 3,937 4,007 6,537 6,557
Equity securities 14,813 18,046 14,664 14,334
---------- --------- --------- ---------
1,453,215 1,434,401 1,602,916 1,514,395
---------- --------- --------- ---------
Investment securities
held to maturity:
U.S. Treasury and
federal agencies 270,212 271,615 171,112 164,602
Obligations of states and
political subdivisions 48,338 48,711 55,787 55,872
Other debt securities 150,669 150,684 752 691
---------- --------- --------- ---------
469,219 471,010 227,651 221,165
---------- --------- --------- ---------
Other securities 50,802 50,802 48,994 48,994
---------- --------- --------- ---------
Total $1,973,236 1,956,213 1,879,561 1,784,554
========== ========= ========= =========
3. Interest rate swap agreements
At September 30, 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 increase
net interest income by $737 thousand and to decrease net interest income by
$192 thousand during the three months and nine months ended September 30,
1995, respectively, and to increase net interest income by $2.6 million and
$12.5 million during the three months and nine months ended September 30,
1994, respectively. As of September 30, 1995, the Company had also entered
into a forward swap with an aggregate notional amount of $88 million. This
forward interest rate swap commitment had no effect on net income. The
- 7 -
Company estimates that as of September 30, 1995, it would have received
approximately $10.9 million if all interest rate swap agreements were
terminated. This estimated market value is not recognized in the
consolidated financial statements.
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.
5. Capitalized mortgage servicing rights
In the second quarter of 1995, the Company adopted SFAS No. 122 retroactive
to January 1, 1995. SFAS No. 122 requires that a mortgage banking enterprise
recognize as separate assets rights to service mortgage loans for others,
whether those servicing rights are originated or purchased. Pursuant to the
provisions of SFAS No. 122, the total cost of mortgage loans sold with
servicing rights retained is allocated to the mortgage servicing rights and
the loans (without the mortgage servicing rights) based on their relative
fair values. These mortgage servicing rights are amortized in proportion to
and over the period of estimated net servicing income. Prior to the adoption
of SFAS No. 122, only mortgage servicing rights acquired through purchase
transactions were recorded as assets.
To estimate the fair value of mortgage servicing rights, the Company
considers prices for similar assets and the present value of expected future
cash flows associated with the servicing rights calculated using assumptions
that market participants would use in estimating future servicing income and
expense. For purposes of evaluating and measuring impairment of capitalized
mortgage servicing rights, the Company stratifies such rights based on
predominant risk characteristics of underlying loans, such as loan type, note
rate and term. The amount of impairment recognized is the amount by which
the capitalized mortgage servicing rights for a stratum exceed estimated fair
value. Impairment is recognized through a valuation allowance. As of
September 30, 1995, the carrying value and estimated fair value of
capitalized mortgage servicing rights was $29.7 million and $40.1 million,
respectively. There was no impairment of capitalized mortgage servicing
rights at September 30, 1995.
The effect of implementing SFAS No. 122 during 1995 was to increase net
income for the three and nine month periods ended September 30, 1995 by $1.8
million and $3.3 million, respectively. Retroactive application of the
provisions of SFAS No. 122 to prior years is not permitted.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Net income of First Empire State Corporation ("First Empire") reached $35.6
million or $5.14 per common share in the third quarter of 1995, increases of
22% and 26%, respectively, from the $29.1 million or $4.09 per common share
earned in the third quarter of 1994. For the nine months ended September 30,
1995, net income was $94.2 million or $13.50 per common share, increases of
10% and 14%, respectively, from $85.4 million or $11.82 per common share in
the corresponding 1994 period. Excluding the after-tax effect of securities
transactions, net income in the recent quarter totaled $32.8 million, or
$4.71 per common share, increases of 13% and 15%, respectively, from $29.0
million or $4.08 per common share in the comparable 1994 quarter. On the same
basis, net income was $91.4 million or $13.08 per common share for the first
nine months of 1995, up 7% and 11%, respectively, from $85.3 million or
$11.81 per common share in the comparable 1994 period.
The rate of return on average assets for First Empire and its consolidated
subsidiaries ("the Company") in the third quarter of 1995 was 1.19%, compared
with 1.16% in the prior year third quarter and 1.10% in 1995's second
quarter. The return on average common stockholders' equity increased to
18.10% in the recent quarter compared with 16.58% in the third quarter of
1994 and 16.87% in the second quarter of 1995. Exclusive of securities
transactions, the recent quarter's annualized return on assets and common
stockholders' equity were 1.10% and 16.61%, respectively. The rate of return
on average assets was 1.11% in the first nine months of 1995, compared with
1.15% during the corresponding 1994 period. Through the first three quarters
of 1995, the return on average common stockholders' equity was 16.81%, up
from 16.19% in the comparable 1994 period. Excluding securities
transactions, such ratios were 1.08% and 16.29% in 1995, compared with 1.14%
and 16.18% in 1994.
As reported previously, on December 1, 1994 First Empire acquired Ithaca
Bancorp, Inc. ("Ithaca Bancorp"), Ithaca, New York, with total assets of $470
million, including $369 million of loans, and liabilities of $425 million,
including $330 million of deposits. On December 10, 1994, the Company
purchased approximately $146 million of deposits from Chemical Bank, along
with seven branch offices in the Hudson Valley region of New York State, and
on July 21, 1995, acquired four branch offices from The Chase Manhattan Bank,
N.A., including approximately $84 million in deposits.
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.
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. Additionally, on October 2, 1995 M&T Mortgage Corporation acquired
the mortgage servicing rights and origination franchise of Exchange Mortgage
Corp. ("Exchange"), a mortgage banking company based in Huntington Station,
New York. Exchange had total mortgage originations of approximately $177
million in 1994 and serviced a portfolio of approximately $370 million.
The acquisitions noted in the two preceding paragraphs were consummated for
cash and have been accounted for as purchase transactions. 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.
As described in Note 5 of Notes to Financial Statements, during the second
quarter of 1995 the Company adopted Statement of Financial Accounting
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Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights,"
retroactive to January 1, 1995. The effect of implementing SFAS No. 122 was
to increase net income $1.8 million and $3.3 million for the three and nine
month periods ended September 30, 1995, respectively.
On October 2, 1995, M&T Bank, National Association ("M&T Bank, N.A."), a
national bank subsidiary of First Empire headquartered in Oakfield, New York,
commenced operations. Initially, M&T Bank, N.A. is offering consumer banking
products, primarily credit cards and home equity lines of credit. Credit
cards will be offered in New York and in selected markets outside the state,
while home equity lines of credit will be offered by M&T Bank, N.A. only in
markets outside of New York. Additionally, M&T Bank, N.A. will market retail
certificates of deposits nationwide.
Taxable-equivalent Net Interest Income
Taxable-equivalent net interest income increased to $125.0 million in the
third quarter of 1995, up $6.8 million from $118.2 million in the third
quarter of 1994 and $4.6 million higher than the $120.4 million earned in the
second quarter of 1995. Growth in average loans outstanding was the primary
factor contributing to the improvement in net interest income. Increased
demand for loans and the December 1994 acquisition of Ithaca Bancorp resulted
in a $1.6 billion increase in average loans to $9.0 billion in the third
quarter of 1995 from $7.4 billion in the third quarter of 1994. Average
loans totaled $8.7 billion during the second quarter of 1995.
The increase in average loans, combined with a $187 million increase in
average investment securities, led to a $1.8 billion increase in average
earning assets to $11.4 billion in the third quarter of 1995 from $9.6
billion in the third quarter of 1994. Average earning assets in the recent
quarter increased $296 million from $11.1 billion in the second quarter of
1995. The effect of increases in average earning assets on net interest
income was partially offset by a narrowing of the net interest spread, or the
difference between the yield on earning assets and the rate paid on interest-
bearing liabilities.
For the first nine months of 1995, taxable-equivalent net interest income was
$365.1 million, up from $354.0 million in the corresponding 1994 period. An
increase in earning assets of $1.4 billion, partially offset by a reduction
in the net interest spread, contributed to this improvement.
The Company's net interest margin, or taxable-equivalent net interest income
expressed as an annualized percentage of average earning assets, was 4.35% in
the third quarter of 1995, compared with 4.87% in the third quarter of 1994
and 4.35% in the second quarter of 1995. A higher proportion of loans, which
generally yield more than investment securities and money-market assets, in
the earning assets portfolio and generally higher interest rates resulted in
an overall yield on average earning assets of 8.40% in the third quarter of
1995, up 54 basis points (hundredths of one percent) from the corresponding
1994 quarter. However, higher interest rates also contributed to a 119 basis
point rise in the cost of interest-bearing liabilities to 4.72% from the year
earlier quarter, more than offsetting the gain on the yield on earning
assets. The yield on average earning assets in the second quarter of 1995
was 8.39%, while the rate paid on interest-bearing liabilities totaled 4.69%.
As a result, the Company's net interest spread was 3.68% in the recent
quarter, compared with 4.33% and 3.70% in the third quarter of 1994 and the
second quarter of 1995, respectively.
While narrowing the net interest spread, higher interest rates resulted in a
more significant contribution to net interest margin from interest-free
funds. The contribution of interest-free funds rose to .67% in the third
quarter of 1995 from .54% in the comparable 1994 quarter. Interest-free
- 10 -
funds contributed .65% to net interest margin during the second quarter of
1995. A higher level of interest-free funds and a 119 basis point increase
in the rate paid on interest-bearing liabilities used to value these funds
resulted in the improvement in the third quarter of 1995 from a year earlier.
Average interest-free funds, which consist primarily of noninterest-bearing
demand deposits and stockholders' equity, totaled $1.6 billion in the third
quarter of 1995, up $146 million or 10% from a year earlier, and $100 million
or 7% from the second quarter of 1995.
For the first nine months of 1995, net interest margin decreased to 4.46%
from 4.93% in the corresponding period in 1994. The decrease was caused by a
decline in the net interest spread to 3.81% from 4.45%, partially offset by
an increased contribution of interest-free funds, to .65% from .48% in 1994's
first three quarters.
Changing interest rates and spreads impact the Company's net interest income.
Management analyzes the Company's exposure to such changes by projecting net
interest income under a number of different interest rate scenarios. As part
of its management of interest rate risk, the Company utilizes interest rate
swap agreements to modify the repricing characteristics of certain portions
of the loan and deposit portfolios. Revenue and expense arising from these
agreements are reflected in either the yields earned on loans or, as
appropriate, rates paid on interest-bearing deposits. 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 September 30, 1995, the weighted average rates to be
received and paid under interest rate swap agreements were 6.20% and 5.82%,
respectively. 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 September 30
----------------------------------------------------
1995 1994
------------------------- ------------------------
Amount Rate(1) Amount Rate(1)
---------- ------ ---------- ---------
Increase (decrease) in:
Interest income $ (1,312) (.04)% $ 2,672 .11%
Interest expense (2,049) (.08) 36 --
---------- ----------
Net interest
income/margin $ 737 .03% $ 2,636 .11%
========== ==== ========== ====
Average notional
amount (2) $2,571,181 $1,740,217
========== ==========
Nine months ended September 30
----------------------------------------------------
1995 1994
------------------------- ------------------------
Amount Rate(1) Amount Rate(1)
---------- ------ ---------- ---------
Increase (decrease) in:
Interest income $ (4,655) (.05)% $ 10,076 .14%
Interest expense (4,463) (.06)% (2,378) (.04)
---------- ----------
Net interest
income/margin $ (192) -- $ 12,454 .17%
========== ==== ========== ====
Average notional
amount (2) $2,556,883 $1,430,552
========== ==========
(1) Computed as an annualized percentage of earning assets or interest-bearing
liabilities
(2) Excludes forward-starting interest rate swaps
- 11 -
The Company estimates that as of September 30, 1995 it would have received
approximately $10.9 million if all interest rate swap agreements entered into
for interest rate risk management purposes were terminated. This estimated
fair value of the interest rate swap portfolio results from the effects of
changing interest rates and should be considered in the context of the entire
balance sheet and the Company's overall interest rate risk profile. Changes
in the estimated fair value of interest rate swaps entered into for interest
rate risk management purposes are not reflected in the consolidated financial
statements.
Average investment securities totaled $2.2 billion in the third quarter of
1995, up from $2.0 billion and $2.1 billion in the third quarter of 1994 and
the second quarter of 1995, respectively. During the recent quarter, the
Company sold $325 million of U. S. Treasury securities for a pre-tax gain of
approximately $4.9 million. The level of investment securities is influenced
by such factors as the management of balance sheet size and resulting capital
ratios, ongoing repayments, growth in loans, which generally yield more than
investment securities, and the level of deposits.
Average loans and leases increased 21% to $9.0 billion in the third quarter
of 1995 from $7.4 billion in the corresponding 1994 quarter and 4% from $8.7
billion in the second quarter of 1995. Stronger loan demand resulting in
part from improved economic conditions and the December 1994 addition of $369
million of loans in the Ithaca Bancorp acquisition contributed to this
growth. The accompanying table summarizes quarterly changes in the major
components of the loan and lease portfolio.
AVERAGE LOANS AND LEASES
(net of unearned discount)
Dollars in millions
Percent increase from
3rd Qtr. 3rd Qtr. 2nd Qtr.
1995 1994 1995
-------- --------- --------
Commercial, financial, etc. $1,838 26% 2%
Real estate - commercial 3,540 12 2
Real estate - consumer 1,861 32 8
Consumer 1,799 26 6
------ --- ---
Total $9,038 21% 4%
====== === ===
Core deposits represent a significant source of funding to the Company and
are commonly generated through the branch network at generally lower interest
rates than are available on wholesale funds of similar maturities. Such
deposits include noninterest-bearing demand deposits, interest-bearing
transaction accounts, savings deposits and nonbrokered domestic time deposits
under $100,000. Including core deposits obtained in the December 1994 and
July 1995 acquisitions, average core deposits increased to $7.4 billion in
1995's third quarter, up from $6.8 billion in the year earlier quarter and
$7.3 billion in the second quarter of 1995. Increases in interest rates paid
on deposits in response to higher money-market rates have contributed to the
higher level of core deposits and 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.
- 12 -
AVERAGE CORE DEPOSITS
Dollars in millions
Percent increase
(decrease) from
3rd Qtr. 3rd Qtr. 2nd Qtr.
1995 1994 1995
-------- -------- --------
NOW accounts $ 784 6% 3%
Savings deposits 2,869 (11) (3)
Time deposits under $100,000 2,619 47 2
Demand deposits 1,143 12 10
------ --- ---
Total $7,415 10% 1%
====== === ===
The Company began accepting brokered retail certificates of deposit in the
fourth quarter of 1994 in order to reduce short-term borrowings and lengthen
the average maturity of interest-bearing liabilities. Brokered deposits
averaged $919 million during the third quarter of 1995 and totaled $946
million at September 30, 1995, compared with an average balance of $888
million during the second quarter of 1995 and an equal amount outstanding at
June 30, 1995. The weighted average remaining term to maturity of brokered
deposits at September 30, 1995 was 1.8 years. Additional amounts of brokered
deposits may be solicited from time to time depending on such factors as
current market conditions and the cost of funds available from alternative
sources.
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 as sources of funding. Short-term borrowings averaged $1.7 billion in
the recent quarter compared with $1.8 billion in the comparable quarter of
1994 and $1.6 billion in the second quarter of 1995.
Maturities of money-market assets, repayments of loans and investment
securities, and cash generated from operations provide the Company with
sources of liquidity. Through membership in the FHLB and borrowing
arrangements with other financial institutions, which are informal and
sometimes reciprocal, 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 September 30, 1995 was adequate to absorb credit losses from
existing loans, leases and credit commitments.
- 13 -
Improved economic conditions in market areas served by the Company
contributed to a reduction in the provision for possible credit losses to
$11.3 million in the third quarter of 1995 from $13.8 million in the year
earlier quarter. However, the provision in the recent quarter increased from
$8.5 million in the second quarter of 1995 reflecting, in part, continued
growth in the loan portfolio. Net loan charge-offs totaled $6.0 million in
the third quarter of 1995, up from $2.6 million in 1994's third quarter and
$3.4 million in the second quarter of 1995. Net charge-offs as an annualized
percentage of average loans and leases were .27% in the recent quarter, .14%
in the corresponding 1994 quarter and .16% in the second quarter of 1995.
For the nine months ended September 30, 1995 and 1994, the provision for
possible credit losses was $28.3 million and $47.7 million, respectively.
Through September 30, net charge-offs were $12.5 million in 1995 and $9.2
million in 1994, representing .19% and .17%, respectively, of average loans
and leases.
Nonperforming loans were $76.2 million or .83% of total loans and leases
outstanding at September 30, 1995, compared with $82.0 million or 1.08% at
September 30, 1994 and $75.4 million or .85% at June 30, 1995. Nonperforming
commercial real estate loans totaled $42.4 million at September 30, 1995,
$54.5 million at September 30, 1994 and $42.9 million at June 30, 1995.
Included in these totals were loans secured by properties located in the New
York City metropolitan area of $17.8 million at the recent quarter-end, $35.1
million at September 30, 1994 and $21.0 million at June 30, 1995. Assets
taken in foreclosure of defaulted loans were $8.5 million at September 30,
1995, compared with $11.3 million at September 30, 1994 and $8.4 million at
June 30, 1995.
The allowance for possible credit losses was $259.1 million, or 2.81% of
total loans and leases at September 30, 1995, compared with $234.3 million or
3.09% a year earlier, $243.3 million or 2.96% at December 31, 1994 and $253.8
million or 2.86% at June 30, 1995. The ratio of the allowance for possible
credit losses to nonperforming loans was 340% at the most recent quarter-end,
compared with 286% a year earlier, 314% at December 31, 1994 and 337% at June
30, 1995.
A comparative summary of nonperforming assets and certain credit quality
ratios is presented in the accompanying table.
NONPERFORMING ASSETS
Dollars in thousands
1995 Quarters 1994 Quarters
Third Second First Fourth Third
----- ------ ----- ------ -----
Nonaccrual loans $59,720 60,889 64,941 62,787 72,355
Loans past due
90 days or more 16,516 14,530 12,275 11,754 9,663
Renegotiated loans -- -- 2,600 2,994 --
------- ------ ------ ------ ------
Total nonperforming loans 76,236 75,419 79,816 77,535 82,018
------- ------ ------ ------ ------
Other real estate owned 8,520 8,390 8,824 10,065 11,281
------- ------ ------ ------ ------
Total nonperforming assets $84,756 83,809 88,640 87,600 93,299
======= ====== ====== ====== ======
Nonperforming loans
to total loans and leases,
net of unearned discount .83% .85% .93% .94% 1.08%
Nonperforming assets
to total net loans and
other real estate owned .92% .94% 1.03% 1.06% 1.23%
=== === ==== ==== ====
- 14 -
Other Income
Excluding the effects of investment securities transactions, other income
totaled $39.5 million in the third quarter of 1995, up 45% from $27.1 million
in the year-earlier quarter and 16% from $33.9 million in the second quarter
of 1995. On the same basis, other income for the first nine months of 1995
was $99.8 million, up 17% from $85.0 million in the comparable period of
1994. As previously noted, the Company realized a gain of approximately $4.9
million upon the sale of U. S. Treasury securities during the recent quarter.
These securities had been previously classified as available for sale.
Reflecting the effect of recent acquisitions, service charges on deposit
accounts totaled $9.6 million in the third quarter of 1995, up 9% from $8.8
million in the third quarter of 1994 and essentially unchanged from the
second quarter of 1995. Trust income of $6.5 million in the third quarter of
1995 was up from $5.1 million and $5.8 million in the third quarter of 1994
and second quarter of 1995, respectively. The increases were attributable to
enhanced earnings from the personal and institutional trust businesses, and
mutual fund management fees. Merchant discount and credit card fees were
$2.8 million in the recent quarter, up from $2.1 million and $2.4 million in
the third quarter of 1994 and second quarter of 1995, respectively. Trading
account losses totaled $579 thousand in the third quarter of 1995, compared
with gains of $591 thousand in the corresponding quarter of 1994 and $359
thousand in the second quarter of 1995.
Other revenue from operations totaled $21.0 million in the recent quarter, up
from $10.5 million in the third quarter of 1994 and $15.7 million from the
second quarter of 1995. Higher mortgage banking revenues contributed to this
rise, including increased servicing fees resulting from origination
activities and acquisitions, the effect of the 1995 implementation of SFAS
No. 122, and a $3.2 million gain from the sale of approximately $300 million
of servicing rights. Residential mortgage loans serviced for others totaled
$5.2 billion and $3.7 billion at September 30, 1995 and 1994, respectively.
For the first nine months of the year, service charges on deposit accounts,
including the impact of deposit accounts associated with the franchises
obtained in the 1994 and 1995 acquisitions, increased 7% to $28.4 million in
1995, from $26.5 million in 1994. Compared to the same period in 1994, trust
income increased 11% to $18.1 million during the first nine months of 1995,
while merchant discount and credit card fees increased 20% to $7.5 million.
Trading account activity resulted in a gain of $473 thousand for the first
nine months of 1995 compared with $476 thousand in the comparable 1994
period.
Other revenues from operations increased 28% to $45.3 million in the first
nine months of 1995 from $35.4 million in the comparable 1994 period. Higher
mortgage banking revenues, including $5.9 million of income related to the
implementation of SFAS No. 122, were a significant factor contributing to the
increase in revenue over the comparable 1994 period. During the first three
quarters of 1994, the Company realized a gain of $1.4 million from the sale
of residential mortgage loan participations acquired from the Federal Deposit
Insurance Corporation ("FDIC") and $2.2 million of income relating to lease
receivable termination payments.
Other Expense
Other expense totaled $97.6 million in the third quarter of 1995, compared
with $80.6 million in the third quarter of 1994 and $90.3 million in the
second quarter of 1995. Through the first nine months of 1995, other expense
totaled $277.4 million or 15% higher than in the comparable 1994 period.
- 15 -
Salaries and employee benefits expense was $49.7 million in the recent
quarter, 22% higher than the corresponding 1994 quarter and 12% above the
second quarter of 1995. For the first nine months of 1995, salaries and
benefits expense increased $17.8 million or 15% from the comparable 1994
period. Expenses associated with the entities acquired in 1994 and 1995,
expansion of subsidiaries providing mortgage banking services and sales of
mutual funds and annuities, as well as higher expenses for stock appreciation
rights and other incentive-based compensation arrangements contributed to
these increases.
Nonpersonnel expenses totaled $48.0 million in the third quarter of 1995, up
$8.2 million from the third quarter of 1994 and $1.9 million from the second
quarter of 1995. Such expenses were $137.4 million during the first nine
months of 1995, up 15% from $119.6 million during the comparable 1994 period.
Higher mortgage banking-related expenses and expenses associated with
operating the acquired entities contributed to the increases, together with
the write-off in February 1995 of $2.3 million of non-marketable securities
of Nationar, a bank that provided services to financial institutions, which
was seized by banking regulators. During the third quarter of 1995, the
Company's assessment from the FDIC for deposit insurance provided by the Bank
Insurance Fund ("BIF") was reduced retroactive to June 1, 1995. The effect
of the change in assessment rate was to lower the Company's nonpersonnel
expenses for the third quarter of 1995 by $4.4 million, including $830
thousand relating to the assessment for the second quarter of 1995.
Recently, congressional committees have passed proposals that would require a
one-time special assessment related to deposits insured by the Savings
Association Insurance Fund of the FDIC. The Company has approximately $1.2
billion of such deposits obtained in acquisitions. Although the amount of
any such special assessment cannot be precisely predicted, management
believes that it is likely that a special assessment will ultimately be
levied against the Company.
Capital
Common stockholders' equity totaled $769.3 million at September 30, 1995,
compared with $680.7 million a year earlier and $681.0 million at
December 31, 1994. On a per share basis, common stockholders' equity was
$119.53 at September 30, 1995, increases of 16% from both $102.73 at
September 30, 1994 and $103.02 at December 31, 1994. Total stockholders'
equity at September 30, 1995 was $809.3 million or 6.89% of total assets,
compared with $720.7 million or 7.00% of total assets a year earlier and
$721.0 million or 6.85% at December 31, 1994.
Stockholders' equity at September 30, 1995 was reduced by $10.8 million, or
$1.68 per common share, for the net after-tax impact of unrealized losses on
investment securities classified as available for sale, compared with
reductions of $27.7 million or $4.18 per common share at September 30, 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. With
the exception of investment securities classified as available for sale,
trading account assets and mortgage loans held for sale, the carrying values
of financial instruments in the balance sheet are generally not adjusted for
appreciation or depreciation in market value resulting from changes in
interest rates.
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
- 16 -
for sale are not recognized in determining regulatory capital. The
regulatory capital ratios of the Company and its banking subsidiaries, M&T
Bank and The East New York Savings Bank ("East New York"), as of
September 30, 1995 are presented in the accompanying table.
REGULATORY CAPITAL RATIOS
September 30, 1995
First Empire M&T
(Consolidated) Bank East New York
-------------- ------ -------------
Core capital 8.49% 7.72% 11.44%
Total capital 11.64% 11.13% 12.70%
Leverage 6.68% 6.19% 7.41%
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 15.28% and 13.89% during the three and nine month
periods ended September 30, 1995, respectively, compared with 13.44% and
13.30% during the comparable periods of 1994. To further strengthen the
"total capital" ratios of M&T Bank and the Company, M&T Bank issued $100
million of ten-year subordinated capital notes in July 1995.
During the recent quarter, First Empire acquired 64,030 shares and thereby
completed the program announced in December 1993 to repurchase and hold as
treasury stock up to 506,930 shares of its common stock for reissuance upon
the possible future conversion of its 9% convertible preferred stock. The
506,930 repurchased shares were acquired at an average per share cost of
$154.08.
- 17 -
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Three months ended Nine months ended
September 30 September 30
Amounts in thousands, except per share 1995 1994 Change 1995 1994 Change
- -----------------------------------------------------------------------------------------------------------------------------------
For the period
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $35,627 29,098 + 22% $94,249 85,407 + 10%
Per common share
Net income
Primary $5.14 4.09 + 26 $13.50 11.82 + 14
Fully diluted 4.89 3.93 + 24 12.83 11.34 + 13
Cash dividends .60 .60 -- 1.80 1.60 + 13
Average common shares outstanding
Primary 6,763 6,899 - 2 6,783 6,998 - 3
Fully diluted 7,291 7,406 - 2 7,347 7,530 - 2
Annualized return on
Average total assets 1.19% 1.16% 1.11% 1.15%
Average common stockholders' equity 18.10% 16.58% 16.81% 16.19%
Market price per common share
Closing $190.00 151.50 + 25 $190.00 151.50 + 25
High 194.50 165.00 194.50 165.00
Low 170.00 146.00 136.50 135.00
- -----------------------------------------------------------------------------------------------------------------------------------
At September 30
- -----------------------------------------------------------------------------------------------------------------------------------
Loans and leases,
net of unearned discount $ 9,222,141 7,590,158 + 22%
Total assets 11,753,862 10,300,556 + 14
Total deposits 9,170,048 7,362,453 + 25
Total stockholders' equity 809,344 720,717 + 12
Stockholders' equity per common share $119.53 102.73 + 16
- -----------------------------------------------------------------------------------------------------------------------------------
- 18 -
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
1995 Third quarter 1995 Second quarter
Average Average Average Average
Average balance in millions; interest in thousands balance Interest rate balance Interest rate
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,838 $ 39,821 8.59% 1,805 39,410 8.76%
Real estate 5,401 120,430 8.92 5,187 116,067 8.95
Consumer 1,799 44,029 9.71 1,690 41,110 9.75
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 9,038 204,280 8.97 8,682 196,587 9.08
- -----------------------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 126 2,331 7.37 121 2,225 7.39
Federal funds sold and agreements
to resell securities 12 189 6.05 139 2,227 6.44
Trading account 49 600 4.90 29 371 5.02
- -----------------------------------------------------------------------------------------------------------------------------------
Total money-market assets 187 3,120 6.64 289 4,823 6.69
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agencies 1,336 20,532 6.10 1,340 19,658 5.88
Obligations of states and political subdivisions 46 809 6.96 57 965 6.84
Other 797 12,633 6.29 740 10,435 5.65
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,179 33,974 6.18 2,137 31,058 5.83
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 11,404 241,374 8.40 11,108 232,468 8.39
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (256) (251)
Cash and due from banks 336 317
Other assets 364 332
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 11,848 11,506
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 784 3,129 1.58 760 2,948 1.55
Savings deposits 2,869 21,770 3.01 2,950 21,920 2.98
Time deposits 4,119 60,943 5.87 4,075 60,008 5.91
Deposits at foreign office 96 1,297 5.36 117 1,504 5.16
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 7,868 87,139 4.39 7,902 86,380 4.38
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,719 25,559 5.90 1,588 23,787 6.01
Long-term borrowings 194 3,631 7.42 96 1,929 8.04
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 9,781 116,329 4.72 9,586 112,096 4.69
- -----------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,143 1,043
Other liabilities 123 111
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 11,047 10,740
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 801 766
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,848 11,506
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.68 3.70
Contribution of interest-free funds 0.67 0.65
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 125,045 4.35% 120,372 4.35%
- -----------------------------------------------------------------------------------------------------------------------------------
*Includes nonaccrual loans
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
1995 First quarter
Average Average
Average balance in millions; interest in thousands balance Interest rate
- -----------------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. 1,671 35,772 8.68%
Real estate 5,048 112,059 8.88
Consumer 1,592 37,788 9.62
- -----------------------------------------------------------------------------------------------
Total loans and leases, net 8,311 185,619 9.06
- -----------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 67 1,294 7.82
Federal funds sold and agreements
to resell securities 14 200 5.75
Trading account 13 193 5.94
- -----------------------------------------------------------------------------------------------
Total money-market assets 94 1,687 7.25
- -----------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agencies 1,100 15,671 5.78
Obligations of states and political subdivisions 56 948 6.86
Other 769 12,325 6.50
- -----------------------------------------------------------------------------------------------
Total investment securities 1,925 28,944 6.10
- -----------------------------------------------------------------------------------------------
Total earning assets 10,330 216,250 8.49
- -----------------------------------------------------------------------------------------------
Allowance for possible credit losses (247)
Cash and due from banks 313
Other assets 285
- -----------------------------------------------------------------------------------------------
Total assets 10,681
- -----------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts 734 2,765 1.53
Savings deposits 3,040 22,312 2.98
Time deposits 3,702 51,573 5.65
Deposits at foreign office 184 2,336 5.14
- -----------------------------------------------------------------------------------------------
Total interest-bearing deposits 7,660 78,986 4.18
- -----------------------------------------------------------------------------------------------
Short-term borrowings 1,076 15,663 5.90
Long-term borrowings 96 1,930 8.13
- -----------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,832 96,579 4.43
- -----------------------------------------------------------------------------------------------
Demand deposits 1,038
Other liabilities 74
- -----------------------------------------------------------------------------------------------
Total liabilities 9,944
- -----------------------------------------------------------------------------------------------
Stockholders' equity 737
- -----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 10,681
- -----------------------------------------------------------------------------------------------
Net interest spread 4.06
Contribution of interest-free funds 0.64
- -----------------------------------------------------------------------------------------------
Net interest income/margin on earning assets 119,671 4.70%
- -----------------------------------------------------------------------------------------------
*Includes nonaccrual loans
- 19 -
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
1994 Fourth quarter 1994 Third quarter
Average Average Average Average
Average balance in millions; interest in thousands balance Interest rate balance Interest rate
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,551 $ 32,609 8.34% 1,457 29,797 8.11%
Real estate 4,757 103,982 8.74 4,562 98,574 8.64
Consumer 1,497 34,881 9.25 1,423 33,281 9.28
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 7,805 171,472 8.72 7,442 161,652 8.62
- -----------------------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 11 138 4.85 158 1,863 4.68
Federal funds sold and agreements
to resell securities 124 1,674 5.35 20 244 4.86
Trading account 6 86 5.62 8 110 5.34
- -----------------------------------------------------------------------------------------------------------------------------------
Total money-market assets 141 1,898 5.32 186 2,217 4.73
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agencies 1,075 14,841 5.48 1,116 13,954 4.96
Obligations of states and political subdivisions 53 841 6.24 53 760 5.69
Other 795 12,491 6.24 823 11,972 5.77
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,923 28,173 5.81 1,992 26,686 5.32
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 9,869 201,543 8.10 9,620 190,555 7.86
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (240) (230)
Cash and due from banks 314 298
Other assets 257 271
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 10,200 9,959
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 734 2,786 1.51 739 2,840 1.52
Savings deposits 3,105 21,936 2.80 3,214 21,258 2.62
Time deposits 2,606 33,216 5.06 2,119 24,307 4.55
Deposits at foreign office 221 2,539 4.55 159 1,610 4.01
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,666 60,477 3.60 6,231 50,015 3.18
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,609 21,135 5.21 1,836 20,841 4.50
Long-term borrowings 83 1,675 8.06 76 1,537 8.07
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,358 83,287 3.95 8,143 72,393 3.53
- -----------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,037 1,019
Other liabilities 81 82
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,476 9,244
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 724 715
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,200 9,959
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest spread 4.15 4.33
Contribution of interest-free funds 0.60 .54
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 118,256 4.75% 118,162 4.87%
- -----------------------------------------------------------------------------------------------------------------------------------
*Includes nonaccrual loans
- 20 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
A number of lawsuits were pending against First Empire and its
subsidiaries at September 30, 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 and 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.
(Not applicable.)
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.
----
11 Statement re: Computation of Earnings Per Common Share.
Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K.
First Empire did not file any Current Reports on Form 8-K during
the fiscal quarter ended September 30, 1995.
- 21 -
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: November 10, 1995 By: /s/ James L. Vardon
---------------------------------------------
James L. Vardon
Executive Vice President
and Chief Financial Officer
- 22 -
EXHIBIT INDEX
Exhibit
No.
- -------
11 Statement re: Computation of Earnings Per Common Share. Filed herewith.
27 Financial Data Schedule. Filed herewith.
- 23 -