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 June 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9861
FIRST EMPIRE STATE CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0968385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One M & T Plaza, 14240
Buffalo, New York (Zip Code)
(Address of principal
executive offices)
(716) 842-5445
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
--- ---
Number of shares of the registrant's Common Stock, $5 par value, outstanding
as of the close of business on August 3, 1994: 6,625,829 shares.
2
FIRST EMPIRE STATE CORPORATION
FORM 10-Q
For the Quarterly Period Ended June 30, 1994
---------------------------------------------
Table of Contents of Information Required in Report Page
- --------------------------------------------------- -----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30,1994 and December 31, 1993 3
Consolidated Statement of Income -
Three and six months ended
June 30, 1994 and 1993 4
Consolidated Statement of Cash Flows -
Six months ended June 30, 1994 and 1993 5
Consolidated Statement of Changes in
Stockholders' Equity - Six months ended
June 30, 1994 and 1993 6
Consolidated Summary of Changes in
Allowance for Possible Credit Losses -
Six months ended June 30, 1994 and 1993 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-19
Part II. Other Information 20
Signatures 21
Exhibit Index 22
Exhibit No. 11 23
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET June 30, December 31,
Dollars in thousands, except per share 1994 1993
(unaudited)
- -------------------------------------------------------------------------------------------------------------------
Assets Cash and due from banks $ 400,739 195,792
Money-market assets
Interest-bearing deposits at banks 410,143 55,044
Federal funds sold and
agreements to resell securities 35,973 329,429
Trading account 7,280 9,815
- -------------------------------------------------------------------------------------------------------------------
Total money-market assets 453,396 394,288
- -------------------------------------------------------------------------------------------------------------------
Investment securities
Available for sale (cost: $1,763,361 at June 30, 1994;
$2,158,262 at December 31, 1993) 1,721,918 2,174,067
Held to maturity (market value: $216,989 at June 30, 1994;
$223,617 at December 31, 1993) 221,572 223,331
Other (market value: $41,442 at June 30, 1994;
$31,754 at December 31, 1993) 41,442 31,754
- -------------------------------------------------------------------------------------------------------------------
Total investment securities 1,984,932 2,429,152
- -------------------------------------------------------------------------------------------------------------------
Loans and leases 7,602,481 7,439,059
Unearned discount (201,252) (177,960)
Allowance for possible credit losses (223,128) (195,878)
- -------------------------------------------------------------------------------------------------------------------
Loans and leases, net 7,178,101 7,065,221
- -------------------------------------------------------------------------------------------------------------------
Premises and equipment 127,232 134,874
Accrued interest and other assets 191,238 145,631
- -------------------------------------------------------------------------------------------------------------------
Total assets $10,335,638 10,364,958
- -------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits $ 1,175,628 1,052,258
NOW accounts 756,987 764,690
Savings deposits 3,267,486 3,364,983
Time deposits 1,979,070 1,982,272
Deposits at foreign office 96,717 189,058
- -------------------------------------------------------------------------------------------------------------------
Total deposits 7,275,888 7,353,261
- -------------------------------------------------------------------------------------------------------------------
Federal funds purchased and agreements
to repurchase securities 1,829,630 1,381,335
Other short-term borrowings 342,318 720,332
Accrued interest and other liabilities 94,564 110,446
Long-term borrowings 75,000 75,000
Obligations under capital leases 539 590
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 9,617,939 9,640,964
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity Preferred stock, $1 par, 1,000,000 shares authorized,
40,000 shares issued, stated at aggregate
liquidation value 40,000 40,000
Common stock, $5 par, 15,000,000 shares
authorized, 8,097,472 shares issued 40,487 40,487
Surplus 97,908 97,787
Undivided profits 643,026 595,322
Unrealized investment gains (losses), net (23,401) 9,148
Treasury stock - common, at cost - 1,362,943 shares
at June 30, 1994; 1,218,347 at December 31, 1993 (80,321) (58,750)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 717,699 723,994
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $10,335,638 10,364,958
- -------------------------------------------------------------------------------------------------------------------
4
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (unaudited)
Amounts in thousands, except per share
Three months ended June 30 Six months ended June 30
1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income Loans and leases, including fees $ 152,586 153,153 301,069 305,996
Money-market assets
Deposits at banks 57 1,780 211 3,290
Federal funds sold and agreements to resell securities 1,390 6,468 2,833 12,474
Trading account 91 557 223 826
Investment securities
Fully taxable 25,472 25,804 51,714 48,189
Exempt from federal taxes 574 649 1,290 1,332
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 180,170 188,411 357,340 372,107
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense NOW accounts 2,814 3,198 5,660 6,849
Savings deposits 20,921 22,694 41,610 46,912
Time deposits 20,797 26,020 39,544 54,419
Deposits at foreign office 817 790 1,745 1,628
Short-term borrowings 17,391 14,820 31,892 24,210
Long-term borrowings and capital leases 1,537 1,540 3,075 3,080
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 64,277 69,062 123,526 137,098
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 115,893 119,349 233,814 235,009
Provision for possible credit losses 14,022 20,215 33,884 38,530
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible credit losses 101,871 99,134 199,930 196,479
- ------------------------------------------------------------------------------------------------------------------------------------
Other income Trust income 5,770 5,748 11,205 11,416
Service charges on deposit accounts 8,785 8,244 17,678 15,565
Merchant discount and other credit card fees 2,197 1,979 4,093 3,963
Trading account gain (loss) 93 280 (115) 1,034
Gain (loss) on sales of bank investment securities - (21) - 802
Other revenues from operations 12,533 11,261 24,966 21,578
- ------------------------------------------------------------------------------------------------------------------------------------
Total other income 29,378 27,491 57,827 54,358
- ------------------------------------------------------------------------------------------------------------------------------------
Other expense Salaries and employee benefits 41,623 36,057 81,454 75,972
Equipment and net occupancy 12,445 11,713 25,257 23,552
Printing, postage and supplies 3,333 3,366 6,520 6,978
Deposit insurance 4,080 4,603 8,224 9,142
Other costs of operations 20,534 28,827 39,775 52,361
- ------------------------------------------------------------------------------------------------------------------------------------
Total other expense 82,015 84,566 161,230 168,005
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 49,234 42,059 96,527 82,832
Applicable income taxes 20,553 16,874 40,218 33,325
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 28,681 25,185 56,309 49,507
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per common share
Primary $3.96 3.42 $7.73 6.73
Fully diluted 3.80 3.31 7.43 6.52
Cash dividends per common share $ .50 .50 1.00 .90
Average common shares outstanding
Primary 7,014 7,102 7,048 7,086
Fully diluted 7,541 7,609 7,578 7,598
5
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Dollars in thousands Six months ended June 30
1994 1993
- --------------------------------------------------------------------------------------------------------------------
Cash flows from Net income $ 56,309 49,507
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 33,884 38,530
Depreciation and amortization of premises
and equipment 8,943 8,005
Provision for deferred income taxes (15,617) (11,329
Asset write-downs 1,141 6,526
Net gain on sales of assets (4,211) (802)
Net change in accrued interest receivable, payable (1,716) (9,509)
Net change in other accrued income and expense (10,935) 19,566
Net change in loans held for sale 135,795 (38,918)
Net change in trading account assets 2,535 (10,485)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 206,128 51,091
- --------------------------------------------------------------------------------------------------------------------
Cash flows from Proceeds from maturities of investment securities 413,441 463,354
investing activities Purchases of investment securities (33,904) (1,276,395)
Net increase in interest-bearing
deposits at banks (355,099) (210,003)
Proceeds from sales of loans and leases 7,601 -
Net increase in loans and leases (287,687) (15,275)
Capital expenditures, net (2,116) (9,833)
Other, net 2,510 7,151
- --------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (255,254) (1,041,001)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from Net decrease in deposits (77,288) (485,199)
financing activities Net increase in short-term borrowings 70,281 1,304,628
Payments on long-term borrowings (51) (46)
Purchases of treasury stock (22,107) -
Dividends paid - common (6,805) (6,177)
Dividends paid - preferred (1,800) (1,800)
Other, net (1,613) 3,863
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (39,383) 815,269
- --------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents $ (88,509) (174,641)
Cash and cash equivalents at beginning of period 525,221 576,967
Cash and cash equivalents at end of period $ 436,712 402,326
- --------------------------------------------------------------------------------------------------------------------
Supplemental Interest received during the period $ 359,625 365,967
disclosure of cash Interest paid during the period 125,539 139,126
flow information Income taxes paid during the period 69,501 37,693
- --------------------------------------------------------------------------------------------------------------------
Supplemental schedule of
noncash investing and
financing activities Real estate acquired in settlement of loans $ 6,763 4,600
- --------------------------------------------------------------------------------------------------------------------
6
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
Dollars in thousands, except per share
Unrealized
investment
Preferred Common Undivided gains(losses), Treasury
stock stock Surplus profits net stock Total
- ------------------------------------------------------------------------------------------------------------------------
1993
Balance - January 1, 1993 $40,000 40,487 96,816 509,984 - (60,492) $626,795
Net income - - - 49,507 - - 49,507
Preferred stock cash dividends - - - (1,800) - - (1,800)
Common stock cash dividends -
$.90 per share - - - (6,177) - - (6,177)
Exercise of stock options - - 270 - - 1,649 1,919
- ------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1993 $40,000 40,487 97,086 551,514 - (58,843) $670,244
- ------------------------------------------------------------------------------------------------------------------------
1994
Balance - January 1, 1994 $40,000 40,487 97,787 595,322 9,148 (58,750) $723,994
Net income - - - 56,309 - - 56,309
Preferred stock cash dividends - - - (1,800) - - (1,800)
Common stock cash dividends -
$1.00 per share - - - (6,805) - - (6,805)
Exercise of stock options - - 121 - - 536 657
Purchases of treasury stock - - - - - (22,107) (22,107)
Unrealized losses on investment
securities available for sale, net - - - - (32,549) - (32,549)
- ------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1994 $40,000 40,487 97,908 643,026 (23,401) (80,321) $717,699
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR POSSIBLE CREDIT LOSSES (unaudited)
Dollars in thousands
Six months ended
June 30
1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Beginning balance $195,878 151,690
Provision for possible credit losses 33,884 38,530
Net charge-offs
Charge-offs (15,929) (22,514)
Recoveries 9,295 5,021
- ------------------------------------------------------------------------------------------------------------------------
Total net charge-offs (6,634) (17,493)
- ------------------------------------------------------------------------------------------------------------------------
Ending balance $223,128 172,727
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 35 and 36 of the Company's 1993
Annual Report. In the opinion of management, all adjustments necessary
for a fair presentation have been made and were all of a normal recurring
nature. Certain reclassifications have been made to prior period
financial statements to conform to current period presentation.
2. Investment securities
The amortized cost and estimated fair value of investment securities were
as follows:
Estimated
Amortized fair
(in thousands) cost value
--------- ----------
June 30, 1994
Investment securities
available for sale:
Mortgage-backed securities
Government issued
or guaranteed $ 969,025 940,468
Other 760,519 733,330
Other debt securities 20,770 21,015
Equity securities 13,047 27,105
--------- ---------
1,763,361 1,721,918
--------- ---------
Investment securities
held to maturity:
U.S. Treasury and
federal agency 173,105 168,288
Obligations of states and
political subdivisions 47,636 47,925
Other debt securities 831 776
--------- ---------
221,572 216,989
--------- ---------
Other securities 41,442 41,442
--------- ---------
Total $2,026,375 1,980,349
========= =========
December 31, 1993
Investment securities
available for sale:
Mortgage-backed securities
Government issued
or guaranteed $1,210,921 1,214,202
Other 896,362 895,902
Other debt securities 39,893 40,831
Equity securities 11,086 23,132
--------- ---------
2,158,262 2,174,067
--------- ---------
Investment securities
held to maturity:
U.S. Treasury and
federal agency 173,193 172,871
Obligations of states and
political subdivisions 49,230 49,880
Other debt securities 908 866
--------- ---------
223,331 223,617
--------- ---------
Other securities 31,754 31,754
--------- ---------
Total $2,413,347 2,429,438
========= =========
8
3. Interest rate swap contracts
At June 30, 1994, the Company had outstanding currently effective interest
rate swap contracts entered into for interest rate risk management
purposes with a notional amount of approximately $1.4 billion. The net
effect of interest rate swaps was to increase net interest income by $3.2
million and $9.7 million during the three months ended June 30, 1994 and
1993, respectively, and by $9.8 million and $18.1 million during the six
months ended June 30, 1994 and 1993, respectively. As of June 30, 1994,
the Company had also entered into forward swaps with an aggregate notional
amount of $575 million. These forward interest rate swap commitments had
no effect on net income. The Company estimates that as of June 30, 1994,
it would have had to pay approximately $71 million to terminate all
interest rate swap contracts. Such estimate of the fair value of the swap
contracts was based upon market quotations available to the Company. The
swaps modify the repricing characteristics of certain portions of the loan
and deposit portfolios. 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.
4. Acquisitions
On April 1, 1994, First Empire State Corporation ("First Empire")
announced that it had entered into a definitive agreement to acquire
Ithaca Bancorp, Inc. of Ithaca, New York ("Ithaca Bancorp"). At
acquisition, Ithaca Bancorp's savings bank subsidiary, Citizens Savings
Bank, F.S.B., will be merged into First Empire's commercial bank
subsidiary, Manufacturers and Traders Trust Company ("M&T Bank"). First
Empire will pay the common stockholders of Ithaca Bancorp cash
consideration of $19 per share, subject to increase or decrease based on
the level of Ithaca Bancorp's adjusted stockholders' equity and loan loss
reserves at or near the closing. Assuming no adjustment to the per share
price, the aggregate cash consideration will be approximately $46 million.
Consummation of the transaction is subject to a number of conditions,
including regulatory approvals. Subject to the satisfaction of these
conditions, it is anticipated that the transaction will be completed in
the second half of 1994. The transaction will be accounted for under the
purchase method of accounting. Citizens Savings Bank, F.S.B. operates
twelve banking offices in central and southern New York. At June 30,
1994, Ithaca Bancorp reported total assets of $449 million, loans of $362
million, deposits of $333 million and stockholders' equity of $26.0
million.
On April 9, 1994, M&T Bank entered into an agreement to acquire from
Chemical Bank seven branch offices in the Hudson Valley region of New York
State and assume approximately $175 million in deposits associated with
the branches. Consummation of the transaction is subject to a number of
conditions, including regulatory approvals, but is anticipated to occur n
the second half of 1994.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Net income of First Empire State Corporation ("First Empire") was $28.7
million or $3.96 per common share in the second quarter of 1994, increases of
14% and 16%, respectively, from the second quarter of 1993 when net income
was $25.2 million or $3.42 per common share. For the six months ended June
30, 1994, net income was $56.3 million or $7.73 per common share, up 14% and
15%, respectively, from $49.5 million or $6.73 per common share earned during
the comparable period of 1993. The rate of return on average assets for
First Empire and its consolidated subsidiaries ("the Company") in the second
quarter of 1994 was 1.16%, up from .96% in the year-earlier quarter and 1.11%
in 1994's first quarter. The return on average common stockholders' equity
was 16.32% in the second quarter of 1994, up from 15.74% in the second
quarter of 1993 and 15.68% in the first quarter of 1994. In the first half
of 1994 the return on average assets was 1.14%, up from 0.98% for the
corresponding 1993 period. Through the first half of 1994, the return on
average common stockholders' equity was 16.00%, compared with 15.80% in the
first half of 1993.
On April 1, 1994, First Empire announced that it had entered into a
definitive agreement to acquire Ithaca Bancorp, Inc. of Ithaca, New York
("Ithaca Bancorp"). At acquisition, Ithaca Bancorp's savings bank
subsidiary, Citizens Savings Bank, F.S.B., which operates twelve branch
offices in central and southern New York State, will be merged into First
Empire's commercial bank subsidiary, Manufacturers and Traders Trust Company
("M&T Bank"). First Empire will pay the common stockholders of Ithaca
Bancorp cash consideration of $19 per share, subject to increase or decrease
based on the level of Ithaca Bancorp's adjusted stockholders' equity and loan
loss reserves at or near the closing. Assuming no adjustment to the per
share price, the aggregate cash consideration would be approximately $46
million. Consummation of the transaction is subject to a number of
conditions, including regulatory approvals. Subject to the satisfaction of
these conditions, it is anticipated that the transaction will be completed in
the second half of 1994.
At June 30, 1994, Ithaca Bancorp reported total assets of $449 million, loans
of $362 million, deposits of $333 million and stockholders' equity of $26.0
million.
On April 9, 1994, M&T Bank entered into an agreement to acquire from Chemical
Bank seven branch offices in the Hudson Valley region of New York State and
assume the deposits associated with such offices totaling approximately $175
million. Consummation of the transaction is subject to regulatory approval
and other conditions, but is anticipated to occur in the second half of 1994.
Taxable-Equivalent Net Interest Income
Net interest income expressed on a taxable-equivalent basis was $116.9
million in the second quarter of 1994, down $3.5 million from $120.4 million
earned in the second quarter of 1993 and $2.0 million lower than $118.9
million earned in the first quarter of 1994. The decline from the second
quarter of 1993 was primarily the result of a 41 basis point (hundredths of
one percent) decrease to 8.45% in the yield on loans, partially offset by a
$309 million increase in average loans outstanding, and a 90 basis point
increase to 3.93% in the rate on short-term borrowings. The decline in net
interest income from the first quarter of 1994 was largely due to increases
in interest rates paid on short-term borrowings and deposits of 79 basis
points and 13 basis points, respectively. In general, interest rates paid on
interest-bearing liabilities increased more than yields on interest earning
assets in the second quarter of 1994.
10
For the first six months of 1994, taxable-equivalent net interest income was
$235.8 million, down from $237.0 million in the corresponding 1993
period. The factors contributing to this decline include a larger decrease
in the yield on loans than in the rate paid on deposits and a 49 basis point
increase to 3.53% in the rate paid on short-term borrowings resulting from
increases in money-market interest rates during the first half of 1994.
The Company's net interest margin, which is taxable-equivalent net interest
income expressed as an annualized percentage of average earning assets, was
4.93% in the second quarter of 1994 compared with 4.79% in the second quarter
of 1993 and 4.99% in the first quarter of 1994. The increase from the second
quarter of 1993 was the result of a 9 basis point increase in the net
interest spread, or the difference between the yield on interest-earning
assets and the rate paid on interest-bearing liabilities, to 4.45% and a 5
basis point increase in the contribution of interest-free funds to .48%. The
improved net interest spread resulted from changes in the Company's portfolio
of earning assets to include an increased proportion of loans, which
generally yield more than money-market assets and investment securities, and
decreased discretionary holdings of money-market assets. Combined, these two
factors were largely responsible for the 10 basis point increase to 7.64% in
the yield on earning assets in the second quarter of 1994 from the second
quarter of 1993. Partially offsetting the improved yield on earning assets
was a slight increase of 1 basis point to 3.19% in the cost of interest-
bearing liabilities during the three months ended June 30, 1994 from the
comparable period in 1993. The higher contribution of interest-free funds
resulted primarily from an increased amount of net funds on which the Company
does not pay interest.
The 6 basis point decrease in net interest margin from the first quarter of
1994 was primarily the result of an 11 basis point decline in net interest
spread from 4.56% to 4.45%. Although rising rates and a higher concentration
of loans in the earning assets mix raised the yield on earning assets in the
second quarter by 16 basis points from 7.48% in 1994's first quarter, the
spread was compressed because the cost of interest-bearing liabilities rose
by 27 basis points from 2.92%. A 79 basis point increase in rates paid on
short-term borrowings was the largest single factor in the increased cost of
interest-bearing liabilities. The decline in spread was offset partially by
an increase of 5 basis points in the contribution of interest-free funds,
resulting from the aforementioned increase in the cost of interest-bearing
liabilities which is used to value these funds.
Compared with the corresponding period in 1993, during the first six months
of 1994 the net interest margin rose 8 basis points to 4.96% reflecting a 7
basis point increase to 4.51% in the net interest spread and a 1 basis point
increase to .45% in the contribution from interest-free funds. The
improvement in net interest-spread resulted from a greater decline in the
cost of interest-bearing liabilities to 3.05% in 1994 from 3.26% in 1993 than
in the yield on earning assets which declined to 7.56% from 7.70%.
Despite recent increases in short-term interest rates, the spread between the
prime rate and other money-market rates has remained at historically high
levels, resulting in an interest rate environment that has been favorable to
many banks. However, management believes that further changes in the rate
environment or reductions in spreads could adversely impact the Company's net
interest income. Further, management believes that higher interest rates
will likely have a short-term detrimental effect on the Company's net
interest income, but that over a longer period net interest income would
benefit from rising interest rates. Management closely monitors the
Company's exposure to changing interest rates and spreads and stands ready to
take action to mitigate such exposure when deemed prudent to do so.
As part of its overall interest rate risk management program, the Company has
entered into several interest rate swap agreements. Revenue and expense
arising from these transactions are reflected in both the yields on loans and
11
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 June 30, 1994 and 1993 was $1.40 billion
and $1.35 billion, 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 June 30
----------------------------------------------------
1994 1993
---------------------- -----------------------
Average Average
Amount Rate(1) Amount Rate(1)
------ ------- ------ -------
Increase (decrease) in:
Interest income $ 2,699 0.12 % $ 7,704 0.30 %
Interest expense (478) (0.03) (2,015) (0.09)
------ ------
Net interest
income/margin $ 3,177 0.14 $ 9,719 0.38
====== ======
Average notional
amount (2) $1,335,165 $1,314,835
========= =========
Six months ended June 30
----------------------------------------------------
1994 1993
---------------------- -----------------------
Average Average
Amount Rate(1) Amount Rate(1)
------ ------- ------ -------
Increase (decrease) in:
Interest income $ 7,404 0.16 % $14,194 0.29 %
Interest expense (2,414) (0.06) (3,900) (0.09)
------ ------
Net interest
income/margin $ 9,818 0.21 $18,094 0.38
====== ======
Average notional
amount (2) $1,273,152 $1,161,464
========= =========
(1) Computed as an annualized percentage of interest-earning assets or
interest-bearing liabilities
(2) Excludes forward-starting interest rate swaps
Additionally, as of June 30, 1994, the Company had entered into forward-
starting interest rate swap agreements with an aggregate notional amount of
$575 million. These forward starting swaps had no effect on net income
through June 30, 1994.
The Company estimates that as of June 30, 1994, it would have had to pay
approximately $71 million to terminate all interest rate swap contracts
entered into as part of the interest rate risk management program. Such
estimate of the fair value of the swap contracts was based upon market
quotations available to the Company. The swaps modify, in a cost and capital
efficient manner, the repricing characteristics of certain portions of the
loan and deposit portfolios. 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.
Average earning assets declined to $9.5 billion in the second quarter of 1994
from $10.1 billion in the second quarter of 1993 and $9.7 billion in the first
quarter of 1994. The decline from the prior year's second quarter was the
result of an $897 million decline in money-market assets, partially offset by
a $309 million increase in average loans. The Company's decision to reduce
12
holdings of money-market assets was based on the desire to limit the amount of
short-term borrowings, which had been used to fund such assets, and to reduce
the size of the balance sheet, thereby strengthening capital ratios, in
anticipation of completing the pending acquisitions.
Average investment securities totaled $2.1 billion in the second quarter of
both 1994 and 1993, but were down from $2.3 billion in the first quarter of
1994. Ongoing repayments on securities, growth in loans, which generally
yield more than investment securities, and the level of deposits largely
determined the size of the portfolio of investment securities.
Average loans and leases increased 4% to $7.3 billion in the second quarter of
1994 from $7.0 billion in the corresponding 1993 quarter and 1% from $7.2
billion in the first quarter of 1994. This growth occurred primarily in the
Company's portfolio of consumer loans and consists of increases in the
outstanding balances of automobile and credit card loans. 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
(decrease) from
2nd Qtr. 2nd Qtr. 1st Qtr.
1994 1993 1993
--------- ------ -------
Commercial, financial, etc. $ 1,463 3 % (1)%
Real estate - commercial 3,086 7 2
Real estate - consumer 1,385 (8) (3)
Consumer 1,332 16 6
------ -- --
Total $ 7,266 4 % 1 %
====== == ==
Core deposits, which include noninterest-bearing demand deposits, interest-
bearing transaction accounts, savings deposits and domestic time deposits
under $100,000, represent a significant source of funding, at generally lower
interest rates than are available on wholesale funds of similar expected
maturities. In response to lower interest rates in recent years, depositors
have sought potentially higher returns by redeploying deposits, primarily
time deposits, out of the banking system and into alternative investment
vehicles, such as mutual funds. This trend was the leading factor in the
decline in average core deposits to $6.8 billion in the second quarter of 1994
from $7.3 billion in the comparable quarter of 1993. Compared with the first
quarter of 1994, deposit outflows slowed in the second quarter and, as a
result, average core deposits were little changed in the recently completed
quarter, during which interest rates on deposits increased. 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
2nd Qtr. 2nd Qtr. 1st Qtr.
1994 1993 1994
--------- ------ -------
NOW accounts $ 751 6 % (1)%
Savings deposits 3,380 (5) (1)
Time deposits under $100,000 1,659 (18) -
Demand deposits 992 3 (1)
------ -- --
Total $ 6,782 (6)% (1)%
====== == ==
In addition to core 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 $1.8 billion in
the second quarter of 1994, compared with $2.0 billion in the second quarter
of 1993 and $1.9 billion in the first quarter of 1994. In general, short-term
13
borrowings have been used to fund money-market investments and investment
securities, and to supplement deposits as a source of funds. Maturities of
money-market assets, repayments of loans and investment securities, and cash
generated from operations also provide the Company with sources of funding.
Additionally, 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 and fund parent company 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. Further, management believes that available sources of liquidity are
more than adequate to meet anticipated funding needs.
Provision for Possible Credit Losses
The provision for possible credit losses was $14.0 million in the second
quarter of 1994, down from $20.2 million in the second quarter of 1993 and
$19.9 million in the first quarter of 1994. Net loan charge-offs totaled $3.9
million in the recent quarter, compared with $9.3 million in the corresponding
1993 quarter and $2.7 million in this year's first quarter. Net charge-offs
as an annualized percentage of average loans outstanding were .22% in the
second quarter of 1994, compared with .54% in the corresponding 1993 quarter
and .15% in the first quarter of 1994.
Nonperforming loans were $80.3 million or 1.09% of total loans at June 30,
1994, compared to $91.9 million or 1.31% at June 30, 1993 and $86.8 million or
1.20% at March 31, 1994. Nonperforming commercial real estate loans totaled
$49.4 million at June 30, 1994, $55.3 million at June 30, 1993 and $56.2
million at March 31, 1994. Included in nonperforming commercial real estate
loans were loans secured by properties in the metropolitan New York City area
aggregating $35.3 million and $34.2 million at June 30, 1994 and 1993,
respectively, and $37.3 million at March 31, 1994. The amount of repossessed
assets taken in foreclosure of defaulted loans totaled $12.4 million at June
30, 1994, $11.9 million at March 31, 1994, and $14.1 million at June 30, 1993.
As a result of some signs of economic recovery in market areas served by the
Company and following recent declines in net charge-offs, management believed
it was appropriate to record a provision for possible credit losses that was
lower than the amounts recorded in any quarter since the second quarter of
1991. Nevertheless, management continues to remain cautious about the
sustainability and magnitude of economic recovery in market areas served by
the Company. As a result of its 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, management believes that the allowance for
possible credit losses at June 30, 1994 was adequate to absorb credit losses
from existing loans, leases and credit commitments.
The allowance for possible credit losses was $223.1 million or 3.01% of total
loans and leases at June 30, 1994, compared with $172.7 million or 2.46% a
year earlier, $195.9 million or 2.70% at December 31, 1993 and $213.0 million
or 2.94% at March 31, 1994. The ratio of the allowance to nonperforming loans
was 278% at June 30, 1994, up from 188% a year earlier, 238% at December 31,
1993 and 245% at March 31, 1994.
A comparative summary of nonperforming assets and certain credit quality
ratios is presented in the accompanying table.
14
NONPERFORMING ASSETS
Dollars in thousands
1994 Quarters 1993 Quarters
Second First Fourth Third Second
-------- ------ ------ ------ ------
Nonaccrual loans $ 68,881 74,951 68,936 69,436 79,511
Loans past due
90 days or more 11,444 11,890 11,122 14,007 12,364
Renegotiated loans - - 2,195 2,200 -
------- ------ ------ ------ -------
Total nonperforming loans 80,325 86,841 82,253 85,643 91,875
======= ====== ====== ====== =======
Other real estate owned 12,418 11,916 12,222 14,554 14,054
------- ------ ------ ------ -------
Total nonperforming assets $ 92,743 98,757 94,475 100,197 105,929
======= ====== ====== ====== =======
Nonperforming loans
to total loans, net of
unearned discount 1.09% 1.20% 1.13% 1.21% 1.31%
Nonperforming assets
to total net loans and
other real estate owned 1.25% 1.36% 1.30% 1.41% 1.51%
==== ==== ==== ==== ====
Other Income
Other income in the second quarter of 1994 totaled $29.4 million, 7% higher
than $27.5 million earned during the second quarter of 1993 and 3% higher than
the first quarter of 1994. Other income for the first six months of 1994 was
$57.8 million, up 6% from $54.4 million in the comparable period of 1993.
Including the effect of revised fee schedules, service charges on deposit
accounts totaled $8.8 million in the second quarter of 1994, an increase of 7%
from $8.2 million in the second quarter of 1993, but little changed from $8.9
million in the first quarter of 1994. Trust income was $5.8 million in the
second quarter of 1994, compared with $5.7 million in the year earlier quarter
and $5.4 million in the first three months of this year. Merchant discount
and credit card fees increased to $2.2 million in the second quarter of 1994
from $2.0 million in the second quarter of 1993 and $1.9 million in the first
quarter of 1994.
Trading account activity resulted in a net gain of $93 thousand in the second
quarter of 1994, compared with a net gain of $280 thousand in the
corresponding quarter of 1993 and a net loss of $208 thousand for the first
three months of 1994. Other revenues from operations totaled $12.5 million in
the second quarter of 1994, an increase of 11% from $11.3 million in the
second quarter of 1993 and virtually unchanged from the $12.4 million earned
in the first quarter of 1994. Higher revenues from the sale and servicing of
loans contributed to the increase in other revenues from operations from the
second quarter of 1993.
For the first six months of the year, service charges on deposit accounts
increased 14% to $17.7 million in 1994 from $15.6 million in 1993, reflecting
the impact of the revised fee schedules referred to above which went into
effect in January 1994. Compared with the same period in 1993, trust income
declined 2% to $11.2 million during the first six months of 1994 while
merchant discount and credit card fees increased 3% to $4.1 million. Trading
account activity resulted in a loss of $115 thousand for the first six months
of 1994, compared with income of $1.0 million in the first half of 1993.
Other revenues from operations increased 16% to $25.0 million in the first six
months of 1994 from $21.6 million in the comparable 1993 period, primarily as
a result of increased income from residential mortgage loan servicing and
higher gains on sales of loans. Residential mortgage loans serviced for
others totaled $3.6 billion and $2.3 billion at June 30, 1994 and 1993,
respectively.
15
Other Expense
Other expense totaled $82.0 million in the second quarter of 1994, a decrease
of 3% from $84.6 million in the second quarter of 1993, but up nearly 4% from
this year's first quarter. Through the first half of 1994, other expense was
$161.2 million or 4% lower than in the comparable 1993 period.
Salaries and employee benefits expense was $41.6 million in the recent
quarter, 15% higher than a year earlier and 4% above the first quarter of
1994. Salaries and benefits expense totaled $81.5 million for the first half
of 1994, up 7% from $76.0 million in the comparable 1993 period. Higher
expenses associated with stock appreciation rights granted in 1990 and 1991,
merit salary increases and higher benefit costs were largely responsible for
the increases.
Nonpersonnel expenses totaled $40.4 million in the second quarter of 1994,
down 17% or $8.1 million from the second quarter of 1993, but nearly 3% above
the first quarter of 1994. Such expenses were $79.8 million during the first
six months of 1994, down 13% from $92.0 million during the comparable period
of 1993. Significant factors contributing to the declines in 1994 from 1993
were reduced expenses for professional services, printing, postage, other real
estate owned and advertising and promotion activities, along with reductions
of write-downs in the carrying value of excess servicing fees receivable and
purchased mortgage servicing rights associated with residential mortgage loans
serviced for others. There were no such write-downs in the second quarter of
1994 and only $500 thousand were necessary in the first half of 1994, compared
with $1.2 million and $3.9 million during the three and six month periods
ended June 30, 1993, respectively. At June 30, 1994, the Company had
approximately $17.0 million of excess servicing fees receivable and purchased
mortgage servicing rights recorded as assets.
Capital
Common stockholders' equity totaled $677.7 million at June 30, 1994, compared
with $630.2 million a year earlier and $684.0 million at December 31, 1993.
On a per share basis, common stockholders' equity was $100.63 at June 30,
1994, an increase of 10% from $91.67 at June 30, 1993 and 1% from $99.43 at
December 31, 1993. Total stockholders' equity at June 30, 1994 was $717.7
million or 6.94% of total assets, compared with $670.2 million or 6.41% of
total assets a year earlier and $724.0 million or 6.99% of total assets at
December 31, 1993.
Stockholders' equity at June 30, 1994 included a reduction of $23.4 million,
or $3.47 per common share, for the net after-tax impact of unrealized losses
on investment securities classified as available for sale pursuant to the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", which the Company
adopted on December 31, 1993. Such unrealized losses represent the amount by
which amortized cost exceeded the fair value of such investment securities,
net of applicable income taxes. At December 31, 1993, stockholders' equity
included $9.1 million, or $1.33 per common share, of net unrealized gains from
securities classified as available for sale.
In December of 1993, First Empire announced a plan to repurchase up to 506,930
shares of common stock to be held as treasury stock for reissuance upon the
possible future conversion of its 9% convertible preferred stock. As of June
30, 1994, First Empire had repurchased 157,500 common shares pursuant to such
plan at an average cost of $140.36.
Federal regulators have implemented risk-based capital measures to assess the
capital adequacy of banking institutions. Generally, a banking institution is
required to maintain risk-based "core capital" and "total capital" ratios of
at least 4% and 8%, respectively. In addition to the risk-based measures,
16
Federal bank regulators have also implemented a minimum leverage ratio
guideline of 3% of the quarterly average of total assets. The accompanying
table presents the capital ratios of First Empire and its consolidated
subsidiaries, M&T Bank and The East New York Savings Bank ("East New York"),
as of June 30, 1994.
REGULATORY CAPITAL RATIOS
June 30, 1994
First Empire M&T
(Consolidated) Bank East New York
-------------- -------- -------------
Core capital 9.53% 9.16% 9.21%
Total capital 11.76% 11.60% 10.47%
Leverage 7.48% 6.96% 7.46%
The Company has 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 13.55% and 13.23% during the three and six month periods ended June 30,
1994, respectively, compared with 12.69%, and 12.91% during the comparable
periods of 1993.
17
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
Amounts in thousands, except per share
Three months ended Six months ended
June 30 June 30
1994 1993 Change 1994 1993 Change
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
- --------------------------------------------------------------------------------------------------------------------------
Net income $28,681 25,185 + 14 % $56,309 49,507 + 14 %
Per common share
Net income
Primary $3.96 3.42 + 16 $7.73 $6.73 + 15
Fully diluted 3.80 3.31 + 15 7.43 6.52 + 14
Cash dividends .50 .50 - 1.00 .90 + 11
Average common shares outstanding
Primary 7,014 7,102 - 1 7,048 7,086 - 1
Fully diluted 7,541 7,609 - 1 7,578 7,598 -
Annualized return on
Average total assets 1.16 % .96 % 1.14 % .98 %
Average common
stockholders' equity 16.32 % 15.74 % 16.00 % 15.80 %
Market price per common share
Closing $156.50 137.00 + 14 $156.50 137.00 + 14
High 156.50 159.00 156.50 159.00
Low 136.75 133.13 135.00 130.25
- --------------------------------------------------------------------------------------------------------------------------
AT JUNE 30
- --------------------------------------------------------------------------------------------------------------------------
Loans and leases,
net of unearned discount $7,401,229 7,020,603 + 5 %
Total assets 10,335,638 10,456,807 - 1
Total deposits 7,275,888 7,590,933 - 4
Total stockholders' equity 717,699 670,244 + 7
Stockholders' equity
per common share $100.63 91.67 + 10
- --------------------------------------------------------------------------------------------------------------------------
18-19
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
Average balance in millions; interest in thousands
1994 Second quarter 1994 First quarter
Average Average Average Average
balance Interest rate balance Interest rate
- ---------------------------------------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,463 $ 27,993 7.68 % 1,475 26,080 7.17 %
Real estate 4,471 95,067 8.50 4,457 93,058 8.35
Consumer 1,332 30,071 9.06 1,256 29,884 9.65
- ---------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 7,266 153,131 8.45 7,188 149,022 8.41
- ---------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 5 57 4.38 18 154 3.55
Federal funds sold and agreements
to resell securities 138 1,390 4.03 155 1,443 3.76
Trading account 9 126 5.65 11 177 6.81
- ---------------------------------------------------------------------------------------------------------------------
Total money-market assets 152 1,573 4.14 184 1,774 3.92
- ---------------------------------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agency 1,186 13,217 4.47 1,297 14,673 4.59
State and municipal 54 740 5.49 52 731 5.66
Other 857 12,510 5.86 944 11,960 5.14
- ---------------------------------------------------------------------------------------------------------------------
Total investment securities 2,097 26,467 5.06 2,293 27,364 4.84
Total earning assets 9,515 181,171 7.64 9,665 178,160 7.48
- ---------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (219) (203)
Cash and due from banks 309 308
Other assets 281 286
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 9,886 10,056
- ---------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 751 2,814 1.50 761 2,846 1.52
Savings deposits 3,380 20,921 2.48 3,400 20,689 2.47
Time deposits 1,993 20,797 4.18 1,992 18,747 3.82
Deposits at foreign office 104 817 3.14 137 928 2.75
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,228 45,349 2.92 6,290 43,210 2.79
- ---------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,775 17,391 3.93 1,872 14,501 3.14
Obligations under capital leases 1 13 10.06 1 15 10.19
Other long-term borrowings 75 1,524 8.15 75 1,523 8.24
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,079 64,277 3.19 8,238 59,249 2.92
- ---------------------------------------------------------------------------------------------------------------------
Demand deposits 992 997
Other liabilities 92 90
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 9,163 9,325
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' equity 723 731
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 9,886 10,056
- ---------------------------------------------------------------------------------------------------------------------
Net interest spread 4.45 4.56
Contribution of interest-free funds 0.48 0.43
- ---------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 116,894 4.93 % 118,911 4.99 %
*Includes nonaccruing loans
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
Average balance in millions; interest in thousands
1993 Fourth quarter 1993 Third quarter
Average Average Average Average
balance Interest rate balance Interest rate
- ---------------------------------------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,443 $ 26,278 7.23 % 1,387 27,931 7.99 %
Real estate 4,410 93,670 8.50 4,411 94,939 8.61
Consumer 1,227 30,362 9.82 1,193 30,469 10.13
- ---------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 7,080 150,310 8.42 6,991 153,339 8.70
- ---------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 174 1,553 3.55 212 1,897 3.55
Federal funds sold and agreements
to resell securities 577 4,976 3.42 343 2,953 3.41
Trading account 19 268 5.61 17 265 6.11
- ---------------------------------------------------------------------------------------------------------------------
Total money-market assets 770 6,797 3.50 572 5,115 3.54
- ---------------------------------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agency 1,492 17,072 4.54 1,497 17,065 4.52
State and municipal 47 677 5.74 34 579 6.75
Other 982 10,694 4.32 853 8,971 4.17
- ---------------------------------------------------------------------------------------------------------------------
Total investment securities 2,521 28,443 4.48 2,384 26,615 4.43
- ---------------------------------------------------------------------------------------------------------------------
Total earning assets 10,371 185,550 7.10 9,947 185,069 7.38
- ---------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (194) (179)
Cash and due from banks 310 306
Other assets 288 274
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 10,775 10,348
- ---------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 773 3,060 1.57 769 3,204 1.65
Savings deposits 3,430 21,372 2.47 3,479 22,108 2.52
Time deposits 2,024 20,590 4.04 2,166 23,499 4.30
Deposits at foreign office 115 788 2.70 121 827 2.72
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,342 45,810 2.87 6,535 49,638 3.01
- ---------------------------------------------------------------------------------------------------------------------
Short-term borrowings 2,517 19,412 3.06 1,949 14,837 3.02
Obligations under capital leases 1 15 9.97 1 16 9.98
Other long-term borrowings 75 1,524 8.06 75 1,523 8.06
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,935 66,761 2.96 8,560 66,014 3.06
- ---------------------------------------------------------------------------------------------------------------------
Demand deposits 1,010 981
Other liabilities 127 127
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 10,072 9,668
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' equity 703 680
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,775 10,348
Net interest spread 4.14 4.32
Contribution of interest-free funds 0.40 0.43
- ---------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 118,789 4.54 % 119,055 4.75 %
*Includes nonaccruing loans
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
average balance in millions; interest in thousands
1993 Second quarter
Average Average
balance Interest rate
- -------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,414 $ 29,308 8.31 %
Real estate 4,395 95,295 8.67
Consumer 1,148 29,158 10.19
- -------------------------------------------------------------------------------------
Total loans and leases, net 6,957 153,761 8.86
- -------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 200 1,780 3.57
Federal funds sold and agreements
to resell securities 805 6,468 3.22
Trading account 45 596 5.32
- -------------------------------------------------------------------------------------
Total money-market assets 1,050 8,844 3.38
- -------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agency 1,258 15,561 4.96
State and municipal 38 628 6.63
Other 767 10,623 5.56
- -------------------------------------------------------------------------------------
Total investment securities 2,063 26,812 5.21
- -------------------------------------------------------------------------------------
Total earning assets 10,070 189,417 7.54
- -------------------------------------------------------------------------------------
Allowance for possible credit losses (168)
Cash and due from banks 305
Other assets 276
- -------------------------------------------------------------------------------------
Total assets $ 10,483
- -------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 710 3,198 1.81
Savings deposits 3,542 22,694 2.57
Time deposits 2,315 26,020 4.51
Deposits at foreign office 118 790 2.68
- -------------------------------------------------------------------------------------
Total interest-bearing deposits 6,685 52,702 3.16
- -------------------------------------------------------------------------------------
Short-term borrowings 1,960 14,820 3.03
Obligations under capital leases 1 16 10.09
Other long-term borrowings 75 1,524 8.15
- -------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,721 69,062 3.18
- -------------------------------------------------------------------------------------
Demand deposits 964
Other liabilities 139
- -------------------------------------------------------------------------------------
Total liabilities 9,824
- -------------------------------------------------------------------------------------
Stockholders' equity 659
- -------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,483
- -------------------------------------------------------------------------------------
Net interest spread 4.36
Contribution of interest-free funds 0.43
- -------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 120,355 4.79 %
*Includes nonaccruing loans
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
A number of lawsuits were pending against First Empire and its
subsidiaries at June 30, 1994. 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.
Information concerning the re-election of directors at First Empire's
Annual Meeting of Stockholders held on April 19, 1994 was previously reported
in response to Item 4 of Part II of First Empire's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1994.
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.
(b) Reports on Form 8-K.
On April 12, 1994, First Empire filed a Current Report on Form 8-K
with the Securities and Exchange Commission dated April 1, 1994
reporting on First Empire's April 1, 1994 announcement that it had
entered into a definitive agreement with Ithaca Bancorp, Inc.
("Ithaca Bancorp"), Ithaca, New York, pursuant to which Ithaca Bancorp
will be acquired by First Empire upon the satisfaction of a number of
conditions.
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: August 1, 1994 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.
Exhibit No. 11
- --------------
FIRST EMPIRE STATE CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
Amounts in thousands, except per share data
Three months ended Six months ended
June 30 June 30
1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Primary Average common shares outstanding 6,797 6,873 6,834 6,861
Common stock equivalents * 217 229 214 225
- -------------------------------------------------------------------------------------------------------------------------------
Primary common shares outstanding 7,014 7,102 7,048 7,086
- -------------------------------------------------------------------------------------------------------------------------------
Net income $28,681 25,185 56,309 49,507
Less: Cash dividends on preferred stock 900 900 1,800 1,800
- -------------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $27,781 24,285 54,509 47,707
- -------------------------------------------------------------------------------------------------------------------------------
Earnings per common share - primary $3.96 3.42 7.73 6.73
- -------------------------------------------------------------------------------------------------------------------------------
Fully diluted Average common shares outstanding 6,797 6,873 6,834 6,861
Common stock equivalents * 237 229 237 230
Assumed conversion of 9% cumulative convertible
preferred stock 507 507 507 507
- -------------------------------------------------------------------------------------------------------------------------------
Fully diluted average common shares outstanding 7,541 7,609 7,578 7,598
- -------------------------------------------------------------------------------------------------------------------------------
Net income $28,681 25,185 56,309 49,507
- -------------------------------------------------------------------------------------------------------------------------------
Earnings per common share - fully diluted $3.80 3.31 7.43 6.52
- -------------------------------------------------------------------------------------------------------------------------------
* 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.
