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 September 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
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 1, 1994: 6,604,203 shares.
2
FIRST EMPIRE STATE CORPORATION
------------------------------
FORM 10-Q
---------
For the Quarterly Period Ended September 30, 1994
-------------------------------------------------
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 30,1994 and December 31, 1993 3
Consolidated Statement of Income -
Three and nine months ended
September 30, 1994 and 1993 4
Consolidated Statement of Cash Flows -
Nine months ended September 30, 1994 and 1993 5
Consolidated Statement of Changes in
Stockholders' Equity - Nine months ended
September 30, 1994 and 1993 6
Consolidated Summary of Changes in
Allowance for Possible Credit Losses -
Nine months ended September 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
Exhibit No. 27 24
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
- -------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET September 30, December 31,
Dollars in thousands, except per share 1994 1993
(unaudited)
- -------------------------------------------------------------------------------------------------------------------
Assets Cash and due from banks $ 328,973 195,792
Money-market assets
Interest-bearing deposits at banks 70,143 55,044
Federal funds sold and
agreements to resell securities 331,316 329,429
Trading account 6,790 9,815
------------------------------------------------------------------------------------------
Total money-market assets 408,249 394,288
------------------------------------------------------------------------------------------
Investment securities
Available for sale (cost: $1,670,674 at
September 30, 1994;
$2,158,262 at December 31, 1993) 1,621,913 2,174,067
Held to maturity (market value: $221,256 at
September 30, 1994; $223,617 at December 31, 1993) 226,095 223,331
Other (market value: $41,442 at September 30, 1994;
$31,754 at December 31, 1993) 41,442 31,754
------------------------------------------------------------------------------------------
Total investment securities 1,889,450 2,429,152
------------------------------------------------------------------------------------------
Loans and leases 7,813,794 7,439,059
Unearned discount (223,636) (177,960)
Allowance for possible credit losses (234,317) (195,878)
------------------------------------------------------------------------------------------
Loans and leases, net 7,355,841 7,065,221
------------------------------------------------------------------------------------------
Premises and equipment 124,270 134,874
Accrued interest and other assets 193,773 145,631
------------------------------------------------------------------------------------------
Total assets $10,300,556 10,364,958
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- -------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits $1,053,122 1,052,258
NOW accounts 722,376 764,690
Savings deposits 3,118,192 3,364,983
Time deposits 2,158,541 1,982,272
Deposits at foreign office 310,222 189,058
------------------------------------------------------------------------------------------
Total deposits 7,362,453 7,353,261
------------------------------------------------------------------------------------------
Federal funds purchased and agreements
to repurchase securities 1,813,845 1,381,335
Other short-term borrowings 235,746 720,332
Accrued interest and other liabilities 92,282 110,446
Long-term borrowings 75,000 75,000
Obligations under capital leases 513 590
------------------------------------------------------------------------------------------
Total liabilities 9,579,839 9,640,964
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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 98,329 97,787
Undivided profits 667,249 595,322
Unrealized investment gains (losses), net (27,692) 9,148
Treasury stock - common, at cost -
1,471,443 shares at September 30, 1994;
1,218,347 shares at December 31, 1993 (97,656) (58,750)
------------------------------------------------------------------------------------------
Total stockholders' equity 720,717 723,994
------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $10,300,556 10,364,958
- -------------------------------------------------------------------------------------------------------------------
4
- -------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME (unaudited)
Amounts in thousands, except per share Three months ended Nine months ended
September 30 September 30
1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Interest income Loans and leases, including fees $ 161,107 152,609 462,176 458,605
Money-market assets
Deposits at banks 1,863 1,897 2,074 5,187
Federal funds sold and agreements
to resell securities 244 2,953 3,077 15,427
Trading account 77 202 300 1,028
Investment securities
Fully taxable 25,583 25,653 77,297 73,842
Exempt from federal taxes 676 567 1,966 1,899
--------------------------------------------------------------------------------------
Total interest income 189,550 183,881 546,890 555,988
--------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Interest expense NOW accounts 2,840 3,204 8,500 10,053
Savings deposits 21,258 22,108 62,868 69,020
Time deposits 24,307 23,499 63,851 77,918
Deposits at foreign office 1,610 827 3,355 2,455
Short-term borrowings 20,841 14,837 52,733 39,047
Long-term borrowings and capital leases 1,537 1,539 4,612 4,619
--------------------------------------------------------------------------------------
Total interest expense 72,393 66,014 195,919 203,112
--------------------------------------------------------------------------------------
Net interest income 117,157 117,867 350,971 352,876
Provision for possible credit losses 13,802 19,715 47,686 58,245
--------------------------------------------------------------------------------------
Net interest income after provision
for possible credit losses 103,355 98,152 303,285 294,631
- -------------------------------------------------------------------------------------------------------------------------
Other income Trust income 5,099 5,783 16,304 17,199
Service charges on deposit accounts 8,817 8,585 26,495 24,150
Merchant discount and other credit card fees 2,147 2,010 6,240 5,973
Trading account gain 591 840 476 1,874
Gain on sales of bank investment securities 128 68 128 870
Other revenues from operations 10,479 10,198 35,445 31,776
--------------------------------------------------------------------------------------
Total other income 27,261 27,484 85,088 81,842
--------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Other expense Salaries and employee benefits 40,784 40,165 122,238 116,137
Equipment and net occupancy 11,881 12,470 37,138 36,022
Printing, postage and supplies 3,224 2,905 9,744 9,883
Deposit insurance 4,065 4,271 12,289 13,413
Other costs of operations 20,630 20,615 60,405 72,976
--------------------------------------------------------------------------------------
Total other expense 80,584 80,426 241,814 248,431
--------------------------------------------------------------------------------------
Income before income taxes 50,032 45,210 146,559 128,042
Applicable income taxes 20,934 19,358 61,152 52,683
--------------------------------------------------------------------------------------
Net income $ 29,098 25,852 85,407 75,359
- -------------------------------------------------------------------------------------------------------------------------
Net income per common share
Primary $4.09 3.52 11.82 10.25
Fully diluted $3.93 3.40 11.34 9.92
Cash dividends per common share $ .60 .50 1.60 1.40
Average common shares outstanding
Primary 6,899 7,097 6,998 7,090
Fully diluted 7,406 7,604 7,530 7,600
5
- -----------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Dollars in thousands
Nine months ended September 30
1994 1993
- -------------------------------------------------------------------------------------------------------------------
Cash flows from Net income $ 85,407 75,359
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 47,686 58,245
Depreciation and amortization of premises
and equipment 13,339 12,128
Provision for deferred income taxes (20,336) (20,598)
Asset write-downs 2,422 7,241
Net gain on sales of assets (4,447) (870)
Net change in accrued interest receivable, payable 1,895 (6,879)
Net change in other accrued income and expense (22) 44,216
Net change in loans held for sale 145,694 (47,991)
Net change in trading account assets 3,025 40,780
-----------------------------------------------------------------------------------------
Net cash provided by operating activities 274,663 161,631
- ------------------------------------------------------------------------------------------------------------------
Cash flows from Proceeds from sales of bank investment securities 3,304 -
investing activities Proceeds from maturities of investment securities 530,832 805,420
Purchases of investment securities (68,692) (1,622,179)
Net increase in interest-bearing
deposits at banks (15,099) (100,003)
Proceeds from sales of loans and leases 7,601 -
Net increase in loans and leases (488,190) (83,166)
Capital expenditures, net (3,550) (15,678)
Other, net (5,346) 18,221
-----------------------------------------------------------------------------------------
Net cash used by investing activities (39,140) (997,385)
-----------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Cash flows from Net increase (decrease) in deposits 9,277 (538,133)
financing activities Net increase (decrease) in short-term borrowings (52,076) 1,809,244
Payments on long-term borrowings (77) (70)
Purchases of treasury stock (39,719) -
Dividends paid - common (10,780) (9,615)
Dividends paid - preferred (2,700) (2,700)
Other, net (4,380) (9,381)
-----------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (100,455) 1,249,345
-----------------------------------------------------------------------------------------
Net increase in cash and cash equivalents $ 135,068 413,591
Cash and cash equivalents at beginning of period 525,221 576,967
Cash and cash equivalents at end of period $ 660,289 990,558
- ------------------------------------------------------------------------------------------------------------------
Supplemental Interest received during the period $ 548,519 558,905
disclosure of cash Interest paid during the period 194,610 207,309
flow information Income taxes paid during the period 85,160 50,602
- ------------------------------------------------------------------------------------------------------------------
Supplemental schedule of
noncash investing and
financing activities Real estate acquired in settlement of loans $ 8,912 7,536
- ------------------------------------------------------------------------------------------------------------------
6
- ---------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
Dollars in thousands, except per share
Unrealized
investment
gains
Preferred Common Undivided (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 - - - 75,359 - - 75,359
Preferred stock cash dividends - - - (2,700) - - (2,700)
Common stock cash dividends -
$1.40 per share - - - (9,615) - - (9,615)
Exercise of stock options - - 899 - - 1,730 2,629
- -------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 1993 $40,000 40,487 97,715 573,028 - (58,762) $692,468
- -------------------------------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------
Balance - September 30, 1994 $40,000 40,487 98,329 667,249 (27,692) (97,656) $720,717
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR POSSIBLE CREDIT LOSSES (unaudited)
Dollars in thousands
Nine months ended
September 30
1994 1993
- -------------------------------------------------------------------------------------------------------------------------
Beginning balance $195,878 151,690
Provision for possible credit losses 47,686 58,245
Net charge-offs
Charge-offs (23,093) (29,995)
Recoveries 13,846 7,537
- -------------------------------------------------------------------------------------------------------------------------
Total net charge-offs (9,247) (22,458)
- -------------------------------------------------------------------------------------------------------------------------
Ending balance $234,317 187,477
- -------------------------------------------------------------------------------------------------------------------------
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
--------- ---------
SEPTEMBER 30, 1994
Investment securities
available for sale:
Mortgage-backed securities
Government issued
or guaranteed $ 911,622 879,639
Other 729,555 700,113
Other debt securities 10,425 10,517
Equity securities 19,072 31,644
--------- ---------
1,670,674 1,621,913
========= =========
Investment securities
held to maturity:
U.S. Treasury and
federal agency 173,110 168,169
Obligations of states and
political subdivisions 52,154 52,311
Other debt securities 831 776
--------- ---------
226,095 221,256
--------- ---------
Other securities 41,442 41,442
--------- ---------
Total $1,938,211 1,884,611
========= =========
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 September 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 $1.9 billion.
The net effect of interest rate swaps was to increase net interest income
by $2.6 million and $9.3 million during the three months ended September
30, 1994 and 1993, respectively, and by $12.5 million and $27.4 million
during the nine months ended September 30, 1994 and 1993, respectively.
As of September 30, 1994, the Company had also entered into forward swaps
with an aggregate notional amount of $255 million. These forward interest
rate swap commitments had no effect on net income. The Company estimates
that as of September 30, 1994, it would have had to pay approximately $81
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.
Shareholders of Ithaca Bancorp approved the acquisition on July 29, 1994,
and all regulatory approvals have been received. It is anticipated that
the transaction will be completed during the fourth quarter. 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 September 30, 1994, Ithaca Bancorp reported
total assets of $458 million, loans of $373 million, loan loss reserves of
$4 million, deposits of $336 million and stockholders' equity of $28
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. All regulatory approvals have been obtained and
consummation of the transaction is anticipated to occur in the fourth
quarter.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
OVERVIEW
First Empire State Corporation ("First Empire") earned net income of $29.1
million in the third quarter of 1994, a 13% increase from $25.9 million in
the corresponding quarter of 1993. Earnings per common share in the recent
quarter increased 16% to $4.09 from $3.52 a year earlier. For the nine
months ended September 30, 1994, net income was $85.4 million or $11.82 per
common share, increases of 13% and 15%, respectively, from $75.4 million or
$10.25 per common share in the similar 1993 period. The rate of return on
average assets for First Empire and its consolidated subsidiaries ("the
Company") rose to 1.16% in the third quarter of 1994 from .99% in the year-
earlier quarter. The return on average common stockholders' equity increased
to 16.58% in the third quarter of 1994 from 15.46% in the third quarter of
1993. Through the first three quarters of 1994, the return on average assets
was 1.15%, up from .98% for the corresponding 1993 period, while the return
on average common stockholders' equity increased to 16.19% from 15.69%.
On April 1, 1994, First Empire announced that it had entered into a
definitive agreement to acquire all of the outstanding stock of Ithaca
Bancorp, Inc. of Ithaca, New York ("Ithaca Bancorp") in exchange for cash
consideration of $19 per common share, or approximately $46 million, 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.
Shareholders of Ithaca Bancorp approved the acquisition on July 29, 1994, and
all regulatory approvals have been received. It is anticipated that the
transaction will be completed during the fourth quarter.
At September 30, 1994, Ithaca Bancorp reported total assets of $458 million,
loans of $373 million, loan loss reserves of $4 million, deposits of $336
million and stockholders' equity of $28 million.
On April 9, 1994, First Empire's commercial bank subsidiary, Manufacturers
and Traders Trust Company ("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. All regulatory approvals have been obtained
and consummation of the transaction is anticipated to occur in the fourth
quarter.
TAXABLE-EQUIVALENT NET INTEREST INCOME
Net interest income, adjusted to a fully taxable-equivalent basis for tax-
exempt interest income earned on certain loans and investments, was $118.2
million in the third quarter of 1994, compared with $119.1 million in the
third quarter of 1993 and $116.9 million in the second quarter of 1994.
Factors impacting the comparison between net interest income in the third
quarter of 1994 and 1993 include a $327 million decline in average earning
assets, the result of a combined decrease in average holdings of money-market
assets and investment securities of $778 million, offset by an increase in
average loans, which typically yield more than money-market assets and
investment securities, of $451 million. However, the effect of the favorable
shift in the composition of the portfolio of earning assets was partially
offset by the compression in the differential between the interest yields on
various earning assets and the rates paid on interest-bearing liabilities.
The improvement in taxable-equivalent net interest income from the second
quarter of 1994 was derived from a favorable shift in the composition of
earning assets, including growth in average loans of $176 million and a
reduction in the combined holdings of money-market assets and investment
securities of $71 million, partially offset by a slight increase in the
10
proportion of funding obtained from short-term borrowings, which cost more
than the Company's deposits.
Taxable-equivalent net interest income was $354.0 million during the first
three quarters of 1994, down slightly from $356.0 million in the
corresponding period of 1993. Contributing to this decline were a $670
million decrease in average money-market assets and an increase in short-term
borrowings of $106 million, partially offset by growth in average loans of
$350 million.
The Company's net interest margin, or taxable-equivalent net interest income
expressed as an annualized percentage of average earning assets, was 4.87% in
1994's third quarter, compared with 4.75% in the year earlier quarter and
4.93% in the second quarter of 1994. The 12 basis point (hundredth of one
percent) improvement from the third quarter of 1993 was the result of a 1
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 4.33% and an 11 basis point increase in the contribution of
interest-free funds to .54%. The greater proportion of loans in the
Company's portfolio of earning assets, coupled with the effect of higher
interest rates in general, helped to raise the yield on earning assets by 48
basis points to 7.86%. Similarly, rising interest rates resulted in a 47
basis point increase to 3.53% in the cost of interest-bearing liabilities.
The improvement in the contribution of net interest-free funds resulted
largely from the 47 basis point increase in the average cost of interest-
bearing liabilities used to value these funds.
The 6 basis point decline in net interest margin from the second quarter of
1994 resulted primarily from a 12 basis point decrease in the net interest
spread from 4.45%. A 22 basis point rise in the yield on earning assets,
resulting from the impact of higher interest rates and the greater proportion
of loans in the earning assets portfolio, was more than offset by a 34 basis
point increase in rates paid on interest-bearing liabilities. The higher cost
of interest-bearing liabilities resulted from a 26 basis point increase from
2.92% in the average rate paid on interest-bearing deposits and a 57 basis
point increase from 3.93% in the cost of short-term borrowings. The
compression in the net interest spread from the second quarter of 1994 was
partially offset by a 6 basis point increase from .48% in the contribution of
interest-free funds, resulting primarily from the aforementioned increase in
the cost of interest-bearing liabilities.
For the first three quarters of 1994 the net interest margin rose to 4.93%,
up from 4.83% in the corresponding period in 1993. The components of the
improvement in net interest margin were a 5 basis point increase in the net
interest spread to 4.45% and a similar increase in the contribution of
interest-free funds to .48%. A higher proportion of loans and reduced
holdings of money-market assets resulted in a 7 basis point increase to 7.66%
in the yield on earning assets, while the cost of interest-bearing
liabilities increased only 2 basis points to 3.21% in 1994's first three
quarters from the like period in 1993.
Despite the continued increases in short-term interest rates in the third
quarter of 1994, the spread between the prime rate and other money-market
rates remained relatively wide in comparison to historic norms.
Nevertheless, management believes that further changes in the interest rate
environment or reductions in spreads could adversely impact the Company's net
interest income. Management's analysis of the Company's sensitivity to
changing interest rates indicates that higher interest rates will likely
have, in the short-term, a modestly detrimental effect on the Company's net
interest income, but over a longer time 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
11
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. The swaps modify, in a
cost and capital efficient manner, the repricing characteristics of certain
portions of the loan and deposit portfolios. Revenue and expense arising
from these agreements are reflected in either the yields earned on loans or,
as appropriate, rates paid on interest-bearing deposits. The aggregate
notional amount of interest rate swap agreements used as part of the
Company's interest rate risk management program in effect at September 30,
1994 and 1993 was $1.9 billion and $1.3 billion, respectively. In general,
under the terms of these swaps, the Company receives payments based on the
outstanding notional amount at a fixed rate of interest and makes payments at
a variable rate. 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
----------------------------------------------
1994 1993
---------------------- --------------------
Average Average
Amount Rate(1) Amount Rate(1)
----------- -------- -------- --------
Increase (decrease) in:
Interest income $ 2,672 .11 % $ 7,391 .29 %
Interest expense 36 - (1,873) (.09)
------ ------
Net interest
income/margin $ 2,636 .11 $ 9,264 .37
====== ======
Average notional
amount (2) $1,740,217 $1,349,315
========= =========
Nine months ended September 30
-----------------------------------------------
1994 1993
--------------------- ----------------------
Average Average
Amount Rate(1) Amount Rate(1)
---------------------- ----------------------
Increase (decrease) in:
Interest income $10,076 .14 % $21,584 .29 %
Interest expense (2,378) (.04) (5,772) (.09)
------ ------
Net interest
income/margin $12,454 .17 $27,356 .37
====== ======
Average notional
amount (2) $1,430,552 $1,224,769
========= =========
(1) Computed as an annualized percentage of interest-earning assets or
interest-bearing liabilities
(2) Excludes forward-starting interest rate swaps
Additionally, as of September 30, 1994, the Company had entered into forward-
starting interest rate swap agreements with a notional amount of $255 million.
These forward-starting interest rate swaps will become effective in the fourth
quarter of 1994 and, accordingly, had no effect on net income through
September 30, 1994.
The Company estimates that as of September 30, 1994 it would have had to pay
approximately $81 million to terminate all interest rate swap agreements
entered into for interest rate risk management purposes. Since these swaps
12
have been entered into for interest rate risk management purposes, the
estimated market depreciation of the swaps 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 $9.6 billion in the third quarter of 1994
from $9.9 billion in the third quarter of 1993, but rose slightly from $9.5
billion in the second quarter of 1994. Average earning assets were $9.6
billion and $9.8 billion for the nine months ended September 30, 1994 and
1993, respectively. The reduction in average earning assets in 1994 compared
with 1993 reflects the Company's decision to reduce the size of the balance
sheet in order to strengthen capital ratios in anticipation of completion of
pending acquisitions and to limit the amount of short-term borrowings, which
had been used to fund purchases of money-market assets.
Average investment securities totaled $2.0 billion in the third quarter of
1994, down from $2.4 billion in the third quarter of 1993 and $2.1 billion in
the second quarter of 1994. Factors determining the size of the investment
securities portfolio include 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 6% to $7.4 billion in the third quarter of
1994 from $7.0 billion in the corresponding 1993 quarter and 2% from $7.3
billion in the second quarter of 1994. Improved economic conditions in some
market areas served by the Company have contributed to increases in the
outstanding balance of consumer loans, primarily automobile and credit card
loans, and multi-family commercial real estate 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
3rd Qtr. 3rd Qtr. 2nd Qtr.
1994 1993 1994
-------- -------- --------
Commercial, financial, etc. $1,457 5 % - %
Real estate - commercial 3,150 9 2
Real estate - consumer 1,412 (8) 2
Consumer 1,423 19 7
----- -- --
Total $7,442 6 % 2 %
===== == ==
Core deposits represent a significant source of funding to the Company and are
commonly generated through the branch network at lower interest rates than
wholesale funds of similar maturities. Such deposits include noninterest-
bearing demand deposits, interest-bearing transaction accounts, savings
deposits and domestic time deposits under $100,000. 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. As
interest rates paid on the Company's deposits increased in response to rising
money-market rates in the second and third quarters of 1994, outflows of core
deposits slowed. Average core deposits were $6.8 billion in the third and
second quarters of 1994, down from $7.1 billion in the third quarter of 1993.
The accompanying table provides an analysis of quarterly changes in the
components of average core deposits.
13
AVERAGE CORE DEPOSITS
Dollars in millions
Percent increase
(decrease) from
3rd Qtr. 3rd Qtr. 2nd Qtr.
1994 1993 1994
-------- -------- --------
NOW accounts $ 739 (4)% (2)%
Savings deposits 3,214 (8) (5)
Time deposits under $100,000 1,780 (6) 7
Demand deposits 1,019 4 3
----- -- --
Total $6,752 (5)% - %
===== == ==
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 $1.8 billion in the
second and third quarters of 1994, and $1.9 billion in the third quarter of
1993. To provide an alternative funding source to short-term borrowings, the
Company has initiated a program to solicit up to $400 million in brokered
retail certificates of deposit. There were no such deposits issued at
September 30, 1994, however, the Company has begun to obtain funding through
the program subsequent to the end of the third quarter.
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, 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 $13.8 million in the third
quarter of 1994, down from $19.7 million in the third quarter of 1993 and
$14.0 million in the second quarter of 1994. Net loan charge-offs totaled
$2.6 million in 1994's third quarter, down from $5.0 million in the year
earlier quarter and $3.9 million in 1994's second quarter. Net charge-offs as
an annualized percentage of average loans outstanding were .14% in the recent
quarter, down from .28% in the corresponding 1993 quarter and .22% in the
second quarter of 1994. For the nine months ended September 30, 1994 and
1993, the provision for possible credit losses was $47.7 million and $58.2
million, respectively. Through September 30, net charge-offs were $9.2
million in 1994 and $22.5 million in 1993. Improving economic conditions in
market areas served by the Company and lower levels of net charge-offs are
factors contributing to the lower provision for possible credit losses in
1994.
Nonperforming loans were $82.0 million or 1.08% of total loans at September
30, 1994, compared with $85.6 million or 1.21% at September 30, 1993 and $80.3
million or 1.09% at June 30, 1994. Commercial real estate loans classified as
nonperforming totaled $54.5 million at September 30, 1994, $48.8 million at
September 30, 1993 and $49.4 million at June 30, 1994. Included in these
totals were loans secured by properties in the metropolitan New York City area
14
of $35.1 million and $30.3 million at September 30, 1994 and 1993,
respectively, and $35.3 million at June 30, 1994. The amount of repossessed
assets taken in foreclosure of defaulted loans totaled $11.3 million at
September 30, 1994, down from $14.6 million at September 30, 1993 and $12.4
million at June 30, 1994.
The allowance for possible credit losses rose to $234.3 million or 3.09% of
total loans and leases at September 30, 1994. By comparison, the allowance
for possible credit losses was $187.5 million or 2.64% of total loans and
leases a year earlier, $195.9 million or 2.70% at December 31, 1993 and $223.1
million or 3.01% at June 30, 1994. The ratio of the allowance to
nonperforming loans was 286% at September 30, 1994, up from 219% a year
earlier, 238% at December 31, 1993 and 278% at June 30, 1994.
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, 1994
was adequate to absorb credit losses from existing loans, leases and credit
commitments.
A comparative summary of nonperforming assets and certain credit quality
ratios is presented in the accompanying table.
NONPERFORMING ASSETS
Dollars in thousands
1994 Quarters 1993 Quarters
Third Second First Fourth Third
------ ------ ------- ------ ------
Nonaccrual loans $ 72,355 68,881 74,951 68,936 69,436
Loans past due
90 days or more 9,663 11,444 11,890 11,122 14,007
Renegotiated loans - - - 2,195 2,200
------- ------- ------- ------- -------
Total nonperforming loans 82,018 80,325 86,841 82,253 85,643
------- ------- ------- ------- -------
Other real estate owned 11,281 12,418 11,916 12,222 14,554
------- ------- ------- ------- -------
Total nonperforming assets $ 93,299 92,743 98,757 94,475 100,197
======= ======= ======= ======= =======
Nonperforming loans
to total loans, net of
unearned discount 1.08% 1.09% 1.20% 1.13% 1.21%
Nonperforming assets
to total net loans and
other real estate owned 1.23% 1.25% 1.36% 1.30% 1.41%
==== ==== ==== ==== ====
OTHER INCOME
Other income in the third quarter of 1994 totaled $27.3 million, compared with
$27.5 million in the third quarter of 1993 and $29.4 million in the second
quarter of 1994. Other income for the first nine months of 1994 was $85.1
million, up from $81.8 million in the comparable period of 1993.
Service charges on deposit accounts totaled $8.8 million in the third quarter
of 1994, an increase of 3% from $8.6 million in the third quarter of 1993, but
little changed from the second quarter of 1994. Largely due to lower revenues
from securities clearing activities, trust income declined to $5.1 million in
the third quarter of 1994 from $5.8 million in both the third quarter of 1993
15
and the second quarter of this year. Merchant discount and credit card fees
were $2.1 million in the recent quarter, compared with $2.0 million in the
year earlier quarter and $2.2 million in the second quarter of 1994.
Trading account gains were $591 thousand in 1994's third quarter, down from
$840 thousand in the corresponding quarter of 1993 but up from $93 thousand in
the second quarter of 1994. Other revenues from operations totaled $10.5
million in the third quarter of 1994, up from $10.2 million in the third
quarter of 1993, but down 16% from $12.5 million in the second quarter of
1994. Higher revenues from the servicing of residential mortgage loans and
increases in loan fees in the third quarter of 1994 compared with the
corresponding quarter of 1993 were offset by lower revenues received from a
firm selling mutual funds and annuity products in a number of the Company's
branches. The decline in other revenues from operations since the second
quarter of 1994 is primarily due to lower profits from the sale of loans.
For the first nine months of 1994, the increase in other income from 1993 is
largely attributable to increased income from residential mortgage loan
servicing, gains on sales of loans, revenues from asset management services
and other loan fees. Additionally, service charges on deposit accounts
increased 10% to $26.5 million in 1994 from $24.2 million in 1993.
Trust income declined 5% to $16.3 million during the first nine months of 1994
while merchant discount and credit card fees increased 4% to $6.2 million.
Through September 30, trading account profits were $476 thousand in 1994, down
from $1.9 million in 1993.
OTHER EXPENSE
Other expense was $80.6 million in the third quarter of 1994, little changed
from the third quarter of 1993, and down 2% from this year's second quarter.
Through the first nine months of 1994, other expense totaled $241.8 million or
3% lower than in the comparable 1993 period.
Salaries and employee benefits expense was $40.8 million in the recent
quarter, nearly 2% higher than a year earlier but 2% less than the second
quarter of 1994. Salaries and benefits expense totaled $122.2 million for the
first nine months of 1994, up 5% from $116.1 million in the comparable 1993
period. Merit salary increases and higher pension and other benefits costs
were largely responsible for the increases in 1994 compared with 1993, while
lower costs associated with stock appreciation rights granted in 1990 and 1991
contributed to the decline from the second quarter of 1994.
Nonpersonnel expenses totaled $39.8 million in the third quarter of 1994, down
1% from both the third quarter of 1993 and the second quarter of 1994.
Nonpersonnel expenses were $119.6 million during the first nine months of
1994, down 10% from $132.3 million during the comparable period of 1993.
Significant factors during the first three quarters of 1994 contributing to
the decline from 1993 were expense reductions totaling $9.3 million for
professional services, other real estate owned and advertising and promotional
activities. Additionally, write-downs in the carrying value of excess
servicing receivables and purchased mortgage servicing rights associated with
residential mortgage loans serviced for others were $500 thousand during the
first nine months of 1994, compared with $4.1 million in the corresponding
period of 1993. At September 30, 1994, residential mortgage loans serviced
for others were approximately $3.7 billion and excess servicing receivables
and purchased mortgage servicing rights recorded as assets totaled $16.3
million.
16
CAPITAL
Common stockholders' equity totaled $680.7 million at September 30, 1994,
compared with $652.5 million a year earlier and $684.0 million at December 31,
1993. On a per share basis, common stockholders' equity was $102.73 at
September 30, 1994, an increase of 8% from $94.88 at September 30, 1993 and 3%
from $99.43 at December 31, 1993. Total stockholders' equity at September 30,
1994 was $720.7 million or 7.00% of total assets, compared with $692.5 million
or 6.34% of total assets a year earlier and $724.0 million or 6.99% of total
assets at December 31, 1993.
Stockholders' equity at September 30, 1994 included a reduction of $27.7
million, or $4.18 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 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
September 30, 1994, First Empire had repurchased 270,200 common shares
pursuant to such plan at an average cost of $147.00.
Federal regulators generally require banking institutions to maintain "core
capital" and "total capital" 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
requiring capital to be at least 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 September 30, 1994.
REGULATORY CAPITAL RATIOS
September 30, 1994
First Empire M&T
(Consolidated) Bank East New York
-------------- ----------- -------------
Core capital 9.44% 9.11% 9.13%
Total capital 11.65% 11.52% 10.40%
Leverage 7.49% 7.01% 7.44%
The Company 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 13.44% and 13.30% during the three and nine month
periods ended September 30, 1994, respectively, compared with 12.55% and
12.78% during the comparable periods of 1993.
17
- ---------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Amounts in thousands, except per share
Three months ended Nine months ended
September 30 September 30
1994 1993 Change 1994 1993 Change
- ---------------------------------------------------------------------------------------------------------------------
For the period
- ---------------------------------------------------------------------------------------------------------------------
Net income $29,098 25,852 + 13 % $85,407 75,359 + 13 %
Per common share
Net income
Primary $4.09 3.52 + 16 $11.82 10.25 + 15
Fully diluted 3.93 3.40 + 16 11.34 9.92 + 14
Cash dividends .60 .50 + 20 1.60 1.40 + 14
Average common shares outstanding
Primary 6,899 7,097 - 3 6,998 7,090 - 1
Fully diluted 7,406 7,604 - 3 7,530 7,600 - 1
Annualized return on
Average total assets 1.16% .99% 1.15% .98%
Average common
stockholders' equity 16.58% 15.46% 16.19% 15.69%
Market price per common share
Closing $151.50 140.75 + 8 $151.50 140.75 + 8
High 165.00 147.00 165.00 159.00
Low 146.00 136.13 135.00 130.25
- -------------------------------------------------------------------------------------------------------------------
At September 30
- -------------------------------------------------------------------------------------------------------------------
Loans and leases,
net of unearned discount $ 7,590,158 7,091,552 + 7 %
Total assets 10,300,556 10,930,194 - 6
Total deposits 7,362,453 7,537,695 - 2
Total stockholders' equity 720,717 692,468 + 4
Stockholders' equity
per common share $102.73 94.88 + 8
- --------------------------------------------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
Average balance in millions; interest in thousands
1994 Third quarter 1994 Second quarter
Average Average Average Average
balance Interest rate balance Interest rate
- --------------------------------------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,457 $ 29,797 8.11% 1,463 27,993 7.68%
Real estate 4,562 98,574 8.64 4,471 95,067 8.50
Consumer 1,423 33,281 9.28 1,332 30,071 9.06
- --------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 7,442 161,652 8.62 7,266 153,131 8.45
- --------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 158 1,863 4.68 5 57 4.38
Federal funds sold and agreements
to resell securities 20 244 4.86 138 1,390 4.03
Trading account 8 110 5.34 9 126 5.65
- --------------------------------------------------------------------------------------------------------------------
Total money-market assets 186 2,217 4.73 152 1,573 4.14
- --------------------------------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agency 1,116 13,954 4.96 1,186 13,217 4.47
State and municipal 53 760 5.69 54 740 5.49
Other 823 11,972 5.77 857 12,510 5.86
- -------------------------------------------------------------------------------------------------------------------
Total investment securities 1,992 26,686 5.32 2,097 26,467 5.06
- -------------------------------------------------------------------------------------------------------------------
Total earning assets 9,620 190,555 7.86 9,515 181,171 7.64
- -------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (230) (219)
Cash and due from banks 298 309
Other assets 271 281
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 9,959 9,886
- -------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 739 2,840 1.52 751 2,814 1.50
Savings deposits 3,214 21,258 2.62 3,380 20,921 2.48
Time deposits 2,119 24,307 4.55 1,993 20,797 4.18
Deposits at foreign office 159 1,610 4.01 104 817 3.14
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,231 50,015 3.18 6,228 45,349 2.92
- -------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,836 20,841 4.50 1,775 17,391 3.93
Obligations under capital leases 1 14 9.93 1 13 10.06
Other long-term borrowings 75 1,523 8.13 75 1,524 8.15
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,143 72,393 3.53 8,079 64,277 3.19
- -------------------------------------------------------------------------------------------------------------------
Demand deposits 1,019 992
Other liabilities 82 92
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 9,244 9,163
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity 715 723
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 9,959 9,886
- -------------------------------------------------------------------------------------------------------------------
Net interest spread 4.33 4.45
Contribution of interest-free funds 0.54 0.48
- -------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 118,162 4.87% 116,894 4.93%
*Includes nonaccruing loans
19
- --------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES(continued)
Average balance in millions; interest in thousands
1994 First quarter 1993 Fourth quarter
Average Average Average Average
balance Interest rate balance Interest rate
- ------------------------------------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,475 $ 26,080 7.17% 1,443 26,278 7.23%
Real estate 4,457 93,058 8.35 4,410 93,670 8.50
Consumer 1,256 29,884 9.65 1,227 30,362 9.82
- ------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 7,188 149,022 8.41 7,080 150,310 8.42
- ------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 18 154 3.55 174 1,553 3.55
Federal funds sold and agreements
to resell securities 155 1,443 3.76 577 4,976 3.42
Trading account 11 177 6.81 19 268 5.61
- ------------------------------------------------------------------------------------------------------------------
Total money-market assets 184 1,774 3.92 770 6,797 3.50
- ------------------------------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agency 1,297 14,673 4.59 1,492 17,072 4.54
State and municipal 52 731 5.66 47 677 5.74
Other 944 11,960 5.14 982 10,694 4.32
- ------------------------------------------------------------------------------------------------------------------
Total investment securities 2,293 27,364 4.84 2,521 28,443 4.48
- ------------------------------------------------------------------------------------------------------------------
Total earning assets 9,665 178,160 7.48 10,371 185,550 7.10
- ------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (203) (194)
Cash and due from banks 308 310
Other assets 286 288
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 10,056 10,775
- -------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 761 2,846 1.52 773 3,060 1.57
Savings deposits 3,400 20,689 2.47 3,430 21,372 2.47
Time deposits 1,992 18,747 3.82 2,024 20,590 4.04
Deposits at foreign office 137 928 2.75 115 788 2.70
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,290 43,210 2.79 6,342 45,810 2.87
- ------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,872 14,501 3.14 2,517 19,412 3.06
Obligations under capital leases 1 15 10.19 1 15 9.97
Other long-term borrowings 75 1,523 8.24 75 1,524 8.06
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,238 59,249 2.92 8,935 66,761 2.96
- ------------------------------------------------------------------------------------------------------------------
Demand deposits 997 1,010
Other liabilities 90 127
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 9,325 10,072
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity 731 703
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,056 10,775
- -------------------------------------------------------------------------------------------------------------------
Net interest spread 4.56 4.14
Contribution of interest-free funds 0.43 0.40
- -------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 118,911 4.99% 118,789 4.54%
*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 Third quarter
Average Average
balance Interest rate
- -------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,387 $ 27,931 7.99%
Real estate 4,411 94,939 8.61
Consumer 1,193 30,469 10.13
- -------------------------------------------------------------------------------------
Total loans and leases, net 6,991 153,339 8.70
- -------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 212 1,897 3.55
Federal funds sold and agreements
to resell securities 343 2,953 3.41
Trading account 17 265 6.11
- -------------------------------------------------------------------------------------
Total money-market assets 572 5,115 3.54
- -------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agency 1,497 17,065 4.52
State and municipal 34 579 6.75
Other 853 8,971 4.17
- -------------------------------------------------------------------------------------
Total investment securities 2,384 26,615 4.43
- -------------------------------------------------------------------------------------
Total earning assets 9,947 185,069 7.38
- -------------------------------------------------------------------------------------
Allowance for possible credit losses (179)
Cash and due from banks 306
Other assets 274
- -------------------------------------------------------------------------------------
Total assets $ 10,348
- -------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 769 3,204 1.65
Savings deposits 3,479 22,108 2.52
Time deposits 2,166 23,499 4.30
Deposits at foreign office 121 827 2.72
- -------------------------------------------------------------------------------------
Total interest-bearing deposits 6,535 49,638 3.01
- -------------------------------------------------------------------------------------
Short-term borrowings 1,949 14,837 3.02
Obligations under capital leases 1 16 9.98
Other long-term borrowings 75 1,523 8.06
- -------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,560 66,014 3.06
- -------------------------------------------------------------------------------------
Demand deposits 981
Other liabilities 127
- -------------------------------------------------------------------------------------
Total liabilities 9,668
- -------------------------------------------------------------------------------------
Stockholders' equity 680
- -------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,348
- -------------------------------------------------------------------------------------
Net interest spread 4.32
Contribution of interest-free funds 0.43
- -------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 119,055 4.75%
*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 September 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.
(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.
The company did not file any Current Reports on Form 8-K during
the fiscal quarter ended September 30, 1994.
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 7, 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.
27 Financial Data Schedule. Filed herewith.
23
Exhibit No. 11
--------------
- ----------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION
- ----------------------------------------------------------------------------------------------------------------
COMPUTATION OF EARNINGS PER COMMON SHARE
Amounts in thousands, except per share data
Three months ended Nine months ended
September 30 September 30
1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------
Primary Average common shares outstanding 6,647 6,876 6,771 6,866
Common stock equivalents * 252 221 227 224
- ----------------------------------------------------------------------------------------------------------------
Primary common shares outstanding 6,899 7,097 6,998 7,090
- ----------------------------------------------------------------------------------------------------------------
Net income $29,098 25,852 85,407 75,359
Less: Cash dividends on preferred stock 900 900 2,700 2,700
- ----------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $28,198 24,952 82,707 72,659
- ----------------------------------------------------------------------------------------------------------------
Earnings per common share - primary $4.09 3.52 11.82 10.25
- ----------------------------------------------------------------------------------------------------------------
Fully diluted Average common shares outstanding 6,647 6,876 6,771 6,866
Common stock equivalents * 252 221 252 227
Assumed conversion of 9% cumulative convertible
preferred stock 507 507 507 507
- ----------------------------------------------------------------------------------------------------------------
Fully diluted average common shares outstanding 7,406 7,604 7,530 7,600
- ----------------------------------------------------------------------------------------------------------------
Net income $29,098 25,852 85,407 75,359
- ----------------------------------------------------------------------------------------------------------------
Earnings per common share - fully diluted $3.93 3.40 11.34 9.92
- ----------------------------------------------------------------------------------------------------------------
* 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.
9
1,000
Dec-31-1993
Jan-01-1994
Sep-30-1994
9-MOS
328,973
70,143
331,316
6,790
1,621,913
267,537
262,698
7,813,794
234,317
10,300,556
7,362,453
2,049,591
92,282
75,513
40,487
0
40,000
640,230
10,300,556
462,176
79,263
5,151
546,890
138,574
195,919
350,971
47,686
128
241,814
146,559
85,407
0
0
85,407
11.82
11.34
4.93
72,355
9,663
0
0
195,878
23,093
13,846
234,317
129,391
0
104,926
