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, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9861
FIRST EMPIRE STATE CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0968385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One M & T Plaza
Buffalo, New York 14240
(Address of principal (Zip Code)
executive offices)
(716) 842-5445
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
---
Number of shares of the registrant's Common Stock, $5 par value, outstanding as
of the close of business on August 2, 1995: 6,481,105 shares.
FIRST EMPIRE STATE CORPORATION
FORM 10-Q
For the Quarterly Period Ended June 30, 1995
Table of Contents of Information Required in Report Page
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 1995 and December 31, 1994 3
Consolidated Statement of Income -
Three and six months ended
June 30, 1995 and 1994 4
Consolidated Statement of Cash Flows -
Six months ended June 30, 1995 and 1994 5
Consolidated Statement of Changes in
Stockholders' Equity - Six months ended
June 30, 1995 and 1994 6
Consolidated Summary of Changes in
Allowance for Possible Credit Losses -
Six months ended June 30, 1995 and 1994 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Part II. Other Information 21
Signatures 22
Exhibit Index 23
Exhibit No. 11 24
Exhibit No. 27 25
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
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FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
June 30,
1995 December 31,
Dollars in thousands, except per share (unaudited) 1994
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Assets Cash and due from banks $ 308,079 377,781
Money-market assets
Interest-bearing deposits at banks 125,500 143
Federal funds sold and
agreements to resell securities 472 3,080
Trading account 35,349 5,438
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Total money-market assets 161,321 8,661
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Investment securities
Available for sale (cost: $1,801,468 at June 30, 1995;
$1,602,916 at December 31, 1994) 1,790,217 1,514,395
Held to maturity (market value: $319,506 at
June 30, 1995; $221,165 at December 31, 1994) 317,656 227,651
Other (market value: $50,802 at June 30, 1995;
$48,994 at December 31, 1994) 50,802 48,994
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Total investment securities 2,158,675 1,791,040
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Loans and leases 9,166,641 8,447,117
Unearned discount (285,670) (229,824)
Allowance for possible credit losses (253,842) (243,332)
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Loans and leases, net 8,627,129 7,973,961
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Premises and equipment 125,396 127,274
Accrued interest and other assets 249,020 249,927
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Total assets $ 11,629,620 10,528,644
====================================================================================================================================
Liabilities Noninterest-bearing deposits $ 1,181,989 1,087,102
NOW accounts 778,598 748,199
Savings deposits 2,874,652 3,098,438
Time deposits 3,955,635 3,106,723
Deposits at foreign office 74,997 202,611
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Total deposits 8,865,871 8,243,073
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Federal funds purchased and agreements
to repurchase securities 1,516,707 695,665
Other short-term borrowings 206,260 669,185
Accrued interest and other liabilities 150,617 103,538
Long-term borrowings 96,207 96,187
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Total liabilities 10,835,662 9,807,648
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Stockholders' equity Preferred stock, $1 par, 1,000,000 shares authorized,
40,000 shares issued, stated at aggregate
liquidation value 40,000 40,000
Common stock, $5 par, 15,000,000 shares
authorized, 8,097,472 shares issued 40,487 40,487
Surplus 98,473 98,014
Undivided profits 743,249 694,274
Unrealized investment losses, net (6,440) (50,555)
Treasury stock - common, at cost -
1,600,917 shares at June 30, 1995;
1,486,969 shares at December 31, 1994 (121,811) (101,224)
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Total stockholders' equity 793,958 720,996
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Total liabilities and stockholders' equity $ 11,629,620 10,528,644
====================================================================================================================================
-3-
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FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF INCOME (unaudited)
Three months ended Six months ended
June 30 June 30
Amounts in thousands, except per share 1995 1994 1995 1994
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Interest income Loans and leases, including fees $ 195,963 152,586 380,979 301,069
Money-market assets
Deposits at banks 2,225 57 3,519 211
Federal funds sold and agreements
to resell securities 2,227 1,390 2,427 2,833
Trading account 348 91 520 223
Investment securities
Fully taxable 29,692 25,472 57,269 51,714
Exempt from federal taxes 738 574 1,565 1,290
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Total interest income 231,193 180,170 446,279 357,340
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Interest expense NOW accounts 2,948 2,814 5,713 5,660
Savings deposits 21,920 20,921 44,232 41,610
Time deposits 60,008 20,797 111,581 39,544
Deposits at foreign office 1,504 817 3,840 1,745
Short-term borrowings 23,787 17,391 39,450 31,892
Long-term borrowings 1,929 1,537 3,859 3,075
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Total interest expense 112,096 64,277 208,675 123,526
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Net interest income 119,097 115,893 237,604 233,814
Provision for possible credit losses 8,515 14,022 17,015 33,884
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Net interest income after provision
for possible credit losses 110,582 101,871 220,589 199,930
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Other income Trust income 5,847 5,770 11,584 11,205
Service charges on deposit accounts 9,574 8,785 18,793 17,678
Merchant discount and other credit card fees 2,415 2,197 4,688 4,093
Trading account gain (loss) 359 93 1,052 (115)
Loss on sales of bank investment securities (46) -- (46) --
Other revenues from operations 15,739 12,533 24,219 24,966
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Total other income 33,888 29,378 60,290 57,827
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Other expense Salaries and employee benefits 44,148 41,623 90,375 81,454
Equipment and net occupancy 12,179 12,445 24,885 25,257
Printing, postage and supplies 3,504 3,333 7,099 6,520
Deposit insurance 4,264 4,080 8,528 8,224
Other costs of operations 26,174 20,534 48,876 39,775
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Total other expense 90,269 82,015 179,763 161,230
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Income before income taxes 54,201 49,234 101,116 96,527
Income taxes 22,747 20,553 42,494 40,218
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Net income $ 31,454 28,681 58,622 56,309
====================================================================================================================================
Net income per common share
Primary $4.51 3.96 8.36 7.73
Fully diluted 4.31 3.80 7.99 7.43
Cash dividends per common share .60 .50 1.20 1.00
Average common shares outstanding
Primary 6,768 7,014 6,794 7,048
Fully diluted 7,293 7,541 7,338 7,578
-4-
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FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Six months ended June 30
Dollars in thousands 1995 1994
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Cash flows from Net income $ 58,622 56,309
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 17,015 33,884
Depreciation and amortization of premises
and equipment 9,524 8,943
Provision for deferred income taxes (7,452) (15,617)
Asset write-downs 3,183 1,141
Net gain on sales of assets (261) (4,211)
Net change in accrued interest receivable, payable (1,601) (1,716)
Net change in other accrued income and expense 53,580 (10,935)
Net change in loans held for sale (110,781) 135,795
Net change in trading account assets (29,911) 2,535
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Net cash provided (used) by operating activities (8,082) 206,128
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Cash flows from Proceeds from sales of investment securities
investing activities Available for sale 41,348 --
Proceeds from maturities of investment securities
Available for sale 130,128 392,191
Held to maturity 27,824 18,198
Other -- 3,052
Purchases of investment securities
Available for sale (381,383) (4,663)
Held to maturity (117,905) (16,500)
Other (2,641) (12,741)
Net increase in interest-bearing
deposits at banks (125,357) (355,099)
Proceeds from sales of loans and leases -- 7,601
Net increase in loans and leases (530,123) (287,687)
Capital expenditures, net (5,918) (2,116)
Acquisitions, net of cash acquired (18,691) --
Other, net (59) 2,510
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Net cash used by investing activities (982,777) (255,254)
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Cash flows from Net increase (decrease) in deposits 621,366 (77,288)
financing activities Net increase in short-term borrowings 325,117 70,281
Payments on long-term borrowings (56) (51)
Purchases of treasury stock (22,727) (22,107)
Dividends paid - common (7,847) (6,805)
Dividends paid - preferred (1,800) (1,800)
Other, net 4,496 (1,613)
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Net cash provided (used) by financing activities 918,549 (39,383)
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Net decrease in cash and cash equivalents $ (72,310) (88,509)
Cash and cash equivalents at beginning of period 380,861 525,221
Cash and cash equivalents at end of period $ 308,551 436,712
====================================================================================================================================
Supplemental Interest received during the period $ 428,922 359,625
disclosure of cash Interest paid during the period 184,091 125,539
flow information Income taxes paid during the period 20,873 69,501
====================================================================================================================================
Supplemental schedule
of noncash investing
and financing activities Real estate acquired in settlement of loans $ 3,392 6,763
====================================================================================================================================
-5-
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FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
====================================================================================================================================
Unrealized
investment
Preferred Common Undivided gains Treasury
Dollars in thousands, except per share stock stock Surplus profits (losses), net stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
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)
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Balance - June 30, 1994 $ 40,000 40,487 97,908 643,026 (23,401) (80,321) $ 717,699
====================================================================================================================================
1995
Balance - January 1, 1995 $ 40,000 40,487 98,014 694,274 (50,555) (101,224) $ 720,996
Net income -- -- -- 58,622 -- -- 58,622
Preferred stock cash dividends -- -- -- (1,800) -- -- (1,800)
Common stock cash dividends -
$1.20 per share -- -- -- (7,847) -- -- (7,847)
Exercise of stock options -- -- 459 -- -- 2,140 2,599
Purchases of treasury stock -- -- -- -- -- (22,727) (22,727)
Unrealized gains on investment
securities available for sale, net -- -- -- -- 44,115 -- 44,115
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Balance - June 30, 1995 $ 40,000 40,487 98,473 743,249 (6,440) (121,811) $ 793,958
====================================================================================================================================
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR POSSIBLE CREDIT LOSSES (unaudited)
====================================================================================================================================
Six months ended June 30
Dollars in thousands 1995 1994
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Beginning balance $243,332 195,878
Provision for possible credit losses 17,015 33,884
Net charge-offs
Charge-offs (11,625) (15,929)
Recoveries 5,120 9,295
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Total net charge-offs (6,505) (6,634)
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Ending balance $253,842 223,128
====================================================================================================================================
-6-
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
The consolidated financial statements of First Empire State Corporation and
subsidiaries ("the Company") were compiled in accordance with the accounting
policies set forth on pages 36 and 37 of the Company's 1994 Annual Report,
except as noted below. The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan",
in the first quarter of 1995. Adoption of SFAS No. 114 had no impact on the
Company's results of operations. As described in Note 5, the Company adopted
SFAS No. 122, "Accounting for Mortgage Servicing Rights", in 1995. In the
opinion of management, all adjustments necessary for a fair presentation have
been made and were all of a normal recurring nature.
2. Investment securities
The amortized cost and estimated fair value of investment securities were as
follows:
June 30, 1995 December 31, 1994
----------------------- -----------------------
Estimated Estimated
Amortized fair Amortized fair
In thousands cost value cost value
--------- --------- --------- ---------
Investment securities
available for sale:
U.S. Treasury and federal
agencies $ 333,499 339,631 5,775 5,762
Mortgage-backed securities
Government issued
or guaranteed 817,106 803,658 869,031 822,533
Other 634,128 628,645 706,909 665,209
Other debt securities 4,380 4,443 6,537 6,557
Equity securities 12,355 13,840 14,664 14,334
---------- --------- --------- ---------
1,801,468 1,790,217 1,602,916 1,514,395
---------- --------- --------- ---------
Investment securities
held to maturity:
U.S. Treasury and
federal agencies 270,247 271,686 171,112 164,602
Obligations of states and
political subdivisions 46,740 47,153 55,787 55,872
Other debt securities 669 667 752 691
---------- --------- --------- ---------
317,656 319,506 227,651 221,165
---------- --------- --------- ---------
Other securities 50,802 50,802 48,994 48,994
---------- --------- --------- ---------
Total $2,169,926 2,160,525 1,879,561 1,784,554
========== ========= ========= =========
3. Interest rate swap agreements
At June 30, 1995, the Company had outstanding currently effective interest rate
swap agreements entered into for interest rate risk management purposes with a
notional amount of approximately $2.6 billion. The swaps modify the repricing
characteristics of certain portions of the loan and deposit portfolios. The net
effect of interest rate swaps was to decrease net interest income by $480
thousand and $929 thousand during the three months and six months ended June 30,
1995, respectively, and to increase net interest income by $3.2 million and $9.8
million during the three months and six months ended June 30, 1994,
respectively. As of June 30, 1995, the Company had also entered into forward
swaps with an aggregate notional amount of $15 million. These forward interest
rate swap commitments had no effect on net income. The Company estimates that as
of June 30, 1995, it would have received approximately $14 million if all
-7-
interest rate swap agreements were terminated. This estimated market value is
not recognized in the consolidated financial statements.
4. Acquisition
On March 6, 1995, the Company's mortgage banking subsidiary, M&T Mortgage
Corporation, acquired Statewide Funding Corporation ("Statewide"), a
privately-owned mortgage banking company based near Albany, New York. As of the
acquisition date, Statewide serviced residential mortgage loans owned by other
investors having an outstanding principal balance of approximately $1.0 billion.
The acquisition has been accounted for as a purchase transaction and,
accordingly, the operating results of Statewide have been included in the
Company's results of operations since the acquisition date.
5. Capitalized mortgage servicing rights
In the second quarter of 1995, the Company adopted SFAS No. 122 retroactive to
January 1, 1995. SFAS No. 122 requires that a mortgage banking enterprise
recognize as separate assets rights to service mortgage loans for others,
however those servicing rights are acquired. Pursuant to the provisions of SFAS
No. 122, the total cost of mortgage loans sold with servicing rights retained is
allocated to the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. These mortgage servicing
rights are amortized in proportion to and over the period of estimated net
servicing income. Prior to the adoption of SFAS No. 122 only servicing rights
acquired through purchase transactions were recorded as assets.
To estimate the fair value of mortgage servicing rights, the Company considers
prices for similar assets and the present value of expected future cash flows
associated with the servicing rights calculated using assumptions that market
participants would use in estimating future servicing income and expense. For
purposes of evaluating and measuring impairment of capitalized mortgage
servicing rights, the Company stratifies such rights based on predominant risk
characteristics of underlying loans, such as loan type, note rate and term. The
amount of impairment recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceed estimated fair value. Impairment is
recognized through a valuation allowance. As of June 30, 1995, the carrying
value and estimated fair value of capitalized mortgage servicing rights was
$28.5 million and $36 million, respectively. There was no impairment of
capitalized mortgage servicing rights at June 30, 1995.
The effect of adopting SFAS No. 122 was to increase net income in 1995 by
approximately $1.5 million. The effect of adopting SFAS No. 122 was not
significant to the Company's consolidated financial statements as of and for the
three months ended March 31, 1995 and, accordingly, such financial statements
have not been restated. Retroactive application of the provisions of SFAS No.
122 to prior years is prohibited.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
First Empire State Corporation ("First Empire") earned $31.5 million or $4.51
per common share in the second quarter of 1995, increases of 10% and 14%,
respectively, from the second quarter of 1994 when net income was $28.7 million
or $3.96 per common share. For the six months ended June 30, 1995, net income
was $58.6 million or $8.36 per common share, up 4% and 8%, respectively, from
$56.3 million or $7.73 per common share earned during the comparable period of
1994. The rate of return on average assets for First Empire and its consolidated
subsidiaries ("the Company") in the second quarter of 1995 was 1.10%, compared
with 1.16% in the year-earlier quarter and 1.03% in 1995's first quarter. The
return on average common stockholders' equity increased to 16.87% in the second
quarter of 1995, from 16.32% in the second quarter of 1994 and 15.29% in the
initial quarter of 1995. The rate of return on average assets was 1.07% in the
first six months of 1995, compared with 1.14% during the corresponding 1994
period. Through the first half of 1995, the return on average common
stockholders' equity was 16.10%, up from 16.00% in the comparable 1994 period.
As reported previously, on December 1, 1994 First Empire acquired Ithaca
Bancorp, Inc. ("Ithaca Bancorp"), Ithaca, New York, with total assets of $470
million, including $369 million of loans, and liabilities of $425 million,
including $330 million of deposits. On December 10, 1994, the Company purchased
approximately $146 million of deposits from Chemical Bank, along with seven
branch offices in the Hudson Valley region of New York State. The acquired
operations were merged into First Empire's commercial bank subsidiary,
Manufacturers and Traders Trust Company ("M&T Bank").
On March 6, 1995, M&T Bank's mortgage banking subsidiary, M&T Mortgage
Corporation, acquired Statewide Funding Corporation ("Statewide"), a
privately-owned mortgage banking company based near Albany, New York. Statewide
had a mortgage servicing portfolio of approximately $1.0 billion at the
acquisition date and originated more than $400 million of mortgage loans in
1994. As a result of the Statewide acquisition, M&T Mortgage Corporation
acquired residential mortgage offices in New York and Massachusetts. In
addition, in the first quarter of 1995, M&T Mortgage Corporation established
offices in the states of Washington, Oregon and Utah. These new offices have
expanded M&T Mortgage Corporation's out-of-state operations, which previously
were limited to Ohio and Pennsylvania.
The acquisitions noted in the two preceding paragraphs were consummated for cash
and have been accounted for as purchase transactions and, accordingly, the
operating results of the acquired entities have been included in the
consolidated results of operations of the Company since the respective
acquisition dates.
On July 21, 1995, M&T Bank acquired four branch offices from The Chase Manhattan
Bank, N.A. Two of the branch offices are located in Dutchess County, one in
Ulster County and one in Niagara County, New York. The branches held
approximately $84 million in deposits as of the acquisition date.
During the second quarter of 1995 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights", retroactive to January 1, 1995. SFAS No. 122 requires that a mortgage
banking enterprise recognize as separate assets the rights to service mortgage
loans for others, whether those servicing rights are originated or purchased. A
mortgage banking enterprise that acquires mortgage servicing rights through
either the origination or purchase of mortgage loans and then sells or
-9-
securitizes those loans while retaining the servicing rights should allocate the
total cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values.
These mortgage servicing rights should be amortized in proportion to and over
the period of the estimated net servicing income. Prior to the adoption of SFAS
No. 122, only mortgage servicing rights acquired through purchase transactions
were recorded as assets. As a result of adopting SFAS No. 122, net income in
1995 increased by approximately $1.5 million or $.22 per common share. The
effect of adopting SFAS No. 122 was not significant to the Company's
consolidated financial statements as of and for the three months ended March 31,
1995 and, accordingly, such financial statements have not been restated.
Retroactive application of the provisions of SFAS No. 122 to prior years is not
permitted.
Taxable-equivalent Net Interest Income
Net interest income expressed on a taxable-equivalent basis was $120.4 million
in the second quarter of 1995, up $3.5 million from $116.9 million in the second
quarter of 1994 and slightly higher than $119.7 million in the first quarter of
1995. The improvement in net interest income in the recent quarter was largely
attributable to growth in average loans outstanding. Increased demand for loans
coupled with the December 1994 acquisition of Ithaca Bancorp resulted in a $1.4
billion increase in average loans to $8.7 billion in the second quarter of 1995
from $7.3 billion in the second quarter of 1994. Average loans totaled $8.3
billion during the first quarter of 1995.
The increase in average loans, combined with a $137 million increase in average
money market assets led to a $1.6 billion increase in average earning assets to
$11.1 billion in the second quarter of 1995 from $9.5 billion in the second
quarter of 1994. Average earning assets in the recent quarter increased $779
million from $10.3 billion in the initial 1995 quarter. The effect of increases
in average earning assets on net interest income was partially offset by
reductions in the net interest spread, or the difference between the yield on
earning assets and the rate paid on interest-bearing liabilities. In general,
interest rates paid on interest-bearing liabilities have increased more than
yields on earning assets. Furthermore, a higher proportion of discretionary
holdings of money-market assets and investment securities, which generally yield
less than loans, also contributed to the decline in net interest spread from the
first quarter of 1995. As a result of a decline in interest rates near the end
of the recent quarter, the Company assumed an increase in the rate of expected
prepayments of residential mortgage loans underlying collateralized mortgage
obligations purchased at premiums in prior periods. Together these last two
factors reduced net interest spread in the recent quarter by approximately 23
basis points (hundredths of one percent).
For the first six months of 1995, taxable-equivalent net interest income was
$240.0 million, up from $235.8 million in the corresponding 1994 period. An
increase in earning assets of $1.1 billion, partially offset by a narrowing of
the net interest spread, contributed to this improvement.
The Company's net interest margin, which is taxable-equivalent net interest
income expressed as an annualized percentage of average earning assets, narrowed
to 4.35% in the second quarter of 1995, compared with 4.93% in the second
quarter of 1994 and 4.70% in the first quarter of 1995. Although the overall
yield on average earning assets increased 75 basis points to 8.39% in the recent
quarter from 7.64% in the year earlier quarter, higher interest rates also
resulted in an increase in the cost of interest-bearing liabilities to 4.69%
during the second quarter of 1995 compared with 3.19% in the like period in
-10-
1994. The yield on average earning assets in the initial 1995 quarter was 8.49%,
while the rate paid on interest-bearing liabilities totaled 4.43%. As a result,
the Company's net interest spread was 3.70% in the recent quarter, compared with
4.45% and 4.06% in the second quarter of 1994 and the first quarter of 1995,
respectively.
Although narrowing the net interest spread, higher interest rates resulted in an
increased contribution to net interest margin from interest-free funds. The
contribution of interest-free funds rose to .65% in the second quarter of 1995
from .48% in the comparable 1994 quarter and .64% in the first quarter of 1995.
A 150 basis point increase in the rate paid on interest-bearing liabilities used
to value these funds resulted in the improvement in the second quarter of 1995
from a year earlier. Average interest-free funds, which consist primarily of
noninterest-bearing demand deposits and stockholders' equity, totaled $1.5
billion in the second quarter of 1995, up $86 million or 6% from a year earlier,
and $25 million or 2% from the first quarter of 1995.
For the first half of 1995, net interest margin decreased to 4.52% from 4.96% in
the corresponding period in 1994. The decrease was caused by a decline in the
net interest spread to 3.87% from 4.51%, partially offset by an increased
contribution of interest-free funds, to .65% from .45% in 1994's first two
quarters.
The Company's net interest income is sensitive to the effects of changing
interest rates. Management assesses this interest rate risk by the variability
of projected net interest income under a number of interest rate scenarios. As
part of its management of interest rate risk, the Company utilizes interest rate
swap agreements to modify the repricing characteristics of certain portions of
the loan and deposit portfolios. Revenue and expense arising from these
agreements are reflected in either the yields earned on loans or, as
appropriate, rates paid on interest-bearing deposits. In general, under the
terms of these swaps, the Company receives payments based on the outstanding
notional amount of the swaps at a fixed rate of interest and makes payments at a
variable rate. At June 30, 1995 the weighted average rates to be received and
paid under interest rate swap agreements were 6.18% and 6.05%, 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.
-11-
INTEREST RATE SWAPS
Dollars in thousands
Three months ended June 30
------------------------------------------------------
1995 1994
------------------------- -------------------------
Amount Rate(1) Amount Rate(1)
------ ---- ------ ----
Increase (decrease) in:
Interest income $ (1,818) (.07)% $ 2,699 .12%
Interest expense (1,338) (.06) (478) (.03)
----------- -----------
Net interest
income/margin $ (480) (.02)% $ 3,177 .14%
=========== ==== =========== ===
Average notional
amount (2) $ 2,562,949 $ 1,335,165
=========== ===========
Six months ended June 30
------------------------------------------------------
1995 1994
------------------------- -------------------------
Amount Rate(1) Amount Rate(1)
------ ---- ------ ----
Increase (decrease) in:
Interest income $ (3,343) (.06)% $ 7,404 .16%
Interest expense (2,414) (.05) (2,414) (.06)
----------- -----------
Net interest
income/margin $ (929) (.02)% $ 9,818 .21%
=========== ==== =========== ===
Average notional
amount (2) $ 2,549,616 $ 1,273,152
=========== ===========
(1) Computed as an annualized percentage of earning assets or interest-bearing
liabilities
(2) Excludes forward-starting interest rate swaps
The Company estimates that as of June 30, 1995 it would have received
approximately $14 million if all interest rate swap agreements entered into for
interest rate risk management purposes were terminated. This estimated fair
value of the interest rate swap portfolio results from the effects of changing
interest rates and should be considered in the context of the entire balance
sheet and the Company's overall interest rate risk profile. Changes in the
estimated fair value of interest rate swaps entered into for interest rate risk
management purposes are not reflected in the consolidated financial statements.
Average investment securities totaled $2.1 billion in the second quarter of
1995, virtually unchanged from the comparable 1994 period, but up from $1.9
billion in the first quarter of 1995. Factors influencing the size of the
investment securities portfolio include the management of balance sheet size and
resulting capital ratios, ongoing repayments, growth in loans, which generally
yield more than investment securities, and the level of deposits.
-12-
Average loans and leases increased 19% to $8.7 billion in the second quarter of
1995 from $7.3 billion in the corresponding 1994 quarter and 4% from $8.3
billion in the first quarter of 1995. Solid loan demand due, in part, from
improved economic conditions, and the December 1994 addition of $369 million of
loans in the Ithaca Bancorp acquisition contributed to this growth. The
accompanying table summarizes quarterly changes in the major components of the
loan and lease portfolio.
AVERAGE LOANS AND LEASES
(net of unearned discount)
Dollars in millions
Percent increase from
2nd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1995
-------- -------- --------
Commercial, financial, etc. $1,805 23 % 8 %
Real estate - commercial 3,456 12 2
Real estate - consumer 1,731 25 5
Consumer 1,690 27 6
------ -- --
Total $8,682 19 % 4 %
====== == ==
Core deposits, which include noninterest-bearing demand deposits,
interest-bearing transaction accounts, savings deposits and nonbrokered time
deposits under $100,000, represent a significant source of funding, at generally
lower interest rates than are available on wholesale funds of comparable
maturities. Including core deposits obtained in the December 1994 acquisitions,
average core deposits increased to $7.3 billion in 1995's second quarter, up
from $6.8 billion in the year earlier quarter and $7.2 billion in the first
quarter of 1995. Increases in interest rates paid on deposits in response to
higher money-market rates have served to mitigate the tendency displayed by
depositors in recent years to seek potentially higher returns by redeploying
deposits, primarily time deposits, out of the banking system into alternative
investment vehicles, such as mutual funds, and also contributed to a shift into
time deposits from more liquid deposit accounts. The accompanying table provides
an analysis of quarterly changes in the components of average core deposits.
AVERAGE CORE DEPOSITS
Dollars in millions
Percent increase
(decrease) from
2nd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1995
-------- -------- --------
NOW accounts $ 760 1 % 4 %
Savings deposits 2,950 (13) (3)
Time deposits under $100,000 2,577 55 6
Demand deposits 1,043 5 -
------ -- --
Total $7,330 8 % 1 %
====== == ==
To reduce short-term borrowings and lengthen the average maturity of
interest-bearing liabilities, the Company began accepting brokered retail
certificates of deposit in the fourth quarter of 1994 under a program to solicit
up to approximately $900 million of deposits. Brokered deposits averaged $888
million during the second quarter of 1995 and equaled that amount at June 30,
1995, compared with an average balance of $775 million during the first quarter
of 1995 and a total balance of $888 million at March 31, 1995. The weighted
average remaining term to maturity of brokered deposits at June 30, 1995 was 2.0
years.
-13-
In addition to deposits, the Company uses short-term borrowings from banks,
securities dealers, the Federal Home Loan Bank of New York ("FHLB") and others
as sources of funding. Short-term borrowings averaged $1.6 billion in the recent
quarter compared with $1.8 billion in the year earlier quarter and $1.1 billion
in the first quarter of 1995.
Repayments of loans and investment securities, maturities of money-market
assets, and cash generated from operations provide the Company with sources of
liquidity. Through membership in the FHLB and borrowing arrangements with other
financial institutions, which are informal and sometimes reciprocal, First
Empire's banking subsidiaries have access to funding aggregating several times
anticipated needs. First Empire's ability to pay dividends, repurchase treasury
stock and fund operating expenses is primarily dependent on the receipt of
dividend payments from its banking subsidiaries, which are subject to various
regulatory limitations. First Empire also maintains a line of credit with an
unaffiliated commercial bank. Management does not anticipate engaging in any
activity, either currently or in the long-term, which would cause a significant
strain on liquidity at either First Empire or its subsidiary banks. Furthermore,
management believes that available sources of liquidity are more than adequate
to meet anticipated funding needs.
Provision for Possible Credit Losses
Improved economic conditions in market areas served by the Company and lower
nonperforming loans resulted in a provision for possible credit losses of $8.5
million in the second quarter of 1995, which was $5.5 million lower than the
$14.0 million provision in the year earlier quarter, but approximately equal to
the first quarter of 1995. Net loan charge-offs in the second quarter of 1995
totaled $3.4 million, down from $3.9 million in 1994's second quarter but up
slightly from $3.1 million in the first quarter of 1995. Net charge-offs as an
annualized percentage of average loans and leases were .16% in the recent
quarter, .22% in the corresponding 1994 quarter and .15% in the first quarter of
1995.
Nonperforming loans were $75.4 million or .85% of total loans and leases
outstanding at June 30, 1995, down from $80.3 million or 1.09% at June 30, 1994
and $79.8 million or .93% at March 31, 1995. Nonperforming commercial real
estate loans totaled $42.9 million at June 30, 1995, $49.4 million at June 30,
1994 and $47.7 million at March 31, 1995. Included in these totals were loans
secured by properties located in the New York City metropolitan area of $21.0
million at June 30, 1995, $35.3 million at June 30, 1994 and $26.3 million at
March 31, 1995. Assets taken in foreclosure of defaulted loans were $8.4 million
at June 30, 1995, down from $12.4 million at June 30, 1994 and $8.8 million at
March 31, 1995.
The allowance for possible credit losses was $253.8 million, or 2.86% of total
loans and leases at June 30, 1995, compared with $223.1 million or 3.01% a year
earlier, $243.3 million or 2.96% at December 31, 1994 and $248.7 million or
2.91% at March 31, 1995. The ratio of the allowance for possible credit losses
to nonperforming loans was 337% at the most recent quarter-end, up from 278% a
year earlier, 314% at December 31, 1994 and 312% at March 31, 1995.
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
-14-
allowance for possible credit losses at June 30, 1995 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
1995 Quarters 1994 Quarters
Second First Fourth Third Second
------ ----- ------ ----- ------
Nonaccrual loans $60,889 64,941 62,787 72,355 68,881
Loans past due
90 days or more 14,530 12,275 11,754 9,663 11,444
Renegotiated loans -- 2,600 2,994 -- --
------- ------ ------ ------ ------
Total nonperforming loans 75,419 79,816 77,535 82,018 80,325
------- ------ ------ ------ ------
Other real estate owned 8,390 8,824 10,065 11,281 12,418
------- ------ ------ ------ ------
Total nonperforming assets $83,809 88,640 87,600 93,299 92,743
======= ====== ====== ====== ======
Nonperforming loans
to total loans and leases,
net of unearned discount .85% .93% .94% 1.08% 1.09%
Nonperforming assets
to total net loans and
other real estate owned .94% 1.03% 1.06% 1.23% 1.25%
=== ==== ==== ==== ====
Other Income
Other income totaled $33.9 million in the second quarter of 1995, up 15% from
$29.4 million in the year-earlier quarter and 28% from $26.4 million in the
first quarter of 1995. Other income for the first six months of 1995 was $60.3
million, up 4% from $57.8 million in the comparable period of 1994.
Service charges on deposit accounts totaled $9.6 million in the second quarter
of 1995, up 9% from $8.8 million in the second quarter of 1994 and 4% higher
than the first three months of 1995. The increase from 1994 was largely
attributable to deposit accounts associated with the franchises obtained in the
December 1994 acquisitions. Trust income of $5.8 million in the second quarter
of 1995 was virtually unchanged from both last year's second quarter and the
first quarter of 1995. Merchant discount and credit card fees were $2.4 million
in the recent quarter, up from $2.2 million and $2.3 million in the second
quarter of 1994 and first quarter of 1995, respectively. Trading account gains
totaled $359 thousand in the second quarter of 1995, compared with $93 thousand
in the corresponding quarter of 1994 and $693 thousand in the first quarter of
1995.
Other revenue from operations totaled $15.7 million in the recent quarter, up
$3.2 million from the second quarter of 1994 and $7.3 million from the first
quarter of 1995. Included in other revenue from operations in the recent quarter
was $2.6 million related to the previously discussed adoption of SFAS No. 122.
Additionally, the March 1995 acquisition of Statewide contributed to increased
income from servicing residential mortgage loans owned by other investors.
Residential mortgage loans serviced for others totaled $5.2 billion and $3.6
billion at June 30, 1995 and 1994, respectively. Furthermore, the second quarter
of 1994 included a $2.2 million gain from the early repayment of a lease
receivable.
For the first six months of the year, service charges on deposit accounts
increased 6% to $18.8 million in 1995, including the impact of deposits from the
-15-
December 1994 acquisitions, from $17.7 million in 1994. Compared to the same
period in 1994, trust income increased 3% to $11.6 million during the first six
months of 1995, while merchant discount and credit card fees increased 15% to
$4.7 million. Trading account activity resulted in income of $1.1 million for
the first six months of 1995 compared with a loss of $115 thousand in the first
half of 1994.
Exclusive of the income recognized upon adoption of SFAS No. 122, other revenues
from operations decreased 14% to $21.6 million in the first six months of 1995
from $25.0 million in the comparable 1994 period. During the first half of 1994,
the Company realized $1.4 million of gains from the sale of residential mortgage
loan participations acquired in 1992 from the Federal Deposit Insurance
Corporation and, as previously mentioned, $2.2 million of income relating to
lease receivable termination payments.
Other Expense
Other expense totaled $90.3 million in the second quarter of 1995, compared with
$82.0 million in the second quarter of 1994 and $89.5 million in the first
quarter of 1995. During the first quarter of the current year, expenses were
incurred for the write-off of $2.3 million of non-marketable securities of
Nationar, a bank that provided services to financial institutions which was
seized by banking regulators in February, and $1.3 million of costs to integrate
Statewide into M&T Mortgage Corporation. Excluding these expenses, other expense
was $4.4 million higher in this year's second quarter than in the immediately
preceding quarter. This increase was partially the result of expenses associated
with the operations of the Statewide acquisition. Exclusive of the expenses
related to the integration of Statewide and the write-off of investment
securities issued by Nationar, other expense for the first half of 1995 was
$176.2 million, an increase of 9% from the first half of 1994. Such increase was
largely attributable to operations of the December 1994 and March 1995
acquisitions.
For the second quarter of 1995, salaries and employee benefits expense was $44.1
million, 6% higher than a year earlier but 4% below the first quarter of 1995.
The increase from a year earlier results from personnel costs from the completed
acquisitions and merit salary increases. The decline from the first quarter of
1995 is largely attributable to $3.0 million of expenses incurred during that
quarter associated with stock appreciation rights granted in 1990 and 1991. Such
expense resulted from the 26% increase in the market value per share of First
Empire's common stock in the first quarter of 1995. For the first half of 1995,
salaries and benefits expense increased $8.9 million from the comparable 1994
period. Personnel costs resulting from the completed acquisitions and merit
salary increases were largely responsible for this increase. Expenses for stock
appreciation rights were $1.0 million higher during the first six months of 1995
than in the first half of 1994.
Nonpersonnel expenses totaled $46.1 million for the second quarter of 1995, an
increase of $5.7 million from the second quarter of 1994 and $2.8 million from
the first quarter of 1995. Such expenses were $89.4 million during the first six
months of 1995, up 12% from $79.8 million during the comparable 1994 period.
Higher mortgage banking-related expenses and expenses associated with operating
the acquired entities contributed to the increases.
Capital
Common stockholders' equity totaled $754.0 million at June 30, 1995, up from
$667.7 million a year earlier and $681.0 million at December 31, 1994. On a per
share basis, common stockholders' equity was $116.05 at June 30, 1995, an
increase of 15% from $100.63 at June 30, 1994 and 13% from $103.02 at December
31, 1994. Total stockholders' equity at June 30, 1995 was $794.0 million or
-16-
6.83% of total assets, compared with $717.7 million or 6.94% of total assets a
year earlier and $721.0 million or 6.85% at December 31, 1994.
Stockholders' equity at June 30, 1995 was reduced by $6.4 million, or $.99 per
common share, for the net after-tax impact of unrealized losses on investment
securities classified as available for sale, compared with reductions of $23.4
million or $3.47 per common share at June 30, 1994 and $50.6 million or $7.65
per common share at December 31, 1994. The market valuation of investment
securities and other assets and liabilities should be considered in the context
of the entire balance sheet of the Company. With the exception of investment
securities classified as available for sale, trading account assets and mortgage
loans held for sale by M&T Mortgage Corporation, the carrying values of
financial instruments in the balance sheet are generally not adjusted for
appreciation or depreciation in market value resulting from changes in interest
rates.
Federal regulators generally require banking institutions to maintain "core
capital" and "total capital" ratios of at least 4% and 8%, respectively, of
risk-adjusted total assets. In addition to the risk-based measures, Federal bank
regulators have also implemented a minimum "leverage" ratio guideline of 3% of
the quarterly average of total assets. Under regulatory guidelines, unrealized
gains or losses on investment securities classified as available for sale are
not recognized in determining regulatory capital. The regulatory capital ratios
of the Company and its banking subsidiaries, M&T Bank and The East New York
Savings Bank ("East New York"), as of June 30, 1995 are presented in the
accompanying table.
REGULATORY CAPITAL RATIOS
June 30, 1995
First Empire M&T
(Consolidated) Bank East New York
-------------- ---- -------------
Core capital 8.51% 8.23% 9.24%
Total capital 10.60% 10.48% 10.51%
Leverage 6.72% 6.39% 7.83%
First Empire has historically maintained capital ratios well in excess of
minimum regulatory guidelines largely through a high rate of internal capital
generation. The rate of internal capital generation, or net income less
dividends paid expressed as an annualized percentage of average total
stockholders' equity, was 13.95% and 13.14% during the three and six month
periods ended June 30, 1995, respectively, compared with 13.55% and 13.23%
during the comparable periods of 1994. To further strengthen the "total capital"
ratios of M&T Bank and the Company, M&T Bank issued $100 million of ten-year
subordinated capital notes in July 1995.
In December 1993, First Empire announced a plan to repurchase and hold as
treasury stock up to 506,930 shares of common stock for reissuance upon the
possible future conversion of its 9% convertible preferred stock. As of June 30,
1995, First Empire had repurchased 442,900 shares pursuant to such plan at an
average cost of $150.58.
-17-
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Three months ended Six months ended
June 30 June 30
Amounts in thousands, except per share 1995 1994 Change 1995 1994 Change
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $31,454 28,681 + 10 % $58,622 56,309 + 4 %
Per common share
Net income
Primary $4.51 3.96 + 14 $8.36 7.73 + 8
Fully diluted 4.31 3.80 + 13 7.99 7.43 + 8
Cash dividends .60 .50 + 20 1.20 1.00 + 20
Average common shares outstanding
Primary 6,768 7,014 - 4 6,794 7,048 - 4
Fully diluted 7,293 7,541 - 3 7,338 7,578 - 3
Annualized return on
Average total assets 1.10 % 1.16 % 1.07 % 1.14 %
Average common stockholders' equity 16.87 % 16.32 % 16.10 % 16.00 %
Market price per common share
Closing $171.50 156.50 + 10 $171.50 156.50 + 10
High 172.50 156.50 172.50 156.50
Low 159.00 136.75 136.50 135.00
- ------------------------------------------------------------------------------------------------------------------------------------
At June 30
- ------------------------------------------------------------------------------------------------------------------------------------
Loans and leases,
net of unearned discount $ 8,880,971 7,401,229 + 20 %
Total assets 11,629,620 10,335,638 + 13
Total deposits 8,865,871 7,275,888 + 22
Total stockholders' equity 793,958 717,699 + 11
Stockholders' equity per common share $116.05 100.63 + 15
====================================================================================================================================
-18-
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
1995 Second quarter 1995 First quarter
Average Average Average Average
Average balance in millions; interest in thousands balance Interest rate balance Interest rate
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,805 $ 39,410 8.76 % 1,671 35,772 8.68 %
Real estate 5,187 116,067 8.95 5,048 112,059 8.88
Consumer 1,690 41,110 9.75 1,592 37,788 9.62
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 8,682 196,587 9.08 8,311 185,619 9.06
- ------------------------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 121 2,225 7.39 67 1,294 7.82
Federal funds sold and agreements
to resell securities 139 2,227 6.44 14 200 5.75
Trading account 29 371 5.02 13 193 5.94
- ------------------------------------------------------------------------------------------------------------------------------------
Total money-market assets 289 4,823 6.69 94 1,687 7.25
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agencies 1,340 19,658 5.88 1,100 15,671 5.78
Obligations of states and political subdivisions 57 965 6.84 56 948 6.86
Other 740 10,435 5.65 769 12,325 6.50
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,137 31,058 5.83 1,925 28,944 6.10
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 11,108 232,468 8.39 10,330 216,250 8.49
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (251) (247)
Cash and due from banks 317 313
Other assets 332 285
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 11,506 10,681
====================================================================================================================================
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 760 2,948 1.55 734 2,765 1.53
Savings deposits 2,950 21,920 2.98 3,040 22,312 2.98
Time deposits 4,075 60,008 5.91 3,702 51,573 5.65
Deposits at foreign office 117 1,504 5.16 184 2,336 5.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 7,902 86,380 4.38 7,660 78,986 4.18
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,588 23,787 6.01 1,076 15,663 5.90
Long-term borrowings 96 1,929 8.04 96 1,930 8.13
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 9,586 112,096 4.69 8,832 96,579 4.43
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,043 1,038
Other liabilities 111 74
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 10,740 9,944
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 766 737
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,506 10,681
====================================================================================================================================
Net interest spread 3.70 4.06
Contribution of interest-free funds 0.65 .64
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 120,372 4.35 % 119,671 4.70 %
====================================================================================================================================
*Includes nonaccrual loans
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
1994 Fourth quarter
Average Average
Average balance in millions; interest in thousands balance Interest rate
- ------------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,551 $ 32,609 8.34 %
Real estate 4,757 103,982 8.74
Consumer 1,497 34,881 9.25
- ------------------------------------------------------------------------------------------
Total loans and leases, net 7,805 171,472 8.72
- ------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 11 138 4.85
Federal funds sold and agreements
to resell securities 124 1,674 5.35
Trading account 6 86 5.62
- ------------------------------------------------------------------------------------------
Total money-market assets 141 1,898 5.32
- ------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agencies 1,075 14,841 5.48
Obligations of states and political subdivisions 53 841 6.24
Other 795 12,491 6.24
- ------------------------------------------------------------------------------------------
Total investment securities 1,923 28,173 5.81
- ------------------------------------------------------------------------------------------
Total earning assets 9,869 201,543 8.10
- ------------------------------------------------------------------------------------------
Allowance for possible credit losses (240)
Cash and due from banks 314
Other assets 257
- ------------------------------------------------------------------------------------------
Total assets $ 10,200
==========================================================================================
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 734 2,786 1.51
Savings deposits 3,105 21,936 2.80
Time deposits 2,606 33,216 5.06
Deposits at foreign office 221 2,539 4.55
- ------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,666 60,477 3.60
- ------------------------------------------------------------------------------------------
Short-term borrowings 1,609 21,135 5.21
Long-term borrowings 83 1,675 8.06
- ------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,358 83,287 3.95
- ------------------------------------------------------------------------------------------
Demand deposits 1,037
Other liabilities 81
- ------------------------------------------------------------------------------------------
Total liabilities 9,476
- ------------------------------------------------------------------------------------------
Stockholders' equity 724
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,200
==========================================================================================
Net interest spread 4.15
Contribution of interest-free funds .60
- ------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $118,256 4.75 %
==========================================================================================
*Includes nonaccrual loans
-19-
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
1994 Third quarter 1994 Second quarter
Average Average Average Average
Average balance in millions; interest in thousands balance Interest rate balance Interest rate
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,457 $ 29,797 8.11 % 1,463 27,993 7.68 %
Real estate 4,562 98,574 8.64 4,471 95,067 8.50
Consumer 1,423 33,281 9.28 1,332 30,071 9.06
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 7,442 161,652 8.62 7,266 153,131 8.45
- ------------------------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 158 1,863 4.68 5 57 4.38
Federal funds sold and agreements
to resell securities 20 244 4.86 138 1,390 4.03
Trading account 8 110 5.34 9 126 5.65
- ------------------------------------------------------------------------------------------------------------------------------------
Total money-market assets 186 2,217 4.73 152 1,573 4.14
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities
U.S. Treasury and federal agencies 1,116 13,954 4.96 1,186 13,217 4.47
Obligations of states and political subdivisions 53 760 5.69 54 740 5.49
Other 823 11,972 5.77 857 12,510 5.86
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,992 26,686 5.32 2,097 26,467 5.06
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 9,620 190,555 7.86 9,515 181,171 7.64
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (230) (219)
Cash and due from banks 298 309
Other assets 271 281
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 9,959 9,886
====================================================================================================================================
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 739 2,840 1.52 751 2,814 1.50
Savings deposits 3,214 21,258 2.62 3,380 20,921 2.48
Time deposits 2,119 24,307 4.55 1,993 20,797 4.18
Deposits at foreign office 159 1,610 4.01 104 817 3.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,231 50,015 3.18 6,228 45,349 2.92
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,836 20,841 4.50 1,775 17,391 3.93
Long-term borrowings 76 1,537 8.07 76 1,537 8.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,143 72,393 3.53 8,079 64,277 3.19
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,019 992
Other liabilities 82 92
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,244 9,163
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 715 723
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 9,959 9,886
====================================================================================================================================
Net interest spread 4.33 4.45
Contribution of interest-free funds .54 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $118,162 4.87 % 116,894 4.93 %
====================================================================================================================================
*Includes nonaccrual loans
-20-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
A number of lawsuits were pending against First Empire and its subsidiaries
at June 30, 1995. In the opinion of management, the potential liabilities, if
any, arising from such litigation will not have a materially adverse impact on
the Company's consolidated financial condition. Moreover, management believes
that First Empire and its subsidiaries have substantial defenses in such
litigation, but that there can be no assurance that the potential liabilities,
if any, arising from such litigation will not have a materially adverse impact
on the Company's consolidated results of operations in the future.
Item 2. Changes in Securities.
(Not applicable.)
Item 3. Defaults Upon Senior Securities.
(Not applicable.)
Item 4. Submission of Matters to a Vote of Security Holders.
Information concerning the matters submitted to a vote of stockholders at
First Empire's Annual Meeting of Stockholders held on April 18, 1995 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, 1995.
Item 5. Other Information. (None.)
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of this report:
Exhibit
No.
-------
11 Statement re: Computation of Earnings Per Common Share.
Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K.
First Empire did not file any Current Reports on Form 8-K during the
fiscal quarter ended June 30, 1995.
-21-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST EMPIRE STATE CORPORATION
Date: August 9, 1995 By: /s/ James L. Vardon
------------------------------------------
James L. Vardon
Executive Vice President
and Chief Financial Officer
-22-
EXHIBIT INDEX
Exhibit
No.
- -------
11 Statement re: Computation of Earnings Per Common Share. Filed herewith.
27 Financial Data Schedule. Filed herewith.
-23-
Exhibit No. 11
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF EARNINGS PER COMMON SHARE
Three months ended Six months ended
June 30 June 30
Amounts in thousands, except per share data 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Primary Average common shares outstanding 6,506 6,797 6,547 6,834
Common stock equivalents * 262 217 247 214
- ------------------------------------------------------------------------------------------------------------------------------------
Primary common shares outstanding 6,768 7,014 6,794 7,048
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $31,454 28,681 58,622 56,309
Less: Cash dividends on preferred stock 900 900 1,800 1,800
- ------------------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $30,554 27,781 56,822 54,509
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per common share - primary $4.51 3.96 8.36 7.73
- ------------------------------------------------------------------------------------------------------------------------------------
Fully diluted Average common shares outstanding 6,506 6,797 6,547 6,834
Common stock equivalents * 280 237 284 237
Assumed conversion of 9% cumulative convertible
preferred stock 507 507 507 507
- ------------------------------------------------------------------------------------------------------------------------------------
Fully diluted average common shares outstanding 7,293 7,541 7,338 7,578
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $31,454 28,681 58,622 56,309
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per common share - fully diluted $4.31 3.80 7.99 7.43
- ------------------------------------------------------------------------------------------------------------------------------------
* 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
3-MOS
DEC-31-1995
APR-01-1995
JUN-30-1995
308,079
125,500
472
35,349
1,790,217
368,458
370,308
9,166,641
253,842
11,629,620
8,865,871
1,722,967
150,617
96,207
40,487
0
40,000
713,471
11,629,620
195,963
30,430
4,452
231,193
86,380
112,096
119,097
8,515
(46)
90,269
54,201
31,454
0
0
31,454
4.51
4.31
4.35
60,889
14,530
0
0
243,332
11,625
5,120
253,842
253,842
0
119,125
