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, 1996
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 1, 1996: 6,719,387 shares.
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FIRST EMPIRE STATE CORPORATION
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FORM 10-Q
For the Quarterly Period Ended June 30, 1996
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, 1996 and December 31, 1995 3
Consolidated Statement of Income -
Three and six months ended
June 30, 1996 and 1995 4
Consolidated Statement of Cash Flows -
Six months ended June 30, 1996 and 1995 5
Consolidated Statement of Changes in
Stockholders' Equity - Six months ended
June 30, 1996 and 1995 6
Consolidated Summary of Changes in
Allowance for Possible Credit Losses -
Six months ended June 30, 1996 and 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Part II. Other Information 19
Signatures 20
Exhibit Index 21
Exhibit No. 11 22
Exhibit No. 27 23
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<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
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FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET (Unaudited)
June 30, December 31,
Dollars in thousands, except per share 1996 1995
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<S> <C> <C>
Assets Cash and due from banks $ 376,309 363,119
Money-market assets
Interest-bearing deposits at banks 14,451 125,500
Federal funds sold and agreements to resell securities 23,136 1,000
Trading account 31,481 9,709
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Total money-market assets 69,068 136,209
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Investment securities
Available for sale (cost: $1,589,452 at June 30,1996;
$1,537,393 at December 31,1995) 1,565,853 1,531,893
Held to maturity (market value: $195,253 at June 30,1996;
$187,476 at December 31,1995) 194,693 185,834
Other (market value: $56,505 at June 30,1996;
$51,568 at December 31,1995) 56,505 51,568
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Total investment securities 1,817,051 1,769,295
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Loans and leases 10,487,452 9,873,723
Unearned discount (358,282) (317,874)
Allowance for possible credit losses (269,951) (262,344)
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Loans and leases, net 9,859,219 9,293,505
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Premises and equipment 125,629 128,516
Accrued interest and other assets 295,081 265,258
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Total assets $12,542,357 11,955,902
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Liabilities Noninterest-bearing deposits $ 1,172,333 1,184,359
NOW accounts 780,699 768,559
Savings deposits 2,838,646 2,765,301
Time deposits 5,126,031 4,596,053
Deposits at foreign office 274,974 155,303
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Total deposits 10,192,683 9,469,575
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Federal funds purchased and agreements
to repurchase securities 915,151 1,213,372
Other short-term borrowings 219,140 59,834
Accrued interest and other liabilities 164,138 174,077
Long-term borrowings 190,222 192,791
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Total liabilities 11,681,334 11,109,649
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Stockholders' equity Preferred stock, $1 par, 1,000,000 shares
authorized, 40,000 shares outstanding at December 31,
1995, stated at aggregate liquidation value -- 40,000
Common stock, $5 par, 15,000,000 shares
authorized, 8,097,472 shares issued 40,487 40,487
Surplus 93,132 98,657
Undivided profits 870,171 805,486
Unrealized investment losses, net (13,629) (3,155)
Treasury stock - common, at cost - 1,301,803 shares at
June 30, 1996; 1,664,306 shares at December 31, 1995 (129,138) (135,222)
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Total stockholders' equity 861,023 846,253
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Total liabilities and stockholders' equity $12,542,357 11,955,902
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</TABLE>
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<TABLE>
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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 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Interest income Loans and leases, including fees $217,042 195,963 430,248 380,979
Money-market assets
Deposits at banks 266 2,225 1,297 3,519
Federal funds sold and agreements
to resell securities 779 2,227 2,182 2,427
Trading account 232 348 505 520
Investment securities
Fully taxable 28,646 29,692 56,065 57,269
Exempt from federal taxes 638 738 1,083 1,565
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Total interest income 247,603 231,193 491,380 446,279
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Interest expense NOW accounts 2,642 2,948 5,415 5,713
Savings deposits 20,673 21,920 41,194 44,232
Time deposits 68,920 60,008 134,376 111,581
Deposits at foreign office 3,534 1,504 5,663 3,840
Short-term borrowings 15,657 23,787 35,346 39,450
Long-term borrowings 3,570 1,929 7,187 3,859
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Total interest expense 114,996 112,096 229,181 208,675
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Net interest income 132,607 119,097 262,199 237,604
Provision for possible credit losses 11,700 8,515 21,375 17,015
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Net interest income after provision
for possible credit losses 120,907 110,582 240,824 220,589
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Other income Mortgage banking revenues 11,275 7,616 21,666 10,488
Trust income 7,073 5,847 13,246 11,584
Service charges on deposit accounts 10,128 9,574 20,033 18,793
Merchant discount and other credit card fees 4,220 2,415 7,275 4,688
Trading account and foreign exchange gain 858 220 154 1,080
Gain (loss) on sales of bank investment securities 109 (46) 427 (46)
Other revenues from operations 7,800 8,262 14,913 13,703
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Total other income 41,463 33,888 77,714 60,290
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Other expense Salaries and employee benefits 49,133 44,148 101,261 90,375
Equipment and net occupancy 12,699 12,179 26,115 24,885
Printing, postage and supplies 3,863 3,504 7,682 7,099
Deposit insurance 778 4,264 1,558 8,528
Other costs of operations 31,448 26,174 57,622 48,876
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Total other expense 97,921 90,269 194,238 179,763
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Income before income taxes 64,449 54,201 124,300 101,116
Income taxes 25,790 22,747 49,488 42,494
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Net income $ 38,659 31,454 74,812 58,622
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Net income per common share
Primary $5.36 4.51 10.56 8.36
Fully diluted 5.36 4.31 10.32 7.99
Cash dividends per common share .70 .60 1.40 1.20
Average common shares outstanding
Primary 7,212 6,768 6,995 6,794
Fully diluted 7,216 7,293 7,245 7,338
</TABLE>
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<TABLE>
<CAPTION>
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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 1996 1995
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<S> <C> <C>
Cash flows from Net income $ 74,812 58,622
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 21,375 17,015
Depreciation and amortization of premises
and equipment 9,886 9,524
Amortization of capitalized mortgage servicing rights 5,065 3,027
Provision for deferred income taxes (6,216) (7,452)
Asset write-downs 605 3,183
Net gain on sales of assets (599) (261)
Net change in accrued interest receivable, payable (7,000) (1,601)
Net change in other accrued income and expense 2,049 50,553
Net change in loans held for sale (10,540) (110,781)
Net change in trading account assets and liabilities (12,018) (29,911)
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Net cash provided (used) by operating activities 77,419 (8,082)
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Cash flows from Proceeds from sales of investment securities
investing activities Available for sale 143,235 41,348
Proceeds from maturities of investment securities
Available for sale 269,661 130,128
Held to maturity 20,349 27,824
Purchases of investment securities
Available for sale (466,126) (381,383)
Held to maturity (29,213) (117,905)
Other (2,776) (2,641)
Net (increase) decrease in interest-bearing
deposits at banks 111,049 (125,357)
Net increase in loans and leases (577,434) (530,123)
Capital expenditures, net (6,918) (5,918)
Acquisitions, net of cash acquired -- (18,691)
Other, net (12,578) (59)
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Net cash used by investing activities (550,751) (982,777)
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Cash flows from Net increase in deposits 721,888 621,366
financing activities Net increase (decrease) in short-term borrowings (151,830) 325,117
Payments on long-term borrowings (2,638) (56)
Purchases of treasury stock (42,899) (22,727)
Dividends paid - common (9,227) (7,847)
Dividends paid - preferred (900) (1,800)
Other, net (5,736) 4,496
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Net cash provided by financing activities 508,658 918,549
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Net increase (decrease) in cash and cash equivalents $ 35,326 (72,310)
Cash and cash equivalents at beginning of period 364,119 380,861
Cash and cash equivalents at end of period $ 399,445 308,551
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Supplemental Interest received during the period $ 482,499 428,922
disclosure of cash Interest paid during the period 229,783 184,091
flow information Income taxes paid during the period 54,733 20,873
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Supplemental schedule of
noncash investing and Real estate acquired in settlement of loans $ 4,097 3,392
financing activities Conversion of preferred stock to common stock 40,000 --
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</TABLE>
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<TABLE>
<CAPTION>
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FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
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Unrealized
investment
gains
Dollars in thousands, Preferred Common Undivided (losses), Treasury
except per share stock stock Surplus profits net stock Total
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<S> <C> <C> <C> <C> <C> <C> <C>
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
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1996
Balance - January 1, 1996 $40,000 40,487 98,657 805,486 (3,155) (135,222) $846,253
Net income -- -- -- 74,812 -- -- 74,812
Preferred stock cash dividends -- -- -- (900) -- -- (900)
Common stock cash dividends -
$1.40 per share -- -- -- (9,227) -- -- (9,227)
Exercise of stock options -- -- 1,009 -- -- 2,449 3,458
Purchases of treasury stock -- -- -- -- -- (42,899) (42,899)
Conversion of preferred stock into
506,930 shares of common stock (40,000) -- (6,534) -- -- 46,534 --
Unrealized losses on investment
securities available for sale, net -- -- -- -- (10,474) -- (10,474)
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Balance - June 30,1996 $ -- 40,487 93,132 870,171 (13,629) (129,138) $861,023
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</TABLE>
CONSOLIDATED SUMMARY OF CHANGES IN ALLOWANCE FOR POSSIBLE CREDIT LOSSES
(Unaudited)
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Six months ended June 30
Dollars in thousands 1996 1995
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Beginning balance $262,344 243,332
Provision for possible credit losses 21,375 17,015
Net charge-offs
Charge-offs (20,486) (11,625)
Recoveries 6,718 5,120
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Total net charge-offs (13,768) (6,505)
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Ending balance $269,951 253,842
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<PAGE>
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 42 and 43 of the Company's 1995 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.
2. Stock-based compensation
During the first quarter of 1996, Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation", became effective.
SFAS No. 123 establishes a fair value based method of accounting for stock-based
compensation plans and encourages, but does not require, entities to adopt that
method of accounting for all arrangements under which employees receive shares
of stock or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of the stock. However,
SFAS No. 123 allows entities to continue to measure compensation cost for
employee stock options or similar equity instruments using the method prescribed
by Accounting Principles Board Opinion ("APBO") No. 25, "Accounting for Stock
Issued to Employees." The Company has elected to continue measuring compensation
cost for employee stock compensation arrangements in accordance with the
provisions of APBO No. 25. Accordingly, SFAS No. 123 had no impact on the
Company's results of operations for the three and six month periods ended June
30, 1996.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Net income of First Empire State Corporation ("First Empire") was $38.7 million
or $5.36 per common share in the second quarter of 1996, increases of 23% and
19%, respectively, from $31.5 million or $4.51 per common share in the second
quarter of 1995. On a fully diluted basis, earnings per common share rose 24% to
$5.36 from $4.31 in the second quarter of 1995. For the six months ended June
30, 1996, net income was $74.8 million or $10.56 per common share, up 28% and
26%, respectively, from $58.6 million or $8.36 per common share earned during
the comparable period of 1995. Earnings per common share on a fully diluted
basis increased 29% to $10.32 for the six months ended June 30, 1996 from $7.99
in the first half of 1995. The rate of return on average assets for First Empire
and its consolidated subsidiaries ("the Company") in the second quarter of 1996
increased to 1.25% from 1.10% in the year-earlier quarter and 1.20% in 1996's
first quarter. The return on average common stockholders' equity was 18.18% in
the recent quarter, up from 16.87% in the second quarter of 1995 and 17.50% in
the first quarter of 1996. During the first six months of 1996, the rates of
return on average assets and average common stockholders' equity were 1.22% and
17.85%, respectively, up from 1.07% and 16.10%, respectively, in the
corresponding period of 1995.
On March 29, 1996, National Indemnity Company, a subsidiary of
Berkshire Hathaway Inc., the holder of all of the outstanding shares of First
Empire's 9% convertible preferred stock, converted such shares into 506,930
shares of First Empire common stock. The 40,000 shares of preferred stock had
been issued on March 15, 1991 for $40 million and were converted into shares of
common stock at a contractual conversion price of $78.90625 per share. As of
June 30, 1996, common shares outstanding totaled 6,795,669, compared with
6,496,555 and 6,844,923 at June 30, 1995 and March 31, 1996, respectively.
Taxable-equivalent Net Interest Income
Taxable-equivalent net interest income increased to $133.7 million in the second
quarter of 1996, up $13.3 million or 11% from $120.4 million in the second
quarter of 1995, and $3.2 million higher than the $130.5 million earned in the
first quarter of 1996. Growth in average earning assets, resulting from an
increase in average loans, was the most significant factor contributing to the
improvement in net interest income. Average earning assets in the recent quarter
increased $936 million, or 8%, to $12.0 billion from $11.1 billion in the second
quarter of 1995. Average earning assets totaled $11.7 billion in the initial
1996 quarter. Average loans and leases grew $1.3 billion, or 15%, to $10.0
billion in the second quarter of 1996 from $8.7 billion in the year-earlier
quarter. Average loans and leases were $9.7 billion in 1996's first quarter. The
accompanying table summarizes quarterly changes in the major components of the
loan and lease portfolio.
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<PAGE>
AVERAGE LOANS AND LEASES
(net of unearned discount)
Dollars in millions Percent increase from
2nd Qtr. 2nd Qtr. 1st Qtr.
1996 1995 1996
-------- -------- --------
Commercial, financial, etc. $2,032 13% 2%
Real estate - commercial 3,727 8 2
Real estate - consumer 2,119 22 5
Consumer
Automobile 975 45 9
Home equity 603 3 1
Credit cards 242 50 9
Other 299 11 3
------ --- ---
Total consumer 2,119 25 6
------ --- ---
Total $9,997 15% 3%
====== === ===
For the first six months of 1996, taxable-equivalent net interest
income was $264.2 million, up from $240.0 million in the corresponding 1995
period. An increase in average loans and leases of $1.3 billion was the leading
factor contributing to this improvement.
Due, in part, to loan growth, average holdings of money-market assets
in the second quarter of 1996 were decreased from both the second quarter of
1995 and the first quarter of 1996. Money-market assets averaged $108 million in
1996's second quarter, compared with $289 million in the year-earlier quarter
and $193 million in the initial 1996 quarter.
Average investment securities declined to $1.9 billion in the recent
quarter from $2.1 billion in the second quarter of 1995. Holdings of investment
securities averaged $1.8 billion in 1996's first quarter. In general, the
average balance of the investment securities portfolio is influenced by such
factors as demand for loans, which generally yield more than investment
securities, ongoing repayments, the level of deposits, and management of balance
sheet size and resulting capital ratios.
Core deposits, which include noninterest-bearing demand deposits,
interest-bearing transaction accounts, savings deposits and nonbrokered domestic
time deposits under $100,000, represent a significant source of funding to the
Company. The Company's New York State branch network is the principal source of
core deposits, which generally carry lower interest rates than wholesale funds
of comparable maturities. Core deposits include certificates of deposit under
$100,000 generated on a nationwide basis by M&T Bank, National Association ("M&T
Bank, N.A."), a wholly owned commercial bank subsidiary of First Empire. Average
core deposits increased to $7.9 billion in 1996's second quarter, up from $7.3
billion in the year-earlier quarter and $7.7 billion in the first quarter of
1996. Average core deposits of M&T Bank, N.A., which began operations in the
fourth quarter of 1995, were $226 million in the recently completed quarter,
compared with $87 million in the first quarter of 1996. 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.
1996 1995 1996
-------- -------- --------
NOW accounts $ 760 --% --%
Savings deposits 2,872 (3) 2
Time deposits less than $100,000 3,152 22 5
Demand deposits 1,138 9 1
------ --- ---
Total $7,922 8% 3%
====== === ===
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<PAGE>
In addition to core deposits, the Company obtains funding through
domestic time deposits of $100,000 or more, deposits originated through the
Company's offshore branch office, and brokered certificates of deposit. Brokered
deposits are used to reduce short-term borrowings and lengthen the average
maturity of interest-bearing liabilities. Brokered deposits averaged $999
million during the recent quarter and totaled $1.1 billion at June 30, 1996,
compared with an average balance of $888 million during the comparable 1995
period and a total balance of $888 million at June 30, 1995. Such deposits
averaged $830 million in the first quarter of 1996. The weighted average
remaining term to maturity of brokered deposits at June 30, 1996 was 1.3 years.
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 $1.2 billion in the
recent quarter, compared with $1.6 billion in the second quarter of 1995 and
$1.5 billion in the first quarter 1996.
Changes in interest rates and spreads, as well as changes in the
composition of the Company's earning assets and interest-bearing liabilities,
can impact net interest income. Net interest spread, or the difference between
the yield on earning assets and the rate paid on interest-bearing liabilities,
was 3.84% in the second quarter of 1996, compared with 3.70% in the year-earlier
quarter. This improvement reflects a 23 basis point (hundredths of one percent)
decrease in the cost of interest-bearing liabilities to 4.46% in the recently
completed quarter from 4.69% in the second quarter of 1995. Partially offsetting
this decline in the cost of interest-bearing liabilities was a 9 basis point
decrease in the yield on earning assets to 8.30% in the second quarter of 1996
from 8.39% in the corresponding 1995 period. The net interest spread was 3.85%
in the first quarter of 1996 when the yield on earning assets was 8.42% and the
rate paid on interest-bearing liabilities was 4.57%. Largely due to the changes
in the net interest spread described above, the Company's net interest margin,
or taxable-equivalent net interest income expressed as an annualized percentage
of average earning assets, increased to 4.46% in 1996's second quarter from
4.35% in the comparable quarter of 1995, and was down only slightly from 4.49%
in the first quarter of 1996. The net interest margin was 4.48% and 4.52% during
the six months ended June 30, 1996 and 1995, respectively.
The contribution to net interest margin of interest-free funds varied
by three basis points or less during the periods discussed herein. Average
interest-free funds, consisting largely of noninterest-bearing demand deposits
and stockholders' equity, totaled $1.7 billion in the second quarter of 1996, up
from $1.5 billion a year earlier, but relatively unchanged from 1996's initial
quarter.
Management analyzes the Company's exposure to changing interest rates
and spreads by projecting net interest income under a number of different
interest rate scenarios. As part of the 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. The
aggregate notional amount of interest rate swap agreements used as part of the
Company's management of interest rate risk in effect at June 30, 1996 and 1995
was $2.5 billion and $2.6 billion, respectively. 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. However, under terms of $34 million of swaps, the Company pays a fixed
rate of interest and receives a variable rate. At June 30, 1996 the weighted
average rates to be received and paid under interest rate swap agreements were
6.18% and 5.38%, respectively. As of June 30, 1996, the Company had also entered
into forward-starting swaps with an aggregate notional amount of $25 million.
Such forward-starting swaps had no effect on the Company's net interest income
through June 30, 1996. The effect of interest rate swaps on net interest income
and margin as well as average notional amounts are presented in the accompanying
table.
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<PAGE>
INTEREST RATE SWAPS
Dollars in thousands
Three months ended June 30
---------------------------------------------
1996 1995
--------------------- ---------------------
Amount Rate(1) Amount Rate(1)
---------- ------- ----------- -------
Increase (decrease) in:
Interest income ........ $ 318 .01% $(1,818) (.07)%
Interest expense ....... (3,987) (.15) (1,338) (.06)
---------- ----------
Net interest
income/margin ........ $ 4,305 .14% $ (480) (.02)%
========== ==== ========== ====
Average notional
amount (2) ............. $2,413,370 $2,562,949
========== ==========
Six months ended June 30
---------------------------------------------
1996 1995
------------------- --------------------
Amount Rate(1) Amount Rate(1)
---------- ------- ---------- -------
Increase (decrease) in:
Interest income ........ $ 279 --% $(3,343) (.06)%
Interest expense ....... (7,140) (.14) (2,414) (.05)
---------- ----------
Net interest
income/margin ........ $ 7,419 .13% $ (929) (.02)%
========== ==== ========== ====
Average notional
amount (2) ............. $2,323,139 $2,549,616
========== ==========
(1) Computed as an annualized percentage of average earning assets or
interest-bearing liabilities.
(2) Excludes forward-starting interest rate swaps.
The Company estimates that as of June 30, 1996 it would have to pay
approximately $10.1 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.
As part of its ongoing operations, the Company is also exposed to
liquidity risk whenever the maturities of financial instruments included in
assets and liabilities differ. Accordingly, a critical element in managing a
banking institution is ensuring that sufficient cash flow and liquid assets are
available to satisfy demand for loans, deposit withdrawals, operating expenses
and other corporate purposes. In addition to deposits and borrowings, maturities
of money-market assets, repayments of loans and investment securities, and cash
generated from operations provide the Company with other sources of liquidity.
Through membership in the FHLB, as well as other available borrowing facilities,
management believes that First Empire's banking subsidiaries have access to
adequate funding sources. 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 $25 million line of credit
with an unaffiliated commercial bank, all of which was available for borrowing
at June 30, 1996. 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.
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<PAGE>
Provision for Possible Credit Losses
The purpose of the provision is to replenish or build the Company's allowance
for possible credit losses to a level necessary to maintain an adequate reserve
position. In assessing the adequacy of the allowance for possible credit losses,
management performs an ongoing evaluation of the loan portfolio and other credit
commitments, 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 June 30,
1996 was adequate to absorb credit losses from existing loans, leases and credit
commitments.
The provision for possible credit losses in the second quarter of 1996
was $11.7 million, up from $8.5 million in 1995's second quarter and $9.7
million in the first quarter of 1996. Net loan charge-offs in the second quarter
of 1996 totaled $8.7 million, up from $3.4 million in the year-earlier quarter
and $5.1 million in the first quarter of 1996. Consumer loan charge-offs totaled
$6.7 million in the recent quarter, compared with $2.1 million in the second
quarter of 1995 and $5.0 million in the initial 1996 quarter. Net charge-offs as
an annualized percentage of average loans and leases were .35% in the recent
quarter, compared with .16% in the corresponding 1995 quarter and .21% in the
first quarter of 1996. For the six months ended June 30, 1996 and 1995, the
provision for possible credit losses was $21.4 million and $17.0 million,
respectively. Through June 30, net charge-offs were $13.8 million in 1996 and
$6.5 million in 1995, representing .28% and .15%, respectively, of average loans
and leases. Consumer loan charge-offs totaled $11.6 million and $3.9 million
during the six months ended June 30, 1996 and 1995, respectively.
Nonperforming loans were $85.0 million or .84% of total loans and
leases outstanding at June 30, 1996, compared with $75.4 million or .85% at June
30, 1995 and $82.6 million or .83% at March 31, 1996. The increase in
nonperforming loans over the prior periods was due to the second quarter 1996
purchase from the Government National Mortgage Association of $11.8 million of
one-to-four family residential mortgage loans serviced by the Company. These
loans are covered by guarantees of the Federal Housing Administration. It is
anticipated that the costs of servicing these loans will be reduced as a result
of the purchase. Approximately $11.1 million of these loans have been classified
as accruing loans past due ninety days or more, and $.7 million have been
classified as nonaccrual loans. Nonperforming commercial real estate loans
totaled $30.5 million at June 30, 1996, $42.9 million at June 30, 1995 and $33.7
million at March 31, 1996. Included in these totals were loans secured by
properties located in the New York City metropolitan area of $7.0 million at
June 30, 1996, $21.0 million at June 30, 1995 and $10.4 million at March 31,
1996. Nonperforming consumer loans and leases totaled $13.2 million at June 30,
1996, compared with $9.3 million at June 30, 1995 and $13.7 million at March 31,
1996. The increase in nonperforming consumer loans from June 30, 1995 is
generally consistent with current industry trends and also reflects growth in
the Company's consumer loan portfolio. Nevertheless, management continues to
closely monitor repayment performance of consumer loans. Assets taken in
foreclosure of defaulted loans were $8.9 million at June 30, 1996, $8.4 million
at June 30, 1995 and $7.5 million at March 31, 1996.
The allowance for possible credit losses was $270.0 million, or 2.67%
of total loans and leases at June 30, 1996, compared with $253.8 million or
2.86% a year earlier, $262.3 million or 2.75% at December 31, 1995 and $266.9
million or 2.69% at March 31, 1996. The ratio of the allowance for possible
credit losses to nonperforming loans was 318% at the most recent quarter-end,
compared with 337% a year earlier, 282% at December 31, 1995 and 323% at March
31, 1996.
A comparative summary of nonperforming assets and certain credit
quality ratios is presented in the accompanying table.
-12-
<PAGE>
NONPERFORMING ASSETS
Dollars in thousands
<TABLE>
<CAPTION>
1996 Quarters 1995 Quarters
Second First Fourth Third Second
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $57,603 67,098 75,224 59,720 60,889
Loans past due
90 days or more 27,406 15,513 17,842 16,516 14,530
Renegotiated loans -- -- -- -- --
------- ------- ------- ------ ------
Total nonperforming loans 85,009 82,611 93,066 76,236 75,419
------- ------- ------- ------ ------
Other real estate owned 8,890 7,508 7,295 8,520 8,390
------- ------- ------- ------ ------
Total nonperforming assets $93,899 90,119 100,361 84,756 83,809
======= ======= ======= ====== ======
Nonperforming loans
to total loans and leases,
net of unearned discount .84% .83% .97% .83% .85%
Nonperforming assets
to total net loans and
other real estate owned .93% .91% 1.05% .92% .94%
=== === ==== === ===
</TABLE>
Other Income
Other income totaled $41.5 million in the second quarter of 1996, compared with
$33.9 million in the year-earlier quarter and $36.3 million in the first quarter
of 1996. Other income for the first six months of 1996 was $77.7 million, up 29%
from $60.3 million in the comparable 1995 period.
Mortgage banking revenues totaled $11.3 million in the recent quarter,
up from $7.6 million in the year-earlier quarter and $10.4 million in the first
quarter of 1996. Higher loan origination volume, improved pricing margins and
two 1995 acquisitions of mortgage banking operations were significant factors
contributing to the increase in mortgage banking revenue from the prior year's
second quarter. Residential mortgage loan servicing fees totaled $5.1 million in
the second quarter of 1996, compared with $5.0 million in the second quarter of
1995 and $5.2 million in the first quarter of 1996. Gains from sales of
residential mortgage loans and loan servicing rights were $5.7 million in the
recently completed quarter, compared with $2.2 million in the year-earlier
quarter and $4.7 million in 1996's first quarter. Residential mortgage loans
serviced for others totaled $5.6 billion and $5.2 billion at June 30, 1996 and
1995, respectively. Capitalized mortgage servicing rights and excess servicing
receivables were $34.8 million and $7.2 million, respectively, at June 30, 1996,
compared with $28.5 million and $7.1 million, respectively, at June 30, 1995.
Service charges on deposit accounts totaled $10.1 million in 1996's
second quarter, up 6% from $9.6 million in the second quarter of 1995 and
slightly higher than the $9.9 million earned in the first quarter of 1996. Trust
income of $7.1 million in the second quarter of 1996 increased 21% from $5.8
million in last year's second quarter, and 15% from $6.2 million in the first
quarter of 1996. Merchant discount and credit card fees were $4.2 million in the
recent quarter, up from $2.4 million and $3.1 million in the second quarter of
1995 and the first quarter of 1996, respectively. Trading account and foreign
exchange activity resulted in gains of $858 thousand in the second quarter of
1996, compared with gains of $220 thousand in the corresponding 1995 quarter and
losses of $704 thousand in the first quarter of 1996. Other revenues from
operations totaled $7.8 million in the recent quarter, compared with $8.3
million in the second quarter of 1995 and $7.1 million in the first quarter of
1996. Such amounts include revenues from the sale of mutual funds and annuities
totaling $3.3 million and $2.3 million in the second quarter of 1996 and 1995,
respectively, and $2.8 million in 1996's first quarter.
For the first six months of the year, mortgage banking revenues
increased to $21.7 million from $10.5 million in the comparable 1995 period. As
previously mentioned, higher loan origination volume and the 1995
-13-
<PAGE>
acquisitions were major factors leading to the increase. Compared with the same
period in 1995, service charges on deposit accounts increased 7% to $20.0
million during the first six months of 1996, while trust income increased 14% to
$13.2 million and merchant discount and credit card fees increased 55% to $7.3
million. Trading account and foreign exchange activity resulted in gains of $154
thousand for the initial half of 1996, compared with gains of $1.1 million in
the first six months of 1995. Other revenues from operations increased 9% to
$14.9 million in the first six months of 1996 from $13.7 million in the
comparable 1995 period.
Other Expense
Other expense totaled $97.9 million in the second quarter of 1996, compared with
$90.3 million in the second quarter of 1995 and $96.3 million in the first
quarter of 1996. Through the first six months of 1996, other expense totaled
$194.2 million or 8% higher than the $179.8 million in the comparable 1995
period.
Salaries and employee benefits expense was $49.1 million in the recent
quarter, 11% higher than the corresponding 1995 quarter but 6% lower than the
first quarter of 1996. For the first half of 1996, salaries and employee
benefits expense increased 12% to $101.3 million from $90.4 million in the
comparable 1995 period. Factors contributing to the higher expenses over the
prior year periods were merit salary increases, commission compensation, and the
expansion of subsidiaries providing residential mortgage banking services,
indirect automobile loans and sales of mutual funds and annuities.
Nonpersonnel expenses totaled $48.8 million in the second quarter of
1996, up $2.7 million from the second quarter of 1995 and $4.6 million from the
first quarter of 1996. Such expenses were $93.0 million during the first six
months of 1996, up 4% from $89.4 million during the corresponding 1995 period.
The increases from the comparable 1995 periods were the result of higher
expenses associated with the expansion of businesses providing mortgage banking
services, indirect automobile loans, credit cards and the sale of mutual funds
and annuities, as well as general expense increases, largely offset by lower
deposit insurance expense. The increase in nonpersonnel expense from the first
quarter of 1996 was due, in part, to the credit card business expansion.
The decline in deposit insurance expense in 1996 compared with the
prior year reflects the substantial elimination by the Federal Deposit Insurance
Corporation ("FDIC") as of January 1, 1996 of deposit insurance premiums payable
to the Bank Insurance Fund ("BIF") by the strongest BIF-insured institutions.
Although First Empire's banking subsidiaries are BIF-insured institutions, the
Company has approximately $1.4 billion of deposits obtained in so-called "Oakar"
acquisitions for which deposit insurance premiums are paid to the Savings
Association Insurance Fund ("SAIF") of the FDIC. Unlike BIF-insured deposits,
the FDIC has not reduced its assessment rates for SAIF-insured deposits, which
currently range between $.23 and $.31 per $100 of assessable deposits.
Furthermore, the U.S. Congress and the executive branch of the Federal
government have considered and continue to study various proposals to
recapitalize the SAIF. Many of these proposals have contemplated special
assessments on thrifts and banks, and recent proposals have called for the
participation of additional parties. Congress previously passed a SAIF
recapitalization plan that would have required a one-time special assessment on
the Oakar deposits of thrifts and banks, but the legislation was vetoed after
being attached to a balanced budget bill. Although it is not possible at this
time to predict the form or timing of any legislation that may be enacted to
recapitalize the SAIF, management believes that some form of legislation will
ultimately be passed that includes an assessment of the Oakar deposits of
BIF-insured institutions.
Capital
Total stockholders' equity at June 30, 1996 was $861.0 million or 6.86% of total
assets, compared with $794.0 million or 6.83% of total assets a year
-14-
<PAGE>
earlier and $846.3 million or 7.08% of total assets at December 31, 1995. Common
stockholders' equity also totaled $861.0 million at June 30, 1996, up from
$754.0 million a year earlier and $806.3 million at December 31, 1995. As
previously noted, all shares of the Company's 9% convertible preferred stock
were converted on March 29, 1996 into 506,930 shares of common stock at a
conversion price of $78.90625 per share. On a per share basis, common
stockholders' equity was $126.70 at June 30, 1996, compared with $116.05 at June
30, 1995 and $125.33 at December 31, 1995.
Stockholders' equity at June 30, 1996 reflected a reduction of $13.6
million, or $2.01 per common share, for the net after-tax impact of unrealized
losses on investment securities classified as available for sale, compared with
reductions of $6.4 million or $.99 per common share at June 30, 1995 and $3.2
million or $.49 per common share at December 31, 1995. Such unrealized losses
represent the amount by which amortized cost exceeded the fair value of
investment securities classified as available for sale, net of applicable income
taxes. The market valuation of investment securities 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 liabilities, and residential mortgage loans held for sale, the carrying
values of financial instruments in the balance sheet are generally not adjusted
for appreciation or depreciation in market value resulting from changes in
interest rates.
Federal regulators generally require banking institutions to maintain
"core capital" and "total capital" ratios of at least 4% and 8%, respectively,
of total risk-adjusted 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 capital ratios of
the Company and its banking subsidiaries, Manufacturers and Traders Trust
Company ("M&T Bank"), The East New York Savings Bank ("East New York") and M&T
Bank, N.A., as of June 30, 1996 are presented in the accompanying table.
REGULATORY CAPITAL RATIOS
June 30, 1996
First Empire M&T East M&T
(Consolidated) Bank New York Bank, N.A.
-------------- ------ -------- ----------
Core capital 8.45% 7.57% 11.57% 10.34%
Total capital 11.46% 10.85% 12.83% 11.61%
Leverage 6.82% 6.17% 7.19% 9.66%
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 15.93% and 15.27% during the three and six month
periods ended June 30, 1996, respectively, compared with 13.95% and 13.14%
during the comparable periods of 1995.
In November 1995, First Empire announced a plan to repurchase and hold
as treasury stock up to 380,582 shares of common stock for reissuance upon the
possible future exercise of outstanding stock options. As of June 30, 1996,
First Empire had repurchased 200,983 common shares pursuant to such plan at an
average cost of $229.54 per share.
-15-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Three months ended June 30 Six months ended June 30
Amounts in thousands, except per share 1996 1995 Change 1996 1995 Change
- -----------------------------------------------------------------------------------------------------------------------------------
For the period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $38,659 31,454 + 23% $74,812 58,622 + 28%
Per common share
Net income
Primary $5.36 4.51 + 19 $10.56 8.36 + 26
Fully diluted 5.36 4.31 + 24 10.32 7.99 + 29
Cash dividends .70 .60 + 17 1.40 1.20 + 17
Average common shares outstanding
Primary 7,212 6,768 + 7 6,995 6,794 + 3
Fully diluted 7,216 7,293 - 1 7,245 7,338 - 1
Annualized return on
Average total assets 1.25% 1.10% 1.22% 1.07%
Average common stockholders' equity 18.18% 16.87% 17.85% 16.10%
Market price per common share
Closing $241.00 171.50 + 41 $241.00 171.50 + 41
High 247.00 172.50 247.75 172.50
Low 232.00 159.00 209.00 136.50
- -----------------------------------------------------------------------------------------------------------------------------------
At June 30
- -----------------------------------------------------------------------------------------------------------------------------------
Loans and leases,
net of unearned discount $10,129,170 8,880,971 + 14%
Total assets 12,542,357 11,629,620 + 8
Total deposits 10,192,683 8,865,871 + 15
Total stockholders' equity 861,023 793,958 + 8
Stockholders' equity per common share $126.70 116.05 + 9
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
1996 Second Quarter 1996 First Quarter 1995 Fourth Quarter
Average balance in millions; Average Average Average Average Average Average
interest in thousands balance Interest rate balance Interest rate balance Interest rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loans and leases, net of
unearned discount*
Commercial, financial, etc. $ 2,032 $ 41,682 8.25% 1,995 40,538 8.17% 1,900 40,747 8.51%
Real estate 5,846 126,747 8.67 5,672 124,924 8.81 5,562 123,158 8.86
Consumer 2,119 49,160 9.33 2,005 48,285 9.68 1,922 46,222 9.54
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 9,997 217,589 8.75 9,672 213,747 8.89 9,384 210,127 8.88
- ------------------------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 18 266 6.14 62 1,031 6.68 126 2,331 7.37
Federal funds sold and agreements
to resell securities 58 779 5.38 102 1,403 5.53 26 391 5.93
Trading account 32 264 3.33 29 306 4.34 20 175 3.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total money-market assets 108 1,309 4.89 193 2,740 5.73 172 2,897 6.68
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities**
U.S. Treasury and federal agencies 1,324 20,248 6.15 1,173 17,987 6.17 1,192 18,387 6.12
Obligations of states and political
subdivisions 41 668 6.50 36 617 6.85 40 698 7.00
Other 574 8,859 6.21 621 9,623 6.23 666 10,595 6.31
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,939 29,775 6.17 1,830 28,227 6.20 1,898 29,680 6.20
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 12,044 248,673 8.30 11,695 244,714 8.42 11,454 242,704 8.41
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (269) (266) (263)
Cash and due from banks 331 335 339
Other assets 380 377 368
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $12,486 12,141 11,898
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 760 2,642 1.40 759 2,773 1.47 767 3,060 1.58
Savings deposits 2,872 20,673 2.90 2,803 20,521 2.94 2,831 21,610 3.03
Time deposits 5,026 68,920 5.51 4,642 65,456 5.67 4,541 67,358 5.88
Deposits at foreign office 273 3,534 5.20 166 2,129 5.16 136 1,815 5.31
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 8,931 95,769 4.31 8,370 90,879 4.37 8,275 93,843 4.50
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,243 15,657 5.07 1,484 19,689 5.34 1,305 19,216 5.84
Long-term borrowings 190 3,570 7.55 192 3,617 7.57 196 3,667 7.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 10,364 114,996 4.46 10,046 114,185 4.57 9,776 116,726 4.74
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,138 1,126 1,148
Other liabilities 129 120 149
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 11,631 11,292 11,073
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 855 849 825
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $12,486 12,141 11,898
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.84 3.85 3.67
Contribution of interest-free funds .62 .64 .69
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on
earning assets $133,677 4.46% 130,529 4.49% 125,978 4.36%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes nonaccrual loans.
**Includes available for sale securities at amortized cost.
-17-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
1995 Third Quarter 1995 Second Quarter
Average Average Average Average
Average balance in millions; interest in thousands balance Interest rate balance Interest rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,838 $ 39,821 8.59% 1,805 39,410 8.76%
Real estate 5,401 120,430 8.92 5,187 116,067 8.95
Consumer 1,799 44,029 9.71 1,690 41,110 9.75
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net 9,038 204,280 8.97 8,682 196,587 9.08
- ------------------------------------------------------------------------------------------------------------------------------------
Money-market assets
Interest-bearing deposits at banks 126 2,331 7.37 121 2,225 7.39
Federal funds sold and agreements
to resell securities 12 189 6.05 139 2,227 6.44
Trading account 49 600 4.90 29 371 5.02
- ------------------------------------------------------------------------------------------------------------------------------------
Total money-market assets 187 3,120 6.64 289 4,823 6.69
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities**
U.S. Treasury and federal agencies 1,336 20,532 6.10 1,340 19,658 5.88
Obligations of states and political subdivisions 46 809 6.96 57 965 6.84
Other 797 12,633 6.29 740 10,435 5.65
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,179 33,974 6.18 2,137 31,058 5.83
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 11,404 241,374 8.40 11,108 232,468 8.39
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses (256) (251)
Cash and due from banks 336 317
Other assets 364 332
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $11,848 11,506
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 784 3,129 1.58 760 2,948 1.55
Savings deposits 2,869 21,770 3.01 2,950 21,920 2.98
Time deposits 4,119 60,943 5.87 4,075 60,008 5.91
Deposits at foreign office 96 1,297 5.36 117 1,504 5.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 7,868 87,139 4.39 7,902 86,380 4.38
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,719 25,559 5.90 1,588 23,787 6.01
Long-term borrowings 194 3,631 7.42 96 1,929 8.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 9,781 116,329 4.72 9,586 112,096 4.69
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,143 1,043
Other liabilities 123 111
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 11,047 10,740
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 801 766
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $11,848 11,506
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.68 3.70
Contribution of interest-free funds .67 .65
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $125,045 4.35% 120,372 4.35%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes nonaccrual loans.
**Includes available for sale securities at amortized cost.
-18-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
A number of lawsuits were pending against First Empire and its
subsidiaries at June 30, 1996. 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 16, 1996 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, 1996.
Item 5. Other Information.
On June 6, 1996, Robert E. Sadler, Jr., an Executive Vice President of
First Empire, was promoted to President of M&T Bank, First Empire's principal
banking subsidiary. In his new position, Mr. Sadler will be responsible for the
banking activities of each of First Empire's bank subsidiaries. Mr. Sadler was
also elected a director of M&T Bank on July 16, 1996.
Also on June 6, 1996, M&T Bank promoted John L. Pett to the position of
Executive Vice President of M&T Bank, and Michael P. Pinto was promoted to the
position of Executive Vice President and Chief Financial Officer of M&T Bank.
Mr. Pett is Senior Vice President and Chief Credit Officer of First Empire,
and he will continue as the Chief Credit Officer of M&T Bank. Mr. Pinto is
also Senior Vice President and Controller of First Empire. Mr. Pinto replaces
James L. Vardon as Chief Financial Officer of M&T Bank, who retired from First
Empire and its subsidiaries on July 21, 1996.
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.
On April 3, 1996, First Empire filed a Current Report on Form
8-K dated March 29, 1996, in order to report that the National
Indemnity Company, a subsidiary of Berkshire Hathaway Inc., the former
holder of all of the outstanding shares of First Empire's 9%
convertible preferred stock, had converted those shares into 506,930
shares of First Empire common stock, par value $5.00 per share, as of
the close of business on March 29, 1996.
-19-
<PAGE>
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 12, 1996 By: /s/ Michael P. Pinto
--------------------
Michael P. Pinto
Senior Vice President
and Controller
-20-
<PAGE>
EXHIBIT INDEX
Exhibit
No.
- -------
11 Statement re: Computation of Earnings Per Common Share. Filed herewith.
27 Financial Data Schedule. Filed herewith.
-21-
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EMPIRE STATE CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF EARNINGS PER COMMON SHARE
Amounts in thousands, except per share Three months ended Six months ended
June 30 June 30
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary Average common shares outstanding 6,832 6,506 6,616 6,547
Common stock equivalents * 380 262 379 247
- -----------------------------------------------------------------------------------------------------------------------------------
Primary common shares outstanding 7,212 6,768 6,995 6,794
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $38,659 31,454 74,812 58,622
Less: Cash dividends on preferred stock 0 900 900 1,800
- -----------------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $38,659 30,554 73,912 56,822
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share - primary $ 5.36 4.51 10.56 8.36
- -----------------------------------------------------------------------------------------------------------------------------------
Fully diluted Average common shares outstanding 6,832 6,506 6,616 6,547
Common stock equivalents* 384 280 384 284
Assumed conversion of 9% convertible
preferred stock 0 507 245 507
- -----------------------------------------------------------------------------------------------------------------------------------
Fully diluted average common shares outstanding 7,216 7,293 7,245 7,338
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $38,659 31,454 74,812 58,622
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share - fully diluted $ 5.36 4.31 10.32 7.99
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Article 9 Financial Data Schedule for Form 10-Q for the period ended June 30,
1996
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 376,309
<INT-BEARING-DEPOSITS> 14,451
<FED-FUNDS-SOLD> 23,136
<TRADING-ASSETS> 31,481
<INVESTMENTS-HELD-FOR-SALE> 1,565,853
<INVESTMENTS-CARRYING> 251,198
<INVESTMENTS-MARKET> 251,758
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<DEPOSITS> 10,192,683
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<LONG-TERM> 190,222
0
0
<COMMON> 40,487
<OTHER-SE> 820,536
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<INTEREST-LOAN> 217,042
<INTEREST-INVEST> 29,284
<INTEREST-OTHER> 1,045
<INTEREST-TOTAL> 247,603
<INTEREST-DEPOSIT> 95,769
<INTEREST-EXPENSE> 114,996
<INTEREST-INCOME-NET> 132,607
<LOAN-LOSSES> 11,700
<SECURITIES-GAINS> 109
<EXPENSE-OTHER> 97,921
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<INCOME-PRE-EXTRAORDINARY> 38,659
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,659
<EPS-PRIMARY> 5.36
<EPS-DILUTED> 5.36
<YIELD-ACTUAL> 4.46
<LOANS-NON> 57,603
<LOANS-PAST> 27,406
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<ALLOWANCE-CLOSE> 269,951
<ALLOWANCE-DOMESTIC> 135,653
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 134,298
</TABLE>
