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DIXON SAYS EMPIRE IN STRONGER POSITION

Empire of America has substantially improved its financial situation and will continue to make changes that should make it more attractive to potential buyers, its president says.

"We now have a fairly clean balance sheet," said Kent Dixon, who is running the bank along with two conservators appointed by federal banking regulators.

The actions taken by Empire were not without pain: The bank lost $158 million in the third quarter and had a whopping estimated loss of $863 million in the fourth.

The changes have left Empire with a huge gap between the value of its assets and liabilities. That gap made the bank insolvent and was one of the reasons the government stepped in.

But the changes also have greatly reduced the bank's sensitivity to rising interest rates and losses on loans, while giving it a lot of liquidity to protect against large withdrawals, Dixon said.

The bank has more than $1 billion in liquid assets available in a combination of cash, short-term investments that can be converted to cash overnight, and lines of credit from the Federal Home Loan Bank of New York, he said.

Empire also has made a dramatic reduction in the amount of investment securities it holds, he said.

A year ago it had $746 million invested primarily in fixed-rate government and corporate bonds. At the end of 1989 most of those investments were sold, leaving it with just $22 million in investment securities.

The proceeds from those sales were invested in securities backed by adjustable rate mortgages, which give Empire more income when interest rates rise and protect it from interest rate fluctuations, he said.

Another major change is the establishment of a large loan loss reserve, Dixon said. Loan loss reserves are pools of money set aside to cover possible future losses on loans.

Commercial banks always have maintained large general reserves to protect themselves. Savings banks, however, did not, since most of their loans were in the form of mortgages and they could foreclose on mortgages and sell properties if loans turned sour.

But Empire and other savings banks in the 1980s were allowed to enter many riskier lending businesses, and did not have adequate loan loss reserves. In the last year the bank has built its reserve to $193 million from $73 million a year earlier.

Empire also has redeemed millions of dollars in preferred stock that it had issued to corporate investors through several finance subsidiaries, Dixon said. If the bank had held onto that stock, it would have made it less attractive to a buyer, because any institution that bought Empire would have to continue paying dividends on the stock but would not get certain tax breaks that Empire has been getting, he said.

"It would have been a deal breaker," Dixon said.

The bank is looking for buyers for Empire of America Realty Credit Corp., a mortgage servicing and origination subsidiary based in Buffalo, he said. The subsidiary has 600 employees in Buffalo and in mortgage-origination r position
offices in other states.

Dixon said it is likely that any buyer would keep the company's headquarters here, and said Empire likely would continue to contract with the realty company to handle customer accounts for its own mortgages.

Two other smaller subsidiaries based in Florida -- Empire of America Relocation Services and Brandywine Enterprises Inc. -- also are up for sale.

Empire intends to keep subsidiaries that sell insurance and securities because they are considered part of the bank's basic retail operation, he said.

The only other major portion of Empire's assets that could be sold is its $1 billion in auto loans.

The bank had announced last fall that its auto loan operations, which make loans through car dealerships, would be sold.

At that time one of its top executives, James Cassin, resigned to form a company to bid on the servicing rights to those loans.

Now that the bank is in federal conservatorship, it is in no hurry to dispose of those operations, Dixon said.

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