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Double-digit growth in banking fee income, coupled with continuing strength in lending, helped First Empire State Corp. record a 28 percent jump in third-quarter net income, M&T Bank's parent reported Tuesday.

The holding company's $45.89 million net income, up from $35.87 million one year ago, equaled $6.57 per fully diluted common share, up from $5.05 for the three months ending Sept. 30, 1996. The per-share results topped the projections of Wall Street analysts by 24 cents.

"Reflecting increasing numbers of customers using more services provided through M&T, our fee income for the quarter was up substantially," said Gary Paul, First Empire's senior vice president. "Coupled with continued strength in lending, our revenues were up strong."

Marni Pont, a banking analyst with Keefe Bruyette & Woods Inc. in New York City, said, "They came in a bit stronger than the $6.40 I expected."

Added Kevin Timmons, banking analyst for First Albany Corp.: "Another great quarter, across the board a good performance."

Other income jumped 12 percent during the quarter to $50.23 million from $44.91 million one year ago. Chief among the fee producers were mortgage banking, up nearly $1.5 million or 13 percent from one year ago; trust income, up nearly $1 million or 15 percent; and mutual fund sales, up nearly $900,000 or 28 percent.

Net interest income, the difference between interest earned on assets like loans and interest paid on liabilities like deposits, rose 6 percent to $139.93 million from $132.2 million. First Empire's loan portfolio at Sept. 30 stood at $11.27 billion, up $833.75 million or 8 percent from $10.44 billion one year ago.

"Loan growth was a bit slower (off from a 14 percent increase one year ago), but that was to be expected," Ms. Pont said.

Salaries and employee benefits during the third quarter rose 7 percent to $56.27 million from $52.52 million one year ago, while other expenses fell 12 percent to $48.44 million from $55.14 million one year ago.

However, it should be pointed out that expenses in the third quarter of 1996 included a $7 million charge to help recapitalize the Federal Deposit Insurance Corp.'s Savings Association Insurance Fund. A portion of the 1997 expense was directly related to the 70-plus-point run-up in First Empire's common stock price, since the value of some executive compensation packages rises and falls with the stock's value.

The financial institution's efficiency ratio was 55 percent, compared to 56 percent during the second quarter. That means that for every $1 of revenue, it cost First Empire 55 cents to operate. A ratio in the mid-50s is generally considered good in the banking industry.

The provision for credit losses during the third quarter was up 15 percent to $12 million from $10.47 million one year ago.

First Empire's total loan-loss provision at Sept. 30 was $272.3 million or 2.42 percent of total loans and 318 percent of the $85.8 million in nonperforming loans on the books. These
figures compare to a $270.5 million loan-loss provision one year ago, which equaled 2.59 percent of total loans and 280 percent of the $96.5 million in non-performing loans at Sept. 30, 1996.

Net loan charge-offs totaled $11.6 million, compared to $10 million in 1996, with consumer loan charge-offs, including credit card and automobile loans, totaling $8.2 million compared to $7.3 million at Sept. 30, 1996.

"We have been watching credit card charge-offs very closely, and while they are higher than we would like them to be, all of our credit card outstandings only amounted to $250 million of an $11 billion loan portfolio," First Empire's Paul said.

Assets taken in foreclosure dropped $300,000 to $8.2 million from $8.5 million.

Two key profitability ratios jumped substantially, including return on average assets, which climbed to 1.36 percent from 1.14 percent, and return on average shareholder's equity, which rose to 18.92 percent from 16.64 percent.

First Empire had total assets at Sept. 30 of $13.67 billion, up 7 percent from $12.82 billion one year ago. Total deposits rose 6 percent to $11.2 billion from $10.55 billion.

Through the first nine months of 1997, First Empire's net income rose a strong 17 percent to $129.94 million or $18.50 per share from $110.68 million and $15.36 per share in 1996.

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