<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number : 0-13496
-------
CHARTER BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1967164
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
2600 CITADEL PLAZA DRIVE, SUITE 600, HOUSTON, TEXAS 77008
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 692-6121
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 ("Act") 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
----- -----
The number of shares outstanding of each class of the registrant's capital
stock as of March 31, 1995:
Class of Stock Shares Outstanding
- - - - - - -------------- ------------------
COMMON STOCK, PAR VALUE $1.00 5,773,216
CLASS B SPECIAL COMMON STOCK, PAR VALUE $1.00 209,261
PREFERRED STOCK, $50.00 PAR VALUE, 8% PER ANNUM 14,201
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CHARTER BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, December 31,
ASSETS 1995 1994
----------- ------------
(in thousands)
<S> <C> <C>
Cash and due from banks . . . . . . . . . . $ 36,527 $ 45,166
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . 1,510 28,004
Securities held to maturity (fair value of
$173,312,000 at March 31, 1995, and
$160,016,000 at December 31, 1994,
respectively) . . . . . . . . . . . . . . . 177,702 168,461
Securities available for sale (amortized cost
of $135,396,000 at March 31, 1995, and
$116,636,000 at December 31, 1994) . . . . . 133,553 111,853
Loans. . . . . . . . . . . . . . . . . . . . . 445,330 343,761
Less: Allowance for credit losses (Note 2). . 5,426 4,446
-------- --------
Loans, net . . . . . . . . . . . . . . . . . . 439,904 339,315
Premises and equipment . . . . . . . . . . . . 15,679 14,263
Accrued interest receivable. . . . . . . . . . 5,384 4,212
Other real estate, net (Note 3). . . . . . . . 2,694 1,660
Intangibles assets, net. . . . . . . . . . . . 6,563 4,223
Purchased mortgage servicing rights. . . . . . 2,309 2,371
Other assets . . . . . . . . . . . . . . . . . 3,155 2,870
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . $824,980 $722,398
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest-bearing demand. . . . . . . . . $174,753 $182,686
Savings. . . . . . . . . . . . . . . . . . . 34,480 34,077
Interest-bearing demand. . . . . . . . . . . 89,942 93,753
Money market savings . . . . . . . . . . . . 104,189 101,554
Time $100,000 and over . . . . . . . . . . . 91,641 94,377
Time under $100,000. . . . . . . . . . . . . 192,670 110,433
-------- --------
Total Deposits. . . . . . . . . . . . . . . 687,675 616,880
-------- --------
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . . . 36,760 20,594
Federal Home Loan Bank advances (Note 8). . . 22,617 13,000
Accrued interest payable. . . . . . . . . . . 1,870 1,168
Other liabilities . . . . . . . . . . . . . . 8,374 7,018
Subordinated long-term debt . . . . . . . . . 12,750 12,750
Other long-term debt. . . . . . . . . . . . . 2,100 2,100
-------- --------
Total Liabilities . . . . . . . . . . . . . 772,146 673,510
-------- --------
Shareholders' Equity (Notes 4 and 5):
Preferred stock (400,000 shares authorized;
issued: 14,204 shares in 1995 and 1994). . 710 710
Common stock (12,000,000 shares authorized;
issued: 5,943,491 shares in 1995 and
1994) . . . . . . . . . . . . . . . . . . . 5,944 5,944
Class B special common stock (250,000 shares
authorized; issued: 209,261 shares in 1995
and 1994) . . . . . . . . . . . . . . . . . 209 209
Series C special common stock (50,000 shares
authorized; issued: 47,160 shares in 1995
and 1994) . . . . . . . . . . . . . . . . . 47 47
Capital surplus . . . . . . . . . . . . . . . 35,609 35,609
Retained earnings . . . . . . . . . . . . . . 12,440 10,459
Net unrealized (loss) on securities available
for sale. . . . . . . . . . . . . . . . . . (1,387) (3,352)
Treasury stock at cost (common and preferred;
170,275 shares common and 3 preferred in
1995 and 1994). . . . . . . . . . . . . . . (738) (738)
-------- --------
Total Shareholders' Equity . . . . . . . . . 52,834 48,888
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . $824,980 $722,398
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
1
<PAGE>
CHARTER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1995 1994
--------- ---------
(in thousands, except per share amounts)
<S> <C> <C>
Interest Income:
Loans, including fees . . . . . . . . . . . . $10,653 $5,044
Investment securities . . . . . . . . . . . . 4,669 3,872
Trading account assets. . . . . . . . . . . . -- 29
Federal funds sold. . . . . . . . . . . . . . 626 272
Securities purchased under agreements to
resell . . . . . . . . . . . . . . . . . . -- 29
------- ------
Total Interest Income . . . . . . . . . . . 15,948 9,246
------- ------
Interest Expense:
Deposits:
Interest-bearing demand. . . . . . . . . . . 371 422
Savings. . . . . . . . . . . . . . . . . . . 206 227
Money market savings . . . . . . . . . . . . 907 719
Time $100,000 and over . . . . . . . . . . . 2,707 502
Time under $100,000. . . . . . . . . . . . . 1,280 924
Securities sold under agreements to
repurchase . . . . . . . . . . . . . . . . . 199 92
Federal funds purchased and Federal Home Loan
Bank advances. . . . . . . . . . . . . . . . 132 --
Long-term debt. . . . . . . . . . . . . . . . 694 274
------- ------
Total Interest Expense . . . . . . . . . . . 6,496 3,160
------- ------
Net interest income. . . . . . . . . . . . . . 9,452 6,086
Provision for credit losses (Note 2) . . . . . 170 67
------- ------
Net Interest Income After Provision
for Credit Losses. . . . . . . . . . . . . 9,282 6,019
-------- ------
Non-Interest Income:
Service charges on deposit accounts . . . . . 1,651 1,323
Other customer service fees . . . . . . . . . 312 242
Trust Fees. . . . . . . . . . . . . . . . . . 448 215
Trading account profits . . . . . . . . . . . -- 1
Securities gains (losses) . . . . . . . . . . (41) 6
Mortgage banking income . . . . . . . . . . . 1,755 --
Other . . . . . . . . . . . . . . . . . . . . 491 343
------- ------
Total Non-Interest Income. . . . . . . . . . 4,616 2,130
------- ------
Non-Interest Expense:
Salaries and employee benefits. . . . . . . . 5,186 3,058
Net premises and equipment expense. . . . . . 1,459 950
Advertising . . . . . . . . . . . . . . . . . 284 198
Data processing . . . . . . . . . . . . . . . 403 322
Legal fees. . . . . . . . . . . . . . . . . . 247 218
Losses and carrying costs of
other real estate (Note 3) . . . . . . . . 35 55
Deposit insurance premiums. . . . . . . . . . 404 319
Amortization of intangibles . . . . . . . . . 201 20
Stationery and supplies . . . . . . . . . . . 260 116
Other . . . . . . . . . . . . . . . . . . . . 1,633 633
------- ------
Total Non-Interest Expense . . . . . . . . . 10,112 5,889
------- ------
Earnings before income taxes . . . . . . . . . 3,786 2,260
Income tax expense. . . . . . . . . . . . . . 1,346 757
------- ------
NET EARNINGS . . . . . . . . . . . . . . . . $ 2,440 $1,503
------- ------
------- ------
Earnings per Common Share (Note 5):
Primary . . . . . . . . . . . . . . . . . . . $ 0.40 $ 0.25
Fully diluted . . . . . . . . . . . . . . . . 0.40 0.25
Weighted Average Shares Outstanding:
Primary . . . . . . . . . . . . . . . . . . 6,029,637 6,012,411
Fully diluted . . . . . . . . . . . . . . . 6,029,637 6,029,637
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
2
<PAGE>
CHARTER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED Year Ended
MARCH 31, 1995 December 31, 1994
------------------- -----------------
(in thousands)
<S> <C> <C>
Preferred stock, ($50.00 par value)
Balance at beginning of year. . . . . . . . $ 710 $ 710
------- -------
Balance at end of period (14,204 shares
issued and 14,201 shares outstanding) . . 710 710
------- -------
Common stock ($1.00 par value)
Balance at beginning of year. . . . . . . . 5,944 5,643
Stock dividend (282,769 shares in 1994) . . -- 283
Conversion of debentures (18,040 shares
in 1994) . . . . . . . . . . . . . . . . . -- 18
------- -------
Balance at end of period (5,943,491
shares issued and 5,773,216 shares
outstanding). . . . . . . . . . . . . . . 5,944 5,944
------- -------
Class B special common stock ($1.00 par value)
Balance at beginning of year. . . . . . . . 209 199
Stock dividend (9,960 shares in 1994) . . . -- 10
------- -------
Balance at end of period (209,261 shares
issued and outstanding) . . . . . . . . . 209 209
------- -------
Series C special common stock ($1.00 par
value)
Balance at beginning of year . . . . . . . 47 45
Stock dividend - common stock (2,245 shares
in 1994) . . . . . . . . . . . . . . . . . -- 2
------- -------
Balance at end of period (47,160 shares
issued and outstanding) . . . . . . . . . 47 47
------- -------
Capital surplus
Balance at beginning of year. . . . . . . . 35,609 31,159
Conversion of debentures. . . . . . . . . . -- 247
Stock dividend - common stock . . . . . . . -- 4,203
------- -------
Balance at end of period . . . . . . . . . 35,609 35,609
------- -------
Retained earnings
Balance at beginning of year. . . . . . . . 10,459 8,749
Cash dividends - preferred stock. . . . . . (28) (57)
Cash dividend - common stock. . . . . . . . (431) (1,421)
Stock dividend - common stock . . . . . . . -- (4,498)
Net earnings. . . . . . . . . . . . . . . . 2,440 7,686
------- -------
Balance at end of period . . . . . . . . . 12,440 10,459
------- -------
Unrealized (loss) on
securities available for sale. . . . . . . (1,387) (3,352)
------- -------
Treasury stock
Balance at beginning of period. . . . . . . (733) (733)
Treasury stock acquired through conversion
of debentures (639 shares in 1994) . . . . (5) (5)
------- -------
Balance at end of period (170,275 shares
common and 3 shares preferred). . . . . . (738) (738)
------- -------
TOTAL SHAREHOLDERS' EQUITY (Notes 4 and 5) . $52,834 $48,888
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE>
CHARTER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
----------- -----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . $ 2,440 $ 1,503
-------- --------
Adjustments to reconcile net earnings
to net cash used in operating
activities:
Depreciation and amortization . . . . . 584 449
Amortization of intangibles . . . . . . 201 20
Net amortization of premiums and
(discounts) on securities . . . . . . (293) 951
Provision for credit losses . . . . . . 170 67
Provision for other real estate losses. 17 --
Net (gain)loss on sales of securities . 41 (6)
Origination of loans available for
sale . . . . . . . . . . . . . . . . . (58,989) --
Proceeds from sales of loans available
for sale . . . . . . . . . . . . . . . 49,181 --
Net (gain) on sale of loans . . . . . . (556) --
Net trading account activity. . . . . . -- (10,297)
Net (gain)loss on sales of fixed
assets, other real estate and
collateral acquired. . . . . . . . . . 9 (6)
Net (increase) in other assets and
interest receivable. . . . . . . . . . (1,205) (587)
Net (decrease) in other liabilities and
interest payable. . . . . . . . . . . . (2,954) (1,549)
Net (increase) decrease in deferred
tax asset. . . . . . . . . . . . . . . (56) 749
Increase in outstanding expense and
interest checks. . . . . . . . . . . . 193 134
-------- --------
Total Adjustments . . . . . . . . . . (13,657) (10,075)
-------- --------
Net Cash Used in Operating
Activities . . . . . . . . . . . . . (11,217) (8,572)
-------- --------
Cash flows from investing activities:
Net decrease in interest-bearing
deposits . . . . . . . . . . . . . . . . -- 3
Proceeds from sales of securities . . . . 2,718 6,043
Proceeds from maturities and prepayments
of securities. . . . . . . . . . . . . . 19,084 32,120
Purchase of securities. . . . . . . . . . (17,225) (70,659)
Net (increase) decrease in loans. . . . . (5,410) 37,514
Capital expenditures. . . . . . . . . . . (1,531) (361)
Proceeds from sales of other real estate. 234 215
Proceeds from sales of fixed assets . . . 29 --
Purchase of trust assets. . . . . . . . . (1,811) --
Purchase of banking organization, net of
acquired cash equivalents. . . . . . . . 7,786 --
-------- --------
Net Cash Provided by Investing
Activities. . . . . . . . . . . . . 3,874 4,875
-------- --------
Cash flows from financing activities:
Net decrease in non-interest-bearing,
demand, savings, interest-bearing
demand and money market accounts . . . . (21,173) (2,962)
Net decrease in certificate of deposits . (9,503) (7,525)
Net increase in securities sold under
agreements to repurchase . . . . . . . . 3,166 1,980
Payment of long-term debt . . . . . . . . (252) (1,000)
Payment of common dividends . . . . . . . -- (350)
Payment of preferred dividends. . . . . . (28) (28)
-------- --------
Net Cash Used in Financing Activities. (27,790) (9,885)
-------- --------
Net Decrease in Cash and Cash Equivalents. (35,133) (13,582)
-------- --------
Cash and Cash Equivalents at Beginning of
Period. . . . . . . . . . . . . . . . . . 73,170 72,362
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,037 $ 58,780
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE:
Interest paid . . . . . . . . . . . . . . $ 5,797 $ 3,095
Income taxes paid . . . . . . . . . . . . 105 20
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Other real estate and collateral
acquired . . . . . . . . . . . . . . . . 386 205
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE>
CHARTER BANCSHARES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accounting and reporting policies of Charter Bancshares, Inc.
("Charter" or "the Company") conform to generally accepted accounting
principles and to general practices within the banking industry. The
accompanying consolidated financial statements include the accounts of
Charter and its subsidiaries. All significant intercompany balances and
transactions have been eliminated upon consolidation. Certain amounts have
been reclassified in the accompanying consolidated financial statements from
those previously reported for the quarter ended March 31, 1994 to conform to
current year financial statement classifications.
The accompanying consolidated financial statements were not audited by
independent certified public accountants, but in the opinion of management
reflect all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of same.
NOTE 2 - ALLOWANCE FOR CREDIT LOSSES
The following table is an analysis of the activity in the allowance for
credit losses for the three months ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------ ------
(in thousands)
<S> <C> <C>
Balance at beginning of period . . . . . . . . $4,446 $4,616
Allowance of acquired bank . . . . . . . . . . 799 --
Provision charged to operating expenses. . . . 170 67
Loans charged off. . . . . . . . . . . . . . . (46) (501)
Less recoveries on loans previously charged
off . . . . . . . . . . . . . . . . . . . . . 57 185
------ ------
Net loan (charge-offs), recoveries . . . . . . 11 (316)
------ ------
Balance at end of period . . . . . . . . . . . $5,426 $4,367
------ ------
------ ------
</TABLE>
NOTE 3 - ALLOWANCE FOR OTHER REAL ESTATE LOSSES
Other real estate ("ORE") is reflected on the consolidated balance
sheets net of an allowance for anticipated losses on other real estate. The
following table is an analysis of activity in the allowance for anticipated
losses on other real estate for the three months ended March 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
------ ------
(in thousands)
<S> <C> <C>
Balance at beginning of period . . . . . . . . $2,361 $2,418
Allowance of acquired bank . . . . . . . . . . 120 --
Provision charged to operating expenses. . . . 17 --
Reductions . . . . . . . . . . . . . . . . . . (219) (32)
------ ------
Balance at end of period . . . . . . . . . . . $2,279 $2,386
------ ------
------ ------
</TABLE>
5
<PAGE>
NOTE 4 - DIVIDENDS
Charter's board of directors declared cash dividends totalling $459,000
and $378,000 that were paid March 31, 1995 and March 31, 1994 respectively
to shareholders of common and preferred stock. Of the amounts paid , $28,000
was paid to holders of the initial series preferred stock and the remainder
was paid on the common stock.
NOTE 5 - EARNINGS PER COMMON SHARE
Earnings per common share are computed as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1995 1994
--------- ---------
(in thousands,except per share amounts)
<S> <C> <C>
Net earnings . . . . . . . . . . . . . . . . . $2,440 $1,503
------ ------
Less preferred dividend requirements . . . . . 28 28
------ ------
Primary earnings applicable to common
shareholders . . . . . . . . . . . . . . . . 2,412 1,475
Interest expense on debentures . . . . . . . . -- 5
------ ------
Fully diluted earnings applicable to common
shareholders . . . . . . . . . . . . . . . . $2,412 $1,480
------ ------
------ ------
Primary earnings per common share:
Net earnings. . . . . . . . . . . . . . . . . $ 0.40 $ 0.25
------ ------
------ ------
Fully diluted earnings per common share:
Net earnings. . . . . . . . . . . . . . . . . $ 0.40 $ 0.25
------ ------
------ ------
Weighted average common shares outstanding:
Primary. . . . . . . . . . . . . . . . . . . 6,029,637 6,012,411
Fully diluted. . . . . . . . . . . . . . . . 6,029,637 6,029,637
</TABLE>
Primary earnings per share amounts are computed by dividing net earnings
less current period preferred dividends by the weighted average number of
common shares outstanding during the period. Fully diluted earnings per
share amounts are similarly computed but include the pro forma effect from
conversion of Charter's other potentially dilutive securities.
6
<PAGE>
NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values were estimated by management as of March 31, 1995 and
December 31, 1994, which required the exercise of considerable judgment.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts Charter could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated values presented.
The estimated fair values of Charter's financial instruments were as
follows:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1995 1994
-------------------- ------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments . $ 38,037 $ 38,037 $ 73,170 $ 73,170
Securities. . . . . . . . . . . . 311,255 306,865 280,314 271,869
Loans . . . . . . . . . . . . . . 445,330 444,754 343,761 342,116
Less: allowance for credit
losses . . . . . . . . . . . . . 5,426 5,426 4,446 4,446
-------- -------- -------- --------
Loans, net. . . . . . . . . . . 439,904 439,328 339,315 337,670
-------- -------- -------- --------
Financial Liabilities:
Deposits. . . . . . . . . . . . . 687,675 689,111 616,880 615,695
Securities sold under agreements
to repurchase. . . . . . . . . . 36,760 36,760 20,594 20,584
Federal Home Loan Bank advances . 22,617 23,047 13,000 13,000
Long-term debt and debentures . . 14,850 13,571 14,850 13,443
Unrecognized financial instruments:
Commitments to extend credit. . . 104,719 104,719 90,803 90,803
Standby letters of credit . . . . 9,897 9,897 7,732 7,732
Instruments with off-balance sheet
risk - unrealized (loss):
Interest rate caps and floors. . (285) (640)
</TABLE>
NOTE 7 - ACQUISITIONS
On January 10, 1995, Charter acquired West Loop Savings and Loan
Association, which represented the fifth largest thrift in the Houston area
with total assets of approximately $140 million at December 31, 1994.
Immediately following the acquisition, West Loop's charter was converted to a
Texas state savings bank under the name Charter Bank, SSB, in order to reduce
certain regulatory burdens, establish a vehicle for possible expansion of
nonbank activities, and implement a product mix which is consistent with
Charter's other subsidiary banks. Charter Bank, SSB has two banking
facilities in the reemerging Meyerland area and nearby Baytown.
At March 31, 1995, Charter Bank, SSB had total loans of $85,387,000, total
deposits of $94,255,000 and total assets of $128,548,000. The acquisition
was accounted for under the purchase method of accounting, with cash as the
sole form of consideration given. The acquisition resulted in an increase in
goodwill of $487,000, which amount is being amortized on a straight line
basis over fifteen years.
7
<PAGE>
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES
Three of Charter's subsidiary banks (Charter National Bank-Houston,
University National Bank-Galveston and Charter Bank, SSB) are members of the
FHLB. The FHLB provides advances as a source of funds to each of its
members. These advances are collateralized by a blanket pledge of the
subsidiary banks' residential mortgage loans. Charter continues to utilize
FHLB advances in concert with its daily funds management.
At March 31, outstanding advances totaled $22,617,000 with an average
rate of 7.73%. Of this amount, $9,700,000 has a final maturity date of June
7, 2001 and bears interest at a current rate of 6.75% adjustable
semi-annually to 6-month LIBOR. In addition, there is a $5,280,000 advance
maturing March 31, 2003 with a fixed rate of 8.40%. The remaining $7,637,000
is comprised of several amortizing advances with final maturities from 2003
through 2013 and bear a weighted average rate of 8.50%.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(a) ANALYSIS OF RESULTS OF OPERATIONS
CONDENSED STATEMENTS OF OPERATIONS
The following is a comparison of Charter's condensed statements of
operations for the three-month periods ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------- Increase
1995 1994 (Decrease)
-------- -------- ----------
(in thousands)
<S> <C> <C> <C>
Interest income. . . . . . . . . . . . $15,948 $9,246 $6,702
Interest expense . . . . . . . . . . . 6,496 3,160 3,336
------- ------ ------
Net interest income . . . . . . . . . 9,452 6,086 3,366
Provision for credit losses. . . . . . 170 67 103
Non-interest income. . . . . . . . . . 4,616 2,130 2,486
Non-interest expense . . . . . . . . . 10,112 5,889 4,223
------- ------ ------
Earnings before income taxes . . . . . 3,786 2,260 1,526
Income tax expense . . . . . . . . . 1,346 757 589
------- ------ ------
NET EARNINGS. . . . . . . . . . . . . $ 2,440 $1,503 $ 937
------- ------ ------
------- ------ ------
</TABLE>
Earnings before income taxes increased $ 1.5 million for the first three
months of 1995 as compared to the first three months of 1994 due to an
increase in earnings from ongoing operations and from acquisitions closed in
1994 and 1995. Net earnings increased for the first three months of 1995 to
$2,440,000 as compared to $1,503,000 for the first three months of 1994. In
the following sections, the major factors affecting the components of income
and expense are examined. Information concerning assets and liabilities are
subsequently provided so that an evaluation can be made of capitalization and
liquidity as they may affect Charter's future outlook.
8
<PAGE>
NET INTEREST INCOME
The data used in the analysis of the changes in net interest income is
derived from the daily average levels of earning assets and interest-bearing
liabilities as well as from the rates earned and paid on such amounts. The
schedule below gives a comparative analysis of Charter's daily average
interest-earning accounts (including non-accruing loans) and interest-bearing
accounts for the three-month periods ended March 31, 1995 and 1994. The
rates earned and paid on each major type of asset and liability account are
then shown beside the average balance in the account for the period. The
average yields on all interest-earning assets (including non-accruing loans)
and the average cost of all interest-bearing liabilities also are summarized.
COMPARATIVE NET INTEREST MARGIN
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------
1995 1994
------------------------------- ------------------------------
AVERAGE YIELD Average Yield
BALANCE INTEREST OR RATE Balance Interest or Rate
--------- -------- ------- --------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans . . . . . . . . . . $421,695 $10,653 10.25% $257,724 $5,044 7.94%
Trading account assets. . -- -- -- 2,419 29 4.79
Securities:
Taxable. . . . . . . . . 304,272 4,658 6.13 299,994 3,866 5.15
Non-taxable. . . . . . . 948 11 4.64 487 6 4.79
-------- ------- ----- -------- ------ ----
Total Securities . . . . 305,220 4,669 6.13 300,481 3,872 5.15
-------- ------- ----- -------- ------ ----
Federal funds sold and
securities purchased
under agreements to
resell. . . . . . . . . 50,373 626 5.04 32,799 301 3.72
-------- ------- ----- -------- ------ ----
Total Earning
Assets/Yield . . . . . . 777,288 15,948 8.29 593,423 9,246 6.31
-------- ------- ----- -------- ------ ----
Cash and due from banks . 39,162 33,565
Other assets. . . . . . . 36,821 26,637
Allowance for credit
losses . . . . . . . . . (5,105) (4,633)
-------- --------
Total Assets . . . . . . $848,166 $648,992
-------- --------
-------- --------
Liabilities and
Shareholders' Equity:
Interest-bearing demand
deposits. . . . . . . . $ 94,528 371 1.59 $ 98,437 422 1.74
Savings deposits. . . . . 34,531 206 2.42 35,999 227 2.56
Money market savings. . . 106,688 907 3.45 110,153 719 2.64
Other time deposits . . . 309,889 3,987 5.22 166,949 1,426 3.41
Federal funds purchased
and securities sold
under agreements to
repurchase. . . . . . . 33,966 331 3.90 13,307 92 2.81
Long-term debt. . . . . . 38,503 694 7.31 13,782 274 8.07
-------- ------- ---- -------- ------ ----
Total Interest-Bearing
liabilities/Rate. . . . 618,105 6,496 4.26 438,627 3,160 2.92
-------- ------- ---- -------- ------ ----
Demand deposits . . . . . 169,204 157,342
Other liabilities . . . . 11,893 6,441
-------- ------- ---- -------- ------ ----
Total Liabilities. . . . 799,202 602,410
Shareholders' Equity. . . 48,964 46,582
-------- --------
Total Liabilities and
Shareholders' Equity. . $848,166 $648,992
-------- --------
-------- --------
Net Interest Income. . . . $ 9,452 $6,086
------- ------
------- ------
Interest Rate Spread . . . 4.03% 3.39%
----- -----
----- -----
Net Interest Margin. . . . 4.93% 4.16%
----- -----
----- -----
</TABLE>
The increase in net interest income in the first three months of 1995 is
due to a higher net interest rate spread applied to a larger volume of
earning assets. The interest rate spread of 4.0% and the net interest margin
of 4.9% reflect an increase from their levels in the same period for the
prior year. A further understanding of the factors responsible for the
year-to-year increase in net interest income can be obtained by examining the
changes in: (1) the volume of earning assets and (2) the net interest income
produced after the related cost of funding these earning assets.
9
<PAGE>
The following table allocates total interest income earned at the
"interest spread" between assets funded with: (1) interest-bearing
liabilities and (2) non-interest-bearing liabilities (primarily
non-interest-bearing demand deposits) and equity capital. The interest
spread on earning assets funded by interest-bearing liabilities is defined as
the difference between the average rate earned on total earning assets and
the average rate paid on interest-bearing liabilities. The interest spread
on assets funded with non-interest-bearing sources of funds is simply the
rate earned on total earning assets.
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------
1995 1994
------------------------------- -----------------------------
AVERAGE NET Average Net
EARNING INTEREST INTEREST Earning Interest Interest
ASSETS SPREAD INCOME Assets Spread Income
-------- --------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
SOURCE OF FUNDING
Interest-bearing liabilities. . $618,105 4.03% $6,187 $438,627 3.39% $3,717
Non-interest-bearing
liabilities and
equity capital. . . . . . . . 159,183 8.29 3,265 154,796 6.31 2,369
-------- ------ -------- ------
Total . . . . . . . . . . . . $777,288 $9,452 $593,423 $6,086
-------- ------ -------- ------
-------- ------ -------- ------
</TABLE>
The $3,366,000 increase in total net interest income between the first
quarter of 1995 and the first quarter of 1994 can be attributed to a higher
net interest rate spread applied to a higher level of earning assets (
$777,288,000 in 1995 versus $593,423,000 in 1994) . The higher net interest
rate spread was due to a change in the mix of earning assets which reflects
an increase in loan volumes with a corresponding increase in loan yields.
The increase in loan volumes reflects the acquisitions of Charter Builders
Group, Charter Bank, SSB and loans generated from internal growth. The
higher yield on loans was the result of an increase in lending rates,
primarily the prime lending rate (prime rate was 9.00% at March 31, 1995, as
compared to 7.75% at March 31, 1994).
Increases in non-interest-bearing sources of funds reflect the increases
in non-interest-bearing deposits, which averaged approximately 24% of total
average deposits for the quarter ended March 31, 1995. The high level of
this type of deposit favorably impacts net interest income. The impact is
more favorable in periods of relatively higher interest rates. Accordingly,
the net interest income on earning assets funded with these
non-interest-bearing funds will continue to benefit from a rise in interest
rates due to the resulting increase in the interest spread.
10
<PAGE>
PROVISION FOR CREDIT LOSSES
The allowance for credit losses at March 31, 1995 of $5,426,000
represented 1.22% of outstanding loans. A year earlier, this ratio was
1.73% and at December 31, 1994, it was 1.29%. Annualized net loans recovered
as a percent of average loans outstanding was 0.01% during the first three
months of 1995 as compared to net loans charged off of 0.50% during the first
three months of 1994. The provision for credit losses charged against
earnings was $170,000 for the three months ended March 31, 1995, as compared
to $67,000 for the corresponding period in 1994.
The following table is an analysis of the activity in the allowance for
credit losses for the three-month periods ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
Average loans outstanding . . . . . . . . . . . $421,695 $258,449
Loans outstanding at end of period. . . . . . . 445,330 252,923
-------- --------
Transactions in the allowance for credit losses:
Balance at beginning of period . . . . . . . . $ 4,446 $ 4,616
Allowance of acquired bank . . . . . . . . . . 799 --
Provision charged to operating expenses. . . . 170 67
Loans charged off:
Real estate . . . . . . . . . . . . . . . . . -- 229
Commercial. . . . . . . . . . . . . . . . . . 6 170
Individuals . . . . . . . . . . . . . . . . . 40 102
-------- --------
Total loans charged off . . . . . . . . . . . 46 501
-------- --------
Recoveries on loans previously charged off:
Real estate . . . . . . . . . . . . . . . . . 2 107
Commercial. . . . . . . . . . . . . . . . . . 13 22
Individuals . . . . . . . . . . . . . . . . . 42 56
-------- --------
Total recoveries. . . . . . . . . . . . . . . 57 185
-------- --------
Net loan (charge offs) recoveries . . . . . 11 (316)
-------- --------
Balance at end of period . . . . . . . . . . . $ 5,426 $ 4,637
-------- --------
-------- --------
Ratios:
Allowance as a percent of loans outstanding
at end of period. . . . . . . . . . . . . . 1.22% 1.73%
Allowance as a percent of average loans . . . 1.29 1.69
Net loans (charged off) recovered as a
percent of average loans outstanding
(annualized) . . . . . . . . . . . . . . . . .01 (.50)
</TABLE>
11
<PAGE>
NON-INTEREST INCOME
Non-interest income increased 116.7% during the first three months of
1995 as compared to the same period in 1994. Excluding the effect of
securities transactions and mortgage banking income for the three months
ended March 31 of each year, non-interest income increased 36.6%. Service
charges on deposits, increased by 24.8 % to $1,651,000 for the three months
ended March 31, 1995, as compared to $1,323,000 for the same period in 1994.
The increase in service charge income was primarily due to an increase in the
average volume of transaction deposit accounts, particularly
non-interest-bearing demand accounts, which generate the majority of this fee
income. Average non-interest-bearing demand accounts increased by
approximately $12 million, or 7.5% for the first three months of 1995 as
compared to the same period in 1994.
Mortgage banking income of $1,755,000 for the three months ended March
31, 1995 are entirely attributable to the acquisition of Charter Mortgage in
April, 1994. Accordingly, no such non-interest income was recorded in the
first quarter of 1994. Components of mortgage banking income include loan
origination fees, fees from the sale of loans and sales of related servicing
rights on originated loans.
Investment securities activity resulted in a loss of $41,000 for the
first three months of 1995 as compared to a gain of $6,000 for the same
period in 1994. Trust fees represent revenues earned by services provided to
customers of Charter's Asset Management and Trust Services Department.
During the first three months of 1995 trust fees increased $233,000 to
$448,000, or by 108.4% compared to the first three months of 1994, due to an
increase in the assets under administration which grew to approximately $266
million at the end of March 31, 1995, compared to $175 million at the end of
March 1994.
Other customer service fees increased $70,000 for the three months
ended March 31, 1995 as compared to the same period in 1994. Components of
other customer service fees include check printing fees, ATM settlement fees,
research fees and wire transfer fees. The components of the "other" category
of non-interest income consist of fees generated from customers engaged in
international trade such as foreign exchange fees and letter of credit fees,
plus miscellaneous fees such as collection fees, credit card fees, safe
deposit rentals and discount brokerage commissions. These fees correlate to
the level of transactions in each of the referenced categories. Other
non-interest income increased $148,000 or 43.1% in the first three months of
1995 compared to the first three months of 1994. Fees from components within
the "other" category which improved in 1995 include a $61,000 increase in
fees generated from letters of credit, $25,000 increase in collection fees
and $54,000 increase in other miscellaneous income.
The following table sets forth by category the non-interest income and
the percentage change from the prior period:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------
1995 1994
------------------- ------------------
AMOUNT CHANGE Amount Change
------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service charges on deposits. . . . . . . $1,651 24.8% $1,323 11.9%
Other customer service fees. . . . . . . 312 28.9 242 39.1
Trust fees . . . . . . . . . . . . . . . 448 108.4 215 141.6
Investment securities
gains (losses) . . . . . . . . . . . . (41) NM 6 (96.7)
Trading account
profits. . . . . . . . . . . . . . . . -- NM 1 NM
Mortgage banking income. . . . . . . . . 1,755 NM --
Other. . . . . . . . . . . . . . . . . . 491 43.1 343 39.6
------ ------ ------ ------
Total. . . . . . . . . . . . . . . . $4,616 116.7% $2,130 13.8%
------ ------ ------ -----
------ ------ ------ -----
<FN>
"NM" denotes a comparison that is not meaningful.
</TABLE>
12
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense increased 71.7% during the first three months of
1995 as compared to the same period in 1994. Non-interest expenses from
Charter Mortgage were $1.7 million and $738,000 for Charter Bank,SSB in 1995.
Excluding the impact of expenses from Charter Mortgage and Charter Bank,SSB
non-interest expense increased 30.7% during the first three months of 1995 as
compared to the same period in 1994.
The largest single line item for non-interest expense continues to be
salaries and benefits which increased by $2,128,000 , or 69.6% for the first
three months of 1995. Approximately $1,878,000 of the increase in salaries
and benefits was generated by $181,000 from the new Fiesta Mart branches and
$125,000 by Charter Builders Group, while the Charter Mortgage acquisition
generated an additional $1,179,000 and the Charter Bank, SSB acquisition
generated an additional $393,000. Excluding the impact of these
acquisitions, total salaries and benefits increased by $250,000, or 8.2 %
for 1995 as compared to 1994. This remaining increase in salary expense is
due to merit increases and Charter's expanded activities and strategic
initiatives in the areas of trust services, services facilitating
international trade, and expanded retail banking.
The acquisition of Charter Mortgage gave rise to increases in several
categories of non-interest expense, including net premises and equipment
expense, legal fees, amortization of intangibles, stationary and supplies
and ""other'' expense. Expense incurred by Charter Mortgage and reflected on
the consolidated financial statements of Charter for 1995 in each of the
preceding categories approximated $183,000, $20,000, $63,000, $48,000, and
$182,000, respectively.
The acquisition of Charter Bank, SSB also contributed to increases in
several categories of non-interest expense, including net premises and
equipment expense, electronic data processing and deposit insurance premiums.
Expense incurred by Charter Bank, SSB and reflected on the consolidated
financial statements of Charter for 1995 in each of the preceding categories
approximated $117,000, $28,000, and $74,000, respectively.
The following table sets forth by category the operating expenses and
the percentage change from the prior period:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-----------------------------------
1995 1994
---------------- ----------------
AMOUNT CHANGE Amount Change
------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and benefits . . . . . . . . . . $ 5,186 69.6% $3,058 12.6%
Occupancy expense . . . . . . . . . . . . 1,459 53.6 950 20.9
Advertising . . . . . . . . . . . . . . . 284 43.4 198 38.5
Electronic data processing . . . . . . . 403 25.1 322 17.1
Legal expense . . . . . . . . . . . . . . 247 13.3 218 92.9
ORE losses and carrying costs . . . . . . 35 (36.4) 55 (95.2)
Deposit insurance premium . . . . . . . . 404 26.6 319 4.2
Amortization of intangibles . . . . . . . 201 905.0 20 (82.1)
Stationery and supplies . . . . . . . . . 260 124.1 116 61.1
Other . . . . . . . . . . . . . . . . . . 1,633 158.0 633 (25.2)
------- ------ ------ ------
Total . . . . . . . . . . . . . . . . . $10,112 71.7% $5,889 10.8%
------- ------ ------ ------
------- ------ ------ ------
</TABLE>
(b) ANALYSIS OF FINANCIAL CONDITION
Total assets at March 31, 1995, were $824,553,000 as compared to
Charter's total assets of $722,398,000 at December 31, 1994. Loans increased
by approximately $101.5 million from year-end 1994 primarily as a result of
the Charter Bank, SSB acquisition which included $85,837,000 in loans and
from internal loan growth. Normal recurring fluctuations decreased cash and
due from banks by $8.6 million since year-end. The most significant changes
in sources of funds were in deposits, and long-term debt, which increased in
the aggregate by approximately $70.8 million and $22.6 million,
respectively, from year-end 1994, both of which were primarily attributed to
the Charter Bank, SSB acquisition.
13
<PAGE>
CAPITAL RESOURCES
Under the guidelines published by the Board of Governors of the Federal
Reserve System (""Federal Reserve Board''), Charter's aggregate risk-weighted
assets and off-balance sheet exposures at March 31, 1995 and December 31,
1994, were approximately $451,677,000 and $386,041,000, respectively,
calculated as follows:
<TABLE>
<CAPTION>
RISK-WEIGHTED ASSETS MARCH 31, DECEMBER 31,
----------------------------- --------------------------
1995 1994
----------------------------- --------------------------
AGGREGATE RISK-WEIGHTED Aggregate Risk-Weighted
AMOUNT AMOUNT Amount Amount
--------- ------------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities. . . . . . . . $311,255 $ 47,591 $280,314 $ 42,971
Loans. . . . . . . . . . . . . . . . 445,330 356,335 343,761 294,394
Other interest earning assets. . . . 1,510 302 28,007 5,602
Cash and due from banks. . . . . . . 36,527 4,334 45,163 5,576
All other assets . . . . . . . . . . 35,784 35,784 29,599 29,599
-------- -------- -------- --------
Total Adjusted Assets (1) . . . . $830,406 444,346 $726,844 378,142
-------- -------- -------- --------
-------- --------
Total credit-equivalent amount of
off-balance sheet items. . . . . . 7,331 7,899
-------- --------
Total Risk-Weighted Assets. . . . $ 451,677 $386,041
-------- --------
-------- --------
<FN>
(1) Total adjusted assets are total assets plus the allowance for credit
losses.
</TABLE>
The following table indicates Charter's risk-based capital as calculated
in accordance with the Federal Reserve Board's guidelines:
<TABLE>
<CAPTION>
RISK-WEIGHTED CAPITAL MARCH 31, December 31,
--------- ------------
1995 1994
--------- ------------
(in thousands)
<S> <C> <C>
Core Capital (Tier 1):
Common equity. . . . . . . . . . . . . $47,909 $47,721
Preferred equity . . . . . . . . . . . 710 710
------- -------
Total Core Capital . . . . . . . . . . 48,619 48,431
------- -------
------- -------
Supplementary Capital (Tier 2):
Allowance for credit losses . . . . . 5,426 4,446
Subordinated debt. . . . . . . . . . . 11,100 11,100
------- -------
Total Supplementary Capital. . . . . . 16,526 15,546
------- -------
Total Capital. . . . . . . . . . . . . $65,145 $63,977
------- -------
------- -------
Core capital (Tier 1) as a percentage
of risk-weighted assets . . . . . . . 10.76% 12.55%
Total capital (Tier 1 and Tier 2) as a
percentage of risk-weighted assets. . 14.42 16.57
Core capital as a percentage of
quarterly average assets (leverage
ratio). . . . . . . . . . . . . . . . 5.73 7.04
Tangible core capital as a percentage
of quarterly average assets
(tangible leverage ratio) . . . . . . 5.48 6.72
</TABLE>
At March 31, 1995, total risk based capital was 14.42% of risk weighted
assets and tangible core capital was 5.48% of quarterly average assets. Both
of these ratios are below their previous levels reflected as of December 31,
1994 due to the acquisition of Charter Bank, SSB. Management believes the
current capital ratios, which exceed regulatory minimums, are adequate.
14
<PAGE>
RATE-SENSITIVE ASSETS AND LIABILITIES
Interest rate sensitivity is a measure of the volatility of the net
interest margin as a consequence of changes in market rates. The following
table summarizes the rate sensitivity of earning assets and interest-bearing
liabilities of Charter at March 31, 1995. Charter monitors the rate
sensitivity gap (rate-sensitive, earning assets less rate-sensitive,
interest-bearing liabilities) at least monthly in the normal process of asset
and liability management. Passbook savings accounts and regular
interest-bearing demand accounts with balances at March 31, 1995, of
approximately $34 million and $90 million, respectively, are included in the
91-180 days category. Although repricing on such accounts is possible at any
time, the historical stability of the rates paid on such accounts supports
this classification.
At March 31, 1995, the table shows a positive (asset-sensitive) rate
sensitivity gap of $167 million in the 1-30 day repricing category. The gap
beyond thirty days becomes more liability-sensitive as interest-bearing
liabilities that reprice within 90 days and 180 days become greater in volume
than rate-sensitive assets that are subject to repricing in the same
respective time periods.
<TABLE>
<CAPTION>
RATE SENSITIVE WITHIN
------------------------------------------------------------------------------
1-30 31-90 91-180 181 Days- 1-5 Over
Days Days Days 1 Year Years 5 Years Total
-------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Earning Assets:
Loans. . . . . . . . . . . . . . . . $249,552 $ 14,409 $34,818 $ 64,143 $ 60,426 $ 21,982 $ 445,330
Securities . . . . . . . . . . . . . 26,736 14,386 20,412 33,421 147,499 68,801 311,255
Other earning assets . . . . . . . . 1,510 -- -- -- -- -- 1,510
-------- --------- --------- --------- --------- ---------- ----------
Total Earning Assets. . . . . . . . 277,798 28,795 55,230 97,564 207,925 90,783 758,095
-------- --------- --------- --------- --------- ---------- ----------
Interest-Bearing Liabilities:
Interest-bearing deposits. . . . . . 41,672 157,182 176,927 45,841 76,146 15,155 512,923
Borrowed funds . . . . . . . . . . . 39,583 9,846 216 624 5,011 18,947 74,227
-------- --------- --------- --------- --------- ---------- ----------
Total Interest-Bearing liabilities . 81,255 167,028 177,143 46,465 81,157 34,102 587,150
-------- --------- --------- --------- --------- ---------- ----------
Asset - Liability Gap. . . . . . . . . 196,543 (138,233) (121,913) 51,099 126,768 56,681 170,945
Derivatives affecting interest
sensitivity:
Prime Rate Caps Purchased. . . . . . (40,000) -- -- -- -- -- (40,000)
Prime Rate Caps Sold . . . . . . . . 40,000 -- -- -- -- -- 40,000
LIBOR Floors Purchased . . . . . . . (30,000) -- -- -- -- -- (30,000)
-------- --------- --------- --------- --------- ---------- ----------
Interest-rate sensitivity gap. . . . . $166,543 $(138,233) $(121,913) $ 51,099 $ 126,768 $ 56,681 $ 140,945
-------- --------- --------- --------- --------- ---------- ----------
-------- --------- --------- --------- --------- ---------- ----------
Cumulative interest rate sensitivity
gap . . . . . . . . . . . . . . . . . $166,543 $ 28,310 $ (93,603) $ (42,504) $ 84,264 $ 140,945 --
Cumulative Amounts as a
Percentage of Cumulative
Earning Assets. . . . . . . . . . . . 60.0% 9.3% (25.8)% (9.2)% 12.6% 18.6%
Cumulative Ratio . . . . . . . . . . . 2.50X 1.10X 0.79X 0.92X 1.14X 1.23X
</TABLE>
The foregoing table shows the interval of time in which given volumes of
earning assets and interest-bearing liabilities would be responsive to
change in market interest rates based on their contractual maturities or
terms for repricing. It is, however, only a single-day depiction of
Charter's rate sensitivity structure, which can be adjusted in response to
changes in forecasted interest rates.
Charter enters into various types of interest rate contracts in managing
its interest rate risk. The notional amounts for derivatives do not
represent amounts exchanged by the parties and are not a measure of Charter's
exposure through its use of derivatives. The amounts exchanged are
determined by reference to the notional amounts and the other terms of the
derivatives.
At March 31, 1995, $30 million notional amount LIBOR rate floors had
been purchased and was outstanding with a final maturity date of May 4, 1999.
This strategy is expected to stablize net interest income in the event of a
decline in LIBOR below 4%. Also outstanding at March 31, 1995, were $40
million notional amounts of prime rate caps which had been purchased.
Furthermore, $40 million notional amount in prime rate caps had been sold and
was outstanding. These contracts have a final maturity date of June 21,
1995. This strategy was expected to stablize net interest income in the
event of changes in the prime lending rate.
15
<PAGE>
LIQUIDITY
Like any commercial bank, the liability structure of Charter's
subsidiary banks requires that Charter maintain an appropriate level of
liquid resources to meet normal day-to-day fluctuations in deposit volume and
to make new loans and investments as opportunities arise. Liquidity can be
provided by either assets or liabilities. Traditional sources of liquidity
include cash and due from demand balances, money market investments,
investment security maturities and prepayments, loan maturities and
repayments, and core deposit growth. Other sources of asset liquidity readily
available to Charter include interest-bearing deposits with other financial
institutions and trading account assets. At March 31, 1995, Charter had
$36,523,000 in cash, $1,502,000 in federal funds sold and a $311,255,000
total securities portfolio in which the market value was approximately
$4,400,000 less than the carrying value. The average loan-to-deposit ratio
for the three-month period ended March 31, 1995 was 59%.
A financial service company's activities consist primarily of financing
and investing activities. These activities result in large cash flows.
Charter's Consolidated Statements of Cash Flows on page 4 indicate the
sources of these cash flows. In addition to the assets which could be
readily converted to cash during the first three months of 1995, Charter
received $19,084,000 in proceeds from maturities and prepayments of
securities.
Charter has substantial liability liquidity through its customer base.
In addition to normal core deposit growth, liability liquidity is available
through various sources of purchased funds. Charter emphasizes direct
issuance of liabilities in order to develop stable, long-lasting funding
relationships. At March 31, 1995, Charter had $18,760,000 in securities
sold under agreements to repurchase, all of which were transactions effected
through existing deposit customers, rather than through the national markets.
Back up sources of liquidty may include securities sold under agreements to
repurchase in the national markets, thereby allowing Charter to utilize its
significant holdings of investment securities. Liquidity and matched funding
may also be obtained from the Federal Home Loan Bank of Dallas, of which
Charter-Houston , University Bank-Galveston, and Charter Bank, SSB are
members. At March 31, 1995, Charter had $22,617,000 in advances from the
Federal Home Loan Bank of Dallas. The liquidity of Charter also may be
maintained through access to the Federal Reserve System's "discount window,"
which is a liquidity source all banks may avail themselves of if needed.
LOANS
Total loans have increased $101,569,000 , or 29.5 %, from December 31,
1994 to March 31, 1995. The following is a schedule of loans outstanding
classified by type:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1995 1994
--------- ------------
(in thousands)
<S> <C> <C>
Commercial, financial and industrial. . $ 64,710 $ 75,113
Commercial real estate. . . . . . . . . 62,935 40,923
Real estate-construction (1). . . . . . 104,368 90,478
Real estate-multi-family. . . . . . . . 26,499 10,611
Real estate-1-4 family. . . . . . . . . 111,183 66,300
Loans to individuals. . . . . . . . . . 75,635 60,336
--------- -----------
Total Loans . . . . . . . . . . . . . $445,330 $ 343,761
--------- -----------
--------- -----------
<FN>
(1) Included in the total real estate- construction loans are $99 million and
$79 million, respectively, of loans secured by one-to-four family residential
properties as of March 31, 1995 and December 31, 1994.
</TABLE>
16
<PAGE>
NON-PERFORMING ASSETS AND PAST DUE LOANS
The following table sets forth the components of non-performing assets
and past due loans as of March 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1995 1994
--------- ------------
(in thousands)
<S> <C> <C>
Non-accrual loans
Real estate. . . . . . . . . . . . . . . . $ 1,557 $ 688
Commercial and industrial. . . . . . . . . 182 227
Individual . . . . . . . . . . . . . . . . 29 32
-------- -------
Total non-accrual loans . . . . . . . . . 1,768 947
-------- -------
Restructured loans:
Commercial and industrial. . . . . . . . . 1,203 1,203
-------- -------
Total restructured loans. . . . . . . . . 1,203 1,203
-------- -------
Other real estate, net and collateral
acquired . . . . . . . . . . . . . . . . . 2,726 1,662
-------- -------
Total non-performing assets . . . . . . . $ 5,697 $ 3,812
-------- -------
-------- -------
Loans past due 90 days or more
and still accruing interest:
Real estate. . . . . . . . . . . . . . . . $ 504 $ 313
Commercial and industrial. . . . . . . . . 44 226
Individual . . . . . . . . . . . . . . . . 247 159
Other loans. . . . . . . . . . . . . . . . 10 2
-------- -------
Total loans past due 90 days or more
and still accruing interest . . . . . . $ 805 $ 700
-------- -------
-------- -------
Ratios:
Allowance for credit losses as a
percentage of loans . . . . . . . . . . . 1.2% 1.3%
Allowance for credit losses as a
percentage of non-accrual loans . . . . . 306.9 469.2
Allowance for credit losses as a
percentage of non-performing loans (1). . 143.7 156.0
Non-performing loans as a percentage
of total loans (1). . . . . . . . . . . . 0.8 0.8
Total non-performing assets as a
percentage of total assets. . . . . . . . 0.7 0.5
<FN>
(1) Non-performing loans includes non-accrual loans, restructured loans and
loans past due 90 days or more and still accruing interest.
</TABLE>
Total non-performing assets increased $1.9 million since year-end to
$5.7 million at March 31, 1995, primarily due to an anticipated level of
non-performing assets from the acquisition of Charter Bank, SSB. All of the
increase in the other real estate can be attributed to single family
residential properties from Charter Bank, SSB. Total non-performing assets
as a percentage of total assets was 0.7% at March 31, 1995 and 0.5% at
December 31, 1994.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
A Form 8-K was filed January 24, 1995 to announce the acquisition of
West Loop Savings and Loan Association that was consummated on January 10,
1995.
All other items prescribed by Part II of Form 10-Q are inapplicable and
accordingly have been omitted.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTER BANCSHARES, INC.
(Registrant)
By:______________________________________
William S. Shropshire, Jr.
Senior Vice President
Chief Financial Officer
and Treasurer
(Principal financial and
accounting officer)
Date: May 12, 1995
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the March 31,
1995 10Q of Charter Bancshares, Inc. and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 36,527
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,510
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 133,553
<INVESTMENTS-CARRYING> 177,702
<INVESTMENTS-MARKET> 173,312
<LOANS> 445,330
<ALLOWANCE> 5,426
<TOTAL-ASSETS> 824,980
<DEPOSITS> 687,675
<SHORT-TERM> 59,377
<LIABILITIES-OTHER> 10,244
<LONG-TERM> 14,850
<COMMON> 6,200
0
710
<OTHER-SE> 45,924
<TOTAL-LIABILITIES-AND-EQUITY> 824,980
<INTEREST-LOAN> 10,653
<INTEREST-INVEST> 4,669
<INTEREST-OTHER> 626
<INTEREST-TOTAL> 15,948
<INTEREST-DEPOSIT> 5,471
<INTEREST-EXPENSE> 6,496
<INTEREST-INCOME-NET> 9,452
<LOAN-LOSSES> 170
<SECURITIES-GAINS> (41)
<EXPENSE-OTHER> 10,112
<INCOME-PRETAX> 3,786
<INCOME-PRE-EXTRAORDINARY> 2,440
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,440
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 4.93
<LOANS-NON> 1,768
<LOANS-PAST> 805
<LOANS-TROUBLED> 1,203
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,446
<CHARGE-OFFS> 46
<RECOVERIES> 57
<ALLOWANCE-CLOSE> 5,426
<ALLOWANCE-DOMESTIC> 516
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,910
</TABLE>
