<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 June 30, 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 June 30, 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>
JUNE 30, December 31,
ASSETS 1995 1994
---- -----
(in thousands)
<S> <C> <C>
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,488 $ 45,166
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,873 28,004
Securities held to maturity (fair value of $167,194,000 at June 30,
1995, and $160,016,000 at December 31, 1994, respectively). . . . . . . . . 167,992 168,461
Securities available for sale (amortized cost of $123,765,000 at June 30,
1995, and $116,636,000 at December 31, 1994) . . . . . . . . . . . . . . . 124,202 111,853
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506,563 343,761
Less: Allowance for credit losses (Note 2). . . . . . . . . . . . . . . . 5,472 4,446
-------- --------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501,091 339,315
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,548 14,263
Accrued interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . 5,538 4,212
Other real estate, net (Note 3). . . . . . . . . . . . . . . . . . . . . . . 2,399 1,660
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,557 4,223
Purchased mortgage servicing rights. . . . . . . . . . . . . . . . . . . . . 2,246 2,371
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,812 2,870
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $871,746 $722,398
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest-bearing demand . . . . . . . . . . . . . . . . . . . . . . $ 191,632 $ 182,686
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,560 34,077
Interest-bearing demand . . . . . . . . . . . . . . . . . . . . . . . . 81,081 93,753
Money market savings. . . . . . . . . . . . . . . . . . . . . . . . . . 104,821 101,554
Time $100,000 and over. . . . . . . . . . . . . . . . . . . . . . . . . 83,105 94,377
Time under $100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 191,766 110,433
-------- --------
Total Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 686,965 616,880
-------- --------
Federal funds purchased and securities sold under agreements to
repurchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,217 20,594
Federal Home Loan Bank advances (Note 8). . . . . . . . . . . . . . . . . 37,468 13,000
Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . . . 1,683 1,168
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,096 7,018
Subordinated long-term debt . . . . . . . . . . . . . . . . . . . . . . . 12,750 12,750
Other long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,100 2,100
-------- --------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 815,279 673,510
-------- --------
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,571 10,459
Net unrealized gain(loss) on securities available for sale. . . . . . . . 115 (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. . . . . . . . . . . . . . . . . . . . . . 56,467 48,888
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . $871,746 $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>
Six Months Ended Three Months Ended
June 30, June 30
---------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees. . . . . . . . . . . . . . . . $ 22,317 $10,604 $11,664 $ 5,560
Investment securities. . . . . . . . . . . . . . . . 9,326 8,275 4,657 4,403
Trading account assets . . . . . . . . . . . . . . . -- 175 -- 146
Federal funds sold . . . . . . . . . . . . . . . . . 918 584 291 312
Securities purchased under agreements to resell. . . -- 29 -- --
Interest-bearing deposits. . . . . . . . . . . . . . -- 18 -- 18
------- ------- ------- -------
Total Interest Income. . . . . . . . . . . . . . . 32,561 19,685 16,612 10,439
------- ------- ------- -------
Interest Expense:
Deposits:
Interest-bearing demand. . . . . . . . . . . . . . 722 792 351 370
Savings. . . . . . . . . . . . . . . . . . . . . . 417 466 211 239
Money market savings . . . . . . . . . . . . . . . 1,795 1,476 888 757
Time $100,000 and over . . . . . . . . . . . . . . 3,057 1,087 1,381 585
Time under $100,000. . . . . . . . . . . . . . . . 4,934 1,895 2,623 971
Securities sold under agreements to repurchase. . . . 773 285 574 193
Federal funds purchased and Federal Home Loan
Bank advances. . . . . . . . . . . . . . . . . . . 1,318 -- 796 --
Long-term debt. . . . . . . . . . . . . . . . . . . . 612 547 308 273
------- ------- ------- -------
Total Interest Expense . . . . . . . . . . . . . . 13,628 6,548 7,132 3,388
------- ------- ------- -------
Net interest income. . . . . . . . . . . . . . . . . . 18,933 13,137 9,480 7,051
Provision for credit losses (Note 2) . . . . . . . . . 380 109 210 42
------- ------- ------- -------
Net Interest Income After Provision
for Credit Losses. . . . . . . . . . . . . . . 18,553 13,028 9,270 7,009
------- ------- ------- -------
Non-Interest Income:
Service charges on deposit accounts. . . . . . . . 3,301 2,928 1,650 1,605
Other customer service fees. . . . . . . . . . . . 641 439 329 197
Trust Fees . . . . . . . . . . . . . . . . . . . . 970 431 522 216
Trading account losses . . . . . . . . . . . . . . -- (33) -- (34)
Securities gains . . . . . . . . . . . . . . . . . 86 7 127 1
Mortgage banking income. . . . . . . . . . . . . . 4,667 1,478 2,912 1,478
Other. . . . . . . . . . . . . . . . . . . . . . . 982 929 490 586
------- ------- ------- -------
Total Non-Interest Income. . . . . . . . . . . . 10,647 6,179 6,030 4,049
------- ------- ------- -------
Non-Interest Expense:
Salaries and employee benefits. . . . . . . . . . . 11,005 7,590 5,818 4,532
Net premises and equipment expense. . . . . . . . . 2,941 2,132 1,482 1,182
Advertising . . . . . . . . . . . . . . . . . . . . 594 386 310 188
Data processing . . . . . . . . . . . . . . . . . . 834 667 431 345
Legal fees. . . . . . . . . . . . . . . . . . . . . 573 425 326 207
Losses and carrying costs of
other real estate (Note 3) . . . . . . . . . . . 191 77 156 22
Deposit insurance premiums. . . . . . . . . . . . . 795 637 391 318
Amortization of intangibles . . . . . . . . . . . . 416 129 215 109
Stationery and supplies . . . . . . . . . . . . . . 521 311 261 194
Other . . . . . . . . . . . . . . . . . . . . . . . 3,546 1,813 1,911 1,181
------- ------- ------- -------
Total Non-Interest Expense. . . . . . . . . . . . 21,416 14,167 11,301 8,278
------- ------- ------- -------
Earnings before income taxes . . . . . . . . . . . . . 7,784 5,040 3,999 2,780
Income tax expense. . . . . . . . . . . . . . . . . 2,783 1,765 1,438 1,008
------- ------- ------- -------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 5,001 $ 3,275 $ 2,561 $ 1,772
------- ------- ------- -------
------- ------- ------- -------
Earnings per Common Share (Note 5):
Primary . . . . . . . . . . . . . . . . . . . . . . $ 0.82 $ 0.55 $ 0.42 $ 0.30
Fully diluted . . . . . . . . . . . . . . . . . . . 0.82 0.55 0.42 0.30
Weighted Average Shares Outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . . 6,029,637 6,021,072 6,029,637 6,029,637
Fully diluted . . . . . . . . . . . . . . . . . . . 6,029,637 6,029,637 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>
SIX MONTHS ENDED Year Ended
JUNE 30, 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. . . . . . . . . . . . . . . . . . . . . (861) (1,421)
Stock dividend - common stock . . . . . . . . . . . . . . . . . . . . -- (4,498)
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,001 7,686
------- -------
Balance at end of period. . . . . . . . . . . . . . . . . . . . . . 14,571 10,459
------- -------
Unrealized gain(loss) on
securities available for sale. . . . . . . . . . . . . . . . . . . . . 115 (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) . . . . . . . . . . . . . . . $56,467 $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>
Six Months Ended June 30,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,001 $ 3,275
-------- --------
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 1,199 948
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . 416 129
Net amortization (accretion) of premiums and
(discounts) on securities . . . . . . . . . . . . . . . . . . . . (210) 1,695
Provision for credit losses . . . . . . . . . . . . . . . . . . . . 380 109
Provision for other real estate losses. . . . . . . . . . . . . . . 123 --
Net gain on sales of securities . . . . . . . . . . . . . . . . . . (86) (7)
Origination of loans available for sale . . . . . . . . . . . . . . (158,341) (57,720)
Proceeds from sales of loans available for sale . . . . . . . . . . 154,381 48,080
Net gain on sale of loans . . . . . . . . . . . . . . . . . . . . . (1,547) --
Net trading account activity. . . . . . . . . . . . . . . . . . . . -- 33
Net gain on sales of fixed assets, other real estate
and collateral acquired . . . . . . . . . . . . . . . . . . . . . (41) (21)
Net increase in other assets and interest receivable. . . . . . . . (1,905) (200)
Net increase (decrease) in other liabilities and interest payable . (4,366) 373
Net (increase) decrease in deferred tax asset . . . . . . . . . . . (162) 370
Increase in outstanding expense and interest checks . . . . . . . . 55 221
-------- --------
Total Adjustments . . . . . . . . . . . . . . . . . . . . . . . . (10,104) (5,990)
-------- --------
Net Cash Provided by (Used in) Operating Activities . . . . . . (5,103) (2,715)
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale. . . . . . . . . 19,346 6,113
Proceeds from maturities and prepayments of securities. . . . . . . . 27,604 63,135
Purchase of securities. . . . . . . . . . . . . . . . . . . . . . . . (20,819) (90,611)
Net (increase) decrease in loans. . . . . . . . . . . . . . . . . . . (70,870) 44,180
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . (1,982) (1,212)
Proceeds from sales of other real estate. . . . . . . . . . . . . . . 639 354
Proceeds from sales of fixed assets . . . . . . . . . . . . . . . . . 29 --
Purchase of mortgage company, net of acquired cash equivalents. . . . -- (3,359)
Purchase of banking branches, net of acquired cash equivalents. . . . -- 19,317
Purchase of trust assets. . . . . . . . . . . . . . . . . . . . . . . (1,811) --
Purchase of banking organization, net of acquired cash equivalents. . 7,641 --
-------- --------
Net Cash Provided by (Used In) Investing Activities . . . . . . (40,223) 37,917
-------- --------
Cash flows from financing activities:
Net decrease in non-interest-bearing, demand,
savings, interest-bearing demand and money market accounts. . . . . (12,303) (11,049)
Net decrease in certificate of deposits . . . . . . . . . . . . . . . (18,944) (2,050)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase. . . . . . . . . . . 44,623 (1,603)
Net increase in Federal Home Loan Bank advances . . . . . . . . . . . 1,599 38,000
Payment of long-term debt. . . . . . . . . . . . . . . . . . . . . . -- (1,000)
Payment of common dividends . . . . . . . . . . . . . . . . . . . . . (430) (701)
Payment of preferred dividends. . . . . . . . . . . . . . . . . . . . (28) (28)
Increase in long term debt. . . . . . . . . . . . . . . . . . . . . . -- 2,500
-------- --------
Net Cash Provided by (Used in) Financing Activities . . . . . . 14,517 24,069
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . (30,809) 59,271
-------- --------
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . 73,170 72,362
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . $ 42,361 $131,633
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,935 $ 6,364
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . 3,560 20
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Other real estate and collateral acquired . . . . . . . . . . . . . . 398 262
Loans made to finance sales of other real estate. . . . . . . . . . . 120 --
</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 June 30, 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 six months ended June 30, 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. . . . . . . . . . . . . . 380 109
Loans charged off. . . . . . . . . . . . . . . . . . . . . . . . . (254) (723)
Less recoveries on loans previously charged off. . . . . . . . . . 101 310
------ ------
Net loan charge-offs . . . . . . . . . . . . . . . . . . . . . . . (153) (413)
------ ------
Balance at end of period . . . . . . . . . . . . . . . . . . . . . $5,472 $4,312
------ ------
------ ------
</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 six months ended June 30, 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. . . . . . . . . . . . . . 169 --
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . (410) (38)
------ ------
Balance at end of period . . . . . . . . . . . . . . . . . . . . . $2,240 $2,380
------ ------
------ ------
</TABLE>
5
<PAGE>
NOTE 4 - DIVIDENDS
Charter's board of directors declared cash dividends totalling $459,000
and $431,000 that were paid April 17, 1995 and July 14, 1995, while cash
dividends totalling $378,000 and $351,000 were paid March 31, 1994 and July
20, 1994 to shareholders of common and preferred stock. Of the amounts paid,
$28,000 was paid to holders of the initial series preferred stock on March
31, 1995 and 1994.
NOTE 5 - EARNINGS PER COMMON SHARE
Earnings per common share are computed as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30
------------------ -------------------
1995 1994 1995 1994
---- ---- ---- ----
(in thousands,except per share amounts)
<S> <C> <C> <C> <C>
Net earnings . . . . . . . . . . . . . . . . . . . . . $5,001 $3,275 $2,561 $1,772
------ ------ ------ ------
Less preferred dividend requirements . . . . . . . . . 28 28 -- --
------ ------ ------ ------
Primary earnings applicable to common
shareholders . . . . . . . . . . . . . . . . . . . . 4,973 3,247 2,561 1,772
Interest expense on debentures . . . . . . . . . . . . -- 5 -- --
------ ------ ------ ------
Fully diluted earnings applicable to common
shareholders . . . . . . . . . . . . . . . . . . . . $4,973 $3,252 $2,561 $1,772
------ ------ ------ ------
------ ------ ------ ------
Primary earnings per common share:
Net earnings. . . . . . . . . . . . . . . . . . . . $ 0.82 $ 0.55 $ 0.42 $ 0.30
------ ------ ------ ------
------ ------ ------ ------
Fully diluted earnings per common share:
Net earnings. . . . . . . . . . . . . . . . . . . . $ 0.82 $ 0.55 $ 0.42 $ 0.30
------ ------ ------ ------
------ ------ ------ ------
Weighted average common shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . . 6,029,637 6,021,072 6,029,637 6,029,637
Fully diluted . . . . . . . . . . . . . . . . . . . 6,029,637 6,029,637 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 June 30, 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>
JUNE 30, December 31,
1995 1994
--------------------- -------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments . . . . . . . . . . $ 42,361 $ 42,361 $ 73,170 $ 73,170
Securities. . . . . . . . . . . . . . . . . . . . . 292,194 291,396 280,314 271,869
Loans . . . . . . . . . . . . . . . . . . . . . . . 506,563 507,311 343,761 342,116
Less: allowance for credit losses. . . . . . . . . 5,472 5,472 4,446 4,446
-------- -------- -------- --------
Loans, net. . . . . . . . . . . . . . . . . . . . 501,091 501,839 339,315 337,670
-------- -------- -------- --------
Financial Liabilities:
Deposits. . . . . . . . . . . . . . . . . . . . . . 686,965 692,017 616,880 615,695
Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . 65,217 65,217 20,594 20,584
Federal Home Loan Bank advances . . . . . . . . . . 37,468 37,261 13,000 13,000
Long-term debt and debentures . . . . . . . . . . . 14,850 15,244 14,850 13,443
Unrecognized financial instruments:
Commitments to extend credit. . . . . . . . . . . . 99,289 99,289 90,803 90,803
Standby letters of credit . . . . . . . . . . . . . 8,833 8,833 7,732 7,732
Instruments with off-balance sheet
risk - unrealized gain (loss):
Interest rate caps and floors . . . . . . . . . . 111 (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, one facility in the reemerging Meyerland area of Houston, and one
in nearby Baytown, Texas.
At June 30, 1995, Charter Bank, SSB had total loans of $89,062,000,
total deposits of $95,998,000 and total assets of $144,549,000. 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 $722,000, 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 June 30, 1995, outstanding advances totaled $37,468,000 with an average rate
of 6.97 %. Of this amount, $9,700,000 has a final maturity date of June 7, 2001
and bears interest at a current rate of 5.75% adjustable semi-annually to
6-month LIBOR. In addition, there is a $15,000,000 advance maturing July 6,
1995 with a fixed rate of 6.07%. The remaining $12,768,000 is comprised of
several amortizing advances with final maturities from 2001 through 2013 and
bear a weighted average rate of 8.96%.
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 and six-month periods ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------- Increase ------------------- Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
---- ---- ---------- ---- ---- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income. . . . . . . . . . $32,561 $19,685 $12,876 $16,612 $10,439 $6,173
Interest expense . . . . . . . . . 13,628 6,548 7,080 7,132 3,388 3,744
------- ------- ------- ------- ------ ------
Net interest income. . . . . . . 18,933 13,137 5,796 9,480 7,051 2,429
Provision for credit losses. . . . 380 109 271 210 42 168
Non-interest income. . . . . . . . 10,647 6,179 4,468 6,030 4,049 1,981
Non-interest expense . . . . . . . 21,416 14,167 7,249 11,301 8,278 3,023
------- ------- ------- ------- ------ ------
Earnings before income taxes . . . 7,784 5,040 2,744 3,999 2,780 1,219
Income tax expense . . . . . . . . 2,783 1,765 1,018 1,438 1,008 430
------- ------- ------- ------- ------ ------
NET EARNINGS . . . . . . . . . . $ 5,001 $ 3,275 $ 1,726 $ 2,561 $1,772 $ 789
------- ------- ------- ------- ------ ------
------- ------- ------- ------- ------ ------
</TABLE>
Earnings before income taxes increased $2.7 million for the first six
months of 1995 as compared to the first six 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 six months of 1995 to $5,001,000
as compared to $3,275,000 for the first six 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 six-month periods ended June 30, 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>
Six Months Ended June 30,
--------------------------------------------------------------------
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 . . . . . . . . . . . . . . $443,650 $22,317 10.14% $257,895 $10,604 8.22%
Interest-earning deposits . . . . -- -- -- 841 18 4.28
Trading account assets. . . . . . -- -- -- 5,270 175 6.64
Securities:
Taxable . . . . . . . . . . . . 304,496 9,304 6.16 305,083 8,260 5.42
Non-taxable . . . . . . . . . . 948 22 4.64 651 15 4.71
-------- ------- ----- -------- ------- ----
Total Securities. . . . . . . . 305,444 9,326 6.16 305,734 8,275 5.41
-------- ------- ----- -------- ------- ----
Federal funds sold and securities
purchased under agreements to
resell. . . . . . . . . . . . . 42,636 918 4.34 33,308 613 3.71
-------- ------- ----- -------- ------- ----
Total Earning Assets/Yield. . . . 791,730 32,561 8.29 603,048 19,685 6.54
-------- ------- ----- -------- ------- ----
Cash and due from banks . . . . . 38,590 35,054
Other assets. . . . . . . . . . 39,219 28,490
Allowance for credit losses . . . (5,470) (4,497)
-------- --------
Total Assets. . . . . . . . . . $864,069 $662,095
-------- --------
-------- --------
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits. $ 90,427 722 1.61 $ 96,302 792 1.66
Savings deposits. . . . . . . . . 34,508 417 2.43 38,444 466 2.44
Money market savings. . . . . . . 106,077 1,795 3.41 110,331 1,476 2.70
Other time deposits . . . . . . . 299,830 7,991 5.37 172,159 2,982 3.46
Federal funds purchased and
securities sold under agreements
to repurchase . . . . . . . . . 54,132 1,145 4.27 15,463 280 3.65
Federal Home Loan Bank advances . 25,148 946 7.59 210 5 4.73
Long-term debt. . . . . . . . . . 14,850 612 8.31 14,074 547 7.83
-------- ------- ----- -------- ------- ----
Total Interest-Bearing
liabilities/Rate. . . . . . . . 624,972 13,628 4.40 446,983 6,548 2.95
-------- ------- ----- -------- ------- ----
Demand deposits . . . . . . . . . 171,045 161,820
Other liabilities . . . . . . . . 16,009 5,977
-------- --------
Total Liabilities . . . . . . . 812,026 614,780
Shareholders' Equity. . . . . . . 52,043 47,315
-------- --------
Total Liabilities and
Shareholders' Equity. . . . . $864,069 $662,095
-------- --------
-------- --------
Net Interest Income. . . . . . . . . $18,933 $13,137
------- -------
------- -------
Interest Rate Spread . . . . . . . . 3.89% 3.59%
---- ----
---- ----
Net Interest Margin. . . . . . . . . 4.82% 4.38%
---- ----
---- ----
</TABLE>
The increase in net interest income in the first six 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 3.89% and the net interest
margin of 4.82% 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>
Six Months Ended June 30,
--------------------------------------------------------------------
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 . . $624,971 3.89% $12,075 $446,983 3.59% $ 8,030
Non-interest-bearing
liabilities and
equity capital . . . . . . . . 166,759 8.29 6,858 156,065 6.54 5,107
-------- ------- -------- -------
Total . . . . . . . . . . . $791,730 $18,933 $603,048 $13,137
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
The $5,796,000 increase in total net interest income between the first
six months of 1995 and the first six months of 1994 can be attributed to a
higher net interest rate spread applied to a higher level of earning assets
($791,730,000 in 1995 versus $603,048,000 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 June 30, 1995, as
compared to 7.25% at June 30, 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 six months ended June 30, 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.
10
<PAGE>
PROVISION FOR CREDIT LOSSES
The allowance for credit losses at June 30, 1995 of $5,472,000
represented 1.08% of outstanding loans. A year earlier, this ratio was 1.68%
and at December 31, 1994, it was 1.29%. Annualized net loans charged-off as
a percent of average loans outstanding was .07% during the first six months
of 1995 as compared to net loans charged-off .32% during the first six
months of 1994. The provision for credit losses charged against earnings was
$380,000 for the six months ended June 30, 1995, as compared to $109,000 for
the corresponding period in 1994.
The following table is an analysis of the activity in the allowance for
credit losses for the three and six-month periods ended June 30, 1995 and
1994:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------ -------------------
1995 1994 1995 1994
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Average loans outstanding. . . . . . . . . . . $443,650 $257,895 $465,308 $254,896
Loans outstanding at end of period . . . . . . 506,563 255,947 506,563 255,947
-------- -------- -------- --------
Transactions in the allowance for credit losses:
Balance at beginning of period. . . . . . . 4,446 4,616 5,426 4,367
Allowance of aquired bank . . . . . . . . . 799 -- -- --
Provision charged to operating expenses . . 380 109 210 42
Loans charged off:
Real estate . . . . . . . . . . . . . . . -- 261 -- 32
Commercial. . . . . . . . . . . . . . . . 6 267 -- 96
Individuals . . . . . . . . . . . . . . . 208 195 168 94
Other . . . . . . . . . . . . . . . . . . 40 -- 40 --
-------- -------- -------- --------
Total loans charged off . . . . . . . . . 254 723 208 222
-------- -------- -------- --------
Recoveries on loans previously charged off:
Real estate . . . . . . . . . . . . . . . 19 162 17 55
Commercial. . . . . . . . . . . . . . . . 24 58 11 36
Individuals . . . . . . . . . . . . . . . 58 90 16 34
-------- -------- -------- --------
Total recoveries. . . . . . . . . . . . . 101 310 44 125
-------- -------- -------- --------
Net loans charged off . . . . . . . . (153) (413) (164) (97)
-------- -------- -------- --------
Balance at end of period. . . . . . . . . $ 5,472 $ 4,312 $ 5,472 $ 4,312
-------- -------- -------- --------
-------- -------- -------- --------
Ratios:
Allowance as a percent of loans outstanding
at end of period. . . . . . . . . . . . . 1.08% 1.68% 1.08% 1.68%
Allowance as a percent of average loans . . 1.23 1.67 1.18 1.69
Net loans charged off as a percent of
average loans outstanding (annualized). . 0.07 0.32 0.14 0.15
</TABLE>
11
<PAGE>
NON-INTEREST INCOME
Non-interest income increased 72.3% during the first six months of 1995
as compared to the same period in 1994. Excluding the effect of securities
transactions and mortgage banking income for the six months ended June 30 of
each year, non-interest income increased 25.6%. Service charges on
deposits, increased by 12.7% to $3,301,000 for the six months ended June 30,
1995, as compared to $2,928,000 for the same period in 1994. The increase in
service charge income was primarily due to an increase in the average volume
of non-interest-bearing demand accounts, which generate the majority of this
fee income. Average non-interest-bearing demand accounts increased by
approximately $9.2 million, or 5.7% for the first six months of 1995 as
compared to the same period in 1994.
Mortgage banking income increased by 215.8% to $4,667,000 for the six
months ended June 30, 1995 as compared to $1,478,000 for the same period in
1994 and is entirely attributable to the acquisition of Charter Mortgage in
April, 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 gain of $86,000 for the
first six months of 1995 as compared to a gain of $7,000 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 six months of 1995 trust fees increased $539,000 to
$970,000, or by 125.1% compared to the first six months of 1994, due to an
increase in the assets under administration which grew to approximately $282
million at the end of June 30, 1995, compared to $180 million at the end of
June 1994.
Other customer service fees increased $141,000 for the six months ended
June 30, 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 $114,000 or 13.1% in the first six months of
1995 compared to the first six months of 1994. Fees from components within
the "other" category which improved in 1995 include a $48,000 increase in
fees generated from letters of credit, $36,000 increase in collection fees
and $44,000 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>
SIX MONTHS ENDED THREE MONTHS ENDED
----------------- ------------------
JUNE 30, JUNE 30,
----------------- -----------------
1995 1994 1995 1994
--------------- --------------- ---------------- -----------------
AMOUNT CHANGE Amount Change AMOUNT CHANGE Amount Change
------ ------ ------ ------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposits . . $ 3,301 12.7% $2,928 14.4% $1,650 2.8% $1,605 16.5%
Other customer service fees . . 641 28.2 500 29.9 329 67.0 197 4.8
Trust Fees . . . . . . . . . . . 970 125.1 431 92.4 522 141.7 216 60.0
Investment securities gains. . . 86 NM 7 (95.4) 127 NM 1 (103.3)
Trading account losses . . . . . -- -- (33) NM -- -- (34) NM
Mortgage banking income. . . . . 4,667 215.8 1,478 NM 2,912 97.0 1,478 NM
Other. . . . . . . . . . . . . . 982 13.1 868 40.7 490 (16.4) 586 48.4
------- ----- ------ ----- ------ ----- ------ -----
Total . . . . . . . . . . . $10,647 72.3% $6,179 56.9% $6,030 48.9% $4,049 96.0%
------- ----- ------ ----- ------ ----- ------ -----
------- ----- ------ ----- ------ ----- ------ -----
</TABLE>
"NM" denotes a comparison that is not meaningful.
12
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense increased 51.2% during the first six months of 1995
as compared to the same period in 1994. Non-interest expenses from Charter
Mortgage were $3.9 million and $1.4 million for Charter Bank, SSB in 1995.
Excluding the impact of expenses from Charter Mortgage and Charter Bank, SSB
non-interest expense increased 23.9% during the first six 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 $3,415,000, or 31.6% for the first
six months of 1995. Approximately $3,110,000 of the increase in salaries and
benefits was generated by $194,000 from the new Fiesta Mart branches and
$176,000 by Charter Builders Group, while the Charter Mortgage acquisition
generated an additional $2,085,000 and the Charter Bank, SSB acquisition
generated an additional $655,000. Excluding the impact of these
acquisitions, total salaries and benefits increased by $305,000, or 4.5% 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 $275,000, $31,000, $145,000, $80,000, and
$286,000, 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 $243,000, $55,000, and $135,000, respectively.
The following table sets forth by category the operating expenses and the
percentage change from the prior period:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
June 30 June 30
---------------- -------------------
1995 1994 1995 1994
---------------- ---------------- ---------------- -----------------
AMOUNT CHANGE Amount Change AMOUNT CHANGE Amount Change
------ ------ ------ ------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits . . . . $11,005 45.0% $ 7,590 31.6% $ 5,818 28.4% $4,532 48.6%
Occupancy expense . . . . . . 2,941 37.9 2,132 25.3 1,482 25.4 1,182 29.0
Advertising . . . . . . . . . 594 53.9 386 40.9 310 64.9 188 43.5
Electronic data processing. . 834 25.0 667 17.4 431 24.9 345 17.7
Legal expense . . . . . . . . 573 34.8 425 43.6 326 57.5 207 13.1
ORE losses and carrying
costs. . . . . . . . . . . . 191 148.1 77 (94.8) 156 NM 22 (93.2)
Deposit insurance premium . . 795 24.8 637 (2.7) 391 23.0 318 (8.9)
Amortization of intangibles . 416 222.5 129 (49.4) 215 97.2 109 (23.8)
Stationery and supplies . . . 521 67.5 311 59.5 261 34.5 194 81.3
Other . . . . . . . . . . . . 3,546 95.6 1,813 (7.2) 1,911 61.8 1,181 13.6
------- ----- ------- ----- ------- ---- ------ -----
Total . . . . . . . . . . $21,416 51.2% $14,167 7.9% $11,301 36.5% $8,278 26.7%
------- ----- ------- ----- ------- ---- ------ -----
------- ----- ------- ----- ------- ---- ------ -----
</TABLE>
(B) ANALYSIS OF FINANCIAL CONDITION
Total assets at June 30, 1995, were $871,746,000 as compared to Charter's
total assets of $722,398,000 at December 31, 1994. Loans increased by
approximately $162.8 million from year-end 1994 primarily as a result of the
Charter Bank, SSB acquisition, $85.8 million, and $77 million from internal
loan growth. Normal recurring fluctuations decreased cash and due from banks
by $9.7 million since year-end. The most significant changes in sources of
funds were in deposits, Federal Home Loan Bank advances and Federal funds
purchased, which increased by approximately $70.1 million, $24.5 million,
and $42.4 million, respectively, from year-end 1994,which were primarily
attributed to the Charter Bank, SSB acquisition and an increase in short-term
borrowings to facilitate internal growth.
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 June 30, 1995 and December 31,
1994, were approximately $495,290,000 and $386,041,000, respectively,
calculated as follows:
<TABLE>
<CAPTION>
RISK-WEIGHTED ASSETS JUNE 30, December 31,
----------------------------- ----------------------------
1995 1994
----------------------------- ----------------------------
AGGREGATE RISK-WEIGHTED Aggregate Risk-Weighted
AMOUNT AMOUNT Amount Amount
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Investment securities. . . . . . . $292,194 $ 44,433 $280,314 $ 42,971
Loans. . . . . . . . . . . . . . . 506,563 400,115 343,761 294,394
Other interest earning assets. . . 6,874 1,375 28,007 5,602
Cash and due from banks. . . . . . 35,487 4,418 45,163 5,576
All other assets . . . . . . . . . 36,100 36,100 29,599 29,599
-------- -------- -------- --------
Total Adjusted Assets (1) . . $877,218 486,441 $726,844 378,142
-------- -------- -------- --------
-------- --------
Total credit-equivalent amount of
off-balance sheet items. . . . . 8,849 7,899
-------- --------
Total Risk-Weighted Assets. . $495,290 $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 JUNE 30, December 31,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Core Capital (Tier 1):
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . $49,262 $47,721
Preferred equity. . . . . . . . . . . . . . . . . . . . . . . . . 710 710
------- -------
Total Core Capital. . . . . . . . . . . . . . . . . . . . . . . . 49,972 48,431
------- -------
Supplementary Capital (Tier 2):
Allowance for credit losses . . . . . . . . . . . . . . . . . . . 5,472 4,446
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . 11,100 11,100
------- -------
Total Supplementary Capital . . . . . . . . . . . . . . . . . . . 16,572 15,546
------- -------
Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . $66,544 $63,977
------- -------
------- -------
Core capital (Tier 1) as a percentage of
risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . 10.09% 12.55%
Total capital (Tier 1 and Tier 2) as a percentage of
risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . 13.44 16.57
Core capital as a percentage of quarterly
average assets (leverage ratio). . . . . . . . . . . . . . . . . . 5.85 7.04
</TABLE>
At June 30, 1995, total risk based capital was 13.44% of risk weighted
assets and core capital was 5.85% 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 June 30, 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 June 30, 1995, of
approximately $34.6 million and $81.1 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 June 30, 1995, the table shows a positive (asset-sensitive) rate
sensitivity gap of $179 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
---- ---- ---- ------ ----- ------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans. . . . . . . . . . $291,589 $39,786 $ 32,516 $ 56,142 $ 70,184 $16,345 $506,562
Securities . . . . . . . 27,554 20,908 16,207 20,624 147,052 59,849 292,194
Other earning assets . . 6,873 --- --- --- --- --- 6,873
-------- ------- --------- -------- -------- ------- --------
Total Earning Assets . . 326,016 60,694 48,723 76,766 217,236 76,194 805,629
-------- ------- --------- -------- -------- ------- --------
Interest-Bearing Liabilities:
Interest-bearing
deposits . . . . . . . 34,017 156,628 163,625 43,174 81,784 16,105 495,333
Borrowed funds . . . . . 83,040 145 10,115 423 5,000 18,812 117,535
-------- ------- --------- -------- -------- ------- --------
Total Interest-Bearing
liabilities. . . . . . 117,057 156,773 173,740 43,597 86,784 34,917 612,868
-------- ------- --------- -------- -------- ------- --------
Asset - Liability Gap. . . . 208,959 (96,079) (125,017) 33,169 130,452 41,277 192,761
Derivatives affecting interest sensitivity:
Libor Floors Purchased . (30,000) --- --- --- 30,000 --- ---
-------- ------- --------- -------- -------- ------- --------
Interest-rate sensitivity
gap. . . . . . . . . . . . $178,959 $(96,079) $(125,017) $ 33,169 $160,452 $41,277 $192,761
-------- ------- --------- -------- -------- ------- --------
-------- ------- --------- -------- -------- ------- --------
Cumulative interest rate
sensitivity gap. . . . . . $178,959 $ 82,880 $ (42,137) $ (8,968) $151,484 $192,761
Cumulative Amounts as a %
of Cumulative Earning
Assets . . . . . . . . . . . 54.9% 21.4% (9.7)% (1.8)% 20.8% 23.9%
Cumulative Ratio . . . . . . . 2.79X 1.41X .97X 1.04X 1.26X 1.31X
</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 June 30, 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%.
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 June 30, 1995, Charter
had $35,487,000 in cash, and a $292,194,000 total securities portfolio in
which the market value was approximately $798,000 less than the carrying
value. The average loan-to-deposit ratio for the six-month period ended
June 30, 1995 was 63%.
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 six months of 1995, Charter
received $27,604,000 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 June 30, 1995, Charter had $21,791,000 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 June 30, 1995, Charter had $37,468,000 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 $162,802,000, OR 47.4%, from December 31,
1994 to June 30, 1995. The following is a schedule of loans outstanding
classified by type:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Commercial, financial and industrial . . . . . . . . . . . . $ 64,743 $ 75,113
Commercial real estate . . . . . . . . . . . . . . . . . . . 60,477 40,923
Real estate-construction (1) . . . . . . . . . . . . . . . . 112,288 90,478
Real estate-multi-family . . . . . . . . . . . . . . . . . . 26,285 10,611
Real estate-1-4 family . . . . . . . . . . . . . . . . . . . 146,687 66,300
Loans to individuals . . . . . . . . . . . . . . . . . . . . 96,083 60,336
-------- --------
Total Loans . . . . . . . . . . . . . . . . . . . . . . $506,563 $343,761
-------- --------
-------- --------
<FN>
(1) Included in the total real estate-construction loans are $105 million
and $79 million, respectively, of loans secured by one-to-four family
residential properties as of June 30, 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 June 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Non-accrual loans
Real estate . . . . . . . . . . . . . . . . . . . . . . . $2,128 $ 688
Commercial and industrial . . . . . . . . . . . . . . . . 220 227
Individual. . . . . . . . . . . . . . . . . . . . . . . . 36 32
------ ------
Total non-accrual loans . . . . . . . . . . . . . . . . 2,384 947
------ ------
Restructured loans:
Commercial and industrial . . . . . . . . . . . . . . . . 1,203 1,203
------ ------
Total restructured loans. . . . . . . . . . . . . . . . 1,203 1,203
------ ------
Other real estate, net and collateral acquired . . . . . . . 2,416 1,662
------ ------
Total non-performing assets . . . . . . . . . . . . . . $6,003 $3,812
------ ------
------ ------
Loans past due 90 days or more
and still accruing interest:
Real estate . . . . . . . . . . . . . . . . . . . . . . . $ 169 $ 313
Commercial and industrial . . . . . . . . . . . . . . . . 3 226
Individual. . . . . . . . . . . . . . . . . . . . . . . . 305 159
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2
------ ------
Total loans past due 90 days or more
and still accruing interest . . . . . . . . . . . . . $ 480 $ 700
------ ------
------ ------
Ratios:
Allowance for credit losses as a
percentage of loans . . . . . . . . . . . . . . . . . . 1.1% 1.3%
Allowance for credit losses as a
percentage of non-accrual loans . . . . . . . . . . . . 229.5 469.2
Allowance for credit losses as a
percentage of non-performing loans (1). . . . . . . . . 134.5 156.0
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 $2.2 million since year-end to
$6 million at June 30, 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 June 30, 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
Charter has not filed any reports on Form 8-K during the period for
which this report is filed.
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: August 11, 1995
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
June 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 35,488
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,873
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 124,202
<INVESTMENTS-CARRYING> 167,992
<INVESTMENTS-MARKET> 167,194
<LOANS> 506,563
<ALLOWANCE> 5,472
<TOTAL-ASSETS> 871,746
<DEPOSITS> 686,965
<SHORT-TERM> 102,685
<LIABILITIES-OTHER> 10,779
<LONG-TERM> 14,850
<COMMON> 6,200
0
710
<OTHER-SE> 49,557
<TOTAL-LIABILITIES-AND-EQUITY> 871,746
<INTEREST-LOAN> 22,317
<INTEREST-INVEST> 9,326
<INTEREST-OTHER> 918
<INTEREST-TOTAL> 32,561
<INTEREST-DEPOSIT> 10,925
<INTEREST-EXPENSE> 13,628
<INTEREST-INCOME-NET> 18,933
<LOAN-LOSSES> 380
<SECURITIES-GAINS> 86
<EXPENSE-OTHER> 21,416
<INCOME-PRETAX> 7,784
<INCOME-PRE-EXTRAORDINARY> 5,001
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,001
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 4.82
<LOANS-NON> 2,384
<LOANS-PAST> 805
<LOANS-TROUBLED> 1,203
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,446
<CHARGE-OFFS> 254
<RECOVERIES> 101
<ALLOWANCE-CLOSE> 5,472
<ALLOWANCE-DOMESTIC> 700
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,772
</TABLE>
