<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 September 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 September 30, 1995:
<TABLE>
<CAPTION>
Class of Stock Shares Outstanding
- - -------------- ------------------
<S> <C>
COMMON STOCK, PAR VALUE $1.00 6,061,625
CLASS B SPECIAL COMMON STOCK, PAR VALUE $1.00 219,718
PREFERRED STOCK, $50.00 PAR VALUE, 8% PER ANNUM 14,201
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CHARTER BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
ASSETS 1995 1994
------------- ------------
(in thousands)
<S> <C> <C>
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,386 $ 45,166
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,321 28,004
Securities held to maturity (fair value of $163,563,000 at September 30,
1995, and $160,016,000 at December 31, 1994, respectively) . . . . . . . . . 163,546 168,461
Securities available for sale (amortized cost of $110,554,000 at September 30,
1995, and $116,636,000 at December 31, 1994) . . . . . . . . . . . . . . . . 110,876 111,853
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479,270 343,761
Less: Allowance for credit losses (Note 2) . . . . . . . . . . . . . . . . . 5,256 4,446
-------- --------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,014 339,315
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,687 14,263
Accrued interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . 5,207 4,212
Other real estate, net (Note 3). . . . . . . . . . . . . . . . . . . . . . . . 1,892 1,660
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,464 4,223
Purchased mortgage servicing rights. . . . . . . . . . . . . . . . . . . . . . 2,183 2,371
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,046 2,870
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $840,622 $722,398
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . $187,645 $182,686
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,814 34,077
Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . . . 77,693 93,753
Money market savings . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,377 101,554
Time $100,000 and over . . . . . . . . . . . . . . . . . . . . . . . . . . 88,223 94,377
Time under $100,000. . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,325 110,433
-------- --------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 678,077 616,880
-------- --------
Federal funds purchased and securities sold under agreements to
repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,299 20,594
Federal Home Loan Bank advances (Note 8) . . . . . . . . . . . . . . . . . . 28,282 13,000
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,734 1,168
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,823 7,018
Subordinated long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 12,750 12,750
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,100 2,100
-------- --------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 782,065 673,510
-------- --------
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: 1995 - 6,240,413 shares; 1994 - 5,943,491 shares) . . . . . . . . 6,240 5,944
Class B special common stock (250,000 shares authorized;
issued: 1995 - 219,718 shares; 1994 - 209,261 shares) . . . . . . . . . . 220 209
Series C special common stock (50,000 shares authorized;
issued: 1995 - 49,527 shares; 1994 - 47,169 shares) . . . . . . . . . . . 50 47
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,107 35,609
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,915 10,459
Net unrealized gain(loss) on securities available for sale . . . . . . . . 53 (3,352)
Treasury stock at cost (1995 - 178,788 shares common and 3 shares
preferred; 1994 - 170,275 shares common and 3 shares preferred) . . . . . (738) (738)
-------- --------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 58,557 48,888
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . $840,622 $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>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees. . . . . . . . . . . . . . . $ 34,532 $ 18,149 $ 12,215 $ 7,545
Investment securities. . . . . . . . . . . . . . . 13,952 12,521 4,626 4,246
Trading account assets . . . . . . . . . . . . . . -- 175 -- --
Federal funds sold . . . . . . . . . . . . . . . . 726 843 12 259
Securities purchased under agreements to resell. . 203 29 -- --
Interest-bearing deposits. . . . . . . . . . . . . 1 18 -- --
--------- --------- --------- ---------
Total Interest Income. . . . . . . . . . . . . 49,414 31,735 16,853 12,050
--------- --------- --------- ---------
Interest Expense:
Deposits:
Interest-bearing demand. . . . . . . . . . . . . 1,056 1,154 334 362
Savings. . . . . . . . . . . . . . . . . . . . . 623 690 206 224
Money market savings . . . . . . . . . . . . . . 2,697 2,324 902 848
Time $100,000 and over . . . . . . . . . . . . . 4,271 1,819 1,214 732
Time under $100,000. . . . . . . . . . . . . . . 7,562 2,920 2,628 1,025
Securities sold under agreements to repurchase . 1,344 392 571 107
Federal funds purchased and Federal Home Loan
Bank advances . . . . . . . . . . . . . . . . 1,995 360 677 360
Long-term debt . . . . . . . . . . . . . . . . 922 863 310 316
--------- --------- --------- ---------
Total Interest Expense. . . . . . . . . . . . . 20,470 10,522 6,842 3,974
--------- --------- --------- ---------
Net interest income. . . . . . . . . . . . . . . . . 28,944 21,213 10,011 8,076
Provision for credit losses (Note 2) . . . . . . . . 720 191 340 82
--------- --------- --------- ---------
Net Interest Income After Provision
for Credit Losses . . . . . . . . . . . . . . 28,224 21,022 9,671 7,994
--------- --------- --------- ---------
Non-Interest Income:
Service charges on deposit accounts . . . . . . . 4,998 4,686 1,697 1,758
Other customer service fees. . . . . . . . . . . . 946 770 305 331
Trust fees . . . . . . . . . . . . . . . . . . . . 1,517 594 547 163
Trading account losses . . . . . . . . . . . . . . -- (33) -- --
Securities gains . . . . . . . . . . . . . . . . . 381 17 295 10
Mortgage banking income. . . . . . . . . . . . . . 7,681 3,006 3,014 1,528
Other. . . . . . . . . . . . . . . . . . . . . . . 1,463 1,318 481 389
--------- --------- --------- ---------
Total Non-Interest Income . . . . . . . . . . . 16,986 10,358 6,339 4,179
--------- --------- --------- ---------
Non-Interest Expense:
Salaries and employee benefits . . . . . . . . . . 16,893 12,326 5,888 4,736
Net premises and equipment expense . . . . . . . . 4,364 3,419 1,423 1,287
Advertising . . . . . . . . . . . . . . . . . . . 933 575 339 189
Data processing . . . . . . . . . . . . . . . . . 1,277 1,024 443 357
Legal fees . . . . . . . . . . . . . . . . . . . . 1,191 729 618 304
Losses and carrying costs of
other real estate (Note 3) . . . . . . . . . . . 246 144 55 67
Deposit insurance premiums . . . . . . . . . . . . 829 958 34 321
Amortization of intangibles . . . . . . . . . . . 618 270 202 141
Stationery and supplies . . . . . . . . . . . . . 785 525 264 214
Other . . . . . . . . . . . . . . . . . . . . . . 5,939 3,047 2,393 1,234
--------- --------- --------- ---------
Total Non-Interest Expense . . . . . . . . . . 33,075 23,017 11,659 8,850
--------- --------- --------- ---------
Earnings before income taxes . . . . . . . . . . . . 12,135 8,363 4,351 3,323
Income tax expense . . . . . . . . . . . . . . . . 4,458 2,912 1,675 1,147
--------- --------- --------- ---------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . $ 7,677 $ 5,451 $ 2,676 $ 2,176
========= ========= ========= =========
Earnings per Common Share (Note 5):
Primary . . . . . . . . . . . . . . . . . . . . . $ 1.20 $ 0.86 $ 0.42 $ 0.34
Fully diluted . . . . . . . . . . . . . . . . . . 1.20 0.86 0.42 0.34
Weighted Average Shares Outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . 6,330,861 6,324,897 6,330,861 6,330,861
Fully diluted . . . . . . . . . . . . . . . . . . 6,330,861 6,330,861 6,330,861 6,330,861
</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>
NINE MONTHS ENDED Year Ended
SEPTEMBER 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 (296,922 shares in 1995 and 282,769 shares in 1994) . 296 283
Conversion of debentures (18,040 shares in 1994) . . . . . . . . . . -- 18
------- -------
Balance at end of period (6,240,413 shares
issued and 6,061,625 shares outstanding) . . . . . . . . . . . . 6,240 5,944
------- -------
Class B special common stock ($1.00 par value)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . 209 199
Stock dividend (10,457 shares in 1995 and 9,960 shares in 1994). . . 11 10
------- -------
Balance at end of period (219,718 shares issued
and outstanding) . . . . . . . . . . . . . . . . . . . . . . . . 220 209
------- -------
Series C special common stock ($1.00 par value)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . 47 45
Stock dividend - common stock (2,358 shares in 1995 and
2,245 shares in 1994) . . . . . . . . . . . . . . . . . . . . . . 3 2
------- -------
Balance at end of period (49,518 shares issued
and outstanding) . . . . . . . . . . . . . . . . . . . . . . . . 50 47
------- -------
Capital surplus
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . 35,609 31,159
Conversion of debentures . . . . . . . . . . . . . . . . . . . . . . -- 247
Stock dividend - common stock . . . . . . . . . . . . . . . . . . . 5,498 4,203
------- -------
Balance at end of period . . . . . . . . . . . . . . . . . . . . . 41,107 35,609
------- -------
Retained earnings
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . 10,459 8,749
Cash dividends - preferred stock . . . . . . . . . . . . . . . . . . (57) (57)
Cash dividend - common stock . . . . . . . . . . . . . . . . . . . . (1,357) (1,421)
Stock dividend - common stock . . . . . . . . . . . . . . . . . . . (5,807) (4,498)
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,677 7,686
------- -------
Balance at end of period . . . . . . . . . . . . . . . . . . . . . 10,915 10,459
------- -------
Unrealized gain(loss) on
securities available for sale. . . . . . . . . . . . . . . . . . . . 53 (3,352)
------- -------
Treasury stock
Balance at beginning of period . . . . . . . . . . . . . . . . . . . (738) (733)
Treasury stock acquired through conversion of
debentures (639 shares in 1994) . . . . . . . . . . . . . . . . . -- (5)
------- -------
Balance at end of period (178,788 shares common
and 3 shares preferred). . . . . . . . . . . . . . . . . . . . . (738) (738)
------- -------
TOTAL SHAREHOLDERS' EQUITY (Notes 4 and 5) . . . . . . . . . . . . . . $58,557 $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>
Nine Months Ended September 30,
1995 1994
----------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,677 $ 5,451
-------- --------
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 1,808 1,811
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . 618 270
Net amortization (accretion) of premiums and
(discounts) on securities . . . . . . . . . . . . . . . . . . . . . (149) 1,861
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . 720 191
Provision for other real estate losses. . . . . . . . . . . . . . . . 162 --
Net gain on sales of securities . . . . . . . . . . . . . . . . . . . (386) (17)
Origination of loans available for sale . . . . . . . . . . . . . . . (260,538) (112,595)
Proceeds from sales of loans available for sale . . . . . . . . . . . 226,108 101,086
Net gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . (2,573) (1,125)
Net trading account activity. . . . . . . . . . . . . . . . . . . . . -- 33
Net gain on sales of fixed assets, other real estate
and collateral acquired. . . . . . . . . . . . . . . . . . . . . . . (4) (67)
Net increase in other assets and interest receivable. . . . . . . . . (1,233) (75)
Net increase (decrease) in other liabilities and interest payable . . (2,422) 1,436
Net (increase) decrease in deferred tax asset . . . . . . . . . . . . (84) 1,464
Increase in outstanding expense and interest checks . . . . . . . . . 26 178
-------- --------
Total Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . (37,947) (5,549)
-------- --------
Net Cash Provided by (Used in) Operating Activities. . . . . . . . (30,270) (98)
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale . . . . . . . . . 28,514 8,059
Proceeds from maturities and prepayments of securities . . . . . . . . 36,380 78,208
Purchase of securities . . . . . . . . . . . . . . . . . . . . . . . . (21,046) (92,232)
Net (increase) decrease in loans . . . . . . . . . . . . . . . . . . . (13,376) 60,511
Purchases of loans held to maturity. . . . . . . . . . . . . . . . . . -- (75,537)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (2,769) (2,274)
Proceeds from sales of other real estate . . . . . . . . . . . . . . . 1,187 575
Proceeds from sales of fixed assets. . . . . . . . . . . . . . . . . . 44 --
Purchase of mortgage servicing rights. . . . . . . . . . . . . . . . . -- (730)
Purchase of mortgage company, net of acquired cash equivalents . . . . (52) (3,371)
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. . . . . . . . 34,712 (7,474)
-------- --------
Cash flows from financing activities:
Net decrease in non-interest-bearing, demand,
savings, interest-bearing demand and money market accounts . . . . . (26,838) (18,259)
Net decrease in certificate of deposits. . . . . . . . . . . . . . . . (13,268) (1,988)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase. . . . . . . . . . . . 33,705 533
Net increase in Federal Home Loan Bank advances. . . . . . . . . . . . (13,587) 33,000
Payment of long-term debt . . . . . . . . . . . . . . . . . . . . . . -- (1,000)
Payment of common dividends. . . . . . . . . . . . . . . . . . . . . . (860) (703)
Payment of preferred dividends . . . . . . . . . . . . . . . . . . . . (57) (57)
Increase in long term debt . . . . . . . . . . . . . . . . . . . . . . -- 2,500
-------- --------
Net Cash Provided by (Used in) Financing Activities. . . . . . . . (20,905) 14,026
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents. . . . . . . . . . (16,463) 6,454
-------- --------
Cash and Cash Equivalents at Beginning of Period. . . . . . . . . . . . 73,170 72,362
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . . . . . . $ 56,707 $ 78,816
======== ========
SUPPLEMENTAL DISCLOSURE:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,282 $ 10,207
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . 6,710 350
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Other real estate and collateral acquired . . . . . . . . . . . . . . . 860 248
Loans made to finance sales of other real estate. . . . . . . . . . . . 120 210
</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 September 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 nine months ended September 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 . . . . . . . . 720 191
Loans charged off . . . . . . . . . . . . . . . . . . . (866) (814)
Less recoveries on loans previously charged off . . . . 157 452
------- -------
Net loan charge-offs. . . . . . . . . . . . . . . . . . (709) (362)
------- -------
Balance at end of period . . . . . . . . . . . . . . . $ 5,256 $ 4,445
======= =======
</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 nine months ended September 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 . . . . . . . 221 --
Reductions . . . . . . . . . . . . . . . . . . . . . . (501) (56)
------- -------
Balance at end of period . . . . . . . . . . . . . . . $ 2,201 $ 2,362
======= =======
</TABLE>
5
<PAGE>
NOTE 4 - DIVIDENDS
Charter's board of directors declared cash dividends totaling $431,000,
$459,000 and $524,000 that were paid April 17, 1995, July 14, 1995 and
October 20, 1995, while cash dividends totaling $378,000, $351,000 and
$381,000 were paid March 31, 1994, July 20, 1994 and October 14, 1994 to
shareholders of common and preferred stock. Of the amounts declared in the
first and third quarters each year, $28,000 was paid to holders of the
initial series preferred stock and the remainder was paid on the common
stock. On October 31, 1995 and 1994, 5% stock dividends were paid to
shareholders of record as of October 15 of each year.
NOTE 5 - EARNINGS PER COMMON SHARE
Earnings per common share are computed as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- ---------------------
1995 1994 1995 1994
--------- --------- --------- --------
(in thousands,except per share amounts)
<S> <C> <C> <C> <C>
Net earnings . . . . . . . . . . . . . . . . . . $ 7,677 $ 5,451 $ 2,676 $ 2,176
Less preferred dividend requirements . . . . . . 57 57 28 28
--------- --------- --------- ---------
Primary earnings applicable to common
shareholders . . . . . . . . . . . . . . . . . 7,620 5,394 2,648 2,148
Interest expense on debentures . . . . . . . . . -- 5 -- --
--------- --------- --------- ---------
Fully diluted earnings applicable to common
shareholders . . . . . . . . . . . . . . . . . $ 7,620 $ 5,399 $ 2,648 $ 2,148
========= ========= ========= ==========
Primary earnings per common share:
Net earnings. . . . . . . . . . . . . . . . . . $ 1.20 $ 0.86 $ 0.42 $ 0.34
Fully diluted earnings per common share:
Net earnings. . . . . . . . . . . . . . . . . . $ 1.20 $ 0.86 $ 0.42 $ 0.34
Weighted average common shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . 6,330,861 6,324,897 6,330,861 6,330,861
Fully diluted . . . . . . . . . . . . . . . . . 6,330,861 6,330,861 6,330,861 6,330,861
</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. All per share
figures and weighted average shares outstanding have been adjusted for the 5%
stock dividends paid on October 31, 1995 and 1994.
6
<PAGE>
NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values were estimated by management as of September 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>
SEPTEMBER 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. . . . . . . . . . . . $ 56,707 $ 56,707 $ 73,170 $ 73,170
Securities . . . . . . . . . . . . . . . . . . . . . . 274,422 274,439 280,314 271,869
Loans. . . . . . . . . . . . . . . . . . . . . . . . . 479,270 480,971 343,761 342,116
Less: allowance for credit losses . . . . . . . . . . 5,256 5,256 4,446 4,446
--------- --------- -------- --------
Loans, net . . . . . . . . . . . . . . . . . . . . . 474,014 475,715 339,315 337,670
--------- --------- -------- --------
Financial Liabilities:
Deposits. . . . . . . . . . . . . . . . . . . . . . . . 678,077 681,423 616,880 615,695
Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . . . . 48,299 48,299 20,594 20,584
Federal Home Loan Bank advances . . . . . . . . . . . . 28,282 28,366 13,000 13,000
Long-term debt and debentures . . . . . . . . . . . . . 14,850 15,411 14,850 13,443
Unrecognized financial instruments:
Commitments to extend credit. . . . . . . . . . . . . . 93,152 93,152 90,803 90,803
Standby letters of credit . . . . . . . . . . . . . . . 4,156 4,156 7,732 7,732
Instruments with off-balance sheet
risk - unrealized gain (loss):
Interest rate caps and floors. . . . . . . . . . . . . 43 (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 September 30, 1995, Charter Bank, SSB had total loans of $90,819,000,
total deposits of $90,007,000 and total assets of $129,797,000. 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 September 30, 1995, outstanding advances totaled $28,282,000 with an
average rate of 7.19%. 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, a $6,000,000 advance with a rate of
5.76% matures on October 5, 1995. Finally, there are $12,582,000 advances
with an average fixed rate of 8.98% with final maturities from 2001 through
2013.
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 nine-month periods ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- Increase ------------------ Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
------ ------ ---------- ------ ------ ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income. . . . . . . . . $49,414 $31,735 $17,679 $16,853 $12,050 $4,803
Interest expense . . . . . . . . 20,470 10,522 9,948 6,842 3,974 2,868
------- ------- ------- ------- ------- ------
Net interest income . . . . . . 28,944 21,213 7,731 10,011 8,076 1,935
Provision for credit losses. . . 720 191 529 340 82 258
Non-interest income. . . . . . . 16,986 10,358 6,628 6,339 4,179 2,160
Non-interest expense . . . . . . 33,075 23,017 10,058 11,659 8,850 2,809
------- ------- ------- ------- ------- ------
Earnings before income taxes . . 12,135 8,363 3,772 4,351 3,323 1,028
Income tax expense . . . . . . . 4,458 2,912 1,546 1,675 1,147 528
------- ------- ------- ------- ------- ------
NET EARNINGS. . . . . . . . . . $ 7,677 $ 5,451 $ 2,226 $ 2,676 $ 2,176 $ 500
======= ======= ======= ======== ======= ======
</TABLE>
Earnings before income taxes increased $3.8 million for the first nine
months of 1995 as compared to the first nine 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 nine months of 1995 to
$7,677,000 as compared to $5,451,000 for the first nine 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 nine-month periods ended September 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>
Nine Months Ended September 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 . . . . . . . . . . . . . . . $459,437 $34,532 10.05% $281,465 $18,149 8.60%
Interest-earning deposits . . . . . -- -- -- 571 18 4.20
Trading account assets. . . . . . . -- -- -- 3,495 175 6.68
Securities:
Taxable. . . . . . . . . . . . . . 296,278 13,918 6.28 300,823 12,495 5.54
Non-taxable. . . . . . . . . . . . 948 34 4.80 745 26 4.69
-------- ------- ----- -------- ------- ----
Total Securities . . . . . . . . . 297,226 13,952 6.28 301,568 12,521 5.54
-------- ------- ----- -------- ------- ----
Federal funds sold and securities
purchased under agreements to
resell. . . . . . . . . . . . . . 24,914 930 4.99 30,329 872 3.84
-------- ------- ----- -------- ------- ----
Total Earning Assets/Yield. . . . . 781,577 49,414 8.45 617,428 31,735 6.85
-------- ------- ----- -------- ------- ----
Cash and due from banks . . . . . . 35,205 35,673
Other assets 36,447 29,463
Allowance for credit losses . . . . (5,399) (4,454)
-------- --------
Total Assets . . . . . . . . . . . $847,830 $678,110
======== ========
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits . . $ 86,359 1,056 1.63 $ 94,342 1,154 1.64
Savings deposits . . . . . . . . . . 34,154 623 2.44 38,005 690 2.43
Money market savings . . . . . . . . 105,226 2,697 3.43 111,399 2,324 2.79
Other time deposits. . . . . . . . . 292,689 11,833 5.41 175,047 4,739 3.61
Federal funds purchased and
securities sold under agreements
to repurchase. . . . . . . . . . . 46,569 1,784 5.12 24,641 752 4.08
Federal Home Loan Bank advances. . . 27,784 1,555 7.48 -- -- --
Long-term debt . . . . . . . . . . . 14,850 922 8.30 14,403 863 8.01
-------- ------- ----- -------- ------- ----
Total Interest-Bearing
liabilities/Rate . . . . . . . . . 607,631 20,470 4.50 457,837 10,522 3.07
-------- ------- ----- -------- ------- ----
Demand deposits. . . . . . . . . . . 175,523 166,012
Other liabilities. . . . . . . . . . 10,793 6,157
-------- --------
Total Liabilities . . . . . . . . . 793,947 630,006
Shareholders' Equity . . . . . . . . 53,883 48,104
-------- --------
Total Liabilities and
Shareholders' Equity . . . . . . . $847,830 $678,110
======== ========
Net Interest Income . . . . . . . . . $28,944 $21,213
======= =======
Interest Rate Spread. . . . . . . . . 3.95% 3.78%
===== =====
Net Interest Margin. 4.95% 4.59%
===== =====
</TABLE>
The increase in net interest income in the first nine 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 3.95% and the net interest
margin of 4.95% 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>
Nine Months Ended September 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 . $607,630 3.95% $17,946 $457,837 3.78% $12,980
Non-interest-bearing
liabilities and equity
capital . . . . . . . . . . . 173,947 8.45 10,998 159,591 6.85 8,233
-------- ----- ------- -------- ----- -------
Total. . . . . . . . . . . $781,577 $28,944 $617,428 $21,213
======== ======= ======== =======
</TABLE>
The $7,731,000 increase in total net interest income between the first
nine months of 1995 and the first nine months of 1994 can be attributed to a
higher net interest rate spread applied to a higher level of earning assets
($781,577,000 in 1995 versus $617,428,000 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 8.75% at September 30, 1995,
as compared to 7.75 % at September 30, 1994).
Increases in non-interest-bearing sources of funds reflect the increases
in non-interest-bearing deposits, which averaged approximately 25% of total
average deposits for the nine months ended September 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 September 30, 1995 of $5,256,000
represented 1.10% of outstanding loans. A year earlier, this ratio was 1.40%
and at December 31, 1994, it was 1.29%. Annualized net loans charged-off as
a percent of average loans outstanding was .21% during the first nine months
of 1995 as compared to net loans charged-off of .17% during the first nine
months of 1994. The increase in loan charge-offs for the third quarter of
1995 reflects a $400,000 loss on one loan, which amount had been fully
reserved for in the allowance for credit losses as reflected in prior
periods. The provision for credit losses charged against earnings was
$720,000 for the nine months ended September 30, 1995, as compared to
$191,000 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 nine-month periods ended September 30, 1995
and 1994:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Average loans outstanding . . . . . . . . . . . . . . . $459,437 $281,465 $490,496 $320,722
Loans outstanding at end of period . . . . . . . . . . 479,270 318,242 479,270 318,242
-------- -------- -------- --------
Transactions in the allowance for credit losses:
Balance at beginning of period . . . . . . . . . . . 4,446 4,616 5,472 4,312
Allowance of acquired bank . . . . . . . . . . . . . 799 -- -- --
Provision charged to operating expenses . . . . . . 720 191 340 82
Loans charged off:
Real estate. . . . . . . . . . . . . . . . . . . . 67 262 67 1
Commercial . . . . . . . . . . . . . . . . . . . . 462 296 456 29
Individuals. . . . . . . . . . . . . . . . . . . . 277 256 69 61
Other . . . . . . . . . . . . . . . . . . . . . . 59 -- 19 --
-------- -------- -------- --------
Total loans charged off . . . . . . . . . . . . . 865 814 611 91
-------- -------- -------- --------
Recoveries on loans previously charged off:
Real estate. . . . . . . . . . . . . . . . . . . . 25 182 6 20
Commercial . . . . . . . . . . . . . . . . . . . . 58 161 34 103
Individuals. . . . . . . . . . . . . . . . . . . . 72 109 14 19
Other. . . . . . . . . . . . . . . . . . . . . . . 1 -- 1 --
-------- -------- -------- --------
Total recoveries . . . . . . . . . . . . . . . . . 156 452 55 142
-------- -------- -------- --------
Net loans (charged off) recovered . . . . . . . (709) (362) (556) 51
-------- -------- -------- --------
Balance at end of period . . . . . . . . . . . . . $ 5,256 $ 4,445 $ 5,256 $ 4,445
======== ======== ======== ========
Ratios:
Allowance as a percent of loans outstanding
at end of period . . . . . . . . . . . . . . . . . 1.10% 1.40% 1.10% 1.40%
Allowance as a percent of average loans . . . . . . 1.14 1.58 1.07 1.39
Net loans charged off as a percent of
average loans outstanding (annualized) . . . . . . 0.21 0.17 0.45 (0.06)
</TABLE>
11
<PAGE>
NON-INTEREST INCOME
Non-interest income increased 64.0% during the first nine months of 1995
as compared to the same period in 1994. Excluding the effect of securities
transactions and mortgage banking income for the nine months ended September
30 of each year, non-interest income increased 21.7%. Service charges on
deposits, increased by 6.7% to $4,998,000 for the nine months ended September
30, 1995, as compared to $4,686,000 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 $9.5 million, or 5.7% for the first nine months
of 1995 as compared to the same period in 1994.
Mortgage banking income increased by 155.5% to $7,681,000 for the nine
months ended September 30, 1995 as compared to $3,006,000 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 $381,000 for the
first nine months of 1995 as compared to a gain of $17,000 for the same
period in 1994. Trust fees represent revenues earned for services provided
to customers of Charter National Bank-Houston's Asset Management and Trust
Services Department. During the first nine months of 1995 trust fees
increased $923,000 to $1,517,000, or by 155.4% compared to the first nine
months of 1994, due to an increase in the assets under administration which
grew to approximately $282 million at the end of September 30, 1995, compared
to $177 million at the end of September 1994.
Other customer service fees increased $176,000 for the nine months ended
September 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 $145,000 or 11.0% in the first nine months of
1995 compared to the first nine months of 1994. Fees from components within
the "other" category which improved in 1995 include a $33,000 increase in
fees generated from letters of credit, $41,000 increase in collection fees
and $61,000 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>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 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... $ 4,998 6.7% $ 4,686 16.4% $ 1,697 (3.5)% $ 1,758 20.0%
Other customer service fees... 946 22.9 770 27.9 305 (7.9) 331 52.5
Trust fees.................... 1,517 155.4 594 54.3 547 235.6 163 1.2
Investment securities gains... 381 NM 17 (86.0) 295 NM 10 (133.3)
Trading account losses........ -- NM (33) NM -- -- -- --
Mortgage banking income....... 7,681 155.5 3,006 NM 3,014 97.3 1,528 NM
Other......................... 1,463 11.0 1,318 18.5 481 23.7 389 (21.4)
------- ------ ------- ----- ------- ----- ------- ------
Total..................... $16,986 64.0% $10,358 65.9% $ 6,339 51.7% $ 4,179 81.1%
======= ====== ======= ===== ======= ===== ======= ======
</TABLE>
"NM" denotes a comparison that is not meaningful.
12
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense increased 43.7% during the first nine months of
1995 as compared to the same period in 1994. Non-interest expenses from
Charter Mortgage were $6.2 million and $2.1 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 nine 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 $4,567,000, or 37.1% for the first
nine months of 1995. Approximately $3,491,000 of the increase in salaries
and benefits was generated by $185,000 from the new Fiesta Mart branches and
$127,000 by Charter Builders Group, while the Charter Mortgage acquisition
generated an additional $2,252,000 and the Charter Bank, SSB acquisition
generated an additional $927,000. Excluding the impact of these acquisitions,
total salaries and benefits increased by $1,076,000, or 11.2% 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 in April of 1994 gave rise to
increases in several categories of non-interest expense, including net
premises and equipment expense, travel and entertainment, legal fees,
amortization of intangibles, stationery and supplies and "other" expense.
Increase in expenses incurred by Charter Mortgage and reflected on the
consolidated financial statements of Charter for 1995 and 1994 in each of the
preceding categories approximated $263,000, $92,000, $51,000, $164,000,
$72,000, and $272,000, respectively.
The acquisition of Charter Bank, SSB in 1995 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 $327,000, $92,000, and $208,000,
respectively.
Deposit insurance premiums decreased due to a reduction in the insurance
rate from $.23 to $.04 per $100 of deposits effective June 1, 1995.
This decrease in rate was partially offset by an increased volume of deposits.
The "other" category of expenses includes such items as franchise taxes,
consulting fees, correspondent bank charges, telephone, postage, travel and
entertainment, training and insurance. Each of these items increased due to
internal growth and from acquisitions. Non-recurring expenses related to the
transition of recent acquisitions approximated $500,000. Additional
non-recurring expenses related to a data processing system conversion during
the third quarter of 1995 resulted in approximately $100,000 of expenses
included within the "other" category.
The following table sets forth by category the operating expenses and
the percentage change from the prior period:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 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.......... $16,893 37.1% $ 12,326 41.1% $ 5,888 24.3% $ 4,736 59.5%
Occupancy expense.............. 4,364 27.6 3,419 27.7 1,423 10.6 1,287 31.9
Advertising.................... 933 62.3 575 38.2 339 79.4 189 33.1
Electronic data processing..... 1,277 24.7 1,024 26.0 443 24.1 357 45.7
Legal expense.................. 1,194 63.8 729 63.5 621 104.3 304 102.7
ORE losses and carrying costs.. 246 70.8 144 (90.9) 55 (17.9) 67 (43.7)
Deposit insurance premium...... 829 (13.5) 958 (2.3) 34 (89.4) 321 (1.5)
Amortization of intangibles.... 618 128.9 270 (86.7) 202 43.3 141 (92.0)
Stationery and supplies........ 785 49.5 525 66.1 264 23.4 214 54.0
Other.......................... 5,936 94.8 3,047 8.6 2,390 93.7 1,234 47.8
-------- ------ ------- ------ ------- ----- ------- -----
Total...................... $33,075 43.7% $23,017 10.6% $11,659 31.7% $ 8,850 15.3%
======== ====== ======= ====== ======= ===== ======= =====
</TABLE>
13
<PAGE>
(B) ANALYSIS OF FINANCIAL CONDITION
Total assets at September 30, 1995, were $840,622,000 as compared to
Charter's total assets of $722,398,000 at December 31, 1994. Loans
increased by approximately $135.5 million from year-end 1994 primarily as a
result of the Charter Bank, SSB acquisition, $85.8 million, and $49.7 million
from internal loan growth. Normal recurring fluctuations decreased cash and
due from banks by $6.8 million since year-end. The most significant changes
in sources of funds were in deposits, Federal Home Loan Bank advances and
Federal funds purchased and securities sold under agreements to repurchase,
which increased by approximately $61.2 million, $15.3 million, and $27.7
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.
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 September 30, 1995 and December 31,
1994, were approximately $468,880,000 and $386,041,000, respectively,
calculated as follows:
<TABLE>
<CAPTION>
RISK-WEIGHTED ASSETS SEPTEMBER 30, December 31,
1995 1994
------------------------- --------------------------
AGGREGATE RISK-WEIGHTED Aggregate Risk-Weighted
AMOUNT AMOUNT Amount Amount
--------- ------------- --------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Investment securities ................. $274,422 $ 41,110 $280,314 $ 42,971
Loans ................................. 479,270 382,750 343,761 294,394
Other interest earning assets ......... 18,321 3,664 28,007 5,602
Cash and due from banks ............... 38,386 4,241 45,163 5,576
All other assets ...................... 35,479 35,479 29,599 29,599
-------- -------- -------- --------
Total Adjusted Assets (1) ......... $845,878 467,244 $726,844 378,142
======== ======== ======== --------
Total credit-equivalent amount of
off-balance sheet items ............. 1,636 7,899
-------- --------
Total Risk-Weighted Assets ........ $468,880 $386,041
======== ========
</TABLE>
(1) Total adjusted assets are total assets plus the allowance for
credit losses.
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 SEPTEMBER 30, December 31,
1995 1994
------------- ------------
(in thousands)
<S> <C> <C>
Core Capital (Tier 1):
Common equity ...................................... $51,572 $47,721
Preferred equity ................................... 710 710
------- -------
Total Core Capital ................................. 52,282 48,431
------- -------
Supplementary Capital (Tier 2):
Allowance for credit losses ........................ 5,256 4,446
Subordinated debt .................................. 10,950 11,100
------- -------
Total Supplementary Capital ........................ 16,206 15,546
------- -------
Total Capital ...................................... $68,488 $63,977
======= =======
Core capital (Tier 1) as a percentage of
risk-weighted assets ............................... 11.15% 12.55%
Total capital (Tier 1 and Tier 2) as a percentage of
risk-weighted assets ............................... 14.61 16.57
Core capital as a percentage of quarterly
average assets (leverage ratio) .................... 6.24 7.04
</TABLE>
At September 30, 1995, total risk based capital was 14.61% of risk
weighted assets and core capital was 6.24% 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 September 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 September 30, 1995, of
approximately $32.8 million and $77.7 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 September 30, 1995, the table shows a positive (asset-sensitive) rate
sensitivity gap of $154 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 .................................... $258,064 $ 32,698 $ 40,346 $ 49,831 $ 82,103 $ 16,228 $479,270
Securities ............................... 16,889 14,543 12,136 31,414 155,187 44,253 274,422
Other earning assets ..................... 18,321 -- -- -- -- -- 18,321
-------- --------- --------- -------- -------- -------- --------
Total Earning Assets ..................... 293,274 47,241 52,482 81,245 237,290 60,481 772,013
-------- --------- --------- -------- -------- -------- --------
Interest-Bearing Liabilities:
Interest-bearing deposits ................ 52,286 137,584 155,343 47,664 81,557 15,998 490,432
Borrowed funds ........................... 57,120 10,043 213 419 4,981 18,655 91,431
-------- --------- --------- -------- -------- -------- --------
Total Interest-Bearing liabilities ....... 109,406 147,627 155,556 48,083 86,538 34,653 581,863
-------- --------- --------- -------- -------- -------- --------
Asset - Liability Gap ...................... 183,868 (100,386) (103,074) 33,162 150,752 25,828 190,150
Derivatives affecting interest sensitivity:
LIBOR Floors Purchased ................... (30,000) -- -- -- 30,000 -- --
-------- --------- --------- -------- -------- -------- --------
Interest-rate sensitivity gap ............. $153,868 $(100,386) $(103,074) $ 33,162 $180,752 $ 25,828 $190,150
======== ========= ========= ======== ======== ======== ========
Cumulative interest rate sensitivity gap ... $153,868 $ 53,482 $ (49,592) $(16,430) $164,322 $190,150
Cumulative Amounts as a %
of Cumulative Earning Assets ............. 52.5% 15.7% (12.6)% (3.5)% 23.1% 24.6%
Cumulative Ratio ........................... 2.10X 1.19X .89X .97X 1.36X 1.33X
</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 September 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 stabilize 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 volumes 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
September 30, 1995, Charter had $38,385,000 in cash, and a $274,422,000 total
securities portfolio in which the market value was approximately $17,000 less
than the carrying value. The average loan-to-deposit ratio for the nine-month
period ended September 30, 1995 was 66%.
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 nine months of 1995, Charter received $36,380,000 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
September 30, 1995, Charter had $35,359,000 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
liquidity 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 National Bank-
Houston, University Bank-Galveston, and Charter Bank, SSB are members. At
September 30, 1995, Charter had $28,282,000 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 $135,509,000, OR 39.4%, from December 31, 1994 to
September 30, 1995. The following is a schedule of loans outstanding classified
by type:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1995 1994
------------- ------------
(in thousands)
<S> <C> <C>
Commercial, financial and industrial . . $ 77,832 $ 75,113
Commercial real estate . . . . . . . . . 53,771 40,923
Real estate-construction (1) . . . . . . 111,602 90,478
Real estate-multi-family . . . . . . . . 19,773 10,611
Real estate-1-4 family . . . . . . . . . 156,614 66,300
Loans to individuals . . . . . . . . . . 59,678 60,336
-------- --------
Total Loans. . . . . . . . . . . . . . $479,270 $343,761
======== ========
</TABLE>
(1) Included in the total real estate-construction loans are $104 million and
$79 million, respectively, of loans secured by one-to-four family
residential properties as of September 30, 1995 and December 31, 1994.
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 September 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1995 1994
------------- ------------
(in thousands)
<S> <C> <C>
Non-accrual loans
Real estate . . . . . . . . . . . . . . . . . . $2,343 $ 688
Commercial and industrial . . . . . . . . . . . 126 227
Individual . . . . . . . . . . . . . . . . . . . 19 32
------ ------
Total non-accrual loans. . . . . . . . . . . . 2,488 947
------ ------
Restructured loans:
Commercial and industrial . . . . . . . . . . . -- 1,203
------ ------
Total restructured loans . . . . . . . . . . . -- 1,203
------ ------
Other real estate, net and collateral acquired . . 1,893 1,662
------ ------
Total non-performing assets . . . . . . . . . $4,381 $3,812
====== ======
Loans past due 90 days or more
and still accruing interest:
Real estate . . . . . . . . . . . . . . . . . . $ 502 $ 313
Commercial and industrial . . . . . . . . . . . 230 226
Individual . . . . . . . . . . . . . . . . . . . 105 159
Other . . . . . . . . . . . . . . . . . . . . . 5 2
------ ------
Total loans past due 90 days or more
and still accruing interest . . . . . . . . . $ 842 $ 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 . . . . . . . . 211.3 469.2
Allowance for credit losses as a
percentage of non-performing loans (1). . . . . 157.8 156.0
Non-performing loans as a percentage
of total loans (1) . . . . . . . . . . . . . . 0.7 0.8
Total non-performing assets as a
percentage of total assets . . . . . . . . . . 0.5 0.5
</TABLE>
(1) Non-performing loans includes non-accrual loans, restructured loans and
loans past due 90 days or more and still accruing interest.
Total non-performing assets increased $569,000 since year-end to $4.4
million at September 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 0.5% at September 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: /s/ WILLIAM S. SHROPSHIRE, JR.
----------------------------------
William S. Shropshire, Jr.
Senior Vice President
Chief Financial Officer
and Treasurer
(Principal financial and
accounting officer)
Date: November 10, 1995
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 38,386
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 18,321
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 110,876
<INVESTMENTS-CARRYING> 163,546
<INVESTMENTS-MARKET> 163,563
<LOANS> 479,270
<ALLOWANCE> 5,256
<TOTAL-ASSETS> 840,622
<DEPOSITS> 678,077
<SHORT-TERM> 76,581
<LIABILITIES-OTHER> 12,557
<LONG-TERM> 14,850
<COMMON> 6,510
0
710
<OTHER-SE> 51,337
<TOTAL-LIABILITIES-AND-EQUITY> 840,622
<INTEREST-LOAN> 34,532
<INTEREST-INVEST> 13,952
<INTEREST-OTHER> 930
<INTEREST-TOTAL> 49,414
<INTEREST-DEPOSIT> 16,209
<INTEREST-EXPENSE> 20,470
<INTEREST-INCOME-NET> 28,944
<LOAN-LOSSES> 720
<SECURITIES-GAINS> 381
<EXPENSE-OTHER> 33,075
<INCOME-PRETAX> 12,135
<INCOME-PRE-EXTRAORDINARY> 7,677
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,677
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
<YIELD-ACTUAL> 4.95
<LOANS-NON> 2,488
<LOANS-PAST> 842
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,446
<CHARGE-OFFS> 866
<RECOVERIES> 157
<ALLOWANCE-CLOSE> 5,256
<ALLOWANCE-DOMESTIC> 400
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,856
</TABLE>
