<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X
______ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number: 0-13496
-------
CHARTER BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1967164
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
2600 CITADEL PLAZA DRIVE, SUITE 600, HOUSTON, TEXAS 77008
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 692-6121
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 ("Act") during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
---- ----
The number of shares outstanding of each class of the registrant's capital
stock as of March 31, 1996:
CLASS OF STOCK SHARES OUTSTANDING
- - -------------- ------------------
COMMON STOCK, PAR VALUE $1.00 6,061,625
CLASS B SPECIAL COMMON STOCK, PAR VALUE $1.00 219,718
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- - ------------------------------
CHARTER BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,338 $ 50,193
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,488 22,716
-------- --------
Total Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . 76,826 72,909
-------- --------
Securities held to maturity (fair value of $95,977,000 at
March 31, 1996, and $99,446,000 at December 31, 1995, respectively) . . . . 96,144 98,915
Securities available for sale (amortized cost of $186,002,000 at
March 31, 1996, and $195,529,000 at December 31, 1995) . . . . . . . . . . 186,004 197,153
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501,291 513,235
Less: Allowance for credit losses (Note 2). . . . . . . . . . . . . . . . 5,500 5,620
-------- --------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495,791 507,615
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,097 16,182
Accrued interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . 5,195 5,598
Other real estate, net (Note 3). . . . . . . . . . . . . . . . . . . . . . . 2,328 1,985
Intangibles assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 8,529 7,838
Purchased mortgage servicing rights. . . . . . . . . . . . . . . . . . . . . 2,058 2,121
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,053 4,249
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $894,025 $914,565
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest-bearing demand . . . . . . . . . . . . . . . . . . . . . . $191,510 $201,311
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,610 34,665
Interest-bearing demand . . . . . . . . . . . . . . . . . . . . . . . . 91,466 93,607
Money market savings. . . . . . . . . . . . . . . . . . . . . . . . . . 100,066 98,406
Time $100,000 and over. . . . . . . . . . . . . . . . . . . . . . . . . 104,649 100,063
Time under $100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 207,507 205,662
-------- --------
Total Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 731,808 733,714
-------- --------
Federal funds purchased and securities sold under agreements to
repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,716 55,722
Federal Home Loan Bank advances (Note 8). . . . . . . . . . . . . . . . . 31,837 35,519
Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . . . 2,807 2,436
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,530 10,482
Subordinated long-term debt . . . . . . . . . . . . . . . . . . . . . . . 12,750 12,750
Other long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900 1,900
-------- --------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 831,348 852,523
-------- --------
Shareholders' Equity (Notes 4 and 5):
Preferred stock (400,000 shares authorized;
issued: 14,204 shares in 1995). . . . . . . . . . . . . . . . . . . . -- 710
Common stock (12,000,000 shares authorized;
issued: 6,240,413 shares in 1996 and 1995). . . . . . . . . . . . . . . 6,240 6,240
Class B special common stock (250,000 shares authorized;
issued: 219,718 shares in 1996 and 1995). . . . . . . . . . . . . . . . 220 220
Series C special common stock (50,000 shares authorized;
issued: 49,527 shares in 1996 and 1995) . . . . . . . . . . . . . . . . 50 50
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,107 41,107
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,886 13,475
Net unrealized gain (loss) on securities available for sale . . . . . . (89) 978
Treasury stock at cost (common and preferred;
170,275 shares common in 1996 and 1995 and 3 preferred in 1995) . . . . (737) (738)
-------- --------
Total Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . 62,677 62,042
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . $894,025 $914,565
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
1
<PAGE>
CHARTER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
------ -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Interest Income:
Loans, including fees . . . . . . . . . . . . . . . . . . . . . . $ 11,553 $ 10,653
Investment securities . . . . . . . . . . . . . . . . . . . . . . 4,585 4,669
Federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . 123 626
Securities purchased under agreements to resell . . . . . . . . . 250 --
---------- ---------
Total Interest Income . . . . . . . . . . . . . . . . . . . . . 16,511 15,948
---------- ---------
Interest Expense:
Deposits:
Interest-bearing demand . . . . . . . . . . . . . . . . . . . . 383 371
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 206
Money market savings. . . . . . . . . . . . . . . . . . . . . . 844 1,676
Time $100,000 and over. . . . . . . . . . . . . . . . . . . . . 1,436 907
Time under $100,000 . . . . . . . . . . . . . . . . . . . . . . 2,771 2,311
Securities sold under agreements to repurchase. . . . . . . . . . 399 199
Federal funds purchased and Federal Home Loan Bank advances . . . 577 522
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . 303 304
---------- ---------
Total Interest Expense. . . . . . . . . . . . . . . . . . . . . . 6,926 6,496
---------- ---------
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . 9,585 9,452
Provision for credit losses (Note 2) . . . . . . . . . . . . . . . . 146 170
---------- ---------
Net Interest Income After Provision for Credit Losses . . . . . . 9,439 9,282
---------- ---------
Non-Interest Income:
Service charges on deposit accounts . . . . . . . . . . . . . . . 1,572 1,651
Other customer service fees . . . . . . . . . . . . . . . . . . . 303 312
Trust Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 520 448
Securities gains (losses) . . . . . . . . . . . . . . . . . . . . 316 (41)
Mortgage banking income . . . . . . . . . . . . . . . . . . . . . 1,937 941
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 491
---------- ---------
Total Non-Interest Income . . . . . . . . . . . . . . . . . . . 5,026 3,802
---------- ---------
Non-Interest Expense:
Salaries and employee benefits. . . . . . . . . . . . . . . . . . 6,177 4,348
Net premises and equipment expense. . . . . . . . . . . . . . . . 1,441 1,459
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 284
Data processing . . . . . . . . . . . . . . . . . . . . . . . . . 486 403
Deposit insurance premiums. . . . . . . . . . . . . . . . . . . . 58 404
Amortization of intangibles . . . . . . . . . . . . . . . . . . . 220 201
Stationery and supplies . . . . . . . . . . . . . . . . . . . . . 254 260
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841 1,939
---------- ---------
Total Non-Interest Expense. . . . . . . . . . . . . . . . . . . 9,820 9,298
---------- ---------
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . 4,645 3,786
Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . 1,686 1,346
---------- ---------
NET EARNINGS. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,959 $ 2,440
---------- ---------
---------- ---------
Earnings per Common Share (Note 5):. . . . . . . . . . . . . . . . . $ 0.46 $ 0.38
Weighted Average Shares Outstanding: . . . . . . . . . . . . . . . . 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>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Preferred stock, ($50.00 par value)
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . $ 710 $ 710
Stock redemption (14,204 shares in 1996). . . . . . . . . . . . . . . (710) --
---------- ----------
Balance at end of period. . . . . . . . . . . . . . . . . . . . . . -- 710
---------- ----------
Common stock ($1.00 par value)
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . 6,240 5,944
Stock dividend (296,922 shares in 1995) . . . . . . . . . . . . . . . -- 296
---------- ----------
Balance at end of period (6,240,413 shares
issued and 6,061,625 shares outstanding). . . . . . . . . . . . . 6,240 6,240
---------- ----------
Class B special common stock ($1.00 par value)
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . 220 209
Stock dividend (10,457 shares in 1995). . . . . . . . . . . . . . . . -- 11
---------- ----------
Balance at end of period (219,718 shares issued
and outstanding). . . . . . . . . . . . . . . . . . . . . . . . . 220 220
---------- ----------
Series C special common stock ($1.00 par value)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . 50 47
Stock dividend - common stock (2,358 shares in 1995). . . . . . . . . -- 3
---------- ----------
Balance at end of period (49,518 shares issued
and outstanding). . . . . . . . . . . . . . . . . . . . . . . . . 50 50
---------- ----------
Capital surplus
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . 41,107 35,609
Stock dividend - common stock . . . . . . . . . . . . . . . . . . . -- 5,498
---------- ----------
Balance at end of period. . . . . . . . . . . . . . . . . . . . . . 41,107 41,107
---------- ----------
Retained earnings
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . 13,475 10,459
Cash dividends - preferred stock. . . . . . . . . . . . . . . . . . . (28) (57)
Cash dividend - common stock. . . . . . . . . . . . . . . . . . . . . (520) (1,878)
Stock dividend - common stock . . . . . . . . . . . . . . . . . . . . -- (5,808)
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,959 10,759
---------- ----------
Balance at end of period. . . . . . . . . . . . . . . . . . . . . . 15,886 13,475
---------- ----------
Unrealized (loss) on
securities available for sale. . . . . . . . . . . . . . . . . . . . . (89) 978
---------- ----------
Treasury stock
Balance at beginning of period. . . . . . . . . . . . . . . . . . . . (738) (738)
Preferred Stock redemption (3 shares in 1996) . . . . . . . . . . . . 1 --
---------- ----------
Balance at end of period (178,788 shares) . . . . . . . . . . . . . . (737) (738)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY (Notes 4 and 5) . . . . . . . . . . . . . . . $ 62,677 $ 62,042
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
CHARTER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,959 $ 2,440
-------- ---------
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 648 584
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . 220 201
Net amortization of premiums and
(discounts) on securities . . . . . . . . . . . . . . . . . . . . 135 (293)
Provision for credit losses . . . . . . . . . . . . . . . . . . . . 146 170
Provision for other real estate losses. . . . . . . . . . . . . . . -- 17
Net (gain)loss on sales of securities . . . . . . . . . . . . . . . (316) 41
Origination of loans available for sale . . . . . . . . . . . . . . (114,243) (58,989)
Proceeds from sales of loans available for sale . . . . . . . . . . 170,262 49,181
Net (gain) on sale of loans . . . . . . . . . . . . . . . . . . . . (1,145) (556)
Net (gain)loss on sales of fixed assets, other real
estate and collateral acquired. . . . . . . . . . . . . . . . . . 7 9
Net (increase) in other assets and interest receivable. . . . . . . (7) (1,205)
Net (decrease) in other liabilities and interest payable. . . . . . (1,932) (2,954)
Net (increase) decrease in deferred tax asset . . . . . . . . . . . 857 (56)
Increase (decrease) in outstanding expense and interest checks. . . (369) 193
-------- ---------
Total Adjustments. . . . . . . . . . . . . . . . . . . . . . . . 54,263 (13,657)
Net Cash Provided by (Used In) Operating Activities. . . . . . 57,222 (11,217)
-------- ---------
Cash flows from investing activities:
Net decrease in interest-bearing deposits . . . . . . . . . . . . . . 297 --
Proceeds from sales of securities . . . . . . . . . . . . . . . . . . 316 2,718
Proceeds from maturities and prepayments of securities. . . . . . . . 13,517 19,084
Purchase of securities. . . . . . . . . . . . . . . . . . . . . . . . -- (17,225)
Net (increase) decrease in loans. . . . . . . . . . . . . . . . . . . (32,848) (5,410)
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . (282) (1,531)
Proceeds from sales of other real estate. . . . . . . . . . . . . . . 73 234
Proceeds from sales of fixed assets . . . . . . . . . . . . . . . . . -- 29
Purchase of trust assets. . . . . . . . . . . . . . . . . . . . . . . -- (1,811)
Purchase of banking organization, net of acquired cash equivalents. . 5,846 7,786
-------- ---------
Net Cash Provided by (Used In) Investing Activities . . . . . . . . (13,081) 3,874
-------- ---------
Cash flows from financing activities:
Net decrease in non-interest-bearing, demand,
savings, interest-bearing demand and money market accounts. . . . . (19,841) (21,173)
Net decrease in certificate of deposits . . . . . . . . . . . . . . . (1,795) (9,503)
Net increase (decrease) in securities sold under agreements
to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,006) 3,166
Payment of long-term debt . . . . . . . . . . . . . . . . . . . . . . -- (252)
Net decrease in Federal Home Loan Bank advances . . . . . . . . . . . (13,682) --
Payment of preferred dividends. . . . . . . . . . . . . . . . . . . . -- (28)
-------- ---------
Net Cash Used In Financing Activities . . . . . . . . . . . . . (40,324) (27,790)
-------- ---------
Net increase (decrease) in Cash and Cash Equivalents . . . . . . . . . . 3,817 (35,133)
-------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . 72,908 73,170
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . $ 76,725 $ 38,037
-------- ---------
-------- ---------
SUPPLEMENTAL DISCLOSURE:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,191 $ 5,797
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . 565 105
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Other real estate and collateral acquired . . . . . . . . . . . . . . 458 386
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
CHARTER BANCSHARES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accounting and reporting policies of Charter Bancshares, Inc.
("Charter" or "the Company") conform to generally accepted accounting
principles and to general practices within the banking industry. The
accompanying consolidated financial statements include the accounts of
Charter and its subsidiaries. All significant intercompany balances and
transactions have been eliminated upon consolidation. Certain amounts have
been reclassified in the accompanying consolidated financial statements from
those previously reported for the quarter ended March 31, 1995 to conform to
current year financial statement classifications.
The accompanying consolidated financial statements were not audited by
independent certified public accountants, but in the opinion of management
reflect all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of same.
NOTE 2 - ALLOWANCE FOR CREDIT LOSSES
The following table is an analysis of the activity in the allowance for
credit losses for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . $ 5,620 $ 4,446
Allowance of acquired bank . . . . . . . . . . . . . . . . . . . . . . 279 799
Provision charged to operating expenses. . . . . . . . . . . . . . . . 146 170
Loans charged off. . . . . . . . . . . . . . . . . . . . . . . . . . . (614) (46)
Less recoveries on loans previously charged off. . . . . . . . . . . . 69 57
------- -------
Net loan (charge-offs), recoveries . . . . . . . . . . . . . . . (545) 11
------- -------
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . $ 5,500 $ 5,426
------- -------
------- -------
</TABLE>
NOTE 3 - ALLOWANCE FOR OTHER REAL ESTATE LOSSES
Other real estate ("ORE") is reflected on the consolidated balance sheets
net of an allowance for anticipated losses on other real estate. The
following table is an analysis of activity in the allowance for anticipated
losses on other real estate for the three months ended March 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period . . . . . . . . . . . . . . . . . . . $ 2,226 $ 2,361
Allowance of acquired bank . . . . . . . . . . . . . . . . . . . . . -- 120
Provision charged to operating expenses. . . . . . . . . . . . . . . -- 17
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (219)
------- -------
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . $ 2,223 $ 2,279
------- -------
------- -------
</TABLE>
5
<PAGE>
NOTE 4 - DIVIDENDS
Charter's board of directors declared cash dividends totaling $548,000
and $459,000 that were paid April 15, 1996 and April 17, 1995 respectively to
shareholders of common and preferred stock. Of the amounts paid, $28,000 was
paid to holders of the initial series preferred stock and the remainder was
paid on the common stock.
NOTE 5 - EARNINGS PER COMMON SHARE
Earnings per common share are computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,959 $ 2,440
Less preferred dividend requirements . . . . . . . . . . . . . . . . . 28 28
Earnings applicable to common shareholders . . . . . . . . . . . . . . $ 2,931 $ 2,412
------- --------
------- --------
Earnings per common share. . . . . . . . . . . . . . . . . . . . . . . $ 0.46 $ 0.38
------- --------
------- --------
Weighted average common shares outstanding . . . . . . . . . . . . . . 6,330,861 6,330,861
</TABLE>
NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values were estimated by management as of March 31, 1996 and
December 31, 1995, 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 affect on the estimated values presented.
The estimated fair values of Charter's financial instruments were as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments . . . . . . . . . . $ 76,826 $ 76,826 $ 72,909 $ 72,909
Securities. . . . . . . . . . . . . . . . . . . . . 282,149 281,981 296,068 296,599
Loans . . . . . . . . . . . . . . . . . . . . . . . 501,291 503,592 513,235 515,922
Less: allowance for credit losses. . . . . . . . . 5,500 5,500 5,620 5,620
--------- ---------- --------- ---------
Loans, net. . . . . . . . . . . . . . . . . . . . 495,791 498,092 507,615 510,302
--------- ---------- --------- ---------
Financial Liabilities:
Deposits. . . . . . . . . . . . . . . . . . . . . . 731,809 734,526 733,714 738,262
Securities sold under agreements to repurchase. . . 50,716 50,716 69,222 69,222
Long-term debt and debentures . . . . . . . . . . 36,487 37,720 36,669 37,885
Unrecognized financial instruments:
Commitments to extend credit. . . . . . . . . . . . 87,529 87,529 133,412 133,412
Standby letters of credit . . . . . . . . . . . . . 5,236 5,236 5,606 5,606
Instruments with off-balance sheet
risk - unrealized (loss):
Interest rate caps and floors . . . . . . . . . . 24 93
</TABLE>
6
<PAGE>
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES
Three of Charter's subsidiary banks (Charter National Bank-Houston,
University National Bank-Galveston and Charter Bank, SSB) are members of the
FHLB. The FHLB provides advances as a source of funds to each of its
members. These advances are collateralized by a blanket pledge of the
subsidiary banks' residential mortgage loans. Charter continues to utilize
FHLB advances in concert with its daily funds management.
At March 31, 1996, outstanding advances totaled $31,837,000 with an
average rate of 6.84%. Of this amount, $9,700,000 has a final maturity date
of June 7, 2001 and bears interest at a current rate of 5.63% adjustable
semi-annually to 6-month LIBOR. An additional $10,000,000 advance with a
rate of 5.50% will mature on April 1, 1996. The remaining $12,137,000
represents amortizing fixed rate advances with final maturities from 2003
through 2013 and an average rate of 8.91%.
NOTE 9 - PENDING MERGER BETWEEN NATIONSBANK CORPORATION AND CHARTER
Charter signed a definitive agreement on January 25, 1996, to merge with
NationsBank Corporation ("NationsBank"). Under the terms of agreement as
approved by Charter's board of directors, each share of Charter's regular
common, Class B special common and Series C special common stock will be
exchanged for 0.385 shares of NationsBank common stock. Based on the $79.00
closing price of NationsBank common stock on April 15, 1996, the transaction
is valued at $30.42 per share.
Prior to the transaction, NationsBank held 2,659,250 shares of Charter's
common stock, or 42% of the outstanding common and special common stock of
Charter, as a result of two investments totaling $13 million made by
NationsBank in 1986 and 1988.
It is expected that the transaction will be treated as a tax free
exchange for Charter's shareholders. The merger has been approved by all
requisite regulatory authorities and is expected to be approved by the
shareholders of Charter at the special meeting to be held May 17, 1996.
Following receipt of shareholders approval, Charter and NationsBank expect to
complete the merger on May 24, 1996.
As part of the transaction, and effective March 31, 1996, the board of
directors approved the redemption of all outstanding shares of Charter's
Preferred Stock, initial series outstanding at its par value of $50.00 per
share plus accrued dividends.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) ANALYSIS OF RESULTS OF OPERATIONS
CONDENSED STATEMENTS OF OPERATIONS
The following is a comparison of Charter's condensed statements of
operations for the three-month periods ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------- INCREASE
1996 1995 (DECREASE)
--------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income. . . . . . . . . . . . . . . . . . . . . . . $ 16,511 $ 15,948 $ 563
Interest expense . . . . . . . . . . . . . . . . . . . . . . 6,926 6,496 430
--------- -------- ------
Net interest income. . . . . . . . . . . . . . . . . . . . 9,585 9,452 133
Provision for credit losses. . . . . . . . . . . . . . . . . 146 170 (24)
Non-interest income. . . . . . . . . . . . . . . . . . . . . 5,026 3,802 1,224
Non-interest expense . . . . . . . . . . . . . . . . . . . . 9,820 9,298 522
--------- -------- ------
Earnings before income taxes . . . . . . . . . . . . . . . . 4,645 3,786 859
Income tax expense . . . . . . . . . . . . . . . . . . . . 1,686 1,346 340
--------- -------- ------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . $ 2,959 $ 2,440 $ 519
--------- -------- ------
--------- -------- ------
</TABLE>
Earnings before income taxes increased $859,000 for the first three
months of 1996 as compared to the first three months of 1995 due to an increase
in earnings from ongoing operations and from acquisitions closed in 1995 and
1996. Net earnings increased for the first three months of 1996 to $2,959,000
as compared to $2,440,000 for the first three months of 1995. 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.
7
<PAGE>
NET INTEREST INCOME
The data used in the analysis of the changes in net interest income is
derived from the daily average levels of earning assets and interest-bearing
liabilities as well as from the rates earned and paid on such amounts. The
schedule below gives a comparative analysis of Charter's daily average
interest-earning accounts (including non-accruing loans) and interest-bearing
accounts for the three-month periods ended March 31, 1996 and 1995. The
rates earned and paid on each major type of asset and liability account are
then shown beside the average balance in the account for the period. The
average yields on all interest-earning assets (including non-accruing loans)
and the average cost of all interest-bearing liabilities also are summarized.
COMPARATIVE NET INTEREST MARGIN
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------
1996 1995
-------------------------------- -----------------------------
AVERAGE YIELD AVERAGE YIELD
BALANCE INTEREST OR RATE BALANCE INTEREST OR RATE
--------- ---------- ------- ------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans . . . . . . . . . . . . . . $ 486,280 $ 11,553 9.56% $ 421,695 $ 10,653 10.25%
Securities:
Taxable . . . . . . . . . . . . 289,198 4,562 6.31 304,272 4,658 6.13
Non-taxable . . . . . . . . . . 2,106 23 4.37 948 11 4.64
--------- ---------- ----- --------- --------- ------
Total Securities. . . . . . . . 291,304 4,585 6.30 305,220 4,669 6.13
--------- ---------- ----- --------- --------- ------
Federal funds sold and securities
purchased under agreements to
resell. . . . . . . . . . . . . 28,701 373 5.23 50,373 626 5.04
--------- ---------- ----- --------- --------- ------
Total Earning Assets/Yield. . . . 806,285 16,511 8.24 777,288 15,948 8.29
--------- ---------- ----- --------- --------- ------
Cash and due from banks . . . . . 36,030 39,162
Other assets. . . . . . . . . . . 33,632 36,821
Allowance for credit losses . . . (5,703) (5,105)
--------- ---------
Total Assets. . . . . . . . . . $ 870,244 $ 848,166
--------- ---------
--------- ---------
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits. $ 93,108 383 1.65 $ 94,528 371 1.59
Savings deposits. . . . . . . . . 35,047 213 2.45 34,531 206 2.42
Money market savings. . . . . . . 99,362 844 3.42 106,688 907 3.45
Other time deposits . . . . . . . 309,416 4,207 5.47 309,889 3,987 5.22
Federal funds purchased and
securities sold under
agreements to repurchase. . . . 43,901 566 5.18 33,966 331 3.90
Federal Home Loan bank advances . 21,966 410 7.51 23,653 390 6.69
Long-term debt. . . . . . . . . . 14,650 303 8.32 14,850 304 8.30
--------- ---------- ----- --------- --------- ------
Total Interest-Bearing
liabilities/Rate. . . . . . . . 617,450 6,926 4.51 618,105 6,496 4.26
--------- ---------- ----- --------- --------- ------
Demand deposits . . . . . . . . . 180,319 169,204
Other liabilities . . . . . . . . 9,185 11,893
--------- ---------
Total Liabilities . . . . . . . 806,954 799,202
Shareholders' Equity. . . . . . . 63,290 48,964
--------- ----------
Total Liabilities and
Shareholders' Equity. . . . . $ 870,244 $ 848,166
--------- ---------
--------- ---------
Net Interest Income. . . . . . . . . $ 9,585 $ 9,452
---------- ---------
---------- ---------
Interest Rate Spread . . . . . . . . 3.73% 4.03%
----- -----
----- -----
Net Interest Margin. . . . . . . . . 4.78% 4.93%
----- -----
----- -----
</TABLE>
The increase in net interest income in the first three months of 1996
is due to a larger volume of earning assets off-set by a lower net interest
rate spread. The interest rate spread of 3.73% and the net interest margin
of 4.78% reflect a decrease from their levels in the same period for the
prior year, primarily due to a decrease in yields on loans. 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.
8
<PAGE>
The following table allocates total interest income earned at the
"interest spread" between assets funded with: (1) interest-bearing
liabilities and (2) non-interest-bearing liabilities (primarily
non-interest-bearing demand deposits) and equity capital. The interest
spread on earning assets funded by interest-bearing liabilities is defined as
the difference between the average rate earned on total earning assets and
the average rate paid on interest-bearing liabilities. The interest spread
on assets funded with non-interest-bearing sources of funds is simply the
rate earned on total earning assets.
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------
1996 1995
--------------------------------- ------------------------------
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 . . $ 617,460 3.73 $ 5,718 $ 618,105 4.03% $ 6,187
Non-interest-bearing
liabilities and
equity capital . . . . . . . . 188,825 8.24 3,867 159,183 8.29 3,265
--------- -------- ---------- -------
Total . . . . . . . . . . . $ 806,285 $ 9,585 $ 777,288 $ 9,452
--------- -------- ---------- -------
--------- -------- ---------- -------
</TABLE>
The $133,000 increase in total net interest income between the first
quarter of 1996 and the first quarter of 1995 can be attributed to a higher
level of earning assets ($806,285,000 in 1996 versus $777,288,000 in 1995).
The increase in loan volumes reflects the acquisitions of Cypress National
Bank on March 15, 1996, LaPorte State Bank on November 17, 1995, and loans
generated from internal growth.
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 quarter ended March 31, 1996. 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.
9
<PAGE>
PROVISION FOR CREDIT LOSSES
The allowance for credit losses at March 31, 1996 of $5,500,000
represented 1.10% of outstanding loans. A year earlier, this ratio was 1.22%
and at December 31, 1995, it was 1.10%. The provision for credit losses
charged against earnings was $146,000 for the three months ended March 31,
1996, as compared to $170,000 for the corresponding period in 1995.
The following table is an analysis of the activity in the allowance for
credit losses for the three-month periods ended March 31, 1996 and 1995:
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
---- ----
(in thousands)
Average loans outstanding . . . . . . . . . . $486,280 $421,695
Loans outstanding at end of period . . . . . 501,291 445,330
-------- --------
Transactions in the allowance for credit
losses:
Balance at beginning of period . . . . . . $ 5,620 $ 4,446
Allowance of acquired bank . . . . . . . . 279 799
Provision charged to operating expenses. . 146 170
Loans charged off:
Real estate . . . . . . . . . . . . . . 444 --
Commercial . . . . . . . . . . . . . . . 1 6
Individuals. . . . . . . . . . . . . . . 169 40
-------- --------
Total loans charged off . . . . . . . . 614 46
-------- --------
Recoveries on loans previously
charged off:
Real estate. . . . . . . . . . . . . . . 8 2
Commercial . . . . . . . . . . . . . . . 30 13
Individuals. . . . . . . . . . . . . . . 31 42
-------- --------
Total recoveries . . . . . . . . . . . . 69 57
-------- --------
Net loan (charge offs) recoveries. . . (545) 11
-------- --------
Balance at end of period . . . . . . . . . $ 5,500 $ 5,426
-------- --------
-------- --------
Ratios:
Allowance as a percent of loans
outstanding at end of period. . . . . . . 1.10% 1.22%
Allowance as a percent of average loans . . . 1.13 1.29
Net loans (charged off) recovered as a
percent of average loans outstanding
(annualized). . . . . . . . . . . . . . . 0.45 0.01
10
<PAGE>
NON-INTEREST INCOME
Non-interest income increased 32.2% during the first three months of 1996
as compared to the same period in 1995. Excluding the effect of securities
transactions and mortgage banking income for the three months ended March 31
of each year, non-interest income decreased 4.4%. Service charges on
deposits, decreased by 4.8% to $1,572,000 for the three months ended March
31, 1996, as compared to $1,651,000 for the same period in 1995.
Mortgage banking income of $1,937,000 for the three months ended March
31, 1996 is attributable to an increase in mortgage origination volume of
$114 million for the first three months of 1996 compared to $59 million for
the same period in 1995. 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 $316,000 for the
first three months of 1996 as compared to a loss of $41,000 for the same
period in 1995. Trust fees represent revenues earned by services provided to
customers of Charter's Asset Management and Trust Services Department.
During the first three months of 1996 trust fees increased $72,000 to
$520,000, or by 16.1% compared to the first three months of 1995, due to an
increase in the assets under administration which grew to approximately $290
million at the end of March 31, 1996, compared to $266 million at the end of
March 1995.
Other non-interest income decreased $113,000 or 23.0 % in the first three
months of 1996 compared to the first three months of 1995. Fees from
components within the "other" category which decreased in 1996 include
$67,000 in fees generated from letters of credit and $23,000 decrease in
collection fees.
The following table sets forth by category the non-interest income and
the percentage change from the prior period:
THREE MONTHS ENDED MARCH 31,
---------------------------------
1996 1995
---------------- --------------
AMOUNT CHANGE AMOUNT CHANGE
------- ------ ------ ------
(IN THOUSANDS)
Service charges on deposits . . . . . . . . $ 1,572 (4.8)% $1,651 24.8%
Other customer service fees . . . . . . . . 303 (2.9) 312 28.9
Trust fees. . . . . . . . . . . . . . . . . 520 16.1 448 108.4
Investment securities gains (losses). . . . 316 NM (41) NM
Mortgage banking income . . . . . . . . . . 1,937 105.8 941 NM
Other . . . . . . . . . . . . . . . . . . . 378 (23.0) 491 43.1
------- ------ ------ -----
Total . . . . . . . . . . . . . . . . . . $ 5,026 32.2% $3,802 116.7%
------- ------ ------ -----
------- ------ ------ -----
"NM" denotes a comparison that is not meaningful.
11
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense increased 5.6% during the first three months of
1996 as compared to the same period in 1995. Excluding the impact of
expenses from Charter Mortgage non-interest expense decreased 4.1% during the
first three months of 1996 as compared to the same period in 1995.
The largest single line item for non-interest expense continues to be
salaries and benefits which increased by $1,829,000, or 42.1% for the first
three months of 1996. Approximately $459,000 of the increase in salaries and
benefits was generated by Charter Mortgage. Of the remaining increase,
approximately $1.2 million is related to increased expense for stock
appreciation rights. This increase reflects the accelerated vesting and
increase in settlement values due to the pending merger with NationsBank and
resulting change of control. Excluding the impact of these two items, total
salaries and benefits increased by $180,000, or 4.1% for 1996 as compared to
1995. This remaining increase in salary expense is due primarily to merit
increases.
Deposit insurance premiums decreased $346,000 or 85.6% as a result of
the reduction in the premiums charged by the FDIC per $100 of deposits from
$.23 in 1995 to $.01 or less in 1996. The "other" category of expenses
decreased approximately $1 million, or 56.6%, primarily as a result of reduced
legal fees and settlements, in addition to adjustments to accruals made in
1995 related to anticipated expenditures for acquisitions in 1995 and the first
quarter of 1996 that were not incurred.
The following table sets forth by category the operating expenses and
the percentage change from the prior period:
THREE MONTHS ENDED MARCH 31
----------------------------------------
1996 1995
----------------- ------------------
AMOUNT CHANGE AMOUNT CHANGE
------ ------ ------ ------
(in thousands)
Salaries and benefits. . . . . $6,177 42.1% $4,348 42.2%
Occupancy expense. . . . . . . 1,441 (1.2) 1,459 53.6
Advertising. . . . . . . . . . 343 20.8 284 43.4
Electronic data processing . . 486 20.6 403 25.1
Deposit insurance premium. . . 58 (85.6) 404 26.6
Amortization of intangibles. . 220 9.4 201 905.0
Stationery and supplies. . . . 254 (2.3) 260 124.1
Other. . . . . . . . . . . . . 841 (56.6) 1,939 114.0
------ ----- ------- -----
Total. . . . . . . . . . . $9,820 5.6% $ 9,298 57.9%
------ ----- ------- -----
------ ----- ------- -----
(b) ANALYSIS OF FINANCIAL CONDITION
Total assets at March 31, 1996, were $894,025,000 as compared to
Charter's total assets of $914,565,000 at December 31, 1995. Loans
decreased by approximately $12 million from year-end 1995. Normal recurring
fluctuations decreased cash and due from banks by $15 million since year-end.
The most significant changes in sources of funds was in Federal Funds
purchased which decreased by approximately $19 million from year-end 1995.
12
<PAGE>
CAPITAL RESOURCES
Under the guidelines published by the Board of Governors of the Federal
Reserve System ("Federal Reserve Board"), Charter's aggregate risk-weighted
assets and off-balance sheet exposures at March 31, 1996 and December 31,
1995, were approximately $487,919,000 and $497,732,000, respectively,
calculated as follows:
RISK-WEIGHTED ASSETS
<TABLE>
MARCH 31, DECEMBER 31,
1996 1995
------------------------- -------------------------
AGGREGATE RISK-WEIGHTED AGGREGATE RISK-WEIGHTED
AMOUNT AMOUNT AMOUNT AMOUNT
--------- ------------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities. . . . . . . $ 282,148 $ 39,530 $296,068 $ 42,117
Loans. . . . . . . . . . . . . . . 501,291 398,849 513,235 405,651
Other interest earning assets. . . 41,589 8,318 22,717 4,543
Cash and due from banks. . . . . . 35,237 3,679 50,192 6,856
All other assets . . . . . . . . . 39,260 39,260 37,973 37,973
--------- --------- -------- --------
Total Adjusted Assets (1) . . $ 899,525 489,636 $920,185 497,140
--------- --------
--------- --------
Total credit-equivalent amount
of off-balance sheet items. . . . (1,717) 592
--------- --------
Total Risk-Weighted Assets. . $ 487,919 $497,732
--------- --------
--------- --------
</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:
RISK-WEIGHTED CAPITAL MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(in thousands)
Core Capital (Tier 1):
Common equity. . . . . . . . . . . . . $54,498 $52,764
Preferred equity . . . . . . . . . . . -- 710
-------- -------
Total Core Capital . . . . . . . . . . 54,498 53,474
-------- -------
Supplementary Capital (Tier 2):
Allowance for credit losses . . . . . 5,500 5,620
Subordinated debt . . . . . . . . . . 10,550 10,550
Total Supplementary Capital. . . . . . 16,050 16,170
-------- -------
Total Capital. . . . . . . . . . . . . $ 70,548 $69,644
-------- -------
-------- -------
Core capital (Tier 1) as a percentage
of risk-weighted assets. . . . . . . . . 11.17% 10.75%
Total capital (Tier 1 and Tier 2) as a
percentage of risk-weighted assets . . . 14.46% 13.99%
Core capital as a percentage of
quarterly average assets (leverage
ratio). . . . . . . . . . . . . . . . . . 6.33% 6.24%
At March 31, 1996, total risk based capital was 14.46% of risk weighted
assets and tangible core capital was 6.33% of quarterly average assets.
Management believes the current capital ratios, which exceed regulatory
minimums, are adequate.
13
<PAGE>
RATE SENSITIVE ASSETS AND LIABILITIES
Interest rate sensitivity is a measure of the volatility of the net
interest margin as a consequence of changes in market rates. The following
table summarizes the rate sensitivity of earning assets and interest-bearing
liabilities of Charter at March 31, 1996. Charter monitors the rate
sensitivity gap (rate-sensitive, earning assets less rate-sensitive,
interest-bearing liabilities) at least monthly in the normal process of asset
and liability management. Passbook savings accounts and regular
interest-bearing demand accounts with balances at March 31, 1996, of
approximately $36.6 million and $91.5 million, respectively, are included in
the 91-180 days category. Although repricing on such accounts is possible at
any time, the historical stability of the rates paid on such accounts supports
this classification.
At March 31, 1996, the table shows a positive (asset-sensitive) rate
sensitivity gap of $184 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 - OVER
DAYS DAYS DAYS 1 YEAR 1 YEAR TOTAL
-------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $269,239 $ 16,663 $ 34,229 $ 64,900 $116,259 $501,290
Securities 21,330 9,169 35,469 19,451 196,730 282,149
Other earning assets 41,488 101 -- -- -- 41,589
-------- --------- --------- -------- -------- --------
Total Earning Assets 332,057 25,933 69,698 84,351 312,989 825,028
-------- --------- --------- -------- -------- --------
Interest-Bearing Liabilities:
Interest-bearing deposits 64,478 146,697 186,719 55,663 86,741 540,298
Borrowed funds 53,466 9,700 -- 200 23,837 87,203
-------- --------- --------- -------- -------- --------
Total Interest-Bearing Liabilities 117,944 156,397 186,719 55,863 110,578 627,501
-------- --------- --------- -------- -------- --------
Asset - Liability Gap 214,113 (130,464) (117,021) 28,488 202,411 197,527
Derivatives affecting interest sensitivity:
LIBOR Floors Purchased 30,000 -- -- -- (30,000) --
-------- --------- --------- -------- -------- --------
Interest-rate sensitivity gap $184,113 $(130,464) $(117,021) $ 28,488 $232,411 $197,527
-------- --------- --------- -------- -------- --------
-------- --------- --------- -------- -------- --------
Cumulative interest rate sensitivity gap $184,113 $ 53,649 $ (63,372) $(34,884) $197,527
Cumulative Amounts as a Percentage of
Cumulative Earning Assets 55.4% 15.0% (14.8)% (6.8)% 23.9%
Cumulative Ratio 2.24X 1.18X .87X .94X 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 March 31, 1996, $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%.
14
<PAGE>
LIQUIDITY
Like any commercial bank, the liability structure of the Subsidiary
Banks requires that Charter maintain an appropriate level of liquid resources
to meet normal day-to-day fluctuations in deposit volume and to make new
loans and investments as opportunities arise. Liquidity can be provided by
either assets or liabilities. Traditional sources of liquidity include cash
and due from demand balances, money market investments, investment security
maturities and prepayments, loan maturities and repayments, and core deposit
growth. Other sources of asset liquidity readily available to Charter include
interest-bearing deposits with other financial institutions and trading
account assets. At March 31, 1996, Charter had $35,237,000 in cash,
$35,623,000 in federal funds sold and a $282,149,000 total securities
portfolio in which the market value was approximately $167,000 less than the
carrying value. The average loan-to-deposit ratio for the three-month period
ended March 31, 1996 was 67.8%.
A financial service company's activities consist primarily of financing
and investing activities. These activities result in large cash flows.
Charter's Consolidated Statements of Cash Flows on page 4 indicate the
sources of these cash flows. In addition to the assets which could be readily
converted to cash during the first three months of 1996, Charter received
$13,833,000 in proceeds from maturities and prepayments of securities.
Charter has substantial liability liquidity through its customer base.
In addition to normal core deposit growth, liability liquidity is available
through various sources of purchased funds. Charter emphasizes direct
issuance of liabilities in order to develop stable, long-lasting funding
relationships. At March 31, 1996, Charter had $16,881,000 in securities sold
un der 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. Additional liquidity can be
generated through borrowings from the Federal Reserve Bank of Dallas, of
which each of the Subsidiary Banks is a member. Liquidity and matched funding
may also be obtained from the Federal Home Loan Bank of Dallas, of which
Charter-Houston, University Bank-Galveston, and Charter Bank, SSB are
members. At March 31, 1996, Charter had $31,837,000 in advances from the
Federal Home Loan Bank of Dallas.
LOANS
Total loans have decreased $11,944,000, or 2.3%, from December 31, 1995
to March 31, 1996. The following is a schedule of loans outstanding
classified by type:
MARCH 31, DECEMBER 31,
1996 1995
-------- -----------
(IN THOUSANDS)
Commercial, financial and industrial $ 83,181 $ 73,591
Commercial real estate 56,370 57,566
Real estate-construction (1) 110,967 110,602
Real estate-multi-family 14,622 17,599
Real estate-1-4 family 170,182 180,262
Loans to individuals 65,969 73,615
-------- --------
Total Loans $501,291 $513,235
-------- --------
-------- --------
(1) Included in the total real estate- construction loans are $104 million
and $106 million, respectively, of loans secured by one-to-four family
residential properties as of March 31, 1996 and December 31, 1995.
<PAGE>
NON-PERFORMING ASSETS AND PAST DUE LOANS
The following table sets forth the components of non-performing assets
and past due loans as of March 31, 1996 and December 31, 1995:
MARCH 31, DECEMBER 31,
1996 1995
-------- -----------
(IN THOUSANDS)
Non-accrual loans
Real estate $1,892 $1,746
Commercial and industrial 702 520
Individual 93 71
------ ------
Total non-accrual loans 2,687 2,337
------ ------
Other real estate, net and collateral acquired 2,366 2,018
------ ------
Total non-performing assets $5,053 $4,355
------ ------
------ ------
Loans past due 90 days or more
and still accruing interest:
Real estate $ 936 $1,275
Commercial and industrial 279 172
Individual 328 233
Other loans 60 7
------ ------
Total loans past due 90 days or more
and still accruing interest $1,603 $1,687
------ ------
------ ------
Ratios:
Allowance for credit losses as a
percentage of loans 1.1% 1.1%
Allowance for credit losses as a
percentage of non-accrual loans 204.7 240.4
Allowance for credit losses as a
percentage of non-performing loans (1) 128.2 139.6
Non-performing loans as a percentage
of total loans (1) 0.9 0.8
Total non-performing assets as a
percentage of total assets 0.6 0.5
(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 $698,000 since year-end to
$5 million at March 31, 1996. Total non-performing assets as a percentage of
total assets was 0.6% at March 31, 1996 and 0.5% at December 31, 1995.
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
A Form 8-K was filed January 25, 1996 to announce the pending
acquisition of Charter by NationsBank.
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: May 14, 1996
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the March 31,
1996 10Q of Charter Bancshares, Inc. and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 35,338
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 41,488
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 186,004
<INVESTMENTS-CARRYING> 96,144
<INVESTMENTS-MARKET> 95,977
<LOANS> 501,291
<ALLOWANCE> 5,500
<TOTAL-ASSETS> 894,025
<DEPOSITS> 731,808
<SHORT-TERM> 72,553
<LIABILITIES-OTHER> 12,337
<LONG-TERM> 14,650
0
0
<COMMON> 6,510
<OTHER-SE> 56,167
<TOTAL-LIABILITIES-AND-EQUITY> 894,025
<INTEREST-LOAN> 11,553
<INTEREST-INVEST> 4,585
<INTEREST-OTHER> 373
<INTEREST-TOTAL> 16,511
<INTEREST-DEPOSIT> 5,647
<INTEREST-EXPENSE> 6,926
<INTEREST-INCOME-NET> 9,585
<LOAN-LOSSES> 146
<SECURITIES-GAINS> 316
<EXPENSE-OTHER> 9,820
<INCOME-PRETAX> 4,645
<INCOME-PRE-EXTRAORDINARY> 2,959
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,959
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> .048
<LOANS-NON> 2,687
<LOANS-PAST> 1,603
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,620
<CHARGE-OFFS> 614
<RECOVERIES> 69
<ALLOWANCE-CLOSE> 5,500
<ALLOWANCE-DOMESTIC> 494
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,006
</TABLE>
