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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
May 30, 1995
CHARTER ONE FINANCIAL, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 0-16311 34-1567092
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) No.)
1215 Superior Avenue, Cleveland, Ohio 44114
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 566-5300
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Item 5. Other Events
On May 30, 1995, Charter One Financial, Inc. ("Charter One") entered
into an Agreement and Plan of Merger (the "Merger Agreement") with FirstFed
Michigan Corporation ("FirstFed") pursuant to which FirstFed will merge with
and into Charter One (the "Merger") in a "merger of equals" transaction. Upon
the Merger, each share of common stock, $0.01 par value, of FirstFed shall be
converted into the right to receive 1.2 shares of common stock, $0.01 par
value, of Charter One.
The joint press release of Charter One and FirstFed and supplementary
information about the Merger are filed as Exhibits to this Report and are
incorporated herein by reference. The Merger Agreement and certain exhibits
thereto will be filed by amendment to this Report.
The foregoing information does not purport to be complete and is
qualified in its entirety by reference to the Exhibits to this Report.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
The Exhibits listed on the accompanying Exhibit Index are filed as
part of this Report and are incorporated herein by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTER ONE FINANCIAL, INC.
Date: May 31, 1995 By: /s/ Charles John Koch
--------------------------
Charles John Koch
President and Chief
Executive Officer
3
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EXHIBIT INDEX
Exhibit
Number Description
99.1 Joint press release of Charter One Financial, Inc.
and FirstFed Michigan Corporation, dated May 30, 1995
99.2 Supplementary information regarding the Merger
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Exhibit 99.1
------------------------------------------------------
News From
Charter One Financial, Inc.
FirstFed Michigan Corporation
-------------------------------------------------------
For Immediate Release May 30, 1995
Charter One Financial and FirstFed Michigan
To Combine in Merger of Equals
CLEVELAND, Ohio and DETROIT, Michigan, May 30, 1995 -- Charter One Financial,
Inc. (Nasdaq-NNM:COFI) and FirstFed Michigan Corporation (Nasdaq-NNM:FFOM), two
of the largest thrifts in the midwest, announced today a definitive agreement
to merge their respective holding companies and banking operations in a merger
of equals to form one of the strongest thrifts in the region.
The agreement provides that the common shareholders of FirstFed
Michigan Corporation will receive 1.2 shares of Charter One Financial common
stock for each FirstFed common share in a tax-free exchange. Charter One will
issue approximately 22.5 million shares of stock to complete the merger which
will be accounted for as a pooling of interests. Following the merger, the
former Charter One and FirstFed shareholders will each own approximately 50% of
the combined company. The merger, which has been approved by the Boards of
Directors of both Charter One and FirstFed, is valued at approximately $1.1
billion based on the market price of Charter One common stock as of the close
of trading on Friday, May 26, 1995. Based on the May 26, 1995 market price of
FirstFed's common stock, the exchange ratio results in an implied price for
each FirstFed share of $29.70.
The combined company will be called Charter One Financial, Inc., and
will be headquartered in Cleveland with a Michigan Division headquartered in
the current FirstFed facility in downtown Detroit. The combined banking
operation will have a total of 157 branches in Ohio and Michigan. The new
entity is expected to have approximately $13 billion in total assets and a
leverage capital ratio in excess of 6%.
Concurrent with the closing of the transaction, the new management
expects to execute a plan to reposition the combined balance sheet and reduce
interest rate risk by terminating the then remaining $850 million combined
interest rate swap position, liquidating $1.5 to $2 billion of low-yielding,
fixed rate assets, and repaying $1.5 to $2 billion of short-term borrowings.
The repositioning will reduce the size of the resultant company's balance sheet
from $15 billion to
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approximately $13 billion. Assuming current interest rates, costs related to
repositioning the balance sheet together with an estimated $13 million
after-tax merger transaction charge will result in an after-tax charge to
earnings of approximately $50 to $75 million.
It is anticipated that the merger will result in annual pre-tax cost
savings of approximately $15 million by 1997, or approximately 9% of the
combined companies' operating costs, and will create an expanded revenue base.
The primary source for cost savings is expected to be redundant back-office
operations. It is planned that all 157 branches will remain open post merger
and certain operational support functions currently located in Ohio will be
shifted to Detroit.
The transaction is expected to be immediately accretive to both
companies' earnings per share in 1996. This will be accomplished as a
consequence of the balance sheet repositioning and the synergies of
consolidating operations, without regard to revenue enhancements. Management
believes that this transaction should significantly enhance the combined
company's future earnings per share growth rate.
Charter One's new Board of Directors will be comprised of equal
numbers of directors from both companies with Charles John (Bud) Koch from
Charter One serving as chairman and Jerome L. Schostak, a FirstFed director, as
vice chairman. C. Gene Harling, FirstFed's chairman and chief executive
officer, has agreed to stay on in an advisory capacity after the merger is
completed to assist in the transaction.
Executive management positions will be filled by Charles John (Bud)
Koch of Charter One, chief executive officer, Richard W. Neu of FirstFed, chief
financial officer, Mark D. Grossi of Charter One, chief retail banking officer,
and John D. Koch of Charter One, chief lending and credit officer.
Charles John Koch, Charter One's chairman and chief executive officer,
said, "We believe the transaction will be beneficial to the shareholders of
both institutions. Charter One and FirstFed complement each other
extraordinarily well. FirstFed's 63-office branch network, located in
southeastern Michigan, is a natural fit with our presence in Ohio, and Detroit
is in close proximity to Toledo, one of our strongest markets. Our proven
retail strategy should add significant value to FirstFed's extensive retail
network in the southeastern Michigan metropolitan area, one of the nation's
largest markets."
C. Gene Harling, chairman and chief executive officer of FirstFed,
summarized the announcement, "This transaction fits our existing strategy
perfectly. We had embarked on a series of efforts designed to strengthen
FirstFed's retail franchise. As a combined entity, we will be able to
accelerate that process substantially. The transaction preserves the earnings
momentum and capital growth that existed for us before the merger."
Both men observed that the resultant company will be extremely well
capitalized, with an equity to asset ratio in excess of 6% and virtually no
intangible assets on its books. Initially, the plan is to deploy the capital
into retail assets, but the excess also provides the flexibility to pursue
attractive strategic and financial initiatives that may become available over
time.
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In connection with the merger agreement, Charter One and FirstFed have
granted each other options to purchase up to 19.9% of the outstanding shares of
each other's common stock under certain circumstances in the event the
transaction is terminated.
The merger is expected to be completed during the fourth quarter of
1995, subject to regulatory approval and ratification by Charter One and
FirstFed shareholders.
Montgomery Securities has acted as financial advisor to Charter One
and has delivered a fairness opinion to its Board of Directors. Salomon
Brothers Inc has acted as financial advisor to FirstFed and has delivered a
fairness opinion to its Board of Directors.
Charter One Financial, Inc., Cleveland, Ohio, with 94 branch offices,
had $6.3 billion in assets and $4.4 billion in deposits as of March 31, 1995.
FirstFed Michigan Corporation, Detroit, Michigan, operates with 63
branches and had, as of March 31, 1995, $8.5 billion in assets and $3.2 billion
in deposits.
(table follows)
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ProForma Combined Fact Sheet
(in millions)
March 31, 1995
<TABLE>
<CAPTION>
Pro
COFI FFOM Combined Adj.(a) Forma
<S> <C> <C> <C> <C> <C>
Total Assets $6,294 8,512 14,806 (2,000) 12,806
Net Loans 3,626 2,995 6,621 ( 400) 6,221
MBS 2,047 4,466 6,513 ( 900) 5,613
Liquidity 351 814 1,165 ( 700) 465
Deposits 4,398 3,176 7,574 --- 7,574
Borrowings 1,432 4,712 6,144 (1,925) 4,219
Equity 389 468 857 ( 75) 782
Equity/Assets 6.2% 5.5% 5.8% --- 6.1%
Nonperforming Assets
to Total Assets .53% .29% --- --- .45%
Reserves/NPLs 155% 131% 144% --- 144%
Common Shares
Outstanding 22.5 18.7 41.2 3.8 45.0
Book Value
Per Share $17.29 25.03 --- --- 17.38
Market
Capitalization(b) 557 493 --- --- 1,112
# of Offices 94 63 157 --- 157
</TABLE>
(a) Adjustments relate to the anticipated balance sheet repositioning (assuming
$2 billion in asset reduction) and merger transaction charge.
(b) Based on stock prices as of May 26, 1995.
CONTACTS:
FOR CHARTER ONE:
Charles John Koch
(216) 566-5314
William Dupuy
(216) 566-5311
FOR FIRSTFED MICHIGAN CORPORATION:
Ellen L. Batkie
(313) 965-5909
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Exhibit 99.2
(SLIDE 1)
(narrative summary of graphic information)
Slide contains a map of Michigan and Ohio showing locations of COFI
and FFOM branch offices. Branch office locations are surrounded by an ellipse
with the words "IMPACT PLAY" in the center of the ellipse. The FFOM and COFI
logos are included at the upper left and lower right corners of the slide.
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(SLIDE 2)
Nasdaq: COFI IMPACT PLAY Nasdaq: FFOM
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Transaction Highlights
Benefits to COFI Adds 200,000 S.E. Michigan households
Expansion of proven retail strategy
Access to low cost retail funding base
Leverage COFI operating capacity and systems for
improved efficiency
Benefits to FFOM Accelerates retail strategy
Allows better utilization of distribution system
Retains capital management flexibility
Energizes earnings momentum
Shared Benefits Enhanced earnings growth opportunities
Enhanced market share
Enhanced capital ratio
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(SLIDE 3)
Nasdaq: COFI IMPACT PLAY Nasdaq: FFOM
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Transaction Overview
Structure: Merger of equals
Tax-free exchange of common stock
Accounted for as "pooling of interests"
Option granted to each company for 19.9% of the
other partner
Charter One and Charter One Bank to be surviving
entities
Exchange Ratio: Fixed exchange ratio: 1.2 of COFI = 1 of FFOM
Combined market capitalization over $1 billion
Proforma fully diluted
shares outstanding: 45,900,000
Process & Timing: Subject to regulatory and shareholder approvals
Expected close in fourth quarter 1995
Cash dividend: $0.76 annualized
Estimated Deal Value: $1.112 billion
(Based on COFI closing price of $24.75 on
5/26/95)
Cross Warrants: Option to each company for 19.9%
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(SLIDE 4)
Nasdaq: COFI IMPACT PLAY Nasdaq: FFOM
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Transaction Overview: Organization
Name: Charter One Financial, Inc.
Nasdaq/NMS: COFI
Headquarters: Cleveland, Ohio
Management: Charles John Koch, Chief Executive Officer (COFI)
Richard W. Neu, Chief Financial Officer (FFOM)
Mark D. Grossi, Chief Retail Banking Officer (COFI)
John D. Koch, Chief Lending and Credit Officer (COFI)
Board Composition: 50%-50% (16 members total)
Charles John Koch, Chairman (COFI)
Jerome L. Schostak, Vice Chairman (FFOM)
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(SLIDE 5)
Nasdaq: COFI IMPACT RESULT Nasdaq: FFOM
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Proforma Market Capitalization
Dollars in Millions (May 26, 1995)
<TABLE>
<CAPTION>
Largest Publicly Traded Thrifts Market Capitalization
- - ------------------------------- ---------------------
<S> <C> <C>
(1) Golden West Financial $2,856.3
(2) Great Western Financial 2,951.8
(3) H.F. Ahmanson 2,635.0
(4) Washington Mutual 1,390.6
(5) COFI (proforma) 1,112.0
(6) GP Financial Corp. 1,069.3
(7) Dime Bancorp 1,056.2
(8) Standard Federal 1,009.2
(9) Washington Federal 876.5
(10) TCF Financial 805.4
</TABLE>
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(SLIDE 6)
Nasdaq: COFI COFI IMPACTS Nasdaq: FFOM
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COFI: Proven Merger
Track Record
15 since 1980, Driver of:
Superior ROE* 18.89%
Superior ROA* 1.15%
EPS Growth compounded annually** 19.2%
*3/31/95
**12/31/88-3/31/95
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(SLIDE 7)
(narrative summary of graphic information)
Slide contains a graph illustrating the earnings growth of COFI.
Earnings per share calculations are prior to the cumulative effect of change in
accounting principle and extraordinary items. The graph shows earnings per
share of (i) $.90 in 1988; (ii) $1.14 in 1989; (iii) $1.24 in 1990; (iv) $2.10
in 1991; (v) $2.20 in 1992; (vi) $2.67 in 1993; (vii) $2.92 in 1994; and (viii)
$0.77 for the first quarter ended March 31, 1995. The graph demonstrates a
growth rate of 19.2% compounded annually. The graph also reflects the
acquisitions of (i) First Akron, in 1989; (ii) Western, in 1989; (iii)
Broadview, in 1990; (iv) Civic, in 1991; (v) Toledo, in 1991; (vi) First
American, in 1992; and (vii) Women's Federal, in 1993.
<PAGE> 8
(SLIDE 8)
(narrative summary of graphic information)
Slide contains a graph illustrating the declining efficiency ratio
(other expenses divided by net interest income and other income, not including
gain on sale) of COFI. The graph shows efficiency ratios of (i) 71% in 1988;
(ii) 70% in 1989; (iii) 66% in 1990; (iv) 60% in 1991; (v) 57% in 1992; (vi)
51% in 1993; (vii) 50% in 1994; and (viii) 50% for the first quarter ended
March 31, 1995. The graph also reflects the acquisitions of (i) First Akron,
in 1989; (ii) Western, in 1989; (iii) Broadview, in 1990; (iv) Civic, in 1991;
(v) Toledo, in 1991; (vi) First American, in 1992; and (vii) Women's Federal,
in 1993.
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(SLIDE 9)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Strategic Plan
* Reposition FFOM balance sheet
- To reduce interest rate risk
- To simplify asset liability composition
* Maintain one holding company/one bank concept
* Expand retail banking focus in Michigan
* Expand lending programs in Michigan
* Maintain low cost operating advantage
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(SLIDE 10)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Credit Risk Ratios
<TABLE>
<CAPTION>
Pro-Forma
COFI FFOM Combination
---- ---- -----------
<S> <C> <C> <C>
Non-performing Assets to
Total Assets 0.53% 0.29% 0.45%
Allowance for Loan Losses
to Non-Performing Loans 154.67% 131.13% 143.63%
Allowance for Loan Losses
to Average Loans 1.02% 0.91% 1.03%
</TABLE>
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(SLIDE 11)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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1995: Transition Year for FFOM
1994: 1st Quarter balance sheet restructuring
1995: * $1.2 billion of interest rate swaps mature
* MBS cashflow redeployed into liquidity
* Refocus on retail banking and lending
....This merger accelerates the transition....
<PAGE> 12
(SLIDE 12)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Proforma Combination Highlights (3/31/95)
Assets
($ millions)
<TABLE>
<CAPTION>
Pro-Forma
COFI FFOM Adjustments Combined
---- ---- ----------- --------
<S> <C> <C> <C> <C>
Loans $3,600 $3,000 $(400) $6,200
Mortgage-Backed
Securities 2,000 4,500 (900) 5,600
Liquidity 350 815 (700) 465
Total Assets 6,300 8,500 (2,000) 12,800
Liabilities & Equity
Retail Deposits $4,400 $3,200 $7,600
Borrowings 1,400 4,700 (1,900) 4,200
Equity 389 468 (75) 782
</TABLE>
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(SLIDE 13)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Proforma Earnings - Accretion ($000)
<TABLE>
<CAPTION>
$ Net Income $ Per Share
------------ -----------
<S> <C> <C>
1st Quarter 1995 Annualized COFI
Core Earnings $70,600 $3.06
1st Quarter 1995 Annualized FFOM
Core Earnings 42,000 ---
Benefit of 1995 FFOM Swap Roll Off 25,900 ---
------- -----
Combined Core Earnings 138,500 3.02
------- -----
</TABLE>
<TABLE>
<CAPTION>
Expected Range:
---------------
<S> <C> <C> <C> <C>
After-Tax Synergy Savings 7,300 9,800 0.16 0.21
Balance Sheet Repositioning 5,500 7,800 0.12 0.17
-------- -------- ----- -----
$151,300 $158,100 $3.30 $3.40
-------- -------- ----- -----
</TABLE>
*Based on 45.9 million shares at 1.2 exchange ratio
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(SLIDE 14)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Proforma Accretion
<TABLE>
<CAPTION>
$ Net Income Expected Range:
------------ --------------
<S> <C> <C>
Proforma Combined
% Change From Stand-Alone EPS
COFI Annualized Core EPS $3.06 $3.06
Pro-Forma Annualized Core EPS 3.30 3.40
% Change from Stand-Alone 7.7% 11.1%
FFOM Annualized Core EPS
(with Swap Benefit) $3.57 $3.57
Pro Forma Annualized Core EPS 3.96 4.08
% Change from Stand-Alone 10.8% 14.3%
</TABLE>
*Based on 45.9 million shares at 1.2 exchange ratio
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(SLIDE 15)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Risk Profile of Combined Company
* Outstanding asset quality (NPA ratio: 0.45%)
* Dramatic reduction of borrowings and interest rate derivatives
* Capital in excess of 6%
* No meaningful goodwill or intangible assets
* Efficiency ratio below 48%
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(SLIDE 16)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Balance Sheet Repositioning
* Eliminate remaining $850 million of interest rate swaps
* Sell $1.5-$2 billion of fixed-rate assets
* Repay $1.5-$2 billion of repurchase agreements
* Repositioning & transaction charges of up to $75 million after-tax
<PAGE> 17
(SLIDE 17)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Identified Expense Reductions
9% of Combined G&A
Estimated total $15 million (3/4 to be realized in 1996)
Consolidate Reduce
- - ----------- ------
* Branch operations support * Professional services
* Data processing functions * FDIC insurance expense
* Financial functions
* Human resources
* Holding company/
administrative expense
* Loan servicing
<PAGE> 18
(SLIDE 18)
(narrative summary of graphic information)
Slide contains a pie chart displaying the components of FFOM's retail
deposit mix at March 31, 1995, which were the following: (i) retail
certificates, 57.4%; (ii) passbook accounts, 19.8%; (iii) money market
accounts, 11.9%; and (iv) checking accounts, 10.9%. At March 31, 1995, FFOM
had $2.5 billion in deposits with a weighted average cost of 4.04%, and COFI
had $4.4 billion in deposits with a weighted average cost of 4.69%.
<PAGE> 19
(SLIDE 19)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Future Earnings Drivers
<TABLE>
<S> <C>
* Incremental loan growth $250 million/year
* Incremental fee revenue $4 to 5 million/year
* Redeployment of excess capital $150-200 million(1)
</TABLE>
(1) as of 12/31/95, in excess of well-capitalized designation
<PAGE> 20
(SLIDE 20)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Enhanced Revenue Opportunities
Expand with COFI products
* Consumer loan products
* Construction lending products
* Residential lending products
* Transaction accounts
Introduce COFI products
* High performance checking programs
* Commercial mortgage lending
* Corporate and industrial lending
* Equipment leasing
* Tax deferred annuities sales
* Mutual funds sales
Maximize
* Capital flexibility
<PAGE> 21
(SLIDE 21)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Impact of the Combination
* Accretive in 1996
* Significant future earnings opportunities
* Substantial resultant capital
* Outstanding asset quality
<PAGE> 22
(SLIDE 22)
Nasdaq: COFI IMPACT Nasdaq: FFOM
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Impact Analysis
COFI + FFOM
The engine that drives
future earnings growth
