<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 0-16311
CHARTER ONE FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 34-1567092
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1215 SUPERIOR AVENUE, CLEVELAND, OHIO 44114
-------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(216) 589-8320
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
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 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 the registrant's sole class of common
stock, as of August 9, 1995 was 22,432,051.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
PART I. FINANCIAL INFORMATION
<CAPTION>
PAGE
----
<S> <C> <C>
ITEM 1. Financial Statements
--------------------
Consolidated Statements of Financial Condition --
June 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income --
Three and six month periods ended June 30, 1995 and 1994 . . . . . . 2
Consolidated Statements of Changes in Shareholders' Equity --
Six months ended June 30, 1995 . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows --
Six months ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 5
ITEM 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 7
-------------------------
PART II. OTHER INFORMATION
ITEM 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------------
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 24
--------------------------------
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
<S> <C> <C>
ASSETS:
Cash and deposits with banks . . . . . . . . . . . . . . . . . . . . $ 66,832 $ 126,829
Federal funds sold and other . . . . . . . . . . . . . . . . . . . . 115,662 110,143
----------- -----------
Total cash and cash equivalents . . . . . . . . . . . . 182,494 236,972
Mortgage-backed and other securities:
Mortgage-backed securities available for sale
(amortized cost of $331,567 and $406,831 at June 30, 1995
and December 31, 1994, respectively) . . . . . . . . . . . . 321,770 373,477
Mortgage-backed securities held to maturity (fair
value of $1,744,451 and $1,633,988 at June 30, 1995 and
December 31, 1994, respectively) . . . . . . . . . . . . . . 1,693,072 1,665,121
Other securities available for sale (amortized
cost of $132,270 and $99,368 at June 30, 1995 and
December 31, 1994, respectively) . . . . . . . . . . . . . . 134,993 99,414
Loans and leases, net (including allowance for loan and lease
losses of $37,058 and $36,870 at June 30, 1995 and December 31, 1994,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . 3,721,012 3,542,539
Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . 71,766 68,009
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . 60,954 57,472
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . 29,420 26,852
Real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . 8,225 10,617
Equipment on operating leases . . . . . . . . . . . . . . . . . . . . 37,427
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,451 49,699
---------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . $6,325,584 $6,130,172
========== ==========
LIABILITIES:
Deposits:
Checking accounts . . . . . . . . . . . . . . . . . . . . . . . $ 403,251 $ 417,290
Savings and money market accounts . . . . . . . . . . . . . . . 1,119,471 1,213,161
Certificates of deposit . . . . . . . . . . . . . . . . . . . . 2,887,896 2,737,794
---------- ----------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . 4,410,618 4,368,245
Advance payments by borrowers for taxes and insurance . . . . . . . . 29,541 26,683
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . 11,888 9,811
Accrued expenses and other liabilities . . . . . . . . . . . . . . . 43,011 37,591
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,420,716 1,318,737
---------- ----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . 5,915,774 5,761,067
---------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value per share;
10,000,000 shares authorized; none issued
Common stock, $0.01 par value per share;
90,000,000 shares authorized;
22,612,813 issued at June 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . 226 226
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 127,081 127,081
Retained earnings - substantially restricted . . . . . . . . . . . . 323,807 297,031
Less 182,262 and 43,187 shares of common stock held
in treasury at June 30, 1995 and December 31,
1994, respectively, at cost . . . . . . . . . . . . . . . . . . (4,104) (841)
Net unrealized loss on securities, net of tax benefit
of $19,271 and $28,525, at June 30, 1995 and December 31,
1994, respectively . . . . . . . . . . . . . . . . . . . . . . . (37,200) (54,392)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . 409,810 369,105
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . $6,325,584 $6,130,172
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE> 4
CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and leases . . . . . . . . . . . . . . . . . . $ 74,098 $ 64,532 $146,347 $127,102
Mortgage-backed securities . . . . . . . . . . . . . 39,712 28,993 78,462 52,163
Other securities . . . . . . . . . . . . . . . . . . 3,445 2,694 6,718 4,597
Short-term investments and other . . . . . . . . . . 1,787 892 3,196 1,761
-------- --------- --------- ---------
TOTAL INTEREST INCOME . . . . . . . . . . . 119,042 97,111 234,723 185,623
-------- -------- --------- --------
INTEREST EXPENSE:
Deposits. . . . . . . . . . . . . . . . . . . . . . 51,815 39,702 99,687 78,712
Borrowings. . . . . . . . . . . . . . . . . . . . . 21,981 12,148 43,455 19,725
-------- -------- -------- --------
TOTAL INTEREST EXPENSE . . . . . . . . . . . 73,796 51,850 143,142 98,437
-------- -------- -------- --------
Net interest income . . . . . . . . . . . . . . . . . . . 45,246 45,261 91,581 87,186
Provision for loan and lease losses . . . . . . . . . . . 258 841 516 1,493
-------- --------- --------- ---------
Net interest income after provision for loan and
lease losses . . . . . . . . . . . . . . . . . . . . 44,988 44,420 91,065 85,693
-------- -------- --------- ---------
OTHER INCOME:
Loan servicing fees . . . . . . . . . . . . . . . . 1,267 1,529 2,472 2,930
Service fees and other charges . . . . . . . . . . . 4,990 4,707 9,524 8,691
Leasing operations . . . . . . . . . . . . . . . . . 1,645 3,357
Net gain from sales of:
Securities . . . . . . . . . . . . . . . . . . . 23 59 49 1,032
Other . . . . . . . . . . . . . . . . . . . . 240 118 456 464
Other . . . . . . . . . . . . . . . . . . . . . . 101 65 160 186
--------- ---------- --------- ---------
TOTAL OTHER INCOME . . . . . . . . . . . . . 8,266 6,478 16,018 13,303
--------- --------- --------- --------
OTHER EXPENSES:
Salaries and employee benefits . . . . . . . . . . . 11,792 10,719 24,511 20,736
Net occupancy and equipment . . . . . . . . . . . . 3,499 3,251 7,200 6,598
Federal deposit insurance premiums . . . . . . . . . 2,477 2,404 4,954 4,785
State franchise tax . . . . . . . . . . . . . . . . 1,346 1,439 2,919 2,877
Marketing . . . . . . . . . . . . . . . . . . . . . 750 939 1,765 1,787
Other administrative expenses . . . . . . . . . . . 5,935 6,361 11,467 12,619
--------- --------- --------- --------
TOTAL OTHER EXPENSES . . . . . . . . . . . . 25,799 25,113 52,816 49,402
--------- -------- --------- --------
Income before federal income taxes . . . . . . . . . . . 27,455 25,785 54,267 49,594
Federal income taxes . . . . . . . . . . . . . . . . . . 9,237 8,582 18,251 16,490
--------- --------- --------- --------
NET INCOME . . . . . . . . . . . . . . . . . $ 18,218 $ 17,203 $ 36,016 $ 33,104
========= ======== ========= ========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE . . . . . . . . . . . . . . . . . . $ 0.79 $ 0.74 $ 1.56 $ 1.43
========= ========= ======== =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING . . . . . . . . . . . 23,032,488 23,209,599 23,018,526 23,190,553
========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE . . . . . . . . . . . . . . $ 0.19 $ 0.15 $ 0.36 $ 0.27
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 5
CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1995
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL NET UNREALIZED TOTAL
COMMON PAID-IN RETAINED TREASURY GAIN (LOSS) SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK ON SECURITIES EQUITY
----- ------- -------- ----- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 . . . . . . . . . . . . . . . . $226 $127,081 $297,031 $ (841) $(54,392) $369,105
Purchase of 280,000 shares of treasury stock . . . . . . (6,013) (6,013)
Treasury stock reissued in connection with:
Stock options exercised, 99,150 shares . . . . . . . (1,134) 1,935 801
Acquisition, 41,775 shares . . . . . . . . . . . . . (7) 815 808
Dividends paid ($.36 per share) . . . . . . . . . . . . . (8,099) (8,099)
Change in net unrealized loss on securities,
net of tax benefit . . . . . . . . . . . . . . . . . 17,192 17,192
Net income . . . . . . . . . . . . . . . . . . . . . . . 36,016 36,016
---- -------- -------- ------- -------- --------
Balance, June 30, 1995 . . . . . . . . . . . . . . . . . $226 $127,081 $323,807 $(4,104) $(37,200) $409,810
==== ======== ======== ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 6
CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,016 $ 33,104
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan and lease losses . . . . . . . . . . . . . . . . . . 516 1,493
Net gains from sales of real estate, securities,
loans and other . . . . . . . . . . . . . . . . . . . . . . . . . (505) (1,496)
Accretion of discounts, amortization of premiums and
depreciation, net . . . . . . . . . . . . . . . . . . . . . . . . . 9,606 (2,324)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 3,716
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . 45,800 34,493
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net principal disbursed on loans . . . . . . . . . . . . . . . . . . . . . . (109,473) (231,657)
Proceeds from principal repayments and maturities of:
Mortgage-backed and other securities held to maturity . . . . . . . . . 36,898 160,651
Mortgage-backed and other securities available for sale . . . . . . . . 17,620 291,007
Proceeds from sales of:
Mortgage-backed and other securities available for sale . . . . . . . . 59,950 51,666
Mortgage-backed securities held to maturity . . . . . . . . . . . . . . 17,917
Purchases of:
Mortgage-backed securities held to maturity . . . . . . . . . . . . . . (63,670) (671)
Mortgage-backed and other securities available for sale . . . . . . . . (35,325) (952,297)
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,516) (2,802)
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,499) (23,738)
Net cash (paid) received in connection with acquisitions . . . . . . . . . . (9,969) 104,382
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,897) 4,468
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . (141,881) (581,074)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 120,451 598,901
Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . (111,466) (77,197)
Increase (decrease) in, net of acquisition:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,071 (18,957)
Advance payments by borrowers for taxes and insurance . . . . . . . . . 2,858 2,479
Payment of dividends on common stock . . . . . . . . . . . . . . . . . . . . (8,099) (6,093)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . 385
Purchase of treasury stock, net . . . . . . . . . . . . . . . . . . . . . . . (5,212)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . 41,603 499,518
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . (54,478) (47,063)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD . . . . . . . . . . . . 236,972 205,191
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD . . . . . . . . . . . . . . . $182,494 $ 158,128
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid during the period for interest on deposits
and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141,763 $ 100,253
======== =========
Cash paid during the period for income taxes . . . . . . . . . . . . . . $ 9,800 $ 15,200
======== =========
Securities transferred from held to maturity to available for sale
due to credit deterioration . . . . . . . . . . . . . . . . . . . . . $ 17,413
=========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 7
CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included
in the Charter One Financial, Inc. and Subsidiaries ("the Company")
1994 Annual Report to Shareholders. The interim financial statements
reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the periods
presented. Such adjustments are of a normal recurring nature. The
results of operations for the interim periods disclosed herein are not
necessarily indicative of the results that may be expected for a full
year.
2. On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," which
impose certain requirements on the measurement of impaired loans. The
Company has previously measured such loans in accordance with the
methods prescribed in SFAS No. 114. Consequently, no additional loss
provisions were required by the adoption of these statements. SFAS
No. 114 also requires that impaired loans for which foreclosure is
probable should be accounted for as loans. The amounts of impaired
loans, as defined in SFAS No. 114, and impaired loans for which
foreclosure is probable are not significant. Thus, neither the
initial adoption of SFAS No. 114 and SFAS No. 118, nor the on-going
effect of these statements, has had, or is expected to have, a
material effect on the financial condition or results of operations of
the Company and prior period amounts have not been restated.
At June 30, 1995, the recorded investment in loans that are considered
to be impaired under SFAS No. 114 was $1.7 million (which have an
allowance of $1.0 million under SFAS No. 114). Income recorded for
the six months ended June 30, 1995 on loans evaluated for impairment
in accordance with SFAS Nos. 114 and 118 was insignificant.
The Company's policy for recognition of interest on impaired loans
including how cash receipts are recorded is essentially unchanged as a
result of the adoption of SFAS Nos. 114 and 118. A loan (including a
loan impaired under SFAS No. 114) is classified as non-accrual when
collectability is in doubt (this is generally when the borrower is 90
days past due on contractual principal or interest payments). When a
loan is placed on non-accrual status, unpaid interest is reversed.
Income is subsequently recognized only to the extent that cash
payments are received. Loans are returned to accrual status when, in
management's judgment, the borrower has the ability and intent to make
periodic principal and interest payments (this generally requires that
the loan be brought current in accordance with its original
contractual terms).
A loan is considered to be impaired when, based on current information
and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan
agreement. The Bank performs a review of all loans over $500,000 to
determine if the impairment criteria have been met. If the impairment
criteria have been met, a reserve is calculated according to the
provisions of the SFAS No. 114. For loans which are individually not
significant and represent a homogeneous population, the Bank evaluates
impairment based on the level and extent of delinquencies in the
portfolio and the Bank's prior charge-off experience with those
delinquencies. The Bank charges principal off at the earlier of (1)
when a total loss of principal has been deemed to have occurred or (2)
when collection efforts have ceased.
5
<PAGE> 8
3. In January 1995 the Company acquired a leasing company (ICX
Corporation) and purchased a controlling interest in a computer
service bureau (Accredited Computer Services) in which it had an
equity investment. ICX Corporation had $135.8 million in assets,
primarily financing leases and assets held under operating leases.
Accredited Computer Services had $2.7 million in assets comprised
primarily of computer equipment. The acquisition and operations of
both companies are insignificant to Charter One.
4. On May 30, 1995, the Company signed a definitive agreement to merge
the holding company and its banking operations with FirstFed Michigan
Corporation ("FirstFed"). The agreement provides that the common
shareholders of FirstFed will receive 1.2 shares of Charter One common
stock for each FirstFed common share in a tax-free exchange. The
merger will be accounted for as a pooling of interests and is expected
to be completed during the fourth quarter of 1995, subject to
regulatory and shareholder approvals.
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.
5. Certain items in the consolidated financial statements for 1994 have
been reclassified to conform to the 1995 presentation.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HOLDING COMPANY BUSINESS
GENERAL - Charter One Financial, Inc. ("Charter One" or the "Company") is a
Delaware corporation organized for the purpose of becoming a unitary savings
and loan holding company and owning all of the outstanding capital stock of
Charter One Bank, F.S.B. ("Charter One Bank" or the "Bank"). The Bank is a
federally chartered stock savings bank that is headquartered in Cleveland,
Ohio. The Bank has 95 offices in a 13-county area of Ohio that includes the
Greater Cleveland, Toledo, Akron, Canton, Youngstown and Portsmouth markets.
PENDING BUSINESS COMBINATION - On May 30, 1995, the Company signed a definitive
agreement to merge the holding company and its banking operations with FirstFed
Michigan Corporation ("FirstFed"). The agreement provides that the common
shareholders of FirstFed will receive 1.2 shares of Charter One common stock
for each FirstFed common share in a tax-free exchange. The merger will be
accounted for as a pooling of interests and is expected to be completed during
the fourth quarter of 1995, subject to regulatory and shareholder approvals.
The combined company will be called Charter One Financial, Inc. and will be
headquartered in Cleveland, Ohio with a Michigan Division headquartered in the
current FirstFed facility in downtown Detroit. The combined banking operation
will have over 150 branches in Ohio and Michigan.
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.
RESULTS OF OPERATIONS
PERFORMANCE OVERVIEW - Figure 1 presents the components of earnings per
common and common equivalent share for the first six months of 1995 and 1994.
Net income for the first half of 1995 was $36.0 million, or $1.56 per share, up
from $33.1 million, or $1.43 per share. The annualized return on average equity
was 18.54%, up from 17.21% for the first half of 1994. The annualized return on
average assets was 1.15%, down from 1.20% for the first half of 1994.
Net income for the second quarter of 1995 was $18.2 million, or $.79 per share,
up from $17.2, or $.74 per share for the 1994 second quarter. The annualized
return on average equity was 18.22%, up from 17.61% for the 1994 second
quarter. The annualized return on average assets was 1.16%, down from 1.20% for
the 1994 second quarter.
The increase in earnings per share for the 1995 first half over 1994 was
primarily the result of an increase in net interest income. Net interest income
for 1995 benefited from a higher level of interest-earning assets, primarily
loans and leases and mortgage-backed securities. The increase in earnings per
share for the 1995 second quarter over the 1994 second quarter was primarily
due to an increase in other income.
7
<PAGE> 10
A decrease in the provision for loan and lease losses in the first half and
second quarter of 1995 versus the corresponding 1994 periods, reflecting
improved asset quality, also contributed to the increase in earnings per share.
Other income for the first half and second quarter of 1995 increased by 20.4%
and 27.6% over the corresponding 1994 periods, reflecting increases in retail
deposit account service charges and fees as well as income from leasing
operations acquired at the beginning of 1995. These items more than offset
gains on sale recorded in the 1994 first quarter and contributed to the
increase in earnings per share.
Other expenses for the first half and second quarter of 1995 increased 6.9% and
2.7%, respectively, over the corresponding 1994 periods, due to lower loan
closings, and the acquisition of a leasing company.
COMPONENTS OF EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE (Figure 1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . . . . $10.19 $8.00
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 6.22 4.24
---- ----
Net interest income . . . . . . . . . . . . . . . . . . . . . . 3.97 3.76
Provision for loan and lease losses . . . . . . . . . . . . . . 0.02 0.07
---- ----
Net interest income after provision for loan
and lease losses . . . . . . . . . . . . . . . . . . . . 3.95 3.69
Other income . . . . . . . . . . . . . . . . . . . . . . . . . 0.69 0.57
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . 2.29 2.12
---- ----
Income before federal income taxes . . . . . . . . . . . . . . 2.35 2.14
Federal income taxes . . . . . . . . . . . . . . . . . . . . . 0.79 0.71
---- ----
Earnings per common and common equivalent share . . . . . . . . $ 1.56 $1.43
====== =====
</TABLE>
SELECTED OPERATING RATIOS (Figure 2)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Return on average assets (annualized) 1.16% 1.20% 1.15% 1.20%
Return on average equity (annualized) 18.22% 17.61% 18.54% 17.21%
Net interest income to other expenses 1.75x 1.80x 1.73x 1.76x
Other expenses to average assets (annualized) 1.64% 1.75% 1.69% 1.79%
Efficiency ratio(1) 48.45% 48.70% 49.32% 49.90%
<FN>
(1) Other expenses divided by the sum of net interest income before provision
for loan and lease losses and other income exclusive of net gain or loss
from sale of assets.
</TABLE>
8
<PAGE> 11
The following figure sets forth information concerning Charter One's
interest-earning assets, interest-bearing liabilities, net interest income,
interest rate spreads and net yields on average interest-earning assets during
the periods indicated (including fees which are considered adjustments to
yields). Average balance calculations are based on daily balances.
AVERAGE BALANCES, INTEREST RATES AND YIELDS/COSTS (Figure 3)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
1995 1994
------------------------------ ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ---- ------- -------- ----
(Dollars in thousands)
- ----------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loan and lease portfolio,
net(1) . . . . . . . . . . $3,661,837 $ 74,098 8.09% $3,387,717 $64,532 7.62%
Mortgage-backed securities . 2,047,655 39,712 7.76 1,869,538 28,993 6.20
Other securities . . . . . . 202,759 3,445 6.80 202,581 2,694 5.32
Short-term investments and
other interest-earning
assets(2) . . . . . . . . 119,478 1,787 5.98 88,587 892 4.03
----------- --------- ----------- --------
Total . . . . . . . . . 6,031,729 119,042 7.89 5,548,423 97,111 7.00
-------- -------
Non-interest-earning assets . 268,697 204,183
----------- -----------
Total assets . . . . . $6,300,426 $5,752,606
========== ==========
INTEREST-BEARING LIABILITIES:
Deposits:
Checking . . . . . . . . $ 400,993 1,341 1.34 $ 400,207 1,408 1.41
Savings and money market 1,131,144 8,225 2.91 1,301,708 8,767 2.69
Certificates of deposit . 2,866,754 42,249 5.90 2,486,078 29,527 4.75
---------- -------- ---------- -------
Total deposits . . . . 4,398,891 51,815 4.71 4,187,993 39,702 3.79
Borrowings . . . . . . . . . 1,427,041 21,981 6.16 1,115,523 12,148 4.36
---------- -------- ---------- -------
Total . . . . . . . . . 5,825,932 73,796 5.07 5,303,516 51,850 3.91
-------- -------
Non-interest-bearing
liabilities . . . . . . . 74,560 58,435
----------- -----------
Total liabilities . . . 5,900,492 5,361,951
Shareholders' equity . . . . 399,934 390,655
----------- ----------
Total liabilities and
shareholders' equity . $6,300,426 $5,752,606
========== ==========
Net interest income . . . . . $ 45,246 $45,261
======== =======
Interest rate spread . . . . 2.82 3.09
Net yield on average
interest-earning assets(3) 3.00 3.26
Average interest-earning
assets to average interest-
bearing liabilities . . . 103.53% 104.62%
<FN>
(1) Average balances include non-accrual loans and interest income includes loan fee amortization.
(2) Includes federal funds sold, interest-bearing deposits with banks and other.
(3) Annualized net interest income divided by the average balance of interest-earning assets.
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
1995 1994
------------------------------ ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ---- ------- -------- ----
(Dollars in thousands)
- ----------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loan and lease portfolio,
net(1) . . . . . . . . . . $3,636,539 $146,347 8.05% $3,328,500 $127,102 7.64%
Mortgage-backed securities . 2,043,360 78,462 7.68 1,715,061 52,163 6.08
Other securities . . . . . . 198,060 6,718 6.78 180,302 4,597 5.10
Short-term investments and
other interest-earning
assets(2) . . . . . . . . 107,863 3,196 5.93 99,759 1,761 3.53
---------- -------- ---------- --------
Total . . . . . . . . . 5,985,822 234,723 7.84 5,323,622 185,623 6.97
-------- --------
Non-interest-earning assets . 268,344 208,402
---------- ----------
Total assets . . . . . $6,254,166 $5,532,024
========== ==========
INTEREST-BEARING LIABILITIES:
Deposits:
Checking . . . . . . . . $ 394,177 2,659 1.35 $ 393,493 2,805 1.43
Savings and money market 1,153,327 16,666 2.89 1,294,943 17,147 2.65
Certificates of deposit . 2,824,358 80,362 5.69 2,474,356 58,760 4.75
---------- -------- ---------- ---------
Total deposits . . . . 4,371,862 99,687 4.56 4,162,792 78,712 3.78
Borrowings . . . . . . . . . 1,422,171 43,455 6.11 927,249 19,725 4.25
---------- -------- ----------- ---------
Total . . . . . . . . . 5,794,033 143,142 4.94 5,090,041 98,437 3.87
---------
Non-interest-bearing
liabilities . . . . . . . 71,676 57,179
---------- -----------
Total liabilities . . . 5,865,709 5,147,220
Shareholders' equity . . . . 388,457 384,804
---------- -----------
Total liabilities and
shareholders' equity . $6,254,166 $5,532,024
========== ==========
Net interest income . . . . . $ 91,581 $ 87,186
======== ========
Interest rate spread . . . . 2.90 3.10
Net yield on average
interest-earning assets(3) 3.06 3.28
Average interest-earning
assets to average interest-
bearing liabilities . . . 103.31% 104.59%
<FN>
(1) Average balances include non-accrual loans and interest income includes loan fee amortization.
(2) Includes federal funds sold, interest-bearing deposits with banks and other.
(3) Annualized net interest income divided by the average balance of interest-earning assets.
</TABLE>
10
<PAGE> 13
The following figure sets forth the changes in Charter One's interest
income and interest expense resulting from changes in interest rates and in the
volume of interest-earning assets and interest-bearing liabilities. Changes
not solely attributable to volume or rate have been allocated in proportion to
the changes due to volume and rate.
RATE/VOLUME ANALYSIS (Figure 4)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------ --------------------------------------
1995 V. 1994 1995 V. 1994
------------------------------------ --------------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------------- --------------------------------------
RATE VOLUME TOTAL RATE VOLUME TOTAL
--------- --------- --------- -------- --------- ----------
(Dollars in thousands)
- ----------------------
<S> <C> <C> <C> < C> <C> <C>
INTEREST INCOME ON INTEREST-EARNING
ASSETS:
Loans and leases . . . . . . . . . . . . . $ 4,160 $ 5,406 $ 9,566 $ 7,081 $12,164 $19,245
Mortgage-backed securities . . . . . . . . 7,766 2,953 10,719 15,209 11,090 26,299
Other securities . . . . . . . . . . . . . 749 2 751 1,635 486 2,121
Short-term investments and other
interest-earning assets . . . . . . . . 521 374 895 1,282 153 1,435
-------- ------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . . 13,196 8,735 21,931 25,207 23,893 49,100
-------- ------- ------- ------- ------- -------
INTEREST EXPENSE ON INTEREST-BEARING
LIABILITIES:
Deposits:
Checking . . . . . . . . . . . . . . . . (69) 2 (67) (151) 5 (146)
Savings and money market . . . . . . . . 598 (1,140) (542) 1,370 (1,851) (481)
Certificates of deposit . . . . . . . . 7,778 4,944 12,722 12,604 8,998 21,602
------- ------- ------- ------- ------- -------
Total deposits . . . . . . . . . . 8,307 3,806 12,113 13,823 7,152 20,975
Borrowings . . . . . . . . . . . . . . . . 5,875 3,958 9,833 10,673 13,057 23,730
------- ------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . . 14,182 7,764 21,946 24,496 20,209 44,705
------- ------- ------- ------- ------- -------
Change in net interest income . . . . . . . $ (986) $ 971 $ (15) $ 711 $ 3,684 $ 4,395
======= ======= ======= ======= ======= =======
</TABLE>
NET INTEREST INCOME - Net interest income is the principal source of earnings
for the Company. It is affected by the level, pricing and maturity of
interest-earning assets and interest-bearing liabilities, interest rate
fluctuations, and asset quality. Information concerning the Company's
interest-earning assets, interest-bearing liabilities, net interest income,
interest rate spreads and net yield on interest-earning assets is presented in
Figure 3. Changes in the Company's interest income and interest expense
resulting from changes in interest rates and in the volume of interest-earning
assets and interest-bearing liabilities are presented in Figure 4.
Net interest income for the first half of 1995 increased $ 4.4 million, or 5.0%
over the first half of 1994. The growth reflected the effect of a higher level
of interest-earning assets offset by the effect of a decline in the interest
rate spread and net yield on interest-earning assets.
Net interest income for the second quarter of 1995 was essentially unchanged
from the second quarter of 1994. The decline in the interest rate spread and
net yield on interest-earning assets offset the effect of the higher level of
interest-earning assets.
The growth in balances of interest-earning assets for the 1995 first half and
second quarter reflect efforts by management to increase the size of the loan
and lease portfolio. At the beginning of 1995, the Company acquired a leasing
company, adding $76.9 million in lease financings. Loan repayments for the
first half and second quarter of 1995 declined significantly from the first
half and second quarter of 1994 because of a reduction in the level of
refinancings brought on by higher interest rates.
11
<PAGE> 14
The growth in the balances of interest-earning assets also reflects an
investment strategy implemented by management throughout the second half of
1993 and the first three quarters of 1994. The strategy, designed to increase
interest income, called for the Bank to borrow variable-rate funds from the
Federal Home Loan Bank and invest them in variable-rate mortgage-backed
securities, yielding a positive spread. The targeted net interest rate spread
and net yield on the interest-earning assets acquired under this strategy was
lower than the Bank's overall net interest rate spread and net yield, however,
net interest income and per share earnings were increased. During the first
half of 1995, the securities earned at management's targeted spread over the
cost of funding and, as planned, provided additional interest income to the
Company.
While net interest income increased for the first half of 1995 as compared to
the first half of 1994, the interest rate spread declined 20 basis points to
2.90% from 3.10%. For the second quarter of 1995, the interest rate spread
decreased 27 basis points to 2.82% from 3.09% from the second quarter of 1994.
The interest rate spreads for the first half and second quarter of 1995 were
adversely affected by increases in the general level of interest rates, as the
cost of the Bank's interest-bearing liabilities increased by more than the
yield on its interest-earning assets. The increased cost of interest-bearing
liabilities reflects the repricing of liabilities to current rates and a shift
by depositors from lower cost deposit accounts (checking, savings and money
market) to higher cost certificates of deposit.
OTHER INCOME (Figure 5)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -----------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1995 1994
- ---------------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C>
Loan servicing fees . . . . . . . . . . . . . $1,267 $1,529 $ 2,472 $ 2,930
Service fees and other charges:
Retail deposit account service
charges and fees . . . . . . . . . . . . 4,056 3,356 7,822 6,290
Fees on insurance annuity sales . . . . . 585 1,135 1,100 1,853
Other branch service fees . . . . . . . . 268 173 472 391
Miscellaneous . . . . . . . . . . . . . . 81 43 130 157
------ ------ ------- -------
Total . . . . . . . . . . . . . . 4,990 4,707 9,524 8,691
------ ------ ------- -------
Leasing operations . . . . . . . . . . . . . 1,645 3,357
Net gain from sales of:
Real estate . . . . . . . . . . . . . . 83 75 281 388
Securities . . . . . . . . . . . . . . 23 59 49 1,032
Loans . . . . . . . . . . . . . . 44 39 54 71
Other . . . . . . . . . . . . . . 113 4 121 5
------ ------ ------- -------
Total . . . . . . . . . . . . . . 263 177 505 1,496
Other . . . . . . . . . . . . . . 101 65 160 186
------ ------ ------- -------
Total . . . . . . . . . . . . . . $8,266 $6,478 $16,018 $13,303
====== ====== ======= =======
</TABLE>
OTHER INCOME - Other income for the first half of 1995 increased by $2.7
million, or 20.4%, over the first half of 1994. As shown in Figure 5, other
income from leasing operations, which were acquired by the Company at the
beginning of 1995, totaled $3.4 million, and service fees and other charges
increased $833,000 over the first half of 1994, while gains on sale and loan
servicing fees declined by $991,000 and $458,000, respectively.
Other income for the second quarter of 1995 increased by $1.8 million, or
27.6%, over the 1994 second quarter. The increase was due to the addition of
leasing operations, as well as a net increase in service fees and other charges
offset by a decline in loan servicing fees.
12
<PAGE> 15
Charter One acquired a leasing company in January of 1995 and operates it as a
subsidiary of the Bank. The operations of the Company's leasing subsidiary
include financing and operating leases of capital equipment. Rental, net of
depreciation, from equipment on operating leases and gross profit on sales-type
financing leases are combined and reported as other income from leasing
operations.
The net increase in service fees and other charges for the first half and
second quarter of 1995 over the 1994 periods were the result of increases in
retail deposit account service charges and fees offset by a decline in fees on
insurance annuity sales. Increased volume of checking accounts and ATM
transactions, combined with increases in the transaction charges for checking
accounts and ATM transactions, resulted in a 24.4% increase in retail deposit
account service charges and fees for 1995, over 1994. Fees from sales of tax
deferred annuities for 1995 declined from 1994 as increases in the general
level of interest rates made tax deferred annuities less attractive to
consumers than insured certificates of deposit.
Net gains from sales for the first half of 1995 decreased by $991,000 from the
first half of 1994. During the first quarter of 1994, the Company sold several
mortage-backed securities from its available for sale portfolio because they
were experiencing much higher than expected prepayments. These prepayment
conditions were not experienced by the Company in 1995 due to the higher level
of interest rates during the period.
Loan servicing fee income declined in the first half and second quarter of
1995, from the the 1994 periods, as the overall outstanding balance of the
loans serviced for others declined. This trend is expected to continue as the
Bank focuses on increasing its loan and lease portfolio.
OTHER EXPENSES (Figure 6)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -----------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1995 1994
- ---------------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C>
Salaries and employee benefits . . . . . . . $11,792 $10,719 $24,511 $20,736
Net occupancy and equipment . . . . . . . . . 3,499 3,251 7,200 6,598
Federal deposit insurance premiums . . . . . 2,477 2,404 4,954 4,785
State franchise tax . . . . . . . . . . . . . 1,346 1,439 2,919 2,877
Marketing . . . . . . . . . . . . . . . . 750 939 1,765 1,787
Other administrative expenses . . . . . . . . 5,935 6,361 11,467 12,619
------- ------- ------- -------
Total . . . . . . . . . . . . . . . . $25,799 $25,113 $52,816 $49,402
======= ======= ======= =======
Number of full-time equivalent
employees as of June 30, . . . . . . . . . 1,469 1,407 1,469 1,407
Net interest income to other expenses . . . . 1.75x 1.80x 1.73x 1.76x
Other expenses to average assets
(annualized) . . . . . . . . . . . . . . . 1.64% 1.75% 1.69% 1.79%
Efficiency Ratio(1) . . . . . . . . . . . . . 48.45% 48.70% 49.32% 49.90%
<FN>
(1) Other expenses divided by the sum of net interest income before
provision for loan and lease losses and other income exclusive
of net gain or loss from sales.
</TABLE>
OTHER EXPENSES - Other expenses, shown in Figure 6, for the first half and
second quarter of 1995 increased over the 1994 periods, primarily due to higher
salaries and employee benefits expense. Salaries and employee benefits expense
increased in the 1995 first half and second quarter primarily due to lower
one-to-four family loan originations in the first half and second quarter of
1995 as compared to the 1994 periods (the effects of which are described below)
and the additions of the Bank's leasing and data processing subsidiaries in
January of 1995.
13
<PAGE> 16
One-to-four family permanent loan originations for the first half and second
quarter of 1995 declined 57.1% and 42.7%, respectively, from 1994 periods,
while full-time equivalent employees dedicated to loan production did not
decline in a corresponding manner, resulting in less cost being deferred as an
adjustment to the yield on loans and in an increase in the cost being expensed.
The acquisition of ICX Corporation and the Bank's computer service bureau
accounted for most of the increase in the number of full-time equivalent
employees of the Company and for a portion of the increase in salaries and
employee benefits expense.
With the acquisition of the company's computer service bureau at the end of
January of 1995, its operations are consolidated with those of the Company.
Charges from the computer service bureau for periods prior to the acquisition
in January 1995 are included in other administrative expenses.
FEDERAL INCOME TAXES - The provision for federal income taxes for the first
half and second quarter of 1995 increased by $1.8 million and $655,000,
respectively, over the 1994 periods due to higher pre-tax income for the 1995
periods. The effective tax rates were comparable at 33.6% for the first half
and second quarter of 1995 and 33.2% and 33.3% for the first half and second
quarter of 1994, respectively.
FINANCIAL CONDITION
Figure 7 sets forth information concerning the composition of the
Company's assets, liabilities and shareholders' equity at June 30, 1995 and
December 31, 1994.
FINANCIAL CONDITION (Figure 7)
<TABLE>
<CAPTION>
AT JUNE 30, 1995 AT DECEMBER 31, 1994
------------------------- -------------------------
% OF % OF
(DOLLARS IN THOUSANDS) AMOUNT TOTAL AMOUNT TOTAL
- ---------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . $ 182,494 2.9% $ 236,972 3.8%
Mortgage-backed and other
securities . . . . . . . . . . . . . . 2,149,835 34.0 2,138,012 34.9
Loans and leases, net . . . . . . . . . . 3,721,012 58.8 3,542,539 57.8
Other assets . . . . . . . . . . . . . . 272,243 4.3 212,649 3.5
---------- ----- ---------- -----
Total . . . . . . . . . . . . . . $6,325,584 100.0% $6,130,172 100.0%
========== ===== ========== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits . . . . . . . . . . . . . . . . $4,410,618 69.7% $4,368,245 71.3%
Other liabilities . . . . . . . . . . . . 84,440 1.3 74,085 1.2
Borrowings . . . . . . . . . . . . . . . 1,420,716 22.5 1,318,737 21.5
Shareholders' equity . . . . . . . . . . 409,810 6.5 369,105 6.0
---------- ----- ---------- -----
Total . . . . . . . . . . . . . . $6,325,584 100.0% $6,130,172 100.0%
========== ===== ========== =====
</TABLE>
OVERVIEW - Total assets increased $195.4 million from December 31, 1994, mainly
due to higher levels of loans and leases, equipment on operating leases and
securities. Loans and leases increased by $178.5 million and other assets,
which includes equipment on operating leases, increased by $59.6 million. These
increases were largely the result of the addition of the Bank's leasing
subsidiary. Growth in the loan and lease portfolio was also due in part to a
slow down in mortgage loan repayments. The increase in assets was funded
primarily by increases in borrowings, deposits and shareholders' equity.
14
<PAGE> 17
COMPOSITION OF LOANS AND LEASES (Figure 8)
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
1995 1994
------------------------- -----------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
---------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate:
One- to-four family . . . . . . . . . $2,718,223 73.0% $2,647,098 74.7%
Multi-family . . . . . . . . . . . . . 163,829 4.4 162,801 4.6
Commercial . . . . . . . . . . . . . . 238,279 6.4 231,353 6.5
Construction . . . . . . . . . . . . . 125,111 3.4 127,576 3.6
---------- ----- ---------- -----
Total real estate . . . . . . . . 3,245,442 87.2 3,168,828 89.4
Consumer . . . . . . . . . . . . . . . 418,645 11.3 382,492 10.8
Lease financings . . . . . . . . . . . . 92,565 2.5
Business . . . . . . . . . . . . . . . 53,778 1.4 84,307 2.4
---------- ----- ---------- -----
Total loans and leases . . . . . 3,810,430 102.4 3,635,627 102.6
Less net items . . . . . . . . . . . . . 89,418 2.4 93,088 2.6
---------- ----- ---------- -----
Loans and leases, net . . . . . . . . . . $3,721,012 100.0% $3,542,539 100.0%
========== ===== ========== =====
</TABLE>
LOANS AND LEASES - Total loans and leases outstanding at June 30, 1995 were
$3.7 billion, as compared with $3.5 billion at December 31, 1994. As shown in
Figure 8, the composition of loans and leases has changed somewhat with the
addition of lease financings to the portfolio. At the end of the 1995 second
quarter, lease financings totaled $92.5 million, or 2.5% of total loans and
leases.
One-to-four family real estate loan outstandings increased $71.1 million, or
2.7%, from December 31, 1994, as loan originations during the first half of
1995 exceeded loan repayments.
Consumer loan outstandings at the end of the 1995 second quarter increased
$36.2 million, or 9.5%, from December 31, 1994, reflecting increases in home
equity and marine loans outstanding. These increases are attributed to an
increase in branch cross-sell referrals of home equity loans and the
establishment of a correspondent marine lending program in the first quarter of
1995.
Loan and lease originations and repayments for the first half and second
quarter of 1995 were down from the comparable 1994 periods. Higher interest
rates have resulted in a decline in loan refinancing volume which has slowed
overall loan originations and repayments. One-to-four family real estate loan
originations and repayments in the first half of 1994 were heavily impacted by
refinancings.
15
<PAGE> 18
LOAN AND LEASE ACTIVITY (Figure 9)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -----------------------------
1995 1994 1995 1994
------- -------- --------- ---------
(Dollars in thousands)
- ----------------------
<S> <C> <C> <C> <C>
ORIGINATIONS:
Real estate:
Permanent:
One- to-four family . . . . . . . . $125,170 $218,583 $190,968 $444,773
Multi-family . . . . . . . . . . . 2,111 10,797 8,503 32,128
Commercial . . . . . . . . . . . . 17,337 5,866 20,654 8,325
-------- -------- -------- ---------
Total permanent . . . . . . . 144,618 235,246 220,125 485,226
-------- -------- ------- --------
Construction:
One- to-four family . . . . . . . . 31,182 42,847 47,306 67,382
Multi-family . . . . . . . . . . . 1,525 3,525 3,031 3,613
Commercial . . . . . . . . . . . . 4,592
-------- -------- -------- --------
Total construction loans . . . 32,707 46,372 54,929 70,995
-------- -------- -------- ---------
Total real estate
loans originated . . . . . 177,325 281,618 275,054 556,221
Consumer line of credit draws . . . . 35,636 31,066 62,797 59,458
Consumer. . . . . . . . . . . . . . . . 20,075 68,238 33,814 116,083
Business line of credit draws . . . . 8,775 14,984 16,647 32,015
Business . . . . . . . . . . . 4,597 2,324 7,820 5,365
Lease financings(1) . . . . . . . . . 7,753 29,632
-------- -------- -------- --------
Total loans and lease
financings originated . . 254,161 398,230 425,764 769,142
-------- -------- -------- --------
PURCHASES:
Loans . . . . . . . . . . . . . 19,002 2,112 22,516 2,802
Lease financings(1) . . . . . . . . . . 76,912
-------- -------- -------- --------
Total purchases . . . . . . . . . . 19,002 2,112 99,428 2,802
-------- -------- -------- --------
SALES AND PRINCIPAL REDUCTIONS:
Loans sold . . . . . . . . . . . . . 1,807 1,111 2,248 2,103
Principal reductions . . . . . . . . . . 171,975 251,399 319,881 509,452
Other . . . . . . . . . . . . . 28,260
-------- -------- -------- --------
Total sales and principal
reductions . . . . . . . . . . 173,782 252,510 350,389 511,555
-------- -------- -------- --------
INCREASE BEFORE NET ITEMS . . . . . . . . . $ 99,381 $147,832 $174,803 $260,389
======== ======== ======== ========
<FN>
(1) Not included herein are $4.2 and $17.3 million in operating leases originated during the three and six month periods ended
June 30, 1995 and $29 million in operating leases purchased in the acquisition of ICX Corporation.
</TABLE>
SECURITIES (Figure 10)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1995 1994
- ---------------------- -------------- --------------
<S> <C> <C>
Mortgage-backed securities:
Variable rate . . . . . . . . . . . . . . . . . . . . . . . . . . $1,527,079 $1,498,252
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487,763 540,346
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,014,842 2,038,598
---------- ----------
Other securities:
U.S. Government and Federal agency obligations . . . . . . . . . . 106,357 71,688
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,636 27,726
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,993 99,414
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,149,835 $2,138,012
========== ==========
</TABLE>
16
<PAGE> 19
SECURITIES - The securities portfolio is comprised primarily of mortgage-backed
securities, including government agency and "AA" and "AAA" rated private
issues. Non-mortgage-backed securities are intended to help satisfy the Bank's
legal liquidity requirements and to help control interest rate risk. The
securities portfolio at June 30, 1995 increased slightly from December 31,
1994. Variable rate mortgage-backed securities at June 30, 1995 increased by
$28.8 million from December 31, 1994 due to security purchases and an increase
in the market value of securities available for sale. Fixed rate
mortgage-backed securites declined by $52.6 million from December 31, 1994 due
to the sale of securities from the available for sale portfolio to meet
liquidity and asset/liability management objectives. At June 30, 1995, the
portfolio of U.S. Government and Federal agency obligations, held to meet legal
liquidity requirements, increased by $35.6 million from December 31, 1994.
ASSET QUALITY
ANALYSIS OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES (Figure 11)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -----------------------------
1995 1994 1995 1994
------- -------- --------- ---------
(Dollars in thousands)
- ----------------------
<S> <C> <C> <C> <C>
Balance, beginning of period . . . . . . . . $36,885 $35,591 $36,870 $35,072
Provision for loan and lease losses . . . . . 258 841 516 1,493
Other . . . . . . . . . . . . . . . . 176
Loans and leases charged-off:
Real estate . . . . . . . . . . . . . . . (200) (373) (813) (575)
Consumer . . . . . . . . . . . . . . . . (62) (17) (90) (93)
Lease financings . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . (211) (211)
------- ------- ------- -------
Total charge-offs . . . . . . . . . . (262) (601) (903) (879)
------- ------- ------- -------
Recoveries:
Real estate . . . . . . . . . . . . . . . 129 23 350 123
Consumer . . . . . . . . . . . . . . . . 4 3 5 14
Lease financings . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . 44 44 34
------- ------- ------- -------
Total recoveries . . . . . . . . . . 177 26 399 171
------- ------- ------- -------
Net loan and lease charge-offs . . . . . . . (85) (575) (504) (708)
------- ------- ------- -------
Balance, end of period . . . . . . . . . . . $37,058 $35,857 $37,058 $35,857
======= ======= ======= =======
Net charge-offs to average loans and
leases (annualized) . . . . . . . . . . . .01% .07% .03% .04%
Net charge-offs to provision for loan
and lease losses . . . . . . . . . . . . . 32.95% 68.37% 97.67% 47.42%
</TABLE>
17
<PAGE> 20
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES (Figure 12)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1995 1994 1994
--------- ------------- ---------
(Dollars in thousands)
- ----------------------
<S> <C> <C> <C>
Real estate . . . . . . . . . . . . . . . . . . . $30,352 $30,638 $30,063
Consumer . . . . . . . . . . . . . . . . . . . . 1,486 1,512 1,366
Lease financings . . . . . . . . . . . . . . . . 366
Business . . . . . . . . . . . . . . . . . . . . 4,854 4,720 4,428
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . $37,058 $36,870 $35,857
======= ======= =======
Ratio of ending allowance to ending loans
and leases (before allowance for
loan and lease losses):
Real estate . . . . . . . . . . . . . . . . . .95% .98% .98%
Consumer . . . . . . . . . . . . . . . . . . . .35% .39% .37%
Lease financings . . . . . . . . . . . . . . . .40%
Business . . . . . . . . . . . . . . . . . . . 9.05% 5.61% 6.68%
Total . . . . . . . . . . . . . . . . . . .99% 1.03% 1.03%
</TABLE>
The allowance for loan and lease losses as a percentage of ending loans and
leases was .99% at June 30, 1995, down slightly from 1.03% at December 31,
1994, reflecting continued improvement in asset quality.
Management believes that the allowance for loan and lease losses has been
established in accordance with generally accepted accounting principles based
on the best information available. However, future adjustments to reserves may
be necessary and net income could be significantly affected if circumstances
and/or economic conditions differ substantially from the assumptions used in
making the initial determinations. A downturn in the Ohio real estate market
could result in an increased level of non-performing assets and charge-offs,
significant provisions for loan and lease losses and significant reductions in
income. Additionally, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
and lease losses. Such agencies may require the recognition of additions to
the allowance based on their judgments of information available to them at the
time of their examination.
18
<PAGE> 21
Figure 13 sets forth information concerning non-performing assets and
the allowance for loan and lease losses. At June 30, 1995, the Bank had no
outstanding commitments to lend additional funds to borrowers whose loans were
on non-accrual or restructured status.
NON-PERFORMING ASSETS (Figure 13)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
NON-PERFORMING LOANS AND LEASES:
Non-accruing loans and leases:
Real estate:
One- to four- family . . . . . . . . . . . . . . . . . . $ 7,930 $ 8,380
Multi-family and commercial . . . . . . . . . . . . . . . 1,643 4,548
Construction and land . . . . . . . . . . . . . . . . . . 1,005 2,596
------- -------
Total real estate . . . . . . . . . . . . . . . . . . . . . . 10,578 15,524
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 77
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . 10,799 15,606
Accruing loans and leases delinquent more than 90 days:
Real estate:
One- to four- family . . . . . . . . . . . . . . . . . . 1,853 2,781
Multi-family and commercial . . . . . . . . . . . . . . . 850 855
Construction and land . . . . . . . . . . . . . . . . . . 207
------- -------
Total real estate . . . . . . . . . . . . . . . . . . . . . . 2,703 3,843
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 255
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 17
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 2,889 4,115
Restructured real estate loans . . . . . . . . . . . . . . . . . . 7,937 7,976
------- -------
Total non-performing loans and leases . . . . . . . . . . . . . . 21,625 27,697
REPOSSESSED ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 8,140 10,531
------- -------
Total non-performing assets . . . . . . . . . . . . . . . . . . . $29,765 $38,228
======= =======
Non-performing loans and leases as a percent of
total loans and leases . . . . . . . . . . . . . . . . . . . . . . .58% .78%
Non-performing assets as a percent of total assets . . . . . . . . . .47% .62%
Allowance for loan and lease losses to non-performing
loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . 171.37% 133.12%
Reserve ratio (percentage of ending allowance for
loan and lease losses to ending loan and lease
balance before allowance for loan and lease losses) . . . . . . . .99% 1.03%
</TABLE>
Non-performing assets at June 30, 1995 totaled $29.8 million, down 22.1% from
December 31, 1994 due to decreases in non-accruing real estate loans and
repossessed assets. The ratios of non-performing loans and leases to total
loans and leases and non-performing assets to total assets also declined at
June 30, 1995 from December 31, 1994. These decreases reflect an improving
Ohio economy as well as increased collection and repossessed asset disposition
efforts. During the first quarter of 1995, two long-standing problem commercial
real estate mortgage loans were repaid.
19
<PAGE> 22
At June 30, 1995, there were $22.9 million of loans and leases not reflected in
Figure 13, where known information about possible credit problems of borrowers
caused management to have doubts as to the ability of the borrower to comply
with present loan repayment terms and that may result in disclosure of such
loans and leases in the future. Included in the total are two borrowing
relationships with principal balances of $10.2 million and $7.4 million,
respectively. These credits are collateralized by hotel properties and other
real estate. The current cash flows of the properties are sufficient to meet
current debt service requirements, and the borrowers are paying as agreed.
DEPOSITS AND OTHER SOURCES OF FUNDS - Deposits are generally the most important
source of the Bank's funds for use in lending and general business purposes.
Deposit inflows and outflows are significantly influenced by general interest
rates, market conditions and competitive factors. The Bank reprices its
deposits weekly or more frequently, if required, based primarily on competitive
conditions. In order to decrease the volatility of its deposits, the Bank
imposes stringent penalties on early withdrawal on its certificates of deposit.
Consumer and commercial deposits are attracted principally within the Bank's
primary market areas through the offering of a broad range of deposit
instruments.
COMPOSITION OF DEPOSITS (Figure 14)
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
------------------------------- -----------------------------------
PERCENT PERCENT
AVERAGE OF AVERAGE OF
BALANCE RATE TOTAL BALANCE RATE TOTAL
-------- ---- ----- --------- ---- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Checking Accounts:
Interest bearing . . . . . . $ 252,102 2.13% 5.7% $ 269,023 2.10% 6.2%
Non-interest bearing . . . . 151,149 3.4 148,267 3.4
Savings . . . . . . . . . . . . 566,093 2.56 12.9 621,530 2.56 14.2
Money market accounts . . . . . 553,378 3.26 12.6 591,631 3.17 13.6
---------- ----- ---------- -----
Total checking, savings
and money market . . . 1,522,722 2.49 34.6 1,630,451 2.47 37.4
---------- ----- ---------- -----
Certificates:
Less than $100,000:
4.00% or less . . . . . . . 42,573 2.59 1.0 203,176 3.58 4.7
4.01%-6.00% . . . . . . . . 1,344,313 5.31 30.5 1,661,008 4.97 38.1
6.01%-8.00% . . . . . . . . 1,111,175 6.63 25.2 484,404 6.65 11.1
8.01%-10.00% . . . . . . . 92,760 8.64 2.1 110,727 8.64 2.5
10.01%-12.00% . . . . . . . 31,211 11.39 .7 35,700 11.23 .8
12.01%-14.00% . . . . . . . 357 12.82 347 12.82
---------- ----- ---------- -----
Total . . . . . . . . . . 2,622,389 6.02 59.5 2,495,362 5.44 57.2
---------- ----- ---------- -----
$100,000 or more:
4.00% or less . . . . . . . 6,252 3.48 .1 19,173 3.57 .4
4.01%-6.00% . . . . . . . . 104,653 5.31 2.4 144,118 5.10 3.3
6.01%-8.00% . . . . . . . . 134,773 6.67 3.0 57,221 6.73 1.3
8.01%-10.00% . . . . . . . 12,212 8.79 .3 11,925 8.86 .3
10.01%-12.00% . . . . . . . 3,478 10.62 .1 5,158 10.60 .1
---------- ---- ---------- -----
Total . . . . . . . . . . 261,368 6.12 5.9 237,595 5.67 5.4
---------- ----- ---------- -----
Total certificates . . . 2,883,757 6.03 65.4 2,732,957 5.46 62.6
---------- ----- ---------- -----
Total deposits . . . . . . . . 4,406,479 4.80 100.0% 4,363,408 4.34 100.0%
===== =====
Plus premium on deposits
purchased . . . . . . . . . 4,139 4,837
---------- ----------
Total . . . . . . . . . . $4,410,618 $4,368,245
========== ==========
</TABLE>
20
<PAGE> 23
The average balance of deposits increased by $209.1 million, or 5.0%, for the
first half of 1995 over the 1994 first half. The outstanding balance at June
30, 1995 increased by $42.4 million over the balance at December 31, 1994. A
sharp rise in interest rates throughout 1994 contributed to a slowing of
withdrawals as consumers returned to insured deposits and shifted from highly
liquid savings and money market accounts into longer term and higher rate
certificates of deposit.
In addition to deposits, the Bank derives funds from advances from the Federal
Home Loan Bank ("FHLB") of Cincinnati. At June 30, 1995, the Company had
borrowings of $1.4 billion, including $1.3 billion in advances from the FHLB of
Cincinnati. The average balance of borrowings for the first half of 1995
increased by $494.9 million over the first half of 1994, primarily due to
advances from the FHLB of Cincinnati used to purchase mortgage-backed
securities.
LIQUIDITY - The Bank's principal sources of funds are deposits,
advances from the Federal Home Loan Bank of Cincinnati, repayments and
maturities on loans and securities, proceeds from the sale of securities and
funds provided by operations. While scheduled loan, security and
interest-bearing deposit amortization and maturities are relatively predictable
sources of funds, deposit flows and loan and security prepayments are greatly
influenced by economic conditions, the general level of interest rates and
competition. The Bank utilizes particular sources of funds based on
comparative costs and availability. The Bank generally manages the pricing of
its deposits to maintain a steady deposit balance, but has from time to time
decided not to pay rates on deposits as high as its competition and, when
necessary, to supplement deposits with longer term and/or less expensive
alternative sources of funds such as advances from the FHLB. Management also
considers the Bank's interest-sensitivity "gap" when deciding on alternative
sources of funds. At June 30, 1995, the Bank's one-year gap was a negative
4.9%.
The Bank is required by regulation to maintain specific minimum levels
of liquid investments. Regulations currently in effect require the Bank to
maintain liquid assets at least equal to 5.0% of the sum of its average daily
balance of net withdrawable accounts and borrowed funds due in one year or
less. This regulatory requirement may be changed from time to time to reflect
current economic conditions. The Bank has generally maintained liquidity
substantially in excess of its required levels. The Bank's average regulatory
liquidity ratio for the quarter ended June 30, 1995 was 6.27%.
Liquidity management is both a daily and long-term responsibility of
management. The Bank adjusts its investments in cash and cash equivalents
based upon management's assessment of (i) expected loan and lease demand, (ii)
projected security maturities, (iii) expected deposit flows, (iv) yields
available on interest-bearing deposits, and (v) the objectives of its
asset/liability management program. Excess liquidity is invested generally in
federal funds sold, interest-bearing deposits and floating-rate corporate debt
securities. If the Bank requires funds beyond its ability to generate them
internally, it has additional borrowing capacity with the FHLB of Cincinnati
and collateral eligible for reverse repurchase agreements. Because the Bank
has a relatively stable retail deposit base, management believes that
significant borrowings will not be necessary to maintain its current liquidity
position.
The Bank anticipates that it will have sufficient funds available
during the next 12 months to meet current and future loan commitments. At June
30, 1995, the Bank and its subsidiaries had outstanding commitments to
originate loans and leases of $178.4 million, unfunded lines of consumer credit
totaling $276.8 million (a significant portion of which normally remains
undrawn) and unfunded lines of commercial (business loans) credit totalling
$19.4 million. Certificates of deposit scheduled to mature in one year or less
at June 30, 1995 totalled $1.8 billion. Management believes that a significant
portion of the amounts maturing during the next 12 months will remain with the
Bank because they are retail deposits. At June 30, 1995, the Bank had $681.0
million of advances from the FHLB of Cincinnati which mature during the next 12
months. Management will review the need for advances when they mature and
believes the Bank has significant additional borrowing capacity with the FHLB.
21
<PAGE> 24
CAPITAL AND DIVIDENDS-The Bank is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. The
regulations require the Bank to meet specific capital adequacy guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital classification is also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by the regulators to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios ( set forth in the
Figure 15 below) of tangible, core and total risk-based capital. Prompt
Corrective Action regulations require specific supervisory actions as capital
levels decrease. To be considered adequately capitalized under the regulatory
framework for Prompt Corrective Action, the Bank must maintain minimum Tier 1
leverage, Tier 1 risk-based and total risk-based capital ratios as set forth in
Figure 15 below. The Bank's actual capital and ratios are also presented in
Figure 15.
REGULATORY CAPITAL (Figure 15)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
---------------------------------------------------------
ACTUAL CAPITAL REQUIRED CAPITAL
------------------------- -----------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ---------------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Capital Adequacy:
Tangible capital . . . . . . . . . . . $412,119 6.65% $ 92,943 1.50%
Core capital . . . . . . . . . . . . . 412,119 6.65 185,886 3.00
Risk-based capital . . . . . . . . . . 439,024 13.70 256,365 8.00
Prompt Corrective Action:
Tier 1 leverage capital . . . . . . . 412,119 6.65 247,848 4.00
Tier 1 risk-based capital . . . . . . 412,119 12.86 128,182 4.00
Total risk-based capital . . . . . . . 439,024 13.70 256,365 8.00
</TABLE>
Management believes, as of June 30, 1995, that the Bank meets all capital
requirements to which it is subject. Events beyond management's control, such
as significant fluctuations in interest rates or a significant downturn in the
economy in areas in which the Bank's loans and securities are concentrated,
could adversely affect future earnings and, consequently, the Bank's ability to
meet its future capital requirements.
QUARTERLY STOCK PRICES AND DIVIDENDS (Figure 16)
<TABLE>
<CAPTION>
1995 1994
---------------- ---------------------------------------------
FIRST SECOND FIRST SECOND THIRD FOURTH YEAR
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
High . . . . . . . . . . . . . $20.25 $27.00 $20.25 $23.37 $24.00 $21.00 $24.00
Low . . . . . . . . . . . . . . 17.75 20.00 17.75 18.00 19.12 17.75 17.75
Dividends declared and paid . . .17 .19 .12 .15 .15 .17 .59
</TABLE>
The Company's common stock trades on the Nasdaq National Market under the
symbol COFI. As of August 9, 1995, there were 4,331 shareholders of record.
During the fourth quarter of 1994, the Board of Directors of the Company
authorized management to repurchase up to 1.2 million shares of the Company's
common stock. Shares repurchased under this authorization are held in treasury
and are available for issuance upon the exercise of stock options or for other
corporate purposes. As of June 30, 1995, 328,000 shares had been repurchased
under this authorization.
22
<PAGE> 25
ACCOUNTING AND REPORTING DEVELOPMENTS
During March, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS No. 121 is
effective for 1996 with impairment losses resulting from its application being
reported in the period in which the recognition criteria are first applied and
met.
During May, 1995, the Financial Accounting Standards Board issued SFAS No.
122, "Accounting for Mortgage Servicing Rights an amendment of SFAS No. 65."
This statement requires that the right to service loans, acquired either
through the purchase or origination of the loan and retained after the loans
have been sold or securitized, shall be recognized as an asset by allocating
the total cost of the loans to mortgage servicing rights and loans based on the
relative fair values. The provisions of this statement shall be applied
prospectively beginning in 1996, to transactions in which mortgage loans are
sold or securitized with servicing rights retained and to impairment
evaluations of all amounts capitalized as mortgage servicing rights, including
those purchased before the adoption of this statement.
Management intends to adopt these statements when they become effective.
The impact of adopting these statements on the financial condition and results
of operations of the Company has not been determined.
23
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Dividend
On July 19, 1995, the Directors of Charter One Financial, Inc. declared
a quarterly cash dividend of 19 cents per common share. The dividend will be
payable on August 22, 1995 to shareholders of record as of August 7, 1995.
Recent Developments
The deposits of savings associations such as the Bank are presently
insured by the Savings Association Insurance Fund ("SAIF"), which together with
the Bank Insurance Fund ("BIF"), are the two insurance funds administered by
the Federal Deposit Insurance Corporation ("FDIC"). On August 8, 1995, the
FDIC revised the premium schedule for BIF-insured banks to provide a range of
.04% to .31% of deposits (as compared to the current range of .23% to .31% of
deposits for both BIF and SAIF-insured institutions) in anticipation of the BIF
achieving its statutory reserve ratio. As a result, BIF members generally
would pay lower premiums than the SAIF members. The lower premiums for BIF
members are expected to take effect no later than the third quarter of 1995.
It is anticipated that the SAIF will not be adequately recapitalized until
2002, absent a substantial increase in premium rates or the imposition of
special assessments or other significant developments, such as a merger of the
SAIF and the BIF. As a result of this disparity, SAIF members could be placed
at a significant, competitive disadvantage to BIF members due to higher costs
for deposit insurance. A recapitalization plan under consideration by the
Treasury Department, the FDIC, the Office of Thrift Supervision and the
Congress reportedly provides for a one-time assessment of .85% to .90% to be
imposed on all deposits assessed at the SAIF rates in order to recapitalize the
SAIF and eliminate the disparity. No assurance can be given, however, as to
whether the recapitalization plan will be implemented or as to the nature or
extent of any competitive disadvantage which may be experienced by SAIF member
institutions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 11 - Computation of per share earnings
Exhibit 27 - Financial Data Schedule
(B) REPORTS ON FORM 8-K
A report on Form 8-K dated May 30, 1995 to report, under Item
5-Other Events, the Company's Agreement and Plan of Merger
with FirstFed Michigan Corporation was filed with the SEC on
May 31, 1995 and amended on June 5, 1995.
24
<PAGE> 27
SIGNATURES
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: August 11, 1995 By: /s/ Robert J. Vana
------------------------------
Robert J. Vana
Chief Corporate Counsel and Secretary
Date: August 11, 1995 By: /s/ Leonard A. Krysinski
--------------------------------
Leonard A. Krysinski
Senior Vice President and Treasurer
25
<PAGE> 1
EXHIBIT 11
CHARTER ONE FINANCIAL, INC.
COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -----------------------------
1995 1994 1995 1994
------- -------- --------- ---------
<S> <C> <C> <C> <C>
COMPUTATION OF PRIMARY EARNINGS PER SHARE:
Weighted average number of common
shares outstanding . . . . . . . . . . . . 22,488,003 22,589,352 22,483,945 22,568,765
Add common stock equivalents for shares
issuable under:
Stock Appreciation Rights Plan(1) . . . . 48,403 100,938 55,688 105,194
Stock Option Plan(1) . . . . . . . . . . . 496,082 519,309 478,893 516,594
---------- ---------- ---------- ----------
Weighted average number of shares
outstanding adjusted for common
stock equivalents . . . . . . . . . . 23,032,488 23,209,599 23,018,526 23,190,553
========== ========== ========== ==========
Net Income . . . . . . . . . . . . . . . . $ 18,218 $ 17,203 $ 36,016 $ 33,104
========== ========== ========== ==========
Primary earnings per share . . . . . . . . . $ 0.79 $ 0.74 $ 1.56 $ 1.43
========== ========== ========== ==========
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . 22,488,003 22,603,063 22,483,945 22,586,763
Add common stock equivalents for shares
issuable under:
Stock Appreciation Rights Plan(2) . . . . 48,570 100,938 71,128 113,833
Stock Option Plan(2) . . . . . . . . . . . 505,428 508,435 505,428 502,763
---------- ---------- ---------- ----------
Weighted average number of shares
outstanding adjusted for common
stock equivalents . . . . . . . . . . 23,042,001 23,212,436 23,060,501 23,203,359
========== ========== ========== ==========
Net Income . . . . . . . . . . . . . . . . $ 18,218 $ 17,203 36,016 33,104
=========== ========== ---------- ----------
Fully diluted earnings per share . . . . . . $ 0.79 $ 0.74 $ 1.56 $ 1.43
=========== ========== ========== ==========
<FN>
(1) Additional shares issuable were derived under the "treasury stock method" using average market price during the period.
(2) Additional shares issuable were derived under the "treasury stock method" using the higher of the average market price during
the period or the market price at the end of the period.
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CHARTER ONE FINANCIAL, INC AND SUBSIDIARIES
AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 66,832
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 115,662
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 456,763
<INVESTMENTS-CARRYING> 1,693,072
<INVESTMENTS-MARKET> 1,744,451
<LOANS> 3,758,070
<ALLOWANCE> 37,058
<TOTAL-ASSETS> 6,325,584
<DEPOSITS> 4,410,618
<SHORT-TERM> 0
<LIABILITIES-OTHER> 84,440
<LONG-TERM> 1,420,716
<COMMON> 226
0
0
<OTHER-SE> 409,584
<TOTAL-LIABILITIES-AND-EQUITY> 6,325,584
<INTEREST-LOAN> 146,347
<INTEREST-INVEST> 85,180
<INTEREST-OTHER> 3,196
<INTEREST-TOTAL> 234,723
<INTEREST-DEPOSIT> 99,687
<INTEREST-EXPENSE> 143,142
<INTEREST-INCOME-NET> 91,581
<LOAN-LOSSES> 516
<SECURITIES-GAINS> 49
<EXPENSE-OTHER> 52,816
<INCOME-PRETAX> 54,267
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,016
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
<YIELD-ACTUAL> 3.06
<LOANS-NON> 10,799
<LOANS-PAST> 2,889
<LOANS-TROUBLED> 7,937
<LOANS-PROBLEM> 22,900
<ALLOWANCE-OPEN> 36,870
<CHARGE-OFFS> 903
<RECOVERIES> 399
<ALLOWANCE-CLOSE> 37,058
<ALLOWANCE-DOMESTIC> 37,058
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
