<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 MARCH 31, 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 May 10, 1995 was 22,479,926.
<PAGE> 2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. Financial Statements
Consolidated Statements of Financial Condition --
March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income --
Three months ended March 31, 1995 and 1994 . . . . . . . . . . . . . 2
Consolidated Statements of Changes in Shareholders' Equity --
Three months ended March 31, 1995 . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows --
Three months ended March 31, 1995 and 1994 . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION
ITEM 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 21
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</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>
MARCH 31, DECEMBER 31,
1995 1994
----------- ------------
<S> <C> <C>
ASSETS:
Cash and deposits with banks . . . . . . . . . . . . . . . . . . . . $ 69,034 $ 126,829
Federal funds sold and other . . . . . . . . . . . . . . . . . . . . 148,762 110,143
----------- -----------
Total cash and cash equivalents . . . . . . . . . . . . 217,796 236,972
Mortgage-backed and other securities:
Mortgage-backed securities available for sale
(amortized cost of $398,990 and $406,831 at March 31, 1995
and December 31, 1994, respectively) . . . . . . . . . . . . 377,590 373,477
Mortgage-backed securities held to maturity (fair
value of $1,693,192 and $1,633,988 at March 31, 1995 and
December 31, 1994, respectively) . . . . . . . . . . . . . . 1,669,860 1,665,121
Other securities available for sale (amortized
cost of $132,033 and $99,368 at March 31, 1995 and
December 31, 1994, respectively) . . . . . . . . . . . . . . 133,413 99,414
Loans and leases, net (including allowance for loan and lease
losses of $36,885 and $36,870 at March 31, 1995 and December 31,
1994, respectively) . . . . . . . . . . . . . . . . . . . . 3,625,647 3,542,539
Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . 69,264 68,009
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . 59,192 57,472
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . 30,003 26,852
Real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . 9,450 10,617
Equipment on operating leases . . . . . . . . . . . . . . . . . . . . 37,580
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,097 49,699
----------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 6,293,892 $ 6,130,172
=========== ===========
LIABILITIES:
Deposits:
Checking accounts . . . . . . . . . . . . . . . . . . . . . . . $ 395,550 $ 417,290
Savings and money market accounts . . . . . . . . . . . . . . . 1,150,129 1,213,161
Certificates of deposit . . . . . . . . . . . . . . . . . . . . 2,852,579 2,737,794
----------- -----------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . 4,398,258 4,368,245
Advance payments by borrowers for taxes and insurance . . . . . . . . 13,972 26,683
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . 10,939 9,811
Accrued expenses and other liabilities . . . . . . . . . . . . . . . 48,857 37,591
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,432,473 1,318,737
----------- -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . 5,904,499 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 March 31, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . 226 226
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 127,081 127,081
Retained earnings - substantially restricted . . . . . . . . . . . . 310,367 297,031
Less 132,887 and 43,187 shares of common stock held in treasury at
March 31, 1995 and December 31, 1994, respectively, at cost . . . (2,594) (841)
Net unrealized loss on securities, net of tax benefit
of $23,840 and $28,525, at March 31, 1995 and December 31,
1994, respectively . . . . . . . . . . . . . . . . . . . . . . . (45,687) (54,392)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . 389,393 369,105
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . $ 6,293,892 $ 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 MARCH 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
INTEREST INCOME:
Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . $ 72,249 $ 62,570
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . 38,750 23,170
Other securities . . . . . . . . . . . . . . . . . . . . . . . . 3,273 1,903
Short-term investments and other . . . . . . . . . . . . . . . . 1,409 869
----------- -----------
TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . . 115,681 88,512
----------- -----------
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,872 39,010
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,474 7,577
----------- -----------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . 69,346 46,587
----------- -----------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . 46,335 41,925
Provision for loan and lease losses . . . . . . . . . . . . . . . . . 258 652
----------- -----------
Net interest income after provision for loan and lease losses . . . . 46,077 41,273
----------- -----------
OTHER INCOME:
Loan servicing fees . . . . . . . . . . . . . . . . . . . . . . 1,205 1,401
Service fees and other charges . . . . . . . . . . . . . . . . . 4,534 3,984
Leasing operations . . . . . . . . . . . . . . . . . . . . . . . 1,712
Net gain from sales of:
Securities . . . . . . . . . . . . . . . . . . . . . . . . . 26 973
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 346
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 121
----------- -----------
TOTAL OTHER INCOME . . . . . . . . . . . . . . . . . . . 7,752 6,825
----------- -----------
OTHER EXPENSES:
Salaries and employee benefits . . . . . . . . . . . . . . . . . 12,719 10,017
Net occupancy and equipment . . . . . . . . . . . . . . . . . . 3,701 3,347
Federal deposit insurance premiums . . . . . . . . . . . . . . . 2,477 2,381
State franchise tax . . . . . . . . . . . . . . . . . . . . . . 1,573 1,438
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . 1,015 848
Other administrative expenses . . . . . . . . . . . . . . . . . 5,532 6,258
----------- -----------
TOTAL OTHER EXPENSES . . . . . . . . . . . . . . . . . . 27,017 24,289
----------- -----------
Income before federal income taxes . . . . . . . . . . . . . . . . . 26,812 23,809
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . 9,014 7,908
----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 17,798 $ 15,901
=========== ===========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE . . . . . . . . . . . . . . . . . . . . . . . . $ 0.77 $ 0.69
=========== ===========
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . 23,001,061 23,171,506
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 5
CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 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 190,000 shares of treasury stock . . . . . . (3,710) (3,710)
Treasury stock reissued in connection with:
Stock options exercised, 58,525 shares . . . . . . . (635) 1,142 507
Acquisition, 41,775 shares . . . . . . . . . . . . . (7) 815 808
Dividends paid ($0.17 per share) . . . . . . . . . . . . (3,820) (3,820)
Change in net unrealized loss on securities,
net of tax benefit . . . . . . . . . . . . . . . . . 8,705 8,705
Net income . . . . . . . . . . . . . . . . . . . . . . . 17,798 17,798
---- -------- -------- ------- -------- --------
Balance, March 31, 1995 . . . . . . . . . . . . . . . . . $226 $127,081 $310,367 $(2,594) $(45,687) $389,393
==== ======== ======== ======= ======== ========
</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>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,798 $ 15,901
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan and lease losses . . . . . . . . . . . . . . 258 652
Net gains from sales of real estate, securities,
loans and other . . . . . . . . . . . . . . . . . . . . . (242) (1,319)
Accretion of discounts, amortization of premiums and
depreciation, net . . . . . . . . . . . . . . . . . . . . . 4,994 (355)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,917 12,230
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . 27,725 27,109
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net principal disbursed on loans . . . . . . . . . . . . . . . . . . (34,482) (100,231)
Proceeds from principal repayments and maturities of:
Mortgage-backed and other securities held to maturity . . . . . 15,010 103,440
Mortgage-backed and other securities available for sale . . . . 9,044 171,951
Proceeds from sales of mortgage-backed and other
securities available for sale . . . . . . . . . . . . . . . . . 26 49,025
Purchases of:
Mortgage-backed and other securities available
for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33,960) (612,161)
Mortgage-backed securities held to maturity . . . . . . . . . . (19,484) (403)
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (143) (17,221)
Net cash paid in connection with acquisitions . . . . . . . . . . . . (9,969)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,309) 1,887
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . (78,267) (403,713)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . 64,533 425,271
Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . (43,796) (5,738)
Net increase in securities sold under agreements to
repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,740
Increase (decrease) in, net of acquisition:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,363 (40,388)
Advance payments by borrowers for taxes and insurance . . . . . (12,711) (11,341)
Payment of dividends on common stock . . . . . . . . . . . . . . . . (3,820) (2,704)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . 231
Purchase of treasury stock, net . . . . . . . . . . . . . . . . . . . (3,203)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . 31,366 387,071
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . (19,176) 10,467
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD . . . . . . . . 236,972 205,191
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD . . . . . . . . . . . $ 217,796 $215,658
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid during the period for interest on deposits
and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,568 $ 46,514
========= ========
</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 March 31, 1995 and for the quarter then ended, the recorded
investment in loans that are considered to be impaired under SFAS No.
114 was $1.7 million (which have an allowance of $1.1 million under
SFAS No. 114). Income recorded for the quarter ended March 31, 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
collecibility 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 is probable that a creditor will be
unable to collect all amounts due accordingly to the contractual terms
of the loan agreement. The Bank performs a review of all loans over
$500,000 to determine if the impairment cirteria have been met. If the
impairment cirteria 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.
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.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HOLDING COMPANY BUSINESS
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.
RESULTS OF OPERATIONS
PERFORMANCE OVERVIEW - Figure 1 presents the components of earnings per common
and common equivalent share for the first quarters of 1995 and 1994. Net income
for the first quarter of 1995 was $17.8 million, or $.77 per share, up from
$15.9 million, or $.69 per share for the first quarter of 1994. The annualized
return on average equity for 1995 was 18.89%, up from 16.79% for 1994. The
annualized return on average assets was 1.15% for 1995, down from 1.20% for
1994.
The increase in earnings per share for the 1995 first quarter over the 1994
first quarter was primarily the result of a 10.5% increase in net interest
income. Net interest income for 1995 benefited from a higher level of
interest-earning assets, primarily mortgage-backed securities, loans and leases.
The increase in mortgage-backed securities resulted from an investment strategy
to borrow variable-rate funds and invest those funds in variable-rate
mortgage-backed securities. The increase in loans and leases resulted from the
acquisition of a leasing company at the beginning of the first quarter of 1995.
A decrease in the provision for loan and lease losses in the first quarter of
1995 versus the 1994 first quarter, reflecting improved asset quality, also
contributed to the increase in earnings per share. Other income for the first
quarter of 1995 increased by $927,000, or 13.6%, over the 1994 first quarter,
reflecting increases in retail deposit account service charges and fees as well
as income from leasing operations acquired at the beginning of the 1995 first
quarter. These items more than offset lower gains on sale in the 1995 period and
contributed to the increase in per share earnings.
Other expenses for the first quarter of 1995 increased by $2.7 million, or
11.2%, 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>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
----------- -------------
<S> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . $5.03 $3.82
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 3.02 2.01
----- -----
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . 2.01 1.81
Provision for loan and lease losses . . . . . . . . . . . . . . . . . 0.01 0.03
----- -----
Net interest income after provision for loan and lease
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.00 1.78
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.33 0.29
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.17 1.04
----- -----
Income before federal income taxes . . . . . . . . . . . . . . . . . 1.16 1.03
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . 0.39 0.34
----- -----
Earnings per common and common equivalent share . . . . . . . . . . . $0.77 $0.69
===== =====
</TABLE>
6
<PAGE> 9
SELECTED OPERATING RATIOS (Figure 2)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Return on average assets (annualized) . . . . . . . . . . . . . . . . 1.15% 1.20%
Return on average equity (annualized) . . . . . . . . . . . . . . . . 18.89 16.79
Net interest income to other expenses . . . . . . . . . . . . . . . . 1.72x 1.73x
Other expenses to average assets (annualized) . . . . . . . . . . . . 1.74% 1.83%
Efficiency ratio(1) . . . . . . . . . . . . . . . . . . . . . . . . . 50.18 51.21
</TABLE>
(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.
7
<PAGE> 10
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 MARCH 31,
-------------------------------------------------------------------
1995 1994
----------------------------- --------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loan and lease portfolio,
net(1) . . . . . . . . . . . $3,601,383 $ 72,249 8.02% $3,268,707 $62,570 7.66%
Mortgage-backed securities . . 2,039,017 38,750 7.60 1,558,866 23,170 5.95
Other securities . . . . . . . 193,309 3,273 6.77 159,143 1,903 4.78
Short-term investments and
other interest-earning
assets(2) . . . . . . . . . 96,120 1,409 5.86 109,693 869 3.17
---------- -------- ---------- -------
Total . . . . . . . . . . 5,929,829 115,681 7.80 $5,096,409 88,512 6.95
Non-interest-earning assets . . 269,338 ------- 216,181 -------
---------- ----------
Total assets . . . . . . $6,199,167 $5,312,590
========== ==========
INTEREST-BEARING LIABILITIES:
Deposits:
Checking . . . . . . . . . $ 387,286 1,318 1.36 $387,112 1,397 1.44%
Savings and money market . 1,175,757 8,442 2.87 1,289,271 8,380 2.60
Certificates of deposit . . 2,781,490 38,112 5.48 2,460,935 29,233 4.75
---------- -------- ---------- -------
Total deposits . . . . . 4,344,533 47,872 4.41 4,137,318 39,010 3.77
Borrowings . . . . . . . . . . 1,417,138 21,474 6.06 736,884 7,577 4.11
---------- -------- ---------- -------
Total . . . . . . . . . . 5,761,671 69,346 4.81 4,874,202 46,587 3.82
Non-interest-bearing -------- ------
liabilities . . . . . . . . 60,645 59,497
---------- ----------
Total liabilities . . . . 5,822,316 4,933,699
Shareholders' equity . . . . . 376,851 378,891
---------- ----------
Total liabilities and
shareholders' equity . . $6,199,167 $5,312,590
========== ==========
Net interest income . . . . . . $ 46,335 $41,925
======== =======
Interest rate spread . . . . . 2.99 3.13
Net yield on average
interest-earning assets(3) . 3.13 3.29
Average interest-earning
assets to average interest-
bearing liabilities . . . . 102.92% 104.56%
</TABLE>
(1) 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) Net interest income divided by the average balance of interest-earning
assets.
8
<PAGE> 11
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 MARCH 31,
1995 V. 1994
------------------------------------
INCREASE (DECREASE) DUE TO
------------------------------------
RATE VOLUME TOTAL
------- -------- -------
<S> <C> <C> <C>
INTEREST INCOME ON INTEREST-EARNING ASSETS:
Loans and leases . . . . . . . . . . . . . . . . . . . . . $ 3,103 $ 6,576 $ 9,679
Mortgage-backed securities . . . . . . . . . . . . . . . . 7,399 8,181 15,580
Other securities . . . . . . . . . . . . . . . . . . . . . 904 466 1,370
Short-term investments and other
interest-earning assets . . . . . . . . . . . . . . . . 660 (120) 540
------- ------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . 12,066 15,103 27,169
------- ------- ------
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES:
Deposits:
Checking . . . . . . . . . . . . . . . . . . . . . . . . (80) 1 (79)
Savings and money market . . . . . . . . . . . . . . . . 788 (726) 62
Certificates of deposit . . . . . . . . . . . . . . . . 4,803 4,076 8,879
------- ------- ------
Total deposits . . . . . . . . . . . . . . . . . . 5,511 3,351 8,862
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . 4,712 9,185 13,897
------- ------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . 10,223 12,536 22,759
------- ------- ------
Change in net interest income . . . . . . . . . . . . . . . $ 1,843 $ 2,567 $ 4,410
======= ======= =======
</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 quarter of 1995 increased $4.4 million, or
10.5%, over the 1994 first quarter. The growth reflected a higher level of
interest-earning assets offset by a decline in the interest rate spread and net
yield on interest-earning assets.
The growth in the balances of interest-earning assets, in part, 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 net
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 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 quarter 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.
The growth in the balances of interest-earning assets also reflects efforts by
management to increase the loan and lease portfolio. At the beginning of the
1995 first quarter, the Company acquired a leasing company, adding $76.9
9
<PAGE> 12
million in lease financings. Loan repayments for the first quarter of 1995
declined significantly from the first quarter of 1994 because of the reduced
level of refinancings brought on by higher interest rates. In addition, loans
originated by the Company are being retained for the portfolio.
While net interest income increased for the first quarter of 1995 as compared to
the 1994 first quarter, the interest rate spread declined 14 basis points to
2.99% from 3.13%. The spread was adversely impacted by increases in the general
level of interest rates, as the cost of the Bank's interest-bearing liabilities
increased more than the yield on the Bank's 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 MARCH 31,
----------------------------
(DOLLARS IN THOUSANDS) 1995 1994
------------- ------------
<S> <C> <C>
Loan servicing fees . . . . . . . . . . . . . . . . . . . . . . . . . $1,205 $1,401
Service fees and other charges:
Retail deposit account service charges and fees . . . . . . . . . 3,766 2,934
Fees on insurance annuity sales . . . . . . . . . . . . . . . . . 515 718
Other branch service fees . . . . . . . . . . . . . . . . . . . . 204 218
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 49 114
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,534 3,984
------ ------
Leasing operations . . . . . . . . . . . . . . . . . . . . . . . . . 1,712
Net gain from sales of:
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 313
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 973
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 32
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 1,319
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 121
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,752 $6,825
====== ======
</TABLE>
OTHER INCOME - Other income for the first quarter of 1995 increased by $927,000,
or 13.6%, over the 1994 first quarter. As shown in Figure 5, other income from
leasing operations, which were acquired by the Company at the beginning of 1995,
totals $1.7 million, and service fees and other charges increased $550,000 over
the 1994 first quarter, while gains on sale declined by $1.1 million from the
1994 first quarter.
Loan servicing fee income declined 14% in the first quarter of 1995 from the
1994 first quarter 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.
The 13.8% increase in service fees and other charges for the first quarter of
1995 over the 1994 first quarter was 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 per transaction charges for checking accounts and ATM
transactions resulted in a 28.4% 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.
10
<PAGE> 13
The operations of the Company's leasing subsidiary, ICX Corporation, include
financing and operating leases of capital equipment. Rentals, net of
depreciation, from assets on operating leases and gross profit on sales-type
financing leases are combined and reported as other income from leasing
operations.
Net gains from sales for the first quarter of 1995 decreased by $1.1 million
from the 1994 first quarter. During the first quarter of 1994, the Company sold
several mortgage-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.
OTHER EXPENSES (Figure 6)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
(DOLLARS IN THOUSANDS) 1995 1994
------------ -----------
<S> <C> <C>
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . $12,719 $10,017
Net occupancy and equipment . . . . . . . . . . . . . . . . . . . . . 3,701 3,347
Federal deposit insurance premiums . . . . . . . . . . . . . . . . . 2,477 2,381
State franchise tax . . . . . . . . . . . . . . . . . . . . . . . . . 1,573 1,438
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,015 848
Other administrative expenses . . . . . . . . . . . . . . . . . . . . 5,532 6,258
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,017 $24,289
======= =======
Number of full-time equivalent employees as of
March 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,458 1,380
Net interest income to other expenses . . . . . . . . . . . . . . . . 1.72x 1.73x
Other expenses to average assets (annualized) . . . . . . . . . . . . 1.74% 1.83%
Efficiency Ratio(1) . . . . . . . . . . . . . . . . . . . . . . . . . 50.18 51.21
</TABLE>
(1) Other expenses divided by the sum of net interest income before
provision for loan losses and other income exclusive of net gain or
loss from sales.
OTHER EXPENSES - As shown in Figure 6, other expenses for the first quarter of
1995 increased by $2.7 million, or 11.2%, primarily due to higher salaries and
employee benefits expense. Salaries and employee benefits expense increased by
$2.7 million, or 27.0%, primarily due to lower one-to-four family loan
originations in the first quarter of 1995 as compared to the 1994 first quarter
and the acquisitions of ICX Corporation and the Bank's computer service bureau.
One-to-four family permanent loan originations declined 70.9% from the 1994
first quarter, 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.
11
<PAGE> 14
FEDERAL INCOME TAXES - The provision for federal income taxes for the first
quarter of 1995 increased by $1.1 million over the 1994 first quarter due to
higher pre-tax income for the 1995 period. The effective tax rates were
comparable at 33.6% and 33.2% for first quarters of 1995 and 1994, respectively.
FINANCIAL CONDITION
Figure 7 sets forth information concerning the composition of the
Company's assets, liabilities and shareholders' equity at March 31, 1995 and
December 31, 1994.
FINANCIAL CONDITION (Figure 7)
<TABLE>
<CAPTION>
AT MARCH 31, 1995 AT DECEMBER 31, 1994
-------------------------- --------------------------
% OF % OF
(DOLLARS IN THOUSANDS) AMOUNT TOTAL AMOUNT TOTAL
---------- ------- ----------- --------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents . . . . . . . . $ 217,796 3.5% $ 236,972 3.8%
Mortgage-backed and other
securities . . . . . . . . . . . . . . 2,180,863 34.6 2,138,012 34.9
Loans and leases, net . . . . . . . . . . 3,625,647 57.6 3,542,539 57.8
Other assets . . . . . . . . . . . . . . 269,586 4.3 212,649 3.5
---------- ----- ---------- -----
Total . . . . . . . . . . . . . . $6,293,892 100.0% $6,130,172 100.0%
========== ===== ========== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits . . . . . . . . . . . . . . . . $4,398,258 69.9 $4,368,245 71.3
Other liabilities . . . . . . . . . . . . 73,768 1.2 74,085 1.2
Borrowings . . . . . . . . . . . . . . . 1,432,473 22.7 1,318,737 21.5
Shareholders' equity . . . . . . . . . . 389,393 6.2 369,105 6.0
---------- ----- ---------- -----
Total . . . . . . . . . . . . . . $6,293,892 100.0% $6,130,172 100.0%
========== ===== ========== =====
</TABLE>
OVERVIEW - Total assets increased $163.7 million from December 31, 1994 mainly
due to higher levels of loans and leases, securities and equipment on operating
leases. Loans and leases increased $83.1 million and other assets, which
includes equipment on operating leases, increased by $56.9 million. These
increases were largely the result of the acquisition of ICX Corporation, the
Company's leasing subsidiary, on January 3, 1995. Financing leases acquired
totalled $76.9 million and equipment on operating leases totalled $29.0.
Securities increased by $ 42.9 million. The increase in assets was funded by
increases in borrowings and deposits.
12
<PAGE> 15
COMPOSITION OF LOANS AND LEASES (Figure 8)
<TABLE>
<CAPTION>
AT MARCH 31, 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 . . . . . . . . . $2,661,665 73.4% $ 2,647,098 74.7%
Multi-family . . . . . . . . . . . . . 163,777 4.5 162,801 4.6
Commercial . . . . . . . . . . . . . . 229,581 6.3 231,353 6.5
Construction . . . . . . . . . . . . . 119,928 3.3 127,576 3.6
---------- ----- ----------- -----
Total real estate . . . . . . . . 3,174,951 87.5 3,168,828 89.4
Consumer . . . . . . . . . . . . . . . 391,071 10.8 382,492 10.8
Lease financings . . . . . . . . . . . . 92,336 2.5
Business . . . . . . . . . . . . . . . 52,691 1.5 84,307 2.4
---------- ----- ----------- -----
Total loans and leases . . . . . 3,711,049 102.3 3,635,627 102.6
Less net items . . . . . . . . . . . . . 85,402 2.3 93,088 2.6
---------- ----- ----------- -----
Loans and leases, net . . . . . . . . . . $3,625,647 100.0% $ 3,542,539 100.0%
========== ===== =========== =====
</TABLE>
LOANS AND LEASES - Total loans and leases outstanding at March 31, 1995 were
$3.6 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. By the end of the 1995 first
quarter the lease portfolio totaled $92.3 million, or 2.5% of total loans and
leases.
One-to-four family real estate loan outstandings increased slightly from
December 31, 1994. Increased 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 activity in the first quarter of 1994 was
heavily impacted by refinancings.
13
<PAGE> 16
LOAN AND LEASE ACTIVITY (Figure 9)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
ORIGINATIONS:
Real estate:
Permanent:
One- to four-family . . . . . . . . . . . . . . . . . . $ 65,798 $226,190
Multi-family . . . . . . . . . . . . . . . . . . . . . . 6,392 21,331
Commercial . . . . . . . . . . . . . . . . . . . . . . . 3,317 2,459
-------- --------
Total permanent . . . . . . . . . . . . . . . . . . 75,507 249,980
-------- --------
Construction:
One- to four-family . . . . . . . . . . . . . . . . . . 16,124 24,535
Multi-family . . . . . . . . . . . . . . . . . . . . . . 1,506 88
Commercial . . . . . . . . . . . . . . . . . . . . . . . 4,592
-------- --------
Total construction loans . . . . . . . . . . . . . . 22,222 24,623
-------- --------
Total real estate loans originated . . . . . . . . 97,729 274,603
Consumer line of credit draws . . . . . . . . . . . . . . . 27,161 28,392
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . 17,185 47,845
Business line of credit draws . . . . . . . . . . . . . . . 7,872 17,031
Business . . . . . . . . . . . . . . . . . . . . . . . . . . 3,223 3,041
Lease financings(1) . . . . . . . . . . . . . . . . . . . . 21,879
-------- --------
Total loans and lease financings originated . . . . 175,049 370,912
-------- --------
PURCHASES:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 690
Lease financings(1) . . . . . . . . . . . . . . . . . . . . . . 76,912
-------- --------
Total purchases . . . . . . . . . . . . . . . . . . . . 76,980 690
-------- --------
SALES AND PRINCIPAL REDUCTIONS:
Loans sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 441 992
Principal reductions . . . . . . . . . . . . . . . . . . . . . . 147,906 258,052
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,260
-------- --------
Total sales and principal reductions . . . . . . . . . . 176,607 259,044
-------- --------
INCREASE BEFORE NET ITEMS . . . . . . . . . . . . . . . . . . . . . . $ 75,422 $112,558
======== ========
</TABLE>
(1) Not included herein are $13.1 million in operating leases originated during
the first quarter of 1995 and $29.0 million in operating leases purchased in
the acquisition of ICX Corporation.
SECURITIES (Figure 10)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1995 1994
---------- ----------
<S> <C> <C>
Mortgage-backed securities:
Variable rate . . . . . . . . . . . . . . . . . . . . . . . . . . $1,490,613 $1,498,252
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556,837 540,346
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,047,450 2,038,598
---------- ----------
Other securities:
U.S. Government and Federal agency obligations . . . . . . . . . . 105,350 71,688
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,063 27,726
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,413 99,414
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,180,863 $2,138,012
========== ==========
</TABLE>
14
<PAGE> 17
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 March 31, 1995 increased by $42 million from December 31, 1994, the
result of an increase in the portfolio of U.S. Government and Federal agency
obligations held by the Company to meet its legal liquidity requirements.
ASSET QUALITY
ANALYSIS OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES (Figure 11)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . $36,870 $35,072
Provision for loan and lease losses . . . . . . . . . . . . . . . . . 258 652
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
Loans and leases charged-off:
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . (613) (202)
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28) (76)
Lease financings . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . .
------- -------
Total charge-offs . . . . . . . . . . . . . . . . . . . (641) (278)
------- -------
Recoveries:
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . 221 100
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 11
Lease financings . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
------- -------
Total recoveries . . . . . . . . . . . . . . . . . . . . 222 145
------- -------
Net loan and lease charge-offs . . . . . . . . . . . . . . . . . . . (419) (133)
------- -------
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . $36,885 $35,591
======= =======
Net charge-offs to average loans and leases (annualized) . . . . . . .05% .02%
Net charge-offs to provision for loan and lease losses . . . . . . . 162.40 20.40
</TABLE>
15
<PAGE> 18
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES (Figure 12)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1995 1994 1994
--------- ----------- ---------
<S> <C> <C> <C>
Real estate . . . . . . . . . . . . . . . . . . . $30,422 $30,638 $29,767
Consumer . . . . . . . . . . . . . . . . . . . . 1,515 1,512 1,335
Lease financings . . . . . . . . . . . . . . . . 183
Business . . . . . . . . . . . . . . . . . . . . 4,765 4,720 4,489
------- ------- -------
Total . . . . . . . . . . . . . . . . . . $36,885 $36,870 $35,591
======= ======= =======
Ratio of ending allowance to ending loans
and leases (before allowance for
loan and lease losses):
Real estate . . . . . . . . . . . . . . . . . .97% .98% 1.00%
Consumer . . . . . . . . . . . . . . . . . . . .39% .39% .44%
Lease financings . . . . . . . . . . . . . . . .20%
Business . . . . . . . . . . . . . . . . . . . 9.07% 5.61% 7.14%
Total . . . . . . . . . . . . . . . . . . 1.01% 1.03% 1.06%
</TABLE>
The allowance for loan and lease losses as a percentage of ending loans and
leases was 1.01% at March 31, 1995, down slightly from 1.03% at December 31,
1994, reflecting the 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.
16
<PAGE> 19
Figure 13 sets forth information concerning non-performing assets and the
allowance for loan and lease losses. At March 31, 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>
MARCH 31, 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 . . . . . . . . . . . . . . . . . . $ 8,034 $ 8,380
Multi-family and commercial . . . . . . . . . . . . . . . 2,380 4,548
Construction and land . . . . . . . . . . . . . . . . . . 1,850 2,596
-------- --------
Total real estate . . . . . . . . . . . . . . . . . . . . . . 12,264 15,524
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 77
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . 12,343 15,606
Accruing loans and leases delinquent more than 90 days:
Real estate:
One- to four- family . . . . . . . . . . . . . . . . . . 2,444 2,781
Multi-family and commercial . . . . . . . . . . . . . . . 853 855
Construction and land . . . . . . . . . . . . . . . . . . 207
-------- --------
Total real estate . . . . . . . . . . . . . . . . . . . . . . 3,297 3,843
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 255
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 17
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 3,549 4,115
Restructured real estate loans . . . . . . . . . . . . . . . . . . 7,956 7,976
-------- --------
Total non-performing loans and leases . . . . . . . . . . . . . . 23,848 27,697
REPOSSESSED ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 9,364 10,531
-------- --------
Total non-performing assets . . . . . . . . . . . . . . . . . . . $33,212 $38,228
======== ========
Non-performing loans and leases as a percent of
total loans and leases . . . . . . . . . . . . . . . . . . . . . . .66% .78%
Non-performing assets as a percent of total assets . . . . . . . . . .53 .62
Allowance for loan and lease losses to non-performing
loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . 154.67 133.12
Reserve ratio (percentage of ending allowance for
loan and lease losses to ending loan and lease
balance before allowance for loan and lease losses) . . . . . . . 1.01 1.03
</TABLE>
Non-performing assets at March 31, 1995 totaled $33.2 million, down 13.1% 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 March 31,
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.
17
<PAGE> 20
At March 31, 1995, there were $23.5 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 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>
MARCH 31, 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 . . . . . . $ 253,934 2.10% 5.8% $ 269,023 2.10% 6.2%
Non-interest bearing . . . . 141,616 3.2 148,267 3.4
Savings . . . . . . . . . . . . 586,854 2.56 13.4 621,530 2.56 14.2
Money market accounts . . . . . 563,275 3.27 12.8 591,631 3.17 13.6
---------- ---- ---------- ----
Total checking, savings
and money market . . . 1,545,679 2.51 35.2 1,630,451 2.47 37.4
---------- ---- ---------- ----
Certificates:
Less than $100,000:
4.00% or less . . . . . . . 69,627 3.05 1.6 203,176 3.58 4.7
4.01%-6.00% . . . . . . . . 1,498,802 5.09 34.1 1,661,008 4.97 38.1
6.01%-8.00% . . . . . . . . 897,330 6.67 20.4 484,404 6.65 11.1
8.01%-10.00% . . . . . . . 99,208 8.64 2.3 110,727 8.64 2.5
10.01%-12.00% . . . . . . . 32,582 11.32 .7 35,700 11.23 .8
12.01%-14.00% . . . . . . . 352 12.83 347 12.82
---------- ---- ---------- ----
Total . . . . . . . . . . 2,597,901 5.79 59.1 2,495,362 5.44 57.2
---------- ---- ---------- ----
$100,000 or more:
4.00% or less . . . . . . . 7,630 3.37 .2 19,173 3.57 .4
4.01%-6.00% . . . . . . . . 125,156 5.20 2.8 144,118 5.10 3.3
6.01%-8.00% . . . . . . . . 100,358 6.76 2.3 57,221 6.73 1.3
8.01%-10.00% . . . . . . . 12,461 8.86 .3 11,925 8.86 .3
10.01%-12.00% . . . . . . . 4,586 10.58 .1 5,158 10.60 .1
---------- ---- ---------- ----
Total . . . . . . . . . . 250,191 6.05 5.7 237,595 5.67 5.4
---------- ---- ---------- ----
Total certificates . . . 2,848,092 5.82 64.8 2,732,957 5.46 62.6
---------- ---- ---------- ----
Total deposits . . . . . . . . 4,393,771 4.65 100.0% 4,363,408 4.34 100.0%
===== =====
Plus premium on deposits
purchased . . . . . . . . . 4,487 4,837
---------- ----------
Total . . . . . . . . . . $4,398,258 $4,368,245
========== ==========
</TABLE>
18
<PAGE> 21
The average balance of deposits increased by $207.2 million, or 5.0 % for the
first quarter of 1995 over the 1994 first quarter. The outstanding balance of
deposits at March 31, 1995 increased by $30.0 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 March 31, 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 quarter of 1995
increased by $680.3 million over the first quarter 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
March 31, 1995, the Bank's one-year gap was a negative 5.4%.
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 March 31, 1995 was 6.34%.
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 March 31,
1995, the Bank and its subsidiaries had outstanding commitments to originate
loans and leases of $130.8 million, unfunded lines of consumer credit totalling
$270.9 million (a significant portion of which normally remains undrawn) and
unfunded lines of commercial (business loans) credit totalling $17.4 million.
Certificates of deposit scheduled to mature in one year or less at March 31,
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 March 31, 1995, the Bank had $487.3 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.
19
<PAGE> 22
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 MARCH 31, 1995
------------------------------------------------------
ACTUAL CAPITAL REQUIRED CAPITAL
----------------------- --------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Capital Adequacy:
Tangible capital . . . . . . . . . . . $382,665 6.13% 93,712 1.50%
Core capital . . . . . . . . . . . . . 382,665 6.13 187,425 3.00
Risk-based capital . . . . . . . . . . 416,101 13.03 255,494 8.00
Prompt Corrective Action:
Tier 1 leverage capital . . . . . . . 382,665 6.13 249,900 4.00
Tier 1 risk-based capital . . . . . . 382,665 11.98 127,747 4.00
Total risk-based capital . . . . . . . 416,101 13.03 255,494 8.00
</TABLE>
Management believes, as of March 31, 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 FIRST SECOND THIRD FOURTH YEAR
------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
High . . . . . . . . . . . . . $20.25 $20.25 $23.37 $24.00 $21.00 $24.00
Low . . . . . . . . . . . . . . 17.75 17.75 18.00 19.12 17.75 17.75
Dividends declared and paid . . .17 .12 .15 .15 .17 .59
</TABLE>
The Company's common stock trades on the NASDAQ National Market System under
the symbol COFI. As of May 10, 1995, there were 4,350 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 March 31, 1995, 238,000 shares had been repurchased
under this authorization.
20
<PAGE> 23
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 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 May 23, 1995 to shareholders of record as of May 8, 1995. The Board
of Directors anticipates declaring quarterly dividends as earnings permit.
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 January 18, 1995 was filed to report
the retirement of the Company's Chairman of the Board of
Directors.
21
<PAGE> 24
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: May 12, 1995 By: /s/ Robert J. Vana
------------------------------
Robert J. Vana
Chief Corporate Counsel
and Secretary
Date: May 12, 1995 By: /s/ Leonard A. Krysinski
------------------------------
Leonard A. Krysinski
Senior Vice President and
Treasurer
22
<PAGE> 1
EXHIBIT 11
CHARTER ONE FINANCIAL, INC.
COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1995 MARCH 31, 1994
-------------- --------------
<S> <C> <C>
COMPUTATION OF PRIMARY EARNINGS PER SHARE:
Weighted average number of common shares outstanding . . . . . 22,479,886 22,548,177
Add common stock equivalents for shares issuable
under:
Stock Appreciation Rights Plan(1) . . . . . . . . . . . . . 62,972 109,450
Stock Option Plan(1) . . . . . . . . . . . . . . . . . . . . 458,203 513,879
----------- -----------
Weighted average number of shares outstanding
adjusted for common stock equivalents . . . . . . . . . 23,001,061 23,171,506
=========== ===========
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,798 $ 15,901
=========== ===========
Primary earnings per share . . . . . . . . . . . . . . . . . . $ 0.77 $ 0.69
=========== ===========
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . 22,479,926 22,570,463
Add common stock equivalents for shares issuable
under:
Stock Appreciation Rights Plan(2) . . . . . . . . . . . . . 93,685 126,728
Stock Option Plan(2) . . . . . . . . . . . . . . . . . . . . 458,385 497,091
----------- -----------
Weighted average number of shares outstanding
adjusted for common stock equivalents . . . . . . . . . 23,031,996 23,194,282
=========== ===========
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,798 $ 15,901
=========== ===========
Fully diluted earnings per share . . . . . . . . . . . . . . . $ 0.77 $ 0.69
=========== ===========
</TABLE>
(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.
23
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 69,034
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 148,762
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 511,003
<INVESTMENTS-CARRYING> 1,669,860
<INVESTMENTS-MARKET> 1,693,192
<LOANS> 3,662,532
<ALLOWANCE> 36,885
<TOTAL-ASSETS> 6,293,892
<DEPOSITS> 4,398,258
<SHORT-TERM> 0
<LIABILITIES-OTHER> 73,768
<LONG-TERM> 1,432,473
<COMMON> 226
0
0
<OTHER-SE> 389,167
<TOTAL-LIABILITIES-AND-EQUITY> 6,293,892
<INTEREST-LOAN> 72,249
<INTEREST-INVEST> 42,023
<INTEREST-OTHER> 1,409
<INTEREST-TOTAL> 115,681
<INTEREST-DEPOSIT> 47,872
<INTEREST-EXPENSE> 69,346
<INTEREST-INCOME-NET> 46,335
<LOAN-LOSSES> 258
<SECURITIES-GAINS> 26
<EXPENSE-OTHER> 27,017
<INCOME-PRETAX> 26,812
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,798
<EPS-PRIMARY> .77
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.13
<LOANS-NON> 12,343
<LOANS-PAST> 3,549
<LOANS-TROUBLED> 7,956
<LOANS-PROBLEM> 23,500
<ALLOWANCE-OPEN> 36,870
<CHARGE-OFFS> 641
<RECOVERIES> 222
<ALLOWANCE-CLOSE> 36,885
<ALLOWANCE-DOMESTIC> 36,885
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
