<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 SEPTEMBER 30, 1995
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ---- TO ----
COMMISSION FILE NUMBER 0-16311
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 October 24, 1995 was 22,395,063.
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<TABLE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<CAPTION>
PAGE
----
<S> <C> <C>
ITEM 1. Financial Statements
--------------------
Consolidated Statements of Financial Condition --
September 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . 1
Consolidated Statements of Income --
Three and nine month periods ended September 30, 1995 and 1994 . . . 2
Consolidated Statements of Changes in Shareholders' Equity --
Nine months ended September 30, 1995 . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows --
Nine months ended September 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
--------------------------------
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
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<TABLE>
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)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS:
Cash and deposits with banks . . . . . . . . . . . . . . . . . . . . $ 78,255 $ 126,829
Federal funds sold and other . . . . . . . . . . . . . . . . . . . . 64,030 110,143
----------- -----------
Total cash and cash equivalents . . . . . . . . . . . . 142,285 236,972
Mortgage-backed and other securities:
Mortgage-backed securities available for sale
(amortized cost of $239,223 and $406,831 at September 30, 1995
and December 31, 1994, respectively) . . . . . . . . . . . . 229,620 373,477
Mortgage-backed securities held to maturity (fair
value of $1,739,565 and $1,633,988 at September 30, 1995 and
December 31, 1994, respectively) . . . . . . . . . . . . . . 1,671,813 1,665,121
Other securities available for sale (amortized
cost of $151,792 and $99,368 at September 30, 1995 and
December 31, 1994, respectively) . . . . . . . . . . . . . . 154,648 99,414
Loans and leases, net (including allowance for loan and lease
losses of $37,354 and $36,870 at September 30, 1995 and
December 31, 1994, respectively) . . . . . . . . . . . . . . . . 3,912,885 3,542,539
Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . 73,032 68,009
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . 60,831 57,472
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . 30,834 26,852
Real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . 7,785 10,617
Equipment on operating leases . . . . . . . . . . . . . . . . . . . . 35,301
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,424 49,699
---------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . $6,394,458 $6,130,172
========== ==========
LIABILITIES:
Deposits:
Checking accounts . . . . . . . . . . . . . . . . . . . . . . . $ 416,523 $ 417,290
Savings and money market accounts . . . . . . . . . . . . . . . 1,099,783 1,213,161
Certificates of deposit . . . . . . . . . . . . . . . . . . . . 2,925,423 2,737,794
---------- ----------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . 4,441,729 4,368,245
Advance payments by borrowers for taxes and insurance . . . . . . . . 15,767 26,683
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . 14,412 9,811
Accrued expenses and other liabilities . . . . . . . . . . . . . . . 43,432 37,591
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,456,149 1,318,737
---------- ----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . 5,971,489 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 September 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . 226 226
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 127,081 127,081
Retained earnings - substantially restricted . . . . . . . . . . . . 337,804 297,031
Less 218,762 and 43,187 shares of common stock held
in treasury at September 30, 1995 and December 31,
1994, respectively, at cost . . . . . . . . . . . . . . . . . . (5,225) (841)
Net unrealized loss on securities, net of tax benefit
of $19,120 and $28,525, at September 30, 1995 and
December 31, 1994, respectively . . . . . . . . . . . . . . . . (36,917) (54,392)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . 422,969 369,105
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . $6,394,458 $6,130,172
========== ==========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
1
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<TABLE>
CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
---------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and leases . . . . . . . . . . . . . . . . . . $ 78,429 $ 67,472 $224,776 $194,574
Mortgage-backed securities . . . . . . . . . . . . . 36,518 30,429 114,980 82,592
Other securities . . . . . . . . . . . . . . . . . . 3,839 2,789 10,557 7,386
Short-term investments and other . . . . . . . . . . 1,064 1,017 4,260 2,778
-------- -------- -------- --------
TOTAL INTEREST INCOME . . . . . . . . . . . 119,850 101,707 354,573 287,330
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits. . . . . . . . . . . . . . . . . . . . . . . 53,006 42,905 152,693 121,617
Borrowings. . . . . . . . . . . . . . . . . . . . . . 21,843 13,581 65,298 33,306
-------- -------- -------- --------
TOTAL INTEREST EXPENSE . . . . . . . . . . . 74,849 56,486 217,991 154,923
-------- -------- -------- --------
Net interest income . . . . . . . . . . . . . . . . . . . 45,001 45,221 136,582 132,407
Provision for loan and lease losses . . . . . . . . . . . 258 735 774 2,228
-------- -------- -------- --------
Net interest income after provision for loan and
lease losses . . . . . . . . . . . . . . . . . . . . 44,743 44,486 135,808 130,179
-------- -------- -------- --------
OTHER INCOME:
Loan servicing fees . . . . . . . . . . . . . . . . 1,114 1,135 3,586 4,065
Service fees and other charges . . . . . . . . . . . 5,571 4,654 15,095 13,345
Leasing operations . . . . . . . . . . . . . . . . . 2,080 5,437
Net gain (loss) from sales of:
Securities . . . . . . . . . . . . . . . . . . . (48) 1,247 1 2,278
Other . . . . . . . . . . . . . . . . . . . . . 284 243 740 708
Other . . . . . . . . . . . . . . . . . . . . . . . 91 94 251 280
-------- -------- -------- --------
TOTAL OTHER INCOME . . . . . . . . . . . . 9,092 7,373 25,110 20,676
-------- -------- -------- --------
OTHER EXPENSES:
Salaries and employee benefits . . . . . . . . . . 11,964 11,721 36,475 32,457
Net occupancy and equipment . . . . . . . . . . . 3,739 3,292 10,939 9,890
Federal deposit insurance premiums . . . . . . . . 2,507 2,404 7,461 7,189
State franchise tax . . . . . . . . . . . . . . . 1,346 1,438 4,265 4,315
Marketing . . . . . . . . . . . . . . . . . . . . 1,030 1,016 2,795 2,803
Other administrative expenses . . . . . . . . . . 5,980 6,119 17,447 18,738
-------- -------- -------- --------
TOTAL OTHER EXPENSES . . . . . . . . . . . 26,566 25,990 79,382 75,392
-------- -------- -------- --------
Income before federal income taxes . . . . . . . . . . 27,269 25,869 81,536 75,463
Federal income taxes . . . . . . . . . . . . . . . . . 8,941 8,541 27,192 25,031
-------- -------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . $ 18,328 $ 17,328 $ 54,344 $ 50,432
======== ======== ======== ========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE . . . . . . . . . . . . . . . . . $ .80 $ .75 $ 2.36 $ 2.18
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING . . . . . . . . . . 23,000,076 23,227,983 23,015,958 23,166,136
========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE . . . . . . . . . . . . . $ .19 $ .15 $ .55 $ .42
======== ======== ======== ========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
2
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<TABLE>
CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1995
(Dollars in thousands, except per share data)
(UNAUDITED)
<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>
Balance, January 1, 1995 . . . . . . . . . . . . . . . . $226 $127,081 $297,031 $ (841) $(54,392) $369,105
Purchase of 320,000 shares of treasury stock . . . . . . (7,203) (7,203)
Treasury stock reissued in connection with:
Stock options exercised, 102,650 shares . . . . . . (1,186) 2,004 818
Acquisition, 41,775 shares . . . . . . . . . . . . . (7) 815 808
Dividends paid ($.55 per share) . . . . . . . . . . . . . (12,378) (12,378)
Change in net unrealized loss on securities,
net of tax benefit . . . . . . . . . . . . . . . . . 17,475 17,475
Net income . . . . . . . . . . . . . . . . . . . . . . . 54,344 54,344
---- -------- -------- ------- -------- --------
Balance, September 30, 1995 . . . . . . . . . . . . . . . $226 $127,081 $337,804 $(5,225) $(36,917) $422,969
==== ======== ======== ======= ======== ========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
3
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<TABLE>
CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1995 1994
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,344 $ 50,432
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan and lease losses . . . . . . . . . . . . . . . . . . 774 2,228
Net gains from sales of real estate, securities,
loans and other . . . . . . . . . . . . . . . . . . . . . . . . . (741) (2,986)
Accretion of discounts, amortization of premiums and
depreciation, net . . . . . . . . . . . . . . . . . . . . . . . . . 11,653 (2,082)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,687) 10,195
--------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . 60,343 57,787
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net principal disbursed on loans . . . . . . . . . . . . . . . . . . . . . . (248,722) (281,604)
Proceeds from principal repayments and maturities of:
Mortgage-backed and other securities held to maturity . . . . . . . . . 58,367 188,273
Mortgage-backed securities available for sale . . . . . . . . . . . . . 23,467 115,414
Investment securities available for sale . . . . . . . . . . . . . . . . 880 59,351
Proceeds from sales of:
Mortgage-backed securities available for sale . . . . . . . . . . . . . 146,514 51,666
Mortgage-backed securities held to maturity . . . . . . . . . . . . . . 17,917
Investment securities available for sale . . . . . . . . . . . . . . . . 26 1,354
Purchases of:
Mortgage-backed securities held to maturity . . . . . . . . . . . . . . (63,670) (27,861)
Mortgage-backed securities available for sale . . . . . . . . . . . . . (2,440) (756,976)
Investment securities available for sale . . . . . . . . . . . . . . . . (53,510) (66,232)
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73,173) (4,324)
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,498) (23,738)
Net cash (paid) received in connection with acquisitions . . . . . . . . . . (9,857) 104,382
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,580) 4,972
--------- ----------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . (244,196) (617,406)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 170,814 598,901
Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . (170,041) (82,682)
Net increase in securities sold under agreements to repurchase . . . . . . . 43,538
Increase (decrease) in, net of acquisition:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,534 17,013
Advance payments by borrowers for taxes and insurance . . . . . . . . . (10,916) (11,270)
Payment of dividends on common stock . . . . . . . . . . . . . . . . . . . . (12,378) (9,482)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . 449
Purchase of treasury stock, net . . . . . . . . . . . . . . . . . . . . . . . (6,385)
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . 89,166 512,929
--------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . (94,687) (46,690)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD . . . . . . . . . . . . 236,972 205,191
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD . . . . . . . . . . . . . . . $ 142,285 $ 158,501
========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid during the period for interest on deposits
and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 218,000 $ 156,219
========= ==========
Cash paid during the period for income taxes . . . . . . . . . . . . . . $ 27,200 $ 22,360
========= ==========
Securities transferred from held to maturity to available for sale
due to credit deterioration . . . . . . . . . . . . . . . . . . . . . $ 17,413
==========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
4
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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 September 30, 1995, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $752,000 (net of an
allowance of $1.0 million under SFAS No. 114). Income recorded for
the nine months ended September 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). A loan
may be considered impaired, but remain on accrual status, when the
borrower demonstrates (by continuing to make payments) a willingness
to keep the loan current. 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. In general, the Bank considers a loan on income-
producing properties to be impaired when the debt service ratio is less
than 1.0. Loans on non-income producing properties are considered
impaired whenever fair value is less than book value. 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
($500,000 or less) 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. Such loans include all mortgage loans secured by 1 - 4
family
5
<PAGE> 8
residential property, all consumer loans, and certain multi-family
real estate loans, non-residential real estate loans, business loans
and leases. The Bank charges principal off at the earlier of (1) when
a total loss of principal has been deemed to have occurred as a result
of the book value exceeding the fair value or net realizable value 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.
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, which will be accounted for as a pooling of interests, was
approved by the Office of Thrift Supervision on August 29, 1995. Each
company is seeking shareholder approval at special shareholder
meetings to be held on October 27, 1995. If approved by the
shareholders, the merger is expected to be completed on October 31,
1995.
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 94 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, which will
be accounted for as a pooling of interests, was approved by the Office of
Thrift Supervision on August 29, 1995. Each company is seeking shareholder
approval at special shareholder meetings to be held on October 27, 1995. If
approved by the shareholders, the merger is expected to be completed on October
31, 1995.
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 nine months of 1995 and 1994. Net
income for the first nine months of 1995 was $54.3 million, or $2.36 per share,
up from $50.4 million, or $2.18 per share, for the comparable period in 1994.
The annualized return on average equity for the nine months ended September 30,
1995 was 18.16%, up from 17.71% for the same period in 1994. The return on
average assets was 1.16%, down from 1.19% in the 1994 period.
Net income for the third quarter of 1995 was $18.3 million, or $0.80 per share,
up from $17.3 million, or $0.75 per share for the 1994 third period. The
annualized return on average equity was 17.47%, down from 18.76% for the 1994
third quarter. The annualized return on average assets was 1.16%, down from
1.19% for the third quarter of 1994. The 1994 ratios were positively impacted
by larger net gains on asset sales as compared to the 1995 period.
The increase in earnings per share for the first nine months of 1995 over the
1994 period was primarily the result of increases in other income and net
interest income. Other income increased as a result of the Bank acquiring a
leasing subsidiary in January of 1995 (see Note 3 to consolidated financial
statements). Net interest income 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 third quarter of 1995
over the same period in 1994 was primarily due to an increase in other income.
A decrease in the provision for loan and lease losses in the first nine months
of 1995 versus the same period in 1994 reflects improved asset quality (see
Figure 13) and this also contributed to the increase in earnings per share.
7
<PAGE> 10
<TABLE>
COMPONENTS OF EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE (Figure 1)
<CAPTION>
NINE MONTHS ENDED SEPT. 30,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . . . . $15.40 $12.40
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 9.47 6.68
------ ------
Net interest income . . . . . . . . . . . . . . . . . . . . . . 5.93 5.72
Provision for loan and lease losses . . . . . . . . . . . . . . .03 .10
------ ------
Net interest income after provision for loan
and lease losses . . . . . . . . . . . . . . . . . . . . 5.90 5.62
Other income . . . . . . . . . . . . . . . . . . . . . . . . . 1.09 .89
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . 3.45 3.25
------ ------
Income before federal income taxes . . . . . . . . . . . . . . 3.54 3.26
Federal income taxes . . . . . . . . . . . . . . . . . . . . . 1.18 1.08
------ ------
Earnings per common and common equivalent share . . . . . . . . $ 2.36 $ 2.18
====== ======
</TABLE>
<TABLE>
SELECTED OPERATING RATIOS (Figure 2)
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Return on average assets (annualized) 1.16% 1.19% 1.16% 1.19%
Return on average equity (annualized) 17.47% 18.76% 18.16% 17.71%
Net interest income to other expenses 169.39% 173.99% 172.06% 175.62%
Other expenses to average assets (annualized) 1.68% 1.78% 1.69% 1.78%
Efficiency ratio(1) 49.33% 50.86% 49.32% 50.23%
<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.
<TABLE>
AVERAGE BALANCES, INTEREST RATES AND YIELDS/COSTS (Figure 3)
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1995 1994
------------------------------ ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
- ----------------------
INTEREST-EARNING ASSETS:
Loan and lease portfolio,
net(1) . . . . . . . . . . $3,799,592 $ 78,429 8.26% $3,478,287 $ 67,472 7.76%
Mortgage-backed securities . 1,945,390 36,518 7.51 1,857,915 30,429 6.55
Other securities . . . . . . 224,031 3,839 6.85 198,564 2,789 5.62
Short-term investments and
other interest-earning
assets(2) . . . . . . . . 73,707 1,064 5.77 88,816 1,017 4.58
---------- --------- ---------- --------
Total . . . . . . . . . 6,042,720 119,850 7.93 5,623,582 101,707 7.23
--------- --------
Non-interest-earning assets . 266,958 207,216
---------- ----------
Total assets . . . . . $6,309,678 $5,830,798
========== ==========
INTEREST-BEARING LIABILITIES:
Deposits:
Checking . . . . . . . . $ 400,379 1,325 1.32 $ 390,074 1,431 1.47
Savings and money market 1,107,806 8,092 2.92 1,275,168 8,786 2.76
Certificates of deposit . 2,889,965 43,589 6.03 2,619,043 32,688 4.99
---------- -------- ---------- --------
Total deposits . . . . 4,398,150 53,006 4.82 4,284,285 42,905 4.01
Borrowings . . . . . . . . . 1,425,430 21,843 6.13 1,121,687 13,581 4.84
---------- -------- ---------- --------
Total . . . . . . . . . 5,823,580 74,849 5.14 5,405,972 56,486 4.18
-------- --------
Non-interest-bearing
liabilities . . . . . . . 66,439 55,448
----------- ----------
Total liabilities . . . 5,890,019 5,461,420
Shareholders' equity . . . . 419,659 369,378
----------- ----------
Total liabilities and
shareholders' equity . $6,309,678 $5,830,798
========== ==========
Net interest income . . . . . $ 45,001 $ 45,221
======== ========
Interest rate spread . . . . 2.79 3.05
Net yield on average
interest-earning assets(3) 2.98 3.22
Average interest-earning
assets to average interest-
bearing liabilities . . . 103.76% 104.03%
<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>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1995 1994
------------------------------ ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
- ----------------------
INTEREST-EARNING ASSETS:
Loan and lease portfolio,
net(1) . . . . . . . . . $3,687,470 $224,776 8.13% $3,378,980 $194,574 7.68%
Mortgage-backed securities . 2,010,345 114,980 7.63 1,763,203 82,592 6.25
Other securities . . . . . . 206,813 10,557 6.81 186,458 7,386 5.28
Short-term investments and
other interest-earning
assets(2) . . . . . . . . 96,353 4,260 5.89 96,071 2,778 3.86
---------- -------- ---------- --------
Total . . . . . . . . . 6,000,981 354,573 7.88 5,424,712 287,330 7.06
-------- --------
Non-interest-earning assets . 268,109 208,003
---------- ----------
Total assets . . . . . $6,269,090 $5,632,715
========== ==========
INTEREST-BEARING LIABILITIES:
Deposits:
Checking . . . . . . . . $ 396,141 3,984 1.34 $ 392,341 4,236 1.44
Savings and money market 1,137,988 24,759 2.90 1,288,280 25,933 2.68
Certificates of deposit . 2,846,468 123,950 5.81 2,523,116 91,448 4.83
---------- -------- ---------- --------
Total deposits . . . . 4,380,597 152,693 4.65 4,203,737 121,617 3.86
Borrowings . . . . . . . . . 1,422,447 65,298 6.12 992,774 33,306 4.47
---------- -------- ---------- --------
Total . . . . . . . . . 5,803,044 217,991 5.01 5,196,511 154,923 3.98
-------- --------
Non-interest-bearing
liabilities . . . . . . . 67,074 56,599
---------- ----------
Total liabilities . . . 5,870,118 5,253,110
Shareholders' equity . . . . 398,972 379,605
---------- ----------
Total liabilities and
shareholders' equity . $6,269,090 $5,632,715
========== ==========
Net interest income . . . . . $136,582 $132,407
======== ========
Interest rate spread . . . . 2.87 3.08
Net yield on average
interest-earning assets(3) 3.03 3.25
Average interest-earning
assets to average interest-
bearing liabilities . . . 103.41% 104.39%
<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.
<TABLE>
RATE/VOLUME ANALYSIS (Figure 4)
<CAPTION>
THREE MONTHS ENDED SEPT.30, NINE MONTHS ENDED SEPT. 30,
---------------------------- -----------------------------
1995 V. 1994 1995 V. 1994
---------------------------- -----------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
---------------------------- -----------------------------
RATE VOLUME TOTAL RATE VOLUME TOTAL
--------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
- ----------------------
INTEREST INCOME ON INTEREST-EARNING
ASSETS:
Loans and leases . . . . . . . . . . . . . $ 4,489 $ 6,468 $10,957 $11,804 $18,398 $30,202
Mortgage-backed securities . . . . . . . . 4,605 1,484 6,089 19,818 12,570 32,388
Other securities . . . . . . . . . . . . . 664 386 1,050 2,301 870 3,171
Short-term investments and other
interest-earning assets . . . . . . . . 238 (191) 47 1,474 8 1,482
------- ------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . . 9,996 8,147 18,143 35,397 31,846 67,243
------- ------- ------- ------- ------- -------
INTEREST EXPENSE ON INTEREST-BEARING
LIABILITIES:
Deposits:
Checking . . . . . . . . . . . . . . . . (95) 35 (60) (246) 40 (206)
Savings and money market . . . . . . . . 403 (1,143) (740) 1,768 (2,988) (1,220)
Certificates of deposit . . . . . . . . 7,286 3,615 10,901 19,865 12,637 32,502
------- ------- ------- ------- ------- -------
Total deposits . . . . . . . . . . 7,594 2,507 10,101 21,387 9,689 31,076
Borrowings . . . . . . . . . . . . . . . . 4,092 4,170 8,262 14,709 17,283 31,992
------- ------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . . 11,686 6,677 18,363 36,096 26,972 63,068
------- ------- ------- ------- ------- -------
Change in net interest income . . . . . . . $(1,690) $ 1,470 $ (220) $ (699) $ 4,874 $ 4,175
======= ======= ======= ======= ======= =======
</TABLE>
NET INTEREST INCOME - Net interest income for the first nine months of 1995
increased $4.2 million, or 3.2% over the same period in 1994. The growth
reflected the effect of a higher level of interest-earning assets which was
partially offset by the effect of a decline in the interest rate spread and net
yield on interest-earning assets.
Net interest income for the third quarter of 1995 was essentially unchanged
from the third 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 nine
months and the third quarter reflect efforts to increase the size of the loan
and lease portfolio. At the begining of 1995, the Company acquired a leasing
subsidiary, adding $76.9 million in lease financings. Loan repayments for the
first nine months of 1995 declined significantly from the first nine months of
1994 due to a reduction in the level of refinancings brought on by higher
interest rates in 1995. In the third quarter of 1995, loan originations
increased significantly compared to the third quarter of 1994.
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
nine months 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.
11
<PAGE> 14
While net interest income increased for the first nine months of 1995 as
compared to the first nine months of 1994, the interest rate spread declined 21
basis points to 2.87% from 3.08%. For the third quarter of 1995, the interest
rate spread decreased 26 basis points to 2.79% from 3.05% for the third quarter
of 1994. These spreads were adversely affected by short-term rates and
long-term rates moving closer together as evidenced by a relatively flat U.S.
Treasury Interest Rate curve; therefore, 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.
<TABLE>
OTHER INCOME (Figure 5)
<CAPTION>
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
---------------------------- ---------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1995 1994
- ---------------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C>
Loan servicing fees . . . . . . . . . . . . . $1,114 $1,135 $ 3,586 $ 4,065
Service fees and other charges:
Retail deposit account service
charges and fees . . . . . . . . . . . . 4,449 3,780 12,271 10,070
Fees on insurance annuity sales . . . . . 593 588 1,694 2,441
Other branch service fees . . . . . . . . 292 182 711 573
Miscellaneous . . . . . . . . . . . . . . 237 104 419 261
------ ------ ------- -------
Total . . . . . . . . . . . . . . . . . 5,571 4,654 15,095 13,345
------ ------ ------- -------
Leasing operations . . . . . . . . . . . . . 2,080 5,437
Net gain (loss) from sales of:
Real estate . . . . . . . . . . . . . . . 170 93 451 481
Securities . . . . . . . . . . . . . . . (48) 1,247 1 2,279
Loans . . . . . . . . . . . . . . . . . . 49 44 103 115
Other . . . . . . . . . . . . . . . . . . 65 106 186 111
------ ------ ------- -------
Total . . . . . . . . . . . . . . . . . 236 1,490 741 2,986
Other . . . . . . . . . . . . . . . . . . . . 91 94 251 280
------ ------ ------- -------
Total . . . . . . . . . . . . . . . . . $9,092 $7,373 $25,110 $20,676
====== ====== ======= =======
</TABLE>
OTHER INCOME - Other income for the nine months ended September 30, 1995
increased by $4.4 million, or 21.4%, over the first nine months of 1994. As
shown in Figure 5, other income from leasing operations, which were acquired by
the Company at the beginning of 1995, totaled $5.4 million. Service fees and
other charges increased $1.8 million over the first nine months of 1994. Gains
on sales declined $2.2 million and loan servicing fees declined by $479,000 as
compared to the nine months ended September 30, 1994.
Other income for the third quarter of 1995 increased $1.7 million, or 23.3%,
over the third quarter of 1994. The increase was due to the addition of
leasing operations, as well as a net increase in service fees and other charges
offset by declines in loan servicing fees and net gains on sales.
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 income,
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 nine months of
1995 over the same period in 1994 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 the transaction charges for checking accounts and
ATM transactions, resulted in a 21.9% increase in these service fees for 1995
as compared to the first nine months of 1994. Fees from sales of tax deferred
annuities
12
<PAGE> 15
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 deposits.
The net increase in service fees and other charges for the third quarter of
1995 as compared to the third quarter of 1994 was the result of increases in
retail deposit account service charges. An increase in the volume of checking
accounts and ATM transactions, combined with increases in the transaction
charges resulted in a 17.7% increase in retail deposit service fee income in
the 1995 third quarter.
Loan servicing fee income declined in the 1995 periods as compared to 1994 due
to the decline in the outstanding balance of loans serviced for others. This
decline was the result of low loan sales in the recent past as management
focused on increasing its loan and lease portfolio.
<TABLE>
OTHER EXPENSES (Figure 6)
<CAPTION>
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
---------------------------- ------------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1995 1994
- ---------------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C>
Salaries and employee benefits . . . . . . . $11,964 $11,721 $36,475 $32,457
Net occupancy and equipment . . . . . . . . . 3,739 3,292 10,939 9,890
Federal deposit insurance premiums . . . . . 2,507 2,404 7,461 7,189
State franchise tax . . . . . . . . . . . . . 1,346 1,438 4,265 4,315
Marketing . . . . . . . . . . . . . . . . 1,030 1,016 2,795 2,803
Other administrative expenses . . . . . . . . 5,980 6,119 17,447 18,738
------- ------- ------- -------
Total . . . . . . . . . . . . . . . . $26,566 $25,990 $79,382 $75,392
======= ======= ======= =======
Number of full-time equivalent
employees as of September 30, . . . . . . 1,487 1,406 1,487 1,406
Net interest income to other expenses . . . . 169.39% 173.99% 172.06% 175.62%
Other expenses to average assets
(annualized) . . . . . . . . . . . . . . . 1.68% 1.78% 1.69% 1.78%
Efficiency Ratio(1) . . . . . . . . . . . . . 49.33% 50.86% 49.32% 50.23%
<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 nine months
and the third quarter of 1995 increased over the 1994 periods. The increase
for the nine month period was primarily due to increases in salaries and
benefits expense and net occupancy and equipment expense. Salaries and
benefits expense increased due to the acquisition of ICX Corporation and the
Bank's service bureau in early 1995. These acquisitions increased the number
of employees. In addition, while the numbers of employees dedicated to loan
production was similar in both periods, lower volumes in 1995 resulted in less
cost being deferred as an adjustment to the yield on loans and an increase in
the cost being expensed. Net occupancy and equipment expense increased also as
a result of the acquisition of ICX Corporation and the Bank's computer service
bureau.
Other expenses for the third quarter of 1995 increased $576,000, or 2.2%, as
compared to the third quarter of 1994. The increase is primarily due to the
acquisitions of ICX Corporation and the Bank's computer service bureau.
FEDERAL INCOME TAXES - The provision for federal income taxes for the first
nine months of 1995 and the third quarter of 1995 increased by $2.2 million and
$400,000, respectively, over the 1994 periods due to higher pre-tax income for
the 1995 periods. The effective tax rates for the first nine months of 1995
and the third quarter of
13
<PAGE> 16
1995 were 33.3% and 32.8%, respectively. The effective tax rates for the first
nine months of 1994 and the third quarter of 1994 were 33.2% and 33.0%,
respectively.
FINANCIAL CONDITION
Figure 7 sets forth information concerning the composition of the
Company's assets, liabilities and shareholders' equity at September 30, 1995
and December 31, 1994.
<TABLE>
FINANCIAL CONDITION (Figure 7)
<CAPTION>
AT SEPTEMBER 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 . . . . . . . . $ 142,285 2.2% $ 236,972 3.8%
Mortgage-backed and other securities . . 2,056,081 32.2 2,138,012 34.9
Loans and leases, net . . . . . . . . . . 3,912,885 61.2 3,542,539 57.8
Other assets . . . . . . . . . . . . . . 283,207 4.4 212,649 3.5
---------- ----- ---------- -----
Total . . . . . . . . . . . . . . $6,394,458 100.0% $6,130,172 100.0%
========== ===== ========== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits . . . . . . . . . . . . . . . . $4,441,729 69.5% $4,368,245 71.3%
Other liabilities . . . . . . . . . . . . 73,611 1.2 74,085 1.2
Borrowings . . . . . . . . . . . . . . . 1,456,149 22.8 1,318,737 21.5
Shareholders' equity . . . . . . . . . . 422,969 6.5 369,105 6.0
---------- ----- ---------- -----
Total . . . . . . . . . . . . . . $6,394,458 100.0% $6,130,172 100.0%
========== ===== ========== =====
</TABLE>
OVERVIEW - Total assets increased $264.3 million from December 31, 1994, mainly
due to higher levels of loans and leases and equipment on operating leases.
Loans and leases increased by $370.3 million and other assets, which includes
equipment on operating leases, increased by $70.6 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
<TABLE>
COMPOSITION OF LOANS AND LEASES (Figure 8)
<CAPTION>
AT SEPTEMBER 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 . . . . . . . . . . $2,865,553 73.2% $2,647,098 74.7%
Multi-family . . . . . . . . . . . . . 168,344 4.3 162,801 4.6
Commercial . . . . . . . . . . . . . . 247,550 6.3 231,353 6.5
Construction . . . . . . . . . . . . . 121,231 3.2 127,576 3.6
---------- ----- ---------- -----
Total real estate . . . . . . . . . 3,402,678 87.0 3,168,828 89.4
Consumer . . . . . . . . . . . . . . . . 449,425 11.5 382,492 10.8
Lease financings . . . . . . . . . . . . 99,136 2.5
Business . . . . . . . . . . . . . . . . 63,789 1.6 84,307 2.4
---------- ----- ---------- -----
Total loans and leases . . . . . . 4,015,028 102.6 3,635,627 102.6
Less net items . . . . . . . . . . . . . 102,143 2.6 93,088 2.6
---------- ----- ---------- -----
Loans and leases, net . . . . . . . . . . $3,912,885 100.0% $3,542,539 100.0%
========== ===== ========== =====
</TABLE>
LOANS AND LEASES - Total loans and leases outstanding at September 30, 1995
were $3.9 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 third
quarter, lease financings totaled $99.1 million, or 2.5% of total loans and
leases.
One-to-four family real estate loan outstandings increased $218.5 million, or
8.3%, from December 31, 1994, as loan originations during the first nine months
of 1995 exceeded loan repayments.
Consumer loans outstanding at the end of the 1995 third quarter increased $66.9
million, or 17.5%, 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 nine months 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
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
<TABLE>
<CAPTION>
LOAN AND LEASE ACTIVITY (Figure 9)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
---------------------------- -----------------------------
1995 1994 1995 1994
------- -------- --------- ---------
<S> <C> <C> <C> <C>
(Dollars in thousands)
- ----------------------
ORIGINATIONS:
Real estate:
Permanent:
One-to-four family . . . . . . . . $220,750 $114,032 $411,718 $ 558,805
Multi-family . . . . . . . . . . . 6,876 7,470 15,379 39,598
Commercial . . . . . . . . . . . . 15,888 3,275 36,542 11,600
-------- -------- -------- --------
Total permanent . . . . . . . 243,514 124,777 463,639 610,003
-------- -------- -------- --------
Construction:
One-to-four family . . . . . . . . 32,801 35,471 80,107 102,853
Multi-family . . . . . . . . . . . 2,350 3,031 5,963
Commercial . . . . . . . . . . . . 5,000 4,605 9,592 4,605
-------- -------- -------- --------
Total construction loans . . . 37,801 42,426 92,730 113,421
-------- -------- -------- --------
Total real estate
loans originated . . . . . 281,315 167,203 556,369 723,424
Consumer line of credit draws . . . . . 35,057 39,364 97,854 98,822
Consumer. . . . . . . . . . . . . . . . . 36,418 14,274 70,232 130,357
Business line of credit draws . . . . . 10,237 17,443 26,884 49,458
Business . . . . . . . . . . . . . . . . 8,647 3,034 16,467 8,399
Lease financings(1) . . . . . . . . . . 17,557 47,189
-------- -------- -------- ----------
Total loans and lease
financings originated . . . 389,231 241,318 814,995 1,010,460
-------- -------- -------- ----------
PURCHASES:
Loans . . . . . . . . . . . . . . . . . 50,657 1,522 73,173 4,324
Lease financings(1) . . . . . . . . . . 76,912
-------- -------- -------- ----------
Total purchases . . . . . . . . . . 50,657 1,522 150,085 4,324
-------- -------- -------- ----------
SALES AND PRINCIPAL REDUCTIONS:
Loans sold . . . . . . . . . . . . . . . 1,481 1,281 3,729 3,384
Principal reductions . . . . . . . . . . 233,809 191,793 553,690 701,244
Other . . . . . . . . . . . . . . . . . 28,260
-------- -------- -------- --------
Total sales and principal
reductions . . . . . . . . . . 235,290 193,074 585,679 704,628
-------- -------- -------- ----------
INCREASE BEFORE NET ITEMS . . . . . . . . . $204,598 $ 49,766 379,401 $ 310,156
======== ======== ======== ==========
<FN>
(1) Not included herein are $2.4 and $19.7 million in operating leases originated during the three and nine
month periods ended September 30, 1995 and $29 million in operating leases purchased in the acquisition
of ICX Corporation.
</TABLE>
<TABLE>
SECURITIES (Figure 10)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1995 1994
- ---------------------- -------------- --------------
<S> <C> <C>
Mortgage-backed securities:
Variable rate . . . . . . . . . . . . . . . . . . . . . . . . . . $1,508,123 $1,498,252
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,310 540,346
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,901,433 2,038,598
---------- ----------
Other securities:
U.S. Government and Federal agency obligations . . . . . . . . . . 126,307 71,688
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,341 27,726
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,648 99,414
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,056,081 $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 September 30, 1995 decreased slightly from December 31,
1994. Variable rate mortgage-backed securities at September 30, 1995 increased
by $9.9 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 $147.0 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 September 30, 1995,
the portfolio of U.S. Government and Federal agency obligations, held to meet
legal liquidity requirements, increased by $55.2 million from December 31,
1994.
ASSET QUALITY
<TABLE>
ANALYSIS OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES (Figure 11)
<CAPTION>
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
---------------------------- ---------------------------
1995 1994 1995 1994
------- -------- --------- ---------
<S> <C> <C> <C> <C>
(Dollars in thousands)
- ----------------------
Balance, beginning of period . . . . . . . . $37,058 $35,857 $36,870 $35,072
Provision for loan and lease losses . . . . . 258 735 774 2,228
Other . . . . . . . . . . . . . . . . . . . . 176
Loans and leases charged-off:
Real estate . . . . . . . . . . . . . . . (183) (104) (996) (679)
Consumer . . . . . . . . . . . . . . . . . (3) (8) (93) (101)
Lease financings . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . (1) (1) (211)
------- ------- ------- -------
Total charge-offs . . . . . . . . . . (187) (112) (1,090) (991)
------- ------- ------- -------
Recoveries:
Real estate . . . . . . . . . . . . . . . 220 17 571 141
Consumer . . . . . . . . . . . . . . . . 4 5 9 18
Lease financings . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . 1 1 44 35
------- ------- ------- -------
Total recoveries . . . . . . . . . . 225 23 624 194
------- ------- ------- -------
Net loan and lease recoveries (charge-offs) . 38 (89) (466) (797)
------- ------- ------- -------
Balance, end of period . . . . . . . . . . . $37,354 $36,503 $37,354 $36,503
======= ======= ======= =======
Net charge-offs to average loans and
leases (annualized) . . . . . . . . . . . N/A .01% .02% .03%
Net charge-offs to provision for loan
and lease losses . . . . . . . . . . . . . N/A 12.11% 60.21% 35.77%
</TABLE>
17
<PAGE> 20
<TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES (Figure 12)
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1994 1994
----------- ----------- ------------
(Dollars in thousands)
- ----------------------
<S> <C> <C> <C>
Real estate . . . . . . . . . . . . . . . . . . . $30,388 $30,638 $30,416
Consumer . . . . . . . . . . . . . . . . . . . . 1,518 1,512 1,408
Lease financings . . . . . . . . . . . . . . . . 549
Business . . . . . . . . . . . . . . . . . . . . 4,899 4,720 4,679
-------- ------- -------
Total . . . . . . . . . . . . . . . . . . $ 37,354 $36,870 $36,503
======== ======= =======
Ratio of ending allowance to ending loans
and leases (before allowance for
loan and lease losses):
Real estate . . . . . . . . . . . . . . . . . .98% .98% .98%
Consumer . . . . . . . . . . . . . . . . . . . .39% .39% .37%
Lease financings . . . . . . . . . . . . . . . .55%
Business . . . . . . . . . . . . . . . . . . . 5.61% 5.61% 7.21%
Total . . . . . . . . . . . . . . . . . . .95% 1.03% 1.03%
</TABLE>
The allowance for loan and lease losses as a percentage of ending loans and
leases was .95% at September 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 September 30, 1995, the Bank had
no outstanding commitments to lend additional funds to borrowers whose loans
were on non-accrual or restructured status.
<TABLE>
NON-PERFORMING ASSETS (Figure 13)
<CAPTION>
SEPTEMBER 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 . . . . . . . . . . . . . . . . . . . $ 6,823 $ 8,380
Multi-family and commercial . . . . . . . . . . . . . . . 1,191 4,548
Construction and land . . . . . . . . . . . . . . . . . . 688 2,596
------- -------
Total real estate . . . . . . . . . . . . . . . . . . . . . . 8,702 15,524
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 77
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . 8,856 15,606
Accruing loans and leases delinquent more than 90 days:
Real estate:
One-to-four family . . . . . . . . . . . . . . . . . . . 2,208 2,781
Multi-family and commercial . . . . . . . . . . . . . . . 848 855
Construction and land . . . . . . . . . . . . . . . . . . 207
------- -------
Total real estate . . . . . . . . . . . . . . . . . . . . . . 3,056 3,843
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 255
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Lease Financings . . . . . . . . . . . . . . . . . . . . . . . . 48
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 3,222 4,115
Restructured real estate loans . . . . . . . . . . . . . . . . . . 7,917 7,976
------- -------
Total non-performing loans and leases . . . . . . . . . . . . . . 19,995 27,697
REPOSSESSED ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 7,700 10,531
------- -------
Total non-performing assets . . . . . . . . . . . . . . . . . . . $27,695 $38,228
======= =======
Non-performing loans and leases as a percent of
total loans and leases . . . . . . . . . . . . . . . . . . . . . . .51% .78%
Non-performing assets as a percent of total assets . . . . . . . . . .43% .62%
Allowance for loan and lease losses to non-performing
loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . 186.82% 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) . . . . . . . .95% 1.03%
</TABLE>
Non-performing assets at September 30, 1995 totaled $27.7 million, down 27.6%
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
September 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 September 30, 1995, there were $31.2 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.
The Company adopted SFAS No. 114 as of January 1, 1995 (see Note 2 to the
consolidated financial statements). The Company previously measured such loans
in accordance with the methods prescribed by the new statement. Consequently,
the comparability of the figures in this "Asset Quality" section is not
impacted by the adoption of SFAS No. 114.
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.
<TABLE>
COMPOSITION OF DEPOSITS (Figure 14)
<CAPTION>
SEPTEMBER 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 . . . . . . $ 253,519 2.10% 5.7% $ 269,023 2.10% 6.2%
Non-interest bearing . . . . 163,004 3.7 148,267 3.4
Savings . . . . . . . . . . . . 545,946 2.56 12.3 621,530 2.56 14.2
Money market accounts . . . . . 553,837 3.26 12.5 591,631 3.17 13.6
---------- ----- ---------- -----
Total checking, savings
and money market . . . . 1,516,306 2.46 34.2 1,630,451 2.47 37.4
---------- ----- ---------- -----
Certificates:
Less than $100,000:
4.00% or less . . . . . . . 30,350 3.19 .7 203,176 3.58 4.7
4.01%-6.00% . . . . . . . . 1,392,056 5.44 31.4 1,661,008 4.97 38.1
6.01%-8.00% . . . . . . . . 1,110,882 6.68 25.0 484,404 6.65 11.1
8.01%-10.00% . . . . . . . 83,455 8.64 1.9 110,727 8.64 2.5
10.01%-12.00% . . . . . . . 28,267 11.35 .6 35,700 11.23 .8
12.01%-14.00% . . . . . . . 356 12.81 347 12.82
---------- ----- ---------- -----
Total . . . . . . . . . . 2,645,366 6.10 59.6 2,495,362 5.44 57.2
---------- ----- ---------- -----
$100,000 or more:
4.00% or less . . . . . . . 5,235 3.12 .1 19,173 3.57 .4
4.01%-6.00% . . . . . . . . 114,231 5.48 2.6 144,118 5.10 3.3
6.01%-8.00% . . . . . . . . 142,878 6.70 3.1 57,221 6.73 1.3
8.01%-10.00% . . . . . . . 11,363 8.73 .3 11,925 8.86 .3
10.01%-12.00% . . . . . . . 2,563 10.62 .1 5,158 10.60 .1
---------- ----- ---------- -----
Total . . . . . . . . . . 276,270 6.19 6.2 237,595 5.67 5.4
---------- ----- ---------- -----
Total certificates . . . 2,921,636 6.11 65.8 2,732,957 5.46 62.6
---------- ----- ---------- -----
Total deposits . . . . . . . . 4,437,942 4.86 100.0% 4,363,408 4.34 100.0%
===== =====
Plus premium on deposits
purchased . . . . . . . . . 3,787 4,837
---------- ----------
Total . . . . . . . . . . $4,441,729 $4,368,245
========== ==========
</TABLE>
20
<PAGE> 23
The average balance of deposits increased by $176.9 million, or 4.2%, for the
first nine months of 1995 over the 1994 first nine months. The outstanding
balance at September 30, 1995 increased by $73.5 million over the balance at
December 31, 1994. A 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 September 30, 1995, the Company had
borrowings of $1.5 billion, including $1.3 billion in advances from the FHLB of
Cincinnati. The average balance of borrowings for the first nine months of
1995 increased by $429.7 million over the first nine months of 1994, primarily
due to advances from the FHLB of Cincinnati used to purchase mortgage-backed
securities and fund new loans and leases.
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
September 30, 1995, the Bank's one-year gap was a negative 7.6%.
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 September 30, 1995 was 5.43%.
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 September 30,
1995, the Bank and its subsidiaries had outstanding commitments to originate
loans and leases of $212.7 million, unfunded lines of consumer credit totaling
$288.5 million (a significant portion of which normally remains undrawn) and
unfunded lines of commercial (business loans) credit totalling $31.6 million.
Certificates of deposit scheduled to mature in one year or less at September
30, 1995 totalled $1.9 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 September 30, 1995, the Bank had $871.0
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.
<TABLE>
REGULATORY CAPITAL (Figure 15)
<CAPTION>
AS OF SEPTEMBER 30, 1995
---------------------------------------------------------
ACTUAL CAPITAL REQUIRED CAPITAL
------------------------- -----------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ---------------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Capital Adequacy:
Tangible capital . . . . . . . . . . . $420,113 6.70% $ 94,007 1.50%
Core capital . . . . . . . . . . . . . 420,113 6.70 188,014 3.00
Risk-based capital . . . . . . . . . . 448,348 13.38 268,080 8.00
Prompt Corrective Action:
Tier 1 leverage capital . . . . . . . 420,113 6.70 250,686 4.00
Tier 1 risk-based capital . . . . . . 420,113 12.54 134,040 4.00
Total risk-based capital . . . . . . . 448,348 13.38 268,080 8.00
</TABLE>
Management believes, as of September 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.
<TABLE>
QUARTERLY STOCK PRICES AND DIVIDENDS (Figure 16)
<CAPTION>
1995 1994
------------------------- ---------------------------------------------
First Second Third First Second Third Fourth Year
----- ------ ----- ----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High . . . . . . . . . . $22.12 $27.00 $30.75 $20.25 $23.37 $24.00 $21.00 $24.00
Low . . . . . . . . . . . 18.87 20.00 24.25 17.75 18.00 19.12 17.75 17.75
Dividends declared
and paid . . . . . . . .17 .19 .19 .12 .15 .15 .17 .59
</TABLE>
The Company's common stock trades on the Nasdaq National Market under the
symbol COFI. As of October 25, 1995, there were 4,302 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 September 30, 1995, 368,000 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 October 16, 1995, the Directors of Charter One Financial, Inc.
declared a quarterly cash dividend of 20 cents per common share. The dividend
will be payable on November 21, 1995 to shareholders of record as of November
2, 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 became effective in 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
There were no reports on Form 8-K filed during the quarter
ended September 30, 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: October 27, 1995 By: /s/ Robert J. Vana
----------------------------
Robert J. Vana
Chief Corporate Counsel and Secretary
Date: October 27, 1995 By: /s/ Leonard A. Krysinski
----------------------------
Leonard A. Krysinski
Senior Vice President and Treasurer
25
<PAGE> 1
<TABLE>
EXHIBIT 11
CHARTER ONE FINANCIAL, INC.
COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
---------------------------- -----------------------------
1995 1994 1995 1994
------- -------- --------- ---------
<S> <C> <C> <C> <C>
COMPUTATION OF PRIMARY EARNINGS PER SHARE:
Weighted average number of common
shares outstanding . . . . . . . . . . . . 22,418,194 22,606,009 22,462,028 22,544,286
Add common stock equivalents for shares
issuable under:
Stock Appreciation Rights Plan(1) . . . . 49,574 101,619 53,650 104,002
Stock Option Plan(1) . . . . . . . . . . . 532,308 520,355 500,280 517,848
---------- ---------- ---------- ----------
Weighted average number of shares
outstanding adjusted for common
stock equivalents . . . . . . . . . . 23,000,076 23,227,983 23,015,958 23,166,136
========== ========== ========== ==========
Net Income . . . . . . . . . . . . . . . . $ 18,328 $ 17,328 $ 54,344 $ 50,432
========== ========== ========== ==========
Primary earnings per share . . . . . . . . . $ .80 $ .75 $ 2.36 $ 2.18
========== ========== ========== ==========
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . 22,418,194 22,609,813 22,462,041 22,537,808
Add common stock equivalents for shares
issuable under:
Stock Appreciation Rights Plan(2) . . . . 49,967 101,619 64,074 109,762
Stock Option Plan(2) . . . . . . . . . . . 553,504 518,211 505,772 507,912
---------- ---------- ---------- ----------
Weighted average number of shares
outstanding adjusted for common
stock equivalents . . . . . . . . . . 23,021,665 23,229,643 23,031,887 23,155,482
========== ========== ========== ==========
Net Income . . . . . . . . . . . . . . . . $ 18,328 $ 17,328 54,344 50,432
========== ========== ---------- ----------
Fully diluted earnings per share . . . . . . $ .80 $ .75 $ 2.36 $ 2.18
========== ========== ========== ==========
<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 NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 78,255
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 64,030
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 384,268
<INVESTMENTS-CARRYING> 1,671,813
<INVESTMENTS-MARKET> 1,739,565
<LOANS> 3,950,239
<ALLOWANCE> 37,354
<TOTAL-ASSETS> 6,394,458
<DEPOSITS> 4,441,729
<SHORT-TERM> 0
<LIABILITIES-OTHER> 73,611
<LONG-TERM> 1,456,149
<COMMON> 226
0
0
<OTHER-SE> 422,743
<TOTAL-LIABILITIES-AND-EQUITY> 6,394,458
<INTEREST-LOAN> 224,776
<INTEREST-INVEST> 125,537
<INTEREST-OTHER> 4,260
<INTEREST-TOTAL> 354,573
<INTEREST-DEPOSIT> 152,693
<INTEREST-EXPENSE> 217,991
<INTEREST-INCOME-NET> 136,582
<LOAN-LOSSES> 774
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 79,382
<INCOME-PRETAX> 81,536
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,344
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.36
<YIELD-ACTUAL> 3.03
<LOANS-NON> 8,856
<LOANS-PAST> 3,222
<LOANS-TROUBLED> 7,917
<LOANS-PROBLEM> 31,200
<ALLOWANCE-OPEN> 36,870
<CHARGE-OFFS> 1,090
<RECOVERIES> 624
<ALLOWANCE-CLOSE> 37,354
<ALLOWANCE-DOMESTIC> 37,354
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
