UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED MARCH 31,
1996
File Commission No. 0-27304
Charter Financial, Inc.
------------------------
(Exact name of registrant as specified in its charter)
Illinois
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(State or other jurisdiction of incorporation or organization)
37-1345386
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(I.R.S. Employer Identification No.)
114 West Broadway
Sparta, Illinois 62286
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (618) 443-2166
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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 [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: There were 4,974,380 shares of the Bank's common stock
outstanding as of April 22, 1996.
<PAGE>
CHARTER FINANCIAL, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
- Consolidated Balance Sheets
- Consolidated Statements of Income 2
- Consolidated Statement of Stockholders'
Equity 3
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statement
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 1
PART II OTHER INFORMATION 19
SIGNATURES 21
</TABLE>
<PAGE>
CHARTER FINANCIAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1996 and September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
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<S> <C> <C>
Assets:
- ------
Cash $ 1,529,347 $ 1,097,732
Interest-bearing deposits 11,823,970 5,250,071
Investment securities, net 52,195,762 52,784,304
Mortgage-backed securities, net 16,761,753 16,669,791
Loans receivable, net 208,298,510 206,073,777
Accrued interest receivable 2,281,444 2,112,947
Real estate acquired by foreclosure, net 160,158 140,239
Stock in Federal Home Loan Bank, at cost 1,484,000 2,140,000
Office properties and equipment, at cost
less accumulated depreciation 3,721,505 3,737,740
Prepaid expenses and other assets 378,361 1,070,713
Deferred tax asset, net 523,064 266,122
Cost in excess of fair value of net
assets acquired 551,278 617,696
Core deposit intangible 1,102,776 1,173,823
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$300,811,928 $293,134,955
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------------ ------------
Liabilities and Stockholders' Equity:
- ------------------------------------
Deposits 200,334,573 197,103,081
Accrued interest on deposits 515,272 513,182
Borrowed money 32,443,087 57,079,749
Advance payments by borrowers for taxes
and insurance 1,069,258 848,082
Income taxes payable 288,125 73,933
Accrued expenses and other liabilities 1,768,296 1,894,948
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Total liabilities 236,418,611 257,512,975
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Stockholders' Equity:
Preferred stock, $0.10 par value per share:
1,000,000 shares authorized; none issued -- --
Common stock, $0.10 par value per share:
8,000,000 shares authorized; 4,974,380 shares
issued at March 31, 1996 and $1.00 par value
per share: 20,000,000 shares authorized;
2,171,125 shares issued at September 30, 1995 497,438 2,171,125
Additional paid-in capital 37,525,564 7,399,095
Retained earnings - substantially restricted 28,156,975 26,763,369
Unrealized gain (loss) on securities available
for sale, net (27,467) 301,058
Unamortized restricted stock awards (70,163) (148,667)
Unearned ESOP shares (1,689,030) (864,000)
------------ ------------
Total stockholders' equity 64,393,317 35,621,980
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$300,811,928 $293,134,955
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<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
Charter Financial, Inc. and Subsidiary
Consolidated Statements of Income
For the three months and six months ended
March 31, 1996 (unaudited) and 1995 (unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $4,456,871 $3,790,638 $8,928,969 $7,269,089
Mortgage-backed securities 285,288 274,044 564,788 521,548
Investments 870,901 845,272 1,738,917 1,647,968
Other 78,612 31,364 149,136 53,441
---------- ---------- ---------- ----------
Total interest income 5,691,672 4,941,318 11,381,810 9,492,046
---------- ---------- ---------- ----------
Interest expense:
Deposits 2,173,167 1,708,561 4,375,149 3,403,310
Borrowed money 474,190 744,428 1,242,268 1,267,048
---------- ---------- ---------- ----------
Total interest expense 2,647,357 2,452,989 5,617,417 4,670,358
---------- ---------- ---------- ----------
Net interest income 3,044,315 2,488,329 5,764,393 4,821,688
Provision for losses on loans 30,000 30,000 60,000 60,000
---------- ---------- ---------- ----------
Net interest income after provision
for losses on loans 3,014,315 2,458,329 5,704,393 4,761,688
---------- ---------- ---------- ----------
Noninterest income:
Late charges and other loan fees 75,697 63,318 144,078 109,694
Deposit account fees 180,492 158,712 367,104 318,232
Commissions and fees 89,291 106,287 129,604 198,385
Other 93,371 50,498 161,721 134,557
---------- ---------- ---------- ----------
Total noninterest income 438,851 378,815 802,507 760,868
---------- ---------- ---------- ----------
Noninterest expense:
Compensation and employee benefits 873,310 776,992 1,731,459 1,513,695
Office buildings and equipment 141,334 113,179 278,613 228,554
Data processing 95,302 114,590 179,513 255,026
Advertising 88,743 21,164 125,385 59,859
Deposit insurance premiums 106,535 106,650 207,413 222,280
Other 380,574 265,519 798,548 551,848
Provision for losses and expenses
on real estate acquired by foreclosure 981 7,412 32,263 9,334
Amortization of cost in excess of fair value
of net assets acquired 33,065 34,252 66,418 68,817
---------- ---------- ---------- ----------
Total noninterest expense 1,719,844 1,439,758 3,419,612 2,909,413
---------- ---------- ---------- ----------
Income before income taxes 1,733,322 1,397,386 3,087,288 2,613,143
Income taxes 718,025 545,307 1,279,041 1,048,836
---------- ---------- ---------- ----------
Net income $1,015,297 $ 852,079 $1,808,247 $1,564,307
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share $ 0.21 $ 0.20 $ 0.39 $ 0.36
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
Charter Financial, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
Six Months Ended March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Unrealized gain
Retained (loss) on Unamortized
Additional earnings, securities restricted Unearned Total
Common paid-in substantially available for stock ESOP stockholders'
stock capital restricted sale, net awards shares equity
------ ---------- ------------- ---------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 $ 2,171,125 $ 7,399,095 $26,763,369 $ 301,058 $(148,667) $ (864,000) $35,621,980
Net income -- -- 1,808,247 -- -- -- 1,808,247
Sale of common stock 291,941 27,822,449 -- -- -- (969,030) 27,145,360
Cancellation of Charter Bank,
S.B. common stock owned by
Charter Bancorp, M.H.C. (1,191,000) 1,190,000 -- -- -- -- --
Exchange of Charter Bank, S.B.
common stock owned by
minority stockholders (780,591) 780,591 -- -- -- -- --
Refund of fractional shares -- (2,326) -- -- -- -- (2,326)
Capital contribution from
Charter Bancorp, M.H.C. -- 100,000 -- -- -- -- 100,000
Amortization of restricted
stock awards -- -- -- -- 70,164 -- 70,164
Cancellation of restricted
stock awards (834) (7,506) -- -- 8,340 -- --
Amortization of unearned ESOP
shares -- 189,710 -- -- -- 144,000 333,710
Exercise of stock options 5,797 53,551 -- -- -- -- 59,348
Dividends declared on common
stock -- -- (414,641) -- -- -- (414,641)
Change in unrealized gain
(loss) on securities
available for sale, net -- -- -- (328,525) -- -- (328,525)
----------- ----------- ----------- --------- --------- ----------- -----------
Balance, March 31, 1996 $ 497,438 $37,525,564 $28,156,975 $ (27,467) $ (70,163) $(1,689,030) $64,393,317
----------- ----------- ----------- --------- --------- ----------- -----------
----------- ----------- ----------- --------- --------- ----------- -----------
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
CHARTER FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,808,247 $ 1,564,307
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization:
Office properties and equipment 220,438 151,749
Discounts related to purchase accounting (33,223) (28,596)
Cost in excess of fair value of net
assets acquired 66,418 68,817
Fees, discounts and premiums (1,588,973) (443,621)
Stock plans 403,874 287,280
Decrease in accrued interest receivable (168,497) (104,440)
Increase (decrease) in accrued interest on
deposits 2,090 (3,712)
Provision for losses on loans 60,000 60,000
Stock dividend of FHLB -- (27,000)
Net change in income taxes 214,192 308,835
Net change in other assets and other
liabilities 417,890 (146,330)
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Net cash provided by operating activities 1,402,456 1,687,289
------------ ------------
Cash flows from investing activities:
Principal repayments on:
Loans receivable 48,814,401 32,501,729
Mortgage-backed securities 1,885,211 1,121,168
Investment securities 922,640 997,311
Proceeds from sale of loans receivable 1,266,543 --
Maturity of investment securities 8,500,000 5,549,250
Proceeds from redemption of FHLB stock 656,000 --
Purchase of:
Loans receivable (16,584,064) (3,959,049)
Mortgage-backed securities (2,032,884) (2,542,936)
Investment securities (9,447,909) (7,974,219)
FHLB Stock -- (482,900)
Cash invested in loans receivable (34,099,498) (34,605,725)
Proceeds from sales of real estate acquired
by foreclosure,net 75,263 --
Purchase of office properties and equipment (204,203) (768,567)
------------ ------------
Net cash used in investing activities (248,500) (10,163,938)
------------ ------------
Cash flows from financing activities:
Increase (decrease) in deposits 3,231,492 (10,791,320)
Increase (decrease) in securities sold
under agreements to repurchase, net 7,338 (1,995,051)
Repayments of ESOP indebtedness (144,000) (144,000)
Increase (decrease) in other borrowings, net (24,500,000) 21,890,000
Increase in advance payments by borrowers
for taxes and insurance 221,176 685,726
Proceeds from sale of common stock, net 27,145,360 --
Exercise of stock options 59,348 --
Dividends paid (269,156) (1,467,599)
Capital contribution from Charter Bancorp, M.H.C. 100,000 --
------------ ------------
Net cash provided by financing activities 5,851,558 8,177,756
------------ ------------
Net increase (decrease) in cash and cash
equivalents 7,005,514 (298,893)
Cash and cash equivalents, beginning of period 6,347,803 8,428,024
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Cash and cash equivalents, end of period $ 13,353,317 $ 8,129,131
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Interest paid $ 5,643,819 $ 4,677,167
Taxes paid 1,064,848 740,000
Loans transferred to real estate acquired by
foreclosure 132,654 151,261
Interest credited to deposits 2,879,942 2,287,000
Securities transferred to available for sale 5,971,820 --
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<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
Charter Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) Stock Conversion
----------------
On December 28, 1995, Charter Financial, Inc. (the "Company"),
the newly formed stock holding company for Charter Bank, S.B.
(the "Bank"), completed its initial stock offering in which
the Company sold 2,919,414 shares of its common stock, $0.10
par value per share, in a subscription and community offering.
The sale of the Company's common stock at a price of $10 per
share resulted in total net proceeds of approximately $28.1
million. In addition, the Company disbursed $969,030 for the
purchase of 96,903 ESOP shares.
Contemporaneously with the subscription and community
offering, an additional 2,054,602 shares of the Company's
common stock were issued in exchange for the 986,051 shares of
the Bank's outstanding common stock not held by Charter
Bancorp, M.H.C. (the "Mutual Holding Company") in a share
exchange whereby each share of the Bank's common stock was
converted into the right to receive 2.0839 shares (the
"Conversion Ratio") of the Company's common stock.
(2) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements
were prepared in accordance with instructions for Form 10-Q
and, therefore, do not include information for footnotes
necessary for a complete presentation of financial position,
results of operations, and cash flows in conformity with
generally accepted accounting principles. The following
material under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is
written with the presumption that the users of the interim
consolidated financial statements have read, or have access
to, the Bank's latest audited consolidated financial
statements and notes thereto, together with Management's
Discussion and Analysis of Financial Condition and Results of
Operations as of September 30, 1995 and for the three year
period then ended. Therefore, only material changes in
financial condition and results of operations are discussed in
the remainder of Part I.
All adjustments (consisting only of normal recurring accruals)
which, in the opinion of management, are necessary for a fair
presentation of the consolidated financial statements have
been included in the results of operations for the three and
six month periods ended March 31, 1996 and 1995. The unaudited
consolidated financial statements contained herein for the
periods prior to the completion of Charter Financial, Inc.'s
stock offering are those of Charter Bank, S.B. and Sparta
First Service Corporation, the Bank's wholly owned subsidiary,
as a predecessor entity. For information on earnings per
share data - see footnote 5.
<PAGE>
Charter Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Operating results for the three and six month periods ended
March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending September 30, 1996.
(3) Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements
include the accounts of Charter Financial, Inc., Charter Bank,
S.B. and Sparta First Service Corporation. All significant
intercompany items have been eliminated.
(4) Accounting Developments
------------------------
Accounting by Creditors for Impairment of a Loan. In May
1993, the FASB issued Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of
a Loan (SFAS 114), which became effective for the Company
beginning October 1, 1995. SFAS 114 requires a lender to
consider a loan to be impaired if the lender believes it is
probable that it will be unable to collect all principal and
interest due according to the contractual terms of the loan.
If a loan is impaired, the lender will be required to record
a loan valuation allowance equal to the difference between the
present value of the estimated future cash flows discounted at
the loan's effective rate and the current book value of the
loan. This accounting change will significantly change the
accounting by lenders presently allowed under SFAS 15. Based
upon the status of the loan portfolio, the adoption of SFAS
114 did not have a material effect on the Company's financial
position.
Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures. During October 1994, the FASB
issued Statement of Financial Accounting Standards No. 118,
Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures (SFAS 118) which amends SFAS 114
to allow a creditor to use existing methods for recognizing
interest income on an impaired loan. Prior to the issuance of
SFAS 118, SFAS 114 provided for two alternative income
recognition methods to be used to account for changes in the
net carrying amount of an impaired loan subsequent to the
initial measurement of impairment. Under the first income
recognition method, a creditor would accrue interest on the
net carrying amount of the loan as an adjustment to the
provision for losses. Under the second income recognition
method, a creditor would recognize all changes in the net
carrying amount of the loan as an adjustment to the provision
for losses on loans. While those income recognition methods
are no longer required, SFAS 118 does not preclude a creditor
from using either of these methods.
<PAGE>
Charter Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
The impact of initially applying SFAS 114 and SFAS 118 was not
reported as an accounting change; rather, it was reported as
a component of the provision for losses on loans charged to
operations. SFAS 114 and SFAS 118 are required to be
accounted for on a prospective basis and were implemented on
October 1, 1995.
Accounting for Investments in Debt and Equity Securities. On
November 15, 1995, the Financial Accounting Standards Board
issued a special report, A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities (the Special Report). Due to
uncertainties surrounding the regulatory capital treatment for
unrealized gains and losses on available for sale securities
at the time SFAS 115 was required to be implemented, the
Special Report was issued to allow all entities a one-time
opportunity to reconsider their ability and intent to hold
securities to maturity and transfer securities from held to
maturity without "tainting" the remainding held to maturity
securities. Those securities transferred would be accounted
for prospectively under SFAS 115. These transfers were only
allowed during the period from the date of issuance of the
Special Report through December 31, 1995.
As a result of the Special Report, management reconsidered the
classification of held to maturity securities and transferred
$5,971,820 of investment securities to available for sale as
of December 15, 1995. As a result of the transfers: a market
valuation account was established for the available for sale
securities of $96,697 to decrease the recorded balance of such
securities at December 15, 1995 to their fair value on that
date: a deferred tax asset of $36,745 was recorded to reflect
the tax effect of the market valuation account: and the net
decrease resulting from the market valuation adjustment at
December 15, 1995 of $59,952 was recorded as a separate
component of stockholders' equity.
Accounting for Mortgage Servicing Rights. In May 1995, the
FASB issued Statement of Financial Accounting Standards 122,
Accounting for Mortgage Servicing Rights, an amendment of FASB
Statement No. 65 (SFAS 122). SFAS 122 amends Statement of
Financial Accounting Standards No. 65, Accounting for Certain
Mortgage Banking Activities, to require that a mortgage
banking enterprise recognize as separate assets rights to
service mortgage loans for others, however those servicing
rights are acquired. A mortgage banking enterprise that
acquires mortgage servicing rights through either the purchase
or origination of mortgage loans and sells or securitizes
those loans with servicing rights retained should allocate the
total cost of the mortgage loans to the mortgage servicing
rights and the loans (without the mortgage servicing rights)
based on their relative fair values, if it is practicable to
estimate those fair values. If it is not practicable to
estimate the fair values of the mortgage servicing rights and
the mortgage loans (without the mortgage servicing rights),
the entire cost of purchasing or originating the loans should
be
<PAGE>
Charter Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
allocated to the mortgage loans, and no cost should be
allocated to mortgage servicing rights. SFAS 122 also
requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on
the fair value of those rights. SFAS 122 must be applied
prospectively for fiscal years beginning after December 15,
1995, with earlier adoption encouraged, to transactions in
which a mortgage banking enterprise sells or securitizes
mortgage loans with servicing rights retained and to
impairment evaluations of all amounts capitalized as mortgage
servicing rights, including those purchased before the
adoption of SFAS 122. Retroactive capitalization of mortgage
servicing rights retained in transactions in which a mortgage
banking enterprise originates mortgage loans and sells or
securitizes those loans before the adoption of SFAS 122 is
prohibited. The Company plans to adopt the provisions of SFAS
122 effective October 1, 1996. Management does not believe
the adoption of SFAS 122 will have a material effect on the
Company's financial position.
Accounting for Impairment of Long-Lived Assets. In March
1995, the FASB issued SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS 121 is effective for fiscal years beginning after
December 15, 1995. Earlier application is permitted. SFAS
121 will require, among other things, that long-lived assets
and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable. Management has not determined when it
will adopt the provisions of SFAS 121, but believes that the
adoption of SFAS 121 will not have a material impact on the
Company's financial statements.
Disclosures of Certain Significant Risks and Uncertainties.
In December 1994, the AICPA issued SOP 94-6, "Disclosure of
Certain Significant Risks and Uncertainties." SOP 94-6 is
effective for fiscal years ending after December 15, 1995.
Earlier application is permitted. SOP 94-6 will require,
among other things, that entities include in their financial
statements disclosures about the nature of their operations
and the use of estimates in the preparation of financial
statements. In addition, SOP 94-6 requires disclosures about
current vulnerability due to certain concentrations.
Management has not determined when it will adopt the
provisions of SOP 94-6, but believes that the adoption of SOP
94-6 will not have a material impact on the Company's
financial statements.
(5) Earnings Per Share
------------------
Earnings per share are based upon the weighted average number
of common shares and common stock equivalents, if dilutive,
outstanding during the period. The only common stock
equivalents are stock options. The weighted average number of
common stock equivalents is calculated using the treasury
stock method. For purposes of computing
<PAGE>
Charter Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
earnings per share, only Employee Stock Option Plan ("ESOP")
shares that have been committed to be released are considered
outstanding.
Earnings per share have been computed based upon net income
for the three months ended March 31, 1996 and 1995, using
weighted average common shares of 4,816,511 and 4,305,323,
respectively. Earnings per share for the six months ended
March 31, 1996 and 1995 have been computed based upon net
income for the six months using weighted average common shares
of 4,592,839 and 4,297,760, respectively. The weighted
average common shares for 1996 and 1995 have both been
adjusted for the impact of the Conversion Ratio in order to
provide for comparative earnings per share figures.
(6) Recent Event
------------
On January 26, 1996, the Company, the Bank and Community
Savings Bank of Marion, Illinois, ("Community Savings Bank")
announced the execution of a definitive agreement under the
terms of which the Bank intends to acquire Community Savings
Bank, for a purchase price of $50.00 per share, in cash. The
acquisition purchase price will be approximately $7.5 million.
The transaction is expected to be completed during the third
quarter of fiscal year 1996.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion reviews the consolidated financial
condition and the results of operations of the Company and
Subsidiary at and for the three and six month periods ended
March 31, 1996.
Financial Condition
Assets
- ------
Total assets increased approximately $7.7 million, or 2.6%, to
$300.8 million at March 31, 1996 from $293.1 million at
September 30, 1995. For the six months ended March 31, 1996 loans
receivable, net increased $2.2 million, or 1.1%, to $208.3 million
from $206.1 million at September 30, 1995. This increase was
primarily attributable to the $50.7 million in loan originations
and purchases which increase was partially offset by $48.8 million
in repayments and prepayments of loans receivable.
Investment securities decreased approximately $589,000, or
1.1%, to $52.2 million at March 31, 1996 from $52.8 million at
September 30, 1995. This decrease was primarily due to the
maturity of $8.5 million of investment securities, the $923,000 in
principal repayments and the $556,000 change in unrealized losses
on investment securities held as available for sale. The decreases
were partially offset by the $9.4 million purchase of investment
securities.
Mortgage-backed securities increased approximately $92,000, or
0.6%, to $16.8 million at March 31, 1996 from $16.7 million at
September 30, 1995. The increase in mortgage-backed securities
resulted from $2.0 million in purchases, which increase was
partially offset by $1.9 million in repayments and prepayments, as
well as, a $30,000 change in unrealized gain on mortgage-backed
securities held as available for sale.
Liabilities
Deposits increased approximately $3.2 million, or 1.6%, to
$200.3 million at March 31, 1996 from $197.1 million at
September 30, 1995. The increase was primarily the result of the
increase in personal and commercial checking accounts.
Borrowed money decreased by $24.6 million, or 43.2%, to $32.4
million at March 31, 1996 from $57.1 million at September 30, 1995.
The decrease resulted primarily from the decrease in short term
advances from the FHLB as repayments were made from proceeds
received in the subscription and community offering of the
Company's common stock.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The Company's net income increased $163,000, or 19.2%, to $1.0
million for the three months ended March 31, 1996 from $852,000 for
the three months ended March 31, 1995. Net income increased
$244,000, or 15.6%, to $1.8 million for the six months ended
March 31, 1996, as compared to $1.6 million for the same period in
fiscal year 1995. Information for the three and six months ended
March 31, 1995 reflects the results of operations of Charter Bank,
S.B. and subsidiary only.
Return on average assets and return on average stockholders'
equity were 1.35% and 7.02%, respectively, for the second quarter
of fiscal year 1996 compared to 1.27% and 10.4%, respectively, for
the second quarter of fiscal year 1995. Return on average assets
and return on average stockholders' equity were 1.21% and 7.46%,
respectively, for the six months ended March 31, 1996, and 1.18%
and 9.71%, respectively, for the same period in fiscal year 1995.
Interest Income
Interest income totaled $5.7 million for the quarter ended
March 31, 1996, as compared to $4.9 million for the quarter ended
March 31, 1995, an increase of $750,000, or 15.2%. The increase
resulted primarily from an increase of $31.0 million in average
interest-earning assets of which $28.1 million represented the net
proceeds of the Company's stock offering as well as an increase in
the average yield on interest-earning assets to 7.90% from 7.69%.
The increase resulted primarily from a change in the asset
portfolio mix as well as the increase in the ratio of interest-
earning assets to interest-bearing liabilities.
Interest income totaled $11.4 million for the six months ended
March 31, 1996, an increase of $1.9 million, or 19.9%, compared to
$9.5 million for the same period in fiscal year 1995. This
increase was primarily the result of an increase in yields on
average interest-earning assets to 8.00% from 7.44% as well as the
increase of $29.5 million in average interest-earning assets.
Interest income on loans receivable totaled $4.5 million and
$3.8 million for the three months ended March 31, 1996 and 1995,
respectively. The increase resulted primarily from the increase in
the average yield on loans receivable to 8.50% from 8.33% as well
as an increase in average loans receivable of $27.8 million. For
the six months ended March 31, 1996 and 1995, interest income on
loans receivable totaled $8.9 million and $7.3 million,
respectively. The increase reflects the increase in average loans
receivable of $26.0 million as well as an increase in the average
yield on loans receivable to 8.66% from 8.06%.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The income on the mortgage-backed securities portfolio
increased $11,000, or 4.1%, to $285,000 for the quarter ended
March 31, 1996 compared to $274,000 for the quarter ended March 31,
1995. The increase in interest income on the mortgage-backed
securities was primarily the result of an increase in the average
yield on mortgage-backed securities to 7.02% from 6.05% which
increase was partially offset by a $1.9 million decrease in average
mortgage-backed securities outstanding. Interest income on
mortgage-backed securities for the six months ended March 31, 1996,
increased $43,000, or 8.3%, to $565,000 from $522,000 for the same
period in fiscal year 1995. The increase reflects the increase in
the average yield on mortgage-backed securities to 7.04% from
5.85%.
Interest income on investment securities increased by $26,000,
or 3.0%, to $871,000 for the three months ended March 31, 1996,
from $845,000 for the same period in fiscal year 1995. The
increase resulted primarily from the increase in average investment
securities, including FHLB stock, of $1.7 million. The average
yield on investment securities remained relatively level.
Average investment securities, including FHLB stock, increased
$1.9 million when comparing the six months ended March 31, 1996 and
1995. Additionally, the average yield on investment securities
increased to 6.19% from 6.07%, respectively, for the same periods
in fiscal years 1996 and 1995. The increases resulted in an
increase in income on investments of $91,000, or 5.5%, to $1.7
million for the six months ended March 31, 1996, when compared to
$1.6 million for the six months ended March 31, 1995.
Other interest income increased $47,000, or 150.6%, for the
three months ended March 31, 1996 to $79,000 from $31,000 for the
same period in fiscal year 1995. The increase was primarily the
result of an increase in average interest-bearing assets by $3.4
million as well as the increase in the average yield to 4.91% from
4.05%.
For the six months ended March 31, 1996 and 1995, other
interest income was $149,000 and $53,000, respectively. The
increase in other interest income of $96,000, or 179.1%, reflects
the increase in average interest-bearing deposits of $3.4 million
as well as the increase in the average yield on interest-bearing
deposits to 4.96% from 4.04%.
Interest Expense
Interest expense increased $194,000, or 7.9%, to $2.6 million
for the quarter ended March 31, 1996 compared to $2.5 million for
the quarter ended March 31, 1995. The increase resulted from the
increase in the cost of average deposits to 4.40% from 3.79% which
increase was partially offset by the decrease in the cost of
average borrowed money to 5.15% from 5.68%.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Additionally, the increase reflects the increase in average
deposits by $17.5 million which increase was partially offset by
$15.6 million decrease in average borrowed money.
Interest expense increased $947,000, or 20.3%, for the six
months ended March 31, 1996 to $5.6 million from $4.7 million for
the same period during fiscal year 1995. The increase resulted
from the $15.9 million increase in average deposits which increase
was partially offset by the $4.9 million decrease in average
borrowed money, as well as the increase in the average cost of
funds on interest-bearing liabilities to 4.68% from 4.08%.
Net Interest Income
Net interest income totaled $3.0 million and $2.5 million for
the three months ended March 31, 1996 and 1995, respectively,
reflecting an increase of $556,000, or 22.3%. The increase
reflects the increase in the net interest margin to 4.23% from
3.87% as well as the increase to the ratio of average interest-
earning assets to average interest-bearing liabilities to 122.87%
from 110.51%.
For the six months ended March 31, 1996 and 1995, net interest
income was $5.8 million and $4.8 million, respectively. The
increase of $943,000, or 19.6%, in net interest income was the
result of an increase in the net interest margin to 4.05% from
3.78% as well as an increase in the ratio of average interest-
earning assets to average interest-bearing liabilities to 118.49%
from 111.30%.
Provision for Losses on Loans
During the three months ended March 31, 1996 and 1995, $30,000
was added to the allowance for loan losses. During the six months
ended March 31, 1996 and 1995, $60,000 was added to the allowance
for loan losses. The loan portfolio is regularly reviewed by
management, including problem loans, and changes in the relative
makeup of the portfolio to determine whether any loans require
classification or the establishment of additional reserves. Total
nonperforming loans increased to $1.3 million at March 31, 1996
from $663,000 at September 30, 1995. Management determined that
the allowance at March 31, 1996 was adequate to absorb potential
losses. At March 31, 1996, the allowance for loans losses totaled
$2.2 million, or 167.78%, of nonperforming loans.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Noninterest Income
The principal sources of noninterest income include late
charges and other loan fees, deposit account fees, and commissions
and fees from brokerage activities. Noninterest income for the
quarter ended March 31, 1996 increased $60,000, or 15.8%, to
$439,000 compared to $379,000 for the same period in fiscal year
1995. The increase is primarily the result of an increase in
deposit account fees and other noninterest income which increase
was partially offset by a decrease in commissions and fees.
Noninterest income increased $42,000, or 5.5%, to $803,000 for
the six months ended March 31, 1996 when compared to $761,000 for
the same period in fiscal year 1995. The increase is primarily the
result of an increase in late charges and other loan fees and an
increase in deposit account fees which increases were partially
offset by a decrease in commissions and fees.
Noninterest Expense
Noninterest expense totaled $1.7 million and $1.4 million for
the quarters ended March 31, 1996 and 1995, respectively, an
increase of $280,000 or 19.5%.
Compensation and employee benefits increased $96,000, or
12.4%, for the three months ended March 31, 1996 as compared to the
three months ended March 31, 1995. For the six months ended
March 31, 1996, compensation and employee benefits increased
approximately $218,000, or 14.4%, to $1.7 million from $1.5 million
for the six months ended March 31, 1995. The principal reason for
the increase in compensation and employee benefits is due to the
increased cost of stock plans as well as an increase in the number
of employees.
Office building and equipment expenses increased $28,000, or
24.9%, to $141,000 for the three months ended March 31, 1996,
compared to $113,000 for the same period in fiscal year 1995. For
the six months ended March 31, 1996, office building and equipment
expenses increased $50,000, or 21.9%, to $279,000 from $229,000 for
the same period in fiscal year 1995. The increase resulted
primarily from the additional branch office acquired in May of
1995.
For the three months ended March 31, 1996, data processing
decreased $19,000, or 16.8%, to $95,000 from $115,000 for the same
period in fiscal year 1995. The decrease resulted primarily from
the conversion to an in-house data processing system. Conversion
expenses resulted in higher data processing expenses for the
quarter ended March 31, 1995.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Advertising expenses increased to $89,000 for the three months
ended March 31, 1996 as compared to $21,000 for the same period in
fiscal year 1995. The $68,000 increase resulted primarily from
expenses related to new product promotions.
Other noninterest expense increased $115,000, or 43.3%, to
$381,000 for the three months ended March 31, 1996 as compared to
$266,000 for the same period in fiscal year 1995. For the six
months ended March 31, 1996 and 1995, other noninterest expenses
were $799,000 and $552,000, respectively. The increase is
primarily a result of increased professional fees and provisions
for losses on memorandum and deficiency judgements.
Income Taxes
Income taxes increased approximately $173,000 for the three
months ended March 31, 1996 as compared to March 31, 1995. The
effective income tax rate was 41.4% and 39.0% at March 31, 1996 and
1995, respectively.
For the six months ended March 31, 1996 and 1995, income taxes
were $1.3 million and $1.0 million, respectively. The effective
income tax rate was 41.4% at March 31, 1996, compared to 40.1% at
March 31, 1995.
Net Income
Net income totaled $1.0 million for the quarter ended March
31, 1996 as compared with $852,000 for the quarter ended March 31,
1995. The increase resulted primarily from an increase in net
interest income which increase was partially offset by an increase
in noninterest expense and an increase in income taxes.
Net income increased $244,000, or 15.6%, to $1.8 million for
the six months ended March 31, 1996 as compared to $1.6 million for
the same period in fiscal year 1995. The increase reflects the
increase in the net interest income which was partially offset by
an increase in noninterest expense and income taxes.
Nonperforming Assets
The following table sets forth information with respect to
nonperforming assets. Nonaccrual loans are those loans on which
the accrual of interest has ceased. Generally, loans are placed on
nonaccrual status when they are more than 90 days contractually
delinquent, and in the opinion of
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
management, collection of additional interest is unlikely. Other
nonperforming assets represent property acquired through
foreclosure or repossession. Foreclosed property is carried at the
lower of its fair value or the principal balance of the related
loan.
Nonperforming residential real estate of $791,000 at March 31,
1996 increased $247,000, or 45.4%, from the level of nonperforming
residential real estate at September 30, 1995. Nonperforming
consumer loans increased to $145,000 at March 31, 1996 from
$119,000 at September 30, 1995 as a result of increased delinquency
in the indirect automobile portfolio. The Company's automobile
portfolio decreased to $47.0 million at March 31, 1996 from $49.9
million at September 30, 1995.
At March 31, 1996, the Company had $380,000 in nonaccrual
commerical real estate loans of which $178,000 was classified as
loss due to the bankruptcy of a commercial business. Adequate
allowance for losses have been established for these loans.
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
--------- ------------
(In Thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual basis:
Residential real estate $ 791 $ 544
Commercial real estate 380 --
Consumer 145 119
Commercial business 1 --
------ ------
Total 1,317 663
Total real estate acquired through foreclosure 160 140
------ ------
Total nonperforming assets $1,477 $ 803
------ ------
------ ------
Total nonperforming assets to total assets 0.49% 0.27%
------ ------
------ ------
</TABLE>
Liquidity and Capital Resources
Total stockholders' equity at March 31, 1996 was $64.4
million, an increase of approximately $28.8 million, or 80.8%, from
$35.6 million at September 30, 1995. The increase was largely
attributable to the $28.1 million in net proceeds received from the
subscription and community offering of the Company's common stock.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company's primary sources of funds include deposits,
principal and interest payments on loans, investments and mortgage-
backed securities, maturities of investments and mortgage-backed
securities, borrowings from the Federal Home Loan Bank and
repurchase agreements. While maturities and scheduled repayments
on loans, mortgage-backed securities and investments are
predictable sources of funds, deposit flows and prepayments are
greatly influenced by market interest rates and competition. The
Company's most liquid assets are cash and interest-bearing
deposits. At March 31, 1996 and September 30, 1995, the Company's
cash and interest-bearing deposits totaled $13.4 million and $6.3
million, respectively. The Company's other sources of liquidity
include investment securities classified as available for sale and
the proceeds from Federal Home Loan Bank advances which totaled
$18.3 million at March 31, 1996.
As of March 31, 1996, the Bank exceeded all capital
requirements. The required, actual, and excess capital levels as
of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Required Actual Excess of
--------------------- ------------------- Actual Over
% of % of Regulatory
Amount Assets Amount Assets Requirement
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Tier 1 (Core) Capital
Leverage Ratio $ 8,908,376 3.00% $ 50,642,374 16.96% $ 41,733,998
Tier 1 Risk-Based
Capital Ratio 6,965,602 4.00% 50,642,374 29.08% 43,676,772
Tier 2 Risk-Based
Capital Ratio 13,931,205 8.00% 52,519,797 30.16% 38,588,592
</TABLE>
At March 31, 1996, the Bank was required to maintain minimum
levels of liquid assets by FDIC regulations. The Bank's liquidity
policy, which varies from time to time depending upon economic
conditions and deposit flows, is based upon a percentage of
deposits and short-term borrowings and is currently 5.00%. The
Bank historically has maintained a level of liquid assets in excess
of requirements, and the Bank's liquidity ratio averaged 10.31%
during the month of March 1996. The Bank adjusts its liquidity
levels in order to meet funding needs for deposit outflows, payment
of real estate taxes on mortgage loan escrow accounts, repayment of
borrowings, when applicable, and loan commitments. The Bank also
adjusts liquidity as appropriate to meet its asset/liability
management objectives. For information regarding funds which the
Bank had on deposit with a financial institution which was seized
by state banking regulatory authorities; see, Part II, Other
Information.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Impact of Inflation and Changing Prices
The unaudited consolidated financial statements and related
data presented herein have been prepared in accordance with
generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Company's
operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Company are monetary. As a result,
interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent
as the price of goods and services.
Recent Developments
The deposits of savings associations such as the Company are
presently insured by the SAIF, which together with the BIF, are the
two insurance funds administered by the 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. 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 OTS 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.
During May 1995, the Company purchased the DuQuoin branch of
First of America Bank, Springfield, Illinois, assuming $21.1
million in deposit liabilities. These deposits will continue to be
insured by BIF and, therefore, subject to the lower deposit
premium.
<PAGE>
Part II - Other Information
---------------------------
Item 1. Legal Proceedings
-----------------
From time to time, the Company is involved as a plaintiff or
defendant in various legal actions incident to its business. None
of these actions individually or in the aggregate is believed to be
material to the financial condition of the Company.
Item 2. Changes in Securities
---------------------
Not applicable
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Subsequent Event
----------------
None
Item 6. Other Information
-----------------
In connection with its mutual holding company
reorganization and stock offering in October 1993, the
Company's employee stock ownership plan and trust (the "ESOP")
borrowed funds from Nationar, a New York trust company which
is owned by savings banks in New York state, and used such
funds to purchase eight percent of the shares of the Company's
common stock in the offering. All of such shares were pledged
as collateral to support the ESOP loan. On February 6, 1995,
Nationar was seized by the New York Banking Department because
of liquidity problems and continuing losses. The unpaid
principal balance of the ESOP loan was $792,000 as of December
31, 1995. In connection with the ESOP loan, the Bank's mutual
holding company entered into a pledge and security agreement
with Nationar pledging cash deposits to secure the ESOP loan.
<PAGE>
Subsequent to entering into the loan agreement, the Bank deposited
approximately $340,000 in a non-insured interest-earning deposit
account with Nationar. As trustee, the New York Banking Department
is currently in the process of selling all of the ESOP loans made
by Nationar, along with the collateral supporting those loans.
Although the Bank maintains that the entire amount of its deposits
in Nationar should be treated as collateral and sold with the
Nationar ESOP loans, the Superintendent of Banking may determine
not to treat such deposits as collateral. If the deposits are not
treated as collateral, the Bank would be a general creditor of
Nationar with respect to such deposits and, based on the
Superintendent's most recent interim report, a loss of $.15 to $.20
per dollar may occur. However, it is not clear at the present time
whether such deposits will be treated as collateral, and,
accordingly, the Company cannot determine the likelihood that the
above-referenced loss would occur. The Company has established an
allowance for loss of $68,000.
On January 26, 1996, the Company, the Bank and Community
Savings Bank of Marion, Illinois, ("Community Savings Bank")
announced the execution of a definitive agreement under the terms
of which the Bank intends to acquire Community Savings Bank, for a
purchase price of $50.00 per share, in cash. The acquisition
purchase price will be approximately $7.5 million. The acquisition
is subject to approval by shareholders of Community Savings Bank
and to receipt of regulatory approval. The closing of the
transaction is contemplated in the third quarter of fiscal year
1996.
Item 7. Exhibits and Reports
--------------------
None
<PAGE>
SIGNATURES
Under 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 FINANCIAL, INC.
Date: April 26, 1996 (s) John A. Becker
-------------- -------------------------
John A. Becker
Chairman of the Board
and President
Date: April 26, 1996 (s) Michael R. Howell
-------------- -------------------------
Michael R. Howell
Executive Vice President
and Treasurer
(Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<CASH> 1529347
<INT-BEARING-DEPOSITS> 11923970
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52797846
<INVESTMENTS-CARRYING> 16159669
<INVESTMENTS-MARKET> 16124714
<LOANS> 210508220
<ALLOWANCE> 2209710
<TOTAL-ASSETS> 300811928
<DEPOSITS> 200334573
<SHORT-TERM> 25443087
<LIABILITIES-OTHER> 3640951
<LONG-TERM> 7000000
<COMMON> 497438
0
0
<OTHER-SE> 63895879
<TOTAL-LIABILITIES-AND-EQUITY> 300811928
<INTEREST-LOAN> 4456871
<INTEREST-INVEST> 870901
<INTEREST-OTHER> 363900
<INTEREST-TOTAL> 5691672
<INTEREST-DEPOSIT> 2173167
<INTEREST-EXPENSE> 2647357
<INTEREST-INCOME-NET> 3044315
<LOAN-LOSSES> 30000
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<EXPENSE-OTHER> 1719844
<INCOME-PRETAX> 1733322
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1015297
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 7.90
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<LOANS-PAST> 0
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<CHARGE-OFFS> 112943
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</TABLE>
