<PAGE>
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 JUNE 30, 1996
File Commission No. 0-27304
Charter Financial, Inc.
------------------------
(Exact name of registrant as specified in its charter)
Illinois
--------
(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
----------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (618) 443-2166
-------------
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 4,725,661 shares of the Bank's common stock
outstanding as of July 22, 1996.
PAGE
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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 8
PART II OTHER INFORMATION 19
SIGNATURES 21
</TABLE>
PAGE
<PAGE>
CHARTER FINANCIAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1996 and September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------ -------------
<S> <C> <C>
Assets:
- ------
Cash $ 1,983,205 $ 1,097,732
Interest-bearing deposits 5,680,099 5,250,071
Investment securities, net 65,175,931 52,784,304
Mortgage-backed securities, net 16,450,680 16,669,791
Loans receivable, net 260,972,132 206,073,777
Accrued interest receivable 2,676,201 2,112,947
Real estate acquired by foreclosure, net 511,352 140,239
Stock in Federal Home Loan Bank, at cost 1,873,000 2,140,000
Office properties and equipment, at cost
less accumulated depreciation 5,862,937 3,737,740
Prepaid expenses and other assets 661,533 1,070,713
Deferred tax asset, net 681,822 266,122
Cost in excess of fair value of net
assets acquired 3,386,626 617,696
Core deposit intangible 1,067,253 1,173,823
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$366,982,771 $293,134,955
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity:
- ------------------------------------
Deposits 251,810,120 197,103,081
Accrued interest on deposits 360,014 513,182
Borrowed money 45,980,709 57,079,749
Advance payments by borrowers for taxes
and insurance 1,347,536 848,082
Income taxes payable 415,189 73,933
Accrued expenses and other liabilities 3,292,211 1,894,948
------------ ------------
Total liabilities 303,205,779 257,512,975
------------ ------------
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 June 30, 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
Treasury stock, at cost: 100,000 shares and 0
shares at June 30, 1996 and September 30, 1995 (1,162,500) --
Additional paid-in capital 37,533,382 7,399,095
Retained earnings - substantially restricted 28,952,569 26,763,369
Unrealized gain (loss) on securities available
for sale, net (393,870) 301,058
Unamortized restricted stock awards (32,997) (148,667)
Unearned ESOP shares (1,617,030) (864,000)
------------ ------------
Total stockholders' equity 63,776,992 35,621,980
------------ ------------
$366,982,771 $293,134,955
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------------ ------------
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
PAGE
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Charter Financial, Inc. and Subsidiary
Consolidated Statements of Income
For the three months and nine months ended
June 30, 1996 (unaudited) and 1995 (unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $4,883,520 $3,886,189 $13,812,489 $11,155,278
Mortgage-backed securities 288,638 262,775 853,426 784,247
Investments 956,728 812,279 2,695,645 2,460,247
Other 70,170 40,545 219,306 93,986
---------- ---------- ---------- -----------
Total interest income 6,199,056 5,001,788 17,580,866 14,493,834
---------- ---------- ---------- -----------
Interest expense:
Deposits 2,529,930 1,959,703 6,905,079 5,363,013
Borrowed money 498,344 696,461 1,740,612 1,963,509
---------- ---------- ---------- -----------
Total interest expense 3,028,274 2,656,164 8,645,691 7,326,522
---------- ---------- ---------- -----------
Net interest income 3,170,782 2,345,624 8,935,175 7,167,312
Provision for losses on loans 50,000 -- 110,000 60,000
---------- ---------- ---------- -----------
Net interest income after provision
for losses on loans 3,120,782 2,345,624 8,825,175 7,107,312
---------- ---------- ---------- -----------
Noninterest income:
Late charges and other loan fees 108,632 63,436 252,710 173,130
Gain (loss) on sale of investment securities, net -- (13,719) -- (13,719)
Deposit account fees 202,953 177,640 570,057 495,872
Commissions and fees 80,092 25,322 209,696 152,484
Other 155,557 21,032 317,278 226,812
---------- ---------- ---------- -----------
Total noninterest income 547,234 273,711 1,349,741 1,034,579
---------- ---------- ---------- -----------
Noninterest expense:
Compensation and employee benefits 940,008 752,429 2,671,467 2,266,124
Office buildings and equipment 170,133 122,614 448,746 348,168
Data processing 104,526 47,436 284,039 305,462
Advertising 61,908 37,423 187,293 97,282
Deposit insurance premiums 117,587 113,071 325,000 335,351
Other 402,126 416,605 1,200,674 968,453
Provision for losses and expenses
on real estate acquired by foreclosure 30,601 (13,347) 62,864 (4,013)
Amortization of cost in excess of fair value
of net assets acquired 64,158 33,946 130,576 102,763
---------- ---------- ---------- -----------
Total noninterest expense 1,891,047 1,510,177 5,310,659 4,419,590
---------- ---------- ---------- -----------
Income before income taxes 1,776,969 1,109,158 4,864,257 3,722,301
Income taxes 699,529 388,752 1,978,570 1,437,588
---------- ---------- ---------- -----------
Net income $1,077,440 $ 720,406 $2,885,687 $ 2,284,713
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Earnings per share $ 0.22 $ 0.17 $ 0.62 $ 0.53
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
PAGE
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Charter Financial, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
Nine Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Unrealized gain
Retained (loss) on Unamortized
Additional earnings, securities restricted Unearned Total
Common Treasury paid-in substantially available for stock ESOP stockholders'
stock Stock capital restricted sale, net awards shares equity
------ ----------- ----------- ------------- -------------- ----------- ----------- -------------
<S> <C> <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 -- -- -- 2,885,687 -- -- -- 2,885,687
Sale of common stock 291,941 -- 27,728,948 -- -- -- (969,030) 27,051,859
Cancellation of Charter
Bank, S.B. common stock
owned by Charter
Bancorp, M.H.C . (1,190,000) -- 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)
Purchase of Treasury
stock -- (1,162,500) -- -- -- -- -- (1,162,500)
Capital contribution
from Charter Bancorp,
M.H.C. -- -- 100,000 -- -- -- -- 100,000
Amortization of
restricted stock awards -- -- -- -- -- 107,330 -- 107,330
Cancellation of
restricted stock awards (834) -- (7,506) -- -- 8,340 -- --
Amortization of unearned
ESOP shares -- -- 291,029 -- -- -- 216,000 507,029
Exercise of stock
options 5,797 -- 53,551 -- -- -- -- 59,348
Dividends declared on
common stock -- -- -- (696,487) -- -- -- (696,487)
Change in unrealized
gain (loss) on
securities available
for sale, net -- -- -- -- (694,928) -- -- (694,928)
----------- ----------- ----------- ----------- --------- -------- ----------- -----------
Balance, June 30, 1996 $ 497,438 $(1,162,500) $37,533,382 $28,952,569 $(393,870) $(32,997) $(1,617,030) $63,776,992
----------- ----------- ----------- ----------- --------- -------- ----------- -----------
----------- ----------- ----------- ----------- --------- -------- ----------- -----------
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
PAGE
<PAGE>
CHARTER FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,885,687 $ 2,284,713
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization:
Office properties and equipment 352,379 248,224
Discounts related to purchase accounting (49,834) (70,063)
Cost in excess of fair value of net
assets acquired 130,575 102,763
Fees, discounts and premiums (2,163,708) (1,022,588)
Stock plans 614,359 450,746
Decrease in accrued interest receivable (242,311) 50,713
Increase (decrease) in accrued interest on
deposits (446,591) (191,308)
Provision for losses on loans 110,000 60,000
Stock dividend of FHLB -- (27,000)
Increase in income taxes, net 318,722 192,304
Loss on sale of investment securities, net -- 13,719
Net change in other assets and other
liabilities 1,652,062 265,974
------------ ------------
Net cash provided by operating activities 3,161,340 2,358,197
------------ ------------
Cash flows from investing activities:
Principal repayments on:
Loans receivable 76,408,019 48,234,920
Mortgage-backed securities 3,333,851 1,573,627
Investment securities 1,742,281 1,476,609
Proceeds from sale of:
Loans receivable 1,390,541 --
Investment securities -- 36,281
Maturity of investment securities 15,685,996 6,649,250
Purchase of:
Loans receivable (25,433,335) (16,859,312)
Mortgage-backed securities (2,032,884) (2,542,936)
Investment securities (24,574,604) (8,969,219)
FHLB Stock -- (907,900)
Cash invested in loans receivable (60,037,346) (50,722,380)
Cash paid for acquisition, net of cash received (6,930,243) --
Proceeds from sales of real estate acquired
by foreclosure,net 192,016 214,398
Proceeds from sales of FHLB stock 656,000 1,030,000
Proceeds from sales of office properties and
equipment 18,550 --
Purchase of office properties and equipment (508,568) (1,274,528)
------------ ------------
Net cash used in investing activities (20,089,726) (22,061,190)
------------ ------------
Cash flows from financing activities:
Increase (decrease) in deposits 4,983,098 (9,314,608)
Deposits acquired, net of premium -- 19,794,592
Proceeds from FHLB advances -- 23,000,000
Repayments of FHLB advances (9,908) (25,010,000)
Decrease in reverse repurchase agreements, net (89,073) (1,991,481)
Repayments of ESOP indebtedness (216,000) (216,000)
Increase (decrease) in other borrowings, net (12,300,000) 13,300,000
Increase in advance payments by borrowers
for taxes and insurance 378,081 934,946
Proceeds from sale of common stock, net 27,051,859 --
Exercise of stock options 59,348 1,750
Purchase of treasury stock (1,162,500) --
Dividends paid (551,018) (1,698,000)
Capital contribution from Charter Bancorp, M.H.C. 100,000 --
------------ ------------
Net cash provided by financing activities 18,243,887 18,801,199
------------ ------------
Net increase (decrease) in cash and cash
equivalents 1,315,501 (901,794)
Cash and cash equivalents, beginning of period 6,347,803 8,428,024
------------ ------------
Cash and cash equivalents, end of period $ 7,663,304 $ 7,526,230
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Interest paid $ 8,846,788 $ 7,517,830
Taxes paid 1,659,848 1,240,000
Loans transferred to real estate acquired by
foreclosure 636,428 178,779
Interest credited to deposits 4,739,631 3,944,925
------------ ------------
------------ ------------
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
PAGE
<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) Stock Repurchase
----------------
On June 28, 1996, Charter Financial, Inc. commenced a stock
repurchase program to acquire up to 248,719 shares of the
Company's common stock, which represented approximately 5% of
the outstanding common stock.
For the quarter ended June 30, 1996, the Company had
repurchased 100,000 shares of stock at $11.625 per share. On
July 5, 1996, Charter Financial, Inc. announced the completion
of the stock repurchase program and 248,719 shares were
repurchased at an average price of $11.619 per share.
(3) 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.
<PAGE>
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 June 30, 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.
Operating results for the three and nine month periods ended
June 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending September 30, 1996.
<PAGE>
(4) 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.
(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 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 June 30, 1996 and 1995, using
weighted average common shares of 4,830,732 and 4,320,571,
respectively. Earnings per share for the six months ended
June 30, 1996 and 1995 have been computed based upon net
income for the six months using weighted average common shares
of 4,671,846 and 4,305,364, 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
------------
At the close of business on May 15, 1996, Charter Bank, S.B.
purchased Community Savings Bank of Marion, Illinois for $7.5
million. The acquisition was accounted for as a purchase and
the Bank recorded $2.9 million of goodwill. The goodwill wil
be amortized over a 15 year period. As part of the purchase,
the Bank assumed $49.7 million in deposit
<PAGE>
liabilities and $1.5 million in borrowed money. The Bank
acquired loans receivable of $45.4 million, mortgage-backed
securities of $1.3 million, investment securities of $6.3
million and building and equipment with a value of $2.0
million.
PAGE
<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 nine month periods ended June
30, 1996.
Financial Condition
Assets
Total assets increased approximately $73.8 million, or 25.2%,
to $367.0 million at June 30, 1996 from $293.1 million at September
30, 1995. For the nine months ended June 30, 1996 loans
receivable, net increased $54.9 million, or 26.6%, to $261.0
million from $206.1 million at September 30, 1995. This increase
was primarily attributable to the $60.0 million in loan
originations and $25.4 million in purchases which increase was
partially offset by $76.4 million in repayments and prepayments of
loans receivable. Additionally, the Company acquired $45.4 million
in loans receivable, net in the acquisition of Community Savings
Bank.
Investment securities increased $12.4 million, or 23.5%, to
$65.2 million at June 30, 1996 from $52.8 million at September 30,
1995. This increase was primarily due to the purchase of $24.6
million of investment securities, which increase was partially
offset by the maturity of $15.7 million of investment securities,
the $1.7 million in principle repayments and the $1.0 million
change in unrealized losses on investment securities held as
available for sale. Additionally, the Company acquired $6.3
million of investment securities in the acquisition of Community
Savings Bank. Of the $6.3 million of investment securities
acquired $5.3 million were in U.S. Government Obligations of which
$4.3 million will mature in 5 years or less. The company also
acquired $418,000 in mutual funds and $604,000 in municipal bonds.
Mortgage-backed securities decreased approximately $219,000,
or 1.3%, to $16.5 million at June 30, 1996 from $16.7 million at
September 30, 1995. The decrease in mortgage-backed securities
resulted from $3.3 million in repayments and prepayments, which
decrease was partially offset by the $2.0 million in purchases as
well as the $1.3 million in mortgage-backed securities which were
acquired as part of the purchase of Community Savings Bank.
Liabilities
Deposits increased approximately $54.7 million, or 27.8%, to
$251.8 million at June 30, 1996 from $197.1 million at September
30, 1995. The increase was primarily the result of the $49.7
million in deposits acquired from Community Savings Bank.
<PAGE>
Borrowed money decreased by $11.1 million, or 19.4%, to $46.0
million at June 30, 1996 from $57.1 million at September 30, 1995.
The decrease resulted primarily from the decrease in short term
advances from the FHLB.
Results of Operations
The Company's net income increased $357,000, or 49.6%, to $1.1
million for the three months ended June 30, 1996 from $720,000 for
the three months ended June 30, 1995. Net income increased
$601,000, or 26.3%, to $2.9 million for the nine months ended June
30, 1996, as compared to $2.3 million for the same period in fiscal
year 1995. Information for the three and nine months ended June
30, 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 1.30% and 6.70%, respectively, for the third quarter of
fiscal year 1996 compared to 1.05% and 8.45%, respectively, for the
third quarter of fiscal year 1995. Return on average assets and
return on average stockholders' equity were 1.85% and 10.84%,
respectively, for the nine months ended June 30, 1996, and 1.13%
and 9.28%, respectively, for the same period in fiscal year 1995.
Interest Income
Interest income totaled $6.2 million for the quarter ended
June 30, 1996, as compared to $5.0 million for the quarter ended
June 30, 1995, an increase of $1.2 million, or 23.9%. The increase
resulted primarily from an increase of $58.7 million in average
interest-earning assets of which $28.0 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 7.64% from 7.53%.
The increase resulted primarily from a change in the asset
portfolio mix.
Interest income totaled $17.6 million for the nine months
ended June 30, 1996, an increase of $3.1 million, or 21.3%,
compared to $14.5 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 7.87% from 7.47% as well as the
increase of $39.2 million in average interest-earning assets.
Interest income on loans receivable totaled $4.9 million and
$3.9 million for the three months ended June 30, 1996 and 1995,
respectively. The increase resulted primarily from the increase in
average loans receivable of $51.1 million which increase was
partially offset by a decrease in the average yield on loans
receivable to 8.10% from 8.18%. For the nine months ended June 30,
1996
<PAGE>
and 1995, interest income on loans receivable totaled $13.8 million
and $11.2 million, respectively, an increase of $2.7 million, or
23.8%. The increase reflects the increase in average loans
receivable of $34.4 million as well as an increase in the average
yield on loans receivable to 8.45% from 8.11%.
The income on the mortgage-backed securities portfolio
increased $26,000, or 9.8%, to $289,000 for the quarter ended June
30, 1996 compared to $263,000 for the quarter ended
June 30, 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 7.00% from 5.99%
which increase was partially offset by a $1.1 million decrease in
average mortgage-backed securities outstanding. Interest income on
mortgage-backed securities for the nine months ended June 30, 1996,
increased $69,000, or 8.8%, to $853,000 from $784,000 for the same
period in fiscal year 1995. The increase reflects the increase in
the average yield on mortgage-backed securities to 7.02% from 5.89%
which increase was partially offset by the decrease of $1.5 million
in average mortgage-backed securities.
Interest income on investment securities increased by
$144,000, or 17.8%, to $957,000 for the three months ended June 30,
1996, from $812,000 for the same period in fiscal year 1995. The
increase resulted primarily from the increase in average investment
securities, including FHLB stock, of $9.9 million which increase
was partially offset by the slight decrease in average yield on
investment securities to 6.10% from 6.14%.
Average investment securities, including FHLB stock, increased
$4.6 million when comparing the nine months ended June 30, 1996 and
1995. Additionally, the average yield on investment securities
increased to 6.16% from 6.09%, respectively, for the same periods
in fiscal years 1996 and 1995. The increases resulted in an
increase in income on investments of $235,000, or 9.6%, to $2.7
million for the nine months ended June 30, 1996, when compared to
$2.5 million for the nine months ended June 30, 1995.
Other interest income increased approximately $30,000, or
73.1%, for the three months ended June 30, 1996 to $70,000 from
$41,000 for the same period in fiscal year 1995. The increase was
primarily the result of an increase in the average yield to 7.01%
from 3.15% which increase was partially offset by the decrease of
average interest-bearing assets by $1.2 million.
For the nine months ended June 30, 1996 and 1995, other
interest income was $219,000 and $94,000, respectively. The
increase in other interest income of $125,000, or 133.3%, reflects
the increase in average interest-bearing deposits of $1.9 million
as well as the increase in the average yield on interest-bearing
deposits to 5.47% from 3.60%.
<PAGE>
Interest Expense
Interest expense increased $372,000, or 14.0%, to $3.0 million
for the quarter ended June 30, 1996 compared to $2.7 million for
the quarter ended June 30, 1995. The increase resulted from the
increase in the cost of average deposits to 4.36% from 4.06% which
increase was partially offset by the decrease in the cost of
average borrowed money to 5.04% from 6.13%. Additionally, the
increase reflects the increase in average deposits by $39.2 million
which increase was partially offset by $5.9 million decrease in
average borrowed money.
Interest expense increased $1.3 million, or 18.0%, for the
nine months ended June 30, 1996 to $8.6 million from $7.3 million
for the same period during fiscal year 1995. The increase resulted
from the $23.7 million increase in average deposits which increase
was partially offset by the $5.2 million decrease in average
borrowed money, as well as the increase in the average cost of
funds on interest-bearing liabilities to 4.60% from 4.21%.
Net Interest Income
Net interest income totaled $3.2 million and $2.3 million for
the three months ended June 30, 1996 and 1995, respectively,
reflecting an increase of $825,000, or 35.2%. The increase
reflects the increase in the net interest margin to 3.91% from
3.53% as well as the increase to the ratio of average interest-
earning assets to average interest-bearing liabilities to 119.34%
from 111.44%.
For the nine months ended June 30, 1996 and 1995, net interest
income was $8.9 million and $7.2 million, respectively. The
increase of $1.8 million, or 24.7%, in net interest income was the
result of an increase in the net interest margin to 4.00% from
3.70% as well as an increase in the ratio of average interest-
earning assets to average interest-bearing liabilities to 118.79%
from 111.35%.
Provision for Losses on Loans
During the three months ended June 30, 1996, $50,000 was added
to the allowance for loan losses. No additional allowance for loan
losses were established during the three months ended June 30,
1996. During the nine months ended June 30, 1996 and 1995,
$110,000 and $60,000, respectively, were 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 $1.4 million at June 30, 1996 from
$663,000 at September 30, 1995. Management determined that the
allowance at June 30, 1996 was adequate to absorb potential
<PAGE>
losses. At June 30, 1996, the allowance for loans losses totaled
$2.5 million, or 178.2%, of nonperforming loans. The allowance for
loan losses totaled 0.94% of loans receivable, net.
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 June 30, 1996 increased $274,000, or 99.9%, to
$547,000 compared to $274,000 for the same period in fiscal year
1995. Noninterest income increased $315,000, or 30.5%, to $1.3
million for the nine months ended June 30, 1996 when compared to
$1.0 million for the same period in fiscal year 1995. The increase
is primarily the result of an increase in late charges and other
loans fees, deposit account fees and other noninterest income.
Noninterest Expense
Noninterest expense totaled $1.9 million and $1.5 million for
the quarters ended June 30, 1996 and 1995, respectively, an
increase of $381,000 or 25.2%.
Compensation and employee benefits increased $188,000, or
24.9%, for the three months ended June 30, 1996 as compared to the
three months ended June 30, 1995. For the nine months ended June
30, 1996, compensation and employee benefits increased
approximately $405,000, or 17.9%, to $2.7 million from $2.3 million
for the nine months ended June 30, 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. The number of employees increased primarily due to
the additional branch offices acquired in May of 1995 and May 1996.
Office building and equipment expenses increased $48,000, or
38.8%, to $170,000 for the three months ended June 30, 1996,
compared to $123,000 for the same period in fiscal year 1995. For
the nine months ended June 30, 1996, office building and equipment
expenses increased $101,000, or 28.9%, to $449,000 from $348,000
for the same period in fiscal year 1995. The increase resulted
primarily from the additional branch offices acquired in May of
1995 and May of 1996. The number of full-time equivalent employees
were 95 and 80 at June 30, 1996 and 1995, respectively.
For the three months ended June 30, 1996, data processing
increased $57,000, or 120.3%, to $105,000 from $47,000 for the same
period in fiscal year 1995. The increase resulted primarily from
the increase in cost due to the additional branch office acquired
in May of 1996. The branch acquired in May of 1996, Community
Savings Bank, has not converted to the Bank's in-house data
<PAGE>
processing system and is presently using a service bureau. The
data processing conversion for this branch will be completed in
August 1996. Additionally, the Bank upgraded their data processing
mainframe during the nine months ended June 30, 1996.
Advertising expenses increased to $62,000 for the three months
ended June 30, 1996 as compared to $37,000 for the same period in
fiscal year 1995. The $24,000 increase resulted primarily from
expenses related to new product promotions.
Amortization of cost in excess of fair value of net assets
acquired increased to $64,000 for the third quarter of fiscal year
1996 compared to $34,000 for the same period in fiscal year 1995.
For the nine months ended June 30, 1996, amortization of cost in
excess of fair value of net assets acquired was $131,000 compared
to $103,000 for the nine months ended June 30, 1995. The increased
amortization is due to the $2.9 million increase in goodwill due to
the purchase of Community Savings Bank. The goodwill will be
amortized over a 15 year period.
For the nine months ended June 30, 1996 and 1995, other
noninterest expenses were $1.2 million and $968,000, respectively.
The increase is primarily a result of increased provisions for
losses on consumers and real estate loans and expenses relating to
the Bank's new creditcard program and an increase in professional
fees.
Income Taxes
Income taxes increased approximately $311,000 for the three
months ended June 30, 1996 as compared to June 30, 1995. The
effective income tax rate was 39.4% and 35.0% at June 30, 1996 and
1995, respectively.
For the nine months ended June 30, 1996 and 1995, income taxes
were $2.0 million and $1.4 million, respectively. The effective
income tax rate was 40.7% at June 30, 1996, compared to 38.6% at
June 30, 1995.
Net Income
Net income totaled $1.1 million for the quarter ended June 30,
1996 as compared with $720,000 for the quarter ended June 30, 1995.
Net income increased $601,000, or 26.3%, to $2.9 million for the
nine months ended June 30, 1996 as compared to $2.3 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.
<PAGE>
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 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 $755,000 at June 30,
1996 increased $211,000, or 38.7%, from the level of nonperforming
residential real estate at September 30, 1995. Nonperforming
consumer loans increased to $248,000 at June 30, 1996 from $119,000
at September 30, 1995 as a result of increased delinquency in the
indirect automobile portfolio due to the general decline in the
economy. The Company's automobile portfolio decreased to $49.2
million at June 30, 1996 from $49.9 million at September 30, 1995.
At June 30, 1996, the Company had $380,000 in nonaccrual
commercial real estate loans of which $180,000 was classified as
loss due to the bankruptcy of a commercial business. Adequate
allowance for losses have been established for these loans.
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
-------- -------------
(In Thousands)
<S> <C> <C>
Loans accounted for on a
nonaccrual basis:
Residential real estate $ 755 $ 544
Commercial real estate 380 --
Consumer 248 119
Commercial business 1 --
------ ------
------ ------
Total 1,384 663
Total real estate acquired through
foreclosure 511 140
------ ------
Total nonperforming assets $1,895 $ 803
------ ------
------ ------
Total nonperforming assets to
total assets 0.52% 0.27%
------ ------
------ ------
</TABLE>
Liquidity and Capital Resources
Total stockholders' equity at June 30, 1996 was $63.8 million,
an increase of approximately $28.2 million, or 79.0%, from $35.6
million at September 30, 1995. The increase was largely
<PAGE>
attributable to the $28.0 million in net proceeds received from the
subscription and community offering of the Company's common stock.
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 June 30, 1996 and September 30,1995, the Company's
cash and interest-bearing deposits totaled $7.7 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
$32.0 million at June 30, 1996.
As of June 30, 1996, the Bank exceeded all capital
requirements. The required, actual, and excess capital levels as
of June 30, 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 $9,884,754 3.00% $49,026,429 14.74% $39,141,675
Tier 1 Risk-Based
Capital Ratio 8,306,130 4.00% 49,026,429 23.61% 40,720,299
Tier 2 Risk-Based
Capital Ratio 16,612,259 8.00$ 51,171,656 24.64% 34,559,397
</TABLE>
At June 30, 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 10.19%
during the month of June 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
<PAGE>
asset/liabilitymanagement 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.
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. Effective January 1996, the BIF premium
structure was further revised to provide for a minimum annual
assessment of $2,000. 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.
<PAGE>
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. For the semiannual period of July 1, 1996 through
December 31, 1996, the deposit base insured by BIF will be $19.8
million.
Accounting Developments
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 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,
<PAGE>
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.
During October 1995, the FASB issued SFAS No. 123, "Accounting
for Stock-Based Compensation", which establishes financial
accounting and reporting standards for stock-based employee
compensation plans and also applies to transactions in which an
entity issues its equity instruments to acquire goods or services
from nonemployees. SFAS No. 123 defines a fair value-based method
of accounting for an employee stock option or similar equity
instruments and encourages all entities to adopt that method of
accounting. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic
value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). SFAS No. 123 is effective for transactions
entered into in fiscal years beginning after December 15, 1995.
Pro forma disclosures required for entities that elect to continue
to measure compensation cost using APB 25 must include the effect
of all awards granted in fiscal years that begin after December 15,
1994. The Bank plans to continue to measure compensation cost
using APB 25; therefore, the adoption of SFAS No. 123 will not have
any impact on the Bank's financial condition or results of
operations.
During June 1996, the FASB issued SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities", which provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The Statement also requires
that a liability can be derecognized if an only if either (a) the
debtor pays the creditor and is relieved of its obligation for the
liability or (b) the debtor is legally released from the liability
either judicially or by the creditor. This statement is effective
for transactions occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not
permitted. The Bank has not determined the impact of the statement
on its financial position as the Statement was only recently
issued.
PAGE
<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. 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.
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
<PAGE>
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 June 27, 1996, the Bank received $136,086.68 from the
New York Banking Department for partial payment on the claim filed
against Nationar.
At the close of business on May 15, 1996, Charter Bank, S.B.
purchased Community Savings Bank of Marion, Illinois, for $7.5
million. The acquisition was accounted for as a purchase and the
Bank recorded $2.9 million of Goodwill. As part of the purchase,
the Bank assumed $49.7 million in deposit liabilities and $1.5
million in borrowed money. The Bank acquired loans receivable, net
of $45.4 million, mortgage-backed securities of $1.3 million,
investment securities of $6.3 million and building and equipment
with a value of $2.0 million.
On June 28, 1996, Charter Financial, Inc. commenced a stock
repurchase program to acquire up to 248,719 shares of the Company's
common stock, which represented approximately 5% of the outstanding
common stock.
For the quarter ended June 30, 1996, the Company had
repurchased 100,000 shares of stock at $11.625 per share.
On July 5, 1996, Charter Financial, Inc. announced the
completion of the stock repurchase program and 248,719 shares were
repurchased at an average price of $11.619 per share.
Item 6. Exhibits and Reports
--------------------
None
PAGE
<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: August 13, 1996 (s) John A. Becker
--------------- -------------------------
John A. Becker
Chairman of the Board
and President
Date: August 13, 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1996
<CASH> 1983205
<INT-BEARING-DEPOSITS> 5680099
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69815400
<INVESTMENTS-CARRYING> 11811211
<INVESTMENTS-MARKET> 11744817
<LOANS> 263438230
<ALLOWANCE> 2466098
<TOTAL-ASSETS> 366982771
<DEPOSITS> 251810120
<SHORT-TERM> 38574676
<LIABILITIES-OTHER> 5414950
<LONG-TERM> 7406033
<COMMON> 497438
0
0
<OTHER-SE> 63279554
<TOTAL-LIABILITIES-AND-EQUITY> 366982771
<INTEREST-LOAN> 4883520
<INTEREST-INVEST> 1245366
<INTEREST-OTHER> 70170
<INTEREST-TOTAL> 6199056
<INTEREST-DEPOSIT> 2529930
<INTEREST-EXPENSE> 3028274
<INTEREST-INCOME-NET> 3170782
<LOAN-LOSSES> 50000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1891047
<INCOME-PRETAX> 1776969
<INCOME-PRE-EXTRAORDINARY> 1077440
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1077440
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 7.64
<LOANS-NON> 1383661
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2209710
<CHARGE-OFFS> 114152
<RECOVERIES> 55540
<ALLOWANCE-CLOSE> 2466098
<ALLOWANCE-DOMESTIC> 320871
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2145227
</TABLE>
