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,
1997
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
(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 4,149,758 shares of the Bank's common stock
outstanding as of
May 7, 1997.
<PAGE>
CHARTER FINANCIAL, INC. AND SUBSIDIARY
INDEX
<TABLE>
PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
-Consolidated Balance Sheets 1
-Consolidated Statements of Income 2
-Consolidated Statement of Stockholders'
Equity 3
-Consolidated Statements of Cash Flows 4
-Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II OTHER INFORMATION 18
SIGNATURES 21
</TABLE>
<PAGE>
Charter Financial, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, 1997 and September 30, 1996
(Unaudited)
<TABLE>
March 31, September 30,
1997 1996
<S> <C> <C>
ASSETS
Cash $ 1,564,717 $ 1,492,740
Interest-bearing deposits 6,383,617 7,475,682
Investment securities, net 58,339,250 67,473,525
Mortgage-backed securities, net 17,166,862 16,632,214
Loans receivable, net 289,471,025 275,486,929
Accrued interest receivable 2,829,732 3,098,131
Real estate acquired by foreclosure, net 532,600 428,279
Stock in Federal Home Loan Bank, at cost 3,244,900 3,049,900
Office properties and equipment, at cost
less accumulated depreciation 6,056,722 5,990,392
Prepaid expenses and other assets 1,190,959 1,995,423
Deferred tax asset, net 1,193,395 955,304
Cost in excess of fair value of net assets acquired 5,877,491 3,320,843
Core deposit intangible 963,771 1,031,729
------------ -------------
$394,815,041 $ 388,431,091
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits 274,757,281 248,722,627
Accrued interest on deposits 1,126,634 576,341
Borrowed money 58,344,139 76,353,783
Advance payments by borrowers for taxes and insurance 994,702 1,084,720
Income taxes payable 1,132,026 188,097
Accrued expenses and other liabilities 2,652,826 5,111,072
------------ -------------
Total liabilities 339,007,608 332,036,640
------------ -------------
------------ -------------
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; 4,365,458 and
4,253,459 issued at March 31, 1997 and
September 30, 1996, respectively 436,546 425,346
Additional paid-in capital 30,336,624 28,762,464
Treasury stock, at cost: 145,200 shares and -0-
shares at March 31, 1997 and September 30,
1996, respectively (2,405,388) -
Retained earnings - substantially restricted 30,633,917 28,885,198
Unrealized gain (loss) on securities available for sale, net (453,729) (206,204)
Unamortized restricted stock awards (1,363,111) -
Unearned ESOP shares (1,377,426) (1,472,353)
------------ -------------
Total stockholders' equity 55,807,433 56,394,451
------------ -------------
$394,815,041 $ 388,431,091
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
Charter Financial, Inc. and Subsidiary
Consolidated Statements of Income
For the three months and six months ended
March 31, 1997 and 1996
(Unaudited)
<TABLE>
For the Three Months Ended For the Six Months Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $6,095,950 $4,456,871 $11,788,455 $ 8,928,969
Mortgage-backed securities 289,281 285,288 549,991 564,788
Investments 1,008,119 870,901 2,152,560 1,738,917
Other 28,705 78,612 86,990 149,136
---------- ---------- ----------- -----------
Total interest income 7,422,055 5,691,672 14,577,996 11,381,810
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Interest expense:
Deposits 3,128,766 2,173,167 6,082,317 4,375,149
Borrowed money 731,284 474,190 1,658,051 1,242,268
---------- ---------- ----------- -----------
Total interest expense 3,860,050 2,647,357 7,740,368 5,617,417
---------- ---------- ----------- -----------
Net interest income 3,562,005 3,044,315 6,837,628 5,764,393
Provision for losses on loans 45,000 30,000 156,250 60,000
---------- ---------- ----------- -----------
Net interest income after
provision for losses on loans 3,517,005 3,014,315 6,681,378 5,704,393
---------- ---------- ----------- -----------
Noninterest income:
Late charges and other loan fees 146,733 75,697 274,194 144,078
Gain on sale of investment
securities and mortgage-backed
securities 30,867 - 86,462 -
Deposit account fees 227,477 180,492 472,181 367,104
Commissions and fees 56,417 89,291 106,449 129,604
Other 115,629 93,371 255,630 161,721
---------- ---------- ----------- -----------
Total noninterest income 577,123 438,851 1,194,916 802,507
---------- ---------- ----------- -----------
Noninterest expense:
Compensation and employee benefits 1,062,896 873,310 1,866,333 1,731,459
Office buildings and equipment 239,228 141,334 454,825 278,613
Data processing 120,535 95,302 241,365 179,513
Advertising 48,880 88,743 104,676 125,385
Deposit insurance premiums 37,695 106,535 37,695 207,413
Other 568,126 380,574 1,086,666 798,548
Provision for losses and expenses
on real estate acquired by
foreclosure 29,145 981 84,366 32,263
Amortization of cost in excess of
fair value of net assets acquired 122,374 33,065 203,207 66,418
---------- ---------- ----------- -----------
Total noninterest expense 2,228,879 1,719,844 4,079,133 3,419,612
---------- ---------- ----------- -----------
Income before income taxes 1,865,249 1,733,322 3,797,161 3,087,288
Income taxes 730,242 718,025 1,502,599 1,279,041
---------- ---------- ----------- -----------
Net income $1,135,007 $1,015,297 $ 2,294,562 $ 1,808,247
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings per share $ 0.26 $ 0.21 $ 0.54 $ 0.39
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE
<PAGE>
Charter Financial, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
Six Months Ended March 31, 1997
(Unaudited)
<TABLE>
Unrealized
gain (loss)
Retained on securities Unamortized
Additional earnings, available for Unearned restricted Total
Common paid-in Treasury substantially sale, net, of ESOP stock stockholders'
stock capital stock restricted applicable taxes shares awards equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1996 $425,346 $28,762,464 $ - $28,885,198 $(206,204) $(1,472,353) $ - $56,394,451
Net income - - - 2,294,562 - - - 2,294,562
Issuance of restricted
stock awards 11,200 1,426,880 - - - - (1,438,080) -
Purchase of treasury
stock - - (2,405,388) - - - - (2,405,388)
Amortization of unearned
ESOP shares - 147,280 - - - 94,927 - 242,207
Amortization of restricted
stock awards - - - - - - 74,969 74,969
Dividends declared on
common stock - - - (545,843) - - - (545,843)
Change in unrealized gain
(loss) on securities
available for sale, net - - - - (247,525) - - (247,525)
-------- ----------- ----------- ----------- --------- ----------- ----------- -----------
Balance, March 31, 1997 $436,546 $30,336,624 $(2,405,388) $30,633,917 $(453,729) $(1,377,426) $(1,363,111) $55,807,433
-------- ----------- ----------- ----------- --------- ----------- ----------- -----------
-------- ----------- ----------- ----------- --------- ----------- ----------- -----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE
<PAGE>
Charter Financial, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Six months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
March 31, March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,294,562 $ 1,808,247
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization:
Office properties and equipment 341,323 220,438
Discounts related to purchase accounting (26,762) (33,223)
Cost in excess of fair value of net assets acquired 203,207 66,418
Fees, discounts and premiums (1,080,087) (1,588,973)
Stock plans 317,176 403,874
Increase (decrease) in accrued interest receivable 405,396 (168,497)
Increase in accrued interest on deposits 438,314 2,090
Provision for losses on loans 156,250 60,000
Net change in income taxes 1,008,903 214,192
Gain on sale of investment securities, net, and
mortgage-backed securities, net (86,462) -
Net change in other assets and other liabilities (1,501,591) 417,890
------------ ------------
Net cash provided by operating activities 2,470,229 1,402,456
------------ ------------
Cash flows from investing activities:
Principal repayment on:
Loans receivable 55,541,561 48,814,401
Mortgage-backed securities 1,490,324 1,885,211
Investment securities 816,526 922,640
Proceeds from sale of:
Loans receivable 887,614 1,266,543
Mortgage-backed securities 1,749,101 -
Investment securities 5,449,343 -
Maturity of investment securities 13,590,000 8,500,000
Proceeds from redemption of FHLB stock - 656,000
Purchase of:
Loans receivable (803,944) (16,584,064)
Mortgage-backed securities (1,998,351) (2,032,884)
Investment securities (7,958,891) (9,447,909)
Cash invested in loans receivable (47,580,519) (34,099,498)
Cash paid for acquisition, net of cash received (5,918,011) -
Proceeds from sales of real estate acquired by foreclosure, net 291,803 75,263
Proceeds from sales of office properties and equipment 134,280 -
Purchase of office properties and equipment (322,566) (204,203)
------------ ------------
Net cash provided by (used in ) investing activities 15,368,270 (248,500)
------------ ------------
Cash flows from financing activities:
Increase in deposits 2,214,303 3,231,492
Repayments of FHLB Advances (89,476) -
Increase (decrease) in securities sold under agreements to repurchase, net (1,444,168) 7,338
Repayments of ESOP indebtedness (576,000) (144,000)
Decrease in other borrowings, net (15,900,000) (24,500,000)
Increase (decrease) in advance payments by borrowers for taxes and insurance (112,015) 221,176
Proceeds from sale of common stock, net - 27,145,360
Exercise of stock options - 59,348
Dividends paid (545,843) (269,156)
Capital contribution from Charter Bancorp, M.H.C. - 100,000
Purchase of treasury stock (2,405,388) -
------------ ------------
Net cash provided by (used in) financing activities (18,858,587) 5,851,558
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,020,088) 7,005,514
Cash and cash equivalents, beginning of period 8,968,422 6,347,803
------------ ------------
Cash and cash equivalents, end of period 7,948,334 13,353,317
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Interest paid 7,166,029 5,643,819
Taxes paid 473,500 1,064,848
Loans transferred to real estate acquired by foreclosure 429,863 132,654
Interest credited to deposits 3,537,582 2,879,942
Securities transferred to available for sale - 5,971,820
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
Charter Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) 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 Company'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, 1996 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, 1997 and 1996. For information on
earnings per share data - see footnote 5.
Operating results for the three and six month periods ended
March 31, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending September 30, 1997.
(2) 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.
(3) 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 March 31, 1997 and 1996, using
weighted average common shares of 4,318,342 and 4,816,511,
respectively. Earnings per share for the six months ended March
31, 1997 and
<PAGE>
Charter Financial, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1996 have been computed based upon net income for the six months
using weighted average common shares of 4,254,341 and 4,592,839,
respectively.
(4) Business Combination
At the close of business on January 15, 1997, Charter Bank,
S.B. purchased Home Federal Savings Bank of Carbondale, Illinois,
for $6.3 million. The acquisition was accounted for as a
purchase and the Bank recorded approximately $2.6 million of
goodwill. The goodwill will be amortized over a 15 year period.
As part of the purchase, the Bank assumed $23.8 million in
deposit liabilities. The Bank acquired loans receivable of $21.4
million, mortgage-backed securities of $1.9 million, investment
securities of $3.1 million and buildings and equipment with a
book value of $219,000.
<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, 1997.
Financial Condition
Assets
Total assets increased approximately $6.4 million, or 1.6%,
to $394.8 million at March 31, 1997 from $388.4 million at
September 30, 1996. For the six months ended March 31, 1997
loans receivable, net increased $14.0 million, or 5.1%, to $289.5
million from $275.5 million at September 30, 1996. The increase
in assets and loans receivable was attributable to the
acquisition of Home Federal Savings Bank ("Home Federal") that
occurred on January 15, 1997.
Investment securities decreased $9.1 million, or 13.5%, to
$58.3 million at March 31, 1997 from $67.5 million at September
30, 1996. This decrease was primarily due to the maturity of
$13.6 million of investment securities, the sale of $5.4 million
of investment securities held as available for sale, and the
$817,000 in investment security principal repayments. These
decreases were partially offset by the $8.0 million purchase of
investment securities during the six months ended March 31, 1997.
The Company also added $3.1 million of investment securities to
its investment portfolio as a result of the acquisition of Home
Federal.
Mortgage-backed securities increased approximately $535,000,
or 3.2%, to $17.2 million at March 31, 1997 from $16.6 million at
September 30, 1996. The increase in mortgage-backed securities
resulted from $2.0 million in purchases, which increase was
partially offset by $1.5 million in repayments and prepayments.
Additionally, the Company added $1.8 million of mortgage-backed
securities to its investment portfolio as a result of the
acquisition of Home Federal.
Liabilities
Deposits increased approximately $26.0 million, or 10.5%, to
$274.8 million at March 31, 1997 from $248.7 million at September
30, 1996. The increase was primarily the result of the addition
of $23.8 million of deposit liabilities from the Home Federal
acquisition.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Borrowed money decreased by $18.0 million, or 23.6%, to
$58.3 million at March 31, 1997 from $76.4 million at September
30, 1996. The repayment of short term advances from the FHLB was
funded by investment security maturities and sales and excess
loan repayments.
Results of Operations
The Company's net income increased $120,000, or 11.8%, to
$1.1 million for the three months ended March 31, 1997 from $1.0
million for the three months ended March 31, 1996. Net income
increased $486,000, or 26.9%, to $2.3 million for the six months
ended March 31, 1997, as compared to $1.8 million for the same
period in fiscal year 1996.
Return on average assets and return on average stockholders'
equity were 1.17% and 8.02%, respectively, for the second quarter
of fiscal year 1997 compared to 1.35% and 7.02%, respectively,
for the second quarter of fiscal year 1996. Return on average
assets and return on average stockholders' equity were 1.19% and
8.08%, respectively, for the six months ended March 31, 1997, and
1.21% and 7.46%, respectively, for the same period in fiscal year
1996.
Interest Income
Interest income totaled $7.4 million for the quarter ended
March 31, 1997, as compared to $5.7 million for the quarter ended
March 31, 1996, an increase of $1.7 million, or 30.4%. The
increase resulted primarily from an increase of $82.6 million in
average interest-earning assets as well as an increase in the
average yield on interest-earning assets to 8.01% from 7.90%. The
increase in average interest-earning assets resulted primarily
from the acquisition of Community Savings Bank ("Community
Savings") in May 1996 and Home Federal in January 1997. The
increase in average yield resulted primarily from a change in the
asset portfolio mix.
Interest income totaled $14.6 million for the six months
ended March 31, 1997, an increase of $3.2 million, or 28.1%,
compared to $11.4 million for the same period in fiscal year
1996. This increase was primarily the result of an increase of
$79.2 million in average interest-earning assets.
Interest income on loans receivable totaled $6.1 million and
$4.5 million for the three months ended March 31, 1997 and 1996,
respectively. The increase resulted primarily from the increase
in average loans receivable of $80.9 million. For the six months
ended March 31, 1997 and 1996, interest income on loans
receivable totaled $11.8 million and $8.9 million, respectively.
The increase reflects the increase in average loans receivable of
$75.7 million which increase was partially offset by the decrease
in the average yield on loans receivable to 8.36% from 8.66%.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Interest income on the mortgage-backed securities portfolio
increased $4,000, or 1.4%, to $289,000 for the quarter ended
March 31, 1997 compared to $285,000 for the quarter ended
March 31, 1996. The increase in interest income on the mortgage-
backed securities was primarily the result of an increase of
$409,000 increase in average mortgage-backed securities
outstanding which increase was partially offset by the decrease
in the average yield to 6.94% from 7.02%. Interest income on
mortgage-backed securities for the six months ended March 31,
1997, decreased $15,000, or 2.6%, to $550,000 from $565,000 for
the same period in fiscal year 1996. The decrease reflects the
decrease in the average yield on mortgage-backed securities to
6.73% from 7.04%.
Interest income on investment securities increased by
$137,000, or 15.8%, to $1.0 million for the three months ended
March 31, 1997, from $871,000 for the same period in fiscal year
1996. The increase resulted primarily from the increase in
average investment securities, including FHLB stock, of $6.6
million as well as an increase in the average yield on investment
securities to 6.49% from 6.28%.
Average investment securities, including FHLB stock,
increased $7.3 million when comparing the six months ended March
31, 1997 and 1996. Additionally, the average yield on investment
securities increased to 6.78% from 6.19%, respectively, for the
same periods in fiscal years 1997 and 1996. These increases
resulted in an increase in income on investments of $414,000, or
23.8%, to $2.2 million for the six months ended March 31, 1997,
when compared to $1.7 million for the six months ended March 31,
1996.
Other interest income decreased $50,000, or 63.5%, for the
three months ended March 31, 1997 to $29,000 from $79,000 for the
same period in fiscal year 1996. The decrease was primarily the
result of a decrease in average interest-bearing assets of $5.3
million.
For the six months ended March 31, 1997 and 1996, other
interest income was $87,000 and $149,000, respectively. The
decrease in other interest income of $62,000, or 41.7%, reflects
the decrease in average interest-bearing deposits of $4.1
million.
Interest Expense
Interest expense increased $1.2 million, or 45.8%, to $3.9
million for the quarter ended March 31, 1996 compared to $2.6
million for the quarter ended March 31, 1996. The increase in
interest expense resulted primarily from the $78.8 million
increase in average interest-bearing liabilities. In addition,
the average cost of deposits increased to 4.53% from 4.40% and
the average cost of borrowed money increased to 5.62% from 5.15%.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Interest expense increased $2.1 million, or 37.8%, for the
six months ended March 31, 1997 to $7.7 million from $5.6 million
for the same period during fiscal year 1996. The increase
resulted from the $67.5 million increase in average deposits as
well as the $15.0 million increase in average borrowed money.
The increase also reflects the increase in the average cost of
funds on interest-bearing liabilities to 4.80% from 4.68%.
Net Interest Income
Net interest income totaled $3.6 million and $3.0 million
for the three months ended March 31, 1997 and 1996, respectively,
reflecting an increase of $518,000, or 17.0%. For the six months
ended March 31, 1997 and 1996, net interest income was $6.8
million and $5.8 million, respectively, reflecting an increase of
$1.1 million, or 18.6%. The increase reflects the impact of a
more significant increase in the level of higher yielding
interest-earning assets as compared to the increase in average
interest-bearing liabilities.
Provision for Losses on Loans
During the three months ended March 31, 1997 and 1996,
$45,000 and $30,000, respectively, were added to the allowance
for loan losses. During the six months ended March 31, 1997 and
1996, $156,000 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 decreased to $1.5 million at
March 31, 1997 from $2.2 million at September 30, 1996.
Management determined that the allowance at March 31, 1997 was
adequate to absorb potential losses. At March 31, 1997, the
allowance for loans losses totaled $2.3 million, or 155.24%, of
nonperforming loans.
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, 1997 increased $138,000,
or 31.5%, to $577,000 compared to $439,000 for the same period in
fiscal year 1996. The increase is primarily the result of an
increase in late charges and other loan fees, deposit account
fees and other noninterest income which increase was partially
offset by a decrease in commissions and fees.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Noninterest income increased $392,000, or 48.9%, to $1.2
million for the six months ended March 31, 1997 when compared to
$803,000 for the same period in fiscal year 1996. The increase
in primarily the result of an increase in late charges and other
loan fees, in deposit account fees and other noninterest income
which increases were partially offset by a decrease in
commissions and fees.
Noninterest Expense
Noninterest expense totaled $2.2 million and $1.7 million
for the quarters ended March 31, 1997 and 1996, respectively, an
increase of $509,000 or 30.0%. Noninterest expense totaled $4.1
million and $3.4 million for the six months ended March 31, 1997
and 1996, respectively, an increase of $660,000, or 19.3%.
Compensation and employee benefits increased $190,000, or
21.7%, for the three months ended March 31, 1997 as compared to
the three months ended March 31, 1996. For the six months ended
March 31, 1997, compensation and employee benefits increased
approximately $135,000, or 7.8%, to $1.9 million from $1.7
million for the six months ended March 31, 1996. The principal
reason for the increase in compensation and employee benefits is
due to the increased cost of stock plans, including a new
management recognition plan that was initiated during the quarter
ended March 31, 1997, as well as an increase in the number of
employees.
Office building and equipment expenses increased $98,000, or
69.3%, to $239,000 for the three months ended March 31, 1997,
compared to $141,000 for the same period in fiscal year 1996.
For the six months ended March 31, 1997, office building and
equipment expenses increased $176,000, or 63.2%, to $455,000 from
$279,000 for the same period in fiscal year 1996. The increase
resulted primarily from the acquisitions that occurred in May
1996 and January 1997.
For the three months ended March 31, 1997, data processing
increased $25,000, or 26.5%, to $121,000 from $95,000 for the
same period in fiscal year 1996. For the six months ended March
31, 1997, data processing increased $62,000, or 34.5%, to
$241,000 from $180,000 for the same period in fiscal year 1996.
The increase resulted primarily from the increase in cost due to
the acquisition that occurred in May 1996 and January 1997. The
two entities acquired, Community Savings and Home Federal, were
converted to the Bank's in-house data processing system
subsequent to their acquisition. The increased expenses reflect
additional cost of expanded operations and the deconversion
expenses of the service bureau used previously by the entities
acquired.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Deposit insurance premiums decreased $69,000, or 64.6%, to
$38,000 for the second quarter of fiscal year 1997 compared to
$107,000 for the second quarter of fiscal year 1996. For the six
months ended March 31, 1997, deposit insurance premiums decreased
$170,000, or 81.8%, to $38,000 from $207,000 for the same period
in fiscal year 1996. These decreases are the result of no
deposit insurance premiums being expensed during the first
quarter of fiscal year 1997. Due to the Deposit Insurance Funds
Act of 1996 and the result of the recapitalization of SAIF, the
Bank was refunded the quarterly assessment. Beginning with the
January 1, 1997, the annual assessment rate on the SAIF deposits
decreased to .000648 compared to the prior annual assessment rate
of .0023.
Amortization of cost in excess of fair value of net assets
acquired increased $89,000, or 270.1%, to $122,000 for the three
months ended March 31, 1997, compared to $33,000 for the three
months ended March 31, 1996. For the six months ended March 31,
1997, the amortization of cost in excess of fair value of net
assets acquired increased $137,000, or 206.0%, to $203,000 from
$66,000 for the same period in fiscal year 1996. These increases
are the result of the acquisition of Community Savings Bank in
Marion, Illinois in May 1996 and the acquisition of Home Federal
Savings Bank in January 1997.
Other noninterest expense increased $188,000, or 49.3%, to
$568,000 for the three months ended March 31, 1997 as compared to
$381,000 for the same period in fiscal year 1996. For the six
months ended March 31, 1997 and 1996, other noninterest expenses
were $1.1 million and $799,000, respectively. The increase is
primarily a result of increased professional fees and provisions
for losses related to mismanagement of accounts by the Company's
credit card processor (see-Other Information).
Income Taxes
Income taxes increased $12,000 for the three months ended
March 31, 1997 as compared to March 31, 1996. The effective
income tax rate was 39.1% and 41.4% at March 31, 1997 and 1996,
respectively.
For the six months ended March 31, 1997 and 1996, income
taxes were $1.5 million and $1.3 million, respectively. The
effective income tax rate was 39.6% at March 31, 1997, compared
to 41.4% at March 31, 1996.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Net Income
Net income totaled $1.1 million for the quarter ended March
31, 1997 as compared with $1.0 million for the quarter ended
March 31, 1996. The increase resulted primarily from an increase
in net interest income which increase was partially offset by an
increase in noninterest expense.
Net income increased $486,000, or 26.9%, to $2.3 million for
the six months ended March 31, 1997 as compared to $1.8 million
for the same period in fiscal year 1995. The increase primarily
reflects the increase in 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 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 $938,000 at March
31, 1997 decreased $131,000, or 12.3%, from the level of
nonperforming residential real estate at September 30, 1996.
Nonperforming consumer loans decreased to $176,000 at March 31,
1997 from $243,000 at September 30, 1996, primarily a result of
effective collection efforts.
At March 31, 1997, the Company had $386,000 in nonaccrual
commercial real estate loans of which $237,000 was classified as
loss due to the bankruptcy and anticipated foreclosure of a
commercial business. Adequate allowances for losses have been
established for these loans.
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<TABLE>
March 31, September 30,
1997 1996
(In Thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual basis:
Residential real estate $ 938 $ 1,069
Commercial real estate 386 850
Consumer 176 243
Commercial business - -
Total 1,500 2,162
Total real estate acquired through
foreclosure: 533 428
Total nonperforming assets $ 2,033 $ 2,590
Total nonperforming assets to
total assets 0.51% 0.67%
</TABLE>
At March 31, 1997, the Company had $428,000 of impaired
loans. The Company applies the recognition criteria of impaired
loans to multi-family residential loans, commercial real estate
loans, agriculture loans and restructured loans that are on
nonaccrual status or internally classified. Specifically, a loan
is considered impaired when it is probable a creditor will be
unable to collect all amounts due, both principal and interest,
according to the contractual terms of the loan agreement. At
March 31, 1997, $428,000 of impaired loans had reserves of
$237,000, while the remaining impaired loans of $191,000 had no
specific reserves.
Liquidity and Capital Resources
Total stockholders' equity at March 31, 1997 was $55.8
million, a decrease of approximately $587,000, or 1.0%, from
$56.4 million at September 30, 1996. The decrease was largely
attributable to open market purchase of $2.4 million in the
Company's common stock (which upon repurchase has been classified
as Treasury shares) and the declaration of $546,000 in dividends
on outstanding shares of the Company's stock. The decrease for
stockholders' equity was partially offset by $2.3 million in net
income for the six months ended March 31, 1997.
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
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
rates and competition. The Company's most liquid assets are cash
and interest-bearing deposits. At March 31, 1997 and September
30, 1996, the Company's cash and interest-bearing deposits
totaled $7.9 million and $9.0 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 $45.0 million at
March 31, 1997.
As of March 31, 1997, the Bank exceeded all regulatory
capital requirements. The Bank's required, actual, and excess
capital levels as of March 31, 1997 are as follows:
<TABLE>
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 $ 11,635,667 3.00% $ 43,533,497 11.04% $ 31,897,830
Tier 1 Risk-Based
Capital Ratio 8,777,014 4.00% 43,533,497 19.84% 34,756,483
Tier 2 Risk-Based
Capital Ratio 17,554,028 8.00% 45,506,776 20.74% 27,952,748
</TABLE>
At March 31, 1997, 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. 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.
Impact of Inflation and Changing Prices
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
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Companying Activities, to require that a mortgage Companying
enterprise recognize as separate assets rights to service
mortgage loans for others, however those servicing rights are
acquired. A mortgage Companying 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 Companying 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 Companying 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 Companying
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.
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"). 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 Company
plans to continue to measure compensation cost using APB 25;
therefore, the adoption of SFAS No. 123 will not have any impact
on the Company'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
<PAGE>
Charter Financial, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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. Management does not
believe the statement will have a material impact on the
financial position of the Company.
In February 1997, the FASB issued SFAS No. 128, Earnings per
Share, which establishes standards for computing and presenting
earnings per share (EPS). SFAS No. 128 simplifies existing
standards for computing EPS and makes them comparable to
international standards. It replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and
requires a reconciliation of the components of basic and diluted
EPS. Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company. SFAS No. 128 is
effective for financial statements issued for periods ending
after December 31, 1997, including interim periods, and requires
restatement of all prior-period EPS data presented. The Company
does not believe the adoption of SFAS No. 128 will have a
material effect on its financial condition or 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.
<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
The Company's Annual Meeting of Stockholders was held on
January 16, 1997. The following are the items voted on and the
results of the shareholder voting:
1. The election of John A. Becker, Michael R. Howell,
William A. Norton and Dennis F. Doelitzsch to
serve as directors for terms of three years or until
their successors have been elected and qualified. The
election of Ralph Eugene Watson to serve as director
for a term of two years or until his successors have
been elected and qualified.
<TABLE>
FOR WITHHELD
<S> <C> <C>
John A. Becker 3,291,978 74,838
Michael R. Howell 3,293,644 73,172
William A. Norton 3,292,544 74,272
Dennis F. Doelitzsch 3,291,378 75,438
Ralph Eugene Watson 3,294,878 71,938
</TABLE>
<PAGE>
In addition to the nominees, the following directors
will continue in office:
<TABLE>
Current Term
To Expire
<S> <C>
Truman D. Cashman 1998
Linda M. Johnson 1998
Carl S. Schlageter, M.D. 1998
James H. Clutts 1998
John Petkas, Jr. 1999
Klondis T. Pirtle 1999
</TABLE>
2. The approval of the Charter Financial, Inc. 1997 Stock
Option Plan.
FOR AGAINST ABSTAIN
Number of Votes 3,294,878 184,232 34,175
3. The approval of the Charter Financial, Inc. 1997
Recognition and Retention Plan.
FOR AGAINST ABSTAIN
Number of Votes 3,148,409 221,474 33,425
4. The ratification of the appointment of KPMG Peat
Marwick LLP, as auditors for the Company for the fiscal
year ended September 30, 1997.
FOR AGAINST ABSTAIN
Number of Votes 3,324,925 29,406 8,385
Item 5. Subsequent Event
None
Item 6. Other Information
At the close of business on January 15, 1997, Charter Bank,
S.B. purchased Home Federal Savings of Carbondale, Illinois, for
$6.3 million. The acquisition was accounted for as a purchase
and the Bank recorded approximately $2.6 million of goodwill.
The goodwill will be amortized over a 15 year period. As part of
the purchase, the Bank assumed $23.8 million in deposit
liabilities. The Bank acquired loans receivable of $21.4
million, mortgage-backed securities of $1.9 million, investment
securities of $3.1 million and building and equipment with a
value of $219,000.
<PAGE>
On May 9, 1995, Charter Bank (the Bank) entered into an
agreement with FTA Card Services, Inc. (FTA) wherein FTA would
provide third-party processing and servicing to the Bank for
credit cards to the Bank's customers. FTA billed, collected and
administered payment on said card program on behalf of the Bank.
On November 8, 1996, FTA notified Charter Bank that FTA was
withdrawing from the credit card business and that a deficiency
existed in the Bank's clearing account. According to FTA, the
deficiency was due to FTA's poor bookkeeping and internal
controls. FTA's president accepted full responsibility for said
deficiency and that he would provide to the Bank a viable plan
for taking care of said deficiency. At least nine other
financial institutions were also involved. The Bank has
determined its share of said deficiency to be approximately
$330,000 although FTA estimates the Bank's deficiency to be
approximately $142,000. The Bank, to date, has established a
reserve of $158,000 for potential losses. The Bank is pursuing
its options regarding collection of this deficiency from FTA and
its president. The Bank will continue to review its reserve as
more information and facts become available.
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: /s/ John A. Becker
-----------------------------------
John A. Becker
Chairman of the Board and President
Date: /s/ Michael R. Howell
-----------------------------------
Michael R. Howell
Executive Vice President and
Treasurer
(Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 1565
<INT-BEARING-DEPOSITS> 6384
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68127
<INVESTMENTS-CARRYING> 7379
<INVESTMENTS-MARKET> 7372
<LOANS> 291800
<ALLOWANCE> 2329
<TOTAL-ASSETS> 394815
<DEPOSITS> 274757
<SHORT-TERM> 51037
<LIABILITIES-OTHER> 5907
<LONG-TERM> 7307
<COMMON> 437
0
0
<OTHER-SE> 55370
<TOTAL-LIABILITIES-AND-EQUITY> 394815
<INTEREST-LOAN> 6096
<INTEREST-INVEST> 1297
<INTEREST-OTHER> 29
<INTEREST-TOTAL> 7422
<INTEREST-DEPOSIT> 3129
<INTEREST-EXPENSE> 3860
<INTEREST-INCOME-NET> 3562
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 31
<EXPENSE-OTHER> 2229
<INCOME-PRETAX> 1865
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1135
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
<YIELD-ACTUAL> 8.01
<LOANS-NON> 1500
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2252
<CHARGE-OFFS> 220
<RECOVERIES> 62
<ALLOWANCE-CLOSE> 2329
<ALLOWANCE-DOMESTIC> 356
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1973
</TABLE>
