-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Wj5jTzNHf6fTkDoKqR++wZxAdzipZ5YpChs+Jaxrxhz2BWvqSWIq3xuL2cIK32El wjLQsXcIk3fgl40iTyCfNw== 0000950133-95-000314.txt : 19950608 0000950133-95-000314.hdr.sgml : 19950608 ACCESSION NUMBER: 0000950133-95-000314 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950530 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950531 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHARTER ONE FINANCIAL INC CENTRAL INDEX KEY: 0000819692 STANDARD INDUSTRIAL CLASSIFICATION: 6035 IRS NUMBER: 341567092 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16311 FILM NUMBER: 95543580 BUSINESS ADDRESS: STREET 1: 1215 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2165898320 MAIL ADDRESS: STREET 2: 1215 SUPERIOR AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 8-K 1 CHARTER ONE FINANCIAL 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) May 30, 1995 CHARTER ONE FINANCIAL, INC. - - ----------------------------------------------------------------------------- (Exact name of Registrant as specified in its Charter) Delaware 0-16311 34-1567092 - - ----------------------------------------------------------------------------- (State or other (Commission File (IRS Employer jurisdiction of Number) Identification incorporation) No.) 1215 Superior Avenue, Cleveland, Ohio 44114 - - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 566-5300 - - ----------------------------------------------------------------------------- 2 Item 5. Other Events On May 30, 1995, Charter One Financial, Inc. ("Charter One") entered into an Agreement and Plan of Merger (the "Merger Agreement") with FirstFed Michigan Corporation ("FirstFed") pursuant to which FirstFed will merge with and into Charter One (the "Merger") in a "merger of equals" transaction. Upon the Merger, each share of common stock, $0.01 par value, of FirstFed shall be converted into the right to receive 1.2 shares of common stock, $0.01 par value, of Charter One. The joint press release of Charter One and FirstFed and supplementary information about the Merger are filed as Exhibits to this Report and are incorporated herein by reference. The Merger Agreement and certain exhibits thereto will be filed by amendment to this Report. The foregoing information does not purport to be complete and is qualified in its entirety by reference to the Exhibits to this Report. Item 7. Financial Statements and Exhibits. (c) Exhibits. The Exhibits listed on the accompanying Exhibit Index are filed as part of this Report and are incorporated herein by reference. 3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. CHARTER ONE FINANCIAL, INC. Date: May 31, 1995 By: /s/ Charles John Koch -------------------------- Charles John Koch President and Chief Executive Officer 3 4 EXHIBIT INDEX Exhibit Number Description 99.1 Joint press release of Charter One Financial, Inc. and FirstFed Michigan Corporation, dated May 30, 1995 99.2 Supplementary information regarding the Merger EX-99.1 2 JOINT PRESS RELEASE FOR CHARTER ONE/FIRST FED MICH 1 Exhibit 99.1 ------------------------------------------------------ News From Charter One Financial, Inc. FirstFed Michigan Corporation ------------------------------------------------------- For Immediate Release May 30, 1995 Charter One Financial and FirstFed Michigan To Combine in Merger of Equals CLEVELAND, Ohio and DETROIT, Michigan, May 30, 1995 -- Charter One Financial, Inc. (Nasdaq-NNM:COFI) and FirstFed Michigan Corporation (Nasdaq-NNM:FFOM), two of the largest thrifts in the midwest, announced today a definitive agreement to merge their respective holding companies and banking operations in a merger of equals to form one of the strongest thrifts in the region. The agreement provides that the common shareholders of FirstFed Michigan Corporation will receive 1.2 shares of Charter One Financial common stock for each FirstFed common share in a tax-free exchange. Charter One will issue approximately 22.5 million shares of stock to complete the merger which will be accounted for as a pooling of interests. Following the merger, the former Charter One and FirstFed shareholders will each own approximately 50% of the combined company. The merger, which has been approved by the Boards of Directors of both Charter One and FirstFed, is valued at approximately $1.1 billion based on the market price of Charter One common stock as of the close of trading on Friday, May 26, 1995. Based on the May 26, 1995 market price of FirstFed's common stock, the exchange ratio results in an implied price for each FirstFed share of $29.70. The combined company will be called Charter One Financial, Inc., and will be headquartered in Cleveland with a Michigan Division headquartered in the current FirstFed facility in downtown Detroit. The combined banking operation will have a total of 157 branches in Ohio and Michigan. The new entity is expected to have approximately $13 billion in total assets and a leverage capital ratio in excess of 6%. Concurrent with the closing of the transaction, the new management expects to execute a plan to reposition the combined balance sheet and reduce interest rate risk by terminating the then remaining $850 million combined interest rate swap position, liquidating $1.5 to $2 billion of low-yielding, fixed rate assets, and repaying $1.5 to $2 billion of short-term borrowings. The repositioning will reduce the size of the resultant company's balance sheet from $15 billion to 2 approximately $13 billion. Assuming current interest rates, costs related to repositioning the balance sheet together with an estimated $13 million after-tax merger transaction charge will result in an after-tax charge to earnings of approximately $50 to $75 million. It is anticipated that the merger will result in annual pre-tax cost savings of approximately $15 million by 1997, or approximately 9% of the combined companies' operating costs, and will create an expanded revenue base. The primary source for cost savings is expected to be redundant back-office operations. It is planned that all 157 branches will remain open post merger and certain operational support functions currently located in Ohio will be shifted to Detroit. The transaction is expected to be immediately accretive to both companies' earnings per share in 1996. This will be accomplished as a consequence of the balance sheet repositioning and the synergies of consolidating operations, without regard to revenue enhancements. Management believes that this transaction should significantly enhance the combined company's future earnings per share growth rate. Charter One's new Board of Directors will be comprised of equal numbers of directors from both companies with Charles John (Bud) Koch from Charter One serving as chairman and Jerome L. Schostak, a FirstFed director, as vice chairman. C. Gene Harling, FirstFed's chairman and chief executive officer, has agreed to stay on in an advisory capacity after the merger is completed to assist in the transaction. Executive management positions will be filled by Charles John (Bud) Koch of Charter One, chief executive officer, Richard W. Neu of FirstFed, chief financial officer, Mark D. Grossi of Charter One, chief retail banking officer, and John D. Koch of Charter One, chief lending and credit officer. Charles John Koch, Charter One's chairman and chief executive officer, said, "We believe the transaction will be beneficial to the shareholders of both institutions. Charter One and FirstFed complement each other extraordinarily well. FirstFed's 63-office branch network, located in southeastern Michigan, is a natural fit with our presence in Ohio, and Detroit is in close proximity to Toledo, one of our strongest markets. Our proven retail strategy should add significant value to FirstFed's extensive retail network in the southeastern Michigan metropolitan area, one of the nation's largest markets." C. Gene Harling, chairman and chief executive officer of FirstFed, summarized the announcement, "This transaction fits our existing strategy perfectly. We had embarked on a series of efforts designed to strengthen FirstFed's retail franchise. As a combined entity, we will be able to accelerate that process substantially. The transaction preserves the earnings momentum and capital growth that existed for us before the merger." Both men observed that the resultant company will be extremely well capitalized, with an equity to asset ratio in excess of 6% and virtually no intangible assets on its books. Initially, the plan is to deploy the capital into retail assets, but the excess also provides the flexibility to pursue attractive strategic and financial initiatives that may become available over time. 3 In connection with the merger agreement, Charter One and FirstFed have granted each other options to purchase up to 19.9% of the outstanding shares of each other's common stock under certain circumstances in the event the transaction is terminated. The merger is expected to be completed during the fourth quarter of 1995, subject to regulatory approval and ratification by Charter One and FirstFed shareholders. Montgomery Securities has acted as financial advisor to Charter One and has delivered a fairness opinion to its Board of Directors. Salomon Brothers Inc has acted as financial advisor to FirstFed and has delivered a fairness opinion to its Board of Directors. Charter One Financial, Inc., Cleveland, Ohio, with 94 branch offices, had $6.3 billion in assets and $4.4 billion in deposits as of March 31, 1995. FirstFed Michigan Corporation, Detroit, Michigan, operates with 63 branches and had, as of March 31, 1995, $8.5 billion in assets and $3.2 billion in deposits. (table follows) 4 ProForma Combined Fact Sheet (in millions) March 31, 1995
Pro COFI FFOM Combined Adj.(a) Forma Total Assets $6,294 8,512 14,806 (2,000) 12,806 Net Loans 3,626 2,995 6,621 ( 400) 6,221 MBS 2,047 4,466 6,513 ( 900) 5,613 Liquidity 351 814 1,165 ( 700) 465 Deposits 4,398 3,176 7,574 --- 7,574 Borrowings 1,432 4,712 6,144 (1,925) 4,219 Equity 389 468 857 ( 75) 782 Equity/Assets 6.2% 5.5% 5.8% --- 6.1% Nonperforming Assets to Total Assets .53% .29% --- --- .45% Reserves/NPLs 155% 131% 144% --- 144% Common Shares Outstanding 22.5 18.7 41.2 3.8 45.0 Book Value Per Share $17.29 25.03 --- --- 17.38 Market Capitalization(b) 557 493 --- --- 1,112 # of Offices 94 63 157 --- 157
(a) Adjustments relate to the anticipated balance sheet repositioning (assuming $2 billion in asset reduction) and merger transaction charge. (b) Based on stock prices as of May 26, 1995. CONTACTS: FOR CHARTER ONE: Charles John Koch (216) 566-5314 William Dupuy (216) 566-5311 FOR FIRSTFED MICHIGAN CORPORATION: Ellen L. Batkie (313) 965-5909 EX-99.2 3 SUPPLEMENTARY INFORMATION REGARDING THE MERGER 1 Exhibit 99.2 (SLIDE 1) (narrative summary of graphic information) Slide contains a map of Michigan and Ohio showing locations of COFI and FFOM branch offices. Branch office locations are surrounded by an ellipse with the words "IMPACT PLAY" in the center of the ellipse. The FFOM and COFI logos are included at the upper left and lower right corners of the slide. 2 (SLIDE 2) Nasdaq: COFI IMPACT PLAY Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Transaction Highlights Benefits to COFI Adds 200,000 S.E. Michigan households Expansion of proven retail strategy Access to low cost retail funding base Leverage COFI operating capacity and systems for improved efficiency Benefits to FFOM Accelerates retail strategy Allows better utilization of distribution system Retains capital management flexibility Energizes earnings momentum Shared Benefits Enhanced earnings growth opportunities Enhanced market share Enhanced capital ratio 3 (SLIDE 3) Nasdaq: COFI IMPACT PLAY Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Transaction Overview Structure: Merger of equals Tax-free exchange of common stock Accounted for as "pooling of interests" Option granted to each company for 19.9% of the other partner Charter One and Charter One Bank to be surviving entities Exchange Ratio: Fixed exchange ratio: 1.2 of COFI = 1 of FFOM Combined market capitalization over $1 billion Proforma fully diluted shares outstanding: 45,900,000 Process & Timing: Subject to regulatory and shareholder approvals Expected close in fourth quarter 1995 Cash dividend: $0.76 annualized Estimated Deal Value: $1.112 billion (Based on COFI closing price of $24.75 on 5/26/95) Cross Warrants: Option to each company for 19.9% 4 (SLIDE 4) Nasdaq: COFI IMPACT PLAY Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Transaction Overview: Organization Name: Charter One Financial, Inc. Nasdaq/NMS: COFI Headquarters: Cleveland, Ohio Management: Charles John Koch, Chief Executive Officer (COFI) Richard W. Neu, Chief Financial Officer (FFOM) Mark D. Grossi, Chief Retail Banking Officer (COFI) John D. Koch, Chief Lending and Credit Officer (COFI) Board Composition: 50%-50% (16 members total) Charles John Koch, Chairman (COFI) Jerome L. Schostak, Vice Chairman (FFOM) 5 (SLIDE 5) Nasdaq: COFI IMPACT RESULT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Proforma Market Capitalization Dollars in Millions (May 26, 1995)
Largest Publicly Traded Thrifts Market Capitalization - - ------------------------------- --------------------- (1) Golden West Financial $2,856.3 (2) Great Western Financial 2,951.8 (3) H.F. Ahmanson 2,635.0 (4) Washington Mutual 1,390.6 (5) COFI (proforma) 1,112.0 (6) GP Financial Corp. 1,069.3 (7) Dime Bancorp 1,056.2 (8) Standard Federal 1,009.2 (9) Washington Federal 876.5 (10) TCF Financial 805.4
6 (SLIDE 6) Nasdaq: COFI COFI IMPACTS Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- COFI: Proven Merger Track Record 15 since 1980, Driver of: Superior ROE* 18.89% Superior ROA* 1.15% EPS Growth compounded annually** 19.2% *3/31/95 **12/31/88-3/31/95 7 (SLIDE 7) (narrative summary of graphic information) Slide contains a graph illustrating the earnings growth of COFI. Earnings per share calculations are prior to the cumulative effect of change in accounting principle and extraordinary items. The graph shows earnings per share of (i) $.90 in 1988; (ii) $1.14 in 1989; (iii) $1.24 in 1990; (iv) $2.10 in 1991; (v) $2.20 in 1992; (vi) $2.67 in 1993; (vii) $2.92 in 1994; and (viii) $0.77 for the first quarter ended March 31, 1995. The graph demonstrates a growth rate of 19.2% compounded annually. The graph also reflects the acquisitions of (i) First Akron, in 1989; (ii) Western, in 1989; (iii) Broadview, in 1990; (iv) Civic, in 1991; (v) Toledo, in 1991; (vi) First American, in 1992; and (vii) Women's Federal, in 1993. 8 (SLIDE 8) (narrative summary of graphic information) Slide contains a graph illustrating the declining efficiency ratio (other expenses divided by net interest income and other income, not including gain on sale) of COFI. The graph shows efficiency ratios of (i) 71% in 1988; (ii) 70% in 1989; (iii) 66% in 1990; (iv) 60% in 1991; (v) 57% in 1992; (vi) 51% in 1993; (vii) 50% in 1994; and (viii) 50% for the first quarter ended March 31, 1995. The graph also reflects the acquisitions of (i) First Akron, in 1989; (ii) Western, in 1989; (iii) Broadview, in 1990; (iv) Civic, in 1991; (v) Toledo, in 1991; (vi) First American, in 1992; and (vii) Women's Federal, in 1993. 9 (SLIDE 9) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Strategic Plan * Reposition FFOM balance sheet - To reduce interest rate risk - To simplify asset liability composition * Maintain one holding company/one bank concept * Expand retail banking focus in Michigan * Expand lending programs in Michigan * Maintain low cost operating advantage 10 (SLIDE 10) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Credit Risk Ratios
Pro-Forma COFI FFOM Combination ---- ---- ----------- Non-performing Assets to Total Assets 0.53% 0.29% 0.45% Allowance for Loan Losses to Non-Performing Loans 154.67% 131.13% 143.63% Allowance for Loan Losses to Average Loans 1.02% 0.91% 1.03%
11 (SLIDE 11) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- 1995: Transition Year for FFOM 1994: 1st Quarter balance sheet restructuring 1995: * $1.2 billion of interest rate swaps mature * MBS cashflow redeployed into liquidity * Refocus on retail banking and lending ....This merger accelerates the transition.... 12 (SLIDE 12) Nasdaq: COFI IMPACT Nasdaq: FFOM - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Proforma Combination Highlights (3/31/95) Assets ($ millions)
Pro-Forma COFI FFOM Adjustments Combined ---- ---- ----------- -------- Loans $3,600 $3,000 $(400) $6,200 Mortgage-Backed Securities 2,000 4,500 (900) 5,600 Liquidity 350 815 (700) 465 Total Assets 6,300 8,500 (2,000) 12,800 Liabilities & Equity Retail Deposits $4,400 $3,200 $7,600 Borrowings 1,400 4,700 (1,900) 4,200 Equity 389 468 (75) 782
13 (SLIDE 13) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Proforma Earnings - Accretion ($000)
$ Net Income $ Per Share ------------ ----------- 1st Quarter 1995 Annualized COFI Core Earnings $70,600 $3.06 1st Quarter 1995 Annualized FFOM Core Earnings 42,000 --- Benefit of 1995 FFOM Swap Roll Off 25,900 --- ------- ----- Combined Core Earnings 138,500 3.02 ------- -----
Expected Range: --------------- After-Tax Synergy Savings 7,300 9,800 0.16 0.21 Balance Sheet Repositioning 5,500 7,800 0.12 0.17 -------- -------- ----- ----- $151,300 $158,100 $3.30 $3.40 -------- -------- ----- -----
*Based on 45.9 million shares at 1.2 exchange ratio 14 (SLIDE 14) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Proforma Accretion
$ Net Income Expected Range: ------------ -------------- Proforma Combined % Change From Stand-Alone EPS COFI Annualized Core EPS $3.06 $3.06 Pro-Forma Annualized Core EPS 3.30 3.40 % Change from Stand-Alone 7.7% 11.1% FFOM Annualized Core EPS (with Swap Benefit) $3.57 $3.57 Pro Forma Annualized Core EPS 3.96 4.08 % Change from Stand-Alone 10.8% 14.3%
*Based on 45.9 million shares at 1.2 exchange ratio 15 (SLIDE 15) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Risk Profile of Combined Company * Outstanding asset quality (NPA ratio: 0.45%) * Dramatic reduction of borrowings and interest rate derivatives * Capital in excess of 6% * No meaningful goodwill or intangible assets * Efficiency ratio below 48% 16 (SLIDE 16) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Balance Sheet Repositioning * Eliminate remaining $850 million of interest rate swaps * Sell $1.5-$2 billion of fixed-rate assets * Repay $1.5-$2 billion of repurchase agreements * Repositioning & transaction charges of up to $75 million after-tax 17 (SLIDE 17) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Identified Expense Reductions 9% of Combined G&A Estimated total $15 million (3/4 to be realized in 1996) Consolidate Reduce - - ----------- ------ * Branch operations support * Professional services * Data processing functions * FDIC insurance expense * Financial functions * Human resources * Holding company/ administrative expense * Loan servicing 18 (SLIDE 18) (narrative summary of graphic information) Slide contains a pie chart displaying the components of FFOM's retail deposit mix at March 31, 1995, which were the following: (i) retail certificates, 57.4%; (ii) passbook accounts, 19.8%; (iii) money market accounts, 11.9%; and (iv) checking accounts, 10.9%. At March 31, 1995, FFOM had $2.5 billion in deposits with a weighted average cost of 4.04%, and COFI had $4.4 billion in deposits with a weighted average cost of 4.69%. 19 (SLIDE 19) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Future Earnings Drivers * Incremental loan growth $250 million/year * Incremental fee revenue $4 to 5 million/year * Redeployment of excess capital $150-200 million(1)
(1) as of 12/31/95, in excess of well-capitalized designation 20 (SLIDE 20) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Enhanced Revenue Opportunities Expand with COFI products * Consumer loan products * Construction lending products * Residential lending products * Transaction accounts Introduce COFI products * High performance checking programs * Commercial mortgage lending * Corporate and industrial lending * Equipment leasing * Tax deferred annuities sales * Mutual funds sales Maximize * Capital flexibility 21 (SLIDE 21) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Impact of the Combination * Accretive in 1996 * Significant future earnings opportunities * Substantial resultant capital * Outstanding asset quality 22 (SLIDE 22) Nasdaq: COFI IMPACT Nasdaq: FFOM - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Impact Analysis COFI + FFOM The engine that drives future earnings growth -----END PRIVACY-ENHANCED MESSAGE-----