-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Em/L7CtYfcjqeCUWcjapEF8Ap9qUIwRCYBjj1s15pEBE6EF+rdCtqTmvhslBQrUL AdDzpzox4AJTtbcV4u4iPA== 0000950152-97-003673.txt : 19970509 0000950152-97-003673.hdr.sgml : 19970509 ACCESSION NUMBER: 0000950152-97-003673 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970508 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHARTER ONE FINANCIAL INC CENTRAL INDEX KEY: 0000819692 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341567092 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16311 FILM NUMBER: 97598238 BUSINESS ADDRESS: STREET 1: 1215 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2165665300 MAIL ADDRESS: STREET 1: 1215 SUPERIOR AVENUE STREET 2: 1215 SUPERIOR AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 10-Q 1 CHARTER ONE FINANCIAL, INC. 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-16311 CHARTER ONE FINANCIAL, INC. --------------------------- (exact name of registrant as specified in its charter) DELAWARE 34-1567092 -------- ---------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 1215 SUPERIOR AVENUE, CLEVELAND, OHIO 44114 - ------------------------------------- ----- (Address of principal executive offices) (Zip Code) (216) 566-5300 -------------- (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months ( or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the registrant's sole class of common stock as of April 30, 1997 was 46,206,521. ================================================================================ 2 TABLE OF CONTENTS ITEM NUMBER PAGE - --------- ----- PART I - FINANCIAL INFORMATION 1. Financial Statements Consolidated Statements of Financial Condition -- March 31, 1997 and December 31, 1996......................... 1 Consolidated Statements of Income -- Three months ended March 31, 1997 and 1996................... 2 Consolidated Statement of Changes in Shareholders' Equity -- Three months ended March 31, 1997............................ 3 Consolidated Statements of Cash Flows -- Three months ended March 31, 1997 and 1996................... 4 Notes to Consolidated Financial Statements..................... 5 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 7 PART II - OTHER INFORMATION 5. Other Information................................................ 25 6. Exhibits and Reports on Form 8-K................................. 25 Signatures................................................................ 26 i 3 PART I - FINANCIAL CONDITION ITEM 1. FINANCIAL STATEMENTS CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)
MARCH 31, 1997 DECEMBER 31, 1996 --------------- ------------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Cash and deposits with banks.......................................... $ 118,124 152,301 Federal funds sold and other.......................................... 50,233 118,003 ------------ ------------ Total cash and cash equivalents.................................. 168,357 270,304 Investment securities available for sale, at fair value............... 281,448 243,632 Mortgage-backed securities: Available for sale, at fair value................................... 20,183 21,800 Held to maturity (fair value of $4,541,092 and $4,701,452).......... 4,553,554 4,692,996 Loans and leases, net................................................. 8,472,041 8,100,342 Federal Home Loan Bank stock.......................................... 217,917 215,815 Premises and equipment................................................ 115,167 114,145 Accrued interest receivable........................................... 76,962 77,193 Equipment on operating leases......................................... 19,979 22,599 Real estate owned..................................................... 6,330 7,337 Goodwill.............................................................. 63,330 64,496 Other assets.......................................................... 45,129 73,904 ------------ ------------ Total assets..................................................... $ 14,040,397 13,904,563 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Checking accounts................................................... $ 889,842 859,438 Money market accounts............................................... 1,365,418 1,344,973 Savings accounts.................................................... 843,063 868,361 Certificates of deposit............................................. 4,741,156 4,768,425 ------------ ------------ Total deposits................................................... 7,839,479 7,841,197 Federal Home Loan Bank advances....................................... 3,081,274 3,194,333 Reverse repurchase agreements......................................... 1,735,966 1,549,778 Other borrowings...................................................... 211,616 211,180 Advance payments by borrowers for taxes and insurance................. 40,303 39,346 Accrued interest payable.............................................. 40,777 35,298 Accrued expenses and other liabilities................................ 139,489 104,738 ------------ ------------ Total liabilities................................................ 13,088,904 12,975,870 ------------ ------------ Shareholders' equity: Preferred stock - $.01 par value per share; 20,000,000 shares authorized and unissued........................................... - - Common stock - $.01 par value per share; 180,000,000 shares authorized; shares issued 47,472,486.............................. 475 475 Additional paid-in capital.......................................... 321,991 321,991 Retained earnings................................................... 666,703 637,356 Less 1,133,765 and 1,029,763 shares of common stock held in treasury at cost.................................................. (44,560) (39,615) Net unrealized gain on securities, net of tax expense of $3,710 and $4,565.............................................. 6,884 8,486 ------------ ------------ Total shareholders' equity................................... 951,493 928,693 ------------ ------------ Total liabilities and shareholders' equity................... $ 14,040,397 13,904,563 ============ ============
See Notes to Consolidated Financial Statements 1 4 CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
THREE MONTHS ENDED MARCH 31, --------------------------------------- 1997 1996 ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INTEREST INCOME: Loans and leases........................................................ $ 163,982 142,191 Mortgage-backed securities: Available for sale.................................................... 384 7,797 Held to maturity...................................................... 81,638 81,810 Investment securities available for sale................................ 4,719 5,772 Other interest-earning assets........................................... 5,070 5,478 ------------ ----------- Total interest income................................................ 255,793 243,048 ------------ ----------- INTEREST EXPENSE: Deposits................................................................ 85,044 79,528 Federal Home Loan Bank advances......................................... 44,926 45,127 Other borrowings........................................................ 28,297 26,391 ------------ ----------- Total interest expense............................................... 158,267 151,046 ------------ ----------- Net interest income.................................................. 97,526 92,002 Provision for loan and lease losses....................................... 220 1,000 ------------ ----------- Net interest income after provision for loan and lease losses.......................................... 97,306 91,002 ------------ ----------- OTHER INCOME: Loan servicing fees..................................................... 2,574 2,259 Service fees and other charges.......................................... 10,320 6,959 Leasing operations...................................................... 2,088 1,788 Net gains (losses): Loans................................................................. 123 190 Mortgage-backed securities............................................ - 57 Other gains........................................................... (36) 330 Other................................................................... 112 256 ------------ ----------- Total other income................................................... 15,181 11,839 ------------ ----------- ADMINISTRATIVE EXPENSES: Compensation and employee benefits...................................... 24,060 22,037 Net occupancy and equipment............................................. 7,333 6,404 Federal deposit insurance premiums...................................... 1,259 3,989 Amortization of goodwill................................................ 1,113 189 Other administrative expenses........................................... 12,932 11,964 ------------ ----------- Total administrative expenses........................................ 46,697 44,583 ------------ ----------- Income before federal income taxes........................................ 65,790 58,258 Federal income taxes...................................................... 21,704 19,808 ------------ ----------- Net income........................................................... $ 44,086 38,450 ============ =========== Primary earnings per common and common equivalent share(1)................................................................ $ .93 .80 ============ =========== Average common and common equivalent shares outstanding(1)................................................... 47,625,723 48,270,184 ============ =========== Cash dividends declared per share(1)...................................... $ .23 .19 ============ =========== - --------------------------- (1) Restated to reflect the 5% stock dividend issued September 30, 1996.
See Notes to Consolidated Financial Statements 2 5 CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited)
TOTAL ADDITIONAL NET UNREALIZED SHARE- COMMON PAID-IN RETAINED TREASURY GAIN HOLDERS' STOCK CAPITAL EARNINGS STOCK ON SECURITIES EQUITY --------- --------- --------- --------- ------------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Balance, January 1, 1997........ $ 475 321,991 637,356 (39,615) 8,486 928,693 Purchase of 285,000 shares of treasury stock........... (11,942) (11,942) Treasury stock reissued in connection with stock options exercised, 180,998 shares...................... (4,086) 6,997 2,911 Dividends paid ($.23 per share).................. (10,653) (10,653) Change in net unrealized gain on securities, net of tax expense..................... (1,602) (1,602) Net income.................... 44,086 44,086 ---- --------- --------- --------- ------- --------- Balance, March 31, 1997......... $ 475 321,991 666,703 (44,560) 6,884 951,493 ==== ========= ========= ========= ======= =========
See Notes to Consolidated Financial Statements 3 6 CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
THREE MONTHS ENDED MARCH 31, -------------------------------- 1997 1996 ---- ---- (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................................... 44,086 38,450 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan and lease losses......................................... 220 1,000 Net gains................................................................... (87) (578) Accretion of discounts, amortization of premiums, amortization of goodwill and depreciation, net............................. 5,420 (660) Origination of real estate loans held for sale.............................. (6,783) (14,168) Proceeds from sale of loans held for sale................................... 6,906 14,358 Other....................................................................... 69,911 37,190 ----------- ----------- Net cash provided by operating activities................................. 119,673 75,592 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Net principal disbursed on loans and leases................................... (370,367) (367,964) Proceeds from principal repayments and maturities of: Mortgage-backed securities held to maturity................................. 138,492 196,787 Mortgage-backed securities available for sale............................... 1,640 7,193 Investment securities available for sale.................................... 9,761 193,092 Sales of mortgage-backed securities available for sale........................ - 324,002 Purchases of: Mortgage-backed securities held to maturity................................. - (313,472) Investment securities available for sale.................................... (50,000) (106,890) Federal Home Loan Bank stock................................................ - (7,605) Equipment on operating lease................................................ (1,664) (2,066) Other......................................................................... (2,771) (3,127) ----------- ----------- Net cash used in investing activities....................................... (274,909) (80,050) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings.............................. 361,182 (579,879) Proceeds from long-term borrowings............................................ 230,015 409,484 Repayments of long-term borrowings............................................ (517,656) (231,393) Decrease in deposits.......................................................... (1,525) (1,340) Increase (decrease) in advance payments by borrowers for taxes and insurance.................................................................... 957 (1,631) Payment of dividends on common stock.......................................... (10,653) (8,997) Purchase of treasury stock, net of options exercised.......................... (9,031) (3,668) ----------- ----------- Net cash provided by (used in) financing activities............................. 53,289 (417,424) ----------- ----------- Net decrease in cash and cash equivalents....................................... (101,947) (421,882) Cash and cash equivalents, beginning of the period.............................. 270,304 658,371 ----------- ----------- Cash and cash equivalents, end of the period.................................... 168,357 236,489 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest on deposits and borrowings............................. 234,534 170,366 SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Securities transferred from available for sale to held to maturity............ - 1,064,722 Transfers from loans to real estate owned..................................... 284 335
See Notes to Consolidated Financial Statements 4 7 CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Charter One Financial, Inc. ("the Company" or "Charter One") Notice of 1997 Annual Meeting, Proxy Statement and Annual Financial Report. The interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. Such adjustments are of a normal recurring nature. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year. 2. In April 1997, the boards of directors of Charter One Financial, Inc. and Haverfield Corporation, the holding company of Home Bank, F.S.B. entered into a definitive agreement to merge in a stock-for-stock exchange. Home Bank, headquartered in Cleveland, Ohio, is a federally chartered savings and loan with $342 million in assets ($273 million in deposits) and 10 branch offices throughout the Cleveland area. Terms of the agreement call for the tax-free exchange of $27.00 in Charter One common stock for each of Haverfield's common shares or a total consideration of approximately $53.7 million. The price will stay fixed at $27.00 per Haverfield share if Charter One's average stock price remains between $41.09 and $55.60 per share during a 20-day pricing period ending five business days before closing the transaction. The merger, which would be accounted for as a pooling of interests, is expected to close near the end of the third quarter of 1997. Already approved by the boards of directors of both companies, the transaction requires the approvals of the Office of Thrift Supervision and Haverfield shareholders. 3. On January 1, 1997 the Company adopted SFAS No. 125. SFAS No. 125 amends portions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," amends and extends to all servicing assets and liabilities the accounting standards for mortgage servicing rights now in SFAS No. 65, and supersedes SFAS No. 122. SFAS No. 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Those standards are based upon consistent application of a financial components approach that focuses on control. The statement also defines accounting treatment for servicing assets and other retained interests in the assets that are transferred. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishments to liabilities occurring after December 31, 1996 and is to be applied prospectively. The adoption of this statement has not had a material effect on the Company's financial condition or results of operations. The FASB has recently issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125," that defers the effective date of certain provisions of SFAS No. 125 related to secured borrowings and collateral, repurchase agreements, dollar rolls, securities lending, and similar transactions until after December 31, 1997. Management has not completed the process of evaluating this statement and therefore has not determined the impact, if any, that adopting this statement will have on the financial position and results of operations. 4. In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This statement establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock. This statement simplifies the standards for computing earnings per share previously found in Accounting Principles Board Opinion No. 15, "Earnings Per Share," and makes them comparable to international EPS 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. This Statement is effective for financial statements for both interim and annual periods ending after December 15, 1997. 5 8 The following presentation illustrates proforma basic and diluted earnings per share based on the provisions of SFAS No. 128:
THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1996 ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Weighted average number of common shares outstanding used in basic earnings per share calculation....................................... 46,324,519 47,289,413 Add common stock equivalents for shares issuable under Stock Option Plan(1)............................................................. 1,252,027 931,200 ------------ ----------- Weighted average number of shares outstanding adjusted for common stock equivalent................................................... 47,576,546 48,220,613 ============ =========== Net income.................................................................. $ 44,086 38,450 Basic earnings per share.................................................... .95 .81 Diluted earnings per share.................................................. .93 .80 Disclosure of earnings per share calculated in accordance with Accounting Principles Board Opinion No. 15, "Earnings per Share" is contained in Exhibit 11. --------------------------- (1) Additional shares issuable were derived under the "treasury stock method" using the average market price during the period.
5. In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure." This Statement establishes standards for disclosing information about an entity's capital structure. It supersedes specific disclosure requirements of APB Opinions No. 10, "Omnibus Opinion-1966," and No. 15, "Earnings Per Share," and FASB Statement No. 47, "Disclosure of Long-Term Obligations," and consolidates them in this Statement for ease of retrieval and for greater visibility to nonpublic entities. This Statement is effective for financial statements for periods ending after December 15, 1997. It contains no changes in disclosure requirements for entities that were previously subject to the requirements of Opinions 10 and 15 and Statement 47 and, therefore, is not expected to have a significant impact on the financial condition or results of operations of the Company. 6. Certain items in the consolidated financial statements for 1996 have been reclassified to conform to the 1997 presentation. 6 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HOLDING COMPANY BUSINESS GENERAL Charter One Financial, Inc. ("Charter One" or the "Company") is a unitary savings and loan holding company incorporated in Delaware and is the parent company of Charter Michigan Bancorp, Inc. which owns all of the outstanding capital stock of Charter One Bank, F.S.B. ("Charter One Bank" or the "Bank"), a federally chartered stock savings bank headquartered in Cleveland, Ohio. The bank has 174 branch locations: 94 branches in Ohio operating under the name Charter One Bank and 80 branches in Michigan under the name First Federal of Michigan ("First Federal"). RESULTS OF OPERATIONS PERFORMANCE OVERVIEW The Company reported net income of $44.1 million, or $0.93 per share, for the three months ended March 31, 1997. This was a $5.6 million, or 14.7%, increase over the net income for the first quarter of 1996 which was $38.5 million, or $0.80 per share. The primary reason for this improvement was a $5.5 million, or 6.0%, increase in net interest income for the first quarter of 1997. In addition, the Company experienced increases in recurring fee income which were partially offset by increases in administrative expenses. Overall, income before the federal tax provision increased by $7.5 million for the first quarter of 1997 as compared to the same period in 1996. 7 10 QUARTERLY EARNINGS SUMMARY (Figure 1)
THREE MONTHS ENDED ------------------------------------------------------- 3/31/97 12/31/96 9/30/96 6/30/96 3/31/96 ------- -------- ------- ------- ------- (DOLLARS IN THOUSANDS) Net interest income..................................... 97,526 95,304 97,179 98,907 92,002 Provision for loan and lease losses..................... (220) (1,000) (1,001) (1,000) (1,000) Other income, excluding gains and losses...................................... 15,094 16,257 15,046 12,680 11,262 Administrative expenses, excluding the SAIF assessment................................... (46,697) (49,234) (47,885) (46,064) (44,583) ------- ------- ------- ------- ------- Pretax core earnings................................ 65,703 61,327 63,339 64,523 57,681 Gains and losses, net................................... 87 3,502 (71) (2,115) 577 Federal deposit insurance special assessment............................................ - - (56,258) - - ------- ------- ------- ------- ------- Income before federal income taxes.................. 65,790 64,829 7,010 62,408 58,258 Federal income taxes.................................... 21,704 21,958 1,979 21,038 19,808 ------- ------- ------- ------- ------- Net income............................................ 44,086 42,871 5,031 41,370 38,450 ======= ======= ======= ======= ======= Primary earnings per common and common equivalent share...................................... .93 .90 .11 .86 .80 ======= ======= ======= ======= =======
The increase in earnings in the first quarter of 1997 contributed to an 18.67% annualized return on average equity and a 1.26% annualized return on average assets. This compares to first quarter 1996 annualized returns of 17.18% and 1.19%, respectively. These annualized returns and other selected ratios are set forth in Figure 2. SELECTED OPERATING RATIOS (Figure 2)
THREE MONTHS ENDED ---------------------------- 3/31/97 3/31/96 ----------- ----------- Annualized returns: Return on average assets...................................................... 1.26% 1.19 Return on average equity...................................................... 18.67 17.18 Average equity to average assets.............................................. 6.77 6.92 Annualized operating ratios: Net interest income to administrative expenses................................ 208.85 206.36 Administrative expenses to average assets..................................... 1.34 1.38 Efficiency ratio.............................................................. 40.48 42.99
8 11 NET INTEREST INCOME Net interest income is the principal source of earnings for the Company. It is affected by a number of factors including the level, pricing and maturity of interest-earning assets and interest-bearing liabilities, as well as interest rate fluctuations and asset quality. Figure 3 sets forth information concerning Charter One's interest-earning assets, interest-bearing liabilities, net interest income, interest rate spreads and net yield on average interest-earning assets during the periods indicated (including fees which are considered adjustments to yields). Average balance calculations are based on daily balances. AVERAGE BALANCES, INTEREST RATES AND YIELDS/COSTS (Figure 3)
THREE MONTHS ENDED MARCH 31, -------------------------------------------------------------------------- 1997 1996 ---------------------------------- -------------------------------------- AVG. AVG. AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST COST BALANCE INTEREST COST ----------- --------- ------- ----------- -------- ------- (DOLLARS IN THOUSANDS) Interest-earning assets: Loans and leases(1)................ $ 8,327,998 $ 163,982 7.89% $ 6,891,130 $ 142,191 8.25% Mortgage-backed securities: Available for sale............... 22,973 384 6.69 443,891 7,797 7.03 Held to maturity................. 4,599,534 81,638 7.10 4,567,887 81,810 7.16 Investment securities available for sale................ 271,666 4,719 6.95 349,246 5,772 6.61 Other interest-earning assets(2)......................... 302,464 5,070 6.70 334,182 5,478 6.56 ----------- --------- ----------- -------- Total interest-earning assets... 13,524,635 255,793 7.57 12,586,336 243,048 7.72 --------- -------- Allowance for loan losses.......... (65,899) (65,987) Noninterest-earning assets(3)...... 490,542 418,788 ----------- ----------- Total assets.................. $ 13,949,278 $ 12,939,137 =========== =========== Interest bearing liabilities(4): Deposits: Checking accounts................ $ 857,208 2,381 1.13 $ 696,499 2,302 1.32 Savings accounts................. 853,524 4,805 2.28 980,169 5,852 2.39 Money market accounts............ 1,353,582 11,815 3.54 851,571 6,869 3.23 Certificates of deposit.......... 4,748,344 66,043 5.64 4,436,971 64,505 5.82 ----------- --------- ----------- -------- Total deposits................. 7,812,658 85,044 4.41 6,965,210 79,528 4.57 ----------- --------- ----------- -------- FHLB advances...................... 3,131,005 44,926 5.79 3,185,989 45,127 5.67 Other borrowings................... 1,904,506 28,297 5.94 1,729,222 26,391 6.10 ----------- --------- ----------- -------- Total borrowings................ 5,035,511 73,223 5.85 4,915,211 71,518 5.82 ----------- --------- ----------- -------- Total interest-bearing liabilities.................... 12,848,169 158,267 4.98 11,880,421 151,046 5.09 --------- -------- Non interest-bearing liabilities... 156,742 163,733 ----------- ----------- Total liabilities............... 13,004,911 12,044,154 Shareholders' equity................. 944,367 894,983 ----------- ----------- Total liabilities and shareholders' equity........... $ 13,949,278 $ 12,939,137 =========== =========== Net interest income.................. $ 97,526 $ 92,002 ========= ======== Interest rate spread................. 2.59 2.63 Net yield on average interest- earning assets(5)................... 2.88 2.92 Average interest-earning assets to average interest-bearing liabilities......................... 105.27% 105.94% - --------------------------- (1) Average balances include nonaccrual loans and interest income includes loan fee amortization. (2) Includes FHLB stock, federal funds sold, interest-bearing deposits with banks and other. (3) Includes mark-to-market adjustments on securities available for sale. (4) The costs of liabilities include the annualized effect of interest rate risk management instruments. (5) Annualized net interest income divided by the average balance of interest-earning assets.
9 12 Figure 4 sets forth the changes in Charter One's interest income and interest expense resulting from changes in interest rates and the volume of interest-earning assets and interest-bearing liabilities. Changes not solely attributable to volume or rate have been allocated in proportion to the changes due to volume and rate. RATE/VOLUME ANALYSIS (Figure 4)
THREE MONTHS ENDED MARCH 31, ---------------------------------- 1997 V. 1996 ---------------------------------- INCREASE (DECREASE) DUE TO -------------------------- RATE VOLUME TOTAL ---- ------ ----- (DOLLARS IN THOUSANDS) Interest income: Loans and leases............................................................... $ (6,090) 27,881 21,791 Mortgage-backed securities: Available for sale........................................................... (358) (7,055) (7,413) Held to maturity............................................................. (757) 585 (172) Investment securities available for sale....................................... 315 (1,368) (1,053) Other interest-earning assets.................................................. 127 (535) (408) ------- ------- ------- Total....................................................................... (6,763) 19,508 12,745 Interest expense: Checking accounts.............................................................. (185) 264 79 Savings accounts............................................................... (324) (723) (1,047) Money market accounts.......................................................... 612 4,334 4,946 Certificates of deposit........................................................ (2,569) 4,107 1,538 Federal Home Loan Bank advances................................................ 1,635 (1,836) (201) Other borrowings............................................................... (463) 2,369 1,906 ------- ------- ------- Total....................................................................... (1,294) 8,515 7,221 ------- ------- ------- Change in net interest income.................................................... $ (5,469) 10,993 5,524 ======= ======= =======
Net interest income for the first quarter of 1997 was $97.5 million, a $5.5 million, or 6.0%, increase over net interest income for the first quarter of 1996. Net interest income increased primarily due to growth in interest-earning assets, mainly loans and leases, since the first quarter of 1996. Due to high volumes of loan and lease originations in 1996 and the first quarter of 1997, the average balance of loans and leases was $1.4 billion higher during the first three months of 1997 as compared to the first quarter of 1996. This increase in the balance of loans and leases caused interest income to increase by $27.9 million. Overall, average interest-earning assets in the first quarter of 1997 were $938.3 million higher than in the first quarter of 1996. The decrease in the remaining components of interest-earning assets helped fund the loan and lease growth. The other balances were $498.6 million lower in the first quarter of 1997 which caused interest income to decrease by $8.4 million, partially offsetting the increase in interest income created by the loan and lease growth. The primary funding for the remaining growth in the loan and lease portfolio came from increases in interest-bearing liabilities. The average balance of interest-bearing liabilities, primarily savings deposits as a result of the First Nationwide branch and deposit acquisition at June 28, 1996, was $967.7 million higher in the first quarter of 1997 as compared to the same period in 1996. This caused interest expense to increase by $8.5 million. Overall the volume changes in interest-earning assets and interest-bearing liabilities resulted in an increase of $11.0 million in net interest income as the interest rate spread for the first three months of 1997 was 2.59%, four basis points lower than the interest rate spread of 2.63% during the first quarter of 1996. The net yield on interest earning assets also declined by four basis points to 2.88% during the first three months of 1997. New loan and lease volumes were added at yields lower than the average portfolio yield, primarily due to an increase in adjustable rate loan production. This was the primary reason the yield on interest-earning assets declined by 15 basis points to 7.57% during the first three months of 1997. The average cost of interest-bearing liabilities declined by 11 basis points to 4.98% for the first quarter of 1997 as compared to 5.09% for the first quarter of 1996. The four basis point decline in the interest rate spread caused net interest income to decrease by $5.5 million. 10 13 Figure 5 sets forth the Company's yields and costs at period end for the dates indicated. YIELDS AND COSTS AT END OF PERIOD (Figure 5)
MARCH 31, 1997 DECEMBER 31, 1996 ---------------- ------------------ (DOLLARS IN THOUSANDS) Weighted average yield: Loans and leases...................................................... 7.88% 7.96% Mortgage-backed securities............................................ 7.19 7.22 Investment securities................................................. 6.97 6.89 Other interest-earning assets......................................... 7.20 7.21 Total interest-earning assets......................................... 7.61 7.66 Weighted average cost(1): Deposits.............................................................. 4.42 4.48 Federal Home Loan Bank advances....................................... 5.80 5.81 Other borrowings...................................................... 6.06 6.15 Total interest-bearing liabilities.................................... 5.00 5.04 Interest rate spread.................................................... 2.61 2.62 Net yield on interest-earning assets.................................... 2.91 2.87 Interest-earning assets................................................. $13,660,435 $13,458,265 - --------------------------- (1) The costs of liabilities include the annualized effect of interest rate risk management instruments.
OTHER INCOME (Figure 6)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1996 ---- ---- (DOLLARS IN THOUSANDS) Loan servicing fees................................................................ $ 2,574 2,259 Service fees and other charges: Retail deposit account service charges and fees.................................. 7,794 5,712 Fees on insurance, annuity, and mutual fund sales................................ 2,134 829 Other branch service fees........................................................ 311 403 Miscellaneous.................................................................... 81 15 -------- ------- Total.......................................................................... 10,320 6,959 Leasing operations................................................................. 2,088 1,788 Net gains: Real estate...................................................................... (60) 282 Mortgage-backed securities....................................................... - 57 Loans............................................................................ 123 190 Other............................................................................ 24 48 -------- ------- Total.......................................................................... 87 577 Other............................................................................ 112 256 -------- ------- Total......................................................................... 15,181 11,839 ======== =======
OTHER INCOME Other income was $15.2 million for the first quarter of 1997 as compared to $11.8 million for the first three months of 1996. This $3.3 million, or 28.2%, increase was primarily due to increases in recurring fee income as illustrated in figure 6 above. Increases in retail deposit account service charges and fees on insurance, annuity and mutual fund sales were the primary reasons that other income increased. Retail deposit account service charges, primarily checking account service charges, increased $2.1 million primarily due to increases in the number of checking accounts as a result of the First Nationwide acquisition on June 28, 1996. The Bank acquired over 11 14 55,000 additional checking accounts in this acquisition. Fees on insurance, annuity and mutual fund sales increased as a result of expanded operations, primarily in Michigan. ADMINISTRATIVE EXPENSES (Figure 7)
THREE MONTHS ENDED MARCH 31, ------------------------------ 1997 1996 ---- ---- (DOLLARS IN THOUSANDS) Compensation and employee benefits............................................... $ 24,060 22,037 Net occupancy and equipment...................................................... 7,333 6,404 Federal deposit insurance premiums............................................... 1,259 3,989 Amortization of goodwill......................................................... 1,113 189 Other administrative expenses.................................................... 12,932 11,964 -------- -------- Administrative expenses........................................................ $ 46,697 44,583 ======== ======== Number of full-time equivalent employees at end of period............................................................... 2,582 2,360 Net interest income to administrative expenses................................... 208.85% 206.36% Administrative expenses to average assets (annualized)........................... 1.34% 1.38% Efficiency ratio................................................................. 40.48% 42.99%
ADMINISTRATIVE EXPENSES Administrative expenses were $46.7 million during the first quarter of 1997. This is a $2.1 million, or 4.7%, increase as compared to the first quarter of 1996 which had $44.6 million in administrative expenses. These increases were primarily due to the expansion of the Bank's branch network in 1996 and expanded subsidiary operations. On June 28, 1996, the Bank acquired 21 offices with $796.7 million in deposits from First Nationwide Bank. Four of these offices were closed as a result of overlapping market areas. Also, the Bank expanded its subsidiary operations relating to insurance, annuity and mutual fund sales during 1996. The increases were partially offset by a reduction of $2.7 million in the federal deposit insurance premium expense. This reduction was due to the Federal Deposit Insurance Corporation reducing the premium rate to 6.5 basis points per $100 in deposits as a result of the Savings Association Insurance Fund recapitalization in 1996. While the dollar level of expenses increased, those increases were consistent with the expanded operations of the Bank and its subsidiaries. The ratio of administrative expenses to average assets was 1.34% for the first quarter of 1997 as compared to 1.38% during the first quarter of 1996. Also, the Company's efficiency ratio of 40.48% for the first quarter of 1997 compared favorably to the 42.99% efficiency ratio during the first quarter of 1996. Since efficiency ratios are a calculation of administrative expenses (excluding the amortization of goodwill) divided by net interest income plus recurring fee income, the lower the ratio the better for the Company. FEDERAL INCOME TAXES Federal income tax expense was $21.7 million for the three months ending March 31, 1997. This was $1.9 million, or 9.6%, higher than the federal income tax expense during the first three months of 1996. This increase was primarily due to a $7.5 million, or 12.9%, increase in pre-tax income. The effective tax rates were 33.0% for the 1997 period and 34.0% for the 1996 period. 12 15 FINANCIAL CONDITION Figure 8 sets forth information concerning the composition of the Company's assets, liabilities and shareholders' equity at March 31, 1997 and December 31, 1996. FINANCIAL CONDITION (Figure 8)
MARCH 31, 1997 DECEMBER 31, 1996 ---------------------- --------------------- PERCENT PERCENT OF OF AMOUNT TOTAL AMOUNT TOTAL ----------- ------ ----------- ------ (DOLLARS IN THOUSANDS) Assets: Cash and cash equivalents..................... $ 168,357 1.2% $ 270,304 1.9% Investment securities......................... 281,448 2.0 243,632 1.8 Mortgage-backed securities.................... 4,573,737 32.6 4,714,796 33.9 Loans and leases, net......................... 8,472,041 60.3 8,100,342 58.3 Other assets.................................. 544,814 3.9 575,489 4.1 ----------- ------ ----------- ------ Total...................................... $ 14,040,397 100.0% $ 13,904,563 100.0% =========== ====== =========== ====== Liabilities: Deposits...................................... $ 7,839,479 55.8% $ 7,841,197 56.4% Borrowings.................................... 5,028,856 35.8 4,955,291 35.6 Other liabilities............................. 220,569 1.6 179,382 1.3 Shareholders' equity.......................... 951,493 6.8 928,693 6.7 ----------- ------ ----------- ------ Total...................................... $ 14,040,397 100.0% $ 13,904,563 100.0% =========== ====== =========== ======
OVERVIEW At March 31, 1997, total assets were $14.0 billion which was $135.8 million higher than at December 31, 1996. This increase was primarily the result of increases in the balances of loans and leases. The loan and lease portfolio grew by $371.7 million to $8.5 billion at March 31, 1997, funded by reductions of cash and cash equivalents and mortgage-backed securities along with increased borrowing levels. The Company's loan and lease portfolio is growing due to the Bank's ability to originate new loans and leases at levels that exceed repayments as illustrated in Figure 10. LOANS AND LEASES COMPOSITION OF LOANS AND LEASES (Figure 9)
MARCH 31, 1997 DECEMBER 31, 1996 --------------------- -------------------- PERCENT PERCENT OF OF AMOUNT TOTAL AMOUNT TOTAL ---------- ------ ---------- ----- (DOLLARS IN THOUSANDS) Real estate: One-to-four family..................................... $ 6,329,315 74.7% $ 6,072,927 75.0% Multifamily............................................ 274,967 3.2 290,195 3.6 Commercial............................................. 349,653 4.2 348,787 4.4 Construction........................................... 294,274 3.5 302,405 3.7 ---------- ------ ---------- ----- Total real estate................................... 7,248,209 85.6 7,014,314 86.7 Consumer................................................. 1,001,287 11.7 929,204 11.4 Leases................................................... 278,214 3.3 251,133 3.1 Business................................................. 114,935 1.4 100,302 1.2 ---------- ------ ---------- ----- Total loans and leases................................ 8,642,645 102.0 8,294,953 102.4 Less net items........................................... 170,604 2.0 194,611 2.4 ---------- ------ ---------- ----- Loans and leases, net............................... $ 8,472,041 100.0% $ 8,100,342 100.0% ========== ====== ========== =====
13 16 LOAN AND LEASE ACTIVITY (Figure 10)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1997 1996 ---- ---- (DOLLARS IN THOUSANDS) Originations: Real estate: Permanent: One-to-four family.......................................................... $ 418,338 542,368 Multifamily................................................................. 4,569 15,502 Commercial.................................................................. 14,580 8,174 --------- -------- Total permanent........................................................... 437,487 566,044 --------- -------- Construction: One-to-four family.......................................................... 58,613 47,321 Multifamily................................................................. 1,400 - Commercial.................................................................. 5,295 1,000 --------- -------- Total construction........................................................ 65,308 48,321 --------- -------- Total real estate loans originated...................................... 502,795 614,365 --------- -------- Consumer line of credit draws................................................. 60,610 39,583 Consumer...................................................................... 91,568 101,091 Business line of credit draws................................................. 15,776 18,197 Business...................................................................... 15,661 6,604 Leases(1)..................................................................... 67,600 32,246 --------- -------- Total loans and leases originated....................................... 754,010 812,086 --------- -------- Sales and principal reductions: Loans sold...................................................................... 6,783 14,168 Principal reductions............................................................ 399,535 434,264 --------- -------- Total sales and principal reductions...................................... 406,318 448,432 --------- -------- Increase before net items............................................... $ 347,692 363,654 ========= ======== - --------------------------- (1) Not included herein are $1.7 and $2.1 million in operating leases originated during the three months ended March 31, 1997 and 1996, respectively.
14 17 INVESTMENT SECURITIES The entire investment securities portfolio was classified as available for sale at both March 31, 1997 and December 31, 1996. Figure 11 summarizes the fair values of the portfolio at those dates. INVESTMENT SECURITIES PORTFOLIO (Figure 11)
MARCH 31, 1997 DECEMBER 31, 1996 ------------------- ------------------ (DOLLARS IN THOUSANDS) U.S. Treasury and agency securities.................................... $ 276,059 238,135 Corporate notes and commercial paper................................... 4,012 4,107 Other.................................................................. 1,377 1,390 -------- --------- Total................................................................ $ 281,448 243,632 ======== ========= Weighted average rate................................................ 6.97% 6.89% ======== =========
MORTGAGE-BACKED SECURITIES Figure 12 summarizes the mortgage-backed securities ("MBS") portfolios at March 31, 1997 and December 31, 1996. The amounts reflected represent the fair values of securities available for sale and the amortized cost of securities held to maturity. MORTGAGE-BACKED SECURITIES (Figure 12)
MARCH 31, 1997 DECEMBER 31, 1996 -------------- ----------------- (DOLLARS IN THOUSANDS) AVAILABLE FOR SALE Participation certificates: Government agency issues: FHLMC............................................................... $ 12,544 13,335 Collateralized mortgage obligations: Government agency issues: FNMA................................................................ 942 1,283 Private issues........................................................ 6,697 7,182 ---------- ---------- Total mortgage-backed securities available for sale................. 20,183 21,800 ---------- ---------- HELD TO MATURITY Participation certificates: Government agency issues: FNMA................................................................ 1,196,220 1,246,398 FHLMC............................................................... 595,308 636,228 GNMA................................................................ 181,105 188,057 Private issues........................................................ 391,886 407,564 Collateralized mortgage obligations: Government agency issues: FNMA................................................................ 427,089 427,238 FHLMC............................................................... 433,939 434,106 Private issues........................................................ 1,328,007 1,353,405 ---------- ---------- Total mortgage-backed securities held to maturity................. 4,553,554 4,692,996 ---------- ---------- Total.......................................................... $ 4,573,737 4,714,796 ========== ==========
15 18 MORTGAGE-BACKED SECURITIES BY PAYMENT TYPE (Figure 13)
MARCH 31, 1997 DECEMBER 31, 1996 -------------------------- ------------------------- BOOK AVERAGE BOOK AVERAGE VALUE RATE VALUE RATE ----------- ------- ----------- -------- (DOLLARS IN THOUSANDS) AVAILABLE FOR SALE Adjustable rate: Collateralized mortgage obligations.............. $ 6,697 7.27% $ 7,182 7.25% ----------- ----------- Total adjustable rate.......................... 6,697 7.27 7,182 7.25 ----------- ----------- Fixed rate: Participation certificates....................... 12,544 6.03 13,335 6.03 Collateralized mortgage obligations.............. 942 5.09 1,283 5.09 ----------- ----------- Total fixed rate............................... 13,486 5.96 14,618 5.94 ----------- ----------- Total available for sale..................... 20,183 6.47 21,800 6.45 ----------- ----------- HELD TO MATURITY Adjustable rate: Participation certificates....................... 967,345 7.14 1,019,324 7.16 Collateralized mortgage obligations.............. 1,356,463 6.95 1,361,493 7.00 ----------- ----------- Total adjustable rate.......................... 2,323,808 7.03 2,380,817 7.07 ----------- ----------- Fixed rate: Participation certificates....................... 1,397,173 7.50 1,458,923 7.51 Collateralized mortgage obligations.............. 832,573 7.15 853,256 7.15 ----------- ----------- Total fixed rate............................... 2,229,746 7.37 2,312,179 7.38 ----------- ----------- Total held to maturity....................... 4,553,554 7.20 4,692,996 7.22 ----------- ----------- Total mortgage-backed securities........... $ 4,573,737 7.19% $ 4,714,796 7.22% =========== ===========
16 19 ASSET QUALITY ANALYSIS OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES (Figure 14)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1997 1996 ---- ---- (DOLLARS IN THOUSANDS) Balance, beginning of period...................................................... $ 65,922 64,436 Provision for loan and lease losses............................................... 220 1,000 Loans and leases charged off: Mortgage........................................................................ (226) (34) Consumer........................................................................ (139) (315) Leases.......................................................................... - - Business........................................................................ (39) (1) ------- -------- Total charge-offs............................................................. (404) (350) ------- -------- Recoveries: Mortgage........................................................................ 69 44 Consumer........................................................................ 26 88 Leases.......................................................................... - - Business........................................................................ - - ------- -------- Total recoveries............................................................. 95 132 ------- -------- Net loan and lease charge-offs............................................. (309) (218) ------- -------- Balance, end of period............................................................ 65,833 65,218 ======= ======== Net charge-offs to average loans and leases (annualized) .01% .01%
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES (Figure 15)
MARCH 31, 1997 DECEMBER 31, 1996 ---------------- ----------------- (DOLLARS IN THOUSANDS) Mortgage...................................................................... $ 52,976 53,133 Consumer...................................................................... 6,671 6,765 Leases........................................................................ 1,177 977 Business...................................................................... 5,009 5,047 ------- ------- Total....................................................................... $ 65,833 65,922 ======= ======= Percent of loans and leases to ending loans and leases: Mortgage.................................................................... 83.6% 84.3% Consumer.................................................................... 11.8 11.4 Leases...................................................................... 3.3 3.1 Business.................................................................... 1.3 1.2 ------- ------- Total..................................................................... 100.0% 100.0% ======= =======
The allowance for loan and lease losses as a percentage of ending loans and leases (before the allowance) was .77% at March 31, 1997, down slightly from .81% at December 31, 1996. Credit quality remained high, with nonperforming assets at only .32% of total assets at March 31, 1997. Net charge-offs totaled $309,000 for the three months ended March 31, 1997. Net charge-offs for the comparable period of 1996 was $218,000. Management believes that the allowance for loan and lease losses has been established in accordance with generally accepted accounting principles based on the best information available. However, future adjustments to reserves may be necessary and net income could be significantly affected if circumstances and/or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the Ohio or Michigan real estate markets could result in an increased level of nonperforming assets and charge-offs, significant provisions for loan and lease losses and significant reductions in income. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan and lease losses. Such agencies may require the recognition of additions to the allowance based on their judgments of information available to them at the time of their examination. 17 20 Figure 16 sets forth information concerning nonperforming assets and the allowance for loan lease losses. At March 31, 1997, the Bank had no outstanding commitments to lend additional funds to borrowers whose loans were on nonaccrual or restructured status. NONPERFORMING ASSETS (Figure 16)
MARCH 31, 1997 DECEMBER 31, 1996 -------------- ----------------- (DOLLARS IN THOUSANDS) Nonperforming loans and leases: Nonaccrual loans and leases: Mortgage loans: One-to-four family................................................... $ 11,683 10,264 Multifamily and commercial........................................... 3,755 2,372 Construction and land................................................ 840 827 ------- ------- Total mortgage loans............................................... 16,278 13,463 Consumer............................................................... - - Business............................................................... 169 95 Lease financings....................................................... - - ------- ------- Total nonaccrual loans and leases.................................. 16,447 13,558 ------- ------- Accruing loans and leases delinquent more than 90 days: Mortgage loans: One-to-four family................................................... 5,489 5,961 Multifamily and commercial........................................... - - Construction and land................................................ - - ------- ------- Total mortgage loans............................................... 5,489 5,961 Consumer............................................................... 2,919 544 Business............................................................... 6 58 Lease financings....................................................... - - ------- ------- Total accruing 90-day delinquent loans and leases.................. 8,414 6,563 ------- ------- Restructured real estate loans........................................... 13,895 15,294 ------- ------- Total nonperforming loans and leases............................... 38,756 35,415 Real estate acquired through foreclosure and other....................... 6,026 7,030 ------- ------- Total nonperforming assets......................................... $ 44,782 42,445 ======= ======= Ratio of: Nonperforming loans and leases to total loans and leases............... .46% .44% Nonperforming assets to total assets................................... .32 .31 Allowance for loan and lease losses to: Nonperforming loans and leases....................................... 169.87 186.14 Total loans and leases before allowance.............................. .77 .81
Nonperforming assets at March 31, 1997 totaled $44.8 million, up from $42.4 million from December 31, 1996. The increase was due to an increase in the delinquencies of one-to-four family residential loans and consumer loans. The ratio of non-performing loans to total loans was .46% at March 31, 1997 as compared to .44% at December 31, 1996. At March 31, 1997, there were $31.6 million of loans not reflected in the table above, where known information about possible credit problems of borrowers caused management to have doubts as to the ability of the borrower to comply with present loan repayment terms and that may result in disclosure of such loans in the future. The largest of these potential problem loans is a $15.6 million loan on apartment buildings where the borrower is experiencing cash flow deficiencies but the loan is current. 18 21 SOURCES OF FUNDS GENERAL Deposits have historically been the most important source of the Bank's funds for use in lending and for general business purposes. The Bank also derives funds from Federal Home Loan Bank ("FHLB") advances, reverse repurchase agreements and other borrowings, principal repayments on loans and mortgage-backed securities, funds provided by operations and proceeds from the sale of loans and loan participations. At March 31, 1997 and December 31, 1996, 61% of interest-bearing liabilities were in the form of deposits and 39% were in borrowings. DEPOSITS Deposit inflows and outflows are significantly influenced by general interest rates, market conditions and competitive factors. The Bank reprices its deposits primarily based on competitive conditions. In order to decrease the volatility of its deposits, the Bank imposes stringent early withdrawal penalties on its certificates of deposit. Consumer and commercial deposits are attracted principally within the Bank's primary market areas through the offering of a broad range of deposit instruments. COMPOSITION OF DEPOSITS (Figure 17)
MARCH 31, 1997 DECEMBER 31, 1996 --------------------------------- --------------------------------- WEIGHTED PERCENT WEIGHTED PERCENT AVERAGE OF AVERAGE OF AMOUNT RATE TOTAL AMOUNT RATE TOTAL ------ ---- ----- ------ ---- ----- (DOLLARS IN THOUSANDS) Checking accounts: Interest-bearing........................ $ 565,553 1.74% 7.21% $ 558,753 1.86% 7.13% Noninterest-bearing..................... 324,289 - 4.14 300,685 - 3.83 Savings accounts.......................... 843,063 2.23 10.76 868,361 2.42 11.08 Money market accounts..................... 1,365,418 3.46 17.42 1,344,973 3.52 17.16 Certificates of deposit................... 4,739,293 5.85 60.47 4,766,369 5.85 60.80 ----------- ------ ----------- ------ Deposits.............................. 7,837,616 4.51 100.0% 7,839,141 4.56 100.0% ====== ====== Plus unamortized premium on deposits purchased.................... 1,863 2,056 ----------- ----------- Deposits, net........................ $ 7,839,479 $ 7,841,197 =========== =========== Weighted average cost including the annualized effect of applicable swaps, floors, and amortization of deferred gains on terminated swaps................ 4.42% 4.48% ===== =====
BORROWINGS At March 31, 1997, borrowings primarily consisted of FHLB advances and reverse repurchase agreements. These positions were secured by Charter One's investment in the stock of the FHLB, as well as $4.4 billion in real estate loans and $2.4 billion in mortgage-backed securities. 19 22 FEDERAL HOME LOAN BANK ADVANCES (Figure 18)
MARCH 31, 1997 DECEMBER 31, 1996 ----------------------- ------------------------ WEIGHTED WEIGHTED AVERAGE AVERAGE AMOUNT RATE AMOUNT RATE ------ ---- ------ ---- (DOLLARS IN THOUSANDS) Fixed-rate advances........................................ $ 1,960,774 5.97% $ 1,791,332 5.99% Variable-rate advances..................................... 1,120,500 5.52 1,403,000 5.56 ---------- ---------- Advances................................................. 3,081,274 5.81 3,194,332 5.80 Unamortized premium........................................ - 1 ---------- ---------- Total advances, net...................................... $ 3,081,274 $ 3,194,333 ========== ========== Weighted average, cost including the annualized effect of applicable caps and amortization of deferred gains on terminated swaps....................... 5.80% 5.81% ===== ====
The variable-rate advances reprice based upon three-month LIBOR at three-month intervals, and included $573 million which are callable, at par, by the FHLB. The fixed-rate advances include $200 million and $225 million maturing in 2001 and 2002, respectively, which are convertible at the counterparty's option, to a variable rate of three-month LIBOR, beginning in February 1999 and March 1999, respectively, and quarterly thereafter. Figure 19 presents a summary of outstanding reverse repurchase agreements. The Bank enters into short-term reverse repurchase agreements for terms up to one year, as well as longer term fixed- and variable-rate agreements. REVERSE REPURCHASE AGREEMENTS (Figure 19)
MARCH 31, 1997 DECEMBER 31, 1996 ----------------------- ------------------------ WEIGHTED WEIGHTED AVERAGE AVERAGE AMOUNT RATE AMOUNT RATE ------ ---- ------ ---- (DOLLARS IN THOUSANDS) Short term............................................... $ 361,182 5.48% $ - - Long term: Fixed rate............................................. 1,374,784 5.57 1,374,784 5.58% Variable rate.......................................... - 174,994 5.93 ---------- ---------- Weighted average cost including amortization of fees................................... $ 1,735,966 5.55 $ 1,549,778 5.62 ========== ========== Weighted average cost including the annualized effect of amortization of deferred gains on terminated swaps.................................... 5.54% 5.59% ===== ====
The long term fixed-rate agreements include $470 million convertible, at the counterparty's option, to a variable rate based on three-month LIBOR. The agreements are convertible as follows: $200 million beginning in June 1997, $120 million beginning in August 1997 and $250 million in October 1997. INTEREST RATE RISK MANAGEMENT The company utilizes various types of interest rate contracts in managing its interest rate risk on certain of its deposits. The Company has utilized fixed payment swaps to convert certain of its floating-rate or short-term, fixed-rate liabilities into longer term, fixed-rate instruments. Under these agreements, the Company has agreed to pay interest to the counterparty on a notional principal amount at a fixed rate defined in the agreement, and receive interest at a floating rate indexed to LIBOR. The amounts of interest exchanged are calculated on the basis of notional principal amounts. The Company also utilizes fixed receipt swaps to convert certain of its longer term callable certificates of deposit into short-term variable instruments. Under these agreements the Company has 20 23 agreed to receive interest from the counterparty on a notional amount at a fixed rate defined in the agreement, and to pay interest at a floating rate indexed to LIBOR. INTEREST RATE SWAPS (Figure 20)
MARCH 31, 1997 DECEMBER 31, 1996 ------------------------------------ ------------------------------------ NOTIONAL RECEIVING PAYING NOTIONAL RECEIVING PAYING PRINCIPAL INTEREST INTEREST PRINCIPAL INTEREST INTEREST AMOUNT RATE RATE AMOUNT RATE RATE -------- --------- ----------- -------- --------- ----------- (DOLLARS IN THOUSANDS) Fixed payment and variable receipt maturing in 1999.......... $ 100,000 5.63%(1) 10.09% $ 100,000 5.77% 10.09% ======== ======== Variable payment and fixed receipt: Maturing in: 1998.......................... $ 65,000 6.12% 5.54% $ 115,000 6.40% 5.53% 1999.......................... 60,000 6.50 5.57 - - - 2000.......................... 40,000 6.89 5.63 110,000 7.06 5.54 2001.......................... 210,000 7.25 5.55 140,000 7.28 5.53 -------- -------- Total....................... $ 375,000 6.90% 5.56%(1) $ 365,000 6.93% 5.53%(1) ======== ======== - --------------------------- (1) Rates are based upon LIBOR.
The Company also utilizes swaps to hedge a special class of certificates of deposit. These swaps provide for the receipt of variable interest based upon the S&P 500 Index, and the payment of either fixed or variable interest. At March 31, 1997, the notional principal amount outstanding was $33.8 million with a weighted average receipt rate of 21.75% and payment rate of 5.65%. At December 31, 1996, the outstanding principal was $32.2 million with receipt and payment rates of 19.58% and 5.59%, respectively. In 1995, the Company entered into $300 million of four-year interest rate floor agreements maturing in March 1999, which provide for receipt of interest when six-month LIBOR falls below 6.00%. The Company receives the difference between 6.00% and LIBOR at the time of repricing, calculated on the $300 million notional amount. At March 31, 1997, interest received based on a 5.67% weighted average LIBOR rate was partially offset by a .07% per annum fee cost. Fees paid at inception of the agreements are being amortized over the terms of the agreements. Unamortized fees totaled $407,000 at March 31, 1997. In the past, the Company entered into caps with primary dealers to limit its exposure to rising rates on certain of its variable-rate and short-term, fixed-rate liabilities. The agreements provided for receipt of interest when three-month LIBOR exceeded an agreed upon base rate. The Company received a rate of interest equal to the excess of three-month LIBOR at the time of repricing over the 6.00% base rate, calculated on a notional principal amount. At December 31, 1996, the notional principal amount outstanding was $650 million. As of March 31, 1997, all interest rate caps had fully matured. The cost (benefit) of interest rate exchange, cap, floor and collar positions, including amortization of gains and losses on terminated positions, was included in interest expense as follows: 21 24 COST OF INTEREST RATE RISK MANAGEMENT (Figure 21)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1996 ------ ------ (DOLLARS IN THOUSANDS) Interest expense (income): Deposits............................................................................. $(3,800) (916) FHLB advances........................................................................ 257 499 Reverse repurchase agreements........................................................ (308) (636) ------ ------ Total.............................................................................. $(3,851) (1,053) ====== ======
LIQUIDITY Deposits have historically been the most important source of the Bank's funds for use in lending and for general business purposes. The Bank also derives funds from FHLB advances, reverse repurchase agreements and other borrowings, principal repayments on loans and mortgage-backed securities, funds provided by operations and proceeds from the sale of loans and securities. While scheduled loan, security and interest-bearing deposit amortization and maturities are relatively predictable sources of funds, deposit flows and loan and security prepayments are greatly influenced by economic conditions, the general level of interest rates and competition. The Bank utilizes particular sources of funds based on comparative costs and availability. The Bank generally manages the pricing of its deposits to maintain a steady deposit balance, but has from time to time decided not to pay rates on deposits as high as its competition and, when necessary, to supplement deposits with longer term and/or less expensive alternative sources of funds such as advances and reverse repurchase agreements. The Bank is required by regulation to maintain specific minimum levels of liquid investments. Regulations currently in effect require the Bank to maintain liquid assets at least equal to 5.0% of the sum of its average daily balance of net withdrawable accounts and borrowed funds due in one year or less. This regulatory requirement may be changed from time to time to reflect current economic conditions. The Bank's average regulatory liquidity ratio for the quarter ended March 31, 1997 was 5.38%. Liquidity management is both a daily and long-term responsibility of management. The Bank adjusts its investments in cash and cash equivalents based upon management's assessment of (i) expected loan and lease demand, (ii) projected security maturities, (iii) expected deposit flows, (iv) yields available on short-term investments, and (v) the objectives of its asset/liability management program. Excess liquidity is generally invested in federal funds sold, U.S. Treasury and agency securities and commercial paper. If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB and collateral eligible for reverse repurchase agreements. Because the Bank has a stable retail deposit base, management believes that significant borrowings will not be necessary to maintain its current liquidity position. The Bank anticipates that it will have sufficient funds available during the next 12 months to meet current and future loan commitments. At March 31, 1997, the Bank and its subsidiaries had outstanding commitments to originate loans and leases of $513.1 million, unfunded lines of consumer credit totaling $457.6 million (a significant portion of which normally remains undrawn) and unfunded lines of commercial (business loans) credit totaling $34.4 million. Outstanding letters of credit totaled $14.4 million as of March 31, 1997. Certificates of deposit scheduled to mature in one year or less at March 31, 1997 totaled $2.3 billion. Management believes that a significant portion of the amounts maturing during the next 12 months will remain with the Bank because they are retail deposits. At March 31, 1997, the Bank had $1.3 billion of advances from the FHLB and $361.2 million of reverse repurchase agreements which mature during the next 12 months. Management will review the need for advances and reverse repurchase agreements when they mature and believes the Bank has significant additional borrowing capacity with the FHLB and investment banking firms to meet any need for replacement borrowings. 22 25 CAPITAL AND DIVIDENDS The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. The regulations require the Bank to meet specific capital adequacy guidelines and the regulatory framework for prompt corrective action that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based, Tier 1 risk-based, Tier 1 leverage and tangible capital as set forth in the tables below. REGULATORY CAPITAL (Figure 22)
AS OF MARCH 31, 1997 ------------------------------------------------------------------- TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS -------------------- -------------------- ----------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------ ----- ------ ----- ------ ----- (DOLLARS IN THOUSANDS) Total capital (to risk-weighted assets).......... $ 801,167 10.67% $ 600,677 8.0% $ 750,846 10.0% Tier 1 capital (to risk-weighted assets)......... 739,027 9.84 N/A N/A 450,507 6.0 Tier 1 capital (to adjusted tangible assets)..... 739,027 5.25 422,409 3.0 704,014 5.0 Tangible capital (to adjusted tangible assets)... 739,027 5.25 211,204 1.5 N/A N/A
AS OF DECEMBER 31, 1996 ------------------------------------------------------------------- TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS -------------------- -------------------- ----------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------ ----- ------ ----- ------ ----- (DOLLARS IN THOUSANDS) Total capital (to risk-weighted assets).......... $ 741,904 10.62% $559,080 8.0% $698,850 10.0% Tier 1 capital (to risk-weighted assets)......... 679,967 9.73 N/A N/A 419,310 6.0 Tier 1 capital (to adjusted tangible assets)..... 679,967 5.00 407,700 3.0 679,500 5.0 Tangible capital (to adjusted tangible assets)... 679,967 5.00 203,850 1.5 N/A N/A
As of December 31, 1996, the most recent notification from the Office of Thrift Supervision categorized the Bank as well capitalized under the regulatory framework for Prompt Corrective Action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table above. There are no conditions or events since that notification that have changed the Bank's category. Management believes, as of March 31, 1997, that the Bank meets all capital requirements to which it is subject. Events beyond management's control, such as fluctuations in interest rates or a downturn in the economy in areas in which the Bank's loans and securities are concentrated, could adversely affect future earnings and, consequently, the Bank's ability to meet its future capital requirements. 23 26 QUARTERLY STOCK PRICES AND DIVIDENDS (Figure 23)
1ST QUARTER 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER 1997 1996 1996 1996 1996 ---------- ------------ ------------ ----------- ----------- Market price of common stock(1): High.......................................... $ 50.13 44.75 40.56 36.19 33.57 Low........................................... 41.13 38.13 32.03 29.34 27.14 Close......................................... 43.88 42.00 40.00 33.22 32.14 Dividends declared and paid..................... .23 .23 .22 .22 .19 (1) Restated to reflect the 5% stock dividend issued September 30, 1996.
On May 15, 1996, the Board of Directors of the Company authorized management to repurchase 5% of the Company's outstanding common stock in a buyback program. As of that date, the Company had 47,354,637 common shares outstanding (adjusted for subsequent stock dividend). The Company has purchased 425,000 of its shares during 1997, leaving approximately 975,000 shares as authorized for repurchase. On July 24, 1996, the Directors of Charter One Financial, Inc. approved a 5% stock dividend which was distributed September 30, 1996, to shareholders of record on September 13, 1996. 24 27 PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION DIVIDEND On April 24, 1997, the Directors of Charter One Financial, Inc. declared a quarterly cash dividend of 25 cents per common share. The dividend will be payable on May 20, 1997 to shareholders of record as of May 8, 1997. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11 - Computation of Per Share Earnings Exhibit 27 - Financial Data Schedule Exhibit 99 - Selected Monthly Financial Highlights (b) Reports on Form 8-K On April 24, 1997 the Company filed an 8-K disclosing that the boards of directors of Charter One Financial, Inc. and Haverfield Corporation, the holding company of Home Bank, F.S.B. entered into a definitive agreement to merge in a stock-for-stock exchange. Home Bank, headquartered in Cleveland, Ohio, is a federally chartered savings and loan with $342 million in assets ($273 million in deposits) and 10 branch offices throughout the Cleveland area. Terms of the agreement call for the tax-free exchange of $27.00 in Charter One common stock for each of Haverfield's common shares or a total consideration of approximately $53.7 million. The price will stay fixed at $27.00 per Haverfield share if Charter One's average stock price remains between $41.09 and $55.60 per share during a 20-day pricing period ending five business days before closing the transaction. The merger, which would be accounted for as a pooling of interests, is expected to close near the end of the third quarter of 1997. Already approved by the boards of directors of both companies, the transaction requires the approvals of the Office of Thrift Supervision and Haverfield shareholders. 25 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHARTER ONE FINANCIAL, INC. Date: May 8, 1997 /s/ Robert J. Vana ------------------ Robert J. Vana Chief Corporate Counsel and Secretary Date: May 8, 1997 /s/ Richard W. Neu ------------------ Richard W. Neu Executive Vice President and Chief Financial Officer 26 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 CHARTER ONE FINANCIAL, INC. COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED MARCH 31, --------------------------------------- 1997 1996 ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) COMPUTATION OF PRIMARY EARNINGS PER SHARE: Weighted average number of common shares outstanding..................... 46,324,519 47,289,413 Add common stock equivalents for shares issuable under: Stock Appreciation Rights Plan(1)...................................... 49,177 49,571 Stock Option Plan(1)................................................... 1,252,027 931,200 ------------ ------------ Weighted average number of shares outstanding adjusted for common stock equivalents....................................... 47,625,723 48,270,184 ============ ============ Net income................................................................. $ 44,086 38,450 Primary earnings per share................................................. .93 .80 COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE: Weighted average number of common shares outstanding..................... 46,324,519 47,289,413 Add common stock equivalents for shares issuable under: Stock Appreciation Rights Plan(2)...................................... 49,177 53,327 Stock Option Plan(2)................................................... 1,254,025 1,039,146 ------------ ------------ Weighted average number of shares outstanding adjusted for common stock equivalents....................................... 47,627,721 48,381,886 ============ ============ Net income................................................................. $ 44,086 38,450 Fully diluted earnings per share........................................... .93 .79 - --------------------------- (1) Additional shares issuable were derived under the "treasury stock method" using average market price during the period. (2) Additional shares issuable were derived under the "treasury stock method" using the higher of the average market price during the period or the market price at the end of the period.
27 EX-27 3 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF CHARTER ONE FINANCIAL, INC. AND SUBSIDIARIES AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 118,124 0 50,233 0 301,631 4,553,554 4,541,092 8,537,874 65,833 14,040,397 7,839,479 361,182 220,569 4,667,674 475 0 0 951,018 14,040,397 163,982 86,741 5,070 255,793 85,044 158,267 97,526 220 0 46,697 65,790 65,790 0 0 44,086 .93 .93 2.88 16,447 8,414 13,895 31,600 65,922 404 309 65,833 65,833 0 0
EX-99 4 EXHIBIT 99 1 EXHIBIT 99 CHARTER ONE FINANCIAL, INC. SELECTED MONTHLY FINANCIAL HIGHLIGHTS SELECTED FINANCIAL DATA AT MONTH END
03/31/97 02/28/97 01/31/97 -------- -------- -------- (DOLLARS IN THOUSANDS) Total assets..................................................... $ 14,040,397 14,043,895 13,957,449 Cash & cash equivalents.......................................... 168,357 266,203 229,918 Investment securities............................................ 281,448 284,221 283,830 Mortgage-backed securities....................................... 4,573,737 4,616,531 4,666,155 Loans receivable................................................. 8,472,041 8,325,041 8,231,799 Portfolio of loans serviced for others........................... 1,422,526 1,441,278 1,459,548 Common shares outstanding, net................................... 46,338,721 46,330,703 46,309,468 Treasury shares.................................................. 1,133,765 1,141,783 1,163,018 Deposits: Checking....................................................... $ 889,842 884,941 847,099 Savings........................................................ 843,063 844,627 856,602 MMDA........................................................... 1,365,418 1,355,463 1,349,292 Certificates: 6 month or less.............................................. 573,416 584,357 590,857 6 month to 1 year............................................ 1,528,237 1,511,682 1,473,975 Retail jumbos................................................ 237,486 239,363 239,870 Other........................................................ 2,402,017 2,412,498 2,447,122 ----------- ------------ ----------- Total CDS.................................................. 4,741,156 4,747,900 4,751,824 ----------- ------------ ----------- Total deposits........................................... $ 7,839,479 7,832,931 7,804,817 =========== ============ =========== Borrowings: Reverse repurchase agreements.................................. $ 1,735,966 1,735,966 1,633,496 FHLB advances.................................................. 3,081,274 3,105,958 3,189,149 Other.......................................................... 211,616 211,168 211,749 ----------- ------------ ----------- Total borrowings............................................. $ 5,028,856 5,053,092 5,034,394 =========== ============ =========== Weighted average rates: Loans.......................................................... 7.88% 7.89% 7.93% MBS............................................................ 7.19 7.15 7.19 Loans and MBS................................................ 7.64 7.63 7.66 Other investments.............................................. 7.08 6.86 6.91 Total interest-earning assets................................ 7.61 7.60 7.63 Deposits....................................................... 4.42 4.46 4.47 Borrowings..................................................... 5.90 5.88 5.89 Total interest-bearing liabilities........................... 5.00 5.02 5.03 Interest rate spread............................................. 2.61% 2.58% 2.60% Net yield on interest-earning assets............................. 2.91% 2.84% 2.86% Nonperforming assets and allowance for loss: Nonperforming loans............................................ $ 24,861 20,121* 20,121* Restructured loans............................................. 13,895 15,294* 15,294* REO and other repossessed assets............................... 6,026 7,030* 7,030* ----------- ------------ ----------- Total nonperforming assets................................... $ 44,782 42,445* 42,445* =========== ============ =========== Allowance for loss............................................... 65,833 65,860 65,932 Number of employees (FTEs)....................................... 2,582 2,557 2,550 *At December 31, 1996.
28 2 SELECTED ACTIVITY FOR THE MONTH AND QUARTER
ONE MONTH ENDED 3 MONTHS ---------------------------------------- ENDED 03/31/97 02/28/97 01/31/97 03/31/97 --------- --------- --------- -------- (DOLLARS IN THOUSANDS) Loan and MBS activity: Mortgage loan originations: One-to-four family............................... $ 179,015 136,249 161,687 476,951 Multifamily...................................... 3,562 2,407 - 5,969 Commercial real estate........................... 5,178 8,617 6,080 19,875 Consumer loan originations......................... 57,003 46,598 48,577 152,178 --------- --------- --------- -------- Total mortgage and loan originations........... $ 244,758 193,871 216,344 654,973 ========= ========= ========= ======== Loans sold........................................... 3,200 2,048 1,535 6,783 MBS purchased........................................ - - - - MBS sold............................................. - - - - Deposit portfolio activity: Net increase (decrease): Checking......................................... $ 4,901 37,842 (12,339) 30,404 Savings.......................................... (1,564) (11,975) (11,759) (25,298) MMDA............................................. 9,955 6,171 4,319 20,445 Certificates: 6 month or less................................ (10,941) (6,500) (8,548) (25,989) 6 month to 1 year.............................. 16,555 37,707 28,588 82,850 Retail jumbos.................................. (1,877) (507) (2,586) (4,970) Other.......................................... (10,481) (34,624) (34,055) (79,160) --------- --------- --------- -------- Total CDS.................................... (6,744) (3,924) (16,601) (27,269) --------- --------- --------- -------- Net increase in deposits............................. $ 6,548 28,114 (36,380) (1,718) ========= ========= ========= ======== Interest credited to deposits included above......... $ 51,089 12,132 11,993 75,214 Total increase (decrease) as a percentage of beginning deposits................................. .08% .36% (.46%) (.02%)
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