Charter Bancshares is heavily armed for a fight, just like the sailing-era naval vessels portrayed on nearly every wall at its offices.
"It's not the first time that Charter chairman Jerry E. Finger, a native Texan, amateur historian, born entrepreneur, and former Navy lieutenant, has led his bank through a battle for survival
In the early 1980s, when oil and real estate started their free falls, Mr. Finger was the first Texas banker to charge off troubled assets - $3 million in 1984 and a total of $20 million by 1988.
Catastrophe Averted
His foresight saved Charter, which with $660 million in assets is the largest of Houston's independents to survive the ensuing bank failures.
At one point in the late 1980s, however, nearly 9% of Charter, assets were nonperforming. Certificate prices were sliced, and $170 million of assets vanished. Total loans, which peaked in the decade at $400 million, plummeted to $160 million.
"That made me blink," the banker says.
Mr. Finger joined his family's retail furniture business after leaving the Navy. He and his father started the all in 1963. Now he is doing all he can to make sure it is still around at the turn of the century.
"When we were charging off the assets we got terrible headlines - when everyone else was posting pins," says Mark T. Giles, Chartees president. "But now we have a critical mass of capital for a wide array of banking services."
Those services, most of them newly developed, are adding sophistication to Charter, which is mainly a middle market bank. But they haven't paid dividends so far.
Nevertheless, Mr. Finger, a Wharton graduate who has invested in grain storage and estate developments in addition to his bank, tolerates the red ink in his ledger.
"A lot of banks are living off their past portfolios," he says. "But what will they do when their 8% Treasuries mature? We're preparing for the future.
"It's taking a bite out of earnings, yes, but it's earnings in 1994 and 1995 that we're worried about. Earnings and growth will keep the bank viable - otherwise, we won't serve any of our constituencies."
In April Charter added $95 million in assets when it bought University National Bank, Galveston, for $9.4 million. Most of the outlay was funded by a subordinate debenture.
Earnings Strong
Despite losses in the start-up businesses, Charter's earnings remain strong. Its net for the nine months ended Sept. 30 was $6.4 million, 27% more than the year-earlier tally. Return on equity, in the third quarter was 20.74%, up from 18.83% a year earlier.
A small, but growing, part of the earnings is attributable to Charter's discount brokerage service and its sale of mutual funds. Mr. Finger says narrowing spreads and disintermediation finally persuaded him, back in 1991, that the bank should offer its customers mutual funds.
"I was against it at first, but that was when deposit rates were high, and people will believed passbook deposits and certificates were a way to save."
The mutual funds and the brokerage service together will turn a profit this year. Currently, all of the registered reps are in Charter's Galleria branch, named for a nearby mall where Neiman Marcus is the most visible tenant. Other newly established services in this branch are the trust and international banking departments.
Trust, which opened in 1991 and already is investing over $200 million, will break even this year. The international department, which is losing money, was expanded this year.
"We started offering total trade financing in July," Mr. Finger says. "Before we weren't involved in deals, except when exports were still in this country. Now we're involved in bank-to-bank relationships for the whole range of Ex-Im deals."
Hopeful on Nafta
Despite the department's red ink, Mr. Finger is sanguine about its future. "Houston has substantial trade with Europe and South America, and there are more Mexican goods shipped out of Houston than all the Mexican ports put together. There's also a lot of latent private banking business in international trade.
"Hopefully," he adds, "Nafta will pass. That would be big for us."
It also would be big for the five multibillion-dollar banks with offices in Houston. But Mr. Finger says Charter will be equal to their competition in international banking while maintaining an edge in middle-market deals.
It's in community banking, however, that Charter hopes to win big against the major banks, as well as the 70 independents in Houston's sprawling market.
"We've put on high powered people for community banking," Mr. Finger says, "but we haven't picked up the assets we'd hoper for."
Retail Push
Not to date. But tomorrow the bank will start teaching its platform personnel about a newly developed package of retail offerings.
Since Mr. Finger says Charter is "very-close" to running its first TV advertisements, it's likely that the ads will promote the seniors package, the revolving lines of credit, basic checking, annuities, and children's savings accounts that the branches will roll out Jan. 1.
"It's not enough to remember your customer's name anymore," says Michael S. Dafferner, who heads community banking at Charter. "We're Irving to increase our base of core customers by starting real financial relationships."
That's no mean feat in Houston's fiercely competitive market. The population of 1.6 million is spread over 586 square miles of alternating urban and suburban areas.
To help market itself, Charter - which has a "satisfactory" Community Reinvestment Act rating - is joining and starting outreach programs to help market which help market the bank in churches and schools.
"We have a presence in 60 churches," Mr. Dafferner says. "We've started a mentoring program for elementary schools. We're heavily involved with our chambers of commerce, and also a joint program with the city - |Neighborhood-to-Standards' - where municipal dollars fix up infrastructures and we step in to help finance small businesses and housing rehab."
C&I Business
Commercial and industrial loans make up 20% of Charter's portfolio. "We cover the waterfront" in small-business lending, says H.W. "Bill" Sewell, president of Charter Bank.
Besides stressing diversity in its C&I portfolio, Charter also "tries to help entrepreneurs with loans with terms longer than 90 days, which is what they need most" Mr. Finger says.
Charter also lends for commercial real estate, "but we're very cautious," says Peter E. Fisher, who heads corporate banking. "We won't make the loan unless we have a substantial piece of equity in the structure and we're satisfied with the borrower's net operating income and the ratio of loan to square foot, as opposed to loan to value."
Mr. Fisher hopes that branch referrals will eventually eliminate any need for his staff to make cold calls.
He adds that Charter has been a strong player in the areas of mortgage warehousing. The warehousing effort, put on stream in 1990 and involving short-term loans to mortgage brokers, has turned into "a wonderful piece of business for us," Mr. Fisher says. "The major banks are in it, but they're not pursuing it aggressively."
Mr. Finger's interest in military history may be reflected in the bank's plans. For example, all branch managers have maps with green borders outlining their target markets.
At annual meetings, Mr. Finger presents directors with tin soldiers representing a historic battle and an essay he has written about it.
A quotation from Lord Admiral Horatio Nelson in the banker's latest essay, on the 1805 Battle of Trafalgar, exemplifies Charter's aggressive stance.
"No captain can do very wrong," Admiral Nelson reportedly said, "if he places his ship alongside that of an enemy."Charter BancsharesAt a Glance Headquarters HoustonChairmanand CEO Jerry E. FingerBranches 12Assets $660 millionROA 1.31%ROE 10.47%Loans todeposits 51.49%Tier 1capital 14.35%Nonperformingassets ratio 0.66%Book value $6.70Traded NasdaqTrading symbol SAILShare priceFriday $12.75
