Charter One Financial Inc. late Tuesday said its second quarter earnings declined due to merger-related charges but its operating earnings hit an all-time high and the company's board approved the repurchase of up to 10% of the company's common stock.

Despite the profit growth and stable credit quality indicators in the quarter, Charter One said it would take steps to curbs its balance sheet growth in coming quarters to address the effects of higher interest rates.

"The flat yield curve is providing us with limited opportunities for balance sheet growth at acceptable profitability and risk levels," Charles John Koch, chairman and chief executive officer said in a statement. "Therefore, in this environment we will slow our balance sheet growth, with particular emphasis on accelerating the shift away from single-family loans and securities by selling more of those portfolios."

The company said its credit quality remained strong. Its nonperforming assets, including troubled debt restructurings and loans delinquent 90 days still accruing, totaled $157.6 million at June 30, 2000, resulting in a ratio of nonperforming assets to total assets of 0.49% at the end of the quarter, down from 0.55% at March 31, 2000. Its ratio of net charge-offs to average loans remained was 0.18% in the second quarter versus 0.17% in the first quarter.

The Cleveland-based company, which has about 202 million shares outstanding, also declared a 5% stock dividend and a cash dividend of 18 cents per share.

Charter One also reported second quarter operating income, which excluded the effects of merger charges in both years -- of $117.5 million, or 56 cents per share, matching the Thomson Financial/First Call consensus estimate for the three months ended June 30. That compares to $110.7 million, or 50 cents per share, a year ago.

Including merger expenses, which were $14.2 million in the second quarter of 2000 and $2.3 million in the second quarter of 1999, net income was $103.3 million, or 49 cents per diluted share versus $108.4 million, or 49 cents per diluted share, in 1999. Charter One earned $111.7 million or 53 cents per diluted share in the first quarter of this year.

For more earnings data, go to the Ranking the Banks section of AmericanBanker.com.

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