Houston's Charter Bancshares Inc. began feeling the full benefit this year of both its eight-year acquisition drive and its companywide cross- selling effort.

The $800 million-asset banking company posted a 62% increase in first- quarter net income, to $2.44 million. The company's net interest margin, bucking a trend, was 4.93% in the quarter, up from 4.34% in the year- earlier period.

Those numbers distinguished Charter in southeast Texas, where most community banks are standing pat, waiting to see where the merger and acquisition winds will blow them. The region is home to hundreds of small community banks, a total expected to dwindle quickly due to in-market consolidations before Texas becomes subject to interstate branching in 1999 at the earliest.

Jerry Finger, Charter's chairman and chief executive, wants to be on the buying side. "We're looking at several acquisitions currently," he said. "Since 1987, we've had 11 acquisitions."

The most recent deal was for West Loop Savings and Loan Association, a $137 million-asset Houston thrift that Charter bought a year ago for $9.3 million.

The purchase was the primary engine for the first-quarter leap in earnings but also fueled Charter's internal growth by deepening its penetration of the sprawling Harris County market.

So far, Charter, which is more than 20% owned by NationsBank Corp., has paid only cash for its acquisitions. Mr. Finger said he thinks the deals market is heating up mostly because of community bank executives' outlook.

"I don't think I can get into anyone's psyche," Mr. Finger said, "but I think that the small banker feels like he's up against the wall. He's stymied as far as growth is concerned. After a while, he starts to look for a way to cash out."

But Mr. Finger isn't only concentrating on acquisitions. He said the company's performance reflects a concerted effort to make all lines of business - both fee-based and lending - contribute meaningfully to the bottom line.

"Over the past year we acquired several different companies that were in some way complementary," he said. "Then about a year ago, we instituted a cross-sales program - including community banking, corporate banking, mortgage banking, and others - and now the sales culture is finally starting to develop."

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