<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15829
FIRST CHARTER CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 56-1355866
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
22 Union Street, North, Concord, North Carolina 28025
- ---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(704) 786-3300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
4,640,213 shares of Common Stock, $5.00 par value, outstanding as of
November 13, 1995.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CHARTER CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
ASSETS 1995 1994
<S> <C> <C>
------------- ---------
Cash and due from banks.......................................................... $ 15,931,376 $ 18,110,298
Federal Funds sold............................................................... -- --
Securities available for sale:
U.S. Government obligations................................................... 11,640,640 16,083,594
U.S. Government agency obligations............................................ 16,037,597 8,911,518
Mortgage-backed securities.................................................... 2,528,462 2,519,763
State and municipal obligations, nontaxable................................... 2,243,137 --
Other......................................................................... 4,341,702 3,288,447
------------- -------------
Total securities available for sale........................................ 36,791,538 30,803,322
------------- -------------
Investment securities:
(Market value of $54,336,242, and $58,602,959
at 9/30/95 and 12/31/94, respectively)
U.S. Government agency obligations............................................ 4,982,919 7,985,901
Mortgage-backed securities.................................................... 12,624,804 16,260,021
State and municipal obligations, nontaxable................................... 35,732,805 36,792,641
------------- -------------
Total investment securities................................................ 53,340,528 61,038,563
------------- -------------
Loans............................................................................ 228,648,198 203,935,504
Less: Unearned income.................................................... (297,976) (201,331)
Allowance for loan losses.......................................... (3,068,838) (2,816,172)
------------ ------------
Loans, net................................................................. 225,281,384 200,918,001
------------- -------------
Premises and equipment, net...................................................... 8,019,623 7,247,098
Other assets..................................................................... 4,094,255 5,931,370
------------- -------------
Total assets............................................................... $ 343,458,704 $ 324,048,652
============= = ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits, domestic:
Noninterest-bearing........................................................... $ 48,279,929 $ 48,037,213
Interest-bearing.............................................................. 234,450,597 218,315,321
------------- -------------
Total deposits............................................................. 282,730,526 266,352,534
Short-term borrowings............................................................ 16,955,865 17,734,069
Other liabilities................................................................ 2,922,114 2,498,467
------------- -------------
Total liabilities.......................................................... 302,608,505 286,585,070
------------- -------------
Shareholders' equity:
Common stock - $5 par value; authorized
10,000,000 shares, issued and outstanding,
4,643,993 shares at 9/30/95 and 4,632,250
shares at 12/31/94............................................................ 23,219,965 23,161,250
Additional paid-in capital....................................................... 159,328 672
Unrealized gain on securities available
for sale...................................................................... 648,058 96,150
Retained earnings................................................................ 16,822,848 14,205,510
------------- -------------
Total shareholders' equity................................................. 40,850,199 37,463,582
Total liabilities and shareholders' equity.......................................$ 343,458,704 $ 324,048,652
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED
SEPT. 30, Sept. 30,
INTEREST INCOME: 1995 1994
<S> <C> <C>
Interest and fees on loans................................................................ $ 15,508,459 $ 11,800,244
Federal funds sold........................................................................ 215,010 113,601
Securities available for sale:
U.S. Government obligations........................................................... 696,150 925,361
U.S. Government agency obligations.................................................... 596,358 127,067
Mortgage-backed securities............................................................ 114,627 83,496
State and municipal obligations, nontaxable........................................... 18,082 --
Other................................................................................. 119,296 79,919
Investment securities:
U.S. Government obligations.......................................................... -- 10,882
U.S. Government agency obligations................................................... 95,685 126,049
Mortgage-backed securities........................................................... 716,512 942,167
State and municipal obligations, nontaxable.......................................... 1,482,471 1,632,558
Other................................................................................... 15,850 --
---------- -----------
Total interest income............................................................. 19,578,500 15,841,344
---------- -----------
INTEREST EXPENSE:
Deposits:
Demand 778,916 737,046
Money Market......................................................................... 649,185 572,617
Savings and time..................................................................... 5,594,773 3,677,210
Short-term borrowings................................................................... 557,227 292,732
---------- -----------
Total interest expense............................................................ 7,580,101 5,279,605
---------- -----------
Net interest income............................................................... 11,998,399 10,561,739
Provision for loan losses............................................................... 550,000 350,000
---------- -----------
Net interest income after provision for loan losses............................... 11,448,399 10,211,739
---------- -----------
NONINTEREST INCOME:
Trust income............................................................................ 1,006,800 1,048,352
Service charges on deposit accounts..................................................... 1,107,126 1,116,274
Insurance and other commissions......................................................... 135,625 148,148
Securities available for sale transactions, net......................................... 6,830 74,142
Investment securities transactions, net................................................. 4,298 38,761
Other................................................................................... 254,482 255,774
---------- -----------
Total noninterest income.......................................................... 2,515,161 2,681,451
---------- -----------
NONINTEREST EXPENSE:
Salaries and fringe benefits............................................................ 4,066,726 3,911,565
Occupancy and equipment................................................................. 1,042,290 982,191
Other................................................................................... 2,354,112 2,583,962
---------- -----------
Total noninterest expense......................................................... 7,463,128 7,477,718
---------- -----------
Income before income taxes........................................................ 6,500,432 5,415,472
Income taxes............................................................................ 1,961,000 1,514,000
---------- -----------
Net Income........................................................................ $ 4,539,432 $ 3,901,472
============= =======================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARY
EARNINGS PER SHARE DATA
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED
SEPT. 30, Sept. 30,
1995 1994
---------- ------
<S> <C> <C>
PRIMARY INCOME PER SHARE DATA:
Net income....................................................................... $0.97 $0.83
========== ========
Average common equivalent shares................................................. 4,692,307 4,701,067
INCOME PER SHARE DATA ASSUMING FULL DILUTION:
Net income....................................................................... $0.97 $0.83
========== ==========
Average common equivalent shares................................................. 4,706,073 4,706,519
CASH DIVIDENDS DECLARED............................................................... $0.39 $0.28
</TABLE>
All per share data has been retroactively adjusted to reflect a stock split
effected in the form of a 33 1/3% stock dividend declared in the fourth quarter
of 1994.
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For The Three Months Ended
SEPT. 30, Sept. 30,
INTEREST INCOME: 1995 1994
---------- --------
<S> <C> <C>
Interest and fees on loans..................................................... $ 5,415,056 $ 4,333,525
Federal funds sold............................................................. 85,961 34,903
Securities available for sale:
U.S. Government obligations................................................. 218,429 306,598
U.S. Government agency obligations.......................................... 270,484 92,276
Mortgage-backed securities.................................................. 38,714 36,159
State and municipal obligations, nontaxable................................. 17,063 --
Other....................................................................... 49,546 24,830
Investment securities:
U.S. Government obligations................................................. -- --
U.S. Government agency obligations.......................................... 30,279 67,913
Mortgage-backed securities.................................................. 221,957 299,390
State and municipal obligations, nontaxable................................. 484,678 511,510
Other.......................................................................... -- --
---------- -----------
Total interest income.................................................... 6,832,167 5,707,104
INTEREST EXPENSE:
Deposits:
Demand 258,160 251,799
Money Market................................................................ 206,040 202,058
Savings and time............................................................ 2,071,872 1,326,840
Short-term borrowings.......................................................... 194,736 123,951
Total interest expense................................................... 2,730,808 1,904,648
Net interest income...................................................... 4,101,359 3,802,456
Provision for loan losses...................................................... 325,000 150,000
---------- -----------
Net interest income after provision for loan losses...................... 3,776,359 3,652,456
NONINTEREST INCOME:
Trust income................................................................... 344,520 329,670
Service charges on deposit accounts............................................ 369,135 361,601
Insurance and other commissions................................................ 44,273 46,627
Securities available for sale transactions, net................................ -- 16,444
Investment securities transactions, net........................................ -- 28,190
Other.......................................................................... 87,116 77,252
---------- -----------
Total noninterest income................................................. 845,044 859,784
---------- -----------
NONINTEREST EXPENSE:
Salaries and fringe benefits................................................... 1,378,708 1,263,415
Occupancy and equipment........................................................ 340,070 317,582
Other.......................................................................... 686,315 858,199
---------- -----------
Total noninterest expense................................................ 2,405,093 2,439,196
---------- -----------
Income before income taxes............................................... 2,216,310 2,073,044
Income taxes................................................................... 680,000 647,000
---------- -----------
Net Income............................................................... $ 1,536,310 $ 1,426,044
= ========= = =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARY
EARNINGS PER SHARE DATA
<TABLE>
<CAPTION>
For the Three Months Ended
SEPT. 30, Sept. 30,
1995 1994
<S> <C> <C>
PRIMARY INCOME PER SHARE DATA:
Net income........................................................................... $0.33 $0.30
========== =========
Average common equivalent shares..................................................... 4,705,770 4,692,323
INCOME PER SHARE DATA ASSUMING FULL DILUTION:
Net income........................................................................... $0.33 $0.30
========== ==========
Average common equivalent shares..................................................... 4,709,175 4,692,323
CASH DIVIDENDS DECLARED................................................................... $0.13 $0.10
========== ==========
</TABLE>
All per share data has been retroactively adjusted to reflect a stock split
effected in the form of a 33 1/3% stock dividend declared in the fourth quarter
of 1994
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For The Nine Months Ended September 30, 1995
<TABLE>
<CAPTION>
Unrealized
Add'l Gain in
Common Paid-in Retained value of
Stock Capital Earnings securities Total
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1994.................. $ 23,161,250 $ 672 $ 14,205,510 $ 96,150 $ 37,463,582
Net income for the
nine months ended
September 30, 1995................. -- -- 4,539,432 -- 4,539,432
Cash dividends of $.39
per share......................... -- -- (1,807,344) -- (1,807,344)
Purchase and retirement
of 24,384 shares of
common stock...................... (121,920) (136,393) (114,750) -- (373,063)
Stock options exercised
and Dividend Reinvestment
Plan stock issued totalling
36,127 shares...................... 180,635 295,049 -- -- 475,684
Unrealized gain on
securities available
for sale........................... -- -- -- 551,908 551,908
------------ --------- ----------- ---------- -----------
Balance,
September 30, 1995................. $ 23,219,965 $ 159,328 $ 16,822,848 $ 648,058 $40,850,199
= ========== = ======= = ========== = ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, September 30,
1995 1994
------------- --------
<S>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $4,539,432 $ 3,901,472
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses.......................................... 550,000 350,000
Depreciation....................................................... 472,179 407,145
Premium amortization and discount accretion, net................... (97,121) 24,083
Net gain on investment securities transactions..................... (4,298) (38,761)
Net gain on securities available for sale transactions............. (6,830) (74,142)
Net (gain) on sale of premises and equipment....................... (12,449) (2,843)
Decrease in other assets........................................... 1,495,787 166,041
Decrease in other liabilities ..................................... 326,766 20,000
------------
Net cash provided by operating activities............... 7,263,466 4,752,995
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities....................... 1,725,292 3,010,937
Proceeds from sales of securities available for sale............... 11,033,420 163,742
Proceeds from maturities and issuer calls of
investment securities, net.................................... 19,833,196 25,779,123
Proceeds from maturities of securities available for sale.......... 12,133,516 2,166,970
Purchase of investment securities.................................. (13,801,199) (20,867,635)
Purchase of securities available for sale.......................... (28,201,390) (14,652,180)
Net increase in loans.............................................. (24,924,914) (19,347,619)
Proceeds from sale of premises and equipment....................... 30,425 2,843
Purchase of premises and equipment................................. (1,247,680) (1,136,249)
Net cash used in investing activities................... (23,419,334) (24,880,068)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW, Money Market and
savings accounts.............................................. 9,959,321 19,952,914
Net increase (decrease) in certificates of deposit................. 6,418,671 (2,484,538)
Net increase (decrease) in securities sold under
repurchase agreements and other short-term borrowings......... (778,204) 7,628,282
Net increase in advances for taxes and insurance................... 81,881 32,597
Purchase of common stock........................................... (373,063) (963,145)
Proceeds from issuance of common stock............................. 475,684 439,107
Dividends paid..................................................... (1,807,344) (1,290,629)
Net cash provided (used) by financing activities........ 13,976,946 23,314,588
------------ -----------
Net increase in cash and cash equivalents.......................... (2,178,922) 3,187,515
Cash and cash equivalents at beginning of period................... 18,110,298 12,857,677
------------ ------------
Cash and cash equivalents at end of period......................... $ 15,931,376 $ 16,045,192
= ========== = ==========
(Continued)
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, September 30,
1995 1994
------------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the yearfor:
Interest........................................................... $ 7,277,939 $ 5,176,397
= ========= = =========
Income taxes....................................................... $ 2,276,671 $ 1,350,443
= ========= = =========
Supplemental disclosure of non-cash transactions:
Transfer of loans and premises and equipment to other
real estate owned............................................. $ 11,531 $ 29,901
= ====== = ======
Unrealized gains (loss) in value of securities available
for sale (net of tax effect of $387,079 and $(227,997)
for 1995 and 1994, respectively).............................. $ 551,908 $ (380,820)
= ======= ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARY
NOTES TO INTERIM FINANCIAL STATEMENTS
1. Primary earnings per share and income per share assuming full
dilution are computed based on the weighted average number of
shares outstanding during the period, including Common Stock
equivalent shares applicable to stock options, assuming the
exercise of outstanding stock options at market value per share.
2. In certain instances, amounts reported in the 1994 financial
statements have been reclassified to present them in the format
selected for 1995. Such reclassifications have no effect on net
income or shareholders' equity as previously reported.
3. The information furnished in this report reflects all adjustments
which are, in the opinion of management, necessary to present a
fair statement of the financial condition and the results of
operations for the interim period. All such adjustments were of a
normal recurring nature.
4. The Financial Accounting Standards Board (FASB) has issued
Standard No. 114, "Accounting by Creditors for Impairment
of a Loan," which requires that all creditors value all
specifically reviewed loans for which it is probable that
the creditor will be unable to collect all amounts due
according to the terms of the loan agreement at the
present value of expected cash flows, market price of the
loan, if available, or value of the underlying collateral.
Expected cash flows are required to be discounted at the
loan's effective interest rate. This Standard is required
for fiscal years beginning after December 15, 1994.
The FASB also has issued Standard No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures," that amends FASB Standard No. 114 to allow a
creditor to use existing methods for recognizing interest income
on an impaired loan and by requiring additional disclosures about
how a creditor recognizes interest income related to impaired
loans. This standard is to be implemented concurrently with
Standard No. 114.
The Standards do not apply to large groups of smaller-balance
homogenous loans that are collectively evaluated for impairment.
For the Company, these loans include residential mortgage and
consumer installment loans.
On January 1, 1995, the provisions of Standards No. 114
and 118 were adopted. The adoption of the Standards
required no increase to the allowance for loan losses and
has had no impact on net income. The impact to historical
<PAGE>
amounts was not material, and accordingly, historical
amounts have not been restated.
Management considers loans to be impaired when, based on current
information and events, it is probable that a creditor will be
unable to collect all amounts due according to contractual terms
of the loan agreement. Factors that influence management's
judgments include, but are not limited to, loan payment pattern,
source of repayment, and value of collateral. A loan would not be
considered impaired if an insignificant delay in loan payment
occurs and management expects to collect all amounts due. The
major sources for identification of loans to be evaluated for
impairment include past due and nonaccrual reports, internally
generated lists of loans of certain risk grades, and regulatory
reports of examination. Impaired loans are measured using either
the discounted expected cash flow method or the value of
collateral method.
When the ultimate collectibility of an impaired loan's principal
is in doubt, wholly or partially, all cash receipts are applied
to principal. When this doubt does not exist, cash receipts are
applied under the contractual terms of the loan agreement first
to principal and then to interest income. Once the recorded
principal balance has been reduced to zero, future cash receipts
are applied to interest income, to the extent that any interest
has been foregone. Further cash receipts are recorded as
recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a
troubled debt restructuring after January 1, 1995. For these
accruing impaired loans, cash receipts are typically applied to
principal and interest receivable in accordance with the terms of
the restructured loan agreement. Interest income is recognized on
these loans using the accrual method of accounting.
The following table presents changes in the allowance for loan
losses at September 30, 1995:
Beginning Balance $2,816,172
Add:
Provision charged to operations 550,000
3,366,172
Less:
Loan charge-offs 419,568
Less loan recoveries 122,234
Net loan charge-offs 297,334
Ending Balance $3,068,838
<PAGE>
At September 30, 1995, the recorded investment in loans that were
considered to be impaired under Statement 114 was $2,529,478 (of
which $2,153,152 was on nonaccrual). The related allowance for
loan losses on these loans was $1,039,203. The average recorded
investment in impaired loans for the nine months ended September
30, 1995 was $2,568,391. For the nine months ended September 30,
1995, the Corporation recognized interest income on impaired
loans of $30,055, none of which was recognized using the cash
method of income recognition.
5. The FASB also has issued Standard No. 122, "Accounting for
Certain Mortgage Banking Activities,: which requires that
a mortgage banking enterprise recognize as separate assets
the rights to service mortgage loans for others, however
those servicing rights are acquired. A mortgage banking
enterprise that acquires mortgage servicing rights through
either the purchase or origination of mortgage loans and
sells or securitizes those loans with servicing rights
retained should allocate the total cost of the mortgage
loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their
relative fair values if it is practicable to estimate
those fair values. If it is not practicable to estimate
the fair values of the mortgage servicing rights and the
mortgage loans (without the mortgage servicing rights),
the entire cost of purchasing or originating the loans
should be allocated only to the mortgage loans without the
mortgage servicing rights. Additionally, this Standard
requires that a mortgage banking enterprise periodically
assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights.
Standard No. 122 applies prospectively to transactions
occurring in fiscal years beginning after December 31,
1995. Because the Corporation sells mortgage loans with
servicing rights released, Management does not anticipate
the Standard's impact on its financial statements to be
material.
6. On September 13, 1995, the Corporation entered into an
Agreement and Plan of Merger (the "Merger Agreement") with
Bank of Union ("Union"), pursuant to which a newly formed
subsidiary of the Corporation will merge with Union and
Union will become a wholly owned subsidiary of the
Corporation (the "Merger"). In the Merger, each share of
Union's Common Stock, $1.25 par value per share,
outstanding immediately prior to the Merger (other than
shares as to which dissenters' rights have been perfected
and shares owned by the Corporation directly or indirectly
for its own account) shall be converted into and exchanged
for .75 share of the Corporation's Common Stock, with cash
to be paid in lieu of the issuance of fractional shares.
<PAGE>
The transaction is structured to qualify as a tax-free
reorganization and is anticipated to be accounted for as a
pooling of interests. Consummation of the Merger is subject to
certain conditions, including but not limited to (i) the approval
of the shareholders of the Corporation and of Union; (ii) the
approvals of federal and state banking regulatory authorities;
(iii) the receipt of fairness opinions, opinions of counsel and
accountants; (iv) the continued effectiveness of a registration
statement related to the Corporation's Common Stock to be issued
in the Merger.
As of September 30, 1995, Union had issued and outstanding
2,192,270 shares of common stock. As of September 30, 1995, Union
had total assets of approximately $142 million, total deposits of
approximately $123 million and shareholders' equity of
approximately $12 million. Union's net income for the three month
period ended September 30, 1995 was $535,404 or $.24 per share.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated balance sheets of First Charter Corporation (the
"Corporation") represent account balances for the Corporation and its wholly
owned banking subsidiary, First Charter National Bank (the "Bank").
LIQUIDITY
The Bank's major source of liquidity is its core deposit base.
Liquidity is further provided by maturities in the investment portfolio, the
ability to secure public deposits, the availability of Federal fund lines at
correspondent banks and the ability to borrow from the Federal Reserve Bank
discount window. In addition to these sources, the Bank is a member of the
Federal Home Loan Bank ("FHLB") System which provides access to FHLB lending
sources. Another source of liquidity is the securities available for sale
portfolio which may be sold in response to liquidity needs. Management believes
the Bank's sources of liquidity are adequate to meet operating needs and deposit
withdrawal requirements.
CAPITAL RESOURCES
At September 30, 1995, total shareholders' equity was
$40,850,199, or $8.80 per share compared to $37,463,582, or $8.09 per share at
December 31, 1994.
The following table represents the required capital guidelines as
issued by the Federal Reserve Bank ("FRB") and the Corporation's compliance with
the standards as of September 30, 1995.
Risk-Based Capital
Leverage Capital Tier 1 Capital Total Capital
Amount % (1) Amount % (2) Amount % (2)
--------------------------------------------------------
(Dollars in thousands)
Actual 40,202 11.73 40,202 16.03 43,271 17.25
Required 13,712 4.00 10,033 4.00 20,066 8.00
Excess 26,490 7.73 30,169 12.03 23,205 9.25
(1) Percentage of total adjusted assets. The FRB minimum leverage ratio
requirement is 3% to 5%, depending on the institution's composite rating as
determined by its regulators. The FRB has not advised the Corporation of any
specific requirements applicable to it.
(2) Percentage of risk-weighted assets.
<PAGE>
REGULATORY RECOMMENDATIONS
Management is not presently aware of any current recommendations
to the Corporation or to the Bank by regulatory authorities which, if they were
to be implemented, would have a material effect on the Corporation's liquidity,
capital resources, or operations.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net income for the three month period ended September 30, 1995
was $1,536,310, or $0.33 share versus $1,426,044, or $0.30 per share for the
comparable period in 1994 which represents a 7.7% increase. Net income for the
nine month period ended September 30, 1995 was $4,539,432, or $0.97 share versus
$3,901,472, or $0.83 per share for the comparable period in 1994 which
represents a 16.4% increase. The increases are primarily attributable to
increases in net interest income. On an annualized basis, year to date results
represent a return on average assets of 1.85% versus 1.75% and a return on
average equity of 15.28% versus 14.34%, for the periods ended September 30, 1995
and September 30, 1994, respectively.
Loan demand was strong during the first nine months of 1995. As a
result, gross loans increased 12.1% to $228,648,198 from $203,935,504 at
December 31, 1994. Total deposits increased 6.1% to $282,730,526 from
$266,352,534 at December 31, 1994.
Investment securities totaled $53,340,528 at September 30, 1995
for a decrease of approximately $7.7 million from December 31, 1994. The
decrease was primarily due to the sale of seasoned mortgage-backed securities
with a greater than 85% paydown, paydowns in the mortgage backed portfolio,
maturities of short-term U. S. government agency obligations and maturities of
municipal securities. Investment securities had gross unrealized gains of
$1,604,294 and gross unrealized losses of $608,580 at September 30, 1995.
Securities available for sale totaled $36,791,538 at September 30, 1995 for an
increase of approximately $6.0 million from December 31, 1994. The increase was
primarily due to purchases of U. S. government agency obligations. Proceeds from
sales and maturities in the investment and securities available for sale
portfolios were used to fund the increased loan demand and to reinvest in
additional securities. The carrying value of securities available for sale was
$1,062,390 above their amortized cost at September 30, 1995 which represents
gross unrealized gains of $1,123,640 and gross unrealized losses of $61,250.
Total assets at September 30, 1995 were $343,458,704 compared to
$324,048,652 at December 31, 1994. Asset growth is primarily attributable to
increases in loan balances.
<PAGE>
For the three and nine month periods ended September 30, 1995,
net interest income before provision for loan losses increased $298,903 and
$1,436,660, respectively, over the comparable periods in 1994. The increases are
attributable to an increase in the level of interest earning assets, as well as
an improvement in the net interest margin to 5.65% at September 30, 1995
compared to 5.45% at September 30, 1994. The average yield on earning assets was
9.00% at September 30, 1995 compared to 7.97% at September 30, 1994. The average
interest-bearing liabilities increased, and the average rate paid on
interest-bearing liabilities increased to 4.77% at September 30, 1995 compared
to 3.18% at September 30, 1994.
Management continues to assess interest rate risk based on an
earnings simulation model. The Bank's balance sheet is liability sensitive,
meaning that in a given period there will be more liabilities than assets
subject to immediate repricing as market rates change. Because immediately rate
sensitive interest-bearing liabilities exceed rate sensitive assets, the
earnings position could improve in a declining rate environment and could
deteriorate in a rising rate environment, depending on the correlation of rate
changes in these two categories. Although rates increased during the periods
analyzed, net interest income increased due to rate sensitive liabilities
repricing not as quickly or in the same magnitude as the repricing of
prime-based loans. As liabilities are repriced in response to rising rates, net
interest income could decline.
The provision for loan losses for the three and nine months ended
September 30, 1995 was $325,000 and $550,000, respectively, compared to $150,000
and $350,000, respectively for the three and nine months ended September 30,
1994. The increase in the provision was primarily attributable to the increase
in gross loans outstanding. Current loan originations generally receive a risk
grade which requires a lower percentage loss allocation than the overall
allowance for loan losses as a percentage of gross loans. This condition when
combined with other changes in the loan portfolio and model, primarily
improvement in credit quality within the portfolio for existing loans, have
resulted in a decline in percentage of allowance to gross loans. At September
30, 1995 and December 31, 1994, the allowance for loan losses as a percentage of
gross loans was 1.34% and 1.38%, respectively. Management continues to perform a
monthly analysis of the allowance utilizing a system for risk grading the
portfolio. Based on this review, management believes the allowance to be
adequate.
<PAGE>
Nonperforming assets at September 30, 1995 were $3,500,864 or
1.53% of gross loans and foreclosed properties compared to $5,062,343 or 2.46%
at December 31, 1994. The level of nonperforming assets is presented in the
following table.
September 30, December 31,
1995 1994
Loans:
Nonaccrual loans ....................... $2,275,279 $2,033,122
Loans 90 days or more past
due and still accruing ............... 328,323 1,187,593
Foreclosed Property .................... 897,262 1,527,666
Other Real Estate ...................... -- 313,962
The decrease in foreclosed properties is primarily attributable
to the sale of a commercial real estate property during the second quarter of
1995. This sale resulted in a gain of approximately $46,000. In the third
quarter of 1995 other real estate owned was sold for a gain of approximately
$13,000.
Net charge-offs for the nine month period ended September 30,
1995 were approximately $297,000 compared to approximately $480,000 for the same
period in 1994.
Interest income that would have been recorded on nonaccrual loans
for the nine months ended September 30, 1995, had they performed in accordance
with their original terms, amounted to approximately $169,000. Interest income
on nonaccrual loans included in the results of operations for the nine months
ended September 30, 1995 amounted to approximately $25,000.
Noninterest income decreased approximately $15,000 or 1.7% for
the three month period ended September 30, 1995 over the comparable period in
1994. The major component of this decrease was lower gains on securities
available for sale.
Noninterest income decreased approximately $166,000 or 6.2% for
the nine month period ended September 30, 1995 over the comparable period in
1994. The major components of this decrease were lower trust income due to the
absence of one-time estate fees earned in 1994, lower service charges due to
lower commercial account service charges and lower gains on sales of securities.
Noninterest expense decreased approximately $34,000 or 1.4% and
$15,000 or 0.2% for the three and nine month periods ended September 30, 1995,
respectively, over the comparable periods in 1994. The decrease is primarily
attributable to a refund of $163,000 for FDIC insurance received in the third
quarter representing a reduction in rates from $0.23 to $0.04 per $100 of
deposits retroactive to June 1995. The reduction in rate should lower FDIC
insurance premiums by approximately $120,000 for the remainder of 1995. Salaries
and fringe benefits
<PAGE>
increased primarily due to a higher level of full-time equivalents in 1995 over
the comparable periods in 1994. Occupancy and equipment increased due to the
initial cost of check imaging software and hardware. Decreases have occurred in
other professional fees, advertising, other insurance, foreclosed properties and
other expenses.
Total income tax expense for the three and nine month periods
ended September 30, 1995 increased $33,000 and $447,000, respectively, over the
comparable periods in 1994. The increase is attributable to an increase in
income before taxes and an increase in the effective tax rate.
PENDING ACQUISITION OF BANK OF UNION
On September 13, 1995, the Corporation entered into an Agreement
and Plan of Merger (the "Merger Agreement") with Bank of Union ("Union"),
pursuant to which a newly formed subsidiary of the Corporation will merge with
Union and Union will become a wholly owned subsidiary of the Corporation (the
"Merger"). In the Merger, each share of Union's Common Stock, $1.25 par value
per share, outstanding immediately prior to the Merger (other than shares as to
which dissenters' rights have been perfected and shares owned by the Corporation
directly or indirectly for its own account) shall be converted into and
exchanged for .75 share of the Corporation's Common Stock, with cash to be paid
in lieu of the issuance of fractional shares.
The transaction is structured to qualify as a tax-free
reorganization and is anticipated to be accounted for as a pooling of interests.
Consummation of the Merger is subject to certain conditions, including but not
limited to (i) the approval of the shareholders of the Corporation and of Union;
(ii) the approvals of federal and state banking regulatory authorities; (iii the
receipt of fairness opinions, opinions of counsel and accountants; and (iv) the
continued effectiveness of a registration statement related to the Corporation's
Common Stock to be issued in the Merger. The Corporation has filed a
Registration Statement on Form S-4, Registration NO. 33-63157, with the
Securities and Exchange Commission, which Registration Statement contains pro
forma and other additional information with respect to the proposed Merger.
Management is unable to determine at this time the exact impact of the
proposed Merger. The effect of the Merger on future operations will depend
in part on the timing and extent of cost savings that are realized. The
Merger is expected to close in late 1995 or early 1996. In the period of
consummation the Company estimates that merger restructuring charges of
$825,000 will be recorded.
Union is a North Carolina state-chartered commercial bank with
five banking offices in Union and Mecklenburg Counties, North Carolina. As of
September 30, 1995, Union had issued and outstanding 2,192,270 shares of its
Common Stock. As of
<PAGE>
September 30, 1995, Union had total assets of approximately $142 million, total
deposits of approximately $123 million and shareholders' equity of approximately
$12 million. Union's net income for the three month period ended September 30,
1995 was $535,404 or $.24 per share.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
(per Exhibit Table
in item 601 of
Regulation S-K) Description of Exhibits
2.1 Agreement and Plan of
Merger dated September 13,
1995 between the Registrant
and Bank of Union
(incorporated herein by
reference to Exhibit 99.1
of the Registrant's Current
Report on Form 8-K filed
September 22, 1995).
3.1 Restated Charter of the
Registrant, incorporated
herein by reference to
Exhibit 3.1 of the
Registrant's Annual Report
on Form 10-K for the fiscal
year ended December 31,
1994 (Commission File No.
0-15829).
3.2 By-laws of the Registrant,
as amended, incorporated
herein by reference to
Exhibit 3.2 of the
Registrant's Annual Report
on Form 10-K for the fiscal
year ended December 31,
1992 (Commission File No.
0-15829).
10.1 Stock Option Agreement
dated September 13, 1995
between the Registrant and
Bank of Union (incorporated
herein by reference to
Exhibit 99.2 of the
Registrant's Current Report
on Form 8-K filed September
22, 1995).
<PAGE>
Exhibit No.
(per Exhibit Table
in item 601 of
Regulation S-K) Description of Exhibits
11 Statements regarding
computation of per share
earnings.
27 Financial Data Schedules
(b) On September 22, 1995, First Charter Corporation
filed a current report on Form 8-K, generally
reporting pursuant to Item 5 thereof the
Agreement and Plan of Merger entered into between
First Charter Corporation and Bank of Union dated
September 13, 1995.
<PAGE>
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.
FIRST CHARTER CORPORATION
(Registrant)
Date: November 14, 1995 By \s\ Robert O. Bratton
Robert O. Bratton
Executive Vice President &
Principal Financial and
Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit No.
(per Exhibit Table
in item 601 of Sequential
Regulation S-K) Description of Exhibits Page Number
11 Statements regarding
computation of per share
earnings.
27 Financial Data Schedules
FIRST CHARTER CORPORATION Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1995 1994
<S> <C> <C>
NET INCOME PER SHARE COMPUTED AS FOLLOWS:
PRIMARY:
1. Net income........................................... $ 4,539,432 $ 3,901,472
2. Weighted average common shares outstanding........... 4,635,999 4,660,455
3. Incremental shares under stock options
computed under the treasury stock method
using the average market price of issuer's
stock during the periods............................. 56,308 40,612
4. Weighted average common shares and common
equivalent shares outstanding........................ 4,692,307 4,701,067
5. Net income per share................................. $ 0.97 $ 0.83
(Item 1 Divided by Item 4)
FULLY DILUTED:
1. Net income........................................... $ 4,539,432 $ 3,901,472
2. Weighted average common shares outstanding........... 4,635,999 4,660,455
3. Incremental shares under stock options
computed under the treasury stock method
using the higher of the average or ending
market price of issuer's stock at the end
of the periods....................................... 70,074 46,064
4. Weighted average common shares and common
equivalent shares outstanding........................ 4,706,073 4,706,519
5. Net income per share................................. $ 0.97 $ 0.83
(Item 1 Divided by Item 4)
</TABLE>
All per share data has been retroactively adjusted to reflect a stock
split effected in the form of a 33 1/3% stock dividend declared in the
fourth quarter of 1994.
<PAGE>
FIRST CHARTER CORPORATION Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (Continued)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, September 30,
1995 1994
<S> <C> <C>
NET INCOME PER SHARE COMPUTED AS FOLLOWS:
PRIMARY:
1. Net income............................................ $ 1,536,310 $ 1,426,044
2. Weighted average common outstanding................... 4,641,714 4,645,990
3. Incremental shares under stock options
computed under the treasury stock method
using the average market price of issuer's
stock during the periods.............................. 64,056 46,333
4. Weighted average common shares and common
equivalent shares outstanding......................... 4,705,770 4,692,323
5. Net income per share.................................. $ 0.33 $ 0.30
(Item 1 Divided by Item 4)
FULLY DILUTED:
1. Net income............................................ $ 1,536,310 $ 1,426,044
2. Weighted average common shares outstanding............ 4,641,714 4,645,990
3. Incremental shares under stock options
computed under the treasury stock method
using the higher of the average or ending
market price of issuer's stock at the end
of the periods........................................ 67,461 46,333
4. Weighted average common shares and common
equivalent shares outstanding......................... 4,709,175 4,692,323
5. Net income per share.................................. $ 0.33 $ 0.30
(Item 1 Divided by Item 4)
</TABLE>
All per share data has been retroactively adjusted to reflect a stock split
effected in the form of a 33 1/3% stock dividend declared in the fourth quarter
of 1994.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 15931
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36792
<INVESTMENTS-CARRYING> 53341
<INVESTMENTS-MARKET> 54336
<LOANS> 228350
<ALLOWANCE> 3069
<TOTAL-ASSETS> 343459
<DEPOSITS> 282731
<SHORT-TERM> 16956
<LIABILITIES-OTHER> 2922
<LONG-TERM> 0
<COMMON> 23220
0
0
<OTHER-SE> 17630
<TOTAL-LIABILITIES-AND-EQUITY> 343459
<INTEREST-LOAN> 15508
<INTEREST-INVEST> 4055
<INTEREST-OTHER> 16
<INTEREST-TOTAL> 19579
<INTEREST-DEPOSIT> 1434
<INTEREST-EXPENSE> 557
<INTEREST-INCOME-NET> 11998
<LOAN-LOSSES> 550
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 7463
<INCOME-PRETAX> 6500
<INCOME-PRE-EXTRAORDINARY> 6500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1961
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
<YIELD-ACTUAL> 5.65
<LOANS-NON> 2275
<LOANS-PAST> 328
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2816
<CHARGE-OFFS> 420
<RECOVERIES> 123
<ALLOWANCE-CLOSE> 3069
<ALLOWANCE-DOMESTIC> 3069
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
