FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. Employer
incorporation or organization) Identification Number)
22 Union Street, North, Concord, N.C. 28026 -0228
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (704) 786-3300.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $5.00 par value
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 28, 1996 was $ 96,314,673 .
As of March 28, 1996 the Registrant had outstanding 6,270,436 Common Stock,
$5.00 par value.
Documents Incorporated by Reference
PARTS I and II: Annual Report to Shareholders for the fiscal year ended
December 31, 1994 (with the exception of those portions which are specifically
incorporated by reference in this Form 10-K, the Annual Report to Shareholders
is not deemed to be filed as part of this report).
PART III: Definitive Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14 A promulgated pursuant to the
Securities Exchange Act of 1934 in connection with the 1995 Annual Meeting of
Shareholders (with the exception of those portions which are specifically
incorporated by reference in this Form 10-K, the Proxy Statement is not deemed
to be filed as part of this report).
<PAGE>
FIRST CHARTER CORPORATION
AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
PART I
Page
Item 1. Business...................................... 1
Item 2. Properties.................................... 26
Item 3. Legal Proceedings............................. 28
Item 4. Submission of Matters to a Vote of Security
Holders.................................... 28
Item 4A. Executive Officers of the Registrant.......... 28
PART II
Item 5. Market For Registrant's Common Equity and
Related Shareholder Matters................ 30
Item 6. Selected Financial Data....................... 30
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 30
Item 8. Financial Statements and Supplementary Data... 30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..... 30
PART III
Item 10. Directors and Executive Officers of the
Registrant................................. 31
Item 11. Executive Compensation........................ 31
Item 12. Security Ownership of Certain Beneficial
Owners and Management...................... 31
Item 13. Certain Relationships and Related
Transactions............................... 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................ 32
<PAGE>
PART I
Item 1. Business
General
First Charter Corporation (hereinafter referred to as either
the "Registrant" or the "Company") is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended
(the "BHCA"). Its principal assets are the stock of its banking
subsidiaries, First Charter National Bank ("FCNB") and Bank of
Union ("Union," and together with FCNB, the "Banks"). The Banks
account for over 95% of the Registrant's consolidated assets and
consolidated revenues.
FCNB, a national banking association, is the successor entity
to The Concord National Bank, which was established in 1888 and
acquired by the Registrant in 1983. FCNB is a full service bank
and trust company with twelve branch offices, two limited service
facilities and fourteen ATMs (automatic teller machines) located in
Cabarrus, Rowan and northern Mecklenburg Counties, North Carolina.
The ATMs are part of the HONOR network.
Union is a state-chartered commercial bank organized under the
laws of North Carolina in 1985. It was acquired by the Registrant
effective December 21, 1995 pursuant to an Agreement and Plan of
Merger dated September 13, 1995, whereby a newly formed subsidiary
of the Registrant merged with Union and Union became a wholly owned
subsidiary of the Registrant. Union provides general banking
services through a network of five branch offices located in Union
and southern Mecklenburg Counties, North Carolina.
Through their branch locations, the Banks provide a wide range
of banking products, including checking accounts; NOW accounts;
"Money Market Rate" accounts; certificates of deposit; individual
retirement accounts; overdraft protection; commercial, consumer,
agriculture, real estate, residential mortgage and home equity
loans; personal and corporate trust services; safe deposit boxes;
and automated banking. In addition, through BOU Financial, Inc.
("BOU Financial"), a subsidiary of Union, the Registrant also
offers discount brokerage services, insurance and annuity sales and
financial planning services.
At December 31, 1995, the Registrant and its subsidiaries had
183 full-time employees and 46 part-time employees. The Registrant
had no employees who were not also employees of one of its
subsidiaries. The Registrant considers its relations with
employees to be good. The Registrant and its subsidiaries provide
employee benefits, including a 401(k) profit sharing retirement
plan, group life, health and long-term disability insurance, paid
vacations and sick leave.
The Registrant is not dependent upon a single customer or a
few customers whose loss would have a material adverse effect on
the Registrant.
<PAGE>
The Registrant regularly evaluates the potential acquisition
of or merger with, and holds discussions with, various financial
institutions. The Registrant does not currently have any specific
plans or agreements in effect with respect to any such acquisition
or merger. In addition, the Registrant periodically enters new
markets and engages in new activities in which it competes with
established financial institutions. There can be no assurance as
to the success of any such new office or activity. Furthermore, as
the result of such expansions, the Registrant has incurred and may
continue to incur start-up costs that could affect the financial
results of the Registrant.
Competition
The banking laws of North Carolina allow banks located in
North Carolina to develop branches throughout the State. In
addition, as the result of recent federal and state legislation,
certain out-of-state banks may open de novo branches in North
Carolina as well as acquire or merge with banks located in North
Carolina. See "Government Regulation--General." As a result of
such laws, banking activities in North Carolina are highly
competitive.
The Banks' service delivery facilities are located in Union,
Cabarrus and southern Rowan Counties and the northern and southern
edges of Mecklenburg County. A large portion of the population
that resides in these market areas, however, commutes to Charlotte
and other locations within Mecklenburg County, and these locations
have numerous branches of super-regional, regional, statewide and
other Charlotte-based institutions. In its market area, the
Registrant faces competition from other banks, savings and loan
associations, savings banks, credit unions, finance companies and
major retail stores that offer competing financial services. Many
of these competitors have greater resources, broader geographic
coverage and higher lending limits than the Banks. The Banks'
primary method of competition is to provide quality service and
fairly priced products.
Government Regulation
General. The Registrant is registered under the BHCA with the
Board of Governors of the Federal Reserve System (the "Federal
Reserve") as a bank holding company and as such is subject to the
supervision of, and to regular inspection by, the Federal Reserve.
FCNB is organized as a national banking association and is subject
to regulation, supervision and examination primarily by the Office
of the Comptroller of the Currency (the "OCC"). Union is organized
as a state-chartered banking association and is subject to
regulation, supervision and examination primarily by the North
Carolina State Banking Commission (the "Banking Commission"). As
a federally insured non-member bank, Union also is subject to
regulation, supervision and examination by the Federal Deposit
Insurance Corporation (the "FDIC").
<PAGE>
In addition to banking laws, regulations and regulatory
agencies, the Company and the Banks are subject to various other
laws and regulations and supervision and examination by other
regulatory agencies, all of which directly or indirectly affect the
Company's operations, management and ability to make distributions.
Restrictions on Bank Holding Companies. The Federal Reserve
is authorized to adopt regulations affecting various aspects of
bank holding companies. Under the BHCA, the Company's activities,
and those of companies which it controls or in which it holds more
than 5 of the voting stock, are limited to banking or managing or
controlling banks or furnishing services to or performing services
for its subsidiaries, or any other activity which the Federal
Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. In making
such determinations, the Federal Reserve is required to consider
whether the performance of such activities by a bank holding
company or its subsidiaries can reasonably be expected to produce
benefits to the public such as greater convenience, increased
competition or gains in efficiency that outweigh possible adverse
effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking
practices.
Generally, bank holding companies are required to obtain prior
approval of the Federal Reserve to engage in any new activity not
previously approved by the Federal Reserve or to acquire more than
5 of any class of voting stock of any company. The BHCA also
requires bank holding companies to obtain the prior approval of the
Federal Reserve before acquiring more than 5% of any class of
voting stock of any bank which is not already majority-owned by the
bank holding company.
The Company is also subject to the North Carolina Bank Holding
Company Act of 1984. As required by this state legislation, the
Company, by virtue of its ownership of the Banks, has registered as
a bank holding company with the Commissioner of Banks of the State
of North Carolina. The North Carolina Bank Holding Company Act
also prohibits the Company from acquiring or controlling certain
non-bank banking institutions which have offices in North Carolina.
Interstate Banking and Branching Legislation. Pursuant to the
Reigle--Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking and Branching Act"), which became
effective September 29, 1995, a bank holding company may acquire
banks in states other than its home state subject to any state
requirement that the bank has been organized and operating for a
minimum period of time, not to exceed five years, and the
requirement that the bank holding company, prior to, or following
the proposed acquisition, controls no more than 10 of the total
amount of deposits of insured depository institutions in the United
States and no more than 30% of such deposits in any state (or such
lesser or greater amount set by state law).
<PAGE>
The Interstate Banking and Branching Act also authorizes banks
to merge across state lines, thereby creating interstate branches,
beginning June 1, 1997. Under such legislation, each state has the
opportunity either to "opt out" of this provision, thereby
prohibiting interstate merger transactions in such states, or to
"opt in" at an earlier time, thereby allowing interstate merger
transactions within that state prior to June 1, 1997. The State of
North Carolina has "opted in" to such legislation, effective
June 22, 1995. Furthermore, pursuant to the Interstate Banking and
Branching Act, a bank is now able to open new branches in a state
in which it does not already have banking operations, if the laws
of such state permit such de novo branching. As a result of North
Carolina's early opt-in law, North Carolina law permits interstate
de novo branching on a reciprocal basis until June 1, 1997, and
unrestricted interstate de novo branching thereafter.
Regulation of the Banks. As mentioned above, FCNB is
organized as a national banking association and is subject to
regulation, supervision and examination by the OCC. OCC rules and
requirements applicable to national banking associations such as
FCNB relate to required reserves, allowable investments, loans,
mergers, consolidations, issuance of securities, payment of
dividends, establishment of branches, limitations on credit to
subsidiaries and other aspects of the business of such
subsidiaries. The OCC has broad authority to prohibit national
banks from engaging in unsafe or unsound banking practices.
Union is a state-chartered non-member commercial bank. As
such, Union must file various reports with, and is subject to
periodic examinations by, the Banking Commission. North Carolina
law and the Banking Commission regulate (in conjunction with
applicable federal laws and regulations), among other things,
Union's capital, permissible activities, reserves, investments,
lending authority, branching, mergers and consolidations, payment
of dividends, and transactions with affiliated parties and
borrowings. As a federally-insured, non-member bank, Union is also
subject to regulation, supervision and examination by the FDIC.
Capital and Operational Requirements. The Federal Reserve,
the OCC and the FDIC have issued substantially similar risk-based
and leverage capital guidelines applicable to United States and
state-chartered banking organizations. Pursuant to these
standards, the Company and each of the Banks is required to
maintain a minimum ratio of Tier I Capital (as defined) to total
risk-weighted assets of 4.00% and a minimum ratio of Total Capital
(as defined) to risk-weighted assets of 8.00%. Tier I Capital is
comprised of total stockholders' equity calculated in accordance
with generally accepted accounting principles less certain
intangible assets, and Total Capital is comprised of Tier I Capital
plus certain adjustments, the largest of which for the Company is
the general allowance for loan losses. Risk-weighted assets refer
to the on- and off-balance sheet exposures of the Company adjusted
<PAGE>
for their related risk levels using amounts set forth in Federal
Reserve, OCC and FDIC regulations .
In addition to the risk-based capital requirements described
above, the Company and each of the Banks are subject to a leverage
capital requirement, which calls for a minimum ratio of Tier
Capital (as previously defined) to total assets of 3% to 5%.
At December 31, 1995, the Company and the Banks were in
compliance with all existing capital requirements. The Company' s
compliance with existing capital requirements is summarized in the
table below.
RISK BASED CAPITAL
Leverage Capital Tier I Capital Total Capital
Amount Percentage (l) Amount Percentage (2) Amount Percentage (2)
(Dollars in thousands)
Actual $51,625 10.17% $51,625 14.28% $56,143 15.53%
Required 20,304 4.00 14,458 4 00 28,917 8.00
Excess 31,321 6.17 37,167 10.28 27,226 7.53
(1) Percentage of total adjusted assets. The Federal Reserve
minimum leverage ratio requirement is 3% to 5%, depending on
the institution' s composite rating as determined by its
regulators. The Federal Reserve Board has not advised the
Company of any specific requirement applicable to it .
( 2 ) Percentage of risk-weighted assets .
Prompt Corrective Action under FDICIA. The Federal Deposit
Insurance Corporation Improvement Act of 1991 ( "FDICIA" ) effected
a substantial revision of regulatory and funding provisions
applicable to insured depository institutions, including certain
capital and non-capital standards . Among other things, FDICIA
identifies the five capital categories for insured depository
institutions (well capitalized, adequately capitalized,
undercapitalized, significantly under capitalized and critically
undercapitalized) and requires the respective Federal regulatory
agencies to implement systems for "prompt corrective action" for
insured depository institutions that do not meet minimum capital
requirements within such categories. FDICIA imposes progressively
more restrictive constraints on operations, management and capital
distributions, depending on the category in which an institution is
classified. Failure to meet the capital guidelines could also
subject a banking institution to capital raising requirements . In
addition, pursuant to FDICIA, the various regulatory agencies have
prescribed certain non-capital standards for safety and soundness
relating generally to operations and management, asset quality and
executive compensation and permits regulatory action against a
financial institution that does not meet such standards .
<PAGE>
The various regulatory agencies have adopted substantially
similar regulations that define the five capital categories
identified by FDICIA, using the total risk-based capital, Tier 1
risk-based capital and leverage capital ratios as the relevant
capital measures. Such regulations establish various degrees of
corrective action to be taken when an institution is considered
under-capitalized. Under the regulations, a "well capitalized"
institution must have a Tier 1 capital ratio of at least 6 percent,
a total capital ratio of at least 10 percent and a leverage ratio
of at least 5 percent and not be subject to a capital directive
order. An "adequately capitalized" institution must have a Tier 1
capital ratio of at least 4 percent, a total capital ratio of at
least 8 percent and a leverage ratio of at least 4 percent, or 3
percent in some cases. Under these guidelines, each of the Banks
is considered well capitalized.
Banking agencies have also adopted final regulations which
mandate that regulators take into consideration concentrations of
credit risk and risks from non-traditional activities, as well as
an institution's ability to manage those risks, when determining
the adequacy of an institution's capital. That evaluation will be
made as a part of the institution's regular safety and soundness
examination. Banking agencies also have proposed amendments to
existing risk-based capital regulations to provide for the
concentration of interest rate risk (when the interest rate
sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position)
in the determination of a bank's minimum capital requirements.
This proposal, while still under consideration, would require banks
with interest rate risk in excess of defined thresholds to maintain
additional capital beyond that generally required.
Distributions. The primary source of funds for distributions
paid by the Company to its shareholders is dividends received from
the Banks. The amount of dividends that FCNB may pay is subject to
regulation by the OCC. Under current regulations, the amount that
may be paid in any one year without approval of the OCC is the sum
of its net profits (as defined by statute) for that year and its
retained net profits for the preceding two years. In 1996, FCNB
can initiate dividend payments without the approval of the OCC of
an amount not exceeding its retained net profits for 1994 and 1995
(approximately $5,058,000) plus an additional amount equal to its
net profits for 1996 up to the date of any such dividend
declaration.
The payment of dividends by Union is subject to restrictions
of North Carolina law applicable to the declaration of
distributions by a commercial bank. In general, Union may declare
dividends in an amount that does not exceed its undivided profits
(determined as set forth in Chapter 53 of the North Carolina
General Statutes), as long as the surplus of Union equals at least
50% of Union's paid-in capital stock.
<PAGE>
In addition to the foregoing, the ability of the Company and
its subsidiaries to pay dividends may be affected by the various
minimum capital requirements and the capital and non-capital
standards established under FDICIA as described above.
Furthermore, if, in the opinion of the federal regulatory agencies,
a bank under its jurisdiction is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial
condition of the bank, could include the payment of dividends),
such authority may require, after notice and hearing, that such
bank cease and desist from such practice. The right of the
Company, its shareholders and its creditors to participate in any
distribution of assets or earnings of the Banks is further subject
to the prior claims of creditors against the respective Banks.
Deposit Insurance. The deposits of the Banks are insured up
to applicable limits by the FDIC. Accordingly, the Banks are
subject to deposit premium assessments of the Bank Insurance Fund
("BIF") of the FDIC. As mandated by FDICIA, the FDIC has adopted
regulations for a risk-based insurance assessment system. Under
this system, the assessment rates for an insured depository
institution vary according to the level of risk incurred in its
activities. To arrive at a risk assessment for a bank, the FDIC
places it in one of nine risk categories using a process based on
capital ratios and on other relevant information from supervisory
evaluations of the bank by the bank's primary federal regulator
(the OCC for FCNB and the FDIC for Union), statistical analyses of
financial statements and other relevant information.
Under the FDIC's risk-based insurance system, BIF-assessed
deposits are currently subject to premiums of between $0.00 and
$0.27 per $100 of deposits, depending upon the institution's
capital position and other supervisory factors. The current
premiums reflect a reduction, effective January 1, 1996, from a
range of $0.04 to $0.31 per $100 of deposits. The rate applicable
to the BIF-assessed deposits of each of the Banks is currently
$0.00 per $100 of eligible deposits, with a minimum annual
assessment of $2,000.
Source of Strength. According to Federal Reserve Board
policy, bank holding companies are expected to act as a source of
financial strength to each subsidiary bank and to commit resources
to support each such subsidiary. This support may be required at
times when a bank holding company may not be able to provide such
support. Similarly, under the cross-guaranty provisions of the
Federal Deposit Insurance Act, in the event of a loss suffered or
anticipated by the FDIC--either as a result of default of a
banking or thrift subsidiary of the Company or related to FDIC
assistance provided to a subsidiary in danger of default--the
other banking subsidiaries of the Registrant may be assessed for
the FDIC's loss subject to certain exceptions.
Future Legislation. Proposals to change the laws and
regulations governing the banking industry are frequently
<PAGE>
introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. In 1995, several bills were
introduced in Congress that would have the effect of broadening the
securities underwriting powers of bank holding companies and
possibly permitting bank holding companies to engage in
nonfinancial activities. The likelihood and timing of any such
proposals or bills being enacted and the impact they might have on
the Company and its subsidiaries cannot be determined at this time.
<PAGE>
Statistical Information
The following tables present certain statistical information relating
to the Registrant. The tables should be read in conjunction with the
Registrant's Consolidated Financial Statements and Notes thereto (pages
9 through 29) and Management's Discussion and Analysis of Financial
Condition and Results of Operations (pages 30 through 38), both of which
are incorporated herein by reference to the First Charter Corporation
1995 Annual Report to Shareholders. All financial data has been
adjusted to reflect the acquisition of Bank of Union in 1995 which was
accounted for as a pooling of interests.
The following table includes for the years ended December 31, 1995,
1994, and 1993 interest income on interest earning assets and related
average yields, as well as interest expense on interest bearing
liabilities and related average rates paid. In addition, the table
includes the average net yield on average earning assets. Average
balances were calculated based on daily averages.
<TABLE>
<CAPTION>
Table 1
Average Balances and Net Interest Income Analysis
1995 1994 1993
Interest Average Interest Average Interest Average
Average Income/ Yield/Rate Average Income/ Yield/Rate Average Income/ Yield/Rate
Balance Expense Paid Balance Expense Paid Balance Expense Paid
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1) (2) (3) $305,729 $29,356 9.60% $263,180 $22,941 8.72% $235,383 $19,295 8.20%
Securities Available for
sale - taxable 39,024 2,589 6.63 35,732 2,389 6.69 - - -
Securities available for
sale - nontaxable 6,421 484 7.54 - - - - - -
Investment securities -
taxable 31,829 1,963 6.17 32,567 1,762 5.41 65,660 4,255 6.42
Investment securities -
nontaxable (3) 39,807 3,347 8.41 44,414 3,848 8.66 36,685 3,476 9.47
Federal funds sold 5,455 326 5.98 5,266 219 4.16 4,139 127 3.07
Interest-bearing bank
deposits 7,298 432 5.92 3,017 132 4.38 1,497 49 3.27
Total $435,563 $38,497 8.84% $384,176 $31,291 8.15% $343,364 $27,202 7.92%
Interest bearing liabilities:
Demand deposits $ 64,430 1,285 2.00% $ 61,397 $ 1,213 1.98% $ 55,346 $ 1,191 2.15%
Money market accounts 42,364 1,208 2.85 48,080 1,129 2.35 51,648 1,296 2.51
Savings deposits 102,043 5,098 5.00 80,211 3,203 3.99 59,234 2,382 4.02
Other time deposits 117,620 6,494 5.52 105,770 4,337 4.10 106,092 4,255 4.01
Other borrowings 21,530 1,125 5.22 15,360 666 4.34 8,418 234 2.78
Total $347,987 $15,210 4.37% $310,818 $10,548 3.39% $ 280,738 $ 9,358 3.33%
Net interest income and
spread $23,287 4.47% $20,743 4.75% $17,844 4.59%
Net yield on interest
earning assets (4) 5.35% 5.40% 5.20%
</TABLE>
<PAGE>
(1) Includes loan fees of approximately $319,000 in 1995, $279,000 in
1994, $200,000 in 1993.
(2) The preceding analysis takes into consideration the principal
amount of nonaccruing loans and only income actually collected on
such loans.
(3) Yields on nontaxable securities are stated on a fully taxable
equivalent basis, assuming a Federal tax rate of 34% for 1995,
1994 and 1993. The adjustments made to convert to a fully taxable
equivalent basis were $1,303,000 for 1995, $1,308,000 for 1994 and
$1,181,000 for 1993.
(4) Represents net interest income as a percentage of total average
interest earning assets.
(5) Loans are shown net of unearned income.
<PAGE>
Changes in Interest Income and Expense
The following table contains the dollar amount of change in interest
income and interest expense and segregates the dollar amount of change
due to rate and volume variances for the years ended December 31, 1995
and 1994. The change in interest income, stated on a tax equivalent
basis, or interest expense attributable to the combination of rate
variance and volume variance is included in the table, but such amount
has also been allocated between, and included in the amounts shown as,
changes due to rate and changes due to volume. The allocation of the
change due to rate/volume variance was made equally to rate variance and
to volume variance. Interest income related to tax exempt securities is
stated on a tax equivalent basis using a Federal income tax rate of 34%
in 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Table 2
Volume and Rate Variance Analysis
From Dec. 31, 1994 to Dec. 31, 1995 From Dec. 31, 1993 to Dec. 31, 1994
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
Rate/ Total Rate/ Total
Volume Rate Volume Change Volume Rate Volume Change
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 377 $2,518 3,897 $6,415 $ 144 $ 1,295 2,351 $ 3,646
Securities Available for
Sale - Taxable (2) (19) 219 200 2,389 1,195 1,195 2,390
Securities Available for
Sale - Non-Taxable 484 242 242 484 - - - -
Securities
Taxable (6) 244 (43) 201 354 (525) (1,968) (2,493)
Nontaxable 12 (108) (393) (501) (63) (329) 701 372
Total securities 488 359 25 384 2,680 341 (72) 269
Federal funds sold 3 97 10 107 12 51 41 92
Interest bearing deposits 66 80 220 300 17 25 58 83
Total interest income 934 3,054 4,152 7,206 2,853 1,712 2,378 4,090
Interest expense:
Demand deposits 1 12 60 72 (11) (102) 125 23
Money market accounts (29) 228 (149) 79 6 (81) (87) (168)
Savings deposits 219 914 981 1,895 (6) (20) 841 821
Other time deposits 168 1,587 570 2,157 - 96 (13) 83
Other borrowings 55 163 295 458 108 185 247 432
Total interest expense 414 2,904 1,757 4,662 97 78 1,113 1,191
Net interest income $ 525 $ 150 $2,395 $ 2,545 $2,756 $1,634 $1,265 $2,899
</TABLE>
<PAGE>
The following table presents the Company's interest sensitivity
analysis for December 31, 1995 and sets forth at various maturity
periods the cumulative interest sensitivity gap, which is the
difference between rate sensitive assets and rate sensitive liabilities
for assets and liabilities that management considers rate sensitive.
Demand deposits, money market accounts and savings deposits are
presented in the earliest repricing window because the rates are
subject to immediate repricing.
<TABLE>
<CAPTION>
Table 3
Interest Rate Sensitivity
As of December 31, 1995
Non-
Sensitive
and
Interest Sensitivity in Days Sensitive
(Dollars in thousands) Over 5
1 - 90 91 - 180 181 - 365 Total 1-2 Years 2-5 Years Years Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets
Interest-bearing due
from banks $ 7,695 $ - $ 500 $ 8,195 $ - $ - $ - $ 8,195
Securities available
for sale:
Taxable 6,842 3,298 7,587 17,727 16,936 24,405 14,237 73,305
Nontaxable 90 429 466 985 2,295 7,049 48,724 59,053
Loans, net of unearned
interest 174,091 7,490 13,338 194,919 35,647 61,115 41,062 332,743
Total earning assets 188,718 11,217 21,891 221,826 54,878 92,569 104,023 473,296
Interest-Bearing Liabilities
Interest-bearing deposits:
Demand deposits 66,814 - - 66,814 - - - 66,814
Money market accounts 41,633 - - 41,633 - - 41,633
Savings deposits 71,925 - - 71,925 37,157 - - 109,082
Other time deposits 55,503 25,494 25,422 106,419 14,347 4,439 37 125,242
Other borrowings 29,748 - - 29,748 3,000 - 2,514 35,262
Total interest-bearing
liabilities 265,623 25,494 25,422 316,539 54,504 4,439 $ 2,551 $378,033
Interest sensitivity
gap $(76,905) $(14,277) $ (3,531) $ (94,713) $ 374 $ 88,130
Cumulative gap $(76,905) $(91,182) $(94,713) $ (94,713) $(94,339) $ (6,209)
Ratio of earning assets
to interest-bearing
liabilities 71.05% 44.00% 86.11% 70.08% 100.69% 2085.36%
</TABLE>
<PAGE>
Distribution of Assets and Liabilities
The following table shows the distribution of the Company's assets,
liabilities and shareholders' equity at December 31, 1995, 1994, and
1993. Average balances were calculated based on daily averages.
<TABLE>
<CAPTION>
Table 4
Average Balance Sheet
Years Ended December 31,
1995 1994 1993
Average Percentage Average Percentage Average Percentage
Balance Distribution Balance Distribution Balance Distribution
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 26,134 5.6% $ 21,192 5.1% $ 18,068 4.9%
Investment securities - taxable 31,82 6.8 32,567 7.8 65,660 17.7
Investment securities - nontaxable 39,807 8.5 44,414 10.7 36,685 9.9
Securities available for sale
- taxable 39,024 8.4 35,732 8.6 - -
Securities available for sale
- nontaxable 6,421 1.4 - - - -
Loans, net (1) 301,291 64.6 259,333 62.6 231,522 62.3
Federal funds sold 5,455 1.2 5,266 1.3 4,139 1.1
Other assets 16,275 3.5 15,922 3.9 15,172 4.1
Total $466,236 100.0% $414,426 100.0% $371,246 100.0%
Liabilities and shareholders' equity
Deposits:
Demand (2) $129,269 27.7% $116,339 28.1% $101,441 27.3%
Savings 102,043 21.9 80,211 19.3 59,234 16.0
Insured money market 42,364 9.1 48,080 11.6 51,648 13.9
Time 117,620 25.2 105,770 25.5 106,092 28.5
Other borrowings 21,530 4.6 15,360 3.7 8,418 2.3
Other liabilities 3,129 0.7 2,886 0.7 2,548 0.7
Shareholders' equity 50,281 10.8 45,780 11.1 41,865 11.3
Total $466,236 100.0% $414,426 100.0% $371,246 100.0%
</TABLE>
(1) Loans, net is net of unearned income and the allowance for loan losses.
(2) Demand includes non-interest bearing and interest bearing demand deposits.
<PAGE>
Securities Available for Sale
The following table shows, as of December 31, 1995, 1994 and 1993,
the carrying value of (i) U.S. Government obligations, (ii) U.S.
Government agency obligations, (iii) mortgage-backed securities, (iv)
state and municipal obligations, and (v) equity securities.
Table 5
Securities Available for Sale
December 31,
(Dollars in thousands)
Securities Available for Sale:
1995 1994 1993
U.S. Government obligations $ 23,363 $18,042 $25,412
U.S. Government Agency obligations 26,524 10,895 3,435
Mortgage-backed securities 18,290 5,330 3,632
State and Municipal obligations 59,053 - -
Equity Securities 5,128 3,264 2,294
$132,358 $37,531 $34,773
Investment Portfolio
The following table shows, as of December 31, 1995, 1994 and 1993,
the amortized cost (face amount, plus unamortized premiums, less
unamortized discounts), of (i) U.S. Government obligations, (ii) U.S.
Government agency obligations, (iii) mortgage-backed securities, and
(iv) state and municipal obligations.
Table 6
Investment Portfolio
December 31,
(Dollars in thousands)
Investment Securities - Debt
1995 1994 1993
U.S. Government obligations $ - $ 5,968 $ 3,002
U.S. Government agency obligations - 15,582 1,000
Mortgage-backed securities - 16,592 22,613
State and municipal obligations - 43,973 45,136
$ - $82,115 $71,751
<PAGE>
The following table indicates the carrying value of each significant
securities available for sale category due within one year, after one year
but within five years, after five years but within ten years and after ten
years, together with the weighted average yield for each range of
maturities, as of December 31, 1995. Yields are determined based on
amortized cost. Yields are stated on a tax equivalent basis assuming a
Federal income tax rate of 34% in 1995.
<TABLE>
<CAPTION>
Table 7
Securities Available for Sale
As of December 31, 1995
After Five
Due Within One After One Year but Years But
Year Within Five Years Within Ten Years After Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations $ 4,922 6.16% $18,441 6.98% $ - -% $ - -%
U.S. Government
Agency Obligations 5,034 6.28 21,490 6.30 - - - -
Mortgage-Backed
Securities - - 1,645 5.81 11,147 6.39 5,498 7.60
State & Municipal
Obligations 985 9.52 9,344 9.37 35,495 7.76 13,229 7.68
Equity securities - - - - - - 5,128 5.02
Total $10,941 6.52% $50,920 7.07% $46,642 7.43% $23,855 7.23%
</TABLE>
As of December 31, 1995, there were no issues of securities available
for sale (excluding U.S. Government obligations and U.S. Government agency
obligations) which had carrying values that exceeded 10% of shareholders'
equity of the Company.
As of December 31, 1995, there were no investment securities.
<PAGE>
Loan Portfolio
The table below summarizes loans in the classifications indicated
as of December 31, 1995, 1994, 1993, 1992, and 1991.
Table 8
Loan Portfolio Composition
December 31,
1995 1994 1993 1992 1991
(Dollars in thousands)
Commercial, financial and
agricultural $ 92,325 $ 87,034 $ 82,920 $ 78,708 $ 72,452
Real estate - construction
and development 33,750 29,646 20,777 23,157 21,165
Real estate - mortgage 171,281 138,997 117,903 106,632 98,695
Installment 35,683 32,186 27,683 23,228 24,089
Total loans 333,039 287,863 249,283 231,725 216,401
Less - allowance for loan
losses (4,856) (4,131) (3,900) (3,958) (3,165)
Unearned income (296) (201) (88) (73) (158)
Loans, net $327,887 $283,531 $245,295 $227,694 $213,078
<PAGE>
Maturities and Sensitivities of Loans to Change in Interest Rates
Set forth in the table below are the amounts of each loan type,
except installment loans and real estate mortgage loans, due in one
year, after one year through five years, and after five years, at
December 31, 1995.
Table 9
Maturities and Sensitivity to
Change in Interest Rates
December 31, 1995
After l
l year Year through After
or less 5 Years 5 Years Total
(Dollars in thousands)
Commercial, financial
and agricultural $40,150 $45,394 $5,845 $ 91,389
Real estate
construction and
development 17,249 14,620 1,829 33,698
Total $57,399 $60,014 $7,674 $125,087
The amounts of the above loans with a maturity over one year
which have a predetermined interest rate or a floating or adjustable
interest rate are as follows:
December 31, 1995
(Dollars in thousands)
Predetermined interest rate $38,622
Floating or adjustable interest rate 29,066
<PAGE>
Non-performing Loans
Non-performing loans includes non-accrual loans, re-structured
loans and accruing loans which are contractually past due 90 days
or more.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Balance Sheet Analysis - Asset Quality"
in the First Charter Corporation 1995 Annual Report to Shareholders,
incorporated herein by reference, for a complete discussion of non-
performing assets.
Accruing Loans 90 Days or More Past Due
The following table illustrates the dollar amount of loans
outstanding in each category and the amount and percentage of those
accruing loans which are 90 days or more past due as of December 31,
1995, 1994, 1993, 1992, and 1991.
Table 10
Accruing Loans 90 Days or More Past Due
Accruing Percentage of
Loans 90 Such Loans to
Days or Gross Gross Loans
More Loans Outstanding
Past Due Outstanding By Category
(Dollars in thousands)
December 31, 1995
Commercial, financial and
agricultural $ 27 $ 92,325 .03%
Real estate - construction
and development - 33,750 -
Real estate - mortgage 162 171,281 .09
Installment 52 35,683 .15
Total $ 241 $333,039 .27%
December 31, 1994
Commercial, financial and
agricultural $ 56 $ 87,034 .06%
Real estate - construction
and development - 29,646 -
Real estate - mortgage 969 138,997 .70
Installment 185 32,186 .57
Total $1,210 $287,863 .42%
December 31, 1993
Commercial, financial and
agricultural $ 9 $ 82,920 .01%
Real estate - construction
and development - 20,777 -
Real estate - mortgage 170 117,903 .14
Installment 38 27,683 .14
Total $ 217 $249,283 .09%
December 31, 1992
Commercial, financial and
agricultural $ 27 $ 78,708 .03%
Real estate - construction
and development - 23,157 -
Real Estate - mortgage 140 106,632 .13
Installment 49 23,228 .21
Total $ 216 $231,725 .09%
Table 10 is continued on page 19.
<PAGE>
Table 10 (Continued)
Accruing Loans 90 Days or More Past Due
Accruing Percentage of
Loans 90 Such Loans to
Days or Gross Gross Loans
More Loans Outstanding
Past Due Outstanding By Category
(Dollars in thousands)
December 31, 1991
Commercial, financial and
agricultural $ 467 $ 72,452 .64%
Real estate - construction
and development - 21,165 -
Real estate - mortgage 149 98,695 .15
Installment 57 24,089 .24
Total $ 673 $216,401 .31%
Non-Accrual Loans and Restructured Loans
The determination to discontinue the accrual of interest is
based on a review of each loan. Interest is discontinued on loans
90 days past due as to principal or interest unless in management's
opinion collection of both principal and interest is assured by way
of collateralization, guarantees or other security and the loan is
in the process of collection. The table below summarizes the
Company's non-accrual loans and restructured loans as of the dates
indicated.
Table 11
Non-accrual and Restructured Loans
December 31,
1995 1994 1993 1992 1991
(Dollars in thousands)
Non-accrual loans
Principal balance outstandin $2,287 $2,521 $2,316 $2,316 $4,734
Interest income recorded during
the year $ 37 $ 143 $ 77 $ 77 $ 121
Interest income that would have
been recorded if the loans had
been current and accruing $ 280 $ 262 $ 209 $ 197 $ 479
Restructured loans
Principal balance outstanding $ 300 $ 325 $ 795 $3,266 $ -
Interest income recorded during
the year $ 45 $ - $ 50 $ 382 $ -
Interest income that would have
been recorded if the loans had
been current and accruing $ 27 $ 36 $ 59 $ 206 $ -
Interest income recorded on restructured loans during 1992
includes $176,000 of interest for a cash basis recovery of a
restructured loan which had been on nonaccrual in the prior year.
<PAGE>
Summary of Loan Loss and Recovery Experience
The table below presents certain data for the years ended December
31, 1995, 1994, 1993, 1992, and 1991, including the following: (i) the
average amount of net loans outstanding during the year, (ii) the
allowance for loan losses at the beginning of the year, (iii) the
provision for loan losses, (iv) loans charged off and recoveries of
loans previously charged off presented by major loan categories, (v)
loan charge-offs, net, (vi) the allowance for loan losses at the end of
the year, (vii) the ratio of net charge-offs to average loans, (viii)
the ratio of the allowance for loan losses to average loans and (ix) the
ratio of the allowance for loan losses to loans at year-end, excluding
loans held for sale.
Table 12
Summary of Loan Loss and Recovery Experience
Years Ended December 31,
1995 1994 1993 1992 1991
(Dollars in thousands)
Average loans, net of unearned
income $305,729 $263,180 $235,383 $223,262 $213,328
Allowance for loan losses:
Beginning balance $ 4,131 $ 3,900 $ 3,958 $ 3,165 $ 2,872
Add provision for loan losses 1,465 839 835 942 1,679
5,596 4,739 4,793 4,107 4,551
Loan charge-offs:
Commercial, financial and
agricultural 472 625 713 224 475
Real estate - construction
and development - - - 15 154
Real estate - mortgage 82 73 84 99 461
Installment 387 193 221 129 399
941 891 1,018 467 1,489
Recoveries of loans previously
charged-off:
Commercial, financial and
agricultural 57 125 44 53 15
Real estate - construction
and development - - - 86 12
Real estate - mortgage 3 110 19 92 10
Installment 141 48 62 87 66
201 283 125 318 103
Loan charge-offs, net 740 608 893 149 1,386
Ending balance $ 4,856 $ 4,131 $ 3,900 $ 3,958 $ 3,165
Net charge-offs to average loans .24% .23% .38% .07% .65%
Allowance for loan losses to
average loans 1.59 1.57 1.66 1.77 1.48
Allowance for loan losses to
gross loans at year-end, excluding
loans held for sale 1.46 1.44 1.57 1.71 1.47
For a discussion of management's evaluation of the allowance for loan
losses, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Earnings Performance - Allowance and
Provision for Loan Losses" and "- Balance Sheet Analysis - Asset Quality"
in the First Charter Corporation 1995 Annual Report to Shareholders,
incorporated herein by reference.
<PAGE>
The following table presents the dollar amount of the allowance for
loan losses applicable to major loan categories, the percentage of the
allowance amount in each category to the total allowance and the
percentage of the loans in each category to total loans as of December
31, 1995, 1994, 1993, 1992, and 1991. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Earnings
Performance - Allowance and Provision for Loan Losses" and "- Balance Sheet
Analysis - Asset Quality" in the First Charter Corporation 1995 Annual
Report to Shareholders, incorporated herein by reference.
Table 13
Allowance for Loan Losses
Percentage of
Percentage Gross Loans in
Allowance of Total Each Category
Amount Allowance to Total Loans
(Dollars in thousands)
December 31, 1995
Type of Loan:
Commercial, financial and
agricultural $1,462 30% 27%
Real estate - construction and
development 477 10 10
Real estate - mortgage 2,397 49 52
Installment 520 11 11
Total $4,856 100% 100%
December 31, 1994
Type of Loan:
Commercial, financial and
agricultural $2,025 49% 31%
Real estate - construction and
development 354 9 10
Real estate - mortgage 1,306 32 48
Installment 446 11 11
Total $4,131 100% 100%
December 31, 1993
Type of Loan:
Commercial, financial and
agricultural $2,370 61% 33%
Real estate - construction and
development 325 8 8
Real estate - mortgage 790 20 48
Installment 415 11 11
Total $3,900 100% 100%
Table 13 is continued on page 22.
<PAGE>
Table 13
Allowance for Loan Losses (Continued)
Percentage of
Percentage Gross Loans in
Allowance of Total Each Category
Amount Allowance to Total Loans
(Dollars in thousands)
December 31, 1992
Type of Loan:
Commercial, financial and
agricultural $1,515 38% 34%
Real estate - construction and
development 610 15 10
Real estate - mortgage 1,412 36 46
Installment 421 11 10
Total $3,958 100% 100%
December 31, 1991
Type of Loan:
Commercial, financial and
agricultural $1,079 34% 33%
Real estate - construction and
development 303 10 10
Real estate - mortgage 1,494 47 46
Installment 289 9 11
Total $3,165 100% 100%
<PAGE>
Deposits
The Banks primarily serve individuals and small- to medium-sized
businesses with a variety of deposit accounts, such as NOW accounts,
money market accounts, certificates of deposit and individual
retirement accounts. The following table presents average balances by
category and average rates paid for the years ended December 31, 1995,
1994, and 1993. Average balances were calculated based on daily
averages.
<TABLE>
<CAPTION>
Table 14
Deposits
December 31,
1995 1994 1993
Avg. Avg. Avg.
Average Interest Rate Average Interest Rate Average Interest Rate
Balance Expense Paid Balance Expense Paid Balance Expense Paid
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand
deposits $ 64,839 $ - - $ 54,942 $ - - $ 46,095 $ - -
Interest bearing deposits:
Demand deposits 64,430 1,285 2.00% 61,397 1,213 1.98% 55,346 1,191 2.15%
Insured money markets 42,364 1,208 2.85 48,080 1,129 2.35 51,648 1,296 2.51
Savings deposits 102,043 5,098 5.00 80,211 3,203 3.99 59,234 2,382 4.02
Time deposits 117,620 6,494 5.52 105,770 4,337 4.10 106,092 4,255 4.01
Total $326,457 $14,085 $295,458 $9,882 $272,320 $ 9,124
Total deposits $391,296 $14,085 $350,400 $9,882 $318,415 $ 9,124
</TABLE>
As of December 31, 1995, domestic time deposits of $100,000 or more
totaled $28,471,324, with the following maturities: $12,740,980, three
months or less; $5,218,172, over three months through six months;
$5,583,530, over six months through twelve months and $4,928,642, over
one year through five years.
<PAGE>
Other Borrowings
The following is a schedule of other borrowings which consists of the
following categories: securities sold under repurchase agreements, federal
funds purchased and Federal Home Loan Bank ("FHLB") borrowings for the
years ended December 31, 1995, 1994 and 1993.
Table 15
Other Borrowings
Interest Maximum
Balance Rate Avg. Outstanding
as of as of Average Int. at Any
Dec. 31 Dec. 31 Balance Rate Month-End
(Dollars in thousands)
1995
Federal funds purchased,
securities sold under
agreements to purchase
and FHLB borrowings $35,262 5.42% $21,530 5.22% $35,262
1994
Federal funds purchased,
securities sold
under agreements to
repurchase and
FHLB borrowings $22,441 5.20% $15,360 4.33% $22,441
1993
Federal funds purchased,
securities sold
under agreements to
repurchase, and
FHLB borrowings $ 7,450 2.98% $ 8,418 2.79% $17,013
At December 31, 1995, the Banks had three available lines of credit with
the FHLB totaling $66.5 million with $7,514,286 outstanding. The
outstanding amounts consist of $2,000,000 maturing in 1996, $3,000,000
maturing in 1997, $1,714,286 maturing in 2001 and $800,000 maturing in
2003. At December 31, 1995, such amounts were outstanding at market
interest rates for the specific advance program and maturity. In
addition, the Banks are required to pledge collateral to secure the
advances as described in the line of credit agreements. The collateral
consists of qualifying 1-4 family residential mortgage loans.
<PAGE>
Return on Equity and Assets
The table below indicates the return on average assets (net income
divided by average total assets), return on average equity (net income
divided by average equity), dividend payout ratio (dividends declared
divided by net income), and average equity to average assets ratio
(average equity divided by average total assets) and other key operating
data for the years ended December 31, 1995, 1994, and 1993. Averages are
based on daily balances.
Table 16
Return on Equity and Assets
December 31,
1995 1994 1993
(Dollars in thousands
except per share amounts)
Net income $ 7,003 $ 6,570 $ 5,484
Average shareholders' equity 50,281 45,780 41,865
Average total assets 466,236 414,426 371,246
Dividends declared 2,618 1,893 1,438
Dividends per share .52 .41 .31
Primary and fully diluted
income per share excluding
cumulative effect of
accounting change 1.11 1.05 .82
Primary and fully diluted
income per share 1.11 1.05 .87
Return on average assets 1.50% 1.59% 1.48%
Return on average equity 13.93 14.34 13.10
Dividend payout ratio 37.38 28.81 26.22
Average equity to average assets
ratio 10.78 11.05 11.28
<PAGE>
Item 2. Properties
The Company and FCNB -
The executive offices of the Company and FCNB, and the trust,
accounting, operations and data processing departments of FCNB, are
located in a facility at 22 Union Street, North, Concord, North Carolina
which was purchased in 1980 and contains approximately 19,500 square feet
of office space.
The main office of FCNB is located at 4 Union Street, North, Concord,
North Carolina and contains approximately 12,300 square feet of office
space, parking and a two lane drive-in teller facility. FCNB has full
service branches located in Concord (3), Cornelius, Davidson, Harrisburg,
Huntersville, Mt. Pleasant, Midland, Kannapolis, Landis and Oakdale, North
Carolina and drive-in facilities in the Branchview Shopping Center and
Highways 49/601 in Concord. All of these branches except Davidson and
Oakdale have drive-in teller facilities. FCNB maintains Automated Teller
Machines ("ATMs") at its branches in Concord, Cornelius, Harrisburg,
Huntersville, Kannapolis, Landis and Midland, along with three remote ATMs
located on Highway 29, South in Concord, in Cabarrus Memorial Hospital in
Concord and Jimmy's BP Convenience in Concord.
The Branchview Shopping Center branch, the Huntersville branch, the
Oakdale branch, the sites for all three remote ATMs and a small portion
of the main office which are leased from third parties. The rest of the
aforementioned FCNB properties and ATMs are owned free of any
encumbrances.
The Branchview Shopping Center lease is for an initial term of twenty
years effective May 30, 1977, with two renewal options of five years.
Monthly rent is $1,151.94. The Huntersville branch lease is for a term
expiring May l, 1999, with one remaining renewal option of five years.
Monthly rent is $3,500.00. The rental amount required under the
Huntersville branch lease is negotiable upon exercise of the renewal
option. The Oakdale branch is a leased modular unit. Monthly rent on the
unit as renewed on a month-to-month basis is $1,200.00. Monthly rent on
the land as renewed on a month-to-month basis is $600.00. Construction
is underway to build a permanent Oakdale branch site. Monthly rent under
the leased remote ATM site (Highway 29) as renewed for a five year period
beginning November 1990, is $2,250.00 per month. A second five year
renewal option would begin in November 1995. The lease for the remote ATM
(Cabarrus Memorial Hospital) was renewed for a three year period beginning
June 1, 1993 at a monthly rate of $125.00 per month. A second three year
renewal option begins June, 1996. The lease for the remote ATM (Jimmy's
BP) was executed November 1, 1995 at a rate of $200.00 per month for a
period of five years with the option of renewal for two additional five
year terms.
FCNB has purchased property in northeast Mecklenburg County for future
branch expansion.
<PAGE>
Union -
The Main Office of Union is located at 201 North Charlotte Avenue,
Monroe, North Carolina in a two-story building containing approximately
6,850 square feet which was constructed by Union in 1985 and which Union
owns in fee simple. Union owns a vacant lot adjacent to its Main Office
which it holds for possible future expansion.
The Indian Trail branch of Union contains approximately 2,400 square
feet and was constructed by Union during 1986. The building and the land
are leased from a third party under an agreement providing for an original
term of fifteen years which expires on October 31, 2001. Union has
options to renew the lease for up to three consecutive, additional terms
of five years each. Lease payments under the agreement are $2,685 per
month.
The Skyway Drive branch of Union contains approximately 2,200 square
feet and was constructed by Union during 1988 on land leased from a third
party under an agreement which provides for an original term of fifteen
years which expires on February 1, 2003. Union has options to renew the
lease for up to five consecutive, additional terms of five years each.
Lease payments under the Agreement are $1,450 per month, and Union has an
option to purchase the property at the end of ten years at a price of
$200,000.
The Waxhaw branch of Union opened during 1989 and is located in a
newly constructed building containing approximately 2,520 square feet
which is owned by Union in fee simple.
The Matthews branch of Union opened during 1992 and is located in a
building containing approximately 2,775 square feet. The facility is
leased from a third party under an agreement which provided for an
original term of one year which expired on March 31, 1993. Union has
options to renew the lease for up to three consecutive additional terms
of one year each. Union has exercised the third of its three options to
renew, and this final renewal period expires on March 31, 1996. Lease
payments under the agreement currently are $3,000 per month.
Union's operations and data processing departments are located in
Monroe, in an approximately 4,673 square foot portion of a building leased
from a third party. This is a month to month lease with payment of $3,831
per month.
Union's mortgage loan department and BOU are located in Monroe, in
an approximately 2,000 square foot building leased from a third party
under an agreement providing for an original term of three years which
expires on February 28, 1997. Union has options to renew the lease for
up to four consecutive, additional terms of three years each. Lease
payments under the agreement currently are $1,750.00 per month.
<PAGE>
Item 3. Legal Proceedings
While the Company or the Banks may be from time to time parties to
various legal proceedings arising out of the ordinary course of business,
management of the Company believes there is no proceeding threatened or
pending against the Company or the Banks or any of their properties that
could result in a materially adverse change in the business or
consolidated financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
A special meeting of the shareholders of the Registrant was held on
December 14, 1995 (the "First Charter Special Meeting") to consider and
vote upon a proposal to approve the Agreement and Plan of Merger dated
September 13, 1995, by and between the Registrant and Union (the "Merger
Agreement"), and the transactions contemplated thereby, including (i) the
merger of an interim state banking subsidiary of the Registrant with and
into Union at the effective time of the merger and (ii) the issuance of
0.75 shares of common stock, $5 par value, of the Registrant for each
outstanding share of common stock, $1.25 par value, of Union upon
consummation of the Merger.
A motion to approve the Merger Agreement and the transactions
contemplated thereby was adopted by a vote of the majority of the shares
of the Registrant represented in person or by proxy, as follows:
For: 3,549,529.310
Against: 11,781.494
Abstained: 5,259.595
Broker Non Votes: 0.000
Item 4A. Executive Officers of the Registrant
The following list sets forth with respect to each of the current
executive officers of the registrant his or her name, age, positions and
offices held with the Registrant and the Banks, the period served in such
positions or offices and, if such person has served in such position and
office for less than five years, the prior employment of such person.
Name Age Office and Position - Year Elected
Lawrence M. Kimbrough 55 President and Chief Executive Officer 1986
of the Registrant and FCNB
Robert O. Bratton 47 Executive Vice President, Chief 1983
Operating Officer and Chief
Financial Officer of the
Registrant and FCNB
Robert G. Fox, Jr. 46 Executive Vice President 1993
of the Registrant and FCNB and
Credit Administrator of FCNB
Senior Vice President and 1989 - 1993
Senior Credit Officer
Barclays Bank of NC
<PAGE>
Phillip M. Floyd 46 Executive Vice President of the 1995
Registrant and FCNB
Trust and Investment Division
Executive of FCNB
Trust Group Executive 1982 - 1995
Southern National Bank, NC
H. Clark Goodwin 61 Executive Vice President of the 1995
Registrant and Union and
President and Chief Executive 1985
Officer of Union
<PAGE>
PART II
Item 5. Market For Registrant's Common Equity and Related Shareholder
Matters
The information called for by Item 5 is set forth on the inside front
cover of the First Charter Corporation 1995 Annual Report to Shareholders
(included herewith as Exhibit 13.1) under the caption "Stock Information
and Dividends" and is hereby incorporated by reference.
Item 6. Selected Financial Data
The information called for by Item 6 is set forth on page 1 of the
First Charter Corporation 1995 Annual Report to Shareholders (included
herewith as Exhibit 13.l) under the caption "Selected Consolidated
Financial Data" and is hereby incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information called for by Item 7 is set forth on pages 30 through
38 in the First Charter Corporation 1995 Annual Report to Shareholders
(included herein as Exhibit 13.1) under the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and is hereby incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The information called for by Item 8 is set forth on pages 9 through
29 of the First Charter Corporation 1995 Annual Report to Shareholders
(included herein as Exhibit 13.1) and is hereby incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information called for by Item 10 with respect to directors and
Section 16 matters is set forth in the Registrant's Proxy Statement for
its 1996 Annual Meeting of Shareholders under the captions "Election of
Directors" and "Management Ownership of Common Stock," respectively, and
is hereby incorporated by reference. The information called for by Item
10 with respect to executive officers is set forth in Part I, Item 4A
hereof.
Item 11. Executive Compensation
The information called for by Item 11 is set forth in the
Registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders
under the captions "Election of Directors - Compensation of Directors",
"Executive Compensation" and "Compensation Committee Interlocks and
Insider Participation in Compensation Decisions," respectively, and is
hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by Item 12 is set forth in the
Registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders
under the captions "Principal Shareholders" and "Management Ownership of
Common Stock," respectively, and is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The information called for by Item 13 is set forth in the
Registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders
under the caption "Certain Relationships and Related Transactions" and is
hereby incorporated by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (l) Financial Statements.
The following financial statements, together with report thereon of
independent certified public accountants, are included in this report
by incorporation by reference to the First Charter Corporation 1995
Annual Report to Shareholders (included herewith as Exhibit 13.1) as
set forth in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1995 and 1994
Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules.
Financial statement schedules for which provision for filing is made
in the applicable accounting regulations of the Securities and
Exchange Commission for bank holding companies are omitted because
the required information is not applicable or is included elsewhere
herein.
(3) Exhibits.
Exhibit No.
(per Exhibit
Table in
Item 601 of
Regulation S-K) Description of Exhibits
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.
<PAGE>
Exhibit No.
(per Exhibit
Table in
Item 601 of
Regulation S-K) Description of Exhibits
*10.1 Comprehensive Stock Option Plan, incorporated
herein by referenced to Exhibit 10.1 of the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 (Commission
File No. 0-15829).
10.2 Dividend Reinvestment and Stock Purchase Plan,
incorporated herein by reference to Exhibit 28.1
of the Registrant's Registration Statement No. 33-52004.
*10.3 Executive Incentive Bonus Plan, incorporated
herein by reference to Exhibit 10.9 of the
Registrant's Registration Statement No. 33-13915.
10.4 1996 Employee Stock Purchase Plan, incorporated
herein by reference to Exhibit 99.1 of the
Registrant's Registration Statement No. 333-00321.
*10.5 Change in Control Agreement dated November 16,
1994 for Lawrence M. Kimbrough, incorporated
herein by reference to Exhibit 10.5 of the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 (Commission File No.
0-15829.)
*10.6 Change in Control Agreement dated November 16,
1994 for Robert O. Bratton incorporated herein by
reference to Exhibit 10.6 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994 (Commission File No. 0-15829.)
*10.7 Change in Control Agreement dated November 16,
1994 for Robert G. Fox, Jr incorporated herein by
reference to Exhibit 10.7 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994 (Commission File No. 0-15829.)
*10.8 Change in Control Agreement dated March 15, 1995
for Phillip M. Floyd.
*10.9 Restricted Stock Award Program, incorporated
herein by reference to Exhibit 99.1 of the
Registrant's Registration Statement No. 33-60949.
<PAGE>
Exhibit No.
(per Exhibit
Table in
Item 601 of
Regulation S-K) Description of Exhibits
10.10 Agreement and Plan of Merger between the
Registrant and Union dated as of September 13,
1995, incorporated herein by reference to Exhibit
2.1 of the Registrant's Registration Statement No.
33-63157.
10.11 Stock Option Agreement between the Registrant and
Union dated September 13, 1995, incorporated
herein by reference to Exhibit 99.2 of the
Registrant's Current Report on Form 8-K filed
September 22, 1995.
*10.12 Employment Agreement dated as of January 20, 1993,
as amended as of August 31, 1995, between Union
and H. Clark Goodwin, President, and Chief
Executive Officer of Union.
11.1 Statement regarding computation of per share
earnings.
13.1 First Charter Corporation Annual Report to its
shareholders for the year ended December 31, 1995.
Such Annual Report to its shareholders, except for
those portions which are expressly incorporated by
reference in this Form 10-K, is furnished for the
information of the Commission and is not to be
deemed "filed" as part of the Form 10-K.
21.1 List of subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
* Indicates a management contract or compensatory plan required to be
filed herein.
<PAGE>
(b) Reports on Form 8-K.
The Registrant filed a current report on Form 8-K under Item 5 on
November 9, 1995 which included an updated Description of Common Stock
of the Registrant to reflect various changes in the provisions of the
North Carolina Business Corporation Act, as well as changes in other
regulatory restrictions and guidelines.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) 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)
By: /s/ Lawrence M. Kimbrough
Lawrence M. Kimbrough, President
Date: March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Lawrence M. Kimbrough President and Director March 28, 1996
(Lawrence M. Kimbrough) (Principal Executive
Officer)
/s/ J. Roy Davis, Jr. Chairman of the Board March 28, 1996
(J. Roy Davis, Jr.) and Director
/s/ Duard C. Linn, Jr. Vice Chairman of the March 28, 1996
(Duard C. Linn, Jr.) Board and Director
/s/ Robert O. Bratton Executive Vice President March 28, 1996
(Robert O. Bratton) (Principal Financial and
Principal Accounting
Officer)
/s/ William R. Black Director March 28, 1996
(William R. Black)
/s/ Jane B. Brown Director March 28, 1996
(Jane B. Brown)
/s/ Grady S. Carpenter Director March 28, 1996
(Grady S. Carpenter)
Director March 28, 1996
(Michael R. Coltrane)
/s/ James B. Fincher Director March 28, 1996
(James B. Fincher)
/s/ H. Clark Goodwin Director March 28, 1996
(H. Clark Goodwin)
<PAGE>
Signature Title Date
/s/ Frank H. Hawfield Director March 28, 1996
(Frank H. Hawfield)
/s/ J. Knox Hillman, Jr. Director March 28, 1996
(J. Knox Hillman, Jr.)
/s/ Branson C. Jones Director March 28, 1996
(Branson C. Jones)
/s/ Robert F. Lowrance Director March 28, 1996
(Robert F. Lowrance)
/s/ Jerry E. McGee Director March 28, 1996
(Jerry E. McGee)
/s/ Hugh H. Morrison Director March 28, 1996
(Hugh H. Morrison)
/s/ T. David Propst Director March 28, 1996
(T. David Propst)
/s/ Robert L. Wall Director March 28, 1996
(Robert L. Wall)
/s/ James B. Widenhouse Director March 28, 1996
(James B. Widenhouse)
<PAGE>
Exhibit Index
Exhibit No.
(per Exhibit
Table in
Item 601 of Sequential
Regulation S-K) Description of Exhibits Page No
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.
*10.1 Comprehensive Stock Option Plan,
incorporated herein by referenced to
Exhibit 10.1 of the Registrant's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1992
(Commission File No. 0-15829).
10.2 Dividend Reinvestment and Stock
Purchase Plan, incorporated herein by
reference to Exhibit 28.1 of the
Registrant's Registration Statement
No. 33-52004.
*10.3 Executive Incentive Bonus Plan,
incorporated herein by reference to
Exhibit 10.9 of the Registrant's
Registration Statement No. 33-13915.
10.4 1996 Employee Stock Purchase Plan,
incorporated herein by reference to
Exhibit 99.1 of the Registrant's
Registration Statement No. 333-00321.
*10.5 Change in Control Agreement dated
November 16, 1994 for Lawrence M.
Kimbrough, incorporated herein by
reference to Exhibit 10.5 of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994
(Commission File No. 0-15829.)
<PAGE>
Exhibit No.
(per Exhibit
Table in
Item 601 of Sequential
Regulation S-K) Description of Exhibits Page No
*10.6 Change in Control Agreement dated
November 16, 1994 for Robert O.
Bratton incorporated herein by
reference to Exhibit 10.6 of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994
(Commission File No. 0-15829.)
*10.7 Change in Control Agreement dated
November 16, 1994 for Robert G. Fox,
Jr incorporated herein by reference to
Exhibit 10.7 of the Registrant's
Annual Report on Form 10-K for the
year ended December 31, 1994
(Commission File No. 0-15829.)
*10.8 Change in Control Agreement dated
March 15, 1995 for Phillip M. Floyd.
*10.9 Restricted Stock Award Program,
incorporated herein by reference to
Exhibit 99.1 of the Registrant's
Registration Statement No. 33-60949.
10.10 Agreement and Plan of Merger between
the Registrant and Union dated as of
September 13, 1995, incorporated
herein by reference to Exhibit 2.1 of
the Registrant's Registration
Statement No. 33-63157.
10.11 Stock Option Agreement between the
Registrant and Union dated September
13, 1995, incorporated herein by
reference to Exhibit 99.2 of the
Registrant's Current Report on Form 8-K
filed September 22, 1995.
*10.12 Employment Agreement, amended and
assumed by the Registrant as of
December 21, 1995 between the
Registrant and H. Clark Goodwin,
President and Chief Executive Officer
of Union.
11.1 Statement regarding computation of per
share earnings.
<PAGE>
Exhibit No.
(per Exhibit
Table in
Item 601 of Sequential
Regulation S-K) Description of Exhibits Page No
13.1 First Charter Corporation Annual
Report to its shareholders for the
year ended December 31, 1995. Such
Annual Report to its shareholders,
except for those portions which are
expressly incorporated by reference
in this Form 10-K, is furnished for
the information of the Commission and
is not to be deemed "filed" as part
of the Form 10-K.
21.1 List of subsidiaries of the
Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
* Indicates a management contract or compensatory plan
required to be filed herein.
<PAGE>
<PAGE>
BYLAWS OF
FIRST CHARTER CORPORATION
Amended and Restated 2/91
Amended 2/93
Amended 2/96
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I. Definitions.......................................................................................... 1
Section 1. Definitions................................................................................ 1
Section 2 Cross Reference to the Act................................................................. 1
ARTICLE II. Offices............................................................................................ 1
Section 1. Principal Office........................................................................... 1
Section 2. Other Offices.............................................................................. 1
Section 3. Registered Office.......................................................................... 1
ARTICLE III. Shareholders...................................................................................... 2
Section 1. Annual Meeting............................................................................ 2
Section 2. Substitute Annual Meeting................................................................. 2
Section 3. Special Meetings.......................................................................... 2
Section 4. Place of Meeting.......................................................................... 2
Section 5. Notice of Meeting......................................................................... 2
Section 6. Waiver of Notice.......................................................................... 2
Section 7. Fixing of Record Date..................................................................... 3
Section 8. Shareholders' List........................................................................ 3
Section 9. Quorum.................................................................................... 3
Section 10. Proxies................................................................................... 3
Section 11. Voting of Shares.......................................................................... 4
Section 12. Voting for Directors...................................................................... 4
Section 13. Cumulative Voting......................................................................... 4
Section 14. Action Without Meeting.................................................................... 4
Section 15. Conduct of Meetings....................................................................... 4
Section 16. Nomination of Directors................................................................... 5
ARTICLE IV. Board of Directors................................................................................. 6
Section 1. General Powers............................................................................. 6
Section 2. Number and Qualifications.................................................................. 6
Section 3. Terms of Directors......................................................................... 7
Section 4. Removal.................................................................................... 7
Section 5. Vacancies.................................................................................. 7
Section 6. Compensation............................................................................... 7
Section 7. Committees................................................................................. 7
Section 8. Nominating Committee....................................................................... 8
ARTICLE V. Meetings of Directors............................................................................... 8
Section 1. Regular Meetings.......................................................................... 8
Section 2. Special Meetings........................................................................... 8
Section 3. Notice.................................................................................... 8
Section 4. Waiver of Notice.......................................................................... 9
Section 5. Quorum.................................................................................... 9
Section 6. Manner of Acting........................................................................... 9
Section 7. Presumption of Assent..................................................................... 9
Section 8. Conduct of Meetings....................................................................... 9
Section 9. Action Without a Meeting.................................................................. 10
Section 10. Participation Other Than in Person........................................................ 10
i
<PAGE>
ARTICLE VI. Officers........................................................................................... 10
Section 1. Officers of the Corporation............................................................... 10
Section 2. Appointment and Term...................................................................... 10
Section 3. Compensation.............................................................................. 10
Section 4. Resignation and Removal of Officers....................................................... 10
Section 5. Contract Rights of Officers............................................................... 11
Section 6. Bonds..................................................................................... 11
Section 7. Chief Executive Officer................................................................... 11
Section 8. Chairman of the Board..................................................................... 11
Section 9. Vice Chairman of the Board................................................................ 11
Section 10. President................................................................................. 11
Section 11. Vice Presidents........................................................................... 11
Section 12. Secretary................................................................................. 11
Section 13. Treasurer................................................................................. 12
Section 14. Assistant Secretaries and Assistant Treasurers............................................ 12
ARTICLE VII. Contracts, Loans, Checks and Deposits............................................................. 12
Section 1. Contracts................................................................................. 12
Section 2. Loans..................................................................................... 12
Section 3. Checks and Drafts......................................................................... 12
Section 4. Deposits.................................................................................. 12
ARTICLE VIII. Certificates for Shares and Their Transfer....................................................... 13
Section 1. Certificates for Shares.................................................................... 13
Section 2. Stock Transfer Books and Transfer of Shares................................................ 13
Section 3. Transfer Agent............................................................................. 13
Section 4. Lost Certificates.......................................................................... 13
Section 5. Holder of Record........................................................................... 13
ARTICLE IX. General Provisions................................................................................. 13
Section 1. Fiscal Year................................................................................ 13
Section 2. Distributions.............................................................................. 14
Section 3. Seal....................................................................................... 14
Section 4. Amendments................................................................................. 14
Section 5. Inapplicability of North Carolina Shareholder Protection Act............................... 14
Section 6. Inapplicability of North Carolina Control Share Acquisition Act............................ 14
ARTICLE X. Indemnification..................................................................................... 14
Section 1. Definitions................................................................................ 14
Section 2. Indemnification............................................................................ 15
Section 3. Determination.............................................................................. 15
Section 4. Advance for Expenses....................................................................... 15
Section 5. Reliance and Consideration................................................................. 16
Section 6. Insurance.................................................................................. 16
</TABLE>
ii
<PAGE>
ARTICLE I.
Definitions
Section 1. Definitions. In these Bylaws, unless otherwise specifically
provided:
(a) "Act" shall mean the North Carolina Business Corporation Act, as
contained in Chapter 55 of the North Carolina General Statutes, as
the same now exists or may hereafter be amended.
(b) "Articles of Incorporation" means the Articles of Incorporation of
the Corporation and includes amended and restated Articles of
Incorporation and Articles of Merger.
(c) "Corporation" shall mean First Charter Corporation, a North
Carolina corporation, and any successor thereto.
(d) "Principal office" means the office (in or out of the State of
North Carolina) so designated in the Corporation's annual report
filed pursuant to the Act where the principal executive offices of
the Corporation are located.
(e) "Public corporation" means any corporation that has a class of
shares registered under Section 12 of the Securities Exchange Act
of 1934, as amended (15 U.S.C. ss.781).
(f) "Shares" means the units into which the proprietary interests in
the Corporation are divided.
(g) "Shareholder" means the person in whose name shares are registered
in the records of the Corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee
certificate on file with the Corporation.
(h) "Voting group" means all shares of one or more classes or series
that under the Articles of Incorporation or the Act are entitled
to vote and be counted together collectively on a matter at a
meeting of shareholders. All shares entitled by the Articles of
the Incorporation or the Act to vote generally on a matter are for
that purpose a single voting group.
Section 2. Cross Reference to the Act. If any term used in these Bylaws
and not otherwise defined herein is defined for purposes of the Act, such
definition shall apply for purposes of these Bylaws, unless the context shall
otherwise clearly require.
ARTICLE II.
Offices
Section 1. Principal Office. The principal office of the Corporation
shall be located in the City of Concord, Cabarrus County, or elsewhere at such
place in Cabarrus County as the Board of Directors may determine.
Section 2. Other Offices. The Corporation may have offices at such other
places, either within or without the State of North Carolina, as the Board of
Directors may from time to time determine or as the affairs of the Corporation
may require.
Section 3. Registered Office. The registered office of the Corporation
required by the Act to be maintained in the State of North Carolina may be, but
need not be, identical with the principal office of the Corporation, and the
address of the registered office may be changed from time to time as provided in
the Act.
<PAGE>
ARTICLE III.
Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on such day and at such time and place as shall be fixed by the Board of
Directors for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday in the State of North Carolina, such meeting
shall be held on the next succeeding business day.
Section 2. Substitute Annual Meeting. If the annual meeting shall not be
held within the period designated by these Bylaws, a substitute annual meeting
may be called in accordance with the provisions of Section 5 of this Article
III. A meeting so called shall be designated and treated for all purposes as the
annual meeting.
Section 3. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by the Act, may be called
by the Chief Executive Officer of the Corporation, or by the Secretary acting
under instructions of the Chief Executive Officer, or by the Board of Directors,
and shall be called by the Corporation if the holders of at least ten percent
(10%) of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting sign, date and deliver to the
Secretary of the Corporation one or more written demands for the meeting
describing the purpose or purposes for which it is to be held; except, however,
that, unless otherwise provided in the Articles of Incorporation, the call of a
special meeting by shareholders shall not be available if the Corporation is a
public corporation.
Section 4. Place of Meeting. The Board of Directors or the Chief
Executive Officer of the Corporation, or the Secretary acting under instructions
of the Chief Executive Officer, may designate any place, either within or
without the State of North Carolina, as the place of meeting for any annual
meeting of shareholders or for any special meeting of shareholders called by the
Board of Directors or the Chief Executive Officer or Secretary. A waiver of
notice signed by all shareholders entitled to vote at a meeting may designate
any place, either within or without the State of North Carolina, as the place
for holding such meeting. If no designation is made, or if a special meeting of
shareholders is otherwise called, the place of meeting shall be the principal
office of the Corporation in the State of North Carolina.
Section 5. Notice of Meeting. Written or printed notice stating the
date, time and place of the meeting shall be delivered not less than ten nor
more than sixty days before the date of the meeting, either personally or by
mail, by or at the direction of the Chief Executive Officer, or the Secretary,
or the persons calling the meeting, to each shareholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be effective
when deposited in the United States mail, with postage thereon prepaid and
correctly addressed to the shareholder at such shareholder's address as shown in
the Corporation's current record of shareholders. In the case of an annual or
substitute annual meeting, the notice of meeting need not specifically state the
business to be transacted thereat unless it is a matter, other than election of
directors, on which the vote of shareholders is expressly required by the
provisions of the Act. In the case of a special meeting, the notice of meeting
shall state the purpose or purposes for which the meeting is called.
If an annual or special shareholders' meeting is adjourned to a
different date, time or place, notice need not be given of the new date, time or
place if the new date, time or place is announced at the meeting before
adjournment, unless a new record date is fixed. If a new record date is fixed,
or must be fixed because the date for the adjourned meeting is more than 120
days after the date of the original meeting, then notice of the adjourned
meeting must be given as in the case of an original meeting.
Section 6. Waiver of Notice. A shareholder may waive any notice required
by the Act, the Articles of Incorporation or these Bylaws before or after the
date and time stated in the notice. The waiver must be in writing, be signed by
the shareholder entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or for filing with the corporate records. A
shareholder's attendance at a meeting:
2
<PAGE>
(a) Waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the
meeting;
(b) Waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering
the matter before it is voted upon.
Section 7. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend or other distribution, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may fix in
advance a date for any such determination of shareholders, such date in any case
to be not more than seventy days and, in case of a meeting of shareholders, not
less than ten days prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or for determination of the shareholders entitled to
receive payment of a dividend or other distribution, the close of business on
the day before the first notice is delivered to shareholders or the date on
which the resolution of the Board of Directors declaring or authorizing such
dividend or distribution is adopted, as the case may be, shall be the record
date for such determination. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof unless the Board of
Directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
Section 8. Shareholders' List. After the record date for a meeting of
shareholders is fixed or determined, the officer or agent having charge of the
stock transfer books for shares of the Corporation shall prepare an alphabetical
list of the names of all shareholders of the Corporation who are entitled to
notice of such shareholders' meeting. The list must be arranged by voting group
(and within each voting group by class or series of shares) and show the address
of and number of shares held by each shareholder. Such shareholders' list must
be available for inspection by any shareholder, beginning two business days
after notice of the meeting is given for which the list was prepared and
continuing through the meeting, at the Corporation's principal office or at a
place identified in the meeting notice in the city where the meeting will be
held. A shareholder, or a shareholder's agent or attorney, is entitled on
written demand to inspect and, subject to compliance with the applicable
provisions of the Act, to copy the list, during regular business hours and at
the shareholder's expense, during the period it is available for inspection.
Such list shall also be available at the meeting of shareholders, and any
shareholder, or such shareholder's agent or attorney, is entitled to inspect the
list at any time during the meeting or any adjournment thereof.
Section 9. Quorum. Shares entitled to vote as a separate voting group
may take action on a matter at a meeting of shareholders only if a quorum of
those shares exists with respect to that matter, except that, in the absence of
a quorum at the opening of any meeting of shareholders, such meeting may be
adjourned from time to time by the vote of a majority of the shares voting on
the motion to adjourn. Unless the Articles of Incorporation or the Act provides
otherwise, a majority of the votes entitled to be cast on a particular matter by
the voting group constitutes a quorum of that voting group for action on that
matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
Section 10. Proxies. A shareholder may vote his or her shares in person
or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the
shareholder by signing an appointment form, either personally or by such
shareholder's attorney-in-fact. A telegram, telex, facsimile or other form of
wire or wireless communication appearing to have been transmitted by a
shareholder, or a photocopy or equivalent reproduction of a writing appointing
one or more proxies, shall be deemed a valid appointment form within the meaning
of these Bylaws.
3
<PAGE>
An appointment of a proxy is effective when received by the Secretary or
other officer or agent authorized to tabulate votes. An appointment is valid for
eleven months unless a different period is expressly provided in the appointment
form. An appointment of a proxy is revocable by the shareholder unless the
appointment form conspicuously states that it is irrevocable and the appointment
is coupled with an interest, which may include any such interest specified in
the Act.
Section 11. Voting of Shares. Except as otherwise provided in the Act,
or unless the Articles of Incorporation provide otherwise, each outstanding
share, regardless of class, is entitled to one vote on each matter voted on at a
shareholders' meeting. If a quorum exists, action on a matter (other than
election of directors) by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action,
unless the Articles of Incorporation, a Bylaw adopted by the shareholders or the
Act requires a greater number of affirmative votes. Classes or series of shares
shall not be entitled to vote separately by voting group unless expressly
required by the Articles of Incorporation or by law.
Absent special circumstances, shares of the Corporation are not entitled
to vote if they are owned, directly or indirectly, by another corporation in
which the Corporation owns, directly or indirectly, a majority of the shares
entitled to vote for directors of the second corporation; provided, however,
that this provision does not limit the power of the Corporation to vote its own
shares held by it in a fiduciary capacity.
Section 12. Voting for Directors. Unless otherwise provided in the
Articles of Incorporation or in an agreement valid under the Act, the directors
of the Corporation shall be elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present.
Section 13. Cumulative Voting. Except as otherwise provided in the Act,
at each election of directors the shareholders of the Corporation shall be
entitled to multiply the number of votes they are entitled to cast by the number
of directors for whom they are entitled to vote and cast the product for a
single candidate or distribute the product among two or more candidates. Shares
otherwise entitled to vote cumulatively, however, may not be voted cumulatively
at a particular meeting unless the meeting notice or proxy statement
accompanying the notice states conspicuously that cumulative voting is
authorized or a shareholder or proxy who has the right to cumulate his or her
votes announces in open meeting, before voting for directors starts, such
person's intention to vote cumulatively; and if such announcement is made, the
chair shall declare that all shares entitled to vote have the right to vote
cumulatively, and shall announce the number of shares present in person and by
proxy, and shall thereupon grant a recess of not less than one hour nor more
than four hours, as the chair shall determine, or of such other period of time
as is unanimously then agreed upon.
Section 14. Action Without Meeting. Any action required or permitted to
be taken at a shareholders' meeting may be taken without a meeting if the action
is taken by all the shareholders entitled to vote on the action. Such action
shall be evidenced by one or more written consents signed by all the
shareholders before or after such action, describing the action taken, which
consent or consents shall be delivered to the Corporation and shall be included
in the corporate minutes or filed with the corporate records.
If the Act requires that the notice of proposed action be given by the
Corporation to its nonvoting shareholders and such action is to be taken by
unanimous written consent of the Corporation's voting shareholders, the
Corporation shall give its nonvoting shareholders, if any, written notice of the
proposed action at least ten (10) days before the action is taken.
Section 15. Conduct of Meetings. The Chairman of the Board shall preside
at each meeting of shareholders, or, in the absence or at the request of the
Chairman of the Board, the Vice Chairman of the Board or such other officer as
the Chairman of the Board or the Board of Directors shall designate shall
preside at any such meeting. In the absence of a presiding officer determined in
accordance with the preceding sentence, any person may be designated to preside
at a shareholders' meeting by a plurality vote of the shares represented and
entitled to vote at the meeting. The Secretary, or in the absence or at the
request of the Secretary, any person designated by the person presiding at a
shareholders' meeting, shall act as secretary of such meeting.
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So far as applicable, and unless otherwise determined by the presiding
officer, the order of business at each meeting of the shareholders, shall be as
follows:
1. Call to order.
2. Proof of due notice of meeting or waiver thereof.
3. Call of roll or other method of ascertaining the amount of stock
entitled to voting rights that is represented in person or by
proxy.
4. Declaration of presence or absence of a quorum.
5. Reading and approval or other disposition of any unapproved
minutes.
6. Reports of officers.
7. Election of directors.
8. Unfinished business.
9. New business.
10. Adjournment.
Any item of business not included in the foregoing order of business may be
taken up at such time during the meeting as may be determined by the officer
presiding at the meeting.
Section 16. Nomination of Directors.
(a) Annual Meetings of Shareholders. (1) Nominations of persons
for election to the Board of Directors of the Corporation may be made at
an annual meeting of shareholders (i) pursuant to the Corporation's
notice of meeting, (ii) by or at the direction of the Board of Directors
or (iii) by any shareholder of the Corporation who was a shareholder of
record at the time of giving of notice provided for in this Section 16,
who is entitled to vote at the meeting and who complies with the notice
procedures set forth herein.
(2) For nominations to be properly brought before an annual
meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of
this Section 16, the shareholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close
of business on the 50th day nor earlier than the close of business on
the 75th day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of
the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the shareholder to be timely must
be so delivered not earlier than the close of business on the 75th day
prior to such annual meeting and not later than the close of business on
the later of the 50th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time
period for the giving of a shareholder's notice as described above. Such
shareholder's notice shall set forth (i) as to each person whom the
shareholder proposes to nominate for election or re-election as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a
nominee and
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to serving as a director if elected); and (ii) as to the shareholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination is made (x) the name and address of such shareholder, as they
appear on the Corporation's books, and of such beneficial owner and (y)
the class and number of shares of the Corporation that are owned
beneficially and of record by such shareholder and such beneficial
owner.
(b) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of Directors
may be made at a special meeting of shareholders at which directors are
to be elected pursuant to the Corporation's notice of meeting (i) by or
at the direction of the Board of Directors or (ii) provided that the
Board of Directors has determined that directors shall be elected at
such meeting, by any shareholder of the Corporation who is a shareholder
of record at the time of giving of notice provided for in this Section
16, who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth herein. In the event the Corporation
calls a special meeting of shareholders for the purpose of electing one
or more directors to the Board of Directors, any such shareholder may
nominate a person or persons for election to such positions as specified
in the Corporation's notice of meeting, if the shareholder's notice
required by paragraph (a)(2) hereof shall be delivered to the Secretary
at the principal executive offices of the Corporation not earlier than
the close of business on the 75th day prior to such special meeting and
not later than the close of business on the later of the 50th day prior
to such special meeting or the 10th day following the day on which
public announcement of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of a special meeting commence a new time
period for the giving of a shareholders' notice as described herein.
(c) General. (1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 16 shall be eligible to
serve as directors. Except as otherwise provided by law, the Articles of
Incorporation of the Corporation or these Bylaws, the chairman of the
shareholders' meeting shall have the power and duty to determine whether
a nomination was made or proposed, as the case may be, in accordance
with the procedures set forth in this Section 16 and, if any proposed
nomination is not in compliance with this Section 16, to declare that
such defective nomination shall be disregarded.
(2) For purposes of this Section 16, "public announcement" shall
mean disclosure in a press release reported by the PR Newswire or
comparable news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 16, a
shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this Section 16. Nothing in this Section 16
shall be deemed to affect any rights of shareholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
ARTICLE IV.
Board of Directors
Section 1. General Powers. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, its Board of Directors, except as otherwise
provided in the Articles of Incorporation or in an agreement valid under the
Act.
Section 2. Number and Qualifications. The number of directors of the
Corporation shall be not less than five nor more than twenty-five, which number
may be fixed or changed from time to time, within the minimum and maximum, by
the shareholders or, unless the Articles of Incorporation or an agreement valid
under the Act shall
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otherwise provide, by the vote of not less than 75% of the members of the Board
of Directors. Directors need not be residents of the State of North Carolina or
shareholders of the Corporation.
The directors shall be divided into three classes, as nearly equal in
number as may be, to serve in the first instance for terms of one, two and three
years, respectively, and thereafter the successors in each class of directors
shall be elected to serve for terms of three years. In the event of any increase
or decrease in the number of directors, the additional or eliminated
directorships shall be so classified or chosen that all classes of directors
shall remain or become as nearly equal in number as may be.
Section 3. Terms of Directors. The terms of the initial directors of the
Corporation shall expire at the first shareholders' meeting at which directors
are elected. The terms of all other directors shall be for the number of years
set forth in Section 2 of this Article IV; provided, however, that
notwithstanding the provisions of such Section 2 of Article IV, the term of a
director shall expire at the next shareholders' meeting following the date on
which such director reaches age 70, and the term of a director elected to fill a
vacancy shall expire at the next shareholders' meeting at which directors are
elected. Despite the expiration of a director's term, however, such director
shall continue to serve until the director's successor is elected and qualifies
or until there is a decrease in the number of directors. A decrease in the
number of directors does not shorten an incumbent director's term.
Section 4. Removal. Unless otherwise provided in the Articles of
Incorporation, any director may be removed at any time with or without cause by
a vote of the shareholders if the number of votes cast to remove such director
exceeds the number of votes cast not to remove him or her; provided, however,
that if cumulative voting applies, a director shall not be removed when the
number of votes sufficient to elect the director under cumulative voting is
voted against his or her removal. If a director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in the
vote to remove him. A director may not be removed by the shareholders at a
meeting unless the notice of the meeting states that the purpose, or one of the
purposes, of the meeting is removal of the director. If any directors are so
removed, new directors may be elected at the same meeting.
Section 5. Vacancies. Unless the Articles of Incorporation provide
otherwise, if a vacancy occurs on the Board of Directors, including, without
limitation, a vacancy resulting from an increase in the number of directors or
from the failure by the shareholders to elect the full authorized number of
directors:
(a) The shareholders may fill the vacancy;
(b) The Board of Directors may fill the vacancy; or
(c) If the directors remaining in office constitute fewer than a
quorum of the Board, they may fill the vacancy by the affirmative
vote of a majority of all the directors, or by the sole director,
remaining in office.
If the vacant office was held by a director elected by a voting group of
shareholders, only the remaining director or directors elected by that voting
group or the holders of shares of that voting group are entitled to fill the
vacancy. A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date or otherwise) may be filled before the
vacancy occurs, but the new director may not take office until the vacancy
occurs.
Section 6. Compensation. The Board of Directors may provide for the
compensation of directors for their services as such and may provide for the
payment or reimbursement of any or all expenses reasonably incurred by them in
attending meetings of the Board or of any committee of the Board or in the
performance of their other duties as directors. Nothing herein contained,
however, shall prevent any director from serving the Corporation in any other
capacity or receiving compensation therefor.
Section 7. Committees. Unless otherwise provided in the Articles of
Incorporation, the Board of Directors may create one or more committees, which
may include an Executive Committee, and appoint members of the
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Board of Directors to serve on them. Each committee must have two or more
members, who serve at the pleasure of the Board of Directors. The creation of a
committee and appointment of members of the Board of Directors to such committee
must be approved by the greater of a majority of all of the directors in office
when the action is taken or the number of directors required by the Articles of
Incorporation for the taking of action by the Board of Directors. The provisions
of the Act and these Bylaws that govern meetings, action without meetings,
notice and waiver of notice, and quorum and voting requirements of the Board of
Directors, shall apply to committees and their members as well. To the extent
specified by the Board of Directors or in the Articles of Incorporation, each
committee may exercise the authority of the Board of Directors, except as to the
matters which the Act specifically excepts from the authority of such
committees. Nothing contained in this Section shall preclude the Board of
Directors from establishing and appointing any committee, whether of directors
or otherwise, not having or exercising the authority of the Board of Directors.
Section 8. Nominating Committee. Pursuant to Section 7 of this Article
IV, the Board of Directors may create a nominating committee to determine
nominations for election to the Board of Directors. Such nominating committee
may consider for inclusion in the slate of nominees to be presented by the Board
of Directors written nominations of candidates for election to the Board of
Directors submitted by shareholders to the Secretary of the Corporation pursuant
to Section 16 of Article III hereof. In the absence of the creation of a
nominating committee, the Executive Committee of the Board of Directors shall
assume the responsibilities hereunder.
ARTICLE V.
Meetings of Directors
Section 1. Regular Meetings. A regular meeting of the Board of Directors
shall be held immediately after the annual meeting of the shareholders, or as
soon as possible thereafter. In addition, the Board of Directors may provide, by
resolution, the date, time and place, either within or without the State of
North Carolina, for the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors
may be held at any date, time and place upon the call of the Chief Executive
Officer or of the Secretary acting under instructions from the Chief Executive
Officer, or upon the call of any director. Special meetings may be held without
special notice by unanimous consent of the Directors.
Section 3. Notice. The person or persons calling a special meeting of
the Board of Directors shall, at least two days before the meeting, give notice
thereof by any usual means of communication. Such notice may be communicated,
without limitation, in person; by telephone, telegraph, teletype or other form
of wire or wireless communication, or by facsimile transmission; or by mail or
private carrier. Written notice of a directors meeting is effective at the
earliest of the following:
(a) When received;
(b) Five days after its deposit in the United States mail, as
evidenced by the postmark, if mailed with postage thereon prepaid
and correctly addressed;
(c) On the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee.
Oral notice is effective when actually communicated to the director. Notice of
an adjourned meeting of directors need not be given if the time and place are
fixed at the meeting adjourning and if the period of adjournment does not exceed
ten days in any one adjournment. The notice of any meeting of directors need not
describe the purpose of the meeting unless otherwise required by the Act or the
Articles of Incorporation.
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Section 4. Waiver of Notice. A director may waive any notice required by
the Act, the Articles of Incorporation or these Bylaws before or after the date
and time stated in the notice. The waiver must be in writing, signed by the
director entitled to the notice, and filed with the minutes or corporate
records, except that, notwithstanding the foregoing requirement of written
notice, a director's attendance at or participation in a meeting waives any
required notice to the director of the meeting unless the director at the
beginning of the meeting (or promptly upon the director's arrival) objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
Section 5. Quorum. A majority of the number of directors prescribed
pursuant to Section 2 of Article IV, or if no number is prescribed the number of
directors in office immediately before the meeting begins, shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors,
but if less than such majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice.
Section 6. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, except as otherwise provided by the Act or in this Section. The
vote of a majority of all of the directors in office when the action is taken,
or such greater vote as may be required by the Articles of Incorporation, shall
be required for the creation of a committee and the appointment of members of
the Board of Directors to it. A Bylaw that fixes a greater quorum or voting
requirement for the Board of Directors than is provided for in the Act may not
be adopted by the Board of Directors by a vote less than a majority of the
directors then in office, and may not itself be amended by a quorum or vote of
the directors less than the quorum or vote therein prescribed or as prescribed
by the shareholders upon adoption or amendment of such Bylaw.
Section 7. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors or a committee of the Board of
Directors when corporate action is taken shall be deemed to have assented to the
action taken unless the director objects at the beginning of the meeting (or
promptly upon the director's arrival) to holding it or transacting business at
the meeting, unless the director's dissent or abstention from the action shall
be entered in the minutes of the meeting or unless the director shall file
written notice of dissent or abstention to such action with the presiding
officer of the meeting before the adjournment thereof or with the Corporation
immediately after adjournment of the meeting. Such right of dissent or
abstention shall not apply to a Director who voted in favor of the action taken.
Section 8. Conduct of Meetings. The Chairman of the Board shall preside
at all meeting of the Board of Directors; provided, however, that in the absence
or at the request of the Chairman of the Board, the Vice Chairman of the Board,
or if there shall not be a person holding such office, the person selected to
preside at a meeting of directors by a vote of a majority of the directors
present shall preside at such meeting. The Secretary, or in the absence or at
the request of the Secretary, any person designated by the person presiding at a
meeting of the Board of Directors, shall act as secretary of such meeting.
So far as applicable, and unless otherwise determined by the person
presiding at such meeting, the order of business at each meeting of the Board of
Directors shall be as follows:
1. Call to order.
2. Proof of notice of meeting or waiver thereof.
3. Determination of presence or absence of a quorum.
4. Reading and approval or other disposition of any unapproved
minutes.
5. Reports of Committees.
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6. Reports of Officers.
7. Unfinished business.
8. New business.
9. Adjournment.
Any item of business not included in the foregoing order of business may be
taken up at such time during the meeting as the directors may determine.
Section 9. Action Without a Meeting. Any action required or permitted to
be taken at a Board of Directors meeting may be taken without a meeting if the
action is taken by all members of the Board. The action must be evidenced by one
or more written consents signed by each director before or after such action,
describing the action taken, which consent or consents shall be included in the
minutes or filed with the corporate records. Action taken as provided in this
Section is effective when the last director signs the consent, unless the
consent specifies a different effective date. A consent signed pursuant to this
Section has the effect of a meeting vote and may be described as such in any
document.
Section 10. Participation Other Than in Person. The Board of Directors
may permit any or all directors to participate in a regular or special meeting
by, or conduct the meeting through the use of, any means of communication by
which all directors participating may simultaneously hear each other during the
meeting. A director participating in a meeting by this means is deemed to be
present in person at such meeting.
ARTICLE VI.
Officers
Section 1. Officers of the Corporation. The officers of the Corporation
shall consist of a Chief Executive Officer (who shall be either the Chairman of
the Board or the President, as designated by the Board of Directors in
accordance with these Bylaws), a President, a Secretary, a Treasurer, one or
more Executive Vice Presidents, one or more Senior Vice Presidents and one or
more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other
officers, which may include a Chairman of the Board and a Vice Chairman of the
Board, as may be appointed from time to time by or under the authority of the
Board of Directors. The same individual may simultaneously hold more than one
office in the Corporation, but no individual may act in more than one capacity
where action of two or more officers is required. The title of any officer may
include any additional designation descriptive of such officer's duties as the
Board of Directors may prescribe. It shall not be necessary for any officer to
be a shareholder of the Corporation.
Section 2. Appointment and Term. The officers of the Corporation shall
be appointed by the Board of Directors or by a duly appointed officer authorized
by the Board of Directors to appoint one or more officers or assistant officers,
provided, however, that no officer may be authorized to appoint the Chief
Executive Officer, the Chairman of the Board or the President. Each officer
shall hold office until his or her death, resignation, retirement, removal or
disqualification or until such officer's successor is elected and qualified.
Section 3. Compensation. The compensation of all officers of the
Corporation shall be fixed by or under the authority of the Board of Directors,
and no officer shall be prevented from receiving such salary by reason of the
fact that such officer is also a director of the Corporation.
Section 4. Resignation and Removal of Officers. An officer may resign at
any time by communicating such officer's resignation to the Corporation. A
resignation is effective when it is communicated unless it specifies in writing
a later effective date. If a resignation is made effective at a later date and
the Corporation accepts the future effective date, the Board of Directors may
fill the pending vacancy before the effective date if the Board of Directors
provides that the successor does not take office until the effective date. The
Board of Directors may remove any officer at any time with or without cause.
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Section 5. Contract Rights of Officers. The appointment of an officer
does not itself create contract rights. An officer's removal does not itself
affect the officer's contract rights, if any, with the Corporation, and an
officer's resignation does not itself affect the Corporation's contract rights,
if any, with the officer.
Section 6. Bonds. The Board of Directors may by resolution require any
officer, agent or employee of the Corporation to give bond to the Corporation,
with sufficient sureties, conditioned on the faithful performance of the duties
of the applicable office or position, and to comply with such other conditions
as may from time to time be required by the Board of Directors.
Section 7. Chief Executive Officer. The Board of Directors shall appoint
and designate a Chief Executive Officer of the Corporation. If the Board of
Directors shall fail to so appoint and designate a Chief Executive Officer, the
President shall be the Chief Executive Officer of the Corporation. The Chief
Executive Officer shall, subject to the direction and control of the Board of
Directors, supervise and control the business and affairs of the Corporation.
The Chief Executive Officer may sign, with the Secretary or any other proper
officer of the Corporation thereunto authorized by the Board of Directors,
certificates for shares of the Corporation, any deeds, mortgages, bonds,
contracts or other instruments which the Board of Directors has authorized to be
executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed; and in general the Chief Executive Officer shall perform all
duties incident to the position of chief executive officer and such other duties
as may be prescribed by the Board of Directors from time to time. The title of
the Chairman of the Board or the President, as the case may be, serving as the
Chief Executive Officer may also refer to such officer's position as Chief
Executive Officer, but such additional designation shall not be required.
Section 8. Chairman of the Board. The Board of Directors may appoint
from among its members an officer designated as the Chairman of the Board, but
the appointment of a Chairman of the Board shall not be required. If a Chairman
of the Board is appointed and is also designated by the Board of Directors as
the Chief Executive Officer, then the Chairman of the Board shall have all of
the duties and authority of the Chief Executive Officer and such officer shall
also, when present, preside at meetings of the shareholders and the Board of
Directors. If a Chairman of the Board shall be appointed but shall not also be
designated as the Chief Executive Officer, then the Chairman of the Board shall,
when present, preside at meetings of the shareholders and the Board of Directors
and shall have such other duties and authority as may be prescribed by the Board
of Directors from time to time.
Section 9. Vice Chairman of the Board. The Board of Directors may
appoint from among its members an officer designated as the Vice Chairman of the
Board, but the appointment of a Vice Chairman of the Board is not required. The
Vice Chairman of the Board shall, in the absence of or at the request of the
Chairman of the Board, preside at meetings of the shareholders and the Board of
Directors and shall have such other duties and authority as may be prescribed by
the Board of Directors from time to time.
Section 10. President. Unless a Chairman of the Board has been appointed
and also designated as the Chief Executive Officer, the President shall be the
Chief Executive Officer of the Corporation and shall have all of the duties and
authority of that office. If the President is not the Chief Executive Officer,
the President, in the absence of the Chairman of the Board or in the event of
the Chairman's death or inability or refusal to act, shall perform the duties
and exercise the powers of that office and, in addition, the President shall
perform such other duties and shall have such other authority as the Board of
Directors shall prescribe.
Section 11. Vice Presidents. Each Executive Vice President, Senior Vice
President and Vice President shall perform such duties and shall have such
powers as are normally incident to the office of the Executive Vice President,
Senior Vice President or Vice President or as shall be prescribed by the Chief
Executive Officer or the Board of Directors.
Section 12. Secretary. The Secretary shall: (a) keep the minutes of the
shareholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) have the responsibility and authority to maintain
and authenticate the records of the Corporation; (c) see that all notices are
duly given in accordance with the provisions of these Bylaws or as required by
law; (d) be custodian of the corporate records and of the seal of the
Corporation and see that the seal of the Corporation is affixed to all documents
the execution of which on behalf of the Corporation under its seal is duly
authorized; (e) keep a register of the post office address of each shareholder
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which shall be furnished to the Secretary by such shareholder; (f) sign with the
Chairman of the Board, President, or a Vice President, certificates for shares
of the Corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (g) have general charge of the stock
transfer books of the Corporation; and (h) in general perform all duties
incident to the office of the Secretary and such other duties as from time to
time may be assigned to the Secretary by the Chief Executive Officer of the
Corporation or by the Board of Directors.
Section 13. Treasurer. The Treasurer shall: (a) have charge and custody
of all funds and securities of the Corporation; receive and give receipts for
moneys due and payable to the Corporation from any source whatsoever, and
deposit all such moneys in the name of the Corporation in such banks, trust
companies or other depositaries as shall be selected in accordance with the
provisions of Article VII of these Bylaws; and (b) in general perform all of the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to the Treasurer by the Chief Executive Officer of the
Corporation or by the Board of Directors.
Section 14. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries and Assistant Treasurers, if any, shall, in the event of
the death or inability or refusal to act of the Secretary or the Treasurer,
respectively, have all the powers and perform all of the duties of those
offices, and they shall, in general, perform such duties as shall be assigned to
them by the Secretary or the Treasurer, respectively, or by the Chief Executive
Officer of the Corporation or the Board of Directors.
ARTICLE VII.
Contracts, Loans, Checks and Deposits
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instruments in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances. Any resolution of
the Board of Directors authorizing the execution of any contract or other
document by the proper officers of the Corporation or by the officers of the
Corporation generally and not specifying particular officers shall be deemed to
authorize such execution by the Chief Executive Officer, the President, or any
Vice President, or by any other officer if such execution is within the scope of
the duties of such other officer.
Section 2. Loans. Except for loans which are incurred in the ordinary
course of business and which mature in less than seven months, no loans shall be
contracted on behalf of the Corporation and no evidences of indebtedness shall
be issued in its name unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, agent or agents of
the Corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositaries as may be selected by or under the
authority of the Board of Directors.
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ARTICLE VIII.
Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. The Board of Directors may authorize
the issuance of some or all of the shares of the Corporation's capital stock
without issuing certificates to represent such shares. When shares are
represented by certificates, the Corporation shall issue such certificates in
such form as shall be required by the Act and as determined by the Board of
Directors, to every shareholder for the fully paid shares owned by him. Each
certificate shall be signed by, or shall bear the facsimile signature of, the
Chairman of the Board, President or a Vice President and the Secretary or an
Assistant Secretary of the Corporation and may bear the corporate seal of the
Corporation or its facsimile. All certificates for the Corporation's shares
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares represented by a certificate are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the Corporation. When shares of the Corporation's capital stock are not
represented by certificates, then within a reasonable time after the issuance or
transfer of such shares, the Corporation shall send the shareholder to whom such
shares have been issued or transferred a written statement of the information
required by the Act to be on stock certificates.
Section 2. Stock Transfer Books and Transfer of Shares. The Corporation
or its transfer agent shall keep a book or set of books to be known as the stock
transfer books of the Corporation, containing the name of each shareholder of
record, together with such shareholder's address and the number and class or
series of shares held by him. Transfer of shares of the Corporation represented
by certificates shall be made on the stock transfer books of the Corporation
only upon surrender of the certificates for the shares sought to be transferred
by the holder of record thereof or by such holder's duly authorized agent,
transferee or legal representative, who shall furnish proper evidence of
authority to transfer. All certificates surrendered for transfer shall be
cancelled before new certificates for the transferred shares shall be issued.
Section 3. Transfer Agent. The Corporation may, if and whenever the
Board of Directors so determines, maintain in the state of North Carolina or any
other state of the United States a transfer agent, where the stock transfer
books of the corporation shall be kept and stock of the Corporation shall be
transferable. The Board of Directors may also make such additional rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of stock certificates.
Section 4. Lost Certificates. The Board of Directors may authorize the
issuance of a new certificate in place of a certificate claimed to have been
lost or destroyed, upon receipt of an affidavit of such fact from the persons
claiming the loss or destruction. When authorizing such issuance of a new
certificate, the Board may require the claimant to give the corporation a bond
in such sum as it may direct to indemnify the corporation against loss from any
claim with respect to the certificate claimed to have been lost or destroyed; or
the Board may, by resolution reciting that the circumstances justify such
action, authorize the issuance of a new certificate without requiring such a
bond.
Section 5. Holder of Record. Except as otherwise required by the Act,
the Corporation may treat the person in whose name the shares stand of record on
its books as the absolute owner of the shares and the person exclusively
entitled to receive notification and distributions, to vote, and to otherwise
exercise the rights, powers and privileges of ownership of such shares.
ARTICLE IX.
General Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year unless otherwise determined by the Board of Directors.
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Section 2. Distributions. The Board of Directors may from time to time
authorize, and the Corporation may pay or distribute, dividends or other
distributions on its outstanding shares in such manner and upon such terms and
conditions as are permitted by law and by the Articles of Incorporation.
Section 3. Seal. The Board of Directors shall provide a corporate seal
which shall be circular in form and shall have inscribed thereon the name of the
Corporation and the word "Seal".
Section 4. Amendments. Except to the extent otherwise provided in the
Act or the Articles of Incorporation or a Bylaw adopted by the shareholders, the
Board of Directors may amend or repeal these Bylaws and may adopt new Bylaws,
except that a Bylaw adopted, amended or repealed by the shareholders may not be
readopted, amended or repealed by the Board of Directors if neither the Articles
of Incorporation nor a Bylaw adopted by the shareholders authorizes the Board of
Directors to adopt, amend or repeal that particular Bylaw or the Bylaws
generally. The shareholders of the Corporation may also amend or repeal these
Bylaws and may adopt new Bylaws.
A Bylaw that fixes a greater quorum or voting requirement for the Board
of Directors than otherwise provided by the Act may provide that it may be
amended or repealed only by a specified vote of either the shareholders or the
Board of Directors.
A Bylaw that fixes a greater quorum or voting requirement for the Board
of Directors than otherwise provided by the Act may not be adopted by the Board
of Directors by a vote less than a majority of the directors then in office, and
may not itself be amended by a quorum or vote of the directors less than the
quorum or vote therein prescribed or prescribed by the shareholders upon
adoption or amendment of such Bylaw.
Section 5. Inapplicability of North Carolina Shareholder Protection Act.
The provisions of the North Carolina Shareholder Protection Act, being Article 9
of the Act, shall not be applicable to the Corporation.
Section 6. Inapplicability of North Carolina Control Share Acquisition
Act. The provisions of the North Carolina Control Share Acquisition Act, being
Article 9A of the Act, shall not be applicable to the Corporation.
ARTICLE X.
Indemnification
Section 1. Definitions. For purposes of this Article X, the following
definitions shall apply:
(a) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the
Corporation, is or was serving at the Corporation's request as a
director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise. A director is
considered to be serving an employee benefit plan at the
Corporation's request if such director's duties to the Corporation
also impose duties on, or otherwise involve services by, the
director to the plan or to participants in or beneficiaries of the
plan. "Director" includes, unless the context requires otherwise,
the estate or personal representative of a director.
(b) "Executive officer" means each officer of the Corporation who is
designated by the Board of Directors from time to time as such.
(c) "Expenses" means expenses of every kind incurred in defending a
proceeding, including counsel fees.
(d) "Indemnified Officer" shall mean each officer of the Corporation
who is also a director of the Corporation, each executive officer
of the Corporation and each other officer of the Corporation who
is designated by the Board of Directors from time to time as an
Indemnified Officer. An Indemnified Officer shall be entitled to
indemnification hereunder to the same extent as a director,
including,
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without limitation, indemnification with respect to service by the
Indemnified Officer at the Corporation's request as a director,
officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise.
(e) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an
employee benefit plan) or reasonable expenses incurred with
respect to a proceeding.
(f) "Proceeding" means any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, whether formal or informal, and any appeal therein
(and any inquiry or investigation that could lead to such a
proceeding).
Section 2. Indemnification. In addition to the indemnification otherwise
provided by law, the Corporation shall indemnify and hold harmless its directors
and Indemnified Officers (as defined herein) against all liability and expenses,
including reasonable attorneys' fees, in any proceeding (including without
limitation a proceeding brought by or on behalf of the Corporation itself)
arising out of their status as directors or officers, or their activities in any
such capacity; provided, however, that the Corporation shall not indemnify a
director or Indemnified Officer against liability or litigation expense that
such person may incur on account of activities of such person which at the time
taken were known or believed by him or her to be clearly in conflict with the
best interests of the Corporation. The Corporation shall also indemnify each
director and Indemnified Officer for reasonable costs, expenses and attorneys'
fees incurred in connection with the enforcement of the rights to
indemnification granted herein, if it is determined in accordance with Section 3
of this Article X that the director or Indemnified Officer is entitled to
indemnification hereunder.
Section 3. Determination. Any indemnification under Section 2 of this
Article X shall be paid by the Corporation in a specific case only after a
determination that the director or Indemnified Officer has met the standard of
conduct set forth in Section 2. Such determination shall be made:
(a) by the Board of Directors by a majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(b) if a quorum cannot be obtained under subparagraph (a), by a
majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may
participate), consisting solely of two or more directors not at
the time parties to the proceeding;
(c) by special legal counsel (i) selected by the Board of Directors or
its committee in the manner prescribed in subparagraphs (a) or
(b); or (ii) if a quorum of the Board of Directors cannot be
obtained under subparagraph (a) and a committee cannot be
designated under subparagraph (b), selected by a majority vote of
the full Board of Directors (in which selection directors who are
parties may participate); or
(d) by the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding
may not be voted on the determination.
The Board of Directors shall take all such action as may be necessary
and appropriate to enable the Corporation to pay the indemnification required by
this Article X.
Section 4. Advance for Expenses. The expenses incurred by a director or
Indemnified Officer in defending a proceeding may be paid by the Corporation in
advance of the final disposition of such proceeding as authorized by the Board
of Directors in the specific case upon receipt of an undertaking by or on behalf
of the director or Indemnified Officer to repay such amount unless it shall
ultimately be determined that such person is entitled to be indemnified by the
Corporation against such expenses. Subject to receipt of such undertaking, the
Corporation shall make reasonable periodic advances for expenses pursuant to
this Section, unless the Board of Directors shall
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determine, in the manner provided in Section 3 of this Article X and based on
the facts then known, that indemnification under this Article is or will be
precluded.
Section 5. Reliance and Consideration. Any director or Indemnified
Officer who at any time after the adoption of this Article X serves or has
served in any of the aforesaid capacities for or on behalf of the Corporation
shall be deemed to be doing or to have done so in reliance upon, and as
consideration for, the right of indemnification provided herein. Such right,
however, shall not be exclusive of any other rights to which such person may be
entitled apart from the provisions of this Article. No amendment, modification
or repeal of this Article X shall adversely affect the right of any director or
Indemnified Officer to indemnification hereunder with respect to any activities
occurring prior to the time of such amendment, modification or repeal.
Section 6. Insurance. The Corporation may purchase and maintain
insurance on behalf of its directors, officers, employees and agents and those
persons who were serving at the request of the Corporation in any capacity in
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against or incurred by such
person in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article X or otherwise. Any
full or partial payment made by an insurance company under any insurance policy
covering any director, officer, employee or agent made to or on behalf of a
person entitled to indemnification under this Article X shall relieve the
Corporation of its liability for indemnification provided for in this Article or
otherwise to the extent of such payment, and no insurer shall have a right of
subrogation against the Corporation with respect to such payment.
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CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT is made and entered into as of the
15th day of March, 1995 by and between FIRST CHARTER CORPORATION (the
"Company"), a North Carolina corporation, and Phillip M. Floyd ("Employee"), an
individual residing in Concord, North Carolina.
Background Statement
First Charter National Bank (the "Bank") is a wholly-owned subsidiary
of the Company. Employee is a valued employee of the Bank [and the Company]. In
order to induce Employee to continue employment with the Bank [and the Company]
and to enhance Employee's job security, the Company desires to provide
compensation to Employee in the event Employee's employment is terminated
following a change in control of the Company, as hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the compensation the Company agrees to pay to Employee, Employee's
continued employment with the Bank [and the Company], and of other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the Company and Employee agree as follows:
1. TERMINATION FOLLOWING A CHANGE IN CONTROL. If a Change in Control
(as defined in Section 1(iii) hereof) occurs and if, within one year following
the Change in Control, the employment of Employee is terminated (x) by the
Company or the Bank other than for Cause or (y) by Employee for Good Reason,
Employee's Compensation shall continue to be paid, subject to applicable
withholdings, by the Company for a period of 24 months following such
termination of employment. In lieu of receiving payment of Compensation for such
24-month period in installments, the Employee may elect, at any time prior to
the earlier to occur of a Change in Control or action by the Board of Directors
of the Company with respect to an event which would, upon consummation, result
in a Change in Control (which election shall be evidenced by notice filed with
the Company), to be paid the present value of any such Compensation in a lump
sum within 30 days of termination of the Employee's employment under
circumstances entitling such Employee to Compensation hereunder. The calculation
of the amount due shall be made by the independent accounting firm then
performing the Company's independent audit, and such calculation, including but
not limited to the discount factor used to determine present value, shall be
conclusive.
For purposes of this Agreement, the following terms shall have the
meanings indicated:
(i) CAUSE. Termination by the Company or the Bank for "Cause"
shall mean (A) termination on account of willful misconduct of
a material nature by the Employee in connection with
performance of his duties as an employee; (B) use of alcohol
or narcotics that affects his ability to perform his duties as
an employee; (C) conviction of a felony or serious misdemeanor
involving moral turpitude; (D) embezzlement or theft from the
Company or the Bank; (E) gross inattention to or dereliction
of duty; or (F) performance by the Employee of any
<PAGE>
other willful acts which Employee knew or reasonably should
have known would be materially detrimental to the Company or
the Bank.
(ii) GOOD REASON. Termination by the Employee for "Good Reason"
shall mean (A) a material reduction in Employee's position,
duties, responsibilities or status as in effect immediately
preceding the Change in Control, or a change in Employee's
title resulting in a material reduction in his
responsibilities or position with the Company or the Bank as
in effect immediately preceding the Change in Control, in
either case without Employee's consent; (B) a material
reduction in the rate of Employee's base salary as in effect
immediately preceding the Change in Control or a material
decrease in the bonus percentage to which Employee was
entitled pursuant to the Company's Executive Incentive Bonus
Plan at the end of the fiscal year immediately preceding the
Change in Control, in either case without Employee's consent;
provided, however, that nothing herein shall be construed to
guarantee the Employee's bonus award if performance, either by
the Company or Employee, is below target as set forth in such
Executive Incentive Bonus Plan; or (C) the relocation of
Employee, without his consent, to a location outside a 30 mile
radius of Concord, North Carolina, following a Change in
Control.
(iii) CHANGE IN CONTROL. For purposes of this Agreement, "Change in
Control" shall mean (A) the consummation of a merger,
consolidation, share exchange or similar transaction of the
Company with any other corporation as a result of which the
holders of the voting capital stock of the Company as a group
would receive less than 50% of the voting capital stock of the
surviving or resulting corporation; (B) the sale or transfer
(other than as security for obligations of the Company) of
substantially all the assets of the Company; (C) in the
absence of a prior expression of approval by the Board of
Directors, the acquisition of more than 20% of the Company's
voting capital stock by any person within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other than a person, or group
including a person, who beneficially owned, as of the date of
this Agreement, more than 5% of the Company's securities; (D)
during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors
of the Company cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for
election by the Company's shareholders, of each new director
was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of
the period; or (E) any other change in control of the Company
of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Exchange Act or the acquisition of control, within
the meaning of Section 2(a)(2) of the Bank Holding Company Act
of 1956, as amended, or Section 602 of the Change in Bank
Control Act of 1978, of the Company by any person, company or
other entity.
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<PAGE>
(iv) COMPENSATION. Employee's Compensation shall consist of the
following: (A) Employee's annual base salary, as paid by the
Company or the Bank, in effect immediately preceding the
Change in Control and (B) the average of any bonus paid by the
Company or the Bank to Employee during the two most recent
fiscal years ending prior to such Change in Control pursuant
to the Company's Executive Incentive Bonus Plan.
2. ADDITIONAL BENEFITS. Upon termination of Employee's employment
entitling Employee to Compensation set forth in Section 1 hereof, the Company
shall maintain in full force and effect for the continued benefit of Employee
for such 24-month period health insurance (including coverage for Employee's
dependents to the extent dependent coverage is provided by the Company for its
employees generally) under such plans and programs in which Employee was
entitled to participate immediately prior to the date of such termination of
employment, provided that Employee's continued participation is possible under
the general terms and provisions of such plans and programs. In the event that
Employee's participation in any such plan or program is barred, the Company
shall arrange to provide Employee with health insurance benefits for such
24-month period substantially similar to those which Employee would otherwise
have been entitled to receive under such plans and programs from which his
continued participation is barred. However, in no event will Employee receive
from the Company the health insurance contemplated by this Section 2 if Employee
receives comparable insurance from any other source.
3. LIMIT ON PAYMENTS. It is the intention of the Company and Employee
that no portion of the payment made under this Agreement, or payments to or for
Employee under any other agreement or plan, be deemed to be an excess parachute
payment as defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") or any successor provision. The Company and Employee agree
that the present value of any payment hereunder and any other payment to or for
the benefit of Employee in the nature of compensation, receipt of which is
contingent on a Change in Control of the Company, and to which Section 280G of
the Code or any successor provision thereto applies, shall not exceed an amount
equal to one dollar less than the maximum amount that Employee may receive
without becoming subject to the tax imposed by Section 4999 of the Code or any
successor provision or which the Company may pay without loss of deduction under
Section 280G of the Code or any successor provisions. Present value for purposes
of this Agreement shall be calculated in accordance with Section 1274(b)(2) of
the Code or any successor provision. In the event that the provisions of Section
280G and 4999 of the Code or any successor provisions are repealed without
succession, this Section 2 shall be of no further force or effect.
4. EFFECT OF AGREEMENT. Nothing contained in this Agreement shall
confer upon Employee any right to continued employment by the Company or the
Bank or shall interfere in any way with the right of the Company or the Bank to
terminate his employment at any time for any reason. The provisions of this
Agreement shall not affect in any way the right or power of the Company to
change its business structure or to effect a merger, consolidation, share
exchange or similar transaction, or to dissolve or liquidate, or sell or
transfer all or part of its
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business or assets.
5. SOURCE OF PAYMENT. All payments provided for under this Agreement
shall be paid in cash from the general funds of the Company, and no special or
separate fund shall be established, and no other segregation of assets shall be
made to assure payment, except as provided to the contrary in funded benefits
plans. Employee shall have no right, title or interest whatsoever in or to any
investments that the Company may make to aid the Company in meeting its
obligations hereunder. Nothing contained herein, and no action taken pursuant to
the provisions hereof, shall create or be construed to create a trust of any
kind or a fiduciary relationship between the Company and Employee or any other
person. To the extent that any person acquires a right to receive payments from
the Company hereunder, such right shall be no greater than the right of an
unsecured creditor of the Company.
6. GENERAL PROVISIONS.
(i) BINDING EFFECT. This Agreement shall be binding upon, and
inure to the benefit of, Employee and the Company and their
respective permitted successors and assigns. Neither this
Agreement nor any right or interest hereunder shall be
assignable by Employee, his beneficiaries, or legal
representatives without the Company's prior written consent.
The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, share exchange
or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and
substance satisfactory to Employee, to expressly assume and
agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company
to obtain such agreement prior to the effectiveness of any
such succession shall be a breach of this Agreement and shall
entitle Employee to compensation from the Company in the same
amount and on the same terms as he would be entitled to
hereunder if he terminated his employment for Good Reason,
except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be
deemed the date Employee's employment was terminated. As used
in this Agreement, "Company" shall mean the Company as defined
herein and any successor to its business and/or assets as
aforesaid that executes and delivers the agreement provided
for in this Section 6(i) or that otherwise becomes bound by
the all terms and provisions of this Agreement by operation of
law.
(ii) AMENDMENT OF AGREEMENT. This Agreement may not be modified or
amended except by an instrument in writing signed by the
parties hereto.
(iii) HEADINGS AND GENDER. The headings of paragraphs herein are
included solely for convenience of reference and shall not
control the meaning or interpretation of any of the provisions
of this Agreement.
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(iv) GOVERNING LAW. This Agreement has been executed and delivered
in the State of North Carolina, and its validity,
interpretation, performance and enforcement shall be governed
by the laws of such state.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above stated.
FIRST CHARTER CORPORATION
By: /s/ Lawrence M. Kimbrough
EMPLOYEE:
/s/ Phillip M. Floyd (SEAL)
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<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF UNION
EMPLOYMENT AGREEMENT
This AGREEMENT made and entered into this the 20th day of January,
1993, by and between BANK OF UNION, a banking corporation duly organized and
existing under the laws of North Carolina (hereinafter called the "Bank") and H.
Clark Goodwin, a key management employee of the Bank, (hereinafter called the
"Employee");
WHEREAS, the Employee is currently one of the key management personnel
of the Bank; and
WHEREAS, the parties desire by this writing to set forth the
employment relationship of the Bank and the Employee;
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. EMPLOYMENT. The Employee is employed as President &
CEO of the Bank. The Employee shall render administrative and
management services to the Bank such as are customarily performed by persons
situated in a similar executive capacity. He shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the business
of the Bank. The Employee's other duties shall be such as the Board of Directors
may from time to time reasonably direct, including normal duties as an officer
of the Bank, if elected as such.
2. PLACE OF EMPLOYMENT. The place of employment shall be interpreted as
being within the bank's primary market area and in no case shall be more than
thirty-five miles from the boundary of Union County, North Carolina, unless
agreed upon by the employee.
3. COMPENSATION. The Bank agrees to pay the Employee during the term of
this Agreement a salary at the rate of Ninety Thousand
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<PAGE>
Dollars per annum, payable in cash not less frequently than monthly and
not later than the tenth (10th) day following the expiration of the month in
question; provided, however, that no such salary shall be paid in respect of
any month or portion thereof subsequent to the termination of this Agreement;
and provided, further, that the rate of such salary shall be reviewed by the
Board of Directors of the Bank not less often than annually and may be
increased (but not decreased) from time to time in such amounts as the Board
in its discretion may decide, subject to the customary withholding tax and
other employee taxes as required with respect to compensation paid by a
corporation to an employee.
4. DISCRETIONARY BONUSES. The Employee shall be entitled to participate
in an equitable manner with all other key management personnel of the Bank in
discretionary bonuses authorized and declared by the Board of Directors of the
Bank to its key management employees. No other compensation provided for in this
Agreement shall be deemed a substitute for Employee's right to participate in
such discretionary bonuses when and as declared by the Board of Directors.
5. (a) PARTICIPATION IN RETIREMENT AND MEDICAL PLANS. The Employee
shall be entitled to participate in any Plan of the Bank relating to pension,
profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Bank may adopt for the benefits of its employees.
(b) FRINGE BENEFITS. The Employee shall be eligible to participate
in any other fringe benefits which may be or become applicable to the Bank's
executive employees including reimbursement for business related expenses and
any other benefits which are commensurate with the responsibilities and
functions to be performed by the Employee under this Agreement.
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<PAGE>
6. TERM. The term of employment under this Agreement shall be for the
period commencing January 20, 1993 and ending January 19, 1998, which term, at
the option of the Bank, may be renewed for successive twelve (12) month periods
thereafter unless or until terminated as hereinafter provided. In no case shall
this contract extend beyond the employee's sixty-fifth birthday.
7. NONDEDUCTIBLE COMPENSATION. In the event that any part of the
compensation paid to the Employee under paragraphs 3 and 4 shall be disallowed
by the Internal Revenue Service as a deduction of the Bank under Section 162 of
the Internal Revenue Code of 1954, as the same now exists or as it may be
amended hereafter from time to time, and such disallowance becomes final, the
Employee shall return to the Bank the amount of the disallowed compensation.
The duty of the employee to return the amount of disallowed compensation shall
be a debt payable on demand by the Employee to the Bank, which the Bank may
recover as a set-off against future salaries and bonuses payable under
paragraphs 3 and 4.
8. LOYALTY. The Employee shall devote his full time and best efforts to
the performance of his employment under this Agreement. During the term of this
Agreement, the Employment shall not, at any time or place, either directly or
indirectly, engage in any business or activity in conflict with the business
affairs or interests of the Bank.
9. STANDARDS. The Employee shall perform his duties under this
Agreement in accordance with such standards established from time to time by the
Board of Directors of the Bank.
10. VACATION. At such reasonable times as the Board of Directions shall
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as
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vacation time, provided that:
(a) The Employee shall be entitled to an annual vacation of three
(3) weeks per year;
(b) The time of vacations shall be scheduled in a reasonable
manner by the Board of Directors. The Employee shall not be
entitled to receive any additional compensation from the Bank
on account of his failure to take a vacation; nor shall he be
entitled to accumulate unused vacation time from one fiscal
year to the next;
(c) In addition to the aforesaid paid vacations, the Employee
shall be entitled without loss of pay, to absent himself
voluntarily from the performance of his employment with the
Bank for additional periods of time and for such valid and
legitimate reasons as the Board of Directors in its discretion
may determine. Further, the Board of Directors shall be
entitled to grant to the Employee a leave or leaves of absence
with or without pay at such time or times and upon such terms
and conditions as the Board in its discretion may determine.
11. TERMINATION OF EMPLOYMENT.
(a) This Agreement may be terminated at any time by decision of
the Board of Directors of the Bank for conduct not constituting termination for
Just Cause, upon thirty (30) days written notice to the Employee, and in that
event, the Bank shall be obligated to continue to pay the Employee his salary,
up to the date of termination date of the then existing term (including any
renewal term) of this Agreement; provided, however, that the employee may give
thirty (30) days written notice of resignation to the Bank, and in that event,
the Bank shall be obligated to continue to pay the employee until the effective
date of the resignation.
(b) This Agreement shall be terminated upon the following
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occurrences:
(i) The death of the Employee during the term of this
Agreement, in which event the Employee's estate shall be
entitled to receive the salary due the Employee through
the last day of the calendar month in which his death
shall have occurred.
(ii) Conduct constituting termination for Just Cause at any
time during the term (including any renewal term) of
this Agreement, in which event the Bank shall be
obligated only to continue to pay the Employee his
salary up to the date of termination. For all purposes
of this Agreement, "termination for Just Cause" shall
mean termination for personal dishonesty, incompetence,
willful misconduct, breach of a fiduciary duty involving
personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, regulation
(other than a law, rule or regulation relating to a
traffic violation or similar offense), final
cease-and-desist order, or material breach of any
provision of this Agreement.
(iii) Removal of the Employee from office and/or permanent
prohibition from participation in the conduct of the
affairs of the Bank pursuant to an Order issued by the
North Carolina Banking Commission or Federal Deposit
Insurance Corporation under authority of its Rules and
Regulations for Insurance of Accounts in which event the
Bank shall be obligated to continue to pay to Employee
his salary only up to the effective date of such Order,
provided, however, that nothing contained in this
subparagraph (iii) shall affect any of the vested rights
of the parties hereto.
(iv) Default of the Bank, as defined by G. S. 53-19, as
amended, to mean that the Commissioner of Banks has taken
possession of the business and property of said bank. In
the event of a default as described herein, the Bank
shall be obligated only to continue to pay to Employee
his salary up to the date of such default provided,
however, that nothing contained in this subparagraph (iv)
shall affect any of the vested rights of the parties
hereto.
12. SUSPENSION OF EMPLOYMENT.
(a) The suspension of the Employee from office and/or
temporary prohibition from participation in the conduct of the affairs of the
Bank pursuant to notice served by the North Carolina Commissioner of Banks or
the Federal Deposit Insurance Corporation under authority of its Rules and
Regulations for Insurance of Accounts, unless stayed by appropriate proceedings,
shall suspend, as of the date of such service, all obligations
5
<PAGE>
of the Bank under the terms of this Agreement.
(b) In the event the charges specified in a notice served as
provided in subsection (a) of this paragraph 12 shall be dismissed, the Bank,
shall, in its discretion, (i) pay the Employee all or any part of the
compensation withheld from such Employee pursuant to the suspension of the
Bank's obligations as required in subparagraph (a) of this paragraph and (ii)
reinstate any or all (in whole or in part) of the obligations suspended as
required in subparagraph (a) of this paragraph.
13. DISABILITY. If the Employee shall become disabled or incapacitated
to the extend that he is unable to perform the duties set forth in paragraph 1,
he shall nevertheless continue to receive one hundred percent (100%) of his
compensation under paragraph 3 of this Agreement for a period of thirty (30)
days of his disability, at which time the salary continuation insurance coverage
provided by the Bank will become effective. Upon returning to active full-time
employment, the Employee's full compensation as set forth in paragraphs 3 and 4
of this agreement shall be reinstated. In the event that said Employee returns
to active employment on other than a full-time basis, then his compensation (as
set forth in paragraph 3 of this Agreement) shall be reduced in proportion to
the time spent in said employment. However, if he is again unable to perform the
duties as set forth in paragraph 1 due to illness or other incapacity, he must
have been engaged in active full-time employment for at least twelve (12)
consecutive months (exclusive of vacations and leaves of absence) immediately
prior to such later absence or inability in order to qualify for the full or
partial continuance of his salary under this paragraph 13.
14. NO ASSIGNMENTS. This Agreement is personal to each of the parties
hereto, and neither party may assign of delegate any of its rights or
obligations hereunder without first obtaining the written consent of the
6
<PAGE>
other party.
15. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
16. APPLICABLE LAW. This Agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of North Carolina. Whenever reference is made to the Internal
Revenue Code or any section thereof, such reference shall be construed to mean
the Internal Revenue Code of 1954, as amended, or such section thereof, as the
case may be, as heretofore or hereafter amended or supplemented or as superseded
by laws of similar effect.
17. PARAGRAPH HEADINGS. The paragraph headings used in the Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
18. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
BANK OF UNION
BY: /s/ David C. McGuirt
Exec. V.P.
(title)
(corporate seal)
ATTEST:
/s/ Alice K. Holmes /s/ H. Clark Goodwin (SEAL)
Asst. Secretary Employee
7
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF UNION
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 is made and entered into this the 31st day of
August, 1995 by and between BANK OF UNION, a banking corporation duly organized
and existing under the laws of North Carolina (hereinafter called the "Bank")
and H. CLARK GOODWIN, President and Chief Executive Officer of the Bank
(hereinafter called the "Employee");
WITNESSETH:
WHEREAS, the Bank and the Employee entered into an Employment Agreement
dated January 20, 1993 (the "Agreement") providing for the employment of the
Employee with the Bank as President and Chief Executive Officer; and
WHEREAS, the parties desire by this Amendment No. 1 to amend the
compensation as set forth in Section 3 and the term as set forth in Section 6 of
the Employment Agreement; and
WHEREAS, the Board of Directors has considered the long term effects of
such Amendment No. 1 and believes that such Amendment No. 1 to be in the best
interests of the Bank.
NOW, THEREFORE, FOR AND IN CONSIDERATION OF THE MUTUAL PREMISES AND
OTHER VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Section 3 of the Employment Agreement dated January 20, 1993 is
hereby amended by replacing the rate of salary of $82,000 per anum with the rate
of salary of $125,000 per anum. All other parts of Section 3 remain unchanged.
2. Section 6 of the Agreement dated January 20, 1993 by and between the
Bank and the Employee is hereby amended by replacing Section 6 as set forth
therein in its entirety with the following:
"6. TERM. The term of employment under this Agreement shall be
for the period commencing August 31, 1995 and ending March 31,
2000, unless or until terminated as hereinafter provided."
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1
under seal and in such form as to be binding as of the day and year first
hereinabove written.
BANK OF UNION
BY: /s/ Frank H. Hawfield
Frank H. Hawfield, Chairman
ATTEST:
/s/ David C. McGuirt
Secretary
[SEAL]
EMPLOYEE
/s/ H. Clark Goodwin
H. Clark Goodwin
2
<PAGE>
<PAGE>
FIRST CHARTER CORPORATION Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
<S> <C> <C>
NET INCOME PER SHARE COMPUTED AS FOLLOWS:
PRIMARY:
1. Net income . . . . . . . . . . . . . . . . . . . . $ 7,003,062 $ 6,569,674
2. Weighted average common shares outstanding . . . . 6,227,851 6,238,297
3. Incremental shares under stock options
computed under the treasury stock method
using the average market price of issuer's
stock during the periods . . . . . . . . . . . . 56,074 42,421
4. Weighted average common shares and common
equivalent shares outstanding . . . . . . . . . 6,283,925 6,280,718
5. Net income per share . . . . . . . . . . . . . . . $ 1.11 $ 1.05
(Item 1 Divided by Item 4)
FULLY DILUTED:
1. Net income . . . . . . . . . . . . . . . . . . . . $ 7,003,062 $ 6,569,674
2. Weighted average common shares outstanding . . . . 6,228,139 6,234,300
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 . . . . . . . . . . . . . . . . . 67,833 46,718
4. Weighted average common shares and common
equivalent shares outstanding . . . . . . . . . 6,295,972 6,281,018
5. Net income per share . . . . . . . . . . . . . . . $ 1.11 $ 1.05
(Item 1 Divided by Item 4)
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 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (Continued)
Year Ended
December 31,
1993
NET INCOME PER SHARE COMPUTED AS FOLLOWS:
PRIMARY:
1. Net income . . . . . . . . . . . . . . . . . . . . $ 5,484,208
2. Weighted average common shares outstanding . . . . 6,279,400
3. Incremental shares under stock options
computed under the treasury stock method
using the average market price of issuer's
stock during the periods . . . . . . . . . . . . 32,102
4. Weighted average common shares and common
equivalent shares outstanding . . . . . . . . . 6,311,502
5. Net income per share . . . . . . . . . . . . . . . $ 0.87
(Item 1 Divided by Item 4)
FULLY DILUTED:
1. Net income . . . . . . . . . . . . . . . . . . . . $ 5,484,208
2. Weighted average common shares outstanding . . . . 6,279,567
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 . . . . . . . . . . . . . . . . . 37,082
4. Weighted average common shares and common
equivalent shares outstanding . . . . . . . . . 6,316,649
5. Net income per share . . . . . . . . . . . . . . . $ 0.87
(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
1995
ANNUAL REPORT
(Logos of First Charter National Bank and Bank of Union appear here)
Your Best Lifetime Financial Partners
<PAGE>
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
First Charter Corporation
22 Union Street, North
P. O. Box 228
Concord, N. C. 28026-0228
(704) 786-3300
NC Toll Free 1-800-422-4650
AUDITORS
KPMG Peat Marwick LLP
Suite 2800
Two First Union Center
Charlotte, N. C. 28282
CORPORATE COUNSEL
Smith Helms Mulliss & Moore, L.L.P.
227 North Tryon Street
Charlotte, N. C. 28202
SUBSIDIARIES
First Charter National Bank
P. O. Box 228
Concord, N. C. 28026-0228
Bank of Union
201 North Charlotte Avenue
Monroe, N.C. 28112
STOCK LISTING
The NASDAQ National Market
Symbol: FCTR
MARKET MAKERS
Dean Witter Reynolds, Inc.
Interstate/Johnson Lane Corporation
J.C. Bradford Co.
Wheat First Securities, Inc..
Legg Mason Wood Walker, Inc.
TRANSFER AGENT
First Charter National Bank
SHAREHOLDERS' MEETING
Rolling Hills Country Club
Monroe, N.C.
May 7, 1996 at 3:00 p.m.
FORM 10-K
Copies of First Charter Corporation's Annual
Report to the Securities and Exchange Commis-
sion, Form 10-K, may be obtained without charge
by writing :
Robert O. Bratton
Chief Financial Officer
P. O. Box 228
Concord, N.C. 28026-0228
STOCK INFORMATION AND DIVIDENDS
First Charter Corporation's common stock, $5
par value (the "Common Stock"), is traded on the
National Association of Securities Dealers
Automated Quotation National Market System
("The NASDAQ National Market") under the
symbol "FCTR". The following table sets forth the
high and low sales price for the Common Stock for
the periods indicated, as reported on the
NASDAQ National Market, and adjusted to reflect
the stock split effected in the form of a
33 1/3% stock dividend paid in the fourth quarter
of 1994. The table also sets forth per share cash
dividend information for the periods indicated, as
adjusted to reflect the stock split effected in the
form of a 33 1/3% stock dividend paid in the
fourth quarter of 1994. See "Management's
Discussion and Analysis of Results of Operations
and Financial Condition" contained elsewhere in
this report for a description of limitations on the
ability of the Corporation to pay dividends.
As of February 29, 1996, there were 2,276
shareholders of record of the Corporation's
Common Stock.
QUARTERLY COMMON STOCK PRICE RANGES AND DIVIDENDS
1995 1994
QUARTER HIGH LOW DIVIDEND High Low Dividend
First Quarter $15.25 $14.50 $ .13 $12.94 $11.06 $.09
Second Quarter 19.25 14.50 .13 14.63 12.56 .09
Third Quarter 21.25 18.50 .13 15.00 13.88 .10
Fourth Quarter 22.50 20.50 .13 15.50 14.44 .13
<PAGE>
First Charter Corporation and Subsidiaries
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
concerning First Charter Corporation for the five years ended December 31, 1995.
All financial data has been adjusted to reflect the acquisition of Bank of
Union in 1995 which was accounted for as a pooling of interests. Additionally,
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 and a 20% stock dividend declared in the fourth quarter of 1992. This
information should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing elsewhere in
this report, and is qualified in its entirety by reference to the more detailed
consolidated financial statements of the Corporation and notes thereto.
<TABLE>
<CAPTION>
Years ended December 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.............................. $ 37,194 $ 29,983 $ 26,021 $25,791 $ 27,978
Interest expense............................. 15,210 10,548 9,358 10,799 14,519
Net interest income.......................... 21,984 19,435 16,663 14,992 13,459
Provision for loan losses.................... 1,465 839 835 942 1,679
Net interest income after provision for
loan losses................................. 20,519 18,596 15,828 14,050 11,780
Noninterest income........................... 5,392 4,758 5,007 4,495 3,889
Noninterest expense.......................... 15,688 14,131 13,823 13,218 12,177
Income before income taxes................... 10,223 9,223 7,012 5,327 3,492
Income taxes................................. 3,220 2,653 1,828 1,212 657
Net income before cumulative effect
of change in accounting principle........... 7,003 6,570 5,184 4,115 2,835
Cumulative effect of change in
accounting principle........................ - - 300 - -
Net income................................. $ 7,003 $ 6,570 $ 5,484 $ 4,115 $ 2,835
PER SHARE DATA:
Net income before cumulative effect of
accounting change (primary and
fully diluted).............................. $ 1.11 $ 1.05 $ 0.82 $ 0.65 $ 0.45
Net income (primary and fully diluted)....... 1.11 1.05 0.87 0.65 0.45
Cash dividends declared...................... 0.52 0.41 0.31 0.25 0.23
Period-end book value........................ 8.57 7.58 7.07 6.34 5.89
BALANCE SHEET DATA (AT PERIOD END):
Securities available for sale................ $132,358 $ 37,531 $ 34,613 $ - $ -
Investment securities........................ - 82,115 71,751 101,154 84,231
Loans, net................................... 327,887 283,531 245,294 227,695 213,078
Allowance for loan losses.................... 4,856 4,131 3,900 3,958 3,165
Total assets................................. 509,395 447,099 391,594 371,062 334,494
Deposits..................................... 415,056 372,821 336,270 314,605 288,051
Borrowed funds............................... 35,262 22,441 7,450 13,847 5,700
Total liabilities............................ 455,971 399,923 347,398 331,016 297,377
Total shareholders' equity................... 53,424 47,176 44,196 40,046 37,117
RATIOS:
Net income to average shareholders' equity... 13.93% 14.34% 13.10% 10.66% 7.83%
Net income to average total assets........... 1.50 1.59 1.48 1.19 0.87
Net interest income to average earning
assets (tax equivalent)..................... 5.35 5.40 5.20 5.01 4.84
Average loans to average deposits............ 78.23 75.11 73.92 75.13 76.34
Net loans charged off during period to
average loans............................... 0.25 0.23 0.39 0.07 0.66
</TABLE>
1
<PAGE>
LETTER TO SHAREHOLDERS
(Photo appears here with the following caption.)
LAWRECE M. KIMBROUGH (LEFT), PRESIDENT AND CHIEF EXECUTIVE OFFICER OF FIRST
CHARTER CORPORATION AND FIRST CHARTER NATIONAL BANK, AND H. CLARK GOODWIN,
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF BANK OF UNION.
Dear Fellow Shareholders:
We consider 1995 to have been an extremely successful year for your
Corporation. It culminated with a singular event - our merger with Bank of
Union. This transaction created the largest community banking company serving
the Greater Charlotte Metropolitan Area with combined year-end assets of $509
million.
1995 was Year Three of our five-year strategic plan and this merger
represents a significant step toward the realization of the challenging goals
we've established for ourselves. In our resolve to be a high performance,
independent, community-oriented financial services company, it is essential that
we remain focused on our obsession or strategic intent to be regarded as THE
BEST LIFETIME FINANCIAL PARTNER in all of the markets we serve.
A critically important objective for First Charter is that everyone in our
organization become more externally focused with greater effort concentrated on
achieving one-stop shopping for all of our customers. Without question,
providing them with greater convenience and value is the key to our future.
The merger will benefit our customers. A greater range of products will be
available through both bank subsidiaries. Pricing on some of our services will
be even more competitive. And with the impact that a greater depth of
management resources can bring to product development, launch dates for new
services will be accelerated.
With a very pro-active stance on increasing customer satisfaction, First
Charter National Bank has restructured how it operates its financial services
centers, formerly called branches, and how it serves its customers. And Bank of
Union
(continued on page 4)
2
<PAGE>
(Map appears here depicting the Full Service Offices of First Charter
National Bank and Bank of Union.)
First Charter also offers three drive-in locations and a network of Automatic
Teller Machines. HONOR(R), VISA(R) or PLUS(R) access is available. Bank of
Union provides VISA CheckCard, a debit card offering 24-hour account access
wherever a VISA, HONOR or CIRRUS(R) symbol is displayed.
(Logos of First Charter National Bank and Bank of Union appear here)
Your Best Lifetime Financial Partners
3
<PAGE>
Earnings Per Share
(A graph appears here with the following plot points.)
91 92 93 94 95
0.45 0.65 0.87 1.05 1.11
will be doing the same. The staff at each center works as a team to market
cohesively services appropriate to that particular locality. Personnel are
designated FINANCIAL SERVICES PARTNERS to reflect more accurately their focus.
We're automating many processes, previously performed manually, that will
expedite servicing time.
This motivation to enhance customer value explains the fervor behind the
marketing of our Automated Teller Machines, Direct Deposit and First
Phone(TM)services, and our CheckCard/VISA(R) debit card. First Charter National
Bank ATM customers now receive same day credit for all deposits made up to 8:00
p.m. The merger with Bank of Union provides us with an excellent opportunity to
assess and implement the best operational practices and technologies.
This aggressive pursuit of best practices is closely tied to an examination
of potential marketing synergies and progress in this respect can already be
reported. First Charter National Bank has changed over its merchant and
consumer card
(Photo appears here with the following caption.)
The Board of Directors for Bank of Union includes (sitting l-to-r) Joseph L.
Little; Lane D. Vickery; Dennison A. Davis; John A. Crook, Jr.; James B.
Fincher; Fred C. Long, together with (l-to-r) Dr. William C. Deskins; Callie F.
King; J. Earl Culbreth; Dr. Jerry E. McGee; H. Clark Goodwin; Frank H.
Hawfield, Jr.; David C. McGuirt and Earl J. Haigler. Not pictured: Charles
(Pete) E. Husley.
4
<PAGE>
(Photo appears here with the following caption.)
The senior management team includes (l-to-r in foreground) Edward (Ned) B.
McConnell and Patricia K. Horton, together with (l-to-r) James (Jim) T.
Matthews, Jr.; Donna J. Kenney; Robert G. Fox, Jr.; Phillip M. Floyd; Robert
(Bob) O. Bratton; David C. McGuirt and Kathryn B. Reese.
processing to an arrangement through Bank of Union. This will
result in greater efficiency of service and lower rates for First Charter
merchant customers. First Charter National Bank has also adopted the Bank of
Union approach to mortgage origination and the sale of mortgages in the
secondary market.
Several First Charter retail and commercial services will soon be available
through Bank of Union. An example would be First Charter's check imaging
service that provides customers with convenient digital reproductions of
canceled checks. Another would be our PC-based Charter Linksm cash management
system that electronically transmits important customer information to and from
the bank within a secure and accessible environment.
It is of paramount interest to us that our merger with Bank of Union
directly benefit you as a shareholder. From greater opportunities to increase
revenue, improve internal operating
Common Stock
Price Performance
12/31 Closing Price
(A graph appears here with the following plot points.)
91 92 93 94 95
5.25 7.50 11.25 14.63 22.25
5
<PAGE>
Cash Dividends
(Dividends per common share)
(A graph appears here with the following plot points.)
1991 1992 1993 1994 1995
$.23 $.25 %.31 $.41 $.52
efficiencies and add management strength, we hope to capitalize on our
strengths by continuing to seek strategic alliances with other community
banking organizations in our market region. We believe that our efforts will
be enhanced by a multi-bank approach which offers continuity of established
identity, philosophy, management and customer service.
A very significant contributor to First Charter's success has been our
Trust and Investment Services Division and 1995 was no exception. The year was
the most profitable in the history of the division and substantial opportunities
for growth lie ahead. For one, Bank of Union has not offered trust services so
its markets offer excellent expansion prospects.
Our Trust and Investment Services Division has begun to see progress with
its fee-generating services that emphasize financial counselling and such
services are a perfect complement to our very successful FirstPARTNERSsm asset
allocation program. The division concluded 1995 with the finalization of a
comprehensive strategic plan for the coming year and beyond. Included is the
introduction during the first half of 1996 of full service brokerage services
and the sale of both annuities and mutual funds.
6
<PAGE>
Asset Growth
Dollars in millions
(A graph appears here with the following plot points.)
91 92 93 94 95
334.5 371.1 391.6 447.1 509.4
Deposit Growth
Dollars in millions
(A graph appears here with the following plot points.)
91 92 93 94 95
288.1 314.6 336.3 372.8 415.1
Loan Growth
Dollars in millions
(A graph appears here with the following plot points.)
91 92 93 94 95
213.1 227.7 245.3 283.6 327.9
(Photo appears here with the following caption.)
D.C. Linn, Jr. will be warmly remembered for his countless contributions to
First Charter.
Our upcoming Annual Meeting of Shareholders will mark the capstone for 40
years of distinguished service by D. C. Linn, Jr., retiring Vice Chairman of
both our First Charter Corporation Board of Directors and the Board for First
Charter National Bank. D. C., a prominent Landis businessman, served for many
years on the Board for Merchants & Farmers Bank which merged into First Charter
in 1987. Through his unerring counsel, D. C. has contributed greatly to your
Corporation. I am certain that everyone in the First Charter family joins me in
wishing him well during the coming years.
Finally, we expect 1996 to be an exciting year for First Charter. We're
striving to reach the objectives we've established for ourselves and to realize
the benefits of sound strategy and effective execution. With our unswerving
commitment to being our markets' BEST LIFETIME FINANCIAL PARTNER, we have
achieved goals at an accelerating pace. How we move ahead from here will be
determined by how successful we are in attaining excellence in everything we do.
7
<PAGE>
Our guiding principle is that continuous improvement is essential.
Everyone at First Charter serves the customer and teamwork is the way to get
things done. The sum of our efforts is greater than any individual effort. If
we keep these precepts foremost in all of our activities, I anticipate a
rewarding future for our customers, our employees and for you, our valued
shareholders.
Sincerely,
(Signature of Lawrence M. Kimbrough)
Lawrence M. Kimbrough
President and Chief Executive Officer
(First Charter logo appears here)
The largest community banking company serving the Greater Charlotte Metropolitan
Area
8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Charter Corporation
We have audited the accompanying consolidated balance sheets of First
Charter Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Charter Corporation and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and cash flows for each of the years in the three-
year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in notes 1(a) and 1(e) to the consolidated financial
statements, First Charter adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," on December 31, 1993 and Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," on January 1, 1993.
KPMG Peat Marwick LLP
Charlotte, North Carolina
January 19, 1996
9
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 30,642,072 $ 25,875,086
Federal funds sold.......................................... - 625,000
Interest bearing time deposits.............................. 3,000,000 1,000,000
Securities available for sale: (note 4)
U. S. Government obligations.............................. 23,363,185 18,042,074
U. S. Government agency obligations....................... 26,523,683 10,894,904
Mortgage-backed securities................................ 18,289,995 5,329,353
State and municipal obligations, nontaxable............... 59,052,874 -
Other..................................................... 5,128,031 3,264,282
Total securities available for sale................... 132,357,768 37,530,613
Investment securities: (note 5)
(market value of $79,281,767 in 1994)
U. S. Government obligations.............................. - 5,968,198
U. S. Governent agency obligations........................ - 15,582,341
Mortgage-backed securities................................ - 16,591,307
State and municipal obligations, nontaxable............... - 43,973,064
Total Investment securities........................... - 82,114,910
Loans (notes 6, 7, and 14).................................. 333,038,730 287,862,709
Less: Unearned income..................................... (295,701) (201,331)
Allowance for loan losses............................. (4,855,540) (4,130,778)
Loans, net................................................ 327,887,489 283,530,600
Premises and equipment, net (note 8)........................ 9,833,489 8,843,591
Other assets (note 6)....................................... 5,674,487 7,579,688
Total assets.......................................... $509,395,305 $447,099,488
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits, domestic:
Demand.................................................... $ 72,285,910 $ 63,700,329
NOW accounts.............................................. 66,813,791 62,533,748
Time...................................................... 275,956,530 246,586,303
Total deposits........................................ 415,056,231 372,820,380
Other borrowings (note 9)................................... 35,262,202 22,441,328
Other liabilities........................................... 5,652,799 4,661,752
Total liabilities..................................... 455,971,232 399,923,460
SHAREHOLDERS' EQUITY (NOTE 13):
Common stock - $5 par value; authorized,
10,000,000 shares; issued and outstanding,
6,236,014 shares in 1995 and 6,227,713
shares in 1994............................................ 31,180,070 31,138,565
Unrealized gains (losses) on securities available for
sale...................................................... 1,666,036 (216,586)
Retained earnings........................................... 20,577,967 16,254,049
Total shareholders' equity............................ 53,424,073 47,176,028
Commitments (note 14)
Total liabilities and shareholders' equity............ $509,395,305 $447,099,488
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Interest income:
Interest and fees on loans................................ $ 29,355,702 $ 22,940,715 $ 19,294,607
Federal funds sold........................................ 325,839 219,253 126,962
Securities available for sale............................. 2,752,841 2,389,480 --
Other..................................................... 587,833 131,587 49,073
Investment securities:
Taxable................................................. 1,962,846 1,762,106 4,254,715
Non-taxable............................................. 2,209,227 2,539,854 2,295,183
Total interest income.................................. 37,194,288 29,982,995 26,020,540
Interest expense:
Deposits:
Demand................................................. 1,285,471 1,213,129 1,190,799
Money Market........................................... 1,208,095 1,128,565 1,295,788
Savings and Time....................................... 11,591,566 7,540,654 6,636,549
Other borrowings.......................................... 1,124,782 665,708 234,399
Total interest expense................................. 15,209,914 10,548,056 9,357,535
Net interest income....................................... 21,984,374 19,434,939 16,663,005
Provision for loan losses (note 7)........................... 1,465,000 839,000 835,000
Net interest income after provision for loan losses....... 20,519,374 18,595,939 15,828,005
Noninterest income:
Trust income.............................................. 1,555,911 1,382,159 1,262,459
Service charges on deposit accounts....................... 2,418,746 2,370,889 2,302,302
Insurance and other commissions........................... 209,721 220,167 194,102
Securities available for sale transactions, net........... 4,298 3,690 --
Investment securities transactions, net................... (7,394) 38,761 310,188
Other..................................................... 1,210,468 742,784 937,738
Total noninterest income............................... 5,391,750 4,758,450 5,006,789
Noninterest expense:
Salaries and fringe benefits (note 12).................... 7,982,760 7,432,971 7,268,978
Occupancy and equipment................................... 2,012,837 1,884,713 1,932,724
Other (note 10)........................................... 5,692,965 4,813,631 4,620,887
Total noninterest expense.............................. 15,688,562 14,131,315 13,822,589
Income before income taxes............................. 10,222,562 9,223,074 7,012,205
Income taxes (note 11)....................................... 3,219,500 2,653,400 1,827,997
Net income before cumulative effect of a change
in accounting principle.............................. 7,003,062 6,569,674 5,184,208
Cumulative effect on prior years (to December 31, 1992)
of changing the method of accounting for income taxes..... -- -- 300,000
Net income............................................. $ 7,003,062 $ 6,569,674 $ 5,484,208
Primary income per share data:
Net income before cumulative effect.................... $ 1.11 $ 1.05 $ 0.82
Net income from cumulative effect...................... -- -- 0.05
Net income............................................. $ 1.11 $ 1.05 $ 0.87
Average common and common equivalent shares............ 6,283,925 6,280,718 6,311,502
Income per share data assuming full dilution:
Net income before cumulative effect.................... $ 1.11 $ 1.05 $ 0.82
Net income from cumulative effect...................... -- -- 0.05
Net income............................................. $ 1.11 $ 1.05 $ 0.87
Average common and common equivalent shares............ 6,295,972 6,281,018 6,316,649
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
First Charter Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
ADDITIONAL ON SECURITIES
COMMON PAID-IN RETAINED AVAILABLE
STOCK CAPITAL EARNINGS FOR SALE TOTAL
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992....................... $25,025,795 $ 5,328,485 $ 9,692,113 $ -- $40,046,393
Net income for 1993.............................. -- -- 5,484,208 -- 5,484,208
Cash dividends of $.31 per share................. -- -- (1,437,955) -- (1,437,955)
Purchase and retirement of common stock (65,603
shares)........................................ (328,015) (370,980) -- -- (698,995)
Stock options exercised and Dividend Reinvestment
Plan stock issued (8,138) shares............... 40,692 42,188 -- -- 82,880
Pre-merger transactions of pooled bank........... 383,893 144,858 (520,086) -- 8,665
Unrealized gain on securities available for
sale........................................... -- -- -- 710,346 710,346
Balance, December 31, 1993....................... 25,122,365 5,144,551 13,218,280 710,346 44,195,542
Net income for 1994............................ -- -- 6,569,674 -- 6,569,674
Cash dividends of $.41 per share................. -- -- (1,892,627) -- (1,892,627)
Purchase and retirement of common stock (80,857
shares)........................................ (404,283) (741,380) (68,773) -- (1,214,436)
Stock options exercised and Dividend Reinvestment
Plan stock issued (46,000 shares).............. 229,999 212,184 -- -- 442,183
Stock split effected in the form of a 33 1/3%
stock dividend................................. 5,798,151 (4,953,762) (844,389) -- --
Pre-merger transactions of pooled bank............ 392,333 338,407 (728,116) -- 2,624
Unrealized loss on securities available for
sale........................................... -- -- -- (926,932) (926,932)
Balance December 31, 1994........................ 31,138,565 -- 16,254,049 (216,586) 47,176,028
Net income for 1995.............................. -- -- 7,003,062 -- 7,003,062
Cash dividends of $.52 per share................. -- -- (2,618,026) -- (2,618,026)
Purchase and retirement of common stock (40,781
shares)........................................ (203,904) (363,438) (61,118) -- (628,460)
Stock options exercised and Dividend Reinvestment
Plan stock issued (43,614 shares).............. 218,070 359,234 -- -- 577,304
Pre-merger transactions of pooled bank........... 27,339 4,204 -- -- 31,543
Unrealized gain on securities available for
sale........................................... -- -- -- 1,882,622 1,882,622
Balance December 31, 1995........................ $31,180,070 $ -- $20,577,967 $ 1,666,036 $53,424,073
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 7,003,062 $ 6,569,674 $ 5,484,208
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses............................... 1,465,000 839,000 835,000
Depreciation............................................ 921,278 803,926 871,957
Premium amortization and discount accretion,
net................................................... (224,590) (26,662) 327,812
Net gain on investment securities transactions.......... (4,298) (38,761) (310,188)
Net loss (gain) on securities available for sale
transactions.......................................... 7,394 (3,690) -
Net loss (gain) on sale of premises and
equipment............................................. 116,692 (7,858) -
Origination of mortgage loans held for sale............. (22,959,719) (12,123,159) (19,813,597)
Proceeds from sale of mortgage loans available for
sale.................................................. 22,804,790 13,238,920 18,335,046
Decrease (increase) in other assets..................... 733,623 (445,620) (312,151)
Increase in other liabilities........................... 955,625 962,187 1,113,448
Net cash provided by operating activities.............. 10,818,857 9,767,957 6,531,535
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of interest bearing time
deposits................................................ 3,500,000 2,000,000 1,500,000
Proceeds from sales of investment securities.............. 1,725,292 3,010,938 12,683,131
Proceeds from sales of securities available for
sale.................................................... 14,930,426 5,598,210 -
Proceeds from maturities and issuer calls of
investment securities, net............................. 34,397,767 35,453,460 20,048,664
Proceeds from maturities of securities available for
sale.................................................... 16,695,590 5,457,603 -
Purchase of interest bearing time deposits................ (5,500,000) (1,000,000) (3,500,000)
Purchase of investment securities......................... (35,594,564) (48,525,128) (36,795,518)
Purchase of securities available for sale................. (41,627,902) (15,388,313) -
Net increase in loans..................................... (45,678,491) (40,220,927) (17,101,009)
Proceeds from sales of premises and equipment............. 30,424 16,463 -
Purchase of premises and equipment........................ (2,009,921) (1,383,191) (873,058)
Net cash used by investing activities.................. (59,131,379) (54,980,885) (24,037,790)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW,
money market, and savings accounts..................... 23,966,500 32,605,664 30,910,498
Net increase (decrease) in certificates of deposit........ 18,269,351 3,945,204 (9,245,912)
Net increase (decrease) in other borrowings............... 12,820,874 14,990,998 (6,396,349)
Net increase in advances for taxes and insurance.......... 35,422 22,121 -
Purchase of common stock.................................. (626,416) (1,214,436) (698,995)
Proceeds from issuance of common stock.................... 575,260 442,183 82,880
Pre-merger transactions of pooled bank.................... 31,543 2,624 8,665
Dividends paid............................................ (2,618,026) (1,892,627) (1,437,955)
Net cash provided by financing activities.............. 52,454,508 48,901,731 13,222,832
Net increase (decrease) in cash and cash
equivalents.......................................... 4,141,986 3,688,803 (4,283,423)
Cash and cash equivalents at beginning of
period............................................... 26,500,086 22,811,283 27,094,706
Cash and cash equivalents at end of period............. $ 30,642,072 $ 26,500,086 $ 22,811,283
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................... $ 15,012,643 $ 10,444,613 $ 9,484,129
Income taxes........................................... $ 3,827,600 $ 2,480,299 $ 2,164,443
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Transfers of loans, premises and equipment
to other real estate owned............................. $ 11,531 $ 77,902 $ 414,472
Investment securities transferred to available for
sale.................................................... $ 82,034,110 $ - $ 33,597,668
Unrealized gain (loss) in value of securities
available for sale
(net of tax effect of $1,134,740, ($561,865),
and $454,156
for 1995, 1994, and 1993, respectively)................ $ 1,882,622 $ (926,932) $ 710,346
Issuance of stock dividends............................... $ - $ 5,798,151 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting and
reporting policies which First Charter Corporation (the "Corporation") and its
subsidiaries, First Charter National Bank ("First Charter") and Bank of Union
("Union") (collectively referred to as the "Banks") follow in preparing and
presenting their consolidated financial statements. In consolidation, all
significant intercompany accounts and transactions have been eliminated. All
financial data has been adjusted reflecting a merger with Bank of Union
accounted for as a pooling of interests (Note 2).
(A) SECURITIES - In May 1993, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (Standard) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Standard No.
115 addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and all investments in debt
securities. At the time of purchase the classification of the securities is
determined. Securities are classified into three categories as follows:
- investment securities - reported at amortized cost,
- trading securities - reported at fair value with unrealized gains and
losses included in earnings, or
- securities available for sale - reported at fair value with unrealized
gains and losses reported as a separate component of shareholders' equity (net
of tax effect).
In November 1995, the FASB issued an implementation guide for Standard No.
115. The FASB stated that the transition provisions included in this guide
permit a one-time opportunity for companies to reconsider their ability and
intent to hold securities accounted for under Standard No. 115 as investment
securities and allow entities to transfer securities from the held to maturity
category without tainting their remaining held to maturity securities. The FASB
emphasized that this would be a one-time event and that any transfers from the
held to maturity category to the available for sale category under this
provision must be made by December 31, 1995. Pursuant to this authorization, the
Corporation reclassified all held to maturity securities into available for sale
securities.
Gains and losses on sales of securities are recognized when realized on a
specific identification basis. Premiums and discounts are amortized into
interest income using a level yield method.
(B) LOANS - Loans are carried at their principal amount outstanding.
Interest income is recorded as earned on an accrual basis. The determination to
discontinue the accrual of interest is based on a review of each loan.
Generally, interest is discontinued on loans 90 days past due as to principal or
interest unless in management's opinion collection of both principal and
interest is assured by way of collateralization, guarantees or other security
and the loan is in the process of collection.
The 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.
The FASB also has issued Standard No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," that amends 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.
The Standards do not apply to large groups of smaller-balance homogenous
loans that are collectively evaluated for impairment. For the Corporation, these
loans include residential mortgage and consumer installment loans.
14
<PAGE>
On January 1, 1995, the provisions of Standards No. 114 and 118 were
adopted by the Corporation. The adoption of the Standards required no increase
to the allowance for loan losses and has had no impact on net income.
Management considers loans to be impaired when, based on current
information and events, it is probable the Corporation will be unable to collect
all amounts due according to the contractual terms of the loan agreement.
Factors that influence management's judgments include, but are not limited to,
loan payment patterns, 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.
Generally, cash receipts are applied under the contractual terms of the
loan agreement first to principal and then to interest income. When the ultimate
collectibility of an impaired loan's principal is in doubt, wholly or partially,
all cash receipts are applied to principal. 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. Disclosures
are set forth in Note 5.
The Corporation uses the allowance method to provide for loan losses.
Accordingly, all loan losses are charged to the allowance for loan losses and
all recoveries are credited to it. The provision for loan losses is based on
past loan loss experience and other factors which, in management's judgment,
deserve current recognition in estimating possible loan losses. Such other
factors considered by management include the growth and composition of the loan
portfolio, the relationship of the allowance for loan losses to outstanding
loans, and economic conditions. While management uses the best information
available to make evaluations, future adjustments may be necessary if economic
and other conditions differ substantially from the assumptions used.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Banks' allowances for loan losses
and losses on real estate owned. Such agencies may require the Banks to
recognize additions to the allowances based on their judgments about information
available to them at the time of their examination.
Mortgage loans held for sale are valued at the lower of cost or market as
determined by outstanding commitments from investors or current investor yield
requirements, calculated on the aggregate loan basis.
(C) DEPRECIATION - Depreciation and amortization of premises and equipment
are computed using the straight-line method over the estimated useful lives. The
useful lives range from three to seven years for furniture and equipment, from
fifteen to forty years for buildings and over the terms of the respective
leases.
(D) FORECLOSED PROPERTIES - Foreclosed properties are included in other
assets and represent real estate acquired through foreclosure or deed in lieu
thereof and are carried at the lower of cost (principal balance of the former
loan plus costs of obtaining title and possession) or fair value, less estimated
costs to sell. Generally such properties are appraised annually and the carrying
value, if greater than the appraised value, is adjusted with a charge to income.
(E) INCOME TAXES - In February 1992, the FASB issued Standard No. 109,
"Accounting for Income Taxes" which supersedes Standard No. 96. Under the asset
and liability method of Standard No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using the enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. Under Standard No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
15
<PAGE>
Effective January 1, 1993, the Company adopted Standard No. 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes since the 1993 consolidated statement of income.
(F) INCOME PER SHARE - Primary income per share and income per share
assuming full dilution are computed based on the weighted average number of
shares outstanding, including common equivalent shares applicable to employees'
stock options. Income per share for periods prior to 1994 has been restated for
the effects of a stock split effected in the form of a 33 1/3% stock dividend
declared and distributed in the fourth quarter of 1994.
(G) LOAN FEES AND COSTS - Nonrefundable loan fees and certain direct costs
associated with originating or acquiring loans are deferred and recognized over
the life of the related loans as an adjustment to interest income.
(H) CASH FLOWS - For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and federal funds sold.
Generally, federal funds are sold for one-day periods.
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments" was
issued by the FASB in December 1991. Standard No. 107 requires disclosures
about fair value of all financial instruments. Fair value estimates, methods,
and assumptions are set forth in note 15.
(2) MERGER
On September 13, 1995, the Corporation entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Union, pursuant to which a newly formed
subsidiary of the Corporation merged with Union and Union became a wholly owned
subsidiary of the Corporation (the "Merger"). On December 21, 1995, the merger
was completed and accounted for as a pooling of interests. Accordingly, all
current and prior years' financial statements have been restated to combine the
accounts of Union with those of the Corporation.
As of December 21, 1995, there were 2,192,270 shares of Union common stock
outstanding. Of that amount, the Corporation owned 69,361 shares directly for
its own account. Each share of Union common stock, other than those shares
owned by the Corporation, was converted into 0.75 shares of the Corporation
common stock.
Union is a state-chartered commercial bank organized under the laws of
North Carolina in 1985. Union provides general banking services through a
network of five branch offices located in Union and Mecklenburg Counties, North
Carolina. Through its subsidiary, BOU Financial, Inc. ("BOU Financial"), Union
also offers discount brokerage services, insurance and annuity sales and
financial planning services. At December 31, 1994, Union had total assets of
approximately $123 million and total deposits of approximately $106 million. In
the fourth quarter of 1995, the Corporation recognized $1,062,150 of costs
associated with the merger. These costs include legal, accounting, investment
banking, regulatory filings, proxy printing and solicitation expenses.
Separate results of operations of the combined entities for the periods
ended September 30, 1995, December 31, 1994, and December 31, 1993 were as
follows (dollars in thousands, except per-share data):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
September 30, 1995 1994 1993
Previously Reported Previously Reported Previously Reported
Corpor- Corpor- Corpor-
ation Union Restated ation Union Restated ation Union Restated
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income......... $7,580 $4,290 $11,870 $ 14,498 $4,937 $ 19,435 $12,561 $4,102 $16,663
Net Income.................. 4,539 1,312 5,851 5,260 1,310 6,570 4,469 1,015 5,484
Net income per
equivalent common share... 0.97 0.60 0.93 1.12 0.60 1.05 0.95 0.47 0.87
</TABLE>
(3) FINANCIAL STATEMENT PRESENTATIONS AND RELATED MATTERS
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements, as
well as the amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications of certain amounts in the 1994 and 1993 consolidated
financial statements have been made to conform with the financial statement
presentation for 1995.
16
<PAGE>
(4) SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 1995 and 1994 are summarized
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
1995
<S> <C> <C> <C> <C>
U.S. Government obligations................ $ 22,692,044 $ 678,109 $ 6,968 $ 23,363,185
U.S. Governmentagency obligations.......... 26,389,985 155,533 21,835 26,523,683
Mortgage-backed securities................. 18,264,268 156,156 130,429 18,289,995
State, county, and municipal obligations... 57,955,994 1,665,984 569,104 59,052,874
Equity securities.......................... 4,362,413 765,618 - 5,128,031
Total.................................... $129,664,704 $3,421,400 $ 728,336 $ 132,357,768
1994
U.S. Government obligations................ $ 18,055,058 $ 39,073 $ 52,057 $ 18,042,074
U.S. Government agency obligations......... 11,107,591 - 212,687 10,894,904
Mortgage-backed securities................. 5,772,797 - 443,444 5,329,353
Equity securities.......................... 2,919,461 344,821 - 3,264,282
Total................................... $ 37,854,907 $ 383,894 $ 708,188 $ 37,530,613
</TABLE>
Securities with an aggregate carrying value of $43,280,580 at December 31,
1995 were pledged to secure public depositsand securities sold under agreements
to repurchase. Proceeds from the sale of securities available for sale were
$14,930,426 in 1995, $5,598,210 in 1994, and none in 1993. Gross gains of
$64,030 and gross losses of $67,126 were realized in 1995. Gross gains of
$75,767 and gross losses of $72,077 were realized in 1994.
(5) INVESTMENT SECURITIES
Investment securities at December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
1994
U.S. Government obligations............... $ 5,968,198 $ - $ 234,187 $ 5,734,011
U.S. Government agency obligations....... 15,582,341 - 143,884 15,438,457
Mortgage-backed securities................ 16,591,307 84,265 931,408 15,744,164
State, county and municipal obligations... 43,973,064 761,457 2,369,386 42,365,135
Total.................................... $ 82,114,910 $ 845,722 $ 3,678,865 $ 79,281,767
</TABLE>
During December 1995, the entire portfolio of investment securities, with an
amortized cost of $82,034,110 and unrealized gains of $1,510,027, was
transferred to securities available for sale.
Proceeds from the sale of investment securities were $1,725,292 in 1995,
$3,010,938 in 1994 and $12,683,131 in 1993. In 1995, mortgage-backed securities
were sold, all of which had paydowns of more than 85% of the original purchase
amount. During 1994, two U.S. Treasury notes were sold, both of which were sold
with less than 90 days to maturity. Gross gains of $18,418 and gross losses of
$14,120 were realized in 1995. Gross gains of $38,761 and no gross losses were
realized in 1994. Gross gains of $364,967 and gross losses of $54,779 were
realized in 1993.
17
<PAGE>
(6) LOANS
Loans at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial, financial and agricultural... $ 92,325,242 $ 87,033,990
Real estate - construction............... 33,750,218 29,645,451
Real estate - mortgage................... 171,280,299 138,997,395
Installment.............................. 35,682,971 32,185,873
Total................................. $ 333,038,730 $287,862,709
Nonaccrual loans included above.......... $ 2,287,210 $ 2,521,489
Restructured loans included above........ 300,000 325,000
Total................................. $ 2,587,210 $ 2,846,489
</TABLE>
Included in real estate mortgages were 1-4 family residential loans of
approximately $96,716,000 and $75,906,000 at December 31, 1995 and 1994,
respectively.
Interest income that would have been recorded on nonaccrual loans and
restructured loans for the years ended December 31, 1995, 1994, and 1993, had
they performed in accordance with their original terms, amounted to
approximately $307,000, $298,000, and $268,000, respectively. Interest income
on all such loans included in the results of operations for 1995, 1994, and 1993
amounted to approximately $82,000, $143,000, and $127,000, respectively.
In accordance with FASB Standards No. 114 and No. 118, the recorded
investment in impaired loans was $2,803,430 (of which $2,127,037 was on
nonaccrual). The related allowance for loan losses on these loans was
$1,203,959. The recorded investment of all impaired loans had a related
allowance for loan loss. The average recorded investment in impaired loans for
1995 was $3,069,224, and the income recognized during 1995 was $101,746, of
which $62,294 was recognized using the cash method of income recognition.
Included in other assets at December 31, 1995 and 1994 are foreclosed
properties (other real estate owned) with a net book value of $61,250 and
$1,881,700, respectively.
The following is a reconciliation of loans outstanding to executive
officers, directors and their associates for the year ended December 31, 1995:
Balance at December 31, 1994... $ 5,341,658
New loans...................... 7,776,491
Principal repayments........... (4,859,189)
Balance at December 31, 1995... $ 8,258,960
In the opinion of management, these loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other borrowers. Such loans, in the opinion
of management, do not involve more than the normal risks of collectibility.
18
<PAGE>
(7) ALLOWANCE FOR LOAN LOSSES
The following is a summary of the changes in the allowance for loan losses
for each of the years in the three-year period ended December 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Beginning balance................. $ 4,130,778 $ 3,900,303 $ 3,957,888
Add:
Provision charged to operations... 1,465,000 839,000 835,000
5,595,778 4,739,303 4,792,888
Less:
Loan charge-offs.................. 941,306 891,314 1,018,028
Less loan recoveries.............. 201,068 282,789 125,443
Net loan charge-offs............ 740,238 608,525 892,585
Ending balance.................... $ 4,855,540 $ 4,130,778 $ 3,900,303
</TABLE>
(8) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994 are summarized as
follows:
1995 1994
Land............................. $ 4,190,485 $ 4,202,135
Buildings........................ 6,193,045 5,595,649
Furniture and equipment.......... 7,247,744 6,946,114
Leasehold improvements........... 555,440 558,884
18,186,714 17,302,782
Less accumulated depreciation and
amortization.................... 8,353,225 8,459,191
Premises and equipment, net...... $ 9,833,489 $ 8,843,591
(9) OTHER BORROWINGS
The following is a schedule of securities sold under repurchase agreements,
federal funds purchased and Federal Home Loan Bank ("FHLB") borrowings:
<TABLE>
<CAPTION>
INTEREST MAXIMUM
BALANCE RATE AVERAGE OUTSTANDING
1995 AS OF AS OF AVERAGE INTEREST AT ANY
DECEMBER 31 DECEMBER 31 BALANCE RATE MONTH-END
<S> <C> <C> <C> <C> <C>
Federal funds purchased, securities
sold under agreements
to repurchase and
FHLB borrowings.................. $ 35,262,202 5.42% $ 21,529,872 5.22% $ 35,262,202
1994
Federal funds purchased, securities
sold under agreements
to repurchase and
FHLB borrowings.................. $ 22,441,328 5.20% $ 15,360,370 4.33% $ 22,441,328
</TABLE>
19
<PAGE>
At December 31, 1995, the Banks had three available lines of credit with the
FHLB totaling $66.5 million with $7,514,286 outstanding. The outstanding
amounts consist of $2,000,000 maturing in 1996, $3,000,000 maturing in 1997,
$1,714,286 maturing in 2001 and $800,000 maturing in 2003. In addition, the
Banks are required to pledge collateral to secure the advances as described in
the line of credit agreements. The collateral consists of qualifying 1-4 family
residential mortgage loans.
(10) OTHER NONINTEREST EXPENSE
Components of other noninterest expense in excess of one percent of the
aggregate amount of total interest income and total noninterest income are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Advertising................. $ 429,867 $ 486,496 $ 404,687
Professional services....... 861,081 866,775 1,008,412
FDIC insurance.............. 422,305 754,081 698,898
Stationery and supplies..... 560,329 470,974 395,510
Merger and reorganization... 1,062,150 - -
All other items............. 2,357,233 2,235,305 2,113,380
Total.................... $5,692,965 $4,813,631 $ 4,620,887
(11)INCOME TAX
As discussed in note 1, the Corporation adopted Standard No. 109 as of
January 1, 1993. The cumulative effect of this change in accounting for income
taxes of $300,000 is determined as of January 1, 1993 and is reported separately
in the consolidated statement of earnings for the year ended December 31, 1993.
Income tax expense (benefit) consists of the following:
<S> <C> <C> <C>
Current Deferred Total
Year ended December 31, 1995
Federal..................... $ 3,199,164 $ (360,706) $ 2,838,458
State....................... 477,000 (95,958) 381,042
Total.................... $ 3,676,164 $ (456,664) $ 3,219,500
Year ended December 31, 1994
Federal..................... $ 2,177,005 $ 94,326 $ 2,271,331
State....................... 356,000 26,069 382,069
Total.................... $ 2,533,005 $ 120,395 $ 2,653,400
Year ended December 31, 1993
Federal..................... $ 1,693,471 $ (82,359) $ 1,611,112
State....................... 213,000 3,885 216,885
Total.................... $ 1,906,471 $ (78,474) $ 1,827,997
20
<PAGE>
Income tax expense was $3,219,500, $2,653,400 and $1,827,997 for the years
ended December 31, 1995, 1994 and 1993, respectively, and differed from the
amounts computed by applying the U.S. federal income tax rate of 34% to pretax
income as a result of the following:
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
% OF % of % of
PRETAX Pretax Pretax
AMOUNT INCOME Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes....... $ 10,222,562 $ 9,223,074 $7,012,205
Tax at federal income tax rate... 3,475,671 34.0% 3,135,845 34.0% 2,384,149 34.0%
Reasons for differences:
Tax exempt income.............. (782,174) (7.7) (815,703) (8.8) (721,789) (10.3)
Nondeductible merger expense... 321,011 3.1 - - - -
State income tax, net of
federal benefit............... 251,488 2.5 252,166 2.7 143,144 2.0
Change in deferred tax assets
valuation allowance........... (32,659) (0.3) - - 4,069 0.0
Other.......................... (13,837) (0.1) 81,092 0.9 18,424 0.3
Total......................... $ 3,219,500 31.5% $ 2,653,400 28.8% $1,827,997 26.0%
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1994 are presented below.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred Tax Assets:
Provision for loan losses................................. $ 1,531,000 $ 1,222,403
Accrued expenses deductible when paid for tax
purposes................................................ 133,000 67,951
Unrealized loss on securities available for sale.......... - 242,189
Other..................................................... 21,000 19,208
Total gross deferred tax assets........................ 1,685,000 1,551,751
Less valuation allowance.................................... - (32,659)
Deferred tax asset net of valuation......................... 1,685,000 1,519,092
Deferred Tax Liabilities:
Installment sale income for financial purposes over
tax purposes............................................ - (6,816)
Unrealized gain on securities available for sale.......... (728,440) -
Deferred loan fees........................................ (175,000) (85,999)
Fixed assets primarily due to difference in
depreciation............................................ (38,000) (69,092)
Tax over book accrued expenses............................ - (113,025)
Other..................................................... (73,000) (59,635)
Total gross deferred tax liability..................... (1,014,440) (334,567)
Net deferred tax asset................................. $ 670,560 $ 1,184,525
</TABLE>
A portion of the current year change in the net deferred tax asset relates
to unrealized gains and losses on securities available for sale. The related
current period deferred taxes of $970,629 has been recorded directly to
shareholders' equity. The balance of the change in the net deferred tax asset
results from the current period deferred tax benefit of $456,664.
The valuation allowance for deferred tax assets as of January 1, 1994 was
$32,659. There was no change in the total valuation allowance during 1994,
while there was a decrease of $32,659 in 1995. It is management's belief that
realization of the deferred tax asset is more likely than not.
Tax returns for 1992 and subsequent years are subject to examination by
taxing authorities.
21
<PAGE>
(12) RETIREMENT PLAN CONTRIBUTION
The Corporation has a qualified Retirement Savings Plan (401(k) Plan)
for all eligible employees of First Charter. The provisions of the plan
provide that the Corporation will annually contribute up to six percent
of covered compensation and match a discretionary percentage, 132% in
1995, of contributions made by participating employees. Employees
may contribute up to ten percent of their covered compensation. The
Corporation's aggregate contribution was $349,756, $355,253 and
$348,811 for 1995, 1994 and 1993, respectively.
Union has a 401(k) savings plan for all eligible employees of Union.
The plan provides for participating employees to contribute up to
fifteen percent of their covered compensation. Union will annually
match 100% of contributions made by employees up to four percent of
covered compensation. Union's expense for its contributions in 1995,
1994, and 1993, amounted to approximately $120,068, $95,890, and
$66,100, respectively. Such amounts include discretionary
contributions to the plan of $58,665, $39,000 and $20,000 for 1995,
1994, and 1993, respectively.
(13) COMMON STOCK
On October 10, 1994, the Board of Directors of the Corporation
declared a stock split effected in the form of a 33 1/3% common stock
dividend payable on December 16, 1994 to shareholders of record on
November 18, 1994. All per share data in the consolidated financial
statements has been retroactively adjusted for the stock dividends.
Under the terms of the First Charter Corporation Comprehensive
Stock Option Plan (the "Comprehensive Plan"), stock options (which
can be incentive stock options or non-qualified stock options) may
be periodically granted to key employees of the Corporation or its
subsidiaries. Depending on the type of options granted, their terms
may be for up to ten years and shall generally be exercisable in five
equal annual, cumulative installments beginning not earlier than six
months from the date of grant. In no event shall the exercise price for
each option granted be less than the fair value of the common stock
as of the date of grant. A maximum of 240,000 shares (as adjusted to
reflect the stock dividends) are reserved for issuance under the
comprehensive plan.
In April 1995, the shareholders approved the First Charter
Corporation Restricted Stock Award Program. The definition of key
participants, the number of shares awarded to participants, the
vesting terms and conditions applicable to such awards are all subject
to the discretion of the Compensation Committee of the board of the
Corporation. A maximum of 300,000 shares of Corporation common stock
(as adjusted to reflect stock dividends) are reserved for issuance
under the Restricted Plan. As of December 31, there were no shares
granted under this plan.
Periodically, the Corporation adopts the Employee Stock Purchase
Plans (the "ESPP"), pursuant to which stock options are granted to
employees, based on their eligibility and compensation, at a price
not less than 90% of the fair market value of the shares at the date of
grant. The option period is generally for a term of two years. The
1996 ESPP was approved by shareholders of the Corporation in April
1995. A maximum of 100,000 shares are reserved for issuance under the
1996 ESPP. At December 31, 1995 none have been granted.
The Corporation maintains the Dividend Reinvestment and Stock
Purchase Plan (the "DRIP"), pursuant to which 200,000 shares (as
adjusted to reflect the stock dividends) of common stock of the
Corporation have been reserved for issuance. Shareholders may elect to
participate in the DRIP and have dividends on shares of common stock
reinvested and may make optional cash payments of up to $2,500 per
calendar quarter to be invested in common stock of the Corporation.
Pursuant to the terms of the DRIP, upon reinvestment of the dividends
and optional cash payments either the Corporation can issue new shares
valued at the then current market value of the common stock or the
administrator of the DRIP can purchase shares of common stock in the
open market. During 1995, the Corporation issued 26,115 shares and the
administrator of the DRIP purchased 10,000 shares on the open market.
22
<PAGE>
The following is a summary of activity under the Comprehensive Plan and the
1993 ESPP and the 1991 ESPP. All options outstanding have been adjusted to
reflect the stock dividends.
<TABLE>
<CAPTION>
Option Balance at Balance at
1995 Price January 1 Grants Exercises Forfeits December 31 Exercisable
INCENTIVE STOCK OPTION
<S> <C> <C> <C> <C> <C> <C> <C>
Options..................... $ 4.37 14,200 - 4,880 160 9,160 6,360
............................ $ 6.41 28,480 - 6,880 1,280 20,320 15,039
............................ $ 10.50 36,773 - 4,940 1,307 30,526 17,459
............................ $ 14.72 28,933 - 533 1,200 27,200 10,880
............................ $ 14.75 - 2,200 - - 2,200 440
............................ $ 14.88 - 3,320 - - 3,320 664
............................ $ 21.50 - 23,300 - - 23,300 -
............................ $ 21.50 - 28,000 - - 28,000 -
Available................... - 113,814 (56,820) - 3,947 60,941 -
1993 EMPLOYEE STOCK
PURCHASE PLAN
Options...................... $ 10.13 25,740 - 266 4,001 21,473 21,473
1994
INCENTIVE STOCK OPTION
Options..................... $ 4.37 17,053 - 2,053 800 14,200 8,039
............................ $ 6.41 31,787 - 2,347 960 28,480 16,320
............................ $ 10.50 38,933 - - 2,160 36,773 15,573
............................ $ 14.72 - 28,933 - - 28,933 -
Available................... - 138,827 (28,933) - 3,920 113,814 -
1991 EMPLOYEE STOCK
PURCHASE PLAN
Options...................... $ 5.25 25,990 - 25,990 - - -
1993 EMPLOYEE STOCK
PURCHASE PLAN
Options...................... $ 10.13 - 25,740 - - 25,740 -
1993
INCENTIVE STOCK OPTION
Options..................... $ 4.37 21,176 - 2,443 1,680 17,053 6,013
............................ $ 6.41 34,400 - 1,333 1,280 31,787 12,107
............................ $ 10.50 - 38,933 - - 38,933 -
Available................... - 174,800 (38,933) - 2,960 138,827 -
1991 EMPLOYEE STOCK
PURCHASE PLAN
Options...................... $ 5.25 29,857 - - 3,867 25,990 25,990
</TABLE>
At December 31, 1995, there were 470 options remaining under the
Union Stock Option plan with an average exercise price of $7.62.
23
(14) COMMITMENTS AND OFF BALANCE SHEET RISK
In the normal course of business, there are outstanding various commitments
to extend credit which are not reflected in the consolidated financial
statements. At December 31, 1995, preapproved but unused lines of credit for
loans totaled $81,154,391 and standby letters of credit aggregated $2,307,326.
These amounts represent the Banks' exposure to credit risk and, in the opinion
of management, have no more than the normal lending risk that the Banks commit
to their borrowers. If these commitments are drawn, the Banks will obtain
collateral if it is deemed necessary based on management's credit evaluation of
the borrower at that time. Collateral obtained varies but may include accounts
receivable, inventory and commercial or residential real estate. Management
expects that these commitments can be funded through normal operations.
The Banks grant primarily commercial and installment loans to customers
throughout their market areas, which consist of Cabarrus, Union, Rowan and
Mecklenburg Counties. The real estate loan portfolio can be affected by the
condition of the local real estate markets.
Average daily Federal Reserve balance requirements for the year ended
December 31, 1995 amounted to $1,601,000.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND DUE FROM BANKS, FEDERAL FUNDS SOLD, INTEREST BEARING DEPOSITS, AND
ACCRUED INTEREST RECEIVABLE AND PAYABLE
The carrying amounts of cash and due from banks, federal funds sold,
interest bearing deposits, and accrued interest receivable and payable
approximate fair value because of the short maturity of these instruments.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
The fair value of debt securities, except certain state and municipal
obligations, is estimated based on bid prices published in financial newspapers
or bid quotations received from securities dealers. The fair value of certain
state and municipal obligations is not readily available through market sources
other than dealer quotations, so fair value estimates are based on quoted market
prices of instruments similar to those being valued, adjusted for differences
between the quoted instruments and the instruments being valued.
The fair value of most equity securities is estimated at the average
between the bid and ask prices published in financial newspapers. The fair
value of the remaining equity securities is estimated at the carrying value due
to the absence of market sources and similar instruments.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE AT DECEMBER 31, 1995 At December 31, 1994
AMORTIZED FAIR Amortized Fair
(DOLLARS IN THOUSANDS) COST VALUE Cost Value
<S> <C> <C> <C> <C>
U.S. Government obligations
Due in one year or less.................. $ 4,897 $ 4,922 $ 7,027 $ 7,033
Due after one year through five years.... 17,795 18,441 11,028 11,009
U.S. Government agency obligations
Due in one year or less.................. 5,011 5,034 2,009 2,007
Due after one year through five years.... 21,379 21,490 9,099 8,888
Mortgage-backed securities................. 18,264 18,290 5,773 5,329
State, county and municipal obligations:
Due in one year or less.................. 976 985 - -
Due after one year through five years.... 8,915 9,344 - -
Due after five years through ten years... 34,912 35,495 - -
Due after ten years...................... 13,153 13,229 - -
Equity securities.......................... 4,363 5,128 2,812 3,265
Total securities available for sale........ $ 129,665 $ 132,358 $ 37,748 $ 37,531
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES AT DECEMBER 31, 1995 At December 31, 1994
AMORTIZED FAIR Amortized Fair
(DOLLARS IN THOUSANDS) COST VALUE Cost Value
<S> <C> <C> <C> <C>
U. S. Government obligations:
Due in one year or less.................. $ - $ - $ 992 $ 984
After one but within five years.......... - - 4,976 4,750
U. S. Government agency obligations:
Due in one year or less.................. - - 11,466 11,433
Due after one year through five years.... - - 4,116 4,005
Mortgage-backed securities
Fixed rate............................... - - 16,591 15,744
State and municipal obligations:
Due in one year or less.................. - - 1,943 1,965
Due after one year through five years.... - - 6,803 7,005
Due after five years through ten years... - - 25,449 24,447
Due after ten years...................... - - 9,779 8,949
Total investment securities................ $ - $ - $ 82,115 $ 79,282
</TABLE>
LOANS
For purposes of estimating fair value of loans, the portfolio is segregated
by type based on similar characteristics such as commercial, real estate
mortgage, real estate construction and installment. The portfolio is further
divided into fixed and adjustable rate interest terms and by performing and
nonperforming categories.
The fair value of performing loans is calculated by discounting estimated
cash flows using current rates at which similar loans would be made to borrowers
with similar credit risk. Cash flows for fixed rate loans are based on the
weighted average maturity of the specific loan category. The majority of
adjustable rate loans are prime based and are repriced either immediately or
monthly as prime changes.
The fair value of nonaccrual loans is based on the book value of each loan
less an applicable reserve for credit losses. The reserve for credit losses is
determined on a loan by loan basis based on either recent external appraisals or
internal assessments using available market information and specific borrower
information.
The following table presents fair value information for loans:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 At December 31, 1994
CARRYING ESTIMATED Carrying Estimated
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE Amount Fair Value
<S> <C> <C> <C> <C>
Commercial, financial and agricultural... $ 91,389 $ 91,006 $ 85,674 $ 84,515
Real estate-construction................. 33,698 33,114 29,044 27,948
Real estate-mortgage..................... 169,725 168,204 138,135 134,899
Installment.............................. 35,640 34,393 32,162 31,281
Nonaccrual............................... 2,587 1,304 2,846 2,064
Total Loans.............................. 333,039 328,021 287,861 280,707
Less: Unearned income.................. (296) - (201) -
Allowance for loan losses........... (4,856) - (4,131) -
Loans, net.......................... 327,887 328,021 283,529 280,707
</TABLE>
25
<PAGE>
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand as of year-end. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
The following table presents fair value information for deposits:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 At December 31, 1994
CARRYING ESTIMATED Carrying Estimated
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE Amount Fair Value
<S> <C> <C> <C> <C>
Demand deposits - non-interest bearing... $ 72,286 $ 72,286 $ 63,700 $ 63,700
Demand deposits - interest bearing....... 66,814 66,814 62,533 62,533
Insured money market accounts............ 41,633 41,633 46,542 46,542
Savings deposits......................... 109,082 109,082 93,071 93,071
Certificates of deposit.................. 125,242 125,386 106,975 105,541
Total.................................... $ 415,057 $415,201 $ 372,821 $ 371,387
</TABLE>
OTHER BORROWINGS
The fair value of Federal funds purchased, securities sold under agreements
to repurchase, and FHLB advances maturing within one year is the amount payable
as of year-end. The fair value of FHLB advances maturing after one year is
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for borrowings of similar remaining
maturities.
The following table presents fair value information for other borrowings:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 At December 31, 1994
CARRYING ESTIMATED Carrying Estimated
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE Amount Fair Value
<S> <C> <C> <C> <C>
Federal funds purchased and securities sold
under agreement to repurchase........... $ 27,748 $ 27,748 $ 13,541 $ 13,541
Federal Home Loan Bank advances............ 7,514 7,923 8,900 9,384
$ 35,262 $ 35,671 $ 22,441 $ 22,925
</TABLE>
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The large majority of commitments to extend credit and standby letters of
credit are at variable rates and/or have relatively short terms to maturity.
Therefore, the fair value for these financial instruments is considered to
approximate the carrying value.
26
<PAGE>
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Corporation's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, First Charter has a substantial trust
department that contributes net fee income annually. The trust department is not
considered a financial instrument, and its value has not been incorporated into
the fair value estimates. Other significant assets and liabilities that are not
considered financial assets or liabilities include the mortgage brokerage
operations and premises and equipment. In addition, tax ramifications related to
the realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in any of the estimates.
(16) FIRST CHARTER CORPORATION (PARENT COMPANY)
The principal assets of the Parent Company are its investment in the Banks,
and its principal source of income is dividends from the Banks. Certain
regulatory and other requirements restrict the lending of funds by the Banks to
the Parent Company and the amount of dividends which can be paid to the Parent
Company. In addition, certain regulatory agencies may prohibit the payment of
dividends by the Banks if it determines that such payment would constitute an
unsafe or unsound practice. At December 31, 1995, the Banks had available
undivided profits of approximately $15,737,000 for payment of dividends without
obtaining prior regulatory approval. At December 31, 1995, approximately
$29,940,000 of the Parent Company's investment in the Banks was restricted as to
transfer to the Parent Company without obtaining prior regulatory approval.
27
<PAGE>
The Parent Company's balance sheet data as of December 31, 1995 and 1994 and
related income and cash flow statement data for each of the years in the three-
year period ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................................................... $ 514,456 $ 494,685
Securities available for sale........................... 3,012,880 1,685,830
Investment in subsidiaries.............................. 50,149,461 44,525,627
Receivable from subsidiaries............................ 794,777 600,000
Fixed assets............................................ 582,850 587,035
Other assets............................................ 20,510 19,523
$ 55,074,934 $ 47,912,700
Accrued liabilities..................................... $ 1,650,861 $ 736,672
Shareholders' equity.................................... 53,424,073 47,176,028
$ 55,074,934 $ 47,912,700
INCOME STATEMENT DATA:
Dividends from subsidiaries............................. $ 3,750,000 $ 2,450,000 $ 1,438,000
Other operating income (expense)........................ (713,294) 103,292 3,765
Income before equity in undistributed net
income of subsidiaries................................. 3,036,706 2,553,292 1,441,765
Equity in undistributed net income of
subsidiaries.......................................... 3,966,356 4,016,382 4,042,443
Net income............................................. $ 7,003,062 $ 6,569,674 $ 5,484,208
CASH FLOW STATEMENT DATA:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 7,003,062 $ 6,569,674 $ 5,484,208
Net gain on securities available for sale
transactions.......................................... - (74,142) -
Increase in accrued liabilities......................... 750,077 218,200 31,945
Increase in other assets................................ (987) - (19,079)
Increase in receivable from subsidiaries................ (194,777) (218,000) (30,000)
Increase in investment in subsidiaries.................. (3,997,899) (4,019,006) (4,051,108)
Net cash provided by operating activities.............. 3,559,476 2,476,726 1,415,966
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available for sale securities............... (906,251) (478,635) -
Purchase of investment securities....................... - - (466,373)
Purchase of premises and equipment...................... (815) (587,035) -
Proceeds from sale of premises and equipment............ 5,000 - -
Proceeds from sale of securities available for
sale.................................................. - 163,741 -
Net cash used by investing activities.................. (902,066) (901,929) (466,373)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of common stock................................ (626,416) (1,214,436) (698,995)
Proceeds from issuance of common stock upon
exercise
of stock options....................................... 575,260 442,183 82,880
Pre-merger transactions of pooled bank.................. 31,543 2,624 8,665
Cash dividends paid..................................... (2,618,026) (1,892,627) (1,437,955)
Net cash used by financing activities................... (2,637,639) (2,662,256) (2,045,405)
Net increase (decrease) in cash........................ 19,771 (1,087,459) (1,095,812)
Cash at beginning of year.............................. 494,685 1,582,144 2,677,956
Cash at end of year.................................... $ 514,456 $ 494,685 $ 1,582,144
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Investment securities transferred to available for
sale.................................................. $ - $ - $ 1,101,290
Unrealized gain in value of securities available
for sale
(net of tax effect of $164,110, $55,585 and $
78,895
for 1995, 1994 and 1993, respectively)................. $ 256,687 $ 86,942 $ 123,399
Unrealized gain (loss) in value of securities
available for sale of the
subsidiaries (net of tax effect of ($970,628),
($617,450),
and ($375,261) for 1995, 1994 and 1993,
respectively)........................................ $ 1,625,935 $ (1,013,874) $ 586,947
Issuance of stock dividend.............................. $ - $ 5,798,151 $ -
</TABLE>
28
<PAGE>
(17) SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1995
FIRST SECOND THIRD FOURTH
(DOLLARS IN THOUSANDS, EXCEPT INCOME PER SHARE) QUARTER QUARTER QUARTER QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
Total interest income........................... $ 8,652 $ 9,109 $ 9,593 $ 9,840 $37,194
Total interest expense.......................... 3,264 3,794 4,008 4,144 15,210
Net interest income............................. 5,388 5,315 5,585 5,696 21,984
Provision for loan losses....................... 265 215 410 575 1,465
Total noninterest income........................ 1,161 1,200 1,291 1,740 5,392
Total noninterest expense....................... 3,575 3,626 3,480 5,007 15,688
Net income before income taxes.................. 2,709 2,674 2,986 1,854 10,223
Income taxes.................................... 807 797 915 701 3,220
Net income...................................... $ 1,902 $ 1,877 $ 2,071 $ 1,153 $ 7,003
Per share data:
Primary income per share........................ $ 0.30 $ 0.30 $ 0.33 $ 0.18 $ 1.11
Income per share assuming full dilution......... $ 0.30 $ 0.30 $ 0.33 $ 0.18 $ 1.11
The Corporation, as previously reported, except for the fourth quarter and
year end 1995 which included the effects of the Merger:
Net income...................................... $ 1,543 $ 1,460 $ 1,536 $ 1,153 $ 7,003
Primary and fully diluted income per share...... $ 0.33 $ 0.31 $ 0.33 $ 0.18 $ 1.11
1994
First Second Third Fourth
(DOLLARS IN THOUSANDS, EXCEPT INCOME PER SHARE) Quarter Quarter Quarter Quarter Total
Total interest income........................ $ 6,600 $ 7,208 $ 7,840 $ 8,335 $ 29,983
Total interest expense....................... 2,325 2,443 2,751 3,029 10,548
Net interest income.......................... 4,275 4,765 5,089 5,306 19,435
Provision for loan losses.................... 137 195 227 280 839
Total noninterest income..................... 1,336 1,245 1,088 1,089 4,758
Total noninterest expense.................... 3,508 3,554 3,401 3,668 14,131
Net income before income taxes............... 1,966 2,261 2,549 2,447 9,223
Income taxes................................. 504 628 789 732 2,653
Net income.................................. $ 1,462 $ 1,633 $ 1,760 $ 1,715 $ 6,570
Per share data:
Primary income per share..................... $ 0.23 $ 0.26 $ 0.28 $ 0.28 $ 1.05
Income per share assuming full dilution...... $ 0.23 $ 0.26 $ 0.28 $ 0.28 $ 1.05
The Corporation, as previously reported:
Net income................................... $ 1,161 $ 1,315 $ 1,426 $ 1,358 $ 5,260
Primary and fully diluted income per share... $ 0.25 $ 0.28 $ 0.30 $ 0.29 $ 1.12
</TABLE>
29
<PAGE>
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
First Charter Corporation (the "Corporation"), headquartered in
Concord NC, is a North Carolina multiple Bank holding company. First
Charter National Bank ("First Charter") is a full-service bank and
trust company with twelve offices located in Cabarrus, Rowan and
northern Mecklenburg Counties, North Carolina. Bank of Union ("Union")
is a full service bank with five offices located in Union and
southern Mecklenburg Counties, North Carolina.
Through its branch locations, First Charter and Union (the "Banks") provide
a wide range of deposit accounts; commercial, consumer, home equity and
residential mortgage loans; personal and corporate trust services; safe deposit
boxes; discount brokerage services; insurance and annuity sales; financial
planning and automated banking.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the Corporation and the notes thereto
included elsewhere in this report.
RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
1995 VERSUS 1994
OVERVIEW
On September 13, 1995, the Corporation entered into an Agreement and Plan
of Merger (the "Merger Agreement") with Union, pursuant to which a newly formed
subsidiary of the Corporation merged with Union and Union became a wholly owned
subsidiary of the Corporation (the "Merger"). On December 21, 1995, the Merger
was completed and accounted for as a pooling of interests. Accordingly, all
current and prior years' financial statements have been restated to combine the
accounts of Union with those of the Corporation.
As of December 21, 1995, there were 2,192,270 shares of Union common stock
outstanding. Of that amount, the Corporation owned 69,361 shares directly for
its own account. Each share of Union, other than those shares owned by the
Corporation, was converted into 0.75 shares of the Corporation common stock.
Union is a state-chartered commercial bank organized under the laws of
North Carolina in 1985. Union provides general banking services through a
network of five branch offices located in Union and Mecklenburg Counties, North
Carolina. Through its subsidiary, Union Financial, Inc. ("BOU Financial"), Union
also offers discount brokerage services, insurance and annuity sales and
financial planning services. At December 31, 1994, Union had total assets of
approximately $123 million and total deposits of approximately $106 million. In
the fourth quarter of 1995, the Corporation recognized $1,062,150 of costs
associated with the merger. These costs include legal, accounting, investment
banking, regulatory filing, proxy printing and solicitation expenses. It is
anticipated that an additional $75,000 of merger related expenses will be
incurred in 1996.
The Corporation earned $7,003,062, or $1.11 per share in 1995, a 6.6%
increase from $6,569,674, or $1.05 per share in 1994. A key factor contributing
to the increase in net income was a 13.1% increase in net interest income which
was partially offset by pre-tax merger related expenses of $1,062,150 connected
with the Merger of Union. Legal, accounting, investment banking, regulatory
filing, proxy printing and solicitation expenses associated with the Merger
represent the largest portion of the costs incurred, all in the fourth quarter
of 1995. These earnings equate to a return on average assets of 1.50% for 1995,
compared to 1.59% for 1994 and a return on average equity of 13.93% in 1995,
versus 14.34% in 1994.
Total assets at December 31, 1995, were $509,395,305, up 13.9% from the
level at year-end 1994. Gross loans increased 15.7% to $333,038,730 and total
deposits increased 11.3% to $415,056,231.
LIQUIDITY
Liquidity is the ability to maintain cash flows adequate to fund operations
and meet obligations and other commitments on a timely and cost-effective basis.
Liquidity is provided by the ability to attract deposits, flexible repricing
schedules in a sizeable portion of the loan portfolio, current earnings, a
strong capital base and the ability to use alternative funding sources that
complement normal sources. Management's asset-liability policy is to maintain or
enhance the net interest income and thereby provide adequate liquidity to meet
continuing loan demand and withdrawal requirements and to service normal
30
<PAGE>
operating expenses. If additional funding sources were needed, the Banks have
access to Federal fund lines at correspondent banks and borrowings from the
Federal Reserve discount window. In addition to these sources, the Banks are
members 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. See "Securities Available for Sale" for a further
discussion. Management believes the Banks' sources of liquidity are adequate to
meet loan demand, operating needs and deposit withdrawal requirements.
ASSET LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
One of the primary objectives of asset/liability management is to maximize
net interest income while minimizing the earnings risk associated with changes
in interest rates. One method used to manage interest rate sensitivity is to
measure, over various time periods, the interest rate sensitivity positions, or
gaps; however, this method addresses only the magnitude of timing differences
and does not address earnings or market value. Management uses an earnings
simulation model to estimate the amount of earnings at risk due to changes in
interest rates. This model is updated periodically and is based on a range of
interest rate scenarios. The policy limits for interest rate risk is 10% of net
interest margin when considering an increase or decrease in interest rates of
300 basis points over a twelve month period. Management believes this method
more accurately measures interest rate risk.
The Banks' balance sheets are 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. At
December 31, 1995 total rate sensitive liabilities within one year were $309.6
million compared to rate sensitive assets of $209.0 million for a cumulative gap
of $100.6 million. It should be noted that interest-sensitivity of the balance
sheet as of a specific date is not necessarily indicative of the Corporation's
position on other dates. Although interest rates increased during 1995, the
earnings position improved because interest income was positively impacted by
higher levels in the prime rate of interest more so than the negative impact on
funding cost in 1995 versus 1994. While a larger amount of liabilities are
subject to repricing, these liabilities did not reprice at the same magnitude as
the prime-based loans. As liabilities are repriced in response to rising rates,
net interest income could decline.
CAPITAL RESOURCES
At December 31, 1995, total shareholders' equity was $53,424,073, a 13.2%
increase from 1994. The increase in capital is primarily attributable to
increased retained earnings. Cash dividends declared per share in 1995 were $.52
compared to $.41 in 1994.
The principal asset of the parent company is its investment in the Banks,
and its principal source of income is dividends from the Banks. Certain
regulatory and other requirements restrict the lending of funds by the Banks to
the parent company and the amount of dividends which can be paid to the parent
company. In addition, certain regulatory agencies may prohibit the payment of
dividends by the Banks if they determine that such payment would constitute an
unsafe or unsound practice. At December 31, 1995, the Banks had available
undivided profits of approximately $15,737,000 for payment of dividends without
obtaining prior regulatory approval. At December 31, 1995, approximately
$29,940,000 of the parent company's investment in the Banks was restricted as to
transfer to the parent company without obtaining prior regulatory approval.
The Corporation must comply with regulatory capital requirements
established by the Federal Reserve Board (FRB). These standards require the
Corporation to maintain a minimum ratio of Tier I Capital (as defined) to total
risk-weighted assets of 4.00% and a minimum ratio of Total Capital (as defined)
to risk-weighted assets of 8.00%. Tier I Capital is comprised of total
shareholders' equity calculated in accordance with generally accepted accounting
principles less certain intangible assets, less unrealized gains or losses on
securities available for sale, and Total Capital is comprised of Tier I Capital
plus certain adjustments, the largest of which for the Corporation is the
general allowance for loan losses. Risk-weighted assets refer to the on- and
off-balance sheet exposures of the Corporation adjusted for their related risk
levels using amounts set forth in FRB regulations.
In addition to the risk-based capital requirements described above, the
Corporation is subject to a leverage capital requirement, which calls for a
minimum ratio of Tier I Capital (as defined previously) to total assets of 3% to
5%.
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<PAGE>
At December 31, 1995, the Corporation and the Banks were in compliance with
all existing capital requirements. The Corporation's capital requirements are
summarized in the table below:
<TABLE>
Risk-Based Capital
Leverage Capital Tier 1 Capital Total Capital
Amount Percentage (1) Amount Percentage (2) Amount Percentage (2)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Actual.......... $ 51,625 10.17% $ 51,625 14.28% $ 56,143 15.53%
Required...... 20,304 4.00 14,458 4.00 28,917 8.00
Excess......... 31,321 6.17 37,167 10.28 27,226 7.53
</TABLE>
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 requirement applicable to it.
(2) Percentage of risk-weighted assets.
REGULATORY RECOMMENDATIONS
Management is not presently aware of any current recommendations to the
Corporation or to the Banks by regulatory authorities which, if they were to be
implemented, would have a material effect on the Corporation's liquidity,
capital resources, or operations.
BALANCE SHEET ANALYSIS
SECURITIES AVAILABLE FOR SALE
Securities available for sale are a component of the Corporation's
asset/liability management strategy and may be sold in response to liquidity
needs, changes in interest rates, changes in prepayment risk, and other factors.
They are accounted for at fair value with unrealized gains and losses recorded
as a separate component of stockholders' equity.
In November 1995, the FASB issued an implementation guide for Standard No.
115. The FASB stated that the transition provisions included in this guide
permit a one-time opportunity for companies to reconsider their ability and
intent to hold securities accounted for under Standard No. 115 as investment
securities and allow entities to transfer securities from the investment
securities category without tainting their remaining investment securities. The
FASB emphasized that this would be a one-time event and that any transfers from
the investment securities category to the available for sale category under this
provision must be made by December 31, 1995. Pursuant to this authorization, the
Corporation reclassified all investment securities into available for sale
securities.
At December 31, 1995, securities available for sale were $132,357,768 or
26.0% of total assets compared to 8.4% of total assets at year-end 1994. In
1995, during a period of rising interest rates and a time of increased loan
demand, management purchased short term agency obligations and adjustable rate
mortgage-backed securities to increase its flexibility to manage the balance
sheet and thus attempt to maintain a stable net interest margin. The fair value
of these assets is approximately $2,693,000 above their amortized cost at
December 31, 1995. The average yield on the securities available for sale
portfolio was 6.76% for 1995 and 6.69% for 1994.
The average life of the portfolio was 5.99 years at December 31, 1995
compared to 7.06 years at year-end 1994.
INVESTMENT SECURITIES
Investment securities totaled $82,114,910 or 18.4% of total assets at
December 31, 1994.
The average yield earned on investment securities in 1995 was 7.41%
compared to 7.29% in 1994 with an average maturity of 6.58 years at December 31,
1994.
LOANS
As a result of increased loan demand during 1995, gross loans increased
15.7% to $333,038,730 at December 31, 1995, from $287,862,709 at December 31,
1994. While loan demand may increase it may not increase at the same percentage
levels of increase as
32
<PAGE>
experienced in previous years.
The loan portfolio at December 31, 1995 was composed of 27.7% commercial,
financial, and agricultural loans, 10.1% real estate construction loans, 51.5%
real estate mortgage loans, and 10.7% installment loans. This compares to a
composition of 30.2% commercial, 10.3% real estate construction, 48.3% real
estate mortgage, and 11.2% installment at December 31, 1994. The increase in
construction loans is attributable to an increase in real estate building in the
Corporation's market area. Approximately $13,880,000 of the real estate mortgage
loans are loans for which the principal source of repayment comes from the sale
of real estate. The remaining $157,400,000 of real estate mortgage loans are (i)
other commercial loans for which the primary source of repayment is derived from
the ongoing cash flow of the business and which are also collateralized by real
estate - $75,249,000, (ii) personal installment loans which are collateralized
by real estate - $32,485,000, (iii) home equity loans - $22,722,000, and (iv)
individual residential mortgage loans - $26,944,000.
ASSET QUALITY
Nonperforming assets at December 31, 1995 were $2,890,461 or 0.9% of gross
loans and foreclosed properties compared to $5,938,056 or 2.1% at December 31,
1994. The level of nonperforming assets is presented in the table below:
December 31, December 31,
1995 1994
Nonaccrual loans $2,287,210 $2,521,489
Restructured loan 300,000 325,000
Loans 90 days or more
past due and still
accruing 242,001 1,209,867
Foreclosed property 61,250 1,567,738
Other real estate 313,962
Interest income that would have been recorded on nonaccrual loans for the
year ended December 31, 1995, had they performed according to their original
terms, amounted to approximately $307,000. Interest income on nonaccrual loans
included in the results of operations for the year amounted to approximately
$82,000.
Accruing loans 90 days or more past due decreased to 0.07% of gross loans
at December 31, 1995 compared to 0.42% of gross loans at December 31, 1994.
Management's policy for any accruing loan past due greater than 90 days is to
perform an analysis of the loan, including a consideration of the financial
position of the borrower(s) and any guarantor(s) as well as the value of the
collateral, and to make an assessment as to whether collectibility of the
principal and the interest appears probable. Based on such a review, management
has determined that it is probable that the principal as well as the accruing
interest on these loans will be collected in full.
Net charge-offs for the year were $740,238 or .25% of average loans
compared to $608,525 or .23% of average loans in 1994.
Foreclosed property and other real estate declined 96.7% to $61,250 at
December 31, 1995 from $1,881,700 at December 31, 1994. The decrease in
foreclosed properties and other real estate is primarily due to the sale of two
commercial real estate properties.
Theses sales resulted in gains of approximately $188,000.
All estimates of the loan portfolio risk elements, including the adequacy
of the allowance for loan losses, are subject to general and local economic
conditions, among other factors, which are unpredictable and beyond management's
control. Since a significant portion of the loan portfolio is comprised of real
estate loans and loans to area businesses, a continued risk is that the real
estate market and economic conditions could change and could result in future
losses or require increases in the provision for loan losses. Management uses
several measures to control this risk. For example, all loans over a certain
dollar amount must receive an in-depth review by an analyst in the Banks' Credit
Administration departments. Any issues regarding risk assessments of those
credits are addressed by the Banks' loan administration and senior credit
officer and factored into management's decision to originate or renew the loan.
Large commitments above $250,000 are reviewed and approved by a Senior Loan
Committee comprised of senior management, the senior credit officer and senior
lending officers of the respective Banks. Loans above $1,500,000 are reviewed by
the Loan Committee of the Board of Directors. The Corporation also continues to
employ an independent third party risk assessment group to review the
underwriting, documentation and risk grading analysis and render a semiannual
opinion of the adequacy of the allowances for loan losses. This third party
group reviews all loan relationships over $250,000 and a sampling of all other
credits.
Management uses the information developed from the procedures described
above in evaluating and grading the loan portfolio. This continual grading
process is used to monitor the credit quality
33
<PAGE>
of the loan portfolio and to assist management in determining the
appropriate levels of the allowance for loan losses. For a further discussion of
this system, see "Allowance and Provision for Loan Losses."
The Banks grant primarily commercial and installment loans to customers
throughout their market areas, which consists of Cabarrus, Rowan, Union and
Mecklenburg Counties. The loan portfolio can be affected by the local economic
conditions of the markets served.
In the normal course of business, there are outstanding various commitments
to extend credit which are not reflected in the consolidated financial
statements. At December 31, 1995, preapproved but unused lines of credit for
loans totaled $81,154,391 and standby letters of credit aggregated $2,307,326.
The amounts represent the Banks' exposure to credit risk and, in the opinion of
management, have no more than the normal lending risk that the Banks commit to
their borrowers. If these commitments are drawn, the Banks will obtain
collateral if it is deemed necessary based on management's credit evaluation of
the borrower. Collateral obtained varies but may include accounts receivable,
inventory, and commercial or residential real estate. Management expects that
these commitments can be funded through normal operations.
DEPOSITS
Total deposits at December 31, 1995 were $415,056,231, a 11.3% increase
from a 1994 year-end level of $372,820,380. Average non-interest bearing demand
deposits increased $9.9 million or 18.0%; average interest bearing demand
deposits increased $3.0 million or 4.9%; average insured money market accounts
decreased $5.7 million or 11.9%; average savings deposits increased $21.8
million or 27.2%; while average certificates of deposit increased $11.9 million
or 11.2%. The majority of deposit growth was in a penalty free certificate of
deposit product for customers over the age of fifty. Because the certificate is
penalty free and the customer may exercise the option to redeem the certificate
and open a new certificate at a higher rate as many times as the customer
wishes, regulation requires that the certificate be classified as a savings
deposit, thus the increase in savings deposits.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income, the difference between total interest income and total
interest expense, is the Corporation's principal source of earnings. For the
year ended December 31, 1995 net interest income was $21,984,374, an increase of
13.1% from net interest income of $19,434,939 in 1994. The increase is
attributable to an increase in the level of interest earning assets slightly
offset by a decrease in the net interest margin (tax adjusted net interest
income divided by average earnings assets) to 5.35% in 1995 from 5.40% in 1994.
The decline in the margin is attributable to an increase in yields on loans
together with an increase in funding costs.
The average yield on earning assets was 8.84% in 1995 compared to 8.15% in
1994. The average rate paid on interest-bearing deposits and borrowings was
4.37% compared to 3.39% in 1994. See "Asset/Liability Management" for additional
discussion.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Management utilizes a system for risk grading the loan portfolio to
determine the appropriate amount of the allowance for loan losses. This analysis
is performed monthly and is independent of any analysis in conjunction with the
origination of loans. Individual loans are assigned a risk grade based on their
credit quality, which is subject to change as conditions warrant. Any input in
those risk assessments as determined by the outside risk assessment group is
also considered. Each grade determines the percentage of the outstanding loan
balance allocated to the loan loss reserve. Loans with the weaker credit quality
are individually analyzed to determine a specific allowance which reflects
management's best estimate of the risk associated with each credit. An estimate
of an allowance is made for all other loans in the portfolio based on their
assigned risk grade, type of loan and other matters related to credit risk. In
the allowance for loan loss analysis process, the Banks also aggregate the loans
into pools of similar credits and review the historical loss experience
associated with these pools as additional criteria to allocate the allowance to
each category. The model also takes into consideration off-balance sheet credit
loss. However, at December 31, 1995, a reserve for off-balance sheet credit loss
was not considered necessary based on management's review of off-balance sheet
items. In addition, there were no realized credit losses due to off-balance
sheet activities for the three years ended December 31, 1995.
34
<PAGE>
The provision for loan losses for 1995 was $1,465,000 compared to $839,000
in 1994. The increase in the provision was primarily attributable to the
increase in gross loans outstanding. The allowance for loan losses as a
percentage of gross loans outstanding was 1.46% at December 31, 1995 compared to
1.44% at year-end 1994. Management feels that based on improved credit quality,
the allowance for loss is adequate.
NONINTEREST INCOME
Noninterest income was $5,391,750 in 1995 compared to $4,758,450 in 1994.
Trust income increased approximately $174,000 or 12.6%. This increase was due to
higher market values of assets under management. The increase in other
noninterest income is attributable to approximately $188,000 gains in sale of
foreclosed properties and other real estate owned, increased brokered mortgage
loan income and credit card income.
NONINTEREST EXPENSE
Total noninterest expense was $15,688,562 in 1995 compared to $14,131,315
in 1994, an 11.0% increase. Salaries and fringe benefits increased primarily due
to a greater number of full-time equivalents, annual merit increases, additional
management and branch incentives, increased 401(k) contributions and higher
health insurance premiums.
Occupancy and equipment increased approximately $128,000 or 6.8% primarily
due to an increase in depreciation expense. During 1995, the Corporation made an
investment in check imaging software and hardware.
Other noninterest expense increased approximately $879,000 or 18.3% for
1995 when compared to 1994. The increase is primarily due to Merger costs
associated with the Merger of Union of $1,062,150. These costs include legal,
accounting, investment banking, regulatory filings, proxy printing and
solicitation expenses, all of which were incurred during the fourth quarter of
1995. Stationery and supplies increased approximately $89,000 due to additional
costs associated with check imaging implemented in April of 1995. The FDIC
insurance premium was reduced from $0.23 to $0.04 per $100 of deposits in June
of 1995, resulting in a decrease of $331,776. The FDIC insurance premiums were
further reduced to $2,000 per bank annually.
All other noninterest expense increased approximately $122,000. This
increase is attributable to various items including an increase in software
maintenance, data processing expenses, postage, dues and education.
Total income tax expense for 1995 was $3,219,500 versus $2,653,400 in 1994.
The increase is attributable to an increase in income before income taxes and an
increase in the effective tax rate to 31.5% in 1995 from 28.8% in 1994. The
change in the effective rate is primarily attributable to the majority of Merger
costs for which a tax benefit is not allowed.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
1994 VERSUS 1993
The Corporation earned $6,569,674, or $1.05 per share, in 1994, a 19.8%
increase from $5,484,208 or $0.87 per share in 1993. Of the 1993 net income
amount, $300,000 represented the cumulative effect on prior years of adopting
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Earnings
increased primarily due to higher net interest income.
Total assets at December 31, 1994 were $447,099,488, up 14.2% from the
level at year-end 1993. Gross loans increased 15.5% to $287,862,709 and total
deposits increased 10.9% to $372,820,380.
The Corporation's return on average assets was 1.59% for 1994, compared
with 1.48% in 1993. The return on average equity was 14.34% in 1994, versus
13.10% in 1993.
At December 31, 1994, securities available for sale were $37,530,613 or
8.4% of total assets compared to $34,613,000 or 8.8% of total assets at year-end
1993. The fair value of these assets was approximately $218,000 below their
amortized cost at December 31, 1994. The average yield on the securities
available for sale portfolio was 6.69% for 1994.
At December 31, 1994, investment securities were $82,144,910, which
represented 18.4% of total assets. Investment securities were carried at cost,
adjusted for amortization of premiums and accretion of discounts in accordance
with Standard No. 115 because management determined that the Corporation had the
ability
35
<PAGE>
and the intent to hold them to maturity. At December 31, 1993 investment
securities were approximately $71,751,000 which represented 16.0% of total
assets. The average yield earned on investment securities in 1994 was 7.29%
compared to 7.55% in 1993.
The loan portfolio at December 31, 1994 was composed of 30.2% commercial,
financial, and agricultural loans, 10.3% real estate construction loans, 48.3%
real estate mortgage loans, and 11.2% installment loans. This compares to a
composition of 33.3% commercial, 8.3% real estate construction, 47.3% real
estate mortgage, and 11.1% installment at December 31, 1993.
Nonperforming assets at December 31, 1994 were $5,938,056 or 2.1% of gross
loans and foreclosed properties compared to $5,674,454 or 2.3% at December 31,
1993. The level of nonperforming assets is presented in the table below.
December 31, December 31,
1994 1993
Nonaccrual loans $2,521,489 $2,315,224
Restructured loans 325,000 795,000
Loans 90 days or more
past due and
still accruing 1,209,867 217,988
Foreclosed Property 1,567,738 2,032,280
Other Real Estate 313,962 313,962
Interest income that would have been recorded on nonaccrual loans for the
year ended December 31, 1994, had they performed according to their original
terms amounted to approximately $298,000. Interest income on nonaccrual loans
included in the results of operations for the year amounted to approximately
$143,000.
Accruing loans 90 days or more past due increased to .42% of gross loans at
December 31, 1994 compared to .09% of gross loans at December 31, 1993.
Net charge-offs for the year were approximately $609,000 or .23% of average
loans compared to net charge-offs of approximately $893,000 or .39% of average
loans in 1993. The decrease in net charge-offs was primarily the result of two
fully reserved loans which were charged off in the first and second quarters of
1993.
Foreclosed property declined 22.9% to $1,567,738 at December 31, 1994 from
$2,032,280 at December 31, 1993. At December 31, 1994 two parcels of land
comprised 92.5% of the 1994 balance. These two parcels were subsequently sold in
1995.
Deposits were $372,820,380 at year-end 1994 compared with $336,269,512 at
year-end 1993, a 10.9% increase. Average non-interest bearing deposits increased
$8.8 million or 19.2%; average interest bearing demand deposits increased $6.1
million or 10.9%; average insured money market accounts decreased $3.6 million
or 7.4%; average savings deposits increased $21.0 million or 35.4%; while
average time certificates of deposit decreased $0.3 million or 0.3%. The
majority of deposit growth was in a penalty free certificate of deposit product
for customers over the age of fifty. Because the certificate is penalty free and
the customer may exercise the option to redeem the certificate and open a new
certificate at a higher rate as many times as the customer wishes, regulation
requires that the certificate be classified as a savings deposit, thus the
increase in savings deposits.
For the year ended December 31, 1994 net interest income was $19,434,939,
an increase of 16.8% from net interest income of $16,646,446 in 1993. The
increase is attributable to an increase in the level of interest earning assets
as well as an improvement in the net interest margin (tax adjusted net interest
income divided by average earnings assets) to 5.40% in 1994 from 5.20% in 1993.
The improvement in the margin is attributable to an increase in yields on loans
with only a slight increase in funding costs.
The average yield on earning assets was 8.15% in 1994 compared to 7.92% in
1993. The average rate paid on interest-bearing deposits and borrowings was
3.39% in 1994 compared to 3.33% in 1993.
The provision for loan losses for 1994 was $839,000 compared to $835,000 in
1993. The allowance for loan losses as a percentage of gross loans outstanding
was 1.44% at December 31, 1994 compared to 1.56% at year-end 1993. The decrease
in allowance percentage to loans was due to an increase in loans outstanding.
Noninterest income was $4,758,450 in 1994 compared to $5,006,789 in 1993.
Trust income increased approximately $120,000 or 9.5%. The increase is
attributable to fees recognized on several estate settlements that may be
nonrecurring and an increase in fee structure. The decrease in other noninterest
income is attributable to decreases in mortgage originations sold on a brokered
basis and decreases in credit card income. Gains on investment securities
decreased due to gains on sales of investment
36
<PAGE>
securities in 1993, and the absence of such gains in 1994.
Total noninterest expense was $14,131,315 in 1994 compared to $13,822,589
in 1993, a 2.2% increase. During the first quarter of 1994, First Charter
completed a comprehensive reorganization plan that simplified management
structure, changed some positions from full-time to part-time and eliminated
several positions. As a result of this, salary expense decreased approximately
$228,000, but was partially offset by increases in management bonuses and 401(k)
matching contributions. The increase in these two items is attributable to
improved profitability in 1994. Union salary expense increased due to annual
merit increases and higher health insurance costs. Total salaries and benefits
increased approximately $164,000 or 2.3%.
Occupancy and equipment decreased approximately $48,000 or 2.5% due to a
reduction in depreciation expense. The reduction is the result of major
investments in fixed assets during 1989 and 1988 which were fully depreciated in
1993 or mid-1994.
Total advertising expense for 1994 increased approximately $82,000 or
20.2%. The increase is attributable to production and marketing related to
several new products including a debit card, a lower cost checking and savings
account, and a first time home buyers mortgage product.
Other professional fees decreased approximately $142,000 due to fees paid
to consultants in the fourth quarter of 1993 related to the reorganization in
1994. Also, during the third quarter of 1994, a significant portion of the
investment management of trust assets, previously out-sourced, was brought
in-house.
Stationery and supplies increased approximately $75,000 due to printing and
production cost of the annual report and annual meeting.
Other noninterest expense increased approximately $122,000. This increase
is attributable to various items including an increase in software maintenance,
processing expenses and one time fees associated with the debit card, increased
postage, dues and education, and property taxes paid on a problem asset.
Total income tax expense for 1994 was $2,653,400 versus $1,827,997 in 1993.
The increase is attributable to an increase in income before income taxes and an
increase in the effective tax rate to 28.8% in 1994 from 26.1% in 1993 . The
change in the effective rate is attributable to a decrease in tax-exempt income
relative to income before income taxes.
ACCOUNTING AND REGULATORY MATTERS
The FASB has issued Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An estimate of the future cash flows expected to result from the
use of the asset and its eventual disposition should be performed during a
review for recoverability. An impairment loss (based on the fair value of the
asset) is recognized if the sum of the expected future cash flows (undiscounted
and without interest charge) is less than the carrying amount of the asset.
Additionally, Standard No. 121 requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell, except for certain assets. These assets
will continue to be reported at the lower of carrying amount or net realizable
value. The periodic effect on net income of the Corporation, if any, has not
been determined. Implementation of this Standard is required for fiscal years
beginning after December 15, 1995.
The FASB also has issued Standard No. 122, "Accounting for Mortgage
Servicing Rights," 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
37
<PAGE>
applies prospectively to transactions occurring in fiscal years beginning after
December 31, 1995. Because the Corporation generally sells mortgage loans with
servicing rights released, management does not anticipate the Standard's impact
on its financial statements to be material.
The FASB has also issued Standard No. 123, "Accounting for Stock-Based
Compensation," which requires that the fair value of employee stock-based
compensation plans be recorded as a component of compensation expense in the
statement of income as of the date of grant of awards related to such plans or
that the impact of such fair value on net income and earnings per share be
disclosed on a pro forma basis in a footnote to financial statements for awards
granted after December 15, 1994, if the accounting for such awards continues to
be in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25). The corporation will continue such
accounting under the provisions of APB 25. This Standard is required for fiscal
years beginning after December 15, 1995.
38
<PAGE>
FIRST CHARTER CORPORATION AND
FIRST CHARTER NATIONAL BANK BOARD OF DIRECTORS
WILLIAM R. BLACK, M.D.
ONCOLOGIST
JANE B. BROWN
PRIVATE INVESTOR
GRADY S. CARPENTER
PRESIDENT,
SECURITY OIL COMPANY
MICHAEL R. COLTRANE
PRESIDENT,
THE CONCORD TELEPHONE COMPANY
J. ROY DAVIS, JR.
PRESIDENT,
S & D COFFEE, INC.
CHAIRMAN,
FIRST CHARTER CORPORATION AND
FIRST CHARTER NATIONAL BANK
JAMES B. FINCHER
OWNER,
MINERAL SPRINGS FEED & FERTILIZER CO.
H. CLARK GOODWIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
BANK OF UNION
FRANK H. HAWFIELD, JR.
OWNER AND PRESIDENT,
FRANK H. HAWFIELD, INC.
D/B/A FIRESTONE HOME AND AUTO
J. KNOX HILLMAN, JR.
PRESIDENT,
SHUFORD INSURANCE AGENCY, INC.
BRANSON C. JONES
CONSULTING VICE PRESIDENT,
OILES AMERICA CORPORATION
LAWRENCE M. KIMBROUGH
PRESIDENT AND
CHIEF EXECUTIVE OFFICER,
FIRST CHARTER CORPORATION AND
FIRST CHARTER NATIONAL BANK
DUARD C. LINN, JR.
VICE CHAIRMAN,
FIRST CHARTER CORPORATION AND
FIRST CHARTER NATIONAL BANK
ROBERT F. LOWRANCE
PRESIDENT,
A & A REALTY
JERRY E. MCGEE, ED. D.
PRESIDENT,
WINGATE UNIVERSITY
HUGH H. MORRISON
PRESIDENT,
E. L. MORRISON CO., INC.
T. DAVID PROPST
PRESIDENT,
EARL'S TIRE STORE
ROBERT L. WALL
RETIRED
JAMES B. WIDENHOUSE
PRIVATE INVESTOR
BANK OF UNION BOARD OF DIRECTORS
JOHN A. CROOK, JR.
J. EARL CULBRETH
DENNISON A. DAVIS
WILLIAM C. DESKINS, M.D.
JAMES B. FINCHER
H. CLARK GOODWIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BANK OF UNION
EARL J. HAIGLER
FRANK H. HAWFIELD, JR.
CHARLES E. HULSEY
CALLIE F. KING
JOSEPH L. LITTLE
FRED C. LONG
JERRY E. MCGEE, ED. D.
DAVID C. MCGUIRT
LANE D. VICKERY
OFFICERS OF FIRST CHARTER CORPORATION
ROBERT O. BRATTON
EXECUTIVE VICE PRESIDENT, CHIEF OPERATING
OFFICER, TREASURER AND CHIEF FINANCIAL
OFFICER
J. ROY DAVIS, JR.
CHAIRMAN OF THE BOARD
ROSE W. EDWARDS
ASSISTANT CORPORATE SECRETARY
PHILLIP M. FLOYD
EXECUTIVE VICE PRESIDENT
ANNE C. FORREST
ASSISTANT CORPORATE SECRETARY
ROBERT G. FOX, JR.
EXECUTIVE VICE PRESIDENT
H. CLARK GOODWIN
EXECUTIVE VICE PRESIDENT
DAVID E. KEUL
ASSISTANT TREASURER
LAWRENCE M. KIMBROUGH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DUARD C. LINN, JR.
VICE CHAIRMAN
JAMES T. MATHEWS, JR.
SENIOR VICE PRESIDENT
EDWARD B. MCCONNELL
SENIOR VICE PRESIDENT
KATHRYN B. REESE
SENIOR VICE PRESIDENT
JAMES W. TOWNSEND, JR.
CORPORATE SECRETARY
39
<PAGE>
FIRST CHARTER NATIONAL BANK
OFFICERS
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C> <C>
John R. Baker Vice President Mavadell D. Freeman Banking Officer James T. Mathews, Jr. Senior Vice
Cheryl P. Barbee Banking Officer/ Melba M. Funderburk Banking Officer President
Assistant Linda S. Gibson Vice President Edward B. McConnell Senior Vice
Corporate Gerald R. Goodman Banking Officer President
Secretary Linda H. Griffin Assistant Vice Nancy L. Mills Vice President
Lisa B. Boylen Vice President President Michael J. Mittelman, Jr. Vice President
Robert O. Bratton Executive Vice R. Dwight Henry Vice President Dawn W. O'Dell Vice President
President Donald E. Hopkins Vice President Elizabeth Quesenberry Banking Officer
Gayle S. Brinson Banking Officer Patricia K. Horton Senior Vice Elizabeth K. Reed Vice President
Lisa T. Burns Internal Auditor President Kathryn B. Reese Senior Vice
Kenneth W. Caldwell Senior Vice Brian A. Ingold Assistant Vice President
President President/ Katherine L. Schiele Banking Officer
Elizabeth L. Cline Assistant Vice Senior Auditor Brenda S. Simpson Banking Officer
President Donna J. Kenney Senior Vice Nancy B. Smith Trust Officer
Deborah S. Cloninger Banking Officer President Pamela S. Slough Banking Officer
John R. Coley Vice President David E. Keul Vice President/ Gordon M. Stallings Assistant Vice
Carolyn M. Craver Assistant Trust Assistant President
Officer Corporate James E. Steere, III Assistant Vice
Deborah R. Deese Banking Officer Secretary President
Denise S. Dorr Banking Officer Lawrence Kimbrough President and J. W. Townsend, Jr. Senior Vice
Rose W. Edwards Assistant Vice CEO President/
President Brenda K. Kinley Assistant Vice Corporate
Thomas J. Elkins Vice President President Secretary
Phillip M. Floyd Executive Vice Marie E. Kluttz Vice President Nancy S. Verble Assistant Vice
President Charla L. Kurtz Vice President President
Anne C. Forrest Assistant Angela R. Lovelace Banking Officer Monica R. Walters Banking Officer
Corporate Sandra J. Mansur Assistant Vice Ann K. Williams Assistant Vice
Secretary President President
Robert G. Fox, Jr. Executive Vice Jerold L. Marlow Senior Vice
President President
Judith C. Fuller Vice President
BANK OF UNION
OFFICERS
William R. Adcock Vice President Patricia C. Jamison Assistant Vice Terry M. Richardson Assistant Vice
Wendy T. Barnhardt Assistant Cashier President & President
Todd C. Bennington Vice President Assistant W. Farrell Richardson Vice President
Barbara J. Cherry Assistant Cashier Secretary Pamela P. Sanders Assistant Vice
William E. Davis Senior Vice Don E. Lewis Senior Vice President &
President President Assistant
Charlie E. Efird, Jr. Vice President David C. McGuirt Executive Vice Secretary
H. Clark Goodwin President and President & A. Ray Singleton, Jr. Senior Vice
CEO Secretary President
Angela S. Helms Assistant Teresa L. Mills Assistant Vice Linda D. Thomas Assistant Vice
Secretary President President
Karen F. Hodge Assistant Vice Lisa C. Moore Assistant Harvey F. Whitley Executive
President Cashier Director
Alice K. Holmes Vice President Mary Margaret Nance Assistant BOU Financial,
Secretary Inc.
</TABLE>
40
<PAGE>
(Map appears here depicting the Full Service Offices of First Charter
National Bank and Bank of Union.)
Report Design: Premark, Inc., High Point, NC
Photography: J&B Kluttz Photography, Concord, NC
Printing: Concord Printing Company, Concord, NC
<PAGE>
First Charter Corporation
Concord, NC
<PAGE>
Exhibit 21.1
FIRST CHARTER CORPORATION
Affiliated Companies
As of March 22, 1996
Listed below are the subsidiaries of the Company, all of which are
wholly owned and are owned directly by the Company, unless otherwise indicated.
First Charter National Bank
Bank of Union
BOU Financial, Inc. (1)
(1) Owned by Bank of Union
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Charter Corporation
We consent to the incorporation by reference in the Registration Statement of
First Charter Corporation (the "Corporation") on Form S-3 (No. 33-52004), the
Registration Statement of the Corporation on Form S-8 (No. 33-60949), the
Registration Statement of the Corporation on Form S-4 (No. 33-63157) as
amended by the Corporation's Post-Effective Amendment No.1 thereto on Form S-8
and the Registration Statement of the Corporation on Form S-8 (No. 333-00321),
of our report dated January 19, 1996, relating to the consolidated balance
sheets of First Charter Corporation and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1995, which report appears in the December 31, 1995 Annual Report
to Shareholders and is incorporated by reference in the Form 10-K of First
Charter Corporation.
First Charter adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," on December 31, 1993 and Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," on January 1, 1993.
KPMG Peat Marwick LLP
Charlotte, North Carolina
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 30642
<INT-BEARING-DEPOSITS> 3000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 132358
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 332743
<ALLOWANCE> 4856
<TOTAL-ASSETS> 509395
<DEPOSITS> 415056
<SHORT-TERM> 29748
<LIABILITIES-OTHER> 5653
<LONG-TERM> 5514
<COMMON> 31180
0
0
<OTHER-SE> 22244
<TOTAL-LIABILITIES-AND-EQUITY> 509395
<INTEREST-LOAN> 29356
<INTEREST-INVEST> 7250
<INTEREST-OTHER> 588
<INTEREST-TOTAL> 37194
<INTEREST-DEPOSIT> 14085
<INTEREST-EXPENSE> 1125
<INTEREST-INCOME-NET> 21984
<LOAN-LOSSES> 1465
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 15689
<INCOME-PRETAX> 10223
<INCOME-PRE-EXTRAORDINARY> 10223
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7003
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 5.35
<LOANS-NON> 2287
<LOANS-PAST> 242
<LOANS-TROUBLED> 300
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4131
<CHARGE-OFFS> 941
<RECOVERIES> 201
<ALLOWANCE-CLOSE> 4856
<ALLOWANCE-DOMESTIC> 4856
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
