<PAGE>
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
For the fiscal year ended December 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15829
FIRST CHARTER CORPORATION
(Exact name of registrant as specified in its Charter)
North Carolina 56-1355866
(State or other jurisdiction of (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 19, 1997 was $ 111,557,480 .
As of March 19, 1997 the Registrant had outstanding 6,309,438 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, 1996 (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 1997 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, 1996
TABLE OF CONTENTS
PART I
Page
Item 1. Business...................................... 1
Item 2. Properties.................................... 25
Item 3. Legal Proceedings............................. 27
Item 4. Submission of Matters to a Vote of Security
Holders..................................... 27
Item 4A. Executive Officers of the Registrant.......... 27
PART II
Item 5. Market For Registrant's Common Equity and
Related Shareholder Matters................ 28
Item 6. Selected Financial Data....................... 28
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 28
Item 8. Financial Statements and Supplementary Data... 28
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..... 28
PART III
Item 10. Directors and Executive Officers of the
Registrant................................. 29
Item 11. Executive Compensation........................ 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management...................... 29
Item 13. Certain Relationships and Related
Transactions............................... 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................ 30
<PAGE>
Part I
Item 1. Business
General
First Charter Corporation (hereinafter referred to as either the
"Registrant" or the "Company") is a multi-bank holding company established as a
North Carolina Corporation in 1983 and is 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
92% of the Registrant's consolidated assets and consolidated revenues. The
principal executive offices of the Company are located at 22 Union Street,
North, Concord, North Carolina 28025.
Its telephone number is (704) 786-3300.
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 sixteen ATMs (automatic
teller machines) located in Cabarrus, Rowan and northern Mecklenburg Counties,
North Carolina. The ATMs are part of the HONOR network. FCNB expects to install
at least three additional ATMs during the first half of 1997.
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. Union provides general banking services through a network of five branch
offices and one full service ATM located in Union and southern Mecklenburg
Counties, North Carolina. Union expects to install two more full service ATM's
by the end of 1997.
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
pursuant to a third party arrangement with UVEST Investment Services.
At December 31, 1996, the Registrant and its subsidiaries had 188
full-time employees and 64 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.
As part of its operations, the Registrant is not dependent upon a
single customer or a few customers whose loss would have a material adverse
effect on the Registrant.
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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 may from time to time 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. As a registered bank holding company, the Registrant is
subject to the supervision of, and to regular inspection by, the Board of
Governors of the Federal Reserve System (the "Federal Reserve"). FCNB is
organized as a national banking association and is subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency
(the "OCC") and to regulation by the Federal Deposit Insurance Corporation (the
"FDIC"). Union is organized as a state-chartered banking association and is
subject to regulation, supervision and examination 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
FDIC.
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.
2
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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 now acquire banks in states other than its home
state, without regard to the permissibility of such acquisition under state law,
but 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).
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 branching in such states, or
to "opt in" at an earlier time, thereby allowing interstate branching 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
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interstate de novo branching on a reciprocal basis until June 1, 1997, and
unrestricted interstate de novo branching thereafter.
Regulation of the Banks. As a national banking association, FCNB 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. As a federally-insured, non-member bank, Union is also
subject to regulation, supervision and examination by the FDIC. North Carolina
law, the Banking Commission and the FDIC collectively regulate 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.
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. The risk-based guidelines define a
two-tier capital framework, under which the Company and each of the Banks is
required to maintain a minimum ratio of Tier 1 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%. With respect to the Company, Tier 1 Capital
generally consists of total stockholders' equity calculated in accordance with
generally accepted accounting principals less certain intangibles, and Total
Capital generally consists of Tier 1 Capital plus certain adjustments, the
largest of which for the Company is the general allowance for loan losses (up to
1.25% of risk-weighted assets). Tier 1 Capital must comprise at least 50% of the
Total Capital. Risk-weighted assets refer to the on- and off-balance sheet
exposures of the Company, as adjusted for one of four categories of risk-weights
established in Federal Reserve, OCC and FDIC regulations, based primarily on
relative credit risk.
In addition to the risk-based capital requirements described above, the
Company and each of the Banks are subject to a leverage capital requirement.
Under these guidelines, the Company and the Banks must maintain a minimum ratio
of Tier 1 Capital to total assets of 3-5%.
At December 31, 1996, 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 on the next page.
4
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<TABLE>
<CAPTION>
RISK BASED CAPITAL
(Dollars in
thousands) Leverage Capital Tier I Capital Total Capital
Amount Percentage (1) Amount Percentage (2) Amount Percentage (2)
<S> <C> <C> <C> <C> <C> <C>
Actual $57,654 11.06% $57,654 14.91% $62,491 16.16%
Required 20,855 4.00 15,480 4.00 30,960 8.00
Excess 36,799 7.06 42,174 10.91 31,531 8.16
</TABLE>
(1) Percentage of total adjusted average 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.
The federal regulatory agencies may from time to time require that a
banking organization maintain capital above the minimal levels whether because
of its financial condition or actual or anticipated growth.
Prompt Corrective Action under FDICIA. The Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), among other things, identifies
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 such agencies may
take action against a financial institution that does not meet the applicable
standards.
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%, a Total Capital ratio of at least
10% and a leverage ratio of at least 5% and not be subject to a capital
directive order. An "adequately capitalized" institution must have a Tier 1
Capital ratio of at least 4%, a Total Capital ratio of at least 8% and a
leverage ratio of at least 4%, or 3% in some cases. Under these guidelines, each
of the Banks is considered well capitalized.
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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. This
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider 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
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, these banking agencies intend
to propose further regulations to establish an explicit risk-based capital
charge for interest rate risk.
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 declared in any calendar year
without approval of the OCC is the sum of its net profits (as defined by
statute) for that year and its net retained profits for the preceding two years.
In 1997, FCNB can initiate dividend payments without the approval of the OCC of
an amount not exceeding its net retained profits for 1995 and 1996
(approximately $11,048,000) plus an additional amount equal to its net profits
for 1997 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. In 1997, Union can initiate dividend payments
without the approval of the North Carolina Banking Commission of an amount of
approximately $6,722,000 plus an additional amount equal to its net profits for
1997 up to the date of any such dividend declaration.
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
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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 $0.0129 per $100 of deposits.
Source of Strength. According to Federal Reserve 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 introduced in Congress, in the
state legislatures and before the various bank regulatory agencies.
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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 5 through 28) and
Management's Discussion and Analysis of Financial Condition and Results of
Operations (pages 29 through 39), both of which are incorporated herein by
reference to the First Charter Corporation 1996 Annual Report to Shareholders.
All historical financial data prior to 1995 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, 1996, 1995, and
1994 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
1996 1995 1994
(Dollars in thousands) 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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1) (2) (3) $347,565 $32,478 9.34% $305,729 $29,356 9.60% $263,180 $22,941 8.72%
Securities Available for
sale - taxable 64,773 4,073 6.29 36,571 2,433 6.65 35,732 2,389 6.69
Securities available for
sale - nontaxable (4) 64,511 5,135 7.96 6,421 484 7.54 - - -
Investment securities -
taxable - - - 31,829 1,963 6.17 32,567 1,762 5.41
Investment securities -
nontaxable (4) - - - 39,807 3,347 8.41 44,414 3,848 8.66
Federal funds sold 3,148 171 5.43 5,455 326 5.98 5,266 219 4.16
Interest-bearing bank
deposits 8,612 458 5.32 9,751 588 6.03 3,017 132 4.38
Total $488,609 $42,315 8.66% $435,563 $38,497 8.84% $384,176 $31,291 8.15%
Interest bearing liabilities:
Demand deposits $ 69,953 1,344 1.92% $ 64,430 $ 1,285 2.00% $ 61,397 $ 1,213 1.98%
Money market accounts 40,726 1,152 2.83 42,364 1,208 2.85 48,080 1,129 2.35
Savings deposits 113,355 5,706 5.03 102,043 5,098 5.00 80,211 3,203 3.99
Other time deposits 139,570 7,701 5.52 117,620 6,494 5.52 105,770 4,337 4.10
Other borrowings 26,664 1,353 5.06 21,530 1,125 5.22 15,360 666 4.34
Total $390,268 $17,256 4.42% $347,987 $15,210 4.37% $310,818 $ 10,548 3.39%
Net interest income and
spread $25,059 4.24% $23,287 4.47% $20,743 4.75%
Net yield on interest
earning assets (5) 5.13% 5.35% 5.40%
</TABLE>
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(1) Includes loan fees of approximately $340,000 in 1996, $319,000 in 1995,
$279,000 in 1994.
(2) The preceding analysis takes into consideration the principal amount of
nonaccruing loans and only income actually collected on such loans.
(3) Loans are shown net of unearned income.
(4) Yields on nontaxable securities are stated on a fully taxable equivalent
basis, assuming a Federal tax rate of 34% for 1996, 1995 and 1994. The
adjustments made to convert to a fully taxable equivalent basis were
$1,746,000 for 1996, $1,303,000 for 1995 and $1,308,000 for 1994.
(5) Represents net interest income as a percentage of total average interest
earning assets.
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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, 1996 and 1995. 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 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Table 2
Volume and Rate Variance Analysis
(Dollars in thousands) From Dec. 31, 1995 to Dec. 31, 1996 From Dec. 31, 1994 to Dec. 31, 1995
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
Rate/ Total Rate/ Total
Volume Rate Volume Change Volume Rate Volume Change
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ (108) $ (841) $ 3,963 $ 3,122 $ 377 $ 2,518 3,897 $ 6,415
Securities Available for
Sale - Taxable (103) (185) 1,825 1,640 -- (12) 56 44
Securities Available for
Sale - Non-Taxable 245 150 4,501 4,651 -- -- 484 484
Investment Securities
Taxable -- -- (1,963) (1,963) (6) 244 (43) 201
Nontaxable -- -- (3,347) (3,347) 12 (108) (393) (501)
Total securities 142 (35) 1,016 981 6 124 104 228
Federal funds sold 13 (23) (132) (155) 3 97 10 107
Interest bearing bank deposits (8) (65) (65) (130) (111) 106 350 456
Total interest income 39 (964) 4,782 3,818 275 2,845 4,361 7,206
Interest expense:
Demand deposits (4) (50) 108 58 1 12 60 72
Money market accounts 0 (9) (47) (56) (29) 228 (149) 79
Savings deposits 4 41 567 608 219 914 981 1,895
Other time deposits (1) (5) 1,212 1,207 168 1,587 570 2,157
Other borrowings (8) (38) 267 229 55 163 295 458
Total interest expense (9) (61) 2,107 2,046 414 2,904 1,757 4,661
Net interest income $ 30 $ (903) $ 2,675 $ 1,772 $ (139) $ (59) $2,604 $ 2,545
</TABLE>
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The following table presents the Company's interest sensitivity
analysis for December 31, 1996 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.
The mortgage-backed securities are shown at their weighted average
expected life obtained from an outside evaluation of the average
remaining life of each security based on historic prepayment speeds of
the underlying mortgages at December 31, 1996. 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, 1996
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 $ 10,850 $ - $ - $ 10,850 $ - $ - $ - $ 10,850
Securities available
for sale, at amortized cost:
Taxable 4,351 5,236 6,665 16,252 22,023 8,818 11,119 58,212
Nontaxable 100 1,238 303 1,641 4,724 11,667 53,140 71,172
Loans 180,896 5,200 11,975 198,071 30,132 67,764 64,706 360,673
Total earning assets 196,197 11,674 18,942 226,813 56,879 88,249 128,965 500,907
Interest-Bearing Liabilities
Interest-bearing deposits:
Demand deposits 76,644 - - 76,644 - - - 76,644
Money market accounts 36,253 - - 36,255 - - - 36,255
Savings deposits 34,631 7,728 8,352 50,709 28,147 - 36,617 115,473
Other time deposits 70,198 18,962 34,383 123,543 17,294 46 97 140,980
Other borrowings 5,714 - - 5,714 521 - 21,026 27,261
Total interest-bearing
liabilities 223,440 26,690 42,735 292,865 45,962 46 57,740 396,613
Interest sensitivity
gap $ (27,243) $(15,016) $ (23,793) $ (66,052) $ 10,917 $ 88,203
Cumulative gap $ (27,243) $(42,259) $ (66,052) $ (66,052) $(55,135) $ 33,068
Ratio of earning assets
to interest-bearing
liabilities 87.81% 43.74% 44.32% 77.45% 123.68%
</TABLE>
11
<PAGE>
Distribution of Assets and Liabilities
The following table shows the distribution of the Company's assets,
liabilities and shareholders' equity at December 31, 1996, 1995, and 1994.
Average balances were calculated based on daily averages.
<TABLE>
<CAPTION>
Table 4
Average Balance Sheet
Years Ended December 31,
1996 1995 1994
(Dollars in thousands) Average Percentage Average Percentage Average Percentage
Balance Distribution Balance Distribution Balance Distribution
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 21,978 4.2% $ 26,134 5.6% $ 21,192 5.1%
Interest bearing bank deposits 8,612 1.6 9,751 2.1 3,017 0.7
Investment securities - taxable -- -- 31,829 6.8 32,567 7.8
Investment securities - nontaxable -- -- 39,807 8.5 44,414 10.7
Securities available for sale
- taxable 64,773 12.4 36,571 7.8 35,732 8.6
Securities available for sale
- nontaxable 64,511 12.3 6,421 1.4 -- --
Loans, net (1) 342,573 65.5 301,291 64.6 259,333 62.6
Federal funds sold 3,148 0.7 5,455 1.2 5,266 1.3
Other assets 17,529 3.3 8,977 2.0 12,905 3.2
Total $523,124 100.0% $466,236 100.0% $414,426 100.0%
Liabilities and shareholders' equity Deposits:
Demand (2) $142,859 27.3% $129,269 27.7% $116,339 28.1%
Savings 113,355 21.6 102,043 21.9 80,211 19.3
Insured money market 40,726 7.8 42,364 9.1 48,080 11.6
Time 139,570 26.7 117,620 25.2 105,770 25.5
Other borrowings 26,664 5.1 21,530 4.6 15,360 3.7
Other liabilities 3,582 0.7 3,129 0.7 2,886 0.7
Shareholders' equity 56,368 10.8 50,281 10.8 45,780 11.1
Total $523,124 100.0% $466,236 100.0% $414,426 100.0%
</TABLE>
(l) Loans, net is net of unearned income and the allowance for loan losses.
(2) Demand includes non-interest bearing and interest bearing demand deposits.
12
<PAGE>
Securities Available for Sale
The following table shows, as of December 31, 1996, 1995 and 1994, 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
(Dollars in thousands) December 31,
Securities Available for Sale:
1996 1995 1994
U.S. Government obligations $ 28,099 $ 23,363 $ 18,042
U.S. Government agency obligations 11,583 26,524 10,895
Mortgage-backed securities 14,514 18,290 5,330
State and municipal obligations 72,050 59,053 --
Equity securities 5,876 5,128 3,264
$132,122 $132,358 $ 37,531
Investment Portfolio
The following table shows, as of December 31, 1996, 1995 and 1994, 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
(Dollars in thousands) December 31,
Investment Securities - Debt
1996 1995 1994
U.S. Government obligations $-- $ -- $ 5,968
U.S. Government agency obligations -- -- 15,582
Mortgage-backed securities -- -- 16,592
State and municipal obligations -- -- 43,973
$-- $ -- $82,115
13
<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, 1996. Mortgage-backed securities are presented at their contractual
maturity date. Actual maturities will differ from contractual maturities because
borrowers have the right to pre-pay these obligations without pre-payment
penalties. Yields are determined based on amortized cost. Yields are stated on a
tax equivalent basis assuming a Federal income tax rate of 34% in 1996.
<TABLE>
<CAPTION>
Table 7
Securities Available for Sale
As of December 31, 1996
(Dollars in thousands)
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
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations $ 7,746 7.67% $20,353 7.14% $ -- --% $ -- --%
U.S. Government
Agency Obligations 6,732 6.44 4,851 6.88 -- -- -- --
Mortgage-Backed
Securities -- -- 1,293 5.69 8,670 6.35 4,551 7.32
State & Municipal
Obligations 1,657 9.25 16,962 8.58 38,147 7.28 15,284 7.40
Equity securities -- -- -- -- -- -- 5,876 5.06
Total $16,135 7.43% $43,459 7.98% $46,817 7.75% $25,711 7.33%
</TABLE>
As of December 31, 1996, 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, 1996, there were no investment securities classified
as held to maturity.
14
<PAGE>
Loan Portfolio
The table below summarizes loans in the classifications indicated as
of December 31, 1996, 1995, 1994, 1993, and 1992.
<TABLE>
<CAPTION>
Table 8
Loan Portfolio Composition
(Dollars in thousands) December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 52,340 $ 54,319 $ 51,700 $ 48,884 $ 43,518
Real estate - construction
and development 41,160 33,737 29,621 20,790 23,149
Real estate - mortgage 228,886 209,281 174,359 151,939 141,839
Installment 38,287 35,702 32,183 27,670 23,219
Total loans 360,673 333,039 287,863 249,283 231,725
Less - allowance for loan
losses (5,128) (4,856) (4,131) (3,900) (3,958)
Unearned income (192) (296) (201) (88) (73)
Loans, net $ 355,353 $ 327,887 $ 283,531 $ 245,295 $ 227,694
</TABLE>
15
<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, 1996. This table
excludes nonaccrual loans.
Table 9
Maturities and Sensitivity to
Change in Interest Rates
December 31, 1996
(Dollars in thousands) After l
l year Year through After
or less 5 Years 5 Years Total
Commercial, financial
and agricultural $22,216 $28,774 $ 770 $ 51,760
Real estate
construction and
development 23,342 17,495 26 40,863
Total $45,558 $46,269 $ 796 $ 92,623
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, 1996
(Dollars in thousands)
Predetermined interest rate $23,000
Floating or adjustable interest rate 24,065
16
<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 1996 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 reflects 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, 1996, 1995, 1994, 1993, and 1992.
<TABLE>
<CAPTION>
Table 10
Accruing Loans 90 Days or More Past Due
Accruing Percentage of
Loans 90 Such Loans to
Days or Gross Gross Loans
(Dollars in thousands) More Loans Outstanding
Past Due Outstanding By Category
<S> <C> <C> <C>
December 31, 1996
Commercial, financial and
agricultural $ 34 $ 52,339 .06%
Real estate - construction
and development 49 41,160 .12
Real estate - mortgage 432 228,887 .19
Installment 109 38,287 .28
Total $ 624 $360,673 .65%
December 31, 1995
Commercial, financial and
agricultural $ 27 $ 54,319 .05%
Real estate - construction
and development - 33,737 -
Real estate - mortgage 162 209,281 .08
Installment 52 35,702 .15
Total $ 241 $333,039 .28%
December 31, 1994
Commercial, financial and
agricultural $ 56 $ 51,700 .11%
Real estate - construction
and development - 29,621 -
Real estate - mortgage 969 174,359 .56
Installment 185 32,183 .58
Total $1,210 $287,863 1.25%
December 31, 1993
Commercial, financial and
agricultural $ 9 $ 48,884 .02%
Real estate - construction
and development - 20,790 -
Real Estate - mortgage 170 151,939 .11
Installment 38 27,670 .14
Total $ 217 $249,283 .27%
Table 10 is continued on page 18.
17
<PAGE>
Table 10 (Concluded)
Accruing Loans 90 Days or More Past Due
Accruing Percentage of
Loans 90 Such Loans to
Days or Gross Gross Loans
(Dollars in thousands) More Loans Outstanding
Past Due Outstanding By Category
December 31, 1992
Commercial, financial and
agricultural $ 27 $ 43,518 .06%
Real estate - construction
and development - 23,149 -
Real estate - mortgage 140 141,839 .10
Installment 49 23,219 .21
Total $ 216 $231,725 .37%
</TABLE>
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>
<CAPTION>
Table 11
Non-accrual and Restructured Loans
December 31,
1996 1995 1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans
Principal balance outstanding $1,338 $2,287 $2,521 $2,316 $2,316
Interest income recorded during
the year $ 42 $ 37 $ 143 $ 77 $ 77
Interest income that would have
been recorded if the loans had
been current and accruing $ 163 $ 280 $ 262 $ 209 $ 197
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
</TABLE>
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.
18
<PAGE>
Summary of Loan Loss and Recovery Experience
The table below presents certain data for the years ended December 31,
1996, 1995, 1994, 1993, and 1992, 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>
<CAPTION>
Table 12
Summary of Loan Loss and Recovery Experience
(Dollars in thousands) Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Average loans, net of unearned
income $347,565 $305,729 $263,180 $235,383 $223,262
Allowance for loan losses:
Beginning balance $ 4,856 $ 4,131 $ 3,900 $ 3,958 $ 3,165
Add provision for loan losses 920 1,465 839 835 942
5,776 5,596 4,739 4,793 4,107
Loan charge-offs:
Commercial, financial and
agricultural 285 472 625 713 224
Real estate - construction
and development - - - - 15
Real estate - mortgage 48 82 73 84 99
Installment 659 387 193 221 129
992 941 891 1,018 467
Recoveries of loans previously
charged-off:
Commercial, financial and
agricultural 143 57 125 44 53
Real estate - construction
and development 3 - - - 86
Real estate - mortgage 12 3 110 19 92
Installment 186 141 48 62 87
344 201 283 125 318
Loan charge-offs, net 648 740 608 893 149
Ending balance $ 5,128 $ 4,856 $ 4,131 $ 3,900 $ 3,958
Net charge-offs to average loans .19% .24% .23% .38% .07%
Allowance for loan losses to
average loans, net of
unearned income 1.48 1.59 1.57 1.66 1.77
Allowance for loan losses to
gross loans at year-end, excluding
loans held for sale 1.42 1.46 1.44 1.57 1.71
</TABLE>
For a discussion of management's evaluation of the allowance for loan loss,
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 1996
Annual Report to Shareholders, incorporated herein by reference.
19
<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, 1996, 1995, 1994, 1993, and
1992. 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 1996 Annual Report to Shareholders, incorporated herein by
reference.
<TABLE>
<CAPTION>
Table 13
Allowance for Loan Losses
Percentage of
(Dollars in thousands) Percentage Gross Loans in
Allowance of Total Each Category
Amount Allowance to Total Loans
December 31, 1996
<S> <C> <C> <C>
Type of Loan:
Commercial, financial and
agricultural $1,304 25% 15%
Real estate - construction and
development 640 12 11
Real estate - mortgage 2,768 55 63
Installment 416 8 11
Total $5,128 100% 100%
December 31, 1995
Type of Loan:
Commercial, financial and
agricultural $ 874 18% 16%
Real estate - construction and
development 477 10 10
Real estate - mortgage 2,985 61 63
Installment 520 11 11
Total $4,856 100% 100%
December 31, 1994
Type of Loan:
Commercial, financial and
agricultural $1,487 36% 18%
Real estate - construction and
development 354 8 10
Real estate - mortgage 1,844 45 61
Installment 446 11 11
Total $4,131 100% 100%
Table 13 is continued on page 21.
19
<PAGE>
Table 13
Allowance for Loan Losses (Concluded)
(Dollars in thousands) Percentage of
Percentage Gross Loans in
Allowance of Total Each Category
Amount Allowance to Total Loans
December 31, 1993
Type of Loan:
Commercial, financial and
agricultural $1,833 47% 20%
Real estate - construction and
development 325 8 8
Real estate - mortgage 1,327 34 61
Installment 415 11 11
Total $3,900 100% 100%
December 31, 1992
Type of Loan:
Commercial, financial and
agricultural $ 910 23% 19%
Real estate - construction and
development 610 15 10
Real estate - mortgage 2,017 51 61
Installment 421 11 10
Total $3,958 100% 100%
</TABLE>
21
<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, 1996, 1995, and 1994. Average balances were
calculated based on daily averages.
<TABLE>
<CAPTION>
Table 14
Deposits
As of December 31,
1996 1995 1994
Avg. Avg. Avg.
(Dollars in thousands) Average Interest Rate Average Interest Rate Average Interest Rate
Balance Expense Paid Balance Expense Paid Balance Expense Paid
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand
deposits $ 72,906 $ - - $ 64,839 $ - - $ 54,942 $ - -
Interest bearing deposits:
Demand deposits 69,953 1,344 1.92% 64,430 1,285 2.00% 61,397 1,213 1.98%
Insured money markets 40,726 1,152 2.83 42,364 1,208 2.85 48,080 1,129 2.35
Savings deposits 113,355 5,706 5.03 102,043 5,098 5.00 80,211 3,203 3.99
Time deposits 139,570 7,701 5.52 117,620 6,494 5.52 105,770 4,337 4.10
Total $363,604 $15,903 $326,457 $ 14,085 $295,458 $ 9,882
Total deposits $436,510 $15,903 $391,296 $ 14,085 $350,400 $ 9,882
</TABLE>
As of December 31, 1996, domestic time deposits of $100,000 or more totaled
$38,954,000, with the following maturities: $20,697,000, three months or less;
$4,920,000, over three months through six months; $7,164,000, over six months
through twelve months and $6,173,000, over one year through five years.
22
<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, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Table 15
Other Borrowings
Interest Maximum
Balance Rate Avg. Outstanding
(Dollars in thousands) as of as of Average Int. at Any
Dec. 31 Dec. 31 Balance Rate Month-End
<S> <C> <C> <C> <C> <C>
1996
Federal funds purchased,
securities sold under
agreements to purchase
and FHLB borrowings $27,261 5.05% $26,664 5.06% $30,028
1995
Federal funds purchased,
securities sold
under agreements to
repurchase and
FHLB borrowings $35,262 5.42% $21,530 5.22% $38,650
1994
Federal funds purchased,
securities sold
under agreements to
repurchase, and
FHLB borrowings $22,441 5.20% $15,360 4.33% $22,441
</TABLE>
At December 31, 1996, the Banks had three available lines of credit with the
FHLB totaling $66.5 million with $6,167,372 outstanding. The outstanding amounts
consisted of $3,000,000 maturing in 1997, $468,750 maturing in 1999, $1,428,622
maturing in 2001, $700,000 maturing in 2003, and $570,000 maturing in 2011. At
December 31, 1996, 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 FHLB stock and qualifying 1-4 family
residential mortgage loans.
23
<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, 1996, 1995, and 1994. Averages are based on daily balances.
<TABLE>
<CAPTION>
Table 16
Return on Equity and Assets
December 31,
(Dollars in thousands 1996 1995 1994
except per share amounts)
<S> <C> <C> <C>
Net income $ 8,853 $ 7,003 $ 6,570
Average shareholders' equity 56,368 50,281 45,780
Average total assets 523,124 466,236 414,426
Dividends declared 3,775 2,618 1,893
Dividends per share .60 .52 .41
Primary and fully diluted
income per share 1.40 1.11 1.05
Return on average assets 1.69% 1.50% 1.59%
Return on average equity 15.71 13.93 14.34
Dividend payout ratio 42.64 37.38 28.81
Average equity to average assets ratio 10.76 10.78 11.05
</TABLE>
24
<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, currently 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.
An Agreement to lease a facility containing approximately 4,633 square
feet of office space, which is intended to house the Trust Department beginning
in 1997, was executed September 23, 1996. The term is for a three year period
beginning October 1, 1996 and ending September 30, 1999, with an option to renew
for one five year period. Lease payments under the agreement are $5,358.84 per
month.
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 three 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, have drive-in teller
facilities. FCNB maintains ATMs at its branches in Charlotte, Concord,
Cornelius, Harrisburg, Huntersville, Kannapolis, Landis and Midland, along with
four remote ATMs in the following locations: Highway 29, South in Concord, in
Cabarrus Memorial Hospital in Concord, Poplar Tent Texaco in Concord, and
Jimmy's BP Convenience in Concord.
The Branchview Shopping Center branch, the Huntersville branch, the
sites for all four remote ATMs and a small portion of the main office are leased
from third parties. The rest of the aforementioned FCNB properties and ATMs are
owned free of any encumbrances.
The monthly rents for the Branchview and Huntersville branches are
$1,151.94 and $3,500, respectively. The respective leases expire in 1997 and
1999, and each have remaining renewal options of five years. The monthly rents
for three remote ATMs located in Cabarrus Memorial Hospital, Poplar Tent Texaco
and Jimmy's BP, range from $125 to $300. The monthly rent for the remote ATM
located on Highway 29, South is $2,250. All original leases for the ATM sites,
except Cabarrus Memorial Hospital, are for periods of five years each ending in
2000 and 2001, with two additional renewal options of five years each. The site
at Cabarrus Memorial Hospital is currently under a second of three additional
three year renewal options.
FCNB owns two separate properties in northeast Mecklenburg County for
future branch expansion. Both properties could accommodate full service branches
with drive-in teller facilities, if desired, for future development.
25
<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 on which it intends
to place a full service ATM during the first half of 1997.
The Indian Trail branch of Union contains approximately 2,400 square
feet and during late 1996, a full service ATM was added to the property. 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 is located 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 is located in a building containing
approximately 2,520 square feet which is owned by Union in fee simple.
The Matthews branch of Union 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. The original agreement provided for options to renew the lease
for up to three consecutive additional terms of one year each. Union exercised
its final option to renew, which expired on March 31, 1996. As of April, 1996,
monthly lease payments of $3,000 are being paid per a month-to-month agreement
with the third party. Property for a new branch has been purchased and plans for
construction are estimated to be completed during the later part of the fourth
quarter, 1997, or the first quarter of 1998. Management expects it will be able
to continue its month to month lease arrangement with the third party at the
present site until such time as new branch construction is complete and
available for occupancy.
Union's mortgage loan department is located in Monroe, in a building
containing approximately 2,000 square feet, which is leased from a third party
under an agreement providing for a current term of three years which expires on
February 28, 2000. Union has options to renew the lease for up to three
consecutive additional terms of three years each. As of March 1, 1997, lease
payments under the agreement will be $2,200 per month.
26
<PAGE>
Item 3. Legal Proceedings
The Corporation and the Banks are defendants in certain claims and
legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the
consolidated operations, liquidity or financial position of the Corporation or
the Banks.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
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.
<TABLE>
<CAPTION>
Name Age Office and Position - Year Elected
<S> <C> <C>
Lawrence M. Kimbrough 56 President and Chief Executive Officer 1986 - Present
of the Registrant and FCNB
Robert O. Bratton 48 Executive Vice President, Chief 1983 - Present
Operating Officer and Chief
Financial Officer of the
Registrant and FCNB
Vice President of Union 1996 - Present
Robert G, Fox, Jr. 47 Executive Vice President 1993 - Present
of the Registrant and FCNB and
Credit Administrator of FCNB
Vice President of Union 1996 - Present
Senior Vice President and 1989 - 1993
Senior Credit Officer
Barclays Bank of NC
H. Clark Goodwin 62 Executive Vice President of the 1995 - Present
Registrant and Union and
President and Chief Executive 1985 - Present
Officer of Union
Edward B. McConnell 50 Executive Vice President of the
Registrant and FCNB 1996 - Present
Vice President of Union 1996 - Present
Senior Vice President, FCNB 1995 - 1996
Senior Vice President, First Union 1994 - 1995
President, Crown National Bank 1993 - 1994
President, Barclays Bank of NC 1987 - 1992
</TABLE>
27
<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 back
cover of the First Charter Corporation 1996 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 1996 Annual Report to Shareholders (included herein 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 29 through 39
in the First Charter Corporation 1996 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 5 through 28
of the First Charter Corporation 1996 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
28
<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 1997
Annual Meeting of Shareholders under the captions "Election of Directors",
"Management Ownership of Common Stock" and "Section 16(a) Beneficial Ownership
Reporting Compliance," 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 1997 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 1997 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 1997 Annual Meeting of Shareholders under the caption
"Certain Relationships and Related Transactions" and is hereby incorporated by
reference.
29
<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 1996 Annual
Report to Shareholders (included herein as Exhibit 13.1) as set forth in
Item 8:
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
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.
<TABLE>
<CAPTION>
Exhibit No.
(per Exhibit
Table in
Item 601 of
Regulation S-K) Description of Exhibits
<S> <C>
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, 1995 (Commission
File No. 0-15829).
3.2 By-laws of the Registrant, as amended, incorporated herein by reference to Exhibit 3.2 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File No.
0-15829).
30
<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 reference 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 Description of Executive Incentive Bonus Plan.
*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 incorporated herein by
reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 (Commission File No. 0-15829).
*10.9 Restricted Stock Award Program, incorporated herein by reference to Exhibit 99.1 of the
Registrant's Registration Statement No. 33-60949.
31
<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 incorporated herein by
reference to Exhibit 10.12 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 (Commission File No. 0-15829).
*10.13 Change in Control Agreement dated October 16, 1996 for Edward B. McConnell.
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, 1996.
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.
</TABLE>
* Indicates a management contract or compensatory plan required to be filed
herein.
32
<PAGE>
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the three
months ended December 31, 1996.
33
<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 19, 1997
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:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Lawrence M. Kimbrough President and Director March 19, 1997
(Lawrence M. Kimbrough) (Principal Executive
Officer)
/s/ J. Roy Davis, Jr. Chairman of the Board March 19, 1997
(J. Roy Davis, Jr.) and Director
/s/ Branson C. Jones Vice Chairman of the March 19, 1997
(Branson C. Jones) Board and Director
/s/ Robert O. Bratton Executive Vice President March 19, 1997
(Robert O. Bratton) (Principal Financial and
Principal Accounting Officer)
/s/ William R. Black Director March 19, 1997
(William R. Black)
/s/ Jane B. Brown Director March 19, 1997
(Jane B. Brown)
/s/ Grady S. Carpenter Director March 19, 1997
(Grady S. Carpenter)
/s/ Michael R. Coltrane Director March 19, 1997
(Michael R. Coltrane)
/s/ James B. Fincher Director March 19, 1997
(James B. Fincher)
/s/ H. Clark Goodwin Director March 19, 1997
(H. Clark Goodwin)
/s/ Frank H. Hawfield Director March 19, 1997
(Frank H. Hawfield)
34
<PAGE>
Signature Title Date
Director
(J. Knox Hillman, Jr.)
/s/ Robert F. Lowrance Director March 19, 1997
(Robert F. Lowrance)
/s/ Jerry E. McGee Director March 19, 1997
(Jerry E. McGee)
/s/ Hugh H. Morrison Director March 19, 1997
(Hugh H. Morrison)
/s/ T. David Propst Director March 19, 1997
(T. David Propst)
Director
(Robert L. Wall)
/s/ James B. Widenhouse Director March 19, 1997
(James B. Widenhouse)
</TABLE>
35
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No.
(per Exhibit
Table in
Item 601 of Sequential
Regulation S-K) Description of Exhibits Page No
<S> <C> <C>
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, 1995
(Commission File No. 0-15829).
3.2 By-laws of the Registrant, as amended, incorporated herein by reference to Exhibit 3.2 of
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-15829).
*10.1 Comprehensive Stock Option Plan, incorporated herein by reference 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 Description of Executive Incentive Bonus Plan.
*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, incorporated
herein by reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995 (Commission File No. 0-15829).
*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, incorporated herein by reference to Exhibit 10.12 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995 (Commission File No. 0-15829).
*10.13 Change in Control Agreement dated October 16, 1996 for Edward B. McConnell.
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, 1996. 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.
</TABLE>
* Indicates a management contract or compensatory plan required to be filed
herein.
<PAGE>
<PAGE>
Exhibit 10.3
Description of Executive Incentive Bonus Plan
First Charter Corporation maintains an Executive Incentive Bonus Plan
(the "Bonus Plan") for executive officers, from which performance-oriented
bonuses may be paid to certain key executive officers in any given year. The
Compensation Committee of the Board of Directors (the "Committee") annually
determines the executive officers eligible to participate in the Bonus Plan. In
general, those executives that are considered to have major policy input with
respect to the Corporation, or who are in a position to generate a major impact
on the Corporation's earnings, are selected to participate in the Bonus Plan.
Actual bonuses paid pursuant to the Bonus Plan are based on various return on
assets ("ROA") levels of the Corporation at fiscal year end. No bonuses may be
paid unless the Corporation reaches a minimum ROA, determined at the beginning
of each year.
Pursuant to the Bonus Plan, the Committee annually establishes a bonus
pool amount for each participating executive, which is equal to a given
percentage of the base salary of such executive. Such percentages are determined
based on the executive's relative responsibilities and ability to impact the
financial and operating performance of the Corporation. At year-end, the
Committee applies a multiple to the bonus pool amounts to determine the actual
amounts available to be awarded to participants. The multiple used is based on a
scale of various ROA amounts as determined by the Committee at the beginning of
a fiscal year. Of the amount eligible to be paid to a participant, 50% is paid
to the executive on a non-discretionary basis. The remaining half of the
eligible amount may be paid to the participant, in the discretion of the
Committee, based on the participant's individual performance. When evaluating
the performance of a participant, the Committee considers the Corporation's
actual operating performance (such as reduced levels of past due loans, reduced
levels of non-performing and restructured loans, improvements in asset quality
and corresponding reductions in provision amounts, increased noninterest income
and continued control of corporate expenses) in relation to its targeted long
range action plan and the executive's ability to impact the various components
thereof. Other criteria considered include the executive's initiative,
contribution to overall corporate performance and managerial ability.
The officers eligible to receive bonuses are Robert O. Bratton, Phillip
M. Floyd, Robert G. Fox, Jr., H. Clark Goodwin, Lawrence M. Kimbrough, Edward B.
McConnell and David C. McGuirt.
<PAGE>
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT is made and entered into as of the
16th day of October , 1996 by and between FIRST CHARTER CORPORATION (the
"Company"), a North Carolina corporation, and Edward B. McConnell ("Employee"),
an individual residing in Charlotte, 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. In order to induce
Employee to continue employment with the Bank 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 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 other
willful acts which Employee knew or reasonably should have
known would be materially detrimental to the Company or the
Bank.
i
<PAGE>
(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 any of the Company's incentive bonus
plans 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 any
of the Company's such incentive bonus plans; 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 lease 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 lease 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.
(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 any of the Company's incentive bonus plan.
2
<PAGE>
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 3 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 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.
3
<PAGE>
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
all the 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.
(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:
EMPLOYEE:
(SEAL)
4
<PAGE>
FIRST CHARTER CORPORATION Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
<C> <C> <C>
NET INCOME PER SHARE COMPUTED AS FOLLOWS:
PRIMARY:
1. Net income...................................................... $ 8,852,873 $ 7,003,062
2. Weighted average common shares outstanding...................... 6,290,176 6,227,851
3. Incremental shares under stock options
computed under the treasury stock method
using the average market price of issuer's
stock during the periods..................................... 37,066 56,074
4. Weighted average common shares and common
equivalent shares outstanding................................ 6,327,242 6,283,925
5. Net income per share............................................ $ 1.40 $ 1.11
(Item 1 Divided by Item 4)
FULLY DILUTED:
1. Net income...................................................... $ 8,852,873 $ 7,003,062
2. Weighted average common shares outstanding...................... 6,290,176 6,228,139
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............................................... 44,605 67,833
4. Weighted average common shares and common
equivalent shares outstanding................................ 6,334,781 6,295,972
5. Net income per share............................................ $ 1.40 $ 1.11
(Item 1 Divided by Item 4)
<PAGE>
FIRST CHARTER CORPORATION Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (Continued)
Year Ended
December 31,
1994
NET INCOME PER SHARE COMPUTED AS FOLLOWS:
PRIMARY:
1. Net income.................................................................... $ 6,569.674
2. Weighted average common shares outstanding.................................... 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................................................... 42,421
4. Weighted average common shares and common
equivalent shares outstanding.............................................. 6,280,718
5. Net income per share.......................................................... $ 1.05
(Item 1 Divided by Item 4)
FULLY DILUTED:
1. Net income.................................................................... $ 6,569,674
2. Weighted average common shares outstanding.................................... 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............................................................. 46,718
4. Weighted average common shares and common
equivalent shares outstanding.............................................. 6,281,018
5. Net income per share.......................................................... $ 1.05
(Item 1 Divided by Item 4)
</TABLE>
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
First Charter Corporation
22 Union Street, North
PO Box 228
Concord, NC 28026-0228
(704) 786-3300
Toll Free 1-800-422-4650
AUDITORS
KPMG Peat Marwick LLP
Suite 2800
Two First Union Center
Charlotte, NC 28282
CORPORATE COUNSEL
Smith Helms Mulliss & Moore, LLP
214 North Church Street
Charlotte, NC 28202
SUBSIDIARIES
First Charter National Bank
PO Box 228
Concord, NC 28026-0228
Bank of Union
201 North Charlotte Avenue
Monroe, NC 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
Cabarrus Country Club Concord, NC April 29, 1997 at 3:00 p.m.
FORM 10-K
Copies of First Charter Corporation's Annual Report to the Securities and
Exchange Commission, Form 10-K, may be obtained without charge by writing:
Robert O. Bratton
Chief Financial Officer
First Charter Corporation
PO Box 228
Concord, NC 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. The table
also sets forth per share cash dividend information for the periods indicated.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Resources" contained elsewhere in this report for a
description of limitations on the ability of the Corporation to pay dividends.
As of January 24, 1997, there were 2,207 shareholders of record of the
Corporation's Common Stock.
QUARTERLY COMMON STOCK PRICE RANGES AND DIVIDENDS
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
QUARTER HIGH LOW DIVIDEND High Low Dividend
- ----------------------------------------------------------------------------------------------------------------
First $ 21.63 $ 19.50 $ .15 $ 15.25 $ 14.50 $ .13
- --------------------------------------------------------------------------------------------------------------
Second 20.50 17.75 .15 19.25 14.50 .13
- --------------------------------------------------------------------------------------------------------------
Third 19.25 18.25 .15 21.25 18.50 .13
- --------------------------------------------------------------------------------------------------------------
Fourth 22.50 18.25 .15 22.50 20.50 .13
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<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, 1996.
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.
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) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income............................... $ 40,569 $ 37,194 $ 29,983 $ 26,021 $ 25,791
Interest expense.............................. 17,256 15,210 10,548 9,358 10,799
Net interest income........................... 23,313 21,984 19,435 16,663 14,992
Provision for loan losses..................... 920 1,465 839 835 942
Net interest income after provision for
loan losses............................... 22,393 20,519 18,596 15,828 14,050
Noninterest income............................ 6,271 5,392 4,758 5,007 4,495
Noninterest expense........................... 16,074 15,688 14,131 13,823 13,218
Income before income taxes.................... 12,590 10,223 9,223 7,012 5,327
Income taxes.................................. 3,737 3,220 2,653 1,828 1,212
Net income before cumulative effect
of change in accounting principle......... 8,853 7,003 6,570 5,184 4,115
Cumulative effect of change in
accounting principle...................... -- -- -- 300 --
Net income.................................... $ 8,853 $ 7,003 $ 6,570 $ 5,484 $ 4,115
PER SHARE DATA:
Net income before cumulative effect of
accounting change (primary and
fully diluted)............................ $ 1.40 $ 1.11 $ 1.05 $ 0.82 $ 0.65
Net income (primary and fully diluted)........ 1.40 1.11 1.05 0.87 0.65
Cash dividends declared....................... 0.60 0.52 0.41 0.31 0.25
Period-end book value......................... 9.43 8.57 7.58 7.07 6.34
BALANCE SHEET DATA (AT PERIOD END):
Securities available for sale................. $ 132,122 $ 132,358 $ 37,531 $ 34,613 $ --
Investment securities......................... -- -- 82,115 71,751 101,154
Loans, net.................................... 355,353 327,887 283,531 245,294 227,695
Allowance for loan losses..................... 5,128 4,856 4,131 3,900 3,958
Total assets.................................. 546,856 509,395 447,099 391,594 371,062
Deposits...................................... 455,215 415,056 372,821 336,270 314,605
Borrowed funds................................ 27,261 35,262 22,441 7,450 13,847
Total liabilities............................. 487,447 455,971 399,923 347,398 331,016
Total shareholders' equity.................... 59,409 53,424 47,176 44,196 40,046
RATIOS:
Net income to average shareholders' equity.... 15.71% 13.93% 14.34% 13.10% 10.66%
Net income to average total assets............ 1.69 1.50 1.59 1.48 1.19
Net interest income to average earning assets
(tax equivalent).......................... 5.13 5.35 5.40 5.20 5.01
Average loans to average deposits............. 79.62 78.23 75.11 73.92 75.13
Net loans charged off during period
to average loans.......................... 0.19 0.25 0.23 0.39 0.07
</TABLE>
First Charter Corporation
December 19, 1996
Sixth Draft: 1996 Annual Report
Letter To Shareholders
Dear Fellow Shareholders:
As the contents of this report will confirm, your Corporation enjoyed another
good year in 1996. Our focus was directed toward enhancing the service and value
we offer our customers, both now and in the future. For the year ended December
31, 1996, our net income was a record of $8,852,873 ($1.40 per share), up 26.4%
over the results we achieved in 1995. The increase in earnings for the year was
largely due to a higher level of net interest income as a result of a higher
level of interest earning assets as compared to interest bearing liabilities,
increases in noninterest income, a decrease in the provision for loan losses as
a result of improved asset quality, as well as the absence in 1996 of $1,062,150
of pre-tax merger expenses recorded in 1995 associated with the acquisition of
Bank of Union. We attained a return on average assets of 1.69% in 1996 and a
return on average equity of 15.71%.
These ratios are consistent with our commitment to be among a select group of
the high performance banking companies in the United States. Information
obtained from SNL Securities suggests that as of September 30, 1996, First
Charter Corporation is the nation's 9th most profitable publicly traded bank
holding company with assets over $500 million, based on core returns to average
assets.
. . . FIRST CHARTER CORPORATION IS THE NATION'S 9TH MOST
PROFITABLE PUBLICLY TRADED BANK HOLDING COMPANY WITH
ASSETS OVER $500 MILLION . . .
During 1996, we realized solid growth throughout our balance sheet. Compared to
year-end 1995, our total assets were up 7.4% and our total deposits improved by
9.7%. Strong deposit growth and the strength of our local economy enabled us to
increase loans outstanding by 8.3%. Total shareholders' equity was $59,409,181
at year-end 1996 which represents a book value per share of $9.43 and an equity
to asset ratio of 10.86%.
WE ARE NOW THE LARGEST COMMUNITY BANKING COMPANY IN
THE GREATER CHARLOTTE METROPOLITAN AREA AND ARE
TOTALLY COMMITTED TO COMPETING WITH ANYONE AS TO THE
QUALITY OF SERVICE DELIVERED IN THE EXPANDED RANGE OF
FINANCIAL PRODUCTS PROVIDED.
<PAGE>
Initiatives undertaken during 1996 by our two subsidiaries, First Charter
National Bank and Bank of Union, should enable us to solidify and increase the
deposit market shares we've achieved in all of the markets we serve. We are now
the largest community banking company in the Greater Charlotte Metropolitan Area
and are totally committed to competing with anyone as to the quality of service
delivered in the expanded range of financial products provided.
THIS COMMITMENT LED US TO THE DECISION TO PURCHASE A
DATA-BASED MARKETING SYSTEM, AN EVALUATIVE TOOL TO
HELP IN DETERMINING CUSTOMER PROFITABILITY BY
HOUSEHOLD.
This commitment led us to the decision to purchase a DATA-BASED MARKETING
SYSTEM, an evaluative tool to help in determining customer profitability by
household. We can now analyze our retail customers and prospects in a very
targeted manner, putting us in a position to sell and cross-sell the specific
services best suited to their individual needs. An example of this ability is
our recent solicitation that successfully targeted certain customers for home
equity-based lines of credit.
During 1996, we expanded significantly the scope of the retail services we
provide. The growing fee income that we are realizing from products like
residential mortgages and alternative investment services, such as mutual funds
and annuities, continues to make a greater contribution to our earnings. Such
expansion, always conducted in a manner consistent with our aggressive pursuit
of best practices, is an integral component of our strategic planning and
demonstrates anew First Charter Corporation's absolute dedication to being YOUR
BEST LIFETIME FINANCIAL PARTNER in all of the markets we serve.
FROM A MARKETING STANDPOINT, YOUR CORPORATION
UNDERSTANDS THAT THE CUSTOMER DEFINES CONVENIENCE.
From a marketing standpoint, your Corporation understands that the customer
defines convenience. To this end, we are focused on providing the ALTERNATIVE
DISTRIBUTION CHANNELS that our customers and prospects demand. With this in
mind, we upgraded during the fourth quarter First Charter's already successful
First Phone(TM) 24-HOUR TELEPHONE BANKING SERVICE which now handles over 30,000
customer inquiries per month. In addition, we have introduced this First Phone
service to our Bank of Union customer base and are pleased to report that we've
experienced excellent initial response.
Recognizing the importance of technology in today's increasingly competitive
marketplace, we have acquired a local area network (LAN) and a wide area network
(WAN) that allow us to run advanced desktop computer software systems. This
TECHNOLOGY improves our ability to service loan and deposit customers while
gaining operating efficiencies.
<PAGE>
As you are undoubtedly aware, First Charter has had a successful, growing
AUTOMATIC TELLER MACHINE (ATM) NETWORK in place for a number of years. During
1996, we made the decision to expand this network as a convenience to our Bank
of Union customers. Consequently, in December, we initiated 24-hour ATM service
at the Indian Trail office. We also have plans to install more ATMs in Union
County during 1997. Both subsidiaries are continuing to aggressively market
VISA(R) CheckCard, a convenient DEBIT CARD for check-less shopping that doubles
as an ATM card.
To be an effective competitor today, we must be continually upgrading the skill
levels of our PERSONNEL and also attracting needed talent from outside our
organization when our requirements cannot be met internally. In this regard, we
have hired two highly-qualified professionals who are now assisting with all
aspects of our TRAINING process. As evidenced by our current recruiting efforts,
you can quickly discern that your Corporation recognizes that capable sales
specialists are the very lifeblood of this organization. We have recently
brought on board Employee Benefit and Personal Trust sales representatives;
Series 7 investment counselors through First Charter's association with UVEST(R)
Investment Services, a registered broker dealer; seasoned commercial and retail
lenders; and established mortgage originators.
WHILE WE ARE FORTUNATE INDEED TO SERVE SO MANY
VIBRANT, GROWING MARKETS, WE'RE NOT CONTENT TO LET
SUCH GIFTS OF THE MARKETPLACE BE THE PRIMARY BASIS
FOR ASSUMING OUR CONTINUED GROWTH IN THE FUTURE.
As you can see, we have made substantial investments during 1996 in technology
and personnel. This investment is essential if we are to compete effectively and
to deliver an expanding array of more sophisticated products and services
through both traditional marketing channels (such as branch offices) and
emerging or non-traditional ones (such as phone-based systems, debit cards and
ATMs). While we are fortunate indeed to serve so many vibrant, growing markets,
we're not content to let such gifts of the marketplace be the primary basis for
assuming our continued growth in the future. We choose instead to be vigorously
proactive and aggressively pursue every promising opportunity we identify. In
this way, our customers will benefit from ENHANCED SERVICE; our employees will
enjoy IMPROVED CAREER OPPORTUNITIES; and you, our valued shareholders, should
have ENHANCED PROSPECTS FOR AN INCREASING RETURN on your investment with us.
Sincerely,
Lawrence M. Kimbrough
President and
Chief Executive Officer
<PAGE>
FIRST CHARTER CORPORATION
BOARD OF DIRECTORS
WILLIAM R. BLACK, M.D.
ONCOLOGIST
JANE B. BROWN
PRIVATE INVESTOR
GRADY S. CARPENTER
PRESIDENT,
SECURITY OIL COMPANY, INC.
MICHAEL R. COLTRANE
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
CT COMMUNICATIONS, INC.
J. ROY DAVIS, JR.
OWNER AND CHIEF EXECUTIVE OFFICER,
S&D COFFEE, INC.
CHAIRMAN,
FIRST CHARTER CORPORATION
JAMES B. FINCHER
OWNER AND PRESIDENT,
MINERAL SPRINGS MILLING AND FARM SUPPLIES, INC.
H. CLARK GOODWIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
BANK OF UNION
FRANK H. HAWFIELD, JR.
OWNER AND PRESIDENT,
FIRESTONE HOME AND AUTO SUPPLY STORE
CHAIRMAN, BANK OF UNION
J. KNOX HILLMAN, JR.
OWNER AND CHIEF EXECUTIVE OFFICER,
SHUFORD INSURANCE AGENCY, INC.
BRANSON C. JONES
INDUSTRY CONSULTANT AND ADVISOR,
OILES AMERICA CORPORATION
LAWRENCE M. KIMBROUGH
PRESIDENT AND
CHIEF EXECUTIVE OFFICER,
FIRST CHARTER CORPORATION
ROBERT F. LOWRANCE
OWNER AND PRESIDENT,
A&A REALTY COMPANY
JERRY E. MCGEE
PRESIDENT,
WINGATE UNIVERSITY
HUGH H. MORRISON
PRESIDENT,
E. L. MORRISON CO., INC.
T. DAVID PROPST
PRESIDENT,
EARL'S TIRE STORE, INC.
ROBERT L. WALL
RETIRED
JAMES B. WIDENHOUSE
PRIVATE INVESTOR
BANK OF UNION
BOARD OF DIRECTORS
JOHN A. CROOK, JR.
RETIRED, UTILITY EXECUTIVE
J. EARL CULBRETH
RETIRED, INSURANCE BROKER
J. ROY DAVIS, JR.
OWNER AND CHIEF EXECUTIVE OFFICER,
S&D COFFEE, INC.
CHAIRMAN,
FIRST CHARTER CORPORATION
WILLIAM C. DESKINS, M.D.
PHYSICIAN
MONROE FAMILY MEDICAL CENTER, P.A.
JAMES B. FINCHER
OWNER AND PRESIDENT,
MINERAL SPRINGS MILLING AND FARM SUPPLIES, INC.
H. CLARK GOODWIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
BANK OF UNION
LAWRENCE M. KIMBROUGH
PRESIDENT AND
CHIEF EXECUTIVE OFFICER,
FIRST CHARTER CORPORATION AND
FIRST CHARTER NATIONAL BANK
EARL J. HAIGLER
FARMER
FRANK H. HAWFIELD, JR.
OWNER AND PRESIDENT,
FIRESTONE HOME AND AUTO SUPPLY STORE
CHAIRMAN, BANK OF UNION
CALLIE F. KING
RETIRED
JOSEPH L. LITTLE
RETIRED
FRED C. LONG
RETIRED, LONG WIRING CO., INC.
CONSULTANT, LONG WIRING CO., INC.
JERRY E. MCGEE
PRESIDENT,
WINGATE UNIVERSITY
DAVID C. MCGUIRT
EXECUTIVE VICE PRESIDENT
AND CORPORATE SECRETARY,
BANK OF UNION
LANE D. VICKERY
VICE PRESIDENT,
SCOTT WHOLESALE CO.
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, INC.
MICHAEL R. COLTRANE
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
CT COMMUNICATIONS, INC.
J. ROY DAVIS, JR.
OWNER AND CHIEF EXECUTIVE OFFICER,
S&D COFFEE, INC.
CHAIRMAN,
FIRST CHARTER CORPORATION
JAMES B. FINCHER
OWNER AND PRESIDENT,
MINERAL SPRINGS MILLING AND FARM SUPPLIES, INC.
H. CLARK GOODWIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
BANK OF UNION
FRANK H. HAWFIELD, JR.
OWNER AND PRESIDENT,
FIRESTONE HOME AND AUTO SUPPLY STORE
J. KNOX HILLMAN, JR.
OWNER AND CHIEF EXECUTIVE OFFICER,
SHUFORD INSURANCE AGENCY, INC.
BRANSON C. JONES
INDUSTRY CONSULTANT AND ADVISOR,
OILES AMERICA CORPORATION
LAWRENCE M. KIMBROUGH
PRESIDENT AND
CHIEF EXECUTIVE OFFICER,
FIRST CHARTER NATIONAL BANK
ROBERT F. LOWRANCE
OWNER AND PRESIDENT,
A&A REALTY COMPANY
JERRY E. MCGEE
PRESIDENT,
WINGATE UNIVERSITY
ELLEN LINN MESSINGER
PRIVATE INVESTOR
HUGH H. MORRISON
PRESIDENT,
E. L. MORRISON CO., INC.
T. DAVID PROPST
PRESIDENT,
EARL'S TIRE STORE, INC.
ROBERT L. WALL
RETIRED
JAMES B. WIDENHOUSE
PRIVATE INVESTOR
<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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of
their operations and cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Charlotte, North Carolina
January 13, 1997
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash and due from banks...................................... $ 31,299,721 $ 25,446,543
Interest bearing bank deposits............................... 10,850,344 8,195,529
Securities available for sale:
U.S. Government obligations............................. 28,098,728 23,363,185
U.S. Government agency obligations...................... 11,582,729 26,523,683
Mortgage-backed securities.............................. 14,513,517 18,289,995
State and municipal obligations, nontaxable............. 72,050,072 59,052,874
Other................................................... 5,876,457 5,128,031
Total securities available for sale................. 132,121,503 132,357,768
Loans........................................................ 360,673,182 333,038,730
Less: Unearned income................................... (192,656) (295,701)
Allowance for loan losses......................... (5,127,980) (4,855,540)
Loans, net.............................................. 355,352,546 327,887,489
Premises and equipment, net.................................. 11,384,644 9,833,489
Other assets................................................. 5,847,423 5,674,487
Total assets........................................ $ 546,856,181 $ 509,395,305
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits, domestic:
Noninterest bearing demand.............................. $ 85,863,334 $ 72,285,910
Interest bearing:
NOW accounts........................................ 76,644,227 66,813,791
Time................................................ 253,752,894 248,018,686
Certificates of deposit greater than $100,000....... 38,954,066 27,937,844
Total deposits................................. 455,214,521 415,056,231
Other borrowings............................................. 27,261,454 35,262,202
Other liabilities............................................ 4,971,025 5,652,799
Total liabilities................................... 487,447,000 455,971,232
SHAREHOLDERS' EQUITY:
Common stock - $5 par value; authorized,
10,000,000 shares; issued and outstanding,
6,301,213 shares in 1996 and 6,236,014
shares in 1995.......................................... 31,506,065 31,180,070
Additional paid in capital................................... 578,240 --
Unrealized gains on securities available for sale, net....... 1,669,678 1,666,036
Retained earnings............................................ 25,655,198 20,577,967
Total shareholders' equity.......................... 59,409,181 53,424,073
Total liabilities and shareholders' equity.......... $ 546,856,181 $ 509,395,305
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Interest and fees on loans........................... $ 32,477,637 $ 29,355,702 $ 22,940,715
Federal funds sold................................... 171,254 325,839 219,253
Interest bearing bank deposits....................... 458,434 587,833 131,587
Securities available for sale........................ 7,461,599 2,752,841 2,389,480
Investment securities:
Taxable.......................................... -- 1,962,846 1,762,106
Non-taxable...................................... -- 2,209,227 2,539,854
Total interest income....................... 40,568,924 37,194,288 29,982,995
Interest expense:
Deposits ............................................ 15,901,974 14,085,132 9,882,348
Federal funds purchased and securities
sold under agreements to repurchase.............. 968,820 700,101 293,603
Federal Home Loan Bank borrowings......................... 385,085 424,681 372,105
Total interest expense...................... 17,255,879 15,209,914 10,548,056
Net interest income.................................. 23,313,045 21,984,374 19,434,939
Provision for loan losses................................. 920,000 1,465,000 839,000
Net interest income after provision for loan losses.. 22,393,045 20,519,374 18,595,939
Noninterest income:
Trust income......................................... 1,489,829 1,555,911 1,382,159
Service charges on deposit accounts.................. 2,713,525 2,418,746 2,370,889
Insurance and other commissions...................... 158,050 209,721 220,167
Securities available for sale transactions, net...... 243,417 4,298 3,690
Investment securities transactions, net.............. -- (7,394) 38,761
Other................................................ 1,665,936 1,210,468 742,784
Total noninterest income......................... 6,270,757 5,391,750 4,758,450
Noninterest expense:
Salaries and fringe benefits......................... 8,956,903 7,982,760 7,432,971
Occupancy and equipment.............................. 2,467,472 2,012,837 1,884,713
Other ............................................... 4,649,554 5,692,965 4,813,631
Total noninterest expense........................ 16,073,929 15,688,562 14,131,315
Income before income taxes....................... 12,589,873 10,222,562 9,223,074
Income taxes ............................................ 3,737,000 3,219,500 2,653,400
Net income....................................... $ 8,852,873 $ 7,003,062 $ 6,569,674
PRIMARY INCOME PER SHARE DATA:
Net income....................................... $ 1.40 $ 1.11 $ 1.05
Average common and common
equivalent shares........................... 6,327,242 6,283,925 6,280,718
INCOME PER SHARE DATA ASSUMING FULL DILUTION:
Net income....................................... $ 1.40 $ 1.11 $ 1.05
Average common and common
equivalent shares........................... 6,334,781 6,295,972 6,281,018
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
First Charter Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
Additional on Securities
Common Paid-in Retained Available for
Stock Capital Earnings Sale, Net Total
<S> <C> <C> <C> <C> <C>
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 Divided.......
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, net of
deferred income taxes................. -- -- -- (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, net of
deferred income taxes................. -- -- -- 1,882,622 1,882,622
Balance December 31, 1995................. 31,180,070 -- 20,577,967 1,666,036 53,424,073
Net income for 1996....................... -- -- 8,852,873 -- 8,852,873
Cash dividends of $.60 per share.......... -- -- (3,775,441) -- (3,775,441)
Purchase and retirement of
common stock (22,858 shares).......... (114,290) (371,737) -- -- (486,027)
Stock options exercised and Dividend
Reinvestment Plan stock issued
(88,057 shares)....................... 440,285 949,977 (201) -- 1,390,061
Unrealized gain on securities
available for sale, net of
deferred income taxes................. -- -- -- 3,642 3,642
Balance December 31, 1996................. $31,506,065 $ 578,240 $ 25,655,198 $ 1,669,678 $ 59,409,181
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 8,852,873 $ 7,003,062 $ 6,569,674
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses.............................. 920,000 1,465,000 839,000
Depreciation........................................... 1,237,295 921,278 803,926
Premium amortization and discount accretion, net....... 46,113 (224,590) (26,662)
Net gain on investment securities transactions......... -- (4,298) (38,761)
Net loss (gain) on securities available for sale transactions (243,417) 7,394 (3,690)
Net loss (gain) on sale of premises and equipment...... 3,685 116,692 (7,858)
Origination of mortgage loans held for sale............ (11,011,001) (22,959,719) (12,123,159)
Proceeds from sale of mortgage loans available for sale 10,945,552 22,804,790 13,238,920
Decrease (increase) in other assets.................... 675,900 733,623 (445,620)
Increase (decrease) in other liabilities............... (621,194) 955,625 962,187
Net cash provided by operating activities.......... 10,805,806 10,818,857 9,767,957
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities............... -- 1,725,292 3,010,938
Proceeds from sales of securities available for sale....... 6,091,444 14,930,426 5,598,210
Proceeds from maturities and issuer calls of
investment securities, net............................. -- 34,397,767 35,453,460
Proceeds from maturities of securities available for sale.. 32,343,620 16,695,590 5,457,603
Purchase of investment securities.......................... -- (35,594,564) (48,525,128)
Purchase of securities available for sale.................. (37,957,385) (41,627,902) (15,388,313)
Net increase in loans...................................... (28,750,536) (45,678,491) (40,220,927)
Proceeds from sales of premises and equipment.............. 144,371 30,424 16,463
Purchase of premises and equipment......................... (3,394,882) (2,009,921) (1,383,191)
Net cash used by investing activities.................. (31,523,368) (57,131,379) (55,980,885)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW,
money market, and savings accounts..................... 24,420,567 23,966,500 32,605,664
Net increase in certificates of deposit.................... 15,737,723 18,269,351 3,945,204
Net increase (decrease) in securities sold under repurchase
agreements and other borrowings........................ (8,000,748) 12,820,874 14,990,998
Net increase (decrease) in advances for taxes and insurance (60,580) 35,422 22,121
Purchase of common stock................................... (486,027) (626,416) (1,214,436)
Proceeds from issuance of common stock..................... 1,390,061 575,260 442,183
Pre-merger transactions of pooled bank..................... -- 31,543 2,624
Dividends paid............................................. (3,775,441) (2,618,026) (1,892,627)
Net cash provided by financing activities.............. 29,225,555 52,454,508 48,901,731
Net increase in cash and cash equivalents.............. 8,507,993 6,141,986 2,688,803
Cash and cash equivalents at beginning of period....... 33,642,072 27,500,086 24,811,283
Cash and cash equivalents at end of period............. $ 42,150,065 $ 33,642,072 $ 27,500,086
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................... $ 17,032,108 $ 15,012,643 $ 10,444,613
Income taxes........................................... $ 3,649,605 $ 3,827,600 $ 2,480,299
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Transfers of loans, premises and equipment
to other real estate owned............................. $ 889,304 $ 11,531 $ 77,902
Investment securities transferred to available for sale.... $ -- $ 82,034,110 $ --
Unrealized gain (loss) in value of securities available
for sale (net of tax
effect of $40,468, $1,134,740, and ($561,865),
for 1996, 1995, and 1994, respectively)................ $ 3,642 $ 1,882,622 $ (926,932)
Issuance of stock dividends................................ $ -- $ -- $ 5,798,151
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(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 prior to 1995 has been adjusted to reflect a merger with Bank of
Union in 1995 that was 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. This guide permitted 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 allowed 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 have been 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. Loans are returned to accrual
status when management determines, based on an evaluation of the underlying
collateral together with the borrower's payment record and financial condition,
that the borrower has the ability and intent to meet the contractual obligations
of the loan agreement.
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.
<PAGE>
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.
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 6.
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.
<PAGE>
(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 superseded 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.
Effective January 1, 1993, the Corporation adopted Standard No. 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in 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 - Standard No. 107, "Disclosures
About Fair Value of Financial Instruments" was issued by the FASB in December
1991. Standard No. 107 requires disclosures about the fair value of all
financial instruments. Fair value estimates, methods, and assumptions are set
forth in Note 16.
(J) STOCK-BASED COMPENSATION - Standard No. 123, "Accounting for
Stock-Based Compensation" was issued by the FASB in October 1995. Standard No.
123 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 the 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 adopted Standard No. 123 on
January 1, 1996 and has elected to continue accounting for stock-based
compensation under the provisions of APB 25. The pro forma impact on net income
and earnings per share is disclosed in Note 14.
(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
financial statements prior to 1995 have been restated to combine the accounts of
Union with those of the Corporation.
As of December 21, 1995, there were 2,192,279 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.
<PAGE>
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. In the fourth quarter of 1995, the Corporation
recognized $1,062,150 of costs associated with the Merger. These costs included
legal, accounting, investment banking, regulatory filings, proxy printing and
solicitation expenses.
(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 1995 and 1994 consolidated
financial statements have been made to conform with the financial statement
presentation for 1996. Such reclassifications had no effect on the net income or
shareholders' equity as previously reported.
(4) SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 1996 and 1995 are summarized
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
1996
U.S. Government obligations...................... $ 27,763,740 $ 374,333 $ 39,345 $ 28,098,728
U.S. Government agency obligations............... 11,577,514 31,311 26,096 11,582,729
Mortgage-backed securities....................... 14,524,574 151,400 162,457 14,513,517
State, county and municipal obligations.......... 71,172,313 1,479,677 601,918 72,050,072
Equity securities................................ 4,346,185 1,541,647 11,375 5,876,457
Total ...................................... $ 129,384,326 $ 3,578,368 $ 841,191 $ 132,121,503
1995
U.S. Government obligations...................... $ 22,692,044 $ 678,109 $ 6,968 $ 23,363,185
U.S. Government agency 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
</TABLE>
Securities with an aggregate carrying value of $54,041,012 at December 31,
1996 were pledged to secure public deposits, securities sold under agreements to
repurchase and Federal Home Loan Bank borrowings. Proceeds from the sale of
securities available for sale were $6,091,444 in 1996, $14,930,426 in 1995, and
$5,598,210 in 1994. Gross gains of $265,292 and gross losses of $21,875 were
realized in 1996. Gross gains of $71,424 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. At December 31, 1996, the Corporation owned stock in the
Federal Home Loan Bank of Atlanta with book and market values of $1,519,000,
which is included in equity securities and classified as available for sale.
<PAGE>
(5) INVESTMENT SECURITIES
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 and
$3,010,938 in 1994. 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 $25,812 were realized in
1995. Gross gains of $38,761 and no gross losses were realized in 1994.
(6) LOANS
Loans at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Commercial, financial and agricultural................................... $ 52,339,623 $ 54,318,617
Real estate - construction............................................... 41,159,794 33,736,823
Real estate - commercial................................................. 114,971,261 112,565,538
Real estate - residential................................................ 113,915,511 96,716,000
Installment.............................................................. 38,286,993 35,701,752
Total............................................................... $ 360,673,182 $ 333,038,730
Nonaccrual loans included above.......................................... $ 1,338,060 $ 2,287,210
Restructured loans included above........................................ -- 300,000
Other real estate........................................................ 758,977 61,250
Loans 90 days or more past due and still
accruing included above............................................. 623,967 242,001
Total............................................................... $ 2,721,004 $ 2,890,461
</TABLE>
It is the Corporation's policy to review each prospective credit in order
to determine acceptable repayment terms, levels of collateral required, if any,
and any such other conditions as may be appropriate to secure the credit prior
to commitment. The type of collateral ranges from highly liquid assets, such as
cash on deposits, to unimproved real estate.
Interest income that would have been recorded on nonaccrual loans and
restructured loans for the years ended December 31, 1996, 1995, and 1994, had
they performed in accordance with their original terms, amounted to
approximately $163,000, $307,000, and $298,000, respectively. Interest income on
all such loans included in the results of operations for 1996, 1995, and 1994
amounted to approximately $42,000, $82,000, and $143,000, respectively.
In accordance with Standards No. 114 and No. 118, the recorded investment
in impaired loans was $1,623,924 (of which $1,292,029 was on nonaccrual) and
$2,803,430 (of which $2,127,037 was on nonaccrual) for 1996 and 1995,
respectively. The related allowance for loan losses on these loans was $669,248
and $1,203,959 for 1996 and 1995, respectively. The recorded investment of all
impaired loans for both years had related allowances for loan losses. The
average recorded investment in impaired loans for 1996 was $1,924,719, and the
income recognized during 1996 was $181,905, of which $75,562 was recognized
using the cash method of income recognition. 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.
<PAGE>
Other real estate increased to $758,977 at December 31, 1996 from $61,250
at December 31, 1995. Included in other real estate is the reclassification of
property totaling $434,500 that was originally purchased for the construction of
a branch location. Management has decided not to construct a branch on this
property and thus, the carrying value of this property was reclassified from
premises and equipment to other real estate.
At December 31, 1996 and 1995, the Corporation was not committed to lend
any additional funds to any borrower whose loans are classified as nonaccrual or
impaired.
The following is a reconciliation of loans outstanding to executive
officers, directors and their associates for the year ended December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1995................................................................. $ 8,258,960
New loans.................................................................................... 8,604,149
Principal repayments......................................................................... (7,398,846)
Balance at December 31, 1996................................................................. $ 9,464,263
</TABLE>
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.
(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, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Beginning balance............................................. $ 4,855,540 $ 4,130,778 $ 3,900,303
Add:
Provision charged to operations............................... 920,000 1,465,000 839,000
5,775,540 5,595,778 4,739,303
Less:
Loan charge-offs.............................................. 991,343 941,306 891,314
Less loan recoveries....................................... 343,783 201,068 282,789
Net loan charge-offs..................................... 647,560 740,238 608,525
Ending balance................................................ $ 5,127,980 $ 4,855,540 $ 4,130,778
</TABLE>
(8) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land............................................................................ $ 3,707,109 $ 4,190,485
Buildings....................................................................... 6,532,205 6,193,045
Furniture and equipment......................................................... 9,481,329 7,247,744
Leasehold improvements.......................................................... 671,162 555,440
20,391,805 18,186,714
Less accumulated depreciation and amortization.................................. 9,007,161 8,353,225
Premises and equipment, net..................................................... $ 11,384,644 $ 9,833,489
</TABLE>
<PAGE>
(9) DEPOSITS
The aggregate amount of certificates of deposit with denominations greater
than $100,000 was $38,954,066 and $27,937,844 at December 31, 1996 and 1995,
respectively, and the related interest expense was approximately $2,330,000 and
$1,723,000 in 1996 and 1995, respectively.
At December 31, 1996, the scheduled maturities of all time deposits,
including certificates of deposit greater than $100,000, are as follows:
1997.............................. $ 275,319,714
1998.............................. 15,724,893
1999.............................. 1,417,005
2000.............................. 100,816
2001 and after.................... 144,532
$ 292,706,960
(10) 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
AS OF AS OF AVERAGE INTEREST AT ANY
DECEMBER 31 DECEMBER 31 BALANCE RATE MONTH-END
<S> <C> <C> <C> <C> <C>
1996
Federal funds purchased and securities
sold under agreements
to repurchase ................. $ 21,094,082 4.85% $ 20,114,045 4.81% $ 22,056,756
FHLB borrowings..................... 6,167,372 5.74% 6,549,955 5.88% 7,971,429
Total.......................... $ 27,261,454 $ 26,664,000 $ 30,028,185
1995
Federal funds purchased and securities
sold under agreements
to repurchase ................. $ 27,747,916 5.40% $ 13,794,158 5.08% $ 29,892,869
FHLB borrowings..................... 7,514,286 5.51% 7,735,714 5.47% 8,757,143
Total.......................... $ 35,262,202 $ 21,529,872 $ 38,650,012
</TABLE>
At December 31, 1996, the Banks had three available lines of credit with
FHLB totaling $66.5 million with $6,167,372 outstanding. The outstanding amounts
consist of $3,000,000 maturing in 1997, $468,750 maturing in 1999, $1,428,622
maturing in 2001, $700,000 maturing in 2003, and $570,000 maturing in 2011. 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 FHLB
stock and qualifying 1-4 family residential mortgage loans.
Federal funds purchased represent unsecured overnight borrowings from other
financial institutions by the Banks. Securities sold under agreement to
repurchase represent short-term borrowings by the Banks with maturities ranging
from 1 to 89 days collateralized by securities of the United States government
or its agencies.
<PAGE>
(11) 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>
1996 1995 1994
<S> <C> <C> <C>
Advertising............................................. $ 492,437 $ 429,867 $ 486,496
Professional services................................... 866,457 861,081 866,775
FDIC insurance.......................................... 4,000 422,305 754,081
Stationery and supplies................................. 703,470 560,329 470,974
Merger and reorganization............................... -- 1,062,150 --
All other items......................................... 2,583,190 2,357,233 2,235,305
Total.............................................. $ 4,649,554 $ 5,692,965 $ 4,813,631
</TABLE>
(12) INCOME TAX
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
FEDERAL................................................. $ 3,027,000 $ 161,000 $ 3,188,000
STATE................................................... 501,000 48,000 549,000
TOTAL.............................................. $ 3,528,000 $ 209,000 $ 3,737,000
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
</TABLE>
<PAGE>
Income tax expense was $3,737,000, $3,219,500 and $2,653,400 for the years
ended December 31, 1996, 1995 and 1994, 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>
<CAPTION>
1996 1995 1994
% OF % of % of
PRETAX Pretax Pretax
AMOUNT INCOME Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes.............. $ 12,589,873 $ 10,222,562 $ 9,223,074
Tax at federal income tax rate.......... 4,280,600 34.0% 3,475,671 34.0% 3,135,845 34.0%
Reasons for differences:
Tax exempt income.................. (1,057,310) (8.4) (782,174) (7.7) (815,703) (8.8)
Nondeductible merger expense....... 321,011 3.1 -- --
State income tax, net of
federal benefit................ 362,340 2.9 251,488 2.5 252,166 2.7
Change in deferred tax assets
valuation allowance............ -- -- (32,659) (0.3) -- --
Other.............................. 151,370 1.2 (13,837) (0.1) 81,092 0.9
Total.......................... $ 3,737,000 29.7% $ 3,219,500 31.5% $ 2,653,400 28.8%
</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,
1996 and 1995 are presented below.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred Tax Assets:
Provision for loan losses.................................................. $ 1,346,500 $ 1,531,000
Accrued expenses deductible when paid for tax purposes..................... 130,570 133,000
Other...................................................................... 62,460 21,000
Total gross deferred tax assets........................................ 1,539,530 1,685,000
Less valuation allowance........................................................ -- --
Deferred tax asset, net of valuation allowance.................................. 1,539,530 1,685,000
Deferred Tax Liabilities:
Unrealized gain on securities available for sale........................... (470,700) (728,440)
Deferred loan fees......................................................... (139,400) (175,000)
Fixed assets primarily due to difference in depreciation........................ (107,400) (38,000)
Other .......................................................................... (102,730) (73,000)
Total gross deferred tax liability..................................... (820,230) (1,014,440)
Net deferred tax asset................................................. $ 719,300 $ 670,560
</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 tax benefit of $257,740 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 expense of $209,000.
The valuation allowance for deferred tax assets as of January 1, 1995 was
$32,659. There was no change in the total valuation allowance during 1996, 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 1993 and subsequent years are subject to examination by
taxing authorities.
<PAGE>
(13) RETIREMENT PLAN CONTRIBUTIONS
The Corporation has a qualified Retirement Savings Plan (401(k) Plan) for
all eligible employees of First Charter and Union. Pursuant to the Savings Plan,
an eligible employee may elect to defer between 1% and 10% of compensation. In
addition, the Corporation contributes annually to each participant's account,
out of net profits of the Corporation, 3% of the participant's base compensation
plus a portion of a discretionary matching amount as determined by the Board of
Directors from time to time, allocated to participants' accounts in proportion
to their elective deferrals up to 6% for such year. The Corporation's aggregate
contribution was $559,566, $408,421 and $394,253 for 1996, 1995 and 1994,
respectively.
(14) 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 dividend.
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 1996, the Corporation issued
54,660 shares and the administrator of the DRIP purchased 20,306 shares on the
open market.
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 vest
and 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 400,000 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 "Restricted Stock Plan"). Awards of
restricted stock may be made under the Restricted Stock Plan at the discretion
of the Compensation Committee of the Board of Directors of the Corporation,
which shall determine the key participants, the number of shares awarded to
participants, and the vesting terms and conditions applicable to such awards. A
maximum of 300,000 shares of common stock (as adjusted to reflect stock
dividends) are reserved for issuance under the Restricted Stock Plan. There have
been no shares granted to date under this plan.
Periodically, the Corporation adopts an Employee Stock Purchase Plan (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 and vesting period
is generally for a term of two years. A maximum of 150,000 shares are reserved
for issuance under the 1996 ESPP.
<PAGE>
As described above, the Corporation has three stock-based compensation
plans at December 31, 1996. The Corporation adopted Standard No. 123,
"Accounting for Stock-Based Compensation" on January 1, 1996, and elected to
continue to measure compensation cost relative to these plans using APB No. 25
(APB 25). The disclosure of the pro forma net income and earnings per share as
if the fair value based accounting method of Standard No. 123 had been used to
account for stock-based compensation is required only for awards granted after
December 31, 1994, and is provided below. The effect on pro forma net income for
1995 and 1996 of options granted prior to 1995 has not been determined.
Consequently, the effects of applying Standard No. 123 pro forma disclosures
during the initial phase-in period may not be representative of the effects on
reported net income in future years.
The following table presents the pro forma effect on net income and
earnings per share of applying the fair value provisions of Standard No. 123
discussed above:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
<S> <C> <C>
Net income:
As reported.................................................. $ 8,852,873 $ 7,003,062
Pro forma.................................................... $ 8,682,050 $ 6,807,462
Earnings per share, primary and fully diluted:
As reported.................................................. $ 1.40 $ 1.11
Pro forma.................................................... $ 1.37 $ 1.08
</TABLE>
The fair value of each option granted during 1996 and 1995 was estimated
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 Employee Stock Purchase Plan 1996 1995
---------------------------------
<S> <C>
Dividend yield....................................... 2.9% --
Risk free interest rates............................. 5.11% --
Expected lives....................................... 2 years --
Volatility........................................... 25% --
Comprehensive Stock Option Plan
Dividend Yield....................................... 2.9% 2.9%
Risk free interest rates............................. 6.14% 5.45% and 7.10%
Expected lives....................................... 6 years 6 years
Volatility........................................... 21% 32%
</TABLE>
<PAGE>
The following is a summary of activity under the Comprehensive Plan and the
1996, 1993 and 1991 ESPP. All options outstanding have been adjusted to reflect
the stock dividends.
<TABLE>
<CAPTION>
Option Balance at Balance at
1996 Price January 1 Grants Exercises Forfeits December 31 Exercisable
<S> <C> <C> <C> <C> <C> <C> <C>
INCENTIVE STOCK OPTIONS
Options............ $ 4.37 9,160 -- 3,860 -- 5,300 5,300
............. $ 6.41 20,320 -- 4,080 640 15,600 15,600
............. $10.50 30,526 -- 2,500 1,013 27,013 20,986
............. $14.72 27,200 -- 818 1,973 24,409 14,595
............. $14.75 2,200 -- -- -- 2,200 880
............. $14.88 3,320 -- 664 -- 2,656 664
............. $21.50 28,000 -- -- -- 28,000 11,200
............. $21.50 23,300 -- -- 1,300 22,000 8,800
............. $21.50 -- 38,600 -- -- 38,600 --
Available............. 220,941 (38,600) -- 4,926 187,267 --
1993 EMPLOYEE STOCK
PURCHASE PLAN
Options............ $10.13 21,473 -- 21,473 -- -- --
1996 EMPLOYEE STOCK
PURCHASE PLAN
Options............ $19.80 -- 25,771 -- 2,508 23,263 --
1995
INCENTIVE STOCK OPTION
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 --
</TABLE>
At December 31, 1996, there were 470 shares outstanding under the Union
Stock Option Plan with an average exercise price of $7.62.
<PAGE>
(15) COMMITMENTS, CONTINGENCIES 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, 1996, preapproved but unused lines of credit for
loans totaled $105,883,473 and standby letters of credit aggregated $3,043,057.
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 Corporation and the Banks are defendants in certain claims and legal
actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the
consolidated operations, liquidity or financial position of the Corporation or
the Banks.
The Banks grant primarily commercial and installment loans to customers
throughout their market areas, which consist of Cabarrus, Union, Rowan and
Mecklenburg Counties, North Carolina. 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, 1996 amounted to $1,518,077.
(16) 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.
<PAGE>
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, 1996 At December 31, 1995
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..................... $ 7,698 $ 7,746 $ 4,897 $ 4,922
Due after one year through five years....... 20,066 20,353 17,795 18,441
U.S. Government agency obligations
Due in one year or less..................... 6,723 6,732 5,011 5,034
Due after one year through five years....... 4,854 4,851 21,379 21,490
Mortgage-backed securities....................... 14,525 14,514 18,264 18,290
State, county and municipal obligations:
Due in one year or less..................... 1,641 1,657 976 985
Due after one year through five years....... 16,391 16,962 8,915 9,344
Due after five years through ten years...... 37,823 38,147 34,912 35,495
Due after ten years......................... 15,317 15,284 13,153 13,229
Equity securities................................ 4,346 5,876 4,363 5,128
Total securities available for sale.............. $ 129,384 $ 132,122 $ 129,665 $ 132,358
</TABLE>
LOANS
For purposes of estimating the 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, and thus the carrying amounts are considered to be
fair values.
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, 1996 At December 31, 1995
CARRYING ESTIMATED Carrying Estimated
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE Amount Fair Value
<S> <C> <C> <C> <C>
Commercial, financial and agricultural........... $ 51,760 $ 51,696 $ 53,383 $ 52,780
Real estate - construction....................... 40,863 40,838 33,685 33,304
Real estate - commercial and residential......... 228,461 227,881 207,724 205,376
Installment...................................... 38,251 38,166 35,660 35,257
Nonaccrual and restructured...................... 1,338 899 2,587 1,304
Total Loans...................................... 360,673 359,480 333,039 328,021
Less: Unearned income....................... (192) -- (296) --
Allowance for loan losses............. (5,128) -- (4,856) --
Loans, net............................ $ 355,353 $ 359,480 $ 327,887 $ 328,021
</TABLE>
<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, 1996 At December 31, 1995
CARRYING ESTIMATED Carrying Estimated
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE Amount Fair Value
<S> <C> <C> <C> <C>
Noninterest bearing demand................................. $ 85,863 $ 85,863 $ 72,286 $ 72,286
NOW accounts............................................... 76,644 76,644 66,814 66,814
Time:
Insured money market accounts......................... 36,255 36,255 41,633 41,633
Savings deposits...................................... 115,473 115,473 109,082 109,082
Certificates of deposit............................... 140,980 141,343 125,242 125,386
Total...................................................... $ 455,215 $ 455,578 $ 415,057 $ 415,201
</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, 1996 At December 31, 1995
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......................... $ 21,094 $ 21,094 $ 27,748 $ 27,748
Federal Home Loan Bank advances............................ 6,167 5,999 7,514 7,923
Total..................................................... $ 27,261 $ 27,093 $ 35,262 $ 35,671
</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.
<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 broker
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.
(17) REGULATORY MATTERS
The Corporation and the Banks are subject to various regulatory capital
requirements administered by federal and state banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation and the Banks must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Banks to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to adjusted average assets (as defined). Management believes, as of
December 31, 1996, that the Corporation and the Banks meet all capital adequacy
requirements to which they are subject.
As of December 31, 1996, the most recent notifications from the Federal
Reserve Board, the Office of the Comptroller of the Currency, and the North
Carolina State Banking Commission categorized the Corporation, First Charter,
and Union, respectively, as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, each entity
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed any of the institutions'
categories.
<PAGE>
The Corporation's and each Bank's actual capital amounts and ratios are also
presented in the table below:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Current Prompt
Adequacy Purposes Corrective Action Provisions
Actual Minimum Minimum
(DOLLARS IN THOUSANDS) Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
Total Capital (to Risk Weighted Assets)
Consolidated $ 62,491 16.16 % $ 30,960 8 % $ 38,699 10 %
First Charter National Bank 41,760 15.41 21,682 8 27,103 10
Bank of Union 15,850 14.04 9,032 8 11,289 10
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 57,654 14.91 % $ 15,480 4 % $ 23,220 6 %
First Charter National Bank 38,372 14.16 10,841 4 16,262 6
Bank of Union 14,439 12.79 4,516 4 6,774 6
Tier I Capital (to Adjusted Average Assets)
Consolidated $ 57,654 11.06 % $ 20,855 4 % $ 26,068 5 %
First Charter National Bank 38,372 11.82 12,990 4 16,238 5
Bank of Union 14,439 9.31 5,626 4 7,032 5
At December 31, 1995:
Total Capital (to Risk Weighted Assets)
Consolidated $ 56,155 15.50 % $ 28,990 8 % $ 36,238 10 %
First Charter National Bank 40,821 15.26 21,113 8 26,391 10
Bank of Union 13,037 13.55 7,695 8 9,619 10
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 51,625 14.25 % $ 14,495 4 % $ 21,743 6 %
First Charter National Bank 36,982 14.01 10,556 4 15,834 6
Bank of Union 11,835 12.30 3,848 4 5,772 6
Tier I Capital (to Adjusted Average Assets)
Consolidated $ 51,625 11.12 % $ 18,572 4 % $ 23,215 5 %
First Charter National Bank 36,982 12.69 11,660 4 14,574 5
Bank of Union 11,835 8.86 4,865 4 6,081 5
</TABLE>
(18) 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 they determine that such payment would constitute an
unsafe or unsound practice. At December 31, 1996, the Banks had available
undivided profits of approximately $17,770,000 for payment of dividends without
obtaining prior regulatory approval. At December 31, 1996, approximately
$34,677,000 of the Parent Company's investment in the Banks was restricted as to
transfer to the Parent Company without obtaining prior regulatory approval.
<PAGE>
The Parent Company's balance sheet data as of December 31, 1996 and 1995
and related income and cash flow statement data for each of the years in the
three-year period ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $ 1,398,162 $ 514,456
Securities available for sale........................ 4,071,736 3,012,880
Investment in subsidiaries........................... 53,631,353 50,149,461
Receivable from subsidiaries......................... 1,200,000 794,777
Fixed assets......................................... 552,850 582,850
Other assets......................................... 18,721 20,510
$ 60,872,822 $ 55,074,934
Accrued liabilities.................................. $ 1,463,641 $ 1,650,861
Shareholders' equity................................. 59,409,181 53,424,073
$ 60,872,822 $ 55,074,934
INCOME STATEMENT DATA:
Dividends from subsidiaries.......................... $ 4,600,000 $ 3,750,000 $ 2,450,000
Other operating income (expense)..................... 308,185 (713,294) 103,292
Income before equity in undistributed net
income of subsidiaries........................... 4,908,185 3,036,706 2,553,292
Equity in undistributed net income of subsidiaries... 3,944,688 3,966,356 4,016,382
Net income ................................................. $ 8,852,873 $ 7,003,062 $ 6,569,674
CASH FLOW STATEMENT DATA:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 8,852,873 $ 7,003,062 $ 6,569,674
Net gain on securities available for sale transactions (265,292) -- (74,142)
Increase (decrease) in accrued liabilities........... (485,436) 750,077 218,200
Decrease (increase) in other assets.................. 1,789 (987) --
Increase in receivable from subsidiaries............. (405,223) (194,777) (218,000)
Increase in investment in subsidiaries............... (3,944,688) (3,997,899) (4,019,006)
Net cash provided by operating activities........ 3,754,023 3,559,476 2,476,726
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available for sale securities............ (761,818) (906,251) (478,635)
Purchase of premises and equipment................... -- (815) (587,035)
Proceeds from sale of premises and equipment......... 30,000 5,000 --
Proceeds from sale of securities available for sale.. 732,908 -- 163,741
Net cash provided (used) by investing activities. 1,090 (902,066) (901,929)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of common stock............................. (486,027) (626,416) (1,214,436)
Proceeds from issuance of common stock upon
exercise of stock options........................ 1,390,061 575,260 442,183
Pre-merger transactions of pooled bank............... -- 31,543 2,624
Cash dividends paid.................................. (3,775,441) (2,618,026) (1,892,627)
Net cash used by financing activities................ (2,871,407) (2,637,639) (2,662,256)
Net increase (decrease) in cash.................. 883,706 19,771 (1,087,459)
Cash at beginning of year........................ 514,456 494,685 1,582,144
Cash at end of year.............................. $ 1,398,162 $ 514,456 $ 494,685
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Unrealized gain in value of securities available for
sale (net of tax effect of $298,216, $164,110, and
$55,585, for 1996, 1995 and 1994, respectively).. $ 466,438 $ 256,687 $ 86,942
Unrealized gain (loss) in value of securities available
for sale of the subsidiaries (net of tax effect of
($257,748), ($970,628), and ($617,450), for
1996, 1995 and 1994, respectively)............... $ (462,796) $ 1,625,935 $ (1,013,874)
Issuance of stock dividend........................... $ -- $ -- $ 5,798,151
</TABLE>
<PAGE>
(19) SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996
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............................ $ 9,918 $ 10,026 $ 10,194 $ 10,431 $ 40,569
Total interest expense........................... 4,261 4,296 4,357 4,342 17,256
Net interest income.............................. 5,657 5,730 5,837 6,089 23,313
Provision for loan losses........................ 320 300 200 100 920
Total noninterest income......................... 1,376 1,693 1,505 1,697 6,271
Total noninterest expense........................ 3,617 3,954 4,117 4,386 16,074
Net income before income taxes................... 3,096 3,169 3,025 3,300 12,590
Income taxes..................................... 931 982 837 987 3,737
Net income....................................... $ 2,165 $ 2,187 $ 2,188 $ 2,313 $ 8,853
Per share data:
Primary income per share......................... $ 0.34 $ 0.35 $ 0.35 $ 0.36 $ 1.40
Income per share assuming full dilution.......... $ 0.34 $ 0.35 $ 0.35 $ 0.36 $ 1.40
1995
First Second Third Fourth
(DOLLARS IN THOUSANDS, EXCEPT INCOME PER SHARE) Quarter Quarter Quarter Quarter Total
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
</TABLE>
<PAGE>
FIRST CHARTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<PAGE>
First Charter Corporation (the "Corporation"), headquartered in Concord
NC, is a North Carolina multiple bank holding company with two wholly owned Bank
subsidiaries, First Charter National Bank ("First Charter") and Bank of Union
("Union"). First Charter is a full-service bank and trust company with twelve
offices located in Cabarrus, Rowan and northern Mecklenburg Counties, North
Carolina. Union is a full-service bank with five offices located in Union and
southern Mecklenburg Counties, North Carolina. Union merged with the Corporation
(the "Merger") on December 21, 1995, and was accounted for as a pooling of
interests. Accordingly, all financial data prior to 1995 has been restated to
combine the accounts of Union with those of the Corporation.
Through their 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
1996 VERSUS 1995
OVERVIEW
The Corporation earned $8,852,873, or $1.40 per share in 1996, a 26.4%
increase from $7,003,062 or $1.11 per share in 1995. Key factors contributing to
the increase in net income were an increase of 6% in net interest income, a
reduction in provision for loan losses and the absence of pre-tax merger related
expenses of $1,062,150 incurred in connection with the Merger which was
effective December 21, 1995. These earnings equate to a return on average assets
of 1.69% for 1996, compared to 1.50% for 1995 and a return on average equity of
15.71% in 1996, versus 13.93% in 1995.
Total assets at December 31, 1996, were $546,856,181, up 7.4% from the
level at year-end 1995. Gross loans increased 8.3% to $360,673,182 and total
deposits increased 9.7% to $455,214,521.
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
<PAGE>
by the ability to attract deposits, flexible repricing schedules in a sizable
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 maximize the net interest income while
continuing to provide adequate liquidity to meet continuing loan demand and
withdrawal requirements and to service normal 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 "Balance Sheet
Analysis - 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 margin 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 assess the amount of earnings at risk due to
changes in interest rates. This model is updated monthly 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. These targeted guidelines were
achieved during 1996.
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, 1996 total rate sensitive liabilities due within one
year were $292.9 million compared to rate sensitive assets of $226.8 million for
a cumulative gap of $66.1 million. It should be noted that interest sensitivity
of the Corporation's balance sheet as of a specific date is not necessarily
indicative of the Corporation's position on other dates.
CAPITAL RESOURCES
At December 31, 1996, total stockholders' equity was $59,409,181, an
11.2% increase from 1995. The increase in capital is primarily attributable to
increased retained earnings. Cash dividends declared per share in 1996 were
$0.60 compared to $0.52 in 1995.
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
<PAGE>
that such payment would constitute an unsafe or unsound practice. At December
31, 1996, the Banks had available undivided profits of approximately $17,770,000
for payments of dividends without obtaining prior regulatory approval. At
December 31, 1996, approximately $34,677,000 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 adjusted
average assets of 3% to 5%.
At December 31, 1996, 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>
<CAPTION>
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..................... $57,654 11.06% $57,654 14.91% $62,491 16.16%
Required................... 20,855 4.00 15,480 4.00 30,960 8.00
Excess..................... 36,799 7.06 42,174 10.91 31,531 8.16
</TABLE>
(1) Percentage of total adjusted average 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
<PAGE>
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.
During 1996, stable interest rates and a growing economy created
increased loan demand. Maturities from the portfolio helped to fund the
increased loan demand. Concurrently, short-term agency securities (less than one
year) and U.S. Treasuries (two years to three years) were purchased to primarily
maintain liquidity while in-state municipal securities (maturity range of five
to fifteen years) were purchased to enhance tax equivalent net interest income.
At December 31, 1996, securities available for sale were $132,121,503,
or 24.2%, of total assets compared to $132,357,768 in securities available for
sale, or 26.0%, of total assets at year-end 1995. The fair value of these assets
is approximately $2,737,000 above their amortized cost at December 31, 1996. The
tax equivalent average yield on the securities available for sale portfolio was
7.18% for 1996 and 6.76% for 1995. The average life of the portfolio was 5.42
years at December 31, 1996 compared to 5.99 years at year-end 1995.
LOANS
As a result of continued loan demand during 1996, gross loans increased
8.3% to $360,673,182 at December 31, 1996, from $333,038,730 at December 31,
1995. While loan demand may increase in the future, it may not increase at the
same rate of increase as experienced in previous
years.
The loan portfolio at December 31, 1996 was composed of 14.51%
commercial, financial, and agricultural loans, 11.41% real estate construction
loans, 63.46% real estate mortgage loans, and 10.62% installment loans. This
compares to a composition of 16.31% commercial, 10.13% real estate construction,
62.84% real estate mortgage, and 10.72% installment at December 31, 1995.
Approximately $13,685,000 of the real estate mortgage loans are loans for which
the principal source of repayment comes from the sale of real estate. The
remaining $215,201,409 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 -
$119,889,756, (ii) personal installment loans which are collateralized by real
estate - $43,957,528, (iii) home equity loans - $25,758,923, and (iv) individual
residential mortgage loans - $25,595,202.
ASSET QUALITY
Nonperforming assets, which consists of foreclosed assets, nonaccrual
loans, and restructured loans, were $2,097,037 at December 31, 1996, as compared
to
<PAGE>
$2,648,460 at December 31, 1995. Nonperforming assets as a percentage of loans
and foreclosed assets at year-end amounted to 0.58% in 1996 and 0.80% in 1995.
Total problem assets (nonperforming assets and loans 90 days or more past due)
amounted to $2,721,004 at December 31, 1996 and $2,890,461 at December 31, 1995.
Total problem assets as a percentage of loans and foreclosed assets at year end
was 0.75% in 1996 and 0.87% in 1995.
The components of nonperforming and problem assets are presented in the
table below:
December 31, December 31,
1996 1995
Nonaccrual loans $1,338,060 $2,287,210
Restructured loans --- 300,000
Other real estate 758,977 61,250
Total non-
performing assets 2,097,037 2,648,460
Loans 90 days or more
past due and still
accruing 623,967 242,001
Total problem assets $2,721,004 $2,890,461
Interest income that would have been recorded on nonaccrual loans for
the year ended December 31, 1996, had they performed according to their original
terms, amounted to approximately $163,000. Interest income on nonaccrual loans
included in the results of operations for the year amounted to approximately
$42,000.
Accruing loans 90 days or more past due increased to 0.17% of gross
loans at December 31, 1996 compared to 0.07% of gross loans at December 31,
1995. 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 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 $647,560 or .19% of average loans
compared to $740,238 or .25% of average loans in 1995.
Other real estate increased to $758,977 at December 31, 1996 from
$61,250 at December 31, 1995. Included in other real estate is the
reclassification of property totaling $434,500 that was originally purchased for
the construction of a branch location. Management has decided not to construct a
branch on this property and thus, the carrying value of this property was
reclassified from premises and equipment to other real estate. This property is
currently being marketed and the gain or loss from its sale is not expected to
be significant. Additionally, two residential construction loans were foreclosed
on in December 1996.
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 department. Any issues regarding risk
assessments of those credits are addressed by the Banks' loan administration and
senior credit officer and factored into
<PAGE>
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
Banks. Loans above predetermined amounts are reviewed by the Loan Committee of
the respective 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. The third
party's evaluation and report is shared with Senior Management, the respective
board Loan and Audit Committees and ultimately, reported to the respective Bank
and Corporation Board of Directors.
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 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 "Earnings Performance
- - Allowance and Provision for Loan Losses."
The Banks grant primarily commercial loans secured by real estate and
installment loans to customers throughout their market areas, which consist of
Cabarrus, Rowan, Union and Mecklenburg Counties, North Carolina. 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, 1996, preapproved but unused lines of
credit for loans totaled $105,883,473 and standby letters of credit aggregated
$3,043,057. 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, 1996 were $455,214,521, a 9.7% increase
from a 1995 year-end level of $415,056,231. Average non-interest bearing demand
deposits increased $8.1 million or 12.4%; average interest bearing demand
deposits increased $5.5 million or 8.6%; average insured money market accounts
decreased $1.7 million or 3.9%; average savings deposits increased $11.3 million
or 11.1%; while average certificates of deposit increased $21.2 million or
18.7%. The majority of deposit growth was in certificate of deposit products.
The increase in average certificates of deposit was primarily attributable to
public deposits that were opened in early 1996 with maturities beginning in the
third quarter of 1996.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income, the difference between total interest income and
total interest expense, is the Corporation's principal source
<PAGE>
of earnings. For the year ended December 31, 1996, net interest income was
$23,313,045, an increase of 6.0% from net interest income of $21,984,374 in
1995. The increase is primarily attributable to an increase in the volume of
average interest earnings assets of approximately $53,047,000, offset by a
decline in the net interest margin (tax adjusted net interest income divided by
average interest earning assets) from 5.35% in 1995 to 5.13% in 1996. The
decline in net interest margin is attributable to more growth in higher yielding
deposits, such as certificates of deposit, than in lower yielding deposits, such
as NOW and savings deposits. The increasing loan demand in 1996 necessitated
that the Banks pay attractive interest rates on deposits to fund the loan
growth, as well as maintain current liquidity needs.
The average yield on earning assets was 8.66% in 1996 compared to 8.84%
in 1995. The average rate paid on interest-bearing deposits was 4.24% in 1996
compared to 4.37% in 1995. 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 from 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
changes 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, 1996, 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, 1996.
The provision for loan losses for 1996 was $920,000 compared to
$1,465,000 in 1995. The decrease in the provision was primarily attributable to
a reduction in net charge-offs and improved asset quality. The allowance for
loan losses as a percentage of gross loans outstanding was 1.42% at December 31,
1996 compared to 1.46% at year-end 1995.
NONINTEREST INCOME
Noninterest income was $6,270,757 in 1996 compared to $5,391,750 in
1995 for an increase of 16.3%. The increase in other noninterest income is
attributable to higher securities gains due to the sale of equity securities
held by the Corporation, higher service charge income on deposit accounts
resulting from an increase in non-sufficient fund income, higher credit card
income due to increased volumes, and higher mortgage loan income due to
increased loan originations.
<PAGE>
NONINTEREST EXPENSE
Total noninterest expense was $16,073,929 in 1996 compared to
$15,688,562 in 1995, a 2.5% increase. Salaries and fringe benefits increased
primarily due to higher full-time equivalents and annual merit increases.
Occupancy and equipment increased approximately $455,000 or 22.6%
primarily due to an increase in depreciation expense for new technology added
and the opening of a full service branch. During 1996, the Banks made an
investment in a local area network (LAN) and a wide area network (WAN) which
improves their ability to service loan and deposit customers while gaining
operating efficiencies.
Other noninterest expense decreased $1,043,411, or 18.3%, in 1996 when
compared to 1995. The decrease in 1996 is primarily due to the absence of merger
and acquisition costs associated with the acquisition of Union which totaled
$1,062,150 in 1995. Those costs included 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 $143,000 due to costs associated with providing disclosure and
deposit account statements to Union customers. Additionally, the FDIC insurance
premium was reduced to $500 per quarter for the Banks which resulted in a
savings of approximately $418,000. Based on legislation passed in 1996, FDIC
insurance expense will increase to an annual rate of 1.29 cents per $100 of
deposits or approximately $60,000 for the Banks in 1997.
Total income tax expense for 1996 was $3,737,000 versus $3,219,500 in
1995. The increase is attributable to an increase in taxable income which is
partially offset by a decrease in the effective tax rate to 29.7% in 1996 from
31.5% in 1995. The change in the effective rate is primarily attributable to
nondeductible merger and acquisitions costs incurred in 1995 and an increase in
tax-exempt income from municipal securities in 1996.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
1995 VERSUS 1994
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 the pre-tax expenses of $1,062,150 connected with the
Merger. Legal, accounting, investment banking, regulatory filing, proxy printing
and solicitation expenses associated with the Merger represented the largest
portion of the costs incurred, all in the fourth quarter of 1995. These earnings
equated 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.
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
<PAGE>
attempt to maintain a stable net interest margin. The fair value of securities
available for sale was 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 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.
The loan portfolio at December 31, 1995 was composed of 16.3%
commercial, financial, and agricultural loans, 10.1% real estate construction
loans, 62.9% real estate mortgage loans, and 10.7% installment loans. This
compares to a composition of 18.0% commercial, 10.3% real estate construction,
60.5% real estate mortgage, and 11.2% installment at December 31, 1994.
Problem 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 problem assets is presented in the table below:
December 31, December 31,
1995 1994
Nonaccrual loans $2,287,210 $2,521,489
Restructured loans 300,000 325,000
Loans 90 days or more
past due and still
accruing 242,001 1,209,867
Other real estate 61,250 1,881,700
Total problem assets $2,890,461 $5,938,056
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.
Net charge-offs for 1995 were $740,238 or .25% of average loans
compared to $608,525 or .23% of average loans in 1994.
Other real estate declined 96.7% to $61,250 at December 31, 1995 from
$1,881,700 at December 31, 1994. The decrease in other real estate is primarily
due to the sale of two commercial real estate properties. These sales resulted
in gains of approximately $188,000.
Total deposits at December 31, 1995 were $415,056,231, an 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.
<PAGE>
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% in 1995 compared to 3.39% in 1994.
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.
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.
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 costs associated
with the Merger of Union of $1,062,150. These costs included 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 was not allowed.
<PAGE>
ACCOUNTING AND REGULATORY MATTERS
On June 28, 1996, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
(Statement). This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
The provisions of Statement 125 were to be effective for all transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. In December 1996, the FASB issued Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" that amended Statement 125 to
delay the effective date of implementing Statement 125 as it relates to certain
transactions. The effective date of the implementation of the provisions of
Statement 125 to these transactions is for transfers occurring after December
31, 1997. Early application of Statement 125, as amended by Statement 127, is
not permitted. The application of the provisions of Statement 125, as amended by
Statement 127, is not anticipated to have a material impact on the Corporation's
financial condition or results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The foregoing discussion contains forward-looking statements about the
Corporation's financial condition and results of operations, which are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's judgment only as of the date hereof. The Corporation
undertakes no obligation to publicly revise these forward-looking statements to
reflect events and circumstances that arise after the date hereof.
Factors that may cause actual results to differ materially from these
forward-looking statements are the passage of unforeseen state or federal
legislation or regulation applicable to the Corporation's operations and the
Corporation's ability to accurately predict loan loss provision needs using its
present risk grading system.
<PAGE>
FIRST CHARTER CORPORATION
OFFICERS
<PAGE>
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
BRIAN A. INGOLD
SENIOR AUDITOR
DAVID E. KEUL
ASSISTANT TREASURER AND
ASSISTANT CORPORATE SECRETARY
LAWRENCE M. KIMBROUGH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JAMES T. MATHEWS, JR.
SENIOR VICE PRESIDENT
EDWARD B. MCCONNELL
EXECUTIVE VICE PRESIDENT
KATHRYN B. REESE
SENIOR VICE PRESIDENT
JAMES W. TOWNSEND, JR.
CORPORATE SECRETARY
<PAGE>
FIRST CHARTER NATIONAL BANK
OFFICERS
<PAGE>
Harvey E. Baker, Vice President
John R. Baker, Vice President
Cheryl P. Barbee, Assistant Corporate
Secretary and Assistant Vice
President
Lisa B. Boylen, Vice President
Robert O. Bratton, Executive Vice President
Gayle S. Brinson, Banking Officer
Kenneth W. Caldwell, Senior Vice President
Julie J. Carter, Assistant Vice President
Elizabeth L. Cline, Assistant Vice President
Deborah S. Cloninger, Banking Officer
Rodney D. Cook, Banking Officer
Deborah W. Craig, Assistant Vice President
Carolyn M. Craver, Assistant Trust Officer
Deborah R. Deese, Assistant Vice President
Shelly K. DeVille, Banking Officer
Denise Dorr, Assistant Vice President
Rose W. Edwards, Assistant Corporate
Secretary
Thomas J. Elkins, Senior Vice President
Phillip M. Floyd, Executive Vice President
Anne C. Forrest, Assistant Corporate
Secretary
Robert G. Fox, Jr. Executive Vice President
Mavadell D. Freeman, Banking Officer
Melba M. Funderburk, Banking Officer
Linda S. Gibson, Vice President
Linda H. Griffin, Assistant Vice President
R. Dwight Henry, Vice President
Robin T. Hinson, Banking Officer
Donald E. Hopkins, Vice President
Patricia K. Horton, Senior Vice President
Brian A. Ingold, Assistant Vice President and
Senior Auditor
Robin L. Kennedy, Banking Officer
Donna J. Kenney, Senior Vice President
David E. Keul, Vice President and Assistant
Corporate Secretary
Lawrence M. Kimbrough, President and
Chief Executive Officer
Brenda K. Kinley, Assistant Vice President
Marie E. Kluttz, Vice President
Angela R. Lovelace, Banking Officer
Sandra J. Mansur, Assistant Vice President
Jerold L. Marlow, Senior Vice President
James T. Mathews, Jr., Senior Vice President
Edward B. McConnell, Executive Vice
President
Nancy L. Mills, Vice President and Trust Officer
Michael J. Mittelman, Jr., Vice President
Dawn W. O'Dell, Assistant Vice President
Danny H. Patton, Vice President and Trust
Officer
Elizabeth G. Quesenberry, Banking Officer
Elizabeth K. Reed, Vice President and Trust
Officer
Kathryn B. Reese, Senior Vice President
Katherine L. Schiele, Banking Officer
Brenda S. Simpson, Banking Officer
Nancy B. Smith, Trust Officer
Gordon M. Stallings, Assistant Vice President
J. W. Townsend, Jr., Senior Vice President and
Corporate Secretary
Nancy S. Verble, Assistant Vice President
Monica R. Walters, Banking Officer
L. Eugene Willard, Senior Vice President
Ann K. Williams, Assistant Vice President
Patricia G. Witter, Vice President and Trust
Officer
BANK OF UNION
OFFICERS
<PAGE>
William R. Adcock, Vice President
Harvey E. Baker, Vice President
Wendy T. Barnhardt, Assistant Cashier
Cheryl P. Barbee, Assistant Vice President
Todd C. Bennington, Vice President
Robert O. Bratton, Vice President
Barbara J. Cherry, Assistant Cashier
William E. Davis, Senior Vice President
C. Eugene Efird, Jr., Vice President
Thomas J. Elkins, Vice President
Anne C. Forrest, Assistant Corporate
Secretary
Robert G. Fox, Jr., Vice President
H. Clark Goodwin, President and CEO
Angela S. Helms, Assistant Corporate
Secretary
Karen F. Hodge, Assistant Vice President
Patricia K. Horton, Vice President
Brian A. Ingold, Assistant Vice President and
Senior Auditor
Patricia C. Jamison, Assistant Vice
President and Assistant Corporate
Secretary
David E. Keul, Vice President
Jerold L. Marlow, Vice President
Edward B. McConnell, Vice President
David C. McGuirt, Executive Vice
President and Corporate Secretary
Teresa L. Mills, Assistant Vice President
Lisa C. Moore, Assistant Cashier
Mary Margaret Nance, Assistant Corporate
Secretary
Kathryn B. Reese, Vice President
W. Farrell Richardson, Vice President
Pamela P. Sanders, Assistant Vice
President and Assistant Corporate
Secretary
A. Ray Singleton, Senior Vice President
Linda D. Thomas, Assistant Vice President
Sharon H. UpDyke, Assistant Corporate
Secretary
L. Eugene Willard, Vice President
<PAGE>
FIRST CHARTER CORPORATION
(triangle artwork appears here)
1996 Annual Report
<PAGE>
FIRST CHARTER NATIONAL BANK
(map of ROWAN,CABARRUS,STANLY,MECKLENBURG, and UNION COUNTY appears here)
<PAGE>
Corporate Information
Corporate Headquarters
First Charter Corporation
22 Union Street,North
PO Box 228
Concord,NC 282026-0228
{704} 786-3300
Toll Free 1-800-422-4650
Auditors
KPMG Peat Marwick,LLP
Suite 2800
Two First Union Center
Charlotte,NC 28282
Corporate Counsel
Smith Helms Mullis & Moore,LLP
214 North Church Street
Charlotte,NC 28202
Subsidiaries
First Charter National Bank
PO Box 228
Concord, NC 28026-0228
Bank of Union
201 North Charlotte Avenue
Monroe,NC 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.
{second column}
Transfer Agent
First Charter National Bank
Shareholders' Meeting
Cabarrus Country Club
Concord,NC
April 29,1997 at 3:00 p.m.
Form 10-K
Copies of First Charter Corporation's Annual Report
to the Securities and Exchange Commission,Form
10-K, may be obtained without charge by writing:
Robert O. Bratton
Chief Financial Officer
First Charter Corporation
PO Box 228
Concord,NC 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. The table also sets forth per share cash
dividend information for the periods indicated. See
"Management's Discussion and Analysis of
Financial Condition and Results of Operations-
Capital Resources" contained elsewhere in this
report for a description of limitations on the ability
of the Corporation to pay dividends.
As of January 24,1997, there were 2,207 share-
holders of record of the Corporation's Common
Stock.
Quarterly Common Stock Price Ranges and Dividends
1996 1995
_______________________________________________________________________________
Quarter High Low Dividend High Low Dividend
_______________________________________________________________________________
First $ 21.63 $19.50 $.15 $15.25 $14.50 $.13
________________________________________________________________________________
Second 20.50 17.75 .15 19.25 14.50 .13
________________________________________________________________________________
Third 19.25 18.25 .15 21.25 18.50 .13
_______________________________________________________________________________
Fourth 22.50 18.25 .15 22.50 20.50 .13
<PAGE>
{Triangle artwork}
FIRST
CHARTER
CORPORATION
<PAGE>
Exhibit 21.1
FIRST CHARTER CORPORATION
Affiliated Companies
As of March 19, 1997
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
<PAGE>
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 13, 1997, relating to the consolidated balance sheets of
First Charter Corporation and subsidiaries as of December 31, 1996 and 1995, 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, 1996,
which report appears in the December 31, 1996 Annual Report to Shareholders and
is incorporated by reference in the Form 10-K of First Charter Corporation.
KPMG Peat Marwick LLP
Charlotte, North Carolina
March 25, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 31300
<INT-BEARING-DEPOSITS> 10850
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
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<DEPOSITS> 455215
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<LIABILITIES-OTHER> 4971
<LONG-TERM> 3167
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0
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<OTHER-SE> 27903
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<INCOME-PRE-EXTRAORDINARY> 12590
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8853
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
<YIELD-ACTUAL> 5.13
<LOANS-NON> 1338
<LOANS-PAST> 624
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 4856
<CHARGE-OFFS> 991
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