<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission file number 0-15829
-------------------------------------------------------
FIRST CHARTER CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1355866
- ------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
22 Union Street, North, Concord, North Carolina 28025
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(704) 786-3300
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
18,556,335 shares of Common Stock, no par value, outstanding as of
April 23, 1999.
<PAGE> 2
First Charter Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Dollars in thousands) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks ................................................... $ 47,514 $ 41,884
Federal funds sold ........................................................ -- 6,402
Interest bearing bank deposits ............................................ 2,211 11,713
Securities available for sale ............................................. 322,695 331,799
Loans ..................................................................... 1,475,632 1,422,676
Less: Unearned income ................................................ (148) (155)
Allowance for loan losses ...................................... (16,394) (15,554)
-----------------------------
Loans, net ........................................................... 1,459,090 1,406,967
-----------------------------
Premises and equipment, net ............................................... 31,076 30,603
Other assets .............................................................. 29,362 34,989
-----------------------------
Total assets ..................................................... $ 1,891,948 $ 1,864,357
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits, domestic:
Noninterest bearing demand ....................................... $ 116,231 $ 119,519
Interest bearing ................................................. 1,003,391 1,003,516
-----------------------------
Total deposits .............................................. 1,119,622 1,123,035
Other borrowings .......................................................... 496,762 469,944
Other liabilities ......................................................... 26,809 25,406
-----------------------------
Total liabilities ................................................ 1,643,193 1,618,385
=============================
Shareholders' equity:
Common stock - no par value; authorized 50,000,000 shares, issued and
outstanding 18,556,335 shares at 3/31/99 and
18,442,202 shares at 12/31/98 ...................................... 123,127 121,416
Retained earnings ........................................................ 121,134 118,078
Accumulated other comprehensive income:
Unrealized gain on securities available for sale, net ................ 4,494 6,478
-----------------------------
Total shareholders' equity ....................................... 248,755 245,972
-----------------------------
Total liabilities and shareholders' equity ....................... $ 1,891,948 $ 1,864,357
=============================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 3
First Charter Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
- ------------------------------------------------------------------------------------------------------
March 31, March 31,
(Dollars in thousands, except per share data) 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans ....................................................... $ 29,795 $ 28,164
Federal funds sold .......................................... 102 176
Interest bearing bank deposits .............................. 137 71
Securities available for sale ............................... 4,733 4,687
----------------------------
Total interest income ................................. 34,767 33,098
----------------------------
Interest expense:
Deposits .................................................... 11,289 11,411
Federal funds purchased and securities
sold under agreements to repurchase ..................... 1,219 1,668
Federal Home Loan Bank and other borrowings ................. 5,029 3,701
----------------------------
Total interest expense .............................. 17,537 16,780
----------------------------
Net interest income ..................... 17,230 16,318
Provision for loan losses .......................................... 975 662
----------------------------
Net interest income after provision for loan losses ......... 16,255 15,656
Noninterest income:
Trust income ................................................ 535 470
Service charges on deposit accounts ......................... 1,038 1,059
Insurance and other commissions ............................. 1,057 330
Securities available for sale transactions, net ............. 344 987
Other ....................................................... 807 820
----------------------------
Total noninterest income ............................... 3,781 3,666
Noninterest expense:
Salaries and fringe benefits ................................ 5,720 5,706
Occupancy and equipment ..................................... 1,729 1,346
Other ....................................................... 3,451 2,825
----------------------------
Total noninterest expense .............................. 10,900 9,877
----------------------------
Income before income taxes ...................... 9,136 9,445
Income taxes ....................................................... 2,963 3,275
Net income ......................................................... $ 6,173 $ 6,170
============================
Net income per share:
Basic .................................................. $ 0.33 $ 0.34
Diluted ................................................ $ 0.33 $ 0.33
Weighted average common and common equivalent shares:
Basic .................................................. 18,488,751 18,270,055
Diluted ................................................ 18,532,657 18,690,210
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
First Charter Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ESOP and Accumulated
Common Stock Unvested Other
----------------------- Retained Restricted Comprehensive
(Dollars in thousands) Shares Amount Earnings Stock Income Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ....................... 19,068,298 $ 139,712 $ 119,899 $(21,234) $ 5,532 $ 243,909
Comprehensive income:
Net income through March 31, 1998 ............ -- -- 6,170 -- -- 6,170
Unrealized gain on securities available
for sale, net ............................ -- -- -- -- 142 142
---------
Total comprehensive income ....... 6,312
Cash dividends ................................... -- -- (2,567) -- -- (2,567)
Purchase and retirement of common stock .......... (684) (18) -- -- -- (18)
Stock options exercised and Dividend
Reinvestment Plan stock issued .............. 60,656 1,020 -- -- -- 1,020
Pre-merger transactions of pooled bank ........... -- (55) -- 1,492 -- 1,437
-------------------------------------------------------------------------
Balance, March 31, 1998 .......................... 19,128,270 $ 140,659 $ 123,502 $(19,742) $ 5,674 $ 250,093
=========================================================================
Balance, December 31, 1998 ....................... 18,442,202 $ 121,416 $ 118,078 $ -- $ 6,478 $ 245,972
Comprehensive income:
Net income through March 31, 1999 ............ -- -- 6,173 -- -- 6,173
Unrealized gain (loss) on securities
available for sale, net .................. -- -- -- -- (1,984) (1,984)
---------
Total comprehensive income ....... 4,189
Cash dividends ................................... -- -- (3,117) -- -- (3,117)
Shares issued in connection with
insurance agency acquisition ............... 68,551 1,273 -- -- -- 1,273
Stock options exercised .......................... 45,582 438 -- -- -- 438
-------------------------------------------------------------------------
Balance, March 31, 1999 .......................... 18,556,335 $ 123,127 $ 121,134 $ -- $ 4,494 $ 248,755
=========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
First Charter Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March
31,
- --------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 6,173 $ 6,170
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses ......................................... 975 662
Depreciation ...................................................... 919 724
Premium amortization and discount accretion, net .................. 64 87
Net gain on securities available for sale transactions ............ (344) (987)
Amortization of unearned stock compensation ....................... -- 1,437
Net (gain) loss on sale of other real estate ...................... (12) 37
Net loss on sale of premises and equipment ........................ 18 --
Origination of mortgage loans held for sale ....................... (15,172) (20,511)
Proceeds from sale of mortgage loans available for sale ........... 16,381 13,755
Decrease in other assets .......................................... 6,531 1,985
Increase (decrease) in other liabilities .......................... 1,402 (3,690)
------- -------
Net cash provided (used) by operating activities .............. 16,935 (331)
------- -------
Cash flows from investing activities:
Proceeds from sales of securities available for sale .............. 1,699 12,891
Proceeds from maturities of securities available for sale ......... 17,592 24,610
Purchase of securities available for sale ......................... (13,075) (33,959)
Net increase in loans ............................................. (54,803) (80,195)
Proceeds from sales of other real estate .......................... 2,063 734
Proceeds from sales of premises and equipment ..................... 534 --
Purchase of premises and equipment ................................ (1,944) (728)
------- -------
Net cash used by investing activities ......................... (47,934) (76,647)
------- -------
Cash flows from financing activities:
Net decrease in demand, money market and savings accounts ......... (5,532) (8,568)
Net increase in certificates of deposit ........................... 2,118 17,194
Net increase in securities sold under repurchase
agreements and other borrowings ............................... 26,818 71,738
Purchase and retirement of common stock ........................... -- (18)
Proceeds from issuance of common stock ............................ 438 1,020
Dividends paid .................................................... (3,117) (2,567)
------- -------
Net cash provided by financing activities ..................... 20,725 78,799
------- -------
Net increase (decrease) in cash and cash equivalents .......... (10,274) 1,821
Cash and cash equivalents at beginning of period .............. 59,999 58,730
------- -------
Cash and cash equivalents at end of period .................... $ 49,725 $ 60,551
------- -------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .......................................................... $ 17,567 $ 16,468
------- -------
Income taxes ...................................................... $ 2,154 $ 4,227
------- -------
Supplemental disclosure of non-cash transactions:
Transfer of loans and premises and equipment
to other real estate owned ........................................ $ 498 $ 1,634
------- -------
Unrealized gain (loss) in value of securities available for sale
(net of tax effect of ($1,185) and $97 for March 31, 1999 and
March 31, 1998, respectively) ..................................... $ (1,984) $ 142
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
FIRST CHARTER CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998 (UNAUDITED)
1. The accompanying consolidated financial statements present the
consolidated financial condition and results of operations of First
Charter Corporation (the "Corporation") and its wholly owned
subsidiary, First Charter National Bank (the "Bank"), a commercial
bank operating in Mecklenburg, Cabarrus, Union, Rowan, Rutherford and
Cleveland counties of North Carolina.
The information furnished in this report reflects all adjustments
which are, in the opinion of management, necessary to present a fair
statement of the financial condition and the results of operations for
the interim periods. All such adjustments were of a normal recurring
nature.
2. All financial data have been restated to reflect the Corporation's
merger with HFNC Financial Corp. ("HFNC") in September 1998, which was
accounted for as a pooling-of-interests.
In the third quarter of 1998, the Corporation recognized approximately
$17.6 million of costs associated with the acquisition of HFNC. The
primary components of these merger-related expenses were transaction
and professional expenses and various severance-related obligations.
With the exception of certain contract termination costs, substantially
all amounts which had been accrued for merger-related expenses at
September 30, 1998 had been incurred at March 31, 1999. Remaining
accruals at March 31, 1999 were not significant. Certain contract
termination costs associated with the HFNC merger totaling $2.6 million
remained as an accrued liability at March 31, 1999. These costs relate
to payments required to be made to certain former executives of Home
Federal over periods of up to three years pursuant to their employment
contracts.
In certain instances, amounts reported in the prior periods'
consolidated financial statements have been reclassified to present
them in the format selected for 1999. Such reclassifications have no
effect on net income or shareholders' equity as previously reported.
3. First Charter Corporation calculates its basic and diluted income per
share in accordance with the Financial Accounting Standards Board
(FASB) Statement No. 128, "Earnings per Share." Basic net income per
share is computed by dividing net income by the weighted average
number of shares of common stock outstanding for the year. Diluted net
income per share reflects the potential dilution that could occur if
the Corporation's common stock equivalents, which consist of dilutive
stock options, are exercised. The numerators of the basic net income
per share computations are the same as the numerators of the diluted
net income per share computations for all the periods presented. A
reconciliation of the denominator of the basic net income per share
computations to the denominator of the diluted net income per share
computations is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----------------------------
<S> <C> <C>
Basic EPS denominator:
Weighted average number of common
shares outstanding ............................... 18,488,751 18,270,055
Dilutive effect arising from assumed
exercise of stock options and restricted stock ... 43,906 420,155
-------------------------
Diluted EPS denominator .............................. 18,532,657 18,690,210
=========================
</TABLE>
The Corporation paid cash dividends of $0.17 and $0.14 per share
during the quarters ended March 31, 1999 and 1998, respectively.
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<PAGE> 7
4. On January 1, 1998 the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income".
Comprehensive income includes net income and all changes to the
Corporation's equity, with the exception of transactions with
shareholders ("other comprehensive income"). The Corporation's only
component of other comprehensive income is the change in unrealized
gains and losses on available for sale securities.
The Corporation's total comprehensive income for the three months
ended March 31, 1999 and 1998, was $4.2 million and $6.3 million,
respectively. Information concerning the Corporation's other
comprehensive income for the three months ended March 31, 1999 and
1998, is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended March 31,
------------------------------------------------------------------------------------------
<S> <C> <C>
1999 1998
-------------------
Unrealized holding gains (losses) arising during the period $(2,825) $1,226
Less: Tax benefit (expense) on holding losses (gains)
arising during the period ........................... 1,073 (442)
-------------------
(1,752) 784
-------------------
Less: Reclassification adjustment for realized
gains included in net income ............................ 344 987
Less: tax expense on realized gains ..................... (112) (345)
-------------------
232 642
-------------------
Other comprehensive income ................................. $(1,984) $ 142
===================
</TABLE>
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<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated balance sheets of the Corporation represent account
balances for the Corporation and the Bank, its wholly owned banking subsidiary.
In March 1999, the Corporation completed the merger of Home Federal Savings and
Loan Association with and into the Bank as part of the acquisition by the
Corporation of HFNC which was consummated in September 1998.
The following discussion and analysis should be read in conjunction
with the consolidated financial statements of the Corporation and the notes
thereto included in this report. In addition, the following discussion contains
certain forward-looking statements. See "Factors that May Affect Future
Results".
LIQUIDITY
The Bank derives the major source of its liquidity from its core
deposit base. Liquidity is further provided by loan repayments, maturities in
the investment portfolios, the ability to secure public deposits, the
availability of federal fund lines and repurchase agreements at correspondent
banks and the ability to borrow from the Federal Reserve Bank ("FRB") discount
window. In addition to these sources, the Bank is a member of the Federal Home
Loan Bank ("FHLB") System, which provides access to FHLB lending sources. At
March 31, 1999, the Bank had a line of credit with the FHLB of $405.0 million,
with $10.3 million available. This compares to $60.0 million available at
December 31, 1998. However, subsequent to March 31, 1999, the FHLB increased
the Bank's line of credit to $450.0 million. Another source of liquidity are
the securities in the available for sale portfolio, which may be sold in
response to liquidity needs. Management believes the Bank's sources of
liquidity are adequate to meet operating needs and deposit withdrawal
requirements.
Due to increases in certain interest rates during the first quarter of
1999, and the resulting impact on the Corporation's interest rate risk, the
Corporation classified $147.6 million in lower-yielding mortgage loans as held
for sale during late March 1999. On March 24, 1999, the Bank entered into an
agreement for the sale of these loans, with the sale closing in April. The
loans were sold with servicing rights retained. The Corporation expects to
recognize a gain of approximately $1.8 million on the sales transactions, which
will be reflected in the financial statements for the quarter ended June 30,
1999.
CAPITAL RESOURCES
At March 31, 1999, total shareholders' equity was $248.8 million, or
$13.41 per share compared to $246.0 million, or $13.34 per share at December
31, 1998.
At March 31, 1999, the Corporation and the Bank were in compliance
with all existing capital requirements. The Corporation's capital requirements
are summarized in the table below:
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<PAGE> 9
<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..................... $240,654 12.77% $240,654 19.29% $256,003 20.52%
Required................... 75,367 4.00 49,907 4.00 99,814 8.00
Excess..................... 165,287 8.77 190,747 15.29 156,189 12.52
</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 requirements 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 Bank by regulatory authorities which, if they were to
be implemented, would have a material adverse effect on the Corporation's or
the Bank's liquidity, capital resources, or operations.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net income for the three month period ended March 31, 1999 was $6.2
million, or $0.33 diluted income per share, compared to $6.2 million, or $0.33
diluted income per share for the comparable period in 1998. An increase in net
interest income of $912,000 over the 1998 quarter and an increase in noninterest
income of $115,000 over the prior year quarter were offset by increases in the
provision for loan losses and in noninterest expense of $313,000 and $1.0
million, respectively. On an annualized basis, year to date results represent a
return on average assets of 1.33% versus 1.47% and a return on average equity of
10.32% versus 10.18%, for the periods ended March 31, 1999, and March 31, 1998,
respectively.
Total assets at March 31, 1999 amounted to $1.89 billion, compared to
$1.86 billion at December 31, 1998. Strong loan demand continued during the
first three months of 1999, increasing 3.7% to $1.46 billion from $1.41 billion
at December 31, 1998. Total deposits remained virtually unchanged at $1.12
billion.
Securities available for sale totaled $322.7 million at March 31, 1999
for a decrease of approximately $9.1 million from December 31, 1998. The
decrease was primarily due to calls of U.S. Government securities by the
issuing agency. These proceeds, combined with maturities and paydowns on
securities, were utilized to meet loan demand, with the excess used to reduce
additional funds borrowed during the quarter. The carrying value of securities
available for sale was $7.4 million above their amortized cost at March 31,
1999, which represents gross unrealized gains of $8.9 million and gross
unrealized losses of $1.5 million.
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<PAGE> 10
For the three month period ended March 31, 1999, net interest income
increased $912,000 over the comparable period in 1998. The increase was
attributable to an increase in the level of interest earning assets, offset
somewhat by a decline in the net interest margin. Average interest earning
assets increased $169.3 million, or 10.5%, while the net interest margin
decreased to 4.10% at March 31, 1999 from 4.27% at March 31, 1998. The yield on
average interest earning assets was 8.10% at March 31, 1999 compared to 8.49%
at March 31, 1998, largely resulting from a 75 basis point decline in the prime
rate of interest during the latter part of 1998 which affected a significant
portion of the Bank's loan rates. The rate paid on average interest bearing
liabilities also decreased, to 4.77% at March 31, 1999 compared to 5.05% at
March 31, 1998. This resulted from a general decline in borrowing costs and
lower rates paid on certificates of deposit.
Management continues to assess interest rate risk based on an earnings
simulation model. The Corporation's balance sheet is liability sensitive,
meaning that in a given period there will be more liabilities than assets
subject to immediate repricing as market rates change. Because immediately rate
sensitive interest bearing liabilities exceed immediately 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. After settlement of the pending $147.6
million loan sale (discussed in "LIQUIDITY"), the Corporation's interest rate
risk, as measured by the projected change in net interest income under a 300
basis point change in interest rates over a one year period, will be reduced to
less than 1%. In addition, the Corporation is considering the use of interest
rate swaps, caps, or floors on a limited basis in the future in the management
of interest rate risk.
The provision for loan losses for the three months ended March 31,
1999 was $975,000, compared to $662,000 for the three months ended March 31,
1998. The increase in the provision was primarily due to the growth in the
commercial loan portfolio during the 1999 quarter, as compared to primarily
residential mortgage growth in the 1998 quarter. Commercial loans have a higher
reserve ratio than residential mortgage loans (generally 1.50% of the loan
balance as compared to 0.25% for mortgage loans). Net charge-offs during the
current year quarter, however, decreased to $135,000 compared to net
charge-offs of $752,000 for the same quarter of 1998. During the first quarter
of 1998, a higher level of loans were charged-off relating to loans from the
Carolina State Bank (acquired by the Bank in December 1997) loan portfolio,
which were previously provided for in the allowance for loan losses. At March
31, 1999 and December 31, 1998, the allowance for loan losses as a percentage
of gross loans was 1.11% and 1.10%, respectively. As part of the continual
grading process used to monitor the credit quality of the loan portfolio, an
analysis is performed monthly that is independent from any analysis in
conjunction with the origination of loans. Based on this review, management
believes the allowance to be adequate; however, future adjustments may be
necessary if economic and other conditions differ substantially from
management's assumptions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses
and losses on real estate owned. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
-10-
<PAGE> 11
The following table presents changes in the allowance for loan losses
for the quarters ended March 31, 1999, and 1998, respectively.
<TABLE>
<CAPTION>
March 31, March 31,
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Beginning balance ...................... $ 15,554 $ 15,263
Provision charged to operations ........ 975 662
Loan charge-offs ....................... (316) (931)
Less loan recoveries ................. 181 179
Net loan charge-offs ............. (135) (752)
Ending balance ......................... $ 16,394 $ 15,173
</TABLE>
At March 31, 1999, the recorded investment in loans that were
considered to be impaired under the FASB Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" and No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," was $1.6 million
(of which $1.2 million was on nonaccrual status) compared to the recorded
investment in impaired loans of $3.9 million (of which $2.8 million was on
nonaccrual status) at December 31, 1998. The related allowance for loan losses
on these loans was $653,000 and $1.3 million at March 31, 1999 and December 31,
1998, respectively. The average recorded investment in impaired loans for the
three months ended March 31, 1999, and 1998 was $2.7 million and $3.7 million,
respectively. For the three months ended March 31, 1999, and 1998, the
Corporation recognized interest income recorded on impaired loans of $10,000
and $6,600, respectively, none of which was recognized using the cash method of
income recognition.
Total problem assets at March 31, 1999 were $10.0 million or 0.67% of
gross loans, compared to $12.1 million or 0.85% at December 31, 1998. The
components of nonperforming and problem assets are presented in the table
below:
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans................................................ $ 5,456 $ 5,758
Restructured loans.............................................. 543 577
Other real estate .............................................. 2,246 3,537
------- --------
Total non-performing assets................................. 8,245 9,872
------- --------
Loans 90 days or more
past due and still accruing................................... 1,708 2,270
------- --------
Total problem assets............................................ $ 9,953 $ 12,142
======= ========
</TABLE>
Interest income that would have been recorded on nonaccrual loans for
the three months ended March 31, 1999, and 1998, had they performed in
accordance with their original terms, amounted to approximately $37,000 and
$36,000, respectively. There was no interest income recorded on non-accrual
loans for the three months ended March 31, 1999, and 1998.
-11-
<PAGE> 12
Other real estate decreased $1.3 million due to the sales of other
real estate during the first quarter of 1999. The primary components of this
decrease were the disposition of a parcel of undeveloped single family
residential property ($767,000) and a commercial building ($820,000). This
former property had been obtained by foreclosure from a large borrower who had
declared bankruptcy several years earlier.
Noninterest income increased approximately $114,000 for the three
month period ended March 31, 1999 over the comparable period in 1998. However,
gains on sales of securities available for sale amounted to $344,000 during the
quarter ended March 31, 1999, compared to $987,000 during the prior year
quarter. Noninterest income excluding securities gains increased $758,000 or
28.3%, to $3.4 million in the 1999 quarter compared to $2.7 million in the 1998
quarter. The major component of this increase was income from insurance
services of $755,000 in 1999, with no such income in 1998. This resulted from
the Corporation's purchase of three insurance agencies during the fourth
quarter of 1998 and one additional agency in the first quarter of 1999.
Noninterest expense increased approximately $1.0 million, or 10.4%, for
the three month period ended March 31, 1999, over the comparable period in 1998.
The primary components of this increase were an increase in occupancy expenses
of $383,000 and stationery and supplies expenses of $118,000. Occupancy expenses
increased as a result of the leasing of additional office space, with attendant
upfitting and utility costs. Stationery and supplies costs increased due to the
reorders resulting from the merger of Home Federal into the Bank in the first
quarter of 1999. Other merger-related expenses were not significant during the
first quarter. Salaries expense remained relatively unchanged in total, however
Home Federal incurred significant expenses in the first quarter of 1998 for its
Employee Stock Ownership Plan and Management Recognition and Retention Plan.
These plans were terminated following the September 1998 merger with HFNC;
consequently, no costs associated with these plans were recognized in the 1999
quarter. These reductions in expense were offset, however, by the cost of hiring
additional personnel due to the Corporation's growth.
Total income tax expense for the three month period ended March 31,
1999 decreased $311,000, compared to the comparable period in 1998. This was
attributable to a change in the effective tax rate from 34.7% to 32.4%,
primarily due to a reduction in state income taxes.
YEAR 2000 CONSIDERATION
Year 2000 Compliance
The "Year 2000 Issue" is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
approaches. These problems generally arise because most computer
-12-
<PAGE> 13
hardware and software historically have used only two digits to identify the
applicable year. Since there may be no accommodation for the full four-digit
year, computer programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This error could result
in system failure or miscalculations causing disruption of operations,
including, among other things a temporary inability to process customer
transactions, properly accrue interest income and expense or engage in similar
normal banking activities. In addition, non-banking systems, such as security
alarms, telephones, vaults, etc., are also subject to malfunction due to their
dependence upon software that utilizes special codes and conventions using the
date field.
State of Readiness
The Corporation recognizes the potentially severe implications of the
Year 2000 Issue. The Board of Directors of the Corporation has approved a Year
2000 Action Plan ("Action Plan") that has been developed in accordance with the
Federal Financial Institutions Examination Council ("FFIEC") guidelines, and
the Corporation believes that its preparations comply with such guidelines. The
Action Plan consists of five phases: (1) awareness, (2) assessment, (3)
remediation, (4) validation, and (5) implementation. The Corporation has
completed phases 1 and 2 of its Action Plan. In completing phase 2, the
Corporation performed a thorough inventory of its Information Technology ("IT")
and non-IT systems to identify all potential Year 2000 exposed systems and
equipment. The items identified in the inventory were then categorized as
"mission critical" or "non-mission critical" depending on the Corporation's
dependence on the system or equipment to perform daily operations and conduct
business. This classification allowed the Corporation to prioritize its efforts
in remediating systems and dealing with third party vendors.
The Corporation is currently working on phases 3, 4, and 5 of the
Action Plan, and estimates that they are approximately 95%, 90%, and 95%
complete, respectively. Since the Corporation generally does not perform
in-house programming of its core operating systems, it is dependent on its
third-party vendors for modifications and conversions of its existing systems
to correct the effects of the Year 2000 Issue. Accordingly, the vast majority
of phases 3 and 4 involve receiving and testing them with the Corporation's
operating systems and equipment. The Corporation divided phase 4 validation, or
testing, into its own Y2K Test Plan. In step 1 of the Y2K Test Plan, the
Corporation procured written documentation from its software and hardware
vendors, as well as the providers of facilities using embedded chip technology,
with respect to its Year 2000 compliance plan. Step 1 of the Y2K Test Plan also
included the initial remediation phase 3. Upgrades and patches were installed
to existing equipment. Step 2 of the Y2K Test Plan tested all of the
applications in the Corporation's technology environment. For those vendors
that supply functionality as third-party processors, FFIEC proxy testing
guidelines were implemented. Step 2 of the Y2K Test Plan has been completed.
The Corporation recognizes the need for data and information exchange between
applications. In recognition of this constant flow data and information, the
Corporation has included Step 3 in its Y2K Test Plan. Step 3 is an integrated
test in which applications with interfaces have been linked in a test
environment to emulate the Corporation's technology environment. Step 3 testing
has begun, and the completion date is May 22, 1999. Phase 5 implementation
includes the business user acceptance outlined in the FFIEC guidelines, and the
Corporation has included business user acceptance in all steps of the Y2K Test
Plan. Phase 5 also includes the Corporation's Clean Management strategy, which
recognizes the
-13-
<PAGE> 14
need to protect the integrity and validity of the test results by keeping the
production environment the same as the testing environment. The Corporation
fully expects that all phases of the Action Plan will be completed no later
than May 22, 1999. The Corporation's Clean Management strategy will remain in
place throughout 1999.
The Corporation also has developed a communication and assessment plan
for its customers. Pursuant to the plan, the Corporation has initiated contact
with many of its key customers to determine such customers' plans with respect
to the Year 2000 Issue and the Corporation's vulnerability to any such
customer's failure to remediate its own Year 2000 Issue. As most corporate
customers depend on computer systems that must be Year 2000 compliant, a
disruption in their businesses may result in potentially significant financial
difficulties that could affect their creditworthiness. The Corporation has also
implemented underwriting procedures to reflect the importance of the Year 2000
Issue in evaluating new credit relationships. Significant business
interruptions or failures by key business customers, suppliers, trading
partners or governmental agencies resulting from the effects of the Year 2000
Issue could have a material adverse effect on the Corporation.
Year 2000 Costs
Since the Corporation relies on third party vendors for substantially
all of its IT systems, the expected cost to the Corporation of the Year 2000
project is not expected to exceed $500,000. Included in this amount are costs
for hardware, software and facilities upgrades, customer communications,
testing, and other direct, incremental costs required to pursue the Action
Plan. Not included in this estimate are the indirect costs associated with the
involvement of existing employees in daily Year 2000 Action Plan activities, an
amount that has not been quantified by management. All remediation costs will
be expensed in the period incurred and will be funded through normal operating
cash flow. Year 2000 project costs during the three months ended March 31, 1999
were $55,000; all such costs to date total approximately $180,000.
Risks of Year 2000 Issues
The Year 2000 Issue is widespread throughout the entire global
economy, potentially affecting almost any company with any dependence on
information technology. The Corporation has attempted to assess the risk to the
Corporation of the most reasonably likely worst-case scenarios involving Year
2000 noncompliance on the part of the Corporation or entities with which it
does significant business. Such risks generally fall into one of two
categories: internal risk, or the risk that the Corporation's IT and/or non-IT
systems will fail and will have a material impact on the Corporation's
financial condition or results of operations, and external risk, or the risk
that the IT or non-IT systems of parties external to the Corporation will fail,
resulting in a material impact on the Corporation's financial condition or
results of operations. In the opinion of the management of the Corporation, the
internal risk of Year 2000 non-compliance, in a reasonable worst-case scenario,
could involve either (i) credit losses arising from borrowers inability to
perform under the terms of their loan agreements due to Year 2000-related
problems having a material impact on their cash flows, or (ii) the inability to
perform certain routine customer transactions due to the Year 2000
-14-
<PAGE> 15
non-compliance of parties external to the Corporation (e.g., utility or
communications vendors). To mitigate these risks, the Corporation is developing
a contingency plan.
The costs of the Year 2000 project and the schedule for achieving Year
2000 compliance are based on management's best estimates, which were derived
using numerous assumptions of future events, such as the availability of
certain resources (including internal and external resources), third-party
vendor plans and other factors. However, there can be no guarantee that these
estimates will be achieved at the cost disclosed or within the timeframes
indicated, and actual results could differ materially from these plans.
Contingency Planning
Contingency plans are being developed to mitigate the potential
effects of a disruption in normal business operations. Contingency planning
includes developing alternate solutions should a vendor not become compliant,
as well as plans for the resumption of business if, despite the Corporation's
best efforts, a business operation disruption occurs. The Corporation has
developed its initial contingency plan and will be making further modifications
as necessary and testing the plans throughout the remainder of 1999.
Year 2000 Readiness Disclosure
All Year 2000 discussion is designated as Year 2000 Readiness
Disclosures. Year 2000 Readiness Disclosures are covered under the Year 2000
Information and Readiness Disclosure Act passed on October 19, 1998.
ACCOUNTING AND REGULATORY MATTERS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivatives and hedging activities. It requires that
all derivatives be included as assets or liabilities in the balance sheet and
that such instruments be carried at fair market value through adjustments to
either other comprehensive income or current earnings or both, as appropriate.
The Corporation is in the process of assessing the impact of this Standard. The
Standard is effective for financial statements issued for all fiscal quarters
of fiscal years beginning after June 15, 1999.
Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," establishes accounting and
reporting standards for certain mortgage banking activities. It conforms the
subsequent accounting for securities retained after the securitization of other
types of assets. This Standard was adopted in the first quarter of 1999.
From time to time, the FASB issues exposure drafts for proposed
statements of financial accounting standards. Such exposure drafts are subject
to comment from the public, to revisions by the FASB and to final issuance by
the FASB as statements of financial accounting standards. Management considers
the effect of the proposed statements on the consolidated financial
-15-
<PAGE> 16
statements of the Corporation and monitors the status of changes to and
proposed effective dates of exposure drafts.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The foregoing discussion contains certain 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 include, but are not limited to, the passage of
unforeseen state or federal legislation or regulation applicable to the
Corporation's operations, the Corporation's ability to accurately predict the
adequacy of the loan loss allowance needs using its present risk grading
system, the ability to generate liquidity if necessary to meet loan demand, the
ability to manage unforeseen domestic and global rapid changes in interest
rates, and the reliance on third party vendors to become Year 2000 compliant.
Completion of the merger with HFNC significantly expanded the scope
and complexity of the Corporation's business and operations and more than
doubled its asset base. While the merger with HFNC represents significant
opportunities for the Corporation to expand its franchise and increase
shareholder value, it also creates certain risks of execution in successfully
assimilating the HFNC franchise and achieving the Corporation's previous
financial performance level. Successful assimilation of HFNC's operations will
require that the Corporation:
- hire and retain additional senior management personnel,
- upgrade the technological and other platforms utilized by
HFNC,
- retrain the HFNC workforce as well as instill in that
workforce a sales culture,
- conform HFNC's funding cost to that of the Corporation, and
- otherwise integrate two companies that have previously
operated independently pursuant to different cultures.
Successful integration of HFNC's operations will depend in part on the
Corporation's ability to fully consolidate operations and procedures, and to
eliminate redundancies in costs. The Corporation may not be successful in
integrating its operations with those of HFNC without encountering difficulties,
including, without limitation, the loss of key employees and customers,
-16-
<PAGE> 17
the disruption of its business, or possible inconsistencies in standards,
controls, procedures, and policies.
In addition to the execution risks related to the assimilation of HFNC,
due to the increase in interest rates that occurred since January 1999, the
Corporation made plans to sell $147.6 million of lower-yielding loans, primarily
consisting of one- to four-family residential mortgages. If the Corporation is
unable to reinvest the sales proceeds of these loans in comparable or higher
yielding assets, the sale of such loans could have an adverse impact on future
earnings.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following table presents the scheduled maturity of market risk
sensitive instruments at March 31, 1999:
<TABLE>
<CAPTION>
(Dollars in thousands)
There
Maturing in: 1 Year 2 Years 3 Years 4 Years 5 Years -after Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Debt securities .... $ 41,754 $ 52,348 $ 12,867 $ 26,103 $ 96,435 $ 54,546 $ 284,053
Loans .............. 406,968 87,594 98,891 75,350 108,192 682,095 1,459,090
------------------------------------------------------------------------------------------------
Total ........... $ 448,722 $139,942 $111,758 $101,453 $204,627 $736,641 $1,743,143
================================================================================================
LIABILITIES
Savings, NOW, Demand
and IMMA's ...... $ 523,225 $ -- $ -- $ -- $ -- $ -- $ 523,225
CD's ............... 528,338 54,544 9,171 2,838 1,098 408 596,397
Short-term
borrowings ...... 299,504 -- -- -- -- -- 299,504
Long-term
borrowings ...... -- 425 283 102,140 68,140 26,270 197,258
------------------------------------------------------------------------------------------------
Total ......... $1,351,067 $ 54,969 $ 9,454 $104,978 $ 69,238 $ 26,678 $1,616,384
================================================================================================
</TABLE>
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<PAGE> 18
The following table presents the average interest rate and estimated
fair value of market risk sensitive instruments at March 31, 1999:
<TABLE>
<CAPTION>
Average Estimated
(Dollars in thousands) Total Interest Rate Fair Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Debt Securities ......... $ 284,053 6.96% $ 284,053
Loans ................... 1,459,090 8.12 1,488,422
---------- ---- ----------
Total .............. $1,743,143 7.93 $1,772,475
========== ==== ==========
LIABILITIES
Savings, NOW, Demand
and IMMA's ............ $ 523,225 2.00 $ 523,313
CD's .................... 596,397 6.06 598,735
Short-term
borrowings ............ 217,068 5.05 217,097
Long-term
borrowings ............ 279,694 5.35 278,623
---------- ---- ----------
Total .............. $1,616,384 4.49 $1,617,768
========== ==== ==========
</TABLE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In June 1995, a lawsuit was initiated against Home Federal (a former
subsidiary of the Corporation that was merged into the Bank in March 1999) by a
borrower's affiliated companies in which the plaintiffs alleged that Home
Federal wrongfully set-off certain funds in an account being held and
maintained by Home Federal. In addition, the plaintiffs alleged that as a
result of the wrongful set-off, Home Federal wrongfully dishonored a check in
the amount of $270,000. Plaintiffs further alleged that the actions on behalf
of Home Federal constituted unfair and deceptive trade practices, thereby
entitling plaintiffs to recover treble damages and attorneys' fees. Home
Federal denied any wrongdoing and filed a motion for summary judgment. Upon
consideration of the motion, the United States Bankruptcy Judge entered a
Recommended Order Granting Summary Judgement, recommending the dismissal of all
claims asserted against Home Federal. In October 1997, the United States
District Court entered an order granting summary judgment in favor of Home
Federal. The plaintiffs have appealed the order of summary judgment and the
case is presently pending in the Fourth Circuit Court of Appeals.
In December 1996, Home Federal filed a suit against the borrower and
his company and against the borrower's wife, daughters, and a company owned by
his wife and daughter, alleging transfers of assets to the wife, daughter, and
their company in fraud of creditors, and asking that the fraudulent transfers
be set aside. The objective of the lawsuit is to recover assets, which may be
used to satisfy a portion of the judgments obtained in favor of Home Federal
prior to litigation. The borrower's wife filed a counterclaim against Home
Federal alleging that she borrowed $750,000 from another financial institution,
secured by a deed of trust on her principal residence, the proceeds of which
were paid to Home Federal for application on a debt owed by one of her
husband's
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<PAGE> 19
corporations, claiming that officers of Home Federal promised to resume making
loans to her husband's corporation after the payment. The Corporation, as
successor in interest to Home Federal, and its officers vigorously deny all of
her allegations. The counterclaim seeks actual and punitive damages together
with interest and attorneys' fees. In June 1998, Home Federal removed this case
to the United States Bankruptcy Court for the Western District of North
Carolina, Charlotte Division, due to the fact that the defendant was the debtor
in a pending bankruptcy case. The Corporation believes it has strong defenses
to the defendant's counterclaim, but counsel for the Corporation cannot, at
this time, give an opinion as the likely outcome of this matter.
In February 1997, two companies affiliated with those referred to in
the first paragraph above filed an additional action against two executive
officers of Home Federal and against an officer of another financial
institution. The action was removed from the state court to the United States
Bankruptcy Court for the Western District of North Carolina. At the same time,
the borrower, who is affiliated with all of these companies, also filed an
action in the Superior Court of Mecklenburg County, North Carolina against the
two executive officers of Home Federal and against an officer of another
financial institution. The Complaints in both actions assert virtually
identical claims. The plaintiffs in both lawsuits allege that the officers of
both financial institutions engaged in a conspiracy to wrongfully declare loans
to be in default so as to eliminate those companies as borrowers of Home
Federal. Plaintiffs claim actual damages, treble damages, and punitive damages
together with interest, attorneys' fees, and other costs. Plaintiffs allege
misrepresentation, breach of fiduciary duty, constructive fraud, interference
with business expectancy, wrongful bank account set-off, and unfair and
deceptive acts and practices. All defendants filed motions for summary
judgments in the action pending in the bankruptcy court, which were granted.
Time for the plaintiffs to note an appeal has not yet expired. All defendants
also filed motions for summary judgment in the state court action which were
also granted, and that lawsuit was dismissed in January 1998 by the Superior
Court of Mecklenburg County. The plaintiff appealed the order granting summary
judgment to the North Carolina Court of Appeals. In July 1998, the defendants
removed the state court case to the United States Bankruptcy Court for the
Western District of North Carolina, Charlotte Division, due to the fact that
the plaintiff was a debtor in a pending bankruptcy case. As a result of the
removal, the North Carolina Court of Appeals entered an order staying further
proceedings in the North Carolina Court of Appeals in August 1998. The
Corporation, as successor in interest to Home Federal, has agreed to indemnify
both of its officers with respect to costs, expense, and liability which might
arise in connection with both of these cases.
In July 1997, the above borrower and affiliated companies filed an
additional action against HFNC, Home Federal, and the other financial
institution referred to in the paragraph above, alleging that previous
judgments in favor of Home Federal and the other financial institution obtained
in prior litigation were obtained by the perpetration of fraud on the
Bankruptcy Court, U.S. District Court, and the Fourth Circuit Court of Appeals.
The plaintiffs sought to have the judgments set aside on that basis. All
defendants filed motions for summary judgment and dismissal, which were
granted, and the lawsuit was dismissed on September 24, 1998. The borrower,
individually, has appealed the Order dismissing the lawsuit to the Fourth
Circuit Court of Appeals. That appeal is pending.
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<PAGE> 20
Management continues to deny any liability in the above-described
cases and continues to vigorously defend against the claims. However, there can
be no assurance of the ultimate outcome of the litigation, or the range of
potential loss, if any.
The Corporation and the Bank are defendants in certain other 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 other matters is not expected to have a material adverse effect on the
consolidated operations, liquidity or financial position of the Corporation or
the Bank.
-20-
<PAGE> 21
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) Exhibits
Exhibit No.
(per Exhibit Table
in item 601 of
Regulation S-K) Description of Exhibits
3.1 Amended and Restated Articles of
Incorporation of the Corporation,
incorporated herein by reference to
Exhibit 3.1 of the Corporation's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1998
(Commission File No. 0-15829).
3.2 By-laws of the Corporation, as amended,
incorporated herein by reference to
Exhibit 3.2 of the Corporation's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995 (Commission File No. 0-15829).
27 Financial Data Schedules (for SEC use only)
</TABLE>
(b) Reports on Form 8-K
(i) On January 11, 1999, the Corporation filed a
Current Report on Form 8-K, reporting pursuant to
Item 5 thereof its restated financial statements as
of December 31, 1997 and 1996 and for each of the
years in the three year period ended December 31,
1997 due to the consummation of its merger with HFNC
Financial Corp. on September 30, 1998.
(ii) On January 15, 1999, the Corporation filed a
Current Report on Form 8-K, reporting pursuant to
Item 5 thereof its earnings for the fiscal year
ended December 31, 1998.
(iii) On March 25, 1999, the Corporation filed a
Current Report on Form 8-K, reporting pursuant to
Item 5 thereof an underwriting agreement with The
Robinson-Humphrey Company, LLC to facilitate the
sale of 429,708 shares of the Corporation's common
stock held by the Home Federal Savings and Loan
Association Employee Stock Ownership Plan.
-21-
<PAGE> 22
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CHARTER CORPORATION
(Registrant)
Date: April 27, 1999 By: /s/ Robert O. Bratton
------------------------------
Robert O. Bratton
Executive Vice President &
Principal Financial and
Accounting Officer
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<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
(per Exhibit Table
in item 601 of Sequential
Regulation S-K) Description of Exhibits Page Number
<S> <C> <C>
27 Financial Data Schedules (for SEC use only)
</TABLE>
-23-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST CHARTER CORPORATION FOR THE QUARTER ENDED MARCH
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 47,514
<INT-BEARING-DEPOSITS> 2,211
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 322,695
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,475,632
<ALLOWANCE> 16,394
<TOTAL-ASSETS> 1,891,948
<DEPOSITS> 1,119,623
<SHORT-TERM> 299,504
<LIABILITIES-OTHER> 26,809
<LONG-TERM> 197,258
0
0
<COMMON> 123,417
<OTHER-SE> 125,628
<TOTAL-LIABILITIES-AND-EQUITY> 1,891,948
<INTEREST-LOAN> 29,795
<INTEREST-INVEST> 4,733
<INTEREST-OTHER> 239
<INTEREST-TOTAL> 34,767
<INTEREST-DEPOSIT> 11,289
<INTEREST-EXPENSE> 6,248
<INTEREST-INCOME-NET> 17,230
<LOAN-LOSSES> 975
<SECURITIES-GAINS> 344
<EXPENSE-OTHER> 10,900
<INCOME-PRETAX> 9,136
<INCOME-PRE-EXTRAORDINARY> 9,136
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,173
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
<YIELD-ACTUAL> 4.10
<LOANS-NON> 5,456
<LOANS-PAST> 1,708
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,554
<CHARGE-OFFS> 316
<RECOVERIES> 181
<ALLOWANCE-CLOSE> 16,394
<ALLOWANCE-DOMESTIC> 16,394
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
